Senior associate Maria Peterson explains that the amendments to the Public Procurement Act are enacted in two stages – the majority of amendments entered into force on July 1st this year, while the rest will take effect as of January 1st, 2011. Maria hereby provides an overview of the most important amendments and the remaining problems.
The tenderers must be without tax arrears at all times
The renewed law prescribes that the contracting authority is obligated to eliminate all tenderers with any tax arrears as at the opening of the procurement procedure (any sum above EUR 100 qualifies). As is known, the procurement procedure starts when the procurement notice is published. As the tenderer may not foresee that date , the potential tenderers should avoid tax arrears at all times.
Under the new rules, the contracting authority will also be obligated to check on the tenderers tax arrears at its own discretion (or repeatedly) in the timeframe after the tender has been declared as the winning tender but before the conclusion of the public contract. Should any tax arrears be discovered, the contracting authority is to eliminate the tenderer and select a new winning tender.
The amendments concerning tax arrears will enter into force on January 1st 2011.
Subcontractors may be replaced in the middle of the procurement procedure
Should any reason for the exclusion of tenderers from the procurement procedure due to a subcontractor not meeting the prescribed requirements become evident, the contracting authority will inform the tenderer thereof and the tenderer may submit information regarding a new subcontractor within five work days in order to remain in competition. All listed subcontractors may be replaced once. However, the tenderer may not replace the subcontractor if the tenderer is qualified in the procurement procedures based on that subcontractors’ resources and indicators (e.g., required licenses and permits).
Additional grounds for the nullity of the public contract
Additional clauses for nullity of the public contract have been introduced – e.g., if the contracting authority has unlawfully omitted to publish the tender notice to the register (i.e., unlawful direct tender). However, the contracting authority can rectify the situation by submitting the register a voluntary notice. Also, in case of public procurements, unlike the rest of the legal system in Estonia, public contracts are not void from the beginning but only after the dispute committee has identified the nullity. Furthermore, the dispute committee may leave the void contract in force based on public interests.
Amendments in the dispute procedure
The dispute procedure will in general terms remain the same. An amendment worth mentioning is that while the procurement procedure is suspended, the contracting authority must allow the tenderes to extend the term of their tenders should this be required. The objective is to avoid situations where there are no valid tenders at the termination of the dispute procedure.
Due to considerable public interest, similarly to void public contracts being left in force, the dispute committee may allow the contracting authority to accept tenders already in the middle of the tender proceedings. The practical value of the amendment is questionable though as such permissions can be contested in court.
The Ministry of Finance to fulfil the tasks of the Public Procurement Office
This may seem as an administrative amendment but it has already become evident that it is not quite the case. For example, a situation has arisen where the supervisory agency of the Ministry of Finance must exercise supervision over the legality of a tender organised by the Ministry of Finance itself. Experience shows that this means there may not be substantive or effective supervision, at least for now.
Remaining problems
Regardless of the amendments, problems in the public procurement regulation remain.
One of the more problematic areasis the topic of permits and licenses, i.e., the application of Public Procurement Act Art. 41 (3). The requirement itself makes sense – the tenderer must confirm its ability to fulfil the tender under current laws, including regarding any required licenses. At the same time the contracting authority is not obligated to provide the list of all required licenses or permits. This means that the tenderer must evaluate the tender documents (conduct a legal assessment) and indicate all parties executing all tasks requiring licenses or permits (i.e., the tenderer itself or subcontractors) in the tender. The tenderer must list all permit holders regardless of the scope of the relevant work. Also, all the holders of any such permits or licenses must be included in the tender, which means no subcontractors holding relevant licenses can be introduced at a later stage.
In practice, this often means that, for example in construction procurements, all tenderers that have not submitted licenses for road or security works, corresponding to less than 1% of the total scope of the tender, will be disqualified. From the taxpayers’ point of view this means that the procurements will be won by companies that are able to provide licenses of perhaps secondary importance regardless of the fact that their tenders are several million Estonian kroons more expensive.
Senior associate Maria Peterson, a Harvard Law School, LL.M graduate, is an expert of competition and antitrust law. She also represents clients in disputes and public procurement proceedings. Recently, Maria represented the largest advertising agency TANK Group in a dispute concerning the public procurement campaign organised by the Ministry of Finance. Read more about the case here.
