How does the Substantial Modification of a Public

Contract Affect its Legal Regime?

Jan Brodec and Václav Janeček *

Applicable law; EU law; Indirect effect; Novation; Public contracts; Variation

Abstract:
This article outlines the fundamental consequences for the legal regime of public contracts which result
from the substantial modifications of such contracts within the meaning of EU law. The authors conclude
that an EU law-compliant understanding of the term “substantial modification to public contracts” may
result, in some national legal systems, in the “privative novation” of the original contract, i.e. in its
complete discharge and replacement with a new contract. However, this may be associated with a number
of negative implications impairing the principle of legal certainty, thereby indirectly affecting the efficient
functioning of the EU’s internal market. This conclusion appears to be contrary to the objectives pursued
by the doctrine of indirect effect of EU law. The authors show some viable solutions to this problem, both
from the position of contracting authorities and courts, and from the perspective of the member states in
the forthcoming implementation of the new EU Public Procurement Directives.

1. Introduction
After several years of effort analysing and thinking through the valuable experience acquired in
implementing the previous EU Directives (“the Directives”) on public procurement,1 including the
continuously developing case law of the Court of Justice of the European Union (“the Court”), and devising
ways of addressing the urgent needs precipitated by the practical use of the Directives, new directives
were adopted in 2014 (“the new Directives”).2 Member states must implement most of the new obligations
of these directives by April 2016 and many are expected to pass completely new legislation on public
procurement and to extend their current national regulation to include new features that are optional, as
well as new obligations. Modifications to public contracts during the performance thereof is one of the
new issues covered, that had not yet been explicitly provided for in secondary law before the new Directives
were introduced.
Until recently, the legal limits on modifications to public contracts following the selection of the most
advantageous tender were only derived from the principles laid down in the Treaties (the Treaty on
European Union and the Treaty on the Functioning of the European Union) and the principles of public

*
Ph.D., LL.M., JUDr., Bc., Senior Lecturer at the Department of Commercial Law, Faculty of Law, Charles University in Prague; Mgr., Bc., Doctoral
Candidate at the Department of Legal Theory and Legal Doctrines, Faculty of Law, Charles University in Prague. This article was written under the
research disciplines development programme of Charles University in Prague: PRVOUK No P04: Institucionální a normativní promeny práva v
evropském a globálním kontextu, and PRVOUK No P05: Soukromé právo XXI. století. Thanks for helpful comments on an earlier draft of this article
are due to Martin Bulušek, Eva Stanková, Ondřej Trnka and to an anonymous referee. Thanks are also due to Hana Kamenická and Helena Skalská
for excellent research assistance. The usual disclaimer applies. Email: brodec@prf.cuni.cz; janecek@prf.cuni.cz.
1
Directive 2004/18 on the co-ordination of procedures for the award of public works contracts, public supply contracts and public service contracts
[2004] OJ L134/114 (“the Public Sector Directive”) and Directive 2004/17 co-ordinating the procurement procedures of entities operating in the water,
energy, transport and postal services sectors [2004] OJ L134/1 (“the Utilities Directive”).
2
Directive 2014/24 on public procurement and repealing Directive 2004/18/EC [2014] OJ L94/65 (“the 2014 Public Sector Directive”); Directive
2014/25 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC [2014]
OJ L94/243 (“the 2014 Utilities Directive”).

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 How does the Substantial Modification of a Public Contract Affect its Legal Regime? 91

procurement law. This was because neither the Public Sector Directive nor the Utilities Directive explicitly
contained any regulation of modifications to contracts during the performance thereof. It was only in the
Court’s case law that the permissibility of amendments to public contracts was examined, most notably
in the Pressetext judgment.3 This article addresses some unpropitious consequences of the conditions for
the permissibility of amendments to contracts as set out by the Court. We claim that the substantial
modification can result, inter alia, in a complete discharge of the initial public contract and thus also in a
fatal change of the legal regime of the contract. In this article, we understand the legal regime of public
contracts to mean the legal framework of the contract, i.e. all contractual and statutory provisions that
apply to the relation between the parties.
Our argument proceeds in several steps. First, we look at the definition of substantial modification as
it can be found in the EU law and under some member states’ national legislation. In section three, we set
out the problem of the extent of the indirect effect. It is important to ask whether the indirect effect applies
to all parts of the legal regime of the contract or to only some of them. Then we turn to the concept of
novation and we ask under what conditions and in what manner the substantial modification can also lead
to novation of the contract. In the same fourth section, we show how the legal regime of the contract can
be influenced negatively by novation which cancels the initial contract. In the fifth section, we focus on
some practical implications of the argument, i.e. how contracting authorities and contractors can successfully
defend themselves against such consequences. Furthermore, on the basis of our analysis of the indirect
effect of EU law in respect of modifications to public contracts, we arrive at conclusions and
recommendations that can be taken into account in the implementation of the new Directives. These
considerations might ease the interpretation and application thereof by judicial authorities, including the
Court, with a view to increasing the level of legal certainty and ensuring the efficient functioning of the
EU’s internal market.
Finally, one very basic limitation should be noted up front at this point, to wit, that this article only
deals with modifications to public contracts following contract conclusion. Prior to concluding a contract,
discussing the legal regime of the public contract is irrelevant.

2. Substantial modification of public contracts during their term

European directives and, in relation thereto, national legislation regulate in detail the procedure for
concluding public contracts, i.e. the pre-contract stage. Initially, very little legislative attention was devoted
to the performance of or potential changes to such contracts. In this respect, a historical exception was
the issue of extending the subject matter of the performance (additional works), i.e. basically the award
of additional performance, which was acceptable under certain conditions.4 However, no other procedures,
or conditions for the permissibility of other changes besides extending the subject matter of public contracts,
were laid down.
At the same time, a number of contractual relationships in public procurement cannot be, because of
their nature, carried out without changing the contract during its term. Examples include complex contracts
for construction work or long-term projects, for which it is not feasible to specify all the factual aspects
of performance under contract,5 or the regulatory circumstances (which may considerably affect the
performance of the public contract), at the stage of the initial award procedure.
Private-law legislation provides for parties’ general freedom of contract, both in relation to the parties’
procedure before concluding a contract and, for example, in relation to the modification of the subject

3
Pressetext Nachrichtenagentur GmbH v Austria (C-454/06) [2008] E.C.R. I-4401.
4
See, e.g. art.9(f) of Council Directive 71/305 concerning the co-ordination of procedures for the award of public works contracts [1971] OJ L185/5;
art.11 of Council Directive 92/50 relating to the coordination of procedures for the award of public service contracts [1992] OJ L209/1; art.31 and 61
of the Public Sector Directive or art.40 of the Utilities Directive.
5
For example, the physical properties of the ground under built structures, the market availability of certain construction materials, etc.

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92 Public Procurement Law Review

matter of the contract following signature. Nevertheless, public procurement law curtails this freedom of
contract in a legitimate manner and sets forth a procedure for contracting authorities, which they are
obliged to follow before and after concluding a public contract. Thus, the freedom of contract of persons
managing public funds has been restricted in the interest of preserving the principles of transparency and
non-discrimination in public procurement and, hence, achieving the maximum possible economy in public
spending. If, then, a contracting authority is entering into a public contract, or is about to change the current
contractual relationship, it is obliged to comply with the procedures and conditions laid down by the law
or, as applicable, the conditions arising from the basic principles of public procurement law. The mainstay
decision that derives, from the above principles, the conditions for the permissibility of modifications to
public contracts after the conclusion of the contract is the Court’s decision in the case of Pressetext
(C-454/06) of 2008,6 the conclusions of which have been repeatedly upheld in subsequent decisions and
are now reflected in the new Directives.7

2.1 Decision of the Court in the “Pressetext” case and subsequent cases
The Pressetext case concerned the permissibility of alterations to an agreement (public contract) on the
provision of services by a news agency. In assessing the limitations on amendments to public contracts
the Court concluded that “[i]n order to ensure transparency of procedures and equal treatment of tenderers,”8
in general it is not allowed to make such amendments to the contract as would in practice constitute a new
award of a contract or would affect the outcome of the initial contract. According to the Court, a substantial
modification (material amendment, material change) to a public contract is therefore impermissible without
an award procedure. Such amendments are “materially different in character from the original contract
and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that
contract.”9 Through this general statement, the Court defined the basic limits to the concept of substantial
modification.10
A substantial modification is found, at least: (1) when the modification extends the scope of the contract
considerably to encompass supplies, services or construction work not initially covered; (2) when it
introduces conditions which, had they been part of the initial award procedure, would have allowed for
the admission of tenderers other than those initially admitted or would have allowed for the acceptance
of a tender other than the one initially accepted; or (3) when it changes the economic balance of the contract
in favour of the contractor in a manner which was not provided for in the terms of the initial contract. The
Court has also examined the issue of substantial modification in some other cases; nevertheless, it has
repeatedly confirmed the basic definition of substantial modification: the modification demonstrates the
intention of the parties to renegotiate the essential terms of the initial contract.11 Reference literature
espouses the same opinion on this issue.12 We will therefore look into this formulation in more detail. In
6
Pressetext [2008] E.C.R. I-4401 and the Opinion of A. G. Juliane Kokott in Pressetext [2008] E.C.R. I-4401.
7
Recital (107) of the 2014 Public Sector Directive or recital (113) of the 2014 Utilities Directive. Similarly see also S. Treumer, “Contract changes
and the duty to retender under the new EU public procurement Directive” (2014) 23 P.P.L.R. 148; T. Kotsonis, “The 2014 Utilities Directive of the
EU: codification, flexibilisation and other misdemeanours” (2014) 23 P.P.L.R. 169, at 182–184; R. Williams, “Modernising the EU public procurement
regime” (2014) 23 P.P.L.R. NA79, at NA81.
8
Pressetext [2008] E.C.R. I-4401 at [34].
9
See Pressetext [2008] E.C.R. I-4401 at [34].
10
See more in Pressetext [2008] E.C.R. I-4401, at [34]–[37]. See also an earlier decision of the Court in Commission of the European Communities
v French Republic (C-337/98) [2000] E.C.R. I-8377, at [46], [50] and [51].
11
Wall AG v Frankfurt am Mein (C-91/08) [2010] E.C.R. I-2815, at [37], [43] and [72]; Commission v Netherlands (C-576/10) [2014] 1 C.M.L.R.
12, at [54], and the Opinion of A. G. Wathelet in Commission v Netherlands [2014] 1 C.M.L.R. 12, at [48]–[52]; Commission v Germany (C-160/08)
[2010] E.C.R. I-3713, at [99]; Commission v Greece (C-250/07) [2009] E.C.R. I-4369, at [52]; Acoset SpA v Conferenza Sindaci e Presidenza Prov
Reg ATO Idrico Ragusa (C-196/08) [2009] E.C.R. I-9913; [2010] 1 C.M.L.R. 35 [62], and the Opinion of A. G. Ruiz-Jarabo Colomer in Acoset SpA
v Conferenza Sindaci e Presidenza Prov Reg ATO Idrico Ragusa (C-196/08), at [91]; Commission of the European Communities v French Republic
(C-337/98) [2000] E.C.R. I-8377, at [44]; Togel v Niederosterreichische Gebietskrankenkasse (C-76/97) [1998] E.C.R. I-5357; [1998] 3 C.M.L.R.
768, at [63] and [64].
12
C. H. Bovis, “Public Procurement in the EU: Jurisprudence and Conceptual Directions” (2012) 49 C.M.L.R. 247, at 269; K. Hartlev, M. W.
Liljebol, “Changes to Existing Contracts Under the EU Public Procurement Rules and the Drafting of Review Clauses to Avoid the Need for a New

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 How does the Substantial Modification of a Public Contract Affect its Legal Regime? 93

relation to the Court’s jurisprudence, some European countries have implemented provisions in their legal
systems reflecting the issue of substantial modifications to already signed public contracts.13

2.2 Substantial modification under national legislation

In France, art.20 of the Code des marchés publics14 sets forth that where there are unpredictable technical
reasons due to no fault of the parties, amendments to already concluded public contracts may be signed.
Under no other circumstances may the economic balance established by the contract be disrupted or the
object of the contract changed.
In Germany, European jurisprudence concerning substantial modifications to already concluded public
contracts has affected the application of the general terms and conditions for construction work contracts
and the general terms and conditions for goods and services contracts by German contracting authorities.
Should the above general terms and conditions allow changes to contracts, the contracting authorities
would be obliged to consider whether or not such change is relevant from the perspective of the awarding
process.15
In Austria, public procurement is currently governed by Bundesvergabegesetz 2006.16 This law does
not address the issue of substantial modifications as such. However, the provisions of Bundesvergabegesetz
can be interpreted fully in compliance with the Court’s case law.
In the Czech Republic, substantial modification is provided for in s.82(7) of the Act on Public Contracts
(No 137/2006). Under this provision, substantial modifications to public contracts are prohibited, while
a modification that: (i) would extend the object of the public contract; (ii) would have allowed the
participation of other contractors had it been used in the initial award procedure; (iii) could have influenced
the selection of the most advantageous tender had it been used in the initial award procedure; or (iv) would
change the economic balance in favour of the selected tenderer, is regarded as a substantial modification
at all times. However, the Act on Public Contracts does not, unlike the Pressetext case, include a general
requirement that the modification in question must be such that it “materially differs” from the original
contract.
In Slovakia, the conclusion of amendments is provided for in s.10a of the Act on Public Procurement
(No 25/2006). Slovak legislation closely corresponds to Czech legislation. However, contrary to its Czech
counterpart, Slovak legislation prohibits amendments that “materially change the original object of the
contract”. Slovak legislation therefore contains a general provision that turns the list of the elements of
substantial modifications into an illustrative (rather than an enumerative) list.
The above examples clearly indicate that national legal systems actually do accept and implement the
Court’s jurisprudence in various forms, which there is no question increases the level of the legal certainty
of the addressees of such legislation. However, it is noticeable that one of the basic features of the concept
of substantial modification, the parties’ intention to renegotiate the essential terms of the contract, does
not appear in the national legal systems. In line with the requirement for a uniform interpretation of EU
law and with the indirect effect principle, it can be concluded that regardless of the specific manner in
which the issue of substantial modifications to public contracts is implemented in national legislation,
member states’ courts should interpret the permissibility of modifications in line with the Court’s

