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

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

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

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

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

The Norwegian reservation and exclusion of contracts

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

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

Reservation of contracts to non-profit organisations

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

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

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

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

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

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

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

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

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

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

Direct award of contracts involving the exercise of official authority

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The CNADNR case

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

© Erwin Wurm

© Erwin Wurm

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

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

The illegality of the partial termination of the concession contract

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The UK Supreme Court's approach

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

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

More importantly, the UK Supreme Court considered that

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

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

The EFTA Court's approach

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

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

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

This led it to reach the view that

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

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

(2) Minimum harmonization through the Remedies Directive

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

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

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

(3) Maximum harmonization through a revised remedies directive?

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

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

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

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

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

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

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

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

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

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

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

Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?

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Dr Pedro Telles and I have just published 'Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?' (2017) 47(1) Public Contract Law Journal 1-33 and, thanks to the permission of the American Bar Association, made it available through SSRN https://ssrn.com/abstract=3076543. This is the abstract:

The United Kingdom has formally started the process of leaving the European Union (so called Brexit). This has immersed the UK Government and EU Institutions in a two-year period of negotiations to disentangle the UK from EU law by the end of March 2019, and to devise a new legal framework for UK-EU trade afterwards. The UK will thereafter be adjusting its trading arrangements with the rest of the world. In this context, public procurement regulation is broadly seen as an area where a UK ‘unshackled by EU law’ would be able to turn to a lighter-touch and more commercially-oriented regulatory regime. There are indications that the UK would simultaneously attempt to create a particularly close relationship with the US, although recent changes in US international trade policy may pose some questions on that trade strategy. Overall, then, Brexit has created a scenario where UK public procurement law and policy may be significantly altered.

The extent to which this is a real possibility crucially depends on the framework for the future trading relationship between the UK and the EU. Whereas ”EU-derived law” will not restrict the UK’s freedom to regulate public procurement, the conclusion of a closely-knit EU-UK trade agreement covering procurement could thus well result in the country’s continued full compliance with EU rules. Nonetheless, this is not necessarily a guaranteed scenario and, barring specific requirements in future free trade agreements between the UK and the EU or third countries, including the US, the World Trade Organisation Government Procurement Agreement (GPA) seems to be the only regulatory constraint with which future UK public procurement reform needs to conform. However, the position of the UK under the GPA is far from clear. We posit that the UK will face a GPA accession process and GPA members may see Brexit as an opportunity to obtain new concessions from the UK and the EU, which could be both in terms of scope of coverage or regulatory conformity. Further, given the current trend of creating GPA plus procurement chapters in free trade agreements, such as the US-Korea FTA, the GPA regulatory baseline will gain even more importance as a benchmark for any future reform of public procurement regulation in the UK, even beyond the strict scope of coverage of the GPA. Given the diversity of GPA-compliant procurement systems (such as the EU’s and the US’), though, the extent to which the GPA imposes significant restrictions on UK public procurement reform is unclear. However, we argue that bearing in mind the current detailed regulation in the UK might itself limit deregulation due to the need to comply with the international law principle of good faith as included in the 1969 Vienna Convention on the Law of Treaties and, to a certain extent, the United Nations Convention Anti-Corruption. 

The aim of this paper is to try to disentangle the multi-layered complexities of Brexit and to explore the issues that Brexit has created in the area of international public procurement regulation, both from the perspective of ‘internal’ EU law-related issues and with regard to broader ‘external’ issues of international trade regulation, as well as to assess the GPA baseline regulatory requirements, and to reflect on the impact these may have on post-Brexit public procurement reform in the UK.

Interesting AG Opinion on limits of duty to investigate intra-group collusion in procurement (C-531/16)

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In his Opinion of 22 November 2017 in Specializuotas transportas, C-531/16, EU:C:2017:883, Advocate General Campos Sánchez-Bordona has considered the limits of a contracting authority's duty to investigate potential intra-group collusion or manipulation of tender procedures by entities belonging to the same corporate group--in particular in a setting where the tenderers are under no specific obligation to disclose their links to the contracting authority, but the contracting authority is aware of those links and can identify signs that point towards potential collusion. In my view, his approach is functional and enabling, and pushes for a competition-orientated exercise of the contracting authority's discretion.

AG Campos concluded that, on the one hand, '[i]n the absence of an express legislative provision or a specific requirement in the specifications governing the conditions for the award of a service contract, related tenderers which submit separate tenders in the same procedure are not under an ineluctable duty to disclose their links to the contracting authority'. And, on the other hand, that '[t]he contracting authority will be obliged to request from those tenderers the information it considers necessary if, in the light of the evidence available in the procedure, it harbours doubts concerning the risk that the simultaneous participation of those tenderers will undermine transparency and distort competition between operators tendering to provide the service' (para 87).

In my view, and for the reasons discussed below, AG Campos' approach creates the right set of incentives both for national legislators and for contracting authorities. Even if his Opinion is concerned with the regime under Directive 2004/18/EC, in my view, the balance of duties deriving from EU law and those that can be created under the national law of the Member States will extend to the system created by Directive 2014/24/EU--as, ultimately, the second part of AG Campos' conclusion is compatible with the principle of competition in Article 18(1) thereof, and the first part will be largely unaffected by any self-certification requirements concerning the discretionary exclusion ground in Art 57(4)(d) under the ESPD.

The case and the questions in the preliminary reference

In the case at hand, both Specialus autotransportas UAB (‘tenderer A’) and Specializuotas transportas UAB (‘tenderer B’) had submitted tenders for a contract for the provision of municipal waste collection and transportation services. Both tenderers were subsidiaries of Ecoservice UAB (‘Ecoservice’) (see paras 15 and 16). However, they did not disclose this information explicitly to the contracting authority. Instead, tenderer B 'voluntarily submitted a declaration of honour to the effect that it was taking part in the call for tenders on an autonomous basis and independently of any other economic operators which might be connected to it, and it requested the [contracting authority] to treat all other persons as competitors. It further stated that it undertook, should it be so required, to provide a list of economic operators connected to it' (para 17).

The contracting authority eventually rejected tenderer A’s tender on the ground that it did not comply with one of the conditions set out in the tender specifications; and tenderer A did not contest that decision. The contract was ultimately awarded to tenderer B. The review court rejected a complaint by a disappointed competitor, arguing that the tenders submitted by A and B had not been properly evaluated and that the principles of transparency and equality before the law had been infringed. An appeal of such decision brought the preliminary reference to the Court of Justice (see paras 18-21).

Thus, in Specializuotas transportas, the referring court asked a long list of very detailed questions concerning the duties for a contracting authority to carry out an in-depth assessment of potential intra-group collusion for the manipulation of a public tender.

Interestingly, during the procedure before the Court of Justice, the contracting authority clarified that it was aware of the links between the tenderers because this was public knowledge, so that at no time was it misled when it took its decisions; and that 'quite apart from the relationship between the tenderers, which does not of itself imply an absence of competition, there [were] a number of objective factors in the instant case which enabled it to conclude that those tenderers were in competition with one another' (paras 26-27).

AG Campos' analysis

AG Campos grouped the questions under reference into two main issues: (1) whether related tenderers which submit separate tenders are under a duty, in all cases, to disclose that relationship to the contracting authority and, if so, what the consequences of failure to do so are; and (2) how must the contracting authority — and any court which reviews its actions — proceed where it becomes aware of the existence of important links between certain tenderers (para 42).

The answer to the reformulated issue (1) is straightforward, and AG Campos puts it simply that 'A requirement (the alleged duty to declare links with other companies) which is not set out in the contract documents, is not provided for in national law and is not laid down in Directive 2004/18 does not pass the transparency test referred to by the Court. ..., in the absence of an express legislative provision (of EU law or of national law), related tenderers are not under a duty to disclose the relationship between them to the contracting authority' (para 48, emphasis in the original). In my view, this is the correct approach. Any practical shortcomings derived from the absence of such explicit rules should by now be overcome with the adoption of the European Single Procurement Document (see part III.C of Annex 2 of the ESPD Implementing Regulation) and, if not, the position adopted in the Opinion creates a clear incentive for all Member States to reconsider their approach to tenders by related undertakings and the corresponding information requirements for exclusion/rejection screening purposes.

Moreover, AG Campos also provides convincing reasons for the rejection of an implicit duty to disclose the links between tenderers (paras 49-52), as well as for rejecting the analysis of both tenders as variants (constructively) submitted by the same holding company (Ecoservice) (paras 53-62). In this part of the analysis, AG Campos refers to my views on the automatic exclusion of tenders submitted by entities belonging to the same corporate group (see fn 20, with reference to Sánchez Graells, A., Public Procurement and the EU Competition Rules, Hart, Oxford, 2nd ed., 2015, p. 341). I am greatly honoured by this reference.

The answer to the reformulated issue (2) is potentially less straightforward and the reasoning of AG Campos merits close attention. His starting point is that the relevant analysis concerns 'whether ... the contracting authority is under a duty to ask related tenderers to provide evidence that their situation does not run counter to the principle of competition ... [and] whether inactivity on the part of the contracting authority would be sufficient for a declaration that its conduct in the procedure is unlawful' (para 67). Furthermore, he considers that 'the aim is not so much to protect the (general) competition between independent operators in the internal market as to protect the (more specific) competition which must operate in procedures for the award of public contracts. From that perspective, what really matters is the separateness of and genuine difference between the respective tenders (which will enable the contracting authority to choose the tender most favourable to public interests), whether the tenderers are independent or related economic operators' (para 71, reference omitted and emphasis added). In my view, this points towards an analysis that is more demanding than a simple general competition test because, as the Opinion also rightly points out, the general prohibition of anticompetitive conduct in Article 101(1) TFEU does not apply to intra-group relationships (para 69).

Concerning the specific duty to investigate potential intra-group collusion in the procurement setting, AG Campos constructs the following reasoning:

... the judgment in Etruras and Others states that ‘the principle of effectiveness requires that an infringement of EU competition law may be proven not only by direct evidence, but also through indicia, provided that they are objective and consistent.’ The judgment in VM Remonts and Others states that, in the absence of EU rules on the matter, ‘the rules relating to the assessment of evidence and the requisite standard of proof … are covered … by the procedural autonomy of the Member States’.

Applying that case-law to the facts at issue in the main proceedings, where the contracting authority is aware that related tenderers are participating in the procedure, the ‘active role’ expected of it, as the guarantor of genuine competition between tenderers, should normally lead it to make certain that the tenders submitted by those tenderers are separate

In short, that requirement is just one of the measures aimed at "[examining] all the relevant circumstances … in order to prevent and detect conflicts of interests and remedy them, including, where appropriate, requesting the parties to provide certain information and evidence."

However, the contracting authority may, in cases such as the present one, dispense with a communication to the related tenderers, asking them, ... "to clarify whether and how their personal situation is compatible with free and fair competition between tenderers". Clearly, "where appropriate, requesting the parties to provide certain information and evidence" may be important if the information and evidence available to the contracting authority is not sufficient for it to form a view regarding the risk that the tenders are not separate and distort competition.

Therefore, what matters is not that the contracting authority contacts the related tenderers, asking them for information about their relationship and seeking their view regarding the protection of the principle of competition between tenderers. The decisive factor is, rather, that the contracting authority is in a position to conclude that the simultaneous participation of those related operators does not jeopardise competition. The contracting authority may, of course, reach that conclusion by requesting that information or that view from the tenderers but it may also do so by referring to the information already available in the procedure and therefore without the need to approach the tenderers (paras 76-80, references omitted and emphasis added).

Ultimately, when assessing the extent to which the contracting authority discharged its duty to ensure effective competition for the contract and equality of treatment in the assessment of the tender, AG Campos stresses that '[e]verything will depend on the sufficiency or insufficiency of the available evidence and, therefore, on the objective soundness of the contracting authority’s decision to allow related tenderers to participate in the tendering procedure, on which it ultimately falls to the national court to rule' (para 86).

Final thoughts

As mentioned above, I think that the approach taken by AG Campos in the Specializuotas transportas Opinion is functional and enabling, and pushes for a competition-orientated exercise of the contracting authority's discretion. In situations where the contracting authority is aware of the existence of links between (seemingly) competing tenderers, it is appropriate to expect a high level of diligence--that is, to establish that 'the ‘active role’ expected of it, as the guarantor of genuine competition between tenderers, should normally lead it to make certain that the tenders submitted by those tenderers are separate' (para 77).

In my view, this is completely in line with the principle of competition of Article 18(1) Dir 2014/24/EU and seeks to avoid that contracting authorities tolerate an artificial narrowing of competition by inaction or omission. Conversely, the Opinion also seems to indicate that contracting authorities have a self-standing role as 'guarantors of genuine competition between tenderers', which is a good foundation on which to build a broader due diligence duty to identify the existence of indications of distortions of competition by colluding tenderers--whether linked through corporate group relationships or not. On the whole, then, the Opinion of AG Campos in Specializuotas transportas must be welcome and it can be hoped that the Court of Justice will not only follow his approach, but consolidate the general duty for contracting authorities to actively act as the 'guarantors of genuine competition between tenderers'

GC decision delimiting obligation to assess abnormally low tenders, where contracting authority changes tenders (T-281/16)

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In its Judgment of 10 October 2017 in Solelec and Others v Parliament, T-281/16, EU:T:2017:711 (only available in French), the General Court of the Court of Justice of the European Union (GC) decided one more case concerning the analysis of potentially abnormally low tenders under the 2012 Financial Regulation. Solelec brings in a twist to the previous case law, which derives from the fact that the winning tender was unilaterally 'arithmetically adjusted' by the contracting authority during the award process in a manner that increased its value by approximately 10%. The GC, perhaps surprisingly, took no issue.

This is an area of litigation that has triggered a significant number of recent decisions (see here, here and here), and these are consolidating a two-step approach to the analysis of abnormally low tenders: (i) an initial motu proprio duty for the contracting authority to screen tenders for signs of apparent abnormality without a corresponding duty to explicitly provide reasons when it does not identify those signs (and, alternatively, a duty to start the information-seeking inter partes procedure with the affected tenderer), and (ii) upon allegations by the tenderers, a duty to investigate claims of apparent abnormality, and an interrelated duty to provide sufficient reasons for its findings (one way or the other).

Solelec concerned the second type of duties, as the GC was faced with a case where a disappointed tenderer (Solelec, as part of a consortium, together with Mannelli, Wagner & Socom) challenged the award of a contractual lot to a competing consortium (Muller & Putman), on the basis that (i) the latter's tender was abnormally low and (ii) that Muller & Putman did not meet the applicable qualitative selection criteria. This second line of argument makes the case also partially comparable to Marina del Mediterráneo (see here), concerning the justiciability of allegations of improper assessment of selection criteria concerning competing tenderers. In that regard, in my view, Solelec is another case supporting the need to regulate more clearly pre-litigation procedural phases where undertakings want to challenge qualitative selection decisions concerning themselves or competing tenderers.

In Solelec, the European Parliament rejected Solelec's arguments on the lack of qualification of the Muller & Putman consortium the first time they were submitted on the basis that tenderers are not allowed to contact the contracting authority after the submission of the tenderers and until an award decision is made (see paras 5-6). This is a highly formalistic approach, and one that pushes all such claims to the litigation stage. This is undesirable and, in general, the regulation of a pre-litigation possibility of airing all concerns about qualification would be desirable [see A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts', in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Bruylant, 2018, forthcoming)].

On substance, firstly and concerning Solelec's claims that Muller & Putman did not meet the required qualitative selection criteria, the GC dismissed the argument that the late deposit of financial statements under domestic law (Luxembourg) can be a cause for a determination of lack of financial or professional standing, in particular if that is not indicated in the tender documentation as an exclusion ground (paras 28-32), it also dismissed a claim that a potential breach of domestic corporate law could lead to exclusion, where that breach would be in the future and susceptible of being remedied by the tenderer concerned (paras 33-45--in the case, the need to extend the period of establishment of a corporate entity), and engaged in a very detailed assessment of claims of inexistence of required references supporting past experiences claims, in a setting where the information that had been disclosed to Solelec had been redacted on the basis of the protection of commercial and business secrets of Muller & Putman (paras 46-106). Part of the latter discussion is particularly interesting in relation with the possibility of remedying incomplete tender documents (à-la-Manova, see paras 60-78).

