Small-Scale Public Contracts

What is a small-scale public contract and why do even "small" contracts require great attention?

To correctly determine the estimated value, it is necessary to sum the values of all similar and related supplies or services that the contracting authority intends to procure during the accounting period. Incorrectly determining the value is considered one of the most serious errors in public procurement. In this area, ARROWS provides comprehensive public procurement services.

This can lead to an illegal procedure outside the regime of the Act on Public Procurement (ZZVZ), invalidity of the contract, a financial correction of a subsidy by up to 100%, and in extreme cases, even criminal liability. Although you do not have to award a small-scale public contract (VZMR) in a full procurement procedure, you must always adhere to the fundamental principles of Section 6 of the ZZVZ, such as the principles of transparency, equal treatment, and non-discrimination.

The long-term stability of the original limits, which were in place with a short break for almost twenty years, has been disrupted in recent years by economic development and inflation. An intensive discussion is currently underway in expert circles about increasing these limits by 50%, which would mean an increase to CZK 3 million for supplies and services and CZK 9 million for construction works.

This increase should more realistically reflect the rise in prices and streamline processes for projects that have exceeded the original limits due to inflation. This dynamic situation shows how important it is to have legal partners by your side who are constantly oriented in the legislation and its development and protect you from potential changes in the rules of the game. Our Prague-based lawyers monitor this issue and deal with it daily.

Three paths to a secure award: When is direct award a risk and when is it a necessity?

According to the methodologies of the Ministry for Regional Development and best practices, there are three basic ways to award a small-scale public contract. The choice of the right path depends on the estimated value of the contract and the principle of proportionality, which states that the administrative complexity and costs must be proportionate to the potential benefit.

• Direct award: Direct conclusion of a contract with one specific supplier. This procedure is suitable only for contracts with a very low, so-called de minimis value (internal directives often set a limit of, for example, CZK 50,000 excluding VAT). It can also be used in extremely urgent situations or in cases where, for demonstrable reasons, there is only one supplier on the market. For higher-value contracts, however, a direct award is very risky and should be avoided.

• Closed call: The contracting authority invites a limited, pre-selected group of suppliers, usually at least three, to submit a bid. The key is to ensure a fair selection and rotation of the companies approached to avoid suspicion of discrimination.

• Open call: This is the most transparent and safest method. The call for bids is published in such a way that an unlimited circle of suppliers can apply for the contract, typically on the contracting authority's profile.

Beware of landmines: Stories from practice and the most common mistakes that cost millions

Although the rules for small-scale public contracts are seemingly simpler, practice shows that they hide a number of risks. Unfortunately, many contracting authorities make the same mistakes, which lead to serious consequences.

One of the most common errors is the deliberate splitting of contracts, the so-called "salami-slicing method." This is a conscious attempt to divide one large contract into several smaller ones to circumvent stricter rules. Real-life cases show that this approach definitely does not pay off.

For example, the Office for the Protection of Competition (ÚOHS) imposed a fine on the Prague-Koloděje municipal district for splitting a contract for the construction of a kindergarten. The same mistake was made by the Ministry for Regional Development (MMR), which received a fine of CZK 150,000 for splitting contracts for legal services. The ÚOHS is therefore prepared to sanction these offenses.

Another common mistake is discrimination against suppliers. Contracting authorities commit this by setting excessively demanding qualification requirements that limit the pool of potential bidders. Similarly discriminatory are poorly specified award conditions or the merging of unrelated services into a single contract.

An example is combining construction work with the supply of specialized IT software, which makes it impossible for suppliers from one field to submit a bid. These practices violate the principles of proportionality and equal treatment.

Last but not least, it is necessary to emphasize the risks associated with insufficient documentation. Without complete documentation of the entire process, it is almost impossible to prove the transparency of the procedure during an audit. This can lead to a presumption of error and even personal liability for senior managers.

A serious risk is also concluding a contract with a supplier who is subject to international sanctions. Such an error can lead to a fine of up to CZK 4 million and criminal prosecution. Our ARROWS lawyers regularly deal with this issue and can help with vetting suppliers thanks to our ARROWS International network.

Special cases and the international dimension: When does a small-scale public contract not apply at all?

For a more legally educated audience, it is important to mention that not all contracts fall under the small-scale public contract regime. The Act on Public Procurement (ZZVZ) sets out clear exceptions. Among the most common are the purchase, lease, or usufruct of existing immovable property, or services in research and development, under certain conditions.

Another significant exception is financial services related to securities and specific legal services, especially representation in judicial, arbitration, or administrative proceedings. These exceptions do not apply automatically, and it is always necessary to carefully assess whether all conditions are met.

The risks associated with public procurement are not just local. Corporations face the threat of international sanctions in the international environment. Thanks to our ARROWS International network, built over ten years, we can vet suppliers against sanction lists and ensure compliance with international regulations.

We deal with this issue on a daily basis with an international element. We ensure that your contracts are legally enforceable even across borders. Do not hesitate to contact our Prague-based office – consultation@arws.cz.

How can we help you solve your problems with small-scale public contracts?

Our experience from long-term cooperation with clients is your guarantee of quality. Our portfolio includes more than 150 joint-stock companies, 250 limited liability companies, and 51 municipalities and regions for whom we regularly handle these issues. We pride ourselves on the speed and high quality of the services we provide.

We provide comprehensive legal services from the initial award phase to dispute resolution. We will help you with drafting internal directives, preparing documentation that protects against sanctions, and with the preparation or review of contracts.

We also offer legal consultations, representation before courts and administrative bodies such as the ÚOHS, and, last but not least, professional training with certification for employees and management.

In our business, however, we go beyond mere legal advice. If our clients have interesting investment or business opportunities, we are happy to connect them with each other. We are also keen to hear interesting entrepreneurial or business ideas and help develop them. Contact us at consultation@arws.cz and get a tailor-made legal solution.