Introducing Subcontractors to a Public Procurement Contract

Abstract

The subcontracting of a public procurement contract has been a contentious issue ever since Romania adopted the EU acquis in the field of public procurement.
Law no. 98/2016 clarifies a number of issues previously faced by doctrine and case law under the Government Emergency Ordinance no. 34/2006.

This study analyses: the possibility of introducing a subcontractor during contract performance, the legal conditions for such introduction (covering both the requirements for the subcontractor and those for the Subcontracting Agreement), the possibility for the contracting authority to make payments directly to the subcontractor, as well as subcontracting as a means to unblock a contract and avoid its termination.

I. Possibility of introducing a subcontractor during the performance of a public procurement contract

Romanian public procurement legislation allows for the introduction of a subcontractor during the execution of a public procurement contract and expressly regulates both this possibility and the conditions that must be met.
Law no. 98/2016 on public procurement, Article 219(3), states:

“The contractor has the right to involve new subcontractors during the performance of the public procurement contract, provided that their nomination does not constitute a substantial modification of the public procurement contract, in accordance with Article 221.”

The same right is also expressly provided in Article 233(3)[1] of Law no. 99/2016 and Article 98(3)[2] of Law no. 100/2016. Two conditions are therefore established for introducing a subcontractor during performance: (1) the nomination must not constitute a substantial modification of the contract, and (2) the contracting authority must consent to the introduction after reviewing the necessary conditions and documents.

Secondary legislation, through Articles 151(b)[3], 156[4], and 159[5] of the Methodological Norms approved by Government Decision no. 395/2016, further regulates this right, making clear it applies even when the option to subcontract was not indicated in the original tender.

EU public procurement law, which inspired Romanian legislation, similarly provides in Article 71(5)[6] of Directive 2014/24/EU that the contractor may involve subcontractors during contract performance.

The views issued by ANAP have the value of tertiary legislation, representing the interpretation given by the public authority with competence in the field of public procurement to the legal provisions governing a specific situation. In this regard, concerning the issue addressed in this article, ANAP’s position was as follows: under the provisions of Government Emergency Ordinance no. 34/2006, it is permitted to “subcontract a part of a public procurement contract during its performance, only if there is an agreement between the contracting parties and provided that this does not lead to a modification of the contractor’s initial technical/financial proposal.”[7]

Moreover, the case law of Romanian courts confirms the possibility of introducing a subcontractor during the performance of the contract.

In a recent case, the court held that the law allows the successful bidder to subsequently subcontract part of the work, provided that the contracting authority’s consent is obtained.[8]

A frequently raised issue in such situations was whether a subcontractor can be introduced during the performance of the contract if the winning operator did not declare, at the time of concluding the contract, the intention to subcontract part of the works.

From the analysis of the relevant legal provisions, there is no impediment to subsequent subcontracting, as the winning operator could not have expressed such an intention at the time of the tender if, at that moment, it had no intention to subcontract the works, and the need to subcontract part of the works arose during the execution of the contract. The case law confirms that introducing a subcontractor during the performance of the contract is possible even if such an intention was not expressed at the time the contract was concluded.[9] [10] [11]

II. The legal conditions for introducing a subcontractor during the performance of a public procurement contract

Romanian public procurement legislation provides both a set of conditions that the subcontractor must meet in order to be involved, as well as conditions that the subcontracting agreement must comply with.

A. Conditions regarding the subcontractor

A first condition is set out in Article 153[12] of the Methodological Norms approved by Government Decision No. 395/2016, according to which a subcontractor included after the date of commencement of the execution of the works is required to submit a sworn statement assuming compliance with the provisions of the specifications and with the technical proposal submitted by the contractor in its tender.

A second condition is regulated by Article 170(1)[13] of Law No. 98/2016, which provides that the obligation to verify the absence of any exclusion grounds set out in Articles 164, 165, and 167 of the same law, in relation to the proposed subcontractors, rests with the contracting authority. This requirement is verified by examining the European Single Procurement Document (ESPD) completed by the subcontractor.

A final condition is provided in the last sentence of Article 219(5) of Law No. 98/2016[14], which stipulates that, at the time of being introduced, the subcontractor must prove that they have the resources and capabilities corresponding to the part of the works being subcontracted.

Do the requirements regarding similar experience apply when introducing a subcontractor during the performance of a public procurement contract?

