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SHORTAGE OF RAW MATERIALS
PUBLIC PROCUREMENT ACTORS,
HOW TO COPE ? WHAT ARE YOUR RIGHTS?
As part of therenewed activity post-confinement, certain sectors such as IT, construction, public works, metallurgy, or furniture were particularly affected by aglobal shortage of raw material supply.
Materials or products such as wood, aluminum, steel, copper, certain plastics or even electronic chips have seen theirprice soar and thedelivery times will be significantly extended.
These difficulties had repercussions on the execution ofpublic markets, paralyzing the holders (companies) in the execution of their contracts.
They find themselves faced with risks ofExceeding execution deadlines, leading to the application oflate penalties, and/or to aadditional cost.
However, there are various measures, provided for by thepublic procurement law, which companies can implement in order to adapt the terms of execution of contracts, or to put an end to them.
To enlighten public procurement stakeholders on their rights, Dorean Avocats offers you a complete guide on the possible procedures to deal with this unprecedented situation.
I - I AMCONTRACT HOLDER, I AM EXPERIENCING DIFFICULTIES RELATED TO THE SHORTAGE OF RAW MATERIALS BUT I AM INABILITY TO CONTINUE PERFORMANCE OF THE CONTRACT
In case the increase in the price of raw materials affects the market butdoes not definitively hinder the execution of the contract, various measures can be considered to deal with the difficulties encountered.
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A. I am experiencing delivery delays and am unable to meet contractual deadlines;
The majority of public procurement contracts provide forfixed execution times and, in the event of excess,late penalties. However, due to delivery delays caused by the shortage of raw materials, I am not able to meet these deadlines. What options are available to me to avoid being sanctioned?
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1. I can modify my contract by amendment;
First of all, it is important to check that my contract does not haveno clause providing for such a situation. If this is not the case, I can contact the buyer to ask them to extend the execution deadlines and not apply late penalties.
Indeed, buyers arealways free not to apply late penalties (CE, November 9, 2018, SAS Savoie, n° 413533), on the condition that this does not constitute a gift (CE, March 19, 1971, Mergui, n°79962)1.
Likewise, theLead times may be extended or suspended by amendment to the extent that this is made necessary by unforeseen circumstances (Art. L2194-1)2.
The Public Procurement Code governs the amendments authorized in these situations.
Article R.2194-5 states that the buyer can modify the market if:
“the modification is made necessary bycircumstances that a diligent buyer could not have foreseen »
The amount of this modification must not be greater than 50% of the initial contract amount. If several successive modifications are made, this limit applies to the amount of each modification, unless this is intended to avoid advertising and competitive bidding obligations (Art. R2194-3 CCP).
Faced with the difficulties encountered by businesses, the government has also requested the goodwill of public buyers. In particular, he asks them to:
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“to ensure, on a case by case basis, thatdo not apply penaltieswhen delivery or execution delays are linked to surges in raw material prices or supply shortages for businesses”
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“when possible,grant deadline extensionsand to consider, on a case-by-case basis, other enforcement measures that would provide a response to this situation.”3.
The buyer can then accept or refuse to modify the contract, and/or not to apply late penalties.
In the event of refusal, I still have the possibility of going through the courts to force the public entity to modify the market.
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2. I can contact the judge to adjust the penalties;
If the public buyer remains opposed to any amendment, I canseize the judge in order to request the modulation of late penalties.
The administrative judge invites buyers to make areasoned application of late penaltiesand if it considers these penalties disproportionate with regard to the amount of the contract, it can intervene to modulate them (CE, December 29, 2008, OPHLM de Puteaux, n° 296930).
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B. I am facing a significant increase in the price of raw materials;
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1. My contract provides for a price review/revision clause;
The price or its conditions of change cannot be modified during the execution of the contract unless I provide in my contract toa price revision or review clause (Art. R2194-1 Public Order Code).
This clause is indicated in the contract and its application is specified in articles 10 of the new General Administrative Clauses (if the CCAG is a part of the contract)
If I have such a clause in my contract, then I cancontact the buyer in order for himrequest to apply the review clauses, so as to be able to bear the extra-contractual burden generated by the rise in raw material prices.
