Does a combination of call-off methods in multi-provider framework agreements violate EU public procurement law?
Carl Bokwall -
A multi-provider framework agreement requires a method for the award of contracts (call-offs). Article 32(4) of Directive 2004/18/EC provides contracting authorities with two approved call-off methods: either by application of the terms laid down in the framework agreement (ie, based on the terms of original tenders), or by reopening competition in a mini-tender.
The reopening of competition in a mini-tender must follow the procedure set out in article 32(4) but it is not specified how call-offs are supposed to be made according to the first method. It follows from the fundamental principles of public procurement that the applied mechanism must able to identify the best offer(s) based on the terms of the original tenders. Normally, in Sweden at least, the applied method is a fixed ranking.
The Stockholm Administrative Court of Appeal and Swedish Supreme Administrative Court are currently faced with the question of whether it is permissible to combine these two award methods in one (or several) framework agreements, so-called “combination agreements”. So far Swedish courts have not accepted combination agreements. The Swedish Competition Authority (the SCA) is also critical, albeit in a more nuanced manner.
Swedish Case Law in Brief
The case currently before the Supreme Administrative Court is an appeal of the Gothenburg Administrative Court of Appeal’s ruling in 2009 that partly overlapping criteria for choosing award methods is in violation of the principles of transparency and equal treatment. In this Gothenburg case, the tender specifications stated that for orders up to 800,000 kronor, awards would be made according to the fixed ranking of suppliers in the framework agreement and for orders between 100,000 kronor and 1.6 million kronor, competition could be reopened. Consequently, the criteria for choosing award methods were partly overlapping. The Gothenburg County Administrative Court referred to the Swedish preparatory works and ruled that a framework agreement could not contain both methods, but that the methods were alternative and one excluded the other. The Gothenburg Administrative Court of Appeal rejected the appeal, briefly stating that the combination of award methods violated the principles of transparency and equal treatment. The Supreme Administrative Court has granted leave to appeal and requested the SCA’s opinion (see further below).
Not long after the Gothenburg Administrative Court of Appeal’s ruling in the Gothenburg case, the Stockholm County Administrative Court (a court of first instance) ruled that a free choice between two different framework agreements, each with a different award method, violated the principles of transparency and equal treatment as the free choice made it too difficult for the suppliers to foresee the possible supply volumes. In early March 2010, the same court ruled in a different case that a fixed limit of 200,000 kronor in contract value was not an acceptable criterion to choose a call-off method, as it was held that this solution still meant an unacceptable room for discretion in the choice of method. These judgments are now under appeal at the Stockholm Administrative Court of Appeal.
In its opinion to the Supreme Administrative Court, the SCA starts its analysis by establishing that the wording of article 32 of the Directive and Chapter 5, §§ 6 – 7 of the Public Procurement Act is not decisive but that the scope of application of the provisions has to be decided based on the purpose of EU public procurement law, in particular the fundamental principles of transparency and equal treatment. The SCA’s conclusions after such a purposive interpretation are that the choice of method must be transparent, as the lack of objective and clear criteria for choosing between the two award methods entails an obvious risk that contracting authorities let other considerations than purely economical ones govern the choice of method. Consequently, the SCA does not rule out that a combination of the award methods in a framework agreement as long as there are objective criteria governing the choice of method to rule out an arbitrary choice of supplier.
Observations and Comments
The SCA’s view differs from the Commission’s as it is expressed in the Commission’s Explanatory Note – Framework Agreements – Classic Directive. While the SCA looks beyond the letter of the law and concludes that a combination of call-off methods is feasible as long as there are clear criteria governing the choice, the Commission advocates a strictly literal interpretation and finds that the two call-off methods are mutually exclusive and therefore cannot be combined in a framework agreement. The Commission’s view seems entirely based on semantics and is, incidentally, mainly expressed in the footnotes in the explanatory note.
To reach a tenable conclusion, the analysis must of course consider the letter of the law but, in my view, cannot stop there as the nature of framework agreements and the purpose behind article 32, as well as the principles of transparency and equal treatment, must be considered.
Starting with the letter of the law, the prime question is whether the wording of article 32(4) allows for a framework agreement with “all the terms laid down” for future call-offs at the same time as some of the terms are left open and thus enabling the reopening of competition. Those who argue against a combination of call-off methods contend that a term cannot be, at the same time, both fixed and not fixed. This is of course true but not really a relevant observation.
