New Public Procurement Act in Hungary

As a result of the new law, price-based awarding ceases to be thumbrule for awarding authorities as other factors such as creating jobs, innovation, fostering economic development, and quality standards should also play a pivotal role in awarding decisions. The new practice comes as a relief for constructors since market competition on the bidders side was already driving down prices to an unsustainable level. Also, awarding authorities will now have the opportunity to automatically strike
down overpriced bids exceeding a certain threshold.

Streamlining the procurement cycle was another major vocation of the legislation. By cutting procedural deadlines a more flexible and expedient regime was introduced with new, reduced application dates in open procedures and urgent cases. Also, a new simplified national procedure was created for building services worth of 100-500 million HUF, while constructions worth of 500 million-1.5 billion HUF fall under a national negotiated procedure with prior publication. Above this value a European public procedure is applicable. Also, the minimum threshold for the application of the so-called restricted national procedure with 4 tenders drops to 100 million HUF.

The most important set of alterations still touches upon the unforeseeability factor so peculiar to constructions contracts. Namely, contracting authorities and constructors often struggle with the dilemma whether to modify the contract, or to launch a new procurement procedure in cases when additional services become necessary. For addressing such dilemmatic situations the legislator now provides mandatory guidelines that extend the principles of fair competition, transparency
and equal treatment after the conclusion of the service contract.

The pressure to modify the construction service might be down to various factors but typically arises from technological innovation, alterations of the legal context, geological anomalies, shortages in building material, or simply from the changing expectations of the contractor. The modification normally entails the revision of the construction plan and thereby the partial replacements or the extension of existing services. A FIDIC-based contractual framework provides sufficient regulatory  coverage for such cases, yet compliance with procurement rules still need to be ensured. The new law by following the principles laid down in the extensive case law of the European Court of Justice expressedly stipulates the conditions when a modification of the contract does not necessitate the opening of a new procurement procedure. Such exceptions are classified in three main categories:

In the first one a so-called de minimis threshold applies: if the value of the modifications exceeds neither the general  European threshold established for such procurements nor 15% of the overall value of the original building contract no new procurement should be initiated.

The second category exonorates for instance, the cases when the replacement of the original contractor is not manageable for economic or technical reasons However, any increase in price shall not exceed 50 % of the value of the original contract.

Finally, in other cases non-substantial modifications do not call for any additional competition assuming that the modification does not introduce conditions which would have otherwise allowed for the admission of other candidates than those initially  selected.

All in all, these changes are hoped to contribute towards a more transparent and efficient procurement market and hopefully will help best practices to gain currency in a wider circle.

Dr. Tamás BALÁZS
attorney at law

Dr. Peter ZALA