22 The implementation of supply contracts – A users’ guide

[The content of this chapter is under the responsibility of Unit INTPA.R.4. The last update was made in June 2022.]

22.1 Introduction

The general conditions govern the implementation of supply contracts. The standard tender documents and contracts contain several references and options for modifying and supplementing the general conditions through the special conditions. The special conditions may thus include the necessary additions to the general conditions. Through these additions and modifications, the special conditions should take into account the specific subject matter of the contract as well as the specific circumstances of the project to which the contract relates.

This guide does not deal with each article of the general conditions for supply contracts; but only with those articles, which are considered essential or so complex as to require further explanation. Other provisions of the general conditions speak for themselves.

22.2 Article 5 - Assignment

Contractors sometimes need to assign rights under the contract for the benefit of their creditors or insurers. For instance, when the contractor insures herself/himself for possible losses, the insurance contract will often require the contractor to transfer to the insurer his right to obtain relief against the person liable, so that the insurer can recover the damages from that liable person.

Likewise, when granting credit, the contractor’s bank can demand from the contractor that the payments, which the contractor receives under the contract, are directly paid to the bank. Such assignments for the benefit of the contractor’s creditors or insurers do not imply that these bank or insurance companies will take over the further implementation of the contract.

Consequently, Article 5(2) stipulates that for the situations under points (a) and (b) of that article, the prior written consent of the contracting authority is not required. Still, even for those cases, the contractor will have the responsibility to notify the contracting authority of the assignment, as covered in articles 27(1) and 27(2).

In other cases, a prior authorisation of the contracting authority is required. In the situations the contractor’s rights and obligations under the contract can be transferred to a third party, the assignee, who then in his turn becomes the new contractor for the contract or a part of it. An assignment could, for instance, become necessary following an organisational or shareholding change in the group of which the contractor forms part (e.g. acquisition, merge, etc.) when such change entails a modification in the juridical status of the contractor.

The assignment through which the assignee takes over the further implementation of the contract requires the prior written consent of the contracting authority formalised through an addendum of the contract. As the initial contractor — the assignor — obtained the contract through a public procurement procedure, the contracting authority, when giving its consent, has to assure that the assignment is not a way to circumvent the award procedure. It does not call into question the basis on which the award decision was made. For this reason, the assignee must also satisfy the eligibility and exclusion criteria applicable for the award of the contract in the original tender dossier.

For the same reason, the assignment must not alter the unit price or the contract conditions of the initial contract. As a result, the addendum formalising the transfer of the contract will often be limited to a mere modification of the contractor’s identity and bank account details.

The addendum is to be signed by the contracting authority, the assignor and the assignee. The assignor and assignee often lay down the arrangements between them in a separate deed to which the contracting authority is not and should not be a party.

Before giving its prior written consent to the proposed assignment, where necessary, the contracting authority should receive the necessary financial guarantees from the assignee. As the assignee takes over all contractual obligations without limitation, the assignee will bear full liability for any contractual breach, regardless whether the cause took place before or after the assignment. Article 5(3) states that assignment does not relieve the contractor of its obligations for the part of the contract already performed or the part not assigned.

By virtue of articles 5(4) and 36(2)(d), the assignment of a contract by the contractor without authorisation by the contracting authority is valid cause for termination of the contract.

Article 5(4) also states that, in the case where the contractor has assigned the contract without prior authorisation, the contracting authority can apply, as of right, the sanctions for breach of contract. Therefore, in addition to the extra costs for completion of the contract, the contracting authority must be entitled to recover from the contractor any loss it has suffered up to the value of the supply (general damages), unless otherwise provided for in the special conditions.

22.3 Article 6 - Subcontracting

Although certain supplies may be subcontracted, the contractor remains fully responsible for his obligations under the contract (Article 6(5)). The supply to be subcontracted and the names of the subcontractors must be notified to the contracting authority. The contracting authority then notifies the contractor of its decision authorising or refusing to authorise the proposed subcontract within 30 days. Where the contracting authority refuses authorisation, the reason for the refusal should be stated (Article 6(2)). Subcontracting without the authorisation of the contracting authority can result in termination of the contract (Article 6(7) and 36(2)(d)).

Before authorising a subcontract, the contracting authority should examine the contractor’s evidence that the subcontractor she/he proposes satisfies the same eligibility criteria as those applicable for the award of the contract and is not in one of the exclusion situation mentioned in the tender dossier. For European Development Fund (EDF) financed contracts, where subcontracting is envisaged, preference must be given by the contractor to subcontractors of African, Caribbean and Pacific (ACP) States capable of implementing the tasks required on similar terms (Article 26(1)(d), of Annex IV to the Cotonou Agreement [1] ). It is most likely the case that private sector operators of ACP States be awarded subcontracts on the local market. However, when checking that the proposed subcontractor meets eligibility criteria, the contracting authority should bear in mind Article 26 purpose of encouraging the widest participation of natural and legal persons from ACP States.

A tenderer may in his tender have stated the supply, which she/he proposes to subcontract and sometimes also the name of the proposed subcontractors. Before the contract is signed, it should be made clear whether the contractor is to be bound by such proposed subcontracts. This will be the case where the qualifications of the subcontractors, identified by a tenderer in his tender, have been taken into account during the evaluation of the bids and are part of the technical reasons for awarding the contract to the tenderer in question. If this is the case, the notification of award of the contract should be explicitly mentioned it.

In relation to the execution of a subcontract, it is sometimes necessary for the project manager to deal directly with the subcontractor on technical matters. In such a case, she/he may only do so with the agreement of the contractor. It is essential that the contractor is kept informed at all stages so that the contractor is immediately aware of discussions or correspondence that have taken place between the project manager and the subcontractor and can comment or take such action as she/he considers appropriate.

If, at the end of the warranty period, there is still some unexpired guarantee or other obligation due from a subcontractor to the contractor, the latter must transfer this right including any guarantee to the contracting authority if so requested (Article 6(6)). The contracting authority may also make such a request at any time after the end of the warranty period. The contractor should always include a provision in his contract with the subcontractor so that she/he can fulfil his contractual obligations in this respect.

Subcontracting should be distinguished from cases where the contracting authority enters into a separate direct contract with another contractor for supplies, which are not part of the contract, but is part of the same project. Where a project is divided into a number of separate contracts, the project manager will need to coordinate them, on behalf of the contracting authority. Whilst a contractor is fully responsible for his subcontractors, she/he is not responsible for other contractors working on the project but she/he may be responsible for liaising with them if she/he is required to do so in his contract.

22.4 Obligations of the contractor

Save where the European Commission requests or agrees otherwise, the contractor shall take all relevant measures to ensure the highest visibility to the financial contribution of the European Union. Additional communication activities required by the European Commission are described in the special conditions. All visibility and, if applicable, communication activities must comply with the latest Communication and Visibility Requirements for EU-funded external action, laid down and published by the European Commission at the following address: Communication and Visibility Requirements for EU External Actions | International Partnerships (europa.eu) .

The Parties will consult immediately and endeavour to remedy any detected shortcomings in implementing the visibility and, if applicable, communication requirements set out in this Article and in the special conditions. Failure to perform the visibility and communication requirements can constitute a breach of contract and can lead – inter alia – to suspension of payment and/or reduction of the final payment in proportion to the seriousness of the breach.

22.5 Article 9a - Code of conduct

The contractor must act at all times with impartiality and as a faithful advisor to the contracting authority in accordance with the code of conduct of its profession (Article 9a(1)). It must abstain from partaking in any activity or receiving any benefit, which are in conflict with its obligations towards the contracting authority (Article 9a(5)).

The requirement that the contractor be independent is developed in Article 9a(4) that also concerns its subcontractors, agents, and personnel.

The European Commission applies a zero tolerance policy regarding all forms of misconduct including sexual exploitation, abuse and harassment by its staff and those of partner organisations receiving EU funds.

In this respect Article 9a(1) covers any form of physical, sexual and psychological conduct as well as any form of verbal and non-verbal abuse and intimidation, including harassment and sexual harassment.

Contractors must immediately report to the contracting authority any allegation of misconduct involving sexual exploitation, abuse and harassment. If the contracting authority is an EU delegation, it must also inform the relevant finance and contracts unit as well as the central contact point in Headquarters (DG INTPA Director R. Security Coordinator).

As a minimum this notification should include the following information about the report/allegation e.g. misconduct category, type and short description. It is for the contracting authority to assess the gravity of the misconduct, taking into account possible remedial measures taken these remedial measures may include for instance:

- the active collaboration with the investigating authorities;

- the implementation of safeguarding procedures to prevent, respond and manage the harassment/sexual harassment and sexual exploitation and abuse situations, such as: creating internal procedures to address the risk of sexual exploitation and abuse in the contractor staff programme, developing a code of conduct with standards that include the sexual exploitation and abuse principles, developing complaints procedures for the staff and other personnel to report incidents, developing internal investigation procedures, ensuring disciplinary actions and sanctions, establishing and implementing a victim assistance mechanism;

- the evidence of appropriate staff reorganisation measures following the misconduct, such as the dismissal of the employee responsible of the infringement.

Investigations should be completed within an acceptable time frame and the contracting authority should update DG INTPA Directorate R and the appropriate geographical directorate on outcomes and actions taken.

If the contracting authority considers the remedial measures to be not sufficient, it must inform the contractor.

These procedures should take into consideration all relevant data protection and confidentiality related requirements. The contracting authorities must treat the related information as ‘special categories of personal data’ and in doing so ensure appropriate confidential storage and handling. To this end, the contracting authorities must have in place appropriate safeguards for the rights of the data subjects concerned, in particular adequate technical and organisational measures to ensure the security and confidentiality of such categories of data, to prevent accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to personal data transmitted stored or otherwise processed. Where the contracting authority is a EU delegation the measures may, among other, take the form of secure transmission of data via Secure Electronic Mail (SECEM), definition of access rights strictly on a need to know basis, secure storage of paper files in locked cupboards, restricted access to relevant Ares files, secured electronic documents stored in common drives.

The respect of the code of conduct set out in Article 9a constitutes a contractual obligation. Failure to comply with the code of conduct is always deemed to be a breach of the contract under Article 35 of the general conditions. In addition, failure to comply with the provision set out in the Article 9a can be qualified as grave professional misconduct that may lead either to suspension or termination of the contract, without prejudice to the application of administrative sanctions, including exclusion from participation in future contract award procedures.

The grave professional misconduct covers not only the misconduct related to offensive behaviours as defined in the ‘zero tolerance’ clause (Article 9a(1)), but also any wrongful conduct that has an impact on the professional credibility of the contractor and denoting a wrongful intent or gross negligence. In practical terms, the contracting authority may invoke the grave professional misconduct for all wrongful conduct that implies a breach of the obligations stated in the code of conduct/ethical obligations by contractors that the contracting authority can demonstrate with any means. In this respect, the grave professional misconduct may lead to suspension or termination of the contract, without prejudice to the application of administrative sanctions, including exclusion from participation in future contract award procedures.

Article 136(1)(c) Financial Regulation [2] provides a non-exhaustive list of cases, such as:

- fraudulently or negligently misrepresenting information required for the verification of absence of grounds for exclusion or the fulfilment of eligibility or selection criteria or in the implementation of the legal commitment;

- entering into agreement with other persons or entities with the aim of distorting competition;

- violating intellectual property rights;

- attempting to influence the decision-making of the authorising officer responsible during the award procedure;

- attempting to obtain confidential information that may confer upon it undue advantages in the award procedure.

22.6 Article 9b - Conflict of interest

The contractor must take all necessary measures to prevent or put an end to any situation of conflict of interest that may arise, for example financial interests, national or political affiliations, or familial or emotional links. This article does not only cover the contractor, but also his subcontractors, agents, and personnel.

Where a conflict of interest arises during the implementation of the contract, the contractor must inform the contracting authority and take all necessary measures to put an end to the conflict.

For distortion of competition during the procurement procedure, please refer to PRAG 2.5.1.

Article 36(2)(n) permits the contracting authority to terminate the contract if the provisions concerning conflicts of interest have not been respected.

22.7 Article 10 - Origin

Origin is the ‘economic’ nationality of goods in international trade. The rule of origin refers to the origin of goods and equipment.

For contracts financed by a basic act under the new Multiannual Financial Framework 2021-2027 ( irrespective of the value), all supplies and material may originate in any country. This means that the rule of origin no longer applies.

Therefore, currently the rule of origin is only applicable to contracts financed by a basic act under the Multiannual Financial Framework 2014-2020 (contracts/lots above EUR 100 000 under CIR and irrespective of the value for other instruments).

Only for the contracts financed by a basic act under the Multiannual Financial Framework 2014-2020:

The additional information about the contract notice/instructions to tenderers of the call for tender have to define the rule of origin. Therefore, it is required to refer to those documents and to PRAG Annex a2a_ecprogrammes_eligibility 2014_2020 in order to assess goods compliance with the rule of origin in a concrete call for tenders.

In exceptional and well-justified cases, the contracting authority may have sought derogation to the rule of origin. This could be the situation of particularly closed markets, or remote areas where spare parts are not easily available. Another typical example is IT supplies, which need to be compatible with existing installation not compliant with the rule of origin. In those cases, the derogation must have been granted before the procurement procedure was launched and captured properly in the tender documents so that potential bidders take into account when preparing their offers.

Goods whose production involves more than one country must be deemed to originate in the country where they underwent their last substantial transformation (see PRAG Sections 2.3.5 to 2.3.9).

Obviously when goods are wholly obtained or produced in one country, the origin must be established in that country. In practice and in the context of global value chains, this will be restricted to mostly products obtained in their natural state and products derived from wholly obtained products.

