What is an electronic auction?
An electronic auction is a specific form of competition between contractors, the aim of which is for the contracting authority to obtain the most advantageous bid. An electronic auction is not a separate procedure for awarding a contract, but a method of selecting a bid, providing an additional opportunity to improve the previously offered parameters of the bid (price or other elements of the bid subject to evaluation under the bid evaluation criteria) after the deadline for submitting bids has passed.
Thus, in procedures where the use of an electronic auction is envisaged, the evaluation of tenders by the contracting authority on the basis of tenders submitted within the deadline is only the first stage of the overall evaluation. The second stage is an online auction, which ultimately determines the outcome of the procedure.
The auction takes place after the formal and substantive evaluation of tenders. Only contractors whose tenders have not been rejected and who meet the conditions for participation in the procedure are invited to participate. It is worth remembering that an auction may be conducted if the contracting authority has provided for this possibility at the stage of the contract notice.
How does an electronic auction work?
The auction is conducted exclusively electronically. To conduct it, it is necessary to use an appropriate tool that not only allows for uninterrupted participation in the auction, but also automatically evaluates the values entered and provides contractors with up-to-date information on the position of their bid in the classification of bids, the score obtained by the contractor and the score of the most advantageous bid. Importantly, until the electronic auction is closed, no information enabling the identification of contractors participating in a given stage of the electronic auction is disclosed.
A key aspect of the auction is the ongoing provision of necessary information. The information should be visible to each contractor participating in the auction in real time, after each bid has been submitted. With up-to-date knowledge of the position of their bid and the score of the currently most advantageous bid, contractors can dynamically make decisions about subsequent more advantageous bids.
The time for making a decision, i.e. the duration of subsequent bids, is determined by the contracting authority at the stage of preparing the tender specifications. It is usually between 3 and 5 minutes. The contracting authority informs contractors of the minimum bid values in the invitation to tender.
Bids may only be submitted in electronic form, which means that they must bear a qualified electronic signature.
What are the most common irregularities in electronic auctions?
Although in theory electronic auctions are supposed to promote transparency and savings, in practice they are increasingly becoming a source of controversy, technical errors and disputes. The sparse statutory regulation of this method of selecting bids does not clarify the numerous doubts that arise in the reality of specific proceedings.
In this context, the following questions seem crucial:
- What are the most common irregularities in electronic auctions?
- When should the contracting authority cancel an electronic auction?
- How can contractors respond to errors they notice?
In this article, we will take a closer look at the above issues, analysing them from the perspective of both contracting authorities and contractors.
Exclusion of a contractor from participation in an electronic auction
Pursuant to Article 232(1) of the Public Procurement Law, after evaluating tenders for grounds for rejection (pursuant to Article 226 of the Public Procurement Law), the contracting authority is required to invite only those contractors whose tenders have not been rejected to participate in the electronic auction. The contracting authority must therefore first conduct a tender examination procedure and, if any of the grounds specified in Article 226 of the Public Procurement Law are found to exist, reject the tenders.
However, this is where a significant practical and legal problem arises. The provisions of the Act do not provide for a contractor to have the right to obtain prior information that their tender has been rejected and, as a consequence, will not be admitted to the auction. Only at the stage of selecting the most advantageous tender (i.e. after the auction has ended) does the contracting authority simultaneously provide the contractors who submitted tenders with information about the contractors whose tenders have been rejected, giving factual and legal reasons.
As a result, the contractor only learns about the rejection of its bid at the final stage of the procedure. Such a contractor, if it questions the validity of the rejection of its bid, will only be able to lodge an appeal after the electronic auction has ended and the most advantageous bid has been selected. If the appeal is upheld, it will mean that the electronic auction was conducted without the participation of a contractor who should have been invited to participate ( ). The selection of the most advantageous bid will be invalidated and the electronic auction will be conducted again, with the participation of all eligible contractors.