The requirements regarding similar experience do not apply to the subcontractor, except in situations where the new subcontractor replaces one who contributed to proving similar experience at the time of concluding the public procurement contract. This interpretation is supported by the following legal arguments:

According to Article 12(1) of ANAP Instruction No. 2/2017[15], the value and quantity thresholds requested for the previous experience requirement shall be demonstrated by aggregating the experience presented by the “tenderer/candidate, supporting third party, and subcontractor, as applicable.”

Thus, the legislation treats the candidate, supporting third parties, and subcontractors as a group of economic operators who, at the time of concluding the contract, must collectively provide sufficient similar experience to meet the thresholds required by the tender documentation.

Likewise, Article 172(4) of Law No. 98/2016[16] leads to the same conclusion, as it expressly provides that the contracting authority cannot set participation requirements for proposed subcontractors, but that the similar experience of a subcontractor proposed in the tender may be taken into account when its supporting documents are relevant.

Therefore, only in cases where the tenderer/candidate relied, at the time of winning the tender, on the experience of a subcontractor, is it necessary, when replacing that subcontractor, for the newly introduced subcontractor to provide the same level of similar experience as the previous one, so that the similar experience conditions under which the tender was won are not altered during contract performance.

A similar stance has been taken by ANAP[17] in a case concerning the similar experience of subcontractors, where ANAP treated a subcontractor whose similar experience was considered at the time of awarding the public procurement contract as equivalent to a supporting third party.

It follows that introducing a new subcontractor during contract performance should not be conditioned on similar experience requirements, because, reductio ad absurdum, doing so would breach Article 172(4) of Law No. 98/2016, which stipulates that participation requirements cannot be imposed on subcontractors proposed in the tender or for whom participation was requested during contract performance.

B. Conditions Regarding the Subcontracting Agreement

Article 152[18] of Law No. 98/2016 sets out the first condition, namely that the subcontracting agreement must obligatorily include at least the following elements: the subcontracted activities, the subcontractor’s details, and the value of the services to be performed by the subcontractor.

The second condition of the subcontracting agreement is regulated by Article 159[19] of the Methodological Norms approved by Government Decision No. 395/2016, which expressly states that the subcontracting agreement must not bring about any substantial modification to the public procurement contract.

According to Article 160[20] of Government Decision No. 395/2016, modifications are not considered substantial when the following conditions are met cumulatively:
(i) the subcontracting agreement does not impact the fulfilment of the qualification or selection criteria in relation to the application of the award criterion;
(ii) the introduction of new subcontractors does not alter the contract price previously established by the contracting authority and the contractor;
(iii) subcontracting is strictly necessary for the completion of the public procurement contract;
(iv) the subcontracting agreement does not alter the general nature of the object of the public procurement contract, meaning it does not change the purpose of the initial contract, nor the main indicators that define the result sought by the contracting authority.

III. Possibility of Direct Payment by the Contracting Authority to the Subcontractor

An analysis of public procurement legislation shows that direct payment by the contracting authority to subcontractors is possible, or even mandatory, when the conditions regulated by law are met.

Law No. 98/2016 on Public Procurement states in Article 218(1) the following:
“The contracting authority shall make payments corresponding to the part(s) of the contract performed by the subcontractors proposed in the tender, if they so request, for services, products, or works supplied to the contractor under the contract between the contractor and the subcontractor, in accordance with the applicable legal provisions, when the nature of the contract allows this and if the proposed subcontractors have expressed their option to this effect.”

Thus, the primary legislation sets out two conditions for direct payment to a subcontractor: At the time of being introduced during the performance of the contract, subcontractors must request the contracting authority to make payment directly to them (a condition also provided by Article 232(2) of Law No. 99/2016[21]); and the contract, by its nature, must allow payment to be made directly to the subcontractor.

Moreover, these two conditions are also reflected in Law No. 100/98[22] and in Directive 2014/24/EU of the European Parliament and of the Council on public procurement.[23]

The condition that direct payment must be permitted by the contract, in relation to its nature, generally refers to the way in which the price was initially set in the public procurement contract.

It should also be noted that the nature of the contract may create difficulties in making direct payments – particularly where the contract price is established as a lump sum (global price) – as this could make it more difficult to determine the value of the works carried out by the subcontractor or could create uncertainties that may lead to disputes between the parties.

