EUROPEAN COMMISSION - PUBLIC CONSULTATION GREEN PAPER on the modernisation of EU public procurement policy Towards a more efficient European Procurement Market

Contribution of DLA PIPER LLP (coordinated by the Brussels' Office)

15 APRIL 2011

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Introduction

DLA Piper LLP welcomes the European Commission’s initiative to launch a consultation on the existing

public procurement rules. We share the objective that by modernising public procurement rules the principle

of "value for money", one of the main underlying concepts of the European public procurement legislation,

will be pursued mory easily. Therefore, we are delighted to have the opportunity to present to the European

Commission our views, as day-to-day practitioners in the public procurement field.

We acknowledge that the European Commission, in its green paper, has highlighted the most important

issues raised in the application of public procurement rules. However, we have chosen not to answer all the

questions raised in the green paper but rather to discuss a number of issues we consider either particularly

relevant or sensitive. Present document will give references to the questions of the green paper addressed

by mentioning Q for question and the number of the question.

Present document will (1) first examine the scope ratione materiae of the public procurement rules. (2) In a

second section, we will discuss whether the generalisation of the recourse to the negotiated procedure with

prior notice to all procedures could be envisaged. (3) Thirdly, the document will address public-public

cooperation. (4) Fourth, we will submit that previous experience should be taken into account without this

amounting to discrimination between economic operators. (5) In a fifth section, we will discuss the issue

modifications in the course of the execution of the contract.

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Discussion

1. Scope ratione personae (Q 9) This section will focus on the scope ratione personae of Directive 2004/17/EC of the European

Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities

operating in the water, energy, transport and postal services sectors1 (hereafter, the "Directive 2004/17")

as it may also relate to Directive 2004/18/EC of the European Parliament and of the Council of 31 March

2004 on the coordination of procedures for the award of public works contracts, public supply contracts

and public service contracts2 (hereafter, the "Directive 2004/18").

a. Outline of the scope ratione personae of Directive 2004/17

Directive 2004/17 is applicable to three categories of entities: contracting authorities, public

undertakings and private undertakings that perform the activities envisaged by the Directive 2004/17.

Article 2 of Directive 2004/17 makes a distinction between contracting authorities and public

undertakings.

A contracting authority covers the traditional authorities such as the State and regional or local

authorities. It also covers bodies governed by public law, i.e. legal persons established for the purpose

of meeting needs in the general interest and not having an industrial or commercial character, and

financed, for the most part, by state resources.

Public undertakings, on the other hand, are defined as "any undertaking over which the contracting

authorities may exercise directly or indirectly a dominant influence by virtue of their ownership of it, their

financial participation therein, or the rules which govern it".

Private undertakings, finally, may also fall under application of the public procurement rules, where they

operate on the basis of special or exclusive rights granted by a competent authority of a Member State.

Hence, public undertakings have as their sole determining characteristic - compared to private

undertakings - the element of being subjected to dominant influence of a contracting authority.

1 OJ L 134 of 30 April 2004, 1. 2 OJ L 134 of 30 April 2004, 114.

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b. The category of public undertakings

Public undertakings as well as contracting authorities are thus under (dominant) influence of a State

body. The only distinguishable element between both categories concerns the performance of tasks of

general interest.

We are of the opinion that the Court of Justice's Aigner judgement3, leads us to conclude that there is a

nearly total overlap between both categories. In this case, a private Austrian undertaking, Fernwärme

GmbH, was under dominant influence of the city of Vienna. The undertaking provided city heating

services, a service which triggers the application of Directive 2004/17. Apart from these services,

Fernwärme also provided commercial services which had no relation to the public procurement

Directives. The Court had to answer whether such undertaking is to be considered as a contracting

authority under Directive 2004/18 or Directive 2004/17.

The Court looked first at the purposes for which the undertaking was created and concluded that it had

been established specifically to meet needs in the general interest.4 To do so the Court did not only or

not specifically take into account the performance by Fernwärme of activities regulated by Directive

2004/18 but did, also take into account its' performance of activities regulated by Directive 2004/17 .5

The Court considered that Fernwärme's virtual monopoly on the district heating market, although this is

an activity that is regulated to Directive 2004/17, had also an impact on the question whether

Fernwärme was or was not, for its activities regulated by Directive 2004/18, to be considered as a

"body governed by public law" .6

The Aigner judgement implies that an undertaking under government influence, once active in a sector

covered by Directive 2004/17, will, for its activities that fall outside the scope of this Directive, almost

always be considered a contracting authority in the sense of Directive 2004/18.

Such reasoning makes, in our opinion, the necessity of a separate "public undertaking" category

obsolete. One cannot but conclude that the distinction between "contracting authorities" and "public

undertakings" is, in fact, characterised by a total overlap.7 Public undertakings that perform activities

subject to Directive 2004/17 will, on the basis of this activity, nearly always be qualified as contracting

authorities for activities performed that do not fall within the scope of application of Directive 2004/17

3 C-393/06, Ing. Aigner, [2008] ECR, I-2339. 4 para 39. 5 para 41. 6 paras 43 and 44. 7 S. Arrowsmith, The law of public and utilities procurement, London, Sweet & Maxwell/Thomson, 2005, 846.

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and thus will have to apply Directive 2004/18 in such cases. Due to the Aigner case law, the existence

of a public undertaking that needs to comply with Directive 2004/17 yet would be exempt from the

application of Directive 2004/18 seems unlikely.

It thus seems that the category of public undertakings has become a notion that is void: when such

public undertaking engages in activity in the utilities sector, the legal and economical regime in such

sectors will almost always imply that this undertaking will be qualified as a contracting authority for its

activities that fall outside the scope of the utilities sector.

c. The category of private undertakings benefiting from exclusive or special rights

Private undertakings may also fall under the application of Directive 2004/17 where they enjoy exclusive

or special rights and are active in the utilities. This constitutes a further category of body falling in the

scope ratione personae of Directive 2004/17.

The determinative nature of Directive 2004/17 lies in the performance of an undertaking in certain

sectors. Hence, the applicability of Directive 2004/17 mainly depends on the field of activity in which an

entity or undertaking is engaged. The field of application in this regard is drafted against the observation

that in those specific sectors there exists no or only limited competition. Public procurement rules are

made applicable in order to ensure that contracts awarded by undertakings in this sector have indeed

been subjected to an objective and competitive procedure. Advocate-General Ruiz-Jarabo Colomer

worded this ambition as follows: "Community public procurement law pursues an immediate, limited aim:

coordination of the procedures for the award of public contracts. However, as may be deduced from

recital 2 in the preamble to Directive 2004/18 and recital 9 in the preamble to Directive 2004/17, and

also from the case-law of the Court, that is nothing more than an instrument for the achievement of a

more important objective, namely, the development of effective competition in the sector, in the interests

of establishing the fundamental freedoms in European integration. The purpose is, therefore, to

eliminate barriers to freedom of movement by protecting the interests of economic operators in one

Member State who wish to sell goods or services to contracting entities in other Member States.

