In this procurement byte, we look at the changes to the grounds for exclusion in Article 57/Regulation 57. These are the grounds on which a contracting authority must, or may, exclude an economic operator from participating in a procurement process. The new ground for exclusion on the basis of poor prior performance of a public contract is likely to be of significant interest.

We also outline the key additions to the provisions on selection criteria and explain the new European Single Procurement Document.

Grounds for exclusion - Article 57/Regulation 57

Article 57/Regulation 57 continues the current approach by dividing the grounds for exclusion into mandatory and discretionary grounds.

Mandatory grounds

New grounds: A contracting authority must exclude a potential bidder where it is aware that it has been the subject of a conviction by final judgment for:

  • terrorist offences or offences linked to terrorist activities
  • terrorist financing
  • child labour or other forms of human trafficking offences

These new offences are in addition to the mandatory grounds listed in the 2004 Directive and 2006 Regulations: participation in a criminal organisation, bribery, fraud, proceeds of crime including drug trafficking. Definitions of those offences are updated where appropriate. In the case of corruption offences, the definition is expanded.

Period of exclusion: The maximum period of exclusion for these offences is left to national law to specify, subject to a maximum of 5 years from the date of conviction. The Regulations specify a 5 year exclusion period (Regulation 57(11)).

Mandatory exclusion on the grounds of breach of obligations relating to payment of taxes or social security contributions: This is currently a discretionary ground, but under Article 57(2)/Regulation 57(3) a breach of these obligations has become a mandatory ground for exclusion in certain cases. That is where the breach has been established by a judicial or administrative decision which has final and binding effect.

Discretionary grounds, including poor prior performance

There are new and significantly amended grounds on which a contracting authority may exclude an economic operator. These are where:

  • the contracting authority can demonstrate a breach of obligations relating to payment of taxes or social security, but there is no relevant judicial or administrative decision. See note below under “Period of exclusion”.
  • there is violation of environmental, social or labour law
  • the economic operator is guilty of grave professional misconduct, which renders its integrity questionable
  • there is a conflict of interest arising in the conduct of the procurement procedure that cannot be  resolved by using less intrusive measures than exclusion
  • the contracting authority has sufficiently plausible indications that collusion has taken place between economic operators
  • the economic operator has sought to unduly influence a contracting authority's decision or obtain information with a view to gaining a competitive advantage
  • there has been poor prior performance of a public contract by the economic operator

Again, these are in addition to the discretionary grounds already in place, including bankruptcy, insolvency and misrepresentation.  In the case of bankruptcy and insolvency a contracting authority need not exclude an economic operator where it can be demonstrated that the economic operator will be able to perform the contract.

Exclusion on the ground of poor prior performance: This ground is available where the economic operator has “shown significant or persistent deficiencies” in performing a “substantive requirement” under any prior public contract.  The relevant prior public contract need not have been for the contracting authority undertaking the procurement.  The poor performance must have “led to early termination of that prior contract, damages or other comparable sanctions”. In the draft Regulations some of the wording is currently shown in square brackets which indicates potential for change.

The terminology used means that contracting authorities wishing to exclude an economic operator on this ground will need to assess the facts very carefully and be confident that the circumstances genuinely apply. Our view is that this is an area ripe for confusion, misuse and, consequently, challenge.  What, for example, is meant by "significant or persistent"? How should contracting authorities interpret what is meant by a "substantive requirement"?  What level of evidence will be appropriate to demonstrate such deficiencies – would the application of financial penalties by reason of missed KPIs be an appropriate indication and amount to “comparable sanctions”? 

Given the value of contracts awarded by the public sector, exclusion by any potential bidder on this basis is likely to be highly contentious and we may see these questions answered by the courts. We anticipate that the ground will be cautiously applied. It does, however, provide a helpful means for a public authority to exclude a provider which it knows has let it or others down in the past, where the risk of including that provider in a procurement is seen as too high. 

Period of exclusion: the maximum period of exclusion for these offences is left to national law to specify, subject to a maximum of 3 years from the relevant event. The draft Regulations specify a 3 year exclusion period (Regulation 57(12)).

Period of exclusion for breach of obligations relating to payment of taxes or social security (discretionary ground): if the economic operator has entered into a binding agreement to pay the sums due or has paid them then this ground will no longer apply.  No maximum period of exclusion is specified because the discretionary ground can be remedied by payment.

Proportionality and “self-cleaning”

All of the grounds for exclusion, mandatory or discretionary, are subject to two important principles:

  • proportionality
  • the ability for an economic operator to "self-clean"

Proportionality: This is a key EU law principle.  It means that the decisions taken by a public body must be proportionate to the aims they are seeking to achieve.  Exclusion is a draconian measure and so contracting authorities should not use exclusion where they could tackle the problem in another way without major inconvenience.  For example, where there is a conflict of interest which can be resolved by the removal of an individual involved in the procurement process that is a more proportionate response than excluding the economic operator altogether from participation.

In the case of unpaid taxes or social security, the Directive actually states that it would clearly be disproportionate to exclude an economic operator where the amounts unpaid are minor.

“Self-cleaning”: Additionally, a contracting authority cannot exclude an economic operator where the economic operator can show that it has taken steps to remedy the wrong, and those steps are sufficient to demonstrate reliability.  The proof required from economic operators is quite onerous.  The contracting authority may take into account the seriousness of the particular circumstances before deciding whether the evidence of self-cleaning is sufficient to demonstrate reliability.  If the contracting authority is not satisfied, it must provide a statement of reasons to the economic operator concerned.

Selection criteria - Article 58/Regulation 58

The changes to permitted selection criteria are relatively minimal.  There is now a specific reference to the well-established requirement that selection criteria must be relevant and proportionate.  There is more detail on certain aspects of selection stage evaluation including provisions relating to the assessment of economic and financial standing. For example:

  • Minimum annual turnover requirement: this must, in general, be limited to two times the estimated contract value.
  • Financial ratios, such as asset:liability ratios: the methods and criteria to be used must be specified in the procurement documents and be transparent, objective and proportionate.

The clear aim is to encourage the participation of SMEs in procurement, which is part of the wider EU agenda.

The European Single Procurement Document (ESPD) - Article 59/Regulation 58

The ESPD is a new form of self-declaration which an economic provider can provide at the initial stage of the selection process.  The European Commission will issue a standard form ESPD which will be used in an electronic format.  The ESPD will be a substitute for certificates issued by public authorities and other third parties.  It can be updated and re-used by the economic operator for different procurements.

An economic operator can use the ESPD to demonstrate that: (1) the grounds for mandatory or discretionary exclusion do not apply; (2) it meets the relevant selection criteria; and (3) where relevant, it fulfils the criteria to be used to reduce the number of qualified candidates invited to tender.

Contracting authorities must accept the ESPD as part of the initial qualification process but they can then ask for the supporting documents at any time during the procurement.  They must ask the successful bidder for the relevant supporting documents prior to awarding the contract.

The introduction of the ESPD is intended to reduce the burden on economic operators in terms of information provision at the early stages of the procurement process.

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