Opinion of Advocate General Campos Sánchez-Bordona delivered on 26 September 2024.#Česká republika – Generální finanční ředitelství v Úřad pro ochranu hospodářské soutěže.#Request for a preliminary ruling from the Nejvyšší správní soud.#Reference for a preliminary ruling – Public contracts – Directive 2004/18/EC – Article 31(1)(b) – Negotiated procedure without prior publication of a contract notice – Conditions – Technical reasons – Reasons connected with the protection of exclusive rights – Attributable to the contracting authority – Factual and legal circumstances to be taken into consideration.#Case C-578/23.

1.

In 1992, the Ministry of Finance of the Czech Republic ( 2 ) directly awarded a contract to set up a tax administration IT system called ADIS to a particular undertaking. ( 3 ) IBM held the copyright in the program source code, meaning that the use and updating of the system was dependent on its involvement.

2.

In 2016, the body responsible for tax administration in the Czech Republic decided to conclude a contract for basic post-warranty servicing of the ADIS application, which it also awarded to IBM by a negotiated procedure without prior publication of a contract notice.

3.

The conclusion of that new contract resulted in a dispute between two authorities of the Czech Republic: the tax administration authority and the authority with responsibility for reviewing the lawfulness of public contracts. The latter argues that the direct award of the contract is unlawful.

4.

The court seised of that dispute at last instance is uncertain whether the new contract comes within the scope of Article 31(1)(b) of Directive 2004/18/EC, ( 4 ) the interpretation of which is the subject of its question to the Court. The national court asks whether the factual and legal circumstances existing at the time of conclusion of the original contract (1992) or of the new contract (2016) must be taken into account in assessing one of the conditions for the use of the negotiated procedure without prior publication of a contract notice.

5.

The background to the dispute is the difficulty, having general implications, of the ‘lock-in’ of public authorities which are dependent on a supplier in order to use information technology. In 2013, the Commission published a communication ( 5 ) in which it drew attention to the difficulties faced by those authorities when changing supplier.

6.

Article 28 (‘Use of open, restricted and negotiated procedures and of competitive dialogue’) provides:

‘In awarding their public contracts, contracting authorities shall apply the national procedures adjusted for the purposes of this Directive.

They shall award these public contracts by applying the open or restricted procedure. In the specific circumstances expressly provided for in Article 29, contracting authorities may award their public contracts by means of the competitive dialogue. In the specific cases and circumstances referred to expressly in Articles 30 and 31, they may apply a negotiated procedure, with or without publication of the contract notice.’

7.

In accordance with Article 31 (‘Cases justifying use of the negotiated procedure without publication of a contract notice’):

‘Contracting authorities may award public contracts by a negotiated procedure without prior publication of a contract notice in the following cases:

…’

8.

Pursuant to Paragraph 21(2), contracting authorities may award a public contract in an open or restricted procedure and, under certain conditions, in a negotiated procedure with publication of a contract notice or a negotiated procedure without publication of a contract notice.

9.

Under Paragraph 23(4)(a), contracting authorities may award a public contract by negotiated procedure without publication of a contract notice also when the public contract may only be performed by a particular economic operator for technical or artistic reasons, for the reason of protection of exclusive rights, or for reasons arising from specific legislation.

10.

On 29 June 1992, the Ministry of Finance of the Czech Republic concluded with IBM a contract for integration of the ADIS information system for tax administration.

11.

From 2013, the Česká republika – Generální finanční ředitelství (General Tax Directorate, Czech Republic; ‘the GTD’) took over the duties of the Ministry of Finance with regard to tax administration, under the latter’s control.

12.

On 1 March 2016, the GTD commenced a negotiated procedure, without prior publication of a contract notice, for the award of a new contract entitled ‘Základní pozáruční servis aplikace ADIS v r. 2016’, the aim of which was to provide basic post-warranty servicing of the ADIS application. ( 7 )

13.

In support of its use of that type of contract, the GTD relied on technical reasons and reasons relating to protection of the supplier’s intellectual property rights in the ADIS source code. ( 8 )

14.

On 20 May 2016, the GTD awarded the new contract to IBM.

15.

On 9 October 2017, the Úřad pro ochranu hospodářské soutěže (Office for the Protection of Competition, Czech Republic; ‘the Úřad’) declared that, by using the negotiated procedure without prior publication of a contract notice, the GTD had infringed Paragraph 23(4)(a) of Law 137/2006.

16.

According to the Úřad, the GTD had not shown that, for technical reasons, the new public contract could only be performed by IBM. Furthermore, the need to protect that supplier’s exclusive rights was a consequence of the Ministry of Finance’s previous conduct.

