A contractor’s experience means work actually done with the contractor’s involvement: A controversial ruling? | In Principle

The Court of Justice held in Esaprojekt sp. z o.o. v Województwo Łódzkie (Case C-387/14) that a contractor entering a tender individually cannot rely on the experience of a group of contractors it was a member of in performing another public contract if the contractor was not actively and specifically involved in performance of the contract. The ruling, issued in the context of a Polish tender, is widely regarded in Poland as controversial. But is the conclusion by the Court of Justice requiring experience to be based on actual experience really debatable?

In seeking the award of a public contract, a contractor demonstrated its technical capacity and experience by presenting a reference project performed by a consortium which the contractor was a member of, but the contractor was involved in performance of only a portion of the contract. Examining the matter, the National Appeal Chamber sought a preliminary ruling from the Court of Justice on the question whether EU procurement principles “allow reliance on the experience of a group of economic operators in such a way that an economic operator which performed a contract as one of a group of economic operators can rely on the performance by that group, regardless of what its participation in the performance of that contract was, or can it rely only on the experience it itself has actually acquired in performing the relevant part of the contract which was assigned to it within that group?”

Esaprojekt was decided under the earlier version of the Classic Procurement Directive (Art. 44 and 48(2)(a) of Directive 2004/18/EC)). The same principles are now included in Art. 58 of Directive 2014/24/EU, so the holding continues to be relevant under current law.

Tender as a procedure for eliminating contractors incapable of performing the contract

The aim of any procedure for award of a public contract is to select a contractor capable of performing the contract. The procedure provided by law governs the method for eliminating contractor who are either not recognised as capable of performing the contract or do not meet other established requirements.

This process is defined as the stage of qualification of contractors and is carried out in two phases:

• Exclusion from the procedure, which can eliminate contractors on grounds referred to in Art. 57 of Directive 2014/24/EU, largely connected with the contractor’s integrity, e.g. not having a clean criminal record
• Selection of contractors, governed by Art. 58 of Directive 2014/24/EU, based on circumstances involving the financial and legal condition and technical capabilities of the contractor, is evaluated in the context of the ability to perform the contract.

Under the current directive, “Contracting authorities may … impose criteria … on economic operators as requirements for participation … that are appropriate to ensure that a candidate or tenderer has the legal and financial capacities and the technical and professional abilities to perform the contract to be awarded. All requirements shall be related and proportionate to the subject-matter of the contract.” The prior directive referred to “the minimum levels of ability required for a specific contract….”

In Poland, the exclusion phase is carried out under Art. 24 of the Public Procurement Law, while Art. 22(1a) states that the contracting authority shall establish “the conditions for participation as well as … evidentiary means in a manner … enabling assessment of the contractor’s ability to properly perform the contract, particularly by expressing them as minimum levels of ability.”

The point of departure for the ruling by the Court of Justice was the instruction that the contracting authority should verify candidates’ or bidders’ abilities according to criteria established by the contracting authority, and may also demand that contractors fulfil requirements for minimal technical and professional qualifications, in proof of which it may require submission of a list of works, supplies or services performed by the contractor (Esaprojekt, par. 57–59).

Thus there is no doubt that the procurement process involves verification of whether a contractor possesses certain abilities ensuring proper performance of the contract. In the view of the Court of Justice, a technical ability is held by an entity that has already performed works of the type covered by the current procurement and has performed them adequately.

Relying on third-party resources to demonstrate abilities the contractor lacks

Under Art. 48(3)–(4) of Directive 2004/18/EC, “An economic operator may, where appropriate and for a particular contract, rely on the capacities of other entities, regardless of the legal nature of the links which it has with them. … Under the same conditions a group of economic operators as referred to Article 4 may rely on the abilities of participants in the group or in other entities.”

The current rule, in Art. 63(1) of Directive 2014/24/EU, generally provides that a contractor may rely on the capacities of other entities, and a group of contractors may rely under the same principles on the capacities of members of the group or others. As further provided, “Where an economic operator wants to rely on the capacities of other entities, it shall prove to the contracting authority that it will have at its disposal the resources necessary, for example, by producing a commitment by those entities to that effect.”

Under these regulations, the Court of Justice has held that for a contractor to be recognised as fulfilling the conditions for participation in a tender, EU law does not require the contractor to be in a position to perform directly using its own resources (e.g. CoNISMa C-305/08 (par. 41)). Thus it should be understood that in a situation where the contractor does not personally hold the required capabilities, it can apply for the contract by relying on the capacity of other entities, “provided that it proves to the contracting authority that it will have at its disposal the resources necessary for the performance of the contract” (e.g. Ostas celtnieks C-234/14 (par. 23).