Accordingly, it is necessary to avoid the risk of preference being given to national tenderers (‘buy

national’), excluding the possibility that the body responsible for awarding the contract may be guided by

considerations other than economic (for that reason, the essential criterion when awarding a contract is

that of the lowest or economically most advantageous tender)." 8

The sectors that fall within the scope of Directive 2004/17 are indeed in many Member States

characterised by monopolistic or oligopolistic market structures, and in which State bodies still have a

8 Opinion of AG Ruiz-Jarabo Colomer, C-393/06, Ing. Aigner, [2008] ECR, I-2339, para 31.

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major influence. Such structures allow the European institutions to fear that there exists significant

scope for anticompetitive behaviour.

The rationale behind the application of a specific public procurement framework is thus the need to

allow competition to flow freely in the relevant sectors. Entities should only be driven by economic

concerns and therefore have to run through an objective procedure that seeks the submission that best

answers those economic concerns.

If this is indeed the aim of Directive 2004/17, one can wonder why so much attention is given to a formal

ratione personae structure of application, divided in three categories of contracting authorities, public

undertakings and private undertakings with exclusive or special rights. It is clear that the application of

the scope of Directive 2004/18 is determined by an emphasis on the personal dimension of a certain

entity.9 This is, however, not the case with Directive 2004/17: the application of this directive and its

rationale are mainly determined by a material scope, namely the activities pursued by an entity or

undertaking that qualifies under this directive. As stated by Advocate General Colomer, "[a]ccordingly,

Directive 2004/17 governs procurement in what are traditionally known as ‘excluded sectors’, and its

spirit is different to that prompting Directive 2004/18. The conclusive criterion is not the contracting entity

but rather the nature of the activity to which the contract concerned relates, and the directive applies

only to the sectors concerned."10

Since public as well as private undertakings are caught by Directive 2004/17, questions arise as to why

this distinction is relevant. This Directive is applicable regardless of the public or private statute of an

undertaking:

"As the Commission has correctly observed, that last directive was adopted for the purpose of

extending the application of the Community rules regulating public procurement to the water,

energy, transport and telecommunications sectors which were not covered by other directives. From

that point of view, by employing the concepts of public authorities, on the one hand, and public

undertakings, on the other, the Community legislature adopted a functional approach similar to that

adopted in Directives 92/50, 93/36 and 93/37. It was thus able to ensure that all the contracting

entities operating in the sectors regulated by Directive 93/38 were included in its ambit ratione

personæ, on condition that they satisfied certain criteria, their legal form and the rules under which

they were formed being in this respect immaterial." 11

Directive 2004/17 follows the same course (recitals 2 and 3) and identifies contracting entities

without reference to their legal status (recital 10). Therefore, in addition to contracting authorities,

which are identified in the same terms as in Directive 2004/18, the directive defines as contracting

9 Ibid., para 34. 10 Ibid., para 40. 11 CoJ, C-283/00, Commission / Spain, [2003] ECR, I-11697, para 76.

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entities public undertakings and entities which have special or exclusive rights, provided that they

carry out the activities referred to in Articles 3 to 7 (Articles 2(1) and (2) and 20(1))."12

Together with Advocate General Colomer, we can conclude that the nature of the activity performed by

an undertaking is the main (or even the only) criterion to apply Directive 2004/17 .

d. Recommendation

As demonstrated above, the existence of three different categories of persons subject to the application

of Directive 2004/17 does not give satisfaction. First, we have highlighted a quasi-total overlap between

the categories of "contracting authorities" which are also subject to the application of Directive 2004/18

and of public undertakings active in the utilities, in principle only subject to Directive 2004/17. Secondly,

we have also emphasised that the definition of a scope ratione personae for Directive 2004/17 does dos

not reflect the objectives pursued by the public procurement rules. We therefore advocate a limitation or

even suppression of the definition of a scope ratione personae for Directive 2004/17 . This would clarify

the general scope ratione personae of the public procurement rules. In our opinion the main criterion is

whether a undertaking is or is not operating in a context that is characterised by competition and not the

question whether this undertaking is subject to government influence. If the answer is that the

undertaking is not operating on a competitive market then the undertaking would be subject to the rules

set out in Directive 2004/17. If at the same time, to the undertaking is, because of its activity in the

utilities' sector, considered as a "body governed by public law", they would be subject to Directive

2004/18 for their activities not falling under Directive 2004/17.

Instead of focussing on the application ratione personae, the focus should, thus, be shifted towards

actual analysis of the market structure against the goal of Directive 2004/17. When it would appear that

in a certain Member State a sector is characterised by a monopolistic or oligopolistic structure and that

safeguards need to be installed that ensure award of contracts through objective procedures, than

application of Directive 2004/17 might be needed. If, however, in other Member States these sectors are

subject to free competition (including competition by substitution), it might be desirable not to apply

Directive 2004/17 and allow free competition to regulate the market and the award of contracts.

This can be illustrated by the example of the postal services sector: in several Member States, postal

operators might be considered as falling under the scope ratione personae of Directive 2004/17 and

thus subject to the application of public procurement rules, a reorientation towards a more economic

assessment of the market structure might put the need for such procedures in a different light. In such

case, the development of competition by substitution (such as electronic communication) can also be

taken into account when assessing whether any postal service provider operates in a monopolistic

position or not. Based on such actual market structure assessment, one can then conclude whether or

not there indeed exists a need to safeguard competition through formal procedures.

12 Opinion of AG Ruiz-Jarabo Colomer, C-393/06, Ing. Aigner, [2008] ECR, I-2339, paras 39.

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Thus, a more functional and economical reorientation of the scope of application of Directive 2004/17

seems necessary. Rather than trying to fit certain entities into this framework, the framework should

focus more on its actual goal and thus only be applicable when it is deemed necessary, based on the

market conditions of the sectors in which activities are performed.

We are aware of the applicability of article 30 of Directive 2004/17 but we are of the opinion that this

provision or at least the rationale behind this provision should be applied ex ante. We are of the opinion

that this application ex ante of article 30 should also be considered with regard to the activities that

might qualify as activities that fall under Directive 2004/18.

In any way, it is our experience that the qualification whether activities are subject to Directive 2004/17

or Directive 2004/18 is extremely difficult to make. The Commission (and/or the Community Legislator)

may want to provide some guidance on the subject.

2. Generalisation of the negotiated procedure with prior notice (Q 19-21)

a. The negotiated procedure under Directive 2004/17 and Directive 2004/18

The current Directives provide for a wide range of procedures: the open and the restricted procedure,

the negotiated procedure with or without prior publication of a contract notice and the competitive

dialogue.

Contracting authorities are free to use both the open and restricted procedures. The situation is

somewhat different for the negotiated procedure.

The negotiated procedure has an exceptional nature and its use will therefore have to be justified.

