[edit] Supreme Court Decision 2001Da33604 delivered on December 11, 2001 [Provisional Injunction for the Preservation of Position]
【Main Issues】
[1] The nature of provisions on the procedures of a tender or the determination of a successful bidder under the Government Contracts Act and the Enforcement Decree thereunder (=internal government regulations)
[2] A case where the determination of a successful bidder and the contract entered as a result become invalid under a government contract
【Summary of Decision】
[1] The Government Contracts Act (the Act) provides that when the State enters into a contract, such contract shall in principle be entered into through a competitive tender (Article 7), and that in a competitive tender that is a burden on the national treasury, the person who has made a tender that is most favorable to the State in compliance with the criteria for evaluation specified in the public notice or explanatory note of the tender shall become the successful bidder (Article 10, Paragraph 2, Item 2). Further, the Enforcement Decree under the Act (the Decree) provides that the successful bidder shall be determined on the basis of detailed examination criteria prescribed according to the examination criteria established by the Ministry of Finance and Economy, through a comprehensive consideration of past records of performance, technological capability, financial status, diligence in the past performance of contracts, price propriety in the supply of materials and manpower, level of compliance with contractual requirements, quality of past performances, and the tendered price of the relevant bidder. However, the purpose of such provisions is to set forth necessary matters related to contracting affairs to be observed by relevant public officials, so that the State may fairly, reasonably and efficiently handle contractual relationships with private persons. Accordingly, these provisions are no more than internal regulations of the State.
[2] Even if the public official in charge of contracting conducted examination on eligibility of a bidder in the tender procedure, in a manner that is not in compliance with the Act, the Decree or the detailed examination criteria thereunder, the determination of the successful bidder and the contract entered as a result are not invalid for that reason only. Rather, the reasonable interpretation is that they are invalid only under special circumstances where, unless they are invalidated, the intent of the Act setting forth the procedures would be ignored. Such circumstances include cases where the defect due to such non-compliance is so material as to significantly prejudice the impartiality and fairness of the tender procedure, and the other party to the contract knew or could have known such circumstances, and cases where it is clear to anyone that the determination of the successful bidder and the execution of the contract were made by means of acts contrary to good morals and other social orders.
【Reference Provisions】 [1] Article 1, Article 7 and Article 10, Paragraph (2) of the Government Contracts Act, Article 42 of the Enforcement Decree under the Government Contracts Act / [2] Article 103 of the Civil Code, Article 1, Article 7 and Article 10, Paragraph (2) of the Government Contracts Act, and Article 42 of the Enforcement Decree under the Government Contracts Act.
Article 1 of the Government Contracts Act (Purpose) The purpose of this Act is to ensure efficient performance of contract affairs by prescribing the basic matters relating to contracts to which the State is a party.
Article 7 of the Government Contracts Act (Method of Contract) When intending to enter into a contract, the head of a central government agency or public official in charge of contracts shall conduct a competitive bidding. However, if it is deemed necessary in view of the purpose, nature, scope, etc. of the contract, the qualifications of the intervenors may be limited, or a competitive bidding may be conducted between selected intervenors, or a negotiated contract may be entered into, pursuant to the provisions of the Enforcement Decree.
Article 10 of the Government Contracts Act (Determination of Successful Bidder in Competitive Tender) (1) <omitted>
(2) In case of a competitive tender that is a burden on the national treasury, a bidder who meets one of the following criteria shall be the successful bidder:
1. The bidder who is deemed to have sufficient ability to carry out the contract and has tendered the lowest bid
2. The bidder who has tendered a bid that is most favorable to the State in compliance with the criteria for evaluation specified in the public notice or explanatory note of the tender
3. In case where there are criteria specially prescribed by the Enforcement Decree taking into account the nature and scope, etc. of the contract, the bidder who has tendered a bid that best meets such criteria.
Article 42 of the Enforcement Decree under the Government Contracts Act (Determination of Successful Bidder in Competitive Tender that is a Burden on the National Treasury) (1) The head of a central government agency or public official in charge of contracts shall, in a public tender which is a burden to the National Treasury, decide upon the successful bidder by examining the capabilities to perform the contract concerned, starting with the bidder who has tendered the lowest bid that is less than the estimated price. However, in case of a contract for goods of hich the estimated price is less than the notified price, a contract for construction work that is subject to prior examination on qualifications for bidding under Article 13 with an estimated price of not less than one hundred billion won, and a tender under Article 18, the bidder who has tendered the lowest bid that is less than the estimated price shall be decided as the successful bidder.
