A Scandinavian cautionary tale on lot division and distortions of competition for public contracts (E-3/16)

I have recently written a case comment on the EFTA Court's Judgment of 22 December 2016 in the case Ski Taxi SA, Follo Taxi SA og Ski Follo Taxidrift AS v Staten v/Konkurransetilsynet, E-03/16, which will soon be published in the Journal of European Competition Law & Practice.

The case concerned an instance of joint tendering by two competing taxi companies and it is interesting from a competition law perspective because the EFTA Court treated the joint bid as an anticompetitive price-fixing agreement by object (which limits the need to assess its effects in the market).

Thinking about the case from a public procurement perspective, I think that it also offers a cautionary tale about the restrictions of competition that can derive from decisions on the division of a single procurement into lots. This second perspective is the focus of this post.

The relevant facts of the case are as follows. In 2010, Oslo University Hospital (OUH) ran a public procurement tender for the award of framework agreements for the provision of patient transport services. The object of the tender was divided into nine geographical lots, which related to different catchment areas in the vicinity of the hospital.

For two of those lots, OUH only received a single tender, which was jointly submitted by two taxi companies that OUH would have expected to compete for the contracts. In view of this situation, which OUH interpreted as a privately-created restriction of competition for those lots (and thus insufficient to enable it to obtain value for money), it decided to cancel the procedure for those two lots. It also reported the joint bidders to the Norwegian Competition Authority,which eventually led to the imposition of fines for a price-fixing agreement (as discussed in the case comment).

OUH then launched a new tender procedure. In this occasion, OUH redesigned the geographical coverage and divided the object of the procurement in five areas instead of two. Interestingly, the taxi companies that submitted the joint bid in the previous tender also submitted a joint bid for all five lots, as did two competing taxi companies. OUH eventually entered framework agreements with all three companies, and assigned the joint tenderers second priority in all five areas.

On reflection (and hindsight, of course), it seems plausible that the limited competition in the first round of procurement derived not solely from the decision to submit a joint bid by two of the taxi companies active in those areas, but probably also from the decision to create too broad geographical catchment in the initial design of the lots. If the re-run of the procurement on the basis of smaller geographical lots attracted more competition (while still not changing the strategy of the tenderers that decided to bid jointly), it seems clear that the design of the object of the procurement is key in the prevention (or creation) of publicly-initiated restrictions of competition. From that perspective, more thought (and more market intelligence) is needed if the design of the procurement process is not to result in insufficient competition and thus limit the opportunities for the contracting authority to obtain value for money without distorting competitive trends in the market.

In the specific case, if the single bid for two of the lots had been submitted by a single taxi company (or if an anticompetitive agreement between the joint bidders consisted in an allocation of lots rather than a price-centered strategy), OUH may not have been able to spot the existence of any problems, but it may still have suffered the consequences of the limited competition for the contract that derived from the design of the procurement.

Overall, then, I think that this case offers a valid cautionary tale for contracting authorities regarding the need to make more extensive use of market intelligence and to approach lot division with a more competition-oriented mindset.

Procurement sandboxes, mock procurements and some other thoughts on trying to create space for ‘real world’ experimentation

One of the issues discussed at the most recent meeting of the European Commission Stakeholder Expert Group on Public Procurement (SEGPP) concerned the difficult balance between, on the one hand, promoting integrity in procurement, imposing strict record-keeping requirements (in line with Art 84(2) Dir 2014/24) and ensuring procedural soundness and, on the other hand, avoiding stifling discretion and killing procurement innovation by imposing an excessively rigid straitjacket on procurement professionals (ie how to ensure procurement probity without scaring procurement professionals into following a narrow well-trodden tick-boxing path). In the background, the worry was that procurement professionals that tried to do something 'differently' would be under the Damocles sword of litigation and liability--which would prevent most of them from exploring the boundaries of existing regulation, or possibly induce the most daring to do things under the radar and either not document or not share their practices.

In this context, I suggested that it could be interesting to follow the example of UK financial regulation of FinTech and RegTech innovation (of which I only know a bit thanks to the work of my Bristol colleagues Prof Stanton & Dr Powley, see here) and consider the possibility of creating sandbox experimentation programmes at national level (with the oversight and support of the European Commission). These would be pilot initiatives where, following an application for an exemption from standard enforcement procedures (that is, both infringement procedures under Art 258 TFEU and domestic remedies systems), contracting authorities wanting to explore innovative procedural approaches could seek to take ‘challenge worries’ out of the equation and concentrate on experimenting around innovative procurement processes or on trying out approaches that may not necessarily (easily) fit within the existing regulatory constraints.

Let’s say that the proposal was met with scepticism, but (hopefully) noted for future discussion and consideration.

On further reflection, I truly think that this would be an important contribution to the improvement of public procurement practice and, in the long term, an important input for more practice-oriented regulation. It would, first and foremost, avoid ‘innovative’ or ‘risk-seeking’ public authorities the pains of having to take the issue in their own hands and possibly engage in non-compliant (ie illegal) procedures for the sake of commercial or operative considerations. It would also allow participating undertakings to test the limits of the system and to contribute to a more business-friendly regulation of public procurement. Finally, it would provide a useful space for ‘natural’ experimentation and avoid procurement policy-making (and scholarship!) being always based on theoretical constructions, or on ex post facto conceptualisations/justifications. All in all, in such an applied field of public law/public administration/public management activity, the possibility of resorting to ‘real world’ experimentation would be most welcome and, if done well, potentially very productive.

Thus, I think it may be appropriate to spell out my proposal in some more detail and to invite you all, dear readers, to engage in the discussion—which I will do my best to bring to the attention of my colleagues at the SEGPP and the European Commission in future meetings.

A fuller sketch of my proposal for the creation of procurement sandbox programmes

In compliance with a voluntary general framework created by the European Commission, Member States would create their ‘procurement experimentation programmes’, which would include a choice of options amongst the creation of procurement sandboxes, opportunities (and funding) for mock procurement, and other similar alternatives aimed at facilitating procurement innovation (mind, not the procurement of innovation) by limiting the risk of legal challenge and liability due to an open and transparent engagement in ‘real world’ experimentation with ideas for an improvement of procurement practice—and, on the basis of the learning derived from that practice, of procurement regulation too. Ideally, there could be a prize for best procurement innovation and best contribution to innovation by a participating undertaking, as well as clear pathways for researchers to feed ideas and seek support for experimentation and/or use of the data resulting from the programme.

In order to be ‘allowed to play in the procurement sandbox’, contracting authorities would need to provide a clear rationale of the benefits they sought to obtain with the experiment, as well as a clear description of the specific issues with which they thought compliance would be impossible or tricky, their initial plan of how to deal with them, and a method for the assessment, reporting, and dissemination of insights. In view of such application, the European Commission and the competent domestic authority would decide whether to grant authorisation, as well as the scope of the experiment (in terms of value, duration, and conditions for the experiment). Approved ‘sandbox procurement’ would be advertised as such and participating tenderers would explicitly have to provide a waiver of their right to challenge the final decision on the basis of any of the ‘sandboxed’ issues.

For example, if the contracting authority wanted to experiment around modes of delivery of a specific service, then challenges on the basis of the evaluation of delivery services or the award of parallel contracts (or lots) to providers using different delivery alternatives would not be justiciable—while other issues, such as breaches of transparency requirements or the duty to provide reasons for the specific decisions would be open to challenge.

Similarly, if the contracting authority wanted to experiment around documentary requirements, or around the possibility of doing trial runs in parallel with different suppliers as part of an extended negotiation, or if the contracting authority wanted to trial some ‘sophisticated’ information management strategy during an electronic auction, etc – then, interested undertakings would need to ‘be game’ and accept that their participation in the procedure was primarily for the purpose of experimentation, but would not give them enforceable rights. Of course, in order to incentivise participation, sandbox procurement could (and should) be sweetened by the contracting authority through the payment of participation fees.

Sandbox procurement could also be (randomly) conducted in the context of mock procurement trials not leading to the award of an actual contract—provided the tenderers did not know whether there was a contract to be gained at the end of the process or not (in which case, they would receive a compensation for the participation costs)—similarly to the carrying out of medical experiments involving the use of placebo—although in this case the issue would not necessarily be aimed at creating a control group, but rather at allowing for procurement experimentation with limited financial implications (in particular if the experiment went badly).

Needless to say, sandbox procurement would be most appropriate in scenarios involving scalable procurement innovations, and coordination on an EU-wide basis could allow for the replication of experiments in the context of different legal and business settings, as well as a reduction (if not avoidance) of duplication of innovative efforts.

Upon conclusion of the experiment, the contracting authority and the participating tenderers would draw a report that would be publicly accessible and, progressively, contribute towards the creation of a database of procurement experiments. This would allow for cross-dissemination of innovative best practices, as well as provide good insights into procurement improvement, both at policy-making and legislative levels.

I am aware that this is a controversial, and definitely only half-baked proposal, but I think this is one worth discussing and exploring in the future. Please let me know your thoughts.

AG Wahl issues excessively formalistic Opinion on 'crumbling' reliance on third party capacities (C-223/16)

In his Opinion of 11 May 2017 in Casertana Costruzioni, C-223/16, EU:C:2017:365, AG Wahl has analysed the compatibility with the 2004 EU public procurement rules (Dir 2004/18/EC, Arts 47(2) and 48(3)) of national legislation providing for the automatic exclusion from the tendering procedure of a tenderer that relies on the capacities of another entity which, during that procedure, ceases to have the required capacities--without allowing for the the possibility of replacing that entity for another third party with the appropriate capacity. 

AG Wahl follows a functional approach close to that of AG Bobek in Esaprojekt, and submits that the rule on automatic exclusion is compatible with EU public procurement law. His reasoning deserves close scrutiny, in particular concerning the automaticity of the exclusion, which I am not convinced necessarily derives from his interpretation of previous case law.

At this stage, it is important to stress that AG Wahl follows the approach of the European Court of Justice (ECJ) in Partner Apelski Dariusz to the effect of excluding the possibility of resorting to Directive 2014/24/EU (Art 63) in search for interpretive criteria to be applied to the 2004 rules. In AG Wahl's view, "[i]n permitting economic operators to replace entities which are to be excluded or which do not meet the relevant criteria, Article 63(1) of Directive 2014/24 manifestly introduces new elements as compared to the rules laid down in Article 47(2) and Article 48(3) of Directive 2004/18" (para 36). Therefore, it seems clear that, whether the ECJ follows AG Wahl's Opinion or not in the Casertana Costruzioni Judgment, this will have limited practical effect because, under Directive 2014/24/EU, the automatic exclusion of a tenderer on the basis that its reliance on third party capacities has crumbled is no longer compatible with EU law.  

Referring back to procurement subjected to the 2004 rules, it is important to stress that AG Wahl conceptualises the core legal issue as concerning whether EU law requires Member States to permit the substitution of the entity that has lost the required capacity with one which possesses the required capacity. He rightly points out that this cannot be assessed in abstract terms, but rather needs to be linked to the relevant phase of the procurement procedure. In that regard, he distinguishes three situations, depending on whether the loss of capacity by the third party takes place (i) before the time limit for receipt of the bids expires, (ii) after the expiry of the time limit for receipt of the bids, but before the public authority makes the final award or (iii) after the award of the contract (see paras 18-25).

In AG Wahl's view, substitution of the third party cannot be allowed in situation (i) because in cases where the loss of capacity by the third party happens before the expiry of the time limit for the submission of bids, tenderers are free to withdraw the offer that is no longer compliant with the tender documentation and submit a new offer where they rely on the capacities of a different third party. AG Wahl does not express a view on situation (iii)--and, therefore, skips the opportunity to offer some clarification on the rules concerning the substitution of consortium members [for discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) 339-340].

Most of AG Wahl's analysis thus concerns situation (ii), where the loss of capacity by the third party takes place during the evaluation stage of the award procedure (strictly, after the deadline for the submission of offers--although I would submit that the same approach should be followed in borderline situations between (i) and (ii), where the bidder only discovers the loss of capacity by the third party after the deadline for submission of tenders, or without sufficient time to submit a fresh offer). He clearly submits that the ECJ should declare that no EU rule or general principle of law requires national authorities to permit tenderers, in that situation, to replace the third party that has lost the required capacity. I am not convinced that this is the case.

Concerning explicit rules, AG Wahl is clear in emphasising that "Directive 2004/18 does not contain any provision which expressly requires Member States to allow tenderers to replace economic entities on whose capabilities they have relied, when those entities are to be excluded or do not meet the relevant criteria. Nor is there any provision, in that directive, that could be read as implicitly containing such a rule or principle"; and, consequently, due to the minimum harmonisation nature of the procurement Directive, "which leaves some regulatory discretion to the Member States for what is not expressly regulated therein", "the possible replacement of third parties on which a tenderer has relied ... is an aspect which is, in principle, for the Member States to regulate" (paras 41 and 42).

He then moves on to assess the situation in relation with the general principles of EU public procurement law, which could constrain Member States' legislative discretion. In that regard, he is also clear in establishing that "allowing a tenderer to replace an entity on whose capabilities it sought to rely cannot be regarded either as a clarification of, or as the correction of clerical errors in, its tender. In point of fact, such a change appears to constitute an amendment of an important element of the tender which is, therefore, in principle not permissible" (para 47, emphasis added), which he considers contrary to the requirements of the principles of equal treatment and non-discrimination and the obligation of transparency (para 45).

AG Wahl refers to AG Bobek's Opinion in Esaprojekt to indicate that

such a change may lead to the contracting authority being required to carry out additional checks and could even affect the choice of candidates being invited to present an offer. Furthermore, [Bobek] noted that giving a tenderer a second chance to decide on which entities’ capabilities it wishes to rely, ‘could certainly procure it an advantage that would be at odds with the requirement of equal treatment’.
I agree. I would also add that upholding Casertana Costruzioni’s argument would essentially amount to creating a judge-made rule that grants the possibility of amending bids at a late stage, a possibility which, in the light of the applicable national and EU rules, was not foreseeable by the other tenderers. As mentioned, that would hardly be reconcilable with the principle of equal treatment. Nor would it be compatible with the obligation of transparency incumbent upon the public authorities. Indeed, neither the Italian nor the EU rules in force at the material time provided for such a possibility. Nor was a specific provision on this point included in the invitation to tender (paras 49-50, footnotes omitted). 

On their facts, I am not sure that the comparison with the Esaprojekt case is helpful. Esaprojekt concerns a situation (i) in terms of AG Wahl's classification, in the sense that the third entity in which the tenderer relied (in that case, a consortium of which the tenderer itself formed part) did not meet the requirements of the tender documentation when the offer was submitted. Thus, this situation can be distinguished from the analysis in Casertana Construzioni in relation with situation (ii) scenarios. In the latter case, therefore, the issue does not seem to be framed in the most useful terms because it can be argued that, having taken place after the submission of the offer (which AG assumes to be the case, see para 24), the loss of capacity of the third party was not foreseeable by the tenderer either, which deactivates part of the reasoning bases on potential discrimination.

Moreover, provided that the way in which the contracting authority allowed for the substitution between third entities on which capacity the tenderer relied did not confer a competitive advantage to the tenderer, there can be good reasons to allow it. For example, if the application of the qualitative selection criteria did not involve a ranking, but was rather on a pass / no pass basis, and where the terms of the tender were not altered at all because the new entity simply stepped into the shoes of the no longer capable entity, there seems to be limited scope to consider that the tenderer derives a competitive advantage.

