Modifications of Contracts

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Region: EU

The principles of equal treatment and transparency are the basis for the position that public contracts should not be materially amended during their term

“34 In order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during the currency of the contract constitute a new award of a contract within the meaning of Directive 92/50 when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract (see, to that effect, Case C-337/98 Commission v France [2000] ECR I-8377, paragraphs 44 and 46).

35      An amendment to a public contract during its currency may be regarded as being material when it introduces conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted.

36      Likewise, an amendment to the initial contract may be regarded as being material when it extends the scope of the contract considerably to encompass services not initially covered. This latter interpretation is confirmed in Article 11(3)(e) and (f) of Directive 92/50, which imposes, in respect of contracts concerning, either solely or for the most part, services listed in Annex I A thereto, restrictions on the extent to which contracting authorities may use the negotiated procedure for awarding services in addition to those covered by an initial contract.

37      An amendment may also be regarded as being material when it changes the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract.”

“It follows from the Court’s case-law that the principle of equal treatment and the obligation of transparency resulting therefrom preclude, following the award of a public contract, the contracting authority and the successful tenderer from amending the provisions of that contract in such a way that those provisions differ materially in character from those of the original contract. Such will be the case if the proposed amendments would either extend the scope of the contract considerably to encompass elements not initially covered or to change the economic balance of the contract in favour of the successful tenderer, or if those changes are liable to call into question the award of the contract, in the sense that, had such amendments been incorporated in the documents which had governed the original contract award procedure, either another tender would have been accepted or other tenderers might have been admitted to that procedure (see, to that effect, inter alia, judgment of 19 June 2008, pressetext Nachrichtenagentur, C‑454/06, EU:C:2008:351, paragraphs 34 to 37).”

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Region: EU

The principles of equal treatment and transparency are the basis for the position that public contracts should not be materially amended during their term

“[The] principle of equal treatment and the obligation of transparency resulting therefrom preclude, following the award of a public contract, the contracting authority and the successful tenderer from amending the provisions of that contract in such a way that those provisions differ materially in character from those of the original contract”

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Region: EU

18-year extension to motorway concession was unlawful

“In that regard, it must be recalled that, according to the case-law of the Court, the principle of equal treatment and the obligation of transparency deriving therefrom preclude, following the award of a public works concession contract, the concession-granting authority and the concessionaire from making amendments to the provisions of their concession contract in such a way that those provisions differ materially in character from those of the original contract. Such will be the case if the proposed amendments would either extend the scope of the public works concession considerably to encompass elements not initially covered or to change the economic balance of that contract in favour of the concessionaire, or if those changes are liable to call into question the award of the public works concession, in the sense that, had such amendments been incorporated in the documents which had governed the original award procedure, either another tender would have been accepted or other tenderers might have been admitted to that procedure (see, to that effect, judgment of 7 September 2016, Finn Frogne, C‑549/14, EU:C:2016:634, paragraph 28 and the case-law cited).

Thus, in principle, a substantial amendment of a public concession contract must give rise to a new award procedure for the contract so amended (see, to that effect, judgment of 7 September 2016, Finn Frogne, C‑549/14, EU:C:2016:634, paragraph 30 and the case-law cited).”

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Region: EU

A contracting authority cannot alter the general scheme of the invitation to tender by way of an amendment to the contract with the successful tenderer, which alters one of the essential conditions for the award

“115 Against that background, it consequently falls to the Commission, in its capacity as contracting authority, strictly to comply with the criteria which it has itself laid down on that basis not only in the tendering procedure per se, which is concerned with assessing the tenders submitted and selecting the successful tenderer, but also, more generally, up to the end of the stage during which the relevant contract is performed.

116 Although, therefore, any tender which does not comply with the specified conditions must, obviously, be rejected, the contracting authority nevertheless may not alter the general scheme of the invitation to tender by subsequently proceeding unilaterally to amend one of the essential conditions for the award, in particular if it is a condition which, had it been included in the notice of invitation to tender, would have made it possible for tenderers to submit a substantially different tender.

117 Consequently, in a situation such as that arising here, the contracting authority could not, once the contract had been awarded and, moreover, by a decision which derogates in its substance from the provisions of the earlier regulations, amend a significant condition of the invitation to tender such as the condition relating to the arrangements governing payment for the products to be supplied.

118 Should the contracting authority wish, for specific reasons, to be able to amend some conditions of the invitation to tender, after the successful tenderer has been selected, it is required expressly to provide for that possibility, as well as for the relevant detailed rules, in the notice of invitation to tender which has been drawn up by the authority itself and defines the framework within which the procedure must be carried out, so that all the undertakings interested in taking part in the procurement procedure are aware of that possibility from the outset and are therefore on an equal footing when formulating their respective tenders.

119 Furthermore, if such a possibility is not expressly provided for, but the contracting authority intends, after the contract has been awarded, to derogate from one of the essential conditions specified, it cannot legitimately continue with the procedure by applying conditions other than those originally specified.

120 If, when the contract was being performed, the contracting authority was authorised to amend at will the very conditions of the invitation to tender, where there was no express authorisation to that effect in the relevant provisions, the terms governing the award of the contract, as originally laid down, would be distorted.

121 Furthermore, a practice of that kind would inevitably lead to infringement of the principles of transparency and equal treatment as between tenderers since the uniform application of the conditions of the invitation to tender and the objectivity of the procedure would no longer be guaranteed.

122 In this case, it is established that, once the contract had been awarded, the Commission replaced the fruit specified in the notice of invitation to tender with other fruit as the means of payment for the fruit to be supplied by the successful tenderer, although no such substitution was provided for either in that notice or in the relevant legislation on which that notice was based.

