Introduction

The spread of COVID-19 following the virus’ outbreak has forced the Government of Spain to declare, by means of Royal Decree 463/2020, of 14 March, by which the state of emergency is declared for the managing of the sanitary crisis situation caused by COVID-19 (RD 463/2020), a “state of emergency situation” at national level, setting out severe measures and imposing restrictions on the free movement of people, as well as the closing of businesses, which are all aimed at fighting the health implications of said outbreak. RD 463/2020 entered into force on 14 March 2020.

The factual situation created by COVID-19 and the measures approved by the Central Government, or those which could be approved by the regional or local Administrations, might make it impossible to continue with the performance of certain public contracts already in force throughout the term of duration of the state of emergency situation.

For the purpose of trying to avoid or at least mitigate the negative effects for the business activity and employment derived from the measures set out under RD 463/2020, as well as their impact over the public contracts in force, on 17 March 2020 the Government passed the Royal Law-Decree 8/2020, of 17 March, on urgent and extraordinary measures to face the economic and social impact of COVID-19 (RLD 8/2020), which, under article 34, sets out a series of extraordinary measures regarding public contracts.

The measures contained in article 34 RLD 8/2020 allow for a suspension of the public contracts affected by COVID-19, and set out a series of rules for the compensation of the damages that such a suspension might entail for the contractor. In general terms, this is to be considered as a particular characteristic of public procurement as opposed to private procurement. Indeed, given that the contractor is considered a collaborator of the procuring Administration, force majeure cases do not imply the early termination of the contracts, but the possibility for their suspension and the granting of a compensation to the contractor.

Content

RLD 8/2020 sets forth extraordinary measures for public contracts gathering the following characteristics:

In any case, the following public contracts are excluded from the scope of application of the measures set out under RLD 8/2020: (i) sanitary, pharmaceutical, or of other kind services or supply contracts, whose object is related to the sanitary crisis caused by COVID-19; (ii) security, cleaning or IT systems maintenance services; (iii) services or supply contracts required to ensure mobility and security of infrastructures and transport services; and (iv) contracts awarded by those public entities listed on official markets and which income is not obtained from the General State Budgets.

A compensation to the contractor is possible, provided that the factual situation created by (i) COVID-19, and the (ii) measures approved by the Central Government, or by the regional or local administration in order to face it, make it impossible to continue performing the contract.

As a result of the acknowledging of the impossibility to continue with the performance of the contract, the contractor is entitled to an economic compensation in order to restore its economic imbalance (i) either by the extension of the original contract term to up to 15% of the original term, or (ii) by the modification of any contract clauses of economic content4.

The restoration of the economic imbalance will comprise loss of income and increase in costs borne, amongst which wages expenses effectively paid during the factual situation created by COVID-19, additional to those established for the ordinary execution of the works or services concession public contract, will also be taken into account.

Article 34.1 RLD 8/2020 sets forth a rule allowing for the continuation on an exceptional basis of certain services and supply public contracts for the performance of successive provisions.

The reason for this regulation is based on the necessity to ensure the continuity of the provisions derived from expired contracts, due to public interest reasons arising from COVID-19 state of alarm situation.

The continuation of the provisions derived from the affected contracts requires that, upon expiration of the contract (i) no new contract ensuring the continuation of the service or supply provision would have been concluded as a consequence of the paralysis of the tendering procedures derived from the RD 463/2020, and (ii) no new contract for the provision of the services or supplies could be entered into.

In these cases, it is expressly allowed that the last paragraph of article 29.4 of Law 9/2017 of 8 November, on Public Sector Procurement, by which Directives of the European Parliament and the Council 2014/23/UE and 2014/24/UE, of 26 February 2014 are transposed applies, allowing for an extension of the original contract until the execution of the new begins and, in all cases, for a maximum period of up to nine months, without modifying the rest of the contract conditions, and regardless of the date of announcement of the tendering of such new contract.

