Interview number 23 in the Public Procurement Podcast series from Pedro Telles features Mari Ann Simovart from the University of Tartu in Estonia. For her PhD, Mari Ann looked into Article 72 of Directive 2014/24/EU and limitations to contract modifications.
This may sound a technical topic, but in my experience it is one of the legal issues that most often arises in day-to-day management of public contracts. Except for the simplest contracts, changes are always required between the tender and agreement of the initial contract, and then the actual delivery period for the goods, services or works. So knowing what is legally allowable and what is not is something that most senior procurement people in the public sector need to know. They will certainly be asked the question by contract managers and executives in their organisation quite regularly.
The Podcast is very good and actually more interesting to the casual public procurement professional than some of the others that were more legally focused. Dr Telles contributes a lot himself to this discussion, talking about his experiences as a lawyer and seeing contractors bidding low and then looking to make their money on changes and variations – something most practitioners again will have seen.
Under the new regulations, the Commission has tried to define more precisely what contract modifications are allowed and what are not. As Mari Ann Simovart says:
“Firstly, there are these cases where the directive says: these modifications are acceptable, you can make them without a new award procedure. These are the cases that we consider to be not substantial, or not material. Then if the modification that the parties want to make, or have made in case of a court dispute, if the modification does not correspond to any of these acceptable modifications, we have to look if it is maybe among those that are prohibited in Article 72, Section 4, I believe. And then there is the third type of cases that do not correspond to either of these types precisely and these cases we have to evaluate”.
So it is a positive step that we have more clarity now on what is allowable, although there will always be these grey areas. But Simovart raises very important issues about compliance and enforcement. The regime for oversight and enforcement of the directives generally is really designed to work for the pre-contract phase, because it is usually unhappy bidders who complain and raise the issues. But that doesn’t work when it comes to issues once the contract is up and running.
“I don’t think that the competitors generally know what is going on in contracting relations between the competitor and the contracting authority. So there is not so big a chance that they will learn of the contract being modified at all or, even if they learn that, that it has been modified in a way that it shouldn’t be”.
Who has the incentive to challenge a contract modification, Telles asks? The answer is – nobody in most cases. Competitors don’t know and don’t have much incentive anyway, and the contract probably won’t be awarded to them even if the challenge is upheld, and private citizens have little interest or ability to challenge. The contracting authority might register a change if they know it is within the directives, but are most unlikely to do that if there is any fear that it is not. So that is a problem that has not been solved.
However, Simovart points out that the new directive will make life easier for “law-abiding contracting authorities who want to make legal changes only”. They don’t have to worry or evaluate the changes so much by themselves, so that is “a good thing”.
In terms of her future research, she is moving on from Article 72 to Article 73.
“Article 73 claims that contracting authorities have the right to terminate public contracts in several cases, including the case when an unlawful contract modification has been made. To me, that right contains several fundamental risks, yes”?
But if you want to know what those risks are, you will have to listen to the podcast or read the transcript here!