The principle of proportionality in public procurement | In Principle

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The principle of proportionality in public procurement

According to Court of Justice of the European Union (CJEU) case law and EC directives, the principle of proportionality and equal treatment must be observed when selecting contractors in public procurement proceedings. Clearly, the Public Procurement Office and National Appeals Chamber have an obligation to evaluate public procurement proceedings in terms of these principles. However, as complaints about breach of competition regulations in tenders are submitted to the president of the Office of Competition and Consumer Protection (UOKiK), it is not clear whether this institution is required to refer to these principles.

Under Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on Public Procurement and repealing Directive 2004/18/EC, “Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators (art. 18 (1) of the directive). Technical specifications shall afford equal access of economic operators to the procurement procedure and shall not have the effect of creating unjustified obstacles to the opening up of public procurement to competition” (art. 42 (2) of the directive).

Directive 2014/24/EU was implemented into the Polish legal system in the Act of 22 June 2016 amending the Public Procurement Act and certain other acts. It makes the principle of proportionality provided for in Art. 7 of the Public Procurement Law a general principle of the proceedings. Following amendment, Art. 7 of the Public Procurement Law states that “a contracting authority shall prepare and conduct public procurement proceedings in a manner that ensures fair competition and equal treatment of economic operators and in accordance with the principles of proportionality and transparency”.

CJEU case law states that the principle of proportionality means that a contracting authority has an obligation to strike a balance between the need to ensure that a proper performance bond is provided for a contract and the interests of potential economic operators wishing to participate in a tender. One example can be found in a judgment of 23 December 2009 in Serrantoni Srl i Consorzio stabile edili Scrl v. Comune di Milano (C-376/08). In this case, the CJEU stated that the principle of proportionality must be observed when it is being determined which economic operators cannot participate in the proceedings. Restriction of the competition guaranteed in the TFEU must be kept to a minimum and is only permitted to the extent necessary to achieve the objectives. The requirements specified by a contracting authority for admission to proceedings must therefore be reasonable in view of the value of the tender contract, the characteristics, the scope, and the level of complexity or conditions for discharging the tender contract. They may not restrict access to tender contracts for economic operators who issue a proper performance bond for the contract. In turn, it was emphasised in a CJEU judgment of 16 September 1999, in case C-414/97, the Commission v. Kingdom of Spain, that the term “proportionality” should be understood to mean “preserving the correct proportion”. A contracting authority has an obligation to ensure that the necessary balance (proportion) is maintained between the interest in obtaining a proper performance bond for the tender contract and the interests of potential economic operators. Economic operators cannot be prevented from participating in proceedings from the outset due to requirements being excessive.

A similar view is taken in Polish case law. Requirements specified by a contracting authority must be proportionate to the envisaged objective. This principle was explained by the Supreme Administrative Court in a judgment of 24 November 2016 in case II GSK 1127/15: “the requirements for admission to the proceedings must be formulated in a manner that is appropriate for the scale, nature, complexity and type of the contract being the subject matter of the proceedings.  The requirements should be based on premises that are objective and can be verified, so that any economic operator with capacity to discharge the contract is admitted to the proceedings. A contracting authority may specify certain standards as long as they do not restrict fair competition. This means that it must be feasible for an average economic operator to meet those standards. A contracting authority cannot be required to dispense with protecting its own interests in the form of a proper performance bond by excessively lowering requirements to enable economic operators that do not have a previous track record in handling projects of similar scale to the subject of the tender contract to apply for the tender contract”.

The above shows that tender requirements have to be evaluated in terms of the criterion of proportionality. On one hand it is not reasonable to expect a contracting authority to excessively lower requirements so that economic operators who do not have a suitable track record can apply for the tender contract. On the other, a contracting authority has an obligation to set standards that can be met by the average economic operator and do not restrict fair competition.

Of course, an economic operator can object on the grounds of breach of the principles of proportionality and equal treatment in public procurement appeal proceedings, in particular in an appeal filed with the National Appeals Chamber. An economic operator is also entitled to file notification with the president of UOKiK and object on the basis of breach of competition rules in tender proceedings ex post.

The president of UOKiK evaluates a tender procedure in the context of competition-restricting practices, whether this is abuse of a dominant position or an anti-competitive arrangement (tender collusion). The view taken in UOKiK rulings is that a competition-restricting practice occurs when tender requirements discriminate against or favour a particular business or groups of businesses.

For example, in decision RWA-9/2009 of 10 July 2009, the president of UOKiK found restriction of competition by making treatment of customers under a contract with the National Health Fund a major criterion for evaluation of bids to be prohibited under Art. 9(1) and (2)(5) of the Act on Competition and Consumer Protection. This favoured businesses that had contracts with the fund and discriminated against businesses that did not have contracts of that kind. The president of UOKiK stated that abuse of a dominant position had occurred on the national market for healthcare services financed using public funds, and that this had an adverse effect on other service providers.

Similarly, in decision RKT-51/2011 of 28 December 2011, the president of UOKiK found that an obligation placed on businesses applying for healthcare service contracts to have at least one healthcare service point of their own in the catchment area of a local National Health Fund centre to be prohibited under Art. 9(1) and (2)(5) of the act. UOKiK stated that this blocked access to the market for businesses wishing to provide services via subcontractors (thus not having their “own” clinic), and eliminated those business and any subcontractors of those businesses from the market. It was stated that this practice was an unreasonable obstacle to access to the market for those service providers who had declared that subcontractors would be involved in the provision of services.

In another decision, the president of UOKiK found that making the size of a business one of the quality-related criteria for evaluating bids, and favouring large businesses at the expense of smaller ones, was a competition-restricting practice prohibited under Art. 9(1) and (2)(5) of the act (decision RŁO-57/2013 of 31 December 2013). The decision identified anti-competition consequences of the practice, due to access to the market not being equal for medicinal firms. This constituted activities breaching free competition rules to the detriment of consumers.

The examples described show that when reviewing notification the antitrust authority is first required to determine and demonstrate whether the tender practice in question could have had an adverse effect on competition on the market (the theory of harm). This review cannot be performed without reference to the principles described here. These principles are an element of a properly conducted tender procedure. It can be assumed in many cases that tender procedures in which the principles of proportionality and equal treatment are not observed can have an adverse effect on competition on the market. This is cause for antitrust authorities to intervene.

Sabina Famirska, attorney-at-law, Competition practice, Wardyński & Partners