Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions

In this new paper, I attempt a concise comparison of the rules applicable to the rejection of abnormally low and non-compliant tenders in a number of EU jurisdictions (namely, Denmark, France, Germany, Italy, Poland, Romania, Spain and the United Kingdom). 

In order to set the common ground for the analysis of such domestic rules, which are solely applicable to non-negotiated procedures, the paper first offers a description of the rules in the EU public procurement Directives and the case law of the European Courts (ie GC and CJEU), and then proceeds to compare them against this benchmark and amongst themselves. Where possible, the paper highlights innovative or different solutions, as well as potential deviations from EU law.

• Sánchez Graells, Albert, Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions (April 11, 2013). European Procurement Law Series, Vol 6 (forth). http://ssrn.com/abstract=224859

Cheaters beware: GC enforces strict #suspension rules in EU #publicprocurement (T-87/11)

In its Judgment of 10 April 2013 in case T-87/11 GRP Security v Court of Auditors, the General Court of the EU (GC) has analysed some interesting features of the sanctions that EU institutions can apply to non-performing public contractors in order to prevent their participation in new public tenders for a given period of time (ie temporary exclusion, or suspension).

In the case at hand, GRP Security had been awarded a contract for the security of the premises of the Court of Auditors on the basis of falsified professional documentation--more specifically, the CV and professional qualifications of the security team leader called to oversee the proper working of the security activities. Upon discovery of such falsity, the Court of Auditors unilaterally decided to terminate the services contract and informed GRP Secutirty that it planned to claim damages and to enforce the available financial and administrative penalties. The company retorted that they were not aware of the illegal behaviour of their employee, whom they fired and sued for damages. 

The Court of Auditors' decision was unchanged, and the contract was terminated, together with a claim for €16,000 for moral and economic damages (which were deduced from the payments corresponding to the outstanding invoices for the services rendered before termination). Moreover, on the basis of article 96.2.a)  of the Financial Regulation applicable to the general budget of the European Communities, GRP Security was thus provisionally excluded from contracts and grants financed by the budget of the Union for a period of three months--which should be revised and could lead to an extension of the exclusion if the applicant did not provide evidence that it had taken appropriate internal corrective action to prevent similar events from happening again. It is worth stressing that the maximum period of exclusion is 10 years, and that the payment of financial penalties by the contractor can reach the full value of the contract in question [art 96.2.b)]--so it is clear that the sanctions imposed by the Court of Auditors were well below the maximum thresholds set in the Financial Regulation.

Within the set period of three months, GRP Security submitted a remedial plan to the satisfaction of the Court of Auditors and, consequently, no extension of the initial suspension was imposed. Afterwards, GRP Security initiated legal proceedings to challenge the unilateral termination of the contract by the Court of Auditors and announcing that it reserved the right to seek financial compensation (not least, for its temporary exclusion from EU procurement tendering).

One of the interesting points of law in the dispute is whether the EU Financial Regulation actually allows for a sanction of reviewable temporary exclusion or not. Article 96.2.a) of the Financial Regulation, coupled with article 134 ter of its Implementing Regulation, determine that

Without prejudice to the application of penalties laid down in the contract, candidates or tenderers and contractors who have made false declarations, have made substantial errors or committed irregularities or fraud, or have been found in serious breach of their contractual obligations may be excluded from all contracts and grants financed by the Community budget for a maximum of five years from the date on which the infringement is established as confirmed following an adversarial procedure with the contractor.

That period may be extended to 10 years in the event of a repeated offence within five years of the date referred to in the first subparagraph (emphasis added).

According to GRP Security, the system only foresees one-off exclusion decisions, but it does not allow for a set of rolling decisions dependent upon the adoption of remedial action on the part of the suspended contractor. The GC avoided answering this important point of law by relying on the specific circumstance that the Court of Auditors did not extend GRP Security's exclusion at the end of the initial 3-month period (paras. 67-71 of the T-87/11 Judgment). Therefore, legal uncertainty seems to remain concerning this possible reviewable or on-going application of the suspension regime.

In my view, however, such temporary suspension coupled with a compliance check fits within the system of  the Financial Regulation and its Implementing Regulation, and would be to the advantage of contractors--since, in the absence of such possibility to review, contracting authorities could clearly be tempted to impose longer exclusion periods from the beginning. Moreover, companies should be the first interested in implementing remedial action and, consequently, gaining some immediate benefits from that investment. Also, this would be in line with the current trend of recognition of the value of 'self-cleaning' efforts, such as in article 55 of the December 2011 proposal for a reviewed EU Directive.

