Interesting case on functional approach to multiple bidding and exclusion of tenderers (C-144/17)

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In its Judgment of 8 February 2018 in Lloyd's of London, C-144/17, EU:C:2018:78, the Court of Justice of the European Union (CJEU) confirmed its increasingly pro-competitive and anti-formalistic approach to the exclusion of tenderers on grounds of prohibitions of multiple bidding. The Court provided this clarification along functional lines that may anticipate the direction of its Judgment in Specializuotas transportas (C-531/16, see discussion of the Opinion of AG Campos here).

In Lloyd's, the CJEU established that the 'principles of transparency, equal treatment and non-discrimination ...  must be interpreted as meaning that they do not preclude legislation ... which does not allow two syndicates of Lloyd’s of London to be excluded from participation in the same procedure for the award of a public service contract for insurance merely because their respective tenders were each signed by the General Representative of Lloyd’s of London for that Member State, but instead allows their exclusion if it appears, on the basis of unambiguous evidence, that their tenders were not drawn up independently' (para 47).

Or, in other words, the CJEU declared the compatibility with EU primary (internal market) and secondary (procurement) law of domestic rules that do not impose the mandatory disqualification of bidders seemingly engaged in multiple bidding due to intra-group corporate links, but rather make any such exclusion decisions conditional upon an investigation of the extent to which they are representative of genuine competition for the contract. This is reflective of a functional approach to the treatment of multiple bidding situations that I think should be welcome [for in-depth discussion, see A Sanchez-Graells, Public procurement and the EU competition rules (2nd, Hart, 2015) 340-347].

As background for the analysis of the case, it is interesting to stress the existence of an Italian rule (Article 38(1)(m), quater of Legislative Decree No 163/2006) requiring the automatic exclusion of tenderers constituting a single decisional unit, whereby 'tenderers which "… are, in relation to another participant in the same tendering procedure, in a situation of control for the purposes of Article 2359 of the Codice civile (Civil Code), or in any relationship, including a de facto relationship, where the situation of control or relationship means that the tenders are attributable to a single decision-making centre" would be excluded from participation in a procedure for the award of concessions and of public works, supply and service contracts, and could not conclude contracts pertaining thereto or sub-contracts' (para 10).

However, the relevant administrative authorities (now ANAC), had established an interpretive practice dating back to 2008 whereby such automatic exclusion would not apply to intra-group competition where the signature of tenders by the same representative was a formality required by the domestic rules concerning the organisation of the tenderers, but did not evidence of intra-group collusion but rather reflected 'independence of syndicates and competition between them', which 'serve to ensure free competition and the equal treatment of candidates' (para 19). The case is coloured by the peculiarities of the Lloyd's market for insurance and reinsurance (on that, see para 27), but this seems reflective of a broader functional approach that mitigates the automaticity and strictness of the general rule in Article 38(1)(m), quater of Legislative Decree No 163/2006.

The question for preliminary interpretation of compatibility of this interpretation of Article 38(1)(m), quater of Legislative Decree No 163/2006 with EU law reached the CJEU because the referring court feared that 'the fact that the same person signs several tenders submitted by different tenderers may undermine the independence and confidentiality of those tenders and, as a result, infringe the principle of competition laid down, in particular, in Articles 101 and 102 TFEU' (para 20). In addressing this issue, there are a few passages of the Lloyd's Judgment that are worth noting:

... according to settled case-law of the Court, ... the automatic exclusion of candidates or tenderers that are in a relationship of control or of association with other competitors goes beyond that which is necessary to prevent collusive behaviour and, as a result, to ensure the application of the principle of equal treatment and compliance with the obligation of transparency ...

Such an automatic exclusion constitutes an irrebuttable presumption of mutual interference in the respective tenders, for the same contract, of undertakings linked by a relationship of control or of association. Accordingly, it precludes the possibility for those candidates or tenderers of showing that their tenders are independent and is therefore contrary to the EU interest in ensuring the widest possible participation by tenderers in a call for tenders ...

It should be pointed out in this regard that the Court has already held that groups of undertakings can have different forms and objectives, which do not necessarily preclude controlled undertakings from enjoying a certain autonomy in the conduct of their commercial policy and their economic activities, inter alia, in the area of their participation in the award of public contracts. Relationships between undertakings in the same group may in fact be governed by specific provisions such as to guarantee both independence and confidentiality in the drawing-up of tenders which may be submitted simultaneously by the undertakings in question in the same tendering procedure ...

Observance of the principle of proportionality therefore requires that the contracting authority be required to examine and assess the facts, in order to determine whether the relationship between two entities has actually influenced the respective content of the tenders submitted in the same tendering procedure, a finding of such influence, in any form, being sufficient for those undertakings to be excluded from the procedure (C-144/17, paras 35-38, references omitted).

This is a good way of synthesising the case law in this area and, as mentioned above, the only missing link concerns the extent to which a contracting authority has a positive duty to investigate potential intra-group collusion and seek exclusion--which is the other side of the coin to a LLoyds-type situation, where the contracting authority has an interest in excluding. This will soon (hopefully) be clarified by the CJEU in its awaited Judgment in Specializuotas transportas (C-531/16). Watch this space.

Another conversation on procurement developments with the EFTA Surveillance Authority

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Last week, I had the great honor and pleasure of speaking at another EFTA Surveillance Authority lunchtime staff seminar two years after (see here for the 2016 edition), and to benefit again from the insights and challenging questions of its community of enforcers. This time, the conversation concentrated on recent policy and case law trends, and the impact they can have for the enforcement of EEA/EU internal market rules.

These are the slides I used. If time allows, I will try to publish a more complete account of my speech, although most of the issues have been covered in previous posts already, so hopefully the slides will be easy to follow. As always, feedback and comments more than welcome.

Tender evaluation & risk of illegally introducing new award criteria via comments (C-677/15 P & T-477/15)

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Thanks to the never-ending litigation efforts of European Dynamics, the EU Courts have recently added two decisions to the growing acquis on the duty to state reasons in the context of public procurement. Although the legal analysis in most of these cases tends to reiterate well-established principles of EU law; the ever more intricate arguments made by European Dynamics can sometimes make for interesting reading.

Two recent cases concern the risks that contracting authorities incur when stating the reasons for their evaluations if, as a result of the debriefing, disappointed tenderers can make an argument that the evaluation rested on award criteria not previously included in the tender documentation. In these two recent cases, the General Court (GC) has offered some insight on the treatment of examples as proxies for the evaluation of service quality (T-477/15), while the Court of Justice (ECJ) has shed some light on the situations in which specific comments on concrete aspects of a tender can be construed as illegally introducing new weighting factors for award sub-criteria (C-677/15 P). This post discusses those specific aspects of these two recent cases.

zum Beispiel

In its Judgment of 1 February 2018 in European Dynamics Luxembourg and Others v ECHA, T-477/15, EU:T:2018:52, the GC had to assess a complaint raised by European Dynamics (ED) that the evaluation committee would illegally have used award criteria not specified in the tender documentation by criticising its tender due to a lack of examples. The contract was for the provision of IT services and, in simplified terms, the tender documentation required the tenderers to submit offers based on a specific hypothetical scenario of service provision. It turned out that the winning bidder included numerous examples of the ways in which it would address service needs. Comparatively, the evaluation committee found ED's tender lacking in detail and, as justification for awarding ED a lower mark under the relevant award sub-criteria, the committee provided negative comments linked to the absence of examples to illustrate the tender submitted by ED.

ED challenged this approach by stating that "by penalising the tender ... on the ground that it did not contain a sufficient number of examples, although it [was] in line with the tender specifications, the [contracting authority] introduced a new criterion that was not included in the tender specifications ... [and] also criticis[ing] the [contracting authority] for having evaluated the tenders against an unpublished criterion, namely the tenderer’s choice as to what information to include in the tender. [ED] also refer[red] to the possibility that the [contracting authority] had based its evaluation on a horizontal criterion of the tenderer’s general understanding of the tender specifications" (para 121).

The GC placed this complaint within the strictures of the principles of equal treatment and transparency (para 123), and reiterated the general case law concerning the exercise of discretion in the choice of award criteria and evaluation rules, subject to those general principles (paras 124-126). It then established that

In the first place, it must be recalled that the fact that the content of the tender submitted by the European Dynamics consortium complied with the tender specifications does not mean that the negative assessments made by the evaluation committee on that tender resulted from the introduction of new award criteria, which were not mentioned in the documents relating to the call for tenders.

The same is true of the fact that all the negative comments did not necessarily correspond literally to one explicit requirement of the technical specifications ... In that regard, it must be recalled that an evaluation committee must be able to have some leeway in carrying out its task. Accordingly, it may, without amending the contract award criteria set out in the tender specifications or the contract notice, structure its own work of examining and analysing the submitted tenders ...

In the second place, ... the comments by the evaluation committee regarding insufficient examples illustrating more concretely the proposal for service delivery for the scenario contained in the tender submitted by the European Dynamics consortium does not mean that that committee took into account an award criterion that was not set out in the tender specifications. On the contrary, as the [contracting authority] submits, the presence of examples may be capable of reflecting the tenderer’s proper understanding of the services sought. Similarly, the selection, by the tenderers, of the information and detail included in the tender shows the understanding by the latter of the services sought. Hence, the comments relating to insufficient examples or details in the tender submitted by the European Dynamics consortium are indissociably linked to the assessment of the award criteria .... They do not therefore reveal the existence of additional award criteria.

In the third place, it is clear from the evaluation committee’s report that the value of the tenders was indeed evaluated with regard to the technical criteria referred to in the tender specifications. The fact that, as the [contracting authority] states in its defence, the points relating to each of the criteria and sub-criteria defined in the tender specifications were awarded after completion of an evaluation of the whole of the technical offer submitted by each tenderer cannot call that finding into question. Therefore, even if the objection were validly made, the argument that the [contracting authority] considered that the general understanding of the tender specification was a more important criteria than the criteria made public must be rejected (paras 129-132, references omitted and emphases added).

In my view, the GC's Judgment should be welcome. Mainly for two reasons. First, it avoids the dangerously prescriptive approach that would have underpinned a consideration that each example (or the number of examples) needs to be linked to a specific award criterion--which would have made the design of award criteria and tender formats impossibly complex and constraining. Second, because it recognises that, regardless of the break-up of criteria into sub-criteria, evaluation committees can (and I would say should) carry out the evaluation on the basis of their overall or holistic assessment of the tenders. Again, the opposite approach would be excessively constraining, and would result in an artificial split of the tenders into different sub-dimensions in a manner that could rend the evaluation process moot or exceedingly complicated. So, on the whole, this is a good example of pragmatic approach by the GC.

Detailed comments v illegal sub-criteria & their weightings

In its Judgment of 20 December 2017 in EUIPO v European Dynamics Luxembourg and Others, C-677/15 P, EU:C:2017:998 (for discussion of the GC decision under appeal, see here), the ECJ assessed whether specific comments on particular aspects of a tender can constitute the illegal introduction of sub-criteria or their weighting. It is worth recalling that the case also concerned the provision of IT services, and that the evaluation of the quality of the tenders would partially rely on their project management strategy, which was to be assessed against a long list of non-prioritised elements (such as 'change management process', or having a 'lessons learnt programme').

At first instance, ED challenged the evaluation on the basis that the contracting authority's 'negative comment on the bid submitted by [ED] that the bids obtaining a higher score than it obtained under the first award criterion "identified change management and communication as the two most essential tasks for the success of the project’ showed that [the contracting authority] had applied a weighting to the various sub-criteria within the first award criterion"' (para 11). The GC sided with ED and found that 'since such weighting was not provided for by the tender specifications or communicated in advance to the tenderers, [the contracting authority] had breached, to the detriment of [ED], the principles of equal opportunity and transparency' (ibid).

On appeal, the ECJ has now found that "[i]t is clear that the judgment under appeal is vitiated by an error of law in that regard" (para 30). However, the ECJ has reached this position on purely procedural grounds, which leaves the question open as to whether the provision of negative comments indicating relative disadvantages in relation to some, but not all, the sub-criteria published in the tender document constitutes in itself an illegal case of introduction of illegal sub-weightings. The ECJ has indeed assumed that to be the case, and provided the following reasons for the annulment of the previous GC finding on procedural grounds:

... the principle that procurement procedures must ensure equal treatment and be transparent means that the adjudicating authority must interpret the award criteria in the same way throughout the entire procedure ... Accordingly, a contracting authority cannot apply weighting rules or sub-criteria in respect of the award criteria which it has not previously brought to the tenderers’ attention ...

Nevertheless, it is possible for a contracting authority to determine, after expiry of the time-limit for submitting tenders, weighting factors for sub-criteria which correspond in essence to the criteria previously brought to the tenderers’ attention. That subsequent determination must, however, satisfy three conditions, namely, it must not: (i) alter the criteria for the award of the contract set out in the contract documents or contract notice; (ii) contain elements which, if they had been known at the time the tenders were prepared, could have affected that preparation; and (iii) have been adopted on the basis of matters likely to give rise to discrimination against one of the tenderers ...

In the present case, the disputed findings concern the introduction of weighting given to sub-criteria within one of the award criteria, which was not provided for in the tendering specifications or disclosed in advance to the tenderers ... Thus, in the light of the foregoing, the General Court was not in a position to reach a valid finding that there had been a breach of the principles of equal opportunity and transparency without first examining whether it had been pleaded and established that those three conditions had not been met.

As the General Court failed to verify ... whether those three conditions ... were met in the present case, the first ground of appeal must be upheld, without there being any need to examine the merits of [the contracting authority's] argument that the General Court failed to have due regard for its duty to state reasons when it found that the introduction of factors for the assessment of the sub-criteria in question gave rise to a breach of the principles of equal opportunity and transparency (paras 31-35, references omitted and emphases added).

In my view, this is a lost opportunity for the ECJ to have clarified the extent to which a literal interpretation of the comments given by the contracting authority in debriefing documents can be subjected to the level of scrutiny that the GC had engaged in. It is also relatively difficult to put the two cases discussed in this post together. Strictly speaking, applying the logic that emerges from this second case to the first one, it would seem that ED may have been right in claiming that mentioning the existence of a larger number of examples as the reason for a lower technical mark could constitute a new sub-criterion (or a new sub-weighting if the provision of examples was indicated amongst the list of criteria to be taken into account). In that regard, the GC seems to have adopted a more lenient approach in the first case than the ECJ may be willing to recognise. Should the first case be appealed by ED (who knows?), this may be a tricky issue for the ECJ to iron out.

No comment unless in the presence of my lawyer?

On the whole, I think that these two cases show that, regardless of how flexible the courts are in the assessment of the comments given by the contracting authorities in the context of procurement debriefing, these are dangerous waters. Should this then lead to evaluation teams requiring a lawyer to sit in their meetings and make sure that nothing that is committed to paper (keyboard) can then be used to challenge the evaluation? 

No comment.

Paper on Public Procurement & "Core" Human Rights

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I have uploaded a new paper on SSRN, which is a draft chapter for a forthcoming book: O Martin-Ortega & C M O’Brien (eds), Public Procurement and Human Rights: Risks, Dilemmas and Opportunities for the State as a Buyer (Edward Elgar). In my chapter 'Public Procurement and "Core" Human Rights: A Sketch of the EU Legal Framework', I sketch the main mechanisms for the implementation of a "core" human rights-orientated public procurement policy foreseen in the 2014 EU Public Procurement Package.

In particular, I discuss the main constraints for the inclusion of human rights-related considerations in the procurement process through the following instruments: exclusion grounds; use of labels; award criteria; and contract performance requirements. I conclude by offering a sceptical view of the effectiveness of any of these mechanisms due to policy fuzziness and significant resource constraints, and query their desirability due to the implicit trade-offs they impose on the general effectiveness of the procurement function.

This is still very much work-in-progress, so any comments or feedback would be most welcome: a.sanchez-graells@bristol.ac.uk. The full paper is available on SSRN as: A Sanchez-Graells, 'Public Procurement and "Core" Human Rights: A Sketch of the EU Legal Framework' (January 16, 2018), to be published in O Martin-Ortega & C M O’Brien (eds), Public Procurement and Human Rights: Risks, Dilemmas and Opportunities for the State as a Buyer (Edward Elgar, forthcoming): https://ssrn.com/abstract=3103194.

Legal Archaeology: Timing of Brexit, CJEU case law & substantive public procurement rules

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At the extremely thought-provoking conference "Trade Relations after Brexit: Impetus for the Negotiation Process", I had the chance to present some thoughts on the regulatory challenges that Brexit poses for EU public procurement regulation, and to explore potential solutions that could/should be designed in the context of an agreement regulating future EU-UK relationships. I already posted my general views here. However, the discussions at the conference made me think in more detail about the specific challenge of fostering substantive coordination post-Brexit--which is an unavoidable challenge if the UK is to have any sort of meaningful access to the EU internal market, and all the more in the context of an ambitious FTA.

Of course, this challenge is not all that peculiar to the area of public procurement, and the general problems that section 6(2) of the European Union (Withdrawal) Bill (EUWB) creates concerning the non-bindingness of the future case law of the Court of Justice have been extensively discussed by others. Indeed, by establishing that 'A court or tribunal need not have regard to anything done on or after exit day by the European Court, another EU entity or the EU but may do so if it considers it appropriate to do so', if unchanged, the EU (Withdrawal) Act would create a level of legal uncertainty that nobody desires--first and foremost, prominent UK Judges such as Lord Neuberger.

However, it seems to me that, should Brexit day come some time in 2019 or 2020, the effects of the EUWB could be rather undesirable--unless, of course, UK courts decided to systematically (and voluntarily) keep a close eye on the CJEU future case interpreting the 2014 Public Procurement Package. Why is that?

The UK transposed the 2014 Public Procurement Package by copying it out, primarily into the Public Contracts Regulations 2015 [A Sanchez-Graells, 'The Implementation of Directive 2014/24/EU in the UK', in S Treumer & M Comba (eds), Implementation of Directive 2014/24, vol. 8 European Procurement Law Series (Edward Elgar, forthcoming). ]. Thus, barring any intervening 'fine-tuning' of the transposition, on Brexit Day (and until such time as the PCR2015 are reformed, or EU procurement law subject to further revision), the domestic UK rules will be perfectly aligned with EU public procurement law. However, and rather counterintuitively, this cannot by itself ensure substantive coordination in the foreseeable future. How come?

As things stand, and unless I have missed something, the CJEU is yet to issue any judgment interpreting the three Directives included in the 2014 Public Procurement Package (Dirs 23, 24 and 25/2014/EU). On occasion, the Court has indirectly taken into consideration some of the reforms the 2014 Package brought about, but most of the rules where there is a sharp distinction between the pre-2014 and the post-2014 rules (which sometimes involve a 'flexible recast' or implicit reform of case law that got incorporated to the new Directives) remain untouched. Enter the EUWB.

According to section 6(3) EUWB, "Any question as to the validity, meaning or effect of any retained EU law is to be decided, so far as that law is unmodified on or after exit day and so far as they are relevant to it—(a) in accordance with any retained case law and any retained general principles of EU law, ...". So, when confronted with the need to interpret the PCR2015 (identical to the 2014 Package), the UK Courts will only be able to rely on 'old' CJEU case law, which may or may not be a good proxy of the interpretation the CJEU would (will) make of the revised rules, in particular where there is a clash between such 'old' case law and the new rules [for extended discussion, see GS Ølykke & A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules (Edward Elgar, 2016)].

