This blog post was written by associate professor Marko Turudić^[1] and reviewed by senior researcher Michal Kania.

INTRODUCTION

On 23^rd September 2022, the Croatian Parliament amended the Public Procurement Act[2] (PPA), the first amendment since the PPA was introduced in 2016. The amendments conclude the lengthy legislative process that started in July of 2021 when the Ministry of Economy and Sustainable Development (further: Ministry, the competent public body for the public procurement system in Croatia) informed about the intent to amend the PPA. The introduced amendments provide the following changes to Croatian public procurement law:

• Electronic submission of appeals is now mandatory,
• contracting authorities are now allowed to resume the public procurement procedure if the submitted procurement documentation appeal obviously has no grounds or is obviously past the submission deadline,
• if the appeal does not contain relevant appeal grounds, the State Commission for Supervision of Public Procurement Procedures – DKOM (Državna komisija za kontrolu postupaka javne nabave) will be able to dismiss it without inviting the appellant to correct the appeal,
• the PPA is now harmonised with the Earthquake Rebuild Act[3], and
• the appeal’s fees have drastically increased.

 A one-month public consultation was held in March 2022. The relevant stakeholders had 51 comments and suggestions about the proposed amendments to the PPA and PPA amendments in general[4], but the Ministry and the legislator ignored practically all of them. With regard to the appeal fee increase, there were two detailed and critical comments (by AmCham Croatia and IN2 Ltd). Both comments were rejected by the Ministry, with the explanation that ”the proposed model of the amount and calculation of the appeal fee is simple, proportionate, clear and applicable in practice”. Furthermore, the Ministry stated that ”certain economic operators submit appeals to stop public procurement procedures and to postpone the opening of bids, especially in procurement documentation appeals where the appeal fee is low. Therefore, with the proposed amendments, even the procurement documentation appeal fee will depend on the estimated procurement value. ”

PUBLIC PROCUREMENT REMEDIES IN CROATIA

The public procurement remedies system in Croatia is a two-tiered one. According to Article 398(1) of the PPA, DKOM decides on appeals in public procurement procedures. DKOM was established in 2003 as an independent public body responsible for appeals in public procurement, concessions and public-private partnerships. DKOM has nine members appointed by the Croatian Parliament for a five-year term (one person can be appointed twice for a maximum of 10 years in office). The appeals procedure is an administrative procedure conducted under the provisions of the PPA but also the General Administrative Procedure Act[5] (GAPA).

Under Article 434(1) of the PPA, DKOM’s decisions can be appealed to the High Administrative Court of Croatia –  VUSRH (Visoki upravni sud Republike Hrvatske) in an administrative dispute. VUSRH is the second (and last) instance administrative court, which conducts administrative disputes under the Administrative Disputes Act[6] (ADA) provisions.

It can be argued that remedies in public procurement are rarely used in Croatia. Relevant information – number of public procurement procedures by year, number of appeals, and number of administrative disputes – are available in DKOM’s annual work reports. These are the statistics for the last three available reports – from 2018  (the first year in which all public procurement procedures were conducted under the new PPA) till 2020;

• In 2018, there were 11,847 new public procurement procedures, 839 appeals to DKOM (7,08 per cent) and out of those – 72 were appealed to VUSRH,[7]
• In 2019 there were 13,190 new public procurement procedures, 870 appeals to DKOM (6,59 per cent) and out of those DKOM decisions – 123 were appealed to VUSHR,[8]
• In 2020 there were 11,289 new public procurement procedures, 816 appeals to DKOM (7,23 per cent) and out of those DKOM decisions – 145 were appealed to VUSRH.[9]

When considering the annual number of public procurement procedures, it can be seen that remedies are rarely used in Croatia. Nevertheless, there are many statements by Croatian officials claiming that public procurement remedies are to blame for slow procurement procedures – especially in large infrastructural work projects[10] and even the much slower-than-expected 2020 earthquakes rebuild effort.[11] This discrepancy between the real yearly number of filed public procurement remedies and the (exaggerated – intentionally or not) perception of their negative effect on public procurement procedures certainly had an effect on the normative changes presented below.

