Grave professional misconduct as exclusion
Under Austrian (and EU) public procurement law, authorities can exclude economic operators that are considered unreliable and therefore unsuitable to be awarded a public con-tract. Accordingly, contracting authorities will exclude from procurement procedures economic operators convicted of either criminal or other offences relating to their professional conduct. The latter typically excludes bidders that have been convicted of offences related to employment conditions, health and safety in the workplace and environmental standards. Both grounds for exclusion require the existence of a final and binding criminal judgment.
Irrespective of the existence of a criminal judgment, public procurement law provides for the possibility of excluding tenderers who [have] been found guilty of grave professional misconduct proven by the authority. While it is clear – at least since the European Court of Justice ruling in Forposta – that grave professional misconduct covers all misconduct which affects professional credibility (eg, offences under labour law regulations or environmental laws), the level and manner of proof needed to demonstrate grave professional misconduct are still under discussion.
On 27 November 2015 the Vienna Administrative Court ruled on the level of proof needed to demonstrate grave professional misconduct. In this case, the managing director (being majority shareholder of the bidder) was accused and prosecuted for collusive tendering in his function as both shareholder and managing director of an affiliate of the bidder during a tender procedure conducted by the same contracting authority several years earlier. Against the background of the indictment by the public prosecution and the possible exclusion of the bidder from tenders due to a potential future conviction, the managing director reduced his area of responsibility and, via a shareholders agreement, declared his intention not to interfere with future procurement procedures as proof that the conduct in question would not reoccur.
Despite these measures, the contracting authority excluded the tenderer, arguing that the indictment sufficiently demonstrated grave professional misconduct on the part of the managing director, rendering the claimant unreliable. According to the authority, the self-remedying measures were not sufficiently promising or credible to prevent wrongdoing by the company controlled by the managing director.
The court ruled that the managing director (and subsequently the affiliated company) had been indicted for a crime (collusive tendering) that illustrated grave professional misconduct. On review of the longstanding and extensive criminal investigations, the court found that the indictment provided sufficient evidence for the contracting authority to assume grave professional misconduct on the part of the claimant. As the contracting authority and its affiliates were the aggrieved parties in the respective criminal proceedings, it could not reasonably be expected to continue business operations with the tenderer. Regarding the level and means of proof required in relation to the conduct, the court referred to respective German case law1, stating that a contracting authority need not necessarily wait for a final criminal judgment. In fact, if criminal investigations provide grounds for sufficient and precise suspicion, there is no need to wait for an indictment or a court order to institute proceedings.
In addition, the court concluded that the self-remedying measures taken by the bidder were insufficient to restore its reliability. Effective self-remedying requires immediate personal and organisational measures, including the immediate and complete dismissal of all persons involved. Therefore, the claimant would have had to implement a clear organisational and personal dissociation from the entity and person in question, making it im-possible for the latter to exercise influence by way of internal ownership rights.
This is the first Austrian ruling by an Austrian procurement authority and court addressing the weight of an indictment. As such, it will likely serve as case law for future rulings with regard to the demonstration of grave professional misconduct.
From a criminal law perspective, the key factor is that an indictment that has been submitted by the prosecution office initiates the main proceedings at the criminal court. The question of guilt can be answered only in the course of the main proceedings. However, according to Austrian criminal law, an indictment is the result of previous criminal investigations which have explored all relevant facts in detail and weighed the interests in favour of and against the perpetrator. Indictments are submitted to the criminal court only if the prosecution is convinced that a conviction is reasonable. As a result, an indictment may be regarded as sufficient evidence to challenge a bidder’s integrity.
As regards the principle of presumption of innocence, the court argued that this does not prevent authorities or parties from taking preventive measures, such as ordering pre-trial detention. Hence, this principle does not prevent a tenderer from suffering negative economic effects due to the loss of trust caused by the perpetrator. According to the ruling, whether the proceedings ultimately lead to a conviction, nullification of the proceedings or an acquittal (as an indictment sufficient to demonstrate the tenderer’s unreliability), is irrelevant. According to the court, it is important to consider that the period between a criminal complaint and a final judgment can be several years. It would be unreasonable to expect a contracting authority, having knowledge of the perpetrator’s or tenderer’s wrongdoings, to continue a business relationship based on mutual trust and integrity. Ac-cording to relevant German case law, even the existence of an indictment may not be necessary if criminal investigations provide sufficient evidence of criminal wrongdoing.
From a procurement law perspective, the ruling has manifold implications for both bidders and contracting authorities.
- For contracting authorities, it is clear from the case at hand that the level and means of proof required in order to demonstrate grave professional misconduct need not correspond with a final judgment. An indictment, a regulatory decision or a confession involving a bidder can provide sufficient evidence for exclusion. However, contracting authorities should not consider this case to be the final word – in particular in relation to the level of proof of an indictment – as the relevant collusive tendering was directed against the contracting authority itself and therefore the court may have been more lenient as regards the level of proof. Hence, even in case of an indictment undermining the bidder’s reliability and professional integrity, contracting authorities should at least assess whether the facts and accusations in the indictment are substantiated and conclusive.
- This ruling is a warning for tenderers and bidders. First, criminal or regulatory investigations must be taken seriously. In order to ensure that they can continue to participate in tenders, accused bidders should immediately implement self-remedying measures in order to prove their reliability despite the existence of relevant grounds for exclusion, including:
- (i) comprehensively clarifying the relevant facts and circumstances;
- (ii) compensating for any damages caused; and
- (iii) taking the necessary structural, organisational and personal measures in or-der to ensure that the misconduct cannot reoccur.
The latter measure also includes dismissal of or dissociation from any employee, director or shareholder involved in the grave professional misconduct. Dissociation does not necessarily require the sale of shares; it can also be effected through transfer of the shareholder’s property rights to a trust, or by requiring him or her to waive all ownership rights. Internally restructuring the implicated departments or portfolios is insufficient.
Criminal or regulatory investigations must be taken seriously, as an indictment is already sufficient to demonstrate the tenderer's unreliability. Therefore accused bidders should immediately implement self-remedying measures in order to prove their reliability despite the existence of relevant grounds for exclusion.
1For example, the Frankfurt Court of Appeal in 11 Verg 6⁄4, 20 July 2004.