Source: https://www.howtocrackanut.com/blog/tag/regulation+72
Timestamp: 2019-08-19 00:40:53
Document Index: 422539800

Matched Legal Cases: ['Art 72', 'Art 72', 'Art 72', 'art, 2015', 'art 72', 'art 72']

Reg. 72 of the Public Contracts Regulations 2015 (PCR2015) transposes the rules on modification of contracts during their term newly established by Article 72 of Directive 2014/24. I have some comments on the new regime from a competition perspective (below) and an observation concerning the wording of reg.72 PCR2015 from a transposition perspective. Pedro's shorter and possibly sharper remarks are here.
The transposition alters the structure of the provision and groups some limitations [reg.72(2) PCR2015] in a way that eliminates repetition and slightly simplifies it. Reg.72 does not transpose the possibility under Art 72(1)(d)(iii) Dir 2014/24 for contracting authorities to assume themselves the main contractor’s obligations towards its subcontractors, since this was not included in reg.71 PCR2015. This does not represent any infringement of the transposition obligations.
Differently, the only point where re.72 PCR2015 diverges from Art 72 Dir 2014/24 in a (seemingly) material way concerns the possibility to modify contracts under reg.72(1)(b) PCR2015 due to technical or economic issues, particularly concerning interchangeability and interoperability requirements. Art 72(1)(b) Dir 2014/24 allows for such modifications up to 50 % of the value of the original contract (per modification) where the following two cumulative conditions are met: "a change of contractor (i) cannot be made for economic or technical reasons such as requirements of interchangeability or interoperability with existing equipment, services or installations procured under the initial procurement; and (ii) would cause significant inconvenience or substantial duplication of costs for the contracting authority". Conversely, reg.72(1)(b) presents both conditions as alternative "a change of contractor (i) cannot be made for economic or technical reasons such as requirements of interchangeability or interoperability with existing equipment, services or installations procured under the initial procurement, or (ii) would cause significant inconvenience or substantial duplication of costs for the contracting authority".
This is an issue that Dr Totis Kotsonis discussed in Global Revolution VII last Tuesday (and went beyond this general overview). In my own view, the divergence is material because the second condition seems to impose a "threshold of significant inconvenience/duplication of cost" that gets lost if both conditions are not met simultaneously. In my view, this may potentially lead to an infringement of EU law and, consequently, contracting authorities will be well advised to make sure that they comply with both requirements in case they modify contracts under this heading.
More generally, from a competition perspective, my views are as follows [Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 426-429]. I have further thoughts on the extension of contracts (ie the modifications covered by reg.72(1)(c) and 72(5) PCR2015, but I save them for some other time.
Renegotiation of the Main Conditions of the Contract and its Modification
Renegotiation of the contract during its implementation is another circumstance partially covered previously in the analysis of the closely related issue of negotiations immediately before or shortly after contract award. As a preliminary issue, it is necessary to distinguish between modifications of certain elements of the contract according to the rules included in the call for tenders and contractual conditions—such as, for instance, price adjustments according to the evolution of a given index over time, or the revision of deadlines for the execution of certain parts of the contract that depend on future events—and proper renegotiations of the terms of the contract in other cases.[1]
While the former, which we could label ‘contractual adjustments’ or ‘contractual revisions’, are not strictly affected by the ban on negotiations (as they result from the direct implementation of contractual clauses and tender conditions set and disclosed from the beginning—which, logically, are not re-negotiated at this stage), the amendment of basic or substantial elements of the contract during its implementation raises significant concerns. In this regard, it is worth remembering that negotiation and amendments to the call for tenders and the tenders themselves are generally restricted, especially before the award of the contract. By the same token, renegotiation at later stages of contract implementation has to be approached from a restrictive perspective,[2] since it could be used to provide favourable treatment to the awardee and, in the end, generate significant distortions of competition.[3]
In this regard, it should be stressed that there can be a larger need for limited renegotiation as the implementation of the contract progresses (as compared to the same renegotiation right before or shortly after the award of the contract), as contractors and contracting authorities might be faced with unexpected situations that require an adjustment of the contract.[4] However, those renegotiations should normally refer to relatively secondary issues related to the subject-matter of the contract, and so the adjustment should not require a material amendment of the basic or fundamental elements of the contract (such as liability clauses, rules regarding transfer of risk, insurance or guarantee schemes, etc)—perhaps with the only exception of the scope, delay and price for the works, goods and services, provided they do not alter the essence of the contract, which should be analysed separately as instances of extension or award of additional works.
Therefore, in order to prevent potential discrimination and distortions of competition, the same rules applicable to (re)negotiations at earlier stages of the process should apply, so that changes in the basic, substantial or fundamental elements of the contract are prevented. In case the contracting authorities’ needs can no longer be satisfied without introducing such material amendments to the contractual relationship, it is submitted that the only option will then be to proceed to the termination of the current contract and the re-tendering of its subject-matter under new conditions adjusted to the present circumstances (subject to certain limits). This position has now been endorsed by recital (107) of Directive 2014/24, which clearly indicates that
It is necessary to clarify the conditions under which modifications to a contract during its performance require a new procurement procedure … A new procurement procedure is required in case of material changes to the initial contract, in particular to the scope and content of the mutual rights and obligations of the parties, including the distribution of intellectual property rights. Such changes demonstrate the parties’ intention to renegotiate essential terms or conditions of that contract. This is the case in particular if the amended conditions would have had an influence on the outcome of the procedure, had they been part of the initial procedure (emphasis added).
