Authored by: Aleksandra Klefas[1]

Reviewed by: associate professor Marta Andhov, senior researcher Michal Kania and postdoc Olga Giakouminaki

Case C-263/19 concerned contract modification and liability for modifications that infringe the rules of EU public procurement law. The CJEU ruled that national authorities have the competence to sanction both parties to a public procurement contract in light of the assessment of their individual contribution to a modification made in breach of EU law.

Relevant EU law provision

Facts of the case

BKK is a public company set up by the Municipality of Budapest (Hungary) that performs public transport tasks in the city. BKK published a tender notice for ticket vending machines’ production, transport, installation and operation. BKK, as the contracting authority, concluded a contract with T-Systems. The total contract value is of 556,1690,409 Hungarian forints (HUF) (approximately EUR 18,500,000). This contract was subsequently modified several times. The most significant modification concerned an additional order to the contractor to supplement the central control system of the ticket vending machines with a software module allowing the purchase of tickets via Internet. It was agreed that the additional remuneration – for the new orders – could not exceed HUF 2,530,195,870 (approximately EUR 8,200,000). The value of the modifications in relation to the value of the original contract was approximately estimated at 44%.

Consequently, the Director of the Public Procurement Authority (the supervisory authority in Hungary), initiated a procedure against the contracting parties for breach of Hungarian law on public contract modification and referred the issue to the Arbitration Panel. The Arbitration Panel concluded that each contract modification should have been subjected to a new public procurement procedure[2]. It has been emphasised that contracting parties must comply with requirements laid down in EU public procurement law regarding modifications of contracts. Thus, if the parties have not complied with the existing law, it must be evaluated that both contractual parties committed an infringement. Eventually, the Arbitration Panel imposed a fine of HUF 80 000 000 (approximately EUR 258 941) on BKK and a fine of HUF 70 000 000 (approximately EUR 226 573) on T-Systems. Following that, T-Systems brought proceedings before the Budapest High Court (hereinafter the referring court), asking to review the finding of the infringement on its part and, consequently, for the reversal of the decision, which imposed a fine on it.

Questions to the CJEU[3]

The referring court submitted three questions for a preliminary ruling.

The first question regarded whether EU law precludes simultaneous liability of the contracting authority and the contractor for breaches of public procurement law when the contract is unlawfully amended during its performance and, as a consequence, a ruling based on national legislation confirming the simultaneous liability of the parties. If the answer to that question is negative, the CJEU was also asked whether EU law precludes the imposition of a fine on contracting parties, based on national legislation, if, in the course of amending the contract during its performance, the procurement rules were disregarded. Finally, if both answers are negative, the third question is whether the amount of the fine for an unlawful amendment of a public procurement contract is to be determined by taking into account only the mere existence of the legal relationship or must the individual conduct of each party.

The judgement[4]

The CJEU has answered the first two questions regarding whether both parties can be held liable for unlawful modifications of the contract and whether a fine can be imposed on both parties. The CJEU held that EU law is to be interpreted as not precluding national legislation which allows an infringement to be attributed to, and a fine imposed on, against both the contracting authority and the successful tenderer in a case where EU procurement rules have been breached when the contract is unlawfully modified during its performance. This conclusion is also applicable if a review procedure was initiated ex officio by a supervisory authority. However, where the national legislation provides for a review procedure, that procedure must comply with EU law, including the general principles of this law, provided that the public contract concerned falls within the rationae materiae scope of the directives on public procurement, either ab initio or following its unlawful modification. On the third question of what should be taken into account when determining the amount of fines, CJEU held that the amount of the fine for the unlawful modification of a public contract must be determined, taking into consideration the specific conduct of each of those parties.

Modification of a public procurement contract

The starting point in the case was the contract modification. The issue of contract modification has been regulated for the first time in the procurement directives, which were adopted in 2014, in the package of 3 directives[5]. The T-Systems case is based on Directive 2014/25/EU, but the content of article 89 of Directive 2014/25/EU is identical to that of article 72 of Directive 2014/24/EU, and therefore doctrinal comments relating to Directive 2014/24/EU will be cited.

Directive 2014/25/EU allows, under specific circumstances, the modification of a public procurement contract without the conduct of a new procedure. Prior to the entry into force of the Directive 2014/24/EU, the fundamental criterion that set the boundaries for the legality of a contract modification was the materiality of the modifications made.[6] The latter arose from the Pressetext case, in which the CJEU held that: amendments to the provisions of a public contract during the currency of the contract constitute a new award of a contract […] when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract[7]. In light of the current Directive 2014/24/EU, a modification is permissible if it fulfils the conditions set out in article 72 of the Directive 2014/24/EU[8]. The limits of the legality of contract modifications in the various cases set out in Directive 2014/24/EU have been the subject of several rulings by the CJEU.[9] In order to decide the case, the CJEU looked at the following legal issues: the harmonisation of the rules on review procedures, the addressees of the provisions of the procurement EU directive 2014/24/EU and 2014/25/EU, and the assessment of the individual conduct and liability of the parties to the public contracts in the context of the principle of proportionality.