Moreover, given the different techniques of statutory interpretation applicable in the UK and those the CJEU tends to follow, even the most willing UK court may find itself carrying out complex exercises in 'legal archeology' to ascertain the extent to which the 'old' case law buried under the new rules is of any use in the construction of the latter. Oddly enough, should the UK courts--willingly, due to convenience, or inadvertently--give more weight to the 'old' case law than the CJEU itself (which could decide to go by the literal tenor of the new rules, even if they deactivate previous jurisprudential positions, to show deference to the EU legislators) the UK could end up with 'purer' EU public procurement rules than the EU itself. Surely not what the drafters of section 6(2) and (3) EUWB had in mind.

Of course, this hypothetical scenario is bound to lose relevance as time goes by and the CJEU has the chance to engage in the direct interpretation of the 2014 Package--and a long transition period may do away with the peculiarity derived from the current 'estimated' timing of Brexit and the recent reform of EU public procurement law. More generally, all in all, this is probably highly theoretical or even absurd, but I think it militates in favour of a flexible mechanism for UK courts to (voluntarily, sure) send references on interpretation to the CJEU post-Brexit, if there is to be substantive coordination--not solely on procurement, but in all areas of 'regulatory allignment' of a flavour or other, in the context of the agreement for future EU-UK relationships. Will the next wave of negotiations raise to this challenge?

Two recent cases on transparency & access to documents in EU Institutional procurement (II) (T-164/15)

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Two recent General Court judgments have addressed different aspects of transparency duties and access to documents requirements in EU Institutional procurement [for discussion, see A Sanchez-Graells, 'Transparency in Procurement by the EU Institutions' (2017)]. A previous post discussed the Judgment of 14 December 2017 in Evropaïki Dynamiki v Parliament (T-136/15, EU:T:2017:915), which concerned access to procurement documents under Regulation 1049/2001. This post discusses the second Judgment, also of 14 December 2017, and also involving European Dynamics Luxembourg and Evropaïki Dynamiki v Parliament (T-164/15, EU:T:2017:906, not available in English), which addresses issues concerning the duty to provide reasons under the applicable (2012) version of the EU Financial Regulation

A Kafka-esque case concerning the justification of the Substitution or (re)Classification of tenders within cascade mechanisms?

The dispute in European Dynamics Luxembourg and Evropaïki Dynamiki v Parliament (T-164/15, EU:T:2017:906) concerned one more instance of classification of the tenderers within a cascade mechanism for the purposes of the award of a framework contract divided into several lots. The case is interesting because it concerns an instance of substitution, rather than (strict) reclassification, of one the economic operators included in the framework.

In the case at hand, the Parliament tendered a framework agreement divided into lots for the provision of several types of IT services. The framework contract for each lot was to be concluded with the three economic operators offering the most advantageous tenders, which were to be ranked in a cascade mechanism. European Dynamics' tender was initially rejected (or rather, not retained) for not being amongst the three strongest submissions. Upon being notified of the award decision, European Dynamics required additional details and the Parliament sent debriefing materials justifying the relative advantages of the retained three offers by comparison to European Dynamics'. After European Dynamics received this information, 'the Parliament informed all the tenderers that one of the participants had detected an error in the parametric formula established in the tender documentation for the calculation of the overall price of the tenders. However, [the Parliament] clarified that, after verification, this error was purely material and had no impact on the ranking of the tenders' (T-164/15, para 9, own translation from French). However, this issue does not seem to have much relevance in the analysis by the GC.

After that initial debriefing exchange, including the clarification on the applicable formula for the assessment of the overall price, European Dynamics raised with the Parliament an objection to the cascade classification for the relevant lot on the basis that the economic operator ranked first had also been engaged (as part of a consortium) for the provision of services of a different lot, and that multiple engagement in several lots was not allowed by the tender documentation. The Parliament eventually decided to exclude that economic operator from the relevant lot, and to add European Dynamics to the framework agreement, assigning it the third position in the cascade mechanism.

At this stage, European Dynamics informed the Parliament that it interpreted the decision to (re)classify them as third in the cascade mechanism as the simple result of the exclusion of the economic operator initially ranked first, and that they therefore assumed that 'thus, the awarding phase was conducted on the basis of the initial evaluation, the points awarded and the justifications remaining the same as those' covered in the previous debriefing letter (T-164/15, para 12, own translation from French). In view of this interpretation, European Dynamics asked for additional debriefing of any new information concerning the exclusion of the tenderer previously ranked as first. 'Parliament confirmed ... that the exclusion of the tenderer whose tender had initially been ranked in the first position had no impact on the evaluation of the other tenders and that, consequently, the information already provided to the applicants ... remained relevant and included all the information required' (T-164/15, para 13, own translation from French).

European Dynamics challenged the Parliament's decision to (re)classify their tender as third within the cascade mechanism, mainly on the basis that the duty to provide reasons incumbent upon Parliament was not properly discharged with the simple explanation that their tender would have substituted the one initially first-ranked upon its exclusion. Given that the GC decided to quash that decision, it is interesting to assess the details of the shortcomings found by the GC in the course of action taken by Parliament.

It is also worth noting that the GC starts its reasoning by reiterating the general principles and limits of the duty to provide reasons. It is framed by reference to the 2012 version of the EU Financial Regulation (see T-164/15, paras 25-28), but the general framework is common to that under the 2014 Public Procurement Package. It is also important to stress that the GC frames the analysis of the dispute on the premise that European Dynamics' request for additional details following its reclassification as third in the cascade as a result of the substitution of the excluded tender, constituted a fresh request for debriefing details that engaged the transparency obligations of the Parliament in full (paras 29-34). In my view, while this is relevant regarding the disclosure of information concerning the financial evaluation (which seems to have changed after the exclusion of the initially highest ranked tender due to the relative comparison of the overall price of the tenders, as mentioned below), this is not relevant concerning the disclosure of information related to the technical evaluation, which is the main issue discussed in this post. However, the reader may want to keep this in mind when reading the case as a whole.

Need for detail--still short of full disclosure of the evaluation report?

At this stage, it may be useful to describe the debriefing that had been initially carried out by Parliament--when European Dynamics had had its offer rejected--which was as follows: 'Parliament's [initial debriefing] letter ... specified the names of the three tenderers initially selected. It also included a table showing the marks obtained by those tenders' and the applicants' tenders in the technical evaluation, extracts from the evaluation committee's comments on the strengths and weaknesses identified in those four tenders in the context of their technical evaluation, a table giving the scores obtained by the four tenders in the financial evaluation, as well as a table giving the overall marks awarded to the same four tenders' (T-164/15, para 39, own translation from French). European Dynamics challenged this as insufficient because the debriefing did not offer specific comments for each of the technical criteria, but solely in relation to those criteria related to the relative strengths and weaknesses.

In finding fault with the level of detail provided by the Parliament in that initial debriefing, the GC considered that '... even if the marks awarded by the Parliament offered the applicants the opportunity to compare, under each technical award criterion, the points which had been awarded to their tender with those obtained by the tenders ranked first and second in the cascade, they did not allow them to know the reasons why those marks had been attributed to those offers. In that regard ... a cross-reading of the comments relating to the three tenders [initially] retained in the cascade, combined with the figures, did not make it possible to make up for the lack of any information concerning the reasons for the attribution of certain marks. Indeed, in addition to the general assessment of the quality (good, very good or satisfactory) of the offers, each comment related to a specific technical award criterion. In addition, some of these comments were of a very general nature' (T-164/15, paras 44-45, own translation from French, emphasis added).

This comes to establish an extremely high debriefing burden, and one that should be criticised for the excessive transparency it can create. Moreover, it is difficult to find a clear boundary between the insufficiency of the overall comparison of tenders that was disclosed by the Parliament in this case, and the more general principles that derive from the ECJ case law. Indeed, as the GC itself reiterated in this occasion (para 28), 'it is apparent from the case-law that the [contracting authority] cannot be required to communicate to an unsuccessful tenderer, first, in addition to the reasons for rejecting its tender, a detailed summary of how each detail of its tender was taken into account when the tender was evaluated and, second, in the context of notification of the characteristics and relative advantages of the successful tender, a detailed comparative analysis of the successful tender and of the unsuccessful tender ... Similarly, the contracting authority is not under an obligation to provide an unsuccessful tenderer, upon written request from it, with a full copy of the evaluation report' (see Evropaïki Dynamiki v Commission, C‑629/11 P, EU:C:2012:617, paras 21-22).

Disappointingly, the GC did not seem to give much weight to this general principle, when it established that

... the corollary of the Parliament's margin of appreciation in the area of public procurement is a duty to state the factual and legal grounds on which it based its assessment. It is only in the light of these elements that the applicant is really able to understand the reasons for which the marks were awarded ... In that regard, the fact ... that the contracting authority cannot be required to carry out a detailed comparative analysis of the tenders retained, and that it is not required to disclose the evaluation report in full, cannot lead to the comments sent to the applicants not showing clearly and unequivocally the reasoning of the institution, so as to enable them to know the justifications for the classification of their offer in the third position of the cascade mechanism ... Indeed, only such motivation enables them to assert their rights and allows the Tribunal to exercise its control (T-164/15, para 51, references omitted, own translation from French and emphasis added).

So, in the end, the GC is forcing a round peg into a square hole, and creates a large area of uncertainty concerning the intensity of the debriefing duties for contracting authorities subjected to EU Institutional procurement rules (and more generally). I find this quite problematic, as it continues to put pressure on contracting authorities to engage in excessive disclosure, and it creates significant uncertainty as to how to operationalise fuzzy requirements, in particular if the threshold of disclosure changes with the specific circumstances of the case, as discussed below.

Moving goal posts in dynamic (re)classification or substitution decisions

Indeed, in addition to the issue of the level of detail just discussed, the GC created additional uncertainty by subsequently engaging in a reasoning that can only be described as moving the goal posts in situations where the exclusion of the highest-ranked tender compresses the differences between the tenders eventually retained in the framework agreement--or, even further, in situations where the overall score obtained by the tenderers does not show significant spread of marks. The GC seems to hang its reasoning on the presumption that the closer the final scores, the higher the risk of mis-evaluation and/or likelihood of successful litigation. This does not make sense, in particular where the overall score is constructed by clearly separate sets of (technical and financial) evaluation exercises. Moreover, it could create a perverse incentive for evaluation teams to artificially create a larger spread of marks in order to reduce litigation risk, which would be clearly undesirable.

As I will explain in a moment, the establishment of higher standards of disclosure where the overall scoring of the tenders reflects smaller (overall) differences between the tenders can only create problems, in particular where the initial evaluation and ranking is later used for decisions on reclassification or substitution of tenders. Given that technical and financial evaluation are carried independently, imposing a higher or lower duty of motivation of the technical evaluation dependent upon the results of the financial evaluation is very problematic. By not acknowledging this, and simply assuming that there will always be a wealth of information on qualitative comments justifying specific technical assessments that the contracting authority can decide to disclose or not depending on the outcome of the financial and overall scoring of the tenders is both impractical and can result in excessive formalism in the completion of technical evaluation reports.

Returning to the case, and in simple terms, the situation that the GC considered problematic results from the fact that the tender was evaluated through technical criteria weighting 70%, and financial criteria weighting 30% of the total points (para 3)--with the financial aspects of the tender evaluated through the parametric formula mentioned above, which carried out a relative analysis based on maximum points awarded to the lowest price (para 5). In that regard, it seems clear that (globally), technical criteria were more important than financial criteria, and that there was a relative comparison of financial aspects that depended on the values of the tenders received (NB: this is discussed in detail by the GC in a separate ground of appeal, which I will not comment on this occasion--see paras 54-66).

On the basis of those award criteria, the initial technical scoring awarded to the (eventually excluded) best tender was 54.39 out of 70, and this was more than 4 points higher than European Dynamics' scoring, and more than 3 points higher than the score of the second-ranked tender (para 47). Implicitly, this placed all tenders eventually retained in the framework (including European Dynamics') within a bracket of approximately 1 technical point (ie, somewhere between 49 and 51 points). This narrow distribution of technical scores necessarily had an impact on the final overall marks of the tenders, which were also rather close.

As the GC stressed, 

the decision to classify [European Dynamics'] tender in third place came at the end of the final evaluation, that is to say after the evaluation of the price-quality ratio of the tenders. However, the difference between the overall scores attributed to the successful tenders was low or very low. In that regard, it should be noted that the exclusion of the tenderer whose tender had initially been ranked first had a minor impact on the financial evaluation of the tenders, which was reflected on the overall scoring of the offers. In fact, in the light of the rectified overall marks attributed to the three tenders finally accepted as a result of that assessment ... it must be stressed that the tender which was finally classified in the first place was awarded an overall mark of 79.11 points, the tender which was finally ranked second obtained an overall score of 77.67 points, and [European Dynamics'] offer was given the overall score of 77.64 points. It follows from those overall scores ... that only 0.03 points separated the tender which was finally ranked second from [European Dynamics']' (T-164/15, paras 48-49, own translation from French).

From this narrow difference in overall final scores, the GC infers that

Given the small or very small difference in score between the tenders of the three successful tenderers, [European Dynamics'] interest in obtaining a clear and comprehensible explanation as to the technical evaluation of their tender in order to verify the absence of error in the attribution of results was particularly high (sic) ... That interest was all the more important since, despite the fact that the price of the tender which was finally ranked first was higher than that of [European Dynamics'] tender, the Parliament considered that the first offer presented the best value for money and was thus economically the most advantageous. It therefore appears that the assessment of the quality of the services with regard to the qualitative award criteria has played an important role (T-164/15, para 50, references omitted, own translation from French, emphases added).

Once more, this is rather problematic. Not solely for the moving target implicit in the conditionality of the debriefing obligations upon the difference in scores obtained by the different tenderers, but also because it fails to recognise the limits set out as general principles by the ECJ (see above) and because it loses sight of the function that debriefing should serve and of the complex trade-offs between procedural guarantees and risks derived from excessive transparency at this stage. Moreover, as mentioned above, the GC seems to be less trusting of close scores than widely diverging ones, and also shows a clear bias against the evaluation of non-price criteria. While the underlying concerns may be understood from a pure judicial review perspective, they can be rather harmful and certainly go against the grain of the 2014 revision of the EU procurement rules (which reflected earlier tendencies) in its effort to discourage price-only procurement and to embed mechanisms for the assessment of quality and other relevant factors. On the whole, this sort of reasoning by the GC seems to act as a relevant deterrent for more sophisticated procurement efforts, which will necessarily carry a large (or excessive) risk of litigation, and which will be vulnerable to such risk. Whether this advances procurement practice can be doubted.

Final note

On the whole, the GC Judgment in European Dynamics Luxembourg and Evropaïki Dynamiki v Parliament (T-164/15) leaves the impression that the only way in which contracting authorities can avoid claims of insufficient motivation is by disclosing the entirety of the evaluation report--and make sure that there are extremely clear and fully-articulated rationales for each of the scores and sub-scores given to each specific element of each tender (and regardless of the ECJ case law indicating that this is not the applicable standard).

However, contracting authorities, even if willing, cannot do engage in that level of disclosure because they have positive duties to withhold certain information where its release would impede law enforcement, would be contrary to the public interest or would prejudice the legitimate commercial interests of economic operators or might distort fair competition between them (and this is common to EU Institutional procurement and to procurement covered by the 2014 Public Procurement Package). Therefore, contracting authorities find themselves in the perfect catch 22 and open to abuse by litigation-prone tenderers. This cannot be considered a satisfactory state of affairs, but the GC does not seem to be aware of this, or willing to curve this trend.

Therefore, the more cases I read on the duty to state reasons in the context of procurement debriefing, the more I am persuaded that the current strategy of relying on tenderers' justiciable transparency rights as a mechanism for the oversight of the procurement function is rather inadequate. I cannot but reiterate my conviction of the need to create some asymmetrically opaque review mechanisms that allow for proper scrutiny of procurement decisions in a way that does not jeopardise competition in the market or anyone's legitimate business and commercial interests.

Two recent cases on transparency & access to documents in EU Institutional procurement (I) (T-136/15)

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Two recent General Court judgments have addressed different aspects of transparency duties and access to documents requirements in EU Institutional procurement [for discussion, see A Sanchez-Graells, 'Transparency in Procurement by the EU Institutions' (2017)].

The first Judgment of 14 December 2017 in Evropaïki Dynamiki v Parliament (T-136/15, EU:T:2017:915) concerns access to procurement documents under Regulation 1049/2001. The other Judgment of 14 December 2017, and also involving European Dynamics Luxembourg and Evropaïki Dynamiki v Parliament (T-164/15, EU:T:2017:906, not available in English), addresses issues concerning the duty to provide reasons under the applicable (2012) version of the EU Financial Regulation

This post discusses T-136/15, and a follow-up post will discuss T-164/15.

Access to procurement documents under Regulation 1049/2001--
a blow to the almighty presumed protection of business secrets?

As a starting point, it is worth reminding that the Court of Justice (ECJ) has recognised that the protection of business secrets is a general principle applicable in the context of public procurement [Judgment of 14 February 2008, Varec, C-450/06, EU:C:2008:91, paragraph 49; see also Opinion of AG Kokott of 23 September 2010 in Stichting Natuur en Milieu and Others, C-266/09, EU:C:2010:546, paragraph 77], and that the General Court (GC) has accepted that there is general presumption of confidentiality in respect of the bids submitted by tenderers in a public procurement procedure in the event that a request for access is made by another tenderer, in particular on account of the economic and technical information contained in those bids [Judgment of 29 January 2013, Cosepuri v EFSA, T-339/10 and T-532/10, EU:T:2013:38, paragraphs 95 and 101; and Judgment of 21 September 2016, Secolux v Commission, T-363/14, EU:T:2016:521, paragraphs 47 and 49]. However, in this case, the disappointed bidder (European Dynamics) did not seek access to the tenders submitted by its competitors, but to 'all available information concerning all the requests for quotation which were issued by the [Parliament] for all lots' (T-136/15, para 2). This created an opportunity for the GC to reassess the extent of the presumption against the disclosure of documents containing potential business secrets, as the documents did not originate from the bidders, but rather from the contracting authority. The case does not provide much detail, but it seems that the requests for quotations may have been different between themselves, and that European Dynamics wanted to ascertain whether they represented a proper split of the contract into lots.

With this in mind, and given the width of the general presumption against disclosure of documents on the basis of business secrets, it should come as no surprise that, when European Dynamics asked the European Parliament to provide all requests for quotations--and in addition to other arguments for the rejection of such request, including workload implications, public security, personal data and procedural decision-making issues--the Parliament sought to ground its rejection of access on the fact that 'the documents requested contain information of an economic and technical nature, the presentation of which could reveal the Parliament’s profile as a buyer in the market. In addition, the requests for quotation could contain information on the particular skills of the suppliers selected for each lot as well as details of their commercial strategy and alliances or links with third parties. The protection of commercial interests, namely those of the economic actors involved and of the Parliament, also justified, in the view of the Parliament, refusing all access to the documents requested' (T-136/15, para 16). The Parliament also pressed the additional point that 'the ... exceptions to the right of access... were to be regarded as applying to all ... documents by virtue of a general presumption, in accordance with the line of reasoning developed by the Court of Justice in its judgment of 29 June 2010, Commission v Technische Glaswerke Ilmenau (C‑139/07 P, EU:C:2010:376)' (T-136/15, para 19). Also unsurprisingly, European Dynamics challenged that decision.

