Warsha Kalé, Associate Director, and Stuart Stock, Associate, Berwin Leighton Paisner LLP:
Under the Public Contracts Regulations 2006 (PCRs) a bidder may be excluded from a tender process at selection stage where that bidder has committed an act of “grave misconduct in the course of his business”. In EU-speak, under Directive 2004/18, this is known as “grave professional misconduct”.
Currently it is this discretionary exclusion which offers contracting authorities the most obvious route for considering and taking into account the poor past performance of bidders when deciding whether or not to take them through to bid stage. However, although the Court of Justice of the European Union (ECJ) has opined on what is meant by grave professional misconduct in detail, resulting in some clarification for contracting authorities, the state of the law for excluding bidders for poor past performance is still unsatisfactory.
The text of the new Public Procurement Directive, approved by the European Parliament on 15 January 2014 (the New Directive), includes a new possibility for contracting authorities to exclude bidders at selection stage where “the economic operator has shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract…”.
Despite raising as many questions as it answers, we think that this new ground for exclusion addresses a key concern for contracting authorities, namely when it is entitled to reject a bidder it knows has let it or others down in the past from being awarded public contracts in future.
Grave professional misconduct and Forposta
In Forposta (Case C-465/11 [2012]), the ECJ provided some guidance on what is meant by the concept of grave professional misconduct. While professional misconduct covers all wrongful conduct which “has an impact on the professional credibility of the operator at issue and not only the violations of ethical standards in the strict sense of the profession to which the operator belongs” (paragraph 27), and therefore could include poor past performance, misconduct will only be grave when it:
“…denotes a wrongful intent or negligence of certain gravity…any incorrect, imprecise or defective performance of a contract or a part thereof could potentially demonstrate the limited professional competence of the economic operator at issue, but this does not automatically amount to grave misconduct.” (paragraph 30)
While an individual assessment of whether there has been grave professional misconduct committed by a bidder must be conducted by the contracting authority in each case, deciding whether the conduct was “grave” under the ruling above we suggest can often lead to uncertainty.
For example, when does poor performance of contractual obligations move from demonstrating “limited professional competence” – which cannot necessarily be relied upon to exclude a bidder – to negligent conduct, which can. While we see contracting authorities in PQQ documentation ask whether any of the criteria for rejection in Regulation 23 PCRs apply, this is often approached as a “tick-box” exercise. To determine if there has been grave professional misconduct in past behaviour, more time needs to be spent framing the questions during PQQ preparation.
The Cabinet Office’s procurement policy note “Taking Account of Bidder’s Past Performance” (Action Note 09/12) recommends that contracting authorities should satisfy themselves:
“(a) that the principal contracts of those who would provide the goods and/or services have been satisfactorily performed in accordance with their terms; or
(b) where there is evidence that this has not occurred in any case, that the reasons for any such failure will not recur if that bidder were to be awarded the relevant contract.” (paragraph 13)
If (a) and (b) cannot be satisfied, then the contracting authority should exclude the bidder on the grounds that it has failed to meet certain minimum standards of “reliability” under Regulation 25(2) PCRs. Although this policy note is stated to apply only to certain public contracts above a £20 million value threshold, those outside the scope of the note may also choose to apply its principles with suitable modifications. This also offers an opportunity for contracting authorities to consider past performance at PQQ stage.
However, the potentially subjective nature of this assessment may leave the challenge-conscious contracting authority feeling a little vulnerable. As such contracting authorities need to be particularly careful not to appear to treat bidders unequally during any assessment, nor apply its assessment disproportionately, as this could propel a disgruntled bidder to court with its claim form in hand.
Misconduct under the new Directive
Under Article 57(4)(g) of the New Directive, a contracting authority has a discretion to exclude bidders where they have “shown significant or persistent deficiencies in the performance of a substantive requirement under a public contract”.
What will amount to “significant” or “persistent” deficiencies, as well as what is to be considered a “substantive requirement” of a contract, will have to be stress-tested in due course. However, one can see how this constitutes an extension of the current rules, and even goes beyond Cabinet Office’s stance on assessing “reliability” insofar as it extends beyond only the “principal contracts” of the bidder concerned and can seemingly be applied to bidders having consistently low standards even if these are not “significant” deficiencies.
Despite this, all is not lost for the bidder. Article 57(6) of the New Directive permits bidders to “self-cleanse” despite the existence of a ground for exclusion. The bidder can provide the contracting authority with evidence of remedial measures it has taken to demonstrate its “reliability” and, if this evidence is considered “sufficient”, it shall not be excluded from the tender.
What evidence will be sufficient to satisfy a contracting authority that a bidder is “reliable” for these purposes is not clear. However this may support a case for certificates of performance – discussed in the Cabinet Office’s procurement policy note already mentioned – which going forward performers of public contracts should be careful to collect and store in order to demonstrate jobs well done.
Options
Contracting authorities and bidders in all Member States will have to wait to see how these provisions are implemented in national law. In England and Wales, the Cabinet Office has indicated that it intends to transpose the provisions of the New Directive sooner rather than later.
During this implementation period we would like to see some guidance on how contracting authorities are meant to assess whether there have been significant or persistent deficiencies in the performance of a substantive requirement. Otherwise, we fear that there may be litigation in this area to clarify the ambit of the rule.
In the meantime, contracting authorities should reserve exclusions for poor past performance under the head of grave misconduct for only those that are obviously unfit for purpose.