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Special aspects on procurement law in the field of building contracts

Special aspects on procurement law in the field of building contracts using the example of the construction of a p umpstorage h ydro power plant in the Austrian alps Thomas- M.Maier In-house lawyer, KELAG Wärme GmbH Kiev, 6-7 september 2012. Explanatory remarks.

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Special aspects on procurement law in the field of building contracts

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  1. Special aspects on procurementlaw in thefieldofbuildingcontracts usingtheexampleoftheconstructionof a pumpstoragehydro power plant in the Austrian alps Thomas-M.Maier In-house lawyer, KELAG Wärme GmbH Kiev, 6-7 september2012

  2. Explanatory remarks The following presentation demonstrates the interdependence of procurement law and building activity in practice The leadings topics are legal challenges - for their better understanding they are amended by oversimplified figures and time-frames, pictures as well as oral explanations The underlying example is the PS-HPP “Feldsee I” which was realized in between 2005 and 2009 by KELAG, a leading Austrian energy utility I supported the project in all questions of procurement law, civil law as well as in some fields of administrative law

  3. Agenda The projectanditstargets The procurementaspects / legal challenges Total estimatedcostsof a project The „lots – regulation“ as an exemption The advantageofvariants (in the sense of alternatives) Lessonslearnt

  4. The project and its targets (1) Project period 2005-2009 Construction period 2,5 years Amount of lots ~30 Project volume 50 Mio. EUR

  5. The project and its targets (2) Storage Reservoir Inclined chute Vertical shaft Height of Fall 524m Sloping Tunnel Powerhouse Engine Power 70MW Piping connection

  6. The project and its targets (3) Extension of an existing group of HPPs from 330 MW up to 400 MW Improvement of the utilization of existing storage reservoirs Providing the security of energy supplies Strengthen the Company's market position Unlimited Environmental compatibility

  7. Schedule from the group - extension of an existing group of HPPs and improvement of the utilization of existing storage reservoirs

  8. Why Pumpstorage HPPs? Control mode to secure power grid stability Need for balance in between electricity generation and consumption to secure grid frequency of 50 Hz Means: Pump storage HPPs or (limited) gas fired TPPs Energy recovery (utilisation) of surplus energy From continuously generating base load units (decreasing TPPs and river HPPs) Increasing capacities out of wind power stations

  9. The procurement aspects / Project time table Planning phase (1,5 years / 2005 - 2006) Internal planning and consent, external (technical, legal and economic) support, official approval (environmental impact assessment) Procurement phase for the chronologically first lots (1 year / 2006 and following years) Mainly the civil construction lots Construction period (2,5 years / 2006 - 2009) Please mention: the phases and periods overlap with each other!

  10. Total estimated costs of a project (1) “The calculation of the estimated value of a contract shall be based on the total amount payable, net of VAT, as estimated by the contracting entity. This calculation shall take account of the estimated total amount, (…)”. [Art. 17.1 Directive 2004/17/EC] “Contracting entities may not circumvent the Directive 2004/17/EC by splitting works projects (…) by using special methods for calculating the estimated value of contracts.” [Art. 17.2 leg.cit.] “Where a proposed work (…) may result in contracts being awarded at the same time in the form of separate lots, account shall be taken of the total estimated value of all such lots”. [Art. 17. 6a leg.cit.]

  11. Total estimated costs of a project (2)

  12. Total estimated costs of a project (3) The total estimated costs of a project have to be added with each other This aggregate value of the lots is relevant for the application of the Directive 2004/17/EC (respectively for the relevant national rules based on this Directive) If the value exceeds the actually valid threshold, all lots have to be taken under the regime of the Directive Please mention: The thresholds are regularly amended by the Commission [actual: Commission Regulation (EU) No 1251/2011; for works contracts 5. Mio. EUR) Based on this, the procedures have to be chosen (Feldsee I: restricted and negotiated procedures – Art. 1 (9) in conjunction with Art. 40 leg.cit.)

