Novelties in Law 9/2017 of 8 November 2017 on Public Sector Contracts. Barcelona, 12 March 2018

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1 Circular No. 4/ 2018 Barcelona, 12 March 2018 Dear Client, The purpose of this note is to inform you about the novelties introduced under Law 9/2017 of 8 which transposed into Spanish legislation the European Parliament and Council Directives 2014/23/EU and 2017/24/EU of 26 February 2014, which came into force on 9 March GENERAL MATTERS: The new law backs electronic procurement and the simplification of formalities, prioritises life cycle as a criterion for awarding contracts and strengthens general principles (efficiency, transparency, disclosure, integrity, equity of treatment, proportionality and non-discrimination). It will be effective with respect to (i) processes initiated after it enters force and (ii) processes initiated before it enters force but awarded afterwards, in relation to effects, compliance, extinguishment, amendment, duration and extension. The subjective scope is widened to cover political parties and trade union and employer organisations, associations and related foundations when their funding is mainly public and contracts subject to harmonised regulation (SHR) are involved. MAIN NOVELTIES: GENERAL ASPECTS OF THE LAW. a) The thresholds of SHR contracts are updated (Arts LPSC) as a result of Order HFP/1298/2017 of 26 December which published the thresholds of the different types of public procurement contracts as from 1 January 2018, amending the original text of the LPSC issued on 8 November 2017: Type 1 Contracts for services and supplies awarded by Central Government, its Autonomous Bodies, Management Entities and common Social Security services (Arts a and 22.1.a) Threshold ECV 2 144,000 1 The subsidised contracts described in Art. 23 LPSC shall also be regarded as SHR contracts. 2 Estimated contract value. 1

2 Other contracts for services and supplies (Arts b, 22.1.b and 23.1.b) ECV 221,000 Contracts for social services + specific services (Appendix IV) (Art c) ECV 750,000 Contracts for works, concession of works and concession of services (Arts and 23.1.a) ECV 5,548,000 In relation to contracts awarded in separate lots, when the sum of their ECVs equals or exceeds the thresholds indicated in the above table, all of them will be subject to harmonised regulations unless the contracting authorities agree to exclude those that comply with the requirements of Articles 21.2 and 22.2 LPSC. b) In order to facilitate access for SMEs, separation into lots has become the general rule (Article 99.4 LPSC). In general, the subject matter of the contract must be divided into lots; in the event that it is decided not to divide it into lots, this must be justified in the contract documentation. c) Another measure to encourage the participation of SMEs is the signed declaration (Article 141 LPSC). The documentation to be submitted is reduced to the signed declaration as a means of attesting to the requirements to be able to tender. This should be in line with the European Single Procurement Document" (ESPD), which consists of a declaration of the financial status, abilities and suitability of the tendering companies. d) The method for calculating the Estimated Contract Value (ECV) is based on the total amount less VAT (contracts for works, services and supplies) and turnover less VAT plus income from fees and fines; subsidies and financial benefits, among others (works and services concession contract). In addition, the costs deriving from the physical execution of the services, structural overheads and industrial benefit (Article 101 LPSC), at least, must be taken into account in all cases. e) The maximum duration of contracts (Article 29 LPSC) for successive services, supply and leases of movable property is set at 5 years, including any extensions. In contracts for services, exceptionally, a longer term can be provided if the period for recovering the investments directly related to the contract so requires or if, in the case of services to persons, the continuity of treatments so requires and any change could be harmful. In concessions of works and services the term is the same, and may be extended by a maximum of 15% to restore the economic balance (Articles 270 and 290 LPSC) and even (i) 40 years if it includes the performance of construction work the and operation of the service, (ii) 25 years if it includes the operation of a non-health service, or (iii) 10 years if it includes the operation of a health service (when there is no performance of construction work). Minor contracts may not exceed 1 year, and extensions are not allowed. 2

