A quick, non-comprehensive update on circular economy and public procurement

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A friend and I have been discussing sustainability and property regulation for a while. In particular, he has been quizzing me on the potential for public procurement to promote a (more) circular economy for a few years now. We last touched upon this in mid-2015. In a recent email exchange, he asked me to look at what had happened since at EU level. This is what I came up with. I thought I would share it in case someone is interested in a quick, non-comprehensive update on circular economy and public procurement. Here it is. Please feel free to add to this in the comments section!

In June 2017, the European Parliament published a report it had commissioned on 'Green Public Procurement and the EU Action Plan for the Circular Economy'. In October 2017, the Directorate General for the Environment of the European Commission published this brochure of best practices (of which I was rather critical in my blog). There have been additional best practice guides put together by entities receiving EU funding, eg ICLEI or CircularPP.

This is still a weak policy intervention in the form of best practice dissemination (ie even weaker than soft law guidelines), which is supported with some additional initiatives, such as the Circular Europe Network. However, in their own words 'the integration between PP and circular economy is still at its early stage at the EU level.' (Factsheet on Public Procurement and Circular Economy, tab 2.3).

Some countries are taking the use of procurement to push for a more circular economy to reduce the environmental impact of public sector activities more seriously than others, and the construction sector seems to be ahead of others (see eg this recent report). Denmark is perhaps at the forefront of trying to use procurement for a circular economy (see eg this case study), together with the other Nordic countries and The Netherlands (see eg this 2017 report, or the 10 case studies included in the construction sector report above). There is not much going on in the UK at all (I could only find a 2016 4-pager on general aspects of circular economy that mentions procurement in passing).

There are a couple of interesting-looking academic papers: Witjes & Lozano (2016) and Alhola et al (2018), the latter being the same authors of the report on the Nordic countries above.

** Postscript (11/10/2019 11.20am) - Thanks to Dr Lela Mélon for highlighting the March 2019 Report on ‘Accelerating the transition to a circular economy‘ and for pointing out that this is ‘an overarching policy example that omits the amount of private capital needed for a transition to occur at a noteworthy scale (e.g. mentioning the EU public funds to be employed to that effect but omitting the size of the whole funding needed for the transition)‘.

The Norwegian Supreme Court Gives its Final Word in the Fosen-Linjen Saga [guest post by Dag Sørlie Lund]

The Fosen-Linjen Saga has finally come to a close with the Norwegian Supreme Court’s Judgment. Dag Sørlie Lund* kindly provides a sharp summary of the case while we await for any official translations. His fuller critical assessment of the Judgment will be included in the EPPPL special issue we are working on.

The Norwegian Supreme Court Gives its
Final Word in the Fosen-Linjen Saga

The so-called Fosen-Linjen Saga has finally come to its long-awaited end by the judgment of the Norwegian Supreme Court of 27 September 2019, more than 6 years after the company AtB tendered for the procurement of ferry services between Brekstad and Valset in the County of Trøndelag.

The contract was initially awarded to the company Norled. The competitor, Fosen-Linjen, which was ranked as the runner-up, claimed Norled had been awarded the contract unlawfully, and managed to stop the signing of the contract through interim measures. In the interim measures procedure two errors were identified by the courts:

  1. AtB had not required the necessary documentation for the award criteria “environment”; and

  2. AtB had not verified the viability in Norled’s offer regarding fuel consumption (which was part of the criteria “environment”).

As a result of this, AtB decided to cancel the tender procedure, and restart the whole process.

Fosen-Linjen did not submit a new tender, but instead filed a law suit against AtB claiming damages for the positive interest, or, in the alternative, the negative contract interest. The negative contract interests essentially amounts to the costs of tendering (damnum emergens), while the positive contract interest essentially amounts to the loss of profit (lucrum cessans).

The Supreme Court’s judgment clarifies several key questions about public procurement law related to the threshold for damages, and for the requirement of causality between the breach and the damages. Furthermore, the ruling contains interesting assessments of legitimate grounds to cancel a tender procedure, and the significance of the fact that a tenderer submits an offer despite being aware of errors in the procurement documents for the possibility to receive damages. The judgment is unanimous for all but the question of causality for damages for the negative contract interest, where one justice had a concurring opinion with a slightly different approach. For the purposes of this summary, I will not go further into the differences in the concurring opinion.

The Principle of State liability for breaches of EEA Law

The Supreme Court starts out by grounding the liability for damages in the general principle of State liability for breaches of EEA law. According to this principle an EEA State may be held liable for breaches of its obligations where the following three conditions are met:

  1. The breached provision of EEA law must be intended to confer rights on individuals and economic operators;

  2. The breach must be considered as sufficiently serious; and

  3. There must be a direct causal link between the breach of the obligation in question and the damage suffered by the aggrieved party.

The first condition was clearly met, and the case before the Supreme Court thus mainly concerned the question of the threshold for receiving damages and what it takes to establish a direct causal link for damages for negative costs. A particularly disputed question in the Fosen-Linjen Saga, has been whether the threshold for damages for the negative and the positive contract interests is different. Under Norwegian law, it has traditionally been easier to receive compensation for the negative costs than for the positive costs.

The Positive Contract Interest

The Supreme Court rejected Fosen-Linjen’s claim for damages for the positive interest since there were sufficient grounds to cancel the tender procedure. In fact, there were two grounds for cancelling the procedure.

First, the Supreme Court considered that the identification of the two errors in the interim measures proceedings raised serious doubts about the lawfulness of the procedure. These doubts were considered as sufficient grounds to cancel the tender procedure.

Second, it was also considered that the fact that AtB did not require the necessary documentation for the award criteria “environment”, also constituted sufficient grounds to cancel.

Consequently, the Supreme Court concluded that since the cancellation was lawful, Fosen-Linjen could not receive damages for the positive contract interest. This part of the judgment is somewhat confusing, since it appears to consider the question of causality rather than the question of whether the breach was sufficiently serious: since the tender procedure was lawfully cancelled, no one could ever be awarded the contract, and thus no one would ever have a claim for the loss of profit.

This is particularly confusing since the Appeals Selection Committee of the Supreme Court had explicitly rejected the question of causality for the positive contract interest from being heard by the Supreme Court. This is all the more puzzling since the Supreme Court appears to have been aware of this distinction, noting that the cancellation did not exclude the possibility for damages for the negative contract interest, which shows that the question of liability was not conceptually excluded by the fact of the cancellation.

The Negative Contract Interest

As mentioned, the traditional approach in Norwegian torts law is that the threshold is lower when it comes to damages for the negative costs.

Based on its reading of case law from the CJEU and the EFTA Court, the Supreme Court held, however, that the test for receiving damages, regardless of the categorization of the damages as negative or positive costs, is whether the breach in question may be considered “sufficiently serious”. The Supreme Court outright rejected the suggestion that the threshold might be lower under Norwegian tort law.

In the assessment of whether a breach is sufficiently serious, the Supreme Court noted that it may not be required to demonstrate fault or fraud, although both subjective and objective factors included in the traditional assessment of liability under national tort law, may be relevant to take into account.

Same same, but different

Despite this description of the test for receiving damages, the Supreme Court emphasized that the norm could not be characterized as more or less strict than would otherwise follow from Norwegian tort law, but that the assessment may be somewhat different.

The Supreme Court identified the norm as a sliding scale where the crucial point appears to be the level of discretion enjoyed by the contracting authority – from wide to none at all.

The rule that was breached in the tender procedure – namely the obligation to require necessary documentation for an award criterion – was found to be clear and precise. Accordingly, the Supreme Court found that AtB was liable for the negative costs. In that regard, it was pointed out that AtB twice received questions that raised doubts as to the lawfulness of the award criteria, which combined with the consequences caused by the breach, led to the conclusion that the threshold of “sufficiently serious” was passed.

It’s worth noting that despite the fact that the Supreme Court rejected that a contracting authority might escape liability by claiming not to possess the necessary powers, knowledge, means or resources, it still considered the complexity of the public procurement rules indicated a certain restraint or caution in establishing liability.

Direct Causal Link

Concerning the question of a direct causal link between the breach and the damage, the Supreme Court asked whether the tenderer would have submitted an offer if they had known about the error committed.

Even though the fact that AtB had not required the necessary documentation for the award criteria “environment” was clearly visible for Fosen-Linjen, the Supreme Court considered that this criterion was met since AtB had considered the procurement documents to be lawful despite the fact that the error had been pointed out twice during the tendering procedure. This part of the judgment is also confusing, as it is not entirely clear why the subjective view of the contract authority is relevant when assessing the question of causality.

Unanswered questions

The Supreme Court thus disentangled many key questions about liability for breaches of procurement rules, but some issues remain unanswered. For example, the Supreme Court did not rule on the question of whether liability is conceptually possible where the tendering process should have been cancelled, but this doesn’t happen. Furthermore, as mentioned above, the question regarding direct causal link for damages for the positive interest was not accepted to be heard by the Supreme Court, so the particularities of that assessment was not further clarified. Considering the attention these questions have received through the Fosen-Linjen Saga, it is probably only a matter of time before these will materialize themselves in future cases, with new sagas in national courts and in Luxembourg.

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Dag Sørlie Lund

Dag Sørlie Lund is part of our European and Competition law team. He has previously worked at the Department of Legal Affairs in the Ministry of Foreign Affairs, the EFTA Court, the EFTA Surveillance Authority (ESA), and as an attorney. He has experience in advising clients in EU/EEA and competition law, including state aid and public procurement law.

Dag has handled a number of cases concerning the EFTA Surveillance Authority, and has pleaded several cases before the Court of Justice for the European Union and the EFTA Court. Dag has lived in Spain, Belgium and Luxembourg, and speaks Spanish and English fluently.

Some quick thoughts on NHS’s recommendations to Government and Parliament for an NHS Bill

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On 26 September 2019, NHS England and NHS Improvement Strategy and Innovation Directorate published the "NHS’s recommendations to Government and Parliament for an NHS Bill" supporting the NHS Long-term Plan. This is a document that provides additional details on the initial proposals of 28 February 2019, after the results of a public consultation have been taken into account.

Having read and mulled it over, I think a specific passage of para 96 (in blue) evidences two major misunderstandings underpinning the approach adopted by NHS England and NHS Improvement.

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First, there is an improper characterisation of the rules in the Public Contracts Regulations 2015 as exceedingly rigid and as preventing procurement of NHS services on the basis of quality and patient experience considerations over price or cost. This flies in the face of reg 67 PCR2015, which explicitly allows for trade-offs between price/cost and quality considerations in the award of *any type* of public contract, as the contracting authority is free to determine what is best value / most economically advantageous. This also ignores i.a. the special award criteria for healthcare and other social services in reg 76 PCR2015 and the extra flexibility this creates, as per the Crown Commercial Service’s guidance, or academic commentary such as eg Pedro Telles and mine.

