New minimum wage and update of service contract values

The new minimum wage led to the publication of a new administrative rule. Here is our analysis of the procedure, circuits and deadlines of the “extraordinary update of the price of service procurement contracts” – Administrative Rule no. 216/2017 of July 20, by Jane Kirkby.

With the increase in the Minimum Monthly Guaranteed Income (MMGI), as from January 1, 2017, as a result of the entry into force of Decree-Law no. 86-B/2016, of December 29, companies with contracts with public entities, in particular in the case of services where labour is an important share of operating costs, such as cleaning and food.

The state’s co-contractors alleged that, when preparing their proposals, they hadn’t considered the current value of the MMGI in the contractual price structure and that, by working with very tight profit margins, the introduced increase made those contractual relations impossible to maintain.

Public bodies were thus flooded with requests to update the contractual prices of the services rendered, based on the increase of the minimum wage, to which they couldn’t give a favourable answer since Article 49 of the State Budget Law for 2017 prohibits that amounts paid for service contracts, renewed or concluded in that year, with the same object or contractual counterpart in force in 2016, exceed the amounts paid in the previous year, except by approval and exceptional authorization of the Government’s officials responsible for the areas of finance and respective industry.

In order to stop the threat of suspension of the services provided by public contractors, the Government, under the Budget Execution Decree-Law (Decree-Law no. 25/2017 of March 3), has undertaken to update the multiannual public contracts in which the labour component indexed to the MMGI proved to be the determining factor in contractual price structure and consequently had substantial impacts resulting from the entry into force of Decree-Law no. 86-B / 2016, of December 29.

From then on, the regulations, deadlines, procedures and terms of authorization for the extraordinary price update were expected to be defined by an Administrative Rule of the members of Government responsible for finance and for the specific areas.

Thus, we get to the recently published Administrative Rule no. 216/2017 of July 20, applicable to service contracts with a multiannual duration, celebrated before January 1, 2017 or, having been concluded after that date, originated from tender proceedings for which tenders were submitted before 1 January 2017. This law establishes the steps that contracting authorities and contracting entities must take to obtain clearance for an extraordinary price update, namely:


1. Request

Within 30 days of the entry into force of Administrative Rule no. 216/2017 of July 20, that is, until August 20, 2017, contracted service providers may request from the contracting entity the recognition that the contractual price has suffered substantial impacts resulting from the increase in the MMGI, and the consequent extraordinary updating of the contractual price.

The application must follow the model approved in the annex to the Administrative Rule and be accompanied by a financial report signed by the Certified Accountant of the contractor, with the following content:

i. Demonstration that the agreed contractual price, due to the increase in the MMGI, suffered a change not covered by the risks inherent to the contract and with substantial impacts on the value of the contract;

ii. Evidence that the reasons for the request for a special price update were not due to a default of the contractor’s price, nor were they inherent to the risk of the contract itself, namely variations in salary costs, and the amounts to be considered should be deducted to the annual updates already provided for in the contract and take into account that this wage component represents only part of the overall value of the contract;

iii. Demonstration that the anticipated increase of the MMGI was not in the price originally forecasted.


2. Examination of the application

Within 15 days of its submission, the contracting authority assesses the application, submitting them for authorization of the extraordinary price update to the members of the Government responsible for the specific areas and for finances, only when it considers that the agreed contractual price suffered a change not covered by the risks inherent to the contract.

The referral of the application for authorization must be duly substantiated by the maximum responsible of the service with the competence to contract.


3. Authorization

If the reasoning presented is sufficient and adequate, the extraordinary authorization of the price must be granted, within a maximum period of 30 working days from the receipt of the request, by a joint dispatch of the members of the Government responsible for the sectoral areas and finance with retroactive effect to January 1, 2017.

The contracting authorities, in accordance with the principle of good faith in the relationship with the individuals to which they are in contract with, shall return to the contracting parties all requests for extraordinary price updates based on the increase in the MMGI received in the meantime, requesting their reformulation, until August 20, 2017, according to the model and rules established by Administrative Rule No. 216/2017.

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