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EPPPL 04|2013 279Material Amendments of Public Contracts during their Terms

Material Amendments of Public Contractsduring their Terms: From Violations ofCompetition to Symptoms of Corruption

Gabriella M. Racca and Roberto Cavallo Perin*

The problems of incorrect contract execution are widespread in any procurement system.Often the quality promised in the contract signed after the award procedure is not deliveredduring the execution phase and the procuring entities accept a different and worse-than-promised performance. The infringement of the contract can lead to a material amendmentrelated to a modification of the economic balance of the initial contract. Such situation canbe due to the incompetence of the procuring officials or can be considered a symptom oflack of integrity. Adequate efforts in favour of competition, transparency and objective cri-teria in decision-making as fundamental principles and instruments to prevent corruptionare necessary throughout the entire cycle of the public procurement process, from the be-ginning of the procedure to the conclusion of the performance phase. Otherwise, after theaward, the procuring entity may accept a different and less costly performance in violationof free competition and equal treatment principle. The new Directive Proposal on Public pro-curement addresses such issues and for the first time regulates the execution phase, by iden-tifying and thus limiting the amendments admitted.

I. The Benefits of Free Competition inPublic Procurement

Efficiency and integrity should be the primary goalsin every procurement system.1 Nonetheless, con-tracting authorities often consider their purchasing

power as an instrument to achieve domestic policygoals such as favouring local suppliers.2A closer lookat national procurementmarkets reveals that govern-ments often keep their domesticmarket closed, with-out clear and specific procurement strategies.3 Onlyrecently, because of increasingly stringent fiscal poli-

* Gabriella M. Racca is Full Professor of Administrative law in theManagement Department of the University of Turin ([email protected]) and Roberto Cavallo Perin is Full Professor of Admin-istrative law in the Law Department of the University of Turin([email protected]).

1 P. Trepte, Regulating Procurement. Understanding the Ends andMeans of Public Procurement Regulation, Oxford UniversityPress, 2004; Id., Transparency and Accountability as Tools forPromoting Integrity and Preventing Corruption in Procurement:Possibilities and Limitations, 2005, available athttps://bvc.cgu.gov.br/bitstream/123456789/transparen-cy_and_accountability_tools.pdf. A. Sánchez Graells, PublicProcurement and the EU Competition Rules, Oxford, 2011,pp. 97 et seq.

2 World Trade organization, Government Procurement,www.wto.org/english/tratop_e/gproc_e/gproc_e.htm. For a longtime public procurement has been effectively excluded from theapplication of the main multilateral trade rules under the GATTand the WTO, because the governments wanted to pursuedomestic aim, particularly to favor domestic suppliers. Over theyears, GATT and WTO Members have therefore been seekingways to address the issue of government procurement in themultilateral trading system and finally the multilateral Agree-

ment on Government Procurement (GPA) entered in force in1996. S. Arrowsmith, Government Procurement in the WTO,2003, ch. 1 and ch. 3; R. Anderson, ‘Current Developments onPublic Procurement in the WTO’, in PPLR, NA 2006,pp. 167–178; R. Anderson, ‘Renewing the WTO Agreement onGovernment Procurement: Progress to Date and Ongoing Nego-tiations’, in PPLR, 2007, p. 255. See also: R. Anderson, ‘Cover-age of the GPA: gaps and challenges for the future’, speech onPublic Procurement: Global Revolution V (Copenhagen, 8–9September 2010); R. Anderson and S. Arrowsmith, The WTORegime on Government Procurement: Challenge and Reform,Cambridge, 2011; P. Wang, R. Cavallo Perin and D. Casalini,Adressing ‘Purchasing Arrangements between Public SectorEntities – What WTO can learn from EU’s experience?’, in R.Anderson and S. Arrowsmith (eds.) The WTO Regime on Gov-ernment Procurement: Challenge and Reform, Cambridge, 2011,p. 252.

3 On fragmentation of procuring entities and the lack of specificstrategies in procurement policies: G. M. Racca, ‘Professionalbuying organizations, sustainability and competition in publicprocurement performance’, 4th International Public ProcurementConference (Seoul, 26–28 August 2010), available at www.ip-pa.org/IPPC4/Proceedings/18TransparencyAccountabilityinPro-curement/Paper18-13.pdf.

EPPPL 04|2013280 Material Amendments of Public Contracts during their Terms

cies, governments seem to have realized the urgencyto deliver a growing flow of services to citizens inspite of decreasing financial resources,4 and thatcompetitionmay be instrumental to reconcilemeansand ends. Favouring inefficient national suppliers inpublic procurement and securing State aids for themis no longer sufficient to keep them on the marketand it is too costly for public finance.5 Needless tosay, competition should be favoured and strength-ened to select the most efficient and innovativefirms.6 Open, transparent and non-discriminatoryprocurement becomes the best tool to achieve “valueformoney” as it spurs, when appropriately designed,the right degree of competition among suppli-ers,7 generating benefits for both domestic and for-eign stakeholders.8

Although competition enhances economic devel-opment and a fair quality-price ratio for consumers,the main aim of EU rules is to safeguard the rightsof undertakings actively involved in competitiveprocesses. This implies that the procuring entitiesmust guarantee fair treatment to undertakings par-ticipating in public award procedures.9 Competi-tion is considered as a principle that should definethe relations among undertakings providing public

utilities. While it is commonly accepted that com-petition must be assured among suppliers beyondmere access to the market,10 the idea that the re-spect of the competition principle ought to be as-sured also during the performance of a public con-tract of works, goods or services has not yet beenconsidered. If value for money is not to remain anabstract concept, the contractor’s actual perfor-mance should coincide with what was promised atthe competitive stage. However, as confirmed in thedraft of the newDirective on which the Council andParliament agreed,11 the EU rules concern mainlythe awarding phase of the contracts, rather than itsexecution.With the implementation of the Remedies Direc-

tives,12 the EU aims at facilitating the correction ofthe award procedure before the signing of the con-tract, in order to award the execution of the contractto the highest-ranking bidder, instead of awarding itto any bidder chosen unfairly or with a faulty appli-cation of the award criteria. The Directive makes itpossible for procuring entities to address unexpect-ed problems without having to pay for both the exe-cution by the illegitimate winner and the award ofdamages to another undertaking which was entitled

4 EU Commission, Green Paper on the modernisation of EU publicprocurement policy: Towards a more efficient European Procure-ment Market – COM(2011) 15 final (hereafter ‘ModernisationGreen paper’), p. 27.

5 See generally: G. M. Racca, ‘Collaborative Procurement andContract Performance in the Italian Healthcare Sector: Illustrationof a Common Problem in European Procurement’, in PPLR, 2010,p. 119; G. M. Racca, ‘Le modalità organizzative e le strutturecontrattuali delle aziende sanitarie’, in A. Pioggia, M. Dugato, G.M. Racca and S. Civitarese Matteucci (Eds.), Oltrel’aziendalizzazione del servizio sanitario. Un primo bilancio,Milano, 2008, p. 274.

6 In the case of SMEs see: EU Commission, “Think Small First” A“Small Business Act” for Europe – COM(2008)394 final, 28 June2008, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0394:FIN:en:PDF. R. Anderson and W. Kovacic,‘Competition policy and international trade liberalisation: essen-tial complements to ensure good performance in public procure-ment markets’, in PPLR, 2009, p. 67.

7 S. Cassese, ‘Le droit tout puissant et unique de la société. Para-dossi del diritto amministrativo’, in Riv. Trim. Dir. Pubbl. 2009,p. 893, now also in S. Cassese, Il diritto amministrativo: storia eprospettive, 2010, p. 539. See generally: S. L. Schooner et al.,Public Procurement Systems: Unpacking Stakeholder Aspirationsand Expectations, George Washington University Law School –Public Law and legal theory – Legal studies research paperno. 1133234 (2008), available at http://papers.ssrn.com/sol3/pa-pers.cfm?abstract _id=1133234.

8 S. Arrowsmith and C. Nicholas, ‘Regulation of Framework agree-ments/Task order contracts – Regulating framework agreementsunder the UNCITRAL Model Law’, in S. Arrowsmith (Ed.) PublicProcurement Regulation in the 21st Century: Reform of the UNCI-TRAL Model Law on Procurement, 2009, p. 95.

9 C. H. Bovis, EU Public Procurement Law, 2007, pp. 72 et seq.;S. L. Schooner, Desiderata: objectives for a system of governmentcontract law, in PPLR 2002, p. 107, in that article, Schooneroutlined nine objectives, or desiderata, of public procurementsystems: competition, integrity, transparency, efficiency, customersatisfaction, best value, wealth distribution, risk avoidance, anduniformity. In order to achieve the secondary goals see: S. Arrow-smith and P. Kunzlik, Social and Environmental Policies in ECProcurement Law: New Directives and New Directions, Cam-bridge, 2009. For ensuring sound procedures see: ModernisationGreen paper, para. 5, p. 48 et seq.