Second, the subjection of NHS services procurement to PCR2015 rules is attributed to EU law. However, this ignores the UK's unilateral power to exercise discretion under very significant possibilities for structuring NHS governance in a manner that wouldn't trigger those rules. This includes the space for in-house & public-public cooperation under Directive 2014/24/EU, as well as possibility of creating voucher systems underpinning patient choice in a manner that would exclude procurement rules (under Falk Pharma/Tirkonnen, see here).

Ultimately, the totality of the Sept 2019 proposals continues to ignore the origin and implications of the UK's domestic choice of structuring NHS governance around an 'NHS internal market', and solely seek to de-regulate rather than de-marketise the NHS. The same issues I raised in written evidence to the House of Commons Health and Social Care Committee regarding the previous iteration of proposals by NHS England and NHS Improvement remain relevant.

In my opinion, they should be taken into due consideration in the context of scrutinising any future NHS Bill. After all, the new proposals have cherry-picked from the Health and Social Care Committee's report and ignored crucial parts of its recommendations [2] and [7] (see here for more details).

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Failing to explore all possibilities under current rules (including under EU law) and pushing for the mere de-regulation of the NHS could have severe negative impacts on efficiency and oversight of NHS expenditure. I submit that it would not be in the public interest.

'Experimental' WEF/UK Guidelines for AI Procurement: some comments

ⓒ Scott Richard, Liquid painting (2015).

ⓒ Scott Richard, Liquid painting (2015).

On 20 September 2019, and as part of its ‘Unlocking Public Sector Artificial Intelligence’ project, the World Economic Forum (WEF) published the White Paper Guidelines for AI Procurement (see also press release), with which it seeks to help governments accelerate efficiencies through responsible use of artificial intelligence and prepare for future risks. WEF indicated that over the next six months, governments around the world will test and pilot these guidelines (for now, there are indications of adoption in the UK, the United Arab Emirates and Colombia), and that further iterations will be published based on feedback learned on the ground.

Building on previous work on the Data Ethics Framework and the Guide to using AI in the Public Sector, the UK’s Office for Artificial Intelligence has decided to adopt its own draft version of the Guidelines for AI Procurement with substantially the same content, but with modified language and a narrower scope of some principles, in order to link them to the UK’s legislative and regulatory framework (and, in particular, the Data Ethics Framework). The UK will be the first country to trial the guidelines in pilot projects across several departments. The UK Government hopes that the new Guidelines for AI Procurement will help inform and empower buyers in the public sector, helping them to evaluate suppliers, then confidently and responsibly procure AI technologies for the benefit of citizens.

In this post, I offer some first thoughts about the Guidelines for AI Procurement, based on the WEF’s version, which is helpfully summarised in the table below.

Source: WEF, White Paper: ‘Guidelines for AI Procurement’ at 6.

Source: WEF, White Paper: ‘Guidelines for AI Procurement’ at 6.

Some Comments

Generally, it is worth being mindful that the ‘guidelines provide fundamental considerations that a government should address before acquiring and deploying AI solutions and services. They apply once it has been determined that the solution needed for a problem could be AI-driven’ (emphasis in original). As the UK’s version usefully stresses, many of the important decisions take place at the preparation and planning stages, before publishing a contract notice. Therefore, more than guidance for AI procurement, this is guidance on the design of a framework for the governance of innovative digital technologies procurement, including AI (but easily extendable to eg blockchain-based solutions), which will still require a second tier of (future/additional) guidance on the implementation of procurement procedures for the acquisition of AI-based solutions.

It is also worth stressing from the outset that the guidelines assume both the availability and a deep understanding by the contracting authority of the data that can be used to train and deploy the AI solutions, which is perhaps not fully reflective of the existing difficulties concerning the availability and quality of procurement data, and public sector data more generally [for discussion, see A Sanchez-Graells, 'Data-Driven and Digital Procurement Governance: Revisiting Two Well-Known Elephant Tales' (2019) Communications Law, forthcoming]. Where such knowledge is not readily available, it seems likely that the contracting authority may require the prior engagement of data consultants that could carry out an assessment of the data that is or could be available and its potential uses. This creates the need to roll-back some of the considerations included in the guidelines to that earlier stage, much along the lines of the issues concerning preliminary market consultations and the neutralisation of any advantages or conflicts of interest of undertakings involved in pre-tender discussions, which are also common issues with non-AI procurement of innovation. This can be rather tricky, in particular if there is a significant imbalance in expertise around data science and/or a shortfall in those skills in the contracting authority. Therefore, perhaps as a prior recommendation (or an expansion of guideline 7), it may be worth bearing in mind that the public sector needs to invest significant resources in hiring and retaining the necessary in-house capacities before engaging in the acquisition of complex (digital) technologies.

1. Use procurement processes that focus not on prescribing a specific solution, but rather on outlining problems and opportunities and allow room for iteration.

The fit of this recommendation with the existing regulation of procurement procedures seems to point towards either innovation partnerships (for new solutions) or dynamic purchasing systems (for existing or relatively off-the-shelf solutions). The reference to dynamic purchasing systems is slightly odd here, as solutions are unlikely to be susceptible of automatic deployment in any given context.

Moreover, this may not necessarily be the only possible approach under EU law and there seems to be significant scope to channel technology contests under the rules for design contests (Arts 78 and ff of Directive 2014/24/EU). The limited appetite of innovative start-ups for procurement systems that do not provide them with ‘market exposure’ (such as large framework agreements, but likely also dynamic purchasing systems) may be relevant, depending on market conditions (see eg PUBLIC, Buying into the Future. How to Deliver Innovation through Public Procurement (2019) 23). This could create opportunities for broader calls for technological innovation, perhaps as a phase prior to conducting a more structured (and expensive) procurement procedure for an innovation partnership.

All in all, it would seem like—at least at UK level, or in any other jurisdictions seeking to pilot the guidance—it could be advisable to design a standard procurement procedure for AI-related market engagement, in order to avoid having each willing contracting authority having to reinvent the wheel.

2. Define the public benefit of using AI while assessing risks.

Like with many other aspects of the guidelines, one of the difficulties here is to try to establish actionable measures to deal with ‘unknown unknowns’ that may emerge only in the implementation phase, or well into the deployment of the solution. It would be naive to assume that the contracting authority—or the potential tenderers—can anticipate all possible risks and design adequate mitigating strategies. It would thus perhaps be wise to recommend the use of AI solutions for public sector / public service use cases that have a limited impact on individual rights, as a way to gain much necessary expertise and know-how before proceeding to deployment in more sensitive areas.

Moreover, this is perhaps the recommendation that is more difficult to instrument in procurement terms (under the EU rules), as the consideration of ‘public benefit’ seems to be a matter for the contracting authority’s sole assessment, which could eventually lead to a cancellation—with or without retendering—of the procurement. It is difficult to see how to design evaluation tools (in terms of both technical specifications and award criteria) capable of capturing the insight that ‘public benefit extends beyond value for money and also includes considerations about transparency of the decision-making process and other factors that are included in these guidelines’. This should thus likely be built into the procurement process through opportunities for the contracting authority to discontinue the project (with no or limited compensation), which also points towards the structure of the innovation partnership as the regulated procedure most likely to fit.

3. Aim to include your procurement within a strategy for AI adoption across government and learn from others.

This is mainly aimed at ensuring cross-sharing of experiences and at concentrating the need for specific AI-based solutions, which makes sense. The difficulty will be in the practical implementation of this in a quickly-changing setting, which could be facilitated by the creation of a mandatory (not necessarily public) centralised register of AI-based projects, as well as the consideration of the creation and mandatory involvement of a specialised administrative unit. This would be linked to the general comment on the need to invest in skills, but could alleviate the financial impact by making the resources available across Government rather than having each contracting authority create its own expert team.

4. Ensure that legislation and codes of practice are incorporated in the RFP.

Both aspects of this guideline are problematic to a lawyer’s eyes. It is not a matter of legal imperialism to simply consider that there have to be more general mechanisms to ensure that procurement procedures (not only for digital technologies) are fully legally compliant.

The recommendation to carry out a comprehensive review of the legal system to identify all applicable rules and then ‘Incorporate those rules and norms into the RFP by referring to the originating laws and regulations’ does not make a lot of sense, since the inclusion or not in the RFP does not affect the enforceability of those rules, and given the practical impossibility for a contracting authority to assess the entirety of rules applicable to different tenderers, in particular if they are based in other jurisdictions. It would also create all sorts of problems in terms of potential claims of legitimate expectations by tenderers. Moreover, under EU law, there is case law (such as Pizzo and Connexxion Taxi Services) that creates conflicting incentives for the inclusion of specific references to rules and their interpretation in tender documents.

The recommendation on balancing trade secret protection and public interest, including data privacy compliance, is just insufficient and falls well short of the challenge of addressing these complex issues. The tension between general duties of administrative law and the opacity of algorithms (in particular where they are protected by IP or trade secrets protections) is one of the most heated ongoing debates in legal and governance scholarship. It also obviates the need to distinguish between the different rules applicable to the data and to the algorithms, as well as the paramount relevance of the General Data Protection Regulation in this context (at least where EU data is concerned).

5. Articulate the technical feasibility and governance considerations of obtaining relevant data.

This is, in my view, the strongest part of the guidelines. The stress on the need to ensure access to data as a pre-requisite for any AI project and the emphasis and detail put in the design of the relevant data governance structure ahead of the procurement could not be clearer. The difficulty, however, will be in getting most contracting authorities to this level of data-readiness. As mentioned above, the guidelines assume a level of competence that seems too advanced for most contracting authorities potentially interested in carrying out AI-based projects, or that could benefit from them.

6. Highlight the technical and ethical limitations of using the data to avoid issues such as bias.

This guideline is also premised on advanced knowledge and understanding of the data by the contracting authority, and thus creates the same challenges (as further discussed below).

7. Work with a diverse, multidisciplinary team.

Once again, this will be expensive and create some organisational challenges (as also discussed below).

8. Focus throughout the procurement process on mechanisms of accountability and transparency norms.

This is another rather naive and limited aspect of the guidelines, in particular the final point that ‘If an algorithm will be making decisions that affect people’s rights and public benefits, describe how the administrative process would preserve due process by enabling the contestability of automated decision-making in those circumstances.' This is another of the hotly-debated issues surrounding the deployment of AI in the public sector and it seems unlikely that a contracting authority will be able to provide the necessary answers to issues that are yet to be determined—eg the difficult interpretive issues surrounding solely automated processing of personal data under the General Data Protection Regulation, as discussed in eg M Finck, ‘Automated Decision-Making and Administrative Law’ (2019) Max Planck Institute for Innovation and Competition Research Paper No. 19-10.

9. Implement a process for the continued engagement of the AI provider with the acquiring entity for knowledge transfer and long-term risk assessment.