…

125 … [The] contracting authority may not, at any stage of the procedure, amend the conditions of the invitation to tender, unless the notice of invitation to tender contains an express provision to that effect, as it would otherwise infringe the principles of equal treatment as between tenderers and transparency.”

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Region: EU

A change to a requirement to use a specific subcontractor could require a new competition where the outcome might have been different if the change was made before the award

“39 A change of subcontractor, even if the possibility of a change is provided for in the contract, may in exceptional cases constitute such an amendment to one of the essential provisions of a concession contract where the use of one subcontractor rather than another was, in view of the particular characteristics of the services concerned, a decisive factor in concluding the contract, which is in any event for the referring court to ascertain.

40      The referring court observes that in the concept annexed to the offer submitted to the City of Frankfurt by FES, FES stated that it would use City-WCs from Wall. According to the referring court, it is likely that in that case the concession was awarded to FES because of the identity of the subcontractor it had introduced.

41      It is for the national court to establish whether the situations described in paragraphs 37 to 39 above are present.

42      If, in making that assessment, the referring court were to conclude that an essential element of the concession contract was being altered, all necessary measures would have to be taken, in accordance with the national legal system of the Member State concerned, to restore the transparency of the procedure, which might extend to a new award procedure. If need be, a new award procedure would have to be organised in a manner appropriate to the specific features of the service concession involved, and would have to ensure that an undertaking located in another Member State had access to sufficient information on that concession before it was awarded.”

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Region: EU

A framework agreement cannot be used once the quantity or maximum value laid down in the framework agreement has been reached, unless the award of that contract does not entail a substantial modification of that framework agreement, as provided for in Article 72(1)(e) of Directive 2014/24

“68 … Article 33(3) of Directive 2014/24 must be interpreted as meaning that a contracting authority may no longer rely, for the purpose of awarding a new contract, on a framework agreement in respect of which the quantity and/or maximum value of the works, supplies or services concerned laid down therein has or have already been reached, unless the award of that contract does not entail a substantial modification of that framework agreement, as provided for in Article 72(1)(e) of that directive.”

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Region: EU

A change in contractor, whereby a public company is acquired by a private economic operator in the course of performing a public contract, cannot constitute a modification for the purposes of Article 72

“37      [It] should be noted that, where, as in the present case, a public contract has been awarded, without being put out to competitive tender, to a public capital company in accordance with the case-law referred to in paragraphs 33 and 34 of the present judgment, the acquisition of that company by another economic operator, during the period for which that contract was valid, is likely to constitute the alteration of a fundamental condition of the contract, requiring the contract to be put out for competitive tender (see, to that effect, judgments of 6 April 2006, ANAV, C‑410/04, EU:C:2006:237, paragraphs 30 to 32, and of 10 September 2009, Sea, C‑573/07, EU:C:2009:532, paragraph 53).

…

40       Article 72(1)(d)(ii) of Directive 2014/24 provides that a public contract may be modified, without carrying out a new procurement procedure in accordance with the requirements of that directive, where the initial contractor is replaced by a new contractor as a consequence of, inter alia, the acquisition of the former by the latter, provided that the latter fulfils the criteria for qualitative selection initially established and provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of that directive.

41      It is therefore apparent from the wording of Article 72(1) that its scope is limited to cases in which the successor to the initial contractor continues to perform a public contract which was the subject of an initial procurement procedure complying with the requirements laid down by Directive 2014/24, which include compliance with the principles of non-discrimination, equal treatment and effective competition between economic operators, as notably recalled and given concrete expression in Article 18(1) and Article 67(4) of that directive.

42      That interpretation is supported by Article 72(4) of that directive, under which a modification of a contract must be considered to be substantial where it introduces conditions which, had they been part of the initial procurement procedure, would have allowed for the admission of other candidates than those initially selected or for the acceptance of a tender other than that originally accepted or would have attracted additional participants in the procurement procedure, and by the objective pursued by the directives in this area of attaining the widest possible opening up of public contracts to competition to the benefit not only of economic operators but also of contracting authorities (judgment of 27 November 2019, Tedeschi and Consorzio Stabile Istant Service, C‑402/18, EU:C:2019:1023, paragraph 39).

43      Therefore, a change in the contractor, such as that at issue in the main proceedings, cannot fall within the scope of Article 72 of Directive 2014/24, contrary to the submissions of the Austrian Government, since the public contract at issue in the main proceedings was awarded initially to an in-house entity without a call for tenders.”

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Region: EU

Where a new company takes over the rights and obligations of an insolvent entity under a framework contract, without taking over all or part of that entity’s business falling within the scope of that framework agreement, the Article 72(1)(d)(ii) exemption can apply.

“23 [It] should be noted, as regards the wording of Article 72(1)(d)(ii) of Directive 2014/24, first, that the replacement of the contractor to whom the contracting authority initially awarded the contract is authorised only ‘as a result of a universal or partial succession of the original contractor’. It follows that that succession may involve the taking over, by the new contractor, of all or only part of the assets of the initial contractor and may therefore involve, as the Advocate General noted in point 43 of his Opinion, the transfer only of a public contract or of a framework agreement making up the assets of the initial contractor.

24      Furthermore, it should be noted, as did the Advocate General in point 95 of his Opinion, that requiring a transfer of assets in order to prevent a party from circumventing the award rules is not necessary where the transfer of the public contract or the framework agreement is, in any event, subject to the condition, laid down in Article 72(1)(d)(ii) of Directive 2014/24, not to constitute a means of excluding application of that directive.