Secondly, and concerning Solelec's claim that Muller & Putman's tender was abnormally low, the GC discusses the reasons why the fact that the latter offer was 30% lower than Solelec's and almost 13.5% lower than the estimated budget did not necessarily lead to a finding of abnormality (paras 107-164)--much in the same line as in TV1 v Commission, T-700/14, EU:T:2017:35 (see here). Maybe the most interesting point of this part of the Judgment is the one concerned with an upwards 'arithmetical adjustment' of the winning tender carried out by the contracting authority, which increased the offered price of €41.4 million to an award of €45.6 million (paras 150-164). According to the contracting authority, such adjustment resulted 'on the one hand, from the correction of calculation errors and, on the other hand, from the correction resulting from the modification of the quantity of certain activities in the tender form of the successful tenderer, in the course of the tender procedure' (para 154. own translation from French).

Concerning the possibility for the contracting authority to introduce an upwards modification of the volumes of activities included in the original tender form, the GC indicated that the change was acceptable because the need for the adjustment in the volume of activities derived from the fact that, during the period for the submission of tenders, the contracting authority issued a revised scope of works that was presented as a revision of estimated prices, but also included changes in quantities of works.

In the words of the GC

It is certainly true that the successful tenderer [Muller & Putman] drew up its tender on the basis of the first version of the price schedule and that the said schedule was replaced, before the date of submission of the tenders, by a second version which was made available to all bidders through a computer platform. The applicants [Solelec] for their part, drew up their offer on the second version of the price schedule.

It follows that the error to be corrected in the present case results from the fact that the successful tenderer failed to take into account, in its tender, the changes in the quantities of certain services set out in the second version of the price schedule (paras 156-157, emphasis added, own translation from French).

This is certainly a difficult situation, and one where, in the absence of specific rules in the tender documentation establishing the way the contracting authority could proceed to amend the tenders, a unilateral corrective intervention by the contracting authority would not necessarily be beyond reproach. However, in the case at hand, the contracting authority had reserved the right to adjust the content of the tenders received in a limited number of circumstances, including a mention that 'the quantities or other elements of the tender schedule [ie the form according to which all tenders had to be submitted] that are modified by the tenderer will be put back to the state of the tender schedule provided to the tenderers in the tender dossier' (para 158, own translation from French). Or, in other words, the contracting authority indicated that the quantities had to be fixed for all tenderers, and that it would make any required adjustments to the tenders received to that effect.

This led to the GC's assessment that 'there is no reason to conclude that the contracting authority was not entitled to correct the tenderer's tender based on the first version of the schedule in the light of the second version of the schedule ... in order to to allow the award to be made on as good a basis as possible, and in order to improve the comparability of tenders and not to jeopardize the equal treatment of tenderers. The Parliament therefore proceeded lawfully by making this correction in accordance with the power at its disposal', which the GC identifies in the tender documentation (para 160, own translation from French).

In my view, the extent to which this approach in the tender documentation is acceptable and fully compatible with the general principles of procurement law can be controversial (what are the limits on the changes that a contracting authority can unilaterally reserve the right to introduce, and is compliance with an implicit transparency requirement sufficient to legitimise such an approach?). Arguably. it would have been preferable for the contracting authority to foresee in the tender documents the possibility to have contacted the tenderer and given it the opportunity to correct the obvious error (which is in any case allowed by the case law), rather than reserving a right to directly proceed to the correction. Moreover, some more detailed discussion of whether the error was obvious (and why would changes in quantities be possible at all, as the tenderers could have been requested to solely submit unit prices), and whether it corresponded with the grounds for unilateral adjustment of the tenders included in the tender documentation would have been useful (in particular by reference to the Slovensko case law).

AG suggests CJEU should declare fines for clarification or supplementation of procurement documents as contrary to EU law only if disproportionate (C-523/16)

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In his Opinion of 15 November 2017 in case MA.T.I. SUD, C-523/16, EU:C:2017:868, Advocate General Campos Sánchez-Bordona has considered whether, in a situation where a tenderer for a public contract has submitted incomplete information, national rules subjecting the possibility of supplementing that documentation to the payment of a fine are compatible with EU public procurement law.

The dispute concerned a 2014 reform of the Italian law transposing 'Article 51 of Directive 2004/18/EC in a manner which enabled tenderers for public contracts to remedy any irregularities in their tenders, but at the same time imposed on them a financial penalty proportional to the value of the contract' (para 1)--of between 0.1% and 1% of the value of the contract, with a maximum ceiling of €50,000 (para 5, by reference to Art 38(2a) of the Italian Legislative Decree No 163 of 2006). Interestingly, the rule also foresaw that '[i]n the case of non-substantial irregularities, that is, any non-essential absence or incompleteness of declarations, the contracting authority shall not require the remedying thereof or impose any penalty' (idem).

AG Campos has submitted that Art 51 Dir 2004/18 did not prohibit the imposition of such fines, 'provided that [the national legislation] ensures compliance with the principles of transparency and equal treatment, that the remedying of those irregularities does not make possible the submission of what, in reality, would be a new tender and that the burden is proportionate to the objectives justifying it' (para 80), but that, under the circumstances of the case, a fine of between 0.1% and 1% with a maximum of €50,000 was not allowable (para 80). The AG Opinion and the future Judgment of the Court of Justice will be relevant for the interpretation of Articles 56 and 59 of Directive 2014/24/EU, but I am not sure that the reasoning can be simply carried forward to a regulatory setting that indicates more clearly the conditions for the request of clarifications. In this post, I pick on a few elements of the analysis of AG Campos Sánchez-Bordona in his MA.T.I. SUD Opinion, and reflect on the applicability of the reasoning to the post-2014 setting.

Some preliminary normative thoughts

As a preliminary point, though, I think it worth stressing that the functioning of a system allowing for ‘remedying procedural shortcomings in return for payment’ is probably better understood as a system allowing 'avoiding exclusion for payment', in the sense that an undertaking that has submitted incomplete or unclear documentation is given a chance to avoid exclusion from the procurement procedure under the double condition that (a) it is able to submit a clarification or supplementary documentation that does not materially alter its tender, and (b) it is able (and willing) to pay the financial sanction. While (a) is relevant to the goals of the procurement 'triage' process because the contracting authority has a structural interest in attracting as many (in open procedures) or the best (in restricted and different variations of negotiated procedures) qualified tenderers, (b) is irrelevant unless and except in the case in which the inability to pay the fine signals financial difficulties or bankruptcy--which should in any case be captured by discretionary exclusion grounds based on that specific circumstance. Therefore, (b) comes to create a functional distortion of the procurement procedure and, in particular, of the aims of the qualitative selection phase. 

While sanctions in this setting may be seen as an incentive for undertakings to submit full and accurate documentation, this can also be the type of provision that creates a disincentive to participate, and one that seeks to displace part of the costs of the administrative procedure from the contracting authority unto the tenderers (for, statistically, there will be errors and this type of cost should thus be seen as part of the ordinary costs of running procurement processes). While the financial impact of the 'fine-based remedial system' will then largely be borne by the tenderers, the benefits will also fall on the contracting authority (at least in those cases where the 'paying, sloppy undertaking' ends up being awarded the contract for having submitted the most advantageous tender). This creates a strange trade-off between private costs and private and public benefits, which can be further complicated where the imposition of the fine has a discretionary element to it (eg the possibility to waive the fine for non-essential defects, where the determination of the threshold of 'essentiality' is far from clear-cut and objective).

At first sight, then, this seems like the type of rule that can create perverse incentives--in particular in terms of SME access to procurement procedures, or their ability to continue in the race when they commit mistakes--which comes to raise the threshold of 'professionalism' needed to participate in procurement processes without risking significant financial consequences. On the whole, then, from a normative perspective, I think that this is the kind of rule that seeks to reduce the administrative cost of procurement at the expense of reduced (potential) competition for public contracts, in particular from SMEs. The same way I argue against charging potentially interested tenderers for access to the tender documentation, I would also take the normative position that imposing fines for the remediation of documentation shortcomings is undesirable, and would propose their eradication de lege ferenda (by analogy, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 280-281).

This should be kept in mind when reading the remainder of this post, as this line of normative argumentation was used by the parties. In particular, in the clear formulation of the European Commission, which stressed that 'the contrast between paying a fine for a minor irregularity and the uncertainty of being awarded a contract may cause tenderers, especially small and medium-sized undertakings, not to participate in tenders or, where applicable, to withdraw their participation after the tenders have been submitted' (para 38, although the Commission goes on to note that the payment would be allowable despite its dissuasive effects, 'provided that it pursues a legitimate objective of general interest. Such objectives may include both the aim of making undertakings behave responsibly (encouraging them to act seriously and promptly when supplying the documentation for their tenders) and that of financially compensating the contracting authority for the work involved in the more complicated and extended procedure of remedying procedural shortcomings', para 39, which is not completely aligned with my normative position).

‘Remedying procedural shortcomings in return for payment’ under the pre-2014 EU public procurement rules

In the pre-Slovensko (C-599/10, EU:C:2012:191), pre-Manova (C-336/12, EU:C:2013:647) setting, where some doubts could be harboured as to the possibility for contracting authorities to seek clarifications of the tender documentation, and its limits, the only guidance the then current EU rules provided was to be found in the sparse Article 51 Dir 2004/18/EC, which foresaw that 'The contracting authority may invite economic operators to supplement or clarify the certificates and documents submitted pursuant to Articles 45 to 50'--that is, clarifications or supplements to the certificates and documents concerning (i) the personal situation of the candidate or tenderer (art 45); (ii) its suitability to pursue the professional activity (art 46); (iii) its economic and financial standing (art 47); (iv) its technical and/or professional ability (art 48); (v) its quality assurance standards (art 49); and (vi) its environmental management standards (art 50).

However, Slovensko and Manova came to clarify the possibility for clarifications to be sought (which in my view can result in a duty to seek clarifications under certain conditions, see here), and this seemed to prompt a legislative reaction in Italy. Given the need to allow for clarifications and modifications of the tender documentation in certain cases, Italian procurement law was modified from a system of strict disqualification for formal shortcomings, to as system allowing for 'remedying procedural shortcomings for payment' [see M Comba, 'Qualification, Selection and Exclusion of Economic Operators (Tenderers and Candidates) in Italy', in M Burgi, M Trybus & S Treumer (eds), Qualification, Selection and Exclusion in EU Procurement (DJØF Publishing, 2016) 85, 97-100]. However, this modification of the rules and the increased procedural flexibility were subjected to the payment of an administrative fine by the undertakings that had presented incomplete or unclear documentation (see above).

AG Campos assesses the compatibility of this approach to financially-conditional clarification or supplementation of documents under the rules in Directive 2004/18/EC (as Directive 2014/24/EU was not applicable ratione temporis, see paras 50-52 of his Opinion). In his view, there is 'nothing in [the case-law of the Court on Directive 2004/18] which might preclude the Member States from providing for contracting authorities to charge a certain amount (in this case, as a penalty) to tenderers who have placed themselves in that situation' (para 56, reference omitted). Further, he considers that there is no objection in principle and that any EU-law derived restriction on this possibility would be a matter for a proportionality assessment. In his words,

... national legislation may ... authorise the remedying of formal shortcomings in the tenders, while imposing on the tenderers a certain economic burden in order to encourage them to submit their tenders correctly and to pass on to them the additional cost (if any) arising from the procedure for remedying shortcomings. However, national legislation of that kind, which, owing to the magnitude of that burden, constitutes a not easily surmountable obstacle to the participation of undertakings (in particular, small and medium-sized ones) in public procurement procedures, would run counter to Directive 2014/18 and to the principles underlying it; moreover, this would also undermine the competition to be desired in respect of those procedures (para 58, references omitted and emphasis added).

This leads him to stress that he does 'not consider ... that objections of principle can be raised to a mechanism which makes the correction of shortcomings in the submission of a tender subject to a payment by the person responsible for those shortcomings and required to remedy them' (para 59, emphasis in the original).

AG Campos then proceeds to assess whether such non-negligible restriction to participation is created by the Italian rule at stake. He also addresses the issue whether the Italian provision may be in breach with the Court of Justice's case law on the limits to the allowable modifications and clarifications to tender documentation (paras 60-65). However, this concerns a literal interpretation of the Italian rule (which foresees the possibility of remedying '[a]ny absence, incompleteness or any other substantial irregularity in the information'). However, even if part of the rule should be quashed for exceeding the relevant case law, the possibility would have remained to require payment for the remediation of a 'Manova-like' situation that concerned the absence of (pre-dating) information. Thus, the analysis of the rule remains interesting even in the case of partial incompatibility.

A tricky proportionality assessment

In AG Campos' view, the relevant point is thus to establish whether the financial burden derived from the 'remedy for payment' rule is not an 'easily surmountable obstacle' to participation in procurement procedures, in particular by SMEs. In the second part of his Opinion, he deals with this point and considers two sets of issues. First, he carries out a strict proportionality assessment. Second, he goes back to points of principle despite his previous position that no objections of principle could be raised against the mechanism, which is slightly puzzling.

On the strict proportionality front, the Opinion submits that

The two criticisms of that instrument ... are, on the one hand, that the amount of the penalty is determined a priori, in the contract notice itself, without attempting to assess the magnitude of the irregularities committed or the infringing tenderer’s economic circumstances, and, on the other hand, that the resulting amounts (up to a maximum of EUR 50 000) do not comply with the principle of proportionality. Moreover, the exorbitant amount of the penalty is such as to deter participation in the tendering process, especially by small and medium-sized undertakings, thereby restricting competition.

... the objectives which might justify the imposition of the penalties are not consistent with the minimum and maximum amounts of those penalties...

Of course, the argument of higher administrative costs does not justify such substantial amounts: it should be borne in mind that even the minimum of 0.1 per cent (and a fortiori 1 per cent), in contracts subject to [Union] directives, is in itself high, given the lower thresholds for the application of those directives. That argument is also not consistent with a single amount which is established a priori and consists in a percentage of the amount of the contract, since it would be logical, following that line of thought, to tailor to each individual case to the resulting higher costs.

The disproportionate nature of the penalties is evident in the present two cases, which merely arise from the practical application of the legal provision: an executive’s forgetting to sign and the failure to provide a sworn statement regarding a criminal record result in fines of EUR 35 000 and EUR 50 000 respectively. I find it difficult to accept that the higher cost to the contracting authorities, merely for detecting those two anomalies and for inviting the tenderers to remedy them, corresponds to those amounts, which seem rather to be designed to increase their revenue (paras 71-74, references omitted and emphasis in the original).

This part of the reasoning seems unobjectionable and comes to challenge the possibility of imposing a fine for the remedying of documentation, rather than imposing a duty to cover any additional administrative costs ensuing from the remedial action--which would have been preferable, even if still normatively undesirable (see above). Importantly, this part of the reasoning would have sufficed to quash the Italian provision at stake. However, the Opinion proceeds to assert that

Nor does the aim of ensuring the seriousness of tenders justify such large fines. In the first place, because such fines are imposed (as stated in the tender specifications) regardless of the number of irregularities, that is, regardless of the type of information or document which is missing or must be supplemented and of its greater or lesser significance. The provision treats the offences in a uniform manner and allows their level of complexity to be disregarded.

In the second place, that aim [of ensuring the seriousness of tenders] must be weighed against that of promoting the widest possible participation of tenderers, resulting in greater competition and, in general, the best service to public interests. An excessive penalty will probably deter undertakings with smaller financial resources from participating in calls for tenders for high-value contracts, given the percentage limits stated above. They might also be deterred from participating in future calls for tenders which include the same penalty provision.

