Direct award of IT contracts: ECJ strengthens principle of competition

Can a public contracting authority justify direct awards if it has created the exclusive position itself? In a ruling dated January 9, 2025 (Case C-578/23), the European Court of Justice (ECJ) established important guidelines for direct awards in IT procurement. Public contracting authorities may not invoke technical or legal unique selling points if these have been created by themselves – a decision with far-reaching consequences for public IT procurement.

Background: When are direct awards still permissible?

The ECJ ruling in Case C 578/23 deals with the admissibility of negotiated procedures without prior publication pursuant to Art. 31(1)(b) of Directive 2004/18/EC. It specifies the requirements for public contracting authorities, in particular with regard to exclusive rights that have been created by their own conduct and are later intended to serve as justification for direct awards.

Public procurement law: ECJ tightens requirements for direct IT procurement

The ECJ clarifies: Public contracting authorities must take all reasonable efforts to prevent avoidable direct awards. They must not create situations in which a tender procedure can be circumvented for technical reasons or due to exclusive rights.

This means:

• A negotiated procedure without prior publication is not justified if the contracting authority itself has created the exclusive position.
• This applies not only to the original contract design, but also to the conduct up to the time of the new award.

Practical relevance in German public procurement law

In German public procurement law, the negotiated procedure without competitive bidding is regulated in Art. 14 (4) No. 2 VgV (German regulation on the award of public contracts). The new ECJ ruling shows:

This exemption must be interpreted restrictively. Contracting authorities must ensure from the very first contract award that they do not create lock-in effects which might justify subsequent direct awards.

This is particularly relevant for IT procurement. By drafting contracts wisely, contracting authorities should ensure they have sufficient rights allowing them to award maintenance and further development contracts later on in a competitive tendering process.

Practical example: Direct IT procurement under criticism

A public hospital enters into a contract with a software company for the development and implementation of a patient management system. In the contract, the software company reserves all copyrights to the source code.

A few years later, the hospital needs a system update. It awards the contract directly to the original software company through a negotiated procedure without competitive bidding, arguing that only this company can provide the service due to existing copyrights.

A competitor reprimands such approach with reference to ECJ ruling C 578/23. In this case, there are many indications that the hospital itself created the exclusive rights through the original contract design and therefore the conditions for a direct award are not met.

Conclusion: ECJ strengthens competition in public IT procurement

ECJ ruling C 578/23 emphasizes the importance of careful contract design and forward-looking procurement planning in the public sector. Public contracting authorities should make sure not to create situations that could subsequently lead to restrictions on competition—not least in order to comply with the principle of fair competition and avoid risks under public procurement law.

When calling for tenders for IT systems in particular, maintenance and further development must therefore be considered at an early stage and, if necessary, appropriate service items must be provided for.

Many thanks to Dr. Peter Czermak for his valuable support in writing this article.