10 G. Napolitano and M. Abrescia, Analisi economica del dirittopubblico, Bologna, 2009, p. 95.

11 Council of EU, Proposal for a Directive of the European Parlia-ment and of the Council on public procurement (Classical Direc-tive) (First reading) – Approval of the final compromise text, 12July 2013 (hereafter ‘Compromise draft’).

12 Directive 2007/66/EC of the European Parliament and of the Coun-cil of 11 December 2007 (amending Council Directives 89/665/EECand 92/13/EEC with regard to improving the effectiveness of reviewprocedures concerning the award of public contracts), OJ L 335,implemented by Legislative Decree No. 53, 20 March 2010 andLegislative Decree No. 104 of 2010. See: C. Nicholas, Remedies forbreaches of procurement rules and the UNCITRAL model law inprocurement, PPLR 2009, NA151. For an EU Directives analysis,see: J. Golding and P. Henty, ‘The new remedies directive of the EC:standstill and ineffectivness’, in PPLR 2008, p. 146. For an interest-ing French perspective: J. Arnould, ‘Ineffectivness of contractsunder the new Remedies Directive in the UK and in the EC’, speechon Public Procurement: Global Revolution IV (Copenhagen, 8September 2010). For a UK law perspective: P. Henty, ‘U.K.: publicprocurement remedies directive – an update on the implementationprocess’, in PPLR 2010 NA17, and P. Henty, ‘Remedies directiveimplemented into UK law’, in PPLR 2010, NA115.


to win.13 It is to that effect that the European Reme-diesDirective introduceda standstill periodof at least10 days between the award and the signing of thecontract, so as to prevent the consequences of an un-lawful award from becoming irreversible. After thesigning of the contract, any correction of infringe-ments that occurred during the award procedureand/or of any unlawful award becomes more diffi-cult, so that awarding damages often remains the on-ly available remedy.

II. Compliance with the CompetitionPrinciple throughout the PublicProcurement Process

Safeguarding competition in the award procedure isa compulsory requirement for any fair and transpar-ent procurement system. In the EU, once the contractnotice has set a call for tenders, any interested bid-der can submit a binding offer, in accordance withthe requirements set in the contract documents. Theoffer is binding for a limited time14 and cannot bewithdrawn. Under the current Directives, the choiceof the winning bidder has to be carried out in twostages.15 The contracting authority verifies the re-quirements of candidates and excludes the tenderersthat do not comply with the qualitative selection cri-teria.16 In the EU, the contracting entities normallypre-qualify every participant. At a later stage, in ap-plication of the award criteria, the procuring entitieswill accept the best offer, and will have to withdraw

from the negotiation with the other competing bid-ders.17 Such withdrawal is fair insomuch as it com-plies with the award criteria. If losing bidders findany fault or contradiction, they are entitled to fileclaims and complaints and ask the procuring entityto review its final decision.18

The plurilateral Agreement on Government Pro-curement (GPA) alsomakes a distinctionbetween theselection and the contract award decision. However,this distinction is less strict than in the ECJ case lawquoted above.19 The EU Commission, in the GreenPaper on themodernization of EU public procurementpolicy, reconsidered the organisation and the se-quence of the examination of selection and awardcriteria within the procedural framework with theaim of reducing the administrative burdens.20 In ac-cordance with the EU principle of equal treatmentand non-discrimination, the EU Directive Propos-al21 shall allow contracting authorities, only in openprocedures, to choose whether to examine tendersbefore verifying the absence of grounds for exclusionand fulfilment of the selection criteria.As is well known, the past performance of eco-

nomic operators can be evaluated as a tenderer re-quirement, but not within the award criteria. Themain risk associated with evaluating past perfor-mance is a disadvantage of newcomers, who mighthowever be optimal contractors. In the EU, theGreen Paper suggested to take into account past per-formance highlighting the problems of safeguard-ing the equal treatment principle of tenderers, butit confirmed its exclusion from the award crite-

13 Directive 2007/66/EC, Art. 1, Amendments to Directive89/665/EEC, Article 2, Requirements for review procedures “1.Member States shall ensure that the measures taken concerningthe review procedures specified in Article 1 include provision forpowers to: (a) take, at the earliest opportunity and by way ofinterlocutory procedures, interim measures with the aim of cor-recting the alleged infringement or preventing further damage tothe interests concerned, including measures to suspend or toensure the suspension of the procedure for the award of a publiccontract or the implementation of any decision taken by thecontracting authority; (b) either set aside or ensure the settingaside of decisions taken unlawfully, including the removal ofdiscriminatory technical, economic or financial specifications inthe invitation to tender, the contract documents or in any otherdocument relating to the contract award procedure; (c) awarddamages to persons harmed by an infringement”. For the imple-mentation of EU directive 2007/11 see S. Treumer and F. Lichère(eds.), Enforcement of EU Public Procurement Rules, Copen-hagen, 2011.

14 180 days in the Italian case Art. 11(6) of Legislative DecreeNo 163 of 12 April 2006, see also Art. 75(5), concerning theguarantees in support of supply.

15 ECJ, 20 September 1988, Beentjes in Case C-31/87, paras. 15–19;ECJ, 24 January 2008, Lianakis, in Case C-532/06, para. 30; and

12 November 2009, Commission v Greece, in Case C-199/07,paras. 51 to 55.

16 This is done on the basis of exclusion criteria and criteria ofeconomic and financial standing, professional and technicalknowledge and ability.

17 For the awarding criteria see: Art. 53 of Directive 2004/18/EC. ForItalian public contract code see: Italian Legislative DecreeNo 163 of 12 April 2006, Art. 81, 82 and 83.

18 Directive 2007/66/EC, recital No 17, “A review procedure shouldbe available at least to any person having or having had aninterest in obtaining a particular contract and who has been orrisks being harmed by an alleged infringement”. See generally:Remedies Mechanisms, available at http://europa.eu/legisla-tion_summaries/internal_market/businesses/public_procure-ment/l22006b_en.htm.

19 The GPA does not explicitly prohibit the taking into account, atthe award stage, of criteria which are not linked to the goods andservices offered, and hence allows bidder-related criteria to betaken into account.

20 Modernisation Green paper, pp. 16–17.

21 Compromise draft, Art. 54(2).


ria.22 The current EU Directives provide that con-tracting authorities are entitled to establish mini-mum standards of technical or professional abilitywhich must be met by potential bidders for publiccontracts with the aim of ensuring consistentlygood delivery of public services and value for mon-ey. In particular EU Directive 2004/18 states the ex-clusion from the award procedure of an economicoperator that “has been guilty of grave profession-al misconduct proven by any means which the con-tracting authorities can demonstrate”23 or that “hasnot fulfilled obligations relating to the payment ofsocial security contributions in accordancewith thelegal provisions of the country in which he is estab-lished or with those of the country of the contract-ing authority”.24 The National implementationmayprovide the termination of the contract in case of abreach of its terms. Nonetheless, “a consistent ap-proach to the consideration of the past performanceof tenderers to ascertain whether they can confi-dently be relied on to perform the obligations un-der the contract to be awarded” has not always beenadopted in the past. The UK Government, accord-ing to the UK policy on Buying and managing gov-ernment goods and services more efficiently and ef-fectively25 recently published a note suggesting totake into account the bidders’ past performance inpublic procurement award procedures, providing ahigher level of reputation to be admitted in the se-lection phase.26 This note applies to the procuringof goods and services “with a total anticipated con-tract value of £ 20 million” (also for call-off agree-ments) but the same document allows a generalizedapplication with regards to “contracting authoritiesprocuring goods, services and works outside thescope” of the note and admits the implementationof the principles set out with suitable modifica-tions”. The aim is to assure the correct performanceand a greater protection for the taxpayers and re-cipients of the services provided. The UK “Depart-mental Bodies” should “include (in the OJEU No-tice) minimum standards for reliability based onpast performance”. Departmental Bodies should askfor specified information (including certificates ofperformance) about past performance in the last 3years. They should make sure: “a) that the principalcontracts of those who would provide the goodsand/or services have been satisfactorily performedin accordance with their terms; or b) where thereis evidence that this has not occurred in any case,

that the reasons for any such failure will not recurif that bidder were to be awarded the relevant con-tract”.Such provisions require the economic operators

to demonstrate a “quid pluris” concerning their pro-fessional skills. The evaluation required from thetenderers concerns “a list comprising a statementof the principal goods sold and/or services provid-ed by the bidder in the previous 3 years”. Each ten-derer should attempt to obtain Certificates fromthose to whom the goods and/or services on the listwere provided. If any such Certificate cannot be ob-tained, the certificationmay be provided by the sup-plier itself. Thus, the evaluation of the past perfor-mance is related to the content of theCertificate andits discretionary evaluation during the award pro-cedure. A further problem might arise for the eco-nomic operators wishing to enter for the first timein the market and who can not provide the requiredcertificates. Additional concerns may relate to theparticipation in consortia of economic operators (es-pecially SME) that “may wish to rely on the re-sources of other entities (including members of theconsortium or other group entities) when discharg-ing their obligations under the contract to be award-ed; or that they may wish to sub-contract perfor-mance of parts of the contract”. In such case procur-ing entities “should enable bidders (including con-sortia or other group entities) to satisfy the mini-mum standards for reliability based on past perfor-mance by reference to the past performance of suchother entities”. The choice to raise the qualificationrequirements of the tenderers, respecting the pro-portionality principle, might be a smart strategy toensure better execution and the delivery of thepromised quality by the winning undertaking. It iscrucial that thewinning economic operator performcorrectly what was promised in his tender, other-

22 Modernisation Green paper, p. 18.

23 Directive 2004/18/EC Art. 45(2)(d).

24 Directive 2004/18/EC Art. 45(2)(e).

25 UK Government, Buying and managing government goods andservices more efficiently and effectively, published 20 February2013, available at www.gov.uk/government/policies/buying-and-managing-government-goods-and-services-more-efficiently-and-ef-fectively.

