In order to extend the sanctions against Russia, the Council of the European Union adopted Council Regulation (EU) 2022/576 of 8 April 2022 amending Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine (the “Regulation”).
According to Art. 5k of the Regulation
it is prohibited to award or continue to perform any public procurement or concession contracts falling within the scope of the public procurement directives to or with:
- a Russian citizen, a natural person residing in Russia, or a legal entity, entity or body established in Russia;
- a legal person, entity, or body, more than 50% of the ownership right in which is directly or indirectly owned by an entity referred to in letter a) above; or
- a natural or legal person, entity or body acting on behalf of or at the instruction of an entity specified in letter a) or b) above,
The above also applies when they represent more than 10% of the value of the contract, to or with subcontractors, suppliers or entities whose capacity is used within the meaning of the public procurement directives.
By way of derogation, the competent authorities may authorize the awarding and continued execution of contracts intended for:
- the operation, maintenance, decommissioning and management of radioactive waste, fuel related to nuclear capabilities, nuclear facilities, etc.;
- intergovernmental cooperation in the field of space programs;
- the provision of strictly necessary goods or services which can be provided, or which can be provided in sufficient quantities only by the persons named above;
- the work of diplomatic missions and consular services of the Union and the Member States in Russia, including delegations, embassies and missions, or of international organizations in Russia enjoying immunity in accordance with international law;
- the import or transportation of natural gas and oil, including refined petroleum products, as well as titanium, aluminum, copper, nickel, palladium and iron ore from or through Russia into the Union;
- the purchase, import or transport in the Union of coal and other solid fossil fuels listed in an annex to the Regulation.
Contracting authorities have the obligation to comply with the Regulation at all stages of the process of awarding, concluding, and executing public procurement contracts.
For the purposes of implementing the Regulation, the European Commission recommends as a good practice that contracting authorities require the presentation of a declaration regarding the absence or presence of the circumstances under Art. 5k, par. 1 of the Regulation. The responsibility for the specified information rests with the declarant.
In view of the many questions of contracting authorities and potential participants in public procurements, the European Commission has published questions and answers in the field of public procurements, which it periodically updates.
Practice shows us that the most frequently asked questions and their answers are:
- How are the provisions of Art. 5k implemented to a person with dual citizenship – Russian or other?
Article 5k applies to Russian citizens and does not provide an exception for dual citizenship. Therefore, the presence of Russian citizenship is decisive, and any other citizenship is irrelevant.
- What is the scope of the sanctions?
The sanctions cover current and future public procurement procedures, as well as awarded public procurement contracts and concessions.
- Do public procurement sanctions apply to certain sectors?
No, in principle the sanctions cover all sectors covered by the Directives and additional areas. All exceptions are expressly listed.
- Which contracting authorities are obliged to apply the sanctions?
All contracting authorities from European member states are bound by the sanctions.
- What steps should a public buyer who has entered into a prohibited contract take after the sanctions come into force?
Regardless of the fact that such a contract should not have been concluded in the first place, it is valid until it is terminated or until it is declared invalid by a court resolution. Therefore, when the contract is concluded improperly, it should be terminated as soon as possible. It should be noted that formally this constitutes a violation of the sanctions Regulation and is punishable.
- How does the 10% limit apply to Russian subcontractors and suppliers when the subcontractor or supplier is only partially owned by a sanctioned entity?
When a subcontractor performing more than 10% of the contract value is more than 50% owned by a Russian entity or a Russian citizen, it falls within the scope of the sanctions.
- Are subcontractors, suppliers or third parties whose capacity is relied upon only those about whom the contracting authority has information on?
No, it means all persons involved in the performance of more than 10% of the contract value.
- Can subcontractors, suppliers, or entities whose capacity is relied upon be replaced?
Yes, a contracting authority that receives an offer or has a concluded contract involving sanctioned Russian participation must, in accordance with the principle of non-discrimination and equal treatment, require that the participant or contractor replace the affected entity.
- How is 50% ownership calculated in case of associations?
It is calculated individually, applying separately to each member of the association. None of them can be more than 50% Russian owned.
- Can a member of an association be replaced?
No, all members of an association, a group of natural or legal persons or public entities, when they jointly submit an offer and bear joint responsibility for the performance of the contract, together constitute one economic operator and therefore cannot be replaced.
- Is a company established in Germany with a managing director of Russian nationality who is a permanent resident of Germany excluded from participating in procedures or from executing contracts above the threshold value?
No, it is not excluded based on the sanctions Regulation as the contract is signed with the company which is established in Germany and not with its managing director.
Participants in public procurement and contracting authorities should carefully examine the Regulation if it is to be applied and approach each case individually by analysing the relevant facts and circumstances.