Public procurement in the light of international sanctions

In response to the conflict in Ukraine, the European Union has adopted several international sanctions against Russia and Belarus, tightening existing restrictive measures and introducing new sectoral sanctions, which also have significant impacts on public procurement.

In this context, Act No. 240/2022 Coll., amending Act No. 69/2006 Coll., on the Carrying Out of International Sanctions, as amended (the “Amendment”), came into effect on 1 September 2022. The Amendment revised several legal regulations, one of the amended acts being Act No. 134/2016 Coll., on Public Procurement, as amended (the “PPA”).

The Ministry of Regional Development within the Expert Group on Public Procurement in cooperation with the Financial Analytical Office (“FAÚ”) has prepared a clear methodology on the impact of international sanctions against Russia and Belarus on public procurement.

This text is a follow-up to our article “What does the amendment to the Act on International Sanctions bring?”, in which we dealt with the issue of international sanctions in the area of public procurement only marginally.

Assessment in the context of the procurement procedure

The impact of international sanctions on the procurement assessment process primarily includes the requirement for the contracting authority to focus more closely on the credibility of the information submitted by the tenderer.

According to the general rule contained in Section 39(5) of the PPA, the contracting authority shall assess compliance with the conditions of participation based on information provided by the participant in the procurement procedure. The contracting authority may verify the credibility of the information provided, obtain it itself, or test it and draw on the results of those tests.

 If the contracting authority has information that questions the information provided by the supplier, it is necessary to reasonably examine the grounds for any penalty measures. For example, a call to provide additional data pursuant to Section 46 of the PPA addressed to the supplier or information obtained through non-profit organisations seem to be suitable tools for verifying the risk of application of penalty measures.

However, unless facts emerge during the procurement process that question the identity of the supplier or the performance provided in terms of international sanctions, the contracting authority should not be required to extensively obtain information beyond the scope of information provided by the supplier or sought by the contracting authority under the law and tender conditions during the procurement process.

Impact on ongoing procurement procedures 

A significant change brought by the Amendment is the new Section 48a of the PPA, which contains rules for prohibiting the award of a public contract to a participant in a procurement procedure where it is required by international sanctions.

As we have already mentioned in the article on international sanctions, Section 48a of the PPA newly regulates the approach taken by the contracting authority in the proceedings if international sanctions apply to a participant in the procurement procedure, to a selected supplier, or a subcontractor. If international sanctions apply to a selected supplier, the contracting authority is obliged to exclude the supplier from participation in the procurement procedure at any time during the procurement procedure pursuant to Section 48a(2)(b) of the PPA. The contracting authority may exclude other participants in the procurement procedure who have not been selected for the performance of the public contract but is not obliged to do so pursuant to Section 48a(2)(a) of the PPA.

Furthermore, the process of exclusion from a procurement procedure is no different from exclusion on other grounds. Pursuant to Section 48(11) of the PPA, the contracting authority sends a notice to the tenderer with a statement of reasons, and the excluded tenderer may submit objections to the contracting authority pursuant to Section 241 of the PPA. Participation in the procurement procedure of the excluded participant shall cease following the application of any remedial measures as defined in Section 47(2) of the PPA.

Subsequently, after excluding the selected supplier, the contracting authority is entitled to apply Section 125 of the PPA and invite another participant in the procurement procedure, who is ranked next, to conclude a contract.

In the context of the above, the Amendment also modified the procedure of the Office for the Protection of Competition (the “Office”) in administrative proceedings concerning the prohibition to conclude a contract with a participant in a procurement procedure if it is contrary to international sanctions. The newly added Section 261a of the PPA provides that if the subject of the proceedings is the prohibition of concluding a contract pursuant to § 48a of the PPA, the Office shall request the opinion of the FAÚ to determine whether a particular supplier is a person or entity subject to international sanctions.

Impact on ongoing performance under public procurement contracts

The Amendment also adds Section 223(4) to the PPA, according to which the contracting authority may terminate or withdraw from a public procurement contract if the supplier is a person subject to the prohibition on awarding a public contract pursuant to Section 48a of the PPA.

The termination of an obligation arising from a public procurement contract may also be applied under Act No. 89/2012 Coll., the Civil Code, as amended (the “CC”). Section 2006(1) of the CC provides that if a debt becomes unenforceable after the obligation has been created, the obligation is terminated for the impossibility of performance. As international sanctions are applied by directly applicable legislation (EU Regulation), such performance must be considered impossible for legal reasons.

Furthermore, according to Section 2007 of the CC, if only a part of the performance is impossible, the obligation is extinguished in its entirety if it follows from the nature of the obligation or the purpose of the contract that the performance of the rest is of no significance to the creditor, and if this is not the case, the obligation is extinguished only as to that part. It can therefore be concluded that the performance provided before the entry into force of the penalty provisions does not have to be repaid and only the part of the obligation not yet performed is extinguished, unless the nature or purpose of the contract makes it necessary to cancel the entire obligation.

Finally, we would like to point out that, given the frequent changes, it is certainly advisable for the contracting authority to assess the impact of international sanctions on already concluded contracts as a precautionary measure. However, it should be noted that only cases where the contracting authority breaches a specific sanction can be considered non-compliance with international sanctions, but not cases where preventive measures are not taken.

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