Previously published by Global Legal Group

Finland

1 Relevant Legislation

1.1 What is the relevant legislation and in outline what does each piece of legislation cover?

There are two main pieces of national legislation regulating the award of contracts by the contracting authorities: the Act on Public Contracts (Laki julkisista hankinnoista 348/2007; "APC") and the Act on the Procurement Procedures of Entities Operating in the Water, Energy, Transport and Postal Services Sectors (Laki vesi- ja energiahuollon, liikenteen ja postipalvelujen alalla toimivien yksiköiden hankinnoista 349/2007; "Utilities Act") which entered into force on 1 June 2007.

As in Directives 2004/18/EC and 2004/17/EC, the relevant legislation is divided into "general public procurement" covered by the APC and "utilies procurement" covered by the Utilities Act.

1.2 How does the regime relate to supra-national regimes including the GPA and/or EC rules?

The above mentioned two national Acts implement Directives 2004/18/EC (the "Public Sector Directive") and 2004/17/EC (the "Utilities Directive"). These Acts relate to the GPA rules as for the Directives, and in public contracts falling within the scope of the GPA, the same conditions apply to the tenderers and bids from other contracting States as apply to those from Finland and the other 27 European Union Member States.

1.3 What are the basic underlying principles of the regime (e.g. value for money, equal treatment, transparency) and are these principles relevant to the interpretation of the legislation?

The underlying principles of the Finnish regime are incorporated into the national Acts which require the contracting authorities to utilise the existing competitive conditions in the markets and to ensure equality and non-discriminatory treatment among all tenderers. In addition to this, the important principles are also transparency and proportionality.

The principles of non-discrimination and transparency are the most important principles through which the contracting authorities' behaviour is usually evaluated.

In Finland, the role of transparency in the public administration is very significant. Because of this, most of the bidding documents are considered non-confidential and public domain that is to say, available to everyone. This extends also to the relevant documents of the actual decision process.

Procurements below the relevant threshold values specified under the EC Directives but exceeding the national thresholds are conducted in accordance with simplified and more flexible national procurement procedure.

1.4 Are there special rules in relation to military equipment or any other area?

The APC is not applied to public contracts when their object is intended primarily for military use (Section 7). The relevant courts in Finland have taken quite strict approach on the interpretation of "military use" in their case law. Although the procurement of core military and security equipment are exempt from the APC, the exemption does not cover procurement of non-military equipment and "dual-use" equipment for non-military use by military authorities.

Legislation in compliance with Directive 2009/81/EC on defence and sensitive security procurement is currently under preparation. As the earlier national decree on public contracts falling outside the APC which also covered procurement of military equipment was abolished by the current APC, the Finnish Ministry of Defence (the "MoD") and the Finnish Defence Forces do not at the moment have any legally binding and enforceable provisions with regard to procurement of military equipment. The MoD has, however, given guidance to follow the principles of the abolished decree in military equipment procurements until the new legislation is enacted.

2 Application of the Law to Entities and Contracts

2.1 Which public entities are covered by the law (as purchasers)?

Section 6 of the APC determines the "contracting authorities" which include:

(1) state and municipal authorities and joint municipal authorities;

(2) the Evangelic Lutheran Church and the Orthodox Church and parishes and other authorities thereof;

(3) state enterprises (public entities being an intermediate form between an authority and a limited company) in accordance with the State Enterprise Act (1185/2002);

(4) bodies governed by public law, meaning legal persons established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character and:

  1. financed, for the most part, by the contracting authority referred above;
  2. subject to management supervision by the contracting authority referred above; or
  3. having an administrative, managerial or supervisory board, more than half of whose members are appointed by the contracting authority referred above; and

(5) any purchaser if it has received more than half of the value of the contract in aid for the award of the contract from the contracting authority referred above.

In Finland the utilities sector contracting authorities are considered to be governmental authorities, state-owned companies and municipal commercial establishments that carry out trade in the energy management, water supply, railway network and postal services. It also applies on the maintenance of airports, inland ports and terminal services and in such public transport that has to be subsidised by the government. The Utilities Act also applies to private entities that have been granted exclusive rights in this sector.

2.2 Which private entities are covered by the law (as purchasers)?

Private entities may fall within the scope of the APC if a private entity receives more than half of the value of the contract in aid for the award of the contract from a contracting authority. This means in practice that the scope of the APC extends to quite far away from the standard public authority regime. It is typical for certain foundations and associations to receive such subsidies from public entities.

