Public Procurement and Government Contracts 2019 Comparisons

Last Updated May 10, 2019

Contributed By Homburger

Law and Practice

Authors



Homburger is a leading Swiss corporate law firm based in Zurich. Homburger advises and represents companies and executives in all aspects of corporate and commercial law, regulation, tax and dispute resolution, both in a domestic and a global context. Homburger offers clients comprehensive legal advice as well as support in negotiations, and represents them before courts, arbitral tribunals, agencies, and in administrative proceedings. In so doing, Homburger places great emphasis not only on the identification of sustainable solutions to complex legal issues, but also on the achievement of its clients' individual commercial goals. Homburger works closely with leading law firms abroad, which enables it to provide its clients with optimal solutions, regardless of where their business activities take place. Homburger's practice in the public procurement sector involves advising clients on all issues of public procurement law and representing them in court proceedings. Special areas of focus involve, inter alia, construction services, IT procurements, and electricity services. Homburger's procurement specialists are members of the relevant industry associations, such as the Swiss association for public procurement law.

Switzerland is a signatory to the WTO Government Procurement Agreement (GPA) and the Bilateral Agreement between the EU and Switzerland on Certain Aspects of Government Procurement (BilA). The GPA and BilA contain congruent rules applicable to public procurements in signatory states.

These basic rules have been implemented in Switzerland by a set of national statutes. For procurements on the federal, ie, central state, level, the rules are included in the Law on Public Procurement (Bundesgesetz über das öffentliche Beschaffungswesen) and have been further detailed in the Ordinance on Public Procurement (Verordnung über das öffentliche Beschaffungswesen). For procurements on cantonal and municipal level, the rules are included in the Intercantonal Agreement on Public Procurement (Interkantonale Vereinbarung über das öffentliche Beschaffungswesen), which has been implemented by each canton in its own set of rules.

Generally, all procurements by Swiss public entities are subject to the rules on public procurement law. Further, the rules also apply to certain other-than-public entities if they are performing public tasks and are subsidised with public funds.

These public entities subject to procurement law include:

  • the federal government and its ministries;
  • cantons and municipalities;
  • institutions of public law at cantonal and municipal level (eg, public building insurance or association of municipalities);
  • public and licensed private "sector enterprises" in the water, energy, transport, and telecommunication sectors;
  • other holders of cantonal or municipal functions; and
  • offerors of goods, services and construction services that are subsidised with public funds to more than 50% of the overall costs.

Cantons and municipalities, institutions of public law at cantonal and municipal level, and other holders of cantonal or municipal functions are exempted from the rules of public procurement law in so far as the procurement pertains to the commercial or industrial activities of these entities with which they and other private providers are in full competition.

All contracts entered into by public entities, which are themselves subject to the procurement regulations, fall into the scope of the applicable procurement rules. However, the applicable procurement procedure is different, depending on the value of a procurement.

Based on the applicable international agreements, ie, the GPA and BilA, procurements above the following thresholds require the open or selective procedure. These thresholds are subject to adaptations by the government and are partly different for "sector enterprises".

For procurements at federal level, the thresholds are set as follows:

  • for deliveries, at CHF230,000;
  • for services, at CHF230,000; and
  • for construction services, at CHF8.7 million.

For procurements at cantonal and municipal level, the thresholds are set as follows:

  • for deliveries, at CHF360,000;
  • for services, at CHF350,000; and
  • for construction services, at CHF8.7 million.

For procurements with a value lying below these thresholds, the international agreements and the rules provided therein are not applicable. However, when implementing the international rules into Swiss law, the Swiss legislator has decided to lower the international thresholds. These national thresholds, which are also subject to adaptations by the Government, are as follows:

•       Free-hand awards can be made:

       (i) for deliveries under CHF100,000;

       (ii) for services under CHF150,000;

       (iii) for secondary construction work under CHF150,000; and

       (iv) for primary construction work under CHF300,000.

•       Awards on invitation must be made:

       (i) for deliveries as from CHF100,000 to under CHF250,000;

       (ii) for services as from CHF150,000 to under CHF250,000;

       (iii) for secondary construction work as from CHF150,000 to under CHF250,000; and

       (iv) for primary construction work as from CHF300,000 to under CHF500,000.

•       Open or selective procedures must be chosen:

       (i) for deliveries as from CHF250,000;

       (ii) for services as from CHF250,000;

       (iii) for secondary construction work as from CHF250,000; and

       (iv) for primary construction work as from CHF500,000.

Note that certain Cantons have further lowered these thresholds in their cantonal legislation.

