C-19/00

OPINION OF MR JACOBS — CASE C-19/00

OPINION OF ADVOCATE GENERAL JACOBS delivered on 10 May 2001 1

1. Under Community rules, public works proceedings was Council Directive 71/305 2 contracts must be awarded on the basis ('the Directive'). either of the lowest price or of the most economically advantageous tender; in the latter case all the criteria to be applied must be stated in the contract notice or docu- ments. 4. Of its provisions, essentially only those of Article 29(1) and (2) are in issue in the present case:

2. Where in that context it is stated that the tender most advantageous in respect of cost and technical merit will be accepted, and where the lowest bidders are all of accepted '1. The criteria on which the authorities competence, may the contract be awarded awarding contracts shall base the award of not to the bidder whose tender is formally contracts shall be: the lowest but to the bidder whose tender is, in the opinion of the consulting engineer, likely to be lowest in ultimate cost? That is, in essence, the question raised in the present case by the Supreme Court of Ireland. — either the lowest price only;

— or, when the award is made to the most economically advantageous tender, var- Legislation ious criteria according to the contract:

2 — Council Directive 71/305/EEC of 26 July 1971 concerning the coordination of procedures for the award of public 3. The relevant Community legislation in works contracts (OJ, English Special Edition 1971 (II), force at the material time in the main p. 682), as amended by Council Directive 89/440/EEC of 18 July 1989 (OJ 1989 L 210, p. 1). It has since been consolidated by Council Directive 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts, OJ 1993 L 199, p. 54, but 1 — Original language: English. the relevant provisions remain essentially the same.

6. In February 1992 Mayo County Council ('the County Council') advertised in the Official Journal of the European Commu- 9. Other contract documents included the nities for tenders for construction of a instructions to tenderers, the specification, sewerage and sewage disposal improve- and the conditions of contract. The follow- ment scheme, comprising sewers, storm water drains, rising mains and water supply pipes, all complete with various fittings, 3 —OJ 1992 S ih. p. 8.

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ing relevant points emerge from those — the revised 'tender price' (that is to say, documents: the price established after arithmetic correction) would form the basis for comparison of tenders;

— among the terms defined were 'tender total' (the total of the priced bill of quantities on the date of its acceptance) and 'contract price' (the sum to be ascertained and paid on completion of the contract), although those terms do not appear to have been used system- — all items had to be priced, with rates atically throughout the documents; stated in the appropriate places;

— the award would be made to the tenderer whose tender was adjudged the most economically advantageous to the County Council in respect of 'price — however, where no price or rate was and technical merit'; entered against an item, that item would be deemed to be covered by the other rates and prices. (This prac- tice, known as 'zero-rating', is used by tenderers to submit fewer, inclusive prices for major items covering all — the County Council none the less related minor items, rather than pricing reserved the right not to accept the each individual item in detail.) lowest or even any tender;

11. In his extremely detailed report of be rejected simply on price. He then gave a 30 June 1992, the consulting engineer sta- number of reasons for — 'with the greatest ted that those tenders were equal in tech- reluctance' — not recommending SIAC's nical merit. tender, in particular the zero-rating prac- tices described above, which caused distor- tion and rendered proper management and control extremely difficult if not impossi- ble. He expressed his 'serious doubts that in fact [SIAC's] tender would prove at the end of the day to be the lowest'. He therefore recommended that Mulcair's corrected ten- der be accepted. That was done and the 12. However, he had serious reservations contract has since been completed. regarding SIAC's tender, as the pricing system used 'greatly reduces the freedom of the consulting engineer to properly and fully administer the contract in a way that, in his view, is the most economically advantageous to the Mayo County Coun- cil'. In general, SIAC's approach greatly reduced control over all the items in the bill of quantities, which would in one way or another vary on final measurement. Speci- 14. When making the award, however, the fically, it had zero-rated 27.5% of the County Council informed SIAC of those items, whereas Mulcair had zero-rated only reasons for not accepting its tender. SIAC 18% and had priced all major items of challenged the County Council's decision measured work. SIAC had also deducted in before the High Court, which dismissed its its entirety a provisional sum of IEP 90 000 action for judicial review and damages on which had been included for certain mate- 17 June 1997. rials. (It appears that SIAC considered this to mean that it had to supply such materials free of charge — the effect of which would seem to be similar to that of zero-rating, in that the price was deemed to be included in that of other items.) Mulcair had, in the engineer's opinion, submitted a 'better balanced' tender than SIAC's, and one which 'might well give far better value for 15. One issue was whether the term 'cost' money and might even cost less'. indicated a criterion other than 'price', in the sense of tender total, in the contract documents. The High Court found that the two terms were used interchangeably and were intended to have the same meaning. In choosing criteria which were stipulated in the contract notice and amplified in other contract documentation, the County Coun- cil had exercised a discretionary power of 13. In his recommendations, the consulting selection which was largely predicated on engineer stated that Pierse's tender had to the exercise of professional judgement. The