In its assessment of this specific aspect of the dispute, the GC found that:

(1) Parliament was generally entitled to rely on presumptions of applicability of the grounds for non-disclosure, as 'the Court of Justice has acknowledged that it is open to the institutions to base their decisions, as regards how granting access might specifically and actually undermine the interest protected by an exception under Article 4 of Regulation No 1049/2001, on general presumptions which apply to certain categories of documents, as considerations of a generally similar kind are likely to apply to requests for disclosure relating to documents of the same nature (judgments of 1 July 2008, Sweden and Turco v Council, C‑39/05 P and C‑52/05 P, EU:C:2008:374, paragraph 50; of 29 June 2010, Commission v Technische Glaswerke Ilmenau, C‑139/07 P, EU:C:2010:376, paragraph 54; of 21 September 2010, Sweden and Others v API and Commission, C‑514/07 P, C‑528/07 P and C‑532/07 P, EU:C:2010:541, paragraph 74, and of 27 February 2014, Commission v EnBW, C‑365/12 P, EU:C:2014:112, paragraph 65)' (T-136/15, para 47, emphasis added). But the possibility of relying on such presumptions required that 'documents of the same category ... contain the same kind of information. ... only if an exception to the right of access manifestly covers the content of those documents in its entirety ... the institution may avoid undertaking a specific, individual examination of those documents (see, to that effect, judgment of 9 September 2011, LPN v Commission, T‑29/08, EU:T:2011:448, paragraph 114)' (T-136/15, para 48). Thus, a detailed assessment of the applicability of the grounds to the specific type of document was necessary.

(2) Reliance on such a presumption was not justified on grounds relating to (i) protection of public security, (ii) privacy or (iii) the protection of Parliament's decision-making process because not all documents covered by the request for access could be presumed to include information relevant to those issues (see T-136/15, paras 50-60). This left the legality Parliament's rejection of access to documentation dependent on the GC's view on the exclusion from disclosure based on the first indent of Article 4(2) Reg 1049/2001, according to which '[t]he institutions shall refuse access to a document where disclosure would undermine the protection of: ... commercial interests of a natural or legal person, including intellectual property'.

(3) When assessing the applicability of a general presumption of exemption in line with the first indent of Art 4(2) Reg 1049/2001, the GC stressed the different nature of documents covered by European Dynamics' request. Its arguments (even if lengthy) require some close analysis:

as regards requests for quotations, a general presumption that commercial interests would be undermined cannot be based ... on the case-law ... relating to the bids of tenderers ...

... in order to attain the objective of the rules on EU public procurement, which is based on undistorted competition, it is important that the contracting authorities do not release information relating to public contract award procedures which could be used to distort competition, whether in an ongoing procurement procedure or in subsequent procedures ...

... it is recognised in the case-law that the economic and technical information in the tenderers’ bids is such as to justify refusal by the institution concerned to grant access to the bid of the successful tenderer. That is the case in particular where such bids contain details of the specific skills of the tenderers and contribute to the individual nature and appeal of the tenderers’ bids ...

 Having regard to the nature and purpose of a request for quotation drawn up by the contracting authority in performance of a framework contract, it cannot be presumed that such a document contains economic and technical information on the contractor or details its specific skill. On the contrary, its request for quotation, which comes from the contracting authority and not from its contractors, includes as a general rule a description of the tasks which the contracting authority wishes to have carried out under the framework contract which it has signed with the contractor. In principle, it is only in response to that request for quotation that the contractor will provide details on the services which it considers it can provide to the contracting authority, the profile of the experts which it can make available and the cost of its services.

Furthermore, the Parliament cannot argue that the disclosure of the requests for quotation will undermine its own interests, in that disclosure could reveal its ‘purchasing profile’ on the market. In fact, even if disclosure of the relationship between the tasks to be performed and the number of working days necessary to complete them could enable the tenderers, in future public procurement procedures, to unveil the Parliament’s costing technique, the fact that tenderers could know the prices quoted in the past for a corresponding service seems more likely to lead to a situation of genuine competition than to a situation where competition would be distorted (sic) ...

... having regard to the nature of a request for quotation drawn up by the contracting authority in performance of a framework agreement and the objective pursued by the [procurement rules], the Parliament was not entitled to rely on a general presumption that the interests protected by the first indent of Article 4(2) of Regulation No 1049/2001 would be undermined to avoid a specific, individual examination of the documents requested.

A request for quotation includes, in principle, a description of the tasks which the contracting authority wishes to have carried out under the framework contract which it has signed with the contracting party, but also more general information concerning, in particular, the practical management and monitoring of projects, the persons responsible, or the format of the reports to be provided on a regular basis. Thus, it is not established that the disclosure of all the information contained in the documents requested would undermine the commercial interests of the Parliament or of third parties.

... the Parliament could not rely on the exception to the right of access set out in the first indent of Article 4(2) of Regulation No 1049/2001 relating to the protection of commercial interests to refuse to carry out a specific, individual examination of the documents requested and to disclose them (T-136/15, paras 63, 68-72, and 74-75, references omitted and emphases added).

Despite excluding the possibility for the Parliament to rely on the presumptions, the GC recognised the validity of the rejection of the request to access the documents on the grounds that complying with it would have generated an excessive workload for the Parliament (see T-136/15, paras 78-103). Therefore, the documents were not disclosed. However, in my view, the approach to the applicability of the presumption of confidentiality to requests for quotations within framework agreements undertaken by the GC in its Evropaïki Dynamiki v Parliament Judgment (T-136/15) is faulty.

Critical comments

Indeed, there are two issues that require particular criticism because, in my view, the GC improperly assessed them.

First,  the GC seems to misinterpret the extent to which a request for quotations within the context of a framework agreement is likely to contain commercially-sensitive information, and errs on the side of presuming excessive neutrality or homogeneity in those requests. In my view, thus, the GC gets it wrong when it considers that '[i]n principle,it is only in response to [a] request for quotation that the contractor will provide details on the services which it considers it can provide to the contracting authority, the profile of the experts which it can make available and the cost of its services' (T-136/15, para 70). This is a reasoning that implicitly establishes the wrong functional equivalence between a call for tenders prior to the award of a public contract (including framework agreements) and a request for quotations within the context of a framework agreement. Given that the award decision (based on the previous tender) would already have established details of the services covered by the concluded framework, the GC gets the general principle backwards in ignoring that each of the requests for quotation would have been different and based on the peculiarities of each contractor's prior offer--otherwise, why would Parliament have issued over 1,000 (different) requests for quotation, and why would European Dynamics be interested in having access to them?

Indeed, given that award of the framework agreement (or, to be more precise, the placing of a contractor in a specific position in the cascade mechanism within the framework, as in the case at hand) results from the previous tender successfully submitted by the interested economic operator--and that, consequently, not all contractors included in the framework agreement would have been included under homogeneous conditions--in my view, the requests for quotations are more likely than not to include details of the previous tender that can be easily 'reverse-engineered' by their competitors. Thus, the protection given by the presumption of confidentiality to the original tender needs to carry through to requests for (more specific) quotations on its basis, so as to avoid such risk of leakage of commercially-relevant information. By taking a different approach, the GC has created a potential negative erosion of the presumption of protection of commercially-sensitive information in the context of EU Institutional procurement where framework agreements are involved. In my view, this is undesirable and the GC's position should be challenged.

Second, the GC's complementary position that 'the fact that tenderers could know the prices quoted in the past for a corresponding service seems more likely to lead to a situation of genuine competition than to a situation where competition would be distorted' (T-136/15, para 71) makes no economic sense, in my opinion. Given that what is presented as information on "past pricing" would, in the case at hand, have concerned "contemporaneous pricing", and that it would be disclosed within such a closed competitive setting as a framework agreement, economic theory predicts anticompetitive effects and a heightened risk of collusion [for discussion, generally, see K-M Halonen, 'Disclosure Rules in EU Public Procurement: Balancing between Competition and Transparency’ (2016) 16(4) Journal of Public Procurement 528; A Sanchez-Graells, ‘The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives’ (2013) Univ. of Leicester School of Law Research Paper No. 13-11]. By failing to take that risk into account, and starting to consolidate a jurisprudential position that revelation of past pricing information is pro-competitive, the GC is following the wrong functional approach. This, too, I would like to see challenged and changed.

Post-Brexit Procurement: new European Commission (short) guidance, and some broader thoughts

The European Commission has published its 18 January 2018 Notice to stakeholders on 'Withdrawal of the United Kingdom and EU rules in the field of public procurement' (the 'Brexit and procurement notice). This notice is without prejudice to the previously disclosed European Commission position paper on the effects on procurement procedures that are on-going on Brexit day, and of current negotiating efforts to agree on a EU-UK withdrawal agreement. The notice simply sets out the legal implications that would result from a 'cliff-edge' scenario, which the Commission considers necessary in 'view of the considerable uncertainties, in particular concerning the content of a possible withdrawal agreement'.

The Brexit and procurement notice is thus what I would call a 'no deal information sheet'. It sets out the effects that would arise from a UK EU exit without a ratified withdrawal agreement and without an extension of the 2-year period following the Article 50 notification of 29 March 2017. Thus, the Brexit and procurement notice is necessarily limited in its scope and simply lays out the immediate consequences of the UK becoming a third country with no access to the single market. Those effects would result in a significant loss of economic advantages and procedural guarantees in all procurement procedures subject to EU law that started on 30 March 2019 or thereafter.

It is important to stress that those effects would not be mitigated by WTO rules (the general default position in other trade areas) because general WTO rules do not cover public procurement--which is rather covered by a separate multilateral agreement within the context of WTO membership, the  Government Procurement Agreement (WTO GPA). As detailed in a recent article, the UK is not a party to the WTO GPA and it would need to seek fresh accession after Brexit [see P Telles & A Sanchez-Graells, 'Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?' (2017) 47(1) Public Contract Law Journal 1-33]. 

Consequently, in the absence of a withdrawal agreement or transition period, as of 30 March 2019, there would be no legal framework ensuring privileged access to the single public procurement market for UK economic operators. This is clearly spelled out in the Commission's Brexit and procurement notice, which highlights the following consequences:

  • UK economic operators will have the status of operators from a third country with which the EU does not have any agreement providing for the opening of the EU procurement market. The consequences of this may not be immediately obvious, but one that I would raise is their potential loss of the right to challenge procurement decisions against their interests in the EU jurisdictions that operate strict reciprocal mechanisms (for a survey and additional analysis, see here). Other consequences would follow from the unwinding of important administrative collaboration mechanisms, which I discuss below.
  • In utilities procurement, covering the areas of water, energy, transport and postal services, tenders offering more than 50% of products originating from the UK may be rejected--given that the Utilities Directive affords this possibility where the third country does not afford comparable and effective access for EU undertakings to its markets, which would be the situation in a 'no-deal' UK EU exit. Even if not subject to outright rejection, tenders including more than 50% UK content would be disadvantaged because the contracting entities shall not award them the contract if there are equivalent offers with less than 50% of the products originating in third countries.
  • In defence procurement, there would also be significant impacts for UK tenderers, as the Defence and Security Procurement Directive allows EU Member States to decide whether or not to allow economic operators from third countries to participate in their defence and security procurement procedures. Equally, even if UK tenderers were allowed to participate, EU Member States would no longer have to accept their UK security clearances on grounds of mutual recognition. As the Commission stresses, this may lead to the exclusion of operators relying on a UK security clearance in EU defence and security public procurement procedures, unless and until they obtained additional ones from the relevant EU Member State.

These may seem minor issues, but I would certainly argue they are not. In particular because those effects would be mirrored in domestic UK procurement, where EU economic operators would face equivalent consequences. In written evidence submitted to a House of Lords enquiry last year, I made some observations that are as relevant now as they were then:

  1. Bilateral UK-EU procurement-related trade can be estimated at around 15% of the total value of procurement, or close to 2.5% of GDP. This includes both direct and indirect cross-border procurement-related trade. The magnitude is larger if access to WTO GPA markets is considered.
  2. The UK’s exposure to public procurement-related trade in services in the EU is particularly relevant; the UK alone accounts for 84 % of the total value procured at EU level in awards of more than 100 million euros (approx. £85 mn).
  3. Losing the possibility of this cross-border trade would clearly be detrimental to the UK public sector, which would be at risk of not obtaining top quality services and/or facing increased prices from reduced competition amongst domestic suppliers. UK businesses would also be negatively affected if they lost the option of direct and indirect trade in services to the EU.
    .......
  4. ‘Hard Brexit’, ie no trade agreement of any kind combined with loss of WTO GPA membership, would imply loss of access to EU and worldwide procurement markets, for services but also for goods and works. This would likely have a major impact both on the UK public sector and in its business community, particularly that reliant on cross-border direct and indirect procurement-related trade.

These are serious and very worrying potential implications of the type of scenario covered by the Brexit and procurement notice, which should prompt renewed and continued efforts on both the UK and EU side to at least reach an agreement on withdrawal terms that facilitates continued frictionless procurement-based trade. I say at least because my personal view is that Brexit should be stopped (for a persuasive case, see Prof Syrpis' post). But in the absence of that better solution and in the alternative, there is clearly value to be preserved in finding a better solution to the alternative 'do-deal' scenario.

In that regard, I am honoured to have been invited to speak at the conference 'Trade Relations after Brexit: Impetus for the Negotiation Process'  and have the chance to offer my views on what regulatory challenges arise from the current situation, and to propose some potential solutions. These are my draft slides for the talk, and I probably will post a more detailed account after the conference. As indicated in the slides, some of the areas of immediate worry should concern administrative cooperation and remedies mechanisms. However, as also indicated there, all my analysis (and everyone's) is purely speculative in the absence of an agreed position on the basic elements of the future EU-UK relationship. Thus, everything there needs to be taken with a pinch of salt.

 

 

Funding of in-house entities, CPBs and risks of state aid, some thoughts re Aanbestedingskalender (T-138/15)

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In its Judgment of 28 September 2017, Aanbestedingskalender & Others v Commission, T-138/15, EU:T:2017:675, the General Court (GC) rejected a complaint against a previous Commission decision (SA.34646) that the Netherlands had not breached EU State aid rules by funding TenderNed--an in-house e-procurement platform run by PIANOo, the tendering expertise centre for the Dutch government. The complaint derived from the fact that, prior to the creation of TenderNed, private providers of e-procurement services had been offering their services to Dutch contracting authorities. The creation of TenderNed and the offering of services free of charge to contracting authorities by this in-house entity logically killed the e-procurement services industry (or a part of it), which triggered the complaint. The circumstances of the case raise some issues that would be common to any intervention by a Member State that in-sourced (or nationalised) previously outsourced services, but the legal challenge was limited to State aid considerations.

In a nutshell, the GC decided that the Netherlands was not in breach of EU State aid law because TenderNed is not an undertaking, in the sense that it is not engaged in an economic activity because its services are closely linked to the exercise of public powers by the Dutch State and the Dutch contracting authorities that use this service. The State aid aspects of the Judgment are insightfully discussed in more detail by Prof Nicolaides.

Reading the case, one of the statements by the GC that caught my attention was that "e-procurement was a service of general interest, and not an inherent economic activity, which could be commercially exploited so long as the State did not offer that service itself" (para 108). In this post, I offer some thoughts on the potential implications of this finding for the funding of in-house entities and of central purchasing bodies (CPBs), in particular if the EU Courts were to take further steps down the road of considering the exercise of the procurement function non-economic and/or a service of general economic interest (SGEI)--and, in so doing, I pick up on some of the issues discussed in more detail in A Sanchez-Graells & I Herrera Anchustegui, 'Impact of Public Procurement Aggregation on Competition: Risks, Rationale and Justification for the Rules in Directive 2014/24', in R Fernández Acevedo y P Valcárcel Fernández (eds), Centralización de compras públicas (Madrid, Civitas, 2016) 129-163.

The consideration of e-procurement as an SGEI

In its Judgment, the GC arrived to the position that e-procurement is an SGEI on the basis of the following:

... the claim that, because commercial platforms offer services similar to those of TenderNed, the Commission should have concluded that TenderNed’s activities are economic in nature, does not take into consideration the developments that have taken place in the e-procurement market.

In that respect, it must be noted that that market had developed before Directives 2014/24 and 2014/25 were adopted and imposed an obligation on the Member States to implement e-procurement in those States. The fact that that obligation was decided upon at EU level implies that it was considered important to put in place mechanisms which would ensure greater effectiveness and transparency in public procurement. As the Slovak Republic indicated in its statement in intervention, the trend in the development of public procurement systems in Europe is towards e-procurement. The fact that Directives 2014/24 and 2014/25 were adopted is indicative of the intention to harmonise public procurement within the European Union, through actions by the Member States, so that it is carried out electronically throughout the European Union.

In addition, the Netherlands authorities stated ... that the existing commercial platforms did not offer the conditions relating to price, objective quality characteristics, continuity and access to the services provided that would be necessary to fulfil the general interest objectives established by those authorities.

Thus, in the light of those developments in public procurement rules, driven by public interest considerations, the Commission was entitled to state ... that e-procurement was a service of general interest, and not an inherent economic activity, which could be commercially exploited so long as the State did not offer that service itself (T-138/15, paras 105-108, emphases added).

In my view, this part of the Aanbestedingskalender Judgment is particularly weak because the arguments of EU harmonisation and unsatisfactory private supply can hardly be considered determinative of the nature of SGEI of a given service. The 2014 Public Procurement Package imposes an obligation to carry out e-procurement, but that does not make this an SGEI, as the competence to establish what an SGEI lies with the Member States (see Art 14 and Protocol No 26 TFEU). Moreover, if private provision is unsatisfactory, the Member State could opt to regulate minimum standards mandatory for all private (or public) providers. The Member State could also have established a framework agreement or other mechanism for the provision of the services by a non-in-house entity, or created public service obligations linked to the provision of e-procurement services. Thus, the conclusion that the evolution of the regulation of e-procurement at EU level implies its treatment as an SGEI is far from justified.

The original reasoning of the European Commission is equally unconvincing

Such services might have previously been needed because of the complexity of legislation, the lack of user-friendliness of analogue or digital tools offered by the government services, or because companies find it more convenient to outsource such activities. However, the State does not forego the right to carry out an activity that it deems necessary to ensure its public bodies comply with their statutory obligations by acting at a point in time when private operators – perhaps due to lack of prior action by the State – have already taken the initiative to offer services to the same end. Ensuring public authorities comply with their statutory obligations by channelling public procurement may be an economic activity for the complainants. It is not, however, an inherent economic activity, but rather a service of general interest, which can be commercially exploited only so long as the State fails to offer that service itself (SA.34646, para 68, reference omitted and emphasis added).

This fails to properly characterise the nature of the activities, which I think are better understood as the provision of the IT services and infrastructure necessary to carry out e-procurement, rather than as a public power of channelling procurement to an electronic platform (which is what the 2014 Public Procurement Package has done, or tried to do).

Moreover, this is functionally contrary to the position taken in the 2016 Notice on the notion of State aid, which explicitly establishes that '[t]he decision of a public authority not to allow third parties to provide a certain service (for example, because it wishes to provide the service in-house) does not rule out the existence of an economic activity. In spite of such market closure, an economic activity can exist where other operators would be willing and able to provide the service in the market concerned. More generally, the fact that a particular service is provided in-house has no relevance for the economic nature of the activity' (para 14). In this case, it seems clear that the creation and funding of TenderNed is functionally equivalent to the reservation of activity (which contracting authority would pay a private provider for the services it can get for free from TenderNed?) and it is obvious that there are third parties willing to provide those services (the complainants). Consequently, the position reached in the case at hand does not make much sense.

