Assignment of rights and obligations of the Supplier under the public procurement contract

February 9, 2015

According to the general provisions of civil legislation, the persons performing obligations may be changed further to the transaction, or based on the legislative act. Thus, it is assumed that the parties of any contract are entitled to assign a claim (with or without the debtor’s consent) or transfer a debt (with the creditor’s consent).

However, in practice there was a question about the possibility to assign by the supplier of rights and obligations under public procurement contracts to third parties. In public procurement contracts, however, the same as in any other form of agreement, each party acts as both a creditor and a debtor, since each party has certain obligation to the other party. At the same time, public procurement legislation does not provide for direct prohibiting of assignment by the supplier of its rights and obligations under public procurement contracts to third parties. Furthermore, the Model Contract on Public Procurement of goods, works and services used in electronic public procurement provides that the assignment of responsibilities by one party to the contract is allowed with the written consent of the other party only.

Thus, taking into account that legislation does not prohibit it directly, and based on the principle of the civil law “Everything which is not forbidden is allowed”, we can conclude that the supplier has the right to assign its rights (claim), and, with the consent of the customer, transfer debt under the public procurement contract.

However, this is a matter of much debate. Moreover, experience shows that even if the public procurement contract provides for the assignment by the parties of their respective rights and obligations to third parties, customers fear to give consent to the supplier substitution.

The customers’ concerns are related to the specific procedure of supplier selection for the public procurement and strict supervision by the regulatory authorities. In particular, the public procurement is a complex, regulated in details and cumbersome procedure in which the customer specifies a lot of qualification requirements to potential suppliers and potential suppliers must demonstrate their compliance with these requirements. Thus, a public procurement contract shall be concluded with a potential supplier that best meets the qualification requirements. In the case of assignment of supplier’s obligations under the public procurement contracts, this means that the approved supplier should be substituted with a person who did not pass through the selection procedure among other potential suppliers, and did not “prove” to the customer its competitive advantage at the time of such selection. Of course, capacities, expertise and resources of a new supplier may be similar or even higher than those of the previous supplier, but this does not exclude the fact that the legally established procedures and principles for selection of the supplier have not been complied with. Thus, the principle of public procurement is to provide potential suppliers with equal opportunity to participate in the procedure of public procurement and fair competition among potential suppliers. Furthermore, the possibility of assignment of obligations under the public procurement contracts may lead to fraud on the part of suppliers when one person would participate in a tender, while the execution of the contract quite legally would be assigned on another person, even if that person does not have any competitive advantages over other potential suppliers.

Thus, we can say that the identity of the supplier is essential for the customer, and in this regard, the assignment of supplier’s obligations under the public procurement contract appears vulnerable from a legal point of view.

Taking into account the above, we believe, the legislator is advisable to settle the matter of change of persons performing obligations under the public procurement contracts. However, until the legislation is not amended to prohibit the assignment of supplier’s obligations to a third party, the supplier shall be entitled to such assignment with the consent of the customer.

Aizhan Karzhaubayeva