5.2.1 Negotiated procedure with publication of
a contract notice
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Pursuant to the Community Directives and the national legislation, use of the negotiated procedure with publication of a contract notice is justified in four cases.
These cases are summarized in the table below:
This case refers to the submission of irregular or unacceptable tenders in response to an open or restricted tender procedure or to a competitive dialogue, and is applied only insofar as the original terms of the contract are not substantially altered.
The table below lists examples of irregular tenders:
The table below lists examples of unacceptable tenders:
In both cases the Contracting Authority may cancel the tender procedure and repeat it using the negotiated procedure with publication of a relevant contract notice, provided that the original terms of the contract are not substantially altered, as already mentioned.
In the same cases, the Contracting Authority may not publish a contract notice if it includes in the negotiations all economic operators who meet the qualitative selection criteria and who, during the previous open or restricted procedure or competitive dialogue, have submitted tenders complying with the formal requirements (submission of tender guarantee, submission of tenders within the specified time limit, completeness of the tender envelope etc.) of the contract award procedure.
An essential condition for using the negotiated procedure, in the case of irregular or unacceptable tenders (and in the case of lack of tenders, which is examined further below), is that the original terms of the contract must not be substantially altered.
The term "original terms" of the contract includes all technical, administrative, financial and other terms contained in the tender documents (European Commission, Guide to the Community Rules on Public Works Contracts, Office for Official Publications of the EU, 1997, p. 30).
The above terms of the original tender procedure must not be "substantially altered" during the negotiated procedure, to prove that this second tender procedure is essentially a continuation of the previous open or restricted procedure and not a new tender procedure.
The term "substantial alteration" is an abstract legal term widely used by the Community law on public contracts. A substantial alteration is a change that may violate a specific principle of community law, especially the principles of free and undistorted competition, of equality of treatment of the tenderers, and above all the principle of ensuring the effectiveness of the Community Directives.
For example, changes to the technical specifications, the financing of the contract or the payment of the contractor, the execution deadlines, the conditions for acceptance of the deliverables or the construction techniques, are to be regarded as “substantial alterations” to those terms (European Commission, Guide to the Community Rules on Public Works Contracts, Office for Official Publications of the EU, 1997, p. 30).
The Court of Justice of the European Communities has had the opportunity to point out that price is also included in the original terms of a contract that cannot be substantially altered in case the negotiated procedure is used. An increase of the pre-estimated value of the original contract, even if such increase does not exceed 10%, is considered a substantial alteration, in the view of the Court, that does not justify the use of the negotiated procedure (Judgment of 13.01.05 in Case C-84/03 Commission v Spain, not yet published, point 47 and ff.).
The Court's arguments are clear. The negotiated procedure is exceptional in nature and, therefore, must be applied only in the cases listed exhaustively by the Directives. Precisely because of this exceptional nature, the relevant provisions of the Community Directives must be interpreted strictly, while the burden of proving the actual existence of exceptional circumstances justifying the derogation lies always on the party invoking the existence of these circumstances, i.e. on the Contracting Authority (Judgments in Cases C-385/02 Commission v Italy, not yet published, point 19; C-126/03 Commission v Germany, not yet published, point 23; and C-394/02 Commission v Greece, not yet published, point 33, where reference is made to previous judgements).
Therefore, the term "non-substantial alteration" must also "be interpreted strictly" (Judgement in Case C-84/03 Commission v Spain, not yet published, point 48) to prevent the Directives being deprived of their effectiveness. A substantial alteration is therefore considered to be every alteration of a term of the original tender procedure "which is capable of undermining both the scope and the exceptional character” of articles 30 and 31 of Directive 2004/18/EC (Judgement of 13.01.05 in Case C-84/03 Commission v Spain, not yet published, point 49).
This option refers to exceptional cases, when the nature of the works, supplies or services whose nature or other unknown imponderable factors do not allow prior overall pricing, which would enable the Contracting Authority to determine in the tender documents the budget for the work, service or supply. In such a case, tenderers cannot estimate beforehand the total value of the project in their tenders and thus offer a pre-determined price, but they are obliged to include in their tenders conditions that reflect the risks resulting from the nature of the project or from various imponderable factors which the Contracting Authority does not assume.
This option also refers to exceptional circumstances, for example in cases of projects whose geological and geotechnical conditions can not be established in a way that would allow prior overall pricing of the project, or in cases of an element of archaeology whose extent and severity cannot be assessed in advance.
The negotiated procedure can be used on the above basis in exceptional cases, such as in "Public-Private Partnerships (PPP)" & "Public Finance Initiative (PFI)" contracts, and has been widely used in the United Kingdom, where these types of contracts were first developed and applied. However, the negotiated procedure can also be used for awarding other types of contracts for which similar reasons apply, such as in the case of public "concession contracts".
For example, there are cases where the long-term financing of a work, supply or service by the contractor or the long-term operation and maintenance of a work or supply by the contractor do not allow prior overall pricing, as information which relates to financial and legal planning and to the allocation of risks regarding funding and operation and which is crucial for determining the final cost, can only be determined through negotiations with the candidate contractors.
There are also cases where various elements, such as the party who is going (the State or the Private Sector entity) to assume the risk of force majeure, or the interest rate and inflation risks which affect the operational cost of a work or supply, cannot be determined beforehand and without prior negotiations with the candidate contractors
There are also other issues which the Contracting Authority is not in a position to determine in advance in the tender documents, such as:
All of the above are factors that determine the cost of a project, while the option of negotiation allows the specification of the most effective cost-to-benefit ratio for every risk that the Contracting Authority assumes or transfers to the Contractor.
There are certain risks, such as adjustments of collective labour agreements at the national and sectoral level, which, if assumed by the Contracting Authority, may result in uncertainty as to the total price of the project even at the contract signature stage. This will occur, for example, if the contractor's payment for maintenance and operation of a building is agreed using a price-index adjustment based on the collective labour agreements.
From the above, it follows that prior overall pricing by the Contracting Authority is not possible for some project contracts and, therefore, the use of the negotiated procedure is justified.
This option refers to cases of service contracts whose nature, especially if it involves intellectual services (compilation of special reports, opinions, project designs etc.) or financial services (insurance, banking and investment services), is such that the contract specifications cannot be established with sufficient precision to permit the award of the contract by selecting the best tender according to the rules governing the open or restricted procedure.
A typical example here are the loan agreements which Municipal Authorities intend to conclude with banks for financing the implementation of works or the purchase of equipment. In these cases, Municipalities may take advantage of the provisions of the law and address the banking market in order to negotiate the terms of such loans.
This case refers to public works contracts for works which are performed solely for purposes of research, testing or development of a project and not with the aim of ensuring the project’s operation and maintenance or recovering research and development costs.
An example here is the construction or extension of a research centre, where the project’s construction and operation specifications are directly related to, affect or are affected by, confidential information about the research conducted or to be conducted in that centre. In such a case, even the contractor's nationality may be a factor restricting selection.
To assist Contracting Authorities in documenting the fulfilment of the terms and conditions justifying use of the negotiated procedure with publication of a contract notice, a relevant Checklist is given in Annex 5-3.
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