Ax Lawyers – Public Procurement and contracts help companies to enter EU Member State markets

 

ax-public-procurementAx Lawyers – Public Procurement and contracts help companies to enter the Austrian, French and German market

In an age of globalisation, the ability to be internationally active is important to any business. Although based on the TFEU and various European procurement directives, public procurement law and practice in European marketplaces varies widely from country to country. At the same time, the pressure on public money in many European countries has triggered widespread changes in how supplies, services and works are purchased and how deals are structured and has increased the pressure of competition. It is also becoming much more productive for bidders to take action, but doing so successfully requires swift, effective action.

EU public procurement contracts

Harmonisation of member states’ public procurement procedures was completed with the introduction directives 2004/18/EC and 2004/17/EC. This legislation only applies to contracts which exceed a particular threshold.
The Rules on Public Procurement and the Award of Contracts for Freelance Services is applicable only to public procurement contracts awarded on a European level. They do not apply to national public procurement contracts.

Public procurement in certain sectors

Due to opposition from member states, specific rules were created for public procurement in the transport, water and energy sectors. The reason for the specific regulation of public procurement in these sectors is because they represent public services which are traditionally provided by the state and local authorities. As such, their provision needs to be guaranteed and protected. The application of a regime designed for public procurement in “normal” service contracts seemed inappropriate.

Expert public procurement team

At Ax Lawyers – Public Procurement and contracts our expert public procurement team helps small, medium-sized and larger companies to enter the German market.
Private companies award contracts through a tender process. Non-compliance with these rules can have very serious commercial consequences. Arrangements with public authorities that do not fall within the scope of these rules may still be subject to the general principles of the Treaty on the Functioning of the EU and therefore require some degree of transparency and competitive tendering.

Ax Lawyers – Public Procurement and contracts has the experience to address public procurement issues from the perspective of all those involved in the procurement process.
Advising both purchasing bodies and bidders on complex procurement processes and procurement law challenges and disputes, Ax Lawyers – Public Procurement and contracts provide integrated advice on procurement law, commercial negotiations, contract drafting and dispute resolution.

Clients turn to us for the value we can add to their involvement in the procurement process, whether through advice on procurement strategy, structuring bids, helping to resolve disputes or just an instinct for what to do next.

Ax Lawyers – Public Procurement and contracts advises on:

how to anticipate potential issues and prepare suitable strategies for dealing with the rules,
preparing a clear, structured approach from the initial commercial assessment to the final award and performance of the contract,
procurement disputes,
guidance for contracting authorities and utilities operators whose tendering processes have come under attack
disappointed tenderers seeking to challenge the award of a public contract.

Consulting contractors from the very beginning…

We consult contractors, if requested, already during the decisive phase of preparing tenders and we are pleased to assist them during strategic positioning in the course of the procurement process. It is of decisive importance, that legal positions are maintained against the background of the obligation to make complaints without compromising the chances to be awarded with the contract during the procurement process. In this context the position of contractors as possible members of a bidding consortium needs to be evaluated next to the examination of procurement documents and the agreement itself.

Comprehensive assistance also comprises the representation of interests with the auditing authorities in the context of procurement law. This again is one of the core components of the consulting services we offer.

Key aspects of our scope of consultation services

  • Examination of tender obligations and possibilities to draft procurement contracts not subject to procurement law
  • Preparation and design of tenders, compilation of procurement documents and particularly procurement agreements
  • Structuring and optimization of procurement procedures
  • Examination of procurement documents
  • Support for procurement authorities in responding to contractors’ questions
  • Implementation of procurement procedures on behalf of procurement authorities within the scope permissible by law
  • Strategic assistance for contractors during procurement processes
  • Assistance during preparation of tenders and evaluation of tenders, assistance with, and moderation of negotiations
  • Procurement management and monitoring of procurement
  • Introduction and implementation of internal procurement guidelines within the procurement authority
  • Assistance with order processing and project support
  • Legal representation during verification procedures and appeals procedures
  • Consultation when handling procurement irregularities as well as legal enforcement or defence against indemnity claims.

Public procurement team

Karola Kermbach
Darina Lötschert
Dr. jur. Thomas Ax

AX, Rechtsanwälte
Bahnhofstraße 54
69151 Neckargemünd
Germany

http://www.ax-rechtsanwaelte.de

Ax Lawyers – Public Procurement and contracts help companies to enter the Austrian market

Relevant Legislation
or state and public bodies at the central government level, the Federal Public Procurement Law 2006 (Bundesvergabegesetz 2006) implements EU Directives 2004/17/EC and 2004/18/EC (content), as well as Directives 89/665/EEC and 92/13/EEC (review proceedings).

The Public Procurement Law:

    • provides for the legal framework for the award of public works, supply and service contracts, and works and service concessions and contests (the ´classic regime´);
    • contains regulations coordinating the public procurement procedures of entities operating in the water, energy, transport and postal services sector (the ´sector regime´). Under both regimes, the law covers public tenders above and below the thresholds of EU Regulation 2083/2005; and
    • contains procedural provisions relating to the review of the award of public contracts.

The Public Procurement Law also applies to all aspects of content of public tenders awarded by the nine Austrian provinces and the communities and public bodies governed by them. However, review proceedings at regional and local level are exempted from the law and are subject to nine different provincial laws. These provincial laws do not materially differ from the review proceedings provided for by the Public Procurement Law.

Relation to supranational regimes

The Austrian regime implements the relevant EU directives. EU Directive 2007/66/EC, amending Directives 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts, is yet to be implemented into national law (implementation is expected in the first quarter of 2010). Pursuant to Section 19(2) of the Public Procurement Law, contracting parties from countries with which Austria has entered into multilateral or bilateral agreements on public procurement – in particular, the World Trade Organization Government Procurement Agreement – must not be discriminated against when awarding public contracts.

Basic underlying principles

The Public Procurement Law provides for non-discrimination and equal treatment of all candidates and tenderers. These principles imply an obligation of transparency which consists of ensuring, for the benefit of any potential tenderer, a degree of publicity sufficient to ensure the market is open to competition and the impartiality of the procedures to be reviewed. Basically, a contract notice should be published by the contracting entity in order to open the contract award to competition. However, the law also contains specific derogations allowing, under certain conditions, procedures without prior publication of an advertisement. These principles are relevant to the interpretation of the law. Further, the law must be interpreted in the spirit of the relevant EU legislation.