AG Wahl seems to take the opposite view on the basis of the reasoning underlying the ECJ's analysis of a prohibition to change subcontractors in Wall (which AG Wahl discusses in paras 53-56), in relation to which he stresses that it "could be considered [that the substitution of subcontractor] ‘[altered] an essential term of the concession and [thus necessitated] a new tender procedure’ because, in particular, ‘the concession-holder [had] relied on the reputation and technical expertise of the subcontractor when submitting its tender’." However, this is also conceptually problematic because it refers to a situation (iii), and the prohibition of the substitution of subcontractor can have more to do with the ECJ's requirement that contracting authorities are in a position to verify the standing of any subcontractors (as generally discussed by AG Sharpston in her Opinion in Borta, discussed here).

Ultimately, the difficulty with the assessment carried out by AG Wahl in Casertana Construzioni derives from the fact that he considers that "the capabilities of a third party which allow a tenderer to participate in a tender procedure can hardly be regarded as a non-essential element of a bid. The conclusion might have been different, obviously, if the tenderer had itself the required capabilities or if it had relied, for the same requirement, on more than one entity having those capabilities" (para 58, emphasis added). In my view, this is excessively formalistic and a more nuanced analysis would be required. In the specific case, and on the basis of the limited information about the factual situation, it seems that reliance on the third party capacity primarily (or exclusively) served the purpose of ticking the box of holding a formal classification via registration in the relevant classification system (see para 11). If that is the case, then it seems difficult to justify that this constitutes an essential element of the bid, as it could hardly affect its terms or the execution of the works. More generally, it is not clear that any aspect of reliance on third party capacity can be considered an essential element of a bid by definition, and a more detailed assessment seems necessary (along the lines established by the ECJ in Borta, see here).

From that perspective, the analysis based on discrimination and equal treatment does not seem the most relevant to me, and a focus on proportionality between the administrative burden linked to the substitution of third parties and the preservation of competition for the contract would be much more relevant--in which AG Wahl refuses to engage (see paras 62-65). In my view, this is the biggest flaw of the Opinion in this case. I would suggest that, contrary to what AG Wahl considers, the principle of proportionality should have provided the key legal test in this case.

Thus, I would rather have the ECJ depart from his Opinion and declare that the general principles of EU procurement law, and in particular the principle of proportionality coupled with the principle of competition, oppose the automatic exclusion of tenderers that have relied on the capacities of third parties that later lose them, unless the contracting authority can demonstrate that allowing for the substitution of the third party would either infringe the principles of equal treatment, non-discrimination and the obligation of transparency (eg in a situation where the qualitative selection criteria were not assessed on a pass/no pass basis), or would create a disproportionate administrative burden or delay in the conclusion of the procurement procedure. This could create closer functional compatibility in the case law on reliance on third parties and on subcontracting, which I think are currently at risk of imposing functionally incompatible interpretations of the relevant EU public procurement rules.

 

ECJ extends the Manova principles to the submission of samples & clarifies the scope of Remedies Directive in a Utilities Procurement setting (C-131/16)

In its Judgment of 11 May 2017 in Archus and Gama, C-131/16, EU:C:2017:358, the European Court of Justice (ECJ) issued two sets of clarifications concerning the rules applicable to utilities procurement, which are however of general relevance, due to the identity of the relevant provisions under the general and the utilities procurement rules.

First, the ECJ explicitly extended the Manova and Slovensko line of case law to utilities procurement and in relation to the submission of samples, thus trying to clarify the boundaries of the possibility for contracting entities to request  and/or accept clarifications or additional documentation (and samples) from tenderers while still complying with the principles of equal treatment, non-discrimination and the obligation of transparency. This first part of the Archus and Gama Judgment will thus be relevant to the interpretation and application of Art 76(4) of Directive 2014/25/EU (which is identical to Art 56(3) of Directive 2014/24/EU). 

Second, the ECJ also provided clarification of the rules on standing to challenge procurement decisions under Art 1(3) of the Utilities Remedies Directive (which is identical to Art 1(3) of the general procurement Remedies Directive), and clarified that having or having had an interest in the award of the contract extends to situations where the remedy sought by the challenger cannot result in the award of such contract, but is likely to concern the initiation of a new award procedure for the award of a (different) contract with the same subject matter.

Extension of Manova to the submission of samples

In the case at hand, tenderers were required to submit samples of micro-filmed material together with their tenders. The "quality of the microfilm sample was to be assessed according to the ‘satisfies/does not satisfy’ rule, it being stipulated that if the sample was not satisfactory the offer was to be rejected" (para 14). After submission of their tender and during the evaluation phase, joint tenderers Archus and Gama sent the contracting authority a request for a correction of their tender, arguing that "there had been an inadvertent mistake [... and] seeking to substitute a new microfilm sample for that annexed to their tender, which did not conform to the tender specifications" (para 17). The contracting authority accepted the substitution of the microfilm but requested further clarification from the tenderers because it considered that "they had not provided information on the method for microfilming the sample and the [relevant] technical parameters" (para 18). The contracting authority eventually rejected the tender as non-compliant.

In a rather convoluted drafting influenced by the question referred by the domestic court, the ECJ established that the legal issue arising from these circumstances required it to determine "whether the principle of equal treatment ... must be interpreted as precluding ... a contracting authority from inviting tenderers to provide the required declarations or documents which were not supplied by them within the prescribed period for the submission of tenders or to correct those declarations or documents in case of errors, without that contracting authority also being required to point out to those tenderers that they are prohibited from altering the content of the tenders submitted" (para 24). However, there are two factual elements that seems missing here: first, the fact that the initiative for the correction initiated from the tenderers; and, second, the fact that the correction concerned a sample rather than a declaration or document, and therefore it was not information-based. Disappointingly, none of these important details feature with much prominence in the ECJ's analysis (despite para 35 referring to the fact that "it was [the] tenderers who sent the contracting authority a request for their tender to be corrected"). 

Indeed, in this part of the Judgment (paras 29-33), the ECJ provides a summary of the Manova and Slovensko line of case law and, in simplified terms, reiterates that "the principle of equal treatment does not preclude the correction or amplification of details of a tender, where it is clear that they require clarification or where it is a question of the correction of obvious clerical errors, subject, however, to the fulfilment of certain requirements" (para 29, emphasis added), such as:

  • a request for clarification of a tender cannot be made until after the contracting authority has looked at all the tenders and must, as a general rule, be sent in an equivalent manner to all undertakings which are in the same situation and must relate to all sections of the tender which require clarification (para 30)
  • that request may not lead to the submission by a tenderer of what would appear in reality to be a new tender (para 31)
  • as a general rule, when exercising its discretion as regards the right to ask a tenderer to clarify its tender, the contracting authority must treat tenderers equally and fairly, in such a way that a request for clarification does not appear unduly to have favoured or disadvantaged the tenderer or tenderers to which the request was addressed, once the procedure for selection of tenders has been completed and in the light of its outcome (para 32)

The ECJ also reiterated that "a request for clarification cannot, however, make up for the lack of a document or information whose production was required by the contract documents, the contracting authority being required to comply strictly with the criteria which it has itself laid down" (para 33, emphasis added). 

When trying to apply these general principles to the situation at hand, the ECJ established that "a request sent by the contracting authority to a tenderer to supply the declarations and documents required cannot, in principle, have any other aim than the clarification of the tender or the correction of an obvious error vitiating the tender. It cannot, therefore, permit a tenderer generally to supply declarations and documents which were required to be sent in accordance with the tender specification and which were not sent within the time limit for tenders to be submitted. Nor can it ... result in the presentation by a tenderer of documents containing corrections where in reality they constitute a new tender" (para 36); ultimately leaving it to the "referring court to determine whether ... the substitution made by Archus and Gama remained within the limits of the correction of an obvious error vitiating its tender" (para 38, emphasis added).

I find this reasoning of limited assistance in assessing the legal issue at hand. It would seem to me that the fact that the tenderers unilaterally sought to modify their tender in relation with a sample of the output of the services they were offering should have been given more weight (as this did not result from the observation of an obvious shortcoming or mistake by the contracting authority), and the difficulties in establishing objectively what is obviously wrong with a sample probably should have been enough relevance to provide a more conclusive answer against the acceptability of the substitution of samples.

From that perspective, confronted with a defective sample, the contracting authority could simply observe a deviation from the tender requirements, but it could hardly establish whether the defect resulted from an obvious mistake (ie whether the tenderer mistakenly submitted the wrong sample, as they claimed), or establish a way of clarifying the reasons for the defectiveness of the sample without allowing for the submission of a sample equivalent to the submission of a different tender. Differently from documents and declarations, or from the inclusion of insufficient details or mistakes in an offer, a sample is meant to evidence the product to be supplied or to result from the provision of the services. It is difficult to imagine circumstances under which a contracting authority could meet the strictures of the Manova-Slovensko case law while prompting the tenderer to submit an alternative sample. Moreover, under the rules applicable to the tender, it seems clear that a defective sample should trigger rejection of the tender, without any further analysis, which the ECJ does not seem to give much relevance to either.

Overall, I think that there is enough to justify the rejection of the possibility to substitute samples (in particular at the initiative of the tenderers) within the confines of the Manova-Slovensko test. However, I find this part of the Archus and Gama Judgment slightly confusing due to its open ended wording and, more importantly, to the practical difficulties in applying a test originally meant to correct missing or obviously erroneous information in documents to issues concerning the manifestation of technical aspects in a sample.

On this occasion, I tend to think that the ECJ has possibly pushed too far in trying to create procedural flexibility. While the absence of a sample could have allowed for the contracting authority to request the submission of one (because the problem with the tender would have been obvious), an attempt by the tenderers to substitute a previously submitted sample raises a whole host of other issues. In cases such as this, it may be preferable to have a clear cut rule against the possibility to substitute the sample. Moreover, given that the tender documents had explicitly indicated that rejection of the sample would also imply the rejection of the offer, it is difficult to understand why the ECJ has deviated from its previous approach to imposing compliance with the specific rules created in the tender documentation by the contracting authority itself (not that I find it always or generally convincing (see eg here), but a deviation from that approach seems to create inconsistency). Thus, I do not think this part of the Archus and Gama Judgment deserves a positive assessment.

Clarification of the scope of active standing under the remedies directive

In relation to a rather distinct aspect of the same case, the ECJ was also asked to clarify "whether Article 1(3) of [the Utilities Remedies Directive] must be interpreted as meaning that the concept of ‘a particular contract’ ... refers to a specific public procurement procedure or the actual subject matter of the contract which is to be awarded following a public procurement procedure, in a situation where only two tenders have been submitted and where the tenderer whose tender has been rejected may be regarded as having an interest in seeking the rejection of the tender of the other tenderer and, as a result, the initiation of a new public procurement procedure" (para 47).

Maybe in simpler words, the question concerned whether the EU rules grant legal standing to challenge a procurement decision to disappointed tenderers that are found to be properly excluded and, rather than seeking a remedy concerning the award of the contract as part of the procedure where the dispute arose (which would not be possible), may rather be interested in the cancellation of that procedure and the start of a fresh tender. In the end, the clarification concerned the tenability under EU law of a position that interpreted that "an economic operator who has submitted a tender in a public procurement procedure does not, where his tender is rejected, have an interest in bringing proceedings against the decision awarding the public contract" (para 48).

The answer provided by the ECJ is narrowly tailored to the specific circumstances of the case, as it established that "in a situation ... in which ... two tenders have been submitted and the contracting authority has adopted two simultaneous decisions rejecting the offer of one tenderer and awarding the contract to the other, the unsuccessful tenderer who brings an action against those two decisions must be able to request the exclusion of the tender of the successful tenderer, so that the concept of ‘a particular contract’ within the meaning of Article 1(3) of [the Utilities Remedies Directive] may, where appropriate, apply to the possible initiation of a new public procurement procedure" (para 59).

This interpretation seems generally uncontroversial and follows the same path of extension of the justiciability of exclusion and qualitative selection grounds as the recent Marina del Mediterráneo Judgment (see here). However, it also seems very limited to circumstances that may be difficult to meet in practice in a large number of procedures, such as the fact that only two tenderers participated in the procedure, or that the decisions to reject one tender and award the contract to the other were adopted simultaneously. In that regard, the ECJ could have been slightly bolder and simply clarified that retaining the possibility of being awarded a contract under the same (administrative) procedure is not a pre-requisite for the recognition of active standing to challenge procurement procedures under the EU rules. I would have preferred this broader approach, which could have saved future preliminary references on the basis of cases with minor variations of the underlying factual scenario.

The curious case of the open envelope inside the envelope - a propos GC's Gfi PSF v Commission Judgment (T-200/16)

The General Court of the Court of Justice of the European Union (GC) has issued Judgment in case Gfi PSF v Commission, T-200/16, EU:T:2017:294 (available in French only). This is a curious case about the physical formalities imposed in a procurement procedure carried out by the European Commission (Publications Office), which required a set of envelopes to be enclosed in multiple layers so as to avoid their tampering prior to the official opening of bids. It is also interesting because it raises some issues around the difficulties in the fact finding of processes dominated by formal documentary evidence.

I am also afraid that the factual circumstances of the case are probably rather common in practice (they remind me of the submission of a tender for a multi-million concession contract that had to be submitted in suitcases locked with padlocks in Mexico some 10 years ago), and I guess that the case also reflects some of the advantages that could be gained by a proper migration to e-procurement (or at least to electronic submission of tenders).

In the case at hand, tenderers had to prepare their tenders in two separate envelopes. An envelope (a) containing their technical offer and an envelope (b) containing their financial offer. Both envelopes then had to be enclosed in a third envelope (c) marked as "Tender - not to be opened by the internal mail service" and placed in a fourth envelop (d), which had to be sent by registered mail or courier service, or be submitted in the offices of the European Commission as indicated in the letter of invitation to tender.

Gfi PSF prepared its tender in accordance with these instructions and sent it to the European Commission via UPS. However, t is worth noting that, inside envelope (c), Gfi PSF did not only include envelopes (a) and (b), but also several binders including additional information. The tender was submitted in time and there is an electronic receipt issued by UPS with a signature from a Commission official. However, an acknowledgement of receipt was also prepared by the mail service of the European Commission indicating that the offer had been received, but not in good state, and also including the following:

two headings, relating respectively to the "first container" and the "second container". In the section on the first container, the pre-printed indications "open" and "damaged" have both been checked. In the section on the second container, the same information was also checked. This last heading also contains the words "did not include the words "Do not open by the mail office"" and "there were no double envelopes", which were not checked (T-200/16, para 7, own translation from French).

After proceeding to the formal opening of the tenders, Gfi PSF's was rejected on the basis that the tender was already open when the contracting authority received it, which is a cause for rejection under Art 111(4)(b) of the Financial Regulation. After Gfi PSF challenged this decision and asked for additional details, the European Commission wrote a letter indicating that

even if the electronic receipt [issued by UPS] did not contain any remarks as to the status of the consignment containing the applicant's tender, this was because of the technical constraints of the terminal used by the courier acting for UPS. The [Commission's] note of receipt acknowledging the damage of the consignment was signed jointly by the same courier and a representative of the [Commission]. Copies of this note and a photograph of the said item were annexed to the" Commission's letter (T-200/16, para 13, own translation from French).

