State Aid Claims to Torpedo Public Contracts After 2 August 2017?
Автор: Елизавета Ковальская
Джерело: Джерело: The Ukrainian Journal of Business Law. – Червень 2017. – с.18-19
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State Aid Claims to Torpedo Public Contracts After 2 August 2017?

For a long time, the remedies system applicable in the event of a breach of public procurement laws in Ukraine has been mainly of pre-contractual nature. In turn, post-contractual remedies proved very hard for a claimant to pursue and have been generally seen as less effective.

Having lost a tender, an aggrieved party normally files a complaint with the Antimonopoly Committee of Ukraine (AMCU) and suspends the tender process. If the challenger is unsuccessful and the AMCU rejects the complaint, the suspension is lifted (even where the AMCU decision is under judicial review) so nothing prevents the contracting authority and the winning tenderer from concluding the contract. Once the contract is concluded, it is hard to set it aside. Courts rarely cancel the decisions of the AMCU in such cases. According to the AMCU's 2016 annual report, only 5 AMCU decisions (0.1%) were canceled in 2016 and are still pending cassation review. Importantly, even where this happens, there are normally no consequences for the concluded contract and its parties.

This paradigm, however, may be changed with the inception of Ukraine's state aid regulatory system on 2 August 2017, once the Law of Ukraine On State Aid to Undertakings No. 1SSS-VII of 1 July 2014 (State Aid Law) comes into full effect. Adoption of the State Aid Law and a roll-out of state aid regulation in convergence with the EU acquis are required under the EU-Ukraine Association Agreement (Association Agreement). Notably, some of the provisions of the new law are not entirely in line with the acquis. Namely, the State Aid Law does not apply to aid granted for investments in infrastructure projects using state procurement procedures. This suggests that many public contracts may escape the application of state aid rules.

Yet, such concerns may be unwarrantedly exaggerated. In particular, the Association Agreement requires Ukraine to interpret the State Aid Law using as sources of interpretation criteria stemming from the EU law and practice. In turn, under the EU practice, automatic exemption of public contracts from state aid control will contravene Article 107 (1) of the EU Treaty. Indeed, in the EU such contracts may still fall within the scope of the state aid regulation and be prohibited if qualified as state aid. More specifically, the use of competitive, transparent and non-discriminatory public tenders has generally been considered by European courts and the EU Commission as sufficient to presume that no state aid is provided to the economic operator selected as a result of the procedure. What appears to be the key question to rule out state aid in public procurement is whether the latter favours certain undertakings by giving them an economic advantage. This line of reasoning was articulated in a number of cases, in particular, London Underground Public Private Partnership and Welsh Public Sector Network Scheme.

London Underground Public Private Partnership case related to modernisation of London Underground by way of a Public Private Partnership (PPP) and was notified by the UK authorities to the EU Commission in 2002. In this case the Commission verified whether the tender procedure was "open, transparent and non-discriminatory" by assessing, inter alia, whether the type of tender procedure was chosen correctly, whether tender notices were published in advance to ensure that the market had as much time as possible to prepare for participation, whether evaluation of the tender offers was appropriate, etc. Analysis of the EU Commission showed, that "in the absence of evidence indicating wrongdoing, it can therefore be concluded that the tendering process conducted by London Underground in respect of this PPP was open, transparent and non-discriminatory. On this basis, and according to the traditional practice of the Commission, it can therefore be concluded that the arrangements reflect a market price and therefore that the PPP arrangements do not constitute State aid"1.

Welsh Public Sector Network Scheme2 related to the procurement of broadband services for the public sector in Wales and was notified by the UK authorities to the EU Commission in 2006. Having analysed it, the EU Commission concluded that the award of the contract would not lead to an economic advantage that the service provider would not receive under normal market conditions. In particular, the award was planned to be given "to the economically most advantageous tender, using criteria which correspond to the objective of achieving best value for money. Cost effectiveness [was] ensured over the entire duration of the contract via implementing appropriate mechanisms [...]. Furthermore, there [was] no extra advantage resulting from the contract for the service provider. Beyond the initial order fixed in the public service contract, there [was] no obligation for public service organizations to use the connectivity services provided by the service provider".

The aforesaid EU decision practice suggests that a discriminatory, non-transparent procurement procedure in Ukraine failing to guarantee the "best value for money" public purchase may trigger serious consequences for its beneficiaries. In particular, if the court cancels the decision of the AMCU in a public procurement case, the aggrieved party may theoretically complain to the AMCU, arguing that the service provider, which had already concluded the contract with the awarding authority, has in fact received unlawful state aid. Moreover, under the State Aid Law, this complaint may be accompanied with a request to suspend the state aid measure. Essentially, this means that the AMCU may issue an interim injunction suspending the implementation of the contract. Then, the AMCU may take a negative decision finding that this procurement procedure involved state aid to the winning service provider and requesting that the latter pay it back (including the interest accrued on the amount of the aid). To this end, adoption of the State Aid Law may provide tenderers with an effective quasi-remedy, deter the contracting authorities from breaching the rules, and build confidence among businesses that public procurement procedures are fair.

Among the specific problems in this area that the State Aid Law may indirectly address is the issue of the race to contract implementation. Namely, as mentioned above, once the AMCU rejects a complaint from a wronged party, the latter is unable to effectively prevent a contract from being signed and implemented (or this happens too late in the process to correct the wrong award). This weakness is exploited by awarding authorities and winning tenderers are being tempted to sign and implement the contract as soon as possible in order to make the consequences of the disputed award hardly reversible. However, after 2 August 2017, the awarding authorities and winning bidders should reasonably be deterred from this rushing as forcing the signing and implementation of the contract may ultimately mean scoring an own goal.

1 Case N 264/2002 London Underground Public Private Partnership, para 79;

Case C-280/00 Altmark Trans and Regierungsprasidium Magdeburg [2003] ECR I-7747, para 93.

2 Case N 46/2007 "Welsh Public Sector Network Scheme".