Roschier regularly advises clients in relation to modifications to contracts awarded following a public procurement process and in relation to complex M&A transactions involving public procurement law issues. In connection with M&A transactions, a careful assessment must be made of the potential consequences that the transaction may have for public contracts entered into by any of the parties in the transaction.
In respect of public contracts, not only potential change of control clauses, but also the risk that the change of ownership in itself may be considered a material change to the agreement must be taken into consideration for the purpose of the transaction. It is fairly unusual for existing public contracts to be considered to have been materially amended as a result of an M&A transaction, but, given the risk that the contract could be annulled, the risk must be properly assessed.
Material amendments should be avoided
Practically any company that aims to excel within its markets must put considerable effort and thought into managing its agreements with external parties in order to protect the company's interests to the furthest extent possible. This is important not only when entering into agreements (for example when drafting and negotiating the agreement) or when participating in public procurements, but also very much so when managing agreements during their term.
A lot may change during the term of an agreement, and renegotiations or amendments may become crucial to one of or both of the parties. This could be because the conditions relevant to the commercial terms in the agreement have changed or because of changes in the ownership of any of the parties to the agreement.
For companies that are awarded many public contracts, managing amendments and renegotiations of these contracts also requires careful consideration in relation to public procurement law. The relevant principle is that material amendments to existing public contracts may be considered as new contracts, thereby requiring a new award procedure.
Consequently, failure to award the amended contract following a new award procedure may lead to the annulment of the amended contract, as well as fines being imposed on the contracting authority. When the contracts include specific amendment clauses, amendments made in accordance with the specific amendment clause will normally not be considered material.
Clarifications in the new procurement directives, but caution is still recommended
This general principle, that material amendments to existing public contracts may be considered new contracts, was originally established in case law from the European Court of Justice. Since then, the most important principles of what constitutes a material amendment have been codified in the new procurement directives. This codification includes important clarifications in the directives on, among other things, certain contract value amendment thresholds under which amendments are not material.
However, even if the directive has given some clarifications, many amendments to public contracts will still require looking closely at the facts of the particular case, the context in which the agreement was awarded etc., to determine if the agreement amendment is compatible with public procurement law.