2017

YOUR PARTNER IN
CONSTRUCTION

ASSESSMENT ON
MODIFYING THE
CONTRACT
UNDER PUBLIC
PROCUREMENT
RULES

PROJECT:

Rehabilitation works of DN76-Contract 5R13 Stei–Beius, km 102+660 – km 133+660

CONTRACTOR:

Azvi – Azcale DN 76 Joint Venture

 TABLE OF CONTENTS

§.I. INTRODUCTION ....................................................................................................... 3

§.II. APPLICABLE LEGISLATION ................................................................................... 4
§.III. MODIFICATION OF THE CONTRACT UNDER THE APPLICABLE PUBLIC
PROCUREMENT RULES ..................................................................................................... 5
§.III.1 Automatic application of the contract provisions ................................... 6
§.III.2 Non-substantial modification of the contract .......................................... 8
§.III.3 Substantial modification of the contract .................................................. 9
§.IV. CONCLUSIONS ...................................................................................................... 11

2
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
§.I. INTRODUCTION

1. This Memorandum (hereinafter referred to as the “Memo”) was prepared by Techno

Engineering & Associates SRL (hereinafter referred to as “TE&A”) at the request and
for the sole use of Azvi – Azcale DN 76 Joint Venture (hereinafter referred to as
the “Contractor”) in relation to the Project Rehabilitation works of DN76-Contract
5R13 Stei–Beius, km 102+660 – km 133+660 (the “Project”) and aims to present
the legal provisions relating to the increase of the Contract Price without a new public
procurement procedure.

2. This Memo is intended for the exclusive use of the Contractor and its management.
The content of this Memo is privileged and strictly private and confidential and may
not be disclosed to any third party without the prior written consent of TE&A and,
even when disclosed with such consent occurs, it may not be relied upon by any
such third party for any purposes whatsoever.

3. All conclusions, findings and forecasts presented herein below are limited to the
analysed hypotheses and are exclusively based on the contractual provisions,
Romanian legal provisions and other mandatory provisions applicable in Romania
as interpreted and applied by the Romanian courts.

4. For the avoidance of any doubt, this Memo is only a brief overview concerning the
issues addressed in relation to the above subject matter and depending on the
factual background or in the case the Contractor should reveal other details of which
TE&A were not privy to when drafting this Memo, then other issues may become
relevant and subsequently impact on some of the matters discussed below.

5. Save for the key legal issues addressed herein, this Memo does not seek to stand
as a business risk assessment.

6. All capitalized terms used but not defined herein shall have the meaning as described
in the Contract signed by and between the Contractor and the Employer.

This space has been left blank intentionally

3
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
§.II. APPLICABLE LEGISLATION

7. Law no. 98/2016 on public procurement (“Law 98/2016”), entered into force on 26
May 2016.

8. In accordance with Article 236 paragraphs (3) and (4) of Law 98/2016, only the public
procurement contracts/framework agreements (signing, modification, interpretation,
effects, execution and termination thereof) concluded after the date of entry into
force of the aforementioned Law will be subject to the provisions of this Law.

9. The public procurement contracts/agreements concluded prior to 26 May 2016 shall

be interpreted, executed, modified or terminated according to the provisions of the
law in force at the date when such contracts/agreements were signed, as provided
by Article 236 paragraph (4) of Law 98/2016.

10. Therefore, since the Contract was signed in August 2012, the legal provisions
applicable to the Contract are those of the Emergency Government Ordinance no.
34/2006 on the award of public procurement contracts, public works concession
contracts and service concession contracts (“EGO 34/2006”), with its application
norms approved by Government Decision No. 925/2006 (“GD 925/2006”) and
Instruction No.1/2016 on modification of the public procurements contracts
(“Instruction 1/2016”), issued by National Agency for Public Procurement, in
application of EGO 34/2006 and GD 925/2006 and in accordance with the
jurisprudence of Court of Justice of the European Union.

This space has been left blank intentionally

4
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
§.III. MODIFICATION OF THE CONTRACT UNDER THE APPLICABLE PUBLIC
PROCUREMENT RULES

11. One of the most important principles of public procurement under Romanian public
procurement law is that the subject matter and conditions of the tender cannot be
altered after the conclusion of the public procurement contract. Thus, a contract can
be changed/modified during its performance only if such change/modification does
not alter the tender, i.e. if the change is not a substantial one that would affect the
scope of the contract, pricing or any other essential elements and aspects of the
contract.

