Introduction

Staying abreast of the latest legal developments is crucial for navigating the complex public procurement landscape. Our ESR 3, Aura Iurascu recently delved into the latest news from the Italian Council of State, focusing on some significant questions. In this post, she summarises these pivotal developments from contract ineffectiveness to clarifications on lots and framework agreements, shedding light on their impact on public procurement practices in Italy by responding to the following questions:

• Is the declaration of the ineffectiveness of a public contract stipulated in violation of MECs still a unicum, or did the Italian judges confirm such orientation?
•  Did the case law emphasise any peculiarity in the case of MEC violation concerning public tender divided into lots? What about framework agreements with only one supplier?

Finally, the blog post concludes with the impact of the newly adopted code on GPP in practice.

The following blog post demands the previous overview of the author’s blog posts on the Italian Public contracts code and article on Minimum environmental criteria (MECs) as it builds upon them.

Developments in the field of remedies

As explained elsewhere, the Italian remedies systems provided for the ineffectiveness as a general remedy tool going well beyond the cases provided by Article 2d of the Remedies Directive 2007/66. More precisely, the administrative court that declares the annulment of the award procedure also decides upon the ineffectiveness of the wrongfully stipulated contract.

Such declaration of the ineffectiveness of the contract could lead to:

1. the repetition/re-issuance of the call for tenders (like in the Pastore case, Council of State 8773/2022), or
2. re-issuance is unnecessary; therefore, the applicant can demand to substitute the former contractor. In this second case, the court decides upon the petitioner’s request – whether to replace the contractor in the stipulated contract. The court must consider additional elements such as the start date of the replacement of the petitioner with the previous contractor, the interests of the parties, the petitioner’s real chance to continue the execution of the contract in the light of the infringements found, the state of performance of the contract and the actual possibility of replacement. This is to say that when the re-launch of the tender is not required, the administrative court will decide upon all the consequences of ineffectiveness.

In a recent judgment Section III, 2 November 2023, no. 9398, the Council of State has confirmed the possibility of tailoring the ineffectiveness of public contracts (due to a violation of the MECs), which has not resulted in a re-issuance of the public tender. Here, the judges granted the applicant’s request for reinstatement/substitution of the unlawfully awarded contractor in the stipulated contract. As such the applicant’s interest was fully protected in view of the remaining time for the service performance.

Facts and dispute of the Pulinet case

A contracting authority initiated an open procedure for awarding cleaning services for 36 months, extendable by an additional 36 months, using the MEAT criterion. Following the procedure, five economic operators were ranked, with the appellant (Pulinet) being the runner-up in the case at hand.

Pulinet challenged the awarding in favour of the counterparty and the underlying acts, claiming the inadmissibility of the winning bid for failure to meet the minimum required number of machines and, therefore, the alleged non-compliance with the MECs. In the first instance, the regional administrative court dismissed the appeal, essentially finding that the machines offered by the winning bidder, even applying the principle of equivalence, met the MEC criteria.

In response to this decision, Pulinet appealed to the Council of State and argued that based on the tender requirements, the winner counterparty should have been excluded because the machines required to comply with the MECs were indeed mandated under penalty of exclusion. The Council of State upheld the appeal and overturned the first-instance decision for violation and incorrect application of the MEC regulations. They indeed showcased that, in fact, the machines required for cleaning did not correspond to those mandated under penalty of exclusion by the contracting authority.

The judges thus recalled that “an offer is inadmissible, not only when it shows a lack of general or specific subjective requirements on the part of the economic operator but also when the candidate’s proposal is not technically consistent with the binding prescriptions contained in the project, such as those mentioned above, which also constitute minimum requirements”.

In light of all the preceding considerations, Pulinet‘s request for specific reinstatement presented in the introductory appeal was granted, as his interest could find full judicial protection considering the remaining time for the execution of the service (it was executed for less than a year).

Thus, the above judgments come into play as a confirmation of the value of such remedy in the Italian system, paving the way to a more and more effective GPP policy.

