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Dear clients and cooperation partners,
We draw your attention to recent public procurement news in Latvia.
Amendments to Latvian Civil Law help protect businesses against arbitrary public contracting authorities
On 1 July 2013, amendments to the Latvian Civil Law came into force; these have an immense impact on contracts between businesses and public contracting authorities. The new regulations apply to contracts for supply, purchase of goods, or provision of services concluded after 1 July 2013 (for contracts concluded as a result of a procurement or concession procedure, then these regulations apply if the procurement or concession procedure was announced after 1 July 2013). We draw your attention to what appear to be the most significant innovations:
- Compliance of a delivered product, purchase or service with the contract must be verified within 30 days as of the day when the product or service is received, unless the parties have agreed otherwise and this disclaimer is obviously unfair towards the company (for example – with the aim of delaying payment for goods or services).
- A limit is applied to the payment term, thus protecting companies’ interests. This results from Civil Law amendments that the payment term for delivery and purchase of goods or services may not exceed 30 days. The payment term can be extended up to 60 days only as far this can be justified by taking into account the obligation to be performed. Contractual parties may not amend these terms by mutual agreement.
- If a public contracting authority delays payment, companies may claim late payment interest from the public contracting authority without a special reminder; the amount of late payment interest is calculated by a principal rate set semi-annually by the Bank of Latvia (the principal interest rate set on 1 July 2013 is 2.5% a year).
- In addition to statutory late payment interest (as well as a contractual penalty if any and compensation of losses), if the public contracting authority delays payment, then even without a special reminder companies may claim “costs of debt recovery” in the amount of LVL 30 (after introduction of the euro in Latvia – EUR 40) from the public contracting authority. Until now, this automatic compensation due to late payments did not exist in Latvian law.
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Competition Council detects restrictive agreements coordinating bids in procurement
Within very short period, the Competition Council has published two decisions (decision No. E02-24 of 24 May 2013 and decision No. E02-31 of 17 June 2013) related to restrictive agreements where procurement bids have been coordinated. Both decisions confirm the opinion previously expressed by the Competition Council:
- One and the same person may not prepare several competing bids in public procurement because, in the view of the Competition Council, where one and the same person prepares commercial information on several companies, plans of one company inevitably become known to the other company. The Competition Council considers that this situation violates the prohibition on sharing details of competitors’ operation (omission of activities) that may affect the activities of a competing market participant.
- Additionally, unauthorised activity by company employees or other hired parties can cause adverse consequences. The Competition Council considers that companies are responsible for keeping business secrets from other companies – competitors. Companies must ensure that persons to whom they provide their commercial information do not disclose it. In detecting a restrictive agreement (concerted action), the Competition Council can follow the activities of employees or other persons who obtained commercial information.
Taking into account that decisions of the Competition Council can be appealed in court, at present it is not known whether both these decisions are the last word on these competition law aspects in the context of public procurement.
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Amendments to Latvian Administrative Violations Code increase liability of contracting authority officials for violations in procurement procedures
On 1 September 2013, amendments to the Latvian Administration Violations Code will come into force; these will increase the liability of contracting authority officials for non-fulfilment of regulatory enactments of public procurement and public-private partnership and procurement documents, for example, in these situations:
- choice of improper procedure;
- violation of conflict of interests;
- non-fulfilment of candidate regulations or applicant exclusion or set requirements;
- non-fulfilment of regulations on entering into and amending contracts;
- failure to provide documents and information.
These cases of administrative violation will be reviewed by the Latvian Procurement Monitoring Bureau.
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Different procurement procedure established for projects part financed by the European Union or the state (including foreign countries)
On 1 September 2013, new Cabinet Regulations No. 299 “On the procurement procedure and how to apply it to projects financed by the contracting authority” come into force; these will specify a more flexible procedure for organising procurements for companies and other contracting authorities that implement projects with funds from the European Union (EU) or a non-EU foreign country or the Republic of Latvia. Nevertheless, state and municipal institutions, as well as other contracting authorities and providers of public utilities, will still have to follow the Public Procurement Law, the Law on Procurement of Public Service Providers, and the Law on Procurement in the Field of Defence and Security.
In the new regulations, the Cabinet of Ministers has taken into account that funding is usually received by companies that are used to striving for maximum efficiency. Thus the new order is completely different from the previous one by providing a flexible procedure for granting rights to enter contracts.
The most significant innovations in the regulations are as follows:
- The procedure set in the regulations for granting rights to enter contracts will apply when the expected contract price for supplies or services is LVL 50,000 (EUR 71,177) or more, and the expected contract price for construction works is LVL 120,000 (EUR 170,824) or more.
- The minimum term for submission of bids is extended to 10 business days in procurement of products and services and to 15 business days in procurement of construction works.
- The significance of pre-drafted detailed technical specification has decreased in favour of substantiation of economic benefit in the procurement. Further, upon announcing the procurement procedure the procurement object should be described to a degree of detail that allows suppliers to understand the procurement object and make the initial bid.
- The new order is based on organising negotiations with those who submit initial bids, allowing supplementary information and improvement of offers. Moreover, rights are granted to recipients of funding to invite other suppliers to submit an initial bid and start negotiations at any time until it has been decided to choose the supplier.
- Includes a requirement for the recipient of funding to substantiate the chosen contractual price and comply with the market situation upon a request from the institutions in charge.
- Prevention of conflicts of interest is regulated in more detail.
On 1 August 2013, numerous amendments to the Public Procurement Law came into force. Because these are so many, we will explain the most significant innovations separately.
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