25      Furthermore, while it is true that such an interpretation of the concept of ‘partial succession’ in Article 72(1)(d)(ii) of Directive 2014/24 is not sufficient in itself to ensure that the new contractor performs the contract or framework agreement in question with an equivalent capability to that of the original contractor, as Dustin contends, the fact remains that that provision provides that such succession is subject to the condition that the new contractor fulfils the qualitative selection criteria initially established.

26      Therefore, it is apparent from the wording of Article 72(1)(d)(ii) of Directive 2014/24 that the concept of ‘insolvency’, falling within the concept of ‘restructuring operations’, encompasses structural changes to the original contractor, in particular insolvency which includes insolvency resulting in liquidation.

27      Secondly, as for the scope of the concept of ‘insolvency’, which is covered by the concept of ‘restructuring operations’, it is necessary to examine whether that presupposes that the new contractor takes over all or part of the business falling within the scope of the framework agreement at issue.

28      Although the first three situations listed as examples of ‘restructuring operations’ in Article 72(1)(d)(ii) of Directive 2014/24, namely takeover, merger and acquisition, may involve the continuation of at least part of the original contractor’s business, the fact remains that that provision also lists insolvency as an example of restructuring, which may lead, as the Advocate General noted in point 47 of his Opinion, to the dissolution of the insolvent company. There is no indication in the wording of that provision that the concept of ‘insolvency’ must be understood not in its usual meaning, but as being limited to situations in which the business of the original contractor which enables the performance of the public contract is pursued, at least in part.

29      Nor is there any such indication in recital 110 of that directive, which mentions insolvency together with purely internal restructurings, takeovers, mergers and acquisitions, as situations involving ‘certain structural changes’ of the successful tenderer.

30      In that regard, indeed it must be noted that Article 72(1)(d)(ii) of Directive 2014/24, and thus the concept of ‘insolvency’, must be interpreted strictly in so far as, as is apparent from paragraphs 20 and 21 of this judgment, that article sets out an exception. As the Advocate General noted in point 62 of his Opinion, however, that interpretation cannot render that exception ineffective. It would do so if the term ‘insolvency’ were limited solely to situations in which the business of the original contractor falling within the scope of the framework agreement at issue was taken over by the new contractor, at least in part, and if that term were not understood in its usual broader sense.

31      Therefore, it is clear from the wording of Article 72(1)(d)(ii) of Directive 2014/24 that the concept of ‘restructuring’ encompasses structural changes to the original contractor, in particular insolvency which includes insolvency resulting in liquidation.

32      That literal interpretation of Article 72(1)(d)(ii) of Directive 2014/24 is also consistent with the principal objective pursued by Article 72 of that directive, as set out in recitals 107 and 110 thereof. According to those recitals, Directive 2014/24 seeks to clarify the conditions under which changes to a contract during their performance require a new contract award procedure, while taking into account the relevant case-law of the Court and the principles of transparency and equal treatment.

33      In that regard, it should be noted, in the first place, that that interpretation of Article 72(1)(d)(ii) of Directive 2014/24 is based on the usual meaning of the concepts in that provision, without requiring, unlike the interpretation proposed by Dustin and the Commission, additional criteria not included therein.

34      In the second place, that interpretation takes account of the Court’s case-law, in particular the judgment of 19 June 2008, pressetext Nachrichtenagentur (C‑454/06, EU:C:2008:351), from which it follows that internal reorganisations of the initial contractor are capable of constituting insubstantial changes in the terms of the public contract concerned which do not require the opening of a new public procurement procedure.

35      In recital 110 of Directive 2014/24, insolvency is listed without reservation as one of the examples of structural changes to the original contractor not being contrary to the principles of transparency and equal treatment on which that case-law is based. As the Advocate General noted in points 84 and 85 of his Opinion, the insolvency of the original contractor, including the bankruptcy which results in its winding-up proceedings, represents an extraordinary circumstance before the occurrence of which the public contract or framework agreement at issue has already been opened to competition in accordance with Directive 2014/24 and, under Article 72(1)(d)(ii) of that directive, can neither lead to any other substantial modifications, in particular those relating to the qualitative selection criteria initially established, or aimed at circumventing the application of that directive.

36      However, the case-law referred to in paragraph 34 of the present judgment does not apply to the insolvency of the original contractor or, generally, to situations in which a substantial modification of the original contractor does not require a reopening to competition. Therefore, that case-law does not preclude the interpretation which follows from paragraph 31 of the present judgment.

37      The interpretation of Article 72(1)(d)(ii) of Directive 2014/24 given in paragraph 31 of this judgment is also supported by the specific objective of the exception provided for in that provision, which is, as the Advocate General observed in points 82 and 83 of his Opinion, to introduce a degree of flexibility in the application of the rules in order to respond pragmatically to all the extraordinary instances, such as the insolvency of the successful tenderer, which prevents it from performing the public contract at issue. As the Advocate General noted in point 83 of his Opinion, the problem created by insolvency, which the EU legislature sought to address, does not arise differently depending on whether the business of the successful tenderer which has become insolvent is continued, at least in part, or is totally stopped.

38      In the light of all the foregoing considerations, the answer to the question referred is that Article 72(1)(d)(ii) of Directive 2014/24 must be interpreted as meaning that an economic operator which, following the insolvency of the initial contractor which led to its liquidation, has taken over only the rights and obligations of the initial contractor arising from a framework agreement concluded with a contracting authority must be regarded as having succeeded in part of that initial contractor, following corporate restructuring, within the meaning of that provision.”

