Contractual Sanctions in Public Procurement: A European and UK Outlook

Public procurement across Europe is characterised by highly harmonised rules governing contract award procedures. However, once contracts are signed, national countries retain substantial autonomy in regulating performance obligations and contractual sanctions. This asymmetry – between uniform pre-award processes and diverse post-award frameworks – creates significant variations in how contractual breaches are addressed across jurisdictions, particularly regarding available sanctions, liability limitations, and remedial mechanisms. 

This situation raises several critical questions:

• Which types of sanctions are permissible under local legislation on public procurement? This is a critical question with significant commercial implications for contractors. A particularly important consideration is whether multiple sanctions can be legitimately imposed for a single breach of contract. For example, can a contracting authority simultaneously levy financial penalties for delay alongside other general penalties, or even proceed to terminate the contract while still enforcing financial sanctions? The answer varies significantly across jurisdictions and understanding these variations is essential for effective risk management.

• To what extent are the parties allowed to negotiate and agree upon limits to the contractor’s financial liability? This question is of paramount importance to contractors operating in high-value or high-risk sectors. Indeed, the commercial reality is that unlimited liability exposure can render public contracts commercially unviable for many operators, particularly SMEs or those in specialised sectors where risk is inherently high. Understanding the permissible scope and form of liability limitations across different jurisdictions is therefore essential for both contractors seeking to protect themselves and contracting authorities wishing to ensure robust market participation.

• Under what circumstances, if any, is a contracting authority entitled to waive or reduce a sanction that has already been imposed on a contractor? This question addresses the crucial issue of flexibility within public procurement systems. Is there a formal process for mitigating sanctions, and what procedural safeguards exist to ensure transparency and equal treatment when such decisions are made? Are authorities bound by strict procedural requirements when considering waiver requests, or do they retain discretionary powers? The potential for sanction reduction can significantly impact contract pricing and risk assessment, as contractors may factor this flexibility (or lack thereof) into their commercial calculations when bidding for public contracts.

These questions have different answers across several jurisdictions (including in the EU), creating significant challenges for cross-border operators. Businesses working in multiple countries must navigate these complex national variations to avoid unexpected liabilities, margin erosion, or damaged client relationships. Similarly, understanding these differences is essential when challenging sanctions that may have been incorrectly imposed. This legal fragmentation directly impacts risk management strategies, pricing models, and business viability within public procurement markets.

This comparative analysis examines the regulatory approaches to contractual sanctions in several European jurisdictions (Belgium, Finland, Germany, Denmark, Italy, and France) as well as the United Kingdom, highlighting key variations how these jurisdictions address and remedy breaches of public contracts[1]. National detailed reports are available below.

2. Permissible Sanctions and Their Application

Role of Legislation vs. Contractual Agreements in Defining Sanctions

A fundamental distinction among the analysed jurisdictions is the extent to which sanctions in public procurement are statutorily prescribed versus contractually determined. Belgium and Italy exemplify a predominantly statutory approach, with Belgium's Royal Decree of 14 January 2013 providing comprehensive regulation of specific sanctions and their application procedures. Similarly, Italy's Public Procurement Code offers detailed rules governing contractual breaches and corresponding sanctions. Germany incorporates significant statutory elements, notably through Section 133 of the Act against Restraints of Competition, which establishes specific grounds for contract termination. This legislative emphasis reflects a preference for consistency and legal certainty in applying sanctions across public contracts within these jurisdictions.

Conversely, Finland, Denmark, and the United Kingdom (a non-EU country) prioritise contractual autonomy. In these jurisdictions, the specific types, conditions, and applications of sanctions are predominantly determined through terms negotiated within the procurement contract itself. While their respective legislation may address certain fundamental aspects such as termination grounds, the detailed provisions regarding sanctions largely remain subject to the parties' negotiation. This approach facilitates greater flexibility in adapting sanctions to the specific requirements and risk profiles of individual contracts, though it places greater responsibility on contracting authorities to ensure comprehensive and clear contractual terms. The same approach is retained in the Netherlands, where procurement legislation is largely silent on contract terms, which are primarily regulated by contract law principles. This gives contracting authorities considerable freedom to include commercially agreed terms, provided they do not breach common law. The Netherlands has developed specific standardised terms and conditions – notably ARVODI (for public service contracts), ARIV (for purchase and supply contracts), and ARBIT (for IT contracts) – that provide uniform contractual frameworks between the State of the Netherlands and third parties. These standardised terms, adopted by prime ministerial order and periodically amended, are widely followed by Dutch contracting authorities, creating a consistent approach to liability and other contractual matters across government procurement.

France maintains a hybrid system where contracting authorities possess inherent powers to monitor performance and apply sanctions based on the Public Procurement Code and case law, contractual penalties are not mandatory and must be explicitly provided for in the contract. This indicates a balance between statutory authority and the need for contractual specification, particularly concerning financial penalties.

