Austria: Imminent implementation of public procurement directives

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Almost one year after the two-year transition period of the EU directives on public procurement law(1) expired, Austria published a consultation draft of the new Federal Procurement Act 2017 to implement the directives.

Like other member states, Austria took a somewhat conservative approach when implementing the directives and tried hard to avoid 'gold plating'. Nevertheless, there are some areas where the Austrian draft for the transposition of the directives is significantly stricter than the directives themselves. This update identifies the most significant changes introduced in the draft of the new Federal Procurement Act.

Key changes

1. Implementation of new 'in-house' rules

The Federal Procurement Act provides for a new and extended exemption for contracts awarded between public bodies in a horizontal and vertical in-house relationship. By incorporating the respective provisions of the directives almost verbatim, the draft also implemented the current uncertainties of the directives, such as the relevance of the so-called 'activities condition' when awarding contracts to sister companies or limitation of indirect capital participations.
 

2. No mandatory division into lots

It is proposed to establish the so-called 'apply or explain' principle of the directives when dividing contracts into lots. Accordingly, contracting authorities must explain in the tender documentation or in the procurement report why they did not divide the works or services into lots where possible. Nevertheless, there is no obligation to divide contracts into lots and the explanation for not doing so is not subject to judicial review.
 

3. Modification and termination of existing contracts

In accordance with the directives, the draft law provides a clear set of rules that govern when and to what extent existing contracts may be adjusted without creating an obligation to re-tender the contract. The respective rules of the directives were incorporated virtually verbatim. Under specific circumstances (eg, criminal material changes in the person of the contractor), contracting authorities are also obliged to terminate an existing contract immediately. Failure to comply with this obligation incur a fine of up to 30% of the contract value.

4. Negotiated procedure and 'innovation partnership'

The grounds for using the competitive procedure with negotiation (which will be the same as those applicable to the competitive dialogue) are significantly extended. Basically, this procedure will be available for all purchasing that is not 'off the shelf', such as purchasing of designs or innovative solutions. However, this wider availability of the competitive negotiated procedure comes at a price: narrower and express procedural rules that reduce the procurer's flexibility when conducting the procedure.

By introducing the 'innovation partnership', public authorities are in a position to call for tenders to resolve a specific problem without pre-empting the solution and thus leaving room for negotiations with bidders to find the best solution. The procurement procedure itself broadly corresponds with the negotiated procedure. After the contract is awarded, product development will take place in several phases and the contracting authority may terminate the contract in each phase.
 

5. Mandatory price-to-quality ratio for assessing most economically advantageous tender

While the directives provide a certain amount of leeway when deciding whether the most economically advantageous tender will be assessed based on price, costs (using a cost-effectiveness approach) or the best price-to-quality ratio, the Federal Procurement Act already moved one step further in 2016 by making the application of the price-to-quality ratio mandatory for certain types of contract (eg, construction contracts above €1 million). This approach will be continued and extended. In future, all contracts for security services and all contracts awarded in the course of a negotiated procure will be assessed based on the best price-to-quality ratio.
 

6. New and extended exclusion grounds

The Federal Procurement Act significantly extends the grounds for exclusion of candidates and tenderers by incorporating the respective rules of the directives. While the directives provide member states with a certain amount of leeway when determining mandatory or discretionary exclusion grounds, the Federal Procurement Act instead determines all exclusion grounds as mandatory in the public sector regime. Contracting authorities in the public sector will therefore be obliged to apply all exclusion grounds, meaning that they will have to exclude (among others) economic operators that have shown significant or persistent deficiencies in performing prior contracts. Furthermore, the concept of 'self-cleansing' has been considerably strengthened ‒ for example, by obliging bidders to substitute any damage.
 

7. Adjustment of review system

In light of recent European Court of Justice judgments,(2) the relevant rules (eg, the deadline for filing a review application) for review of public procurement proceedings have been adjusted and streamlined.

Comment

The current draft was in the consultation stage until early April 2017 and requires the approval of all federal states before entering into force. Therefore, it seems likely that this new set of rules will be subject to minor or even substantial adjustment. However, since the European Commission has already initiated infringement proceedings against Austria for not transposing the directives in due time, it is expected that the Federal Procurement Act will come into force as soon as possible, possibly even during the second quarter.
 

(1) 2014/23/EU, 2014/24/EU and 2014/25/EU.

(2) Such as C-689/13 (PFE), C-355/15 (Caverion) and C-166/14 (MedEval).


This articles was edited and first published at www.internationallawoffice.com