This is another area of general strength in the guidelines, which under EU procurement law should be channeled through stringent contract performance conditions (Art 70 Directive 2014/24/EU) or, perhaps even better, by creating secondary regulation on mandatory on-going support and knowledge transfer for all AI-based implementations in the public sector.

The only aspect of this guideline that is problematic concerns the mention that, in relation to ethical considerations, ‘Bidders should be able not only to describe their approach to the above, but also to provide examples of projects, complete with client references, where these considerations have been followed.’ This would clearly be a problem for new entrants, as well as generate rather significant first-mover advantages for undertakings with prior experience (likely in the private sector). In my view, this should be removed from the guidelines.

10. Create the conditions for a level and fair playing field among AI solution providers.

This section includes significant challenges concerning issues related to the ownership of IP on AI-based solutions. Most of the recommendations seem rather complicated to implement in practice, such as the reference to the need to ‘Consider strategies to avoid vendor lock-in, particularly in relation to black-box algorithms. These practices could involve the use of open standards, royalty-free licensing and public domain publication terms’, or to ‘'consider whether [the] department should own that IP and how it would control it [in particular in the context of evolution or new design of the algorithms]. The arrangements should be mutually beneficial and fair, and require royalty-free licensing when adopting a system that includes IP controlled by a vendor’. These are also extremely complex and debated issues and, once again, it seems unlikely that a contracting authority will be able to provide all relevant answers.

Overall assessment

The main strength of the guidelines lies in its recommendations concerning the evaluation of data availability and quality, as well as the need to create robust data governance frameworks and the need to have a deep insight into data limitations and biases (guidelines 5 and 6). There are also some useful, although rather self-explanatory reminders of basic planning issues concerning the need to ensure the relevant skillset and the unavoidable multidisciplinarity of teams working in AI (guidelines 3 and 7). Similarly, the guidelines provide some very high-level indications on how to structure the procurement process (guidelines 1, 2 and 9), which will however require much more detailed (future/additional) guidance before they can be implemented by a contracting authority.

However, in all other aspects, the guidelines work as an issue-spotting instrument rather than as a guidance tool. This is clearly the case concerning the tensions between data privacy, good administration and proprietary protection of the IP and trade secrets underlying AI-based solutions (guidelines 4, 8 and 10). In my view, rather than taking the naive—and potentially misleading—approach of indicating the issues that contracting authorities need to address (in the RFP, or elsewhere) as if they were currently (easily, or at all) addressable at that level of administrative practice, the guidelines should provide sufficiently precise and goal-oriented recommendations on how to do so if they are to be useful. This is not an easy task and much more work seems necessary before the document can provide useful support to contracting authorities seeking to implement procedures for the procurement of AI-based solutions. I thus wonder how much learning can the guidelines generate in the pilots to be conducted in the UK and elsewhere. For now, I would recommend other governments to wait and see before ‘adopting’ the guidelines or treating them as a useful policy tool, in particular if that discouraged them from carrying out their own efforts in developing actionable guidance on how to procure AI-based solutions.

Finally, it does not take much reading between the lines to realise that the challenges of developing an enabling data architecture and upskilling the public sector (not solely the procurement workforce, and perhaps through specialised units, as a first step) so that it is able to identify the potential for AI-based solutions and to adequately govern their design and implementation remain as very likely stumbling blocks in the road towards deployment of public sector AI. In that regard, general initiatives concerning the availability of quality procurement data and the necessary reform of public procurement teams to fill the data science and programming gaps that currently exist should remain the priority—at least in the EU, as discussed in A Sanchez-Graells, EU Public Procurement Policy and the Fourth Industrial Revolution: Pushing and Pulling as One? (2019) SSRN working paper, and in idem, 'Some public procurement challenges in supporting and delivering smart urban mobility: procurement data, discretion and expertise', in M Finck, M Lamping, V Moscon & H Richter (eds), Smart Urban Mobility – Law, Regulation, and Policy, MPI Studies on Intellectual Property and Competition Law (Berlin, Springer, 2020) forthcoming.

Litigation in Spanish railroad electrification cartel highlights further inadequacies of regulation of bid rigger exclusion

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In a new episode of the Spanish sainete of the railroad electrification cartel (see here for an overview), it has now emerged that one of the companies affected by the exclusion ground (prohibición de contratar) declared in the resolution of the Spanish National Commission on Markets and Competition (CNMC) of 14 March 2019 subsequently secured interim measures suspending its effectiveness on 19 July 2019.

The freezing order prevents (Spanish) contracting authorities from relying on the exclusion ground and thus shortens the maximum period of (future) exclusion of the colluding companies, unless the CJEU revises its case law on the time-limit calculation for such grounds established in Vossloh-Laeis (24 October 2018, C-124/17, EU:C:2018:855). The decision also highlights issues concerning the cross-border effects of litigation on exclusion grounds. In this follow-up post, I discuss these two issues.

The interim measures decision

Quick recap: it should be stressed that the Spanish transposition of Article 57(4)(d) has resulted in a system whereby the exclusion of economic operators on the basis of previous infringements of competition law is mandatory under Article 71 of Law 9/2017 on Public Sector Procurement (LCSP). However, the scope and duration of such exclusion generates some difficulties, in particular when they are not established in the original decision declaring the infraction and imposing the measure—which is precisely the case of the railroad electrification cartel. In such cases, a further administrative procedure needs to be completed and the scope and duration of the mandatory exclusion (prohibición de contratar) are to be established by decision of the competent Minister.

The effectiveness of the mandatory exclusion ground in the period running from the initial infringement decision and the further Ministerial decision is contested. Two opposing schools of thought exist. One that gives automatic effect to the exclusion ground despite the future specification of its scope and duration, and the opposing view that considers that the measure is incomplete and cannot generate (negative) effects against the sanctioned undertaking until the Ministerial decision is adopted.

The CNMC expressed the first view in its railroad electrification decision, when it stated that ‘regardless of the time limits within which the duration and scope [of the prohibition] must be set [by the Minister of Finance] ... it is possible to identify an automatism in the prohibition of contracting derived from competition law infringements, which derives ope legis or as a mere consequence of the adoption of a decision that declares said infraction, as established in the mentioned Article 71.1.b) of [Law 9/2017]‘ (page 319, own translation full decision available in Spanish).

The Spanish High Court (Audiencia Nacional), in a Judgment of 19 July 2019 (ES:AN:2019:1673A, hat tip to Alfonso Rincón García-Loygorri for posting it on LinkedIn) adopted the same view and recognised that the measure was bound to immediately restrict the affected undertakings’ ability to participate in public tenders. Considering that it is likely that the final decision on the main appeal of the cartel decision arrives after the expiry of the three year maximum duration foreseen for the exclusion ground and that (should the appellant prevail) the effects of such exclusion would be very difficult, if not impossible to correct at that stage, the High Court decided to suspend the effectiveness of the mandatory exclusion ground.

Implications in terms of maximum duration of the exclusion

Quick recap: the CJEU has established that ‘where an economic operator has been engaged in conduct falling within the ground for exclusion referred to in Article 57(4)(d) of that directive, which has been penalised by a competent authority, the maximum period of exclusion is calculated from the date of the decision of that authority‘ (Vossloh Laeis, above, para 42).

I criticised the CNMC for creating legal uncertainty by not establishing the scope and duration of the exclusion ground in its initial decision. I argued that the CNMC knew or should have known that, as a matter of directly applicable EU law, de facto the maximum exclusion period can run for three years, up to 14 March 2022. Therefore, by referring the file to the Minister and creating legal uncertainty as to the interim effects of the prohibition to contract with a yet to be specified scope and duration, the CNMC actually bought the competition infringers time and created a situation where any finally imposed prohibition to contract is likely to last for much less than the maximum three years.

The High Court’s Judgment raises the same criticisms. While the High Court explicitly took into account the fact that the undertakings could find themselves in a position of not being easily compensated for the undue exclusion from public tenders in case of prevailing in their appeal of the CNMC decision, the High Court ignored that its freezing order will create the reverse effect in case the appeal is dismissed. By preventing (Spanish) contracting authorities from excluding the competition infringers from tenders for an indefinite period starting on 19 July 2019, the High Court has created the risk that the undertakings are never excluded from public tenders because such exclusion is time barred by the time the CNMC decision becomes final—which does not solely depend on the outcome of the High Court’s proceedings, but is subject to a potential further appeal to the Supreme Court.

This highlights once again the inadequacy—or, at least, partiality—of the CJEU Vossloh criterion that the maximum period of exclusion starts running at the time of adoption of the initial infringement decision. It seems clear that, where that decision is contested and, in particular, where interim measures are obtained to freeze its effects—the maximum period of exclusion needs to be calculated taking that into account. Otherwise, the simple fact of litigating buys competition infringers immunity from the debarment system foreseen in Directive 2014/24/EU and thus excludes its effet utile. That cannot be right.

Territoriality of effects

The new episode of the Spanish sainete also raises questions concerning the cross-border effects of the CNMC decision. While Spanish contracting authorities are effectively enjoined from giving effect to the mandatory exclusion ground, the situation is by no means necessarily the same in other EU/EEA jurisdictions. Non-Spanish contracting authorities could (justifiably) be tempted to apply domestic mandatory or discretionary exclusion grounds based on the fact that the relevant undertakings were sanctioned for bid rigging by the CNMC. This could be the case whether they are aware or not of the High Court Judgment, in particular where they have discretion in this matter.

Should any such decision be challenged, the issue should make its way to the CJEU, which would have a hard time finding ways of squaring this practical difficulty with the differentiated treatment that Art 57 of Directive gives to grounds based on a ‘conviction by final judgment‘ (Art 57(1)) and those based on decisions and judgments not subjected to that finality requirement (notably, Art 57(4)), as well as with the self-imposed constraint of the way the maximum time-limit is calculated as per Vossloh.

Once again, we are yet to see the final act of this sainete…

Two related comments on the Fosen-Linjen saga

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**This post is only for enthusiasts of the regulation of procurement damages out there**

You may have missed it (though being an enthusiast, you probably didn’t) but, in the middle of the summer, the EFTA Court U-turned in its Fosen-Linjen II Judgment by stressing that ‘Article 2(1)(c) of the Remedies Directive does not require that any breach of the rules governing public procurement in itself is sufficient to award damages’ (see here).

Notoriously, this was a 180° move away from its earlier Fosen-Linjen I Judgment, where it had controversially stated that ‘A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority … pursuant to Article 2(1)(c) of Directive 89/665/EEC‘ (see here and here and, for extended discussion, A Sanchez-Graells, ‘You Can’t Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law after the EFTA Court’s Fosen-Linjen Opinion’ (2018) 1(1) Nordic Journal of European Law 1-23).

