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assessment of selection criteria relating to economic and financial standing

8 August 2017
This article is taken from August's public matters newsletter. Click here to view more articles from this issue.


The recent case of INGSTEEL spol. s r.o.,Metrostav, as, v Úrad pre verejné obstarávanie C-76/16 has once again highlighted the need for contracting authorities to fully consider how they assess economic and financial standing of bidders. In this case, the Slovak Football Federation issued an invitation to tender for a contract to restructure and modernise 16 football stadiums. The contract notice required the prospective tenderers to provide an undertaking from a bank confirming that, in the event of acceptance of its tender, tenderers would have the grant of credit of EUR 3 million available to them throughout the 48 month duration of the contract to ensure performance of the contract. The undertaking also had to show that the funds would be available to the tenderer after conclusion of the contract.

The companies Ingsteel and Metrostav (IM) submitted a joint tender to participate in the procurement process.

The tender documents provided that bidders had to show that they had been granted credit of at least EUR 3,000,000 at the date of submission and that such credit would be available throughout the duration of the contract (48 months). The IM’s bank could not (it was argued) give such a commitment at the date of submission. IM however, provided a statement, given by a bank, and a declaration confirming the opening of a current account credit facility for an amount exceeding EUR 5,000,000. They also provided a sworn statement attesting that, should its bid be successful, it would have a minimum of EUR 3,000,000 available in its account throughout the period of performance of the contract.

IM’s joint bid was rejected on the basis that it did not satisfy the conditions in the contract notice relating to economic and financial standing. As a result of that, IM brought a procurement challenge seeking annulment of the decision to exclude them from the tendering procedure.

Legal background

The matter reached the Supreme Court of the Slovak Republic, who made a referral to the ECJ for a preliminary ruling on several points. The Supreme Court asked the European Court of Justice (ECJ) whether it was compatible with Article 47 for a contracting authority to decide that a tenderer with an estimated value of EUR3 million does not satisfy the selection criterion relating to economic and financial standing, even though a sworn statement was submitted by the tenderer and a declaration was provided by its bank to certify that it would be able to draw on funds under a secured loan for any purpose up to a maximum amount exceeding the value of the contract.

The Supreme Court also asked whether it was valid to conclude under Article 47(5) of Directive 2004/18/EC that the tenderer was not able to produce the references requested by the contracting authority on the basis that the tenderer’s bank made the release of funds subject to conditions which were not specifically indicated in the loan agreement at the time of the tendering procedure, and whether therefore the tenderer was able to prove its economic and financial standing by means of a sworn statement.

The added complication in this instance was the fact that the successful tenderer had almost completed the performance of the various contracts. The Supreme Court made a referral to the ECJ questioning whether this was an objective impediment precluding the Supreme Court from allowing IM the right to a fair and public hearing within a reasonable time by an independent and impartial tribunal pursuant to the provisions of Article 47(1) and (2) of the Charter of Fundamental Rights of the European Union. Directive 89/665 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts also required member states to ensure that decisions taken by the contracting authorities be reviewed effectively and as rapidly as possible if such decisions have infringed EU or national law in the field of public procurement and that measures must be taken to correct an alleged infringement.

Judgment

Contracting authorities were not prevented from including in a contract notice the type of financial and economic criteria giving rise to the proceedings in this instance nor were they prevented from rejecting a bidder if the bidder fails to comply with the financial and economic criteria set out in the contract notice.

The ECJ also held that it was for the referring court to determine whether there was a ‘valid reason’ preventing a tenderer from providing the references requested by the contracting authority. However, inability to provide the references required in the contract documents had to be examined from an objective point of view. If for whatever reason the tenderers could not obtain credit from a bank in accordance with the terms of the contract documents, the referring court must also determine whether a sworn statement by the tenderer concerning its economic and financial standing is acceptable as an appropriate economic and financial guarantee.

The third question which was perhaps the most interesting part of the case was unfortunately not answered by ECJ, as it had not been provided with sufficient information as to whether Slovak law provided that contested decisions must be set aside before damages can be claimed, and as a result of this omission, it was not possible for the ECJ to provide a useful response and declared this question inadmissible.

What does this mean for public authorities?

Given that the legal provisions applied in this judgment relating to public procurement are replicated in the Public Contracts Regulations 2015, the outcome of this case will be of interest to procurement practitioners and contracting authorities. The ECJ concluded that Article 47 of Directive 2004/18 leaves a fair degree of freedom to the contracting authorities to choose the evidence which must be produced by tenderers, and the minimum levels required, in relation to their economic and financial standing so long as contracting authorities can demonstrate that they are related and proportionate to the subject matter of the contract. Therefore contracting authorities must have strong justifications for imposing their selection criteria. Once this hurdle has been passed, contracting authorities then also have a degree of flexibility to determine whether there is an objective, valid reason for rejecting tenderers on the basis that they have failed to comply with the contracting authority’s established criteria.

View more articles from August's public matters newsletter.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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