PM May's Speech has brought limited clarity of Brexit impact on procurement, but can consequences be significant?

In her Brexit speech of earlier today, Theresa May PM has clarified a few things, including that the model for a future relationship between the UK and the EU that she is "proposing cannot mean membership of the single market". She has also indicated that her Government would not consider an open-ended transitional arrangement because that could plunge Britain intopermanent political purgatory”. This seems to indicate a very clear direction towards a so-called hard Brexit that generates risks of an actual cliff edge (or a very short 'smoothing period') for UK and EU economic operators, including the public sector, businesses and consumers.

However, she has also expressed that her plan includes the priority for the UK to "seek the greatest possible access to [the EU's single market] through a new, comprehensive, bold and ambitious Free Trade Agreement". And that she hopes that this can be done in parallel to the Article 50 TEU negotiations, so that it is in place within 2 years. Prof Peers has aptly synthesised what came to mind.

It is difficult to anticipate the implications of all these contradictory goals in the area of public procurement regulation, but three main alternative scenarios seem now on the table:

  1. successful completion of a UK-EU FTA that can be in force at the time the UK leaves the single market, and which allows for continuity of EU and UK commitments under the WTO rules (notably, the Government Procurement Agreement, GPA) [FTA scenario];
  2. no UK-EU FTA (either at all, or because it is incomplete/in negotiation at the time the UK exits the single market), but agreement (not only between UK and EU, but also by their international trading partners) of  'workable' arrangements based on WTO rules (including GPA) [WTO/GPA safety net scenario]; and
  3. no UK-EU FTA and no workable agreement under WTO rules (including GPA) [unregulated international trade scenario].

The implications of each of these scenarios in the area of public procurement would, in my view, be as follows: 

  1. A tailor-made FTA would probably include features similar to the recent EU-Ukraine Deep and Comprehensive Free Trade Area (DCFTA), and this would require full compliance with the EU public procurement acquis. In short, this would imply the continuation of the status quo and no need for reform of the Public Contracts Regulations 2015 (although that would be possible because the current transposition followed an extremely restrictive copy-out approach that severely constraints its potential to unleash better procurement practices and results). 

    Access to GPA procurement markets would depend on the UK’s status under WTO GPA and the continued acceptance of the EU's coverage commitments by the other WTO GPA signatories, but this option could easily secure continued access to GPA markets because the UK and the EU could make a solid case that the trade reality in their procurement markets has not changed in a material way.

    This would be possible if the UK Government accepted the need for continuity in the public procurement area, which is something PM May hinted would be happening on a sectoral basis by stressing that the UK-EU FTA "... may take in elements of current Single Market arrangements in certain areas ... as it makes no sense to start again from scratch when Britain and the remaining Member States have adhered to the same rules for so many years." 
  2. Failure to complete an FTA could still allow for WTO GPA-based trade in public procurement markets, not only between the UK and the EU, but in the wider context of GPA markets (although in my view this would be less likely because a breakdown in the trade relations between the UK and the EU would most likely trigger calls for renegotiation, at least of coverage, from other GPA signatories).

    In that case, if the UK sought to rely on the WTO GPA only, it would need to clarify whether it can retain its status as a party in its own right or -- having lost derived membership linked to EU membership -- seek fresh accession to the GPA. Either way, the scope of coverage of the reciprocal commitments between the UK and the rest of GPA parties (including the EU) would need to be clarified and probably renegotiated, with the UK facing pressure to accept deeper commitments than currently negotiated by the EU en bloc (and the EU's commitments may at the same time be also under pressure to be renegotiated due the lower volume of the EU27 procurement markets as compared to the EU28). The main risk for the UK implicit in this option would concern the discontinuity of access to the procurement markets of GPA parties (including the EU), as well as having to make additional coverage concessions in order to retain (similar to) current access to those markets.  

    Additionally, the UK would still need to convince the rest of GPA signatories (including the EU) that its procurement system complies with the general (minimum) requirements of the agreement. The easiest way of doing so would be to retain current rules that implement the EU public procurement acquis, which ensure compliance with the EU’s (and UK's future) international obligations under the WTO GPA. In that regard, the possibility of introducing significant reforms to the Public Contracts Regulations 2015 would also be limited, or at least conditioned by the risk of triggering what could potentially be protracted negotiations on substance of procurement regulation, in addition to the above mentioned negotiations on (adjustment of) coverage.
  3. The implications of the final scenario of unregulated international trade are clear, at least from a legal perspective. "Hard Brexit", ie no trade agreement of any kind combined with loss of WTO GPA membership (or a workable arrangement ensuring continued reciprocal favourable treatment while access is (re)gained), would imply loss of access to EU and worldwide procurement markets (either totally or partially). Clearly, it would also provide the UK with an opportunity to close up its procurement markets to non-domestic bidders, but this would severely damage the UK public sector in many different ways, including potential higher prices, which does not seem like a desirable policy road to take. Either way, this would likely have a major impact both on the UK public sector and in its business community, particularly that reliant on cross-border direct and indirect procurement-related trade. At the same time, it would open the possibility of a complete overhaul of public procurement rules in the UK, including the repeal of the Public Contracts Regulations 2015, with or without a replacement. However, it would also imply complete isolation of UK (public procurement) markets and is clearly an undesirable state of things.

All in all, then, it seems that if the UK Government actually seeks to ensure that free trade remains a feature of the UK's economy, particularly through continuity of WTO (GPA) based trade and the conclusion of a "new, comprehensive, bold and ambitious Free Trade Agreement" with the EU, there is limited scope for reform of the Public Contracts Regulations 2015 other than to overcome the self-imposed limitations derived from the copy-out of a set of rules that is meant to be developed and fleshed out by the Member States. If that is seen as a worthwhile exercise, it can start tomorrow and irrespective of Brexit, because the regulatory space exists under currently applicable EU public procurement acquis. I am not optimistic that this will happen, though (and have not been since before the referendum).

World Bank's "Benchmarking Public Procurement 2017"

The World Bank has recently published its report Benchmarking Public Procurement 2017, where it presents a 'cross-country analysis in 180 economies on issues affecting how private sector does business with the government. The report covers two thematic pillars: the procurement process and complaint review mechanisms'.

The information is structured around eight main indicators, which cover the following areas:

  1. Needs assessment, call for tender, and bid preparation: The indicators assess the quality, adequacy, and transparency of the information provided by the procuring entity to prospective bidders.
  2. Bid submission phase: The indicators examine the requirements that suppliers must meet in order to bid effectively and avoid having their bid rejected.
  3. Bid opening, evaluation, and contract award phase: The indicators measure the extent to which the regulatory framework and procedures provide a fair and transparent bid opening and evaluation process, as well as whether, once the best bid has been identified, the contract is awarded transparently and the losing bidders are informed of the procuring entity’s decision.
  4. Content and management of the procurement contract: The indicators focus on several aspects during the contract execution phase related to the modification and termination of the procurement contract, and the procedure for accepting the completion of works.
  5. Performance guarantee: The indicators examine the existence and requirements of the performance guarantee.
  6. Payment of suppliers: The indicators focus on the time and procedure needed for suppliers to receive payment during the contract execution phase.
  7. Complaints submitted to the first-tier review body: The indicators explore the process and characteristics of filing a complaint before the first-tier review body.
  8. Complaints submitted to the second-tier review body: The indicators assess whether the complaining party can appeal a decision before a second-tier review body and, if so, the cost and time spent and characteristics for such a review. 

The report aims to make progress in the much needed collection of more information, particularly of statistical nature, about the procurement systems that exist around the world. In its own words, '[i]t aims to promote evidence-based decision making by governments and to build evidence in areas where few empirical data have been presented so far. As researchers recognize, “the comparison of different forms of regulation and quantitative measurement of the impact of regulatory changes on procurement performance of public entities will help reduce the costs of reform and identify and disseminate best practices.”' [with reference to Yakovlev, Tkachenko, Demidova & Balaeva, 'The Impacts of Different Regulatory Regimes on the Effectiveness of Public Procurement' (2015) 38 (11) International Journal of Public Administration 796-814].

The report also recognises some of its main substantive and methodological limitations (see p.26). However, even taking those into account, the benchmarking exercise seems rather imperfect and with limited potential to inform policy-making and reform. A couple of examples will illustrate why. 

First, in terms of the methodology for the scoring of procurement systems, I am not sure I understand the logic for the award of points or the scale used to weight the different criteria. For instance, when assessing the accessibility of the procurement process, procurement systems are awarded 1 point if bidders are required to register on a government registry of suppliers, and 0 points if there is no registration requirement. To my mind, this is contrary to what logic would dictate because a system that does not require previous or additional registration is more open than one that does.

Similarly, when assessing the existence and requirements for the provision of bid securities, procurement systems get get a score of 1 for either option they provide in a range of questions concerning whether a bid security or a bid declaration is required, whether the bid security amount is no more than a certain percentage of the contract value or value of the submitted bid, or no more than a certain flat amount; whether suppliers have choice regarding the form of bid security instrument; or if bidders are required to post a bid security instrument, whether there is a time frame for the procuring entity to return the instrument. Additionally, procurement systems are awarded an additional maximum of 1 point for each of the forms of bid security instrument they accept: cash deposit, bank guarantee, insurance guarantee (1/3 of a point each). This means that systems that have more flexibility in the way they regulate bid securities will get higher scores (which is fair enough), but that systems that do not require bid securities will get no points. This, for instance, makes the UK (50 points) lag behind Spain (94 points) in this indicator, despite the fact that the UK is recorded as having no bid security requirement and Spain being recorded as requiring a bid security proportionate to the value of the contract (I am not assessing this information which, at least in the case of Spain, requires some nuances). once again, this is contrary to what logic would dictate because procurement systems that do not require bid securities are more open and accessible (particularly to SMEs).

Second, in terms of the comparisons that can be made with the scores as published, I am not sure that the way the information is presented can actually help understand the drivers of different scores for different countries. Most points are awarded on the basis of a yes/no answer to given questions. Given that some questions are rather open-ended or simply confusing (eg the question concerning Criteria for bid evaluation queries whether the procurement system includes "Price and other qualitative elements", but all procurement systems get a score of 1 regardless of the answer), their ability to allow for comparisons is minimal. Moreover, the individual scoring for each criterion is not provided, which prevents direct comparisons even where questions are narrower and actually award different scores to different answers.

Overall, sadly, I am afraid that the report Benchmarking Public Procurement 2017 can only be seen as a first step towards creating a useful system and scoring matrix to benchmark all public procurement systems in the world. I would think that this is possible, particularly once the field work of information collection is in place (unless it was collected as direct responses to the questionnaire linked to the scoring rule) and that the published version of the report can be significantly improved solely on the basis of a better analysis of the raw information collected by the World Bank team. On that point, it is a shame that this information is not published by the World Bank and I would invite them to reconsider the possibility of publishing the database of raw information, so that more specific proposals on how to improve the scoring method without having to collect additional information can be developed.

ECJ creates randomness in right to challenge procurement decisions by excluded tenderers (C-355/15)

In its Judgment of 21 December 2016 in Technische Gebäudebetreuung and Caverion Österreich, C-355/15, EU:C:2016:988, the European Court of Justice (ECJ) offered additional interpretation of the rules on active standing to challenge public procurement decisions under the Remedies Directive (RD) and, in particular, its Article 1(3), according to which 'Member States shall ensure that the review procedures are available, under detailed rules which the Member States may establish, at least to any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement'.

This provision had been interpreted in broad terms ('favor revisionis') in Fastweb (C‑100/12, EU:C:2013:448, see here), where the ECJ strengthened the right of non-compliant tenderers to challenge procurement decisions. It is in comparison to Fastweb that Technische Gebäudebetreuung and Caverion Österreich raises some tricky issues--and, once more, it is surprising that this ECJ judgment was adopted without an Advocate General opinion.

In the case at hand, and given the wording of the Austrian transposition of Art 1(3) RD granting active standing to 'An[y] undertaking which had an interest in the conclusion of a contract...', the legal question for the ECJ concerned a new aspect of the concept of 'any person having or having had an interest in obtaining a particular contract', as it relates to economic operators that have participated in the tender, but are no longer under active consideration by the contracting authority.

The interpretive difficulty stemmed in part from the contrast between the open wording of Art 1(3) RD and the seemingly more limited concept that could be extracted from Art 2a(2) RD, when it establishes a standstill obligation in relation only to concerned tenderers, which are defined as those who 'have not yet been definitively excluded. An exclusion is definitive if it has been notified to the tenderers concerned and has either been considered lawful by an independent review body or can no longer be subject to a review procedure'. Given that Art 2a(1) RD establishes that 'Member States shall ensure that the persons referred to in Article 1(3) have sufficient time for effective review of the contract award decisions taken by contracting authorities, by adopting the necessary provisions respecting the minimum conditions set out in paragraph 2 of this Article', the link between the general rule on active standing in Art 1(3) RD and the more limited rule on standstill in Art 2a(2) that aims to make that active standing effective does raise some complex issues.

In Technische Gebäudebetreuung and Caverion Österreich, the question arose from the fact that the challenger of the procurement decision had been excluded from the procedure by a decision of the contracting authority that had become final (after two appeals) at the time of the challenge. The Austrian review courts considered that the finality of the exclusion extinguished the right to challenge the award decision because 'the rights of a tenderer whose bid has been properly excluded cannot be infringed by illegalities relating to the procedure followed to select another bid for the purposes of awarding the contract' (C-355/15, para 16).

In order to determine the compatibility of this position with EU law, the ECJ broke down the issue in two parts. It first distinguished the current case from Fastweb. It then proceeded to clarify the purpose of the challenge rights provided by Art 1(3) RD. While each of the two parts of the reasoning make some sense independently, their lack of coordination can create difficult cases under spurious circumstances.

