M. Endzinas: quicker blacklisting in continuously improved public tenders

As the annual value of public procurement in Lithuania reaches EUR 3-4 billion, and tenders attract approximately 16-17 thousand of various size suppliers, it is only natural that this area is under a watchful eye of the legislator. Yet a question remains whether more chances for the companies to end up in the List of Unreliable Suppliers from 1 November 2019 would really enhance responsibility and work quality of suppliers.

Currently, there are two ways to be “named and shamed” in public procurement. A supplier included in the List of Suppliers Submitting False or Misleading Information will become unwanted for a year. The list contains 8 suppliers this year. Far more serious consequences await those which are included in the List of Unreliable Suppliers which bars them from public tenders for 3 years. Currently, the list is longer, and contains 32 companies.

Both lists are in fact very short taking into account the total number of suppliers participating in public tenders each year. The Public Procurement Office itself admitted the slow rate of compiling the lists in early 2019. According to the institution, since the public contracts do not always stipulate which conditions are essential, there are no clear grounds to take steps against the suppliers which fail to perform them adequately. Indeed, based on the current regulation, it takes a considerable trouble to include a company in the List of Unreliable Suppliers: you need to either terminate the contract with it or sue it for damages.

Contrary to what can be expected, the coming into effect of the amendment to the Law on Public Procurement might bring even more legal uncertainty and subjectivity. This is especially true in view of the fact that contracting authorities will gain the unilateral right to state that a supplier has performed the essential condition of the contract with major or persistent defects, and apply the contractual sanction. Failing to react promptly, the company will be automatically black-listed for 3 years.

In accordance with the good practice, the specific conditions which are considered essential are identified as such in a contract. However, this is not always the case as shown by the actual practice and observations of the Public Procurement Office. Such notions as “major” and “persistent” in terms of nature of infringements open up even more possibilities for interpretation.

Here’s a puzzle for you. Are two similar but minor violations already persistent? In practice, we had a situation where the supplier did not deliver all the goods to the customer several times: one shortage was a couple of grams of greens, another was a similar quantity of biscuits. The buyer was resolute enough to terminate the contract. The supplier managed to dodge black-listing only by proving at court that the infringements were too minor for application of such radical measure as termination. Yet it is questionable if the courts would be as reserved when deciding on validity of a contractual fine rather than termination of the contract.

What if contractors are late to achieve several different milestones and are demanded to pay default interest? Violations seem to be “persistent”. The question is whether the supplier is indeed unreliable and deserves to be black-listed if it is long before the deadline? It is plausible that quite a few disputes may arise in similar situations, especially where the supplier and contracting authority are not on the best of terms.

Bearing in mind that the anticipated changes raise more questions than give answers, suppliers need to be particularly active participants of the public procurement process: ask questions, request clarifications, and by all means state their position in writing (also retain answers of the contracting authority). They should not forget that time limits to do all that are rather limited in various stages of procurement process.

As November 2019 approaches, suppliers which were successful in tenders should check the draft contract annexed to the tender conditions, and find out whether the essential conditions of the contract are defined. If the contracting authority has not defined them, the suppliers should ask it to do so. If the contract has already been signed and the work has started, they should put heart and soul into it so that the customer could not complain.

If, however, you have violated the contract and received a letter requesting a sanction, you should understand that failure to take legal measures without delay can automatically lead to black-listing for 3 years.

While we are waiting for judicial practice in disputes of such nature, it seems that a prompt response, pro-activeness and a habit to store correspondence are becoming vital skills of survival in public tenders for suppliers, at least for now.

Comment prepared for Delfi.lt article on 2019-10-18.