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Legal Update: New Government Proposal to Amend Finnish Public Procurement

2 June 2015

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New Government Proposal to Amend Finnish Public Procurement

Introduction

On 13 May 2015, the working group for the preparation of a new Act on Public Contracts, set up by the Finnish Ministry of Employment and the Economy, handed over its Proposal. The national reform process is driven by the new EU Directive on Public Procurement (Directive 2014/24/EU, the “Directive”), which shall be transposed into national legislation in the course of the spring of 2016 at the latest. Attorney Mika Pohjonen of Hannes Snellman participated in the preparatory process as a member of the steering group for the reform of public procurement legislation, representing the Finnish Bar Association.

In this memo, we will present the most significant amendments proposed.

National thresholds in Finland

It is proposed that the national threshold, which determines when the law is applicable, be raised from the current EUR 30,000 to EUR 60,000 for the procurement of goods and services. For the procurement of health, social, and other specific services, the threshold would be raised to EUR 300,000 from the current EUR 100,000. The national threshold for public works would remain at current EUR 150,000.

This Proposal constitutes a significant increase to the national thresholds for the procurement of goods and services, health, social, and other specific services, as well as for public works. The offered justification for the increase is the attempt to ease the administrative burden placed on both contracting authorities and tenderers. Often, the direct and indirect costs of a tender procedure, complying with the procedural requirements of the Act on Public Contracts (the “Act”), have risen to disproportionate levels. In these cases, the economic benefit gained through the procurement from the market is estimated to be insignificant.

In-house procurement

According to the Proposal, contracts made in-house will fall outside the scope of application of the Act on Public Contracts. In order to qualify as an in-house procurement, the contracting authority must exercise exclusive or joint control, together with other contracting authorities, over the in-house unit. Contracting authorities are viewed as exercising joint control of an in-house entity when the executive bodies consist of representatives of all contracting authorities and when the contracting authorities can jointly exercise ultimate control of strategic decisions.

A single representative may represent several or all of the contracting authorities exercising control in the executive bodies of the in-house units. The amendment brings a considerable amount of flexibility to the administration and operation of in-house entities with multiple owners.

In addition, in-house entities must conduct 90% of their activities for the contracting authorities that exercise control over them. In the preamble to the Proposal, it is stated that the figure in the Directive is 80%. However, from a public procurement and competitive neutrality perspective it is problematic when in-house entities act as commercial entities in the market, and thus the figure was increased to 90%.

It is also proposed that situations in which an in-house entity contracts with a contracting authority exercising control of it or with another in-house entity in which the parent also exercises control, the Act on Public Contracts would not apply. This would be an amendment to the current rules. The Act on Public Contracts currently in force is applicable to situations in which an in-house entity contracts with one of its owners or with another in-house entity controlled by its owners.

Negotiated procedure

It is proposed that the scope of application of the negotiated procedure be extended. Thus, it would be acceptable for the contracting authority to use the negotiated procedure in contracting where planning is required or innovative solutions are sought. In addition, it would be allowed to use the negotiated procedure in situations where the nature, complexity, the form of the legal structure or the form of the financing, or the risks associated with it, demands negotiations before any contract can be entered into.

When using the negotiated procedure, the contracting authority must include a description of its needs, the characteristics of the goods, services, or works to be procured, and the criteria used for comparison in the contract notice, the invitation to tender, and invitation to negotiate. In addition, the contracting authority must notify which parts of the description contain the minimum requirements that all tenders must fulfil.

The contracting authority must request the candidates to submit preliminary tenders on the basis of which the negotiations will be undertaken. If the contracting authority has notified the candidates of the possibility to compare tenders and select a winner based on the preliminary tenders, the contracting authority may do so. During the procedure, the contracting authority may request the tenderers to submit amended tenders based on the results of the negotiations. The contracting authority must negotiate on the basis of the preliminary tenders and the possibly amended tenders aimed at improving the tenders. During the negotiations, the contracting authority may also amend the invitation to tender or the invitation to negotiate. However, the minimum requirements or the comparative criteria stated in the original invitation to tender and invitation to negotiate must not be subject to negotiation.

