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Restriction on subcontracting in public contract 'breaches EU law', says legal adviser


A requirement that the successful bidder for a public works contract perform a certain proportion of the work itself appears to be in breach of EU law, according to a top legal adviser.

Giving her opinion on a Polish case which has been referred to the Court of Justice of the European Union (CJEU), advocate general Sharpston said that the City of Wrocław could not impose a requirement on its tenderers to perform 25% of the work. Breaching EU procurement laws in this way could also be classed as an "irregularity", affecting a financial award made to the project by the Centre for EU Transport Projects (CUPT), she said.

The advocate general said that restrictions on subcontracting defeated one of the purposes of the EU's Public Procurement Directive, which is "designed not only to avoid obstacles to freedom to provide services in the aware of public service contracts or public works contracts but also to guarantee the opening up of public procurement to competition".

"[The directive] states that the possibility of subcontracting is liable to encourage small and medium-sized undertakings to get involved in the public contracts procurement market," she said. "Subcontracting enables such undertakings to participate in tendering procedures and to be awarded public contracts regardless of the size of those contracts."

"The [CJEU] has held that in [cases where the contracting authority cannot verify the technical and economic capacities of the subcontractor] [the 2004 Directive] does not preclude a prohibition or a restriction on subcontracting the performance of essential parts of the contract. Such a prohibition or restriction is justified by the contracting authority's legitimate interest in ensuring that the public contract will be effectively and properly carried out … In my view, considering the essential role subcontracting plays in promoting the objectives of [the 2004 Directive], no other prohibition or restriction is permissible," she said.

The contracting authority in this case argued that the restriction was based on its "legitimate interest" in ensuring that the successful bidder had the technical ability and resources needed to implement at least part of the contract. However, Sheraton said that she could not accept this argument as its 25% requirement "does not concern performance of well-defined tasks but merely a percentage of the overall contract value".

In May 2007, the Roads and Maintenance Board of the City of Wrocław tendered for construction work for a new ring road. The project was eligible for EU financial assistance under the 'Infrastructure and Environment' operational programme. Three firms submitted a tender as part of a restricted procedure, under which only certain firms were invited to participate, and the contract was awarded in August 2008.

In 2012 the CUPT, which was responsible for monitoring the use of the EU financial assistance in this case, informed the authority that it had infringed the principle of fair competition by imposing a requirement on the successful bidder to perform at least 25% of the works covered by the contract "using its own resources". It imposed a 5% "financial correction", reducing the amount of the eligible costs that would be covered by EU funds. The authority appealed to the Polish courts.

The Polish courts have asked the CJEU to rule on two questions in relation to the case: firstly, whether the subcontracting restriction is in fact in breach of EU law; and secondly, whether a breach of procurement law amounts to an "irregularity" for which a "financial correction" to a funding award must be made. The court should answer both of these questions affirmatively, according to the advocate general. Although her opinion is not binding on the CJEU, the opinions of advocate generals are followed in the majority of cases.

The City of Wrocław argued that there was no irregularity because there had been no "prejudice to the EU budget" in the case. None of the companies that were invited to tender for the new ring road had objected to the 25% requirement, and each of the three that actually tendered proposed using subcontractors for significantly less than 75% of the total value of its bid, it argued.

However, the advocate general said that there was no need to "demonstrate and quantify the precise prejudice" caused to the EU budget by the breach. This was because it was a requirement of the funding rules that any projects provided with financial assistance "should be fully consistent with EU law, including EU public procurement rules", she said.

"Granting financial assistance to a project which does not comply in all respects with those rules therefore involves charging an (at least partly) unjustified item of expenditure to the EU budget," she said.

Although the case had been brought under 2004 Directive, which has since been superseded, the advocate general said that the same principles were reinforced by the 2014 Public Procurement Directive.

"According to [the 2014 Directive], contracting authorities may require certain critical tasks to be performed directly by the tenderer itself or, where the tender is submitted by a group of economic operators, by a participant in that group," she said. "Whilst that provision now expressly allows restrictions on subcontracting during the examination and selection phase, such restrictions are acceptable only in so far as they concern well-defined tasks regarded as 'critical' for implementing the contract."

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