Contract Splitting and an Unapproved Budget Reallocation
The Municipality of Ilinden needs a new heating system for its primary school. The estimated value is €38,000. The municipality's internal procurement plan sets €20,000 as the threshold for the simplified procedure; above that, an open procedure is required. The mayor instructs the procurement officer to split the purchase into two contracts: €19,000 for the boiler and €19,000 for installation, both to the same supplier, with work starting in three weeks. The capital budget line contains only €25,000. The finance officer proposes to cover the €13,000 gap by reallocating money from road maintenance, saying the mayor can approve 'small reallocations' without the municipal council. The internal auditor warns that the plan may breach the Public Procurement Law and the budget rules. The school is due to reopen in two months and the mayor wants to avoid delay.
1. Is the proposed split into two €19,000 contracts lawful? Explain the anti-splitting rule and how the estimated value should be calculated.
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The proposal is not lawful if it is designed to avoid the open procedure. Public procurement rules prohibit artificial splitting of a single procurement into separate contracts in order to fall below a threshold. The test is whether the contracts form one economic and technical unit.
Here the boiler and its installation are functionally inseparable: the heating system is one project, the same supplier is envisaged, and the work is to start as one operation. The estimated value should be calculated on the aggregate €38,000, not on two isolated €19,000 amounts. That aggregate exceeds the €20,000 simplified-procedure threshold, so an open procedure is required.
Artificial splitting can lead to annulment of the contracts, audit findings, and liability for the officials involved. Urgency caused by poor planning does not justify splitting. If the municipality genuinely needs the system quickly, it should use a lawful urgent procedure if the legal conditions are met, or run the open procedure with realistic deadlines.
2. Can the finance officer reallocate €13,000 from road maintenance without council approval? What should the municipality do to stay within budget and procurement law?
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The reallocation must be tested against the budget law and the municipal statute, not against the mayor's informal practice. A mayor usually has limited authority to make small transfers within an approved budget; transfers between different programmes or capital purposes often require a council decision or a formal budget amendment. A €13,000 transfer from road maintenance to school heating is not automatically a 'small reallocation'.
The finance officer should therefore:
- identify the legal limit on the mayor's reallocation power;
- prepare a formal budget amendment or reallocation proposal for the council if the limit is exceeded;
- confirm that the full €38,000 is budgeted before launching the procurement; and
- avoid committing the municipality to contracts without an approved funding source.
The municipality should run one open procedure for the aggregated project, secure council approval for the budget change, and document the urgency. Using the procurement process to solve a budget gap creates both audit and legal risk.