Relevance of the Case
To meet general interest needs, public authorities and institutions, as well as public law entities, enter into contracts with economic operators for works, goods, or services. These legal relationships between the authority and the economic operator have certain specificities compared to civil law contracts concluded by private individuals, and they generate administrative litigation, which is judged under special laws in the field.
Violation by one party of obligations under a public procurement contract gives rise, in the patrimony of its contracting partner, to the right to claim damages for repairing the resulting harm. To enforce this, the right must be exercised before a court within the statute of limitations provided by law.
In this case, Brisc Legal attorneys specialized in public procurement litigation obtained a favorable outcome for the defendant company, which was exempted from paying damages amounting to 438,131 lei claimed by the Municipality of Cluj-Napoca for an alleged breach of a public procurement contract.
Summary of the Facts
In 2013 and 2015, the Municipality of Cluj-Napoca organized public procurement procedures (for current emergency repairs and maintenance at pre-university educational units). The method of award chosen was a request for offer for entering a framework agreement. It was also specified that framework agreements would be concluded with more than one bidder, and the subsequent contracts would be concluded by reopening competition.
Thus, in 2013 and 2015, framework agreements were concluded. In these framework agreements it was stipulated that subsequent performance contracts would be concluded whenever execution of works covered by the framework agreement was necessary. In this respect, the promisor-contractor obligated itself to execute the works at the unit prices set in the framework agreement.
Accordingly, for implementing the purpose of the concluded framework agreements, bidders were invited to participate in re-offer procedures by the contracting authority, and it was specified that the award of subsequent contracts would take into account the “lowest price” criterion. Thus, the key element in reopening competition among economic operators for awarding subsequent performance contracts is the unit price.
For the conclusion of subsequent contracts from 2015 onward, several re-offer procedures took place for performing repair works; in each case (each school unit) there was only a single offer, which was not improved by economic operators.
In 2016, following audits carried out by the Cluj Court of Accounts, it determined by decision that, for the works of “current, urgent repairs and maintenance at some pre-university educational units in the Municipality of Cluj-Napoca,” subsequent contracts had been awarded and concluded in violation of legal provisions, causing a budget deficit to the local budget in an estimated amount of 2,690,672 lei.
In essence, the auditing body found that in fact no competition was resumed: there was an understanding among economic operators, and no improvement of offers emerged from the framework agreement, since for each educational unit a subsequent contract was concluded with the contractor who generally had the highest price, which moreover was the only bidder.
LITIGATION IN THE FIRST INSTANCE, BEFORE CLUJ TRIBUNAL – ADMINISTRATIVE CONTENTIOUS SECTION
By lawsuit, the Municipality of Cluj-Napoca and the Mayor of Cluj-Napoca, as plaintiffs, in opposition with the defendants, among whom the defendant company represented by Brisc Legal in public procurement, requested obliging them to repair the damage caused in the 2015 re-offer procedure.
The plaintiffs argued that the defendant contractors had the obligation to execute the framework agreements in good faith and to submit serious, improved offers; however, according to the findings of the Cluj Court of Accounts, the contractors with the lowest prices in the framework agreements did not submit offers to execute the works; instead, contractors with the highest prices did so, and there was no competition, but rather an apparent understanding among them, in violation of Law No. 21/1996.
The defendant company, through attorney Horațiu Brisc, filed a written defence in which it requested admission of the exception of prescription of the material right of action, and dismissal of the claim as prescribed; alternatively, dismissal of the action as inadmissible due to defects arising from the classification of the action; and in the end, dismissal of the action as unfounded.
Regarding prescription, the defendant argued that in absence of special provisions the general prescription rule under Article 2517 of the Civil Code applies, establishing a 3-year period which begins to run from the date the right arises, known or which should have been known by the titleholder, and that regardless of the plaintiffs’ legal foundation, the moment from which the prescription period began is the moment of payment of sums under the subsequent contracts.
Moreover, the defendant demonstrated to the court that according to the legal provisions applicable in this case, the act of control performed by the Court of Accounts or another controlling body, by which it is established the obligation to act for recovery of a damage caused or resulting from the payment of undue sums, does not mark the beginning of the extinctive prescription period for the action to engage financial liability of the culpable person.