MECs and division into lots

MECs must be complied with even when a public tender is divided into lots. In fact, if a tender divided into lots is partially annulled (e.g., only 2 out of 5 lots) due to a violation of MECs, such annulment can also affect the 3 lots not subject to the dispute. For this to occur, that is, to have the annulment of the call for tenders and also for the 3 lots not challenged, it is necessary to evaluate the nature of the call for tenders itself. It would seem strange and curious for a segment of a call for tenders annulled in its entirety to survive only for some lots and not for others.

And why is this impacting all the other lots? The judges of the Council of State have stressed the core issue, which lies in the annulment of the call for tenders. Therefore, it is necessary to understand the rationale for dividing a tender into lots. Faced with three possible situations: a) it can be considered that a call for tenders divided into lots is considered as one/unique, b) or with different procedures and as many calls for tenders as the number of lots, c) or multiple autonomous procedures connected that present both objective and subjective indicators linked to each other structurally and functionally.

When a call for tenders divided into lots has a unitary structure, the principle “simul stabunt simul cadent” (they will stand together or fall together) applies to the individual lots.

A case-by-case investigation is necessary to assess the nature of the call for tender. If there are grounds to affirm the uniqueness of the contract (for example, if this emerges from the textual scheme of the call for tenders), it will follow that the division into lots does not indicate a plurality of autonomous and independent contracts from a contractual point of view but only from an instrumental perspective to ensure maximum competition. Therefore, if the unity of the call for tenders is established and it is annulled due to violations of the MECs concerning specific contested lots, such a defect will automatically invalidate all the lots of the tender because they are all dependent on the single call for tenders as the essential underlying act.

⃰ Said judgment of the Regional Administrative Court of Veneto 419/2024 is now appealed before the Council of State, awaiting the final ruling.

Framework Agreements and MECs

The Italian judges did not miss an opportunity to clarify the mandatory application of MECs in case of framework agreements, being more incumbent in cases when there is only one supplier. In short, when Minimum Environmental Criteria (MECs) come into play, their significance extends even to cases where the procedure is “progressively formed,” as is the case with framework agreements. Indeed, the legislator does not appear to have provided for any exceptions or differentiations based on types of procedures.

Moreover, the judges of the Council of State, in decision no. 2795 of March 20, 2023, held that if the framework agreement involves only one supplier, the awarding phase of the framework agreement is the only stage subject to competitive comparison among the participants.

It cannot be allowed to directly provide MEC-related documentation after the award to the (sole) supplier. Doing so would betray the dual rationale of the provision: to provide all participants with the complete elements to formulate a well-considered offer and to ensure that the procurement procedure itself is structured to guarantee strict compliance with the MECs by the economic operators, who, like the contracting authority, are obligated to apply them.

Policy Effectiveness

The power of MECs as an effective national policy is constantly confirmed by the case law, and apparently, it is also supported by the principle of result (outcome) under Art.1 of the Italian public contracts code. In the public contracts sector, such principle constitutes the implementation of the principle of good administration and the related principles of efficiency, effectiveness, and economy. It is pursued in the community’s interest and to achieve the European Union’s objectives.

Furthermore, it has been emphasised that the principle of result doesn’t clash with MECs because, in that case, the outcome is not merely the performance of the contract at any cost but the performance of the contract aimed at implementing the environmental policies. Therefore, the principle’s connotation focuses on satisfying the primary public interest carried by the norms that are assumed to be violated. Otherwise, it would legitimise a divergence between the environmental policy advocated by the primary regulation governing the exercise of the power in question and the policy actually practised through the regulation of specific contractual obligations. Such evolution is consistent with the original function as the area of primary public interest expands, which is always that of choosing the best bidder, but no longer only in terms of reliability and cost-effectiveness, but also in terms of the ability to concretely protect the additional public interests that have meanwhile been normatively assigned to the administration’s care (Council of State, Section III 27 May 2024, n. 4701).

In closing this brief analysis, it is interesting to note how case law is continuously bringing public procurement back to the founding principles of the Italian Constitution and accelerating its vision towards environmentally-related procurement practices to implement the GPP effectively.

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The title image represents a view of Palazzo Spada in Rome which houses the Italian Council of State.