Regulation 70 – Conditions for performance of contracts

Commentary

Regulation 70 PCR2015 transposes the rules of Article 70 of Directive 2014/24 on conditions for contract performance or contract performance clauses, whereby contracting authorities may lay down special conditions relating to the performance of a contract, provided that they are linked to the subject-matter of the contract within the meaning of Regulation 67(5) PCR2015/Art 67(3) of Directive 2014/24/EU, and indicated in the call for competition or in the procurement documents. It also clarifies that those conditions may include economic, innovation-related, environmental, social or employment-related considerations. Examples of reasonable contract performance clauses: a) obtaining a recycling rate over x% of materials disposed during building works; b) powering a festival only with renewable energy; iii) releasing in open source whatever intellectual property was developed in the contract development.

Contract compliance clauses can be criticised because they are an easy way of imposing restrictions on participation of economic agents by including forward-looking criteria that would require significant monitoring after contract award. The argument is as follows:

An (admittedly controversial) way in which competition could be distorted and equal treatment not guaranteed would be by means of the introduction of requirements that are not possible to validate at tender evaluation stage by the contracting authority, independent certifying companies or other tenderers – or, in the event of a review of the contracting decision, by the review board or authority. Such requirements would be largely related to ‘contract compliance’ conditions or ‘conditions for performance of contracts’ and to commitments by tenderers to accept the contractual obligation to develop a certain activity or to comply with certain forward-looking requirements. This is in principle openly accepted in the modernised rules of both Regulation 70 PCR2015 and Article 70 of Directive 2014/24/EU. However, it is important to stress that the CJEU has recently quashed the use of this provision for purposes such as the establishment of minimum wage requirements, given that it would prevent economic operators from exploiting their competitive (cost) advantages, see Bundesdruckerei C-549/13, EU:C:2014:2235. 

In these cases, competition could be rather easily distorted by strategic tenderers offering to comply with those additional requirements ex ante—thereby formally complying with the award criterion—and breaching the contractual covenant ex post—being then subject to penalties or other contractual remedies, which are largely irrelevant for analytical purposes. In similar terms, harbouring doubts about the legality of forward-looking award criteria, see Racca, Cavallo Perin & Albano, ‘Competition in the Execution Phase of Public Procurement’ (2011) 41(1) Public Contract Law Journal 89. 

Ensuring that the award of contracts according to this type of award criteria— particularly if they are given significant weight by the contracting authority—does not result in discrimination or a distortion of competition through the strategic behaviour of tenderers (and, eventually, of contracting authorities) would require a significant amount of monitoring and surveillance after the award of the contract—which is costly and difficult to conduct by any agent other than the parties to the contract. In such circumstances, the room for discrimination and distortions of competition is widened and, consequently, the possibilities for the exercise of unlimited discretion and for the generation of discriminatory and anti-competitive outcomes might be unduly increased. 

In this regard, unless very relevant circumstances make the adoption or weighting of such criteria essential or difficult to avoid in relation to the subject-matter of the contract, contracting authorities are bound not to adopt, or to give marginal weight to, award criteria of a forward-looking nature that are not possible to verify or validate at tender evaluation stage (or, more generally, before contract implementation). On the ban against using award criteria that are not possible to verify, see Case C-448/01 EVN and Wienstrom [2003] ECR I-14527 52. However, cf. with the situation in Case C-19/00 SIAC Construction [2001] ECR I-7725.

Regardless of this criticism, the use of contract compliance clauses has been rather popular in some jurisdictions. These clauses have been used in parts of the UK (mostly Scotland and Wales as far as we know) under the guise of community benefits clauses. An example of a community benefit clause is the need for the contractor to take on apprenticeships on a construction contract. Is this performance clause linked to the subject matter of the contract? We would say no. This is a mixed contract composed of works and services. The apprenticeship part is a separate part (contract) and one that should be analysed separately with its own set of award criteria. Otherwise the contracting authority may be “taken for a proverbial ride” as it is not assessing how good the contractor is in delivering that part of the contract. Furthermore, companies that specialise in training are out in the cold: they cannot bid for the contract and there is no incentive for a construction company to get them in a consortia as that costs money and the training element is not being measured at the award stage. Finally: some apprenticeships have to last for longer than the main contract duration, ie electrical services: would they still pass the subject-matter link test? Again we do not think so. No to mention the fact that this type of requirements is per se locally-based and tends to create geographical barriers to participation in public contracts, which is frontally against EU procurement law.

There is another big problem with this idea of contract performance obligations: the fact that they are to be disclosed at the start of the procedure albeit not being part of the award criteria. Why is this a problem? Because suppliers will have an incentive of coming with ever more outrageous ways of complying with those contract performance clauses in an attempt to influence the contracting authority during the award stage.

Another issue lies in the difficulty of determining where the boundary lies once more for requirements such as paying a living wage instead of the minimum wage. Imposing as a contract performance condition the UK’s living wage as a minimum would be illegal by contravening the Posted Workers Directive, however we do not see a problem if the contracting authority stated that it wants workers to be paid say at least 10% more than the applicable minimum wage, wherever the workers are coming from.

Last modified: December 5, 2016 by Pedro Telles

70.—(1) Contracting authorities may lay down special conditions relating to the performance of a contract, provided that they are—

(a)linked to the subject-matter of the contract within the meaning of regulation 67(5), and

(b)indicated in the call for competition or in the procurement documents.

(2) Those conditions may include economic, innovation-related, environmental, social or employment-related considerations.