Press release

Pérez-Llorca analyses the legal provisions related to public procurement approved to address the COVID-19 crisis

13/04/2020

Partners Beatriz García and Elena Veleiro, alongside associate Natalia Olmos, all from the Public Law and Litigation practice, took part in the virtual meeting.

Pérez-Llorca held a webinar to analyse the main legal provisions related to public procurement which have been approved in order to address the health crisis caused by COVID-19, and that were set out in Royal Decree-laws 8/2020, of 17 March, 10/2020, of 29 March and 11/2020, of 31 March. Partners Beatriz García and Elena Veleiro, alongside associate Natalia Olmos, all from the Public Law and Litigation practice, took part in the virtual meeting.

Natalia Olmos began the session by analysing the impact of Royal Decree-law 10/2020 on public sector contracts not previously suspended due to COVID-19. To this end, she first set out the measures adopted since the declaration of the state of alarm, and concluded by analysing whether the application of the recoverable paid leave regulated by Royal Decree-law 10/2020 entails the suspension of the public sector contracts it affects.

The Pérez-Llorca lawyer discussed the entry into force of Royal Decree-law 8/2020 and specifically article 34, which establishes certain public procurement measures aimed at avoiding the negative effects of COVID-19 on employment and business viability as a result of the suspension of public contracts. Olmos briefly presented four specific situations set out in the abovementioned regulation which affect public sector entity contracts of both an administrative nature and a private nature. The first situation is the suspension of service contracts for continuous provision and works contracts when performance has become impossible. The second situation is the extension of services and contracts for non-continuous provision, when contractors find themselves incurring delays due to COVID-19. The third situation covered by the regulation is the extension of contracts for works that were due to be completed between 14 March and the end of the state of alarm, which cannot be delivered in this period due to this situation. The fourth and final measure is the possibility of requesting that the economic balance of works or services concession contracts be re-established when performance has become impossible due to COVID-19.

Likewise, Olmos analysed the entry into force of variable paid leave, set out in Royal Decree-law 10/2020, and which is applicable from 30 March, for public or private sector employees who do not provide essential services and whose activity has not been halted due to the declaration of the state of alarm. In relation to the application of this leave, Olmos pointed out that employees who are on temporary incapacity leave or whose contract has already been suspended for other legally established reasons, as well as employees of companies awarded contracts for public sector works, services and supplies that are essential for the maintenance and security of buildings and the adequate provision of public services, will not be affected by this measure.

Lastly, the Pérez-Llorca lawyer stressed that, while there are different interpretative criteria, in her opinion, the de facto situation arising from the application of Royal Decree-law 10/2020 to contracts that had not been suspended beforehand, is the suspension of these contracts. Said suspension is caused by the operation of law, given that it is the law that prevents workers from performing the contract.

Management of claims for damages

Beatriz García continued, analysing the viability of claims regarding works contracts and service and supply contracts for continuous provision. The partner highlighted three key points for ensuring such claims are successful.

Firstly, the contract’s situation must be analysed once the health crisis occurs. As stated in article 34 of Royal Decree-law 8/2020, the contractor may request the suspension of the contract in cases where its performance has become impossible due to COVID-19. In relation to the phrase “performance has become impossible”, the partner noted that the administration uses a strict interpretation criterion, and considers that performance has become impossible when the contract is completely inviable. In light of this situation, García considered that a more flexible interpretation of this wording would be advisable, as on the one hand, it covers a larger number of real cases that are occurring due to the health crisis, in which performance is becoming impossible under the terms that were initially agreed, and on the other hand, it would be more in line with the spirit of the legislation. Secondly, and in relation to the formal record of the contract suspension, the Pérez-Llorca partner indicated that, in her understanding, it is merely a formal requirement to record the situation of suspension, but since Royal Decree-law 11/2020 was adopted, when a suspension occurs due to the application of the law, it is not an essential and necessary requirement for submitting a claim. Lastly, and in relation to the most appropriate legal route to carry out this claim, the partner emphasised that the starting point must always be the special temporary regime provided for in article 34 of Royal Decree-law 8/2020, without prejudice to the ability to submit other types of subsidiary requests under ordinary legislation in relation to situations  not covered by special legislation, should there be any.

To conclude, García explained that the statute of limitations for filing a claim is one year from the date performance of the contract is resumed. As for the damages that can be claimed, they must be assessed, unlimited and proven in terms of reality, effectiveness and quantity.

What is the purpose of rebalancing concessions?

Elena Veleiro concluded the discussion by analysing the role of economic rebalancing in works and services concessions and their regulation during this extraordinary health crisis. The partner began by going over section 4 of article 34 of Royal Decree-law 8/2020, which deals with regulating the mechanism to compensate for the impact of the health crisis on these concessions and which uses the traditional technique for remedying the impact on works and services concession contracts, namely by rebalancing. In this regard, Veleiro noted that, in accordance with the cited provision, the concessionaires of works and services impacted by the COVID-19 crisis will have the right to rebalance the concession through two different routes: extending the term of the original concession by up to an additional 15%, or amending it by amending the economic clauses of the contract.

As for the purpose of this rebalancing, the Pérez-Llorca partner explained that its goal is to compensate for the loss of revenue or for the increase in costs experienced by the concessionaire due to the crisis and the measures adopted to combat it. Elena Veleiro also highlighted that this compensation mechanism for concessionaires will only be applicable when the contracting authority recognises the impossibility of performing the contract. In relation to this impossibility, Veleiro repeated the idea put forward by Beatriz García, namely that, in the face of a restrictive interpretation that does not take into consideration all of the circumstances other than the contract being entirely halted, a more flexible interpretation that is more in line with the spirit of the legislation and that involves acknowledging the impossibility of performance for all contracts that can no longer be performed under the terms that were initially agreed.

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