January 27 2015
In March 2014 three new EU directives on public procurement law entered into force, introducing significant adjustments to the current regime – in particular, new procedures, award criteria and exclusion grounds. At the same, a discussion has emerged regarding wage dumping and social dumping in relation to public construction contracts. Experience has demonstrated that applying the price-only criterion contributes to ruinous price wars and destructive competition in the construction industry. The key concern of the so-called 'fair procurement' initiative is to preserve jobs and foster subject-matter experts by establishing the mandatory application of the best quality/price ratio, instead of considering only the lowest price.
The Austrian government is discussing and preparing an amendment to the Federal Procurement Act, which is intended to enter into force before implementation of the new directives (April 2016). The amendment establishes:
Under the Federal Procurement Act, construction contracts above the threshold may be awarded based on the lowest price only if the necessary quality standards are described with sufficient precision. Below the threshold – and in the utilities sector in general – contracting authorities are free to choose between the lowest price criterion or the best price/quality ratio when making procurement decisions. In practice, the overwhelming majority of construction contracts are awarded based solely on the lowest price.
Under the proposed amendment to the Federal Procurement Act, the best price/quality ratio will be mandatory for construction contracts above €1 million in order to fight wage dumping and foster the participation of subject-matter experts. Moreover, in order to avoid 'fig-leaf' quality criteria, price and quality criteria must be weighed in a way that ensures that the quality criteria have a realistic influence on the evaluation of the most economically advantageous tender. This approach has been heavily criticised by contracting authorities and construction industry representatives, which claim that due to the high technical standardisation in the construction sector, the application of further quality criteria is unreasonable and will cause significant additional workload and risks.
Tenderers have significant flexibility when it comes to subcontracting. The only restriction is that tenderers cannot subcontract a complete contract. Further, tenderers must nominate subcontractors whose resources and capacities are sufficient to fulfil the contract. However, the law includes no rules on how to handle sub-subcontractors or so-called 'subcontractor chains'.
Since wage dumping and social dumping frequently take place in the this context, the proposed amendment to the act stipulates considerably stricter rules in relation to the involvement and nomination of subcontractors than those currently in place. The amendment requires that contracting authorities have full knowledge of all subcontractors active on a construction site, not only of certain important subcontractors in the 'first row'. To that end, tenderers will be obliged to disclose all proposed subcontractors during the tender procedure. The new directives stipulate that contracting authorities will be entitled to restrict tenderers when it comes to transferring certain tasks under a contract to subcontractors and may require tenderers to perform certain critical tasks (as defined in the tender documentation) directly. Assigning contractual services to sub-subcontractors will be allowed only in extraordinary cases and with the contracting authority's explicit approval.
One of the basic underlying principles of the Federal Procurement Act stipulates that contracts must be awarded at reasonable prices. In order to execute that principle, contracting authorities must conduct in-depth examinations of a tenderer if the tender price appears to be abnormally low. Where the tenderer cannot provide a sufficient explanation, the contracting authority must reject the tender. In this context, uncertainty exists as to whether the tender price must cover all costs or only certain aspects of the bid (underpricing).
The proposed amendment is expected to provide further clarification on the question of which costs must be covered by a bid price (eg, any directly attributable expenditure) by stipulating additional and more precise rules, such as a prohibition on shifting directly attributable costs to other positions.
The proposed amendment is expected to create stricter rules for the award of construction contracts by:
Even if these changes seem reasonable, the timing of the amendment (expected in Spring 2015) is questionable, given that the Federal Procurement Act will need to be completely revised due to the implementation of the EU directives, resulting in two procurement law adjustments within only 12 months.
For further information on this topic please contact Johannes Stalzer at Schoenherr by telephone (+43 1 53 43 70), fax (+43 1 53 43 76100) or email (firstname.lastname@example.org).The Schoenherr website can be accessed at www.schoenherr.eu.
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