Contracting authorities should not be scared to exclude misbehaving tenderers, for the CJEU has their back (C-440/13)

In its Judgment in Croce Amica One Italia, C-440/13, EU:C:2014:2435, the Court of Justice of the EU (CJEU) has decided a complex situation concerning the exclusion of a tenderer based on an on-going criminal investigation derived from an allegation of fraud and misrepresentation in the submission of the documentation for that specific tender (ie an, 'intra-tender' ground for exclusion). The reasoning of the CJEU is complex because it conflates the application of exclusion grounds and the withdrawal of an invitation to tender under Directive 2004/18 and its interpreting case law--and, consequently, deserves some close consideration.

In the case at hand, the contracting authority announced an open procedure for certain specialist transportation services and received four offers. Three of the four offers where rejected on technical grounds. The contract was provisionally awarded to the fourth tenderer (Croce Amica One), but an investigation was initiated due to the evaluation scores being seemingly too high (ie carrying more than 80% of the maximum points in both the technical and the economic evaluation, which triggers specific scrutiny under the applicable Italian rules). As a result of the inquiry, the evaluation team determined that the tender was anomalous. Simultaneously, a preliminary criminal law investigation for fraud and intentional false statements was launched concerning, among others, the legal representative of Croce Amica One. It is not relevant for the assessment (as it comes ex post facto), but the investigation actually found that there had been fraud.

In view of all this, the contracting authority decided to cancel the tender. Its reasoning was as follows: given the circumstances described, apart from the anomalous nature of the tender, the [contracting authority] [could] not in any event, for evident reasons of expediency and reasons connected with the principle of sound administration, proceed to award the services contract to the tenderer Croce Amica One … nor, given the vital nature of the services in question, [could] it postpone the award of the contract pending the outcome of the criminal proceedings or even the conclusion of the investigations currently under way’ (para 17, emphasis added).

One of the difficulties in the case concerned the 'timing' of the application of the exclusion ground by the contracting authority. Implicitly, the allegation was that the contracting authority could only have applied the exclusion ground prior to deciding on the (provisional) award of the contract--following the logical sequence of exclusion, selection, award that Directive 2004/18 seemed to impose. By deviating from that apparently mandatory sequence or, in other words, by applying the exclusion ground at an inappropriate moment (ie too late in terms of the procurement procedure, and too early in terms of the parallel criminal investigation, which was on-going), the contracting authority would have breached the EU rules. Those rules would have been furthermore breached due to the unjustified cancellation of the tender--which, however, derives from the fact of excluding the only tenderer left and, consequently, it is hard to see why this second dimension would be (independently) relevant.

Unfortunately, and due to some procedural restrictions derived from the mechanics of the preliminary reference mechanism (para 28), the CJEU does not focus on the timing for the application of the exclusion ground (it simply mentions that the circumstances of the case are clearly covered under art 45(2) dir 2004/18, para 28) and, instead, looks at whether the cancellation of the tender (or the implicit withdrawal of the invitation to tender) is justified (paras 29-37). Hence, the reasoning of the CJEU in Croce Amica One does not seem very helpful in establishing whether, under the rules in dir 2004/18, exclusion grounds can be applied by contracting authorities after completing the initial selection screening , or whether they can base the exclusion on (suspected) breaches that occur during the tender procedure.

Thus, the Croce Amica One Judgment may at first sight seem to come too late or be of limited temporary relevance because this situation is now expressly regulated in art 57(5) of Directive 2014/24, which allows contracting authorities to apply the revised exclusion grounds 'at any time during the procedure' and 'in view of acts committed or omitted either before or during the procedure'. However, even if based on the (not necessarily) inter-linked point of the cancellation of the tender, the reasoning of the CJEU in Croce Amica One should remain valid after the entry into force of dir 2014/24 as a clear back-up to contracting authorities that decide to exercise their discretion and apply art 57(5) in view of exclusion grounds based on concurrent tendering (mis)behaviour. 

Indeed, it is worth stressing that the CJEU has clarified that:
EU law does not preclude Member States from providing in their legislation for the possibility of adopting a decision to withdraw an invitation to tender. The grounds for such a decision may thus be based on reasons which reflect, inter alia, the assessment as to whether it is expedient, from the point of view of the public interest, to carry an award procedure to its conclusion, having regard, among other things, to any change that may arise in the economic context or factual circumstances, or indeed the needs of the contracting authority concerned (C-440/13, para 35, emphasis added).
In my view, this reinforces the powers that art 57(5) dir 2014/24 gives to contracting authorities to 'self-protect' from entering into contracts with (potentially) unreliable suppliers. This will have to be coupled with certain procedural guarantees (as the CJEU stresses in paras 38-46), but the general principle is, in my view, that contracting authorities need to feel empowered to react to their informed and demonstrable suspicions by excluding tenderers affected by exclusion grounds.

However, there is also a final caveat in the Croce Amica One line of reasoning that looks very dangerous to me because of its potentially misleading content. Continuing with the exploration of the reasons that can justify the cancellation of a tender, the CJEU indicates that: The grounds for such a decision may also relate to there being an insufficient degree of competition, due to the fact that, at the conclusion of the award procedure in question, only one tenderer was qualified to perform the contract (C-440/13, para 35, emphasis added). 

I find this last bit of the reasoning potentially dangerous for two reasons. Firstly, because economics tells us that this is not a situation that per se can be interpreted as evidencing insufficient competition [see JM Keisler & WA Buehring, ‘How Many Vendors Does It Take To Screw Down A Price? A Primer on Competition’ (2005) 5 Journal of Public Procurement 291]. And, secondly, because it is prone to abuse in cases where the contracting authority is left with only one tenderer that it simply dislikes or does not want to engage with for reasons not covered by exclusion grounds or qualitative selection criteria. In such case, the random result that only one tenderer (of many participating) can actually perform the contract would be the (unexpected) perfect excuse to discriminate against it by cancelling the tender.

Hence, I would urge for a very restrictive interpretation of this last part of para 35 of the Croce Amica One Judgment, particularly in view of a proper interpretation of the principle of competition embedded in art 18(1) dir 2014/24--ie because the blank rejection of the only tender that meets all the requirements of the contracting authority would, if not otherwise justified, be an artificial restriction of the (outcome of) the competition actually materialised in the procedure.

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.