Here is the recording for the first part of today’s seminar ‘The principle of competition is dead. Long live the principle of competition’, with renewed thanks to Roberto Caranta, Trygve Harlem Losnedahl and Dagne Sabockis for sharing their great insights. A transcript is available here, as well as the slides I used. As always, comments welcome and more than happy to continue the discussion!
The principle of competition is dead. Long live the principle of competition (Free webinar)
Free webinar: 22 March 2024 *revised time* 1pm UK / 2pm CET / 3pm EET. Registration here.
The role of competition in public procurement regulation continues to be debated. While it is generally accepted that the proper functioning of procurement markets requires some level of competition – and the European Court of Auditors has recently pointed out that current levels of competition for public contracts in the EU are not satisfactory – the 'legal ranking' and normative weight of competition concerns are much less settled.
This has been evidenced in a recent wave of academic discussion on whether there is a general principle of competition at all in Directive 2014/24/EU, what is its normative status and how it ranks vis-à-vis sustainability and environmental considerations, and what are its practical implications for the interpretation and application of EU public procurement law.
Bringing together voices representing a wide range of views, this webinar will explore these issues and provide a space for reflective discussion on competition and public procurement. The webinar won't settle the debate, but hopefully it will allow us to take stock and outline thoughts for the next wave of discussion. It will also provide an opportunity for an interactive Q&A.
Speakers:
Prof Roberto Caranta, Full Professor of Administrative Law, University of Turin.
Mr Trygve Harlem Losnedahl, PhD researcher, University of Oslo.
Dr Dagne Sabockis, Senior Associate, Vinge law firm; Stockholm School of Economics.
Prof Albert Sanchez-Graells, Professor of Economic Law, University of Bristol.
Pre- or post-reading:
Claire Methven O’Brien and Roberto Caranta, ‘Due Diligence in EU Institutions' Own-Account Procurement: Rules and Practices’ (2024) European Parliament CONT Committee Study PE 738.335, Annex II.
Trygve Harlem Losnedahl, ‘The General Principle of Competition is Dead’ (2023) 2 PPLR 85-98 (£/€).
Trygve Harlem Losnedahl, ‘Ends and Means in the Regulation of Public Procurement — a legal historical analysis’, English translation of the original article written in Norwegian in Tidsskrift for Rettsvitenskap, vol. 136, 4/2023, 359–442.
Dagne Sabockis, ‘The Principle of Competition in the Context of Green Public Procurement – the Case of Green Award Criteria’ (2023) 18(4) EPPPL 237-243 (£/€).
Albert Sanchez-Graells, ‘Competition and procurement regulation’ in Carina Risvig Hamer et al (eds), Into the Northern Light – In memory of Steen Treumer (Ex Tuto, 2022) 65-81. Pre-print available through SSRN: https://ssrn.com/abstract=4012022.
'Public procurement' for Global Dictionary of Competition Law
I have been invited to contribute an entry on ‘public procurement’ for a new Global Dictionary of Competition Law (Concurrences Books, forthcoming). The initial draft of the entry is below. Comments welcome: a.sanchez-graells@bristol.ac.uk.
Public Procurement
Albert Sanchez-Graells
University of Bristol Law School
Definition
Public procurement rules govern the award of government or public contracts for the acquisition of supplies, works or services, including the direct provision of public services to citizens. Public procurement rules seek to foster effective competition for public contracts to generate value for money, and to harness competition as an anticorruption tool to ensure integrity and probity in the expenditure of public funds. The main challenges to effective competition in public procurement settings are bid rigging (or collusion among bidders), which risk is heightened by the transparency inherent to procurement processes, and anticompetitive requirements imposed by the public buyer.
Commentary
The effectiveness of public procurement and its ability to deliver value for money depend on the existence of two layers of competition: competition in the market for the goods, works or services to be acquired, and competition within the tender for a specific contract. While most competition analysis focuses on the existence (or absence) of competition within the tender and tends to assimilate this with models of competition for the market, this is a short-sighted approach. Except for very rare public contracts for goods, services or works for which the public buyer is a monopsonist—mainly in sectors such as defence—most public tenders take place in a framework of competition in the market, and one with many private and public buyers seeking to purchase from a range of potential suppliers (for example, tenders for the acquisition of cloud services, general supplies, or school meals). Therefore, it is important not only to ensure that procurement rules and administrative practices prevent distortions of competition within a given tender, but also that they do not generate negative knock-on effects on (dynamic) competition in the relevant market.
The most commonly discussed distortion of competition within a public tender concerns anticompetitive agreements between bidders (bid rigging) that seek to manipulate the competition for the public contract and to extract excessive rents from the public buyer. The mechanics of bid rigging schemes are widely understood, including predominant strategies such as cover bidding, bid suppression, bid rotation and market allocation. However, these anticompetitive practices are also difficult to prevent in oligopolistic or concentrated markets because the transparency inherent to public tenders significantly facilitates monitoring of the cartelists’ bidding behaviour, and because the atomisation of public tenders requires a significant investment in market screening tools to spot suspicious patterns across regional markets and over time. Fighting cartels in public procurement settings has become a high priority for most competition authorities in recent years, in part as a result of the OECD’s work on this area—see its 2012 Recommendation on Fighting Bid Rigging in Public Procurement—as well as the push by the International Competition Network. There is also hope in the development of effective systems of automated screening and red flags where public procurement is conducted electronically (of which there is longstanding experience eg in Korea in relation to its eProcurement platform KONEPS), but these require a solid procurement data architecture which absence has marred recent attempts in jurisdictions such as the UK and its now abandoned ‘Screening for cartels’ tool.
An additional difficulty in ensuring effective competition within a given tender derives from the unclear boundary between anticompetitive practices such as bid rigging and procompetitive cooperation through teaming, joint bidding and subcontracting arrangements between bidders. There is currently significant debate about the limits to cooperation between (potential) competitors in the context of procurement procedures, as well as whether it should be treated as a restriction of competition by object or by effect for the purposes of Article 101 TFEU. The debate is particularly alive in Scandinavian countries, following a 2016 Decision by the EFTA Court in the Ski and Follo Taxi case, and a more recent 2019 Judgment by the Danish Supreme Court in the Road Markings case, which has led to a revision of the Danish Competition and Consumer Authority’s guidelines on joint bidding. The main points of contention about the state of the law concern the counterfactual to be used to determine that joint bidders are (potential) competitors, as well as the measurement of any efficiencies passed on to the public buyer.
In order to empower public buyers to self-protect against bid rigging and to strengthen the effectiveness of competition law in public procurement settings, EU procurement rules have created discretionary grounds for the exclusion of bidders ‘where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition’, as well as in cases ‘where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable’—which the Court of Justice of the EU has interpreted as inclusive of non-procurement related breaches of competition law (Generali-Providencia Biztosító). Recent Court of Justice case law has clarified the extent to which these exclusion grounds are applicable where bidders have benefitted from leniency, as well as the intensity of the duty to cooperate incumbent upon bidders seeking to avoid exclusion through self-cleaning measures (Vossloh Laeis). The system created under the EU rules is converging with those of other major jurisdictions, such as the US, where the Federal Acquisitions Regulations allow for similar approaches to assessing the responsiveness (or reliability) of bidders engaged in anticompetitive practices.
Beyond the abovementioned issues, which are all concerned with bidder behaviour, it is important to stress that competition within a public tender can be restricted through decisions made by the public buyer, such as the imposition of excessive participation requirements, the choice of suppliers in less than fully open procedures or foreclosure through eg the use of excessively broad and excessively long framework agreements. Such restrictions of competition can not only generate losses of value for money in the allocation of the specific contract, but also have negative effects on dynamic competition in the relevant market. Unfortunately, the direct application of competition law (ie Article 102 TFEU) to the public buyer has been excluded by the case law of the Court of Justice, except in rather rare situations where the public buyer is engaged in downstream market activities (FENIN). However, a principle of competition has been explicitly enshrined in EU public procurement law to prevent public buyers from ‘artificially narrowing competition’, in particular where ‘the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators’. This is a promising tool to prevent publicly-generated restrictions of competition in public procurement settings, although its interpretation generates some difficulties and its application is yet to be tested in the EU Courts.
Case References
Case C-205/03 P FENIN v Commission, EU:C:2006:453.
Case C-470/13 Generali-Providencia Biztosító, EU:C:2014:2469.
