Regulation 71 – Subcontracting

Commentary

Regulation 71 PCR2015 transposes Article 71 of Directive 2014/24/EU concerning rules applicable to subcontracting. Regulation 71 brings specific rules on how to deal with subcontracting situations, a (partial) novelty to the Public Contracts Regulations as the 2006 Regulations already included some rules. Here, they have been very much expanded. This is an area where the Commission introduced novelties to foster SMEs’ (indirect) participation in procurement through streamlined subcontracting opportunities, as well as some rules strengthening the supply/value added chain monitoring possibilities for contracting authorities. This can be observed, for example on Recital (105) of Directive 2014/24/EU. 

In that regard,  and without prejudice to the main contractor’s liability vis-a-vis the contracting authority (Regulation 71(2) PCR2015); that is, without establishing a direct contractual relationship between the subcontractor(s) and the contracting authority), the latter may ask tenderers to indicate any share of the contract that they may intend to subcontract to third parties and any proposed subcontractors (Regulation 71(1) PCR2015), and it shall do so where works and/or services are to be provided at a facility under the direct oversight of the contracting authority (Regulation (3) PCR2015). Any changes in the subcontracting structure for the contract need to be notified to the contracting authority promptly (Regulation 71(4) PCR2015). Contracting authorities can extend this obligation to certain contracts not carried out in facilities under the direct oversight of the contracting authority, as well to suppliers involved in works or services contracts, and they can go down the chain beyond the first subcontracting tier (Regulation (7) PCR2015).

By and large the contracting authority is left with the discretion to require information about the sub-contractors (and sub-sub-contractors…) and also to investigate their compliance with the requirements of Regulations 57, 59, 60 and 61. It may decide not to bother with requesting any information from sub-contractors but if it does check for the mandatory exclusion grounds and they are present, the affected sub-contractor must be excluded from the contract. This makes sense and it is a shame that the same conclusion has not been taken for abnormally low tenders (where even if a tender is found to be abnormally low, the contracting authority retains the discretion of excluding it or not).

The exception to the discretion of meddling into the sub-contracting swamp is for works contracts and some services contracts (paragraph 3), but not for supplies (paragraph 6). In these, the contracting authority must require from the main contractor the identity of the sub-contractors and the registry of sub-contractors needs to be kept up to date by the main contractor (paragraph 4). However, even in these situations, the contracting authority is not under the obligation of checking for grounds for exclusion.

The possibility of “spot checking” sub-contractors does raises the odds for non-compliant economic operators to be found out “hiding” as sub-contractors instead of appearing as main contractors where they would not be able to pass a selection stage. We have no idea how prevalent this is practice or if it is just a red herring but it seems that the “nudge” given to contracting authorities to keep on checking sub-contractors is a reasonable way to close a loophole for non-compliant economic operators. The alternatives would be to not have any rules whatsoever or to make the checks mandatory.

This immediately places the contracting authority in a situation where it can monitor and influence the subcontracting activity related to a given contract. However, the transposition of Article 71 of Directive 2014/24/EU in Regulation PCR2015 has not maximised the subcontracting management possibilities foreseen in the EU rule.

Regulation 71 PCR2015 does not include some of the optional mechanisms in Article 71 of Directive 2014/24/EU, such as the possibility to create mechanisms of direct payment to subcontractors as per Article 71(3) and (7) of Directive 2014/24/EU. However, there are specific rules in Regulation113 of Part 4 PCR2015 [CROSSREF] requiring that 30 day payment terms are flowed down the public sector supply chain, which may mitigate the effects of such transposition option.

The new rules in Regulation 71 PCR2015 also try to mitigate the burden of controlling the supply chain that contracting authorities may otherwise face. It is interesting to note that Article 71(1) of Directive 2014/24/EU stresses that “Observance of the obligations referred to in Article 18(2) by subcontractors is ensured through appropriate action by the competent national authorities acting within the scope of their responsibility and remit.” Consequently, the duty for contracting authorities to monitor and ensure compliance with environmental, social and labour law by subcontractors is limited to the general principle of Regulation 56(2) PCR2015, which refers to the tender itself and seems to restrict the scope of monitoring obligations in a significant way. 

This is without prejudice of their discretion to check that subcontractors are not affected by exclusion grounds under Regulation 57 PCR2015 (reg.71(8) PCR2015) and seems to fall short from the possibilities foreseen in Article 71 of Directive 2014/24/EU (and, particularly, the lack of transposition of rules imposing joint liability between subcontractors and the main contractor for compliance with environmental, social and labour law (which is, however, not excluded and thus subjected to general contract and tort law principles).

In relation to the enforcement of exclusion grounds on subcontractors, Regulation 71(9) PCR2015 determines that the contracting authority shall require that the economic operator replaces a subcontractor in respect of which the verification has shown that there are compulsory grounds for exclusion; and may require the economic operator to do so where there are non-compulsory grounds for exclusion.

Subcontracting and competition 

Beyond these supply/value added chain management issues, subcontracting can trigger competition-related concerns that also deserve some thought. In that regard, please see A Sanchez Graells  Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 215) 353-355.

Last modified: December 5, 2016 by Pedro Telles

Giving information to contracting authorities

71.—(1) In the procurement documents, the contracting authority may ask the tenderer to indicate in its tender any share of the contract that it may intend to subcontract to third parties and any proposed subcontractors.

(2) Paragraph (1) is without prejudice to the main contractor’s liability.

(3) In the case of works contracts and in respect of services to be provided at a facility under the direct oversight of the contracting authority, after the award of the contract and at the latest when the performance of the contract commences, the contracting authority shall require the main contractor to notify to the contracting authority the name, contact details and legal representatives of its subcontractors, involved in such works or services, in so far as known at the time.

(4) The contracting authority shall require the main contractor to notify the contracting authority of—

(a)any changes to the information notified under paragraph (3) during the course of the contract; and

(b)the name, contact details and legal representatives of any new subcontractors which the main contractor subsequently involves in such works or services.

(5) Where necessary for the purposes of paragraph (8), the required information shall be accompanied by ESPDs in respect of the subcontractors.

(6) Paragraphs (3) and (4) do not apply to suppliers.

(7) Contracting authorities may extend the obligations provided for in paragraphs (3) and (4) to, for example—

(a)supply contracts, services contracts (other than those concerning services to be provided at the facilities under the direct oversight of the contracting authority) or suppliers involved in works or services contracts;

(b)subcontractors of the main contractor’s subcontractors or subcontractors further down the subcontracting chain.

Excluding subcontractors

(8) Contracting authorities may, in accordance with regulations 59, 60 and 61, verify whether there are grounds for exclusion of subcontractors under regulation 57.

(9) In such cases, the contracting authority—

(a)shall require that the economic operator replaces a subcontractor in respect of which the verification has shown that there are compulsory grounds for exclusion; and

(b)may require that the economic operator replaces a subcontractor in respect of which the verification has shown that there are non-compulsory grounds for exclusion.