  1. Scope of the affected public contracts
    1. Public contracts entered into by entities belonging to the public sector.
    2. Public contracts of the following sort (a) services and supply contracts for the performance of successive provisions or for the performance of provisions of a different nature (e.g. single provision); (b) works contracts; and (c) works concessions or services concessions.
    3. Public contracts in force as of 18 March 2020, date of entry into force of RLD 8/2020.
  2. Extraordinary measures regarding the scope of the affected public contracts

    The suspension of services and supply public contracts for the performance of successive provisions is possible, provided that their execution becomes impossible as a result of (i) COVID-19, or (ii) the measures approved by the Central Government, or by the regional or local administration in order to face it.

    More specifically, the following effects are set out as a consequence of the suspension:

    The extension of the duration term of the rest of public contracts for the provision of services and supplies is possible, provided that (i) their execution purpose would not have been lost as a result of COVID-19, and (ii) the contractor delayed the compliance with the duration term of the contract as a result of (a) COVID-19, or (b) due to the measures approved by the Central Government, or by the regional or local administration in order to face it.

    More specifically, the following effects are set out:

    Regarding works public contracts a suspension or an extension of the duration term for the final delivery of the works is possible, provided that (i) their execution purpose would not have been lost as a result of the situation created (a) by COVID-19, or (b) due to the measures approved by the Central Government in order to face it, and (ii) said situation would make the continuation of the performance of the contract impossible.

    More specifically, the following effects are set out as a consequence of the suspension or the extension of the duration term for the final delivery of the works:

    1. Services and supply public contracts for the performance of successive provisions

      The damages to be compensated are the following:

      1. The contract will become suspended as from the moment in which the factual situation making its performance impossible takes place, and until the moment in which such performance may be resumed1.
      2. The contracting entity shall compensate the contractor those damages effectively incurred during the period of suspension, upon prior request and evidence by the contractor of their reality, effectiveness and amount.
        1. Wages expenses of the persons allocated to the ordinary execution of the contract as of 14 March 2020.
        2. Expenses for the maintenance of the definitive guarantee.
        3. Expenses for rents or costs for the maintenance of machinery, facilities and equipment directly allocated to the contract, as long as the contractor demonstrates that these means could not be used for different tasks during the suspension.
        4. Expenses for insurance policies in force at the moment of the suspension required by the tender specifications.
      3. The suspension of the services and supply contracts shall not be considered in any case as a termination cause.
    2. Services and supply public contracts for the performance of other provisions
      1. The contract term is extended for, at least, a period equal to the time lost, unless the contractor would request a shorter one.
      2. No penalties might be imposed to the contractor, and the contract shall not be terminated.
      3. The right to be paid additional salary expenses in which the contractor would had effectively incurred, as a consequence of the time lost, up to a maximum amount of 10% of the initial price of the contract.
    3. Works public contracts
      1. The contract will become suspended or the contract term for the final delivery of the works will be extended as from the moment in which the factual situation making its performance impossible takes place, and until the moment in which such performance may be resumed2.
      2. The contracting entity shall compensate the contractor for the following damages:
      1. Wages expenses of the persons allocated to the ordinary execution of the contract before 14 March 2020, who continue to be allocated when the performance is resumed, and effectively paid by the contractor during the period of suspension3.
      2. Expenses for the maintenance of the definitive guarantee.
      3. Expenses for rents or costs for the maintenance of machinery, facilities and equipment directly allocated to the contract, as long as the contractor demonstrates that these means could not be used for different tasks during the suspension.
      4. Expenses for insurance policies in force at the moment of the suspension required by the tender specifications.
    4. Works concession and services concession public contracts
  3. Exceptional continuation of certain services and supply public contracts for the performance of successive provisions
  4. Emergency procedure for the award of contracts for the fight against COVID-19

To streamline the fight against COVID-19, the Central Government has also approved certain procedural specialties in public procurement.

In particular, article 16 of Royal Law-Decree 7/2020, of March 12, approving urgent measures to respond to the economic impact of COVID-195, justifies ex lege the use of the emergency procedure, to those contracts that must be concluded by the Central Government, or its public bodies and entities of Public law6, in order to meet the needs derived from the protection of individuals and other measures approved by the Board of Ministers in the fight against COVID-19.

The emergency procedure entitles the contracting authorities, without the obligation to process a public procurement contracting file, to resolve or decide on the execution of what is necessary to fight against COVID-19, including the possibility of approving direct contract awards, in whole or in part, without being subject to the formal requirements established in the general public procurement regulations.