After inspecting the envelopes still in the custody of the Commission, counsel for Gfi PSF challenged the time, the content, and the probationary value of this acknowledgement of receipt issued by the Commission. It also sought to prove that the document had been issued unilaterally by the Commission because it was not clear that UPS had signed the note (which is however later proven wrong by the GC, see paras 53-54), and submitted that in any case the state of the offer resulted from improper handling by the Commission's mail services, rather than as a result of defective compliance with the physical requirements for the submission of the offer by Gfi PSF at the time of its expedition.

The Commission opposed this interpretation of the documents (in particular the lack of signature by a UPS representative) and the physical evidence (ie damaged envelopes), and provided additional evidence downloaded from UPS' tracking webpage, where the following remarks appeared from entries logged in the weeks following the delivery of the package to the Commission:

"[t] he goods are lacking. UPS will notify the additional details to the consignor / goods entrusted to the consignee "; and ... " [t]he damage to the contents of the packages has been reported [;] We will notify the consignor / We are investigating the claim for damages" (T-200/16, para 18, own translation from French).

Overall, then, the dispute concerns the factual circumstances of the delivery, the documentation of its receipt, as well as the ensuing investigation of the Commission's claim that the package was delivered by UPS. It is hard to imagine the physical state of the envelopes (it would have helped to have the pictures attached to the GC's Judgment), but it is certainly plausible that the envelopes where stacked in such a way that opening envelop (d) also ripped envelop (c) (particularly if they were of similar sizes). Be it as it may, the reasoning of the GC is interesting beyond the specific issues leading to the discrepancy in the state of the offer at the time of submission and of the formal opening of the tenders, which exonerates the Commission from any responsibility.

In the GC's view

... the acknowledgement of receipt is of significant probative value, since its content is attested by the signatures, on the one hand, of a person subject to the contracting authority and, on the other hand, by a third party not directly involved in the procurement tender, but rather acting indirectly on behalf of the tenderer whose tender is considered irregular by the contracting authority. However, the acknowledgement of receipt contains indications that both the first and second containers were both open and damaged, and that the second container displayed the words "Not to be open by the mail office" and contained a double envelope (T-200/16, paras 57-58, own translation from French).

This would create a difficulty in establishing the moment in which envelop (c) had been opened despite including the prescribed label against it. However, given the very peculiar circumstances of the case, where envelop (c) contained not only envelops (a) and (b)--which may not have been compromised--but also the binders including additional information, the GC found a way out by adopting a functional approach to the rules in Art 111(4)(b) Financial Regulation from the perspective of the integrity of the process. In that regard, it stressed that the submission instructions and Art 111(4)(b) aimed to ensure the confidentiality of all tenders until they are simultaneously open. From that perspective, the factual circumstances of the case led to the assessment that

On the one hand, the applicant does not claim that the binders were themselves placed in a closed envelope, the binders being visible in the photograph to which it refers, annexed to the letter of [the Commission sent during the debriefing and complaints procedure]. Furthermore, the fact that the binders were placed by the applicant in an envelope on which it indicated that it had affixed the words 'invitation to tender - not to be opened by the courier' [ie envelop (c)], which is established by the acknowledgment of receipt, shows that in the applicants' own view, the binders contained documents constituting its tender. Consequently, and due to the fact that it must be held that the outer envelope and the intermediate envelope of the item containing the applicant's tender had been presented open on the premises of the [European Commission], it must be found that certain data forming part of the applicant's offer were directly accessible. Consequently, it appears that the applicant's tender was submitted in such a way that its confidentiality, as required by Article 111 (1) of the Financial Regulation, was not guaranteed, as it was "already open" within the meaning of paragraph 4 (b) of that Article. Consequently, this offer was regularly rejected (T-200/16, paras 65-66, own translation from French).

This is important because the GC has no interest in (and probably no possibility to) establishing the way in which envelope (c) came to be open despite it being labelled as not to be open by the mail service. This fits with the burden of proof derived from a claim for damages based on Art 340 TFEU, which was the relevant underlying legal basis for this case. However, this leaves important questions unanswered, such as what would have happened if the binders were sealed in envelops, so that the opening of envelope (c) would not have made any of the contents of the offer directly accessible. In that case, the rejection of the offer on the basis that it had already been opened would be very problematic and would probably have required further investigation of how this came to be.

On balance, it seems that the GC places the burden of ensuring that the offers remain confidential on the tenderers, at least implicitly, by supporting a broad approach to the rejection of offers which confidentiality may have been compromised. As a matter of general trend, this seems preferable to the opposite. However, this also shows the unavoidable limitations of paper-based procurement procedures. Had the Commission been running an e-procurement (or at least electronic submission) process, this situation could have been easily avoided. It seems that, once more, the adaptation of procurement (and administrative activity, more generally) to new technologies cannot come quickly enough.

ECJ clarifies that reliance on third party capacities is not possible after the tenderer has been found not to comply with qualitative selection criteria (C-387/14)

In its Judgment of 4 May 2017 in Esaprojekt, C-387/14, EU:C:2017:338, the European Court of Justice (ECJ) provided clarification on some practical issues concerning the application of qualitative selection criteria to tenderers for public contracts seeking to rely on the capacities of third parties. The case is interesting because it concerns a situation where reliance on third party capacities is only sought once the contracting authority has reached a decision that the tenderer does not meet the relevant qualitative selection criteria on its own (or in the consortium configuration used in the submission of the initial tender).  

Thus, the case combines elements of clarification or supplementation of tender documentation with issues derived from the principles of non-discrimination, equal treatment and transparency. The Esaprojekt Judgment is based on the 2004 EU procurement rules (Dir 2004/18, Arts 2, 45, 48 and 51) but it is relevant for the interpretation of the 2014 rules as well (Dir 2014/24/EU, Arts 18, 19, 57 to 60, 63 and, specially, 56(3)).

In the case at hand, and in simple terms, the tenderer that submitted the preferred bid for the provision of IT services (Konsultant Komputer) had declared that it had the required previous experience through the execution of two contracts prior to the tender. However, on a challenge from a disappointed bidder (Esaprojekt), the contracting authority found that such previous experience was not acceptable because it did not concern contracts of the same type required in the tender documentation. At this stage, Konsultant Komputer sought to 'complement' the documentation evidencing its experience by providing the contracting authority with "a new list of supplies in which it relied on the experience of another entity, Medinet Systemy Informatyczne sp. z o.o. concerning two supplies ... It also sent an undertaking from Medinet Systemy Informatyczne to provide, as an advisor and consultant, the resources necessary for the performance of the contract ..." (C-387/14, para 27).

The contracting authority was satisfied with the submission of such 'complement' to the previous documentation, but (unsurprisingly), this was challenged by Esaprojekt on the basis that "Konsultant Komputer ... had submitted false information and had failed to prove that it had fulfilled the conditions for participation in the procedure" (para 29). The Polish court referring the case for preliminary ruling to the ECJ condensed the main legal issues as concerning whether the EU procurement rules (1) "preclude an economic operator, when it supplements documents at the request of the contracting authority, from relying on supplies of services other than those it included in its initial bid or from being able to rely, in that regard, on supplies of services made by another entity on whose resources it did not rely in its initial bid" (para 30); (2) whether, in the circumstances of the case, "the economic operator is able to ... rely on the capacities of other entities where it does not itself fulfil the minimum conditions required in order to take part in the tender procedure for a service contract" (para 31); and (3) the need to determine "in which circumstances an economic operator may be held liable for serious misconduct and, therefore, be excluded from taking part in a public contract" due to the supply of incorrect or misleading information concerning its previous experience (para 32). However, the questions referred to the ECJ do not map these three legal issues, but rather raise some other (more specific) issues.

It will not be surprising to find that the ECJ, in general, declared that proceeding as Konsultant Komputer and the contracting authority did was not allowed under the relevant provisions. On the main point concerning whether there was a breach of the requirements derived from the procurement rules and the general principles of procurement, after relying extensively on the principled framework consolidated in Partner Apelski Dariusz, the ECJ clarified that "Konsultant Komputer submitted documents to the contracting authority which were not included in its initial bid after the expiry of the time limit laid down for submitting applications for the public tender concerned. In particular ... it relied on a contract performed by another entity and the undertaking by the latter to place at the disposal of that operator the resources necessary for the performance of the contract ... Such further information, far from being merely a clarification made on a limited or specific basis or a correction of obvious material errors ... is in reality a substantive and significant amendment of the initial bid, which is more akin to the submission of a new tender" (paras 41-42). Thus, "by allowing the presentation by the economic operator concerned of the documents in question in order to supplement its original tender, the contracting authority unduly favour[ed] that operator as compared with other candidates and, thereby, breache[d] the principles of equal treatment and non-discrimination of economic operators and the obligation of transparency which derives from them" (para 44).

The ECJ later addressed more specific issues. The following is thus just a short excerpt of the relevant parts of the Esaprojekt Judgment in relation to each of the issues--while some more critical reflections are saved for the final part of this post.

First, the ECJ considered the possibility of combining the knowledge and experience of two entities to meet a selection criterion where those entities do not separately have the capacities required to perform a particular contract, and where the contracting authority considers that the contract concerned cannot be divided and must thus be performed by a single operator. On that point, after slightly reinterpreting the question, the ECJ established that the relevant rules do "not allow an economic operator to rely on the capacities of another entity ... by combining the knowledge and experience of two entities which, individually, do not have the capacities required for the performance of a particular contract, where the contracting authority considers that the contract concerned cannot be divided, in that it must be performed by a single operator, and that such exclusion of the possibility to rely on the experience of several economic operators is related and proportionate to the subject matter of the contract which must be therefore performed by a single operator" (para 54).

Second, it considered the possibility for an economic operator that participates individually in an award procedure for a public contract to rely on the experience of a group of undertakings, of which it was part in connection with another public contract, irrespective of the nature of its participation in the performance of the latter. The ECJ found that the EU rules allow "an economic operator, for a particular contract, to rely on the capacities of other entities, such as a group of undertakings of which it is a member, so long as it proves to the contracting authority that that operator will have at its disposal the resources necessary for the execution of the contract" (para 60). Further, it clarified that "where an economic operator relies on the experience of a group of undertakings in which it has participated, that experience must be assessed in relation to the effective participation of that operator and, therefore, to its actual contribution to the performance of an activity required of that group in the context of a specific public contract" because, from a practical perspective, "an economic operator acquires experience not by the mere fact of being a member of a group of undertakings without any regard for its contribution to that group, but only by directly participating in the performance of at least part of the contract, the whole of which is to be performed by that group" and, consequently, "an economic operator cannot rely on the supplies of services by other members of a group of undertakings in which it has not actually and directly participated as experience required by the contracting authority" (paras 62-64).

Third, the ECJ was asked whether the possibility to exclude economic operators that are guilty of serious misrepresentation when supplying information requested by the contracting authority may be applied where the information is of such a nature as to affect the outcome of the call for tenders, irrespective of whether the economic operator acted intentionally or not. On this point, the ECJ concluded that the discretionary exclusion "may be applied where the operator concerned is guilty of a certain degree of negligence, that is to say negligence of a nature which may have a decisive effect on decisions concerning exclusion, selection or award of a public contract, irrespective of whether there is a finding of wilful misconduct on the part of that operator" (para 78) and, more explicitly, that "in order to sanction an economic operator which has submitted false declarations by excluding its participation in a public contract, the contracting authority is not required ... to provide evidence of the existence of wilful misconduct on the part of that economic operator" (para 72).

Finally, the considered whether EU procurement law allows an economic operator to justify compliance with an experience-based selection criterion by relying simultaneously on two or more contracts as a single contract (or, in other words, by combining different partial elements of experience), despite the fact that the contracting authority has not expressly provided for such a possibility either in the contract notice or in the tender specifications. On this point, the ECJ found that "it is conceivable prima facie that the experience necessary for the performance of the contract concerned, acquired by the economic operator in the performance of not one, but two or more different contracts, may be regarded as sufficient by the contracting authority and thereby enables that operator to win the public contract concerned" (para 85) and, therefore, "in so far as the possibility to rely on experience acquired in relation to several contracts has not been excluded either in the contract notice or in the tender specifications, it is for the contracting authority, subject to review by the competent national courts, to check whether the experience gained from two or more contracts, having regard to the nature of the works concerned and the subject matter and purpose of the contract concerned, ensures the proper performance of that contract" (para 87).

Overall, the level of clarification provided by the ECJ in the Esaprojekt should be welcome, although it also raises the broader issue of the extent to which national courts should be willing to engage in principles-based reasoning without referring extremely detailed references for preliminary rulings. There is a clear trade-off to be achieved between ensuring homogeneous interpretation of the EU public procurement rules and (not) overburdening the ECJ. If every case where the general principles of public procurement (now in Art 18(1) Dir 2014/24/EU) are applicable is referred to the ECJ, the system will not be able to cope. In my view, none of the issues raised in this case were particularly complex or controversial, and could have been resolved by general reference to the principles of equal treatment and transparency, which makes me wonder if there may not be a need for a different approach to these issues.

For example, discussion between practitioners has raised the issue whether it would be acceptable for an undertaking in a situation similar to Konsultant Komputer's first submission to 'complement' the selection documentation by supplying a fresh list of new own references (or references to its own experience not submitted in the original documentation). I would submit that it is not allowed. In my view, it is clearly not allowed if the experience has been gained after the date for the submission of tenders, because that establishes the relevant cut off point for the assessment of qualitative suitability (or responsiveness). And, also clearly (although it may be more debatable), this would not be allowed if the experience was gained before that date but the economic operator failed to include the relevant references in the original documentation. I think that this is the case because such an omission of previous experience is not observable by the contracting authority in view of the submitted documentation alone (how could it second guess whether the economic operator provided a full, or even the best, set of references?)--which, in my opinion, excludes it from the scope of application of the rules controlling the request for clarifications under both the Manova case law and the specific provisions of Art 56(3) Dir 2014/24/EU, except if the entire document concerning experience was missing (which would make the defect visible to the contracting authority). Functionally, I would think that this contributes to the manageability of the selection process, while being entirely compliant with the principles of equal treatment and non-discrimination.

Anyway, the point I am trying to make is that, if issues at this level of detail need to be clarified by the ECJ in relation with each of the provisions of the procurement directives, the potential gains of having regulation partly based on general principles will be lost. Therefore, I wonder if it would be possible to reconsider the need for preliminary references where the application of general principles could do.

Is allocating airport space to groundhandling operators, even if only temporarily, subject to eu utilities procurement rules? (AG Opinion in C-701/15)

In his Opinion of 3 May 2017 in the case of Malpensa Logistica Europa,
C-701/15, EU:C:2017:332, Advocate General Campos Sánchez-Bordona has considered the extent to which an airport management company is under a duty to carry out a tendering procedure when temporarily allocating certain airport facilities to groundhandling services companies, under the rules of Directive 2004/17/EC on utilities procurement and Directive 96/67/EC on access to groundhandling market at EU airports.

In the case at hand, the body managing the Milan Malpensa airport (SEA) carried out a competitive procedure for the allocation of certain areas within the airport to groundhandling operators. Both Beta-Trans and Malpensa Logistica submitted bids in that selection procedure for the performance of handling activities at the airport. Beta-Trans was successful. However, it was unable to occupy the area assigned to it because the space was not yet ready and had to be fitted out. SEA therefore gave Beta-Trans the temporary use of a hangar so that it could commence its groundhandling activities immediately. The allocation of the hangar was merely temporary until the ‘final area’ was ready for use (scheduled for July 2017) (AGO in C-701/15, paras 22-23). The decision to temporarily allocate the hangar to Beta-Trans was challenged by Malpensa Logistica on the basis that this should also have been subjected to a (separate) public selection procedure.

