The Supreme Administrative Court rendered the 108-Pan-332 Decision of July 11, 2019 (hereinafter, the “Decision”), holding that if a supplier who has failed to pass acceptance inspection breaches the contract time and again, refuses to rectify, and the irregularities are not corrected before a disposition is rendered, this would constitute a material failure to pass an inspection or acceptance inspection under Article 101, Paragraph 1 of the Government Procurement Law.
According to the facts underlying this Decision, the Appellant participated in a procurement project conducted by the Appellee and was awarded a contract with the procurement contract executed between the parties on February 10, 2014. Since the amount of formaldehyde emitted from the particleboards used by the Appellant for the wood furniture in the project at issue according to the results of the tests on samples taken by the parties upon inspection and acceptance inspection exceeded the required standard, the Appellee determined that the acceptance inspection was not passed, and the Appellant was requested to rectify. The Appellant refused. Therefore, the Appellee issued a letter to the Appellant to communicate that the Appellee would be posted in the Government Procurement Gazette pursuant to Article 101, Paragraph 1, Subparagraph 8 of the Government Procurement Law. Dissatisfied, the Appellant raised an objection. Since the Appellant was also dissatisfied with the outcome of the objection where the Appellee upheld the original decision, the Appellant filed a petition again. After a determination was made to dismiss the petition, an administrative action was brought.
According to this Decision, the legislative objective of Article 101 of the Government Procurement Law is to eliminate legal violations or breaches of contract by bad suppliers, prevent them from undermining other agencies, and create a positive competitive environment among suppliers. Since the Appellant was subject to the circumstance of “failing to pass the acceptance inspection in material aspects” and using other lower priced products as replacement instead of using the approved products to conduct the construction, the Appellant apparently failed to provide construction materials that meet the requirements of the contract according to the tenor of the obligation. Although the Appellant promised during a negotiation meeting to demolish and rework the unqualified portions, still the Appellant had refused to rectify even when the Appellee issued a letter to require the Appellant to submit a revised plan for review within a specified period. The Appellee’s posting of the Appellant’s violation in the Government Procurement Gazette for the Appellant’s material breach of contract is a legally appropriate disposition, since it takes into account the legislative objective of Article 101 of the Government Procurement Law and the Appellant’s specific breach of contract. Therefore, the original disposition does not violate the principle of proportionality.
It was further pointed out in this Decision that under Article 103, Paragraph 1, Subparagraph 2 of the Government Procurement Law, the Appellant is not allowed to participate in any government tender, to be awarded a contract or to serve as a subcontractor in one year following the day the Appellant’s violation is posted in the Government Procurement Gazette. The Appellant asserted that since the administrative remedy period is too long, it is possible that the disposition at issue has been carried out before the lawsuit is concluded without any possibility to restore the original state. Therefore, the Appellant asserted that the presiding judge of the original trial court should be obligated to elucidate the correct type of litigation. To wit, the cancellation suit could be changed into a declaratory action; otherwise, a major procedural defect would be constituted. However, such an assertion is obviously a misunderstanding and unacceptable as pointed out by this Decision.