Municipality of Hadsund convicted of grossly violating procurement law

Thomas Ryhl of Plesner Svane Grønborg represented Danish contractor Pihl & Søn A.S. in a complaint brought before the Complaints Board of Public Procurement by the company. On 13 January 2004 the Complaints Board annulled the municipality of Hadsund's decision from February 2003 to conclude a contract for the building of a new school and conversion of the old school in Hadsund. "Vision Hadsund School" is a project worth DKK 170 million, and the building work is well under way. However, the Complaints Board found that errors in the procurement procedure and the awarding of the contract to a consortium headed by KPC Byg A/S were so serious that the municipality's decision to conclude the contract has now been annulled.

In November 2002 the municipality of Hadsund submitted an EU invitation to tender for a large-scale new building and conversion project, "Vision Hadsund School". The project, comprising the building of a completely new school with swimming bath etc. and conversion of the old school to co-operative housing and activity centre etc. has a total budget of more than DKK 170 million. Following the first selection round five consortiums of contractors were invited to submit tenders, but due to timing pressure and the nature of the tender documents the three consortiums decided to pull out of the project without submitting tenders.

Pihl & Søn A.S. made the cheapest bid, while a consortium led by KPC Byg A/S made a slightly more expensive bid. The municipality decided to conclude a provisional contract with the KPC consortium in February 2003, and concluded a final contract on the construction with the KPC consortium in June 2003.

Before the deadline for submission of bids Pihl & Søn A.S. pointed out several problems in relation to the tender and objected to the evaluation of the tenders. Following a final fruitless meeting with the municipality of Hadsund, Pihl & Søn A.S. brought a complaint before the Complaints Board for Public Procurement in May 2003.

The Complaints Board has now made a decision in the matter. The decision of 13 January 2004 is published on the Complaints Board's website, www.klfu.dk. The decision to a very large extent upholds Pihl & Søn A.S.'s claim that the municipality of Hadsund has violated the legislation covering tenders.

The Complaints Board for Public Procurement finds, among other things, that the successful consortium obtained a decisive competitive advantage already at the time of its participation in the call for tender because Carl Bro A/S was part of the consortium. The Carl Bro group had also prepared the development report to the municipality forming the basis of the entire school project, which disqualified Carl Bro in this case. The municipality was aware of the problem but still decided to invite the KPC consortium to submit a tender and did not take any steps to offset the head start the KPC consortium had been given.

In so doing the municipality acted contrary to the principle of equal treatment that is fundamental to the EU legislation governing tenders.

The municipality of Hadsund also violated the legislation governing tenders by evaluating the tenders according to another model of calculation than the model notified to the bidders. The municipality's selection committee used another model for its assessment than the model stated, among other things because the original model proved not to be applicable. This had been pointed out to the municipality before expiry of the deadline for submission of tenders, but it nevertheless decided to maintain the model of calculation notified.

The Complaints Board for Public Procurement establishes that the tenders could not be evaluated properly based on the model of calculation notified, and that the municipality's only choice was therefore to annul the entire tender process.

Since the municipality continued the tender process and decided to consider the bid made by the KPC consortium, the Complaints Board finds that the violation of the legislation governing tenders is so serious that the most extensive penalty should be implemented: annulment of the decision to conclude a contract with the KPC consortium.

The Complaints Board also finds that when evaluating the two main bids from the KPC consortium and Pihl & Søn A.S., the municipality disregarded the principle of equal treatment to the prejudice of Pihl & Søn A.S. by omitting to price some reservations included in the bid made by the KPC consortium while on the other hand pricing some of the bid elements contained in the bid made by Pihl & Søn A.S. as reservations, without taking into account that they were not reservations. Thereby the bid made by Pihl & Søn A.S. appeared to be considerably more expensive than it actually was, while the bid made by the KPC consortium on the other hand appeared cheaper than it actually was.

Decisions made by the Complaints Board for Public Procurement may be brought before the High Court within eight weeks. If not, and if the municipality of Hadsund does not comply with the Complaints Board's order to annul the decision, the municipality may be subject to a fine pursuant to section 12 of the Act on Complaints Boards. The Municipal Supervisory Board and the Competition Authority are also required to ensure that the municipalities comply with the legislation governing tenders.

Furthermore, unsuccessful bidders may submit claims for damages against the municipality of Hadsund and the KPC consortium may also have a claim for damages against the municipality of Hadsund.

Thomas Ryhl conducted the case before the Complaints Board for Public Procurement. Plesner Svane Grønborg has been legal adviser to Pihl & Søn A.S. for several years, and Jørgen Grønborg is a member of its board of directors.