A more flexible approach to public procurement – Esquivel Advogados

The financial downturn has significantly affected public procurement procedures in Portugal, says José Luí­s Esquí­vel of Lisbon public law boutique Esquível Advogados, with pressure on contractual and legislative frameworks and demand for greater flexibility in order to conclude projects.

“This impacts the ability of the public authorities to plan new projects and procurement contracts, the financial difficulties associated with progressing current projects, and the guarantees available to those schemes already underway.”

Efforts to better manage Portugal’s public deficit, and an acceptance of the greater difficulties in attracting project finance, have already led the government to postpone several new projects or to cancel some of them – namely roads – he says.

“But issues are also arising around the ability of companies and promoters to fulfill their obligations because of the terrific changes experienced in the credit markets since their concession bids were accepted.

Many see the need to renegotiate contractual terms, but Portugal’s Audit Court has already rejected applications to modify the terms of five existing project schemes.”

Challenges are also emerging around how to determine such issues within Portugal’s Public Contracts Code, rewritten in July 2008, but which was designed for an entirely different financial scenario, says Esquí­vel.

“Neither the public entities nor concession owners or bidders are now in a position to guarantee the initial financing models for the entire life of projects, but such exemptions are not clearly provided for by the Code in a fast and flexible way.”

Within the national authorities there is though an emerging acceptance that in order to progress schemes already under construction, a more flexible approach may now be needed, but this must be balanced by more realistic expectations from the concession companies.

“A new finance and projects environment is emerging, with a greater emphasis on sharing both the risks and rewards. Public authorities are aware that they have to be open to more negotiation but companies also have to have respect for the aims of the procurement processes, and to accept that their profits may now be more controlled than they might have previously wanted.”