In its Judgment of 27 October 2016 in Hörmann Reisen, C-292/15, EU:C:2016:817, the European Court of Justice (ECJ) addressed an issue of growing importance regarding subcontracting arrangements in public procurement, as well as contracting authorities' ability not only to monitor them, but also exclude them.

In Hörmann Reisen, the ECJ was required to assess the compatibility with EU law of a requirement that the main contractor performed a major part of a public passenger transport services itself--or, in other words, a limitation on the acceptable volume of subcontracting for the execution of a given public services contract to 30% of its total value. This was challenged both on the grounds that the limitation itself was illegal and that, in any case, a quantitative restriction of subcontracting was not adequate to ensure that the main contractor performed a major part of the services itself.

It is worth stressing that, as a starting point, the analysis of the ECJ was carried out on the basis of the special procurement rules for the transport sector in Regulation 1370/2007/EC, which Art 4(7) establishes that

Tender documents and public service contracts shall indicate, in a transparent manner, whether, and if so to what extent, subcontracting may be considered. If subcontracting takes place, the operator entrusted with the administration and performance of public passenger transport services in accordance with this Regulation shall be required to perform a major part of the public passenger transport services itself.

As Advocate General Sharpston indicated in her Opinion (C-292/15, EU:C:2016:480), this would seem to cover a straightforward (value) limitation of the subcontractable services. However, the case was complicated by the fact that it was for the provision of bus services, to which Reg 1370/2007 does not entirely apply. Under its Article 5(1),

Public service contracts shall be awarded in accordance with the rules laid down in this Regulation. However, service contracts or public service contracts as defined in Directives 2004/17/EC or 2004/18/EC for public passenger transport services by bus or tram shall be awarded in accordance with the procedures provided for under those Directives where such contracts do not take the form of service concessions contracts as defined in those Directives. Where contracts are to be awarded in accordance with Directives 2004/17/EC or 2004/18/EC, the provisions of paragraphs 2 to 6 of this Article shall not apply.

In short, then, contracts for the provision of bus and tram services that do not constitute services concessions are to be awarded in compliance with the general procurement rules. In the Hörmann Reisen case, due to the fact that the tender took place in 2015, it still had to be carried under Directive 2004/18/EC--but the issues raised by the case are relevant because, since 18 April 2016, these contracts must now be awarded under Directive 2014/24/EU (regardless of domestic transposition or lack thereof). It is also important to stress that, a contrario, concessions for the provision of bus and tram services are solely subjected to the rules of Reg 1370/2007 and explicitly excluded from the scope of application of Directive 2014/23/EU (see Art 10(3) thereof).

The first clarification required from the ECJ in the Hörmann Reisen Judgment concerned whether Art 5(1) Reg 1370/2007 excluded the application of Art 4(7) of the same regulation to the award of bus and tram service contracts due to their subjection to Directive 2004/18. In that regard, the ECJ clearly indicated that

41 ... for the purposes of the award of a contract for public passenger transport services by bus ... solely the provisions of Article 5(2) to (6) of Regulation No 1370/2007 are not to be applied, whereas the other provisions of that regulation remain applicable.
42 ... Article 4(7) of Regulation No 1370/2007 applies in the event of the award of a contract for public passenger transport services by bus coming within the scope of Article 5(1) of that regulation (C-292/15, paras 41-42, emphasis added).

That is important because the approach to subcontracting in Reg 1370/2007 and in the general procurement rules was diametrically opposed. While Reg 1370/2007 aims to restrict or even completely exclude the possibility to subcontract, the scant rules in Art 25 Dir 2004/18 were, if anything, facilitative of subcontracting. It must be borne in mind that the ECJ had itself pushed for such facilitation in Siemens and ARGE Telekom (C-314/01, EU:C:2004:159), where it indicated that the general procurement rules did

... not preclude a prohibition or a restriction on the use of subcontracting for the performance of essential parts of the contract precisely in the case where the contracting authority has not been in a position to verify the technical and economic capacities of the subcontractors when examining the tenders ... (C-314/01, para 45).

