The Government Procurement Review: Sweden
Swedish procurement legislation is based on EU directives and EU primary law. This means that free movement in the Swedish market cannot be limited when making public purchases, and that the fundamental principles of transparency, equal treatment, non-discrimination, proportionality and mutual recognition must be followed by all Swedish public authorities in procuring goods or services.
Procurement by public authorities is regulated in the Public Procurement Act, the Utilities Procurement Act, the Act on Procurement of Concessions, and the Defence and Security Procurement Act (collectively the Procurement Acts). Several of the provisions in these Acts implement the provisions of the EU procurement directives. A contracting authority shall as a general rule procure goods or services in accordance with one of the Procurement Acts.
The Utilities Procurement Act covers certain entities and activities within the water, energy, transport and postal services sectors.
The Act on Procurement of Concessions covers procurements of service and public works concessions.
The Defence and Security Procurement Act covers certain contracts within the defence and security industry.
In some cases, a contracting authority such as a municipality performs several different types of operations, in which case it can be hard to know which Procurement Act to apply. The factors that determine which legal Act should prevail include the question of whether the contract encompasses several different operations covered by different Acts, in which case the contracting authority should choose the applicable Act in accordance with the operation that constitutes the largest part of the procurement.
Chapter 19 of the Public Procurement Act regulates procurements that fall completely or partially outside the EU directives' scope of application. This applies to procurements below the threshold values stipulated in the directives, and procurements of social services and other special services. Contracts below the threshold values and contracts for social and other specific services are covered by a special set of rules similar to the rules applying to contracts above the thresholds. The majority of the contracts below the thresholds need to be advertised and the fundamental principles of transparency, equal treatment, non-discrimination, proportionality and mutual recognition apply.
The National Agency for Public Procurement provides support and guidance in public procurements. Support is provided to public authorities, suppliers and other public procurement actors. The Agency has overall responsibility for developing, administering and supporting procurements conducted by the contracting authorities and units.
Supervision of public procurements is carried out by the Swedish Competition Authority, which can also bring court actions regarding procurement fines.
Year in review
The Swedish procurement year has been dominated by questions, as yet unsettled, on how the judgment of the Court of Justice of the European Union (CJEU) in case No. C-216/17, Coopservice shall be interpreted. Almost half of the procurements in Sweden are framework agreements and Coopservice has affected the procurement documents in every one of those procurements.
During the past year there have been two key developments in Swedish procurement legislation.
In summer 2020, a new law was enacted regarding statistics and publication of contract notices. The purpose is to improve the gathering of statistics regarding contract procurement. The new law requires that as of 1 January 2021 all public contracting entities publish notices in an authorised national database. All databases are in turn required to report their publications to the National Agency for Public Procurement.
In late 2020, a proposal for a new law was published, which, if enacted, would affect the option to initiate review procedures, among other things. The proposed law is a product of an effort that has been ongoing since 2015, aimed at decreasing the number of court cases regarding public procurement. The proposal includes putting a time limit on suppliers being able to raise issues or point out inaccuracies in procurement documents. The current rules allow a supplier to raise issues with procurement documents before as well as after tenders have been submitted. The option to wait to raise issues is often used by suppliers to see if the contract award is beneficial or not for the supplier. If an award is not to the supplier's satisfaction, it can initiate review procedures directed at the procurement documents, despite having submitted a tender and thus having initially indicated that the documents were acceptable. The proposed law would limit this option, requiring suppliers to raise procurement document issues before tenders are submitted. If enacted, the proposed law would enter into force on 1 January 2022.
As mentioned above, the significant developments in case law have been very much dominated by the Coopservice judgment. Since the judgment was rendered in December 2018, the following legal issues have been subject to lively debate in Sweden in the context of how maximum volumes should be specified in framework agreements.
Before the judgment in Coopservice, contracting entities were not obligated to provide suppliers with information on the maximum volume in a framework agreement. Instead the practice was to include non-binding estimates of the total value of a framework agreement. Since Coopservice, there has been a rigorous discussion on how maximum volumes should be specified. The Swedish Competition Authority issued guidelines in which it stated that (1) the total quantity allowed to be called off under the framework agreement needs to be stated, as well as (2) the highest value of the framework agreement. In contrast, the National Agency for Public Procurement issued guidelines of its own, which stated that (1) a maximum volume needs to be stated, although the volume can be specified in different ways, and (2) a contracting entity should include an indication of the value.
The question of how the maximum volume shall be specified has been considered by several appeal courts, with differing results. The Supreme Administrative Court has now decided to review the question and the result is expected later this year. The CJEU is also reviewing a similar case upon request from Denmark and that judgment is expected to bring clarity to the issue as well.
Another point debated with reference to Coopservice is that the usefulness of a framework agreement will be reduced if it no longer has 'any effect' after the maximum quantity is reached. If the maximum volume specified in the framework agreement cannot be exceeded, this would mean in practice that call-offs exceeding the maximum quantity would be deemed to be illegal direct awards. If so, the possibility of altering a procured contract (as allowed by the EU 2014 Procurement Directives and introduced in Swedish law through Chapter 17 of the Public Procurement Act) would be limited, a consequence not foreseen in the Swedish preparatory work or case law. In short, the judgment in Coopservice has raised several issues that still have not been clarified in Sweden. Suppliers participating in Swedish procurements need to be aware of the legal challenges and should act to ensure that any deficiencies in the procurement documents do not affect the potential for a successful award process.
Another issue that has been debated in Sweden in recent years is the practice of minimum tender prices, known as 'floor prices'. Previously, contracting authorities applied floor prices as a criterion in procurements. The purpose was to ensure that tenders with abnormal prices were disqualified as the perception was that such tenders were of lower quality and also put workers at risk of performing tasks without receiving reasonable pay. In a landmark judgment of the Supreme Administrative Court in 2018, floor prices were found to be in breach of the principle of equal treatment. The decision has since been followed by case law regarding evaluation models that do not promote competitive pricing. Suppliers should be aware that pricing has been a focal point in Sweden over the past few years.
Scope of procurement regulation
i Regulated authorities
The Procurement Acts include definitions intended to determine which authorities and entities constitute contracting authorities and entities.
In recent years, the question of whether state-owned limited liability companies should be considered contracting authorities has been raised and settled through case law. The Supreme Administrative Court set out guiding principles in cases from 2016 (where a state-owned company in the real estate sector, Akademiska Hus, was found to be a contracting authority) and from 2019 (where the court found that a state-owned passenger train operator, SJ AB, also constituted a contracting authority).
In addition, the Administrative Court of Appeal in Stockholm ruled in 2009 that a state-owned company mandated by the government to arrange gaming and lotteries under a government licence (AB Svenska Spel) constituted a contracting authority. The Administrative Court of Appeal in Stockholm did, however, rule in 2017 that a state-owned chain of stores selling alcoholic beverages (Systembolaget) did not constitute a contracting authority.
ii Regulated contracts
In general, procurements can be organised into three categories: construction, service and supply contracts.
A construction contract is a contract in which the contracting authority procures either the execution or both the design and execution of the works. A 'work' is defined as the outcome of building or civil engineering works taken as a whole, if the result in itself fulfils an economic or technical function.
A service contract is a contract for services that are not considered to be construction works. In some instances, the subject of a public contract may be both services and construction works. If the construction part is the main purpose of the contract, then the contract is considered to be a construction contract. That would also be the case if the value of the construction part were higher than that of the service part.
A supply contract has as its object the purchase, lease, rental or hire purchase of a product.
The possibility of transferring a publicly procured contract has been debated in Sweden. The current understanding is that a contract may be transferred without being subject to a new procurement process if the possibility of such a transfer is clearly set out in the contract itself. If there is no transfer clause and the contract is transferred without a new tender, the contracting parties should exercise caution as the transfer might be considered to constitute a new contract tendered through a direct award.
Special contractual forms
i Framework agreements and central purchasing
As mentioned above, almost half of the procurements in Sweden consist of framework agreements. There are a number of larger central contracting authorities that facilitate procurement on behalf of other public authorities. Two of the most notable authorities are Adda (previously SKL Kommentus) and the National Procurement Services.
Adda is owned by the Swedish Association of Local Authorities and Regions, which represents Sweden's municipalities and regions (the regions are responsible for, inter alia, publicly financed healthcare and public transport). Adda operates a purchasing centre called Adda Inköpscentral, which administers a broad selection of framework agreements to support the supply of products and services for Sweden's municipalities and regions.
The National Procurement Services was established in 2011 and is a department within the central government Legal, Financial and Administrative Services Agency tasked with providing administrative, legal and financial services to other public organisations. Central government agencies are obligated to use the National Procurement Services framework agreements unless they find another form of procurement to be better suited to their needs. When a central government agency decides not to use a coordinated framework agreement for a particular procurement, the agency must notify the National Procurement Services and state its reasons.
The central contracting authorities typically procure products or services through framework agreements or dynamic purchasing systems. Dynamic purchasing allows for continuous application and participation in the system.
ii Joint ventures
There are no special rules regarding joint ventures (JVs). The fundamental principles in the Public Procurement Act apply to public–public JVs as well as public–private partnerships. In short, if the contract is financed with public funds, it must be procured in accordance with the applicable Procurement Act.
The bidding process
Procurements of contracts above the threshold values must be advertised in accordance with the EU information system (i.e., Official Journal of the European Union and Tenders Electronic Daily).
Contracts below the thresholds values must be advertised in a public electronic database, the most common of which in Sweden are provided by Mercell, KommersAnnons, e-Avrop, CTM and Konstpool.
If the contract value is above the thresholds, the contracting authority can choose between the open, restricted, negotiated with prior notice, competitive dialogue, and innovation partnership procedures. The rules on these procedures correspond to those of the EU directives. If the Public Procurement Act applies to the procurement, the contracting entity may choose between the open and restricted procedures. If the Utilities Procurement Act is applicable to the procurement, the contracting entity may choose between the open, restricted, and negotiated with prior notice procedures.
If the contract value is below the thresholds, the contracting authority can choose between the simplified procedure, the selective procedure and the direct procurement procedure.
Under the simplified procedure, any supplier is entitled to submit a tender and the contracting authority may negotiate with one or several of the participating suppliers. Under the selective procedure, suppliers are permitted to apply to submit tenders. The contracting authority picks suppliers to submit tenders and the contracting authority may negotiate with one or several tenderers. The contracting authority can choose between these two procedures.
For contracts well below the thresholds, or in cases of exceptional circumstances, the contracting authority can choose to make a direct award and choose the supplier without competitive tendering. The exemption for exceptional circumstances is very strictly interpreted.
iii Amending bids
A contracting authority can change the procurement documents during the tender process but should be aware that significant changes require extended time limits for suppliers to submit tenders.
Suppliers are as a general rule not permitted to change submitted tenders. There is a limited option for contracting authorities to allow suppliers to clarify or supplement tenders.
Negotiations are permitted to a certain extent for procurements below the threshold. If the contract value is above the threshold, negotiations are only allowed if the contracting authority has chosen to apply the negotiated procedure.
i Qualification to bid
There are different categories of exclusion grounds; mandatory and voluntary.
The mandatory grounds are applicable if a supplier has been found guilty of criminal acts, including corruption, money laundering, terrorist offences, and trafficking.
As most suppliers are legal entities, the mandatory grounds also apply if a person included in the supplier's management, or a person with authorisation to legally represent the supplier, has been found guilty of the criminal acts.
A contracting authority shall also exclude a supplier if it learns that the supplier is in breach of its obligations relating to the payment of taxes or social security contributions in the country where the supplier is established or, if different, in the country where the procurement takes place.
In addition to the mandatory exclusion grounds, there are voluntary exclusion grounds that the contracting authority is free to apply if it deems it appropriate. The voluntary grounds include breaches of applicable environmental, social and labour law obligations. Suppliers may also be excluded if they have entered into bankruptcy or similar proceedings.
Suppliers that have been found guilty of gross professional misconduct or that have been subject to early termination in an earlier publicly procured contract can also be excluded.
Before a supplier is excluded, the contracting authority is obligated to provide the supplier with the opportunity to defend its previous actions and to explain why they should not result in exclusion.
The contracting authority should also keep in mind that any exclusion must adhere to the principle of proportionality.
A contracting authority can set criteria that each supplier needs to comply with to be eligible to submit a tender. The criteria can refer to the supplier's economic and financial capacity, and its technical and professional abilities. The contracting authority may also require that the supplier has a right to perform certain professional services. No other qualification criteria are allowed.
All criteria must be stated in the procurement documents and must be related to the purpose of the contract.
Criteria regarding economic and financial standing could, for example, set certain minimum requirements for suppliers' turnover or credit score.
Suppliers may be required to have sufficient technical and professional capacity to ensure they have the necessary staff, technical resources and experience for contract performance in accordance with a suitable quality standard. The contracting authority may request that suppliers submit reference cases from previous successful projects.
A supplier is allowed to fulfil criteria through a subcontractor, regardless of whether the subcontractor is part of the supplier's company group or an independent legal entity. If the supplier chooses to use a subcontractor, it must also provide the contracting authority with proof that the subcontractor's capacity is at the supplier's disposal during the whole contract term.
ii Conflicts of interest
Each contracting authority and entity has the task of detecting and preventing situations where conflicts of interest can arise. A person within the contracting authority who has a conflict of interest is not allowed to administer the relevant matter. In general, the contracting authority must undertake actions to ensure that the fundamental principle of equal treatment is upheld. For instance, this could mean that the contracting authority needs to publish reports prepared in preparation for the procurement and whose content, if not published, could benefit one supplier over another. If the conflict is due to a specific supplier and cannot be avoided through less adverse means, the contracting authority may have to exclude the supplier.
iii Foreign suppliers
The Procurement Acts do not restrict foreign suppliers' participation in tenders.