12. EGO 34/2006 and GD 925/2006 include several restrictions in respect of amending
the Contract Price of a public procurement contract. Article 122 of EGO 34/2006
deals, among others, with the price increase triggered by additional works/services
being awarded to the same tenderer without calling for competition (and thus without
launching a new regular procurement procedure):

“The contracting authority has the right to apply the negotiation without publication
of a contract notice, only in the following cases:

b) due to technical, artistic reasons or to reasons related to the protection of exclusive

rights, the public procurement contract can be awarded only to a particular economic
operator;
c) insofar as is strictly necessary when the time limits for open procedure, restricted
procedure or negotiation with prior publication of a contract notice, cannot be
respected due to extreme emergency reasons caused by unforeseeable events that
cannot be imputed to an action or a non-action of the contracting authority. The
contracting authority has no right to establish longer period contract duration that it
is necessary in order to manage the respective emergency situation that determined
the application of the negotiation without publication of a contract notice;
(…)
i) when the procurement of additional/supplementary works or services is required,
which have not been included in the initial contract but which, due to unforeseeable
circumstances, became necessary for the fulfilment of the respective contract, in
compliance with the following cumulative conditions:

5
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
 - the works or services shall be awarded to the initial contractor;

- the additional/supplementary works or services cannot technically and

economically be separated from the initial contract without creating major
inconveniences for the contracting authority or, although they can be
separated, they are still strictly necessary for the fulfilment of the initial
contract;

- the aggregate value of the contracts that will be awarded and the
addenda that will be concluded for additional/supplementary works shall
not exceed 20% of the value of the initial contract” (emphasis added).

13. As a general observation, directly awarding works/services under letters b), c) and i)
of Article 122 of EGO 34/2006 stands only as a special procedure which can be
applied in specific/exceptional cases, mainly triggered by unforeseeable events or
circumstances. Article 122 (i) of EGO 34/2006 refers to works that were not
anticipated within the public procurement procedure and thus not included in the
estimated value of the contract, and which may become necessary during the
performance of the contract due to unforeseeable circumstances.

14. In accordance with Article 57 of GD 925/2006, a so-called “justification note” is

needed for any additional/supplementary works pursuant to Article 122 (i) of EGO
34/2006. Such a justification note is prepared by the Employer before the negotiation
of the supplementary/additional works, aiming to explain why the respective
additional works are necessary, and to confirm that the conditions provided by Article
122 (i) of EGO 34/2006 have been observed.

§.III.1 Automatic application of the contract provisions

15. Article 2 of the Instruction 1/2016 clearly states that the application of the contractual
clauses does not stand as a modification of the public procurement contract
(hereinafter referred to as “modification”) of the initial contract, if:

i. the changes are clearly anticipated in the contract through “variation

6
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
 clauses”1 (in Romanian “clauze de schimbare”), which are known by the
tenderers and which indicate calculation method of the final contract price (for
instance, based on unit prices); and

ii. the application of such clauses is automatic and does not involve a decision
of any of the parties as regards its opportunity, since the contract clearly
provides that a change would be implemented in certain circumstances.

16. An example2 of an automatic change, which does not represent a modification of

contract would be the differences between the initially estimated and the actual
executed quantities within FIDIC Red Book contracts, if there is no modification of
the Technical Design or the technical specification. However, the Instruction provides
that the difference resulting from re-measurement of quantities should not exceed
the limit of contingencies or 10% of the accepted contract amount, if no contingency
was provided under the contract3.

17. A second example of automatic change/automatic application of the contract4 which

is not considered ”modification” refers to the damages/penalties applied in
accordance with the contract in case that one of the parties does not comply with its
obligations or following an event or circumstance which is under the responsibility of
such party. Thus, the claims for extension of Time for Completion (“EOT”)
and/or additional costs are considered damages and have to be paid, without any
further procurement procedure. This would be a matter of contractual liability and not
of additional works/services or variations.

