Loss of opportunity: when the EU must compensate unsuccessful bidders

An unsuccessful tenderer whose bid was unlawfully rejected by an EU institution has two remedies before the General Court: annulment of the award decision under Article 263 TFEU, and compensation under the second paragraph of Article 340 TFEU. Annulment is comparatively common. Compensation, until 2015, was practically never obtained: lost-profit claims failed because the tenderer could not prove that it would have won, and the more modest head of damage, the loss of a chance to win, had never resulted in an award. Two judgments of the General Court in the European Dynamics litigation against OHIM (now the European Union Intellectual Property Office, EUIPO), in which JuriSpectrum's founding partner acted for the applicants at first instance, changed that. Two appeal judgments of the Court of Justice then largely reversed it, and in doing so defined what a bidder can realistically expect today.

Three conditions, and a problem of proof

Non-contractual liability of the EU requires three cumulative conditions: unlawful conduct amounting to a sufficiently serious breach of a rule of law intended to confer rights on individuals, actual and certain damage, and a direct causal link between the two. In procurement cases the first condition is often satisfied once the award decision has been annulled. The difficulty lies in the second and third. A tenderer claiming its lost margin must show that, had the evaluation been lawful, it would have won, a counterfactual that the contracting authority's broad discretion in evaluating bids makes almost impossible to establish. The General Court's earlier judgments in the same litigation, T-300/07 (2010) and T-536/11 (2015), illustrate the pattern: whatever the fate of the award decision, no damages were awarded.

T-299/11 and T-556/11: loss of opportunity recognised

In T-299/11 (judgment of 7 October 2015) the General Court annulled OHIM's decision ranking the applicants' bid third in a cascade of framework contracts for programme and project management and IT consultancy (tender AO/021/10). It found that OHIM had applied a weighting between sub-criteria that had not been disclosed to tenderers, that its reasons on one award criterion were insufficient and that the evaluation contained manifest errors of assessment. It then held that the applicants had suffered actual and certain damage in the form of the loss of the opportunity to be awarded the framework contract as the first-ranked contractor, that this loss was causally linked to the illegalities found, and it directed the parties to agree the amount of compensation, failing which to submit their own figures to the Court. On 27 April 2016, in T-556/11 (EUIPO, software development and maintenance, tender AO/029/10), the General Court followed the same approach: annulment of the rejection and of the cascade awards, and compensation for the lost opportunity to be ranked at least third. These were the first EU judgments to compensate a tenderer for a lost chance rather than for lost profit.

C-677/15 P and C-376/16 P: the Court of Justice draws the line

EUIPO appealed both judgments. In C-677/15 P (judgment of 20 December 2017) the Court of Justice set aside the damages part of T-299/11 and, giving final judgment on that point, dismissed the claim for compensation. Two strands of reasoning matter. First, one of the illegalities on which the General Court had built its award, the undisclosed weighting, was itself set aside: under settled case law a contracting authority may fix weighting factors for sub-criteria after the tender deadline provided they do not alter the award criteria, contain nothing that could have influenced the preparation of the tenders and were not adopted with discriminatory intent, and the General Court had not examined those conditions. Second, the Court recalled that an insufficient statement of reasons is not, in itself, conduct capable of giving rise to the EU's liability. What remained, manifest errors in the scoring, had not been shown to have caused the loss of the opportunity claimed. The annulment of the ranking decision was left intact. In C-376/16 P (judgment of 3 May 2018) the Court reached the same result for T-556/11: the points of the operative part dealing with damages were set aside, the damages claim was dismissed and the annulment stood.

What this means for bidders today

Loss of opportunity remains a recognised head of damage; the Court of Justice did not say otherwise. What it insisted on is discipline in establishing the causal link. Three practical consequences follow.

• Separate the grounds. A failure to state reasons is a reliable ground for annulment and a useless one for damages. A claim must rest on substantive illegalities (manifest error of assessment, departure from the published criteria, unequal treatment) and show how each changed the outcome.
• Build the counterfactual from the record. The evaluation report, the scores and the gap to the position claimed are the evidence; if correcting the errors would not have moved the bidder up the ranking, there is no lost chance to compensate.
• Quantify the chance realistically. Compensation for a lost opportunity is a fraction of the expected margin weighted by the probability of success, not the full profit on the contract; prepare that calculation, with the underlying cost and margin data, before lodging the action.

Two procedural points complete the picture. The damages claim is independent of the action for annulment, but the five-year limitation period under Article 46 of the Statute of the Court of Justice runs from notification of the rejection decision, not from any later annulment (Case C-469/11 P). And the two-month period for annulment cannot be recovered by pleading damages instead.

The General Court opened the door to compensation for a lost chance. The Court of Justice did not close it, but it placed the burden of proving the causal link squarely on the tenderer.

This article is provided for general information only and does not constitute legal advice. It reflects the law and the authors' views at the date of publication. For advice on a specific situation, please contact the firm.