APPEAL FEES IN CROATIA

In the 2007 PPA[12], the Croatian Parliament introduced appeal fees in public procurement procedures. They have remained an important part of public procurement remedies in the 2011 PPA[13] and the current one. The appeal fee is intended to be a tool for preventing frivolous appeals, but it can also have a punitive effect on the contracting authority whose award decision is being appealed. These are the general principles of charging appeal fees in Croatia;

• the appellant pays the fee (to the state budget),
• if the appeal is rejected or dismissed, the appellant loses the paid appeal fee,
• if the appeal is successful, the paid appeal fee is reimbursed by the contracting authority, not from the state budget.

The table below shows the appeal fees under Article 430(1,2) of the unamended PPA and the new appeal fees under the amended Article 430 of the PPA;

The amendments to Article 430 of the PPA have raised the appeal’s fee several times, practically in every instance. The Ministry and the legislator gave no clear explanation of the reasons for such an increase except a broad statement that some appellants misuse procurement remedies. Unfortunately, no proportionality test was applied, which would have helped in establishing the proportional and real impact of such an increase in appeal fees. However, the most problematic aspect is the fact that Article 430(2) of the PPA, which established a uniform appeal fee for public procurement documentation appeals of 5.000,00 kuna (about 666,66 euro), is now deleted, and appeal fees are now calculated according to the estimated value of the public contract. This means that the fee for a procurement documentation appeal when the procurement value is over  100.000.000,00 kuna – has now increased one hundred times.

The risk is that such an increase in appeal fees will result in a significant reduction of not only a small part of malicious appeals but public procurement appeals in general. The potential appellants will be discouraged from submitting appeals by the new and increased appeal fees, which was probably one of the goals of the amendments in question. Since the remedies system established by the Remedies Directive [14] depends on the use of remedies by economic operators, the increase in appeal fees will make it much harder to verify the legal compliance of public procurement procedures, especially to correct illegalities in the public procurement documentation. Such an increase in appeal fees adversely affects the general availability of public procurement remedies in Croatia. Additionally, it may be problematic from the standpoint of Article 1(3) of the Remedies Directive and the obligation of Member States to ensure that the review procedures are available to at least any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement.

Contracting authorities will also be adversely affected; in the case of a successful procurement documentation appeal, the contracting authority will have to pay up to 100 times more as reimbursement to the successful appellant. This can lead to even more conservative and risk-averse behaviour of the contracting authority’s employees.

The discussed amendments are not only disproportional, but they may also be unconstitutional. The Croatian Constitution[15] guarantees the right to appeal  in administrative and other proceedings with Article 18(1)[16];

”The right to appeal against individual legal acts made in first-instance proceedings by courts or other authorised bodies shall be guaranteed.”

But the fact that an Act (in this case – the amended PPA) recognises the right to appeal does not automatically mean that the relevant appeal provisions make appeals available to possible appellants and are constitutional. The Croatian Constitutional Court, in its decision from July 9 2019, emphasised the following;

(..) constitutional guarantees imply the protection of citizens’ rights that is real and effective, these restrictions cannot be disproportionate to the extent that they call into question the very essence of the right to appeal. The purpose of the rules governing the formal and procedural prerequisites for filing a legal remedy is to ensure proper implementation of appropriate procedures, whereby the parties to the procedure must count on the fact that the prescribed rules will be applied in their case as well. However, the prescribed rules must not be such that the legal remedy available to the party is actually hopeless, just as the way of applying these rules in a specific case must not lead to the party being unjustifiably deprived of the legal remedy available to it. [17]

It can be argued that the increase in appeal fees in public procurement appeals “calls into question the very essence of the right to appeal” and makes “remedies available to the party – hopeless”, as they are now more likely to give up on filing an appeal altogether.

CONCLUSION

The increase in appeal fees overshadows the other (and most welcome) amendments to the PPA. The Ministry and the legislator ignored the warnings from the public consultation and the public debate in general about the dangers of such an increase. The consequences of such an amendment to the PPA will be a significant reduction in the number of filed appeals, which was probably one of the goals. Even though only about seven per cent of procurement decisions are appealed in Croatia, the relevant authorities believe that malicious appeals are the main reason why valuable and EU-funded infrastructural projects are often late to start and finish. This was the reasoning used to justify the exclusion of public procurement procedures from the 2020 Zagreb and Petrinja earthquake rebuild effort. The fact that more than two years after the earthquakes and with the exclusion of public procurement – the reconstruction has practically not even started shows how accurate this belief is.