(2) In examining the capabilities to perform the contract under paragraph (1), whether a bidder is eligible shall be determined under detailed examination criteria prescribed according to the examination criteria established by the Ministry of Finance and Economy, through a comprehensive consideration of past records of performance, technological capability, financial status, diligence in the past performance of contracts, price propriety in the supply of materials and manpower, level of compliance with contractual requirements, quality of past performances, and the tendered price of the relevant bidder, and the relevant bidder shall be decided as the successful bidder if he is deemed eligible as a result of such examination. However, if deemed necessary in view of the specific character of the construction work or goods, etc., the head of the relevant central government agency may determine the examination criteria through consultation with the Minister of the Ministry of Finance and Economy, and a person who holds past records of having supplied goods of the same or higher quality than the goods that are subject of the contract, to a government agency under Article 2 of the Act on Promotion of Small and Medium Enterprises and Purchase of Their Products, may be decided as the successful bidder without undergoing an examination on eligibility.
(3)~(5) <Deleted>
【Reference Cases】 [1] Supreme Court Decision 95Da11436 delivered on April 26, 1996 (Gong1996Sang, 1683), Supreme Court Decision 97Da24009 delivered on April 27, 1999 (Gong1999Ha, 1329)
【Creditor, Appellee】 Dongbu Construction Co., Ltd. (Law Office Barun, Attorney Chung Gui-ho, Counsel for creditor-appellee)
【Debtor, Appellant】 Gwangju City (Attorney Lee Keun-woo, Counsel for debtor-appellant)
【Supplementary intervenors for Debtor】Kumkwang Engineering & Construction Co., Ltd. and 1 Other (Attorneys Ahn Yong-deuk and 1 Other, Counsel for supplementary intervenors for debtor)
【Court of First Instance】 Gwangju District Court Judgment 2001Kahap17 delivered on March 28, 2001
【Court of Second Instance】 Gwangju High Court Judgment 2000Ra10 delivered on May 11, 2001
【Disposition】 The decision of the court below shall be reversed and the case shall be remanded to the Gwangju High Court.
【Reasoning】 We consider the grounds for appeal filed by the debtor and supplementary intervenors (hereinafter referred to as 'the intervenors') together (the supplementary grounds submitted after the legal due date are examined to the extent that they concern grounds for appeal submitted within the due date).
1. The decision of the court below
A. The court below adopted the following facts based on the evidence presented:
(1) On November 4, 2000, the debtor, in the public notice of a tender for the construction of Gwangju Agricultural and Fishery Products Wholesale Market II (the Construction), notified that ① only those persons who have performed construction work of buildings whose total floor area measures 40,686 square meters or more as a single domestic construction project, falling under wholesale markets or retail markets among the sales and business facilities as set forth in Table 1 relating to Article 3-4 of the Enforcement Decree under the Buildings Act, completed within ten (10) years before the date of notice, may participate in the tender; and ② the successful bidder will be decided upon under Article 42 of the Decree of the Act and the Detailed Criteria for Examination of Eligibility to Construct Facilities of Local Governments (Rule Nos. 49 and 60 of the Ministry of Government Administration and Home Affairs, hereinafter referred to as the Detailed Criteria), by examining the capabilities to perform the contract concerned in the procedure for examination of eligibility (the Examination of Eligibility) starting with the who tendered the lowest price that is less than the estimated price; provided that the bidder receives an overall average score of more than 90 points.
(2) On November 13, 2000, the accounting official of the debtor distributed explanatory notes, in the on-site explanation on tender for the Construction. The explanatory notes stated, with respect to the scope of recognition on experience in construction of sales and business facilities according to the qualifications for intervention in the tender, that the above term refers to facilities which are used as sales facilities (in case of complex facilities, sales facilities only), and wholesale markets and retail markets among sales and business facilities as set forth in Table 1 relating to Article 3-4 of the Enforcement Decree under the Buildings Act (markets, large stores, large-scale retail stores and other similar operations under the Distribution Industry Development Act).
(3) As a result of the tender held on December 18, 2000, the joint supply and purchase organization which consists of the intervenors bid the third lowest price, and the joint supply and purchaser organization represented by the Creditor bid the fourth lowest price, among five joint supply and purchase organizations that participated in the tender. Since the lowest bidder and the second lowest bidder did not submit documents required for the Examination of Eligibility, such persons were excluded from bidders subject to examination, and thus the joint supply and purchase organization of the intervenors became subject to the Examination of Eligibility.
(4) According to the Detailed Criteria, in relation to examination of capabilities to perform construction work as part of the evaluation on eligibility, the evaluation in case of a joint supply and purchase organization is to be conducted by comparing the evaluation standard for the relevant project against the sum of figures obtained by multiplying the construction experiences of each member of the joint supply and purchase organization by its intervention ratio. The score to be assigned to the total construction experiences thereby obtained is 20 points if the proportion of such sum to the evaluation standard of the relevant construction is 100% or more, 18 points if it is 70% or more, 14 points if it is 40% or more, 12 points if it is less than 20%.
