Important ruling of the Tenders Review Authority

Vitaemed Ltd v. State Health Services Organisation, Recourse No. 21/2022, Tenders Review Authority, decision dated 26 September 2022

Lack of competence of the contracting authority's organs — Impermissible delegation of powers by "internal regulations" — Sections 7 and 14 of Law 73(I)/2017 and Regulation 4 of Regulatory Administrative Act 242/2012 — The hierarchy of the sources of law — The excluded tenderer's right to be informed

The facts

The applicant company participated in the tender of the State Health Services Organisation (OKYpY) for the supply of reagents and equipment for the needs of the Organisation's Biochemical Laboratories (Tender No. 21/21). Its tender, lower by €1,447,010.57, was excluded on the ground that it failed to satisfy terms of the tender: the contracting authority attributed to the company "false declarations" as to the experience of members of the proposed project team, incorrect completion of the form evidencing economic and financial standing, and failure to submit requested clarificatory material in time.

By its recourse before the Tenders Review Authority, the applicant advanced as its first and principal ground of annulment the unlawful constitution and lack of competence of the organs which handled the tender, the Evaluation Committee and the Tender Board, contending that the Board of Directors of OKYpY had no power to establish such organs and transfer its competences to them. It also challenged the substance and lawfulness of the grounds of exclusion, the adequacy of the inquiry conducted, and the failure to inform it of the award of the contract.

The legal issues

1. Competence of the organ as a precondition of validity of the administrative act. The Review Authority examined the ground of lack of competence as a matter of priority, being an issue of public order. It recalled that, under sections 15 and 17 of the General Principles of Administrative Law Law, Law 158(I)/1999, a basic precondition for the validity of an administrative act is the lawful existence and competence of the organ issuing it; lack of competence leads to annulment, while an organ to which competence has been unlawfully transferred does not thereby become competent, and its acts are tainted by invalidity.
2. The impermissibility of delegating powers by "internal regulations". The core of the decision lies in the interpretation of sections 7 and 14 of OKYpY's founding statute, Law 73(I)/2017, in conjunction with Regulation 4 of Regulatory Administrative Act 242/2012, which applies to bodies governed by public law. The power to conclude public contracts belongs to the Board of Directors itself (section 7(1)(f)), while section 14 permits the delegation of powers only to the Director General. Regulation 4(2) of RAA 242/2012 does allow the establishment of other organs to handle tender matters, but only "where this is feasible under the law establishing and governing" the organisation, a possibility which Law 73(I)/2017 does not afford. The Board of Directors, by issuing "internal regulations" authorising the Head of the Purchasing and Supplies Unit and establishing a Tender Board with power to award contracts, in substance delegated its powers without statutory authorisation (see Tasni Environmental Engineers v. Nicosia Sewerage Board (1996) 4 C.L.R. 2862). It was further observed that the "internal regulations" were erroneously founded on RAA 201/2007, whereas for bodies governed by public law the applicable instrument is RAA 242/2012.
3. The hierarchy of the sources of law. The decision reiterates the fundamental principle (Spatalos v. Republic, Consolidated Cases Nos. 277-279/99, judgment dated 3.7.2001) that the sources of law are ranked in a hierarchy, Constitution, statute, regulatory administrative act, and that an inferior source cannot restrict or circumvent a superior one. "Internal regulations" of an administrative organ cannot substitute for the express statutory authorisation which section 17(4) of Law 158(I)/1999 requires for any transfer of power.
4. The excluded tenderer's right to be informed. Although the conclusion on lack of competence sealed the fate of the contested decision, the Authority, for the future guidance of the parties, rejected the contracting authority's position that it was under no obligation to inform the applicant of the award: section 54 of Law 73(I)/2016 must be read as a whole, and in the light of the case law of the Court of Justice of the European Union (C-131/16 Archus, C-333/18 Lombardi, C-771/19), under which an excluded tenderer is entitled to challenge the acceptance of another tenderer on any ground, the notification cannot but extend to the award of the contract as well.

The outcome

The recourse succeeded and the decision excluding the tender was annulled, having been taken by organs lacking competence. The successful applicant was represented by our firm.

Significance of the decision

The significance of the decision extends well beyond the confines of the particular tender.

First, it places a clear limit on a widespread administrative practice: the "functional" reorganisation of public procurement procedures through internal regulations and authorisations which find no basis in the law. Bodies governed by public law cannot establish tender boards or vest officials with decision-making powers in tender procedures unless their founding statute expressly so permits. Where the statute names a specific permissible delegate, here, only the Director General, any other transfer of power is of no effect.

Secondly, it reminds economic operators of a most powerful and often overlooked avenue of challenge: scrutiny of the competence and lawful constitution of the organs of the tender procedure. This ground, being one of public order, is examined as a matter of priority and, if it succeeds, annuls the contested decision in its entirety without any need to examine the merits, in this case, without the serious allegations of "false declarations" ever having to be adjudicated.

Thirdly, it aligns domestic practice with EU case law on transparency towards excluded tenderers: a contracting authority cannot exclude a tenderer and at the same time keep it in the dark as to the outcome of the tender, since the tenderer's legitimate interest in challenging the award remains live.

This text is intended for general information purposes only and does not constitute legal advice. For any information regarding the judgment or for tailored guidance, please contact our firm.