Prevalence, Types, and Application of Financial Penalties

Financial penalties represent the most prevalent sanction mechanism across all examined jurisdictions, though their implementation varies significantly. Belgium provides a structured approach with default penalty rates and standardised formulas for calculating delay-specific penalties when contracts lack specific terms. Italy employs diverse monetary sanctions for various infractions, including false declarations and non-compliance with anti-corruption obligations, with delay penalties serving as a primary enforcement mechanism. Though not mandatory under French law, contractual penalties are commonplace in public procurement agreements, functioning both as deterrents against non-compliance and as compensation for resulting damages. Similarly, Germany relies extensively on contractual penalties as a cornerstone sanction.

The widespread use of financial penalties suggests that monetary sanctions are considered an effective means of deterring non-performance and compensating contracting authorities for losses or inconvenience caused by a contractor's failure to meet their obligations.

Interestingly, some jurisdictions provide more concrete guidance or limitations on the quantum of financial penalties. Belgium's default rates offer a standardised approach, while German jurisprudence sets limits on the permissible daily rates and total amounts for contractual penalties. This indicates an attempt to ensure that financial penalties are proportionate and reasonable, preventing potentially excessive or arbitrary imposition. 

In contrast, Finland, Denmark, and the UK primarily leave the determination of the nature and extent of financial penalties to the contract itself. This highlights the greater emphasis placed on the contracting parties' ability to agree on appropriate financial remedies in these jurisdictions, underscoring the importance of careful negotiation and drafting of penalty clauses.

Approaches to Delay Penalties and Their Calculation

The approach to addressing delays in contract performance also varies across the examined countries. Belgium has a specific formula-based approach for calculating delay penalties, taking into account factors like the contract amount, delay duration, and number of days delayed. This provides a structured and transparent method for determining penalties for late completion. In contrast, Finland, Germany, Denmark, and the UK typically define delay penalties within the contract itself. This allows for tailored approaches that can be adapted to the specific requirements and the potential impact of delays in different types of projects. Italy explicitly allows for the combination of delay penalties with other sanctions, such as termination, for serious breaches, indicating a tiered response where delay penalties may be an initial step, with more severe sanctions following for more significant or persistent delays. The diverse approaches to delay penalties reflect the varying legal traditions and priorities of each jurisdiction in balancing the need for timely performance with the potential for unforeseen delays in complex projects.

Regulations Concerning Exclusion from Future Tenders

Exclusion from future public procurement procedures is a significant non-financial sanction aimed at preventing unreliable contractors from participating in future tenders. Belgium and Italy have specific statutory provisions for excluding contractors for significant or persistent failures in past performance. Similarly, the UK's PA23 outlines statutory exclusion grounds based on material breaches or the contractor being excluded or excludable due to various factors like criminal offenses or professional misconduct. While not explicitly detailed for all countries, it is plausible that contractual terms might also address exclusion in certain circumstances, particularly in jurisdictions that favor contractual autonomy. These contractual provisions could potentially complement statutory exclusion mechanisms by providing additional grounds or specifying the duration of exclusion in certain cases, within the limits of applicable law.

Procedures for Imposing Sanctions

Ensuring procedural fairness in the imposition of sanctions is a crucial aspect of any legal framework. A shared feature across these countries is the obligation or practice of notifying the contractor of any shortcomings and typically allowing a chance to rectify the breach, particularly for scope- or performance-related failures. Belgium explicitly guarantees the contractor's right to present formal defenses and submit objections before sanctions are imposed. The UK also mandates that contracting authorities provide contractors with an opportunity to improve performance and respond before termination. 

Notable divergence arises between jurisdictions that systematically codify formalities in procurement regulations (Belgium, France) versus those that rely on contract terms or general default rules (England, Denmark, Germany, Finland). Italy similarly requires timely written notice referencing the applicable contract or legal provisions. Many countries treat delay penalties as triggered automatically (Belgium, for instance, does not require prior formalities for delay-related sanctions). However, more subjective penalties (e.g., for defective performance) typically require documentation and a remedy period.

Interaction of Sanctions

The rules governing how different types of sanctions can be applied in conjunction with each other vary across the jurisdictions. Belgium prohibits claiming compensation for the same damage twice, and Germany generally offsets contractual penalties against claims for damages. These principles aim to prevent double recovery and ensure that contracting authorities are compensated for their losses without receiving a windfall. In Finland and Denmark, whether multiple sanctions can operate simultaneously is largely determined by the specific wording and interpretation of the contract. France generally applies penalties consecutively but not cumulatively with another sanction unless the contract specifies otherwise. In contrast, Italy generally permits the imposition of multiple sanctions for a single breach, provided they adhere to the overarching principle of proportionality. These varying approaches highlight the need for careful consideration of the desired interaction between different sanctions when drafting contract clauses and for understanding the specific rules of the applicable jurisdiction.

