Strategic Contracting in Public Procurement: Freedom of Contract and Flexibility in Relation to Law no. 1564 of 15/12/2015, Regarding Public Procurement

Emil Lind-Holm

Student thesis: Master thesis

Abstract

This thesis presents an investigation on the legal restrictions on the freedom of contract, in relation to public procurement. Some of the legal restrictions in the Danish udbudsloven are derived from general principles of European law, among others the principles on equal treatment and transparency. The thesis examines whether a public procurer is enabled to use strategic partnerships under the current public procurement regulation, and to which degree the contracting parties can negotiate different contractual topics.
The investigation on the legal restrictions concludes that, selected procurement forms facilitates dialogue and negotiations between the contractor and the public procurer, but these negotiations cannot deal with the fundamental parts of the contract. The public procurer are legally bound to design the procurement material prior to any negotiation or binding dialogue. The limitations on the access to change this material means that, in many instances, the parties are constrained in terms of using new knowledge to complete the contract.
Through several interviews and a substantial literature review, it is concluded that a majority of public procurers are limited by the identified legal restrictions, and prefer to avoid any legal uncertainty, even though they recognize that it could imply better contractual agreements, if they went to the length of the legal opportunities. An economic analysis on the impact of the legal restrictions, therein the inability to negotiate the fundamental parts of the contracts, is conducted with elements of the P/A theory, game theory and risk allocation theory. It is derived from this analysis that substantial value can be gained from an open dialogue and negotiations, where the parties can agree on clauses that enhances the value of the contract. The thesis concludes that the flexible procurement forms are better options than the traditional forms, if the value of the contract is above a certain threshold. It is also concluded that the restrictions on negotiations and limited access to changes, severely limits the possibility of entering into efficient agreements.
The legal restrictions and the economic analysis are combined in an analysis, which answers the questions regarding the opportunity to enter into strategic partnerships in a public procurement. It is discussed whether the inability to enter into efficient agreements, is justified by other objectives of the rules of procurement. It is concluded that more flexibility and less distrust in the public procurement regulations, could improve the efficiency of the use of taxpayers money, without compromising the objective of minimizing corruption.
Finally, it is concluded that the legal restrictions, primarily in the form of prohibitions of negotiations, complicates the ability to use a strategic approach to contracting, and thereby the capability to realize relational rent.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2017
Number of pages130
SupervisorsKim Ƙstergaard & Henrik Lando