Public Procurement: Taking Over of the Obligations of the Consortium Leader is not a Change of Contractor

The European Commission confirmed that a new public procurement procedure is not required in order to take over of the obligations of the consortium leader (in insolvency) by way of enforcing a joint liability clause.

Factual background

We were confronted recently with a need to identify solutions to allow continuation of a public procurement contract concluded with a consortium after the leader of the consortium entered insolvency proceedings and was no longer able to fulfil its contractual obligations. The judicial administrator decided that the consortium leader should withdraw from the consortium and the public procurement.

The public procurement contract included a clause for joint liability of members in consortium towards the contracting authority.

A solution to enable the continued performance of the contract, without the need for a new tender procedure, was to enforce the joint liability clause against the remaining member and ask it to fulfil the rest of the contract.

However, if, upon leader’s insolvency date, the remaining member had the technical and financial capacity to fulfil the rest of the contract as at the awarding date, it did not fulfil by itself all the awarding qualification criteria.

Under such circumstances, a question was raised whether enforcement of a joint liability clause under a public procurement contract against the remaining member in the consortium can be applied without such being deemed as a substantial change of the contract; that is, a change of contractor, subject to a new public tender.

Position of the European Commission

The European Commission confirmed that taking over the consortium leader’s obligation by the remaining member based on the joint liability clause is not deemed a change of contractor but rather as enforcement of a contractual clause; that is, of the joint liability clause established on behalf of the consortium’s members in case the leader does not fulfil its contractual obligations.

Notes to the position of the European Commission

We salute this interpretation by the European Commission as a contrary opinion would have left the joint liability clause with no legal effect, weakening the position of the awarding authority in public procurement contracts concluded with consortia.

However, when enforcing such a joint liability clause, the other rulings of the European Court of Justice and the previous guidance by the European Commission on the substantial change of the contract should also be observed. Thus, we believe that:

  • enforcement of the joint liability clause should not result in a new condition additional to the initial tender that would trigger infringement of the equal treatment principle. To this end, the tender documentation (ie, the contractual conditions) made public to all bidders must expressly provide for joint liability of partners if the contract is concluded with a consortium;
  • continued performance of the contract by the remaining member should not determine (i) a change in the economic balance of the agreement for the benefit of such consortium member or (ii) a substantial extension of the scope of the contract so as to include assets, services, or works beyond those initially agreed upon.

To the extent the remaining member has the technical and financial capacity to continue performance of the contract, the clarifications brought by the European Commission are likely to help keep public procurement contracts on track where the leader is no longer able to fulfil its obligations due to insolvency or otherwise.