3 f) The contract regulated to date through management commissions is now regulated through socalled own resource management orders based on a special list between public entities of services that may be tendered for but without having to follow a public tender process. The aim is to extend the requirements to be met by the own resources to avoid bad practices that seek to avoid the calling of tenders, thereby distorting the free competition principle. The requirements to be regarded as own resource are included in Articles 32 and 33 LPSC. Information on the contractor's profile with respect to the own resources and the orders arranged must be updated when the ECV exceeds 50,000 (less VAT), and quarterly when ECV > 5,000. g) The announcement of tenders is brought together on the Public Sector Procurement Platform and the use of electronic means is encouraged for presenting bids and request for participation, notifications of awards and other communications (Art. 151 and Additional Provision 15 LPSC). h) The Contractor Profile has become one of the central axes of transparency and public access to the contracting process, facilitating access to information. It must contain, as a minimum, the provisions of Article 63 LPSC. Failure to publish the tender notice in the relevant contractor profile will be grounds for nullity ipso jure. i) Challenges that until now were covered by the provisions concerning nullity will be regulated through the special procurement appeal (Arts LPSC), which is direct (no prior administrative appeal is required) and gratuitous. It should be noted that: (i) there are changes in the quantitative scope of appeals relating to contracts for works and services (ECV > 3,000,000) and contracts for supply and services (ECV > 100,000); (ii) the objective scope has been increased, as detailed in Article 44 LCS; and (iii) the legitimacy of trade union organisations is broadened when the decisions or actions to be appealed involve the employer's failure to fulfil employee-related social or labour obligations. It is envisaged that town councils in large municipalities and provincial councils may set up new tribunals with powers to resolve on special appeals (Art LPSC). In addition, the calculation of the 15-day deadline will be based on the date of publication in the Contractor Profile (of the announcement of the tender or content of the bidding documents, depending on what is being appealed against) or access to the relevant documentation. j) Some pre-existing hiring bans are qualified (Article 71 LPSC) and new ones are established, such as failing to comply with the obligation to implement an Equality Plan (companies with more than 250 employees). In relation to the obligation to make a prior declaration on the occurrence of a prohibition, 3

4 this will not be applicable when the payment of or commitment to pay fines or indemnities established by a judgement or administrative ruling is attested to, together with the adoption of the relevant technical, organisational and human resources (article 72.5 LSC), with the exception of the offences described in Article 71.1.a) LPSC. k) The Independent Procurement Regulation and Supervision Office has been created as an independent administrative agency under the Finance Ministry which will be responsible for overseeing the correct application of the legislation, particularly for encouraging competition and combatting illicit practices. It will also be formed by the National Assessment Office, responsible for analysing the financial sustainability of concessions of works and services. PREPARATION AND AWARDING OF PUBLIC CONTRACTS. a) In order to determine the requirements that will be laid down in the procedure, the possibility is introduced that, before the tender, the contracting authorities may carry out market studies or address preliminary market consultations to the economic operators in the sector concerned, respecting competition and the principles of non-discrimination and transparency at all times (Article 115 LPSC). b) When only one award criterion is used (Articles 131 to 154 LPSC), it must be related to costs, which may be price or a criterion based on profitability, mainly the life cycle cost. The life cycle cost of a product, work or service is understood as the consecutive or interrelated phases that occur during its existence and until its elimination, dismantling or discontinuation, including the costs borne by the contracting body or by users and cost attributed to external environmental factors (Article 148 LPSC). The contracting authorities, preferably, will calculate the costs on a life cycle basis. The bidding specifications should include the data to be provided by tenderers along with the calculation method. c) The concept of "most economically advantageous offer" is replaced by the "best quality-price ratio" where economic and qualitative factors will be assessed. With respect to the qualitative factors, these should always be accompanied by a cost-based criterion, highlighting (i) quality, technical value, aesthetic and functional characteristics, accessibility, design, environmental, social and innovative characteristics, marketing and their conditions; (ii) organisation, qualification and experience of the personnel assigned to the project, when this might significantly affect contract implementation; and (iii) after-sales service and technical assistance and delivery conditions. In any event, the choice of the valuation criteria must be justified in the documentation. 4

5 d) New adjudication procedures are defined (Articles LPSC): Type Application Particularities Unrestricted simplified procedure (Article 159 LPSC) Super simplified unrestricted procedure (Article LPSC) Association for innovation procedure (Article LPSC) Contract for works ECV 2,000,000; or Contracts for supply and services ECV 100,000 and which do not include a value judgement as a criterion or which are lower than 25%, or 45% for engineering and architecture projects. Contract for works ECV < 80,000 or Contract for supply and services ECV < 35,000 Unless they are intellectual in character Cases that require carrying out research and development activities with respect to innovative works, services and products for subsequent acquisition by the Administration. Simplified formalities and shorter deadlines; Documentation in a single envelope; No provisional guarantee is required; Bidders (non-eu or EEA) included in the Bidder Register. Even more simplified formalities and even shorter deadlines; Solvency accreditation is exempted; Automated valuation or with a technical unit; No final guarantee is required. After the tender is organised and applications to tender are submitted, the contracting authority selects the qualifying bidders. The contracting body creates an association of various partners that carry out research and development separately. After the successive phases, the process concludes with the acquisition of the 5

