Conditions for lending resources must reflect the subject matter and purposes of the procurement | In Principle

The proposed amendment of the Public Procurement Law, despite introducing certain changes in the rules for participation by third parties in performance of public contracts, does not resolve all doubts concerning the existing practice. For some of them, it would be helpful to consult the guidelines from a recent judgment of the Court of Justice.

Under the proposed amendment to Poland’s Public Procurement Law, the issue of reliance on the capacity of third parties is addressed more extensively than in prior law, but the change does not appear that it will have much practical impact.

Changes introduced by the amendment

The proposed new Art. 22a of the Public Procurement Law is devoted entirely to the issue of reliance on the capacity of third parties, in place of the current Art. 26(2b), which is to be repealed. These rules are thus moved from the section concerning submission of documents to the section concerning fulfilment of the conditions for participation in the tender procedure.

It is clarified that the contracting authority will evaluate fulfilment by these entities of the conditions for participation in the procedure in terms of lending their capacity or economic and financial standing, as well as non-exclusion of the party.

Seeking to ensure selection of entities truly capable of performing the contract—realistically, and not only on paper—lawmakers have proposed a provision under which, with respect to conditions concerning education, professional qualifications or experience, the contractor may rely on the capacity of other entities if those entities perform the construction works or services for which these capacities are required.

This regulation is designed to avoid situations where the capacities of a third party are used by the contractor for fulfilment of the conditions for the procedure, and then the portion of the contract requiring appropriate education, qualifications or experience is performed by another entity. It is therefore designed to prevent the phenomenon of “reference trading.”

The amendment also introduces joint and several liability of the contractor relying on the economic and financial standing of other entities, together with those entities, for injury suffered by the contracting authority as a result of failure to provide those resources, unless the contractor is not at fault for failure to provide the resources.

Guidelines from the Court of Justice

The reasoning presented by the Court of Justice in the recent case of Partner Apelski Dariusz v Zarząd Oczyszczania Miasta (C-324/14, judgment of 7 April 2016) will continue to be relevant with respect to certain issues under the proposed new law.

The Apelski decision was handed down shortly before repeal of Directive 2004/18/EC, which is no longer applicable. But not all of the doubts were resolved by the new Directive 2014/24/EU, and, consequently, by the proposed amended version of the Public Procurement Law.

In Apelski, the Court of Justice responded to a request for a preliminary ruling submitted by Poland’s National Appeal Chamber (KIO). Doubts arose in a procurement case involving the contractor Partner (Apelski Dariusz) and the Warsaw municipal cleaning authority. The subject of the contract was comprehensive mechanical cleaning of Warsaw’s streets during the winter and summer seasons of 2014–2017. KIO was unsure about the rules for reliance on the capacity of third parties, the possibility of combining the capacities of third parties, as well as the possibility of sharing resources in the form of consulting.

The guidelines handed down by the Court of Justice are generally not categorical, but it is clear from the judgment that the conditions for reliance on the capacity of third parties must depend in each case on the subject matter, purpose and specifics of the particular contract. The court refers more to reasonableness than rigid rules. So where clear rules are lacking, the room for dispute is greater.

Reliance on capacity of third parties—the rule, not the exception

The Court of Justice confirmed firstly that the possibility of a contractor relying on the capacity of other entities should be treated as the rule, not the exception. Consequently this entitlement should not be excessively limited by contracting authorities. As the court found, the possibility of relying on the capacity of other entities “where appropriate,” as prescribed in the directive (and also in the Polish Public Procurement Law), cannot be interpreted to mean that third-party capacity can be relied on only in exceptional instances.

The proposed amendment to the Public Procurement Law maintains the possibility of relying on the resources of third parties “where appropriate and for a particular contract” (new Art. 22a)—like the directive. The interpretation by the Court of Justice indicating a broad right to rely on the capacities of third parties thus remains current—subject to one essential change to be introduced by the amendment.

The Public Procurement Law permits the contracting authority to require personal performance of specific portions of the contract (under Art. 36a(2), key portions of a contract for construction works or services, or, in a supply contract, work connected with siting and installation). The proposed amendment, following the directive, provides that such a reservation will also exclude the use of the support of the entity sharing its resources—repealing Art. 36a(3).

