Procurement in a Nutshell – Can a tenderer be excluded as a result of a subcontractor’s failure to comply with its obligations?
5th August, 2019
Following a request for a preliminary ruling, Advocate General Sánchez-Bordona has published his opinion on whether a Contracting Authority is entitled to exclude a tenderer from a procurement procedure on the basis that a subcontractor had breached its obligations in relation to environmental, social or labour law.
Click here to view the opinion in full.
A tender process for a public contract included a provision allowing for certain services to be subcontracted. The tender explained that in order to take advantage of this option a tenderer would need to provide a list of the three subcontractors that they would use. Alternatively, if a tenderer decided to forgo the option to subcontract then it need not list any proposed subcontractors.
The Claimant opted to make use of the subcontracting provision and listed its three proposed organisations. However, it subsequently transpired that one of the subcontractors named in its tender had breached certain social and labour law requirements and, as a result, the Claimant was excluded from the procedure.
The Advocate General’s opinion
Having considered the specific nature of the facts, as well as the associated legislation, the Advocate General came to the conclusion that European procurement law did not in principle preclude the exclusion of a tenderer that had stated in its tender that it intended to subcontract to an economic operator and that subcontractor had breached its social or labour law obligations.
Among his justifications for this conclusion, the Advocate General noted that:
“Competition would be distorted if, while others complied with the rules, one tenderer were to submit its tender in the knowledge that one of its main elements (the subcontractor to which it intended to entrust a significant part of the contract) had an illegal cost advantage precisely because it did not comply with its social obligations. This would affect the credibility of the tenderer which sought to exploit this unfair advantage.”
Importantly though, the Advocate General clarified this ability to exclude by stating:
“the scope to exclude the tenderer is not automatic: it will instead depend on the specific circumstances of the case, as assessed in accordance with the principles underpinning administrative procurement, including the principle of proportionality.
Under the proportionality principle, in order for offences by the subcontractor to impact so significantly on the tenderer as to prompt its exclusion from the procedure, the breaches committed by the subcontractor will generally have to be such that the Contracting Authority is unable to trust the tenderer.”
Why is this important?
It is essential that both Contracting Authorities and tenderers are aware of their legal positions in instances where tenders allow for work or services to be subcontracted. In this regard, tenderers should be certain that any proposed subcontractors have not acted in breach of legal obligations which could result in them being excluded from the procurement process.
Likewise, Contracting Authorities should note the potential options available to them including that set out by Regulation 56 (2) of the Public Contracts Regulations which emphasises:
“Contracting Authorities may decide not to award a contract to the tenderer submitting the most economically advantageous tenderer where they have established that the tender does not comply with applicable obligations in the fields of environmental, social and labour law.”
How can I find out more?
If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0330 137 3451.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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