The increased use of the negotiated procedure in public procurement is reasonable, for in a negotiated procedure the contracting authority may assess, together with the tenderers, how and on what terms the contract may be carried out with as high a quality as possible and as cost-effectively as possible.

However, the contracting authority should, in any case, prepare the tender procedure diligently because the authority is not allowed to negotiate the minimum requirements or the comparative criteria during the procedure. In fact, the contracting authority may not change the minimum requirements or comparative criteria during the procedure. The contracting authority should thus clearly state in the contract notice or preliminary invitations to tender which of its terms and conditions are mandatory minimum requirements which cannot be negotiated, and which ones are negotiable.

In a phased negotiated procedure, the contracting authority may set different comparison criteria for rejecting candidates and for comparing final candidates. This system is already used in so-called alliance contracting. The system safeguards effective competition and ensures objectivity because in a phased negotiated procedure, candidates who do not qualify will be informed of the solutions offered by other candidates through the decision on rejecting certain candidates and the comparison criteria used.

Framework agreements

It is proposed that contracting based on framework agreements is undertaken between tenderers selected to take part in the framework agreement and those contracting authorities that have been clearly stated in the procurement documents for the framework agreement tender procedure.

The contracting authorities taking part in the framework agreement are to be clearly stated either by name or by other means, e.g. by reference to a group of contracting authorities in a clearly defined geographical area, in order for the participating contracting authorities to be easily identifiable.

A participating contracting authority is defined more narrowly. This will improve access to information on participating contracting authorities for tenderers, and it will also give a better picture of the size of the contract up for public tender.

Accelerated procedure

It is proposed that the time limits for open, restricted, and negotiated procedures be shortened if complying with time limits is practically impossible due to a reasonably justified urgency. The minimum time limit for submitting tenders must be 15 days in open procedures in any case.

Accordingly, the accelerated procedure may be deployed in an open procedure, which is not currently possible. This amendment is important in exceptional situations where the tender procedure needs to be executed at a very speedy pace due to e.g. delays in the decision-making process, financing, or a previously interrupted tender process. In such a case, the tender procedure may be executed at its quickest in 15 days. This also applies to contracting procedures exceeding the EU thresholds.

Severing contracts

The contracting authority may sever the contract into separate parts. In case the contracting authority does not allow for tenderers to submit a tender for a part of a contract, it should have a justifiable reason for doing so. Tenderers may, however, not lodge a complaint with the Market Court on the grounds that the contracting authority does not allow for severed contracts. Thus, the contracting authority does not have an obligation to allow tenderers to tender for parts of contracts; rather, the authority has discretionary power to only invite tenders for the entire contract.

The contracting authority must notify in the contract notice whether a tender can be made for one, several, or all parts of the contract. If tenders can be made for several or all parts, the contracting authority may restrict the amount of parts for which the same tenderer may be selected. In such a case the contracting authority must state the maximum number of parts of a contract for which a tender can be made by the same tenderer in the contract notice. The contracting authority must notify in the contract notice which rules it will apply when selecting the part that a tenderer will win if the tender gets selected for more than the maximum amount of parts notified in the contract notice.

Severance of contracts could be executed by splitting goods and services to be contracted into different groups or by a geographical area. Public works contracts could be divided into smaller parts. Framework agreements could be divided so that multiple candidates would be chosen, and out of those candidates a certain number could be selected based on the above-mentioned criteria.

The Proposal is silent, however, on whether contracting authorities may define the severance contracts merely based on monetary value, or in relative shares, so that similar goods and services will have multiple suppliers. From the contracting authorities’ point of view, this may be justified if the contracting authority seeks to ensure that multiple suppliers remain active in the market or if the contracting authority wants to have options to choose from within similar goods and services. However, from the suppliers’ point of view, this would restrict competition as the winner of the contract would not alone supply even the same type of goods or services. 

Publishing the invitation to submit a tender simultaneously with the contract notice 

The contracting authority shall, by electronic means, offer unrestricted and full direct access free of charge to the invitation to submit a tender, an invitation to negotiate, and their appendices, from the date of publication of a notice. This concerns the restricted procedure, the negotiated procedure, and the competitive procedure with negotiation.

