How to Manage Small-Scale Public Procurement Risks Under Czech Law

As business owners, you know that the details in small-scale public procurement (VZMR) procedures can be critical. An error carries the risk of high fines, financial corrections of subsidies, and reputational damage. This article provides a clear overview of how to avoid these risks and ensure correct procedures under Czech law. Learn how ARROWS can provide you with legal certainty, even in an international context.

Do you need advice on this topic? Contact the Prague-based law firm ARROWS at office@arws.cz or by phone at +420 245 007 740. Your inquiry will be handled by "JUDr. Jakub Dohnal, Ph.D.,LL.M.", an expert on the Czech legal system and public procurement.

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

A small-scale public contract is a public contract whose estimated value does not exceed the financial limits set by Czech law. These limits are defined by Act No. 134/2016 Coll., on Public Procurement (the "PPA"). Specifically, this refers to an amount of CZK 2 million excluding VAT for supply and service contracts, and CZK 6 million excluding VAT for construction works. Correctly determining the estimated value is crucial under Czech legislation.

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. Incorrect determination of value is considered one of the most significant errors in public procurement in the Czech Republic. In this area, ARROWS provides comprehensive legal services regarding public procurement.

It can lead to unlawful procedures outside the PPA regime, contract invalidity, financial corrections of subsidies by up to 100%, and in extreme cases, criminal liability. Although you do not have to award a small-scale contract in a full formal tender procedure, you must always adhere to the fundamental principles of Section 6 of the PPA, such as the principles of transparency, equal treatment, and non-discrimination.

The long-term stability of the original limits, which remained in place with a short break for nearly twenty years, has been disrupted in recent years by economic developments and inflation. Currently, there is an intensive discussion in Czech professional 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 price growth 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 constantly navigate Czech legislation and its evolution, protecting you from potential changes in the rules of the game. Our attorneys in Prague monitor these issues and resolve them daily.

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

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

• Direct Award: Directly entering into a contract with one specific supplier. This procedure is suitable only for contracts with a very low, so-called "negligible" value (internal guidelines often set a limit of, for example, CZK 50,000 excluding VAT). It may also be used in extremely urgent situations or in cases where, for demonstrable reasons, only one supplier exists on the market. For higher-value contracts, however, a direct award is very risky and must 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 fair selection and rotation of the invited companies to avoid suspicion of discrimination.
• Open Call: This is the most transparent and secure method. The call for bids is published so that an unlimited number of suppliers can apply for the contract, typically on the contracting authority's profile.

FAQ – Legal tips for choosing a procedure

• What if my internal guidelines are insufficient?
  Correctly set internal guidelines are a fundamental tool that brings order and legal certainty to the small-scale procurement process. Our Prague-based attorneys can help you draft tailor-made internal guidelines to protect not only the organization but also its statutory bodies and responsible persons. Our Czech legal team is ready to assist you – write to us at office@arws.cz.
• How to avoid conflicts of interest when selecting a supplier?
  Persons who assess and evaluate bids must not be in a conflict of interest regarding the contract or the participants. A conflict of interest can jeopardize the entire procedure and have criminal law consequences. Get a tailor-made legal solution – connect with us at office@arws.cz.

Beware of landmines: Real-world stories and the most common mistakes that cost millions

Although the rules for small-scale public contracts are seemingly simpler, practice shows that they hide many risks. Many contracting authorities unfortunately commit the same errors, leading to serious consequences.

One of the most common mistakes is the intentional splitting of contracts, the so-called "salami method." This is a conscious attempt to divide one large contract into several smaller small-scale contracts to bypass stricter rules. Real 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 district for splitting a contract for the construction of a kindergarten. The same error was made by the Ministry for Regional Development (MMR), which was fined CZK 150,000 for splitting contracts for legal services. The ÚOHS is prepared to sanction these offenses.

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

An example is the merging of construction works with the supply of specialized IT software, which prevents suppliers from a single field from submitting a bid. These practices violate the principles of proportionality and equal treatment under the Czech legal system.

Last but not least, it is essential to emphasize the risks associated with insufficient documentation. Without complete documentation of the entire process, it is nearly impossible to prove the transparency of the procedure during an audit. This can lead to a presumption of misconduct and even personal liability for management personnel under Czech law.

A serious risk is also entering into a contract with a supplier subject to international sanctions. Such an error can lead to a fine of up to CZK 4 million and criminal prosecution. Our attorneys in Prague at ARROWS regularly handle these matters and can assist with supplier vetting through our ARROWS International network.

Splitting of Contracts and International Sanctions

Based on our practical experience, we have prepared an overview of the most common risks and sanctions associated with small-scale public contracts (VZMR) in the Czech Republic, as well as the specific legal services that ARROWS offers in these cases.

Special Cases and the International Dimension: When is a Small-Scale Public Contract Not Required?