Moreover, such a burden will be even more of a deterrent to ‘tenderers established in other Member States, inasmuch as their level of knowledge of national law and the interpretation thereof and of the practice of the national authorities cannot be compared to that of national tenderers’.

In short, a provision the purpose of which was, precisely, to help to remedy formal errors made by tenderers (by amending the previous national rule) and, thereby, to increase their chances of successfully participating in public procurement procedures ultimately deters such participation by imposing financial burdens which are disproportionate to its objective (paras 75-78, references omitted and emphasis added).

In this second part, AG Campos seems to adopt a half-way approach to the objection in principle to the establishment of dissuasive barriers to participation, but only through disproportionate or excessive penalties. I find this problematic because it is very difficult establish at which level the dissuasive effect will kick-in, regardless of what can be considered excessive or disproportionate for the purposes of finding an infringement of EU internal market law. Thus, as mentioned above, I think that there are good reasons to oppose the creation of these mechanisms out of principle (the principle of maximising competition for public contracts, to be precise) and, from that perspective, I find the Opinion in MA.T.I. SUD unnecessarily shy or insufficiently ambitious. This does not affect the outcome of the specific case, but perpetuates the problem in view of the 2016 reform of the controversial Italian law, as discussed below.

‘Remedying procedural shortcomings in return for payment’ under the post-2014 EU public procurement rules

Interestingly, the case comprises a dynamic element that remains unresolved. It is worth noting that the Italian rule at stake in MA.T.I. SUD has been amended, and a 2016 reform relaxed 'the conditions for requiring the fine (imposing it only if rectification is required) and reduced its maximum ceiling (from EUR 50 000 to EUR 5 000)' (para 8). Additionally, any substantive assessment of the revised rule will now have to take place within the setting of the rules in Directive 2014/24/EU, where it can be argued that contracting authorities are under a duty to seek clarifications [for discussion, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 321-323]. In my view, in this setting, the analysis should not rely on a matter of proportionality, but on a more sophisticated understanding of the functions and balance of interests involved in the qualitative selection phase of each procurement procedure, which very much opposes the levying of financial penalties for clarifications sought by the contracting authority, regardless of their amount.

My view seems to run contrary to that of AG Campos and the European Commission, which both seem to have hinted at the fact that the new maximum amount of €5,000 for necessary rectifications saves the mechanism. This is seen with favour by both the European Commission in its submissions ('a maximum ceiling of EUR 5 000, such as that adopted by the new Public Contracts Code, is more reasonable', para 41) and, in less clear terms, by the AG ('Perhaps that reform, by significantly reducing the absolute maximum ceiling to EUR 5 000, was a response to the national legislature’s belief that that ceiling had been excessive, as the referring court implies', para 72).

If this represented the position the European Commission would defend in a future case involving the revised Italian rule, and/or the position taken in an Advocate General Opinion, I would strongly disagree because I do not consider helpful the view that €5,000 per rectification is 'more reasonable' or 'less excessive' than €50,000 per error (unless waived due to its non-essential character). Going back to the principles behind the creation of this type of mechanisms, important questions remain as to whether the goals it seeks to achieve are either justified in the public interest, or not already sought by other aspects of the procurement rules.

As submitted by the Italian Government and the Commission, the double legitimate goal of the measure would be 'first, to make the tenderer responsible for acting diligently when producing the documentation which will accompany his tender and, second, to compensate the contracting authority for the additional work involved in administering a procurement procedure which allows for the possibility of remedying those irregularities' (para 70).

On the second point, I am not sure that there is a clear public interest in seeking to recover part or all of the administrative costs involved in rectifying qualitative selection decisions in the view of supplemented or clarified information, in particular because this recovery of costs comes at the expense of an immeasurable potential reduction of competition (and, if one is to adopt AG Campos' reasoning, particularly acute in the case of undertakings from other jurisdictions, see para 77--although I am not sure this part of the argument is persuasive). On the first point, the argument that the financial penalty will ensure that undertakings participating in tender procedures will act diligently seems moot. The main incentive for undertakings to act diligently in the preparation of their tenders is the economic incentive derived from being awarded the contract. Thus, creating a negative incentive that works in the same direction that the main economic incentive (ie to prompt undertakings to submit their best possible tender) makes no economic sense because it creates a double-whammy on less diligent tenderers, whereas it adds no incentive for diligent tenderers.

By isolating the qualitative selection phase and thinking that tenderers have an interest in acting in less than diligent terms (within their abilities) seems to me to miss the point. While the frustration at the administrative burden of carrying out several (or at least two) iterations of inspection of documents where there have been mistakes is understandable, that should not lead to the creation of financial penalty mechanism that is bound to both be ineffective in what it tries to achieve and to create a likely high shadow cost in terms of lost potential competition for public contracts. In that regard, I would have preferred for the Italian mechanism to be quashed as a matter of principle on this occasion. But, even if this does not happen and the Court of Justice follows the intermediate approach of AG Campos' Opinion, I would still hope that a fresh consideration of the revised Italian rule under the setting of Directive 2014/24/EU delivered that result.

Postscript [16 Nov 2017, 9am]

After publishing this post, it was brought to my attention that I had missed the additional information in fn 5 of AG Campos' Opinion, where he explains that the Italian fees for remediation of documentation shortcomings has been abolished. Indeed, the fn says:

Although it can have no bearing on the consideration of the questions referred ... a further, more radical amendment of the Code ... occurred in 2017. In fact, Legislative Decree No 56/2017 of 19 April issued a new draft of Article 89(3) which definitively removed the requirement to pay for the remedying of shortcomings upon its entry into force (20 May 2017). Since then, economic operators have been able to rectify the absence of any formal element from their proposals (except those relating to the economic and technical aspects of the tender) without incurring any kind of penalty or other similar charge.

Thus, the issue will remain unresolved, unless similar charges or financial penalties exist in other jurisdictions.

Mixed views on General Court decision concerning claim of 'artificial narrowing of competition' through too strict procurement selection requirements (T-668/15)

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In its Judgment of 10 November 2017 in Jema Energy v Entreprise, T-668/15, EU:T:2017:796 (only available in Spanish and French), the General Court of the Court of Justice of the European Union (GC) engaged with a claim that, by setting exceedingly demanding qualitative selection criteria, the contracting authority had artificially narrowed down competition. I find this case very interesting because I expect this type of argument to be increasingly used in procurement challenges as a result of the consolidation of the principle of competition in Article 18(1) of Directive 2014/24/EU [for my interpretation, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) ch 5]. Even if Jema Energy v Entreprise was decided on the basis of the Implementing Rules of the Financial Regulation applicable to procurement by Fusion for Energy, given that the GC explicitly considered Art 18(1) Dir 2014/24/EU, I think that the Judgment offers valuable pointers as to how the case law may develop in this area.

The case at hand concerned a tender for the design, manufacture, supply and installation of electrical equipment where the contracting authority established qualitative selection criteria concerned with previous experience that required tenderers to demonstrate previous delivery of specific types of equipment in the 5 years prior to the tender. A tenderer requested repeated clarifications on the requirements and prompted the contracting authority to change the requirements. The contracting authority replied that it did not appreciate the presence of objective circumstances requiring such changed. Eventually, the tenderer was rejected for not meeting the requirements and the decision was challenged. One of the grounds for the challenge was based on a breach of the principle of proportionality and on the 'artificial narrowing of competition'. I will concentrate on this ground of appeal (paras 67-109 of the Judgment).

It is interesting that the third ground of appeal treated separately claims on the basis of the principle of proportionality (supported by reference to the Commission's Guidance for practitioners on the avoidance of the most common errors in projects funded by the European Structural and Investment Funds) and on the artificial narrowing of competition (which was build by reference to Art 18 Dir 2014/24/EU). After making reference to the broad discretion of contracting authorities in the design of the tender procedure, including the choice of qualitative selection criteria and their form of assessment, and the subjection of the exercise of that discretion to compliance with general principles of EU law (paras 73-74), the GC assessed each claim separately.

The proportionality analysis is very formal and mostly relies on the lack of supporting evidence for some of the technical claims against the proportionality of the qualitative selection criteria. It is also disappointing that the GC decided not to engage with the arguments based on the functional criteria included in the Commission's guidance for ESI-funded procurement on the basis that this specific project did not concern those funds, which misses the opportunity of both identifying whether the guide includes best practice recommendations and, if so, to rely on them for the development of more detailed case law on the application of the principle of proportionality to discretionary decisions of the contracting authority. Granted, such engagement may not have been necessary to decide the case at hand, but this flat-out rejection of the substantive argument comes to diminish the value of soft law efforts oriented to the creation of best practice standards--which is the only type of guidance the Commission seems willing to adopt these days.

Going back to the case... the GC's analysis of the claim of artificial narrowing down of competition is very interesting because, even if the GC equally rejected to engage in a direct consideration of Art 18(1) Dir 2014/24/EU on the basis that it was not applicable ratione temporis (86-88), and given that this prompted the claimant to request for the argument to be assessed on the basis of Directive 2004/18/EC, the GC was willing to establish that

It should be noted that Directive 2004/18 did not contain a provision similar to Article 18, paragraph 1, second paragraph, of Directive 2014/24 [prohibiting a contracting authority from designing the tender with the intention of artificially narrowing competition by unduly favoring or disadvantaging certain undertakings]. Indeed, Article 2 of Directive 2004/18 referred, as does Article 18 of Directive 2014/24, to the principles of awarding contracts, namely the principles of equal treatment, non-discrimination and transparency, without explicitly referring to the prohibition of artificially restricting competition. However, Article 2 of Directive 2004/18 must be interpreted in the light of the recitals in the preamble thereto, and in particular in recital 2, which provides for effective competition in public contracts, as well as in light of the case-law according to which effective competition and the opening to undistorted competition are essential objectives of Directive 2004/18 and in particular of its Article 2, for which attainment Union law applies in particular the principle of equal treatment between tenderers or candidates and the obligation of transparency that results from it (see, in this regard, the judgment of 17 March 2011, Strong Segurança, C-95/10, EU:C:2011:161, paragraph 37, see also, in in this sense, the judgments of March 29, 2012, SAG ELV Slovensko and others, C-599/10, EU:C:2012:191, paragraph 25 and the case law cited therein, and of October 10, 2013, Manova, C- 336/12, EU:C:2013:647, paragraph 28 (T-668/15, para 91, emphasis added, own translation from Spanish).

This starting position allowed the GC to carry on with the assessment of whether (even if proportionate) very demanding qualitative selection criteria could be in breach of the EU procurement rules due to the ensuing artificial narrowing of competition. In particular, the analysis concentrated on the requirements derived from general principles of EU law and, in that regard, the GC further considered that

... the principle of equal treatment between tenderers, which aims to encourage the development of healthy and effective competition between undertakings participating in a public tender, requires that all bidders have the same opportunities in formulating the terms of their offers and implies that they are subject to the same conditions for all competitors.

In addition, the courts of the Union have stated that one of the objectives of the Union rules on public contracts is to open them up to the widest possible competition and that it is in the interest of Union law to ensure the broadest participation possible of bidders in a tendering procedure. It should be added, in this respect, that such an opening to the widest possible competition is contemplated not only in relation to the Union interest in the free movement of goods and services, but also in the self-interest of the contracting authority involved, which will thus have greater choice in terms of the most advantageous offer and the best adapted to the needs of the public entity concerned (judgment of 10 November 2015, GSA and SGI / Parliament, T-321/15, unpublished, EU:T:2015:834, paragraph 58, see also, in this regard, the judgments of December 23, 2009, CoNISMA, C-305/08, EU:C:2009:807, paragraph 37 and case law cited, and of June 18, 2015, Martin Meat, C-586/13, EU:C:2015:405).

It follows that an obligation for the contracting authority not to artificially restrict competition can be deduced from the general principles of law to which the [contracting authority] is subject, and especially from the principle of equal treatment (T-668/15, paras 101-103, emphasis added, own translation from Spanish).

I find this point of departure extremely interesting and I think it comes to confirm my long-held view that the 2004 procurement rules already included an embedded principle of competition, which the rest of the general principles seek to give effectiveness to [see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 1st edn [Oxford, Hart, 2011] ch 5]. I also think that it provides the right framework for the assessment of the competition implications of the requirement of demanding qualitative selection criteria.

However, in the operationalisation of the test to check whether such obligation not to artificially narrow down competition had been respected, I find some fault in the approach followed by the GC in Jema Energy v Entreprise because it is limited to the specific requirements of the principles of proportionality, transparency and non-discrimination, without any sign of competition-orientedness. In that regard, I find it disappointing that the GC decided that, in the case at hand, the selection criteria were not contrary to the obligation not to artificially narrow competition because: (i) the demanding criteria were objectively justified and did not favour or disadvantage any undertaking or impair the ability of the contracting authority to choose the most advantageous offer (para 105); (ii) they had been subjected to proper transparency requirements (para 106); (iii) the time period of allowed references on previous experience had been extended from the minimum 3 years to 5 years prior to the tender (para 107); and (iv) the fact that 3 out of 5 tenderers were able to meet the selection criteria is a sign that competition was not restricted (para 108).

I think that the tests applied by the GC do not add any meaningful competition check. First, because proportionate is different than competition-neutral. Second, because transparency is irrelevant (whereas its lack may be relevant). Third, because extending time periods is also irrelevant if the material content of the requirement is limiting competition. And fourth, because finding that competition was not restricted because a majority of tenderers that expressed interest managed to qualify falls in the trap of tender-specific reasoning and ignores the possibility that many undertakings were dissuaded from participating in view of the (potentially) exceedingly demanding qualitative selection requirements.

Thus, my view of the GC Jema Energy v Entreprise Judgment is mixed. On the one hand, I think it is good news that the existence of the principle of competition and the ensuing prohibition of artificially narrowing competition constitute an uncontroversial grounds for the review of procurement decisions--even where Art 18(1) Dir 2014/24/EU does not apply, as a consequence of the competition-orientedness of the applicable general principles. However, it is also clear to me that more work is necessary for this test to be developed in a way that adds to the standard analysis under those general principles, so that the obligation is not rendered moot. This is something I am currently working on, and which I will build on the basis of the preliminary ideas I presented at Oxford recently. I will keep readers of the blog posted.

Important EFTA case on procurement damages: Was the court of one mind, and will the CJEU follow? (E-16/16)

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In its Judgment of 31 October 2017 in Fosen-Linjen AS v AtB AS, the EFTA Court issued an important Opinion on the interpretation of the procurement Remedies Directive (Dir 89/665/EEC, as amended by Dir 2007/66/EC) and, in particular, on the conditions for the recognition of a right to damages compensation where the contracting authority uses an illegal award criterion and subsequently decides to cancel the tender for that reason. That is, cases where it is clear (and acknowledged by the contracting authority itself) that the procurement procedure was not fully compliant with substantive EU/EEA public procurement rules--which comes to constrain the legal analysis to the question whether the irregularity is such as to allow disappointed tenderers to claim damages compensation.

The Fosen-Linjen case raised a number of issues in the six questions sent to the EFTA Court, such as the threshold for liability, evidentiary requirements, causation, exoneration causes and due diligence requirements. All of them are important but, in my view, the main relevance of the case concerns the threshold of liability, on which the EFTA Court found that 

A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of Directive 89/665/EEC, provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link (E-16/16, para 82).

The EFTA Court reached this position in answer to a series of questions and sub-questions concerning whether liability under the Remedies Directive was conditional upon the contracting authority having deviated markedly from a justifiable course of action, upon it having incurred a material error that justified a finding of culpability under a general assessment, or upon it having incurred in an inexcusable'material, gross and obvious error' (question 1), or whether liability can be triggered under a test of 'sufficiently qualified breach' where the contracting authority was left with no discretion as to how to interpret or apply the infringed substantive rule (question 2). 

