Strasbourg, 22 April 2002

Dear Mr M.,

On 15 May 2001, you made a complaint (received here on 6 June 2001) concerning the European Commission's handling of Tacis project FDRUS 9902.

On 11 June 2001, I forwarded the complaint to the Commission for its comments.

Further information in relation to your complaint was provided by you on 11 September and 2 October 2001, and I forwarded a copy thereof to the Commission on 19 September and 4 October 2001 respectively.

The Commission sent its opinion on your complaint on 24 October 2001, and I forwarded it to you on 29 October 2001 with an invitation to make observations, if you so wished. On 25 November 2001, you sent me your observations on the Commission’s opinion.

On 5 December 2001, I wrote to the Commission in order to ask for further information in relation to your complaint. The Commission sent its answer on 30 January 2002, and I forwarded it to your for your observations on 13 February 2002.

On 20 March 2002, you sent me your observations on the Commission’s reply to my request for further information.

I am now writing to let you know the results of the inquiries that have been made.

THE COMPLAINT

The complainant is the director of AFCon Management Consultants, an Irish firm. In 1999, the firm was invited to tender in competition with seven other EU companies (or consortia) for Tacis project FDRUS 9902 (Agricultural Extension Services in South Russia). One of the other tenderers was GFA – Gesellschaft für Agrarprodukte mbH, a German company.

The complainant claimed that AFCon finished first in the technical evaluation and in a subsequent technical re-evaluation whilst GFA was rated third (first evaluation) and second (re-evaluation). The total value of the contact was 2.5 million €, of which 1.6 million € for fees and direct expenses and 0.9 million € for 'reimbursables'. This last item included 0.5 million € for training costs and 0.2 million € for replication and dissemination. The contract was in the end awarded to GFA since its offer (2.131.870 €) was cheaper than AFCon’s.

The complainant claimed that according to the rules governing the tender and the information provided by the Commission, the tenderers had to provide (1) a document giving a breakdown of prices prepared in accordance with the format of annex D of the draft contract and (2) a summary of staff input and that these documents had to be consistent(1). According to the complainant, GFA had failed to comply with this requirement. According to point C.2.1 of the ‘Instructions to Tenderers’, the ‘breakdown of prices’ should be prepared in accordance with the format of annex D of the draft contract. The complainant submitted a copy of this form. According to the complainant, training was clearly and unambiguously included under reimbursable costs and did not include fees. The complainant also submitted copies of what were, according to him, the breakdown of prices and the summary of staff input that had been submitted by GFA. The breakdown of prices that had allegedly been submitted by GFA recorded a total of 2 190 man days for EU experts and of 2 250 man days for local experts whilst the summary of staff input lists 2 687 man days for EU experts and 4 615 man days for local experts. The complainant claimed that this was only possible since GFA had used the amount foreseen for 'reimbursables' to include staff costs and thus masked its real costs, contrary to the rules. In its view, this also reduced the amount available for training purposes, to the detriment of the beneficiaries in Russia.

The complainant submitted a copy of a fax message that appeared to have been sent by the Commission’s services in reply to a question asked by the complainant’s firm in relation to Tacis project FDRUS 9901. According to this reply, the budget for training, replication and dissemination should stay entirely under ‘reimbursables’ in order "to keep the bids comparable". According to the complainant, this project was established under the same programme, at the same time and governed by the same rules and regulations as the one at issue in the present case.

On 31 January 2001, the complainant wrote to the Commission’s EuropeAid Co-operation Office to ask the latter to reconsider its tender. In this letter, the complainant raised the issue of the alleged discrepancy between GFA’s ‘breakdown of prices’ and ‘summary of staff input’. In its reply dated 28 February 2001, the Commission took the view that there were no inconsistencies between GFA’s technical and financial proposal and that the clarification issued by the Commission for project FDRUS 9901 could not be applied to project FDRUS 9902.

