Introduction

Although the leniency applicant status of a company affords protection against cartel fines, it does not protect the company from necessary self-cleaning and potential personnel changes.

An unreliable bidder which fails to demonstrate the required law abidance must generally be excluded from the public procurement award procedure. However, the bidder has the option of coming to grips with its misconduct and taking measures to allow for a favourable prognosis of its future behaviour. In a review procedure against the exclusion of a bidder, the second public procurement tribunal of the federal government and the Dusseldorf Higher Regional Court had the opportunity to deal more closely with the self-cleaning requirements of an unreliable company.

The public procurement tribunal decision shows how important it is for companies to take preventative action, ensure compliance and, in the case of misconduct, react appropriately.

Former participation in bidding cartel

The applicant's managing director, (indirect) shareholders and other shareholders of the same group of companies had taken part in commercial bribery and a bidding cartel to the detriment of the defendant. On the grounds of these unfair agreements, the Federal Cartel Office imposed large fines, from which the applicant – being a leniency applicant – was spared.

In a subsequent public procurement procedure, the applicants were called on to give more detailed information on their self-cleaning measures. On the basis of a detailed checklist, the companies were supposed to give information clarifying the facts and on personnel and organisational consequences, to the extent that they were affected by the accusations. The measures were supposed to be audited by a third party.

In its request to participate in the competitive procedure, the applicant pleaded its considerable contributions to the clarification of the facts and the compliance management system that it set up. On the other hand, the applicant had not taken appropriate steps in terms of personnel.

Belated self-cleaning

The defendant excluded the applicant from the tender process because of its lack of reliability and law abidance. The company's self-cleaning did not take place directly. The applicant did not replace its management until during the review procedure.

However, according to the federal public procurement tribunal (VK 2-31/15, June 12 2015), holding on to the managing directors who were personally accused of serious misconduct constituted autonomous grave professional misconduct by the applicant, rendering its integrity questionable.

Aside from this, the grave misconduct within the group of companies was attributable to the applicant. According to the public procurement tribunal, appraising the defendant to the effect that the measures taken did not suffice to restore reliability did not overrun the assessment leeway.

As codified in Article 57(6) of EU Directive 2014/24/EC, the different categories of self-cleaning measures should be taken into account on a cumulative basis. In the case of personnel consequences, the ultimately sweeping deficit that they cause cannot be compensated by measures in other areas.

The public procurement tribunal deemed the substitution of the management regarding the review procedure to be behind schedule. Self-cleaning should have taken place earlier. Implementing new suitability criteria after the contracting authority's decision not to invite the applicant to submit an initial tender was no longer admissible. The deadline for a request to participate in a temder for competition sets the time in which the contracting authority can carry out the suitability test. The tribunal referenced Federal Court of Justice case law (January 7 2014, X ZB 15/13) regarding grounds of protection of legitimate expectation and equal treatment with other competitors, and concluded that new facts arising after the event should not be considered.

With regard to other former cartel members, the contracting authority upheld the principle of equal treatment. Assessment of self-cleaning measures requires a discerning company-specific view of the individual case based on a uniform benchmark. The defendant had conducted such a review.

Leniency application status does not offer protection against necessary personnel changes. If board members are personally affected, sweeping human resources consequences may be inevitable. In addition, the leniency applicant status – regardless of whether it was recognised in the case under consideration – does not automatically guarantee a company's reliability under public procurement law. The reason for this is that the incentive of wiping the slate clean regarding the past and avoiding penalties (or at least of mitigating them) does not yet per se ensure that all necessary measures were taken in order to guarantee that the company will in future behave reliably and in a law-abiding way.

The oral hearing before the Dusseldorf Higher Regional Court (immediate appeal to the Dusseldorf Higher Regional Court, VII-Verg 38/15 – withdrawn by the applicant) made it clear that natural persons also take a significant risk as (indirect) shareholders if they participate personally in criminal offences that cast doubt on their companies. Effective self-cleaning can demand radical measures in such cases.

Contracting authorities are well advised when investigating the facts of the misconduct to urge competitors to disclose the wrongdoing and measures taken as early as possible. A checklist with detailed requirements and a comparative or tabular evaluation can be helpful to guarantee equal treatment and uniform benchmarks.

For further information on this topic please contact Christian Scherer-Leydecker or Jan Helge Mey at CMS Hasche Sigle by telephone (+49 221 7716 0) or email (christian.scherer-leydecker@cms-hs.com or janhelge.mey@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

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