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Tuca Zbarcea & Asociatii

Instructions Issued in the Enforcement of Public Procurement Contracts. A Common, but Obscure Contract Amendment Mechanism

09 Iulie 2018   |   Niura Moisei, Senior Associate at Țuca Zbârcea & Asociații

Such situations are usually encountered in highly complex long-term construction contracts, where the parties cannot foresee all the situations which may impact the project, as the facts encountered on the site are often different from descriptions in the technical project or tender documentation.

Niura Moisei, Senior Associate at Tuca Zbârcea & Asociatii

 
 
A topic not too often approached in the doctrine is the mechanism by which the public authority makes sure that the objective of the project is reached, and public interest is satisfied by the fulfilment of the public procurement contra under optimum conditions: the instruction.

One of the mechanisms used by the public authority to reach this desideratum is the issuance of instructions; thus, the private contractor is basically ordered to perform project-related obligations.
This is a tool meant to render the contract flexible; particularly in highly complex works, where it thus becomes possible to adjust the contract without the parties necessarily having to execute addenda.
The issuance of an instruction does not necessarily lead to the amendment of the contract; instructions may clarify the scope of contractual obligations, supplement missing information which is vital to project implementation or provide the contractor with solutions to overcome unforeseeable events. However, sometimes instructions are used to burden private contractors with obligations in addition to those initially provided under the contract, as a reaction to various situations which are likely to obstruct regular project development.


Such situations are usually encountered in highly complex long-term construction contracts, where the parties cannot foresee all the situations which may impact the project, as the facts encountered on the site are often different from descriptions in the technical project or tender documentation.

Such situations usually require additional works performance which had not been included in the contract. Under these circumstances, the instruction plays a crucial part because, as shown above, it renders the contract flexible, making possible an immediate amendment thereof and the continued development of the project, without major impediments.

Since instructions are issued by public authorities for the alleged and assumed purpose of defending public interest, once issued, they are mandatory for the contractor and must be implemented; otherwise, the contractor is exposed to the consequences of a failure to perform its contractual obligations. If the contractor does not agree to the instruction, it has the acknowledged right of raising objections; however, raising objections does not eliminate the obligation to comply with the instruction. The contractor’s only remedy is to file legal action – time consuming and costly proceedings for the contractor, which risks seeing enforcement proceedings initiated against it by the authority in question before its own claims have been proven.

The equivocal legal nature of the instruction from an administrative perspective is revealed when it becomes necessary to challenge it. Depending on the moment when it is challenged, it may have the nature of a genuine administrative act or it may become a mere unnamed instrument, the legal effects of which may be overcome without requiring the annulment thereof.

Our national law does not provide for the legal status of instructions and their legal nature is still unclear, generating different and, most of the times, inconsistent rulings.

In the preamble of this article we showed that the specificity of a public procurement contract is that the public authority does not indicate its intention in order to satisfy a private interest, but to satisfy the general interest of society. That is why, according to Law No. 554/2004, the public procurement contract is considered similar to an administrative act.

Therefore, it may be construed that the instructions which are issued in the enforcement of the contract are also administrative acts. However, a careful and strict analysis of the definitions in Article 2(c) of Law No. 554/2004 may lead to a negative conclusion: administrative acts seem to be limited to those listed in the article and the scope of administrative acts seems to be limited to those acts which are issued in view of organizing or enforcing the law and the actual administrative contracts. There is no legal provision on the orders or instructions issued for the implementation thereof.

However, if we analyse these acts by taking into consideration the features of administrative acts, at least as outlined in the doctrine, we notice that we may easily classify them into this category, given that: (i) they are issued by a public authority, (ii) they are subject to the legality control of the courts of law, since all disputes on the performance of public procurement contracts, including those on the annulment of the acts issued by the contracting authority in view of performing a public procurement contract, are under the express and exclusive jurisdiction of administrative courts which exercise the legality control thereon and (iii) they were issued in order to regulate rights and obligations, i.e. the issued acts were intended to write off and, as the case may be, to generate correlative rights and obligations.

For a better understanding of why the legal nature of instructions raises practical issues, we may think of a hypothetical situation when the public authority issues an instruction ordering the private contractor to perform additional works, but it is “silent” as to how such works are to be paid. Since they are very burdensome for the private contractor, its only option, in order to avoid the performance of additional works at its own expense, is to challenge the instruction/ administrative order by filing legal action before an administrative court for the annulment of the instruction.

