The end of procurement as we knew it? CJEU consolidates Falk Pharma approach to definition of procurement in Tirkkonen (C-9/17)


In its Judgment of 1 March 2018 in Tirkkonen, C-9/17, EU:C:2018:142, the Court of Justice of the European Union (CJEU) had to assess whether a scheme with the following characteristics had to be classed as a framework agreement and thus subjected to the EU procurement rules (at the relevant time, Directive 2004/18/EC, now repealed by Directive 2014/24/EU).

The scheme was as follows: the Finnish Agency for Rural Affairs (contracting authority, or Agency) had to manage the provision of agricultural advisory services to farmers and land managers having entered into an environmental agreement concerning the payment of environmental compensation payments. The Agency designed a draft contract for the provision of agricultural advisory services that potential suppliers had to adhere to as a condition for their participation in the scheme as service providers. The draft contract foresaw an hourly rate for the retribution of the services, which was to be covered by the Agency, with the beneficiary farmer or land manager paying the applicable VAT. The Agency would create a pool of potential suppliers amongst those qualified that had expressed interest and passed an examination. Once this pool was created, no other providers would be able to join the scheme for the period 2015-2020. Farmers and land owners require the services of any of the advisors included in the scheme.

In deciding the case, the CJEU reiterated that 'the choice of a tender and, thus, of a successful tenderer, is intrinsically linked to the regulation of public contracts by [Directive 2004/18] and, consequently, to the concept of "public contract" within the meaning of Article 1(2) of that directive'. Further, the CJEU extracted the implication 'that the fact that the contracting authority does not designate an economic operator to whom contractual exclusivity is to be awarded means that there is no need to control, through the detailed rules of Directive 2004/18, the action of that contracting authority so as to prevent it from awarding a contract in favour of national operators' (C-9/17, paras 30-31). By stressing that procurement requires the contracting authority to choose the economic operator meant to provide the relevant supplies, services or works, the CJEU concluded that, in the case at hand, 'a farm advisory scheme ... through which a public entity accepts all the economic operators who meet the suitability requirements set out in the invitation to tender and who pass the examination referred to in that invitation to tender, even if no new operator can be admitted during the limited validity period of that scheme, does not constitute a public contract within the meaning of that directive' (C-9/17, para 41).

In formulating this position, the CJEU largely followed the approach suggested by AG Campos Sanchez-Bordona (criticised here) and consolidated the restrictive approach to the definition of procurement the CJEU itself had first formulated in Falk Pharma (C-410/14, EU:C:2016:399; also criticised here). In doing so, the CJEU has further jeopardised the effectiveness of EU public procurement law beyond the initial dent made by Falk Pharma. Tirkkonen concerned a factual situation clearly subsumable within the concept of a framework agreement that involved exclusion of potential competing providers of services for a period of 5 years--whereas Falk Pharma concerned an open-ended system where entry by new providers was possible, which made its classification within the concept of dynamic purchasing system perhaps less straightforward (although not really). This makes Tirkkonen a Judgment even more troubling than Falk Pharma. Given that the CJEU relied on Directive 2014/24 in Falk Pharma, even if Tirkkonen does not mention it in its operative part, it seems that this restrictive approach is now clearly consolidated for the foreseeable future and that it will impose a restrictive approach to the concept of procurement in the future. For the reasons discussed below, I find this development regrettable.

Excessively narrow concept of procurement--Choice obsession

The CJEU has not placed center-stage the requirement for the contracting authority to choose 'tender and, thus, ... a successful tenderer ... to whom contractual exclusivity is to be awarded' (presumably, solely, or within a framework agreement), but rather idolatrised it and put it in a high pedestal from which it can only fall in the future.

The CJEU has forced this position to the extreme of potentially creating further confusion about the distinction between selection and award criteria concerning professional qualifications and expertise of the members of staff involved in the future provision of services--thus potentially reigniting the discussion of the interaction between Lianakis and Ambisig (see here). This emerges from the exceedingly formal reasoning followed by the CJEU in Tirkkonen, where the CJEU was at pains to avoid classifying the

... it is apparent ... that the Agency intends to set up a large pool of advisers who must fulfil a number of conditions. However, in so far as the Agency admits all the candidates who satisfy those requirements, it is clear ... that it makes no selection among the admissible tenders and that it confines itself to ensuring that qualitative criteria are respected.

