New procurement directives to be adopted early in the new year expand the grounds for exclusion of tenderers for public sector and utility contracts while harmonising a route to re-entry where contractors have put in place measures to prevent reoccurrence, paid reparations and co-operated with investigating authorities.
This briefing addresses the shifting grounds for exclusion and the conditions for re-entry.
The existing EU rules on public procurement include a mandatory requirement for bidders to be excluded from tender processes if they have been convicted of certain offences. These include participation in a criminal organisation, bribery, corruption, fraud or money laundering. In addition, there are discretionary grounds for exclusion including failure to meet tax obligations, other convictions and findings relating to the professional conduct of the bidder that call into question its reliability as a contractor.
The new proposed rules expand such grounds. Corruption is now defined not only by reference to the laws of member states but also the national laws of the economic operator, presumably wherever it is established, whether within or outside of the European Union.
Mandatory exclusion for tax failures
Moreover, breach of obligations to pay taxes has now shifted from a discretionary to a mandatory ground for exclusion where such breach has been established by a final and binding judgment. Member states also have the choice to require or permit contracting authorities to exclude contractors prior to any final judgment where the contracting authority can demonstrate ‘by any appropriate means’ that there has been such a breach.
Payment, or entry into a binding arrangement with a view to payment, will remove such grounds for exclusion. Further, member states are permitted to provide for a derogation from the mandatory exclusion where such exclusion would be clearly disproportionate (for example where only minor amounts of taxes are unpaid) or where the economic operator did not know the precise amount of tax due at the time of submitting its tender.
These provisions have particular resonance in England, where there has been a high profile campaign conducted by the Parliamentary Select Committee and the Cabinet Office to clamp down on aggressive tax avoidance strategies, which potentially stop short of unlawful behaviour under current laws. The government sought to require all suppliers bidding for central government contracts to confirm that they had not:
- engaged in tax planning arrangements in respect of which HMRC had successfully taken • action under a wide range of tax anti-avoidance rules or where the underlying scheme has been or should have been disclosed to the UK tax authorities; or
- been the subject of a conviction for a tax-related offence or a penalty in respect of civil • fraud or evasion.
Suppliers forced to declare an ‘occasion of non-compliance’ would be ineligible to bid subject to various mitigation factors. The original intention had been to require declarations of such non-compliance looking back over a period of 10 years.
These proposals led to significant concerns being expressed by industry to HMRC and the Cabinet Office, resulting in the policy being materially redrawn. It now applies more narrowly to a more limited set of anti‑abuse provisions and only in respect of non-compliance occurring on or after 1 April 2013 in relation to tax returns submitted on or after 1 October 2012.
The presumption of mandatory exclusion in the new directives is controversial. Industry will no doubt wish to represent its views to the Cabinet Office in relation to the choice granted by the directive whether or not make interim exclusion mandatory pending a final binding judgment.
Member states may permit or require exclusion for deficiencies in past performance and other grounds
The directives give member states the choice whether to treat a number of other circumstances as grounds for mandatory or discretionary exclusion. These include:
- where an economic operator is guilty of grave professional misconduct calling into question its integrity;
- participation in agreements aimed at distorting competition;•
- where conflicts of interest or prior involvement of economic operators in advising in the • preparation of procurement procedures cannot be adequately remedied; and
- where the economic operator has significantly and persistently under-performed under a • prior contract which led to early termination, damages or other comparable sanctions.
This is a significant shift and expansion of existing rights under the directives to take into account past performance when assessing candidates’ technical or professional ability. The Cabinet Office issued a procurement policy note in November 2012 setting out the UK government’s view of procurement best practice on how minimum standards for reliability based on past performance should be assessed. The new directive provides a firmer platform for such decisions but in turn raises new questions. A contractor may dispute the lawfulness of termination or set-off in respect of damages by a contracting authority. Further, while it may have performed badly on one contract this does not necessarily reflect on its ability to perform in relation to others. Any decisions to exclude will have to be subject to questions of proportionality and fairness, having regard to all of the circumstances which may lead to protracted debates with contracting authorities at the stage of pre-qualification.
A route to re-entry
The new directives provide for the harmonisation across member states of the availability of a route to re-entry. The proposed reforms provide that a bidder will have to meet the following fundamental conditions to prove its reliability to tender despite the existence of a ground for exclusion:
- payment of compensation for any damage caused by the offence or misconduct;
- active collaboration with any investigating authority to clarify the facts; and
- implementation of concrete measures to prevent future offences or misconduct.
Member states are required to determine the maximum period of exclusion if no such measures are taken by the economic operator to demonstrate its reliability. Where the period of exclusion is not set by a final judgment, the maximum period is five years from the date of conviction by final judgment for mandatory grounds and three years from the date for the discretionary grounds.
Recitals to the directives emphasise that contracting authorities have to pay particular regard to the principle of proportionality – minor irregularities should only in exceptional circumstances lead to the exclusion of an economic operator. However, repeated cases of minor irregularities can provide a basis for exclusion where they cast doubt on the reliability of an economic operator. Member states can determine the exact procedural and substantive conditions for the route to re-entry, including whether the individual contracting authorities are to make the relevant assessments on a tender‑by‑tender basis or whether they should be entrusted to a central authority.
Consultation by the Cabinet Office
The Cabinet Office issued a procurement policy note on 25 July 2013 summarising the key features of the new regime and inviting comments on the areas of discretion allowed to member states when implementing the directives. These include whether to require mandatory instead of discretionary exclusion in the circumstances identified above, the nature and scope of any derogations and whether to limit exclusions to shorter periods than the maximum periods provided for in the directives.