26 UK Government – Procurement Policy Note, Taking Account ofBidders’ Past Performance, 8 November 2012, available atwww.gov.uk/government/uploads/system/uploads/attach-ment_data/file/80220/PPN_Taking_Account_of_Bid-ders_Past_Performance_08-11-12_1.pdf.


wise the competition principle would be under-mined.27

III. The Consequences of MaterialAmendments during the ExecutionPhase of Public Procurement

In order to safeguard the principles of non-discrimi-nation, transparency and competition, the EuropeanCourt of Justice (ECJ) limited thepossibility to changethe terms of the procurement after the award.28 TheECJ maintained that material amendments are thosemodifications beyond the scope of the awarded con-tract that bidders could not have reasonably antici-pated at the time of the original award when theyjoined the competition. Such material amendmentsto the subject matter of the contract might have ledto a different participation (different set of bidders)and, possibly, to a different award (differentwinningbidder).29According toECJ case law,material amend-ments to a contract during its currency are equiva-lent to the illegal direct award of a public contract,without a contract notice. This allows the ECJ to ex-amine the performance of a public procurementprocess as amended (whichwould otherwise fall out-

side the EU competence) and to declare it ineffectivewith the aim “to restore competition and to createnew business opportunities for those economic op-erators which have been deprived illegally of theiropportunity to compete”.30

The EU Court of Justice thus preserves the rightof any economic operator – andmainly of the unsuc-cessful tenderers in the specific award procedure –to fair competition in the selection phase and conse-quently during the execution. This principle of faircompetition is considered as violated in case of a sig-nificant (material) unforeseeable amendment to thecontract conditions during the execution phase.

1. The Authorized Amendments to aPublic Contract.

Following such ECJ case law, the reform of the cur-rent procurement Directives raised the question ofthe limits to the material amendments that can beadmitted during the execution of the contract. 31

TheProposaldescribes fivedifferentcircumstancesunder which the contracts or framework agreementsmay be modified without a new award procedure.

a. Precise and Unequivocal Review Clauses

As provided for in Article 72(1)(a) of the final com-promise text, a new award procedure is not requiredwhere the modifications “have been provided for inthe initial procurement documents in clear, preciseand unequivocal review clauses”. Procuring entitieshave to clarify “precise andunequivocal review claus-es” in the procurement documents. The procurementdocuments “may include price revision clauses or op-tions”.32 Such clauses “shall state the scope and na-ture of possible modifications or options as well asthe conditions under which they may be used.” Anextension of the contract as a consequence of theachievement of objectively evaluated high quality ofthe performance, whenever provided, might be pos-sible. The Directive admits suchmodifications of theoriginal contract “irrespective of their monetary val-ue”. Nonetheless, the contract documents will haveto foresee the maximum value of the contract in or-der to permit to the economic operators to know inadvance the possible value of the contract. The dis-cretionary power tomodify the value and conditionsof the contract is limited33 by the exclusion of the al-

27 G. M. Racca, R. Cavallo Perin, G. L. Albano, ‘Competition in theexecution phase of public procurement’, in Public Contract LawJournal, 2011, Vol. 41, n. 1, p. 105.

28 ECJ, 19 June 2008, Pressetext Nachrichtenagentur GmbH vRepublik Österreich in Case C-454/06, ECR I-4401.

29 It was used the “counterfactual argument” that is normally usedin antitrust cases. ECJ, Pressetext Nachrichtenagentur GmbH vRepublik Österreich, cit. See also ECJ, 29 April 2004, Commissionv CAS Succhi di frutta, in Case C-496/99 P; ECJ, 29 April 2010,Commission v Federal Republic of Germany in Case C-160/08;ECJ, 13 April 2010, Wall AG v Stadt Frankfurt am Main in Case C-91/08; ECJ, 25 March 2010, Helmut Muller in Case C-451/08;ECJ, 4 June 2009, Commission v Greece in Case C-250/07; ECJ,15 October 2009, Acoset in Case C-196/08.

30 Directive 2007/66/EC, recital No. 14.

31 Compromise draft, Art. 72.

32 Compromise draft, Art. 72(1)(a) also states that “Such clausesshall state the scope and nature of possible modifications oroptions as well as the conditions under which they may be used”.

33 ECJ 29 April 2004, EC Commission v CAS Succhi di Frutta SpA inCase C-496/99 P, para. 118. The ECJ state that “the contractingauthority wish, for specific reasons, to be able to amend someconditions of the invitation to tender, after the successful tendererhas been selected, it is required expressly to provide for thatpossibility, as well as for the relevant detailed rules, in the noticeof invitation to tender which has been drawn up by the authorityitself and defines the framework within which the procedure mustbe carried out, so that all the undertakings interested in takingpart in the procurement procedure are aware of that possibilityfrom the outset and are therefore on an equal footing whenformulating their respective tenders”.


teration to “the overall nature of the contract or theframework agreement”.34

b. Impossible Change of Contractor

Additional works, services or supplies may be pro-vided if a change of contractor “cannot be made foreconomic or technical reasons”35 or “would causesignificant inconvenience or substantial duplica-tion of costs”.36 This provision defines cases inwhich it could be possible to use the negotiated pro-cedurewithout prior publication. The proposal pro-vides a quantification of the contract modifica-tions. “Any increase in pricemay not be higher than50% of the value of the original contract”.37 Theproposal clarifies that “for the purpose of the cal-culation of the price (…) the updated price shall bethe reference value when the contract includes anindexation clause”.38 Consecutive modificationsare admitted, always according to the same princi-ple.The envisagedprovisions are the result of intense

negotiations resulting in substantial amendmentsto the original text of December 2011. The Commis-sion Proposal originally referred the quantificationto the total amount of the modifications. Limita-tions to the amount of modifications were sup-pressed in the current draft and the provision of afix maximum amount of the possible increase inprice was generally considered inappropriate. Arti-cle 72(1)(b) of the 12 July 2013 draft thus providesthat, in case of several successivemodifications, thelimitations attached to the increase in price shallapply to “each modification”. Obviously, any modi-fication, and in particular subsequent modifica-tions, shall not be aimed at circumventing the Di-rective.

c. Unpredictable Circumstances

Unpredictable circumstances can justify contractamendmentswheneveradiligent contractingauthor-ity could not foresee them, provided that they do not“alter the overall nature of the contract”, as providedin Article 72(1)(c)(ii). Moreover, it is required to re-spect the limit of 50% of the price of the contract foreachmodification, alwaysmaking surenot to circum-vent the directive.In both this situation and the previous one, the

publication of a notice in theOJEU is necessary. Such

publicity can assure external control over the respectof the provided limits by the other economic opera-tors who participated in the original tender and byall the economic operators of the relevant sector, aswell as by associations, citizens and any stakeholderof the procurement system.

d. Change of the Contractor

A modification may also concern the change of thecontractor bywhich anewsupplier replaces the orig-inal awardee.39 In the ECJ Pressetext case law, achange of contractor was considered as a substan-tial amendment to an essential contractual term, un-less this replacement is admitted by the initial con-tract. This jurisprudence caused some concerns, asthe case is not infrequent especially in the work pro-curement.40As a rule, “the substitution of a new con-tractual partner for the one to which the contract-ing authority had initially awarded the contractmust be regarded as constituting a change to one ofthe essential terms of the public contract in ques-tion, unless that substitutionwas provided for in the

34 ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österre-ich (C-454/06) , cit., para. 57. The Pressetext case law state that“the changeover to the euro, an existing contract is changed inthe sense that the prices initially expressed in national currencyare converted into euros, it is not a material contractual amend-ment but only an adjustment of the contract, provided that theamounts in euros are rounded off in accordance with the provi-sions in force, including those of Council Regulation (EC)No 1103/97 of 17 June 1997 on certain provisions relating to theintroduction of the euro”. According to ECJ “Where the round-ing off of the prices converted into euros exceeds the amountauthorised by the relevant provisions, that is an amendment tothe intrinsic amount of the prices provided for in the initialcontract”. “Nevertheless, the conversion of contract pricesinto euros during the course of the contract may be accompa-nied by an adjustment of their intrinsic amount without givingrise to a new award of a contract, provided the adjustment isminimal and objectively justified; this is so where it tends tofacilitate the performance of the contract, for example, by sim-plifying billing procedures”. The Proposal directive allow “pricerevision clauses” when provided in contract document and“irrespective of the monetary value of the amendments of thecontract”.

