There have not been any amendments to the laws of Latvia that would directly impact the conduct of public procurements in Latvia, including in the utility, defence or security sectors. However, due to the considerable increase in the number and scope of the sanctions (these are called “restrictive measures” in the EU) that the EU and many states have imposed in response to the situation in Ukraine, there are many more practical challenges.
Exclusion of sanctioned persons
As outlined above, the Law on International and National Sanctions of Latvia requires the contracting authorities and entities to exclude from procurements any candidate or tenderer whose officials, ultimate beneficial owners or representatives have been sanctioned either under national sanctions, or sanctions implemented by the Security Council of the United Nations Organisation, or Regulations of the EU, or such sanctions applied by individual member states of the EU or NATO that significantly affect the interests of the financial and capital market of Latvia, if such sanctions prevent the fulfilment of the contract. In practice, every such candidate or tenderer will be excluded. The Law on International and National Sanctions of Latvia does not provide for a self-cleaning mechanism.
Additionally, the EU restrictive measures envisage that, with few exceptions, from April 2022 it is prohibited to award or continue the execution of any public or concession contract falling within the scope of the public procurement directives to (a) a Russian national, or a natural or legal person, entity or body established in Russia; (b) a legal person, entity or body more than 50% of whose proprietary rights are directly or indirectly owned by an entity referred to in point (a); or (c) a natural or legal person, entity or body acting on behalf or at the direction of an entity referred to in point (a) or (b).
Although the laws do not require the exclusion of a tenderer if its subcontractor or nominated experts are sanctioned, we do, however, highly recommend each tenderer check their subcontractors and nominated experts in this respect, and to replace them in case they are placed under sanctions or their work in Latvia is hindered due to the applied sectoral sanctions (e.g. there are restrictions on obtaining visas for Russian individuals).
Challenges during the performance of the contracts
There are several challenges for the performance of contracts, which need to be managed in a timely fashion:
Contracting authorities and entities are obliged by the Law on International and National Sanctions of Latvia to include in their contracts a clause on the unilateral termination of a contract in case the other party is placed under sanctions and the sanctions applied prevent the fulfilment of the contract. Thus, in many cases, the sanctions will lead to termination of the contract because it is highly likely that the sanctions applied to legal or natural persons will at least forbid the contracting authorities and entities to make payments to the sanctioned party. However, the decision to terminate the contract needs to be taken on a case-by-case basis.
The applied sectoral sanctions prevent or make difficult fulfilment of the contract. For example, the prohibition on importing certain steel products from Russia has had an impact on prices and deadlines for completing construction works in particular. Other examples also exist. Therefore the question is whether the applied sanctions may be considered a force majeure. The basic principles in this respect in Latvia are:
The contract can contain a force majeure clause. If it does, the existence of a force majeure must be determined in accordance with this contractual clause.
If the contract does not contain a force majeure clause, the case law of the Latvian courts has stated that a force majeure event is an event that the parties could not avoid or mitigate the consequences of, that a reasonable person could not foresee at the moment of conclusion of the contract, that occurred independently of the parties and persons whom they have influence over and that makes the fulfilment of the obligation impossible (and not just difficult). Thus, certain sanctions may be considered a force majeure and may therefore potentially relieve the non-fulfilling party from the liability. However, each case must be analysed on a case-by-case basis.
For example, if sanctions forbid any trade with a certain person, but that person was obliged to produce the specific equipment that is the subject matter of the contract, it is highly possible that the sanctions should be recognised as a force majeure event, because the delivery of the equipment would have become impossible, as well as due to the fact that the purchase was of specific equipment and so it would be impossible to substitute it with any other equipment. Equally, if the sanctions prohibit payments to a certain sanctioned person, those sanctions should also most likely be recognised as a force majeure event. However, if e.g. construction works become more difficult because some materials cannot be imported from Russia anymore, sanctions prohibiting the import of specific materials most likely will not be recognised as a force majeure event because they can be substituted with other equivalent materials, even though that may increase the cost and prolong the completion of the construction works.
The Procurement Monitoring Bureau of Latvia has published guidance on how to manage contracts in the light of the current extraordinary circumstances. Among other things, it recognises that the sanctions and other geopolitical changes may increase the cost of materials, prolong deadlines or require other material amendments to contracts. For those cases when the contract does not clearly stipulate the possibility that it can be amended accordingly, the Procurement Monitoring Bureau accepts that on a case-by-case basis amendments might be allowed due to the fact that the contracting authority or entity could not foresee such circumstances, or because they fall within so-called de minimis scope of amendments (an increase of the price of the contract by up to 10% of the price of a public supply or services contract, or up to 15% of the price of a works contract). However, not all contracting authorities and entities are willing to amend the contracts.