Public procurement case law: false statements provided by relied upon third parties should not lead to automatic exclusion

For example, if a specific tender requires a minimum financial capacity or a certain number of references, a tenderer may submit the financial details and/or references from a third party, if that third party provides the relevant underlying documentation, such as a complete European Single Procurement Document (ESPD) and a statement that it agrees to put its financial and/or technical capacity at the disposal of the tenderer in relation to this tender. 

The possibility to rely on the capacity of a third party has been implemented into Italian law.  Italian law also states that “Contracting authorities shall exclude from the tendering procedure any economic operator[s] […] [which] submit untruthful documents or declarations in an ongoing tendering procedure and in the context of recourse to the capacities of other entities” (own emphasis added).  In addition, Italian procurement legislation also states that where a contracting authority finds that the third party (on whose capacity a tenderer has relied) does not meet the selection criteria or that an exclusion ground applies, the contracting authority “shall require the economic operator [to] replace those entities that fail to meet one of the relevant selection criteria or that are subject to mandatory grounds for exclusion”.

On 3 January 2018 the Local Health Authority of Central Tuscany (the Health Authority) launched a tender procedure in relation to the demolition of the former Misericordia e Dolce Hospital in Prato.  An ad hoc consortium named Del Debbio submitted an offer, relying on an ancillary undertaking for its technical capacity.  However, the Health Authority excluded Del Debbio from the tender procedure, because the ancillary undertaking did not refer to a ‘patteggiamento’ in its declarations.  A ‘patteggiamento’ is a judgment applying an agreement reached by parties on the enforcement of a negotiated penalty.  Under Italian law a ‘patteggiamento’ is the same as a conviction for the tortious offence of causing injury through negligence, committed in breach of the rules on health and safety in the workplace.  

The Health Authority found that the ancillary undertaking had made a false and untruthful declaration in the ESPD and decided that therefore, the Del Debbio consortium had to be automatically excluded.  The Del Debbio consortium contested its exclusion and launched proceedings before the Regional Administrative Court of Tuscany (the Regional Court).  The Regional Court overturned the exclusion decision, however, the winning tenderer appealed this decision before the Italian Council of State.  The Italian Council of State referred to following questions to the European Court of Justice (the CJEU): 

• Should the Public Procurement Directive, “in light of the principle of proportionality be interpreted as precluding national legislation under which the contracting authority must automatically exclude a tenderer from a public procurement procedure in the case where an ancillary undertaking, on whose capacities that tenderer intends to rely, made an untruthful declaration as to the existence of convictions in criminal proceedings that have become final, without being able to require or, at the very least, permit, in such a case, that tenderer to replace that entity, unlike in other cases where the entities on whose capacities the tenderer intends to rely fail to meet a relevant selection criterion or are subject to a mandatory grounds for exclusion”.

Findings of the CJEU and our view

In its judgment, the CJEU noted that the Public Procurement Directive states that a contracting authority “may require, or may be obliged by its Member State to require, that the economic operator concerned replace the entity on whose capacities it intends to rely, but in respect of which there are non-compulsory grounds for exclusion”.  Therefore, the CJEU interpreted the Public Procurement Directive as stating that Member States may lay down such an obligation, however, they cannot deprive a contracting authority from the option to replace such an entity, meaning that such a replacement is either mandatory under the implementing legislation or optional for the contracting authority. 

The CJEU found that this interpretation is in line with the principle of proportionality that entails that implementing legislation should not go beyond what is necessary to achieve the objectives of the directive it implements.  As the aim of the Public Procurement Directive is to enable contracting authorities to select and award public contracts to trustworthy economic operators, and given that the Public Procurement Directive also allows for the possibility for economic operators to prove their trustworthiness through ‘corrective measures’ (the so-called self-cleaning regime), the CJEU decided that it is therefore only after an economic operator has failed to demonstrate that it has taken the necessary corrective measures that the contracting authority may require an economic operator that has been relied upon to be replaced.

We note that the CJEU emphasised that, in the case at hand, the false statement was not provided by the economic operator itself, but by a third party on which the economic operator relied to meet the selection criteria.  The CJEU stated that, again in light of the principle of proportionality, a contracting authority must pay particular attention when applying such a ground for exclusion and an individual assessment must be carried out.  In the case at hand, the economic operator could not have verified the criminal conviction of the third party, as this type of conviction does not appear on the extract of the judicial record which may be inspected by private parties.  Hence Del Debbio could not be accused of failing to exercise due care or attention.

The CJEU also pointed out that the replacement of the entity should not materially alter the tenderer’s bid.  However, the CJEU provided some further guidance as to what would be considered a material change in this regard, stating that the principles of equal treatment and transparency preclude a contracting authority from entering into negotiations with a tenderer during the public procurement procedure and that, in principle, a tender cannot be amended once it has been submitted, whether at the request of the contracting authority or the tenderer.  Subsequently, a request for clarification or replacement of a relied upon party cannot result in a tenderer submitting a de facto new tender, which materially amends the initially submitted tender.  

The CJEU thus found that Del Debbio should have been granted the opportunity to replace the entity on which it had relied and should not have automatically been excluded.  
The Belgian implementing legislation states that a contracting authority must request the replacement of such a relied upon party if a mandatory exclusion ground applies to it and is entitled to request a replacement if an optional exclusion ground applies to it.  

There is little Belgian case law on this topic and the Belgian State Council often takes a strict approach when dealing with issues that relate to the ESPD and its underlying legislation.  We expect that many private parties will welcome this case law, which offers entities a fighting chances should they ever find themselves in similar position .  Moreover, CJEU has done so not only referring to the wording of the Public Procurement Directive, but also by referring to the underlying principles, such as proportionality, equal treatment and transparency, increasing the possibility that this judgement may have a wider application than just the facts underlying this specific case.