** This comment was first published as an Op-Ed for EU Law Live on 8 December 2022 (see formatted version). I am reposting it here in case of broader interest. **
On the face of it, in Infraestruturas de Portugal and Futrifer Indústrias Ferroviárias (C-66/22), the Court of Justice had to assess whether Member States can limit the exclusion of competition law violators from participation in tenders for public contracts to cases where the national competition authority has previously imposed such debarment as an ancillary penalty. While this is a plausible transposition approach that seeks to centralise competition law analysis under the control of the specialist administrative authority, it can also reduce the effectiveness of procurement mechanisms seeking to preserve (much needed) competition for public contracts. It is thus fair enough to test the boundaries of the discretion that contracting authorities can retain in this context. However, in Infraestruturas, the Court of Justice did two other things that are potentially significant beyond the narrower field of procurement governance. First, the Court reversed its previous case law and established that Member States are (no longer) allowed not to transpose discretionary exclusion grounds. This says something (but I am not too sure what) about the more general level of discretion that Member States retain in the transposition of (prescriptively worded) Directives into their national systems under Art 288 TFEU. Second, the Court furthered a line of reasoning that comes to assign ‘individual rights’ to contracting authorities—that is, entities within the public sector—in what could seem like the creation of an ‘intra-State’ modality of vertical direct effect. In this Op-Ed, I try to make some sense of these two developments and leave aside for now the details of the interpretation of the specific grounds for the exclusion of economic operators under Directive 2014/24/EU.
No longer discretionary to transpose discretionary exclusion grounds
It is trite EU law that, under Art 288 TFEU, Member States retain discretion in the choice of form and methods for the transposition of a Directive. While Directives can be prescriptive about their aims and goals and, sometimes, about specific modes of protection of the relevant legal interest, there seems to be a (theoretical) agreement that Directives still (must) leave a margin of discretion to Member States—else, they surreptitiously shapeshift into Regulations. Such discretion would seem to cover in particular those elements of a Directive that are explicitly labelled as discretionary. This ‘orthodoxy’ seemed to be straightforwardly applied by the Court of Justice in the analysis of the constraints on the transposition of the Public Procurement Directive 2014/24.
The Public Procurement Directive contains a set of rules on the exclusion from tenders for public contracts of economic operators that have fallen short of their legal obligations. In Art. 57, in addition to setting rules applicable to all exclusion decisions, the Directive distinguishes between, on the one hand, mandatory exclusion grounds that require contracting authorities to exclude economic operators convicted by final judgment for one of a series of breaches (Art. 57(1)) and, on the other hand, discretionary exclusion grounds that allow contracting authorities to exclude the affected economic operators (Art. 57(4)). Member States are explicitly allowed to turn discretionary exclusion grounds mandatory under their transposing legislation. Conversely, until now, the Court had been clear that Member States were allowed not to transpose discretionary exclusion grounds. So far, so good.
In Infraestruturas, however, the Court of Justice U-turned. It stated that:
… the first subparagraph of Article 57(4) of Directive 2014/24 … states that ‘contracting authorities may exclude or may be required by Member States to exclude any economic operator from participation in a procurement procedure’ in any of the situations referred to in points (a) to (i) of that provision.
In that connection, it admittedly follows from certain judgments of the Court … that the Member States can decide whether or not to transpose the facultative grounds for exclusion referred to in that provision. The Court has in fact held that … the Member States are free not to apply the facultative grounds for exclusion set out in that directive or to incorporate them into national law with varying degrees of rigour according to legal, economic or social considerations prevailing at national level (see, to that effect, judgments of 19 June 2019, Meca, C‑41/18, EU:C:2019:507, paragraph 33; of 30 January 2020, Tim, C‑395/18, EU:C:2020:58, paragraphs 34 and 40; and of 3 June 2021, Rad Service and Others, C‑210/20, EU:C:2021:445, paragraph 28).
However, an analysis of the wording of the first subparagraph of Article 57(4) of Directive 2014/24, the context into which that provision fits, and the aim that the latter pursues within the framework of that directive, shows that contrary to what is apparent from those judgments, the Member States are under the obligation to transpose that provision into their national law (C-66/22, paras. 48-50, emphases added).
In my view, this U-turn challenges the ‘orthodoxy’ to the extent that the Court subjects the margin of discretion left to the Member States by the EU legislators to the Court’s assessment of whether what is clearly labelled as discretionary—and was as such treated in earlier case law—is permissibly left to the discretion of the Member States in view of the aims of the Directive. I think that this introduces a potentially tricky line of challenge of the content of EU Directives on the grounds that the EU legislators could not have left to the Member States’ discretion specific aspects of their content without undermining the goals of the Directive itself. This can ultimately constrain the upstream discretion in the choice of legal instrument under Art 288 TFEU by the EU legislators themselves, and further erode the distinction between Regulations and Directives if the content of the Directives can in fact eventually be binding in their entirety and directly applicable in all Member States. Further, this U-turn is based on a rather peculiar interpretation of the wording of the Public Procurement Directive that comes to assign ‘individual rights’ to the public sector. Given this peculiarity, I am not too sure whether the deviation from the orthodoxy in Infraestruturas indicates a significant shift by the Court of Justice or ‘just’ an exception or oddity that may confirm the general rule.
