Tales from the National Appeal Chamber: Invalidation of defective procurement procedures | In Principle

Contrary to popular belief, contracting authorities do not have unlimited possibilities to invalidate procedures for award of public contracts. Once a procedure is launched, they can invalidate it only in selected situations. And if a contractor challenges the grounds for invalidation of the procedure by the contracting authority, the contracting authority will have to demonstrate the existence of such grounds and defend its position before the National Appeal Chamber.

For the contracting authority, it is not always simple to demonstrate the grounds, even if it very much wants to invalidate a procurement procedure. An example would be the procedure reviewed by Poland’s National Appeal Chamber in case no. KIO 1193/23. The contracting authority wanted to invalidate the procedure, as it was alleged to be incurably defective, preventing conclusion of a non-voidable public contract (Art. 255(6) of the Public Procurement Law).

Invalidation due to a defect of the procedure

Before discussing the ruling of the National Appeal Chamber, it should be pointed out that interpretive disputes exist over the conditions set forth in Art. 255(6) of the Public Procurement Law, under which a procedure may be invalidated if it is has an irremovable defect preventing conclusion of a non-voidable public contract.

Thus, for such a condition to exist, one of the prerequisites is that the contract concluded in such a procedure could be invalidated. Pursuant to Art. 457(1): “A contract is subject to invalidation if the contracting authority:

1. In violation of the Act, has awarded a contract, entered into a framework agreement or established a dynamic purchasing system without prior publication in the Public Procurement Bulletin or forwarding to the Publications Office of the European Union of a notice initiating the procedure, or without the required notice amending the notice initiating the procedure, if the amendments were relevant to the preparation of requests to participate in the procedure or bids
2. Entered into a contract in violation of Art. 264, Art. 308 (2) or (3), Art. 421 (1) or (2), or Art. 577, if this prevented the National Appeal Chamber from considering the appeal before execution of the contract
3. Entered into a contract before expiration of the time limit referred to in Art. 216(2)
4. In violation of Art. 314(1)(3)(3)–(4), Art. 315, or Art. 422 (2) or (3), has awarded a procurement covered by a framework agreement
5. In violation of Art. 323, Art. 324, or Art. 391 (4) or (5), has awarded a procurement covered by a dynamic purchasing system.”

It does not follow from the literal wording of Art. 457(1)(1) that the possibility of invalidating a procedure exists only in the absence of a notice—without the possibility of invalidation, for example, due to an incorrect description of the subject matter of the contract. According to the legal literature: “A defect in the procedure that may be grounds for its invalidation must be of an irremovable nature and, at the same time, cause the contract concluded as a result of such procedure to be subject to invalidation as a result of the defect. Such a construction of the provisions explicitly refers to Art. 457 (1) and (5) of the Public Procurement Law, which list all cases of violation of the act necessitating invalidation of the contract. The occurrence of other defects in the procedure cannot be grounds for its invalidation under Art. 255(6). Such a construction leads to the conclusion that even the occurrence of a defect that clearly distorts the outcome of the procedure does not give the contracting authority the right to invalidate the procedure. This is a significant error by the parliament. When it is unable to invalidate the procedure, the contracting authority should conclude the contract” (W. Dzierżanowski in Ł. Jaźwiński et al., Public Procurement Law: Commentary (Warsaw 2021)).

However, the National Appeal Chamber takes the opposite position and interprets the foregoing provision purposefully according to the foregoing provision: “Art. 457(1)(1) of the Public Procurement Law is not worded very transparently, but it would be difficult to accept why the parliament would allow invalidity of the contract only on grounds related to notices relevant to the preparation of bids, and omit other violations that also have such significance. Therefore, it must be assumed that the legislative intent was to introduce the ground of invalidity of a contract concluded in violation of the Public Procurement Law, but not every ground, only a qualified one—one that was relevant to the preparation of bids, and thus affected the outcome of the procedure” (KIO 610/23).

This position of the chamber appears entirely reasonable and in line with the purpose behind the provision in question.

Ruling

In case no. KIO 1193/23, the contracting authority cancelled the procedure, as it found that it had prepared the description of the subject matter of the contract incorrectly and in violation of the Public Procurement Law.

The contracting authority sought to procure a type of medical tube called a cannula. In the description of the subject matter of the contract, it described the requirements the cannula should meet. After a series of questions from contractors, the contracting authority allowed an additional type of cannula, by indicating “type … [manufacturer’s name].” After opening the bids, the contracting authority concluded that it had erroneously allowed additional types of cannulas, as none of them met its requirements. Therefore, it invalidated the procedure due to an incurable defect (as a defect in the description of the subject matter of the contract is not correctable).

However, a bid was submitted in the procedure for the correct cannula meeting the contracting authority’s requirements. And not only one contractor could submit a bid, as the product was available in bids from other contractors in Poland. Thus the competition was not restricted.

One bidder filed an appeal, arguing that since it was possible to offer a cannula that met all the contracting authority’s requirements, the prerequisite for invalidation of the procedure was not met. The defect was insignificant, and the contracting authority could select a bid that met its requirements.

Interestingly, the contracting authority claimed that the answer it gave to the contractors’ questions was inconsistent with its intention. In its ruling, the National Appeal Chamber stated that an intention not clearly expressed in the documentation cannot, in itself, constitute grounds for finding a defect in the procedure resulting in invalidation under Art. 255(6) of the Public Procurement Law.

It should not be disputed that the contracting authority cannot change the description of the subject matter of the contract after opening the bids. Even if the description contains wording that does not quite suit the contracting authority, it cannot change it or try to interpret it contrary to the literal wording of the documentation. As the contracting authority prepared the documentation, it should be held responsible for its own errors, not the contractors participating in the procedure.

Further, the chamber stated: “The basis for invalidation of the procedure is that the procedure suffers from a defect, which means a procedural defect of the sort that cannot be corrected by the contracting authority in the course of the procedure by cancelling or repeating the incorrect action. Additionally, such a defect must prevent conclusion of a non-voidable public contract. Thus, errors in the procedure of marginal importance, with no effect on the possibility of concluding a non-voidable contract, are not sufficient grounds for invalidating the procedure.”

Since it was possible in this case to submit a correct bid and conclude a contract that would not be subject to invalidation, even though the description of the subject matter of the contract was not what the contracting authority ultimately intended, there were no grounds to invalidate the procedure.

Conclusion

Contracting authorities cannot invalidate a contract award procedure without stating and demonstrating proper cause. The list of reasons is limited and exhaustively set forth in the Public Procurement Law. Contractors have a right to pursue legal remedies against invalidation of the procedure by the contracting authority in violation of the law. If the contracting authority loses the appeal, it must continue the procedure, whether it wants to or not.

If a flaw arises in the procedure, it will not always suffice to invalidate the procedure. The defect would have to be serious enough to prevent conclusion of a non-voidable public procurement contract.

Rafał Świerzbiński, attorney-at-law, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners