Settling a dispute – does it mean re-tender?

A recent decision of the ECJ has potentially concerning consequences for any public authority which finds itself in dispute with its supplier under a public contract.

In Finn Frogne AS v Rigspolitier, a Danish authority had tendered a contract for the supply and maintenance of a communications system to be used by the emergency response services. The contract was awarded, but a dispute later arose between the authority and the winning bidder regarding the performance of the contract.

The parties managed to reach a settlement by which it was agreed that the scope of the contract would be greatly reduced. This was not an outcome the authority had particularly desired but was necessary as a result of the operational difficulties experienced by the winning bidder.

With its transparency obligations in mind, the authority published a voluntary notice setting out the anticipated changes to the contract. Another bidder then brought a challenge to the decision to reduce the scope of the contract, on the ground that the changes were so material that they constituted a new contract which the authority was obliged to re-tender.

The ECJ upheld the challenge, agreeing that the reduction in scope of the contract was a material change and confirming that changes to public contracts, once awarded, can only be made in accordance with specific provisions set out in the contract.

This was an unfortunate outcome for the authority, which had sensibly sought a resolution to its dispute with the winning bidder, but it acts as an important reminder to any authorities involved in disputes over public contracts to consider the procurement implications of any proposed settlement. Conversely bidders should always consider monitoring the ongoing performance of contracts they have not won, in case the opportunity to challenge arises at a later stage, which may lead to a further opportunity to tender.