The EU public procurement directive concerning public sector procurements, also known as the Public Sector Directive[1] lists in Art.57 a number of mandatory and facultative grounds for excluding bidders. The mandatory grounds include mainly various serious criminal activity whereas the facultative grounds include in a more general manner for example grave professional misconduct, significant deficiencies in performance of previous contracts or serious misrepresentation, see Art.57(4) of the Directive.
Exclusion is a drastic measure, which so to say blocks the excluded bidder up front from joining the competitive process. Without regulatory safeguards exclusion could easily be misused to unduly restrict competition. One such safeguard is that the burden of proof is on the procuring authority to demonstrate that there is ground for exclusion. Another safeguard is in the case of mandatory exclusions the relatively specific requirements as regards criminal convictions. In the case of the vagueness of some of the facultative exclusion grounds there is greater risk for misuse.
Exclusion can be avoided, if a bidder both in the case of mandatory and facultative exclusion grounds can “provide evidence to the effect that measures taken by the economic operator are sufficient to demonstrate its reliability despite the existence of a relevant ground for exclusion”, see Art.57(6) of the Directive. The term “self-cleaning” is often used about the remedy.
A procuring authority will obviously need to decide whether the self-cleaning provided by the bidder is sufficient to demonstrate reliability. The self-cleaning scheme poses an inherent dilemma. In the case of mandatory exclusion where procuring entities are obliged to exclude and thus perhaps less motivated to enforce, they may be prone to assess proposed self-cleaning measures leniently. In the case of facultative exclusion where procuring entities have pinpointed specific exclusion grounds as particularly relevant, they may on the other hand be quite restrictive.
A specific Danish reliability assessment arrangement presents itself as a manner of dealing with this dilemma. The Danish Competition and Consumer Authority[2] (DCCA) is tasked with assisting procuring entities in assessing the documentation that self-cleaning bidders provide as proof of reliability. For this purpose, procuring authorities are required to obtain DCCA assessments in all cases of self-cleaning. The explicit purpose of these assessments is to promote a uniform approach amongst procuring authorities in this difficult area. The assessment is formally purely advisory and the final decision as to whether a proposed self-cleaning is adequate remains with the procuring authority.
A review of recent practice concerning such assessments was recently undertaken by DCCA itself. The review covered the year 2023 where the DCCA issued eighteen such assessments. The review did not find problems in the majority of the assessments and is only commenting more extensively on two cases, which both happen to be of general interest as regards especially application of exclusion grounds. Application of self-cleaning is actually relatively less in focus, but rather whether the procuring authority had been entitled to exclude the bidder in the first place.
The point of departure is that procuring authorities have relatively wide discretion as regards exclusion of bidders. DCCA would under normal circumstances not consider itself competent to evaluate in depth the reasons for exclusions and DCCA would only criticise clearly incorrect decisions. This is the theme for the first case outlined in the following.
Grave professional misconduct
In this first case the bidder had been excluded with reference to grave professional misconduct because directors of the parent company in the group that the bidder belonged to had been convicted of criminal offences.
Exclusion due to professional misconduct is a facultative exclusion ground and requires that the contracting authority “.. can demonstrate by appropriate means that the (bidder) is guilty of grave professional misconduct, which renders its integrity questionable”, see Art.57(4) (c). “Professional misconduct” is a comparatively vague concept, which is not limited to specific types of misconduct or requiring specific reactions in terms of prosecution, conviction or disciplinary sanction from relevant professional bodies. The burden of proof required to be lifted by the contracting authority must cover not just the misconduct as such but also the likely negative affect on bidder integrity.
In the concrete case, the procuring authority had given as reason for the exclusion that the convicted directors had a controlling position over the bidder. This was apparently seen in itself as likely to impact negatively on the integrity of the bidder. The bidder on his part pointed out that it was not the bidder as such that had been convicted. He argued that it is only in the case of the serious criminal offences that conviction of members of the bidder leadership and persons with supervisory roles are considered equivalent to conviction of the bidder enterprise as such, see Art.57(1). Where exclusion is based on professional misconduct, there is no similar extension to persons in leadership/controller roles.
It is as mentioned earlier recognised that procuring entities are allowed a fair degree of discretion when deciding on exclusion. Therefore, DCCA did in the review of the case focus on whether the decision on exclusion could be criticised as clearly incorrect. It observed that professional misconduct may include a broad range of criminal/non-criminal activities, whether committed by the bidder as such or a member of its management or whether the conduct has been subject to conviction or any other formal sanction. The fact that the management is not mentioned in Art.57(4)(c) did in the opinion of DCCA not exclude that the behaviour of such management could be relevant.
Judging from the manner in which the case is describe in the DCCA review, it seems that the procuring authority in its decision merely referred to the criminal convictions in the parent company as evidence. It could be questioned whether the misconduct committed “at a distance” within a parent company could possibly demonstrate grave professional misconduct and loss of integrity. Next question is of course whether the decision could actually be considered clearly incorrect. DCCA did in any case not find reason for criticising the procuring authority.