In light of these regulations and the case law of the Court of Justice, it is clear however that in such case, it is crucial to determine that the capacities relied on by the contractor are concrete and actually at the contractor’s disposal.

Case law from the National Appeal Chamber

In Poland it is regarded as established law that a consortium participant is entitled to rely on experience gained by the consortium during contract performance (K. Kuźma & W. Hartung, “Doświadczenie konsorcjum a doświadczenie członków konsorcjum” (Experience of the consortium and experience of the members of the consortium)). It has also been held by the National Appeal Chamber that such experience cannot be limited to activities actually performed during contract performance. The chamber has expressly held that for the purpose of demonstrating technical abilities, it is permissible to rely on experience arising out of contract performance within a consortium.

The chamber has held that “the possibility of relying on earlier experience gained as a member of a consortium is consistent with the established case law of the Panel of Arbitrators and the National Appeal Chamber” (KIO/UZP 530/08). Further, “A consortium member is entitled to rely on documents (references) granted for performance of tasks by the consortium, in order to demonstrate its own experience, which meets the requirement of Public Procurement Law Art. 22(1)(2)…. A consortium member cannot be denied the right to experience gained within a consortium on a project carried out as a whole, where there is consent to formation of the consortium for the purpose of fulfilling a condition specified by the contracting authority” (KIO/UZP 99/08).

It clearly follows that a reference project carried out by a consortium may be presented by one of its members to demonstrate its own ability to perform the contract. It does not necessarily follow, however, that a consortium member can ascribe to itself work performed on the contract by another member of the consortium. In another ruling the chamber held that “the inability for a contractor to refer to work performed by the contractor, which it actually performed, but in a consortium, would be inconsistent with the idea, logic and rules of public procurement, including the rule of equal treatment of contractors seeking award of a contract” (KIO/UZP 886/08). This demonstrates that the National Appeal Chamber also identifies a contractor’s experience with the work actually performed by that contractor.

The chamber has also held that “a consortium member is entitled to rely on experience gained during contract performance, and this experience cannot be limited to activities actually performed within the project” (KIO/UZP 1187/09). In another case the chamber examined proof of a condition for participating in a tender involving experience providing mass transport of passengers within a defined number of transport kilometres. The chamber required the contracting authority to sum up the transport kilometres covered by members of a consortium in an earlier contract using the actual split of 25%−65%, in order for one of the consortium members to demonstrate experience at 100% of the required level. There the chamber confirmed that each consortium member has a right to rely on the experience it gained including the full range of work carried out in performing the contract signed by the consortium (KIO 1458/16).

But this issue is not treated uniformly in the decisions of the National Appeal Chamber. In another case the chamber recognised that the experience gained in performance of a contract belongs to the entities appearing jointly, and in the future each of them can rely on that experience for a new project, but that does not mean that the entities again appearing jointly in another tender can each present the entire experience separately, thus duplicating it (KIO 1087/12).

Performance of contract by consortium

A consortium is not a separate legal entity, and only the members of the consortium retain their own status as entities (KIO/UZP 1638/09). It is a form of establishing cooperation on a contractual basis, under which the parties assume obligations connected with jointly seeking and performing a public contract in exchange for sharing in the profit from carrying out the venture. Polish law does not single out consortium agreements as a special type of contract, and they are concluded on the general basis of freedom of contract under Art. 353¹ of the Civil Code. That National Appeal Chamber has pointed out that the notion of a “consortium” is not recognised by the Public Procurement Law, but is only used for convenience in place of the cumbersome statutory phrase “economic operators jointly seeking the award of a public contract.” It should always be remembered that a “consortium” is a rhetorical device and not a separate institution (KIO 2016/10). “Groups of economic operators” is the phrase used in Art. 19(2) of Directive 2014/24/EU.

The essence of creating a consortium is to enable contractors to participate in a tender when none of them could independently or to a large measure fulfil the conditions for participating in the proceeding (KIO 2424/10).

Contractors acting jointly in a tender are treated as a single contractor (UZP/ZO/0-34/05, KIO/UZP 176/10), which follows directly from Public Procurement Law Art. 23(3). They are only required to act jointly during the course of the tender.

However, performance of a public contract by a consortium is subject to generally applicable provisions of law, particularly the Civil Code. Thus, in practice the members of a consortium make internal arrangements concerning division of the work and performance of specific portions of the contract, but under Public Procurement Law Art. 141, the contractors jointly seeking the award of a public contract are jointly and severally liable for performance of the contract. Under Art. 139(1), joint and several liability under the Public Procurement Law is understood in line with the Civil Code, Art. 745 of which provides that “if several persons issue or receive a mandate jointly, their liability to the other party is joint and several.”