Case C-124/17 Vossloh Laeis, EU:C:2018:855.
EFTA Court, Judgment in Case E-3/16, Ski Taxi SA, Follo Taxi SA og Ski Follo Taxidrift AS v Staten v/Konkurransetilsynet, 22 December2016.
Danish Supreme Court, Judgment in the Road Markings case, 27 November 2019. The case is not available in English, but a comprehensive discussion by Heidi Sander Løjmand can be found at https://www.howtocrackanut.com/blog/2019/11/28/the-danish-supreme-courts-ruling-in-the-road-marking-case-the-end-of-a-joint-bidding-era-guest-post-by-heidi-sander-ljmand-msc [accessed 22 Jan 2021].
Bibliography
Robert Anderson, William Kovacic and Anna Caroline Müller, Promoting Competition and Deterring Corruption in Public Procurement Markets: Synergies with Trade Liberalisation (2016) http://e15initiative.org/publications/promoting-competition-and-deterring-corruption-in-public-procurement-markets-synergies-with-trade-liberalisation/ [accessed 22 Jan 2021].
Alison Jones, ‘Spotlight on Cartels: Bid Rigging Affecting Public Procurement’ (Concurrentialiste, 16 Nov 2020) https://leconcurrentialiste.com/jones-bid-rigging/ [accessed 22 Jan 2021].
Katarzyna Kuźma and Wojciech Hartung, Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar 2020).
Albert Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd edn, Hart 2015), Chapter 5.
Albert Sanchez-Graells, ‘“Screening for Cartels” in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold?’ (2019) 10(4) Journal of European Competition Law & Practice 199-211.
Competition and public procurement: a mind map
I have been asked to teach a workshop on competition and public procurement for an audience of postgraduate students and practitioners in this week’s session of the Competition Specialist Advanced Degree convened by Prof Antonio Robles Martin-Laborda at Universidad Carlos III of Madrid.
It has been some time since I last taught the topic, so I had to reconstruct my mind map in preparation for the workshop. This is a sketch of what I have come up with (not mind-blowing graphics…). Some additional bullet-points of the key issues in each of the areas of interaction and cross-references to papers where I have developed my ideas regarding each of the topics are below.
Bid rigging
In principle, this is the least controversial area of competition and procurement interaction; bid rigging being an instance of anticompetitive conduct ‘by object’ (under Art 101(1) TFEU) (see here for discussion)
Fighting bid rigging in procurement is high on competition authority’s enforcement agendas
Procurement structurally increases likelihood of collusion; which is partially compensated by the counter-incentive created by the rules on exclusion of competition infringers (Art 57(4)(c) and (d) Dir 2014/24/EU), provided leniency does not negate its effects
Joint tendering
Analytical difficulties to establish a boundary between bid rigging (object-based analysis) and anticompetitive collaboration for the submission of joint tenders
Emerging approach to the treatment of joint bidding as a restriction of competition by object (cf EFTA Court Ski Taxi, 2018 Danish guidelines, see also here for analysis of their draft)
Particular complications concern the analysis of potential competition under Art 101(1) and 101(3) TFEU, in particular in cases where this is both used to subsume the practice under prohibition in Art 101(1) and also to assess whether the restriction is indispensable to the generation of efficiencies (or whether there were less restrictive forms to achieve them) under Art 101(3) TFEU (see here and here).
Exclusion & self-cleaning
Conceptual difficulties with boundary between Art 57(4)(c) and (d) of Directive 2014/24/EU, as well as applicable tests (see here)
Application complicated in leniency cases (see eg Vossloh Laeis, C-124/17, EU:C:2018:855, as well as due to different approaches to judicial and administrative finality (see eg Meca, C-41/18, EU:C:2019:507, not available in English)
These difficulties are particularly complex once the rules are implemented at the national level, as evidenced by the on-going Spanish sainete in the railroad electrification works cartel (see here and here)
Public buyer power
Inapplicability of EU antitrust rules (ie Art 101 and 102 TFEU) directly to the public buyer, given the FENIN-Selex case law (see here)
However, potential clawback under EasyPay’s strictest approach to separation test (see here)
CPBs
Difficult exemption from EU antitrust rules even under FENIN, given exclusive activity (see here and here)
Very minimal regulation and oversight, especially in the context of their cross-border activities (see here, here and here)
SGEI & In-house
Interaction complicated in these settings, both in terms of State aid rules (see here), as well as in potential accumulation of conflicting rules under Articles 102 and 106(2) TFEU (ie publicly-mandated or generated abuses of a dominant position)
Increasingly complicated tests to assess SGEI entrustment (Altmark, Spezzino, German slaughterhouses)
Move towards declaration of some types of procurement (eProcurement, centralised procurement) as an SGEI themselves
State aid (more generally)
Difficulties remain after the 2016 Commission notice on the notion of aid (see here)
Abnormally low tenders
Difficulties also remain after Art 69 Directive 2014/24/EU, in particular concerning those tainted by State aid (see here)
Mechanism hardly used to monitor ‘adequate competition’ or to prevent predatory pricing
Contract changes
Difficult analogical application of notice on notion of aid and almost impossible market benchmark in most cases
Similarly complicated interaction between merger control and public procurement rules on change of contractor, although these are partially alleviated by Art 72(1)(d)(ii) Dir 2014/24/EU (but cfr ‘economic operator that fulfils the criteria for qualitative selection initially established provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of this Directive’)
Principle of competition
Established in Art 18(1)II Dir 2014/24/EU, has the potential to be the gangway between competition and procurement spheres of EU economic law
Difficulties in its interpretation (see here), as well as in its application (see here)
Interesting AG Opinion on limits of duty to investigate intra-group collusion in procurement (C-531/16)
In his Opinion of 22 November 2017 in Specializuotas transportas, C-531/16, EU:C:2017:883, Advocate General Campos Sánchez-Bordona has considered the limits of a contracting authority's duty to investigate potential intra-group collusion or manipulation of tender procedures by entities belonging to the same corporate group--in particular in a setting where the tenderers are under no specific obligation to disclose their links to the contracting authority, but the contracting authority is aware of those links and can identify signs that point towards potential collusion. In my view, his approach is functional and enabling, and pushes for a competition-orientated exercise of the contracting authority's discretion.
AG Campos concluded that, on the one hand, '[i]n the absence of an express legislative provision or a specific requirement in the specifications governing the conditions for the award of a service contract, related tenderers which submit separate tenders in the same procedure are not under an ineluctable duty to disclose their links to the contracting authority'. And, on the other hand, that '[t]he contracting authority will be obliged to request from those tenderers the information it considers necessary if, in the light of the evidence available in the procedure, it harbours doubts concerning the risk that the simultaneous participation of those tenderers will undermine transparency and distort competition between operators tendering to provide the service' (para 87).
In my view, and for the reasons discussed below, AG Campos' approach creates the right set of incentives both for national legislators and for contracting authorities. Even if his Opinion is concerned with the regime under Directive 2004/18/EC, in my view, the balance of duties deriving from EU law and those that can be created under the national law of the Member States will extend to the system created by Directive 2014/24/EU--as, ultimately, the second part of AG Campos' conclusion is compatible with the principle of competition in Article 18(1) thereof, and the first part will be largely unaffected by any self-certification requirements concerning the discretionary exclusion ground in Art 57(4)(d) under the ESPD.
The case and the questions in the preliminary reference
In the case at hand, both Specialus autotransportas UAB (‘tenderer A’) and Specializuotas transportas UAB (‘tenderer B’) had submitted tenders for a contract for the provision of municipal waste collection and transportation services. Both tenderers were subsidiaries of Ecoservice UAB (‘Ecoservice’) (see paras 15 and 16). However, they did not disclose this information explicitly to the contracting authority. Instead, tenderer B 'voluntarily submitted a declaration of honour to the effect that it was taking part in the call for tenders on an autonomous basis and independently of any other economic operators which might be connected to it, and it requested the [contracting authority] to treat all other persons as competitors. It further stated that it undertook, should it be so required, to provide a list of economic operators connected to it' (para 17).
The contracting authority eventually rejected tenderer A’s tender on the ground that it did not comply with one of the conditions set out in the tender specifications; and tenderer A did not contest that decision. The contract was ultimately awarded to tenderer B. The review court rejected a complaint by a disappointed competitor, arguing that the tenders submitted by A and B had not been properly evaluated and that the principles of transparency and equality before the law had been infringed. An appeal of such decision brought the preliminary reference to the Court of Justice (see paras 18-21).