The functional incompatibility is even larger when contrasted with a different passage of the same Notice on notion of State aid, which foresees that

The fact that the authorities assign a public service to an in-house provider (even if they were free to entrust that service to third parties) does not as such exclude a possible distortion of competition. However, a possible distortion of competition is excluded if the following cumulative conditions are met: (a) a service is subject to a legal monopoly (established in compliance with EU law); (b) the legal monopoly not only excludes competition on the market, but also for the market, in that it excludes any possible competition to become the exclusive provider of the service in question; (c) the service is not in competition with other services; and (d) if the service provider is active in another (geographical or product) market that is open to competition, cross-subsidisation has to be excluded. This requires that separate accounts are used, costs and revenues are allocated in an appropriate way and public funding provided for the service subject to the legal monopoly cannot benefit other activities (para 188, references omitted).

In the TenderNed case, it was clear that 'while contracting authorities and special sector entities may ultimately be obliged to publish their offers via TenderNed, they are not prohibited from using other platforms like those of the complainants in parallel. Likewise, the Dutch authorities have emphasised that private e-procurement platforms can export TenderNed notifications on their own portal as well as import their notices to TenderNed. Commercial operators are, in other words, free to develop a differentiated offer of public procurement-related services in terms of quality or added value' (SA.34646, para 69, reference omitted and emphasis added). Therefore, the existence of a situation with potential anticompetitive effects derived from the public funding of TenderNed would hve required careful analysis, but for the finding that its activities are covered by the public power exemption (ie are non-economic, and thus TenderNed is not an undertaking; and not so much for their potential classification as an SGEI).

In my view, these functional inconsistencies are problematic. The simple reasoning that because EU procurement law mandates (or encourages) a specific form or modality of procurement, this means that it is an SGEI or a non-economic activity (which is also unclear in the reasoning highlighted above) is tricky and potentially problematic. In a case such as TenderNed, and even if TenderNed does not offer services to private buyers and does not receive any payments from contracting authorities and is centrally funded by the Dutch government, this is problematic because it has the impact of wiping out an entire industry (or category of services within an industry). And, in other cases where the entity considered to be carrying out an SGEI offers other types of non-SGEI services to the public or private sector, because of the potential additional distortions of competition in those neighbouring markets. The latter case would concern in-house and CPB if they were to be classed as SGEIs.

The consideration of in-house provision and/or CPB activities as SGEIs

Together with e-procurement, two other main areas of reform in the 2014 Public Procurement Package concerned the expansion of the in-house exemption (Art 12) and the more detailed and expansive regulation of the activities of central purchasing bodies (CPBs, Art 37). In both cases, the fact that contracting authorities assign contracts directly to these entities raises important risks of distortions of competition where there is private provision for the relevant works, goods or services. Thus, the award of public contracts under the exemptions foreseen in Arts 12 and 37 of Directive 2014/24/EU generates risks of State aid (see G S Ølykke, 'Commission Notice on the notion of state aid as referred to in article 107(1) TFEU - is the conduct of a public procurement procedure sufficient to eliminate the risk of granting state aid?' (2016) 25(5) Public Procurement Law Review 197-212), and the continued stream of revenue derived from reserved or directly awarded public business can put the undertaking in a favourable position when competing with other entities for private or non-in-house public business.

One potential defence against claims of violation of EU competition law and/or State aid law by in-house entities or CPBs would thus concern the possibility of classifying their activities as SGEIs (regarding CPBs, this is a claim Ignacio Herrera and I dispelled in the article referred to above, and similar arguments apply for in-house entities). And, if the thrust of the approach in the Aanbestedingskalender Judgment was to be followed, the European Commission and national competition authorities could be tempted to consider that in-house provision or CPB activities are SGEIs, solely on the basis that these are activities promoted or facilitated in the 2014 Public Procurement Package and, concerning CPBs, in subsequent Commission policy. However, in my view, this would be a wrong justification for the classification of those activities as SGEIs.

What would be the implications?

The main implication of classing an activity as an SGEI is that it both (i) allows the Member State to shield the entity providing the SGEI from compliance with competition rules "in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them" (Art 106(2) TFEU, and (ii) Member States have increased freedom for the funding of SGEIs than for the granting of other types of State aid [see generally, A Sanchez-Graells, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing Services of General Economic Interest: Reform and Modernization, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181]. A fundamental element in this extended discretion for the funding of SGEIs is that an EU-compliant procurement exercise excludes the existence of State aid under the so-called Altmark fourt condition. This has been developed in some more detail in the 2016 Notice on the concept of State aid (paras 89 and ff), but it still assumes that an EU-compliant procurement is, for these purposes, one where there is a public tender and an element of competition--a position that the 2013 Guide to the application of the European Union rules on state aid, public procurement and the internal market to services of general economic interest, and in particular to social services of general interest does not completely clarify.

Therefore, the conundrum that a broad classification of in-house or CPB activities as SGEIs would create is that, in a setting where the direct award of contracts (however lucrative or benefitial) to in-house entities or CPBs is compliant with the rules in Directive 2014/24/EU (Art 12, Art 37(1), Art 37(4)) despite not having involved any element of competition, and where the conditions of those contracts cannot be tested against EU State aid rules because a very broad understanding of the public power exclusion of the classification of an activity as economic, and therefore of the in-house entity or CPB as an undertaking for the purposes of Art 107(1) TFEU, there may be no rule capable of controlling the channelling of public funds to these entities, regardless of the distortions in the market that their activities would create--which would also be excluded from assessment under the core competition rules of Arts 101 and 102 TFEU precisely for the same reason of the entities not being classed as undertakings due to the non-economic nature of their activities.

On the whole, then, I think that the greatest threat that results from the thrust of the Aanbestedingskalender Judgment is that too broad an understanding of what procurement activities imply the exercise of public powers, and an overlapping consideration of procurement activities as SGEI would lead to a complete exclusion of the applicability of all EU competition law mechanisms in this large sector of the economy. This would be an expansion of the problems derived from the FENIN-Selex doctrine, and one which I think requires urgent reconsideration by competition enforcers and, in particular, the European Commission [for in-depth discussion of the shortcomings of the FENIN-Selex doctrine, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) ch 4].

Some thoughts on Carillion's liquidation and systemic risk management in public procurement

REUTERS/Simon Dawson

REUTERS/Simon Dawson

The story that was developing over the weekend finally broke as Carillion plc has gone into compulsory liquidation. Carillion is one of the largest contractors of the UK public sector and holds a very large number of contracts for a range of infrastructure and services projects. The immediate concern of the UK government will now be how to ensure continuous provision of those services (which include catering and cleaning services for schools and hospitals), and finding ways to ensure completion of the ongoing infrastructure projects, possibly through 'bringing them in-house' or re-nationalising the contracts--although it seems a reasonable to question whether there is capacity in the civil service and in local government to manage such a volume of complex outsourced contracts.

However, that is not the focus of this post. In my view, one of the aspects that should not go unnoticed in this crisis is that the public sector had had information pointing towards Carillion's increasingly dire financial situation for a while. Indeed, as The Guardian reports, "Carillion ran into financial difficulties last year after issuing three profit warnings in five months and writing down more than £1bn from the value of contracts. It has debts of about £1bn and a £600m pension deficit, and is being investigated by the Financial Conduct Authority over announcements made between December 2016 and July 2017." Very clear information about Carillion's severe financial difficulties was in the public domain in November 2017, and the first of the three consecutive profit warnings had been issued as early as July 2017.

Here, I offer some thoughts on the share of responsibility that could arise for UK contracting authorities due to poor management of the systemic risk created by the accumulation of contracts on Carillion's hands, including some awards completed after Carillion published information of its financial difficulties (for example, a 4-year £84mn contract for energy maintenance and repair services for public housing in the Belfast region in November 2017). The UK Government should not be able to decline all responsibility, as it was informed and monitoring the situation. Indeed, The Guardian reported three months ago that "The government, one of [Carillion's] major customers, said it was being kept informed. 'We remain supportive of their ongoing discussions with their stakeholders and await future updates on their progress,' the Cabinet Office said". 

Domestic public procurement law (in particular, reg. 58 of the Public Contracts Regulations 2015) empowers contracting authorities to monitor the economic and financial standing of tenderers before they award contracts. It is explicitly stated that "Ratios, for example that between assets and liabilities, may be taken into consideration where the contracting authority specifies the methods and criteria for such consideration in the procurement documents, but such methods and criteria shall be transparent, objective and non-discriminatory" (reg.58(10) PCR2015). It has been long standing UK Government policy to assess the financial risk implicit in the award of a contract due to the economic and financial standing of the would-be contractor. Currently, the relevant guidance to that effect is in the Procurement Policy Note on 'Supplier Financial Risk Issues' of 2013, which requires contracting authorities, as part of a regular procurement exercise, to "Assess the risk to public sector business and/or public money which would result if a potential provider bidding for a contract were to go out of business during the life of the contract, or have inadequate financial resources to perform the contract".

There is no question, then, that contracts recently awarded to Carillion should be under suspicion of potential shortcomings in the assessment of its economic and financial standing. Of course, this may be complicated due to the certainly complex corporate structure in which the industrial conglomerate is organised, but the fact that self-certification has been operative in the UK since 2016 (at least in theory), raises important questions as to the ability of contracting authorities to carry out effective monitoring of tenderers' capabilities and the financial risk implicit in contracting.

On that note, it should also be recognised that the monitoring of the contractor's economic and financial standing is largely limited to procurement phases prior to conclusion of the relevant contract. This raises a more important point concerning the difficulties in managing systemic risks that derive from the accumulation of public contracts in the hands of a single supplier (however it is divided internally), which require a more complex and decentralised policy requiring effectiveness of the policies facilitating SME participation in procurement, which certainly remains an unresolved issue in the UK and in other EU jurisdictions. Given that large public sector contractors subcontract very significant volumes (if not the majority) of the works and services to SMEs, important questions should be raised as to the effective value for the public sector of allowing for the intermediation of such 'public contract brokers'.

In my view, this is reflective of the continued erosion of public sector capability to manage and oversee contracts (big and small), which requires 'ready-made' bundled contractual solutions. If the situation is to be reversed, in my view, governments should make a clear commitment to invest in the required skills and resources to ensure that the provision of important public services and the development of strategic infrastructure is not affected by systemic risks that go unnoticed or are unmanageable once realised. This is not a legal problem, but mainly a political issue that requires committing the required level of funding in rebuilding the capacity that the public sector has lost. Given pressures in other areas (such as direct NHS funding), this is certainly a big ask. But, unless the public sector re-skills itself, not only the management of crises, but the regular operation of public services will continue to be dependent on the ups and downs of the private market--where undertakings, however big, are not too big to fail.

Interesting Lithuanian case on contracting authorities' liability for false statements in tender documentation [Guest post* by Dr Deividas Soloveičik]

This new guest post by Dr Deividas Soloveičik provides interesting discussion of a recent Judgment of the Lithuanian Supreme Court concerning the liability of the contracting authority for the content of tender documentation. The case may be particularly relevant in the context of tenders for public service contracts or concessions, for example, concerning third-party estimates of demand. However, in the context of concessions, any liability of the type discussed by Dr Soloveičik could be problematic if it was seen as reducing or neutralising the transfer of risk to the concessionaire. So, indeed, a very interesting case.

What about some true statements while
drafting the procurement documents?

The Supreme Court of Lithuania has recently decided on the public buyers' obligation to be accurate and precise while drafting the procurement documentation, as well as on the liability of the contracting authorities failing to act so. A couple of things to be noted before the starting point. First, indeed, the ruling of the Court deals with domestic issues and has mainly (maybe solely) only a local impact. On the other hand, and secondly, it is a good example to learn from and, I believe, easily replicable elsewhere, despite the jurisdiction or a legal system. In other words, I believe, the conclusions the Court reflect a concept which should turn into a legal trend and a good example, applicable in a procurement practice worldwide. Thirdly, albeit the case-law of the Court of Justice of the EU and the national courts of Member States regarding the principle of transparency is voluminous, namely, that this principle includes the requirement to draft the procurement documents in a clear manner, the further discussed case has a different angle. Namely, it deals with the situation when the originally clear and precise statement provided in the procurement documents later, during the contract execution phase, appears to be a false statement, leading to the financial loss of the tenderer, now the contractor.

Hence, the Energijos parkas case dealt with the facts where the public buyer organised an open tender for the procurement of landfill gas extraction and utilization services. It has to be mentioned that the procurement was not organised under the EU public procurement directives and neither the Law on Public Procurement. However, the Court explicitly stated that the ruling it gave is also applicable to the realm of the public procurement law.

The facts of the case were the following. The public buyer drafted the tender documentation regarding the purchase of the above-mentioned services. To have the technical specification more explicit, it made a reference to the report of the engineers, a third party. The latter report outlined the parameters regarding the possible minimum gas extraction quantity with the clear reference that this evaluation was rock solid. It appeared during the execution of the contract that the possible quantity of the extracted gas was far from even the minimum the report mentioned and upon which reference the winner of the tender made its calculations and the whole business case. Therefore, the winner of the tender claimed that the false statements of the procurement documents, which were not possible to verify during the procurement procedure, led the claimant to the financial loss of more than 3 mil. EUR.

The Court started its reasoning from the reference to two main legal aspects. First, it stated that the situation at hand is very similar to the one of pre-contractual arrangement. By telling so, the Court continued that in such cases the general obligation universally acknowledged by contract law to act bona fide and to disclose the essential information to the other party before entering into any agreement must be obeyed. Secondly, the Supreme Court stated that neither authority is obliged to give such exact details of the subject of the procurement as it was done in the case at issue. However, the Court went on to say, if the contracting authority decides to include the very specific details of the subject matter, it must do it in a cautious way and providing accurate and correct information, so that the suppliers could make their proper calculations and prepare a business case.

After stating so, the Court decided that there is no difference in situations when the public buyer uses the material prepared by the third party. The Supreme Court noted that in such cases the contracting authority must take the risk if it later appears that the basic information it used in the procurement documentation was inaccurate or even false. The Court created a legal precedent by stating that if the authority, arranging the open tender, decides to include the specific details related to the subject matter of the procured object, such details become an inseparable part of the procurement documentation and the public authority is responsible for the certainty of the given details. This rule is applicable to cases where the contracting authority makes references to the information provided by the third parties.

The rationale of the Court is important in many practical aspects. First, no doubt that this is the extension of the principle of transparency, which requires the tender documentation to be precise and accurate, to the situations where the contracting authority refers to information given by the third party. In other words, the one who gives the information, must guarantee that it is correct, genuine and actual, especially if it relates to the circumstances upon which the market players design their economic decisions and business plans. Third, the precedent made by the Lithuanian Supreme Court upholds the ecosystem of legitimate expectations in open tenders and procurement. It is important for the tenderers to know that they must not verify every piece of information given by the contracting authority in the procurement documentation and that they can take the essential information for granted without being misguided. And if it appears later, during the execution of the public contract, that the whole business case was built of false assumptions, they will be entitled to a fair compensation of damages. Finally, I believe that such approach is very adaptive and might have a cross-border impact elsewhere in different jurisdictions, when the similar cases are heard.

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Dr. Deividas Soloveičik, LL.M

Dr Deividas Soloveičik is a Partner and Head of Public Procurement practice at COBALT Lithuania. He represents clients before national courts at all instances and arbitral institutions in civil and administrative cases, provides legal advice to Lithuanian and foreign private clients and contracting authorities, including the European Commission , on the legal aspects of public procurement and pre-commercial procurement.

Dr Soloveičik is an Associate Professor and researcher in commercial law at Vilnius University and a contributor to legal publications. He also closely cooperates with globally recognized academic members of the legal profession. Since 2011, MCIArb. Dr Soloveičik is a member of the Chartered Institute of Arbitrators; since 2016, he is a member of the European Assistance for Innovation Procurement – EAFIP initiative promoted by the European Commission and a recommended arbitrator at Vilnius Court of Commercial Arbitration.

Guest blogging at HTCAN: If you would like to contribute a blog post for How to Crack a Nut, please feel free to get in touch at a.sanchez-graells@bristol.ac.uk. Your proposals and contributions will be most warmly welcomed!

ECJ confirms discretion to exclude tenderers for not updating self-certifications and points towards potential general obligation of sincere cooperation (C-178/16)

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In its Judgment of 20 December 2017 in Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000 (Mantovani e Guerrato), the Court of Justice (ECJ) declared the compatibility with the 2004 EU public procurement rules of a contracting authority's decision to exclude an economic operator that, having self-certified as not being affected by exclusion grounds, subsequently failed to update the contracting authority when one of its former directors' criminal conviction for invoice fraud became final. Remarkably, the exclusion was upheld despite the fact that the 'conviction had become final following [the economic operator's] own declarations [and despite the fact ...] that, in order to fully and effectively dissociate the company from [its director]’s actions, the latter was immediately removed from his management role ..., the management bodies of the company had been reorganised, [his] shares had been bought back and an action for damages had been brought against him' (para 11). Therefore, the exclusion was upheld despite an attempt at self-cleaning. 

In declaring the compatibility with EU procurement law of this strict approach in the exercise of discretionary exclusion powers, the ECJ largely followed the Opinion of AG Campos Sánchez-Bordona (discussed here, where more background on the case is provided) and, in my view, confirmed a welcome functional approach to the exercise of discretion to exclude economic operators on the grounds of evidence that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable [Art 45(2)(d) Dir 2004/18 and now Art 57(4)(c) Dir 2014/24]. In my view, there are some relevant passages in the Mantovani e Guerrato Judgment that will be of importance in the assessment of self-cleaning claims under the 2014 rules, given the recognition of the possibility for Member States to create an overarching obligation of sincere cooperation with the contracting authority befalling upon economic operators under the 2004 rules--which may well carry over to the new provisions at EU level. The relevance of such recognition of a general obligation stems from its crucial role in the original exclusion decision, which was 'in essence, [based on the fact] that although, in the absence of a final judgment, Mantovani’s statement could not be classified as a "misrepresentation", the lack of timely notification of criminal proceedings concerning one of the [relevant] persons ... may constitute an infringement of the obligation of sincere cooperation with the contracting authority, and accordingly impede the full and effective dissociation from the person concerned' (para 12).

In my view, it is important to stress that the ECJ reaches its position after reiterating its general case law position that

... Article 45(2) of Directive 2004/18 does not provide for uniform application at EU level of the grounds of exclusion it mentions, since the Member States may choose not to apply those grounds of exclusion, or to incorporate them into national law with varying degrees of rigour according to legal, economic or social considerations prevailing at national level. In that context, Member States have the power to make the criteria laid down in Article 45(2) less onerous or more flexible ... Member States therefore enjoy some discretion in determining the requirements governing the application of the optional grounds for exclusion laid down in Article 45(2) of Directive 2004/18 (paras 31-32, references omitted).

And it is also important to stress that the ECJ finds the legal basis for the obligation of sincere cooperation not on the 2004 EU procurement rules, but on the domestic law of the Member State concerned (Italy):

... the Member State is entitled to ease the requirements governing the application of the optional grounds for exclusion and, thus, to waive the application of a ground for exclusion in the event of a dissociation between the tenderer and the conduct constituting an offence. In the present case, it is also entitled to determine the requirements governing that dissociation and to require, as Italian law does, that the tenderer inform the contracting authority of a conviction of its director, even if the conviction is not yet final.

