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Challenges to the illegal award of public contracts

Maria DanailovaViktoriya Petrikova

The need to implement Directive 2007/66/EC, which aims to improve the effectiveness of review procedures concerning the award of public contracts, has recently provided an occasion for the business community to advance suggestions for various changes to the Bulgarian Public Procurement Act (PPA). Following publication in State Gazette (52/2010 and 54/2010), the amendments to the PPA are now in force.

Addressing the lack of an effective review period, the Directive imposes on member states the obligation to introduce a mandatory standstill period between deciding on the successful bidder and the actual execution of the contract. Accordingly, the Bulgarian PPA now provides for a 14-day standstill period as of the notification of the contract award decision to the interested candidates or bidders. Moreover, the contract may only be concluded after the entry into force of all the decisions in the procedure (in case of appeal, the final decision of the review body or a decision allowing for preliminary execution of the contract).

The application for review of the contract award decision suspends the conclusion of the contract until the final decision of the review body is adopted. This constitutes a considerable novelty in the review procedure in Bulgaria.

The legislator has availed itself of the possibility to provide for derogations of the standstill period in the following instances: (i) no publication was required and the contractor has been the only tenderer; (ii) the contractor has been the only interested tenderer and there were no interested candidates; (iii) the contract is concluded based on a framework agreement with only one tenderer.

Where the standstill period is not adhered to, the Directive provides that courts and review bodies must render the contract ineffective. Consequently, new grounds for ineffectiveness are introduced. These include cases where the contract has been concluded without prior publication and such is required by law, as well as contracts concluded before the entry into force of the contracting authority decisions and, cumulatively, there has been an infringement that has affected the rights of the interested parties.

A new Article 122 sets out the potential claimants and specifies that the regime of the Bulgarian Civil Procedure Code is applicable. The ineffectiveness has a retroactive effect (ex tunc) – the PPA provides for restitution in kind, or, where impossible, restitution in value. Short terms are introduced for filing the claim – two months as of the publication of notice for conclusion in the public register, and, where such information has not been published, not later than one year as of the conclusion of the contract. In addition, the aggrieved bidder is entitled to seek compensation for damages following the procedure set out in the Administrative Procedure Code.

On the other hand, the Directive takes into account the legal certainty of the award decisions and contracts. The PPA provides that the contract becomes stable regardless of the grounds for ineffectiveness if three conditions are satisfied: (i) the contracting authority has published a notice of voluntary transparency (following a template under the Regulation (EC) 1150/2009); (ii) it has indicated the reasons for the choice of direct award of the contract; and (iii) the contract has been concluded not earlier than 10 days after the publication of the notice.

The amendments allow the review body to impose alternative sanctions instead of ineffectiveness of the contract. The Bulgarian Commission for Protection of Competition is to impose on the contracting authority a sanction in the amount of 10% of the contract value if preliminary execution was allowed, but the review body later found that the award was unlawful, and 3% of the contract value where no infringement of the procedure has been committed but the standstill period has not been complied with.

New chapter Xia implements the corrective mechanism under which serious infringements of community law may be notified by the EC. The executive director of the Bulgarian Public Procurement Agency has the power to inform the contracting authority of the notification pertaining to infringement and to initiate review procedure of contract award decisions which infringe EU law.

The implementation of the Directive aims to provide effective procedures for challenging the illegal award of public contracts. Some amendments were specifically introduced to broaden the scope of the preliminary control over public procurement contracts in projects fully or partially financed by EU funding. All tenders for the supply of goods and services of value over 1 million lev ($658,493) will be subject to such control. Whether this will lead to improvement in the process of absorption of EU funds by Bulgaria, more interest by potential bidders and ultimately, to increasing the quality of services remains yet to be seen.

Maria Danailova and Viktoriya Petrikova

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