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Region: EU

For a substantial modification to arise under Article 72, it is not necessary that the contract modification is specifically recorded in a written agreement, where it can be deduced from written elements established during communications between the parties. Delay of execution of works caused by usual weather conditions and regulatory prohibitions did not amount to “circumstances which a diligent contracting authority could not foresee” for the purpose of the exemption laid down in art.72(1)(c) of Directive 2014/24.

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Region: EU

It is permissible for a breach – by way of an unlawful contract modification – to be attributed by a national supervisory authority to both the contracting authority and economic operator; any fine must take account of the specific conduct of each party and comply with the principle of proportionality

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Region: EU

In order to avail of the unforeseeable circumstances ground for a modification, it is not sufficient that the need for the modification arises from the fact that the original contract did not cover the circumstances which have arisen

Grand Chamber

The case concerned modifications to concessions for the operation of motorway service stations, to facilitate electric charging stations. The 40-year concessions were originally awarded between 1996-98, without a tender, to a publicly-owned company which was later privately acquired, with further of the concessions being awarded between 1999 and 2019 (some following a tender process). Fastned challenged the modifications.

The relevant modification provisions were those in Article 43(1)(c) of Directive 2014/23, which are identical to Article 72(1)(c) of Directive 2014/24.

As regards the change in status of the entity, the CJEU held at [60]:

“It follows from the findings above that Article 43(1)(c) of Directive 2014/23 must be interpreted as meaning that, if the conditions laid down in that provision are satisfied, a concession may be modified without a new award procedure, including where that concession was initially awarded, without a competitive tendering procedure, to an in-house entity and the modification of the subject matter of that concession is carried out on a date on which the concessionaire no longer has the status of an in-house entity.”

On the effect of the lawfulness of the initial award of the concession, given that the time limits for challenging the initial concession were long expired, and where the challenger was only interested in the modification, there was no requirement on a national court to assess “the lawfulness of the initial award of a concession in the context of an action for annulment of a modification of that concession, where that action is brought after the expiry of any time limit laid down by national law” ([69]).

Modification where need was not foreseeable

“72 [As] is apparent from Article 43(1)(c) of Directive 2014/23, the possibility of modifying a concession without a new award procedure under that provision is subject to three distinct conditions. The first of those conditions, which is set out in Article 43(1)(c)(i) of that directive, contains two elements, the first of which relates to the materialisation of circumstances which a diligent contracting authority could not foresee and the second of which relates to the fact that those circumstances brought about a need to modify the concession concerned. The second condition, which is set out in Article 43(1)(c)(ii) of that directive, states that the modification concerned must not alter the overall nature of the concession contract at issue. The third of those conditions, which is set out in Article 43(1)(c)(iii) of that directive, dictates that, in principle, the increase in the value of that contract must not be higher than 50% of the value of the initial concession contract.

73      In that context, as regards the first of those conditions, contrary to the point of view that the referring court appears to take, the ‘need for’ a modification of a concession cannot be regarded as having been ‘brought about’ merely because its contractual terms do not cover the situation resulting from unforeseeable circumstances which have arisen.

74      As is apparent from the first two sentences of recital 76 of Directive 2014/23, the flexibility granted to contracting authorities by Article 43(1)(c) of that directive is intended to preserve the operation of the initial concession and therefore the proper performance of the obligations arising from it.

75      Consequently, in order for the ‘need for’ the modification of a concession to be regarded as having been ‘brought about’ by the materialisation of unforeseeable circumstances, those circumstances must also require the initial concession to be adapted in order to ensure that the proper performance of the obligations arising from it may continue.

76      Furthermore, as has been recalled in paragraph 72 of the present judgment, a modification of the subject matter of the initial concession due to unforeseeable circumstances cannot be justified, under Article 43(1)(c) of Directive 2014/23, where it changes the overall nature of that concession. As is apparent from recital 76 of that directive, that is the case, in particular, where the works to be executed or the services to be provided are replaced by something different or where the type of concession is fundamentally changed.

77      It follows that Article 43(1)(c) of Directive 2014/23 allows a modification extending the subject matter of the initial concession provided that, first, the materialisation of circumstances that were unforeseeable at the time of the award of that concession brings about a need for that modification in order to preserve the proper performance of the obligations arising from that concession and, second, the works or services covered by that extension, having regard to their scope or their specificities in relation to the works or services which were the subject of the same concession, do not entail a change in the overall nature of that concession.

78      It is for the referring court, in addition to ensuring compliance with the third condition to which reference is made in paragraph 72 of the present judgment, to determine whether the modification at issue in the main proceedings satisfies the criteria set out in the preceding paragraph of the present judgment.

79      If the referring court were to conclude that that modification does not satisfy all the conditions laid down in Article 43(1)(c) of Directive 2014/23, it would still have to examine whether that modification is capable of satisfying those set out in Article 43(1)(b) of that directive.

80      In that regard, that court should, inter alia, verify, in accordance with Article 43(1)(b)(i) and (ii) of Directive 2014/23, that the works or services covered by the modification at issue in the main proceedings could not, from an economic and technical point of view, and without causing significant inconvenience or duplication of costs for the contracting authority, be the subject of a separate concession awarded following a competitive tendering procedure.

81      The Court must add that it is true that, according to the information provided by the referring court, the first sentence of Paragraph 5(3) of the SchnellLG provides that the holder of a concession to operate a service facility ancillary to the German federal motorways, including a petrol station, must be given the possibility to assume the responsibility, on an economically independent basis, for installing, maintaining and operating the fast-charging points planned for the site concerned. However, that court also states that, according to that provision, the contracting authority’s obligation to propose an assumption of responsibility for the works and services relating thereto to that holder exists only in so far as Part 4 of the GWB, which transposes the provisions of Directive 2014/23 into German law, does not preclude it.

82      It follows from all the findings above that the answer to the question referred is that Article 43(1)(c) of Directive 2014/23 must be interpreted as meaning that:

–        if the conditions laid down in that provision are satisfied, a concession may be modified without a new award procedure, even where that concession was initially awarded, without a competitive tendering procedure, to an in-house entity and the modification of the subject matter of that concession is carried out on a date on which the concessionaire no longer has the status of an in-house entity;

–        it does not require the Member States to ensure that the national courts review, indirectly and on application, the lawfulness of the initial award of a concession in the context of an action for annulment of a modification of that concession, where that action is brought after the expiry of any time limit laid down by national law pursuant to Article 2f of Directive 89/665 for challenging that initial award by an operator showing an interest in being awarded solely the part of that concession which is the subject of that modification;

–        the ‘need for’ modification of a concession has been ‘brought about’, within the meaning of Article 43 of Directive 2014/23, if unforeseeable circumstances make it necessary to adapt the initial concession in order to ensure that the proper performance of the concession may continue.”

 

 

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Region: EU

Even if a modification is poermitted, reasons for the modification should be set out; under EU law, contracting authorities are entitled to modify a concession without assessing the reliability of the concessionaire

 

“64. A concessionaire’s failure to fulfil contractual obligations cannot, per se, be regarded as a circumstance which a diligent contracting authority could not foresee for the purposes of point (c) of the first subparagraph of Article 43(1) of Directive 2014/23. As a result, having regard to the purpose of that provision as follows from recital 76 of that directive, a concessionaire’s failure to fulfil its contractual obligations is not liable to justify modification of a concession during its term without opening up to competition.

68. [Transfers] of the concessionaire’s shares, whether to new shareholders or to existing shareholders, do not result in the replacement of the original concessionaire by a new concessionaire, as foreseen in point (d) of the first subparagraph of Article 43(1) of the directive, but merely in modifications to the composition or distribution of that concessionaire’s shares.

70. [Modifications] that are not ‘substantial’ must not be subject to a new award procedure. A modification is to be regarded as ‘substantial’ where it alters the characteristics of the concession to be substantially different from those provided for initially. Recital 75 of that directive specifies, in that connection, that such changes demonstrate the parties’ intention to renegotiate essential terms or conditions of the concession.

71      According to the settled case-law recalled in paragraph 55 of the present judgment, it is for the national court alone to assess whether the modifications t… are ‘substantial’…

77  In accordance with the second subparagraph of Article 43(1) of Directive 2014/23, that obligation to publish a modification notice does not relate to all of the modifications that may be made without organising a new award procedure, but only to those referred to in points (b) and (c) of the first subparagraph of Article 43(1) of the directive.

79 [The] contracting authority must comply with the general principle of EU law relating to sound administration, which the Member States must observe when implementing EU law. Among the requirements flowing from that principle, the obligation to state reasons for decisions adopted by the national authorities is particularly important, since it puts their addressee in a position to defend its rights and decide in full knowledge of the circumstances whether it is worthwhile to bring an action against those decisions

103. Failing any harmonisation at EU level, it is for each Member State to determine the rules allowing the contracting authority to react when the concessionaire has committed a serious failure to fulfil its obligations or is suspected to have done so, which calls into question its reliability, during the term of the concession.

104    Having regard to the foregoing considerations, the answer to the second question is that Article 43 of Directive 2014/23 must be interpreted as not precluding national legislation under which the contracting authority is entitled to modify a concession during its term without having assessed the reliability of the concessionaire, where that modification is not caught by either point (d)(ii) of the first subparagraph of Article 43(1) or Article 43(5) of the directive. It is for each Member State to determine the rules allowing the contracting authority to react when the concessionaire has committed a serious failure to fulfil its obligations or is suspected to have done so, which calls into question its reliability, during the term of the concession.

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Region: Ireland

Change to payment amounts was not sufficiently material to require a new competition

“The agreement to pay what, in relative terms, is a small amount for the month of October, 2008, does not make the amendment material in accordance with any of the criteria set out by the Court of Justice. Accordingly, I have concluded that the award of a contract with this additional potential compensation for the month of October, 2008 was intra vires the Minister. Insofar as the invitation to tender and the contract envisages the payment of additional compensation in some limited circumstances, this pre-supposes that the Minister and successful tenderer are entitled to enter into discussions in relation to any such additional compensation. Such discussions would clearly be permissible after a successful tenderer enters into the written contract. It does not appear to me that there is any basis for suggesting, in the circumstances which existed in this case, that the Minister is prohibited from entering into such discussions prior to the award of the contract.”

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Region: Ireland

A contract of indefinite duration, entered into before the EU procurement regime applied, fell outside the scope of the EU procurement directives

“38.       If one applies the Pressetext analysis to the present case, it may be said that the original contract (on the assumption, of course, for present purposes, that there was in fact such a contract) was one of indefinite duration which, at least so far as any changes made in the six months prior to the commencement of the present proceedings in October 2011 is concerned, has not been the subject of any material amendments. (As I have already mentioned, it is not really disputed that in view of the applicable time limits that the appellants can only complain for this purpose of any material changes effected after April 2011).