The contractor must declare the origin of goods in the offer. The origin must be proved by a ‘certificate of origin’ provided by the contractor to the contracting authority on provisional acceptance and before executing the final payment [3] . The provision of the certificate of origin cannot be considered an outstanding item, which the contractor may address during the warranty period. The provisional acceptance certificate cannot be issued without previous positive assessment of the certificate of origin. This assessment aims at verifying that the certificate of origin is made out by the competent authorities of the country of origin of the supplies or supplier (normally the chambers of commerce). In case of doubt regarding the certificate of origin or the information it contains, the contracting authority should request additional information to the contractor or to the chamber of commerce having issued the certificate [4] .

The contracting authority may also require the contractor to provide more information before the provision of the certificate (e.g. when the supply is a component of a works contract) (Article 10(2)). The contractor can also be requested the information provided to the chamber of commerce in order to get the certificate of origin issued.

Failure to provide a certificate of origin, or providing a certificate with a non-compliant origin, as well as a certificate not reflecting the actual origin of the supplies or a fake certificate may lead, in addition to other possible sanctions, to the ineligibility of the relevant costs of the supply covered by the certificate, to damages and/or to termination of the contract (Article 10(3)). The provision of an accurate certificate of origin, issued by the institution legally empowered to do so is a contractual obligation by the contractor.

Contracting authorities are strongly encouraged to pursue the range of actions above mentioned in accordance with the gravity of the case at stake. As guidance, the following measures should be observed:

- Absence or non-compliant certificate of origin: ineligibility of the costs of the supplies affected, these items will not be paid for (see Article 35(4)). The claim of damages and/or the termination of the contract may also be envisaged depending on the seriousness of the case in relation with the total contractual amount and on the status of implementation of the contract. In the case of liquidated damages, they can be calculated on the basis of the contractual portion affected by the lack or non-compliant certificates (financial amount of items).

- Proved faked certificate(s): in addition to the above measures, the contracting authority should consider launching a procedure to impose administrative sanctions (exclusion and/or financial penalty) on the contractor.

In order to apply these measures, the contracting authority has to take into account not only the impact of the case in relation with the total contractual amount and the status of the contract in terms of degree of implementation, but also additional factors such as urgency, room for maneuver to award another contract with a different supplier, etc.

Contracting authorities are also strongly encouraged, along with Commission's staff in cases of indirect management, to carry out on-the-spot checks of origin of goods, even more if there are doubts about the origin declared during the tender phase or about the certificates provided. Some checks can be as simple as searching for plates in the supplies with a declared origin ‘Made in_____’, or other clues conducive to ascertain a possible origin. These checks can potentially unveil cases of non-compliant declared origin.

22.8 Article 12 - Liabilities and insurance

Article 12 contains two liability caps: Article 12(1)(a) caps compensation for damage to the supplies, while Article 12(1)(b) caps compensation for damage in respect of the contracting authority. The liability is capped to the contract value / EUR 1 000 000 for each part of this article. The overall liability is therefore not capped to the contract value / EUR 1 000 000 in aggregate.

22.9 Article 13 - Programme of implementation of tasks

If so required in Article 13(2) of the special conditions, the contractor must submit to the project manager a programme of implementation of tasks. The programme should contain, at least, the order in which the contractor proposes to carry out the tasks, the time limits within which submission and approval of drawings are required, a general description of the method, which the contractor proposes to carry out the contract, and such further details and information as the project manager may reasonably require (Article 13(1)).

The contractor sends the programme to the project manager within the deadline set in the special conditions. It is subject to the approval of the project manager within the time limit provided therein. The programme has contractual significance for the actions taken by the contractor, the project manager and the contracting authority. The programme will enable the project manager to take timely action in monitoring the progress of the implementation and to enable the contracting authority to arrange for the provision of drawings, documents and items. It also permits the contractor to effect timely orders and the allocation of resources (materials, equipment, etc.).

The special conditions should give any additional information or specification about the manner in which the programme should be presented. The special conditions may specify the format for the programme.

The project manager, on observing that the implementation of the tasks has departed materially from the approved programme, may instruct the contractor to revise the programme within a given time and in the manner that the project manager considers appropriate (Article 13(4)). The purpose of having a revised programme is to show how the contractor intends to make up for any delay to complete the remaining tasks within the time available. Proper management of the contract is only possible with a realistic programme, which reflects the actual progress already made.

Where the contractor is proceeding with the tasks in accordance with or in advance of the programme, it should not be necessary for the project manager to order such a revision. On the other hand, the contractor is not permitted to modify the programme of implementation of tasks without the approval of the project manager.

The contractor is not entitled to any additional payment for revising the programme.

22.10 Article 16 - Tax and customs arrangements

Clearance through customs, import and export licenses, port regulations, storage and transport regulations are normally the responsibility of the contractor and she/he should take all necessary steps in sufficient time to meet the requirements of the contract.

The contracting authority should facilitate the contractor in connection with clearances through customs and tax exemptions where applicable although it is the contractor herself/himself ultimately responsible for fulfilling tax and customs obligations.

Delivery conditions are established in the tender dossier choosing between two options. The first one is delivery duty paid (DDP), according to Incoterms established by the International Chamber of Commerce in 2020 (Article 16).

DDP sets the widest obligation for the seller in respect of transportation and loss risks and damage associated with the goods: ‘the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.’ This means that the seller delivers the goods to the buyer, cleared for import and not unloaded from any arriving means of transport at the named place of destination.

The alternative Incoterms, which need to be specified in Article 16 of special conditions (when so indicated in the instructions to tenderers), would be delivered at place (DAP): ‘the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.’ This means that the buyer bears all risks and costs of import clearance at the port or at the border of the agreed place of destination, whereas customs clearance for export is on the seller, differently from DDP. DAP proves to be a favorable option especially when the Financing Agreement foresees an exemption of import duties (usually the case under the EDF), by relieving the seller from often lengthy customs formalities.

Unloading is not included in the Incoterms delivery conditions; however it is already foreseen in Article 15(1). Nevertheless when it is required (and it is strongly encouraged to do it), it should also be added in the instructions to tenderers and in the special conditions of the contract. Further requirements for liability and insurance may also be introduced in special conditions Article 12.

In addition to choosing delivery conditions in Article 16 of special conditions, any other element needing to be included or excluded from the tender price can be specified in special conditions Article 15, otherwise Article 15(1) fully applies.

For specific obligations on ACP States related to taxes and customs arrangements (Article 31 of Annex IV to Cotonou agreement) please refer to Section 9.4.1. of the INTPA Companion.

22.11 Article 22 - Amendments

No request for modification can give rise to a change in the conditions of awarding the contract in question.

Three situations are to be distinguished.

22.11.1 Changes that do not need a contractual modification

Increases or decreases as regards the quantity of any incidental siting or installation that are a result of too low or too high estimates in the budget breakdown do not constitute a modification of the contract and do not therefore require an administrative order or a contractual addendum (Article 22(4)(c)). The same applies to any changes of address or bank account by the contractor (Article 22(9)).