GRP Systems also appealed the 3-month temporary suspension decision on the basis of an alleged lack of proportionality, which the GC easily dismissed, considering that

the applicant has seriously failed to meet its contractual obligations. In addition, it should be recalled that the Court of Auditors, which is one of the institutions of the Union, is dedicated to examining the legality and regularity of revenue and expenditure of the Union and any organ or body created by the EU and to ensure their sound financial management (Article 287, second subparagraph, TFEU). Particularly in view of these missions and the severity of the deficiencies attributable to the applicant, it should be considered that the latter, by his conduct undermined the image of the Court of Auditors and the European Union (T-87/11, para 81, own translation from French).

This part of the Judgment may be criticised on the basis that it seems to allow for an analysis of the gravity of the offence and the ensuing sanction on the basis of factors that are external to the offender (would the same actions be less reproachable had they been committed against an institution not entrusted with a financial audit or oversight mission?). However, it seems clear that the GC is prepared to uphold the highest standards of professional conduct in the field of EU public procurement and this more general message must be most welcome.

In general, this case highlights the need for some additional clarity and development of the system of suspension and debarment of non-performing contractors in EU public procurement which, in my view, should not only be created for EU's institutional procurement, but extended to the general rules applicable in the Member States.

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

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

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

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

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

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

CJEU strengthens #EULaw on #food #information: more #disclosure in the #consumers' interest

In the aftermath of the horse meat scandal, in its Judgment of 11 April 2013 in case Karl Berger v Freistaat Bayern, the European Court of Justice has clearly pushed for an expansive interpretation of EU food law that gives public authorities the appropriate tools to protect consumers' interests.

In Berger, the CJEU has clearly supported the fact that public authorities release information and food warnings concerning products that, despite not creating a health risk to humans, are unfit for human consumption. 

In the case, the manufacturer of nauseating food products (game meat processed in less than hygienic conditions) intended to claim damages for the loss of business derived from one such food warning. The manufacturer sued the relevant German food authority on the basis that, there not being a risk for human health, the authority exceeded its powers by disclosing that the products were not fit for human consumption.

In what should be welcome, the CJEU has interpreted that EU food law sets minimum mandatory requirements, but that public authorities can exceed them as long as they act proportionately and in the interest of consumers. In the CJEU's view, indeed:

35. In so far as a foodstuff is unacceptable for human consumption and accordingly unfit therefor, it does not fulfill the food safety requirements under Article 14(5) of Regulation No 178/2002, and is, in any event, such as to prejudice the interests of consumers, the protection of whom, as stated in Article 5 of that regulation, is one of the objectives of food law.

36. It follows from the above that, where food, though not injurious to human health, does not comply with the aforementioned food safety requirements because it is unfit for human consumption, national authorities may, as provided under the second subparagraph of Article 17(2) of Regulation No 178/2002, inform the public thereof in accordance with the requirements of Article 7 of Regulation No 882/2004 (emphasis added).

In my view, the Berger Judgment must be welcome and consumers should push for Member States' food agencies to make the most of their informative powers. Granted, they should only act on the basis of strong procedures and reliable evidence but, once they find products that are not fit for human consumption, they should promptly disclose this information. When the interests of the manufacturer and those of consumers clash, the CJEU seems to clearly side with consumers and, as a matter of general policy, this seems appropriate. This will create further incentives across the food supply chain to improve quality controls and, in the end, will result in safer food markets in the EU. So, in short, the expansive interpretation adopted by the CJEU in Berger is a most welcome development of EU food law.

#GAO reports that there is scope for more competition in #US Defense #procurement

The US Government Accountability Office (GAO) has published an interesting report on Defense Contracting: Actions Needed to Increase Competition, where it finds that the proportion of defense contracts subject to competition "declined over the past five fiscal years, from 62.6 percent in fiscal year 2008 to 57.1 percent in fiscal year 2012". Moreover, GAO also found that "the competition rate in fiscal year 2012 varied by specific DOD component with the Air Force having the lowest at 37.1 percent and the Defense Logistics Agency the highest at 83.3 percent. The majority of the noncompetitive awards cited the availability of only one responsible source to meet the government’s needs as the reason for using noncompetitive procedures". 

This overall reduction of 5.5 points has been provoked by a number of factors. "For example, reliance on an original equipment manufacturer throughout the life cycle of a program has been a long-standing challenge for DOD competition, and budget uncertainty can also hinder DOD’s ability to compete. Noncompetitive purchases that DOD makes on behalf of foreign governments can also affect DOD’s competition rate".

