Sanctions against Russia - EU prohibitions also in the area of public procurement

An extremely important EU regulation has recently entered into force, which by its very nature is directly applicable in every EU Member State, including our country.

The Regulation has a direct impact on the conduct of public procurement procedures, even on the performance of previously concluded contracts, and this is the reason why we have prepared this awareness-raising summary to facilitate the everyday implementation of the applicable legal provisions.

The scope of the regulation covers public procurement covered by the EU public procurement directives, ie: 

• those whose value reaches or exceeds the Union thresholds, or
• which are carried out by contracting authorities in accordance with EU procedures.

Council Regulation (EU) 2022/576 of 8 April 2022 amending Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine was published on 8 April 2022 and entered into force on 9 April 2022.

The preamble of the Regulation stipulates that on 8 April 2022, the Council of the European Union adopted Council Decision (CFSP) 2022/578 prohibiting the award of public contracts and concession contracts to Russian nationals, entities or bodies established in Russia and the continuation of the performance of such contracts with Russian nationals, entities or bodies established in Russia.

As a follow-up to this decision, the European Union has introduced, with effect from 9 April 2021, a number of prohibitions fundamentally affecting the award of public procurement procedures, based on Article 5(k) of Council Regulation (EU) No 833/2014 amending Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, which entered into force following Article 1(23) of Council Regulation (EU) 2022/576. The absence of these prohibitions shall, as a general rule, be verified by the Contracting Authority before the contract is awarded (i.e. before the announcement of the outcome of the procurement procedure).

„Article 5k

1. It shall be prohibited to award or continue the execution of any public or concession contract falling within the scope of the public procurement Directives, as well as Article 10, paragraphs 1, 3, 6(a) to 6(e), 8, 9 and 10, Articles 11, 12, 13 and 14 of Directive 2014/23/EU, Article 7 and 8, Article 10 (b) to (f) and (h) to (j) of Directive 2014/24/EU, Article 18, Article 21 (b) to (e) and (g) to (i), Articles 29 and 30 of Directive 2014/25/EU and Article 13 (a) to (d), (f) to (h) and (j) of Directive 2009/81/EC, to or with:

(a) a Russian national, or a natural or legal person, entity or body established in Russia;

(b) a legal person, entity or body whose proprietary rights are directly or indirectly owned for more than 50 % by an entity referred to in point (a) of this paragraph; or

(c) a natural or legal person, entity or body acting on behalf or at the direction of an entity referred to in point (a) or (b) of this paragraph,

including, where they account for more than 10 % of the contract value, subcontractors, suppliers or entities whose capacities are being relied on within the meaning of the public procurement Directives.”

In relation to the above prohibition, Article 5k (4) of Council Regulation (EU) No 833/2014 states that the prohibitions in paragraph (1) shall not apply to the performance of contracts concluded before 9 April 2022 until 10 October 2022.

In the light of the above, we consider that the following actions should be taken during public procurement procedures:

• it is proposed to incorporate, as a minimum, the following requirement in the invitation to tender and other procurement documents for procedures prior to commencement:

„Tenderers shall include in their tender a declaration in relation to the prohibition pursuant to Article 5 (k) of Council Regulation (EU) No 833/2014 amending Council Regulation (EU) No 2022/576 of 20 December 2022/2014 concerning restrictive measures imposed by Russia in view of destabilising measures in Ukraine, which entered into force in accordance with the stipulations of Article 1(23) of Council Regulation (EU) No 833/2014.”

• - for ongoing pre-tender procedures, where the modification of the tender documents can be done without corrections and without postponing the time limit, we also propose to include the above provision.

In our view, the inclusion of the above provision does not constitute a substantive amendment, since the Regulation containing the prohibition is still in force and applicable, and therefore, by including it in the contract documents, the contracting authority does not make any amendment (or it is not the contracting authority that makes the amendment) that would have a material impact on the willingness/ability of operators to participate in the public procurement procedure.

•  in the case of procedures at the evaluation stage, it is our view that a declaration by the tenderers should be obtained as part of the framework of the mechanism for remedying procedural shortcomings for the following reasons:

• on the one hand, that the prohibition under Article 5k of Council Regulation (EU) No 833/2014 having entered into force following Article 1(23) of Council Regulation (EU) No 2022/576 amending Council Regulation (EU) No 833/2014 concerning restrictive measures imposed by Russia which destabilise the situation in Ukraine is not applicable to them,
• on the other hand, that the Tenderer undertakes to inform the Contracting Authority without delay in the event of any change in these circumstances.