The above view was confirmed by the National Appeal Chamber (KIO) in its judgment of 16 July 2021 (KIO 1693/21), which stated: “Since the Contracting Authority is only required to provide factual and legal justification for the evaluation of the tender after selecting the most advantageous tender, this means that it is only at that moment that the contractor has the opportunity to challenge the evaluation and the lack of comprehensive justification in this regard. This may, of course, mean that if irregularities in the evaluation of the tender are confirmed, the electronic auction will be invalidated. However, there are no grounds for attributing to the Contracting Authority, prior to the auction and the selection of the most advantageous tender, a violation of the provisions on the evaluation of tenders and the obligation to justify that evaluation. Since the proceedings have not yet reached the stage at which the contracting authority has a legal obligation to provide this information, it cannot be concluded that the contracting authority has violated the provisions of the law.
If the decision to reject a contractor’s bid, made after the auction and selection of the most advantageous bid, is successfully challenged, the result of the auction will be nullified. As case law indicates, such a situation may even lead to the invalidation of the entire procedure, as it requires the auction to be repeated, while the prices offered in subsequent bids are already known to the contractors.
It is therefore worth remembering that an invitation to participate in an electronic auction is an action taken by the contracting authority in the course of the procedure and may therefore be successfully challenged by a contractor if they consider that they have been overlooked in violation of the regulations. If, before the selection of the most advantageous bid, or even before the auction is held, a contractor who has not been invited to participate in the auction becomes aware of this fact, it may lodge an appeal with the National Appeal Chamber (KIO), challenging the contracting authority’s action in the procurement procedure as contrary to the provisions of the Act, i.e. failure to invite it to the electronic auction, in a situation where its tender was not subject to rejection. Such an appeal, lodged before the selection of the most advantageous tender, will not be considered premature.
The above position was presented by the National Appeal Chamber in its judgment of 29 November 2022 (KIO 3007/22), indicating that:
“By lodging an appeal within the time limit specified in Article 515(1)(3) of the Public Procurement Law, calculated from the moment when he became aware of the reasons for not inviting him to the electronic auction and for not correcting the errors in his tender, the appellant acted to protect his own interests, exercising due diligence. All formal requirements for lodging an appeal have been met in this case. (…) In this situation, the appeal cannot be considered premature and, in the opinion of the adjudicating panel of the National Appeal Chamber ( ), it should be examined on its merits, in accordance with the will of the appellant and based on the facts established at the current stage of the procurement procedure.
Undoubtedly, rejecting a bid before the stage of inviting contractors to participate in an electronic auction is an action with significant potential for dispute. The contracting authority could potentially minimise this risk by providing contractors with information before the auction begins about which bidders have not been admitted to participate in the auction and for what reasons. However, the lack of clear provisions that would require or allow such action raises doubts as to its legality. However, practice shows that relying solely on the literal wording of the provisions may lead to the contracting authority unintentionally exposing itself to significant procedural risk.
In view of the doubts raised by legal doctrine as to the legality of the above actions, it is worth referring here to the position expressed in the judgment of the National Appeal Chamber (KIO) of 27 May 2013 (KIO 1020/13), which reads as follows:
“By inviting contractors who have submitted bids that are not subject to rejection to participate in the auction, the contracting authority verifies the bids submitted. Informing the contractor of the rejection of the bid before the date of the auction is a reasonable action.”
It is desirable, both on the part of the contracting authority and the contractors, to inform all contractors about who the contracting authority will not invite to participate in the planned electronic auction, together with an indication of the circumstances justifying such a decision.
Participation in the auction by a contractor whose bid was rejected
A completely different situation – at the other end of the spectrum, so to speak – is when the contracting authority allows a contractor who should not participate in the auction to do so. Such actions by the contracting authority may lead to a violation of the principles of fair competition, equal treatment of contractors, proportionality and transparency. The active participation of an additional entity making price reductions may actually distort competition by forcing other contractors to further reduce the price of their bids and, as a result, lead to the auction ending with a lower bid than would have been the case without the participation of such a contractor in the auction.
In this case, contractors admitted to participate in the auction have real opportunities to defend their interests. As indicated by the National Appeal Chamber in its judgment of 20 November 2019 (KIO 2234/19): “Since the content of Article 91a(1) of the Public Procurement Law (currently: Article 232(1) of the Public Procurement Law) indicates that the condition for qualifying a bid for an electronic auction is that it is not subject to rejection, the participation in an electronic auction of a contractor whose tender is subject to such a sanction justifies the use of a legal remedy by another auction participant and confirms the existence of the conditions set out in Article 179(1) of the Public Procurement Law (currently Article 505(1) of the Public Procurement Law).”
