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Based on EU recommendations, the Hungarian government is rewriting the entire procurement act, in a move expected to open up the competition for state contracts. Hungary’s rules for public procurement are being rewritten, a change that could have a broad impact on a large number of companies here, as well as the economy in general. As the government increases its ownership in a variety of firms, the state is becoming one of the most important business partners. And EU funds are vital to the country’s development, as we saw in 2014, when a large proportion of the growth in GDP was put down to spending of European Union grants. Hungarian news Agency MTI estimated on February 16 that net EU transfers in 2014 amounted to €5.44 billion. Understandably, there is much interest in the changes to the rules for procurement- changes that began at the EU level and are intended to improve transparency. “The EU issued brand new public procurement directives in February 2014,” says Anna Ménes senior associate at Baker & McKenzie in Budapest. “Member states, including Hungary, have to implement the New Directives by April 2016 -except for the rules for electronic procurement, which must be implemented by October 2018.” Rather than simply amend its laws, Hungary has undertaken to create a whole new Public Procurement Act, which must be in place by the end of this year. The government has already shared its concept of what the law might look like, and is now using that concept to make draft of legislation.

Quality matters

Among the major changes noted by Ménes is the need to consider more than prices when weighing bids. The EU directive calls for changes to ensure the “best price-quality” ratio. “Winning tenders should ultimately be chosen in accordance with what the contracting authority considers to be economically the best solution among those offered. The legislation should guarantee transparency, non-discrimination and equal treatment through various channels,” Ménes said. “The best price- quality ratio should always include a price or cost element, which is objective. Furthermore, during the evaluation process, contracting authorities should rely on professional evaluation methods. Such methods would be elaborated by the legislature in cooperation with professional bodies. These methods would be either obligatory for contracting authorities or may serve as non-binding guideline to follow.” According to the attorney, now is the time for professionals to lobby, so that they have a chance to help determine what the quality determinants will be. “Tenderer’s lobbying activity will be vital in relation to new professional quality criteria,” she explained. “through the related professional bodies, powerful companies may submit their recommendations on the new evaluation criteria and even have an influence on the government different professional policies. Therefore, in the future, the companies’ success may depend on the initial lobbying activity.” Another change is the opportunity for firms who might otherwise not be allowed to bid to change their status by “self-cleaning” their past record, so they can participate in current tenders. “If a tenderer committed a serious breach of a previous public contract in certain cases they must currently be excluded from future tenders. According to the new rules, however, if such a tenderer can prove their reliability despite the previous breach, they should not be excluded from a given tender. According to the concept, an independent authority would decide on reliability in these cases. This should guarantee the fairness and transparency of the procedure.”

According to Ménes, decisions that eliminate tenderers have traditionally been one of the key areas of involvement for her law firm. “A considerable part of our practice consists of representing clients in remedy proceedings related to the violation of public procurement laws. We have represented clients in major remedy cases before the Hungarian Public Procurement Committee, as well as in the subsequent administrative court proceedings,” she says. “We have also gained experience regarding how a foreign client can comply with special Hungarian formal tender requirements.”

More transparency

Overall, the changes bring transparency, something that will be a welcome change to many market players in Hungary. Questions about single-bid tenders and other practices have led to EU investigations here, including a probe, announced in late January by the European Union’s anti-fraud office, OLAF, of the fifth district’s “Heart of Budapest” renewal program. “From a public procurement perspective, what we see is that the new rules aim to ensure a more effective and transparent use of EU funds which have been already granted,” Ménes said. She added that many of these rules are in direct response to problems noted by the EU. “The concept highlights the problem of contract awards where there was only one bidder, and offers certain solutions for that. The one-bidder issue takes place mostly in negotiated procedures launched without prior notification,” the senior partner explains. “This type of procedure is heavily criticized by the EU. The concept’s approach is that, in procurements the value of which exceeds a certain threshold, a summary sheet of the most important data of the given procurement procedure should be published on the website of the Public Procurement Authority at least three days prior to the initiation of the procedure. If, on the basis of such prior information, a potential bidder notifies the contracting authority of its willingness to participate, the contracting authority would have to ensure the participation of such a potential bidder under equal conditions.” Overall, the concept seems designed to improve transparency, and make it easier to compete for contracts awarded by the Hungarian government, says Ménes, but she cautions that, until a draft of the actual legislation is prepared, it is hard to be sure. “The possible positive effects can not be assessed at this early stage of the legislation process,” she explains.


Anna Menes is a senior lawyer in the Dispute Resolution Practice Group in Baker McKenzie's Budapest office. She specializes inter alia in competition and public procurement law.

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