The blog post is authored by Elena Scanzano as part of the exam in “Governmental Contracts” course at the UCPH run by associate professor Marta Andhov. It has been edited and formatted by Sven Mikulic.
In the collective imaginary, the expression ‘gold-plating’ automatically recalls the technique of covering objects in gold, making them aesthetically pleasing, although it is not necessary to carry out their functions. In the context of transposing EU directives at the Member State level, this term refers to the phenomenon of introducing higher levels of regulation than the minimum required by the EU [1].
In Italy, the practice of over-regulation is frequent in all sectors, but it is even more widespread in the context of public contracts. Clear evidence of this is that the Directive 2014/24/EU, regulating public procurement and containing 94 articles, was implemented in the Italian system, not solely by D.lgs. 50/2016, the Code of Public Procurement – composed of 220 articles – but also by laws disciplining specific aspects[2], binding guidelines of ANAC[3], and more than 50 administrative acts regulating individual issues[4]. Thus, the additional burdens laid down are very broad, going from single stricter provisions – such as the obligation for the contracting authorities to justify the reasons for not tendering into the market when using the tool of the in-house proving[5]– to entirely different sets of rules in certain matters2.
Why does the Italian legislator create and keep such a complex structure of norms that heighten the regulations both substantially and procedurally? Answer to this question can be given considering the objectives of the Italian Republic of preventing corruption and combatting the mafia, which are deemed to be significant issues in the context of public procurement, as the 2013 EU Commission Report on the corruption in Italy shows[6]. Organized crime associations often invest in undertakings that take part in public tenders to launder money. A significant index of the extent of the problem is that since 2014 the Italian Authority for the Prevention of Corruption (ANAC) is also responsible for the supervision of public contracts and for administrative transparency to coordinate its tasks better. The fact that the discipline is so complicated increases the risk of corruption since the controls are more difficult to carry out. Thus, it is not evident which exact procedures must be applied, as often there is a provision stacking.
Despite gold-plating might be seen as an essential tool to prevent and fight the above-mentioned issues, the Italian legislator is also aware that it can, in practice, restrict competition (harming the principle of open competition set out in art. 18.1 of PSD[7]). More precisely, many SMEs, may be discouraged from participating in tender procedures, as they do not have the adequate expertise or means to verify compliance with the national rules. Over-regulation leads to time-consuming formalities and higher costs in the phases of public procurement procedures, sometimes with no actual reasons that justify the adoption of additional burdens. Indeed, while it cannot be denied that corruption and collusion are frequent in such procedures, Italians often perceive these issues as more significant than they are, as is displayed by some remarks of the General Prosecution Office of the Court of Auditors[8]. To this extent, gold-plating may collide with the Directive’s objective of including SMEs in competition.
For these reasons, as well as the financial crisis of 2008 and the need to cut administrative costs, the Italian legislator introduced a provision that generally prohibits gold-plating. Article 14.24-bis of l. 246/2005 (as amended by l.183/2001) now states: ‘The acts of transposition of EU directives cannot introduce or maintain higher levels of regulation than those strictly required by Directives, except for what is provided in art. 14.24ter.’ The problematic point is that 14.24ter allows additional levels of regulation only under ‘exceptional circumstances, without further specifying what is meant by that, giving the government an easy loophole for exploitation, although the government must provide its reasoning while introducing higher standards.
A pivotal hint to the correct interpretation of the scope of such forbiddance was given by the advice of the Council of State[9] on the Delegation Law for the Code of Public Contracts, l.11/2016, which in art. 1.1 (a) repeats the prohibition of gold-plating. There, the Council states that the prohibition refers only to the ‘non-necessary burdens’ and it can’t have the practical effects of lowering the warranties set to protect worthier interests and values, such as prevention of corruption, fight against the mafia, transparency, open competition, and protection of environmental and social values. Consequently, exceeding the minimum levels of regulation is justified (when not imposed) by the safeguarding of constitutional interests and values or set out in art. 36 of the TFEU’ and there is no contradiction with the Italian and EU legal system.
