Guidance on the meaning of the “significant or persistent deficiencies” discretionary exclusion

24th October 2019

A Romanian court requested a preliminary ruling on the interpretation of Article 57(4)(g) of Directive (2014/24/EU) (“the Directive“) which is the discretionary exclusion ground for significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract (“the Discretionary Ground“).

The Discretionary Ground is incorporated into UK law via Regulation 57(8)(g) of the Public Contracts Regulations 2015 (as amended) which states that contracting authorities may exclude an economic operator from participation in a procurement procedure where “the economic operator has shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract, a prior contract with a contracting entity, or a prior concession contract, which led to early termination of that prior contract, damages or other comparable sanctions”.

Facts

Delta was the lead contractor for a consortium (“Consortium 1“) which won a contract via a public procurement process in 2014 (“Contract 1“). In 2017, Contract 1 was terminated on the ground that Consortium 1 had subcontracted some of the requirement without obtaining the contracting authority’s consent. Delta later tendered as part of another consortium (“Consortium 2“) for a public contract to be let by CNAIR. During that procurement process, Delta failed to disclose the circumstances around the termination of Contract 1 and when CNAIR learnt of this, CNAIR asked Consortium 2 for clarification. Consortium 2 considered that Delta’s previous failure to obtain consent was a minor irregularity and did not represent a “significant or persistent” deficiency in their performance of Contract 1. CNAIR did not agree and excluded Consortium 2 from its procurement process on the basis that the Discretionary Ground and Article 57(4)(h) of the Directive had been met (including where an economic operator has been guilty of serious misrepresentation and/ or withholding information in relation to the exclusion grounds), and Consortium 2 had failed to sufficiently self-clean in relation to these grounds.

Judgment

  • The Court of Justice of the European Union (“CJEU“) confirmed that in accordance with the wording in Article 57(4) of the Directive, it is only the contracting authority who can assess whether a candidate or tenderer may be excluded from a public procurement procedure during the selection stage. This reflected the judgment reached in an earlier case Meca*.
  • On this basis, in order to decide whether the Discretionary Ground had been met, the contracting authority had to evaluate:
    • whether or not Delta were prevented from sub-contracting without consent under Contract 1;
    • whether the work that was sub-contracted without consent was significant;
    • whether the unauthorised sub-contractor’s involvement had an adverse impact on the performance of Contract 1.
  • The CJEU said that sub-contracting without prior authorisation would meet the Discretionary Ground where the contracting authority carried out its own investigation and concluded that the sub-contracting led to a breakdown of the relationship of trust with the economic operator.

Other comments

  • The CJEU noted that Consortium 2 could have provided information relating to breach of Contract 1 during the selection stage and that Consortium 2 could have put forward an argument at that point that in their view the breach was only a minor irregularity and that termination of Contract 1 on that basis was a mistake.
  • The CJEU said that a contracting authority cannot automatically infer that another contracting authority’s decision to terminate a contract early constituted “significant or persistent deficiencies” under a contract and that it must carry out its own investigation, including consideration of the arguments put forward by the bidder.
  • Whilst the referring court did not request a preliminary ruling on the interpretation of Article 57(4)(h), the Advocate General concluded that it was for the national court to consider the seriousness of the bidder’s concealment of information relating to the earlier termination of Contract 1 and whether it was sufficient to warrant exclusion from the procurement process.

Key takeaways

  • If you are bidding for a contract, you must disclose any circumstances/events which could meet one of the mandatory or discretionary grounds for exclusion. Failure to do this is likely to be viewed negatively by a contracting authority (and any court) should they later discover the potential grounds for exclusion.
  • Where potential grounds for exclusion do exist, contracting authorities are required to carry out their own investigation of what happened previously in order to decide whether the relevant ground for exclusion has been met.
  • Failure to obtain consent to subcontract where this is required by the relevant contract could in principle (and always depending on the facts) meet the Discretionary Ground and lead to an economic operator’s exclusion from a procurement procedure.

Full case reference: Delta Antrepriză de Construcţii şi Montaj 93 SA v Compania Naţională de Administrare a Infrastructurii Rutiere SA (Case-267/18). 

*Meca Srl v Comune di Napoli (Case-41/18)

For expert advice in this area, contact our public procurement team.