Foreign suppliers that intend to set up a permanent establishment (i.e., continuously perform services or deliver goods) in Sweden are required to register a branch office or a subsidiary.
i Evaluating tenders
A contracting authority shall accept the offer that is most advantageous economically, based on (1) the best price–quality ratio, (2) cost, or (3) price. The contracting authority is free to choose one of these assessment methods and the chosen method shall be clearly stated in the procurement documents. When choosing the method for evaluation, the contracting authority must always comply with the fundamental principles.
If tenders are evaluated on the basis of best price–quality ratio, the evaluation shall be based on criteria connected to the purpose of the contract, such as quality, organisation and experience.
If tenders are evaluated on the basis of cost, the evaluation shall be based on the effects of the tender in terms of cost-efficiency, such as an analysis of life cycle costs. Common types of costs that are considered to be life cycle costs are internal costs, costs associated with the acquisition of the supplies, recycling costs or similar costs in relation to the end of the life cycle, as well as the total work time requirement for the supplies.
ii National interest and public policy considerations
Contracting authorities are not allowed to favour domestic suppliers. According to the fundamental principles, all suppliers needs to be subject to equal treatment.
The tender process is subject to confidentiality. The Public Access to Information and Secrecy Act stipulates that no information regarding tenderers and tenders may be revealed by the contracting entity up until the award decision. Thereafter, the general principles of access to information apply (i.e., all interested parties may request copies of most documents related to a procurement procedure, including parts of the tenders). The contracting authority shall, however, determine whether any documents include commercial secrets, which would then be confidential.
Approximately 7 per cent of all procurement is subject to review procedures. According to the National Agency for Public Procurement, suppliers challenging an award win, on average, 25 per cent of the challenges. The supplier bears its own cost for the review procedure and is not liable for the contracting authority's costs or the cost of the proceedings. The average processing time in the first instance, the administrative court, is four months.
A contract award decision is followed by a standstill period, in which the purchaser may not enter into a contract with the chosen supplier until 10 days (if the decision has been sent by electronic means only) or 15 days (if the decision has been sent by other means) have passed since the communication of the decision. Review procedures challenging an award must be sought within the time frame of this contract standstill period. A prolonged standstill period automatically follows an application for review. Further, a claim to nullify a procurement contract must be made within six months of the contract being signed. Damages may be claimed within one year of either the contract being signed or the time when a court has nullified the contract.
ii Grounds for challenge
Any supplier that is of the opinion that harm has been caused, or may be caused, because of a contracting authority's alleged breach of the Procurement Acts may challenge the procurement documents or, if the contract authority has awarded the contract, the award. It is not necessary for the supplier to have participated in the procurement (which could be the case, for example, when the supplier has not been able to submit a tender because of certain requirements in the procurement). However, the Supreme Administrative Court has stated that only a supplier with an interest in being awarded the contract has the right to appeal a procurement.
Challenges to awards and procurement documents must be submitted to the administrative courts, which have the option to set a decision aside or to order a contracting authority to correct an award. The administrative courts can also order a contracting authority to redo a procurement in its entirety. The administrative courts can also decide to prolong a standstill period temporarily to ensure that a contract is not entered into during the review process.
A contracting authority can be subject to penalty fees for breaches of the Procurement Acts. Actions of this kind can be initiated by the Swedish Competition Authority and this remedy is not available to the suppliers.
In addition to challenging an award, a supplier may initiate a claim for damages against the contracting authority for breach of an applicable Procurement Act. As mentioned above, a claim for damages must be submitted to the district court within one year of the date when an agreement was either concluded between the contracting authority and a supplier or declared ineffective through a ruling that has entered into legal force. A claim lodged with the district court after the time limit will be denied.
As mentioned initially, there is a proposal to limit the option to initiate review procedures. The proposal will be debated during the year and, if adopted, the new provisions will enter into force as of 1 January 2022.
The Supreme Administrative Court is expected to issue at least one judgment regarding the interpretation of Coopservice under Swedish law. As mentioned earlier, the topic of maximum volumes has been subject to rigorous debate in the past two years and has been the cause of a large number of review procedures.
The Supreme Administrative Court has also asked for the CJEU's guidance with regard to the transfer of publicly procured contracts to a new supplier. The Supreme Administrative Court has asked the CJEU to clarify when a corporate restructuring may allow a new supplier to take over a contract.
1 Fredrik Winroth and Markus Garfvé are partners at Advokatfirman Fylgia.