Article 76 - Exceptions

While Article 75 provides the Commission with the possibility of mandating the use of European preferences from Article 73, Article 76 restores the discretion to public buyers under certain circumstances, which in general seem to be inspired by how the negotiated procedure without prior notice can be used under the current Directive. Marko's entry with his views on Article 76 is here.

Emergency and crisis

The first grounds for setting aside an obligatory need to use European preferences is for contracts governed by Article 48. These are contracts being awarded on situations of emergency and crisis. As such, this is clearly an exceptional ground for public buyers to rely on and not really warranting much of a discussion.

Lack of reasonable alternatives and substitutes

The second option for public buyers to rely on is for contracts where the products or services being acquired (i) cannot be supplied by a Union or covered economic operator (ii) and without a reasonable alternative or substitute being available.

The drafting of this provision seems prone to some confusion. While it applies to goods or services only, it mixes things up by referring to them being supplied by an Union or covered economic operator. Whereas the European preferences from Article 73 clearly demarcate the treatment for economic operators (73(1)) from that of the contents of the tender (73(2)), here they are bundled together.

Paradoxically, Article 76(b) seems to imply that the origin of the goods or services themselves is irrelevant. In other words, what matters is the origin of the economic operator even though the goods or services could be 100% non-covered.

I think that that the intention might have been for the emphasis to be on the origins of the goods and services and not really the economic operator providing them, but it is not what we can see on this sub-paragraph.

Lack of suitable previous tenders or requests to participate

The third ground for avoiding the mandatory use of European preferences looks like it was lifted from the existing Directive and the grounds to use the negotiated procedure without prior notice. Here, the lack of suitable previous tenders or requests to participate in the previous two years is enough to trigger the application of this exception. The way I read this provision, however, is that it covers both procedures that may have been launched with European preference requirements without suitable tenders or requests to participate as well as similar procedures where the use of European preferences was not attempted.

Disproportionate costs

While the above three examples already provide a good deal of scope for public buyers to avoid having to deploy European preferences in situations where the Commission is mandating them to do so, the real 'gap in the armor' is to be found on the (d) sub-paragraph. Here, if the goods, services or works to be acquired would lead to 'disproportionate costs,' then the public buyer is excused from applying European preferences. This raises a couple of questions or practical problems.

The first one is how do we calculate the costs. Is it a counterfactual? Ie, there is a current contract in place for X price and the new procedure with European preferences comes in at say 150% of X, is that an appropriate way to measure the proportionality of the costs?

But if it is based solely on a new procedure, then the public buyer may be hamstrung because realistically there may be situations where only bids with European preferences show up, so there is no way to compare costs. A bidder not complying with European preferences may not show up and in fact the incentive is for them not to show up at all. This is a terrible option since it puts the public buyer at the mercy of who decides to show up or not for being able to trigger this condition. It's a catch-22 situation.

Or will the public buyer invite proposals with variants (ie, option A compliant with European preferences, option B without them)? I think the latter would be an interesting practical solution that obviously raises tendering costs.

Then we also need to figure out if the cost calculation to trigger this condition is based on the total price of the contract or simply the bit that is affected by the added cost of deploying European preferences. My immediate reaction is that it should be only about the European preference part since this is the bit that is varying depending on the application of the rules or their absence, so the rest should stay fixed.

Then we have the question of what amounts to a disproportionate cost. Is it 10%? 100%? 1000%? I guess the CJEU will have its work cut out in defining what amounts to disproportionate cost in this context. I think this will be a key legal issue arising from the application of this article.

Finally - and based on what we have observed with the market adapting to the limits on contract modifications - what if the 'cost' is paid in quality or quantity? So the price remains fixed but perhaps that implies a lower quality of the goods supplied or in fewer quantity? Are these costs disproportionate? But this is something to take into account as we move from lowest price to award criteria that reward quality-type elements. Those need to be part of the discussion on what amounts to disproportionate costs. Again, something for the CJEU to mull over if and when the time comes.