Dear clients and cooperation partners,
On 1 March 2017, the new Public Procurement Law (the New Law) comes into force. The New Law contains a range of novelties as well as more nuanced and detailed legal regulation for many known public procurement aspects.
First, we would like to draw your attention to the following important news that contracting entities should take into account:
- Exceptions to application of the law have significantly changed by the introduction of several new exceptions when contracting entities are exempt from applying the New Law, for example, legal services in relation to issue of securities or other financial instruments.
- Contract price thresholds have been raised to apply the procurement procedure set in the New Law. The procurement procedures set in the New Law will apply to supplies and services if the estimated contract price is at least EUR 10,000 (at present EUR 4,000), and in the case of a contract for construction works EUR 20,000 (at present EUR 14,000).
- Use of price as a criterion for assessment of offers has been restricted in favour of the economically most beneficial offer, which is now a more significant criterion. Contracting entities will be entitled to use price alone for comparison and assessment of offers in so-called “small procurements”, social and other special service procurements or where the technical specification is detailed and other criteria are insignificant for assessing the offer.
- A new procurement procedure is introduced – innovation partnership. Any supplier can participate in this procedure but an offer may be submitted only by candidates chosen by the contracting entity. This procedure has been created to establish a long-term innovation partnership for development and further purchase of innovative products, services or construction works.
- The New Law allows institutions and companies that have otherwise been contracting entities to become suppliers, that is, to offer construction works, supply of goods or services. However, the New Law likewise changes contracting entities’ mutual procurement contracts by extending contracting entities’ options to procuring from other contracting entities and their controlled or controlling businesses or contracting entities without applying the New Law.
- Aspects related to centralised procurements carried out by procurement institutions are regulated in detail. At the same time, the common contract price is increased in product and service groups. When this price is reached, direct management and municipal institutions must buy certain goods and services from the centralised procurement institution set by the Cabinet of Ministers. The increased contract price threshold for direct management institutions is EUR 1,000 (at present EUR 150), and for municipal institutions EUR 10,000 (at present EUR 4,000).
- In addition to procurement carried out by centralised procurement institutions, the New Law introduces an option for several contracting entities from various member states of the European Union to jointly grant rights to conclude a procurement contract, to conclude a general agreement or use the dynamic procurement system.
- An obligation is imposed on contracting entities to publish information within a month as from approving the annual budget for planned procurement and procurement procedures. In turn, prior notification of procurements is not mandatory in any case.
- Upon preparing a procurement, contracting entities will have to take into account the requirements of so-called “green public procurement”, to be set by the Cabinet of Ministers. Green public procurement aims at decreasing the negative effect of goods, services and construction works on the environment during their entire life cycle. At present, the draft regulations of the Cabinet of Ministers state that green public procurement must be implemented for the following groups of goods and services:
- office paper;
- printing equipment;
- hardware and information & communication technology infrastructure;
- catering services;
- cleaning materials and services;
- indoor lighting;
- street lighting and traffic lights.
- Restrictions on including penalised persons in the procurement commission should be taken into account depending on the type of penalty. Likewise to be taken into account is that the requirement to set up a procurement commission with five members is mandatory if the estimated contract price exceeds EUR 1 million (at present EUR 711,000).
- Certain types of publication as well as terms for certain publications have changed. For example, an announcement on granting the right to enter into a contract must be submitted for publishing within ten business days after the procurement contract or general agreement has been entered into, or a decision has been taken to suspend or stop the procurement procedure, or not to set up a dynamic procurement system (at present the announcement of results must be submitted for publishing within three days at the latest after informing the candidates). Also, an announcement of changes to a contract must now be published within ten business days after the amendments come into force.
- A contracting entity will have to obey minimum terms set by the Cabinet of Ministers for submission of offers. A longer offer submission term can be set only in specific cases.
- A contracting entity must ensure electronic submission of offers and applications. The Cabinet of Ministers will determine exceptions to this general obligation.
- The procurement procedure announcement will be posted on the contracting entity’s profile.