‘Intra-State’ vertical direct effect?
In justifying its U-turn, the Court of Justice stresses that, under Art. 57(4) of the Public Procurement Directive:
… the choice as to the decision whether or not to exclude an economic operator from a public procurement procedure on one of the grounds set out in that provision falls to the contracting authority, unless the Member States decide to transform that option to exclude into an obligation to do so. Accordingly, the Member States must transpose that provision either by allowing or by requiring contracting authorities to apply the exclusion grounds laid down by the latter provision. … a Member State cannot omit those grounds from its national legislation transposing Directive 2014/24 and thus deprive contracting authorities of the possibility – which must, at the very least, be conferred on them by virtue of that provision – of applying those grounds.
… it should be noted that recital 101 of that directive states that ‘contracting authorities should … be given the possibility to exclude economic operators which have proven unreliable’. That recital thus confirms that a Member State must transpose that provision in order not to deprive contracting authorities of the possibility referred to in the preceding paragraph and that recital.
…
Lastly, as to the objective pursued by Directive 2014/24 in so far as concerns the facultative grounds for exclusion, the Court has acknowledged that that objective is reflected in the emphasis placed on the powers of contracting authorities. Thus the EU legislature intended to confer on the contracting authority, and on it alone, the task of assessing whether a candidate or tenderer must be excluded from a procurement procedure during the stage of selecting the tenderers (see, to that effect, judgments of 19 June 2019, Meca, C‑41/18, EU:C:2019:507, paragraph 34, and of 3 October 2019, Delta Antrepriză de Construcţii şi Montaj 93, C‑267/18, EU:C:2019:826, paragraph 25).
The option, or indeed obligation, for the contracting authority to apply the exclusion grounds set out in the first subparagraph of Article 57(4) of Directive 2014/24 is specifically intended to enable it to assess the integrity and reliability of each of the economic operators participating in a public procurement procedure.
The EU legislature thus intended to ensure that contracting authorities have, in all Member States, the possibility of excluding economic operators who are regarded as unreliable by those authorities (C-66/22, paras. 51-52 and 55-57, emphases added).
Even if not altogether new—see Meca (C-41/18) and Delta (C-267/18)—I find this line of reasoning puzzling. The way the Court of Justice has interpreted Art. 57(4) of the Public Procurement Directive equates to an ‘individual right’ for contracting authorities not to contract with economic operators they deem unreliable and, crucially, this is an ‘individual right’ that Member States cannot deprive them from. The protection of such right implies an ‘intra-State’ modality of vertical direct effect—at least to the extent that, after Infraestruturas, a contracting authority of any Member State with centralised exclusion decision-making can challenge any constraints on its administrative discretion and simply set aside the domestic rules and directly rely on the Directive to proceed to exclusion on the basis of discretionary grounds.
To my mind, this line of reasoning extracts the wrong implications from the wording of the Directive because of the quasi-anthropomorphism of contracting authorities. Given that the Directive conceptualises contracting authorities as the relevant unit of decision-making, references to contracting authorities should be seen as references to decisions within a procurement procedure, not as references to agents that derive rights independently from—or even against—the structure of the State into which they are embedded. In the end, contracting authorities are defined as ‘the State, regional or local authorities, bodies governed by public law or associations formed by one or more such authorities or one or more such bodies governed by public law’ (Art. 2(1)(1) Directive 2014/24). A functional interpretation of the wording of Article 57(4) of the Public Procurement Directive would recognise that the meaning of ‘contracting authorities may exclude or may be required by Member States to exclude’ is that ‘in a covered procurement procedure, it is permissible to exclude, and it can be made mandatory to exclude’—which would then straightforwardly follow the orthodoxy in allowing Member States to exercise the discretion on the form and method of transposition of that possibility.
I submit that the Court of Justice has followed a line of reasoning that is also problematic in relation to other provisions of the Public Procurement Directive, in particular in relation to the potential effects it could have in ‘empowering’ contracting authorities to take courses of action (eg international collaboration) that could imply domestic ultra vires.
Final thoughts
What I find most confusing in this part of the Infraestruturas Judgment is that the Court could have found much less disruptive and confusing ways to reach the same conclusion. For example, it could have found that, in empowering the national competition authority to make decisions on the exclusion of tenderers through the imposition of ancillary penalties, Portugal had decided to transpose the relevant discretionary exclusion ground, but done so incorrectly or defectively by simultaneously transposing the ground but limiting the discretion of the contracting authority. I would still find issue with that approach, but at least it would be easier to reconcile with important parts of the orthodoxy of fundamental aspects of EU law.