The requirement to publish the invitation to submit tenders simultaneously with the contract notice is a significant change to the restricted procedure, the negotiated procedure, and the competitive procedure with negotiation. The current practice is that the contracting authority publishes the contract notice and the candidates start preparing their request to participate. At this time, the contracting authority still drafts its invitation to submit a tender.

The practical implication of this amendment is that in the restricted procedure, the negotiated procedure, and the competitive procedure with negotiation the contracting authority’s time to act is shortened. The invitation to submit a tender must be published at the same time as the contract notice is published.

For candidates and tenderers, the amendment has positive implications. Tenderers will be able to obtain more information from the invitation to tender than merely from the contract notice. This will have an impact on the interest to participate. Likewise, this will have an effect on what type of supplier consortia the suppliers want to form in e.g. alliance projects or similar major contracts.

The amendment increases the objectivity of the tender procedure. It is not possible for the contracting authority to draft the terms and conditions of the invitation to tender and the comparison criteria based on who the tenderers are because the contracting authority publishes the invitation at a stage when there is no information on the tenderers.

Submitting an electronic tender

It is proposed that requests to participate and tenders are to be submitted electronically. The Proposal contains a few exemptions to this, such as when a scale model is to be submitted in conjunction with the tender.

Submitting tenders electronically will increase the speediness of the procurements procedures. This is, however, a major change even though electronic contracting is already in use. Electronic submissions will require all contracting authorities to have electronic contracting systems. The contracting systems must function so that multiple tenders may be submitted in e.g. a negotiation procedure. Recently, the use of workshops, where tenderers together with the contracting authorities may supplement submitted tenders, has increased, especially in connection with the competitive procedure. The electronic contracting system should enable supplementary tenders to be submitted electronically when using the negotiated procedure.

For central purchasing bodies, the rules on electronic submissions will come into effect on 18 April 2017, and for other contracting authorities, they will come into effect on 18 October 2018. Accordingly, the effective date of the amendments for electronic submissions rules occurs at a later date than the general entry into force of the Proposal.

Finding out whether candidates and tenderers fulfil the selection criteria

According to the Proposal, the contracting authority must accept the European Single Procurement Document as a preliminary proof that the candidate or tenderer fulfils the selection criteria set by the contracting authority and that none of the exclusion criteria set forth in the Act on Public Contracts apply. Before the contract is made, the contracting authority must require the selected tenderer to produce up-to-date certificates and a report on the fulfilment of all selection criteria.

The contracting authority may, however, at any time during the tender procedure request the candidates or tenderers to submit reports and certificates on the fulfilment of the selection criteria in order to ensure that the tender procedure progresses correctly.

The Proposal states that the candidates or tenderers would not need to submit reports or certificates on the fulfilment of the selection criteria in connection with the request to participate or when submitting the tender, as these would only be requested from the winners of the contract. This is a very positive change as it will reduce the workload of both the contracting authorities and the tenderers.

In the restricted procedure, the negotiated procedure, and the competitive procedure with negotiation, it is still advisable that the contracting authority confirm that the selection criteria are fulfilled and that the information given by the candidates is correct. This should be done already during the candidate selection process if the contracting authority limits the number of tenderers when calling for a competition. If it turns out, after the winner has been selected, that one of the tenderers does not fulfil the selection criteria, and one of those tenderers excluded did fulfil them, the error cannot be corrected in any other way than by rearranging the tender procedure.

It is advisable that the contracting authority request the necessary certificates and reports from the tenderer which has scored the highest before making the final decision on the winner. If the contracting authority requests the certificates and reports after the decision has been made, and after notice has been given, there may be problems for the contracting authority if the winner does not fulfil all the selection criteria after all. In such a case the contracting authority would be forced to revoke its decision and make a new one.

Supplementing the information regarding the tender and the request to participate

If the tender documents or the documents for the request to participate contain insufficient or incorrect information, or if some information or some documents are missing, the contracting authority may request the tenderer or candidate to submit, add, clarify, or supplement any insufficient or incorrect information or documents. This must be done in accordance with the time limit set by the contracting authority.

