In Finland, public procurement is regulated by the Act on Public Contracts,2 the Government Decree on Public Contracts,3 the Act on Public Contracts by Contracting Authorities in the Water, Energy, Transport and Postal Services Sectors,4 the Act on Public Contracts in the Fields of Defence and Security,5 and the Act on Electronic Auctions and Dynamic Purchasing Systems,6 where the rules regarding electronic public procurement are set out.7 The key national legislation is based on the EU directives on public procurement, specifically the 2004 Utilities Directive, the 2004 Public Sector Directive, the Defence and Security Procurement Directive and the Remedies Directive. The Agreement on Government Procurement (GPA) also applies to public procurement in Finland.
The Ministry of Employment and the Economy is responsible for the preparation of legislation concerning public procurement, while the Market Court is a special court that handles public procurement cases. The Market Court’s rulings in public procurement cases can be appealed to the Supreme Administrative Court.
The Finnish public procurement legislation emphasises fundamental principles, which include equality and non-discriminatory treatment of participants. More specifically, the contracting authorities shall make use of the existing competitive conditions, ensure equality and non-discriminatory treatment among all participants in the procurement procedure, and act in a transparent way while meeting the requirements of proportionality.
II YEAR IN REVIEW
The main theme as regards public procurement during 2015 was the legislative reform under which the 2014 Procurement Directives are being implemented into Finnish legislation. This large legislative reform, which is being prepared by the Ministry of Employment and the Economy, continued throughout 2015 and is still ongoing. A government bill proposing new legislation will be presented to Parliament by June 2016 at the latest, meaning that Finland has not been able to meet the implementation deadline of the new Directives in April 2016.
III SCOPE OF PROCUREMENT REGULATION
i Regulated authorities
The concepts of contracting authorities and contracting entities are defined in the Act on Public Contracts. In general, purchases of goods and services or public works contracts with public funds made by the state, municipal authorities, church and public enterprises have to be tendered in accordance with the procurement legislation.
Procurement legislation also applies to bodies governed by public law. A body governed by public law means an entity that has a legal personality and is established for the specific purpose of meeting needs in the general interest, and not having an industrial or commercial character. It must be financed for the most part by another contracting authority, be subject to management supervision by another contracting authority, or have an administrative, managerial or supervisory board with most of its members appointed by another contracting authority.
The Ministry of Employment and the Economy maintains a guiding list on which bodies are considered to be central government authorities. The list can be found on the public online portal, HILMA,8 on which contract notices are published.
In addition, the procurement legislation applies to any purchaser if it has received more than half of the value of the contract in aid for the award of the contract from the contracting authority.
ii Regulated contracts
Public procurement legislation concerns the service, supply or public works contracts the contracting authorities enter into with external suppliers. According to the Act on Public Contracts, public contracts are contracts of financial interest concluded in writing between one or more contracting authorities and one or more suppliers. Service concessions had already been governed by national procurement legislation prior to the 2014 Procurement Directives. Finland’s public procurement legislation also includes specific provisions for healthcare and social services contracts.
There are general exclusions from the scope of public contracts. The Act on Public Contracts does not apply to public contracts when they are declared to be secret, when their performance must be accompanied by special security measures in accordance with the law or when the protection of the basic security interests of the state so require. Further, the Act does not apply to public contracts when their objective is mainly applicable to military use. The Act also does not apply to contracts that are governed by different procedural rules and awarded, inter alia, pursuant to the particular procedure of an international organisation.
In addition, the Act on Public Contracts does not apply to several specific contract types, such as contracts regarding:
- a the acquisition or rental of land, existing buildings or other immoveable property;
- b the acquisition, development and production of programme material intended for broadcasting by broadcasters, and broadcasting time;
- c arbitration and conciliation services;
- d central bank services and financial services regarding securities or other financial instruments;
- e employment contracts; and
- f research and development services, other than those where the benefits accrue exclusively to the contracting authority for its use in the conduct of its own affairs.
