In a case where Company A entered into a purchase contract with the Administrator of the Public Procurement Service to supply a fixed-type supplier designated as the exemplary procurement goods to the local government, which is an end-user institution, and then supplied an excellent prudenterer with quality higher than the exemplary procurement goods designated in each local government; and the Administrator of the Public Procurement Service imposed a disposition restricting participation in bidding for three months on the ground that it is a general product not the exemplary procurement goods but the exemplary procurement goods, the case affirming the lower court’s conclusion that the above disposition was not recognized as a ground for the above disposition, but that the above disposition violated the proportionality principle, and thus

In a case where Company A entered into a purchase contract with the Administrator of the Public Procurement Service to supply a fixed-type supplier designated as excellent goods to the local government which is an end-user institution, and then the Administrator of the Public Procurement Service supplied an entity with an outstanding price higher than the excellent goods designated as excellent goods for each local government; the Administrator of the Public Procurement Service restricted participation in bidding for three months on the ground that it is an ordinary product not the excellent goods for the procurement goods, the case affirming the lower court’s determination that the above purchase contract is justifiable on the ground that: (a) the head of the Public Procurement Service is a party to the contract; (b) the third party is a contractual beneficiary; and (c) the third party is unable to arbitrarily modify the contract contents; (d) the supply of the products that are different from the products stipulated in the contract itself constitutes a breach of contract itself; and (e) the supply of the products to an end-user institution instead of a negotiated contract after entering into a private contract can be deemed to go against the legislative intent of the contract to which the State is a party; and (e) the other small and medium enterprises manufacturing the same products are deprived of opportunities.

Article 27(1) of the Act on Contracts to Which the State is a Party; Article 76(1)1 of the Enforcement Decree of the Act on Contracts to which the State is a Party;

Hysung Industrial Co., Ltd. (Law Firm Gong & Lee, Attorneys Park Jong-young et al., Counsel for the plaintiff-appellant)

The Administrator of Public Procurement Service

Daejeon High Court Decision 2017Nu11679 decided June 20, 2018

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Case history

According to the reasoning of the lower judgment, the following circumstances are revealed.

A. The defendant's disposition

(1) The proviso of Article 7(1) of the Act on Contracts to Which the State is a Party (hereinafter “State Contracts Act”) and Article 26(1)3(f) of the Enforcement Decree thereof (hereinafter “Enforcement Decree of the State Contracts Act”) provide that where products designated and publicly notified as excellent goods for procurement are manufactured or purchased from relevant small and medium enterprises pursuant to Article 18 of the Enforcement Decree of the Government Procurement Act, a negotiated contract may be concluded.

(2) On August 30, 2013, the Defendant designated the fixed-type connecter (1070D, HS 1081D) produced by the Plaintiff as the exemplary procurement goods. On July 10, 2014, the Defendant concluded a commodity contract with the terms that the Plaintiff and the said person supply them to each local government, which is an end-user institution (hereinafter “instant contract”).

(3) On October 20, 2016, the Defendant rendered a disposition that restricts the qualification to participate in bidding for three months pursuant to Article 27 of the State Contracts Act against the Plaintiff on the ground that the chair supplied by the Plaintiff to an end-user institution is not an exemplary procurement goods but an ordinary product (hereinafter “instant disposition”).

B. The reason why the Plaintiff changed the product

(1) The Ministry of Culture, Sports and Tourism, as part of the regional development policy, indicated the support plan to build at least 20 film theaters to the national basic local government without opening up at least 30,000 won per 330,000 won per 1 seat.

(2) Local government officers, such as Gangwon-gu, Jeonbuk-gun, Jeonbuk-gun, Jeonnam-gun, Jeonbuk-gun, Jeonbuk-gun, Jeonbuk-gun, Jeon Nam-gun, and Cho Gyeongcheon-gun, have discussed their opinions as to appropriate products, taking into account the easiness and convenience, etc.

(3) In the event that the above person in charge goes through a competitive bidding against the Plaintiff, the period of construction would be consistent with the budget, and thus, the Plaintiff demanded that the Plaintiff supply a premium-class taxpayer who is not a procurement item. The Plaintiff himself/herself, as an enterprise that registered excellent procurement items, can conclude a negotiated contract for other products not a procurement item, and supplied a premium-level spectator ( HS 1080-WA, HS 1080-L-FA, HS 1070P), other than the goods stipulated in the instant contract, to an end-user institution.

C. Comparison between the products stipulated in the instant contract and the products actually supplied

(1) The products stipulated in the instant contract were designated products with the patent technology automatically applied from narrow film theaters, among those with a fixed-type link of KRW 3.50,000 per unit price, which are designated products of the excellent goods to be procured.

