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  • Writer's pictureRicardo Cuesta

Construction in Common and Civil Law: Understanding Each Other (2) 

In this second post I will review and summarize the principles of public contract law, who are the parties to a contract and the prerogatives of one of the parties: the Administration.

As we learned in the last post the Public Sector Contracts Act (PSC Act) plays an important role in the regulation of the whole contracting process: it contains regulations on the procurement of the contracts, who are the parties to a contract, the ability of a company to bid and a set of complete rules for the execution of the contract.

Principles of Public Contract Law

Public contracts legislation have always included the principles that must govern the contractual activity of the public sector. Traditional principles were those of publicity, free competition, equal treatment and non-discrimination.

The Public Sector Contracts Act of 2007 contained a broader declaration of said principles by stating in its Article 1 that public sector contracting activity had to conform “to the principles of freedom of access to tenders, publicity and transparency of procedures , and non-discrimination and equal treatment among candidates”. Additionally, it had to ensure efficient use of the funds earmarked for carrying out works and, lastly, safeguard free competition and the selection of the most economically advantageous offer. The Public Sector Contracts Act of 2017 maintains the same principles as its predecessor of 2007 and, as a novelty, it adds that social and environmental criteria will be incorporated transversally and mandatorily in all public procurement activity in order to obtain better value for money proposals and greater and better efficiency in the use of public funds. Another relevant principle is to facilitate access to public procurement for small and medium-sized companies. The introduction of transversal social and environmental criteria is a novelty and its application is found in many places across the law. Thus, these criteria will be taken into account, for example:

  • When establishing the scope of works, as it may incorporate social or environmental innovations that improve the efficiency and sustainability of the works.

  • In drafting the contract terms, when social, labor and environmental considerations may be included as solvency criteria.

  • The technical specifications will also include the social and environmental conditions that will govern the execution of the contract.

  • In the moment of establishing qualitative criteria to determine the best value for money proposal for awarding the contract. These criteria can be environmental (reduction of greenhouse gases or energy efficiency measures) and social (integration of disabled or disadvantaged people, promotion of female hiring, reconciliation of By setting social criteria as a tie-breaker between two or more offers (art. 147) work, personal and family life, among many others) .

The parties to a public contract

On the governmental side the PSC Act applies to all kind of entities that are considered ‘Public Sector’. This includes:

  • Public Administrations: Entities and public organizations created by the laws and destined for the management and execution of the decisions adopted by the different governments. There are three levels of public entities according to the Governmental level: Central Government, Regional Government (Comunidades Autónomas) and Local Government (municipalities). For contracting purposes Governmental Agencies are considered to be included under this caption.

  • A large number of other entities created to satisfy a public interest and which are financed with public money.

The main difference between these two categories is that the provisions of the PSC Act fully apply to Public Administrations. The whole life of their contracts must be adjusted to the provisions of the Act. The preparation of the contract, the selection of the contractor, the execution of the contract and its termination are regulated by the PSC Act.

The PSC Act applies to the other entities that are not Public Administrations in relation to the preparation and awarding of contracts, but private contract law applies to their execution and termination. However, the PSC Act applies to some specific aspects of the contract such as environmental, social or labor obligations, matters relating to contract amendment (change orders, variations), and payment conditions, among others.

The other party to the contract is the contractor.

In order to be able to enter into a contract with any Public Sector entity the law requires the fulfilment of the following:

  • Being a natural or legal person

  • Have full legal capacity

  • Not being under a cause of debarment

  • Have economic and technical solvency

I will elaborate on some of these requirements in later posts.

The Prerogatives of the Administration

As explained above, the public sector entities that enter into contracts are very diverse and among them are the Public Administrations, which are the only ones that enter into administrative contracts. Only Public Administrations can exercise certain prerogatives that other public sector entities cannot. These prerogatives are:

  • Contract construction

  • To resolve doubts about the execution of the contract

  • To amend the contract for reasons of public interest (change orders, variations)

  • To declare the contractor’s liability as a consequence of the execution of the contract

  • To suspend the execution of the contract

  • To decide on the termination of the contract and determine the effects of such termination

  • To inspect the activities of the contractor during the execution of the contract

When exercising these prerogatives the Administration must previously hear the contractor’s opinion and the Administration’s legal department must issue a report.

We will discuss most of these prerogatives as we go further in explaining how the contract works. Now I will only clarify two of them:

  • The prerogatives of interpretation of the contract and interpretation of doubts cannot imply the introduction of new obligations.

  • The power of inspection does not grant the Administration a right to inspect the offices and facilities of the contractor in general, but only those facilities that are necessarily linked to the execution of the contract.

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