We successfully represented the municipality of Mulgi in a dispute with the State Shared Service Centre (SSSC) over the latter’s recent decision, by which the SSSC ordered Mulgi Municipality to return approximately EUR 50 000 of EU funding. The recovery order was related to Mulgi Municipality’s two public procurements for the demolition of an old building and the construction of a new one at Mõisaküla Welfare Centre.

Dispute over extension of a public procurement contract and a subcontractor with a tax arrears

In summary, the State Shared Service Centre argued that a subcontractor with a tax debt was engaged in the performance of the construction contract and that the deadline for the contract was extended unlawfully. As for the demolition contract, Mulgi Municipality was criticised for awarding the contract later than the date laid down in the contract notice and for unlawfully extending the deadline for performance of the contract.

After the SSSC rejected an appeal by Mulgi Municipality, the municipality, assisted by our attorneys, decided to appeal against the decision to the Tallinn Administrative Court.

A contract extension was reasonable in the circumstances

In its decision of 09.02.2024 in administrative case 3-23-814, the Tallinn Administrative Court held that none of the SSSC’s objections were justified and fully satisfied Mulgi Municipality’s appeal. The Administrative Court also ordered the state to pay every last cent of the costs of the case for the benefit of Mulgi municipality.

The Court reasoned that since the main contractor had not informed Mulgi Municipality of the involvement of the subcontractor, the municipality could not have verified its tax arrears. Thus, there was also no justification for penalising the municipality with a recovery order.

Regarding the extension of the term for performance of the construction contract, the Court found that in a situation where the performance deadline had to be extended by a few months merely because of the delay in the execution of individual field works, it would be unreasonable and disproportionate to require the contracting authority to suspend the works, terminate the contract and organise a new public procurement.

As the Mayor of the Mulgi Municipality, Imre Jugomäe, also noted: “I really like that the reasoning of Court’s decision refers to common wisdom – “peasant common sense”. The Administrative Court summarized the dispute over the extended deadline by two short sentences: “Holding a public procurement cannot be an end in itself. Common sense must also be taken into account.””

The court fully satisfied the appeal

With regard to the SSSC’s objections concerning the demolition contract, the Court noted that in case of a small-scale contract, the term laid down in the contract notice did not take precedence over the award rules provided in the contract. Moreover, the actual period for performance of the contract was extended by only 23 days, which, in the Court’s view, was unlikely to result in a different set of tenderers or a different content of the tenders.

As the appeal was satisfied in full, the Administrative Court did not go on to examine the municipality’s argument that the underlying “Conditions and procedure for the use of subsidies for the energy efficiency of local authority welfare buildings and the construction of energy-efficient welfare buildings” regulation was unconstitutional.

In our view, the said regulation is not constitutional, insofar as the law on which it is based on does not authorise the minister to establish the recovery rates by a regulation. Nor does it lay down a minimum or maximum amount of the recovery claim, the basis for calculating the amount of the obligation or any other preconditions for determining the amount of the recovery claim on objective grounds.

Our services and client team

This case is the fourth in a series of recovery disputes in which our clients have been successful. We successfully represented Riigi Kinnisvara AS in disputes concerning financial corrections relating to the public procurement of the Kohtla-Järve common building and the Kiviõli common building, and Rakvere Town in a dispute in which the SSSC alleged unlawful alteration of the construction contract for the work and technology centre of Rakvere primary schools.

Mulgi Municipality was represented by partners and senior associates Allar Jõks and Dr. Kadri Härginen, and senior associate Mario Sõrm. 

Read more in Sakala Postimees.