18. Similarly, although the Instruction 1/2016 does not specifically refer to such
circumstances, the Claims for Changes in Legislation, relating to legal provisions
entered into force after the Base Date which are mandatorily applicable and which
do not require a decision of opportunity, would be considered an automatic
application of the contractual provisions (Sub-Clause 13.7), and not a “modification”.

19. Considering the provisions of Article 2 of the Instruction 1/2016, the Price

1 Nota bene: “variation clauses” under the provisions of the Instruction 1/2016 exclude Sub-Clause 13.1 of FIDIC contracts.
2 Example 1 of the Instruction 1/2016
3 Note 2 to Article 2 of the Instruction 1/2016
4 Example 2 of the Instruction 1/2016.

7
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
 Adjustment provided under Sub-Clause 13.8 of the Contract and under Article 97
of GD 925/2006 would also be covered by such application of the contractual
provisions.

20. The legal provisions on public procurement do not impose any limit on the value of
the increase/decrease of the contract price as a result of the application of the
contract5, except as mentioned above, the increase of quantities which exceeds the
limit of the contingencies or 10% of the accepted contract amount, which is
considered a confirmation of the defects/discrepancies in the design and thus, it
would be considered modification of the contract.

§.III.2 Non-substantial modification of the contract

21. When the change of the contract price/quantities is not covered by a “variation
clause”, but it results instead from new events that require a decision of opportunity
of the Contracting Authority, such as, but not limited to, the change of the technical
solution due to an erroneous initial Design or execution of new additional works not
initially requested, or any other change of the Contract under Clause 13.1 of the
FIDIC Red Book6 and/or Yellow Book, this is deemed to be a “modification”.

22. The Contracting Authority (i.e. the Employer) will have to assess each modification
on a case by case basis and it will be directly liable for the consequences of all the
decisions taken, especially as regards the efficient use of the public funds. During its
appraisal, the Contracting Authority will take into account that, in order to be
considered non-substantial7, the value of such modifications, if implemented,
should not determine an increase of the contract price which exceeds the value of
contingencies, or the value of 10% of the initial contract price (in case no
contingencies were established). In order to be payable from the budget funds8,
same Instruction 1/2016 states that the non-substantial modifications will be subject
to an addendum to the contract.

23. In accordance with Article 14 paragraphs (4) and (5) of the Instruction, non-

5 Note 2 of Article 2 of the Instruction 1/2016

6 Example 3 of the Instruction 1/2016.
7 Article 2, Note 2 of the Instruction 1/2016.
8 Note to Article 4 of the Instruction 1/2016.

8
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
 substantial modifications do not impact the limit of 20% provided under Article
122 letter i) of EGO 34/2006 and shall not be cumulated with the modifications
triggering application of the negotiation without calling for competition which is
subject to the same article.

§.III.3 Substantial modification of the contract

24. If the Modification is substantial, then the contracting authority shall have to initiate
a new public procurement procedure. A modification of a public procurement contract
is substantial when at least one of the following conditions is met9:

a) it introduces conditions that, had they have been included in the initial tender,
they would have allowed the selection of different tenderers than those
initially selected, or it would have allowed the contract to be assigned to
another tenderer;

b) implies a change to the economic balance of the contract in favour of the

Contractor; or

c) substantially extends the object of the contract in terms of products, services

or works which it did not initially cover.

25. As a rule, the contracting authorities must pay great attention when amending public
procurement contracts during their implementation, because such amendments (i.e.
without re-tendering) are allowed only under very limited circumstances, in order to
avoid altering the initial conditions from the Tender and encumbering thus the
principles of equal treatment and/or competition.

26. Thus, as provided under Article 122 (i) of EGO 34/2006 quoted above, in case where
the modifications are substantial, but still they (i) became necessary due to
circumstances unforeseeable at the time of tender, (ii) cannot be technically and
economically separated from the initial works and (iii) the value of the additional
works does not exceed 20% of the contract price, the award may be made to the

9 Article 8 of the Instruction 1/2016.

9
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
 initial successful tenderer (the contractor), by negotiation without call for
competition, as also confirmed by Article 13 of the Instruction 1/2016.

27. In accordance with the provisions of the Instruction 1/2016, the modifications are
unforeseeable whether there are new standards or technical norms that entered into
force after the tender, modifications of the site immediately after the tender, flooding
or landslides that are not specific for the area10, etc.