6 Bidding procedure Including negotiation (Articles 167 and 169 LPSC) Negotiated procedure without public announcement (Articles LPSC) 1.-Applicable to those requiring prior design or adaptation work. 2.-Provision that includes innovative projects or solutions 3.-Circumstances are involved which, due to their implementation, require the existence of negotiations. 4.-Technical specifications cannot be established beforehand. 5.-Unrestricted or negotiated procedures where there are only irregular or unacceptable bids. 6.-Highly personal services linked to social care. 1.- In any type of contract when: No bids are submitted, or they are unsuitable or there are no applications to tender or they are unsuitable. Can only be done by a specific entrepreneur (Article 168.a.2 LPSC) Declared secret, reserved, subject to special measures or for State security. 2.-Contracts for works, supply and services (Articles 168.b LPSC) 3.-Supply contracts (Article 168.c LPSC). 4.-Service contracts (Article 168.d LPSC). 5.-Works and services contracts (articles 168.e LPSC). resulting supplies, services or works. The procedure to which the invited bidders will have access will lead to a negotiation of contract terminations with the invited bidders, which will be developed over successive selective phases. The same as for tenders involving negotiation, depending on the participants, except in the event of prior announcement. e) The final objective of the new regulations on minor contracts is for them to be used only in a genuinely exceptional manner. The thresholds drop to 15,000 (from 18,000) for supplies and services, and to 40,000 (from 50,000) for construction works; they cannot last more than one year nor can they be extended. As a novelty, the tender documentation must also attest that (i) the subject matter of the contract has not been altered to evade the application of general tendering rules, and (ii) the contractor has not 6

7 entered into more minor contracts which individually or in combination exceed the above-mentioned thresholds. The cases envisaged in Article 168.a.2 LPSC are excluded from this calculation. On a quarterly basis, the information regarding the object, duration, contract amount including VAT and the identity of the successful bidder must be published; except for contracts with an ECV under 5,000, provided that the payment system is through a fixed cash advance or similar. EFFECTS, FULFILMENT AND EXTINGUISHMENT OF CONTRACTS WITH THE PUBLIC AUTHORITIES a) The contractual amendments expressly provided for in bidding documents may not exceed 20% of the initial price, nor may they introduce new unforeseen unit prices, nor alter the overall nature of the contract. This will not apply to contractors in competitive tenders. Amendments not foreseen in the bidding specifications or which do not comply with the provisions of the above paragraph will be restricted to introducing unavoidable changes in response to the objective cause that makes them necessary and providing evidence of the existence of one of the cases included in Articles 203 to 207 LPSC. The obligation exists to publish any change in SHR contracts in the OJEU and to include any amendment to a contract in the contractor profile during the five days following its approval. b) In the succession of the contractor, the resulting company must inform the contracting authority of the circumstances that led to the change. The new company is obliged to maintain the initial guarantee provided by the first contractor, which will remain valid until it is replaced. c) It should be noted that the assignment of a contract is considered as a subjective amendment of the contract and therefore its use is restricted. This will only be possible when it is unequivocally provided for in the bidding specifications and is previously and expressly authorised by the contracting body in the form and conditions stipulated in Article 214 LPSC. This authorisation is deemed to be granted if there is no official response within two months. The requirement concerning the assignee's solvency will be as required by the stage of completion of the contract and must be duly classified and not be subject to any prohibition. In concessions (of works or services) the right of any secured or mortgage creditors to request the assignment to a third party is included, providing this is expressly stipulated in the specifications. 7

8 d) The possibility of subcontracting and potential limitations will be subject to the content of the bidding specifications, and therefore the percentage limitations and subcontracting of up to 50% of the contract budget are eliminated. It is added that evidence must be provided that the subcontractor is not subject to any subcontracting prohibition prior to the conclusion of the sub-contract. Failure to comply with the conditions on subcontracting may entail a penalty and termination of the contract. The guarantee of payment of the price by the contractor to subcontractors and suppliers is also reinforced under the terms of Article 216 LPSC. Measures are included to promote greater control over payments to subcontractors or suppliers by the public administrations and other contracting public entities (Article 217 LPSC), which are mandatory in contracts for works and services with a ECV > 5,000,000 and in which the amount of the subcontract is equal to or greater than 30%. e) Social and environmental clauses may be laid down as qualitative award criteria to evaluate the best quality-price ratio in the bids. The novelty is introduced that the contracting authority includes in the bidding specifications at least one special environmental, social or labour condition of those described in Art. 202 LPSC. Non-compliance could entail a penalty if this is envisaged in the specifications. Finally, the non-payment of the salaries of workers assigned to the execution of the contract or the nonfulfillment of the conditions laid down in collective agreements (Articles i LPSC) will also be regarded as grounds for the termination of the contracts. CONCESSION OF WORKS AND SERVICES. a) In relation to preparatory measures for the works concession contract, it should be noted that the feasibility study (Art. 247 LPSC) must include, at least, the data, analyses, reports and studies laid down in point 2 of said Article. Article determines what happens with the bidder is the grantor and when this is not the case. As regards the economic arrangements, the concessionaire's right to receive remuneration is arranged through the payment of a tariff (Article 267 LPSC), which will have the nature of a public, non-tax charge. 8

