Legal Alerts/1 Mar 2012

Legal Alert – Innovation in Public Procurement – Part II: Volume discount standardisation

One of the most significant contracting authorities in the field of social welfare and health in Finland conducted a wide public procurement on medical supplies and devices. The challenge in this procurement was that there were several hundreds of products to procure and the suppliers were chosen separately for every product. Attorneys at law Borenius Ltd acted as a legal advisor in this supply procurement in the autumn and winter of 2011.

The tender evaluation based only on price. The contracting authority set high competence requirements and required detailed information about possible reclamations.

In the procurement there were several tenderers and they all applied very different discount mechanisms for their deliveries. Therefore, we recommended these mechanisms to be harmonised in the procurement documentation. The tenderers were informed about our recommendation to count the volume discounts per supplier according to the final value of the procurement contract:

  1. Value of contract EUR 100,000.00 – 249,999.99:
    discount 2%
  2. Value of contract EUR 250,000.00 – 999,999.99:
    discount 3%
  3. Value of contract EUR 1,000,000.00 – 1,999,999.99:
    discount 4%
  4. Value of contract EUR 2,000,000.00 – 2,999,999.99:
    discount 5%
  5. Value of contract EUR ? 3,000,000.00:
    discount 6%

Due to the successful procurement, the contracting authority purchased the supplies and devices for a price that was significantly lower than the one in its previous procurement. In addition, using volume discounts made the evaluation of tenders easier.

The standardisation of the volume discount increased, however, the risk of illegal co-operation between the tenderers. In addition to the standardisation of the volume discounts, a declaration of the tender’s independence was utilised in the procurement contract (cp. Certificate of Independent Bid Determination which is used in several other countries). The declaration was made on our proposal though it has yet been seldom used in Finnish public procurement. By accepting a contract condition, the tenderer undertook not to have been in illegal co-operation with its competitors. The purpose of the used contract condition was to be a reminder of the cartel prohibition, and to agree on a contractual penalty in case it turns out that the tenderer had been a part of a cartel.

The Act on Public Contracts includes obligatory regulations in relation to the award procedure which have to be obeyed by the contracting authorities. The contracting authorities have however the possibility to use new innovative procurement practices which can lead to significantly better end results. To achieve this goal, the contracting authority should challenge its old yes/no forms and think of a more sensible and simpler way of concluding the procurements.

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Additional information

Ilkka Aalto-Setälä