In the case at hand, the EFTA Court decided to group these questions and address them together. In my view, this has been determinative of the outcome of the case. Had the Court addressed the questions sequentially, and inverting the order, it would have been possible to establish that a breach of a substantive provision for which interpretation and application the contracting authority has no discretion constitutes a 'sufficiently serious breach' of EU/EEA procurement law triggering liability (if all other requirements are met) (question 2), which would have rendered the other issues (question 1) moot and unnecessary in this case. By choosing not to do so, the EFTA Court grabbed an opportunity to influence the development of EU/EEA law in the area of procurement remedies in a way that I am not sure will be productive in the long run, particularly because the rather extreme position taken by the EFTA Court--ie that any simple breach of EU/EEA procurement law suffices to generate liability for damages--was not really necessary under the circumstances and does not easily sit with previous developments in the case law of the Court of Justice of the European Union (CJEU).

Ultimately, this finding is controversial because of (1) the way the EFTA Court couches the deviation of liability standards under the Remedies Directive and under the general doctrine of State liability for breach of EU/EEA law, as well as (2) due to the fact that the EFTA Court engages in contradictory normative assessments in the reasoning that leads to this conclusion--which makes the interpretation and operationalisation of its main finding rather tricky. In my view, these two points of contention make it unclear that the CJEU--which is not bound by the EFTA Court's interpretation--will adopt the same approach. I will explore these two issues in turn.

Is public procurement special?

One of the normative and doctrinal issues in the background of the discussion surrounding the threshold of liability under the Remedies Directive concerns its relationship with the general doctrine of State liability for breach of EU/EEA law. The position taken by the EFTA Court on this point is not very clear--despite explicit submissions to that effect by the parties, the Norwegian government and the EFTA Surveillance Authority--but it seems to indicate that the Court considers that procurement law is somehow special.

While it is commonly accepted that the State liability doctrine is premised on the existence of a sufficiently serious breach of EU/EEA law (as seminally established in Francovich and Others, C‑6/90 and C‑9/90, EU:C:1991:428, para 35, and in Brasserie du Pêcheur and Factortame, C‑46/93 and C‑48/93, EU:C:1996:79, paras 31 and 51, and consistently reiterated by the CJEU, most recently in Ullens de Schooten, C-268/15, EU:C:2016:874, para 41), the EFTA Court is not willing to retain this threshold of liability in the area of procurement. As the EFTA Court indicated

... it has already been established that a national rule making the award of damages conditional on proof of fault or fraud would make actions for damages more difficult and costly, thereby impairing the full effectiveness of the public procurement rules ... The same must apply where there exists a general exclusion or a limitation of the remedy of damages to only specific cases. This would be the case, for example, if only breaches of a certain gravity would be considered sufficient to trigger the contracting authority’s liability, whereas minor breaches would allow the contracting authority to incur no liability (E-16/16, para 77, emphasis added).

In other words, the EFTA Court is not willing to tolerate a situation where what could be termed de minimis breaches of EU/EEA public procurement law remain unchallenged and, in that regard, the Court seems to have been influenced by the European Commission's position that 'any infringement of public procurement law should be followed up and should not be left unattended because the breach is not “sufficiently serious”' (E-16/16, para 59). The EFTA Court thus seems to consider that the establishment of an almost absolute right to claim damages is necessary to ensure the desirable effectiveness of EU/EEA procurement law.

The Court also considers that '[a] requirement that only a breach of a certain gravity may give rise to damages could also run contrary to the objective of creating equal conditions for the remedies available in the context of public procurement. Depending on the circumstances, a breach of the same provision on EEA public procurement could lead to liability in one EEA State while not giving rise to damages in another EEA State' (E-16/16, para 78), which is by no means obvious, in particular if the preliminary reference mechanism works appropriately. 

In my opinion, this general line of reasoning conflates two separate issues. First, whether any infringement of EU/EEA substantive law should trigger a ground for the review of the procurement decision concerned and, if justified, to set it aside. Second, whether any infringement of EU/EEA substantive law should provide a right to claim damages. By conflating both issues, the EFTA Court implicitly assumes that claims for damages are the only effective remedy. The Court does not take into account the existence of public oversight mechanisms able to 'pick up' on those de minimis infringements of EU/EEA public procurement law, and seems not to think it possible for disappointed tenderers to exercise rights of review in the absence of the financial incentives resulting from damages claims. This comes both to establish a hierarchy of remedies that is absent in the Remedies Directive [see A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' in S Torricelli & F Folliot Lalliot (eds), Contrôles et contentieux des contrats publics (Bruylant, 2018) forthc.], and to create the same risk of deformation of EU tort law that we have witnessed in other areas of EU economic law [see O Odudu & A Sanchez-Graells, 'The interface of EU and national tort law: Competition law', in P Giliker (ed), Research Handbook on EU Tort Law (Elgar, 2017); as well as the rest of contributions to that volume].

From a normative perspective, I find this approach problematic due to the perverse incentives it creates--and which I think the EFTA Court was somehow aware of (see below). Moreover, I am not persuaded that this would necessarily be the position of the CJEU, which has in the past held that Art.2(1)(c) of Directive 89/665 'gives concrete expression to the principle of State liability for loss and damage caused to individuals as a result of breaches of EU law for which the State can be held responsible' (Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others, C-568/08, EU:C:2010:751, para 87, emphasis added). From that perspective, and even if the CJEU is likely to continue developing its line of case law that prevents the creation of additional requirements for the existence of liability in damages (as is clear it did by rejecting the imposition of a requirement of fault in Strabag and Others, C-314/09, EU:C:2010:567), I see no reason why it would accept that the requirement for a 'sufficiently serious breach' does not apply in this sub-field of State liability.

In my view, this is particularly important because the position taken by the EFTA Court was both unnecessary for the resolution of the case, and not explicitly premised on a deviation of the State liability doctrine, which leaves the CJEU an easy way out if it decides to take a different approach in the future. In my view, this is likely, because from a normative point of view, the position taken by the EFTA Court is not easily tenable.

What are the implications for contracting authorities and tenderers?

One of the important normative aspects on which the EFTA Court's Fosen-Linjen Judgment rests concerns the incentives that different liability thresholds and requirements create. In that regard, the Court seems to adopt two contradictory normative standpoints in dealing with the twin question of the threshold for liability and the causality requirement--which are indivisibly interlinked in its overall finding that 'A simple breach of public procurement law is in itself sufficient to trigger the liability ... provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link' (E-16/16, para 82, emphasis added). The contradiction is as follows.

On the one hand, the EFTA Court considers that a simple infringement of EU/EEA public procurement rules must suffice to trigger liability because

... damages seek to achieve a three-fold objective: to compensate for any losses suffered; to restore confidence in the effectiveness of the applicable legal framework; and to deter contracting authorities from acting in such a manner, which will improve future compliance with the applicable rules. Liability through damages may also provide a strong incentive for diligence in the preparation of the tender procedure, which will, ultimately, prevent the waste of resources and compel the contracting authority to evaluate the particular market’s features. Were liability to be excluded, this may lead to a lack of restraint of the contracting authority (E-16/16, para 76, emphasis added).

Thus, in this part of the Judgment, the EFTA Court considers a high likelihood of liability a proper incentive for adequate diligence and decision-making on the part of the contracting authority.

Conversely, on the other hand, when assessing the causality requirements for the recognition of a right to damages compensation (in the context of the fourth question referred by the Norwegian court), the EFTA Court stresses that

... there must be a balance between the different interests at stake. While liability of the contracting authority for any errors committed promotes, in principle, the overall compliance with the applicable legal framework, exaggerated liability of the contracting authority could lead to excessive avoidance costs, reduce the flexibility of the applicable framework and may even lead to the unjust enrichment of an unsuccessful tenderer. Furthermore, excessive liability may provide an incentive for a contracting authority to complete award procedures, that were evidently unlawful, or impinge upon the freedom to contract (E-16/16, para 101, emphasis added). 

This clearly indicates that the existence of liability needs to be constrained or modulated. The EFTA Court seems to want to do so by establishing a complicated approach to causality requirements that would distinguish between those applicable to claims for negative and positive damages (ie bid costs and loss of profits). Even in the context of the first question, the EFTA Court had already shown some inconsistency when establishing that 'a claim for damages can only succeed if certain other conditions are fulfilled, such as the condition that there must be a sufficient causal link between the infringement committed and the damage incurred' (E-16/16, para 81, emphasis added)--which, however, is not equally reflected in the wording of its general finding, which only makes reference to 'the condition of a causal link' (para 82). 

In my view, the approach (implicitly) followed by the EFTA Court is not better than the alternative approach of having closely stuck to a requirement for a sufficient breach of EU/EEA public procurement rules. Even if a combination of low liability threshold (simple breach) and high causality requirements ('sufficient causality') could lead to the same practical results that a requirement for 'sufficiently serious breach', the EFTA approach creates legal uncertainty and more scope for divergence across EU/EEA jurisdictions, not the least because causation is within the remit of domestic law. more importantly, it can create a wave of litigation based on any (minimal, formal, irrelevant) errors in the conduct of procurement procedures in an attempt to test the boundaries of that test.

In my view, on the whole, it would have been preferable to stick to the general framework of the State action doctrine as specified in the Remedies Directive, which is compatible with a finding of a requirement for there to be a 'sufficiently serious breach' of EU/EEA procurement law and, at the same time, with a finding that breaching a provision for which interpretation and application the contracting authority has no discretion (eg the obligation to be in a position to verify the content of tenders against its requirements and award criteria, as in Fosen-Linjen) suffices to trigger liability (the same way that the mere lack of transposition of a Directive triggers State liability under the general test). Therefore, I very much hope that this issue is brought to the CJEU soon, and I would strongly advocate for the CJEU to explicitly reject the EFTA Court's approach.

 

Discretion in public procurement—notes of a very energising workshop

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I have the great privilege and pleasure of participating in a research project on ‘Discretion in public procurement’ funded by the Swedish Competition Authority and led by Profs Groussot, Hettne and Bogojević of the Universities of Lund and Oxford. In the context of the project, a workshop was held at Lady Margaret Hall (Oxford) on 3 November. The discussions brought together leading general EU law, environmental law and public procurement law academics, and this created a very open-minded atmosphere conducive to very productive discussions.

The results of the research project will be published in due course by Hart, as part of the series Studies of the Oxford Institute of European and Comparative Law (IECL). For now, I am happy to share my notes of the seminar. Needless to say, all valuable insights should be attributed to relevant colleagues, and any errors or misunderstandings are my own responsibility. I hope these notes serve to promote further debate.

Public Procurement and Internal Market

Prof Phil Syrpis used his previous discussion of the two constitutional visions on the interaction between primary and secondary EU law (see P Syrpis, ‘The relationship between primary and secondary law in the EU’ (2015) 52(2) Common Market Law Review 461) to assess the extent to which such primary-secondary interaction shapes the spaces for the exercise in the field of public procurement (see P Syrpis, ‘RegioPost—A Constitutional Perspective’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 2).

In particular, he discussed RegioPost (C-115/14, EU:C:2015:760), and how the interaction of Art 56 TFEU, the Posted Workers Directive and the rules in Directive 2004/18/EC shaped the space for the exercise of discretion concerning the imposition of minimum wage requirements in the execution of public contracts—emphasising that this is an area of non-exhaustive EU harmonisation, thus triggering EU primary law analysis. Phil criticised the conflation of primary law (Art 56 TFEU) and secondary law (Posted Workers Directive), and the ‘horizontal interaction’ between directives in which the RegioPost case resulted (where the interpretation of the procurement rules hinged on the interpretation of the Posted Workers Directive), as muddling the constitutional position on the value of the sources.

The discussion raised issues concerning the blurry lines around exhaustive/non-exhaustive harmonisation areas, and whether there is displacement or rather procedural juxtaposition of primary and secondary law. Whether a hierarchical approach already contains the seeds of heteronormative interpretation of EU primary law was also considered—in particular in view of the open textured and permeable nature of EU Treaty provisions, and the tendency of the CJEU to consider secondary law as a source of inspiration for the interpretation of primary law, sub silentio. The discussion also raised issues of the potential impact of Art 4(2) TEU (respect for national identities) on the scope for discretion at national level.

Prof Stephen Weatherill used the image of public procurement law as ‘internal market law made better’ and discussed the way in which EU internal market law has generally been developed to constrain the exercise of discretion of (public and private) national actors, and compared the situation in the field of procurement with general internal market law—thus reaching the conclusion that procurement law is more developed and perfected (in constraining national discretion more tightly), and in particular in the area of remedies, which creates a significantly different enforcement scenario and possibly more effectiveness of procurement law compared to general internal market rules (which is jeopardised by the procedural obstinacy of the Member States). He also reflected on the contradiction between the existence of that dense legal framework regulating public procurement in the internal market, and the enduring fragmentation of that market along uncompetitive national lines.

The discussion concentrated on issues surrounding the difficulties in bringing together the analysis in the area of free movement of goods and services, in particular services of general economic interest, the wiggle room for the CJEU to shy away or not from addressing specific cases by using jurisdictional criteria (cfr Comune di Ancona (C-388/12, EU:C:2013:734) and Tecnoedi Costruzioni (C-318/15, EU:C:2016:747)), as well as issues concerning the extent to which the 2014 Public Procurement Package, by creating more discretion or flexibility, may have eroded the component of ‘internal market law made better’ and potentially make public procurement move back to the median (effectiveness) of EU internal market law.

Prof Jörgen Hettne discussed public procurement and technical standards, and whether the specific rules constituted mechanisms to limit discretion or rather a democratic threat. He discussed the multi-faceted nature of technical standards as potential technical barriers, or rather trade facilitators or trade promoters—and focussed on the latter under the new approach to EU standards (CE mark) and the presumption of compliance embedded in the rules on technical specifications in the 2014 Public Procurement Package. He also concentrated on the quasi-binding nature that technical standards are acquiring (eg Nordiska Dental (C-288/08, EU:C:2009:718), James Elliot Construction (C-613/14, EU:C:2016:821)—and see also Medipac - Kazantzidis (C-6/05, EU:C:2007:337), and Commission v Greece (C-489/06, EU:C:2009:165)).

He wondered whether the obligation to respect the CE mark in the context of public procurement is problematic due to its requirement of ‘blind trust’ in the harmonisation system, and whether this is a democratic threat—in particular due to the way in which broad participation is (not) working in the context of standard-setting. He also discussed the constraints in an alternative approach based on the flexibility around the use of functional requirements embedded in Art 44(6) of Directive 2014/24/EU.

Public Procurement Discretion: Limits and Opportunities

Prof Chris Bovis reflected on the drivers and boundaries of discretion in the award of public contracts. He discussed the evolution of the regulatory space left to discretion throughout the five generations of EU procurement directives, and raised issues concerning the scale or structural dimension of discretion, in particular due to the different nature of the issues left to the discretion of the Member States (system-level issues) or the contracting authorities (procurement/procedure-level issues). His reflections also prompted discussion on the dynamics and interaction between exposure to competition, accelerating market dynamics (eg regarding innovation) and exercise of (administrative) discretion.

Dr Dieter Klaus explored the lessons that can be learnt from an analysis of the constraints on discretion in the public procurement setting, as a case study of broader issues concerning the regulation of discretion under EU law. He started with conceptual remarks on ‘discretion’ and the general approach to discretion (deplorable exception or rather a valuable instrument?) and the tension between different pulls and levers in EU law (flexibility, subsidiarity, harmonisation, compliance and potential over-regulation risks). He also stressed the risks and difficulties in EU level concept-building around (eponymous) notions that carry specific connotations in the context of national legal systems, which triggers risks of possible misunderstandings—as well as the interaction between spheres of discretion and intensity of judicial review of (discretion-based) executive decisions.

He used examples that compared case law on gambling (eg Politanò (C-225/15, EU:C:2016:645), Unibet International (C-49/16, EU:C:2017:491) or Vereniging Hoekschewaards Landschap (C-281/16, EU:C:2017:774)) and case law on public procurement (TNS Dimarso (C-6/15, EU:C:2016:555), LitSpecMet (C-567/15, EU:C:2017:736) or Borta (C-298/15, EU:C:2017:266)), with a particular emphasis on the intensity of judicial scrutiny for the justifications backing up discretionary decisions by the Member States. In concluding his reflections, he wondered whether there is something that makes procurement law special within the framework of EU internal market rules—which he thought probably not, in particular if one considers the fact that discretion works in different ways in different areas of EU internal market law, and that EU public procurement law displays the whole range of scenarios where discretion is subjected to different constraints.