Special rules

There are no special rules in relation to military equipment. The Public Procurement Law does not apply to public works, supply and service contracts that are subject to Article 296 of the EC Treaty and awarded by contracting authorities in the field of defence. There are no other special rules.

Application of Law to Entities and Contracts

Public entities
Under the classic regime, bodies governed by public law are covered by the Public Procurement Law, provided that:

    • they were established for the specific purpose of meeting needs in · the general interest and have no industrial or commercial character;
    • they have legal personality; and they:
      • are financed for the most part by the state, regional or local authorities or other bodies governed by public law;
      • are subject to management supervision by those bodies; or
      • have an administrative, management or supervisory board, more than half of whose members are appointed by the state, regional or local authorities or by other bodies governed by public law.

Under the sector regime, bodies governed by public law (as defined above) and public entities are covered by the Public Procurement Law. Such entities are undertakings over which the contracting authorities may exercise a direct or indirect dominant influence by virtue of ownership thereof, financial participation therein or the rules which govern them. A dominant influence is presumed when these authorities, directly or indirectly:

      • hold the majority of the undertaking´s subscribed capital;
      • control the majority of the votes attached to shares issued by the undertaking; or
      • can appoint more than half of the undertaking´s administrative, management or supervisory body.

It is possible to obtain a ruling on qualification as a public body or entity. Where such body or entity directly awards a contract without applying the required tender procedure, economic operators that were not invited to submit an offer can challenge the award and the competent public procurement authorities can declare the direct award null and void.

Private entities

Pursuant to the sector regime, private entities must apply the Public Procurement Law if they operate on the basis of special or exclusive rights granted by an Austrian competent authority and if they operate in the following sectors:

      • gas, heating and electricity (pursuant to the European Commission decision of July 7 2008, the production of electricity in Austria is exempted from the applicaiton of Directive 2004/17/EC; therefore, only distribution and transmission system operators fall within the scope of the sector regime);
      • water;
      • certain transport services (eg, public railway, automated system, tramway, trolley bus, bus or cable services);
      • postal services (in October 2008 the Austrian Post applied for an exemption from the application of Directive 2004/17/EC; the European Commission decision is expected in December 2009);
      • oil, gas, coal or other solid fuel exploration or extraction;
      • port and airport services; or
      • any combination thereof.

With respect to the ruling on qualification, the same applies to private entities as it does to public entities.

Types of contract

The types of contract covered include:

      • public works, supply and service contracts;
      • public works concessions; and
      • public service concessions (whereby only the fundamental principles of the Public Procurement Law apply).

Threshold values for determining individual contract coverage

All of the above-mentioned types of contract are covered by the Public Procurement Law, notwithstanding whether the estimated value of the public contract is above or below the thresholds in EU Regulation 1422/2007. However, the thresholds in the Public Procurement Law are relevant to the choice of tender procedure. With respect to public tenders above the thresholds of EU Regulation 1422/2007, more formalized and transparent procedures apply.

Aggregation and anti-avoidance rules
One aggregation and anti-avoidance rule is the general provision that a public tender must not be split to avoid application of the Public Procurement Law or apply a certain tender procedure. Further, the law includes specific rules to calculate the value of the public contract, for example:

      • in case of lots;
      • with regard to public supply contracts relating to the leasing, hire, rental or hire purchase of products;
      • for public supply and service contracts which are regular in nature or which are intended to be renewed within a given period;
      • for insurance contracts;
      • for banking and financial services contracts; and
      • for design contracts.

Special rules for concession contracts
In principle, all types of concession contract above the threshold of € 100,000 (until December 31 2010) are subject to the Public Procurement Law. However, depending on the type of concession and qualification as a contract under the classic and sector regimes, different Public Procurement Law rules apply. Compared to other public contracts, concession contracts are not as strictly bound to these rules; in particular, they have greater flexibility with regard to the choice of procedure, provided that such procedure safeguards the application of the rules and principles of the EC Treaty and contains an appropriate level of transparency.

Procedures

Different procedures
Open procedures are those procedures in which any economic operator may submit a tender.
Restricted procedures with publication of a contract notice (classic regime) or a call for competition (sector regime) are those procedures in which any economic operator may request to participate, with only those economic operators invited by the contracting authority permitted to submit a tender.

Restricted procedures without publication of a contract notice or a call for competition are those procedures in which selected suitable economic operators are invited to submit a tender.
Negotiated procedures with publication of a contract notice or a call for competition are those procedures in which any economic operator may request to participate, with only those economic operators invited by the contracting authority permitted to submit a tender and with the contracting authority negotiating the terms of contract with those tenderers.
Negotiated procedures without publication of a contract notice or a call for competition are those procedures whereby the contracting authority invites certain candidates to submit an offer and then negotiates the terms of contract with the selected tenderers.

Public contracts can be awarded in the form of a framework agreement, which is an agreement between one or more contracting authorities and one or more economic operators with no purchase commitment, the purpose of which is to establish the terms governing contracts to be awarded during a given period – in particular with regard to price and, if appropriate, the quantity envisaged. Framework contracts can be awarded after carrying out an open procedure, a restricted procedure with publication or a negotiated procedure. Contracts based on a framework agreement may be awarded either directly to a party to the agreement based on terms laid down therein or after an invitation to submit bids. The term of a framework agreement is limited to three years.

Dynamic purchasing systems are fully electronic processes for making commonly used purchases whose characteristics, as are generally available to the market, meet the requirements of the contracting authority. The system is open to any economic operator that satisfies the selection criteria and has submitted an indicative tender that complies with the specifications. The dynamic purchasing system is established after open procedures (without award) for a limited duration of four years. To award a contract, the contracting authority must invite all tenderers admitted to the system. The authority will award the contract to the tenderer that submits the best tender on the basis of the award criteria set forth in the tender documents to establish the system.

Competitive dialogue is a procedure in which any economic operator may request to participate, with the contracting authority conducting a dialogue with candidates admitted to that procedure in order to develop one or more suitable alternatives capable of meeting its requirements and on the basis of which the candidates are invited to submit a bid.
An electronic auction under the Public Procurement Law is a repetitive electronic for the presentation of new prices revised downwards or new values concerning certain tenders, enabling them to be ranked using automatic evaluation methods. Such auction is not an independent procedure; rather, it can be applied:

  • after open procedures;
  • after restricted procedures with publication;
  • after certain types of negotiated procedure;
  • when awarding framework agreements; and
  • in the form of a dynamic purchasing system.

