In a recent judgment (HFD 2752-23), the Supreme Administrative Court (HFD) has clarified the concepts of what constitutes a "material change" versus a "change in the overall nature of the contract" - an important distinction that can save millions of kronor in procurement penalties and increase flexibility in ongoing contracts.
Background
As you know, the main rule in procurement law is that a contract concluded by a public authority may not be amended without a new procurement procedure.
In 2021, a contracting authority agreed with its suppliers to change the reimbursement conditions for salvage services. The aim was to equalize costs between different areas. The change involved a significant increase in the fixed price radius (from 10 km to 50 km), a significant increase in fixed prices and a reduction in kilometer prices.
The FCA argued that this constituted illegal direct awards. The lower courts agreed and considered that the changes were so extensive that they were to be considered substantial and that they thus changed the overall nature of the contract.
The Supreme Court's clarification: the distinction between substantial modification and modification of an overall nature
The Supreme Court (guided by the preliminary ruling of the CJEU in case C-282/24) clarifies that we must distinguish two different concepts in the LOU:
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Substantial modification (Chapter 17, Section 14 LOU): A modification is substantial if it introduces conditions that hypothetically could have attracted more tenderers or affected the evaluation in the original procurement.
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Change of a horizontal nature (Chapter 17, Section 9 of the LOU): This is a much stricter concept. In order for the overall nature to be considered changed, the subject matter of the contract must be fundamentally altered. A marginal change in the total value of the contract does not normally imply a change in the subject matter of the framework agreement, unless the economic equilibrium is fundamentally shifted.
The point is that even if a modification is 'substantial', it may still be allowed if it is of minor value (below the threshold and below 10% of the initial contract value for services), provided that it does not change the overall nature of the contract.
The Supreme Court found that the changes made by the contracting authority in this case, although substantial, were not such as to change the overall nature of the contract. The authority initiated the changes in order to achieve cost neutrality, and the investigation did not show that the supplier was placed in a significantly more advantageous situation than before. The HFD further stated:
"The fact that a contract amendment results in the supplier gaining an advantage over the other tenderers in the original procurement is thus not relevant to the assessment of whether the overall nature has changed"
What does the judgment mean?
The judgment opens up the possibility that changes that are actually significant can still pass the eye of the needle, as long as they stay within the value limits and do not change the overall nature of the contract (Chapter 17, Section 9 of the LOU). When assessing the overall character, one looks at the balance between the parties before and after the actual contract amendment. Just because the change could hypothetically have affected who participated in the procurement does not automatically mean that the overall nature of the contract has changed.
The case in question is now referred back to Administrative Court to examine whether the change at one of the suppliers was below the value limits in Chapter 17. 9 § LOU.