For a more legally informed audience, it is important to mention that not all contracts fall under the small-scale public contract (VZMR) regime. The Czech Public Procurement Act (ZZVZ) sets out clear exemptions. The most common include the purchase, lease, or tenancy of existing real estate, or research and development services under certain conditions.

Another significant exception includes financial services related to securities and specific legal services, particularly representation in court, arbitration, or administrative proceedings. These exemptions do not apply automatically, and compliance with all conditions must always be carefully assessed under Czech law.

Risks associated with public procurement are not merely local. In an international environment, corporations face the threat of international sanctions. Thanks to our ARROWS International network, built over ten years, we can screen suppliers against sanctions lists and ensure compliance with international regulations.

We handle these issues with international elements on a daily basis. We ensure that your contracts are legally enforceable even beyond Czech borders. Do not hesitate to contact our law firm in Prague – office@arws.cz.

Consult with our experts:

Mgr. Antonín Hajdušek, LL.M.

associate

• hajdusek@arws.cz

Mgr. Alexandra Johnová

junior associate

• johnova@arws.cz

Qualification and Contracting Errors

Even after successfully selecting a supplier, the process is not over. The contract conclusion process and subsequent changes to the contract carry additional risks under Czech commercial law.

How we can help you resolve issues with small-scale public contracts in the Czech Republic

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 (s.r.o.), and 51 municipalities and regions for whom we regularly resolve these issues. We pride ourselves on speed and the high quality of our services.

We provide comprehensive legal services from the initial procurement phase to dispute resolution in Czech courts. We can help you with drafting internal guidelines, preparing documentation that protects against sanctions, and the preparation or review of contracts.

Furthermore, we offer legal consultations, representation before courts and administrative authorities such as the ÚOHS, and specialized certified training for employees and management.

In our business, however, we go further than mere legal advice. If our clients have interesting investment or business opportunities, we are happy to connect them with one another. We also enjoy listening to interesting entrepreneurial or business ideas and helping to develop them. Connect with us at office@arws.cz for a tailored legal solution.

FAQ – Most Frequent Legal Questions Regarding Small-Scale Public Contracts in the Czech Republic

1. What does "estimated value" mean and why is it so important?

The estimated value is the contracting authority's estimate of the amount of consideration for performance under Czech public procurement rules. To determine it correctly, it is necessary to add up the values of all related performances in a given accounting period to prevent intentional splitting of contracts. Incorrect determination can lead to unlawful procedures and sanctions. If you are dealing with a similar issue, contact us at office@arws.cz.

2. Do I have to follow any principles for small-scale public contracts (VZMR), even if it is not a formal procurement procedure?

Yes. Although it is not necessary to conduct a formal procurement procedure for small-scale public contracts in the Czech Republic, it is still essential to adhere to basic legal principles such as transparency, equal treatment, and the prohibition of discrimination. These principles are fundamental, and their violation can have serious consequences. For an immediate solution to your situation, write to us at office@arws.cz.

3. When can I use direct award and what documentation do I need to provide?

Direct award is possible only for very small contracts (e.g., up to CZK 50,000) or in justified cases, such as an emergency or the existence of a sole supplier under Czech law. It is always necessary to have documentation ready that properly justifies this procedure. Do you need legal assistance? Contact us at office@arws.cz.

4. Do I face a fine if I do not publish a contract for a small-scale public procurement?

Yes, if the price of a public contract exceeds CZK 500,000 excluding VAT, it must be published in the Register of Contracts and on the contracting authority's profile within 15 days of its conclusion. Otherwise, the contract is invalid under Czech legislation. Our Prague-based attorneys are ready to help you – write to office@arws.cz.

5. What is a conflict of interest in small-scale public contracts and how can it be avoided?

A conflict of interest occurs when a member of the evaluation committee has personal or business ties to a bidder. Such a situation can call the entire process into question, leading to the invalidity of the selection and potential criminal consequences in the Czech Republic. To avoid these risks, contact us at office@arws.cz and get a tailored legal solution.

6. How can ARROWS help us if we receive a notice of investigation from the ÚOHS?

Our Czech legal team at ARROWS can provide comprehensive legal support, including the preparation of documents and representation before administrative authorities, such as the Office for the Protection of Competition (ÚOHS). Thanks to our experience, we minimize risks for the client and protect them from fines. Do not hesitate to contact our law firm in Prague and arrange a non-binding consultation at office@arws.cz.

Disclaimer: The information contained in this article is for general informative purposes only and serves as a basic orientation in the matter. Although we ensure maximum accuracy of the content, legal regulations and their interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is therefore necessary to contact ARROWS law firm (office@arws.cz) directly. We bear no responsibility for any damages or complications arising from the independent use of information from this article without our prior individual legal consultation and professional assessment. Every case requires a tailored solution, so please do not hesitate to contact us.

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