IV. Subcontracting as a Solution to Avoid the Termination/Cancellation of a Public Procurement Contract

There may be situations in which the contractor becomes unable to complete the works provided for in a public procurement contract. In such cases, both public procurement legislation and relevant case law grant the contracting authority the option to accept a subcontractor if doing so is advantageous for the authority and facilitates the efficient completion of the project, thus avoiding termination or cancellation of the contract due to the fortuitous impossibility of performance.[24]

Moreover, tertiary legislation – specifically, an ANAP[25] point of view – imposes certain conditions when the contracting authority chooses subcontracting over termination. First, the contractor must obtain the contracting authority’s consent to introduce a subcontractor during contract performance. In addition, the introduction of the subcontractor must never alter the initial technical or financial proposal. Therefore, the contractor must conclude the subcontracting agreement under the same conditions as those in the original works contract.

Criteria for Determining Whether Subcontracting Is More Advantageous than Termination

When faced with a situation where the original contractor cannot complete the contract, the contracting authority has two apparent options, both seemingly unrestricted: termination or subcontracting. The choice must, however, be made in light of the project’s objective — always the timely completion of the works within the budget foreseen in the tendered project. The analysis of advantages and disadvantages should consider time, costs, and risks.

In the event of termination, a new tender procedure will be required to identify a suitable contractor, causing delays. By contrast, accepting subcontracting allows the project to continue without interruption and without the need for partial acceptance of the works (from a contractual standpoint).

Termination entails significantly higher costs, as a new tender requires fresh investments, including specialist studies to determine the unexecuted portion of the contract, so that a new Bill of Quantities can be drawn up specifying the categories, quantities, and prices of works to be tendered.

Subcontracting does not add extra risks, as all guarantees provided by the main contractor to the authority remain in place. In fact, there is a likelihood of double guarantees, since the subcontractor will likely provide the same guarantees to the main contractor as those the latter has provided to the contracting authority.

V. Conclusions

Both Romanian legislation on public procurement and European Union law stipulate that a subcontractor may be introduced into a public procurement contract. This is more than just a possibility—it is an express right of the contractor to subcontract part of the work, provided that the contractor proves to the contracting authority that the legal conditions are met. This position is supported both by ANAP (the Romanian National Agency for Public Procurement) and by the case law of Romanian courts.

The conditions that must be met relate to the subcontractor’s situation and the subcontracting agreement. Thus, the subcontractor must not be in a situation that leads to exclusion and must have the necessary resources to carry out the subcontracted portion of the work.

The subcontracting contract must obligatorily specify the subcontracted activities, their value, and the identification details of the subcontractor. Also, the subcontracting contract must not cause a substantial modification of the public procurement contract.

Regarding payment made directly by the contracting authority to the subcontractor, this is done at the subcontractor’s request, when the nature of the contract allows for direct payment.

In conclusion, subcontracting during contract execution can be an effective solution for successfully completing the project and overcoming the obstacles so inherent in a complex construction project—where unpredictability and instability have been strongly manifested in the Romanian market over recent decades.

[1] Law no. 99/2016 on sectoral public procurement, art. 233 para. (3): “The contractor has the right to involve new subcontractors during the execution of the sectoral contract, provided that the change does not constitute a substantial modification of the sectoral contract, under the conditions set out in articles 235–241.”

[2] Law no. 100/2016 on work concessions, art. 98 para. (3): “The concessionaire has the right to involve new subcontractors during the execution of the concession contract, provided that the respective concessionaire transmits to the contracting entity the information stipulated in para. (1) and obtains its approval regarding any new subcontractors subsequently involved in the execution of the contract.”

[3] The methodological norms of Law no. 98/2016 on public procurement approved by Government Decision no. 395/2016, art. 151 letter b): “The replacement/involvement of subcontractors by the contractor during the contract implementation period may occur in the following situations: (…) b) the declaration of new subcontractors after signing the public procurement contract, provided that the works/services to be subcontracted were included in the offer without initially indicating the option to subcontract them.”

[4] Ibidem, art. 156: “The replacement/involvement of subcontractors by the contractor during the contract implementation period is carried out with the consent of the contracting authority.”

[5] Ibidem, art. 159: “In the situation provided for in art. 151 letter b), the contractor has the right to involve new subcontractors during the execution of the contract, provided that their nomination does not constitute a substantial modification of the public procurement contract under the conditions of art. 221 of the Law.”

[6] Directive 2014/24/EU of the European Parliament and of the Council on public procurement, art. 71 para. (5): “In the case of works contracts and concerning services to be provided at a facility under the direct supervision of the contracting authority, after the award of the contract and at the latest upon commencement of its execution, the contracting authority shall require the main contractor to indicate the names, contact details, and legal representatives of its subcontractors involved in the respective works or services, insofar as this information is known at that time. The contracting authority shall require the main contractor to notify it of any changes to this information during the contract, as well as the mandatory information regarding any new subcontractors subsequently involved in the respective works or services.”