2.3 Which types of contracts are covered?

Basically any kind of contract of pecuniary value. The APC stipulates that public contracts are contracts of financial interest concluded in writing between one or more contracting authorities and one or more suppliers and having as their object the execution of works, the supply of products or the provision of services. A public works concession is treated as a contract of the same type as a public works contract. Also service concession contracts are covered by the APC but only under the national procurement rules.

2.4 Are there threshold values for determining individual contract coverage?

Yes. There exist two sets of thresholds, the national and the EC thresholds. The national thresholds determine the scope of the APC; procurements below the national threshold fall outside the APC and thus outside the mandatory procurement procedures to be followed by the contracting authorities.

The national thresholds under the APC are:

  • €30,000 for supply/service contracts, service concessions and design contests;
  • €100,000 for annex B (Group 25) joint procurements for health care, social services and education contracts; and
  • €100,000 for works contracts and concessions.

The EC thresholds under the APC are:

  • €133,000 for supply/service contracts and design contests of the central government authorities;
  • €206,000 for all other supply/service contracts and design contests; and
  • €5,150,000 for works contracts and concessions.

The EC thresholds under the Utilities Act are:

  • €412,000 for supply/service contracts and design contests; and
  • €5,150,000 for works contracts.

2.5 Are there aggregation and/or anti-avoidance rules?

The criterion for the calculation of the estimated value of a contract is the maximum total compensation, net of VAT. Calculation of the estimated value shall take account of any alternative methods of execution of the contract, option or extension clauses included in the contract and fees or payments payable to the candidates or tenderers. A contract cannot be divided or severed into lots with the intention to exclude it from the scope of the APC. No public contract may be divided into lots, severed or calculated using artificial methods with the intention of excluding it from the scope of the APC. A public supply or service contract may not be combined with a works contract, neither may contracts be otherwise artificially combined to prevent them coming within the scope of the APC.

2.6 Are there special rules for concession contracts and, if so, how are such contracts defined?

Yes. Apublic works concession is considered to be a contract of the same type as a public works contract with the exception that the consideration for the works to be carried out consists either solely of the right to exploit the work or of this right together with payment.

The APC also covers service concession. Such a contract is a contract of the same type as a public service contract except that the consideration for the provision of services consists either solely of the right to exploit the service or of this right together with payment.

The relevant question in defining the public works or service concession contract is that of who holds the risk. If the risk is borne solely by the contracting authority, the contract whatever its form may be, can be considered as a public procurement contract. For example, the contracting authority enters into lease contract of a building to be built by the lessor solely for the use of the contracting authority. If in such case the consideration in the form of rent under the lease contract ensures a full compensation of the construction work, the contract might be considered a concession.

3 Procedures

3.1 What procedures can be followed, how do they operate and is there a free choice amongst them?

Open or restricted procedures are the primary procedures used for awarding contracts. Both of these procedures may be used in any circumstances. Negotiated procedures, directly-awarded contracts, the competitive dialogue procedure, framework agreements and design contests may be used under conditions laid down in the APC. The dynamic purchasing system and e-auction have not yet been incorporated into the national legislation; however, the preparatory work on these matters is in the pipeline.

Since the APC only covers contracts above the national thresholds, sub-national thresholds contracts may be awarded without the need any formal procedure. The contracting authorities are however obliged to follow the principles of non-discrimination and proportionality even in the procurements under the national thresholds.

In the utilities sector the contracting authorities may use the open, restricted or negotiated procedure in any procurement contract award.

3.2 What are the rules on specifications?

The rules correspond with the requirements of the EC Directives. Technical specifications shall afford equal access for tenderers to participate in the competition and may not have the effect of creating unjustified obstacles to competitive tendering. Whenever possible, technical specifications should be defined so as to take account of the needs of people with disabilities.

National standards transposing European standards, technical approvals, official technical specifications, international standards or technical references or, when these do not exist, national equivalents are accepted if accompanied by the words "or equivalent".

Technical specifications are also allowed in terms of the performance of functional requirements. Technical specifications may not refer to trade marks, patents, product types, origin, a specific method or production with the effect of favouring, or discriminating against, certain suppliers or products. Such reference is permitted on an exceptional basis, where a sufficiently precise and intelligible description of the subject-matter of the contract is not possible and must be accompanied by the words "or equivalent".

3.3 What are the rules on excluding tenderers?

The tenderer shall prove in his tender that the proposed supplies, services or works satisfy the requirements of the invitation to tender. Non-compliance with the invitation or the tendering procedure shall cause exclusion from the competition.

The APC includes three types of exclusions from a bid contest: compulsory; conditional; and optional. Contracting authorities have an obligation to exclude a candidate or tenderer if it has gained knowledge that the candidate or tenderer, or director or any person having powers of representation, decision or control in respect of the candidate or tenderer (where applicable), has been convicted certain offences (e.g. certain types of fraud, money laundering, or work discrimination).