The Fosen-Linjen saga deserves careful analysis and we are putting together a special issue of the European Procurement & Public Private Partnership Law Review that will provide complementary perspectives from EEA, Norwegian, EU, comparative and fundamental rights law. I have also prepared a longer case note for another law review. In case they are of interest, I have made drafts of both of those available on SSRN. Some overlap was unavoidable, so please read selectively!

  • Sanchez-Graells, Albert, Liability threshold for damages in public procurement: The EFTA Court’s Fosen-Linjen Saga (September 17, 2019). Available at SSRN: https://ssrn.com/abstract=3455222.

  • Sanchez-Graells, Albert, The EFTA Court’s Fosen-Linjen saga on the liability threshold for damages claims for breach of EU public procurement law: a there and back again walk (September 16, 2019). To be published in a forthcoming special issue of the European Procurement & Public Private Partnership Law Review. Available at SSRN: https://ssrn.com/abstract=3455213.

Public procurement digitalisation: A step forward or two steps back? [guest post by Dr Kirsi-Maria Halonen]

In this guest post, Dr Kirsi-Maria Halonen offers some exploratory thoughts on the digitalisation of public procurement, its difficulties and some governance and competition implications. This post is based on the presentation she gave at a Finnish legal research seminar “Oikeustieteen päivät”, Aalto University, on 28-29 September 2019.

Digitalisation of procurement - background and goals

Digitalisation and e-procurement are considered to enhance the efficiency of the procurement process in the EU’s internal market. In line with the European Commission’s 2017 Procurement Strategy, procurement digitalisation can unlock better and faster transparency across the internal market, thus ensuring the possibility for economic operators to become aware of business opportunities, the facilitation of access to public tenders and the dissemination of information on the conditions of the award of public contracts.

Beyond mere transparency gains, procurement digitalisation is also expected to Increase the integrity of the awarding process and the public officials involved, thus fostering corruption prevention and good administrative practices. Finally, digitalisation is also expected to open new, more efficient monitoring possibilities both before and after contract execution, as well as the deployment of advanced big data analytics.

Directive 2014/24/EU and procurement digitalisation

Digitalisation and e-procurement are some of the main goals of Directive 2014/24/EU. Since October 2018, these rules impose the mandatory use of electronic communications throughout the whole public contract award procedure (eCommunication), the submission of tenders in electronic form (eSubmission) and created detailed rules for procedures meant solely for eProcurement, as well as simplified information exchange mechanisms (such as the ESPD) to facilitate electronic processing of procurement information.

Although the digital requirements in the Directive do not yet cover pre-award market consultations or post-award contracts and contract amendments, there are some trends to indicate that these may be the next areas of digitalisation of procurement.

State of the art at Member State level

Many Member States have taken digitalisation and transparency in public procurement even further than the requirements of Directive 2014/24/EU. Many contracting authorities use eProcurement systems for the management of the entire life-cycle of the tendering process. In Finland, there is now consolidated experience with not only an eProcurement system, but also with an open access Government spend database. Similarly, Portugal, Spain, Italy, Slovakia and Poland have also created open access contract registers for all public contracts and contract amendments.

Additionally, many Member States are committed to wider transparency outside the procurement procedures. For example, there is an emerging practice of publication of pre-tendering market consultation documents or audio/video meeting records. It is also increasingly common to provide open access to contract performance documents, such as bills, payments and performance acceptance (eg the UK national action plan on open contracting).

Concerns and opportunities in the digitalisation of procurement

Given the current trends of development of digital procurement, it is necessary to reflect not only on the opportunities that the roll-out of these technologies creates, but also some concerns that arise from increased transparency and the implications of this different mode of procurement governance. Below are some thoughts on four interrelated dimensions: corruption, SME participation, adoption of blockchain-base and algorithmic tools, and competition for public contracts.

Corruption

Public Procurement and other commercial relationships (eg real estate development) between public and private sector are most vulnerable to corruption (as repeatedly stressed by the OECD, Transparency International, Finnish National Bureau of Investigation, etc). In that regard, it seems clear that the digitalisation of procurement and the increased transparency it brings with it can prevent corruption and boost integrity. Companies across the EU become aware of the contract award, so there is less room for national arrangements and protectionism. Digitalisation can make tendering less bureaucratic, thus lessening the need and room for bribes. eProcurement can also prevent (improper) direct communication between the contracting authority and potential tenderers. Finally, the mere existence of electronic documentation makes it easier to track and request documents at a later stage: illegal purchases are not that easy to “hide”.

Yet, even after the roll-out of electronic documentation and contract registers, there will remain issues such as dealing with receipts or fabricating needs for additional purchases, which are recurring problems in many countries. Therefore, while digitalisation can reduce the scope and risk of corruption, it is no substitute for other checks and balances on the proper operation of the procurement function and the underlying expenditure of public funds.

SME participation

One of the goals of Directive 2014/24/EU was to foster procurement digitalisation to facilitate SME participation by making tendering less bureaucratic . However, tendering is still very bureaucratic. Sometimes it is difficult for economic operators to find the “right” contracts, as it requires experience not only in identifying, but also in interpreting contract notices. Moreover, the effects of digitalisation are still local due to language barriers – eg in Finland, tendering documents are mostly in Finnish.

Moreover, the uncertainty of winning and the need to put resources into tendering are the main reasons for not-bidding by SMEs (Jääskeläinen & Tukiainen, 2018); and this is not resolved by digital tools. On the contrary, and in a compounding manner, SMEs can be disadvantaged in eProcurement settings. SMEs rarely can compete in price, but the use of e-procurement systems "favours" the use of a price only criterion (in comparison to price-quality-ratio) as quality assessment requires manual assessment of tenders. The net effect of digitalisation on SME participation is thus less than clear cut.

Blockchain-based and algorithmic tools

The digitalisation of procurement creates new possibilities for the use of algorithms: it opens endless possibilities to implement algorithmic test for choosing “the best tender” and to automate the procurement of basic products and services; it allows for enhanced control of price adjustments in e-catalogues (which currently requires manual labor); and it can facilitate monitoring: eg finding signs for bid rigging, cartels or corruption. In the future, transparent algorithms could also attack corruption by minimizing or removing human participation from the course of the procurement procedure.

Digitalisation also creates possibilities for using blockchain: for example, to manage company records, official statements and documents, which can be made available to all contracting authorities across EU. However, this also creates risks linked to eg EU wide blacklists: a minor infringement in one Member State could lead to the economic operator’s incapability of participating in public tenders throughout the EU.

The implications of the adoption of both algorithmic and blockchain-based tools still requires further thought and analysis, and this is likely to remain a fertile area for practical experimentation and academic debate in the years to come.

Competition

Open public contract registers have become a part of public procurement regime in EU Member States where corruption is high or with a tradition of high levels of public sector transparency. The European Commission is pushing for their creation in all EU jurisdictions as part of its 2017 Procurement Strategy. These contract registers aim to enhance integrity of the procurement system and public official and to allow public scrutiny of public spending by citizens and media.

However, these registers can facilitate collusive agreements. Indeed, easier access to detailed tendering information facilitates monitoring existing cartels by its members: it provides means to make sure ”cartel discipline” is being followed. Moreover, it may facilitate the establishment of new cartels or lead to higher / not market-based pricing without specific collusive agreements.

Instead of creating large PDF-format databases of scanned public contracts, the European Commission indeed encourages Member States to create contract registers with workable datasets (user friendly, open, downloadable and machine-readable information on contracts and especially prices and parties of the contract). This creates huge risks of market failure and tendering with pricing that is not based on the market prices. It thus requires further thought.

Conclusions

Digitalisation has and is transforming public procurement regime and procedures. It is usually considered as a positive change: less bureaucracy, enhanced efficiency, better and faster communication and strengthening integrity of public sector. However, digitalisation keeps challenging the public procurement regime through eg automated processes and production of detailed data - leaving less room for qualitative assessments. One can wonder whether this contributes to the higher-level objectives of increasing SME participation and generating better value for money.

Digitalisation brings new tools for monitoring contracting authorities and to detect competition distortions and integrity failures. However, there is a clear risk in providing “too much” and “too detailed” pricing and contract information to the market operators – hence lowering the threshold of different collusive practices. It is thus necessary to reconsider current regulatory trends and to perhaps develop a more nuanced regulatory framework for the transparency of procurement information in a framework of digitalised governance.

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Guest blogger

Dr Kirsi-Maria Halonen is a Doctor of Laws and Adjunct Professor, Senior Lecturer in Commercial Law at University of Lapland. She is also a current Member of the European Commission’s Stakeholders Expert Group on Public Procurement (SEGPP, E02807), the Research Council at Swedish Competition Authority, the Finnish Ministry of Finance national PP strategy working group (previously also national general contract terms for PP (JYSE) working group), the Finnish Public Procurement Association, of which she is a board member and previous chair, and the European Procurement Law Group (EPLG).

In addition to public procurement law, Kirsi-Maria is interested in contract law, tort law, corruption and transparency matters as well as state aid rules. She is the author of several articles (both in English and in Finnish) and a few books (in Finnish). Most recently, she has co-edited Transparency in EU Procurements. Disclosure within Public Procurement and during Contract Execution, vol 9 European Procurement Law Series (Edward Elgar, 2019), together with Prof R Caranta and Prof A Sanchez-Graells.

The Emergence of Trans-EU Collaborative Procurement: A 'Living Lab' for European Public Law

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I have uploaded a new working paper on SSRN: ‘The Emergence of Trans-EU Collaborative Procurement: A “Living Lab” for European Public Law’ (March 14, 2019) https://ssrn.com/abstract=3392228. Its abstract is as follows:

Trans-EU collaborative procurement is a fertile ‘living lab’ for the observation, theorisation and critical assessment of developments in European public law. This paper maps the emergence of this novel type of cross-border administrative collaboration and scrutinises the new rules of Directive 2014/24/EU, which evidence the tension between promoting economic co-operation across borders within the internal market and the concern to respect the Member States’ administrative autonomy. The paper critically assesses the EU legislative competence in this area, extracts consequences for balancing trans-EU collaboration with ‘mandatory public law requirements’ at Member State level and proposes minimum functional guarantees to be expected in the implementation of trans-EU collaborative procurement.

Reflecting on data-driven and digital procurement governance through two elephant tales

Elephants in a 13th century manuscript.  THE BRITISH LIBRARY/ROYAL 12 F XIII

Elephants in a 13th century manuscript. THE BRITISH LIBRARY/ROYAL 12 F XIII

I have uploaded to SSRN the new paper ‘Data-driven and digital procurement governance: Revisiting two well-known elephant tales‘ (21 Aug 2019), which I will present at the Annual Conference of the IALS Information Law & Policy Centre on 22 November 2019.

