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EU conflict of interest case shows value of clear audit trail for public procurement processes, says expert

Public sector bodies and consultants' firms need to have a clear audit trail to show that they have considered potential issues that could crop up during a procurement process, including conflicts of interest, an expert has said.13 Dec 2012

IT procurement law specialist Simon Colvin of Pinsent Masons, the law firm behind Out-Law.com, said that a recent case involving the European Commission showed the importance of identifying potential conflicts of interest at an early stage in a tendering process.

The European Ombudsman has recommended that the Commission make a payment to an unidentified company over what the watchdog said was "maladministration" during a procurement process. The process related to the search for a contractor to provide technical assistance and training to the Albanian Ministry of Agriculture and National Food Authority.

The Ombudsman, which is responsible for investigating complaints and maladministration by EU bodies and institutions, said that the involvement of an employee of the successful bidder for the contract in drafting the 'terms of reference' for the procurement in the first instance had led to "an apparent conflict of interest".

The Ombudsman said that neither the successful bidder nor the individual employee had "provided sufficient evidence to show that the latter's involvement did not give rise to unfair competition" and that therefore the Commission had failed to follow EU rules. Under those rules "any firm or expert participating in the drafting of the Terms of Reference must, in principle, be excluded from participating in the tender in question, unless they can prove to the institution that their involvement in previous stages of the project does not constitute unfair competition," the Ombudsman said in its ruling.

The watchdog said that the Commission should make a payment to an unsuccessful bidder that had complained about the Commission's handling of the procurement process "in order to try and offset the negative consequences resulting from the maladministration that has occurred".

"Making such a payment would show, without establishing any precedent, that the institution cares for the complainant and, at the same time, provides a positive response to a specific complaint," the Ombudsman said. "This would be beneficial, not only to the individual, but also to the institution, insofar as it would improve the latter's relations with citizens."

Simon Colvin said that the Ombudsman's findings should serve as a reminder over the responsibilities both public sector bodies and private sector consultants have when involved in procurements.

"Before involving third parties to support procurement processes both the government and the third party need to consider actual and potential conflicts of interest, including even the creation of an impression that a conflict arises," Colvin said.

"Our advice to clients both on the public and private sectors involved in public procurements, is there should always be a very clear audit trail up front which addresses any perceived procurement challenge issues which may be raised later in the process. In this case the Commission did not have an audit trail addressing the point. The parties did not consider this in advance – the firm or expert would have had to have demonstrated in advance that its involvement did not constitute unfair competition," he added.

"Often private sector bodies use 'ethical walls' – information barriers – to assist in demonstrating that their involvement on the procurement side and bidding side doesn’t provide them with an unfair advantage. The efficacy of such arrangements in the context of public procurements wasn’t considered in this case, and there are questions regarding the practicality of these arrangements in public sector procurements in practice," the expert said.

"Of course the other salutary reminder for public sector bodies that are bound by the full extent of the EU procurement legislation, which did not apply to this case for the Commission, is that a contract can be set aside after award where a breach of procurement rules occurs," Colvin said.

"If a body is required to comply with the full extent of the procurement legislation, the rules require a mandatory pre-contract standstill period once a preferred bidder is selected but before contract signature. More importantly, running a standstill period will ensure that the set aside remedy can not apply, although other remedies would remain available however. Both public sector bodies, and suppliers that are selected as preferred bidder, will have an interest in ensuring that the procurement process has been run according to the rules, and that a standstill is used to extinguish the set aside risk," he said.

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