Interested parties from other jurisdictions have a right to participate in a Swiss award procedure if their state of origin applies the same right to Swiss parties. This is at least the case for all signatory states of the GPA and BilA, to the extent that their thresholds of applicability are reached.

The legislation aims at an economic use of public funds. Therefore, it is designed to increase competition between bidders, while assuring their equal treatment and the transparency of the award procedure. These main principles – ie, the economic use of funds, the equal treatment and the transparency of the procedure – govern the entire public procurement law and serve as interpretation guidelines for the implementation of the legislation.

Calls for tender as well as awards must be published on the webpage www.simap.ch. The publication of the call for tender must include the identity of the awarding entity, a description of the contractual object, the deadline for submitting offers and the address where the tender documentation can be ordered. The publication of the award must mention the applicable procurement procedure, the contractual object, awarding entity, name and address of the winner of the award, and the price of the winning offer.

An awarding entity is not generally excluded from carrying out preliminary market consultations before launching the contract award procedure. However, it will have to ensure that it complies with the principle of equal treatment. In particular, it will have to exclude all offerors from the award procedure who participated in the preparation of the award procedure if their competitive advantage cannot be compensated adequately in order to assure the equal treatment. Therefore, both awarding entities and potential offerors will have to act very carefully in a market consultation if they want to avoid offerors being excluded from the future award procedure.

The relevant Swiss legislation provides for four different types of award procedures: the open procedure, the selective procedure, the procedure on invitation, and the free-hand award.

  • The most commonly used procedure is the open procedure, where the awarding entity publishes a call for tender. Each interested bidder can participate in the open procedure.
  • The selective procedure also starts with the publication of a call for tender. However, the call for tender includes criteria on the pre-selection of bidders. Only bidders that apply for pre-selection and fulfil the respective criteria are accepted for submitting bids.

The open and selective procedures are strongly formalised in order to ensure equal treatment of the bidders. After the call for bids has been published, the awarding entity regularly invites bidders to a meeting at which questions can be discussed. Thereupon, bids need to be submitted, in an anonymised form and within the deadline set in the call for bids. After the opening of the bids, which must be documented in the minutes, the awarding entity analyses the bids according to the pre-defined award criteria. The result will be formally notified to the bidders. The conclusion of the contract with the winning bidder must not take place before the applicable appeal deadline has expired.

  • The procedure on invitation is less formal. While the awarding entity must generally invite at least three bidders, it has a high margin of discretion in selecting the bidders it wants to invite.
  • The free-hand award is the most informal procedure. The awarding entity can simply pick and choose the company with which it wants to conclude a contract.

The applicable tender procedure is defined by the value thresholds (see 1.3 Types of Contracts Subject to Procurement Regulation). The awarding entity cannot freely choose the type of procedure. There are three exceptions:

  • The first exception pertains to the open and selective procedure. These two types of procedure are perceived as being equivalent. Therefore, the awarding entity can freely choose either the open or selective procedure. In practice, the choice is predominantly for the open procedure.
  • The second exception covers the case that the awarding entity decides to choose a more formal type of procedure than the applicable thresholds provide for – eg, an open procedure instead of a procedure on invitation. The awarding entity has the discretion to do so but, once it has chosen the more formal type of procedure for a certain procurement, it cannot switch back to the less formal type.
  • As a third exception, the applicable rules allow under certain conditions that a free-hand award be made even though the threshold for a more formal procedure has been met. This includes cases where only one possible supplier is able to perform the work due to technical reasons, where the procurement is urgent due to unexpected events non-attributable to the awarding entity, or where replacing or supplementing an existing good or service would lead to substantial additional costs if a different supplier were chosen from the one that delivered in the past. Legally, these free-hand exceptions must be construed restrictively – although, in practice, they are often used broadly by the awarding entities in order to avoid burdensome formal award procedures.

The possibility for awarding entities to negotiate contracts is very limited. As a general rule, awarding entities have to award the contract to the bidder that offered the economically most advantageous bid. The assessment of the bids must be made based exclusively on pre-defined award criteria. There are two exceptions. First, in free-hand award procedures, awarding entities are free to negotiate prices. Second, in award procedures of federal entities, price negotiations are possible to a limited extent after the awarding entity has received the offers. These negotiations are only allowed if the right to negotiate the price has been explicitly reserved in the call for offers or if the submitted bids do not lead to a winner. During these negotiations, the awarding entity is prohibited from informing bidders about the prices offered by other bidders. It can merely invite them to submit a better offer within a certain deadline.

