Public Procurement of Civil Works in Bulgarian Legal System

Public procurement overview
Public procurement is among the major tools of the investment process in the country and a substantial driving force for GDP redistribution. In total there were 15236 procurement contracts implemented throughout 2009 by all the contracting authorities with aggregate value of over EUR 5.34 billion. These figures illustrate the weight of public procurement rules and procedures. They are represented by Public Procurement Law (PPL) 2004 and several bylaws, namely: Rules for the implementation of the Public Procurement Law (in force since 01.01.2009), Ordinance for the award of small public contracts (in force since 01.01.2009), Ordinance on the Award of Special-Purpose Public Procurements (2004), Ordinance on Exerting Ex-ante Control over procedures for the award of public contracts financed in whole or in part with European funds (2009), Ordinance for the conduct of urban development contests and investment design and finally - Statutes of the Public Procurement Agency.
National legislation has received considerable developments caused by the process of transposition of the two major subject EU-directives: Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts and Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors.

Construction as procurement subject matter
Construction is subject of public procurement in all its variety, including engineering (project design and construction itself), project design and/or completion by any funding of one or more civil works as described in NACE-classification   and the corresponding СРV-codification. These might include erection, reconstruction, rehabilitation and/or maintenance of buildings or facilities. Construction as such may also embrace engineering and performance, notwithstanding the way of funding, of one or more actions related to the above described such as: feasibility study, project design, construction management, supply, fitting and setting up of machinery and equipment, as well as preparation and enter into operation.
Contracting as a business refers to the legal term of “construction” understood as a process of building up a facility fixed to the ground. This term is defined by the law as the result of over ground, semi-underground, underground or underwater construction, which is sufficient in itself to perform economic or technical function. There is a substantial exception of that rule and this is when construction is contracted within the legal frame of a concession. In that case Concessions Law would be applicable, but not the PPL. Nevertheless it should be noted that procedures provided are identical in principle and only the outcome makes certain differentiation.
Distinctions between concession for construction and procurement of construction are no so clear and evident. The reason is that European law regards the concession procedure to a specific kind of public procurement rather than a distinctive form. By contrast, Bulgarian legislation explicitly outlines three key points of dissimilarities between them:
(1)    Risk allocation. Procurement leaves the risk for the employer (contracting authority) pursuant to civil law general principles and rules. This particular consequence follows the legal nature of construction process and the mandatory arrangements between the parties. On the contrary, the risk should be wholly absorbed by the concessionaire in a concession grant as a general rule, although in some cases it may be shared with the grantor. Concession Law requires an obligation of concessionaire to build-up and/or to maintain the subject facility on its own risk to be provided as a substantial element of concession agreement.
(2)    Contract price definition. Both procurement and concession agreements belong to the class of pecuniary transactions. Yet they make difference about the way the price (remuneration) is identified, including who does the payment and who (and how) bears the final expenses. Public procurement assumes that construction is assigned against the amount of funds having public source as a rule. This might be national or a local budget or equivalent resource. The PPL itself declares efficiency of public spending as one of its foremost objectives. Public spending may be also deemed any payment associated with activities of public implication as described by the law. Concession “price” in principle consists of the right to collect charges out of the material item to be built up and further operated (managed).
(3)    Term. Both procurement and concession contracts are by definition limited by term. PPL provides an explicit prohibition for time unlimited contracts where the term may not exceed 48 months. Concession term may be granted for up to 35 years with no prolongation option. Limited contracting in time is a justified measure as following the economic encumbrance of the contract in time. There is an explicit rule that “parties of a procurement contract should not be able to amend it” (Art. 43 PPL). There are only three exceptions: force majeure (effective only upon the term), amendments in prices fixed or regulated by the government and variation of contracted price in favor of the employer (contracting authority). This is the core rationale for the contract term general limitation. It is raised by the parties’ capacity (mostly the contractor’s capacity) to encounter and sustain contracted terms and conditions for a period.

The thresholds
Thresholds above which statutory procurement procedure is mandatory are defined in Public Procurement Law (PPL) and Ordinance for the Award of Small Public Contracts correspondingly. They might be considered lower than the average in the EU, as described in the appendices.
Threshold for contracting where construction is to be carried out abroad is worth BGN 6 000 000 (approx. EUR 3 068 000), and in the country – BGN 2 150 000 (approx. EUR 1 100 000). Contracted value should be calculated with all options provided and value of all the additional construction works executed by the same contractor. The amounts are without VAT. Value of public works is calculated as inclusive all the supplies and supplementary services to be rendered by the contractor for the entire construction. Division of public procurement aimed at prevention of the PPL application is prohibited. This prohibition is also applicable to multi-stage contracting. When the stage completed may not be subject of use permit as an individual facility it may not be treated as an individual subject of public procurement. There is also an explicit prohibition for calculating contract value including supplies or services that are not necessary for its implementation.