Also, the contracting authority may also simply notify to the contractor changes regarding the contact persons, addresses and other contact details in writing by any means of communication that provide assurance it was delivered.

22.11.2 Administrative order

On his own initiative or at the request of the contractor, the project manager or the contracting authority can order any modification that she/he considers useful for the proper implementation of the contract, so long as it does not have the effect of invalidating the contract. Article 22 of the general conditions outlines the modifications that she/he may make, and sets out the terms and criteria of their execution. These modifications can be ordered by making administrative orders.

There may be urgent situations where it is necessary to issue oral instructions to the contractor. In such cases, the oral instructions should be promptly confirmed by issuing an administrative order. Alternatively, the contractor may confirm in writing an oral order, which has been given by the project manager or the contracting authority. This is deemed to be an administrative order unless immediately contradicted by the project manager or the contracting authority in writing (Article 22(4)(b)).

Except in the case of oral instructions, an administrative order to modify a contract is made in accordance with the following procedure:

a) The project manager evaluates the nature and form of the modification.

b) Although the project manager is not obliged to request authorisation from the contracting authority before inviting the contractor to submit proposals, she/he can consult the contracting authority in order to be sure that it does not disapprove.

This precaution is particularly important where the modification results in budgetary adjustments, which must be considered by the donor.

c) The project manager or the contracting authority notifies the contractor of his intention to request a modification and outlines its nature and the form. She/he also asks the contractor to submit all necessary proposals for changing the budget of the contract and the programme of implementation for the tasks.

d) After receiving the contractor’s proposal, the project manager can issue an administrative order to make the modification, which should indicate any additional information given by the contractor.

All administrative orders issued by the project manager must receive the agreement of the contractor.

All modifications are evaluated in accordance with the rules defined in Article 22(7). Whenever possible, appropriate rates and prices in the budget should be used at least as a basis for comparison. An amount considered as ‘reasonable’ should only be fixed when there are no appropriate applicable rates or prices. This amount should cover the estimated actual cost to the contractor, as well as overheads and profit.

Among the modifications, which can be requested by the project manager, there are for example, changes in the quantity up to 100%, provided the total value of supplies does not vary more than +/- 25% of the tender price. This possibility is foreseen in Article 22(2).

Apart from the case above, the project manager cannot issue an administrative order resulting in an increase or reduction in the initial amount of the contract. All other modifications, which result in an increase or reduction in the total value of the contract or substantial modifications, require an addendum (see Section 22.10.3. of the Companion).

An administrative order must be validated within the execution period of the contract, provided any modification is requested during the implementation period. It must be noted that the execution period of the contract may continue up to 18 months after the end of the period of implementation.

Sometimes a modification is made necessary by a failure of the contractor or by a deficiency in implementation, which is imputable to her/him. In this case, all the additional costs created by this modification are attributable to the contractor (Article 22(7)).

22.11.3 Addendum

In addition to the above changes, it can happen that the parties to the contract (the contracting authority and the contractor) mutually agree upon more serious modifications to the contract. Then, such contract modification must be formalised through an addendum (Article 22(1)).

In this regard, it is important to bear in mind that:

- It is necessary to proceed through a contract addendum when the envisaged modification would result in an increase or reduction of the total value of the supplies in excess of 25% of the initial contract price.

- An addendum is also necessary when additional deliveries by the original supplier become necessary. In this case, following negotiated procedure, an addendum to the contract can be concluded under the following conditions:

(i) when the additional deliveries are intended as partial replacement of normal supplies or installations; or

(ii) where the additional deliveries are the extension of existing supplies and installations; and

(iii) where a change of supplier would oblige the contracting authority to acquire equipment having different characteristics that would result in either incompatibility or disproportionate technical difficulties in operational maintenance.

An addendum must be validated within the execution period of the contract, provided any modification is requested during the implementation period. It must be noted that the execution period of the contract may continue up to 18 months after the end of the period of implementation.

22.12 Article 23 - Suspension

Various reasons can justify the suspension — in principle temporary — of a contract. Sometimes, the law governing the contract provides for special causes of suspension, which are in addition to the specific causes in the contract. Article 23 of the general conditions foresees two cases of contract suspension.

22.12.1 Suspension by administrative order of the contracting authority

Traditional event of suspension, concerns all the contract or part of it for such time or times and in such manner as the contracting authority may consider necessary.

22.12.2 Suspension for presumed substantial errors, irregularities or fraud

Suspension may be notified by the project manager or the contracting authority. It needs to be kept in mind that in the event that substantial error, irregularity or fraud are not confirmed and/or attributable to the contractor, this case of suspension allows the contractor to be compensated for the expenses incurred due to any precautionary measures related to the suspension.

The contractual and financial consequences of the suspension are set out in Articles 23(4) to 23(6).

22.13 Testing, acceptance and maintenance

22.13.1 Introduction

The contractor is required to provide the supplies, which conform to the specifications, samples, etc. laid down in the contract (Article 24(1)).

The various stages in the checking procedure result in preliminary technical acceptance for certain materials, if required in the special conditions (Article 24(2)), provisional acceptance (Article 31) and final acceptance of the supplies (Article 34).

The provisional and final acceptance are the two stages in which the supplies are taken over effectively. The provisional acceptance takes place when the supplies have been delivered. The final acceptance takes place once the warranty period expires and any defects have been properly made good by the contractor. The contract may permit the provisional acceptance of the supplies in parts (partial provisional acceptances).

The warranty period stated in the contract commences on provisional acceptance. For defective items, which have to be replaced or repaired, the warranty period restarts at the time of replacement or repair being made to the satisfaction of the project manager.

The contractor is responsible for rectifying all defects, which are observed in the supplies during the warranty period, provided that the defects are due to his default. She/he will not, however, be liable for defects that can reasonably be attributed to normal wear and tear or to faulty design or acts of the contracting authority or of the project manager.

The contracting authority and the head of delegation should be kept duly informed on the acceptance process.

22.13.2 Preliminary technical acceptance: inspection and testing of materials and workmanship

If preliminary technical acceptance is requested it needs to be specified in Article 24(2) of the special conditions.

When the contractor considers that certain items are ready for preliminary technical acceptance, she/he takes the initiative by sending a request to the project manager (Article 24(2)). This is particularly important for inspections and tests not carried out on site but at the place of manufacture. If the project manager finds them satisfactory, she/he must issue a certificate stating that the items meet the requirements for preliminary technical acceptance laid down in the contract.

Before delivering such a certificate, the project manager [5] will proceed to inspection and testing as specified in Article 25(2) of the special conditions. Inspection is essentially visual in nature. It includes examining and measuring components and materials to check their conformity with the drawings, models, samples, etc., as well as checking the progress of manufacture against the program of implementation of tasks. Testing is the carrying out of technical tests on materials, components and manufactured goods, as described in the contract, to check that they are of the specified quality.

Inspection and testing may take place at the place of manufacture, the site or other places as may be specified in the contract (Article 25(2) of the special conditions). If no place is specified the place should be agreed between the contractor and the project manager.