The applicable tender procedure is defined by the value thresholds set by the legislation. The awarding entity cannot freely choose the type of procedure (see 2.3 Tender Procedure for Award of Contract).

Except for free-hand awards, the awarding entity generally needs to provide all information and specifications relevant to making a bid in the documentation accompanying the call or invitation for tender. Generally, the relevant documentation also includes a template agreement, which serves as a basis for the award.

For reasons of equal treatment and transparency, the awarding entity is prohibited from changing the relevant specifications and terms of the procurement in the course of the award procedure. Therefore, it can generally not negotiate individual contract terms with bidders. Rather, it states unilaterally at the beginning of the procedure what the applicable terms are.

The legislation stipulates that the time limit to submit offers or requests for participation must be set by the authority in a manner that gives offerors ample time to review the tender documentation and prepare the offer. The authority must in particular have regard to the complexity of the procurement.

For open and selective procedures, the legislation sets explicit minimum time limits. In the open procedure, the minimum time limit is 40 days as from the publication of the call for tender. In selective procedures, the minimal time limit for submitting a request for participation amounts to 25 days as from the publication of the call for interest and 40 days for submitting the offer as from the date of invitation. These time limits can be shortened to 24 days under certain circumstances and, in the event of great urgency, to ten days. In practice, authorities often set the time limit at two months or more.

There are only very limited legal conditions which interested parties must meet in order to be eligible for participation in a procurement process. First, the awarding entity is prohibited from granting an award to a bidder that does not comply with the applicable laws on the protection of employees or that discriminates against staff according to gender. These rules are particularly relevant in the building sector where contractors often use subcontractors with staff coming from abroad. The employee protection rules contain minimum wages in order to prevent "wage dumping" (ie, foreign staff being hired for much lower wages). These minimum wages are not always complied with and awarding entities increasingly hold the main contractor liable for infringements by its subcontractors. Second, bidders can be excluded from the award procedure if they do not pay imposed taxes and social security contributions or if they are in bankruptcy proceedings. Third, bidders may be excluded if they have entered into anti-competitive agreements. Given the increasing detection of competition law infringements in various sectors, this right to exclusion gains relevance. This is particularly true in the building sector where several anti-competitive agreements have been detected in the past years.

Apart from these legal conditions, it is for the awarding entity to set the criteria that interested parties must meet in order to be able to participate in a procurement process. It can define so-called suitability criteria that a bidder must fulfil in order that the offer will be assessed. These suitability criteria pertain to conditions such as the financial good-standing or technical performance levels. They are designed to assure that only those bidders that are likely to fulfil the relevant tasks can be granted an award. These criteria must be objective and verifiable and must ensure the equal treatment of all bidders. The applicable law provides for the possibility to set up directories which contain the bidders that are suitable for a certain type of bid. Companies included in these directories are deemed to be suitable and need only show that they are in the directory. If a company is excluded from the directory against its will, it can challenge the decision in court.

The number of suppliers that can participate in a procurement process can be restricted only under limited circumstances. No such restriction is possible in the open procedure. The selective procedure indirectly allows limiting the number of suppliers, in that the interested parties need to apply for participation and have to show that they fulfil the suitability criteria. By including strict qualitative standards, the authority will often be able to reduce the number of participants. Further, the legislation allows that the awarding entity limits the number of bidders in selective procedures to three if the procedure could not otherwise be administered efficiently. However, it seems to be very rare that the prerequisites for such a limitation would be fulfilled.

In invitation procedures, the authority is requested by law to invite, if possible, at least three bidders. However, it is free to select these. For free-hand awards, the legislation has not set any minimum numbers.

Based on the principle of the economic use of public funds, the procurement must be awarded to the most economical offer. While the price of the offer is an important criterion in the award process, it is often supplemented by additional criteria. Such additional criteria may include quality aspects, ecological factors, customer service, expedience of the service, aesthetics, or technical value. However, these additional factors must be designed so as not to discriminate against non-local bidders as opposed to local bidders. Further, according to the case law, the price-related criteria must be allocated at least 40% of the weighing factors for the award.

The suitability and evaluation criteria must be disclosed in the call for bids or the tender documentation. Further, the evaluation criteria need to be mentioned in order of their importance. Based on the principle of transparency, the authority is not allowed to change the criteria, or their importance, after the call for bids.

All formal decisions of the awarding authority, including the call for bids, the decision on selecting interested parties in the selective procedure, or the award, must be published on the official website www.simap.ch. In practice, the authority often notifies the interested parties in addition by written letter. The orders must contain a summary reasoning. Upon request of an interested party that has not been selected for participation, the authority is obliged to inform it of the most material reasons for its non-selection.