3. Possibility to negotiate liability caps in the contract

Liability caps in public procurement serve an overarching purpose: distributing project risk in a manner acceptable to both contracting authorities and contractors. Contractors often demand liability limitations to ensure that they are not indefinitely exposed to large claims. This is particularly relevant in complex projects (IT, construction), where unknown factors can significantly inflate risk.

Most countries allow the parties to include any liability limitation clauses within procurement agreements, with some exceptions and conditions. All generally allow the parties to negotiate liability caps or other contractual limitations, subject to baseline legal norms. Countries like Finland, France, Denmark, Germany and the United Kingdom retain a rather permissive approach. These jurisdictions often rely on the principle of contractual autonomy, meaning liability caps are perfectly valid. Protections such as prohibitions against limiting liability for willful misconduct or gross negligence (Finland, Germany) or minimal redress requirements (France) are inserted to prevent liability caps from effectively nullifying a contractor’s responsibilities. 

Additionally, in these countries, there are standard form contracts and guidance, which frame the conditions in which a liability cap may be included in a contract: 

• In Germany, certain sectors – particularly IT (EVB-IT AGB) and construction (VOB/B) – routinely include liability limitations as standard practice. These well-established sectoral frameworks set industry norms and create reasonable expectations for both parties, clarifying what contracting authorities may legitimately accept without compromising public interest principles.
• Likewise, in the United Kingdom, whilst no specific legal instrument mandates caps, “soft law” guidance (e.g., the Sourcing Playbook, Managing Public Money) heavily influences procurement practice. These authoritative documents actively encourage contracting authorities to negotiate and implement tailored liability caps while respecting certain uncappable obligations (VAT, tax, TUPE, intellectual property infringements, etc.).
• Finally, in Finland, standard terms like JYSE 2022 present a nuanced approach to liability limitation. These terms specifically render liability caps ineffective for breaches of intellectual property rights or confidentiality obligations, emphasising these areas’ high strategic and reputational importance.

Other countries, such as Italy and Belgium, retain a more restrictive approach. For example, Italy stands out with limited willingness to stray from uncapped liability, driven by official caution. -Indeed, although not formally prohibited, liability remains uncapped in most Italian public contracts for this reason. Such uncapped liability is also common in Belgium (although there remains scope to include liability caps by deviating from some other clauses, in contracts awarded based on negotiated procedure).

4. Possibility to obtain reductions and waivers

The regulatory frameworks governing sanction reduction or waiver reveal distinct approaches across jurisdictions. Belgium has established detailed statutory provisions and administrative procedures for modifying imposed sanctions, often codified in Royal Decrees. In France, these rules are established solely by case law that relies on general contract law principles. This contrasts markedly with the United Kingdom, Denmark, Germany, the Netherlands, and Finland, which predominantly rely on general contract law principles and broader doctrines concerning unfair or disproportionate contractual terms sanction may be modified. Italian law sits somewhere in between, featuring a specific 10% statutory cap on penalties but still largely requiring explicit contractual clauses to facilitate ex post renegotiation.

Despite these procedural differences, proportionality emerges as a unifying principle across all jurisdictions. Courts and administrative authorities consistently examine whether imposed sanctions reasonably correspond to the nature and severity of the contractual breach. This manifests through various legal mechanisms: 

• Belgium’s concept of “manifestly unreasonable” penalties; 
• France’s administrative court authority to reduce “excessive or derisory” sanctions;  
• Italy’s principles of reasonableness and good faith; 
• England’s prohibition against penalty clauses under contract law; 
• Denmark’s statutory power to invalidate unreasonable terms under § 36 of the Contracts Act; 
• Germany’s explicit provision for moderating excessive penalties (§ 343 BGB); and 
• Finland’s narrowly defined grounds for adjusting manifestly unfair contractual terms. 

These diverse approaches ultimately serve the common purpose of preventing purely punitive or grossly disproportionate sanctions.

A critical consideration across these jurisdictions is the extent to which contracting authorities may unilaterally modify sanctions after their imposition. Several countries (Belgium, France, Italy) or contract clauses give authorities explicit discretion—subject to checks against conferring an unjustified advantage. 

Elsewhere (England, Denmark, Germany, Finland), the ability to adjust sanctions frequently reverts to core contract-law principles: either the contract specifically allows modifications, or courts must evaluate whether any ex post waiver is permissible under existing doctrines (e.g., it should not constitute a “material amendment” under procurement law). 

In addition, in numerous jurisdictions, late adjustments to contract terms can trigger procurement law concerns. Germany’s § 132 GWB and Finland’s Section 136(1) of the Act on Public Procurement and Concession Contracts emphasise that material changes – such as reducing a sanction – may amount to a contract modification requiring a fresh tender. 

