In its Judgment of 5 April 2017 in Borta, C-298/15, EU:C:2017:266, the European Court of Justice (ECJ) largely followed the Opinion of AG Sharpston (commented here) and ruled on the incompatibility with EU law of a national rule that partially prohibited subcontracting by establishing that, where subcontractors are relied on for the performance of a public works contract, the tenderer is required to perform itself the main works, as defined by the contracting entity.
The ECJ also established that, even if there can be good reasons to ensure a correspondence between the parts of the works to be carried out by the members of a joint bid and their individual professional, technical and economic standing, EU procurement law is not compatible with a rule that imposes an arithmetic correspondence between the contribution of each of the tenderers and the share of the works that that tenderer undertakes to perform if the contract is awarded.
This is an interesting Judgment because it assesses issues around subcontracting and reliance on third party capacities in the area of utilities procurement and by reference to general free movement provisions in the TFEU. In my view, the line of reasoning followed by the ECJ in Borta offers good indications of the way in which subcontracting and teaming provisions in the 2014 EU Public Procurement Package will be interpreted.
The following is a summary of the reasons provided by the ECJ to determine the incompatibility with EU law of rules prohibiting subcontracting the main works involved in any project (a), as well as those requiring arithmetic correspondence between share of professional, technical (and economic) capacity and share of works to be carried out by members of a joint tender (b). A few common trends and future challenges are identified by way of conclusion (c).
It is worth noting that the ECJ also assessed issues concerning the modification of the tender documents after their publication in the light of the fundamental rules and general principles of the TFEU, among which are the principles of non-discrimination and equal treatment and the obligation of transparency which derive, in particular, from Articles 49 and 56 TFEU (see paras 62-77). However, those issues are not discussed in this post.
(a) Flexibility for subcontracting
The ECJ assessed the compatibility with Arts 49 and 56 TFEU of a national procurement rule prohibiting the subcontracting of the 'main works' in a project, as defined by the contracting authority. The ECJ determined that such a measure " is liable to prohibit, impede or render less attractive the participation of economic operators established in other Member States in the award procedure or the performance of a public contract..., since it prevents them either from subcontracting to third parties all or part of the works identified as the ‘main works’ by the contracting entity, or from proposing their services as subcontractors for that part of the works" (para 49).
Once the restriction on free movement was established, the ECJ proceeded to assess its possible justification. To that end, the ECJ considered the reasons given for the adoption of this rule, which mainly intended to "ensure that the works are properly executed" and was, more specifically, aimed at "preventing a current practice which consists in a tenderer claiming to have professional capacities solely in order to win the contract concerned, not with the intention of performing the works itself, but of entrusting all or most of those works to subcontractors, a practice which affects the quality of the works and their proper performance. Second, by limiting the reliance on subcontractors to works identified as ‘subsidiary’, [the rule aimed] to encourage the participation of small and medium-sized undertakings in public contracts as joint-tenderers in a group of economic operators rather than as subcontractors" (para 52). The ECJ dealt with these are three grounds for justification.
- The ECJ accepted that aiming to ensure the proper execution of the works is a legitimate goal, but considered the measure disproportionate. Both because it "applies whatever the economic sector concerned by the contract at issue, the nature of the works and the qualifications of the subcontractors. Furthermore, such a general prohibition does not allow for any assessment on a case-by-case basis by that entity" (para 55); and because it prohibits subcontracting "in situations in which the contracting entity is able to verify the capacities of the subcontractors concerned and to take the view, after that verification, that such a prohibition is unnecessary for the proper execution of the works having regard, in particular, to the nature of the tasks that the tenderer plans to delegate to those subcontractors" (para 56). The existence of less restrictive measures also contributed to this finding of disproportion (para 57).
- The ECJ did not make an explicit finding on the legitimacy of aiming to prevent 'front tendering' and subsequent subcontracting of most of the contract (which can be assumed to be a legitimate goal), but established that the measure is not suited and/or disproportionate to that goal because "it prohibits the tenderer from delegating the performance of all the works identified as the ‘main’ works by the contracting entity, including the tasks which represent, proportionally, only a small part of those works. Therefore, that provision goes beyond what is necessary to prevent the abovementioned practice" (para 58).
The ECJ finally accepted that, as a matter of principle, it is conceivable that "the encouragement of small and medium-sized undertakings to participate in a contract as tenderers rather than subcontractors" can, "in certain circumstances and under certain conditions, constitute a legitimate objective" (para 59). However, it found no evidence that this was the case in the specific situation.
Therefore, having rejected all possible justifications, the ECJ determined that "Articles 49 and 56 TFEU must be interpreted as precluding a provision of national law ... which provides that, where subcontractors are relied on for the performance of a public works contract, the tenderer is required to carry out the main works itself, as defined by the contracting entity" (para 61).