35 Compromise draft, Article 72(1)(b)(i).

36 Compromise draft, Article 72(1)(b)(ii).

37 Compromise draft, Article 72(1)(b).

38 Compromise draft, Article 72(3).

39 Compromise draft, Art. 72(1)(d).

40 R. Noguellou, ‘La Cour de justice prend une position deprincipe restrictive sur les cessions de marchés, puisqu’elleadmet que celles-ci constituent, sauf si elles ont été préviesdans le marché initial, un changement de l’un des termes essen-tiels du marché, appelant par là une mise en concurrence’, inDroit Administratif, 2008. Id., France, in R. Noguellou & U.Stelkens (eds.) Droit comparé des contrats publics, pp. 689 etseq.


terms of the initial contract, such as, by way of ex-ample, provision for sub-contracting”.41 In that case,the ECJ distinguished a simple internal reorganisa-tion of an economic operator42 from cases where atransfer of shares during the currency of the con-tract43 is made, or where the “transfer of shares inthe subsidiary to a third party was already providedfor at the time of transfer of the activities to the sub-sidiary”.44 The ECJ stated that, in these cases, it“would be liable to constitute a new award of con-tract”. Public contracts are regularly awarded to le-gal persons. If a legal person is established as a pub-lic company listed on a stock exchange, it followsfromitsverynature that the compositionof its share-holders is liable to change at any time, without af-fecting the validity of the award of a public contractto such a company. Yet, such validity might be af-fected when “there are practices intended to circum-vent Community rules governing public con-tracts”.45 Similar considerations “apply in the caseof public contracts awarded to legal persons estab-lished not as publicly-listed companies but as limit-ed liability registered cooperatives. Any changes tothe composition of the shareholders in such a coop-erative will not, as a rule, result in a material con-tractual amendment”.46

In theWall AG case law the ECJ considers that “Achange of subcontractor, even if the possibility of achange is provided for in the contract, may in excep-tional cases constitute such an amendment to one ofthe essential provisions of a concession contractwhere the use of one subcontractor rather than an-other was, in view of the particular characteristics ofthe services concerned, a decisive factor in conclud-

ing the contract, which is in any event for the refer-ring court to ascertain”.47

According to the Proposal, a modification of thecontractor is admitted whenever it is provided by areview clause or option in the procurement docu-ments or in case of “corporate reconstruction, merg-er, acquisitionor insolvency”.Obviously, thenewcon-tractor has to fulfil all the qualitative criteria provid-ed in the initial award procedure.The change of the contractor is also possible “in

the event that the contracting authority itself as-sumes the main contractor’s obligations towards itssubcontractors where this possibility is provided forunder national legislation”.48 Such provision seemsto recall provisions in French law that admit the ex-tension to the awarding authority of liability towardssubcontractors, for the contractual relationshipsamong the contractor and its subcontractors.49

e. Non-Substantial Modifications

A final rule considers as not substantial and thus ad-mitted any other modification, irrespective of value,as far as they do not fall within the scope of the cas-es listed in the subsequent paragraph 4.50 The listingof the cases of material amendment that make thecontract modification ineffective clarifies the limitsset to the discretion of the contracting authorities forthe benefit of transparency and competition amongthe economic operators.A further specification concerns modifications

below threshold and that do not exceed 15% of theinitial contract value for works, and 10% of the ini-tial contract value for service and supply con-

41 ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österreich(C-454/06), cit., para. 43. “However, some of the specific charac-teristics of the transfer of the activity in question permit the con-clusion that such amendments, made in a situation such as that atissue in the main proceedings, do not constitute a change to anessential term of the contract“.

42 ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österreich(C-454/06), cit., para. 45 “an internal reorganisation of the con-tractual partner, which does not modify in any fundamentalmanner the terms of the initial contract”.

43 ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österreich(C-454/06), cit., para. 47 “If the shares in APA-OTS were trans-ferred to a third party during the currency of the contract atissue in the main proceedings, this would no longer be an inter-nal reorganisation of the initial contractual partner, but an actualchange of contractual partner, which would, as a rule, be anamendment to an essential term of the contract. within the mean-ing of Directive 92/50”.

44 ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österreich(C-454/06), cit., para. 48.

45 ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österreich(C-454/06), cit., para. 51.

46 “The terms ‘awarding’ and ‘awarded’ (…) must be interpreted asnot covering a situation, such as, where services supplied to thecontracting authority by the initial service provider are trans-ferred to another service provider established as a limitedliability company, the sole shareholder of which is the initialservice provider, controlling the new service provider andgiving it instructions, provided that the initial service providercontinues to assume responsibility for compliance with thecontractual obligations”. See also: ECJ, Pressetext Nachrichte-nagentur GmbH v Republik Österreich (C-454/06), cit.,para. 52.

47 ECJ, 13 April 2010, Wall AG v Stadt Frankfurt am Main in Case C-91/08, para. 39.

48 Compromise draft, Art. 72(1)(d)(iii).

49 R. Noguellou, France, cit., p. 691.

50 Compromise draft, Art. 72(1)(e).


tracts.51 The risk that must be avoided is the illicitfragmentation of the contract value during the ini-tial award procedure and its increasewith successivemodifications.

2. Substantial Modifications to a PublicContract that are Considered Ineffectiveand Require a New Award Procedure

According to the draft, the amendments to the con-tract shall be considered substantial and thus inef-fective whenever the contract or the frameworkagreement is “materially different in character fromthe one initially concluded”.52 The EU Proposaldraws on the ECJ case law regarding the definitionof forbidden “substantial modifications” of the con-tract.Pursuant to Article 72(4)(a), a modification is sub-

stantial if it “introduces conditions which, had theybeen part of the initial procurement procedure,would have allowed for the admission of other can-didates than those initially selected or for the accep-tance of an offer other than that originally acceptedorwould have attracted additional participants in theprocurement procedure”. A different set of tenderersmight have been interested in participating in theaward procedure.Material amendments such as extensions of

awarded contracts have the effect of precluding oth-er undertakings from competing for the award ofcontract extensions, the value of which may be asconsiderable as the one of the original contract. Reg-ulatory limits to public contract extensions are fore-seen precisely to avoid the distortions of competitionthat such extensions entail. If not foreseen in the ini-tial contract notice, extensions entail the same com-petition violation effect as the award of a contractwithout prior publication of a contract notice.53

The principle of transparency is essentially in-tended to preclude any risk of favouritism or arbi-trariness on the part of the contracting authority. Itimplies that “all the conditions and detailed rules ofthe award procedure must be drawn up in a clear,precise and unequivocalmanner in the notice or con-tract documents so that, first, all reasonably in-formed tenderers exercising ordinary care can un-derstand their exact significance and interpret themin the same way and, secondly, the contracting au-thority is able to ascertain whether the tenders sub-

mitted satisfy the criteria applying to the relevantcontract.”54 Therefore, although any tender whichdoes not comply with the specified conditions mustobviously be rejected, “the contracting authority nev-ertheless may not alter the general scheme of the in-vitation to tender by subsequently proceeding uni-laterally to amend one of the essential conditions forthe award, in particular if it is a conditionwhich, hadit been included in the notice of invitation to tender,would have made it possible for tenderers to submita substantially different tender”.55 The ECJ case lawstated that “the terms governing the award of thecontract, as originally laid down, would be distort-ed” in case of modifications of the conditions of thetender “when the contract was being performed”.Such modifications constitute a violation of trans-parency but also of fair competition among partici-pants to the tender, damaging other economic oper-ators that might have been interested in participat-ing.Drawing on the ECJ case law, Article 72(4)(b) qual-

ifies as substantial a modification that “changes theeconomic balance of the contract or the frameworkagreement in favour of the contractor in a manner

51 Compromise draft, Art. 72(2). A. Giannelli, Performance andrenegotiation of public contracts, in Ius Publicum Network Re-view, 2013, available at www.ius-publicum.com/pagi-na.php?lang=en&pag=report&id=44. See also Italian LawNo. 127 dated 8 February 1995, Art. 8, establishing that anyproposed amendment to a public contract involving a priceincrease of at least 5% of the original price should be subjectedto a mandatory but non-binding opinion by the tender commis-sion who had decreed the assignment.

