Tales from the National Appeal Chamber: Consequences of imprecise description of conditions for participation in contract award procedure
In the tender documentation, the contracting authority may require contractors to meet certain conditions for participation. These should be precise and duly described so the contractors can adequately demonstrate their fulfilment. But what if the contracting authority has not precisely defined a condition for participation in the procedure? In its ruling of 3 July 2020 (KIO 1001/20), the National Appeal Chamber held that the interpretation of the condition more favourable to the contractor should be applied.
State of facts
A contracting authority conducting a public procurement procedure in Poland required the contractors to indicate in their bid a person with professional experience managing construction or reconstruction of at least one pedestrian underpass.
In the course of the procedure, the contracting authority had doubts whether the person indicated by one of the contractors (a consortium) actually had experience in construction of a pedestrian underpass. Therefore, it inquired with the investor for whom the consortium had previously carried out the project indicated in the bid. The investor replied that as part of the project, commercial passages were built which could also be used by pedestrians on general terms.
The contracting authority accepted this clarification and subsequently found the bid submitted by the consortium to be the most advantageous. However, another contractor participating in the procedure filed an appeal against that decision with the National Appeal Chamber (KIO). The appellant claimed it was clear from the investor’s response that no pedestrian underpass had been built as part of the earlier project. Nevertheless, instead of finding that the consortium had misled it, the contracting authority considered the condition to be fulfilled. In the appellant’s opinion, this action by the contracting authority infringed not only Art. 24(1)(12), (16) and (17) of the Public Procurement Law, but also the principle of equal treatment and fair competition expressed in Art. 7.
Correct formulation of the conditions for participation in the procedure
Pursuant to Art. 22(1)(2) of Poland’s Public Procurement Law, contractors who fulfil the conditions for participation in the procedure may apply for award of the contract. The contracting authority must specify the conditions for participation in the procedure and the evidence required from contractors in a manner adequate to the subject of the contract and enabling an assessment of the contractor’s ability to perform the contract properly. However, if a contractor has not proved that it meets the conditions for participation in the procedure, the contracting authority must exclude the contractor from the procedure and reject its bid (Art. 24(1)(12)).
Bearing these provisions in mind, the chamber stated, “When determining the conditions for participation in the contract award procedure, the contracting authority must always observe the principles arising under Art. 7(1) of the Public Procurement Law, i.e. the conditions for participation in the procedure must be related to the subject matter of the contract and proportionate to the subject matter of the contract. Setting the conditions for participation in the procedure in this way enables opening the market to contractors who, with their experience, can ensure reliable and correct performance of the contract.” In addition, the law does not require contracting authorities to formulate the conditions in a way that fully reflects the subject matter of the contract, but leaves them free to do so, stating only that the conditions for participation must be related and proportionate to the subject matter of the contract, so as not to unduly restrict access to the public procurement market for contractors.
Despite a certain latitude for the contracting authority to frame the conditions for participation in the procedure, the contracting authority does not have free rein in interpreting the conditions. When comparing the wording of the condition for participation in the procedure against the content of the bid, the contracting authority is first required to apply a literal interpretation. In the opinion of the chamber, this is “a guarantee of the contracting authority’s objectivity in the process of verifying the contractor’s ability to perform the contract, as well as a tool to implement the principle of equal treatment of contractors. Intentions or interpretations of the contracting authority not disclosed in the documentation of the procedure may not determine the content of the condition.”
Therefore, the contracting authority cannot interpret the requirements more strictly than stated in the literal wording of the condition, as this would lead to an unauthorised modification or at least a material modification of the condition, and thus breach the principle of equal treatment and fair competition, in particular Art. 7(1) of the Public Procurement Law.
In case of doubt, in favour of the contractor
Contracting authorities must clearly and correctly formulate the conditions for participation in the procedure, as this allows contractors to duly demonstrate that they meet the requirements. Therefore, the conditions should be formulated in such a way that they do not raise questions of interpretation at a later stage of the procedure, in particular when assessing the extent to which a bidder meets a condition. But what if the condition for participation in the procedure has not been precisely defined by the contracting authority? In the chamber’s opinion, “If the conditions of participation are formulated so that they can be read in different ways, or there is no clear indication of how the degree of fulfilment of the conditions will be assessed, then the interpretation that is more favourable to the contractor should be applied.” Therefore, the National Appeal Chamber took a position favourable to contractors. If the contracting authority leaves a gap for interpretation, the contractors can take advantage of it and should not suffer negative consequences from it.
This guidance for interpretation from KIO was applicable in this case because, under the facts, the contracting authority did not define the term “pedestrian underpass” in the terms of reference. The contracting authority did not cite any regulations or provide any instructions to contractors on how to interpret this requirement. In addition, the current legislation in Poland does not contain any definition of a “pedestrian underpass.” The notion of a pedestrian underpass is referred to in various laws, but without assigning it a separate definition.
As a result, the chamber held, “As the contracting authority did not define the disputed provisions of the terms of reference, they should be given their generally adopted meaning, taking into account the specificity of the industry to which the term refers.” To define “pedestrian underpass” for purposes of the ruling, the chamber used a common understanding of the term and concluded that it is a structure providing the possibility of passing under a specific traffic route running on the surface of the site or a bridge structure.
Therefore, a consortium that had carried out commercial tunnels also intended for pedestrian traffic in an earlier project could not suffer negative consequences from the contracting authority’s imprecise statement of the requirements. To demonstrate that they met the condition for participation in the procedure, the consortium members could thus refer to sites with characteristics similar to those of pedestrian underpasses. It was essential to determine whether the structures referred to, taking into account the law and the terms of reference, fulfilled the function of a pedestrian underpass. In the opinion of the chamber, there was no evidence that the structures in question could not fulfil such a function. That the reference facilities had a dual function, i.e. as a commercial passage and a pedestrian underpass, was irrelevant here and could not determine whether the consortium met the conditions for participation in the procedure.
Broad interpretation compensates for the lack of precise definition
In the case in question, in the absence of a legal definition of a pedestrian underpass and in the absence of a precise description of the condition in the terms of reference, the contracting authority should have considered as a pedestrian underpass also tunnels open to pedestrian traffic. In the opinion of KIO, adoption of a broad interpretation of the condition was the only way for the contracting authority to remedy the lack of a definition of what it meant by a “pedestrian underpass” in the terms of reference. In the opinion of the National Appeal Chamber, “Adoption by the contracting authority of a narrow definition of a pedestrian underpass at this stage of the procedure, and elimination from the procedure of those contractors who did not match this definition, which was never before presented to them, would violate the basic principles of the procurement procedure, including in particular the principle of fair competition, equal treatment of contractors and transparency expressed in Art. 7(1) of the Public Procurement Law.” Consequently, the chamber upheld the position of the contracting authority and the consortium, and denied the appeal.
Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners