Regulation 57 – Exclusion grounds

Commentary

Exclusion grounds are now established in Regulation 57 PCR2015, which follows closely Article 57 of Directive 2014/24/EU. The rules establish three groups of exclusion grounds: mandatory, hybrid and discretionary; as well as some minimum and maximum requirements concerning the timing of the exclusion and its duration. This Regulation is divided into six parts: general rules leading to mandatory exclusion; mandatory and discretionary exclusions for non-tax payment; exceptions to mandatory exclusions; discretionary exclusions; exclusions during the procedure; and self-cleaning. The main novelty concerns the regulation of self-cleaning mechanisms aimed at restoring reliability of economic operators affected by exclusion grounds.

The following comments are largely based on Albert’s paper “Exclusion, Qualitative Selection and Short-listing“, in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129, where further references are provided. All references are to the provisions in Directive 2014/24/EU, but they apply mutatis mutandis to Regulation 57 PCR2015. For complementary analysis based on the PCR2015, see LRA Butler, “The Copy-Out Copycat: Exclusion, Qualification and Selection of Economic Operators in the United Kingdom under the Public Contracts Regulations 2015”, in M Burgi, S Treumer & M Trybus (eds), Qualification, Exclusion and Selection in EU Procurements, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) forthcoming.

We know the comments in this entry are long, but we hope they will be useful.

(1) Extension of the grounds for mandatory exclusion of economic operators: an emphasis on the fight against fraud and corruption 

Article 57 of Directive 2014/24/EU alters and extends the grounds for mandatory exclusion foreseen in Article 45 of Directive 2004/18/EC. According to Art 57(1) of Directive 2014/24/EU, the current four grounds for mandatory exclusion of economic operators convicted by final judgment are maintained, which include the following offences: i) participation in a criminal organisation, ii) corruption, iii) fraud, and iv) money laundering. The references to the statutory instruments where these offences are regulated have been updated, but the regime remains substantially identical. However, Article 57(1) and 57(2) of Directive 2014/24/EU significantly extend the remit of the grounds for mandatory disqualification. Regulation 57 PCR2015 transposes those grounds by referring to a number of national laws such as the Criminal Law Act 1977, the Public Bodies Corrupt Practices Act 1889, or the Modern Slavery Act 2015 as sources of mandatory exclusions. In comparison with the Public Contracts Regulations 2006 (Regulation 23) it is possible to detect an expansion of these general rules leading to an automatic exclusion. As we shall see this mandatory exclusion may not be mandatory at all.

The content of paragraphs 1 and 2 of Regulation 57 PCR2015 is similar to what can be found in other countries, but an issue may occur when a foreign based economic operator has committed offences in another Member State as it technically would not have violated any of the national laws (common law included) mentioned here. At this stage, we are not sure this is a real problem or just us creating problems where they do not exist in practice. But there seems to be a relevant issue of (extra)territoriality in the enforcement of criminal rules.

Along those lines, Regulation 57(1)(n) PCR2015 tries to cover this expansion of grounds by including a catch-all final renvoi provision that comprises any offence within the meaning of Article 57(1) of Directive 2014/24/EU as defined by the law of any jurisdiction outside England and Wales and Northern Ireland; or created, after the day on which these Regulations were made, in the law of England and Wales or Northern Ireland. Hence, the enforcement of this provision will not be without difficulty, given the variety of criminal laws that might need checking, but it seems in line with the requirements of Article IV:4(c) of the revised version of the 2011 WTO Agreement on Government Procurement (GPA), which mandates that contracting authorities conduct ‘covered procurement in a transparent and impartial manner that: (c) prevents corrupt practices’ and which makes explicit reference to the United Nations Convention against Corruption. Therefore, the scope of this ground for mandatory exclusion seems to have been significantly broadened (at least potentially, and depending on the actions of the Member States to adopt aggressive anti-corruption legislation) (see also below). Such broadening can even result in a certain extraterritoriality in the application of this ground for exclusion when national criminal laws concerned with corruption cover instances of bribery of third country officials following the OECD Convention on Combating Bribery. For general discussion, see the contributions to G M Racca and C R Yukins (eds), Integrity and Efficiency in Sustainable Public Contracts (Brussels, Bruylant, 2014).

Some of the novelties in Directive 2014/24/EU and the PCR2015 are worth highlighting. Firstly, in connection with corruption, the ground is extended beyond the ‘EU definition’ of this offence and will now cover ‘corruption as defined in the national law of the contracting authority or the economic operator’ (Article 57(1)(b) of Directive 2014/24/EU). According to paragraphs 57(1)(b) to (d) PCR2015, this covers corruption within the meaning of section 1(2) of the Public Bodies Corrupt Practices Act 1889 or section 1 of the Prevention of Corruption Act 1906, the common law offence of bribery, as well as bribery within the meaning of sections 1, 2 or 6 of the Bribery Act 2010, or section 113 of the Representation of the People Act 1983.

Secondly, in relation to terrorism, two new mandatory grounds for exclusion are created for terrorist financing (Article57(1)(e) of Directive 2014/24/EU) and for terrorist offences or offences linked to terrorist activities (Article 57(1)(d) of Directive 2014/24/EU). According to Regulations 57(1)(f) and (g), this covers any offence listed in section 41 of the Counter Terrorism Act 2008, or in Schedule 2 to that Act where the court has determined that there is a terrorist connection; as well as any offence under sections 44 to 46 of the Serious Crime Act 2007 which relates to an offence coverered by the Counter Terrorism Act 2008.

Thirdly, a new ground for mandatory exclusion is created to tackle child labour and other forms of trafficking in human beings, as defined in the corresponding EU instruments (Article 57(1)(f) of Directive 2014/24). Paragraphs 57(1) (j) to (m) PCR2015 extend that to any offence under section 4 of the Asylum and Immigration (Treatment of Claimants, etc.) Act 2004, under section 59A of the Sexual Offences Act 2003, section 71 of the Coroners and Justice Act 2009, or  any offence in connection with the proceeds of drug trafficking within the meaning of section 49, 50 or 51 of the Drug Trafficking Act 1994. The 2016 Amendment of the PCR2015 included a new subsection (1a) that introduced a reference to offences under section 2 or 4 of the Modern Slavery Act 2015, thus further extending the scope of this ground of mandatory exclusion.

Fourthly, lack of payment of taxes or social security contributions becomes a ground for mandatory disqualification where this has been established by a judicial or administrative decision having final and binding effect in accordance with the legal provisions of the country in which it is established or with those of any of the jurisdictions of the United Kingdom (Article57(2) of Directive 2014/24/EU and Regulation 57(3) PCR2015). In a departure from the discretion given under Regulation 23(4)(g) of the Public Contracts Regulation 2006, paragraph 3 states that economic operators shall be excluded when the contracting authority is aware the economic operator is in breach of its obligations relating to payment of taxes or social security contributions by means of a final administrative or judicial decision either in the UK or another country where it is established. It would thus appear that only the entity presenting itself to the procurement procedure would trigger this exclusion and not others within the same group. This makes mandatory the grounds for discretionary exclusion previously foreseen in Articles 45(2)(e) and 45(2)(f) of Directive 2004/18/EC where there is a final and binding jurisdictional or administrative decision—and, otherwise, it will remain a discretionary ground for exclusion under Article 57(2)II of Directive 2014/24/EU / Regulation57(4) PCR2015 (see below). 

Lastly, Article 57(1) in fine of Directive 2014/24/EU (Regulation 57(2) PCR2015) clarifies the provisions in Article 45(1) in fine of Directive 2004/18/EC and extends the obligation to exclude the economic operator on the basis of any of the prior grounds for exclusion ‘where the person convicted by final judgment is a member of the administrative, management or supervisory body of that economic operator or has powers of representation, decision or control therein’. The only exception to this rule concerns the lack of payment of taxes and social security contributions, but this seems open to contention. In our opinion, at least where lack of payment is related to the activities of the economic operator, the rule should apply despite the legal person not being the one directly convicted or the direct addressee of the jurisdictional or administrative decision confirming the breach of tax or social security rules. 

 It is also worth stressing that, similar to what was already provided for in Art 45(1)III of Directive 2004/18/EC, Art 57(3) of Directive 2014/24 (Regulation 57(6) PCR2015) foresees that ‘Member States may provide for a derogation from the mandatory exclusion  on an exceptional basis, for overriding reasons relating to the public interest such as public health or protection of the environment’. In this regard, we would submit that the interpretation of the concept of ‘general interest’ developed by the CJEU in the area of free movement (of goods, in relation to art 36 TFEU and the so called Cassis rule of reason) may be of relevance for the interpretation and construction of such potential derogations. 

Moreover, in the case of the lack of payment of taxes and social security contributions, Article 57(3) in fine of Directive 2014/24/EU (Regulation 57(7) PCR2015) authorises Member States to create an (additional) derogation ‘where an exclusion would be clearly disproportionate, in particular where only minor amounts of taxes or social security contributions are unpaid or where the economic operator was informed of the exact amount due following its breach of its obligations relating to the payment of taxes or social security contributions at such time that it did not have the possibility of taking measures[addressed at sorting out the situation …] before expiration of the deadline for requesting participation or, in open procedures, the deadline for submitting its tender’. 

In order to ensure consistency of such a de minimis exception to the mandatory rule established in Article 57(2) of Directive 2014/24/EU, a common definition of what constitutes ‘minor amounts’ seems necessary. Otherwise, this is an issue likely to end up being referred to the CJEU for a preliminary interpretation, which answer may be almost impossible for the Court to provide, unless it is clearly willing to create a judicial de minimis threshold for this ground of exclusion which it is extremely unlikely, particularly in view of the formalistic approach followed in the recent decision in Consorzio Stabile Libor Lavori Pubblici, C-358/12, EU:C:2014:2063 . 

(2) Extension of the discretionary grounds for exclusion of economic operators 

Following the distinction in Article 45(2) of Directive 2004/18/EC, which established additional exclusion grounds that contracting authorities can decide to apply at their discretion, Article 57(2)II and 57(4) of Directive 2014/24/EU extend the current list of discretionary grounds for the exclusion of economic operators that contracting authorities may decide to use (or may be required by their Member State to use) to exclude any economic operator from participation in a procurement procedure. 

With some drafting modifications, but with fundamentally the same content, the list provided in Article 57(2)II and 57(4) covers the current grounds of exclusion on the basis of:

i) bankruptcy, judicial administration or assimilated situations, including being part of ongoing proceedings,

ii) demonstrated grave professional misconduct, which renders its integrity questionable,

iii) lack of payment of taxes or social security contributions not established by a jurisdictional or administrative decision having final and binding effect (otherwise, the exclusion ground becomes mandatory, above), and

iv) serious misrepresentation in supplying the information required for the verification of the absence of grounds for exclusion or the fulfilment of the selection criteria, or withholding of such information.

Furthermore, and similarly to what happened with mandatory exclusion grounds, Article 57(4) of Directive 2014/24/EU extends and broadens the list of situations in which an economic operator can (or must) be excluded. This is covered by Paragraphs57(4) and (8) PCR2015. Some provisions deserve additional comments.

Firstly, given the creation of new rules on the European Single Procurement Document (ie the submission of self-declarations) rather than the supply of full evidence supporting the non-existence of grounds for exclusion and compliance with qualitative selection criteria (Article 59 of Directive 2014/24/EU), the ground concerned with misrepresentation and withholding of information is extended to cover situations where the economic operator is ‘not able to submit the supporting documents required pursuant to Article 59’ (Article57(4)(h) of directive 2014/24/EU). This establishes a iuris et de iure presumption that the economic operator that cannot supply the required supporting documentation has gravely misrepresented its suitability and qualification to be awarded the contract and seems a natural extension of this grounds for exclusion—which, in our opinion, should however be a mandatory ground for exclusion. 

Secondly, contracting authorities can exclude economic operators where they can demonstrate by any appropriate means violations of applicable obligations established by Union law or national law compatible with it in the field of social and labour law or environmental law or of the international social and environmental law provisions listed in Annex X (Articles 18(2) and 57(4)(a) of Directive 2014/24/EU). Other than the considerations related to the use of public procurement as a lever to reinforce compliance with such ‘secondary policies’, this new ground for exclusion raises the issue of the standard of diligence that the contracting authority must discharge in order not to be negligently unaware of the existence of such violations. Given that there are different standards for different exclusion grounds, these are issues that are prone to litigation and that will likely require interpretation by the CJEU. Any means of proof should suffice to proceed to such exclusion, but the violation should be of a sufficient entity as to justify the exclusion under a proportionality test (similarly to what the new Directive proposes in terms of lack of payment of taxes or social security contributions, or ‘grave’ professional misconduct), since exclusion for any minor infringement of social, labour or environmental requirements may be disproportionate and, ultimately, not in the public interest if it affects the level and intensity of competition for the contracts. 

Thirdly, the Directive creates a new (limited) ground for the exclusion of infringers of competition law. Indeed, contracting authorities can now exclude economic operators where they have ‘sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition’ (Article 57(4)(d)). This should be read in connection with the OECD’s July 2012 Recommendation on Fighting Bid Rigging in Public Procurement and with the many actions undertaken by national competition authorities of some of the Member States to better liaise with contracting authorities and entities, and to advocate for competition law compliance in the public procurement setting. 

This new ground for exclusion is excessively limited and, given the gravity of bid rigging, it should be a ground for the mandatory exclusion of the offenders (see A Sanchez-Graells, ‘Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement’, in G M Racca and C R Yukins (eds), Integrity and Efficiency in Sustainable Public Contracts (Brussels, Bruylant, 2014) 137-157). As a matter of diligence (and subject to applicable domestic rules), in these cases, the contracting authority seems likely to be under a duty to report this behaviour to the national competition authority and to cooperate as much as necessary with the ensuing competition law investigation.

Fourthly, the Directive creates yet another ground for exclusion based on poor past performance by the economic operator. Under this new ground, contracting authorities can exclude economic operators that have ‘shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract, a prior contract with a contracting entity or a prior concession contract which led to early termination of that prior contract, damages or other comparable sanctions’ (Article 57(4)(g)). The introduction of past performance as an exclusion ground responds to the requests made for a long time by practitioners and brings the EU system closer to that of the US. Remarkably, this provision may overturn the practice and case law that prevented contracting authorities to take past performance into consideration. Even if good past performance should not be taken into consideration either for selection or award purposes (because of the effect it has in entrenching the incumbents), it seems sensible to introduce its use for ‘negative’ purposes in order to allow contracting authorities to (self)protect their interests by not engaging contractors prone not to deliver as expected. This seems particularly proportionate in view of the rules on ‘self-cleaning’ that allow contractors to compensate such poor past performance by showing that they have implemented changes to avoid them recurring. 

Interestingly, a (soft) corruption-related new ground for exclusion is also created. Further to the ground for mandatory exclusion of economic operators engaged in (hard) corruption (above), contracting authorities can exclude economic operators where they have ‘undertaken to unduly influence the decision-making process of the contracting authority, to obtain confidential information that may confer upon it undue advantages in the procurement procedure or to negligently provide misleading information that may have a material influence on decisions concerning exclusion, selection or award’ (Article 57(4)(i) of Directive 2014/24/EU). To be sure, some or all of these activities may be caught by the definition of corruption under domestic laws and, consequently, could substantively overlap with the mandatory ground for exclusion in Article 57(1)(b) of Directive 2014/24/EU (above). However, the mandatory ground for exclusion is only triggered if the economic operator has already been convicted by final judgment. Consequently, the virtuality of Article 57(4)(i) of Directive 2014/24/EU resides in allowing the contracting authority to immediately exclude any economic operator engaged in (quasi)corruption or that has otherwise tried to tamper with the integrity of the tender procedure. As a matter of diligence (and subject to applicable domestic rules), in these cases, the contracting authority seems likely to be under a duty to report this behaviour to the competent authorities or courts and to push for criminal prosecution. 

Finally, and strengthening the general remarks contained in the recitals of previous generations of procurement directives, the new Directive has also created two complementary grounds for the exclusion of tenderers in cases of conflict of interest, either generally (Articles 24 and 57(4)(e)), or as a result of the prior involvement of candidates or tenderers in the preparation of the procedure [arts 41 and 57(4)(f)]. Indeed, the contracting authority can exclude economic operators ‘where a conflict of interest within the meaning of Article 24 cannot be effectively remedied by other less intrusive measures’, or ‘where a distortion of competition from the prior involvement of the economic operators in the preparation of the procurement procedure, as referred to in Article 41, cannot be remedied by other, less intrusive measures’. These provisions should allow contracting authorities to ensure the integrity of the procurement process, despite the fact that the conflict of interest will also affect themselves or members of their staff and, consequently, these may end up being provisions which disappointed tenderers use in order to challenge their lack of application, rather than provisions directly and positively applied by the contracting authorities themselves—depending, of course, on the institutional robustness of the specific contracting authority concerned and the litigation environment in any given Member State. 

 (3) Exclusion possible at any point of the tender procedure

Article 57(5) of Directive 2014/24 and Paragraphs 57(9) and (10) PCR2015) introduces a much needed clarification on the possibility or duty for contracting authorities to exclude economic operators at any moment during the procedure. This clarifies that exclusion grounds (both those that are mandatory as a matter of EU law, and those that Member States make mandatory in their jurisdictions) should be considered unwaivable. That is, considered mandatory because they represent the ‘public interest’, unless some of them are configured in a discretionary manner by domestic law, as allowed for by Article 57(4) of Directive 2014/24/EU and that contracting authorities should be aware of them and check for compliance throughout the tender procedure. Equally, contracting authorities are now given express legal support for the exclusion of tenderers at late stages of the tender procedure, therefore nullifying any claims based on the potential (legitimate?) expectations derived from not having been excluded at the beginning of the procedure. According to Article 57(5) of Directive 2014/24/EU, it is now clear that a contracting authority would not be going against its own prior acts and thus not be foreclosed from excluding tenderers previously admitted to (or not excluded from) the tender procedure. 

More specifically, Article 57(5) of Directive 2014/24/EU establishes that contracting authorities ‘shall at any time during the procedure exclude an economic operator where it turns out that the economic operator is, in view of acts committed or omitted either before or during the procedure,’ convicted by final judgment of one of the qualified crimes of Article 57(1), or where the contracting authority is aware that the economic operator is in breach of its obligations relating to the payment of taxes or social security contributions and where this has been established by a judicial or administrative decision having final and binding effect (Article 57(2) of Directive 2014/24/EU; Regulation 57(9) PCR2015). Moreover, ‘contracting authorities may exclude or may be required by Member States to exclude an economic operator where it turns out that the economic operator is, in view of acts committed or omitted either before or during the procedure, in one of the situations referred to in paragraph 4’ (see also paragraph 57(10) PCR2015). This new provision is due to generate significant legal effects and may be open to litigation to test its boundaries against the general principles of equal treatment, protection of legitimate expectations and legal certainty.

