Procurement in a Nutshell – Court confirms Contracting Authorities can utilise framework agreement in circumstances where they are not a direct party to it
18th January, 2019
On 19 December 2018, the Court of Justice of the European Union (CJEU) handed down a preliminary ruling in relation to the use of framework agreements.
In particular, the ruling concerned whether a Contracting Authority is capable of acting on its own behalf as well as on behalf of other Contracting Authorities which, although specifically referred to in the framework agreement, are not a direct party to that agreement.
Click here for the ruling.
The case concerned a framework agreement for environmental services which was entered into by the Regional Health and Social Care Authority of Lake Garda and ATI Markas who were the only economic operator appointed under the framework.
The agreement included an extension clause which, providing the economic operator agreed, permitted one or more of the bodies referred to in that clause to request that the contract be extended to cover them “subject to conditions identical to those of the relevant procurement contract”.
One such body was the Regional Health and Social Care Authority of Valmonica (the ASST of Valmonica) who decided to express their intentions to accede to the agreement. However, both the Coopservice, who were the incumbent provider of environmental services to the ASST of Valmonica, and the Italian Competition and Markets Authority objected to this on the basis that the extension clause contravened competition law.
Following its hearing of the matter, the Italian Council of State requested a preliminary ruling on each of the following points of law:
- Does a Contracting Authority have the power to act on its own behalf and on behalf of other Contracting Authorities specifically indicated, which are not, however, direct parties to the framework agreement; and
- Is it possible for Contracting Authorities that are not signatories to a framework agreement to refrain from determining the quantity of services that may be required when they conclude subsequent contracts or to determine that quantity by reference to their usual requirements.
Can a Contracting Authority act on behalf of other Contracting Authorities?
Not unsurprisingly, and in line with the wording in Regulation 33 of the Public Contracts Regulations, the CJEU confirmed that it is not an essential requirement that a Contracting Authority be an original party to the Framework Agreement.
In this regard, the Court stated:
“It is sufficient that such a Contracting Authority appear as a potential beneficiary of that framework agreement from the date on which it is concluded by being clearly identified in the tender documents with an explicit reference that makes both the ‘secondary’ Contracting Authority itself and any interested operator aware of that possibility.”
Consequently, in this instance and in line with the CJEU’s judgment, it appears highly likely that the extension clause was sufficiently clear in referencing the ASST of Valmonica given that they were specifically mentioned in the extension clause.
However, going forwards, any Contracting Authorities looking to make use of a similar arrangement should be sure to be explicit about their proposed intentions and the fact that other organisations are entitled to make use of the framework.
Can Contracting Authorities who are not signatories to the original framework agreement refrain from setting out the quantity of services which may be required in subsequent contracts?
In answering the above question, the CJEU acknowledged the principles of equal treatment, non-discrimination and transparency as well as noting the provisions of the Procurement Directive which state that:
“a framework agreement must, at the outset, determine the maximum volume of supplies or services that may form the subject of subsequent contracts.”
In line with this, the Court went on to state:
“where a framework agreement is concluded with a single economic operator, contracts based on that agreement must be awarded within the limits of the terms laid down in the agreement. It follows that the Contracting Authority that is an original party to the framework agreement can make commitments on its own behalf or on behalf of the potential Contracting Authorities that are specifically indicated in that agreement only up to a certain quantity and once that limit has been reached the agreement will no longer have any effect.”
When taking this into account it is clear that a framework agreement must set out “the maximum volume of supplies or services that may form the subject of subsequent contracts” as, once the stated value of services defined in the Agreement has been exceeded “the agreement will no longer have any effect”.
Why is this important?
The use of framework agreements can prove far more efficient for Contracting Authorities than putting individual contracts out to tender in each and every instance. However, the judgment shows that there are associated complexities which can be heightened where multiple Contracting Authorities are seeking to make use of the same framework agreement.
As such we would strongly recommend seeking advice before entering into a framework, especially where this involves multiple Contracting Authorities.
How can I find out more?
If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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