Thus, in Specializuotas transportas, the referring court asked a long list of very detailed questions concerning the duties for a contracting authority to carry out an in-depth assessment of potential intra-group collusion for the manipulation of a public tender.
Interestingly, during the procedure before the Court of Justice, the contracting authority clarified that it was aware of the links between the tenderers because this was public knowledge, so that at no time was it misled when it took its decisions; and that 'quite apart from the relationship between the tenderers, which does not of itself imply an absence of competition, there [were] a number of objective factors in the instant case which enabled it to conclude that those tenderers were in competition with one another' (paras 26-27).
AG Campos' analysis
AG Campos grouped the questions under reference into two main issues: (1) whether related tenderers which submit separate tenders are under a duty, in all cases, to disclose that relationship to the contracting authority and, if so, what the consequences of failure to do so are; and (2) how must the contracting authority — and any court which reviews its actions — proceed where it becomes aware of the existence of important links between certain tenderers (para 42).
The answer to the reformulated issue (1) is straightforward, and AG Campos puts it simply that 'A requirement (the alleged duty to declare links with other companies) which is not set out in the contract documents, is not provided for in national law and is not laid down in Directive 2004/18 does not pass the transparency test referred to by the Court. ..., in the absence of an express legislative provision (of EU law or of national law), related tenderers are not under a duty to disclose the relationship between them to the contracting authority' (para 48, emphasis in the original). In my view, this is the correct approach. Any practical shortcomings derived from the absence of such explicit rules should by now be overcome with the adoption of the European Single Procurement Document (see part III.C of Annex 2 of the ESPD Implementing Regulation) and, if not, the position adopted in the Opinion creates a clear incentive for all Member States to reconsider their approach to tenders by related undertakings and the corresponding information requirements for exclusion/rejection screening purposes.
Moreover, AG Campos also provides convincing reasons for the rejection of an implicit duty to disclose the links between tenderers (paras 49-52), as well as for rejecting the analysis of both tenders as variants (constructively) submitted by the same holding company (Ecoservice) (paras 53-62). In this part of the analysis, AG Campos refers to my views on the automatic exclusion of tenders submitted by entities belonging to the same corporate group (see fn 20, with reference to Sánchez Graells, A., Public Procurement and the EU Competition Rules, Hart, Oxford, 2nd ed., 2015, p. 341). I am greatly honoured by this reference.
The answer to the reformulated issue (2) is potentially less straightforward and the reasoning of AG Campos merits close attention. His starting point is that the relevant analysis concerns 'whether ... the contracting authority is under a duty to ask related tenderers to provide evidence that their situation does not run counter to the principle of competition ... [and] whether inactivity on the part of the contracting authority would be sufficient for a declaration that its conduct in the procedure is unlawful' (para 67). Furthermore, he considers that 'the aim is not so much to protect the (general) competition between independent operators in the internal market as to protect the (more specific) competition which must operate in procedures for the award of public contracts. From that perspective, what really matters is the separateness of and genuine difference between the respective tenders (which will enable the contracting authority to choose the tender most favourable to public interests), whether the tenderers are independent or related economic operators' (para 71, reference omitted and emphasis added). In my view, this points towards an analysis that is more demanding than a simple general competition test because, as the Opinion also rightly points out, the general prohibition of anticompetitive conduct in Article 101(1) TFEU does not apply to intra-group relationships (para 69).
Concerning the specific duty to investigate potential intra-group collusion in the procurement setting, AG Campos constructs the following reasoning:
... the judgment in Etruras and Others states that ‘the principle of effectiveness requires that an infringement of EU competition law may be proven not only by direct evidence, but also through indicia, provided that they are objective and consistent.’ The judgment in VM Remonts and Others states that, in the absence of EU rules on the matter, ‘the rules relating to the assessment of evidence and the requisite standard of proof … are covered … by the procedural autonomy of the Member States’.
Applying that case-law to the facts at issue in the main proceedings, where the contracting authority is aware that related tenderers are participating in the procedure, the ‘active role’ expected of it, as the guarantor of genuine competition between tenderers, should normally lead it to make certain that the tenders submitted by those tenderers are separate.
In short, that requirement is just one of the measures aimed at "[examining] all the relevant circumstances … in order to prevent and detect conflicts of interests and remedy them, including, where appropriate, requesting the parties to provide certain information and evidence."
However, the contracting authority may, in cases such as the present one, dispense with a communication to the related tenderers, asking them, ... "to clarify whether and how their personal situation is compatible with free and fair competition between tenderers". Clearly, "where appropriate, requesting the parties to provide certain information and evidence" may be important if the information and evidence available to the contracting authority is not sufficient for it to form a view regarding the risk that the tenders are not separate and distort competition.
Therefore, what matters is not that the contracting authority contacts the related tenderers, asking them for information about their relationship and seeking their view regarding the protection of the principle of competition between tenderers. The decisive factor is, rather, that the contracting authority is in a position to conclude that the simultaneous participation of those related operators does not jeopardise competition. The contracting authority may, of course, reach that conclusion by requesting that information or that view from the tenderers but it may also do so by referring to the information already available in the procedure and therefore without the need to approach the tenderers (paras 76-80, references omitted and emphasis added).
Ultimately, when assessing the extent to which the contracting authority discharged its duty to ensure effective competition for the contract and equality of treatment in the assessment of the tender, AG Campos stresses that '[e]verything will depend on the sufficiency or insufficiency of the available evidence and, therefore, on the objective soundness of the contracting authority’s decision to allow related tenderers to participate in the tendering procedure, on which it ultimately falls to the national court to rule' (para 86).
Final thoughts
As mentioned above, I think that the approach taken by AG Campos in the Specializuotas transportas Opinion is functional and enabling, and pushes for a competition-orientated exercise of the contracting authority's discretion. In situations where the contracting authority is aware of the existence of links between (seemingly) competing tenderers, it is appropriate to expect a high level of diligence--that is, to establish that 'the ‘active role’ expected of it, as the guarantor of genuine competition between tenderers, should normally lead it to make certain that the tenders submitted by those tenderers are separate' (para 77).
In my view, this is completely in line with the principle of competition of Article 18(1) Dir 2014/24/EU and seeks to avoid that contracting authorities tolerate an artificial narrowing of competition by inaction or omission. Conversely, the Opinion also seems to indicate that contracting authorities have a self-standing role as 'guarantors of genuine competition between tenderers', which is a good foundation on which to build a broader due diligence duty to identify the existence of indications of distortions of competition by colluding tenderers--whether linked through corporate group relationships or not. On the whole, then, the Opinion of AG Campos in Specializuotas transportas must be welcome and it can be hoped that the Court of Justice will not only follow his approach, but consolidate the general duty for contracting authorities to actively act as the 'guarantors of genuine competition between tenderers'
Some thoughts on the principle of competition's direct and indirect effects in public procurement from 18 April 2016
It was a pleasure to speak at Upphandlings Dagarna 2016 in Stockholm on the principle of competition enacted in Article 18(1) of Directive 2014/24 and Article 36(1) of Directive 2014/25 [for background reading, see here]. The recording of the livestreaming is available here (starts at 1:30, main remarks after 8:00).
One of the issues that featured prominently in the discussions with my panellists is the legal value of the principle under EU law, and how to make it effective in case Member States do not transpose it (or are late in the transposition, which will certainly be a common situation for a while).
In my view, and in simplified terms, there are two main routes that EU law provides for the enforcement of the principle regardless of the transposition decisions the Member States adopt. Firstly, the principle can be given direct effect. And, secondly (and probably with greater practical relevance), the principle must be given indirect effect. I develop these ideas for the enforcement of the principle of competition, particularly through indirect effect or interpretation conforme, in Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 215-227, available here.
Direct effect can be given to the presumption in Art 18(1) Dir 2014/24 / Art 36(1) Dir 2014/25 that 'Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators'. In my view, this provision sets out a clear, precise and unconditional individual right for candidates and tenderers not to be unduly disadvantaged, which therefore meets the requirements for direct effect as per Van Duyn (C-41/74, EU:C:1974:133). It will be particularly relevant to coordinate any legal claims with the clear push for effectiveness of the EU public procurement rules in the Remedies Directive.
