A completely new Public Procurement Act (“PPA”) was adopted by the Hungarian Parliament on 22 September 2015, which is expected to be published in the next days. The new PPA incorporates all new EU directives (EU Directives 2014/23, 24, 25) related to public procurement procedures and aims to implement of EU rules regarding concessions and procurement by classic contracting authorities as well as in the utilities sector. 

Most of the regulations of the PPA will be effective as of 1 November 2015. The rules on mandatory electronic procedure will be applicable later - for centralised purchasing activities from 1 November 2016 and for all public procurement procedures from 1 February 2017. 

The PPA contains a large number of novelties, therefore, appropriate preparation before the effective date is necessary. The major changes include the following: 

Certification:

  • The PPA is aimed at simplification in the administration. E.g. in a tender above the EU threshold, the certification of non-existence of exclusion grounds, as well as compliance with the selection criteria, shall be certified by the European Single Procurement Document (“ESPD”). However, the ESPD has not been prepared by the EC yet.

Exclusion grounds:

  • All exclusion grounds that are currently optional will be mandatory to comply with, including fines imposed by the competition authority.
  • As a new rule, the possibility of self-cleaning will be available, in the case of most of the exclusion grounds. In such cases, the economic operator needs to prove its reliability sufficiently before the Public Procurement Authority or court.
  • Exclusion grounds will affect the legal successor as well, i.e. in the event that a company falls under an exclusion ground, demerger from the “bad” company will not serve as a remedy anymore.
  • The absence of exclusion grounds needs to be certified for the executive officers, including any member of the management or supervisory board of the economic operator, or any other person that has decision-making power. It is questionable how this must be certified by the bidders since the relevant detailed rules have not been adopted yet. The certification may require the submission of criminal records, which may raise data privacy concerns.

Reliance on the capacities of other entities:

  • Reliance on the capacities of other entities becomes more difficult. E.g. a contract needs to be submitted as part of the bid in which the capacities provider undertakes that all resources necessary for the fulfilment of the contract shall be at disposal during the performance of the contract. Currently a declaration is sufficient.

Technical capacity requirements:

  • The contracting authority cannot require the submission of references of past supplies in a value of more than 75% of the estimated value of the relevant procurement.

Subcontractors:

  • The indication of the 10% plus subcontractors in the bid is no longer mandatory, although the contracting authority may prescribe in the contract notice that the bidder needs to indicate the part of the procurement for which it wishes to use a subcontractor together with the subcontractors known at time of the submission of the bid.
  • The unique and burdensome Hungarian rule, according to which a subcontractor involved in the contractual performance in more than 25 % needs to be indicated mandatory as joint bidder, disappears from the new PPA.
  • In the case of certain works and services, the contracting authority may prescribe that significant tasks must be performed exclusively by the bidder, and it is not possible to involve subcontractors.

Business secrets:

  • Fewer documents may be treated as confidential and together with such a submission, the bidder needs to make a declaration explaining in advance why the document qualifies as a business secret.
  • The rules of the accessibility of documents become stricter as the full inspection of the bid of another economic operator is not possible anymore. Access will be limited to the documents necessary for the enforcement of the rights related to the alleged violation.

Conflict of interest:

  • Besides the already existing conflict of interest rules, the new PPA excludes several specific persons from participating in public procurements e.g. President of the Public Procurement Authority, President of the Competition Authority, President of the Tax Authority, ministers, President of the Parliament etc. and their family members.

Contract award criteria:

  • The best price-quality ratio and the lowest cost will become the main contract awarding criteria, not the lowest price criteria as is currently the case. The lowest price criteria may be applied in limited cases only. The Lifecycle cost will have more importance.

Remedies:

  • Challenging the resolution of the Public Procurement Dispute Board will be possible only before 2 courts (not in Budapest anymore), which are the Administrative and Employment Tribunal of Kecskemét and the Administrative and Employment Tribunal of Székesfehérvár, depending on the seat of the contracting authority.

Modification of contracts:

  • More flexibility: 
    • the price increase may be 10% in the case of supply and services contracts and 15 % in the case of work and concession contracts. 
    • Modification is possible in case additional works, supplies or services are needed and a separate procurement procedure is not economically or technically feasible – in this case the price increase may be 50 %. 
    • Modification is possible only if the modification does not entail a substantial change of the contract.

The detailed rules will be set out in secondary legislation. Government decrees will regulate, among others, the certification of exclusion grounds, electronic auctions, technical specifications, applications used for e-procurement, details of procurement of public service providers, procurement of works and centralised purchasing activities. Unfortunately, these rules have not been adopted simultaneously with the PPA, however, the new PPA enters into force in two months. According to market information, it cannot be excluded that the PPA itself will be amended before it becomes effective and thus, it is of key importance to monitor the legislative proceedings. CMS Hungary will deliver various trainings and a Public Procurement Guide to help our clients follow up with the changes. 

Bill of the new Public Procurement Act (No. T/4849)