In a deeper analysis, GAO points out that the justifications provided for noncompetitive procurement are not always sufficient, despite procurement officials ticking all the boxes and meeting the regulatory requirements to proceed with direct awards. "Many of the noncompetitive justifications GAO reviewed included the required elements as defined by the Federal Acquisition Regulation; however, the level of insight into the reasons for noncompetitive awards varied. For example, some justifications included clear descriptions of market environments where only one source was available to meet the government’s needs or described planned actions that could help improve competition in the future. However, other justifications provided limited insight into the reasons for the noncompetitive award or did not fully describe actions that the agency could take to increase future competition. Without this information, DOD may be missing opportunities to gain a fuller understanding of why past acquisitions were not competitive and may be unable to apply those lessons to effectively facilitate competition for future acquisitions".

Interestingly, GAO stresses that "these factors are not always considered when setting DOD’s annual competition goals" and recommends that "DOD identify, track, and consider the specific factors that affect competition when setting competition goals; develop guidance to apply lessons learned from past procurements to help achieve competition in the future; and collect reliable data on one-offer awards".

For European readers, the report is interesting not only because it raises issues that sound familiar (such as the 'abuse' of void justifications when resorting to negotiated procedures or direct awards of contracts), but also because it stresses the importance of developing solid tools of procurement statistics, monitoring and intelligence in order to develop a continuous appraisal of public procurement activities and foster their increasingly pro-competitive development. 

Forthcoming, revised EU rules on public procurement should indeed promote such tools, with a particular focus on data collection and analysis (which was promoted by the European Commission, but which may be significantly reduced with the proposed suppression of article 84 of the 2011 Commission's proposal by the Council and the European Parliament in the current negotiation of future revisions of EU procurement rules). 

As I already said, I think that the general transatlantic message to carry home in the current revision of the EU rules is that more planning and more oversight / analysis are required. Otherwise, EU public procurement rules will still fall short from ensuring the development of a dynamic and growingly competitive set of tools that can deliver value for money.

Stubborn #publicprocurement #aggregation: #Madrid City Council insists in tendering macrocontracts

Last November, the City Council of Madrid tendered a single contract for waste collection. The contract was intended to aggregate and consolidate the prior 13 separate outstanding contracts, which would have given the awardee responsibility for waste collection throughout the municipality, with the only exception of the city centre (for some reason). The contract was worth €542 million and the Council expected to save €11 million in the 8 years it would last.

The tender was a massive failure. Current contractors opposed a contract consolidation strategy that would exclude most of them due to their limited size and waste processing capacity. There was a strike to protest a change of waste management strategy that trade unions anticipated would cut jobs. More generally, the financial structure of the contract was considered nonviable by experts. In fact, only the largest incumbent (FCC) submitted a bid, which was disqualified because it exceeded the maximum bidding price by 34%. The tender was declared deserted and prior contracts were extended.

The situation is very unsatisfactory, as contract extension is not without problems. Contractual conditions designed several years ago are no longer adjusted to reality. Waste collection is now bad business, as the economic crisis has generated a reduction of household waste (at least, that is environmentally encouraging) and that means reduced pay for waste collection companies, since they are paid by collected ton of waste. FCC itself has announced job cuts, which the Madrid City Council opposes on the basis that the number of employees is a contract compliance clause the contractor cannot breach, despite the contract having been extended beyond its original duration and the conditions having changed significantly (an scenario that actually may make judges side with the contractor if this issue got to court). Trade unions are again promoting a new strike to protest the situation, which will result in no waste collection in Madrid for an indefinite period starting on the 15th of April.

Cynically, we could say that Madrid city is facing a waste wave if the situation does not get sorted out soon. And the prospects are gloomy. According to today's press releases, the City Council has decided that, if you cannot solve a problem, better make it bigger.

The Council has stubbornly decided to go deeper and broader in its (failed) contractual consolidation strategy and to tender a single macrocontract to consolidate the 39 outstanding for all public service activities of cleaning and maintenance of public spaces and green areas of the capital. The new service would run for 8 years (with a possible extension for 2 more), and is valued at €2.3 billion. With this new formula, the Council expects savings of 10% of current cleaning and gardening costs (a rough equivalent of €256 million throughout the life of the contract without the extension). Does this sound familiar?

Interestingly enough, the largest players in the cleaning, gardening and maintenance business are the same as in the waste collection side. It do not think it will be anyone's surprise if we hear again that only one or a very limited few of them participate in this second macrocontract, or that they submit financial offers in excess of the (dreamy?) expectations of the Madrid City Council.

Now, the open question is why a city council of one of the largest capitals in the EU insists in a failed strategy for the tendering of local services of such relevance? Are there no better ideas available in their in-house group of experts? Are they so stubborn that they are trying to prove they were right in the prior instance by failing again?