Indirect effect must be given to the broad principle of competition in Art 18(1) Dir 2014/24 / Art 36(1) Dir 2014/25 that 'The design of the procurement shall not be made with the intention ... of artificially narrowing competition.' This is not only a clear general principle of EU law (which could also engage Mangold, C-144/04, EU:C:2005:709), but a fundamental pillar of the procurement system and, in particular, of the system created by the 2014 new public procurement Directives. The Commission could not have stressed this more clearly in the recent strategy for the Upgrade of the Single Market, where it highlighted that 'In 2014, the EU adopted a major overhaul of the EU procurement framework .... This was aimed at making public procurement more efficient and strategic, fulfilling the principles of transparency and competition to the benefit of both public purchasers and economic operators, in particular SMEs' (emphasis added). Overall, the obvious and pervasive pro-competitive orientation of the 2014 Directives and the explicit consolidation of the principle of competition triggers an obligation to interpret any domestic procurement rules in light of the principle of competition under as per Von Colson (C-14/83, EU:C:1984:153).
In short, even if Member States did not transpose (in time, or at all) the principle of competition in Art 18(1) Dir 2014/24 / Art 36(1) Dir 2014/25, EU law requires national administrative bodies, review bodies and courts to give it full effectiveness, both under the direct and indirect effect doctrines. This obligation kicks in on 18 April 2016 at the latest (although arguments for an already existing obligation to do so have been on the table since, at least, 2011). This is likely to spur an initial wave of litigation likely to result in references to the CJEU for clarification of the content, meaning and extent of the principle of competition. I for one will keep a close look at these developments.
CJEU makes interesting points regarding illegal presumptions of restriction of competition in public procurement (C-425/14)
In its Judgment in Impresa Edilux and SICEF, C-425/14, EU:C:2015:721, the Court of Justice of the European Union (CJEU) was asked to establish the parameters under which an economic operator can be excluded from a procurement procedure below EU thresholds for not supplying a declaration of acceptance of a legality protocol on combating criminal activity. This case is interesting because it involves the use of self-declarations as participation requirements in procurement procedures, which is bound to gain more and more importance under Directive 2014/24.
However, the Judgment in Impresa Edilux and SICEF is also remarkable because the CJEU (maybe only by coincidence) makes very important points regarding the establishment of excessive presumptions of restrictions of competition as part of this type of self-declarations. By looking in detail at the content of the declarations required from interested tenderers, the CJEU identifies a public procurement practice that results in the establishment of irrebutable presumptions of distortion of competition that go beyond what is required to uphold the principle of competition in the public procurement setting. In doing so, the CJEU establishes clear red lines regarding this type of presumptions.
This blog post focuses on both sets of issues in turn. First, it concentrates on the analysis of anti-criminal activity protocols and self-declarations. Secondly, it moves on to assess the treatment of the presumptions of competitive distortion that can derive from certain types of self-declarations.
1. Compatibility of anti-criminal activity protocols with EU procurement rules
The case at hand concerned public procurement in Italy, where Article 1(17) of Law No 190 on measures for the prevention and suppression of corruption and illegal conduct in the public administration of 6 November 2012 (‘Law No 190/2012’) foresees that ‘Contracting authorities may state in public procurement notices... that failure to comply with the clauses of legality protocols or integrity agreements is to constitute a ground for exclusion from the tendering procedure.’
The CJEU emphasises that, according to the referring court (ie the Council of Administrative Justice for the Region of Sicily, Italy), 'the purpose of introducing legality protocols into Italian law is to prevent and combat the pernicious phenomenon of the infiltration of organised crime, firmly entrenched in some regions of southern Italy, into the public procurement sector. The referring court takes the view that those protocols are also essential in order to protect the fundamental principles of competition and transparency underlying Italian and EU public procurement legislation' (C-425/14, para 13).
Thus, the main legal issue put to the CJEU for preliminary interpretation concerned the compatibility of exclusion grounds such as that of Article 1(17) of Law No 190/2012 with EU law in the case of public procurement procedures not covered by the relevant EU rules because the value of the contract does not meet the relevant thresholds.
This is an important point to note. Should the value of the contract have met or exceeded the EU thresholds, the case would have concerned the compatibility of such exclusion ground with the specific rules of Article 45 of Directive 2004/18 now repealed by Article 57 of Directive 2014/24 (which, for these purposes, is fundamentally equivalent). This could have altered the legal analysis in view of the constant case law of the CJEU that interprets the exclusion clauses in Art 45 Dir 2004/18 (and now Art 57 Dir 2014/18) as listing exhaustively the grounds based on objective considerations of professional quality which can serve to justify the exclusion of a contractor from participation in a public contract.
That is, the constant position in the case law that those provisions preclude Member States or contracting authorities from adding other grounds for exclusion based on criteria relating to the professional qualities of the candidate or tenderer, and more specifically professional honesty, solvency, and economic and financial capacity (see Case 76/81 Transporoute [1982] ECR 417 para 9; Joined Cases C-226/04 and C-228/04 La Cascina [2006] ECR I-1347 para 21–22; and Case C-213/07 Mikhaniki [2008] ECR I-9999 para 40–43. This has recently been reiterated in case C-376/08 Serrantoni and Consorzio stabile edili [2009] ECR I-12169 para 31; C-74/09 Bâtiments and Ponts Construction and WISAG Produktionsservice [2010] ECR I-7271 para 43; and Case Forposta and ABC Direct Contact, C-465/11, EU:C:2012:801 para 38].
As the referring court indicated, this would have required an assessment of the extent to which 'Article 1(17) of Law No 190/2012 could be consistent with the third sentence of Article 45(1) of [Directive 2004/18], which, in its view, provides a derogation from the exhaustive nature of the grounds for exclusion for overriding requirements in the general interest, such as those relating to public order and the prevention of crime.' In my view, that would not be possible under Art 45(1) 2004/18 and much less now under the revised wording of Art 57(3) of Directive 2014/24.
However, given that the contract in the case at hand was below the thresholds, the CJEU did not assess such compatibility with Art 45 Dir 2004/18 (Art 57 Dir 2014/24), and ruled exclusively in relation to the general principles of EU public procurement law (paras 18-24). Indeed, the CJEU reformulated the question in the following terms:
whether the fundamental rules and general principles of the Treaty, in particular the principles of equal treatment and of non-discrimination and the consequent obligation of transparency, must be interpreted as precluding a provision of national law under which a contracting authority may provide that a candidate or tenderer be excluded from a tendering procedure relating to a public procurement contract for not having lodged, with its tender, a written acceptance of the commitments and declarations contained in a legality protocol, such as that at issue in the main proceedings, the purpose of which is to prevent organised crime infiltrating the public procurement sector (C-425/14, para 25).
In answering that question, the CJEU makes a couple of interesting points:
28 It is clear that, by preventing criminal activity and distortions of competition in the public contracts sector, a measure such as the obligation to declare acceptance of that type of legality protocol appears to be such as to strengthen equal treatment and transparency in procurement procedures. In addition, inasmuch as that obligation is incumbent upon every candidate or concession-holder without distinction, it does not conflict with the principle of non-discrimination.
29 However, in accordance with the principle of proportionality, which constitutes a general principle of EU law, such a measure must not go beyond what is necessary to achieve the intended objective (see, to that effect, judgment in Serrantoni and Consorzio stabile edili, C-376/08, EU:C:2009:808, paragraph 33 and the case-law cited).
30 In that regard, it is appropriate ... to reject Edilux and SICEF’s argument that a declaration of acceptance of certain commitments is an ineffective means of combatting the infiltration of organised crime since observance of those commitments can be determined only after the contract concerned has been awarded. ...
32 ... as regards the content of the legality protocol ..., the commitments which must be given by candidates or tenderers under subparagraphs (a) to (d) of the legality protocol are, in essence, to indicate the progress of the works, the purpose, amount and recipients of subcontracts and derived contracts and the procedures for selecting contractors; to report any attempted interference, irregularity or distortion in the conduct of the tendering procedure and during performance of the contract, to cooperate with the police, by reporting any attempt at extortion, intimidation or influence of a criminal nature, and to include the same clauses in subcontracts. Those commitments overlap with the declarations contained in that protocol, under subparagraphs (h) to (j).