Design contests are those procedures which enable contracting authorities to acquire – mainly in the fields of town and country planning, architecture and engineering, advertisement or date processing – a plan or design selected by a jury after being put out to competition, with or without the award of prizes. Such contests can be open, restricted or invited contests.
Realization contests are contests which lead to a negotiated procedure to award a public service contract after carrying out a design contest.
Under the classic regime, contracting authorities are free to choose open or restricted procedures with the publication of a contract notice. Restricted procedures without publication and negotiated proceedings are admissible under certain circumstances.
Under the sector regime, contracting authorities have a choice between open procedures, restricted procedures with a calling for competition and negotiated proceedings with a calling for competition. Below the thresholds of EU Regulation 2083/2005, all of the above procedures can be chosen under the sector regime. Direct awards are admissible up to € 100,000 (unitl December 31 2010).

Specifications

Technical specifications must afford equal access for tenderers and must not have the effect of creating unjustified obstacles to the opening of public procurement to competition. Notwithstanding mandatory national technical rules, to the extent that they are compatible with EU law, these specifications must be formulated:

  • taking into account the following priorities: national standards implementing European standards; European technical approvals;
    international standards and other technical reference systems established by European standardization bodies; or where such standards do not exist, national standards, national approvals or national technical standardizations relating to the design, calculation and execution of works and the use of products, with each reference being accompanied by the words ´or equivalent´;
  • in terms of performance or functional requirements;
  • in terms of performance or functional requirements as mentioned in the second bullet point above with reference to the specifications set forth in the first bullet point above as a means of presuming conformity with such performance or functional requirements; or
  • by referring to technical specifications mentioned in the first bullet point above for certain characteristics and by referring to performance and functional requirements for other characteristics.

When a contracting authority refers to the specifications mentioned in the first bullet point above, it cannot reject a bid, an alternative bid or a bid marginally amending the tender on the grounds that the products and services tendered do not comply with the specifications to which it has referred once the tenderer proves in its tender, to the satisfaction of the contracting authority and by any appropriate means, that the solutions which it proposes satisfy, in an equivalent manner, the requirements defined by the technical specifications. In particular, ´appropriate means´ include technical dossiers from the manufacturer or a test report from a recognized body.

When a contracting authority uses the option laid down in the second bullet point above to prescribe in terms of performance and functional requirements, it may not reject a bid, an alternative bid or a bid marginally amending the tender for works, products and services which comply with a national standard implementing a European standard, a European technical approval, a common technical specification, an international standard or a technical reference system established by a European standardization body if these specifications address the performance or functional requirements which it has laid down. In its bid, alternative bid or bid marginally amending the tender, the tenderer must prove, to the satisfaction of the contracting authority and by any appropriate means, that the works, services and products in compliance with the standard meet the performance or functional requirements of the contracting authority.

Unless justified by the subject matter of the contract, technical specifications shall not refer to a specific make or source, a particular process, particular trademarks, patents or types or a specific origin or production with the effect of favouring certain products and eliminating others. Such reference shall be permitted only on an exceptional basis and must be accompanied by the words ´or equivalent´.

Excluding tenderers

Tenderers must be excluded in the following cases:

  • where the personal situation of the candidate and tenderer so necessitates – for example, in case of:
    • conviction for participation in a criminal organization, corruption, fraud or money laundering; insolvency; conviction for grave professional misconduct; or breach of obligations with respect to the payment of social security contributions and taxes;
  • where the tenderer was involved in drafting the tender documents;
  • where the tenderer is unsuitable due to a lack of sufficient economic and financial standing or professional and technical knowledge;
  • where bids have been made with speculative prices (abnormally low tenders) or with no prices (in which the tenderer declares only to be less expensive than the lowest bid);
  • where there is a lack of a required bid bond;
  • where bids are submitted late;
  • where bids do not accord with the tender documents – for example, bids for only parts of the contract, alternative bids and bids marginally amending the tender in case they were not allowed by the contacting authority or do not comply with the minimum requirements set forth in the tender documents;
  • where bids contain mistakes or are incomplete and the tenderer refuses to amend the bid according to the contracting authority´s instructions;
  • where the tenderer has participated in a bidding cartel;
  • where bids are made with certain calculation errors;
  • where bids are made by tenderers that were not invited to participate in the tender proceedings (in proceedings with restrictions regarding the number of participants); and
  • where bids are made by tenderers from other EU member states that have not applied for recognition of their professional suitability before the award of the contract.

The decision to exclude tenderers lies with the contracting authority. A tenderer that is excluded can appeal against such decision and initiate review proceedings.

Shortlisting tenderers

Negotiated procedures can take place in successive stages in order to reduce the number of tenderers by applying the awarding criteria. The contracting authority must inform tenderers without delay of its decision no longer to consider their bids for the award. In the final phase of a negotiated procedure with more than one tenderer a sufficient number of tenderers must remain to uphold true competition.

Awarding the contract

The award will be based on either the most economically advantageous bid or the bid with the lowest price. In general, an award to the bidder with the lowest price is admissible only provided that the quality standards have been exactly defined in the tender documents and therefore that the quality of the bids will not differ. The criteria for an award given to the most economically advantageous bid must be weighted in the tender documents. These weightings can be expressed by providing a range with an appropriate maximum spread. Where, in the contracting authority´s opinion, weighting is not possible for demonstrable reasons, the contracting authority must indicate in the contracting notice or the tender documents the criteria in descending order of importance. In case the tender documents do not determine the basis of the award, the contract will be awarded to the bid with the lowest price. When awarding contracts below the thresholds in EU Regulation 1422/2002, under the classic regime and in the sectors in general, the contracting authority can choose between the two bases for the award.

Joint procurements

For joint procurements, framework agreements, dynamic purchasing systems and central purchasing bodies are available. One central purchasing body in Austria at the central governmental level is the Austrian Federal Purchasing Agency, which purchases, for example, electricity, gas, heating, telecommunications services, fuel, transport services, IT services and cars for the state.