Also, I think that the Madrid experience offers some lessons for other city councils facing similar challenges (ie, the need to find new management strategies for public services that allow them to reduce costs) and that are thinking about contract aggregation and consolidation. I think that the easier one is that you cannot aim to consolidate beyond the size your market structure can reasonably digest. The second one is that you cannot intend to award non-profitable contracts. And, the hardest one, that some creative thinking is needed. Would anyone publish a call for ideas? I would definitely be tempted to contribute.

Avoiding gold plating in the transposition of #EUlaw: A distinctive UK approach?

The Department for Business, Innovation and Skills has recently published its March 2013 'Gold-plating review' as a Report on the Operation of the Transposition Principles in the Government’s Guiding Principles for EU Legislation. The Report covers 88 proposals to implement EU measures over the eighteen-month period, from 1 July 2011 to 31 December 2012.

In my view, the Report clearly shows resistance to the prompt incorporation of EU Law into the UK legal system, as clearly indicated by the fact that "in 95% of cases over the eighteen-month period Departments have implemented on or after the transposition deadline, with only four examples where Departments sought agreement to implement measures early" (emphasis added).

Most remarkably, the UK Government is not shy to acknowledge the infringement of EU Law that belated transposition implies. And this should be worrying, not least because it can trigger the initiation of infringement procedures by the European Commission.

In my view, it is legitimate for Member States to take advantage of the transposition periods as they consider in their best interest. But it cannot be in the (national) public interest to breach EU Law by belatedly transposing Directives into the UK legal system. Even taking into consideration the interest of the UK in eventually renegotiating its terms of membership of the EU, only an exquisite compliance strategy will build a solid negotiating platform.

Therefore, contrary to the generally positive conclusion of the Report, I think that the UK Government should implement an effective strategy to make sure that no Directive gets transposed after its transposition deadline. That is a clear requirement for the proper transposition of EU Law. And it should not be overseen.

Becoming true #EUcitizens: The only way out of the #crisis (and beyond)?

Citizens of the European Member States seem to be resorting back to Euroscepticism and show clear signs of cold feet regarding the single market / single currency project (reality?).

According to the December 2012 Eurobarometer, 40% of the population of the EU Member States is against the European economic and monetary union with a single currency (with an additional 7% showing scepticism or, simply, lack of knowledge about the project).

Source: Standard Eurobarometer 78, December 2012, p. 16.

Moreover, 29% of the citizens of the EU Member States have a negative image of the EU—and the breadth of disenchantment with the EU project may be increased to 68% if one adds those that have a neutral image (surely, neutral means that the project does not match their expectations and can easily change into negative, particularly if the economic crisis continues to worsen).

Source: Standard Eurobarometer 78, December 2012, p. 15.

These are very worrying data and some are using them to support anti-EU movements. I think that is both opportunistic and dangerous. Talks about taking steps back and pulling out of the Eurozone and/or the EU usually do not follow a thorough consideration of their ultimate implications (some of which are unknown because the construction process has always been considered irreversible).

In my view, the only way out of this accelerating vicious circle is to stop being citizens of a Member State of the European Union and start being EU citizens. Only when most (all) of us realize the massive space of personal freedom and liberties created by the EU project will we be in a position to understand the fundamental importance of remaining involved and to continue working (and sacrificing) to further the EU and finally consolidate it.

The European Commission is working clearly in that direction and has declared 2013 the European Year of (EU) Citizens. A series of informative materials have been published to try and raise awareness of our rights as EU citizens, in the hope that a better informed citizenship will appreciate the benefits of the EU project and will be in a better position to accept the sacrifices it demands at certain times.

However, as stressed by some analysts like Kellner, if one wants to prompt (short term) action, taking a positive approach may not be as effective as exploiting the ‘fear factor’. Indeed, citizens are more likely to react and vote or demonstrate out of fear (or rage) than fuelled by optimism, compromise and good intentions. Extremist parties know this far too well and tend to take advantage of it (as will be discussed in full in a relevant and much needed event).

So maybe the EU project is doomed after all, because it goes against its very essence to use threats and dark horizons as a tool to promote integration. The situation is starting to look like a street fight were the polite citizen just does not know what to do to escape from the raider with a flicknife. And the answer seems to be the same as always, he can only be rescued by a group of neighbours walking by the dark alley and scaring off the assaultant.

That is why I think it ultimately rests on each of us becoming a true EU citizen and to actually get involved in the EU project. I think that this applies specially to younger generations (those of us below 40 now), since we are taking the existence of the EU for granted—much as we take for granted peace and development in this continent, or our constitutional and fundamental rights (given that most of us are ‘post-constitutional children’ and consider that our liberties and personal freedoms are grandfathered and nobody can take them away from us). It would be a disaster if we were proven wrong and, at some point, we had to start telling bonfire stories about the long-gone EU.