39. It is, of course, true that the price payable to the operator, Bus Éireann, was reduced during this period, but as Pressetext itself shows, such a change does not shift the economic balance in favour of the contractor. It follows that this change cannot be regarded as material.

40. Accordingly, therefore, even if there was a contract which had otherwise been concluded in writing, it was nonetheless a contract of indefinite duration which came within the Pressetext exception. There was, accordingly, no necessity to have the contract advertised or otherwise submitted to the public procurement regime as such a contract falls outside the scope of the 2004 Directive.

41. It is clear, therefore, that the applicant’s claim must fail on this basis alone.”

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Region: Ireland

Changing the use of a framework agreement from optional to mandatory constitutes a material change

In Copymoore Ltd. v Commissioners of Public Works [2013] IEHC 230 the High Court considered whether a ministerial circular mandating the use of a Framework Agreement in all cases was a material change, in circumstances where the original tender stated that the use of the Framework Agreement by the prospective public sector clients was not mandatory.

Hogan J applied pressetext and concluded that changing the use of a Framework Agreement from optional to mandatory was a material change and that in the particular circumstances, the Ministerial circular which directed mandatory use of the framework was incompatible with EU law.

“51. There is absolutely no doubt but that it would have significantly influenced the thinking of the applicants as to whether they should have endeavoured to participate in the tender process even if this required some of them to form a consortium for this purpose. Just as importantly, such an amendment would have materially altered the scope of the tender by appreciably extending the range of its practical operation. It would, moreover, have altered the economic balance of the contract, since the successful tenderers would now know that they enjoyed an exclusive right to tender in a series of mini-competitions for lucrative public sector contracts whereas heretofore the use of the Framework Agreement had been merely optional.

52. It is at this point that we encounter an issue of some novelty. The contract has not, of course, actually been amended by the respondent. Instead, what has happened is that the Government (though the auspices of the Minister for Public Sector and Reform) has subsequently determined that the use of the Framework Agreement tenderers should be mandatory and, in the wake of the 2012 Circular, it has fallen to the respondent to carry out this instruction. It is true that in all strictness a circular of this kind cannot alter or vary legal rights. But it would be unrealistic not to regard the circular as effectively instructing all public sector organisations to treat the Framework Agreement as mandatory. Nor can this change be regarded as a purely theoretical one, since there is clear evidence that in the wake of the distribution of the 2012 Circular that many of the the applicants’ suppliers informed them that they could no longer do business with them by reason of the fact that they were now obliged to use the tenderers who had been successful in the Framework Agreement tender process.

53. It is, of course, true to say that the scope, operation and value of many public procurement contracts may be incidentally affected by the enactment of legislation or other public regulation. Thus, for example, the profitability of a catering contract awarded through the public procurement process might be significantly affected by the enactment of new food hygiene legislation by the Oireachtas. But such legislation and regulation is almost invariably expressed in perfectly general terms and, where disadvantageous, this must usually simply be tolerated by a particular tenderer as part of the cost of doing business.

54. The present case is, however, somewhat different. While parts of the 2012 Circular are general in nature, key parts of it are specifically directed to the use of the MPS Framework Agreement itself. Critically, by making the use of the Agreement mandatory, the 2012 Circular effectively alters the terms of the entire tender process in a far-reaching way. In these circumstances, it behoves the courts to ensure that the Minister cannot do indirectly that which the Office of Public Works would be precluded from doing directly.

55. In these very particular and unusual circumstances, I feel compelled to hold that the 2012 Circular is ultra vires as incompatible with EU law inasmuch only as it makes the use of the MPS Framework Agreement mandatory. If it were otherwise, it would mean that key objectives of the EU’s public procurement regime could (and, in the present case, would) be compromised indirectly by means of administrative regulation published shortly after a particular tender award which the contracting authority was itself implementing, even if – was is doubtless the case here – this was a consequence which was not foreseen, much less intended. Absent such judicial control the entire basis of a procurement award could be entirely distorted by administrative regulation of this kind.

56. The matter would have been entirely different if the request for tender for the MPS Framework Agreements had stipulated that the use of such Framework Agreements was mandatory for the entire public service.

57. The Minister can, of course, exercise the executive power of the State in Article 28.2 of the Constitution in order to give general directions to the public sector and may naturally generally do so by means of circular. But just as a circular may not alter or vary the general law, so too a circular may not compromise rights or entitlements deriving from European Union law. Yet by making the use of the MPS Frameworks Agreements mandatory, it has entirely distorted the assumptions on which the entire tender process for those Agreements was based, thus inadvertently undermining a key objective of Directive 2004/18/EC. It is for this single reason that I have concluded that the 2012 Circular is invalid and ineffective insofar as it makes the use of the MPS Framework Agreement mandatory throughout the public sector.”

View Case

Region: Ireland

Claim of unlawful modification struck out where no evidence that contract had been the subject of a modification

Barrett J

View Case

Region: UK

A failure to enforce a contract (where the service provider was in breach) which amounted to a de facto material amendment would violate the Directive/Regulations (although, this did not apply on the facts of the Varney case)

“210 Mr Howell submitted that the correct legal test is that the principles of equal treatment and transparency will only be breached as regards subsequent performance of the contract if there has been a material amendment to an essential condition of the relevant contract, relying on Commission v Succhi di Frutta SpA [2004] ECR I-3801 at paragraphs 116-117 and Pressetext v Austria (2008) 19th June at paragraphs 34-37, 59-60 and 63. Neither of those cases is directly in point, in the sense that they are dealing with actual amendments rather than non-enforcement, but I agree with Mr Howell that they state the correct legal approach to a case such as the present.”

