#15 - Sarah Schoenmaekers (Maastricht University)

Exclusion of candidates under Article 57 of Directive 2014/24/EU


I’d like to start by talking about generally the regime of Article 57, why is it important? Before you answer, I would like to add a note here, which myself and our colleague, Dr Albert Sanchez Graells, when we commented on the transposition of the directive into England and Wales on our blogs, telles.eu and howtocrackanut.blogspot.co.uk, one of the entries that was most popular over the whole series that we did, was precisely Article 57. Even today, almost six months after we wrote it, people are still going regularly and checking what we wrote about Article 57. So what’s so special about this Article? 

Well, why the Article is important is because the primary goal of public procurement in the European Union is to ensure that we have the widest possible competition, which means that we have the highest possible participation of tenderers, which is based on the whole free movement regime of the European Union, and precisely in public procurements, we see that there is very big constant interaction between public and private parties, which is very good. We also see that there are very large financial flows going from the public side to the private side, and it has been seen in many publications that specifically for this reason, public procurement is really susceptible to corruption. If you look at public procurement budgets, then a recent study of PricewaterhouseCoopers has indicated that 13% of the overall project budget is actually money that is paid because of corruption. So the whole idea that the new directive wants to achieve is that we exclude corrupt operators, but of course the exclusion of corruption is just one of the exclusion grounds that are mentioned in the directive, but it is very important that all the candidates who are interested in working, that they are not participating anymore in public procurement procedures, precisely because it costs a lot of money.

But to a certain extent that has always been the case with public procurement, at least public procurement as it is regulated at the EU level. If you think about, and go back to the ‘60s and the ‘70s when the first round of directives was being put forward for [?? 03.09 works], the same thing already existed there, the same ultimate objective, which was to make sure that procurement was not a corrupt process, or did not lead to corrupt outcomes.


That is true, and on that side the new directive has not really changed that much, because also in the previous directive we had an Article that specifically dealt, as you said, with the exclusion of economic operators, but I think that it has only been recently seen how big of a problem it actually is, and how many corrupt practices there are. One has always expected it, or knew it, but now there are actual numbers, and it has been seen how important it actually is.

So looking at the Article 57, what has changed in the new directive, in comparison with directive 24/18? 

Well there are some small changes, but also some big changes. One change that we have is, well what is the saying, I may have to start with that, is that in both the old and new directives, there is a distinction between mandatory exclusion grounds, and discretionary exclusion grounds. And mandatory exclusion grounds means that economic operators have to be excluded, while with the discretionary exclusion grounds, economic… well, the competition authorities have the discretion, so they are free to decide whether they are going to exclude an economic operator. In the new directive, there are more mandatory exclusion grounds than we have in the old directive. For example, we now have exclusion grounds that deal with terrorist offences, they’re precisely because terrorism has become more and more a problem in society. There’s also new exclusion grounds dealing with child labour, and human trafficking, and we have a specific mandatory exclusion grounds if you do not pay your social security or taxes, and there has been judgements by a court or by an administration, then you also have to be mandatory excluded. In the previous directive there was also this mentioning of not paying your social security or your taxes, but that was something that only feel within the discretionary exclusion grounds. Now it is mandatory as long as there is a final judicial or administrative decision.

Another new element in the directive is that Article 57 now specifically refers to the proportionally principle. The proportionality principle is a principle that is of course always relevant in EU law, whether or not it has been mentioned, because it is one of the founding principles. By specifically mentioning it here, I think that the European legislature wanted to underline its importance, and also set an example, if you only have not paid a very small amount of your taxes for example, or a very small amount of your social security contributions, then excluding you from a public procurement procedure might not really be proportional, and then the mandatory exclusion will certainly not be the best option, because it would violate proportionality. You also see that proportionality comes back when one talks about the length of the exclusion period, because the directive specifically says that if there is no judgement saying otherwise, mandatory exclusion grounds cannot cause for a longer debarment period than five years from the date of the conviction. And when it is about discretionary exclusion grounds, it cannot be longer than three years from the date of the relevant event. So those are important changes. There are also some changes with regard to discretionary exclusion grounds.

There are also here more exclusion grounds in the directive, for example, if you did not respect environmental, social or labour law, that could be a relevant ground for excluding someone, and here you also see how important social and environmental issues are for the European legislature. You don’t only see this in Article 57, but you see this in many places in the directive, where for example when one talks about the award criteria of the most economically advantageous vender, then you see that environmental aspects have really increased in importance compared to before, because the directive specifically foresees in a definition of life cycle costs and things like that, which doesn’t mean that contracting authorities have to award on the basis of the most economically advantageous standard, the lowest price is in principle still a relevant award criteria, but you see that a lot of attention has been paid recently to these environmental issues in public procurement. There are also some new aspects with regard to this discretionary exclusion grounds when it comes to, if you have been prior involved in a public procurement procedure, if you enter into agreement to distort competition, or if there were deficiencies in a prior contract in which the economic operator was engaged, or if there was unduly influencing of the decision making process, those are all additional discretionary exclusion grounds that are now in the directive. Finally, maybe the most important new aspect of the directive is that Article 57, paragraph six specifically, literally [?? 09.22 foresees] in self-cleaning, which wasn’t actually laid down in the previous directives.

Okay, we’ll go to self-cleaning in a minute, but before that there’s a couple of comments that I would like to put to you, or try to probe for a little bit more information. Thinking about the exclusions due to lack of payment for taxes and social security, one of the things I’ve noticed over the years is, if you look at the transpositions into various member states, when they refer to the lack of payment of taxes and social security, and also any of the mandatory exclusion grants that depend on other specific rules, they always refer to the national rules of that specific member state. So for example here in the UK, or at least for England and Wales, if you go into Regulation 57 and also in prior regulations, you’d find there the reference to the applicable national law, or in this case, well it’s actually a national law I think, about the payment of taxes and social security, which then leads me to the question which is, what happens when we’re talking about, and we’re discussing the participation of foreign economic operators, economic operators based in other member states?

Well, if you look precisely at the Article and the directive, then they refer, in Article 57, paragraph two, to not paying taxes or social security contributions where this has been established by judicial or administrative decision in accordance with legal provision of the country in which it is established or with those of the member states of the contracting authority. So while it’s important that you always have to look first whether there has been at national level a judicial or administrative decision that has binding effect, and only after you have such a binding national decisions, then you can look at Article 57, paragraph two. So if there has not been a binding decision at national level, then Article 57 as such is not really relevant. So you always has to see, whether it is possible in the national legal system for courts for example to say that foreign economic operators did not respect their national law, I think that many member states, at least there’s no problem for courts to judge up on the compliance of foreign economic operators in the domestic legal system.

My question was a little bit more specific than that, which is it’s not about the legal system, where the contract is going to be performed, or where the contracting authority is based, but it’s about the other legal system, the legal system where the economic operator is based. So although technically, especially now that we have the European Single Procurement Document already out there, and it’s going to come into force in the next few months and years, although the economic operators have to self-declare that they are up to date with all their, let’s say, tax and social security obligations, what is the likelihood that a contracting authority will be able to probe that information, and will be able to get access to information that contradicts a positive self-declaration? So I’m moving the discussion from the theoretical level, which is understandable, into the actual practical level, trying to figure out how contracting authorities will be able to do that on a day-to-day basis. 

I think that will certainly not be very easy, because contracting authorities, if they want to get access to information in principle, the first one who they have to rely on is on the economic operators themselves, and if you look at the directive, contracting authorities are not even obliged to ask for proof. So if you look at the mandatory exclusion grounds, then the fact has to have happened, there also has to be a conviction, but the directive doesn’t even oblige contracting authorities to ask for proof. Of course in order to perform well, they have to make sure that they have all the relevant information, but I think of course it will not be very likely in the first place that economic operators are going to self-declare.

That is something that has also been shown by the practice in the US, and in the World Bank for example, because even though economic operators were asked on many occasions to come up with all the information, to give all the information that was relevant to the contracting authorities, in practice it was shown that they didn’t, for many reasons. First of all because they didn’t want to reveal things that might harm them, but also because they thought that if they would not reveal it no one would know it anyway, so they would always be safe. And at the World Bank and in the US they now have this system in which you cannot only be debarred for the fact itself, so for example for fraud or corruption, so for the basic mistake that you did, but you can also be debarred simply for not informing the contracting authorities about those things in which you behaved incorrectly. And it was shown that only if a system like this is used, then economic operators think twice, because they risk to be debarred, even for the simple fact of not informing the contracting authorities. Well of course this is all very recent, but it is presumed that this is going to have much more effect, because the previous system didn’t really have much effect in the US. Of course we will have to see whether the same will apply in Europe, we cannot tell yet, but that is the first information that we may have already on this topic.

Well, that was precisely the angle that I was going for, which is inside each member state, it may be easy or more difficult, but it’s possible for the contracting authority to find out the information, because they will know the system, they will know where to find that information, but when you’re talking about economic operators that can come from any other 27 member states, plus the EEA states, it becomes very difficult for a contracting authority to have access to that information, and that’s one of the concerns I have with the current system, which is, I’m all for reducing transaction costs like this system does with the self-declaration, but at the same time I’m always wary that not enough consequences are clearly present, so to actually give the right incentives to contracting operators to comply with. A few years ago I did some pilots here in the UK for contracts below the thresholds where we tried to implement a similar system of self-declaration. It worked really well, and we didn’t have any problems, but my question was always, if we scale this from small contracting authorities to bigger contracting authorities and more cases, to more contracts, what will then happen when you start having a higher volume of contracts and also economic operators? Some of them, I was afraid of, could very well try to find a defence for not providing the information. So what we did back then was to put in the tender document very clear consequences for the economic operator, but that was as far as we went, and that was only for a contracting authority. I think this is something that is important enough, that should have been addressed directly in the directive, and if not, at least in the national laws.

Yes, I fully agree with you. I also think that a problem might be that once you come clean, the directive says that in principle, you should be excused, so you should be able to take part in a public procurement procedure again, while in the US that is absolutely not the case. It is not because you came clean and because you did all those good things, therefore you will no longer be debarred, it is a much higher threshold, and I think it would be better because otherwise what would be the incentive for economic operators in the first place, not to engage in untrustworthy behaviour. Because they know almost, “Oh, if we later say I’m sorry, and we will do some additional measures, and we will have some programmes in our company to make sure it doesn’t happen again, then we will be excused anyway.” So the question can rightly be, why would someone behave correctly in the first place if you know that by just coming clean, and by taking some steps of course, you can get off the hook? It’s not really that you are then being treated equally, compared to someone, to a company that never did something wrong in the first place. Of course I understand that everyone should be able to get a second chance, because that is of course the European system and the European spirit, but on the other hand it is not always a good thing, I think, that you are still able to partake even if you are engaged in a serious offense before, even though you complied later with self-cleaning measures.

Moving on to self-cleaning, how it is dealt with in the new directive, and how is it different from the regime that we had previously?

Well, in the previous directive, self-cleaning wasn’t really mentioned. Self-cleaning in the new directive is more or less based on system of member states, specifically Germany, because there it was something that already existed at national level. I think it doesn’t really mean that it was totally impossible to invoke self-cleaning before, because as I said we had always a proportionality principle, and so that is always something that economic operators could invoke whenever they would be debarred.

And there was a case where it happened? 

Exactly, but there was no real qualification of it in the directive. So now in the new directive, Article 57 specifically says that if you have paid, or if you have clarified certain circumstances about your trustworthiness, or if you have taken organisational measures, for example if you gave seminars or in-house training, or if you dismiss employees who were engaged for example, in corruption, or if you have some external monitoring programmes, then the directive foresees in paragraph six that you should be excluded anymore from the public procurement procedure. So the whole idea is that in principle, first in the European Union, the economic operator does something wrong, then secondly he can take self-cleaning measures, and then thirdly he will not be excluded. So that is different with the US system, because there it is normal to take always self-cleaning measures, and to always engage in these kinds of programmes, and to always give information, so you do not start from the wrong and then followed by a self-cleaning measure, but you actually start there with self-cleaning measures, and then you have a wrong, and only then you can be excluded for, first of all, the wrong itself, but also if they think that the self-cleaning measures that you took before would not be sufficient or would not be good to compromise the things that went wrong.

Which of the systems do you prefer? Which one do you think it’s going to be better on the long run?

I think on the long run, the US system is going to be better. Of course the EU and the US are two totally different cases, because in the EU you have all these different member states who are going to decide in their own system with their own habits and their own culture. In the US, I think that it is, they are much more efficient there, because the whole debarment and self-cleaning process is much more developed already. They have pages and pages of how they should deal with this, and in the EU, even though it is in the directive and you have case law about it, it is still something that is very, very general. We only have one Article, and this Article gives a lot of discretion to the member states and to the economic operators. You even see this already, that in the sense that the discretionary exclusion grounds can even be turned into mandatory exclusion grounds at national level, so you see that there is a risk of a lot of fragmentation in the EU.

I think with regard to self-cleaning, that the US system is better for the reasons that we said before, because specifically it is so difficult for contracting authorities to come up with, or to know when someone engaged in this untrustworthy behaviour, or to really realise when there has been a problem of serious misrepresentation and things like that. I think in the US, it has much more body, but it’s also of course having a charm for the EU, that we have so much room to manoeuvre in every member state, and that we have all this discretion. So it is very difficult to predict at this point, because this whole self-cleaning issue, even though it happens, it existed already before, now it’s only recently became very, very clear to everyone, not only to the ones who are really aware of public procurement, because they know the case law, but it is now very obvious to anyone. And I think that we will have to wait for the implementation period to pass to see how member states who didn’t really know how it works, and to only had this case law, that they now more realise how important it is, and then you can only see then how it will be applied in practice.

I’ve got one final question for you about your experience with the Jean Monnet module on State Aid and Public Procurement in the European Union. What was your experience with that module, how was it processed, what did you learn from that experience? 

For me it was very nice, because I applied for it, I think in 2011 and then we had this module for three years, and it really gave us the possibility to set up a new course, because at Maastricht University we didn’t have a course on public procurement at all. State Aid we had, but only as a side aspect of European competition law, and in the course Public Procurement and State Aid in the European Union, we could really focus very deeply on the interaction also between the two fields, and you attract students who are really interested in the field. It was not a mandatory course, so everyone could choose it, and it allowed us to do many nice things, because we could also organise conferences and invite speakers, and all these persons, they contributed also to the course. So it was a very nice experience for us to know more about the topic, but also to get in touch with practitioners and with highly esteemed academics who are really work in the field. So it was a very positive experience, and we still offer the course. Now the module has finished, because it was only for three years, but because it proved to be a great success the University has decided to go on with the course, we only have to finance it ourselves right now.

Oh, with the students’ fees, or…?


Okay, brilliant. Thank you very much, it was excellent and I’m very grateful that you were able to come on the show in such a short notice.

No problem. I hope that you found it interesting.

Well I did, I certainly did, and I’m sure that the listeners will find it as well.

Okay, thank you very much.

As usual you can find me at my blog, telles.eu or on Twitter where I use two handles, @Detig for general discussion and @publicprocure for public procurement related topics. Finally, I’m very grateful for the support of the British Academy Rising Star Engagement Awards.