Ref.

Ares(2012)601434 - 21/05/2012

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EUROPEAN COMMISSION
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internal Market and Services DG

PUBLIC PRO CUREMENT PO LICY Public Procurement Legislation II The Head of Unit
D

21. C5, 20

Brussels,
MARKT/C3/EP/kr (2012)677516

Object:

Your question regarding variation orders in works public contracts

Dear Mrs Szenczi, We refer to the recent letter of the National Authority for Regulating and Monitoring Public Procurement (ANRMAP) requiring the opinion of the Commission's services about the conditions under which contracting authorities may authorize variation orders in public works contracts implemented through bill of quantities, without retendering the initial contract. I. DG Markt's understanding of the facts indicated in ANRMAP's question We understand that your question concerns works public contracts: - the price of which is not calculated as a lump fixed amount (pret forfetar), but determined provisionally (through "bill of quantities") on the basis of unitary prices of the estimated quantities of materials necessary for the woks; - that contain clear contractual clauses providing: (a) (b) the unitary fixed prices of the different types of materials to be used for the execution of the works; the estimated quantities of materials necessary for the execution of the works, such estimation being calculated by the contracting authority on the basis of the initial design and afferent technical investigations and

Mrs Bianka Szenczi Vice-President National Authority for Regulating and Monitoring Public Procurement (ANRMAP) Bdul Dinicu Goescu no. 38 District 1, Bucharest, Romania, 010873
Commission europenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 1111. Office: SPA 2 - 05/020. Telephone: direct line (32-2) 2967125. Fax: (32-2) 2960962. http://ec.europa.eu/intemal market/

(c)

providing for "variation clauses" indicating that the final price to be paid will be determined only after the execution of works, on the basis of the exact quantities of materials effectively used (after measurement) for the execution of the project (in strict conformity with the initial design and requirements), the cost of these materials being calculated on the basis of the unitary prices fixed in the contract;

We also understand that: - the measurements of the exact quantities of materials used during the performance of the contract may systematically reveal marginal negative or positive variations of the quantities effectively used comparing to the quantities of materials initially estimated by the contracting authority ; - these variations of quantities are due to normal differences between initial estimation of the contracting authority and exact final measuring, and are not the result of a modification of the technical specifications or of other initial requirements of the contracting authority; - these variations of quantities are reflected, in accordance to the variation clauses, on the price to be effectively paid which is calculated as the multiplication between the unitary fixed prices (indicating in the contract) and the exact quantities of materials used to perform the contract in strict conformity with the initial requirements. II. Clarification on the lega! qualification of variation orders resulting from "variation clauses" You would like to know if the above variation of the effective quantities used and of the effective price to be paid require or not a modification of the initial contract, and if yes under which conditions such modification may be considered a substantial modification, which would require a retendering of the initial contract. With a view to the facts indicated above, we would like to clarify that such variations do not represent a modification of the initial contract, but a mere application of the provisions of the initial contract1, where such variations: (i) have been clearly anticipated in the contract through "variations clauses" known by all tenderers and indicating an objective formula to calculate the final price to be paid (i.e. on the basis of the unitary prices), in order to avoid any discretionary modification during the performance of the contract which may alter the terms of initial competition; and

And therefore, do not require to sign addenda to the initial contract, nor to retender the initial contract;
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(ii) exclusively result from the "routine" application of the "variation clauses" of the initial contract, with the exclusion of any other modifications of the requirements of the initial contract and, provided, of course, our understanding of the facts described in section I. above iscorrect. The above conditions will not be met, if for instance: - the formula to calculate the final price to be paid was not determined in an objective way in the initial contract; or - the variation of quantities/of the price to be paid were not clearly provided in the "variation clauses", but results from other events, such as a modification of the technical solution during the performance of the contract due too poor initial design, the addition of new works not initially requested or any other causes. Any variation of quantities/price not resulting from the "mechanical" application of the above mentioned initial "variation clauses" shall be analysed as a modification of the contract. If such modification is substantial, as detailed hereinafter, the contracting authority needs to retender the contract. Contracting authorities should pay the greatest attention to the amendment of contracts during their implementation, as such amendments (without retendering) are permitted only in very limited circumstances, to avoid altering the initial terms of the competition. III. Main principles governing the modification performance2 of contracts during their

