Flexibility in a rapidly changing world and economy: procuring construction contracts without a fixed price in the Netherlands
Introduction
Is it possible to tender without bidders having to quote a fixed price for the entire construction contract during the procurement procedure?
There are several reasons that can be given for why it might not always be desirable for procuring authorities to require bidders to quote a fixed price. A tendering authority knows its needs, but does not always know which resources or services meet these needs. Another reason could be that the tendering authority wants to assess what the market has to offer in terms of, for example, technical solutions. The importance of flexibility in pricing also becomes relevant to deal with supply chain issues while dealing with fairly long lead times[1].
The European legislator has previously introduced procedures centred around innovation and flexibility (i.e. the innovation partnership procedure and the competitive dialogue procedure), which have been implemented in the Dutch Procurement Act 2012. For good reasons, these procedures include a comparison between price and quality. This raises the question to which level Dutch procurement law allows for flexibility in pricing when dealing with the procurement of construction projects.
A few observations
It follows from the Dutch procurement law that a tender requires cost or price to have a role during the procurement procedure[2]. Price and cost are considered objective criteria that allow a proper comparison of the relative value of the bids. The use of price and cost as award criteria also serves to stimulate competition in the market and ensures that the fundamental principles of transparency, non-discrimination and equal treatment are safeguarded[3].
However, Dutch legislative history explains that it is possible to shape this cost element in different ways. It can be done by means of a fixed price, but also through for instance fixed costs on the basis of which the bidders compete solely on quality criteria in a tender[4]. This is in line with article 67 of the European Procurement Directive (2014/24/EU).
The Dutch Proportionality Guide (which is a Dutch guide that provides for further elaboration on the procurement principle of proportionality)[5] explicitly states in this regard that:
“In certain sectors such as civil and hydraulic engineering it can be desirable to agree prices per unit, without recording the related quantities in advance. These are ‘open item’ specifications (in the RAW Standaard 2015 (industry-wide general terms and conditions applied to civil and hydraulic engineering works) referred to as a RAW Framework Agreement) lead to fictitious contracting sums in tenders. The work to be carried out is awarded on the basis of sub-contracts on the pre-agreed terms and conditions. This system lends itself for maintenance and repair work for which the scope is not yet known in advance.
In addition to these framework specifications, service specifications can also be used for the execution of work on demand depending on circumstances which cannot yet be foreseen, e.g. towing away of vehicles, de-icing activities, etc. Not only is the scope not known in advance, but it is even unclear whether use will in fact be made thereof. The use is influenced by whether or not disasters occur. In the latter specifications prices can be determined, whereby a distinction can be made according to working days/Sundays and public holidays; inside/outside of normal working hours.”[6]
Conclusion
It can be concluded that although it is not possible to tender without giving any importance to cost or price, it is permissible in procurement law to put a construction contract out to tender of which the exact value and quantity is not fixed in advance. The legal framework offers a lot of flexibility to procure construction projects without a tendering authority having to require a fixed quote from the bidders on price or cost for the entire contract.
Do you need assistance with your procurement or construction projects? Please contact Andrea Chao or Mariam Ali.
[1] See also our previous article ‘Bidders bearing the burden of the current supply chain problems for construction projects’, which can be accessed via the following link.
[2] See article 2.114 (2) and 2.115 (2) of the Dutch Procurement Act 2012. See also article 67 of the European Procurement Directive (2014/24/EU).
[3] Consideration 90 of the European Procurement Directive (2014/24/EU).
[4] Kamerstukken II 2015/16, 34 329, 3, p. 82.
[5] The translation of the 3rd revised version of the Guide Proportionality was made possible by Bird & Bird the Netherlands, and can be found through this link.
[6] See p. 24 of the Proportionality Guide. Bird & Bird participated in the translation of the 3rd revision of this guide. A translation in English of the Proportionality Guide is available here.
