European Union Legislation and Procurement Reform (Scotland) Act 2014: reference pack

11. Selection Stage

Mandatory Exclusion Grounds

Under the EU, Concessions and Reform Act Regimes, public bodies must exclude a potential supplier from participation in a procurement procedure where they have established, or are otherwise aware that the potential supplier has been the subject of a conviction in the last five years. For blacklisting, EU law limits the period to three years.

Scottish Ministers have published statutory guidance on the selection of tenderers and award of contracts ^[17] .

Criminality Exclusion Grounds

These are the mandatory exclusion grounds based on criminality. These exclusion grounds should not be confused with contracts which are excluded from the scope of the Regulations (see chapter 4). Instead, these mandatory and discretionary exclusions are for the purpose of preventing public sector funds going to criminals or any other unsuitable economic operators.

More detailed information about the offences listed here can be found in regulation 58 of the Public Contracts (Scotland) Regulations 2015, regulation 8 and regulation 9(1) of the Procurement (Scotland) Regulations 2016.

All exclusion grounds in bold are new:

• Conspiracy where it relates to participation in a criminal organisation
• Corruption
• Bribery
• Fraud
• Terrorist offences or offences linked to terrorist activities
• Money laundering or terrorist financing
• Child labour and other forms of trafficking in human beings

The maximum period for exclusion shall be five years from the date of the conviction. The obligation to exclude a potential supplier shall also apply where the person convicted by final judgement is a member of the administrative, management or supervisory body of that potential supplier or has powers of representation, decision or control therein.

Tax and Social Security

Public bodies must exclude a supplier from an EU Regime procurement procedure where they are aware that the supplier 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.

Public bodies should exclude a supplier under Reform Act procurements where it can be demonstrated by any appropriate means, that the supplier is in breach of its obligation to pay taxes or social security contributions.

Where such a decision would be disproportionate in light of all relevant facts, or the supplier has paid, or entered into an agreement to pay the sums due, or the obligation to make a payment otherwise ceases, public bodies may decide not to exclude the supplier.

Blacklisting

Blacklisting refers to the practice of systematically denying individuals employment on the basis of information, accurate or not, held in some type of database.

When a public body is aware that a supplier has breached the Employment Relations Act 1999 (Blacklists) Regulations 2010 and has been found to have done so in a formal ruling (e.g. by tribunal or court), or has admitted this, it is now mandatory for the public body to exclude the supplier from bidding for a public contract.

This will be for a period of three years from the date on which the blacklisting took place, unless within that time the supplier has demonstrated that it has taken appropriate remedial measures.

But May Not Exclude If:

Self-Cleansing and Periods of Exclusion

Where a bidder should have been excluded as a result of one of the mandatory or discretionary exclusions, they may provide evidence that they have taken measures which are sufficient to demonstrate reliability despite the existence of the ground for exclusion.

For this purpose, the bidder shall:

• prove that it has paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct;
• clarify the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities; and
• take concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct.

It is for the public body to decide whether sufficient evidence has been provided, by taking into account the gravity and particular circumstances of the offence or misconduct. If the public body considers their evidence to be insufficient, they must provide a statement of the reasons for their decision to continue to exclude the bidder.

Tax and Social Security (obligations paid or minor amounts)

If a potential supplier has paid, or has entered into a binding arrangement with a view to paying the taxes or social security contributions due (including any applicable interest accrued or fines), or the obligation to pay is removed, that potential supplier cannot be excluded from the competition. Please note that this exemption applies to both the mandatory exclusion ground and the discretionary ground.

A public body may, however, decide not to exclude a potential supplier where it would be clearly disproportionate to do so, particularly where only minor amounts of taxes or social security contributions are unpaid, or where they have not had sufficient time to pay or put in place arrangements to pay what is due, before submitting their tender.

Exceptional circumstances where mandatory exclusion need not be applied

Public bodies can decide not to apply any or all of the mandatory exclusion grounds to a regulated or EU-regulated procurement only in exceptional circumstances.

Such a decision to award a public contract to a potential supplier who may in breach of one or more of these exclusion grounds, must only be taken in exceptional circumstances, where the contract is necessary for overriding reasons relating to the public interest, such as public health or protection of the environment. For example, where urgently needed vaccines or emergency equipment can only be purchased from an economic operator to whom one of the mandatory grounds for exclusion otherwise applies.

Discretionary Exclusion Grounds

Public bodies may exclude suppliers from participation in a procurement procedure, for a maximum of 3 years from the date the event occurred. Scottish Ministers have published statutory guidance on the selection of tenderers and award of contracts.