Tender” (2013) 22 P.P.L.R. 51, at 53; S. T. Poulsen, “The possibilities of amending a public contract without a new competitive tendering procedure
under EU law” (2012) 21 P.P.L.R. 167, at 170; T. Kotsonis, “Commission v Netherlands (Case C-576/10): determining which Directive is applicable
to a claim” (2014) 23 P.P.L.R. NA39, at NA39 and 41; A. Brown, “When do changes to an existing public contract amount to the award of a new
contract for the purposes of the EU procurement rules? Guidance at last in Case C-454/06” (2008) 17 P.P.L.R. NA253, at NA258 and 260.
13
On the development of the Court’s jurisprudence on this issue see, e.g. C. H. Bovis, “Developing Public Procurement Regulation: Jurisprudence
and Its Influence on Law Making” (2006) 43 C.M.L.R. 461, at 461.
14
As amended by Regulation no. 2008-1355 of December 19, 2008.
15
Cf. The German Law Against Restraints on Competition (GWB), German Regulation on the Award of Public Contracts (VgV), and Regulations
VOB/A, VOL/A, VOF.
16
Bundesgesetz über die Vergabe von Aufträgen (BGBl I Nr 17/2006).

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jurisprudence. Thus, it will then usually be possible to overcome a number of shortcomings in the specific
manner of codifying, in national legislation, the permissibility of modifications to public contracts by
means of an interpretation compliant with EU law. Insofar as the limits to an interpretation compliant with
EU law allow, all aspects of the concept of substantial modification, as specified in the Court’s
jurisprudence, should be reflected in national legislation, i.e. including the implication of substantial
modification in the form of the renegotiation of the essential terms of the contract.
A new aspect is, however, in view of the adoption of the 2014 Public Sector Directive and the 2014
Utilities Directive, that the interpretation of EU law must not, during the period of two years intended for
implementing the new Directives into national legal systems, jeopardise the aims set forth in these new
Directives. We therefore have to assess first of all the extent to which the new EU legislation differs from
the existing case law as regards modifications to public contracts. Only then will it be possible to clearly
specify an EU law compliant content of and legal implications stemming from the concept of substantial
modification, which should be taken into account in the further interpretation, application or implementation
of EU law.

2.3 The new Directives and the rationale of substantial modifications

Both of the new Directives address the issue of modifications to public contracts after the conclusion of
the contract in virtually identical terms. For the sake of simplicity, we will now discuss only regulation
under the 2014 Public Sector Directive, specifically art.72.17
Article 72 of the 2014 Public Sector Directive sets out the conditions under which contracts may be
modified during their term without a new procurement procedure. We can summarise that without a new
procurement procedure, it is forbidden to make substantial modifications to a contract, unless they fall
within the elements defined in art.72(1)(a) to (d) and in art.72(2). This conclusion is explicitly confirmed
in art.72(5), under which a new procurement procedure shall be required for other modifications of the
provisions of a public contract or a framework agreement during its term than those provided for under
paras 1 and 2. So again, as a general rule it is forbidden to make a substantial modification to a contract.
Substantial modification is now defined in art.72(4) in conjunction with recital (107) of the 2014 Public
Sector Directive. Here, too, substantial modification is (in relation to the Court’s jurisprudence) defined
generally as any arrangement that renders the new contract materially different in character from the one
initially concluded. Furthermore, recital (107) of the 2014 Public Sector Directive clearly suggests that it
continues to hold that “[s]uch changes demonstrate the parties’ intention to renegotiate essential terms or
conditions of that contract”. This general provision, defining substantial modification, is supplemented
in art.72(4) by a list of four demonstrative elements, which are mainly based on the Court’s jurisprudence
and the related professional debate, and which have to be regarded as substantial modifications at all times.
However, the foregoing suggests that even these four scenarios, at all times constituting substantial
modification to the contract, can be carried out without a new procurement procedure if the elements
defined in art.72 (1)(a) to (d) and in art.72(2) are simultaneously satisfied.
From the perspective of the logic and system of the new Directives we can therefore conclude that a
distinction is made between modifications to public contracts which comply with EU law and modifications
which do not comply with EU law. Changes compliant with EU law include modifications that (1) are
not substantial, or modifications that (2) are substantial but satisfy the conditions and procedures for
carrying them out; thus, they are sort of “permissible” substantial modifications. On the contrary, changes
non-compliant with EU law include substantial modifications that simultaneously fail to satisfy the
conditions for exemption from the general prohibition of substantial modifications. For the purposes of

17
See also recitals (107) to (111) of and ANNEX V (part G) to the 2014 Public Sector Directive; as to the 2014 Utilities Directive, see art.89, recitals
(113) to (117), and ANNEX XVI. Recently, Treumer has given a good overview on the issue of permissible contract changes under the new Directive:
Treumer, “Contract changes and the duty to retender under the new EU public procurement Directive” (2014) 23 P.P.L.R.

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 How does the Substantial Modification of a Public Contract Affect its Legal Regime? 95

further interpretation it is then important, in particular, that the new Directives, as with the jurisprudence
so far, do not place an “equals sign” between a substantial modification to the contract and an infringement
of public procurement law.
A conclusion on whether or not a modification to a public contract is substantial within the meaning
of EU law, is therefore completely independent of (1) the manner in which the contract was modified
(whether without or with a procurement procedure), as well as of (2) whether or not such modification
complied with EU law. The defining feature of a substantial modification is, on the contrary, its nature
compared with the initial contract; it is therefore defined by the above general statement, which has now
been accepted in the first sentence of art.72(4) of the 2014 Public Sector Directive.

3. Indirect effect of EU law on public procurement law and the law of contractual
obligations
We have already described where the term “substantial modification to the contract” comes from and that
the Court defines it as a change that represents the parties’ intention to renegotiate substantial terms or
conditions of the contract. Then we have shown that member states as well as the new Directives retain
this definition. In addition, we have stressed that the new Directives make it explicitly permissible to carry
out a substantial modification to the contract without a procurement procedure. Now, in this section we
shall ask whether the aforementioned definition of a substantial modification will apply to only the
procurement aspects of modifications to public contracts, or also to other aspects, in particular contractual
aspects. The parties’ intention to renegotiate the essential terms of the contract might lead to different
juridical implications under the law of contract than under the respective procurement regulation. At least
at first sight it in fact appears that the objectives pursued by the new Directives do not include the contractual
aspects of modifications to public contracts and that therefore in this respect, EU law does not place any
requirements on the interpretation of the concept of substantial modification (in the contractual sense).
However, the doctrine of indirect effect applies, in general, to the entire national law rather than merely
to an implementing regulation.18 We shall thus ask what the limits of an EU law compliant interpretation
are.