17.

The GTD appealed against the decision of 9 October 2017 to the president of the Úřad, who dismissed the appeal. ( 9 )

18.

The GTD brought an action against the decision of the president of the Úřad before the Krajský soud v Brně (Regional Court, Brno, Czech Republic), which dismissed the action on the grounds that the conditions laid down in Paragraph 23(4)(a) of Law 137/2006 were not met, given that:

19.

The GTD lodged an appeal on a point of law against the judgment at first instance before the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic), claiming, in essence, that:

20.

In its defence to the appeal, the Úřad stated that:

21.

The referring court is uncertain whether one of the conditions, which it describes as ‘substantive’, for use of the negotiated procedure without prior publication of a contract notice has been met (namely, that the situation of exclusivity must not have been caused by the contracting authority). It asks whether, for those purposes, it must examine the factual and legal circumstances existing when the original contract was concluded.

22.

In those circumstances, the Nejvyšší správní soud (Supreme Administrative Court) decided to refer the following question to the Court of Justice for a preliminary ruling:

‘Are the factual circumstances and legal situation in which the contract for the original performance, on which the follow-on public contracts are based, was concluded to be taken into account in assessing whether the substantive condition for the use of the negotiated procedure without prior publication has been fulfilled, that is to say, whether or not the contracting authority has created a state of exclusivity by its action, for the purposes of Article 31(1)(b) [of Directive 2004/18]?’

23.

The request for a preliminary ruling was received at the Registry of the Court on 19 September 2023.

24.

Written observations were lodged by the Czech and Slovak Governments and the European Commission.

25.

The Court did not consider it necessary to hold a hearing.

26.

The dispute on which the referring court must decide has its origin in a contract for the supply of IT services which was concluded, without a competitive procedure, in 1992, before the Czech Republic acceded to the European Union, when such an approach was permitted under national law.

27.

That original contract granted the supplier rights which placed it in a position of exclusivity vis-à-vis the development and maintenance of the IT system installed.

28.

The GTD claims that, following the Czech Republic’s accession to the European Union, the supplier’s exclusive copyright justified the use, in 2016, of the negotiated procedure without prior publication of a contract notice, provided for in Article 31(1)(b) of Directive 2004/18, for the purposes of concluding a new contract ( 10 ) for basic post-warranty servicing of the IT system.

29.

The national court requests the interpretation of Directive 2004/18, and not Directive 2014/24/EU, ( 11 ) which repealed it.

30.

The applicable directive is, as a rule, the one in force when the contracting authority chooses the procedure to be followed. ( 12 )

31.

The order for reference states that the GTD commenced the procedure for the award of the new contract on 1 March 2016. That date therefore preceded the expiry of the period for transposition of Directive 2014/24, which, in accordance with Article 90(1) thereof, was 18 April 2016.

32.

That being the case, Directive 2004/18 is applicable ratione temporis. However, that fact does not preclude account being taken of the rules laid down in Directive 2014/24, as a contrasting or confirmatory factor, for the purpose of interpreting the rules laid down in Directive 2004/18.

33.

In accordance with Article 31(1)(b) of Directive 2004/18, two cumulative conditions must be satisfied in order to use the direct procedure governed by that provision: (i) technical or artistic reasons, or reasons connected with the protection of exclusive rights; and (ii) those reasons make it absolutely necessary to award the contract to a particular undertaking.

34.

Other procurement directives which preceded Directive 2004/18 contained similar wording to that article. ( 13 ) The Court interpreted those directives when ruling on actions for failure to fulfil obligations brought by the Commission against individual acts of the Member States relating to contracts subject to Directive 71/305 ( 14 ) or Directive 93/37 ( 15 ) which were concluded under the negotiated procedure without prior publication of a contract notice.

35.

The case-law on the interpretation of those two directives and subsequent directives has emphasised repeatedly that the provisions relating to negotiated procedures without prior publication must be interpreted strictly and that the burden of proving the existence of extraordinary circumstances justifying a derogation lies on the contracting authority. ( 16 )

36.

The referring court differentiates between the ‘formal conditions’ and the ‘substantive conditions’ which must be met in order to use the negotiated procedure without prior publication of a contract notice. In its view:

37.

In reality, the conditions which the referring court describes as ‘formal conditions’ are those corresponding to the wording of Article 31(1)(b) of Directive 2004/18. The conditions which it describes as ‘substantive conditions’ go further as they concern conditions not expressly included in that provision.

38.