The discussion raised the issues of whether the discretion under analysis (in the case law) is only that exercised by the contracting authority in executive decisions, or whether macro/systemic issues are subjected to the same issues and constraints. It also raised issues on the interaction between incompleteness of the regulatory system and (unforeseen) sources of discretion. The discussion also raised the point of whether Art 18 Dir 2014/24 is the natural ‘home’ of discretion within the system (as a horizontal issue), or whether the Directives somehow operate on the basis of a more undercover position for discretion.

In my presentation, I discussed the extent to which the general principles in Article 18(1) of Directive 2014/24/EU set out the relevant constraints on the exercise of executive discretion in the context of procurement and, in particular, the role that the prohibition for contracting authorities to artificially narrow down competition can be used to create effective substantive and/or procedural tests to control the exercise of such discretion.

Following up on my previous proposals (mainly, in Public Procurement and the EU Competition Rules, 2nd edn (Hart, 2015) ch 5) I suggested that Article 18(1)II Dir 2014/24/EU provides the basis for a competition-orientated or competition driven adaptation of a general proportionality test. I suggested that the existing case law of the CJEU, in particular concerning anti-circumvention rules, can form the basis for a substantive test oriented towards the consideration of the counterfactual decision adopted by a diligent contracting authority. I acknowledged that such a test may be difficult to craft in a way that does not create risks of ex post facto reassessment of decisions that would have originally not been seen as restrictive of competition.

I also suggested that a procedural test may be preferable, in the sense of creating a presumption of conformity with the requirements of the Directive where the contracting authority can provide an adequate paper trail (ex Art 84(2) Dir 2014/24) demonstrating having given due consideration to competition impacts of the decisions taken along the procurement design and implementation phase. My preliminary idea is that the procedural test would create a rebuttable presumption of conformity and that, in case of indicia to the contrary, the substantive test would then be applied.

The ensuing discussion concerned challenges on my claim about the competition-orientatedness of the regime in Directive 2014/24/EU and the 2014 Public Procurement Package more generally, discussion of the different concepts of competition (either as a mechanism or as a benchmark demanding economic efficiency in absolute terms) and the links that could be drawn before the substantive test I propose and the more general test of abuse of EU internal market law.

Environmental and Social Clauses

Dr Marta Andrecka discussed limits of contracting authority discretion in the pursuit of sustainability, and drew from previous analysis on her recently edited monographic issue of the European Procurement & Public Private Partnership Law Review (2017) 12:3. Her reflections concerned the balance between the flexibility created to support sustainability goals in procurement through the ‘toolbox approach’ in the 2014 Public Procurement Package and ensuing Commission guidance, on the one hand, and the necessary checks and balances, on the other—in particular by reference to the interpretation of Art 18(2) of Directive 2014/24/EU and difficulties to fit different understandings of ‘public interest’ at EU and national level in this context. She gave significant weight to the addition of sustainability as a strategic goal of procurement under the new rules, very much in line with the European Commission’s approach in the October 2017 Communication on ‘Making public procurement work in and for Europe’. She also mapped out emerging obligations to include sustainability considerations in the context of other (horizontal) EU policies with an impact on procurement—such as the current proposal for a European Accessibility Act.

The ensuing discussion concerned the boundaries of the concepts of public interest and public policy within the context of EU internal market law, and the extent to which that is directly applicable and/or transferable to the interpretation and enforcement of the 2014 Public Procurement Package. It also concerned the link between the increasing sophistication and complications derived from sustainability-orientated procurement and emerginginitiatives on professionalization and capacity building as part of the broader procurement strategy.

Dr Sanja Bogojević mapped environmental contestation points in EU procurement law and policy, as a way of bringing attention to problems and opportunities for the pursuit of environmental policies in the context of public procurement. She recreated the discourse on green procurement through the case law of the CJEU after Concordia Bus Finland (C-513/99, EU:C:2002:495) and EVN and Wienstrom (C-448/01, EU:C:2003:651), and compared it to the discourse in broader internal market case law, to finally arrive to the current expressions of green public procurement aims and goals in policy documents, such as the 7th Environmental Action Plan or the Europe 2020 Strategy. Concentrating on Directive 2014/24/EU, her discussion considered the way green procurement is presented in relation to technical standards, labels and life-cycle costing rules.

Once the mapping was complete, she identified 5 points of contestation: (1) role of sustainable development and the risk it creates of squeezing environmental protection act; (2) reviewability of environmental models used in life-cycle costing (eg as exemplified in the litigation leading to R (ClientEarth) [2016] EWHC 2740); (3) what is the nature of the obligation in Art 11 TFEU (‘environmental protection requirements must be integrated into the definition and implementation of the Union policies and activities’ – is this solely a procedural minimum?); (4) discretionary climate change policy and ways in which policy can be used to create obligations (eg along the lines of the Dutch Urgenda case); and (5) the role of EU public procurement law in non-EU countries looking to access the EU (eg Serbia) or on the way out (UK). Ultimately, she made a compelling case for more interdisciplinary work and efforts of legal imagination to try to find workable legal solutions to global challenges.

Dr Jeremias Prassl discussed means, ends and conflicts in attempting to carry out social procurement. He introduced the clash between labour rights and internal market rules and restrictions (ie a clash of the economic vs the social)—which underlies calls for broad exemptions from internal market law from scholars such as Prof Alan Bogg ('Viking and Laval: The International Labour Law Perspective', in M R Freedland & J Prassl (eds), Viking, Laval and Beyond (Hart, 2016) ch 3)—and considered whether public procurement is more sensitive or atuned to labour law considerations than general internal market. He also reflected on whether the relevant clash was not one between economic and social rights, but rather between social rights of different collectives. He then developed each of the different narratives to see how they have shaped law and policy in the context of EU social and procurement law—in particular around the Posted Workers Directive.

His discussion provided insights on how the application of the internal market logic and its broader normativity comes to water down labour law’s protective effects (building on the analysis of L Rodgers, ‘The Operation of Labour Law as the Exception: The Case of Public Procurement’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 8). He assessed these issues of normativity and exception from Viking (C-438/05, EU:C:2007:772) and Laval (C-341/05, EU:C:2007:809) to the more recent cases of Bundesdruckerei (C-549/13, EU:C:2014:2235) and RegioPost. He also relied on Prof Weatherill’s approach ('Viking and Laval: The EU Internal Market Perspective', in M R Freedland & J Prassl (eds), Viking, Laval and Beyond (Hart, 2016) ch 2; see also S Weatherill, The Internal Market as a Legal Concept (OUP, 2017)) to criticising the insensitivity of internal market case law to legitimate and democratically expressed national priorities—which Jeremias considers is currently softening, as the CJEU approach in RegioPost indicates.

He also critically reflected on whether the seeming growing scope for labour policies in the context of procurement is likely to generate the maximum practical effects that would be desirable. In closing his paper, he wondered whether the heterogeneity of workers and the conflicts between different groups of workers (insiders vs outsiders) would provide a better narrative and analytical perspective to reassess this topic. In doing that, he drew on Prof Catherine Barnard’s contrast between the equal treatment logic of the procurement rules and the differentiation logic of the traditional rules on posting of workers, which is now being tamed in the revision of the Posted Workers Directive (see C Barnard, ‘Fair’s Fair: Public Procurement, Posting and Pay’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 10).

The ensuing discussion concentrated on how attempts to integrate social and environmental considerations in a public procurement regime that already tried to address other goals—mainly, economic and internal market-orientated—triggers issues around the extent to which social and environmental considerations should be a more intrinsic element of internal market law generally, as a sort of ‘softer market’, rather than an issue to be addressed sectorially.

Prof Xavier Groussot and Ms Angelica Ericsson wrapped up the discussions with a reflection on the tension between discretion and proportionality in the use of social clauses in procurement. They discussed (i) the elements of discretion, (ii) the application of procedural proportionality to control discretion—and in particular from the perspective of transparency—and (iii) whether recent case law seemingly deviating from the principle of proportionality creates a problem, mainly in light of the application of covert proportionality through consistency in RegioPost (contra P Bogdanowicz, ‘Article 56 TFEU and the Principle of Proportionality: Why, When and How Should They be Applied After RegioPost?,’ in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 3). In the first part of the discussion, they explored the connections between the application of discretion under EU law and under ECHR law, and how that comparison can be best assessed using a variation of the framework set out by Tridimas (‘Proportionality in Community Law. Searching for the Appropriate Standard of Scrutiny’, in E Ellis (ed), The Principle of Proportionality in the Laws of Europe (Hart, 1999) 65 ff), and the additional issue of harmonisation raised by Thym (‘The Constitutional Dimension of Public Policy Justification’, in P Koutrakos, N Nic Shuibhne, & P Syrpis, Exceptions from EU Free Movement Law: Derogation, Justification and Proportionality (Hart, 2016) ch 9): (1) the interest, (2) the proceeding, and (3) the level of harmonization (cfr Opinion of AG Cruz-Villalon in dos Santos Palhota and Others (C-515/08, EU:C:2010:589)).

In the second part, they discussed discretion and procedural proportionality, and reflected about ‘what would a high level of discretion mean for a proportionality assessment’ both in theory and in practice. They stressed that the level of discretion and the intensity of proportionality review should theoretically be inversely proportionate (much along the lines presented by Dr Kraus earlier in the day, but with inverted causality), and that this is demonstrated in practice in the area of public procurement (such as in Politanò), where the CJEU shows more deference to administrative discretion (ie a lighter-touch proportionality analysis) where a higher level of discretion exists ex ante. Specifically in the context of procedural proportionality (eg Beentjes v State of the Netherlands (C-31/87, EU:C:1988:422)), and in the context of transparency obligations, they suggested that procurement is a good testing ground for the correlation between higher discretion and more limited proportionality scrutiny by the CJEU (eg in RegioPost, where regulatory transparency may have saved the social clause). They concluded that (i) high level policy discretion for Member States must not translate into unfettered discretionary/arbitrary decision-making by contracting authorities, (ii) procedural scrutiny is spreading beyond public procurement (R Caranta, ‘Public Procurement Law: Limitations, Opportunities and Paradoxes’ in U Neergaard, C Jacqueson & GS Ølykke (eds), XXVI FIDE Congress in Copenhagen, vol 3 (DJØF, 2014), where he claims principles of procurement becoming general principles of EU administrative law more generally), (iii) EU law principles (eg transparency) may be fuelled by different justifications than (eponymous) national ones.

Finally, in the third part, and drawing from French administrative law, they explored the possibilities of developing a taxonomy of CJEU case law that would distinguish between a procedural approach (controle minimum), substantive approach (controle normal) and a balancing approach (controle maximum).

The discussion concentrated mostly on the boundaries of the procedural proportionality approach and the categories that could most usefully be used to create a taxonomy of approaches by the CJEU. This was linked to the discussion to the standard of review of decisions in other areas of EU law—eg competition law, where the connection between EU and ECHR standards has been questioned (eg Menarini, as discussed in extenso in A Sanchez-Graells, ‘The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?’, in Kosta, Skoutaris & Tzevelekos (eds), The Accession of the EU to the ECHR (Hart, 2014) 255-70).

Alternative Procurement Models

Dr Ohad Graber-Soudry presented the procurement rules of European Research Infrastructure Consortia (ERICs) under the specific regulatory framework of Council Regulation 723/2009/EC, which creates significant space for each ERIC to adopt its own procurement rules. His presentation concentrated on the uncertainties derived from the treatment of ERICs as international organisations and the impact these have on ERICs’ discretion to develop their own procurement rules, as well as the treatment of discretion within those (self-developed) rules.

The ensuing discussion mainly concerned the limits and effects of Art 7(3) of Regulation 723/2009, whereby ‘[a]n ERIC is an international organisation within the meaning of Article 15(c) of Directive 2004/18/EC’, which now corresponds to Article 9(1)(b) of Directive 2014/24/EU.

Closing the workshop, Prof Ulf Bernitz discussed the peculiarities of the Swedish system, and stressed the particular use and weight of transparency obligations in that jurisdiction.

Understanding the Catalan Conflict from a Spanish Constitutional Perspective

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I had the great pleasure of giving a talk on the Catalan conflict and its fit within the Spanish constitutional framework within the Bristol Student Law Conference Lecture Series yesterday. These are the slides of the talk, updated to 30 October 2017 3pm, and a voice recording is available on demand. If you are interested, please email me at a.sanchez-graells@bristol.ac.uk.

Public procurement for a circular economy: some thoughts on policy coordination and fluffy guidance

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The European Commission has published 'Public procurement for a circular economy. Good practice and guidance', where it offers its views on how to implement procurement policies that go beyond green public procurement to engage in circular procurement, understood as 'the process by which public authorities purchase works, goods or services that seek to contribute to closed energy and material loops within supply chains, whilst minimising, and in the best case avoiding, negative environmental impacts and waste creation across their whole life-cycle'. 

Therefore, circular procurement seems to be a sub-type of green procurement (in turn, a sub-type of smart procurement) mainly concerned with life-cycle and life-cycle costing. So the adoption of this guidance only a few days after the adoption of the Communication on 'Making public procurement work in and for Europe' (see here) raises some questions on coordination of policy efforts and messages from the Commission. If the Commission knew that this guidance was bound to be adopted, why did it not mention it in the Communication earlier this month? Is this a sign of discoordination between different Directorates General within the Commission (in particular, Environment and Growth)? Would linked-up policy efforts not yield better results?

Regardless of those political economy issues, and probably as a result of the new 'circular procurement guidance' being a product of DG Environment, most of the guidance is of a high level of generality and mainly concentrates on issues of political and organisational buy-in. From a practical and legal perspective, the document does not do much more than refer back to pre-existing guidance on the use of green procurement criteria (which have been expanded to new product groups) and reiterate some general remarks about the flexibility created in the 2014 Public Procurement Package for the inclusion of environmentally-orientated technical specifications and award criteria, and their evaluation. 

In short, other than some examples of innovative practices, I did not find the 'circular procurement guidance' all that useful, and I think that the Commission needs to make much more significant efforts to provide practical and useful guidance if it wants to support the uptake of green, and in particular circular, procurement at Member State level. Currently, the lack of guidance on life-cycle costing (Art 68 Dir 2014/24/EU) is probably the single most relevant obstacle in significant uptake of circular procurement. When will this gap be filled?

 

Further clarification on non-contractual liability vis-a-vis abnormally low tenderers in EU Institutional procurement (C-198/16 P)

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In its Judgment of 19 October 2017 in Agriconsulting Europe v Commission, C-198/16 P, EU:C:2017:784, the Court of Justice of the European Union (CJEU) has provided additional clarification on the conditions for EU Institutions to incur in non-contractual liability (ex Art 340 TFEU) in the context of an investigation of apparently abnormally low tenders in public procurement governed by the Financial Regulation (in that case, the no longer in force 2002 version, but note that the reasoning is generally applicable to current rules).

The Agriconsulting Judgment consolidates a balanced approach to the obligations incumbent upon a contracting authority investigating apparently abnormally low bids, and formulates the emerging principle that tenderers submitting abnormally low tenders are unlikely to have the right to claim for potential damages derived from other shortcomings in the evaluation of their tenders.

In Agriconsulting, the CJEU decided on an appeal of a previous General Court Judgment (T-570/13, EU:T:2016:40) that rejected the claims made by Agriconsulting against the way in which the Commission had assessed its tender and eventually decided that it was abnormally low and thus non-compliant with the tender specifications. The case concerned a services contract that was split between main and additional tasks, and where the tender documentation established minimum levels of staff to be assigned to each of them. This was to be assessed under award criterion 3: 'practical organisation of the tasks'. Under the circumstances, Agriconsulting's tender was found not to meet the minimum staffing requirements in the tender documents.