All of this will, consequently – increase the number of illegal public procurement procedures. Finally, the amendments regarding fees increase may be unconstitutional, and hopefully, the Constitutional Court of Croatia will soon have an opportunity to decide on the matter.

[1] Associate Professor, Chair of Administrative Law, University of Zagreb Faculty of Law, marko.turudic@pravo.hr

[2] Official Gazzette No 120/16.

[3] On  March 22, 2020, a devastating earthquake hit Zagreb and the surrounding counties. One person died, many were injured, and the material damage was estimated at around 11.6 billion euro. On December 29, 2022, another earthquake devastated Petrinja and its surroundings. The damage was estimated at around 5 billion euro. The Earthquake Rebuild Act was enacted to establish a rebulid legal framework which significantly curbs the use of public procurement procedures in the rebuild effort.

[4]Available here (in Croatian); https://www.sabor.hr/sites/default/files/uploads/sabor/2022-07-21/164601/PZ_312.pdf (Accessed October 21 2022), p. 33-66.

[5] Official Gazzette No 47/09, 110/21.

[6] Official Gazzette No 20/10, 143/12, 152/14, 94/16, 29/17, 110/21.

[7] Izvješće o radu DKOM-a za 2018. (DKOM’s Annual Report for 2018), https://www.dkom.hr/UserDocsImages/dokumenti/izvjescaORadu/Godišnje%20izvješće%20o%20radu%20za%202018.%20-%20FINAL.pdf  [Accessed 21 October 2022].

[8] Izvješće o radu DKOM-a za 2019. (DKOM’s Annual Report for 2019), https://www.dkom.hr/UserDocsImages/dokumenti/izvjescaORadu/Izvješće%20o%20radu%20za%202019.%20KONAČNA.pdf?vel=1437007#page50  [Accessed 21 October 2022].

[9] Izvješće o radu DKOM-a za 2020. (DKOM’s Annual Report for 2020), https://www.dkom.hr/UserDocsImages/dokumenti/izvjescaORadu/Izvješće%20o%20radu%20za%202020%20godinu.pdf?vel=4026407  [Accessed 21 October 2022].

[10] For example, see ‘Jesmo li sretni zbog žalbe? Nismo, ali ne možemo ih izbjeći. Na njih treba odgovoriti što prije, ali one neće usporiti gradnju mosta’ (Are we happy about the appeal? No, they cannot be avoided. They should be processed as soon as possible, but they will not slow down the bridge construction) (February 14, 2019), Jutarnji.hr,  https://www.jutarnji.hr/vijesti/hrvatska/butkovic-jesmo-li-sretni-zbog-zalbe-nismo-ali-ne-mozemo-ih-izbjeci-na-njih-treba-odgovoriti-sto-prije-ali-one-nece-usporiti-gradnju-mosta-8378585 [Accessed 21 October  2022].

[11] For example, see M. Turudić, ”Suspendirajmo ZJN, što je najgore što se može dogoditi?” (Lets suspend the PPA, what’s the worst that could happen?) (March 31, 2020) Upravnopravo.blog https://upravnopravo.blog/2020/03/31/suspendirajmo-zjn-sto-je-najgore-sto-se-moze-dogoditi/ [Accessed 21 October 2022].

[12] Official Gazzette No 110/07.

[13] Official Gazzette No 90/11.

[14] Council Directive 89/665 [1989] OJ L 395, as amended by Directive 2007/66 [2007] OJ L 335.

[15] Official Gazzette No 56/90, 135/97, 113/00, 28/01, 76/10, 5/14.

[16] Article 18(2) of the Croatian Constitution allows exceptions. Therefore, the right to appeal can be denied, but only if this is specified in a legal act, and judicial protection is ensured. Since the PPA explicitely allows appeals to DKOM and lawsuits to VSURH in public procurement procedures, Article 18(2) of the Croatian Constitution is irrelevant in this case.

[17] U-I-138/2017, U-I-634/2017, U-I-1990/2017, U-I-752/2018, U-I-3977/2018, U-I-1218/2019.