In the case of a consortium, joint and several liability means that the contracting authority may demand performance from all members of the consortium jointly, or from some of them or any of them separately, but satisfaction of the contracting authority by any of the members of the consortium releases the others from performing (Civil Code Art. 366). In other words, if every member of the consortium properly performs its own scope of work, the other members do not have to actually be involved in performance of the entire contract.

Nonetheless, the existence of joint and several liability means that potentially any member of the consortium may be required to perform the entire contract. But so long as no demand is asserted to perform the entire contract, each member will perform only the portion of the work which it agreed to do with the other members of the consortium.

In practice, very frequently individual members of a consortium will not involve themselves in performing the contract after they have completed their own scope of work, and the relevant provisions of their consortium agreement (such as release from debt under Civil Code Art. 392 or establishment of security against recourse claims) are designed to protect against liability for damages when another member of the consortium fails to properly perform its portion of the work.

Performing public contracts using subcontractors

In this context, performance of a contract by a consortium, as a group of contractors, and performance by a contractor hiring subcontractors, display certain differences (otherwise see K. Kuźma & W. Hartung, supra).

It does not raise any doubts for a contractor to gain experience without personally performing certain works but by assigning them to subcontractors. But performance of a contract using subcontractors will always require the contractor to perform work on the contract. This follows firstly from Public Procurement Law Art. 36A, and also from the fact that there is a contractual obligation in force between the contractor and the contracting authority, under which only the contractor can tender performance to the contracting authority in order to be released from the obligation, and it will at least check the work performed by its subcontractors, conduct acceptances, combine specific elements of the subcontracted works into a whole, and offer the results as its own performance of the public contract.

In the case of a consortium, each member has a legal relationship with the contracting authority and each member may settle directly for the portion of the contract it has performed, even though it is necessary to coordinate the work within the overall contract and sometimes there is a leader appointed within the consortium to carry out such duties.

Comparable situations must not be treated differently

The principle of equal treatment requires that comparable situations must not be treated differently (e.g. C-21/03 and C-34/03 Fabricom).

In light of these regulations and the case law of the Court of Justice, there is no doubt that in a situation where a contractor does not possess the relevant qualifications and capabilities, it can join its capacity with that of another entity to demonstrate fulfilment of the conditions for participation in the tender—so long as those capacities are actually committed to performance of the contract.

This principle is unchanged with respect to contractors who have gained experience within a group of contractors. They must demonstrate their technical abilities in the same scope. If they have not gained an ability required to perform the contract they are now seeking because they did not perform a certain portion of the reference project, they should demonstrate that capacity under the procedure permitted by Art. 63 of the directive (Public Procurement Law Art. 22a).

European lawmakers could not allow a situation where the obligation to ensure actual use of technical abilities necessary for performance of a contract would apply only to some contractors and not others. This would result in different treatment of contractors lacking their own capacity but submitting a relevant commitment by contractors who also do not have their capacity in this respect but were members of a group which previously performed a reference project.

Summary

Even before the judgment in Esaprojekt was issued, it was recognised that the principle of equal treatment requires that contractors lacking abilities essential for performance of the contract be eliminated from the tender, while at the same time allowing contracting authorities broad discretion in the methods for examination of such characteristics (S. Arrowsmith, EU Public Procurement Law, book 3, p. 33).

In Esaprojekt the Court of Justice does not change its approach to verification of contractors’ ability to perform the contract. The ruling is mainly significant in light of the practice that had developed in Poland of recognising, nearly automatically, that the experience of a consortium also counted as the experience of each of its members.

But this is not a practice enabling a finding that the mere fact of being a member of a group of contractors means that a contractor has gained experience performing each and every part of the contract.

Rulings confirming the possibility of recognising experience in performing a contract by one of a group of contractors in any instance indicate the possibility of relying on such experience. But the directive and national law do not exclude the necessity for the contracting authority to examine the contractor’s ability to perform the contract being awarded, which in the specific instance may arise from the fact of fulfilling various functions in completion of a reference project, including a coordinating function. Significantly, neither the EU directive nor Poland’s Public Procurement Law gives a right to recognise a contractor as capable of performing a contract when the contractor potentially could have been obliged to perform an earlier contract but did not do so because its obligation was extinguished due to performance of the contract by another contractor in the consortium.

Mirella Lechna, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners