DECISION ON CHALLENGE

Kurzeme Planning Region [email protected] Valguma str. 4a 15.02.2024 nr 11.1-13/24/99 Riga, 1048 DECISION ON CHALLENGE Based on § 58 of the 2014-2020 Structural Assistance Act, annex 4 „Complaint procedure“ of the programme manual of the Estonia-Latvia programme 2014-2020 and clause 4 of § 85 of the Administrative Procedure Act, the State Shared Service Centre (hereinafter also “the SSSC”), acting as the Managing Authority, considering the opinion of the Complaint Panel of the Estonia- Latvia Programme 2014-2020, decides to: dismiss the challenge and not to repeal the Managing Authority’s Financial correction decision No 21 dating from 14 November 2023. The present Administrative Act may be appealed in accordance with § 47 subsection 2 of the Code of Administrative Court Procedure within 30 days from the announcement of the decision on challenge. 1. The basis for review of the challenge and the request of the person filing the challenge The Managing Authority reviewed the challenge based on § 58 of the 2014-2020 Structural Assistance Act and annex 4 „Complaint procedure“ of the programme manual of the Estonia- Latvia programme 2014-2020. The challenge was submitted on 13.12.2023 by Kurzeme Planning Region (hereinafter also “the complainant“). The request of the challenge is to repeal 14.11.2023 Financial Correction Decision (hereinafter also “the FCD“) No 21 by State Shared Service Centre. 2. Circumstances On 13.10.2017 the Managing Authority and Kurzeme Planning Region signed a subsidy contract for the implementation of the project „Improvement of sailing infrastructure and yacht harbours network building in Estonia and Latvia“ (hereinafter also “the project“). For the project, Kurzeme Planning Region acts as Lead Partner (hereinafter “the LP“). One of the project partners (hereinafter “the PP“) is Saarte Liinid Ltd. For the project, the PP carried out public procurements No 199174 „Ringsu sadama väikelaevasadama laiendus“ (hereinafter “procurement No 199174“) and No 198843 „Munalaiu sadama väikelaevasadama laiendus II“ (hereinafter “procurement 198843“). During the system audit No JKS-49/2022, the Auditing Authority identified that in both procurements (No 199174 and No 198843) the violation of the Public Procurement Act (hereinafter “the PPA“) occurred, because various standards were mentioned without adding words „or equivalent“. The SSSC made a financial correction decision (on 14.11.2023, No 21) by which the Managing Authority decided: • 5% of the costs of the contract „Ringsu sadama väikelaevasadama laiendus“ of the PP Saarte Liinid Ltd are ineligible; • 5% of the costs of the contract „Munalaiu sadama väikelaevasadama laiendus II“ of the PP Saarte Liinid Ltd. are ineligible. The Managing Authority came to the conclusion that in procurements No 199174 and No 198843 there were various standards mentioned without adding the words „or equivalent“, which violates subsection 3 of § 88 of the Public Procurement Act and therefore a rate of 5% financial correction must be applied. 3. Reasoning of the challenge The complainant finds that the Managing Authority has not considered arguments or comments to the draft FCD in accordance with discretion rules and has not fulfilled the obligation to give a proper reasoning. The violation underlying the FCD is that the PP failed to add words “or equivalent” to all the standards included in the building design documentation, which were part of Ringsu and Munalaiu procurement documents. The complainant remains of the opinion, that as three tenders were submitted in both Ringsu and Munalaiu, then there are no grounds to assume, that there were unjustified obstacles to the competition. The complainant does not agree with the Managing Authority’s statement that interested entrepreneurs were not aware of the options to submit tenders based on equivalent standards. There were several clear possibilities to consider. An interested potential tenderer could rely on subsection 3 of § 114 of the PPA, which prohibits contracting authority to reject a tender with equivalent standards. The complainant emphasizes – section 5.1 of the technical specifications of Ringsu and Munalaiu procurements clearly stated that equivalent “products and materials” could be offered. Therefore, the Managing Authority’s conclusion, that section 5.1 of the technical specifications only covers product standards, is clearly unfounded (“it [section 5.1] only covers the product standards”, see page 6 of the FCD). The complainant is of the opinion that the Managing Authority has not properly analysed and considered the PP’s arguments based on procurement contract terms and conditions, namely sections 3.1.3 and 8.1.3 of applicable General Terms of Construction Contracts (hereinafter “the ETÜ 2013”). The complainant is of the opinion that this Managing Authority’s statement is clearly not true, and this alone constitutes a grave discretion error, which should lead to the repeal of the FCD. Regulation in given sections of the ETÜ 2013 is not