33 As regards a declaration such as that in subparagraph (g) of the legality protocol at issue in the main proceedings, whereby the participant declares that it has not concluded and will not conclude any agreement with other participants in the tendering procedure seeking to restrict or avoid competition, it is limited to the purpose of protecting the principles of competition and transparency in public procurement procedures.
34 Such commitments and declarations concern the honest conduct of the candidate or tenderer towards the contracting authority at issue in the main proceedings and cooperation with law enforcement. They do not, therefore, go beyond what is necessary in order to prevent organised crime infiltrating the public contract awards sector (C-425/14, paras 28-34, emphasis added).
Up to this point, the Judgment in Impresa Edilux and SICEF remains within what could be expected and the CJEU takes the chance to support Member States measures to prevent organised criminality where those initiatives do not conflict with explicit EU rules. As I mentioned, I am not sure that the same result would have been possible under the rules of Art 45 Dir 2004/18, or now Art 57 Dir 2014/24, unless the CJEU engaged in a line of reasoning along the lines followed in para 33 and opened the door to exclusion grounds that can be interpreted as remaining sufficiently close to the grounds actually listed in those provisions--and, in the case at hand, establishing a sufficient link with the mandatory grounds for exclusion based on participation in a criminal organisation or corruption, as regulated in Art 57(1)(a) and (b) of Directive 2014/24.
Moreover, along these same lines, the CJEU stresses that requiring a declaration to the effect of ensuring that the tenderer has not entered into anticompetitive agreements is not disproportionate--which seems useful for the interpretation of Art 59 Dir 2014/24 regarding the self-declarations that can be required from economic operators under the new mechanism of the European Single Procurement Document (ESPD). Therefore, up to this point, the case is useful but not necessarily ground-breaking.
Nonetheless, the specifics of the reasoning of the CJEU hide another interesting dimension of the case that, as mentioned, concerns a public procurement practice that results in the establishment of irrebutable presumptions of distortion of competition that go beyond what is required to uphold the principle of competition in the public procurement setting. We now turn to this second dimension of the Judgment in Impresa Edilux and SICEF.
2. Incompatibility of undercover or disguised restrictions of competition
Interestingly, after dealing with those core issues of the case, the CJEU keeps on with the very detailed assessment of the content of the specific declaration of acceptance of the legality protocol on combating criminal activity that was required from the tenderers. The purpose of this analysis is to exhaust the issue of proportionality but, maybe as a coincidence and in any case as a positive spillover, brings to light the fact that some of these protocols can include disguised measures restricting competition in terms of unduly preventing cooperation between undertakings, including legitimate subcontracting.
In the specific case, the issue was that the required declaration included some requirements not necessarily linked with criminal behaviour, such as the obligation of participating tenderers to 'expressly and solemnly declare' that they: (e) are 'not in a relationship of control or association (legal and/or factual) with other competitors and that [they have] not concluded and will not conclude any agreement with other participants in the tendering procedure'; or (f) 'will not subcontract any type of tasks to other companies participating in the tender [...] and [are] aware of the fact that, otherwise, those subcontracts will not be authorised'.
The CJEU assesses this requirement as follows:
36 ... it follows from the case-law of the Court that the automatic exclusion of candidates or tenderers who are in such a relationship [of control or of association] with other candidates or tenderers goes beyond what is necessary to prevent collusive behaviour and, therefore, to ensure the application of the principle of equal treatment and observance of the obligation of transparency. Such an automatic exclusion constitutes an irrebutable presumption of mutual interference in the respective tenders, for the same contract, of undertakings linked by a relationship of control or of association. Accordingly, it precludes the possibility for those candidates or tenderers of showing that their tenders are independent and is therefore contrary to the EU interest in ensuring the widest possible participation by tenderers in a call for tenders (see, to that effect, judgments in Assitur, C-538/07, EU:C:2009:317, paragraphs 28 to 30, and Serrantoni and Consorzio stabile edili, C-376/08, EU:C:2009:808, paragraphs 39 and 40).
37 ... the legality protocol also includes a declaration that the participant has not concluded and will not conclude any agreement with other participants in the tendering procedure. By excluding in this way any agreements between the participants, including agreements not capable of restricting competition, such a declaration goes beyond what is necessary to safeguard the principle of competition in the public procurement sector.38 It follows that an obligation for a participant in a tendering procedure to declare, on the one hand, that it is not in a relationship of control or of association with other competitors and, on the other, that it has not concluded any agreement with other participants in the tendering procedure, with the consequence that, failing such a declaration, that participant is automatically excluded from that procedure, infringes the principle of proportionality.
39 Similar considerations must also apply as regards the declaration ... by which the participant declares that it will not subcontract any type of tasks to other undertakings participating in the tendering procedure and is aware of the fact that, otherwise, those subcontracts will not be authorised. In fact, such a declaration involves an irrebuttable presumption that any subcontract by the successful tenderer, after the contract has been awarded, to another participant in the same call for tenders resulted from collusion between the two undertakings concerned, without giving them the opportunity to show that is not the case. Thus, such a declaration goes beyond what is necessary to prevent collusive behaviour (C-425/14, paras 36-39, emphasis added).
These arguments of the CJEU should not be lost as a result of the apparently technical and disconnected case in which they have been made. They are essential to the assessment of the compatibility with EU law of collaboration agreements between (otherwise) competing undertakings for the tendering and execution of public contracts. In my view, these are very positive approaches by the CJEU to the issue of collaboration between tenderers and subcontracting schemes, not least because they are in line with Article 101 TFEU--and particularly 101(3) TFEU--in terms of potential justification of economically efficient instances of cooperation between economic operators.
In that regard, I consider that the CJEU has pushed for the preservation of sufficient space for a competition-law compliant analysis of teaming, joint bidding and subcontracting arrangements, for which I advocate in Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 336-340 and 353-355. In particular, I find this development particularly in line with the following arguments (p 294):
... the establishment of grounds for exclusion that tend to narrow down excessively the pool of potential participants in a tender, or that completely exclude a given type or entire category of potential bidders, will need to be scrutinised carefully. This will be one of the cases where the application of the principle of proportionality alone might be insufficient (see above chapter five) and where a purposive interpretation might be required to ensure a more pro-competitive outcome. Additional grounds for exclusion will therefore not only need to be proportionate, but should not generate unnecessary distortions to competition.
The argument can be pushed further to require that the additional rules for the exclusion of tenderers be designed exclusively to prevent undertakings from exploiting certain unlawful competitive advantages in the public procurement setting. As the ECJ has clarified, the purpose of the basic principles of equality and non-discrimination and the ensuing obligation of transparency is to guarantee that ‘tenderers [are] in a position of equality both when they formulate their tenders and when those tenders are being assessed by the contracting authority’.[1] Therefore, the underlying rationale of the system of exclusion of tenderers is to prevent the participation of tenderers that are ex ante advantaged vis-a-vis the rest of competitors from resulting in a breach of the principle of equal treatment. Hence, the additional grounds for exclusion established by Member States should be designed in such a way that only situations under which a potential competitive advantage is clearly envisioned are covered—ie, they should not be designed exclusively in accordance with formal considerations of equality or non-discrimination. Moreover, in their implementation, contracting authorities need to be able to prove the existence of an actual advantage for the candidate or tenderer whose exclusion is being considered,[2] and an opportunity to show that no such advantage exists in the particular instance under consideration should be granted to the affected candidate or tenderer (ie, the establishment of irrebuttable presumptions should not be allowed).[3]
Therefore, it is submitted that it should be expressly recognised and taken into account that the establishment of grounds for exclusion of tenderers other than those listed in article 57 of Directive 2014/24 needs to be based on competition considerations and, more specifically, aimed at preventing the exploitation of actual unlawful competitive advantages by candidates or tenderers—since the establishment of purely formal grounds for the exclusion of tenderers not justified by the existence of associated distortions of competition would unnecessarily restrict access to public procurement.
[1] Case C-19/00 SIAC Construction
[2001] ECR I-7725 34; Case C-448/01 EVN and Wienstrom [2003] ECR
I-14527 47; and Case C-213/07 Mikhaniki [2008] ECR I-9999 45.
[2] Joined Cases C-21/03 and C-34/03 Fabricom
[2005] ECR I-1559 33 and 35; and Case C-213/07 Mikhaniki [2008] ECR I-9999 62. For a recent application of
the advantage criterion that, in our view, imposes an exceedingly demanding
requirement as regards its proof, see Case T-4/13 Communicaid Group v Commission [2014] pub. electr. EU:T:2014:437.
