PUBLIC PROCUREMENT LAW IN FINLAND – A BRIEF OVERVIEW
Prof. Dr. Kirsi-Maria Halonen
The most important contracting entities include state, about 300 municipalities, health care districts as well as multiple parishes. Each of these public authorities also have several publicly owned undertakings that qualify as contracting authorities i.e. as bodies governed by public law.
The procurement activities are partly centralized and partly decentralized. Hansel Oy operates as the central purchasing unit for the whole public sector in Finland. Central government authorities are obliged to use certain Hansel agreements, but for other contracting authorities the use of Hansel agreements is non-mandatory. In addition to Hansel, there are several smaller central purchasing units, operating mostly regionally and providing agreements to be used by their owners.
Many large municipalities have centralized procurement activities at least concerning certain general products and services. These specialized units are responsible for the award procedures, contract management as well as to provide procurement law expertise and education to other units. Such procurement units exist among others in cities of Helsinki, Espoo, Vantaa, Tampere, Oulu, Turku and Jyväskylä.
Finland is currently under health and social services restructuring process. The responsibility to provide these health and social services are to be transferred from municipalities to independent health and social service regions.
In Finland there is no general obligation to use the agreements of central purchasing bodies (except central government authorities’ obligation to use certain Hansel agreements). Most of the central purchasing bodies are not specialized on certain procurements, but operate in all supply and service sectors.
Probably the most interesting detail relating to public procurement organizations are the limitations set by the national procurement act regarding the users of central purchasing body’s agreements. According to the definition of central purchasing body under s.4 (1)(12) of the PPCC Act a Finnish central purchasing body provides services only to its direct or indirect owners or entities whose right to use the services or contracts of the central purchasing unit have been specifically stipulated. Such requirement does exist in Directive 2014/24 which defines a central purchasing body as “a contracting authority providing centralised purchasing activities and, possibly, ancillary purchasing activities”. The requirement of ownership under Finnish law means that foreign contracting authorities would have to acquire direct or indirect ownership in a Finnish central purchasing body in order to have the possibility to use their agreements and services. In addition, a requirement of an in-house relationship between the central purchasing body and contracting authorities also limits the possibilities for Finnish contracting authorities to use contracts or services of any Finnish central purchasing body. Nonetheless, for some reason Finnish legislator has exempted Hansel from these requirements in the event of international collaboration in s. 2 of Hansel Act (laki Hansel nimisestä osakeyhtiöstä 1096/2008) making the legal situation even more ambiguous as certain rules apply to all other central purchasing bodies, but not Hansel.
Directives 2014/24 and 2014/23 were implemented into the Act on Public Procurement and Concession Contracts (laki julkisista hankinnoista ja käyttöoikeussopimuksista 1397/2016, available in English here In English: https://finlex.fi/fi/laki/kaannokset/2016/en20161397.pdf ) (later referred as “PPCC Act”). The rules applicable to utilities procurement are included in a separate act (laki vesi- ja energiahuollon, liikenteen ja postipalvelujen alalla toimivien yksiköiden hankinnoista ja käyttöoikeussopimuksista 1398/2016), but the Utilities Act does not contain any rules for remedies, as the applicable provisions are included in the Public Procurement and Concession Contracts Act. The rules for defense and security procurement contracts are set out by Act on Defense and Security Procurement (laki julkisista puolustus- ja turvallisuushankinnoista 1531/2011).
Rules and regulations
Classical sector and concession contracts are governed by the PPCC Act, whereas for utilities and defense procurement there are separate regulations. On the other hand, the remedies rules for all procurement sectors including utilities and defense and security procurement are incorporated into the PPCC Act. In Finnish legislation both the rules governing contracts above EU thresholds as well national procurement rules are emerged into the same act. In the classical sector, the provisions are divided between the contracts that are above and under EU thresholds (in utilities sector, there are no national thresholds). The rules that apply to below EU thresholds are more flexible and concern supply and service contracts above 60 000 euros and works contracts above 150 000 euros (in defence and security procurements the thresholds are 100 000 euros and 500 000 euros). Under these national thresholds the PPCC act does not apply, nor the award can be complained to the Market Court. Here, the contract award is merely subject to internal by-laws or guidelines of the contracting authority in question, if any. Though also in these below national threshold contracts public authorities need to respect the general administrative procedure rules such as preventing conflicts of interests and freedom of information rules.
Copy-out method is not applied in Finnish legislative procedures, which can be seen as one of the main reasons for late transposition of procurement directives. Finland has a track record of exceeding the transposition deadlines regarding both 2014 and 2004 Directives as well as concerning the 2007 Remedies Directives. The legislative memorandums and draft proposals have traditionally a strong value as a legal source as they are considered to reflect the legislator’s objectives and purpose. Often the memorandums and draft proposals are very detailed and they include thorough reasoning for each provision. The draft proposal of Finnish Government for new procurement rules and transposition of 2014 directives is around 500 pages.
