Exclusion due to competitive advantage?

Ruling issued by the Complaints Board for Public Procurement on 22 April 2020, Hydrema Danmark A/S v the Danish Ministry of Defence Acquisition and Logistics Organisation

Back in November 2017, the Danish Ministry of Defence Acquisition and Logistics Organisation ("DALO") launched a public procurement procedure for the award of a framework agreement for the supply of services, spare parts and accessories for construction machinery and tractors. The award criterion was "lowest price". Hydrema Export A/S ("HE") won the procurement and was awarded the contract. However, as a result of a complaint from United Military Services A/S ("UMS"), DALO decided to terminate the contract with HE, as they (now) considered HE's tender to be non-compliant. As a consequence of its complaint, UMS got access to HE's tender, including – by mistake – some unit prices that were readable despite they had been crossed out by DALO.

In June 2019, DALO launched a new procurement procedure during which Hydrema Danmark A/S ("HD") – a sister company of HE – and UMS submitted tenders, this time with UMS as the winner. HD then complained that UMS's tender ought to have been rejected, as UMS had had an unfair competitive advantage due to their knowledge of some of HE's unit prices from the first procurement procedure.

Ruling of the Complaints Board

The Complaints Board initially stated that the fact that both HE and HD were part of the Hydrema Group meant that they would have (approximately) similar unit prices, and that access to HE's unit prices in the first procurement therefore also constituted access to HD's unit prices in the second procurement.

However, according to the Complaints Board, UMS had not gained any real competitive advantage from the access to information. In this connection, the Complaints Board emphasised in particular that, due to the nature of the contract put out to tender (standard spare parts), DALO could not change the award criterion from "lowest price" to "best price-quality ratio"; and that, due to the nature of the error and the extent of the unit prices that UMS gained access to, DALO could not exclude UMS from participating in the procurement procedure. In addition, the Complaints Board emphasised that the access to information about HE's unit prices did not allow UMS to see through and gain full insight into HD's underlying calculation and structure of the unit prices in the second procurement procedure.

Note that the number of unit prices accessible was 18, and the number of units recurring in the second procurement was 168. The total number of unit prices was 718.

Real competitive advantage

The Complaints Board's ruling shows that a tenderer must have obtained a real competitive advantage before the contracting entity is obliged to exclude the tenderer from a procurement procedure. In the practical world, it is probably very rare that you obtain a real competitive advantage from having gained access to information – which is a right that everyone has. In any case, UMS had not obtained a real competitive advantage, as only a few of the unit prices were readable; also, UMS could not calculate the remaining unit prices based on the information they had access to.

Moreover, in the event of a real competitive advantage, the contracting entity can often compensate for it. See for example our previous coverage (in Danish) of a Complaints Board ruling of 15 April 2020, JSK Container A/S v I/S Vestforbrænding, where the contracting entity, by disclosing all information and extending the deadline for submission of tenders, compensated for the competitive advantage that a tenderer had obtained by carrying out preparatory work for the contracting entity. Note that such compensation would not – probably – have been possible in the present case (that is, if UMS's knowledge of HD's unit prices had constituted a real competitive advantage).

Read the ruling issued by the Danish Complaints Board for Public Procurement (in Danish).