In Finland, contracts under the applicable national threshold value are excluded from the scope of procurement legislation. The threshold value refers to the estimated value of the contract. National procurements (i.e., procurements the value of which exceeds the national threshold but is below the EU threshold) must be made by competitive tendering procedures, but the process of deciding who shall be awarded a contract is not as strict as in procurements exceeding EU thresholds. However, in practice the difference between the procedures is not very significant from a bidder’s point of view. The applicable national thresholds from 1 June 2010 are as follows:
Goods and services contracts
Healthcare and social services contracts within the meaning of Annex B (Group 25) and education services purchased by a joint purchasing agreement with the employer
In the sector for defence and security, the national threshold for goods and services contracts is €100,000 and for works contracts is €500,000. In the utilities sector, only the EU thresholds apply.
Where the contracting authority wishes to change a contract or transfer a contract to a different supplier, a new bidding procedure may be required. It is established in national and EU case law whether a change is to be regarded as material.
IV SPECIAL CONTRACTUAL FORMS
i Framework agreements and central purchasing
Contracting authorities may employ framework agreements and joint procurements or make use of other partnership opportunities available in awarding public contracts in order to reduce the administrative work involved in procurement.
Suppliers for the framework agreement shall be chosen by open or restricted procedures. Contracting authorities may also choose the suppliers for the framework agreement through a negotiated procedure or by awarding the contract directly in exceptional cases. Where a framework agreement is concluded with several suppliers, a minimum of three suppliers shall be selected, unless there are fewer suitable suppliers and admissible bids that meet the award criteria.
Contracts based on framework agreements shall be concluded with the original parties in accordance with the contract decision. The framework agreement may not be used in such a way as to distort, restrict or prevent competition. During the contract term, the parties may not make substantial amendments to the terms laid down in the framework agreement.
Pursuant to the Act on Public Contracts, the term of the framework agreement may not exceed four years, save in exceptional cases duly justified by the subject of the framework agreement.
Central purchasing bodies may be used for acquiring supplies or services intended for the contracting authorities owning them either directly or indirectly, or for awarding public contracts or concluding framework agreements for supplies, services or works intended for the contracting authorities. The central purchasing body shall operate to perform the aforementioned activities, having been established expressly to perform these activities or been prescribed the performance of these activities as part of its remit.
The largest central purchasing bodies are Hansel Ltd, which is the government’s central purchasing body, and KL-Kuntahankinnat, which is a central purchasing body for the municipalities. The establishment of central purchasing bodies has increased during recent years, especially among the hospital districts and municipalities. In 2014, the value of Hansel’s procurements was approximately €715 million, whereas the equivalent for KL-Kuntahankinnat was approximately €300 million.
ii Joint ventures
There is a specific provision concerning in-house procurements (such as from public-public joint venture companies) in the Act on Public Contracts, which is based on EU case law. According to the Act, parent contracting authorities can make purchases from an in-house entity without a prior procurement process if the parent contracting authorities exercise control over the in-house entity and the entity carries out the essential part of its activities with those controlling authorities. According to national case law, the essential part has been interpreted to amount to approximately 90 per cent.
Supplies from one public authority to another are not referred to in the Act on Public Contracts. However, the national courts have assessed the fulfilment of the conditions for horizontal cooperation in accordance with the EU case law. A public authority can supply another public authority without a tendering procedure if the contracting authorities are cooperating and jointly fulfilling their common obligations relating to the public interest, and no private service provider is placed in a better position compared to its competitors.
As regards public-private partnerships involving the procurement of goods, services (including concessions) or works, the private sector partner has to be competitively tendered when deciding on the partnership. Typically, the negotiated procedure or competitive dialogue is used for this purpose.
V THE BIDDING PROCESS
Contracting authorities have to publish the contract notice, design contest notice, public works concession notice and contract award notice on the HILMA website. This obligation covers contracts above national or EU thresholds. Notices are published on HILMA free of charge. Contracting authorities may also publish information in other media or contact potential suppliers directly after the notice has been published on HILMA.
Notices are published by filling in an electronic standard form found on the HILMA portal. In addition to national forms, the portal includes the standard forms for prior information notices, contract notices, contract award notices, notices on direct awards and simplified contract notices on a dynamic purchasing system for contracts above the EU threshold. For the utilities sector, the contract notice and contract award notice for contracts above the EU threshold are found on the portal. HILMA forwards notices to the TED database. Other EU notices are published via the Simap website. All notices (including old ones) can also be found via the CREDITA website9 (old notices are filed on this website).