In addition, the contracting authority has discretion on excluding candidate or tenderer who is bankrupt or is being wound up or has ceased operations, or is subject to similar proceedings, or has been convicted by judgment that has the force of res judicata of any offence concerning his professional conduct A proven grave professional misconduct may also be considered as a ground for exclusion. The same applies to situations where the tenderer is guilty of serious misrepresentation in supplying the information to the contracting authority. The provisions regarding offence concerning professional misconduct and grave professional misconduct apply also in cases where the person convicted is a director and any person having powers of representation, decision or control in respect of the candidate or tenderer.

In addition, the contracting authority may exclude a tenderer who has not fulfilled obligations relating to the payment of taxes or social security contributions in Finland or in the country in which he is established.

The decision for the exclusion may take account of other matters, such as the seriousness of the offence, the time lapsed etc.

Besides these compulsory or conditional exclusions, the contracting authority has also discretion to set optional exclusionary requirements (selection criteria) such as financial standing or professional ability and experience of the staff. Contracting authorities may request that a candidate or tenderer furnish proof of his technical capacity and professional ability and also submit the related references.

The Utilities Act also contains the compulsory grounds for exclusion. Under the Utilities Act the contracting authority may also, under certain circumstances, require clarification for how the tenderer's systems fulfil certain environmental or quality requirements.

3.4 What are the rules on short-listing tenderers?

The contracting authority may exclude tenderers that do not meet the selection criteria (compulsory, conditional or optional) in all of the procedures. Actual short-listing is possible in the negotiated procedure and competitive dialogue where contracting authority may have several negotiation rounds and after each round the number of bidders can be reduced. The contracting authorities may use the "preferred bidder" procedure, although it is seldom used. Short-listing has to be conducted using non-discriminatory criteria.

3.5 What are the rules on awarding the contract?

The award criteria are either the lowest price or the economically most advantageous tender from the point of view of the contracting authority. Section 62 of APC stipulates that when the award is based on the economically most advantageous tender, the criteria may include, for example, quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost-effectiveness, after-sales service and technical assistance, delivery date and delivery period or period of completion or life cycle costs. This list not however exhaustive.

When assessing the economically most advantageous tender, the contracting authority may take account of economic and qualitative criteria to meet the needs of the public concerned and also environmental requirements. This is possible provided that the criteria in question are measurable and linked to the object of the contract.

The criteria must be specified in the contract notice or in the documents relating to the invitation to tender. The contracting authority must notify beforehand the comparison criteria and the relative weighting for each of the criteria chosen to determine the economically most advantageous tender. The Finnish Market Court has lately emphasised that it is the contracting authority's obligation to explicitly specify the relative weighing between the criteria in the invitation to tender or in the contract notice.

Contrary to the current EC public procurement principles, in national procurement procedure the contracting authority may use performing levels of quality control, competence, experience and professional ability that exceed the minimum selection criteria as award criteria with regard to service and works contracts.

The contracting authority must evaluate the abilities of the tenderers as selection criteria only on the basis of the effect on the actual realisation of the contract. So, for example, the net turnover of a tenderer cannot be selection criteria, but the education and professional ability of the tenderer's staff may be used as selection criteria.

3.6 What methods are available for joint procurements?

The contracting authorities are encouraged to form joint procurements for advantages in volume and other cost-savings. There are many regional central purchasing bodies formed by the neighbouring municipalities. The municipalities have an option to use company called KL-Kuntahankinnat Oy (owned by the Association of Finnish Local and Regional Authorities) as the central procurement unit.

Hansel Ltd acts as the central procurement unit of the Finnish Government.

3.7 What are the rules on alternative bids?

If the criterion for the award is that of the economically most advantageous tender, contracting authorities may accept alternative tenders. This has to be explicitly indicated in the contract notice. Furthermore, the alternative tender must satisfy the minimum requirements set in the invitation to tender for the object of tender and the requirements for presenting alternatives.

If the contracting authority has indicated that submission of alternative tenders is accepted, it may not reject the alternative on the sole ground that it would lead to a service contract instead of a supply contract, or a supply contract instead of a service contract.

4 Exclusions and Exemptions (including inhouse arrangements)

4.1 What are the principal exclusions/exemptions and who determines their application?

Procurement of military equipment is excluded as explained in question 1.4. Procurements which are secret or otherwise linked to national security interests are also excluded from the scope of the APC. Also contracts governed by different procedural rules and awarded pursuant to an international agreement between Finland and one or more third countries and covering supplies or works intended for the joint implementation or exploitation by the signatory states are excluded.

