Hungary: public procurement fines extended to economic operators – what the new rules mean in practice

Hungary has adopted Bill No. T/174, which introduces a package of amendments to Act CXLIII of 2015 on public procurement (PPA), including a key change for economic operators of all sectors that requires the Public Procurement Disputes Board (PPDB) to consider an economic operator’s conduct when assessing liability and fines for public procurement infringements. 

Other amendments address transparency and anti-corruption safeguards.

Why the amendment increases exposure for market participants

Under current rules, the PPDB must impose fines for serious infringements, including the unlawful omission of a public procurement procedure or breach of standstill rules. Fines can reach up to 15% of the estimated or contract value. The amendment addresses the rules on determining the necessity for and the amount of the PPDB-imposed fine. Furthermore, it mandates the PPDB to publish a notice on the principles of its fining practices and the standard fine amounts for specific infringements.

The legislative reasoning behind the amendment explainsthat the PPA did not previously contain an express rule on whether an infringement and sanction could be established against the contracting party on the economic-operator side for breach of public procurement rules, but did not exclude that possibility either.

The explanation also refers to the judgment in Case C-263/19, in which the CJEU ruled that EU law does not preclude establishing responsibility and imposing a fine on the successful tenderer or contracting party for an unlawful contract modification if proportionality is respected.

The key point is that proportionality must be applied when establishing responsibility, not only when setting the amount of the fine. The PPDB should examine which party was subject to the relevant obligation, whether the economic operator’s conduct was of the type the rule sought to prevent, and what information and conduct could have reasonably been expected from that operator.

Contrary to this, the reasoning states that a company entering into a high-value contract with a state or municipal body can clearly be expected to know that such a procurement requires a public procurement procedure. It would not be proportionate, however, to impose a sanction on the economic operator where a corporate-form contracting authority omitted a procurement procedure and was not listed in the official register of contracting authorities.

The reasoning distinguishes between contracting authorities, whose objective responsibility remains broadly justified, and economic operators, whose conduct should be assessed according to what was generally expected in the circumstances, which is a concept usually reserved to civil-law contracts.

Open questions on omission and fines

While the new concept of fines is generally welcome, key questions remain open in connection with the new omission-related provisions. As the present amendment does not sufficiently define what conduct is expected from market participants, further legislative or regulatory clarification is needed. 

Until the PPDB publishes its fining-principles notice and a consistent body of decisions develops, uncertainty will remain on the compliance actions a company must undertake before entering a contract with a public entity. The forthcoming fine ranges published by the PPDB may improve predictability, but they will not be binding, and the PPDB can still disregard them in individual circumstances.

What is changing?

Aside from the fines-related provisions discussed below, the package also introduced new rules on the following: 

• transparency and eligibility; 
• public access and monitoring; and 
• strengthening the role of the Integrity Authority. 

Furthermore, in line with the Hungarian government’s efforts concerning corruption, the bill includes several measures aimed at fighting corruption. These are notable because they move compliance expectations beyond the tender stage and into contract performance by allowing contracting authorities to include proportionate anti-corruption conditions linked to the subject matter of the contract.

Practical implications and key takeaways

The newly introduced fines provisions are a welcome attempt to regulate an existing enforcement practice in legislation, but their implications for public procurement compliance and the responsible use of public funds are yet to be fully known. While the legislative reasoning – but not the legislation – relies on CJEU Case C-263/19, that judgment does not directly require the new Hungarian fining rules. Instead, the judgment confirms that sanctions against an economic operator contracting as the successful tenderer may be compatible with EU law if proportionality is respected.

For assistance on navigating these new requirements, contact your CMS client partner or the CMS experts who contributed to this article.

This article was co-authored by Lili Benyovszki.