Tales from the National Appeal Chamber: Change in the composition of a consortium during competitive dialogue
A two-stage competitive dialogue often extends the procurement procedure to many months. During that time, as a result of various circumstances, changes in the parties to a consortium may occur, often beyond the contractors’ control. In this situation, will the remaining contractors still be entitled to submit a bid, or should they be excluded from the procedure? In its ruling of 22 January 2021 (case no. KIO 3357/20), the National Appeal Chamber held that to avoid negative consequences for contractors, two key conditions must be met.
Two become one
A contracting authority conducted a competitive dialogue procedure in which a consortium consisting of two contractors submitted an expression of interest. The contractors submitted correct applications to participate in the procedure and then successfully passed the screening for grounds for exclusion and met the conditions for participation in the procedure.
After a year of talks as part of the competitive dialogue, the contracting authority finally decided to invite all contractors, including the two consortium members bidding jointly for the contract, to submit a bid. However, it turned out that one of the contractors was unable to obtain the required corporate consent to submit a binding offer in the procedure, and withdrew. Therefore, the contracting authority received a bid from one consortium member, together with an explanation of why the other entity had withdrawn from the procedure. However, the contracting authority rejected the contractor’s arguments. In its opinion, the consortium members committed an unacceptable change of entities, and their offer should be rejected because it was submitted by a contractor not invited to submit bids (Art. 226(1)(9) of the new Public Procurement Law). In the opinion of the contracting authority, a consortium consisting of two entities was invited to submit a bid, and therefore only such an entity could participate in the procurement.
The remaining contractor disagreed, and sought review by the National Appeal Chamber (KIO). In the appellant’s opinion, the contracting authority provided insufficient grounds for rejecting the bid submitted by a contractor that had been invited to participate in the procedure as a member of a consortium and met the conditions for participation on its own.
When the composition of a consortium can change
The chamber found that although changes in the composition of a consortium may be exceptional, in principle they are permissible if certain conditions are met. To define these conditions, the chamber cited the judgment by the Court of Justice in C‑396/14, MT Højgaard A/S, where the court first stated that the rule is that the legal and substantive identity of the contractors must be preserved at every stage of the procurement procedure. However, the court recognised an exception to that rule, holding that “the principle of equal treatment of economic operators, stated in Article 10 of Directive 2004/17, read together with Article 51 of that directive, must be interpreted as meaning that a contracting entity is not in breach of that principle where it permits one of two economic operators who formed part of a group of undertakings that had, as such, been invited to submit tenders by that contracting entity, to take the place of that group following the group’s dissolution and to take part, in its own name, in a negotiated procedure for the award of a public contract, provided that it is established, first, that that economic operator by itself meets the requirements laid down by the contracting entity and, second, that the continuation of its participation in that procedure does not mean that other tenderers are placed at a competitive disadvantage” (par. 48).
Similar conclusions were reached by the president of the Polish Public Procurement Office, who stated in his opinion that an entity that did not participate in the first stage of the procedure could not submit a bid in the procedure because the contracting authority had not assessed its qualification to perform the specific public contract. However, a comparable ban could not be imposed in a situation where a group of contractors bidding jointly for the award of the contract was reduced only in the second stage of a two-stage procedure.
Therefore, for a change in the composition of a consortium to be permissible during the course of the procedure, the following conditions must both be met:
- The contractor who despite the modification still participates in the procedure must independently meet the conditions for participation introduced by the contracting authority.
- The contractor’s further participation in the procedure must not put the other bidders at a competitive disadvantage.
“Appropriate application of the rules” to consortium members
Pursuant to Art. 58(5) of the new Public Procurement Law, the provisions regarding contractors apply as appropriate to contractors jointly bidding for award of a contract. This rule stems from the fact that a consortium is not a contractor as defined in Art. 7(30) of the act, according to which a contractor is understood to be a natural person, a legal person, or an organisational unit without legal personality. A consortium does not fall into any of these categories, and thus the parliament had to include this cross-reference.
But what does it mean that the provision applies “appropriately”? To answer this question, the chamber turned to the Supreme Court of Poland resolution of 21 September 2005 (case no. I KZP 24/05), where the court pointed out that “appropriate application of provisions is not always equivalent to their direct application. Moreover, a reference to appropriate application of the provisions of a particular chapter of an act differs from a situation in which the parliament refers to appropriate application of a particular provision. As a result of proper modification of a whole group of provisions, some of them may be subject to appropriate changes, as is the case with the appropriate application of a provision of the act. However, the set of provisions modified accordingly may also include provisions applying in the new scope without any modification, as well as provisions that will not be applied because they are irrelevant or contradict the provisions governing the area that is the scope of the reference.”
With this in mind, appropriate application of Art. 226(1)(9) of the new Public Procurement Law to contractors jointly bidding for a public contract should not always be interpreted as applying this article the same way as it would be applied to an individual contractor. While this is justified when assessing whether the conditions for participation in the procedure are met, when deciding whether there are grounds for rejecting a bid because the consortium is not composed of the same entities, the only circumstance justifying rejection of the bid will be the inability of the remaining consortium members to meet the conditions for participation in the procedure.
When will a change in the composition of a consortium be inadmissible?
Although the chamber allowed for the possibility of changing the composition of a consortium during competitive dialogue, it should be remembered that this is an exception to the rule, and will not always be allowed.
As an example of breach of the principle of equal treatment of contractors, the chamber indicated a change in the composition of a consortium where contractors that previously did not meet the affirmative conditions for participation in the procedure would begin to meet these conditions because of extension of the consortium membership, or entry of a new entity to replace one of the existing participants. Undoubtedly, it would also be incorrect to allow a group of contractors to participate in the proceeding which, after changing its composition, would not meet the conditions for participation in the procedure or would be subject to exclusion (ruling in case no. KIO/UZP 1638/09). Moreover, it would be improper for the contracting authority to allow a contractor that was not part of a consortium when the bid was submitted to participate in the procedure.
On the other hand, these objections do not apply to narrowing of the membership of a consortium after the members have been found to meet the conditions for participation in the procedure. This is because the change does not require verification of compliance with the requirements by a new contractor that was not subject to the earlier evaluation. In such a situation, the contracting authority only needs to determine whether the earlier positive assessment of compliance with the conditions for participation is still correct after one of the contractors has left the consortium.
So who was right?
The National Appeal Chamber upheld the appellant’s arguments. In the chamber’s view, the contracting authority should have regarded the contractor’s submission as correct and admissible. The key fact in this case was that independently, the remaining contractor met the conditions for participation in the procedure, and its submission of a bid did not violate the principle of fair competition and equal treatment of contractors. The appellant could ensure proper performance of the contract, which should be the main and essential objective of any procedure for award of a public contract.
Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP Practice, Wardyński & Partners