However, this only emerged after additional details were requested as part of an investigation of the apparent abnormality of its tender, which was €1 million (ie 43%) lower than the competing tender, and €1.2 million (47%) lower than the maximum budget for the contract. The information provided by Agriconsulting did not address the concerns about the abnormality of its tender, which led the evaluation committee to change its preliminary assessment--where Agriconsulting was ranked first but suspected of abnormality--and to reach the final position that its tender did not merit the required minimum points under award criterion 3 to be awarded the contract. Agriconsulting raised a number of claims against this, of which two are particularly interesting: (1) that even if its tender was properly found to be abnormally low under award criterion 3, it could have a right to compensation for damages if it could demonstrate other errors by the contracting authority; and (2) that it had been discriminated against because the competing tender was not investigated for abnormality.

Abnormality and rejection of the tender

In simple terms, the first ground of appeal concerns a claim by Agriconsulting that can be understood as intimating that, even if the rejection of its tender as abnormally low due to its not having met the minimum requirements of award criterion 3 was correct, the existence of errors in the evaluation of its tender under other award criteria could still give rise to liability of the contracting authority.

The argument arises from the fact that, in its application, Agriconsulting had claimed that there was a causal link between the improper assessment of its tender under criterion 3, and that unlawful acts concerning award criteria 1 and 2 "supported" its claim. The GC had dealt with this in the following terms:

42 The applicant contends that the condition relating to the causal link is satisfied because its tender was ranked in first place and it would have been awarded the contract had it not been for the alleged infringements.

43 Nonetheless, it must be stated that the rejection of the applicant’s tender is based only on the assessments concerning award criterion 3 and the abnormally low nature of its tender. The applicant’s tender was indeed ranked in first place following the examination of the tender from an economic standpoint. That ranking was altered for two reasons, namely the changes to the evaluation of the tender in the light of award criterion 3, which was considered to be insufficient, and the classification of the tender as abnormally low. The applicant also states in its application that the harm at issue is the direct result of the evaluation committee’s decision to lower the score for award criterion 3 and to find that the tender was abnormally low.

44 Furthermore, as the Commission points out, the applicant has not, at any time, explained how the award of a higher score for award criteria 1 and 2 could have had a favourable impact on its chances of being awarded the contract.

45 The applicant is therefore wrong to assert that the contract would have been awarded to it if it had not been for the infringements and errors concerning award criteria 1 and 2. Even a higher score for those award criteria would not have affected the assessment of its tender in the light of award criterion 3 and the finding that the tender was abnormally low.

46 Accordingly, the alleged illegalities concerning award criteria 1 and 2, even if proven, have no direct causal link to the alleged harm, relating to the loss of the opportunity to conclude the contract and the expenses incurred in order to participate in the tendering procedure (T-570/13, paras 42-46, emphasis added).

Thus, the issue in front of the CJEU was to assess whether, in dismissing its claim and thus finding that (even if proven) infringements concerning criteria 1 and 2 would not have met the causality requirements to give rise to liability, the GC had erred in law. In its Judgment, the CJEU dismisses this claim by indicating that

... the General Court did not hold in a general and abstract manner that the unlawful acts affecting a tender procedure, such as those alleged in the present case by Agriconsulting in relation to award criteria 1 and 2, can never entitle a tenderer to compensation. In the present case, the General Court merely assessed in concreto whether such a right to compensation existed, in the light of the arguments submitted by the appellant concerning the causal link and by carrying out an assessment of the facts of the case (C-198/16 P, para 21, emphasis added).

I find this interesting for two reasons. First, because it can be read to mean that, where a tender is properly rejected for being abnormally low, there is no liability that can possibly arise vis-a-vis that tenderer due to any other failings in the way the contracting authority assessed the tender. This seems adequate as, in more general terms, a tenderer submitting an abnormally low tender cannot hold legitimate expectations of being awarded the contract. Second, I find this interesting because the CJEU also leaves the door open to the possibility that unlawful acts affecting a tender procedure give rise to liability of the contracting authority where they have a negative impact on a tenderer's chances of being awarded the contract. However, this probably needs to be understood as a slim or remote possibility, applicable only where the unlawful acts are substantive and affect the possibilities of being awarded a contract in a sufficient or material manner.

Abnormality and equal treatment

As mentioned above, the second issue raised by Agriconsultingin its third ground of appeal concerned a notional duty of contracting authorities that engage in the investigation of a tender as apparently abnormally low to investigage all tenders received in that procedure for abnormality. The CJEU summarises the claim as follows:

48 ... the General Court ... stated that [the competitor]’s tender, calculated on the basis of the formula set out in the tender specifications, was slightly lower than the budget ceiling provided for in those specifications for the performance of the contract and higher, by almost EUR 1 million, than Agriconsulting’s tender. It thus concluded that [the competitor] was not in the same situation as Agriconsulting and that therefore the Commission was entitled, without infringing the principle of equal treatment, to verify the abnormally low nature of [Agriconsulting]’s tender, without applying the same treatment to [the competitor]’s tender.

49 It must be stated that the differential treatment of the tenders of Agriconsulting and of [the competitor] is intrinsically linked to the issue of identifying abnormally low tenders and the procedure reserved for them. Assessing the merits of the reasons given by the General Court ... will require revisiting the relevant obligations imposed on the contracting authority (C-198/16 P, paras 48-49, emphasis added).

This also seems like the proper approach to assessing any unequal treatment, and links to the procedural obligations that contracting authorities face in the presence of allegations or suspicions of abnormality--which have been recently discussed in European Dynamics Luxembourg and Others v Agence, T-392/15, EU:T:2017:462 (see here).

Following the same functional approach, the CJEU reiterated in Agriconsulting that:

52 It is only on condition that the reliability of a tender is, a priori, doubtful that the obligations ... are imposed on the contracting authority, including, in the present case, that of verifying in detail the seriousness of the prices offered using the reference economic parameters.

53 In the present case, since the evaluation committee had identified the appellant’s tender as being, prima facie, abnormally low, and had considered that [the competitor]’s tender did not, a priori, present any abnormality, it could, without infringing the principle of equal treatment between tenderers, initiate the adversarial procedure ... against the appellant and verify in detail its prices using the reference economic parameters without applying the same treatment to [the competitor]. The General Court was therefore correct in finding ... that both undertakings, as regards their respective tenders, were not in the same situation (C-198/16 P, paras 52-53, emphasis added).

This is also a welcome development because it creates continuity in the position reached in European Dynamics Luxembourg and Others v Agence that contracting authorities do not have motu proprio obligations beyond reaching an initial view on the absence of concerns regarding the abnormality of a tender, and that any additional obligations only arise from explicit claims to that effect. This is further clarified by the CJEU when it stresses that 'Agriconsulting would ... have had to establish the reasons why the contracting authority should, prima facie, have doubted the reliability of [the competitor]’s tender' (C-198/16 P, para 58).

 

CJEU provides some clarification on functional limits to in-house exemption: no two bites of the cherry? (C-567/15)

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In its Judgment of 5 October 2017 in LitSpecMet, C-567/15, EU:C:2017:736, the Court of Justice of the European Union (CJEU) has considered the limits of the in-house exemption from the procurement rules in scenarios where a contracting authority controls an in-house entity and, in turn, the in-house entity engages in activities with third parties--or, in other words, the CJEU has assessed the functional limits of the exemption in relatively complex public house situations.

The CJEU has not really followed the thrust of the Opinion of AG Campos (which was largely based on competition considerations, see here), but rather provided a clarification that focuses the assessment of the applicability of the EU procurement rules to the purchases by the in-house entity from third parties on an independent analysis of whether the in-house entity 'at the end of the public house chain' meets the definition of 'body governed by public law'. This offers some clarification that could be useful in the future, but the way the CJEU applies the tweaked test also creates new areas of uncertainty and opens up the case law to criticisms on the basis of the conflation of activities along the 'public house chain' despite setting out to avoid such conflation.

In LitSpecMet, more specifically, the CJEU considered "whether the second subparagraph of Article 1(9) of Directive 2004/18 must be interpreted as meaning that a company which, firstly, is wholly owned by a contracting authority the activity of which is to meet needs in the general interest and which, secondly, carries out both transactions for that contracting authority and transactions on the competitive market may be classified as a ‘body governed by public law’ within the meaning of that provision and if so, in that regard, what is the effect of the fact that the value of the in-house transactions may in future represent less than 90% or not the main part of the total financial turnover of the company" (C-567/15, para 23).

The case was decided on the basis of Art 1(9) of Directive 2004/18/EC but, given that its terms are largely coincidental with Article 2(1)(4) of Directive 2014/24/EU, it is of broad and future relevance. In the end, both provisions establish three cumulative conditions for the consideration of an entity as a 'body governed by public law': (a) be established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character; (b) have legal personality; and (c) (i) be financed, for the most part, by the State, regional or local authorities, or by other bodies governed by public law; or (ii) be subject to management supervision by those authorities or bodies; or (iii) have 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.

In LitSpecMet, the CJEU started by reiterating its case law on the cumulative conditions that determine the status of 'body governed by public law' (paras 29-30) and on the functional and broad approach to the interpretation of the personal scope of application of EU procurement rules (para 31). Given that in LitSpecMet it was uncontroversial that the relevant entity had separate legal personality and was controlled by a contracting authority (para 32), the analysis rested on whether the entity constituted a "body established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character" (para 33).

Specific purpose of meeting needs in the public interest

In this analysis, and decoupling the different phases of the relevant test, the CJEU stressed that

34 It is clear ... that the requirement [for the entity to have been 'established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character'] must be satisfied by the entity whose classification is being examined and not by another entity, even if the latter is the parent company of the former which supplies the latter with goods or services. It is therefore not sufficient that an undertaking was established by a contracting authority or that its activities are financed by funds derived from activities pursued by a contracting authority in order for it to be regarded as a contracting authority itself (judgment of 15 January 1998, Mannesmann Anlagenbau Austria and Others, C‑44/96, EU:C:1998:4, paragraph 39).

35 In addition, it is necessary to take into consideration the fact that the use of the term ‘specific’ shows the EU legislature’s intention to make only entities established for the specific purpose (sic) of meeting needs in the general interest, not having an industrial or commercial character, the activity of which meets such needs, subject to the binding rules on public contracts.

36 Accordingly, it is necessary to determine, first of all, whether [the in-house entity] was established for the specific purpose of meeting needs in the general interest, the activity of which meets such needs before, if necessary, examining whether or not those needs have an industrial or commercial character (see, to that effect, judgment of 22 May 2003, Korhonen and Others, C‑18/01, EU:C:2003:300, paragraph 40) (C-567/15, paras 34-36, emphasis added).

Even if the drafting could have been clearer, particularly that of para 35 (which is tautological and, frankly, impossible for me to crack), the thrust of the test set out by the CJEU in LitSpecMet comes to assess the functional purpose of the in-house entity under consideration, rather than the nature of the activities it carries out. This comes to severe any intended chains of justification based on the activities in the general interest carried out by contracting authorities further up the 'public house chain' and concentrates on the purpose of the in-house entity 'at the end of the public house chain'--which must have been specifically established for general interest purposes.

This seems like the proper approach in abstract terms. However, the difficulty is that such a strict approach to the assessment of the activities of the in-house entity are likely to lead to the conclusion that it does not carry out activities in the general interest, which creates a difficult functional conundrum. This is visible in LitSpecMet where, in my view, the CJEU creates a great deal of confusion in the way it applies the test to the relevant entity in LitSpecMet in two ways.

First, in the way that the CJEU considers the purpose of the entity, which is to supply goods and services to enable its parent company to carry out the latter's activity (para 37), to be in the general interest because its "activity, in particular the manufacture and maintenance of locomotives and rolling stock and the supply of those goods and services to [the parent company], appears necessary for [the parent company] to be able to carry out its activity intended to meet needs in the general interest" (para 38).

To me, this seems wrong because the supply activity is not in the public interest, but in the interest of the parent company, which means that the entity whose classification is being examined does not meet the requirement (ie, in contravention of para 34) and because functionally it conflates the main activity of the parent company (in the general interest) with the ancillary (commercial/industrial) activity of the in-house entity 'at the bottom of the public house chain'. Otherwise, this would be tantamount to saying that a (private) supplier of the public sector carries out activities in the general interest where its supplies are necessary for a public authority to carry them out--quod non. In that regard, the test suggested by AG Campos concerning whether the in-house entity indirectly contributed to the general interest activities would seem preferable.

Second, and more importantly, the CJEU creates additional confusion when it indicates that, in the assessment of whether the in-house entity was specifically established for the purpose of meeting needs in the general interest, 

40 ... it is irrelevant that, in addition to the activities intended to meet needs in the general interest, the entity in question also carries out other activities for profit on the competitive market (see, to that effect, judgments of 15 January 1998, Mannesmann Anlagenbau Austria and Others, C‑44/96, EU:C:1998:4, paragraph 25, and of 10 April 2008, Ing. Aigner, C‑393/06, EU:C:2008:213, paragraph 46 and the case-law cited).

41      Thus, the fact that [the in-house entity] does not carry out only activities intended to meet needs in the general interest through internal transactions with [its parent company], so that [the parent company] may carry out its transport activities, but also other profit-making activities is irrelevant in that regard (C-567/15, paras 40-41, emphasis added).

Once more, with the ultimate goal of preventing an 'escape' from the procurement rules by in-house entities carrying out activities outside of the public house, this seems to me to wrongly ignore the focus previously put on the assessment of the activity of the entity whose classification is being examined. Functionally, where an entity carries out activities in the public interest and activities of a commercial or industrial nature, it makes no sense to treat all activities the same.

This is not the approach followed in the context of utilities procurement under Directive 2014/25/EU. Furthermore, in EU competition law, where entities carry out activities that represent the exercise of public powers and economic activities, their assessment is based on the severability of the activities. In my view, the same approach would be appropriate here and, even more, in keeping with the functional logic of the in-house and public-public cooperation exemptions from compliance with EU public procurement rules, it would seem that the opposite approach should be preferred--to the effect that, where an entity carries out a significant volume of its activities for the benefit of entities outside the public house, it should not be considered a 'body governed by public law' for the purposes of subjecting it to the procurement rules but at the same time, the exemption from compliance with public procurement rules in the award of public contracts by other entities in the public house should disappear. 

In other words, functionally, I do not think it makes sense to take such a strict approach to the assessment of the existence of activities in the general interest for the purpose of assessing the classification of the in-house entity as a 'body governed by public law', but rather to take a more holistic approach to the assessment of the position of the entity within the public house--ie, the entity must be either in or out of the public house.

Thus, in my opinion, the formulation of the test (and its sequencing) seems appropriate, but its application and the conflation of activities--both (i) the conflation of the activities of the controlling and the controlled entity, and (ii) the conflation of the activities in the general interest and the commercial or industrial activities of the latter inter se--is erroneous and comes to create significant confusion that muddies the waters of the intended clarification.

Needs not having an industrial or commercial character

Moreover, given that the CJEU considered the in-house entity 'at the bottom of the public house chain' to have been established specifically to meet needs in the general interest, the Court continued setting out the detailed test, and established that

43 ... in the assessment of [needs in the general interest, not having an industrial or commercial] character account must be taken of relevant legal and factual circumstances, such as those prevailing when the body concerned was formed and the conditions in which it carries on its activity, including, inter alia, lack of competition on the market, the fact that its primary aim is not the making of profits, the fact that it does not bear the risks associated with the activity, and any public financing of the activity in question.

44 ... if, with regard to the activities intended to meet needs in the general interest, the body operates in normal market conditions, aims to make a profit and bears the losses associated with the exercise of its activity, it is unlikely that the needs it seeks to meet are not of an industrial or commercial nature (judgment of 16 October 2003, Commission v Spain, C‑283/00, EU:C:2003:544, paragraphs 81 and 82 and the case-law cited).

45 That being the case, the existence of significant competition does not, of itself, allow the conclusion to be drawn that there is no need in the general interest, which is not of an industrial or commercial character.