Please note: Price clauses, or re-examination/revision clauses, although the question has not been expressly decided by case law,cannot be introduced or rectified during the execution of the contract (CE, February 15, 1957 Dickson Institution).
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2. My contract does not provide for a price review/revision clause;
If I do not have such a clause in my contract, it is impossible for me to modify the price, as has just been mentioned.
My only recourse is therefore to go through thelitigation route and ask for acompensation based on the theory of unforeseen circumstances.
WHAT IS UNPREDICTION?
Unpredictability can be mobilized in the face of an eventoutsideAndunpredictable at the time of conclusion of the contract which results in atemporary upheaval of the contract economy (CE March 30, 1916, General Company of Lighting of Bordeaux, n°59928).
I must therefore demonstrate that this price increase was unforeseeable, that it was attributable neither to my actions nor to those of my public co-contractor, and that it resulted in additional costs.
In this case, the prices of raw materials being by nature subject to fluctuations, unpredictability will be assessed on a case by case basis, taking into account theextent of price increase and the specific conditions of the contract. This notion of scale was introduced in the new CCAG reformed in 2021 (notably in article 26 of the CCAG MOE).
The case law remains quite vague regarding the extent of theadmissible additional cost or which may entitle you to compensation. It oscillates between5% and 10% of the initial market value According to the case. We can also refer to the circular of 1974 (4), which fixed for the State markets, as part of the consequences of the oil shock of 1973, the upheaval at 1/15 of the market value. But nothing is specified in the hard law texts.
I will also have to provide proof that the purchase of the materials concerned was subsequent to the price increase and necessary for the continued performance of my contractual obligations.
It should also be noted that the compensation awarded will not cover the entire additional cost. THEamount of this compensation is set by the administrative judge, and generally itoscillates between 80 and 95% of the extra-contractual charge. He considers that it is up to the holder to bear the cost of the“normal” economic hazard » inherent in any contract (CE, March 30, 1916, Compagnie Générale d’illumination de Bordeaux, no. 59928; CE, October 21, 2019, Société Alliance, no. 419155).
II - I AM IN THEDEFINITIVE INABILITY TO CONTINUE EXECUTIONOF MY CONTRACT
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In the event that the increase in the price of raw materials significantly affectstoo important the market and makes it impossible for me to perform my contractual obligations, I can request atermination of the market.
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A. The buyer agrees to terminate the contract amicably
In case of'absence of clause in my contract governing its termination, I can still negotiate an amicable termination with my co-contractor.
Indeed, the termination of a public contract can be done amicably due to aforce majeure situation (Art. L2195-2 CCP)(5).
As a reminder, to qualify as force majeure, the situation must be:
• external to the parties
• unpredictable
• irresistible
It is up to me, as the contract holder, to demonstrate that the situation in which I find myself constitutes force majeure.
The public entity can then agree to terminate the contract amicably or reject the request.
If it agrees to terminate the contract, both parties sign atransactional protocol which governs the technical, legal and financial consequences of termination.
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B. The buyer refuses to terminate the contract, I refer the matter to the judge
If the buyer refuses to terminate the contract, I have the possibility ofrefer the contract to the judge for him to pronounce the termination (6).
I must, here again, provide proof that the situation in which I find myself falls within theforce majeure.
The effects of the health crisis on market execution are assessedcase by case by the judge.
Case law considers that once termination is pronounced due to force majeure, the holder cannot be compensatedthat losses suffered attributable to the event constituting force majeure (CE, January 8, 1925, Société Chantiers et atelier de Saint-Nazaire, Rec. p. 28; DAJ file: termination of public contracts and concession contracts (5)). And this, whether the termination is pronounced amicably or by the judge.
SOURCES
1: DAJ late payment penalties sheet:
2: DAJ sheet modalities for modifications to public contracts:
3: Government press release
4: Circular of November 20, 1974, relating to compensation for holders of public contracts in the event of an unforeseeable increase and their economic costs (application of the theory of unforeseen circumstances)
http://www.marche-public.fr/Marches-publics/Textes/Circulaires/Circulaire-imprevision-1974-11-20.htm
5: DAJ form unilateral termination by the public procurement administration
6: Procedures and forms of termination of public contracts