3.1 The legal regime of public contracts

The legal regime of public contracts, i.e. the aggregate of the legal rules that govern the emergence, change
and extinction of the rights and obligations of the entities in this legal relationship (i.e. in the public
contract), usually consists of, primarily, four groups of rules, in the following hierarchical order: (1) rules
in the domain of public procurement—mandatory rules; (2) mandatory rules of contract law19; (3) the
relevant terms of the contract; and (4) the subsidiarily applicable provisions of private-law legislation in
the field of the law of contractual obligations.20 It can be noted that virtually the only difference between
the legal regime relating to public contracts and the conventional contractual relationship under private
law is that the regime relating to public contracts entails a larger number of mandatory rules, specifically
those falling within group (1). Rules that are otherwise fully applicable under conventional private law
are modified in respect of public contracts, since at the end of the day, the regulation of public procurement

18
See, in particular, joined Pfeiffer and Others (C-397 to 403/01) [2004] E.C.R. I-8835; [2005] 1 C.M.L.R. 44, at [114]; Angelidaki and Others v
Organismos Nomarchiakis Autodioikisis Rethymnis (C-378/07 to C-380/07) [2009] E.C.R. I-3071; [2009] 3 C.M.L.R. 15, at [197] and [198], Kücükdeveci
(C-555/07) [2010] E.C.R. I-365; [2010] 2 C.M.L.R. 33, at [48]; and Marleasing (C-106/89) [1990] E.C.R. I-4135; [1992] 1 C.M.L.R. 305, at [8].
19
Mandatory rules are such from which contract provisions may not derogate under the penalty of nullity or under some other penalty. So, for
example, the rules preventing unfair terms in consumer contracts cannot be overridden by an agreement between the consumer and the seller or supplier.
See also K. Beran, “Kdy je norma kogentní a kdy dispozitivní?” (2009) Právní rozhledy, Vol. 17, 685.
20
Subsidiarily applicable provisions of the law (sometimes called default rules) are such provisions that impinge ex lege on the legal relationship
in question and the application of which to the legal relationship in question the parties have not validly excluded in their explicit covenant.

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constitutes a set of mandatory rules under private law, and, moreover, such regulation takes precedence
over the general provisions of private law, and hence also over the mandatory provisions of contract law.21
One can, then, ask whether it is also necessary to apply the indirect effect of the directive—the
interpretation of the term “substantial modification to the contract”—to the contractual aspects (under the
law of obligations) of the legal relationship, i.e. the rules falling within groups (2) to (4). We consider the
answer to that to be yes, because both of them (both contractual and procurement issues) fall within a
single legal framework—the legal regime of the contract. The opposite conclusion would result in public
procurement law being innately contradictory. Otherwise it would be necessary to interpret and assess the
same legal acts concerning one and the same contract from two different perspectives with different legal
consequences. From the contractual perspective a contract (or a modification thereof) could be, for example,
effectively be modified orally, but from the perspective of procurement it could only be modified in
writing. Such a dual regime is obviously absurd and not viable in terms of argumentation, because it denies
law its inner logic.22 Either the contract was effectively modified or it was not, tertium non datur. Thus,
simplifying somewhat, public contracts are still contracts, only with a specific contracting regime intended
to ensure transparent and non-discriminatory award of public contracts on the basis of equal treatment,
while ensuring the most efficient use of public funds.
From this perspective the legal regime of public contracts needs to be viewed as a single integrated
framework within which the indirect effect of EU law will fully apply. Substantial modification to contracts
should therefore be interpreted, in compliance with EU law, not only to the extent of the rules falling
within group (1) above, i.e. public procurement rules for the harmonization of which the relevant
competences have been conferred on the EU. On the contrary it should be interpreted, and to the maximum
possible extent, in the context of the entire legal regime of public contracts, and hence also from the
perspective of the rules falling within groups (2) to (4), i.e. in the area of law of contractual obligations
to the extent this law is part of the legal regime of public contracts.

4. Compliant interpretation of the concept of substantial modification in terms of

the law of contractual obligations
In the context of the rules of public procurement law, an EU law-compliant interpretation of the concept
of substantial modification to contracts can be regarded as problem-free, at least for the purpose of this
contribution. The purpose of delineating substantial modifications is to determine the borderline beyond
which the general principle of freedom of contract could distort competition. Thus, as mentioned above,
a substantial modification to a public contract ultimately means the parties’ intention to renegotiate the
essential terms and conditions of the contract, and therefore to award a new public contract that materially
differs from the initial contract. It would be contrary to EU law if such a new contract were not subjected
to the EU rules on the award procedure. Only subject to specific conditions, which have to be interpreted
restrictively,23 does EU law allow, in the light of the new Directives, substantial modifications to contracts
without a new award procedure.
The implications of breaching the rules on the prohibition of substantial modifications to public contracts
are covered by Directive 89/665,24 and in particular by important amendments introduced by Directive
2007/66.25 This directive in general regards the illegal direct award of public contracts as one of the most

21
See P. Bolton, “Overview of the Government Procurement System in South Africa" in: K. V. Thai (ed.), International Handbook of Public
Procurement (Oxford: Taylor & Francis, 2009), 357, at 359.
22
Cf. E. Weinrib, The Idea of Private Law (Oxford: OUP, 2012), pp.28–46.
23
Cf., e.g. Commission v Italy (C-199/85) [1987] E.C.R. 1039; Commission v Spain (C-71/92) [1993] E.C.R. I-6923; Commission v France (C-340/02)
[2004] E.C.R. I-9845; Commission v Italy (C-385/02) [2004] E.C.R. I-8121; [2005] 1 C.M.L.R. 52.
24
Council Directive 89/665 on the co-ordination of the laws, regulations and administrative provisions relating to the application of review procedures
to the award of public supply and public works contracts [1989] OJ L395/33.
25
Directive 2007/66 of the European Parliament and of the Council of December 11, 2007 amending Council Directives 89/665 and 92/13 with
regard to improving the effectiveness of review procedures concerning the award of public contracts [2007] OJ L335/31.

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 How does the Substantial Modification of a Public Contract Affect its Legal Regime? 97

serious breaches of EU law and as such penalizes it by ineffectiveness (nullity). Nevertheless, the
ineffectiveness of a contract has to be declared by an independent body competent to the review on the
basis of prior proceedings. In the interest of legal certainty of the parties, the application for such review
proceedings must be made only within a reasonable period with effect from the day following the date of
the conclusion of the contract or the amendment thereto. The actual length of this period may vary amongst
member states; however it shall be no shorter than six months.26
In practice, it is thus possible to imagine three types of cases in which the parties make a substantial
modification to a public contract that will not lead to the ineffectiveness of the contract. One case is where
the parties breach the prohibition on substantial modifications, but the time limit for applying for a review
of the contracting authority’s procedure has elapsed; the second case is where a substantial modification
is made on the basis of a prior award procedure; and the third case is where the modification is substantial
but where it also complies with the test for carrying out a modification (as we have explained in section
2.3). It is now clear that, despite the fact that substantial modification of a contract is generally prohibited,
there might be a number of public contracts which has been effectively and substantially modified (even
without an award procedure). Now, in all three cases the substantial modification ultimately means an
intention by the parties to renegotiate the essential terms and conditions of the contract.27 What does this
mean in the field of the law of contractual obligations?

