Corona virus and the execution of public procurement contracts

In the context of public procurement contracts, the current COVID-19 pandemic also comes with considerable difficulties: contractors run the risk of suffering delays and thus incurring delay penalties and/or are at risk of suffering financial losses during the execution of the contract.

Below we will elaborate on the possibilities of avoiding such delay penalties and of obtaining a revision of the contract.

Federal authority:

On 6 March 2020, the Council of Ministers decided that no delay penalties or other sanctions shall be applied to service providers, companies or self-employed persons in the context of federal public procurement contracts, to the extent the delay or non-execution of the contract is related to the current COVID-19 pandemic (communication in Dutch: https://economie.fgov.be/nl/themas/ondernemingen/coronavirus/informatie-voor-ondernemingen/coronavirus-de-economische).

If the contractor, irrespective of such potential penalties and sanctions, suffers losses as a result of the current crisis in the context of a specific public procurement contract, then he can also consider requesting a revision of the contract based on unforeseeable circumstances (also see below).

Other contracting authorities:

This flexibility in respect of penalties is only applicable to federal contracting authorities and is therefore not mandatory for other contracting authorities. As long as the Corona crisis is not generally recognized as a case of force majeure, one has to apply (1) the general rules regarding unforeseeable circumstances as laid down in article 38/9 of the Royal Decree of 14 January 2013 regarding the general rules of execution of public procurement contracts (“RD EXECUTION”) or (2), by way of derogation, a revision clause contained in the tender documents (if any).

How to obtain a revision of the contract?

In pursuance of clause 38/9 of the RD EXECUTION, the contractor is entitled to request a revision of the contract if and only if he is capable of demonstrating that such revision is required due to circumstances which were not reasonably foreseeable at the time of submission of the tender, which could not have been avoided and the consequences of which could not be remedied, although all necessary actions to avoid this were taken.

These general rules also apply in the context of the current Corona crisis and the right to obtain a revision of the contract is not automatic and always subject to these conditions. In any case, the contractor shall therefore have to demonstrate, on a case-by-case basis, that these conditions are met. The demonstration of the unforeseeable nature of the Corona cirsis seems, a priori, feasible, but one must also examine whether or not the consequences thereof were, in a particular sector and in the context of a well-defined contract, avoidable and, furthermore, if all necessary actions were taken in order to remedy the consequences thereof.

A revision of the contract may consist in an extension of the time for execution, compensation for very important losses or the termination of the contract. The entitlement of the contractor to compensation is subject to the condition that the losses suffered exceed one of the following thresholds:

• for public works and manual services: at least 2,5% of the initial contract amount;
• if the contract was awarded based on the sole criterion of price, on a cost basis or by taking into account the best price-quality ratio and provided that the criterion of price represents at least 50% of the total weight of the award criteria, then the RD EXECUTION provides for absolute thresholds ranging between 175.000 EUR and 300.000 EUR depending on the contract;
• for deliveries and white-collar services: at least 15% of the initial contract amount.

Articles 38/14 to 38/16 of the RD EXECUTION set out the conditions which must be met in order to introduce a valid claim in this respect. These conditions can be summarized as follows:

• the alleged circumstances must be notified to the contracting authority in writing within a period of thirty days;
• furthermore, the influence of the alleged circumstances on the progress and the costs of the contract must be communicated to the contracting authority within the same period of time;
• in addition, such request is to be duly justified and estimated (financially), and this justification must be timely submitted to the contracting authority, i.e.:
  • before the expiry of the time for execution of the contract, if the contractor wishes to obtain an extension of time or to terminate the contract;
  • or within ninety days as of the notification of the provisional acceptance report, if the contractor wishes to obtain a revision of the contract or a compensation for losses suffered.

Would you like to know more?

The Racine team is at your disposal to answer your specific questions.