Do electric ferries dream of batteries?

I was in Portugal for the last few days and the talk of town for the last week or so is yet another procurement case gone horribly wrong. Transtejo, the public company who runs the ferries in Lisbon acquired 10 electric ferries to renew its fleet with the Portuguese Audit Court torpedoing the whole thing when running its legality assessment of the contract(s).

When putting the contract out to tender, Transtejo decided to acquire 10 ferries and only one single pack of batteries, committing itself to acquire the remaining 9 packs at a later date via another procurement procedure. When tasked to assess the legality of that original contract awarded in January 2021, the Audit Court saw no issue with it.

Fast forward a couple of years and Transtejo ended up modifying the original contract to acquire the remaining batteries from the same shipbuilder contractor (Astilleros Gondan). This is where things get interesting from a procurement perspective since it is this amendment which was rejected by the Audit Court in a scathing judgment.

The judgment makes for engrossing reading and one must wonder what was going through the mind of Transtejo’s board, legal department and one would assume its external legal advice as they were providing information to the Audit Court to justify their decisionmaking.

First, Transtejo alleges that the only reason it did not include the batteries in the original contract is that it did not have money for them and instead wanted to lease them separately. However, there is no indication of that at the time the first tender was launched and the reasoning for the batteries not being acquired explainded to the Audit Court.

Second, Transtejo argues it changed its mind sometime after tendering the original contract as EU funds could be used to acquire the batteries outright and no longer made financial sense to lease them instead. To acquire the batteries Transtejo then decides to attempt twice to award a contract for batteries to the same company building the battery pack for the lead ship, Corvus Energy. The company doesn’t bite and both attempts fail. The justification for the direct award is that Transtejo *after* tendering the original contract suddenly found out that for technical reasons it can only acquire the batteries from that specific manufacturer, which is beyond odd since Transtejo designed the technical specifications for the ships itself and surely would have known if and how the technical requirements mandated that only the battery solution from one single manufacturer would be appropriate for its ferries. The Audit court saw *partially* through Transtejo ruse and concluded correctly it either had to know in advance this was the case (and thus it misled the Audit Court in the process for the original contract) or that the technical reasons alleged were simply bogus. What I do not think the Audit Court realised was the real reason why Transtejo tried to award the batteries to Corvus Energy. It was simply a ploy to justify its actual course of action which was to amend the original contract. Why would they do so instead of amending the contract straight away you ask?

Because in mid 2021 the Government altered the conditions for contracts to be amended, effectively reducing the restrictions on contract amendments (more about this change later). In fact, that is the main plank of Transtejo’s defense: that the 2021 draft of Art 370 of the Public Contracts Code (PPC) would be applicable since the reason to amend the contract had ocurred via the failure of the direct awards which had been attempted after the entry into force of the new draft. This was correctly rejected by the Audit Court who applied the original 2018 version of Article 370 but I do not think they understood this amounted to fraud by Transtejo since the only reason for the attempts was to bring the new draft of Art 370 into play.

One of the funniest lines of argument presented by Transtejo in this regard was claiming lithium had increased 500% and copper 150% so the contract amendment was justified as the final price of the batteries ended up being even slightly lower than the forecast at the time of the original contract, and as such it was not a substantial change. One must say that the price of lithium keeps falling so perhaps by the time the batteries are indeed acquired the costs will have decreased even more…

What’s next for Transtejo?

The company board resigned last weekend and as of now, Transtejo is the proud owner of a single electric ferry which - to add insult to injury - arrived damaged in Lisbon this week. The company is now claiming it cannot complete the remaining 9 ferries since it does not have batteries for them - a decision the Audit Court compared to buying a bike without pedals or a car without tyres.

It is obvious Transtejo cannot award directly the battery contract a third time. The only way forward is thus an open/restricted procedure which will have to be carefully drafted so that it does not made to measure of Corvus Energy and as thus may imply extra costs in terms of the actual batteries being acquired. The timescales involved will mean that the remaining 9 ferries may be rotting somewhere awaiting for the batteries.

The cheeky approach would now claim there is an extreme urgency in acquiring these batteries, thus justifying the direct award once more to Corvus Energy. As I explained last year here, it is beyond illegal and my view is that the Audit Court would not accept it either.

The political angle

The minister responsible for overseeing Transtejo spoke this week about the Audit Court findings considering them to be an ‘inconvenience’. Not for the first time the current Portuguese government has expressed significant displeasure at public procurement laws and their enforcement, seeing them as a straightjacket it would be great to get rid of. That could be seen in multiple comments by the previous Minister of Infrastructure and how the tender for trains for the national operator was designed (in short: it will go to court and I’m dead certain an aggrieved bidder will make sure to involve the CJEU) but more worryingly by successive attempts at watering down procurement rules under the guise of ‘efficiency’ and making sure that the funds from the Recovery and Resilience Facility could be spent quickly (nb: that hasn’t happened). This is the backdrop to explain why Art 370 PCC was amended in 2021, alongside a number of other questionable legislative moves.

I am yet to look into the Art 370 PCC changes in detail but there is a risk that either the original draft of that Article went beyond the requirements of the transposition and has now been brought down to the minimum required by Directive 2014/24/EU or worse. By worse I mean it may no longer in compliance now that the enforcement eye of the European Commission is no longer trained on the transposition of ‘old’ Directives that were already deemed as well transposed by a Member State. If the latter, it does play nicely into the paper I am currently writing.