Under Directive 2004/18, the negotiated procedure with prior publication may be used exclusively under

the specific circumstances listed in article 30. The exceptional character of the negotiated procedure, as

often confirmed by the Court of Justice,13 implies that the possible applications of the negotiated

procedure must be interpreted narrowly and that the burden of proof of the existence of exceptional

circumstances justifying a derogation lies with the contracting authority seeking to rely on those

circumstances.14

13 Case 20/01 and C-28/01, Commission / Germany, [2003] ECR, I-3609; Case C-385/02, Commission / Italy,

[2004] ECR, I-8121; Case C-394/02, Commission / Greece, [2005] ECR, I-4713. 14 Case C-199/85, Commission / Italy, [1987] ECR, I-1039; Case C-71/92, Commission / Spain, [1993] ECR,

I-5923; Case C-328/92, Commission / Spain, [1994] ECR, I-1569; Case C-385/02, Commission / Italy,

[2004] ECR, I-8121; Case C-394/02, Commission / Greece, [2005] ECR, I-4713.

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The negotiated procedure with prior publication of a contract notice can, however, be freely chosen

under Directive 2004/17.

In both Directives, the use of a negotiated procedure without publication of a contract notice is limited to

exceptional situations, which are exhaustively listed (and restrictively interpreted) under articles 31

Directive 2004/18 and 40(3) Directive 2004/17.

b. Unjustified limitation to the use of negotiated procedure with prior notice

We consider that the limited choice to make recourse to negotiated procedures with prior notice for

contracts that are subject to Directive 2004/18 is not justified and is even counter-productive.

First, there seems to be no valid justification to freely allow the use of the negotiated procedure with

prior publication under the Utilities Directive but limit the use thereof under the Classic Directive. The

justification for the difference between both sectors can be read in recital 9 of Directive 2004/17: "In view

of the nature of the sectors affected by such coordination, the latter should, while safeguarding the

application of those principles, establish a framework for sound commercial practice and should allow

maximum flexibility." The European legislator took the view that to submit contracting authorities in the

utilities sector to the same rules, formalities and terms would enfeeble their competitiveness. Although

this point of view might be correct in principle, it does no longer seem to justify the distinction made in

the two sectors. On the one hand, as we will further elaborate, the Court of Justice's case law and the

Commission have shaped the negotiated procedure in a way that that procedure also, has become a

regulated procedure. In order to prevent misuse thereof, contracting authorities have shaped the

negotiated procedure to a large extent and, consequently, decreased the degree of flexibility in favour of

the equality between bidders. On the other hand, contracting authorities under Directive 2004/18 are

(more often than used to be the case) frequently involved in complex projects or do acquire works,

goods or services with a certain degree of complexity. The need for maximum flexibility can no longer

only be invoked for entities under Directive 2004/17 only.

Secondly, in our experience and given the fact that the negotiated procedure with prior publication is in

fact broadly used by contracting entities under Directive 2004/17, there seems to be no reason for

restricting the use of the negotiated procedure with prior publication to some, be it smaller or large-

scale, contracts under Directive 2004/18. In our view, in practice, the character of the contract does not

justify the type of the procedure used. Indeed, it is not necessarily the case that a negotiated procedure

with a call for competition is less competitive than an open or a restricted procedure. On the contrary, it

is our belief that this procedure has quite often showed to be a more competitive procedure. Contract

provisions drafted by contracting authorities are very often not in line or even in contradiction with

standard contracting practices on certain markets (for example the financial market or the IT-market).

Furthermore, contracting authorities do not only acquire works, deliveries or services on oligopsonistic

or competitive markets but also on markets that have an oligopolistic or even a monopolistic structure. If

negotiations are made impossible whilst the contract specifications that have been drafted by the

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contracting authority are considered to be indadequate (for example because they contain clauses that

provide for uncapped liability) it happens very often that valuable market players simply do not offer. The

contracting authority has then the choice between putting an end to the award procedure or awarding

the contract to a second-tier operator. It is our experience that discussions between the purchaser and

his economic operators have, contrary to the beliefs expressed by the European legislator, resulted in

more adequate contract award processes and thus to value for money.15 We therefore defend the

stance that the use of the negotiated procedure with prior publication should be allowed in all

circumstances, for all types of contracts. The choice of the procedure should be left to the discretion of

the contracting authority.

Thirdly, despite the lack of specific rules prescribing the course of the procedure, the application of

European primary law (and of Articles 30, 2, 3 and 4 Directive 2004/18) has sufficiently provided

guidance for the contracting authorities to shape this procedure: in conducting a negotiated procedure,

contracting entities must comply with the general principles of equal treatment and transparency. Many

of the specific rules for open and/or restricted procedures will also apply to the negotiated procedure

with prior publication of a contract notice. These rules are after all an elaboration of the general

principles mentioned: e.g. following the publication of a contract notice, a minimum time must be given

to requests to participation to ensure that non-domestic firms are unreasonably excluded. The

importance of the principle of equality in the framework of negotiated procedures was stressed in the

judgement of the Court of Justice of 23 April 2009.16 The contracting authorities must comply with this

principle during the whole negotiation process which means, in particular, that tenderers must be in a

position of equality both when they formulate their tenders and when those tenders are being assessed

by the contracting authority.17 Article 30 paragraph 3, second sentence ("In particular, they shall not

provide information in a discriminatory manner which may give some tenderers an advantage over

others") is just one specific application of the principle of equality. It is preferable to provide more

specifications such as the obligation to offer every candidate an equal amount of time (during

negotiations, for the preparation of the offer, etc.), the obligation to allow the bidders to bid on the same

set of documents, etc. .

Eventually it is necessary to take into consideration article 30, paragraph 2 ("In the cases referred to in

paragraph 1, contracting authorities shall negotiate with tenderers the tenders submitted by them in

order to adapt them to the requirements which they have set in the contract notice, the specifications

and additional documents, if any, and to seek out the best tender …"). This provision limits the subject

of the negotiations by stating that only "the tenders" and not the contract specifications drafted by the

contracting authority are subject to negotiation. This paragraph clearly limits the scope of the

negotations in a sense that bidders cannot negotiate the contract terms and specifications set out in the

15 P. TREPTE, Public procurement in the EU. A practitioner's guide. Oxford University Press, Oxford, 2007,

385. 16 Case C-292/07, Commission / Belgium, [2009] ECR, I-59. 17 Case C-213/07, Michaniki, [2008] ECR, I-9999, para 45.

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tender specification by the contracting authority. The Court of Justice stated that "the determination of

the limits and the goal of the negotiations (…) hold a particular importance with regard to negotiated

procedures which justify a specific implementation of those aspects into national law."18 Further, the

Court holds that this paragraph aims to limit the "negotiation freedom by stating that the negotiations

only aim to adapt the submitted tenders to the requirements set in the contract notice, the specifications

and additional documents."19 The new article 30, paragraph 2 of Directive 2004/18 is therefore, in our

opinion, not in line with the conducted negotiated procedures in large, complex projects and therefore

causes legal uncertainty about the scope of the negotiations. It is not unusual and even to be expected

that, as a result of the negotiations, amendments to the contract documents and tender specifications

are made and communicated to all tenderers. Negotiations for complex contracts usually entail both the

tender (improving value for money) as the tender specifications. In order to improve value for money,

contractual documents might need the redrafting of clauses (e.g. penalty clauses) or the reallocation of

certain risk (adaptation of thresholds, caps, etc.). Price bids are usually made in function of the risks

matrix of a project. If changes to that matrix can benefit the overall value for money of a project,

negotiations should not be limited to the tenders only.

