Court keeps procurement breach, quashes flat 25% EU-funds cut

Lithuania's Supreme Administrative Court has annulled the financial-correction part of a 66,990.87 EUR EU-funds penaltyTeismai imposed on the Šalčininkai district municipality, while upholding the finding that it breached procurement rulesTeismai. In final ruling No. eA-462-463/2026 of 30 September 2026, the court partly granted the municipality's appealTeismai, quashed the correctionTeismai, and sent the correction question back to the Central Project Management Agency (CPVA) to decide anew.

The municipality had procured capital-repair construction works for a sports school (procurement No. 526197) under project No. J08-CPVA-V-01-0001, signing contract No. GS(9.5.3)-35 with UAB "A&T Statyba" on 22 February 2021 for 296,487.74 EUR including VAT, of which 268,218.05 EUR of package-I works were project-eligible. Works were due by 31 May 2021 but the completion declaration was signed only on 25 January 2022. In its decision No. IT06 of 2 January 2024, CPVA found two breaches: the performance security and the contractor's compulsory civil-liability insurance were not kept valid for the whole contract period through 25 January 2022, and late-performance penalties running from 1 June 2021 to 25 January 2022 were invoiced only on 12 June 2023, almost 17 months after the declaration. CPVA treated this as a change of essential contract terms, declared 66,990.87 EUR of project expenditure ineligible, ordered recovery of 50,281.45 EUR already paid, and applied a 25% flat-rate financial correctionTeismai to the 267,963.48 EUR contract value falling under the project.

The Supreme Administrative Court agreed on liability but not on the penalty. Letting the contractor work without extended security and insurance and without applying delay penalties shifted the contract's economic balance in the contractor's favour in a way the original contract did not discuss, so CPVA lawfully qualified it as a breach of Article 89(1)(5) of the Public Procurement Law (VPĮ)Teismai and the transparency and equal-treatment principles of VPĮ 17(1). But CPVA wrongly relied on VPĮ 89(4)(1)Teismai: since performance security and insurance until completion are mandatory statutory terms, inserting their relaxation into the original procurement would itself have breached the law, so no rival bidders could have been attracted by them. The lawful qualification rests on VPĮ 89(4)(2) alone.Teismai

On the correction itself, the court applied the Court of Justice's 4 October 2024 preliminary ruling in Obshtina Svishtov, C-175/23Teismai, on Regulation No. 1303/2013: no breach of Union or national law in EU-funded operations is automatically harmful to the EU budget — potential impact must be shown —Teismai and a flat-rate correction (5%, 10%, 25% or 100%) may be used only where the ineligible amount cannot be precisely quantifiedTeismai, with individual examination of all characteristics of the breach against the scale's rationaleTeismai. CPVA applied the 25% rate from the guidelines' table mechanicallyTeismai, without individualised reasoning why precise quantification was impossibleTeismai. The correction part was therefore unlawful and must be re-decidedTeismai; the VPĮ breach findings standTeismai.

The court refused the municipality's request to refer the project-administration rules to the Constitutional Court: a financial correction is not an administrative penalty, and those rules are subordinate legislation, not statutes reviewable against Article 7(2) of the Constitution. It also refused the 7,503.21 EUR representation-costs claim, since the municipality could have used its civil-service capacity, but awarded 17.50 EUR of stamp duty from CPVA.

Legal basis: VPĮ 17(1), 87(1)(6) and 89(1)(5) and (4)(2); the Construction Law 42(1), (7) and (10); Regulation (EU) No. 1303/2013 Articles 2(36)-(37), 143 and 144; and ABTĮ 40(1) and 144(1)(3).