New Public Procurement Act01/07/06 / cata_legal-tax-update

On July 1, the new Public Procurement Act No. 137/2006, Coll. (the "Act") became effective, which became to exist as a part of a legislative package creating a legal framework for public procurement and concessions (which are newly regulated in a separate Act No. 139/2006, Coll.). It can be stated that adoption of this act represents apparent improvement of the existing legislation, since it brings legal precision of the conditions for orders with simultaneous guaranteeing a more free attitude to the orderers procedures and starts from consistent respecting the proportionality principle in the sense of balancing the achievable degree of the formality of the applied rules (generally contributing to higher transparency) with a practically tolerable amount of administrative costs and time of the prescribed procedures. Read more here/p>

As concerns the contents of the Act, we can say primarily that certain proven principle and institutes reappeared known from original Act No. 199/1994, Coll., on Public Procurement which Act No. 40/2004, Coll., did not take over:

  • The term “public procurement” (hereinafter the “Order”) is thus newly exclusively based on a qualitative definition and generally includes every expense incurred by the person pronounced by the Act as the orderer in connection with purchase of goods, services or construction work.
  • The Act differentiates three types of public procurement pursuant to its assumed value (so-called small orders, under-limit orders and above-limit orders), and thresholds are determined in a different manner in accordance with the subject of public procurement and the type of the public orderer. The difference of the legislation appears primarily in the strictness of the rules applied to individual types of orders.
  • As concerns under-limit orders, the Act returns to orderers the possibility to use the ordering procedure which was favourite earlier in the form of a call to five suppliers newly designated as simplified under-limit proceedings. Such possibility exists for all under-limit orders for supplies and services, but for construction work orders only where the assumed value does not exceed CZK 20 million.
  • The Act also returns to differentiating between two various commissions – one for the phase of opening bids and the second for the phase of assessment and evaluation thereof. It enables orderers to save human resources and the relevant experts can (not necessarily) be used exclusively for assessing and comparing the contents of bids, whereas formal operations connected with opening and considering whether the contents of bids are full will be entrusted to qualified personnel.

The new act as compared to Act No. 40/2004, Coll., also brings certain fundamental interpreting clarifications and new and more accurate regulation of terms:

  • It introduces a clearer and closer specification of the fact who and under what circumstances is to be understood as a public orderer (Section 2 of the Act) – the specification provides more certainty mainly to state enterprises and entities similar to them which are under influence of the state and municipalities.
  • The access to so-called in-house orders placed by a public orderer is much more positive, i.e. a situation where a person who is a public orderer by law decides to allocate a public order to a person who is closely connected with him/her.
  • The changes also influenced so-called sector orderers whose obligation to act in accordance with law is based on the character of the activities they perform. As a new fact, telecommunications do not belong among such activities that are subject to the ordering procedure set forth by law (i.e. relevant activities). On the contrary, business activities in the area of post office are included here, in particular provision of post office services. The Act also expressly covers situations where performance of a certain relevant activity during realization of an order overlaps with performance of another activity which the Act does not designate as relevant – it mentions so-called concurrence of activities.
  • More fundamental changes were also performed within the framework of the specification of what forms construction work orders.
  • Last but not least, it is possible to find a welcomed specification in regulation of extraordinary circumstances enabling the orderer to choose procedural proceedings without publication. In accordance with the new regulation, this generally represents every extremely urgent situation that a) the orderer neither caused by its conduct nor could envisage it, and b) during which it is impossible to place an order in another ordering proceedings for time reasons.

The Act also brings certain brand new institutes or redefines their contents and extents their use:

  • A new term “central orderer” appears. It is an orderer which orders public procurement for other orderers. Only a public orderer can act as a central orderer, and a sector orderer can be an orderer which lets itself to be “represented”. Centralized ordering can take place in two ways: either on the account of other orderers or on its own account with subsequent resale of the public procurement to other orderers (but in this way it is impossible to place construction work orders). Finally, orderers which let themselves to be represented do not carry any liability for potential infringement of law, such liability is carried only by the central orderer.
  • So-called framework agreement has been significantly modified. This institute has not much wider area of use than before and offers a whole range of various modifications. First of all, public orderers may also conclude framework agreements. A framework agreement need not be concluded with a single bidder – the Act differentiates between so-called (i) exclusive framework agreements and (ii) framework agreements with more than one bidder.
  • A so-called competition catalogue is introduced by the Act as a brand new type of ordering proceedings. It is supposed to be an instrument for placing especially complicated orders, where the orderer is not able to specify in advance technical conditions or legal or financial performance requirements; such requirements will be clarified in a “dialogue” with bidders. This instrument is available only to public orderers.
  • The Act also brings a possibility to use certain specific procedures that could contribute to a higher dynamism of the basic forms of the ordering proceedings. In this way an electronic auction enables replacing the statistic phase of valuation of bids by an interactive procedure during which individual bidders can, after being acquainted with the first bids of their competitors improve their bids within the auction through electronic tools and thus fight for the position of the best bidder. A dynamical purchasing system serves as an electronic platform for placing public procurement for standard and generally available goods. The orderer creates within open proceedings a form of electronic market place and determines the manner and general conditions under which individual suppliers can enter the system and calls on them to submit preliminary bids. At the moment when the entire system is complied it only places public procurement to the suppliers participating in the system which upon a concrete partial call submit the most advantageous bid.