Tax and Social Security

Public bodies should exclude a supplier where it can be demonstrated by any appropriate means, that the supplier is in breach of its obligation to pay taxes or social security contributions. Where such a decision would be disproportionate in light of all relevant facts, or the supplier has paid, or entered into an agreement to pay the sums due, or the obligation to make a payment otherwise ceases, public bodies may not exclude the supplier.

Breach of environmental, social or labour law

The public body can demonstrate by any appropriate means a violation by the supplier of applicable obligations in the fields of environmental, social and labour law established by EU law, national law, collective agreements or by the international environmental, social and labour law provisions listed in Annex X to the Public Contracts Directive 2014/24/ EU.

Bankruptcy

The supplier 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 laws and regulations to which the suppliers may be subject.

Grave professional misconduct

Grave professional misconduct is not a new ground for exclusion. However, the Public Contracts (Scotland) Regulations 2015 adds a caveat that such conduct must now render the suppliers integrity questionable.

Competition distorting agreement

The public body has sufficiently plausible indications to conclude that the supplier has entered into agreements with other economic operators aimed at distorting competition.

Conflict of interest

A conflict of interest exists, which includes any situation where relevant staff have, directly or indirectly, a financial, economic or other personal interest which might be perceived to compromise their impartiality and independence in the context of the procurement procedure and which cannot be effectively remedied by other less intrusive measures. (When the Regulations refer to “less intrusive measures” this means that if there is no way to resolve the conflict of interest or distortion of competition then a public body may exclude a supplier).

Prior involvement

A distortion of competition from the prior involvement of the supplier in the preparation of the procurement procedure (e.g. through advice to the public body or other involvement in the preparation of the procurement), cannot be remedied by other, less intrusive measures.

Past performance

The supplier has shown significant or persistent deficiencies in the performance of a substantive requirements under a prior public contract, a prior contract with a public body or a prior concession contract which led to early termination of that prior contract, damages or other comparable sanctions.

Serious misrepresentation

The supplier 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.

Withholding information

The supplier has withheld information required for the verification of the absence of grounds for exclusion or the fulfilment of the selection criteria or is not able to submit the supporting documents required.

Undue influence

The supplier has undertaken to unduly influence the decision-making process of the public body, to obtain confidential information that may give them 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.

But May Not Exclude If:

Self-Cleansing and Periods of Exclusion

If a supplier is in any of the situations which would, or could, lead to it being excluded, they may provide evidence that it has taken measures which are sufficient to demonstrate reliability despite the existence of the ground for exclusion. The measures taken by the supplier must be evaluated by taking into account the gravity and particular circumstances of the criminal offence or misconduct. Where the measures are considered to be insufficient, the supplier shall receive a statement of the reasons for that decision.

For this purpose the supplier shall:

• prove that it has paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct;
• clarify the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities; and
• take concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct.

It is for the public body to decide whether sufficient measures have been taken, by taking into account the gravity and particular circumstances of the offence or misconduct. If the public body considers the evidence provided to be insufficient, they must provide a statement of the reasons for their decision to continue to exclude the supplier.

Tax and Social Security (obligations paid or minor amounts)

If a supplier has paid, or had entered into a binding arrangement with a view to paying the taxes or social security contributions due (including any applicable interest accrued or fines), or the obligation to pay is removed, that supplier cannot be excluded from the competition. Please note that this exemption applies to both the mandatory exclusion ground and the discretionary ground.

A public body may, however, decide not to exclude a supplier where it would be clearly disproportionate to do so, particularly where only minor amounts of taxes or social security contributions are unpaid, or where the supplier has not had sufficient time to pay or put in place arrangements to pay what is due, before submitting their tender.

Selection Criteria

New provisions have been added in relation to the assessment of economic and financial standing. It is useful to note that the selection criteria apply to both Regulated and EU Regulated procurements.

Under the Regulations a minimum annual turnover requirement must be limited to no more than two times the estimated contract value, except in duly justified cases relating to special risks attached to the nature of the works, services or supplies. Please note that this only applies if you intend to use minimum annual turnover as a requirement. In addition, minimum annual turnover should (in most cases) not be used on its own to determine the economic and financial stability of a supplier. If a public body chooses to utilise this criterion it should only be as part of a wider financial analysis.

A further addition to the Regulations is in respect of financial ratios, for example those between assets and liabilities. These ratios may now be taken into consideration where the public body specifies the methods and criteria for such consideration in the procurement documents.

These methods must be transparent, objective and non-discriminatory. Scottish Ministers have published statutory guidance on the selection of tenderers and award of contracts.

Economic Operators/ Suppliers

Economic Operator means any natural or legal person or public entity or group of such persons and/or entities, including any temporary association of undertakings, which offers the execution of works and/or a work, the supply of products or the provision of services on the market e.g. limited companies, subsidiaries, partnerships, cooperative societies, universities, public or private organisations, sole traders etc whether or not they are ‘natural or legal persons’ in all circumstances.

