Public procurement

Breach of a prior contractual relationship as grounds for dismissal 

In Case C-267/18 of October 3, 2019, the Court of Justice of the European Union examines the conditions for excluding tenderers who have previously breached contracts with other contracting authorities.

Where a bidder has a poor track record of delivery, the contracting authority will typically ask how such negative experiences from other contracts can be taken into account in the competitive process. One of the innovations in the 2014 Procurement Directives is specific provisions allowing for the rejection of bidders who have committed material breaches of contract in previous contractual relationships with public contracting authorities. It is a condition that the material breach of contract has resulted in sanctions such as termination or compensation; see Section 20-2(3)(f) of the Public Procurement Regulations, cf. Section 20-5, which implements Article 57(4)(g) of the Public Procurement Directive, cf. Article 57(6).

In Case C-267/18 of October 3, 2019 (Deltav.CNAIR), the Court of Justice of the European Union examines the content of the grounds for exclusion under the provision of the Directive. The decision is also relevant to the interpretation of Section 20-2(3)(f) of the Public Procurement Regulations.

Background of the case

The company Delta Antrepriza SA (“Delta”) participated in a consortium (No. 1) that submitted a bid for the renovation and modernization of municipal buildings. The contract was terminated early by the contracting authority because the consortium had used a subcontractor without seeking the contracting authority’s consent.

Later, Delta participated in another consortium (No. 2) that submitted a bid for a road construction project organized by the Romanian National Road Authority. When the Road Authority became aware of the termination of the contract in the first tender, the contracting authority decided, after reviewing the matter, to reject the consortium (No. 2).

The question before the Court of Justice of the European Union was whether the Romanian authorities had rejected Consortium No. 2 in a manner consistent with the terms of the Public Procurement Directive.

The Court's Findings

In paragraph 38, the Court concludes that it may constitute a material breach of contract justifying exclusion under Article 57(4)(g) where a tenderer in a previous procurement procedure has engaged a subcontractor without obtaining the contracting authority’s consent, and where this has led to the termination of the contractual relationship. However, it is also a condition for exclusion that the contracting authority, prior to the exclusion, conducts an independent assessment of the integrity and the relationship of trust with the tenderer in question based on the prior breach of contract; see paragraph 38.

Finally, it is a condition that the tenderer in question be given the opportunity to submit documentation showing that, following the breach of contract, adequate measures have been taken to prevent a recurrence; see paragraphs 37 and 38. This final condition follows from Article 57(6) of the Directive, as implemented through Section 20-5 of the Public Procurement Regulations.

Notes

The decision underscores that the contracting authority cannot simply limit itself to citing prior breaches of contract as grounds for rejection. On the contrary, the contracting authority must conduct an independent assessment of the significance of prior breaches of contract for its own relationship of trust and its evaluation of the rejection, and the bidder must be given a genuine opportunity to document measures taken to prevent further breaches.

This is an optional ground for rejection (“may” reject), and the court notes that the contracting authority alone has the power to decide whether the tenderer in question should be rejected; see paragraph 25. In national terminology, one could say that the contracting authority has professional discretion in procurement matters. However, this discretion is not unlimited, and should such issues arise before Norwegian courts, the court will have to review the contracting authority’s interpretation of the law, as well as whether the assessment is based on correct facts and whether it complies with the fundamental requirements of Section 4 of the Public Procurement Act.

Where the contracting authority lacks the legal basis to reject a bidder pursuant to Section 20-2(3)(g) of the Public Procurement Regulations, the question arises as to the extent to which negative experiences with a supplier (whether the contracting authority’s own or those of others) may be taken into account in the actual evaluation of bids. This issue was considered, among other things, by the Complaints Board in Case 2019/363 (Westco Miljø AS), paragraph 36 et seq., without, however, taking a position on the legal validity of the Board’s assessments.

If you have any questions regarding public procurement regulations, please contact attorney Lars Kokkin Christiansen at lkc@rblaw.no or by phone at 915 99 178.