Subcontracting in public procurement
Subcontracting in the Law
1. What is new in the LCSP in terms of subcontracting?
2. Which parts of the contract can be subcontracted?
3. Which parts of the contract cannot be subcontracted?
Subcontracting and SMEs
4. Advantages of subcontracting for SMEs
Subcontracting in the Law
5. Key tips to avoid missing opportunities
01
Subcontracting in public procurement
Did you know that, legally, the winner of a public tender is allowed to subcontract to fulfill part of the obligations of the awarded contract? In fact, with the publication of the current Law 9/2017, of November 8, on Public Sector Contracts this possibility is presented with better conditions of opportunities, especially for SMEs.
Article 215 of the LCSP defines in its first point that:
“ The contractor may contract with third parties for the partial performance of the service, subject to the provisions of the specifications…”
Now, the limits and limitations of this subcontracting have given and will continue to give a lot of talk and are a constant cause of legal debate, which is why it is an aspect of the Law that has undergone a great evolution in the European and national regulations on public contracts. . As a consequence, to a large extent, the latest pronouncements and resolutions of the Court of Justice of the European Union and the TARC (Administrative Tribunal for Public Procurement), seem to endorse the configuration of a more permissive regime regarding the use of subcontracting. , as an ideal means for the execution of public contracts.
In this sense, subcontracting plays a very important role in achieving public policies that expand and facilitate the participation of private companies in the public sector, among which the participation of SMEs. This option also represents a greater guarantee so that competition is not limited in the participation of economic operators, as well as compliance with social and environmental objectives, among others.
02
Subcontracting in the Law
The new articles of the LCSP introduced changes and nuances regarding the subcontracting of public contracts with the main purpose of facilitating access to large tenders to SMEs who would find it difficult to participate in them if it were not possible to do so.
That is to say, contracts that required the accreditation of important volumes of invoicing (sales figures), due to their magnitude would, in the past, automatically leave the more modest economic operators out of the game. Through subcontracting, the possibilities are expanded for these small and medium-sized companies that will be able to participate, when the Administrative Specifications allow it, hand in hand with large operators with much greater economic capacity.
03
Novelties of the LCSP in subcontracting matters
Subcontracting is one of the matters with more changes in the new Law 9/2017 on Public Sector Contracts (LCSP). It is possible to find everything related to this topic in articles 215, 216 and 217 of the same.
The main novelty regarding subcontracting in the new text of the LCSP is the elimination of the percentage limit on subcontracting. Likewise, the LCSP eliminates the possibility of requiring the subcontracting of up to 50% of the contract budget. The general rule is the possibility of subcontracting within the limits established in the specifications. The clear objective of the new wording is that in no case may the limitations of the specifications imply an effective restriction of competition. The LCSP maintains the substantive regime of prior communication of the intention to subcontract. However, it is required to prove that the subcontractor is not prohibited from contracting prior to the conclusion of the subcontract.
The LCSP maintains that non-compliance with the subcontracting rules may give rise to a penalty of up to 50% of the subcontracted amount, but only if so provided in the bidding documents. Termination for this reason may only take place in the event of non-compliance with the essential obligations identified as such in the bidding documents.
The LCSP establishes greater control by the contracting bodyover compliance with payment deadlines to subcontractors in works or services contracts with an estimated value of more than 5 million euros in which more than 30% is subcontracted. In these contracts, failure to meet payment deadlines to subcontractors will always be subject to penalties and may result in the termination of the contract depending on the non-compliance. In other words, payment security for the subcontracted company is guaranteed by law, thus increasing the advantages of this type of contract.
Another very important clarification we found is that, provided certain conditions are met, the specifications may contemplate the possibility of making direct payments to subcontractors..
04
What parts of the contract can be subcontracted?
The contractor may enter into agreements with third parties for the partial performance of the service, so that total subcontracting is not possible. But neither is it possible to limit a specific percentage, as used to be done in the TRLCSP (Royal Legislative Decree 3/2011, of November 14).
It is the main contractor who assumes full responsibility for the execution of the contract vis-à-vis the Administration, in accordance with the specifications and the terms of the contract. Subcontractors shall be obligated only to the main contractor.
05
Which parts of the contract cannot be subcontracted?
As a main basis, subcontracts may not be subcontracted for items that are essential or critical to the object of the contract, which shall continue to be performed by the main contractor.
The underlying idea is that the main contractor is the one who assumes the responsibilities arising from the signing of the contract and the assumption of the contractual obligations set forth in the bidding documents.
Likewise, the exact limitation on which items may or may not be subcontracted must be expressly provided for in the bidding documents, and in no case may this limitation restrict competition, except in certain cases where express authorization by the Administration is required.
06
Outsourcing and SMEs . Advantages of subcontracting for SMEs
All these measures clearly increase the possibilities for SMEs to assume an increasingly important weight in the execution of public contracts and represent a further step towards two of the fundamental objectives of public procurement: free competition and equal opportunities.
In summary, we can see that outsourcing offers SMEs:
- The possibility of entering the world of public bids with a very low level of risk and without assuming the weight of the responsibilities derived from signing the contract directly.
- Obtain contracts with assured payment.
- The opportunity to start building a reputation in the public procurement environment.
- Adding experience is highly valued.
07
Key tips to avoid missing opportunities
- If you do not yet have many contacts, one possibility is to contact successful bidders (companies who win tenders) of recent contracts in your sector offering your products or services in upcoming contracts. Do not forget to highlight the benefits this would bring to the awarded company!
- Having a bid alert service for your industry will let you know about upcoming opportunities. Why not contact a partner company and offer to participate together?
- Contracts with expiration dates coming up! If we know which contracts are about to expire, we can get a head start on contacting the previous winner and present the opportunity to work together.
- Form a Temporary Joint Venture with other SME(s). UTEs are non-permanent unions of companies with the same objective and common benefit. What is the objective? To win your next public contract.
This article has been written together with our partners of licitaciones.es, leaders in public bid searches.
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