(b) Flexibility for (asymmetrical) joint tendering
The ECJ assessed a second substantive issue concerning joint tendering and, in particular, the imposition of the requirement that "in circumstances in which a common tender is submitted by several tenderers, ... the contribution of each of them in order to satisfy the requirements applicable with regard to professional capacities corresponds proportionally to the share of the works they will actually carry out if the relevant contract is awarded to them" (para 78).
It is interesting to note that, despite the inapplicability of the 2004 Utilities Directive to the award of the contract (which was below thresholds), the ECJ assessed the compatibility of such requirements with the Directive because the domestic law had made "those provisions have ... applicable ... in a direct and unconditional way" and did that "in order to ensure that internal situations and situations governed by EU law are treated in the same way" (see paras 33-34). Therefore, the ECJ's analysis was carried out "in the light of Article 54(6) of Directive 2004/17" (para 84) and is thus relevant for the future interpretation of Art 78 of Directive 2014/25--as well as, I would argue, Art 58(4) of Directive 2014/24.
I also find it interesting to note that the ECJ sets out the general framework for assessment by reference to the recent Judgment in PARTNER Apelski Dariusz, C-324/14, EU:C:2016:214 (for discussion, see here) and in the following terms (paras 85-86):
- EU public procurement law "recognises the right of every economic operator, where the contracting entity lays down a qualitative selection criterion consisting of requirements relating to technical or professional abilities, to rely for a particular contract upon the capacities of other entities, regardless of the nature of the links which it has with them, provided that it proves to the contracting authority that it will have at its disposal the resources necessary for the performance of the contract"
- "that right extends to groups of economic operators submitting a common tender, which may, under the same conditions, rely on the capacities of their participants or of other entities."
- EU public procurement law "does not preclude the exercise of the right ... from being limited in exceptional circumstances".
The ECJ recognises that restrictions on the possibility to rely on third party capacities could be justified on the need to "avoid the situation in which, in order to win the contract, a tenderer relies on capacities that he does not intend to use or, conversely, that a tenderer may be awarded a contract and perform part of the works without having the capacities and resources necessary for the proper performance of those works" (para 90).
However, , the ECJ ends up concluding that (paras 92-94):
- the clause that requires "an arithmetic correspondence between the contribution of each of the tenderers concerned to satisfy the requirements applicable with regard to professional capacity and the share of the works that that tenderer undertakes to perform and that it will in fact perform if the contract is awarded", however, "does not take account of the nature of the tasks to be carried out or to the technical capacities specific to each of them" and, consequently, "does not prevent one of the tenderers concerned from carrying out specific tasks for which it does not in fact have the experience or capacities required".
- Furthermore, if subcontracting of some ('subsidiary') works is possible and the professional capacities of the subcontractors are not verified (which is for the referring court to ascertain), then the requirement "does not guarantee that the tenderers will actually use the capacities that they have declared in the procurement procedure and which were taken into consideration" by the contracting authority; and "it does not prevent works defined as ‘subsidiary’ from being carried out by subcontractors without the professional capacities required".
- Ultimately, then, the requirement is not appropriate to ensure the attainment of the objectives pursued.
(c) Common trends and future challenges
Taken together with previous case law in the area of exclusion, qualitative selection and subcontracting--such as Ostas celtnieks, Partner Apelski Dariusz and Wrocław — Miasto na prawach powiatu, the Borta Judgment seems to reaffirm an approach whereby the ECJ is pushing against general rules excluding or restricting teaming and subcontracting, as well as aiming to ensure that, where the contracting authority engages in a case-by-case analysis of the economic operators' capabilities, this is guided by a (strict?) proportionality assessment. In general, this should be a welcome (pro-competitive) direction of development of the case law.
However, the evil is in the detail and there are emerging issues that will require further fine tuning, such as:
- the extent to which the contracting authority can engage in a substantive assessment of the economic operators' teaming or subcontracting arrangements prior to the award of the contract (cf Partner Apelski Dariusz and Ostas celtnieks), as well as the consequences of disputes concerning post-award structuring of their legal or functional relationships; or
- the technical reasons that can justify a prohibition to subcontract specific parts of the work or service (see Wrocław and Borta, but also Hörmann Reisen), in particular where the economic operators have assumed joint and several liability and/or have furnished extensive insurance to the contracting authority; or
- the extent (and practicalities) of the integration of competition law considerations in the assessment of teaming and subcontracting arrangements by the contracting authorities (eg to avoid situations such as those raised by MT Højgaard and Züblin.
Overall, it seems fair to say that the case law and new rules on exclusion, qualitative selection and subcontracting raise significant practical challenges and that contracting authorities will need to treat lightly (and document extensively) the reasons why they create restrictions on teaming or subcontracting, as well as be ready to provide reasons for these decisions with a view of their administrative or judicial review (specially after the Marina del Mediterráneo Judgment).