[3] That would particularly be the
case according to the reading of Fabricom made by the EGC, which has
considered that the ECJ ‘held that a candidate or tenderer cannot automatically
be excluded from a tendering procedure without having the opportunity to
comment on the reasons justifying such exclusion’; Joined Cases T-376/05
and T-383/05 TEA–CEGOS [2006] ECR II-205 65. See also Case C-213/07 Mikhaniki
[2008] ECR I-9999 69; Case C-538/07 Assitur [2009] ECR I-4219 30; and Opinion of AG
Mazák in case C-538/07 Assitur 44 and fn 22, where it is argued that
those measures may result in the exclusion of persons whose participation
entails no risk whatsoever for the equal treatment of tenderers and the
transparency of procedures for the award of public contracts—which is clearly
undesirable.
The "new" principle of competition in Directive 2014/24: a new set of presumptions?
The adoption of Directive 2014/24 of 26 February 2014 has
resulted in the consolidation of the principle of competition in Article 18.
According to the wording of this provision: "The design of the procurement
shall not be made with the intention of […] artificially narrowing competition.
Competition shall be considered to be artificially narrowed where the design of
the procurement is made with the intention of unduly favouring or
disadvantaging certain economic operators".
In my opinion, despite the
positive aspects of the express recognition of the principle of competition in
the new EU Directive, the inclusion of a subjective element and the reference
to the prevention of corruption or the avoidance of conflicts of interest by
establishing an irrebuttable presumption of competitive distorsion, raise many questions that are
difficult to answer that may give rise to more litigation. In this post, I
venture some further thoughts on this "new" principle of competition
in Directive 2014/24 (for an initial reaction, see here; please bear in mind
that this is a translation of a contribution to http://www.obcp.es/ soon to be published in Spanish,
which justifies (?) the references to Spanish domestic law).
Explicit recognition of the principle of competition
Importantly, and unlike in Spanish national legislation on
public procurement (art 1 of RDL 3/2011, of 14 November, approving the consolidated
text of the Law on Public Sector Contracts: "This law aims to regulate
public sector procurement in order to [...] ensure [...] an efficient use of
funds [...] by [...] safeguarding free competition"); so far, the
principle of competition in public procurement was only reflected somewhat
partially and in a fractionated manner at EU law level, by means of both Directive2004/18 (and earlier versions of the procurement Directives that it
consolidated) and the interpretative case law of the Court of Justice of the EU
(CJEU) in cases such as Fracasso and
Leitschutz (C-27/98, para 31 . "to meet the objective of developing
effective competition in the area of public contracts"), Lombardini and Mantovani (C-285/99, para
76: "all the requirements imposed by Community law must unquestionably be
complied with in the context of the various aspects of the national procedures
for awarding public works contracts, which must moreover be applied in such a
manner as to ensure compliance with the principles of free competition")
and SECAP (Opinion of AG in C-147/06, para 29 "those
directives pursue a limited direct aim, namely the coordination of procedures
governed by the sectoral directives with a view to encouraging the development
of effective competition in the field of public contracts", as endorsed by the CJEU in the Judgment in C-147/96, para 29: "assess tenders which are submitted to them under conditions of effective competition").
Additionally, the contours of the principle of competition
were somewhat fuzzy and required a considerable interpretive effort to
delineate the obligations derived therefrom (for further details, see A Sanchez
Graells, "Competition and the Public Buyer Towards a More Competition -
Oriented Procurement: The Principle of Competition Embedded in EC PublicProcurement Directives").
From this perspective, the explicit recognition of the principle of competition
in the new EU directive is to be welcomed. However, the explicit formulation
adopts the policy is problematic for at least two reasons.
Inclusion of a very problematic subjective element: can we
"objectify" it?
In my opinion, this task is very complex, as it requires establishing
the parameters by which a decision that often involves various individuals (and
potentially several administrative bodies) is considered affected by an
underpinning anticompetitive intent. In fact, I think that this task is virtually
impossible, given that the traditional mechanisms of allocation of subjective
factors in (administrative) disciplinary or criminal law are not applicable and
very clearly require an "objectifying" reinterpretation of the
intentional element in the provision.
The reasons for the "objectification" of the
wording of Article 18 of Directive 2014/24 are multiple and derived mainly from
the need for coordination of this new rule with some of its "functional neighbours".
Firstly, such coordination should take into account the objective character of
the restrictions of competition derived from the rules of the Treaty on the
Functioning of the EU (TFEU) and its interpretation by the CJEU. Indeed, the
prohibitions in Articles 101 and 102 TFEU (and their national counterparts,
such as in Articles 1 and 2 of the Spanish Law 15/ 2007 of 3 July, on the defence
of competition) apply in abstraction from any volitional element of the
offending parties. A competitive restriction in the market automatically results
in a violation of those prohibitive norms, irrespective of the intention with
which market players have conducted the practice restrictive of competition.
Secondly, and in a more subtle but functionally relevant
relationship, the objectification of the competition principle standard must be
coordinated with the criminal law rules applicable to the criminal liability of
legal entities—which establish (at least in Spain) a clearly objective and
independent regime, disconnected from any subjective element of the specific
individuals who have committed crimes or offences whose responsibility extends to
legal persons (see Article 31bis.3 of the Spanish Criminal Code, as introduced
by LO 5/2010, of June 22, amending the Organic Law 10/1995 of 23 November, on
the Criminal Code).
Therefore, the objectification of Article 18 of Directive
2014/24 seems the most appropriate functional solution—but, acknowledgedly, it
can be seen as lying somewhat far away from a literal interpretation of the
provision. Broadly speaking, in my opinion, this objectification of the principle
should be carried out by establishing a rebuttable presumption of restrictive
intent in cases where, in fact, the tendering procedure has been designed in a
manner that is restrictive of competition.
The disproval of this rebuttable presumption would require
the contracting authority or entity to justify the existence of objective, legitimate
and proportionate reasons for the adoption of the criteria restrictive of competition
(ie, to provide a plausible justification for the imposition of restrictive
conditions of competition in tendering the contract, so as to exclude the plain
and simple explanation that it was intended to restrict competition therewith).
In other words, if it could be justified that a "reasonable and
disinterested contracting entity" (meaning free from any intent to restrict
competition) would have taken the same decision on the design of the tender in
a form restrictive of competition, the presumption of restrictive intent would
not be applicable and, ultimately, the tender would be compliant with Article
18 of Directive 2014/24. Obviously, this test requires further development (and
I will devote some time to developing a more refined proposal in the coming
months).
Linking distortions of competition and favouritism or
corruption: a bidirectional and biunivocal relationship?
The second problematic aspect in the wording of Article 18
of Directive 2014/24 is, in my opinion, the establishment of a iuris et de iure presumption of competitive
distortion in: "Competition shall be considered to be
artificially narrowed where the design of the procurement is made with the
intention of unduly (sic) favouring or disadvantaging certain economic
operators".
This assumption raises a potential problem of (logical) "capture"
of the interpreters of this rule, as they may be tempted to consider that in
the absence of (undue!) favouritism or corruption, no restrictions on
competition are contrary to the precept—that is, they can be inclined to decide
not to apply the "residual" part of the prohibition and limit it exclusively
to cases covered by the presumption. Additionally, while it is true that most
cases of favouritism or corruption will result in a restriction of competition,
this is not always necessarily the case. For example, in cases where the
beneficiary of favouritism could be awarded the contract under competitive
conditions, or in cases in which corrupt practices are added to previous
restrictions of competition created by the bidders active in the market; it
could be argued that there is no (independent) restriction competition and,
therefore, that the presumption is unnecessary or unjustified.
In any case, the instances of favouritism included in the irrebuttable
presumption would (also) be covered by the new rules relating to conflicts of
interest envisaged in Article 24 of Directive 2014/24: "Member States
shall ensure that contracting authorities take appropriate measures to
effectively prevent, identify and remedy conflicts of interest arising in the
conduct of procurement procedures so as to avoid any distortion of competition
and to ensure equal treatment of all economic operators", and can even fit
into one of the headings of mandatory exclusion of Article 57(1)(b) for corruption,
as supplemented by the obligation to terminate the contract under Article 73(b).