In preparing his program of implementation of tasks, the contractor should allow for inspection and testing by the project manager and for the acceptance procedures and the contractor’s tender price should include costs for all tests; all contractor’s responsibilities relating to testing and inspection are specified in Article 25(3).

If the project manager and the contractor disagree on the test results and where either party can require the test to be repeated or can request that the test is carried out by an independent expert. In that case, the party who is proved wrong pays for the repeat test. The result of the retesting is final (Article 25(6)).

Components and materials that are not of the specified quality must be rejected. Article 30 describes the procedure to be followed in that case including the possibility for the contracting authority to employ another contractor to make good any rejected part of the supply (Article 30(3)) although it is preferable that it is the contractor who rectifies the defects, since employment of another contractor can confuse liabilities especially if the replacement order is not properly done.

It should be pointed out that the signing of a preliminary technical acceptance certificate is not final and depends on the project manager. It does not prevent the project manager from rejecting components or materials should any defect in them become apparent at a later date or when the supplies are submitted for provisional acceptance (Article 24(3)).

When tests have shown no failure and the supplies fail to meet non-essential technical requirements of the contract only at a later stage, the project manager may investigate with the parties to the contract whether an acceptable solution can be found based on adjustment of payment. This is particularly the case where replacement would lead to long delays, yet where the supplies delivered still meet the essential technical requirements. Although it is not provided for in the contract, this may be in the best interests of all concerned. Any agreement reached should take due account of the savings to the contractor in not having to replace the supplies and in not having to pay liquidated damages. On the other hand, the contracting authority could gain in smooth and timely achievement of the tasks, especially in cases where rejecting materials already delivered and installed entails serious delays or disruption in the contract implementation.

In carrying out his duties, in particular during inspection and testing, the project manager often gains access to much information of a commercial nature regarding methods of manufacture and how an undertaking operates. She/he is required to respect the confidentiality of this information and describe it to others only on a ‘need to know’ basis (Article 25(7)).

22.13.3 Partial provisional acceptance

Partial provisional acceptance involves the acceptance on a provisional basis of parts of supplies, which have been delivered separately (Article 31(5)).

This may be with or without the contract specifying different lots (Article 31(4)).

22.13.4 Provisional acceptance

The contractor is required to initiate the process of provisional acceptance of the supplies. The project manager, on his part, is obliged within 30 days after the receipt of the contractor's application, either to issue the certificate of provisional acceptance to the contractor, with a copy to the contracting authority, or to reject the application (Article 31(2)). These firm time limits for implementing the procedures are designed to reduce to the minimum possible the time needed for provisional acceptance. If the project manager fails either to issue the certificate of provisional acceptance or to reject the contractor’s application within the period of 30 days, she/he is deemed to have issued the certificate on the last day of that period (Article 31(4)). Only for contracts financed by a basic act under the Multiannual Financial Framework 2014-2020 , the provisional acceptance certificate cannot be issued without previous positive assessment of the certificate of origin (see Section 22.6.). Partial provisional acceptance can be envisaged if needed for an efficient contract implementation (delivery by big batches in different periods, issues pending with some certificates, etc.).

Upon provisional acceptance of the supplies, the contractor is required to dismantle and remove from the place of acceptance all his remaining equipment, temporary structures and materials she/he no longer requires and any litter or obstructions and restore the place of acceptance to the condition specified in the contract (Article 31(6)). The obligation of the contractor to leave the place of acceptance in proper condition is of utmost importance as it carries both cost and environmental consequences. Particular attention should be paid not only to the place of acceptance and its vicinity but also to any quarries, borrow pits, buildings, water sources etc., which were put at the disposal of the contractor by the contracting authority. The project manager should ensure that this obligation is enforced.

After provisional acceptance and without prejudice to the warranty period referred to below, the contractor must no longer be responsible for risks that may affect the supplies and that result from causes not attributable to her/him.

22.13.5 Warranty period and obligations

On the date of provisional acceptance a warranty period commences, which is 365 days if not otherwise specified in the contract (Article 32(7) of special conditions). Separate parts of the supplies may be assigned different defects liability periods, if need be (Article 32(3)).

The warranty period for items that have been replaced or repaired commences only after the observed defects have been remedied by the contractor and certified by the project manager.

The main purpose of the warranty period is to demonstrate, under operational conditions that the supplies have been provided in accordance with the requirements of the contract. During this period, the contractor must not only make ready such outstanding items of supplies as may be listed in the certificate of provisional acceptance. She/he should also remedy any defects, which are revealed during the warranty period (Article 32(2)). Only for contracts financed by a basic act under the Multiannual Financial Framework 2014-2020,the certificate of origin cannot be treated as outstanding item (see Section 22.6.).

The contract does not generally require the contractor to perform further warranty obligations, unless provision has been specifically made for this in the contract documents (with corresponding provisions in the technical specifications) (Article 32(6) of special conditions). This can be the case of the commercial or manufacturer warranty, which is the warranty the manufacturer, provides for a defined period that the supply will be free from structural defects due to substandard material or workmanship, under conditions of normal commercial use and service.

The contracting authority or the project manager should notify the contractor if any defect appears or damage occurs for which the contractor is responsible during the warranty period. If the contractor fails to remedy a defect or damage within the time limit stipulated in the notification, the contracting authority itself may carry out the repairs or employ someone else to do so, at the contractor’s risk and expense. In this case, the costs to the contracting authority for carrying out the repairs are deducted from monies due to or from guarantees held against the contractor or from both.Alternatively, the contracting authority may terminate the contract (Article 32(4)). However, it is always preferable to give the contractor every opportunity to make good defects in order to avoid disputes, which may arise if the repair supply is not satisfactory.

The issue of the notification of defect or damage to the contractor, referred to in Article 32(4), would normally fall within the duties of the project manager.

22.13.6 Final acceptance

The project manager should issue a final acceptance certificate to the contractor within 30 days upon the expiration of the latest contractual warranty period or as soon thereafter as any supply have been provided and defects or damage have been rectified if that replacement or rectification did not take place before the end of the latest warranty period (Article 34(1)). A copy should be sent to the contracting authority, who should keep the head of delegation informed.

Notwithstanding its wording, the final acceptance certificate does not release the contractor from all his obligations under the contract and the contractor remains responsible as from the date of provisional acceptance for his obligations, as laid down in the law of the state of the contracting authority. For latent defects or faults of the supplies, which were not discoverable at the end of the warranty period, the contractor remains liable for the period specified in the law of the state of the contracting authority, which also specifies the nature and extent of this liability.

A number of consequences follows from the issuance of the final acceptance certificate. For example, the contractor is required to return to the contracting authority any drawings, specifications or other relevant contractual documents (Article 7(1)). The performance guarantee is also released within 45 days after the signed final acceptance certificate has been issued (Article 11(7)). There may still be some matters in dispute at this time; therefore, the performance guarantee is released for its total amount except for amounts, which are the subject of amicable settlement, arbitration or litigation.