52 Compromise draft, Art. 72(4). This substantial change is alsopresent whenever the modification: (a) introduces conditionswhich, had they been part of the initial procurement procedure,would have allowed for the admission of other candidates thanthose initially selected or for the acceptance of an offer other thanthat originally accepted or would have attracted additional partic-ipants in the procurement procedure; (b) changes the economicbalance of the contract or the framework agreement in favour ofthe contractor in a manner which was not provided for in theinitial contract or framework agreement; (c) extends the scope ofthe contract or framework agreement considerably; and (d) wherea new contractor replaces the one to which the contractingauthority had initially awarded the contract in other cases thanthose provided for under point d) of paragraph 1.

53 Directive 2007/66/EC, recital No 13, “Illegal direct award ofcontracts” is the “most serious breach of Community law in thefield of public procurement”. The extension of the scope of thecontract above limits allowed has been regard as being material:ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österreichcit.; ECJ, Commission v Federal Republic of Germany in Case C-160/08, cit.; ECJ, Wall AG v Stadt Frankfurt am Main, in Case C-91/08, cit.

54 ECJ 29 April 2004, Commission v CAS Succhi di Frutta SpA inCase C-496/99 P, paras. 111 and 115.

55 ECJ 29 April 2004, Commission v CAS Succhi di Frutta SpA inCase C-496/99 P, paras. 111 and 115.


which was not provided for in the initial contract orframework agreement”. This change would under-mine fair competition, as the award is decidedthrough the evaluation of the tenders and, in the EU,through a precise ranking subsequent to an objectiveevaluation. Changing significantly the economic bal-ance means that the winner is favoured and the pre-vious competitive selection is thwarted.56

Even when the award procedure has been carriedout in strict respect of the principles of fairness andtransparency, the contractor’s infringements or non-compliance with contractual clauses might modifythe economic balance and, thus distorting bids rank-ing a posteriori, thwart the competitive selectionprocess.57 In such case, opportunism in the contractexecution has, retrospectively, an impact on compe-tition at the award stage. Consequently, losing bid-ders have legal means to act at the execution stagecomparable to their power to file claims and com-plaintsduring theawardprocedure. Indeed, through-out the procurement procedure, and by extensionduring contract execution, losing bidders enjoy a“right to fairness and competition” according to theEuropeanandnational rules. These rights aremanda-tory and their infringement can lead to the ineffec-tiveness of the contract at stake.58 Similarly, materi-al amendments outside the scope of the contract pre-clude other undertakings from taking part in com-petitions for the award of a new, different contract.

In accordance with the recent Remedies Direc-tive,59 in such cases the contract becomes ineffectiveand void.The European tradition of a “sacred” contract

which, after it signature, becomes an exclusive mat-ter between parties and national regulations is over-come by the provision of the European Court of Jus-tice and the new Directive Proposal concerning lim-its to “material amendments”.60Whenever occurringduring the execution phase, “material amendments”are in breach of EU law either if they are added tothe original contract (extensions), or if they take theform of a worse-than-promised performance.61 Thisencroachment into contract law is necessary to pro-tect competitors against potential violations of theprinciple of transparency and fair competition in theaward of the public procurement.

IV. The Role of Unsuccessful Tenderersafter the Signing of the Contract

The monitoring of the contract management as-sumes a strategic role to ensure the correct perfor-mance of public contracts.62 The compliance be-tween the signed contract and the performance is astrategic tool to verify the efficiency of the choicesresulting from the award procedure. This is also ameans to protect the integrity and correctness of the

56 ECJ, EU Commission v Federal Republic of Germany in Case C-160/08, cit., paras. 98–99–100 e 101. The amounts of the exten-sion of the contract was quantified in €673719.92. This case lawconcern the award of contracts for public ambulance serviceswhere it has been considered substantial the extension of thesubject matter of the contract to a “district association” nonindicated in the contract.

57 Concerning the principle of Transparency see: C. H. Bovis, EUPublic Procurement Law, Cheltenham, 2007, p. 67. See also: Id.,Regulatory Trends in Public Procurement at the EU Level, inEPPPL, 2012, pp. 225–226.

58 G. M. Racca, R. Cavallo Perin, G. L. Albano, ‘Competition in theexecution phase of public procurement’, cit., p. 105. Directive2007/66/EC, Art. 1, Amendments to Directive 89/665/EEC,Art. 2(d), Ineffectiveness: “1. Member States shall ensure that acontract is considered ineffective by a review body independent ofthe contracting authority or that its ineffectiveness is the result of adecision of such a review body in any of the following cases: (a) ifthe contracting authority has awarded a contract without priorpublication of a contract notice in the Official Journal of theEuropean Union without this being permissible in accordance withDirective 2004/18/EC; (b) in case of an infringement of Article 1(5),Article 2(3) or Article 2a(2) of this Directive, if this infringementhas deprived the tenderer applying for review of the possibility topursue pre-contractual remedies where such an infringement iscombined with an infringement of Directive 2004/18/EC, if thatinfringement has affected the chances of the tenderer applying fora review to obtain the contract; (c) in the cases referred to in thesecond subparagraph of Article 2b(c) of this Directive, if Member

States have invoked the derogation from the standstill period forcontracts based on a framework agreement and a dynamic pur-chasing system”. For the Italian System see the Administrativeprocess code: Legislative Decree No 104, of July 2, 2010, Art. 121

59 Directive 2007/66/EC of (amending Council Directives89/665/EEC and 92/13/EEC with regard to improving the effective-ness of review procedures concerning the award of public con-tracts) that was implemented in Italy by Legislative Decree No 53,20 March 2010.

60 ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österreich(C-454/06) cit., an amendment to the initial contract may beregarded as being material when it extends the scope of thecontract considerably to encompass services not initially covered.This latter interpretation is confirmed in the provisions that im-pose restrictions on the extent to which contracting authoritiesmay use the negotiated procedure for awarding services in addi-tion to those covered by an initial contract. An amendment mayalso be regarded as being material when it changes the economicbalance of the contract in favour of the contractor in a mannerwhich was not provided for in the terms of the initial contract.The same principle is established in G.M. Racca, R. Cavallo Perin,G. L. Albano, ‘Competition in the execution phase of publicprocurement’, cit., p. 105.

61 ECJ, Pressetext Nachrichtenagentur GmbH v Republik Österreich(C-454/06), cit.

62 Organisation for Economic Co-operation and Development,OECD Principles for Integrity in Public Procurement, 2009, avail-able at www.oecd.org/gov/ethics/48994520.pdf, pp. 69 et seq.


choices made by the contracting authority and to de-tect unlawful decisions or errors of assessment.A rigorous oversight of contract implementation

is therefore of paramount importance. In that re-gards, it seems increasingly necessary for unsuccess-ful tenderers to act as diligent “watchdogs” verify-ing that the review process functions appropriately,and challenging infringements. This however re-quires a certain level of transparency in themanage-ment of the contract.63 Losing tenderers ought to beassured that they lost because the selected contrac-tor did not only submit the best “promised” valuefor money (price-quality ratio), but will in fact deliv-er the best value-for-money performance. Were thisnot to be the case, the main goal of the competitivemechanism would be undermined, thus distortingcompetition in the procurement market. Only fairbehavior in contract management, namely the over-all compliance with contract conditions set at theawarding stage, ensures a real and effective compe-tition in the entire cycle of public procurement.Since unsuccessful tenderers harmed by an unlaw-ful award of the contract have access to remedies,they should also have access to remedies where theywant to provide evidence that the execution of thecontract does not correspond to what was definedin the award.64

The new provision on the publication of informa-tion relating to the modification of the awarded con-tract in the OJEU might strengthen the monitoringof the unsuccessful tenderers and the other econom-

ic operators.65 In this perspective, taxpayers or usersof the contracting authority performance may alsobe interested to survey themodifications and thepos-siblemisconduct or failure that may occur in the per-formance of a public contract, especially in the fieldof services.In Europe, regulations on public procurement set

fairly strict and objective criteria to award public con-tracts. Competing tenders are to be evaluated accord-ing to how much of the announced points66 theyscore for (both technical and financial) criteria andsub-criteria.67Despite the fact that tenders have to beevaluated objectively, or because of that, competitionis frequently fierce and ruthless. Tenderers tend toscrutinize each other and, most importantly, theycontrol how the procuring entity made use of thoseobjectiveawardingcriteria.Unsuccessfulbidders canfile a claim68 on the procuring entity’s evaluation ofanother tenderer’s offer even on the basis of mini-mumdifferences in thepoints assigned toanelementof the tender: this can be a key factor for the awardof the contract, thus overturning the result of theaward itself. According to the European rules, theranking can be modified in favor of the protestingbidders.69

The procuring entity’s ability to correctly and fair-ly evaluate tenders matters not only for the right al-location of the public contract, but also for its correctperformance. However, the closer tenders includedin the ranking at the evaluation stage have been sub-mitted by the economic operators that could assure

63 United Nations Commission on International Trade Law, UnitedNations Convention against Corruption: implementing procure-ment-related aspects (Second session, Nusa Dua, Indonesia, 28January-1 February 2008), available at www.uncitral.org/unci-tral/en/index.html.

