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Raiko Lipstok: Supreme Court ruling disciplines contractors

  • Estonia
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Raiko Lipstok, attorney-at-law and partner of Eversheds & Co writes that there have been a considerable number of cases in Estonia in the public procurement practice, where the contracting entity, after having concluded a public contract with the tenderer offering the best price, allows the tenderer to increase that price.

This practice clearly displeases the competitors who legitimately feel that they have been treated unequally. On 12 October the Supreme Court, referring to the case-law of the European Court of Justice, has explained the consequences that the contracting entities have to take into consideration, when amending their contracts.

According to the circumstances of the dispute the exclusive right to handle organised waste transport in the town of Võru was granted to AS Ragn-Sells. After having concluded the contract AS Ragn-Sells filed an application to the Võru town government requesting an increase of the service fee, motivating it with the price increase imposed by the landfill, and the expected increase of the diesel fuel excise duty. The Võru town council indeed approved the new service prices. After that AS Veolia Keskkonnateenused filed a complaint to the court requesting that the decision of the Võru town council be invalidated. At the tender won by AS Ragn-Sells AS Veolia Keskkonnateenused had submitted a tender with the third best price. The Supreme Court maintained in force the decision of the circuit court, which cancelled the increase of the service fee.

One of the key guidelines contained in the judgement of the Supreme Court says that if a contracting entity wishes to retain the right to amend the conditions of the tender after the successful tenderer has been identified, such possibility, along with the detailed rules for the same, must be explicitly stated in the basic documents of the tender. In the given case any of the tenderers could have offered different prices, had they known that it is possible to increase the prices after the public contract is concluded. Therefore, in line with the principles of equal treatment and transparency, the contracting entity must be bound by the terms and conditions disclosed in the tendering procedure until the public contract is performed in full.

The above does not apply in situations where after concluding a public contract any circumstances emerge, which could not have been anticipated, and which could jeopardise the achievement of the objective sought by the public contract, if the public contract is not amended. In the case of emergence of such objective circumstances a public contract may still be amended, if the objective sought by the amendment cannot be achieved by concluding a new contract. The Estonian case law is yet to furnish these circumstances with content.

The dispute also addressed the issue of whether a tenderer, who was the third best bidder of the procurement, may at all contest the price increase. The Supreme Court assumed the position that a competitor may seek invalidation of decisions adopted for the benefit of the successful tenderer even after the public contract is concluded, regardless of what place was awarded to it. Furthermore, the even a person who did not submit a tender, but would have participated in the tender, had the initial contract documents contained the conditions resulting from the amendment of the public contract, may have the right to take recourse to court.

The article was published at BBN, 20.10.2011