As a consequence of Russia’s invasion of Ukraine, the EU has adopted a series of restrictive measures – sanctions – against Russia and Belarus in order to reduce their ability to finance the war and to impose consequences on the persons responsible for the invasion.
EU sanctions have also given rise to consequences in the area of procurement, including through a new Regulation (Council Regulation (EU) 2022/576 of 8 April 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine).
The Regulation prohibits the award and continued performance of public contracts above the thresholds with (i) Russian citizens or natural or juridical persons, entities or bodies established in Russia, (ii) juridical persons, entities or bodies that are more than 50 per-cent owned, directly or indirectly, by an entity listed in paragraph (i), or (iii) natural or juridical persons, entities or bodies acting for or on behalf of an entity listed in paragraphs (i) and (ii). The prohibition also includes Russian suppliers, subcontractors or entities used in the procurement if they account for more than 10% of the value of the contract.
The award of public contracts is prohibited from 9 April 2022 and the performance of contracts above the thresholds is also prohibited from 11 October 2022.
Failure to comply with the Regulation is punishable by fines or imprisonment, see the Act (1996:95) on certain international sanctions. There are therefore powerful reasons to avoid infringing the provision. However, it should be pointed out that this has not yet been tested in Swedish law, which is why it is currently not possible to say how a court would assess any situation of that kind.
What applies to framework agreements?
The Regulation does not expressly set out how framework agreements are to be handled in order not to risk breaching EU sanctions. In the opinion of the National Agency for Public Procurement, a framework agreement does not constitute a contract within the meaning of the Regulation and therefore entry into a framework agreement with an operator that is subject to the sanctions is probably not disallowed. However, carrying out call-off orders from such a framework agreement at a later stage is probably not permitted. In view of the fact that there is no sense in procuring a framework agreement from which no call-off orders may be issued, there may also be reason to review – and possibly re-do – procurements of framework agreements that are covered by the sanctions.
What applies to procurements below the threshold?
As stated above, procurements below the threshold are not covered by the Regulation. However, in our opinion, there is nothing to prevent these procurements from also being brought into line with the provisions of the Regulation if the procuring authority so wishes.
What applies to agreements in progress?
As stated above, a prohibition on awarding contracts covered by the Regulation has already entered into force. There is already a reason to inventory all agreements with suppliers in order to ensure that a contractual relationship is not covered by the prohibition. Since the prohibitions under the Regulation are likely to arise regardless of whereabouts in the supply chain an operator covered by the sanctions is located, operators further back in the supply chain should also be investigated (there is no restriction whereby the operator must be in a direct contractual relationship with the procuring authority). A procuring authority may therefore need to engage in a discussion with its contracting party concerning which operators it has engaged or plans to engage later in the project.
If a procuring authority has entered into an agreement with an operator covered by the sanctions, there are powerful reasons for withdrawing from that agreement. However, the fact that a contracting party is covered by the Regulation does not automatically mean that there are grounds for termination, and termination of such an agreement may therefore constitute breach of contract. It can therefore be extremely important to examine the existence of other contractual terms in the individual case, such as a right of termination or cancellation or conditions allowing a particular subcontractor to be replaced in order to ensure compliance with the Regulation.
What applies to future procurements?
Due to the continued uncertainty in the world situation, there is reason to believe that restrictive EU measures will remain in place for a long time. In our opinion, there is therefore very good reason for future procurements to be brought into line with EU regulations in this area. This can be done, for example, by establishing suitable contractual terms and rules in tender documentation. Specific considerations and adaptations will most likely be required in each individual procurement.
Would you like to know more about how your specific procurement is affected?
The above Regulation is just one of many regulations in the area of EU law that were added after the war in Ukraine. Also, import bans already existed on certain goods from Russia and Belarus, including certain iron and steel products, as well as bans on making payments, both directly and indirectly, to Russian and Belarusian operators that are subject to the sanctions. These regulations may also have an impact on public procurements.
In view of the fact that EU regulations are continuously being updated, it is extremely important to keep up to date with current regulations. Advokatfirman Lindahl closely monitors developments and is able to help with any review of both existing and future agreements in the area of procurement law. If you want to know more about how your specific procurement is covered by EU sanctions, you are very welcome to contact one of us or your normal Lindahl contact.