The Department of Contracts (“DOC”) has published a second circular (the “Supply Guidelines”) which guides a contractor in filing a claim for compensation arising out of the Ukrainian conflict where the public contract in question has a supply element. It is important to note that the wording used by DOC’s Supply Guidelines is not limited to public supply contracts but regulates “public contracts involving supplies”. Our understanding is that a compensation claim can be submitted even in the context of a works or services contract, as long as the claim in question concerning the supplies element. However, the contract value must exceed €10,000 (excluding VAT).

The first Circular No. 15 and Circular No. 16 concerns compensation claims  for public works contracts (“Works Guidelines”). We had issued a circular to break down the procedure in simple terms, which you can read here.

Regulations

Both the Supplies Guidelines and the Works Guidelines have been published in terms of the Temporary Suspensions of Certain Provisions Relating to Public Procurement Regulations (S.L. 601.13) (the “Regulations”).

This means that any compensation claim for supplies contract must still satisfy the following three cumulative conditions:

• the public contract was signed on or before 24 February 2022;
• the public contract was still in force and binding as of 24 February 2022; and
• the supplies must have been delivered between 15 March 2022 and 15 January 2023.

Where supplies, works and, or services have already been delivered or rendered prior to 24 February 2022, no requests for compensation can be made.

These requests for compensation will be made with the respective contracting authority and then passed on for the Department of Contracts’ decision, if the contracting authority finds the request to be applicable, fair and reasonable. The Regulations provide that the Department of Contracts’ decision will be final.

The effect of these Regulations shall cease on 15 January 2023 (i.e. within 6 months from 15 July 2022) and any requests for compensation shall be made within this time window. That being said, DOC’s Supply Guidelines state that contractors may submit compensation claims for supplies contracts until Thursday 30 March 2023. However, contracting authorities may fix earlier (although realistic) deadlines at their own discretion.

Circular N° 15/2022: General Information

This is equally applicable to works contracts and supply contracts. A request for compensation must contain valid and substantiated justifications for claiming a price increase of the commodities involved.

Circular No 2/2023: Compensation Scheme: Claims for Increase in Price of Commodities in Public Contracts Involving Supplies

DOC’s Supply Guidelines do not include a pre-established list of supplies which can benefit from such compensation requests. The DOC has instead stated that such requests are to be considered on a case-by-case basis by the contracting authority involved. This entails that supply contractors must submit substantially more detailed compensation requests when compared to their works contracts counterparts, which requests must include:

• a detailed justification to substantiate the request linked to unforeseeable external market forces;
• a financial analysis of the contract in question;
• a breakdown of the compensation requested for each item supplied;
• original and amended invoices supplied by the contractor’s manufacturer; and
• the price index for the relevant supplies to prove inflation e.g. the NSO price index.

The contracting authority concerned may request additional documentation at its discretion.

A similar template has also been provided by DOC in its supply contracts guidelines to streamlines compensation requests. The link to downloading DOC’s Supply Guidelines (including the template) can be found here.

Procedure for Contracting Authorities

DOC’s Supply Guidelines also sets out the procedure to be followed by contracting authorities once they receive a claim from their contractors. First of all, the contracting authority must assess the Request for Compensation on the criteria of fairness and reasonableness. This means that a contracting authority may turn down the compensation request if it determines that it can realise better value for money through the re-issue of a competitive call.

A number of obligations are also imposed on the contracting authority of a particular supply contract who must:

• certify that the supplies were delivered within the applicable timeframe; and
• certify that the compensation request is valid, accurate, and justified, as well as properly substantiated.

If approved by the Department of Contracts, the Request for Compensation is then formalised by means of an addendum to the public contract which is to be signed by the parties to the contract.

Authors: Clement Mifsud-Bonnici, Calvin Calleja

February 3, 2023