A Bulgarian administrative court recently held that contracts signed by a company, without applying public procurement procedures, before it became a sectorial purchaser shall remain in force for their entire term.

Facts of the case

In 2005, a privately owned company submitted an application for a licence to produce electricity in Bulgaria.  The electricity production licence would grant the company such special or exclusive rights that would qualify it as a sectorial purchaser within the meaning of the applicable public procurement law.  As a sectorial purchaser the company would be obliged to apply public procurement tenders for purchasing services, goods and works.  The company obtained its licence in 2011 and from then the company started its activities as a power generation company.   

However, before obtaining its power generation licence, the company had signed long-term supply agreements for the purpose of the future power generation activities.  Deliveries under the supply agreements were ordered periodically ever since, including after the power generation licence was issued.  

A competent controlling public authority determined that the orders under the supply agreements which were made after the company commenced power generation activities should have been made pursuant to public procurement tenders.  The public authority found that every new order under the long-term supply agreements were a new purchase and, thus, a new public procurement contract and the company was sanctioned for failing to conduct public procurement tenders in respect of such new orders.  The company appealed the decision to the administrative court. 

Merits of the court decision

The Bulgarian administrative court confirmed that the company became a sectorial purchaser when it received a power generation licence and starting performing the activities thereunder.  As such, it was obliged to award supply, service and works contracts related to its power generation activity under the rules of the Public Procurement Act.  

However, the court held that placing new orders for delivery of goods pursuant to an existing long-term contract did not amount to new contracts and that the new orders did not have to be awarded under a new public procurement tender. 

Further, and most notable, the court confirmed that before receiving its energy generation licence and commencing electricity generation, the company was not considered a sectorial purchaser within the meaning of the Public Procurement Act, and was not obliged to apply public procurement for its purchases.  The court seemed to find it irrelevant that the supply agreements were signed for the purpose of the future planned power generation activities.  The court confirmed that all contracts signed by the company before it formally became a sectorial purchaser remained in full force for their entire term regardless of their scope and purpose, even after the company became a sectorial purchaser.  The court concluded that there were no legal grounds for rescission of such contracts signed by the company since it was not obliged to apply public procurement procedures.  

The administrative court’s decision was not subject to further appeal and the Supreme Administrative Court of Bulgaria has not had the chance to review its merits.  Case law in Bulgaria is not a binding source of law, but can be relied upon as a convincing official authority in other similar cases.