The paper condenses my current thoughts about the obstacles for the deployment of data-driven digital procurement governance due to a lack of reliable quality procurement data sources, as well as my skepticism about the potential for blockchain-based solutions, including smart contracts, to have a significant impact in public procurement setting where the public buyer is extremely unlikely to give up centralised control of the procurement function. The abstract of the paper is as follows:

This paper takes the dearth of quality procurement data as an empirical point of departure to assess emerging regulatory trends in data-driven and digital public procurement governance and, in particular, the European Commission’s ambition for the single digital procurement market. It resorts to two well-known elephant tales to send a message of caution. It first appeals to the image of medieval bestiary elephants to stress the need to develop a better data architecture that reveals the real state of the procurement landscape, and for the European Commission to stop relying on bad data in the Single Market Scoreboard. The paper then assesses the promises of blockchain and smart contracts for procurement governance and raises the prospect that these may be new white elephants that do not offer significant advantages over existing sophisticated databases, or beyond narrow back-office applications—which leaves a number of unanswered questions regarding the desirability of their implementation. The paper concludes by advocating for EU policymakers to concentrate on developing an adequate data architecture to enable digital procurement governance.

If nothing else, I hope the two elephant tales are convincing.

New working paper on EU Public Procurement Policy and the Fourth Industrial Revolution

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I have submitted a paper to the call for papers of the Annual EU Law and Policy Conference ‘EU Law in the era of the Fourth Industrial Revolution’ that will take place in January 2020 (the CfP is still open until 8 September 2019, in case you are interested too).

The theme of the conference invites a reflection on the dual role of the EU as a Regulatory and Industrial ‘State’, so I have put together some thoughts on recent trends in EU procurement policy from that perspective in a new SSRN working paper: ‘EU Public Procurement Policy and the Fourth Industrial Revolution: Pushing and Pulling as One?‘ (6 Aug 2019). The abstract of the paper is as follows:

Innovation in digital technologies is triggering a variety of regulatory and policy responses by the EU. Fostering innovation is at the core of the EU’s industrial strategy and public procurement is becoming one of its main tools. The EU has reactivated its efforts to promote (digital) innovation procurement and is harnessing procurement market access as a trade defence for its innovation industry. The EU is clearly trying to use its buying power as an innovation pull to increase the readiness of the EU’s economy for the fourth industrial revolution. However, this effort is somehow constrained by the Member States’ diverging approaches and levels of engagement.

At the same time, innovative digital technologies hold the promise of a significant impact in the governance and practice of public procurement, and the EU is pushing for digitalisation as a lever to improve public services and to facilitate data analysis experimentation. However, a much-delayed and patchy implementation of eProcurement in most Member States and an inconsistent and timid approach to the regulation of public procurement data stand in the way of a true revolution and can prevent the public sector from leading by example.

In this paper, I reflect on the tensions inherent to this dual use of public procurement as an innovation pull through market power and trade leverage, and as a push for the digitalisation of procurement in the EU, as well as on the tensions between EU and Member State responses.

This is still very much an exploratory draft, so I would welcome comments and feedback, as I plan to revise the paper if it is accepted for the conference.

Bid rigging conspiracy in railroad electrification works: A very Spanish 'sainete'

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A case of bid rigging in works contracts for high-speed and conventional railroad electrification in Spain evidences a number of shortcomings in the domestic transposition of the 2014 rules on discretionary exclusion of competition law offenders from public procurement tenders, as well as some dysfunctionalities of their interpretation by the Court of Justice of the European Union (CJEU) in its Judgment of 24 October 2018 in Vossloh Laeis, C-124/17, EU:C:2018:855. The unilateral price adjustment of live contracts sought by the main victim of the cartel, the Spanish rail network administrator ADIF comes to raise very significant issues on the limits to the ‘self-protection’ (or private justice) for contracting authorities that are victims of bid rigging. In this post, I point to the main issues that puzzle me in this very Spanish sainete. I am sure there will be plenty debate in Spanish legal circles after the holidays…

Legal background: EU level: Art 57(4)(c) and (d) of Directive 2014/24/EU

As is well known, Article 57(4) of Directive 2014/24/EU establishes discretionary grounds for the exclusion of economic operators from public procurement tenders. In relation to economic operators that have breached competition law, there are two relevant grounds.

First, Art 57(4)(c) foresees the possibility of exclusion ‘where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable‘. This was interpreted by the CJEU as covering entities that had been sanctioned for breaches of competition law in relation to the earlier rules of Directive 2004/18/EC (Art 45(2)(d)) as an instance of their being ‘guilty of grave professional misconduct proven by any means which the contracting authorities can demonstrate’. The CJEU established in unambiguous terms that ‘the commission of an infringement of the competition rules, in particular where that infringement was penalised by a fine, constitutes a cause for exclusion under Article 45(2)(d) of Directive 2004/18’ in its Judgment of 18 December 2014 in Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469 (para 35).

Second, Art 57(4)(d) allows for the exclusion ‘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‘. The relationship between both exclusion grounds relating to competition law infringements is somewhat debated. I have argued elsewhere that Art 57(4)(c) should still be used as the legal basis for the exclusion of economic operators that have already been sanctioned for previous bid rigging offences, whereas Art 57(4)(d) creates an additional ground for exclusion based on indicia of contemporary collusion. For details, see A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd ed, Hart, 2015) 296-301.

Of course, discretionary exclusion on grounds of infringements of competition law can be modulated by the rules on self-cleaning in Art 57(6) Directive 2014/24/EU. It is also important to add that these discretionary exclusion grounds can be applied for a period not exceeding three years from the date of the relevant event, as per Art 57(7) Directive 2014/24/EU. The CJEU has interpreted the ‘relevant event’ in this context, and clarified that ‘where an economic operator has been engaged in conduct falling within the ground for exclusion referred to in Article 57(4)(d) of that directive, which has been penalised by a competent authority, the maximum period of exclusion is calculated from the date of the decision of that authority‘ (Vossloh Laeis, above, para 42)

Legal background: domestic level: the transposition by Law 9/2017

The transposition into Spanish law of these provisions has introduced some important modifications.

First, these exclusion grounds have been made mandatory under Article 71 of Law 9/2017 on Public Sector Procurement, as discussed by P Valcarcel, ‘Transposition of Directive 2014/24/EU in Spain: between EU demands and national peculiarities‘ in S Treumer & M Comba (eds), Modernising Public Procurement: The Member States Approach, vol. 8 European Procurement Law Series (Edward Elgar, 2018) 236-237. For a broader description of the Spanish system of mandatory exclusion (ie through ‘prohibiciones de contratar,’ or prohibitions on contracting), see A Sanchez-Graells, 'Qualification, Selection and Exclusion of Economic Operators under Spanish Public Procurement Law' in M Burgi, S Treumer & M Trybus (eds), Qualification, Selection and Exclusion in EU Procurement, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) 159-188.

Second, the grounds in Art 57(4)(c) and (d) of Directive 2014/24/EU have been transposed in a seemingly defective manner. Art 57(4)(d) has been omitted and Art 57(4)(d) is reflected in Art 71(1)(b) of Law 9/2017, according to which there is a prohibition to enter into a contract with an ‘economic operator … guilty of grave professional misconduct, which renders its integrity questionable, in matters such as market discipline, distortion of competition … in accordance with current regulations’ (own translation from Spanish).

Thirdly, Art 72(2) of Law 9/2017 foresees two ways in which the mandatory exclusion ground based on a prior firm sanction for competition infringements can operate. On the one hand, the prohibition to enter into a contract with competition law infringers ‘will be directly appreciated by the contracting bodies when the judgment or administrative resolution [imposing the sanction] had expressly established its scope and duration, and will be in force during the term indicated therein’ (own translation from Spanish). On the other hand—and logically, as a subsidiary rule—it is also foreseen that ‘In the event that the judgment or administrative resolution does not contain a ruling on the scope or duration of the prohibition to contract … the scope and duration of the prohibition shall be determined by means of a procedure instructed for this purpose, in accordance with the provisions of this article’ (own translation from Spanish). Such procedure is rather convoluted and involves a decision of the Minister of Finance on the advice of the State Consultative Board on Public Procurement.

Fourthly, and in an extreme pro-leniency fashion, Art 72(5)II of Law 9/2017 has established that the prohibition to enter into contracts will not apply to economic operators that have self-cleaned and, in particular, to those that have obtained leniency in the context of competition enforcement procedures. That is, there is an exemption from the otherwise applicable exclusion ground based on infringements of competition law for undertakings that demonstrate the ‘adoption of appropriate technical, organisational and personnel measures to avoid the commission of future administrative infractions, which include participating in the clemency program in the field of competition law‘ (own translation from Spanish).

It is also odd that the provision does not require economic operators to have ‘clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities‘, which was the main issue at stake in the Vossloh Laeis litigation.

A controversial decision by the Spanish National Commission on Markets and Competition (CNMC)

On 14 March 2019, the CNMC adopted a decision against 15 construction companies finding them responsible for a long-lasting bid rigging scheme to manipulate the tenders for public contracts works relating to different aspects of high-speed and conventional railroad electrification (full decision available in Spanish). One of the novel aspects of the decision is that the CNMC explicitly activated the prohibition to enter into contracts against the competition infringers. However, the CNMC did so in very peculiar manner.

The oddity of the decision mainly lies on the fact that CNMC decided not to establish the scope and duration of the prohibition to contract, but simply to refer the case to the State Consultative Board on Public Procurement (see pages 317-320). This was the object of criticism in a dissenting vote by Councillor María Pilar Canedo, who stressed that the CNMC should have set the scope and duration of the prohibition to contract in its decision (pages 366-370). The position of the CNMC is certainly difficult to understand.

On the one hand, the CNMC stressed that ‘regardless of the time limits within which the duration and scope [of the prohibition] must be set [by the Minister of Finance] ... it is possible to identify an automatism in the prohibition of contracting derived from competition law infringements, which derives ope legis or as a mere consequence of the adoption of a decision that declares said infraction, as established in the mentioned Article 71.1.b) of [Law 9/2017]‘ (page 319). On the other hand, however, the CNMC decided to (potentially) kick the effectiveness of such prohibition into the long grass by not establishing its scope and duration in its decision—and explicitly saying so (unnecessarily…). No wonder, contracting authorities will have some difficulty applying the automaticity of a prohibition which time and scope are yet to be determined.

Moreover, the CNMC was aware of the CJEU decision in Vossloh Laeis (above), to which it referred to in its own decision (in a strange manner, though). In that regard, the CNMC knew or should have known that, as a matter of directly applicable EU law, de facto the maximum exclusion period can run for three years, up to 14 March 2022. Therefore, by referring the file to the Minister of Finance via the State Consultative Board on Public Procurement and creating legal uncertainty as to the interim effects of a seemingly prohibition to contract with a yet to be specified scope and duration, the CNMC actually bought the competition infringers time and created a situation where any fianlly imposed prohibition to contract is likely to last for much less than the maximum three years.

