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Troublesome qualifications

Klubbe

The contracting authority's assessment of the tenderer's qualifications is a common source of disagreement in disputes concerning public procurement. The Norwegian Supreme Court has now decided to hear an appeal which may clarify several key issues.

By a decision of 8 March 2022, the Norwegian Supreme Court's appeals committee allowed the State's appeal against the judgment of Gulating Court of Appeal of 8 December 2021. In the Court of Appeal case, the contractor, Flage Maskin AS, was awarded NOK 13.5 million in a damages claim for positive contractual interest, as a result of what the Court considered an unjustified rejection of the company's tender in a competitive tendering process concerning an upgrade of a tunnel on the E16 (Eikefe-tunnel).

The legal background of the case

The legal background of the case is, in brief, as follows: In July 2019, the Norwegian Public Roads Administration (Nw: Statens Vegvesen) announced an open procedure for upgrading the Eikefe-tunnel, with an estimated contract value of just below NOK 200 million. The award criterion was lowest price. The contract included three types of work, namely, (i) upgrades of the electrical and control-engineering installations, (ii) construction and building technology and (iii) traffic management.

In order to be considered qualified for the public contract, there was a requirement that tenderers had to document "sufficient experience of a relevant nature and degree of difficulty from..." relevant type of works (our translation). This is a requirement that the Norwegian Public Roads Administration and other contracting authorities use in many of their procurements. The requirement has been subject to repeated legal review both by the courts and by KOFA (the Norwegian Complaints Board for Public Procurement). The tenderers had to document that they fulfilled the requirement by submitting a list of up to five, and at least three, contracts that the tenderer had carried out in the last five years before the time limit for receipt of tenders. The list should contain information about the contracting authority of those contracts, a description of what the contracts concerned, what work was carried out by the tenderer itself and what was carried out by a subcontractor, the time of delivery, the value of the contract for the reference projects and the reference person at the relevant contracting authority.

Flage Maskin presented a list containing four reference projects. For three of the projects, Flage Maskin informed that it had been "responsible for traffic management". In two key reference projects the traffic management work was, however, carried out by subcontractors. It was clear that Flage Maskin intended to carry out the work related to traffic management itself for the public contract in question. The central question in the case before the Court of Appeal was, accordingly, whether Flage Maskin had documented sufficient experience of a relevant nature and degree of difficulty in relation to traffic management.

The Court of Appeal's assessment of the main issues in the case

Firstly, the Court of Appeal concludes that the Norwegian Regulation on Public Procurement ("FOA") Section 16-6 does not give the contracting authority access to obtain oral references concerning the execution of the reference projects, nor to rely on such information in the assessment of the selection criteria. According to the Court of Appeal's assessment, the contracting authority would need to have set out a special requirement for documentation of written certificates from previous contracting authorities if it wished to check the satisfactory execution of previous projects. The view of the Court of Appeal is supported by certain KOFA decisions and is based on a strict interpretation of the wording of the regulation, as well as the Norwegian Public Procurement Act's ("LOA") general principles of transparency, equal treatment and verifiability.

If the assessment is that a contracting authority should not have the right to contact reference persons for previous contracting authorities, it will mean that contracting authorities must change a practice which, for the vast majority, is perceived as both appropriate and necessary. The view that such reference information can only be documented through written certificates, which also potentially shall be obtained by the tenderer and presented as part of the tender, breaks with long-standing and established practice. In many cases, contracting authorities themselves want to have reference information verified and checked through direct contact with the sources of the information. The tenders themselves may give rise to the need for follow-up questions to the references provided.

The contracting authorities' possible inquiries to reference persons will have to be documented in the form of written notes from the conversations in order to meet the requirements for transparency and verifiability. Information that is obtained and used in the evaluation of the tenderer's qualifications will therefore be available in writing and included as part of the other documentation. Supplementary information that is obtained is otherwise limited to references provided by the tenderer itself.

Secondly, the Court of Appeal concludes that a requirement for documentation of up to five, and at least three, reference projects cannot be understood as a requirement for separate documentation of a company's own experience for each individual criterion (tasks) that falls under the area of ​​traffic management. The starting point was that Flage Maskin should carry out the traffic management work itself. To document its qualifications, Flage Maskin referred to projects where the company had the formal and overall responsibility for the traffic management work. The tenderer had therefore, in the Court of Appeal's opinion, documented the necessary experience and ability to execute the contract, even though the essential parts of the work of traffic management were carried out by subcontractors.

The Court of Appeal's decision on this point breaks with established practice from KOFA. The latter assumes that selection criteria relating to experience, as laid out in the Norwegian Public Roads Administration's procurement template, shall cover experience relating to the performance of all the main areas of the contract that are described in the tender documents.

It is a fundamental principle in procurement law that tenderers can rely on subcontractors to become qualified in areas where they themselves do not have the necessary expertise. If this is done, certain formal requirements must be abided by. It will involve a significant change in the understanding of the legal framework if the Court of Appeal's view is that it is sufficient that a tenderer, who has previously used a subcontractor in a specific area, should be considered qualified in subsequent tenders due to it having the overall responsibility for the work in question.

A substantial need for clarification

The Norwegian Supreme Court's assessment of these questions could have great practical significance for the future design of selection criteria and documentation requirements, as well as for the evaluation of the selection criteria.

The case also provides the Norwegian Supreme Court with the opportunity to set the course for assessing loss of earnings. Contractors who bring damages claims often use their calculated profit from the project in question as the only documentation for claiming damages for loss of profits. The amounts are often high. This has recently raised a debate on damages for loss of profits in the event of regulatory breaches in public procurement.

In the above-mentioned case, Flage Maskin was compensated for a loss based on the Court of Appeal's discretionary assessment within what was the company's usual interval for calculated contribution margin. In the specific case, the Norwegian Supreme Court will only rule on the question of damages if it concludes that the Norwegian Public Roads Administration has committed a breach. It is therefore uncertain whether we will get any clarification on this interesting question in the current case. Nevertheless, the Norwegian Supreme Court has the opportunity to also give comments on questions that are not of direct importance for the specific case, and we do hope they will.

This article was first published in Norwegian on Anbud365.

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