64 M. Trybus, ‘Public contracts in European Union Internal MarketLaw’, in R. Noguellou & U. Stelkens (eds.) Droit comparé descontrats publics, p. 312. ECJ, 29 April 2004 EU Commission vCAS Succhi di Frutta in C-496/99.

65 G. M. Racca, G. L. Albano, ‘Collaborative Public Procurementand Supply Chain in the EU Experience’, in C. Harland, G. Nis-simbeni, E. Schneller, Strategic Supply Management (SAGE Hand-book), London, 2013, pp. 179–213.

66 Directive 2004/18/EC of Art. 23 for the technical specificationsand Art. 53(1), for the awarding criteria, where is provided that“when the award is made to the tender most economically advan-tageous from the point of view of the contracting authority,various criteria linked to the subject-matter of the public contractin question, for example, quality, price, technical merit, aestheticand functional characteristics, environmental characteristics,running costs, cost effectiveness, after sales service and technicalassistance, delivery date and delivery period or period of comple-tion”. The most recurrent scales are Sh = [0,100] and St =[0,1000]. For instance, if the adopted scale is Sh and quality has a

weight of 60%, then up to 60 points are awarded to a tender’stechnical specifications while up to 40 points are awarded to theprice. It is worth mentioning though that public procurementregulations in the US moved away from a numerical comparisonof tenders.

67 Directive 2004/18/EC Art. 53(2), where is provided that ”Withoutprejudice to the provisions of the third subparagraph, in the casereferred to in paragraph 1(a) the contracting authority shall speci-fy in the contract notice or in the contract documents or, in thecase of a competitive dialogue, in the descriptive document, therelative weighting which it gives to each of the criteria chosen todetermine the most economically advantageous tender. Thoseweightings can be expressed by providing for a range with anappropriate maximum spread. Where, in the opinion of thecontracting authority, weighting is not possible for demonstrablereasons, the contracting authority shall indicate in the contractnotice or contract documents or, in the case of a competitivedialogue, in the descriptive document, the criteria in descendingorder of importance“. See: ECJ, 14 June 2007, Medipac-Kazantzidis AE v Venizeleio-Pananeio in Case C-6/05.

68 B. Marchetti, ‘Il sistema di risoluzione delle bid disputes nelmodello federale statunitense di public procurement’, in Riv.Trim. Dir. Pubb., 2009, p. 963.

69 See generally: Directive 2007/66/EC, recitals No 13 and 14.


themore effective contract oversight. If, for instance,the highest-ranked tender were to be only slightlyabove the second-highest, then any lower-than-ex-pected performance during the execution of the con-tract would result in the winning tender being (expost) worse than the highest-ranked-loser. Thecontractor’s opportunism at the execution stageought to be consideredde facto as a lower-quality ten-der at the competition stage. This is why, in Italy, itis also possible to provide that the second-highesttender would have the right to replace the winner incase of termination of the contract due to serious in-fringements.70

Since losing tenderers have a “right to fairness andcompetition“ throughout the whole cycle of the pro-curement process and thus even in the executionphase, they are entitled to provide evidence on theinfringement of the selection procedure rules andcould also be active in the monitoring of the subse-quent execution phase.71

Relyingonnon-winning tenderers tomonitorwin-ners’ performance becomes essential. In fact, unsuc-cessful tenderers have an in-depth knowledge of thesubject matter of the contract and are endowed withthe suitable professional skills to monitor thewinner’s performance. This might help soothe the

moral hazard problem arising at the execution stagethat affects the procuring entity’s welfare.72

This monitoring task could be assigned to themby the procuring entity itself through a precise clauseinside the contract documents and could be linkedto the provision of their right to substitute the win-ner in case of termination of the contract. Such pro-vision should be carefully defined in order to preventcolluding strategies that would resemble those thatarise in a second-lowest bid competitive mecha-nism.73 It would be necessary, for instance, to pro-vide that the subsequent tenderer in the rankingshould accept the same conditions set in the termi-nated contract.74

A correct monitoring activity can lead to havingdata on how economic operators run the perfor-mance. From such data, forms may be created ofblacklisting, debarment75 and cross-debarment76 asanti-corruption initiatives, but also to be able to eval-uate the past performance of economic operators inthe award procedure.The EU legal framework provides the exclusion

from the award procedure of a tenderer whenever itspersonal situation does not comply with the require-ments provided by EU rules and implemented byMember States.77This is defined as a disqualification

70 Legislative Decree No 163 of April 12, 2006, Art. 140, where isprovided that Contracting authorities include in the contractnotice that in the event of failure of the contractor or terminationof a contract for breach of the same (in accordance with articles135 and 136), will be progressively challenged the subjects whoparticipated in the original tender, resulting from its ranking, inorder to sign a new contract for the award of completion. It ispossible to scroll the ranking and call the subject which has madethe second best offer, until the fifth highest bidder, except theoriginal contractor. In this case the award is concluded under thesame conditions already proposed by the original contractor onhis offer. G. M. Racca, ‘Public Contracts – Annual Report 2012’,in Ius Publicum Network Review, 2012, available at www.ius-publicum.com/repository/uploads/07_09_2012_11_04_Rac-caEN.pdf, pp. 32 et seq.; L. Fertitta, ‘La figura del secondo classi-ficato nell’aggiudicazione degli appalti pubblici’, Rivista trimes-trale degli appalti, 2005, p. 442; V. Palmieri, Scorrimento dellagraduatoria e tutela della concorrenza nell’esecuzione degliappalti pubblici, Foro amministrativo – C.d.S., 2208, p. 868. Seealso: A. Massera and M. Simoncini, ‘Basic of Public Contracts inItaly’, in Ius Publicum Network Review, 2011, available atwww.ius-publicum.com/pagina.php?lang=en&pag=report&id=43,pp. 8 et seq.

71 The losing bidders’ “active” role at the execution stage is logicallyconsistent with a provision in the Italian Code of Public Contractswhereby, in case of serious infringement, contracting authoritiescan replace the selected contractor by “scrolling down” theinitial ranking of bidders. See also: C. Ginter, N. Parrest and M. A.Simovart, ‘Access to the content of public procurement contracts:the case for a general EU-law duty of disclosure’, in PPLR, 2013,pp. 156–164, where the Autors link the transparency and the non-discrimination principles to the relevance of considering thecontract as a Public document. Concerning the disclosure ofprocurement documents they remind that “transparency and equal

treatment are fundamental principles of procurement law and infact inherent to exercise of public powers in general. These princi-ples do not cease to apply after a procurement procedure ends”.

72 G. Napolitano and M. Abrescia, Analisi economica del dirittopubblico, cit., although the authors seem to consider almostexclusively the role of informational asymmetries on the subjectmatter of the contract.

73 A second-lowest bid is the buying equivalent of a Vickrey auction.Assuming that the procuring entity is interested in the financialdimension(s) only, the second-lowest bid mechanism awards thecontract to the lowest bidder that will receive an amount of mon-ey equal to the second-lowest bid. When the number of bidders issmall (only two) there exists a strong incentive to collude. Onebidder will submit a very low price, while the second will submita very high one. The former will get the contract at potentiallyextremely favorable conditions, and split the “collusive” payoffwith the loser: G.M. Racca, R. Cavallo Perin, G. L. Albano, Com-petition in the execution phase of public procurement, cit., p. 105.

74 EU Commission, note 2007/2309/C, 30 January 2008 containingobservations on Art. 140, Legislative Decree No 163 of 12 April2006.

75 GAO Report, Suspension and Debarment, September 2012,available at: www.gao.gov/assets/650/648577.pdf. See also: S. L.Schooner and al., ‘Suspension and Debarment: Emerging Issuesin Law and Policy’, in PPLR, 2004.