46      In those circumstances, it is for the referring court to ascertain ... whether... the activities carried out by [the in-house entity], seeking to meet needs in the general interest, were exercised in competitive conditions and in particular whether [the in-house entity] was able ... to be guided by non-economic considerations (C-567/15, paras 43-46, emphasis added). 

I also find the formulation of this part of the test confusing, not least due to the unclear position that the existence of competitive markets assumes. As I mentioned when discussing the Opinion of AG Campos, the sole fact that the controlling entities within the public house 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 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. In addition to that consideration, I think that the position of the CJEU in LitSpecMet creates additional issues.

First, it is not clear to me whether the analysis in this second step needs to be constrained to the activities "intended to meet needs in the general interest" (para 44, particularly in relation to para 40) or to all the activities of the in-house entity (as suggested in para 46?), particularly where the in-house entity carries out for-profit activities with third parties, but also carries out not-for-profit (or not fully commercial) activities with the controlling entity and/or other entities within the public house. Would profit-seeking activities with third parties (even if of a relatively small volume, say 10% or 20% of the turnover of the in-house entity) suffice to make it fall foul of the definition of 'body governed by public law'? Second, it is not clear to me how to assess whether an entity is "able to be guided by non-economic considerations". Third, it is also unclear to me whether transactions are carried out in competitive conditions where the mere existence of the in-house entity may suppress any relevant comparator. 

Ultimately, I guess that what is relevant is to try to understand the functional rationale and implications of the second part of the test. The situation here is one where an in-house entity carries out procurement activities ancillary to the activity in the general interest of its parent company (first step of the test) and, at this point, the assessment of whether its activities are competitive or not, and whether it can be guided by non-economic factors, determine the applicability of procurement rules to its purchases from third parties (second step of the test).

In my reading, that means that (a) if the in-house entity carries out its relevant activities in competitive conditions, it falls foul of the definition of 'body governed by public law' and does not need to comply with the procurement rules in its acquisitions from third parties; and (b) if the in-house entity does not carry out its relevant activities in competitive conditions and/or can be guided by non-economic considerations, then it will be classed as a 'body governed by public law' and thus obliged to comply with the procurement rules. At least (a) can be problematic in some scenarios--although (b) can also be problematic where the analysis is constrained to solely part of the activities of the in-house entity.

Regarding (a)-type situations, where the in-house entity that receives the direct award of contracts from other entities in the public house without subjection to public procurement rules carries out competitive activities, the test seems to allow it to benefit from its in-house position to compete in the market without having to comply with procurement rules in its purchases--which is functionally opposite to the restrictions on market activities of the in-house entity under Art 12 Dir 2014/24/EU (as mentioned above).

Overall consideration

I think that my uneasiness with the Judgment in LitSpecMet primarily derives from the fact that, where assessing the activities of in-house entities 'at the bottom of the in-house chain', the first part of the test ignores whether, in addition to (indirect) activities in the general interest, the entities carry out additional for-profit activities with third parties. And, subsequently, the second part of the test (potentially) concentrates on the existence of such activities (and the existence of profit goals and business risk) to exclude the non-commercial and non-industrial nature of those activities. Even if I cannot say exactly why, I sense a disconnection between both parts of the test. I will have to give this case some additional thought but, for now, I think that the CJEU would have been better off by adopting a functional approach to the in-house exemption and its limits, rather than a functional approach to the concept of 'body governed by public law', which implementation creates confusion.

 

Making public procurement great again?* COMMENTS on the commission's Communication of 3 october 2017

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Continuing with our procurement tennis on the Commission's October 2017 procurement package, it is now turn for Pedro and me to concentrate on the Communication "Making Public Procurement work in and for Europe" COM(2017) 572 final, which is the main pillar of a renewed policy push that has a strong emphasis on the interaction between procurement and investment in the single market.

In this Communication, the Commission outlines 6 strategic priorities for public procurement policy in areas "where clear and concrete action can transform public procurement into a powerful instrument in each Member State’s economic policy toolbox, leading to substantial benefits in procurement outcomes". These include: (i) Ensuring wider uptake of strategic public procurement; (ii) Professionalising public buyers; (iii) Improving access to procurement markets; (iv) Increasing transparency, integrity and better data; (v) Boosting the digital transformation of procurement; and (vi) Cooperating to procure together.

In this post, I offer some critical comments on the 6 strategic priorities (three of which I consider highly questionable, and three which require further thought), as well as some overall considerations in the way the Commission seems to have started to shift away from its role of Guardian of the Treaties, and to morph into something else as it "commits to firmly support a change of the public procurement culture in Member States".

General comments

Overall, the Communication has undertones that bring it closer to an industrial policy for the single market, including the promotion of 'sustainability-orientated' secondary policies, than to a strategy to improve procurement as a working tool for the public sector. Indeed, procurement is presented as "a fundamental element of the investment ecosystem" because "a substantial part of public investment in our economy is spent through public procurement, representing 14 % of the EU GDP", which is language clearly linked to the instrumental use of procurement. And, to say it all, the Communication formulates that "sustainable industrial investment policy" through weird choices of words that echo the slogans of populist movements on both sides of the Atlantic--which may not send the right messages to trade partners monitoring issues such as the initiative on third country access to EU procurement markets. Therefore, it will probably not be surprising to read that I am not convinced that this is the best possible steer for public procurement policy in the EU context--much along the lines I already sketched here and here.

It will probably not be surprising either that the scant empirical evidence underlying the formulation of this policies is once again a source of criticism of the Commission's efforts. In the Communication (section 2), the Commission lists a series of examples of what it considers "encouraging steps ... to radically reform procurement practices or structures". Amongst them, the Commission resorts once more to the HAPPI Project, which it presents as having enabled"innovative solutions for healthy aging [to] have been procured jointly by contracting authorities in several Member States". However, the reality of things is that this project is far from a success story due to the extremely low take-up of the technologies procured and the limited use of the framework agreements put in place (as evidenced by reports financed by the Commission itself; see here). The Commission also presents as a success story the fact that "Slovakia has put in place a contract register that gives public access to all contracts concluded by the public authorities in the country, thus improving transparency and allowing for public scrutiny", without acknowledging that transparency in procurement remains a significant challenge and that the Commission's own initiative to promote the creation of such registries triggers some concerns (see here, here and here, as well as this paper by K-M Halonen). On the whole, the formulation of a policy priorities such as those contained in the October 2017 Communication should be supported by detailed empirical evidence and careful impact assessments. Their absence creates some questions as to the actual justification for the policies, which is regrettable.

It is also regrettable that, much as in the creation of the Internal Market Scoreboard (see here), the Commission continues to adopt random thresholds to assess the desirable intensity of specific procurement policies. For instance, the Commission indicates that there is significant scope for more strategic procurement because "55% of procurement procedures still use the lowest price as the only award criterion ... Yet, most economically advantageous tenders on the basis of a cost effectiveness approach which may include social, environmental, innovative, accessibility or other qualitative criteria are still underused". This conflates two or possibly three issues. Firstly, what is the threshold at which the use of price only would stop indicating unexploited opportunities for 'smart(er) procurement'? 10%? 20%? 30%? Why not 55%? Second, it is possible, in particular for standard products including eg environmental or accessibility requirements to be tendered on the basis of price only where sufficiently detailed technical specifications can be drafted. Thus, a simple analysis of the award criterion only tells part of the story concerning the intensity of the use of 'smart procurement' techniques. Third, the use of best price-quality ratios (BPQR, see Art 67(2) Dir 2014/24/EU) can hide or mask less than transparent procurement practices, so there is a clear (and unacknowledged) trade-off between non-price-only procurement and the integrity of the procurement procedure, as well as the costs of its administration.

In the same fashion, the Communication also indicates that "Contracting authorities are rarely buying together, as only 11 % of procedures are carried out by cooperative procurement", and that "[a]lthough not all types of purchases are suitable for aggregation, overall low aggregation rates suggest lost opportunities". Using a percentage threshold to assess whether centralised and collaborative procurement is sufficiently developed is equally unsettling, particularly because there is no good reason to consider that any given volume of procurement should be centralised. Moreover, given that the Commission has set at 10% the value of the indicator on 'cooperative procurement' for the purposes of the Internal Market Scorecard (see indicator [4]), it seems obvious that the Commission itself has no clue whether 10% of collaborative procurement suffices or not. Thus, setting policy priorities on the basis of unjustified % thresholds continues to be a dangerous path to follow.

I will not spend much time on the other fluff that surrounds the policy recommendations in the Communication. Suffice it to say that I am not convinced that "public procurement matters more than ever" (arguably, it has always mattered and will continue to matter for as long as the public sector engages with markets in the context of the development of its public interest activities, even if some of the notable challenges on the table are addressed in the future), or that the expression "a broad partnership for common success" has any relevant meaning. I would rather have the Commission avoid this type of language in communications aimed at formulating policies in relatively technical areas of EU economic law or, in the Commission's words, in a document aimed at promoting the "smart application of the new rules in practice", but that does not seem to be the thrust of the times--so let's move on and concentrate on the policy priorities.

(i) Ensuring wider uptake of strategic public procurement

The Commission takes the view that "[s]trategic public procurement should play a bigger role for central and local governments to respond to societal, environmental and economic objectives, such as the circular economy". Thus, it wants to promote the mainstreaming of "innovative, green, and social criteria, a more extensive use of pre-market consultation or qualitative assessments (MEAT) as well as procurement of innovative solutions at the pre-commercial stage". It acknowledges that this may not be feasible in all countries, where "there are still shortcomings in the proper functioning of the public procurement system", but it assumes that this not only a feasible, but also a desirable policy development elsewhere. 

In my view, there are two main issues with the assumption that strategic procurement should play a bigger role. The first one is that while some aspects of 'smart procurement' are compatible with the internal market (eg green or innovative procurement), others are structurally disaligned with internal market rules (most notably, the use of labour and social requirements, which are almost impossible to separate from their protectionist effects). Thus, talking about 'strategic' or 'smart' procurement as a solid reality is problematic. The second issue is that the inclusion of green, innovation (and social) considerations is bound to increase the cost of procurement--which is a major concern in economies still recovering from austerity periods--and will also reduce the possibilities for SME access to procurement, in particular if the public sector moves significantly away from market standards in a push for the strategic use of procurement as a market-making or making-shaping tool. All of these issues should create concern, and are in part in contradiction with other goals of the Communication (in particular, with the issue of SME access, see below iii), so a more nuanced approach may be necessary.

In addition, there is no consideration of the limits that need to be placed on strategic procurement from the perspective of public accountability (is it really in the public interest for every buyer to have its own secondary policy agenda?) and from the perspective of preventing distortions of competition created by the public buyer. Presenting strategic procurement as the 'must adopt' strategy without stressing the need for robust checks and balances even in countries with no perceived shortcomings in the functioning of their public procurement system presents a rather distorted view.

(ii) Professionalising public buyers

This is an issue developed in much more detail in the flaking initiative on professionalisation presented by the Commission on 3 October 2017, and which Pedro and I already discussed (here and here). 

(iii) Improving access to procurement markets

Surprisingly, this is one of the most disappointing aspects of the October 2017 Communication. The Commission indicates that improving access to procurement is mainly geared "to increase the SME share of public procurement in line with their overall weight in the economy", in particular "in view of promoting more cross-border procurement". However, the only specific actions mentioned by the Commission concern (i) the Remedies Directive (and, specifically, its criticisable decision not to review it, see here and here), (ii) the initiative on third country access to EU procurement markets (see here), and (iii) a sectorial initiative to increase SME participation in defence and security contracts. This is puzzling. 

While those initiatives can have some effect on increasing SME access to procurement markets, they are unlikely to facilitate a step change. Much more is needed in terms of guidance and best practice on facilitating SME access to procurement domestically and in an EU cross-border context (which the Commission should undertake), and there are obvious limitations derived from the cost of having the administrative (and language!) capacity needed to export. In that regard, the proposals in the Communication do not even brush the surface of what could be done at EU-level--starting with practical guidelines on how to maximise the advantages derived from the fact that, in the Commission's own terms, "[t]he 2014 directives include measures that should facilitate the access of companies including SMEs to public procurement, also cross-border". It would certainly be helpful for the Commission to flesh that view out in more detail.

(iv) Increasing transparency, integrity and better data

Broadly, the Commission stresses four different initiatives in this area: (1) a boost of data collection / big data, (2) a potential initiative on whistleblowing, (3) an initiative to produce tools addressing bid rigging and raising awareness to minimise the risks of collusive behaviours on procurement markets, and (4) guidelines on the application of the new EU procurement directives on exclusion grounds on collusion.

I think that initiatives 1, 3 and 4 should be welcome. I am particularly interested in the Commission's pledge to take "actions to improve the market knowledge of contracting authorities, support to contracting authorities careful planning and design of procurement processes and better cooperation and exchange of information between public procurement and competition authorities". However, in this area, it will be interesting to see the extent to which the Commission builds upon existing efforts (such as the OECD's recommendation and guidelines on bid rigging, or the draft Danish guidelines on the application of Art 101 TFEU in procurement settings, see here) and the extent to which it carries out meaningful consultations.

I am less convinced about initiative 2 on whistleblowing, as I am not sure why this would be necessary in contexts where public procurement is regularly subjected to judicial and administrative review. I do not grasp who would be in need for protection and for what purpose. In that regard, the Commission's statement that it "is currently assessing the need, legal feasibility and scope for horizontal or further sectorial action at EU level for strengthening the protection of whistleblowers" is way too cryptic.

(v) Boosting the digital transformation of procurement

This is another area where the Commission could have been clearer on what it is trying to achieve, and where its thoughts are scattered throughout the Communication. While the aim of harnessing the opportunities that "[n]ew digital technologies offer ... to streamline and simplify the procurement process through the roll-out of electronic public procurement", as well as the ambition for "the whole public procurement process [to undergo] digital transformation", are welcome--it is not clear to me where the e-procurement / digitalisation of procurement boundary lies. I am also not sure whether the Commission has already given up on the possibility of making efforts to ensure that the deadline for full roll-out of e-procurement takes place within the deadline of October 2018 (which will no doubt be missed by a majority of Member States), and whether a focus on digitalisation is an attempt to create a smoke curtain to cover the simple fact that e-procurement will soon be around 15 years late.

I am personally interested in exploring the regulatory challenges that digitalisation and automation can require and facilitate, but reading this part of the Communication left me with the impression that the Commission will work on a piecemeal fashion, rather than trying to come up with a more ambitious plan (to pilot) fully digital procurement. In my view, this is an area where the Commission could be more ambitious, and where it could explore wacky and disruptive initiatives, such as an ideas competition. Any takers?

(vi) Cooperating to procure together

Finally, the Communication also puts significant emphasis on pushing for more collaborative and centralised procurement. However, the Commission simply assumes that "[j]oint cross-border procurement, where contracting authorities from different countries jointly organise their procurement procedures, is greatly facilitated by the new EU rules". However, this overlooks the simple fact that there is a great deal of legal uncertainty surrounding articles 37 to 39 of Directive 2014/24/EU (and the equivalents in Dir 2014/25/EU, see here, here and the recent working paper by I Herrera Anchustegui, here), and that the Commission should take a much more robust approach than simply aiming to "raise awareness and promote good practice for joint cross-border procurement".

Guidance on the interpretation of the relevant provisions of the 2014 Public Procurement Package is long overdue and, in my view, the Commission continues to conflate issues of collaboration stricto sensu with issues of professionalisation and innovative procurement processes, which it considers central purchasing bodies (CPBs) to be in a good position to promote. The Commission also overlooks the impacts of centralisation on competition in procurement markets, as well as the need to ensure that standards of competitive neutrality are ensured where CPBs engage in economic activity (eg in the context of professionalisation or consultancy). In my view, the Commission's proposals here are both weak and naive, and more focused legal guidance should be the priority.

