On February 16, the Department of Administrative Cases of the Senate (Supreme Court) left unchanged the judgment of the Administrative District Court, which rejected the application of public transport service providers regarding the decision of the Procurement Monitoring Bureau to reject the objections regarding the compensation scheme for public transport service providers.

The Senate had previously suspended the proceedings in the case and addressed the Court of Justice of the European Union for a preliminary ruling in order to find out how to apply norms of EU law when determining the amount of compensation.

In the present case, the state-owned limited liability company “Autotransporta direkcija” announced an open tender, which envisaged the conclusion of the procurement contract with public transport service providers for the term of 10 years. Applicants – “Nordeka” JSC, “Tukuma auto” LTD, “DOBELES AUTOBUSU PARKS” LTD, “CATA” JSC, “VTU Valmiera” LTD, “Jelgavas autobusu parks” LTD, “Jēkabpils autobusu parks” LTD, “Daugavpils autobusu parks” LTD, “Talsu autotransports” JSC and “Sabiedriskais autobuss” LTD – challenged the provisions of the procurement regulation. The applicants stated that the procurement regulations and the draft procurement contract do not provide for an appropriate compensation mechanism, as applicants must be able to forecast the price of the offered service for the next 10 years, however, the procurement contract does not provide for a comprehensive procedure for reviewing the price of the service if the costs that affect this price change. The Procurement Monitoring Bureau rejected the applicants' objections.

In its judgment, the Senate indicates that the answer of the Court of Justice of the European Union to the question asked by the Senate confirms the reasoning of the Administrative District Court and generally rejects the opinion of the applicants, the cassation complainants, that according to Regulation No 1370/2007 all objectively justified expenses incurred by transport service providers when providing services have to be compensated.

In the judgment, the Senate refers to the reasoning of the Court of Justice of the European Union. First of all, the Court of Justice of the European Union stated that the Regulation itself provides that the competent state authorities, when exercising their discretion, can provide for such a compensation scheme, which, taking into account the compensation calculation parameters and cost distribution procedures established by these authorities, does not automatically guarantee the covering of these costs in full to a public transport service provider. In addition, this also applies to costs that do not depend on the service provider itself. Secondly, the Court of Justice of the European Union states that any compensation scheme must also aim at promoting greater efficiency of the public transport service provider, however such a scheme, which under any circumstances guarantees the automatic coverage of all costs related to the execution of the public service contract, does not include an incentive to increase efficiency, as the service provider concerned does not have to limit its costs. Whereas, a scheme, which does not automatically cover all these costs but transfers certain risks to the public service provider, could facilitate the achievement of this objective. Thirdly, the compensation scheme that is established by awarding contracts directly by a tendering procedure can in itself guarantee the public transport service provider the coverage of its costs, which also ensures the provider with adequate compensation, the amount of which may vary depending on the level of risk the provider is willing to take.

In the judgment, the Senate states that the tender and the principle of competition in itself is a factor that balances the readiness of both contracting parties to enter into a contract with defined conditions, which at the same time guarantees efficient use of funds and quality service.

Insofar as unreasonably cheap offers cannot be detected, it is a risk for both contracting parties to set the terms of the tender, to submit offers and to accept them – and the need to identify and manage these risks in competitive conditions does not in itself indicate that the proposed compensation scheme is disproportionate. The Senate indicates that, in the case under consideration, the contracting parties may have eventually faced greater difficulties than they were initially aware of, but this first of all points to errors in the assessment of risks, rather than creates a basis for requiring the exclusion of such risks from the regulation of the procurement procedure, thus envisaging the compensation of all costs.

Judgment of the Senate. Case No SKA-6/2024 (A420300719)

 

Baiba Kataja, Communication Specialist of the Supreme Court of Latvia

Telephone: +371 67020396; e-mail: baiba.kataja@at.gov.lv