Before proceeding to any modification of the initial requirements of a contract, contracting authorities shall determine whether, the envisaged modification is, with a view to the specific circumstances of the contract, substantial or not. We take this opportunity to summarize in written the principles discussed during our meeting in Brussels of 29 February 2012 with the Romanian authorities, on the basis of which a modification (other than marginal variations deriving from the "mechanic application" of variation clauses above referred) shall be considered as substantial or not. 1. According to existing case law, a modification of a contract shall be considered substantial where one of the following criteria is met:

NB. this section concerns only modifications of the initial terms of the contract and not simple variations of quantities/price described in section I. and satisfying the conditions indicated in section II. above). Such variations do not represent a modification of the initial contract, but a mere application of its "variation clauses", provided of course such clauses are objective and do not confer a margin of discretion which would alter the terms of the initial competition;

(a)

the modification introduces conditions which, had they been part of the initial procurement procedure, would have allowed for the selection of other candidates than those initially selected or would have allowed for awarding the contract to another tenderer; the modification changes the economic balance of the contract in favour of the contractor; the modification extends the scope of the contract considerably to encompass supplies, services or works not initially covered.

(b) (c)

These alternative criteria shall be analysed on a case by case basis. 2. If further to this analysis, the envisaged modification: (a) is not substanial, the contracting authority may proceed to this modification by a negotiation procedure without publication (i.e. without re-tendering the contract). However, the contracting authority shall keep track of successive small modifications not clearly foreseen in the initial contract, as the sum of several unsubstantial modifications may lead to a substantial modification of the contract; is substantial, the contracting authority must retender the contract. Any substantial modification of the initial terms of the contract (not necessarily of the price) is assimilated to a new contract which must be re-tendered, in order to avoid altering the initial terms of the competition. The conditions of the initial competition do not concern only price, but also many other elements: (e.g. characteristics of the procured supplies, works/services, volume of works, duration etc.).

(b)

However, by way of derogation, a substantial modification covered by one of the limitative exceptions listed in article 31 of the Directive 2004/18/EC is considered to be justified and therefore, may be made without re-tendering the contract, through a negotiation procedure without publication of a tender notice. The exceptions of article 34 shall be interpretative in a restrictive manner. 3. As regards the exception mentioned in article 31.4(a) of the Directive 2004/18/EC (regarding additional works/services), contracting authorities may contract additional works or services not included in the initial contract by negotiated procedure without publication, only if such additional works/services, through unforeseen circumstances, become necessary for the performance of the works or services described in the initial contract, on condition that the award is made to the economic operator performing such works or services: and - when such additional works or services cannot be technically or economically separated from the original contract without major inconvenience to the contracting authorities, or

- when such works or services, although separable from the performance of the original contract, are strictly necessary for its completion. However, in any case, the aggregate value of contracts awarded for additional works or services may not exceed 50 % of the amount of the original contract (not limited in the case of the Utilities Directive). These conditions are cumulative. 4. Regarding the specific condition on "unforeseen circumstances", this requirement should be interpreted in an objective manner as referring to what a diligent contracting authority should have foreseen (e.g. natural disasters, new requirements resulting from the adoption of the new EU or national legislation or technical conditions which could not have been foreseen despite technical investigations underlying the design and carried out according to the "rgles de l'art"). Modifications caused by insufficient preparation of the tender/project cannot be considered "unforeseen circumstances". For the calculation of the 50% threshold, contracting authorities shall take into account only the additional works/services. As previously explained in a note from DG Internal Market, the value of these additional works/services cannot be compensated with the value of the cancelled works/services. The amount of cancelled works/services has no impact on the calculation of 50% threshold.

5.

We hope these clarifications are helpful. Yours sincerely.

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Klaus WIEDNER Copy: Mrs Angela MARTINEZ-SARASOLA, Head of Unit LI, DG REGIO Mr Jean-Marie SEYLER, Director, DG REGIO