On 18 June 2018, the Finnish Competition and Consumer Authority (FCCA) called on the Market Court to impose sanctions against the town of Naantali for awarding contracts the value of which exceeded the EU threshold without competitive tendering contrary to the Act on Public Contracts.
In the summer of 2017, the town of Naantali decided to purchase Pro Economica Premium financial data management software from CGI Finland Ltd. The town of Naantali has been using different versions of Economica since the 1980s without putting the software purchase out to tender at any stage. The Economica software previously in use was installed to the town’s own data centres, meaning that the town was using it under the on-premises model. The new Premium version, however, is produced for the town of Naantali according to the SaaS (Software as a Service) model, in the form a cloud services, at the data centres of CGI Finland Ltd. The town of Naantali considered the software purchase to be an update of the Economica software used previously and a permitted modification, meaning that it would not be subject to the competitive tendering obligation of the Act on Public Contracts.
In its proposal to the Market Court, the FCCA notes that the transition to the new operating environment nonetheless fundamentally changed the type and nature of the service acquisition, and that the software purchase could not be deemed a version update or modification, which would be permitted under the Act on Public Contracts. The FCCA finds this to be a question of a normal introduction of new software, which should have been put out to tender in accordance with the Act on Public Contracts.
The FCCA also concluded that none of the grounds for direct procurement presented in the Act on Public Contracts apply to this software purchase. For example, there are no grounds for direct procurement based on a technical reason or the protection of exclusive rights, because CGI Finland Ltd. is not the only service provider capable of implementing the financial data management software needed by the town of Naantali. Furthermore, the need to purchase the software was not so urgent that direct procurement would have been justified.
The FCCA proposes that the Market Court find the contracts concluded to be inefficient with respect to the contractual obligations yet unfulfilled, and quash the procurement decision. In addition, the FCCA proposes that the Market Court impose a penalty fine of EUR 15,000 on the town of Naantali. If the Market Court refrains from imposing an inefficiency sanction for overriding reasons relating to the public interest, the FCCA proposes that the Market Court should shorten the term of the contract to expire after six months as from the date the decision delivered by the court has gained legal force.
Be careful with modifications
IT services are undergoing a transition, and financial data management software are not the only services being transferred “from data centres to the cloud”. The FCCA reminds that these types of modifications may impose a competitive tendering obligation for the service to the contracting authority. Decades of procuring services from the same provider without competitive tendering does not guarantee the most competitive price or the best quality for the contracting authority.
The FCCA actively monitors procurements by contracting authorities and takes up suspected infringements for close inspection where necessary. It is in the common interest of all parties that procurement procedures are conducted transparently, in a non-discriminatory way, whilst using public funds in an effective manner.
Proposal to the Market Court (in Finnish)
Juhani Puisto, Senior Research Officer, tel.+358 29 505 3696
Maarit Taurula, Head of Research, tel +358 29 505 3381
Section 139 of the Act on Public Procurement and Concession Contracts (Act no. 1397 of 2016; “Act on Public Contracts”) mandates the Finnish Competition and Consumer Authority to supervise compliance with public contracts legislation. If it encounters illegalities, the FCCA may caution a contracting authority or provide other administrative guidance referred to in section 53 c of the Administrative Procedure Act (Act no. 434 of 2003). In case of illegal direct procurement, the FCCA may forbid the implementation of a procurement decision on the basis of section 140 of the Act on Public Contracts. If direct procurements exceed EU thresholds, the FCCA may also propose that the Market Court impose sanctions, such as penalty payments, shortening of the contract, or the annulment of a procurement decision. The same applies to service acquisitions exceeding national threshold levels referred to in Appendix E of the Act on Public Contracts, carried out as direct procurement without legal grounds. However, a motion cannot be put forward to the Market Court if the contracting authority has posted a direct procurement notice regarding the procurement as per section 131 of the Act on Public Contracts.
The FCCA’s supervisory powers apply to procurement initiated after the Act on Public Contracts entered into force, that is, 1 January 2017.