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“Guilt by association” in public procurement? Lessons from the TP Judgment

January 2025

Introduction

The recent General Court decision in TP v Commission[1] highlights important principles relating to exclusion measures in public procurement law. In this case, the European Commission’s decision to exclude TP from EU-funded procurement for two years was annulled, underlining the need for specific and individual assessments when applying exclusion measures.

This judgment provides useful guidance on balancing accountability and fairness, offering lessons that resonate within the UK’s own procurement framework under the Procurement Act 2023, which takes effect in February 2025.  While the judgment addressed a procurement in the EU, it should be of interest to authorities and suppliers in the UK who may be about to encounter the issues it dealt with more often.

Background

TP, as part of a consortium, entered into a contract with the European Commission in 2009 to upgrade a facility. Defects were identified post-completion, leading to disputes resolved through arbitration. The arbitral tribunal found significant deficiencies in performance, attributing gross negligence to the consortium and holding its members jointly and severally liable for repair costs. Based on this finding, the Commission excluded TP under Article 136(1)(e) of the 2018 Financial Regulation (2018/1046), which allows exclusion for “significant deficiencies in complying with main obligations” of a contract.

TP challenged this exclusion decision, arguing that the Commission failed to conduct an individual assessment of its conduct, instead relying solely on its joint and several liability within the consortium.

Key Findings of the Judgment

The General Court’s decision centred on the following points:

1. No “automatic” exclusion: Article 136(1)(e) does not allow automatic exclusion based on findings of joint liability (such as arising from the joint and several responsibility of consortium members). The Commission must independently assess the conduct of each party involved.
2. Obligation to assess culpability (or otherwise) of individual members: The judgment emphasised the importance of evaluating individual behaviour within a consortium and pinpointing which of the individual participants was at fault. The Commission’s reliance solely on arbitration findings of joint liability, without reviewing TP’s specific actions, breached this requirement.
3. Principle of proportionality, not “guilt by association”:  As exclusion measures effectively have a punitive effect, they must be applied proportionately.  This necessitates detailed examination of the entity’s specific contributions to contractual deficiencies and any remedial efforts undertaken.

The General Court agreed that previous case-law allowed member states to apply a presumption that all consortium members were responsible for a breach of contract.  However, it also stated that where such a contract had been awarded to a group of economic operators, such a presumption had to be rebuttable as a matter of proportionality, especially where all members were not equally directly culpable.  In other words, a party which had been part of the consortium, but not individually at fault, should not be “tarred with the same brush” as the entity that had actually caused the breach and/or failed to rectify it.

UK Context: Procurement Act 2023

The judgment raises the sorts of questions we may soon expect to see litigated (or settled through negotiation) in the UK pursuant to the new Procurement Act 2023.  The Act has introduced more detailed provisions addressing exclusion in public procurement. These provisions align with the principles outlined in the TP judgment, offering a structured approach to exclusions for poor performance.

Exclusion for Poor Contract Performance: UK context

Poor contract performance may be a ground of discretionary exclusion under the Act (S 57 and Schedule 7).  Unlike the more automatic exclusions permitted for more serious legal breaches (S 57 and Schedule 6), discretionary exclusions require authorities to apply judgment.

Authorities must evaluate whether deficiencies result from systemic issues or isolated incidents and whether they indicate an ongoing risk to the authority or the public interest.  To do that, they should consider the remedial measures taken by the supplier to prevent a relapse into the previous unlawful conduct.  It must be said, however, that where a supplier has been included on the new debarment list (S 62), the authority will have reduced discretion (if any at all) to allow the supplier to participate.

Under Schedule 7, para 12 of the Procurement Act 2023, contracting authorities are able to exclude suppliers (or connected persons, such as subsidiaries or parent companies) for “significant or persistent deficiencies” in the performance of public contracts, but only where these have:

• led to contract termination or damages as determined by a court judgment or a settlement agreement;
• entailed the supplier not performing a contract to the satisfaction of a contracting authority despite being given the opportunity to improve unsatisfactory performance.

The Act also enhances the ability of contracting authorities to exclude contractors for poor performance on other public contracts in circumstances where their performance has led to a judicial finding of breach, early termination, or a dispute resolved by a settlement agreement.  As discussed below, this may also arise where the authority is dissatisfied with the supplier’s performance as evidenced by certain missed contractual targets.

As the TP judgment relates to EU matters, it will not bind UK courts.  However, the logic of the judgment suggests that authorities must:

• Assess the supplier’s specific role in the deficiencies, especially when multiple parties (e.g., consortia) are involved.
• Consider self-cleaning: a determining factor in the TP judgment was the general principle of proportionality in EU procurement law. There is no such general principle retained in the Act (although it does feature in relation to certain specific obligations).  However, the Act indicates that authorities should take into account whether effective remedial steps taken by the supplier to prevent recurrence (e.g. removal of personnel responsible, payment of compensation, improvement in governance and training).

Under S 52 of the Act, authorities are generally required to set at least three key performance indicators (KPIs) and to monitor the supplier’s performance against those during the lifetime of the contract.  These could relate for example to timeliness, ESG matters or quality standards.  This requirement applies in relation to contracts with a value above £5 million.

Under S 72(5) of the Act, authorities must also publish annual statements on how the supplier is performing a public contract.  Where the publication shows their performance against KPIs was unsatisfactory (after being given the opportunity to improve), this may also be a ground of discretionary exclusion in future contracts.  It may also trigger termination rights.

Practical Implications

The TP judgment reinforces key principles for contracting authorities, certainly those subject to EU rules, as in Ireland:

1. Detailed Record-Keeping: Authorities must maintain thorough records of supplier performance and remedial actions to support individual assessments.
2. Proportional and Fair Decision-Making: Decisions to exclude suppliers must reflect the severity of deficiencies and any mitigating factors, ensuring fairness.
3. Risk-Based Approach: Exclusion should not be a punitive measure but a means to protect public interest, ensuring value for money and accountability.
4. Alignment with UK Practice: Contracting authorities in the UK should apply the structured approach under the Procurement Act 2023 to avoid legal challenges akin to those in TP.

There are lessons too for suppliers.  They should:

1. Keep an eye on their consortium partners’ performance. An ounce of prevention is worth a pound of cure. They should include strong obligations in consortium agreements to require partners to meet KPIs and fulfil the specific responsibilities related to their part of the scope.  Each supplier’s reputation may be on the line as a result of fault by another partner.
2. Insist on being copied into correspondence between consortium partners and the authority. Again, this should be a legally binding obligation under the consortium agreement.
3. Include substitution rights in the consortium agreement. Allow for the switching around of suppliers if one is not delivering. This may help avoid a disastrous situation.
4. Divide up the scope of responsibilities clearly and keep a record and audit trail of performance. This may help if problems do arise further down the track and give a stronger basis for arguing that the supplier should be distanced from the problems that occurred.

Conclusion

The TP v Commission judgment serves as a timely reminder of the importance of procedural fairness and proportionality in exclusion decisions. By requiring detailed assessments of individual conduct, the General Court reinforced a balanced approach that protects public procurement integrity without unduly penalising parties on the basis of their association with other members.

For UK contracting authorities, the principles from this case resonate strongly with the provisions of the Procurement Act 2023, offering a clear framework for managing exclusion decisions while safeguarding fairness and accountability. As procurement practitioners navigate complex supplier relationships, ensuring compliance with these principles will be essential to mitigating legal risks and promoting sound public procurement practices.

While the judgments of the EU courts no longer bind UK judges after Brexit, our judiciary may still have regard to them. The general principle of proportionality – a centrepiece of this decision (and of EU Law generally) – will no longer apply to UK procurement after the Act takes effect.  However, proportionality is also an important aspect of the European Convention on Human Rights and Human Rights Act 1998 (in particular with regard to property rights under Article 1 of Protocol 1[2]).  Exclusion from public tender processes may evoke human rights considerations, which bring proportionality back into consideration through the back door.  For that reason (and others), TP v Commission may be an important precedent for authorities and suppliers in the UK, regardless of its European origin.

[1] [2024] EUECJ T-776/22.

[2] See for example, Sporrong and Lönnroth v Sweden, Sporrong and Lönnroth v Sweden, Judgment, App no 7151/75 (A/52), App no 7152/75 (A/52), IHRL 36 (ECHR 1982), 23rd September 1982.

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