Regulation 13 – Contracts subsidised by contracting authorities

Commentary

Regulation 13 establishes coverage rules for contracts subsidised by contracting authorities, which are identical to those of Art 13 of Directive 2014/24/EU

The rules are straightforward and intend to catch works contracts and services contracts connected to those works when a contracting authority subsidises them by more than 50%, provided:

i) their value is above the relevant thresholds (again, including a direct reference to the values in Directive 2014/24/EU, which creates the same issues discussed in relation to Regulation 5, and

ii) the works involve civil engineering activities as listed in Schedule 2 PCR2015, or building work for hospitals, facilities intended for sports, recreation and leisure, school and university buildings and buildings used for administrative purposes.

The Regulation is not clear if the 50% funding threshold depends on a single contracting authority or can be cumulatively analysed when different contracting authorities chip in part of the subsidy, together bringing the total subsidy for the contract above 50%. The way the provision is drafted, mentioning “contracting authorities” and its logic (to avoid a loophole) leads us to think that the second interpretation is correct.

Connected with the previous point, the responsibility of financing contracting authorities, which “shall ensure compliance” with Part 2 of the PCR2015 (and Directive 2014/24/EU) “where they do not themselves award the subsidised contract or where they award that contract for and on behalf of other entities” warrants some comments. This provision has been strengthened from its previous wording in Article 8 of Directive 2004/18/EC: “Member States shall take the necessary measures to ensure that the contracting authorities awarding such subsidies ensure“, which set a sort of two-tier compliance responsibility that made it rather diffuse, under a sort of “best effort” approach and now seems to place a much more direct and objective responsibility on funding contracting authorities to ensure compliance with the public procurement rules. 

The issue of liability for lack of compliance with procurement rules is one that is bound to trigger litigation and interpretative difficulties, particularly as cooperative procurement is involved (see comments to Regulation 37). Hence, it is important to stress that funders of works covered by this Regulation, if they themselves are contracting authorities, retain liability for infringement of the procurement rules, which may well incentivise them to tender the contract directly.

Finally, the Regulation introduces a couple of small novelties. Whereas Article 13(1)(a) refers to a threshold of €5,186,000 and 13(1)(b) to €207,000 before the Directive is deemed applicable, the Regulation instead makes a direct cross-reference to the Article, effectively leaving in the hands of EU lawmakers any future update to these values. This is a safe option, however in alternative, the Regulation could have either provided its own values or – more likely – refer to the threshold rules of Regulation 5. As it stands, there is a slight risk that if the thresholds change in the future, this Regulation and the underlying Article may be out of sync with those new thresholds. Again, this is more a problem with the Directive than with the transposition itself.

Last modified: July 4, 2016 by Pedro Telles

13.—(1) This Part applies to the awarding of the following contracts:—

(a) works contracts which are subsidised directly by contracting authorities by more than 50% and the estimated value of which, net of VAT, is equal to or greater than the sum specified in Article 13(a) of the Public Contracts Directive, where those contracts involve any of the following activities:—

(i) civil engineering activities as listed in Schedule 2;

(ii) building work for hospitals, facilities intended for sports, recreation and leisure, school and university buildings and buildings used for administrative purposes;

(b) service contracts which are subsidised directly by contracting authorities by more than 50% and the estimated value of which, net of VAT, is equal to or greater than the sum specified in Article 13(b) of the Public Contracts Directive and which are connected to a works contract as referred to in paragraph (a).

(2) References in paragraph (1) to the Public Contracts Directive are references to that Directive as amended from time to time.

(3) The contracting authorities providing the subsidies referred to in paragraph (1) shall ensure compliance with this Part where they do not themselves award the subsidised contract or where they award that contract for and on behalf of other entities.