Direct award – the exception procedure in public procurement
The main rule of the Procurement Act is always open and non-discriminatory competition. A direct award (sections 40 and 41) is a strict exception to that rule. In it the contracting authority negotiates and concludes a contract directly with a supplier of its choice, without a public tender and without the normal notice procedure.
Because a direct award sets aside the open market and competition, the law lays down very strict, exhaustive conditions for its use. A bidding company needs to understand these grounds — both when the company itself is the target of a direct award and when it suspects that a contracting authority has made an unlawful direct award to a competitor.
1. When is a direct award lawful?
A contracting authority cannot choose a direct award merely because it would be faster or easier. The grounds accepted by law include:
- A technical reason or exclusivity: In IT and software in particular this is the most common ground for a direct award. A direct award may be made if only a particular supplier can carry out the procurement for a technical reason or for reasons relating to copyright or exclusive rights. There must be no reasonable alternative way of delivering the solution on the market.
- Extreme urgency: A procurement may be made directly if concluding the contract is absolutely necessary because of extreme urgency arising from an unforeseeable cause, and the normal deadlines cannot be met. Note, however, that the urgency must not result from the contracting authority's own delay or poor planning.
- A previous tender failing: If no request to participate or no compliant bid was received in an open or restricted procedure, the buyer may move to a direct award. The condition is that the original terms of the procurement are not substantially changed.
- Additional orders: In some cases additional services or goods can be ordered from the original supplier as a direct award, if changing supplier would cause significant technical incompatibility or unreasonable inconvenience.
2. Technical exclusivity from the perspective of an expert or software vendor
For a company selling expert services or software, "technical exclusivity" is a critical concept. If your company offers a truly unique solution or owns the closed-source rights to a system for which the buyer needs an essential add-on or update, the contracting authority may under certain conditions procure directly from your company.
The conditions for a direct award are not met merely because the buyer considers your solution "the best". The requirement of technical exclusivity means that there genuinely is no other player on the market who could produce an equivalent result, for example through open interfaces or workarounds. Early market dialogue is of the utmost importance for the buyer, so that it can establish the absence of alternatives before deciding on a direct award.
3. The direct award notice and the risk of the Market Court
An unlawful direct award is one of the most serious breaches of the Procurement Act. If a contracting authority makes a direct award without a lawful ground, competing companies can appeal to the Market Court. Among other things, the court can annul the contract, impose large penalty payments on the authority and order it to pay compensation to bidders who were discriminated against.
To reduce the risk, contracting authorities often use a direct award notice (a voluntary ex ante transparency notice). It works as follows:
- The contracting authority publishes in Hilma a notice of its intention to make a direct award, explaining why the criteria for a direct award are met.
- After the notice is published, a standstill period of 14 days begins. The contract may not be signed during that time.
- The standstill period gives competing companies a chance to react. If another company believes it could deliver the solution, it can challenge the matter. If the period passes without appeals, the direct award contract can be concluded and is largely protected from later challenge in the Market Court.
A bidding company should therefore follow Hilma actively, not only for open tenders but also for direct award notices. It is the only way to make sure a buyer is not steering what should be a lawful tender straight into a competitor's lap on flimsy grounds.
Frequently asked questions
When is a direct award permitted?
Only on the exhaustive grounds in sections 40–41 of the Procurement Act: a technical reason or exclusivity, extreme urgency arising from an unforeseeable cause, the failure of a previous tender, or certain additional orders from the original supplier.
Is it enough for a direct award that the buyer considers the solution the best?
No. Technical exclusivity requires that there genuinely is no other player on the market who could produce an equivalent result — superiority or the buyer's preference alone does not meet the requirement of the law.
Can urgency be invoked freely?
No — the urgency must arise from an unforeseeable cause and must not result from the contracting authority's own delay or poor planning.