It, however, declared that a complete ban on subcontracting would not be compatible with the general EU procurement rules inasmuch as it prevented a service provider from relying on the resources of entities or undertakings with which it is directly or indirectly linked; or, in other words, "[a] tenderer claiming to have at its disposal the technical and economic capacities of third parties on which it intends to rely if the contract is awarded to it may be excluded only if it fails to demonstrate that those capacities are in fact available to it" (C-314/01, para 46). Therefore, the prohibition on subcontracting was limited to a prohibition on post-award (unchecked) subcontracting, but did not allow for the exclusion of service providers on the basis that they would not carry out the entirety of the contract themselves.

In Hörmann Reisen, the ECJ saves the open incompatibility of approaches between Reg 1370/2007 and Dir 2004/18 as follows:

46 ... it should be noted that Directive 2004/18 ... is of general application, whereas Regulation No 1370/2007 applies only to public passenger transport services by rail and road.
47      In so far as both Article 4(7) of that regulation and Article 25 of Directive 2004/18 ... contain rules on subcontracting, the view must be taken that the first provision constitutes a special rule with respect to the rules laid down in the second provision, and, as a lex specialis, takes precedence over the latter (C-292/15, paras 46-47, emphasis added).

This simplified things under Dir 2004/18. However, the relevant question now is whether the same lex specialis derogat generalis approach is desirable or indeed suitable for the coordination of the rules of Reg 1370/2007 with Dir 2014/24, which is required since 18 April 2016. There are a few important points to note concerning the new rules on subcontracting in Dir 2014/24.

Firstly, the ARGE case law concerning the illegality of a prohibition of subcontracting on the basis that it deprived the rules on reliance on third party capacities from effectiveness has now been partially modified in Art 63(2) Dir 2014/24. According to this rule,

In the case of works contracts, service contracts and siting or installation operations in the context of a supply contract, contracting authorities may require that certain critical tasks be performed directly by the tenderer itself or, where the tender is submitted by a group of economic operators as referred to in Article 19(2), by a participant in that group.

This does not deactivate the ARGE case law entirely and the scope of the provision will crucially rest on the future interpretation of what are 'critical tasks', which I consider needs to be subjected to a restrictive interpretation and a strict proportionality analysis. I have criticised this rule elsewhere and for other reasons [A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 315 and ff] but, in terms of coordination between Reg 1370/2007 and Dir 2014/24, Art 63(2) Dir 2014/24 seems to offer the perfect fit for the requirement in Art 4(7) Reg 1370/2007 to be imposed without restrictions. In other words, had the Hörmann Reisen case been subjected to Dir 2014/24, I think the ECJ would have no need whatsoever to create a lex specialis argument, which makes me wonder if this was the best approach overall (at least from a strategic point of view).

Secondly, it should be borne in mind that the limited rules of Art 25 Dir 2004/18 have been significantly expanded in Art 71 Dir 2014/24 on subcontracting, mainly with the purpose of both strengthening the contracting authorities' power to assess subcontracting arrangements where these are allowed and planned to take place, as well as to improve the legal position of subcontractors vis-a-vis the contracting authority (which now could, in specific circumstances, bypass the main contractor in order to ensure compliance with relevant obligations--notably, direct payments). Here, an incompatibility of the additional rules with Art 4(7) Reg 1370/2007 seems difficult to identify.

Thus, in my view, the Hörmann Reisen Judgment needs to be read in a minimalist fashion and construed to simply indicate that the general procurement rules cannot prevent a contracting authority that awards (non-concession) contracts for the provision of bus and tram services from prohibiting subcontracting or, in other words, requiring the transport operator from discharging all contractual obligations directly and in full--that is, they may come to deactivate a strict interpretation of Art 63(2) Dir 2014/24 in the transport sector only. Similarly, the Hörmann Reisen Judgment can be seen to dictate that general procurement rules  cannot alter the way in which a contracting authority in the transport sector that allows for subcontracting imposes restrictions so as to ensure that the operator entrusted with the administration and performance of public passenger transport services performs a major part of the public passenger transport services itself. However, I would not consider it a proper reading to exclude the applicability of the remainder of the rules in Art 71 of Dir 2014/24, notably because they do not seem incompatible with Art 4(7) Reg 1370/2007.