The legislation regulating public procurement procedures in the EU is the Directive 2014/24/EU, which repealed Directive 2004/18/EC. In Cyprus the Directive has been transposed into national law under the Law no. 73(I)/2016 (hereinafter “the Law”). Under Article 57 the Law refers to public procurement procedures which entail, inter alia, the grounds for exclusion of economic operators. Article 57 of both the EU and national law serves as a guide to national authorities when deciding on the possibility of excluding economic operators who have placed bids on public tenders, whilst concurrently serves as a guidebook to economic operators as to what behaviours to avoid in order not to be excluded.
Content of the Law
The purpose of the latest Directive was to clarify certain ambiguities that existed in the repealed Directive, as well as to codify certain elements regarding the exclusionary grounds as drawn from relevant case law. Nevertheless, despite the attempts of the law-makers to improve the content, there remains lack of clarity and vagueness especially in the area of the discretionary exclusionary grounds.
Types of exclusion
One needs to first and foremost define the main terms. Exclusion is an administrative remedy utilised by governments to disqualify contractors from being awarded public contracts or acquiring extensions to existing contracts for alleged breaches of law or (business) ethics. Paragraphs 1 and 4 as found in Article 57 list various situations that could lead to disqualification of an economic operator, and separate such exclusion grounds to mandatory and discretionary. Whilst mandatory grounds lead to automatic exclusion of an economic operator, discretionary exclusion grounds allow for the possibility of exclusion of an economic operator at the discretion of the relevant awarding authority.
On the one hand, mandatory exclusion grounds relate to convictions imposed by final judgments for criminal offences, and/or breach of obligations relating to payment of taxes and social security contributions. Although derogations do exist in cases of overriding reasons of public interest and/or disproportionality in the nature of the exclusion, they can only be invoked in very exceptional circumstances. On the other hand, discretionary exclusion grounds concern the integrity and/or financial capacity of an economic operator, assessed on a case by case basis, at the discretion of contracting/awarding authorities of each Member State. The decision ought to be based on the principles of transparency, equal treatment, proportionality and to ensure non-discrimination. Under the Directive and its transposition into national law, the awarding authority enjoys great discretionary powers with which it may or may not exclude an economic operator. In parallel, an economic operator may in all cases invoke certain “defences” to avoid such an exclusion by providing evidence of self-cleaning  measures, sufficient to demonstrate its reliability, despite the existence of the relevant reasons/grounds for exclusion.
Discretionary exclusion grounds: grave professional misconduct
Emphasis for the purpose of this article, will be given to the discretionary exclusion grounds, and specifically paragraph (c) of Article 57.4 which refers to grave professional misconduct which economic operators may face as grounds for exclusion before an awarding authority of a Member State.
Grave professional misconduct, as per the ECJ ruling in the case C-465/11 Forposta SA v Poczta Polska SA, refers to the breach of principles relating to ethics, dignity and professional conscientiousness and covers “all wrongful conduct which has an impact on the professional credibility of the operator at issue”. It is noteworthy that wrongful conduct is not limited to the violations of ethical standards established by a disciplinary body or by a judgment which has the force of res judicata, but it has a broader scope which may, for example, include unethical business behaviour which is not embodied in any formal rule or regulatory body’s code of conduct or guidelines.
A blurry definition and its fall-backs
Compared to the other types of discretionary exclusionary grounds, grave professional misconduct is much vaguer and open to interpretation. While for example the term “bankruptcy” in para 4 (b) of Article 57 is self-explanatory, or the definition of the term “conduct which distorts competition”, para 4 (f), has been narrowed down and clarified by voluminous legal writing, legislation, guidelines and jurisprudence, this cannot be said for para 4 (c). Although there have been some attempts from the CJEU and academics to address the term “grave professional misconduct”, these have not proven sufficient to provide an operational definition. Lack of clarity in the law can have tremendous effects on all stakeholders ranging from procedural burden, lack of homogeneous standards of diligence being applied (i) by different awarding authorities, (ii) in different member states, (iii) against different economic operators, whilst also allowing for a lack of abidance to EU standards and harmonisation within the EU and its Member States, as well as potentially unfair or unjustifiable harm to economic operators’ interests.
Bias, corruption and heterogeneous standards of diligence
One must draw his attention to the fact that since the term “grave professional misconduct” is not clearly defined, national awarding authorities are called upon to define it themselves. This gives great discretionary powers to authorities. Although it might entail administrative burdens for national contracting authorities, at the same time it allows authorities to enjoy great flexibility which can give rise to bias, corruption and heterogeneous standards of diligence. An indicative example under Cyprus case law was the case of WTE Wassertechnik GmbH v Tender Review Authority, case No. 1573/2015, where the Court annulled the decision of the contracting authority because the latter had decided in favour of an economic operator, dismissing the claim that it had committed grave professional misconduct, under the bias of one of its members who had a special relationship with the economic operator in question. This clearly illustrates that the great discretionary powers, which the contracting authorities enjoy, can have adverse effects in the procedure of awarding a tender to an economic operator.
