PCC: Portugal’s welcome new Public Contracts Code

The Portuguese Public Contracts Code (PCC) took effect on 30 July 2008 after two years of careful preparation and intense debate. This is an extremely important statute since the government’s contracting activities in Portugal represent 15%-20% of GDP. Moreover, the code represents a sound balance between innovation and preserving the Portuguese public contract system’s most prominent traditions. Overall, the code is viewed as very positive and a milestone in the evolution of Portuguese public law.

The PCC is applicable to two main matters: (i) procedures for the formation of public contracts (within which context Directives 2004/17/CE and 2004/18/CE are transposed); and (ii) the substantive regime applicable to government contracts. Consequently, the whole lifespan of contracts subject simultaneously to those two main parts of the PCC are covered from their formation until expiry.

Nevertheless, the PCC’s parts are applied with distinct objective aims, depending on whether applicable to the contract formation or its substantive regime (ie their implementation). On one hand, the rules on formation are applicable to “public contracts”, understood as those that are signed by the contract-awarding entities specified in the Code (subjective criteria). And on the other hand, the substantive regime rules are applicable to the designated “administrative contracts”, which form a sub-species of the public contracts that may be identified by their content (substantive criteria).

Significant changes

The PCC contains many changes, the majority of which are positive. The first innovation point refers to the very ambition of the Code’s underlying “project”. This is the first time the legislator has dared to include an administrative contract’s whole lifetime in a single text. It is also the first time that a single standard regime of formation is laid out for most public contracts. It is also the first time that a general substantive regime is drafted covering all administrative contracts: public works contracts, concessions of public works and public services and the acquisition and leasing of moveable goods, as well as the acquisition of services.

Emphasis is also now placed on relevant innovative topics essentially at three levels: (i) in certain cases, the contracting party must provide off-set through research and development measures (for contracts of €25,000,000 or more the contractor must create research and development project(s) directly related to the contract’s objective, which must be carried out within the Portuguese territory); (ii) suitability to new technological potentials, in particular electronic communications; and (iii) the impact arising from the need for third party financing is taken into account.

The Administration’s instrumental entities (organismos de direito público) are also now properly subject to the rules of public pre contractual procedures. That category comprehends, among others, public-owned or controlled entities whose economic activities are not subject to market forces and free competition.

The PCC has also clarified and rationalised the method of evaluating proposals through competitive procedures in compliance with the principles of equality, competition, impartiality, proportionality, transparency, publicity and good faith.

To the extent possible, the new PCC aims to harmonise the practice and legislation in regard to some generalised phenomena such as project finance and aims to combine the necessary strictness of standards safeguarding pre-contractual competition with the recurring guarantees requested by the project financing entities, which see the project´s success as the nearly exclusive source of recovering the loan. In this matter, the right to step in and the duty to step out, the right to make alterations to a memorandum of association and to exercise the right to seize the concession are given some legal force.

Main challenges

In a country (sadly) accustomed to a disturbing legislative instability, in which operators have lost faith that legislators will maintain their strategies, the PCC’s main challenge is its survival. At least until the next generation of EU directives applicable to public contracting.

It would be desirable for the PCC to endure, not only because it would legitimise a very careful and analytical preparation procedure that in that very measure comprised a good example of drafting laws but, especially, since it is a statute of a high legal quality and which justly outlines the public and private interests in question.