Public procurement obligation

Public procurement obligation

The Public Procurement Act specifies the cases in which a procurement obligation applies. Once the conditions of the procurement obligation have been met, purchasing can only proceed through the procurement structure. To determine whether the conditions of the procurement obligation have been met, it must first be assessed whether a contracting authority is involved. A contracting authority can be either the (decentralized) government or a public-law institution. Furthermore, special sector companies and utility companies can be classified as contracting authorities. Our legal specialists can assess whether a contracting authority is involved.

In the case of a contracting authority, the estimated value of the contract must be determined. The value of the contract dictates the procedure to be followed. If the value of the contract exceeds the European threshold, the contracting authority must tender the procurement at the European level. If the value of the contract is below the threshold, the contracting authority is required to adhere only to the principles of the Public Procurement Directive. The method by which the contracting authority may put out the contract may vary depending on the situation. In this regard, consideration must also be given to the national Public Procurement Act and the Proportionality Guide.

Questions regarding the tendering obligation? Please contact us.

Three conditions for a tendering obligation

The obligation to tender arises only when three conditions are met simultaneously. First, the contracting authority must be a contracting authority. Second, there must be a public contract within the meaning of Article 1.1 of the Public Procurement Act 2012: a written agreement for valuable consideration for works, supplies, or services. Third, the estimated value of the contract must exceed the applicable European threshold. Only when all three conditions are cumulatively fulfilled does the obligation to tender at the European level apply. If one of these elements is missing, the procurement can be put out to tender in another way. Our lawyers and in-house counsel carefully assess these three conditions, whether you are an international group, a municipality, or an entrepreneur wishing to bid on a tender.

When is an organization a contracting authority?

Public authorities such as the State, a province, a municipality, or a water board are directly subject to procurement obligations. In addition, a public-law institution may qualify as a contracting authority. Three cumulative criteria apply for this: the institution was established with the specific purpose of meeting needs of general interest other than those of an industrial or commercial nature; it possesses legal personality; and it is primarily financed by the government, is subject to government supervision, or more than half of its board is appointed by the government. Special sector companies and utility companies may also fall under the rules. The question of qualification is often the most difficult part; our specialists assess on a case-by-case basis whether your organization or your counterparty should be classified as a contracting authority.

The principles of procurement law

Four core principles apply to every tender: transparency, equal treatment, non-discrimination, and proportionality. Transparency means that the procedure and the award criteria are clear and verifiable in advance. Equal treatment and non-discrimination oblige the contracting authority to treat all tenderers equally and not to make unjustified distinctions. Proportionality, further elaborated in the Proportionality Guide, requires that the requirements and conditions set are in reasonable proportion to the contract. These principles also apply to contracts below the European threshold and to national or negotiated procedures. Tenderers may invoke these principles if a procedure is conducted carelessly or unfairly.

Exceptions to the obligation to tender

The Public Procurement Act 2012 provides for a number of exceptions where, despite the existence of a contracting authority and a contract exceeding the threshold, procurement is not required. The best-known forms are in-house procurement and quasi-in-house procurement. In quasi-in-house procurement, a contracting authority awards the contract to a controlled legal entity, provided that strict conditions are met: supervision similar to that of its own departments, more than eighty percent of the work performed by the controlling authority, and no direct private capital participation. In addition, exceptions exist for public-public (horizontal) cooperation, for contracts based on a statutory exclusive right, for certain defence and security contracts, for the lease of existing real estate, and for situations of compelling urgency. The negotiated procedure without prior announcement is also permitted in exceptional cases. These exceptions are interpreted strictly by the courts; an unjustified reliance on them is a common cause of litigation. We assess whether a reliance on an exception is tenable and substantiate this carefully.

Which procedure must be followed?

If the estimated value exceeds the European threshold, a European procurement procedure is mandatory, with publication via TenderNed. The contracting authority then chooses, for example, an open or restricted procedure, or in certain cases, a competitive dialogue or a negotiated procedure. If the value is below the threshold, the contracting authority's own procurement policy and the Proportionality Guide determine the appropriate procedure: a single-source negotiated procedure (approaching one party), a multiple-source negotiated procedure (inviting multiple parties), or a national open procedure. It is prohibited to artificially split a contract in order to stay below the threshold. However, a contract may be divided into lots, whereby, under certain conditions, a part of the lots may remain outside the procurement obligation. You can read more about the amounts on our page about threshold amounts.

Risks of wrongly failing to tender

If a contract is wrongly not tendered or is tendered incorrectly, this can have far-reaching consequences. An aggrieved entrepreneur may demand suspension of the award or a re-tender in summary proceedings. In certain cases, a concluded agreement may be annulled, particularly in the instance of the wrongful private award of a contract that should have been tendered at the European level. Additionally, the contracting authority may be liable for damages, such as lost profits or quotation costs incurred by a bidder who was wrongly passed over. It is therefore important for bidders to respond in a timely manner; for contracting authorities, careful preparation pays off. Our lawyers assist both sides, from correcting a flawed procedure to defending against a claim.

Assistance with public procurement obligations for SMEs and government

The obligation to tender affects both contracting authorities and entrepreneurs wishing to participate. At MKB Juristen, lawyers and in-house counsel work together, ensuring you receive legal acumen and practical procurement knowledge from a single team. We assist clients ranging from international corporations to the local baker: with assessing whether a tendering obligation applies, selecting the appropriate procedure, drafting or reviewing tender documents, and conducting litigation in the event of disputes. This page is part of our broader expertise in the field of Public Procurement Law. Do you have questions regarding the obligation to tender? Please feel free to contact us for a no-obligation introductory meeting.

Frequently asked questions about the procurement obligation

When is there an obligation to tender?

A procurement obligation applies when the contracting authority is a contracting authority, the contract concerns a public contract within the meaning of the Public Procurement Act 2012, and the estimated value exceeds the European threshold. These three conditions must be met simultaneously.

Does the procurement obligation also apply below the threshold value?

Below the European threshold, there is no obligation to tender at the European level, but the contracting authority must adhere to the principles of procurement law, its own purchasing policy, and the Proportionality Guide. This is often followed by a single or multiple negotiated procedure.

What are the consequences if a tender is wrongly not issued?

The award may be suspended in summary proceedings, a concluded agreement may be annulled in certain cases, and the contracting authority may be liable for damages suffered by an unsuccessful tenderer. A timely legal assessment prevents these risks.

Can a tendering obligation be avoided?

Artificially splitting an assignment to stay below the threshold is not permitted. However, statutory exceptions exist, such as quasi-in-house procurement, public-public partnerships, a statutory exclusive right, and compelling urgency. These are interpreted strictly, so careful substantiation is essential.