Further proof of it is given by art. 36 TFUE, which affirms that restrictions on imports and exports could be ‘justified on grounds of public morality, public policy or public security […]’ and CJUE itself[10] clarified that for the public procurement matter, each Member States has’ a certain discretionary power to choose the appropriate measures intended to guarantee the respect the principles of the equal treatment and transparency and to identify, in the light of its specific historical, legal, economic and social considerations, ‘ the situations that are likely to cause breaches of the above-mentioned principles. And it is no secret that in Italy, corruption and organized crime are deep-rooted phenomena. Consequently, the justification can for such rules is to prevent and fight them.
The prohibition of gold plating is therefore not absolute. Still, it is intertwined with other equally relevant interests at the national level: the need for maximum simplification and the efficiency of administrative action cannot be excessive and diminish the protection of ‘higher interests.’ Thus, it seems reasonable to the Councilors of State that the legislator has the faculty to define the ‘exceptional circumstances’ in which such derogations are necessary and hence justified.
The problematic point is that those ‘exceptional circumstances’ that authorize gold-plating are the principal reasons – and not merely secondary or exceptional – that led to the stratification of regulation itself. It does not seem coherent that a legal system first prohibits a practice and then permits it to meet the same goals for which that practice was created. The prevention of corruption and the fight against organized crime are the leading causes of the phenomenon of gold-plating, not the exceptional ones. It is clear that all the additional rules that are not justified by a worthy aim fall within the scope of the prohibition and accordingly are unlawful. Still, for the others – created to protect higher interests, which are the vast majority – the risk is that the general forbiddance is in practice annulled by the possibility to depart from it. From this perspective, the legal framework may appear as a dog chasing its own tail.
Starting from these considerations, many are the possible arising questions. Does the national legislator want to avoid gold-plating even if that may leave some openings to illicit presences? Or are these objectives so worthy as to legitimate any kind of higher level of regulation? And above all, can they also justify additional burdens that have the practical effect of restricting competition? As the Council of State stated9, even if an intrinsic contradiction in the legislation could be sustained, with the primacy of one part of it over the other (since first l. 11/2016 bans gold plating and then subsequently lists itself some guiding criteria that raise the levels of regulation compared to those required by the directives), it is necessary to interpret the various provisions harmoniously and systematically.
The Constitutional Court[11] gave important clarifications on the rationale of the prohibition in 2020, stating that, even though it is not a binding principle of EU law, has the aim of promoting smart legislation and preventing the worsening of technical and administrative burdens, that could prevent small and medium undertakings from participating in the tenders. Its purpose is to protect the competition in the internal market, thereby limiting the discretion of the State at the time of transposition of EU directives. According to the supreme judges, the ban must be interpreted in a pro-competition manner, as it refers only to bureaucratic burdens for their own sake and not to the provisions placed to protect constitutional values considered more important than the value of competitiveness. In that particular judgment, the Court stated that the obligation – not contemplated in the EU law – for the contracting authorities to justify the reasons of the lack of the application of the standard tender procedures5 when opting for in-house providing, is lawful since it is functional to the preservation of constitutionally relevant interests, such as administrative transparency and the protection of competition.
Nonetheless, in recent years, frequent regulatory interventions profoundly changed the original framework of the 2016 Italian Code of Public Contract and made the apparatus unclear, fragmented, and constantly evolving, causing application difficulties for the operators. This situation has inevitable repercussions on the correct functioning of the public procurement market, with a detriment of competition. It may seem odd that only after five years from the entry into force of D.lgs. 50/2016, the discipline is already so chaotic as to make necessary the whole rewriting of it. At least the legislator itself is aware of it, as Draft Law 2330/2021 in art.1 contains the delegation to the government to rationalize, rearrange and simplify the system of public contracts for works, services, and supplies.
Summing up, currently, it can still be seen an ambivalent attitude of the Italian legislator toward over-regulation and a continuous oscillation between the general prohibition, which was iterated over time by different acts, and the frequent introduction of specific rules, setting higher standards than the ones fixed by EU law. Thus, gold-plating remains a big issue in Italy since, as some authors state4, ‘the more a prohibition is repeated and declaimed in legislation, the less it is substantially observed’.