76 C. H. Yukins, Cross-Debarment: A Stakeholder Analysis, GW LawFaculty Publications, 2013.

77 Directive 2004/18/EC, Art. 45, an example is the exclusion wherethe tenderer “has been guilty of grave professional misconductproven by any means which the contracting authorities candemonstrate”.


sanction.78 Every Member State may use databas-es79 to collect online data on the performance of eco-nomic operators and an EU network of such systemsshould be provided.80 The aim is to simplify the ad-ministrative burden of procuring entities wheneverthey have to evaluate the ability and professionalskills of economic operators.Normally, contracts include penalty terms in case

of infringements in the performance, or in case of se-rious breaches, provide the withdrawal or the reso-lution of the contract. In some Member States suchas Italy, in case of bankruptcy or criminal infiltrationthe contracting authority may scroll the ranking de-riving from the award procedure (until the fifth). Inthis case the award is made under the same condi-tions already proposed by the original contractor.This might be a tool to prevent the improper fulfill-ment of the contract and “reward” the most efficienteconomic operator. It could also be a means for pre-ventingand fighting the riskof corruption in the fieldofpublic contracts. TheEUanti-corruptionpolicyhasdifferent purposes as the protection of EU finances,81 the guarantee to the EU citizens of a “high level ofsafety in an area of freedom, security and justice”82 aswell as ensuring compliance with the internal mar-ket policies considering corruption as an infringe-ment of non-discrimination and competition princi-ples.83

V. Framework Agreements as Tools toImprove Competition during theExecution of a Public Contract

The new Directive Proposal considers the materialamendment of public contracts and frameworkagreements. It is of interest to consider the widerange of possible utilizations of such contractualmodels. The framework agreement is the “agreementbetweenone/more contractingagencies andeconom-ic operator(s) to establish the terms governing con-tracts to be awarded during a given period with re-gard to price and the quantities envisaged”.84

The Framework agreement, whenever multipleand open, can lead to the signing of amaster contractthat does not define yet the specific commitments ofthe economic operators included.The common feature of framework agreements is

the aggregation of demand for goods and services tobe delivered at different points in time with the pos-

sible adoption of a two-stage procurementprocess.85 These features seem to depict a competi-tive environment thatmay result in anenhanced con-tract management by procuring authorities. The ma-terial amendments may relate either to the mastercontract or to the subsequent specific contracts.The framework agreement provides for two sets

of losing tenderers: on the one hand, the ones thatremained outside the master contract, which accord-ing to EU rules can file claims and remedies; on theother hand, the ones who have lost the second-stagemini-competition that couldbeready toeasily replacethe defaulting contractor. Both categories could helpthe public official in the monitoring not only of thecorrect selection, as provided in the EU Directives,but also of the correct execution of the contract.While monitoring the procuring entity’s contractmanagement efforts, losing tenderersmayplay a cru-cial role in supporting the latter in gathering infor-mation about the contractor’s actual performance.86

In order to become an effective tool for monitor-ing actual performances throughout the duration ofthe framework agreement, unsuccessful tenderersneed an incentive. As pointed out earlier, at least inItaly, contracting authorities can “scroll down” theranking to replace the current contractor in case ofserious contract infringement.87 The most naturalway to extend such a provision would then be to re-

78 W.-E. Sope, Fighting Corruption in Public Procurement, cit.,pp. 43–44.

79 C. Stefanou, ‘Databases as a Means of Combating OrganisedCrime within the EU’, in Journal of Financial Crime, 2010, p. 100.

80 UK Government – Procurement Policy Note, Taking Account ofBidders’ Past Performance, cit.

81 W.-E. Sope, Fighting Corruption in Public Procurement, cit.,pp. 41 et. seq. Committee of Independent Experts, First Report onAllegations regarding Fraud, Mismanagement and Nepotism inthe European Commission, 15 March 1999, available at www.eu-roparl.europa.eu/experts/pdf/reporten.pdf.

82 W.-E. Sope, Fighting Corruption in Public Procurement, cit., p. 42,where this function is connected to Art. 4, 67 and 83 of the Treatyon the Functioning of the European Union.

83 L. Ferola, ‘Anti-Bribery Measures in the European Union: AComparison with the Italian Legal Order’, in International Journalof Legal Information, 2000, p. 512.

84 Directive 2004/18/EC, Art. 1(5) and Art. 32 of the Directive isdevoted to Framework Agreements.

85 An interesting analysis of differences and common traits betweenthe adoption of framework arrangements in Europe and in the USis provided in See C. R. Yukins, ‘Are IDIQs Inefficient? SharingLessons with European Framework Contracting’, in PCLJ, 2008,p. 545.

86 G.M. Racca, R. Cavallo Perin, G. L. Albano, Competition in theexecution phase of public procurement, cit., p. 105.

87 Legislative Decree No 163 of 21 April 2006, Art. 140.


open a framework agreement at a later stage by re-placing the first contractor that seriously underper-formed during the execution of a specific contractwith the highest-ranked losing bidder, the second un-derperforming contractor with the second-highestunsuccessful tenderer and so on.The double set of unsuccessful tenders in frame-

work agreements might enhance the role of watch-dogs preventing the possible collusion agree-ments88 among the tenderers inside the master con-tract.89

Moreover, the new Directive simplifies the two-stage electronic purchasing arrangement, i.e. the Dy-namic Purchasing System, which is concluded withan initially closed set of firms, but remains openthroughout the entire period.90 Such instrumentmight permit to have all the economic operators asparticipants and could avoid the need and the risksof material amendments.A significant amount of resources can be wasted

due to inappropriate contract management91 andsuch risk might arise when the contract is awardedby a central purchasing body92 on behalf of otherpublic authorities.93 Such a separation of roles maygenerate low contractmanagement efforts due to therecipient entity’s imperfect knowledge of contractu-al clauses (i.e. penalties and termination of the con-tract).94

Nonetheless, the choice of aggregating procure-ment could free up a significant number of procur-ingofficials andpermit todedicate trained task forcesto the monitoring of the execution phase of procure-ment.

VI. Material Amendments and IntegrityIssues.

The problems of incorrect contract execution arewidespread in any procurement system. The quali-ty promised in the contract signed after the awardprocedure is often not delivered during the execu-tion phase and the procuring entities accept a differ-ent andworse-than-promisedperformance.95The in-fringement of the contract can lead to a materialamendment related to amodification of the econom-ic balance of the initial contract. Such situation canbe due to the incompetence of the procuring offi-cials or can be considered a symptom of lack of in-tegrity.This may happen as a consequence of malice and

corruption,96 that is, offering, giving, receiving, or so-liciting, directly or indirectly, anything of value to in-fluence the action of a public official during the se-lection procedure or the contract execution. Howev-er, poor contractor performance may also be due to

88 P. Aden, Legal regulation of multi-provider framework agreementsand the potential for bid rigging: a perspective from the UKlocal government construction sector, in PPLR, 2013,pp. 165–182.

89 Organisation for Economic Co-operation and Development,Fighting Cartels in Public Procurement, 2008, available atwww.oecd.org/competition/cartels/41505296.pdf, p. 2, “fulltransparency of the procurement process and its outcome canpromote collusion”.

90 Directive 2004/18/EC, Art. 33. Concerning the use of IT tools inthe Directive No. 2004/18 see: G. M. Racca, ‘The ElectronicAward and Execution of Public Procurement’, in Ius PublicumNetwork Review, 2012, available at www.ius-pub-licum.com/repository/uploads/17_05_2013_19_31-Rac-ca_IT_IUS-PUBLICUM-_EN.pdf.

91 For more information about the waste caused by incompetence inthe awarding phase, see generally O. Bandiera, A. Prat and T.Valletti, ‘Active and Passive Waste in Government Spending:Evidence from a Policy Experiment’, in Am. Econ. Rev. 2009,p. 1278.

92 Coordination of Procedure for the Award of Public WorksContracts, Public Supply Contracts and Public Service Con-tracts, 2004 OJ L 134/114, 127 (defining central purchasingbody), 131 (allowing member states to use central purchasingbodies).

93 See C. R. Yukins, Are IDIQs Inefficient?, cit., p. 554 ; O. Soudry,‘A Principal-Agent Analysis of Accountability in Public Procure-ment’, in G. Piga and Khi V. Thai (Eds.) Advancing Public Procure-ment: Practices, Innovation and Knowledge-sharing, PrAcademics

Press. 2007, pp. 441–42, available at www.ippa.ws/IP-PC2/BOOK/Chapter_19.pdf.

94 G. M. Racca, ‘Collaborative Procurement and Contract Perfor-mance in the Italian Healthcare Sector: Illustration of a CommonProblem in European Procurement’, in PPLR, 2010, p. 131; G. M.Racca, ‘La professionalità nei contratti pubblici della sanità:centrali di committenza e accordi quadro’, in Foro amministrativo– C.d.S., 2010, p. 1727.

95 G. M. Racca, R. Cavallo Perin and G. L. Albano, ‘Competition inthe execution phase of public procurement’, in PCLJ, 2011; G. M.Racca, R. Cavallo Perin and G. L. Albano, ‘The safeguard ofcompetition in the execution phase of public procurement:framework agreements as flexible competitive tools’, in QuaderniConsip, VI (2010); R. Cavallo Perin and G. M. Racca, ‘La concor-renza nell’esecuzione dei contratti pubblici’, in Dir. amm., 2010,p. 325.

96 See C. H. Yukins, A Versatile Prism: Assessing Procurement LawThrough the Principal-Agent Model, in PCLJ 2010, p. 70; R.Hernandez Garcia, ‘Introduction: The Global Challenges ofInternational Public Procurement’, in R. Hernandez Garcia (Ed.)International Public Procurement: A Guide to Best Practice,London, 2009, p. 11; T. Maria Arnáiz, ‘EU Directives as Anticor-ruption Measures: Excluding Corruption-Convicted Tenderersfrom Public Procurement Contracts’, in Khi V. Thai (Ed.) Interna-tional Handbook of Public Procurement 2008, p. 106; E. Auriol,‘Corruption in Procurement and Public Purchase’, in Int. J.Indus. Org. 2006, p. 867; Transparency Int’l, Handbook forCurbing Corruption in Public Procurement 2006, pp. 18–19,available at www.transparency.org/content/down-load/12496/120034.


poorly drafted contract requirements that leave pub-lic officials unarmed when problems arise.97

Integrity “beyond the selection of suppliers”98 isrequired99 from the definition of needs to the con-tract administration phase as both the needs assess-ment and the contract management are “increasing-ly exposed to corruption”100 and are neither duly ad-dressed nor sufficiently monitored.Adequate efforts in favour of competition, trans-

parency and objective criteria in decision-making asfundamental principles and instruments to preventcorruption are necessary throughout the entire cycleof the public procurement process, from the begin-ning of the procedure to the conclusion of the per-formance phase. Otherwise, after the award, theprocuring entitymay accept a different and less cost-ly performance in violation of free competition andequal treatment principle.101 This can happen as aconsequence of malice and corruption,102 but fre-quently it may be due to ineffective instruments inthe performance phase that do not ensure theachievement of the public interest as defined in thecontract conditions (incompetence103). Moreover,the much debated phenomenon of “abnormally lowbids” may occur because of tenderers’ choice of re-

covering their additional “investment” (i.e. lowermark-ups).Amalicious agreement between one of the tender-

ers and the procurement officer allows the former tobid aggressively and win the contract as he alreadyknows that he will not be obliged to perform prop-erly.104 By underperforming, the winner will get ad-ditional profit to be shared with the procurement of-ficer. If delivered quality differs from the quality thatwas promised in the award, the whole equilibriumof the ranking of the tenders is undermined and theeconomic balance of the contract is modified infavour of the winner.Material amendments are subject to the risks of

corruption or can lead to an incorrect decision of pro-curement officials also as a consequence of a lack ofadequate needs assessment, planning and budget-ing.105 Integrity becomes the basic prerequisite forachieving the “desiderata” of a procurement system.

VII. Concluding Remarks

Transparency and competition principles play a keyrole in the awarding phase of public procurement,

97 In Italy both the theory and practice of public contracts havetraditionally overlooked the relevance of contract management.The regulation of Italian Public Contract Codes has introduced aspecific “procurement execution director” in charge of the man-agement and monitoring of the execution of goods and servicesprocurement only recently. See Decreto Presidente della Repub-blica No 207, 5 October 2010, Art. 299, 300 and 301. For theaspects related to the contract execution see ModernisationGreen paper, supra, note 4, at p. 24.

98 United Nations Comm’n on Int’l Trade Law, United NationsConvetions Against Corruption: Implementing ProcurementRelated-Aspect, p. 14.

99 The UNCITRAL Model Law, similar to many procurementregimes, notes that its provisions address the “procedures to beused by procuring entities in selecting the supplier or contractorwith whom to enter into a given procurement contract”. Its Guideto Enactment states that the Model Law does not address theterms of contract for a procurement, the contract performance orimplementation phase, including resolution of contract disputes,and by implication, the procurement planning phase. UnitedNations Comm’n on Int’l Trade Law, UNCITRAL Model Law onProcurement of Goods, Construction and Services with Guide toEnactment, 1994, available at www.uncitral.org/pdf/eng-lish/texts/procurem/ml-procurement/ml-procure.pdf.

100 Transparency Int’l, supra note 94, at p. 20; see also C. H. Yukins,A Versatile Prism: Assessing Procurement Law Through the Princi-pal-Agent Model, at pp. 83&88; United Nations Office on Drugs& Crime, United Nations Convention against Corruption,Art. 9(2), provides that a procurement system must ensure ade-quate internal control and risk management. Article 9(2): “2. EachState Party shall, in accordance with the fundamental principlesof its legal system, take appropriate measures to promote trans-parency and accountability in the management of public fi-nances. Such measures shall encompass, inter alia: … (d) Effective

and efficient systems of risk management and internal control …”.The regulation of non-selection phases of procurement may thusbe addressed within the general governance system in a Stateparty: for the reasons, it is vital that they are integrated into theprocurement system itself.

101 R. Cavallo Perin and G. M. Racca, La concorrenzanell’esecuzione dei contratti pubblici, cit., p. 325.

102 R. Hernandez Garcia (Ed.) International Public Procurement: AGuide to Best Practice, London, 2009; T. M. Arnaiz, EU Directivesas Anticorruption Measures: Excluding Corruption-ConvictedTenderers from Public Procurement Contracts, cit. p. 105; E.Auriol, Corruption in procurement and public purchase, inInternational Journal of Industrial Organization, 2006, p. 885;Transparency International, Curbing Corruption in Public Procure-ment, 2007, available at www.transparency.org/global_priori-ties/public_contracting/tools_public_contracting/. See also:OECD, Fighting Corruption and Promoting integrity in PublicProcurement, 2005, available at http://browse.oecdbook-shop.org/oecd/pdfs/browseit/ 2805081E.pdf.

103 About the waste linked with incompetence in the awardingphase: O. Bandiera, A. Prat and T. Valletti, Active and passivewaste in government spending: Evidence from a policy experi-ment, cit., p. 1278.

104 G. M. Racca, The safeguard of competition in the executionphase of public procurement, Speech at the seminar The NewPublic Law in a Global (Dis)Order A Perspective from Italy, NewYork University School of Law, 19–20 September 2010. Seealso: G.M. Racca, R. Cavallo Perin and G. L. Albano, Competitionin the execution phase of public procurement, cit., p. 105.

105 Organisation for Economic Co-operation and Development,OECD Principles for Integrity in Public Procurement, cit., p. 69,where are located the common risks to integrity in the post-tendering phase.


but they seem to vanish during the execution phaseof public contracts. This seems to be a prevailing fea-ture of public contracts regulation worldwide. In the“black hole” of the performance phase, lack of trans-parency, incompetence, and corruptionmight under-mine the multiple objectives of public procurementpolicies.The award and the execution of public contracts

should not be affected by factors harming the impar-tiality of the decision (incompatibilities of public of-ficials and transparency are means to guarantee it).Avoiding interference of political or external bodiesseems another of the key issues to prevent the distor-tion of the public contracts market and to favour theimplementationof best practices in the awardofpub-lic contracts and in monitoring activity on them.Whenever delivered quality is shattered by oppor-

tunistic behaviour at the execution stage, transparen-cy and non-discrimination principles are betrayed,since an incorrect execution undermines the compe-tition principle put in place among competing bid-ders in the selection phase. In public contracts, un-like private contracts, any amendment to contractu-al conditions due to the contractor’s underperfor-mance affects third parties, namely unsuccessful bid-ders. By having a substantive stake in the adherenceof the contractor’s performance to what committedat theawardstage, losing tenderers shouldbeenabledto report infringements to challenge the contractor’slower-than-promised performance set in a contractthey might have otherwise won. As a consequence,they would exercise their right to fair competitionand, if properly ranked, the subsequent bidder in theranking could have the right to replace the winner.The ability to collect and interpret information

during the execution can make losing tenderers, to-gether with the procuring authority, the most effec-

tive “supervisors”of the contractor’s compliancewithcontractual clauses. Being competitors in the samemarket, losing tenderers are in the potentially idealsituation to figure out what dimensions of perfor-mance are most vulnerable to opportunism. A pre-cise evaluation of the limits for admitted “materialamendments” during the executionphase is requiredin order to avoid thwarting competition.The idea of having losing tenderers that “cooper-

ate” with the procuring authoritymight, in principle,be stretched to other crucial phases of the procure-ment process such as the evaluation of seemingly ab-normally low tenders, especially in the case of some-what complex public contracts where both qualityand price matter. Allowing for such proactive initia-tivesby losing tenderers ought tobe carefullydefinedby the procuring authority in order to fully exploitthe potential benefits while limiting the risk of mak-ing theoverall public procurement systemevenmoreadversarial or pro-collusive.Themonitoringof theperformance of the contract

by unsuccessful tenderers, and/or by third partiessuch as other economic operators, final users organi-zations and civil society, becomes away to ensure therespect of EU principles that rule the award proce-dure. The respect of competition in performancephase seems a requirement to allow his respect intheawardphase.Anymisconduct in theperformancephase turns into a distortion of the EU rules on com-petition and involve the risk of corruption. Such sit-uations should be sanctioned at the EU level in theform of ineffectiveness of the contract. However, themonitoring of the correct implementation of the con-tract may be a useful tool to prevent potential illegalor collusive conduct among economic operators andbetter ensure competition in the entire public pro-curement cycle and in the procurement sector.

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