In order for the tender procedure to be flexible and in order for it to proceed smoothly, it is appropriate to enable candidates and tenderers to correct unessential errors and contradictions and to remedy insufficient information. The rule would also enable contracting authorities not to reject tenders based only on minor errors or insufficiencies.

In situations where a tender lacks information which is of minor importance or features a minor inconsistency or error, it would be allowed to supplement and make corrections to the tender. It would, for instance, be allowed to request the tenderer to correct procedural errors, such as a missing signature, or to add absent information on the duration of the tender. In addition, it would also be allowed to request the tenderer to correct an error relating to pricing, such as incorrect currency or pricing unit, or obvious errors relating to the value of the price, such as a separator typo, which can be deduced from the rest of the tender. Similarly, the contracting authority could allow the tenderer to supplement missing pricing information which is not relevant for the tender in its entirety. Such information could, for instance, be the prices not used when comparing tenders or the price divided into smaller parts, where such division is of little importance when comparing prices. The tenderer could also be requested to correct its tenders where they contain non-essential elements in conflict with the instructions given in the invitation to tender. This could e.g. be a term of payment deviating from those stated in the invitation to tender. The contracting authority could also request the tenderer to submit a missing appendix with little relevance and which will not be used when comparing tenders, but which is required for entering into an agreement.

The contracting authority should, however, not accept significant changes to be made to the request to participate or the tender. It would not be allowed to request to supplement, correct, or amend the tender in a way that would substantially alter the position of the tenderer. It would, therefore, not be allowed for the contracting authority to request the tenderer to supplement the tender once the deadline to submit the tender has passed, e.g. by asking the tenderer to replace a product in conflict with the invitation to tender or to submit significant information relating to price or quality, which will be used when comparing tenders. Furthermore, the contracting authority may not request a tenderer to submit a missing relevant document that ought to have been annexed to the tender documents. It should not be allowed to let the tenderer remove from the tender a clear and deliberate provision relating to e.g. the acceptance of certain contractual provisions in the invitation to tender or to the pricing of the tender.

It would be within the contracting authority’s discretion whether it requests candidates or tenderers to supplement or correct the procurement documents. Accordingly, the contracting authority does not have an obligation to allow the candidate or tenderer to supplement or correct the tender or request to participate or allow for additional time to amend the documents.

The Proposal contains the risk that interpreting whether the tender fulfils the requirements of the invitation to tender and whether the rejection criteria are fulfilled will become more difficult. The possibility to supplement a tender and the obligation to reject a tender may prove to be a line drawn in the sand. The preamble to the Proposal is, however, very concrete and detailed, and it can be considered to be successfully drafted. The possibility to supplement a tender as stated in the preamble to the Proposal deserves support.

Criteria for comparing tenders

It is proposed that the contracting authority must present grounds for how quality has been taken into account in situations where it only uses price as a comparison criterion. This applies to situations other than those in which goods are procured. However, it is not possible to lodge a complaint with the Market Court based on the grounds. The contracting authority can take quality into account through the selection criteria or through the terms and conditions of the procurement contract.

According to the Proposal, the obligation to state grounds is a national addition which is not directly based on articles of the Directive, but rather on its stated aim of emphasising quality in public procurement. The aim is to point the contracting authority’s attention especially to the quality related elements of a contract.

The Proposal states that the contracting authority must select comparison criteria which will enable the tenderer to verify the information based thereon for the purpose of comparing tenders. In unclear situations the contracting authority must itself check whether the information that has been given is correct.

The Proposal on checking the accuracy of unclear information is reasonable. There have been problems in tender procedures relating to the accuracy of the submitted information, especially with regard to the tenderer’s references, experience of key personnel, and the characteristics of the products offered. In the future, the contracting authority should check the accuracy of the information provided by the tenderer in unclear situations, and it will no longer be allowed to use the information for the purpose of comparing tenders without fact-checking.

National thresholds

It is proposed that contracting below the EU level thresholds should be made less burdensome and more flexible. According to the Proposal, the contracting authority must use a tender procedure which is appropriate in relation to the object and aim of the tender. The contracting authority must describe the procedure to be used in the contract notice or the invitation to tender.

