Hidden discrimination in public procurement
When awarding public contracts, the contracting authority is required by law to apply and maintain certain basic rules that must be reflected in all stages of the procurement process, including situations where the law does not expressly regulate a particular process. These rules are referred to as the basic principles and are contained in Section 6 of the Public Procurement Act ("PPA").
Prohibition of discrimination
Section 6(2) of the PPA expresses the principle of equal treatment and non-discrimination, which we will address in this article. This principle consists in the fact that no tenderer may be disadvantaged by the contracting authority's procedure in awarding a public contract compared to its competitors. This means that the contracting authority must avoid making it unreasonably difficult or even impossible for tenderers to participate in the tendering procedure. The principle of non-discrimination must be adhered to by the contracting authority at all stages of the tendering procedure, as well as before it in the preparatory phase. The contracting authority must therefore allow any tenderer who is able and interested to participate in the procurement procedure to have that opportunity and not be put at an unjustified disadvantage compared to other participants.
The contracting authority may discriminate, directly or indirectly, either by setting the qualification requirements in such a way as to unreasonably restrict the ability of suppliers to participate in the procurement procedure or, on the contrary, by favouring one of the suppliers, which must be avoided in public procurement.
Direct discrimination
Direct discrimination occurs where the contracting authority clearly treats some tenderers differently from others in the same situation and on the same issues in terms of content or procedure. It is a form of discrimination if the contracting authority sets conditions which make it difficult or impossible for tenderers to participate in the procurement procedure, even though such setting of conditions is not necessary for the contract and those tenderers would otherwise be able to properly perform the subject-matter of the contract.
Indirect discrimination falls under Article 6 of the TFEU
The Supreme Administrative Court in its judgment of 5 June 2008, No. 1 Afs 20/2008-152, held that Section 6 of the ZVZ covers not only direct but also indirect or hidden discrimination. Covert discrimination is a case of conduct which does not appear at first sight to be discriminatory, but in fact puts one of the bidders at a disadvantage. Although the conditions are on the face of it set out in the same way for all applicants, they actually have a different impact on some applicants. According to the judgment cited above, a practice by which a contracting authority prevents certain suppliers from competing for a public contract by setting technical qualification requirements which are manifestly disproportionate in relation to the size, complexity and technical difficulty of the particular public contract, with the result that it is obvious that some potential tenderers who would otherwise be objectively qualified to perform the subject-matter of the contract cannot perform the contract. The Supreme Administrative Court further states that in order to conclude that a qualification requirement is covertly discriminatory, it is not necessary that it has an impact on a particular tenderer, but it is sufficient that such a requirement could prevent other potential tenderers from applying for the tender.
From the decision-making practice of the SAC and the Office of the Competition Authority
In its decision 6 Afs 283/2022-23, the Supreme Administrative Court reviewed the judgment of the Municipal Court in Prague. The dispute concerned the assessment of the conditions for the tender procedure for an above-limit public contract for a project aimed at building infrastructure for the tourist use of a river bank, for the implementation of which the contracting authority was granted a subsidy. The Municipal Court agreed with the applicant that it was at the discretion of the contracting authority what conditions it set for participation in the tender, but that it was then responsible for the accuracy and completeness of the tender conditions. The requirements to demonstrate compliance with the technical qualification requirements must be permissible, and the setting of the minimum level of the requirements must be appropriate to the type, scope and complexity of the subject-matter of the public contract and must be related to that subject-matter. According to the City Court, the requirement for ownership or contractual security of a high-capacity packaging and back-up packaging plant was manifestly disproportionate in relation to the size, complexity and technical complexity of the contract. The object of the contract was the tourist use of the shore, not the construction of the road itself. At the same time, the Municipal Court found no link between the ownership (contractual provision) of the packaging plant and the proper performance of the public contract by the successful tenderer. The unreasonable qualification requirements limited the number of potential bidders. According to the City Court, the applicant thus committed a latent discrimination. In its judgment, the Supreme Administrative Court mentioned, among other things, that the minimum level of technical qualification requirements must, pursuant to Article 56(5)(c) of the Public Procurement Act, correspond to the type, scope and complexity of the subject-matter of the public contract and, in the court's view, the applicant exceeded the space defined by the Act, since, contrary to its wording, it set technical qualification requirements that were manifestly disproportionate in relation to the size, complexity and technical complexity of the specific public contract. The Supreme Administrative Court therefore confirmed that the applicant had committed a latent discrimination.
The Office for the Protection of Competition, under no. No.: ÚOHS-S0760/2016/VZ-03609/2017/531/VNe dealt with the fact that the contracting authority, when awarding a public contract for legal services, required a minimum of eleven references from seven areas of law and, at the same time, in relation to such a voluminous number of references, set requirements for financial remuneration for the reference legal services provided, while these requirements were unrelated to the quality and complexity of the reference performance provided, where the requirements set in this way for demonstrating the technical qualification prerequisite specified above must also be considered discriminatory towards potential suppliers who would, for example, be able to provide the reference services. This procedure could have significantly influenced the selection of the most suitable tender. The Office stated that the purpose of the qualification requirements is therefore to ensure, in an objective, transparent and non-discriminatory manner, that the contracting authority selects the supplier of the public contract only from among the entities that provide guarantees of their ability to perform the public contract properly, on time and to an adequate quality. The contracting authority's requirements for the demonstration of the qualification requirements are generally intended to ensure that only those suppliers who are realistically capable, technically, personnel-wise and materially, of performing the contract once it has been awarded, participate in the tendering procedure. The contracting authority must be aware that by defining the qualification requirements, in particular by setting too strict or inappropriately set criteria for demonstrating the supplier's competence, it may significantly influence the range of suppliers among whose tenders it will choose at the final stage of the tendering procedure.
Conclusion
The contracting authority may set the terms of the procurement procedure as it sees fit in order to find the most capable and best quality supplier for its contract, but it must have objective and obvious reasons for setting its terms so that it does not merely restrict certain tenderers in a way that is not necessary to maintain the quality of the contract. It is therefore not necessary that the conditions actually restrict a particular tenderer, but it is sufficient that such a condition could put a potential tenderer at a disadvantage.
Dominika Zápotocká collaborated on the article.