Legal Alerts/20 Jun 2012

Legal Alert – Innovation in Public Procurement Part III: Calculation Formula for Financial Aid in The Comparison of Tenders

The Act on Public Contracts provides that the contracting authority is obliged to take into consideration facts which actually affect the price of the tender, including a financial aid given by the contracting authority itself to the tenderer. We represented a complainant in a public procurement dispute which concerned the taking into consideration of state aid in the comparison of tenders. Our complaint succeeded in the Market Court and in the Supreme Administrative Court which gave its decision on 11 June 2012 (docket no. 1533). With regard to the comparison of tenders, the contracting authority had not properly taken into consideration the financial aid it had granted to the tenderer.

Attorneys at Law Borenius Ltd has developed, in cooperation with Audit Corporation Ernst & Young, a simple model on how public aid can be taken into consideration so that similar procurement disputes can be avoided. The model is well established and used for a couple of years in public procurement procedures of one of the biggest contracting authorities in the field of social and welfare sector in Finland.

Our model takes into consideration the proportion of aid directed to the object of public procurement in cases where aid has been utilized also to other purposes than the procured service in question. For example, the model has been applied in social and welfare procurement in which the amount of aid has been proportioned in relation to the treatment or rehabilitation days. The model applies well for other types of service procurement as well.

The precondition for applying the model is that the quantity used as the basis of the model will also be used as the basis for comparison in procurement. For example in rehabilitation tenders, which are based on per-day pricing, an additional price calculated on the basis of the model will be added to the tender price. The additional price will be calculated by dividing the total amount of aid by its write-off period (which is, for example, 20 years with regard to fundamental improvement aid). The received amount of aid related to a one-year period will be further divided by the number of total treatment days provided in the real estate by the service provider. The amount of total treatment days is based on tenderer’s supply of service (for example, accommodation and health care days carried out in the real estate in addition to rehabilitation days). In practice, the calculation in accordance with the model should be executed as follows:

The fundamental improvement aid of EUR 1,000,000 will be divided by 20 write-off years (1,000,000/20 = EUR 50,000 per year), which should be divided by the number of total treatment days of 25,000 (50,000/25000 = EUR 2,00). The received sum of EUR 2,00 should be added to the price of the offered rehabilitation day in order to take financial aid into consideration.

We recommend that contracting authorities specify in their invitations to tender how public aid is taken into consideration.

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Additional information

Ilkka Aalto-Setälä



Asko Lindqvist