Tag Archives: Public Procurement

New Rules on Public Procurement

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On June 12, following a confidence vote, the lower chamber of the Italian Parliament has approved a law that will bring quite a few changes to the Public Procurement Code.

The new law, which has not been published in the Italian Official Gazette yet, has been enthusiastically announced as a way to accelerate governmental contracts, in line with the nickname of the act (“Sblocca Cantieri“, which could be translated as “Unlocking Building Sites”).

By way of example, the act allows subcontracting up to 40% (the previous threshold was 30%) and sets forth that only three competing offers will be required for contracts with a value between 40 and 150 thousand Euros. It also includes rather odd provisions, such as the increase in spending for close circuit tv cameras in public structures’ premises where small children and old people are cared for (see section 5 septies). 

The law has been bitterly criticized by the head of the Italian Anti-Corruption Authority, who pointed out that the aggregate value of public procurement contracts is at its highest (139.5 billions in 2018) and that criminal infiltration in companies bidding for public works is also very significant. Many fear that de-regulation of the sector will not bring positive results.

Others simply point out that this body of law has been subject to too many changes in the past years, which makes it difficult for helpful case law to develop and confuses operators.

New Grounds for Exclusion of Contractors from Public Tender Procedures

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Italian Law Decree no. 135 of December 14, 2018, titled “Urgent provisions on support and simplification for businesses and public administration” (so called “Decreto Semplificazioni”), which this blog already discussed here, has also an impact on the Public Contracts Code (Legislative Decree No. 50/2016).

Inter alia, section 80 of the Public Contracts Code on “Grounds for exclusion” has been amended and three new type of circumstances triggering exclusion have been established:

  • exclusion from participation in the tender procedure when “the contracting authority demonstrates by appropriate means that the economic operator has been guilty of serious professional offenses, such as to make his integrity or reliability questionable “; (letter c)
  • exclusion from the tender when “the economic operator has attempted to unduly influence the decision-making process of the contracting authority or obtain confidential information for the purpose of its own benefit or provided, even by negligence, false or misleading information likely to influence the decisions on exclusion, selection or award, or omitted the information required for the proper conduct of the selection procedure“; (letter c-bis)
  • exclusion also in the further case where “the economic operator has demonstrated significant or persistent deficiencies in the execution of a previous public contract that have caused the termination of the contract due to non-compliance or a judgment ordering damages or other comparable sanctions ” (letter c-ter).

With specific reference to this latter c-ter), we note that it has modified the previous provision according to which among the serious professional offenses there are “significant deficiencies in the execution of a previous public contract that have caused the termination of the contract, not challenged in court, or confirmed as a result of a judgment (..)“.

Therefore, according to the new art. 80, par. 5, let. c-ter) of the Public Contract Code, a candidate may be excluded from the public tender in the presence of a previous contractual termination with a public authority, even if challenged in court and still pending before the judge. The point has also been recently confirmed by the sentence of the T.A.R. Marche-Ancona, January 15, 2019, n. 32.

ECJ on the Applicability of Public Procurement Rules

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I have been asked to comment on the European Court of Justice decision of October 18 relating to the application of public procurement rules to a drug supply arrangement between a privately owned hospital and a public hospital.

The decision can be found here and the full article here.

 

 

Another September, Another Spending Review.

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This is almost becoming a tradition for the national healthcare service in Italy. Comes September… and a new spending review hits the pharmaceutical and medical device industry.

On August 4, 2015 a law decree has been approved by lawmakers, which introduces a number of new mechanisms for monitoring and reining in public spending in the healthcare sector. In particular, the new legislation has introduced several measures:

  • Negotiations with current suppliers of the national healthcare service in order to achieve a 5% reduction in current spending for general supplies;
  • Negotiations with current suppliers of medical devices in order to comply with the spending thresholds agreed upon between the central government and regional authorities;
  • Centralized negotiations with pharmaceutical companies in order to decrease the reimbursement price of products currently reimbursed by the national healthcare service.

While measures aimed at cutting spending in connection with general supplies and medical devices have been entrusted in principle to local authorities and healthcare providers, the national pharmaceutical agency (“AIFA”) plays a central role in the envisaged mechanism to achieve savings for pharmaceutical products. In accordance with the provisions of the new decree, AIFA has indeed conducted negotiations throughout the month of September 2015, with the aim of decreasing overall spending. The new legislation provides the grouping of products in several “clusters” that include therapeutically similar products, regardless of their active principles. The lowest price in each cluster is then used as the reference price for direct negotiations between AIFA and manufacturers.

The new measures also provide that, in case of failure to reach an agreement, reimbursement by the national healthcare service may be withdrawn. However, it is also expressly provided that generic products are not admitted to reimbursement until any patents and supplementary protection certificates of branded products are definitely expired, thus providing the industry with assurances in connection with their protected drugs.

The reiterated attempts by public authorities to renegotiate prices with suppliers appear to clash not only with basic contractual principles (“pacta sunt servanda”), but also with fundamental rules of public procurement legislation. As the government (in fact, almost yearly) demands discounts on existing contracts, reliance on such contracts is affected, along with transparency and open competition in public procurement procedures. The truth is that the need to cut public expenditures is increasingly overriding basic tenets of contracts and public procurement law.

Med Tech and Pharma industry associations have voiced their concerns, while suggesting that efficiency and savings may be obtained by the national healthcare service through internal reorganization processes rather than by demanding additional discounts to suppliers. In fact, if we step aside from the conflicting commercial interests of suppliers (who want to maximize their revenues) and purchasers (who need to minimize their costs), we cannot but note that, again, the government appears to use cost cutting tools that focus on quantity rather than quality. On the contrary, we would expect that more emphasis should be given to Health Technology Assessment and innovation. We surely need to spend less money, but also to spend it more wisely.

Courts Limit Administration’s Discretion in Public Contracts

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Recent rulings by two administrative courts in Italy have restricted the discretion of public entities in the award of public contracts without open procurement procedures, in particular in the healthcare sector. The two decisions reaffirm the Courts’ policy of restricting recourse to in-house contracts and extensions of expired contracts.

The first decision, issued on May 7, 2015 by the Supreme Administrative Court in Rome, invalidated the award of a service contract to a company established and owned by the regional government of Puglia for the provision of in-house services to healthcare facilities in the region. The contract was awarded without a public procurement procedure, on the basis of the fact that it was an in-house service contract. The Court, deciding upon an appeal brought by a competitor who was not granted the possibility to submit its offer, held that a procurement procedure open to competitors must always occur, even if a governmental entity has established a specific vehicle for the purpose of providing in-house services. The Court left a limited room for in-house services, i.e., services provided by an entity fully controlled and managed by the same administration awarding the contract, as if it was one of its internal departments.

On a different occasion, the regional administrative Court of Turin had the chance to reiterate that the extension of expired public contracts is prohibited by public procurement legislation, as it prevents competitors from participating in new public procurement procedures. In addition to stating again this general principle, the Court in its decision of April 3, 2015 no. 573 also held that governmental entities should proceed with calls for tenders whenever the goods or services they intend to procure are not covered by a national or regional framework agreement. In an effort to curb public spending, the Italian government has implemented in several sectors a centralized negotiation process, whereby a central governmental agency (“Consip”) enters into framework agreements for the supply of goods and services to local administrations. Local administrations are generally bound to adhere to such framework agreements and, if they do so, no call for tender needs to be issued. Public hospitals, on the other hand, must adhere to healthcare-specific regional framework agreements and to Consip agreements; only if no such agreements exist they may proceed with the issuance of a call for tenders.

In the case the before the Court, a local healthcare office postponed the validity of an expired supply contract, after assessing that the framework agreement entered into by Consip would have only partially covered the needs of the local administration and – most importantly – would have entailed a higher cost than the expired agreement. Regardless of the potential savings that the extension of the existing contract would have granted the public administration, the Court held that no exceptions can be envisaged to the issuance of a public procurement procedure. Clearly, more than by savings, the Court must have been guided by the desire to sanction a widespread practice of extending expired contracts, which in most cases stifles competition and does not guarantee lower prices.

It is expected that this policy, increasingly adopted by many administrative Courts, will be one of the highlights of the new public procurement legislation that is currently being examined by Italian lawmakers. The new public procurement code is, in fact, expected to provide new instruments for a more effective fight against corruption and inefficiencies within the public administration.

Legality Rating by the Italian Antitrust Authority: Is It Useful?

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“Not only must we punish corrupt companies but also encourage healthy businesses“. The statement released by Mr. Raffaele Cantone, Chairman of the Italian Anti Corruption Authority, summarizes the rationale underpinning the so called “legality rating”, i.e. a score that the Italian Antitrust Authority assigns to companies who apply for it. In fact, Law no. 62/2012, converting Law Decree no. 29/2012, requires the Italian Antitrust Authority to assign a score ranging from one to three “stars”, to any applying company who complies with a series of legal requirements (inter alia, the absence of criminal sanctions or preventive/precautionary measures against key personnel of the company, no judgments pursuant to Legislative Decree No. 231/2001, no breaches in the field of health and safety at work, and no definitive tax assessments against the company).

The instrument, available to entities generating a turnover in excess of Euro two million per year, is completely optional, but continues to be widely utilized. A statement of the Antitrust Authority shows in fact that, in January 2015, the Authority  received respectively 14% more applications than in the previous month and the trend seems to continue.

So, companies line up as schoolboys in order to show that they are worth a certain number of “stars” in an effort to demonstrate the soundness of their compliance program: is it worth it? To respond, we have looked into the benefits of the legality rating to understand the actual relevance of a practice that is becoming widespread. Below is a summary of the alleged benefits.

  • A new Regulation, developed by the Italian Antitrust Authority in collaboration with the National Anti Corruption Authority, entered into force on November 14, 2012, sets forth that companies benefitting from a legality rating are enrolled in a register of virtuous firms. Such registration is supposed tofacilitate relations with banks or the granting of public funding as well as the possibility to participate in public tenders.
  • The first example of a public procurement process taking into account the legality rating refers to postal services. The procurement documentation (Decision of December 9, 2014, published in the Official Gazette no. 1 of the January 2, 2015) stated for the first time that “for the public procurement of large size, the contracting authorities can evaluate the opportunity to give an additional and proportionate score to companies that benefit from a legality rating issued by the Antitrust Authority pursuant to §. 5 ter of Law-Decree no. 1 of January 24, 2012, or that have equivalent certifications issued to foreign firms from other agencies or public authorities”. For the first time, legality rating actually mattered as it gave a chance to companies to score additional points in public tenders.Some have criticized the use of a legality rating in this context, given that section 83 of the Italian Public Procurement Code (Legislative Decree no. 163/2006) requires that contracting authorities assess bidding companies on the basis of objective requirements only. It has been in fact argued that making reference to a legality rating is too discretionary. However, the Antitrust Authority, in opinion no. 163/2013, seemingly admits the possibility of using discretionary requirements, such as “the curriculum of the company, possession of licenses or quality certifications, availability of business assets, the providing of services or similar work, and in general, skills and references” as “factors that can be weighedas criteria for admission to tenders”.

In conclusion, if public procurement tenders give some weight to the legality rating, then obtaining it may actually be a good idea.

The risk is, as with any type of certification, that it will become a merely formal requirement, which does not attest the actual compliance efforts or a corporation’s culture.