... the fact that, unlike the context that gave rise to ... Falk Pharma ... a farm advisory scheme ... is not permanently open to interested economic operators is irrelevant. In the present case, the decisive factor is that the contracting authority has not referred to any award criteria for the purpose of comparing and classifying admissible tenders. In the absence of that factor, which is, as is apparent from paragraph 38 of ... Falk Pharma ..., intrinsically linked to the regulation of public contracts, a farm advisory scheme ... cannot constitute a public contract within the meaning of Article 1(2)(a) of Directive 2004/18.

Furthermore, ... even if the verification of the tenderers’ suitability and the award of the contract are carried out simultaneously, those two operations must be regarded as two different operations governed by different rules ...

Accordingly, criteria that are not aimed at identifying the tender which is economically the most advantageous, but are instead essentially linked to the evaluation of the tenderers’ suitability to perform the contract in question, cannot be regarded as ‘award criteria’. Criteria relating mainly to the experience, qualifications and means to ensure the proper performance of the contract concerned were considered to relate to the suitability of tenderers to perform that contract and not as ‘award criteria’, even though the contracting authority had classified them as such ...

Finally, that conclusion is in no way affected by the solution adopted in ... Ambisig ..., in which the Court pointed out, in essence, that the skills and experience of the members of the team assigned to performing the public contract may be included as award criteria in the contract notice or in the tender specifications, in so far as the quality of the performance of a contract may depend decisively on the ‘professional merit’ of the people entrusted with its performance, which is made up of their professional experience and background, particularly where the contract covers the provision of services of an intellectual nature and relates to training and advisory services.

That assessment must, however, be understood ... in the light of the contracting authority’s choice of the tender which it intended to accept from several admissible tenders. In so doing, unlike the case at issue in the main proceedings, the contracting authority, in ... Ambisig ... made a real comparison of the admissible tenders in order to identify the most economically advantageous tender. In the latter case, the experience of the proposed technical team was an intrinsic feature of the tender and was not merely a criterion for assessing the tenderers’ suitability.

It follows from the foregoing considerations that the requirements set out in the invitation to tender published by the Agency cannot constitute award criteria within the meaning of Directive 2004/18 (C-9/17, paras 33, 35-40, references omitted and emphases added).

The CJEU certainly takes an extremely formal view here, in particular because the nature of the scheme was such that potential suppliers were to offer homogeneous or equally economically advantageous tenders, given that the Agency had predefined the parameters of the provision of the services. In that regard, the contracting authority did not 'confine itself to ensuring that qualitative criteria were respected', but rather established all applicable requirements in such a way that tenderers were faced with a 'take it or leave it' set of conditions for their offers. It can thus be argued that in this case the involvement of the contracting authority was even more intense than in the context of previous cases, such as Ambisig, in that the contracting authority had even more control of the content of the future contracts.

As I already mentioned when criticising the AG Opinion (see here), this approach misunderstands how framework agreements work. Both frameworks that involve mini-competitions, where the conclusion of the framework agreement does not imply any specific choice of tender because its conditions are subject to the result of the mini-competition prior to call-off (see Art 32(4)II second indent, and now Art 33(4)(b) and (c) Dir 2014/24); as well as frameworks that already set all conditions for future call-offs without any further mini-competition, where all conditions of what constitutes the most economically advantageous tender are set at the point of concluding the framework agreement (see Art 32(4)II first indent, and now Art 33(4)(a) Dir 2014/24). Functionally, the choice-centric reasoning of the CJEU manages to be at odds with both types of framework agreements, which could be seen as incompatibly covered by a Tirkkonen-compliant interpretation of the relevant rules.