 

* The title for this post is far from original. See eg http://spendmatters.com/2016/02/08/make-procurement-great-again/

 

 

The European Commission's Recommendation on procurement professionalisation: Show me the money

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In a second ‘mini-round’ of ‘procurement tennis’, Pedro Telles and I are critically assessing the European Commission’s October 2017 package of communications on public procurement. We started with the ‘voluntary ex ante mechanism for large infrastructure projects’ (see here and here), and Pedro has followed with his views on the ‘recommendation on professionalisation’ (see here). I will also discuss this document now. In two following pairs of posts, we plan to discuss the consultation on guidance on procurement of innovation and the communication on 'Making public procurement work in and for Europe' itself. Watch this space.

Focusing on the recommendation on professionalisation, Pedro has raised important points about the limited effects that professionalisation (understood as training and career management) can have in the absence of financial and reputational incentives for procurers, as well as specific issues concerning the aspects of the recommendation that deal with issues that have no (or almost no) bearing with a discussion on professionalization—such as issues concerning environmental and sustainable procurement, e-procurement or anti-corruption measures. Pedro has also raised important points concerning the need to look beyond the EU in search for best practices, and the need to distinguish between exchange of experiences and exchange of best practices (that is, the need to create a filter to ensure that different procurement communities do not replicate erroneous or illegal solutions that seemed to work in a specific context).

I fully subscribe Pedro’s criticism of the proposal of the Commission and would go even further. There are quite a few aspects that can be criticised, both in the recommendation itself (which is unfocused, exceeds the scope of professionalisation (in particular in part III) and tends to simply state the obvious) and in the staff working document that accompanies it (which is sloppily drafted, breaks up and repeats examples in a way that comes to inflate their number, and has for no reason been published as a pdf with the promise of a future interactive online tool, rather than being directly in that format—for what was the rush?). They are both also fatally flawed by a lack of recognition of the real costs of training a procurement workforce, in particular in terms of the time and effort of those being trained (as indicated by Pedro, and as masked with the only example that contains costing figures, No 2, from Consip) and of the long-term strategies and measures that need to be developed. In this post, however, I will concentrate particularly on six issues that I consider particularly restrictive of any effectiveness of the Commission’s recommendation, which largely ignores them.

In my view, the main areas for criticism of the recommendations on professionalisation formulated by the Commission are: (1) that procurement is not different from other areas of public sector activity requiring specialist skills, (2) that skills (human capital) need to be recompensed and incentivised if the public sector wants to avoid capacity drainage and cross-subsidisation, (3) that increasingly complex systems and sophisticated procurement do not require ‘super-procurers’ but rather ‘teams of procurers’, (4) that language is a very relevant barrier, both for advocacy/awareness efforts and cross-learning, (5) that the Commission cannot pass on to Member States the hot potato of issuing procurement guidance, and (6) that any initiatives will not be implemented in the vacuum or in a blank slate, which requires both consideration of change management and competition neutrality. I will keep my comments on each of these points short.

(1) Procurement is not different from other areas of public sector activity requiring specialist skills

The recommendation on professionalization largely assumes that developing and retaining a skilled workforce is a particular challenge in procurement, and it only mentions customs clearance as an area with equivalent needs and with a previous experience meriting study at EU level. However, from the perspective of a Member State, resourcing procurement is not less or more challenging than resourcing regulatory agencies (competition, energy, telecoms, etc), oversight bodies (central banks, insurance authorities), entities with budgetary responsibility (courts of auditors) and a number of other functions (food control, patents, consumer protection, ...). Importantly, in several Member States, the systems are generally developed around a model of relatively generalist civil servants that then go on to specialise in specific tasks as they are called to particular positions. This has two big implications: one, that it will hardly be acceptable for ‘procurers’ to be trained, recompensed and supported in ways much different than those dedicated to other activities. Second, that the State will probably not be in a position to undertake a significant reform of its entire civil service (access, training and remuneration) in the short term. These are rather complex issues and it is not realistic to think that procurement can change much more, or at a faster pace, than general civil service reforms. Some (small) parts of the procurement workforce can receive a different treatment in the context of ‘private-form’ procurement entities (such as central purchasing bodies, or CPBs), but this can hardly be a general solution.

(2) Skills (human capital) need to be recompensed and incentivised if the public sector wants to avoid capacity drainage and cross-subsidisation

The recommendation on professionalization ignores the evidence contained in itself. I find it quite telling that both RESAH in France (example No 34) and BBG in Austria (example No 35), which is one of the CPBs portrayed as having been more successful in creating a training programme in the staff working document, indicate that they have significant retention issues, as their trained employees/ members are scooped by other entities. This echoes similar trends in other countries (such as Hansel in Finland and Pianoo in the Netherlands, although this is less clear in the document), and is a simple matter of common sense. Given that there is a general shortage of skills in procurement across the economy, if a part of the public sector invests in training in a context where retention is an issue, then it is simply cross-subsidising other parts of the public sector or, more likely, the private sector. Again, this is an endemic problem that has affected countries with strong systems of training of their public service and judicature (such as Spain) and the only way of trying to contain it is to impose statutory or contractual obligations to stay in post (not a great incentive, as demonstrated by levels of turnaround of employees having completed CIPS training in UK institutions) or to improve the working conditions (and pay) of highly skilled individuals (which is really difficult to do in an austerity context and, given what I mentioned above, the difficulty of making ‘exceptions’ for procurement).

(3) Increasingly complex systems and sophisticated procurement do not require ‘super-procurers’ but rather ‘teams of procurers’

In simple terms, the entire recommendation on professionalization is premised on the basis that, if sufficiently skilled/educated, individuals can carry out complex procurement satisfactorily on their own. While I will be the first to submit that an overall understanding of procurement processes and the business context in which it takes places is necessary, I do not think that sophisticated procurement (eg projects including elements of innovation or sustainability, or negotiations, or complex goods or services, or infrastructure …) can be carried out by individuals, however skilled. More and more, it is necessary to think along the lines of teams with complementary and interdisciplinary expertise. There is no such thing as a ‘super-procurer’, and the Commission and the Member States would be foolish to try to find her (or educate her). In that regard, if there are competency schemes that require developing (which is a big if), they should not be premised on individuality, but rather on team work and collaborative approaches. This will mean that teams of engineers (or technical personnel), economists and lawyers will need to be put together so that they can complement each. Some training to give them an overall understanding of what they are collectively doing will be necessary and helpful, but that is a long way away from expecting them to each master a sufficiently advanced knowledge of law, economics and technology.

(4) Language is a very relevant barrier, both for advocacy/ awareness efforts and cross-learning

The recommendation on professionalisation also ignores the fact that learning from others’ experiences and using others’ documents (technical, guidance or advocacy documents) requires, amongst other things, a sufficient knowledge of other languages—which are not necessarily English. There are very clear examples, such as the French vademecum (example No 55) or the Greek bid rigging guidelines (example No 53), which will be completely incomprehensible for a large part of the procurement taskforce of any given Member State. This will create difficulties more generally in any cross-border initiative, and can end up creating inadvertent language barriers and/or facilitating the prominence (if not imperialism) of practices created in native English-speaking jurisdictions, which is not necessarily a guarantee of success.

(5) The Commission cannot pass on to Member States the hot potato of issuing procurement guidance

The recommendation on professionalisation repeatedly stresses the need for Member States to provide guidance (see in particular recommendation 8), thus expecting them to ‘give legal certainty on EU and national law or requirements stemming from the EU’s international obligations’. Not to be blunt, but this is risible. The Commission, having so far been so reluctant and slow in issuing any guidance on the novelties of the 2014 Public Procurement Package, can hardly expect Member States to be in a better position to do so. And, even if that was the case, having each Member State issue its own guidance, based on its own interpretation of EU law and the requirements stemming from the EU’s international obligations is a recipe for contradictions and further legal uncertainty. This is precisely an area where the Commission has both a better position to issue guidance and (hopefully, at least) the relevant expertise. Of course, the Commission has included some soft promises for guidance as part of the broader October 2017 package (on green and innovative procurement, and remedies, which we will discuss in due course), but it would have been well-advised to refrain from recommending Member States to fill in the gap (even if only temporarily).

(6) Any initiatives will not be implemented in the vacuum or in a blank slate, which requires both consideration of change management and competition neutrality

The recommendation on professionalization does not take into account that in different Member States, there will be different structures in place (eg universities, private firms) offering capacity and training services, as well as consultancy services aimed at closing skills gaps, in particular in relation to complex procurement (law firms, consultancies, etc). There is a strong push, although rather implicit, for the public sector to create its own ‘knowledge centres’ and use them to offer the same type of services across the public sector. In particular, there is a repeated suggestion that CPBs can be in a good position to do so. Such recommendation ignores the fact that there will be issues of competition neutrality involved in such a practice (for example, the growing consultancy business of CPBs such as Hansel in Finland), which merits separate discussion at some other time. It also ignores that there can be difficulties around managing change where ‘new’ professionalisation and training initiatives are meant to replace previous structures. All of this could (and should) be addressed more explicitly in the recommendation. It is to be welcome that the Commission explicitly excludes the creation of ‘professional bodies’ in procurement, but this is only one of the potential negative impacts of the suggestions included in the recommendation from a competition perspective. Where Member States create semi-markets or public provision in liberalised (training and education) markets, a much more in-depth and careful assessment will be necessary.

Overall assessment

I think that, for the reasons discussed here and in Pedro’s post (some of which, clearly, overlap), it is highly unlikely that, however well-intended, the recommendation on professionalization can catalyse a significant change at Member State level. It also masks a significant number of issues that have very limited to do with professionalisation and training, such as sustainable procurement, e-procurement or the fight against corruption, but I will save my comments on that for some other time. In my view, even if marginal improvements can result from Member States efforts as a result of these recommendations—particularly for those that build on a lower capability level—changes will be constrained due to budgetary and resource restrictions, language issues and inability (or unsuitability) to offer proper guidance. Rather than having the Commission engage in this type of ‘human resources consultancy’ activities, I would have it dedicate whatever resources it could muster to provide effective guidance and, where possible, to provide financial and logistic support to Member States.

Interesting clarification (and broadening) of the Foster test on 'emanation of the State' for purposes of direct effect of EU Directives (C-413/15)

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In its Judgment of 10 October 2017 in Farrell, C-413/15, EU:C:2017:745, the Court of Justice of the European Union (CJEU) has followed the Opinion of AG Sharpston (here) and provided some clarity on the test initially created in Foster and Others v British Gas, C-188/89, EU:C:1990:313 to establish when an entity can be considered an 'emanation of the State' and, consequently, be subjected to the consequences of the direct effect of EU Directives. The CJEU has clarified that the conditions set out in the so-called Foster-test are not cumulative and, in any event, that it suffices for an entity (even a private law one, not necessarily subjected to State control) to have been delegated the performance of a task in the public interest by the Member State and to possess for that purpose special powers.

The test, as applied in Foster, was formulated in the following terms: 

... a body, whatever its legal form, which has been made responsible, pursuant to a measure adopted by the State, for providing a public service under the control of the State and has for that purpose special powers beyond those which result from the normal rules applicable in relations between individuals is included in any event among the bodies against which the provisions of a directive capable of having direct effect may be relied upon (C-188/89 at [20], emphasis added).

However, also in Foster, the CJEU had offered a broader formulation of the test, indicating that:

a directive [capable of direct effect] could be relied on against organisations or bodies which were subject to the authority or control of the State or had special powers beyond those which result from the normal rules applicable to relations between individuals (C-188/89 at [18], emphasis added).

The interpretation of the Foster-test has been a relatively contentious issue in EU scholarship since its formulation in 1990. In particular, there have been opposing views on whether the conditions in which the test breaks down are cumulative or not and, in case they are cumulative, whether they include three conditions (entrustment of public service, State control and special powers), or only two (thus suppressing the requirement to provide a public service) [cfr eg M Bobek, 'The effects of EU law in the national legal systems', in C Barnad & S Peers (eds), European Union Law (Oxford, OUP, 2014) 140, 151 (two conditions, non-cumulative), TC Hartley, The Foundations of European Union Law, 7th edn (Oxford, OUP, 2010) 232 (identifying four conditions, cumulative, but indicating that the test is non-exhaustive), K Lenaerts & P Van Nuffel, European Union Law, 3rd edn (London, Sweet & Maxwell, 2011) 903-04 (two conditions, including public service provision, cumulative), or R Schütze, European Union Law (Cambridge, CUP, 2015) 100 (equally, two conditions, including public service provision, cumulative)]

Uncertainty about the exact limits and implications of the Foster-test have remained for a surprisingly long time, and the CJEU had so far only provided limited and piecemeal clarifications--most recently, in its Judgment of 12 December 2013 in Portgás, C-425/12, EU:C:2013:829, where the CJEU still referred in less than clear-cut terms to 'bodies which, under the control of [the] authorities [of a Member State], have been given responsibility for a public-interest service and which have, for that purpose, special powers' (at [34], for discussion, see here).

In Farrell, the CJEU has now clarified that, in Foster, 'the Court was not attempting to formulate a general test designed to cover all situations in which a body might be one against which the provisions of a directive capable of having direct effect might be relied upon' (at [26]) and, consequently, that '[p]aragraph 20 of [Foster] must be read in the light of paragraph 18 of the same judgment, where the Court stated that such provisions can be relied on by an individual against organisations or bodies which are subject to the authority or control of the State or have special powers beyond those which result from the normal rules applicable to relations between individuals' (at [27]). Ultimately, then, the CJEU has clarified that the Foster-test is actually formulated at [18] (see also Farrell at [33]) and, consequently, that

... the conditions that the organisation concerned must, respectively, be subject to the authority or control of the State, and must possess special powers beyond those which result from the normal rules applicable to relations between individuals cannot be conjunctive (C-413/15 at [28], emphasis added).

Adding some further clarity, the CJEU explained that the 'emanations of the State' that are relevant for the purposes of ensuring direct effect of EU Directives after the expiry of their transposition period

... can be distinguished from individuals and must be treated as comparable to the State, either because they are legal persons governed by public law that are part of the State in the broad sense, or because they are subject to the authority or control of a public body, or because they have been required, by such a body, to perform a task in the public interest and have been given, for that purpose, such special powers.

Accordingly, a body or an organisation, even one governed by private law, to which a Member State has delegated the performance of a task in the public interest and which possesses for that purpose special powers beyond those which result from the normal rules applicable to relations between individuals is one against which the provisions of a directive that have direct effect may be relied upon (C-413/15 at [34]-[35], emphasis added).

In my view, this is a welcome clarification and one that can potentially catalyse a higher level of effectiveness of secondary EU law. It comes to clearly establish three prongs for the test of whether an entity is an emanation of the State (shall we re-label it the Farrell-test, for clarity?), which the entity will be if either (1) it is governed by public law, (2) it is subject to the authority or control of a public body, or (3) it performs a public interest task on the basis of special powers. This can have interesting implications in areas other than general EU law (eg in State aid law, to the effect of reducing the scope of the Judgment of 30 May 2013 in Doux Élevages and Coopérative agricole UKL-AREE, C-677/11, EU:C:2013:348--as criticised here) and, more generally, follows a welcome functional approach.

I envisage that the next potential frontier for litigation will concern what should be considered special powers, and whether they have to be substantial for an entity carrying out tasks in the public interest by delegation of the State to be considered 'emanations of the State' for these purposes. In Farrell, the special powers consisted in statutory powers 'to require [private entities] to become members of [the entity considered an emanation of the State] and to contribute funds for the performance of the task conferred on it by the [the Member] State' (C-413/15 at [40]). This seemed like a clear instance. However, there may be more difficulties in drawing clear lines where the powers are exercised in the context of a situation of a relationship of special dependence from the State, where the special powers form part of the task delegated to the entity. This can be particularly relevant in the context of contracted-out public services in sectors such as care, corrections or education, where the existence or not of special powers (eg to discipline) will trigger complex issues in the future.

On the whole, however, it seems to me that Farrell resolves one of the important areas of uncertainty in the area of the effectiveness of EU secondary legislation. It should thus be welcome.