- within Law Department Performance, Strategy, Litigation and Mediation & Arbitration topic(s)
EU
FOREIGN SUBSIDIES
The European Commission published Guidelines on Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market. The Foreign Subsidies Regulation aims to prevent distortions in the internal market, including in the context of public procurement procedures conducted in the EU. It requires companies to notify contracting authorities/entities when the estimated value of the contract exceeds €250 million, and when the company has been granted at least €4 million in foreign financial contributions from a third country in the three years before the notification.
The Guidelines include information on the Commission's approach to assessing distortions under Articles 4 and 27 and to carrying out the balancing test under Article 6. They also include guidance on the "call-in" mechanism under Articles 29(8) under which the Commission can request prior notification of foreign financial contributions in public procurement procedures. The guidelines set out circumstances in which this mechanism will not be applied.
FOREIGN INVESTMENT SCREENING
Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments is to be replaced with a revised framework expected to enter into force in H1 2026, and which will start applying 18 months after entry into force. Member States will be required to establish screening mechanisms covering sensitive areas including critical entities in energy, transport and digital infrastructure and military equipment. Several operational aspects of the framework are to be clarified and streamlined, including clarification of risk factors for assessing foreign investments.
DEFENCE
Regulation (EU) 2025/2643 establishes a European Defence Industry Programme ("EDIP") and a framework of measures to ensure the timely availability and supply of defence products. It establishes a budget up to 2027 and several mechanisms including a legal framework for European Defence Projects of Common Interest. A Joint Statement on financing of the EDIP and Ukraine Support Instrument invites the Commission to explore financing as a matter of priority. Further Joint Statements relate to financial contributions from third countries and additional financial resources for the EDIP Programme. The European Commission also issued €90 billion in EU-Bonds in the first half of 2026, some of the proceeds of which are to be used for loans to support defence procurement under the SAFE instrument.
Ireland
PROHIBITION ON PRICE AS SOLE AWARD CRITERA
In Case C‑769/23, the Italian Ministry of Defence launched an open tender in July 2022 for services required by the army. The tender used the lowest price as the award criterion on the basis that the services were standardised. Bidders were barred from reducing labour costs because wages had to follow a sectoral collective agreement. For one lot, several bidders offered a 100% reduction on their remuneration, leading to a tie that was resolved by drawing lots. A bidder challenged the contract award.
Under Italian law, contracting authorities are prohibited from using price as the sole criterion for the award of public contracts for services with standardised characteristics but for which labour costs are at least half of the total value. The Italian appeal Court referred a request for a preliminary ruling on whether this rule was proportionate. The Advocate General recommends that Article 67(2) Directive 2014/24/EU and the principle of proportionality do not prevent national legislation of this type. It is irrelevant that the call for tenders provides that any reduction offered by a tenderer must apply solely to the remuneration for those services without leading to a reduction in the remuneration of the workers employed by that tenderer.
CONTRACT MODIFICATIONS
In a request for a preliminary ruling from an Austrian Court in Case C-820/24, the Advocate General opined that Article 72 of Directive 2024/17/EU must be interpreted as meaning that it is not a modification to a works contract during its term if a contracting authority awards a contract to the contractor for new works in another building, separate from that provided for in the initial contract, provided that: (a) the performance period agreed in the initial contract has expired; (b) the contractor has performed the services for which it was responsible according to the initial contract, to the satisfaction of the contracting authority; and (c) it has sent the final invoice, but the contracting authority has not yet paid the price set out therein.
Essentially, the Advocate General was indicating that, once the contracting authority has received the works executed to its full satisfaction, there would be no sense in making a modification that would only be valid in the circumstances at Article 72(1) and (2). Article 72(1) and (2) sets out safe harbours devised in relation to circumstances that would occur before the receipt of the works by the contracting authority. Once the works have been received, there would be nothing to modify in this context.
This Opinion is somewhat difficult to understand without further details on the facts in this case. There were three contracts, awarded on 3 August 2022, 22 December 2023, and 6 December 2023. However, the contracting authority's defence to a challenge to the award of the second contract was that it was a modification of the first contract. The facts were that:
- On 3 August 2022, a first contract was awarded to Contractor A for electrical fitting work on an academic campus in Austria, mainly in block II. Shortly before this, a fire caused considerable damage to block I. It became apparent in the 2022/23 academic year that the design of the campus had to be revised to continue educational activities. Contractor A sought compensation for the cancellation of part of the contract. The parties reached an agreement that Contractor A would withdraw the claim and, in return, execute part of the uncompleted and cancelled works in 2024, but in block I, not block II.
- On 13 December 2023, Contractor A submitted a bid calculated on the basis of its 2022 tender.
- On 15 December 2023, Contractor A sent the final invoice for the works carried out on the second and third floors of block II under the first contract.
- On 22 December 2023, the contracting authority awarded Contractor A the second contract for work in block I.
- On 6 December 2023, the contracting authority awarded Contractor B a contract as part of the project to restore block I.
Contractor B challenged the decision to award the second contract to Contractor A, arguing that a procurement without a prior contract notice with a view to hiring Contractor A was unlawful. The national Court referred several questions but, at the direction of the CJEU, the Advocate-General dealt only with the first:
The Advocate-General outlined various ways of understanding when a contract expires. For the purposes of this case, he accepted that a contract has reached the end of its term when both parties agree that the party obliged to execute the works has performed them to the full satisfaction of the contracting authority, both physically and in terms of time scale. Following receipt of the duly executed works, the contracting authority cannot then make modifications to the contract. The nature of a modification is that a change is adopted before the contractor has performed the agreed service and the contracting authority has received the works to its satisfaction.
The Advocate General concluded that the "modification" was, in reality, the award of a new contract. There was evidence that it was intended to neutralise the claim for compensation brought by Contractor A.
Another point worth noting in this case is that the (second) contract under challenge was below the contract value threshold, which triggers the application of Directive 2014/24/EU. However, the CJEU has jurisdiction to respond to requests for preliminary rulings relating to below-threshold contracts where the applicable national law seeks to adopt, directly and unconditionally, the corresponding provision of Directive 2014/24/EU.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
