Latest GC on contract modification in #publicprocurement: Practical difficulties and the need for new rules in the 2013 Directive

In its Judgment of 31 January 2013 in case T-235/11 Spain v Commission (AVE), the General Court has set a very rigid position against the permissibility of contract modifications under EU public procurement rules. 

In a nutshell, and further developing the previous case law in Succhi di Frutta and Pressetext Nachrichtenagentur, the GC has declared that (non-insignificant) contract modifications amount to direct award of (complementary) public contracts and that, consequently, failure to do so in accordance with the rules of the Directives implies a breach of EU law by the contracting authority or entity.

Indeed, the GC has declared that:

69 [...] nor can the argument of the Kingdom of Spain that despite the alteration of certain of the characterizing elements of the services contracted, by keeping the contract initially concluded, the modification of the original contract cannot be considered substantial. As is clear from the case law, in order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during its validity constitute a new award of the contract when they have characteristics substantially different from those of the original contract and therefore highlight the willingness of the parties to renegotiate the essential aspects of the contract (see, to that effect, the judgment of the Court of 5 October 2000, Commission / France, C-337/98, ECR p. I-8377, paragraphs 44 and 46, see, by analogy, Pressetext Nachrichtenagentur, paragraph 60 above, paragraph 34).
70 The modification of a contract in force may be considered material when it introduces conditions that, had they been included in the initial award procedure, would have allowed the participation of tenderers other than those initially admitted, or would have allowed the selection of a tender other than the initially selected. Also, a modification of an initial contract can be considered substantial when the contract extends largely to works not originally foreseen. An amendment can also be considered substantial when it changes the economic balance of the contract in favor of the contractor in a way that was not foreseen in the terms of the original contract (see, by analogy, Case Pressetext Nachrichtenagentur [C‑454/06, Rec. p. I‑4401] paragraphs 35 to 37).
71 In the present case, the technical specifications that were modified cannot be considered ancillary, but of a greater importance, as they relate, in particular, to the implementation of important works (such as the execution false tunnels, a viaduct, deepening of foundations, strengthening of technical armor blocks, extension of drainage works, etc..). Therefore, the Kingdom of Spain cannot claim that the work to be executed remains the one initially designed, ie, the high-speed train line, not that the object of the initial contract remained essentially unaltered. (T-231/11 at paras. 69-71, own translation from Spanish; emphasis added).
This position generates practical difficulties, particularly in technically complicated projects, where the use of non-modifiable fixed-price contracts could deter bidders from participating or could generate an increase of total procurement costs due to the need of contractors to create a 'financial cushion' in their offers to cover any unexpected needs for amendments in the scope of works.

This seems now recognized in the current version of the Compromise Text for the reform of current EU public procurement Directives, which includes a (more flexible) rule on contract modification that reduces the risk of (illegal) direct award of public contracts where modifications are justified and necessary.
Article 72 Modification of contracts during their term
1. A substantial modification of the provisions of a public contract or a framework agreement during its term shall be considered as a new award for the purposes of this Directive and shall require a new procurement procedure in accordance with this Directive. In the cases referred to in paragraphs 3, 4 or 5, modifications shall not be considered as substantial.
2. A modification of a contract or a framework agreement during its term shall be considered substantial within the meaning of paragraph 1, where it renders the contract or the framework agreement materially different in character from the one initially concluded. In any case, without prejudice to paragraphs 3, 4 or 5, a modification shall be considered substantial where one of the following conditions is met:
(a) the modification introduces 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 an offer other than that originally accepted or would have attracted additional participants in the procurement procedure;
(b) the modification changes 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) the modification extends the scope of the contract or framework agreement considerably to encompass supplies, services or works not initially covered.
3. Modifications shall not be considered substantial within the meaning of paragraph 1 where they have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses or options. Such clauses shall state the scope and nature of possible modifications or options as well as the conditions under which they may be used. They shall not provide for modifications or options that would alter the overall nature of the contract or the framework agreement.
4. Where the value of a modification can be expressed in monetary terms, the modification shall not be considered to be substantial within the meaning of paragraph 1, where its value does not exceed the thresholds set out in Article 4 and where it is below 10% of the initial contract value, provided that the modification does not alter the overall nature of the contract or framework agreement. Where several successive modifications are made, the value shall be assessed on the basis of the net cumulative value of the successive modifications.
5. A modification shall not be considered to be substantial within the meaning of paragraph 1, where the following cumulative conditions are fulfilled:
(a) the need for modification has been brought about by circumstances which a diligent contracting authority could not foresee;
(b) the modification does not alter the overall nature of the contract;
(c) any increase in price is not higher than 50% of the value of the original contract or framework agreement.
Contracting authorities shall publish in the Official Journal of the European Union a notice on such modifications. Such notices shall contain the information set out in Annex VI part G and be published in accordance with Article 49. 
6. Without prejudice to paragraph 3, the substitution of a new contractor for the one to which the contracting authority had initially awarded the contract shall be considered a substantial modification within the meaning of paragraph 1. However, the first subparagraph shall not apply in the event of universal or partial succession into the position of the initial contractor, following corporate restructuring, including takeover, merger, […] acquisition or insolvency, of another economic operator that fulfils the criteria for qualitative selection initially established provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of this Directive.
As can be seen, the current proposal incorporates the (formalistic) criteria used by the GC in Spain v Commission (AVE), but also creates some flexibility both in terms of setting a value threshold that excludes the need to run a new procurement procedure to increase contract value of up to 10% (as long as the addition remains below EU thresholds, which does not seem to be a necessary or practical requirement), and recognizing that there are sets of circumstances where contract modifications are simply needed and, consequently, legitimate.

In my view, the adoption of new Article 72 in the 2013 EU public procurement Directive is much needed from a practical perspective, although the final wording could still be improved to enhance the effectiveness of its paragraph 4.