In general terms, I think it is clear that a procedure for the allocation of airport space to groundhandling operators authorised to provide services in that airport should not be covered by the utilities procurement directive (either the 2004 version, or the current 2014 version, or the 2014 concessions directive) because the body managing the airport is not procuring services from those companies when it takes the space allocation decision. This could have led to a rather straightforward subjection of SEA's decision to the specific procedures for access to groundhandling only, which did not require such competitive tendering. However, the referring court had indicated that, under relevant case law of the Italian Consiglio di Stato, domestic public procurement legislation transposing Directive 2004/17/EC governed the concession of areas within airports for the provision of groundhandling services. Since the award of those concessions came within the material scope of the legislation on special sectors, a public selection procedure had to be conducted (AGO in C-701/15, para 25).

This is relevant because the Italian procurement rules (rectius, their interpretive case law) may impose requirements that go beyond those derived from Directive 96/67/EC on access to groundhandling markets and its Italian transposition. Therefore, the main legal issue concerns a clash between the Italian instruments transposing EU rules, rather than between the EU rules themselves. However, both layers of legislation need to be coordinated in order to ensure regulatory consistency--and the Opinion of AG Campos seems to show that there may be underlying coordination issues concerning the definition of public contracts that remain unaddressed. Additionally, the case is interesting in the flexibility that AG Campos tries to create for temporary 'substitutory' measures under the groundhandling market access rules, which may however not be exportable to decisions actually covered by the procurement rules. Each of these issues is discussed in turn below.

Difficulties concerning the concept of public contract?

On the domestic peculiarities of the case, AG Campos indicates that the "fact that both sets of national provisions ‘are derived from EU law’ ... does not prevent the Italian legislature from requiring that public selection procedures apply in the case of allocations of areas within airports ... [even if they] are not covered by Directive 2004/17. Whilst that directive certainly requires that contracts falling within its scope be awarded in accordance with its provisions, there is nothing to prevent a Member State from deciding, on its own initiative, to extend those rules to other contractual arrangements" (AGO in C-701/15, para 45).  While the principle behind this statement seems correct in so far as Directive 96/67/EC is a liberalisation instrument rather than a maximum harmonisation directive, it seems to me that the instrument and the reasons used by Italian law to impose additional requirements deserve additional scrutiny.

There can be a problem if the sole reason why the Consiglio di Stato mandates compliance with domestic rules transposing Directive 2004/17/EC in decisions involving the allocation of rights to use areas within airports for the provision of groundhandling services (which are not concessions, in the technical meaning of EU procurement rules) is that it considers these decisions "within the material scope of the legislation on special sectors [procurement]" (AGO in C-701/15, para 25). This would be a misinterpretation of the relevant EU rules because, as rightly concluded by AG Campos, given that this is an arrangement akin to the rental of the relevant space by the contracting entity (which receives the relevant fees rather than paying any pecuniary compensation), the allocation of the right to use "airport facilities to a supplier so that the latter can provide groundhandling services to third parties cannot be classified as a public service contract for the purpose of Article 1(2)(a) and (d) of Directive 2004/17, with the result that the relationship referred to in the main proceedings falls outside the scope of that directive" (AGO in C-701/15, para 53). In my view, such misinterpretation should not be saved on the basis of the Member States' abstract ability of creating requirements beyond those in Directive 2004/17/EC.

If the Consiglio di Stato case law solely (or primarily) relies on an improper interpretation of the domestic rules in relation with EU rules (which cannot be ascertained on the basis of the information in the Opinion), Italian law would not be respecting the material scope of EU public procurement rules because it would be distorting (ie expanding) the definition of public contract--both under Art 1(2)(a) Dir 2004/17/EC, and under the equivalent provisions of the 2014 EU public procurement rules, including the definition of services concessions in Art 5(1)(b) Dir 2014/23/EU. This could be important because, in the absence of separate/explicit domestic rules explicitly subjecting these decisions to competitive tendering, it is questionable that the case law of the Consiglio di Stato can be seen in compliance with the supremacy of EU law (in terms of respecting the interpretation of the concept of public contract and public procurement by the CJEU, which continues to gain prominence in recent cases such as Falk Pharma or Remondis) and the duty of consistent interpretation--as well as raising issues about the possibility of expanding the scope of legislation through case law under Italian constitutional rules, which I am in no position to assess.

Also, while the deviation from the concept of public contract may be seen not to create problems in this specific instance because the (possibly wrong) interpretation embedded in the case law of the Consiglio di Stato results in overcompliance, this can be an issue in terms of ensuring a level playing field across the EU in utilities sectors. Therefore, in my opinion, this is an issue that could merit close assessment in relation with the Italian transposition of the 2014 EU Public Procurement Package.

The scope for temporary 'substitutory' measures

The second aspect of the Malpensa Logistica Europa Opinion that I find relevant concerns AG Campos' approach to the requirements applicable to the temporary allocation of the use of the hangar as a substitutory measure. In that regard, he submits to the Court that the analysis should proceed as follows:

... SEA awarded Beta-Trans the definitive airport facilities as the result of a competitive selection procedure in which Malpensa Logistica also participated. ... the assignment of the temporary hangar ... came about because the area which had been definitively awarded was not ready.
These factors (the temporary nature of the hangar and the existence of an earlier competitive procedure) may be relevant in determining whether SEA complied with Article 16(2) of Directive 96/67. Since this provision allows the managing body a broad discretion, subject to the [obligation to to observe, when allocating areas or facilities within airports, ‘relevant, objective, transparent and non-discriminatory rules and criteria’], responsibility for assessing it lies with the national courts.
It should also be borne in mind that the objectives of Directive 96/67 include encouraging the presence of new suppliers of groundhandling services and that one of the criteria for assigning available space within airports is to promote ‘effective and fair’ competition between all operators, ‘including new entrants in the field’. Effective competition precisely requires the removal of barriers preventing the entry of new operators. From that perspective, the principles of objectivity, transparency and non-discrimination may justify decisions on the allocation of areas which take account of the situation of suppliers of groundhandling services already in place and their possible dominance in the provision of those services at a given airport (AGO in C-701/15, paras 73-75, footnotes omitted).

I find this reasoning interesting because it suggests that the adoption of substitutory measures aimed at facilitating competition on a temporary or anticipatory basis is allowable where the deciding entity is under an obligation to adopt decisions in compliance with 'relevant, objective, transparent and non-discriminatory rules and criteria'. This could be important because, at least functionally, it would imply that having carried out a competitive procedure for a specific object (ie the space allocated on a permanent or definitive basis) provides legal cover for a temporary modification of the object of the authorisation or licence to use that object (ie the temporary assignment of alternative space). This makes commercial sense and avoids situations where the effects expected from the initial competitive procedure can be delayed or frustrated.

However, when compared with the rules on contract modification under the EU procurement rules, one can wonder if the same flexible and commercially-oriented approach could pass legal muster. Given that delays are common in public contracts (most likely, that was also the case for the lack of availability of the definitive premises at Malpensa), it would be interesting to see how the analysis would play out if it was a public contractor to offer an alternative, temporary solution to a contracting authority or entity. In that case, my guess is that this would be assessed as a contract modification of difficult assessment under value-based thresholds, and probably subjected to an analysis of whether the modification is substantial (cfr Art 72(4) Dir 2014/24/EU, Art 80(4) Dir 2014/25/EU and Art 43(4) DIr 2014/23/EU), which could easily lead to a finding that the temporary substitutory measure was not allowed--unless the ECJ would be willing to deviate from recent decisions, such as Finn Frogne.

Of course, this falls short from showing a stark internal contradiction between different sets of rules within the broader system of EU economic law, but I think that it does indicate that the internal market logic--and even the pro-competitive logic--that underlies the system can create opposing normative criteria, unless they are reconciled with some checks and balances based on commercial considerations. Not that this is bound to carry legal weight, but it may help construct a different parameter of evaluation closer to the concept of market economy agent, which could provide some additional consistency in the area of EU economic law.

Looking closely at the RegioPost case: two new papers on public procurement and labour standards under eu law

I have been working on the implications of the RegioPost Judgment for a while (I can't believe it will soon be a year since the conference we held at the University of Bristol Law School), and finally uploaded two new papers on SSRN where I discuss different aspects of the case and its implications for the enforcement of labour standards through public procurement regulated by the 2014 EU Public Procurement Package.

The first paper is concerned with the regulatory substitution implicit in the inclusion of social and employment-related considerations in public procurement. The second paper is concerned with the competition and State aid implications of the asymmetrical rules on minimum wage requirements that result from RegioPost, Rüffert and Bundesdruckerei. Below are some additional details on each of the papers. I hope that both papers manage to provide complementary views on the many issues that derive from the interaction between EU public procurement law, EU labour law and EU free movement law. Feedback most welcome!

Regulatory Substitution between Labour & Public Procurement Law: EU's Shifting Approach to Enforcing Labour Standards in Public Contracts

In this paper, I reflect about a recent regulatory trend concerning the enforcement of labour standards through contract compliance clauses and other requirements of public contracts tendered under European Union public procurement law. On the back of recent developments in the case law of the European Court of Justice regarding cross-border situations of procurement-based enforcement of labour standards, notably in the re-examination of the Rüffert case in both the Bundesdruckerei and RegioPost cases, I reflect on this phenomenon from the perspective of regulatory substitution. In setting out a basic framework to assess regulatory substitution, I hypothesise that most of the difficulties evidenced by the case law stem from the transfer of labour regulation goals to the public procurement sphere. I then aim to test this hypothesis by means of an analysis of labour policy-oriented mechanisms included in the 2014 revision of the EU public procurement rules. I then go on to critically assess the fitness for purpose of the procurement mechanisms from the perspective of contributing to the enforcement of labour standards. And I ultimately extract some general conclusions that can be of relevance in non-EU jurisdictions where similar trends of regulatory substitution between labour and public procurement law may be emerging.

Sanchez-Graells, Albert, Regulatory Substitution between Labour and Public Procurement Law: The EU's Shifting Approach to Enforcing Labour Standards in Public Contracts (April 25, 2017). Available at SSRN: https://ssrn.com/abstract=2958297.

Competition and State Aid Implications of ‘Public’ Minimum Wage Clauses in EU Public Procurement after the Regiopost Judgment

This chapter assesses the use of public procurement to enforce labour standards from a competition and State aid perspective, and concentrates on the establishment of contract compliance clauses under the rules of Article 26 of Directive 2004/18/EC and Article 70 of Directive 2014/24/EU and in relation with the Posted Workers Directive. In particular, it assesses the case law of the European Court of Justice in Rüffert, Bundesdruckerei and RegioPost from an economic perspective. This highlights the potential negative competitive implications that derive from the asymmetrical rules the case law creates for the cross-border and the inter-regional provision of services to the public sector. It also underlines the risk of (regional) economic protectionism that they create. The chapter then assesses these issues from the perspective the EU public procurement, competition and State aid rules. It concludes that, given the current ineffectiveness of the checks and balances theoretically oriented towards the prevention of these undesirable effects, contracting authorities and policy makers would be well advised to abandon their efforts of setting partial, incomplete and difficult to monitor minimum/living wage requirements for public contracts only.

Sanchez-Graells, Albert, Competition and State Aid Implications of ‘Public’ Minimum Wage Clauses in EU Public Procurement after the Regiopost Judgment (April 25, 2017). Prepared for future publication in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards—Pushing the Discussion after RegioPost (Bloomsbury-Hart). Available at SSRN: https://ssrn.com/abstract=2958296.

Interesting case on the boundaries of the in-house exemption from the EU public procurement rules (C-567/15)

In his Opinion of 27 April 2017 in LitSpecMet, C-567/15, EU:C:2017:319, Advocate General Campos Sánchez-Bordona has addressed a complicated issue concerning the boundaries of the in-house exemption from compliance with the EU public procurement rules. AG Campos' Opinion is based on the 2004 Directives, but his views and the ECJ's ruling in LitSpecMet will be relevant for the interpretation of the 2014 Public Procurement Package (in particular, in relation to procurement derived from transactions covered by Art 12 Dir 2014/24, Arts 28-30 Dir 2014/25, and Arts 13-14 & 17 Dir 2014/23).

Differently from other cases, where the in-house exception was assessed in relation to contracts awarded within the 'public house', LitSpecMet concerns a question on the obligation to comply with procurement rules by 'in-house entities' themselves. And, in particular, the extent of the obligation in situations of relative complexity of control and functional relationships between contracting authorities and their controlled entities, where the controlled entities indirectly contribute to the contracting authorities' role in meeting a need in the general interest that does not have either an industrial or a commercial character. In other words, the LitSpecMet case concerns the boundaries of public procurement obligations for entities pertaining to a corporate conglomerate ultimately controlled by a contracting authority, and which award contracts outside the 'public house'.

In the case at had, the Lithuanian railway company (LG, itself a contracting authority with a public sector mission) fully owned an entity dedicated to the manufacture and maintenance of locomotives and railway carriages (VLRD). At the relevant time, orders from LG accounted for almost 90% of VLRD’s turnover. Therefore, LG and VLRD entered into direct contractual relationships on the basis of the in-house exception to the otherwise applicable obligation to comply with EU public procurement law. In turn, VLRD entered into contracts with third parties in accordance with its own Interim Procurement Regulations, rather than in compliance with Lithuania's Law on Public Procurement (LPP). This legal structure was challenged by LitSpecMet, on the basis that VLRD's procurement should be fully covered by the LPP (as a result of the scope of coverage of the EU rules), regardless of the in-house exemption from which contracts between LG and VLRD benefitted.

The main arguments put forward by LitSpecMet are summarised by AG Campos as follows:

 the ... activity carried out by VLRD falls under general interest, in that it enables LG to ensure provision of the public service for which it is responsible, namely the management of railway infrastructure and the provision of passenger transport. In its view, this activity is not of an industrial or commercial nature, since LG is the only undertaking in Lithuania engaged in it, which means that it can easily operate according to considerations which are not purely economic. To accept that public procurement rules do not apply to VLRD would mean that a contracting authority (LG) would be able to avoid those rules simply by setting up a subsidiary (VLRD) for in-house transactions (para 24, emphasis added).

VLRD and the Lithuanian government oppose this argument on different points, mainly related to the non-transferability of LG's duties to VLRD (paras 26-27). The arguments put forward by intervening Member States are also interesting, with Germany supporting the subjection of VLRD's procurement to the EU rules, while Portugal (and, surprisingly, the European Commission) advocate for the exclusion of VLRD's procurement activities from the EU rules (paras 28-32).

In conceptual terms, the legal dispute can be represented as follows, with the left graph depicting the legal structure adopted by the Lithuanian State, and the right graph depicting the alternative coverage put forward by LitSpecMet:

Ultimately, the issue of whether VLRD (as the in-house entity) is subject to the EU procurement rules depends on the answer to two questions: (a) is VLRD in principle directly covered by the EU rules and (b) is the in-house situation relevant and capable of having the effect of either (i) excluding coverage if VLRD is in principle covered or, conversely, (ii) extending coverage to VLRD despite not being covered in principle? Given that VLRD is not a contracting authority, these questions revolve around the interpretation of the concept of 'body governed by public law'.