(5) In examining the eligibility of Participant Kumkwang Engineering & Construction Co., Ltd. (Kumkwang) based on the documents it submitted, specifically in the construction experiences Item, the debtor calculated Kumkwang's construction experiences at 49,191.8075㎡{=(41268.65㎡ + 48,171㎡) × 0.55}, by adding the areas of the buildings constructed by Kumkwang (the building of Songwon Department Store whose total floor area measures 41,268.65㎡ and the building of Carrefour in Sooncheon whose total floor area measures 48,171㎡) and multiplying that sum by 55%, its intervention ratio in the Construction. On this basis, the debtor acknowledged that the above sum exceeded 40,686㎡, the evaluation standard for the Construction, and awarded Kumkwang 20 points. As a result, the total score became 90.18 points, and therefore the debtor found the said joint supply and demand organization to be eligible under the criteria for Examination of Eligibility.
(6) Thereafter, on December 30, 2000, the debtor determined the joint supply and demand organization that consists of the intervenors as the successful bidder, and entered into a contract for the Construction on January 5, 2001. On January 12, 2001, the intervenors submitted a report on commencement of construction, leveled the land concerned and established a construction site office.
B. However, the court below found that the joint supply and demand organization that consists of the intervenors failed to receive 90 points as the total score, the threshold score under the criteria for the Examination of Eligibility as determined in the notice of successful tender, and that the decision awarding the bid to the said joint supply and demand organization was invalid, for the following reasons:
(1) The public notice and explanatory note of the tender should be considered a single public notice of tender, and the phrase facilities used for sales facilities (in case of compound facilities, sales facilities only) was added in order to more specifically set forth the qualifications for intervention in the tender. Accordingly, in evaluating the construction experiences, even though the constructed buildings fall under the wholesale markets and retail markets among the sales and business facilities as set forth in Table 1 relating to Article 3-4 of the Enforcement Decree of the Building Act (markets, large stores, large-scale retail stores and other similar operations under the Distribution Industry Development Act), if such buildings are compound facilities, the construction experiences should be considered based on only the sales facilities. Further, those sales facilities should include only facilities used for sales facilities and supplementary facilities to sales facilities as prescribed in Article 2, Paragraph 1, Item 14 of the Enforcement Decree under the Buildings Act, and that other facilities are excluded.
(2) Although the total floor area of the building of the Songwon Department Store is 41,268.65㎡, the building is a compound building divided into sales facilities (total: 24,410.83㎡), parking lots (total: 10,614.36㎡), machinery/electricity rooms (842.03㎡), general restaurants (1,260.80㎡), entertainment facilities (687㎡), sports facilities (3,378.76㎡), office (74.87㎡) and others. Accordingly, only sales facilities (total: 24,410.83㎡) and supplementary facilities including parking lots (total: 10,614.36㎡), machinery/electricity rooms (842.03㎡) and offices (74.87㎡) should be accepted as construction experiences prescribed in the public notice and explanatory note of the tender. Since that area is less than 40,686㎡, which the evaluation standard for construction experiences under the qualifications for intervention in the tender, the Songwon Department Store should not be added and included in the calculation of the construction experiences.
(3) Even assuming that the 48,171㎡ sales facilities of the Carrefour building in Sooncheon is included in the construction experiences, the proportion of the construction experiences to the above evaluation standard (40,686㎡) is 65.11% (48,171㎡ × 0.55 / 40,686㎡), taking into account Kumkwang's intervention ratio among the joint supply and purchase organizations. Hence, the construction experiences of the intervenors are 16 points, and the total score is only 86.18 points. Accordingly, the intervenors did not receive 90 points, the threshold score under the criteria for the Examination of Eligibility.
C. Based on the foregoing premises, the court below went on to decide that in this case, where the joint supply and purchase organization represented by the Creditor became subject to the Examination of Eligibility, having quoted the second lowest price in the tender after the intervenors, and would become the successful bidder if it is ascertained that the joint supply and purchase organization has obtained more than 90 points in the Examination of Eligibility, the Creditor has the right to demand that the debtor be prohibited from allowing the intervenors, the counterparty to the subject construction contract, to carry out the Construction, and therefore that the right subject to preservation herein has been proven. On this basis, the court below issued a provisional injunction whereby the joint bidders including the Creditor are given a temporary status of persons subject to Examination of Eligibility, and prohibiting the debtor from allowing the intervenors to perform the Construction under the contract until the decision on the merits relating to the provisional injunction herein becomes final and conclusive.