The same reasoning is true for changes to the technical specifications of a contract. In the course of the

negotiations, especially in large and complex PFI projects, it might become clear that technical

specifications (e.g. output requirements) have not sufficiently been made clear, do not lead to

satisfactory solutions or are simply no longer state-to-the-art.

c. Recommendation

As mentioned on page 15 of the Commission's Green Paper, we agree on the suggestion made that

contracting entities should always be allowed to negotiate the terms of the contract with potential

bidders, provided that the choice for the negotiated procedure has been made in the publication. In that

respect, we hold the view that the negotiated procedure with prior publication of the contract notice

should be treated on equal foot with the open and restricted procedures. In other terms, we are

convinced that the choice to make use of the negotiated procedure with prior publication should become

free for contracting authorities. To the contrary, the procedure without any call for competition, which is

similar to a direct contracting method, should only be allowed in duly justified circumstances, as

currently foreseen in the Directives.20

18 Case C-292/07, Commission / Belgium, [2009] ECR, I-59, para 110: "la définition des limites et de l'objectif

de la négociation (…) revêtent une importance toute particulière dans le cadre de la procédure négociée

qui justifie une transposition spécifique de ces éléments en droit national". 19 Case C-292/07, Commission / Belgium, [2009] ECR, I-59, para 107: "marge de manœuvre en énonçant

que la négociation…vise exclusivement à adapter les offres soumises aux exigences prévues dans l'avis

de marché, dans le cahier des charges et dans les documents complémentaires éventuels". 20 Since it may be used in respect of only one candidate, it is clearly the procedure which risks producing the

least competition.

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In order to benefit the advantages of the negotiated procedure with prior publication, we are not in

favour of adding additional safeguards for transparency and non-discrimination to the Directives. The

working method in current Directive 2004/18 is therefore preferred. It must remain open to the

contracting entities to fill in the procedure at will within the boundaries set out in the Directive.

We suggest that article 30(2) of Directive 2004/18 is removed from the Directive. This would, moreover,

bring the text in line with article 30(1)(b) and (c) thereof. These provisions express the idea that the lack

of information at the contracting entity's side (to determine the price, resp. the technical specifications)

justify the use of the negotiated procedure. This is rather contrary to article 30(2) if, as a result of the

negotiations, the contract documents and technical specifications could not be updated.

3. Public-public cooperation (Q 30-33)

This section will focus on the exclusion from the scope of the public procurement rules of in-house

arrangements.

a. The in-house exemption from the application of public procurement rules

The Teckal case established a doctrine that allows for in-house award of certain contracts without

having to run through an obligation to tender.21 Indeed, public procurement rules apply to contracts.

The Court of Justice held that, for a contract to exist, it must have been concluded between two

separate persons.22 In-house arrangements are excluded from the application of the public procurement

rules.

An arrangement involving two formally distinct entities would nevertheless be considered as an in-house

arrangement when the contracting authority (1) exercises control over the person which is similar to that

which it exercises over its own departments and, (2) at the same time, that person carries out the

essential part of its activities with the controlling local authority or local authorities.23

The first criterion has been given a strict understanding by the Court and will be here further discussed.

21 Case C-107/98, Teckal, [1999] ECR, I-8121. 22 Para 49. 23 Para 50 of the Teckal judgement. S. Arrowsmith makes the distinction between legally distinct entities in

form and in substance. According to that distinction, the Teckal judgement considered that although the

entities at stake were formally distinct, they were considered as the same body in substance. See S.

Arrowsmith, 392.

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In the Stadt Halle case,24 the Court considered that "the participation, even as a minority, of a private

undertaking in the capital of a company in which the contracting authority in question is also a

participant excludes in any event the possibility of that contracting authority exercising over that

company a control similar to that which it exercises over its own department".25 The Court justified this

approach by stating that public interest objectives cannot be pursued in companies where the private

sector participates26 and that 'the award of a public contract to a semi-public company without calling for

tenders would interfere with the objective of free and undistorted competition and the principle of equal

treatment".27

This strict approach has been criticised as it may discourage public authorities to seek for private

investment for the provision of public services.28

The Carbotermo case29 (and subsequent case law) has further restricted the qualification of in-house

arrangements by excluding contracts awarded to companies over which the control exercised by the

authorities is not direct. In this case, a contracting authority, the municipality of Busto Arsizio, had

awarded a contract relating to the maintenance and renovation of communal city heating to the

undertaking AGESP, without having organised a tender procedure. AGESP was a branch of AGESP

Holding, the shares of which were 99,8% in hands of Busto Arsizio and 0,2% in hands of neighbouring

municipalities.30

According to the Court, the fact that all the capital was held by public authorities tends to indicate that

that contracting authority exercises control over that company similar to that which it exercises over its

own departments.31 However, surprisingly, the Court considered that such indication was not decisive.

On that basis, the Court further considered that, while the board of directors of AGESP was given the

broadest possible powers, Busto Arsizio was not granted any controlling or voting rights through which it

could restrict the board of directors' powers.32 Regarding the AGESP Holding, the Court concluded:

"The intervention of such an intermediary may, depending on the circumstances of the case, weaken

any control possibly exercised by the contracting authority over a joint stock company merely because it

24 Case C-26/03 [2005] ECR I-1. See also Case C-458/03, Parking Brixen [2005] ECR I-8585. 25 Para 49. 26 See Stadt Halle, para 50. 27 Ibid., para 51. 28 See for instance, S. Arrowsmith, 393; D. Yernault, 'La contractualisation (forcée?) du droit administratif de

l'économie et l'organisation des modes de gestion du service public', REV. DR. ULB [2006] 33, 206. 29 Case C-340/04 [2006] ECR I-4137. 30 Para 10. 31 Para 37 of the judgement. 32 Para 38 of the judgement.

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holds shares in that company."33 This led the Court to conclude that the municipality could not exercise

control that is similar to that which it exercises over its own departments.

This case can be read in combination with the Mannesmann case whereby the Court of Justice

established the so-called "infection theory". In this case, an Austrian State printing office produced, on

an exclusive basis, official administrative documents and was judged to provide services with the

specific purpose to meet needs of general interest that are not of a commercial or industrial nature.

