This new law will come into force four months after its publication in the BOE. The main exception to this rule is related to the articles governing the supervisory and control advisory bodies, which entered into force the day after the publication of the LCSP in the BOE.

Following the precedent of prior laws governing public procurement, the administrative contracts already awarded (or which are in the process of being awarded at the entry into force of the LCSP) will be governed by the law in force at the time of its awarding in relation to their effects, fulfilment and termination, including amendment, term and extensions regimes.

In this newsletter we will highlight some of the most relevant novelties that this regulation introduces into our legal system: its aim, objective scope, the contractual special appeal, the amendment of contracts, the assignment regime or the subcontracting. Considering the different contractual types, we will focus on the regulation of concession of works contract and the concession of services contract.

The prevention of corruption as an essential objective of the LCSP

The stated aim of the new law is to achieve a higher level of transparency, the best quality-price ratio of goods and services procured and, as a cornerstone, the prevention of corruption, developing the principle of integrity.

The LCSP introduces some key measures, such as: (i) an extensive (but not as clear as would be desirable) regulation of the prohibitions to enter into contracts; (ii) the creation of administrative bodies addressed to guarantee the compliance with governance obligations established by the EU Directives and to prevent irregularities in the application of public procurement regulations; (iii) the possibility that the public sector may carry out market consultations prior to the tender of an administrative contract; or (iv) the introduction of environmental, social and ethical criteria for the awarding of administrative contracts and their fulfilment.

The new contractual special appeal and changes regarding the awarding procedure

One of the most relevant novelties is the regulation of the contractual special appeal. In particular, in the acts that may be object of this appeal, which are extended to: (i) contractual modifications that infringe the provisions of the LCSP; (ii) the formalisation of orders to own instruments (encargos a medios propios) when the legal requirements are not met; and (iii) the concession recovery agreements.

The LCSP has also introduced relevant novelties in the procedures for the award of public sector contracts.

• A new simplified open procedure is created. This simplified procedure, which is very agile, can only be used for works, supply and service contracts if: (i) the estimated value is equal to or less than EUR2,000,000 for works contracts and EUR100,000 for services and supplies contracts and (ii) the legal tender terms (Pliegos de Clausulas Administrativas) (PCAP) do not establish any subjective award criteria or, if any, not exceeding 25% of the award criteria (45% if the contract contains intellectual services, such as architecture or engineering services). 
• A new “innovation partnership” procedure is introduced, whose purpose is the development of innovative products, services or works and their subsequent acquisition. To run an innovation partnership procedure, the contracting authority will have to identify the need for an innovative product, service or work which cannot be satisfied through the acquisition of products, services or works that are already available in the market. 
• The use of the negotiated procedure is limited. 
• The thresholds for minor contracts have been reduced (EUR40,000 for works contracts and EUR15,000 for supply or service contracts).

Novelties in the modification, suspension and termination of contracts

In relation to the modification of contracts, the LCSP distinguishes between those cases in which such modification is foreseen in the PCAP and those when it is not. The new regulation of the LCSP affects the regulation of the modifications not foreseen in the PCAP, which are limited to the following cases: (i) when it is necessary to add additional works, supplies or services, with the limits mentioned in the LCSP; (ii) when the modification is the result of unexpected and unforeseeable causes, although it is not allowed to alter the nature of the contract and the limits set out in the LCSP have to be respected; and (iii) the modification cannot be substantial (i.e. where the nature of the contract is materially different following the modification).

If the modification entails a variation in the price of the contract that – individually or in combination with other modifications – exceeds 20% of the initial price, such modification cannot be imposed on the contractor. If an agreement is not reached between the parties, the aforementioned results in a cause of termination of the contract.

The LCSP includes an express reference to the compensation that the contractor is entitled to receive in cases of suspension of the contract, provided that the damages suffered are irrefutably evidenced and that the PCAP does not provide for a different compensation.

Regarding the termination causes of administrative contracts, the LCSP introduces the lack of payment of the employees’ salary or the failure to comply with the conditions established in the collective bargaining agreements in force during the execution of the contract. This termination cause will only be triggered following a request by the workers’ representatives. However, it can be directly decided by the contracting authority when the affected workers are employees in respect of which the subrogation is applicable and the salaries owed exceed 5% of the price of award of the contract.

The withdrawal is also foreseen as a cause of termination of the works concession contract.

New procedure for the assignment of the contract and modifications for the subcontractor

The LCSP maintains, in essence, the previous regulations regarding the assignment of administrative contracts. As an important novelty, the transfer of shares of the company that executes the administrative contract is now regulated. This relevant matter has never been included in the contracting rules before the LCSP and has led to numerous interpretations by the public sector, not always coordinated. According to the LCSP, when the PCAP foresees that a company can be created to execute the contract, the PCAP itself will have to establish: (i) whether its shares may or may not be assigned; and (ii) when that assignment has to be considered an assignment of the contract (as it implies a change of control) for the purposes of the requirement of a due authorisation by the contracting authority. It is also provided that the PCAP establishes control mechanisms for the transfer of shares, even when they do not entail a change of control. The LCSP does not regulate the indirect change of control of the shares of the contractor company.

