Even if a prequalified tender applicant has merged with one or more other companies, the company can still enter into a contract for the assignment.
Read attorney Hans Sønderby Christensen’s article published on Thursday, December 2, 2019, on Jyllands-Posten’s website here or download it as a PDF here.
In 2016, the Italian company Infratel Italia SpA (“Infratel”) announced a restricted tender for the construction, maintenance, and operation of a public ultra-broadband network on behalf of the Ministero dello Sviluppo Economico (Ministry of Economic Development, Italy). The tender was divided into five tender lots.
In a restricted tender, the tender procedure starts with a prequalification round of interested tenderers. This means that the contracting authority, in this case Infratel, selects a limited number of tenderers based on a number of selection criteria, who can then submit tenders. Telecom Italia SpA (“Telecom”), Metroweb Svillupo Srl (“Metroweb”) and OpEn Fiber SpA (“OpEn Fiber”) were among the applicants prequalified by Infratel. Although Metroweb was prequalified, it did not submit a tender subsequently. However, both Telecom and OpEn Fiber did.
In 2017, Infratel published the preliminary rankings in connection with the submission of tenders. OpEn Fiber placed first in all five tender lots. Telecom placed second in all tender lots except for one, where the company placed third. OpEn Fiber was then awarded the contracts for all five tender lots.
After the result of the tender, Telecom gained access to the documents that formed the basis for the award. It appeared from this that between the prequalification and the submission of tenders, Metroweb and OpEn Fiber had entered into a merger agreement, according to which OpEn Fiber would take over Metroweb. The agreement had been notified to the Commission, which had not opposed the merger. The merger was only finally entered into after the award had taken place, but before the contracts were signed.
Telecom subsequently brought an action before the Tribunale amministrativo regionale del Lazio (the regional administrative court for Lazio) regarding the decision to award the five contracts to OpEn Fiber. Telecom argued that, as a result of the merger with Metroweb, there had been a change in OpEn Fiber’s identity. Telecom was unsuccessful and therefore appealed the decision to the Consiglio di Stato (the supreme court in administrative cases), which chose to refer a question to the CJEU for a preliminary ruling.
The question to be answered by the CJEU concerned the rules in the EU’s Public Procurement Directive, according to which only prequalified applicants can submit tenders in a restricted tender. The question was whether the rules should be interpreted as meaning that there is a requirement for legal and material identity between prequalified applicants and tenderers. This included the question of whether the rules in that case preclude a prequalified applicant from submitting a tender when the applicant, between the prequalification and the submission of tenders, has entered into a merger agreement with another prequalified applicant, which is only implemented after the submission of tenders.
The CJEU began by referring to the fact that the EU law principles of equal treatment and transparency also apply in connection with tenders. According to these principles, all companies participating in a tender procedure must be treated equally, and all companies must have equal opportunities to be awarded the contract that is the subject of the tender in question. It would therefore be contrary to EU law if a company gained an advantage by not having to meet the same conditions as competing companies. A strict application of the principle of equal treatment will therefore, as a starting point, lead to the fact that a company that is prequalified must not make changes to its legal and material identity.
The CJEU stated that in the present case it was undisputed that there was legal identity between OpEn Fiber at the time when the company was prequalified and this company at the time of the submission of tenders, as OpEn Fiber had continued as a company after the merger. On the other hand, according to the CJEU, there was no material identity between OpEn Fiber at the time when the company was prequalified and the time when the tender was submitted. This was because OpEn Fiber, in connection with the merger, had taken over the economic and technical capacity that had previously been in Metroweb.
The CJEU then examined whether the principle of equal treatment could nevertheless be considered to have been complied with. In this connection, the CJEU referred to its own established case law in the area. According to this practice, the principle of equal treatment cannot be considered to have been violated if two conditions are met. Firstly, the continuing company must meet the selection criteria that the contracting authority has laid down as part of the prequalification round. Secondly, the continuing company’s participation must not lead to a deterioration in the competitive position of the other tenderers.
The CJEU then examined whether the conditions were met in the specific case. With regard to the first condition, the CJEU noted that this condition is met when the change in the company’s material identity solely implies that the company’s economic and technical capacity is increased. This was the case in the present case, and the condition was therefore met.
With regard to the second condition, the CJEU stated that a merger does not in itself worsen the competitive situation for the other tenderers. The EU law rules on merger control specifically aim to ensure that free and undistorted competition in the internal market is not threatened by merger transactions such as those in the main case. When a company complies with the rules on merger control, it cannot be assumed that this company’s participation in a merger, which solely aims to strengthen the company’s economic and technical capacity, can lead to a deterioration in the competitive position of the other tenderers. In the present case, the merger was approved by the Commission. The principle of equal treatment was therefore not violated by the merger itself, and the second condition was thus met.
On this basis, the CJEU then answered the question posed by stating that the EU’s Public Procurement Directive does not preclude a prequalified applicant from submitting a tender when the applicant, between the prequalification and the submission of tenders, has entered into a merger agreement with another prequalified applicant, which is only implemented after the submission of tenders.
The decision also has significance in Denmark. First and foremost, Danish authorities must observe the procurement rules. In addition, the CJEU has now established that a public authority cannot exclude a company that has been prequalified from submitting a tender if the company merges with another company. However, the company must be excluded if, after the takeover, the company no longer meets the selection criteria, or if the competitive position of the other tenderers deteriorates as a result of the takeover.