The debate has focused on the ‘substantive condition’ requiring that the situation of exclusivity was not caused by the contracting authority. The views set out by those intervening in the preliminary ruling proceedings are divided:

39.

If it were necessary to decide the dispute under the rules laid down in Directive 2014/24, the position adopted by the Commission and the Slovak Government would definitely prevail. Both recital 50 and Article 32(2)(b) of that directive include the stipulation that the situation of exclusivity must not have been created the contracting authority:

40.

In contrast, Directive 2004/18 did not refer explicitly in Article 31(1)(b) to the possible effect of the attribution of the situation of exclusivity to the contracting authority. ( 19 ) However, its silence does not mean that the contracting authority itself was free to create a situation of exclusivity.

41.

Indeed, as the referring court rightly points out, Directive 2014/24 simply clarified, in that regard, a rule which already existed, implicitly, in the previous directives in this field. ( 20 ) That is why, in its view, ‘… Union law requires that the reason why a public contract needs to be awarded only to a particular economic operator, in a negotiated procedure without publication pursuant to Article 31(1)(b) of Directive 2004/18, must not be attributable to the contracting authority…’ ( 21 )

42.

I shall adopt the same premiss as the referring court with regard to the contracting authority’s involvement in the circumstances determining the situation of exclusivity. There are several reasons why I endorse that assessment by the referring court.

43.

Firstly, by way of background, the overall objective of the EU provisions in the field of public procurement is ‘to ensure the free movement of services and the opening-up to undistorted competition in all the Member States’. ( 22 ) Use of the negotiated procedure without prior publication is the conduct of a contracting authority which commits the most serious infringement of the objective of the opening-up of public procurement to competition.

44.

Secondly, it is contrary to that objective for contracting authorities themselves to create the circumstances which they invoke in order to use procedures to select contractors in which competitors are not allowed to participate.

45.

Thirdly, as I pointed out above, the extraordinary circumstances which permit the use of the negotiated procedure without prior publication of a contract notice must be interpreted strictly, on the basis of restrictive criteria. ( 23 )

46.

Fourthly, allowing the contracting authority to rely on a situation of exclusivity which it itself created would reverse the logic of Article 31(1)(b) of Directive 2004/18. According to that logic, the circumstances justifying the inability to use the ordinary procedure (with publication of a contract notice) are those unconnected with the contracting authority, not those caused by it.

47.

Ultimately, the maxim nemo auditur propriam turpitudinem allegans prohibits the possibility that a party may derive advantages from his, her or its wrongdoing. ( 24 )

48.

According to the GTD’s stance, which is set out in the order for reference, at the time when the original contract was concluded (1992) there was no national legislation governing copyright or public procurement. Accordingly, it was impossible to foresee the legal provisions which would apply to that field in the future or how national case-law would develop. Nor was it foreseeable ‘that the definition of the conditions for granting licences in respect of ADIS would subsequently give rise to a questionable situation …’ ( 25 )

49.

The referring court essentially agrees with that point of view, subject to a few qualifications. It accepts that, in 1992, there was no national legislation governing the award of public contracts, ( 26 ) which enabled the Ministry of Finance to conclude the ADIS contract under the terms agreed at that time. The referring court adds that, moreover, the contracting authority ‘could legitimately have assumed that the follow-on contract could also be awarded to the same provider, without the need also to offer others the opportunity to submit a tender to supply the service required’. ( 27 )

50.

For my part, I have no objection to make to those findings which refer to a time in history when, quite simply, since the Czech Republic was not yet a member of the European Union, EU law was not applicable. It is for the referring court to define the facts and the legal framework pertaining to the conclusion of the original contract.

51.

In those circumstances, it is immaterial whether or not the exclusivity, which was basis for the conclusion of the original contract in 1992, was created by the contracting authority.

52.

The perspective changes if account is taken of the fact that the contractual relationship between the Czech authorities ( 28 ) and the supplier lasted for many years (from 1992 to 2016, for the present purposes).

53.

During that period, the legal framework was amended, particularly since the Czech Republic joined the European Union in 2004. As from its accession, the Czech Republic was required to comply with the public procurement directives ‘in accordance with the principle that the provisions of EU law apply ab initio and in toto to new Member States’. ( 29 )

54.

The referring court draws attention to the importance of the new framework and to the change in the contracting authority’s obligations: when the GTD awarded the contract in 2016, Law 137/2006 and Directive 2004/18 were in force. Accordingly, the GTD was required to ensure that its acts did not create situations of exclusivity in order to legitimise the use of the negotiated procedure without prior publication.

55.