16. SIAC submitted in its appeal that the County Council was required to accept its tender as the lowest priced. Since all tenderers had the requisite technical merit, the only relevant criterion could be cost 'In a situation where an authority is (which was synonymous with price). Cost/ awarding a contract pursuant to the provi- price could not mean ultimate cost; it could sions of the second indent of Article 29(1) mean only tender price. By taking account of Council Directive 71/305/EEC, Chap- of ultimate cost, the County Council had ter 2, of 26 July 1971 as applied in the departed from the specified award criteria, national law of a Member State, and where contrary to the principles of transparency, the authority shall have specified the foreseeability of the adjudication process "Award criteria (other than price)" as and equality of tenderers. being that the contract would be awarded to "the competent contractor submitting a tender which is adjudged to be the most advantageous to the" (awarding authority) "in respect of cost and technical merit", and where the three lowest tenderers shall have been contractors of accepted compe- tence and shall have submitted valid ten- ders of accepted technical merit, and where 17. The County Council contended that it the tender prices of the three lowest ten- was entitled to exercise a discretion and to derers shall not have diverged greatly, is the award the contract on the basis of its awarding authority obliged to award the consulting engineer's recommendation as to contract to the contractor who shall have which tender was the most advantageous in tendered the lowest price or is the awarding respect of cost and technical merit. In a authority entitled to award the contract to measure-and-value contract, cost must be the contractor with the second lowest price understood as the ultimate cost to the on the basis of the professional report of its awarding authority. Furthermore, the con- consulting engineer that the ultimate cost sulting engineer was entitled to make of the contract to the awarding authority is comparisons between prices quoted and likely to be less if the contract is awarded to his own estimates of cost. SIAC had under- the contractor who tendered the second stood that the criterion of cost referred to lowest price than it would be if the contract the probable cost of the contract to the were awarded to the contractor who ten- County Council. dered the lowest price?'

21. The County Council contends that the references to cost and price can be only to the probable cost of the performed contract and that the question is simply whether it is 23. The Commission, finally, adopts a permissible for an awarding authority to position more favourable to SIAC. It con- adopt that cost (as assessed by its consult- siders that where the only relevant criterion ing engineer) as an award criterion under is 'cost', corresponding to the price ten- the second indent of Article 29(1) of the dered, a contracting authority is not enti- Directive. It considers that it is permissible, tled to have regard to previously unmen-

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tioned criteria such as zero-rating, balanced 25. SIAC wishes this Court to rule that the tenders or pricing methodology. Where terms 'price' and 'cost' in the tender price is a criterion, it must mean the lowest documents cannot, as a matter of Commu- tender price, whether the context is the first nity law, be construed as meaning 'ultimate or the second indent of Article 29(1) of the cost', and the County Council argues that Directive; to take ultimate cost as a criter- the Supreme Court's question presupposes ion would give rise to problems of certainty that they must have that meaning. and objectivity, such as the apparently subjective assessment made by the consult- ing engineer in the present case.

