An Efficient Use of Review Clauses in Contracts Under Public Procurement Rules

Cindy Thorhauge & Sofie Aggerholm

Student thesis: Master thesis

Abstract

The master thesis examines the efficient use of review clauses in contracts under the public procurement rules. In order to determine the efficient legal position, the thesis is divided into a legal and an economic part. The last chapter will integrate and combine arguments from both of these perspectives. By analyzing the provisions of the Danish Law of Procurement, law number 1564 of 15/12/2015, for modifications of contracts during their term, the applicable law will be deduced with a particular focus on the application and scope of review clauses. The analysis is based on legal provisions, the fundamental principles of equal treatment and transparency as well as relevant case law. Furthermore, the analysis will include modifications that have been brought about by circumstances, which a diligent contracting authority could not foresee. The applicable law provides the contracting authority with a limited access to make modifications of the contract during its term, unless the modification has been provided for in the initial procurement documents in clear, precise and unequivocal review clauses. The contracting authority is required to show the necessary care while drafting the contract, as unpredictability is presumed to be due only to external circumstances. The economic analysis examines, from the scope of the procurement framework, whether review clauses may affect the ability to achieve a value-maximizing effect. The purpose of the provisions of public procurement seeks to create a free and effective competition to ensure the internal market. In order to consider the use of review clauses as value maximizing, the contract must contain the appropriate incentives, risk allocation and bargaining power, and must ensure an appropriate allocation of transaction costs. The integrated analysis is intended to determine the efficient legal position for the use of review clauses in public contracts. As a result of the legal restrictions, the applicable law leaves an unfulfilled potential. Taking this into account, it is recommended to adapt and establish the right incentives according to Performance Based Contracting. It is further recommended to allow the necessary flexibility to apply proactive review clauses for modifications, which occurs with a low probability and, due to applicable law, imply unnecessarily high transaction costs in advance. The principle of equal treatment ought to give way in such situations in order to achieve an efficient legal position.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2017
Number of pages129