In distinguishing the cases, the ECJ indicated that

29 ...  the judgment of ... Fastweb ... gave concrete expression to the requirements of the third subparagraph of Article 1(1) and Article 1(3) of Directive 89/665 in a situation in which, following a public procurement procedure, two tenderers bring an action for review, each seeking the exclusion of the other. In such a situation, both of the tenderers have an interest in obtaining a particular contract.
30      However, the situation at issue in the main proceedings is very clearly distinguishable from the situations at issue in the two cases giving rise to the judgments of ... Fastweb and ... PFE (C‑689/13, EU:C:2016:199).
31      First, the bids of the tenderers concerned in [Fastweb and PFE] had not been the subject of an exclusion decision of the contracting authority, unlike the bid submitted by the consortium in the main proceedings in the present case.
32      Secondly, it was in the course of the same, single set of review proceedings relating to the award decision that, in both cases, each tenderer challenged the validity of the other tenderer’s bid, each competitor having a legitimate interest in the exclusion of the bid submitted by the other, which may lead to a finding that the contracting authority is unable to select a lawful bid ... In the main proceedings in the present case, by contrast, the consortium brought an action, first, against the exclusion decision adopted in respect of it and, secondly, against the award decision, and it is in the course of that second set of proceedings that it contends that the successful tenderer’s bid is unlawful.
33      It follows that the principle of case-law stemming from the judgments of [Fastweb and PFE] does not apply to the procedure and litigation at issue in the main proceedings (C-355/15, paras 29-33, references omitted).

Despite being very formalistic and relying on procedural aspects of the litigation rather than on the material situation (ie, tenders with only two bidders in which each holds an interest in the exclusion of the other so that, in case of dual exclusion, the contracting authority is obliged to re-run the procedure and, thus, each has a fresh opportunity to participate), this is not an unreasonable approach and the ECJ seems clear in establishing an implicit condition for active standing that requires the contracting authority itself to not have excluded the tenderer (or its offer) at the time where the challenge of the award decision takes place. This is however a restriction of the (potential) widest interpretation of Art 1(3) RD. And this restriction brings complications in light of the second part of the analysis carried out by the ECJ in Technische Gebäudebetreuung and Caverion Österreich.

Indeed, in addressing the specific issue of the finality of exclusion decisions that exclude the right to challenge under Art 1(3) RD, the ECJ considered that

34 ... as is apparent from Article 1(3) and Article 2a of Directive 89/665, that directive ensures effective review of unlawful decisions adopted in the context of a public procurement procedure, by enabling any excluded tenderer to challenge not only the exclusion decision, but also, as long as that challenge has not been resolved, the subsequent decisions which would harm it if its exclusion were annulled.
35 In those circumstances, Article 1(3) of that directive cannot be interpreted as precluding a tenderer such as the consortium from being refused access to the review of the award decision, provided that it must be considered a definitively excluded tenderer within the meaning of the second subparagraph of Article 2a(2) of that directive (C-355/15, paras 29-33, emphases added).

In my view, this interpretation is criticisable both in own terms, and due to the effects it creates. The ECJ has adopted an interpretation of Art 1(3) that is conditioned by Art 2a(2)--that is, a sort of systemic interpretation where the special rule may be seen to exclude or restrict the general rule--without first addressing the possible coordination of both provisions without the second altering the scope of application of the first one--ie, in a true systemic interpretation.

This excludes an alternative, broader interpretation of the rules on active standing in the Remedies Directive that I would have much rather preferred, which would have determined that all economic operators having had an interest in the award of the contract (included definitely excluded ones) have the right to challenge the award decision under Art 1(3) RD, even if only those that are concerned tenderers or candidates benefit from the facilitative procedural measures derived from standstill under Art 2a(2) RD [see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 439-441]. This would have respected the fact that, in the revision of the RD in 2007 (when Art 2a(2) was introduced), the wording of the relevant part of Art 1(3) was not amended. It would also not diminished or altered the effectiveness of Art 2a(2) RD, as the standstill period would in any case not benefited excluded tenderers ro candidates, who would have to overcome the additional burden of following the tender procedure very closely when they intended to challenge the final award decision.

Additionally, the position adopted by the ECJ in Technische Gebäudebetreuung and Caverion Österreich creates an element of randomness derived from the uncertainty around decision times for challenges, appeals (and further appeals) of exclusion decisions. Thus, in swift jurisdictions where exclusion decisions can very quickly become final, the rights to challenge award decisions by tenderers excluded by the contracting authority can be effectively suppressed. In contrast, in slower jurisdictions where finality of exclusion decisions takes longer to reach, tenderers excluded by the contracting authority will still have the opportunity to challenge award decisions. In either case, there is no requirement for a coordination of both procedures, so it could well be that the challenge brought by an excluded tenderer is decided before an eventual confirmation of the exclusion decision, which seems to create an undesirable situation under the logic of the ECJ in Technische Gebäudebetreuung and Caverion Österreich. Overall, this Judgment creates this element of randomness in the recognition or not of active standing to challenge award decisions to tenderers excluded by the contracting authority, which is undesirable.

More generally, this case indicates once more the shortcomings of the system created by the Remedies Directive, which is patchy and incomplete, and requires a fundamental revision [see A Sanchez-Graells, "If It Ain't Broke, Don't Fix It'? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts", S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming]. If nothing else, to clarify whether this is solely about justiciability of review rights of economic operators that can have an interest in being awarded that specific contract under the conditions in which it is tendered (a narrow interpretation), or whether it serves broader purposes of control and review of procurement activity, as a substitute for faltering public oversight of this important public sector function (a broad interpretation). There are arguments both ways, but not having this very basic and foundational aspect clear does create problems as the case law of the ECJ continues shaping the system one preliminary reference at a time...

Wish list for 2017: My Top 10 priorities for the European Commission’s future activity in public procurement

Now that 2016 is drawing to a close, and after having engaged in a large number of discussions and exchanges of views with academics and practitioners at a number of conferences, workshops and expert meetings during the year, I have sat down to write my wish list of where I would like the European Commission to concentrate its future activity in the area of public procurement. Some of these suggestions could also serve to set agendas at national level. although my preference would be for centralised action at EU level.

These suggestions only represent my personal views, and in particular do not bind the European Commission’s Stakeholder Expert Group in Public Procurement of which I am but a member. However, some of the suggestions are supported by other members of the group in their individual capacity, and these are issues which I will push for in the activities of the group in 2017.

My wish list of top 10 priorities for future action is as follows:

1. Ensure full and adequate transposition of the 2014 Public Procurement Package, and provide guidance on the direct effect of the substantive rules to support contracting authorities in Member States where transposition is being delayed. At the time of writing, 14 Member States have fully or partially failed to transpose the new Directives (see here, and take into account that Finland adopted transposition measures on 13 December 2016). The correctness and completeness of the transposition in the remaining Member States also triggers some questions. Working towards speedy and proper transposition across all EU Member States is of utmost importance in order to ensure that the intended benefits of the 2014 reform are unlocked. It is also relevant to ensure that the direct effect of the 2014 Public Procurement Package is ensured in the absence of transposition to domestic law.

2. Reform the Remedies Directives to coordinate them with the new rules in the substantive instruments comprising the 2014 Public Procurement Package.[1] In particular, further clarification needs to be provided on the remedies applicable to call-offs within framework agreements and dynamic purchasing systems, as well as for contract modification and contract termination disputes.

3. Provide additional guidance on the development of inter partes procedures where contracting authorities aim to take decisions that would imply the impossibility for undertakings and tenderers to participate or continue participating in tenders for public contracts. This is particularly relevant in relation to exclusion rules and the management of conflicts of interest, and could use the existing rules on the assessment of apparently abnormally low tenders as a blueprint.

4. Develop effective policies concerning procurement information. This should include provision of guidance on reporting obligations under Articles 84 and 85 of Directive 2014/24/EU, as well as developing the policy on public contract registries announced as part of the 2015 strategy ‘Upgrading the Single Market: more opportunities for people and business’ in a way that ensures an appropriate balance between transparency of procurement processes and the associated expenditure of public funds with the protection of commercial and competition-sensitive information.[2] This should be done in light of the transposition of Directive 2016/943/EU on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure.

5. Provide guidance on the interpretation of Article 12 of Directive 2014/24/EU and the interaction between the in-house and the public-public cooperation exemptions it consolidates. This should be done through a thorough revision of the 2011 Commission Staff Working Paper concerning the application of EU public procurement law to relations between contracting authorities. This guidance should also extend to Article 17 of Directive 2014/23/EU and to the related rules in Articles 28 to 30 of Directive 2014/25/EU.

6. Provide additional guidance on centralised and collaborative procurement, including an assessment of the competition risks and potential negative impacts of centralised and collaborative public procurement, and develop recommendations for the effective oversight of centralised and collaborative purchasing by both national competition authorities and audit/controlling authorities. This should include providing more transparency on the European Commission’s work with the CPBs Public Procurement Network, as well as on the status of the actions plan(s) underpinning the strategic goal of facilitating aggregation of demand.[3]

7. Provide guidance on the interpretation of Articles 72 and 73 of Directive 2014/24/EU concerning contractual modification and termination. In particular, provide guidance on the use of umbrella modification clauses and the interaction between different grounds of justification for contract modifications, as well as on the effects of contractual termination that are required in case of mandatory termination due to breaches of EU law. This should be coordinated with the reform of the Remedies Directive (above 2) in order to ensure consistency of legal effects derived from contractual ineffectiveness and contractual termination.

8. Provide additional guidance on the interaction between public procurement and State aid rules, and ensure the consistent application of the recent 2016 Commission Notice on the notion of State aid as referred to in Article 107(1) TFUE with public procurement enforcement. This particularly concerns the substantive tests applicable to the identification of cross-border interest/effects.[4] This also concerns additional guidance on the substantive standards applicable to the assessment of aid for SGEI and NESGI, where the interaction between the ECJ’s Judgments in Altmark (C-280/00, EU:C:2003:415), Spezzino (C-113/13, EU:C:2014:2440) / CASTA (C-50/14, EU:C:2016:56), and Zweckverband Tierkörperbeseitigung (C-446/14 P, EU:C:2016:97) is rather unclear.

9. Continue to support the transition towards eProcurement and the development of open access, free to use technical solutions and standards. The work of the Commission should concentrate on ensuring that technological barriers do not arise from the transition to eProcurement and that interoperability is ensured in both the short and the long run.[5] Work in this area could also include creating pilot experiments with public sector virtual markets on the basis of dynamic purchasing systems and electronic catalogues, which could be run entirely electronically.

10. Significantly reform the Internal Market Scoreboard for Public Procurement, so as to avoid embedding undesirable policy pushes, such as the unjustified push for aggregation of more than 10% of public sector procurement expenditure. Carefully assess the desirability and utility of similar ongoing projects in the Public Procurement Action Plan—such as “Developing an index for rating Contracting Authorities according to their performance ("Trip advisor")—and seriously consider abandoning them to concentrate on more useful initiatives.


[1] 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 (Larcier, 2017) forthcoming. Available at

[2] See A Sanchez-Graells, “Centralised Procurement Registers and their Transparency Implications”, Discussion Non-Paper for the European Commission Stakeholder Expert Group on Public Procurement, 19 September 2015. Available at

[3] As briefly described in “Public buyers save money with cooperative procurement”, 1 December 2016,

[4] See A Sanchez-Graells, “Commission Notice on Notion of State Aid shows Contradictions with EU Public Procurement Rules, in Particular Concerning Aid and Contracts for Local SGEI”, 20 May 2016,

[5] See P Ferk, “E-Procurement between EU Objectives and the Implementation Procedures in the Member States—Article 22(1) of the 2014 Directive”, in GS Ølykke & A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules (Edward Elgar, 2016) 101-124.

New paper: Competition Infringements and Procurement Blacklisting


I have uploaded my last working paper of 2016 on SSRN. It is entitled "Competition Infringements and Procurement Blacklisting" and will appear in the Competition Law Journal next year. Its abstract is as follows:

In this article I explore the rules for the blacklisting of competition infringers under relevant EU and UK public procurement law, including their interpretation by the European Court of Justice. I also consider the practical difficulties for their enforcement by procurement professionals in the UK and suggest additional roles that the Competition and Markets Authority (CMA) and Crown Commercial Service (CCS) could have in order to facilitate their effectiveness. Finally, I also stress the existence of a trade-off between a more active enforcement of procurement blacklisting rules and the attractiveness of the CMA’s leniency policy. By way of concluding remarks, I set out a blueprint for targeted policy reform. I submit that this should include the development of mechanisms for the provision of CMA support to procurement professionals that identify indicia of bid rigging, the development of a policy on the imposition of procurement blacklisting as a sanction for competition law infringers, and the creation of a UK-wide blacklisting register operated by CCS.

The full reference for the paper is: Sanchez-Graells, Albert, Competition Infringements and Procurement Blacklisting (December 14, 2016). Forthcoming in the Competition Law Journal.. Available at SSRN:

ECJ avoids providing guidance on intensity of judicial review of procurement decisions by sticking to strictly formalistic approach: The Gaping hole remains (C-171/15)

In its Judgment of 14 December 2016, Connexxion Taxi Services, C-171/15, EU:C:2016:948, the European Court of Justice (ECJ) has provided clarification on whether contracting authorities can decide to subject their decisions to exclude economic operators from procurement procedures to a proportionality assessment even where such assessment would deviate from the strict rules created in the tender documentation by the contracting authorities themselves.

In the case at hand, a Dutch contracting authority had published tender documents that seemed to create an automatic obligation to exclude by stating that: 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'. However, the contracting authority subsequently sought to rely on generally applicable Dutch administrative law (in particular, the Explanatory Memorandum of the law transposing the 2004 public procurement Directive) to subject the exclusion decision to a proportionality assessment. On the basis of that proportionality analysis, the contracting authority decided not to exclude the tenderer and to award it the contract.

This triggered the challenge by a competing tenderer, which claimed that, having found that the tenderer had been guilty of grave professional misconduct, the contracting authority was not in a position to make an assessment of proportionality. That assessment would have already been carried out by including the misconduct as an absolute ground for exclusion in the descriptive document. Given the wording of the latter, it was argued that it would be contrary to the principles of public access, transparency and equality in matters of administrative procurement for the contracting authority to have the power to assess the proportionality of the ground for exclusion.

The Dutch referring court asked the ECJ to consider whether Art 45(2) of Directive 2004/18/EC precluded a contracting authority from being obliged to assess under national law, and in accordance with the principle of proportionality, whether a tenderer which had been guilty of grave professional misconduct should be excluded from a contract. The referring court put particular stress on the fact that the ECJ had not adjudicated on the importance to be attached to the fact that, in the tender conditions, the contracting authority had provided for the rejection, without any examination of the substance, of any tender to which a ground of exclusion applies. In answering those questions, the ECJ decided to stick very closely to two of its lines of case law that, ultimately, create a very difficult (dis)functional situation.

