The new Hungarian Public Procurement Act and Institutional System

(the new PPA)

Reforms and changes(2011-2012)

The reason of adoption of the new PPA

After it’s adoption, the current PPA (Act CXXIX of 2003 on Public Procurement) was modified more than fifty times – to reflect the revisions of the public procurement directives, inter alia. The multiple referring and cross-reference rules make the enforcement of the law hardly transparent and difficult, as the result of the structure of the act. Therefore a completely newly structured PPA became necessary. Act CVIII of 2011 on Public Procurement was adopted on 11 July 2011 by the Parliament, and it will enter into force on 1 January 2012.

Legal policy expectations

• more simple, effective, flexible procedural rules,• fight against corruption,• support the successful participation of SME’s in public

procurement procedures,• handle the problems of go-round debts,• shorten the act,• accelerate contracting,• reduce administrative burdens.

Frame rules – shorter act, better transparency

More subjects, that can be dissociated from the principal frames of the legislation will be stipulated in decrees, such as:

- rules of verification of suitability and exclusion,- determination of the rules of the technical specification,- special rules for utilities,- rules for publication of the notices,- rules for applying social and environmental criteria,- rules for the sanction-system of the remedies of the Public

Procurement Arbitration Board.

The structure of the new PPA

A substantially simplified structure has been developed, according to the following: – Part One: General Provisions– Part Two: Provisions Related to Public Procurements Reaching EU

Thresholds – Part Three: Provisions Related to Public Procurements Reaching

National Thresholds – Part Four: Public Procurement Contracts– Part Five: Remedies– Part Six: The Public Procurement Authority

The aim of the legislator: to create a law that can be followed and applied without specific procurement knowledge.

Part One

The First Part of the Act contains general provisions, generally governing rules for the procurements, furthermore the aim, the scope of the act, and the general principles. New, generally formulated provisions and general principles were introduced such as: bona fide, integrity, the requirement of proper use of the law, effective and responsible use of public funds.New approach: one of the main goals of the legislator was to extend the role of interpretation based on the general principles, instead of difficult and detailed provisions. The new PPA reinforces the importance of the general principles in the legal practice.

The general principles stand as general clauses as well – new approach

While applying the new PPA, and in case of matters not regulated in the legislation, public procurement procedures shall be conducted in line with the aim of the legislation and with respect of the general principles of public procurements.

Thus general principles shall eliminate the loopholes, and orientate in legally not regulated matters.

The EBRD 2010 assessment (published in May 2010) stated that the general principles in the current PPA match international standards at a very high level (91 % - which was the highest point at this subject). The new PPA further enhances the role of the general principles.

Part Two – Provisions Related to Public Procurements Reaching EU Thresholds

This is the broadest structural unit. The main provisions for procedures stipulated in EU directives are regulated in this part:

- general rules of procedure,- the course of the different procedures, - the rules of works concessions,- the main provisions related to utilities.

Part Three – Provisions Related to Public Procurements Below EU Thresholds and

Reaching National Thresholds

The provisions for the national procedures both apply to classical contracting authorities and contracting entities in the utilities sector. It is a new approach, that the rules of the national regime – after the French model – allow the contracting authority to set up the rules applicable to their procedures for the award of public supply and public services. These rules have to meet the requirements set by EU law (the Interpretative Communication of the European Commission and the practice of the European Court).

The procedure is more simple and informal in the national regime: the procedures with a lower value are more available for SME’s, there is no need for special public procurement knowledge to submit a tender.

As a consequence of this new regulation, tenderers are not forced to acquire all the detailed provisions of the act to submit an appropriate tender, therefore the too bureaucratic and not flexible procedures – as they were described in the EBRD Assessment – become more simple and can be conducted faster.

Part Four – public procurement contracts

This part of the new PPA contains the provisions applicable to contracts, that are to be taken into account by contracting authorities – regarding the content of the contract – in the preparation phase of the procedure.The Assessment of the EBRD emphasizes the importance of the planning, that besides this is guaranteed by the annual public procurement plan also. In Hungary, contracting authorities are obliged to prepare an annual procurement plan according to the PPA.

Aim: to strengthen the realization of public procurements in the required quality and a timely manner.

Part Five - Remedies

With regard to the rules applicable to remedies, we have to emphasize the importance of the Public Procurement Arbitration Board (AB), as the first instance remedy organ, that operates as an independent and impartial body. Besides the former procedural guarantees, the concept of theoretical decisions of the AB and their publication was introduced.Aims: to foster predictable decisions, to ensure the uniform interpretation of the act, and to create uniform legal practice.

The quality of the public procurement remedies in practice was evaluated at 90% in the EBRD Assessment in 2010.

The Assessment also underlined, that the Hungarian remedy system is effective, fast (the decisions have to be taken in 15 or in 30 days) and non-discriminative.

In the assessment it was not clear whether the hearings and the proceedings were fully open to the public in the current PPA, but the new PPA states unambiguously, that the proceedings are open to public.

Other main changes of the legislation

Beside the before mentioned conceptional questions there were more changes needed in the legislation, such as:

• the rules for calculation of the estimated value,• the rules of submitting joint tender became more simple (e.g.

guarantee),• Elimination of the differentiation between subcontractors to

be employed for the performance of more than 10% or less than 10% of the contract value,

• Elimination of the separate definition of the organisation providing resources, that guarantees, that any organ can certify the suitability of the tenderer.

Part Six – The Public Procurement Authority

The name of the Public Procurement Council was changed to Public Procurement Authority.

The legal status and duties of the Authority remain intact. The Authority still operates as an autonomously reporting central budgetary organ subordinated to the Parliament, with general competence within its scope of responsibilities as laid down in the Act.

The structure of the Authority remains unchanged, with the Council of 10 members. Within the Council, equal number of members represent the contracting authorities, the tenderers and the main public interests.

The Council is responsible for effectively contributing to framing the public procurement policy and for forming and spreading the lawful public procurement behaviour enhancing the public and transparent spending of public funds while taking into account the public interest and the interest of contracting authorities and tenderers.

The duties of the Authority

The main duties of the Authority are the following:

• taking part in the formulation of the public procurement policy,

• supporting the public procurement procedures,• verifying and publishing the notices,• editing the Official Journal of the Public Procurement Council

(the Public Procurement Bulletin),• maintaining the official registers,• maintaining international relations,• organizing conferences, trainings, professional courses,• supervising, coordinating and monitoring of the educations

with the public procurement subject-matter.

The Institutional System of Public Procurement in Hungary

Ministry of National Development responsible for procurement legislation

central controlling function – central budgetary organs have to ask for the permission of the Minister to launch a procedure

Procurement AuthoritySee duties on former slides

National Development Agencyex ante, continous and ex post control of procurement procedures supported from

sources originating from the European Union reaching the EU thresholds, in case of public works, works concessions reaching the value of 300 Million HUF

Public Procurement and Supply Directorate General centralized public procurement in the governmental sector (facility and fleet

management, office and technical supply)