Public Procurement Act – Amendments and Problems
Senior associate Maria Peterson explains that the amendments to the Public Procurement Act are enacted in two stages – the majority of amendments entered into force on July 1st this year, while the rest will take effect as of January 1st, 2011. Maria hereby provides an overview of the most important amendments and the remaining problems.
The tenderers must be without tax arrears at all times
The renewed law prescribes that the contracting authority is obligated to eliminate all tenderers with any tax arrears as at the opening of the procurement procedure (any sum above EUR 100 qualifies). As is known, the procurement procedure starts when the procurement notice is published. As the tenderer may not foresee that date , the potential tenderers should avoid tax arrears at all times.
Under the new rules, the contracting authority will also be obligated to check on the tenderers tax arrears at its own discretion (or repeatedly) in the timeframe after the tender has been declared as the winning tender but before the conclusion of the public contract. Should any tax arrears be discovered, the contracting authority is to eliminate the tenderer and select a new winning tender.
The amendments concerning tax arrears will enter into force on January 1st 2011.
Subcontractors may be replaced in the middle of the procurement procedure
Should any reason for the exclusion of tenderers from the procurement procedure due to a subcontractor not meeting the prescribed requirements become evident, the contracting authority will inform the tenderer thereof and the tenderer may submit information regarding a new subcontractor within five work days in order to remain in competition. All listed subcontractors may be replaced once. However, the tenderer may not replace the subcontractor if the tenderer is qualified in the procurement procedures based on that subcontractors’ resources and indicators (e.g., required licenses and permits).
Additional grounds for the nullity of the public contract
Additional clauses for nullity of the public contract have been introduced – e.g., if the contracting authority has unlawfully omitted to publish the tender notice to the register (i.e., unlawful direct tender). However, the contracting authority can rectify the situation by submitting the register a voluntary notice. Also, in case of public procurements, unlike the rest of the legal system in Estonia, public contracts are not void from the beginning but only after the dispute committee has identified the nullity. Furthermore, the dispute committee may leave the void contract in force based on public interests.
Amendments in the dispute procedure
The dispute procedure will in general terms remain the same. An amendment worth mentioning is that while the procurement procedure is suspended, the contracting authority must allow the tenderes to extend the term of their tenders should this be required. The objective is to avoid situations where there are no valid tenders at the termination of the dispute procedure.
Due to considerable public interest, similarly to void public contracts being left in force, the dispute committee may allow the contracting authority to accept tenders already in the middle of the tender proceedings. The practical value of the amendment is questionable though as such permissions can be contested in court.
The Ministry of Finance to fulfil the tasks of the Public Procurement Office
This may seem as an administrative amendment but it has already become evident that it is not quite the case. For example, a situation has arisen where the supervisory agency of the Ministry of Finance must exercise supervision over the legality of a tender organised by the Ministry of Finance itself. Experience shows that this means there may not be substantive or effective supervision, at least for now.
Remaining problems
Regardless of the amendments, problems in the public procurement regulation remain.
One of the more problematic areasis the topic of permits and licenses, i.e., the application of Public Procurement Act Art. 41 (3). The requirement itself makes sense – the tenderer must confirm its ability to fulfil the tender under current laws, including regarding any required licenses. At the same time the contracting authority is not obligated to provide the list of all required licenses or permits. This means that the tenderer must evaluate the tender documents (conduct a legal assessment) and indicate all parties executing all tasks requiring licenses or permits (i.e., the tenderer itself or subcontractors) in the tender. The tenderer must list all permit holders regardless of the scope of the relevant work. Also, all the holders of any such permits or licenses must be included in the tender, which means no subcontractors holding relevant licenses can be introduced at a later stage.
In practice, this often means that, for example in construction procurements, all tenderers that have not submitted licenses for road or security works, corresponding to less than 1% of the total scope of the tender, will be disqualified. From the taxpayers’ point of view this means that the procurements will be won by companies that are able to provide licenses of perhaps secondary importance regardless of the fact that their tenders are several million Estonian kroons more expensive.
Senior associate Maria Peterson, a Harvard Law School, LL.M graduate, is an expert of competition and antitrust law. She also represents clients in disputes and public procurement proceedings. Recently, Maria represented the largest advertising agency TANK Group in a dispute concerning the public procurement campaign organised by the Ministry of Finance. Read more about the case here.