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Public procurement: Breach of previous contractual relations as a reason for rejection

In case C-267/18 of 3 October 2019, the Court of Justice of the European Union is considering the conditions for rejecting tenderers who have previously breached contracts with other public contracting authorities.

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Where a tenderer has a poor delivery history, the contracting authority will typically ask itself how such negative experiences from other contracts can be taken into account in the competition. One of the innovations in the procurement directives from 2014 is special authorisation to reject tenderers 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 the procurement regulations section 20-2 (3) letter f cf. section 20-5 which implements the procurement directive article 57(4) letter g., cf. article 57(6).

In case C-267/18 of 3 October 2019 ( Delta v CNAIR ), the Court of Justice of the European Union considers the content of the conditions for rejection under the provision of the Directive. The decision is also relevant for the interpretation of Section 20-2(3), letter f, of the Procurement Regulations.

Background of the case

The company Delta Antrepriza SA (“ Delta ”) participated in a consortium (No 1) that submitted a tender for the rehabilitation and modernization of municipal buildings. The contract was prematurely terminated by the client as a result of the consortium using a subcontractor without asking the client for consent.

Later, Delta participated in another consortium (No 2) with a bid for the construction of a road under the auspices of the national Romanian road company. When the road company became aware of the cancellation of the contract in the first-mentioned competition, the client, after a review of this matter, decided to reject the consortium (No 2).

The question addressed by the European Court of Justice was whether the Romanian authorities had rejected Consortium No 2 in a manner that was compatible with the terms of the Procurement Directive.

The court's assessments

The court concludes in premise 38 that it may constitute a fundamental breach of contract that qualifies for rejection under Article 57(4)(g) where a tenderer in a previous competition has engaged a subcontractor without obtaining the consent of the contracting authority, and where this has resulted in the termination of the contractual relationship. However, it is also a condition for rejection that the contracting authority, prior to rejection, makes an independent assessment of the integrity and trustworthiness of the tenderer in question on the basis of the previous breach of contract, see premise 38.

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

Notes

The client must make an independent assessment

The decision emphasizes that the contracting authority cannot simply refer to previous breaches of contract as grounds for rejection. On the contrary, the contracting authority must make an independent assessment of the significance of previous breaches of contract for its own relationship of trust and rejection assessment, and the tenderer must be given a real opportunity to document measures taken to avoid new breaches.

This is an optional ground for rejection (“may” reject) and the court points out that it is the contracting authority alone that can decide whether the tenderer in question should be rejected, see premise 25. In national terminology, it can be said that the contracting authority has a discretion in the procurement field. However, the discretion is not unlimited, and should such questions arise before Norwegian courts, the court will have to be able to test the contracting authority’s interpretation of the law, as well as whether the assessment is based on a correct fact, and whether it complies with the fundamental requirements of the Public Procurement Act, Section 4.

Where the contracting authority is not entitled to reject a tenderer pursuant to section 20-2 (3) letter g of the Procurement Regulations, the question arises as to how far it is permissible to include negative experiences with suppliers (one's own or others') in the tender evaluation itself. This issue has been considered by the Complaints Board in case 2019/363 (Westco Miljø AS) premise 36 et seq., without thereby taking a position on the legal validity of the Board's assessments.

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