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Impact of the corona virus: procurement law

03/12/2020 - Reading time: 1 minutes

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In crisis situations, the Federal Procurement Act 2018 (Bundesvergabegesetz 2018, BVergG 2018) provides for certain simplifications regarding the conducting of procurement proceedings by way of accelerated proceedings or exceptional proceedings such as negotiated procedures without prior announcement. Choosing such simplifications, however, must always be assessed, justified and documented on a case-by-case basis.

Due to cases of sickness or home office, organisational measures might be required. In such a case, bidders should see to it that deadlines for submitting a tender are not missed and ensure that both legal possibilities (e.g. powers of attorney) and technical possibilities (access to platforms, licences, etc.) to submit a tender are in place.

In the course of ongoing procurement proceedings, contracting entities can react to the corona crisis for example by prolonging participation deadlines or tender periods, as well as by correcting and/or adapting the tender documentation. In certain cases, it may be required to schedule new delivery periods or suspend contractual penalties.

The consequences of the coronavirus might entail the necessity to implement amendments regarding services or contractual amendments in existing order or contractual relationships (e.g. by increasing order volumes or cancelling the provision of services). What is crucial in this context, is to take into account the requirements for contractual amendments as set out in section 365 BVergG 2018.

With regard to planned procurements, it is necessary to also take into account potential required future contractual amendments, and to determine whether it is possible or expedient to react to future amendment necessities in conformity with procurement law, for example by certain clauses amending contracts.

Procurement law provides for the obligation of contracting entities to exclude bidders who performed prior contracts unsatisfactorily. Substantial delays or non-performances with regard to the provision of services – even if they are caused by the corona crisis – are thus problematic from a procurement law perspective.

Hence, bidders are advised to thoroughly examine exclusion decisions and, if necessary, contest them. In any case, however, self-cleansing measures under procurement law should be implemented in a timely manner in order to, if at all possible, prevent exclusion from future procurement proceedings if termination of the agreement or contractual penalties and/or claims for damages and/or similar sanctions occurred within the scope of an ongoing order relationship due to unsatisfactory performance.

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In general, the Federal Procurement Act 2018 (Bundesvergabegesetz, BVergG 2018) enables contracting authorities to accelerate and simplify procurement procedures in times of crisis. In order to be able to make use of such procurement facilitation, strict criteria have to be met. 

(i) Accelerated procedure 

Evaluating if an accelerated procedure can be applied and is reasonably practicable should be the first step of any urgent procurement in an exceptional situation. 

In doing so, contracting authorities may set shortened time limits if compliance with time limits is not possible (cf. section 74 BVergG 2018).  

Thus, a participation deadline of at least 15 days and a tender period of at least 10 days can be provided for in restricted procedures and/or negotiated procedures with prior publication. The tender period can be reduced to at least 15 days in open procedures.  

A prerequisite for this is that the contracting authority is able to reasonably explain the urgency.  

The current situation caused by the spread of COVID-19 may thus be an appropriate reason for accelerated procurement in many cases. If there is not enough time for an accelerated procedure, the contracting entity also has the possibility to resort to a procurement option based on urgent reasons. 

(ii) Procedure without prior announcement 

For all kinds of procurement relationships, the BVergG 2018 provides for the possibility to carry out a negotiated procedure without prior announcement due to “very urgent, compelling reasons”.  

Three cumulative prerequisites must be complied with:  

  • An unforeseeable event has occurred.  
  • Very urgent and compelling reasons impede compliance with the time limits of the standard procedures.  
  • There is a causal link between the unforeseeable event and the urgent and compelling reasons resulting therefrom. 

The circumstances justifying extreme urgency must not be attributable to the contracting authority. If there is sufficient time to conduct an accelerated procedure, this exceptional procedure is not eligible. 

Pursuant to the comments to the BVergG 2018, unforeseeable events mean events that “shatter the framework of economic and social life” and examples quoted include natural disasters which require urgent deliveries for providing assistance and protecting the victims, or extraordinary forest fires.  

