Hungary: recent changes in the Hungarian Public Procurement Act

The new Hungarian Parliament recently adopted the amendment of the Public Procurement Act, which aims to simplify regulation, but which in reality seems to generate new problems especially for multinational companies. The amendment will enter into effect on 15 September 2010. Some of the most relevant changes are as follows:

Anti-corruption amendments

• The final deadline for challenging tender notices and tender documents will be extended, the procedural fee for the respective proceedings for legal remedy will be reduced, and furthermore the opportunity for a preliminary dispute-resolution procedure will also be extended by the new regulation.
• The regulation describes the requirements that are reasonably expected in respect of the bid and prevents the public entity from specifying more complex requirements.
• Electronic public procurement has also been made possible with a view to beating corruption. It makes the subsequent modification of bids and the manipulation of the results of the procedure recognisable and means that the public procurement procedure is in general more transparent.
• A tender procedure shall not be deemed unsuccessful where only one valid bid is submitted.
• Rules regarding subsequent submission of missing documents will be more liberal than before and public entities will have to make reasonable efforts to avoid disqualifying bidders due to missing documents or other formal requirements.
• The amendment restricts invalidity (and thereby the disqualification of bidders) caused by non-compliance with the requirements regarding bid bonds and/or performance bonds to situations where the bid bond and/or the performance bond required is not provided by the deadline or is not provided in the required amount (i.e.. the public entity may not exclude bidders due to non-compliance with any other formalities in respect of bid bonds and/or performance bonds).
• Bids not stapled shall be stapled at the time of the opening procedure, so there will no longer be any possibility for “cooperation” between bidders and public entities intending to influence fair competition in this way.
• The possibility to view the tender documents will be extended - in this regard it is particularly important that bidders have the chance to review the reading sheet, which contains the offer price and other quantitative details in respect of the evaluation criteria for all bidders at the time of the opening procedure.

Amendments with a view to improving the opportunity for SMEs to submit a bid and to succeed in a public procurement procedure

• It will be easier for newly established companies to submit a bid.
• The amendment also supports SMEs by providing that companies with a turnover exceeding HUF 100 million in respect of the supply of goods or the provision of services, and those with a turnover exceeding HUF 1000 million in respect of public construction contracts may not enter into certain public procurements as bidders.
• Performance bonds shall be limited to a maximum amount of 5% of the entire project value.

Regulations with a view to making bidding easier

• The technical, financial and administrative requirements will be simplified.
• The number of documents to be submitted by bidders will be reduced.
• It will no longer be compulsory for the public entities to employ an official public procurement consultant or to control the publication of the announcement of the tender.
• In public procurement procedures of a smaller value, it will be possible to invite three bidders without publishing any tender.
• The procedural deadlines will be shorter (e.g. the deadline between the announcement of the results and the execution of the contract will be reduced from 20 days to 12 days).
• In case of public construction works amounting to 50% of the community threshold, the simplified rules of national procedure may be applied.

Amendments for the suppression of so called “rounded debts”

• The amendment also regulates extremely low or otherwise unrealistic offers. In the case of public construction works, it is compulsory to pay the subcontractors at the first milestone. The main contractor will be paid only after it has certified that it has paid all of its subcontractors.
• It will be a ground for disqualification if the main contractor does not pay at all, or does not pay the entire fee, or does not pay its subcontractors on time.
• The range of information to be provided with regard to the subcontractors will also be extended: bidders will have to indicate the exact percentage rate of participation of subcontractors which have a share exceeding 10% of the entire value of the tender. If a bidder uses a subcontractor for the purposes of meeting certain reference criteria and the relevant sub-contractor’s share represents less than 10%, the name and address of such subcontractor must also be provided. Consequently it will be possible for the public entity to check the precise proportion of the total scope of the contract which will be performed by subcontractors and to verify the identity of the relevant subcontractors.
• If a company is to be involved in carrying out a proportion of the contract in an amount exceeding 25% of the entire project value, it may not be involved as a subcontractor in the bid, but will be qualified as a co-bidder.