4.1 Substantial modifications to contracts in the law of contractual obligations

Proceeding from the assumption that a substantial modification to a public contract means an intention
by the parties to award a new public contract, then we can generally say that this amounts to novation of
the original legal relationship. For the purposes of this article we use the term novation as an overarching
and non-technical concept that exists in many systems and is understood largely in the same way. The
term novation comes from Latin (Roman law) and denotes something new (aliquid novi) in an
obligation—hence novation (novatio). As a principle, novation occurs in relation to a legal relationship
and upon agreement of the parties.
Privative novation and cumulative novation can be distinguished. Privative novation means replacing
an obligation with a new obligation; cumulative novation means adding a new obligation to the original
obligation. While the concept of privative novation also entails the discharge of the original obligation
(with the new obligation taking its place), in cumulative novation the original obligation is not discharged
and the two obligations then exist alongside each other. We talk about the discharge of an obligation when
a new legal fact that deprives the original legal fact of its legal effects, either in full (a complete discharge
of the obligation), or in part (a partial discharge of the obligation) is added to the original legal fact that
occasioned the genesis of the obligation. In the case of a discharge of the obligation, the parties thus cease
to be committed on the basis of the original legal fact, either in full or in part.28 A legal relationship can
therefore be extinguished by way of privative novation.
At the same time, privative novation also generally results in a change of the content of the obligation
to the extent of the subsidiarily applicable laws and regulations (if these have changed over the course of
the legal relationship), because privative novation is fit to extinguish the legal relationship. In other words,
by extinguishing their original legal relationship the parties cease to be bound not only by the original
contract but also the subsidiarily applicable provisions of the law. On the contrary, the replacement of the
original legal relationship establishes a legal relationship anew, also attracting, anew, the subsidiarily
applicable statutory provisions, however, now in their wording as in force at the time of establishing the

26
Recitals (13) and (26), art.2f of Directive 2007/66.
27
For more details on this issue see section two of this contribution (above).
28
Cf. V. Knapp, Splnění závazků a jiné způsoby jejich zániku (Praha: Nakladatelství Československé akademie věd, 1955), p.12.

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98 Public Procurement Law Review

new legal relationship. Hence, should a substantial modification to a public contract cause privative
novation of the contract, the legal regime of the public contract would also be profoundly changed.
Novation is a relatively widespread notion in current contract law and, with some differences between
the national legislation in each country, is always tied to a substantial modification of an obligation. For
example, Austrian contract law understands the term novation as a significant change in the obligation.
Novation does not necessarily have to cause the termination of the initial relationship of obligation (the
legal relationship) at all times. According to the definition of novation in section 1387 of Austrian ABGB,
novation means a change of an obligation without an intervention by a third party. The same persons
remain as the creditor and the debtor. The change of the obligation may consist of a change of the main
object of the obligation or the legal basis of the obligation. Typical novations include, for example, changing
safekeeping into a loan and changing borrowing into renting.29 In French contract law, novation is a concept
that allows the substitution of the contracting parties to the obligation in accordance with arts 1271–1281
of the Civil Code (Code civil). Novation means that the initial relationship of obligation is extinguished,
and a new relationship of obligation emerges, but with materially changed elements (for example, the
parties to the obligation have been substituted, or the object of the obligation, or the “cause”, have been
changed). In French contract law, a mere change to contract provisions is not regarded as novation.30 The
concept of novation also appears in English or United States’ contract law, where it inter alia denotes a
new relationship of obligation replacing the initial relationship of obligation.31

4.1.1 Substantial modification to contracts as privative novation

However, the aim of this contribution is not a detailed examination of the implications of an EU
law-compliant interpretation of the concept of substantial modifications to public contracts from the
perspective of the various member states’ law of contractual obligations. Quite the opposite: using the
example of one legal system, specifically Czech law, we will try to highlight the fatal consequences that
substantial modifications can produce.
In Czech law, novation can be associated with: (1) a change of the legal grounds; (2) a change of the
case; and (3) a change in the content of the contract. In terms of substantial modifications to public
contracts, mainly substantial modification to the content of the contract is relevant, and we will therefore
discuss this issue below. Under s.1902 of the (Czech) Civil Code, privative novation is the basic mode of
changes in the content of the obligation. In Czech law, changing the content of an obligation via privative
novation means that the current obligation is discharged and replaced with a new obligation. Only when
it is possible to deduce from the circumstances of the change to the contract that the original obligation
can live next to the new obligation would a substantial modification of the contract mean cumulative
novation (a new obligation added). In order to assess whether or not a substantial modification causes the
discharge of the original contract, we have to apply the general rules for the interpretation of legal actions.32
Thus, the question of whether or not privative novation of the original contract has occurred under Czech
law can be answered primarily on the basis of the parties’ explicit arrangement (their intention, or lack
thereof, to extinguish the original legal relationship). Another viable approach is an assessment on the
basis of objective criteria, which, however, in conventional contract law are only an indication that the
parties have had an intention to discharge the original obligation, i.e. make a modification so substantial
that they no longer want to ascribe legal effects to the original legal fact and want to replace this legal fact
with a new agreement. However, an EU law-compliant interpretation significantly influences this indicative

29
W. Posch, Monograph on Contracts: Austria (Wolters Kluwer Law & Business, 2012), p.142.
30
J. Schmidt-Szalewski, Monograph on Contracts: France (Wolters Kluwer Law & Business, 1999), p.166.
31
Cf., e.g. R. Upex, Davies on Contract, 17th edn (London: Sweet & Maxwell, 1995), p.188; G. Klass, Monograph on Contracts: USA (Wolters
Kluwer Law & Business, 2011), p.192.
32
Cf. also art.5:101 (1) of PECL; sec.555 and 556 of the Civil Code; cf. also art.1156 of France’s Code Civil, art.1362 of Italy’s Civil Code and
sec.133 of Germany’s BGB.