First, following precedents in La Cascina and Others, C‑226/04 and C‑228/04, EU:C:2006:94, and in Consorzio Stabile Libor Lavori Pubblici, C‑358/12, EU:C:2014:2063, the ECJ reiterated that the discretionary exclusion grounds regulated in Art 45(2) Dir 2004/18 (and now in art 57(4) Dir 2014/24) do 'not provide for uniform application at EU level of the grounds of exclusion it mentions, since the Member States may choose not to apply those grounds of exclusion at all or to incorporate them into national law with varying degrees of rigour according to legal, economic or social considerations prevailing at national level. In that context, the Member States have the power to make the criteria laid down in Article 45(2) less onerous or more flexible' (C-171/15, para 29). This led the ECJ to establish that

31 As far as concerns the grounds for excluding a tenderer which has been guilty of grave professional misconduct from a contract, it is clear from the order for reference that [Dutch] legislation requires the contracting authority concerned, which establishes that the tenderer has been guilty of such misconduct, to determine, in accordance with the principle of proportionality, whether the tenderer should in fact be excluded.
32 Thus, it appears that that assessment of the proportionality of the exclusion makes the application of the ground of exclusion relating to grave professional misconduct laid down in Article 45(2)(d) of Directive 2004/18 more flexible ... Furthermore, it follows from recital 2 thereof that the principle of proportionality applies in a general manner to public procurement procedures (C-171/15, paras 31-32, emphasis added).

Ultimately, then, national legislation which requires a contracting authority to assess, in accordance with the principle of proportionality, whether it is in fact appropriate to exclude from a public contract a tenderer which has been guilty of grave professional misconduct is compatible with EU public procurement law (C-171/15, para 33).

Second, and in stark contrast with this seemingly functional and principles-oriented interpretation of the rules in Directive 2004/18/EC, the ECJ then moved on to adopt a very formalistic approach when considering the specific situation where the contracting authority would have excluded the possibility of such proportionality assessment in the tender documentation by establishing that exclusion on specific grounds would not be subjected to any substantive assessment. It may have been relevant at this point to know with more precision whether that would have been illegal under Dutch law for the tender documentation could be seen as contra legem (as, in my view, it would have been eg under Spanish law due to the public administration's duty to conduct its business with subjection to the applicable laws and regulations).

Be it as it may, the ECJ framed the issue in the following terms:

 36 It is conceivable that, when the contract documents are drafted, the contracting authority concerned may take the view, in accordance with the nature of that contract, the sensitive nature of the services which are its subject, and the requirements of professional honesty and reliability of the economic operators which arise from that, that the commission of grave professional misconduct must result in the automatic rejection of the tender and the exclusion of the tenderer at fault, provided that the principle of proportionality is observed when the seriousness of that misconduct is assessed.
37 Such a clause, inserted into the contract documents in unambiguous terms ... enables all economic operators which are reasonably well informed exercising ordinary care to be apprised of the requirements of the contracting authority and the conditions of the contract so they may act accordingly (C-171/15, paras 36-37, emphasis added).

I find these passages, and in particular para 36, very confusing. It seems to indicate that the contracting authority, despite the discretion it has in deciding to include as applicable the ground of discretionary exclusion due to grave professional misconduct in the tender documentation or not, remains bound to ensure that 'the principle of proportionality is observed when the seriousness of that misconduct is assessed'. That would, in and of itself, exclude the possibility of predetermining that the exclusion on that ground will be absolute and not subjected to any further (substantive) assessment. Therefore, making this be followed by para 37, where the contrary underlying position exists in the determination that setting a clause of automatic exclusion in unambiguous terms provides tenderers with a clear view of the requirements, is at least disconcerting.

The ECJ then decided to follow very formalistic precedents whereby 'the contracting authority must comply strictly with the criteria which it has itself laid down (see, to that effect, judgment of 10 October 2013, Manova, C‑336/12, EU:C:2013:647, paragraph 40 and the case-law cited) in the light, in particular, of Annex VII A, paragraph 17, to Directive 2004/18' (C-171/15, para 38). It also added that, following its more recent Judgment in Pizzo, C‑27/15, EU:C:2016:404, 'the principle of equal treatment requires tenderers to be afforded equality of opportunity when formulating their tenders, which therefore implies that the bids of all tenderers must be subject to the same conditions' and that 'the obligation of transparency requires that all the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner in the contract notice or specifications so that, first, all reasonably informed tenderers exercising ordinary care can understand their exact significance and interpret them in the same way and, second, the contracting authority is able to ascertain whether the tenders submitted satisfy the criteria applying to the contract in question' (for discussion, see here).

On the basis of this, the ECJ creates an argument whereby tenderers from different Member States will be less likely to submit tenders when they are affected by an exclusion ground because they may not be aware of the possibility of their exclusion actually being subjected to a proportionality assessment despite the explicit terms of the tender documents, which the ECJ considers domestic tenders would do. From that, the ECJ concludes that 'the assessment of the exclusion at issue in the light of the principle of proportionality, where the tender conditions of the contract concerned provide for the rejection of tenders which are covered by such an exclusion clause without any assessment of that principle, is liable to place the economic operators concerned in an uncertain position and adversely affect the principle of equal treatment and compliance with the obligation of transparency' (see C-171/15, paras 41-43). Ultimately, then, the ECJ considers that the decision to subject the decision whether to exclude the tenderer to a proportionality assessment despite the explicit terms of the tender documents was contrary to EU public procurement law.

Critical remarks

I find the Connexxion Taxi Services Judgment very confusing because it seems to answer two interconnected questions about the relevance and effectiveness of the general principles of public procurement in an intrinsically contradictory manner, and it seems to me that the ECJ has taken another step down the formalist road. In the case at hand, and following the proposals of Advocate General Campos Sánchez-Bordona (see here), I considered that it must be right that contracting authorities are always under a general obligation to act in a proportionate manner and, consequently, each decision they adopt needs to be proportionate under the circumstances and pro-competitive, and that ultimately 'a contracting authority must retain the power to assess, on a case-by-case basis, the gravity of the circumstances that would lead to exclusion of the tenderer. And ... it must also balance them against the effects that such exclusion would have on competition' [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 293, references omitted].  

Despite the fact that the Connexxion Taxi Services Judgment sticks to the traditional formalist approach whereby the Court does not allow contracting authorities to deviate from the strictures of the published tender documentation, and this must at this stage not come as a surprise, the decision strikes as particularly odd because the ECJ does not seem to give much weight to the general principle of proportionality--either as enacted under the disputed Dutch rules, or more generally under the EU public procurement rules themselves--despite having accepted that the general principle can (and should?) control all procurement decisions. Remarkably, the ECJ deviated from the more progressive and flexible approach advanced by the AG and also created a strange focus of analysis by moving from the assessment of the decision of the contracting authority to the potential incentives of participation for non-domestic economic operators in a way that I also find very formalistic and potentially misguided.

Considering Connexxion Taxi ServicesManova and other precedents together, what seems clear is that contracting authorities can only reduce the scope of their discretion by self-imposed restrictions published in the tender documents. Thus, they would be better off by publishing bare bones tender documents and then exercising administrative discretion subject only to compliance with general principles of public procurement, as well as applicable domestic rules. However, this would fly on the face of Pizzo where the way the contracting authority justifies its decisions does not result immediately from the tender documents, which then gives contracting authorities the contrary incentive to reiterate all domestic rules in the tender documentation.

Other than contradictory, these sets of case law are also extremely formalistic and ultimately built on a non-functional obsession with the integration of the single market that can get on the way of the development of sound public procurement practice. Ultimately, the general principles of public procurement should be there to create sufficient checks and balances and, in their generality, they should rank higher than tender documents. Actually, it is not foreign to the ECJ case law to consider that tender requirements that are disproportionate or discriminatory cannot be included in the tender documentation (or need to be set aside, or ultimately determine the ineffectiveness of the procurement exercise). Thus, it would be desirable for that logical hierarchy to remain a constant, even if it means that cross-border participation in procurement processes does not come at zero transaction costs and that interested undertakings need to make themselves familiar with the domestic rules of the jurisdiction in which they are tendering.

Beyond that, it also seems to me that the ECJ is inadvertently creating an absolute need for an exclusion-related special procedural phase, where tenderers other than those affected by potential exclusion have a justiciable right to force the contracting authority to review the circumstances of other tenderers. This is not necessarily an overall undesirable development, but it can be problematic in many ways, not least because the EU substantive and procedural rules are not adapted to that function [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 (Larcier, 2017) forthcoming]. 

Last, but not least, it is also worth noting that, by answering in the way it has, the ECJ has avoided the need to provide clarification on the requirements of intensity of judicial review of public procurement decisions at Member State level, on which AG Campos Sánchez-Bordona had put together a rather stringent and not uncontroversial proposal (see here). Unfortunately, then, given the ECJ's unwillingness to answer that question, we will continue puzzledly looking at the gaping hole that Prof Caranta identified in the ECJ's jurisprudence concerning public procurement remedies [see R Caranta, 'Many Different Paths, but Are They All Leading to Effectiveness?', in S Treumer & F Lichère (eds), Enforcement of the EU Public Procurement Rules, vol 3 European Procurement Law Series (Copenhagen, DJØF Publishing, 2011) 53, 84].


Joint control of in-house entities: ECJ issues additional guidance on limits to exceptions to public procurement obligations, but are they cumulative? (C-553/15)

In its Judgment of 8 December 2016 in Undis Servizi, C-553/15, EU:C:2016:935, the European Court of Justice (ECJ) offered additional guidance on the limits of the in-house exception to the obligation to tender public contracts subjected to the relevant EU rules, thus offering an extension of its well-known Teckal  case law (C-107/98, EU:C:1999:562) [for general discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 265-272].

Even if the case was decided in relation to Directive 2004/18/EC--or, more precisely, solely on the basis of the Teckal case law--the Undis Judgment may be relevant for the future interpretation of Article 12 of Directive 2014/24/EU and, in particular, regarding the accumulation of the in-house and the public-public cooperation exceptions that it regulates. 

On close reading, Undis Servizi is a rather puzzling case, not because of the answers provided by the ECJ, but due to the way the questions are structured and answered, as well as due to the scarcity of detail in the description of the factual circumstances of the case and the specific claims raised by Undis. It is also surprising that there was no Advocate General Opinion, particularly in view of the specific queries concerning the future interpretation of Art 12 Dir 2014/24 raised by the referring court. The following reflects my understanding of the situation as described by the ECJ--which may however not reflect the reality of the Italian case that triggered the Judgment.

Background and general remarks

The traditional position under the Teckal doctrine has been to exceptionally exempt the direct award of contracts to in-house entities from compliance with the EU rules only where the contracting authority or authorities exercises control over that entity that was similar to the control exercised over its (their) own departments, and where the controlled entity carries out the essential part of its activities with the controlling authority or authorities (or, conversely, where the controlled entity only engages in ancillary or marginal market activities).

On this occasion, the ECJ focused on the second element of the Teckal test (ie in the determination of the intensity of the non-public activities), which has traditionally been understood to require the volume of activities developed by the in-house entity in the market (ie, outside of the perimeter of the relationships covered by the similarity of control of its public shareholders) to be ancillary and marginal. This has now been (somehow) codified in Art 12 Dir 2014/24, which allows the in-house entity to carry out up to 20% of its activities outside the performance of tasks entrusted to it by the controlling contracting authority (or authorities) or by other legal persons controlled by that contracting authority (or authorities).

The need to evaluate the intensity of the public/non-public activities of the controlled entity triggers a difficulty in the calculation of the relevant turnover for the purposes of the assessment of the traditional Teckal requirement that the in-house entity carries out the essential part of its activities with the controlling authority or authorities, as well as the new statutory 80/20 threshold under Art 12 Dir 2014/24. In particular, the issue concerns the interpretation and application of the more developed Carbotermo test, according to which ‘the decisive turnover is that which the undertaking in question achieves pursuant to decisions to award contracts taken by the supervisory authority, including the turnover achieved with users in the implementation of such decisions’ (C‑340/04, EU:C:2006:308, para 65, emphasis added).

This may trigger some difficulties in cases of mixed in-house and public-public cooperation, where a group of contracting authorities decide to engage in public-public cooperation a la Commission v Germany (C-480/06, EU:C:2009:357), and then the leading contracting authority proceeds to an in-house award for the execution of the activity in the common interest to one of its (solely or jointly) controlled entities. In case some of the contracting authorities doe not participate in the (joint) control of the in-house entity, the application of the Carbotermo test raises issues as to whether any payments that may be made to the in-house entity by the non-controlling contracting authority fall within the category of 'turnover achieved by users as a result of the decision to award contracts by the controlling contracting authority' or not. In a nutshell, I think that this was the legal difficulty raised by Undis, even if this is not formulated in so many words and, in fact, the public-public cooperation element of the case is rather fuzzy.

Upon analysis of the circumstances of the Undis case (discussed below), the ECJ determined that, despite the fact that they were provided to other contracting authorities--ie not carried out in the (private) market--some of the activities undertaken by the in-house entity as a result of a direct requirement had to be considered 'activities carried out for third parties' (that is, activities which run against a finding that the controlled entity carries out the essential part of its activities with the controlling authority or authorities). This comes to clarify that the distinction of the relevant turnover by its origin follows a rather a narrow understanding of the 'circle of influence' of the controlling entities over the in-house undertaking--or, in other words, it follows the understanding that the in-house entity needs to be an instrument of (self)organization of the relevant contracting authority or authorities. This is also strongly linked in Undis to the peculiarity that the contracting authority imposing the obligation on the in-house entity was not part of the circle of jointly controlling authorities, but rather an administrative aggregation of those and other contracting authorities (ie a higher administration).

In particular, it is worth stressing that the ECJ ruled that 'in order to determine whether the contractor carries out the essential part of its activity for the contracting authority, including local authorities which are its controlling shareholders, an activity imposed on that contractor by a non-shareholder public authority for the benefit of local authorities which are also not shareholders of that contractor and do not exercise any control over it must not be taken into account, since that activity must be regarded as being carried out for third parties'. The following tries to clarify the reasons for this unsurprising finding, as well as the implications it may (or not) have in the interpretation of Art 12 Dir 2014/24.

