Cheaters beware: GC enforces strict #suspension rules in EU #publicprocurement (T-87/11)

In its Judgment of 10 April 2013 in case T-87/11 GRP Security v Court of Auditors, the General Court of the EU (GC) has analysed some interesting features of the sanctions that EU institutions can apply to non-performing public contractors in order to prevent their participation in new public tenders for a given period of time (ie temporary exclusion, or suspension).

In the case at hand, GRP Security had been awarded a contract for the security of the premises of the Court of Auditors on the basis of falsified professional documentation--more specifically, the CV and professional qualifications of the security team leader called to oversee the proper working of the security activities. Upon discovery of such falsity, the Court of Auditors unilaterally decided to terminate the services contract and informed GRP Secutirty that it planned to claim damages and to enforce the available financial and administrative penalties. The company retorted that they were not aware of the illegal behaviour of their employee, whom they fired and sued for damages. 

The Court of Auditors' decision was unchanged, and the contract was terminated, together with a claim for €16,000 for moral and economic damages (which were deduced from the payments corresponding to the outstanding invoices for the services rendered before termination). Moreover, on the basis of article 96.2.a)  of the Financial Regulation applicable to the general budget of the European Communities, GRP Security was thus provisionally excluded from contracts and grants financed by the budget of the Union for a period of three months--which should be revised and could lead to an extension of the exclusion if the applicant did not provide evidence that it had taken appropriate internal corrective action to prevent similar events from happening again. It is worth stressing that the maximum period of exclusion is 10 years, and that the payment of financial penalties by the contractor can reach the full value of the contract in question [art 96.2.b)]--so it is clear that the sanctions imposed by the Court of Auditors were well below the maximum thresholds set in the Financial Regulation.

Within the set period of three months, GRP Security submitted a remedial plan to the satisfaction of the Court of Auditors and, consequently, no extension of the initial suspension was imposed. Afterwards, GRP Security initiated legal proceedings to challenge the unilateral termination of the contract by the Court of Auditors and announcing that it reserved the right to seek financial compensation (not least, for its temporary exclusion from EU procurement tendering).

One of the interesting points of law in the dispute is whether the EU Financial Regulation actually allows for a sanction of reviewable temporary exclusion or not. Article 96.2.a) of the Financial Regulation, coupled with article 134 ter of its Implementing Regulation, determine that

Without prejudice to the application of penalties laid down in the contract, candidates or tenderers and contractors who have made false declarations, have made substantial errors or committed irregularities or fraud, or have been found in serious breach of their contractual obligations may be excluded from all contracts and grants financed by the Community budget for a maximum of five years from the date on which the infringement is established as confirmed following an adversarial procedure with the contractor.
That period may be extended to 10 years in the event of a repeated offence within five years of the date referred to in the first subparagraph (emphasis added).
According to GRP Security, the system only foresees one-off exclusion decisions, but it does not allow for a set of rolling decisions dependent upon the adoption of remedial action on the part of the suspended contractor. The GC avoided answering this important point of law by relying on the specific circumstance that the Court of Auditors did not extend GRP Security's exclusion at the end of the initial 3-month period (paras. 67-71 of the T-87/11 Judgment). Therefore, legal uncertainty seems to remain concerning this possible reviewable or on-going application of the suspension regime.

In my view, however, such temporary suspension coupled with a compliance check fits within the system of  the Financial Regulation and its Implementing Regulation, and would be to the advantage of contractors--since, in the absence of such possibility to review, contracting authorities could clearly be tempted to impose longer exclusion periods from the beginning. Moreover, companies should be the first interested in implementing remedial action and, consequently, gaining some immediate benefits from that investment. Also, this would be in line with the current trend of recognition of the value of 'self-cleaning' efforts, such as in article 55 of the December 2011 proposal for a reviewed EU Directive.

GRP Systems also appealed the 3-month temporary suspension decision on the basis of an alleged lack of proportionality, which the GC easily dismissed, considering that
the applicant has seriously failed to meet its contractual obligations. In addition, it should be recalled that the Court of Auditors, which is one of the institutions of the Union, is dedicated to examining the legality and regularity of revenue and expenditure of the Union and any organ or body created by the EU and to ensure their sound financial management (Article 287, second subparagraph, TFEU). Particularly in view of these missions and the severity of the deficiencies attributable to the applicant, it should be considered that the latter, by his conduct undermined the image of the Court of Auditors and the European Union (T-87/11, para 81, own translation from French).
This part of the Judgment may be criticised on the basis that it seems to allow for an analysis of the gravity of the offence and the ensuing sanction on the basis of factors that are external to the offender (would the same actions be less reproachable had they been committed against an institution not entrusted with a financial audit or oversight mission?). However, it seems clear that the GC is prepared to uphold the highest standards of professional conduct in the field of EU public procurement and this more general message must be most welcome.

In general, this case highlights the need for some additional clarity and development of the system of suspension and debarment of non-performing contractors in EU public procurement which, in my view, should not only be created for EU's institutional procurement, but extended to the general rules applicable in the Member States.