CJEU ruling highlights the problems faced by contracting authorities when modifying contracts and publishing VEAT Notices
Monday, 3rd October 2016
The Court of Justice of the European Union ("CJEU") has given its preliminary ruling in Finn Frogne A/S ("FF") v. Rigspolitiet ved Center for Beredskabskommunikation (reference). The Supreme Court of Denmark had referred a question to the CJEU concerning the modification of a public contract by way of a settlement agreement and whether it necessitated a new tendering procedure.
FF brought an action following the publication of a Voluntary Ex Ante Transparency Notice ("VEAT Notice") by The Centre for Emergency Communication of the National Police of Denmark ("Contracting Authority"). The Contracting Authority published the VEAT Notice to express its intention to modify the terms of an existing contract.
A company called Terma had been awarded a contract by the Contracting Authority for the supply and future maintenance of a global communications system common to all emergency response services ("Contract"). Shortly after signing the Contract, the parties disagreed about how the Contract should be fulfilled. In order to settle the disagreement, the parties began negotiations and subsequently entered into a settlement agreement. The terms of the settlement agreement implied substantive amendments into the Contract. The number and value of the services to be provided were substantially reduced. Terma also agreed that an area of land which it was going to lease to the Contracting Authority would instead be sold to the Contracting Authority.
The CJEU held that a material amendment cannot be made to a public contract without a new tendering procedure even where such an amendment derives from a settlement agreement. The CJEU stated that the position would only be different if the original contract provided for such future modifications. Any such provision would only be permissible if it contained fixed and detailed rules on its application.
The CJEU confirmed that a settlement agreement which has the effect of varying the terms of a public contract will be subject to the same tests as are applied to modifications under Regulation 72 of the Public Contract Regulations 2015 ("PCR 2015").
Regulation 72 of the PCR 2015 sets out situations when modifications to public contracts do not require a new tendering procedure.
The decision is significant in that it has accentuated the problems which contracting authorities face when drafting and/or modifying contracts and publishing VEAT Notices.
The CJEU's decision and Regulation 72 state that all contracting authorities should have the foresight to make full and complete provision for future modification of the original contract. This is arguably an unrealistic aspiration that a "perfect" contract covering all possible eventualities can be drafted at the outset. Contracting authorities and tenderers will already wish to make provision for the possibility of future disagreement or modification when negotiating the contract. However, it is impractical to expect that all eventualities can be provided for in the contract.
This case has also highlighted the issues faced by contracting authorities when publishing VEAT Notices. VEAT Notices provide limited protection to contracting authorities and have frequently been seen to create more problems than they solve. In the present case, FF had not participated in the tendering procedure for the original contract. FF brought the action having seen the VEAT Notice in the Official Journal of the European Union. VEAT Notices enable contracting authorities to act transparently but at the risk of being challenged by third parties who have had no connection with the original tendering procedure.
Article written by Elizabeth Gibson and Melissa King