UNDIS: Is IT Carbotermo plain and simple?

In Undis, the factual situation was as follows. Cogesa was a wholly public capital company owned by several municipalities of the Abruzzo Region (Italy). On 30 October 2014, the local authorities with shares in Cogesa entered into an agreement to exercise jointly over that body a control similar to that exercised over their own departments. By Integrated Environmental Authorisation No 9/11, the Abruzzo Region required Cogesa, in accordance with the principles of self-sufficiency, proximity and subsidiarity, to treat and recover the urban waste of certain municipalities of that region which were not shareholders of that company (see C-553/15, paras 11-13).

Undis, a potentially interested tenderer in the waste management contracts directly awarded to Cogesa, challenged these schemes on the grounds that the entrustment to Cogesa was contrary to the Teckal doctrine. For our purposes, it is relevant to stress that Undis challenged, in particular, that the criterion of intensity of the public/non-public activities of Cogesa was met, on the basis that 'Cogesa’s financial statements covering the years 2011 to 2013 indicated that only 50% of its overall activity had been performed with shareholder local authorities, given that activities carried out for the benefit of non-shareholder municipalities had to be included in that overall activity' (C-553/15, para 15).

In short, then, the legal issue for the ECJ was to determine whether the direct requirement by the Abruzzo Region (which did not itself hold any shares) for Cogesa to manage waste of municipalities in the region other than its own shareholders could be saved from a finding that it implied an illegal direct award under the EU rules because, even if the criterion of similarity of control was met (which was also disputed), Cogesa was not carrying out the essential part of its activities with its controlling authorities. In that regard, and after stressing that the in-house doctrine must be constructed narrowly because it creates an exception to the general rules and objectives of EU public procurement law, the ECJ determined that

32 ... it is essential that the contractor’s activity be principally devoted to the controlling authority or authorities; the nature of any other activity may only be marginal. In order to determine whether that is the case, the court having jurisdiction must take into account all the facts of the case, both qualitative and quantitative. In that regard, the relevant turnover is the turnover that that contractor achieves pursuant to the award decisions taken by that or those controlling authorities ...
33      The requirement that the person at issue performs the essential part of its activities with the controlling authority or authorities is designed to ensure that Directive 2004/18 remains applicable in the event that an undertaking controlled by one or more authorities is active in the market, and therefore liable to be in competition with other undertakings. An undertaking is not necessarily deprived of freedom of action merely because the decisions concerning it are controlled by the controlling municipal authority or authorities, if it can still carry out a large part of its economic activities with other operators. By contrast, where that undertaking’s services are mostly intended for that authority or those authorities alone, it seems justified that that undertaking should not be subject to the restrictions of Directive 2004/18, since they are in place to preserve a state of competition which, in that case, no longer has any raison d’être ...
34      ... any activity of the contractor which is devoted to persons other than those which control it, namely persons without any relationship of control in regard to that entity, including public authorities, must be regarded as being carried out for the benefit of a third party.
35      Consequently ... the local authorities which are not shareholders of Cogesa must be regarded as third parties. ... there is no control relationship between those local authorities and that company, with the result that the specific internal link between the contracting authority and the contractor, which according to the case-law of the Court justifies the exception for ‘in-house’ awards, is lacking.
36      Therefore, in order to determine whether Cogesa performs the essential part of its activity with the local authorities which control it, the activity which that company devotes to non-shareholder local authorities must be regarded as being carried out for the benefit of third parties. It is for the referring court to examine whether that latter activity can be regarded as merely marginal in comparison with the activity of Cogesa with the controlling local authorities, in accordance with the Court’s case-law on so-called ‘in-house’ awards.
37      That finding cannot be invalidated by the fact ... that Cogesa’s activity carried out for the benefit of the non-shareholder local authorities is imposed by a public authority, which is also not a shareholder of that company. Although it imposed that activity upon Cogesa, it is apparent from the information in the decision to refer that that public authority is not a shareholder of that company and does not exercise any control over it within the meaning of the Court’s case-law on so-called ‘in-house’ awards. In the absence of any control by that public authority, the activity which it imposes on Cogesa must be regarded as an activity carried out for third parties (c-553/15, paras 32-37, references omitted and emphases added).

This seems to me to be a clearly predictable answer to the preliminary reference by the ECJ, and one that is in line with its Teckal-Carbotermo case law, which was however designed for straightforward situations of vertical and direct (sole or joint) control by the contracting authority over the in-house entity. However, the applicability of this test under Art 12 Dir 2014/24 may create problems if the ECJ does not alter its interpretive approach.

Art 12 Dir 2014/24: how do we square the new circle?

Firstly, it seems problematic to consider that the Undis refinement of the Carbotermo test will survive the entry into force of the rules in Dir 2014/24. In that regard, it is necessary to stress that the transition from the simple in-house model in the Teckal case law to the more complex in-house architecture in Dir 2014/24 now allows for inverted and indirect control relationships. In particular, under Art 12(2) Dir 2014/24, the control criterion is deemed to also apply where a controlled legal person which is a contracting authority awards a contract to its controlling contracting authority, or to another legal person controlled by the same contracting authority, provided that there is no direct private capital participation in the legal person being awarded the public contract with the exception of non-controlling and non-blocking forms of private capital participation required by national legislative provisions, in conformity with the Treaties, which do not exert a decisive influence on the controlled legal person. The situation can be further complicated in cases of public-public cooperation under Art 12(4) Dir 2014/24 that may then incorporate some elements of in-house under Art 12(1) or Art 12(3) Dir 2014/24.

In that regard, it would seem that the functional criterion set by the Undis Judgment--as was the case in Carbotermo--is that the split between essential/ancillary or 80/20 levels of activity needs to follow precisely the contracts which direct award is saved by the in-house rules. Or, in other words, that the essential part of the activities (or 80% of turnover) needs to be achieved within the 'circle of influence' of the controlling entities (and its/their extended 'public-house') and the in-house undertaking.

Secondly, the fact that the Undis Judgment relies rather heavily on the point that the Abruzzo Region did not hold shares in Cogesa is troubling and somehow confusing (see para 37). I struggle to see how the ECJ could have decided that should the Region hold shares in its capital, it could then entrust Cogesa with the waste services of municipalities that did not themselves hold shares, this could be exempted from the EU rules and this would then make that activity not be classified as 'activities carried out for third parties'. Or, in other words, that in the future the ECJ could consider exempted from compliance with Dir 2014/24 the direct awards carried out by a contracting authority for the provision of services for other contracting authorities that do not have joint control over the in-house undertaking (then under Art 12 Dir 2014/24) if the 80/20 turnover split is respected--bearing in mind that the turnover of those activities would not be deemed to derive from 'activities carried out for third parties'.

This would seem to be in stark contrast with the other position held by the ECJ in Cogesa, whereby 'any activity of the contractor which is devoted to persons other than those which control it, namely persons without any relationship of control in regard to that entity, including public authorities, must be regarded as being carried out for the benefit of a third party' (para 34). But this could aim to be saved through a joint or cumulative application of the in-house and public-public exemptions, in particular by stressing that the market activity thresholds in Art 12(1) & (3) for the purposes of the in-house exception refer to the volume of activity of the controlled entity, whereas the threshold in Art 12(4) for the purposes of the public-public cooperation exemption requires that 'the participating contracting authorities perform on the open market less than 20 % of the activities concerned by the cooperation'. In my view, this would be a functionally incorrect reading of the new rules, but one that could carry some weight from a positivistic interpretation.

Ultimately, I guess that my confusion is about the likely way in which the ECJ will see the interaction of the in-house exemption in Art 12(1) to (3) and the public-public exemption of Art 12(4) Dir 2014/24. Read a contrario, para 37 of Undis may be seen as an indication that the accumulation of both exemptions is possible (which I would not favour, from the perspective of avoiding distortions of competition and the exclusion of significant volumes of public expenditure from EU public procurement rules and the ensuing checks and balances). It may also be just a mirage and that the ECJ will keep both exceptions separate in the future following the approach in para 34 of Undis (for which I would vouch). Either way, I also see increasing risks of State aid in these scenarios [on which see also GS Ølykke, "Commission Notice on the notion of state aid as referred to in article 107(1) TFEU - is the conduct of a public procurement procedure sufficient to eliminate the risk of granting state aid?", P.P.L.R. 2016, 5, 197-212]. Definitely a space to watch.

Project Completed: Full Commentary to UK Public Contracts Regulations in Open Access

Given the time of the year, when to do lists get dusted off and rearranged to cram in all these things we thought we would do 'by the end of the year', completing a 2-year research project feels really good. I can't but feel proud of and accomplished with the publication of the Public Contracts Regulations Commentary co-authored with Dr Pedro Telles [Albert Sanchez-Graells & Pedro Telles, (2016) Commentary to the Public Contracts Regulations 2015, available at:].

As Pedro says, we will carry on working on its improvement and update as things develop, and we would appreciate feedback and comments on how to make it more relevant for practitioners, challenging for academics and accessible for students (not an easy mix). So please be in touch.

Framework agreements should not be used improperly or in such a way as to prevent, restrict or distort competition [guest post* BY DR KIRSI-MARIA HALONEN]

A case from Supreme Administrative Court in Finland KHO 2016:182

The tension between centralization, large framework agreements and the competition principle has as of lately been increasingly discussed by academics, but also by national legislators. The new Procurement Directive 2014/24 aims, among other objectives, to enhance SME participation in public tenders by setting out rules on the division into lots. These issues have not yet been directly addressed in the Court of Justice case law. Nevertheless, in the recent ruling KHO 2016:182, the Finnish Supreme Administrative Court (korkein hallinto-oikeus) enforced the principle that “[f]ramework agreements should not be used improperly or in such a way as to prevent, restrict or distort competition”, which is codified in s.31(2) of the current Finnish Act on Public Contracts (laki julkisista hankinnoista 2007/348) and included in the recital (61) of Directive 2014/24. In this regard, the Supreme Administrative Court found that the decision to award “too-large” a framework agreement for health care and hospital supplies created barriers to bidding for most undertakings and was unduly restricting competition. It thus cancelled the decision (for those readers who can read either Finnish or Swedish, you can reach the case in Finnish and in Swedish). 

This case, regardless of being handled in one of the smallest EU member states by population and with a language regime not easily accessible for others, has created a lot of discussion among practitioners and academics alike. Therefore, Albert kindly asked me to shed some light on this case, where the competition principle has finally broken into the Finnish public procurement law regime and decreased contracting authority’s level of discretion regarding the terms of a competition-restrictive public tender [for which he has been constantly arguing, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 355 and ff, specifically on framework agreements].


In the case at hand, KL-Kuntahankinnat Oy, a central purchasing body for Finnish municipalities, run, on behalf of a hospital district and three municipalities, a framework agreement award procedure on health care and hospital supplies of 12 different product categories including stock-management and home delivery services. According to the terms of the call for tenders, other clients of KL-Kuntahankinnat Oy could also participate in the framework agreement at a later stage. The list of potential “other clients” of KL-Kuntahankinnat Oy was rather vast, and it included, among others, all Finnish municipalities. The framework agreement envisaged term was of four years.

The bidders could not tender for separate lots, but were rather required to submit a full-scale bid covering stock-management and home delivery services and all 12 product categories with a minimum of 5,000 items. As a cherry on top, this framework agreement on all possible health care and hospital supplies (and with the potential to have all Finnish municipalities or hospital districts as clients) was going to be awarded only to a single economic operator. In short, then, the framework agreement was bound to create a funnel for all hospital and health care supplies to be concentrated on a single supplier for a period of 4 years.

When submitting their bids, bidders were to provide two references on contracts of similar nature for the past three years. Both of these references were required to include products of at least eight of the 12 product categories included in the current contract award. Additionally, one of these references was required to include stock-management services. It soon emerged that the requirement of references that would cover eight categories could not be met by most of the potentially interested bidders. A majority of potential bidders only operated within one, two or maximum three product categories. As a result, these reference requirements led to the exclusion of all bidders except for two wholesale distributors of health care supplies.


Four bidders excluded from the contract award procedure initiated judicial proceedings in the Finnish Market Court arguing that the central purchasing body KL-Kuntahankinnat Oy had not only breached the principle of non-discrimination but also unduly restricted competition. The Market Court rejected the claims and considered that the central purchasing body had discretion over the product categories to be included in the framework agreement, as well as on whether or not to divide the contract into lots. In accordance with the arguments presented by the central purchasing body, the Market Court accepted that any economic operator had a chance to build consortiums or arrange for the coverage of missing product categories through sub-contracting. In addition, the Market Court did not find the reference requirements disproportionate, given the account the value and extent of the framework agreement.


The four companies appealed against the Market Court’s decision to the Finnish Supreme Administrative Court. They argued that KL-Kuntahankinnat Oy’s tender procedure and the ensuing framework agreement discriminated (ie de fact excluded) all economic operators other than wholesale distributors, and that this led to an undue restriction of competition.

In the joint appeal of Bayer Oy, Coloplast Oy, Oy SCA Hygiene Products Ab and Steripolar Oy, these companies submitted that the 5,000 products included in the framework did not form a coherent subject matter of a contract. The new agreement was significantly broader than any earlier framework agreement, combining products that previously were purchased through 10 different contracts or framework arrangements. Consequently, only two wholesale distributors had a true chance even to submit a bid in compliance with the rules set out in the call for tenders. The other bidders had no chance to succeed as there was no possibility to tender for separate lots.

The companies emphasized that the arguments presented by the contracting authority on the possibility to build consortiums or resort to sub-contracting in order to fulfill requirements were not reasonable or feasible, as it would have required a co-operation of 10-12 different companies or with the wholesale distributors themselves. Establishing a large consortium with both multinational companies and SMEs would have required a lot of time, money and effort, but also a common IT-system, customer service function and logistics.

1. The need to identify the users of the framework agreement

The Supreme Administrative Court stated that a contracting authority has an obligation to provide adequate information on the contract to be awarded already in the contract notice. By reserving a possibility for any other Finnish municipality and other contracting authorities to enter into the framework agreement at a later stage, the central purchasing body had breached the principle of openness and transparency by failing to provide adequate information on the scope of the framework agreement in question.

2. Restriction of Competition

The central purchasing body, KL-Kuntahankinnat Oy, argued in the Supreme Administrative Court that it had defined the scope of the framework agreement based on the needs of its clients. The award of the whole framework agreement to a single provider was considered to be the most economically advantageous alternative. The central purchasing body objected the claims on undue restriction of competition emphasizing that it had informed the potential bidders of the terms of the contract award in advance and encouraged them to establish consortia or sub-contracting arrangements in order to meet the requirements included in the call for tenders.  

The Court did not support such views and stated that the scope of contract and the requirement of a common IT-system, logistics and customer service, was too extensive to ensure equal opportunities of economic operators to offer supplies and services. Consequently the requirements set out in the call for tenders had led to an undue restriction of competition. According to the Court, the possibility to rely on the capacities of others did not remove the discriminatory, disproportionate and competition restrictive features of the tender procedure. These negative effects of the framework agreement with a single provider were considered especially severe due to the length of the contract term of four years.


The Supreme Administrative Court’s ruling on the relation of the competition principle and large framework agreements will surely give a lot of food for thought, especially within central purchasing bodies and large volume contracting authorities. It is still a reality that foreign undertakings rarely submit bids called by Finnish contracting authorities. Regardless of the rules applied to the single market, in a rather small market at the North-East border of Europe, the relevant market is often in practice equivalent to the domestic market. Hence, the consequences of closing the Finnish market for four years could likely lead to closing down businesses and market exit by a number of economic operators. This can hardly be seen as the most economically advantageous solution for any society.

The Supreme Administrative Court’s ruling must therefore be praised, not only from a competition perspective, but also for enhancing transparency by setting rules on the identification of the actual users of the framework agreements. This is necessary in order to avoid framework agreements that could potentially be used by any public authority within any member state, bearing in mind that the amount of large framework agreements are likely to increase in the future as Directive 2014/24 sets out a possibility to purchase through any central purchasing body situated in any member state. 

Kirsi-Maria Halonen

The author of this post,  Dr. Kirsi-Maria Halonen holds a Ph.D. in Public Procurement Law and is currently working as a University Lecturer in Commercial Law at the University of Lapland, Finland. Her Ph.D. dissertation concerned the consequences of contractual ineffectiveness of a public contract between contracting parties. She is a member of the European Procurement Law Group (EPLG), the President of Finnish Public Procurement Association and an editorial board member of the Swedish Public Procurement Law Journal (Upphandlingsrättslig tidskrift, UrT) and a Finnish law journal on commercial law, Liikejuridiikka.

In addition to public procurement law, Kirsi-Maria is interested in contract law, tort law, corruption and transparency matters as well as state aid rules. She is the author of several articles (both in English and in Finnish) and a few books (in Finnish). Currently she is working in a research project for the Swedish Competition Authority (Konkurrensverket) on separate operational units within contracting authorities. Below some selected publications in English by the author:

K-M.Halonen, Disclosure Rules In EU Public Procurement – Balancing Between Competition and Transparency, the Journal of Public Procurement, Vol. 16, Number 4, Winter 2016, pp. 528–553.

K-M.Halonen, Is the remedy of contractual ineffectiveness truly effective in Finland? EPPPL - European Procurement & Public Private Partnership Law Review 4/2015, pp. 310–315.

K-M.Halonen, The liability of a contracting authority for an infringement of public procurement rules leading to a contract’s ineffectiveness- A Finnish approach, Upphandlingsrättslig tidskrift (UrT) 3/2015, 227–245.

K-M.Halonen, Shielding Against Damages for Ineffectiveness: The Limitations of Liability Available for Contracting Authorities - A Finnish Approach. Public Procurement Law Review (P.P.L.R.) 2015, 4, 111-121.

* Guest blogging at HTCAN: If you would like to contribute a blog post for How to Crack a Nut, please feel free to get in touch at Your proposals and contributions will be most warmly welcomed!



EU law-making in the shadow of the CJEU case law: looking at the “trilogue” black box

This blog first appeared in Elgar Blog on 7 December 2016 as part of our promotion of the recently published book Grith Skovgaard Ølykke and Albert Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules (Edward Elgar, 2016). You can now also read Chapter 1: The EU legislative process. An introduction from a political science perspective free on Elgaronline.

After six decades of economic and legal integration, when the European Union (EU) seeks to adopt new rules or to revise existing ones, it hardly ever operates on a clean slate. EU law-making is not only constrained by the political and economic realities of the time, but also by the pre-existing acquis communautaire of rules and general principles as interpreted by the Court of Justice of the European Union (CJEU). By any account, the CJEU has been a great force in the development of EU law, and its case law has pushed the policy-making agenda in rather clear, if controversial ways. EU law-makers thus operate in the shadow of the CJEU case law. This influences law-makers’ starting points and conditions the final solutions to be politically agreed, which will unavoidably be open to scrutiny (and quashing) by the CJEU.

In that space amongst the shadows of the CJEU case law, EU law-makers interact in an increasingly informal manner. They seek ways of flexibilising the legislative process so as to achieve easier and swifter compromises and overcome the criticism of immobilism, sometimes at the cost of renewed criticism of a democratic deficit that the Lisbon Treaty aimed to do away with. Indeed, even if the ordinary legislative procedure is heavily regulated by the EU Treaties and should channel most of the EU’s law-making, informal EU law-making is on the rise. As recently as July 2016, this led the European Ombudsman to call for more transparency of informal negotiations between the European Commission, European Parliament and the Council of the EU, also known as “trilogues” meetings.

It is no exaggeration to say that such “trilogues” are the black box of EU law-making. Under their current operation, it is possible to observe what comes in—legislative proposals are published by the Commission and initial reports by both Council and Parliament are also published—and what comes out of it—in the form of legislation eventually published in the Official Journal of the European Union. But, even after carrying out significant research efforts, it is impossible to crack what happens within the black box and to trace the origin and reasons behind important amendments to proposed legislation, as well as the way in which the final text is drafted.

This creates potential legal uncertainty in terms of the likely interpretation of the texts, which sometimes deviate from previous case law of the CJEU in unexplained ways. It also makes for difficult political assessments of the balance of interests that went into EU law-making and the weight that competing EU, national and group interests carried in shaping the new or revised rules. It can also significantly diminish the technical quality of the final rules, particularly where the trilogues are structured in sequence or address issues in a piece meal fashion, which prevents a final check for internal consistency and eventually leads to difficult systematic interpretation issues.

The case study of the reform of the EU public procurement rules in the period 2011-2014 clearly evidences these issues. The results of our two year research project, now published as Reformation or Deformation of the EU Public Procurement Rules, show both that the entirety of the legislative process was influenced by the CJEU case law, and that some of the most remarkable modifications of the pre-existing EU public procurement rules came about in an unexplained way at trilogue stage. As Dr Grith Skovgaard Ølykke and I stress in our conclusions,

The informal part of the procedure taking place between the 2011 Proposal and the first reading and adoption of the 2014 Directive prevented a repetition of the lengthy process of adopting the 2004 Directive (four years and a full-fledged ordinary legislative procedure, several amended proposals, conciliation and all). However, the early retreat to the trilogue and, hence, informality, significantly reduced transparency compared to that available in the legislative procedure leading to the adoption of the 2004 Directive, where e.g. the amended proposals contain the Commission’s argumentation for accepting proposed amendments or not.

… this still does not clarify the role and influence of the Commission in the post-Lisbon trilogue … Indeed, as stressed by the [European] Parliament itself, ‘given the Commission’s important and active role during Council working party (and even COREPER) discussions, its status as “honest broker” during trilogue negotiations is sometimes questioned in practice’.

A close analysis of the results of our research project helps gain a better understanding of the influence of the CJEU case law in EU law-making, both shaping it and as a benchmark from which policy-makers sometimes try very hard to deviate. However, the results of the research project also stress the limitations of an analysis of the travaux preparatoires and the negotiations throughout the legislative process when important changes and their reasons cannot be observed because they took place in the trilogue black box.

These insights will be interesting in guiding legal interpretive efforts, both in the area of EU public procurement law and more broadly. They will also be high quality and detailed evidence of the need to reform the way trilogues operate, both from a perspective of ensuring high standards of governance through accountability and transparency as stressed by the European Ombudsman, as well as from the perspective of preserving the value of interpretive aids in the context of an ever increasingly complex acquis communautaire.

Interesting AG Sharpston's Opinion on Lithuanian rules on subcontracting (C-298/15) -- warning on the use & transposition of 63(2) Dir 2014/24 & 79(3) Dir 2014/25?

In her Opinion in Borta, C-298/15, EU:C:2016:921, AG Sharpston assessed, amongst other things, the compatibility with EU law of a prohibition to subcontract part of a public works contract not covered by the relevant EU public procurement directive (in the case, Dir 2004/17). Her assessment thus relies on fundamental rules and general principles of the TFEU (in particular the free movement principles in Articles 49 and 56 TFEU).  

The dispute concerned a Lithuanian tender for the construction of a quay at the port of Klaipėda that ended up in litigation, not least due to a relevant change of participation requirements after the tender had been launched. In my view, the interesting point is that the Supreme Court of Lithuania raised of its own motion the question whether EU public procurement law precludes a provision of Lithuanian law that prohibits subcontracting ‘the main work’ in the context of public works contracts.

This concerns Art 24(5) of the Lithuanian Law on public procurement, according to which the procurement documents require the candidate or tenderer to specify in its tender any proposed subcontractors and may require the candidate or tenderer to specify the share of the contract that it is intended to subcontract to those subcontractors. However, where subcontractors are invited to carry out a works contract, the main work, as specified by the contracting authority, must be performed by the supplier.

Procedural aspects

The admissibility of this referral of its own motion by the Supreme Court of Lithuania could be considered problematic because Art 24(5) of the Law on public procurement was not clearly applicable to the dispute (as stressed in the AGO, C-298/15, para 40). However, AG Sharpston considers that the ECJ has jurisdiction to address the question because 

According to settled case-law, the Court cannot give a ruling on a question referred by a national court where it is quite obvious that the interpretation or the assessment of the validity of a provision of EU law sought by the national court bears no relation to the actual nature of the case or to the subject matter of the main action. That is not however the case here. Paragraph 4.3 of the tender specifications, which lies at the centre of the dispute in the main proceedings, contains an express reference to Article 24(5) of the Law on public procurement. Against that background, it does not appear that [restriction on subcontracting in Article 24(5) of the Law on public procurement] manifestly bears no relation to the actual nature or the subject matter of the action and that question is therefore admissible (AGO, C-298/15, para 41, references omitted and emphasis added).

From a procedural perspective, this is interesting in itself and shows the wide scope for the referral of questions for a preliminary ruling by the ECJ by the highest courts of the Member States even where the clarification of those questions is not core, central or essential to the main dispute. In a different context, this is of relevance for the Brexit litigation before the UK Supreme Court (for discussion see here and here). More generally, the contours of the preliminary reference mechanism seem clearly wide and facilitative of inter-judicial dialogue, as supported by the recently revised Recommendations to national courts and tribunals, in relation to the initiation of preliminary ruling proceedings.

Substantive aspects

Moving on to the assessment of the compatibility with EU law of the prohibition to subcontract the main work under Art 24(5) of the Lithuanian Law on public procurement, there is an interesting preliminary point to note:

The Lithuanian Government submitted at the hearing that Article 24(5) of the Law on public procurement transposed the new rule on subcontracting in Article 79(3) of Directive 2014/25/EU before the expiry of the period prescribed for transposing that directive and that, consequently, the Court should examine the present reference from the perspective of that directive only ... The Commission argued that, on the contrary, Directive 2014/25 could not be taken into account. First, Article 24(5) of the Law on public procurement was passed before that directive was adopted. Second, Lithuania had omitted to notify the measures transposing Directive 2014/25 into Lithuanian law to the Commission (AGO, C-298/15, para 25, references omitted).

AG Sharpston is clear in excluding this analytical approach (which may have resulted in a different outcome of the case) on the basis that

As the Court has held recently in relation to Directive 2014/24, to apply that directive before the expiry of the period prescribed for its transposition would prevent not only the Member States but also contracting authorities and economic operators from benefiting from a sufficient period in which to adapt to the new provisions it introduced. ... to do so would also be inconsistent with the principle of legal certainty. The same applies by analogy to Directive 2014/25 (AGO, C-298/15, para 27, references omitted).

Thus, the analysis of the Lithuanian rule had to be carried out in relation with the EU public procurement acquis at the time of launching the tender: ie, Dir 2004/17. However, given that the value of the contract remained below its quantitative thresholds, and in view of the fact that it had cross-border interest (para 37), the rule had to be

examined against the background of the general principles of transparency and equal treatment arising from Articles 49 and 56 TFEU, which must be respected when awarding public contracts. Given that Articles 49 and 56 TFEU apply ... the [contracting authority] is required to respect the prohibition on discrimination on the grounds of nationality and the obligation as to transparency which those articles lay down (AGO, C-298/15, para 38, references omitted).

In carrying out that assessment, AG Sharpston reverted to the general functional approach to the EU regulation of below threshold public procurement:

Articles 49 and 56 TFEU preclude any national measure which, even though it is applicable without discrimination on grounds of nationality, is liable to prohibit, impede or render less attractive the exercise by nationals of the European Union of the freedom of establishment and the freedom to provide services guaranteed by those provisions.
As regards public contracts and the freedom of establishment and the freedom to provide services, the European Union is concerned to ensure the widest possible participation by tenderers in a call for tenders, even where directives on public procurement are not applicable. That is in the interest of the contracting authority itself, which will thus have greater choice as to the most advantageous tender which is most suitable for its needs. One of the principal functions of the principle of the equal treatment of tenderers and the corollary obligation of transparency is thus to ensure the free movement of services and the opening-up of undistorted competition in all the Member States (AGO, C-298/15, paras 43-44, references omitted).

After clarifying that the prohibition to subcontract the main work under Art 24(5) of the Lithuanian Law on public procurement 'restricts the freedom to provide services and the freedom of establishment' (para 46), she also stressed that 'such a restriction may be justified in so far as it pursues a legitimate objective in the public interest, and to the extent that it complies with the principle of proportionality in that it is suitable for securing the attainment of that objective and does not go beyond what is necessary in order to attain it' (para 47).