At this point, it may be worth recalling that, for the purposes of both the 2004 and the 2014 EU public procurement rules, a 'body governed by public law' is that which meets the three cumulative conditions of: (a) being established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character; (b) having legal personality; and (c) being financed, for the most part, by the State, regional or local authorities, or by other bodies governed by public law; or being subject to management supervision by those authorities or bodies; or having an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional or local authorities, or by other bodies governed by public law.

AG Campos stresses that it is commonly accepted that "VLRD satisfies the second and third: it has legal personality and it cannot be disputed that another body governed by public law (LG) has a role in its financing, the supervision of its management or the composition of its administrative, managerial or supervisory board" (para 38). Therefore, he proceeds to the analysis of the first condition in two parts, by first assessing the boundaries of the requirement of directly (or indirectly) meeting needs in the general interest, not having an industrial or commercial character (paras 37-59); and then proceeding to a more specific assessment of these conditions where the meeting of needs in the general interest, not having an industrial or commercial character, takes place in the context of in-house transactions (paras 60-84).

directly (or indirectly) meeting needs in the general interest, not having an industrial or commercial character

Concerning the first aspect, of whether an indirect contribution to meeting needs in the general interest not of an industrial or commercial nature, I find AG Campos' analysis interesting in that he stresses that the

... the key factor in answering the question is not so much the public nature of the need to be met but the conditions in which this is done. When interpreting the expression ‘needs in the general interest, not having an industrial or commercial character’ it is essential to ascertain on what terms these are to be met.
... according to the spirit of the procurement directives, what is important is to safeguard competition in the market and to prevent it being altered or distorted by participants who do not operate according to free trade principles. Consequently, the determining factor is not whether, by supplying goods and services to LG, VLRD is itself meeting a need in the general interest, or whether it does so indirectly, but whether, in either case, [VLRD] is operating under the same conditions as any private competitors, that is to say, without incentives to offer unfair advantages to national producers.
... for these purposes it is necessary to take into account multiple legal and factual circumstances, amongst which the Court of Justice has mentioned, by way of example, the circumstances prevailing when the body concerned was formed and matters such as ‘the fact that it does not aim primarily at making a profit, the fact that it does not bear the risks associated with [its] activity, and any public financing of the activity in question’. (paras 54-56, emphasis added and reference omitted).

This is largely in line with the clarification that recital (10) of Directive 2014/24/EU sought to introduce by establishing that "a body which operates in normal market conditions, aims to make a profit, and bears the losses resulting from the exercise of its activity should not be considered as being a ‘body governed by public law’ since the needs in the general interest, that it has been set up to meet or been given the task of meeting, can be deemed to have an industrial or commercial character." It is also substantively aligned with the exemption from the utilities procurement rules for entities exposed to competition (Art 35 Dir 2014/25, and previously Art Dir 2004/17). Therefore, this logic seems to carry significant weight and to match adequately the tests applicable in other parts of the EU public procurement system.

The only difficulty with this test is that it has elements that may conflate two of the conditions in the definition of a body governed by public law, in particular where the third condition is met due to the entity being 'financed, for the most part, by the State, regional or local authorities, or by other bodies governed by public law'. Therefore, in applying this test, it would be particularly relevant to take into account that it will be almost impossible to establish that the in-house entity is not a body governed by public law because, by the fact of having to derive at least 80% of its turnover from its activities with its controlling entity or entities, it will hardly be in the situation of operating in normal market conditions.

In my view, the sole fact that the controlling entities are directly awarding contracts to the in-house entity without having to comply with the procurement rules suffices to exclude a consideration that those entities are actually exposed to the vagaries of the market (to use the expression from the field of concessions contracts) because they have a captive demand from the controlling entities--which significantly insulates them from market risk where such demand is enough to absorb 80% of the entities' turnover. Ultimately, then, either there is an exemption at the level of the relationship between the contracting authority and the in-house entity, or there is an obligation to tender at that level (which then frees the otherwise in-house entity from public procurement duties). But, either way, the logic of exposition to competition in the market does not allow for both exclusions.

meeting needs in the general interest in the in-house context

From a different but not unrelated perspective, AG Campos also engages in an assessment of the relationship between these VLRD and LG to determine "whether the former is a proxy entity of the latter (or its own resource) which can use the ‘in-house exemption’ ... [by] analysing the substantive issue from an organic perspective as opposed to the perspective of the activity" (para 60). In that regard, he considers that it is necessary to make a

... distinction between ‘marginal’ activities and the ‘essential’ activities of proxy entities which justify the application of the in-house exemption. ... in relation to [marginal] activities the undertaking is operating within the market and can compete on an equal footing with rival economic operators.
... the same is not true of the ‘essential’ tasks which have been entrusted or assigned to the subordinate undertaking by the contracting authority under the in-house system. Where in order to carry out those tasks the undertaking (VLRD in this case) needs to obtain goods, services or supplies from third parties to a value which exceeds the level for harmonised procurement, then the public procurement directives apply.
Any other interpretation would give rise not only to inconsistency but to a potential circumvention of the law; the former because it would be inconsistent with the single effective identity of the two bodies, which was acknowledged for the purposes of exempting them from procurement procedures when dealing with each other, and the latter because it would make it easy to escape the application of the EU public procurement rules (paras 75 to 77, reference omitted).

I am not sure I fully understand the distinction between 'marginal' and 'essential' activities that AG Campos is proposing and, for the reasons above, I do not think it arguable that the in-house entity carries any activities in the market under normal conditions. However, this does not seem to be determinative of his analysis, as AG Campos more clearly states that

In other words, the contracting authority can make use of proxy entities, within the limits already mentioned, by entrusting them with particular tasks which should, in principle, be subject to public procurement procedures but which are exempted. This exception is not, of itself, open to question, legally speaking, in the light of the case-law of the Court of Justice (and, now, Article 12(1) of Directive 2014/24). However, where such proxy entities do not have the resources needed to themselves carry out the tasks assigned by the contracting authority and are obliged to have recourse to third parties in order to do so, the reasons for relying on the in-house exemption disappear and what emerges is actually a hidden public (sub-)procurement where the contracting authority, through an intermediary (the proxy entity) obtains goods and services from third parties without being subject to the directives which should govern the award.
... if the connection between LG and VLRD is such as to justify the application of the in-house exemption to transactions between them, then the external transactions that are essential to the performance of the tasks entrusted to VLRD by LG cannot avoid being caught by the procurement directives (provided they are in excess of the relevant value threshold). Otherwise, simply by reorganising the activities of LG through the establishment of VLRD, LG would be able to avoid the consequences that flow from its status as a contracting authority (paras 79 and 81, emphasis added).

This seems the appropriate functional approach and is completely aligned with the considerations made above in relation with the exposition of the activities of the in-house entity to the vagaries of the market. Therefore, I think that the two prongs of the substantive assessment proposed by AG Campos lead to the same conclusion: that the in-house exemption can only be used once, or that it is exhausted at the first step of avoiding access to the market (except in cases where the in-house entity has, in a complex public house infrastructure, the possibility of entrusting works or services to another, second-tier in-house entity).

Therefore, I hope that the ECJ will follow the approach outlined by AG Campos and confirm that, in simple terms, nobody can have two bites of the in-house cherry.

ECJ stresses flexibility for subcontracting and teaming in the 2014 EU Public Procurement Package (C-298/15)

In its Judgment of 5 April 2017 in Borta, C-298/15, EU:C:2017:266, the European Court of Justice (ECJ) largely followed the Opinion of AG Sharpston (commented here) and ruled on the incompatibility with EU law of a national rule that partially prohibited subcontracting by establishing that, where subcontractors are relied on for the performance of a public works contract, the tenderer is required to perform itself the main works, as defined by the contracting entity.

The ECJ also established that, even if there can be good reasons to ensure a correspondence between the parts of the works to be carried out by the members of a joint bid and their individual professional, technical and economic standing, EU procurement law is not compatible with a rule that imposes an arithmetic correspondence between the contribution of each of the tenderers and the share of the works that that tenderer undertakes to perform if the contract is awarded.

This is an interesting Judgment because it assesses issues around subcontracting and reliance on third party capacities in the area of utilities procurement and by reference to general free movement provisions in the TFEU. In my view, the line of reasoning followed by the ECJ in Borta offers good indications of the way in which subcontracting and teaming provisions in the 2014 EU Public Procurement Package will be interpreted.

The following is a summary of the reasons provided by the ECJ to determine the incompatibility with EU law of rules prohibiting subcontracting the main works involved in any project (a), as well as those requiring arithmetic correspondence between share of professional, technical (and economic) capacity and share of works to be carried out by members of a joint tender (b). A few common trends and future challenges are identified by way of conclusion (c).

It is worth noting that the ECJ also assessed issues concerning the modification of the tender documents after their publication in the light of the fundamental rules and general principles of the TFEU, among which are the principles of non-discrimination and equal treatment and the obligation of transparency which derive, in particular, from Articles 49 and 56 TFEU (see paras 62-77). However, those issues are not discussed in this post.

(a) Flexibility for subcontracting

The ECJ assessed the compatibility with Arts 49 and 56 TFEU of a national procurement rule prohibiting the subcontracting of the 'main works' in a project, as defined by the contracting authority. The ECJ determined that such a measure " is liable to prohibit, impede or render less attractive the participation of economic operators established in other Member States in the award procedure or the performance of a public contract..., since it prevents them either from subcontracting to third parties all or part of the works identified as the ‘main works’ by the contracting entity, or from proposing their services as subcontractors for that part of the works" (para 49).

Once the restriction on free movement was established, the ECJ proceeded to assess its possible justification. To that end, the ECJ considered the reasons given for the adoption of this rule, which mainly intended to "ensure that the works are properly executed" and was, more specifically, aimed at "preventing a current practice which consists in a tenderer claiming to have professional capacities solely in order to win the contract concerned, not with the intention of performing the works itself, but of entrusting all or most of those works to subcontractors, a practice which affects the quality of the works and their proper performance. Second, by limiting the reliance on subcontractors to works identified as ‘subsidiary’, [the rule aimed] to encourage the participation of small and medium-sized undertakings in public contracts as joint-tenderers in a group of economic operators rather than as subcontractors" (para 52). The ECJ dealt with these are three grounds for justification.

  1. The ECJ accepted that aiming to ensure the proper execution of the works is a legitimate goal, but considered the measure disproportionate. Both because it "applies whatever the economic sector concerned by the contract at issue, the nature of the works and the qualifications of the subcontractors. Furthermore, such a general prohibition does not allow for any assessment on a case-by-case basis by that entity" (para 55); and because it prohibits subcontracting "in situations in which the contracting entity is able to verify the capacities of the subcontractors concerned and to take the view, after that verification, that such a prohibition is unnecessary for the proper execution of the works having regard, in particular, to the nature of the tasks that the tenderer plans to delegate to those subcontractors" (para 56). The existence of less restrictive measures also contributed to this finding of disproportion (para 57).
  2. The ECJ did not make an explicit finding on the legitimacy of aiming to prevent 'front tendering' and subsequent subcontracting of most of the contract (which can be assumed to be a legitimate goal), but established that the measure is not suited and/or disproportionate to that goal because "it prohibits the tenderer from delegating the performance of all the works identified as the ‘main’ works by the contracting entity, including the tasks which represent, proportionally, only a small part of those works. Therefore, that provision goes beyond what is necessary to prevent the abovementioned practice" (para 58).
  3. The ECJ finally accepted that, as a matter of principle, it is conceivable that "the encouragement of small and medium-sized undertakings to participate in a contract as tenderers rather than subcontractors" can, "in certain circumstances and under certain conditions, constitute a legitimate objective" (para 59). However, it found no evidence that this was the case in the specific situation.

Therefore, having rejected all possible justifications, the ECJ determined that "Articles 49 and 56 TFEU must be interpreted as precluding a provision of national law ... which provides that, where subcontractors are relied on for the performance of a public works contract, the tenderer is required to carry out the main works itself, as defined by the contracting entity" (para 61).

(b) Flexibility for (asymmetrical) joint tendering

The ECJ assessed a second substantive issue concerning joint tendering and, in particular, the imposition of the requirement that "in circumstances in which a common tender is submitted by several tenderers, ... the contribution of each of them in order to satisfy the requirements applicable with regard to professional capacities corresponds proportionally to the share of the works they will actually carry out if the relevant contract is awarded to them" (para 78).

It is interesting to note that, despite the inapplicability of the 2004 Utilities Directive to the award of the contract (which was below thresholds), the ECJ assessed the compatibility of such requirements with the Directive because the domestic law had made "those provisions have ... applicable ... in a direct and unconditional way" and did that "in order to ensure that internal situations and situations governed by EU law are treated in the same way" (see paras 33-34). Therefore, the ECJ's analysis was carried out "in the light of Article 54(6) of Directive 2004/17" (para 84) and is thus relevant for the future interpretation of Art 78 of Directive 2014/25--as well as, I would argue, Art 58(4) of Directive 2014/24.

I also find it interesting to note that the ECJ sets out the general framework for assessment by reference to the recent Judgment in PARTNER Apelski Dariusz, C-324/14, EU:C:2016:214 (for discussion, see here) and in the following terms (paras 85-86): 

  • EU public procurement law "recognises the right of every economic operator, where the contracting entity lays down a qualitative selection criterion consisting of requirements relating to technical or professional abilities, to rely for a particular contract upon the capacities of other entities, regardless of the nature of the links which it has with them, provided that it proves to the contracting authority that it will have at its disposal the resources necessary for the performance of the contract"
  • "that right extends to groups of economic operators submitting a common tender, which may, under the same conditions, rely on the capacities of their participants or of other entities."
  • EU public procurement law "does not preclude the exercise of the right ... from being limited in exceptional circumstances".

The ECJ recognises that restrictions on the possibility to rely on third party capacities could be justified on the need to "avoid the situation in which, in order to win the contract, a tenderer relies on capacities that he does not intend to use or, conversely, that a tenderer may be awarded a contract and perform part of the works without having the capacities and resources necessary for the proper performance of those works" (para 90).

However, , the ECJ ends up concluding that (paras 92-94):

  • the clause that requires "an arithmetic correspondence between the contribution of each of the tenderers concerned to satisfy the requirements applicable with regard to professional capacity and the share of the works that that tenderer undertakes to perform and that it will in fact perform if the contract is awarded", however, "does not take account of the nature of the tasks to be carried out or to the technical capacities specific to each of them" and, consequently, "does not prevent one of the tenderers concerned from carrying out specific tasks for which it does not in fact have the experience or capacities required".
  • Furthermore, if subcontracting of some ('subsidiary') works is possible and the professional capacities of the subcontractors are not verified (which is for the referring court to ascertain), then the requirement "does not guarantee that the tenderers will actually use the capacities that they have declared in the procurement procedure and which were taken into consideration" by the contracting authority; and "it does not prevent works defined as ‘subsidiary’ from being carried out by subcontractors without the professional capacities required".
  • Ultimately, then, the requirement is not appropriate to ensure the attainment of the objectives pursued.

(c) Common trends and future challenges

Taken together with previous case law in the area of exclusion, qualitative selection and subcontracting--such as Ostas celtnieks, Partner Apelski Dariusz and Wrocław — Miasto na prawach powiatu, the Borta Judgment seems to reaffirm an approach whereby the ECJ is pushing against general rules excluding or restricting teaming and subcontracting, as well as aiming to ensure that, where the contracting authority engages in a case-by-case analysis of the economic operators' capabilities, this is guided by a (strict?) proportionality assessment. In general, this should be a welcome (pro-competitive) direction of development of the case law.

