Locality Requirement in Public Procurement Tenders
Iranian and European Approaches; a Bitter Contrast
Jalal Seyedabadi Legal & Contracts Advisor ForsatMC Law Firm
Procurements in different countries and regimes are not similar in terms of openness and the process of evaluation. Laws and regulations governing tenders in Public Procurement typically require procuring entities to set a range of requirements which the tenderers shall meet for award of the contract. The procuring entities usually take into consideration, inter alia, expertise of the tenderers, expertise of the assigned personnel, financial standing, project approach and project schedule.
In some cases the procuring entities require, among other factors, the requirement of locality, which means either that only interested economic operators in location of the procurement are allowed to take part in the tender, or that local tenderers are somehow prioritized over non-local competitors when they parallel in other factors. Popularity of locality naturally differs among various countries and industries.
What about Iran?
The recent sanctions against Iran have given rise to fluctuating conditions as regards foreign public procurement. Most recently, on May 5 2019, the Parliament of Iran enacted the “Law on the Maximum Use of the Country’s Production and Service Capacities and the Protection of Iranian Goods”, which follows, through several provisions, that the procurements shall be carried out only by Iranian entities (Article 5). In exceptional cases the procuring entities shall achieve relevant permissions in order for them to procure what they are in need of through foreign tenderers.
Regardless of the mentioned law, evaluation process of foreign tenders, to some extent requires a prioritization of Iranian tenderers over non-Iranian participants. Although “Tenders Law (2004)” does not account locality as a necessary factor in assessment of the proposals, companies and organizations vastly contemplate this requirement in the tenders. For Instance, Urban Development and Revitalization Organization of Iran, New Towns Development Corporate Holding Company and Iran & World Tourism Development Corporation frequently require locality in their Invitations to tender. Especially, procuring entities apply an overall coefficient of 0.9 to evaluation of foreign Tenderers, which signifies Article 15 of the “Executive Regulation on Qualitative Evaluation of Tenderers (2006)”. The situation was even discouraging for foreigners before 2004 when the repealed Regulation on “Referring the Works to Contractors (2002)” had provided for locality as a fixed item in evaluation of the tenders.
EU and Public Procurement
European Union procurement has been known to be one of the most favorable markets for tenderers. DIRECTIVE 2014/24 of 26 February 2014 on public procurement specifies detailed provision of public procurements for the member states and contracting authorities. The procedures involve equality of treatment among all participants (Articles 42,59,76.4 and 93) as well as transparency (36,58,76.4 and 93). Under this regime, the main concerns have been public interest as well as reciprocity in openness of public procurement.
As regards public interest, locality, by itself, is not a value in European procurements, so far as the offer is economically advantageous and the tenderers satisfy relevant standards, e.g., technical and environmental criteria (Articles 58,60 and 81 of above DIRECTIVE 2014/24). Put it differently, quality is so important that the Commission has held that even abnormally low tenders shall be rejected, under certain conditions.
Locality also matters when it comes to reciprocal treatment of other states towards European member states regarding openness of their procurement markets. Reciprocity might be considered to be the most important reason behind requiring locality under EU law. In this regard, the Commission and the Parliament of EU have put tremendous effort on promoting other states to join international agreements, especially GPA under WTO. This would pave the way for mutual cooperation between bidders form EU member states and third country bidders.
In light of the above-mentioned purposes the Commission issued the “Guidance on the Participation of Third Country Bidders in the EU Procurement Market” last week. The Guidance places a great emphasis upon five main subjects, including legal framework of the bidders, which demands a common ground in terms of international instruments. The Commission also has stressed the importance of rejecting abnormally low tenders as well as the significance of quality standards.
The consequences of using locality as a factor in tenders are not the same in different situations. While requiring locality for specific purposes may provide the public with more benefits in a competitive market, in a market with a limited number of regional tenderers, locality means nothing but corruption and discrimination, which inevitably opposes public interest. This is exactly how sanctions are destroying the infrastructures of Iran. The more Iranian government isolates the economy, as a natural result of the sanctions, the more it decreases the capacity of development in the future.
 See the Directives below, for further information:
- DIRECTIVE 2014/25/EU on Procurement by Entities Operating in the Water, Energy, Transport and Postal Services Sectors
- DIRECTIVE 2009/81/EC on the Coordination of Procedures for the Award of Certain Works Contracts, Supply Contracts and Service Contracts by Contracting Authorities or Entities in the Fields of Defence and Security
- DIRECTIVE 2014/55/EU on Electronic Invoicing in Public Procurement