The (for now) final twist: ADIF takes justice in its own hands

As if this was not enough, according to the Spanish press (see the main story in El Pais), the main victim of the cartel—the Spanish rail network administrator, ADIF—has now decided to take justice in its own hands.

According to the report, ADIF has written to the relevant companies announcing claims for damages—which is the ordinary reaction that could be expected. However, it has also taken the decision of demanding an anticipation of the compensation from those companies with which it has ‘live’ contracts, to which it has demanded a 10% price reduction. What is more, ADIF has decided to withhold 10% of the contractual price and to deposit in an escrow account before a notary, as a sort of sui generis self-created interim measure to ensure some compensation for the damages suffered from the cartel. The legal issues that this unilateral act generates are too many to list here. And these will surely be the object of future litigation.

What I find particularly difficult to understand is that, in contrast with this decisively aggressive approach to withholding payment, ADIF has awarded contracts to some of the competition infringers after the publication of the CNMC decision. And not a small number of contracts or for little amounts. In fact, ADIF has awarded over 280 contracts for a total value close to €300 million.

Thus, ADIF has largely carried out its business as usual in the award of public works contracts, both ignoring the rather straightforward argument of automaticity of the prohibition to contract hinted at by the CNMC— though based on a convoluted and rather strained interpretation of domestic law (Art 72(2) Law 9/2017)—and, more importantly, the discretionary ground for exclusion in Art 57(4)(d) of Directive 2014/24/EU.

There will certainly be some more scenes in this sainete…


Some resources on procurement debarment from a global perspective can help clarify issues with eu law

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There is no question that one of the key aspects in seeking to ensure the integrity of public procurement procedures and the legitimacy of the corresponding expenditure of public funds requires contracting authorities to exclude (suspend or debar, depending on terminology) unreliable companies whose professional integrity prevents them from doing business with the public sector.

The topic of exclusion (and self-cleaning) of unreliable contractors continues to cause some difficulties after the implementation of the 2014 EU Public Procurement Package, where it featured as an area of significant legal reform—as discussed at length in A Sanchez-Graells, 'Exclusion, Qualitative Selection and Short-listing', in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129; and in A Sanchez-Graells, L Butler and P Telles, 'Exclusion and Qualitative Selection of Economic Operators under Public Procurement Procedures: A Comparative View on Selected Jurisdictions', in M Burgi, S Treumer & M Trybus (eds), Qualification, Selection and Exclusion in EU Procurement, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) 245-274.

For example, in Spain, and amidst doubts as to the fitness for purpose of the 2017 implementation of the 2014 EU rules, the National Competition and Markets Commission has sent waves of concern after two recent decisions, where it adopted a debarment decision (prohibición de contratar) against companies that had engaged in bid rigging but refused to determine the duration of the debarment, thus passing the hot potato on to the central national register of public contractors. Given the recent clarification by the CJEU that the exclusion period for infringements of competition law starts to run at the time of the adoption of the relevant administrative decision (see Vossloh Laeis, C-124/17, EU:C:2018:855), the situation is resulting in a (potential) implicit reduction of the maximum debarment period due to difficult to understand competence and procedural issues that are, let’s say it, rather parochial.

No doubt, this is just an example of many more complicated situations derived from the limited experience with the rules in the new Directive, which understanding is not always as full as would be desirable. In this context, there are two recent contributions to global literature that can help us reflect on the (mal)functioning of the proto-systems developed in some Member States after the implementation of the EU rules and (why not?) rethink them and improve them.

One of these contributions is the recent World Bank report on the pilot project ‘A Global View of Debarment: Understanding Exclusion Systems Around the World‘ (April 2019), which provides useful comparative information on 11 jurisdictions (including the EU and some of the Member States, such as Germany, Italy, Spain or the UK).

Another, more substantive contribution can be found in the recent paper by Christopher R Yukins and Michal Kania, 'Suspension and Debarment in the U.S. Government: Comparative Lessons for the EU’s Next Steps in Procurement' (2019) 19(2) UrT 47-73. In this paper, Yukins and Kania rely on the US’ extensive experience in suspension and debarment of government contractors to propose three very specific areas of improvement for European systems: ‘a broader reliance on corporate compliance among contractors, centralizing authority over the exclusion of contractors, and the use of administrative agreements and independent monitors as an alternative to debarment’.

As they stress, the two first proposals are already broadly aligned with (best) practice in some Member States. Their proposal to use administrative agreements and independent monitors is certainly worth pondering, although its fit with some administrative law traditions may be slightly difficult to square.

EFTA Court reverses position on liability threshold for procurement damages (Fosen-Linjen II, E-7/18)

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In its Judgment of 1 August 2019 in Fosen-Linjen AS, supported by Næringslivets Hovedorganisasjon (NHO) v AtB AS (E-7/18, Fosen-Linjen II), the EFTA Court has remarkably reversed its earlier position on the liability threshold for procurement damages claims, which it had previously established in its Judgment of 31 October 2017 in (E-16/16, Fosen-Linjen I ).

I had strongly criticised the original Fosen-Linjen I Judgment in this blog (here and here), at a seminar at the University of Bergen and, in extended detail, in A Sanchez-Graells, ‘You Can’t Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law After the EFTA Court’s Fosen-Linjen Opinion' (2018) 1(1) Nordic Journal of European Law 1-23.

Therefore, I am truly glad to see this outcome of the Norwegian Supreme Court’s (creative) referral of the case to the EFTA Court for a second opinion.

It will be recalled that, in Fosen-Linjen I, the EFTA Court controversially found that

A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of Directive 89/665/EEC, provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link (E-16/16, para 82).

In a 180-degree U-turn, in Fosen-Linjen II, the EFTA Court has now rather established that

... Article 2(1)(c) of the Remedies Directive does not require that any breach of the rules governing public procurement in itself is sufficient to award damages for the loss of profit to persons harmed by an infringement of EEA public procurement rules (E-7/18, para 121).

To be sure, this reversal is likely to generate further commentary (we are thinking of a special issue to collect some different views, so stay tuned) but my hot take is that with the Fosen-Linjen II Judgment, the EFTA Court has corrected the excesses of the earlier Fosen-Linjen I approach and (re)aligned EEA with EU law in the area of liability in damages for breaches of public procurement law.

Some thoughts on being promoted to a Professorship

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Last week, I received the news that from 1 August 2019, I will be promoted to Professor of Economic Law at the University of Bristol Law School. These news have now sunk in and I am slowly getting used to the idea—as my grandma used to say, it is easy to get used to the nice things, getting used to the tough things takes some more character…

This promotion is the result of a very long administrative/HR process, which has given me some time to think about what a promotion to (full) professorship would mean and what I would like to make of my new position. It has also made me reflect on my academic career so far and on how I got here. These are some of my raw thoughts. Not sure if they will be of any interest, but I needed to spit them out.

How I got here

The short answer is that I got here by chance, with a lot of luck and even more help from mentors, colleagues, friends and students along the way. And, of course, thanks to the motivation that those interested in my scholarship have provided, particularly through this blog. I am indebted to all of them (you) and it would be impossible for me to come up with a list that covered even 10% of those generous individuals that lent me a helping hand, stimulated or challenged me intellectually, gave me platforms and opportunities to grow and, perhaps most important, made it all very enjoyable along the way.

There are a couple of other aspects of how I got here on which I have been thinking with particular intensity. The first one is that I got here as a privileged, middle-class, white, male academic with no family responsibilities. The second one is that I got here thanks to the brilliant mentoring offered by experienced female colleagues. Let me unpack this.

I enjoyed all privileges of someone that could study without having to work at the same time until I got to my PhD studies. I had a supportive family that really focused on my education from the get go and they not only put me through good schools, but also helped financially with the parts of my undergraduate studies not covered by my scholarship. I then had the privilege of working for big firms and my family’s support allowed me to save enough to self-fund my PhD. I did have to work during parts of my PhD, but mainly carrying out consultancy work to which I had access through contacts. So, all in all, I got to be a doctor (not a real one, a PhD in Law, I mean) and access academic posts thanks to the privileges I enjoyed from the day I was born, out of sheer luck. Sure, I did put in my 10,000 hours of dedication, but I did not have to overcome any significant obstacles.

I accessed academia in September of 2009 in Madrid and, despite the fact that the crisis had hit hard and there were not those many jobs, I was lucky enough to land a Lectureship at a private university—thanks, in no small part, to the contacts I had made during my time at the law firm and during my doctoral studies. I did not like the working conditions, though, so I took the gamble of moving to the UK—which I could do, in large part, thanks to the possibility of having studied languages since age 7 and having completed a European Doctorate, which saw me move to Copenhagen, Washington DC and Oxford during my doctoral studies (on my personal and family funds, which is certainly not the situation of most PhD students, either then or now).

I took my first UK lectureship in May 2012 and, just over 7 years later, I have been promoted three times and moved across three higher education institutions. This has required hard work and dedication, of course, but I have also been immensely helped by the continued enjoyment of my privileges as a middle-class, white, male academic with no family responsibilities. The last issue is the one giving me more to ponder.

Even if I am now an ‘academic dad’, my promotion application included information only until the early fall of 2018, so only just after my child was born. Thus, all work reflected in that application was done by someone without caring responsibilities. I was also extremely lucky to have a partner that understood my obsession with academia and my research and was willing to give me as much time and space as I needed to work very long hours, to travel (way too much, which I really regret and which I am seriously committed to change) and to get involved in all those extra citizenship and staff-student activities that are nigh impossible to coordinate with childcare or other types of care responsibilities.

I thought I needed to say all this because, in the right context, the fact that I got promoted at just under 40 years of age and at just under 10 years from having taken up my first lectureship, certainly does not look as impressive as comparable promotions of colleagues with very different backgrounds and personal circumstances. All of them, and all those facing difficult circumstances and discrimination in higher education (and elsewhere) have my deepest admiration and respect.

The second aspect of how I got here, which is somehow ironically related to the previous one, is that I have had the most amazing formal and informal mentors since I got to the UK and they were all experienced female colleagues. At every step of the way, but particularly since I joined the University of Bristol Law School, I have been enormously lucky to have the support and encouragement of truly great academics and generous colleagues that have helped me prioritise my work, present it in the best possible way, and constantly made me feel like I was worthy of whichever promotion or recognition I was seeking. I have also had some great male colleagues, but their commitment to nurture others, to help them grow and to enjoy doing so pales by comparison.

Interestingly enough, my mentors took me at face value and cared not about my being a privileged, middle-class, white, male academic with no family responsibilities. They were solely interested in my potential and by believing in it and making me exploit it, they have had a transformative impact in me as a scholar and as a person.

So, what type of professor do I want to be?

Needless to say, I want to continue carrying out research that I believe can have a positive social impact, and I want to remain committed to my open-access efforts to try to make my scholarship freely available to anyone interested in it. I also want to help my students learn and grow, and venture into the world with a critical perspective and a strong set of values. I want to be a good colleague and peer, and to treat those with whom I work with respect and with a sincere appreciation of their contribution to higher education.