The complainant further claimed that according to Article 12 (4) of the General Regulations applicable to the tender, no tenderer or member of its staff or any associated person "shall take part in the evaluation" of the tender. However, according to the complainant Mr F., a full-time employee of one of GFA’s junior partners, was one of the evaluators in the first evaluation. In the complainant’s view, a contract awarded to a company in such circumstances should have been cancelled according to the relevant rules. The complainant added that since Mr F. had been a team leader on a project in Ukraine before and after the evaluation, the evaluator and the tenderer had both been aware of the serious breach of rules regarding the direct conflict of interest yet neither had revealed it. The records would show that Mr F. placed GFA ahead of AFCon in his evaluation. According to the complainant, the Commission had remained silent until it called for a second evaluation in May 2000.

Finally, the complainant alleged that the rules applicable did not permit subsequent changes in the financial presentation or methodology of project implementation but provided for the possibility of staff changes in the case of the unavailability of staff proposed in the original tender. According to the complainant, the result of the second evaluation had been that GFA was promoted to second place behind AFCon on technical merit but won the project on the financial package. The complainant alleged that GFA’s financial presentation broke normal accepted practice and regulations for financial presentation and that the regulations allowed for cancellation of such a tender.

According to the complainant, GFA had installed its team leader in September 2000 and had notified the Tacis officials six weeks later that he was no longer available. Still according to the complainant, another long-term team member proposed by GFA had not even been asked to take up his position.

On 18 December 2000, the complainant wrote to the Commission to raise this matter. He took the view that the price that had been proposed by GFA was not enough to allow this company to achieve a sufficient margin, given that GFA had proposed "a non market price for good quality professionals". In the complainant’s view, "unscrupulous" companies had two options to recover their profit position in such circumstances. First, they could try and reduce the fee rates agreed with the experts they had proposed or replace these experts by cheaper ones. In this context, the complainant raised the question as to whether the technical quality of GFA’s bid had been enhanced by the "ploy of using the best available but expensive senior experts, whom they had no intention of putting into the field for longer than a month or two, and then substituting [them] with other specialists who would not have gained as much marks at the technical evaluation". Second, these companies could try and reduce the rates paid to local experts and omit paying social security contributions and other amounts to them. The complainant took the view that both options were improper. To support his view, he referred to Special Report no. 16/2000 of the Court of Auditors on tendering procedures for service contracts under the Phare and Tacis programmes. The complainant concluded that the fact that GFA was replacing the majority of its long-term team very early in the project implementation phase clearly indicated that it had secured the contract by deception. According to the complainant, this letter had not been replied to by the Commission.

The complainant further noted that in January 2001, he had received a copy of GFA’s financial proposal from a source that he needed to protect. According to the complainant, it emerged from this information that the project was implemented by a contractor who was only supplying a fraction of the inputs that AFCon had proposed.

The complainant made five allegations which however overlapped each other and could therefore more suitably be summarised as follows:

1) The Commission incorrectly awarded the contract to GFA although the latter had failed to comply with the rules applicable to the tender, namely the rule that the breakdown of prices and the summary of staff input had to be consistent and the rule that the budget for 'training' had to remain entirely under 'reimbursables'.

2) The Commission failed to take appropriate action although there was a conflict of interest, given that Mr F. was one of the evaluators.

3) The Commission failed to take appropriate action although GFA replaced more than two thirds of its long-term team within a matter of weeks after the signature of the contract.

The complainant subsequently forwarded to the Ombudsman a transcription of part of the 3rd Monitoring and Evaluation report for the project dated 6 August 2001 that in his view clearly confirmed the views he had expressed in his complaint. In the complainant’s view, there was clear evidence of a misapplication and waste of EU taxpayer’s funds. The complainant asked the Ombudsman to include the two issues numbered 4 and 5 respectively in the original complaint in his inquiry. In the former of these points, the complainant had taken the view that the Commission had permitted the substantial diminution of the overall budget of the project by allowing the transfer of reimbursable expenses to technical inputs and support services, which had the double effect of reducing the overall total funds for project implementation and reducing the amount really available for training procedures and dissemination. In the last point, the complainant had queried what mechanism had been used to keep the bids comparable when obviously different presentations of the use of reimbursables had been submitted by tenderers.

