PhD. Eugen Sarbu, attorney-at-law
Mihai Ionescu-Balea, attorney-at-law
Abstract
The execution of public procurement contracts remains, even in 2025, a complex process requiring professional management by contractors. The complexity of the rules, frequent legislative changes and the realities on the ground generate major legal and financial risks.
We will present below, from the perspective of Romanian lawyers specialised in construction law and public procurement, the main legal challenges and solutions in construction procurement contracts.
1. Main risks in public procurement contracts
1.1. Delays: Who Is Responsible and How Can They Be Legally Justified
Delays are among the most common and costly risks. They can be caused by either the beneficiary or the contractor, or they can be shared causes.
The most common types of beneficiary-caused delays that we have encountered in practice relate to:
- delays in the handover of the work front;
- delays in the approval of payment statements (often to disguise the lack of funds to carry out the contract);
- delays in obtaining authorizations or certificates;
- poor technical documentation: inconsistencies, gaps or other problems in the technical documentation at the tender stage can lead to delays in contract implementation.
On the other hand, experience has shown that delays caused by the contractor can occur:
- poor mobilisation on site;
- labour shortage (too few workers on site or workers without the necessary qualifications);
- design errors/delays – in design + execution contracts;
- ”loss” of subcontractors or suppliers.
At the same time, we encountered cases where delays were due to shared causes, where the responsibility for delays lay with both the beneficiary and the contractor. For example, one complex commercial arbitration in which we were involved as lawyers concerned a motorway construction contract where expropriations were not completed on time, which meant that important sections of the work front could not be attacked by the contractor on the dates in the works programme.
To establish who was responsible for the delays, technical experts and specialists in delay analysis were involved in the arbitration who concluded that both parties, the beneficiary and the contractor, had interdependent responsibilities to facilitate the expropriation procedure, and that the delays fell under the shared responsibility of both parties.
The above-mentioned causes of delay refer strictly to events that are the responsibility of the parties, but contractors are well aware that external causes may occur during the course of the contract, such as: natural disasters, pandemics, conflagrations, legislative changes, tariffs, etc.
The last few years (e.g., the Covid-19 pandemic, the war in Ukraine) have amply demonstrated the impact of such events on construction contracts in Romania. And the most recent legislative changes in Romania (e.g., the so-called ‘ordinance-train’) are already having a major impact on the Romanian construction market.
What can we do when faced with delays in construction contracts? In order to legally manage these situations efficiently, it is essential to rigorously document the events of delay: written explanations, supporting documents, quantification of the impact, timely notifications. Art. 221 et seq. of Law no. 98/2016 and Clause 35 of the Romanian Works Contract based on GD 1/2018 allow the extension of the duration of the contract under well-regulated conditions.
However, in order to achieve the extension of the execution duration, the procedure for claiming delays must be well managed, with particular attention paid to the terms of claim, substantiation of delays, proving them. A well-managed delay claim leads in most cases to an extension of the execution time. However, if the claim is unsuccessful, penalties and damages come into play.
1.2. Penalties and Damages: How to Recover Costs Caused by Delays
Penalties can be applied to both the contractor (for late payment) and the beneficiary (for non-payment). Although they are contractually foreseen, they must be reasonable – usually limited to a maximum of 10-20% of the contract value.
In addition to penalties, contractual damages can be a very useful tool for recovering lost time costs. For example, in recent years, arbitration tribunals and courts have awarded damages for project delay due to failure to deliver work fronts on time, or damages for renting equipment at a price higher than the price foreseen in the schedule.
In order to be awarded, the claimant must quantify the damages very clearly, on the basis of supporting documents (e.g. invoices from suppliers, statistical indices of market price trends, contractual correspondence) and demonstrate the causal link between the action or inaction of the other contractual party and the additional costs incurred.
Contractual damages may include both direct costs (costs of equipment, labour, materials, transport, costs of obtaining permits and authorisations, etc.) and indirect costs (rents, site maintenance costs, utility costs, software licences, etc.).
A careful recording of additional costs arising during the course of the contract is essential during the phase of claiming these costs, whether we are talking about claiming them in preliminary contractual proceedings – the Supervisor (in the case of the Romanian Works Contract regulated by GD no. 1/2018) or the DAB (in FIDIC contracts), or in arbitration or litigation before the courts.
1.3. Price Adjustment: When and How It Is Possible
Price adjustment is regulated by Article 222 of Law 98/2016.
Price adjustment is allowed only if it is specified both in the tender documentation and in the public procurement contract to be concluded by special clauses to this effect. At the same time, the contracting authority must specify both in the tender documentation and in the public procurement contract the concrete manner of price adjustment, the indices to be used and the source of information on their evolution, such as statistical bulletins or stock exchange quotations.
National Public Procurement Agency ( “Agenția Națională pentru Achiziții Publice” or ANAP) Instruction no. 1/2021 on the amendment of the public procurement contract/sector procurement contract/framework agreement sets out in detail the price adjustment method and the adjustment formulae that the contracting authorities may apply and provide for in the tender documents and in the public procurement contract.