This contribution is also published at the interesting blog http://www.greekpublicpolicyforum.org. 

How #publicprocurement rules seem to be diminishing #competition in #China: A wake up call

The latest edition of the China Competition Bulletin reports on the state of affairs in Chinese public procurement markets, where inadequate rules and procedures seemingly fail to ensure value for money as a result of a lack of transparency and accountability.

According to the report, 

The principles of openness and transparency, fair competition, impartiality, and good faith are required to be observed in government procurement. China’s government procurement system provides general rules on competition, transparency, and fairness. However, the implementation of the rules is less than ideal. Insufficient disclosure of information, conflicts of interest, discriminatory treatment of enterprises, excessive prices, and poor quality purchasing have been frequently reported and raised the public’s concern in recent years. The newly released Blue Book of Rule of Law: Annual Report on China’s Rule of Law No. 11 (2013) provides an empirical report on the current state of government procurement.

Remarkably, other than the difficulties in having access to comparable data (and, generally, to data), the report evidences that

Data and price comparison results revealed that certain government procured goods can be much more expensive than average market prices. An extreme example mentioned in the report was a desktop computer that was procured at a cost of CNY 98,730 when the average market price for a computer with the same specifications was CNY 2,649. [...] In the end, the prices of 19,020 items were compared. These goods covered 29 product categories such as uninterruptible power systems, laptops, dehumidifiers, printers, and fax machines. The results show that the prices of 15,190 items were higher than the average market prices and that taxpayers had paid an extra CNY 20,743,897.50. On the positive side, the price comparison results show that 68,025 items purchased through the centralised procurement of the Central Government had saved taxpayers CNY 5,543,185. The 68,025 items, covering desktops, workstations, and printers, were chosen from 85,963 records collected for the research.

In view of such findings, 

the report notes that transparency is the foundation of fair competition, impartiality, and good faith. Transparency can effectively facilitate fair competition, deter corruption, and prevent China, the world’s largest procurement market, from turning into the world’s largest market for public corruption.

It seems that the Chinese public procurement system would benefit from a revision along the lines suggested by the report itself, which includes recommendations for the revision and improvement of the legal system for government procurement; which should be coupled with those in the OECD July 2012 Recommendation and, more generally, it offers a clear example of the interaction between public procurement and competition, as well as the need to consider  effects of public procurement regulations on competitive markets, as Prof. Yukins and Lt. Col. Cora have just emphasised in their featured comment in Government Contractor, March 6, 2013, Vol. 55, No. 9, ¶ 64.

When analysing the situation in the USA, Yukins and Cora conclude that

a substantial body of literature confirms that procurement rules can have a significant negative impact on competitive commercial markets. Procurement rules can, for example, raise new barriers to entry in the commercial marketplace, facilitate collusion in the commercial space, or artificially buoy commercial prices. Federal procurement regulators have not, as a regular matter, assessed those possible impacts in past rulemaking, but sound practice and legal authority, including an executive order, seem to call for such assessments. Assessing procurement rules’ likely impact on competitive markets would be in accord with best practices in rulemaking, and would help ensure that the federal procurement system integrates efficiently, and not disruptively, into the broader economy.

Their views and recommendations, which I fully share [Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011)], are relevant for procurement reform in all major jurisdictions, such as the USA, the EU and  China. Hopefully, too, such revisions can lead to an exchange of best practices and, to the extent desirable, certain global convergence.

Not worth the paper it is written on? ~ AG on the expectations created by legal advice in #competition (C-681/11) #EULaw

In her Opinion in case C-681/11 Schenker and Others, Advocate General Kokott has addressed a very relevant question regarding the possibility to avoid competition sanctions on the basis of the (legitimate) expectations created by professional legal advice. In her Opinion, she expressly addresses the question 'Is an error with regard to the lawfulness of conduct unobjectionable in the case where the undertaking acts in accordance with advice given by a legal adviser experienced in matters of competition law and the erroneous nature of the advice was neither obvious nor capable of being identified through the scrutiny which the undertaking could be expected to exercise?'. In my view, as clearly emphasised by the AG, this is of major relevance in the 'self-assessment' paradigm created by Regulation 1/2003.

According to the AG, the framework for the analysis must be the following:

Apparently, the members of the [cartel] wrongly considered that they had stayed ‘on the safe side’, as far as European Union law was concerned, by restricting the geographical scope of their cartel to Austria alone. In the light of the case-law of the European Union courts and the administrative practice of the European Commission, there is no doubt that that legal opinion was objectively incorrect. However, it is unclear whether the infringement of the prohibition of cartels under EU law can also be attributed subjectively to the undertakings concerned. In other words, it must be examined whether the undertakings participating in the [cartel] culpably infringed the prohibition of cartels under EU law (Opinion in C-681/11, at para 36, emphasis in the original, footnotes omitted).

