First ruling on legal remedies by National Appeal Chamber since overhaul of Public Procurement Law
Poland’s National Appeal Chamber (KIO) issued an order on 5 September 2016 of great practical significance, applying new procurement rules on the permissibility of appeals by contractors interested in bidding for public contracts below the EU thresholds.
The ruling by the National Appeal Chamber on 5 September 2016 (Case KIO 1599/16) is stirring unusual interest not only because it is the first ruling by KIO on the new ground for appeal introduced by the amending act of 22 June 2016, but primarily because of the controversial position taken by KIO in the ruling.
The ruling relates to procurements with a value below the thresholds requiring announcement of tenders in the EU Official Journal (under the Polish government’s regulation of 28 December 2015, the EU threshold is generally EUR 135,000 for goods and services and EUR 5,225,000 for construction works).
In this case, the appellant alleged that the contracting authority had not followed the regulations in selecting the most advantageous offer. According to the appellant, the winning offer did not comply with the terms of reference for the tender and therefore should have been rejected.
Position of National Appeal Chamber
The chamber held that the appeal must be dismissed, primarily relying on a linguistic interpretation of the Public Procurement Law, which does not expressly provide for the possibility of filing an appeal against an “omission” (failure to act) by the contracting authority. Here the alleged omission was the contracting authority’s failure to reject the offer despite the existence of grounds for rejecting the offer. According to the KIO holding, the new basis for appeals covers “only failure to select the most advantageous offer in accordance with the offer evaluation criteria set forth in the terms of reference.”
The chamber further indicated that in proceedings below the EU threshold, a right to appeal against a decision by the contracting authority is the exception, not the rule. Unlike in the case of contracts above the threshold, the act clearly specifies the instances in which an appeal is permissible. Since appeal is the exception, the grounds for appeal cannot be interpreted expansively, and consequently an “omission” cannot be challenged in an appeal against the selection of the most advantageous offer.
The chamber also cited the amended provision concerning the contracting authority’s informational obligations. Under the current law, the contracting authority is no longer required to notify contractors simultaneously of selection of the most advantageous offer and exclusion from the procedure or rejection of an offer, among other things. “Consequently,” the chamber wrote, “the contracting authority will much more frequently reject an offer or exclude contractors before selection of the most advantageous offer. It is hard to conclude that the notion of ‘selection of the most advantageous offer’ includes the notion of ‘failure to reject’ or ‘failure to exclude’ in a situation where the contracting authority has not yet taken the action of selecting the most advantageous offer.”
KIO also cited the interministerial consultations on the proposed amendment. There the Minister of Development indicated that the grounds in question do not cover “omission” of an action by the contracting authority, and thus will not open up the scope of appeal too broadly or make procedures less efficient (consultations dated 9 February 2016 in the set of remarks on the bill to amend the Public Procurement Law).
It should be pointed out that in its justification, KIO focuses only on separating the act of “selection of the most advantageous offer” from rejection of an offer or exclusion of a contractor. Here KIO fails to reflect the essence of the selection of the most advantageous offer, but only the aim of the procedure to award a public contract.
Position of legal commentators and practitioners
Contractors and legal experts do not hide their disappointment with this order by KIO and accuse the chamber of interpreting the regulations with disregard for the aim of the amendment. The chamber did not consider the reason for establishing this new ground for appeal. When the amendment was proposed, contractors and public procurement experts expressed their approval for this change because it opened up the possibility of judicial oversight of the contracting authority’s selection of the contractor, and was intended to prevent the wilful selection of an offer that does not fulfil the conditions of the procedure (as we have written about here in our portal).
But this KIO ruling significantly limits the scope of application of this ground for appeal. Although the interpretation by the chamber is formally correct, the approach raises doubts, as the chamber identifies the technical act of evaluating the offers (i.e. ascribing points to the offers following the criteria specified in the terms of reference) with the act of selecting the most advantageous offer (K. Różowicz, comment on KIO order of 5 September 2016, KIO 1599/16). In reality, selection of the most advantageous offer includes a number of closely connected actions by the contracting authority (e.g. examining the offer for completeness and fulfilment of the tender conditions), and it is those actions that result in selection of the most advantageous offer.
It should be agreed that the right to appeal in procedures below the EU thresholds is exceptional in nature. But the extraordinarily narrow interpretation adopted by the chamber, detached from the true course and purpose of a procedure for award of a public contract, leads to the absurd situation where, for example, an offer may be “correctly” selected because it won the highest of points even though the offer has nothing in common with the procurement in question.
KIO’s reliance on the change in the timing of notifying contractors about actions taken by the contracting authority also seems misplaced. The change in that provision does not affect the range of activities which the contracting authority must take in order to select the most advantageous offer, because before making that selection it must first verify each offer.
The line of reasoning followed by the chamber, negating the possibility of filing an appeal against a failure to act, leads to a conclusion that conflicts with the purpose which the drafters of the amendment sought to achieve. The chamber’s view that there is no possibility of challenging the non-rejection of an offer or the non-exclusion of a contractor prior to selection of the most advantageous offer should nonetheless be shared. This is justified, because the right to challenge an “omission” is limited to the offer which was selected as the most advantageous (by way of challenging an offer erroneously selected as the most advantageous), and does not apply to all of the offers that were rejected. Similarly, the drafters abandoned the possibility of appealing against invalidation of a procedure that does not reach the point of selection of an offer. Thus the “omission” referred to in the interministerial consultations should be understood to mean failure to select the offer that is most advantageous in relation to all of the offers as well as specific offers.
If the chamber’s view is regarded as correct, then the purpose of the amendment was not achieved, because contractors participating in procedures below EU thresholds will still be deprived of the right to challenge the most fundamental act of the contracting authority, which is selection of the most advantageous offer. More specifically, defective selection of an offer does not result exclusively from erroneous application of the offer evaluation criteria. The “defect” may also arise at the stage preceding selection of the offer, in the event of failure to take actions which the contracting authority is required to take, among other things by evaluating offers subject to clarification, supplementation or rejection and by evaluating the offer of a contractor which should be excluded from the procedure.
It should be pointed out by the way that some commentators view the order in question as an attempt by the chamber to stem a flood of new appeals following entry into force of the amendment.
Nor did the interpretation adopted by the National Appeal Chamber win the approval of the president of the Public Procurement Office. He filed a petition seeking judicial review of the ruling. Consequently, the court will make the ultimate decision whether to uphold the formal interpretation by KIO or take the side of contractors and permit appeals against selection of the most advantageous offer more broadly than allowed by the chamber.
Serom Kim, Infrastructure, Transport, Public Procurement & Public-Private Partnership practices, Wardyński & Partners