In 2015, approximately 18,000 notices were published on the HILMA portal. The majority of the notices (approximately 10,000) were contract notices above the national threshold.
The HILMA portal has been updated to comply with the 2014 Procurement Directives. The new portal was brought into use on 18 April 2016, although the new procurement legislation did not come into force by that date.
According to the Act on Public Contracts, the contracting authorities must follow one of the following prescribed procedures: open procedure, restricted procedure, negotiated procedure, competitive dialogue, design contest, electronic auctions or dynamic purchasing. The requirements for the use of these procedures are in line with the requirements set in the 2004 Procurement Directives, although there are a few national deviations. The same procedures are used for contracts above the national and EU thresholds.
The use of direct award procedures is restricted by allowing such procedures only in specified and exceptional circumstances in accordance with the Act on Public Contracts. In addition to the conditions set in the 2004 Procurement Directives, the direct award procedure may be used in individual cases in contracts for social services, healthcare, and education and training if the arrangements for the competitive bidding, use of the negotiated procedure or change of the service provider would be manifestly unreasonable or particularly inappropriate from the point of view of the client to safeguard a significant care or client relationship.
Another national difference regards the use of the negotiated procedure. The negotiated procedure is used more commonly in procedures above the national threshold than in the procedures above the EU threshold. According to the Act on Public Contracts, the negotiated procedure can be used in public supply and service contracts the estimated aggregated value of which is less than €50,000, and in public works contracts the estimated aggregated value of which is less than €500,000. In addition, the Act on Public Contracts sets additional specific circumstances where the use of the negotiated procedure is allowed. For example, the contracting authorities may use a negotiated procedure for awarding public service contracts that are centralised nationally or regionally in the social and healthcare sector, or in respect of contracts requiring multi-professional special expertise, particularly in the social and healthcare sector. These grounds for use are not found in the Procurement Directives.
Contracting authorities may use electronic auctions within the chosen procedure. An electronic auction is a repetitive procedure that can be used, for example, in restricted procedures, and that occurs after the initial full evaluation of the tenders, enabling the submitted tenders to be ranked using an automatic evaluation method. Dynamic purchasing is a completely electronic procedure. Electronic auctions have come into use in Finland, but dynamic purchasing systems have hardly been used in Finland.
iii Amending bids
The contracting authorities must ensure equal and non-discriminatory treatment of all participants in the procurement procedure. Thus, after submitting the final tender, the bidders cannot make amendments to their tenders. This also means that if the tender includes errors or inconsistencies (for instance regarding the price), the bidder cannot amend these errors on its own initiative.
The contracting authority may ask a bidder to clarify a tender, provided that this does not endanger the equal and non-discriminatory treatment of the participants. Therefore, clarifications that result in the bidder improving its tender are not allowed. It is at the discretion of the contracting authorities whether they request a bidder to clarify a tender. Case law further clarifies the grounds on which the contracting authorities may ask for clarifications. Only obvious faults may be corrected, and all bidders must be allowed to clarify their tenders in an equal manner. In addition, contracting authorities can make the tenders comparable if one of the tenders includes an obvious and reparable error, such as the quotation of prices in the wrong currency.
In Finland, the concept of preferred bidder in negotiations is not referred to in the Act on Public Contracts; thus, no specific rules govern the preferred bidder stage. In practice, a similar procedure can be used in the competitive dialogue and negotiated procedure, where the negotiations can be organised in several phases if this has been clearly described in the contract notice. After the first negotiation round, the candidates can submit their initial tender based on which the contracting authority can choose a ‘preferred tender’. The contracting authority can continue negotiations regarding a potential solution and specifications of the contract with one of the bidders. If the proposed solution does not appear to be viable, the contracting authority may continue negotiations with the rest of the candidates. In practice, use of the described procedure has been rare.
