Public Procurement in Malta – Part 4
This 4-part series aims to explain the lifecycle of public procurement in Malta: from the initial planning of a tender, through publication and bidding, evaluation of offers and contract award, to the execution of the contract and its enforcement and litigious action.
Contract Execution and Enforcement
After the contract award is finalized, any litigious issues resolved, the public procurement process moves into its final phase: contract execution and enforcement. This is the stage where the winning bidder (now the contractor) delivers on the project or service and the contracting authority oversees performance. While it might seem like the purely “operational” part of procurement, this phase is also governed by legal rules and good contract management practices, and it can give rise to its own set of challenges and the need for legal oversight.
When the contract is signed, it creates a binding legal relationship typically based on the contract conditions that were part of the tender. In public contracts, it’s common that a performance guarantee is provided by the contractor (for example, a bank guarantee of a certain percentage of the contract value) to secure the performance of the contract.
During execution, a common occurrence is the need for modifications or variations to the contract. Real-world projects can encounter changes: maybe the authority needs to alter the scope slightly, or unforeseen difficulties require extra work, or external factors (like regulatory changes) necessitate adjustments. However, unlike private contracts that the parties can alter by mutual agreement relatively freely, public contracts are restricted in how they can be modified once awarded, because of the procurement principle that a substantial change might effectively circumvent the competitive tender that determined the winner. The Public Procurement Regulations lay out specific conditions under which contract modifications are allowable without a new procurement procedure.
Generally, minor changes that stay below certain value thresholds are permitted, for example, a small increase in the scope that raises the contract value by (hypothetically) 5% might be fine, whereas a large increase of 50% would not be, unless a special exception applies. The regulations enumerate acceptable reasons for modifications, such as: changes that were clearly provided for in the original tender (through a review clause or options), additional works/services that have become necessary and were not included initially (but only if changing contractor is not feasible for economic or technical reasons and the price increase is within a set limit), or unforeseen circumstances that a diligent authority could not predict (again with a cap on price increase, often around 50%). There’s also allowance for changing the contractor (for example, if the original company is taken over by another, or in case of the contractor’s insolvency) as long as the new entity still meets the original criteria and no other substantial terms change. Conversely, modifications that change the overall nature of the contract or provide the contractor an advantage never tendered to others are strictly prohibited, those would effectively be new contracts in disguise and should trigger a new tender process. In Malta, any modification above a certain value percentage often requires approval by the Director of Contracts or at least notification to the oversight authorities, to double-check it’s compliant.
Another critical aspect of contract execution is performance enforcement and compliance. If the contractor fails to perform as required, the contract typically stipulates remedies for the contracting authority. These might include financial penalties (liquidated damages) for delays, for instance, a set amount per day of delay, or the calling of the performance bond if the contractor seriously defaults. In extreme cases, if the contractor’s breach is fundamental (e.g. the work is of very poor quality, or they abandon the project), the contracting authority has the right to terminate the contract for default. The Maltese Public Procurement Regulations explicitly allow contract termination in certain cases, including if it’s discovered that the contract should not have been awarded in the first place due to a grave procurement error (for example, if a court or the PCRB finds the award was illegal, the contract can be declared ineffective or terminated). They also allow termination if the contractor was found to
have engaged in fraud or corruption influencing the award or has other serious failures. Termination is a last resort, and when it happens, the authority may have to seek an alternative way to complete the project (possibly calling on any bid security or looking to the next-best bidder or re-tendering the unfinished portion).
One of the enforcement mechanisms for serious cases of misconduct is blacklisting (debarment) of contractors. Under the regulations, if a contractor gravely fails to perform or is guilty of egregious wrongdoing, the Director of Contracts can seek to “blacklist” that company or individual, barring them from bidding on public contracts for a specified period. There is a specialized body, the Commercial Sanctions Tribunal, which handles blacklisting cases. For instance, a contractor that was caught colluding or that abandoned a project might be referred to this tribunal, which, after giving the contractor a chance to be heard, can decide to issue a ban (often a few years long). This is a strong enforcement tool to protect the public interest by weeding out suppliers who prove unreliable or dishonest. The Public Procurement Regulations detail the grounds for exclusion and blacklisting (such as fraud, corruption, false declarations, or breach of certain laws), reflecting the EU directives’ emphasis on ethical conduct.
Other issues that may arise include delay in contract performance, attracting daily penalties, non-adherance to contract timeframes and project abandonment.
AE Legal can assist you in navigating the procurement process from initial tender drafting to representation.
The above is intended for information purposes only and is not intended to act as legal advice.
