Public procurement in 2022: five things you need to know

In the context of an M&A transaction, it is important to pay attention to the consequences of the deal for existing contracts (e.g. possible change-of-control clause, etc.). As far as public contracts are concerned, this issue is specifically regulated by public procurement law.

In an asset deal, the original contractor can be replaced by another economic operator that meets the initially established qualitative selection criteria, without the need for a new tender, through universal or partial succession into the position of the initial contractor following a corporate restructuring, including a takeover, merger, acquisition or insolvency, provided this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of public procurement legislation.  A transfer of assets requires in principle the consent of the contracting authority. 

In general, share deals do not produce effects under procurement law, as the contractor remains the same. Indeed, the Court of Justice of the European Union (CJEU) has ruled that changes to a company's shareholder structure will not, as a rule, result in the need for material contractual amendments

In principle, the sale of land by a public authority to an undertaking does not constitute a public procurement contract. Thus far, it has therefore been considered that, in the absence of a statutory provision to this effect, a public authority is not obliged to organise a tender procedure for or advertise an assignment of immovable property. The case law on this issue is nevertheless evolving. On 26 November 2021, the Dutch Supreme Court ruled that a public authority that wishes to sell immovable property must in principle offer (potential) candidates the opportunity to bid for it. The principle of equal treatment implies that the buyer must be selected based on objective, verifiable and reasonable criteria.

This principle also requires that, in order to create a level playing field, the public authority must ensure an appropriate degree of publicity with regard to (i) the availability of the immovable property, (ii) the selection procedure, (iii) the timetable, and (iv) the applicable selection criteria. However, is not necessary to ensure competition if it is established in advance or can reasonably be assumed based on objective, verifiable and reasonable criteria that there is only one serious candidate. It is generally assumed that this judgment also applies to the grant of a long lease or building rights as well as to the conclusion of lease (or similar) agreements by a public authority after its date. This judgment will certainly have repercussions outside the Netherlands, given the attention Benelux administrative courts pay to case law in neighbouring countries.

Recent crises have highlighted the tension between the rapid increase in supply costs borne by companies and the impossibility to pass on this increase, in whole or in part, to their co-contracting parties, unless the contract includes a price revision clause.

In most jurisdictions, force majeure can traditionally not be invoked in this situation, as performance of the obligation is not impossible, only more onerous. However, the distinction between force majeure and hardship has come under pressure, as some courts do not interpret the impossibility required for force majeure in an absolute manner. It is therefore worth trying to rely on force majeure to address an unforeseen situation that reasonably requires an adaptation of the contract terms.

In some jurisdictions, such as Belgium, a statutory hardship regime applies by default to public contracts, allowing the private party to request a revision of the contract terms even when it is not absolutely impossible to perform the contract at its original terms.

Three decades ago, there was uncertainty as to whether a contracting authority could take non-economic criteria into account when awarding public procurement contracts. In this regard, guidelines were set by the CJEU,  which were then consolidated in European directives of 2004 and 2014, confirming the right of contracting authorities to include environmental, social and ethical criteria in their procurement policies and practices. Several sets of guidelines issued at the European, national and regional levels set out the opportunities thus created and encourage contracting authorities to make use of them. 

However, the climate emergency has given rise to a new trend: contracting authorities are no longer simply encouraged to include green public procurement criteria (GPP) in their tenders but increasingly obliged to do so. This requirement can take the form, for example, of an obligation to designate a contact person specialised in environmental and social clauses within each contracting authority and to report on the inclusion of such clauses in procurement contracts. These initiatives are currently national or regional in scope but are likely to be reinforced at the European level. The EU Green Deal foresees that the Commission will propose “minimum mandatory green criteria or targets for public procurement in sectorial initiatives, EU funding or product-specific legislation”.  

This trend illustrates the need for contracting authorities to learn about environmental and social issues related to their procurement policies and practices and for suppliers to become more aware of the ESG aspects of their activities.

It is well known that public procurement law applies not only to public authorities but more generally to 'contracting authorities', including certain persons under private law. Questions arise, however, with regard to private companies that are not contracting authorities but that still decide to put all or some of their contracts out to tender.

The principle of freedom of contract could lead to the conclusion that a private company can negotiate as it pleases. However, the case law is more nuanced on this point, given the duty – applicable in all Benelux countries – to negotiate in good faith.

Dutch case law goes even further. The Dutch Supreme Court has ruled that if a private party puts out a contract to tender, it may be bound by procurement law principles. In this regard, it must be examined whether (potential) suppliers can reasonably expect, based on the wording of the tender, that the contracting authority is obliged to respect the principles of equal treatment and transparency. Whether this expectation arises will depend on the tender conditions and other circumstances of the case. A private party may stipulate in its tender conditions that the principles of equal treatment and transparency do not apply. However, in certain circumstances, it may be contrary to the general principles reasonableness and fairness to exclude these procurement principles.

Companies should therefore be careful about how they procure goods and services, as the mere act of putting a contract out to tender could create an expectation amongst suppliers that the principles of equal treatment and transparency will be respected. In this regard, a well-worded provision can help to clear up any misunderstandings.

Read the full article here.