Subcontractors in public procurement – rights, obligations and a bidder's risk management
Public procurements are often large and complex. The Public Procurement Act (1397/2016) recognises that few companies can deliver all the required services, goods or works entirely on their own. For that reason the law allows subcontracting to be used widely.
A bidder must, however, be clear about the role a subcontractor plays in the tender. The legislation sets precise conditions for naming subcontractors, checking their background and relying on them; failing to observe these can lead to the whole bid being rejected.
1. Two kinds of subcontractor: capacity-providing or ordinary?
In public procurement subcontractors fall legally into two categories. When submitting a bid, a bidder must know which category its partners belong to, because entirely different rules apply to them.
- Capacity-providing subcontractor (section 78): This is a subcontractor whose resources — previous references, turnover or special qualifications, for example — the bidder relies on in order to meet the suitability requirements set by the contracting authority. If the bidder would not pass the shortlisting stage without the subcontractor, it is a capacity-providing subcontractor.
- Ordinary subcontractor: This is a partner who performs part of the work covered by the contract — cleaning as a subcontract, or coding a particular software module, for example — while the main bidder itself meets all the suitability requirements without that subcontractor's evidence.
2. Disclosure obligations and demonstrating suitability
The Procurement Act sets clear disclosure obligations for subcontractors at the bidding stage.
Capacity-providing subcontractors must always be named. That subcontractor's own separate ESPD form must be attached to the bid. In addition, the bidder must provide the contracting authority with objective evidence that the subcontractor's resources really will be at the bidder's disposal (a binding letter of intent or a subcontracting agreement, for example).
For ordinary subcontractors the rules are lighter. Under section 77 of the Procurement Act, a contracting authority may ask a bidder to state in its bid which part of the contract it intends to subcontract and the names of the proposed subcontractors. Ordinary subcontractors do not, however, generally need to provide their own ESPD forms unless the authority has explicitly required this in the tender documents for risk-management reasons.
3. Grounds for exclusion and replacing a subcontractor (section 79)
Using subcontractors does not relieve the bidder of responsibility. The contracting authority has a statutory duty to check whether the grounds for exclusion also apply to capacity-providing subcontractors.
- If a capacity-providing subcontractor is subject to a mandatory ground for exclusion (a serious economic crime or a significant tax debt, for example), the contracting authority must require the bidder to replace that subcontractor.
- If a subcontractor is subject to a discretionary ground for exclusion (an earlier breach of contract, for example), the authority may require it to be replaced.
Within the law, then, a bidder is given the chance to put things right by replacing an ineligible subcontractor, so that the bid itself need not be rejected immediately. In practice, however, finding a new capacity-providing subcontractor that meets the eligibility conditions and has the necessary references mid-process is often impossible. Checking the background of the subcontracting chain carefully in advance is therefore at the heart of a company's own risk management.
4. Can a contracting authority prohibit subcontracting?
As a rule a contracting authority cannot prohibit the use of subcontracting or restrict chains of subcontractors arbitrarily, as that would breach the principles of proportionality and non-discrimination.
There is, however, one clear exception in the law. A contracting authority may require that the bidder itself (or, when bidding as a consortium, one of the members) performs certain critical parts of the procurement. This rule is applied mainly in works contracts, or in expert services where the quality of the work depends entirely on specific core expertise that should not be outsourced uncontrollably into a long subcontracting chain.
Frequently asked questions
What is the difference between a capacity-providing and an ordinary subcontractor?
A bidder relies on a capacity-providing subcontractor's resources (section 78) — references or turnover, for instance — in order to meet the suitability requirements. An ordinary subcontractor performs part of the work, but the bidder meets the suitability requirements itself.
Must subcontractors be named in the bid?
Capacity-providing subcontractors must always be named, and they must provide their own ESPD form and evidence that the resources are available. For ordinary subcontractors the contracting authority may ask for the share to be subcontracted and the proposed names (section 77).
Can a subcontractor's background sink a bid?
Yes — the assessment of the grounds for exclusion often extends to subcontractors as well, and failing to meet the disclosure obligations can lead to the whole bid being rejected. It is worth checking partners' backgrounds before submitting the bid.