Excessively narrow goals of EU procurement law

From a broader perspective, the CJEU Judgment in Tirkkonen can also be criticised by adopting a very narrow understanding of the goals of EU public procurement law strictly based on the prevention of discrimination on the basis of nationality. This is at odds with the significant case law that stresses the importance of competition considerations in procurement.

Since its emergence in CJEU case law over twenty-five years ago (see Commission v Denmark (Bridge over the Storebaelt), C-243/89, EU:C:1993:257, para 33), the principle of competition has progressively acquired central relevance in the field of public procurement. This evolution has generally been framed by the Court as a clarification of the main goal of the successive generations of EU public procurement rules. In one of its latest formulations, the CJEU has emphasised that ‘the main objective of the rules of EU law in the field of public contracts [is] the free movement of goods and services and the opening-up of undistorted competition in all the Member States’ (see Undis Servizi, C-553/15, EU:C:2016:935, para 28). The CJEU has also recently stressed that ‘the EU rules on public procurement were adopted in pursuance of the establishment of a single market, the purpose of which is to ensure freedom of movement and eliminate restrictions on competition’ (Lloyd's of London, C-144/17, EU:C:2018:78, para 33).

Therefore, from a systemic perspective, limited doubt can be cast on the competition-orientatedness of the EU public procurement rules [see eg C Bovis, ‘The Regulation of Public Procurement as a Key Element of European Economic Law’ (1998) 4(2) European Law Review 220; R Caranta, I contratti pubblici, 2nd edn (Turin, Giappichelli, 2012) 20; for extended discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015)]. And yet, in Tirkkonen the CJEU is inconsistent in recognising the importance of the principle of competition in drawing the boundaries of EU public procurement law. Its goal is not solely to prevent discrimination on the basis of nationality, or otherwise, but to ensure that contracting authorities benefit from the outcomes that undistorted competition for public contracts generates. In that regard, it seems clear that a recognition of the broader competition goal of EU public procurement law would have required the CJEU to assess whether the decision-making process underlying the Tirkkonen case was potentially unduly restrictive of competition--which it was, given the harshness of the exclusion decision--which would have forced the Court to recognise the relevance of applying EU public procurement law to curve such type of publicly-created distortions of competition [for a proposal on how to operationalise such a test, see A Sanchez-Graells, 'Some Reflections on the 'Artificial Narrowing of Competition' as a Check on Executive Discretion in Public Procurement', in S Bogojević, X Groussot & J Hettne (eds), Discretion in EU Public Procurement Law, IECL Series (Oxford, Hart, forthcoming)].

Excessive leeway for 'strategic design' going forward -- Need to reinvent the wheel?

The Tirkkonen case is not solely problematic from a conceptual and a normative perspective, as discussed above, but also from a practical standpoint. As already mentioned when criticising the AG Opinion, on the whole, as a result of the cumulative effect of Tirkkonen and its expansion of the Falk Pharma doctrine, Member States willing to avoid compliance with EU public procurement rules could now easily do so by creating systems of ‘user/beneficiary choice’ whereby contracting authorities create the entire 'choice architecture' and the underlying contractual mechanisms, but defer the choice of the specific provider to the user (patient, in Falk Pharma, aid beneficiary, in Tirkkonen). This could be quite problematic particularly in the context of services and supply contracts, where the existence of end users detached from the contracting authority can enable this type of mechanisms.

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

I was already concerned that Falk Pharma was eroding the scope and effectiveness of the EU public procurement rules, but Tirkkonen could magnify such undesirable effect. Moreover, this would simply displace the problem towards general EU free movement law, which is not a sensible approach in view of the more developed criteria and rules in the EU public procurement framework. There may now be a need to reinvent the wheel and 'export' to general internal market law the more sophisticated mechanisms developed in the area of EU public procurement law, which seems like a significant waste of effort. It may well be that all of this takes us full circle, but it will certainly take time and the legal uncertainty involved in the process cannot be productive.

Some may argue that this is the spillover of the CJEU's increasing deference to the Member States in the area of procurement. This is certainly something that requires some further thought. Based on conversartions with some colleagues, maybe we will manage to organise a conference in this topic in the next couple of years. Watch this space.