The increasing risk of firms being excluded from bidding for public-sector contracts across Europe because of past offences or misconduct

Contracts awarded by Governments and other public bodies ("contracting authorities") are a major source of business for firms operating in many sectors, including construction, defence, IT and professional services. However, firms face an increasing risk of being excluded from bidding for such contracts if they have previously committed certain types of wrongdoing, such as violations of competition law, grave professional misconduct or the poor performance of previous public contracts.

The UK and other countries across Europe are becoming more organised in tracking and, in some cases, black-listing unsuitable suppliers. For example:

• In the UK, the Procurement Bill that is currently before Parliament proposes to introduce a centrally managed "supplier debarment list" for the first time
• Germany has recently introduced a centralised "Competition Register" that provides information on whether suppliers fall within any of the grounds that would justify their exclusion from public tenders in Germany
• In Spain, in the last few years, the national competition authority has imposed public procurement bans on numerous companies sanctioned for infringing competition law.

This blogpost rounds up some of the latest developments in this area.

The legal framework for exclusions from public procurement procedures

The award of valuable contracts by contracting authorities ("public procurement") across the European Union is governed by directives laid down at EU-level (principally, Directive 2014/24/EU) and implemented into national law. In the UK, the regulations implementing these EU directives (such as the Public Contracts Regulations 2015) remain in place for now, despite Brexit, but they are due to be replaced next year by the Procurement Bill which is currently before Parliament.

These directives and regulations lay down a series of grounds on which contracting authorities may, and in some cases must, exclude firms from participating in public procurement procedures. The grounds for mandatory exclusion relate to convictions for serious criminal offences within the previous five years. The grounds for discretionary exclusion include:

• Violation of environmental, social or labour laws
• Being subject to proceedings for insolvency or bankruptcy
• Grave professional misconduct
• Entry into agreements aimed at distorting competition ("cartel offences")
• Deficient performance of a prior public contract, leading to its early termination or other sanctions
• Serious misrepresentation or the supply of misleading information in a tender process.

Contracting authorities typically include standard questions in their pre-qualification questionnaires, asking bidders whether they fall within any of the above exclusion grounds. Where a bidding firm responds that it has fallen within any of the above situations within the last 3 years, the contracting authority may exclude that firm from participating in the public procurement procedure. In the case of a cartel offence, the 3-year exclusion period runs from the date on which a competition authority has issued a formal decision, finding the firm guilty of the violation.

When deciding whether or not to exclude a firm falling within any of the above grounds, a contracting authority must respect the principle of proportionality, which requires it to take into account the gravity, location and age of the misconduct in question. It must also take note of any corrective measures – often called "self-cleaning" – taken by the firm to ensure that the objectionable conduct does not happen again.

Procurement blacklists and exclusions at national level

Under the above legal framework, individual contracting authorities may decide upon the eligibility of bidding firms on a case-by-case basis. Moreover, to assist contracting authorities in identifying unsuitable suppliers, some countries are setting up centralised lists or registers of supplier firms that may – or must – be excluded from bidding for public contracts in that jurisdiction.

For example:

• In the UK, clause 62 of the Procurement Bill currently before Parliament provides for the creation of a new, centralised "debarment list" of supplier firms that have been found to fall within one or more of the mandatory or discretionary exclusion grounds. Firms must be given advance notice of at least 8 working days before being placed on the list and will have a right of appeal.
• Germany has recently introduced a centralised Competition Register, administered by the Bundeskartellamt, that provides information on whether suppliers fall within any of the grounds that would justify their exclusion from public tenders in Germany. German contracting authorities are obliged to consult the register for all contracts with a value above Euro 30,000. However, the register does not operate as a traditional "blacklist", as the contracting authority remains free to decide whether or not to exclude a bidder who appears on the register, provided the entry does not constitute a mandatory ground for exclusion. Nonetheless, it seems reasonable to expect that being subject a negative entry on the register may well lead to de facto exclusion in practice.
  An undertaking can demand the deletion of its entry in the register, if it can demonstrate to the Bundeskartellamt that it has successfully "cleansed itself" by taking concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct. If the Bundeskartellamt deletes the entry, the underlying offence or misconduct must no longer be taken into account by any contracting authority.
• In Italy, the national anti-corruption authority, ANAC, maintains a centralised electronic register, the Casellario, Section B of which records all data relevant to whether an economic operator falls within any of the exclusion grounds listed in the Public Contracts Code. Access to section B of the Casellario is reserved to contracting authorities and other nominated bodies.
• Spain maintains an Official Register of Tenderers and Classified Companies in the Public Sector, called the ROLECE. The purpose of this register is to attest the professional qualifications, financial solvency and other circumstances of the registered companies. A ban on a company participating in public procurement procedures ("procurement ban") has to be registered in the ROLECE to be effective.
  In recent years, the Spanish National Markets and Competition Commission ("CNMC") has imposed procurement bans on numerous companies sanctioned for infringing competition law. However, these procurement bans have been largely ineffective, because the CNMC has declined to specify their scope or duration. Instead, it left these matters to be determined by the Ministry of Finance, but the latter failed to do so. The CNMC has announced that it intends to change its practice and to start determining the scope and duration of procurement bans directly in its decisions, so that such bans can be effectively applied upon their registration in the ROLECE.
• In Greece, the national public procurement database includes a register of economic operators that have been excluded from Greek public tenders, giving their details and the relevant period of exclusion.
• In Lithuania, the Public Procurement Office maintains a list of unreliable suppliers on the central public procurement portal. This list was the subject of a recent ruling of the EU Court of Justice in Case C-682/21 HSC Baltic.
• Finally, at EU level, the European Commission operates the Early Detection and Exclusion System (EDES), which may result in firms being black-listed from bidding for or receiving EU-funded contracts. Firms may be subject to exclusion under EDES if they represent a threat to the EU's financial interests because they have committed fraud or are in a situation of exclusion under the EU Financial Regulation.

In light of these developments, firms that regularly tender for public contracts need to handle very carefully any incidents of misconduct that occur in any part of their organisation. Any such incidents may lead to the firm being listed as unreliable on national registers and may severely hinder the ability of the firm to participate in public procurement procedures for lucrative public-sector contracts anywhere in Europe and possibly beyond.

If a firm has committed relevant misconduct, it is highly advisable for it to take effective self-cleaning measures without delay in order to mitigate the risk of it being excluded from public contracts.

For more information on any of the above, please contact Adrian Brown in our Brussels office, Tim Briggs in London or Florian Huerkamp in Dusseldorf or Pilar Carrasco in Madrid.