Subcontracting in the European Public Procurement. The Italian scenario

1. Subcontracting in the European Public Procurement. The Italian scenario Avv. Roberto Panetta LL.M. Ph.D. ISCL Secretary General Bucharest, October 26, 2018

2. Subcontracting and SMEs • SME are usually not able to participate in large projects as they do not have extensive knowledge and skills. • Subcontracting is one of the most adopted means to involve SMEs in large works or services. • Public procurement and the participation of SMEs “Public procurement should be adapted to the needs of SMEs. Contracting authorities should be encouraged to make use of the Code of Best Practices set out in the Commission Staff Working Document of 25 June 2008 entitled ‘European Code of Best Practices Facilitating Access by SMEs to Public Procurement Contracts’, providing guidance on how they may apply the public procurement framework in a way that facilitates SME participation”(Recital 78 of the European Directive 24/2014).

3. Division of works and subcontracting “To that end and to enhance competition, contracting authorities should in particular be encouraged to divide large contracts into lots. Such division could be done on a quantitative basis, making the size of the individual contracts better correspond to the capacity of SMEs, or on a qualitative basis, in accordance with the different trades and specialisations involved, to adapt the content of the individual contracts more closely to the specialised sectors of SMEs or in accordance with different subsequent project phases”(Recital 78 of the European Directive 24/2014).

4. Division of works and subcontracting “The size and subject-matter of the lots should be determined freely by the contracting authority, which, in accordance with the relevant rules on the calculation of the estimated value of procurement, should also be allowed to award some of the lots without applying the procedures of this Directive. The contracting authority should have a duty to consider the appropriateness of dividing contracts into lots while remaining free to decide autonomously on the basis of any reason it deems relevant, without being subject to administrative or judicial supervision. Where the contracting authority decides that it would not be appropriate to divide the contract into lots, the individual report or the procurement documents should contain an indication of the main reasons for the contracting authority’s choice. Such reasons could for instance be that the contracting authority finds that such division could risk restricting competition, or risk rendering the execution of the contract excessively technically difficult or expensive” [omissis]. (Recital 78 of the European Directive 24/2014)

5. Subcontracting and SMEs (cont’d) “Member States should remain free to go further in their efforts to facilitate the involvement of SMEs in the public procurement market, by extending the scope of the obligation to consider the appropriateness of dividing contracts into lots to smaller contracts, by requiring contracting authorities to provide a justification for a decision not to divide contracts into lots or by rendering a division into lots obligatory under certain conditions. With the same purpose, Member States should also be free to provide mechanisms for direct payments to subcontractors”.

6. Subcontracting and case law Such attitude to opening the door to subcontracting is also supported by the case law: • The European Court of Justice pointed out that under Directive 50/92, the tenderer is entitled to subcontract to third parties any share of contract. To this end, the contracting authority can ask the tenderer to indicate the shares of contract it intends to subcontract (ref. Siemens – Arge Telekom, March 18, 2004).

7. Subcontracting and case law The European Court of Justice has also pointed out that a clause that prevents the subcontracting of any kind of works is in contrast with EU Law and, as a result, has declared that any contract/clause that violates such provision is not authorized (ref. Edilux – Sicef, October 22, 2015). • Such clause would be in contrast with the principle of proportionality!

8. Subcontracting and case law According to the European Court of Justice, “a contracting authority is not authorized to require, by a stipulation in the tender specifications of a public works contract, that the future contractor of that contract performs with its own resources a certain percentage of the works covered by that contract”. In particular, “The fact that a contracting authority imposes a requirement that the future contractor performs by means of its resources at least 25% of those works constitutes an “irregularity” within the meaning of article 2 para 7 of Council Regulation 1083/2006”(Wroclaw Miasto na prawach powiatu v. Minister Infrastruktury i Rozwoju, July 14, 2016).

9. Subcontracting from the Italian Perspective • Private contractors will be able to enter into subcontracts or agreements with third parties for services, supplies or works included in their contracts provided that (i) the relevant subcontracted quota does not exceed 30% of the contractual value, (ii) the private contractor received prior authorization from the contracting authority, and (iii) the ability to subcontract is expressly provided in the call for tenders. • Any bidder shall explicitly indicate in its offer any share of the contract it intends to subcontract to third parties, the name of the proposed subcontractors and prove that there are no grounds for excluding such subcontractors.

10. European Legislation vs/and Italian Legislation • The European Commission has recently contested the Italian regulation and in particular article 105 para 2 of the Code of Public Contracts as it alleges that such provision would introduce a general prohibition to subcontract to third parties, and this is in apparent contrast with the European principles provided for by EU Law and case law. Italy runs the risk of being sanctioned!!!

11. MANY THANKS FOR YOUR KIND ATTENTION Contact info: roberto.panetta@avvocatopanetta.it info@iscl.it