In that connection, it is interesting to note that the AG stresses that one of the elements to be taken into account is that 'the contracting authority is entitled to prohibit the use of subcontractors whose capacities could not be verified during the examination of tenders and selection of the contractor for the performance of essential parts of the contract' (para 49, with reference to Siemens and ARGE Telekom, C‑314/01, EU:C:2004:159, paragraph 45, and Wrocław - Miasto na prawach powiatu, C‑406/14, EU:C:2016:562, paragraph 34--and see here). 

Applying this test, AG Sharpston established that

First, that restriction applies even where the contracting authority is in fact in a position to verify the technical and economic capacity of subcontractors during the contract award procedure. An alternative to that restriction would (for example) have been to require the main contractor to identify subcontractors when submitting his tender and to demonstrate both that he will actually have available to him the resources of those subcontractors necessary for the performance of the contract and that those subcontractors are suitable for carrying out the tasks he intends to entrust to them.
Second, Article 24(5) is also both too rigid and too vague to satisfy the proportionality test. Although contracting authorities appear to enjoy flexibility when defining, for each contract, what ‘the main work’ is, the restriction on subcontracting resulting from that provision is defined in particularly broad terms. It applies regardless of the subject matter of the public works contract and is binding upon contracting authorities when they conclude any type of public works contract, even when they may consider that there is no obvious reason for imposing such a restriction at all.
... the restriction on subcontracting in Article 24(5) of the Law on public procurement differs in that regard from Article 79(3) of Directive 2014/25. That provision merely enables a contracting authority, in particular, to require that certain critical tasks be performed directly by the tenderer itself. Contracting authorities may thus assess whether such a limitation is opportune, depending on the circumstances. It follows that, even if, as the Lithuanian Government submits, Article 24(5) of the Law on public procurement were to be regarded as transposing Article 79(3) of Directive 2014/25 into Lithuanian law, that transposition would be incorrect.
For those reasons ... in the context of a public contract not subject to Directive 2004/17 or Directive 2004/18, but which has a clear cross-border interest, the prohibition on discrimination on the grounds of nationality and the obligation of transparency which arise under Articles 49 and 56 TFEU preclude a national rule such as that contained in Article 24(5) of the Law on public procurement, under which the tenderer has itself to carry out the ‘main work’, as identified by the contracting authority, without it being possible to subcontract that part of the contract (AGO, C-298/15, paras 51-54, references omitted and emphasis added).

This is interesting because, even if Dir 2014/25 (and 2014/24) was not relevant to the case, it indicates the direction in which a proportionality assessment of the rule in Art 79(3) Dir 2014/25 and Art 63(2) Dir 2014/24--as transposed into domestic law and as applied by contracting authorities--is likely to be carried out in the future [with a view to minimise their scope, which I would favour, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 353-354].

Additional Thoughts on Brexit and Public Procurement

I had the pleasure of participating in last night's seminar on Brexit and Public Procurement, which was part of the Brexit Seminar Series 2016/17 organised by the Centre of European Law of King's College London. There was interesting discussion of the WTO GPA, UNCAC and UNCITRAL model law requirements and the possibilities they bring after Brexit, including a rather subtle argument why the UK may retain its condition of party to the WTO GPA on the basis of its final provisions in its Article XXII--which I either did not fully understand, or really do not see working out.

However, there was also a good measure of wishful thinking based on the opportunities that dropping the 'straitjacket of the EU single market approach' to procurement regulation could provide, as well as the possibilities that Brexit would bring in order to mend a system that is broken (with reference to both EU public procurement and State aid law), and which covers up an anti-British bias that can only get worse in the future if the Commission manages to adopt its 'Fortress Europe' strategy. I guess that, after this, my remarks (see presentation below) came in as a minoritarian and pro-EU reaction to these arguments. The rest of this post provides a synthesis of the arguments I made.

In order to counteract some of the arguments being made and, hopefully, to put the issue into broader perspective, I focused my remarks around whether the reform of [British] procurement regulation is feasible or a utopia (which links to my broader ideas on the difficulties of reimagining public procurement regulation). I broke this down in four parts: (1) the unavoidable costs of adopting a distinct 'Very British Model' (borrowing this label from Sarah Hannaford QC); (2) what is likely to happen with the Public Contracts Regulations 2015 immediately after Brexit; (3) what level of coordination between UK (Eng) and EU law should be achieved in the future; and (4) what can and should realistically be done to further reform (UK) public procurement law in the future.

1. On the unavoidable costs of a Very British Model, I guess that the simple insight I was trying to stress was that having diverging regulatory regimes increases the cost of doing business for companies aiming to serve markets where different procurement regimes apply. From the perspective of British companies (particularly SMEs, which PM May seems to be intent on actively supporting), this de facto makes it more difficult for them to export to the EU if they get used to a different domestic regulatory regime.

This can in turn result in a change of supply chains where EU 'importers' acquire the goods (works less well for services) from UK manufacturers and then sells them to the public sector in the rest of the EU, which will require the creation of commercial mark-ups / margins that may well wipe out any financial advantage derived from the taking of the Sterling, as well as any increases in productivity in the future.

Moreover, a Very British Model that significantly deviated from the current EU system would create a significant barrier for cross-border collaboration with other public buyers in the EU (which was mentioned could be particularly relevant in terms of defence procurement, given recent policies to boost EU's military capabilities through a joint defence fund), but also with potential third countries (eg Canada). It would also make negotiations to gain (or retain) membership of the WTO GPA and to subject internationally funded (large infrastructure) projects to the revised Very British System because international partners may need to be convinced that, though different, that new system complied with their requirements. If nothing else, this will be a drain of international and trade negotiators' time and energy.

2. On the likely  immediate future of the Public Contracts Regulations 2015, it is hard to make a forecast. Short of their total repeal and the creation of a massive regulatory vacuum in the control of public expenditure in the UK (which I do not think likely, and certainly hope not to be pursued), the PCR2015 are likely to stay in the books for a while (with or without Great Repeal Bill).

It is possible that the UK Government is tempted to chop bits of them off the statute book. Either suppressing the remedies they create for non-domestic bidders, as suggested by Prof Arrowsmith, and which I consider a daft strategy--for the lack of a better term--because it will not only alienate foreign bidders and international trading partners, but also be easy to circumvent through formal submission of tenders by UK-based entities. Or else shooting holes in the PCR2015 to get rid of parts that may be considered particular examples of bar procurement regulation (say, the use of self-declarations in the form of the ESPD). That would diminish the consistency of the regulatory system and could create undesirable effects.

Overall, as I said before, in the short run, the would be better off by completely keeping the status quo ante Brexit (including remedies for international tenderers and investors) if it wants to preserve its (diplomatic) options of a swift conclusion of procurement-related trade agreements, as well as preventing disruption in investment and infrastructure projects.

3. On the desirable level of coordination between future UK rules and EU public procurement law, including the CJEU case law, I submitted that, regardless of the formal legal obligations to comply with CJEU case law under EEA or other types of agreements, from a normative point of view and at least for as long as the law on the books reads the same way (ie up and until there is a repeal and substitution of the PCR2015), UK law should continue to be substantively coordinated with EU public procurement law.

For two reasons. First, because deviations will create the same additional costs of doing business indicated above (1). And, second, because on the whole (and I am not one to cosy up to the CJEU), I consider that its public procurement case law has been progressive and positive, and helped shape a regulatory system that is massively misunderstood and misconstrued, particularly but not only in the UK (more below).

4. On the productive ways in which [British] public procurement can be reformed in the longer run, I took the seemingly radical view that legal reform should not be the main focus and that there are more pressing issues that can only be sorted out with significant investment (which, of course, triggered the reaction from the floor that 'it ain't gonna happen' in this context and with the massive black hole that Brexit will create in the UK's public finances between now and, at least, 2021). I also stressed that the UK had shown no regulatory creativity whatsoever in the transposition of the 2014 Public procurement package, which indicates that there is a lack of direction and strategy on which to build a significant reform of the current system.

I stressed that most of the complaints against the EU public procurement rules coming from the business community, and particularly SMEs, would equally exist with any regulatory regime that imposed any level of red tape on businesses because that is, quite simply, in the nature of things. Same goes for the criticisms from the public sector. Of course, the existing rules are perfectible (topically, on the need to reform the Remedies Directive), but no system will ever be perfect and there is a level of discomfort with public procurement rules that needs to be accepted as trade off for the anti-corruption and pro-competitive / value for money results they achieve.

Additionally, significant problems of legal certainty and difficulties in the coordination of different sets of procurement rules are exclusively a domestically created issue. For example, the difficult coordination of general procurement rules under the PCR2015 and those applicable to healthcare procurement in the context of NHS England are a UK problem that can, and must, be resolved domestically (see eg here, with a focus on conflicts of interest). 

Moreover, I also stressed that the EU public procurement rules are greatly misunderstood and construed as imposing a tight straitjacket on both procurers and businesses. That is simply not the case, particularly after the revision of the 2014 Public procurement package, which has created enormous spaces for administrative discretion and negotiations--that have in turn triggered the need, more than ever, for a competition-oriented interpretation and implementation of the rules.

My view, and I am happy to expand it, is that properly understood and applied, the current EU rules allow for all the goals I have so far heard businesses and public sector officials indicate they want from a revised [British] public procurement system--except those linked to a protectionist industrial policy, which are economically unwise and undesirable in any case.

The real problem is that an improvement of procurement practice requires three main (and very expensive) changes: (a) a serious investment in technology and the effective roll out of eProcurement; (b) significant investment in human capital and the upgrade of the public sector skill set (particularly in non-legal aspects linked to market intelligence and procurement best practice, along the same lines stressed by the European Court of Auditors in the context of EU institutional procurement); and (c) significant investment in strengthening the public oversight powers of entities such as the National Audit Office and the Office for Budget Responsibility (on the worrying contrary trend, see here) so as to reduce the dependence on (and incentives for) private litigation as the only (meaningful?) check on the way procurement is carried out.

Overcoming this problem requires investment and long-term planning. Two things that seem to go against the very grain of the Brexit process. So, overall, I would not hold my breath. I would more generally not expect any significant change in the way procurement is carried out in the UK in the short to medium term, which in itself can create problems in the longer run.

ECJ new recommendations on the initiation of preliminary ruling proceedings sends clear signal to UK Supreme Court that the Miller case must be referred

The Court of Justice of the European Union (CJEU) has published today a new set of Recommendations to national courts and tribunals, in relation to the initiation of preliminary ruling proceedings [2016] OJ C 439/1. This is a very timely document, which clarifies the circumstances under which a reference for a preliminary ruling can or must take place, as well as the basic parameters that those requests must meet in order to effectively enable the CJEU to issue preliminary rulings, including in cases requiring particularly expeditious handling.

In the context of the Brexit related litigation before the UK Supreme Court in the appeal of the High Court's Miller decision, these Recommendations are particularly timely and relevant. There has been a very intense discussion by distinguished legal scholars about the existence or not of an obligation to refer the case to the ECJ for interpretation of Article 50 TEU--and, in particular, in relation with the (ir)revocability of an Art 50(1) notice in view of Art 50(2) TEU. The positions are too wide to discuss here (see this very useful compilation of materials), and I hold the relatively minoritarian view that the UK Supreme Court is under an absolute and inexcusable obligation to request a preliminary ruling on the interpretation of Article 50 TEU.

I find additional support for my view and the underlying interpretation of the CILFIT test in para [6] of the CJEU's Recommendations, which very clearly indicates that:

Where a question is raised in the context of a case that is pending before a court or tribunal against whose decisions there is no judicial remedy under national law, that court or tribunal is nonetheless required to bring a request for a preliminary ruling before the Court (see third paragraph of Article 267 TFEU), unless there is already well-established case-law on the point or unless the correct interpretation of the rule of law in question admits of no reasonable doubt (emphasis added).

Para [3] is also relevant in its stress that:

The jurisdiction of the Court to give a preliminary ruling on the interpretation or validity of EU law is exercised exclusively on the initiative of the national courts and tribunals, whether or not the parties to the main proceedings have expressed the wish that a question be referred to the Court (emphasis added).

In my opinion, the CJEU has sent the clearest possible message to the UK Supreme Court: they expect a request for an interpretation of Article 50 TEU. And the UK Supreme Court will be well advised to do so as soon as possible, once all intervening parties have presented their arguments. Tertium non datur.

Cross-border joint public procurement: some reflections on the puzzling Art 39(2) Dir 2014/24

I gave a seminar on "The emergence of trans-EU public law: public procurement as a case study" yesterday at UEA Law School. My presentation (below) was largely based on this earlier paper of mine, where I discuss the new rules on centralised, joint and cross-border procurement in Directive 2014/24/EU (Arts 37-39). It also aimed to go beyond the technical aspects of the paper in exploring how these new mechanisms of cross-border cooperation between public buyers can help us identify the emergence of trans-EU public law, either of a substantive or 'conflict of laws' type.

The discussion eventually turned on Art 39(1)II Dir 2014/24, which states: "Contracting authorities shall not use the means provided in this Article [ie mechanisms of cross-border collaborative procurement] for the purpose of avoiding the application of mandatory public law provisions in conformity with Union law to which they are subject in their Member State."

This can be seen as an anti-circumvention clause aimed at ensuring that contracting authorities do not seek to disapply mandatory domestic rules by 'escaping' their jurisdiction through international collaboration--and, consequently, as a rule aimed at preserving the competential split between Member States and the EU in an area that arguably exceeds the procurement remit and goes to the core of the principle of national procedural and organisational autonomy.

However, participants in the seminar raised the point that it can also be seen as a 'Trojan horse' indicating further legal integration (and further regulation of these mechanisms in a future 6th iteration or generation of EU public procurement Directives) through the test of 'EU compatibility' of domestic mandatory public law provisions. I find this a very interesting thought, which is worth exploring in more depth. For now, I can only offer a few initial reflections.

From that perspective of 'EU law tests creeping into mandatory domestic public law requirements', and taking the example of free movement of goods, the question would be whether Art 39(1)II Dir 2014/24 does no more than recreate the mechanism of Art 36 TFEU--ie bring to the area of public procurement a 'public policy' (+ proportionality) test that mandatory public law requirements need to meet in order to justify the restriction on free movement that derives from preventing contracting authorities from resorting to enabling provisions for collaborative cross-border procurement. Or, on the contrary, whether it creates a separate test of 'EU law compatibility' that can actually go beyond what could be defended by Member States from a free movement of goods perspective by forcing an interpretation based on the effet utile of the rules in Dir 2014/24 itself--which would, almost by definition, result in more limited scope for absolute restrictions on the possibility to engage in collaborative cross-border joint procurement.