The subcontracting regime also undergoes some important changes. Firstly, the works or services defined as critical cannot be subcontracted. Secondly, the limitation regarding the percentage of provisions that can be subcontracted disappears and will depend on what is set out in the PCAP. Finally, the PCAP may establish the cases in which payments can be made directly to the subcontractor. These payments will be made at the contractor’s expense. In this sense, the contracting authority will not be responsible for any delay that results from the acceptance of the invoices by the contractor. Likewise, the subcontractor entitled to receive these direct payments may assign its rights in the terms mentioned in the LCSP.

The new service concession contract

Regarding the contracts subject to the LCSP, the introduction of the service concession contract and the suppression of the public-private collaboration contract, introduced in 2007, are the most relevant changes in the law.

The LCSP regulates the service contract and the service concession contract so that, although they may seem similar, they have important differences in their purpose and legal regime.

The traditional difference between these types of contracts was that the recipient of services under the contract for the management of public services was the citizen but in the service contract the recipient was the contracting authority itself. According to the LCSP, the difference between the two types of contract now lies in the assumption or not by the contractor of the operational risk of the contract.

Following the LCSP, service contracts are those whose purpose is carrying out an activity or those that are aimed at obtaining a result which is not a work or supply.

The service concession contract is defined as the one that has as its purpose the management of a service, owned or which falls within the sphere of power of a public entity, whose remuneration will be a price along with the right to operate the services or the result of said operation. Note that the contractor must assume the operational risk under any of these compensation schemes.

According to the new regulation, there is operational risk whenever it is not guaranteed that, under normal operating conditions, the concessionaire will recover the investments made or to cover the costs incurred as a result of the execution of the contract. The part of the risk transferred must involve a real exposure to market uncertainties that implies that any estimated potential loss is not merely nominal or negligible.

To the extent that the differentiating element between both contracts is no longer the recipient of the service, the LCSP includes some particularities for those cases in which, under a service contract, a number of services are carried out in favour of the citizens. In particular: (i) the obligation of the contracting authority to determine the scope of the services and to regulate the economic, legal and administrative aspects of the contract; (ii) the obligation of the contractor to provide the service with continuity and to guarantee the right of the citizens to its use; (iii) the possibility of intervention and seizure of the service by the contracting authority; and (iv) the preservation of the contracting authority powers to guarantee the adequate management of the service. The LCSP also recognises as contractual resolution causes the recovery, seizure or intervention and suppression of services for public interest reasons.

The works concession contract

The LCSP does not imply a break with the previous regulations. However, it establishes certain relevant novelties for economic operators and for the contracting authorities.

The recent Law 40/2015, of 1 October, on the Legal Regime of the Public Sector (Ley 40/2015, de 1 de octubre, de Régimen Jurídico del Sector Público) had already reviewed a number of essential provisions for those who wish to operate or finance projects tendered under the works concession contract. This law introduced, for example, the need for an ex lege prior authorisation for the pledge of compensation to which, as the case may be, the concessionaire will be entitled as a result of an early termination of the concession. Law 40/2015 also tried to clarify the effects of such early termination, including more precise references on how the corresponding compensations should be calculated.

Under the LCSP, the most obvious amendment is the change of name of the contractual type, since it is now simply called “contract for the concession of works”, losing the final word “public”, which accompanied this category since Law 13/2003, of 23 May, regulating the public works concession contract (Ley 13/2003, de 23 de mayo, reguladora del contrato de concesión de obras públicas).

There are four major changes that the LCSP introduces in relation to the concession contract:

• It incorporates a withdrawal right in favour of the concessionaire when the contract has become “extraordinarily burdensome” (extraordinariamente oneroso), provided that it is a consequence of: (i) the approval of a general provision by other contracting authority different to the grantor; or (ii) investments derived from technical advances that must be addressed ex lege or because the contract requires so. The “extraordinarily burdensome” concept is valued by the LCSP in a net annualised increase of the costs of, at least, 5% of the net amount of the turnover of the concession for the period remaining until the termination of the concession, after deducting the income generated by the investment, if any. The exercise of this right implies that there will be no compensation for any of the parties. 
• It is expressly established that the non-fulfilment of the demand forecasted for the project will not lead to the economic-financial rebalancing of the concession. 
• Although the possibility of recovering a concession is something that was expressly provided for in previous regulations, the LCSP establishes that the contracting authority must prove that direct management is more efficient and effective than concession management. 
• It is clearly established that the concessionaire assumes the operational risk. According to the LCSP, the concessionaire is considered to assume an operational risk when, under normal operating conditions, it is not guaranteed that the concessionaire will recover the investments made or cover the costs incurred as a result of operating the works that are the subject of the concession.

There are also two relevant new requirements in relation to the preparation of the concession contract. The contracting authority must now explain in the feasibility study the advantages that recommend the use of the works concession contract in comparison with other contract types. This feasibility study must be published in the corresponding contractor’s online profile. In addition, the rules for change of control as well as the regime to which said change of control is subject are imposed as minimum content of the bidding documents (Article 250.1 of the LCSP).

Finally, other changes that deserve attention are: 

• The remuneration of the concessionaire for the use of the works subject to concession is a public non-tax nature patrimonial provision named as “tariff”. 
• When there are availability payments, the tender terms shall include the automatic correction indexes, independent of the possible penalties that may be incurred by the concessionaire in the provision of the service. 
• The recovery of the concession is now called “intervention or recovery”.