(2) A person who wants to view the premium level offered by the Plaintiff was a product with a unit price exceeding KRW 400,000,000, in comparison with the product stipulated in the instant contract, where the seat width is wide, no sound or vibration is generated when he sits in the chair, and it is good to see the tin, and it is easy to maintain clean conditions because the tin is a bamboo, not a ceiling, and it is easy to do so. However, the foregoing patent technology is not applied.

D. Details on the condition of buying goods under the instant contract

(1) Article 13(1) of the General Conditions for Goods Purchase Contracts included in the instant contract provides that “The specifications of all the goods shall meet the specifications specified in the contract, specifications and number, and samples presented by the agency awarding the contract, and shall be a new product that meets the purpose of purchase.”

(2) In addition to the above general conditions, Article 3(1) of the Special Conditions for Quality Control included in the instant contract provides that “the conditions, quality conditions, etc. under the contract shall be met.”

2. The judgment of the court below

The lower court, on the following grounds, determined that the instant disposition was unlawful on the grounds that the grounds for disposition are not recognized, or that the discretionary authority was abused or abused.

A. Grounds for the disposition

(1) The instant disposition is premised on the fact that the Plaintiff’s act constitutes “a person who, in the performance of a contract, commits fraudulent, improper, or unlawful act” as stipulated by Article 27(1) of the State Contracts Act and Article 76(1)1 of its Enforcement Decree.

(2) However, in comparison with the products stipulated in the contract of this case, a person who is admitted to the premium rate offered by the Plaintiff does not reduce the durability or cause danger and injury to safety, as well as the specifications higher than the standard specifications.

(3) Although the patent technology applied to the products supplied by the Plaintiff was not applied to the outstanding procurement product, it cannot be said that the patent technology is applied to the product, and the above patent technology is unnecessary to an end-user with a wide space as in the instant case.

B. Legislative intent and other circumstances

(1) The Plaintiff’s act is the supply of a good higher than that provided in the contract by an end-user institution in compliance with the requirements of the end-user institution, and the transparency in the process was not undermined. It does not seem that the legislative intent of the State Contracts Act, etc. is not significantly damaged because any budget waste factor has not

(2) In light of the content and degree of the Plaintiff’s act, the public interest needs to achieve the instant disposition, the disadvantage that the Plaintiff would incur, and other circumstances, the disadvantage that the Plaintiff would incur is much more than the degree of public interest infringed upon by the Plaintiff’s act.

3. Supreme Court Decision

A. First of all, we cannot accept the part that the lower court determined that the ground for the instant disposition is not recognized. The reasons are as follows.

(1) The instant contract is the Plaintiff and the Defendant, and the local government, which is the end-user institution, is a contract for a third party, which is the contractual beneficiary. Since local governments, which are third parties, cannot arbitrarily modify the content of the instant contract, the Plaintiff’s arbitrary delivery of the products and the products different from those stipulated in the instant contract constitutes a breach of contract.

(2) In principle, the State Contracts Act provides for competitive bidding in order to provide citizens with fair and equitable opportunity and enhance transparency of the State contracts, and exceptionally, allow a negotiated contract. In light of this, the Plaintiff’s delivery of goods to end-user institutions instead of goods, for which it is impossible to conclude a negotiated contract after entering into the contract as a product that can be concluded, may be deemed unfair or unfair in itself.

(3) The lower court cited the circumstances that the Plaintiff’s act of breach of contract is more useful than the products stipulated in the instant contract, or that the products supplied by the Plaintiff, as one of the grounds that the Plaintiff’s act of breach of contract does not constitute an unfair or unfair act, are products of high level and high level. However, the Plaintiff’s act of breach of contract is not justified solely for that reason, in that the Plaintiff’s act was ultimately conducted for its own profit-making purposes, and thereby deprived of the opportunity

(4) The lower court also held that the Plaintiff supplied another product upon the request of an end-user institution on the ground that the Plaintiff’s breach of contract does not constitute an unfair or unfair act. However, the Plaintiff’s own delivery of wrong information that the products, other than the excellent goods for procurement, can be negotiated, to the end-user institution, and furthermore, it cannot be viewed as grounds to determine whether there exist grounds for disposition, aside from the fact that such circumstance

B. However, in light of the relevant legal principles and records, the part that the lower court determined that the instant disposition was erroneous in deviation or abuse of discretionary power by violating the principle of proportionality, etc. is acceptable.

C. Therefore, although the reasoning of the lower judgment is unclear, the lower court’s conclusion that the instant disposition was unlawful is justifiable. In so determining, the lower court did not err by misapprehending the relevant State Contracts Act and the legal doctrine on deviation and abuse of discretionary power, contrary to what is alleged in the grounds of appeal

4. Conclusion

The Defendant’s appeal is dismissed as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won (Presiding Justice)