Anna Ulfsdotter Forssell and Kristian Pedersen of Advokatfirman Delphi analyse and account for the Swedish implementation of the Remedies Directive, in theory as well as in practice
The rules on, inter alia, standstill and ineffectiveness of contracts laid down in new Remedies Directive (2007/66/EC) were implemented in Sweden on 15 July 2010. The Swedish legislator has, in some respects, chosen to implement the new rules in a way which differs from that of many of the other EU member states. In practice, the rules have also been interpreted and applied by the Swedish general administrative courts in a manner that differs somewhat from that of their counterparts in other member states.
FACTS AND FIGURES ABOUT PUBLIC PROCUREMENT IN SWEDEN
In the context of public procurement, Sweden is best described as a very active market, both in terms of business and in terms of litigation. Due to a relatively large public sector, public procurement is of great importance for large parts of Swedish industry, and accounts for about 18 per cent of GDP. In many areas the public sector is by far the largest purchaser of goods, services and works, and in some sectors – such as public transport and MedTech – almost all business is conducted through public procurement.
In Sweden appeal cases in procurement matters (applications for review) are tried by the general administrative courts. In 2011 the administrative courts (ie, the general administrative courts of first instance) received 2,754 applications for review. Although this may sound like a very large number, according to studies carried out by the Swedish Competition Authority, only about 5 per cent of all procurement procedures in which a notice is published are tried by the courts, and there has actually been a decline in court cases since the 2010 all-time high (3,571). In 2011, the administrative courts found in favor of the suppliers in about 31 per cent of the cases, and in favour of the contracting authorities and entities in about 48 per cent of the cases. The rest were rejected or dismissed on formal grounds without examination on the merits. In 2011, about 27 per cent of the cases tried by the administrative courts were appealed to the administrative courts of appeal, which granted leave of appeal (a prerequisite for having the case examined on the merits) in about 36 per cent of the cases. In 2011, the Supreme Administrative Court received 257 appeals, and in eight cases the Supreme Administrative Court granted leave of appeal.
In Sweden, damages cases, which are tried by the general courts, are very rare. There are no reliable statistics, but the number of damages cases tried by the district courts (the general courts of first instance) every year is likely not to exceed 50. The main reason for this, it is submitted, is that suppliers in most cases find application for review to be a more suitable remedy, which is not too surprising since most suppliers prefer an outcome in which they are awarded the contract rather than just damages. In addition, case law from the courts of appeal has made an application for review, with the purpose of limiting the harm suffered by a breach of public procurement law, a prerequisite for being awarded damages.
IMPLEMENTATION, INTERPRETATION AND APPLICATION OF THE RULES ON REMEDIES
Standstill and automatic suspension (prolonged standstill)
After dispatch of the award decision (including a statement of the grounds for the decision), there is a standstill period of 10 calendar days, if the decision is sent by fax or electronic means (which is usually the case in Sweden), or 15 calendar days, if the decision is sent by other means, during which the contracting authority or entity may not conclude the contract with the chosen supplier. During the standstill period, another supplier may apply to an administrative court for review of the procurement procedure. (There are also some exceptional situations where no standstill period applies. However, these will not be dealt with in this article.)
If such an application is made during the standstill period, the standstill is automatically prolonged, ie, the procurement procedure is suspended until the court has had the opportunity to try the case. Hence, a supplier applying for review does not need to include a motion for an interim decision on suspension, since such a suspension is prescribed by law. The administrative court may decide to lift the temporary suspension. However, the Swedish legislator has indicated that such a measure is to be taken only in exceptional cases (where the application is manifestly unfounded) and unlike some of their counterparts in other Member States, the Swedish courts have been very reluctant to lift the temporary suspension before deciding a case.
The temporary suspension of the procurement procedure continues for a period of 10 calendar days after the administrative court has decided the case, making it possible for a supplier which has lost the case in the administrative court to lodge an appeal with the administrative court of appeal, without the contracting authority or entity being able to conclude the contract with the chosen supplier. However, an appeal in itself does not suspend the procurement procedure. Hence, a supplier appealing the administrative court’s judgment must include a motion for an interim decision on suspension in its appeal. In practice, such interim decisions are always granted by the administrative courts of appeal, suspending the procurement procedure until 10 days has elapsed after the administrative court of appeal has decided the case, either on the merits or by not granting the applicant leave of appeal. Previously the same procedure applied to appeals to the Supreme Administrative Court. However, recently there has been a shift in the Supreme Administrative Court towards a more restrictive view on granting interim decisions suspending a procurement procedure, so that such a suspension is granted only if it is likely that the Supreme Administrative Court later on will grant leave of appeal.