26. Although that is, I consider, a question of interpretation of the terms of a contract governed by Irish law and as such a matter for the Irish courts, this Court may none the less provide guidance as to the meaning of 'price' in the Directive which may be of assistance in arriving at an interpretation. Analysis

30. I agree, but do not regard that point as ensure that public funds are spent honestly decisive. The second indent allows award- and efficiently, on the basis of a serious ing authorities to assess the most economic- assessment and without any kind of favour- ally advantageous tender on the basis of itism or quid pro quo whether financial or 'various criteria according to the contract' political. The main purpose of Community and provides a non-exhaustive list of such harmonisation is to ensure in addition criteria, including 'price'. Other criteria abolition of barriers and a level playing- may thus be used, provided that they are field by, inter alia, requirements of trans- stated in the contract notice or contract parency and objectivity. documents in accordance with Arti- cle 29(2), and one such criterion might be probable ultimate cost. It can hardly be denied that the lowest ultimate cost to the awarding authority may qualify as the most economically advantageous.

34. The way in which award criteria are to be applied under the Community rules has been clarified by the Court in a number of 31. For the reasons given above, I shall not judgments, in particular Beentjes, 4Store- express any opinion on whether 'cost' (or bælt Bridge 5and Walloon Buses, 6all of 'price') in the tender documents means the which have been cited by the parties who total of the tender submitted or the foresee- have submitted observations. able ultimate price of the contract but shall consider the competing hypotheses in turn.

32. First, however, it will be helpful to 35. Beentjes concerned the legality of cer- examine some general considerations con- tain criteria stipulated in the contract cerning the interpretation and application documents. Although those criteria were of the Directive. different from that in issue in the present case, some relevant points emerge from the judgment. A stipulation that the award is to be made to the tenderer 'whose tender appears the most acceptable' is incompati- ble with Community law if, as interpreted in national law, it confers unrestricted freedom of choice on the awarding author- The application of award criteria ity but not if its effect is to allow compar-

36. The Storebælt Bridge case was an action brought by the Commission against Denmark on the ground of irregularities in a major tendering procedure. One tenderer had submitted a tender not in compliance 38. It thus appears clear from the wording with the tender conditions and the award- of Article 29(1) and (2) and from the case- ing authority entered into negotiations with law that unless an awarding authority that tenderer resulting in amendments to specifies the criteria of 'economic advanta- the conditions and the acceptance of its geousness' which it intends to apply under tender. The Court held in particular that the second indent of Article 29(1) it is the principle of equal treatment of tender- bound to award the contract on the basis of ers lies at the heart of the Directive and the lowest price only; where it does specify requires that all tenders must comply with such criteria it is bound by them and may the tender conditions in order to ensure an not deviate from them in the course of the objective comparison. 9 procedure. The requirements of transpar- ency, objectivity and equality of opportu- nity are respected only if all tenderers know in advance on what criteria their tenders will be judged and those criteria are assessed objectively. 37. In Walloon Buses, an action brought by the Commission against Belgium (on the basis of another procurement directive 10), an awarding authority was held to be in breach of Community law because it took into account an amendment to the tender of only one tenderer, awarded the contract on the basis of figures which did not 39. With those considerations in mind, I 7 — See in particular paragraphs 25 to 27 of the judgment. turn to the two alternative hypotheses on 8 — Ibid., paragraph 35. which the parties to the main proceedings 9 — See in particular paragraphs 37 and 39 of the judgment. base their submissions. It must also be 10 — Council Directive 90/531/EEC of 17 September 1990 on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors (OJ 1990 L 297, p. 1), whose detailed provisions differ from those of the directive in issue in the present case. 11 — See in general paragraphs 40 to 95 of the judgment.