  13. The „lots – regulation“ as an exemption (1) Based on the information above the procurement procedure for the project “Feldsee I” should have been – due to the Directive - as follows: Sloping tunnel (12 Mio. EUR) + power house (2 Mio. EUR) + piping connection (2. Mio. EUR) + turbine/generator (20 Mio. EUR) + 26 other lots = 50 Mio. EUR In any case higher than 5 Mio. EUR All smaller and in this presentation unstated lots below 1 Mio. EUR each (the breaker mill , the road preparation, the in-door crane, …) would be affected by this and therefore should be under the regime of the Directive But: Exemption thanks to the “lots – regulation”

  14. The „lots – regulation“ as an exemption (2) “However, the contracting entities may waive such application in respect of lots the estimated value of which, net of VAT, is less than (…) EUR 1 million for works, provided that the aggregate value of those lots does not exceed 20% of the aggregate value of the lots as a whole”. [Art. 17.6a leg. cit.] First condition: 20% of aggregate value Example: “Feldsee I” 50 Mio. EUR * 0,2 = 10 Mio. EUR Second condition: lots below 1. Mio. EUR / each In practice lots mentioned on page before were awarded by restricted and negotiated procedures solely based on national publication and transparency rules

  15. The „lots – regulation“ as an exemption (3) Advantages for the (awarding) contracting entity More flexibility regarding the choice of less stringent procedures Economy of time (a well prepared European award lasts 2,5 months up to 4 months; an award based on “national rules” lasts 4 to 6 weeks) In most cases a better competition due to lower fixed costs Advantages for the tenderer Less stringent procedures to obey Especially small and medium sized companies are often not willed to offer on a European level

  16. The advantage of variants (1) “Where the criterion for the award of the contract is that of the most economically advantageous tender, contracting entities may take account of variants which are submitted by a tenderer and meet the minimum requirements specified by the contracting entities. Contracting entities shall indicate in the specifications whether or not they authorise variants and, if so, the minimum requirements to be met (…)”. [Art. 36 leg.cit.] The Austrian legislative authority differentiates even more in depth Variant: allowed and indicated by the customer Alternative: own separate approach for an object of an agreement by the tenderer that must be legally, technically or economically different to the main offer

  17. The advantage of variants (2) Advantages The tenderer usually is more specialized in the object of the contract than the customer Booster for Know – how Transfer Example: Sloping tunnel + vertical shaft versus inclined chute (see slide 5 / yellow marked line) Risks and disadvantages Alternative must be explicitly allowed in the tender documents Complex and time-intensive comparability to other offers “Leveling” sometimes is seen as “unfriendly act”

  18. Lessons learnt (1) Procurement European competition in the field of civil engineering does not exist in the range of our lots (contract) volume - volumes in theses sizes are too low A general competitive environment exists in the field of mechanical engineering - although there are just a few highly specialized companies The willingness to lodge appeals against awards of contracts in the energy generating branch is hardly existing Mechanical engineering companies have problems with mainly civil engineering based contracts The separation of lots in comparison with general contracts leads to considerable financial advantages but to much more work Alternative offers lead to Know-how exchange and development

  19. Lessons learnt (1) Civil law The willingness to take action during the phase of fulfillment of the contract is existing – especially in the field of civil engineering The separation of lots causes problems in case of scheduling delay and the following payment of contractual penalties The customer as interface and the problem with preceeding works Preparation Phase A professional prequalification is the key to an unproblematic contract fulfillment

  20. Breaker mill Fibre glass pipe Drilling jumbo in the sloping tunnel Construction pit for the powerhouse Controlworks in the tunnel Storage reservoir

  21. Power house / pressure pipe Storage reservoir Raise Driller Snap – through of the vertical shaft Drilling machine Power house Building of the grid

  22. Welding in the pipe system Storage reservoir Power house Works in the tunnel Power house Machine hall

  23. Ball valve in the powerhouse Transport of the Stator (88to) Rotor Positioning of the Rotor Ground breaking ceremony Feldsee II (finalised 2011) Transport of the Rotor (60 to) Power house

  24. Contact Mag. iur. Thomas-M. Maier, LL.M. Head of strategic procurement and legal department Tel: + 43 / 676 / 7941117 E-Mail: thomas-michael.maier@kelagwaerme.at KELAG Wärme GmbH St. -Magdalener-Straße 81 9506 VillachAustria

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