In the first half of December, a draft amendment to Act No. 343/2015 on public procurement and on amendments and supplements to certain acts (hereinafter referred to as the “Public Procurement Act”) came to public attention when it was submitted for inter-ministerial consultation by Štefan Holý, Deputy Prime Minister for Legislation and Strategic Planning of the Slovak Republic, from the Sme rodina (We Are Family) parliamentary club. This amendment is set to be a revolutionary change in public procurement, as it contains significant conceptual changes. According to the explanatory memorandum, the planned effective date of this amendment is September 1, 2021. In the following lines, we will attempt to describe why this amendment is considered revolutionary and fundamental, and whether these adjectives also herald positive change.
The current legal regulation of public procurement transposes European Union directives that set minimum requirements and rules for a uniform public procurement procedure within the EU and regulate the requirements and limits imposed on so-called above-threshold contracts. Based on the above information, it can therefore be concluded that when drafting national legislation, the legislator is obliged to remain within the limits set by these directives and is not entitled to adopt legislation that would be contrary to them.
According to Štefan Holý, the main reason for the need to amend the current public procurement legislation is its excessive length. According to him, the average public procurement procedure takes almost two years. The aim of the amendment is therefore to simplify public procurement, making it more efficient and faster, which would put the state in a better position to draw on EU funds that will be coming to Slovakia in the coming period under the Recovery Plan. According to the explanatory memorandum to the draft amendment, the aim is “also to strengthen the function of the already effective regulations in the area of financial control, budgetary control and control of public finance in general, and to speed up the process from the point of view of the exercise of the rights of interested parties, tenderers, participants and other persons.” From the wording of the objectives and their presentation, this revolutionary change may seem noble, but the specific wording of the bill foreshadows the complete opposite of strengthening control mechanisms.
The current legislation divides contracts into low-value contracts, sub-threshold contracts, and above-threshold contracts. This division is fundamental and crucial, as it determines the type of contract and, consequently, the appropriate procedure to be followed by the contracting authority and the contracting entity, which is, of course, required by the Public Procurement Act itself, whereby the selection is made within the legal framework which depend on whether the subject of the contract is the supply of goods, services or construction work and, subsequently, on the estimated value of the contract.
The focus of this revolutionary change is to be mainly on the exclusion of the procedure for awarding so-called sub-threshold contracts from the Public Procurement Act, which currently include contracts for construction work ranging from EUR 180,000 to EUR 5.35 million, or the supply of goods and services worth between EUR 70,000 and EUR 214,000. In the past, we have already seen attempts to speed up the public procurement process in relation to the award of sub-threshold contracts by increasing the limits for low-value contracts, which are subject to a much less formal procedure using a so-called market research, where the contracting authority only contacts selected bidders and publishes the call for tenders only on its website, while at the same time excluding review procedures by the public procurement authority for low-value contracts (in mid-2016, the lower limit for construction works was increased from EUR 70,000 to EUR 150,000; today it is EUR 180,000). The impact of raising the thresholds for low-value contracts was assessed by the non-profit organization Transparency International Slovakia in 2018, which compared different periods before and after the increase in thresholds and concluded that there may have been a negligible acceleration in procurement, at the cost of reduced transparency, a reduction in public savings and a deterioration in competition[1]. We believe that the exclusion of the procedure for awarding below-threshold contracts from the Public Procurement Act will have essentially the same impact on public procurement, but on a much larger scale, as the Public Procurement Office will lose the possibility of reviewing contracts for construction works up to EUR 5.35 million. Furthermore, the entire process would no longer be conducted through notices in the Public Procurement Office's bulletin, which would deprive the general public and, in particular, potential bidders of the opportunity to learn about the tender properly and in a timely manner in one place. The award of sub-threshold contracts would thus, under the new rules, most likely achieve the objective of speeding up and simplifying the procedure, but at the cost of more expensive purchases, significantly reduced transparency, a reduction in overall competitiveness and a significantly higher risk of corrupt practices.
In this context, it is also worth noting that public contractors are not only the state represented by state authorities, but also cities, municipalities, and higher territorial units, which are equally subject to the obligation to comply with the Public Procurement Act. Municipalities and cities award contracts for construction works with a value of more than EUR 5.35 million or for services with a value of more than EUR 214,000 only in exceptional cases, while in smaller municipalities, their annual budget does not even reach the above threshold for construction contracts. Among other things, the amendment will also curtail the Office's powers to audit the management of public finances in the sense that the Office will no longer be entitled to request necessary information from law enforcement or financial authorities for the purpose of targeted and in-depth control of public procurement.