22.14 Article 26 - Revision of prices

The contractor is bound by the rates and prices specified in the contract. She/he assumes the risk of cost increases that may occur during the period of implementation of the tasks. Nevertheless, for contracts extending over several years, and/or when the price of goods is subject to heavy inflation it is possible to make recourse to indexation. None of these cases is common in supply contracts and revision of prices is rarely used.

Revision of prices is only authorised if provided for in the special conditions (Article 26(9)). It may occur that the tender documents or the contract documents make this revision automatic. The procedure for this revision must specify the items to be subject to the revision. This is particularly the case for contracts of duration of greater than one year, but only for the period following the first year. There is a revision of prices when there is a rise in prices in the country of the currency in which payments are made.

The detailed rules as regards the revision of prices must be mentioned in the special conditions. The formula for the price revision makes reference to changes in the indices of consumer prices. A circular from DG BUDG, which is annexed to this INTPA Companion (Annex I2), indicates the formula to be used in this case.

‘Price revision’ means any change in the contract price that is made necessary by factors, which are external, non-technical, and beyond the control of the contracting authority and the contractor, and that takes account of changes in the prices of significant elements of the costs incurred by the contractor.

The price revision may result in either an increase or a decrease of the contract price, depending on the variation in the price of the basic elements.

The price revision requires a reference date for when the prices were determined. This date must be, in case of a call for tenders the deadline for submission of tenders or the expiry date of tenders or, in the case of contracts signed pursuant to a negotiated procedure, the month before the day on which the contractor signed the contract.

22.15 Payments

22.15.1 General

The contractor is entitled to pre-financing and final payments. These payments must be made in euro or in national currency as specified in the special conditions (Article 26(1)). Unless otherwise specified in the special conditions (Article 11(1)), a performance guarantee is mandatory. If so, no payments can be made before the contractor has provided the performance guarantee.

The contractor has to provide a pre-financing guarantee; except if the amount of the contract is below EUR 60 000 or if the pre-financing payment requested is below or equal to EUR 300 000. Despite being in this situation, the contractor would however be requested a financial guarantee if she/he has not submitted the documentary proof for verifying selection criteria or if after a risk evaluation the contracting authority decides to request a financial guarantee (see Article 26(5)(a) of the special conditions).

Where the contractor is a public body, the obligation for a pre-financing guarantee may be waived depending on a risk assessment made.

The final payment is made to the contractor after receipt by the contracting authority of an invoice and of the application for the certificate of provisional acceptance (and, only for contracts financed by a basic act under the Multiannual Financial Framework 2014-2020,presentation of the certificate of origin when required, see Article 10(3)).

In indirect management with partner countries, for contracts with ex ante Commission control, the contracting authority makes payments after clearance and endorsement by the Delegation, directly to the contractor by the Commission.

According to Article 26(3) supplemented by the special conditions for indirect management with partner countries, payment delays vary according to criteria. Please refer to INTPA Companion Section 9.2.5. (Time limits for expenditure operations).

Payments due by the contracting authority must be made to the bank account mentioned on the financial identification form completed by the contractor. The same form, annexed to the invoice, must be used to report changes of bank account.

22.15.2 Pre-financing and final payment

Pre-financing payment, equal to maximum 40% of the total contract amount, can be made only after the contract has been concluded and the performance guarantee (Article 11) and the pre-financing guarantee have been provided (Article 26(5)), unless otherwise provided for in the special conditions.

Pre-financing payment must be made in accordance with Article 26(3) of the general and special conditions and upon receipt of an admissible invoice by the contracting authority. The invoice must not be admissible if one or more essential requirements are not met.

The final payment (equal to maximum 60% of the total contract value, as payment of the balance), must be paid within the time limit laid down in Article 26(3) of the general and special conditions after receipt by the contracting authority of an invoice and of the application for the certificate of provisional acceptance as per Article 31(2). The balance should only be paid after the provisional acceptance certificate has been issued by the project manager. When the balance is paid the pre-financing and liquidated damages, if any, should be deducted.

Under indirect management, contractors are encouraged to submit reports and other documents (if any) related to a payment request in electronic version, if the national law of the contracting authority allows it.

22.15.3 Delayed payments

All payments to be made by the contracting authority to the contractor must be executed in accordance with Article 26(3). Once the time limit for payment has expired, the contractor must, within two months of receipt of the late payment, receive default interest. Under indirect management, however, the contractor is entitled to late-payment interest upon demand to be submitted within two months of receiving late payment (Article 28(2) of the special conditions).

Default interest must be calculated:

- at the rediscount rate applied by the central bank of the partner country if payments are in the currency of that country;

- at the rate applied by the European Central Bank to its main refinancing transactions in euro, as published in the Official Journal of the European Union, C series, if payments are in euro;

- on the first day of the month in which the time limit expired, plus eight percentage points.

By way of exception, when the interest calculated in accordance with this provision is lower than or equal to EUR 200, it must be paid to the contractor only upon demand submitted within two months of receiving late payment.

The late-payment interest must apply to the time, which elapses between the date of the payment deadline, and the date on which the contracting authority's account is debited.

Note that pursuant to Article 28(3), the contractor has the right, after giving notice to the contracting authority, to suspend performing the contract or to terminate it when payment is late by more than 90 days. Performance will resume once the contractor has received payments or has received reasonable evidence that the payment has been proceeded with.

22.15.4 Payments to third parties

Article 27(1) is linked with Article 5 on assignment. Orders for payments to third parties may only be carried out after an assignment of the contract or part of it to a third party has been notified to the contracting authority by the contractor, and the contracting authority has given its written consent (Article 5(2)).

22.16 Financial guarantees

For the financial execution of the supply contract two types of financial guarantee could be required:

a) the performance guarantee (Article 11)

b) the pre-financing guarantee (Article 26(5)(a)).

The financial guarantee templates in Annex V to the supply contract (annexes c4h and c4i to PRAG) should be used.

For further information about types and conditions for acceptance and release of guarantees, please refer to Section 9.1. of the Companion.

22.16.1 Performance guarantee

For contracts worth more than EUR 150 000, the contractor must provide the contracting authority with a performance guarantee, unless the contracting authority has decided not to demand such a guarantee on the basis of objective criteria such as the nature and value of the contract. The guarantee amount is set by the contracting authority between 5% and 10% of the amount of the contract and any riders. The guarantee must be placed, at the latest, on return of the countersigned contract. It is intended to cover the contractor’s liability for the full and proper performance of the contract. Therefore, no payment can be made to the contractor before the performance guarantee has been submitted.

The performance guarantee is released within 60 days, starting from the date of issue of the final acceptance certificate by the project manager. However, for contracts applying general conditions before PRAG 2015, the time limit for release is 45 days.

The performance guarantee is autonomous from the underlying supply contract; therefore calling on the guarantee is not conditioned to any objections related to the underlying contract, save a few exceptions (namely a fraudulent claim by the contracting authority), which the contractor has to back with actual evidence.

