Why EU Member States consider subcontracting so irritating and threatening – the new case referral Vitali SpA v Autostrade per l’Italia SpA (Case C-63/18)

From case law reminisced below and the new case referral, it seems that some EU countries view the institution of subcontracting as a threat to the integrity of the public procurement.

Why one bidder wins the tender, and another is performing the contract? Of course, the question is blatantly tendentious and from its outset alludes to the lack of transparency and equal treatment violations when it comes to subcontracting. It is a sensitive issue, in which the language of the Directive 2014/24 neither reflects the actual nature of subcontracting nor incorporates the relevant case-law. Let’s not forget that the Directive 2014/24 is not a model law but a reflection of a consensus.  

On the issue of restrictions of subcontracting the ECJ case law seems unambiguous, that is why it is surprising that a new case on the subject was referred to the ECJ, Vitali SpA v Autostrade per l’Italia SpA (C-63/18). The Italian Court wants to find out if legislation in which a cap of 30 % on subcontracting is compatible with the freedom of establishment right and freedom to provide services, Article 71 of the Directive 2014/24 on subcontracting and the principle of proportionality.

Before diving into the referred case, reminiscing through old-new cases on the subject will make the solution to this case emerge by itself.

Siemens and ARGE Telekom case

The Siemens case C-314/01, ECLI:EU:C:2004:159, concerned an Austrian tender which in its call for competition prohibited more than 30% of that contract to be subcontracted. The ECJ stressed back then in 2004 (examined under the Directive 92/50) that a prohibition or restriction on subcontracting may be allowed in situations where the contracting authority has not been in a position to verify the technical and economic capacities of the subcontractors [para 45]. In different wording, this means that if the contracting authority can check the ‘technical and economic capacities’ of the subcontractor, subcontracting cannot be prohibited or restricted, at least at the tendering stage.

This implies a general rule that subcontracting shall be allowed. Further, the ECJ established a positive obligation on the part of the contracting authority to look into the suitability and capability of the subcontractor. Finally, as an exception, the contracting authority may prohibit subcontracting if it is impossible to verify them accordingly. Nonetheless, I cannot imagine a situation in which the contracting authority knows before publishing the call for competition, that the verification of the subcontractor would go beyond its possibilities and amount to an unattainable endeavour. The non-submission of relevant documents shall imply only individual disqualification of the bidder but not a general prohibition of subcontracting.

Wrocław case

In Wrocław case C‑406/14, ECLI:EU:C:2016:562, the ECJ found that a minimum cap on direct performance of the public contract, i.e. restricting subcontracting, was incompatible with the Directive 2004/18 because it was (i) ‘fixed in abstract terms as a certain percentage’ (25% of the works), (ii) ‘irrespective of the possibility of verifying the capacities of potential subcontractors’ (iii) ‘without any mention of the essential character of the tasks which would be concerned’.Wrocław adds to the Siemens case the following. The restriction on subcontracting may be justified by objective factors proportionate and related to the subject-matter of the contract. Consequently, the limitation fixed by an abstract figure that has no explanation or rationale cannot be accepted. And of course, the Siemens rule – without taking into account the possibility to verify the subcontractor.

Borta case

In Borta case C-298/15, EU:C:2017:266, the ECJ answered that a restriction in which the awardee was obliged to perform the ‘main works’ directly was considered to be contrary to the freedom of establishment right and freedom to provide services. The ECJ pointed out that, such a restriction renders less attractive the cross-border participation of economic operators since it prevents them either from subcontracting to third parties all or part of the works identified as the ‘main works’ or from proposing their services as subcontractors for that part of the works.

Further, the ECJ, contemplated that such a restriction may be justified only (i) in so far as it pursues a legitimate objective in the public interest, and (ii) to the extent that it complies with the principle of proportionality. However, in the Borta case, the objective of the proper execution of the works went beyond what is necessary, because it prohibited in a general manner reliance on subcontractors for works treated as ‘main’ works. The ECJ finally alluded that a bespoke approach is necessary rather than an across the board restriction. The Court politely suggested that particularities such as the economic sector concerned by the contract, the nature of the works and the qualifications of the subcontractors, shall be considered.

What’s new in Vitali case?

The Vitali case as scarce facts point is caught by the Directive 2014/24. The cases above concern older procurement directives.