By: Paul Emanuelli
This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its April 2017 decision in ‘Borta’ UAB v. Klaipėdos valstybinio jūrų uosto direkcija VĮ, the European Court of Justice struck down tender call subcontractor regulations for being overly restrictive to competition. The dispute dealt with a tendering process for port construction work at the national seaport in Klaipėda, Lithuania, which required that the “main works” be performed by the prime contractor rather than subcontractors. While the purpose of the regulation was to prohibit companies with no capacity from bidding and then subcontracting all of the work, the Court ruled that the regulation went beyond what was required to achieve the objective since the objective could be achieved by setting a percentage of work to be performed by the prime contractor, rather than by prohibiting subcontractors from performing any of the work that was defined as the “main works”:
It is true that the contracting entity is free to specify which works are to be treated as ‘main’ works. However, it must still stipulate, with respect to all contracts, that those works are to be carried out by the tenderer itself. Thus, Article 24(5) of the Law on public procurement prohibits reliance on subcontractors for those works, including in situations in which the contracting entity is able to verify the capacities of the subcontractors concerned and to take the view, after that verification, that such a prohibition is unnecessary for the proper execution of the works having regard, in particular, to the nature of the tasks that the tenderer plans to delegate to those subcontractors.
Thus, as the Advocate General observed in point 51 of her Opinion, an alternative less restrictive measure which guarantees the achievement of the objective pursued would have been to require the main contractor to indicate in their tender the proportion of the contract that they intend to contract out, the proposed subcontractors and their capacities. It might also be possible for the contracting entity to prohibit tenderers from changing subcontractors if that entity was not able beforehand to verify the identity and capacity of the latter.
Moreover, in so far as the referring court and the Lithuanian Government submit that Article 24(5) of the Law on public procurement was adopted in order to prevent a current practice by which tenderers claim to have professional capacities solely in order to win the contract concerned with the intention of entrusting the largest part or most of the works to subcontractors, it must be observed that that provision does not specifically target that practice. Thus, it prohibits the tenderer from delegating the performance of all the works identified as the ‘main’ works by the contracting entity, including the tasks which represent, proportionally, only a small part of those works. Therefore, that provision goes beyond what is necessary to prevent the above mentioned practice.
The Court therefore ruled that the Lithuanian law was inconsistent with the European prohibitions against unnecessarily restrictive requirements and was therefore void. As this case illustrates, care should be taken to avoid imposing restrictions on the procurement process that are overly broad and disproportionate to their intended purpose. In such instances, the principle of minimal intrusion should inform the creation of any regulatory requirements imposed on the public procurement process.