22.16.2 Pre-financing guarantee

A pre-financing guarantee must be requested and received before any pre-financing payment above EUR 300 000; it must cover the amount of the pre-financing, and be denominated in the currency of payment.

A pre-financing guarantee may also be required below the amount of EUR 300 000 of pre-financing, subject to a risk analysis to be made by the contracting authority,

(i) for contractors that have been listed in the EDES at any moment during the last 3 years, and (ii) for contractors having relied on the capacity of another entity not part of the contract in order to meet the selection criteria.

For supply contracts of less than EUR 60 000, no pre-financing guarantee is to be requested.

The pre-financing guarantee is released within 30 days of issue of the provisional acceptance certificate for the supplies. However, for contracts applying general conditions before PRAG 2015 version, the time limit for release is 45 days.

22.17 Article 35 - Breach of contract

A breach of contract is committed where one of the parties to the contract fails to discharge any of its obligations under the contract. Some breaches are of only minor importance, whereas others, such as the non-implementation of the contract by the contractor or the failure by the contracting authority to pay amounts due to the contractor, are major breaches and have serious consequences. Only serious breaches entitle one of the parties to terminate the contract. These are enumerated in Article 36 (breaches by the contractor) and Article 37 (breaches by the contracting authority). For other breaches, the injured party may claim damages, suspend payments, or suspend the implementation of the contract.

The injured party is then entitled to recover damages from the other party either by negotiation and agreement or, if necessary, by a court action.

The damages to which an injured party is entitled may be either general damages or liquidated damages. Both are defined in the Glossary of Terms, annexes a1a and a1b to the PRAG.

Liquidated damages are damages, which have been agreed beforehand by the parties. They are recorded in the contract, as being a genuine estimate of the loss suffered by the injured party for a particular breach of contract.

General damages are not agreed beforehand. An injured party seeking to recover general damages must prove the loss it has suffered, whether it attempts to do so by direct agreement with the party in breach or by means of arbitration or litigation.

Any amount of damages, whether liquidated or general, to which the contracting authority is entitled, can be deducted from any sums that it is due to pay to the contractor, or alternatively from an appropriate guarantee, usually the performance guarantee (see Section 9.1. of the Companion).

22.18 Article 36 - Termination by the contracting authority

The general conditions enumerate several grounds, which entitle the contracting authority to terminate the contract, and also stipulate its rights upon termination.

The period of 7 day-notice mentioned in Article 36(2) is not aimed at giving the contractor a final chance to remedy his failures.

Termination is a serious step and should only be taken after exhaustive consultations between the contracting authority and the project manager. Before resorting to termination, the issue of warnings to the contractor or instructions to remedy should be considered. The grounds for termination mentioned in Article 36(2) all relate to defaults or lack of ability on the side of the contractor and speak for themselves. Some of those cases are also applicable to members of the administrative, management or supervisory body of the contractor and/or to persons having powers of representation, decision or control with regard to the contractor, to persons jointly and severally liable with the contractor for the performance of the contract, or to subcontractors. Nevertheless, the contracting authority may terminate the contract for reason of any organisational modification in the legal personality, nature, or control of the contractor, for which it did not obtain the prior consent of the contracting authority through an addendum to the contract (Article 36(2)(f)).

Any modification, which is acceptable to the contracting authority, should be formally agreed. This is most likely to occur in the case of a change to the legal relationship between the parties within a consortium or a joint venture. However, there may be changes that affect the rights of the contracting authority in a way it cannot accept. In that case, termination of the contract is possible.

At any time and with immediate effect, The contracting authority may terminate the contract for other reasons than those provided in Article 36(2), whether they are provided elsewhere in the general conditions or not.

Where termination by the contracting authority is not due to a fault of the contractor, force majeure, or other circumstances beyond the control of the contracting authority, the contractor may be entitled to claim an indemnity for loss suffered, in addition to sums owed to her/him for supplies already delivered. Such а loss includes that of profit on the remaining part of the supplies to be delivered. Termination of the contract does not result in a cessation of all rights and obligations and activities as between the parties. The project manager has to draw up a detailed report of the supplies that have been delivered by the contractor, of the incidental siting or installation performed and has to take an inventory of the materials supplied and unused.

The net amount due to the contractor can be ascertained and paid only when all supplies have been completed and the full value of contracts with third parties and other costs have been deducted from monies due to the contractor (Article 36(7)).

The contracting authority is also entitled to recover from the contractor, in addition to the extra costs necessary for completion of the contract, any loss it has suffered because of inadequacies in work already completed and paid for.

22.19 Article 37 - Termination by the contractor

Unlike the contracting authority, the contractor can terminate the contract only on few specific grounds listed in Article 37:

1) the contracting authority has not paid her/him sums due for longer than 90 days after the expiration of the contract payment deadline, consistently fails to meet its obligations under the contract, or

2) has suspended the contract for more than 180 days for reasons that are not specified in the contract and that are not due to any failure by the contractor.

The termination takes effect automatically 14 days after the contractor has given notice of termination to the contracting authority. In the notice, the contractor should specify the grounds for the termination.

The contractor is entitled to be paid by the contracting authority for any loss or damage it has suffered (Article 37(3)).

22.20 Article 38 - Force majeure

There is no default or breach of contract if implementation is prevented by force majeure (Article 38(1)). Because of the seriousness of the consequences, any notification of force majeure should be carefully examined to ensure that the event in question is genuinely outside the control of the parties. For example, strikes and lockouts may be caused by some action of the contractor, and would then not be considered as resulting from force majeure. Provisions of force majeure should not be used as an escape from contractual obligations or to improperly terminate the contract. Any dispute between the parties arising from the application of this article should be resolved under the procedures for settlement of disputes.

If a situation of force majeure occurs, it is likely that at least one of the parties suffers some loss. The general principle here is that ‘the loss falls where it falls’.

An additional case of force majeure concerns the suspension of cooperation with the partner country when it implies suspension of funding this contract (Article 38(2)). This case protects the interests of the contractor, who can terminate the contract without putting itself in default towards a decentralised contracting authority with whom cooperation has been suspended.

As a result of Article 38(3), the contracting authority does not have the right to forfeit the performance guarantee, to demand the payment of liquidated damages or to terminate the contract for the contractor's failure of implementation, to the extent that this failure is due to force majeure. Similarly, the contractor is not entitled to interest on delayed payments or to other remedies arising from the contracting authority's failure to fulfil its contractual obligations, or to terminate the contract for failure of implementation, where these failures are due to force majeure. The procedure to be followed in the event of force majeure is set out in Article 38(4). It is initiated by either party giving prompt notice of the event. The contractor is required to make proposals on how to continue with implementation of the contract. The contractor is entitled to any extra costs incurred as a result of the project manager’s directions (Article 38(5)).

Both parties should monitor the evolution of the circumstances of force majeure especially when those are long-lasting. If the situation of force majeure continues for a period of 180 days, each party is encouraged to make recourse to the 30-day notice for termination provided for in Article 38(6), in order to release all parties from their respective contractual obligations.