Therefore, the establishment of the presumption of
anticompetitive intent in cases of favouritism or discrimination is, in my
opinion, unnecessary and may be counterproductive. Ultimately, I think that it will
be necessary for the bodies responsible for the implementation of these
provisions to clearly distinguish instances of corruption from those of
(simple) restriction of competition and, in the latter scenario, apply the
first part of the principle of competition in an "objectified" manner,
as advocated above.
Conclusion
The consolidation of the principle of competition in Article
18 of Directive 2014/24 should be welcomed, but its wording requires two major
adjustments designed to ensure functionality. On the one hand, it is necessary
to objectify the interpretation and application of the provision and, in my
opinion, this should be done by establishing a rebuttable presumption of competition restrictive intent. Moreover, the irrebuttable presumption of restriction of
competition in cases of favouritism or corruption should be interpreted as not being
exhaustive and should not prevent the widespread application of the (not
necessarily residual) general test of competitive restraint in the absence of (clear)
discrimination.
In any case, it should come as no surprise if the new Article
18 of Directive 2014/24 gives rise to a significant level of litigation.
Are future (lease) contracts covered by the EU public procurement directives? (C-213/13)
In his Opinion of 15 May 2014 in case C-213/13 Impresa Pizzarotti (not available in English, so the following discussion is based on my reading of the Spanish version), Advocate General Nils Wahl has addressed the tricky issue whether future lease contracts, or contracts for the lease of buildings that are yet to be constructed, are covered by the EU public procurement Directives (in particular, by Directive 2004/18, but the interpretation will remain relevant under the new Directive 2014/24, which scope has not changed as far as works contracts are concerned).
The factual background of the case is rather complicated as the Commune di Bari and the Italian Ministry of Justice kept changing the conditions of the financial arrangements concerned with the building and rental of Bari's new city of justice; but, as AG Wahl indicates in his Opinion, the legal issue to be addressed is whether transactions relating to future buildings may fall within the exception to the application of the rules on public contracts--as foreseen in Article 16(a) of Directive 2004/18 [or art 10(a) Dir 2014/24], which indicates that the Directive "shall not apply to public service contracts for: (a) the acquisition or rental, by whatever financial means, of land, existing buildings or other immovable property or concerning rights thereon".
In his view, the exception in Art 16(a) Directive 2004/18 [and now art 10(a) Dir 2014/24] can under no circumstances be interpreted in a way that covers works which execution has not yet started (para 54). On the ultimate basis of the principles of the protection of the internal market's fundamental freedoms and the promotion of effective competition (para 56), AG Wahl clearly argues that
With respect to the exclusion relating to the acquisition or lease of real estate, understood in the broad sense, I believe that it can only refer to existing assets. Indeed, a tender under the application of the rules on public procurement will have little purpose when referred to the lease or sale of an existing and well determined bulding, which is inappropriate for a confrontation with others because of its unique character. Furthermore, it appears from some preparatory works that the exclusion of contracts for lease or purchase of real estate was initially motivated by the local and non cross-border nature of these contracts. However, given that the activities in question involve the future construction of real estate and, therefore, the execution of works, the tendering process and transparency required by these rules are not inappropriate at all and therefore should be applied. Further, in my view, the reference that the provisions in question make to "other (immovable) property" should be understood in the sense that it relates to assets other than land and buildings, and not to goods whose construction has yet to be conducted. [...] In the event that a public administration chooses, within the framework of the installation of certain services, for a formula for the purchase or lease of a work to be constructed, this operation shall be subject to the procurement procedures established by the relevant regulation (Opinion in C-213/13 at paras 60 and 61, own translation from Spanish, references ommitted and emphasis added).
This reasoning must be shared, given the need to interpret the exclusions to the Directives in a restrictive manner (as the AG stresses in his Opinion, at para 58). Incidentally, it is also interesting to stress that in AG Wahl's Opinion, the fact that the aggregated consideration for the lease of the future building does not cover the costs of its construction is insufficient to alter any conclusion as to the existence of a works contracts that should have been tendered under the relevant EU rules (para 80).
In my view, this is an important case, as the adoption of the interpretation suggested by AG Wahl would come to limit the possibilities to exclude certain types of contracts that fall within the broad category of public-private cooperation from the remit of the procurement directives, and seems to put some pressure on the (increased) use of either design contests or full-fledged procurement procedures (probably, from now on, the competitive procedure with negotiation under art 29 dir 2014/24) when contracting authorities seek to have dedicated buildings constructed. Let's hope that the CJEU follows this Opinion.
Principle of competition finally consolidated into public procurement directives
The provisional text of the new public procurement Directives has been made available by the European Parliament. In the final version of 15 of January, the principle of competition is finally consolidated in article 18 of the new general Directive in the following terms: Article 18 - Principles of procurement
1. Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators.
The explicit inclusion of the principle must be welcome, even if its drafting creates some interpretative uncertainties--particularly in regards to the intentional element ("with the intention of [...] artificially narrowing competition") or the way in which the presumption linking (intended) discrimination with an actual distortion of competition.
In my view, these interpretative uncertainties deserve some clarification and there are sufficient interpretative criteria in the "pre-consolidated" case law concerned with competition in public procurement as to drive the clarification process [Sanchez Graells (2009) 'The Principle of Competition Embedded in EC Public Procurement Directives'). The teleological and functional interpretation of the principle still has to go in the direction of acknowledging that it requires that: public procurement rules have to be interpreted and applied in a pro-competitive way, so that they do not hinder, limit, or distort competition. Contracting entities must refrain from implementing any procurement practices that prevent, restrict or distort competition.
At any rate, the explicit consolidation of the principle seems likely to strengthen the use of pro-competitive arguments in public procurement litigation and, hopefully, will drive legal changes. It will be an interesting process to follow closely.
Public procurement and competition: a Swedish perspective
The paper is only available on a subscription basis (http://www.ert.se/content.asp?id=60#) but it offers an interesting summary of several cases where the Swedish courts have attempted an interpretation of the principle of competition that may be relevant (and influential) for the future construction of the soon to be enacted Article 15 of the new EU public sector procurement Directive.
It is interesting to note, for example, the Judgment of the Stockholm Administrative Court of Appeal of 2 February 2011 in case 6528-10m where it clearly spelled out that
The main purpose of EU public procurement law is freedom of movement for goods and services and that the area shall be opened for non-distorted competition. Both [the Swedish Public Procurement Act] and the EU Directives aim at public procurement proceedings to be conducted by utilizing existing competition in the best way. The provisions aim both at making use of competition in a given procurement proceeding and developing effective competition (para 4, Moldén's translation at p. 598 of his paper).
Robert Moldén extensively quotes some of my thoughts in Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011), particularly as the principle of competition in procurement is concerned--which obviously implies that we see things in a very similar manner. Indeed, I fully subscribe his submission that
The competition principle embodied in the Classical Sector Directive imposes an active obligation to ensure that the way they conduct public procurement proceedings is pro-competitive and not anti-competitive. Swedish administrative courts should therefore not treat the Directive's pro-competition provisions as soft law but as hard law, in the sense that infringements of the principle of competition should be considered as infringements of the Swedish Public Procurement Act, in the same way as infringements of, e.g. the principles of proportionality and equality (p. 602).
Despite such commonality of views, I do not think it is biased for me to recommend reading his piece, particularly to any academic or practitioner interested in trying to anticipate the implications of the abovementioned (emerging) general principle of EU public procurement law: ie the principle of competition, as formulated in Article 15 of the new Directive
Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement was made with the intention of unduly favouring or disadvantaging certain economic operators.
** I am thankful to Ignacio Herrera Anchustegui for bringing this paper to my attention.
A jigsaw of qualifications or a procurement puzzle?: CJEU launches a depth charge against certification systems (C-94/12)
In its Judgment of 10 October 2013 in case C-94/12 Swm Costruzioni 2 and Mannocchi Luigino, the Court of Justice of the EU has followed the Opinion of AG Jääskinen (which I praised and supported here) and expanded its antiformalistic case law on the interpretation of the rules controlling participation and selection requirements in public procurement covered by the EU Directives. In my view, this Judgment is a (well-aimed?) depth charge against certification systems based on Article 52 of Directive 2004/18.
More specifically, the CJEU was presented with a request for a preliminary reference concerning the compatibility with EU law of an Italian provision applicable to all works contracts with a value in excess of 150,000 Euro, whereby undertakings that needed to 'team up' and rely on the abilities of other undertakings in order to tender for public works contracts could only do so on a one-to-one basis (ie main contractors were not allowed to build up a 'jigsaw' of qualifications provided by several subcontractors, but had to rely exclusively on the abilities of one subcontractor that was able to deliver the whole of the performance for that given category of works concerned).
