EU Courts Clarify Application of Safe Harbours for Contract Modifications

The Court of Justice of the European Union has provided some clarity on the application of safe harbours for contract modifications under relevant EU directives in two recent cases. Our Public Procurement team considers the Advocate General Opinion and Judgment and what this means for modifications of contracts and concessions in practice.

What you need to know

The two EU cases relate to modifications of contracts after they have been entered into.

In Polismyndigheten, the Advocate General found that:

• Changes which modify the payment structure are substantial modifications.
• Where the overall contract value only changes marginally, the modification falls within the de minimis safe harbour.
• For a substantial modification to alter the overall nature of a contract it must change the subject matter or type of the contract.

In Fastned, the CJEU held that:

• Contract modifications must be assessed under the legislation in force at the time of the change.
• The unforeseeable circumstances safe harbour can apply even if the original contract was awarded without a tender, such as under the in-house exemption.
• However, the safe harbour does not apply if the modification merely addresses gaps in the original contract; the change must be necessary to allow proper performance of the original contract to continue.

The Court of Justice of the European Union (CJEU) has provided clarity on the application of safe harbours for contract modifications. This guidance comes from two recent decisions: an Advocate General’s opinion in the Polismyndigheten case[1], and a judgement in the Fastned Deutschland case[2]. These cases interpret the rules under Directive 2014/23/EU and Directive 2014/24/EU, referred to as the “Concessions Directive” and the “Procurement Directive”, respectively.

The Concessions Directive and Procurement Directive both recognise that contracting authorities are often faced with external circumstances that require flexibility to modify their contracts. Therefore, Article 43 of the Concessions Directive and Article 72 of the Procurement Directive, which contain essentially identical wording, allow for modifications of contracts and framework agreements without a new procedure in certain circumstances (so-called ‘safe harbours’).

Advocate General Opinion in Case C-282/24 Polismyndigheten

The Opinion concerned framework agreements between Polismyndigheten, the Swedish Police Authority, and providers of vehicle towing services. The agreements provided for a fixed price for towing services where the pickup point was within a 10km radius, with an additional price per kilometre for anything outside of that radius. The radius and price per km were subsequently increased.

The Advocate General (AG) considered whether these changes amounted to a substantial modification of the framework agreement. Article 72(7) of the Procurement Directive states that a modification is considered substantial if the modification:

• Introduces conditions which, had they been part of the initial procurement procedure, would have allowed for the admission of other candidates or another tender or attracted additional participants
• Changes the economic balance of the contract in favour of the contractor
• Extends the scope of the contract considerably
• Leads to the contractor being replaced

The AG considered that the modifications in question were substantial modifications as they profoundly modified the structure of remuneration.

He also considered the meaning of the concept of ‘an alteration of the overall nature’ of the contract. Two safe harbours in the Procurement Directive include a condition that the modification must not alter the overall nature of the contract. These are:

• Article 72(1)(c), which provides that modifications of contracts are permitted without a new procurement procedure where the need for modification has been brought about by circumstances which a diligent contracting authority could not have foreseen (the ‘unforeseeable circumstances safe harbour’)
• Article 72(4), which allows changes to contracts below certain thresholds (the so-called ‘de minimis safe harbour’)

The AG believed that the modifications did not involve alterations of the overall nature of the contract as the overall value of the contract only changed marginally. He stated that “the concept of an ‘alteration of the overall nature’ of the procurement implies modifications which go beyond mere substantial modifications”. These modifications are a “kind of ‘sub-category’ which includes the most serious cases of substantial modifications”.

He concluded that a substantial modification would only alter the overall nature of a framework agreement if that modification is likely to entail modifications to the subject matter or type of contract, which was not the case in Polismyndigheten.

Judgment in Case C‑452/23, Fastned Deutschland

The Judgment concerned the modification of concession contracts for the operation of service areas on German motorways.

Between 1996 and 1998, Germany concluded approximately 280 concession contracts with Tank & Rast AG, a company of which it was sole shareholder. The procurement was carried out without a prior call for tenders, relying on the exemption for in-house contracts. Tank & Rask was subsequently privatised and further concessions were awarded. In addition, Germany modified the concessions without an award procedure to include the construction and operation of charging stations for electric vehicles. It claimed that this modification benefitted from the safe harbour in Article 43(1)(c) of the Concessions Directive, i.e. the unforeseeable circumstances safe harbour. The wording of this provision is essentially identical to Article 72(1)(c) of the Procurement Directive.

Fastned and Tesla Germany GmbH operate charging infrastructure for electric vehicles. They argued that the modification of the concessions to include charging stations is ineffective and that a contract notice should have been published at EU level for the construction and operation of the stations in question.

The CJEU confirmed that a substantial modification must be assessed in light of the legislation applicable on the date of the modification. This means that the rules on modifications, including the safe harbours, apply to concessions originally granted to an in-house entity, and where the concession was not originally awarded through a competitive procedure. This is the case even where the entity subsequently no longer maintains the status of in-house entity. The CJEU also held that courts are not required to review the lawfulness of the original award of a concession where the limitation period for any challenge has expired, as was the case here.

The CJEU stated that the ‘need for’ a modification has been ‘brought about by circumstances which a diligent contracting could not have foreseen’ if those unforeseeable circumstances make it necessary to adapt the original contract to ensure that its proper performance may continue. This is not always the case simply because the contractual terms do not cover the situation resulting from unforeseeable circumstances which have arisen. Ultimately, however, the CJEU left it to the referring court to determine whether the unforeseeable circumstances safe harbour applied.

Comment

The Polismyndigheten Opinion and the Fastned Judgment provide important clarifications on the safe harbours for modifications of concessions and contracts under the Concessions Directive and the Procurement Directive.

Both the de minimis and the unforeseeable circumstances safe harbours include a condition that the modification must not ‘alter the overall nature of the contract’. In considering what is required for this condition to be met, the AG states that this goes beyond a substantial modification and is likely to entail modifications to the subject matter or type of contract. This appears to be a high bar. Importantly, it paves the way for authorities to rely on these safe harbours more widely than has previously been thought possible. It will be interesting to see if the CJEU concurs once its judgment is delivered.

In contrast, the CJEU takes a restrictive view of the circumstances in which the unforeseeable circumstances safe harbour is available. It highlighted that the safe harbour does not apply where a modification is required merely because the contractual terms do not cover the situation resulting from the unforeseeable circumstances. The unforeseeable circumstances must make it necessary to adapt the concession to ensure that its proper performance may continue. This indicates a higher threshold which, in practice, will be difficult to determine as the question of what changes may be permitted to ensure ‘proper performance’ of a contract will be highly fact specific.

For more information, please contact a member of our Public Procurement team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] C-282/24

[2] C-452/23