Background of the Case

In 1992, the Ministry of Finance of the Czech Republic awarded IBM a contract to create an information system for the Czech tax authorities. In 2016, the General Finance Directorate (GFD), the Ministry's successor, awarded a contract to IBM for the system's maintenance through a negotiated procedure without prior publication. The GFD justified this choice by citing technical continuity requirements and IBM's exclusive copyright on the system's source code.

However, the Czech Competition Authority found that the GFD failed to sufficiently demonstrate why only IBM could perform the contract. It also ruled that IBM's exclusive rights resulted from the Ministry's own actions. The Supreme Administrative Court, reviewing the appeal, referred a preliminary question to the CJEU.

The CJEU's clarification on procurement procedures

In its ruling, the CJEU emphasised that negotiated procedures without prior publication are exceptional and must be interpreted strictly. Under Article 31(1)(b) of Directive 2004/18, applicable at the time, this procedure was allowed only when technical reasons or exclusive rights necessitated awarding a contract to a specific operator. Drawing an analogy with Article 31(1)(c), which addresses extreme urgency, the Court clarified that authorities cannot justify using this procedure if their own actions or inactions caused the exclusivity.

Contracting authorities must take all reasonable steps to avoid using non-competitive procedures. In this case, the CJEU instructed the national court to assess whether the GFD had made sufficient efforts to avoid dependence on IBM. Authorities must evaluate not only the circumstances of the original contract but also any developments leading up to subsequent procurement decisions. This ruling obliges contracting authorities to manage vendor relationships and contract structures proactively to prevent exclusivity that limits competition.

Implications for the IT sector

This judgment highlights the importance of strategic procurement planning in the IT sector. Given the frequent use of proprietary software and exclusive maintenance arrangements, contracting authorities must consider the long-term effects of initial agreements. The ruling encourages exploring alternative solutions and avoiding exclusive arrangements that could obstruct fair market access.

Broader relevance beyond IT

The CJEU's decision has implications beyond the IT sector. Public procurement in other sectors involving exclusive rights and technological innovation, also requires procurement strategies to avoid supplier dependency. This may be the case for hospitals when procuring medical devices and related supplies. This ruling serves as a critical reminder that public bodies must justify exceptional procurement procedures and that fostering competitive markets benefits both public institutions and industry innovation.