Overall, however, I want to be a professor that enables other academics (including postgraduate students) to be the best version of themselves they can be, and a professor that does everything in their power to make higher education a better place. Again, let me unpack this, perhaps more concisely.

I want to emulate my female mentors. I want to be able to support willing and committed colleagues to blossom, regardless of their background and characteristics. I want to be committed to equality and fairness and to be able to set aside any prejudices and biases (conscious or unconscious). I want to put my seniority and whichever power or influence comes with it to the service of others, including where necessary to curb the unjustified privileges enjoyed by some at the expense of others. I do not want to shy away from difficult or conflict situations where I see an injustice being done.

I also want to make higher education a more enjoyable, more sustainable and more diverse environment for all of us working and studying in it. I want to contribute to an environment of non-instrumental intellectual curiosity and exchange. I want to make the best use of the ever-growing networking and connectivity opportunities we are offered to expand the reach of higher education and make it more accessible than ever. This is the part I still need to figure out, so I will welcome any suggestions on what needs to be done—either urgently, or in the longer run. For now, I will concentrate on sustainability issues and seek to influence others into adopting no/less-fly policies. It may not amount to much, but it is a start (for me).

Some quick thoughts on blockchain use cases in procurement

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Interest in the use of blockchain in the context of public procurement keeps rising by the day. It is hard to find a country where this is not a topic of discussion, although there seems to be a wide spectrum from enthusiastic and proactive approaches (eg in the UK, with the promotion of procurement-centred blockchain use cases by the All-Party Parliamentary Group on Blockchain) to more skeptical and wait-and-see approaches (in Scandinavian countries, eg Denmark or Sweden).

At the same time as some theoretical work starts to emerge—see eg Sope Williams-Elegbe’s exploratory inaugural lecture and Raquel Carvalho’s (not always very clear or accurate) recent paper—the need to get some practical insights in order to support theoretical speculation becomes all-important. However, accessing this information can be a little tricky, in particular if local or regional projects are only publicised in languages other than English.

So we organised a couple of webinars on the topic and asked participants to pool together any use cases they know of (and thanks to all of them for their contributions). In rough terms (and with apologies for any over-simplification), it looks like there are three main areas of experimentation:

  1. Development of proof-of-concept / pilot projects seeking to tackle some parts of the procurement process, such as (a) initiatives on exclusion/selection of tenderers in Costa Rica and the Basque Country (Spain) and (b) initiatives on tender submission and evaluation by smart contracts in Aragon (Spain)

  2. Development of proof-of-concept / pilot projects seeking to carry out the entire procurement process on the blockchain, such as in Mexico (federal level) and Cape Town (South Africa)

  3. Development of ‘blockchain-like’ database approaches that seek to replicate some of the main features of a blockchain (in terms of data de-centralisation and tamper-evidence features), such as some projects run by the EBRD

We also learnt about other Govtech / Regtech applications of blockchain, such as the Finnish initiatives to provide bank cards to refugees and to centralise the exchange of information on mandatory motor vehicle insurance. There are also other well-known projects around property registers (eg for land and IP).

On the whole, though, it seems like the most promising potential applications of blockchain are those linked to information management/storage and the transfer of digital assets, and that there is more potential in those cases where there is no existing (working) database for their management. The difficulties of implementing blockchain-based solutions for not-super-simple procurement and off-chain aspects of procurement seem too high to overcome any time soon.

It also seems like that there is a certain tension between the promise of transparency associated with blockchain infrastructure and the other attributes of the technology (mainly, tamper-evidence qualities), at least where the design of the blockchain is heavily permissioned and centralised. Perhaps as a very European issue (but also more broadly), compliance with data protection rules also comes up as a legal hurdle in every other project.

If you know of any other blockchain use cases in procurement, or if you have any other views on the potential of this technology for procurement governance, please comment on this post or get in touch: a.sanchez-graells@bristol.ac.uk

The ethics of abusing your time at the podium

This is a personal reflection on the unethical behaviour of those academics that abuse their time at the podium when speaking at conferences—or those that deliver uninvited pseudo-speeches while pretending to formulate questions or comments. This is based on real facts. I do not apologise for any extreme views expressed here. 

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If you are an academic or have ever attended an academic conference, you probably know what I am talking about. Unless the conference is well-organised and time is zealously kept by a dedicated moderator/chair (and those who do should be highly praised for what really is an ungrateful and rather stressful job), there is always (*always*) someone that abuses their time at the podium. I am not talking about one- or two-minute overruns, but rather about speakers that happily exceed their time by 20’ or so, usually oblivious to or wilfully ignoring any polite notes (less than) discreetly passed to them by the organisers. 

In my personal experience, this tends to be perpetrated by a senior colleague that has barely prepared and/or is delivering the exact same presentation we have already heard, perhaps with a minor tweak. This would, even if delivered within the allocated time, in itself be reprehensible behaviour (but let’s save that for another day). It is, of course, possible that time is exceeded while discussing new ideas and arguments, but that does not substantially change the impact of time abuse (see below).

The culprit also tends to be a male colleague that would be highly insulted if someone (particularly someone junior, particularly a female colleague) tried to whip him into compliance with the programmed schedule and the usually also agreed upon rules for the panel/session/roundtable—you know, those previous emails that seek to avoid content overlap and that make it clear that you have 20, 12 or however many minutes to deliver your initial material before engaging in questions and answers.

Further, in my experience, this is also much more likely to happen in academic environments where seniority—and fear of the power of the seniors—drives group dynamics in academic conferences. That is, I have experienced this usually in Mediterranean countries (particularly Spain and Italy) and sometimes in continental Europe (notably, Germany). I have had the opposite experiences in the UK and Finland, and further afield, to say it all.

The effects of abusing time at the podium tend to always be the same and threefold: audience disengagement, squeezing or suppression of time for others’ views (be it other scheduled presentations or genuine debate) and a general lowering of the quality of the event. In my view, generating these results is unethical and disrespectful, and those abusing their time at the podium should be shamed into shutting up and sitting down. Moreover, organisers of academic events have a fiduciary duty towards all speakers and participants to ensure delivery of the programme as planned. Let me expand.

Those that overrun demonstrate their disregard for other people’s work and time. They disrespect colleagues scheduled to speak after them and their effort preparing their own speeches, practicing them and timing them to fit the allocated slot. Of course, not having done so themselves, they are probably also underestimating the effort that goes into that. They clearly do not think that their participation in the conference is part of a greater whole and that they too are there to learn.

They also disrespect the audience and ignore the abuse of power that social convention enables them to exert by having been put in the spotlight. However interesting the message, the audience is not there solely to listen to them. The audience is also not there as a simple receptacle of their own voice—unless the event was clearly advertised as not including any sort of time for Q&A or interaction whatsoever. Finally, they also disrespect and put significant pressure on the moderator/chair/organiser, as they are then forced to either become complicit in the unethical abuse or discharge their fiduciary duty—none of which is their preferred alternative.

On the fiduciary duty. Well, it is plain to me that organisers of an event and chairs/moderators (organisers for short) have, first and foremost, a fiduciary duty towards the audience. That duty is, simply put, to make everything possible to deliver the programme as planned. Of course, there can be unforeseen circumstances that make it difficult or impossible. In that case, all that can be done is to readjust things as best as possible. However, tolerating time overruns is not such an unforeseen situation.

Moreover, organisers have a fiduciary duty to all speakers to enable them to present their ideas and to deliver the result of their work and preparation. Funny enough, organisers are keener for this to happen when they pay the speakers than when they get the content for free, which is another f*&^ed aspect of the conferencing game (also best saved for another day). When organisers allow a/some speakers to abuse their time at the podium, they are simply telling all other speakers that their expertise and preparation are not as valuable as those of the perpetrator. Tertium non datur.

So, what’s the ethical approach to delivering a speech at a conference? As far as I can formulate it, I think this boils down to: showing up prepared, ready to present your best possible ideas and to deliver them to the best of your ability, within the allocated time, and being open to challenge and discussion, to engage with such exchanges, and to contribute to debates surrounding the contributions of other speakers and participants. Honestly, if someone is not ready to act ethically, I’d rather they stayed out of it. Whatever their expertise and brilliance. And the same goes for anyone organising these events. If not ready to run them ethically, then better not organise them at all.

If you got this far, you may be nodding in agreement. Or you may think that I am simply sour and should take it easier. Either way, thanks for reading.

Oracles as a sub-hype in blockchain discussions, or how my puppy helps me get to 10,000 steps a day

Photo: Rob Alcaraz/The Wall Street Journal.

Photo: Rob Alcaraz/The Wall Street Journal.

The more I think about the use of blockchain solutions in the context of public procurement governance—and, more generally, of public services delivery—the more I find that the inability for blockchain technology to reliably connect to the ‘real world’ is bound to restrict any potentially useful applications to back-office functions and the procurement of strictly digital assets.

This is simply because blockchain can only generate its desirable effects of tamper-evident record-keeping and automated execution of smart contracts built on top of it to the extent that it does not require off-chain inputs. Blockchain is also structurally incapable of generating off-chain outputs by itself.

This is increasingly widely-known and is generating a sub-hype around oracles—which are devices aimed at plugging blockchains to the ‘real world’, either by feeding the blockchain with data, or by outputting data from the blockchain (as discussed eg here). In this blog post, I reflect on the minimal changes that I think the development of oracles is likely to have in the context of public procurement governance.

Why would blockchain be interesting in this context?

Generally, the potential for the use of blockchain and blockchain-enabled smart contracts to improve procurement governance is linked to the promise that it can help prevent corruption and mistakes through the automation of decision-making through the procurement process and the execution of public contracts and the immutability (rectius, tamper-evidence) of procurement records. There are two main barriers to the achievement of such improvements over current processes and governance mechanisms. One concerns transactions costs and information asymmetries (as briefly discussed here). The other concerns the massive gap between the virtual on-chain reality and the off-chain real world—which oracles are trying to bridge.

The separation between on-chain and off-chain reality is paramount to the analysis of governance issues and the impact blockchain can have. If blockchain can only displace the focus of potential corrupt or mistaken intervention—by the public buyer, or by public contractors—but not eliminate such risks, its potential contribution to a revolution of procurement governance certainly reduces in various orders of magnitude. So it is important to assess the extent to which blockchain can be complemented with other solutions (oracles) to achieve the elimination of points of entry for corrupt or mistaken activity, rather than their displacement or substitution.

Oracle’s vulnerabilities: my puppy wears my fitbit

In simple terms, oracles are data interfaces that connect a blockchain to a database or a source of data (for a taxonomy and some discussion, see here). This makes them potentially unreliable as (i) the oracle can only be as good as the data it relies on and (ii) the oracle can itself be manipulated. There are thus, two main sources of oracle vulnerability, which automatically translate into blockchain vulnerability.