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 How does the Substantial Modification of a Public Contract Affect its Legal Regime? 99

nature of the substantial modification. Thus, a substantial modification to a contract, as an objective

criterion, not only becomes the initial guidance for the interpretation of the parties’ intention (when seeking
to distinguish between privative and cumulative novation), but also its determinant element—and regardless
of the parties’ intention to a certain extent. In other words, an EU law compliant interpretation of a
substantial modification under s.1902 of the Civil Code does not, in the case of public contracts, allows
the current obligation to live next to the new obligation, and a substantial modification can therefore only
take place via privative novation.
We have concluded in the foregoing that an indirect effect will also apply to the extent of the obligation
aspects of public contracts. We have also concluded that public procurement law is an aggregate of
mandatory rules, promulgated in the public interest, from which the parties may not derogate. A compliant
interpretation of the concept of substantial modification across the entire legal regime of the public contract
therefore cannot be excluded by the parties’ agreement. This means in Czech private law, however, that
a substantial modification to a public contract (whether or not made on the basis of an award procedure)
constitutes an objective intention by the parties to renegotiate the essential terms and conditions of the
original contract. In the light of the above-cited s.1902 of the Civil Code, such a substantial modification
then also means privative novation of the original legal relationship (or the public contract).33 This
interpretation is not contrary to the generally acknowledged interpretation methods,34 legal principles and
generally acknowledged principles35 or to the wording of Czech legislation,36 and we therefore believe
that it is necessary to insist on its validity in the light of the indirect effect of EU law.

4.2 Influence of substantial modification to public contracts on their legal regime

If, then, it is possible in general that an EU law compliant interpretation of the concept of substantial
modification will result—in one of the national legal systems—in privative novation of the original public
contract, we necessarily have to ask what consequences this will have for the legal regime of this contract;
such a conclusion is desirable from the perspective of the functioning of the internal market.

4.2.1 Extinction of the legal effects of the original contract

Privative novation means that the parties’ intention, even when expressed tacitly through an affirmative
manifestation that they make, is directed towards discharging the old obligation. The discharge of an
obligation through novation constitutes a legal fact that permanently deprives the original legal relationship
of its legal effects. A substantial modification that causes the extinguishment of the original legal
relationship therefore concerns its content as well as the time-barring of the debt owed, the incidentals to
the debt, collateral provisions, etc. Through an amendment to the public contract the entire content of the
contract is de iure negotiated anew in the event that the amendment constitutes privative novation. But
this means, inter alia, that the legal regime of the public contract is established anew, and this again to the
extent of: (1) rules in the domain of public procurement—mandatory rules; (2) other mandatory rules of

33
Simultaneously, however, the assumption must be satisfied that the amendment, or the object of the amendment, which constitutes the substantial
modification to the original public contract, is substantively unseverable from the original contract. The opposite case could entail only cumulative
novation. The same is put forth on the substantive understanding of severability in, for example, S. Poulsen, “The possibilities of amending a public
contract without a new competitive tendering procedure under EU law” (2012) 21 P.P.L.R. 167, at 178; or A. Brown, “When do changes to an existing
public contract amount to the award of a new contract for the purposes of the EU procurement rules? Guidance at last in Case C-454/06” (2008) 17
P.P.L.R. NA253.
34
Cf. Kühne & Heitz (C-453/00) [2004] E.C.R. I-837; [2006] 2 C.M.L.R. 17; S. Prechal, Directives in EC Law, 2nd edn (New York: OUP, 2005),
p.1458.
35
Adeneler and Others (C-212/04) [2006] E.C.R. I-6057; [2006] 3 C.M.L.R. 30, at [110]; Angelidaki and Others v Organismos Nomarchiakis
Autodioikisis Rethymnis (C-378/07 to C-380/07) [2009] E.C.R. I-3071; [2009] 3 C.M.L.R. 15, at [199]; Mono Car Styling (C-12/08) [2009] E.C.R.
I-6653; [2009] 3 C.M.L.R. 47, at [61]; Cf. also T. Trimidas, The General Principles of EU Law (Oxford: OUP, 2006).
36
See, e.g. the Opinion of A. G. Jacobs in Centrosteel (C-456/98), at [32]; the Opinion of A. G. Sharpston in Unibet (C-432/05), at [55]; the Opinion
of A. G. Colomer in Telefonica (C-64/06).

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contract law; (3) the contractual arrangements under the amendment; and (4) the subsidiarily applicable
provisions of private law legislation in the field of the law of contractual obligations, as in force at the
moment of signing the amendment.
The most essential difference from the original legal regime of public contracts is thus twofold. First,
the contractual provisions that were not explicitly accepted in the amendment constituting the substantial
modification to the public contract, are no longer part of the new legal relationship; and second, the relevant
statutory provisions (both mandatory and non-mandatory) are newly attracted by the new legal relationship
in their wording as in force at the time of making the substantial modification to the contract, i.e. at the
time of signing the amendment. Both of the above factors considerably weaken the parties’ legal certainty
and their legitimate expectations. A surprising consequence of an EU law compliant interpretation in
respect of privative novation, which, unfortunately, contracting authorities and contractors can come
across within the EU, given the current trend of frequent legislative changes (even in private law), is that
it can result in, among other things, a profound transformation of the parties’ rights and obligations. Over
the past 20 years alone, 17 countries have re-codified their private law, including Germany, the Netherlands,
Lithuania, Rumania, the Czech Republic, and, most recently, Hungary.37 We could therefore describe the
above-outlined implication of the indirect effect doctrine as highly unfortunate since it considerably
weakens the legitimate expectations of parties to public contracts.

4.2.2 Impact on the applicable law

The above conclusions about the implications of privative novation on the occasion of signing an
amendment to a public contract are also very relevant in the case of cross-border contracts governed by
international private law (conflict of laws). The draft contract, which is part of tender documents, usually
contains a provision on the applicable law. This provision is applied in the case where an entity
resident/established outside the country of the award procedure becomes the contracting party on the basis
of the contract award procedure.
The agreement on the applicable law in the public contract is made under art.3 of Regulation 593/2008
on the law applicable to contractual obligations (“Rome I”).38Article 3 of Rome I allows the parties to
choose the law to govern their contract. Rome I is a legislative act of the European Union and is generally
binding and directly applicable to the jurisdiction of practically all member states.
The reason for selecting the law in the draft contract is the legal certainty for the contracting authority,
which thereby avoids the possibility that another country’s law will be applied. This is because theoretically,
such law could be the law of the home country of every foreign candidate participating in the award
procedure.39
Should a public contract be concluded as a cross-border contract while the law of the contracting
authority’s home country is chosen as the applicable law under art.3 of Rome I, the emergence of the
following situation can be imagined: If an amendment to the concluded contract is negotiated, and such
amendment constitutes privative novation (as we understand it herein), the legal consequences of the
modification to the contract through the amendment (including the possibility of cancelling the original
contract by this amendment) will be examined, on the basis of art.12(1)(d) of Rome I, under the law of
the country in which the contracting authority is established. The reason is that this article sets out that
the issues of extinguishing obligations shall be viewed under the same law that is applicable to the obligation
in question (contract). However, as explained in the foregoing, the signing of an amendment to the contract

37
Cf. M. Hrušáková, Zkušenosti s implementací nového soukromého práva v zahraničí (Olomouc:Faculty of Law, Palacký University in Olomouc,
2013), p.7.
38
Regulation 593/2008 on the law applicable to contractual obligations [2008] OJ L177/6.
39
Rome I is based on the principle of erga omnes. Its art.2 sets out that “[a]ny law specified by this Regulation shall be applied whether or not it is
the law of a member state.” For more see, e.g. M. Pauknerová, Evropské mezinárodní právo soukromé (Praha: C. H. Beck, 2013), pp.159ff.

