Procurement in a Nutshell – 30% limit on sub-contracting

The law

In EU law, Article 71 of Directive 2014/24 details that a contracting authority may ask a tenderer to indicate any share of the contract it intends to subcontract and any proposed subcontractors. Furthermore it also allows for member states to provide for more stringent liability rules under national law.

In Italian law, Article 105(2) of Legislative Decree 50/2016 provides that any subcontracting shall not exceed 30% of the total amount of a contract for works, services or supplies.

The facts

The Claimant was excluded from a tendering procedure on the ground that they had exceeded the 30% limit in respect of sub-contracting to third parties. Following this, the Claimant brought an action before the Regional Administrative Court, seeking readmission to the procedure and that court asked the European Court of Justice (“ECJ”) for a preliminary ruling of the legality of Article 105(2).

The judgment

The ECJ ruled that Directive 2014/24 must be interpreted as precluding national legislation.

The Italian government argued that the intention of limiting the use of sub-contracting was due to the sub-contracting having been one of the mechanisms used to carry out criminal operations. The court however found that the way in which the Italian government tried to enforce the limit was unnecessary in achieving the objective of combating organised crime within public procurement.

The court further argued that the law that the Italian government wished to rely on, did not allow for any consideration on a case-by-case basis by the contracting authority.

Why is this important?

While regulation 63(7) of the Public Contracts Regulations 2015 allows authorities to require that certain critical tasks are performed by a bidder or a consortium member, the regulation does not permit the use of percentage limited on the use of sub-contractors.

Case law

Back in 2016 in the case of Miasto na Prawach powiatu v Minister Infrastruktury I Rozwoju (Case C-406/14), a restricted procedure for the award of a public contract relating to the partial construction of a bypass was initiated. The tender specification included a requirement that the economic operator was obliged to perform at least 25% of the works using its own resources.

It was held that a Directive did not allow a contracting authority to stipulate in the tender specification that the contractor was to perform a percentage of the works using its own resources.

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 0330 137 3451.