Moreover, there are certain categories of contracts in which contracting authorities are obliged to include price adjustment clauses: for service or supply contracts running for a period exceeding 24 months and for works contracts running for a period exceeding 6 months. Given that the most important construction works contracts run for more than 6 months, construction contractors in Romania need to be very careful how the price adjustment is regulated in the tender documentation and in the model contract. It is important to signal already at the clarification stage on the content of the tender documentation if there are any unclear or inconsistent price adjustment clauses.
Although price adjustment is quite exhaustively regulated, problems of interpretation of price adjustment clauses or refusals by contracting authorities to apply these clauses often arise. More often than not, these misunderstandings translate into litigation which suspends the completion of the project, but we believe that an effective dialogue and a coherent strategy in dealing with the contracting authorities can unblock the situation more quickly by having the beneficiary make payments.
2. Modification of the Contracts and Subcontracting Regime in 2025
GEO No 52/2024 introduced important restrictions. The possibility of adjusting the price in line with price changes at the suppliers from which the contractor obtains its supplies simply by presenting the invoices issued by the contractor disappears, and local legislative or administrative changes no longer automatically justify price adjustments. Also, the contracting authority is no longer obliged to adjust the price if the duration of the contract is extended for reasons not attributable to the contractor.
Under Law 283/2024, the contracting authority can unilaterally terminate the contract if subcontractors violate environmental, social or labour relations legislation – which adds additional pressure on the contract chain control.
3. How to Legally Handle Non-Performance or Termination of a Contract
3.1. Contract Saving Options
A serious breach of contract gives the parties two options: either they seek solutions to salvage the contract and bring the project to a successful conclusion, or they move to terminate the contract.
We consider that, in most cases, the options that lead to saving the contract and realising the investment are preferable, for several reasons:
Firstly, the economic interest of both parties is to realise the investment. It is in the contractor’s interest to finalise the contract and receive the price for the work carried out, and it is in the contracting authority’s interest to see the investment completed – especially if it is financed by non-reimbursable external funds.
Secondly, as public procurement is concerned with works of interest to the general public, the wish of all parties involved would be that the investment objective be finalised and carried out in the best possible conditions, so as to satisfy the public interest for which it was financed.
Last but not least, public opinion can play an important role. For contracting authorities, any public procurement contract that is not finalised means negative publicity, and for contractors, a negative acknowledgement document can mean the impossibility to participate in procurement procedures for years to come.
Some of the solutions that we have identified in our experience to salvage the contract in the event of non-performance are as follows:
Negotiate for an addendum. For example, in case the initial execution schedule can no longer be met, the parties can modify the execution duration and the execution schedule by means of an additional act concluded in compliance with the provisions of Law no. 98/2016. In case the contracting authority no longer has funding for the project, the parties can negotiate that the contractor assumes the funding for part of the project and recovers its investment when the contracting authority accesses new funds – of course the conditions under which the contractor takes over the financial burden of the project must be very carefully and in detail regulated by the additional act so that the contractor does not run the risk of never being paid again.
The defence of non-performance can be a very effective tool to induce the other party to resume performance of the contract. On the recipient’s side, it can take the form of suspending payments until the contractor is up to date with the work. The contractor can invoke the non-performance exception by suspending the works until it receives the outstanding payments from the beneficiary. Although it obviously creates a standstill in the performance of the contract, the defence of non-performance has the advantage that it leaves the parties the possibility to continue the contract once the standstill is overcome.
Continuation of the project with the assumption of payment of penalties. In situations where work is delayed through the fault of the contractor, the beneficiary has the option of cancelling the contract with the issue of a negative certificate of completion. In such situations, some contractors prefer to assume the payment of penalties and proceed with the project, trying to minimise delays as much as possible, as the issuance of a negative certificate of completion could be more damaging in the long run than the payment of penalties.
3.2. Termination: Steps to Follow
If termination becomes unavoidable, it is crucial to follow the contractual steps governing termination.
The Romanian Works Contract regulated by GD No 1/2018 provides for a complex procedure for termination of the contract by both the beneficiary (clauses 64.1 – 64.11) and the contractor (clauses 65.1 – 65.3).
What is important to note is that any termination must be prepared by documenting the stage of works and carefully managing the contractual correspondence so that the termination can be justified in the event of a dispute. In addition, wrongful termination may entitle the other party to terminate the contract with damages. In this ‘duel of terminations’, arbitration tribunals and the courts are very demanding with the party that has wrongfully terminated the contract and may make it liable to pay considerable damages.
For contracting authorities, an important post-termination step is to audit the investment – what funds have been allocated, what payments have been made, what funds are still available, what works still need to be carried out. The post-retirement audit of the investment is important because contracting authorities have a legal obligation to take legal action to recover money paid out for work not carried out, and the Court of Auditors is very strict in this respect.