It should be noted that during the negotiation phase, changes to the contract cannot exceed what has been notified in the contract notice. For example, the initial scope of the object of the contract cannot be broadened during the negotiations.
i Qualification to bid
The disqualification of a bidder must be done before the compliance of the tender with the contract notice is assessed and the tenders are compared. The contracting authority must disqualify a party from bidding due to certain criminal offences (such as bribery, tax fraud, money laundering, work discrimination) if a party has been the subject of a conviction by a final judgment.
The contracting authority may also, at its discretion, disqualify a party from bidding due to the following reasons:
- a the party is bankrupt or under proceedings for a declaration of bankruptcy, is being wound-up, is undergoing restructuring proceedings or is in any analogous situation;
- b the party has been convicted by a final judgment of any offence concerning professional conduct;
- c the party has committed grave professional misconduct proven by any means that the contracting authorities can demonstrate;
- d the party has not fulfilled obligations relating to the payment of taxes or social security contributions in Finland or in the country of its establishment; or
- e the party has supplied essentially misleading information or no information regarding disqualification grounds to the contracting authorities.
The contracting authorities may set requirements relating to the party’s financial and economic standing, technical capacity as well as professional ability and quality. All requirements must be proportional to the subject matter, purpose and scope of the contract. In the defence sector, the contracting authorities can also set stringent requirements for bidders regarding information security. The contracting authority may disqualify a party if it does not fulfil the requirements set for the bidder.
According to national case law,10 a bidder can also be disqualified if the identity of the bidder or group of bidders is not distinctly clear. In the case in question, the Supreme Administrative Court stated that, as the application to bid and the final bid included contradicting information on several companies, it was not unambiguous who the bidder company was and whose resources were to be used.
ii Conflicts of interest
The Act on Public Contracts does not refer to conflicts of interest as such, but governs the conflicts of interest via the principle of equal treatment. Based on national case law, conflicts of interest arise when the representative of the contracting authority has commitments, a seat on a committee or a monetary interest in one of the bidder companies or its closely related subsidiaries. In such a case, the representative should recuse him or herself from participating in the procurement procedure.11
In addition, the concept of prior involvement has been dealt with in case law. It covers situations where a bidder or a company related to a bidder has advised the contracting authority or has otherwise been involved in the preparation of the procurement procedure.
The contracting authority must take appropriate measures to ensure that competition is not distorted by the participation of a bidder. This means, inter alia, that a company that has participated in the preparations of the procurement procedure may ultimately be excluded from the procurement procedure due to prior involvement, particularly if the principle of equal treatment has been endangered.
Before the possible exclusion, the contracting authority must analyse on a case-by-case basis whether the company has gained an unfair advantage during the preparative phase causing discrimination against other bidders. If distorting competition could be effectively remedied by other, less intrusive means, the bidder should not be disqualified. When assessing the justifications for the exclusion of the bidder, the contracting authority should consider at least the nature and scope of the company’s participation in the preparative phase, which documents have been made available to all bidders, and how much time has elapsed between the preparations and the actual procurement procedure.
iii Foreign suppliers
The principles of equal treatment and non-discrimination set out in the GPA as well as in the Public Procurement Directives must be adhered to. Bidders from the GPA countries are not required to set up a local branch or subsidiary, or to have local tax residence in Finland. If the contracting authorities require the bidder to submit extracts of their trade register or other certificates, the bidder’s local corresponding documentation must be allowed.
i Evaluating tenders
All tenders are opened simultaneously. In the open procedure, the suitability of bidders and the fulfilment of the obligatory minimum criteria are assessed first. In procedures other than the open procedure, the suitability of the bidders has already been assessed when selecting bidders to participate in the procedure.
Only the compliant tenders are compared and evaluated based on the pre-set criteria. The contract is awarded based on either the lowest prices or most economically advantageous tender from the point of view of the contracting authority. It must be clearly stated in the contract notice which comparison criteria will be used to award the contract.
In cases where the contract is awarded based on the most advantageous tender, each criteria and their relative weighting must be given. If the relative weighting of the comparison criteria is justifiably not possible, the comparison criteria shall be specified in order of importance. The comparison criteria can include, for example:
- a quality;
- b price;
- c technical, aesthetic, functional and environmental characteristics;
- d running costs;
- e cost-effectiveness;
- f after-sales services and technical assistance;
- g the delivery date and delivery period; or
- h life cycle costs.
