New catalogue of grounds for excluding a contractor from procurement procedures | In Principle

The proposed amendment to the Public Procurement Law would introduce grounds for excluding contractors not previously recognised under Polish law, but would also expressly depart from the existing restrictive approach to exclusion of contractors. The “self-cleaning” procedure and the optional nature of certain grounds are new solutions.

The amendment would repeal all of the existing grounds for exclusion of bidders from procurement procedures and then introduce a new catalogue of grounds, regulated more clearly than before.

Apart from replacement of the catalogue of grounds, two major modifications favourable to contractors are provided for.

The first of them is designation of certain existing grounds and several of the new grounds as optional grounds for exclusion.

The second is the possibility for contractors to escape from the negative consequences of certain occurrences that generally are grounds for exclusion. For this purpose they must present compliance measures, discussed further below.

Optional and mandatory grounds

The bill follows the provisions of the new directive in dividing the grounds for exclusion of contractors into mandatory grounds and optional grounds. Under prior law, all of the grounds listed in the act, apart from grave professional misconduct, were mandatory: if they arose in any procurement procedure, the contracting authority had to exclude the contractor.

Under the new rules, it is obligatory to exclude contractors who have committed certain types of offences deemed to be particularly harmful to the public interest, or who have violated tax or social insurance obligations.

As indicated in the justification for the bill, “These circumstances always negatively impact the proper functioning of the public procurement system. They cause distortion of fair competition in the procedure and can unlawfully affect the result. The consequence is typically a loss to the contracting authority because of the need to select a less advantageous offer than if the procedure were conducted under conditions of true competition, based on accurate documents and declarations of the contractors. Moreover, they have a negative impact on economic efficiency, transparency, and the image of public procurement, and also tend to increase the bad will of contractors seeking public contracts.”

But in other situations, identified as optional grounds for exclusion, under the proposed amendment the contracting authority will be permitted to decide whether or not the given event is grounds for rejecting the offer (or application). The optional grounds for exclusion are described in the proposed Art. 24(5). If the contracting authority provides for exclusion of a contractor on the basis of optional grounds, it must indicate the specific grounds in the contract notice, the terms of reference, or the invitation to negotiations.

On one hand, the grounds for exclusion seek to insure selection of only reliable contractors, but on the other hand they limit the group of potential contractors. Now it will be up to the contracting authority to decide whether certain events in the contractor’s history, or characteristics of the contractor, such as a declaration of bankruptcy, represent a threat to performance of the contract in the given instance. Thus the contracting authority itself will determine whether to include these grounds.

Consequently, in every case the contractor will have to examine carefully the grounds for exclusion, as they will not be identical for all proceedings, as was previously the case. The practice will show whether contracting authorities seek to limit the group of potential contractors by employing optional grounds for exclusion.

What does the “self-cleaning defence” involve?

The proposed new Art. 24(8)–(11) provides for a “self-cleaning defence” which a contractor may use to prevent exclusion from a procurement procedure despite the existence of grounds for exclusion. Here the contractor must present appropriate remedial measures to demonstrate that it can ensure performance of the contract. This is a rejection of the formalism which involved an absolute duty to exclude a contractor affected by the grounds indicated in the act.

The contractor may use this opportunity in the case of nearly all of the grounds for exclusion, except for failure to meet the conditions for participation in the proceeding, lack of an invitation to participate further in the proceeding, or issuance of an order prohibiting the contractor from seeking public contracts. In other cases—but with differences—the new law permits a contractor to avoid the stigma connected with past occurrence of one of the listed events.

To this end, the contractor may present evidence that the measures it has taken are sufficient to demonstrate the contractor’s reliability, in particular by demonstrating redress of the loss caused by the criminal offence or tax offence, compensation for loss, an exhaustive explanation of the facts, cooperation with law enforcement authorities, and taking specific technical, organisational and personnel measures necessary to prevent further criminal or tax offences or other improper behaviour by the contractor. This does not apply if a legally final injunction against applying for public contracts has been issued against the contractor and is still in force.

If the contracting authority finds that the evidence presented by the contractor is insufficient, it will exclude the contractor. This raises the question of what evidence should be regarded as sufficient. This issue is obviously discretionary to some extent, and practice will show what types of documents may be used for this purpose.

