FCCA proposes imposition of sanctions against the town of Pargas for illegal direct award

On 10 April 2018, the Finnish Competition and Consumer Authority (FCCA) called on the Market Court to impose sanctions against the town of Pargas for awarding contracts the value of which exceeded the EU threshold without competitive tendering contrary to the Act on Public Contracts.

On 6 June 2017, the town of Pargas decided to relinquish its food services as a transfer of a business to Arkea Oy, which is owned by municipalities and joint municipal authorities. At the same time, the town purchased 1,000 shares in Arkea Oy, representing a 0.12 per cent shareholding in the company. In conjunction with the transfer of the business, the town also concluded with Arkea Oy a service agreement for providing food services for seven years and an agreement for a potential two-year option period. The value of the contract, including options, would potentially exceed EUR 20 million.

Although the outsourcing of services included several agreements, the main object of the contractual framework was the procurement of food services falling within the scope of the Act on Public Contracts, which should have been put out to tender. According to the FCCA’s investigation, Arkea Oy is not an in-house entity of Pargas, so the procurement was not possible without competitive tendering on this basis either. According to the view of the FCCA, when outsourcing the food service the town should have called for bids from food service providers and put the contract, including all terms and conditions, out to tender in accordance with the Act on Public Contracts. As the procurement does not lie outside the scope of the Act on Public Contracts, and the town of Pargas has failed to put the procurement out to tender, the action has constituted illegal direct award.

The FCCA proposes that the Market Court find the service agreement 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 200,000 on the town of Pargas. In the alternative, if the Market Court refrains from imposing an inefficiency sanction for overriding reasons relating to the public interest, the FCCA proposes that instead of the inefficiency sanction the Market Court should shorten the term of the agreement to expire after six months as from the date the decision delivered by the court has gained legal force.

The FCCA took up the matter for investigation on its own initiative. 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.

More information:

  • Maarit Taurula, Head of Research, tel +358 29 505 3381
  • Elisa Aalto, Research Officer, tel. +358 29 505 3683

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 award, the FCCA may forbid the implementation of a procurement decision on the basis of section 140 of the Act on Public Contracts. If direct awardss 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 award without legal grounds. However, a motion cannot be put forward to the Market Court if the contracting authority has posted a direct award 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.