Interesting AG Sharpston's Opinion on Lithuanian rules on subcontracting (C-298/15) -- warning on the use & transposition of 63(2) Dir 2014/24 & 79(3) Dir 2014/25?

In her Opinion in Borta, C-298/15, EU:C:2016:921, AG Sharpston assessed, amongst other things, the compatibility with EU law of a prohibition to subcontract part of a public works contract not covered by the relevant EU public procurement directive (in the case, Dir 2004/17). Her assessment thus relies on fundamental rules and general principles of the TFEU (in particular the free movement principles in Articles 49 and 56 TFEU).  

The dispute concerned a Lithuanian tender for the construction of a quay at the port of Klaipėda that ended up in litigation, not least due to a relevant change of participation requirements after the tender had been launched. In my view, the interesting point is that the Supreme Court of Lithuania raised of its own motion the question whether EU public procurement law precludes a provision of Lithuanian law that prohibits subcontracting ‘the main work’ in the context of public works contracts.

This concerns Art 24(5) of the Lithuanian Law on public procurement, according to which the procurement documents require the candidate or tenderer to specify in its tender any proposed subcontractors and may require the candidate or tenderer to specify the share of the contract that it is intended to subcontract to those subcontractors. However, where subcontractors are invited to carry out a works contract, the main work, as specified by the contracting authority, must be performed by the supplier.

Procedural aspects

The admissibility of this referral of its own motion by the Supreme Court of Lithuania could be considered problematic because Art 24(5) of the Law on public procurement was not clearly applicable to the dispute (as stressed in the AGO, C-298/15, para 40). However, AG Sharpston considers that the ECJ has jurisdiction to address the question because 

According to settled case-law, the Court cannot give a ruling on a question referred by a national court where it is quite obvious that the interpretation or the assessment of the validity of a provision of EU law sought by the national court bears no relation to the actual nature of the case or to the subject matter of the main action. That is not however the case here. Paragraph 4.3 of the tender specifications, which lies at the centre of the dispute in the main proceedings, contains an express reference to Article 24(5) of the Law on public procurement. Against that background, it does not appear that [restriction on subcontracting in Article 24(5) of the Law on public procurement] manifestly bears no relation to the actual nature or the subject matter of the action and that question is therefore admissible (AGO, C-298/15, para 41, references omitted and emphasis added).

From a procedural perspective, this is interesting in itself and shows the wide scope for the referral of questions for a preliminary ruling by the ECJ by the highest courts of the Member States even where the clarification of those questions is not core, central or essential to the main dispute. In a different context, this is of relevance for the Brexit litigation before the UK Supreme Court (for discussion see here and here). More generally, the contours of the preliminary reference mechanism seem clearly wide and facilitative of inter-judicial dialogue, as supported by the recently revised Recommendations to national courts and tribunals, in relation to the initiation of preliminary ruling proceedings.

Substantive aspects

Moving on to the assessment of the compatibility with EU law of the prohibition to subcontract the main work under Art 24(5) of the Lithuanian Law on public procurement, there is an interesting preliminary point to note:

The Lithuanian Government submitted at the hearing that Article 24(5) of the Law on public procurement transposed the new rule on subcontracting in Article 79(3) of Directive 2014/25/EU before the expiry of the period prescribed for transposing that directive and that, consequently, the Court should examine the present reference from the perspective of that directive only ... The Commission argued that, on the contrary, Directive 2014/25 could not be taken into account. First, Article 24(5) of the Law on public procurement was passed before that directive was adopted. Second, Lithuania had omitted to notify the measures transposing Directive 2014/25 into Lithuanian law to the Commission (AGO, C-298/15, para 25, references omitted).

AG Sharpston is clear in excluding this analytical approach (which may have resulted in a different outcome of the case) on the basis that

As the Court has held recently in relation to Directive 2014/24, to apply that directive before the expiry of the period prescribed for its transposition would prevent not only the Member States but also contracting authorities and economic operators from benefiting from a sufficient period in which to adapt to the new provisions it introduced. ... to do so would also be inconsistent with the principle of legal certainty. The same applies by analogy to Directive 2014/25 (AGO, C-298/15, para 27, references omitted).