All formal decisions of the awarding authority, including the award, must be published on the official website www.simap.ch. In practice, the authority generally notifies the bidders in addition by written letter. The publication of the award must contain a summary reasoning. Upon request of a bidder whose offer has not been selected, the authority is obliged to inform it of the most material reasons for its non-selection, the name of the selected bidder, the price of the selected offer or, exceptionally, the highest and lowest offer, and the decisive properties and advantages of the selected offer.

The awarding authority must not conclude the awarded contract before the deadline for appeals has expired. The deadline starts with the publication of the award and amounts to ten calendar days for appeals at the cantonal or municipal level and to 20 calendar days for appeals at the federal level. In the case of an appeal, the courts have the right, upon request, to suspend the awarding entity's right to conclude the contract for the duration of the procedure. In the absence of such an interim order, the awarding authority is entitled to enter into the contract. In this case, it cannot be obliged at a later stage to terminate the contract, even if it should be held that the award was incompliant with the law.

The competence for appeals depends on whether the awarding entity belongs to (i) the federal or (ii) the cantonal or municipal level. The competent court for decisions of federal awarding entities is the Federal Administrative Court. The competent court for an order of the cantonal or municipal level is the cantonal court of the canton to which the awarding entity belongs. The cantons have often allocated procurement matters to the cantonal administrative court.

The decisions of the first-instance court can be appealed before the Federal Supreme Court. However, the appeal will only be heard if, cumulatively, (i) the value of the award exceeds the thresholds of the GPA and BilA, and (ii) the appeal brings a fundamental legal question forward that has not been answered yet. The appellant has to prove in detail that these conditions are fulfilled. If they are not fulfilled, the Federal Supreme Court will not review the appeal. If they are fulfilled, the Federal Supreme Court will review the appeal and will not only answer the fundamental legal question but also any other relevant legal question. However, it does not deal with questions of fact. The decision of the Federal Supreme Court is final and binding.

The courts generally have the right to annul orders of awarding entities or to substitute the decision of the awarding entity with their own decision. With regard to awards, however, based on the Federal Supreme Court's case law, the courts are only entitled to annul the award and cannot award the tender directly to another offeror, as eg, the appellant. The reason for this is that the awarding entity might be entitled to discontinue the award procedure and, therefore, it is for the awarding entity to make a new decision. The same must apply to cases where the call for bids has been appealed. In this case, the courts will not be entitled to change the content of the call for bids but will only have a right to annul it and give the awarding entity the possibility to amend it in a compliant way.

If the contract has already been concluded by the awarding entity, the legislation only entitles the courts to annul the award but it cannot terminate the contract. However, some cantonal courts have started to deviate from the wording of the law in cases where unpublished free-hand awards were made, even though the authority would have had to use an open or selective procedure and the contract was already concluded before the appeal was made. In that case, the court ordered that the contract be terminated by the awarding authority at the earliest possible event.

Interim measures of courts are very important in appeal procedures in Switzerland because they are the only means to prevent the awarding entity from concluding the contract with the recipient of an award. The appeal has no suspensive effect unless such an effect is granted by the court. This means that the awarding entity is entitled to conclude the contract with the recipient of the award unless it is prohibited from doing so by the court. If it is not prohibited, the contract would remain binding, even though a court, at a later stage, would come to the conclusion that the award was unlawful. The appellant's right would then be limited to a compensation of the costs incurred by preparing the offer. Therefore, it is of utmost importance to ask the court explicitly in the appeal that a suspensive effect be granted. If a suspensive effect is requested, the competent court makes a prima facie decision on the merits of the case and, in the case of a prima facie infringement of procurement law, weighs the interest in compliance with procurement law up against the interest of the awarding entity in a swift performance of the awarded work or service. In order to be successful with a request for suspensive effect, it is important to demonstrate convincingly in the appeal that there has been a prima facie infringement of procurement law.

For procurement procedures of federal entities, it is important to note that not all of these are subject to appeals. First, appeals can only be made if the procurement value is above the thresholds of the GPA and BilA, ie, for deliveries at CHF230,000; for services at CHF230,000; and for construction services at CHF8.7 million. Second, appeals in the procurement of services are only possible if the procured type of services is listed on the so-called positive list of appendix 1 annex 4 of the GPA. Third, procurements of the Swiss military are only subject to appeal if they are listed on a positive list.