In addition, the contracting authority may take into account the measurable environmental requirements and the needs of particularly disadvantaged groups of people, if these factors are clearly defined.
ii National interest and public policy considerations
As mentioned above, the comparison criteria may include factors such as environmental characteristics, environmental requirements and the need of disadvantaged groups of people. In addition, the contracting authorities may reserve the right to participate in public procurement procedures in favour of sheltered employment programmes where most of the employees concerned cannot engage in occupations under normal conditions. The contract notice must clearly indicate that the contract is reserved for sheltered workshops or programmes.
All bidders must be treated in an equal and non-discriminatory manner, which means that domestic bidders cannot be favoured. If the object of the contract is required to have quality marks or technical specifications, the contracting authorities must accept the bid if the proposed products, services or works comply with a national standard transposing a European standard, a European technical approval, an official technical specification, an international standard or a technical reference, and these specifications address the performance or functional requirements set in the contract notice.
When public contracts are declared to be secret or include special security measures, or when the protection of the basic security interests of the state so requires, such contracts fall outwith the scope of the Act on Public Contracts, and can thus be awarded in the direct award procedure.
VIII INFORMATION FLOW
In accordance with the principle of equal and non-discriminatory treatment, all bidders must be provided with the same information throughout the procurement process.
Decisions concerning the positions of candidates and bidders and the results of the procurement procedure, including the grounds for the award decision, must be provided in writing by the contracting authority. A decision shall include information about factors that have substantially affected the decision, at minimum the reasons for exclusion of a bidder or tender and the grounds on which accepted tenders have been compared. The decision must include written instructions on how to initiate a correction procedure with the contracting authority itself and on appeal to the Market Court (‘petition instructions’). The award decision and the grounds thereof, as well as the petition instructions, shall be submitted in writing to the parties concerned (i.e., the bidders).
Disclosure obligations and access to information is governed by the Act on the Openness of Government Activities (Openness Act).12 Pursuant to the Openness Act, participation requests, tenders and other documents related to the procurement process become public after the procurement agreement has been concluded. However, documents shall be given to other bidders before they are in the public domain, if said documents may influence their rights, interests or obligations in the matter.
Information compiled in public procurement processes relating to a business or professional secret of another bidder are exempted from the publicity principle and shall not be disclosed. However, the comparison price and information on other factors directly used in comparing the tenders must be provided to other bidders upon request.
The award decision does not in itself constitute a procurement contract, which must be concluded separately in writing. As regards procurements that exceed the EU thresholds, the procurement contract may be concluded no earlier than 21 days after all candidates or bidders have been informed or are deemed to have been informed of the decision and the petition instructions.
IX CHALLENGING AWARDS
Concerned parties can initiate a correction procedure with the contracting authority and refer a procurement matter to the Market Court. Generally, only bidders that have participated in the tender procedure have been regarded as concerned parties. However, as regards direct awards, parties operating on the same market also have the right to initiate proceedings. Further, in cases where the contracting authority uses discriminatory criteria in the contract notice, parties that have failed to submit a tender due to, for example, a flaw in the contract notice may also be allowed to challenge decisions.
There are two parallel remedies for the bidders: they may initiate a correction procedure with the contracting authority itself and appeal the contracting authority’s decision to the Market Court. A party that has submitted an appeal to the Market Court must inform the contracting authority thereof by the date on which the appeal is submitted. In practice, unsuccessful bidders tend to initiate a correction procedure and appeal the award decision to the Market Court simultaneously, as the deadline for both is 14 days after the party has received information about the decision in writing. However, if the award decision or the petition instructions have been substantially deficient, the deadline for filing the petition is six months from the date of the decision. This is also the case concerning direct awards that have been awarded unlawfully.
Presupposing that the procurement contract is yet to be concluded, the contracting authority may also initiate the correction procedure on its own initiative within 60 days from its decision and re-award the contract. The contracting authority must immediately inform parties if a correction procedure has been initiated.