Rules on alternative bids

The Public Procurement Law differentiates between alternative bids and bids marginally amending the tender. The latter can be described as bids that are not real alternatives to the tendered contract, but rather only amend the tender documents in a non-substantive manner. Therefore, those bids are also admissible where the basis for the award is the lowest price. However, alternative bids are limited to tenders where the basis for the award is the most economically advantageous tender.
Contracting authorities must indicate in the tender documents whether alternative bids are authorized; alternative bids cannot be authorized in the absence of such indication. The contracting authority must provide minimum requirements for such bids. In procedures for awarding public supply or service contracts, contracting authorities that have authorized alternative bids may not reject such a bid on the sole ground that if successful, it would lead to either a service contract rather than a public supply contract or a supply contract rather than a public service contract.
Marginal bids amending the tender are admissible even if the tender documents do not authorize them.

Exclusions and Exemptions

Principal exclusions and exemptions
With respect to exemptions, the Public Procurement Law follows Articles 10 and following of Directive 2004/18/EC (exemptions for the classic regime) and Articles 19 and following of Directive 2004/17/EC (exemptions for the sector regime). Hence, the Public Procurement Law does not apply to:

  • secret contracts and contracts requiring special security measures;
  • defence procurement;
  • contracts awarded pursuant to international rules;
  • service contracts awarded on the basis of exclusive rights;
  • in-house contracts and further specific exclusions (eg, acquisition or rental of land or existing buildings and land);
    certain broadcasting contracts; or
  • certain financial services employment contracts.

Application of the exemptions must be determined by the contracting authorities and is subject to the review of the public procurement review authorities, which can annul contracts directly awarded in breach of the Public Procurement Law.

Application of law to in-house arrangements

The Public Procurement Law exempts ´in-house arrangements´, as defined by the European Court of Justice, from its scope of application.
However, awards of the undertaking to which the in-house contract is awarded are subject to the Public Procurement Law. Such undertaking must award contracts pursuant to the rules and procedures set forth in the law. There are no specific rules (exemptions) for the award of contacts within groups and between public bodies. Hence, in principle, the Public Procurement Law applies to such contracts.

Remedies and Enforcement

Provision for remedies and enforcement
Most decisions of a contracting authority (in particular, regarding the tender documents, exclusion of a candidate or tenderer, the decision to award a contract and revocation of the tender) are subject to review and annulment by the public procurement review authorities if such decision is in breach of the Public Procurement Law and the contract has not yet been validly awarded.
All candidates and tenderers have standing to appeal against a decision of the contracting authority that could potentially adversely affect them, and in particular, if they could suffer damages from the contested decision.

Other parties to the review proceedings, apart from the candidate or tenderer that initiates the review proceedings, may be negatively affected by the judgment filed by the applicant. For example, if a tenderer files for annulment of the award, the tenderer with the lowest price or the most economically advantageous bid is also a party to the review proceedings.
The review authorities have the power to annul contracting authority decisions (eg, the decision to award a contract to a certain tenderer). The contracting authority must then follow the ruling of the authority and make a new decision (eg, award the contract to someone other than the selected tenderer and amend the tender documents accordingly). To safeguard the effectiveness of the review proceedings, the authority can grant interim relief and suspend the tender procedure or certain decisions (eg, the decision to award a contract) until it has issued its judgment.
After the award of a contract, bidders can request a declaratory judgment from the review authorities that the tender proceedings infringed the Public Procurement Law and/or EU law. Such judgment is a prerequisite in order to claim damages from the contracting authority before the civil courts.

Seeking remedies in other proceedings outside the legislation

Infringement of the Public Procurement Law and other national public procurement laws entitles disregarded candidates to claim forbearance, abatement and damages under the Unfair Competition Act. Further, such economic operators can claim damages under civil law.

Bodies before which remedies and enforcement are sought

For all public contracts awarded by the state and public bodies or undertakings at central governmental level, remedies and enforcement must be sought before the Federal Public Procurement Authority. The nine different public procurement tribunals of the Austrian provinces which review decisions of the contracting authorities for all other public contracts are as follows:

  • Vergabekontrollsenat Wien (Public Procurement Complaint Board, City of Vienna);
  • Unabhängiger Verwaltungssenat Niederösterreich (Administrative Tribunal, Province of Lower Austria);
  • Unabhängiger Verwaltungssenat Burgenland (Administrative Tribunal, Province of Burgenland);
  • Unabhängiger Verwaltungssenat Oberösterreich (Administrative Tribunal, Province of Upper Austria);
  • Unabhängiger Verwaltungssenat Kärnten (Administrative Tribunal, Province of Karnten);
  • Unabhängiger Verwaltungssenat Steiermark (Administrative Tribunal, Province of Steiermark);
  • Vergabekontrollsenat Salzburg (Public Procurement Complaint Board, Province of Salzburg);
  • Unabhängiger Verwaltungssenat Tirol (Administrative Tribunal, Province of Tirol); and
  • Unabhängiger Verwaltungssenat Vorarlberg (Administrative Tribunal, Province of Vorarlberg).

Legal and practical timing issues

In general, the timeframes for review proceedings are as follows:

  • 14 days from the date of the contracting authority´s decision;
  • seven days in fast-track tender procedures and tender documents; and
  • seven days before the deadline for submitting offers or applications for participation expires.

Decisions that are not contested within the above timeframes become legal binding. For example, if a candidate does not appeal against tender documents that infringe the principle of equal treatment and the contracting authority decides to award the contract to another tenderer, in its complaint against the decision to award the contract the tenderer cannot apply for annulment of that decision based on the argument that the tender documents were in breach of the Public Procurement Law. This argument is not valid because tender documents become legally binding if they are not contested within the timeframe provided in the law.

Timescale for remedy or enforcement application

Interim relief must be granted within one week. Regarding an application of a candidate or tenderer, the public procurement authorities must decide to annul a contracting authority´s decision within between six weeks and two months. There are no time limits for the public procurement authorities to render a declaratory judgment.

Culture of enforcement

Appeals against decisions of contracting authorities are filed quite frequently and the public procurement authorities annul such decisions on a regular basis. In most cases such judgments are effective.