(4) Harmonisation of minimum rules on maximum exclusion periods 

Following the position in Article 45(1) and 45(2) of Directive 2004/18, Article 57(7) of Directive 2014/24/EU requires that Member States specify the implementing conditions for the exclusion of economic operators by law, regulation or administrative provision and always having regard for EU law. However, it establishes new minimum rules concerning maximum exclusion periods. Indeed, Member States shall ‘determine the maximum period of exclusion if no [self-cleaning] measures  are taken by the economic operator to demonstrate its reliability. Where the period of exclusion has not been set by final judgment, that period shall not exceed five years from the date of the conviction by final judgment in the cases referred to in paragraph 1 and three years from the date of the relevant event in the cases referred to in paragraph 4’ of that same Article 57 of Directive 2014/24/EU.

This has been transposed in Regulations 57(11) and (12) PCR2015, whereby in the cases referred to in paragraphs (1) and (2), the period during which the economic operator shall (subject to paragraphs (6), (7) and (14)) be excluded is 5 years from the date of the conviction; whereas in the situations referred to in paragraph (8), the period during which the economic operator may (subject to paragraph (14)) be excluded is 3 years from the date of the relevant event.  

Under the EU regime, in the specific case of (mandatory or discretionary) exclusion due to lack of payment of taxes or social security contributions, the exclusion seems to be subject to an indefinite period that will only finish once the economic operator settles the outstanding debt or enters into arrangements to do so. This derives from Article 57(2) in fine Directive 2014/24/EU which determines that these grounds for exclusion ‘shall no longer apply when the economic operator has fulfilled its obligations by paying or entering into a binding arrangement with a view to paying the taxes or social security contributions due, including, where applicable, any interest accrued or fines’, and is also established in Regulation 57(5) PCR2015. Note the reference to “entering an agreement” and not “actual payment”. Regulation 57(11) PCR2015 has opted to apply the maximum of 5 years of exclusion to economic operators in breach of their obligations to pay taxes or social security contributions as established by a judicial or administrative decision having final and binding effect (Regulation 57(3)). This can be a deviation from the standard interpretation of Article 57 of Directive 2014/24/EU. However, given that it sets a limit to a situation that would otherwise be potentially indefinite, we find it hard that this will trigger litigation or, indeed, a finding of infringement against the UK due to improper transposition.

More generally, such different treatment for specific exclusion grounds under EU law (ie the possibility to indefinitely exclude operators in breach of tax or social security obligations) seems unwarranted and other exclusion grounds that indicate the existence of similarly ongoing infringements (such as those concerned with infringements of social, labour and environmental law, or those concerning bankruptcy and administration) should also be subjected to indefinite exclusion until the economic operator complies with the relevant legislation. This result may be achieved anyway depending on the domestic rules applicable to continued infringements, but some further clarification and harmonisation could be desirable in order to keep the level playing field. Moreover, rules on the recognition of domestic exclusion decisions in the rest of the Member States could also be necessary, although this can be indirectly achieved by the European Single Procurement Document. 

(5) Self-cleaning and corporate compliance programs 

As a novelty, and in order to allow ‘for the possibility that economic operators can adopt compliance measures aimed at remedying the consequences of any criminal offences or misconduct and at effectively preventing further occurrences of the misbehaviour’ (Recital(102) of Directive 2014/24/EU), Article 57(6) of Directive 2014/24/EU and (Regulations 57(13) to (17) PCR2015) establishes rules on self-cleaning and promotes the adoption of corporate compliance programs. Under the rules of Article 57(6) of Directive 2014/24/EU, any economic operator that should be excluded under any of the grounds in 57(1) or 57(4) can provide evidence to the effect that measures it has taken are sufficient to demonstrate its reliability despite the existence of a relevant ground for exclusion and, if such evidence is considered as sufficient by the contracting authority, the economic operator concerned shall not be excluded. 

The Directive includes a list of compensatory measures that, as a minimum, shall include proof that the economic operator ‘has paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct, clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities and taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct’ (transposed by Regulation 57(15) PCR2015). Furthermore, the discretion retained by the contracting authority to assess the sufficiency of the self-cleaning measures adopted by the economic operator is modulated by the requirement that they ‘shall be evaluated taking into account the gravity and particular circumstances of the criminal offence or misconduct (Regulation 57(16) PCR2015). As a specific requirement of the duty of good administration and the obligation to provide reasons for any decision adopted in a procurement procedure, ‘[w]here the measures are considered to be insufficient, the economic operator shall receive a statement of the reasons for that decision (see Regulation 57(17) PCR2015)—which, in our opinion, shall be amenable to judicial review under the applicable rules of each Member State. 

Self-cleaning does not provide with a free and automatic “get out of jail” card to the economic operator. According to paragraphs 16 and 17 it is up for the contracting authority to decide (within its margin of discretion) if the self-cleaning is enough to guarantee the “reliability” mentioned above. In case the authority considers the cleaning insufficient it will have to justify its decision.

