Tools for Successful Procurements during Exceptional Circumstances
The coronavirus pandemic (COVID-19) also impacts public procurements. The public sector has an important role in maintaining demand, particularly in these exceptional times, and therefore it is important that public entities continue to procure products and services.
However, procurement procedures carried out in the prevailing situation will need flexibility as well as active application of the exemptions provided for in the Act on Public Procurement and Concession Contracts (Procurement Act). This blog post lists the exemptions that may be applicable in the current circumstances.
Amending Procurement Agreements and Fulfilment of Contractual Obligations
The pandemic may pose challenges if the parties are no longer able to meet their contractual obligations. The first thing to do is examine what the procurement agreement states about the possibility to amend the agreement. Amendments to the agreement require the consent of both contracting parties. If ever there was a time to be flexible and look for solutions that work for both parties, it is now.
Making integral amendments to a procurement contract without a new procurement procedure is prohibited by the Procurement Act. However, the act provides an exemption to this rule if:
- the need for amendment is due to circumstances that could not have been foreseen;
- the amendment does not affect the general character of the procurement agreement; and
- the value of the amendment does not exceed 50 per cent of the value of the original agreement.
The pandemic can most likely be considered an unforeseen circumstance, and in the current situation, these exemptions may well be worth using.
If the pandemic continues for a long time, the consequences are more likely to be considered foreseeable. The pandemic and its impacts should therefore be taken into account in procurement agreements entered into after the outbreak.
Cooperation is Better than Invoking Force Majeure
If the parties can’t reach a compromise, the question arises of whether it is possible to invoke force majeure to be released from contractual obligations. The threshold for force majeure to apply is generally high, but the specific contents of force majeure clauses, and thus the definition of force majeure, varies from agreement to agreement.
It should be kept in mind that if force majeure is found to apply, the contractual performances between the parties are suspended for a fixed term. This is rarely in the interests of either party, and the first choice should always be to cooperate to find a solution to the situation.
Effects of the Pandemic on Procurement Procedures
The exceptional circumstances caused by the pandemic could give rise to a need for direct awards. In a direct award, the contracting entity negotiates a procurement agreement with one or more suppliers without prior publication of a contract notice.
The pandemic could provide grounds to resort to a direct award due to extreme urgency. The grounds for direct award are listed in the Procurement Act, and can be used, for example, if the following conditions are met:
- it is absolutely essential to conclude the agreement;
- the prescribed time limits cannot be observed due to extreme urgency arising from unforeseen circumstances not attributable to the contracting entity;
- the contracting entity could not have reasonably foreseen these circumstances; and
- the circumstances are beyond the contracting entity’s control.
In the case of competitive tendering, the contracting entity can use the accelerated procedure provided for in the Procurement Act if compliance with the time limits in the normal procedures is not possible, owing to duly substantiated urgency.
Suspension of Procurement for a Real and Legitimate Reason
Unfortunately, the pandemic could also mean that the need for procurement or other circumstances change to the degree that it is no longer feasible to go through with competitive tendering. In such circumstances, a procurement procedure can be suspended provided that there is a real and legitimate reason for it under the Procurement Act. An example of an acceptable reason would be that the contracting entity cannot commit to the procurement in the prevailing circumstances for financial reasons.
On 1 April the European Commission published a communication concerning public procurement, which provides guidance on using the public procurement framework in the emergency situation related to the coronavirus crisis.
The coronavirus outbreak is a rapidly developing situation. This information reflects the situation at the time it was published 3 April 2020 and is subject to change.