Álvaro Remón of De Lucas Remón, Anna Kuusniemi-Laine of Castren & Snellman, Ricardo Levy of Pinheiro Neto and Martin Schellenberg of Heuking Kühn Lüer Wojtek discuss the key issues facing public procurement lawyers today, including the areas of focus for government investment in their jurisdictions, competition in the legal market and increasing intenationalism in this sector.
De Lucas Remón Abogados
Who’s Who Legal: What are the key areas of focus for government investment the jurisdictions in which you work at the moment? Have you seen a particular change in emphasis over the past year?
Álvaro Remón: Due to the current economic and debt crisis in Spain, the key areas for public procurement activity are those affected by government disinvestment plans.
This is particularly true as regards the Spanish public health sector. Some regional governments (ie, those of the autonomous communities of Madrid and Valencia) have decided to set up new formulas for the management of public hospitals through the establishment of public-private partnerships (PPPs). Those regional bodies have recently launched a call for tender in this regard, with not very promising results, as we will further discuss.
Another key area of focus is high-speed railway line concessions. The bankruptcy of many of the private companies managing the concessions, due to the scarce number of users, is raising questions about the viability of the system for both the private and public sector companies involved.
Anna Kuusniemi-Laine: In Finland, over 40 per cent of public investments are infrastructure projects and civil engineering investments, just under 40 per cent are construction investments and the rest are mainly ICT and machinery investments. The state’s investments are focused on civil engineering and local government investments on construction projects. The development of public investments is projected to be modest over the coming years due to the challenging financial situation of the state and municipalities.
State investments in 2012 and 2011 were quite low compared to the preceding years, when stimulus measures, for example, stepped up investments. The amount of state investments is estimated to increase slightly in the coming years, and there are plans for, among other things, new rail and road projects, such as the continuation of the E18 motorway. Local government investments, on the other hand, are expected to decrease slightly as the financial situation of municipalities weakens, despite the fact that there are significant renovation needs in the building stock of municipalities.
Ricardo Levy: The Brazilian government has been investing heavily in infrastructure. Brazilian infrastructure is still underdeveloped in many respects, and the country is trying to catch up. The upcoming 2014 FIFA World Cup and the 2016 Olympic Games have raised awareness of the problem and encouraged the development of several new projects – a part of which will only be operational after these events take place, but the outcome is still positive, despite the delay.
There has been a lot of emphasis on urban mobility projects. Another area with growing importance is defence procurement.
The way the projects are structured is also changing. PPPs and other more complex structures are replacing simpler services, supply and works agreements. Also, cases where projects are prepared by the private sector and presented to the government for tender are becoming more common, as an alternative to the more time-consuming process of the government itself preparing the projects it intends to put for tender.
Martin Schellenberg: One key area of procurement in Germany at present is the ICT sector, in particular equipment and infrastructure for police and other critical services. Germany has been relatively late in introducing digital mobile services for the police but now the central infrastructure is ready and the regional institutions can start to procure the respective devices.
Regarding the building sector, similar to what Anna reports from Finland, German authorities had refrained from larger investments after the financial crisis, due to lacking stimulus packages. In addition, we had a couple of negative experiences with mega-projects like Stuttgart railway station, Hamburg’s Elbe Philarmonic Hall and Berlin Brandenburg Airport. Therefore, now second-generation PPP-structures without long-term operational obligations are becoming more popular with public authorities and are seen as a means of cost-effective public building.
Unlike in Brazil and Spain, large PPP road, railroad or stadium projects are not currently on the market in Germany.
Who’s Who Legal: With bank lending difficult to come by, sources noted an increase of public sector activity in infrastructure projects over the past year. Some even said that lawyers who traditionally focused on private project finance deals were entering the public procurement space. Does this correspond to your experiences of the market over the past year?
Álvaro Remón: The abovementioned scenario does not correspond to the Spanish market experience over the past year. The reason is that the Spanish legislation for public sector activity is very specialised and differs deeply from the legislation on private project finance deals. Therefore, there are high barriers of entry for private project finance lawyers to enter the public sector activity field.
The above means that public procurement lawyers are better placed to assess the new public-private collaboration formulas that are arising as these formulas are built on the highly specialised administrative law.
Anna Kuusniemi-Laine: We haven’t seen any major changes in the legal market in this respect in Finland. However, if the Finnish Transport Agency starts major road and rail projects in the coming years, this will likely increase the interest of law firms to shift more of their focus onto public procurement matters.
Ricardo Levy: It is true that there has been an increase of public sector activity in infrastructure projects.
In the Brazilian legal system, private law and public (administrative) law are very different areas, in terms of applicable legal principles and legislation and even on how these are interpreted. It is therefore very difficult for a lawyer accustomed to advising on private project finance (private law) to suddenly start working with public procurement (administrative law). Thus, the situation in Brazil in this respect is similar to the one in Spain, as reported by Álvaro Remón.
Martin Schellenberg: In Germany, procurement law is part of private law and does not belong to administrative law. Therefore, most of the German procurement lawyers are contract specialists. But, at larger procurement transactions there has always been a need to provide for a multidisciplinary team of financial market specialists as well as procurement lawyers. In Germany, we did not see any change in specialisation in this area.
Who’s Who Legal: On the whole, however, lawyers have noted that state budgets are lower today than they have been in previous years, which has meant fewer procurements overall, and more competition and contract disputes among suppliers. Is this true where you are?
Álvaro Remón: This is true as regards procurements involving direct public investment, which have seriously decreased over the past year, with fierce competition among tenderers over price.
However, this is not the case where public procurement activity relates to the establishment of new PPPs formulas in areas traditionally managed by public bodies, such as the public health sector.
To illustrate the above, I will give a recent example: just a few days ago the call for tenders to manage the public hospitals of the autonomous region of Madrid closed. Only three non-competing tenders where received, none from the most powerful private health groups. The reason, as the said private health groups have declared to the press, is the lack of an economic rationale behind the proposal to tender and the important legal doubts as to the compatibility of the tender itself with the Spanish Constitution and the laws governing public health care.
Anna Kuusniemi-Laine: In Finland, the number of public procurement procedures remained quite steady during 2011 and 2012, but the total value of these contracts actually increased in 2012 compared with 2011, especially in the utilities sector. However, contracting entities seem to have become more cost-sensitive, and price competition has increased.
The number of public procurement disputes before the Finnish Market Court has been high for a number of years. In 2012, approximately 450 appeals were filed to the Market Court. This year, the number seems to be increasing somewhat.
Ricardo Levy: In Brazil, state budgets have been increasing, as the collection of taxes keep reaching record highs. Government spending via procurement has increased accordingly. Despite this competition among bidders is becoming ever fiercer, as procurement proceedings become more dynamic, transparent and efficient, not to mention an increase in the participation of foreign bidders.
Martin Schellenberg: As with Finland and Brazil, in Germany the budget for state procurement has increased during recent years. It seems that the authorities spent more money for procurement consulting than before, as bidders are becoming more and more aggressive in the procurement process.
Who’s Who Legal: A number of the lawyers we spoke to said that their public procurement practices were becoming more international as contractors sought opportunities overseas. What effect is this increased internationalisation having on your practice, and the market as a whole?
Álvaro Remón: Internationalisation is the only way for Spanish companies to survive and surpass the challenging internal economic conditions.
The growing international presence of Spanish companies is particularly true in the Ibex 35 listed companies, which show progressions of 10 to 15 per cent in their profits due to their presence overseas.
Latin America is the natural expanding field for these companies; however, they are increasingly focusing on the Asian market.
Spanish construction and project engineering companies, such as OHL, Acciona and Técnicas Reunidas, are particularly well placed to compete internationally. Spanish telecommunications and public facilities companies are also important competent tenderers abroad.
The internationalisation of public procurement has meant new challenges for purely local law firms, that have been forced to strengthen their alliances abroad in order to provide the best multi-jurisdictional assessment possible.
Anna Kuusniemi-Laine: We have noted an increase in foreign companies bidding in Finnish public procurement procedures, and the need for legal advice concerning Finnish procurement law and practices, as well as contract law and practices, has increased. Although the legislation is based on the same directives in all EU countries, there still seems to be a significant difference in how the procedures are conducted in practice. We have also noted that many of our international clients have put more emphasis on their bidding strategies and are coordinating participation in bids in a centralised manner. The importance of international networks for public procurement lawyers has increased for our firm as well.
Ricardo Levy: We notice more foreign contractors bidding in Brazil than Brazilian contractors bidding abroad.
As Brazil is not a signatory to the World Trade Organization’s Government Procurement Agreement, it is free to discriminate in public procurement. In the past three years, laws and regulations have been enacted providing for different types of discrimination, which range from margins of preference in favour of local produced and developed goods and services, all the way to plain exclusion of foreign produced goods under certain circumstances. On top of that, most procurement proceedings in Brazil are open for companies incorporated in Brazil only (whether the companies are owned by Brazilians or by foreigners is irrelevant).
Despite these obstacles, foreign contractors have been very active in Brazil, bidding directly (when allowed in the tender documents) or through Brazilian subsidiaries or branches. The challenges involved in this internationalisation include preparing the foreign bidder’s qualification documents for compliance under Brazilian public procurement law, as well as making sure that the client understands the risks involved in administrative contracts in Brazil.
Martin Schellenberg: Unlike Brazil, in Germany there is no restriction for foreign bidders to participate directly in the tender process. Nevertheless, foreign bidders usually enter the German market through local subsidies, the exception being Austrian and Swiss companies.
On the other side, German clients traditionally try to enter into international markets and therefore often need help in a bid process from a local firm. This firm should not only be able to give qualified advice in national procurement law but should also be well connected with the local authorities.