A very important new piece of legislation was approved by the Portuguese government on 20 September last year. It was published in the official journal on 29 January, 2008, and will come into force by the end of July. The public contracts code (PCC) plays a central role in the public administration's contractual activity as it not only establishes the regime of public procurement but also rules the performance of public contracts. For the first time in the Portuguese legal order, a single law regulates both these aspects. It is considered a milestone in the evolution of Portuguese administrative law.

In the first instance, PCC aims to comply with European Union Directives 2004/18/EC, on the co-ordination of procedures for the award of public works contracts, public supply contracts and public service contracts; and 2004/17/EC, on the coordination of procurement procedures of entities operating in the water, energy, transport and postal services sectors of 31 March, 2004. Nevertheless, the PCC's scope goes far beyond these directives. In fact, the Portuguese legislator created a complete set of rules on public procurement procedures (including those not covered by EC Directives) along with a comprehensive regime of public contracts performance.

Furthermore, the PCC embodies a modernisation effort revealed in the provisions related to e-procurement, the Ecological Public Procurement National Strategy and modern financing techniques such as project finance, acquisition finance and asset finance.

Finally, the PCC is an instrument of procedural simplification, which contributes to a larger guaranty of transparency in public contractual activity. This simplification is mainly achieved by the compulsory use of electronic means throughout every stage of public procurement procedures, which allows for adequate procedural participation and leads to shorter legal and real procedural time limits. In a nutshell, the PCC aims at greater soundness and swiftness in public procurement procedures and provides for a legal framework on public contracts performance.

The new public procurement regime provided for in the PCC applies to all contracts (disregarding their nature or designation), which are celebrated by contracting authorities – namely those contracts whose nature, characteristics or background are, or could be, subject to market competition. Therefore, the code's scope covers all contracts ruled in EC directives, as well as several others such as concession contracts and memorandums of association.

Nevertheless, there is an exception to this wide appliance scope, known as in-house providing. In fact, public procurement rules do not apply when two different requirements are met:

- the contracting authority controls the contracting partner as if the contracting partner were part of its structure; and

- the contracting partner carries out the essential part of its activities together with the contracting authority.

Still on the topic of the PCC's scope of application, one of its major innovations is the correct transposition of the EC law concept of 'body governed by public law', meaning a legal public or private person:

- established for the specific purpose of meeting needs in the general interest;

- without an industrial or commercial character; and

- mainly financed by a contracting authority, or subject to management supervision by a contracting authority or to an administrative, managerial or supervisory board whose members are mainly appointed by the contracting authority.

Another objective introduced by the PCC is reducing the wide range of public procurement procedures (namely under the European threshold amounts for public contracts), unifying their rules and terminology. Therefore, procedures considered to be less 'competition-friendly' were eliminated, leaving only those provided for in EC directives N the negotiated procedure without publication of a contract notice, the negotiated procedure with prior publication of a contract notice, the open procedure, the restricted procedure and the competitive dialogue.

The PCC also brings about an original approach to the contract's value in order to avoid the present problems concerning the determination of the estimated value of a public contract. According to the new ruling, the choice of a public procurement procedure limits the contract's maximum value (instead of the contract's estimated value limiting the choice of a public procurement procedure). Thus, the contract value is no estimated value but the maximum value the contracting entity is allowed to pay for the contract regarding the chosen procedure.

In addition, the code establishes stricter rules about the qualification of candidates in restricted procedure and negotiated procedure with prior publication of a contract notice. Two different models of qualification are put into place:

- a simple model which allows the qualification of all candidates who meet minimum capacity levels of financial standing and technical ability; and

- a complex model which allows the selection of the best candidates within those who have met the minimum capacity levels.

Besides qualitative selection of candidates, the PCC also provides for an accurate evaluation of tenders, which tends to be the key stage of every public procurement procedure. In fact, the composition of the award criteria (most economically advantageous tender, or MEAT) is the vital feature of the contract documents and specifications. Therefore it is important that the criteria chosen to determine the most economically advantageous tender and their relative weightings are correctly stated and advertised.

In order to do so, the tenders' evaluation method (i.e., not only the description of the criteria and their relative weightings) must be advertised in the contract documents and specifications. As a result of that, tenderers know precisely what the contracting authority is looking for and are able to put forward their best tender in order to meet the contracting authority's needs and expectations.

Furthermore, the PCC transposes the vast majority of the EC directives' innovations in spite of them not being mandatory – for example competitive dialogue, electronic auctions, framework agreements, central purchasing bodies and dynamic purchasing systems.

With reference to the public contracts performance regime, the PCC reflects a political will of strengthening the contractual freedom and autonomy of the contractual parties. Consequently, there is a large amount of non-mandatory legal rules as well as a deregulation of certain aspects of the regime (mainly related to public works contracts).

The code aims to establish and preserve the quid specificum of the public contracts, which is revealed in certain aspects, such as the importance of imperative reasons of prevailing public interest (for example the rules on modification or dissolution of contracts), the establishment of a benefit distribution rule and a special regulation for the failure to perform a contract by a public party, and the direct or indirect provision for risk distribution between contracting parties.

Besides that, the PCC also pursues the objective of defining and enlarging the accountability of all parties evolved in public contractual relations. Therefore, it provides for rules regarding advanced payments and revision of prices, the sharing of responsibility during the contract performance, the breach of contract and the subcontracting possibility.

The code also sets up an adequate regulation of certain aspects of project finance, acquisition finance and asset finance connected with public contracts – in order to overcome the current shortcomings resulting from a conflict between project finance's contractual techniques and the legal public procurement regime. Specific rules were put forward, such as step-in and step-out rights rules and the ruling on changes carried out in the composition of economic operators subsequent to the award of the contract.

In addition, the PCC provides for a legal regime on the performance of public works contracts, public supply contracts, public services contracts, public works concession and service concession.

To sum up, the PCC takes a revolutionary step towards administrative modernisation, bringing Portuguese public procurement procedures to the front line of innovation into the 21st century. We can only hope that the Portuguese administration can cope with the effort of implementing it correctly.

Joao Amaral e Almeida and Paula Bordalo Faustino are lawyers at Servulo in Lisbon.