However, a crisis does not allow for any and all contracting authorities to procure each and every deliverable by way of an exceptional procedure. Only those kinds and amounts of goods and services which are immediately required due to the critical situation may be procured in this manner. If deliverables are required after a crisis, contracting authorities have to “regularly” launch a tender whereas, during such a situation, also fewer than three bidders may be asked to submit an offer in negotiated procedures without prior publication. 

Due to the expected further spread of COVID-19 with all the associated consequences (quarantine, impending non-performance, restrictions on the trade of goods etc), the admissibility of the application of such exceptional procedures will urgently need to be evaluated by contracting authorities in more detail on a case-by-case basis.  

Also in times of crisis, it is mandatory to adequately document and justify the choice of the procurement procedure and the award decisions. 

(iii) Exception from procurement law  

If the situation escalates further, procurement procedures that are not compliant with procurement law could also be justified. However, for the exception pursuant to section 9 (1) (3) BVergG 2018 to apply it is necessary that such non-compliant procedure is used for the protection of material security interests of the Republic which have fundamental consequences on the existence or the functioning of the Republic. This way is described as the last resort (ultima ratio) and requires that no other options provided for under procurement law are available.  

During ongoing procurement procedures, bidders should see to it that deadlines for submitting a tender are not missed and ensure that both legal possibilities (e.g. powers of attorney) and technical possibilities (access to platforms etc.) to submit a tender are in place. 

In the course of ongoing procurement proceedings, contracting entities can react to the crisis by prolonging participation deadlines or tender periods, as well as by correcting and/or adapting the tender documentation. Frequently, it may be required – also with regard to appropriate bidding competition – to schedule new delivery periods or suspend contractual penalties. 

In the current situation, contracting entities also face numerous questions related to the handling of awarded contracts.  

For example, to be able to react to the increased demand, it is important to determine whether and to what extent existing contracts may be amended. Contracting entities are in particular confronted with the question what consequences possible non-performance might entail with regard to public contracts. 

(i) Change in performance and contractual amendments 

The Austrian Federal Procurement Act 2018 (Bundesvergabegesetz 2018, BVergG 2018) generally prescribes contracting authorities to include provisions on extra and reduced performance in the documents on which contracts are based. On a regular basis, there will be contractual possibilities to set out and/or agree changes in performance related to already awarded contracts – also by implementing respective contractual standards (e.g. ÖNORM standards). 

However, in particular in case of planned procurements and/or crisis procurements adequately detailed wording of performance change and/or contract amendment rights or cancellation possibilities will be crucial.  

The focus in this context should be on compliance with and/or forward-looking consideration of section 365 BVergG when drafting contracts. This provision sets out to what extent subsequent contractual amendments are admissible and when they are to be considered significant, thus triggering the obligation to launch a new tender. 

Thus, in case of a contractual amendment, the first step is to determine whether it is included in the catalogue of insignificant and admissible contractual amendments pursuant to section 365 (3) (e.g. changes in the contract value not exceeding 10% or 15%, changes based on clear and unambiguous change clauses, certain kinds of changes of contract partners, etc.) If a certain contractual amendment cannot be attributed to any category of the above catalogue, it is to be determined whether the amendment in question constitutes a significant contractual amendment.  

In this context, it is in particular the changes that are to be mandatorily categorised as significant pursuant to section 365 (2) BVergG 2018 that are of relevance (e.g. shift in the economic balance of the agreement to the benefit of the contractor or substantial increase or reduction of the scope of the agreement).  

Therefore, in case of required performance changes or contractual amendments both the order and the contractual situation have to be examined in detail. In doing so, the provisions of section 365 BVergG 2018 must be adhered to. 

In particular with regard to envisaged procurements, it is strongly recommended to include clear change clauses in the documents on which contracts are based to be well prepared for foreseeable change needs. 

(ii) Non-performance: imminent exclusion? 

