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.
of the Main Conditions of the Contract and its Modification
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.
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, since it
could be used to provide favourable treatment to the awardee and, in the end,
generate significant distortions of competition.
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. 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.
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).
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
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.
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.
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.
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, 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).
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. 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.
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.