Public bodies are now able to set out explicitly how groups of economic operators/suppliers (consortia) are to meet the requirements concerning economic and financial standing or the criteria relating to technical and professional ability.

Any conditions for the performance of contracts by groups of economic operators/suppliers (consortia) may necessitate setting conditions which are not imposed on individual suppliers, but these conditions should be justified by objective reasons and must be proportionate.

European Single Procurement Document ( ESPD)

This is a change to the way that suppliers can demonstrate their qualifications and how they are selected to bid.

Public bodies will now be required to provide in the contract notice the minimum standards required of suppliers to be invited to bid. Suppliers may self-declare that they meet the minimum standards.

Where a supplier self-declares that they meet the minimum standards by submitting an ESPD, the public body must accept the ESPD as confirming that the supplier is eligible to participate.

Public bodies may only insist on submission of further evidence of the supplier’s qualifications at the point at which submission is necessary to ensure the proper conduct or the integrity of the competition.

The ESPD is generic and is the same form used by all EU Member States.

Suppliers use the ESPD to declare that they:

• have not breached any of the grounds for mandatory or discretionary exclusion;
• have taken appropriate self-cleansing measures (where appropriate); and
• comply with the relevant selection criteria.

Public bodies must create, issue and then accept an ESPD for any procurement process which commenced from the 18 ^th April 2016.

Any specific requirement in respect of the mandatory or discretionary exclusion grounds, or minimum selection criteria requirements, needs to be set out by the public bodies in the contract notice.

Prior to awarding the contract, public bodies must ask the successful supplier for the relevant evidence and certificates (except in respect of call-off contracts from framework agreements).

Public bodies can ask for evidence and certificates at any stage of the procurement process, if they consider it necessary to ensure the proper conduct of the process. This may, particularly, be at the moment of selection of suppliers in a two stage process. However, as from 2018, public bodies will not be able to ask for documents and certificates that either they already hold or are reasonably obtainable elsewhere.

Public bodies must also:

• request a separate ESPD from subcontractors (upon whose capability and capacity the main bidder relies) and where a subcontractor fails to comply with one or more grounds, the buyer can insist that the subcontractor is replaced.
• request a separate ESPD from each member of a consortium to ensure all members meet the exclusion criteria and relevant selection criteria.

The following requirements of the ESPD were deferred in respect of EU regime contracts:

• 18 ^th April 2018 – the requirement to publish the ESPD exclusively in

electronic format.

• 18 ^th October 2018 – public bodies must not request copies of supporting

documents if they already possess them.

Subcontractors

The Public Contracts (Scotland) Regulations 2015 require public bodies to ask contractors for information relating to subcontractors.

• Public bodies can ask a bidder to indicate in its tender any share of the contract that it intends to subcontract to third parties and information about any proposed subcontractors, including their name and contact details.

• In respect of a works contract or a contract which includes services to be provided at the public body’s premises under the direct oversight of the public body, the public body must require the main contractor to notify it, at the latest when the performance of the contract commences, of the name, contact details and legal representatives of its subcontractors, involved in such works or services, in so far as known at the time.
• In addition, the public body must require the main contractor to notify it of any changes during the course of the contract, including details of any new subcontractors.

The public body may verify whether there are grounds for exclusion of subcontractors (using the mandatory and discretionary exclusion criteria), and if they do they must use an ESPD.

• The public body must require the main contractor to replace a subcontractor where this verification process has shown that there are mandatory grounds for exclusion of the subcontractor, and may require the main contractor to replace a subcontractor where the verification process has shown that there are discretionary grounds for exclusion.

A public body may also require a contractor to provide information of the name, contact details and legal representatives in respect of any one or more of the following:

• Supply contracts or service contracts (other than those concerning services to be provided at the facilities under direct oversight of the public body);
• Suppliers involved in works or services contracts;
• Subcontractors of the main contractor’s subcontractors and other contractors further down the subcontracting chain.

QUIZ

Question 19

Which of the following are sufficient grounds for discretionary (optional) exclusion? (select all the apply):

a) Breaches of environmental EU, national law, collective agreements

b) Breaches of social or labour EU, national law, collective agreements

c) Breaches of money laundering Regulations

d) Significant or persistent deficiencies in performance of a prior public contract, resulting in early termination, damages or other comparable sanctions

e) Breaches of social security obligations.

Question 20

The European Single Procurement Document ( ESPD) is a new form of self-declaration which a supplier may provide at the initial stage of the selection process. Which of the following characteristics applies to this? (select all the apply):

a) The ESPD is a standard EU form

b) It may be re-used and updated for different procurements

c) Removes the need to ask for other selection requirements

d) May be requested from subcontractors upon whose capacity the main contractor relies.