Lithuania’s COVID-19 Test Case: ECHR Rules Against Excessive Profits in Public Procurements

A few years ago, during the global COVID-19 pandemic, it was common to see public outrage over the skyrocketing prices of protective masks, disposable gloves, or disinfectants—items that had increased in price by several or even dozens of times compared to pre-pandemic periods. Soon after came the stories of public procurements, where the government, with no other choice, was forced to spend millions on masks, rapid tests, vaccines, and more. At that time, businesses and society were divided into camps: some argued that businesses have the right to make a profit, while others insisted that there must be limits to everything. This led to legal proceedings. One high-profile Lithuanian case, in which a business and the state argued over nearly €4 million for COVID-19 tests, was recently concluded at the European Court of Human Rights (ECHR).

So, is the right to have a profit is absolute? Is it fair for a business to take advantage of the COVID-19 pandemic to profit? Matas Malijonis, a senior associate at the law firm “Ellex Valiunas,” shares more insights on the matter.

Courts Are Changing Their Approach to Businesses Participating in Public Procurements

It is commonly believed that businesses participating in public procurements have only rights, while all responsibilities and negative consequences of flawed procurement processes fall solely on the buyer—the government, its institutions, and agencies.

For example, if buyers accept the offer of a supplier who has provided false information and unjustifiably conclude a procurement contract with him, it is the buyers who bear the costs of fines (as well as covering the other party’s legal expenses, etc.). Meanwhile, the supplier, having used less-than-honest methods to win the procurement, often escapes unpunished.

However, this perception of impunity for businesses participating in public procurements was challenged by a prosecutor defending the public interest. The European Court of Human Rights ultimately ruled that businesses cannot exploit the COVID-19 pandemic to offer goods, services, or works at unreasonably high-profit margins.

What Matters More—The Right to Profit or the Public Interest?

The story dates back to the early days of the COVID-19 pandemic when the government urgently needed to acquire rapid COVID-19 tests. Businesses capable of supplying them understood they were operating in a high-demand, low-supply environment, which allowed them to sell these tests at substantial profit margins. The government has also approached procurement processes with less formality than usual due to the crisis.

Two public procurement contracts were signed with two suppliers under non-competitive conditions. As later determined by Lithuania’s Supreme Court in a case initiated by a prosecutor defending the public interest, these suppliers earned €145,200 and €3,997,400 in excess profits during the execution of the contracts. They were ultimately required by the court to return these “superprofits” to the government budget, which they did.

In other words, the court defended the state’s interest and, by interfering in the contractual legal relations between the state and business, cut off a significant part of the profit margins of entrepreneurs. The question therefore arose whether regulating the profit margin of businesses by judicial instruments after they have already won an organized public procurement and concluded a public procurement contract does not conflict with the legitimate expectations of businesses to make a profit in their activities.

As all possibilities to defend the right of business to profit in Lithuania have been exploited, the matter has now been addressed to the European Court of Human Rights.

ECHR: The Right to Profit Does Not Extend to Vendors Exploiting the State’s Crisis

The suppliers argued before the ECHR that their right to property guaranteed by the Convention for the Protection of Human Rights and Fundamental Freedoms had been violated by the national courts, which ordered them to return the “excess profits” they had received.

In its judgment, the ECHR found that the right to make a profit is in principle not protected in cases where suppliers, aware of the scale and extent of the government’s distress, and in the context of a less than transparent procurement procedure, offer prices that are not economically justifiable, and apply extremely high-profit margins.

In other words, the ECHR agreed with the Lithuanian Supreme Court when it said that businesses participating in less than the most transparent public procurement procedure must also bear the potential negative consequences of such a process.

What Does This Change?

This ECHR ruling reflects a shift in the general approach to suppliers and their accountability in public procurement procedures—a trend that has also been observed in previous rulings by the Court of Justice of the European Union and the Lithuanian Supreme Court.

The era of supplier impunity is gradually giving way to an understanding that suppliers, too, must take responsibility for the negative outcomes of non-transparent, non-competitive public procurement practices.

It is likely that in the future, we will see more cases where suppliers are held accountable for dishonest actions in public procurement processes.