- A contracting entity will accept and recognise statements and other documents from foreign institutions if the documents are issued not earlier than six months before the submission date, unless the issuer of the statement or document indicates a shorter validity term. At present, statements and other documents are valid for one month, a term which will continue to apply to statements and documents issued by the Latvian authorities.
- A range of exclusion and other provisions will apply to subcontractors whose construction works or services correspond to at least 10% of total contract value, compared to the current threshold of 20% of contract value.
- A new regulation has been determined to exclude candidates and applicants – severe breach of professional operation. The New Law does not define a severe breach of professional operation. This will be determined by the Cabinet of Ministers.
- If a supplier relies on another person’s business and finances, the contracting entity is allowed to require that the supplier and the person on whose options the supplier relies are jointly and severally responsible for fulfilment of the contract.
- Information about completed construction works, suppliers and services, to check the supplier’s technical and professional capabilities, can be requested for a longer term than the presently set five or three years.
- The New Law leaves out the repeatedly criticised obligation of the contracting entity to assess whether the offer is unreasonably cheap if the hourly rate of the supplier’s or its subcontractors’ employees does not amount to a certain percentage of the average hourly rate in the country. Nonetheless, we should wait for specific regulations from the Cabinet of Ministers.
- The New Law also allows a procurement contract to be entered into between the contracting entity and a subcontractor, not only the supplier. The New Law likewise in certain circumstances allows payment for subcontractors’ services to be transferred directly to the subcontractor at its request. Meanwhile, the regulations on replacing subcontractors during a procurement contract have become more complicated.
- Within ten business days after coming into force of a procurement contract or changes to it, the contracting entity must post on the buyer’s profile the main text of the procurement contract or general agreement, or the text of the procurement contract concluded on the basis of a general agreement, if the contract price corresponds to or exceeds the contract price thresholds set by the Cabinet of Ministers, as well as in certain cases defined by the law the contracting entity must post on its profile the text of amendments to the procurement contract and substantiation of the amendments.
- New aspects are also introduced in relation to amending procurement contracts. For example, following set conditions, the contracting entity does not need to organise a negotiation procedure to amend a procurement contract and receive additional construction works, services or supplies, or also if contract amendments are needed for reasons that could not be foreseen by the contracting entity in advance.
- The New Law also outlines cases when the contracting entity can unilaterally withdraw from a procurement agreement. However, the list of cases included in the New Law is not exhaustive. In the procurement contract, the contracting entity can determine other cases when it is entitled to withdraw.
Candidates and applicants, in turn, need to draw attention to at least the following new items:
- Suppliers will have more discretion to choose the legal form for a suppliers’ consortium. In particular, the New Law states that the consortium that has been chosen to conclude the procurement contract with can freely select its form in compliance with the legal status determined by the contracting entity, agreeing on division of responsibility among the consortium members.
- The New Law sets a shorter term for submission of applications to the Procurement Monitoring Office regarding contract requirements included in rules for the open procedure and outline procedures and respective announcements, by decreasing the term from ten to seven days before expiry of the term for submission of offers and outlines.
- One of the most disputed issues is introduction of a deposit that must be paid in certain cases before submission of an application to the Procurement Monitoring Bureau; otherwise the application is not accepted. No deposit is needed if the application disputes the lawfulness of suspending (but not ending) a procurement procedure or the requirements set in procurement procedure documents. The deposit amounts to 0.5% of the expected contract price, but not more than EUR 15,000 in cases of a construction contract and EUR 840 in cases of a public service contract and supply contract. The deposit will be returned to the applicant only in cases specified in law, for example, after a decision that does not favour the contracting entity comes into force or the application is withdrawn before its review by the application review commission. However, the New Law does not state whether the deposit is returned if the application review commission rejects the application, unless a later court judgment that has come into force requires return of the deposit to the applicant.
To conclude, we stress that the New Law forms only part of new legal regulation. On the basis of the New Law, the Cabinet of Ministers will adopt several regulations that will be as important for new legal regulation as the New Law itself. The Cabinet of Ministers is still working on the new regulations.