In last month’s newsletter, Lindahl reported on decisions by the Administrative Court of Appeal in Stockholm and the Administrative Court of Appeal in Sundsvall not to admit two procurement cases that had been appealed before each court.
Although the cases were not admitted – and thus left a question mark with regard to the questions of fact – they provided answers to important questions about the possibility of appealing supervisory decisions and the deadline for the Swedish Competition Authority to submit an application for a procurement fine. This month, the courts also adopted a position on a couple of important procurement law questions.
The telecommunications exemption and internal procurement (The Administrative Court of Appeal in Göteborg, case no. 4018-22)
In January 2021, without any prior announcement, Halmstads Fastighets AB (HFAB) entered into two agreements with Halmstads Stadsnät AB (HSAB) regarding fibre networks. Both HFAB and HSAB are (indirectly) owned by the Municipality of Halmstad. Another supplier applied for a declaration that the agreements are invalid and alleged that the procurement in question was an unlawful direct procurement. HFAB argued that the so-called telecommunications exemption and the exemption for internal procurement were applicable.
With regard to the telecommunications exemption in Chapter 3, section 6 of the Public Procurement Act (LOU), the Administrative Court of Appeal finds that it is not applicable because the service procured is not aimed at providing or operating a public communications network or providing an electronic communications service for the general public. That is because the end customers of the service are HFAB’s tenants and the service is not available to the general public because a lease agreement is required in order to use the service.
With regard to internal procurement in Chapter 3, sections 11–16 LOU, the Administrative Court of Appeal finds that the so-called business criterion is not met because HFAB does not primarily carry out its activities for the Municipality. According to the Administrative Court of Appeal, this is because HFAB carries out activities aimed at the private market in competition with other housing companies.
Comment
In its judgment, the Administrative Court of Appeal applies a restrictive view regarding the possibility of entering into agreements with municipal companies without any prior announcement. The fact that the decisive question in the Administrative Court of Appeal’s assessment of whether the business criterion was met was not whether the controlled company carried on its activities on behalf of the Municipality, but whether the activities were carried on in competition with other operators, is particularly interesting with regard to the exemption for internal procurement. Even though in this case HFAB carried out its activities – rental of municipal housing – on behalf of the Municipality, they were not considered to be activities carried out on behalf of the Municipality because HFAB competes with private landlords. This is despite the fact that the Municipality has an obligation to provide housing for the members of the Municipality and that the Municipality would have been present on the market to the same extent had the Municipality chosen to carry out that housing supply activity in the form of management.
One could also envisage a municipal company that only receives income from the Municipality, for example a company that rents out premises to the Municipality. That business would also be carried on in competition with other private property companies which, according to the Administrative Court of Appeal’s reasoning, would mean that the business criterion is not met (despite the fact that the company only receives income from the Municipality). Such an approach thus considerably narrows the scope of applicability for internal procurement.
The judgment has been appealed before the Supreme Administrative Court and it will be interesting to see what the Supreme Administrative Court’s assessment of the matter is (if leave to appeal is granted).
Overall nature of the contract (Administrative Court of Appeal in Stockholm, case no. 7456-22)
The Police Authority had carried out a procurement for a framework agreement for salvage services and destruction. In the procurement, the authority made use of a particular model for calculating the remuneration. The remuneration model was adjusted during the term of the agreement which resulted in, among other things, a fixed price being paid for a larger area than originally intended as well as changes in the prices themselves.
The Administrative Court of Appeal found that the changes were significant, above all because it seems likely that the amended conditions – had they been included in the original procurement – would have meant that the outcome of the evaluation would have been different.
The Police Authority had argued that the changes were permitted in accordance with Chapter 17, section 9 LOU because they were of lower value and did not mean that the overall nature of the framework agreement had changed. However, the Administrative Court of Appeal considered that the changes in question had led to a dramatic change in the parties’ obligations and that the result of the previous procurement could be presumed to have been affected in a way that was relevant. The changes had therefore altered the overall nature of the contract and the provision in Chapter 17, section 9 LOU was not applicable, regardless of the value of the changes.
Comment
The Administrative Court of Appeal makes interesting statements in the case about what constitutes a change in the overall nature of an agreement. The Administrative Court of Appeal initially considers the agreement to have been substantially altered because the changes could have led to a different outcome for the evaluation. The Court must then assess whether the exemption clause relating to permitted changes of lower value is applicable. One of the prerequisites for this is that the overall nature of the agreement must not have changed. The Administrative Court of Appeal then finds that the overall nature of the agreement has changed because the result of the original procurement could have been affected had the amended terms existed from the beginning.
In principle therefore, the Administrative Court of Appeal applies the same criteria to determining whether a significant change exists at all as it does to determining whether the substantial change is permitted in accordance with an exemption provision. If such an application is correct, it risks limiting the situations in which the exemption provisions are applicable.
However, this judgment has also been appealed before the Supreme Administrative Court, so hopefully we will also have a ruling from the highest court on this interesting question soon.