By this reasoning, the Brisc Legal Cluj team showed that the harm, pre-existing the Court of Accounts’ audit report, should have been known independently of the control body’s findings, especially since the control report is performed based on documents in possession of the controlled entity – the Local Administrative Unit of Cluj-Napoca – and that the source of the debtor’s obligation is not the control act by the Court of Accounts or another control body, but the legal act or fact that generated the harm claimed.
This aspect has also been established by a Decision of the High Court in the interest of law in 2019.
Next, the defendant company showed to the court that the Municipality of Cluj-Napoca, as contracting entity, did not have the right to remain passive but had to take all necessary diligence to detect the existence of possible damages caused as a result of concluding the subsequent contracts in question. The defendant correctly asserted that the moment from which the material right of action’s prescription period begins to run is the moment when the subsequent contracts were concluded.
Regarding the unfounded nature of the plaintiffs’ claim for obliging the defendant company to pay 438,131.47 lei, Brisc Legal – counsel in Court of Accounts disputes – argued that in the re-offer procedures carried out in the execution of each of the two framework agreements, the defendant company tendered prices equal to those in the framework agreements, thus respecting the obligation not to offer prices higher than those in the framework agreement.
According to law, participation in tender procedures for awarding the subsequent contracts is a right, not an obligation; thus the fact that there were no counter-offers during the re-offer procedures in which the defendant company took part, or that the defendant company did not participate in all subsequent re-offers is irrelevant.
Thus, the defendant company’s participation in re-offers complied with the two general rules: i) the obligation not to participate in re-offers with prices increased relative to those in the framework agreement and ii) the exercise of the right to participate only in some of the procedures conducted in the subsequent contracts.
Finally, the defendant showed that the plaintiffs omitted to provide any detail about the way in which they divided the amount of damage of 2,690,672 lei determined by the Court of Accounts, and that assigning the sum of 438,131.47 lei as damages caused by the defendant company is arbitrary and lacks legal foundation. Also, the plaintiffs did not show any non-performance by the defendant company of the provisions of the subsequent contracts.
WHAT THE CLUJ TRIBUNAL HELD
The court, giving priority to the exception of prescription of the material right of action invoked by the defendant through counsel, held, in agreement with its arguments developed, that the illicit act causing harm occurred at the moment when the plaintiffs concluded the subsequent contracts with the defendants, namely in 2015.
In the court’s view, aligning with the arguments developed by our legal team, the plaintiff, if it did not know, at least should have known about the harm at the moment when the subsequent contracts were concluded.
Thus, Cluj Tribunal admitted the exception of prescription of the material right of action invoked by the defendant and dismissed, as prescribed, the lawsuit filed by the Municipality of Cluj-Napoca and the Mayor of Cluj-Napoca. The defendant company was exonerated from payment of the sum of 438,131 lei.
PROCEEDINGS IN APPEAL, BEFORE CLUJ COURT OF APPEAL
The Cluj Tribunal’s decision was appealed by the Municipality of Cluj-Napoca and the Mayor of Cluj-Napoca, who argued, among others, that the Tribunal’s ruling was made in violation or misapplication of substantive law.
In their support, they reiterated arguments from the first instance and stated that, through the appealed decision, the first court omitted that the mere violation of a subjective right, although giving rise to the right of action, does not immediately trigger the start of the extinctive prescription period, unless the holder of the right to action actually knew, or should have known, of the acts or facts by which law links the birth of the right. They argued that the harm could not have been known at the moment of concluding the subsequent contracts.
The Cluj Court of Appeal held that filing a lawsuit from the outset time-barred is evidence of exclusive fault of the plaintiffs who did not respect legal provisions on prescription.
In this context, the Court recalled that decisions given in recourse in the interest of law are binding erga omnes (towards all), not just for courts, so that the administration, which is a fundamental element of the rule of law, is also bound to comply with decisions given in the interest of law or for the resolution of prior issues.
Therefore, the Court of Appeal of Cluj dismissed as unfounded the appeal brought by the Municipality of Cluj-Napoca and the Mayor of Cluj-Napoca, upholding the first instance solution in all respects.