The tendering company, which must meet those requirements, may submit all the evidence which, in its view, is evidence of such a dissociation.

If that dissociation cannot be proved to the satisfaction of the contracting authority, the necessary consequence is the application of the ground for exclusion.

... in a situation where the judgment relating to an offence concerning the professional conduct of the director of a tendering company is not yet final, Article 45(2)(d) of Directive 2004/18 may apply. That provision makes it possible to exclude a tendering company which has been found guilty of grave professional misconduct, established by any means which the contracting authorities can provide proof of (paras 41-44).

Even if the ECJ seems to incur in some imprecision in interpreting Italian law (which, as far as I can see, did not require the tenderer to inform the contracting authority of the non-final conviction of its former director, but rather to update or substitute the relevant self-certification once that conviction becomes final), it seems clear that it foresees the possibility for Member States to create an overarching obligation of sincere cooperation as part of the relevant self-cleaning requirements. Given that self-cleaning was not regulated by Dir 2004/18, this is the only legal basis that could have been used in the case. However, given the inclusion of explicit rules in Dir 2014/24, an argument can be made that the ratio of the Mantovani e Guerrato Judgment will carry over to the new EU self-cleaning regime.

Indeed, when the functional principle underlying the Mantovani e Guerrato Judgment is put in connection with the new rules in Article 57(6) of Dir 2014/24, the legal basis of such an overarching obligation may now be seen as having potentially shifted to the EU level. Indeed, it is important to stress that, as minimum requirements for the recognition of self-cleaning capable of excluding the application of exclusion grounds (both mandatory and discretionary), the second paragraph of Art 57(6) Dir 2014/24 requires that 'the economic operator shall prove that it has paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct, clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities and taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct' (emphasis added).

This comes to establish an 'EU obligation of sincere cooperation' that, even if it seems oriented towards the 'investigating authorities' (which does not seem to automatically cover the contracting authority itself), can easily be extended in the same functional terms required by Italian law on the basis of the logic in the Mantovani e Guerrato Judgment. Therefore, in my view, when assessing self-cleaning claims--and as a result of a joint interpretation of Art 57(4)(c) and Art 57(6)II Dir 2014/24 from the functional perspective of the Mantovani e Guerrato Judgment--contracting authorities will be on safe grounds if they decide to reject self-cleaning claims on the basis of a lack of update of on-going criminal and administrative investigations that are susceptible of nullifying the effectiveness of self-certifications submitted by the economic operators concerned.

 

 

 

Thank you for reading, Season's greetings and hiatus

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Thank you all for reading the blog during 2017. Looking back over the 90+ posts published in the last 12 months, I realise that this has been a period of intense development in EU procurement law and my impression is that 2018 will not be less fruitful. I have good memories of many a discussion through the blog, and I hope we will continue exchanging ideas in the new year.

For me personally, it is a great source of satisfaction and motivation to see that so many of you engage with the blog and that the interest in public procurement law keeps growing. I can only renew my commitment to try to keep discussing relevant issues in a timely manner in 2018, and I hope to see you back here next year.

I will take a break and resume blogging on the week of 8 January 2018. In the meantime, if you want to keep up with recent cases, you may want to note that there are two GC cases decided on 14 December 2017 (T-136/15 and T-164/15) and two forthcoming ECJ cases to be decided on 20 December 2017 (C-677/15 P and C-178/16) to keep in your procurement radar. I will comment them once blogging resumes in January.

For now, I take the chance to wish you all an enjoyable and relaxing festive season, and all the best for 2018.

AG proposes extension of Falk Pharma doctrine to framework agreements, for wrong reasons (C-9/17)

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In his Opinion of 13 December 2017 in Tirkkonen, C-9/17, EU:C:2017:962 (not available in English), Advocate General Campos Sanchez-Bordona has proposed the application to a framework agreement for the provision to farmers of advisory services funded by the European Agricultural Fund for Rural Development (FEADER) of the Falk Pharma doctrine (ie that the absence of a choice in concreto of the awardee of a contract by the contracting/funding authority excludes the applicability of the EU public procurement rules; see Judgment of 2 June 2016 in Falk Pharma, C-410/14, EU:C:2016:399, and here).

In his view, the fact that individual farmers—and not the competent authority administering the FEADER funds—could choose the specific rural advisor that would provide them the services carved the framework agreement out of the scope of application of the EU (and domestic) public procurement rules—which were therefore not applicable to the tender of the framework agreement in the first place.

In my view, the Tirkkonen Opinion engages in an unjustifiably expansive interpretation of the Falk Pharma Judgment that both ignores some of the basic elements in the functioning of framework agreements, and takes that Judgment’s functionally-erroneous interpretation of the concept of procurement one step too far. If the Tirkkonen Opinion was followed, in combination with Falk Pharma, it would create a significant risk of ineffectiveness of the EU public procurement rules for aggregate and dynamic contracting mechanisms. Therefore, in this post, I present my reasons for a plea to the Court of Justice of the European Union (ECJ) not to follow AG Campos in this occasion, as I think his approach is problematic, both from a positive and a normative perspective.

Tirkkonen – a bad case raising the wrong issues

Why ignore explicit requirements in secondary EU law?

The way the preliminary reference in Tirkkonen reached the ECJ evidences that this is a bad set of circumstances on which to develop the case law on the scope of application of the EU public procurement rules. In the case at hand, the Finnish Agency for Rural Space (Maaseutuvirasto) tendered a framework contract for the provision of advisory services to farmers. Given the (expected) high volume of demand for advisory services, the framework was intended to include as many qualified rural advisors as possible, subject to their passing of an exam to ensure their knowledge and competence (AGO, C-9/17, para 19). Rural advisors admitted to the framework agreement could then be chosen by individual farmers (who should in principle chose the closest advisor, although some exceptions applied), and their services would be remunerated on the basis of hourly rates paid by Maaseutuvirasto, with the beneficiary farmer covering applicable VAT charges (AGO, C-9/17, para 18). It is not explicitly stated in AG Campos' Opinion, but it is worth stressing that the Maaseutuvirasto had set the hourly rate payable to rural advisors, and that the award (ie admission to the framework contract) was to be decided solely on quality (ie competency to provide the service) (see here for details (in Finnish), and thanks to K-M Halonen for help with the translation). The suppression of price competition will be relevant for the assessment below.

The advisory services organised by Maaseutuvirasto were ultimately funded by FEADER for the period 2014-2020 and, under the relevant rules (Reg 1305/2013/EU, Art 15(3), and Impl Reg 808/2014/EU, Art 7), the selection by the Finnish (and all other national) competent authority of the providers of those advisory services was explicitly subjected to European and domestic public procurement rules, which required for the selection to be made: ‘through calls for tenders. The selection procedure shall be governed by public procurement law and shall be open to both public and private bodies’ (Art 15(3) Reg 1305/2013/EU). It was reiterated that the 'calls for tenders referred to in Article 15(3) of Regulation (EU) No 1305/2013 shall follow the applicable Union and national public procurement rules' (Art 7 Impl Reg 808/2014/EU). The Finnish government had no doubt that EU and domestic procurement rules applied, and thus tendered the contract as described above.

Therefore, against this background, a preliminary reference enquiring about the potential non-applicability of the procurement rules to the tender of the framework agreement despite the explicit requirements in special (in the sense of lex specialis) secondary EU legislation is beyond bizarre (see below). However, AG Campos does not see a problem here, and considers that

… that reference to procurement law must be interpreted in the sense that the procedure for the selection of rural advisors must comply with the principles (of non-discrimination, equal treatment and transparency) that govern that sector of the legal order. It does not portray, in my view, a requirement that implies subjection to each and all of the provisions of the EU Directives on public sector procurement (AGO, C-9/17, para 34, own translation from Spanish).

I disagree with this assessment, which is not based on any specific reasons, and which violates the natural reading of Reg 1305/2013/EU and Impl Reg 808/2014/EU. Moreover, it comes to reduce the value of the explicit reference to procurement law in those provisions, and to collapse it into the general principles that are common with general internal market law and, more importantly, the eponymous general principles of EU law—which would be applicable anyway to all activities implementing the relevant instruments of secondary EU law. Therefore, AG Campos’ position not solely deviates from the natural reading of the provisions, but also runs contrary to the functional reasons for the inclusion of the explicit reference to procurement rules (ie to go beyond the general requirements of the always applicable primary EU law). Thus, already on the weakness of the reasons for a deviation from the literal and functional interpretation of those provisions of secondary EU law, I think that the ECJ should largely ignore AG Campos’ Opinion and simply answer the question by confirming the applicability of the EU (and domestic) procurement rules on the basis of the explicit requirements in Reg 1305/2013/EU and Impl Reg 808/2014/EU.

Why not simply state that Finnish procurement law was wrong?

Beyond that first clear-cut solution, which I think highly unlikely the ECJ will adopt, the Court will have to explore the general (as in lex generalis) reasons that still justify the applicability of the EU and (domestic) procurement rules to the case—also contrary to AG Campos’ Opinion. To that end, it is still necessary to understand why the preliminary question was sent to the ECJ—which is explained by a misconstruction of the EU public procurement rules and, in particular, by the harsh consequences of an exceedingly restrictive approach to documentary clarification in the domestic Finnish procurement rules that violates the Manova-Slovensko line of case law (see here, here and here).

In that regard, it is worth noting that the preliminary reference derived from the fact that, in the context of the tender for the framework agreement, Ms Tirkkonen failed to properly complete all required documentation—ie she had failed to indicate whether she accepted or rejected the tender conditions attached to the draft framework agreement (AGO, C-9/17, para 20). She was thus excluded from the framework agreement. Her complaint is fundamentally grounded on the fact that she should have been given the opportunity to clarify whether she accepted the conditions or not prior to her exclusion from the framework agreement.

It is a settled legal fact of the case that, under Finnish law, the omission of that indication of acceptance of the general conditions would only be susceptible if the clarification or correction of the tender was not controlled by public procurement law (which excluded such possibility of clarification), and was rather subjected to general administrative law governing the relationships between citizens and the public administration (AGO, C-9/17, para 3).

Therefore, the harshness of the Finnish procurement rules is behind the interest of the claimant in excluding the tender from the scope of application of domestic procurement rules—which can only be done by seeking a carve-out from the concept of procurement under the EU rules. And, more importantly, the Finnish approach is in contravention of EU law—oddly, as confirmed by AG Campos himself: ‘if Directive 2004/18 was applicable, it would result that the contracting authority would be able to accept, in the context of public procurement, the correction of formal shortcomings that do not imply the submission of a new offer, or substantially altered the terms of the initial offer. On this point, I refer to my Opinion in case MA.T.I. SUD y DUEMMESGR (C-523/16 y C-536/16, EU:C:2017:868)’ (AGO, C-9/17, para 23, fn 7, own translation from Spanish; for discussion of MA.T.I. Sud, see here).

Consequently, the second clear-cut solution for the ECJ is to (i) pick up on the incorrect interpretation of EU public procurement law that underpins the preliminary reference, (ii) reformulate the question and consider that it asked whether the exclusion from the framework agreement due to the formal shortcoming in the documentation and without the possibility to correct it was required or allowed by EU procurement law, (iii) reiterate the Manova-Slovensko case law, and (iv) leave it for the national court to decide on the legality of the exclusion (with a clear hint that exclusion in this case was not justified, due to the logical assumption that would-be rural advisors understood that accepting the general conditions of the draft contract was a requirement for entering into specific contracts, and that confirming such acceptance does not constitute a new offer or substantial modification of the initial offer).

For some reason, however, I am also not optimistic that the ECJ will adopt this second solution and pass on the opportunity to clarify its Falk Pharma case law. Should the ECJ engage with the question and the issues raised by AG Campos, and for the reasons below, I think that the ECJ should provide clarification of Falk Pharma in the opposite direction to that adopted by the Tirkkonen Opinion.

Tirkkonen Opinion ignores how framework agreements work

Once the argument concentrates on the definition of procurement under Article 1(2)(a) of Directive 2004/18/EC, AG Campos summarises the Falk Pharma doctrine as establishing that

… the choice of a tender and, thus, of a successful tenderer, is intrinsically linked to the regulation of public contracts by that directive and, consequently, to the concept of ‘public contract’ within the meaning of Article 1(2) of that directive (AGO, C-9/17, para 37, own translation from Spanish, with reference to Falk Pharma, para 38).

And that

… in the public contracts subjected to Directive 2004/18 a final awardee must exist, which is preferred to the rest of its competitors on the basis of the characteristics of its offer. And this key element is applicable ‘for every contract, framework agreement, and every establishment of a dynamic purchasing system’, for which ‘the contracting authorities are to draw up a written report which is to include the name of the successful tenderer and the reasons why his tender was selected (AGO, C-9/17, para 38, own translation from Spanish, with reference to Falk Pharma, para 39).

This leads AG Campos to argue that, in the framework tendered in Tirkkonen, ‘it is not possible to identify the existence of award criteria of the advisory services contracts, but solely of criteria for the selection of economic operators with capability to offer those services (sic)’ (AGO, C-9/17, para 39, own translation from Spanish and emphasis added). AG Campos continues with a discussion of the distinction between selection and award criteria as per Ambisig (C-601/13, EU:C:2015:204, paras 40 and ff, see here), which I consider irrelevant—for the crucial point is that, in multi-supplier framework agreements (as well as in dynamic purchasing systems, as discussed here), the inclusion in the framework does not (ever) imply the choice of the ‘winner’ of the (call-off) contracts but, conversely, exclusion from the framework does prevent the excluded economic operators from providing the service.

In my view, this is the relevant aspect, for the inclusion in the framework is not simply an identification of the capable or qualified economic operators, but the limitation to those included in the framework of the possibility of entering into specific contracts in the terms set in the framework. AG Campos’ maximalistic position would lead to the inescapable logical conclusion that framework agreements are not public contracts for the purposes of EU public procurement law, despite being explicitly regulated, quod non.

The flawed logic of the premise established by AG Campos in para 39 of his Opinion makes the rest of his reasoning crumble. In my view, this defect affects his reasoning that

… what is determinative, in relation to the contracts subject to Directive 2004/18, is not the checking of the economic operators’ capability to provide the advisory service (qualitative selection criterion), but the comparison of the offers of the competing tenderers, once considered capable, with a view to finally chose that or those which will be entrusted with such provision (award criterion) (AGO, C-9/17, para 44, own translation from Spanish).

And that

… the selection that matters, for the purposes of the concept of public contract in Directive 2004/18, is that which results from the comparison between the capabilities and merits of the offers of the different candidates. That is, what is decisive is the final award, comparatively or by contrast, to the best offer, not the initial selection by reference to a threshold meeting which does not imply competition between the candidates (AGO, C-9/17, para 45, own translation from Spanish).

Ultimately, following this same reasoning, AG Campos takes issue with the fact that there was no competition between the candidates that expressed interest in being included in the framework agreement because the contracting authority ‘did not restrict ab initio the number of potential providers of the services, nor did it carry out a comparison of the offers between them, or chose in a definitive manner one or several of them, on the basis of a comparative evaluation of their respective contents, to the exclusion of the rest’ (AGO, C-9/17, para 48, own translation from Spanish).

However, this triggers two issues. First, under Dir 2004/18/EC, there was no obligation to establish a maximum number of economic operators to be admitted to a framework agreement. Art 32(4) Dir 2004/18/EC solely established a minimum of three for multi-supplier framework agreements, but did not require a maximum number. Second, it is in the nature of framework agreements—particularly those involving mini-competitions, as per Art 32(4)II Dir 2004/18/EC—that the contracting authority, at the point of deciding which economic operators are included in the framework, does not ‘chose in a definitive manner one or several [offers], on the basis of a comparative evaluation of their respective contents, to the exclusion of the rest’ for the purposes of the award of the relevant call-off contracts—which is the situation comparable to Tirkkonen. In particular, it is possible that an economic operator included in a framework agreement is never awarded a call-off, especially if there are mini-competitions, which in my view deactivates the functional reasoning of AG Campos.

In my view, AG Campos also misinterprets the implications of the fact that the framework agreement in Tirkkonen was closed to the economic operators not initially admitted to it, in relation to the ECJ’s Judgment in Falk Pharma. In that regard, it is relevant that the argument was made that the closed nature of the framework agreement distinguishes it from the open-ended mechanism discussed in Falk Pharma, which AG Campos rejects in the following terms:

It is true that, strictly, by limiting the contracting system, during its term, to the economic operators initially admitted by the Agency [Maaseutuvirasto] (which prevents access by new advisors) a certain quantitative restriction is being imposed. However, this is but a consequence of the pure and rigorous temporary limitation of the system of funding for advisory services, which is parallel to the program of rural development for continental Finland 2014-2020 (sic).

For the rest, the reference by the Court of Justice in Falk Pharma to the permanent openness of the contracting system to new tenderers was not, in my view, the ratio decidendi of that case, but rather a statement made ad abundantia. What was determinative in that occasion was that the contracting authority had not awarded, in exclusive, the contract to one of the tenderers [Falk Pharma, para 38].

In this case, just like in the Falk Pharma case, there has not been any element of true competition between the candidates, to evaluate which of their offers is the best and displaces, simultaneously, the remaining other (AGO, C-9/17, paras 51-53, own translation from Spanish)

The reasoning in these paragraphs is strongly skewed towards a very narrow understanding of procurement as implying the award of contracts solely to a winning tenderer, which is not the way framework agreements (and dynamic purchasing systems) operate. I cannot share the analysis in any of these steps of the reasoning.

Firstly, I think that a temporary justification for the irrelevance of the selective nature of a framework agreement is a logical non sequitur. The fact that the funding is limited to the period 2014-2020 can be used to justify the creation of a framework of six years’ duration, but it can have no bearing on the fact that a restriction of the potential suppliers derives from the framework agreement itself. The Maaseutuvirasto could have chosen a fully open licensing system, which would then have avoided the situation of excluding would-be rural advisors as a result of the one-off chance of being accepted into the system (which is a structural result of the framework agreement).

Secondly, in Falk Pharma, the ECJ did not simply consider the lack of choice of a specific supplier and consider the open-ended nature of the ‘authorisation procedure’ ad abundantia, but rather made this a crucial aspect of the analysis, by establishing it as a defining characteristic of the mechanism (see C-410/14, para 14). This is particularly clear on the explicit distinction the ECJ made with framework agreements when it stressed that

it should be noted that the special feature of a contractual scheme, such as that at issue in [Falk Pharma], namely its permanent availability for the duration of its validity to interested operators and, therefore, its not being limited to a preliminary period in the course of which undertakings are invited to express their interest to the public entity concerned, suffices to distinguish that scheme from a framework agreement (C-410/14, para 41, emphasis added).

Finally, the third point on absence of competition is also problematic. Taken to its logical extreme, this would mean that contracting authorities could avoid compliance with procurement rules where they set ‘take it or leave it’ conditions for the provision of services or supplies. This makes no sense because, particularly where there is scarcity in the number of awards (in this case, a limit of total available funding, as well as the restriction in the number of potential awardees that results from the closing of the framework agreement at the initial stage of the 2014-2020 period), there is always implicitly an element of competition (ie to tender or not, and tendering results in a constraint on the overall number/value of awards available to the other competitors) and the fact that the contracting authority limits the dimensions in which the tenderers compete (in Tirkkonen, and implicitly, their geographical coverage) should not exclude this from compliance with procurement rules.