limited to “substitution of a single product or material”, as the Managing Authority finds. Section 3.1.3 of the ETÜ 2013 allows the contractor “to deviate from the requirements of the building design documentation”. Section 8.1.3 of the ETÜ 2013 provides contractor’s right to “make amendments in the building design documentation”. The complainant is of the opinion that it is evident that all the standards, which constitute the alleged violation, are parts of the building design documentation and therefore, “design solutions”, which are open to amendments in accordance with procurement contracts’ terms and conditions. There are no limitations in these sections which exclude the possibility to carry out the procured works based on equivalent standards, no matter how comprehensive or important they are. The complainant draws the Managing Authority’s attention to the fact that section 8.1.3 of the ETÜ 2013 also states, “If it concerns equivalent construction products, design solutions or equipment, then the customer shall not refuse to provide the consent”. Therefore, all interested entrepreneurs could consider, that they are able to carry out the works based on equivalent works, even if all standards named in the building design documentation disclosed by the PP during Ringsu and Munalaiu procurements did not have words “or equivalent” added to them. The complainant does not agree with the Managing Authority’s consideration that the alleged violation is significant. The Managing Authority has not provided an observable explanation, why the PP’s argumentation was not deemed relevant. As the alleged violation, according to recent judicial practice, did not discriminate against any potential interested entrepreneur nor hinder competition, then it cannot have an actual or potential negative impact on EU budget. The lack of negative impact on EU budget is further solidified by examples of the PP public procurements, where all PP § 88 (2) documents were covered by the general equivalency clause, but the actual number of tenders was even lower than in Ringsu and Munalaiu. The complainant is of the opinion that, even if words “or equivalent” did not explicitly cover all standard of the building design documentation, such a violation shall be deemed formal in terms of 14 May 2019 Commission decision C(2019) 3452 annex. 4. Position of the State Shared Service Centre Based on subsection 1 of § 83 of the Administrative Procedure Act, upon review of a challenge, the lawfulness and purposefulness of the issue of the administrative act shall be verified. According to § 54 of the Administrative Procedure Act an administrative act is lawful, if it is issued by a competent administrative authority pursuant to legislation in force at the moment of the issue, is in accordance with the legislation in force, is proportional, does not abuse discretion, and is in compliance with the requirements for formal validity. The Managing Authority is of the opinion that all arguments were taken into account when preparing the FCD. The FCD consists of appropriate legal basis, is in accordance with the legislation in force, is proportional, does not abuse discretion, and is in compliance with the requirements for formal validity. The Managing Authority explains that it is compulsory to add words “or equivalent” to all the standards mentioned in the procurement documents. According to subsection 2 of § 88 of the Public Procurement Act, when issuing technical specifications, the contracting authority or entity may rely among others on different standards. Subsection 3 of § 88 of the Public Procurement Act specifies that every reference that the contracting authority or entity makes in the technical specifications to any basis mentioned in subsection 2 of this section is accompanied by the words “or equivalent”. As stated in the FCD, it is an explicit obligation; in which case the legislator has not provided for exceptions to deviate from its compliance or to interpret the content of the obligation in an expansive manner. Therefore, it is obligatory to add the words “or equivalent” when referring to a specific standard. The purpose of this is to open the procurement to competition as much as possible. There were three tenders in both procurements (Ringsu and Munalaiu) and this has been taken into consideration when determining the appropriate rate for the financial correction in the FCD. However, without adding the words “or equivalent” to specific standards, there have not been equal conditions for submitting tenders for all companies on the market and as a result, the range of tenderers might be limited. Therefore, potential tenderers might have refrained from submitting their tender. Although according to subsection 3 of § 114 of the PPA it is not allowed to reject a tender if the tenderer proves in its tender by a method acceptable to the authority or entity by any relevant items of evidence that the solutions offered by the tenderer meet the requirements set out in the technical specifications, it