What is important in the specific context of Danish legislation is that the implementation of the Public Sector Directive (by means of what is known as the Tender Act) made use of an option in the directive to convert facultative exclusion grounds into mandatory ones, see Art.57(4). This has in fact happened for amongst other the “grave professional misconduct”, see Art.57(4)(c).
This exclusion ground is unlike most of the other facultative exclusion grounds not based on easily verifiable circumstances such as bankruptcy, conflict of interest etc. Procuring authorities are thus obliged to use an exclusion ground that they might not have chosen on their own initiative, which is quite vague and for which the burden of proof can therefore be particularly difficult to lift. It would in other words be a virtually impossible exclusion ground to manage at early stages of the tender process. The practical effect would seem to be that this exclusion ground would mainly be relevant in cases where competing bidders chose to complain alleging grave professional misconduct on the part of the winner of the contract.
Performance of previous contract
A second case demonstrates that while procuring authority are allowed discretion in deciding on exclusion, it is on the other hand required, that the decision is based on an independent evaluation of circumstances. The case concerned exclusion due to significant or persistent deficiencies in contract performance, see Art.57(4)(g) of the Public Sector Directive. The procuring authority did as reason for the exclusion merely refer to an early termination of a contract between the bidder and another procuring authority.
DCCA pointed out, that merely referring to a previous contract termination was not sufficient for justifying exclusion. There would have to be reasons given how exactly the termination of previous contract would create any doubts as to the reliability of the bidder[3]. DCCA makes the point that without such specific reasons, it would not be possible for the bidder to design self-cleaning measures to specifically address the shortcomings in performance mentioned in the exclusion decision.
DCCA is also observing in a more general manner, that previous termination of contracts does not always justify exclusion. The Directive requires that the early termination must be because of “….significant or persistent deficiencies in the performance of substantive (contract) requirements”, and DCCA considers that the procuring authority is obliged to demonstrate adequate reasons for exclusion as a natural part of its lifting the burden of proof.
There would after all be cases, where termination was disproportionate or essentially due to an already general deterioration of relations between the parties. The core issue is reliability and deficiencies are mere symptoms of a possible reliability problem. This is clearly indicated in Art.57(6) where proof of reliability is a common remedy for self-cleaning irrespective of exclusion ground – even in cases of serious crime where mandatory exclusion is required.
Precise reasons for exclusion are required due to the mere fact that the term “reliability” can have many meanings, ranging from consistency in commercial transactions (delivery, service activities) to other aspects of commercial behaviour more related to ethics. Which of these meanings are relevant for the procuring authority would very much depend on the type of procurement. In the case of standard supplies the ethical/professional behaviour of the future supplier might be less relevant as opposed to procurements involving more complex and long term relations.
The case shows in a more general manner how the self-cleaning mechanism creates a dynamic whereby requirements to the level of detail in the justification of exclusion decisions increases. This introduces a safeguard against abuse of exclusions, especially where the grounds are vague such as in the case of grave professional misconduct.
Otherwise, the DCCA review of reliability assessments does not really highlight specific cases where the quality of the evidence submitted by bidders as basis for self-cleaning is assessed. A critical aspect in application of self-cleaning and their assessment is to establish practices concerning self-cleaning. Art.57(6) of the Directive establishes in general terms what type of self-cleaning measures are required. To facilitate tasks for procuring authorities and bidders, a guidance paper issued by DCCA includes more concrete examples of adequate measures. However, these examples do not go further that what already follows from the Public Sector Directive[4].
Concluding comments
The point was made earlier that both DCCA decisions highlighted in the DCCA review are focusing on the conditions for excluding bidders rather than self-cleaning assessment. The first decision can be seen as confirming the wide discretion allowed for procuring authorities in justifying exclusions. As discussed in connection with that case, the reason for excluding the bidder is certainly not obvious.
The second decision demonstrates how the self-cleaning scheme in fact requires the reasons for exclusions to be explained in some detail. It will need to be clarified how the circumstances behind the exclusion can impact negatively on the reliability of the bidders. Only such detailing will allow the bidder to decide on suitable self-cleaning measures.
Comparing the two decisions begs the question, whether the first case provides sufficient clarity as to how the alleged professional misconduct in question affects the reliability of the bidder. More generally, the two cases also invite a discussion on whether the possibility for self-cleaning in fact raises the bar for demonstrating the effect on reliability and in this manner somehow restricts the discretion of procuring authorities in exclusion cases.
[1] The term refers to the Public Procurement Directive 2014/24/EU. The other directive concerning utilities include different and more flexible regulation.
[2] See English description of the functions of the Authority https://www.en.kfst.dk
[3] Art.57(4)(g) does unlike Art.57(4)(c) on professional misconduct not include the issue of integrity/reliability. However, the comments to Art.57(4)(g) demonstrates that the deficiencies in contract performance must be relevant for assessing the integrity/reliability of the bidder, see recital 101.
[4] See recital 102 which mentions disruption of employments and all other links with persons or organizations involved in misconduct, organizational changes to facilitate checks and balances, implementation of reporting – and control systems , creation of an internal audit structure to monitor compliance as well as adoption of internal rules concerning liability and sanctions.