On the basis of that finding, and after examining the two opposing views, the referring court states the following in paragraph 32 of the order for reference:

56.

As an assessment of the decisive facts for the purposes of the dispute and of the situation under national law, the Court of Justice can have no objection to those considerations set out by the referring court. As regards the considerations set out at the end of paragraph 32 of the order for reference, which I have transcribed above, I believe these contain a correct interpretation of Directive 2004/18.

57.

The reply to the question referred for a preliminary ruling which follows from the foregoing is that the fact that the original contract was concluded before the Czech Republic’s accession to the European Union is irrelevant for the present purposes. On the other hand, the contracting authority’s actions carried out between 2004 and 2016 are decisive. Logically, the key is the conclusion of the new contract in 2016.

58.

However, the Czech Government attempts to deny that it has any responsibility for the creation of the situation of exclusive dependency, arguing that the examination must concern the time when the original contract was concluded. Since there were no objections to the lawfulness of its conduct at that time, nor is there any basis for attributing intent to the contracting authority.

59.

I disagree with that argument:

60.

From a different perspective, the Czech Government, while acknowledging that, when faced with situations like that at issue, it has to take decisions enabling it to free itself from dependence on a specific supplier, argues that a ‘reasonable solution’ should be accepted; it defines this as the solution which is the most economical and which ensures the stable operation of the national administrative authority’s critical information systems. In its submission, those factors legitimise, in this case, the use of the negotiated procedure without prior publication of a contract notice ( 33 )

61.

I do not agree with that argument either, although I do understand the problems with which the contracting authority was faced, de facto, in 2016. The tax authorities, like all the other State authorities, may not rely on practical, administrative or financial difficulties ( 34 ) in order to justify non-compliance with the obligations laid down by a directive, since it is for the Member States to overcome these by adopting appropriate measures. ( 35 )

62.

Another line of defence put forward by the Czech Government in support of the contracting authority’s actions is the argument that that authority attempted to extricate itself from dependence on the supplier by acquiring the copyright; it did not succeed in doing this because the supplier objected. ( 36 )

63.

That claim cannot succeed in view of the fact that, from 2004, the contracting authority had sufficient time (until 2016) to overcome IBM’s refusal. Faced with the situation of exclusivity which had lasted for decades, it should have adopted initiatives which would have resulted in it extricating itself from dependence on the supplier, by looking for offers from other operators, something which it does not appear to have done. Such views were expressed by the referring court ( 37 ), with which, I once again concur.

64.

Moreover, it cannot be inferred from the order for reference that the contracting authority made ‘serious’ attempts to find new suppliers which would enable it to overturn the situation of dependence in which it found itself. In accordance with the case-law of the Court, the contracting authority must ‘investigate seriously’ whether there are undertakings capable at European level of supplying (or, as the case may be, replacing) specific software. ( 38 )

65.

When discussing the problem of ‘lock-in’ in relation to IT systems, the Commission suggests a number of options ( 39 ) to contracting authorities for overcoming restrictions of competition in public procurement, like that examined here.

66.

Even though the Czech authorities claim that they established prior checks to combat the lock-in to which the 2013 Communication refers, ( 40 ) the contract at issue in this reference for a preliminary ruling confirmed the pre-existing situation of exclusivity, without altering it. Thus, it is possible to attribute to the contracting authority the perpetuation in 2016, by action or omission, of a situation of exclusivity created by its predecessor in law, which should have prevented it from using the negotiated procedure without prior publication of a contract notice.

67.

Finally, it should be recalled that the Court previously ruled on the need to open up to competition contracts similar to that at issue here, on the assumption that they are subject to the general rules of administrative procurement: ‘… if a contracting authority is considering organising a public procurement procedure for the maintenance, adaptation or development of software acquired from an economic operator, it must ensure that adequate information is communicated to potential candidates and tenderers in order to allow effective competition to develop on the secondary market for the maintenance, adaptation or development of the software’. ( 41 )

68.

In the light of the foregoing considerations, I propose that the Court of Justice answer the question referred for a preliminary ruling by the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic) as follows:

Article 31(1)(b) of Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts

must be interpreted as meaning that a contracting authority may not create, by its own actions, a situation of exclusivity on which it seeks to rely to justify the use of a negotiated procedure without prior publication of a contract notice.

Where a contracting authority concludes a new contract to which Directive 2004/18 is applicable, it is immaterial that the situation of exclusivity is derived from the original contract concluded by the authorities of a Member State before its accession to the European Union. When assessing the contracting authority’s conduct in relation to the new contract, regard must be had to the factual and legal context at the time when that new contract was concluded.