View Case

Region: UK

A further extension of an already extended contract would constitute a material change where the further extension was not provided for in the contract

Application to lift the automatic suspension; suspension lifted; significant factor that a further extension would constitute a material amendment

“41. An extension of the contract into a new period of necessity “encompasses” services not previously covered by the contract, when the extension is not foreseen in the contract.”

View Case

Region: UK

Significant re-negotiation of a development agreement, which had become commercially unviable, led to a material change; overly broad variation clause could not be relied on

“70 The evidence demonstrates that the variations to the Development Agreement contract were made because the Council accepted the Developer’s representations that the project was not viable on the original contractual terms, and therefore it would not proceed. It is evident that, in order to save the project, the parties did re-negotiate the terms of the contract. Although I recognise that the subject-matter of the contract remains the same, in my view, the varied contract is materially different in character to the original contract. The most significant difference is that, overall, the varied contract is considered by the contracting parties to be viable for the Developer, whereas they consider the original contract to be unviable.”

“124 In my judgment, the variation clause was so broad and unspecific that it did not meet the requirement of transparency, as set out in CAS Succhi di Frutta at [111]. It did not provide the information which an economic operator would need in order to assess the potential scope for variations when tendering, contrary to paragraph [118] of CAS Succhi di Frutta. At best, a potential bidder would only know that applications could be made to the Council for variations and that the effect of any variation on rental income would be a relevant factor.

125 The provision for variation, pursuant to the requirements of the planning authority, which are unknown at the time of bidding, cannot be used as “carte blanche to avoid the constraints of the Directive”, adopting Arrowsmith’s phrase. In theory, on an application for planning permission, highly significant changes to the contract might be required. For example, a change to the size and location of the development site, the permissible number of buildings, or further obligations to fund infrastructure and local public services. The Pressetext principle would have to be applied in such cases.”

View Case

Region: UK

Where contract for services envisaged the expansion of the Respondent’s business and therefore the expansion of services to be provided under the contract, there was no material change when the scope of the services expanded; nature of review clauses covered by Directive 2014/24, is open to debate

Additional services (to assist with new childcare banking scheme) added to a contract operational services, comprising computer and related services

(Lord Hodge) “34 … The contract which NS&I entered into with Atos under the procurement which commenced in 2011 was to provide NS&I with the operational services that would enable it both to perform its established retail banking and investment functions and also to expand its B2B services up to the £2 billion maximum envisaged in the OJEU notice (paras 8 and 9 above). That is the contract which the economic operators competed with each other to win. The respondents required bidders to have the financial strength and other capabilities to achieve that role. While the initial value of the contract which was stated in the award of contract notice was £660,000,000 (para 15 above), the procurement process and the contract envisaged the expansion of NS&I’s business and required the outsource partner to provide the operational services to achieve that expansion. That was the object of the contract; it was clearly stated in the OJEU notice. Economic operators can have been in no doubt as to the extent of the services they might have to provide to NS&I, albeit that they would not know the public bodies to whom NS&I would provide B2B services or the public policies which the future B2B services would support.

35 Mr Coppel QC for the applicants relied on the judgment of the CJEU in Commission of the European Communities v Federal Republic of Germany (C-160/08) [2010] ECR I-3713 to support his submission that the modification to accommodate TFC extended the scope of the Atos contract because it encompassed services not initially covered. But in my view that case does not assist him because, in contrast with the present case, the initial contracts for the provision of public ambulance services, which the public authorities of the Länder entered into, covered defined territories and did not envisage extension of those services into other territories or require at the outset that the bidders had resources to cover such extensions. Similarly, I consider that Commission of the European Communities v French Republic (C-340/02) [2004] ECR I-9845 does not assist him as it involved a three-stage scheme of works in which only the first stage had been the subject–matter of the contract. The court held (paras 34-36) that the contract could not be extended by an option to carry out a separate phase of works because procurement law required both the subject-matter of each contract and the criteria governing its award to be clearly defined. Commission of the European Communities v Kingdom of Spain (C-423/07) [2010] ECR I-3429, which concerned the award of additional motorway works that had not been included in the object of the contract described in the OJEU notice, also falls to be distinguished again because in the present case the OJEU notice defined the subject matter of what became the Atos contract so as to include the expansion of banking and accounts services to meet NS&I’s aspirations for its B2B business.

36 I do not accept that one should read the prohibition from modifying a contract to encompass services not initially covered as banning the modification of a public contract which extends the contracted services beyond the level of services provided at the time of the initial contract if the advertised initial contract and related procurement documents envisaged such expansion of services, committed the economic operator to undertake them and required it to have the resources to do so. The court must look to the OJEU notice and the other procurement documents, including the contract contained in the ITT, to ascertain the nature, scale and scope of the operational services that the Atos contract was set up to provide. In short, the question is whether the services were covered by the contract resulting from the procurement between 2011 and 2013, including its provisions for amendment of the contract. Were it otherwise, it is difficult to see how a Government department or other public body could outsource services that were essential to support its own operations and accommodate the occurrence of events and the changes of policy that are part of public life. There may be circumstances in which a court could conclude that a public authority had designed a contract as a means of avoiding its obligations under EU law. In such cases the contract might be open to challenge under EU law as an abuse of right. But here there is no challenge to the validity of the Atos contract itself. Edenred goes no further than to suggest that public authorities could use contracts framed in this way as a device for avoiding their public procurement obligations by allowing for the future provision of unspecified services of a much greater value. Whether or not that is so, the focus must be on the particular contract. The scale and nature of NS&I’s stated aspirations for the use of its infrastructure and other resources in providing B2B services to public sector bodies as well as its own retail financial services, which the Atos contract was designed to support, appear to be within a reasonable compass.”

