Incumbency Advantage & Conflicts of Interest

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Region: England and Wales

Cost advantage to incumbent supplier should have been neutralised (contract for the supply of software to schools)

Successful tenderer was an incumbent supplier to 15 other of the contacting authority’s schools, with the tender itself concerned with 57 schools.

Contracting authority should have deducted a cost that was added to the challenger’s price in order to neutralise the inherent advantage that the successful tenderer enjoyed by being the incumbent provider to 15 other schools.

“152. I have already found that the £4,405 attributed to Bromcom by UL for the data interface should be deducted for the reasons given in paragraphs 82-97 above. But in my view, this would plainly have been a case for neutralisation. The data interface was already there – there was little more for Arbor to do to apply to the 57 schools. That arose directly as a result of its incumbent role. In this respect, the case is analogous not so much to the facts of Dynamiki but rather to those in Amplexor where a differential was justified. As a method of neutralisation, the removal of the £4,405 was technically easy, it had an economic justification (namely not to deter competition where there was this inherent advantage) and it did not, in my view, infringe Arbor’s rights.”

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Region: England and Wales

Although not a case about incumbents, somewhat similar issues were addressed by the English High Court in Abbvie Ltd v NHS [2019] EWHC 61 (TCC), where the Court emphasised that differential treatment may be legitimate if it is not arbitrary and excessive.

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Region: England and Wales

Claim that illegitimate preference given to incumbent was struck out where no evidence to support that claim

““54. … 2.12 The recommendation to award the contract to the existing provider was based on the evaluation of bids as set out in the tender documents. However, there are a number of additional benefits which can be gained by awarding to this contractor:

……..”

and then sets out five perceived “additional benefits” of awarding the Contract to [the incumbent]”

“59. Dealing first with Matrix’s argument that Newham was wrong to take Beeline’s current experience as the incumbent supplier into account, in my judgement, there is no substance whatsoever to this claim. What Newham was required to do was to apply the criteria and approach set out in the ITT and Evaluation Model in good faith and without manifest error. It was clearly stated in the ITT and put beyond doubt by the questions Newham required the bidders to answer, that what Newham was interested in, was knowing whether and how well a particular bidder would deliver the services it said it would and that in this regard, it expressly sought examples of bidders’ current activities (see Q1 NCCS-Method Statement Question). Section 14 of the ITT made clear that Newham would use these Method Statements to judge the quality of each tender submitted and to make comparisons between them. Newham did not deliberately set out to favour the present incumbent. To the extent that Newham sought examples of current experience in any of the Method Statement Questions, it was open to an incoming tenderer as much as to the incumbent tenderer to provide such examples.

60. Moreover, it is plain from the Tender Documentation that this sort of information was being sought from all bidders, including by definition, the incumbent supplier, Beeline. The suggestion made by Mr Randolph QC that Matrix did not know and could not have known that Beeline’s current experience would be taken into account is simply not tenable. It was self evident that this was to occur.

…

62. As regards Matrix’ pleaded argument in relation to the Report and Briefing Note, the short point made by Mr Giffin QC for Newham is that the statement at Paragraph 2.12 of the Report, and the statement in the final paragraph on page 2 of the Briefing Note (commencing “There are additional benefits to awarding to the existing supplier….) read in their proper context, comprise no more than comments on the benefits that would flow from the decision to appoint Beeline as the successful tenderer. I agree.”

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Region: England and Wales

In assessing a bid for organic waste disposal, it was unfair for a contracting authority to exclude consideration of the plaintiff's reliance on a waste disposal facility established in a neighbouring county, which the plaintiff relied on in its bid (to be used in overflow situations etc.)

Deeny J

“[29] I listened carefully to the evidence of Mr Jonathan Gray the programme and contracts manager for the defendant and I take into account his evidence. Having done so I do not really feel that he explained why he concluded that underperformance at Dargan Road could not be a contingency which could be met by Keady. As indicated above he did reach that conclusion and directed Ora that Keady could not be properly taken into account. One of his difficulties, he said, was in assessing Keady for the purposes now contemplated by the plaintiff. I have some difficulty with this as Keady is using the same technology as the defendant and its experts approve of at Dargan Road, it was already up and running or was so by September 2006 and it is considered satisfactory for both contingency and start up purposes at least to the extent of 40,000 tonnes per annum. He seemed anxious not to get into what he described as negotiations with the plaintiff in the process. That is a proper and understandable concern but led him into the erroneous position of excluding from his mind perfectly proper facts being drawn to his attention and that of his experts by the bidder in compliance with questions that had been properly asked under Regulation 17 of the Regulations. I formed the impression that he mistakenly thought the reality of the situation ie. that the plaintiff had an important advantage over other bidders because it owned Keady, conveyed an unfair advantage over other bidders. It did not. In bending over backwards to be fair to others he was unfair to the plaintiff.