This is a major change. Under prior law, an entity sharing its resources was treated as equal to the contractor itself. Whatever the contractor could do, could also be performed by the third party. Certain portions of the contract—those deemed under Art. 36a to be critical tasks in a works contract or service contract, or siting and installation operations in the context of a supply contract—only could not be assigned to subcontractors.

Rules for reliance on the capacity of other entities

The bill does not propose to modify the required method for reliance on the capacity of third parties. It retains the general obligation of the contractor to demonstrate that it will actually have the specified resources at its disposal. Such proof could include submission of a commitment by the entity to provide its resources.

In this respect, the response given by the Court of Justice to the question posed by KIO in the Apelski case on whether the contracting authority may specify detailed rules in the contract notice or the terms of reference for cooperation between the contractor and the parties whose capacity it is relying on remains current.

In this context, the Court of Justice indicated in its judgment of 7 April 2016 that the contracting authority cannot limit the right to rely on the capacity of other entities. More specifically, it cannot lay down in advance specific rules under which the contractor may rely on the capacity of third parties. Thus, the court held, the contractor “is free to establish links with the entities on whose resources it relies, and to choose the legal nature of those links” (Holst Italia SpA, Case C-176/98, par. 29 and cases cited therein).

But the court indicated an exception to this rule. In order to ensure proper performance of the contact, the contracting authority may, in specific circumstances, expressly set out specific rules in accordance with which an economic operator may rely on the capacities of other entities. This must be addressed in the contract notice or tender specifications.

As the court stressed, these rules must be related and proportionate to the subject matter and objectives of the contract. Thus, again, the possibility of limiting the contractor’s right to rely on the capacity of third parties requires reasonable justification in the specific instance.

Combining the capacity of third parties

Responding to the next question from KIO, the Court of Justice explained that generally a contractor may combine the capacities of two or more entities which do not individually have the capacities in terms of knowledge and experience required by the contracting authority.

But the court stated that in exceptional circumstances it is permissible for the contracting authority to impose limitations on the ability to combine the capacities of potential third parties—particularly when the procurement involves construction works requiring certain qualifications which cannot be obtained by combining the lower qualifications of multiple entities: “In such circumstances, the contracting authority would be justified in requiring that the minimum capacity level concerned be achieved by a single economic operator or, where appropriate, by relying on a limited number of economic operators, … as long as that requirement is related and proportionate to the subject matter of the contract at issue” (Swm Costruzioni 2 SpA, C-94/12, par. 35). It is apparent that an evaluation of the circumstances of the specific case is always required.

Sharing capacity in the form of consulting

Reliance on the resources of a third party in the form of consultation generates controversy in practice. Consultation, in the sense of providing professional advice, is a form of support that is hard to pin down and thus may be doubtful in terms of how real it is. This is particularly true when the contract involves performance of specific services such as the street cleaning and snow removal at issue in the Apelski case. Additional doubts were raised because the consulting firm was based in Grudziądz, some 230 km away from Warsaw, where the contract had to be performed. The consulting services would involve training of staff and assistance in solving problems that might arise during contract performance, where the consulting firm would not be directly involved in performing the contract.

The Court of Justice again held that in this situation, KIO should determine whether in light of all the specific elements of the contract, the commitment of resources in this manner meets the requirements firmly established in the case law, i.e. that the resources will actually be available.

The court stressed that a condition for finding that the contractor has effectively relied on the capacity of a third party is to prove that in the specific case the contractor will actually have the capacity at its disposal. It is definitely not enough for the capacity to be made available only for the purpose of qualifying for the tender.

Summary

The conclusions of the Court of Justice with respect to all of the questions submitted generally require contracting authorities (or KIO, as the case may be) to evaluate the situation in each specific instance, reflecting specific circumstances of the given case.

It should be pointed out that when interpreting directives, the Court of Justice does not issue direct commands or prohibitions that must be applied by the member states. On the contrary, in compliance with the principles of appropriateness and proportionality, the court generally places the burden on institutions applying procurement law in the member states to assess the bounds of permissibility and the rules for relying on the capacity of third parties. This is obviously not the same as allowing them complete discretion in this respect.

The new regulations are designed to ensure that third-party capacity is actually available, but, as indicated, they are not exhaustive in seeking to achieve this goal. They will need to be interpreted in a manner ensuring compliance with the principles laid down in the case law of the Court of Justice.

Hanna Drynkorn, Infrastructure, Transport, and Public Procurement & Public-Private Partnership practices, Wardyński & Partners