Furthermore, the APC shall not apply to public service contracts for:

  • the acquisition or rental, of land, existing buildings or other immovable property;
  • the acquisition, development, production or co-production of programme material intended for broadcasting by broadcasters, and broadcasting time;
  • arbitration and conciliation services;
  • central bank services;
  • purchase, sale or transfer of securities or other financial instruments;
  • employment contracts;
  • research and development services other than those where the benefits
  • accrue exclusively to the contracting authority for its use;
  • acquisition of emission units falling within the scope of the Kyoto Protocol to the UN Framework Convention on Climate Change; and
  • acquisition of air traffic services falling within the scope of Council Regulation (EEC) No 2408/92.

Contrary to what is stated above, the financial service contracts concluded at the same time as, before or after the contract of acquisition or rental, in whatever form, shall be subject to the APC.

In the utilities sector, some of the markets are excluded from the scope of Utilities Act. In Finland, postal services sector and production and sales of electricity are excluded from the public procurement.

4.2 How does the law apply to "in-house" arrangements, including contracts awarded within a single entity, within groups and between public bodies?

The APC does not apply to public contracts which contracting authorities award to entities which are formally independent of the contracting authority with autonomous decision-making powers, insofar as the contracting authority independently or in cooperation with other contracting authorities exercises over the entity concerned a control similar to that which it exercises over its own departments and the entity carries out the essential part of its activities with those controlling authorities.

5 Remedies and Enforcement

5.1 Does the legislation provide for remedies/enforcement and if so what is the general outline of this, including as to locus standi?

A bidder or a potential bidder can submit a petition to the Market Court against all decisions pertaining to the status of a bidder in the procurement procedure. The applicant can make the petition even without such a decision, for example from the contract notice. The Market Court may:

1) wholly or partly repeal the decision of the contracting authority;

2) forbid the contracting authority from applying a section in a document relating to the contract or otherwise from pursuing an incorrect procedure;

3) require the contracting authority to correct its incorrect procedure; or

4) order the contracting authority to pay compensation to a party who would have had a genuine possibility of winning the contract if the procedure had been correct.

Furthermore, in the legislative proposal (HE 190/2009) concerning the implementation of the remedies directive 2007/66/EC (to be enacted in 2010), the Market Court is given powers to:

5) order the awarded contract to be considered ineffective;

6) order the awarded contract to be terminated in a given time; or

7) order the contracting authority to pay a fine to the government.

The ineffectiveness (5) of the contract may be only applied to contracts exceeding the EC thresholds and only in cases where the contracting authority has not complied with the standstill period.

The Market Court may also may prohibit or suspend the implementation of the decision as an interim measure for the period of the proceedings in the Market Court.

As to locus standi, the matter may be brought to the Market Court by a party having a legal interest in obtaining a change into the flawed procurement process.

5.2 Can remedies/enforcement be sought in other types of proceedings or applications outside the legislation?

Yes, besides from making an application to the Market Court, a bidder can make a request for rectification for the contracting authority. However, the rectification procedure is currently applicable only to the decision by the municipalities, and very seldom provides successful outcome for the bidder.

It is also possible to seek for damages through the general civil courts. The claim for damages is limited to costs incurred from the tendering procedure, and the claimant is entitled to compensation only if it can be proved that if the procedure had been correct, the claimant would have had a genuine possibility of winning the tender.

5.3 Before which body or bodies can remedies/enforcement be sought?

The competent court for procurement matters is the Market Court. An appeal against the decision of the Market Court is made to the Supreme Administrative Court.

Claims for damages are within the competence of the general civil courts.

5.4 What are the legal and practical timing issues raised if a party wishes to make an application for remedies/enforcement?

In order to refer to the Market Court, the candidate or tenderer must within 14 days from the decision produce its petition to the Market Court in writing. The time limit is counted from the day after the candidate or tenderer received written information on the decision (including the adequate reasons for the decision) together with the necessary petition instructions. The appeal period does not start to run if the decision is provided without reasons or without the petition instructions; the contracting authority may complete the decision in order to start the appeal period. As mentioned in question 5.1, the candidate or tenderer can produce a petition before the Market Court also along the procurement process if there is a decision affecting the rights of such party.

To ensure the possibility to seek remedies, there is a standstill period of 21 days in procurements above the EC threshold. This standstill does not apply to procurement above the national threshold but below the EC thresholds.

In the rectification process the request has to be made within 14 days from the procurement decision (accompanied with the necessary rectification instructions) to the relevant supervisory body of municipality.