Lack of harmonisation of the rules on EU review procedures

An important aspect in the T-Systems case is the availability and scope of the EU rules on review procedures and the rules sanctioning contracting authorities’ behaviour in case of a breach of the public procurement law. The provisions of Directives 89/665 and 92/13 provide general statements focusing on the fact that Member States should ensure that review procedures are available at least to any person having an interest in obtaining a particular contract and who has been, or risks being harmed by an alleged infringement of the substantive procurement rules[10]. These review procedures are intended to prevent arbitrariness by contracting authorities. To achieve the effectiveness of these provisions, Directives 89/665 and 92/13 establish an obligation for Member States to lay down rules providing, in the event of an infringement of certain provisions of those Directives, either for the ineffectiveness of the contract or for alternative sanctions, which may consist in financial penalties for the contracting authority[11]. In the CJEU view, the existing provisions cannot be considered to achieve maximum harmonisation and, therefore, to cover all possible remedies[12]. Thus, the provisions in Directives 89/665 and 92/13 only apply to remedies brought by undertakings which had or have an interest in obtaining the contract in question and which have suffered or are likely to suffer harm as a result of the alleged infringement, these provisions do not prevent the supervisory authorities from initiating an ex officio review procedure or attributing infringements to both parties regarding the modification of a public contract and consequently imposing sanctions on them[13]. The EU directives contain recitals, which are not binding but provide interpretative guidance for judgments. Similarly, in the T-Systems ruling, the CJEU, relying on the content of recitals 19 to 21 of the Directive 2007/66[14], indicated that their content also allowed for such an interpretation. The CJEU adopted a position based on the absence of provisions prohibiting such an interpretation.

The literature points out that control procedures initiated ex officio by the competent monitoring authority, even ending in the imposition of a fine, constitute necessary measures for the implementation of EU law, which fall within the sphere of procedural autonomy of the Member States, and must therefore comply with EU law, in particular Article 47 of the Charter of Fundamental Rights[15]. The CJEU stated that it must be recalled that, when defining the detailed procedural rules governing the remedies intended to protect the rights conferred by EU law on candidates and tenderers harmed by decisions of contracting authorities, the Member States must not compromise the effectiveness of the rights conferred on individuals by EU law, in particular, the right to an effective remedy and a fair hearing enshrined in Article 47 of the Charter[16]. This position follows[17] from the T-Systems case but also from Fransson, Hungeod and Star Storage[18]. In the context of these considerations, the national legislator should reflect on the definition of the relationship between the remedies dedicated to contractors and the powers of the authorities monitoring the public procurement market, especially if they aim at achieving the same objective, such as the ineffectiveness of the contract.[19]

The addressees of the provisions of Directive 2014/25/EU and Directive 2014/24/EU

Another problem that the CJEU resolved with the T-Systems ruling is the issue of the addressee of the rules provided for in Directive 2014/25/EU. According to the CJEU, nothing in the provisions of Directive 2014/25/EU precludes them from applying to the contractor and the contracting authority. As arguments in favour of such an interpretation, CJEU states, firstly, that the personal, as well as the material scope set out in Article 1(2) of Directive 2014/25/EU and the definition of ‘contracting authority’ specified in recital 12 of that Directive, do not preclude contractors to whom a public contract has been awarded from falling within the Directive’s personal scope. This is because the phrase ‘‘economic operators’ in that provision refers to the entity to which the public contract has been awarded, which legitimises the inclusion of economic operators as addressees of the rules formulated in Directive 2014/25[20].

In addition, the CJEU considers that the same applies to Article 89 of Directive 2014/25. Article 89 deals with the modification of contracts. Paragraphs 1 and 2 provide a list of situations in which an ongoing contract may be modified by the contracting parties. Article 89(5) requires a new procurement procedure to be conducted for modifications to the terms of a public contract other than those provided for in paragraphs 1 and 2, i.e. in the case of changes of substance differing materially from the terms of the original contract, which may therefore indicate a willingness on the part of the parties to renegotiate the basic arrangements of that contract.[21] The CJEU proceeds to a literal interpretation and underlines that the provision refers to parties, so both the contractor and the contracting authority, who modify the contract without conducting a new procurement procedure, regardless of whether this modification triggers the publication of a notice in the Official Journal of the European Union[22].

As a preliminary reference, the ruling only answered the question and did not provide for guidelines for national authorities to similar cases regarding material modifications without a new procurement procedure. Therefore, the CJEU considered that, in that situation, the legislation cannot prevent sanctions from being imposed on both contractual parties during its performance. This applies if a review procedure has been initiated ex officio by the supervisory authority[23]. Nonetheless, this kind of review procedure must comply with EU law, including general principles, if the value of a contract exceeds the EU thresholds, either from the beginning or following an unlawful modification. The issue of the compatibility of the national review procedures initiated ex officio, and their compliance with EU law has a non-negligible impact on the assessment of the individual behaviour of the breaching parties to the procurement contract.

