Impacts of COVID-19 on public procurement in the EU

By Katia Duncker, Riikka Aarikka, Aarne Puisto

03-2020

The Coronavirus (COVID-19) has in a short time driven the whole world into a state of emergency. The pandemic may cause situations for which contracting authorities cannot have prepared for in advance. In this article, we will look at the question of how COVID-19 may affect the use of the negotiated procedure without prior publication ("direct award") and amending contracts during their term.

The following rules of the Procurement Directive[1] have been implemented into national legislation of the Member States, which subsequently are very similar in substance to the Procurement Directive.

Direct awards

The conditions for directly awarding a contract are laid down in Article 32 of the Procurement Directive. Under this procedure, the contracting authority negotiates the terms and conditions of a procurement agreement with its selected supplier without prior publication of a contract notice. This may mean, for example, organizing an informal competition by sending invitations to tender directly to a few suppliers.

Pursuant to Article 32(2)(c) of the Procurement Directive, the negotiated procedure without prior publication may be used in so far as is strictly necessary where, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, the prescribed time limits cannot be complied with. However, the circumstances invoked to justify extreme urgency may not be evoked should they be attributable to the contracting authority.

One may split this criterion into several sub-conditions. First, there must be an unforeseeable event that causes the need for the procurement. Second, an urgency must exist, and specifically an extreme urgency. Third, there must be a causal link between the extreme urgency and the unforeseeable event. Fourth, the urgency must prevent the observation of time limits. In other words, where it is possible for the contracting authority to use an accelerated procedure allowing a shorter tendering period, the contracting authority shall choose it instead of direct award. Fifth, the unforeseeable event must be beyond the control of the contracting entity. Sixth, it must be strictly necessary to conclude the agreement.

In legal praxis, the concept of "strict necessity" has been clarified so that a directly awarded contract may not be longer in duration or otherwise wider than is actually necessary. Therefore, it is possible to subdivide the necessity into two sub-conditions: the conclusion of the contract must be strictly necessary at the time when the contract is concluded and the contract may be concluded only to the necessary temporal and material extent.

In many cases, COVID-19 may be considered as an unforeseeable event for certain procurements. In such a situation, where even major changes take place within one day, the urgency can hardly be considered to be attributable to the contracting authority itself. If COVID-19 has caused a strictly necessary need for the contracting entity, especially the above-mentioned limitations regarding temporal and material extent must be taken into account when directly awarding a contract. This always requires a case-by-case assessment.

In the current situation it is important to pay attention to the general principles governing public procurement: equal treatment, non-discrimination, mutual recognition, proportionality and transparency. The suppliers are very likely understanding and ready to react, even if only a few days are reserved for submitting tenders in an informal procedure. If it is possible to choose multiple suppliers, this kind approach might be appropriate in the current situation.

A contracting authority may minimise its risks by publishing a notice for voluntary ex ante transparency, which sets out as clearly as possible the grounds for the award. Publishing the notice precludes a procurement agreement to later be found as ineffective – unless the notice is considered manifestly deficient or incorrect.

Contract Modifications

It may also be possible for the contracting authority to respond to a need created by COVID-19 by modifying an existing procurement contract. Pursuant to Article 72 of the Procurement Directive, a procurement agreement may not be amended in any material respect during the agreement period without a new procurement procedure if these modifications alter the overall nature of the agreement.

A modification is, at least, considered substantial in the following four situations. Firstly, a modification is considered substantial if the amendment introduces conditions which would have affected the outcome of the competitive tendering or the amount of tenderers who may have participated in it. Secondly, a modification is considered substantial if the economic balance of the agreement has been modified in favour of the supplier in a manner that was not specified in the original agreement. Most commonly, this means that the prices are significantly raised. Furthermore, significant changes in the scope of the contract (extension or reduction) also entail a substantial modification which requires a new competitive procedure. Lastly, replacement of a contractor may also mean a substantial modification.

However, in accordance with Article 72(1)(c), contracts may be modified without a new procurement procedure if the need for modification has been brought about by circumstances which a diligent contracting authority could not foresee and the modification does not alter the overall nature of the contract. The radical and sudden changes in society caused by COVID-19 may, in principal, be considered as circumstances which the vast majority of diligent contracting authorities cannot have foreseen. However, contracting authority's possibility of anticipating must be assessed on a case-by-case basis. In any case, the contracting authority must ensure that the modification will not alter the overall nature of the contract.

Even if these conditions are fulfilled, it must be noted that any changes in price shall not exceed 50 % of the value of the original contract. In addition, the contracting authority is obligated to publish a notice of such modification in accordance with Article 72(1)(e) of the Procurement Directive. If the contracting authority is in need of a more significant modification, the situation must be assessed in the light of the above-mentioned conditions for direct awards.

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Last reviewed: 23 March 2020

[1] Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC.