Insights | March 16, 2022

Contractual amendments in procurement contracts in the wake of the Finnish social services reform

The Finnish Parliament adopted the social services reform and the President of the Republic approved the related acts on 29 June 2021. The implementation of this reform leads us to critical considerations regarding public procurements and especially contractual amendments that municipalities and the newly formed wellbeing services counties may require.

According to the Finnish Implementation Act (the Act on the Implementation of the Reform of Health, Social and Rescue Services and on the Entry into Force of Related Legislation, 616/2021), which entered into force on 1 July 2021, contracts related to the organization of public healthcare, social welfare and rescue services will be transferred to wellbeing services counties as of 1 January 2023. Wellbeing services counties accordingly become parties to these contracts instead of the municipalities which where the original procuring entities. At the same time, also the rights and obligations under the contracts are transferred to the wellbeing services counties.

According to the Implementation Act, municipalities have had to provide the wellbeing services counties with a report of the transferable contracts no later than 28 February 2022. The wellbeing services county council, for its part, will decide by 31 March 2022 on the contracts that are to be transferred and continued under the responsibility of the wellbeing services county.

Contractual amendments may be required after transfer

The contracts will in principle be transferred to the new wellbeing services counties as they are. However, there are different scenarios which may require the transferred contracts to be amended or even terminated. There are clearly practical arguments for why this is even efficiency-wise recommendable, but the parties must assess the significance of the required amendments as, under the public procurement rules, the scope of permitted contractual amendments is limited.

It is likely that the most typical situation is the need to ensure that the existing contracts, firstly, cover the entire factual scope of the service in question and second, address any existing overlaps arising from the reform. Particularly contracts concerning ICT services are likely to present significant overlap when transferred to the new wellbeing services counties.

Assessment under Section 136 of the Public Procurement Act

All amendments to transferable contracts must be assessed on the basis of Section 136 of the Public Procurement Act.

In principle, material amendments to procurement contracts are prohibited. An amendment to a contract is considered material and prohibited, when:

1. the amendment introduces conditions which, had they been part of the initial procurement procedure, would have allowed for the admission of other candidates than those initially selected or for the acceptance of a tender other than that originally accepted or would have attracted additional participants in the procurement procedure;
2. the amendment changes the economic balance of the contract or framework contract in favour of the contractual partner in a manner that was not specified in the original contract or framework contract;
3. the amendment considerably broadens the scope of the contract or framework contract; or
4. a new contractual partner replaces the contractual partner with which the contracting entity originally concluded the contract.

However, there are exceptions which allow amendments to be made. A contractual amendment is possible, for example, if:

1. it is based on contractual terms and conditions or on terms for their amendment that were known during the procurement procedure and referred to in the procurement documents, irrespective of their financial value, and the said terms and conditions are clear, precise and unambiguous and do not modify the general character of the procurement contract or framework contract;
2. it is necessary for the original contractual partner to perform additional work, services or extraordinary deliveries of goods that were not included in the original contract, and a change of contractual partner is not possible for financial or technical reasons and would cause significant inconvenience or a significant overlap of costs for the contracting entity;
3. the need for amendment is due to circumstances that a diligent contracting entity could not have foreseen, and the amendment does not affect the general character of the procurement contract;
4. the original contractual partner is replaced with a new contractual partner under an unambiguous condition for amending the contract in accordance with point 1, or the status of the original contractual partner is wholly or partly assigned to another operator that satisfies the originally established qualitative selection criteria due to corporate restructuring, takeovers, mergers, changes of controlling interest or insolvency, provided that this does not entail other substantial amendments to the contract and does not seek to circumvent the application of the Procurement Act;
5. the case concerns a minor contractual amendment that falls below the thresholds (less than 10 per cent of the value of the original service procurement or supply contract, or concession contract for services, and 15 per cent of the value of the original public works contract or concession contract).

Regardless of the transfer of contracts from the municipalities to the wellbeing services counties being required by law, any amendments to the contracts must still adhere to the applicable public procurement rules. A possible breach of the rules carries the risk of a Market Court appeal by a competitor which in turn might lead even to an inefficiency sanction being imposed. The Finnish Competition and Consumer Authority also monitors contractual amendments made by contracting entities.

When considering contractual amendments after the contracts have been transferred, a thorough risk assessment is necessary, by both the supplier and the contracting entity. In some cases, a new tender might prove to be the more risk-free and, especially in cases of several overlapping contracts having been transferred, more practicable solution.