The complainant’s further letter was forwarded to the Commission who was asked to take account of its contents in its opinion.

THE INQUIRY

The Commission’s opinion

In its opinion, the Commission made the following comments:

Following the publication of a restricted tender procedure, the complainant’s firm and consortium GFA were among the short-listed companies invited to submit a tender for the relevant Tacis project. The evaluation took place on 16 and 17 December 1999. The result of this was that GFA was recommended best bidder, with the complainant’s firm in second place. In March 2000, it was decided to cancel the tender evaluation when it was discovered that a potential conflict of interest existed between a member of the evaluation committee and GFA. The re-evaluation of the tenders took place on 15 and 16 May 2000, with a newly constituted evaluation committee.The outcome was the same as for the first evaluation committee. The contract was thus signed with GFA in August 2000.

The complainant’s firm had written to the Commission in this matter on 9 October 2000. A reply had been sent on 9 November 2000. Further letters had been sent by the complainant’s firm on 18 December 2000 and on 31 January 2001 to which the Commission had replied on 28 February 2001. On 15 March 2001, the complainant had acknowledged receipt of this last letter but reaffirmed his view that the GFA proposal was in breach of the regulations.

Regarding the individual allegations, the Commission made the following comments:

1. The terms of reference for the project concerned gave no specific instructions regarding the allocation of funds under the budgets for training and replication/dissemination. The provisions of the terms of reference concerning the budget breakdown were complied with by GFA in its proposal.

Clarifications regarding tender dossiers referred specifically to the tender in question. The clarification issued to tenderers for Tacis project FDRUS 9901 could not be applied to project FDRUS 9902. New formats had however been introduced since that contained very precise instructions to tenderers in order to avoid different interpretations.

GFA had indicated the same man-day input in its technical proposal and its financial proposal, and the division of man-days between technical assistance and replication/dissemination was also indicated in both the technical and financial proposal. There was therefore no distortion of intended project outputs in GFA’s proposal. GFA’s fee rates were in line with market rates.

2. After the evaluation of tenders had been carried out on 16/17 December 1999, the Commission learnt that Mr F. had at that time been working as a team leader on a project in Ukraine for a company belonging to Stoas-Holding Group (Stoas Agri-projects Foundation being a member of the GFA consortium). Mr F.’ CV had contained no reference to this activity, and he had made no mention of it at any point during the evaluation procedure. The Commission investigated the matter as soon as it had been made aware of the situation. Given the conflict of interest arising from these circumstances, it had been decided to cancel the tender evaluation and to re-evaluate the offers using evaluators who had not been members of the original evaluation committee. Furthermore, task managers had been instructed that Mr F. should not be appointed as a member of evaluation committees in the future. According to Article 12.4 of the General Regulations for Tacis tenders, "No Tenderer, member of his staff or any other person anyhow associated to the Tenderer for the purpose of the Tender shall take part in the evaluation of the Tender in question". The Commission had ensured compliance with this provision by cancelling the evaluation committee in which Mr F. had participated.

3. Three months after the signature of the contract, the Commission had been informed that the team leader originally proposed by GFA was unable to perform his duties due to ill health. On this basis, the Commission had accepted the replacement of this expert. According to Article 18.2 of the General Conditions for Service Contracts, if it becomes necessary to replace a member of staff on account of sickness, the contractor may propose a replacement provided that it receives the written approval of the Contracting Authority. Contrary to the complainant’s claim, there had been no further replacement of long-term experts for this contract. A proposal for the replacement of a second long-term expert had been received by the Commission in recent weeks, and was currently under consideration. In its letter of 18 December 2000, AFCon had accused GFA of making drastic changes in its team without however substantiating this allegation. AFCon had put forward specific grounds for reconsideration of the contract award in its subsequent letter of 31 January 2001, which the Commission had answered on 28 February 2001.

The Commission thus rejected the complainant’s allegations and maintained that the contract had been awarded to GFA in conformity with Tacis tender rules.