Either way, and having in mind recent cases on 'public policy' justifications for restrictions on free movement of goods, such as the DocMorris 2 case, it seems plausible that Art 39(1)II Dir 2014/24 may effectively be used in the future to demolish traditional public law requirements applicable to public procurement (such as subjection to domestic public contract law, language requirements, etc) on the basis that they disproportionately (or absolutely) restrict the possibility to engage in collaborative cross-border procurement.

For the purposes of the emergence of trans-EU public law, this would be a clear lever for the transformation of Member States' domestic public law requirements applicable to procurement activities, not least because internal market-type analysis would start being applied to public purchasing arrangements and their regulation in a different and possibly more stringent fashion.

So this is an area where I plan to keep an eye in the future and where I would appreciate input concerning any cases that may be developing at domestic level in the Member States. Either now or in the future.

Is the UK moving towards 'innovative small business' procurement set-asides? Would it be a desirable move?

PM Theresa May announced yesterday that the UK Government is to look at how its own public procurement can be used to drive innovation in small businesses that “not only spurs innovation in the public sector, [but] gives new firms a foot in the door”, as part of a review into the Small Businesses Research Initiative (SBRI). It is not clear what innovation in small businesses means, as it could both refer to technologically-innovative small businesses, or to diverse or new forms of small businesses (as part of social or economic innovation more generally).

It is worth noting that PM May indicated that the UK could follow the example of the US government, which concentrates its small business policy in the Small Business Administration (SBA) and the small business set aside of federal government contracts. This seems to indicate a preference for the second type of small business policy (ie a policy for diversity in small businesses, or in support of new business governance forms, on which see here).

In the US, the current, government-wide procurement goal stipulates that at least 23% of all federal government contracting dollars should be awarded to small businesses. This figure is further broken down into additional targeted sub-goals for: Women Owned Small Business (5%), Small Disadvantaged Business (5%), Service Disabled Veteran Owned Small Business (3%) and Historically Underutilized Business Zones (HUBZone) (3%). Notably, none of these set asides are technology-innovation driven, but rather aim to support targeted social groups through a reverse discrimination approach in the award of public contracts.

It is also possible that what PM May had in mind is closer to a policy to provide support for technological innovation-driven small businesses, particularly as she said the review would look at how they could “increase its impact and give more innovators their first break”. 

This is a policy that, even without the industrial policy pressures related to Brexit and its surrounding negotiations and attempts of political capture by economic interest groups, other political parties are seeking to explore in other EU countries. For example, in Spain, a proposal to introduce set-asides of 3% of public contracts for 'legally certified innovative SMEs' was floated recently (see criticism by Dr Pedro Telles and myself here). Thus, a certain trend seems to be emerging in the area of innovation oriented industrial policy, which seems to be the early 21st century hype.

One of the main hurdles to the creation of small business set asides in EU countries derives from EU public procurement law itself, which simply bans this option. Further, the EU's negotiating position in international procurement treaties, and in particular in the WTO Government Procurement Agreement (GPA), have locked in an anti-SME set-aside policy approach (as discussed by K Dawar and M Skalova, 'The Evolution of EU Public Procurement Rules and its Interface with WTO: SME Promotion and Policy Space' in GS Ølykke & A Sanchez-Graells, Reformation or Deformation of the EU Public Procurement Rules (Elgar, 2016)]. 

For the UK, then, the prospect of Brexit may change the legal situation and open the door to an unrestricted 'innovative small business' set-aside policy. But this would only be possible provided the UK exited the single market and resiliated the EU's WTO GPA commitments and negotiating position regarding SME set-asides. This does not seem a likely, and indeed is not a desirable scenario, so the exploratory policy announcement made by PM May may well result in no relevant policy after all. In any case, and more importantly, before aiming to the develop such a policy, the UK would be well advised to think hard about this and try to gain a more sophisticated understanding of the US' system.

Far from the rosy picture painted by PM May and others, the US federal government's set-aside programme is permanently criticised for the opacity of its direct and indirect costs to the tax payer [very clearly, see [AG Sakallaris, ‘Questioning the Sacred Cow: Reexamining the Justifi cations for Small Business Set Asides’ (2006–2007) 36 Public Contract Law Journal 685; and K Loader, ‘The Challenge of Competitive Procurement: Value for Money versus Small Business Support’ (2007) 27 Public Money and Management 307].

The system has clear explicit costs in terms of its administration and the litigation ensuing classifications of businesses as small or not (or innovative or not) in the first place. Additionally, and simply put, the main implicit cost of a small business set-aside programme, be it for innovative enterprises or of a general nature, is that it reduces competition for public contracts, and the reduction of competition resulting from this artificial division of the market comes at a cost in terms of potential higher contract prices as well as reduced incentives for innovation for non-small businesses [generally, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 60-77]. Thus, this is a very expensive system to run and, in a scenario of ever stronger competing pressures for public funds, legitimate questions can be raised about its desirability.

Moreover, already under the existing UK and EU rules, there are plenty opportunities to engage in a small business friendly management of public procurement without creating set aside programmes (see, for instance, the work of the Procurement of Innovation Platform). Providing better access to public procurement for small businesses has the advantage of making the process more accessible to all interested bidders and, in the end, has the potential of unlocking stronger competition for public contracts. This, of course, is also not a cost-free policy and it requires investment in training and skills in the public sector. However, this is bound to be a much more productive investment in the long run.

Overall, then, following PM May's announcement of the inclusion of government procurement in the innovation review, in my opinion, the best path to follow is to think seriously about how public procurement law can really be simplified and transformed in a way that benefits from technological development and with a view of closing the shortage of skills and human resources in the public sector. This is something that can and should be done independently of Brexit, and which can benefit every public procurement system (for my general ideas, see here). Conversely, starting a path of creation of set asides--and, more generally, the emerging policy of piecemeal deals to appease specific business interests--is only bound to leave the UK taxpayer worse off, Brexit or no Brexit (but particularly in the event of Brexit).

ECJ backs up tough Italian approach to exclusion of non-payers of social security contributions -- will this carry on under Directive 2014/24? (C-199/15)

In its Judgment of 10 November 2016 in Ciclat, C-199/15, EU:C:2016:853 (only in FR and IT), the European Court of Justice (ECJ) has issued a preliminary ruling concerning the compatibility with the pre-2014 EU public procurement rules (Dir 2004/18) of a set of Italian rules that mandates the exclusion of undertakings that have been found to have gravely failed to meet all their social security obligations at the time of the tender, and irrespective of any subsequent regularisation of the situation prior to the award of the contract, or even prior to the assessment of that situation by the contracting authority.

According to the relevant Italian rules, contracting authorities must exclude undertakings that have been definitively found to have committed serious offences regarding the payment of social security contributions in accordance with Italian legislation or that of the State in which they are established (C-199/15, para 8, own translation from French). The only tolerance against this ground of mandatory exclusion is that an offence against the social security will not be considered grave where the difference between the sums owed and those paid does not exceed EUR 100 and is less than 5% of the sums owed (C-199/15, para 11, own translation from French). 

The Ciclat case can be seen as a twin of the previous Judgment of 10 July 2014 in Consorzio Stabile Libor Lavori Pubblici (C-358/12, EU:C:2014:2063) where the ECJ assessed the compatibility with EU law of the same Italian rules for the exclusion of undertakings that have committed serious offences against the social security of their country of establishment, but in the context of the procurement of contracts below the EU thresholds. In that case, the ECJ considered that the Italian rule was compatible with Articles 49 TFEU and 56 TFEU and the principle of proportionality. Equally and unsurprisingly, in Ciclat, the ECJ has determined that

Article 45 of Directive 2004/18 ... does not preclude national legislation ... which obliges contracting authorities to consider as grounds for exclusion an offense in relation to the payment of social security contributions, which is established in a certificate automatically requested by the contracting authority and issued by the social security institutions, where such infringement existed at the date of participation in a tender, even if it no longer existed on the date of the award of the contract or that of the automatic control by the contracting authority (C-199/15, para 40, own translation from French). 

Despite not advancing EU public procurement law in any relevant way, the Ciclat Judgment can be criticised on two accounts.

First, because the ECJ ducked a relevant question of reverse discrimination due to the different documentary rules applicable to Italian companies (which were subject to the stringent system of automatic certification by the social security administration that gave rise to the case), whereas non-Italian EU tenderers could benefit from the greater flexibility of self-certification (see C-199/15, paras 38-39). At some point, the ECJ will have to stop avoiding problematic issues of reverse discrimination and start constructing a better line of case law that is more attuned to the needs of undertakings competing in an internal market.

Second, the Ciclat Judgment can be criticised for its excessive rigidity. Not only due to the lack of consideration of the very low threshold amounts of tolerance for unpaid social security contributions (or taxes)--which was already the position after Consorzio Stabile Libor Lavori Pubblici--but also due to the irrelevance given to an effective remediation of the infringement by the tenderer, which goes against trends aimed at facilitating substantial compliance and corporate (voluntary) self-cleaning. 

However, this second criticism may seem as not really relevant from a practical perspective in view of the greater flexibility that Article 57(2) Dir 2014/24 has introduced if compared with Art 45 Dir 2004/18 (see discussion here). Indeed, under the 2014 rules, exclusion on the basis of an infringement of social security law (or tax law), even if the infringement has been established by a judicial or administrative decision having final and binding effect in accordance with the legal provisions of the country in which it is established, this exclusion ground will cease to apply where "the economic operator has fulfilled its obligations by paying or entering into a binding arrangement with a view to paying the taxes or social security contributions due, including, where applicable, any interest accrued or fines."

But a close consideration of this provision shows that the moment in which consideration must be paid by the contracting authority to the remedial action taken by the tenderer that was initially found to infringe social security (or tax) law is not specified, and therefore left to the national implementing conditions adopted in each Member State on the basis of Art 57(7) Dir 2014/24. Thus, a possible reading of Ciclat would be to consider that it is compatible with EU procurement law to establish the last date for the submission of tenders as the cut-off date for the assessment of compliance with (or remedy of an infringement of) social security (and tax) law--to the exclusion of any remedial action taken before the contracting authority evaluates the tenders, or even before the contracting authority actually assesses compliance with exclusion and selection criteria. In my view, that would deprive the new rules in Art 57(2) [and, for the same reasons, in Art 57(6) on self-cleaning] of practical effect.

Consequently, the Ciclat Judgment keeps adding reasons to the need to establish a special inter partes procedure where the contracting authority gives a chance to the undertaking to clarify its current situation of compliance or not with social security (and tax) requirements [but, more generally, in relation to any exclusion ground the contracting authority aims to enforce] before proceeding to its effective exclusion. This is not only a practical need, but a requirement derived from the general principles in the EU public procurement Directives and, more generally, the duty of good administration of Art 41 of the Charter of Fundamental Rights of the European Union. Fur further discussion of this important issue, see A Sanchez-Graells, "If it Ain't Broke, Don't Fix It’? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts", to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming.

Why an appeal of the High Court Parliamentary approval Brexit judgment will bring the litigation to the cjeu?

The High Court has today issued its Judgment in the dispute about the UK Parliament's necessary approval of a Brexit notification--see R (Miller) -V- Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin). It has ruled that such Parliamentary approval is indeed required as a matter of UK constitutional and public law. The Government has already announced that it will appeal this decision to the UK Supreme Court (UKSC). The implications of such an appeal are important and need to be carefully considered. One such possible consequence is that the appeal (indirectly) brings the case to the docket of the  Court of Justice of the European Union (CJEU).

In my view, an appeal of the High Court's Judgment before the UKSC will indeed trigger a legal requirement under EU law for the UKSC to send a reference for a preliminary ruling to the CJEU. I have rehearsed most of my arguments on twitter earlier (see here and here) and this posts brings them together.

Basic EU Law Background

Article 267(1)(a) TFEU establishes the monopoly of interpretation of the CJEU and it indicates the Court shall have jurisdiction to give preliminary rulings concerning the interpretation of the Treaties. Article 267(2) then goes on to enable the domestic courts of the Member States to issue request preliminary rulings from the ECJ where questions of interpretation of EU law are raised before them and they consider that a decision on the question is necessary to enable them to give judgment. However, that discretion of domestic courts to request preliminary rulings from the CJEU does not apply to the courts or tribunals of a Member State against whose decisions there is no judicial remedy under national law. In that case, Article 267(3) indicates that where a question on the interpretation of EU law is raised, the highest court  shall bring the matter before the CJEU.

The uncertainties surrounding the interpretation of Art 50 TEU before the High Court

One of the extremely complex issues concerning the UK's potential withdrawal from the EU following the Brexit vote of 23 June 2016 concerns the interpretation of Article 50 TEU (on this, see here). One of the difficult sub-questions concerns the (ir)reversibility of an Art 50 TEU trigger notification. This is an essential element for an assessment of the UK's constitutional requirements for the delivery of such notification, as the High Court's Judgment makes clear.

Indeed, as a preliminary issue, in today's Judgment, the High Court has addressed the problematic interpretation of Art 50 TEU. Unanimously, the High Court has indicated that "Important matters in respect of Article 50 were common ground between the parties: (1) a notice under Article 50(2) cannot be withdrawn once it is given ..." para [10]; and that "Once a notice is given, it will inevitably result in the complete withdrawal of the United Kingdom from membership of the European Union and from the relevant Treaties at the end of the two year period, subject only to agreement on an extension of time ..." para [11].

There are two ways of interpreting the High Court's dealing with the argument on irreversibility of an Art 50 notification. First, that the High Court takes this approach in para [11] because it is common ground between the parties ex para [10]--what I would call the UK procedural approach. Second, that the High Court has of its own interpreted an Art 50 notification to be irreversible ex para [11], which happens to align with the common position of the parties in para [10]--what I would call the EU substantive interpretation approach.

