Suppliers of IT services and other outsourcing providers to the public sector face the risk of blacklisting for poor contractual performance under a new Directive set to be ratified by the EU later this year. According to recent press reports Ministers have apparently already started drawing up a potential blacklist of service providers and are considering "naming and shaming" them.
The new Directive of the European Parliament on public procurement is part of a series of EU legislative proposals designed to replace and modernise the 2004 rules. Whilst the proposed Directive has been in the public domain for some time, it is interesting to note that this particular aspect of it has come into the spotlight now.
The relevant section in the draft Directive can be found in Article 55(3)(d) (Exclusion Grounds):
“A contracting authority may exclude from participation in a public contract any economic operator if one of the following conditions is fulfilled…where the economic operator has shown significant or persistent deficiencies in the performance of any substantive requirement under a prior contract or contracts of a similar nature with the same contracting authority.”
The Directive does, however, provide some protection to suppliers:
"In order to apply the ground for exclusion referred to in point (d) of the first subparagraph, contracting authorities shall provide a method for the assessment of contractual performance that is based on objective and measurable criteria and applied in a systematic, consistent and transparent way.
Any performance assessment shall be communicated to the contractor in question, which shall be given the opportunity to object to the findings and to obtain judicial protection."
Such objective criteria could be, for example, failure to meet key contract milestones or forcing public contracting authorities to exercise (fault based) termination rights.
The draft Directive does allow for Suppliers to provide evidence, when bidding, that they are suitable contractors, notwithstanding that this particular ground for exclusion has (otherwise) been met. So for instance, they could demonstrate that they have paid compensation for a previous contract breach. However, contracting authorities will have the discretion to determine whether or not that evidence is sufficient.
Whilst the other grounds for exclusion of a potential bidder under the proposed new Directive are non-controversial, and include fraud, corruption, money-laundering, insolvency or even terrorism, Article 55(3)(d) is significant, because public bodies have previously faced difficulties with similar blacklists. Such blacklists were regarded as incompatible with EU competition and procurement rules.
The draft Directive could change all of this by placing legitimate "bans" for poor performance on a statutory footing.
Assuming the Directive is passed in its existing form, suppliers will want to see that public bodies adopt a clear and consistent approach to applying this particular provision, that the "benchmark" for what amounts to a "significant or persistent deficiencies in the performance of any substantive requirement under a prior contract" is set at the right level and that there is clear route for finding a way off any blacklist.