Lack of harmonisation and consistency
The lack of definition also leads to lack of harmonisation with other Member States’ legislation and discrepancies with regards to the Union level laws. Under Article 288 of the Treaty on the Functioning of the EU, “a directive shall be binding as to the result to be achieved upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods”. However, even if the national measures of implementation may vary, Member states must take into account the main purpose of the directive in question since the Member States are bound by the principles of Community law. The obligation of the Member States to consider Union law in public procurement procedures has been expressly inserted by EU law-makers in para. 7 of the Article referring to discretionary exclusionary grounds, which requires that Member States specify the implementing conditions “having regard to Union law”. Nevertheless, Member States have in certain cases not abided by the spirit of the EU legislation and have surpassed their mandate by incorporating certain standards which are excessively oriented to national particularities disregarding the EU indications. This was also illustrated in the case of Forposta para. 26 whereby the Polish government, when transposing the Directive, added an extensive paragraph as to what would amount to grave professional misconduct. CJEU reiterated the right of Member States to provide a more detailed definition of terms, however it found that the Polish version of the term was far too restrictive and, to a certain extent, it overlooked Union law.
Impediment to the free movement of services and goods
The wide-ranging interpretation has led to inconsistency between national legislations which is perilous to economic operators as it may prevent the operator’s access to markets in general. If a tenderer is operating on a cross border level, since grave professional misconduct can vary significantly from one country to another, such tenderer might be led to exclusion in one jurisdiction whereas it would have been allowed to operate in such a way in its home state with a more lenient approach to the interpretation of the law. Such discriminatory behaviour could prove to be a restriction of the freedom of movement of goods and freedom to provide services; a possible breach of Article 28 and 56 TFEU.
Mishandling of information
The awarding process is impeded not only by the unclear definition but also by the lack of available information and the absence of means to access it. Lack of information has as a consequence the incapacity of national authorities to verify the credibility and reliability of an economic operator both internally and with regards to other Member States’ jurisdictions. The lack of information accessible at Union level on past misdoings of any economic operator operating in different Member States can keep national authorities in the dark with regards to the background of an economic operator and mislead them into allowing a wrongdoer to enter a procurement process in their own Member State. Likewise, such information, by not being available gives the opportunity to certain economic operators to abuse the procedure, especially on cross border procedures. As per Cypriot government practices, one can find a list of economic operators who have been excluded from all public tenders on a horizontal level across the island. However there is no information on companies who were found guilty of grave professional misconduct (by any appropriate mean) but have been allowed to participate in tender procedures following self-cleaning measures adopted by such operators. Nor there exists a list of economic operators who have been excluded only from a specific public tender but continue to be allowed to place bids in other procedures. Similarly, at EU level, even though there is an active and accessible EU wide platform, namely the Internal Market Information System (IMI), the database is not comprehensive; may lack information about economic operators in general; may lack certain information about a specific economic operator; and/or may not have been updated timely with regards to operators that have applied self-cleaning measures or operators that have exited the exclusion period that had been imposed. The reason rests on the fact that data is inserted arbitrarily by national authorities of each Member State, no uniform template and/or detailed guidance are provided as to what information and when such information should be uploaded, and consequently other Member States and their national authorities cannot have a complete picture of the status of an economic operator.
Suggestions for improvement
It can be deduced that the setbacks arising from paragraph 4(c) of Article 57 are mainly due to the blurry definition of the term grave professional misconduct as well as the ensuing lack of information available. A potential solution is to create an indicative list with particular categories of what could amount to grave professional misconduct at EU level, at least until sufficient case-law has been developed to assist both national authorities as well as economic operators. This could be put into practice by inserting it as a delegated act to the Directive. It would be preferable that such list is not exhaustive, so that a certain amount of flexibility remains with Member States, but simultaneously it would assist in narrowing down the definition and limit abuse or misuse, both by economic operators or by national authorities.
Another suggestion would be to encourage the use of the IMI platform by the various national authorities in a more efficient, uniform and comprehensive way by updating it thoroughly, on a regular basis and with timely updates, especially when it comes to relaxation of any penalties imposed or self-cleaning measures by an economic operator that have been deemed as sufficient to illustrate the operator’s credibility or otherwise. This could serve as the single tool which all EU Member States can use both for national and EU wide purposes and would reduce the need to set up and maintain a separate national database.
Lastly an additional safeguard that could be introduced would be the establishment of an official certification system, whereby a national authority responsible for the professional regulation of an economic operator could issue a certificate to an economic operator, upon request, evidencing that the latter has not been found guilty of grave professional misconduct in the line of its duties arising from the profession/activity relevant to the procedure applied for. Such a certificate can serve as an iuris et de iure presumption that the economic operator has not been found guilty of grave professional misconduct, evidenced by the very professional regulatory body responsible for licensing and/or regulating such economic operator.