In that regard, and after clearly indicating that the principle of nulla poena sine culpa applies in the field of EU Competition law as an implicit requirement of Articles 6(2) of the European Convention on Human Rights and 48(1) of the European Charter of Fundamental Rights [for general discussion on human rights in this area, see A Sanchez Graells, 'The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?', in Kosta, Skoutaris & Tzevelekos (eds), The Accession of the EU to the ECHR (Hart Publishing, 2014), available at http://ssrn.com/abstract=2156904], AG Kokott goes on to explain that:

44. According to the principle of nulla poena sine culpa, an undertaking may be held responsible for a cartel offence which it has committed on a purely objective basis only where that offence can also be attributed to it subjectively. If, on the other hand, the undertaking commits an error of law precluding liability, an infringement cannot be found against it nor can it form the basis for the imposition of penalties such as fines.

45. It should be stressed that not every error of law is capable of precluding completely the liability of the undertaking participating in the cartel and thus the existence of a punishable infringement. Only where the error committed by the undertaking regarding the lawfulness of its market behaviour was unavoidable – sometimes also called an excusable error or an unobjectionable error – has the undertaking acted without fault and it cannot be held liable for the cartel offence in question.

46. Such an unavoidable error of law would appear to occur only very rarely. It can be taken to exist only where the undertaking concerned took all possible and reasonable steps to avoid its alleged infringement of EU antitrust law.

47. If the undertaking concerned could have avoided its error regarding the lawfulness of its market behaviour – as is often the case – by taking adequate precautions, it cannot escape any penalty for the cartel offence committed by it. Rather it will be liable at least for a negligent infringement, which, depending on the seriousness of the questions of competition law involved, may (but not must) lead to a reduced fine.

48. It is necessary to assess whether the error of law committed by an undertaking participating in a cartel was avoidable or unavoidable (objectionable or non-objectionable) on the basis of uniform criteria laid down in EU law, so that uniform conditions in respect of EU substantive competition law apply to all undertakings operating in the internal market (‘level playing field’) (Opinion in C-681/11, at paras 44 to 48, bold emphasis in the original,  underlined added, footnotes omitted).

After briefly referring to the old Miller case law on the suitability of the (legitimate) expectations created by legal advise as a competition defence, the AG enters an interesting revision of this issue in the new paradigm created by Regulation 1/2003 and she considers that

57. [...] obtaining expert legal advice has a completely different importance in the system under Regulation No 1/2003 than was the case in the system under Regulation No 17. Consulting a legal adviser is now often the only way for undertakings to obtain detailed information about the legal situation under antitrust law.

58. It is not acceptable, on the one hand, to encourage undertakings to obtain expert legal advice but, on the other, to attach absolutely no importance to that advice in assessing their fault in respect of an infringement of EU antitrust law. If an undertaking relies, in good faith, on – ultimately incorrect – advice provided by its legal adviser, this must have a bearing in cartel proceedings for the imposition of fines.

59. In particular, the purely civil liability of a lawyer for incorrect legal advice given by him does not, contrary to the view taken by the European Commission, constitute adequate compensation in itself. Civil recourse by a client against his lawyer is generally subject to considerable uncertainty and, moreover, cannot dispel the condemnation (‘stigma’) associated with the imposition of cartel – i.e. quasi-criminal – penalties against the undertaking.

60. Of course, obtaining legal advice cannot exempt an undertaking from all individual responsibility for its market behaviour and for any infringements of European competition law. The opinion of a lawyer can never give carte blanche. Otherwise, this would open the way to the production of opinions tailored to the interests of the undertaking and the power to give official negative clearance abolished by Regulation No 1/2003 would be transferred de facto to private legal advisers, who do not have any legitimacy in that regard.

61. In accordance with the fundamental objective of the effective enforcement of European competition rules, any expectations on the part of an undertaking created by legal advice may be recognised as the basis for an error of law precluding liability only where, in obtaining that legal advice, certain minimum requirements were complied with, which I will describe briefly below.

Minimum requirements in obtaining legal advice

62. The basic condition for taking into consideration the legal advice obtained by an undertaking is that the undertaking relied in good faith on that advice. Protection of legitimate expectations and good faith are closely related. If the facts justify the assumption that the undertaking relied on a legal opinion against its better judgment or that the report was tailored to the interests of the undertaking, the legal advice given is irrelevant from the very outset in assessing fault for an infringement of the rules of European competition law.