Mannesmann was thus qualified as a contracting authority within the meaning of the public procurement

rules.34 Besides these activities, Mannesmann also performed activities which were of a commercial

nature. The Court judged that these activities were also subject to the public procurement rules. It

considered that even when the activity aimed at meeting needs of general, non-commercial and non-

industrial interest constitutes only a small part of the undertaking's activity, the undertaking should for all

its activities still be considered as a contracting authority: "The condition, laid down in the first indent of

the second subparagraph of Article 1(b) of the directive, that the body must have been established for

the `specific' purpose of meeting needs in the general interest, not having an industrial or commercial

character, does not mean that it should be entrusted only with meeting such needs."35 The infection

theory thus implies that, once an undertaking qualifies as a contracting authority, established with the

specific aim of providing services of general, non-commercial and non-industrial, interest, also its

commercial and industrial activities fall within the application of the public procurement directives. A

contracting authority will thus always have to comply with the relevant public procurement rules,

regardless of whether its specific activity would in itself trigger application of the relevant rules. The

rationale behind this theory is that such entity may be guided by considerations other than economic.36

Therefore, this judgement can be seen as an incentive for public entities to create separate entities, one

pursuing the general economic interest, and the other acting as a commercial entity. On the basis of the

Carbotermo case, contracts between these entities should be awarded in compliance with the public

procurement rules. Where in many cases, it can be indeed considered that such new commercial entity

does not constitute any longer an "in-house" operator of the contracting authority, there might still be

cases where the authority would continue to exercise genuine control on such entity though be subject

to procurement. These cases should not be excluded upfront from the in-house exemption.

The strict approach of the Court was softened in its Coditel37 and Asemfo38 judgements, in which the

Court expanded its Teckal doctrine.

33 Para 39 of the judgement. 34 Paras 18-24. 35 Para 26 of the Mannesmann judgement. 36 Opinion of AG Ruiz-Jarabo Colomer, C-393/06, Ing. Aigner, [2008] ECR, I-2339, para 31.

37 C-324/07, [2008] ECR, I-8457. 38 C-295/05, [2007] ECR, I-2999.

15

In Asemfo, the Court the Court judged that the provider was an in-house provider because it was

required to execute the orders given by its shareholders and had no liberty to independently fix certain

tariffs. In Asemfo and in Coditel the Court also considered that several contracting authorities could

jointly exercise the required influecen over an in-house operator.

While these judgements do allow for a certain degree of in-house policy in contracting authorities'

activities, it remains unclear to what extent there is room for such policy.

b. Recommendation

With its case law, the Court of Justice has considerably reduced the thrust of the in-house exception it

has itself created, by stretching the concept of control,39 for the sake of a broad application of the public

procurement rules.

We advocate a more flexible approach, which would reconcile the Teckal case with subsequent

judgements, while taking into account the criticisms against a too strict approach.

This more flexible approach could either find inspiration in article 23 of Directive 2004/17 or in

Regulation (EC) n° 1370/2007 on public passenger transport services by rail and by road.

First. the question of control could be addressed by applying the affiliated undertakings exemption

under article 23 of Directive 2004/17, whereby contracts awarded to an "affiliated undertaking", at

least 80% of the turnover of which relates to the contract services, are excluded from the

application of the Directive.40 We are aware of the fact that the analogy has been rejected by the

Court in Stadt Halle41. We are, nevertheless, of the opinion that a transposition of article 23 of

Directive 2004/17 would substantially clarify the conditions under which the exemption for in-house

provides can be applied.

Second, we are of the opinion that inspiration could also be drawn from Regulation (EC) n° 1370/2007.

lthough the Regulation also raises various questions of interpretation,42 it uses a more flexible concept

of "internal operator". Under that Regulation, "internal operator" to which the contracting authority can

award directly a contract, provided advertising obligations have been fulfilled, is defined as "a legally

distinct entity over which a competent local authority, or in the case of a group of authorities at

least one competent local authority exercises control similar to that exercised over its own

department"' (Article 2(j)). According to Article 5(2)(a) of the Regulation, "100% ownership by the

39 For a study of the concept of 'control' under public procurement law, antitrust law and Belgian corporate

law, see T. Delvaux, "Le contrôle d'une société - Sens et contresens d'un concept polysémique, Variations

sur un même thème en droit des sociétés, droit de la concurrence et droit des marches publics", J.T. [2007]

699-803. 40 Article 23 of Directive 2004/17. 41 Case C- 340/04, Carbotermo and Consorzio Alisei, [2006] ECR I-4137, para 36. 42 See Study on the implementation of Regulation (EC) n° 1370/2007 on public passenger transport services

by rail and by road, available at <http://ec.europa.eu/transport/rail/studies/rail_en.htm>.

16

competent public authority, in particular in the case of public-private partnerships, is not a

mandatory requirement for establishing control within the meaning of this paragraph, provided that

there is a dominant public influence and that control can be established on the basis of other

criteria" (the authors underlines). That provision does, thus, not require 100% ownership by the

competent public authority, which allows for private investment and in particular public-private

partnerships.

4. Taking past performance into account (Q 25)

a. Outline of the current situation regarding past performances

Under the current Directives, the choice of the winning bidder has to be carried out in two stages. During

the selection stage, the contracting authority assesses the capacity and suitability of the economic

operators. This is done on the basis of exclusion criteria and criteria of economic and financial standing,

professional and technical knowledge and ability. Considerations linked to the tenderer's ability to

perform the contract, such as his experience, are not allowed during the award stage.

A possible element to assess the tender's ability to perform the contract could be previous experiences

which the contracting authority might have had with the performance of bidders. This past experience

could provide useful pointers to the quality of the bidder and his future work. Indeed, in our experience,

contracting authorities do not want to be forced to enter into a contract with a bidder they have negative

experience with. It is to be examined whether the current Directives provide appropriate instruments to

take account of those experiences and whether this experience can be used in the selection of the

bidders.

One of the exclusion criteria mentioned under article 45(2) (d) of Directive 2004/18 and article 54(4)

Directive 2004/17 that could possibly provide guidance on this issue is the finding that the tenderer has

been guilty of "grave professional misconduct proven by any means which the contracting authorities

can demonstrate". The question rises what has to be understood under "grave professional

misconduct". Advocate General Gulmann appeared to consider than an act of grave professional

misconduct can include deliberate breaches of previous contracts43. Trepte however holds that "grave

professional misconduct" suggests more than mere dissatisfaction of the purchaser with the tenderer's

previous conduct44. According to the author, this provision precludes a purchaser from using his own

personal knowledge of the tenderer as a means of excluding him since this ground also requires proof,

even if it is the purchaser that identifies the type of proof required. In any event, this exclusion criterium

43 AG Gulmann's opinion of 30 June 1993 in C-71/92, Commission v Spain, cons. 95. 44 P. TREPTE, Public procurement in the EU. A practitioner's guide. Oxford University Press, Oxford, 2007, 343.

17

does not seem to be adequate enough to apply for passed satisfaction. Even if one defends the view of

the Advocate General, this only takes into account "deliberate" breaches of previous contracts.

Further, the means set out in article 48 of Directive 2004/18 by which the technical and/or professional

abilities of the economic operators are to be assessed, do not create room for taking into account the

contracting authorities' own experience with a tenderer. Past performance is a standard test for

technical competence and may be used to assess likely future performance, however, the Directives do

not seem to allow own previous experience.

