10 key implications of the Public Sector Contracts Law (Public Procurement)
After one year of parliamentary procedures and almost two years behind the official deadline, the new Public Sector Contracts Law finally came into force in Spain on March 9, 2018. It’s main objective is to achieve greater transparency in public procurement, making it an effective instrument for establishing national and European policies in various sectors.
Along with the upcoming General Data Protection Regulation, which will become effective in May 2018, the Public Sector Contracts Law is considered to be among the most important regulations in the area of Administrative Law. But what are its key implications, and who will benefit from them? Let’s zoom in:
Introduction to PSCL
Public Procurement plays a fundamental role in the Spanish economy – its application accounts for approximately 14% to 20% of the Spanish GDP, depending on the sources consulted. For this reason, the establishment of efficient regulations is key to providing a functional mechanism for the management of public resources and the achievement of greater customer satisfaction.
The introduction of the new Public Sector Contracts Law will make it easier for small and medium-sized companies to access procurement procedures, encouraging transparency and ensuring the best practices concerning employees and tax for contractors.
1. Main Objectives
The new law was created with the following purposes:
- To achieve transparency in public procurement by implementing best practices and facilitating access to information regarding the execution of contracts;
- To accomplish a better price-quality relationship for public services by implementing social and environmental criteria for companies entering government contracts;
- To facilitate public procurement entrance for small and medium-sized businesses by introducing new regulatory instruments such as positive discrimination and simplification of solvency accreditations.
- To make public procurement an effective instrument for the implementation of national and EU policies concerning social, environmental, development, SMEs promotion, and competition matters.
- To encourage the implementation of electronic means in hiring procedures for achieving maximum efficiency and transparency.
2. Organizations affected by the new Public Sector Contracts Law
According to Article 3.1 of the law, the following organizations will be affected:
Category 1 – Public Administrations
- The General State Administration of Spain, the General State Administrations of the Autonomous Communities, and entities that are part of local Administrations;
- Autonomous organizations, Corporate Public Entities, Public Universities, State Agencies, and other entities in the public sector that are assigned regulatory functions over a certain sector or activity;
- Associations with legal personality;
- And others – check the full list.
Category 2 – Contracts of contracting authorities that are not Public Administration
- Public foundations;
- Managing entities and common Social Security services;
- Funds without legal personality;
- Entities with legal personality created specifically to satisfy the needs of general interest without an industrial or commercial character;
- And others – check the full list.
3. Benefits for small and middle-sized companies
As a result of the new law, SMEs will have an easier access to procurement procedures, the information of which will be widely available on the official Public Procurement platform. Other benefitting factors include the division of contracts into batches, simplified documentation requirements, as well as specific regulations that favor subcontractors, such as being paid directly by the contracting authority.
4. Contracts subject to the Public Sector Contracts Law
The law revisions concerning public procurement are mainly focused on the regulation of construction contracts, management of public services, public-private collaborations, and supply contracts.
Generally speaking, subject to the new harmonized regulations are all contracts considered by the community legislator as contracts of interest for public Administrations and organizations. For this reason, they are subject to special publicity norms and award procedures which aim to open public offers to as much competition as possible.
5. Minor contracts
The new law seeks to reduce the excessive use and amount of minor contracts, implementing new requirements for transparency and maximum efficiency. Minor contracts can only be used for construction (with a 40,000 EUR limit), and supply and services (with a 15,000 EUR limit).
In addition, the contracting authority is expected to issue a specific report explaining the need for a minor contract.
6. Maximum duration of the contracts
The contracts regulated by the PSCL are subject to a maximum duration, with the purpose of encouraging competition and giving more opportunities to companies to offer their services in the public sector.
The general rule considers that the maximum duration of the contract should respond to the nature, characteristics, and financing parameters of the services. If the public party decides to extend the duration of the contract, the company should be notified with 2 months in advance.
The law establishes the following duration for some of the contracts:
- Concession contracts for construction works or services: 40 years.
- Concession contracts for services without construction works: 25 years for non-sanitary sectors, and 10 years for the sanitary sector.
- Supplying contracts, leasing of goods and furniture, and services of successive provision: 5 years.
- Contracts for maintenance services: the duration corresponds to the useful life of the product that is under maintenance.
7. Effects on employees
The new Public Sector Contracts Law introduces measures for protecting the rights of employees in terms of equality and social integration. It encourages the use of industry-specific collective labor agreements as opposed to company-specific agreements, with the purpose of providing more regulation ground for employees.
Other effects that result beneficial for employees include the exclusion of companies that submit unusually low bids, the implementation of specific provisions for surrogate employees, and penalties for contractors that delay wage payments.
And last but not least, the new Law prohibits forming contracts with companies that do not comply with the requirements for hiring a minimum number of people with discapacities, or that do not comply with equality plans.
8. Contract capacity and solvency
The Law establishes new regulations regarding contract requirements that benefit small and medium-sized companies, such as:
- Encouraging competition between SMEs by lowering the requirements for proving expertise in the sector – for construction contracts, the minimum experience is now 5 years (it was 10 before), and 3 years will be required for supply and service contracts (dropping from 5 years).
- It is expressly recognized that the temporary unions of entrepreneurs can integrate their solvency capacity via third-party means;
- Any modifications of the contracts will require a previous authorization from the hiring organism.
The new Public Sector Contracts Law also introduces some modifications concerning price and quality in favor of the SMEs.
The new regulation maintains the previous controllers regarding the prohibition of fractioned contracts, but it introduces the possibility to divide them into batches in order to open the doors to more competition between companies. Therefore, it will be no longer needed to justify this division as it was previously.
In addition, another barrier for SMEs that the new regulation plans to overcome is eliminating the need for provisional guarantees that companies were required to provide during the crisis. Now, provisional guarantees will only be required in exceptional cases.
With the introduction of PSCL, the estimated value of the contract will not only include traditional concepts such as VAT and total amount, but also costs derived from the application of the current labor regulations, the costs for material execution, as well as general and structural expenses.
10. Price-quality relationship
Another important modification that comes with the new revision of the Law concerns criteria for offer evaluation. Traditionally, entities from the public sector identified the best offers using “the most economically advantageous” principle, which took into account quality, price, deadline, costs, etc. Now, the PSCL substitutes this principle with the “price-quality relationship” principle, favoring small and middle-sized businesses by giving a more central role to the quality component.
As a cloud solutions provider for enterprises and PYMES, we are looking forward to seeing the benefits that the new Law will bring in the area of Public Procurement.