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 How does the Substantial Modification of a Public Contract Affect its Legal Regime? 101

can result, for example, in the context of Czech law, in privative novation and hence the extinguishment
of the current obligation and its replacement with a new obligation.
In the case of contracts involving an international element, there will still be a private law relationship
even after the privative novation, and the law governing such relationship will have to be determined
under Rome I. However, where the parties have not counted on the potential novative implications of their
legal actions in negotiating the amendment to the contract they are unlikely to have renegotiated the
applicable law that should be applied to the legal relationship, i.e. the contract generated on the basis of
the amendment to the original contract. This means that the applicable law will no longer be determined
under art.3 of Rome I (choice of law), but under art.4 of Rome I, which applies where the law governing
a contract with an international element has not been specified.
Article 4 of Rome I sets out the basic methods for determining the applicable law primarily for the
various types of contract [art.4(1)] and secondarily40 on the basis of the habitual residence (central
administration) of the party required to effect the characteristic performance of the contract [art.4(2)].
Both of these methods can result in the application of an applicable law different from the law of the
contracting authority’s country. For example, in the case of a contract for the sale of goods or for the
provision of services (including construction work), it shall be governed by the law of the country where
the seller or the service provider has his habitual residence (central administration).
In addition, following the procedure under the above rules will not help to completely prevent an unfair
situation related to conflict of laws, where the applicable law is determined formally correctly, but the
nature of the contractual relationship in question clearly suggests that the law of a different country would
be more appropriate. Rome I therefore contains an “escape clause” [art.4(3)], under which where it is clear
from all the circumstances of the case “that the contract is manifestly more closely connected with a
country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply.” The Rome
I escape clause should be used rather rarely, first of all in cases where there is virtually no connection with
a country determined under art.4(1) and (2) of Rome I other than the contractor’s habitual residence
(central administration).
Like Rome I, its predecessor, Convention on the law applicable to contractual obligations (“the Rome
Convention”) also contained an escape clause.41 The Court’s jurisprudence interpreting the concept of the
escape clause under the Rome Convention can therefore be applied to the Rome I escape clause, with the
necessary consideration of all the differences. The Court has held that art.4(5) of the Rome Convention
(the escape clause/derogating provision) must be construed as meaning that, where it is clear from the
circumstances as a whole that the contract is more closely connected with a country other than that
determined on the basis of one of the criteria set out in art.4(2) to (4) of the Rome Convention, it is for
the national court to disregard those criteria and apply the law of the country with which the contract is
most closely connected.42Rome I does not provide an exact method for determining when a contract is
more closely connected with another country, nor does the Court’s jurisprudence give us a clear-cut answer
to this question. In this context, we can cite as examples some decisions of some of member states’ courts
that have applied the escape clause under the Rome Convention.
The Commercial Court of the Queen’s Bench Division (UK) decided in favour of the country of
performance in its decision in Definitely Maybe (Touring Ltd) v Marek Lieberberg Konzertagentur GmbH.43
This case entailed a dispute over a concert by the pop group Oasis in Germany. The claimant, based in
the UK, had agreed with the defendant, a music promoter based in Germany, to provide Oasis for concerts
in Germany. Oasis’ lead guitarist did not appear at the concerts and the German company refused to pay

40
I.e. in the case that it is not possible to subsume the contract under any of the contract types in art.4(1) of Rome I, or if the contract contains
features of multiple contract types under art.4(1) of Rome I.
41
80/934: Convention on the law applicable to contractual obligations opened for signature in Rome on June 19, 1980 [1980] OJ L266/1.
42
Intercontainer Interfrigo SC (ICF) v Balkenende Oosthuizen BV, MIC Operations BV (C-133/08) [2009] E.C.R. I - 9687.
43
Definitely Maybe (Touring Ltd) v Marek Lieberberg Konzertagentur GmbH , Queen’s Bench Division , [2001] All E.R. (D) 356 (Mar).

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102 Public Procurement Law Review

the full amount agreed. The claimant brought an action in the UK, invoking art.4(2) of the Rome
Convention, under which the contract is to be governed by the law of the country where the party who is
to effect the performance which is characteristic of the contract has central administration. The claimant
argued this law was to be English law as per their registered office. The Court of Appeal held that German
law was the applicable law, although the contract was not connected solely with Germany. The reason
for its decision was that there was a clear preponderance of factors in favour of Germany—the relevant
obligations of both parties were to be performed in Germany.
On the other hand, the Dutch court decided in favour of the country of the party providing characteristic
performance in the case of Société Nouvelle des Papéteries v Machinefabriek.44 The claimant, a Dutch
company, was selling paper to the sued French company. The contract was concluded in French, the place
of performance was France and payments were to be made in the French national currency. The claimant
brought the action in the Netherlands. The defendant argued that due to the absence of a choice of law
clause, the contract should be governed by French law because the contract was most closely connected
with France. The Dutch court decided that the contract was governed by Dutch law on the grounds of the
foreseeability and uniformity of law. The court noted that the home country of the party providing
characteristic performance should prevail at all times and may only be replaced using the escape clause
in cases where the home country has no importance for the contract.
The above suggests that no unequivocal attitude prevails in respect of the application of the escape
clause under the Rome Convention and Rome I. While in the light of the first example the law of the
customer’s home country would be regarded as the applicable law, through the eyes of the second example
it would rather be the opposite. In cases where performance under the contract de facto takes place in
several countries, it is difficult to identify whether the contract is the most closely connected with the
home country of the party providing characteristic performance or solely with the country in which the
performance is provided, i.e. in our case the customer’s home country.
Thus, should the negotiation of an amendment to the contract result in privative novation while the
parties do not choose the applicable law under art.3 of Rome I for their newly established contractual
relationship, the applicable law would have to be determined under art.4. However, in such a case, the
conflict of law rules or the application of the escape clause could result in law other than the parties
apparently intended when they negotiated the amendment becoming the applicable law. As a result, rules
that they did not envisage originally would then govern their legal relationship (different periods of
prescription/limitation, different rules for contract penalties, or different concepts of liquidated damages).
This situation is certainly not desirable from the perspective of legal certainty and foreseeability.

5. How to avoid the negative consequences of substantial modifications to public

contracts?
Although in a number of readers (in particular those with practical minds) the preceding explication may
cause concerns over the legal destiny of many public contracts, we believe that such concerns can be
successfully dispelled subject to observing certain minimum standards in modifying public contracts and
when implementing new EU legislation, and in national courts’ decision-making, and many of these
unfavourable impacts of substantial modifications on the legal regime of public contracts can be completely
eliminated.

44
Société Nouvelle des Papéteries v Machinefabriek, Hooge Raad, September 25, 1992, Nederlands Jurisprudentie 750, [1997] LMCLQ 18.

