As a result of ‘self-cleaning’ procedures contained in Hungary’s new Public Procurement Act (PPA), which came into effect on 1 November 2015, companies that are excluded from public-procurement procedures for up to three years may now be able to participate in tenders. But to participate, they must initiate ‘self-cleaning’ procedures and demonstrate their reliability. 

According to the PPA, a company undertaking self-cleaning must:

  • Pay compensation to any aggrieved party for damages caused by criminal offense, misconduct, or infringement;
  • Fully cooperate with all competent authorities to clarify the facts and circumstances of the misconduct;
  •  And adopt specific technical, organizational, and personnel measures to prevent future misconduct and criminal activity. 

With only a few exceptions, if a company falls under exclusion it may initiate self-cleaning procedures with Hungary’s Public Procurement Authority (Közbeszerzési Hatóság), which may declare it reliable, and allow it to participate in the tender process. 

For example, the Public Procurement Authority recently reviewed the cases of two companies facing exclusion for past violations of employment regulations. One company had been fined as a result of a minor workplace injury to one of it employees; the other company had missed a tax deadline for reporting a new employment agreement. These misconducts were of minor gravity, but they could still result in exclusion from public procurement. 

However, it was demonstrated during the ‘self-cleaning’ procedures that both tenderers cooperated with authorities, worked in good faith to establish the facts of their cases, paid the resulting fines, and, importantly, adopted measures to prevent similar violations in the future. As a result of this self-cleaning, the Public Procurement Authority declared the companies to be reliable tenderers, and approved them for participation in public procurement. As a result, they do not have to wait three years for the exclusion to elapse. 

What are the important takeaways for self-cleaning in Hungary? Recent resolutions by the Public Procurement Authority reveal how important it is for tenderers to cooperate proactively with authorities. Companies should pay special attention to employment and labour regulations, since their cooperation during the authority procedure may enhance successful ‘self-cleaning’. Due to the potential for exclusion, companies who frequently participate in public procurement should ensure that they comply with mandatory employment regulations that are subject to potential audit by the authorities, like working time compliance with contractual requirements, salary payment, overtime, and compliance with reporting requirements. 

Source of law:  Act CXLIII of 2015 on public procurements  Act I of 2012 on the Labour Code