Transfer of procurement contract on transfer of enterprise

Transfer of an enterprise means transfer of related things, rights and obligations – including contracts – in the service of the management. As a general rule, transfer of a contract on transfer of an enterprise does not require consent of the other party to the contract.

The Public Procurements Act (PPA) does not separately regulate transfer of procurement contracts on transfer of an enterprise. However, none of the above should be taken to mean that procurement contracts always automatically transfer to the new owner of a business in the case of transfer of an enterprise. The PPA provides thorough regulation of implementing the procurement procedure and signing the procurement contract in keeping with the general objectives of implementing public procurement, namely to ensure transparent, expedient and sustainable use of the contracting authority’s funds, equal treatment of persons, and effective use of the existing competitive situation for the purposes of public procurement. Consequently, transfer of an enterprise cannot create a situation where a procurement contract is performed by a person who would not have qualified for the procurement or in respect of whom grounds might exist for exclusion from the procurement procedure.

On the other hand, it should be taken into account that upon transfer of an enterprise as a whole, the transferee also acquires everything related to performance of the procurement contract, such as competences and tools. This means that the same business will continue to carry out the procurement contract but that the owner of the business has changed. If the transferee of the enterprise meets the criteria applicable to the procurement, any restriction on transfer of the procurement contract could in that situation be construed as a restriction on the freedom to conduct business.

In practice, several contracting authorities have set consent of the contracting authority as a condition precedent to transfer of a procurement contract. Giving such a contract requires that the business as a whole is transferred and that the transferee meets the criteria applicable to the procurement. Therefore, where an enterprise is acquired by a person regarding whom grounds exist for exclusion from the procurement procedure (e.g., information on a current penalty is in the penalty register in respect of the transferee or their legal representative for offences or wrongful acts which form a basis for exclusion), the contracting authority may refuse consent to transfer of the procurement contract although the enterprise and everything related to performance of the procurement contract are transferred in their entirety.

This position has also been supported by the Ministry of Finance, which supervises public procurement and gives related advice. The Ministry of Finance has expressed the standpoint that although under the spirit of the PPA a separate transfer of procurement contracts is permissible, procurement contracts cannot be assumed via transfer of an enterprise without prior consent of the contracting authority and unless the scope of the transfer has been assessed. This means that transfer of a procurement contract on transfer of an enterprise does indeed require the consent of the contracting authority, which is given subject to the transferee meeting the criteria applicable to the procurement.

At the same time, it must be taken into account that there is no Supreme Court case-law on transfer of procurement contracts, and a restrictive interpretation — i.e., that transfer of procurement contracts on transfer of enterprises is contrary to the general principles of implementing public procurement — cannot be entirely ruled out.