Thus, the analysis of the Lithuanian rule had to be carried out in relation with the EU public procurement acquis at the time of launching the tender: ie, Dir 2004/17. However, given that the value of the contract remained below its quantitative thresholds, and in view of the fact that it had cross-border interest (para 37), the rule had to be

examined against the background of the general principles of transparency and equal treatment arising from Articles 49 and 56 TFEU, which must be respected when awarding public contracts. Given that Articles 49 and 56 TFEU apply ... the [contracting authority] is required to respect the prohibition on discrimination on the grounds of nationality and the obligation as to transparency which those articles lay down (AGO, C-298/15, para 38, references omitted).

In carrying out that assessment, AG Sharpston reverted to the general functional approach to the EU regulation of below threshold public procurement:

Articles 49 and 56 TFEU preclude any national measure which, even though it is applicable without discrimination on grounds of nationality, is liable to prohibit, impede or render less attractive the exercise by nationals of the European Union of the freedom of establishment and the freedom to provide services guaranteed by those provisions.
As regards public contracts and the freedom of establishment and the freedom to provide services, the European Union is concerned to ensure the widest possible participation by tenderers in a call for tenders, even where directives on public procurement are not applicable. That is in the interest of the contracting authority itself, which will thus have greater choice as to the most advantageous tender which is most suitable for its needs. One of the principal functions of the principle of the equal treatment of tenderers and the corollary obligation of transparency is thus to ensure the free movement of services and the opening-up of undistorted competition in all the Member States (AGO, C-298/15, paras 43-44, references omitted).

After clarifying that the prohibition to subcontract the main work under Art 24(5) of the Lithuanian Law on public procurement 'restricts the freedom to provide services and the freedom of establishment' (para 46), she also stressed that 'such a restriction may be justified in so far as it pursues a legitimate objective in the public interest, and to the extent that it complies with the principle of proportionality in that it is suitable for securing the attainment of that objective and does not go beyond what is necessary in order to attain it' (para 47).

In that connection, it is interesting to note that the AG stresses that one of the elements to be taken into account is that 'the contracting authority is entitled to prohibit the use of subcontractors whose capacities could not be verified during the examination of tenders and selection of the contractor for the performance of essential parts of the contract' (para 49, with reference to Siemens and ARGE Telekom, C‑314/01, EU:C:2004:159, paragraph 45, and Wrocław - Miasto na prawach powiatu, C‑406/14, EU:C:2016:562, paragraph 34--and see here). 

Applying this test, AG Sharpston established that

First, that restriction applies even where the contracting authority is in fact in a position to verify the technical and economic capacity of subcontractors during the contract award procedure. An alternative to that restriction would (for example) have been to require the main contractor to identify subcontractors when submitting his tender and to demonstrate both that he will actually have available to him the resources of those subcontractors necessary for the performance of the contract and that those subcontractors are suitable for carrying out the tasks he intends to entrust to them.
Second, Article 24(5) is also both too rigid and too vague to satisfy the proportionality test. Although contracting authorities appear to enjoy flexibility when defining, for each contract, what ‘the main work’ is, the restriction on subcontracting resulting from that provision is defined in particularly broad terms. It applies regardless of the subject matter of the public works contract and is binding upon contracting authorities when they conclude any type of public works contract, even when they may consider that there is no obvious reason for imposing such a restriction at all.
... the restriction on subcontracting in Article 24(5) of the Law on public procurement differs in that regard from Article 79(3) of Directive 2014/25. That provision merely enables a contracting authority, in particular, to require that certain critical tasks be performed directly by the tenderer itself. Contracting authorities may thus assess whether such a limitation is opportune, depending on the circumstances. It follows that, even if, as the Lithuanian Government submits, Article 24(5) of the Law on public procurement were to be regarded as transposing Article 79(3) of Directive 2014/25 into Lithuanian law, that transposition would be incorrect.
For those reasons ... in the context of a public contract not subject to Directive 2004/17 or Directive 2004/18, but which has a clear cross-border interest, the prohibition on discrimination on the grounds of nationality and the obligation of transparency which arise under Articles 49 and 56 TFEU preclude a national rule such as that contained in Article 24(5) of the Law on public procurement, under which the tenderer has itself to carry out the ‘main work’, as identified by the contracting authority, without it being possible to subcontract that part of the contract (AGO, C-298/15, paras 51-54, references omitted and emphasis added).

This is interesting because, even if Dir 2014/25 (and 2014/24) was not relevant to the case, it indicates the direction in which a proportionality assessment of the rule in Art 79(3) Dir 2014/25 and Art 63(2) Dir 2014/24--as transposed into domestic law and as applied by contracting authorities--is likely to be carried out in the future [with a view to minimise their scope, which I would favour, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 353-354].