The Legal and Economic Implications of the Danish Public Procurement Act Section 185(2) on the Procurement of Public Works Projects

Kristian Michael Lyng Rasmussen

Student thesis: Master thesis


This master thesis investigates the legal and economic implications of section 185(2) of the new Danish Public Procurement Act on public works contracts.
The thesis sets of by analysing the substance of a cancelled award decision before the introduction of the new Public Procurement Act. Hereby it is found that no general obligation to terminate a contract concluded on the basis of a cancelled award decision did exist prior to the Public Procurement Act. The introduction of section 185(2) changes this legal position. However, the legislation includes exceptions. A continuation of the contract is possible if a termination would cause an exceptional impairment of assets or if expectation damages are awarded the unsuccessful tender inter alia. These exceptions are likely to be interpreted strictly.
Next step in the thesis is to develop an economic basis. The aim of this basis is to illustrate the costs entailed by an obligation to terminate a concluded public works contract. Game theory and transaction cost theory are adapted to fit the settings of a public procurement procedure. The game theoretic analysis proves how a renewal of the public procurement procedure (caused by the terminated contract) affects a higher contract price. Moreover, the transaction cost analysis demonstrates a substantial increase in transaction costs ex post as well as ex ante due to the obligation to terminate a concluded contract.
Finally, the thesis mounts recommendations to the Danish legislature on how public works contracts should be regulated in the case of a cancellation of the award decision. Initiatives based on the exception “exceptional impairment of assets” and “award of expectation damages” are examined and compared. The thesis concludes that both recommendations lead to savings in comparison with a termination but the exception first mentioned involves the largest saving. However, the latter better reflects the objective of section 185(2) and compensates the unsuccessful tender.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2017
Number of pages101