Relevant legislation

The general act that governs the relations between public authorities and natural and legal persons in connection with the public procurement contracts is the Public Procurement Act (PPA) of 2004, last amendment -  SG 82/16.10.2009.
The Public Procurement Act regulates the awarding of contracts for the supply of goods or services to Bulgarian public authorities or to commercials which are vested with special or exclusive rights in relation to certain activities, as well as the public works contracts.

The investments in defence in Bulgaria are made on the grounds of public procurement contracts for public works, supply of goods and supply of services. The law which governs the relations between the contracting authority and the investor is the PPA for public works, services and supply of goods which are not related with a national defence and are not subject to classified information. For example, the contracts for supply of goods or services for the Bulgarian army which are civil production (foods, uniforms, computers, etc.) shall be awarded through the procedures of the PPA. 

However, the PPA explicitly provides that the contracts related to defence and national security of the Republic of Bulgaria, as well as the contracts which contain classified information representing a state secret or whereby the performance of the public procurement contract must be accompanied by special security measures, are excluded from the scope of the Public Procurement Act (Article 13, paragraph 1, item 1 and item 2 of the PPA).  The procedure for awarding such contracts is governed by the provisions of the Regulation on the Award of Special-Purpose Public Procurements (the “Regulation”) of 2004, last amendment SG 93/24.11.2009. Therefore, herein we shall present a brief overview of the legal regime and procedures of the Regulation, concerning the contracts for supply and services related with weapons, ammunition and military equipment and contracts related with the national defence and security.

Type of contracts under the rules of the Regulation

According to the provisions of the Regulation, there could be defined three types of contracts for special-purpose procurements related with the defence. 

General special-purpose procurement contracts

The first type shall be referred to as General special-purpose procurement contracts. This is the public contract for special-purpose procurements under the definition of article 13, item 1 and 2 of Public Procurement Act (PPA), which meets one or more of the following criteria set forth by the Regulation (Article 1, paragraph 1, item 1):

• contract is related to national defence and security; it is subject of classified information constituting state secret;
• the performance of the contract must be accompanied with taking of special security measures in accordance with the national legislation;
• the subject of the contract is supply and/or services associated with the manufacture of and trading in weapons, ammunition and military equipment. 

Offset agreements

Another regime set forth in the Regulation is the awarding of special-purpose procurements by the means of the compensatory (offset) agreements.

The common feature between the general special-purpose procurement contracts and offset agreements is their special regime established by the Regulation. Both of these contracts are awarded through procurement procedure, however, there are additional requirements to the offset contracts.

The offset agreements are applicable to foreign contractors. The rules for entering into an offset contract between a Bulgarian public authority and a private company are set forth in Chapter three of the Regulation.  An offset agreement shall be awarded in all cases when: (a) the supplier or the main subcontractor is a foreign company and (b) the value of the contract exceeds BGN 10 mil. (VAT excluded). 

Offset contracts are procurement contracts whereby the supplier takes an additional obligation to make certain investments in Bulgaria or purchase certain goods or services from Bulgarian suppliers thus providing some additional benefits to the Bulgarian economy as a whole. The Regulation defines as subjects of the offset agreements (Article 20, paragraph 1) (i) investments in priority sectors and projects approved by the Minister of Economy, Energy and Tourism; (ii) supply, services or works provided by resident persons; (iii) provision of technical equipment and/or technologies to resident persons, (iv) granting of licenses to resident persons for the use of industrial property rights or transfer of intellectual property rights. 

Framework agreements

This is a contract which may be concluded between the contracting authority and a tenderer in case that the nature of the special-purpose public procurement does not allow determination of the parameters of a specific contract.  The purpose of the framework agreements is pre-establishing the terms under which the parties intend to conclude the special-purpose public procurement contracts during a given period, including with regard to the prices or the pricing mechanism. The framework agreements might be concluded either for determining the terms of a general special-purpose procurement contracts, as well as for offset agreements (Chapter 4 of the Regulation).

Procedures

All types of contracts are awarded through conduct of specific procedures. There are two types of procedures provided in the Regulation – negotiations procedure and a tender based on documents submitted by the tenderers under the conditions provided by the contracting authority (Article 5, paragraph 2). Both procedures are preceded by a survey on the potential contractors. The survey is prepared by the information security officers of the contracting authority, who are authorized as well to give an opinion whether the object of the procurement includes any information that is subject to classification as a state secret and for the need to apply special security measures. When the survey identifies the potential contractors and the levels of classification of the information, the contracting authority refers to the potential contractors. Those of them which have expressed their interest in participation are subject to a background investigation within the meaning given by the Classified Information Protection Act. Based on the background investigation, the competent authority issues a permit for access to classified information for the reliable contractors (Chapter 2 of the Regulation). 

Upon issuance of the permit for access to the classified information, the contracting authority announces to the potential contractors the type of the procedure under which the contract shall be awarded and all the terms and conditions of the tender (Article 8, paragraph 1).

Pursuant to the Regulation, all types of general special-purpose public procurements are awarded after conduct of a negotiation procedure or a tender based on documents. The same rules apply for awarding framework agreements. The only exemption from the rules of the Regulation where no procedure is conducted for awarding a special-purpose public contract regards the case when the subject of the contract  is supply and services related with manufacture and trading in weapons, ammunition and military equipment and its value does not exceed BGN 30 000 (VAT excluded) (Article 5, paragraph 3).

The offset contracts are awarded by means of negotiation procedure as provided in the Regulation. The offset contract itself is concluded by and between the Minister of Economy, Energy and Tourism and the service provider. (Artcile 17).