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Thursday, April 15, 2010

Contract variations up against a Wall in Europe

This post involves a European Court of Justice case, Wall AG C‑91/08.

It arises from a protest and appeal of a German solicitation. The background and protest decision are described in a Dundas & Wilson LLP Bulletin (at p. 3), from which the following is taken:
The case concerns a services concession contract granted by the City of Frankfurt to a public-private entity (FES), in which the City of Frankfurt holds 51% of the shares. Under the concession contract, FES was granted the rights to the commercial operation of 11 public toilets in the City of Frankfurt, involving the refurbishment of two public toilets in two railways stations.

Wall AG had been identified in the original concession documents as the intended subcontractor for the provision of advertising services and the supply of toilet cubicles. However, following the appointment of FES - but before any services were provided - FES put the provision of advertising services and the supply of toilet cubicles out to tender. Wall AG was not successful and the work was awarded to an alternative provider. Wall AG challenged the decision before the German courts.

It argued that the change in subcontractor constituted a substantial change to the concession contract concluded between the City of Frankfurt and FES.

The protest was heard before Advocate General Bot. AG Bot recognised that the EC Treaty transparency obligations left contracting authorities a wide margin of discretion to vary contracts, especially complex long-term partnering contracts such
as PPP contracts. However, that discretion had to be exercised in a manner that
protected against the abuse of the competitive tendering rules imposed by the EC Treaty.

In the present case, AG Bot concluded that the City of Frankfurt had breached those rules by allowing FES to substitute a key subcontractor so early into the contract (before any services had been provided) and without any apparent objective kustification. Significantly, he was persuaded that FES would not have been awarded the concession contract if it had not included Wall AG as its named subcontractor.

In the circumstances, EC Treaty rules required that such a change only be made following the re-tendering of the concession contract.
It must be emphasized that this has been a synopsis. As in most cases, the results reached can be influenced by the facts. Facts give cases nuance and context that are not always evident in the bare result. It is useful, perhaps therefore, for students and practitioners to review the ECJ's judgment and its rendition of the detailed facts upon which it based its decision. This is not intended to be a review of that case, however. This is provided for the simple proposition that changes in a contract can be of such nature as to require a new solicitation.

On this simple proposition, the ECJ held
1. Where amendments to the provisions of a service concession contract are materially different in character from those on the basis of which the original concession contract was awarded, and are therefore such as to demonstrate the intention of the parties to renegotiate the essential terms of the contract, all necessary measures must be taken, in accordance with the national legal system of the Member State concerned, to restore the transparency of the procedure, which may extend to a new award procedure.
This ECJ ruling was discussed in MacRoberts LLP's article ECJ rules on contract variations (May require registration with Lexology). The authors conclude,
The requirement to carefully consider whether an amendment constitutes a new award is not new. Indeed, the ECJ has previously put down a test in Pressetext, which is to be applied when an authority wishes to vary an existing contract stating an amendment might be material if it would have resulted in a different outcome if included originally, extends the scope of the contract, and/or changes the economic balance of the contract. Wall now builds on that test.
The Dundas & Wilson LLP Bulletin mentioned above is very instructive by including a discussion of the Pressetext and other cases to canvass other situations where variations to contract required new solicitation.

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