However, the evil is in the detail and there are emerging issues that will require further fine tuning, such as:

  • the extent to which the contracting authority can engage in a substantive assessment of the economic operators' teaming or subcontracting arrangements prior to the award of the contract (cf Partner Apelski Dariusz and Ostas celtnieks), as well as the consequences of disputes concerning post-award structuring of their legal or functional relationships; or
  • the technical reasons that can justify a prohibition to subcontract specific parts of the work or service (see Wrocław and Borta, but also Hörmann Reisen), in particular where the economic operators have assumed joint and several liability and/or have furnished extensive insurance to the contracting authority; or 
  • the extent (and practicalities) of the integration of competition law considerations in the assessment of teaming and subcontracting arrangements by the contracting authorities (eg to avoid situations such as those raised by MT Højgaard and Züblin.

Overall, it seems fair to say that the case law and new rules on exclusion, qualitative selection and subcontracting raise significant practical challenges and that contracting authorities will need to treat lightly (and document extensively) the reasons why they create restrictions on teaming or subcontracting, as well as be ready to provide reasons for these decisions with a view of their administrative or judicial review (specially after the Marina del Mediterráneo Judgment).

ECJ extends justiciability of procurement infringements: No need to review the Remedies Directive? (C-391/15)

In its Judgment of 5 April 2017 in Marina del Mediterráneo and Others, C-391/15, EU:C:2017:268, the European Court of Justice (ECJ) issued another preliminary ruling on the scope of the Remedies Directive. The case required clarification on the concrete type of decisions that interested tenderers can challenge under the Remedies Directive.

In particular, the case sought clarification on whether the review procedures mandated by Art 2(1), and applicable to "decisions taken by the contracting authorities" (as per Art 1(1) Remedies Directive), had to allow a tenderer to challenge a decision by which the contracting authority allowed another economic operator to submit a tender in a public procurement procedure. That is, whether the Remedies Directive created standing to challenge exclusion and selection decisions that concerned other tenderers.

This issue can be seen as controversial because there are two ways in which the analysis can be framed. Firstly, it can be considered that a decision not to exclude (or to select) a competing tenderer does not necessarily produce adverse legal effects for other tenderers--and, consequently, there are no subjective rights to be protected at this stage. Secondly, and to the contrary, it can be considered that a decision that determines the number of competing tenderers among which the contracting authority needs to choose the awardee of the contract produces legal effects on all tenderers involved--and, consequently, there can be (soft?) subjective rights meriting protection both in decisions to exclude (vis-a-vis the excluded tenderer) and not to exclude (vis-a-vis all other tenderers).

The first approach to this issue would be closer to a strict interpretation of the procedural rights implicit in the participation in a procurement process--ie that unless a decision makes it impossible for a tenderer to continue its participation in the tender, there is no decision for which revision it has a legitimate interest / legal standing. The second approach is probably closer to a substantive interpretation of those same procedural rights, as well as supportive of a system of private oversight of compliance with (EU) public procurement law through private actions, where challenges on the basis of the illegality of exclusion and selection decisions are easier to accommodate.

In Marina del Mediterráneo, the relevant Spanish rules followed the first approach, and determined that: "the following acts may be the subject of the application [for judicial review]: (a) Contract notices, specifications and contractual documents laying down the conditions which will govern the procurement procedure; (b) Preparatory acts adopted in the tendering procedure, provided that they decide, directly or indirectly, the award of the contract, make it impossible to continue the procedure or to put up a defence, or cause irreparable harm to legitimate rights or interests. Acts of the procurement board which decide to exclude tenderers will be considered preparatory acts which make it impossible to continue the procedure; (c) Award decisions adopted by the contracting authorities" (C-391/15, para 11, emphasis added).

Thus, under Spanish law, a decision to exclude a tenderer can be challenged 'there and then' by the excluded tenderer, but a decision not to exclude (or to select) that tenderer can only be challenged by other tenderers at the end of the procedure (ie during standstill) and only on the basis of the illegality of the decision to award the contract to that particular tenderer and/or any of the preparatory acts for that decision. 

Therefore, by challenging the Spanish rule, the preliminary reference fundamentally--but rather implicitly--concerned the extent to which Arts 1(1) and 2(1) of the Remedies Directive can be transposed/interpreted in a way that limits the procurement decisions open to (separate, immediate) review to those that negatively affect the subjective rights of a tenderer (in a narrow construction), or whether those provisions create a catch-all category that makes (virtually) all decisions taken by the contracting authority along the procurement processes susceptible of (separate and particularised) review.

That not absolutely all decisions need to be subjected to the review procedures of the Remedies Directive was suggested on the basis of Commission v Spain (C‑214/00, EU:C:2003:276, para 80), where the Commission challenged the same Spanish rule for failing to ‘allow review to be sought of all decisions adopted by the contracting authorities, including all procedural measures, during the procedure for the award of public contracts’, and the ECJ rejected that maximalist approach on the basis that ‘the Commission has not established that that legislation does not provide adequate judicial protection for individuals harmed by infringements of the relevant rules of [Union] law or of the national rules transposing that law’. This could be seen as a decision purely on the (lack of) evidence adduced by the Commission. However, even if a wider reading of the ECJ decision is adopted to the effect that there may be procurement decisions that do not harm individual rights in a manner that merits (separate, immediate) review, the boundaries of the categories of decisions covered by the Remedies Directive remained all but fuzzy, and the extent to which Arts 1(1) and 2(1) of the Remedies Directive had to be interpreted in a restrictive or an expansive way required clarification.

It is worth stressing that AG Bobek (Opinion of 8 September 2016, C-391/15, EU:C:2016:651) was convinced by the first approach outlined above (ie a restrictive interpretation of the Remedies Directive) because constructing the remedies system "in such a broad and rather limitless way would mean that every single decision, however marginal and ancillary, could be immediately attacked, and the award procedure effectively halted. Yet, ... a reasonable balance must be struck between the different interests at stake in public procurement procedures, namely, the right of access to court and judicial review to challenge aspects of the procedure, on the one hand, and effectiveness of the overall procedure and judicial expediency, on the other" (para 34, footnote ommitted). 

Therefore, in an Opinion that seemingly tried to avoid declaring the necessary justiciability of (every) exclusion and selection decision, invited the ECJ to declare that national procedural rules could avoid subjecting those decision to direct (and specific) review provided that: "(a) the national legislation does not hinder immediate review of preparatory acts that produce adverse legal effects on undertakings; and (b) a plea of illegality of preparatory acts that do not produce adverse legal effects on undertakings, such as a decision to admit a candidate to a tendering procedure, can be made in support of an action against the final decision awarding the contract taken on the basis of those preparatory acts" (para 67) . 

In short, the ECJ disagreed with AG Bobek and found that, where there are allegations that a decision allowing a tenderer to participate in a procurement procedure was adopted in breach of EU public procurement law or the national legislation transposing it, national rules must class such decision among the preparatory acts of a contracting authority which may be subject to an independent judicial review--or, in simpler terms, that exclusion and selection decisions concerning other tenderers are open to the review procedures of the Remedies Directive. the reasons given by the ECJ are primarily that:

[the] broad construction of the concept of a ‘decision’ taken by a contracting authority is confirmed by the fact that Article 1(1) of [the Remedies Directive] does not lay down any restriction with regard to the nature or content of the decisions it refers to. Moreover, a restrictive interpretation of that concept would be incompatible with the terms of Article 2(1)(a) of that directive which requires Member States to make provision for interim relief procedures in relation to any decision taken by the contracting authorities (para 27).

And that:

... although [the Remedies Directive] has not formally laid down the time from which the possibility of review, as provided for in Article 1(1), must be open, the objective of that directive, as referred to in the preceding paragraph, does not authorise Member States to make the exercise of the right to apply for review conditional on the fact that the public procurement procedure in question has formally reached a particular stage ...  the fact that the national legislation at issue ... requires, in all cases, a tenderer to wait for a decision awarding the contract in question before it may apply for a review of a decision allowing another tenderer to participate in that procurement procedure infringes the provisions of [the Remedies Directive] (paras 31 and 34).

In my view, even if there are issues of consistency with previous case law that may require some additional fine tuning, there is no question that the ECJ has taken a very expansive approach to the interpretation of the Remedies Directive on this occasion, and that the thrust of the Marina del Mediterráneo Judgment reflects a wide approach to the provision of procurement remedies.

This puts significant pressure on domestic review procedures to ensure that virtually all decisions taken by a contracting authority can be challenged, and that the challenge is available as soon as possible -- and definitely before the award of the contract because as expressed in the "first and second recitals, [the Remedies Directive] is intended to strengthen the existing mechanisms, both at national and EU levels, to ensure the effective application of the directives relating to public procurement, in particular at a stage when infringements can still be corrected" (para 30). This is particularly relevant in view of the (unnecessary) declaration by the ECJ that "Articles 1(1) and 2(1)(a) and (b) of [the Remedies Directive have direct effect" (para 41), which will provide robust legal foundation to challenges against existing domestic rules on access to review procedures.

This approach is bound to further judicialise public procurement oversight through expanded justiciability of (exclusion, but not only) decisions, and puts renewed pressure on the development of more robust procurement review procedures by the Member States--possibly requiring a reform of the Remedies Directives themselves, as I discuss at length in "'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), Administrative oversight and judicial protection for public contracts (forthcoming). In my view, this is not necessarily a blueprint for desirable regulatory reform and more thought needs to go into the balance between public compliance oversight and private enforcement of the EU public procurement rules. However, it seems out of the question that legal reform will be necessary (in Spain and elsewhere) and, in my view, that the European Commission abandoned the revision of the Remedies Directives too quickly.

Are the EU Institutions (about to start) breaching Art 50 TEU & EU public procurement law in the context of Brexit?

The Financial Times has reported that "Brussels starts to freeze Britain out of EU contracts ~ Commission memo tells staff to prepare to ‘disconnect’ UK". According to the FT, an internal European Commission memorandum urges its senior officials to start introducing Brexit considerations in their decision-making, seemingly to avoid “unnecessary additional complications”. As public procurement is concerned, the FT indicates that 

Where legally possible, the [C]ommission and its agencies will be expected in all activities to “take account” of the fact that Britain may be “a third country” within two years, including in appointing staff and in awarding billions of euros of direct contracts for research projects or services.

“Apart from the legal requirement for a contracting party to be established in the EU, there may be political or practical reasons that speak in favour of contracting parties established in a specific member state, not only at the conclusion of the contract, but also throughout the duration of the contract,” the note states.

The FT piece lacks the necessary detail for a full legal assessment and the caveat that this strategy should be undertaken "where legally possible" may well deactivate it [in legal terms]. However, at least in its thrust, this is a rather clear breach of Article 50(3) TEU.

Inasmuch as it states that "The Treaties shall cease to apply to [a withdrawing Member] State ... from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification" (given by the UK on 29 March 2017), unless this period is extended unanimously by the European Council; Art 50(3) TEU does not allow for any anticipatory effects of a decision to withdraw. Until withdrawal and its terms are actually agreed and legally effective, both the withdrawing Member State and the EU Institutions remain bound by EU law in its supremacy, direct effect and the mandate to respect the rule of law (Art 2 TEU). This is an appropriate measure aimed at the preservation of the rule of law in the form of compliance with EU law during the withdrawal negotiations, not least because nobody knows if withdrawal is legally irreversible and unavoidable -- and, quite frankly, every day that goes by without the EU Institutions (as well as the UK) seeking clarification from the Court of Justice of the European Union is a missed opportunity and another blow to the foundations of the rule of law in the EU.

Such prohibition of anticipatory effect goes both in the direction of preventing the 'freeing up' of the withdrawing Member State from compliance with EU law (which is obvious from Art 50(3) TEU itself), as well as in the opposite direction of preventing the EU Institutions from discriminating against the withdrawing Member State. It is clear to me that EU law will always bind the EU Institutions vis-a-vis a withdrawing Member State all the way up to the point of legal withdrawal - and from then onward, the legal regime setting up mutual duties will be that of any transitory arrangements created by the withdrawal agreement, and/or the legal regime governing the "the framework for [the withdrawing Member States'] future relationship with the Union". Violating the absolute mandate of subjection to EU law up to the point of withdrawal would be an infringement of Art 50(3) TEU by the EU Institutions -- if not by itself, certainly in combination with the duty of non-discrimination and equal treatment between Member States of Art 4(2) TEU, as well as the duty of sincere cooperation of Art 4(3) TEU.

In the specific area of public procurement, just as it was illegal for the UK's Department for International Trade to tender contracts screening contractors on the basis of their commitment to support the delivery of Brexit as a cultural fitness criterion (see here), it is also illegal for the EU Institutions to tender contracts on the basis of "political or practical reasons that speak in favour of contracting parties established in a specific member state, not only at the conclusion of the contract, but also throughout the duration of the contract". Article 102 of the Financial Regulation governing the award of contracts by EU Institutions clearly establishes that "All public contracts financed in whole or in part by the [EU] budget shall respect the principles of transparency, proportionality, equal treatment and non-discrimination". Imposing requirements around the Member State of incorporation, registration or sit of a public contractor runs against these general principles.

There may be some specific circumstances or projects (the FT piece mentions the Galileo project) where it would not be possible for public contractors to be based outside the EU, but these are clearly exceptional and need to be subjected to a very strict proportionality analysis. In most cases, particularly for services and research contracts, there is no need for any physical presence in the EU (or elsewhere). This is clearly demonstrated by the coverage of a good number of Brexit-sensitive services markets in the EU's market access concessions under the World Trade Organisation's Government Procurement Agreement (albeit on a reciprocal basis, for obvious trade policy reasons).

Moreover, the extent to which it would be impossible for UK-based contractors to complete the execution of public contracts post-Brexit depends on the existence or not of transitory arrangements, as well as the framework for the future EU-UK relationship (which may well imply mutual coverage of services procurement in WTO GPA terms). Therefore, a decision made now that determined such impossibility and thus served as the basis for the exclusion of UK tenderers from procedures carried out by the EU Institutions would be legally defective.

Beyond these technical issues, it is shocking and worrying to see the EU Institutions engage in what can be seen as trade war by erecting non-tariff barriers against a withdrawing Member State, just as it was worrying and unacceptable to see the UK do that. If both parties to the withdrawing negotiations "prepare" for a disorderly Brexit in this manner, this will be a self-fulfilling prophecy. And the only stopper to such noxious developments is to be found in the rule of law and the EU's and the withdrawing Member States' obligations under the Treaties to comply with EU law until the withdrawal is effective in terms of Art 50(3) TEU. If the European Commission is itself not able to abide in this manner, then my pessimism about the irreversible effects of Brexit on EU law can only plummet even further....

Things for your procurement radar before the Easter break

Dear reader, 

This has been a busy start of the year and I look forward to unwinding for a while during Easter break. I hope you will also have a good break and to find you again here after the holiday. In the meantime, I thought I would put some things on your procurement radar:

The ECJ decided two important cases on 5 April 2017, which I will comment in detail in forthcoming posts after the break: 

  • Borta, C-298/15, EU:C:2017:266, on the incompatibility with EU procurement law of a national rule partially prohibiting subcontracting by establishing that, where subcontractors are relied on for the performance of a public works contract, the tenderer is required to perform itself the main works, as defined by the contracting entity. In this case, the ECJ has largely followed the Opinion of AG Sharpston (commented here).
  • Marina del Mediterráneo and Others, C-391/15, EU:C:2017:268, on the scope of the Remedies Directives. In short, the ECJ found that, where there are allegations that a decision allowing a tenderer to participate in a procurement procedure was adopted in breach of EU public procurement law or the national legislation transposing it, national rules must subject such decision to an independent judicial review. This is bound to further judicialise exclusion decisions and puts renewed pressure on the development of more robust procurement review procedures--possibly requiring a reform of the Remedies Directives themselves, as I discuss at length in "'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), Administrative oversight and judicial protection for public contracts (forthcoming).  

