Competition Infringements Can Exclude Companies from Public Procurement Procedures

In the case, a company had entered into certain vertical agreements with vehicle retailers. A national court found the agreements to be in violation of national competition legislation, and a fine was imposed on the company. The judgment was final.

When the company later participated in a public procurement procedure, the contracting authority excluded it from the procedure. The contracting authority was of the opinion that the fine imposed on the company for violating competition regulations constituted an infringement connected with its commercial or professional activity that was established by a final court judgment as provided for in national procurement legislation, in this case, Hungarian legislation.

The European Court of Justice confirmed that the contracting authority was entitled to take this action.[1] Directive 2004/18 makes it possible to exclude a tenderer from participating in a public procurement for reasons based on serious professional misconduct that the contracting authority can prove. The ECJ referred to its prior case law and stated that ‘professional misconduct’ covers all wrongful conduct that has an impact on the professional credibility of the tenderer in question (Forposa EU:C:2012:801). As a fine was imposed for the competition infringement, the infringement constitutes grave professional misconduct in the meaning of Directive 2004/18.

This ruling is not surprising. It confirmed the ECJ’s prior legal guidance that a wide variety of situations in which the tenderer has violated legislation can be deemed grave professional misconduct. In such cases, the tenderer in question can be excluded from the procurement procedure.

Reform of Procurement Directive to Alter Exclusion Grounds

The new Procurement Directive expands the number of violations that will be mandatory grounds for exclusion. These will include terrorism offences, the use of child labour and other human trafficking. Discretionary exclusion grounds will include violations of environmental, social or employment legislation, agreements of tenderers that violate competition rules, grave deficiencies in prior contractual performance and lack of impartiality in competitive tender processes.

With respect to the discretionary grounds, the new directive is more of a clarification of the regulatory situation. Contracting authorities and tenderers would be wise to familiarise themselves with the details of the new directive now, before it is implemented on the national level.

Tenderers Given Opportunity to Prove Reliability

The directive reform will also clarify what kinds of actions tenderers can take to restore their suitability following violations. These ‘self-cleaning’ measures will also be clarified in the directive reform. Such measures can include a company’s own efforts to settle the violation, payment of compensation and undertaking structural and organisational changes to prevent improper actions in the future.

The self-cleaning provisions are above all intended to ensure that the proportionality principle of EU law is realised. This being the case, contracting authorities must already evaluate the measure taken by tenderers and the reliability of tenderers under the legislation in force.

[1] Given that the estimated value of the contract fell below the EU threshold, the ECJ took a position on the matter from the perspective of the freedom of establishment and the freedom to provide services under Articles 49 and 56 of the Treaty of the Functioning of the European Union (TFEU). The ECJ ruled that Articles 49 and 56 TFEU do not preclude the application of national legislation excluding the participation in a tendering procedure of a tenderer sentenced to a fine for an infringement of competition law, which has been established by a final judicial decision.