CJEU pushes for flexibility for teaming agreements under EU public procurement rules: what implications for the interpretation of Arts 19 & 63 Dir 2014/24? (C-234/14)

In its Judgment of 14 January 2016 in Ostas celtnieks, C-234/14, EU:C:2016:6, the Court of Justice of the European Union (CJEU) stressed the flexibility that the EU public procurement rules on teaming and reliance on third party capacity impose on contracting authorities. 

In the case at hand, the Latvian municipality of Talsi had approved tender documents requiring tenderers relying on the capacities of other contractors to 'mention all those contractors and provide evidence that it has the necessary resources at its disposal. If that tenderer is to be awarded the contract, it must have concluded a cooperation agreement with the contractors concerned before the award and forwarded this to the contracting authority'. One of the main obligations under such agreement would have been to include 'a clause stipulating that each party is to be jointly and severally liable for the performance of the contract'.  The requirement for a pre-award agreement was challenged.

In an unsurprising decision, the CJEU stressed that the relevant rules (then Arts 47 and 48 Dir 2004/18), precluded a contracting authority from imposing on a tenderer which relies on the capacities of other entities the obligation, before the contract is awarded, to conclude a cooperation agreement with those entities or to form a partnership with them. Indeed, the CJEU recalled that it is settled case law that 'Articles 47(2) and 48(3) of Directive 2004/18 recognise the right of every economic operator to rely, for a particular contract, upon the capacities of other entities, "regardless of the nature of the links which it has with them", provided that it proves to the contracting authority that it will have at its disposal the resources necessary for the performance of the contract' (para 23, with reference to Swm Construzioni, C-94/12, EU:C:2013:646; see here). The CJEU stressed that such 'interpretation ... is consistent with the aim of the widest possible opening-up of public contracts to competition pursued by the relevant directives to the benefit not only of economic operators but also of contracting authorities. In addition, that interpretation also facilitates the involvement of small- and medium-sized undertakings in the contracts procurement market' (para 24).

This was clearly set out in the pre-existing case law of the CJEU and therefore, hardly deserves any comment. However, in proceeding with its reasoning, the Court engaged in a clarification that can raise significant doubts as to the interpretation of the new rules on teaming and group bidding in Arts 19 and 63 of Dir 2014/24. The CJEU stressed that 'the tenderer is free to choose ...the legal nature of the links it intends to establish with the other entities on whose capacities it relies in order to perform a particular contract and, on the other, the type of proof of the existence of those links' (para 28, emphasis added). 

On the basis of this freedom of organisation recognised by the CJEU (which rings of the freedom to conduct a business under Art 16 of the EUCFR, even if it is not mentioned), the CJEU determined that '[i]n the present case, ... the contracting authority requires a tenderer ... which relies on the capacities of other entities for the performance of the contract concerned, to establish links of a precise legal nature with those entities, so that only those particular links are capable, in the eyes of the contracting authority, of proving that the contract does in fact have the resources necessary to perform that contract ... a rule such as that ... of the tender specifications manifestly deprives the provisions of Articles 47(2) and 48(3) of Directive 2004/28 of their effectiveness' (paras 30 and 33, emphasis added).

The reason I find the Judgment in Ostas celtnieks troubling for the interpretation of Arts 19  and 63 of Dir 2014/24 is that, going beyond the requirements and limits of Arts 47 and 48 Dir 2004/18, a new provision in Art 63 Dir 2014/24 now establishes that despite the fact that groups of economic operators, including temporary associations, may participate in procurement procedures and they shall not be required by contracting authorities to have a specific legal form in order to submit a tender or a request to participate [Art 19(2)],  and that contracting authorities may require groups of economic operators to assume a specific legal form only once they have been awarded the contract, and to the extent that such a change is necessary for the satisfactory performance of the contract [Art 19(3)], Art 63(1) in fine Dir 2014/24 foresees that '[w]here an economic operator relies on the capacities of other entities with regard to criteria relating to economic and financial standing, the contracting authority may require that the economic operator and those entities be jointly liable for the execution of the contract.'

