when does competition end? a staged approach to procurement modifications

When does competition end? A staged

approach to procurement modifications

Dr Albert Sanchez-GraellsReader in Economic Law

Contract Changes in a European Perspective, Dansk Forening for UdbudsretCopenhagen, 19 September 2017

19 September 2017

1Dansk Forening for Udbudsret

Agenda

• Explore the relevance of controlling procurement modifications from a competition perspective, with a concentration on contract modifications

• Critically assess the logic(s) behind the rules in Directive 2014/24/EU (Art 72)

• Critically reflect on the need for a more commercial approach in recent CJEU case law

Dansk Forening for Udbudsret 2

19 September 2017

Object of the contract, market and competition

– logic and limits

• Tender documentation establishes the object and limits of competition for a public contract

• Modifications are thus problematic if they either nullify or distort competition

• But ‘open-ended’ modification possibilities not seen to alter the competition if they are transparent and ensure equal treatment


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How to interpret this in functional terms?


19 September 2017

Commission v CAS Succhi di Frutta,

C-496/99 P, EU:C:2004:236

• ‘No change of rules of the game’ logic• prohibition of changes that, ‘had [they] been included in the

notice of invitation to tender, would have made it possible for tenderers to submit a substantially different tender’ (116)

• ‘Flexibility in the rules of the game’ trump• ability of the contracting authority to introduce modifications

if (and only if) it reserves the possibility and ‘defines the framework within which the [modification] procedure must be carried out’ (118)


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pressetext Nachrichtenagentur,

C-454/06, EU:C:2008:351

• Material change + ‘No-negotiation’ rule?• ‘In order to ensure transparency of procedures and equal

treatment of tenderers, amendments to … a public contract … constitute a new award … when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract’ (34)

• What if there was a contractual provision on renegotiation? (is Succhi di Frutta only applicable to unilateral modifications?)


19 September 2017

pressetext Nachrichtenagentur,

C-454/06, EU:C:2008:351

• No rebalancing – unless foreseen?• ‘… 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 contract’ (37)

• Does this mean initial contract, or procurement documents? (ie is there an obligation for all potential tenderers to have been informed of this possibility, or would it have sufficed to insert this clause in the contract with the awardee? Any intermediate solutions concerning multi-stage procedures?)


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What are the consequences of this logic?

• When the game changes, new game

• Most of the remedies that can be obtained in case of illegal modifications assume a continued interest in the (revised) object of the contract + the (reasonably foreseeable) possibility that there will be interest in supplying it from undertakings other than the incumbent


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Pre-award modifications and impact on

competition (equal treatment, transparency)

• The same logic (broadly) applies to pre-contract modifications of the procurement documents / requirements—e.g. qualitative selection

• MT Højgaard and Züblin, C-396/14, EU:C:2016:347

• Double criterion of (a) no modification of procurement documents (selection criteria) and (b) no distortion of competition by advantaging ‘modification beneficiary’–see para 44) [what of broader competition consideration?]


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Post-award contract modifications

• Therefore, the logic controlling the (incipient) regulation of contract modifications rested on the need to ensure that (a) competition is not distorted (change of ‘playing field’), (b) the results of competition are not nullified (change of economic balance), unless (c) there was a prior, transparent procedure for such changes


19 September 2017

Post-award modifications and

(theoretical) competition for the contract

• The problem with this logic is that it does not make sense (or is difficult to apply) in • situations involving long-term contracts

(competition issues fade away with time)

• situations involving very complex contracts(competition involves a degree of uncertainty)

• situations unforeseen / unforeseeable / unwanted by the parties (driver for modifications is ‘beyond control’)


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When does competition end?


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Termination involving modifications –

competition perspective

• The limitations of the logic have become particularly obvious in situations of unwanted modification of the contract due to a break up of the commercial relationship (cfr Finn Frogne)

• Same issues would (potentially) arise in other situations, such as termination for convenience, which can introduce significant rigidity


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Finn Frogne, C-549/14, EU:C:2016:634

• Unsustainable situation• disagreement ‘as to which party was responsible for making it

impossible to perform the contract as stipulated’ (10)

• Contract modification implicit in effort to minimise the damages / losses resulting from the break up of the commercial relationship and contract

• Public interest? / Urgency? / Sole source?

• All would have been well if ‘contractualised’ (37/40)Dansk Forening for Udbudsret 14

19 September 2017

Review clauses – competition perspective

• The second part of the underlying logic that hits the (practical) wall rather quickly concerns the pre-establishment of clear and ‘automatic’ rules foreseeing ‘equal for all’ modifications

• Is it really competition-neutral?

• Information asymmetries

• Moral hazard / winners’ curse


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Review clauses – contract law perspective

• The standard set in Art 72 Directive 2014/24/EU may be simply impossible (or too costly) • where the modifications, irrespective of their monetary value, have

been provided for in the initial procurement documents in clear, precise and unequivocal review clauses, which may include price revision clauses ... Such clauses shall state the scope and nature of possible modifications … as well as the conditions under which they may be used. They shall not provide for modifications … that would alter the overall nature of the contract or framework agmnt


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What would such a clause look like?


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Conclusions

• Competition-preservation remains regulatory goal

• But: need for a more sophisticated approach, based on a commercially-informed assessment of justification and proportionality of modifications

• Specially where they are ancillary to other problems

• Revised approach to (or hope for) general contract modification clauses


19 September 2017