In our professional opinion, the attention of tenderers should be drawn to the fact that since the declaration itself was not required in the procedure (as the EU Regulation referred to did not exist at the time of the opening of the procedure), therefore the Contracting Authority is requesting this declaration for the first time in the context of this present procedure of supplying missing information, and therefore, in the legal sense of public procurement, this act does not constitute supplying missing information, i.e. if the declaration is not submitted on time or is not submitted correctly, then the possibility of supplying missing information shall be ensured in accordance with the stipulations of Article 71 of Act CXLIII of 2015 on Public Procurement (hereinafter referred to as the "Kbt.") and the prohibition under the last sentence of Article 71(6) of the Kbt. shall not apply to this case.

• in the case of procedures after the award of the contract but before the conclusion thereof, in our view, a declaration by the successful tenderer that the entity it represents, or the subcontractors, suppliers or entities whose capacities the entity it represents intends to use or uses for the performance of the contract, representing more than 10% of the contract value, are not subject to the prohibition measures provided for in the Regulation, including in particular, but not limited to, the provisions of Article 5k. (1) of the Regulation.

• for contracts in the performance phase - if the contract was concluded before 9 April 2022:

As set out above, Article 5k(4) of Council Regulation (EU) No 833/2014, in relation to the above prohibition, states that the prohibitions in paragraph 1 shall not apply to the performance of contracts concluded before 9 April 2022 until 10 October 2022.

As a consequence of this "waiver", it is necessary to ensure that, by 10 October 2022, all public contractors declare that they shall comply with the provisions of Article 5k(1)of the Regulation, namely that each contracting entity shall declare that it is not subject to the prohibitions laid down in the Regulation, and that any subcontractor, supplier or entity whose capacities it intends to use or which it uses for the performance of the contract, representing more than 10% of the value of the contract, are not subject to the prohibitions laid down in the Regulation, including in particular, but not limited to, the provisions of Article 5k(1) thereof.

•  for contracts in the performance phase - if the contract was concluded after 9 April 2022:

If this has not been done prior to the conclusion of the contract, in our view, a declaration by the contracting partner should be requested without delay that the entity it represents, or the subcontractors, suppliers or entities whose capacities the entity it represents intends to use or uses for the performance of the contract, representing more than 10% of the contract value, are not subject to the prohibition measures provided for in the Regulation, including in particular, but not limited to, the provisions of Article 5k. (1) thereof.

In relation to the above, it should be mentioned that Article 5k(2) of Council Regulation (EU) No 833/2014 allows the competent authorities to authorise the award and performance of contracts covered by the prohibition, the purpose of which is one of the objectives listed in this paragraph of the Regulation, such as:

1. the operation, maintenance, decommissioning and radioactive waste management, fuel supply and retreatment and safety of civil nuclear capabilities, and the continuation of design, construction and commissioning required for the completion of civil nuclear facilities, as well as the supply of precursor material for the production of medical radioisotopes and similar medical applications, critical technology for environmental radiation monitoring, as well as civil nuclear cooperation, in particular in the field of research and development;
2. intergovernmental cooperation in space programmes;
3. the provision of strictly necessary goods or services which can only be provided, or which can only be provided in sufficient quantities, by the persons referred to in paragraph 1;
4. the functioning of diplomatic and consular representations of the Union and of the Member States in Russia, including delegations, embassies and missions, or international organisations in Russia enjoying immunities in accordance with international law;
5. the purchase, import or transport of natural gas and oil, including refined petroleum products, as well as titanium, aluminium, copper, nickel, palladium and iron ore from or through Russia into the Union; or
6. the purchase, import or transport into the Union of coal and other solid fossil fuels, as listed in Annex XXII until 10 August 2022.

 In accordance with the stipulations of Article 5k(3) of Council Regulation (EU) No 833/2014, the Member State concerned shall inform the other Member States and the Commission of any authorisation granted under this Article within two weeks of the granting of such authorisation.