2. The judgment of Supreme Court
However, we find it difficult to accept the above determination of the court below for the following reasons:
A so-called government contract to which a local government is a party pursuant to the Act, which is applicable mutatis mutandis pursuant to the Local Finance Act, is a contract under private laws entered into as a private economic entity with the other party on an equal footing, and is its substance is not different from a contract between private persons. Thus, unless otherwise specially provided for under relevant laws, such contract is subject to the principles of private laws, including the principles of autonomy and freedom of contract.
Meanwhile, the Act provides that when the State enters into a contract, such contract shall in principle be entered into through a competitive tender (Article 7), and that in a competitive tender that is a burden on the national treasury, the person who has made a tender that is most favorable to the State in compliance with the criteria for evaluation specified in the public notice or explanatory note of the tender shall become the successful bidder (Article 10, Paragraph 2, Item 2). Further, the Enforcement Decree under the Act (the Decree) provides that the successful bidder shall be determined on the basis of detailed examination criteria prescribed according to the examination criteria established by the Ministry of Finance and Economy, through a comprehensive consideration of past records of performance, technological capability, financial status, diligence in the past performance of contracts, price propriety in the supply of materials and manpower, level of compliance with contractual requirements, quality of past performances, and the tendered price of the relevant bidder. However, the purpose of such provisions is to set forth necessary matters related to contracting affairs to be observed by relevant public officials, so that the State may fairly, reasonably and efficiently handle contractual relationships with private persons. Accordingly, these provisions are no more than internal regulations of the State. (See Supreme Court Decision 95Da11436 delivered on April 26, 1996)
Accordingly, even if the public official in charge of contracting conducted examination on eligibility of a bidder in the tender procedure, in a manner that is not in compliance with the Act, the Decree or the detailed examination criteria thereunder, the determination of the successful bidder and the contract entered as a result thereof are not invalid for that reason only. Rather, the reasonable interpretation is that they are invalid only under special circumstances where, unless they are invalidated, the intent of the Act setting forth the procedures thereof would be ignored. Such circumstances include cases where the defect due to such non-compliance is so material as to significantly prejudice the impartiality and fairness of the tender procedure and the other party to the contract knew or could have known such circumstances, and cases where it is clear to anyone that the determination of the successful bidder and the execution of the contract were made by means of acts contrary to good morals and other social orders.
According to the records in this case, in evaluation of the construction experiences under the detailed examination criteria, past experiences of construction work is acknowledged as part of the construction experiences concerned only if it is the substance of such construction was substantially the same as the construction work to be ordered by the relevant agency, so that it can be considered that the purpose of the construction can be achieved, and if the subject of the past construction work was a single unit structure that has been completed, with an area at least equal to 40,686㎡. The court below concludes that the general restaurants, cultural and assembly facilities and sports facilities in the Songwon Department Store are not sales facilities under the classification by use under the Enforcement Decree under the Buildings Act. However, even assuming that this is true, and therefore that they cannot be included in the construction experiences prescribed in the public notice and explanatory note of the tender, the records show that these are facilities for consumer convenience, incidental to sales facilities, forming a single unit structure together with facilities principally used for sales, i.e. a department store which is a form of large-scale retail store under the Distribution Industry Development Act. Meanwhile, the purpose of the Construction is to build a vegetable section, a fruit section, a seafood section, a maintenance service section, a security guard room and a waste disposal section. In the case of the maintenance service section, there are facilities for consumer convenience including convenience facilities and maintenance facilities such as large conference rooms, banking facilities, restaurants and coffee shops. Moreover, there is no evidence to show that the construction of sales facilities in the Construction is much more difficult than that of general restaurants, entertainment facilities, and sports facilities of the Songwon Department Store. Accordingly, even though the debtor acknowledged the above facilities for consumer convenience of the Songwon Department Store as construction experiences in the Examination of Eligibility, it is difficult to consider that such acknowledgment is a material defect which would substantially prejudice the impartiality and fairness of the tender procedure in this case. Further, there is no evidence to show that the determination of the successful bidder and the execution of the contract in this case were made by means of acts contrary to good morals and other social order.
Nevertheless, the court below on the contrary granted the provisional injunction application herein on the premise that the determination of successful bidder and the contract are invalid, and this was improper as a misunderstanding of Act and the legal principles on effect of a public notice of tender, and a failure to render a full deliberation, which affected the decision. The arguments in the grounds for appeal pointing this out are valid.
3. Accordingly, the decision of the court below shall be reversed and remanded to the court below for retrial and determination. It is so ordered per Disposition. This decision is delivered with the assent of all Justices who reviewed the appeal.
Justices Park Jae-yoon (Presiding Justice)
Suh Sung
Lee Yong-woo (Justice in charge)
Bae Ki-won
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