Most prominent recent cases

Project Vienna Central Station-City
In this March 2008 case the Federal Public Procurement Authority qualified ÖBB-Immobilienmanagement Gesellschaft GmbH, the real estate management company of the Austrian Federal Railway Company, as a body governed by public law, since it:

  • was established for the specific purpose of meeting needs in the general interest and had no industrial or commercial character;
  • had legal personality; and
  • was controlled by the state.

This decision was an important ruling because the qualification of such real estate management companies as public bodies has been disputed – in particular, whether they have commercial character and act on the market. It is now clear that they are governed by and must award their contracts pursuant to the procedures set forth in the Public Procurement Law.

Gas-steam power plant Mellach
VERBUND-Austrian Thermal Power GmbH & Co KG initiated a tender procedure for a general contractor for the planning and construction of a gas-steam power plant. The contract was subject to the sector regime of the Public Procurement Law. The estimated value of the contract was €500 million. VERBUND decided to award the contract in negotiated procedures with a call for competition. To speed up the schedule, VERBUND changed the ongoing procedure and introduced a preferred bidder selection, which was not announced in the contract notice. In September 2007 a bidder appealed against the preferred bidder decision, alleging secret agreements for fraudulent causes between the contracting authority and the selected preferred bidder. The Federal Public Procurement Authority initiated investigations under administrative assistance of the Federal Criminal Investigation Department. Further, four other bidders appealed against the preferred bidder decision on the same grounds. In the end, four applications were dismissed and one was withdrawn. Four complaints are pending with the Constitutional Court and three with the Administrative Court. This was the first case in Austria where the Federal Public Procurement Authority had to cooperate with criminal investigation authorities.

Brenner-Base Tunnel
This decision is of interest because it deals with the scope of application of the Public Procurement Law. Brenner-Base Tunnel Societas Europea awarded a public works contract in an open procedure. The shareholders of Brenner-Base Tunnel, which has its corporate seat in Innsbruck, Austria, are Italy (50%), Austria (25%) and the Province of Tyrol (25%). In addition to the bi-national character of the company, the tendered test drillings were to take place on Italian territory. Nonetheless, the Federal Public Procurement Authority accepted the application and initiated review proceedings to safeguard the efficiency of remedies in tender procedures.

Changes During and After a Procedure
There is no explicit regime governing changes to contract specifications. Post-signature changes to public contracts are governed by the provisions of the awarded contract and additionally by the general principles of civil law – in particular, the General Civil Code. However, all material amendments, to be defined as ´novations´, and changes other than those relating to collateral clauses trigger the requirement for a new tender of the contract.

Dealing with these issues
To avoid a new tender, public contracts often provide for adjustment clauses or options to extend the term of the contract or the scope of the supply and services. If such clauses were part of the original tender, they are in line with the Public Procurement Law.

Privatizations and public private partnerships
There are no special rules relating to privatizations or public-private partnerships.

Ax Lawyers – Public Procurement and contracts help companies to enter the French market

Legal framework in France
EU procurement Directive 2004/17/EC co-ordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (Utilities Directive) and Directive 2004/18/EC on the co-ordination of procedures for awarding public works, supply and service contracts (Consolidated Public Sector Directive) have been implemented in French law by the Code of Public Procurement (Code des Marches Publics) (CMP) of 1 August 2006 and, for the contracting authorities that are excluded from its scope, by Ordinance No. 2005-649 of 6 June 2005 (2005 Ordinance).

The scope of the CMP covers procurement contracts entered into by the French state, its administrative public bodies (établissements publics administratifs nationaux) (for example, Institut de France, Pôle Emploi or Météo France), local governments and local public bodies (établissements publics locaux).

Procurement contracts entered into by public bodies excluded from the scope of the CMP (which are considered as „bodies governed by public law“ by the EU Directives) are subject to the 2005 Ordinance. This includes most of the state industrial and commercial public bodies (établissements publics industriels et commerciaux nationaux) (for example, the Agence Française de Développement, RATP or SNCF), bodies that are specifically designated (for example, Banque de France or Caisse des depots et consignations), and bodies that were established for the specific purpose of meeting general interest needs, other than industrial or commercial, and that fulfil one of the following requirements:

Their activity is financed, for the most part, by a contracting authority subject to the CMP or to the 2005 Ordinance. They are subject to management supervision and control by one of those bodies.
Their board of directors is composed of more than half of the members which are appointed by bodies subject to the CMP or to the 2005 Ordinance.

The new EU procurement Directives of 26 February 2014 (Directive 2014/24/EU on public procurement and repealing Directive 2004/18/EC text with EEA relevance, and Directive 2014/25/EU on public procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC text with EEA relevance) have not yet been implemented into French law.

h2>Implementation of EU reforms

What decisions have been taken to date with regard to the transposition of the revised public procurement directives where there is flexibility for the member state as to how the directives are implemented?

In a speech delivered on 12 March 2014, the French Minister of Economy and Finance, Pierre Moscovici, announced that the implementation of the legislative part of the new European Directives will be initiated by the end of 2014. The implementation will be through an authorisation to proceed by ordinance with regard to the procurement Directives and by Bill with regard to the concessions Directive.

Several simplifications of public procurement rules will be implemented promptly by a decree whose project has been put up for public consultation. These include the implementation of the „Innovation Partnership“ and also the simplification of candidature files and the reduction of the financial capabilities that are required from candidates.

The transposition of these Directives may also be an opportunity to rationalise the legal background of public procurement in France, by reducing the number of categories of existing contracts and consolidating all the relevant texts into a new Code

Recent trends in the public procurement sector

The recent trends in the public procurement sector principally concern the new judicial policies. Although public contracts litigation only appear in approximately 4% of cases pending before French administrative courts, claims are still numerous and almost systematic for major infrastructure projects. In this regard, administrative case law has evolved to address these new constraints.

On the one hand, access to the court has been facilitated by the judicial policies. Until a recent period, the standard procedure for third parties to challenge the tender procedure relating to a public procurement was rather complex and not very efficient, as it was focused on the recourse brought against a „separable administrative decision“ (acte administratif detachable) with only potential indirect effects on the contract itself.

As a result, the procedure has been modernised and simplified. A decision of the French administrative Supreme Court (Conseil d’Etat) (CE) ruled that any unsuccessful bidder can directly challenge the validity of the awarded contract, or of some of its provisions, and claim compensation in the same claim or separately, where applicable (CE, 16 July 2007, Tropic Travaux Signalisation, No. 291545).

