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Newsletter | December 2013
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LITIGATION |
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Public Institutions to be Less Restrictive in Applying Disqualification Criteria on Contractors |
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Recently, the Korean Supreme Court rendered an important decision regarding the criteria for disqualifying contractors in bid participations under the “Act on the Management of Public Institutions” (the “Public Institutions Act”) and the “Act on Contracts To Which the State is a Party” (the “State Contract Act”). As their names indicate, the Public Institutions Act applies to public institutions in which the Korean government has full or partial stake while the State Contract Act regulates contracts between private parties and the Government of Korea. |
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The Supreme Court noted that contractor disqualification criteria in the Public Institutions Act are generally less strict than that under the State Contract Act. While the Public Institutions Act provides that a public institution may disqualify bid participants in cases if “it is clearly foreseeable that there will be harm to fair competition or proper performance of a contract,” the State Contract Act allows disqualification where there is merely a “risk” of such harm. Moreover, while disqualification under the Public Institutions Act, it is mandatory under the State Contract Act. |
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Nevertheless, because the relevant provisions in the Enforcement Decree of the Public Institutions Act is similar to those in the State Contract Act, in practice, the disqualification criteria under the Public Institutions Act have been applied in the same restrictive manner as under the State Contract Act. |
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The Supreme Court found this practice unacceptable reasoning that the Enforcement Decree under the Public Institutions Act had exceeded the scope of delegation of the Public Institutions Act, thereby ruling the Enforcement Decree to be invalid. The Supreme Court clarified that where the Public Institutions Act applies, the disqualification criteria may be imposed only where “it is clearly foreseeable that there will be harm to fair competition or proper performance of a contract” and concluded that in the case at issue, the harm was not “clearly foreseeable.” |
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Kim & Chang successfully represented the contractor in the case. The decision is significant in that it points to existing practices of certain Korean public institutions and aims at correct problematic application of the standards under the Public Institutions Act. Public institutions will now need to refrain from restricting otherwise qualified bidders from participating in projects based on broad application of the notion of “risk of harm” to fair competition or performance. |
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