9 The works concession contract will have to maintain an economic balance (Article 270 LPSC) in accordance with the terms of the award. The cases in which said balance will have to be restored for the benefit of the corresponding party are included in the aforementioned article. This right to the restoring of economic balance will be excluded in the event that any of the demand forecasts effected in the studies carried out by one of the contracting parties is not met. Concerning the concessionaire's right of withdrawal (Art LPSC), this may be exercised when the contract is particularly onerous as a result of the circumstances mentioned in said article. Concerning the effects of early termination (Art. 280 LPSC), a distinction should be drawn between: Reasons attributable to the contracting authority Reasons not attributable to the contracting authority One of the reasons for termination is the recovery of the performance of the work by the contracting authority. For the unilateral declaration by the competent body to be valid, this return to the direct management of the operation concerned must be grounded in reasons of public interest and it must be evidenced that this management be more effective and efficient. Any such recovery will be applied after the new LPSC comes into effect (Transitional Provision 1.3. LPSC). b) Contracts that to date have been classified as public service management 3 (and their different subtypes) are replaced by a concession of services, which no longer necessarily have to be a public service. The difference between the concession and the service contract resides in the existence of an economic operational risk, which in the case of concessions pertains to the contractor. The concept of "operational risk" is similar to the concept of "risk and peril" regulated to date, and may relate to demand (subject to demand fluctuations) or supply (subject to the provision not conforming to demand). It should be noted that the regulations on work concessions will be applied on a supplementary basis to service concessions with respect to all matters that are not directly regulated (Article 297 LPSC). 3 Additional Provision 34 LPSC: The references existing in the legislation in force to public service management contracts shall be understood to refer, after the entry into force of the new LPSC, to service concession contract, insofar as they comply with the rules relating to such contracts under the new LPSC." 9

10 The main characteristic of this contract, as discussed above, is the transfer of economic operational risk to the concessionaire. As also mentioned above, the concession is not only linked to public services; however, if this is the case, it will be necessary to comply with Articles 284 to 294 LPSC. Concerning the economic arrangements, the concessionaire will be entitled to the consideration envisaged in the contract, including fixed remuneration based on utilisation. (Art. 289 LPSC). These will also be regarded as a tariff when they are linked to a public service (Additional Provision 43 LPSC) and therefore in other cases they will be regarded as private prices. In parallel, and if agreed in the bidding specifications, the concessionaire will have to pay a fee or share to the Administration. PREPARATION AND AWARDING OF CONTRACTS FOR PUBLIC ENTITIES THAT ARE NOT CONSIDERED TO BE PART OF THE PUBLIC ADMINISTRATION a) In entities regarded as awarding authorities, contracts subject to harmonised regulations will be governed by the rules applicable to contracts awarded by the public administration (i.e. the LPSC and special sector laws). Contracts not subject to harmonised regulations that do not exceed the amounts in this table may be awarded directly. Contracts for works and work and service concessions Contracts for supply and services ECV < 40,000 ECV < 15,000 Remaining contracts not subject to harmonised regulations that exceed these values will be governed by any of the procedures established by the LPSC as if a public authority were involved without distinction (preparation and awarding), with the particularity that the procedure to apply in each case will be at their choice (except negotiated contracts without any announcement) The obligation to prepare internal contracting instructions in relation to non-harmonised contracts no longer exists (Art. 318.a LPSC) b) Public sector entities that are not awarding authorities will still be required to prepare these internal contracting instructions, which they must adapt within four months of the entry into force of the LPSC, provided that they do not conflict with the provisions of the new law. 10

11 As well as the professionals that regularly work with your company, Eduard Casanovas and Gabriel Ribó are at your disposal for any clarification or additional information you may require in relation to the content of this Circular Letter. Yours sincerely, AUDICONSULTORES The sole aim of this Circular Letter is to provide its recipients with a selection of general information items about novelties or issues of a labour, tax or legal nature, without this constituting professional advice of any kind or being sufficient for the making of personal or business decisions "AudiconsultoresAdvocats i Economistes, S.L.P.". All rights reserved 11