Contracting authority/entity
With respect to contracting authority there are no specific variations between construction on the one hand and procurement of goods or services on the other hand. As a rule contracting entities is either a public law organization, or entities within the scope of Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors.
In general public procurement is financed directly or indirectly by, or from public funds. This is the reason why there are organizations within the scope of the law which are not public, such as hospitals or companies controlled by the central or local government. In addition PPL expands constraints on procurement providing the same rules as mandatory to cases where public funding is exceeding 50 per cent. Entities receiving such funding and therefore appearing as contracting entities are obliged to abide by PPL procedures for contracting once the price is above the thresholds provided.

Contractor
There is a feature of the Bulgarian legal order with respect to contractors. This is the mandatory registration in the Central Professional registry of the contractors under the Chamber of Contractors Law (2006, as amended in February 2010). The Law is applicable both for local and foreign individuals and entities, registered as merchants on their national legislation, as well as their branches, state owned and municipal owned enterprises practicing construction on the territory of the Republic of Bulgaria. Registration is mandatory for all the contractors carrying out construction of 1st to 5th category, as classified by the Spatial Development Law or specific kinds of construction activities as described in the National Classification of Economic Activities, item “Construction”. Registration in equivalent registry of any EU Member-State or other state within the European Economic Area has the effect of entry in the Central Professional Registry within the scope of the original registration.
It is still legally questionable whether this registration may be a prerequisite for participation in a public procurement procedure and the answer is rather negative. The opposite interpretation may lead to invalidation of the procedure due to imposition of discriminatory conditions. Moreover, provided when individuals or entities are associated to carry out construction or elements of construction, registration of one of the associates is deemed to be satisfactory for the entire association.

Announcements and ex-ante control
Public procurement should be sent for promulgation in the electronic site of State Gazette and to the Public Procurement Agency for entry in the Public Procurement Registry with no exceptions. In many cases law requires an advance announcement to be published. These are several classes of contracting through public procurement or for concluding frame agreements, which contracting authorities intend to open in the following 12 months:
-    Architectural services; engineering services and integrated engineering services; urban planning and landscape engineering services;
-    Scientific and technical consulting services; technical testing and analysis services , should the total value without VAT of the respective category of goods or services is equal to or higher than 450 000 BGN;
-    Any construction, where the total value of the procurement without VAT is equal to or higher than the thresholds of PPL.
In cases where public procurement value is equal or higher than the ones specified by Regulation of the European Commission issued on the ground of Art. 78 of Directive 2004/18/EC, the contracting authority must provide publication in the Republic of Bulgaria, as well as in Official Journal of the European Union, joined by certain set of documents enlisted.

Procedures
Construction may be contracted virtually by any of the procedures established by PPL, except on these excluded by their nature. In principle public procurement may be assigned by way of holding an open procedure, a limited procedure, a competitive dialogue, procedures of negotiation, electronic auction, commodity exchange transaction and project competition. There is an explicit rule that public procurement for construction may not be object of electronic auction, if subject involved is intellectual activity such as designing construction sites. For the purposes of construction project competition may have practical significance as far as project design may be a separate object of contracting prior to construction itself. It is defined as the procedure whereupon the contracting authority acquires a plan or a project, chosen by an independent jury on the grounds of a competition with or without adjudgement of awards.
Public procurement procedures in the country may be based on the contracting terms of International Federation of the Consultants Engineers (FIDIC). It is allowed for projects entirely or partly funded by international financial institutions and EU funds. In these cases all the functions, rights and obligations of the consultant as provided by Spatial Development Law should be considered as implemented by the engineer appointed under the conditions of the funding institution. They must be managed by the special terms of the contract with the procurement authority. This does not repeal the licensing requirement for both the engineer-consultant and the particular subcontractors and also the conditions for entry in operation of the facility built. In both cases national legislation will prevail and this would be Spatial Development Law.

