Inquiry Regarding Public Procurement in Estonia

Dear Emilia Stiharu

Ministry of Finance of the Republic of Moldova

First of all, I would like to apologize for the delay. Unfortunately, we are packed with work right noe.

The legal structure of Estonia’s public procurement regulations needs to be understood for the purpose of answering your questions. The Public Procurement Act (hereinafter referred to as the Act; https://www.riigiteataja.ee/en/eli/515122023006/consolide) governs public procurement in Estonia. The Act entered into force as of September 2017 and is particularly based on the EU directives on public procurement (directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession contracts (https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0023&qid=1710017420904); directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC (https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0024&qid=1710017515699); directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing 2004/17/EC (https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0025&qid=1710017600007)). Only public procurements with costs exceed the limits set by the directives’ (international or EU threshold; https://fin.ee/en/public-procurement-state-aid-and-assets/public-procurement-policy/useful-information#tresholds-since-109) are covered by the directives’ regulation, which is harmonized with national law (the Act). Estonian national law governs procurements that fall below the EU threshold.

Since the questions You have are about high-cost infrastructure projects, the directives will most likely be of great assistance in responding to Your inquiries. However, we will make our best effort to respond to your inquiries based on Estonian law.

The duration of the public procurement contracts is not specifically covered by the Act. The contracting authority or entity itself should determine how long the contract will last. The duration of the contracts is governed by the Act only followingly: (i) calculation of estimated value of public supply or service contracts (§ 24); (ii) framework agreements’ duration (§ 29, § 179); (iii) restriction on using a negotiated procedure without prior publication (§ 49 par 3 p 2; § 173 par 4) and (iv) duration of concession contracts (§ 136).

As a result, the first part of Your question can be answered saying that the Act does not contain any regulations that specify how long public procurement contracts for major projects must last.

Within the Estonian public procurement system, a contract modification occurs when a public procurement contract is extended, increased in cost, or has its’ conditions amended (§ 123). Any contract modifications made outside of the scope of § 123 are deemed unlawful and may be penalized in the related misdemeanour proceedings.

The Act provides seven alternative grounds for the permissibility of modification of the procurement contract without conducting a new public procurement:

(i)                  The first and mildest of these applies only if the value of the modification is less than the limits set in the directives, therefore only for public procurements under EU threshold. Any modification with a net value of 10% of the original value of the contract for goods and services, 15% of the original cost of the construction works, or 10% of the original cost of the concession contract, which does not alter the overall nature of the contract, falls within this category.

(ii)                The procurement contract may be modified provided that the procurement documents clearly, precisely and unambiguously stipulate the modification’s scope, content and conditions of application. A modification of this kind, for instance, be agreed upon in the procurement contract, which is concluded based on unit prices, and which final cost is determined by the quantity of units to be ordered. In this instance, it is essentially the fulfillment of the terms of the procurement contract itself, while the fulfillment of the terms may vary according to the needs of the contracting authority.

(iii)              Relying on the basis of additional purchases from the same supplier assumes that switching suppliers would result in a significant inconvenience or significant additional costs. The necessity of retraining the entire workforce of the supplier might be mentioned as an example of significant additional costs in the case of software replacement, even though the definition of significant inconveniences or significant addition costs will remain case-specific.

(iv)              Cirmumstances beyond the control of a diligent authority or entity may necessitate contract modifications; in cases of unforeseeable circumstamces the contracts’ overall nature remains unaltered, and the modifications’ effect does not result in an increase in value of more than 50 % of its original value:

(v)                The fifth alternative is to initiate contract modification process based on the fact that an economic operator is substituted for another, if the procurement documents included the related modification clause.

(vi)              The contract may be modified as a result of an economic operator’s reorganization, which may include a takeover, merger, transfer, or insolvency. In such a scenario, the operator may be replaced entirely or partially by a new one who satisfies the requirements outlined in the procurement documents and who would not be excluded under § 85 of the Act.

(vii)            The final and most ambiguous basis for modification is that – irrespective of its value, is not substantial. Substantiality of modification is regulated in § 123 par 2.

Procurement contracts for classic and network sector, service and construction works concessions, as well as mixed contracts of the aforementioned, are subject to modification on all seven grounds. In contrast to public procurements in the traditional sector, there are certain differences in constraints of the grounds of § 123 par 1 points 3 and 4 of the Act when it comes to concessions and public procurements in the network sector. Related to concessions and public procurements in the network sector, the corresbonding bases are milder and broader.

In response to Your second question, in the event when the public contract’s term expires and the extension is necessary, the contracting authority shall determine whether it is possible to base a contract modification on the previously stated grounds or the options are exhausted and whether the proposed modification will alter the contract’s overall nature. The contracting authority must initiate a new procurement procedure, if the proposed modification alters the overall nature of the public contract; therefore the existing public contract is not allowed to be modified.

Recognizing that the proposed change affects the general nature of the procurement contract, the procuring entity must conduct a new procurement, i.e. the existing procurement contract is not allowed to be changed. So there is a presumptive effect to the preliminary result of the procurement procedure when the procurement object is replaced or a significant change in the type of public procurement takes place. Whether these two cases constitute an exhaustive list also remains to be shaped by appeals practice or possible European Commission guidelines.

The classic directive does not contain examples of a significant change in the type of procurement procedure, so the following examples are random and do not pretend to be an exhaustive list. The first example is the increase in the cost of a contract concluded without organizing a public procurement, with which the actual cost reaches the limit of the public procurement and the procurement procedure should have been carried out. Secondly, in the case of a mixed contract carried out as a service ordering in a simplified procedure, a change in the share of service groups to the detriment of the groups ordered in a simple procedure, i.e. an additional purchase of services that are not included in the simple procedure, as a result of which the service ordering in a simple procedure should not be carried out, but should have been chosen in favor of the procurement procedure. Thirdly, such a change to the financing scheme of the public procurement carried out as a concession for construction works, as a result of which the public procurement would have to be carried out as a procurement procedure for construction works, the procedural requirements of which are stricter than the concession. It can be argued that the general nature of the procurement contract would be changed even if, as a result of the change, instead of public procurement in the network sector, public procurement should be carried out in accordance with the thresholds and procedural requirements of the classical sector (procurement procedure). The draft also lists an exemplary list of changes to the procurement contract resulting from the new directives, which are important and thus require the execution of a new public procurement. The definition of significant changes to the tender contract must also be taken into account when defining significant changes in the procurement procedure, for example, the selection of a negotiated procurement procedure without announcement on the basis of § 49(l)(1) and 152(1)(1) of the draft.

The following is a provided insight into financing public contracts. The medium-term State Budget Strategy includes multiyear investment projects. Also it includes a 4-year investment plan broken down by the government areas. Link to State Budget Strategy on our websait (4-year investment plan is Annex 7):

https://www.fin.ee/riigi-rahandus-ja-maksud/riigieelarve-ja-eelarvestrateegia/riigi-eelarvestrateegia?view_instance=0&current_page=1

In the event that delay of investment projects necessitates reallocation of the preliminary annual budget within years, concerned ministries may request an extension during the budget process of the subsequent year. Budget reallocations require goverment approval.

Hope that abovementioned fulfils your aims and provided information is sufficient.

Kind regards