The Directives should therefore explicitly allow previous experience with one or more several bidders to

be taken into account. The need therefore, is undisputed.

b. Recommendation

The way how the entity's own experience should be taken into account is, in our opinion, of major

importance to obtain value for money. Contracting authorities should have the right to sanction

economic operators that have been underperforming. As mentioned in the Commission's report, this

possibility would entail obvious risks of discrimination between bidders.

A suggestion could be that the contracting authority can take into account past experience only if it has

objectified in a transparent and non-discriminatory way how it would measure performance. Contracting

authorities could, for example, produce satisfaction reports once a contract has executed. That report

could then be used in the context of a new tender procedure to motivate that a tenderer is not selected.

Another option would be that tenderers would only be allowed to participate in the award procedure if

they have minimum score on a scorecard produced by a contracting authority on the basis of passed

experience. Tenderers without such a scorecard would have to provide evidence of their experience by

the normal means as mentioned under the Directives.

It is, however, our opinion, only passed bad experiences with tenderers might be invoked. Previous

positive experiences would lead to a market closure and would have larger anti-competitive effects as

this would have a cumulative effect for tenderers that already worked with the contracting authority

before.

5. Modifications during the execution of the contract (Q 39 and 40)

a. Importance of modifications

As mentioned on p. 24 of the Commission's Green Paper, a complex issue relating to contract execution

is the problem of subsequent developments which have an impact on the contract itself or its execution.

But not only post-tender modifications raise the issue concerned here, also modification to the contract

specifications during a phased negotiated procedure where certain bidders, after an assessment of their

18

bids, had not been retained for the subsequent phases (e.g. invited to submit their BAFO). In both

circumstances (post and prior to the award) the question raises whether and in what circumstances

changes to the contract or the contract specifications give rise in effect to an new contract award and

hence to an obligation to undertake a new competitive tendering procedure.45

The importance of the question is not to be underestimated. The question of acceptability of planned

amendments has been frequently raised by clients. An example of the award of large, complex PFI- or

PPP-projects might enlighten this great importance. This type of projects is in principle awarded after a

negotiated procedure or a competitive dialogue. In most, if not all, cases this type of projects is typified

by the following characteristics:

o (prior to the award) contracting authorities are not in a position to entirely determine

the specifications of the project. In the course of the negotiations, the contracting

authority will gradually develop an advanced understanding of the project and the

technicalities thereof;

o (prior to the award) the contract specifications will be shaped during negotiations in

function of the financiability of the project, value for money, market practice, etc.;

o (prior and post the award) a great number of stakeholders has to be taken into

account. A project might need amendments under the pressure of the public opinion

(e.g. when a public infrastructure project is under fire), advisory bodies (e.g. in order to

obtain the necessary permits), technical developments, lenders…, ;

o (prior and post the award) the award procedure take mostly several years, the contract

is often of a long time duration46;

o (prior and post the award) bidders usually consist of several enterprises invoking the

help of several subcontractors.

The risk taken by the authority (and consequently the private contractor) by implementing amendments

is considerable. The conclusion that the authority had to undertake a new competitive tendering

procedure could undermine the execution of a large project or could invoke the nullity of an ongoing

tender procedure.

b. The current stance on the basis of the case-law of the Court

45 Brown, A., "When do changes to an existing public contract amount to the award of a new contract for the

purposes of the EU procurement rules? Guidance at last in Case C-454/06", P.P.L.R. 2008, 6, NA253. 46 See also the Commission's decision of 2 October 2002, n-264/2002, United Kingdom London Underground

Public Private Partnership that: "such modifications cannot be considered to automatically constitute a form

of discrimination even where they are introduced after appointment of the preferred bidders. This is all the

more important in connection with particularly complex tenders which are negotiated over a long period of

time (3 years in the case of PPP)."

19

According to the case-law of the Court of Justice, amendments to the provisions of a public contract

during its currency require a new contract award procedure if they are "materially" different in character

from the original contract47. This is notably the case where amendments introduce conditions which

would have allowed the participation or the success of other tenderers, if they considerably extend the

scope of the contract or if they change the economic balance of the contract. We agree with the stance

of the contracting authorities that, for certain types of amendments, the case-law does not appear to be

sufficiently clear in terms of establishing whether a new tender procedure is needed.

In the Pressetext-case, the Court stated three instances in which an amendment of a public contract

may be regarded as material:

- When the amendment introduces conditions which had they been part of the initial award

procedure, would have allowed for the admission of tenderers others than those initially admitted or

would have allowed for the acceptance of a tender other than the one initially accepted;48

- When it extends the scope of the contract considerably to encompass services not initially

covered;49 or

- When it changes the economic balance of the contract in favour of the contractor in a manner which

was not provided for in the terms of the initial contract50.

The ECJ further stated that "as a rule, the substitution of a new contractual partner for the one to which

the contracting authority had initially awarded the contract must be regarded as constituting a change to

one of the essential terms of the public contract in question, unless that substitution was provided for in

the terms of the initial contract, such as, by way of example, provision for sub-contracting."51

Nevertheless, the Court had investigated the transfer of the contract in detail and judged that "some of

the specific characteristics of the transfer of the activity in question permit the conclusion that such

amendments, made in a situation such as that at issue in the main proceedings, do not constitute a

change to an essential term of the contract." This would not be the case when an arrangement is, in

essence, an internal reorganisation of the contractual partner, which does not modify in any

fundamental manner the terms of the initial contract. Still, the Court held that if the shares of the

subsidiary to whom the contract had been transferred to, were transferred to a third party during the

currency of the contract, this would no longer be an internal reorganisation of the initial contractual

partner, but an actual change of contractual partner, which would, as a rule, be an amendment to an

essential term of the contract. Such an occurrence would be liable to constitute a new award of contract.

47 Case C-454/06, pressetext Nachrichtenagentur, [2008] ECR, I-4401. 48 Ibid. para 35. 49 Ibid. para 36. 50 Ibid. para 37. 51 Ibid. para 40.

20

The Court further elaborated on the Pressetext judgement in Wall AG.52 The city of Frankfurt awarded a

contract for exploitation and maintenance of public lavatories to a contractor, FES. One of the reasons

why Frankfurt decided to award the contract to FES, was the fact that FES could rely on the services of

subcontractor Wall, who held several patents relating to the method of functioning of such lavatories.

During the execution of the contract, however, FES did not call upon Wall, but decided to make use of

the services of a different subcontractor.53 The Court judged that a change of subcontractor, even if the

contract foresees in such possibility, in "exceptional circumstances" can constitute a substantial

modification that necessitates organisation of a new tender procedure. The change of a subcontractor

constitutes such substantial modification "where the use of one subcontractor rather than another was,

in view of the particular characteristics of the services concerned, a decisive factor in concluding the

contract (…)."54 The Court concludes with the observation that in the case at issue, it was indeed likely

that the contract was awarded to the contractor due to the specific identity of the original

subcontractor.55

c. Substantial modifications - recommendation

We believe that the issue of substantial modifications of a contract while it is still in force or after a first

selection of bidders should be dealt with in the Directives. The regulation thereof should focus on two

objectives: (i) fair competition but with (ii) a reasonable degree of flexibility.