Assessment of the individual behaviour of the parties in breach of contract

The CJEU further stated that the EU rules do not preclude the imposition of sanctions simultaneously against both parties to a public procurement contract if, as a result of an ex officio review procedure initiated by the review body, infringements relating to the modification of an ongoing public procurement contract are found. The only condition is the availability of such a procedure by national law and, consequently, the conformity of the latter to EU primary law. Based on this statement, a further question arises as to how to evaluate the infringements that will result in the imposition of a fine of a certain amount. The general EU law principle applicable in this situation is the principle of proportionality, according to which the rules laid down by the Member States when transposing the EU public procurement directives should not go beyond what is necessary to achieve the objectives set out in those directives[24].

Accordingly, in determining the amount of fine, the referring court should not confine itself to finding that the amendment of the contract requires the agreement of both parties but should assess the actions of each party separately during the period in which they intended to amend that contract. As a guideline in assessing the contractor’s action, the CJEU pointed out that it may be relevant whether the contractor took the initiative to amend the suggested contract or perhaps requested the contracting authority not to issue a new procedure, resulting in a breach of EU public procurement law. However, the amount of the fine imposed on the contractor cannot be dependent on the fact that the contracting authority did not carry out such a procedure, as the decision is the exclusive competence of the contracting authority[25]. The contractor should only be held responsible for the contractor’s initiative not to proceed with the procurement process to meet the needs necessitating the modification of that contract[26].

[1] Visiting Researcher at the PURPLE project at the Center for Private Governance, Faculty of Law, University of Copenhagen. Visit funded by the PROM Programme, which is co-financed by the European Social Fund under the Operational Programme Knowledge Education Development, a non-competitive project entitled. “International scholarship exchange for doctoral students and academic staff”, implemented under the Measure specified in the project application no. POWR.03.03.00-00-PN13/18.

[2] This conclusion is based on article 141(8) of the Közbeszerzésekről szóló 2015. évi CXLIII. törvény (Law No CXLIII on public procurement).

[3]  The questions have been paraphrased. For the original wording of the questions, see: C-263-19 T-Systems, para. 39.

[4] The judgement has been paraphrased. For the original wording of judgement, see: T-Systems, para 67, 75.

[5] Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession contracts; Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC; Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal service sectors and repealing Directive 2004/17/EC.

[6] Bogdanowicz P., Commentary to Article 72 ‘Modifications of contracts during their term’, in R. Caranta and A. Sanchez-Graells, Commentary of the Public Procurement Directive (2014/24/EU), Edward Elgar Publishing 2021, para. 72.04.

[7] C-454/06, Pressetext, ECLI:EU:C:2008:351, para. 34.

[8] Article 72 of Directive 2014/24/EU; article 89 in Directive of 2014/25/EU.

[9] C-496/99 P, Commission v CAS Succhi di Frutta, ECLI:EU:C:2004:236; C-549/14, Finn Frogne, ECLI:EU:C:2016:634; C-91/08, Wall, ECLI: EU:C:2010:182; C-337/98, Commission v France, ECLI:EU:C:2000:543.

[10] C-236/19, T-Systems case, para. 50; Hungeod case C-496/18 and C-497/18, para. 71.

[11] Art. 2e of the Directive 89/665; art. 2e of the Directive 92/13; T-Systems, para. 52.

[12] T-Systems, para. 53.

[13] T-Systems, para. 54-55.

[14] Recitals 19 to 21 deal with the principle of the ineffectiveness of the contract in case of other infringements of formal requirements of formal requirements. According to recital 19, Member States might consider it inadequate, and might provide for alternative penalties, their scope, and rules of application. The Directive should not exclude the application of stricter sanctions in accordance with national law. Recital 21 also refers to the consequences of declaring a contract ineffective.

[15] Sołtysińska A., Procedury odwoławcze w europejskim prawie zamówień publicznych, Wolters Kluwer 2021, pp. 74, 287.

[16] T-Systems, para. 43.

[17] Sołtysińska A., Procedury odwoławcze…, p. 74.

[18] C-496/18 and C-497/18, Hungeod, ECLI:EU:C:2020:240; C-617/10, Åklagaren vs. Hans Åkerberg Fransson, ECLI:EU:C:2013:105; C‑439/14 and  C‑488/14, EU:C:2016:688, para. 43–45.

[19] Sołtysińka A, Procedury odwoławcze… p. 75.

[20] T-Systems, para. 55-58.

[21] Pressetext, C-454/06, EU: C:2008:351, para. 34; Commission v. Germany, C-160/08, EU:C:2010:230, para. 99.

[22] T-Systems, para. 60.

[23] T-Systems, para. 62-64.

[24] Lloyd’s of London, C-144/17, EU:C:2018:78, para 32; Tim, C-395/18, EU:C:2020:58, para. 45.

[25] T-Systems, para. 73-74.

[26] T- Systems, para 73.