Consortium bids are relatively common in the European government contract sector. But, under European law, what happens in a situation where a company which is part of a bidding consortium drops out during the procurement process? If the previous composition of the consortium satisfied the authority's pre-selection criteria, can the remaining companies continue with the process or would that be considered unfair to the other bidders?
The Court of Justice of the European Union (CJEU) has provided helpful clarification on how these consortium-related issues should be assessed in the EU.
The Banedanmark case
The case in which the CJEU issued its ruling (MT Højgaard and Züblin v Banedanmark) involved a consortium of companies bidding for the construction of a new railway line in Denmark. Banedanmark, the Danish railway operator awarding the public contract, began the procurement process by a negotiated procedure under the so-called Utilities Directive (Directive 2004/17/EC on coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors-since updated in 2014).
The bidders were invited to lodge three successive tenders. One bidder, Per Aarsleff, submitted its first tender in a consortium with another entity, E. Pihl og Søn, but that entity became insolvent during the bidding process. Per Aarsleff, as the remaining consortium member, continued in the procurement process by itself and was eventually awarded the contract. One of the unsuccessful consortia participating in the bidding process challenged this award on the basis that Per Aarsleff had not itself been pre-selected and, therefore, Banedanmark breached the equal-treatment and transparency principles under Article 10 of the Utilities Directive.
The Principle of Equality
Under EU law, government authorities are legally required to observe principles of equal treatment, non-discrimination and transparency in their procurement processes.
The question referred to the CJEU was whether the principle of equal treatment should be interpreted as precluding an authority from awarding a contract to a tenderer which was pre-selected only as part of a consortium and not in its own right, as was the case with Per Aarsleff.
The CJEU stated that the principle of equality cannot be strictly interpreted in a vacuum. The procurement process must also provide for adequate competition.
In practice, the principles of equality and transparency mean that...