First hypothesis: The terms 'price' and 'cost' in the tender documents mean the arithmetically corrected total of the tender submitted 42. If those are the circumstances, there- fore, the reply to the national court's question must be that the awarding autho- rity was not entitled to award the contract on the basis of likely ultimate cost. 40. On this hypothesis, the outcome of the national proceedings seems straightfor- ward. It is common ground that the award was made (at least at the final stage of adjudicating between the two lowest ten- ders) on the basis of likely ultimate cost and not on the basis of the tender total as defined in the contract documents. Thus, if likely ultimate cost was not one of the award criteria specified in accordance with Second hypothesis: The terms 'price' and Article 29(2), its use was contrary to the 'cost' in the tender documents mean the provisions of the Directive and the princi- likely ultimate cost to the County Council ples governing their application.

43. On this hypothesis, the above objec- 41. Such a situation would be akin to those tions are in principle not relevant. It is in the Storebælt Bridge and Walloon Buses assumed that the criterion of likely ultimate cases, even though in this case there do not cost was chosen and was then applied. appear to have been any formal amend- However, it is still necessary to examine ments to the tender conditions or to the whether the choice of criterion was permis- tender of the successful tenderer. The mere sible, whether it was stated clearly in fact of awarding the contract on the basis accordance with Article 29(2), whether it of criteria of which tenderers were not was applied objectively and whether ten- informed prevents them from planning the derers were treated equally.

48. Furthermore, since final quantities will deviate from those estimated but the devia- tions cannot be predicted with any formal accuracy, it seems reasonable that assess- ment of the probable effect of different 46. For example, X linear units of drain pricing structures on final cost should be may be estimated, tenderers being asked to based on the professional judgement of an quote a figure per unit, together with experienced consultant. On the one hand, separate figures for an estimated number such a person is in principle qualified to of ancillary items such as manholes, over- assess that effect with the greatest achiev- flows, connections, gullies, valves and ven- able accuracy and, on the other, he should tilating columns, and for excavation in be aware of the margin of uncertainty rock, clay, silt etc. which his predictions must involve and will be able to take that factor into account when making his recommendation.

47. If tenderer A submits an inclusive figure per linear unit of drain (zero-rating all the others) and tenderer B submits full itemised figures, their tenders may be compared 49. The criterion applied in the present case thus seems to me to be a permissible 12 — In paragraph 30. one.

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53. It is again for the national court to determine whether the criterion was applied objectively. That issue is related, but not identical, to the question of unrea- sonableness, which was addressed in some detail by the High Court 13 by considering whether the award decision 'plainly and unambiguously flew in the face of funda- 51. When examining that question, the mental reason and common sense'. The test national court should take into considera- for objectivity should be, I consider, rather tion not merely the literal terms of the less extreme. contract documents but also the way in which they may be presumed to be under- stood by a normally experienced tenderer in the context of a measure-and-value contract. Bearing in mind that certainty as to the criteria to be applied is of paramount 54. The essential question here is whether importance in drafting a tender, the the factors taken into account are capable national court should consider to what of supporting the conclusions drawn from extent the distinction between tender total them. and contract price, and the respective role of each, was made clear, and whether the relevant indications were sufficiently pro- 13 — At pp. 23 to 31 of its judgment; see m particular point (b) minent in the tender documents. I consider at p. 30.

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60. Subject to the qualifications I have criterion would lead to an unacceptable mentioned, it seems to me that the notion degree of uncertainty and lack of objectiv- of ultimate cost could properly be used as ity in procurement procedures. In my view an award criterion on the present hypoth- it — like any other criterion ·—· may be esis. The approach which I am advocating used only where the principles of transpar- should be sufficient, I consider, to allay the ency, objectivity and equality as between fears expressed by the Commission at the tenderers are clearly respected. hearing, to the effect that the use of that

Conclusion

61. In the light of all the above considerations, I am of the opinion that the question referred by the Irish Supreme Court should be answered in the following way:

In a procedure governed by the second indent of Article 29(1) and Article 29(2) of Council Directive 71/305/EEC, an awarding authority is entitled to award the contract to the tenderer whose tender, although not the lowest, is likely in the professional opinion of the authority's consulting engineer to be lowest in ultimate cost, provided that transparency, objectivity and equal treatment of tenderers are ensured, and in particular that: