Reducing the risk of Contractual Non-Performance

January 15th, 2016 by James Goudie KC

A contracting authority must verify the suitability of its potential service providers. That verification is intended, in particular, to enable the authority to ensure that a tenderer, if successful, will have the means necessary to perform the contract, and to enable the authority to be confident that, throughout the period of the contract, the successful tenderer will be able to use whatever resources it relies upon, including the capacities of other entities.

That gives rise to two questions: first, as to what proof the authority can call for that these resources will be at the economic operator’s disposal; and, second, as to the nature of the links between that operator and those other entities. EU policy is that the tenderer is free to choose the legal nature of the links it intends to establish with those other entities.

In a case from Latvia, C-234/14, the ECJ has on 14 January 2016 held that Directive 2004/18/EC precluded a Latvian local authority from requiring a tenderer, which relied on the capacities of other entities for the performance of the contract concerned, to establish links of a precise legal nature with those entities, so that only those particular links were capable, in the eyes of the authority, of proving that the contractor does in fact have the resources necessary to perform that contract. The municipality required the tenderer, before the award of the public contract, to conclude a cooperation agreement with those entities or to set up a partnership with them. That requirement was ruled impermissible.


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