Tales from the National Appeal Chamber: Grave professional misconduct must be caused by the contractor | In Principle

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Tales from the National Appeal Chamber: Grave professional misconduct must be caused by the contractor

When filling in the European Single Procurement Document (ESPD) form, contractors must answer the question whether they have committed grave professional misconduct while performing previous contracts. This question is closely correlated with the condition for exclusion under Art. 109(1)(5) of the Public Procurement Law, which specifies that this concerns violations that are serious and self-caused. Therefore, a contractor does not necessarily have to mention any and all delays or complications that occurred during the performance of previous contracts. In this context, an interesting ruling was issued by the National Appeal Chamber on 4 June 2021 (KIO 1087/21) indicating how this question from the ESPD form should be interpreted.

State of facts

One of the contractors participating in the procurement procedure relied on the capacity of a third party to meet the conditions for participation in the procedure. When completing the ESPD form, that party answered “no” to the question whether the contractor was guilty of grave professional misconduct, as it did not believe there were grounds for its exclusion under Art. 24(5)(2) of the former Public Procurement Law (Art. 109(1)(5) of the current law). Having no objections to the documents submitted by the contractor and the third party, the contracting authority selected their bid as the most advantageous. However, this decision was opposed by another contractor bidding for the contract, which, knowing of the third party’s previous track record, decided to challenge the award of the contract before the National Appeal Chamber.

In the appeal, the contractor alleged that the third party misled the contracting authority by failing to inform it of problems occurring during performance of another contract for preparation of design documentation. The appellant alleged that the third party was then in delay of several months, following which it eventually reached a settlement with the contracting authority. This showed that the third party had unambiguously and fully admitted that it had improperly performed its obligation and, on this account, had undertaken to pay contractual penalties. According to the appellant, entering into a settlement agreement confirmed that the failure to perform the subject matter of the contract on time occurred as a result of intentional conduct or gross negligence. Therefore, the third party should not have concealed the information related to the earlier proceedings, but answered the ESPD question in the affirmative and used the self-cleaning procedure. If the third party failed to meet this obligation, that means that it filled out the ESPD form incorrectly and misled the contracting authority, and thus the contractor relying on its capacity should have been excluded from the procedure under Art. 24(1)(16) or (17) of the former law.

Delay not the designer’s fault

The chamber found that the third party did not commit grave professional misconduct within the meaning of Art. 24(5)(2) of the former Public Procurement Law (Art. 109(1)(5) of the current law). Pursuant to this provision, a contracting authority may exclude a contractor who has culpably committed grave misconduct, in particular when as a result of a deliberate action or gross negligence, the contractor has not performed the contract or has improperly performed the contract, which the contracting authority can demonstrate by appropriate evidence.

According to the chamber, this provision could not be applied to the third party, as the appellant did not prove that the third party was at fault for failure to meet the contractual deadline. The appellant ignored that within the agreed timeframe, a significant part of the design documentation had been produced, handed over to the investor, and accepted by it without any remarks. Moreover, a month later the parties signed a protocol on delivery of the design documentation, which made it clear that the subject matter of the contract had been executed in accordance with the contract, applicable standards, regulations and principles of the design art, was complete and coherent, and constituted the basis for announcing the public procurement procedure.

The only delay caused by the third party in preparing the documentation concerned stage V of the contract, in which no formal consent to implement the project was obtained, as it was impossible to obtain the right to use the land for construction purposes on time. Also, the chamber emphasised that it was the investor’s duty, not the designer’s, to obtain the right to use the land, and therefore the designer could not be blamed for the delay. Eventually, the obstacle was removed, thanks to which the third party notified the construction authority of its intention to commence construction works. After considering the application, the construction authority issued a decision raising an objection, which once again prolonged the whole procedure. Also in this situation, the third party was not responsible, because the error in the documentation resulted from incorrect preparation of the functional and utility programme by the contracting authority, which did not take the zoning plan into account.

The chamber found that virtually all of the design documentation, with the exception of stage V, was completed on time, and the delay was due not to the third party’s negligence but to circumstances beyond its control. Additionally, the chamber pointed out that the actual length of the delay should have been only a few weeks, instead of the 300 days indicated in the settlement agreement. That delay resulted from the fact that, after obtaining the decision, the third party made further editorial corrections to take into account the funding received by the contracting authority. As a result, no fault could be attributed to the third party for the delays that occurred, nor could it be regarded as grave professional misconduct, given that virtually the entire contract was performed on time and with due diligence.

Not every delay constitutes grounds for exclusion

It is incorrect to assert that grave professional misconduct on the part of the third party is evidenced by a mere minor delay in performing the contract, where no fault can be attributed to that entity for the delay. That the third party had accepted strict liability for delay in performance of the contract on a risk basis did not relieve the appellant of the need to prove intent or gross negligence on the designer’s part. As the chamber pointed out, culpability (whether intentional or unintentional) in the form of gross negligence is an essential condition for excluding a third party from the procedure on the basis of Art. 24(5)(2) of the former Public Procurement Law.

How should the concept of gross negligence be understood? According to the Court of Justice of the European Union, “The concept of ‘grave misconduct’ must be understood as normally referring to conduct by the economic operator at issue which denotes a wrongful intent or negligence of a certain gravity on its part. Accordingly, any incorrect, imprecise or defective performance of a contract or a part thereof could potentially demonstrate the limited professional competence of the economic operator at issue, but does not automatically amount to grave misconduct” (C-465/11, Forposta). The court stressed the magnitude of the offence required, indicating that it must be so serious as to exceed ordinary irregularities. The Supreme Court of Poland ruled in a similar vein that “gross negligence refers to violation of elementary rules of proper conduct in a given situation or failure to observe basic rules of prudence. This should be a particularly negative, reprehensible assessment of the obligor’s conduct, a degree of reprehensibility of conduct which drastically departs from the appropriate model in the given circumstances” (judgment of 22 April 2004, case no. II CK 142/03).

Therefore, in the opinion of the National Appeal Chamber, the appellant was wrong to accuse the third party of misleading the contracting authority by not mentioning the delays in other proceedings and the contractual penalties assessed against it. The mere fact that the contractual completion deadline was exceeded does not per se constitute grounds for excluding the contractor, as the appellant must prove two key circumstances:

  • That the contractor has committed grave professional misconduct
  • That such infringement was due to intentional conduct or gross negligence.

The third party correctly answered the question

According to the chamber, in this case the third party correctly answered the question in the ESPD form. If it did not commit grave professional misconduct, and the delay was not its fault, then it did not have to inform the contracting authority of this complication. Thus, the chamber held, “In the ESPD document, when answering the question at issue, no mention is made of every instance of disruption in the performance of contracts. This document should disclose only those cases which meet the prerequisites of Art. 24(5)(2) of the Public Procurement Law.”

This has a practical dimension, because if the conduct did not constitute grave professional misconduct and its occurrence was not caused by the contractor, the contracting authority has no grounds for reviewing this prerequisite for exclusion, as the contractor is obliged to provide only information that meets the requirements of the law. Thus, neither the contractor nor the third party could be held responsible for submitting a false declaration under Art. 24 (1)(16) and (17) of the former Public Procurement Law, and should not be subject to exclusion. As a result, the chamber dismissed the appeal in its entirety.

Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP Practice, Wardyński & Partners