Nevertheless, the atypical nature of the instruction becomes obvious if it is challenged after it is performed. In such case, unlike “typical” administrative acts, contractual balance may be restored and, thus, the damage incurred by the contractor may be repaired without being necessary to annul the act, which makes the instruction an exception, to say the least, from the regular status of administrative acts, where the granting of indemnifications is conditional on the annulment of the act.

More precisely, the private contractor may file legal action even after the performance of the instruction and request the repair of the damage caused by its performance, as well as the payment of the additional works performed at its expense or the extension of the contract duration when the enforcement of the instruction caused delays to the contractor. In such case, the effects of the instruction may be extinguished by the damages awarded by the court to cover the loss caused by the issuance of this act, without being necessary to annul the instruction, which was the source of the damage in the first place. In such case, the legal nature of administrative act of the instruction becomes equivocal, because it derogates from the rule that any administrative act continues to have effects unless it is annulled or revoked.

The question of the legal nature of the instructions becomes even more intricate when they are issued under a FIDIC public procurement contract. In the performance of such contracts, the contracting authority is represented by a consultant, called Engineer, who exercises specific duties such as: to verify and certify the performed works, to issue instructions for any missing information/ amendments occurring during the performance of the contract (and which are mandatory for the contractor) and to issue orders for the modification of works which had not been included in the initial scope of the contract. Since such contracts were drafted and thought so as to be very balanced for all the parties, the person who issues the instructions in the performance of the contract is the Engineer, acting as an unbiased arbitrator of the parties.

Therefore, given that in such type of contracts instructions are no longer issued by the public authority, but essentially by a private individual who is a third party to the contract, can they still be deemed to be administrative acts?

We believe that the answer could be positive, given that the Engineer acts, however, on behalf of the contracting authority, as its representative, even if his role requires impartiality and fairness.

This approach is supported, at least partially, by the provision in Article 16 of Law No. 554/2004 which allows the filing of legal action against the person who contributed to the preparation, issuance or execution of the damaging act. Such person may be ordered to pay indemnifications jointly with the defendant public authority. Given that the Engineer is a member of the contracting authority’s contractual staff, we may deem that the authority’s power to direct and control is transferred to the Engineer and implicitly the acts issued by him maintain their nature of administrative acts because they are in fact issued by the contracting authority.

Regardless of whether instructions are seen as administrative acts or not, it is certain that they have the power to amend the contract when it is in the interest of the project. Unfortunately, it is a well- known fact that the faulty and superficial wording of tender documentations triggers, most of the times, the need to frequently issue instructions which substantially change the contractual obligations provided in the initially signed contract.

Sadly, the excessive use of the mechanism of instructions and the mandatory character of such instructions intended to determine private contractors to perform at their own expense additional works or to remedy errors for which the contracting authority itself is liable, has become a systemic approach in the implementation of public procurement contracts in Romania. In a growingly frequent approach, the contractor’s obligation to perform works at its own expense is included in the instruction itself. In this case, the issue is whether the instruction must be considered mandatory for both its technical component and its financial component.

Such analysis must be made by reference to a fundamental principle of public procurement contracts, i.e. the principle of contractual balance, whose role is precisely to protect the private contractor from any abuse of power of the public authority. Compliance with this principle means that, in issuing instructions, public authorities cannot abusively and randomly amend the financial part of the contract, but only the technical part which concerns the actual performance of the obligations.

This is the obvious solution, given that an interpretation to the contrary could lead to the conclusion that a potential instruction/administrative order requiring the contractor to perform additional works, not provided in the initial contract, should be complied with by the contractor at its own expense, resulting in the unjust enrichment of the contracting authority; precisely in order to counteract such effect, the right of the public authority to unilaterally amend the contract cannot be exercised in relation to the financial provisions of the contract.

Without pretending to have clarified the question of the legal nature of the instructions issued in the performance of public procurement contracts, we, nevertheless, hope that we drew attention and interest to this topic which is almost non-existent in the specialised literature and it is not clearly regulated either. Sadly, the absence of regulations on the legal nature of instructions and the limits within which they may lead to an amendment of the contract will continue to leave room for abusive behaviour and the already common practice of abusive amendment of the contract to the detriment of the private contractor.

Although it is still unclear whether instructions are administrative acts, it is however generally acknowledged that the actions to challenge the instructions/ administrative acts which were issued in breach of these principles and/or the refusal of public authorities to restore the envisaged contractual balance follow the dispute resolution mechanisms of administrative claims, except for the cases when the contract contains clauses on special dispute resolution procedures.


The article first appeared in the Just in Case magazine issue 19/2018 published by Țuca Zbârcea & Asociații which can be downloaded at http://www.tuca.ro/just_in_case/

 
 

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