Public Procurement - Concessions Directive 2014/23 - Advocate General Campos Sanchéz-Bordona advises the Court of Justice on what may constitute ‘substantial modifications’ to a concession.

In its recent opinion, the Court of Justice’s Advocate General Campos Sanchéz-Bordona sheds light on the interpretation of ‘substantial modifications’ in relation to the renewal of a concession contract and provides guidance on the right of access to remedies for third parties that did not submit an offer in the initial procurement procedure.

Background

On 15 August 2009, the Italian Autonomous Administration of State Monopolies (the ADM, or Contracting Authority) opened a call for tenders for the concession to operate public games of chance known as “national instant lotteries”.

According to the tender specifications, concessions could be awarded to more than one undertaking, up to a maximum of four, to be selected based on an open, competitive and non-discriminatory procedure. The concession was for a period of nine years, renewable only once for another nine-year term, subject to the ADM’s positive appraisal of the concessionaire’s management performance. In the present case, only one company (Lotterie Nazionali), participated in the procedure and was thus awarded the concession on an exclusive basis. Before the expiry of the initial nine-year period, the ADM assessed the performance of the concessionaire in light of the public interest, subsequently it was decided to grant the renewal of the concession for a second nine-year term, in line with the initial tender specifications. The renewal was granted in 2017, meaning that while the initial concession contract pre-dates the entry into force of the 2014 public procurement directives, the renewal does not.

Three companies (Sisal SpA, Stanleybet Malta Ltd and Magellan Robotech Limited) challenged the ADM renewal decision, first before the Italian Regional Administrative Court and then before the Italian Council of State. The Italian Council of State referred the case to the European Court of Justice (the ECJ – joined cases C-721/19 and C-722/19 (the Sisal –Magellan Robotech Case)), questioning whether:

• the renewal of the concession contract for the second nine-year term, without the launch of a new call for tenders, is compatible with the right of freedom to provide services and the freedom of establishment under Articles 49 and 56 of the TFEU, and, if applicable, with Directive 2014/23 on the award of concession contracts;

• operators in the sector who did not participate in the original call for tenders are entitled to object to the renewal and request the launch of a new procurement procedure.

Opinion of the Advocate General

In his opinion in the Sisal –Magellan Robotech Case, Advocate General Campos Sanchéz-Bordona (the AG) provides guidance on: (i) what constitutes a ‘substantial modification’ and (ii) who has standing to challenge the renewal of an existing concession contract.

As this is an opinion, and not a judgment of the ECJ, it is not binding – and the ECJ may come to a different conclusion in its judgment. However, the insights provided by the AG are useful, as questions on what qualifies as a ‘substantial modification’ and who may challenge a renewal are quite common. While we await the ECJ’s judgment in the Sisal – Magellan Robotech Case, we will in the meantime take a closer look at the AG’s opinion.

a. What are “substantial modifications”?

What are substantial modifications that require an existing contract to be subject to a new call for tenders? The AG tackles this question from two angles (i) in relation to the renewal itself and (ii) in relation to modifications to the payment method. These types of questions commonly pop up in renewal situations, as usually parties seize the opportunity of a renewal to see if other modifications to the contract are necessary or desirable. We will consider both angles below, bearing in mind that, as a preliminary consideration, the AG notes that Directive 2014/23 should in principle not apply to the Sisal – Magellan Robotech Case as the original concession for the national instant lottery was awarded in 2010 and Directive 2014/23 does not apply to the award of concessions tendered or awarded before 17 April 2014.

i. Renewal of the concession contract

In relation to the renewal, the Advocate General rightfully points out that the rules regarding “modification of contracts during their term”, as provided in article 43 of Directive 2014/23 (and in articles 72 of Directive 2014/24 and 89 of Directive 2014/25) codify the existing case law of the ECJ on the effect of Articles 49 TFEU and 56 TFEU, concerning freedom of establishment and freedom to provide services, on the rules on public procurement. Consequently, the substantive outcome of applying the 2014 public procurement directives or the case law (ie to situations/agreements where the 2014 public procurement directives do not apply) is essentially the same.

In applying the rules regarding modifications to contracts during their term, the AG considers that the renewal of the contract for an additional nine years does not require a new call for tenders. The AG stressed (several times) that he came to this conclusion, because: (i) the renewal was provided for in the original tender documents and (ii) the requirements provided in the tender documents for such a renewal, (eg that it was ‘subject to a positive appraisal’) were met. In doing so the AG stresses the importance of a consistent and coherent paper trail leading up to these types of decisions, for example the fact that the Contracting Authority had contemplated whether the renewal would be beneficial for the public interest from an economic point of view, was regarded by the AG as a positive element.

ii. Modifications to the payment method

The AG then examines whether the modifications to the payment method constitute a modification to the concession contract that renders a new call for tenders necessary. The total amount to be paid and the fact that it is paid in two instalments remain unchanged, however the instalments are due at a different point in time and the instalment amounts are modified.

The AG assesses whether these changes could ‘tip the financial balance of the concession in favour of the awarding authority’. He stresses that it is up to the national court to make a final decision in this regard and even suggests that a more in-depth financial assessment may be required. In his assessment the combination of retaining (i) the same instrument (ie the contract), (ii) the same object, (iii) the amount of the fee, and (iv) payment in two tranches, does not amount to a substantial modification within the meaning of Directive 2014/23. We think that it is likely that the ECJ will come to the same conclusion, leaving the ultimate assessment to the national court.

b. Who has legal standing to challenge the renewal?

Can parties, such as the appellant companies in the present case, who did not participate in the initial public procurement procedure, bring a claim in relation to the renewal of the concession contract? In our view the AG correctly points out that this is not the same as questioning whether parties who do not submit a tender in the original call for tenders have legal standing to challenge the original award decision.

In the case at hand, the issue is whether parties who do not submit an offer in the original award procedure are entitled to assert their interest in a renewal being subject to a call for tender and, therefore, to bid for the award of the concession, instead of it being renewed without a call for tenders. The AG considers that in order to examine whether modifications to a contract are substantial, these parties must be recognised as having legal standing to challenge a renewal decision