This procedure was later extended to any interested third party as well as members of the deliberative assembly of the contracting authority or the state representative in the department (Préfet) (CE, 4 April 2014, Département du Tarn-et-Garonne, No. 358994).

The CE has also created a claim called an „action for the recovery of contractual relations“ (action en reprise des relations contractuelles) allowing a party to file a claim to both (CE, 21 March 2011, Commune de Béziers, No. 304806):

Cancel an unlawful decision to terminate a public procurement contract. Resume the contractual relationship. Previously, a party to a public contract could only make a claim for compensation in a case of unlawful termination.

On the other hand, recent trends have caused access to the courtroom of the CE to expand, and the CE has conferred a wide variety of powers to the administrative judge to limit the negative impact this may have. Courts must indeed assess the seriousness of the alleged infringement and find the most appropriate solution (regularisation, termination, and so on) ensuring that the cancellation of the contract intervenes only in the most severe cases. Therefore, the increase in persons likely to pursue an action in the courtroom of the CE comes in conjunction with an obligation for the judge to weigh the interests at stake in order to find a balance between a strict respect of legality and the stability of the contractual relationship.

Use of the four EU procurement procedures by contracting authorities

Both restricted and open procedures are the most used procedures regardless of the type of public procurement (works, services or goods). The restricted procedure is more frequently used in the case of complex contracts that require some technical expertise and for which meticulous selection of applications is necessary.

The negotiated procedure, although often used by contracting authorities falling under the scope of the Utilities Directive, remains rare.

As far as the competitive dialogue procedure is concerned, it has become the most commonly used procedure for all major contracts of public-private partnership (PPP) subject to the Ordinance No. 2004-559 of 17 June 2004 (2004 Ordinance) (which, technically, falls within the scope of Directive 2004/18/EC on the co-ordination of procedures for awarding public works, supply and service contracts (Consolidated Public Sector Directive)), works concessions and some complex public procurement under the CMP. However, both the abovementioned texts limit the use of the competitive dialogue procedure.

For example, Article 36 of the CMP restricts the use of the competitive dialogue procedure to public contracts considered to be complex (for example, when the contracting authority itself is not able to define the contract objectively, and in advance, in relation to the technical measures likely to meet its needs or the legal and/or the financial structure of the contract). The administrative judge controls whether the conditions of use of the competitive dialogue procedure are legal. In this context, the contracting authority must prove the complexity of the contract (CE, 11 March 2013, ACCI, No. 364551).

Review procedures: bodies responsible for dealing with procurement law breaches

  • The administrative jurisdictions are almost systematically competent for disputes related to public procurement contracts. They are composed of three levels of jurisdiction:
  • The administrative tribunals (Tribunal administrative).
  • The administrative courts of appeal (Cour administrative d’appel).
  • The CE.

The administrative tribunals are competent in the first instance and their decisions can be appealed before the administrative courts of appeal. The CE is competent to review the judgments of the administrative courts of appeal.

There are also specific emergency proceedings regarding public procurement which are summary judgments against tender procedures (référé précontractuel) or contracts (référé contractuel). These proceedings fall within the jurisdiction of a single judge called the „juge des référés“ of the administrative tribunals of the place of performance of the contract. An appeal can then be lodged directly before the CE.

Civil jurisdictions are only competent to review the procurement contracts subject to private law executed by public contracting authorities.

Does the aggrieved party have to seek review first with the awarding body?

Generally, no review (recours administratif) must be made directly to the contracting authority.

However, the Administrative Justice Code (Code de Justice Administrative) (CJA) provides that if an aggrieved party lodges a claim for compensation before an administrative tribunal, it must make a prior claim for damages to the competent public body. This general rule applies when an unsuccessful bidder seeks compensation due to a breach of the advertising and competition rules.

Is there a requirement to notify the awarding body before starting court proceedings?

A claimant does not have to notify the contracting authority when an action is lodged before the administrative tribunal against a tender procedure or a contract. The judge, once seized, will notify the contracting authority.

However, there is an exception in the case of „référé précontractuel“ since Article R.551-1 of the CJA provides that the notification of an action prevents the contracting authority from signing the contract (being noted that this specific procedure can only be ruled on by the court if the contract at stake has not been signed). If the omission to notify does not lead to the rejection of the claim (CE, 10 November 2010, Ministry of Defence, No. 341132), the unsuccessful bidder will not be able to plead the unlawfulness of the signature of the contract by the contracting authority since the latter was not aware of the claim.

Which parties have standing to launch proceedings for breach of procurement legislation?

Currently, there are four different types of remedy which are available to various persons against either tender procedures or public procurement contracts.

Pre-contractual action (Référé précontractuel)

The „référé précontractuel“ is open to:

  • The representative of the state in the department (Préfet).
  • Unsuccessful bidders.
  • Persons who did not take part in the award procedure but that would have had an interest in being awarded the contract had the advertising and competitions rules been strictly complied with.
  • Contractual action (Référé contractuel)

The „référé contractuel“ is open to the same claimants as for the „référé précontractuel“.

Action challenging the validity of the contract (Recours en contestation de la validité du contrat)

Any unsuccessful bidder can challenge the validity of the awarded contract, or of some of its provisions, and claim compensation in the same claim or separately, where applicable (CE, 16 July 2007, Tropic Travaux Signalisation, No. 291545). This proceeding is called „challenging the validity of the contract“ (recours en contestation de la validité du contrat).

This remedy has been extended to any third party to an administrative contract likely to suffer damages in a manner sufficiently direct and certain due to its awarding conditions or to its provisions, including (CE, 4 April 2014, Département du Tarn-et-Garonne, No. 358994):

The members of the deliberative assembly of the local authority or group of authorities concerned. The state representative in the department. Contractual review when a claim is brought by the parties themselves. Parties to a public procurement contract can challenge the validity of the contract that binds them before the administrative judge.

What conditions must an applicant meet before a claim can be brought?

The conditions will vary depending on the kind of proceeding brought before the administrative tribunal.

Pre-contractual action (Référé précontractuel)

The unsuccessful bidders or the competitors who were prevented from bidding must show that they would have had an interest in signing the contract at stake and that they could suffer damages due to the breach of advertising and competition rules. The CE has ruled that the administrative judge must verify that the breach of these rules could directly aggrieve the claimant (CE, 3 October 2008, SMIRGEOMES, No. 305720).