Exercising the option of the self-cleaning defence is up to the contractor; the contracting authority will not do so at its own initiative. So if the contractor does not present the appropriate evidence, the contracting authority will exclude it under the general rules.

• Membership in a capital group

It is similar in the case of entities from the same capital group. In this respect, prior law also allowed contractors to avoid exclusion. The general rule is that two entities belonging to the same capital group are excluded if both of them submit offers (or applications) in a procurement procedure. But the law provides that in this situation, when submitting a statement that it belongs to the same capital group as another contractor, the contractor may present evidence showing that the connection will not distort competition in the procedure.

• Participation in preparing the tender

The compliance measures indicated above may be applied at the initiative of the contractor itself. It is different with respect to grounds consisting of involvement by the contractor or its staff in preparing the given tender proceeding.

Then, under Art. 24(10) of the Public Procurement Law, before imposing mandatory exclusion of the contractor, the contracting authority would have to provide the contractor an opportunity to show that its participation in the tender will not distort competition. This is an element of the self-cleaning defence. However, this ground for exclusion is not in itself categorical, as it is provided that the contracting authority may decline to apply it if the resulting distortion of competition can be eliminated in some other way than excluding the contractor from the tender.

Thus there is a notable trend to reserve such a serious consequence as exclusion from the tender for situations where it is absolutely essential.

New grounds for exclusion

• Modified catalogue of serious and petty offences

The catalogue of offences whose commission will always result in exclusion from a tender is to be modified. These are the offences listed in the proposed new Art. 24(12)(a) of the Public Procurement Law, such as financing of terrorism, human trafficking, giving or taking bribes, influence-peddling, election fraud, organised crime, fraud, and corruption in sports.

Another basis for exclusion consists of several groups of felonies defined in the Penal Code, involving terrorism, forgery, property offences, economic offences, environmental offences and employment offences, as well as offences defined in the Fiscal Penal Code as fiscal offences or money laundering.

Additionally, optional grounds for exclusion that are being added to the list include a legally final conviction of a contractor or its authorities for a petty offence against the rights of employees or against the environment. The contracting authority may also regard issuance of a final administrative decision as sufficient basis for invoking one of the grounds for exclusion.

Thus there is noticeable promotion of goals connected with the social policy of the state, in terms of protection of employees and the environment, by making it difficult for businesses to win public contracts if they have previously violated these interests.

• Commission of criminal offences by corporate authorities

The grounds for exclusion of contractors whose corporate authorities include persons who have committed an offence barring participation in public procurement have been reformulated. Now there is to be only one provision governing this issue: Art. 24(1)(14), which refers collectively to an active member of the management board or supervisory board, a partner in a registered partnership, professional partnership, limited partnership or joint-stock limited partnership, or a commercial proxy, convicted in a legally final judgment for one of the offences listed in the preceding point. This is clearer than under prior law, when it was broken down into numerous subpoints making up the greater part of the grounds for exclusion.

• Grounds designed to protect competition

In terms of mandatory grounds for exclusion, the amended act includes behaviour by contractors which could distort competition in the procurement procedure, namely:

• Participation by the contractor or related persons in the preparation of the tender procedure
• Unlawful influence or attempted influence over the actions of the contracting authority, or obtaining confidential information that could give the contractor an advantage in the tender procedure
• Conclusion of an understanding with other contractors with the purpose of distorting competition between the contractors, if the contracting authority can demonstrate this with appropriate evidence.

• Taxes

Among the mandatory grounds is a legally final judgment or administrative decision finding arrears in payment of taxes, fees, or social insurance contributions.

But non-compliance with obligations to pay taxes, fees or social insurance contributions can be optional grounds for exclusion, if indicated in the tender documentation, and the contracting authority can demonstrate this with relevant evidence.

Nonetheless, merely being in arrears in payment of taxes, fees or social insurance premiums will no longer be an absolute ground for exclusion, as it has been in the past.

Hanna Drynkorn, Infrastructure, Transport, and Public Procurement & Public-Private Partnership practices, Wardyński & Partners