Contractual penalties and the correct completion of the European Single Procurement Document

29 November 2022 | Knowledge, News

The Public Procurement Office has published a legal opinion outlining the rules for the correct completion of the European Single Procurement Document (ESPD) with regard to the grounds for exclusion from the procedure due to non-performance or improper performance of a contract. The Office stated that economic operators are not obliged to inform the contracting authority of every contractual penalty imposed on them in the past. So which penalties must be mentioned in the ESPD, and which may be omitted?

Contractual penalties – how they relate to bidding for public contracts

Economic operators interested in participating in tenders must demonstrate that there are no grounds for their exclusion from a public procurement procedure.

Such grounds are either mandatory, i.e. statutory (the contracting authority has no control over their application in the procedure), or optional, i.e. depending on the discretion of the contracting authority.

The opinion of the Public Procurement Office refers to one of the optional grounds for exclusion, whereby the bid of an economic operator is to be rejected from the procedure if the economic operator “has failed to perform or has improperly performed, to a significant degree or extent, or has been improperly performing for a long period of time, any material obligation arising from a previous public procurement or concession contract, which led to termination of or withdrawal from the contract, to compensation, substitute performance or the exercise of rights under a statutory warranty for defects”. The Office considered whether this provision also covered contractual penalties and if so, in what situations an economic operation should disclose in the ESPD the fact that such penalties have been charged on it.

Disclosure of contractual penalties – compensatory penalties only

The Office confirmed that the compensation referred to above also includes contractual penalties accrued in the past as a result of the non-performance or improper performance of a public contract or concession. However, it emphasised that such penalties may have different functions, not only compensatory.

In the Office’s view, in the ESPD, economic operators should disclose compensatory penalties only, i.e. those intended to compensate for damage caused by the economic operator’s breach of contractual obligations.

How to complete the European Single Procurement Document without risking exclusion

The opinion of the Public Procurement Office raises many questions. Its practical application will require economic operators to analyse each case in which contractual penalties have been charged by the contracting authority and assess whether these penalties were compensatory.

The matter is all the more complicated as in many cases these penalties are a surrogate for compensation, even though their amount may be unrelated to the actual extent of the damage suffered by the contracting authority. However, the Office has not identified any criteria for distinguishing a compensatory contractual penalty from other contractual penalties.

How we help with the bidding process in a public procurement procedure

  • Assist with the completion of tender documents, including the ESPD,
  • Assist in the self-cleaning procedure,
  • Represent economic operators before the National Appeal Chamber (KIO) in case of bid rejection and exclusion.

Any questions? Contact the authors:

dr Jakub Krysa

Michał Waraksa


See also

Withdrawal from and termination of a contract – latest recommendations of the State Treasury Solicitors’ Office

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Contact us:

Jakub Krysa, PhD

Jakub Krysa, PhD

Attorney at Law, Partner, Head of Public Procurement Practice and Spanish Desk

+48 784 084 522

j.krysa@kochanski.pl

Michał Waraksa

Michał Waraksa

Advocate, Senior Associate

+48 882 087 919

m.waraksa@kochanski.pl