Oddly, the Directive restricts the possibility of implementing self-cleaning measures for economic operators that have ‘been excluded by final judgment from participating in procurement procedures [which] shall not be entitled to make use of [this] possibility  during the period of exclusion resulting from that judgment in the Member States where the judgment is effective’. This shows a lack of trust in self-cleaning measures and imposes exclusion as an irreversible sanction in the Member State adopting that decision (but, oddly, not in other Member States), which can sometimes disproportionately reduce competition (as well as creating a dual standard applicable in ‘domestic’ and ‘cross-border’ participation in procurement by that operator). Therefore, self-cleaning should also be available in these cases, which may justify a particularly tough approach to the evaluation of the sufficiency of the measures implemented by the economic operator. At least, an escape clause should exist in these cases to waive, substitute or defer the exclusion on grounds of public interest if having the economic operator excluded actually harms the interests of the contracting authority (which may be the case in highly concentrated or specialised markets).

However, even if the exclusion in Art 57(6) in fine of Directive 2014/24/EU is criticisable, it clearly imposes that ‘[a]n economic operator which has been excluded by final judgment from participating in procurement or concession award procedures shall not be entitled to make use of the possibility provided for under this paragraph during the period of exclusion resulting from that judgment in the Member States where the judgment is effective‘. In our view this provision certainly has direct effect. Consequently, contracting authorities must apply it, regardless of the fact that Regulation 57 PCR2015 does not include such a rule.

Proposed citation: Albert Sanchez-Graells & Pedro Telles, (2016) Commentary to the Public Contracts Regulations 2015, available at: www.pcr2015.uk.

Last modified: September 5, 2016 by Pedro Telles

Mandatory exclusions

57.—(1) Contracting authorities shall exclude an economic operator from participation in a procurement procedure where they have established, by verifying in accordance with regulations 59, 60 and 61, or are otherwise aware, that that economic operator has been convicted of any of the following offences:—

(a) conspiracy within the meaning of section 1 or 1A of the Criminal Law Act 1977(1) or article 9 or 9A of the Criminal Attempts and Conspiracy (Northern Ireland) Order 1983(2) where that conspiracy relates to participation in a criminal organisation as defined in Article 2 of Council Framework Decision 2008/841/JHA on the fight against organised crime(3);

(b) corruption within the meaning of section 1(2) of the Public Bodies Corrupt Practices Act 1889(4) or section 1 of the Prevention of Corruption Act 1906(5);

(c) the common law offence of bribery;

(d) bribery within the meaning of sections 1, 2 or 6 of the Bribery Act 2010(6), or section 113 of the Representation of the People Act 1983(7);

(e) where the offence relates to fraud affecting the European Communities’ financial interests as defined by Article 1 of the Convention on the protection of the financial interests of the European Communities(8):—

(i) the common law offence of cheating the Revenue;

(ii) the common law offence of conspiracy to defraud;

(iii) fraud or theft within the meaning of the Theft Act 1968(9), the Theft Act (Northern Ireland) 1969(10), the Theft Act 1978(11) or the Theft (Northern Ireland) Order 1978(12);

(iv) fraudulent trading within the meaning of section 458 of the Companies Act 1985(13), article 451 of the Companies (Northern Ireland) Order 1986(14) or section 993 of the Companies Act 2006(15);

(v) fraudulent evasion within the meaning of section 170 of the Customs and Excise Management Act 1979(16) or section 72 of the Value Added Tax Act 1994(17);

(vi) an offence in connection with taxation in the European Union within the meaning of section 71 of the Criminal Justice Act 1993(18);

(vii) destroying, defacing or concealing of documents or procuring the execution of a valuable security within the meaning of section 20 of the Theft Act 1968(19) or section 19 of the Theft Act (Northern Ireland) 1969(20);

(viii) fraud within the meaning of section 2, 3 or 4 of the Fraud Act 2006(21); or

(ix) the possession of articles for use in frauds within the meaning of section 6 of the Fraud Act 2006, or the making, adapting, supplying or offering to supply articles for use in frauds within the meaning of section 7 of that Act;

(f) any offence listed—

(i) in section 41 of the Counter Terrorism Act 2008(22); or

(ii) in Schedule 2 to that Act where the court has determined that there is a terrorist connection;

(g) any offence under sections 44 to 46 of the Serious Crime Act 2007(23) which relates to an offence coverered by subparagraph (f);

(h) money laundering within the meaning of sections 340(11) and 415 of the Proceeds of Crime Act 2002(24);

(i) an offence in connection with the proceeds of criminal conduct within the meaning of section 93A, 93B or 93C of the Criminal Justice Act 1988(25) or article 45, 46 or 47 of the Proceeds of Crime (Northern Ireland) Order 1996(26);

(j) an offence under section 4 of the Asylum and Immigration (Treatment of Claimants, etc.) Act 2004(27);

(k) an offence under section 59A of the Sexual Offences Act 2003(28);

(l) an offence under section 71 of the Coroners and Justice Act 2009(29);

(1a) an offence under section 2 or 4 of the Modern Slavery Act 2015 (b);

(m) an offence in connection with the proceeds of drug trafficking within the meaning of section 49, 50 or 51 of the Drug Trafficking Act 1994(30); or

(n) any other offence within the meaning of Article 57(1) of the Public Contracts Directive—

(i) as defined by the law of any jurisdiction outside England and Wales and Northern Ireland; or

(ii) created, after the day on which these Regulations were made, in the law of England and Wales or Northern Ireland.

