Newsletter 2/2020: New federal procurement law as of 1 January 2021

A. Introduction: Political background of the revised PPA and its most important changes

The forthcoming changes to public procurement law have a long history of development. An initial draft which provided for uniform public procurement legislation at both federal and cantonal level was unsuccessful due to the resistance of the cantons. Subsequently, a joint working group of federal and cantonal representatives prepared a new draft for a revised Swiss Federal Act on Public Procurement (PPA) and a revised Inter-Cantonal Agreement on Public Procurement (ICAPP). The aim was to harmonise the substantive terms of the law for the Confederation and the cantons. At the same time, the drafts implement the most recent revision to the WTO Agreement on Government Procurement (GPA 2012) which is superior to national law. Following intensive parliamentary debate, the Federal Assembly unanimously approved the new Federal Act on 21 June 2019.

On the one hand, the new law implements international standards, for example by introducing provisions for electronic auctions. On the other hand, the revised PPA also adopts at statutory level various instruments that previously have not been regulated at all or only at the level of ordinances, such as dialogue or competition. For some aspects, e.g. regarding the admissibility of negotiations or legal redress, provisions that were previously regulated differently at federal and cantonal levels have been aligned.

B. Most advantageous bid: Competing on quality instead of price

A central concern of the legislator in relation to the revised PPA was to turn away from competing purely on price and to focus far more on competing on quality. The Swiss Federal Council, the Swiss administration and the Swiss Federal Assembly referred to this as a "paradigm shift". This new approach is apparent for example in Article 41 of the revised PPA pursuant to which the "most advantageous bid" shall receive the award. Under existing law, the contract was awarded to the "most economical bid". The new term is based on the GPA 2012 standard ("most advantageous") and shall express that a comprehensive assessment should be carried out that focuses in particular on qualitative aspects and not simply on price ("most economical"). The focus on increased competition on quality is also reflected in other new provisions, such as the new award criteria of sustainability, innovative content, the plausibility of the bid or the reliability of the price (all in Article 29(1) revised PPA), the duty to examine unusually low bids (Arti-cle 38(3) revised PPA) or the two-envelope method, under which the qualitative aspects and pricing of a bid are examined separately (Article 38(4) revised PPA).

C. Award criteria

Lawmakers made substantial changes to the award criteria (AC) (Article 29 revised PPA). In particular, the aforementioned sustainability criteria can now be established as an AC. To put it simpler, awarding bodies may in the future also specify requirements relating to the manner of production, even if these requirements are not directly reflected in the goods or services procured (as a characteristic). The social aspect of sustainability makes it possible, for example, to impose the use of fair trade products as an AC. The environmental aspect of sustainability allows for the use of AC in relation to environmental compatibility and the conservation of resources. In addition, lifecycle costs can also be assessed as an AC. When defining and examining the environmental and social aspects of sustainability, it would make sense for awarding bodies to refer to internationally recognised certification systems. However, it should also be possible to furnish proof that equivalent requirements are being met. Within the construction sector, the Coordination Conference for Public Sector Construction and Property Services (KBOB) provides recommendations as to how economic, environmental and social aspects can be taken into account for decisions reaching from choosing a location, through project development and all the way to the completion and operation of a building (www.kbob.admin.ch >Publikationen / Empfehlungen / Musterverträge >Nachhaltiges Bauen [Publications/Recommendations / Contract Templates >Sustainable Construction]).

The awarding body may also refer to these recommendations in relation to the bidding process and the ACs.
The wording of the law (although this was debated right until the end) now also allows awarding bodies to impose as an AC the "different price levels in the countries in which the service is pro-vided". Given Switzerland's obligations under international law and the general prohibition on discrimination, which is a core principle of public procurement law, it is problematic to stipulate such an AC. It remains to be seen how awarding bodies will approach this issue and whether this requirement can be implemented at all, not only in a manner that complies with international law but also in purely practical terms.

The "plausibility of the bid" and the "reliability of the price" are also newly included as possible AC. However, the mere fact that a bid is particularly low priced should not result in a negative assessment. It makes sense to give negative marks to a bid that has no or little plausibility or no or little reliability as to price (also following an examination by the awarding body), if these circumstances give rise to reasonable doubt as to the quality of the services to be provided by the bidder.

Outside the scope of application of international treaties, the awarding body may also consider how many apprenticeship positions the bidder makes available for basic professional education, how many jobs it offers to older employees or whether it provides reintegration possibilities for long-term unemployed persons. It remains to be seen how awarding bodies will define and examine this AC.