First, the data can be manipulated—like when I prefer to sit and watch some TV rather than go for a run and tie my fitbit to my puppy’s collar so that, by midnight, I have still achieved my 10,000 daily steps.* Second, the oracle itself can be manipulated because it is a piece of software or hardware that can be tampered with, and perhaps in a way that is not readily evident and which uncovering requires some serious IT forensics—like getting a friend to crack fitbit’s code and add 10,000 daily steps to my database without me even needing to charge my watch.**

Unlilke when these issues concern the extent to which I lie to myself about my healthy lifestyle, these two vulnerabilities are highly problematic from a public governance perspective because, unless the data used in the interaction with the blockchain is itself automatically generated in a way that cannot be manipulated (and this starts to point at a mirror within a mirror situation, see below), the effect of implementing a blockchain plus oracle simply seems to be to displace the governance focus where controls need to be placed towards the source of the data and the devices used to collect it.

But oracles can get better! — sure, but only to deal with data

The sub-hype around oracles in blockchain discussions basically follows the same trend as the main hype around blockchain. The same way it is assumed that blockchain is bound to revolutionise everything because it will get so much better than it currently is, there are emerging arguments about the almost boundless potential for oracles to connect the real world to the blockchain in so much better ways. I do not have the engineering or futurology credentials necessary to pass judgement on this, but it seems to me plain to see that—unless we want to add an additional layer about robotics (and pretty evolved robotics at that), so that we consider blockchain+oracle+robot solutions—any and all advances will remain limited to improving the way data is generated/captured and exploited within and outside the blockchain.

So, for everything that is not data-based or data-transformable (such as the often used example of event tickets, which in the end get plugged back to a database that determines their effects in the real world)—or, in other words, where moving digital tokes around does not generate the necessary effects in the real world—even much advanced blockchain+oracle solutions are likely to remain of limited use in the context of procurement and the delivery of public services. Not because the applications are not (technically) possible, but because they generate governance problems that merely replace the current ones. And the advantage is not necessarily obvious.

How far can we displace governance problems and still reap some advantages?

What do I mean that the advantage is not necessarily obvious? Well, imagine the possibility of having a blockchain+oracle control the inventory of a given consumable, so that the oracle feeds information into the blockchain about the existing level of stock and about new deliveries made by the supplier, so that automated payments are made eg on a per available unit basis. This could be seen as a possible application to avoid the need for different ways of controlling the execution of the contract—or even for the need to procure the consumable in the first place, if a smart contract in the blockchain (the same, or a separate one) is automatically buying them on the basis of a closed system (eg a framework agreement or dynamic purchasing system based on electronic catalogues) or even in the ‘open market’ of the internet. Would this not be advantageous from a governance perspective?

Well, I think it would be a matter of degree because there would still need to be a way of ensuring that the oracle is not tampered with and that what the oracle is capturing reflects reality. There are myriad ways in which you could manipulate most systems—and, given the right economic incentives, there will always be attempts to manipulate even the most sophisticated systems we may want to put in place—so checks will always be needed. At this stage, the issue becomes one of comparing the running costs of the system. Unless the cost of the blockchain+oracle+new checks (plus the cybersecurity needed to keep them up and properly running) is lower than the cost of existing systems (including inefficiencies derived from corruption and mistakes), there is no obvious advantage and likely no public interest in the implementation of solutions based on these disruptive technologies.

Which leads me to the new governance issue that has started to worry me: the control of ‘business cases’ for the implementation of blockchain-based solutions in the context of public procurement (and public governance more generally). Given the lack of data and the difficulty in estimating some of the risks and costs of both the existing systems and any proposed new blockchain solutions, who is doing the math and on the basis of what? I guess convincingly answering this will require some more research, but I certainly have a hunch that not much robust analysis is going on…

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* I do not have a puppy, though, so I really end up doing my own running…

** I am not sure this is technically doable, but hopefully it works for the sake of the example…

Legal text analytics: some thoughts on where (I think) things stand

Researching the area of artificial intelligence and the law (AI & Law) has currently taken me to the complexities of natural language processing (NLP) applied to legal texts (aka legal text analytics). Trying to understand the extent to which AI can be used to perform automated legal analysis—or, more modestly, to support humans in performing legal analysis—requires (at least) a view of the current possibilities for AI tools to (i) extract information from legal sources (or ‘understand’ them and their relationships), (ii) assess their relevance to a given legal problem and (iii) apply the legal source to provide a legal solution to the problem (or to suggest one for human validation).

Of course, this obviates other issues such as the need for AI to be able to understand the factual situation to formulate the relevant legal problem, to assess or rank different legal solutions where available, or take into account additional aspects such as the likelihood of obtaining a remedy, etc—all of which could be tackled by fields of AI & Law different from legal text analytics. The above also ignores other aspects of ‘understanding’ documents, such as the ability for an algorithm to distinguish factual and legal issues within a legal document (ie a judgment) or to extract basic descriptive information (eg being able to create a citation based on the information in the judgment, or to cluster different types of provisions within a contract or across contracts)—some of which seems to be at hand or soon to be developed on the basis of the recently released Google ‘Document Understanding AI’ tool.

The latest issue of Artificial Intelligence and the Law luckily concentrates on ‘Natural Language Processing for Legal Texts’ and offers some help in trying to understand where things currently stand regarding issues (i) and (ii) above. In this post, I offer some reflections based on my understanding of two of the papers included in the special issue: Nanda et al (2019) and Chalkidis & Kampas (2019). I may have gotten the specific technical details wrong (although I hope not), but I think I got the functional insights.

Establishing relationships between legal sources

One of the problems that legal text analytics is trying to solve concerns establishing relationships between different legal sources—which can be a partial aspect of the need to ‘understand’ them (issue (i) above). This is the main problem discussed in Nanda et al, 'Unsupervised and supervised text similarity systems for automated identification of national implementing measures of European directives' (2019) 27(2) Artificial Intelligence and Law 199-225. In this piece of research, AI is used to establish whether a provision of a national implementing measure (NIM) transposes a specific article of an EU Directive or not. In extremely simplified terms, the researchers train different algorithms to perform text comparison. The researchers work on a closed list of 43 EU Directives and the corresponding Luxembuorgian, Irish and Italian NIMs. The following table plots their results.

Nanda et al (2019: 208, Figure 6).

The table shows that the best AI solution developed by the researchers (the TF-IDF cosine) achieves levels of precision of around 83% for Luxembourg, 77% for Italy and 68% for Ireland. These seem like rather impressive results but a qualitative analysis of their experiment indicates that the significantly better performance for Luxembourgian transposition over Italian or Irish transposition likely results from the fact that Luxembourg tends to largely ‘copy & paste’ EU Directives into national law, whereas the Italian and Irish legislators adopt a more complex approach to the integration of EU rules into their existing legal instruments.

Moreover, it should be noted that the algorithms are working on a very specific issue, as they are only assessing the correspondence between provisions of EU and NIM instruments that were related—that is, they are operating in a closed or walled dataset that does not include NIMs that do not transpose any of the 43 chosen Directives. Once these aspects of the research design are taken into account, there are a number of unanswered questions, such as the precision that the algorithms would have if they had to compare entire NIMs against an open-ended list of EU Directives, or if they were used to screen for transposition rules. While the first issue could probably be answered simply extending the experiment, the second issue would probably require a different type of AI design.

On the whole, my impression after reading this interesting piece of research is that AI is still relatively far from a situation where it can provide reliable answers to the issue of establishing relationships across legal sources, particularly if one thinks of relatively more complex relationships than transposition within the EU context, such as development, modification or repeal of a given set of rules by other (potentially dispersed) rules.

Establishing relationships between legal problems and legal sources

A separate but related issue requires AI to identify legal sources that could be relevant to solve a specific legal problem (issue (ii) above)—that is, the relevant relationship is not across legal sources (as above), but between a legal problem or question and relevant legal sources.

This is covered in part of the literature review included in Chalkidis & Kampas, ‘Deep learning in law: early adaptation and legal word embeddings trained on large corpora‘ (2019) 27(2) Artificial Intelligence and Law 171-198 (see esp 188-194), where they discuss some of the solutions given to the task of the Competition on Legal Information Extraction/Entailment (COLIEE) from 2014 to 2017, which focused ‘on two aspects related to a binary (yes/no) question answering as follows: Phase one of the legal question answering task involves reading a question Q and extract[ing] the legal articles of the Civil Code that are relevant to the question. In phase two the systems should return a yes or no answer if the retrieved articles from phase one entail or not the question Q’.

The paper covers four different attempts at solving the task. It reports that the AI solutions developed to address the two binary questions achieved the following levels of precision: 66.67% (Morimoto et al. (2017)); 63.87% (Kim et al. (2015)); 57.6% (Do et al. (2017)); 53.8% (Nanda et al. (2017)). Once again, these results are rather impressive but some contextualisation may help to assess the extent to which this can be useful in legal practice.

The best AI solution was able to identify relevant provisions that entailed the relevant question 2 out of 3 times. However, the algorithms were once again working on a closed or walled field because they solely had to search for relevant provisions in the Civil Code. One can thus wonder whether algorithms confronted with the entirety of a legal order would be able to reach even close degrees of accuracy.

Some thoughts

Based on the current state of legal text analytics (as far as I can see it), it seems clear that AI is far from being able to perform independent/unsupervised legal analysis and provide automated solutions to legal problems (issue (iii) above) because there are still very significant shortcomings concerning issues of ‘understanding’ natural language legal texts (issue (i)) and adequately relating them to specific legal problems (issue (ii)). That should not be surprising.

However, what also seems clear is that AI is very far from being able to confront the vastness of a legal order and that, much as lawyers themselves, AI tools need to specialise and operate within the narrower boundaries of sub-domains or quite contained legal fields. When that is the case, AI can achieve much higher degrees of precision—see examples of information extraction precision above 90% in Chalkidis & Kampas (2019: 194-196) in projects concerning Chinese credit fraud judgments and Canadian immigration rules.

Therefore, the current state of legal text analytics seems to indicate that AI is (quickly?) reaching a point where algorithms can be used to extract legal information from natural language text sources within a specified legal field (which needs to be established through adequate supervision) in a way that allows it to provide fallible or incomplete lists of potentially relevant rules or materials for a given legal issue. However, this still requires legal experts to complement the relevant searches (to bridge any gaps) and to screen the proposed materials for actual relevance. In that regard, AI does hold the promise of much better results than previous expert systems and information retrieval systems and, where adequately trained, it can support and potentially improve legal research (ie cognitive computing, along the lines developed by Ashley (2017)). However, in my view, there are extremely limited prospects for ‘independent functionality’ of legaltech solutions. I would happily hear arguments to the contrary, though!