Our opinion can thus be summarised as follows:

First, changes or amendments prior to the award of a contract often take place in the course of

negotiations. This procedure should and does essentially allow room for manoeuvre56 and should thus

allow that modifications to the contract are made. This is also the Court's view: "Second, it cannot be

ruled out that, in a negotiated procedure which, by its nature, may extend over a long period of time, the

parties might take account of technological developments which take place while the negotiations are

under way, without that being regarded each time as a renegotiation of the essential terms of the

contract justifying the application of new rules of law." It belongs to the nature of a phased negotiated

procedure that competing bidders take the risk of being excluded prior to amendments which, if they

would have been made before their exclusion, could have led to the submission of their bid with more

economic advantageous conditions. Nevertheless, this seems to be a purely commercial risk on the

condition that the bids of the competing tenderers relied on the same set of contract and technical

52 Case C-91/08, Wall [2010] 53 Paras 8 - 27 of the judgement. 54 Para 39 of the judgement. 55 Para 40 of the judgement. 56 We refer to what is mentioned under 2; See also Case C-337/98, Commission v. France [2000] para 51;

Commission's decision of 2 October 2002, n°. n-264/2002, United Kingdom London Underground Public

Private Partnership;

21

specifications at the moment they were compared to each other and evaluated. A mitigating factor in the

context of an award procedure is the concept of a "Waiting Room"57. This makes it possible for the

contracting entity to maintain a form of competitive pressure on the preferred bidder. The authority could

argue that the modified bid of the preferred bidder is unacceptable and would constitute a material

change of the contract. It would then be justified to re-open competition and allow the bidders in the

waiting room to make a bid.

Second, changes or amendments both post or prior to the award of a contract often take place under

pressure of external circumstances. The latter is true especially in the case of large and complex

projects. In practice, at the moment of the publication of the contract notice, the definition, the scope and

the modalities of a project are never final. Politics, the public but also regulatory bodies and advisory

instances often require that the contracting entity modifies the project's conditions. These modification

justify the submission of a modified offer (prior to the award) or contract changes (post award).

Advocate-General Bot, in its opinion in the Wall case, seems to realise that the doctrine of substantial

modifications should not be applied too strictly: "As I have pointed out, the holder of the concession

takes on the responsibility of organising the service as well as the consequent operating risks. Given the

complex and long-term nature of a service concession, a concession-holder must have sufficient leeway

to adapt to market conditions and to any changes in the economic, technical or legal context of the

concession. The parties must therefore be particularly flexible and act in a spirit of cooperation, in view

of the unforeseeable constraints and performance setbacks which are inevitable in the case of long-term

investments. Accordingly, there are many reasons to renegotiate contracts. Nevertheless, some of them

may constitute abuse if they substantially alter the structure of the contract, making the transparency of

the procedure and the prior call for competition illusory."58 The award procedure and the contractual

terms of complex, large and lengthy projects therefore require a certain degree of flexibility to make

amendments. Depending on the timing of the amendments, this might mean that some -and post award

of the project even all- bidders might not have had a chance to bid on the project as it will be finally

awarded (prior to the award) or executed (post award). It is however, to our opinion, not desirable to

sanction the winning bidder for changes to the contract made under purely external pressure, i.e.

changes that have not been a made on the sole demand of the contracting authority or bidder

themselves. There is a great possibility that those changes would have also been necessary if a

different bidder had been chosen as preferred bidder or contractor of the contracting entity. Although

every contracting entity should strive to allow bidders to make a bid on a project that is nearly final,

lessons learned teach us that this is not possible in the majority of the cases. Amendments made under

external pressure are therefore to be approached differently than amendments that could proof the will

57 The concept of the "waiting room" means that certain bidders are excluded from the next stage in the

award procedure but remain standby in the event that contract negotiations with the preferred bidder(s) do

not lead to contract close. 58 Opinion of AG Bot, CoJ, C-91/08, [2010] ECR, 0, para 48.

22

of the contracting authority to avoid competition. This is also the opinion of Arrowsmith: "In deciding on

the extent and nature of permitted changes, the reasons for those changes also appear relevant."59

Third, the consequence of amendments that constitute material changes to the contract, i.e. to conduct

a new award procedure, is not always proportionate to the benefits for the contracting authority

concerned. Indeed, it might be the case that changes are to be classified as material changes and

therefore should be awarded by conducting a new award procedure. However, in the context of a large

project, it might not be logical, fair and proportionate to compel the authority to start a new expensive

and long award procedure. Moreover, it is not cost-efficient to ask for new biddings to several bidders. A

new procedure would thus entail high transaction costs and might not be fair in certain circumstances,

especially when changes are made due to external circumstances. This consideration has also been

raised by the Commission.

That said, we would suggest that the Directives clarify the circumstances in which modifications to the

contract can be made.An exception must be foreseen for changes that, given the factual circumstances,

do not reflect a will of the contracting authority and/or contractor to rule out any form of competition. The

latter would be for example the case in the event a contract would be prolonged beyond the contractual

provisions foreseen or broadened beyond the initial scope, without any acceptable justification.

Changes in that respect would also bring in line the Court's case law, with the Commission's view in its

decision in the London Underground case, in which it decided: "In this respect the Commission notes

that the objective of the contracts (outsourcing responsibility for the provision of track, stations and

trains while retaining operating responsibility in-house) is original. Their duration (30 years) is long.

These factors unavoidably make the contracts complex and their value difficult to assess. The

transaction and information gathering costs involved in preparing the contracts are high, for both clients

and contractors. The gap between the selection of the preferred bidders and the conclusion of the

contracts has been lengthy. These factors inevitably mean that unanticipated issues have emerged

since the selection of preferred bidders and have had to be addressed under the non-competitive

conditions then prevailing."

d. Changes concerning the contractor - recommendation

The question arises to what extent the change of a contractor indeed necessitates the reorganisation of

a tender procedure. For example, an undertaking entrusted with the execution of a contract legally

awarded through a tender procedure, might become subject to a takeover. The mere transfer of all or

part of its shares and a consequent change of control within this undertaking can change the identity of

the undertaking and thus could be conceived as the change of a contractor, if one strictly applies the

Pressetext- and Wall-jurisprudence. This could necessitate the organisation of a new tender procedure,

while the undertaking remains entirely the same undertaking, and all relevant know-how or specific

59 S. Arrowsmith, The law of public and utilities procurement, 2005, Sweet&Maxwell, 8.68;

23

technical production methods still lie within this undertaking. The fact that the controlling shareholder is

succeeded by a new shareholder might lead the contracting entity to decide that such change of identity

could not be approved within the framework of the original contract. If the Court, as in Wall with regard

to a subcontractor, would judge that the identity was crucial in awarding the contract to the undertaking,

it might deem it essential that a new procedure be organised in order to preserve free competition.