For all the reasons above, I think the Tirkkonen Opinion misconstrues the relevance of the openness of the system in Falk Pharma, and the explicit distinction made by the ECJ between that system and framework agreements. Moreover, the Opinion gives excessive weight to the need to compare tenders or offers (and the choice of one, and almost only one, to the exclusion of all others) for (covered) procurement to take place. In particular, it misrepresents some of the particular features of framework agreements and opens the door to their de-regulation where contracting authorities set ‘take it or leave it’ conditions (eg, in this case, provision of services at rates established by the contracting/funding authority) and then delegate or decentralise decisions on call-offs, even if they provide general guidelines on the way they should take place. For the reasons set out below, I think the Opinion is not only inaccurate from a positive legal analysis perspective (as discussed so far), but also from a normative perspective.

The undesirable combined effect of Falk Pharma and Tirkkonen

Should the ECJ follow the Tirkkonen Opinion, and as a result of the cumulative effect of the resulting expanded Falk Pharma doctrine, Member States willing to avoid compliance with EU public procurement rules could easily do so by creating systems of ‘user/beneficiary choice’. This could be quite problematic particularly in the context of services and supply contracts, where the existence of end users detached from the contracting authority can always enable this type of mechanisms.

In the extreme, if central purchasing bodies created this type of mechanisms for use by individual decision-makers (eg civil servants or public employees), the atomisation of procurement that would ensue could well result in a de-regulation of the procurement function. Procurement rules would not apply to the CPB because it would not ‘choose definitely’ the specific supplier or provider, and they may not apply to the decision to call-off that does exercise that choice if the value of the call-offs is small enough—which would then trigger litigation around the legality or less of the atomisation of the procurement decision on the last stage, for which analysis the concept of ‘separate operational units’ in Art 5(2) of Directive 2014/24/EU (see also recital (20)) would become highly relevant; see K-M Halonen, 'Characteristics of Separate Operational Units – A Study on Aggregation Rules under Public Procurement Law' (2017) report for the Competition Authority; see here. There is thus a functional need to keep proper checks and balances at the level of creation of the mechanism.

On the whole, I was already concerned that Falk Pharma was eroding the scope and effectiveness of the EU public procurement rules, but Tirkkonen could magnify such undesirable effect. Moreover, this would simply displace the problem towards general EU free movement law, which is not a sensible approach in view of the more developed criteria and rules in the EU public procurement framework. Thus, also from a normative perspective, I would plea to the ECJ not to adopt the same approach of AG Campos on this occasion.

New paper: Territorial Extension and Case Law of the Court of Justice: Good Administration and Access to Justice in Procurement as a Case Study

I have uploaded a new paper on SSRN on 'Territorial Extension and Case Law of the Court of Justice: Good Administration and Access to Justice in Procurement as a Case Study', which develops previously sketched ideas on the challenges that the 'regulatory export' of EU procurement rules can create for the functioning of the CJEU and the Commission in the context of the EU's external trade activity (see here). The abstract of the paper is as follows:

This paper explores some of the legal implications of the territorial extension or extraterritoriality of EU public procurement law through free trade agreements and planned flanking retaliatory EU trade policy. The paper has the starting position that, with this policy and regulatory approach, the EU pursues two main goals: first, to further global standards of human rights protection and, second, to further regulatory convergence towards its own procurement standards. The paper concentrates on the pursuit of this second goal and, in particular, on the implications of such territorial extension or extraterritoriality of EU procurement law for the case law of the Court of Justice on good administration and access to justice, as recognised in the Charter of Fundamental Rights of the European Union. The paper concentrates on public procurement due to its relevance in free trade agreements between the EU and third countries, as well as the relevance of statutory and case law requirements concerning procurement remedies. The paper assesses both the outwards and inwards implications of the functional territorial extension for the case law of the Court of Justice. The discussion in the paper also raises general issues concerning procedural design and the consideration of foreign law by the Court of Justice in different settings.

The paper is freely available through SSRN: https://ssrn.com/abstract=3081061

Interesting Norwegian case on public procurement of health and social services and alleged discrimination of private enterprises against EU/EEA law (ESA 154/17/COL)

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On 20 September 2017, the EFTA Surveillance Authority (ESA) decided to close the investigation of a complaint against Norway for the alleged unlawful discrimination of private enterprises and breach of the EEA rules on public procurement in the award of contracts for health and social services (that is, childcare services, management of nursing homes, hospitals, medical and other types of rehab, psychotherapy, professional addiction treatment, etc), on the basis that Norwegian national rules appeared to allow public entities to award those contracts exclusively to non-profit organisations (“ideelle organisasjoner”, according to the terminology used in Norwegian legislation).

The case thus concerned a set of issues closely linked to those decided by the Court of Justice of the European Union in Spezzino (C-113/13, EU:C:2014:2440/ CASTA (C-50/14, EU:C:2016:56) [for discussion, see the special issue of (2016) 11(1) EPPPL]. ESA dismissed the complaint both on procurement and on general EEA law grounds (ie Articles 32 and 39 of the EEA agreement, providing for an exemption for activities 'connected, even occasionally, with the exercise of official authority'; cfr Art 51 TFEU).

Regarding the procurement aspects of the complaint, ESA considered that the Norwegian rules fulfilled 'the legal requirements laid down in case-law exceptionally allowing national contracting authorities to directly award public contracts having as their subject matter services in the social and health sector to non-profit organisations' (ESA, 154/17/COL, para 5). Regarding general internal market law, ESA concluded that the Norwegian rules on direct award 'applied to activities connected directly and specifically with the exercise of official authority, in particular those necessary to operate child welfare institutions and requiring the adoption of coercive measures, as specified in Norwegian legislation. Ancillary activities such as works and/or the provision of catering, laundry, transport and similar services remain subject to the EEA rules on public procurement' (idem). 

In this post, I reflect on both lines of argumentation concerning the exemption of the award of contracts for the provision of healthcare and social services from procurement and EEA law. Before engaging with the details , it is worth noting that the case was initiated in 2015 and thus concerned Norwegian law transposing the 2004 EU/EEA public procurement rules (Dir 2004/18/EC, in particular for the 'old' Part II-B services). However, in my view, the decision by ESA raises some issues that will remain relevant for the procurement of healthcare and social services under the light-touch regime of Directive 2014/24/EU (esp Art 77)--on which I offer some concluding thoughts.

The Norwegian reservation and exclusion of contracts

In the case at hand, ESA had to assess the compatibility with general EEA law and with EU/EEA procurement law of Norwegian legislation allowing for the reservation of contracts for the provision of health and social services to non-profit organisations, to the exclusion of private (profit-seeking) enterprises. In particular, the analysis concerned the compatibility or not with EEA law of 'Section 2-1 (3) and Section 1-3(2) lit. k of the Norwegian Regulation No. 402 of 7 April 2006 on public procurement (Forskrift No. 402 om offentlige anskaffelser). While the first legal basis contains a general authorisation to privilege non-profit organisations in award procedures, the second legal basis relies on a presumed exercise of official authority required to provide the services in question' (ESA, 154/17/COL, para 1).

In particular, the relevant provisions established that Norwegian contracting authorities did not have to comply with the relevant procurement rules for the award of 'contracts regarding the execution of health and social services' to 'an ideal organisation' (ie “ideelle organisasjoner”) (Section 2-1 (3)); and that those rules did not apply to 'contracts involving the exercise of official authority which can be exempted in line with the EEA Agreement Article 39, cf. Article 32' (Section 1-3(2) lit. k) (see ESA, 154/17/COL, para 3.2). The first rule was based on the limited obligations derived from Dir 2004/18/EC for services covered by category 25 of its Annex II-B (where there was no presumption of cross-border interest in their provision), whereas the second one is clearly linked to the carve-out in the scope of the EEA Agreement for the exercise of official authority. Given that the rules had different legal bases, ESA decided to assess them separately ESA, 154/17/COL, para 4).

Reservation of contracts to non-profit organisations

In order to assess the compatibility with EU/EEA procurement law of the possibility to directly award contracts to 'ideal organisations', ESA relies on the case law of the Court of Justice in Spezzino and CASTA (above), which it interprets as establishing the following principles:

  • EU/EEA law does not categorically prohibit the privileged treatment of non-profit organisations in award procedures (ESA, 154/17/COL, para 4.1.2).
  • The legal requirements derived from the case law for a privileged treatment of non-profit organisations in award procedures are as follows (ESA, 154/17/COL, para 4.1.2):
    • the service must be exclusively or, at least predominantly, a non-priority service covered by Annex II-B of Dir 2004/18/EC;
    • the service in question must have some cross-border relevance in order to trigger the application of the general principles of EU public procurement law, which is of limited relevance in the context of EEA law, where EEA States 'could, in principle, adopt a less strict set of rules than those foreseen in Directive 2004/18, allowing a preferential treatment of voluntary organisations, provided that there is no discrimination based on nationality';
    • there has to be an objective justification consisting in an interest to protect human health and life, and 'it is for the EEA States ... to decide on the degree of protection which they wish to afford to public health and on the way in which that degree of protection is to be achieved'; 
    • the award must contribute to the social purpose and the pursuit of the objectives of the good of the community and budgetary efficiency, which is subject to a case by case analysis; and
    • the organisations beneficiaries of privileged treatment are not allowed to pursue objectives other than the good of the community and budgetary efficiency, and are not allowed to make any profit as a result of their services apart from reimbursement of the variable, fixed and on-going expenditure to provide them, or to procure any profit for their members.
    • Finally, resort to this exception from the general rules on public procurement finds its limits in the prohibition of abuse of rights.

In my view, the interpretation of the Spezzino/CASTA case law by ESA is largely adequate, but it seems to omit an explicit assessment of the importance given in those cases to the Italian constitutional framework, which created a special protection for third sector voluntary organisations at a constitutional level (Spezzino, EU:C:2014:2440, para 9; CASTA, EU:C:2016:56, para 9, for further discussion, see here and here). It would have been interesting for ESA to express a view on whether such constitutional requirements form part of the case law or not (implicitly, it seems the view is that they do not) and how they applied to the Norwegian context (in particular, in view of the absence of a specified constitutional position of such 'ideal organisations', see below).

In applying the legal requirements derived from the Spezzino/CASTA line of case law, ESA followed a light-touch approach and considered that all of them were met (ESA, 154/17/COL, para 4.1.4). In particular, ESA stressed that the Norwegian Government considered that

Section 2-1(3) of the Norwegian Regulation aims to ensure that non-profit organisations can continue to provide health and social services ... [and that] non-profit organisations are an important alternative to common service providers. A combination of public, commercial and non-profit providers of health and social services shall ensure a diversified offer, designed to fulfil the different needs of the population. The Authority infers from this explanation that the legislative objective pursued by the national provision in question is to safeguard public health and social welfare, both being legitimate grounds, which justify a derogation from the principles of transparency and non-discrimination in EEA public procurement law, as established in the Court of Justice’s case-law.

While the national provision in question seems to be based on policy considerations, namely to create conditions for involving non-profit organisations in the provision of health and social services, the Authority does not see any inconsistency with the general objective of protecting public health and social welfare in Norway. As the Court of Justice has repeatedly emphasized, EEA law does not detract from the power of the EEA States to organise their public health and social security systems. Consequently, the said national policy consisting in favouring non-profit organisations with the aim of increasing their degree of involvement in the national health and social system must be regarded as one of the many considerations the EEA States may take into account when exercising their discretion as regards the manner how the wish to organise their public health and social security systems (ESA, 154/17/COL, para 4.1.4, pages 9-10, footnote omitted, emphasis added). 

In my view, this passage of the Decision is not too clear and the analysis comes to conflate two issues: first, the absence of constraints on decisions of organisation of public health and social security systems and, second, the applicability of EU/EEA procurement rules to specific modes of organisation derived from those decisions and, in particular, to modes of organisation involving the buy-in of services from the market (even if the market is limited to that of non-profit organisations). From this perspective, the boundaries of the constitutional limits to the self-organisation (which under EU law are controlled by Art 14, Protocol No (26) and Art 345 TFEU) seem to be slightly blurred, and thus the benefit that could have been derived from more explicit reasoning considering the classing of the activity and the existence or not of constitutional-level protection in Norway.

Similarly, the application of the requirement of contribution to budgetary efficiency is limited to general considerations leading to the conclusion that there was no 'indication that tender procedures carried out under this legal regime might not be driven by budgetary efficiency concerns' (ESA, 154/17/COL, para 4.1.4, page 10), and the analysis of the boundaries of the concept of 'ideal organisation' is equally loose where ESA relies on the following:

... the concept of “ideelle organisasjon” ... is generally understood by the Norwegian Government and contracting authorities as synonymous for “non-profit organisation in pursuance of a social aim”. Due to the absence of any legal definition in national legislation and/or any national registry of recognised entities, the classification as non-profit must be carried out ad hoc by every contracting authority for every award procedure. In order to ensure a consistent administrative practice, the classification is based on guidelines developed by the Norwegian Government, which specify the criteria that must be met. According to these guidelines, “either the business pursued shall not have any profit objective or the profit gained must be used exclusively to operate humanist and social services in the interest of the general public or that of particular groups”. In addition, “the entire organisation, without any economic incentive, must work to alleviate social needs of the community or specific vulnerable groups”. Both the entity’s organisational structure and any tax privileges are taken into account as relevant factors in the overall assessment. According to the information provided, contracting authorities have nonetheless established a practice with regard to which providers are considered to be non-profit. As a result, unless their status changes, no documentation will be required from them in order to prove their status a non-profit organisation (ESA, 154/17/COL, para 4.1.4, pages 9-10, footnotes omitted, emphasis added).

On the whole, in my view, the analysis is rather lenient. This follows the same normative direction as the Spezzino and CASTA Judgments of the Court of Justice, but it may become too lenient under the revised regime of Directive 2014/24/EU (see below). Interestingly, ESA saved this possibility by explicitly indicating that 'given the limited scope of the Authority’s assessment, this preliminary conclusion does not extend to the question of a possible compatibility of currently applicable Norwegian law with Article 77 of Directive 2014/24' (ESA, 154/17/COL, para 4.1.5).

Direct award of contracts involving the exercise of official authority

Concerning the second Norwegian rule under examination--ie the possibility to directly award contracts involving the exercise of official authority--ESA explained that Section 1-3(2) lit. k of the Norwegian Regulation 'constitutes a legal basis allowing contracting authorities to derogate from the general national rules on procurement, where the provision of public services in the health and social sector requires the exercise of official authority. In accordance with the national policy referred to above, in support of an increased involvement of voluntary organisations, this legal provision is applied as a legal basis for excluding economic operators other than non-profit organisations from tender procedures if contracting authorities wish so' (ESA, 154/17/COL, para 4.2.1). Therefore, the crucial aspect that required analysis concerned the test applicable to determine whether the provision of certain types of health and social services require the exercise of official authority. In that regard, ESA established the relevant test as follows

The Court of Justice has interpreted these provisions on several occasions, shedding light on the requirements their application is subject to. It has ruled that, as derogations from the fundamental rules of freedom of establishment and freedom to provide services, they must be interpreted in a manner which limits their scope to what is strictly necessary in order to safeguard the interests which they allow the EEA States to protect. Furthermore, the Court of Justice has ruled that derogations provided for under those articles must be restricted to activities which, in themselves, are directly and specifically connected with the exercise of official authority. Such a connection requires a sufficiently qualified exercise of prerogatives outside the general law, privileges of official power or powers of coercion. This applies, in particular, to activities entailing the exercise of powers of constraint. Accordingly, the exceptions in question do not extend to activities that are merely auxiliary or preparatory to the exercise of official authority, or to certain activities whose exercise, although involving contacts, even regular and organic, with the administrative or judicial authorities, or indeed cooperation, even compulsory, in their functioning, leaves their discretionary and decision-making powers intact, or to certain activities which do not involve the exercise of decision-making powers, powers of constraint or powers of coercion (ESA, 154/17/COL, para 4.2.2, pages 12-13, footnotes omitted, emphasis added).

The test seems unobjectionable and, in my view, it reflects adequately the case law of the Court of Justice. However, in the assessment of the application of the test to the analysis of the case at hand, it is necessary to bear in mind that ESA was analysing tenders for the operation of child welfare institutions (ESA, 154/17/COL, para 4.2.3), which will make the criterion of 'exercise of powers of constraint' particularly important, not least because 'these services have as their objective the wellbeing of minors, who, due to the special protection they require, are placed under the care and the surveillance of the State. The conditions for their – voluntary or compulsory – internment in the institutions in question are regulated in detail in national legislation. The same applies to the conditions for the adoption of a number of measures, aimed at ensuring the fulfilment of the tasks, such as body searches, search of rooms and personal belongings, confiscation and destruction of dangerous objects and drugs, control of mail as well as the recovery of minors who have escaped from the institutions' (ibid). 

In that regard, ESA reached the conclusion that, given the impact of the decisions adopted by the staff of the operators of child welfare institutions on the fundamental rights of the children interned there, 

 it is evident ... that child welfare institutions in Norway exercise coercive powers within the meaning of Articles 32 EEA and 39 EEA, as interpreted in the case-law of the Court of Justice, when adopting the said measures on minors in the accomplishment of the tasks assigned. This occurs in an official function, as it is expressly authorised by the national legislator on the basis of a specific legal base in domestic law and does not require further involvement and/or authorisation of State bodies typically entrusted with the exercise of official authority, in particular the use of force. Furthermore, the use of coercive measures occurs in fulfilment of tasks concerning essential interests of society. The consequence of this conclusion is that activities requiring the use of these coercive measures are not covered by the fundamental rules of the right of establishment and the freedom to provide services. As a result, the EEA rules on public procurement do not apply to this specific area of social and health services. From this point of view, these rules do not preclude a national provision such as Section 1-3(2) lit. k of the Norwegian Regulation, which allows the exclusion of economic operators other than non-profit organisations from tender procedures if contracting authorities wish so (ESA, 154/17/COL, para 4.2.3, page 11, emphasis added).

However, ESA is also clear in stressing the fact that, in the context of contracts for the operation of these institutions, the exercise of official authority will only concern some activities, but not others. In that regard, the decision is clear in stressing that

The obligation to subject exceptions to the fundamental freedoms to a narrow interpretation, thus limiting them to activities connected directly and specifically with the exercise of official authority in order to ensure the functioning of the internal market, makes it nonetheless necessary to distinguish them from other activities possibly falling within the definition of “works” and/or “services” within the meaning of Article 1 of Directive 2004/18. Activities such as the construction of infrastructure needed for the operation of child welfare institutions and/or the provision of catering, laundry and transport services do not appear ... to be connected directly and specifically with the exercise of official authority, and could be equally performed by economic operators specialised in the respective area. Performance of these tasks would merely require supervision by the institution’s management bodies, but not necessarily the adoption of measures falling under the State’s prerogatives. Consequently, in order not to deprive the rules on the right of establishment and the freedom to provide services, Directive 2004/18 intends to implement, of all practical effectiveness, it is upon the contracting authority to carry out a case-by-case assessment of the applicability of Section 1-3(2) lit. k of the Norwegian Regulation to every public contract to be tendered out, taking into account the purpose of Articles 32 EEA and 39 EEA, as interpreted in the case-law referred to above. The contracting authority must thereby assess whether other merely ancillary activities, not strictly requiring the exercise of official authority in order to safeguard legitimate State interests, would be eligible for being subject to a separate tender procedure foreseeing the participation of both non-profit organisations and other economic operators alike. In its assessment, the contracting authority must take due account of the objective underlying the EEA rules on public procurement, consisting in ensuring the development of effective competition in the field of public contracts, while the principles of transparency, non-discrimination and equal treatment are upheld (ESA, 154/17/COL, para 4.2.5, page 17, footnotes omitted, emphasis added).