(2) The obligation to exclude an economic operator also applies where the person convicted is a member of the administrative, management or supervisory body of that economic operator or has powers of representation, decision or control in the economic operator.

Mandatory and discretionary exclusions for non-payment of taxes etc

(3) An economic operator shall be excluded from participation in a procurement procedure where—

(a) the contracting authority is aware that the economic operator is in breach of its obligations relating to the payment of taxes or social security contributions; and

(b) the breach has been established by a judicial or administrative decision having final and binding effect in accordance with the legal provisions of the country in which it is established or with those of any of the jurisdictions of the United Kingdom.

(4) Contracting authorities may exclude an economic operator from participation in a procurement procedure where the contracting authority can demonstrate by any appropriate means that the economic operator is in breach of its obligations relating to the payment of taxes or social security contributions.

(5) Paragraphs (3) and (4) cease to apply when the economic operator has fulfilled its obligations by paying, or entering into a binding arrangement with a view to paying, the taxes or social security contributions due, including, where applicable, any interest accrued or fines.

Exceptions to mandatory exclusion

(6) A contracting authority may disregard any of the prohibitions imposed by paragraphs (1) to (3), on an exceptional basis, for overriding reasons relating to the public interest such as public health or protection of the environment.

(7) A contracting authority may also disregard the prohibition imposed by paragraph (3) where an exclusion would be clearly disproportionate, in particular—

(a) where only minor amounts of taxes or social security contributions are unpaid; or

(b) where the economic operator was informed of the exact amount due following its breach of its obligations relating to the payment of taxes or social security contributions at such time that it did not have the possibility of fulfilling its obligations in a manner described in paragraph (5) before expiration of the deadline for requesting participation or, in open procedures, the deadline for submitting its tender.

Discretionary exclusions

(8) Contracting authorities may exclude from participation in a procurement procedure any economic operator in any of the following situations:—

(a) where the contracting authority can demonstrate by any appropriate means a violation of applicable obligations referred to in regulation 56(2);

(b) where the economic operator is bankrupt or is the subject of insolvency or winding-up proceedings, where its assets are being administered by a liquidator or by the court, where it is in an arrangement with creditors, where its business activities are suspended or it is in any analogous situation arising from a similar procedure under the laws and regulations of any State;

(c) where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable;

(d) where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition;

(e) where a conflict of interest within the meaning of regulation 24 cannot be effectively remedied by other, less intrusive, measures;

(f) where a distortion of competition from the prior involvement of the economic operator in the preparation of the procurement procedure, as referred to in regulation 41, cannot be remedied by other, less intrusive, measures;

(g) where the economic operator has shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract, a prior contract with a contracting entity, or a prior concession contract, which led to early termination of that prior contract, damages or other comparable sanctions;

(h) where the economic operator—

(i) has been guilty of serious misrepresentation in supplying the information required for the verification of the absence of grounds for exclusion or the fulfilment of the selection criteria; or

(ii) has withheld such information or is not able to submit supporting documents required under regulation 59; or

(i) where the economic operator has—

(i) undertaken to—

(aa) unduly influence the decision-making process of the contracting authority, or

(bb) obtain confidential information that may confer upon it undue advantages in the procurement procedure; or

(ii) negligently provided misleading information that may have a material influence on decisions concerning exclusion, selection or award.

Exclusion during procedure

(9) Contracting authorities shall exclude an economic operator where they become aware, at any time during a procurement procedure, that the economic operator is, in view of acts committed or omitted either before or during the procedure, in one of the situations referred to in paragraphs (1) to (3).

(10) Contracting authorities may exclude an economic operator where they become aware, at any time during a procurement procedure, that the economic operator is, in view of acts committed or omitted either before or during the procedure, in one of the situations referred to in paragraphs (4) or (8).

Duration of exclusion

(11) In the cases referred to in paragraphs (1) and (2), the period during which the economic operator shall (subject to paragraphs (6), (7) and (14)) be excluded is 5 years from the date of the conviction.

(12) In the situations referred to in paragraph (8), the period during which the economic operator may (subject to paragraph (14)) be excluded is 3 years from the date of the relevant event.

