​Instruction no. 1/2016 - Part 1

Regarding the modification of public procurement contracts during their validity period and determination of whether the modifications are substantial or non-substantial

The current post—Part 1, shall analyse the conditions which should be met according to Instruction no. 1/2016—given by the president of the National Agency for Public Procurement as published in the Official Gazette of Romania on 7 March 2016 (“Instruction”) in order to determine that the changes made to a public procurement contract during its validity term do not represent a modification of the initial contract.

In our updates to this Part 1, we shall further analyse:

• Criteria to determine whether a modification is substantial or non-substantial and effects thereof—Part 2;

• Contingencies—Part 3.

As a general rule, the parties to the public procurement contract are free to establish the extent of their rights and obligations, in observance of the public procurements regulations and limits.

In the case whereby it is required to change the initial conditions/clauses during the performance of the public procurement contract, the public authority – before the change is approved and implemented, must decide if the change represents a substantial or a non-substantial modification.

Instruction no. 1 provides the criteria which the public authority must apply in order to decide whether a change to the initial conditions/clauses represents a modification. In the affirmative, the public authority must establish whether the modification is substantial or non-substantial.

In Part 1 of this post dedicated to the Instruction, we shall investigate the criteria which must be met in order for the public authority to decide that the change does not represent a modification.

The criteria set forth in Article 2 of the Instruction are:

• the change clauses must be included at the tender stage and shall provide the limits and nature of the changes, as well as the cases when such change clauses may be used;

• the change clauses shall not include changes which would alter the general character of the contract;

• the changes to the public procurement contract must be clearly anticipated in the change clauses and shall indicate an objective procedure to determine the contract price (e.g. unit prices). Such information regarding the change clauses shall be made available to all bidders in order to avoid distortion of the initial competition;

• the change comes exclusively from the mechanical application of the change clauses included initially in the public procurement contract;

• a mechanical application is considered to be the situation whereby none of the parties to the public procurement contract (i.e. or by the Engineer in case of FIDIC contracts, where the case may be) must consider the opportunity of such change. Therefore, the opportunity of the change has been already dealt with when drafting the public procurement contract (i.e. should an event occurred the change would be implemented in accordance with objective criteria to determine the value).

The Instruction refers to RED FIDIC to illustrate a case whereby the change would not be considered a modification. To this end, it is deemed that a higher quantity than initially estimated by the contractor would not represent a modification should such difference came from the inaccurate estimation of quantities and not from a modification of the initial design and/or requirements.

The public procurement legislation does not impose a maximum value threshold in the case of changes which are not modifications of the public procurement contracts in accordance with the criteria referred in the Instruction.

Nevertheless, the public authorities are encouraged to stay within the contingencies ratio or to a 10% ratio of the initial Contract Price. Conversely, it is considered that sufficient grounds exist to indicate that the design or requirements present inconsistencies.

One important note is made in relation to the prejudice suffered by one of the parties to the public procurement contract stemming from other party’s breach of contract or materialisation of a risk event. In such cases the prejudice shall be paid by the party in default. The prejudice and the payments made against such prejudices are not considered as being modifications.

Therefore, payment of additional costs and/or the extension of time for completion coming from claims in FIDIC contracts are considered prejudice and not modifications. The method to determine the prejudice is provided in the contract.

Consequently, if a change to the contract is deemed to be a modification in accordance with the Instruction, the public authority must consider the opportunity of such modification. Further, as modifications, the public authority shall establish whether the modifications are substantial or non-substantial.

Moreover, as an example of changes that represent modifications, the Instruction refers again to the RED FIDIC, namely Clause 13 [Variations and Adjustments]. As a result, in case of Variations under FIDIC contracts, the public authorities would have to consider the opportunity of the modifications and establish whether such modifications are substantial or non-substantial.

Effects: changes that are not modifications

The main effects which come from the qualification of a change as not being a modification to the public procurement contract is that (i) no maximum value threshold is set, (ii) the public authority is not obliged to run another tender procedure to implement the change and (iii) the opportunity assessment is not required.

Moreover, the additional costs and/or the extension of the time for completion stemming from claims (e.g. claims under Sub-Clause 20.1 of FIDIC contracts) are deemed as recovery of prejudice and, thus, are not considered modifications to the public procurement contracts.