Ineffectiveness of contracts
It is also possible for a supplier to apply for review of the validity of a contract concluded between a contracting authority or entity and another supplier. The general administrative courts shall declare such a contract ineffective if:
• the contract has been awarded without prior publication of a contract notice, where such a publication should have been made (ie, in cases of illegal direct awards);
• if the contract has been awarded in breach of the rules on mini-competition based on framework agreements, and the supplier has suffered or risks suffering injury as a result of this; or,
• if the contract has been awarded in breach of a standstill period, prolonged standstill period or an interim decision suspending a procurement procedure, in conjunction with a breach of other provisions in public procurement legislation and the supplier has suffered or risks suffering injury as a result of this.
In exceptional cases, however, a general administrative court may decide not to declare a contract ineffective, although there are grounds for ineffectiveness, if there are overriding reasons relating to a general interest.
So far, there have been 71 court cases regarding ineffectiveness. Hence, it is already clear that ineffectiveness is a useful tool for combating illegal direct awards, and that the general administrative courts are reluctant to refrain from declaring a contract ineffective due to overriding reasons relating to a general interest.
If a contract is declared ineffective it becomes null and void, and none of the obligations arising from the contract can be enforced. Unlike what has been the case in many other member states, the Swedish legislator has, in choosing between the alternatives provided by the Remedies Directive, opted for ineffectiveness ex tunc (ie, from the outset), and not only ineffectiveness ex nunc (ie, for obligations not yet performed). This means that when a contract is declared ineffective, all obligations performed under the contract shall be reversed or, where this is not possible, that the economic equilibrium shall be restored. How the economic equilibrium is to be restored, where obligations performed cannot be restored, however, remains an open question until the matter has been settled in case law.
The Remedies Directive prescribes that the member states, in some situations, must provide for alternative penalties to be imposed upon contracting authorities and entities. This applies in cases where a contract, which should normally have been declared ineffective, is upheld by a general administrative court due to overriding reasons relating to a general interest, or where a contract which has been concluded in violation of the standstill period is upheld by a general administrative court, due to the fact that no other violation of procurement legislation has been committed.
According to the Remedies Directive, alternative penalties must be effective, proportionate and dissuasive. The provisions of the Remedies Directive let the national legislator choose between either the imposition of fines on the contracting authority or the shortening of the duration of the contract. The Swedish legislator has opted for the former, a fine to be imposed on the contracting authority or entity, in Swedish procurement legislation referred to as procurement fines.
In the cases where the Remedies Directive prescribes alternative penalties, the Swedish Competition Authority is obliged to apply to the administrative court for a fine being imposed on the contracting authority or entity, ie, in these situations it is mandatory for the Competition Authority to apply for the imposition of a fine. However, the Competition Authority can also apply for the imposition of a fine in an event where the Remedies Directive does not prescribe a duty for the member states to impose alternative penalties. This is the case when a contract has been awarded without prior publication of a contract notice, where such a publication should have been made (ie, in cases of illegal direct awards). However, when it comes to illegal direct awards, applying for a fine to be imposed is optional for the Competition Authority, ie, such an application is dependent on the Competition Authority choosing to prioritise the case.
The fine shall be no less than 10,000 kronor and no more than 10 million kronor, though with a maximum of 10 per cent of the value of the contract.
So far, the Competition Authority has applied for fines to be imposed in 27 cases of which 15 are mandatory applications, ie, cases prescribed by the Remedies Directive, and 12 are optional, ie, cases where alternative penalties are not mandatory according to the Remedies Directive (illegal direct awards). Some of these cases have already been decided by the administrative courts, and some have also been appealed to the administrative courts of appeal. However, the majority of the cases are still pending before the administrative courts, and it is likely to take some time before case law on the matter of procurement fines is established enough to allow for conclusions to be drawn on the efficiency of the alternative penalty chosen by the Swedish legislator.
Although it is still early days, we believe that the implementation of the Remedies Directive in Sweden has by and large been successful, striking a balance between the – sometimes conflicting – interests of, on the one hand, contracting authorities and entities, and on the other, suppliers. Admittedly, some problems remain to be solved, such as how a contracting authority or entity should act to temporarily meet its needs for goods, services and works during the courts’ handling of review case. However, the remaining problems should not be exaggerated, since there are solutions that can be implemented, such as providing the courts with additional resources and funding to enhance the turnaround time of review cases. A maximum time for the handling of a case in the administrative courts, as in Germany, could be a step in the right direction. In any case, the few problems that remain do not warrant major alterations to the Swedish implementation of the Remedies Directive, or measures that risk tilting the balance in favour of contracting authorities and entities, to the detriment of suppliers.