The entire process of awarding these contracts will now be covered by Section Section 19b of the Act on Public Administration Budgetary Rules, which provides for the creation of a price monitoring information system to be managed by the Office of the Government of the Slovak Republic, in which contracting authorities would publish their intention to procure various items, details of the subject of the procurement and its delivery. This provision describes the procedure in a very simple, vague and general manner, and it is not clear what conditions, if any, suppliers will have to meet, under what circumstances individual price offers may be excluded, what content and formal requirements the offers must contain, and it does not contain other important facts or conditions such as the procedure for opening tenders, the establishment of a committee to evaluate tenders or to evaluate the fulfillment of participation conditions, and other rules that play an important role in the award of sub-threshold contracts under the Public Procurement Act.
One of the key principles on which public procurement is based is the principle of transparency. This principle should prevail throughout the entire public procurement process, from the announcement of the tender to the selection of the best bid and the successful conclusion of the contract with the successful tenderer, whereby significant restrictions on public control, ambiguity and vagueness of the rules governing the award and evaluation of contracts are not entirely clear ways by which a higher level of transparency can be achieved. The statement by the submitter in the explanatory memorandum that the legal system of the Slovak Republic contains numerous control mechanisms to ensure the transparent use of public funds such as holding employees responsible for breaches of financial discipline under labor law, the obligation to submit concession contracts to the Ministry of Finance of the Slovak Republic, or the activities of the chief auditor in the municipality, as these mechanisms lack significant accountability or the possibility for potential bidders to obtain justice through the review procedures of the Public Procurement Office. The subsequent publication of contracts also does not constitute a significant guarantee of a proper and transparent procedure in the procurement itself, as there will no longer be an obligation to make all documentation from the procurement process available to the Public Procurement Office (minutes from the opening of bids, notifications of exclusion of tenderers, information on the outcome of the evaluation of tenders, etc.). For these reasons, we believe that there will be a clear and significant suppression of the principle of transparency, as well as other principles of public procurement, such as equal treatment and economy, and on the other hand, the door will be opened to an increase in corruption and clientelism, which is in direct contradiction to European Union legislation, which aims to eliminate such practices as far as possible.
Disagreement with the content of the planned amendment to the Public Procurement Act was also expressed by the Chairman of the Public Procurement Office, Mr. Miroslav Hlivák, who even speaks of the beginning of the dismantling of the Public Procurement Office, pointing to the fact that the Deputy Prime Minister for Legislation, Mr. Holý, ignored the draft amendment to the Public Procurement Act prepared by the Public Procurement Office, which was intended to expand the powers of the Office, as well as the fact that the government's draft bill was prepared without expert discussion and, above all, without the cooperation of the Public Procurement Office itself, which is the central state administration body in this area. Non-governmental organizations Transparency International Slovakia, the Stop Corruption Foundation, Slovensko.Digital, the INEKO Institute and the Fair-play Alliance, which also submitted a collective comment focusing on the proposed deletion of the planned exemption of sub-threshold contracts and low-value contracts from the Public Procurement Act, which has been signed by approximately 4,500 citizens to date.
As our law firm also provides advice in the area of public procurement, both to clients in the position of public procurers and contracting authorities, as well as to entities in the position of tenderers and interested parties, we are aware of the sensitivity of this issue and believe that any changes in the way public procurement is carried out must be rationally justified and based on defensible grounds and a thorough analysis of the impact on competition, competitiveness and the use of public resources. In this context, we are inclined to question the proposed amendment to the Public Procurement Act, particularly with regard to compliance with the fundamental principles of public procurement. We trust that the Government of the Slovak Republic will take into account the comments of the Public Procurement Office and the professional public when preparing the amendment and will not continue with the legislative process with the wording of the amendment to the Public Procurement Act as submitted by the Deputy Prime Minister for Legislation. We will continue to monitor the situation closely and will inform you of any changes in the current state of affairs.
[1] Transparency International Slovakia – Gabriel Šípoš, Eva Bilená, Government amendment will make contracts more expensive and encourage corruption, dated 24 September 2018: https://transparency.blog.sme.sk/c/492672/vladna-novela-predrazi-zakazky-a-podpori-korupciu.html