Even if the draft law 2330/2021 represents an important sign of the will to rationalize the system, the arising question is whether this time the legislator will be able not only to create a simpler implementation scheme but also to maintain it over time. Right now, we are unable to say it, as the government is still working on it, but what is certain is that this reform was in first place requested by the EU to allow Italy to benefit from Next Generation EU funds. So, it is sure that if Italy does not simplify its framework, it will not be capable of taking advantage of the generous financial aids provided by the Recovery and Resilience Facility.
An Italian example of gold-plating: can the Member States set limits to subcontracting? Focus on Vitali case, C-63/18
Subcontracting is one of the most controversial matters in the Italian public contract regime. Sufficiently is to say that the different provisions that succeeded one another (in only six years[12]!) are so numerous that led some authors to speak about ‘the never-ending story of subcontracting’ [13]. Amongst the most discussed points lays the interrogative of whether it is possible for Member states to set quantitative limits to the use of subcontracting. In order to better accomplish this inquiry, it is helpful to first answer the following question: What is a subcontract? Why is it a problematic topic?
In the context of public procurement, a subcontract is a contract in which the winner tenderer entrusts the realization of works, supplies, or services to another undertaking. Even if it would be possible to infer that the contract cannot be entirely transferred by the contractor company to third parties under normal circumstances – since this would determine a subjective change of the contract, substantially entailing a circumvention of the EU provisions on public contracts[14] and hence a breach – EU law does not place explicit maximum amounts to subcontracting. Indeed, the EU discipline on subcontracting is mainly contained in article 71 of the PSD, which does not restrict economic operators’ possibility to use it nor directly require many conditions for its execution.
Nonetheless, it can be said that the European legislator has a favorable attitude towards it since it is a key instrument to facilitate access to the public procurement market to all those small and medium enterprises[15] that alone would not have the appropriate means to carry out all the obligations laid down in the tender notice. To this extent, subcontracting is important to achieve the objective of Directive 2014/24/E.U. of facilitating the involvement of SMEs, which may widen the competition. It must be kept in mind that art. 71 expressly provides a significant degree of discretion to the Member States when transposing it, whose activity might also include setting more rigorous systems.
The subcontracting matter was implemented in Italy with some relevant additions from the European model, such as disclosure obligations, stricter requirements for the eligibility as subcontractors, and the forbiddance of subcontracting for anything higher than 30 percent of the total value of the contract, all set out in art. 105 of the Italian Code of Public Contract[16]. The reasons for these deviations from the EU standard can be found in the fact that subcontracting, as well as consortia and temporary business associations, are forms of collaboration that may raise the risk of collusive and corruptive phenomena since they include an element of intermediation[17]. Accordingly, the national legislator has a suspicious attitude towards it and introduced stricter norms, giving rise to many examples of ‘gold-plating’ in this field.
Article 71 PSD gives the Member States the discretionary power to define additional rules to assure the duly performance of contracts involving subcontractors. Are quantitative limitations considered one of the discretionary tools that national legislators can lawfully adopt? As an alternative, are they radical and disproportioned measures that cannot be justified? The EU institutions themselves gave decisive steps to answer these questions, both by the European Court of Justice and the European Commission.
Already in 2016, relating to a Polish case, the ECJ[18] stated the unlawfulness of a tender specification clause that fixed a percentage limit which automatically implied the impossibility to subcontract to a greater extent than that. Such a constraint conflicted with EU law since it was defined in an abstract manner and did not contemplate the chance of taking into consideration the individual circumstances at issue. Even if this judgment was pronounced while it was still in force the older version of the current PSD[19], the decision was relevant since it affirmed the principle – later confirmed specifically in relation to Directive 2014/24/EU. and art. 105 of the Italian Code of Public Contracts – according to which quantitative constraints are not admissible, as they constitute an unjustified restriction of competition.
Indeed, on 24th January 2019, the EU Commission transmitted to Italy a letter of formal notice[20], contesting the incompatibility of art 105 of d.lgs. 50/20165 with the EU directives. As mentioned before, that provision contained the ban on subcontracting more than 30 percent of the total value of the contract and was therefore considered in contrast with EU law since it constituted a general limit, fixed in an abstract manner for all contracts, regardless of the possibility of verifying the actual identity or the abilities of the subcontractors and the essential nature of the tasks in question.