Health and social services

It is proposed that the national threshold for health, social, and other specific services, i.e. the threshold for when the Act applies, be increased substantially. EUR 300,000 is proposed as the new threshold compared to the current threshold of EUR 100,000. According to the Proposal, the contracting authority must use a tender procedure which is appropriate in relation to the object and aim of the tender. The contracting authority must also describe the procedure to be used in the contract notice or the invitation to tender.

The Proposal does not differ from the Act on Public Contracts with regard to the direct negotiated procedure. The contracting authority could make a direct purchase without organising a tender procedure only in exceptional situations where arranging a tender procedure or switching the contractor would be unreasonably difficult or particularly inappropriate from the client’s point of view, in order to secure an important client or patient relationship.

Amending the contract and the effect of M&A during the agreement period

The Proposal contains detailed conditions on how a contract may be amended during the agreement period. The following situations are considered prohibited substantial amendments:

  1. the amendment introduces terms which, had they been included in the original tender procedure, would have enabled candidates other than the selected ones to participate, or would have enabled another tenderer to have been awarded the contract or additional participants to take part in the procedure;

  2. the contract or framework agreement will become economically more beneficial to the contractor after the amendment in a manner not originally intended;

  3. the amendment extends the scope of application of the contract or framework agreement substantially;

  4. the contractor with whom the original contract has been made is replaced by a new contractor.

An amendment is acceptable for instance when it is based on the terms and conditions which were known during the tender procedure and which are clear, precise, non-complex, and do not change the general nature of the contract or framework agreement. Complementary contracts, as defined in the Proposal, are acceptable amendments when it is necessary to procure from the original contractor. Amendments due to unforeseeable changes of circumstances are also allowed. In addition, minor amendments are acceptable when they fall below the national and EU thresholds and if they are less than 10 per cent of the original value of the goods or services of the tender procedure and less than 15 per cent of the works of the tender procedure. If such amendments are made successively, they will be evaluated cumulatively based on the net value.

According to the Proposal, it would be acceptable for the original contractor to be transferred through restructuring, M&A, change of control, or as a result of insolvency, partly or entirely, to another contractor who fulfils the original quality related selection criteria, on the condition that the contract is not substantially amended or that it is not an attempt to place the contract outside the scope of the Act on Public Contracts.

The previously mentioned Proposal is of great importance from an M&A point of view. M&A arrangements in which the target company has contracted with the public sector are continuously undertaken in Finland. In the Proposal, it is stated that the contracting party may be transferred to another entity through M&A arrangements as long as this entity fulfils the original selection criteria. This can be interpreted as meaning that business purchases are included as an acceptable M&A arrangement as long as the buyer fulfils the selection criteria.

The waiting period decreases from 21 days to 14 days

It is proposed that in tender procedures which exceed the EU threshold, the waiting period after the decision on awarding the contract has been made decrease from 21 days to 14 days. The waiting period will be as long as the appeal period to the Market Court.

This reform deserves support. The prohibition to enter into a contract will automatically continue in situations where the EU thresholds are exceeded if a decision is appealed to the Market Court. Thus, there is no need for a waiting period longer than the appeal period. Additionally, the 21-day waiting period has negatively affected the execution of decisions to enter into a contract in situations where no appeal has been made to the Market Court

No separate supervisory authority

No separate authority to supervise public procurement is proposed, for the current supervisory mechanism is deemed sufficient.

Entry into force

According to the Proposal, the new Act on Public Contracts will come into force in Finland at the latest on 18 April 2016. The European Single Procurement Document must, however, be drafted electronically by using the standard form no later than 18 April 2016. According to the Proposal, electronic submission of tenders will not come into force until 18 April 2017 for central purchasing bodies and on 18 October 2018 for other contracting authorities.

Further information:

Mika Pohjonen
Specialist Partner
Telephone: +358 9 2288 4454
Mobile: +358 400 735 742
mika.pohjonen@hannessnellman.com

Toni Malminen
Senior Associate
Telephone: +358 9 2288 4438
Mobile: +358 44 540 9479
toni.malminen@hannessnellman.com