I have just finished two papers:

If you decide to read any of these cases or papers during the Easter break, happy reading!

 

Public procurement in the CJEU's 2016 Annual Report - What a Busy Year and How Much New Case Law To Keep Up With

The Court of Justice of the European Union (CJEU) has published its 2016 Annual Report, including a detailed assessment of its judicial activity. Even at first read, it is clear that public procurement features more prominently in this year's edition, where the CJEU offers some comments on key ECJ cases, such as Falk PharmaPartner Apelski Dariusz and Wrocław — Miasto na prawach powiatu, and PFE (see Judicial Activity Report, pp 64-65); as well as some comments on key GC cases on public procurement by the EU Institutions and on Commission's Decisions on Utilities Procurement, such as Österreichische Post v Commission, or European Dynamics Luxembourg and Others v EUIPO on the concept of conflict of interest (currently under appeal) (pp. 182-183).

The 2016 Annual Report also allows for an expansion of previous statistical analysis of the ECJ's and GC's case load in the area of public procurement (see also analyses for 2015, 2014 and 2012).

Interestingly, 2016 data shows a reduction in the accumulation of procurement-related backlog, which is now reduced to its 2010 level if the institution is taken as a whole. As the graphs below show, this reduction in backlog is mainly due to increased decision-making at ECJ level and to a significant reduction of new cases at GC level. It is worth taking a closer look at both issues.

Sharp reduction in number of new cases before the GC

The number of new procurement cases before the GC dropped from 23 in 2015 to only 9 in 2016, which marks the all time lowest level since 2006, when the statistical series started. This sharp reduction in new cases allowed the GC to catch up with some of its backlog from previous periods and to reduce it by one third (from 35 to 24 pending cases in the 2015-2016 comparison). However, the low number of cases at GC level, which mostly concerns challenges to procurement decisions by the EU Institutions, continues to indicate that the creation of more effective remedies mechanisms applicable to EU institutional procurement remains a priority for regulatory reform (as stressed by the Court of Auditors). 

Increased Decision-Making at ECJ Level

It is particularly remarkable that the ECJ managed to significantly increase its decision-making in the area of public procurement, moving from an average of 10 decided cases in the 2010-2015 period (with a highest output of 14 decisions in 2015) to 31 decisions in 2016. Coupled with a reduction in the number of new cases from 26 to 19 in the 2015-2016 comparison, this increased level of decision-making activity has cut the backlog of pending cases by one third, thus bringing it back to its 2014 level and stopping (at least for now) the worrying trend observed throughout this decade.

It is interesting to dig a bit deeper in the analysis of this remarkable surge in decision-making activity by the ECJ. The graph below shows the evolution of the public procurement decisions adopted by the ECJ, breaking down annual totals between those closed by Judgment or Opinion (ie substantive decision-making) and those closed by Order (ie procedural decision-making).

As the graph shows, the increased volume of decision-making has resulted in an increased total volume of both substantive and procedural decisions. The impact of this evolution on the different type of decisions may be easier to grasp through a simple ratio. As the table below shows, the increase in decision-making has in part been the result of the adoption of a larger proportion of procedure-based decisions. This may point towards the need for further case-by-case analysis in order to understand if this reflects any new trends concerning the ECJ's management of procurement cases, or if it is simply the result of the larger overall case load in this area. In any case, what is clear is that 2016 was a year of unprecedented substantive decision-making by the ECJ in the area of public procurement. No wonder it felt like such a busy year and that it was hard to keep up with all developments!

Critical Assessment of the BBG-SKI study on the feasibility of joint cross-border public procurement

Following last week's initial reaction to the publication by the European Commission of the "Feasibility study concerning the actual implementation of a joint cross-border procurement procedure by public buyers from different Member States" prepared by BBG and SKI, I have now written a response paper: "Is Joint Cross-Border Public Procurement Legally Feasible or Simply Commercially Tolerated? ~ A Critical Assessment of the BBG-SKI JCBPP Feasibility Study" (2017) European Procurement & Public Private Partnership Law Review (forthc), available at: https://ssrn.com/abstract=2944008.

The paper provides a critical assessment of the BBG-SKI study and submits that, while the study provides some interesting data and details about relevant case studies, it does not shed significant light on the doubts created by the rules on joint cross-border public procurement (JCBPP) in the 2014 Public Procurement Package [which I had previously sketched out here], and that the main weakness of the study is its lack of a general legal analytical framework.

In order to go beyond the shallow legal analysis of the BBG-SKI study and try to gain additional legal insights on the basis of the same empirical data, the paper proposes an analytical framework under which to assess the legal compliance of JCBPP structures. It then summarises each of the case studies included in the BBG-SKI study and offers a critical (re)assessment of the issues that would have required more information and/or which are insufficiently analysed in the BBG-SKI study. Based on this reorganised empirical evidence, the paper proceeds to a critical assessment of some of the outstanding legal barriers and challenges to JCBPP. It concludes by stressing some of the remaining uncertainties concerning legal development at Member State level, and calls on the European Commission to facilitate more detailed research leading to the adoption of future guidance on JCBPP under the 2014 EU Public Procurement Directives.

Some thoughts on recent ECJ case law at ERA's annual conference on European Procurement Law

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One more year, it has been a pleasure to participate in ERA's Annual Conference on European Public Procurement Law, and to exchange views with practitioners and policy-makers about recent developments and future challenges in this important area of EU economic law. It has also been an honour to contribute to the celebrations of ERA's 25 years of good work towards improving our knowledge of EU law.

This year, I was invited to provide some critical remarks on recent case law of the ECJ in some areas of practical relevance and, in particular, on case law concerning:

  1. the rules on subcontracting and teaming or consortium bidding,
  2. the rules on contract modification and termination; and
  3. the scope of the concessions Directive.

My main remarks concentrated on

  1. the difficulties of keeping the right balance between preserving the maximum possible procedural flexibility to ensure participation in tenders by groupings of economic operators (loosely defined) and allowing the contracting authority to scrutinise the technical and economic standing of joint bidders--while ensuring that competition rules are respected and the supreme and directly effective provisions of the TFEU (notably Art 101) are enforced at all levels of procurement activity;
  2. the challenges in adapting a commercially-oriented approach to the adjudication of disputes at execution phase where the risks of discriminatory or anti-competitive procurement are largely absent; and
  3. the limited advances made so far in fine tuning the definition of a concession contract, in particular in cases not involving relatively straightforward instances of improper use of the label 'concession' (such as using it to refer to licences or authorisations), or not involving the need to differentiate the scope of application of the rules in what is now Dir 2014/23 and competing frameworks, such as the Services Directive or the Transport Regulation.

The slides I used appear below. The presentation was recorded and will soon be available (keep an eye on @how2crackanut for details).

Study on the feasibility of joint cross-border procurement published (teaser)

The European Commission has recently published the "Feasibility study concerning the actual implementation of a joint cross-border procurement procedure by public buyers from different Member States" prepared by BBG and SKI. This study is a follow up on the Commission's work on collaborative procurement (see here and here) and is primarily meant to "to carry out a feasibility study on the possible implementation of Joint Cross-Border Public Procurement (JCBPP), in particular focusing on the legal, administrative and organisational aspects of four selected JCBPP projects" (p. 9).

At least in part, the study would have to address the complex legal issues involved in JCBPP projects, which I mapped out in my paper “Collaborative Cross-Border Procurement in the EU: Future or Utopia?” (2016) 3(1) Upphandlingsrättslig Tidskrift 11-37 (to which the study refers). However, the study does not really dig deep on any of those legal issues and keeps the analysis at a very shallow level -- eg stressing on repeated occasions that "JCBPP is more a matter of legal complexity than of legal barriers", which I struggle to understand.

I find particularly puzzling that its main conclusions concerning legal aspects of JCBPP is that

... we must be aware of the fact that the evolution of the legal framework dealing with JCBPP is still in progress and that the regulatory approach towards the complex theme of JCBPP has not wholly settled yet in all its details. Just as in other areas of EU harmonisation legislation, a number of questions will have to be dealt with by the Member State’s legislation and jurisdiction, but may eventually also need answering by the European Court of Justice. However, the relevant legal provisions on the EU level show some gaps, are not always fully coherent and definitely pose a number of interpretational problems of their own. Non[e]theless in looking at the cases portrayed in this study, we also see that from a legal point of view (sic) JCBPP initiatives are not necessarily only a risky endeavour, but also open up opportunities for achieving the goal of enhancing efficiency in public procurement (p. 111, emphasis added).

I am going to re-read the study carefully and comment on it in more detail soon, trying to identify in particular the ways in which the case studies it discusses offer viable legal solutions or allow contracting authorities to exclude or mitigate the legal risks derived from JCBPP. For now, I just wanted to raise awareness of the publication of the report.

We will find out soon enough ~ or maybe not. Some final thoughts on Brexit before the trigger of Art 50

I have spent the last 24 hours in London, attending two very different academic events with only one common theme: Brexit and its long shadow over all areas of law. As a result of the discussions in both events, I have become more painfully aware than ever before (and also rather depressed) about two things.

First, the existence of (explicit and/or implicit) mutually-incompatible redlines on both the UK and the EU negotiating position that, by any objective assessment, make it extremely difficult (to understate this point) that the withdrawal negotiation process due to start on 29 March 2017 will yield significant progress (either at all, or any time soon) -- unless and until the parties significantly deviate from their stated (or expected) demands, which does not seem politically feasible at the moment.

Second, the wild divergence of expectations between UK-based and EU-based scholars and practitioners (which is possibly due to a pragmatic vs a principled approach to the analysis of Brexit and its implications) concerning the possibility of actually (ever) finding legally workable solutions to a myriad issues without requiring long transitional periods leading to not less long-term significant constitutional changes, and a whole host of renegotiation of international agreements (in particular concerning WTO law).

On the whole, I think that the process about to unfold will unavoidably damage EU law as a system. It seems to me unavoidable because, if EU law is upheld, it will be the prime constraint on the (EU's) flexibility to strike a withdrawal deal acceptable to the UK. On the contrary, if EU law is not upheld or if its application is fudged, its effectiveness will be eroded and the European project will become (or deepen its character of being) political rather than based on the rule of law. Finally, in what I consider the worse case scenario, even if Brexit is eventually abandoned or reversed, the strain put on the legal foundations of the EU's legal system during the withdrawal negotiations may well damage the foundations to the point of collapse (in the mid to long run).

I cannot avoid being extremely pessimistic about the developments that we will witness in the next two years or so, and about their long-lasting effects for the EU legal order. I am not sure we are about to see a constitutional moment for EU law, but rather a deformative episode from which I (still) doubt the rule of law will emerge reinforced. As a legal scholar, this saddens me. And I also still wish I got all of this wrong. I guess we will will find out soon enough ~ or maybe not.

Can a requirement to furnish financial guarantees (performance bonds) be considered a selection criterion based on economic and financial standing (C-76/16)?

In his Opinion of 21 March 2017 in INGSTEEL and Metrostav, C-76/16, EU:C:2017:226, Advocate General Campos Sánchez-Bordona addressed the compatibility of tender requirements aimed at ensuring the (future) provision of performance guarantees related to the execution of a works contract with the rules of the 2004 EU public procurement directive (Dir 2004/18). He submitted to the European Court of Justice (ECJ) that such requirements are compatible with EU law and, in particular, with the rules on selection criteria based on the economic and financial standing of economic operators seeking to be awarded public contracts under Art 47 Dir 2004/18. In doing so, he rejected the European Commission’s submission that such requirements, inasmuch as they affected the phase of execution of the contract, ought to be assessed in accordance with the rules on the setting of conditions for the performance of contracts under Art 26 Dir 2004/18.

AG Campos also addressed a point on the time-sensitivity of remedies’ availability (ie whether challenges by disappointed tenderers are barred where the performance of the contract by the awardee is almost complete) under the EU Remedies Directive (Dir 89/665 as amended by Dir 2007/66). He considered that, as interpreted in connection with Art 47 of the European Charter of Fundamental Rights, the procedural rights created by the Remedies Directive do not lapse simply due to the fact that the successful tenderer has almost completed performance of the contract at the time the disappointed tenderer launches its challenge, or the review authority or court is to issue its ruling.

While I fully agree with AG Campos concerning the procedural aspects of his Opinion (which I would have thought both clear and uncontroversial), I think that his analysis of the substantive issues improperly characterises the requirement for the (future) provision of a performance guarantee as a valid selection criterion based on the economic operator’s economic and financial standing. On that point, I consider the analytical framework proposed by the European Commission (partially) preferable. This post develops the reasons why I think the ECJ should not follow AG Campos on the substantive points of his INGSTEEL and Metrostav Opinion.

In the case at hand, “the contract notice required a ‘statement by the bank (loan agreement or credit facility agreement) recording the bank’s undertaking to the effect that the tenderer, in the event of acceptance of its tender, will be in a position to provide a guarantee of EUR 3,000,000 to ensure performance of the contract. The evidence must show that the funds will be available to the tenderer after conclusion of the contract. The evidence must be certified by a person authorised by the bank for that purpose.’” (para 15, emphasis added).

It is hard to make sense of the requirement (which may be a translation issue), but this seems to concern the need to provide a stand-by financial guarantee to the benefit of the contracting authority, which the issuing bank commits to firm up upon award of the contract.

Be it as it may, the disappointed tenderer did not provide such a bank statement, but rather proof of the opening of a current-account credit facility for an amount exceeding EUR 5,000,000 and a sworn statement that, if awarded the contract, they would keep a minimum of EUR 3,000,000 for the duration of the contract (para 17). It is not clear from the factual description in the Opinion whether there was any commitment to provide a guarantee using those funds as collateral, but it does not seem to be the case.

The contracting authority did not accept these documents as evidence of the economic and financial standing of the tenderer and thus excluded it from further participation. The rejection was eventually challenged before the Supreme Court of the Slovak Republic, and the preliminary reference to the ECJ derives from a procedure mainly aimed at assessing (i) whether the contracting authority could introduce this requirement in compliance with the rules on economic and financial standing (Art 47(1)(a) and (4) Dir 2004/18); and (ii) whether the contracting authority should have accepted the documentation as alternative to the specified bank certificate (Art 47(5) Dir 2004/18). Only the first point deserves analysis.

It is important to note here that the European Commission has challenged the legal subsumption of the material facts under Art 47 Dir 2004/18 and submitted that “Article 47 of Directive 2004/18 relates to the economic and financial standing of the tenderer at the time of award of the contract. However, the tenderer’s economic and financial standing during performance of the contract is governed by Article 26 of that directive, concerning conditions for performance of the contract. At all events, in the light of the wording of the question, the Commission suggests that the condition imposed on the tenderer should be examined under both Article 26 and Article 47 of Directive 2004/18” (para 28).

