An overwhelming majority of contributors argue against new initiatives in the area of subcontracting, in particular as regards the potential extension of tendering requirements to such contracts.
Most of those who oppose rules extending tendering requirements to the conclusion of subcontracts argue that PPPs are characterised by the transfer of risks to one private party. They contend that this private party needs to have full flexibility when fulfilling the contract, in particular when managing the risks assumed as part of the contractual obligations. Rules limiting the main contractor's ability to choose his subcontractors would limit this flexibility unhelpfully, for example by preventing him from cooperating with undertakings with which he has long-standing, smoothly running relations.
This is, however, not the only perceived PPP-specific problem in relation to extending public tendering requirements to the selection of subcontractors. In the case of many PPP procurement procedures bidding consortia - usually referred to as Special Purpose Vehicles (SPV) - are established. A substantial number of contributors consider that the opportunity for members of these consortia to obtain parts of the awarded contract directly is the driving force behind their establishment. These stakeholders believe that introducing an obligatory tendering procedure for subcontracting would have adverse effects on the formation of such consortia and PPPs more generally. One stakeholder summarises these adverse effects as follows: "To introduce rigidity into the subcontract level would decrease the ability of the SPV and its principal subcontractors to manage their risks, potentially increase costs or reduce the level of risk transfer to the private sector and add to the cost and duration of the procurement process."
Other consequences to PPPs of introducing a formal tendering procedure for subcontractors, according to many stakeholders, include delays, higher costs and reduced efficiency. One stakeholder explains that bidders need to include considerable time for procurement activity in their schedules plus a safety margin for legal challenges if procurement rules apply subsequent to the award of a PPP contract or concession. This could - according to this stakeholder - turn a potentially viable PPP project into a non-viable project.
It is also argued that imposing downstream competition would be contrary to the spirit of PPPs leading to a mere set of subcontracts, and that even upstream competition would be distorted as the candidates, faced with the unknown quantity of their subcontractors' future competitive bidding procedures, could not submit their best prices. Many other contributors state that the introduction of a rigid tendering regime downstream of the award of the PPP does not provide any advantages for the public authority compared to the status quo. They argue that public authorities can obtain sufficient control over subcontractors by requiring bidders to indicate their proposed subcontractors in the course of the initial PPP competition. Consequently, the choice of subcontractors would be part of the competition for the initial PPP contract or concession, making downstream competitive tendering redundant. Along these lines, one stakeholder insists that the initial contract should clearly spell out the conditions for changing subcontractors. Another contributor adds that if the contracting authority is dissatisfied with the performance of subcontractors, it has recourse to the payment and termination rights set out in the contract with the main contractor.
Some contributors consider Article 60 of Directive 2004/18/EC, which sets out specific requirements for works concessionaires in relation to subcontracting, as an example of unduly limiting the main contractor's flexibility in choosing subcontractors. This provision is considered to jeopardise the financial viability of PPP concession models, and the scope for setting up such concessions. One contributor criticises it as being at odds with the general lack of regulation of subcontracting pursuant to the award of public contracts.
Another stakeholder argues that the introduction of new tendering rules for subcontracting would not be in line with the existing system of public procurement at EC level as set out in Article 32(2)(c) of Directive 92/50/EC13 and construed by the ECJ in case C-176/9814. This holds that a service provider which does not itself fulfil the minimum conditions required for participation in the procedure for the award of a public service contract is entitled to rely, vis-à-vis the contracting authority, on the standing of third parties upon whose resources it proposes to draw if it is awarded the contract. Such reliance on third parties would - according to this stakeholder - be impossible if subcontractors could only be selected subsequent to a separate formal tendering procedure.
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13 Directive 92/50/EC relating to the coordination of procedures for the award of public service contracts. This stipulation corresponds to Article 48(2)(b) of Directive 2004/18/EC.
14 C-176/98, Holst Italia SpA v. Commune di Cagliari, Judgment of 2 December 1999, paragraph 27.