In view of the Judgment in Ostas celtnieks, it seems clear that either the enforcement of Art 63 Dir 2014/24 will require a change of tack in the development of the flexible case law applicable to teaming agreements, or Art 63 Dir 2014/24 will trigger a potential nightmare of legal discussion about the limits of the possibility to request assurances to guarantee that the economic operator and those entities on which financial and economic capacities it relies be jointly liable for the execution of the contract, while not forcing it to 'establish links of a precise legal nature with those entities, so that only those particular links are capable, in the eyes of the contracting authority, of proving that the contract does in fact have the resources necessary to perform that contract'.

This builds up on my previous criticism of the liability requirement created by Art 63 Dir 2014/24, which was along different lines:
... the ... requirement of joint liability for the execution of the contract can make it very difficult to reach subcontracting agreements or similar arrangements for the reliance on third parties for the partial execution of a minor part of the contract. Moreover, it can result in complicated structures of side letters of indemnity that raise the legal costs linked to participation. In my opinion, in relation to both requirements, the contracting entity should be satisfied with the liability of the main contractor and, if need be, ‘self-protect’ through requirements for adequate professional risk indemnity insurance under article 58(3) of Directive 2014/24. Therefore, a pro-competitive interpretation of these rules requires subjecting their use to very strict proportionality tests in order to avoid unnecessary restrictions of the ability of tenderers to rely on third party capacities in ways that fall short of teaming and bidding jointly for contracts [ A Sanchez Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 317-18].
In my view, the Judgment in Ostas celtnieks strengthens the argument for a very exceptional use of Art 63(1) in fine Dir 2014/24 by contracting authorities.

If you fine me, I have the right to appeal ~ even if someone else foots the bill (C-652/11)

In its Judgment of 11 April 2013 in case C-652/11 Mindo, the Court of Justice of the EU (CJEU) has reversed a prior Judgment of the General Court (GC) whereby it denied active standing to appeal a competition fine to an undertaking that was jointly and severally liable for its payment, on the basis that the other jointly liable party had already paid the fine in full and had not seeked recovery of any amounts for a period of 5 years.

The CJEU Judgment is interesting because it comes to set the general principle that, as long as there is a possibility of being made to pay the amount of the fine (fundamentally, because the claim is not time-barred and there are no specific indemnity agreements between the jointly liable parties), there is always a residual benefit for the undertaking to appeal the fine.

I think that the Mindo Judgment must be welcome and the CJEU has rightly quashed the prior GC ruling, which was basically relying on a set of 'factual' assumptions that were too far fetched. As the CJEU clearly emphasises, the GC erred in law in assuming that, by simply waiting to claim, Mindo's co-debtor had waived its right to seek reimbursement of the fine (particularly in a scenario where there was a pending appeal and, on top of that, Mindo had filed for bankruptcy and was under administration in accordance with Italian law--which justify the 'wait and see' strategy adopted).

However, I think that the CJEU could have even gone one step further and set the broader principle that the addressee of a fine is always entitled to appeal it if there are sufficient legal grounds, regardless of who ends up paying the fine. Otherwise, in cases where there is a dissociation between the fined undertaking and the payee of the fine (not necessarily due to their joint liability), it could be that no one has standing to appeal. 

The CJEU ducked this issue by not addressing the second ground of appeal, submitted in the alternative, where it was alleged that denial of active standing to appeal would infringement Mindo’s right to a fair trial. The fact that the CJEU did not address this issue derives probably only from the fact that it was presented in the alternative. However, given that the CJEU made no reference to the right of a fair trial, this can also be read as an exercise of certain self-restraint on the part of the Court, and as an attempt to open that Pandora's box only when necessary (since, indeed, the extension of fair trial rights to companies in the setting of EU competition law is not without problems, as I have discussed in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?). Be it as it may, in general terms, the referral of the case back to the GC should be welcome.