Every day, dozens of public procurements take place in various forms, and these often relatively demanding processes usually involve conflicting interests between bidders and public procurers. Act No. 343/2015 Coll. on Public Procurement regulates the procedures for awarding contracts, as well as the so-called review procedures, i.e. procedures that allow bidders to respond to individual conditions and requirements of public contracting authorities if they consider them unlawful, or to defend themselves against exclusion, incorrect evaluation of bids, or other actions of the public contracting authority (e.g. cancellation of public procurement). This means that the contracting authority is obliged to reimburse the costs incurred by the tenderer in preparing the tender.
These costs also include costs incurred in exercising their rights under review procedures. However, the law does not contain any provisions on compensation for damages and, with regard to the reimbursement of costs, it de facto stipulates that the costs shall be borne by the individual parties, regardless of the outcome of the proceedings.
The question for interested parties and tenderers is therefore usually how the contracting authority is liable for errors and breaches of public procurement law. Of course, the fact that contracting authorities bear administrative and legal responsibility is important, but the fact that the contracting authority may be penalized in the form of a fine does not compensate the tenderer for the costs incurred or other forms of damage. In this regard, there should therefore be a mechanism in place through which such aggrieved tenderers can claim compensation for costs or damages. The existence of such a mechanism is confirmed in particular by European legislation, namely:
- Council Directive 89/665/EEC of 21 December 1989 on the coordination of laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts, which in Article 2(1)(c) provides that "Member States shall ensure that the measures taken with regard to the review procedures referred to in Article 1 include the power to award damages to persons injured by an infringement."
- Council Directive 92/13/EEC of 25 February 1992 coordinating the laws, regulations and administrative provisions relating to the application of Community law on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors under which Member States are to ensure that the measures they take regarding review procedures include the power to award damages to persons injured by an infringement of the law.
The fact that tenderers should be entitled to compensation for damage caused by an unlawful procedure of a contracting authority is also confirmed by numerous judgments of the General Court and the Court of Justice of the European Union, with the Court of Justice of the European Union stating in one of its judgments that "claims for damages based on a breach of public procurement law by the contracting authority are independent of the condition that the breach was caused by fault."
At first glance, it may seem logical that the above mechanism is regulated by Act No. 514/2003 on liability for damage caused in the exercise of public authority and on amendments to certain acts. However, case law has clearly established that "public procurement is not an exercise of public power, but a private law act of public power on the market, and therefore Act No. 514/2003 Coll. on liability for damage caused in the exercise of public authority (hereinafter referred to as "Act No. 514/2003 Coll.") to acts of municipalities related to the procurement of municipal property."
The previous paragraph therefore leads to the conclusion that liability for damage in the event of unlawful conduct by a public contracting authority is governed by the liability regime under the Civil Code, but for a long time there has been no clear conclusion in court practice as to whether liability for damage in the event of unlawful conduct by a public contracting authority is governed by the Civil Code or the Commercial Code, with the conclusion on the application of the Civil Code being adopted by the Supreme Court of the Slovak Republic, which, in its decision, ref. 3MCdo/40/2012, in a case concerning the liability relationship between the contracting authority and the entity that submitted the tender, that "... in the given case, there was no breach of the obligations imposed by the Commercial Code, and the fulfilment of the conditions for this liability must be assessed in accordance with the general legal provisions on liability for damage, which are the provisions of the Civil Code, including the right to claim performance as a result of raising an objection of limitation."
However, in order to claim damages caused by the unlawful conduct of a public contracting authority, it is necessary to prove that the general conditions for liability for damages have been met. In this regard, we would like to quote the decision of the Constitutional Court of the Slovak Republic, file no. II. ÚS 507/2017, according to which "The prerequisite for a civil claim for damages caused by the contracting authority to an interested party/participant is unlawful conduct, i.e. a violation of the Public Procurement Act, the occurrence of damage and causality between the damage and the unlawful conduct. The contracting authority shall be relieved of liability if it proves that it did not cause the breach. The amount of damages will depend on the position of the injured party and will generally be aimed at compensating the injured party for what they incurred in connection with their participation in the procurement (negative interest) and only in exceptional cases at compensating them for what they would have gained by concluding the contract (positive interest)." The Constitutional Court also noted that the most common cases where compensation for damage comes into consideration are the cancellation of the procurement procedure and the unlawful exclusion of a tenderer.
The unlawfulness of the conduct of the contracting authority, as one of the conditions for liability for damage, can be proven, for example, by a decision of a public authority – the Public Procurement Office. In this regard, the Supreme Court of the Slovak Republic, in one of its decisions, ref. no. 3MCdo/40/2012, found that the procedure of the contracting authority was unlawful, as the unlawfulness was confirmed by a decision of a public authority, namely the Public Procurement Office.
Based on the above, it follows that tenderers who have been harmed by the unlawful conduct of the contracting authority are entitled to claim damages in the form of purposefully incurred costs, which they incurred, for example, in preparing their bids or objections, in order to remedy the unlawful conduct of the contracting authority.
Finally, we would also like to refer to the recent decision of the Court of Justice of the European Union in Case C-547/22, which is groundbreaking in the case law of the courts of the Slovak Republic, as it established that tenderers excluded from public procurement due to an unlawful decision by the contracting authority are entitled to compensation for the loss of opportunity to participate in the public procurement procedure with a view to obtaining the contract in question. In this respect, it concerns compensation for damages in the form of "loss of opportunity," which we will discuss in more detail in the following articles.
The law firm Hronček & Partners, s. r. o. continues to focus intensively on public procurement issues and we will be happy to assist you with any questions you may have regarding public procurement services.
