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Relying on third-party capacity to make the shortlist

Based on a recent judgment of the Court of Justice of the European Union, the provisions of the Polish Public Procurement Law permitting reliance on third-party capacity to demonstrate fulfilment of selection criteria are consistent with EU law.

Partner Apelski Dariusz v Zarząd Oczyszczania Miasta, Case C-324/14, judgment of 7 April 2016

The case before the Court of Justice was initiated by a request for a preliminary ruling from Poland’s National Appeal Chamber (KIO) in 2014, including among other issues the possibility for bidders to rely on the capacity of third parties when seeking the award of a public contract.

The issue of reliance on third-party capacity was raised repeatedly in debates over the recently drafted amendment of the Public Procurement Law. It was argued that one of the versions considered, providing in Art. 22a(1), “A contractor may in order to confirm fulfilment of the conditions for participation in the procedure or objective and non-discriminatory criteria (‘selection criteria’) … rely on the technical or professional capacities or financial or economic condition of other entities, regardless of the nature of the legal relationships between them,” is inconsistent with the new directive (2014/24) as relates to the possibility of fulfilling selection criteria using third-party resources. This supposedly follows from a comparison against Art. 63(1), 58(3) and 58(4) of Directive 2014/24, because when Art. 63(1) speaks of the ability to rely on the capacity of a third party, it refers only to criteria determined pursuant to Art. 58, which governs qualification criteria. (In this light it was argued for example that there was “an expansion of the purpose for which a contractor would be entitled to rely on the resources of another entity.”)

This interpretation of the directive was consistent with the practice of applying the Public Procurement Law and the case law which became firmly established in Poland in 2013 (National Appeal Chamber rulings of 26 February 2013, KIO 297/13 and KIO 300/13; 8 May 2013, KIO 953/13; and 5 September 2013, KIO 2030/13), restricting the practice of borrowing resources of knowledge and experience of a third party solely to demonstrate that the bidder meets the conditions for participating in the procedure.

However, this interpretation was based only on a literal interpretation of Directive 2014/24, which is generally contrary to how procurement law is interpreted by EU bodies. The incorrectness of this restrictive approach to the possibility of relying on third-party capacity in tenders is clear from the ruling by the Court of Justice in the Partner Apelski Dariusz case decided this year.

A disclaimer should be made here that in that case the Court of Justice did not examine whether or not a contractor can rely on third-party capacity to meet selection criteria. In this respect, the issue is solely a matter of the specifics of Polish procurement practice. But the judgment provides a detailed interpretation of the entitlements arising under Art. 47–48 of Directive 2004/18 (the counterpart to the current Art. 63(1) of Directive 2014/24).

The Court of Justice addressed two main issues in this respect. First it pointed out that the aim of the regulation in question is to open up the market for public contracts to the widest possible competition, including facilitating access to the public procurement market by SMEs. Thus, every economic operator has a right to rely on third-party capacity and the law cannot be interpreted as meaning that they have this right only in exceptional circumstances (par. 36). As the advocate general wrote in his opinion in the case, “there can in principle be no objection to a tenderer relying additionally on the capacities of other entities to improve its situation in the contract procedure.” Secondly, the court held that the right to rely on third-party capacity “constitutes a general rule which the contracting authorities must take into account when they exercise their powers of verification of the suitability of the tenderer to perform a specific contract” (par. 35). This is another important guideline for Polish practitioners: verification of all the resources a contractor relies on is conducted to rank contractors according to a complex tender procedure, but only in order to select the contractor with the best (highest rated) capacity to perform the contract in question. This could indeed be a bidder that has combined the capacity of several third parties specifically for the purposes of the contract and thereby increased its competitiveness. It is clear from the opinion in the case that a bidder exercising this right cannot be treated worse than bidders not relying on third-party capacity.

It should be pointed out that combining the capacities of contractors is subject to oversight in terms of fair competition, particularly with respect to impermissible arrangements restricting competition, and the contracting authority has the right to establish rules for the specific procedure under which contractors can rely on the capacity of third parties.

These will be instances of lawful limitation of contractors’ exercise of the right to rely on third-party capacity. Such limitations may be established by the contracting authority in exceptional circumstances related to the nature and objectives of the particular contract. More specifically, this could be a requirement “that the minimum capacity level concerned be achieved by a single economic operator or, where appropriate, by relying on a limited number of economic operators” (par. 39–40). “However, if the contracting authority decides to make use of such a possibility, it must ensure that the rules it adopts are related and proportionate to the subject matter and objectives of that contract” (par. 56).

It should be explained that the stage of qualification and the stage of selection are two separate processes within a two-stage contract award procedure (although they may occur at the same time): qualification involves verification that the contractors meet the conditions for participation in the procedure, and selection is the process where the contracting authority chooses which contractors from among those qualifying to participate in the procedure will be shortlisted and invited to submit offers, if it decides not to invite all qualified contractors to submit offers. The requirements established by the contracting authority for these two processes need not be the same.

So what relevance does this judgment have for interpretation of the Polish act? It should be pointed out that the competence vested in the Court of Justice under Art. 267 of the Treaty on the Functioning of the European Union is primarily intended to foster uniform application of Community law by the national courts, and judgments by the Court of Justice are binding (C-66/80, International Chemical Corporation). This means that the interpretation of national laws enacted pursuant to a directive must reflect the interpretation of the directive presented in the case law of the Court of Justice. Under TFEU Art. 267, it is the Court of Justice that has jurisdiction to rule on “the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union.”

Participants in the public procurement market need to accept that a bidder’s right to rely on the capacity of third parties to demonstrate its ability to perform the contract is not legally limited to the qualification stage, but also covers the selection stage, although for each of these stages the contracting authority may introduce restrictions proportionate to the nature and objectives of the contract. It seems auspicious that the judgment in Partner Apelski Dariusz appeared just at the time the amended Public Procurement Law was entering into force. During the legislative work on the amendment, Art. 22a(1) of the act cited above was revised to delete the term “selection criteria,” but Art. 25a(3), which indicates the documents of third parties relied on by contractors which should be presented in the procedure, was not changed, and the purpose for reliance on third-party capacities is referred to in this provision as “fulfilment of the conditions for participation in the procedure or fulfilment of selection criteria.”

The Polish Public Procurement Law, as amended, expressly permits reliance on the capacity of third parties for the purpose of fulfilling selection criteria and shortlisting of contractors, and the judgment in Partner Apelski Dariusz does not support the view that the provisions of the Polish act in this area are inconsistent with Directive 2014/24.

Mirella Lechna, Infrastructure, Transport, Public Procurement and PPP Practice, Wardyński & Partners