The complainant’s observations

In his observations, the complainant maintained his complaint and submitted the further following comments:

Mr F. and GFA had both hidden the fact causing the conflict of interest to their advantage. According to the rules, both should have been removed from the tender process.

Only one of the three resident specialists nominated by GFA had taken up a full-time position.

The Guidelines for the preparation of the technical and financial proposal clarified that the figures given in Annex D (breakdown of remuneration) should exactly reflect the figures in annex B (summary of input of staff).

The result, especially of the transfer of reimbursable items to mask a very under-staffed project, was evident in the Monitoring and Evaluation Report of the project dated 6 August 2001 that had indicated that there were problems and an urgent need to review the situation.

Further inquiries
Request for further information

In the light of the above, the Ombudsman considered that he needed further information to be able to deal with the complaint. He therefore asked the Commission (1) to explain the reasons for which it considered that experts’ fees could be included under section D of the ‘breakdown of prices’ despite the fact that the latter distinguished between "A. Fees" and "D. Reimbursable items" and (2) to specify the reasons why the clarification issued to tenderers for Tacis project FDRUS 9901 should not be applicable to project FDRUS 9902.

The Commission’s reply

In its reply, the Commission made the following comments:

At the time when the tender was launched, there were no specific rules to prohibit the inclusion of fees under reimbursable items. On the contrary, it was common to include budgets for specific activities under reimbursable expenses even though parts of these budgets were effectively fees or direct expenses. Concerning the disputed training element, tender FDRUS 9902 only provided that a sum of 0.5 million € should be allocated for training. Thus, it was not prohibited to include fees for trainers in the training budget. The tender dossier was unspecific in this regard and therefore opened different interpretations. The approach to include fees for trainers under the budget for training had been applied not only by GFA but also by another tenderer (Swedfarm). Also the proposal by a further tenderer (ADAS) to partly subcontract the training budget was not in contradiction with the requirements stipulated in the tender dossier. The different approach used by AFCon was an interpretation that had been considered acceptable as well. However, it was not more justified than any other approach that had been applied.

At the time of tender FDRUS 9902, tender information could only be clarified in accordance with Article 9 of the General Regulations, requiring a written response to all tenderers to a request for clarification. While a clarification received in another tender procedure could serve as a justification for the own chosen approach in a similar situation, it was not possible to argue that another tender had failed to comply with the rules applicable. Otherwise, tenderers could no longer rely on the information they received in the tender dossier for the project for which they tendered.

Regarding the specific substance of the clarification for project FDRUS 9901, this clarification did not stipulate that reimbursable items should not include fees in order to keep the bids comparable. It stipulated that in order to keep the bids comparable it was requested that the budget for training remain entirely under "Reimbursable".

The complainant’s observations

In his observations on the Commission’s reply to the Ombudsman’s request for further information, the complainant maintained his complaint.

THE DECISION

1 Incorrect award of contract

1.1 The complainant works for an Irish company (AFCon) that took part in the tender for the Tacis project FDRUS 9902 (Agricultural Extension Services in South Russia) organised by the European Commission. The contract was in the end awarded to GFA, a German company, that had quoted a better price. The complainant claims that by doing so, the Commission acted incorrectly. He claims that GFA failed to comply with the rules applicable to the tender, namely the rule that the breakdown of prices and the summary of staff input had to be consistent.

1.2 The Commission takes the view that the terms of reference for the project concerned gave no specific instructions regarding the allocation of funds under the budgets for training and replication/dissemination and that the provisions of the terms of reference concerning the budget breakdown were complied with by GFA in its proposal. According to the Commission, GFA had indicated the same man-day input in its technical proposal and its financial proposal, and the division of man-days between technical assistance and replication/dissemination was also indicated in both the technical and financial proposal. The Commission adds that it was not prohibited to include fees under reimbursable items and that another tenderer had used the same approach. In the Commission’s view, the approach used by AFCon was also acceptable but not more justified than GFA’s approach.

1.3 The Ombudsman notes that according to the documents submitted by the Commission(2), GFA indicated in its summary of staff input that its EU experts falling within one of four categories (I to IV) would provide a total of 2 687 man-days, 2 200 of which under heading A (‘Technical Assistance’) and 487 under heading B (‘Training/Replication and Dissemination’). Similarly, it was indicated that local experts would provide 4 615 man-days, 2 250 under heading A and 2 365 under heading B. The same figures appear on the bottom of GFA’s ‘Financial proposal’ (or breakdown of prices). Technically speaking, the Commission is thus correct in claiming that GFA used the same figures in both documents.

1.4 Regard should be had to the fact, however, that according to point C.2.1 of the ‘Instructions to Tenderers’, the ‘breakdown of prices’ had to be prepared in accordance with the format of annex D of the draft contract(3). This annex D is a table divided in four parts (A. Fees, B. Per-diem, C. Direct Expenses and D. Reimbursable items). Part ‘A. Fees’ is sub-divided into three sections – ‘Western Experts’, ‘Local Experts’ and ‘Support staff’. The section ‘Western Experts’ is again sub-divided into four categories (I to IV). According to the documents provided by the Commission, GFA duly used this form and gave figures for each of these four categories of EU experts, for local experts and for support staff. Regard should further be had to the ‘Guidelines’ for the preparation of Annex D. Point 4 under ‘Fees’ reads as follows: "Clearly separate western experts, local experts, local support staff. Please use the same category/title in the Annex D as in Annex B and C. The figures given in Annex D (for each category or individual exper) should exactly reflect the figures in the time allocation chart (time spent on the project for each expert) submitted as part of Annex B (Summary input of staff)."

1.5 The instructions given to tenderers thus stress that the information provided in the ‘breakdown of prices’ should exactly and for each category reflect the information given in the ‘summary of staff input’. It can hardly be denied that this condition is not met in GFA’s case, even if one takes into account the information added at the bottom of the ‘breakdown of prices’ submitted by that company. An exact correspondence only exists for the man-days provided by EU experts (2 200) and local experts (2 250) under heading A.

1.6 The Commission submits that the approach used by GFA was nevertheless acceptable, since there were no rules expressly excluding it. This argument cannot be accepted in the present case for at least three reasons.

1.7 First of all, the above-mentioned instructions would be without purpose if tenderers could simply disregard them. In particular, the structure of Annex D inviting tenderers to set out the man-hours provided by EU experts for each of the four categories listed there would make no sense if further man-hours provided by such experts could be added elsewhere.

1.8 Second, it has to be borne in mind that the relevant rules appear to have the aim of making the bids submitted comparable. In a clarification issued with regard to Tacis project FRDUS 9901, the Commission expressly referred to the need "to keep the bids comparable". The Commission is correct in arguing that this clarification is not directly applicable to other projects such as the one at issue here, although it did not appear to dispute the complainant’s claim that both projects were established under the same programme, at the same time and governed by the same rules and regulations. However, the Commission has not shown that the need to keep bids comparable only applied to project FDRUS 9901 and not to the one at issue here.

1.9 Third, accepting the approach followed by GFA allowed this company to increase the number of experts and of the man-days provided by these experts at the expense of the budget for training. The Commission has provided a table setting out the weight to be attributed to the various factors on the occasion of the technical evaluation of bids. It emerges from this table that the profile of the experts fielded by tenderers accounted for 45 % and thus nearly half the mark that was given. The Commission’s approach was thus clearly likely to favour tenderers who adopted an approach such as GFA’s.

1.10 It is good administrative practice in tender procedures for the administration to adhere to the rules established for these procedures. In view of the foregoing, the Ombudsman considers that by allowing tenderers to include experts’ fees under reimbursable items the Commission failed to comply with the rules applicable to the tender and the aim pursued by these rules. This constitutes an instance of maladministration. In view of the fact that the complaint to the Ombudsman does not include any claim for redress and that the maladministration does not appear to have any general implications, the Ombudsman will close the case with a critical remark.

1.11 In the light of this finding, the Ombudsman considers that there is no need for him to continue his inquiry into the two further allegations raised by the complainant in his letters of 11 September and 2 October 2001.

2 Failure to take appropriate action in the case of a conflict of interest

2.1 The complainant points out that one of the original evaluators, Mr F., had links with one of GFA’s partner firms. He takes the view that both Mr F. and GFA should therefore have been removed from the tender process.

2.2 The Commission points out that when it learnt of Mr F.’ links and thus discovered that there was a potential conflict of interest, it decided to cancel the tender evaluation and to re-evaluate the offers using evaluators who had not been members of the original evaluation committee. Furthermore, task managers were instructed that Mr F. should not be appointed as a member of evaluation committees in the future. According to Article 12.4 of the General Regulations for Tacis tenders, "No Tenderer, member of his staff or any other person anyhow associated to the Tenderer for the purpose of the Tender shall take part in the evaluation of the Tender in question". The Commission takes the view that it ensured compliance with this provision by acting as it did.

2.3 It appears that when the Commission discovered that there was a conflict of interest due to the presence of a member of the evaluation committee who had links to one of the tenderers, it took steps to rectify the situation by cancelling the first evaluation and arranging for a re-evaluation by new evaluators. The Commission furthermore gave instructions to ensure that the relevant person should not be entrusted with the task of an evaluator again. The Ombudsman considers that the steps taken by the Commission appear to be appropriate in the circumstances of the case. The complainant has not established that in the case of such a conflict of interest the Commission would, under the rules governing the tender, have been obliged to exclude both the relevant evaluator and the tenderer concerned. Article 12.5 of the General Regulations for Tacis tenders provides that where a contract is signed between a tenderer who is in violation of Article 12.4, the Contracting Party "may terminate the contract with immediate effect." The termination of the contract is thus not obligatory but within the discretion of the Commission. The Ombudsman considers that the complainant has not shown that the Commission exceeded the margins of its discretion in the present case by acting as it did.

2.4 In these circumstances, there appears to be no maladministration on the part of the Commission in so far as the second allegation is concerned.

3 Failure to take appropriate action in the face of substantial changes

3.1 The complainant claims that the Commission failed to take appropriate action although GFA had replaced more than two thirds of its long-term team within a matter of weeks after the signature of the contract.

3.2 The Commission replies that three months after the signature of the contract, it was informed that the team leader originally proposed by GFA was unable to perform his duties due to ill health. On this basis, the Commission accepted the replacement of this expert, in accordance with the rules. Contrary to the complainant’s claim, there was no further replacement of long-term experts for this contract. A proposal for the replacement of a second long-term expert was received by the Commission a few weeks before the date on which it sent its opinion in this case.

3.3 The Ombudsman considers that the explanations provided by the Commission are reasonable and that the complainant has not been able to prove his allegation.

3.4 In these circumstances, there appears to be no maladministration on the part of the Commission in so far as the third allegation is concerned

4 Conclusion

On the basis of the European Ombudsman’s inquiries into this complaint, it is necessary to make the following critical remark:

It is good administrative practice in tender procedures for the administration to adhere to the rules established for these procedures. The Ombudsman considers that by allowing tenderers to include experts’ fees under reimbursable items in the present case, the Commission failed to comply with the rules applicable to the tender and the aim pursued by these rules. This constitutes an instance of maladministration.

Given that these aspects of the case concern specific events in the past, it is not appropriate to pursue a friendly settlement of the matter. The Ombudsman therefore closes the case. The President of the European Commission will also be informed of this decision.

Yours sincerely,

 

Jacob SÖDERMAN

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(1) The draft form for the 'summary of input' (Annex B) submitted by the complainant contains the following note: "Important: Above summary must be consistent with the input given in the Breakdown of Remuneration (Annex D)".

(2) There is a slight discrepancy between these documents and the documents submitted by the complainant in that the latter show only 2 190 (instead of 2 200) man-days for EU experts in the main table of the financial proposal.

(3) Point C.2.1 of the 'Instructions to Tenderers' informs tenderers that an incorrect presentation of the breakdown of prices "may lead to the rejection of the tender".