2.10.2018

Is This a Public Procurement – Do We Need a Tender Process?

This is a question we procurement lawyers hear all the time. Clients regularly want to know whether a contract requires a tender process under the Procurement Act. Most cases we come across are clearly procurement contracts, i.e. agreements for the purchase of goods, services or contracts. The issue that remains is whether the procurement can be carried out directly from a current contractual partner or a particular company under one of the Procurement Act’s direct procurement provisions.

There is a great deal of case law on direct procurement. The legal grounds for direct procurement are interpreted strictly, and the procurement entity is the one that has to prove that the grounds are met. The Finnish Competition and Consumer Authority has issued many decisions in which it has ruled that a direct procurement should have been put out to tender. Procurement lawyers often reach the same conclusion in the cases on their desk.

Mixed Agreements – Procurements or Not?

The most difficult situations to call are ones where the arrangement concerns, for example, both a procurement of services and a sale of city land. In these kind of cases, the goal of the city is often to promote residential construction and improve business opportunities for companies and also to better organise the services it provides to its residents. These kinds of mixed agreements are assessed on a case-by-case basis to determine whether the main object of the arrangement is a procurement or not. The assessment also determines whether the procurement could be carved out of the overall arrangement. If it could have been, but was not, the entire arrangement will be subject to procurement rules.

Contractual Amendments also Need Consideration

A third frequently asked question concerns contractual amendments. Let’s say that a procurement entity wants to purchase additional work from a contractual partner or the circumstances during the contract period have changed in such a way that the contract needs to be amended. Is it okay to go ahead with the amendment, or does another tender process have to be arranged?

The Procurement Act contains detailed provisions on what kind of amendments can and cannot be made without a new tender process. The list is not exhaustive, however, and the provisions don’t directly apply to procurements exceeding the national threshold. There is still little case law on material amendments, which adds to the challenge. However, it is worth noting that the Finnish Competition and Consumer Authority has also dealt with amendments, and one policy it has established is that reducing the object of the originally tendered procurement could be a prohibited amendment.

Tender Processes are Opportunities

When procurement lawyers get questions about whether the Procurement Act is applicable or not, the underlying question is often is there any way to avoid a troublesome and time-consuming tender process. At this point, the procurement lawyer may raise an eyebrow.

The goal of tendering is, after all, to make efficient use of tax money, i.e. find the partner on the market that has the best solution for the procurement entity’s needs. It would be better to think of the obligation to tender as an opportunity to tender. It would make sense to use the alternatives provided by the markets even when not within the scope of the Procurement Act. Small procurements or mixed contracts can be put out to tender informally. If a procurement does call for knowledge of complying with the Procurement Act, procurement lawyers will always be happy to help.