“44 But the nature of the review clauses which the regulation covers is open to debate. Recital 111 of the 2014 Directive states:

“Contracting authorities should, in the individual contracts themselves, have the possibility to provide for modifications to a contract by way of review or option clauses, but such clauses should not give them unlimited discretion. This Directive should therefore set out to what extent modifications may be provided for in the initial contract. It should consequently be clarified that sufficiently clearly drafted review or option clauses may for instance provide for price indexations or ensure that, for example, communications equipment to be delivered over a given period continues to be suitable, also in the case of changing communications protocols or other technological changes. It should be possible under sufficiently clear clauses to provide for adaptations of the contract which are rendered necessary by technical difficulties which have appeared during operation or maintenance. It should also be recalled that contracts could, for instance, include both ordinary maintenance as well as provide for extraordinary maintenance interventions that might become necessary in order to ensure continuation of a public service.”

The recital gives as examples of the envisaged review clauses provisions allowing for price indexation, or adjustments for technological change and for maintenance. Those examples are not exclusive but they may indicate the general nature of the modifications that regulation 72(1)(a) envisages. It seems clear from the CJEU’s judgment in CAS Succhi di Frutta at para 126 that the regulation would extend to a provision or clause such as for the substitution of fruit which was in issue in that case. The regulation also requires specification of the scope and nature of possible modifications and the conditions under which they may be used.

I am not persuaded that the nature of the review clauses is “acte clair”. But, for the reasons already set out, it is not necessary to decide these matters in order to determine the appeal.”

View Case

Region: UK

Permissible contract modifications should be interpreted narrowly, but this does not impose a reverse burden of proof on a contracting authority In deciding if the modification introduces conditions which would have allowed for the acceptance of a different tender, the test is whether there is a real prospect that the other tenderer would have won In determining if a modification changes the economic balance in favour of a contractor, the concept of “reasonable compensation” is a useful yardstick Whether the modification extends the scope of the contract considerably should be assessed in a common-sense way; an increase in value above the thresholds for a public service contract is not necessarily considerable

Real prospect alternative tenderer would have won

Regulation 72(8)(b)(ii) of the 2015 Regulations provided:

“(8) A modification of a contract or a framework agreement during its term shall be considered substantial for the purposes of paragraph (1)(e) where one or more of the following conditions is met:—

(b) the modification introduces conditions which, had they been part of the initial procurement procedure, would have—

(ii) allowed for the acceptance of a tender other than that originally accepted”

“142 [The] test in Reg 72(8)(b)(ii) is whether there was a real prospect that the other tenderer would now have won. Real as opposed to fanciful, much as in the sense of CPR 24. That formulation of the test pays appropriate heed to the principal of protecting against real not hypothetical distortion of competition, but without creating too high a burden.”

Economic balance – Reasonable Compensation

“163.          Here, JW first makes the point that the question of a change in economic balance is to be decided (or at least it is to be decided initially) by reference to what the existing terms, usually as to remuneration one way or another, provided for. Thus, in Edenred HC the contractual charging mechanism for the modification was in fact the same as in the original contract, as opposed to some more advantageous basis.

164. I follow that but of course, the change may be such that the original remunerative scheme cannot simply be applied to the services or supplies contemplated by the modification. That is in fact the case here in respect of the gate fees – see below. In such cases, where a different payment mechanism has to be adopted, there is surely force in the suggestion made at paragraph 6-277 of Arrowsmith’s The Law of Public and Utilities Procurement, 3rd edition that “reasonable compensation” is the appropriate yardstick by which to judge a price increase.

165. Further, if the original contractual mechanism could have been used without more, but is altered in some way (again, the case here with the guaranteed minimum mileage), I do not accept that without more, this must mean that the economic balance question is to be resolved against the authority. There must surely be a consideration of whether the change is itself justified, and again, a useful yardstick would be reasonable compensation. That is pertinent, especially where, as here, one is not talking about an amount to permeate throughout the original contract but rather a very short-term and a very small “one off” addition, to the original contract.”

Meaning of “considerably”

Regulation 72(8)(d)

“the modification extends the scope of the contract or framework agreement considerably”

“125.          JW contends none the less that the extension is considerable, because sub-paragraph (8) (d) (like the other elements of Reg 72) should be construed narrowly. In other words, it does not take much to render an extension of scope “considerable”. Indeed, JW submits that any extension which has a value of more than or not much more than the operative threshold for the engagement of the PCR (at the time £189,330 for services) is enough. Hence the £775,000 estimated additional income for Veolia would render the extension of scope considerable.

126. I disagree. “Considerable” should be interpreted in a common-sense way. A generally narrow approach to the construction of these elements does not mean interpreting parts of them in a way which deprives them of real meaning, as JW’s approach would do, in my view. JW contends that any approach other than its own would make a nonsense of the way in which the Reg 72 (1) (b) and (f) gateways work. I do not see this. They are quite separate gateways. The first gateway here concerns additional works etc. which have become necessary where a separate contract with another different contractor cannot be made. The only reference to cost is that this addition must not cost more than 50% of the value of the initial contract. The second gateway applies if the modification is both less than the appropriate threshold and less than 10% of the initial contract value in respect of services. I accept that both of these gateways have financial limits. But I fail to see why any approach to the expression “considerable” than that proffered by JW, makes them unworkable.”