In my view, the general criterion is adequate and the need to limit the exception based on the exercise of official authority is correctly stated. Nonetheless, the ESA decision could have indicated some criteria as to how to carry out such assessment of severability of activities and, in particular, of the proportionality requirements applicable to such assessment. In my view, it will be difficult for a contracting authority to identify the extent to which it should insist on the tender of separate contracts for works or services for ancillary activities when it is choosing to award a contract for the operation of facilities providing health or social services. Functionally, the selection of the operator comes to avoid the need for the contracting authority to directly manage those facilities, which seems rather incompatible with the on-going obligation that the authority would retain if it were to impose procurement obligations on the operator of those facilities in relation to non-core or ancillary activities. Equally, it is not clear the extent to which this approach is compatible with the rules on the mandatory tendering of subsidised contracts (in particular where the 'construction of infrastructure needed for the operation of' those facilities is concerned), ex Art 8 Dir 2004/18/EC and, now, Art 13 Dir 2014/24/EU--which ESA could have considered explicitly in its decision.

In any case, it seems that this could soon be subjected to a re-examination, given that ESA reserved 'itself the right to investigate possible breaches derived from an application of that legal basis to contracts covering activities not linked to the exercise of official authority, such as those referred above, including, but not limited to, contracts expected to be awarded in tender procedures concerning the construction and operation of nursing homes' (which seems to form part of an on-going dispute; ESA, 154/17/COL, para 4.2.6, page 17).

critical considerations, in particular concerning Art 77 Dir 2014/24/EU

In my view, the decision of ESA in this case indicates that--even from a normative position of minimum intervention and creation of maximum policy space for EEA (and EU) Member States, such as that derived from the Spezzino/CASTA case law and from the recognition that the provision of health and social services (and any 'services to the person') can have an impact on the fundamental rights of the beneficiaries of those services, which should be conceptualised as the exercise of official authority (in particular to subject their control to the guarantees of the ECHR and the Charter of Fundamental Rights)--there are important unresolved issues where Member States decide to outsource the operation of facilities for the provision of those services.

Firstly, the creation of preferential treatment is now to be governed by the specific light-touch regime of Art 77 Dir 2014/24/EU, which creates specific requirements for the operators that can benefit from the reservation of public contracts for the provision of social and special services. Each Member State will need to adopt policies that are both in compliance with their constitutional structure and tradition and their broader social policies, and with the specific requirements in the Directive. From that perspective, it seems no longer acceptable for Member States not to have clear rules on which entities fall within the remit of Art 77 Dir 2014/24/EU and any such assessments of compatibility will require effective monitoring by the relevant authorities (ie either each contracting authority, or some central authority or body in each Member State). In addition, and implicitly, there has to be a mechanism to ensure the mutual recognition of entities covered by Art 77 Dir 2014/24/EU in other EU/EEA jurisdictions. In the specific case, ESA did not need to assess this issue due to the inapplicability of Dir 201424/EU, but it is worth stressing that, as part of its assessment, it highlighted the fact that 'economic operators from other EEA States are welcome to submit tenders in the area of health and social services provided that they are registered as non-profit organisations in their respective States of origin' (ESA, 154/17/COL, para 4.1.4, page 9). However, this possibility will have to remain effective, and that would not necessarily be the case if contracting authorities were allowed to act in certain ways (eg with insufficient transparency, or relying on pre-approved (or informal) lists of potential non-profit providers--in particular if those included in the lists or informal arrangements were never audited to ensure continued compliance with the applicable requirements).

Secondly, and probably with more practical complications, it seems difficult to establish bright-line criteria to determine the boundaries of the material scope of the exemption from competitive tendering (either due to a reservation of contract under Art 77 Dir 2014/24/EU or, in the context of EEA law, due to the exercise of official authority--which may now become a testable argument under EU law to seek exemptions beyond Art 77 Dir 2014/24/EU). In particular where the contract is not solely for the provision of the 'core' health or social services (which will rarely be), but rather for the operation of facilities where those services are provided--which might be the most common way of commissioning those services. In that regard, it seems that there can be an incentive for contracting authorities to opt for the outsourcing of the management of health or social services facilities where the contracting authority can enter into a single contract and thus detach itself from the day to day operation thereof. In that context, if contracting authorities need to engage in a detailed analysis of the services that can or cannot be exempted (and those that, consequently, need to be tendered separately and with full subjection to the procurement rules), possibly with a view of running several procurement processes and, eventually micro-managing the contracting of ancillary services (with the ensuing integration and coordination risks, for the split of contracts would create residual risks for the contracting authority), the incentive for the outsourcing can largely be lost.

On the whole, then, it seems that additional clear guidance is needed on the scope of Art 77 of Dir 2014/24/EU and, more generally, on the extent to which the light-touch regime foreseen in Arts 74-77 thereof is subject to limitations in cases of outsourcing of entire facilities. In that regard, it would seem desirable for the European Commission to adopt a more proactive approach to the publication of interpretive guidance of the 2014 Public Procurement Package beyond the meagre fact sheets currently available.

CJEU decision on EIB-funded procurement sheds some light on interpretation of Arts 9 & 17 Dir 2014/24/EU (C-408/16)

In its Judgment of 6 December 2017 in Compania Naţională de Administrare a Infrastructurii Rutiere, C-408/16, EU:C:2017:940, the Court of Justice (ECJ) has decided a case concerning procurement potentially covered by the rules of an international financing institution (in particular, the European Investment Bank - EIB). In the case, which is somehow complicated by transitory arrangements linked to Romania's accession to the EU, the ECJ has advanced some relevant considerations on the interpretation of the now repealed Art 15(c) of Directive 2004/18/EC, which foresaw an exclusion for contracts tendered 'pursuant to the particular procedure of an international organisation'. In my view, those considerations will be relevant for the interpretation of the revised rules in Articles 9(2) and 17(2) of Directive 2014/24/EU, which now extend the exclusion to contracts tendered 'in accordance with procurement rules provided by an international organisation or international financing institution, where the [contracts] concerned are fully financed by that organisation or institution'.

The CNADNR case

In 2003, the EIB and Romania entered into a finance agreement for the construction of the Arad-Timişoara-Lugoj motorway, which was to be managed by Compania Naţională de Autostrăzi şi Drumuri Naţionale of România SA (‘CNADNR’, now renamed as Compania Naţională de Administrare a Infrastructurii Rutiere). As part of a linked 2004 loan contract, it was established that ‘the CNADNR shall comply with the EIB’s procedures for the procurement of goods, the guarantee of services and the undertaking of works necessary for the project’, namely ‘through international calls for tender open to candidates from all countries’.

At that time, this commitment derived from Chapter 3 of the 2004 EIB Guide to Procurement (since replaced by a 2011 version), which controlled procurement linked to its operations outside the EU. However, the implementation of the project would eventually span beyond the date of Romania's accession to the EU on 1 January 2007, which triggered some issues of transitional procurement arrangements that require some consideration.

The Romanian Adhesion Protocol established that public procurement procedures linked to pre-accession financial commitments but initiated after accession shall be carried out in accordance with the relevant Union provisions (Art 27(2)), and that all EU secondary legislation shall be given effectiveness in Romania from the date of accession, save if a different date was agreed for specific instruments (which did not include the then effective Dir 2004/18/EC; Art 53(1)). In short, this meant that all new procurement procedures starting on or after 1 January 2017 were subjected to the rules of Dir 2004/18/EC.

The same result would derive from the EIB Guide, according to which the rules in its Chapter 3 would apply 'until the deadline when [borrowing countries] were committed to applying the EU Directives on procurement as agreed during their negotiations with the Commission to the extent that they have transposed these Directives into their national legislation at that moment' and, from that moment, Chapter 2 on operations within the EU would apply to them--thus requiring, by and large, compliance with specific procedures as regulated by the EU Directives.

Romania generally subjected all of its post-accession procurement to its domestic transposition of Directive 2004/18/EC by means of the Government Emergency Order No 34/2006 (OUG No 34/2006). However, Government Emergency Order No 72/2007 (OUG No 72/2007) created a specific exception for the motorway project, according to which '[b]y way of derogation from the provisions of [OUG No 34/2006] … for the purposes of the procedure for the award of public works contracts … relating to the Arad-Timișoara-Lugoj motorway …, the [CNADNR] shall apply the provisions of the [EIB Guide], Chapter 3' (C-408/16, para 17). Somehow, the need for this exception seemed to derive from the fact that a contract had been awarded in 2006 for the consulting services necessary for the preparation of the procurement file for the public works contracts (see para 20), which probably established requirements concerned with tendering under Chapter 3 of the EIB Guide, rather than under the rules of Directive 2004/18/EC.

The exception created for the tendering of the contracts funded by the EIB was eventually caught by an audit linked to the granting of retroactive EU funding for the project. The exception from compliance with the tender rules in Dir 2004/18/EC was considered an irregularity, which triggered a financial correction of 10% of the value of the contract. The audit also noted that non-compliance with the rules of Dir 2004/18/EC was not solely formal, but that 'three pre-selection criteria laid down by [the EIB-compliant tender documents] were more restrictive than those provided for by Directive 2004/18, namely, firstly, a criterion relating to the candidate’s personal situation and in particular, the background of non-performance of contracts, which is contrary to Articles 44 and 45 of Directive 2004/18, and secondly, a criterion relating to the applicant’s financial situation which is contrary to Article 47 of Directive 2004/18 and, thirdly, a criterion relating to the applicant’s experience which does not comply with Article 48 of that directive' (ibid, para 25). 

Ultimately, in view of the impossibility of reconciling the requirements of EIB Chapter 3 with those of Dir 2004/18/EC, a legal dispute arose as to whether this discrepancy could be saved by the exclusion from coverage of Dir 2004/18/EC of contracts 'governed by different procedural rules and awarded ... pursuant to the particular procedure of an international organisation' (Art 15(c))--in that case, the EIB's.

As could be expected, the ECJ has found that the specific exception created by OUG No 72/2007 contravened EU law. In clear terms, it has reiterated that accession to the EU requires compliance with EU procurement rules, to the effect that this 'precludes a Member State’s legislation that provides, for the purposes of a public procurement procedure initiated after the date of its accession to the European Union, in order to complete a project started on the basis of a finance agreement concluded with the EIB prior to that accession, the application of the specific criteria laid down by the provisions of the EIB Guide which do not comply with the provisions of that directive' (para 52).

The ECJ's decision, even if it carries significant financial implications, does not raise any legal concerns--in particular in view of the fact that the transition to full compliance with the EU Directive derived both from the Adhesion Protocol (para 48) and the transitory rules in the EIB Guide (para 50; particularly in view of the fact that Romania transposed the relevant EU Directive ahead of its accession, by means of OUG No 34/2006). However, the way the ECJ has approached the analysis can shed some light on the likely interpretation of the revised rules in Dir 2014/24/EU.

The ECJ's reasoning concerning procurement rules of international organisations under Dir 2004/18/EC and relevance for Dir 2014/24/EU

In its assessment of whether Art 15(c) Dir 2004/18/EC would have subjected the tender at issue to the EIB procurement rules to the exclusion of those in the domestic transposition of the same directive, the ECJ established that

Article 15(c) of Directive 2004/18 states that that directive does not apply to public contracts governed by particular procedural rules of an international organisation ... that article, read in conjunction with recital 22 of Directive 2004/18, lists three cases of public contracts to which that directive does not apply to the extent that those public contracts are governed by different procedural rules. Moreover, it is clear that that article forms part of Section 3, entitled ‘Excluded contracts’, of Chapter II, entitled ‘Scope’, of Title II, itself entitled ‘Rules on public contracts’ of Directive 2004/18. It thus follows both from the wording of Article 15(c) of Directive 2004/18 and from the context in which it appears, that that article constitutes an exception to the material scope of that directive. Such an exception must necessarily be interpreted strictly ... In order to assess whether a public procurement procedure ... may fall within the exception provided for in Article 15(c) of Directive 2004/18, it is necessary to determine whether such a procedure can be considered to be governed by particular procedural rules of an international organisation (C-408/16, paras 43-46, references omitted and emphases added).

In my view, there are two main potential implications of this passage. The first one concerns the scope of the concept of 'international organisation' under Art 15(c) Dir 2004/18/EC, and how it will impact an interpretation of the equivalent concept in Arts 9 and 17 of Dir 2014/24/EU. Even if the ECJ made it clear that the construction of the exception in Art 15(c) Dir 2004/18/EC had to be narrow, the Court did not pay much attention to the legal nature of the EIB and did not consider whether it could be classified as an 'international organisation' stricto sensu. This could be surprising, as the EIB has a status under EU law that could be difficult to subsume within certain (narrow) interpretations of the concept of 'international organisation'.

Indeed, under Arts 308 and 309 TFEU and Protocol (No 5) on the statute of the European Investment Bank, the EIB has a sui generis status that derives from EU primary law [see both the Judgment in Commission v EIB, C-15/00, EU:C:2003:396, and the Opinon of AG Jacobs in that case (EU:C:2002:557), as well as the European Parliament's 2003 working paper on the EIB's Institutional Status]. From this perspective, assigning it the nature of 'international organisation' may have required some additional scrutiny under the strict interpretive approach outlined by the ECJ. The absence of such additional scrutiny could seem to point towards a certain leniency or flexibility in the scoping of the concept of 'international organisation'. However, this may be misleading if we take into account that, in the CNADNR case, the non-compliant rules of Chapter 3 of the EIB guide would not have governed the contract anyway--which may have conditioned the ECJ's approach throughout the case. 

In the future, and in the specific case of the EIB and other multilateral lending institutions, this may not be too relevant in the context of Arts 9 and 17 of Directive 2014/24/EU because they make explicit reference to procurement subject to the rules of an 'international organisation or international financing institution' (emphasis added). However, given the possibility of disputes as to whether specific entities or institutions can be considered 'international organisations' stricto sensu, and in the absence of an obligation to communicate a list of those organisations to the Commission (cfr Art 9(1) in fine Dir 2014/24/EU for exceptions based on legal instruments creating international law obligations), understanding whether the ECJ approach is restrictive or not will be important. In that regard, in my view and despite the fact that the analysis in the CNADNR could have been clearer, the exception in Arts 9(2) and 17(2) Dir 2014/24/EU will have to be constructed on the basis of a strict interpretation of the concept of 'international organisation'.

The second potential implication of the passage cited above--and in particular of the ECJ's consideration that '[i]n order to assess whether a public procurement procedure ... may fall within the exception ..., it is necessary to determine whether such a procedure can be considered to be governed by particular procedural rules of an international organisation' (C-408/16, para 46)--is that not EU law, but rather the rules of the international organisation providing putative coverage will determine the applicability of the exception. Or, in other words, it seems that the national review bodies and courts, and ultimately the ECJ, will have to engage in assessments of whether the procurement rules of the given international organisation or international financing institution cover or not a specific tender, which will potentially require them to engage in the interpretation of those 'foreign' rules. This triggers complicated issues linked to the ability of the ECJ (and other administrative and judicial bodies) to engage in the interpretation of those rules, which is something I discuss in some detail in a recent paper [see A Sanchez-Graells, 'Territorial Extension and Case Law of the Court of Justice: Good Administration and Access to Justice in Procurement as a Case Study' (2017) SSRN working paper]. This will trigger some additional interpretive difficulties surrounding the scope of the exclusion in Arts 9 and 17 Dir 2014/24/EU and, once more, my view is that the ECJ will tend to take a narrow approach.

Could the Finn Frogne case law get any weirder? The strange case of the partial termination of a parking concession (Conseil d’État, N°s 409728, 409799)

© Erwin Wurm

© Erwin Wurm

In its Decision of 15 November 2017 in the case of the Commune d'Aix-en-Provence and the Societe d'économie mixte d'équipement du Pays d'Aix (SEMEPA) (N°s 409728, 409799, the ‘SEMEPA Decision’), the Conseil d’État applied the new French rules on the modification of concession contracts that transpose Art 43 of the Concessions Directive (Dir 2014/23/EU). In the SEMEPA Decision, the Conseil d’État followed an approach that resembles very closely that of the Court of Justice of the European Union in its Judgment 7 September 2016 in Finn Frogne, C-549/14, EU:C:2016:634 (see here, which the Conseil d’État does however not mention), and decided that the partial termination of a concession contract for the exploitation of street and underground parking sites in Aix-en-Provence in a way that changed the overall nature of the contract was illegal. The SEMEPA Decision leaves an important factual element unexplored—ie the potential existence of an in-house relationship between the contracting authority and the concessionaire—which raises some questions as to the scope and limits of the applicability of the modification and termination rules derived from the 2014 Public Procurement Package to in-house providing structures.

Regardless of that, in itself, the Decision of the Conseil d’État is remarkable (and puzzling) for the extreme brevity of the justification given for the conclusion that the partial termination of the concession contract was illegal. In my view, the only plausible explanation for this extremely brief justification by the Conseil d’État is the even weirder background of the dispute, which involves a rebellious rejection by the municipality of Aix-en-Provence of a legal reform that transfers the competence for the management of (certain types of) parking sites to a higher level of regional administration (the ‘métropole d’Aix-Marseille-Provence’). In this post, I briefly address these two aspects of a truly interesting case that Prof François Lichère brought to my attention—for which I am grateful.

The illegality of the partial termination of the concession contract

In the case at hand, the municipality of Aix-en-Provence had entered into a series of concession contracts with SEMEPA for the exploitation of street and underground parking sites in that city—the oldest of which dated back from 29 December 1986. SEMEPA is a mixed economy company in which the municipality holds a controlling stake and appoints the majority of the board of directors (ie a body governed by public law and, prima facie, an in-house entity). On 9 June 2016, the municipality decided to partially terminate one of the concession agreements, and this decision was brought under judicial review. On this specific point, the Decision of the Conseil d’État establishes that

Considering, in the first place, that under the terms of Article 55 of the Ordinance of 29 January 2016 on concession contracts, applicable by virtue of Article 78 thereof to the modification of concession contracts in force prior to the entry into force of the Ordinance: ‘the conditions in which a concession contract can be modified during its term without a new concession award procedure are established by implementing regulation. Such modifications cannot change the overall nature of the concession contract. / Where the execution of the concession contract cannot be carried out without a modification contrary to the terms of this Ordinance, the concession contract can be terminated by the conceding authority’; under the terms of Article of the Decree of 1 February 2016 which sets implementing rules for the application of this Ordinance: ‘A concession contract can be modified in the following cases: (…) 5 Where the modifications, of whichever value, are not substantial. / A modification is considered substantial where it changes the global nature of the concession contract. In any case, a modification is substantial where any of the following conditions is met: / a) it introduces conditions which, had they been part of the initial concession award procedure, would have attracted additional participants in the concession award procedure, or allowed for the admission of candidates or tenderers other than those initially admitted, or for the acceptance of a tender other than that originally accepted. b) it changes the economic balance of the concession in favour of the concessionaire in a manner which was not provided for in the initial concession (…);

Considering that it is proven that the agreement concluded on 29 December 1986 between the municipality of Aix-en-Provence and SEMEPA, which had as its object the concession of the management of a public service of off-street parking and a public service of on-street parking, constituted, in fact and notably from the characteristics of its financial equilibrium, a single agreement; that, even if the municipality of Aix-en-Provence and SEMEPA declared to have proceeded to the ‘partial termination’ of that agreement, the agreement of 9 June 2016 had as its object a modification of the initial concession contract; that this modification needs to be view, in regard to its extension [ie the fact that it covered a large number of the parking sites initially covered], as changing the global nature of the initial contract; that it [the modification] introduced, in addition, conditions which, had they been part of the initial concession award procedure, could have attracted additional participants, or allowed for the admission of candidates or tenderers other than those initially admitted, or for the acceptance of a tender other than that originally accepted; that, consequently, [the challenge] based on the fact that this modification of the agreement of 29 December 1986 was adopted in breach of the rules for the modification of concession contracts is such as to create serious doubts as to its validity (paras 19-20, own translation from French).