Further, the Commission indicated that “Article 26 of Directive 2004/18 provides that the conditions for performance must appear in the contract notice, a requirement fulfilled in this case, and must be compatible with EU law. Citing the case-law of the Court, the Commission argues that, as Directive 2004/18 does not exhaustively govern the special conditions for performance, those conditions may be assessed in accordance with primary EU law” (para 29, emphasis added).

AG Campos disagreed with the Commission and considered that the approach of assessing the requirement as a performance clause was incorrect. He emphasised that Art 26 Dir 2004/18 is concerned with other issues “and applies, in particular, to social and environmental objectives” (para 43). More importantly, he considered that “in requiring certain minimum levels of economic and financial standing, the presumption in Articles 44 and 47 of Directive 2004/18 is that the proof of that standing must refer to the period of performance of the contract. It would not be reasonable to require economic and financial standing only at the time of award of the contract and for the contracting authority not to have the right to request guarantees that the future successful contractor will retain its economic and financial standing during the period of performance of the contract” (para 44 emphasis added).

Furthermore, after creating an analogy with the case law concerned with reliance on third party capacities, he gave significant weight to the functional criterion that “[w]hen financial or economic resources are concerned, it is reasonable that these should not be ephemeral but should last until the contractual obligations have been performed” (para 48). In any case, AG Campos explicitly saved the requirement due to the fact that the value (EUR 3,000,000) “was related and proportionate to the subject-matter of the contract” and that the duration of the financial guarantee “was the same as the period of performance of the contract” (para 50). However, he did not provide any reasons for the finding that a 12% financial guarantee is proportionate (the estimated value of the contract was just above EUR 25,000,000), or why a duration of 48 moths without a reduction in the value of the guarantee did not need to be assessed in relation to the potential evolution (ie reduction) of risk as the completion of the contract progressed.

In my view, even if the outcome of the analysis may be seen as defensible (of which I am not convinced), the analysis itself is technically flawed. Put simply, the EU public procurement directives (both the 2004, as well as the 2014 generation) do not regulate the possibility for contracting authorities to demand financial guarantees from economic operators participating in tender procedures – neither tender/participation guarantees, nor performance/completion guarantees [see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 326-7 & 425-6]. This not regulated as part of the assessment of the economic operator’s economic and financial standing for selection purposes – which is designed as an information-based screening process, not as a phase where the contracting authority can secure financial rights for itself –and this is also not related to the conditions for the performance of the contract. Moreover, a reinterpretation of the selection rules on economic and financial standing (but also on professional or technical standing) that made them forward looking would create significant distortions in the system created by EU public procurement law, as well as potentially make it impossible to assess.

In the absence of rules on financial guarantees in the relevant EU public procurement directives (ie Dir 2004/18), the analysis of requirements for economic operators to furnish them to the contracting authority should be analysed in accordance with primary EU law – as the Commission rightly stressed, although on the basis of the applicability of Art 26 Dir 2004/18, with which I disagree. In that context, the AG (and in the immediate future, the ECJ) should have assessed whether the requirement of providing a 12% financial guarantee for a duration of 48 months is a barrier to free movement – which I think it is – and whether it can be justified – which I am not sure it can be, as both (i) the public interest in reducing the financial exposure of contracting authorities engaging in public contracts is questionable, and (ii) it may well be (strictly) disproportionate due to the impact it can have on SME access to procurement.

Therefore, the analysis of proportionality need not be intra-tender or confined to the terms of the contract (which could already make it fail), but rather of a higher level of generality, concerning the policy of demanding financial guarantees and its justification from a public interest perspective. Given its detrimental effects for competition, I would not think that demanding these guarantees is necessarily exemptable under free movement rules, at least in relation with contracts that do not raise specific or extraordinary risks.

From that perspective, the proportionality assessment carried out by AG Campos in INGSTEEL and Metrostav almost obiter may not necessarily cover all bases, as it is carried out from the perspective of the link of the requirement to the subject matter of the contract, rather than the perspective of seeking to justify a restriction of a fundamental internal market freedom. But, even if the same result was to be achieved, the analytical path would still be important—ie the limited scope of the exercise of assessing economic operators’ economic and financial standing should not be unduly extended.

This can have major relevance, not least because of the change that the consolidation of the principle of competition in Art 18(1) Dir 2014/24 has brought about. In the future (ie, where Dir 2014/24 is applicable to the case), in my opinion, the inclusion of requirements to provide financial guarantees should be subjected to assessment from the perspective of a potential artificial narrowing of competition. If, in a case such as INGSTEEL and Metrostav, the contracting authority excludes a tenderer on the basis of some (seemingly) formal deviation of the way in which it proposes to provide financial assurance to the contracting authority, this is bound to infringe the requirements of the competition principle. Surely, this analysis could be carried out even if the requirement was considered to pertain to the assessment of the economic operator’s economic and financial standing, but the consolidated recognition of the contracting authorities’ discretion to set those requirements in the first place may muddy the analysis. It seems conceptually preferable to consider it an independent issue, and thus subject to general principles.

Therefore, I would urge the ECJ not to follow AG Campos’ Opinion in INGSTEEL and Metrostav and rather determine that the requirement of financial guarantees was not covered by the 2004 EU public procurement rules and must thus be subjected to a standard assessment under primary EU law (and a strict proportionality test). I would also submit that, under those rules, the requirement was contrary to EU law.

Tecnoedi: An overlooked distortion of the ECJ’s approach to the assessment of cross-border interest for public contracts? (C-318/15)

In its Judgment of 6 October 2015 in Tecnoedi Construzioni, C-318/15, EU:C:2016:747, the European Court of Justice (ECJ) declared inadmissible a request for a preliminary reference sent by the Piedmont Regional Administrative Court, Italy. The case concerned the (in)compatibility with Arts 49 and 56 TFEU of an Italian public procurement rule applicable to (well) below-threshold contracts (ie tenders for works of a value below €1M), which allowed for the automatic rejection of tenders that exceeded an ‘anomaly threshold’ set by the contracting authority, without inter partes procedure.

The case offered the ECJ an opportunity to revisit very close issues to those decided in SECAP and Santorso, C-147/06 and C-148/06, EU:C:2008:277 -- which could also, conversely, have given it the opportunity of determining that the question was unnecessary and that the first principles of that decision stood. However, the ECJ decided to reject the receivability of the case for other reasons. By rejecting the request for a preliminary ruling, the ECJ did not take the opportunity to clarify (or rather, develop) the law in this area. So far, so good.

Given that it does not advance our understanding of the constraints that general EU free movement rules (or possibly general principles of EU public procurement law) impose on the treatment of apparently abnormally low tenders, the Tecnoedi case may easily fall under the radar of both practitioners (with some exceptions, see here and here) and academics (save for readers of the PPLR, which featured a comment by A Brown, 'The requirement for "certain cross-border interest" before EU Treaty obligations apply to below-threshold contacts: the EU Court of Justice ruling in case C-318/15 Tecnoedi', 2017 (1) PPLR NA14) —or, at least, that is the excuse I have given myself to seek justification for having overlooked this case for almost six months... However, not paying attention to Tecnoedi may lead us to miss a potential distortion in the ECJ’s approach to the assessment of the existence of cross-border interest for public (works) contracts.

This is an area where the ECJ’s approach is far from consistent, to say the least. The proper way of determining the (in)existence of cross-border interest for a contract remains elusive and the ECJ has not hammered down an unequivocal or clear test. In one of its most flexible and functional approximations (which I favour), the ECJ accepted that a (concession) contract of very limited financial value (due to the inclusion of a prohibition on profit-making activity) could still be of cross-border interest for business strategy reasons, such as an undertaking's goal to 'establish itself on the market of that State and to make itself known there with a view to preparing its future expansion' [see Comune di Ancona, C-388/12, EU:C:2013:734, para [51] ,discussed here].

Even if that is seen as a relative outlier, or contextualised in the line of case law aimed at establishing basic principles for the tender of services concessions prior to their subjection to the 2014 Concessions Directive, the ECJ’s more general approximation to the existence of cross-border interest for a public contract can be understood, as the referring court put it in Tecnoedi, as establishing that:

In accordance with the Court’s case-law, a contract (sic, tender) may have a certain cross-border interest not only as a result of the financial value of the contract to which it relates, but also as a result of the technical characteristics of the work and the place where the work is to be carried out (para 15).

Furthermore, in accordance with the Court’s case-law, there may be certain cross-border interest, without its (sic) being necessary that an economic operator has actually manifested its interest (judgment of 14 November 2013, Belgacom, C-221/12, EU:C:2013:736, paragraph 31 and case-law cited) (para 16).

This (seemingly) creates the need to carry out a case by case analysis based on rather open-ended indicators and aimed at demonstrating (or excluding) the scope for potential (ex ante) rather than evidenced or actual (ex post) cross border interest for the tendered contract [for discussion, see C Risvig Hansen, Contracts Not Covered or Not Fully Covered by the Public Sector Directive (DJØF, 2012) 121-160].

In the case at hand, the referring court understood that there was potential for cross-border interest for the contract because

… notwithstanding the fact that the works contract at issue … is for an estimated value of EUR 1,158,899.97, it cannot be ruled out that the contract does not have certain cross-border interest as Fossano [the place of execution of the works] is located within 200 km of the border between France and Italy and several of the tenderers admitted to the tender procedure are Italian companies which are established in regions which are not neighbouring, such as … at a distance of approximately [between 600 and 800 km] from Fossano (para 16, emphasis added).

In my view, a reasonable application of the ECJ’s previous approach/test would have waved through the case as (potentially) having cross-border interest. However, in Tecnoedi, this would have required the ECJ to deal with a very complex question and, more importantly, to keep developing non-statutory EU public procurement law on the basis of general internal market freedoms (or possibly general principles of EU public procurement law). Thus, in my view in order to avoid this difficult issue and (likely) criticisms for its judicial activism, the ECJ took a very strict approach to the assessment of potential cross-border interest in this case.

The ECJ first proceeded to recast its test for the assessment of potential cross-border interest as follows:

As regards the objective criteria which may indicate certain cross-border interest, the Court has previously held that such criteria may be, in particular, the fact that the contract in question is for a significant amount, in conjunction with the place where the work is to be carried out or the technical characteristics of the contract and the specific characteristics of the products concerned (para 20, emphasis added).

This can in itself be seen as a significant deviation -- if not an outright partial reading -- of previous case law and, in particular of SECAP and Santorso, C-147/06 and C-148/06, EU:C:2008:277, paragraph 31, on which the ECJ relies expressly in Tecnoedi. In fact, in that very paragraph, the ECJ indicated that

It is permissible ... for legislation to lay down objective criteria ... indicating that there is certain cross-border interest. Such criteria could be, inter alia, the fact that the contract in question is for a significant amount, in conjunction with the place where the work is to be carried out. The possibility of such an interest may also be excluded in a case, for example, where the economic interest at stake in the contract in question is very modest (see, to that effect, Case C‑231/03 Coname [2005] ECR I‑7287, paragraph 20). However, in certain cases, account must be taken of the fact that the borders straddle conurbations which are situated in the territory of different Member States and that, in those circumstances, even low-value contracts may be of certain cross-border interest (SECAP, para 31, emphasis added).

Thus, the ECJ seemed in Tecnoedi rather open to a certain conflation of value and cross-border interest (a move that can ow be traced back to Enterprise Focused Solutions, C-278/14, EU:C:2015:228, para 20, on which the ECJ also relies in Tecnoedi), which did not seem to follow from the previous case on which it relied. On this basis, and taking into account the arguments of the referring court on Fossano’s proximity to France and the evidence that domestic tenderers located further away decided to participate, the ECJ then established that

… a conclusion that there is certain cross-border interest cannot be inferred hypothetically from certain factors which, considered in the abstract, could constitute evidence to that effect, but must be the positive outcome of a specific assessment of the circumstances of the contract at issue. More particularly, the referring court may not merely submit to the Court of Justice evidence showing that certain cross-border interest cannot be ruled out but must, on the contrary[,] provide information capable of proving that it exists. …

… it may not be argued that a works contract … for an amount which does not equate even to a quarter of the threshold laid down by EU law and whose place of performance is located 200 km away from the border with another Member State can be of certain cross-border interest solely because a certain number of tenders were submitted by undertakings established in the Member State in question, which are located at a considerable distance from the place where the work at issue is to be carried out.

That evidence is clearly insufficient having regard to the circumstances of the case …, and, in any event, cannot be the only evidence which must be taken into account, in so far as potential tenderers from other Member States may face additional constraints and burdens relating, inter alia, to the obligation to adapt to the legal and administrative framework of the Member State where the work is to be carried out, as well as to language requirements [Tecnoedi, paras 22-25, emphases added].

This assessment by the ECJ is bound to create perplexity, not least because it adopts an anti-integrative logic that comes to say: “since there are clear regulatory and language barriers to the functioning of the internal market for public contracts, let’s not even bother to consider the extent to which fundamental market freedoms have a role in bringing them down”.

It also seems to encapsulate an approach that could limit the relevance of its case law on the application of general principles of EU public procurement law to contracts that are sufficiently close to the thresholds triggering the application of the substantive directives. This triggers questions such as how close must the value be to the directive’s thresholds for cross-border interest to be likely? If very close, then what is the purpose of this line of case law anyway, and would it not have been better to stick (strictly) to the value thresholds as redlines for EU competence (including that of the ECJ)? If not very close, then how many shades of grey do we have in this area, and how can a contracting authority (or review tribunal or court) reasonably establish the (likelihood of) applicability of general principles and fundamental internal market freedoms?

To me, these defects alone are sufficient to consider Tecnoedi a troubling distortion of the ECJ’s approach to the assessment of cross-border interest for public contract—fundamentally because it creates a crack in (if not smashes) the normative and functional logic of previous case law and, on the whole, creates a risk of significant restriction of application of the general principles of EU public procurement law going forward.

Moreover, and at a lower level of generality, I also harbour the strong suspicion that the ECJ sees this as a relatively safe or unobjectionable assessment because it concerns a rule on the treatment of (automatically identified) abnormally low tenders that may be (improperly) considered not to create a barrier to free movement because it applies at evaluation rather than selection stage—and also because the request for the preliminary ruling was clearly defective in its lack of clarity of both the content of the Italian rule and its application to the specific case (which seems not to be possible on the basis of the limited information provided in the ECJ’s judgment). Thus, the ECJ probably may have seen this approach to the assessment of cross-border interest as an easy way to return the hot potato to the referring court without burning its hands.

However, in my opinion, this approach is clearly unsafe and objectionable when put in a different (broader perspective). Let’s imagine that the challenge had been directed at a rule on selection or exclusion (eg a rule restricting participation in tenders for this type of works contracts to undertakings located in the relevant Italian region, in this case Piedmont). In that case, the ECJ may (would) have been more willing to accept that the (same) test of (potential) cross-border interest based on the exact same indicia of economic irrelevance of a 200 km distance lent itself the opposite conclusion, and thus resulted in jurisdiction of the ECJ to interpret the relevant Italian (regional) rule against Arts 49 and 56 TFEU – or, even further, in its jurisdiction to (uphold) an Art 258 TFEU decision of the European Commission finding Italy in breach of EU law for such blatantly discriminatory rule, ultimately based on the tenderers’ nationality (which could easily dwarf the ECJ’s qualms about accepting the existence of potential cross-border interest in cases such as this).

Overall, for these reasons, I consider the Tecnoedi judgment very troubling. I can only hope that it will not go unnoticed and that the ECJ will backtrack from this rigid approach to the existence of (potential) cross-border interest in a tender for a public (works) contract.