Indeed, these issues have now been regulated in Directive 2014/24, which includes a new article 72 on the modification of contracts during their term. Most of the novelties in the Directive 2014/24 are clearly aligned with the proposals outlined above.[5]
First, article 72(1)(a) of Directive 2014/24 recognises the possibility to carry out modifications that have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses, such as price revision clauses, or options, and irrespective of their monetary value.[6] In order to prevent abuses in the use of this possibility, it requires that such clauses shall state the scope and nature of possible modifications or options as well as the conditions under which they may be used, and that they shall not provide for modifications or options that would alter the overall nature of the contract or the framework agreement.[7]
Secondly, article 72(4) of Directive 2014/24 prevents modifications of contracts that render them materially different in character from the one initially concluded. Article 72(4) also provides a list of conditions that will trigger a modification being considered substantial,[8] which include the following situations: (a) the change of conditions that restricted competition in earlier phases (ie modifications that introduce 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); (b) changes in the economic balance of the contract or the framework agreement in favour of the contractor in a manner which was not provided for in the initial contract or framework agreement; (c) modifications that considerably extend the scope of the contract or framework agreement; or (d) where a new contractor replaces the one to which the contracting authority had initially awarded the contract, except in cases excluded by article 72(1)(d).[9]
However, none of these situations is absolute and, in particular, Directive 2014/24 exempts some sorts of substantial modifications in view of their need or their limited effects. At this point, it is important to stress that, as mentioned, articles 72(1)(a) and 72(4)(a) of Directive 2014/24 exempt modifications of any value or relevance that are carried out in accordance with previously disclosed revision clauses or options, provided they are clear, precise and unequivocal—which, no doubt, will be the focus of significant litigation in the future.[10] In a similar vein, there is some room for modifications that affect the economic balance of the contract (art 72(4)(c)) and/or extend its scope (art 72(4)(d)) by means of additional work.
Equally, articles 72(1)(d) and and 72(4)(d) of Directive 2014/24 exempt certain unavoidable changes of contractor, which include three cases: (i) changes that derive from the application of an unequivocal review clause or option (which, probably, would not have needed this reiterative regulation); (ii) changes of contractor derived from the universal or partial succession into the position of the initial contractor, following corporate restructuring, including takeover, merger, acquisition or insolvency, provided that the economic operator taking over 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 the Directive; or (iii) in the event that the contracting authority itself assumes the main contractor’s obligations towards its subcontractors where this possibility is provided for under national legislation pursuant to Article 71. Of these three possibilities, and from a competition perspective, the only one that deserves careful consideration is the second one, given that it is the only one that changes the competitive dynamics in the market. In that regard, the application of the last anti-circumvention clause may be particularly relevant in controlling cases of fraudulent corporate restructurings.
Finally, article 72(5) of Directive 2014/24 is very clear in establishing that a new procurement procedure in accordance with its rules (ie, the termination of the existing contract and the consequent re-tendering of the substantially modified contract) will be necessary in all situations where the modification of the contract is substantial and does not derive either from clear, precise and unequivocal revision clauses, or from changes justified on grounds of necessity.
Globally, then, the new rules on the modification of contracts during their term fundamentally keep a pro-competitive orientation and set an appropriate framework that, if properly applied, should minimise competition distortions. However, the rules are not fully-compliant with the needs of a pro-competitive procurement system when it comes to the issue of contractual extensions and the award of additional works, which have received a particularly lenient treatment in Directive 2014/24, as discussed in the following sub-section.
[1] For further details on modifications of certain (even basic) elements of the contract according to predefined rules clearly included in the call for tenders, see Case C-496/99 P Succhi di Frutta [2004] ECR I-3801 118; where the ECJ determined that, for the contracting authority to be able to amend some conditions of the invitation to tender after the successful tenderer has been selected, this possibility has to be expressly regulated in the tender documentation in a way that determines the framework applicable to this revision and guarantees that all tenderers are on equal footing when formulating their respective tenders.
[2] Arrowsmith et al (n 50) 488–503.
[3] Arrowsmith (n 293) 127 and 145.
[4] For discussion, see ME Comba, ‘Contract Execution in Europe: Different Legal Models with a Common Core’ (2013) European Procurement & Public Private Partnership Law Review 302.
[5] Which were already included in the first edition of this book, see Sanchez Graells (n 176) 345–46.
[6] See recital (111) dir 2014/24.
[7] See ST Poulsen, ‘The possibilities of amending a public contract without a new competitive tendering procedure under EU law’ (2012) 21 Public Procurement Law Review 167–87; K Hartlev and M Wahl Liljenbøl, ‘Changes to Existing Contracts under the EU Public Procurement Rules and the Drafting of Review Clauses to Avoid the Need for a New Tender’ (2013) 22 Public Procurement Law Review 51–73; and K Smith, ‘Contract adjustments and public procurement: an analysis of the law and its application’ (PPRG PhD Conference Paper, 2014), available at nottingham.ac.uk/pprg/documentsarchive/phdconference2014/smith.pdf.
[8] It has been stressed that the key criteria for the assessment of whether a change should be considered as substantial are in accordance with the ruling in Case C-454/06 Pressetext Nachrichtenagentur [2008] ECR I-4401. See Treumer ‘Contract changes and the duty to retender under the new EU public procurement Directive’ (2014) 149, who also stresses the differences in drafting between article 72(4) dir 2014/24 and Pressetext.
[9] See recital (110), which provides clarification regarding cases of justified and unjustified substitution of the contractor with or without a new procurement procedure.
[10] Similarly, Hartlev and Wahl Liljenbøl, ‘Drafting of Review Clauses to Avoid the Need for a New Tender’ (2013).
Tags #pubcontregs2015, Public Contracts Regulations 2015, SI 2015/102, procurement tennis, regulation 72