For starters, it is important to understand that award of the contracts, ie, the conclusion of a binding contract, is not made at the framework level. The award of the contract is made at the later call-off phase when the need for supply arises with the authorities that participate in the framework agreement. It is at this level and point in time that the final commercial terms and conditions such as volume, type of service, point of delivery, time of delivery etc, are established. As contracts are awarded at the later call-off phase, and as article 32(4) states that contracts may be awarded by using either of the two methods, the provision is designed to allow the authority that makes the call-offs to choose either method at the time of the call-off. In that light, it seems odd that the framework authority should have to make a choice between the two methods and only include one of these already at the time when the specifications to the framework agreement were drafted. In my view, there is no such obligation.
This view seems to be shared by, among others, Professor Sue Arrowsmith. In her book The Law of Public and Utilities Procurement, Professor Arrowsmith states that: “Once the framework providers have been chosen… the procuring entity must decide how to allocate orders between them. This process is governed by Art. 32(4).”
Consequently, the choice of call-off method does not have to be made in the specifications to the framework procurement. This does not, however, prevent the framework authority from making a choice. Where the framework agreement only includes, for example, a fixed ranking based on the terms of the original tenders, the contracts must be placed according to this mechanism. In this case, there can be no mini-tender as the framework agreement does not include this alternative. By also including the mini-tender method, award of contracts by the use of a mini-tender would by definition not be made “by application of the terms laid down in the framework agreement”, as these terms would be reopened for competition. In my view, the wording of article 32(4) therefore allows for the inclusion of both methods in the framework agreement.
Moving on from the letter of the law, it is relevant to ask if the principles of transparency and equal treatment put any demands on the use of combination agreements. The Swedish court rulings on the subject hold that the letter of the law dictates that the choice of method must be made by the framework authority in the specification to the framework agreement. As argued above, the courts have no legal basis for completely ruling out combination agreements. In my view, the relevant question is instead whether the choice between the two methods must be governed by a clear set of criteria set out in the framework specifications.
This triggers the question of whether a framework agreement with both types of call-off method negatively affect transparency, ie, the tenderer’s ability to submit a competitive tender. In other words: is a combination agreement less transparent than framework agreements with only one of the two methods? This issue has been a focal point for some of the Swedish courts as the courts have justified their rulings on the notion that, without clear criteria for the choice of method, it will be significantly more difficult to predict the volumes to be gained under the framework agreement. It is submitted that such prediction of supply volumes is not protected by the principle of transparency. As long as the specifications to the framework agreement include, eg, a fixed ranking mechanism (alone or in combination with a mini-tender) this will influence formulation of the tenders. The tenders will be designed to gain the top spot in the ranking. If the specifications also allow for a mini-tender, this will not affect the tenderer’s endeavours to be number one in the ranking. If the specifications only allow for a mini-tender, transparency as to supply volumes will of course be close to zero. Transparency in this regard is therefore neither better nor worse in combination agreements compared to a framework agreement where only one of the methods is used.
The SCA’s position is that the principles of transparency and equal treatment require that the framework tender specifications set out the circumstances that will govern the later choice of award method. The rationale for this is that the contracting authority otherwise is likely to let non-commercial, irrelevant circumstances govern the choice of method. The SCA seems to confuse arbitrary choice of call-off methods with arbitrary choice of supplier, the latter being strictly prohibited while the former, arguably, is not.
Assuming that the ranking of suppliers and any mini-tender and the procurement in general have been done “by the book”, it is hard to see that there would be room for any independent infringement due to a “free choice” between two legitimate award methods, ie, a choice based on the needs of the awarding authority. The demands put on contracting authorities when using either of the award methods seem to me an adequate safeguard against an arbitrary choice of supplier. Provided that the framework specifications clearly set out that both call-off methods may be used and otherwise meet the fundamental principles of public procurement; that only one of the methods is used for each award; and that the methods are used properly, then the choice of method will not, by itself, leave room for discretion. Arguably, a “free choice” of call-off method does not enable the contracting authority to freely choose a supplier; at least, not any “unrestricted freedom of choice as regards the awarding of the contract”, as expressed by the Court of Justice of the European Union in Beentjes and SIAC.