[7] ANAP’s viewpoint: “However, under certain circumstances, subcontracting a part of a public procurement contract during its execution was permitted only if there was an agreement between the contracting parties and provided that this did not lead to a modification of the contractor’s initial technical proposal and/or financial proposal, based on which the contractor won the award of the contract in question following the related awarding procedure. These conditions result from a systematic interpretation of the provisions of art. 2 para. (2) and art. 45 of Emergency Government Ordinance no. 34/2006, correlated with those of art. 96 of Government Decision no. 925/2006.” Available online at: http://anap.gov.ro/web/subcontractare/

[8] Tribunalul Olt, Ruling no. 85/2016: “(…) However, the law does not prohibit the awarded bidder from subcontracting part of the work afterwards; it only requires the prior consent of the Contracting Authority.” Available online at: https://sintact.ro/#/jurisprudence/528615287/1/incheiere-nr-85-2016-din-09-feb-2016-tribunalul-olt-anulare-act-administrativ-contencios…?keyword=subcontractare%20ulterior%20incheierii%20contractului&cm=SREST

[9] Bucharest Court, Decision no. 5320/2014: “(…) the failure to declare subcontracting at the time of the offer does not prohibit this aspect after the contract has been signed.” Available online at: https://sintact.ro/#/jurisprudence/526309606/1/decizie-nr-5320-2014-din-27-mar-2014-judecatoria-bucuresti-sectorul-1-anulare-proces-verbal-de…?keyword=conditii%20subcontractare&cm=SREST

[10]Timișoara Court of Appeal, Decision no. 1698/2016: “Moreover, from another perspective, it is noted that at the time of concluding this contract, the defendant did not intend to subcontract the works, thus it could not declare them, as neither the contract nor the provisions of art. 45 of Emergency Government Ordinance no. 34/2006 explicitly prohibited subsequent subcontracting (…).” Available online at: https://sintact.ro/#/jurisprudence/529935583/1/decizie-nr-1698-2016-din-25-mai-2016-curtea-de-apel-timisoara-contract-administrativ-contencios…?keyword=subcontractare%20subcontractant&cm=SREST

[11] Bucharest Tribunal, Decision no. 1368/2014: “(…) regarding the subcontracting of a part of the contract after its conclusion, the Legal Department of the same institution responded by letter no. DJ32/1417/06.04.2011 that, considering the awarded bidder is directly responsible for fulfilling the public procurement contract, the contracting authority, if it deems it advantageous to accept a subcontractor not initially announced instead of terminating the contract, shall proceed accordingly.” Available online at: https://sintact.ro/#/jurisprudence/525166085/1/decizie-nr-1368-2014-din-13-nov-2014-tribunalul-bucuresti-anulare-proces-verbal-de-contraventie…?keyword=conditii%20subcontractare&cm=SREST

[12] Methodological Norms for the implementation of Law 98/2016, art. 153: “(…) new subcontractors have the obligation to submit a self-declaration assuming compliance with the provisions of the specifications and the technical proposal submitted by the contractor in the offer, related to the activity subject to subcontracting.”

[13] Legea 98/2016, art. 170 alin. (1) „Autoritatea contractantă are obligaţia de a verifica inexistenţa unei situaţii de excludere prevăzute la art. 164, 165 şi 167 în legătură cu subcontractanţii propuşi.”

[14] Law 98/2016, art. 219 para. (5): “When the replacement or introduction of new subcontractors takes place after the award of the contract, they must submit certificates and other documents necessary to verify the absence of exclusion grounds and the appropriate resources/capabilities for their part of the involvement in the contract to be performed.”

[15] ANAP Instruction no. 2/2017, art. 12 para. (1): “The contracting authority/entity shall specify in the procurement data sheet that, in order to fulfill the requirement regarding similar experience, a preliminary proof must be submitted, consisting of the ESPD (European Single Procurement Document) completed by the tenderer/candidate, supporting third party, and subcontractor, as applicable, with relevant information demonstrating the achievement of the imposed value/quantity thresholds for the respective requirement.” Available online at: http://anap.gov.ro/web/instructiunea-nr-22017-din-19-aprilie-2017/

[16] Law no. 98/2016, art. 172 para. (4): “The contracting authority may not set participation requirements for subcontractors proposed by the tenderer/candidate in the offer or participation request, but it takes into account the technical and professional capacity of the proposed subcontractors for their part of the involvement in the contract to be performed, if the documents submitted are relevant in this regard.”