Contractual action (Référé contractuel)

The same conditions as for the „référé précontractuel“ apply to the „référé contractuel“.

However, it must be noted that claimants cannot lodge a „référé contractual“ when they have already successfully lodged a „référé précontractuel“ and the contracting authority has complied with either:

The suspension of the tender procedure.

The court ruling following the „référé précontractuel“.

Furthermore, the conditions of engagement are very restrictive and limited to the most serious breaches.

This legal remedy is rarely used by operators, which prefer the „recours en contestation de la validité du contrat“.

Action challenging the validity of the contract (Recours en contestation de la validité du contrat)

Unlike the „référé précontractuel“, claimants are not required to prove the breaches of the advertising rules and competition rules could have, or had, personally aggrieved them (CE, 11 April 2012, Société Gouelle, No. 355446). Simply, if any violation of the rules of advertising and competition can be invoked, the judge will temper the effects of nullity depending on the seriousness of the alleged breach.

Contractual review when a claim is brought by the parties themselves

Assuming the validity of the contract is challenged by the parties themselves, the judge will determine the validity of the claim taking into account the principle of loyalty of contractual relationships. Consequently, a party to a public contract will not be entitled to seek the cancellation of the contract if it is the alleged party in breach or is aware of the alleged breach (CE, 28 December 2009, Commune de Béziers, No. 304802).

What are the applicable statutes of limitation?

Pre-contractual action (Référé précontractuel)

The „référé précontractuel“ must be lodged before the contract is signed.

Contractual action (Référé contractuel)

The „référé contractuel“ is subject to a limitation period of one month from the notice or publication of the challenged contract. If no notice of award has been issued, the period is extended to six months.

Action challenging the validity of the contract (Recours en contestation de la validité du contrat)

The „recours en contestation de la validité du contrat“ is subject to a limitation period of two months from the notice or publication of the challenged contract. If no notice of award or equivalent publication has been issued, the action can be brought without a time limitation.

Contractual review when a claim is brought by the parties themselves

The parties to a public procurement contract can challenge the validity of the contract that binds them before the administrative judge throughout the duration of the contract.

It must be noted that compensatory claims must be lodged within four years from the first day of the year following the occurrence of the damage. Otherwise, the debt of the public body will be prescribed.

Remedies

What remedies are available to an aggrieved contractor? Can a breach of procurement legislation by a regulated body lead to criminal liability?

Référé précontractuel. The „référé précontractuel“ is an effective remedy to sanction any breach of advertising and competition rules during the tender procedure.

It is a summary judgment held by a single judge. The judge can order the contracting authority to either:

Comply with its obligations.

Suspend or cancel the execution of any decision that relates to the award of the contract.

Remove clauses that are in the contract.

The judge also has powers of injunction and suspension. The judge can either:

Cancel the whole procedure.

Resume it at the stage just before the moment when the failure occurred.

Demand the reinstatement of an evicted candidate.

Require disclosure of the reasons for rejection.

These powers can be used by the judge, „unless the court finds, in consideration of all interests likely to be harmed including the public interest, that the negative consequences of these measures may outweigh their benefits“ (Article L.551-7, CJA).

Référé contractuel. The single judge of the „référé contractuel“ has significant powers. However, the exercise of these powers is strictly regulated (unlike the „recours en contestation de la validité du contrat“).

First, cancellation is the mandatory sanction if:

No procedure for advertising and competition has been implemented or no publication in the Official Journal of the European Union has been made.

Cumulatively, the contract was signed before the expiry of the standstill period, the breach of that obligation has deprived the applicant of the ability to lodge a „référé précontractuel“ and, finally, that the breaches of advertising and competition have affected the claimant’s chance to obtain the procurement contract (Article L.551-18, CJA).

If cancellation of the contract would raise a major concern that is of general interest, the judge can choose between alternative sanctions listed in Article L.551-19 of the CJA, which include cancellation of the contract, termination, reduction of duration or a financial penalty.

Second, in the case of a violation of the standstill period, the judge can choose between the same sanctions (Article L.551-20, CJA).

Likewise, apart from the cases where mandatory cancellation applies, the judge can adapt the sanctions according to the gravity of the breaches of the advertising and competition rules made and the context of the contract.

Recours en contestation de la validité du contrat. In the „recours en contestation de la validité“, the judge takes into account the gravity of the breach and its consequences in order to determine the most adequate solution. After taking into consideration the nature of the illegality that may have been committed, the judge can either:

Order the termination of the contract or amend some of its clauses.

Order the continuation of its performance, in some cases, subject to the implementation of regularisation measures by the contracting authority.

Grant compensation in reparation for the violated rights.

After checking that the cancellation of the contract would not be a disproportionate interference with the general interest or the rights of parties, annul the contract (either totally or partially, and possibly with a delayed effect).

Unlike the „référé précontractuel“ or „référé contractuel“, the judge’s decision is not enclosed within a particular timeframe as it is not a summary judgment but a normal proceeding. Therefore, claimants can lodge a suspension action (référé suspension) simultaneously seeking the suspension of the performance of the procurement contract.

The claimant can claim compensation in the same appeal or separately.

 

Criminal liability

The offence of favouritism, or granting an unjustified advantage, is contained in Article 432-14 of the French Criminal Code (FCC).

The offence of granting an unjustified advantage is punishable by two years of imprisonment and a fine of EUR 30,000, and is committed by any person who obtains, or attempts to obtain for others, an unjustified advantage by committing an act breaching the statutory or regulatory provisions designed to ensure freedom of access and equality for candidates in respect of tenders for public service and public services concessions. The person committing the breaching act must either:

Hold public authority, or be discharging a public service mission, or hold a public electoral mandate.

Act as a representative, administrator or agent of the state, local governments, public companies, or mixed economy companies of national interest discharging a public service mission, or local mixed economy companies.

Be any person acting on behalf of any of the abovementioned bodies.

Furthermore, any person „who knowingly, by aiding and abetting, facilitates“ the preparation or commission of an offence is considered an accomplice to that offence and is subject to the same punishment as the main perpetrator (Articles 121-6 and 121-7, FCC).

 

Does an ineffectiveness order have a prospective or retrospective effect?

A judgment relating to a public procurement contract can have a retroactive effect or prospective effect depending on the judge’s decision, the latter taking into account the gravity of the breach. The recent trend in relevant case law is to pronounce the retroactive cancellation of a contract only as a last resort. Judges favour termination (possibly with delayed effect) to facilitate, on the one hand, the output of the contractual relationship and the financial settlement of the contract and, on the other hand, the launch of a new tender procedure.

 

Transparency

What systems are in place in relation to the publication of details/copies of completed tender and contract documentation, which include pricing and other potentially sensitive information?

Law No. 78-753 of 17 July 1978 on various measures to improve relations between the administration and the public (1978 Law) establishes the principle of freedom of access to administrative documents. If requested by a third party, the administration must disclose documents covered by this legislation, which include documents relating to public procurement.

The principle of access to administrative documents is under the supervision of the Commission on access to administrative documents (Commission d’accès aux documents administratifs) (CADA) and under the control of the administrative judge.

The 1978 Law and the jurisprudence of the CADA set out a number of exceptions to the general rule of freedom of access to documents relating to public procurement. Therefore, for example, no document can be disclosed before the contract has been signed. After it has been signed, nearly all the documents can be disclosed. However, the contracting authority can, in order to respect commercial and industrial secrecy, the competition rules, public order or national security, conceal a number of matters.

In addition, under Article 80 of the CMP, contracting authorities must notify the unsuccessful bidders of:

The outcome of their bid.

The reasons that led to that decision.

The name of the successful bidder.

The same obligation applies to public-private partnership agreements (PPP) under Article 9 of the 2004 Ordinance.

 

Contracts outside the scope of the Consolidated Public Sector Directive

Is the award of contracts which are fully or partly outside the scope of the Consolidated Public Sector Directive regulated under national legislation?

Contracts that are outside the scope of the Consolidated Public Sector Directive are subject to various provisions of national law.

First, contracts falling under the Utilities Directive are regulated by the CMP or the 2005 Ordinance, depending on the legal nature of the contracting entity.

Second, public service concessions are subject to Law No. 93-122 of 29 January 1993 (commonly called „Sapin Law“). It provides for a set of rules for the award of public service concessions less formal than those set by the CMP for public procurement contracts. Due to the highly personal (intuitu personae) nature of these contracts, the applicable rules are more flexible. For example, it is possible to negotiate the offers with the bidders provided equal treatment between them is respected.

Finally, works concessions are subject to Ordinance No. 2009-864 of 15 July 2009, which provides a set of rules which are broadly similar to those applicable to public service concessions.

However, contracts relating to the sole occupation of the public domain are not subject to any tender procedure (CE, 3 June 2010, Ville de Paris, No. 329756).

 

Remedies available in relation to the award of contracts which are fully or partly outside the scope of the Consolidated Public Sector Directive

Most of the remedies listed above are the same for contracts that are outside the scope the Consolidated Public Sector Directive.

 

Ax Lawyers – Public Procurement and contracts help companies to enter the German market

German public procurement
The value and breadth of benefits public procurement can bring to both public authorities and contractors is sometimes underestimated. Yet due to lower thresholds being applied for European-wide public procurement contracts, most awards fall within a complicated regulatory framework which public authorities need to get used to using. While public authorities and contractors are beginning to recognise the potential of public contracts, there are also risks which need to be managed.

Germany’s public procurement legal framework
The European Union, formerly European Community, introduced measures to harmonise the public procurement legal framework across the EU’s member states. Legislation in the form of directives came into force to address the patchwork of regulation in the area of public procurement which had developed.
The two most important EU directives in the area of public procurement are directives 2004/18/EC and 2004/17/EC. These directives were transposed into German law and as a result it is probably more appropriate to speak of a codified EU public procurement law rather than German public procurement law. However, there are some unique characteristics and exclusions in Germany’s public procurement regulatory framework.

 

Transposition of the directives into German law
Transposition of the directives into German law occurred using a somewhat unusual procedure. Instead of adopting a new Act of Parliament introducing the EU’s measures into German law, the required changes were integrated into existing acts and regulations. The idea between this implementation process was to create a sort of filing system which could be cross-referenced to the type of public contract available. In this way, public authorities and prospective contractors would know which legal provisions apply in any specific case.
The initial result, however, was a confusing array of coinciding rules; yet on second glance the pieces of the puzzle begin to fall into place.

Implementation of the EU directives

To implement the EU directives modifications were made to the following legislation:

  • German Act Preventing Restriction of Competition – (Gesetz gegen Wettbewerbsbeschränkungen (GWB));
  • Public Procurement Rules – (Vergabeverordnung (VgV))
  • Regulations on Public Procurement and the Award of Contracts in the Transport, Water and Energy Sectors – (Sektorenverordnung (SektVO))
  • Rules on Public Procurement and the Award of Contracts for Construction Services – (Vergabe- und Vertragsordnung von Bauleistungen (VOB))
  • Rules on Public Procurement and the Award of Contracts for Services – (Vergabe- und Vertragsordnung für Leistungen (VOL))
  • Rules on Public Procurement and the Award of Contracts for Freelance Services – (Verdingungsordnung für freiberufliche Dienstleistungen (VOF))

Two types of contract
The first step to recognising which of the various public procurement rules apply to a certain case is to assess what financial threshold applies to the contract. There are two types of contract:
Type 1: national public contracts (which are below an applicable threshold)
Type 2: European public contracts (which exceed an applicable threshold)
The level at which a contract is being offered and its value affect which rules are applicable.

 

National public procurement contracts (awards below the threshold)
The national legislative framework applies to public contract awards which are under the applicable threshold. This means that European directives have no influence on the tendering process.
The Budgetary Principles Act and the Federal Budget Act set out the tendering process applicable to all public supply and service contract awards. This legislation applies unless the contract falls under one of the listed exceptions or the circumstances justify an exception to the process. County (Bundesland) and local authority budgetary legislation contains similar provisions. References are made in the legislation to the applicable rules in the VOB or VOL.

Regulations on Public Procurement and the Award of Contracts in the Transport, Water and Energy Sectors, (Sektorenverordnung (SektVO)) are applicable to public procurement contracts in these sectors.

 

Please do not hesitate to contact us:

Ax Lawyers – Public Procurement and contracts – öffentliche Auftragsvergabe und Verträge

t.ax@ax-rechtsanwaelte.de

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