In the situation described, the contractor has the right to appeal against the contracting authority’s action taken in the proceedings, which is contrary to the provisions of the Public Procurement Law, and against the failure to take an action which the contracting authority was obliged to take, i.e. the failure to reject the tender and invite the contractor whose tender was subject to rejection to participate in the electronic auction.
As the National Appeal Chamber pointed out in the above-mentioned ruling: the active participation of the appellant in the auction does not preclude the possibility of lodging an appeal due to the above-described defectiveness of the auction.
If the National Appeal Chamber finds the appeal to be justified after the electronic auction has been conducted, the auction will be invalidated.
Other errors resulting in the need to invalidate the auction
Apart from the cases described above, the most common irregularities resulting in the need to invalidate an electronic auction are errors on the part of the contracting authority related to the very process of conducting the electronic auction.
The contracting authority is responsible for the proper functioning of the system used to conduct the auction. In the event of a failure that prevented all invited contractors from participating in the auction, the auction will have to be invalidated.
Other irregularities revealed during the auction may have a similar effect, in particular if they disrupt the ongoing process of contractors obtaining information about the position of their bid, the score received, and the score of the most advantageous bid.
Another example is the inability of a contractor to submit a bid, incorrect configuration of evaluation criteria, or failure to ensure the functionality of the system requiring the signing of a bid with a qualified electronic signature.
In other words, in any case where, after the end of an electronic auction, an analysis of its course reveals errors or failures that affected its outcome, the contracting authority will be obliged to cancel and repeat it. The auction will always have to be cancelled if the ICT system malfunction could not be detected during the auction and the auction was not interrupted in order to remove the fault.
If the contracting authority does not independently identify grounds for invalidating the auction, the participants in the electronic auction may lodge an appeal with the National Appeal Chamber (KIO), requesting the invalidation of the selection of the most advantageous tender, the invalidation of the electronic auction and its repetition.
However, it is important to note that only errors on the part of the contracting authority will result in the auction being invalidated. Any technical difficulties experienced by the contractor resulting from the contractor’s failure to provide adequate equipment or a reliable internet connection, or errors made by the contractor during the auction, shall, as a rule, be borne by the contractor and shall not constitute grounds for questioning the correctness of the auction.
SUMMARY
An electronic auction is an effective tool, but it is prone to errors. Therefore, both the contracting authority and contractors should prepare themselves adequately for its conduct and participation in it.
From the contracting authority’s point of view, it is crucial to assess the bid in detail, including clarifying any doubts that could lead to the unjustified rejection of a contractor’s bid before allowing them to participate in the auction, or allowing a contractor who should not participate in the auction to do so.
The second aspect to which the contracting authority must pay particular attention is the selection of an appropriate tool (electronic platform) that provides the necessary and required functionality, as well as the correct configuration of the evaluation criteria.
A contractor preparing to participate in an electronic auction should first and foremost ensure that it has the appropriate equipment and a stable internet connection. Before the auction begins, it is worth verifying the operation of the platform selected by the contracting authority and testing the connection, access and compatibility of the web browser.
Due to the requirement to sign bids with a qualified signature, it is recommended that the contractor authorise only one person to sign such bids, which will reduce the time needed to affix the required signature to the bid.
Before participating in the auction, the contractor should conduct a detailed examination of the channels of communication with the contracting authority during the auction, so that, if necessary, any irregularities can be reported in accordance with the procedure provided for by the contracting authority.
During the auction, the contractor should follow the progress of the auction in real time. In the event of any irregularities, they should immediately report this to the contracting authority in the manner specified by the contracting authority in the tender documents. It is essential to save system messages and and to document in detail any difficulties arising during the auction (e.g. through screenshots, video recordings).
If it is necessary to lodge an appeal with the National Appeal Chamber (KIO) requesting that the auction be invalidated, the nature of the evidence gathered by the contractor may determine the validity of the appeal.
A contractor submitting bids in a procedure involving an electronic auction should be well prepared in terms of technology and content, but also aware of their rights. In the event of irregularities, an appeal to the National Appeal Chamber may prove to be an effective way of defending their interests.
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