Public procurement in times of crisis: the Baltic States

The outbreak of COVID-19 not only requires a public health response, but also has ramifications in the public procurement sphere. Although the crisis creates a multitude of risks and hurdles to procurement as we have been used to, public procurement legislation also offers several remedies which allow public purchases to be tailored for more turbulent times.

Here we have listed a choice of recommendations and options which might help both the contracting authorities and bidders to achieve mutually beneficial outcomes from procurement during times of crisis.

If time is of the essence

• For new procedures, keep time limits reasonable. Contracting authorities can help the economy to recover by initiating more procurement procedures, thus enabling market players to sign contracts that may help to relieve financial pressure. For example, if procurements are planned to be initiated in the fall of 2020, consider whether they could be started now. Look carefully whether deadlines for tender submission and internal deliberations by the contracting authority could be set to be as short as possible, allowing the procedure to be streamlined.

 

• In the case of existing procedures, extend offer submission deadlines if that helps to attract more bids. Although speeding up the process might sometimes be desirable, for some business sectors this is not suitable as the current crisis needs focus and care in other areas. This could lead the contracting authority into a situation where there is not enough competition, hence leading to the risk of purchasing at higher prices.

 

• In urgent cases shorten time limits below usual minimums due to objective and urgent circumstances.

 

• In extreme urgency the contracting authority may use the negotiated procedure without prior publication. When using this procedure, the contracting authority can make it as simple and efficient as the law allows. Be aware that this procedure is the least transparent and involves inherent risks. So, be sure to check whether the legal basis supports the use of this procedure and keep in mind that the contracting authority has to prove that it was allowed to use the procedure. So, even in a hurry, try to ensure that all necessary documentation is formalised.

 

• The Latvian Cabinet of Ministers has allowed some entities to not apply the Public Procurement Law to purchases of goods and services necessary for curbing and curing COVID-19 and for ensuring distance learning.

 

• In Lithuania from 19 March 2020 the negotiated procedure without prior publication of any threshold and during/due to the emergency could be used much more flexibly:
  i) without applying standard procedural steps such as submission of applications, initial and final tenders;
  ii) without requiring tenderers to comply with exclusion grounds,
  iii) without the need to comply with mandatory requirements established by the Public Procurement Office to pricing elements in public procurement;
  iv) without applying other procedures which were mandatory for the negotiated procedure without prior publication.

 

When extra care and diligence is required

 

• Qualifications and exclusion grounds can be verified more than once. This might prove useful when the contracting authority has doubts during the procedure whether a successful or potentially successful bidder will be able to fulfil the contract. This is advised in service procurements where COVID-19 crisis influences might have had such negative effects on business so that a potential tenderer is unable to fulfil the contract even when their references checked out before.

 

• Be mindful of the consequences of the crisis for bidders. Take this into account when choosing qualification criteria in future procurements, so as not to overdo them.

 

• Look into using qualification criteria that indicate more precisely how the bidder is able to fulfil the contract during the crisis, eg, requiring documents indicating that the funds needed for performance of the contract are at the bidder’s disposal.

 

• For example, if the contracting authority requires a certain level of net turnover to be shown, this might be easily achieved for 2017-2019. However, due to the crisis, the present financial situation for that bidder could be totally different from past years.

 

• In other words, past net turnover data may lead the contracting authority to the faulty assumption that the bidder is financially solid and reliable. At the same time, the effect of the crisis may well be that the tenderer lacks the financial capacity to fulfil the contract. So, be aware of using the net turnover qualification criterion from now on, for the next 3 years.

 

• A more objective view could be reached by using the ratio between obligations and assets as a qualification criterion. The most precise criterion in the toolbox might even be a request for a bank statement showing funds available to the bidder.

 

• In Latvia for safety reasons carry out procurement procedures electronically, even if the law does not specifically require doing so.

 

• If a contractor claims that the contract cannot be performed due to force majeure, the contracting authority should clarify whether that is the case. That is, ask more detailed questions about what exactly is hindering fulfilment of the contract. Fear of not being able to fulfil future obligations does not constitute force majeure in itself, though goods stuck on a transport vehicle due to the closure of national borders does. If the contracting authority does not look into the exact reasons causing breach of contract by the contractor, this might lead to unlawful amendment of the contract or could be construed as such.

 

• A contracting authority should pay extra attention in deciding whether to amend public contracts due to COVID-19 influences on contracts that are funded by EU structural funds. Illegal amendment of a contract might lead to a 25% reduction of project funds ‒ in some cases even more.

 

Flexible ways for better outcomes

• When faced with the need to amend the contract, look into the option of unforeseeable circumstances as a basis. This could be appropriate during the crisis. Evaluate if there is an urgent need to amend the contract at all. For example, if the contractor notifies the contracting authority about a breach of contract due to force majeure, this is considered as a legal excuse for not fulfilling the contract while the force majeure persists. This does not always need a contract amendment.

 

• Negotiated procedure without prior publication can be used for purchasing from a business in liquidation or from a bankruptcy trustee. Contracting authorities should keep an open mind about buying from companies undergoing bankruptcy as many goods can be purchased from them at a better price but without legal risks.

 

• Setting tender guarantees is not compulsory. Some companies might still be able to make offers in tender procedures, but are less willing to reserve free money as a tender guarantee for longer periods. Every little bit counts. When setting tender guarantees is mandatory (there are some cases in Lithuania), consider setting them not so strictly.

 

• If the successful bidder is bankrupt, in liquidation or suspended, the contracting authority can still deliberate whether to enter into a contract with them. So, this does not mean automatic exclusion. Contracting authorities should take into account the nature and object of the contract. If buying goods that do not need maintenance and are easy to deliver, then the status of the company is a smaller risk as they might still be able to fulfil the contract without any risk. But, if buying services that need to be rendered personally, then the risk is higher and exclusion might be justified.

 

• A public contract can still be concluded with a bidder affected by compulsory exclusion grounds if the contract is indispensable due to overriding requirements in the general interest. Let’s say that in the case of an urgent need for medicines the tenderer has tax arrears, you can sign a contract with the company anyway if no other way of procuring the medicine is possible.

 

• Communication between the business sector and contracting authorities enables public parties to make better and more thoroughly informed decisions. Tenderers should contact the contracting authorities to ask for extension of tender submission deadlines, especially in sectors most affected by the crisis, such as transportation, which therefore have little time or few staff to draft offers. Contracting authorities could also ask tenderers if extending the tender submission deadline is necessary.

 

Risks you need to be aware of

 

• When a contracting authority rushes into contracts, this does not mean contracts could be concluded in a way that is at odds with procurement law. In the case of an unlawful direct contract, competitors have 6 months to claim that the contract is ineffective.

 

• Unlawful amendments to a contract can lead to unilateral termination of the contract by the contracting authority.

 

• A successful bidder should be wary of withdrawing its bid, as the contracting authority might be tempted to claim damages or withhold the tender guarantee.

 

• A contracting authority can declare procurement invalid due to justifiable need, which might be very real in times of crisis. At the same time, the reasons for not going through with the procedure must still be grounded by objective and sufficient arguments. This might apply for crisis-related budgetary cuts which would not allow fulfilment of the contracting authority’s obligations towards the contractor. But the crisis in itself is not a sufficient ground for declaring procurement invalid.