Sweden’s Competition Authority applied for a procurement penalty against Uddevalla School Transport after it directly awarded a school transport contract to a sister company within the same corporate group. Both companies are owned by the Municipality of Uddevalla. The contract was awarded under an exception for horizontal in-house procurement between sister companies.

The authority and Uddevalla School Transport agreed that Swedish legislation permitted this type of direct award. The authority argued, however, that the legislation incorrectly implemented the EU procurement directives and that the company should be penalised for breaching EU law. The Administrative Court in Gothenburg initially granted the application, but the Administrative Court of Appeal rejected it.

The Supreme Administrative Court held that Swedish law authorises a procurement penalty when a contracting authority concludes a contract without prior publication in breach of the national Public Procurement Act. It does not authorise a penalty for breaching a requirement found only in an EU procurement directive and not in the Act. The court also noted that EU law does not require contracting authorities to pay such a penalty for unlawful direct awards, and therefore dismissed the authority’s application.

Because the application could be resolved on that basis, the court did not decide whether the directive had been incorrectly implemented in Sweden or whether the relevant directive provision had direct effect. The judgment nevertheless provides guidance on the limits of imposing procurement penalties where national legislation does not fully correspond with EU procurement directives.