Switzerland’s Federal Supreme Court strengthens legal protection for contracts that violate Public Procurement Law

In its recently published judgment 2D_14/2024 of 19 May 2025, Switzerland's Federal Supreme Court provided a landmark clarification on legal protection and the legal consequences of procurement contracts concluded in violation of the Public Procurement Law. It clarified that, in such cases, unsuccessful tenderers can generally demand that the award decision and the procurement contract be terminated or amended (i.e. primary legal protection) and cannot be referred directly to a mere establishment of the violation and to claims for damages (i.e. secondary legal protection). If primary legal protection is no longer possible due to the specific circumstances, the Federal Supreme Court also considered that, in the context of secondary legal protection, compensation for damages could go beyond negative interest. With this judgment, the Federal Supreme Court strengthened the position of unsuccessful tenderers, as well as the effectiveness of legal protection and enforcement of Public Procurement Law.

The Swiss Federal Supreme Court's judgment concerned the award of construction work for a kindergarten by the Wängi primary school district (contracting authority). Following an open procedure, the contracting authority concluded the procurement contract with the successful tenderer, despite an excluded tenderer having lodged an appeal against the award decision with the Administrative Court of the Canton of Thurgau.

In its appeal decision, the Administrative Court of the Canton of Thurgau found that the contracting authority had wrongfully excluded the appellant tenderer and prematurely concluded the procurement contract in clear disregard of the standstill period (Article 42 (1) of the Intercantonal Agreement on Public Procurement [IAPP]). As the contract had already been concluded, however, the court ruled that the excluded tenderer could only apply for the violation to be established and for compensation for expenses incurred in submitting its tender (Art. 58 (2) and (4) IAPP). The excluded tenderer subsequently appealed against the Administrative Court's decision to the Federal Supreme Court.

In its judgment, the Federal Supreme Court ruled that, contrary to the Administrative Court, the restriction under Public Procurement Law to secondary legal protection (establishment of violation and compensation) only applies if the contract has already been concluded in a permissible manner (i.e. if the court has rejected a request for suspensive effect or if no such request has been made). Conversely, if the contract is concluded in violation of Public Procurement Law, in this case during the standstill period, unsuccessful tenderers can demand that the award decision and the procurement contract be terminated or amended and are not limited to an establishment of violation and compensation from the outset. Although administrative courts are not authorised to intervene directly in a private-law contract between the contracting authority and the successful tenderer, the Federal Supreme Court ruled that they must examine how primary legal protection can be applied, i.e. what fate awaits the prematurely concluded procurement contract. In doing so, the Federal Supreme Court noted that various solutions are conceivable:

1. Nullity of the contract: The Federal Supreme Court states that the procurement contract can only be declared null and void in exceptional cases respectively in "extraordinary situations", such as corruption or other serious criminal offences. The Federal Supreme Court points out that the standstill obligation binds only the contracting authority, not the successful tenderer. Therefore, the consequence of nullity would often not be in the interest of the successful tenderer (as the contractual partner) and would lead to legal uncertainty.
    
2. Instruction to terminate or amend the contract: If the contract is not null and void, the competent appeal body may, according to the Federal Supreme Court, issue instructions to the contracting authority regarding its contractual conduct, thus indirectly intervening in the contractual relationship. In particular, the court may instruct the contracting authority to terminate or amend the prematurely concluded contract within the scope of the existing contractual options in order to bring the situation into conformity with Public Procurement Law (as far as possible). According to the Federal Supreme Court, however, the corresponding instructions are generally limited to future measures. A rescission of the contract is generally excluded.
    
3. Subsidiary damages, possibly exceeding the negative interest: If intervention in the contractual relationship is excluded, affected tenderers are only entitled to claim damages. In Public Procurement Law, this is generally limited to the necessary expenses incurred in preparing and submitting the tender (Art. 58 (4) IAPP). It is therefore all the more remarkable that the Federal Supreme Court expressly ruled that, in cases of contract conclusions that violate Public Procurement Law, damages are not limited from the outset to the expenses incurred for the tender. Rather, damages may be claimed in such cases in accordance with the relevant cantonal Liability Law. According to the Court, the question may arise as to whether it is possible to go beyond negative interest in such a situation. Even if it ultimately left this question – which is decisive in practice – open, the Federal Supreme Court's considerations are noteworthy. If it becomes possible in future to claim damages exceeding the negative interest in such circumstances, legal appeal is likely to become much more attractive for unsuccessful tenderers. This applies particularly to appeals against direct awards, where unsuccessful potential tenderers often have no tender expenses that they can claim.

The Federal Supreme Court's judgment concerns a procurement contract that was concluded prematurely in violation of the standstill period. This case-law, however, should also apply to other situations where contracts have been concluded in violation of Public Procurement Law, especially to inadmissible direct awards. This interpretation is further supported by the Federal Supreme Court's reference to a relevant judgment by the Court of Justice of the European Union (ECJ, Case C-503/04 of 18 July 2007, Commission v Germany), which concerns the direct award of a procurement contract without prior tender.

The Federal Supreme Court's reference to the ECJ judgment once again reaffirms that Swiss case-law also takes into account the legal situation in the EU in the context of Public Procurement Law. This should strengthen effective legal protection in Public Procurement Law in Switzerland. With its latest judgment, the Federal Supreme Court is sending a clear signal in this direction.