Author: Sven Mikulic

Reviewers: Associate Professor Marta Andhov and postdoc Olga Giakouminaki

In the C-385/02, COMMISSION V ITALY, the CJEU extensively answered questions concerning the contracting authorities’ discretion when awarding a contract directly. In doing so, the CJEU stipulated conditions to be satisfied when a direct award is chosen due to technical reasons. Furthermore, it showcased the judicial approach to determining whether the state of urgency is actual and grounded or purely illusory. Lastly, this judgment reaffirmed that the Public Works Contracts Directive derogating provisions are to be interpreted strictly.

Relevant Legal Provisions

Facts of the case:

Waterflood systems were being built in the Italian Parma region. In relation to it, the Magistrato per il Po di Parma (the contracting authority, i.e., the local agency of the Ministry of Public Works) approved three work contracts[2] via negotiated procedure without prior publication. Such type of procedure allows contracting authorities to award a contract directly to the economic operator of their choice without opening it for competition, i.e., it is simply a euphemism for direct awards of the contract. As a guardian of the Treaties[3], the Commission found such an award dubious and questioned the Member State’s fulfilment of their obligations arising from the EU Law. More precisely, open competition in public procurement procedures above a certain threshold has historically been found crucial for the proper functioning of the European internal market. Hence, the Commission asked the Italian authorities to provide detailed information as to the procedure following the award.

The Italian authorities reasoned that the scope of the work in question concerned the repetition of similar works entrusted to the economic operator to which they awarded an earlier contract. This was allowed under Article 7(3)(e) of Directive 93/37/EEC – Public Works Contracts Directive, provided that the previous award of the contract was conducted via open or restricted procedure (Article 7(4)). They argued that the negotiated procedure without prior publication was adopted during the three years following the conclusion of the original contract, which was allowed under the Italian transposition of the Public Works Contracts Directive.[4]

The Commission was dissatisfied with such reasoning and initiated infringement proceedings against the Italian authorities before the CJEU. Italian authorities acknowledged that they did nothing to eliminate the effects of any possible Treaty infringements in relation to the three public works contracts to which the Commission referred.[5] Even though other award procedures were cancelled, technical considerations and the risks to public safety made it impossible to annul the award procedures at issue in these proceedings, which is why the Commission proceeded with actions. The case was admissible since the Commission has an obligation to act in the general interest of the Union and act upon possible infringement of the Community rules.[6]  

The Italian authorities used three pleas to convince the Court that the direct award was legal, namely technical reasons, urgency and potential misinterpretation of the Directive.

Firstly, Italian authorities found a legal basis to conduct negotiated procedure without prior contract notice in Article 7(3)(b) Public Works Contracts Directive, which allowed for it when for technical… reasons… the works may only be carried out by a particular contractor. Hence, Italian authorities presented a technical expert’s opinion to legitimize their choice further.[7] There, it was stated that the works on such waterflood systems have to be carried out by a single, qualified contractor and that if they were carried out in lots, it would be necessary to ensure their continuity.[8] That is because completion by individual lots often causes problems arising from the work not being carried out in the same way. Hence difficulties in establishing the respective liability for the damages due in respect of the destruction or deterioration of the works.[9] Therefore, Italian authorities claimed they were just fulfilling their contractual obligation and acting in an efficient manner.

Secondly, the Italian authorities claimed that there was a state of urgency in relation to the completion of the works concerned, which would fall under the scope of Article 7(3)(c), which allows for a negotiated procedure without prior publication when for reasons of extreme urgency brought about by events unforeseen by the contracting authorities, the periods laid down for the normal procedures cannot be adhered to. Nonetheless, from the beginning, it had been anticipated that the works would be carried out in lots as and when funding for the project became available.[10]

Thirdly, the Italian authorities claimed that the Italian version of the Directive allows for a negotiated procedure without prior publication when invoking Article 7(3)(e). The Italian version states that that possibility is only open during the three years following the conclusion of the original contract and that that period runs from the completion of the works under the original contract and not from the time when that contract was awarded.[11] As a consequence, Italian authorities claimed that even if they misinterpreted the Directive, such misinterpretation represents an “excusable error.”

The judgment:

The Court rejected all three Italian pleas, and it did so following the turn of their presentation before it.