[30] … [The] estimate of the tonnage that might need to be diverted to Keady at peak times was 30,000 or 35,000 tonnes per annum. It will be borne in mind that this is within the 40,000 tonnes per annum which the bidder had offered to keep as buffer capacity for the main facility. It seems to me that that answer gives the coup de grace to the defendant’s case that the exclusion of Keady would not make a material difference to the outcome of the bid. On the evidence before this court including that of Mr Gray and the original Ora expert it seems very likely that Keady could cope with any perceived shortfall at Dargan Road, which, of course, the plaintiff says will not occur in any event. I conclude therefore that at common law this was a relevant consideration which the Authority failed to take into account. In the alternative they misdirected themselves as to the proper meaning of the plaintiff’s bid. Further, it was unfair not to take Keady into account. On this ground alone I would set aside the awarding of the tender under Regulation 32(3) of the 1993 Regulations.”

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Region: EU - CJEU

Automatic exclusion of an incumbent tenderer who had carried out preparatory work would be disproportionate (the same principle would apply to an incumbent)

The national rule at issue stipulated that any person who has been instructed to carry out research, experiments, studies or development in connection with public works, supplies or services is not allowed to participate in or to submit a tender for a public contract for those works, supplies or services where that person is not permitted to prove that, in the circumstances of the case, the experience which he has acquired was not capable of distorting competition.

“26 [The] duty to observe the principle of equal treatment lies at the very heart of the public procurement directives, which are intended in particular to promote the development of effective competition in the fields to which they apply and which lay down criteria for the award of contracts which are intended to ensure such competition.

27 Furthermore, it is settled case-law that the principle of equal treatment requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified.

33 In that regard, it must be held that a rule such as that at issue in the main proceedings does not afford a person who has carried out certain preparatory work any possibility to demonstrate that in his particular case the problems referred to in paragraphs 29 and 30 of the present judgment do not arise.

34 Such a rule goes beyond what is necessary to attain the objective of equal treatment for all tenderers.

35 Indeed, the application of that rule may have the consequence that persons who have carried out certain preparatory works are precluded from the award procedure even though their participation in the procedure entails no risk whatsoever for competition between tenderers.”

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Region: EU - General Court

Regarding a requirement for an unpaid running-in phase in an IT contract, an incumbency advantage should be neutralised, but only to the extent that it is technically easy to effect such neutralisation, where it is economically acceptable and where it does not infringe the rights of the existing contractor or the said tenderer.

(See also, e.g., Case T-232/06 European Dynamics v Commission ECLI:EU:T:2011:443; Case T-10/17 Proof IT SIA v European Institute for Gender Equality ECLI:EU:T:2018:682)

The General Court considered the question whether the Commission had an obligation to neutralise the advantages enjoyed by the successful tenderer, as incumbent, where the Commission provided for an unpaid running-in phase of three months, which was to provide non-incumbent contractors with time to familiarise themselves with the IT system at issue, which was to be replaced.  The applicant claimed that this requirement amounted to a breach of the principle of equal treatment. The Court held:

“70.       [It] should be pointed out that the fact that an advantage may be conferred upon an existing contractor by a running-in phase is not the consequence of any conduct on the part of the contracting authority.  Unless such a contractor were automatically excluded from any new call for tenders or, indeed, were forbidden from having part of the contract subcontracted to it, it is inevitable that an advantage will be conferred upon the existing contractor or the tenderer connected to that party by virtue of a subcontract, since it is inherent in any situation in which a contracting authority decides to initiate a tendering procedure for the award of a contract which has been performed, up to that point, by a single contractor.  That fact constitutes, in effect, an ‘inherent de facto advantage’.

71. The Court of Justice recently held that Directive 92/50 and the other directives concerning the award of public contracts precluded a national rule whereby a tenderer which has been instructed to carry out research, experiments, studies or development in connection with public works, supplies or services is not permitted to apply to submit a tender for those works, supplies or services and where that tenderer is not given the opportunity to prove that, in the circumstances of the case, the experience which it has thus acquired was not capable of distorting competition (Joined Cases C-21/03 and C-34/03 Fabricom [2005] ECR I-1559, paragraph 36).

72. If, according to that judgment, even the exceptional knowledge acquired by a tenderer as a result of work directly connected with the preparation of the tendering procedure in question by the contracting authority itself could not, therefore, lead to it automatically being excluded from that procedure, there must, therefore, be even less ground for excluding that tenderer from participating where such exceptional knowledge derives solely from the fact that it participated in the preparation of the call for tenders in collaboration with the contracting authority.”

Whether the advantage inherent in the requirement for an unpaid running-in phase should be neutralised.

