Contracting authorities are faced with new procurement law compliance requirements under the recently adopted 2018 Federal Procurement Act (Bundesvergabegesetz 2018, BVergG 2018). For instance, the authority’s employees must be checked for potential conflicts of interest (and corresponding preventive measures regarding compliance and control must be put in place). The existence of any conflicts of interest relating to employees of the contracting authority thus poses the threat that bidders will be excluded from the procurement procedure.

However, the 2018 Federal Procurement Act also comprises additional procurement law compliance requirements concerning bidders and, in the final analysis, additional verification obligations for contracting authorities. Already under the predecessor Act, bidders that had to be excluded from the procurement procedure because of certain convictions or certain instances of grave professional misconduct could provide prima facie evidence of having taken specific measures to prevent new transgressions. By doing so they ensured their remaining in the procurement procedure. In addition to the specific and effective measures already required to date, the 2018 Federal Procurement Act now also demands the compensation of damage and loss caused and active collaboration with investigating authorities, to achieve such “self-cleansing” from certain exclusion grounds under procurement law. Only by taking these measures cumulatively, bidders can prove their reliability and thus prevent their exclusion.

These requirements are inconsistent with principles of the law on criminal and civil procedure, though. But having an appropriate compliance system may materially influence the overall assessment made by the contracting authority.

The newly introduced suspension from participation in the procurement procedure for periods of up to five years causes bidders to be particularly interested in successfully completing the “self-cleansing” process.

Procurement law “self-cleansing” vs liability for damages?

The exclusion of bidders that have been convicted of certain offenses by a criminal court or must answer for grave professional misconduct (violation of labour and social law as well as environmental law provisions) is mandatory.

Like the law applicable to date, the 2018 Federal Procurement Act enables bidders who on account of professional misconduct face the threat of exclusion from the procurement procedure based on lack of procurement-related reliability to provide prima facie evidence of having taken appropriate measures and thus having restored their reliability.

Until now, the technical, organisational and/or personnel measures to be taken were focussed on setting up compliance systems (reporting and controlling function, internal audit, liability regulations) although as yet some legal authors, by referring to German doctrine and court decisions, assumed that the requirements were similar to those under the current new law.

The new regulation, as set out in section 83 of the 2018 Federal Procurement Act, continues to require the implementation of such effective compliance measures. In addition, however, the Act also requires that the economic operator “has paid or undertaken to pay compensation in respect of any damage caused by a criminal offence or misconduct”.

Thus, the Act seems to require that economic operators must compensate any damage that may have been caused by their misconduct so as not to risk exclusion under procurement law. In the comments to the government bill for the 2018 Procurement Law Reform Act (Vergaberechtsreformgesetz 2018) it is even expressly stated that the economic operator shall, “irrespective of the existence of a final court judgment”, provide evidence of “having compensated the damage caused by its misconduct or accepted its liability for damages”. This statement goes on to say that claims which are not disputed on their merits shall be recognised in all material respects. In the same context, however, the legislator introduces a qualification by expressing that this does not mean that any and all unsubstantiated or unfounded claims for damages have to be recognised or compensated.

Nevertheless, neither the wording of the Act nor the explanations provided in the comments establish sufficient legal certainty. It remains difficult to draw the line defining where bidders can succeed in providing evidence of having made amends for damage, without having to forego basic rights and thus expose themselves to potentially unjustified claims for damages, in order to remain in the procurement procedure.

Contract or punishment?

The last of the cumulative requirements to be met by the economic operator under section 83 of the 2018 Federal Procurement Act is to “have participated in clarifying all facts and circumstances relating to the criminal offense or misconduct by actively collaborating with the investigating authorities.”

To date, the purpose of the Act was to prevent any repetition of the criminal offence or misconduct. This is also the aim of the 2018 Federal Procurement Act version to enter into effect in the short term. However, the further requirement, i.e. that the economic operator must actively, seriously and recognisably endeavour to clarify the facts of the case in a comprehensive manner, may occasionally be inconsistent with basic rights under procedural law, such as the right to refuse to give evidence.

It is true that the obligation to clarify is restricted in that it is intended to relate only to those facts and circumstances which concern the ground for exclusion or are connected with the criminal offence or misconduct; nevertheless it leaves no room for invoking the right to refuse to give evidence before the investigating authorities.

Failure to succeed in self-cleansing will be a very difficult issue if a bidder has to fear suspension from participation in the procurement procedure. If certain exclusion grounds set out in section 78 of the 2018 Federal Procurement Act apply, the relevant legal consequence is exclusion from the procurement procedure for a period of up to five years.

Comprehensive compliance system as a way out?

The last resort for “self-cleansing” bidders seems to be the requirement that the contracting authority shall assess all the applied measures in their entirety. Although economic operators are required by these legal provisions to provide evidence of having cumulatively applied all the stated measures (amends for damage, active collaboration with investigating authorities and effective measures, such as a reporting and controlling function, internal audit, etc.), they are not obligated to implement all of the required measures with the same intensity. In this respect, the contracting authority has a wide margin of appreciation whether the self-cleansing measures undertaken by the enterprise are sufficient.

Although a ground for exclusion exists, the contracting authority must not exclude an economic operator from the procurement procedure if the economic operator has executed, and provided evidence of, sufficient self-cleansing measures. The contracting authority has no margin of discretion in that case.

This all the more entails additional verification obligations for contracting authorities in connection with the adopted measures, though. Decisions when a bidder’s collaboration with the investigating authorities has been sufficiently active or when a bidder has provided sufficient compensation for damage remain to be taken on a case-by-case basis. As the Austrian Supreme Administrative Court already held in its decision of 12/9/2013 (VwGH 2012/04/0010): “Issuing an absolutely certain statement is never possible” when it comes to assessing professional reliability. However, the implementation of comprehensive compliance systems will increase the likelihood of successfully providing prima facie evidence of reliability.