Gold-plating or wrongful implementation
The requirement of ownership in order to qualify as a user of central purchasing bodies’ agreements has already mentioned above. Other national legislative solutions that deviate from the approach adopted in the Directive include the lack of rules regarding conflicts of interest and the lower external turnover limits for in house activities and public-public cooperation, which are discussed below.
Under art.24 of the Directive 2014/24 Member States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators. The PPCC Act, however, does not provide any additional measures to prevent conflict of interests other than what is provided in art.57(4)(e) of the Directive on conflict of interest as a non-mandatory exclusion ground. It can be submitted that the aims required under art.24 are not met in Finland as the Finnish government solely refers to the Administrative Procedure Act (hallintolaki 434/2003) as a tool to prevent and identify conflict of interests regardless of being fully aware that only part of the contracting authorities fall under the scope of these rules. The Administrative Procedure Act covers only activities of public authorities and not the activities of other contracting authorities, state or municipality owned companies, for example. Moreover, the Administrative Procedure Act regulates potential conflicts arising only between spouses, relatives or very close friends, but not conflicts between business acquaintances.
In Finland the limits for “third party activities” are lower than what is required under the Directives. According to art.12(1), a public contract awarded by a contracting authority to a legal person governed by private or public law shall fall outside the scope of the Directive if the contracting authority exercises control over the legal person similar to that which it exercises over its own departments, more than 80 per cent of the activities of the controlled legal person are carried out in the performance of tasks entrusted to it by the controlling contracting authority or by other legal persons controlled by that contracting authority and there is no direct private capital participation in the controlled legal person with the exception of non-controlling and non-blocking forms of private capital participation required by national legislative provisions. In Finland, the 80 per cent limit was considered problematic. The reasons for this stringent approach can be found in the small size of the Finnish market and in Chapter 4a of Finnish Competition Act (kilpailulaki 948/2011) which required competitive neutrality and equal position in the markets for both public and private actors. In-house units are considered to benefit from their status towards other market operators leading to competition distortions.
Current rules divide all in-house and horizontal cooperation into three categories depending on their value, which resulted in a rather complicated framework. According to s.15 of the PPCC Act, a controlled legal person, a state or municipality owned company for example, may acquire only 5 per cent and maximum €500,000 of its turnover from non-owners. The same thresholds apply also to horizontal cooperation among contracting authorities stipulated under s.16 of the PPCC Act. If either of these two thresholds (5 per cent or €500,000) is exceeded, the in-house relationship will be lost. Assessment will be based on three preceding years’ total turnover as set out in art.12 of Directive 2014/24. However, in the event that there is no activity or operators in the markets, the relevant threshold is 10 per cent with no monetary maximum. The lack of operators shall be established by a specific transparency notice resembling the voluntary ex-ante transparency notice on direct award (VEAT). If the in-house unit is rather small, the third threshold of €100,000/year average within a three-year period, can be applicable provided that it does not exceed the ultimate limit of 20 per cent set out in art.12 of the Directive. The wording of s.15 and s.16 of the PPCC Act refers to turnover and not to activities as in the Directive. It is ambiguous under the current Finnish rules how these turnover limits are calculated. It is possible that the turnover received from any third parties will fall within “non-owner sales” regardless of whether this turnover has been accumulated from activities assigned by the owners of the in-house unit. In such case any concession type services would jeopardise the in-house relationship. It appears that this was not the purpose of the rules, even though the current wording suggests otherwise.
Discretion when implementing the rules
Finnish legislative technique could be described by minimum transposition with national peculiarities. In most of the cases where the Directive has left leeway for the Member States to decide whether or not certain rules are transposed to national act, Finland has chosen the minimum transposition. For example, there is a possibility to use price-only criterion in all contract awards (though need to justify their use for some contracts).
The national rules meet the minimum requirement in relation to subcontracting as well. Article 71 of Directive 2014/24 provides several possibilities for Member States to derive from the minimum level set out in art.71 including an obligation to indicate the scope of subcontracting and its subcontractors, direct payments to subcontractors, obligation to verify information and possible exclusion grounds with regard to supply contracts or further in the subcontracting chain. Under s.77(1) of the PPCC Act, contracting authorities may ask a tenderer to indicate which share of the contract it intends to subcontract to third parties and any proposed subcontractors. Notification on the scope of subcontracting or the proposed subcontractors does not limit the main contractor’s liability towards the contracting authority. A possibility to make direct payments to subcontractors is not included in the Finnish rules due to the fact that such payments would breach the responsibilities and control within the contract chain which could lead to difficulties when determining the scope of liability and the role of the main contractor under national contract law.
Finland’s implementation of public procurement directives could be best described as minimum harmonisation, which usually takes place a bit too late. In drafting of the rules, copy-out method is not used and thus legislative preparatory works are profound and hold a great value for interpretation of the rules in future. Nonetheless, there are few national peculiarities that enforce requirements that are not set by the public procurement directives: limits for activities with third parties in in house and public-public cooperation due to national competition neutrality rules; and the ownership requirements for users of central purchasing units.