Under the controversial Italian rule, "For works contracts, the tenderer may rely on the capacities of only one auxiliary undertaking for each qualification category. The invitation to tender may permit reliance on the capacity of more than one auxiliary undertaking having regard to the value of the contract or the special nature of the services to be provided" (emphasis added).
The CJEU rephrased the question referred by the Italian court and understood that, in essence, it had to rule wheter Articles 47(2) and 48(3) of Directive 2004/18 must be interpreted as precluding a national provision which prohibits, as a general rule, economic operators participating in a tendering procedure for a public works contract from relying on the capacities of more than one undertaking for the same qualification/certification category.
Interestingly, the CJEU spells out that its analysis is based on the final goal of maximising competition (in particular, by means of facilitating SME participation) and finds that:
33 […] it must be held that Directive 2004/18 permits the combining of the capacities of more than one economic operator for the purpose of satisfying the minimum capacity requirements set by the contracting authority, provided that the candidate or tenderer relying on the capacities of one or more other entities proves to that authority that it will actually have at its disposal the resources of those entities necessary for the execution of the contract.
34 Such an interpretation is consistent with the objective pursued by the directives in this area of attaining the widest possible opening-up of public contracts to competition to the benefit not only of economic operators but also contracting authorities (see, to that effect, Case C‑305/08 CoNISMa [2009] ECR I‑12129, paragraph 37 and the case-law cited). In addition, as the Advocate General noted at points 33 and 37 of his Opinion, that interpretation also facilitates the involvement of small- and medium-sized undertakings in the contracts procurement market, an aim also pursued by Directive 2004/18, as stated in recital 32 thereof.
35 It is true that there may be works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator, which, individually, would be inadequate. In such circumstances, the contracting authority would be justified in requiring that the minimum capacity level concerned be achieved by a single economic operator or, where appropriate, by relying on a limited number of economic operators, in accordance with the second subparagraph of Article 44(2) of Directive 2004/18, as long as that requirement is related and proportionate to the subject-matter of the contract at issue.
36 However, since those circumstances constitute an exception, Directive 2004/18 precludes that requirement being made a general rule under national law, which is the effect of a provision such as [the controversial Italian provision] (C-94/12, paras 33-36, emphasis added).
In my view, the Swm Costruzioni Judgment should be welcome as it concerns the anti-formalistic and possibilistic interpretation of the rules on selection of contractors in Directive 2004/18--which are about to be modernised in the new procurement directive, also as 'teaming up' provisions are concerned (see my recent paper: "Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive").
Moreover, it is worth noting that the Judgment does (inadvertently? and) implicitly throw a depth charge against national certification systems. Taking the logic behind the Swm Costruzioni Judgment to its logical extremes, those certification systems should only be in place to cover those contracts where objective circumstances justify the need for the contracting authority to make sure that a single undertaking carry out a specific contract.
Certification systems, then, should only cover "works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator" as, otherwise, the whole certification system is completely superficial if the contracting authority must (as indeed it shall) accept any 'jigsaw' of (partial) certifications presented by a group of undertakings (or by an uncapable main contractor that enters into subcontract agreements) in order to prove that they have sufficient (aggregate) economic, technical and financial standing [something I advocated for in Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 266-268].
Therefore, in my view, the Swm Costruzioni Judgment is actually raising a red flag and stressing that such requirements to be certified or included in the list of pre-approved contractors will ultimately only be compliant with EU law if the specific characteristics of the works to be tendered do justify the need for a single (or very limited number) of undertakings to carry out the project.
Now, this will be puzzling in many jurisdictions that strongly rely on certification systems and pre-approved lists of contractors fro all types (and almost all values) of works contracts, but the (implicit) message seems clear. Therefore, procurement authorities may be better off dismantling those existing systems altogether and bracing themselves (ie getting training and staffing themselves properly) for the revolution that the European Single Procurement Document (ESPD, effectively a set of self-declarations) is about to bring upon. Principle of #competition to be recognised in new #EU #PublicProcurement Rules
In the final compromise text of 12 July 2013 for a new Directive on Public Procurement (available here), the principle of competition is clearly reinstated (see my advocacy for this here) and bound to be clearly and expressly recognised in Article 15 on 'Principles of Procurement'.
In the very clear drafting, the new rules are bound to clarify that:
The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement was made with the intention of unduly favouring or disadvantaging certain economic operators (emphasis added).
It will now be without doubt that market integration in procurement must go hand in hand with promoting and protecting effective competition for public contracts, and that the new rules are ultimately based on this general principle of EU Law already explicitly recognised in the public procurement case law and, more timidly, in its regulation [Sanchez Graells (2009) 'The Principle of Competition Embedded in EC Public Procurement Directives').
This will strengthen the push towards a more competition-oriented public procurement system and, in my view, will boost some of the interpretative proposals that seek to maximise participation in procurement and to minimise the anticompetitive effects of the activities of the public buyer [for my fully-detailed proposals, see Sanchez Graells (2011), Public Procurement and the EU Competition Rules, Hart Publishing].
It is definitely a most welcome development in EU public procurement rules!
With a little help from my friends: AG Jääskinen supports flexible interpretation of rules on reliance on third party capabilities in #publicprocurement
In his Opinion of 28 February 2013 in case C‑94/12 Raggruppamento Temporaneo Imprese (‘RTI’), Advocate General Jääskinen has clearly indicated that the rules of arts 47(2) and 48(3) of Directive 2004/18 preclude national legislation which prohibits, except in special circumstances, reliance on the capacities of more than one auxiliary undertaking in order to fulfill the selection criteria concerning the economic and financial standing and/or technical and/or professional ability of an economic operator tendering for a contract as main contractor.
The approach followed by the AG must be welcome and, in my opinion, his teleological interpretation in view of the 'ultimate' objectives of the Directives deserves particular praise:
31. This argument is further supported by analysis of the objectives of Articles 47(2) and 48(3) of Directive 2004/18. According to the Court, one of the primary objectives of the public procurement rules of the European Union is to attain the widest possible opening‑up to competition, and that it is the concern of European Union law to ensure the widest possible participation by tenderers in a call for tenders.32. The objective of widest possible opening‑up to competition is regarded not only from the interest in the free movement of goods and services, but also in regard to the interest of contracting authorities, who will thus have greater choice as to the most advantageous tender. Exclusion of tenderers based on the number of other entities participating in the execution of the contract such as allowing only one auxiliary undertaking per qualitative criteria category does not allow for a case by case evaluation, thus actually reducing the choices of the contracting authority and affecting effective competition.33. Another objective of the public procurement rules is to open up the public procurement market for all economic operators, regardless of their size. The inclusion of small and medium‑sized enterprises (SMEs) is especially to be encouraged as SMEs are considered to form the backbone of European Union economy. The chances of SMEs to participate in tendering procedures and to be awarded public works contracts are hindered, among other factors, by the size of the contracts. Because of this, the possibility for bidders to participate in groups relying on the capacities of auxiliary undertakings is particularly important in facilitating the access to markets of SMEs. (AG in C-94/12 at paras 31 to 33, emphasis added).
These considerations rely on a conception of public procurement as a 'competition-enhancing' tool, which I personally very much favor [A Sanchez Graells, Public Procurement and the EU Competition Rules, Oxford: Hart Publishing, 2011]. However, relevant commentators such as Professor Arrowsmith continue to oppose this approach [S Arrowsmith, "The Purpose of the EU Procurement Directives: Ends, Means and the Implications for National Regulatory Space for Commercial and Horizontal Procurement Policies", in C. Barnard, M. Gehring and I. Solanke (eds.), Cambridge Yearbook of European Legal Studies (Hart Publishing, Oxford, 2011-2012), Vol. 14, pp.1-48]. Therefore, the doctrinal debate that the RTI Opinion in brings to the spotlight deserves some attention.
I think that it will be interesting to see if the CJEU expressly adopts the reasoning of AG Jääskinen in the final Judgment in the RTI case. If so, I think that the path towards the express and full recognition of the principle of competition in public procurement will continue to be paved and that there will be opportunities for further developments in the right direction.
http://youtu.be/gQLtCoh5EaI