73. It also follows from the case-law cited at paragraph 71 above that the principle that tenderers should be treated equally does not place any obligation upon the contracting authority to neutralise absolutely all the advantages enjoyed by a tenderer where the existing contractor is a subcontractor of that party.

74. To accept that it is necessary to neutralise in all respects the advantages enjoyed by an existing contractor or a tenderer connected to that party by virtue of a subcontract would, moreover, have consequences that are contrary to the interests of the service of the contracting institution in that such neutralisation would entail additional cost and effort for that institution.

75. Nevertheless, in order to comply with the principle of equal treatment in this particular situation, a balance must be struck between the interests involved.

76. Thus, in order to protect as far as possible the principle of equal treatment as between tenderers and to avoid consequences that are contrary to the interests of the service of the contracting institution, the potential advantages of the existing contractor or a tenderer connected to that party by virtue of a subcontract must none the less be neutralised, but only to the extent that it is technically easy to effect such neutralisation, where it is economically acceptable and where it does not infringe the rights of the existing contractor or the said tenderer.

77. With regard to the balancing of the interests concerned from an economic point of view, it must be recalled that the principle of equal treatment as between tenderers derives from the provisions in Section 1 (Articles 56 to 64 bis) of Title IV of the Financial Regulation. Article 2 of the Financial Regulation, which is one of the articles laying down the general principles in that regulation, states that ‘[t]he budget appropriations shall be used in accordance with the principles of economy and sound financial management’. Moreover, according to Article 248(2) EC, sound financial management constitutes a general rule of Community organisation laid down by the Treaty and the Court of Auditors of the European Communities ensures that that rule is complied with.

78. As is apparent from paragraph 68 above, in the present case, not only is the provision of the services in question during the running-in phase remunerated on the basis of the contract concluded with the existing contractor but also the new contractor is not yet at that stage in a position fully to guarantee the quality of the services required for the application of the new version of CORDIS. Moreover, the running-in phase not only ensures the optimum attainment of the quality objectives set out in the call for tenders but also affords the new contractor itself the opportunity for a period of acclimatisation.

79. Accordingly, given, first, that the rights of the existing contractor are not infringed and, secondly, that double payment for the running-in phase would be contrary to one of the principle objectives of the law governing the award of public contracts, which seeks, inter alia, to facilitate the acquisition of the service required in the most economic manner possible, it would be unreasonable, for the purposes of the performance of the contract in question, to waive the requirement for an unpaid running-in phase on the sole ground that one of the prospective tenderers may possibly be connected to the existing contractor by virtue of a subcontract.

80. It must, therefore, be concluded that, in the present case, the fact that a tenderer connected to the existing contractor by virtue of a subcontract may enjoy an advantage does not require the contracting authority to waive the requirement for an unpaid running-in phase in the tendering specifications in order to avoid an infringement of the principle of equal treatment as between tenderers.”

 

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Region: EU - General Court

Claim that access to source code for IT contract have the incumbent an advantage was dismissed on the facts

“75 The applicant submits, essentially, that the refusal by the contracting authority to communicate to it the NCTS source-code created an advantage for the successful tenderer, which was also the contractor for the Commission when the NCTS was set up and did, for that reason, inevitably have access to the source code. Since it had that information, the successful tenderer was able to submit a tender that was more competitive than that of the applicant, both technically and financially.”

“93      In the fourth place, the applicant also does not demonstrate the usefulness of access to the NCTS source-code for the pricing of tenders. It is recalled that the applicant submits, in essence, that that pricing required tenderers to make precise estimates as to the size and the complexity of the project, which required knowledge of the source-code. Lack of access to the source-code made it impossible for the applicant to estimate precisely the size and the complexity of the project, forcing it, essentially, to raise the price of its tender.

94      That argument from the applicant cannot be upheld.

95      First, the NCTS source-code was not necessary in order to estimate the size and the complexity of the project for the setting up of the EMCS. In fact, as previously stated, the NCTS and the EMCS are different from each other (see paragraph 82 above) and the contracting authority clearly communicated to tenderers – and thus to the applicant – that the NCTS source-code was not relevant for the formulation of tenders (see paragraph 90 above).

96      Further, as the Commission contended and as the applicant conceded at the hearing, as regards the activities whose pricing allegedly depended on an estimate of the size and the complexity of the project, the contracting authority, having itself determined the number of days which were to be devoted to carrying out those activities, merely asked tenderers to quote unit prices expressed in daily rates for each staff profile required (namely developer, programmer and analyst). In order to arrive at the price of the tender, those unit prices were to be multiplied by the number of days determined by the contracting authority. By determining the number of days required for carrying out the abovementioned activities, the contracting authority itself estimated the scale of the work to be done, thus liberating tenderers from the need to undertake that task and focusing competition among tenderers on the daily rates proposed for each necessary staff profile. The applicant has not shown that lack of knowledge of the NCTS source-code had any sort of impact on the daily rate quoted for its staff.”

