Tales from the National Appeal Chamber: Meeting the conditions for participation in procurement proceedings and reliance on the capacity of third parties
To meet conditions of education, professional qualifications and experience in a contract award procedure, a contractor may rely on the abilities of other entities. How to do so properly? And can a defective third-party commitment be corrected? The National Appeal Chamber answered that question in its ruling of 13 July 2020 (KIO 1174/20). A contractor who relies on resources of other entities must entrust the performance of the relevant part of the contract to the entity making those resources available.
State of facts
When bidding in a tender for a public contract, one of the contractors indicated that to confirm the conditions for participation in the procedure, it would rely on the technical and professional skills of a third party. The third party would be involved in performance of the contract as a subcontractor providing advice, consultation and supervision, which, according to the contractor, corresponded to the condition for participation in the procedure.
However, the contracting authority found that the third party had committed to perform the contract to a lesser extent than required by the terms of participation in the procedure. In the opinion of the contracting authority, the scope of tasks entrusted to the third party should correspond to the condition of participation in the procedure for which the contractor intends to rely on the capacity of a subcontractor (Art. 22a of the Public Procurement Law). As a result, under Art. 26(3), the contracting authority called upon the contractor to:
- Replace the third party by another entity or entities, or
- Commit to perform this part of the contract itself and prove that the condition for participation in the procedure was met.
The contractor did not exercise any of the options offered by the contracting authority, but reiterated the commitment of the same third party. In the document, the contractor stressed that the third party would ensure access to its technical and professional resources by providing services for which these capacities were required. But the contracting authority found that the commitment of the third party did not meet the condition for participation in the proceeding, and excluded the contractor from the proceeding pursuant to Art. 24(1)(12) of the Public Procurement Law.
The contractor lodged an appeal with National Appeal Chamber (KIO), accusing the contracting authority of unjustified and premature exclusion without first calling for a supplementary commitment by the same third party. In the appellant’s opinion, it appeared from the wording of the third party’s commitment that it would execute part of the contract and meet the condition for participation in the procedure.
Did the contracting authority reasonably exclude the contractor from the procedure?
For the chamber, the fact that the contractor did not meet the condition of participation in the procedure on its own, and therefore could rely on the technical and professional abilities of other entities, was undisputed. According to Art. 22a(1) of the Public Procurement Law, “To confirm compliance with the conditions for participation in a procedure, an economic operator may, in relevant situations and in relation to a specific contract or part thereof, rely on technical or professional abilities or financial or economic standing of other entities, regardless of the legal nature of relationships between the economic operator and these entities.” However, when a contractor relies on the abilities or circumstances of other entities, the act requires the contractor to prove to the contracting authority that when performing the contract, it will have at its disposal the necessary resources of those entities, in particular by presenting a commitment by those entities to provide the contractor with the necessary resources for performance of the contract.
Therefore, a contractor wishing to make use of the capacity of a third party must duly demonstrate that via resources made available by another entity, it will meet the conditions for participation required in the procedure. If it fails to demonstrate this, it will be excluded by the contracting authority under Art. 24(1)(12) of the act.
In this case, the chamber found that the contracting authority had reasonably excluded the contractor from the procedure. First it cited Art. 22a(4) of the act, according to which, for conditions relating to education, professional qualifications or experience, contractors may rely on the capacities of other entities if these entities will carry out the works or services for which those capacities are required. On this basis, the chamber stated, “A contractor which relies on the capabilities of other entities in relation to conditions concerning education, professional qualifications or experience must entrust the execution of construction works or services covered by this condition for participation in the proceeding, i.e. for which those capabilities are required, to the entity that makes those resources available.”
Therefore, the contracting authorities should compare the condition for participation in the procedure with the substance of the third party’s commitment to provide resources (to prove to the contracting authority that the contractor will have the necessary resources to perform the contract), as the third party should perform the contract in this respect to the extent that these resources are required for performance. After making this comparison, the chamber concluded that the third party’s commitment did not confirm that the contractor had the resources of a third party needed to perform the contract in the part for which subjective capacities were required. As a result, the contractor did not prove that the conditions for participation in the proceedings were met, and was subject to exclusion under Art. 24(1)(12) of the Public Procurement Law.
Consultation and supervision not the same as execution of part of a contract
Allowing a contractor to rely on technical and professional resources made available by a third party, without indicating what that availability consists of but merely indicating that the third party will provide advice, consultation and supervision, does not constitute confirmation that the subcontractor will actually and realistically perform the contract to the extent specified by the contracting authority as a condition for participation in the procedure relating to experience. So it is not enough to describe in general terms the resources to be made available by a third party. The commitment of the third party must confirm active and complete performance under the contract. Therefore the part of the contract which the contractor intends to entrust to a third party must not be narrower than the condition specified for participation in the procedure.
An indication by the third party in its commitment of the services it intends to provide demonstrates that the third party’s involvement in performance of the contract will be limited to those services and will not cover the entire condition for participation in the procurement procedure.
Could the contracting authority supplement the tender?
In this case, the appealing contractor argued that if the contracting authority believed there were shortcomings in the third party’s commitment, it should have asked the contractor to supplement the third party’s commitment pursuant to Art. 26(3) of the Public Procurement Law.
According to that provision, if a contractor has not submitted a declaration referred to in Art. 25a(1), declarations or documents confirming the circumstances referred to in Art. 25(1) or other documents necessary to conduct the procedure, or the declarations or documents are incomplete, contain errors or raise doubts indicated by the contracting authority, the contracting authority shall call on the contractor to submit, supplement, correct or explain them, unless despite submission, supplementation, correction or explanation, the contractor’s bid would have to be rejected or the procedure would have to be cancelled.
In light of this provision, the chamber pointed out: “The scope indicated for performance by a subcontractor is an element of the bid which determines the method of contract performance, … and, as an element of the bid, it cannot be changed after the deadline for submission of the bids, all the more so as it refers to an area decisive for fulfilment of the conditions for participation in the procedure by the contractor, and therefore decisive for the contractor’s ability to compete for the contract.” Considering the third party’s commitment to make its resources available as a part of the bid, the chamber denied the contractor’s claims and strongly opposed the possibility of supplementing the third party’s commitment.
In the opinion of the chamber, the bid should be understood as fulfilment of the contracting authority’s requirements, particularly in terms of scope, quantity, quality, conditions, method of performance, and other elements essential for performance of the public contract. Here the chamber shared the position it took in the ruling of 9 November 2017 (KIO 2245/17), where it was stated, “The scope of subcontracting (i.e. the part of the contract indicated in the bid which the contractor allocates to be performed by means of subcontracting) determines how the contractor will perform, and as such cannot be changed after submitting the bid.”
However, if the contracting authority supplemented the bid (with regard to the third party’s commitment) in accordance with the contractor’s request, this would interfere with the content of the bid, and that is unacceptable under the Public Procurement Law. It would add elements to the bid not originally included in it. Declarations concerning the participation of a third party may be corrected in the course of examination of fulfilment of the conditions for participation in the procedure, but may not result in a change in the bid. Such a change would be material, as it would concern the scope and method of execution of the contract indicated in the bid.
Summary
When seeking to meet a condition for participation in a contract award procedure by relying on the resources of a third party, a contractor must precisely identify the tasks entrusted to the subcontractor and its compliance with the condition for participation in the procedure. Once a bid has been submitted (including a commitment by a third party), the contracting authority cannot supplement it, as that would constitute a gross violation of the Public Procurement Law.
Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners