Fines for procurement violations

First, in the private sector, fines for procurement violations, at least in the following case, could also be characterized as imposition of liquidated damages. But as the other cases following note, in the public sector, a fine is a penalty paid by the contracting agency. The Public Purse has many pockets, and lifting money from one for another does have real world effects.

Tesco fines suppliers for late deliveries

Retail giant Tesco has imposed a new system of fines on its suppliers for missed or late deliveries which are causing shortages at depots and costing millions in missed sales.

In a letter seen by The Grocer, Tesco has started to charge its suppliers £10 for every case of goods that was either late or missing. According to the retailer its top 40 suppliers had failed to deliver more than £6.2m cases which in lost sales opportunities had cost it £50m.

Suppliers responded to the news, accusing Tesco of acting unfairly and saying that the action could cause some suppliers to go out of business. One supplier told The Grocer, “The sort of sums involved are enough to take a small company down... This sort of approach totally alienates the supply base and it’s going on across the board.

A spokesman for Tesco, responded by saying that the retailer’s approach was commensurate with the problem. “They [the charges] represent reasonable and legitimate compensation due from suppliers for not meeting their contractual obligations,” said a spokesman for Tesco. “The terms are set out in the contractual documentation agreed up front.”

In the public sector context, I have not seen this before. Live and learn:

Demands for three county transport undertakings to pay procurement fines

“There is a justified requirement for business-like behaviour, sound long-term planning and knowledge of the applicable rules and regulations when dealing with large sums of taxpayers’ money. When contracting entities, such as those concerned in these cases, are lacking in these respects and completely fail to subject substantial contracts to competition, there are no guarantees that taxpayers’ money is being used efficiently,” explains Dan Sjöblom, Director-General of the Swedish Competition Authority. The Competition Authority considers that this is serious and urges all those responsible for allocating resources to the procurement function at local and central government authorities to attribute sufficient strategic importance to these functions.

Fines for the Swedish Armed Forces following improper procurement

In an application to the administrative court, the Swedish Competition Authority has demanded that the Swedish Armed Forces pay SEK 270,000 in procurement fines following an illegal direct award of contracts for certain advertising services. Stockholm Administrative Court has now adopted the line of the Competition Authority and has sentenced the Armed Forces to pay the fines sought.

It is now possible for the Competition Authority to present demands requesting an administrative court to impose fines in the event of a breach of the rules. This was achieved in this case.

“I am pleased that the administrative court has taken the line of the Swedish Competition Authority. The procurement rules exist as a guarantee that taxpayers’ money is used in the best and most efficient way possible,” comments Dan Sjöblom, Director-General of the Competition Authority.

“It is good that the new rules and regulations may curb the making of routine contract calls on former suppliers and that such illegal conduct may have repercussions for the authority concerned.”

Norwegian Complaints Board for Public Procurement fines the Oppegard municipality for direct procurement of medical services

Public procurement (Sweden): The Swedish Coast Guard fined for improper procurement

According to the Swedish Procurement Act procurement fines shall not exceed ten percent of the contract value. However, the Court held as an aggravating circumstance that the SCG previously had committed similar errors in its procurement processes. For this reason, in accordance with the SCA´s claim, the Court established procurement fines amounting to SEK 35,000, over nine percent of the contract value. Source: Swedish Competition Authority Press Release 17/02/2012

Martineau: A Guide To The European Public Procurement Rules Note: this is truncated and out of context, so go to the link.

Where the remedy of ineffectiveness is applied the court must also impose a fine. Where a declaration of ineffectiveness is not made for certain specified reasons the court must order that the duration of the contract be shortened and/or impose a fine.

Grounds for ineffectiveness
The three grounds on which a declaration of ineffectiveness may be based are as follows.
Ground 1: Award of a contract without publication of a contract notice where the Regulations require publication
Ground 2: Breach of standstill or suspension provisions
Ground 3: Framework agreements and dynamic purchasing systems

It should be noted than even if “overriding reasons relating to a general interest“ are found to exist, and the contract cannot therefore be declared ineffective, the court must still shorten the duration of the contract and/or impose a fine as described below.

Fines and shortening of the contract duration: If the court makes a declaration of ineffectiveness it must also order the contracting authority to pay a fine. If the court does not make a declaration of ineffectiveness because: (a) although one of the grounds for ineffectiveness exists, there are “overriding reasons relating to a general interest“; or (b) the court finds a breach of the standstill or suspension provisions but no ground for ineffectiveness is raised or the court is not satisfied that one of the grounds applies; then the court must either impose a fine and/or shorten the duration of the contract.

The penalties that the court imposes must be “effective, proportionate and dissuasive”. The court must look at all the relevant factors but is specifically required to take into account the seriousness of the breach, the behaviour of the contracting authority and, if the contract still remains in force, the extent to which it does so.