As a response, the Italian government communicated its intention to make changes to the legislation in force in order to adapt it to the European one. However, as can be seen from the subsequent developments of the vicissitude, Italy did not immediately approve appropriate reforms to substantially eliminate the criticality identified by the Commission. As evidence of the inertia of the national legislator, lays the explicit establishment by the European Court of Justice of the illegitimacy of art 105 in the Vitali judgment[21] in September 2019.
In that occurance10, the issue arose from the fact that, during the tender procedure for the award of a works contract for a motorway section near Milan, the contracting authority Austrostade per l’Italia S.p.A.[22] automatically excluded the bidder Vitali S.p.A. on the grounds that it made an offer that included the entrusting – to some subcontractors – of the execution of a part of the contract greater than 30% of its total value. According to Autostrade, this exclusion was caused by the non-compliance of the offer with the national limitation on subcontracting, as defined in art. 105 Code of Public Contracts. Consequently, Vitali challenged the contract award, stating that the exclusion was not admissible under EU law. As TAR Lombardia[23] was not certain on how to solve the case, it referred to the ECJ for a preliminary ruling.
Thus, the ECJ had to assess whether the principles of freedom of establishment (art 49 TFUE) and to provide services (art 56 TFUE) and the principle of proportionality (art. 18 PSD) conflict with the existence of a general and abstract limit on subcontracting to third parties, valid for all contracts, considering that art 71 of Directive 2014/24 does not provide any quantitative restraint, yet leaves open the faculty for the Member States to forecast stricter rules when implementing it in their internal legal systems.
The rationale of the entire decision is that the use of subcontracting is functional to widen the competition as much as possible since it can promote access to public tenders of all those SMEs that alone would not be able to compete for large procurement contracts. In this perspective, limitations on subcontracting are deemed to be restrictions of the fundamental freedoms of the internal market, as for many small and medium undertakings subcontracting is the sole way to get involved in big public contracts. Also, the principle of non-discrimination prevents the national legislator from introducing rules that would give competitive advantages to big companies.
In order to claim the conformity of art 105 with European law, the Italian government argued that the provision was justified in the light of the particular circumstances present in the country, where subcontracting had always been a way for carrying out criminal activities. Therefore, the limitation was aimed at reducing the phenomenon of mafia infiltration in public tenders in such a way as to ensure the principle of transparency and protect the public order, which were classified – by the ECJ itself[24] – as justified reasons that could legitimate higher levels of regulations than the minimum required by UE law.
In its reasoning, although the Court confirms that combating the phenomenon of organized crime infiltrations is a legitimate objective that may justify a restriction of the fundamental rules and principles of the TFEU, it asserts that such a restraint implies a breach of the proportionality principle, as it goes beyond what is necessary to achieve the above-mentioned objective. What seems excessive is the fact that a significant part of the obligations concerned must be performed by the bidder itself, under the penalty of being automatically excluded from the procedure. More in detail, the ECJ specifies that less restrictive measures would be suitable for achieving the aim pursued, like those already provided by Article 71 of Directive 2014/24/E.U., such as disclosure obligations.
Further, the criticality of the percentage limitation is not its exact amount, but the existence itself of a fixed, general, and abstract limit applicable to all contracts. Indeed, the restriction is all more problematic as it applies regardless of the economic sector concerned, the nature of the contract, the identity of the subcontractors, and the fact that the Italian legislation does not foresee the possibility for assessments on a case-by-case basis. It does not seem reasonable to shrink the use of subcontracting when it is possible to verify the identity of the undertakings concerned and when it is ascertained that the provision is not needed to combat criminal infiltration. Hence, it appears possible to hypothesize restrictions on subcontracting that are not general and undifferentiated, as the sentence leaves open the faculty for contracting authorities to narrow it on a case-by-case analysis, where it is possible to demonstrate that such a ban is necessary to fight organized crime.
Even if C-63/18 was evident in banishing general quantitative limitations, for some time, the Italian legislator was reluctant to remove it completely. As evidence, DL 32/2019[25] raised the maximum amount established in art. 1055 to 40% of the total value of the contract. This intervention provoked a further reaction of the EU Commission, which on 24.11.2019 sent to the Italian government a complementary formal notice, stating that such modification would have not been sufficient to make the national legal system complaint, because a constraint on subcontracting of 40%, although less restrictive, is always a general and abstract limitation, not possible according to ECJ case law.