While some countries, such as England, do not prescribe specific procurement-law hoops for reducing sanctions, others emphasise how relaxing penalties could risk conferring an unlawful advantage on the contractor, thus violating procurement principles: 

• For example, in Denmark, if waiving sanctions confers an economic benefit that significantly alters the original contract, it may be treated as an illegal direct award. 
• Belgium, by contrast, has codified processes (Articles 50 and 51 of the Royal Decree of 14 January 2013) that permit partial or full restitution of penalties under clearly defined circumstances, thus formally avoiding undue “material amendment” scrutiny. 
• France likewise permits authorities to waive penalties (whether fully or partially), but not in a way that violates public policy by giving an unreasonably favorable deal to the contractor. This mirrors Belgian principles that courts can invalidate penalty-related terms creating manifestly disproportionate outcomes.

5. Dispute resolution

In all jurisdictions, courts play a decisive oversight function. Where a penalty is deemed disproportionate relative to the breach, judges can reduce or annul it. Some, such as France, emphasise the “manifestly excessive” standard; others, like Belgium, rely on “manifestly unreasonable.” England regards contractual penalty clauses as unenforceable if they amount to a punishment rather than a genuine pre-estimate of losses—a concept that similarly supports ex post moderation.

While all these systems theoretically provide some moderation mechanism, the ease with which a contractor can invoke that remedy differs. Italy’s possibility of “proportionality review” and Finland’s extremely high bar under Contracts Act § 36 illustrate varying degrees of judicial willingness to reopen contract terms. Belgium’s robust jurisprudential track record of moderating disproportionate penalties – often referencing potential damages foreseen at contract conclusion – offers relatively clear opportunities for contractors to challenge excessive sanctions.

One of the cross-cutting theme is whether or not the type of sanction changes the contractor’s procedural or substantive remedies: 

• Some jurisdictions – Belgium, Germany, Denmark, Finland – do not significantly differentiate between procedural mechanisms for challenging a financial penalty versus contesting a contract termination. This unified approach to dispute resolution means contractors can rely on consistent legal avenues regardless of the sanction type. While the substantive arguments may differ, the procedural framework remains consistent, providing a degree of certainty in how disputes will be processed through the relevant legal systems.
• In France, contract termination triggers distinct legal remedies compared to financial penalties. Specifically, termination creates the possibility of requesting contract reinstatement – a powerful remedy aimed at preserving the contractual relationship – while financial penalties more typically involve seeking an administrative decision to reduce or annul the monetary burden. 
• In the United Kingdom, both penalty-related and termination disputes benefit from procedural flexibility, as they can proceed through contractual dispute resolution mechanisms or directly through the courts, depending on the specific contractual provisions and strategic considerations. The ability to appeal unfavorable decisions depends critically on whether the initial decision was administrative or judicial in nature, creating important tactical considerations for contractors when planning their dispute resolution strategy. 

Finally, arbitration is widely available where the contract allows (Italy, Germany, Finland, Denmark). France also permits mediation or reference to a conciliation committee before turning to administrative courts. Belgium’s civil courts similarly hear disputes over imposed penalties, yet alternative dispute resolution (such as mediation) remains an option, albeit not commonly used in practice.

Conclusion

This comparative analysis has revealed distinct approaches to contractual sanctions across European jurisdictions and the UK. These countries display significant variations in their regulatory frameworks for sanctions. Some jurisdictions like Belgium and Italy favor a predominantly statutory approach with comprehensive regulation of specific sanctions, while others such as Finland, Denmark, the Netherlands, the UK prioritise contractual autonomy where sanctions are determined through negotiated terms. Financial penalties emerge as the most prevalent sanction mechanism across all examined jurisdictions, though with varying implementation approaches. Exclusion from future tenders represents another significant sanction, with countries like Belgium, Italy, and the UK providing specific statutory grounds for such exclusions. Regarding liability limitations most jurisdictions allow negotiated liability caps, though with varying degrees of permissiveness. 

These divergent approaches create significant complexity and legal uncertainty for contractors operating across multiple jurisdictions. A more harmonised European framework for contractual sanctions within the EU could substantially reduce these barriers for EU Member States, enabling more effective cross-border participation in public procurement markets. Such harmonisation would foster greater competition, innovation, and value for money in public spending while strengthening the EU internal market by allowing businesses to expand their operations beyond national borders without facing prohibitive legal complexity or unpredictable risk exposure. Understanding these themes helps both contractors and authorities navigate sanction-related negotiations, remedies, and legal challenges across different European markets and the UK, while pointing toward potential future EU-level reforms that could create a more integrated and accessible procurement landscape within the European Union.

[1] While no dedicated national report is included for the Netherlands, some considerations concerning the Dutch approach are incorporated in this comparative outlook.