22.21 Article 40 - Dispute settlement procedures

Although a party can decide to initiate the dispute settlement procedures of Article 40 at a moment when the contract is still being implemented, these procedures may also begin once the contract has been completed, or after the termination of the contract by one of the parties. If there is a dispute that concerns an ongoing contract, this does not relieve the contractor of its responsibility to continue complying with its contractual obligations with due diligence.

22.21.1 Amicable settlement

When a dispute relating to the contract arises, the parties are required to make every effort to settle this dispute amicably. To this end, as an obligatory first step, Article 40(2) requires one of the parties to notify the other party in writing of the dispute, stating its position and requesting an amicable settlement (see template V2 and – as a follow-up – template V3).

A prior information letter issued in the view of a recovery order can also take the place of a formal request for amicable settlement, if so indicate in the letter itself.The other party is to respond to that request within 30 days with its position on the dispute. The general principle is that disputes are discussed by the parties. Whenever possible, they are resolved in an amicable way. The way of pursuing an amicable settlement may vary according to the internal administrative procedures of the contracting authority concerned, but it is usually of an informal nature. Nevertheless, in order to ensure a certain efficiency and transparency, Article 40(2) sets clear time limits to the attempt for amicable settlement. These time limits guarantee that a party cannot indefinitely prolong the amicable settlement negotiations in an attempt to gain time and without any genuine intention to come to a settlement. The maximum time limit for reaching an amicable settlement is fixed at 120 days, unless both parties agree otherwise. The amicable settlement procedure can be considered to have failed earlier if the other party did not agree to the request for an amicable settlement or if it did not respond to that request within 30 days.

22.21.2 Litigation

If the attempt to resolve the dispute through amicable settlement fails, each party can, by way of last resort, submit its claims to a court or initiate arbitration proceedings, as stipulated in the special conditions of the contract.

• Unlike with an amicable settlement, a court or arbitral tribunal may take a decision on the submitted claims even if the counterpart does not cooperate during the legal proceedings — for instance, if one party does not attend proceedings, the court or tribunal may still make a decision. Unlike a proposal made during a conciliation procedure, the final decision taken by a court or arbitration tribunal will be binding. Whether a court or an arbitral tribunal will be competent and, if so, which court or arbitral tribunal, will be laid down in the special conditions of the contract. Generally, whenever the Commission is the contracting authority, the courts in Brussels are designated as being exclusively competent for the litigation. In the case of decentralised EDF-financed contracts, the special conditions will distinguish between disputes arising in a national contract and disputes arising in a transnational contract. Disputes arising from a national contract, i.e. a contract concluded with a national of the State of the contracting authority, are under Article 30(a) of Annex IV of the Cotonou Agreement, to be settled in accordance with the national legislation of the ACP State concerned.
• Disputes arising from a transnational contract, i.e. a contract concluded with a contractor who is not a national of the State of the contracting authority, are, unless the parties agree otherwise, to be settled by arbitration in accordance with the Procedural Rules adopted by the decision of the ACP-EC Council of Ministers (the EDF Procedural Rules) [6] .

In an EDF indirect transnational contract, parties further have the option to agree not to submit the dispute to arbitration, but instead to follow either the national legislation of the ACP State concerned or its established international practices. Such agreement can be reached at the start of the contract before any dispute has arisen, or later on. The agreement to deviate from recourse to arbitration in a transnational contract must be recorded in writing and signed by both parties.

If an internal administrative appeal procedure exists within the ACP State, the arbitration must be preceded by that procedure. The contractor will only be in a position to initiate arbitration if internal administrative appeal procedures fail or are deemed to have failed (that is if there are no such procedures in the ACP State in question) as indicated in Article 4 of the EDF Procedural Rules.

Arbitration is a kind of private dispute resolution procedure in which the parties contractually agree to submit their dispute to an arbitral tribunal and accept the decision of this tribunal to be binding. If the parties agree, the arbitral tribunal can consist of one single arbitrator. If not, each party selects, on its own, one arbitrator, who then jointly nominate a third arbitrator who will act as chairperson of the tribunal. The arbitration procedure is an adversarial procedure, with written statements exchanged between the parties and concluded with oral proceedings. No appeal is open against the final decision taken by the arbitral tribunal. It should be noted that arbitration procedures are not public, and are subject to payment — the cost must be borne by the party requesting the arbitration. For more information on arbitration in EDF contracts, please see the brief overview of the rules of arbitration applicable to contracts financed by the EDF:

http://www.cc.cec/dgintranet/europeaid/contracts_finances/guides/prag/documents/edf_arbitration_mar10_fr.pdf

and the rules of procedure for conciliation and arbitration of contracts financed by the EDF (annex a12 to the PRAG):

http://ec.europa.eu/europeaid/prag/annexes.do

22.21.3 Conciliation

Once the dispute has arisen, the parties may agree to have recourse to conciliation by a third party.

The link below leads to a declaration of acceptance of a procedure of conciliation by the European Commission:

https://myintracomm.ec.europa.eu/dg/in tpa/finance-contracts-legal/legal-affairs/legal-disputes/Pages/court-actions-our-tasks.aspx

The main difference between conciliation and arbitration is that, unlike arbitration, the proposal made by a conciliator is not binding for the parties. They remain free to accept or reject any settlement-proposal made by the conciliator. Unlike the attempt for amicable settlement, the conciliation is not an obligatory step.

Conciliation is often initiated when one of the parties has already submitted the dispute to a court or arbitral tribunal. As a protective measure, a party may, for instance, already have lodged a request for arbitration to avoid such possibility to become time-barred. In that respect, one should bear in mind that Article 18 of the EDF procedural rules for conciliation and arbitration stipulates that the notice initiating arbitration must be time-barred unless it is given not later than 90 days after the receipt of the decision closing the internal administrative proceedings taken in the ACP State. As a general rule, the conciliator will request the parties to suspend arbitration proceedings pending conciliation.

Like under the amicable settlement procedure, conciliation starts with a party requesting the other party in writing to agree on an attempt to settle their dispute through conciliation by a third person. The other party must respond to this request within 30 days. The same safeguards as for the amicable settlement procedure govern the conciliation procedure: unless the parties agree otherwise, the maximum time limit for reaching a settlement through conciliation is 120 days.

Should conciliation fail, the parties may refer their dispute to, or continue their dispute before, a court or arbitral tribunal, as specified in the special conditions. If so, nothing that has transpired in connection with the proceedings before the conciliator must in any way affect the legal rights of any of the parties at the arbitration.

In a contract to which the Commission is not a party, the Commission can act as a conciliator, and if so, this will take the form of a good offices procedure. Such a good offices procedure can be conducted by the delegation or by Headquarters, depending on the availability of resources and competences. In any event, it is crucial that both parties have confidence in the impartiality and capacity of the conciliator and fully accept his mission.

For more information on the good offices procedure, please consult the document that describes its steps and principles (and that should have been previously signed by the parties). [7]