Lately, in 2021, the so-called ‘Simplification Decree’ [26] introduced both a transitory regime – applicable only until 30.10.21 – that raised the bar on subcontracting to 50% and a permanent one – in force from 1.11.2021- that finally abolished any form of undifferentiated quantitative limitation.
As it is clear, although now the Italian legal system is compliant with EU law, the discipline of subcontracting remains complex, and this is the reason why the Parliament gave the delegation to the government [27] to rewrite the Code of Public Contracts, with a specific reference to the need of rationalizing and simplifying the discipline on subcontracting.
[1] See Il divieto di gold-plating nel diritto dei contratti pubblici, Giulio Rivellini, Chapter II, par. 3 for the origin and the taxonomy of the term
[2] Just to give some examples: d.lgs. 76/2020, comprising provisions for the special review process for the controversies in public procurement matter; d.lgs. 33/2013, containing the general discipline on transparency; l. 190/2012, on anti-corruption; d.lgs. 11/159, Code Anti-Mafia. See Manuale di Diritto Amministrativo, Marcello Clarich, Chapter 12
[3] Autorità Nazionale Anticorruzione (ANAC) is the NCA for the prevention of corruption, the vigilance over public procurement, and the administrative transparency, see http://www.ppneurope.org/portal/public/classic/MenuServizio/ENG/Ourmandate for further information on its role
[4] Modernising Public Procurement – The approach of EU Member States, Chapter 7, Mario Comba and Sara Richetto
[5] Laid down by art. 192.2 D.lgs. 50/2016, Italian Code of Public Procurement
[6] Fattori di rischio legali che incentivano la corruzione negli appalti pubblici, Pelino Santoro
[7] Public Sector Directive, Directive 2014/24/U.E.
[8] See Corte dei conti English website, https://www.corteconti.it/Home/EnglishCorner
[9] Advice of the Council of State n. 855/2016, https://www.giustizia-amministrativa.it/-/il-consiglio-di-stato-ha-reso-il-parere-sullo-schema-di-codice-dei-contratti-pubblici
[10] CJUE, C-425/14, Impresa Edilux Srl v. Assessorato ai Beni Culturali e dell’Identità Siciliana
[11] Italian Constitutional Court, judgment n. 100/2020, https://www.cortecostituzionale.it/actionSchedaPronuncia.do?anno=2020&numero=100
[12] Six years from 2016 Italian Public Code of Public Procurement until now, 2021
[13] See podcast Appalti al volo, episode La storia infinita del subappalto, by Legal Team, https://legal-team.it/appalti-al-volo-la-storia-infinita-del-subappalto/
[14] Directive 2014/24/U.E., Public Sector Directive (PSD)
[15] SMEs, short form for small and medium enterprises
[16] D. lgs. 50/2016, the Italian Code of Public Procurement, which is the main act that implements the PSD Directive in the Italian legal system
[17] Fattori di rischio legali che incentivano la corruzione negli appalti pubblici, Pelino Santoro
[18] ECJ C-406/14, Wrocław v Miasto na prawach powiatu
[19] At that time, it was still in force Directive 2004/18/E.C., on the coordination of procedures for the award of public works contracts, public supply contracts, and public service contracts
[20] In the context of the EuropeanCommission infringement procedure n. 2018/2273, Bruxelles, formal notice of 24.01.2019
[21] ECJ C-63/18, Vitali S.p.A. contro Autostrade per l’Italia S.p.A, decided on 26.09.19
[22] Austrade per l’Italia S.p.A is the publicity-owned undertaking that is encharged of the management and the maintenance of the railway network in Italy, see https://www.autostrade.it/it/home for further info on its role
[23] The competent administrative court for Lombardia, the region that also includes the Milan area
[24] CJUE, C-425/14, Impresa Edilux Srl v. Assessorato ai Beni Culturali e dell’Identità Siciliana
[25] Law decree 32/2019, so-called Sblocca cantieri, which means ‘unlock construction sites’
[26] D.L. 77/2021, so called Decreto Semplificazioni
[27] Draft law 2330/2021 contains the delegation to the government in the public procurement matter
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