5.5 What remedies are available after contract signature?

The APC is going to be compliant with the Remedies Directive 2007/66/EC. The Market Court may terminate a signed contract or order it to be terminated in a time limit set by the Market Court. The Market Court can also order the contracting authority to pay compensation for the applicant, if the bidder can prove that in a fair process, it would have been awarded the contract.

5.6 What is the likely timescale if an application for remedies/enforcement is made?

According to the Market Court's statistics, the average length of the procedure in 2009 was approximately 9 months which is a notable improvement compared to 2008 when the average duration of the procedure was still around 14 months. Due to increased caseload during the recent years, there is still a backlog of over 300 cases. The proceedings in the Supreme Administrative Court take around 12-24 months.

5.7 Is there a culture of enforcement either by public or private bodies?

There is no enforcement by public bodies. However, there is a preliminary proposal that the Finnish Competition Authority would be granted certain supervision rights under the relevant legislation with regard to significant misconduct of public procurement rules including the right to propose certain remedies in such cases.

The private bodies have shown an increased tendency to take the cases before the Market Court. This has been illustrated by the ascending amount of public procurement cases in the Market Court in the recent years being currently around 425-450 new cases per year. The most typical procurement case brought before the Market Court is about services contracts.

5.8 What are the leading examples of cases in which remedies/enforcement measures have been obtained?

The Market Court adjudicates around 450-500 cases on public procurement annually. A major part of the cases concern service contracts with works; supply contracts are in the minority. The decision is in favour of the applicant in around 25 per cent of the cases. The compensation is scarcely ordered, in around 6 per cent of all cases. The recent significant cases relate to in-house provisions, and selection and award criteria.

6 Changes During a Procedure and After a Procedure

6.1 Does the legislation govern changes to contract specifications, changes to the timetable, changes to contract conditions (including extensions) or changes to contract terms post-signature? If not, what are the underlying principles governing these issues?

There is no exact mentioning in the APC; however, the legislation and case-law has a very technical approach to this question. If the specifications or the nature of the contract changes after the signature, it is a new contract that has to be procured accordingly. The courts are looking at the level and magnitude of the change in the contract conditions. For example, if there is a change in the product procured or in the price of the product, it is usually seen as a new contract. There are of course some deviations between contract types, for example in framework agreements little discretion is tolerated.

6.2 In practice, how do purchasers and providers deal with these issues?

Although the possibilities are quite limited, these kinds of changes happen quite often. There are numerous cases dealt in this matter by the Market Court. Typically the Market Court finds that the contract has changed so significantly that there has to be a new bidding contest.

7 Privatisations and PPPs

7.1 Are there special rules in relation to privatisations and what are the principal issues that arise in relation to them?

No, there is no exact procurement legislation relating to privatisations.

7.2 Are there special rules in relation to PPPs and what are the principal issues that arise in relation to them?

There are no specific rules. Usually PPP and PFI projects are carried out as service or works concessions.

8 Other Relevant Rules of Law

8.1 Are there any related bodies of law of relevance to procurement by public and other bodies, such as freedom of information or general contract law?

The Act on the Openness of Government Activities (621/1999) stipulates that all official documents shall be in the public domain, unless specifically otherwise provided in the Act or another act. Under the Act, access to a document is the main principle and secrecy is an exception. Access may thus not be restricted without a lawful reason or more than necessary for the interest being protected.

This means that the tenders made by the participants in a public procurement procedure are deemed public domain unless they contain business secrets. The tenderers must notify which part of the bid is considered to contain business secrets. Such notice does not have a binding effect to the contracting authority although the contracting authorities tend to respect such notice if with adequate reasons. However, the price of the bids is always public domain.

9 The Future

9.1 Are there any proposals to change the law and if so what is the timescale for these and what is their likely impact?

During 2010, the first phase of the remedies reform is planned to be enacted. In this first phase, the remedies required by Directive 2007/66/EC will be introduced.

The new remedies include the possibility for the Market Court to declare a contract to be ineffective and also to order the contract to be terminated in a given time limit. The contracting authority may also be ordered to pay a fine.

The first phase will cover only contract award procedures above the EC thresholds. There are also plans to reform the contract award procedures above the national thresholds.

There is also a contemplated reform of the rectification process. Currently only the municipalities have the possibility to rectify their decisions upon bidder's petition. After the reform is passed, all of the contracting authorities have a possibility to rectify their decisions by themselves whether or not the case has been referred to the Market Court. The rectification process however requires a petition from a bidder, so the contracting authority does not have unlimited autonomous decision power to alter its decisions once the decision on contract award decision has been made.

In addition, the dynamic purchasing system and electronic procurement procedures are in the pipeline. The relevant provisions are being prepared by the Ministry of Employment and the Economy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.