While the preservation of a legal framework relating to modifications of awarded contracts is a

necessary consequence of the preservation of competition, this should not a equally lead to a formalistic

set of rules in the context of changes concerning the contractor and that does not take into account the

economic reality that contractors face, i.e. reorganisation of business, take-overs, mergers, etc.

Therefore, we do not agree with the general consideration of the Court in the Pressetext-case that the

substitution of a new contractual partner for the one to which the contracting authority had initially

awarded the contract quasi-automatically constitutes a substantial modification provide that the 1) the

essential provisions (duration, price, …) of the contract remain the same and 2) the authority has

accepted the new contractor. The mere change of the contractor should not be subject to the "material

modification" - test. .

Only when the contract is substantially altered with a major risk of anti-competitive behaviour or a risk

for the continuation of the qualitative execution of the contract for the contracting authority, should one

reconsider the need to reorganise a tender procedure. In most cases this is a purely contractual issue

and does not seem to need regulatory intervention in the Directives. Further, if the terms of the contract

itself do not change (e.g. the price, the timing, etc.), it is hard to see where the anti-competitive effect of

such a change lies.

Two options could be envisaged:

Either, the counterparty of the contracting authority is changed. This can only be done with the consent

of the contracting authority itself on contractual grounds. The change of the contractual counterparty can

only be done by mutual agreement. If the contracting entity refuses to give its consent, because it fears

that the quality of the execution of the contract is endangered or the financial standing of the

counterparty appears to be weaker, no change of the contractor can take place. The contracting

authority could also ask for guarantees from the entity assigning the contract. This should offer sufficient

protection.

Or the counterparty of the contracting authority is not changed, but only the shareholders,

asubcontractor, etc. have been changed. In those cases, one cannot but recognize that the terms of the

contract itself have not been changed. From a legal point of view, the contractual counterparty remains

the contractor that has been chosen as a result from an award procedure. The bid he has initially made

must still be respected. If not, contractual sanctions and penalties shall apply. From a practical point of

view, these type of changes may indeed influence the execution of the contract. This could have been

the case in the Wall-case, where the subcontractor had proven to be essential to the contracting

24

authority for the award of the contract. It seems however, that again, if the contracting authority fears a

significant impact on the contractual balance or sound execution of the contract in the event of such

changes, it should foresee contractual protection to prevent such from happening. As an example, one

might think of the obligation for the contractor to ask for permission to change a (nominated)

subcontractor. A contractualisation of this issue seems to be the appropriate manner to tackle this type

of changes. The suggestion that the contracting authorities should be able to terminate the contract in

the event of major changes relating to the contractor, could not be applauded. If, indeed, it seems that

the execution of the contract is no longer done according to the contract specification and the original

bid of the contractor, the authority should invoke a breach of the contract in order to finally terminate the

contract. Indirect changes of the contractor should not lead to the automatic possibility to terminate the

contract just because of that indirect change in itself.

In the light of such observations, it seems desirable to introduce a more flexible and functional approach

towards change of contractors is followed. While such regulation should indeed counter any attempt to

circumvent public procurement rules or competition principles, the actual aim of preservation of these

rules must be served. A general principle relating to modifications of contracts should not create fear

over the legality of the slightest of changes who want to respond to day-to-day business affairs. This

surely cannot serve the aim of public procurement rules, which is to ensure that only economic

considerations triumph.

Any substantial modifications regulation should thus keep in mind that a too formalistic approach should

not contradict the very essence of public procurement regulation. When regulation is installed in order

for economic considerations to triumph, it should as a logical consequence be deemed necessary to

allow for a more flexible regulation of the change of contractors.

25

Conclusion

Our contribution has focussed on a limited number of specific issues raised in the Green paper on the

modernisation of the EU public procurement policy.

We have first discussed the definition of the scope ratione personae of Directive 2004/17. We have shown

that the category of public undertaking is now void compared to the category of contracting authority

regarding the quasi total overlap between both concepts, as interpreted by the Court of Justice. The keeping

of separate formal categories where public undertakings will almost always also qualify as contracting

authorities may in some cases create a wrong belief that an entity would only be subject to Directive

2004/17 for its utilities activities and not to Directive 2004/18 for its other activities. Further, the distinction

between public and private undertakings does not adequately reflect the purposes of Directive 2004/17 to

allow competition to flow freely in the relevant sectors. Therefore, we advocated for a suppression of the

definition of a scope ratione personae and a more functional and economic reorientation of the scope of

Directive 2004/17, based on the level of competition on the relevant markets.

Secondly, we advocated for a generalisation of the negotiated procedure with prior notice, also for contracts

covered by Directive 2004/18. We have shown that the limitation of the use of that procedure for contracts

falling under Directive 2004/18 were not justified regarding the principle of equal treatment. On the one

hand, the Court of Justice and the Commission have regulated that procedure. On the other hand,

complexity and scale of certain contracts under Directive 2004/18 call for an enhanced flexibility.

Third, our contribution highlighted the need to establish a clear set of rules articulated around the concept of

"control", guiding the authorities in the assessment of in-house arrangements which are exempt from the

application of public procurement rules. This would allow reconciling the various positions defended by the

Court of Justice in way that better serve the purpose of applying public procurement rules to contracts

between separate entities.

Our fourth recommendation related to the taking into account of previous performances of the operator by

the contracting authority. Indeed, current provisions preclude contracting authorities from using their own

personal knowledge of the tenderer as a means of excluding them. However, if the contracting authority sets

out objective, non-discriminatory and transparent criteria to measure performance, such measures should

be available and possible to use for subsequent tenders with a view to obtaining value for money.

Our fifth recommendations is related to the modification of contracts. The exercise to be made whether a

modification constitutes an actual material change and thus leads to the award of a new contract is or has

become perilous. We would therefore like to put emphasis on a flexible approach towards changes in case

of external events invoking those changes, large, lenghty and costly procedures, etc. A strict application of

the case-law seems to be restrictive and does not take into account those factual circumstances.

26

Further, we do not defend the point of view that the Directives should contain rules in order to clarify whether

the change of a contractor constitutes a material change. It should be left as a purely contractual matter

between the contracting entity and the contractor. The anti-competitive effects of such a behaviour is too

remote to justify legislative intervention.

We are confident that enhanced clarity and flexibility is the fulcrum around which modernisation of public

procurement rules should occur.

This report has been authored by

Bob Martens (Bob.Martens@dlapiper.com)

Barteld Schutyser (Barteld.Schutyser@dlapiper.com)

Carole Maczkovics (Carole.Maczkovics@dlapiper.com)

Tom Villé (Tom.Ville@dlapiper.com)

Stijn Goovaerts (Stijn.Goovaerts@dlapiper.com)

Jackie Joossen (Jackie.Joossen@dlapiper.com)

The report has been written under the sole responsibility of its authors.

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