Cases of negotiated procedures
The contracting authorities may assign public procurement by way of procedure of negotiation with announcement only in several major cases. As regards construction they are even less and may be outlined as related to:
-    failure of a preceding procedure, if the initially announced conditions are not amended essentially ;
-    the nature of the construction, or the risks inherent – if they do not allow to predetermine the value;
-    Procurement assuming research, experimental or development non-profit activity or does not aim at reimbursement of the expenses thereof.
The contracting authority may assign public procurement through a procedure of negotiation without prior announcement in many more cases. Construction though may again be contracted that way in only a limited number of cases:
-    failure of a preceding open or limited procedure if the initially announced conditions are not amended essentially ;
-    all the valid offers exceed the financial resource provided. Invited should only be the participants who have presented offers and meet the requirements, indicated in the announcement for procedure failed;
-    assigning the public procurement to another person would lead to violation of intellectual property rights or other exclusive rights acquired by virtue of a law or administrative act;
-    force majeure, leading to impossibility to meet the terms of an open or limited procedure or a procedure of negotiation with announcement;
-    experimenting, scientific or development activity where due to limited quantity the formation of a market price or reimbursement of the expenses thereof is impossible;
-    due to unforeseen circumstances it is necessary to assign an extra service or construction to the same contractor under the following terms: a) the extra service or construction may not be separated from the object of the main contract without considerable difficulties for the contracting authority or, although they may be separated, they are essentially necessary for the fulfilment of the procurement; b) the total value of the extra service or construction is not more than 50 percent of the value of the basic procurement;
-    it is necessary to repeat construction by the same contractor not later than three years since contracting in the presence of the following terms: a) prior contracting was carried out by open or limited procedure and the announcement for it indicates a possibility of such assigning; b) the total value of this procurement is included in determining the value of the first procurement; c) the new procurement corresponds to the basic project, in fulfilment of which the first procurement has been assigned.

Contracting by “sectoral” employers
So called “sectoral employers” are in principle bound by the same thresholds above which public procurement procedure is obligatory as the institutional ones. Still a difference exists about the list of possible procedures. This particular class of employers may only procure construction through open procedure, a limited procedure, and procedures of negotiation (with or without prior announcement). Performance of project competition may also be considered admitted by the law. In all the cases there are opportunities to set up and operate systems of preselection of contractors of public procurement. Sectoral procurement entities may procure construction by negotiations basically under the same terms and conditions relevant for the public entities.

Documentation and terms of reference
Documentation for construction procurement should enclose the investment project design when required in principle. Project design itself is also an item of public procurement as provided by Spatial Development Law. Employer defines the relevant terms of reference (technical specifications) as a part of mandatory documentation by indicating:
-    Bulgarian standards introducing European, international standards, European technical approvals or general technical specifications, or other technical standards of European standardization authorities, adding the words "or equivalent";
-    Bulgarian standards, technical approvals or specifications, as regards to the designing, the method of calculation and performance of the construction, as well as to the materials used, adding the words "or equivalent" where there are no standards under item 1;
-    Operative characteristics or functional requirements, allowing exact definition of the procurement’s object. They may include requirements for protection of the environment, including specifications or parts of European or national ecolabels or other ecolabels;
-    Operative characteristics or functional requirements of the above standards and labels the compliance with which is considered compliance with the operative characteristics or the functional requirements;
-    The applicable standards specifications for certain characteristics, and for others – by reference to operative characteristics or the above functional requirements.
"Technical specification for construction" is a legal term, defined by PPL. They are considered to be the combination of technical prescriptions, indicated in the documentation, which determines the requirements for characteristics of the materials and goods in such a way as to suite the application stipulated by the contracting authority. These characteristics embrace a level of fulfilment according to the requirements for protection of the environment, designing , working characteristics, safety or sizes, including the procedures regarding the provision of quality, terminology, symbols, testing and testing methods, packing, marking, labelling. They should also include rules for designing, testing, construction supervision and terms of accepting construction works and methods or technologies of construction and all other technical requirements which the contracting authority may prescribe by virtue of a law or of bylaws regarding a completed construction and the materials and parts included in it.

Annex 1

Thresholds for Procurement of Construction

	From	Up to
Under Public Procurement Law	2 150 000	unlimited
Under Ordinance for the Award of Small Public Contracts	200 000	2 150 000
By simple selection of 3 offers	45 000	200 000
Without procedure (by invoice only)	0	45 000
Notes: Values are in Bulgarian Leva (BGN), VAT not included. Thresholds are applicable since 1/1/2009 with place of delivery in the country. Exchange rate 1 EUR = 1.95583 BGN).

Law Firm Dyulgerova and Penkova

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