28. However, design errors which require additional works11, which are the designer’s
liability and could have been foreseen by the latter, or the inadequate preparation of
the tender documents12 is not unforeseeable and cannot be subject to a procurement
without call for competition in application of Article 122 (i) of EGO 34/2006.

This space has been left blank intentionally

10
Example 11 of the Instruction 1/2016
11
Example 10 of the Instruction 1/2016.
12
Article 12 of the Instruction

10
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
§.IV. CONCLUSIONS

29. The Contract incorporates the FIDIC Conditions of Contract for Construction (“Red
Book”), as amended by the Special and Particular Conditions, and is governed by
Romanian law. This is a measurable contract, with a mechanism of payment and a
final price based on actually achieved quantities.

30. In accordance with the applicable legal provisions mentioned in Section III above,
the application of the clauses clearly anticipated in the Contract and which do not
require a decision on opportunity, do not represent “modification of the contract” but
simply the application of the Contract.

31. Thus, the increase of Contract Price as a result of the following reasons represent
an application of the Contract and would not be considered modifications:

- Price adjustment in accordance with the provisions of Sub-Clause 13.8 and

Article 97 of GD 925/2006;

- the Contractor’s Claims for EOT and additional costs, as indemnification for
the damage incurred by the Contractor due to delays caused by the
Employer/other authorities;

- the Claims for Changes in legislation;

- the difference between the initial estimated and the actual performed
quantities (the Contract is a red FIDIC contract base on unit prices and
measurable as provided by Sub-Clause 14.1 and Clause 12), etc.

32. As a rule, there is no legal limit on the value of the increase/decrease of the
Contract Price as a result of the application of the Contract13. However, should the
increase of quantities without revision of the Technical Design exceed the limit of the
contingencies or 10% of the Accepted Contract Amount, such is not considered
“application of the Contract” but a “modification”.

13
Note 2 of Article 2 of the Instruction 1/2016

11
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
33. The variations under Sub-Clause 13.1 are considered modifications (substantial or
non-substantial, as the case may be), since such implies a decision from the
contracting authority or its personnel such as the Designer, the Engineer, etc.

34. The Contractor can receive payment of the additional works without any call for
competition, if such works are considered non-substantial modifications, i.e.
when:

- no new conditions were included which would have allowed the selection of
different tenderers than those initially selected;

- no change to the economic balance of the contract in favour of the Contractor

was made;

- no substantial extension of the object of the contract in terms of initial products,

services or works which it did not initially cover occurred; and

- the modification should not determine an increase of the Contract Price which
exceeds 10% of the Contract Price/the value of contingencies.

35. A substantial modification requires in principle a new procurement contract. By

exemption, such a modification may be agreed upon by way of a negotiated
procedure without calling for competition, with the observance of the strict conditions
provided by Article 122 (i) of GEO 34/2006.

36. However, awarding additional works under Article 122 (i) of GEO 34/2006 stands as
a special procedure, which can be applied in specific/exceptional cases, mainly
triggered by unforeseen/unforeseeable events or circumstances, which exclude any
failure of the contracting authority, such as new standards or technical norms
published after the tender, modifications of the site immediately after the tender,
flooding or landslides that are not specific for the area, etc.

37. Thus, if the modification is considered substantial, in order for the Employer to be
allowed to award these additional works by direct negotiation with the Contractor,
without a public tender, the value of the additional works should not exceed 20% of
the Accepted Contract Amount and such additional works should be required due to

12
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT
 circumstances unforeseeable at tender stage.

38. The non-substantial modifications do not impact the limit of 20% provided
under Article 122 letter i) of EGO 34/2006 and shall not be cumulated with the
substantial modifications triggering application of this Article.

39. We hope that our analysis will prove useful as a roadmap in developing the
Contractor’s strategy for Project’s implementation and further clarification on the
above matters can be provided to the Contractor upon request.

Bucharest, May 2017

Techno Engineering & Associates Srl
International Consulting Engineers & Contract Managers

13
Bucharest-ROMANIA; Sofia-BULGARIA; Doha-QATAR; Kuwait City-KUWAIT