Reg.73 of the Public Contracts Regulations 2015 (PCR2015) transposes the new rules on termination of contracts set out in Article 73 of Directive 2014/24. In my view, the provision transposes the rules in the Directive correctly. Pedro harbours some doubts here. However, it does so in a way that, from a contract law perspective may require some comments. I split my reflections below in two parts. The first one addresses the issues raised by Dir 2014/24 itself, which apply equally to reg.73(1) PCR2015. The second one focuses on the contract law aspects under regs.73(2) and (3) PCR2015.
New EU rules on termination of contract
The restrictions on the admissible renegotiation of the basic or
substantial elements of a contract sometimes leave the contracting authorities
with limited alternatives for the cancellation of the tendering procedure or
the termination of the contract, and its subsequent re-tendering [on the
different, although related, issue of the obligation of contracting authorities
to terminate contracts concluded in breach of public procurement rules—ie, of
termination as a remedy, see Case C-503/04 Commission v Germany 
ECR I-6153 25–42; see also, with numerous references, S Treumer, ‘Towards an
Obligation to Terminate Contracts Concluded in Breach of the EC Public
Procurement Rules: The End of the Status of Concluded Public Contracts as
Sacred Cows’ (2007) 16 Public Procurement Law Review 371, 377–78; and P Delvolvé, ‘Note à
Trstenjak, Verica, Conclusions sur CJCE, 18 juillet 2007, Commission v Allemagne, affaire C-503/04’ (2007) 5 Révue
française de Droit administratif 972, 975 and ff].
Given that the principles of non-discrimination, competition,
objectivity and diligent administration (other than additional principles such
as the duty of contracting authorities not to depart from their previous acts)
restrict the circumstances under which the cancellation of a tender can take
place—while the principle of legal certainty and of the protection of legitimate
expectations, and the principle pacta sunt servanda, should be adapted
so as not to impair the objectives of the public procurement directives and the
rules of the TFEU [Case C-503/04 Commission v Germany  ECR I-6153
33–36. For a critical view, see Treumer, Towards an Obligation to Terminate
Contracts Concluded in Breach of the EC Public Procurement Rules (2007) 377 and 381–82]—it is submitted that the decision of the
contracting authority as regards the termination of the contract and its
subsequent re-tendering cannot be adopted freely [maybe the only exception to
this rule is that of contracts entered into for an indefinite period of time,
which should be looked at with disfavour, following the dictum of the
Case C-454/06 Pressetext Nachrichtenagentur  ECR I-4401 73].
Therefore, termination decisions should comply
with the same general principles restricting the discretion of contracting
authorities to cancel a tender procedure. This has now been supported in broad
terms in recital (113) of Directive 2014/24, which recognises that contracting
authorities are sometimes faced with circumstances that require the early
termination of public contracts in order to comply with obligations under Union
law in the field of public procurement, and requires Member States to ensure
that contracting authorities have the possibility, under the conditions
determined by national law, to terminate a public contract during its term if
so required by Union law. This general approach to the termination of contracts
has been further specified in the rules of article 73 of Directive 2014/24.
Under this new provision, contracting authorities must have the possibility to
terminate a public contract during its term, at least in three cases. Firstly,
and in support of the restrictions on the modification
of contracts, where the contract has been subject to a substantial
modification not exempted under article 72 and, consequently, would have required a new procurement
procedure [see JM Hebly and P Heijnsbroek, ‘When amending leads to ending:
a theoretical and practical insight into the retendering of contracts after a
material change’, in G Piga and S Treumer (eds), The Applied Law and Economics of Public Procurement: the economics of
legal relationships (London: Routledge, 2013) 163–84]. Secondly, where the contractor
should have been excluded from the procurement procedure because, at the
time of contract award, was affected by one of the situations imposing its
mandatory exclusion under article 57(1) of Directive 2014/24. And, finally,
where the contract should not have been awarded to the contractor in view of a serious infringement of the obligations
under the Treaties and Directive 2014/24 that has been declared by the CJEU
in a procedure pursuant to article 258 TFEU.
These are all very grave breaches
of the rules of Directive 2014/24 (and the TFEU), but there seems to be no
difficulty to expand the grounds for termination of the contract to other
situations with identity of function,
such as where the contractor is affected by domestic mandatory exclusion
grounds, or by discretionary exclusion grounds where there is no good reason
not to take them into account, or where the infringement of the TFEU or
Directive 2014/24 is found by other jurisdictional bodies (either as a result
of a case where a preliminary reference under art 267 TFEU is posed to the CJEU,
or otherwise). Overall, however and as already stressed, a general restriction
on the use of termination rights should be found in the requirement that
contracting authorities discharge the same duties of good administration
implicit in decision to cancel tenders.
The UK (Eng & W) adaptation through (implied) contract terms
I am not an expert in UK contract law by any stretch of the imagination but it strikes me as slightly odd that the regulatory option adopted in reg.73 PCR2015 combines a mix of contract requirements and implied contractual terms, rather than an alternative statutory power to terminate that would be more easily aligned with continental approaches.
On the one hand, reg.73(1) PCR2015 imposes a duty for contracting authorities to "ensure that every public contract which they award contains provisions enabling [them] to terminate the contract", whereas reg.73(2) further indicates that "[t]hose provisions may address the basis on which the power is to be exercisable in those circumstances, for example by providing for notice of termination to be given and by addressing consequential matters that will or might arise from the termination". On the other hand, and as a catch-all clause, reg.73(3) PCR2015 establishes that "[t]o the extent that a public contract does not contain provisions enabling the contracting authority to terminate the contract on any of the grounds mentioned in paragraph (1), a power for the contracting authority to do so on giving reasonable notice to the contractor shall be an implied term of that contract". In my view, this apparently establishes an unnecessary duplication.
Given that reg.73(3) PCR2015 sorts out the problem and reg.73(1) + (2) still fall short from imposing specific means of ensuring termination powers and ways of determining its consequences, it seems unnecessary to have included the latter provisions in the PCR2015. In my view, it would have sufficed to establish the provision on implied terms and simply have allowed contracting authorities to agree explicit terms provided they did not limit the contracting authority's power to terminate.
Additionally, the provisions of reg.73 PCR2015 are at the same time insufficient, since they do not indicate what are the consequences of the termination (on the basis of the implied term) and this lack of regulation triggers significant questions that revive old discussions on the scope of ineffectiveness under the remedies Directive. For instance, can/should/must the rules in reg.101 PCR215 on the consequences of ineffectiveness be applied in these cases (ie is the contract to be considered to be prospectively, but not retrospectively, ineffective) or can retrospective effects be determined? Can the contractor be compensated? Can the contracting authority avoid termination on the basis of public interest as per reg.57(6) PCR2015, particularly if reg.73(1)(b) is applicable? In my view, this is another instance of insufficient regulation (not improper transposition), where the UK legislator would have been well-advised to take some more time to think before enacting the PCR2015 as is [for further discussion, listen to the podcast here].