doesn’t mean that contracting authority can fail to fulfil the conditions stipulated in subsection 3 of § 88 of the PPA. The Managing Authority emphasizes that according to § 2 and clause 1 of § 3 of the PPA, it is necessary to carry out the public procurement transparently. Therefore, the regulation of subsection 3 of § 114 of the PPA doesn’t excuse the violation of subsection 3 of § 88 of the PPA. The technical specifications must enable public procurement to be open to competition. The contracting authority has permitted to use equivalent products and materials (see section 5.1 of Ringsu and Munalaiu technical specification) but standards mentioned in procurement documents without words “or equivalent” cover also construction works in general. Therefore, there are still standards mentioned in Ringsu and Munalaiu procurement documents, which are not permitted to be replaced by equivalent standards by potential tenderers. The Managing Authority finds that the PP’s reference to the ETÜ 2013 sections 3.1.3 and 8.1.3 is not relevant. The draft of the public contract, which is a part of procurement documents, makes a reference to the ETÜ 2013, but this does not mean that the ETÜ 2013 becomes a part of the procurement documents. Therefore, the possibility to substitute products, project solutions or equipment based on the ETÜ 2013 does not apply before the procurement contract is awarded. The violation is significant and is not formal. There are various standards in the procurement documents (listed in the FCD) that do not have the words “or equivalent” added, which would cover different types of construction works. As explained in the FCD, it is obligatory to add the words “or equivalent” whenever referring to a specific standard based on subsection 3 of § 88 of the PPA. The legislation does not allow any exceptions from this rule. According to general principles of the PPA, the contracting authority treats all persons cited in the clause 2 of § 3 of the PPA equally and makes certain that all restrictions and criteria imposed on the persons are proportional, relevant and reasoned in relation to the purpose of the public procurement. As expressed in the FCD, it must be possible to submit tenders based on various technical solutions, standards and technical specifications in use on the market. This is essential to make use of the competition and to get the best tender possible. In order to avoid restricting competition, the use of the words 'or equivalent' was necessary. Therefore, the impact of the irregularity in question on the resources of European Union cannot be excluded. Due to the nature of the irregularity, it is not possible to determine the precise financial impact and a rate of determined financial correction must be used. The Managing Authority explains additionally that appropriate rate of financial correction for both irregularities in question (procurements No 199174 and 198843) is 5%. In the FCD, the Managing Authority has exercised the right of discretion and has taken into consideration the seriousness of the violation and relevant circumstances (for example, the number of tenderers). The Managing Authority explains that applying a lower rate than 5% is not justified because in both procurements there were various standards and guidelines without the words „or equivalent” and the volume of work covered by them. Thus, it cannot be assumed that they concern an insignificant part of the contract or are only formal. It is not possible to factually check or determine the circle of persons interested in the procurement, as it includes not only the persons or tenderers registered for the procurement, but also all those persons who could have handled the execution of the procurement contract by themselves and met the requirements for participation in the procurement, if there were the words “or equivalent” used for all aspects covered by the procurement documents. Therefore, it is not possible to exclude the potential expansion of the number of possible participants in public procurement. As stated in the FCD, there is a possibility that the circle of persons participating in the procurement could have been wider, if the contracting authority had enabled to offer equivalent solutions aligning with the standards outlined in the detailed plan contained in the technical description of the procurement. The challenge was sent to the Complaint Panel of the Estonia - Latvia Programme 2014-2020. The Complaint Panel examined the challenge and documents related to the challenge. The Complaint Panel came to the conclusion to support the Managing Authority’s Financial correction decision No 21 dating from 14 November 2023. Due to the above, the Managing Authority remains by the opinions and decisions stated in the Financial correction decision. Therefore, the Managing Authority’s Financial correction decision No 21 dating from 14 November 2023 shall not be repealed. (signed digitally) Ege Ello Head of the Maganing Authority Heli Simson 663 8210 [email protected]