The UK procedural approach is saved by the High Court's discretion under Art 267(2) TFEU to consider that the interpretation of Art 50 TEU is actually not necessary for it to adjudicate the matter at hand because this is not part of the controversy between the parties. However, the EU substantive interpretation does trigger some issues because, having recognised the interpretation of Art 50 TEU as an important aspect for the adjudication of the case, the High Court should not have taken it upon itself to interpret it and should rather have requested a preliminary ruling from the CJEU. However, unless under a very expansive interpretation of the principle of sincere or loyal cooperation in Art 4(3) TEU, this does not amount to a breach of EU law.

The uncertainties surrounding the interpretation of Art 50 TEU before the UK Supreme Court

Now, in case of an appeal of the High Court's decision before the UKSC, in my opinion, the referral to the CJEU is legally unavoidable (I will not deal for now with arguments of judicial politics or pragmatic views on the UKSC's likely course of action). Even if the parties do not challenge or even raise to the UKSC's consideration the matter of the (ir)reversibility of and Article 50 notification, it is a logical given that the UKSC needs to take a stance (even if implicit) on this point in order to be able to rule on the case. If it quashes the High Court's decision, it needs to clarify the points of law which the High Court would have gotten wrong--one of which concerns the irrevocability of an Art 50 notification. if it upholds the High Court's decision, it is (implicitly) accepting the assumption that an Art 50 notification is irrevocable. Either way, the UKSC cannot escape a substantial (implicit) consideration of the interpretation of Article 50.

In my view, this engages the UKSC's obligation to request a preliminary ruling from the CJEU under Article 267(3) TFEU and not doing so triggers a risk of infringement of EU law by the UK due to the acts (or omission, in this case) of its highest court.

Semi-Advanced EU Law Background

The UKSC's obligation to request a preliminary reference from the CJEU is controlled by the so-called CILFIT test, which establishes that "a court or tribunal against whose decisions there is no judicial remedy under national law is required, where a question of [EU] law is raised before it, to comply with its obligation to bring the matter before the Court of Justice, unless it has established that the question raised is irrelevant or that the [EU] provision in question has already been interpreted by the Court or that the correct application of [EU] law is so obvious as to leave no scope for any reasonable doubt. The existence of such a possibility must be assessed in the light of the specific characteristics of [EU] law, the particular difficulties to which its interpretation gives rise and the risk of divergences in judicial decisions within the [EU]" (283/81, EU:C:1982:335, para 21).

What does this mean for the UKSC in the Brexit litigation in case of appeal?

In short, my understanding of the CILFIT test is that a highest court of a Member State (the UKSC) must request a preliminary ruling on the interpretation of the Treaties to the CJEU and has no discretion not to do so unless: (a) the question is (objectively) irrelevant for the adjudication of the case, or (b) the provision has already been interpreted by the CJEU, or (c) there is no scope for reasonable doubt in the interpretation of the provision. None of these apply in the specific case of the Article 50 litigation.

First, it is inconceivable to me to argue that the interpretation of Art 50 and the (ir)revocability of a notice under it is irrelevant for the adjudication of this case. A different issue would be whether the UKSC could pragmatically sidestep the need to engage in that interpretation, either by presuming its content (the EU substantive interpretation approach mentioned above), or by insisting on the fact that it is common ground to the parties to the litigation and, therefore, the issue of the (ir)revocability of the notification is not (formally, explicitly) raised before it (the UK procedural approach.

However, in my opinion, neither of these avoidance strategies would meet the basic requirements of good faith in the interpretation of the CILFIT test, coupled with Article 4(3) TEU, which requires the domestic court to assess the need to request a preliminary ruling "in the light of the specific characteristics of [EU] law, the particular difficulties to which its interpretation gives rise and the risk of divergences in judicial decisions within the [EU]". The interpretation of Article 50 TEU is, to put it simply, the most relevant EU constitutional law issue since the OMT litigation and one of the top, if not the top, EU constitutional law issue since the entry into force of the Lisbon Treaty. Engaging in semantics in the analysis of the first prong of the CILFIT test against this background (ie, stretching the narrow interpretation "irrelevant") seems to me logically and legally unacceptable.

Second, it is plain that Art 50 has not been interpret by the CJEU yet. And, thirdly, it is also plain that there is scope (massive scope, a gaping hole) for reasonable doubt in the interpretation of Article 50 TEU. Thus, the so-called acte claire doctrine (ie the counterbalance of the CILFIT test) simply does not apply here.

Overall, in my opinion, the UKSC has an absolute and inexcusable obligation to request a preliminary ruling on the interpretation of Article 50 TEU from the CJEU the moment the appeal against the High Court's Judgment (eventually) reaches its docket. Otherwise, the UKSC risks triggering an infringement of EU law and eventually creating liability in damages under the Kobler / Traghetti del Mediterraneo strand of case law on State liability. Again, I am not dealing with the arguments on the likelihood of an actual infringement case brought forward by the European Commission, or the CJEU's eventual decision. I am, for now, simply stressing the state of EU law, which the UKSC would be well advised to bear in mind and uphold, unless it aims to contribute to the deterioration of the rule of law in the UK and the EU (which is something that keeps me awake at night).


In its Judgment of 27 October 2016 in Hörmann Reisen, C-292/15, EU:C:2016:817, the European Court of Justice (ECJ) addressed an issue of growing importance regarding subcontracting arrangements in public procurement, as well as contracting authorities' ability not only to monitor them, but also exclude them.

In Hörmann Reisen, the ECJ was required to assess the compatibility with EU law of a requirement that the main contractor performed a major part of a public passenger transport services itself--or, in other words, a limitation on the acceptable volume of subcontracting for the execution of a given public services contract to 30% of its total value. This was challenged both on the grounds that the limitation itself was illegal and that, in any case, a quantitative restriction of subcontracting was not adequate to ensure that the main contractor performed a major part of the services itself.

It is worth stressing that, as a starting point, the analysis of the ECJ was carried out on the basis of the special procurement rules for the transport sector in Regulation 1370/2007/EC, which Art 4(7) establishes that

Tender documents and public service contracts shall indicate, in a transparent manner, whether, and if so to what extent, subcontracting may be considered. If subcontracting takes place, the operator entrusted with the administration and performance of public passenger transport services in accordance with this Regulation shall be required to perform a major part of the public passenger transport services itself.

As Advocate General Sharpston indicated in her Opinion (C-292/15, EU:C:2016:480), this would seem to cover a straightforward (value) limitation of the subcontractable services. However, the case was complicated by the fact that it was for the provision of bus services, to which Reg 1370/2007 does not entirely apply. Under its Article 5(1),

Public service contracts shall be awarded in accordance with the rules laid down in this Regulation. However, service contracts or public service contracts as defined in Directives 2004/17/EC or 2004/18/EC for public passenger transport services by bus or tram shall be awarded in accordance with the procedures provided for under those Directives where such contracts do not take the form of service concessions contracts as defined in those Directives. Where contracts are to be awarded in accordance with Directives 2004/17/EC or 2004/18/EC, the provisions of paragraphs 2 to 6 of this Article shall not apply.

In short, then, contracts for the provision of bus and tram services that do not constitute services concessions are to be awarded in compliance with the general procurement rules. In the Hörmann Reisen case, due to the fact that the tender took place in 2015, it still had to be carried under Directive 2004/18/EC--but the issues raised by the case are relevant because, since 18 April 2016, these contracts must now be awarded under Directive 2014/24/EU (regardless of domestic transposition or lack thereof). It is also important to stress that, a contrario, concessions for the provision of bus and tram services are solely subjected to the rules of Reg 1370/2007 and explicitly excluded from the scope of application of Directive 2014/23/EU (see Art 10(3) thereof).

The first clarification required from the ECJ in the Hörmann Reisen Judgment concerned whether Art 5(1) Reg 1370/2007 excluded the application of Art 4(7) of the same regulation to the award of bus and tram service contracts due to their subjection to Directive 2004/18. In that regard, the ECJ clearly indicated that

41 ... for the purposes of the award of a contract for public passenger transport services by bus ... solely the provisions of Article 5(2) to (6) of Regulation No 1370/2007 are not to be applied, whereas the other provisions of that regulation remain applicable.
42 ... Article 4(7) of Regulation No 1370/2007 applies in the event of the award of a contract for public passenger transport services by bus coming within the scope of Article 5(1) of that regulation (C-292/15, paras 41-42, emphasis added).

That is important because the approach to subcontracting in Reg 1370/2007 and in the general procurement rules was diametrically opposed. While Reg 1370/2007 aims to restrict or even completely exclude the possibility to subcontract, the scant rules in Art 25 Dir 2004/18 were, if anything, facilitative of subcontracting. It must be borne in mind that the ECJ had itself pushed for such facilitation in Siemens and ARGE Telekom (C-314/01, EU:C:2004:159), where it indicated that the general procurement rules did

... not preclude a prohibition or a restriction on the use of subcontracting for the performance of essential parts of the contract precisely in the case where the contracting authority has not been in a position to verify the technical and economic capacities of the subcontractors when examining the tenders ... (C-314/01, para 45).

It, however, declared that a complete ban on subcontracting would not be compatible with the general EU procurement rules inasmuch as it prevented a service provider from relying on the resources of entities or undertakings with which it is directly or indirectly linked; or, in other words, "[a] tenderer claiming to have at its disposal the technical and economic capacities of third parties on which it intends to rely if the contract is awarded to it may be excluded only if it fails to demonstrate that those capacities are in fact available to it" (C-314/01, para 46). Therefore, the prohibition on subcontracting was limited to a prohibition on post-award (unchecked) subcontracting, but did not allow for the exclusion of service providers on the basis that they would not carry out the entirety of the contract themselves.

In Hörmann Reisen, the ECJ saves the open incompatibility of approaches between Reg 1370/2007 and Dir 2004/18 as follows:

46 ... it should be noted that Directive 2004/18 ... is of general application, whereas Regulation No 1370/2007 applies only to public passenger transport services by rail and road.
47      In so far as both Article 4(7) of that regulation and Article 25 of Directive 2004/18 ... contain rules on subcontracting, the view must be taken that the first provision constitutes a special rule with respect to the rules laid down in the second provision, and, as a lex specialis, takes precedence over the latter (C-292/15, paras 46-47, emphasis added).

This simplified things under Dir 2004/18. However, the relevant question now is whether the same lex specialis derogat generalis approach is desirable or indeed suitable for the coordination of the rules of Reg 1370/2007 with Dir 2014/24, which is required since 18 April 2016. There are a few important points to note concerning the new rules on subcontracting in Dir 2014/24.

Firstly, the ARGE case law concerning the illegality of a prohibition of subcontracting on the basis that it deprived the rules on reliance on third party capacities from effectiveness has now been partially modified in Art 63(2) Dir 2014/24. According to this rule,

In the case of works contracts, service contracts and siting or installation operations in the context of a supply contract, contracting authorities may require that certain critical tasks be performed directly by the tenderer itself or, where the tender is submitted by a group of economic operators as referred to in Article 19(2), by a participant in that group.

This does not deactivate the ARGE case law entirely and the scope of the provision will crucially rest on the future interpretation of what are 'critical tasks', which I consider needs to be subjected to a restrictive interpretation and a strict proportionality analysis. I have criticised this rule elsewhere and for other reasons [A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 315 and ff] but, in terms of coordination between Reg 1370/2007 and Dir 2014/24, Art 63(2) Dir 2014/24 seems to offer the perfect fit for the requirement in Art 4(7) Reg 1370/2007 to be imposed without restrictions. In other words, had the Hörmann Reisen case been subjected to Dir 2014/24, I think the ECJ would have no need whatsoever to create a lex specialis argument, which makes me wonder if this was the best approach overall (at least from a strategic point of view).

Secondly, it should be borne in mind that the limited rules of Art 25 Dir 2004/18 have been significantly expanded in Art 71 Dir 2014/24 on subcontracting, mainly with the purpose of both strengthening the contracting authorities' power to assess subcontracting arrangements where these are allowed and planned to take place, as well as to improve the legal position of subcontractors vis-a-vis the contracting authority (which now could, in specific circumstances, bypass the main contractor in order to ensure compliance with relevant obligations--notably, direct payments). Here, an incompatibility of the additional rules with Art 4(7) Reg 1370/2007 seems difficult to identify.

Thus, in my view, the Hörmann Reisen Judgment needs to be read in a minimalist fashion and construed to simply indicate that the general procurement rules cannot prevent a contracting authority that awards (non-concession) contracts for the provision of bus and tram services from prohibiting subcontracting or, in other words, requiring the transport operator from discharging all contractual obligations directly and in full--that is, they may come to deactivate a strict interpretation of Art 63(2) Dir 2014/24 in the transport sector only. Similarly, the Hörmann Reisen Judgment can be seen to dictate that general procurement rules  cannot alter the way in which a contracting authority in the transport sector that allows for subcontracting imposes restrictions so as to ensure that the operator entrusted with the administration and performance of public passenger transport services performs a major part of the public passenger transport services itself. However, I would not consider it a proper reading to exclude the applicability of the remainder of the rules in Art 71 of Dir 2014/24, notably because they do not seem incompatible with Art 4(7) Reg 1370/2007.


NHS England [On-going] Consultation on management of conflicts of interest

Following the National Audit Office (NAO) 2015 Report on Managing conflicts of interest in NHS clinical commissioning groups, which led to a revision of NHS England's Statutory guidance on managing conflicts of interest for clinical commissioning groups in June 2016, it is interesting to note that the on-going [closes on 31 October] public consultation on the broader issue of Managing conflicts of interest in the NHS includes a section on conflicts of interest in procurement.

The management of conflicts of interest in procurement is an interesting area of growing practical relevance, but also one where the law applicable to the activities of NHS England is increasingly complex and in need of consolidation (see the main findings of a recent research project I carried out at the University of Bristol Law School here). In that context, the adoption of additional guidance seems appropriate, although it should be carefully designed to ensure that it does not conflict with mandatory legal requirements.

The Managing conflicts of interest in the NHS consultation document is interesting in many aspects and puts forward a rather specific and quite polished view of the need to increase the transparency of both the rules and the decisions concerning the management of conflicts of interest across the activities of the public health system in England. However, it also contains some principles and rules which, in my view, could be improved and I hope that they will be revised as a result of the public consultation. With that aim, I have submitted a response to the consultation, which I am happy to share with anyone interested via email ( I would also encourage anyone with a couple of hours to spare to contribute to the public consultation before it closes on Monday.

I will write again about this once the final recommendations of the Task and Finish Group of experts are published.