Tales from the National Appeal Chamber: The contracting authority must create equal conditions for all contractors | In Principle

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Tales from the National Appeal Chamber: The contracting authority must create equal conditions for all contractors

Fair competition and equal treatment of contractors are the main principles of awarding public contracts, and all actions taken by the contracting authority in preparing and conducting the procedure must comply with these principles. Nonetheless, procurement procedures often raise questions about how these principles should be applied in practice. Some doubts were recently dispelled by the National Appeal Chamber in its ruling of 15 October 2020 (case no. KIO 2104/20).

State of facts

The public procurement procedure concerned the lease of medical equipment along with a comprehensive IT system for its operation. A contractor participating in the procedure submitted a question about the terms of reference pursuant to Art. 38(1) of the Polish Public Procurement Law concerning the characteristics of the subject matter of the contract. The contractor asked whether the contracting authority would allow the subject of the tender to include an IT equipment and system already leased by the contracting authority on the basis of another, earlier contract with a contractor, meeting all requirements of the terms of reference.

The contracting authority responded positively to this question, allowing a bid submitted in the procedure to relate to equipment and IT systems already leased by the contracting authority. While responding to the question, the contracting authority also modified the annex to the terms of reference accordingly.

In response, another contractor filed an appeal with the National Appeal Chamber (KIO), alleging that the change to the terms of reference infringed the principle of fair competition and equal treatment of contractors, as it allowed one of the contractors to perform the contract on preferential terms. In the appellant’s opinion, one of the contractors would have a narrower scope of performance and would not have to price the equipment already made available to the contracting authority under another, earlier contract. Thus that contractor’s bid could be significantly lower than any other contractor’s.

Did the contracting authority make the right decision?

To answer this question, the chamber cited core principles of public procurement. Under Art. 7(1) of the Public Procurement Law, the contracting authority shall prepare and conduct a contract award procedure in a manner ensuring fair competition and equal treatment of contractors and in accordance with the principles of proportionality and transparency. A practical elaboration of this principle can be found in Art. 29(2) of the law, according to which the subject matter of the contract cannot be described in a way that could hinder fair competition.

In the opinion of the chamber, all activities undertaken by the contracting authority in preparing and conducting the procedure must take into account the principle of fair competition and equal treatment of contractors. This means that the performance expected by the contracting authority, in terms of both the nature and extent of the contractor’s obligations, must be defined on equal terms for all contractors. Therefore, there cannot be a situation where the contracting authority limits the scope of the contract for one contractor with whom it has other, parallel dealings. Applying this principle to the present case, the chamber held: “A situation in which the responsibilities of individual contractors are differentiated by allowing one or more of them to perform their services under preferential conditions or to a limited extent constitutes a clear breach of the principle of equal treatment of contractors, and the impact of this situation on the costs offered for the subject matter of the contract does not result in fair competition between contractors.” The contracting authority’s decision to release one of the contractors from the obligation to perform the full scope of the contract was therefore unacceptable under the Public Procurement Law and unfair to other contractors.

Negative consequences of the contracting authority’s decision

What effects would the contracting authority’s decision have on the competitiveness of the procedure? First of all, the chamber’s arbitrators pointed out that a contractor using medical equipment previously leased to the contracting authority would not have to bear the additional cost of purchasing this equipment. As a result, its bid could immediately become cheaper than competing bids whose contractors have not cooperated with the contracting authority in the past. Second, as the chamber pointed out, the contractor would not have to bear a number of other costs related to the lease of the equipment, such as the costs of delivering it to the locations indicated by the contracting authority, adaptation of the premises, and installation. As a consequence, allowing one contractor to use the infrastructure employed for another contract for the same contracting authority would create conditions preferential for one contractor and discriminatory for others.

It was irrelevant here whether a contractor had already submitted a bid in the procedure. In the opinion of the chamber, “The mere creation by the contracting authority of a possibility to submit such a bid on conditions not available to other contractors constitutes a violation of the act, which, because it may have a significant impact on the outcome of the procedure, should lead to acceptance of the appeal.”

Can the contracting authority’s decision be justified by the principle of economy?

The contracting authority justified its decision by asserting the principle of economy of public finances. According to Art. 44(3)(1) of the Public Finance Act of 27 August 2009, public expenditures should be made purposefully and economically, observing the principle of obtaining the best results from a given expenditure and an optimal selection of methods and means for achieving the assumed objectives. According to the contracting authority in this case, allowing the contractor to use the previously leased equipment would reduce the costs of the contract, and that furthered the interests of public finance.

But the chamber rejected these arguments, stating: “It is inadmissible to justify infringement of the rules for awarding public contracts by the need to spend public funds economically. The Public Procurement Law and Public Finance Act regimes cannot be treated as competing; on the contrary, the public procurement system is one of the tools to ensure proper spending of public funds. A contracting authority may not, on the basis of the expected savings, create significantly more favourable bidding conditions for selected contractors.” The chamber also pointed out that a contractor who would benefit from the preferential conditions created by the contracting authority would not necessarily reduce its price at all. Rather, it could exploit the situation and artificially increase the value of the offer up to the ceiling of other contractors’ bids in order to maximise its profit. Therefore, the contracting authority’s decision not only violated the principle of equal treatment of contractors, but could also have exposed public finances to unjustified costs.

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