[Contract Types Based on the Presence or Absence of Competition] (4) Negotiated Contracts – Reasons and Procedures

Hello, I am Lawyer Lee Young-kyung from Cheongchul Law Firm.

Today marks the second session where I explain ‘negotiated contracts’ to the contract managers of the national and local governments, as well as to practitioners from companies participating in bids.

For the reasons behind negotiated contracts, please refer to the previous posting.

[Contract Types Based on the Presence or Absence of Competition] - (3) Negotiated Contracts – Concepts and Major Reasons - Cheongchul Law Firm

[Question]

Please explain the reasons and procedures for negotiated contracts.

[Answer]

1. Additional Reasons for Negotiated Contracts (Continuing from Part 1)

마. Cases where it is deemed inefficient to enter into contracts according to competition given the purpose and nature of other contracts

① Small Amount Negotiated Contracts

Small amount negotiated contracts apply when the scope of the contract is small enough that conducting competitive bidding would be inefficient. Attention is needed as the criteria for national contracts and local contracts are slightly different.

In the case of national contracts, Article 26(1)(5)(a) of the Enforcement Decree of the National Contracts Act details the reasons based on estimated prices, and in the case of local contracts, Article 25(1)(5) of the Enforcement Decree of the Local Contracts Act provides detailed reasons.

② Other Reasons (e.g., items used by overseas diplomatic missions, purchasing defense materials from defense contractors under the Defense Acquisition Act)

Negotiated contracts can be concluded for national security relevant contracts, contracts with organizations for national merit, contracts for purchasing products from specific regions, contracts with small businesses, etc., and the reasons for these are also detailed in Article 26(1)(5) of the Enforcement Decree of the National Contracts Act and Article 25(1)(6) of the Enforcement Decree of the Local Contracts Act.

바. Negotiated Contracts Following Re-bidding (Article 27 of the Enforcement Decree of the National Contracts Act, Article 26 of the Enforcement Decree of the Local Contracts Act)

If a re-bidding was conducted but there are no bidders or successful bidders, a negotiated contract can be concluded. This is a measure for swift contract conclusion.

It should be noted that, excluding the deposit and deadline, the price and other conditions set at the time of the initial bid cannot be changed, and the content of the re-bidding and the initial bidding must be essentially the same.

In this regard, the Ministry of Economy and Finance has interpreted that "in order for a negotiated contract via re-bidding to be possible, the contract object for the negotiated contract must be the same as that of the original announcement and the contract object at the time of re-announcement" (Ministry of Economy and Finance Contract System Division-1656, '14.12.23.).

사. Negotiated Contracts due to Contract Cancellation or Termination (Article 28 of the Enforcement Decree of the National Contracts Act, Article 27 of the Enforcement Decree of the Local Contracts Act)

A negotiated contract can be concluded if the successful bidder does not conclude the contract or if the contracting party fails to fulfill the contractual obligations leading to cancellation or termination of the contract (in the case of national contracts).

In this case as well, excluding the deposit and deadline, the price and other conditions set at the time of the initial bid cannot be changed.

2. Precautions for Negotiated Contracts (Mainly from the Perspective of Public Institutions)

가. Prohibition of Dividing Orders

For construction of the same structure or as a single construction that has been confirmed through design documents, it is not permissible to divide the projects or the amount of construction based on structure or type for negotiated contracts. This is stated in the Enforcement Decree of the National Contracts Act Article 68 and the Enforcement Decree of the Local Contracts Act Article 77.

나. Verification of Restrictions on Negotiated Contracting Parties

There are provisions regarding the causes for restrictions on concluding negotiated contracts in Article 12 of the ‘Conflict of Interest Prevention Act’ (Conflict of Interest Prevention Act), so it is necessary to verify this.

In the case of local contracts, Article 33 of the Local Contracts Act also has provisions regarding those who cannot enter into negotiated contracts (such as the spouse of the head of the local government or a member of the local council, direct and collateral relatives of the head of the local government or a member of the local council, related business entities, etc.), and there is also a provision in Article 33-2 that requires fact inquiries to verify this.

Cheongchul Law Firm, established by lawyers from the four major law firms, specializes in corporate law and provides comprehensive solutions related to national contracts, bidding, and investigations by the Fair Trade Commission regarding bidding. If you have any further inquiries, please feel free to contact us via email or phone.