For all procurements that are generally subject to the right of appeal, the following apply:

  • The call for bids can be appealed by those interested parties that can demonstrate that they would want to participate in the bid and are a potential offeror that could supply the relevant good or perform the relevant service.
  • The right to appeal against an award is generally limited to those parties able to demonstrate that they would have been awarded the contract if the awarding entity had complied with the law. All other parties of the award procedure are not entitled to appeal.
  • There is an exception to this rule pertaining to free-hand awards. If a free-hand award is challenged with the argument that the awarding entity would have had to conduct an open or selective procedure, the appeal can be lodged by every potential offeror that could supply the relevant good or perform the relevant service.

The deadline for filing appeals is very short and non-extendable. It amounts to ten calendar days on the cantonal and municipal level and to 20 calendar days on the federal level. The deadline starts to run with the publication of the award or, where a publication is not made, such as in free-hand awards, with the appellant acquiring sufficient knowledge of the award in order to be able to lodge an appeal.

Further, it is important to note that parties must already have appealed the call for tenders if they want to challenge a condition of the tender. This might be the case, eg, where the object of tender has been designed in a way that is to the advantage of a certain offeror, where the published assessment criteria are not legally compliant, or where the deadline for submitting bids is too short. In these cases, the parties cannot wait until the award is made to challenge the content of the call for bids. Hence, appeals against the award can only be directed towards legal issues that could not already have been challenged at the time of the call for bids.

Procurement appeal procedures generally last between six months and two years, depending on the complexity of the case.

Appeals procedures in Switzerland are still relatively rare, but a constantly increasing number have been seen over the past few years. The main business areas prone for appeals are construction and IT. Further, larger cantons see more appeals than smaller, more rural, cantons. On average, it is assumed that first-instance courts review between five and 20 procurement claims per year. Only a very few of these go to the Federal Supreme Court, which hears on average about five to ten procurement cases per year.

The typical costs for court expenses and attorneys in first-instance appeals are estimated to amount to between CHF15,000 and CHF25,000.

The principle of equal treatment and transparency requires that the object of a procurement remains the same during the whole award procedure and will also not change following the award. Hence, legally speaking, there is only very limited room for modification of procurement contracts after the award. Any modification that has an influence on the price would not be permissible in principle but would require that the procedure be re-started. However, it sometimes happens that the authority, or the awarded company, initiates contractual discussions following the award.

The legislation permits under certain circumstances that free-hand awards are made although the value thresholds of a more formal procedure, for example an open procedure, are reached. These exceptional circumstances must be applied restrictively and it is for the awarding entity to prove that the applicable conditions are fulfilled. Further, the awarding entity is obliged to publish the award, which gives interested parties the possibility to appeal against the award by asserting that the conditions for a free-hand award were not fulfilled.

The main cases of permissible exceptional free-hand awards are: (i) based on technical reasons or for reasons of protection of intellectual property rights, only one specific supplier can provide the object of the procurement and no appropriate alternative exists; (ii) the procurement becomes, through no fault of the awarding entity, very urgent, due to unforeseen events; (iii) goods or services already lawfully supplied require a replacement or extension which can only be provided by the original supplier because only this ensures compatibility with the existing goods or services; and (iv) goods can be sourced in the framework of a temporary opportunity for a price which is significantly below the ordinary prices.

The Swiss parliament is currently discussing a material revision of the legislation. The discussions are still pending. One of the more important amendments under discussion would expand the right to appeal at first instance for procurements on the federal level, in that it would no longer be limited to procurements in the scope of the international agreements GPA and BilA. This is particularly relevant for procurements pertaining to services because it would allow appeals that are also in the area of services and not listed on the so-called positive list.

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Law and Practice

Authors



Homburger is a leading Swiss corporate law firm based in Zurich. Homburger advises and represents companies and executives in all aspects of corporate and commercial law, regulation, tax and dispute resolution, both in a domestic and a global context. Homburger offers clients comprehensive legal advice as well as support in negotiations, and represents them before courts, arbitral tribunals, agencies, and in administrative proceedings. In so doing, Homburger places great emphasis not only on the identification of sustainable solutions to complex legal issues, but also on the achievement of its clients' individual commercial goals. Homburger works closely with leading law firms abroad, which enables it to provide its clients with optimal solutions, regardless of where their business activities take place. Homburger's practice in the public procurement sector involves advising clients on all issues of public procurement law and representing them in court proceedings. Special areas of focus involve, inter alia, construction services, IT procurements, and electricity services. Homburger's procurement specialists are members of the relevant industry associations, such as the Swiss association for public procurement law.

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