9.07.2020 Business law

Shield 4.0 – new solutions for public procurement

An important part of the regulations of the 4.0 Shield is dedicated to the public procurement sector. What facilitations have the new regulations introduced for contractors and contracting authorities with regard to public procurement?

As the Ministry of Development indicated, the changes introduced in the area of public procurement aim at reducing the cost of participation of companies in tender procedures and improving their financial liquidity at the stage of execution of the public procurement contract.

Public tenders – major changes

Obligation to amend the public procurement contract:

If the Contracting Authority finds out that the circumstances related to COVID-19 prevented proper execution of the contract, he shall, in agreement with the contractor, amend the public procurement contract, in particular by:

  • changing the execution deadline for a contract or part of it, or temporarily suspending execution of a contract or part of it;
  • changing the manner in which supplies, services or construction works are provided;
  • changing the scope of the contractor’s services and the corresponding change in the remuneration or the method used to settle the contractor’s remuneration,

– provided that the increase in remuneration caused by each subsequent change does not exceed 50% of the original contract value.

When can a public procurement contract be amended?

Circumstances justifying the application of this provision will be, for instance:

  • lack of employees (caused not only by the threat of disease, but also by the departure of Ukrainian citizens);
  • collapse in the chains of supply of products, components or materials or difficulties in accessing equipment or providing transport services;
  • decisions issued by the GIS in relation to the COVID-19 counteraction;
  • orders or decisions issued by government bodies related to the COVID-19 counteraction;
  • other circumstances which prevent or significantly limit the ability of a contractor or subcontractors to fulfil the contract.

This provision undoubtedly complements the previous regulation, which only provided for the contracting authority’s right to amend a contract not an obligation, and this is a clearly positive decision. This opens up, in particular, to the contractors of a contract concluded under the public procurement regime, the possibility to seek clarification of a change in the legal relationship by the court pursuant to Article 189 of the Code of Civil Procedure within the limits provided for in the Anti-Crisis Shield.

Ban on deduction of contractual penalties

The provision refers to contractual penalties for non-performance or improper performance of the contract against the contractor’s remuneration or against his other claims, as well as the ban on satisfying these penalties from the security for proper performance of a contract.

The ban shall apply during a state of epidemic hazard or a state of epidemic in connection with COVID-19 and for 90 days from the date of cancellation of the state which was in force more recently, if the event in relation to which that penalty was reserved occurred during the state of epidemic hazard or a state of epidemic.

This regulation has a positive impact on the condition and liquidity of entrepreneurs executing public contracts. It is not an exceptional situation in which entrepreneurs participating in a public tender intend to cover current expenditure related to the performance and execution of the orders from the advance payments received from the contracting authority, and the deduction of possible contractual penalties from such expected financing may even lead to bankruptcy.

Lack of obligation to demand a tender guarantee from the contractors

This provision can be applied if the value of a contract is equal to or exceeds the so-called EU thresholds (5,350,000 EUR for construction works, 139,000 EUR for supplies and services for central government orders, 214,000 EUR for supplies and services for local government orders and 428,000 EUR for supplies and services for sector orders). This provision has been advocated since the outbreak of the COVID-19 epidemic, as a result of which many contractors participating in public tenders have faced a lack of resources and the ability to provide a tender guarantee. This has resulted in a further, progressive economic decline for entrepreneurs, a reduction in competitiveness and losses for the contracting authorities, who have had to choose more expensive offers due to the lack of cheaper alternatives from smaller entities. Currently, this constitutes only a right for the contracting authorities rather than an obligation.

Obligation for the contracting authority to pay the remuneration in instalments or to make advance payments

This provision applies only to public procurement contracts concluded for a period longer than 12 months. Pursuant to the regulations of the Anti-Crisis Shield 4.0, in order to implement this provision, the contracting authority is obliged to specify in the contract concluded with the contractor the percentage of remuneration paid for the execution of its individual parts and to determine that the percentage of the last part of the remuneration may not exceed 50% of the total remuneration of the contractor, and the advance payment itself may not be lower than 5% of the total remuneration of the contractor.

This regulation will have a very positive impact on the situation of contractors providing services and supplies. So far, there has been no analogous regulation (it has been defined only for the execution of construction works).

Reduction in the limit for the security for proper performance of a contract

A maximum of 5% of the total price stated in the offer or the maximum nominal value of the contracting authority’s obligation resulting from the contract shall be set as a security and only exceptionally the existing 10% level shall be maintained. This provision will significantly reduce the costs incurred by the contractors for the establishment of such securities.

 Learn more: Shield 4.0 – new solutions for public procurement

Option to return the part of the security for proper performance of a contract if part of the order is completed

This option must be provided for in the Specification of Key Procurement Terms and Conditions. This provision shall significantly reduce the costs incurred by the contractors for establishing the securities.

Publication of the tender notice only on the website 

Information on opening the procedure in the form of an open tender, a restricted tender, negotiations with an announcement, competitive dialogue and an innovation partnership may be posted exclusively on a website (there is no need to post it at the headquarters of the contracting authority). The former provisions in this respect were a legacy of the pre-digitalisation era. Keeping them in the era of the epidemic should be considered superfluous.

The provisions of the Act of 11 September 2019 – Public Procurement Law (Journal of Laws, item 2019 and of 2020, item 288), do not apply to contracts for PPK management and contracts for PPK running:

However, the value of a contract may not exceed the EU thresholds referred to in Article 3(1) of the public procurement law.

The regulations introduced by the Anti-Crisis Shield 4.0 bring good news for both contractors and contracting authorities. They will lead to the simplification and facilitation of public procurement procedures and will contribute to protecting the execution of public procurement orders from the negative effects of the COVID-19 epidemic. The new provisions will also improve liquidity in the public procurement sector by providing for the obligation to pay remuneration in instalments or to grant advances. There are high hopes that these regulations will significantly improve the current state of public procurement procedures and help to combat the recession caused by the epidemic.

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