[17] ANAP’s viewpoint: “The requirement regarding similar experience, as formulated by the contracting authority, can be fulfilled either by the tenderer, or by the tenderer cumulatively with the supporting third party/parties, or by the supporting third party/parties alone. Thus, considering the case in question, we specify that the similar experience of the subcontractor can also be taken into account, in which case the subcontractor becomes a supporting third party, without, however, being obliged to submit a support commitment.” Available online at: https://legeaz.net/spete-contencios/achizitii-publice-dovada-experientei-nyl

[18] Law no. 98/2016, art. 152: “(…) the contracting authority is obligated to request the submission of contracts concluded between the contractor and the subcontractors declared subsequently, which must obligatorily contain at least the following elements:
a) the activities to be subcontracted;
b) the name, contact details, and legal representatives of the new subcontractors;
c) the value corresponding to the services provided by the new subcontractors;”

[19] Methodological Norms for the implementation of Law no. 98/2016, art. 159: “In the situation provided for in art. 151 letter b), the contractor has the right to involve new subcontractors during the execution of the contract, provided that their nomination does not constitute a substantial modification of the public procurement contract under the conditions of art. 221 of the Law.”

[20] Ibidem, art. 160: “The situation provided for in art. 151 letter b) does not constitute a substantial modification as defined in art. 221 of the Law, if the following cumulative conditions are met:
a) the introduction of a new subcontractor does not impact the fulfillment of the qualification/selection criteria or the application of the award criterion as assessed at the time of the bid evaluation;
b) the introduction of a new subcontractor does not modify the contract price between the contracting authority and the contractor;
c) the introduction of a new subcontractor is strictly necessary for the fulfillment of the public procurement contract;
d) the introduction of a new subcontractor does not change the general nature of the public procurement contract’s object, meaning that the purpose of the contract and the main indicators characterizing the outcome of the respective contract remain unchanged.”

[21] Legea nr. 99/2016, art. 232 alin. (2): „(…) subcontractorii își vor exprima la momentul încheierii contractului de achiziție publică, sau la momentul introducerii acestora în contractul de achiziție publică, după caz, opțiunea de a fi plătiți direct de către entitatea contractantă”.

[22] Legea nr. 100/98, art. 97 alin. (1): „Entitatea contractantă are obligația să efectueze plăți corespunzătoare părții/ părților din contract îndeplinite de către subcontractanții propuși în ofertă, dacă aceștia solicită, atunci când natura contractului permite acest lucru, și dacă subcontractanții propuși și-au exprimat opțiunea în acest sens.”

[23] Directiva 2014/24/UE, art. 71 alin. (3): „Statele membre pot dispune ca, la cererea subcontractantului și atunci când natura contractului permite acest lucru, autoritatea contractantă să transfere direct subcontractantului respectiv plățile datorate pentru servicii, produse sau lucrări furnizate operatorului economic căruia i-a fost atribuit contractul de achiziții publice (contractul principal).”

[24]  Tribunalul București, 13 noiembire 2014, Decizia Civilă nr. 1368/2014: „La solicitarea Direcţiei Proiecte cu Finanţare Nerambursabilă, din cadrul C.N.A.D.N.R.. cu privire la subcontractarea unei părţi din contract, ulterior încheierii acestuia, Direcţia Juridică, din cadrul aceleiaşi instituţii, răspunde prin adresa nr. DJ32/1417/06.04.2011, că, „având în vedere că ofertantul declarat câştigător la o procedură este direct răspunzător pentru îndeplinirea contractului de achiziţie publică, autoritatea contractantă, în condițiile în care consideră că este avantajos pentru aceasta de a accepta un subcontractant, neanunţat iniţial, în locul unei rezilieri, va dispune în consecinţă”

[25] ANAP’s viewpoint: “If the contracting authority considers it advantageous to accept a subcontract during the execution of the public procurement contract instead of terminating it, we consider this possible under the following conditions:
a) During the contract execution, the contractor does not have the right to introduce a subcontractor without the contracting authority’s consent;
b) The contractor must conclude a contract with the subcontractor under the same conditions as those in the contract signed with the contracting authority;
c) The introduction of a subcontractor must not lead to any modification of the initial technical or financial proposal.” Available online at: http://www.anrmap.ro/ro/de-interes/-/asset_publisher/BbjQmms5Ipds/content/intrebari-privind-planificarea-achizitiilor-publice