Where a public institution entrusts the bidding and contracting process to the Administrator of the Public Procurement Service (“PPS”), the Korean Supreme Court recently ruled that the respective public institution has the authority to restrict such bidding based on a construction company’s illegal act rather than the Administrator of the Public Procurement Service. The Court based its decision on the Act on the Management of Public Institutions.
Significance:
This Supreme Court ruling on June 27, 2017 is significant, because it is the first time in which the Court essentially spoke up against the Administrator of Public Procurement Service for arbitrarily applying the Act on Contracts to which the State is a Party and imposing bid restrictions without any legal basis.
Background:
As a central procurement agency, PPS handles the procurement for large-scale construction works for the use of government agencies and semi-government institutes, and also, with its in-house officials, provides supervision services for major construction projects at the request of the end-user, be it a national agency, local entity, or a public institution, and where contractors agreements have been executed for such entities. In this process, if illegal acts by participating bidders were found, the PPS Administrator was of the position that, under the Act on Contracts to which the State is a Party, he or she has the authority to restrict bidding on such bidders, and thus far, PPS Administrators have actually imposed such sanctions.
However, depending on who has the authority to impose bidding restrictions, there are significant differences for the construction company. Specifically, if the authority is given to “public institutions” under the Act on the Management of Public Institutions, a restrictive sanction constitutes a “judicial notice” rather than an administrative order, resulting in restrictions only applying to construction projects initiated by the public institution. On the other hand, if the authority is given to the PPS, a restrictive sanction will be listed on the G2B (Government to Business) as an administrative order, preventing the construction company from participating in the bidding for any project initiated by any national agency, local entity or public institution. Thus, there is a significant difference in the impact on the affected construction company depending on who has the authority to impose bidding restrictions.
Case History:
In this case, both the Seoul Administrative Court (first trial) and the Seoul High Court (second trial) ruled that in cases of procurement contracts, the PPS Administrator has the authority to impose restrictions under the Act on Contracts to which the State is a Party, as claimed by the PPS, and dismissed the claims of the construction company (Plaintiff).
Our Representation:
On appeal, Kim & Chang, in representing the construction company before the Supreme Court, insisted that the PPS had no authority to impose such bidding restrictions. Agreeing with such position, the Supreme Court ruled that the authority to impose bid restrictions is an administrative sanction that must be provided by law. Since there is no law that provides such authority to procurement entities, the Supreme Court held that the PPS has no authority to impose bid restrictions under the Act on Contracts to which the State is a Party, or any other act, reversing and remanding the prior court rulings. On remand, agreeing with the Supreme Court’s decision, lower courts ruled that the PPS’ claimed authority to impose bidding restrictions was illegal, and the case was finalized without appeal from the PPS.