63. Furthermore, the following minimum requirements apply to obtaining legal advice, in respect of which the undertaking concerned itself bears the risk and responsibility for compliance.

64. First of all, the advice must always be obtained from an independent external lawyer. [...]

65. Second, the advice must be given by a specialist lawyer, which means that the lawyer must be specialised in competition law, including European antitrust law, and must also regularly work for clients in this field of law.

66. Third, the legal advice must have been provided on the basis of a full and accurate description of the facts by the undertaking concerned. If an undertaking has given only incomplete or even false information to the lawyer consulted by it regarding circumstances which originate from the area of responsibility of the undertaking, the opinion of that lawyer cannot have an exculpating effect in cartel proceedings in relation to any error of law.

67. Fourth, the opinion of the consulted lawyer must deal comprehensively with the European Commission’s administrative and decision-making practice and with the case-law of the European Union courts and give detailed comments on all legally relevant aspects of the case at issue. An element which is not expressly the subject-matter of the legal advice but may possibly be inferred implicitly from it cannot form the basis for recognition of an error of law precluding liability.

68. Fifth, the legal advice given may not be manifestly incorrect. No undertaking may rely blindly on legal advice. Rather, any undertaking which consults a lawyer must at least review the plausibility of the information provided by him.

69. Of course, the diligence expected of an undertaking in this regard depends on its size and its experience in competition matters. The larger the undertaking and the more experience it has with competition law, the more it is required to review the substance of the legal advice obtained, especially if it has its own legal department with relevant expertise.

70. In any event, every undertaking must be aware that certain anti-competitive practices are, by their nature, prohibited, and in particular that no one is permitted to participate in ‘hardcore restrictions’, for example in price agreements or in agreements or measures to share or partition markets. Furthermore, large, experienced undertakings can be expected to have taken note of the relevant statements made by the European Commission in its notices and guidelines in the field of competition law.

71. Sixth, the undertaking concerned acts at its own risk if the legal opinion obtained by it shows that the legal situation is unclear. In that case, the undertaking is at least negligent in accepting that by its market behaviour it infringes the rules of European competition law.

72. Admittedly, in the light of the minimum requirements I have just proposed, the value of legal opinions given by lawyers is slightly diminished for the undertakings concerned. However, this is inherent in the system created by Regulation No 1/2003 and is also no different in conventional criminal law; in the final analysis, any undertaking is itself responsible for its market behaviour and bears the risk for infringements of the law it commits. Absolute legal certainty cannot be secured by obtaining legal advice from a lawyer. However, if all the abovementioned minimum requirements are satisfied, an error of law precluding liability can be taken to exist where the undertaking concerned has relied in good faith on an opinion from its legal adviser.

73. It should be added that a lawyer who, by delivering opinions tailored to the interests of an undertaking, becomes an accomplice in the undertaking’s anti‑competitive practices will have to contend with not only consequences under the rules of civil law and of professional conduct, but may possibly also himself be subject to penalties imposed in cartel proceedings (Opinion in C-681/11, at paras 57 to 73, underlined added, footnotes omitted).

In my view, the very high minimum requirements suggested by AG Kokott may seem desirable from a theoretical perspective but, in practice, may generate the result that (very expensive, specialised) legal advice in EU Competition law matters is not worth the paper it is written on--and, consequently, undertakings may not even bother seeking (and paying for) it. 

Moreover, the level of pressure under which competition specialists would operate may make it impossible for them to effectively cover (ie insure) their potential liability at reasonable costs--thereby having a negative effect on the availability and affordability of good quality legal advice in this field. 

On the other hand, building a strong in-house competition team may even be self-defeating, as it comes to raise the threshold of diligence applicable to the undertaking. Therefore, companies may even consider whether they are better off simply omitting competition legal advice.

Given the complexity of the assessments required in certain cases, as well as the standard practice of introducing caveats and limitations in legal opinions (not only in this field of legal practice), coupled with the (not-so) residual duty of the requesting undertakings to double-check the accuracy of the legal advise obtained; successfully relying in a defence based on the legitimate expectations created by the advice of the legal expert seems very hard to achieve.

In that regard, I think that the CJEU should depart from the Opinion of AG Kokott in one of two possible ways: a) either the CJEU avoids endorsing her analysis and confirms the full applicability of Miller in the post- Regulation 1/2003 paradigm (which would generate simplicity and avoid litigation), or b) it adopts a more flexible approach and sets a less demanding standard for this defence (and,consequently, creates some room for an effective  'serious legal advice' defence). 

