No material change when subcontractor replaced and delivery date postponed

Blogs Martijn Jongmans Real estate, Construction & Environment

Introduction

Contracts that are the result of a procurement procedure should be amended with due regard to procurement law. The basic principle is that amendments during the performance of the tendered contract are not allowed if this would have led to the admission of other candidates than those originally selected, would have allowed the award of the contract to another tenderer or would have attracted other participants in the tender procedure (ECJ 19 June 2008, C-454/06, ECLI:EU:C:2008:351 (Pressetext). Article 2.163g (3) introductory phrase and subparagraph (a) Procurement Act 2012 (' Aw') is the codification of this. The Aw clarifies under what circumstances a tendered contract may be amended without a new procurement procedure (Sections 2.163a to 2.163f). Application of the doctrine nevertheless remains complicated and casuistic in practice. Further interpretation from case law is therefore welcome. It follows from recent case law that the replacement of a subcontractor (Arnhem-Leeuwarden Court of Appeal) and the postponement of the delivery date (The Hague Court of Appeal) do not always have to involve an essential change. We will briefly discuss both judgments below.

Hof Arnhem-Leeuwarden - replacement of subcontractor not a substantial modification

In a long-running dispute arising from the tender issued by the municipality of Utrecht in 2018 for the placement and operation of public transport parking facilities, the question on appeal was whether there was a substantial modification if the municipality gave permission to its contractor (RBL) to use a different subcontractor to operate the advertising space (JCDecaux instead of Clear Channel). At judgment of June 25, 2024, the Arnhem-Leeuwarden Court of Appeal answered this question. The Court stated first that the change of a subcontractor should be qualified as substantial in exceptional cases. This is the case if the choice of a particular subcontractor and not of another was a decisive element in the award (ECJ 13 April 2020, C-91/08, ECLI:EU:2010:182 (Wall AG). According to the court, the issue is therefore whether RBL's choice to use Clear Channel as a subcontractor was decisive for the municipality. According to the court, it was not sufficiently plausible that Clear Channel's role as a subcontractor was decisive for the municipality. The fact that Clear Channel (possibly) played an important role in determining the concession price is insufficient for that purpose. After all, what matters is whether Clear Channel had certain qualities/services (which another subcontractor does not have) that were decisive for the municipality to award the concession to RBL. There was insufficient evidence of this, according to the Court. The mere fact that the municipality was aware, given the tender documents, that Clear Channel would be used as a subcontractor is insufficient for that purpose. This means that the replacement of Clear Channel by JCDecaux does not constitute a substantial change to the concession assignment so that the municipality may implement this change without organizing a new tender procedure.

The Hague Court of Appeal - postponing the implementation date not a substantial modification

The application of the substantial modification doctrine was also central to the case brought by Cloudoe B.V. (' Cloudoe') brought on the merits in connection with the tender for a new telephony platform of the Road Transport Department (' RDW'). According to Cloudoe, the tender was unlawful because the delivery deadline of May 31, 2021, mentioned in the specifications, was moved by RDW to October 1, 2021. In Cloudoe's view, the aforementioned delivery date was a "hard KO requirement" and RDW's abandonment of this date constitutes an impermissible change. In a judgment also handed down on June 25, 2024 judgment the Hague Court of Appeal largely ruled against Cloudoe. The circumstance that Frontline (the winner of the tender) and RDW agreed on a later completion date after the award did not mean, according to the Court of Appeal, that RDW waived or modified the KO requirement in violation of the Aw. The court considered that a reasonably informed and normally careful tenderer would construe the KO requirement in question as RDW applied it, viz:
  1. that, at the time of tendering, the tenderer must state that (and substantiate why) it will be able to have the application of its offered CCaaS+ solution accepted and operational by May 31, 2021; and
  2. that the contracting authority is still bound by that requirement at the time of award and the tenderer must therefore still be able to meet that date at the date of award, unless that failure to meet it is not due to the tenderer but to the contracting authority itself.
  A different interpretation would, according to the Court: " a different interpretation would lead to the absurd consequence that the tenderer with the best-judged bid who, between the bid and the award, is confronted with circumstances beyond his control, would be penalized for that, without there being a good reason for it within the system of procurement law". According to the Court, the postponement of the implementation date from May 31, 2021 to October 1, 2021 also does not result in a substantial change as referred to in Section 2.163g(2) Aw. In this regard, the Court considers that the scope and content of the reciprocal rights and obligations were not changed by the postponement of the implementation date. The new date did not affect the performance, opportunities, risks and interviews offered. Nor was the further agreed delivery date the result of further negotiations on the content of the assignment, but was implemented on unilateral request from RDW, which turned out to need more time for the research with its privacy and security staff than anticipated when the assignment was issued. A further completion date would have been necessary even if the contract had been awarded to Cloudoe, according to the court.

Conclusion

16 years after the appearance of the Pressetext judgment, the application of the substantial modification doctrine in practice remains unruly. The judgments discussed contain welcome clarifications for procurement practitioners of the delimitation of this doctrine. Both replacing a subcontractor during the execution phase and extending a delivery date prescribed in the tender documents do not always have to result in a substantial modification. Under circumstances, therefore, such changes can be made without the need to organize a new tender procedure. Would you like to know more? Then please feel free to contact Martijn Jongmans or any of the other members of the section Property, Construction & Environment.