More than 250,000 public authorities across the EU devote a combined 14% of GDP to purchasing private sector products or services, according to the European Commission. In terms of GDP, public procurement spending is particularly high in Finland (approximately 18%) and Sweden (approximately 16%). Total public procurement expenditure is also increasing constantly in both countries, and has grown roughly 10% over the last five years.
“The public sector is an important customer for many of the companies we work with. As a recent trend, digitalization has seen an increase in IT procurement projects,” says Erik Ficks, Partner at Roschier’s Stockholm office.
Since public contracts account for such a significant tranche of business activity in the region, the Commission has continued to enhance minimum rules laid down to harmonize procurement procedures. The EU rules govern public tenders with a certain monetary value.
“The authorities are also more active in enforcing related procurement regulations; both suppliers and buyers are more aware of this and seeking greater compliance, which hasn’t always been the case,” says Ficks, who has extensive experience in public procurement matters.
Roschier‘s Helsinki-based Senior associate Sami Sunila says the firm has long advised clients in public procurement cases. He notes that there has been an increased demand for such services.
“We are advising clients in this field frequently, not only on public procurement processes as such, but also with respect to various transactions and in related areas such as competition law,” Sunila observes.
The Roschier lawyers point out that in both Finland and Sweden, the average size of public procurement contracts has increased and become more complex through more frequent use of framework agreements, joint procurement and consortia arrangements. In major infrastructure projects, such as highway and other construction projects, the total value of procurement contracts may be hundreds of millions of euros, so the stakes are high.
“Public procurement contracts are often high-value long-term projects. A supplier may win a contract to supply services for several years in an entire region of a country. If you lose that, you may need to transform your entire business,” Ficks expands.
The lawyers add that because public procurement contracts are so vital to the companies competing to win them, there are often appeals against tender decisions.
Changing regulatory environment
As the private sector moves to take greater advantage of the opportunities provided by public contracts, the EU has been working to ensure that public procurements are more efficient and cost effective for suppliers and buyers.
“This resulted in the adoption of the new EU directive on public procurement in 2014. The deadline for implementation in national legislation was on 18 April 2016. Some countries, including Finland and Sweden are late in amending existing national legislation,” declares Sunila.
The Roschier lawyers note that in both Finland and Sweden, draft bills are likely to be finalized during the summer. This means that proposed new legislation will not go before the respective Parliaments before autumn.
According to Ficks, the intervening period before national legislatures are able to bring their legal codes in line with the new EU directive could see more appeal activity.
“In this situation where national legislation is not yet up to date, that provides additional ammunition for others to try to appeal. So we may see an increase in appeals before the national legislations are harmonized with the EU rules,” Sunila continues.
Ficks adds that government authorities in Sweden may already be hamstrung by (new and old) EU rules and could be forced to resort to other national legislative measures.
“We have seen a fallout for the migration authority in dealing with the asylum seeker situation. The authority is unable to engage in procurement procedures to provide housing, clothing and meal services for asylum seekers as a result of interim injunctions from appeals, and a new act trying to restrict granting such measures is therefore being put into place with record speed,” he observes.
New rules offer more flexibility
Once member states have brought their national legislation in line with the EU directive, however, there will be clear improvements for companies doing business with municipal and state buyers. One such area involves facilitating changes to public contracts.
“According to the old rules it was difficult to amend long-term contracts. In the environment of public procurement if you had to change or specify something it often meant you had to re-tender or risk facing an appeal. The new rules allow for minor amendments, and this is very practical for all parties,” remarks Sunila.
Ficks also points out that tenders will not be evaluated exclusively on the basis of tender costs; other, more qualitative factors will also be weighed in decisions to award public contracts.
“Even though the old rules have allowed contracting authorities to consider other criteria than price, the latter has been the one in focus. However, in line with public procurement's key role in the Europe 2020 strategy for smart, sustainable and inclusive growth, it’s no longer solely a question of who tables the lowest-value offer, you can also build in environmental aspects and societal or political concerns, which can be very important factors,” he notes.
Another aspect of the new EU directive involves digitalizing the public procurement process itself. The Commission is also advocating e-procurement practices, which essentially involves the adoption of full electronic communications for public tenders. However, this requirement will only become mandatory in 2018.
Limited window for appeal
One of the major challenges facing corporate clients working with the public sector, is the short time frame for preparing appeals, say the Roschier advisors.
“The time to prepare for the process is very short – formally only 14 days from the contract award decision. In Finland the Market Court handles the appeals and they have a publicly announced objective to handle the process within one year. Statistically, the appeals take about seven to eight months on average,” explains Sunila.
“In comparison with other types of litigation these are quite speedy processes,” he adds.
According to Ficks, public contract appeals in Sweden take a comparable amount of time.
“The system is such that we normally have to appeal within ten days because there is a ten-day window before the public authority can sign the contract.”
Clients in Sweden lodge their appeals with an Administrative Court and cases may be escalated to the Supreme Administrative Court, a process that may take a year to resolve.
“You have to move quickly and you have to get everything in writing because there are no oral hearings as you would have in other kinds of litigation,” Ficks elaborates.
Competition authorities' increasing role
In the Nordic countries, regulatory frameworks for public procurement processes aim to ensure fair competition among suppliers, and to provide the opportunity to compete on equal terms in every bidding process. If competition is not fair, public procurement rules become worthless and robust enforcement of competition laws is required to guarantee value for tax payers' money.
Public procurement processes are widely recognized as being susceptible to cartels, particularly if there is only a handful of potential bidders constantly competing for the same projects.
"A fair share of cartel investigations in the Nordic countries over the past years has concerned public tenders. The Nordic competition authorities have jointly declared that fighting bid-rigging in public tenders is a crucial task", says Niko Hukkinen, Partner at Roschier's EU & Competition law practice.
The other side of the coin is the risk of illegally awarding tenders directly by procurement units, or tailoring tendering processes so that in practice only one bidder can win. Like collusion at the bidders' end, such practices undermine the purpose of procurement rules but also disrupt the development of competitive markets in the long term.
"The Swedish competition authority is already vested with powers to supervise public procurement, with a focus on illegal direct award of contracts. Rumors are that the Finnish Competition and Consumer Authority may follow suit", Hukkinen notes.