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Region: EU - General Court

Rejection of claim that contracting authority interpreted the award criteria in such a way that the successful tenderer benefited from knowledge acquired in previously performing a similar contract concluded with the same authority; successful tenderer received marks based on its submitted tender

“187    In the first place, it should be pointed out that the alleged advantage of the successful tenderer, on the assumption that it is proven, is not the consequence of any conduct on the part of the contracting authority. Unless such a contractor were automatically excluded from any new call for tenders or, indeed, were forbidden from having part of the contract subcontracted to it, it is in fact inevitable that an advantage will be conferred upon an existing contractor or the tenderer connected to that party by virtue of a subcontract, since that is inherent in any situation in which a contracting authority decides to initiate a tendering procedure for the award of a contract which has been performed, up to that point, by a single contractor. That fact constitutes, in effect, an ‘inherent de facto advantage’ (judgment of 12 March 2008, Evropaïki Dynamiki v Commission, T‑345/03, EU:T:2008:67, paragraph 70).

188    In the second place, it is not apparent from EIGE’s evaluation report that the successful tenderer received a greater number of points because of its knowledge acquired in the course of performing the preceding contract. In this connection, the applicant refers to the comments made by the evaluation committee in respect of the tender submitted by the successful tenderer so far as concerned Award Criterion 1 and Award Sub-criterion 1 of Award Criterion 2.

189    However, as regards the comment relating to Award Sub-criterion 1 of Award Criterion 2, it is not apparent from the evaluation report that the successful tenderer received more points because it proposed splitting the work into two categories, namely web development services and web consultation services. The positive evaluation of its tender seems rather to be founded on the fact that it proposed a good description of EIGE’s involvement in the project’s various stages and, in particular, in the testing of the products.

190    As regards the comment on Award Criterion 1, the award of 20 points out of 20 to the tender submitted by the successful tenderer can be explained not only by the fact that the tenderer displayed a deep understanding of the objectives of the framework contract that is at the same time holistic and highly specific, but also by the fact that it analyses all the activities and tasks and relates the knowledge to the various activities to be undertaken in the context of the tender specifications, whereas the applicant’s tender, as stated in paragraph 39 above, was confined to simply copy-pasting the list of activities and tasks that were mentioned in the tender specifications.

191    Consequently, it cannot, as the applicant suggests, be deduced from the comments on the tender submitted by the successful tenderer concerning Award Criterion 1 and Award Sub-criterion 1 of Award Criterion 2 that the successful tenderer benefited from knowledge acquired when performing a contract concluded with EIGE in 2014.

192    In the third place, as EIGE observes, although it is in the context of different projects the applicant itself has experience of previous work with EIGE. Accordingly, like the successful tenderer, it too was able to rely on knowledge already acquired in the course of its previous collaboration with EIGE, which it indeed did, given that, as EIGE notes, in its tender it presented its knowledge of EIGE’s business as one of its strengths.

193    Accordingly, the applicant cannot claim that EIGE breached the principle of equal treatment by interpreting the award criteria in such a way that the successful tenderer benefited from knowledge acquired during performance of a similar contract concluded with EIGE previously.

194    Consequently, the plea alleging breach of the principle of equal treatment must be dismissed as unfounded.”

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Region: EU - General Court

An advantage given to non-incumbent tenderers, by way of additional funding, can be lawful

An incumbent challenged a difference in funding provisions between it and other tenderers. The case concerned a framework agreement, which used a cascade system for allocating work, for publication of procurement notices in the Official Journal. Amplexor, the incumbent, was appointed in second of three places. The first and third ranked tenderers received a 3% funding allowance from the Commission to finance take-over costs in a transition phase of the contract. Aplexor received only 0.3% funding allowance, as it was the incumbent provider. Amplexor said this was a breach of equal treatment. However, the General Court disagreed and held that the financial adjustment was lawful. Treating tenderers in different positions differently in this way was likely to encourage the development of healthy and effective competition between tenderers and ensure the broadest possible competition. By contrast, an absence of any remuneration during the transition phase would run the risk of deterring tenderers other than the incumbent contractor from participating in the relevant market.

“In any event, it must be held that the threshold of 3% does not appear to be arbitrary or excessive. This threshold reflects the experience of the contracting authority acquired in previous years. In that regard, it is clear from the file that the applicant had itself benefited from a period of compensated resumption following a call for tenders in 2012 which gave rise to the contract it executed at the time of the launch of the invitation to tender. However, as the Commission explains, without being contradicted in that regard by the applicant, the amount collected as such was used as a basis by the Commission for settling the 3% threshold for the price of recovery for contractors in the context of the call for tenders at the issue in this case.”