The Court of Justice of the European Union (CJEU) ruled that a material amendment to a contract award without a new tendering procedure is an impermissible breach of the principles of equal treatment and transparency even where the amendment is as a result of a settlement agreement designed to end a dispute which arose from the difficulties encountered in the performance of that contract.
The Danish state awarded a public contract for the supply and maintenance of a global communication system for all emergency response services to a company, Terma. In the course of the performance of that contract, difficulties arose in meeting delivery deadlines, with the awarding body and Terma both disagreeing as to which party was responsible for making it impossible to perform the contract.
Following negotiations, the parties agreed to a settlement under which the scope of the contract was to be reduced to the supply of a radio communications system for regional police forces and the awarding body would acquire two central server farms (which were originally going to be leased to the awarding body under the original contract).
Frogne, who had not applied for pre-selection to participate in the tendering procedure for the original contract, brought an unsuccessful action before the Complaints Board for Public Procurement, Denmark and the Danish Regional Court in relation to this amendment. The latter took the view that the principles of equal treatment and transparency did not preclude the conclusion of a settlement provided that there was a close link between the original contract and the services provided in connection with it.
The CJEU made the following noteworthy points:
- The principles of equal treatment and non-discrimination and the obligation of transparency cannot be disregarded where there is an intention to modify substantially a service concession contract even where the aim is to provide a reasonable solution to bring an end to a dispute which has arisen between the public entity and an economic operator.
- The contracting authority may retain the possibility of making amendments, even material ones, to the contract, after it has been awarded, on condition that this is provided for in the documents which governed the award procedure.
While not common, there have been examples of procurement disputes being settled (either before or after issuing proceedings). In circumstances where the settlement agreement results in modifying the delivery of the contract (even to reduce its scope), then such settlement agreements are at risk of constituting material amendments to the contract which this case says is unlawful without conducting a new tender process.
Awarding authorities are now looking closely at how they can draft variations clauses to satisfy the new provisions in the Procurement Directives permitting changes as a result of clear, precise and unequivocal review clauses. This case would suggest that facilitating settlement agreements or at least the outcome of dispute resolution procedures will need to be built in to such review clauses.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.