As mentioned above, the Decision of the Conseil d’État in SEMEPA seems aligned with the Finn Frogne Judgment of the Court of Justice in the sense that it considers that a material reduction of the scope of the concession contract is able to change its nature and thus determine the illegality of the modification. However, in Finn Frogne the change in the nature of the contract derived (at least partially) from the fact that the partial termination resulted in a supply (and installation?) contract, rather than a concession. This is not the case in SEMEPA and it is hard to disentangle the two reasons given by the Conseil d’État in the same para (20): that the material reduction was such as to alter the global nature of the contract AND one that, had it been part of the initial award procedure, would have created different competition conditions and possibly led to a different award decision. From that perspective, the SEMEPA Decision does not make much to contribute to a proper understanding of the several grounds prohibiting different types of illegal (concession) contract modifications.

Additionally, given that SEMEPA is an in-house entity (or at least that is what seems to derive from the discussion in the next paragraph of the Decision, see below), the Conseil d’État missed an opportunity to clarify whether the applicability of the rules on contract modification in this specific case result solely from an (expansive) interpretation of the domestic law, or rather derive from the rules in the Concession Directive and/or general principles of EU public procurement law—which is, however, a tricky issue best saved for another time.

Procurement law to the rescue? Background to the partial termination of the concession

Going back to the SEMEPA Decision, and as also mentioned above, the only plausible explanation I can find for the extremely shallow and formalistic analysis and the brief justification given by the Conseil d’État for the finding of illegal modification is the even weirder background of the dispute, which is described in the following terms:

Considering, in the second place, that in a communication of 20 June 2016, published on the [Aix-en-Provence] municipality’s website, it indicated that the City Council had sold eight ‘off-street’ parking sites to SEMEPA, which had until then been exploiting them in the framework of a public service delegation, that this sale would allow the municipality to ‘avoid the obligation of gratuitously transmitting its parking sites to the [métropole d’Aix-Marseille-Provence], which the law required’, that ‘such parking sites constitute an estate, which the municipality has created, that its inhabitants have paid for, et [which] it would have been abnormall to have to donate them [to the métropole d’Aix-Marseille-Provence]’, and that ‘to those who doubt that this sale contributes to take the parking policy from the elected, to transfer it to the non-elected, without any guarantee that such policy will be preserved, it will be put that the exact opposite will happen: SEMEPA is a mixed economy company managed by a board of directors in which the elected from the municipality are the majority. The tariffs will continue to be controlled by the municipality; this will form part of the contract between both partners. In addition, SEMEPA’s annual activity report is presented annually to the City Council’; … proceeding to the … modification of the [concession] contract of 29 December 1986, and to the transfer of the off-street parking sites to SEMEPA, the Municipality and SEMEPA had as the sole goal to prevent the exercise, by the métropole d’Aix-Marseille-Provence of the power to regulate parking sites which it is given with effect from 1 January 2018the [challenge] based on the fact that the [modification] of 9 June 2016 had an illicit object and had to be considered an ‘abuse of power’ is such as to create serious doubts as to its validity  (paras 21, own translation from French).

Now, that explains everything! Except the need to use public procurement law at all in a situation of such clear fraudulent use of contractual mechanisms to avoid mandatory public law duties …

 

Friday Plug: Inaugural call for papers of the Nordic Journal of European Law

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The editors of the newly established Nordic Journal of European Law have asked me to bring their inaugural call for papers to your attention. So here it is:

The Nordic Journal of European Law (NJEL) is proud to announce its first call for papers for the 2018 spring term. The NJEL is a Nordic-based peer-reviewed journal of European law. The journal is a PhD-run initiative from Lund University, in cooperation with other Nordic universities with the aim to promote the knowledge and research of European law in the Nordic countries. The NJEL will be published through open-access on a bi-annual basis.

The NJEL is aimed at publishing legal or inter-disciplinary works related to issues of European law in its widest sense. We welcome submissions in the form of articles, case notes and book reviews. Submissions are open to both senior and junior researchers as well as practitioners. We accept submissions from practitioners and researchers who are not based in the Nordic countries. 

Please send your submission to NJEL@jur.lu.se  by the 31st of March 2018. For formal requirements please see the NJEL style guidelines available at: http://www.law.lu.se/#!Nordicjournalofeuropeanlaw.

Xavier Groussot, Senior Editor
Max Hjärtström, Editor in Chief
Baldwin Kristjánsson, Student Editor 

Some additional thoughts on the interaction between procurement remedies and the principle of State liability—re Fosen-Linjen (E-16/16) and Nuclear Decommissioning Authority ([2017] UKSC 34)

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After I published some comments on the EFTA Court’s Judgment in Fosen-Linjen AS v AtB AS (E-16/16, see here) some three weeks ago, I have had some interesting exchanges and discussions with some academic colleagues (Dr K-M Halonen, Dr R Vornicu, Dr P Bogdanowicz, Prof R Caranta, Dr A Georgopoulos, Dr Herrera Anchustegui and Aris Christidis) and with policy-makers and practitioners (which mostly wish to remain anonymous). I am grateful to all of them for forcing me to think harder about some of the issues that derive from the Fosen-Linjen case and, in particular, for their repeated invitations to consider it by comparison to the Judgment of the UK Supreme Court in Nuclear Decommissioning Authority v EnergySolutions EU Ltd (now ATK Energy Ltd) [2017] UKSC 34 (the ‘NDA’ judgment; for my views on an interim decision at the start of the litigation, see here).

Indeed, comparing those cases is interesting, for the Fosen-Linjen and NDA judgments offer diametrically opposed views of the interaction between the use of damages as a procurement remedy and the principle of State liability for breach of EU law, in particular concerning the threshold for liability under the so-called second Francovich condition—ie whether liability arises from a ‘sufficiently serious breach’ of EU public procurement law, or from any (unqualified) infringement of the rules.

In this post, (1) I compare the approach to the procurement remedies-State liability interaction in both judgments, to then offer some brief reflections on (2) the implications of minimum harmonization of this subject-matter through the Remedies Directive (ie, Dir 89/665/EEC, as amended by Dir 2007/66/EC; see its consolidated version), (3) the possibility to reform the Remedies Directive so as to achieve maximum harmonization, and (4) the potential implications of a damages-based procurement enforcement strategy in the context of the emergence of EU tort law. This post is meant, more than anything, as an invitation for further discussion.

(1) Opposing approaches to the procurement remedies-State liability interaction

One of the contended issues in academic, and now also judicial, debate around public procurement remedies is the relationship between, on the one hand, the liability in damages derived from the Remedies Directive (art 2(1)(c), requiring a power for review bodies or courts to ‘award damages to persons harmed by an infringement’ of relevant EU public procurement rules) and, on the other, the liability derived from the general principle of State liability for breaches of EU law (following Francovich and Others, C‑6/90 and C‑9/90, EU:C:1991:428, and Brasserie du Pêcheur and Factortame, C‑46/93 and C‑48/93, EU:C:1996:79).

This is an issue that the Court of Justice of the European Union (ECJ) explicitly addressed in Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others, C-568/08, EU:C:2010:751 ('Spijker'), when it stated that Art 2(1)(c) of the Remedies Directive

gives concrete expression to the principle of State liability for loss and damage caused to individuals as a result of breaches of EU law for which the State can be held responsible …

… as regards state liability for damage caused to individuals by infringements of EU law for which the state may be held responsible, the individuals harmed have a right to redress where the rule of EU law which has been infringed is intended to confer rights on them, the breach of that rule is sufficiently serious, and there is a direct causal link between the breach and the loss or damage sustained by the individuals. In the absence of any provision of EU law in that area, it is for the internal legal order of each member state, once those conditions have been complied with, to determine the criteria on the basis of which the damage arising from an infringement of EU law on the award of public contracts must be determined and estimated, provided the principles of equivalence and effectiveness are complied with (Spijker, paras 87 and 92, emphases added).

However, maybe surprisingly, Spijker is not (yet) universally seen as having settled the issue of the interaction between the actions for damages under the Remedies Directive and the Francovich doctrine.

As mentioned above, the main point of contention rests on what could be seen as a lex specialis understanding of the interaction between the two regulatory frameworks (which could formally match a literal reading of para 87 of Spijker, but is more difficult to square with its para 92)—ie a view that the general condition for there to be a ‘sufficiently serious breach’ of EU law under Francovich is relaxed by the Remedies Directive by solely mentioning the need for an (unqualified) infringement as sufficient ground for a damages claim. This is specifically a point where the UK Supreme Court and the EFTA Court have taken opposing views in their recent judgments.

The UK Supreme Court's approach

Indeed, in its NDA Judgment (as per Lord Mance, with Lord Neuberger, Lady Hale, Lord Sumption and Lord Carnwath agreeing), the UK Supreme Court followed what I think is the correct reading of Spijker and established that

para 87 [of Spijker] proceeds by making clear that the liability of an awarding authority is to be assessed by reference to the Francovich conditions. Subject to these conditions being met, paras 88 to 90 go on to make clear that the criteria for damages are to be determined and estimated by national law, with the further caveat that the general principles of equivalence and effectiveness must also be met (para 91). Finally, para 92 summarises what has gone before, repeating the need to satisfy the Francovich conditions (NDA, per Lord Mance, at [23]).

More importantly, the UK Supreme Court considered that

… there is … very clear authority of the Court of Justice confirming that the liability of a contracting authority under the Remedies Directive for the breach of the [public procurement rules] is assimilated to that of the state or of a public body for which the state is responsible. It is in particular only required to exist where the minimum Francovich conditions are met, although it is open to States in their domestic law to introduce wider liability free of those conditions (NDA, per Lord Mance, at [25], emphasis added).

Therefore, the UK Supreme Court takes the clear view that the existence of grounds for an EU damages action based on the Remedies Directive requires the existence of a ‘sufficiently serious breach’ of EU public procurement law. At the same time, it takes no issue with the possibility for more generous domestic grounds for actions for damages (although it eventually decided that this was not the case in relation to the Public Contract Regulations 2006; see NDA, per Lord Mance at [37], with which I also agree).

The EFTA Court's approach

Conversely, in its Fosen-Linjen Judgment, and despite the fact that similar arguments on the interpretation of Spijker were made before it (in particular by the Norwegian Government), the EFTA Court considered that

Article 2(1)(c) of the Remedies Directive … precludes national legislation which makes the right to damages for an infringement of public procurement law by a contracting authority conditional on that infringement being culpable … The same must apply where there exists a general exclusion or a limitation of the remedy of damages to only specific cases. This would be the case, for example, if only breaches of a certain gravity would be considered sufficient to trigger the contracting authority’s liability, whereas minor breaches would allow the contracting authority to incur no liability

A requirement that only a breach of a certain gravity may give rise to damages could also run contrary to the objective of creating equal conditions for the remedies available in the context of public procurement. Depending on the circumstances, a breach of the same provision of EEA public procurement could lead to liability in one EEA State while not giving rise to damages in another EEA State. In such circumstances, economic operators would encounter substantial difficulties in assessing the potential liability of contracting authorities in different EEA States’ (Fosen-Linjen, paras 77 and 78, emphases added).

This led it to reach the view that

A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of the Remedies Directive, provided that the other conditions for the award of damages are met including, in particular, the existence of a causal link (Fosen-Linjen, para 82, emphasis added).

I already discussed (here) the reasons why I think the EFTA Court’s Judgment does not accord with the ECJ’s case law (notably in Spijker) and why I hope the ECJ will explicitly correct this situation. In the remainder of this post, I briefly discuss the themes of minimum and maximum harmonisation of procurement remedies that emerge from a comparison of the approaches adopted by the UK Supreme Court and by the EFTA Court.

(2) Minimum harmonization through the Remedies Directive

The UK Supreme Court’s approach is implicitly based on a conceptualisation of the Remedies Directive as a minimum harmonization instrument, which sets the basic elements of the (effective and equivalent) remedies that Member States must regulate for, in accordance with the peculiarities of their own domestic systems. I think that this characterisation of the Remedies Directive is uncontroversial (see eg the recent report by the European Commission on its implementation at Member State level, at 4). Following the logic of minimum harmonization, the UK Supreme Court clearly has no problem with the existence of two potential tiers of remedies: a lower or more basic EU tier (subject eg to a requirement of ‘sufficiently serious breach’), and a higher or more protective domestic tier (subject eg to ‘any infringement’), which may or may not exist depending on the policy orientation of each EU/EEA State.

This approach has both the advantage of being in accordance with the current state of the law as interpreted by the ECJ (as above), and of not imposing—as a matter of legal compliance, rather than policy preference—an absolute harmonisation of public procurement remedies (at least as the threshold of liability for damages is concerned).

However, this approach is not without some practical difficulties, as there is a thick mist of uncertainty concerning what is a sufficiently serious breach of procurement rules (but also of what rules in the EU directives are ‘intended to confer rights’ on the tenderers—ie the first Francovich condition, which has been so far largely untested), and the existing ECJ case law on the interpretation of substantive EU procurement rules would require significant reconceptualisation in order to provide clarity in this respect. The existence of the preliminary reference mechanism of Art 267 TFEU can alleviate this legal uncertainty (in the long term, and maybe starting soon with the pending decision in Rudigier, C-518/17), but not without creating a significant risk of collapse of the ECJ (or, at least, an even more significant growth in procurement-related preliminary references). From that perspective, the possibility to engage in maximum harmonization (as rather implicitly advocated by the EFTA Court) deserves some consideration.

(3) Maximum harmonization through a revised remedies directive?

In my view wrongly, the EFTA Court holds the implicit normative position that the Remedies Directive is an instrument of maximum harmonisation when it emphasises its ‘objective of creating equal conditions for the remedies available in the context of public procurement’ (see Fosen-Linjen, para 78 above, emphasis added). The EFTA Court derives this objective in an earlier passage, where it stresses that a 'fundamental objective of the Remedies Directive is to create the framework conditions under which tenderers can seek remedies in the context of public procurement procedures, in a way that is as uniform as possible for all undertakings active on the internal market. Thereby, as is also apparent from the third and fourth recitals to the Remedies Directive, equal conditions shall be secured (sic)' (Fosen-Linjen, para 66, emphasis added).

I think this is a clear judicial excess and I do not think the Remedies Directive can be considered an instrument of maximum harmonization (ie a tool that sets a ceiling, or even a common core of protections that must be uniformly provided in all EEA States) in the way the EFTA Court does. In my view, this is particularly clear from recital (6) of the Remedies Directive, according to which: ‘it is necessary to ensure that adequate procedures exist in all the Member States to permit the setting aside of decisions taken unlawfully and compensation of persons harmed by an infringement’ (emphasis added; note that adequate procedures are not necessarily homogeneous or identical procedures)--which the EFTA Court includes in its Judgment (para 3), but then largely ignores.

However, the EFTA Court does have a point when it stresses that the divergence of rules on (damages) remedies can distort the procurement field and, in particular, discourage cross-border participation—which could be alleviated by a reform of the Remedies Directive to create such maximum harmonization. Such revision and an explicit view on the elements of a uniform system of maximum harmonisation could bring a much needed clarification of the function and position of different types of remedies under its architecture—notably, it would clarify whether damages are a perfect substitute for other remedies (as the EFTA Court seems to believe) or an ancillary remedy [as I posit, maybe not in the clearest terms, in A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' in S Torricelli & F Folliot Lalliot (eds), Contrôles et contentieux des contrats publics (Bruylant, 2018)]. Maximum harmonisation could also provide an opportunity to consider the creation of safe harbours (at least of damages liability) for purely procedural errors, or in the context of certain general guidelines.

Nonetheless, despite potential advantages derived from a revision of the system to consider maximum harmonization, given the vast differences in the rules on damages claims across EU jurisdictions, it would be certainly difficult, if not outright impossible, to reach an agreement on the adequate level of protection and the relevant procedural mechanisms [for comparative discussion, see for example, the contributions to S Treumer & F Lichère (eds), Enforcement of the EU Public Procurement Rules (DJØF, 2011), and to D Fairgrieve & F Lichère (eds), Public Procurement Law. Damages as an Effective Remedy (Hart, 2011); see also H Schebesta, Damages in EU Public Procurement Law (Springer, 2016)].

Given these practical difficulties, I would not think the European Commission would be willing to engage in the exercise of designing such maximum harmonization, even if it decided to revise the Remedies Directive in the future (which, unfortunately, seems very unlikely at least for now). What then should not be acceptable is for such maximum harmonisation to be achieved or imposed through an excessively broad interpretation of the Remedies Directive as, in my view, the EFTA Court's Fosen-Linjen judgment does.

(4) Damages-based enforcement of procurement rules & EU tort law

As a last thought, I think it is worth stressing that, in addition to the practical difficulties derived from the current minimum harmonization of procurement remedies, and the not smaller difficulties in attempting a maximum harmonization, there are also structural tensions in the use of damages actions for the enforcement of EU public procurement rules. As recent research has clearly shown (see P Giliker (ed), Research Handbook on EU Tort Law (Elgar, 2017)), the use of damages actions (either based on Francovich liability, or sector-specific rules) for the enforcement of substantive EU law creates distortions in the domestic legal systems of the Member States. From that perspective, both the minimum and maximum harmonization approaches are problematic.

From the minimum harmonization perspective, because the existence of two tiers of protection can also result in two tiers of regulation and/or case law concerning the interpretation and application of the rules, which is bound to create legal uncertainty (eg if issues around the effectiveness of the remedy in the EU-tier create pressures on the interpretation of the domestic-tier remedies as a result of reverse pressures resulting from the principle of equivalence—ie the domestic remedy can hardly be both broader in scope and less effective in its consequences).

From the maximum harmonization perspective, because the creation of a one-size-fits-all remedy (such as that derived from the lower threshold for damages liability in the EFTA Court’s Judgment) can have rather drastic impacts for some Member States (in particular, those without a ‘higher-tier’ domestic protection), not only in the area of procurement law, but also in other areas of (economic) law which regulation and case law can be distorted as a result of the EU rules.

Thus, it seems adequate (and it may not be too late…) to reconsider a drastic change in the enforcement strategy to reduce the current over-reliance on tenderer-led administrative and/or judicial reviews, and start to move away from damages-fueled private enforcement of EU public procurement law and towards a more robust architecture of public enforcement with a restriction of damages compensation solely in exceptional cases—certainly where that compensation goes beyond direct participation costs.

Discussing the possibilities of doing so and the challenges it would imply far exceeds the possibilities of this post, but given that reaching a ‘happy median’ in the regulation of (private) damages actions in the context of procurement remedies in the EU would not be a minor feat, it may be time to (re)open that discussion.