The Act tries to remove useless complications and excessive strictness of the placement process and generally reduces the claims in respect of the orderer where it is possible.

  • For example in case of subsidies recipients, the obligation to place only certain above-limit construction work public procurement in accordance with law and potential related above-limit service orders (provided more than 50% thereof is financed by a public orderer).
  • Periods influencing the length of the ordering proceedings have also been shortened by the new regulations. A general shifting has been achieved by the fact that they are not calculated from the moment of publication of the announcement but already from the day when it was sent for publication. The shortest possible period for submitting bids in under-limit tenders can be even 7 days. In case of above-limit public procurement, there is a possibility to significantly shorten the periods by using electronic means for sending the announcement or making available the ordering documentation on the Internet or use of a preliminary announcement. It is important that the individual shortening methods can be combined.
  • Simplified under-limit proceedings represent a significant relief for the orderers. The orderer calls only five suppliers to submit bids according to its own choice and publishes a call concerning submitting a bid “in an appropriate manner” (e.g. through the Internet). The orderer (as in case of other methods of placing under-limit public procurements) can enable demonstration of the required qualification by mere submitting an affidavit on fulfillment of basic qualification prerequisites (without the obligation to fulfill any further prerequisites).
  • Regulation of qualification prerequisites is also less rigid. Sector orderers which are obliged to require fulfillment of qualification requirements only in selected types of tenders have been relieved; economic and financial qualification prerequisites are (for all categories of orderers) determined only demonstratively, and the orderer thus can define its own prerequisites; the law introduces a possibility to prove qualification prerequisites (safe for the basic ones) also through subsuppliers (including a possibility to add values shown separately by the orderer and its subsuppliers or, as the case may be, by more than one orderer submitting a joint bid when demonstrating certain criteria); introduction of so-called systems of certified suppliers can also be considered as a relief (it enables demonstrating the economic, financial and technical capability by a certificate for all types of public procurements).

Last but not least, the new regulation learned its lesson from typical events of misusing certain provisions of the Act for purposes that are in conflict with the sense of the entire regulation of ordering, and therefore it regulates the relevant issues in a manner preventing misuse. Such interventions have been performed both (i) in the sphere of the possible behaviour of the orderer and (ii) its counterparty within the ordering proceedings.

  • Periods for filing objections that were used earlier by unsuccessful bidders for the purpose of blocking further procedure have been newly regulated. If a certain supplier has objections against the orderer’s procedure, it must raise them within 15 days from the day when it learns of the alleged infringement of law – it thus cannot wait and file objections after having learned if the proceedings themselves are resolved to its benefit or on the contrary. It will also not be allowed to use the errors in the earlier act which enabled blocking of conclusion of the agreement with the selected bidder by filing objections for a period of 30 days in the event that the orderer did not meet the objections, regardless of whether the submitter of the objections subsequently filed a proposal for review to the Antimonopoly Office (and paid the relevant deposit). Pursuant to the new regulation, the orderer may not in principle conclude an agreement until the time when the period for filing a proposal for review of the orderer’s decision expires. Only in the event that the person filing objections really files such a proposal, this period is extended by another 45 days.
  • The Act expressly sets forth due to the legal certainty that economic and financial qualification prerequisites and technical qualification prerequisites cannot be subject of valuating criteria for selection of the most suitable bid regardless of whether they were really applied in the relevant proceedings as qualification prerequisites (due to their nature they do not relate to the subject of the order and, on the contrary, relate to the supplier’s character).
  • For a public orderer, it is also impossible to cancel the ordering proceedings for almost any reason provided this was stipulated in the ordering documentation. The orderer often proceeded in this manner in the events when it had to solve unpleasant consequences of its incorrect procedure (it could thus avoid a review before the Antimonopoly Office). Now the Act firmly sets forth the reasons for which the ordering proceedings can be cancelled and the orderer’s willfulness is thus excluded in a significant extent.