Section 78 (1)(9) BVergG 2018 (and, for entities awarding contracts for utilities, section 249 (2)(8) of that Act) stipulate the mandatory exclusion of a bidder where the bidder has shown substantial or persistent deficiencies in the performance of prior contracts which led to a sanction (early termination, damages or contractual penalties, or other comparable sanctions, such as substitute performance, invoice reductions, etc). 

Thus, substantial delays in performance or non-performance within the scope of a current public procurement relationship might entail serious consequences for bidders in future procurement proceedings.  

The comments to the BVergG 2018 stipulate that such unsatisfactory performance should not be considered as grounds for exclusion if court proceedings regarding the dispute concerning the performance of the contract are pending. However due to a current decision of the ECJ, this “exit strategy” is not, or no longer, available to contractors. The ECJ stated that, in assessing a bidder’s reliability, a contracting authority must not depend on court decisions (cf. ECJ 19/06/2019 C-41/18, Meca).  

Hence, a contracting entity must, in any case, make decisions as to the exclusion of bidders also in cases where the lawfulness (under civil law) of a contract termination or the question of fault, in the context of claims for damages, has not yet been clarified by the court. From a procurement law perspective, the reason for a delay or non-performance – even if such reason is the spread of SARS-CoV-2 – is irrelevant insofar as a respective contractual sanction has been implemented. 

Against the backdrop of potential exclusions from procurement procedures due to delays or non-performances and a ban from contracts being imposed for up to three years on account of this, bidders will certainly have to thoroughly examine consequences concerning contracts and exclusion decisions issued by contracting entities in the procurement procedure, as well as, in any case, contest such exclusions within the scope of a review procedure. In cases of doubt, appropriate “self-cleansing” measures have to be taken to avert being banned from contracts. To substantiate their reliability, bidders have to prove to have taken, above all, the following measures: 

  • Redress or undertaking to compensate for damage 
  • Active cooperation with investigation authorities 
  • Introduction of reporting and control systems, setting up an internal audit body, introduction of internal rules governing liability and damages  

The current circumstances related to the spread of the coronavirus make public procurement, too, face substantial but not unsolvable challenges. In crisis situations, the BVergG 2018 provides for certain facilitation options regarding the conducting of procurement proceedings by way of accelerated proceedings or exceptional proceedings such as negotiated procedures without prior announcement. Choosing such facilitated procedures, however, must always be assessed, justified and documented on a case-by-case basis. 

Due to cases of sickness or home office, organisational measures might be required. In such a case, bidders should see to it that deadlines for submitting a tender are not missed and ensure that both legal possibilities (e.g. powers of attorney) and technical possibilities (access to platforms, licences, etc.) to submit a tender are in place. 

In the course of ongoing procurement proceedings, contracting entities can react to the corona crisis for example by prolonging participation deadlines or tender periods, as well as by correcting and/or adapting the tender documentation. In certain cases, it may be required to schedule new delivery periods or suspend contractual penalties. 

The consequences of the coronavirus might entail the necessity to implement amendments regarding performance or contractual amendments in existing procurement and contractual relationships (e.g. by increasing order volumes or cancelling the provision of services). What is crucial in this context, is to take into account the requirements for contractual amendments as set out in section 365 BVergG 2018. 

With regard to planned procurements, it is necessary to also take into account potential required future contractual amendments, and to determine whether it is possible or expedient to react to future amendment necessities in conformity with procurement law, for example by certain change clauses for contracts. 

Procurement law provides for the obligation of contracting entities to exclude bidders who performed prior contracts unsatisfactorily. Substantial delays or non-performances with regard to the provision of services – even if they are caused by the corona crisis – are thus problematic from a procurement law perspective. Hence, bidders are advised to thoroughly examine exclusion decisions and, if necessary, contest them. In any case, however, “self-cleansing” measures under procurement law should be implemented in a timely manner in order to, if at all possible, prevent exclusion from future procurement proceedings if termination of the agreement or contractual penalties and/or claims for damages and/or similar sanctions occurred within the scope of an ongoing order relationship due to unsatisfactory performance. 

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