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When does competition end? A staged approach to procurement modifications

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Presentation given at the "Contract changes in a European perspective" workshop organised by the Danish Public Procurement Association (Dansk Forening for Udbudsret). It discusses the limitations of the approach implicit in Article 72 of Directive 2014/24/EU and the case law of the Court of Justice of the European Union

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When does competition end? A staged approach to procurement modifications

  1. 1. When does competition end? A staged approach to procurement modifications Dr Albert Sanchez-Graells Reader in Economic Law Contract Changes in a European Perspective, Dansk Forening for Udbudsret Copenhagen, 19 September 2017 19 September 2017 1Dansk Forening for Udbudsret
  2. 2. Agenda • Explore the relevance of controlling procurement modifications from a competition perspective, with a concentration on contract modifications • Critically assess the logic(s) behind the rules in Directive 2014/24/EU (Art 72) • Critically reflect on the need for a more commercial approach in recent CJEU case law Dansk Forening for Udbudsret 2 19 September 2017
  3. 3. Object of the contract, market and competition – logic and limits • Tender documentation establishes the object and limits of competition for a public contract • Modifications are thus problematic if they either nullify or distort competition • But ‘open-ended’ modification possibilities not seen to alter the competition if they are transparent and ensure equal treatment Dansk Forening for Udbudsret 3 19 September 2017
  4. 4. How to interpret this in functional terms? Dansk Forening for Udbudsret 4 19 September 2017
  5. 5. Commission v CAS Succhi di Frutta, C-496/99 P, EU:C:2004:236 • ‘No change of rules of the game’ logic • prohibition of changes that, ‘had [they] been included in the notice of invitation to tender, would have made it possible for tenderers to submit a substantially different tender’ (116) • ‘Flexibility in the rules of the game’ trump • ability of the contracting authority to introduce modifications if (and only if) it reserves the possibility and ‘defines the framework within which the [modification] procedure must be carried out’ (118) Dansk Forening for Udbudsret 5 19 September 2017
  6. 6. pressetext Nachrichtenagentur, C-454/06, EU:C:2008:351 • Material change + ‘No-negotiation’ rule? • ‘In order to ensure transparency of procedures and equal treatment of tenderers, amendments to … a public contract … constitute a new award … 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’ (34) • What if there was a contractual provision on renegotiation? (is Succhi di Frutta only applicable to unilateral modifications?) Dansk Forening for Udbudsret 6 19 September 2017
  7. 7. pressetext Nachrichtenagentur, C-454/06, EU:C:2008:351 • No rebalancing – unless foreseen? • ‘… 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’ (37) • Does this mean initial contract, or procurement documents? (ie is there an obligation for all potential tenderers to have been informed of this possibility, or would it have sufficed to insert this clause in the contract with the awardee? Any intermediate solutions concerning multi-stage procedures?) Dansk Forening for Udbudsret 7 19 September 2017
  8. 8. What are the consequences of this logic? • When the game changes, new game • Most of the remedies that can be obtained in case of illegal modifications assume a continued interest in the (revised) object of the contract + the (reasonably foreseeable) possibility that there will be interest in supplying it from undertakings other than the incumbent Dansk Forening for Udbudsret 8 19 September 2017
  9. 9. Pre-award modifications and impact on competition (equal treatment, transparency) • The same logic (broadly) applies to pre-contract modifications of the procurement documents / requirements—e.g. qualitative selection • MT Højgaard and Züblin, C-396/14, EU:C:2016:347 • Double criterion of (a) no modification of procurement documents (selection criteria) and (b) no distortion of competition by advantaging ‘modification beneficiary’– see para 44) [what of broader competition consideration?] Dansk Forening for Udbudsret 9 19 September 2017
  10. 10. Post-award contract modifications • Therefore, the logic controlling the (incipient) regulation of contract modifications rested on the need to ensure that (a) competition is not distorted (change of ‘playing field’), (b) the results of competition are not nullified (change of economic balance), unless (c) there was a prior, transparent procedure for such changes Dansk Forening for Udbudsret 10 19 September 2017
  11. 11. Post-award modifications and (theoretical) competition for the contract • The problem with this logic is that it does not make sense (or is difficult to apply) in • situations involving long-term contracts (competition issues fade away with time) • situations involving very complex contracts (competition involves a degree of uncertainty) • situations unforeseen / unforeseeable / unwanted by the parties (driver for modifications is ‘beyond control’) Dansk Forening for Udbudsret 11 19 September 2017
  12. 12. When does competition end? Dansk Forening for Udbudsret 12 19 September 2017
  13. 13. Termination involving modifications – competition perspective • The limitations of the logic have become particularly obvious in situations of unwanted modification of the contract due to a break up of the commercial relationship (cfr Finn Frogne) • Same issues would (potentially) arise in other situations, such as termination for convenience, which can introduce significant rigidity Dansk Forening for Udbudsret 13 19 September 2017
  14. 14. Finn Frogne, C-549/14, EU:C:2016:634 • Unsustainable situation • disagreement ‘as to which party was responsible for making it impossible to perform the contract as stipulated’ (10) • Contract modification implicit in effort to minimise the damages / losses resulting from the break up of the commercial relationship and contract • Public interest? / Urgency? / Sole source? • All would have been well if ‘contractualised’ (37/40) Dansk Forening for Udbudsret 14 19 September 2017
  15. 15. Review clauses – competition perspective • The second part of the underlying logic that hits the (practical) wall rather quickly concerns the pre-establishment of clear and ‘automatic’ rules foreseeing ‘equal for all’ modifications • Is it really competition-neutral? • Information asymmetries • Moral hazard / winners’ curse Dansk Forening for Udbudsret 15 19 September 2017
  16. 16. Review clauses – contract law perspective • The standard set in Art 72 Directive 2014/24/EU may be simply impossible (or too costly) • where the modifications, irrespective of their monetary value, have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses, which may include price revision clauses ... Such clauses shall state the scope and nature of possible modifications … as well as the conditions under which they may be used. They shall not provide for modifications … that would alter the overall nature of the contract or framework agmnt Dansk Forening for Udbudsret 16 19 September 2017
  17. 17. What would such a clause look like? Dansk Forening for Udbudsret 17 19 September 2017
  18. 18. Conclusions • Competition-preservation remains regulatory goal • But: need for a more sophisticated approach, based on a commercially-informed assessment of justification and proportionality of modifications • Specially where they are ancillary to other problems • Revised approach to (or hope for) general contract modification clauses Dansk Forening for Udbudsret 18 19 September 2017
  19. 19. Further reading Dansk Forening for Udbudsret 19 19 September 2017
  20. 20. Thank you for your attention Be in touch a.sanchez-graells@bristol.ac.uk www.howtocrackanut.com @asanchezgraells Dansk Forening for Udbudsret 20 19 September 2017

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