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 How does the Substantial Modification of a Public Contract Affect its Legal Regime? 103

5.1 What can the contracting parties do?

First and foremost, we believe that it is necessary that the parties clearly state in each of the amendments
to the public contract, which they are concluding, that they do not intend to cancel and replace the original
contract regardless of whether or not such amendment constitutes a substantial modification to the public
contract.
By the same token, the parties should ensure that each individual amendment to a contract with an
international element contains a provision on the applicable law intended to govern this amendment and,
hence, the entire legal relationship, and perhaps also an arbitration clause. Otherwise, in an extreme case,
the conclusion of the amendment may cause an unintentional submission of the legal relationship to law
other than the parties intended when entering into the original contract.

5.2 What can the legislature do?

If there is a risk that substantial modification to public contracts, within the meaning of EU law, may
necessarily cause privative novation of the original contract, it is advisable to prevent such impacts at the
level of the national legislation as well. In this respect there is a relatively convenient fact, i.e. that member
states are obliged to implement the new Directives, and therefore have to adopt a number of new regulatory
rules on public procurement.
We have attempted to show the conclusions concerning privative novation, which can stem from an
EU law-compliant interpretation, both in the wording of the case law and in the wording of the new
Directives. In our opinion it would therefore be suitable for the legislature to provide—when implementing
the provisions of the procurement directives on modifications to public contracts—for a legal presumption
to the effect that unless the parties agree otherwise, substantial modifications to public contracts shall not
cause their privative novation, i.e. the cancellation and complete substitution of the original contract.

5.3 What can the judiciary do?

Both the Court and national courts should, in the interests of preserving legal certainty and protecting the
parties’ legitimate expectations, approach the interpretation of the concept of substantial modification
having regard to the above conclusions. From the perspective of the Court, what appears to be most fitting
is for the Court to distinguish more consistently between the assumptions and consequences of substantial
modifications to public contracts, in particular in relation to the legal regime of such contracts. From the
perspective of national courts, it is primarily a sensitive assessment of the scope and manner of the
application of the indirect effect doctrine.
As we have shown in the case of the Czech Republic, if the parties do not explicitly (in writing) state
otherwise, the court shall consider it as a fact that the parties intended to renegotiate the essential terms
of the contract by means of privative novation of the contract with all its consequences. Although in some
member states the substantial modification might not have the same consequences, it is necessary to ask
whether such modification always demonstrates the parties’ intention as it was defined in the Pressetext
case. Due to the rules in the domain of public procurement being mandatory, it seems that the parties
cannot effectively derogate from the Pressetext interpretation of their intention. This, however, does not
make the judge’s role easier. By reason of the matters aforesaid we believe it might be appropriate for a
national court to ask a preliminary question according to art.267 TFEU on whether it is, under given
circumstances, necessary to understand the term “substantial modification to a contract”, which is used
by the EU law, as a privative intention of the parties.

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6. Summary
The purpose of this contribution was to look at the impact of substantial modifications to public contracts
on their legal regime. We have described substantial modification as a modification to a public contract
at the stage of the performance thereof, which is in general contrary to EU law because it restricts
competition. We have also shown, in relation to the Court’s jurisprudence and the new Directives, that
such modification may exceptionally be permissible, first, without an award procedure subject to certain
conditions concerning the nature of the modification and its causes, and second, on the basis of a new
award procedure. Illegal direct award of a substantial modification can be penalized by ineffectiveness
(nullity) of such agreement, however, only within a reasonable time period. In this respect, the substantial
modification to the initial contract can therefore be carried out effectively without a prior award procedure
regardless of the satisfaction of the conditions for an exemption from the general prohibition of substantial
modifications. Thus, in practical terms there can be a significant number of substantially modified public
contracts.
We have asked how such a legal (or illegal) fact (a substantial modification to a contract) influences
the legal regime of the initial contract. In this article, we understand the legal regime of public contracts
to be a framework of legal rules (contractual and statutory) that govern a given legal relationship (public
contract). The issues of the emergence, change and extinction of the rights and obligations of the parties
to the public contract are regulated by, in essence, four groups of rules, in the following hierarchical order:
(1) mandatory rules in the domain of public procurement; (2) mandatory rules of contract law; (3) the
relevant terms of the contract; and (4) the subsidiarily applicable provisions of private law legislation in
the field of the law of contractual obligations. The Court’s jurisprudence and the new Directives say that
a substantial modification demonstrates the intention of the parties to renegotiate the essential terms and
conditions of the initial public contract. We have therefore sought to show the rules, within the framework
of the legal regime, on which such a modification has a bearing. In our opinion, the compliant interpretation
of the concept of substantial modification (as an intention by the parties to renegotiate the essential terms
and conditions of the contract) will be applicable not only to the extent of the rules in group (1), but also
those in groups (2) to (4), chiefly with a view to preserving the inner logic and coherence of the legal
framework.
In respect of member states’ national legal systems we have also shown that substantial modification
is usually, and traditionally, associated with novation—cumulative or privative novation—of the contract.
Finally, the example of the Czech Civil Code has helped us to demonstrate that under certain conditions,
a substantial modification to a public contract (by way of signing an amendment to the public contract)
may automatically (ex lege) cause privative novation of the contract, i.e. the extinguishment of the current
legal relationship and its substitution with a new legal relationship. This conclusion would not necessarily
be so surprising if the substantial modification to the contract is made through a new award procedure
(for example, an open procedure). However, in the case of directly amending the original contract without
a prior award procedure, this can have fatal consequences.
If a substantial modification can cause the cancellation and renegotiation of the public contract, its
legal regime thereby also may change fundamentally. The reason is that the provisions of the original
contract, which have not been explicitly carried over, cease to be part of the new legal relationship at the
moment of making the substantial modification. The parties cannot automatically invoke the content of
the original contract, the time-barring of the debt owed, the incidentals to the debt, or collateral provisions
of the original contract, because such provisions have been cancelled through privative novation. The
replacement of the original legal relationship establishes a legal relationship anew, also attracting, anew,
the relevant statutory provisions (both mandatory and non-mandatory). However, these provisions are
now attracted in their wording as in force at the time of establishing the new legal relationship, i.e. at the
moment of signing the amendment. Moreover, in the case of cross-border public contracts (or in general

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 How does the Substantial Modification of a Public Contract Affect its Legal Regime? 105

contracts with an international element), substantial modifications may cause a change of the applicable
law chosen in the original public contract. We regard these and similar consequences of the indirect effect
doctrine as utterly unacceptable because they disrupt the parties’ legal certainty and, in turn, impair the
efficient functioning of the internal market. We therefore believe that in their future activities, contracting
parties, legislatures, and judiciaries could take into account at least some of the practical conclusions set
out in the fifth section of this article.

(2015) 24 P.P.L.R., Issue 3 © 2015 Thomson Reuters (Professional) UK Limited and Contributors

Electronic copy available at: https://ssrn.com/abstract=2630052