Insights | April 19, 2018
Recent decisions of The Finnish Competition and Consumer Authority and Finnish Market Court relating to public procurement contracts
On 3 April 2018, The Finnish Market Court gave a decision on the amendment of a procurement contract concerning occupational healthcare services provided to the municipality of Loppi after a change of service provider following a business transfer.
The Market Court considered that the transfer of business and the subsequent change in contractual partner did not in itself constitute a substantial amendment to the procurement contract and was in accordance with the EU Procurement Directive. However, the Market Court found that there had been a significant increase in prices, when comparing the contract prices at the time of the award of the contract (2007) to the price list in effect at the time of the business transfer. The Market Court considered this a substantial amendment to the terms of the original procurement contract, making the procurement in question subject to a new tendering process. Since the contracting authority had failed to put the contract to tender, the Market Court considered that the contracting authority had effectively made an illegal direct award. Accordingly, the contracting authority was obliged to subject the contract to a new tendering process and the term of the existing contract was set to expire within approximately 6 months from the Market Court’s decision.
The Finnish Competition and Consumer Authority (FCCA) has also not remained idle and continues its impressive streak of enforcement decisions since taking jurisdiction over procurement matters on 1.1.2017.
On 10 April 2018, the FCCA submitted a proposal to the Market Court for the imposition of sanctions on the City of Parainen for an alleged illegal direct award.
The City of Parainen had made a decision to divest its catering services as an outsourcing to Arkea Oy, a company owned by municipalities and joint municipal authorities. At the same time, the city had purchased 1,000 shares of Arkea Oy, which corresponded to 0.12 percent shareholding. In connection with the business transfer, the city had also concluded a service contract for seven years and a possible two-year option period with Arkea Oy.
Although the outsourcing of services in question included several contracts, the main object of the contract according to the FCCA was the procurement of catering services covered by the Procurement Act. The contract met the EU thresholds and therefore had to be competitively tendered. According to the reports of the FCCA, Arkea Oy was neither an in-house entity of the city of Parainen, nor were there any sufficient grounds for a direct award. According to the FCCA’s view, the contracting authority, even though outsourcing its’ catering services, should have put the contract to tender and agree on all relevant terms, outsourcing included, in accordance with the Procurement Act.
The FCCA submitted a proposal to the Market Court for the imposing of a EUR 200,000 fine on the city of Parainen, an inefficiency sanction in respect of contractual obligations that are not yet met and the repealing of the procurement decision in question.
On 27 March 2018, the FCCA gave a decision finding that the Finnish Environment Institute (SYKE) had made an illegal direct award regarding the renovation of the marine research vessel Aranda.
After SYKE had given the contract award, it had entered into final negotiations with the supplier, during which changes to the scope and to the terms and conditions of the contract, deviating from the invitation to tender, were agreed upon. The scope of the contract was reduced by EUR 1 million, equivalent to 6.8% of the total value of the contract. The liability for damages was also substantially reduced. The FCCA considered that the amendments to the contract were substantial and lacking legal grounds for them. Since the contract had not been put to tender anew, it was considered that the contracting authority had made an illegal direct award.
Interestingly, the procurement in question had previously, about a one month earlier, been found unlawful in a separate procedure before the Market Court. In its’ decision the Market Court considered that the invitation to tender did not produce comparable tenders, and therefore the invitation to tender was not such as to guarantee transparent and non-discriminatory treatment of tenderers in the competitive tendering. Regardless, as the Market Court had allowed the implementation of the contract award and thus no legal sanctions were effectively available to be imposed on the contracting entity (save for a compensatory fine, for which there no grounds to be found) the Market Court rejected the appeal. Likewise, the FCCA restricted itself to reprimanding the contracting authority.