Self-cleaning

(13) Any economic operator that is in one of the situations referred to in paragraph (1) or (8) may provide evidence to the effect that measures taken by the economic operator are sufficient to demonstrate its reliability despite the existence of a relevant ground for exclusion.

(14) If the contracting authority considers such evidence to be sufficient, the economic operator concerned shall not be excluded from the procurement procedure.

(15) For that purpose, the economic operator shall prove that it has—

(a) paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct;

(b) clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities; and

(c) taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct.

(16) The measures taken by the economic operator shall be evaluated taking into account the gravity and particular circumstances of the criminal offence or misconduct.

(17) Where the contracting authority considers such measures to be insufficient, the contracting authority shall give the economic operator a statement of the reasons for that decision.

(1)

1977 c.45; section 1 was amended by the Criminal Attempts Act 1981 (c.47), section 5(1), by the Criminal Justice (Terrorism and Conspiracy) Act 1998 (c.40), Schedule 2, Part 2, and by the Trade Union and Labour Relations (Consolidation) Act 1992 (c.52), Schedule 1; section 1A was inserted by the Criminal Justice (Terrorism and Conspiracy) Act 1998, section 5(1), and was amended by the Coroners and Justice Act 2009 (c.25), section 72(1)(a).

(2)

S.I. 1983/1120 (N.I.13); article 9 was amended by Part 2 of Schedules 1 and 2 to the Criminal Justice (Terrorism and Conspiracy) Act 1998 (c.40), and article 9A was inserted by section 6(1) of that Act; there are other amendments but none is relevant.

(3)

OJ No L 300, 11.11.2008, p42.

(4)

1889 c.69; this Act was repealed by the Bribery Act 2010 (c.23), Schedule 2.

(5)

1906 c.34; this Act was repealed by the Bribery Act 2010 (c.23), Schedule 2.

(6)

2010 c.23.

(7)

1983 c.2; section 113 was amended by the Greater London Authority Act 1999 (c.29), Schedule 3, paragraph 30(2).

(8)

OJ No C 316, 27.11.1995, p48.

(9)

1968 c.60.

(10)

1969 c.16 (N.I.).

(11)

1978 c.31.

(12)

S.I. 1978/1407 (N.I.23).

(13)

1985 c.6; section 458 was modified by S.I. 2001/1090 and repealed by the Companies Act 2006 (c.46), Schedule 16.

(14)

S.I. 1986/1032 (N.I.6), amended by S.R. (NI) 2004/307 (and other instruments that were not relevant) and revoked by the Companies Act 2006 (c.46), Schedule 16.

(15)

2006 c.46; section 993 is applied (with modifications) by S.I. 2009/1804, regulation 47, and by S.I. 2009/2436, regulation 3 and Schedule 1.

(16)

1979 c.2.

(17)

1994 c.23.

(18)

1993 c.36.

(19)

1968 c.60; section 20 was amended by the Fraud Act 2006 (c.35), Schedules 1 and 3.

(20)

1969 c.16 (N.I.); section 19 was amended by the Fraud Act 2006 (c.35), Schedules 1 and 3.

(21)

2006 c.35.

(22)

2008 c.28.

(23)

2007 c.27.

(24)

2002 c.29; sections 340(11) and 415 were modified by the Serious Crime Act 2007 (c.27), section 63(1) and Schedule 6, paragraph 44(a); section 415 was amended by the Serious Organised Crime and Police Act 2005 (c.15), section 107(4).

(25)

1988 c.33; sections 93A, 93B and 93C were inserted by sections 29, 30 and 31 of the Criminal Justice Act 1993 (c.36) and repealed by the Proceeds of Crime Act 2002 (c.29), Schedule 11, paragraph 17(2).

(26)

S.I. 1996/1299 (N.I.9); articles 45, 46 and 47 were repealed by the Proceeds of Crime Act 2002 (c.29), Schedule 11, paragraph 31(2).

(27)

2004 c.19; section 4 was amended by the Human Tissue Act 2004 (c.30), Schedule 6, paragraph 7, by the UK Borders Act2007 (c.30), section 31(1), by the Borders, Citizenship and Immigration Act 2009 (c.11), section 54, by the Protection of Freedoms Act 2012 (c.9), section 110, and by the Criminal Justice Act (Northern Ireland) 2013 (c.7 (N.I.)), section 7(2) to (5) and Schedule 4, Part 2, and extended to the Isle of Man with modifications by S.I. 2008/680, article 18 and Schedule 8.

(28)

2003 c.37; section 59A was inserted by the Protection of Freedoms Act 2012 (c.9), section 109(2).

(29)

2009 c.25.

(b)

2015 c.30.

(30)

1994 c.37; sections 49, 50 and 51 were repealed by the Proceeds of Crime Act 2002 (c.29), Schedule 11, paragraphs 1 and 25(1) and (2)(a), and by Schedule 12.