Who can perform a public contract? Absurdities of the ban on reference trading
The ban on trading in references was supposed to cure the ills of the public procurement market. But every drug has side effects—in this case, disorientation of contractors and absurd conclusions when verifying fulfilment of the conditions for participation in public tenders.
The new provisions of the Public Procurement Law (in force for a year) were intended to cut off the trade in references and prevent situations where contracts are sought by bidders that have never themselves actually acquired the experience necessary for proper performance of the contract. Thus the rule was introduced in Art. 22a(4) of the law that when “borrowing” education, professional qualifications or experience, the “lender” of these attributes must perform the construction work or services for which these capabilities are required.
Fair enough. Previously, it was permissible to share experience without any real involvement in performance of the contract by the entity actually possessing the relevant experience. The “lender” merely stated in writing that it has the experience in the form of this or that successfully completed contract and consents to reliance on that experience by another entity bidding for a public contract.
Because borrowing references did not contribute to any practical increase in the contractor’s level of experience, over time it began to be required that in addition to lending reference documents, the firm providing the references should also be involved in performance of the contract. But the manner was not specified. It was obvious that such a firm could be hired as a subcontractor and actually carry out the scope of work for which it had experience. But it was also commonly accepted as proper to lend references, where the party lending the references did not take part in performing the contract but undertook to provide support—consultation when necessary during the course of contract performance.
Lawmakers finally concluded that this approach to lending of references does not adequately protect the contracting authority. Hence Art. 63(1) of Directive 2014/24/EU provides, “With regard to criteria relating to the educational and professional qualifications … or to the relevant professional experience, economic operators may however only rely on the capacities of other entities where the latter will perform the works or services for which these capacities are required.”
However, neither Polish nor EU lawmakers expressly stated that an entity lending its experience must perform the contract across this entire scope, indicating instead that such entity must perform where “required.” This direction does not appear to be identical to the scope of experience covered by the references lent by the entity.
Nonetheless, contracting authorities plainly expect the entity lending its capacity in the form of experience to perform all parts of the contract for which it provided its project references. But this expectation is hard to meet and can lead to absurd interpretations. All of this can be blamed on a lack of reflection when establishing the conditions for participation in the tender. This can lead to deadlocks and resort to exactly the behaviour the new regulations were designed to eliminate.
Example 1 – lending the entire experience required to take part in the tender
Firm A specialises in providing services S. The tender involves services S, but the experience required for participation in the tender is described so narrowly that firm A’s portfolio of completed projects does not include services S in that exact form. Trivialising the problem, we might say that A cleans floors, but only in rectangular spaces, and the contracting authority requires proof of experience cleaning floors in circular spaces. We might say that the condition for participating in the tender has not been appropriately defined. And rightly so. But how many bidders will try to battle such improperly worded conditions? In such situations, contractors will generally seek out the required capacity, to avoid getting off on the wrong foot in contacts with the contracting authority. So firm A will find firm B, which is already cleaning circular floors, and B will allow A to rely on that experience.
The second condition for participation involves personnel. Here the contracting authority does not specify round floors, and thus firm A has 100% of the required staff with the required experience.
If firm A wins the tender, who should perform the contract? Firm A’s staff, as they were indicated as the relevant people demonstrating fulfilment of the requirement, or firm B, as it provided its references?
After all, the contractor with the staff at its disposal capable of performing the contract should perform the contract using those personnel. It cannot be rationally argued that it would be more advantageous for the contracting authority and for the use of public funds to hire a subcontractor for this purpose, where the subcontractor does have the relevant experience but its staff have not been verified by the contracting authority. And moreover, it is not the entity that submitted an offer in the tender. How can all of this be reconciled with the requirement that the personnel verified by the contracting authority be employed in performing the contract?
Example 2 – the bidder has all the required experience, but borrows anyway because the contracting authority wants double experience
When defining the condition of experience, the contracting authority often requests that the bidder has completed at least two similar projects in the past. The argument is that successful completion of one project does not necessarily prove that the contractor has the required skill. It’s essential to complete two successful projects because the first one might have been just “beginner’s luck,” or maybe the atmospheric conditions were just right, or whatever. But after two successful projects, the contractor is an “old hand.”
Personally I might think that someone who succeeded once may succeed a second time, but a contractor who has two projects under its belt might struggle with the third. In other words, I don’t see the sense in evaluating contractors by the quantity of their experience. This requirement only encourages exclusion from tenders of bidders who are relatively new to the market.
Regardless of my own view on the subject, reliance on third-party references to duplicate experience always leads to a situation where both the contractor and the third party lending its experience possess the full range of relevant experience. The contracting authority may exclude combining the experience of different entities, but most often the terms of reference do not contain such restrictions. Consequently, a contractor capable of performing the contract all by itself is faced with the necessity to use a third party whose references it has borrowed to perform the contract. How then should we interpret Public Procurement Law Art. 22a(4)? Since the third party has lent its experience covering the whole scope of the contract, should it perform the entire contract? Or perhaps since the contractor has acquired the very same experience, the requirement in Art. 22a(4) should be ignored in this instance? Or perhaps they should divide the contract performance 50/50, since they had to combine their experience for the contractor to qualify for the tender?
Careful phrasing of the conditions for participating in the tender
I point out these problems to raise the awareness of contracting authorities. In light of the conditions for participation in the proceeding, it is not always known in the specific tender structure whether performance of a certain part of the contract requires the capabilities of the third party lending its experience, and consequently whether the third party must perform this part of the contract.
Undoubtedly, it is correct to assume that the capacity to perform the contract properly should be verified by combining the current capacity of the contractor with its past experience. But because it is possible to rely on the experience of a third party that does not join the tender structure as a joint contractor (as a member of a consortium), practical problems are bound to arise in applying Public Procurement Law Art. 22a(4). The less careful the contracting authority is in framing the conditions for participation in the tender, the harder it will be to solve these problems.
Anna Prigan, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners