Possibilities of amending or challenging of procurement contracts

Triniti

Long-term, innovative or complex procurement contracts inevitably entail the risk that the procurement contract may need to be amended after it has been signed. The question of what amendments are permitted or not permitted for procurement contracts has been clarified by the judicial practice of the European Court of Justice. The current approach of the procurement law of the European Union is based on the rule that the interested parties must have the opportunity to challenge an amendment of a procurement contract and achieve ending of the legal force of the procurement contract if gross violations have taken place upon signing the procurement contract, e.g. violations of the principle of equal treatment of parties or the principle of transparency of public procurements [1].

Significant amendment of a procurement contract

When is a violation considered to be a gross violation of the principles of public procurement, leading to the opportunity to challenge the procurement contract? According to the practice of the European Court of Justice [2] it is prohibited to make a significant amendment to a procurement contract, fundamentally making up a new procurement. In that case, the procuring entity must conduct a new procurement instead of amending the contract.

A contract amendment can be equalled to a fundamentally new procurement if (i) the contract amendments differ significantly from the initial terms of the procurement contract and (ii) they indicate that the parties of the contract intend to conduct new negotiations about significant terms of the contract.

Regarding the first criterion of prohibiting a contract amendment, the European Court of Justice has provided three examples. Namely, the contract terms have been significantly amended if a) the amendments introduce terms to the contract that were not in the contract during the initial procurement procedure and which would have allowed other tenderers to participate in the procurement procedure or would have allowed deeming some other tender to be the successful tender; or b) the amendments extend the scope of the object of the public procurement significantly to services that where not required initially; or c) the amendments bias the economic balance of the contract to the benefit of the performer of the procurement contract in a manner that was not stated in the initial terms of the contract.

According to the practice of the European Court of Justice, as a rule, a contract has been significantly amended if a new party is introduced into the contract or if the contract price is changed to the loss of the procuring entity. But change of a contract party or the contract price are certainly not the only contract terms, an amendment of which may fundamentally constitute a de facto new procurement.

Lawfulness of amending a procurement contract

In exceptional cases, an amendment of the procurement contract may be justified if the procuring entity has expressly specified in the procurement documents both the possibility of amending the procurement contract and the rules for amending it. For example, in case of changing the contract price to the loss of the procuring entity, the formula for price changes must be specified beforehand in the procurement documents [3].

In addition to the aforementioned cases, an amendment of a procurement contract may also be lawful if the amendment is necessitated by objective circumstances that were impossible for the procuring entity to foresee at the time of signing the contract. Namely, many countries accept a certain extent of redistributing the risks of a procurement contract due to extraordinary and unforeseen circumstances [4].

Upon deciding the permissibility of an amendment it may be important to review the conformity of the amendment to the generally accepted reasonable practices of the relevant field of economic activities. For example, in case of ordinary building contract (i.e. where the building design documentation has been prepared by a third party and the performer of the procurement contract did not participate in design works), it would not be right to make the builder bear the expenses related to possible changes or mistakes of the design, nor those related to the final completion of the project [5].

In conclusion, an analysis of the unlawfulness of an amendment of a procurement contract should be based on the following circumstances: whether the contract amendment is a significant amendment according to the practice of the European Court of Justice, what the reasons of the amendment are, whether there is a right of claim for the amendment, whether the grounds for the amendment were stated in the procurement contract, and whether the amendment is usual in the relevant field [6].

[1] ECJ case C 454/06, Pressetext Nachrichtenagentur GmbH vs. Austria. – ECJ rulings 2008, p I 4401; ECJ case C 503/04, Commission of the European Communities vs. Federal Republic of Germany. – ECJ rulings 2007, p I 6153; M. A. Simovart. Hankelepingu kehtetus Euroopa Ühenduse asutamislepingu aluspõhimõtete rikkumise tõttu. – Juridica 2011/II, pp 91-99.
[2] ECJ case C-454/06.
[3] M. A. Simovart. Riigihankelepingu muutmise vabadus hanke üldpõhimõtete valguses. – Juridica 2010/IV, p 255.
[4] See above (footnote nr 3), p 256.
[5] See above (footnote nr 3), p 256.
[6] See above (footnote nr 3), p 257.

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