Public procurement procedures in times of crisis
The global coronavirus pandemic poses great challenges for contracting authorities and participants in procurement procedures. The effects of the pandemic could impact all stages of public procurement – from planning and preparation to contract award and performance. But, while deviating from the public procurement regulations so as to provide relief to contracting authorities and potential contractors are generally more likely to be considered under the current circumstances, any such deviation requires careful examination on a case-by-case basis.
Deviation from “standard” procedure
Given the urgency, negotiated procedures can take place without competitive tender for all types of contract awards above the threshold (section 14(4) no. 3 Public Contracts Ordinance (Vergabeverordnung, VgV); section 13(2) no. 4 Regulation on Awarding Public Contracts in Transportation, Drinking Water and Energy (Sektorenverordnung, SektVO); section 12(1) no. 1 Ordinance on Public Contracts for Defence and Security (Vergabeverordnung Verteidigung und Sicherheit, VSVgV) and below the threshold (section 8(4) no. 9, section 12(3) Regulation on Sub-Threshold Procurement (Unterschwellenvergabeordnung, UVgO). However, this depends on whether there is a need for “urgent” procurement in the case in question – which is justifiable in the case of medical supplies (face masks, protective coveralls, disinfectant, other equipment, and medicines), the unexpected growth in demand due to the impact of the pandemic (for example, fast setup of equipment for working at home), and ensuring the supply of basic goods and service in the short term (for example, for social institutions), but not on a wholesale basis for all procurement. Just being in a hurry is not a sufficient reason – even in times of crisis. The burden of proof that urgency requirements are fulfilled generally lies with the contracting authority. However, the examples specified above are not exhaustive, as stressed in the Federal Ministry for Economic Affairs and Energy’s circular of 19 March 2020 addressed to Federal Ministries, regional states, and local authority associations.
It can also be permissible in individual cases that contracting authorities negotiate with only one tenderer. However, given the statutory provisions applicable to above-threshold contracts, this is the exception (for example, if it is clear from the outset that only one company will be able to perform to the required standard at the required speed). Below the threshold, negotiations with a single tenderer – or “direct awards” – are now generally possible for reasons of urgency (section 12(3) UVgO) if the procurement serves to contain and mitigate the coronavirus pandemic.
The Free State of Bavaria, for example, met demands for simplification echoed from various quarters with its administrative regulation of 25 March 2020, that, among other things, introduced certain value thresholds up to which direct awards pursuant to section 14 UVgO are to be permitted and negotiated awards or restricted procedures may be conducted without competitive tender until 30 June 2020. On 20 March 2020, the Federal State of Rhineland-Palatinate generally permitted direct awards for all supplies, services, and works that directly or indirectly contribute to the containment of the coronavirus pandemic. Other federal states could follow these examples.
For above-threshold contracts, the European Commission responded with its Communication 2020/C 108 I/01, published on 1 April 2020, containing guidance for public procurement in the situation caused by the coronavirus pandemic. Alongside practical tips, it suggests a graduated set of measures under public procurement law comprising deadline reductions (see below), negotiated procedures without publication and direct awards, and public buyers’ direct engagement with the market. However, the Commission does not give contracting authorities carte blanche and ultimately takes the position that existing public procurement law provides for sufficient flexibility. It apparently considers the needs of, in particular, hospitals and other health institutions for treating coronavirus patients to have privileged standing. For this reason, it remains paramount that the urgency of a given set of circumstances is specifically established and documented on a case-by-case basis.
Deadline reductions and other procedural simplifications
The procedural simplifications already available for specific services such as health and social services – for example, deadline reductions – can also be used, especially now (section 130 Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB) and section 64 et seq. VgV).
Additionally, reductions of the time periods for participation and tendering to 10 and 15 days, respectively, for negotiated procedures with or without competitive tender (section 17(3), (8) VgV), and to a 15-day time limit for tendering in open procedures (section 15(3) VgV) would come into consideration. In the case of negotiated procedures without competitive tender in cases of justified urgency, further-reaching reductions may also be possible.
In their own interest, contracting authorities should avoid measures when designing the procurement process that place unnecessary strain on the ability of tenderers to perform (for example, by requiring them to supply extensive references, financing confirmation, and very high bid security).
General award principles continue to apply
For all of this, the general award principles (competition, equal treatment, transparency, and non-discrimination) represent provisions harmonised in European law whose key principles cannot be unilaterally rescinded by individual Member States. For this reason, for example, notice obligations and documentation obligations for all decisions made under urgency in deviation from standard public procurement must continue to be observed – despite the coronavirus crisis.
Modification of contract and negotiations
Additional options are available to contracting authorities and existing contractors to reflect additional procurement needs or changes to existing needs. If it is not possible to use contractually agreed extension options or other option rights (which should be investigated first!) or, in the case of framework agreements, to fully utilise or modify the agreed volume, it may be possible to modify or expand the scope of existing agreements (section 132(2), sentence 1, no. 3 GWB). The extension of agreement terms is also possible.
However, both parties must ensure that the basic limitations of the basic tenets of legal validity – under which the overall nature of the contract must not change. The 50 % price increase limitation under section 132(2) sentence 2 GWB also continues to apply.
Moreover, parties to public contracts should coordinate at an early stage on pending supply shortages or delays caused by the coronavirus pandemic (and document that coordination) to establish whether negative legal consequences such as termination or claims to damages may be subject to deferral also with a view to the contractors’ participation in future procurement procedures (section 124(1) no. 7 GWB). For information on the civil liability regime and (in)acceptable impediments to performance, see our article “Effects of the coronavirus on supply contracts”.