CJEU: Obligation to indicate maximum purchase under framework agreement

The Court of Justice of the European Union (the "CJEU") established in a landmark ruling of 17 June 2021 that a contracting entity inviting tenders for a framework agreement is obliged to indicate the maximum quantity or value of the supplies or services that may become the subject of subsequent contracts. The contracting entity is bound by the quantity or value indicated, and the framework agreement will no longer have any effect when the quantity or value indicated is reached.

Background

In 2019, Region Nordylland (the Central Denmark Region) ("RN") issued an invitation to tender for a framework agreement concerning the supply of enternal access devices for housebound patients and institutions.

Following RN's award of the framework agreement, Simonsen & Weel A/S ("SW") filed a complaint with the Danish Public Contracts Appeals Board, claiming that RN had infringed the principles of equal treatment and transparency by not having indicated, in the contract notice, the maximum quantity or value of the supplies contemplated under the framework agreement. SW referred to the CJEU's judgment in case C-216/17, Autoritá, where the CJEU established that under the rules of the previous Public Procurement Directive, there was an obligation to indicate the maximum quantity or value of the supplies or services that could be purchased under subsequent contracts.

However, the Danish Public Contracts Appeals Board decided to stay proceedings and refer a number of preliminary questions to the CJEU, including whether a contracting entity is also obliged under the provisions of the new Public Procurement Directive to indicate in the contract notice the maximum quantity or value of the supplies or services that may become the subject of subsequent contracts, and whether the framework agreement in question will no longer have any effect once this limit has been reached. 

The CJEU's judgment

The CJEU notes initially that, in isolation, some provisions in the Public Procurement Directive may leave the impression that a contracting entity enjoys a margin of discretion in terms of whether the contracting entity is obliged to indicate the maximum quantity or value of the supplies or services that may become the subject of subsequent contracts. 

However, referring to the principles of equal treatment and transparency and the general scheme of the Directive, the CJEU finds that the CJEU cannot uphold an interpretation of the provisions of the Directive implying that the contracting entity can refrain from indicating the maximum quantity or value. In support of this, the CJEU points to the following reasons:

  • Other provisions in the Public Procurement Directive dictate that the maximum quantity or value of the supplies or services that may become the subject of subsequent contracts must be determined in advance. This involves, in particular, provisions on the calculation of the estimated value of the procurement according to which the value to be taken into consideration in connection with the invitation to tender for framework agreements is the estimated maximum value exclusive of VAT of all the contracts expected to be awarded within the term of the framework agreement; and Annex V to the Directive with the information to be indicated in the contract notice, which includes the quantity or the value of the supplies or services in question. 

  • The contracting entity's indication of the maximum quantity or value of the supplies or services that may become the subject of subsequent contracts is essential to the tenderers as, on the basis of it, the tenderers will be able to estimate their ability to fulfil obligations under the framework agreement. 

  • If the maximum quantity or value is not to be indicated, or if such a quantity or value is not legally binding, a contracting entity will be able to deviate from the maximum quantity or value. This will mean that the contracting entity may institute proceedings against the successful tenderer for failure to fulfil its obligations under the framework agreement, if the successful tenderer is unable to supply the quantities subsequently requested by the contracting entity, even if they exceed the maximum quantity or value. 

  • Finally, a requirement that the contracting entity must indicate the maximum quantity or value of the goods and services that may become the subject of subsequent contracts will ensure compliance with the fundamental principles of equal treatment and transparency applying to the award of public contracts and will be a manifestation of the prohibition on using framework agreements improperly or in such a way as to prevent, restrict or distort competition.

Based on the above, the CJEU concludes that there is an obligation on the part of the contracting entity to indicate the maximum quantity or value of the supplies or services that may become the subject of subsequent contracts, and that the contracting entity is bound by the indicated quantity or value. When the indicated quantity or value has been reached, the framework agreement will no longer have any effect, and consequently it cannot be used to put off the contracting entity's obligation to issue an invitation to tender. 

However, the CJEU adds the following key observations: 

  • Under Article 72 of the Public Procurement Directive, significant modifications may be made to framework agreements, as long as such modifications are not substantial, provided that there is agreement to do so.  

  • The obligation to indicate the maximum quantity or value can be met either in the contract notice or in the specifications, provided that the tenderers have unrestricted and direct access to such information free of charge, ie the tenderers' access to the specifications must not be subject to their prior confirmation of interest to the contracting entity. 

Finally, the CJEU declares with respect to the consequences of failure to indicate the maximum quantity or value of the supplies or services that may become the subject of subsequent contracts that this cannot constitute a sufficiently serious infringement of the procurement rules to impose the sanction "ineffective". This sanction is confined to the most serious breaches of public procurement law, and it would be disproportionate to expand the application of this sanction to also comprise a situation where the contracting entity has published a contract notice and made the specifications available to the tenderers but has not indicated the maximum quantity or value.

Practical effects of the judgment

This is a judgment in principle, as it dismisses recent years' doubt as to the contracting entity's obligation to indicate, in connection with invitations for tenders for framework agreements, the maximum quantity or value of the supplies or services that may become the subject of subsequent contracts, and the consequences when the indicated quantity or value has been reached. Accordingly, the judgment is of fundamental importance to the contracting entity's invitations to tenders for framework agreements in future. 

For contracting authorities, the practical effects are that, prior to all invitations to tender for framework agreements, they must determine the maximum quantity or value of the goods and services that may become the subject of subsequent contracts and to indicate this quantity or value either in the contract notice or in the specifications (provided that they may be accessed free of charge, unlimited and directly by the tenderers). The contracting entity must carefully consider the maximum quantity or value, as the framework agreement will no longer have any effects when this quantity or value has been reached. 

Next, contracting authorities must - precisely as a consequence of the framework agreement no longer having any effect when the maximum quantity or value has been reached - find a method to "keep an eye on" the purchases under the framework agreement in order to ensure that the total maximum quantity or value is not exceeded, and that a new invitation to tender is issued in time to cover the contracting entity's purchasing requirements within the existing framework agreement until a new framework agreement has been concluded. This is also key to minimising the risk of complaints about purchases under the framework agreement after the total maximum quantity has been reached. However, contracting entities must be aware that you cannot simply indicate an unrealistically high maximum quantity or value to ensure that your purchasing requirement will undoubtedly be covered within the framework agreement.

For suppliers, the effect is that, in future, they will obtain a higher degree of certainty, as it will be easier for suppliers to assess their abilities to fulfil the obligations under a framework agreement before submitting tenders for it. In addition, suppliers being awarded a framework agreement cannot be obliged to make supplies in excess of the maximum indicated in the framework agreement. However, there may be an element of uncertainty, as there is a risk that a framework agreement no longer has any effect and thus cannot be applied long before it was to expire according to the agreed duration. This may pose an element of uncertainty in relation to investments, employees etc, which the supplier has to take into account when submitting a tender.

The CJEU also mentions the possibility of modifying framework agreements, provided that the modifications are not substantial. This leaves room for additional purchases under the framework agreement during the term of that agreement, if such modifications are lawful under the rules governing modifications to contracts. It will, as a starting point, be a lawful modification if the value of the modification is not greater than the threshold amounts stated in the Procurement Act and, furthermore, is not greater than 10% of the original agreement, if it concerns the purchase of services or goods, or 15% of the original contract, if it concerns public works.

Read the CJEU's judgment of 17 June 2021

Read the Danish Public Contracts Appeal Board's decision on the reference of preliminary questions (in Danish)

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