Firstly, the CJEU held that the Italian authorities’ call upon Public Works Directive’s Article 7(3) (b) could be, to some degree, sound. In order to make it lawful, the Italian authorities must have proved that technical reasons made it necessary to award the relevant contracts to the contractor entrusted with the original contract.[12] However, the Italian authorities relied only on the technical expert’s opinion provided by their Public Works Authority which was not sufficiently elaborated. Therefore, the CJEU found the basis for infringement in the two of the above-mentioned facts. The Opinion of Advocate General Kokkot, which greatly influenced this judgment, framed it as follows:

…merely deeming it expedient to award a follow-up contract to the contractor who had performed earlier work cannot suffice to justify application of Article 7(3)(b) of Directive 93/37, just as it is not sufficient to invoke technical constraints in formulaic and non-specific terms. A contracting authority must explain in detail why, in the circumstances of the case, technical reasons made it absolutely necessary for the contract to be awarded to the very contractor to whom the previous works had been entrusted, and to none other. In the absence of such a requirement, contracting authorities might abuse Article 7(3)(b) of Directive 93/37, invoking the situation described therein so as to avoid calls for tender, and thus subverting the general purpose of the Directive, which is to promote competition in the field of public procurement.[13]

Secondly, the CJEU rejected the argument of extreme urgency due to contradiction which can be seen in the fact that from the beginning, it was clear that the project would be carried out alongside the funding progress.[14] It is essential to mention that funding progress relates to organizational and internal considerations, which cannot justify alleged urgency as stated in Article 7(3)(c).[15] In addition to this, the original contracts were first awarded in the 1980s, meaning in plain language that the state of urgency “passed a long time ago.“[16]

Thirdly, the CJEU did not find the basis for characterizing Italian authorities’ misinterpretation of the Directive valid and, therefore, excusable. The provision in question already establishes an exception, and it is therefore derogating provision. It allows for the provision to be applied differently in specific circumstances – ipso facto, the period during which this exception from opening a contract to competition applies must be interpreted narrowly. As a consequence, the Italian interpretation is implausible as the period during which the derogation applies must be preferred rather than that which extends it.[17] On a similar note, interpreting the provision in a  manner that negotiated procedure without prior publication is allowed during the three years following the conclusion of the original contract and that that period runs from the completion of the works under the original contract and not instead from the time when that contract was awarded creates futile legal uncertainty as the date on which the contract is entered into is clearly established, while the date of completion of the works may be altered for so long as the contract is being carried out.[18]  Lastly, the CJEU recalled that the excusable error could not be relied on by Italy to justify a failure to comply with the obligations imposed on them under the Directive.

Commentary

This case shows that the EU Public Procurement Directives allow only a minimal level of discretion when alleviating the regular open public procurement procedure. When this discretion is exercised, the grounds for derogations have to be steady (justification has to be sufficiently elaborated, and the burden of proof of exceptional circumstances lies on the contracting authority), and the derogation in itself has to be interpreted strictly. Such an understanding is not novel and has been continuously articulated in numerous CJEU judgements.[19] Therefore the discretion of the choice of the procedure must be within limits set by EU public procurement principles. The intricacy comes from the fact that public procurement principles are a priori normatively setting the stone for open competition, which is absent during negotiated procedures without prior publication of a contract notice. Therefore, contracting authorities must prove that the primary purpose of the procurement cannot or can hardly be achieved without departing from open competition. In doing so, contracting authorities must be transparent and exhaustive in explaining and legitimizing their decision. Such a requirement is laid down to prevent contracting authorities from designing procurement in a way that would artificially narrow the competition. This understanding is codified and elevated to the level of public procurement principles in Article 18(1) of the Directive 2014/24/EU currently in force. Rigorous requirements imposed on contracting authority upon opting for direct award of the contract also open the door for stakeholders’ scrutinization of the contracting authorities’ decisions and ensure that grund public procurement principles of equal treatment, non-discrimination and others are respected.

[1] These articles correspond to Article 32 of Directive 2014/24/EU that is currently in force.  

[2] The value of which was ITL 37 000 million, ITL 21 000 million and ITL 19 500 million, which exceeded the threshold of ECU 5 million laid down in Article 6 of Directive 93/37.

[3] Today’s Article 17 of the Treaty on European Union

[4] C-385/02, para 8.

[5] Opinion of Advocate General Kokott delivered on 29 April 2004. Commission v Italy, Case C-385/02. ECLI:EU:C:2004:276; para 17

[6] Ibid., para 15.

[7] This opinion could also be found in the initial contract notice.

[8] C-385/02, para 16.

[9] Ibid, para 17.

[10] Ibid, para 27.

[11] Ibid, para 31.

[12] Ibid, para 20.

[13] Opinion of Advocate General Kokott delivered on 29 April 2004, para 26.

[14] C-385/02, para 28.

[15] Opinion of Advocate General Kokott delivered on 29 April 2004, para 31.

[16] C-385/02, para 27.

[17] Ibid, para 37.

[18] Ibid, para 38.

[19] E.g., Judgment of the Court of 10 March 1987. Commission v Italian Republic, Case 199/85. ECLI:EU:C:1987:115, para 14; Judgment of the Court of 18 May 1995. Commission  v Italian Republic, C-57/94. ECLI:EU:C:1995:150, para 23 ; Judgment of the Court of 10 April 2003. Commission of the European Communities v Federal Republic of Germany, Joined cases C-20/01 and C-28/01. ECLI:EU:C:2003:220, para 58.