Latest references

We have advised the Finnish Climate Fund as it has invested in Finnish projects that, for example, support the green transition of various industries, leading towards a carbon-neutral society. The Finnish Climate Fund   is a Finnish state-owned special-assignment company. Its operations focus on combating climate change, boosting low-carbon industry and promoting digitalisation. The Climate Fund invests in large-scale projects in which the fund’s investment is crucial to enable the project’s realisation in the first place, on a larger scale or earlier than with funding from elsewhere. Investment in Aeromon that specialises in emissions measurement and mapping We advised the Finnish Climate Fund in its investment in Aeromon Oy. The funding will be used to further advance technology relating to software systems and measuring capacity. Aeromon’s technology enables the location and measurement of fugitive emissions generated by industrial plants and landfills almost in real time and in a mobile way by using unmanned aerial vehicles. The company has developed the measuring methods and equipment as well as the algorithms required for processing the signals. For their part, Aeromon’s solutions promote development towards zero-emission society. Investment in Joensuu Biocoal We advised the Finnish Climate Fund in its investment in Joensuu Biocoal Oy. Joensuu Biocoal will build a torrefied biomass production plant, which is the first commercial-scale production plant of its kind in Finland. The torrefied biomass produced by Joensuu Biocoal will primarily replace the use of coal in industrial processes in the cement and steel industries, which still use a lot of coal. For its part, building the plant accelerates the transition away from coal in process industries and helps reduce the carbon dioxide emissions from industry in the medium term. Investment in QHeat that specialises in geothermal heat generation We advised the Finnish Climate Fund in investment in Quantitative Heat Oy (QHeat). The funding will be principally allocated to the purchase of new, more efficient drill equipment for drilling medium-deep heat wells. Geothermal heating is part of the solution for transitioning away from the use of fossil fuels for heating as heat wells generate heat energy-efficiently and without combustion. Medium-deep heat wells can also be used for cooling real estates, in which case they can store energy to even out seasonal variations. Geothermal heat production has a great deal of potential for climate action in applications such as low-emissions heating solutions. Investment in Finn Recycling We advised the Finnish Climate Fund in its investment in Finn Recycling Oy, developer of a regeneration solution enabling the reuse of waste sand generated by metal foundries. The funding’s purpose is to accelerate the deployment of reclamation equipment and the company’s entry into the international market. The annual global consumption of sand products is 40–50 billion tonnes. Particularly foundry processes in the metal industry generate waste sand tens of millions of tonnes each year. Finn Recycling’s solution extends the service life of foundry sand, reducing the use of virgin sand and the amount of waste sand and greenhouse gas emissions generated by foundry processes.
Case published 7.2.2023
We advised the Finnish Climate Fund in three separate financing arrangements in the autumn of 2021. In these arrangements, the Finnish Climate Fund invested a total of EUR 16.5 million in Finnish growth companies with solutions that have significant emissions reduction potential in the hydrogen and circular economies over the coming decades.   Aurelia Turbines The Finnish Climate Fund has decided on a EUR 5 million capital loan to Aurelia Turbines Oy to speed up the deployment of more efficient industrial gas turbines. For the first time, the Climate Fund’s funding includes a sustainability incentive. Aurelia Turbines makes more efficient gas turbines for industrial needs. These gas turbines have been designed to flexibly use various degrees of hydrogen and other energy sources. Hydrogen will play an important role in the transition towards a low-carbon society. The hydrogen economy will be built on a value chain of hydrogen production, storage, transport and utilisation. Aurelia Turbines’ solution is estimated to have a cumulative emissions reduction potential of around 1.5 Mt CO2e over a ten-year period.  In addition to emissions reduction, the Finnish Climate Fund’s financing will support the development of the hydrogen cluster in Finland.   Betolar The Climate Fund has granted a EUR 7 million capital loan to materials technology company Betolar Oyj. The investment—the Climate Fund’s first in a digital solution—will be allocated to a marketplace with major emissions reduction potential. Cement production is one of the greatest emission sources caused by human activity, accounting for roughly 7% of global carbon dioxide emissions annually. The significant emissions reduction potential of Betolar’s solution is based on replacing virgin raw materials with existing industrial side streams, which could reduce emissions caused by the raw materials of concrete by up to 80% compared to traditional concrete products The digital platform is intended as a digital marketplace for Betolar’s solution as well as a meeting place for side stream suppliers and concrete manufacturers. This digital marketplace can enable significant emissions reductions to be realised sooner and on a larger scale.   Magsort The Finnish Climate Fund granted a EUR 4.5 million capital loan to Magsort Oy’s circular economy solution to utilise steel industry side streams. Steel and concrete production are significant sources of emissions. With Magsort’s solution, almost all metal can be recovered from waste slag—and in the future the remaining slag could even be ground into cement. The more efficient utilisation of steel slag in industry not only creates considerable export potential but also major cumulative emissions reduction potential over the next decade, as much as 7.5 MtCO2e. The Finnish Climate Fund is a Finnish state-owned special-assignment company. Its operations focus on combating climate change, boosting low-carbon industry and promoting digitalisation. Approximately 65% of the Climate Fund’s investments relate to climate change and about 35% to climate-related digitalisation.
Case published 28.12.2021
We advised the Finnish Climate Fund in its investment in P2X Solutions Oy, a green hydrogen and Power-to-X technology company. P2X Solutions will construct a 20 MW green hydrogen production plant, which will run on electricity produced by renewable energy and produce green hydrogen. The Finnish Climate Fund’s investment amounted to EUR 10 million. P2X will refine part of the green hydrogen further utilising Power-to-X technology. It will implement circular economy solutions and capture carbon dioxide emissions from a Finnish industrial plant. P2X will produce synthetic biofuel from the green hydrogen and caught carbon dioxide, thereby supporting the development of emission-free society. The Finnish Climate Fund  is a Finnish state-owned special-assignment company. Its operations focus on combating climate change, boosting low-carbon industry and promoting digitalisation. Approximately 65% of the Climate Fund’s investments relate to climate change and about 35% to climate-related digitalisation. P2X  is a producer of green hydrogen and forerunner of Power-to-X technology in Finland with a vision to produce green hydrogen and refine it further into synthetic fuels in a cost-effective manner.
Case published 22.12.2021
We have helped many of our clients navigate shifting procurement legislation. We have acted on behalf of both purchasers and tenderers in negotiated proceedings, life cycle projects, service outsourcing projects, data system procurements and reorganisations of operations. We put innovative new procedures and results-based procurements into practice. Here are a few of our procurement case references.
Case published 19.4.2017