D. Bid revision (negotiations)

Under existing law, federal awarding bodies are permitted to conduct negotiations with the bidders regarding the bids as part of the award process. Pure price negotiations are also permitted (so-called reverse auctions). However, major federal awarding bodies exercise restraint in this area or refrain entirely from pursuing such options. Irrespective thereof, negotiations provide awarding bodies with an important instrument to clarify ambiguities and open questions concerning the object of the tendering or the bids, correcting mistakes in the tenders (within limits) or taking account of new/improved information in the ongoing procedure after the tender. To this end, the service requested or offered (product, scope of performance, technical specifications etc.) is adjusted through negotiations, and as part of this process the bid price is often adjusted as well, with the calculation basis remaining the same. The revised PPA abandons the possibility of pure price negotiations in order to harmonise the procurement law of the Confed-eration and the cantons (prohibition on reverse auctions). However, the so-called "revision of bids" still remains an option (cf. Article 39 revised PPA). Thus, the awarding body may still have discussions with the bidders (of which minutes are taken), discuss the performance side of the bids and work towards necessary adjustments. Any such technical negotiation must aim to clarify the contract or bids or to make the bids objectively comparable with one another. As part of this process, the services may also be modified within limits, provided that the services do not change their character thereby and that the potential pool of bidders is not changed. The bid price may also be adjusted as a result of such modifications. In following this approach, the lawmaker has thus ultimately established the current practice of the Swiss Federal Office for Buildings and Logistics; however, the new provisions introduce a restriction for all federal awarding bodies that previously have also conducted pure price negotiations. It will be interesting to see whether the cantons also accept this compromise under the revised ICAPP. Within the cantons, (judicial) practice on the prohibition on reverse auctions has varied. For some awarding bodies, a provision analogous to Article 39 of the revised PPA will therefore represent a liberalisation and a (welcome) increase in the flexibility of the procurement process, whilst the new approach will simply formalise current practice for others.

E. Legal redress

Under the new law, bidders will gain the right to seek judicial review of decisions relating also to bids that are not covered by international treaties on public procurement (Article 52(2) revised PPA). On the one hand, the law increases options for legal redress at Swiss federal level. On the other hand, such an appeal filed with the Swiss Federal Supreme Court cannot reverse the award decision but rather – depending on the type of contract as well as the threshold for the invitation procedure or even the public procedure – only request a declaratory judgement, establishing its unlawfulness.

A request for such a declaratory judgement concerning a bid that is not covered by international treaties on public procurement may also award damages for the appellant (Article 58(3) revised PPA). However, any such right to claim damages is limited to the necessary expenses incurred by the bidder in preparing and submitting its bid. As a result, the legal redress available in relation to decisions not covered by international treaties is equivalent to the one where the appeal is well-founded, but a contract has already been concluded with the successful bidder. In such cases, the appellant (as under the existing law) cannot seek the reversal of the award either. The new option for legal redress is therefore largely toothless and is unlikely to be used much in practice. Bidders will understandably not have much interest in obtaining clarification concerning legal issues that only have theoretical relevance for them, without having the practical benefit of still being able to secure the award. Thus, in an area of considerable economic significance, the Swiss federal government does not provide a useful opportunity for review.

F. Overall assessment and outlook: IAPP roadmap, entry into force, PPO roadmap

The new PPA is set to enter into force on 1 January 2021. Until that date, the implementing pro-visions (PPO) are being worked out at federal level and further implementation work is occurring. Since the revised PPA regulates significant portions of the existing implementing provisions at statutory level (e.g. dialogue, competition and study contracts), no significant changes are expected at the level of ordinances. Extensive work can be expected to occur in relation to the revision of guidelines: For example, the KBOB Guidelines on the Procurement of Works and Planning Services will have to be revised and the creation of new guidelines is being planned, e.g. for full-service tendering. Particularly in relation to the various new aspects, such as the award criteria, it can be expected that new federal explanatory documents will be issued.

At the cantonal level, the preliminary question is how far the draft ICAPP should be adjusted in line with the resolutions adopted by the Federal Assembly. Once revised, the ICAPP will then be submitted to the cantons for ratification. The Inter-Cantonal Agreement will come into force as soon as two cantons have adopted it and will become effective for the cantons that have adopted it. There will no longer be any significant freedom of action for regulation at cantonal level for those cantons.

The new law will result in significant changes and aims to change the culture of public procurement. Awarding bodies and bidders are therefore well advised to take a good look at the new law and its processes (award handbooks, guidelines) and, where appropriate, to reconsider and revise their bidding tactics. Those who adjust to the new rules proactively and quickly will be able to successfully complete their procurement processes or, for bidders, be awarded more contracts.

 

Contact persons:

Dr. Christoph Jäger,
Attorney-at-law, Partner
christoph.jaeger@kellerhals-carrard.ch

Dr. Bernd Hauck,
Attorney-at-law, Partner,
Head of the Construction and Real Estate Practice Group, Basel
bernd.hauck@kellerhals-carrard.ch

Dr. Mario Marti, MJur,
Attorney-at-law, Partner
mario.marti@kellerhals-carrard.ch