There was an increase in the fees for court proceedings on 1 January 2016. The processing fee is €2,000 for disputes concerning procurements of a value less than €1 million, €4,000 for disputes in which the value of the procurement is at least €1 million and €6,000 if the value of the procurement is at least €10 million. Since 1 January 2016, appeals lodged with the Market Court have decreased significantly, probably as a result of the sharp rise in the processing fees. In addition to the processing fees, appellants can expect to pay for their own legal fees and, in cases where an appeal is unsuccessful, part of the counterparty’s legal fees. The legal fees are, of course, dependent on the complexity of the case.
Litigation in the Market Court takes six months on average in public procurement appeals. In 2015, the Market Court resolved approximately 500 public procurement matters. Due to the drop in appeals lodged with the Market Court since the beginning of 2016, changes in time frames are to be expected.
Appeals against the rulings issued by the Market Court can be lodged with the Supreme Administrative Court. Proceedings in the Supreme Administrative Court generally take at least 15 months, and in some cases up to 24 months.
ii Grounds for challenge
The contracting authority’s decision can be challenged on a number of different grounds. The most common grounds for challenge are the following:
- a a bidder’s exclusion or lack thereof;
- b the successful bidder was not the one who submitted the most advantageous tender;
- c a procedural fault in the authority’s procedure;
- d the comparison of tenders was inadequate because of the vagueness of or deviation from the selection criteria;
- e a public contract has not been subject to public procurement; and
- f the procurement procedure has not fulfilled the principle of equal and non-discriminatory treatment.
For procurements not exceeding the EU thresholds, the Market Court may overturn the contracting authority’s decision completely or in part, forbid the contracting authority from pursuing its incorrect procedure and oblige the contracting authority to correct its incorrect procedure. These three remedies are primary, and are used in situations where the procurement contract has not been concluded. The contracting authority’s obligation to correct its incorrect procedure can involve, inter alia, re-evaluating the bidders’ suitability, correcting the comparison of tenders or organising a new procurement procedure.
If the procurement contract has already been concluded, the Market Court may order the contracting authority to compensate a bidder that could have been successful had the procurement procedure been handled in accordance with the applicable law. The compensation may not, without special grounds, exceed 10 per cent of the total value of the procurement contract. In practice, the compensation is often considerably lower.
As regards procurements exceeding the EU thresholds, the Market Court may also set aside or shorten an already concluded procurement contract and order the contracting authority to pay an administrative fine to the state. Contracts exceeding the EU thresholds are also subject to a standstill obligation, which means that the contract may not be concluded if the matter has been referred to the Market Court.
Despite an appeal to the Supreme Administrative Court, a ruling issued by the Market Court concerning primary remedies shall be complied with unless otherwise instructed by the Supreme Administrative Court. Rulings concerning other remedies shall be complied with when the ruling has become final.
Damages can be sought through separate legal proceedings in civil courts. Such proceedings are, however, very rare in Finland.
The 2014 Procurement Directives will be implemented through a national legislation reform. According to a recent bulletin by the Ministry of Employment and the Economy, the government proposal to amend the procurement legislation will be presented to Parliament in June 2016 at the latest. The goal is for the new legislation to enter into force as soon as possible toward the end of 2016. Since the 2014 Procurement Directives are to be implemented by 18 April 2016, there will be a need for temporary arrangements until the new national legislation enters into force.
The Ministry of Employment and the Economy has published a bulletin with a list of articles in the 2014 Procurement Directives that are deemed to be absolute enough to have direct effect. These articles can be invoked by bidders or candidates as well as contracting authorities immediately after 18 April 2016. The bulletin can be found on the webpage of the Ministry of Employment and the Economy (currently only in Finnish).
1 Anna Kuusniemi-Laine is a partner, Johanna Lähde and Laura Nordenstreng-Sarkamo are counsels and Marjut Kaariste is an associate at Castrén & Snellman Attorneys Ltd.
2 348/2007, as amended.
3 614/2007, as amended.
4 349/2007, as amended.
5 1531/2011, as amended.
7 In addition, the Mass Transit Act (869/2009) and the Act on Consideration of the Energy and Environmental Impact of Vehicles in Public Procurement (1509/2011) include rules on public procurement.
11 See for example MAO:540/13 and MAO:11/11.
12 627/1999, as amended.