In my view, route b) would be preferable because resort to 'sound legal advice' can be coupled with the requirements connected with the implementation of effective competition compliance programs for the purposes of giving undertakings a chance of ever succeeding in proving lack of intention or unobjectionable conduct. In that regard, there seems to be some need for further consistent developments of the rules applicable in the 'self-assessment' paradigm created by Regulation 1/2003.

US GAO report on the use of small business and other preferences in the acquisition of goods

The US GAO has published an interesting report on the Army's and Defense Logistics Agency's Approach for Awarding Contracts for the Army Combat Shirt. 

The report details how the relevant agencies have moved from preferential emergency contracting towards more competitive preferential contracting for the supply of the increasing number of necessary army combat shirts. 

I think that the report is particularly interesting for non-US procurement lawyers, as it describes very clearly the decision-making procedures that need to be complied with in order to resort to preferential award of government contracts, with or without competition.

With a little help from my friends: AG Jääskinen supports flexible interpretation of rules on reliance on third party capabilities in #publicprocurement

In his Opinion of 28 February 2013 in case C‑94/12 Raggruppamento Temporaneo Imprese (‘RTI’), Advocate General Jääskinen has clearly indicated that the rules of arts 47(2) and 48(3) of Directive 2004/18 preclude national legislation which prohibits, except in special circumstances, reliance on the capacities of more than one auxiliary undertaking in order to fulfill the selection criteria concerning the economic and financial standing and/or technical and/or professional ability of an economic operator tendering for a contract as main contractor.

The approach followed by the AG must be welcome and, in my opinion, his teleological interpretation in view of the 'ultimate' objectives of the Directives deserves particular praise:

31. This argument is further supported by analysis of the objectives of Articles 47(2) and 48(3) of Directive 2004/18. According to the Court, one of the primary objectives of the public procurement rules of the European Union is to attain the widest possible opening‑up to competition, and that it is the concern of European Union law to ensure the widest possible participation by tenderers in a call for tenders.

32. The objective of widest possible opening‑up to competition is regarded not only from the interest in the free movement of goods and services, but also in regard to the interest of contracting authorities, who will thus have greater choice as to the most advantageous tender. Exclusion of tenderers based on the number of other entities participating in the execution of the contract such as allowing only one auxiliary undertaking per qualitative criteria category does not allow for a case by case evaluation, thus actually reducing the choices of the contracting authority and affecting effective competition.

33. Another objective of the public procurement rules is to open up the public procurement market for all economic operators, regardless of their size. The inclusion of small and medium‑sized enterprises (SMEs) is especially to be encouraged as SMEs are considered to form the backbone of European Union economy. The chances of SMEs to participate in tendering procedures and to be awarded public works contracts are hindered, among other factors, by the size of the contracts. Because of this, the possibility for bidders to participate in groups relying on the capacities of auxiliary undertakings is particularly important in facilitating the access to markets of SMEs. (AG in C-94/12 at paras 31 to 33, emphasis added).

These considerations rely on a conception of public procurement as a 'competition-enhancing' tool, which I personally very much favor [A Sanchez Graells, Public Procurement and the EU Competition Rules, Oxford: Hart Publishing, 2011]. However, relevant commentators such as Professor Arrowsmith continue to oppose this approach [S Arrowsmith, "The Purpose of the EU Procurement Directives: Ends, Means and the Implications for National Regulatory Space for Commercial and Horizontal Procurement Policies", in C. Barnard, M. Gehring and I. Solanke (eds.), Cambridge Yearbook of European Legal Studies (Hart Publishing, Oxford, 2011-2012), Vol. 14, pp.1-48]. Therefore, the doctrinal debate that the RTI Opinion in brings to the spotlight deserves some attention.

I think that it will be interesting to see if the CJEU expressly adopts the reasoning of AG Jääskinen in the final Judgment in the RTI case. If so, I think that the path towards the express and full recognition of the principle of competition in public procurement will continue to be paved and that there will be opportunities for further developments in the right direction.

http://youtu.be/gQLtCoh5EaI

#Decency in #publicprocurement could take us out of the #crisis: or how #corruption is making us bleed out

Stories about corruption in public procurement are so common that they have become part of the daily news (and, sadly, a part that tends to receive less and less attention due to routine and tiredness from repetition). However, when one looks at the aggregate data, an immediate need for reaction becomes evident.

As the EU Commissioner for Home Affairs has just emphasised "The Commission's best estimate is that 120 billion euros are lost each year to corruption in the 27 Member States of the EU. That is the equivalent of the whole EU-budget. In public procurement, studies suggest that up to 20- 25% of the public contracts’ value may be lost to corruption." 

Given that  public procurement represents around 20% of the GDP in the European Union, a loss of 20% of its value due to corrupt practices of all sorts means that corruption in public procurement costs around 4% of the EU GDP. 

If we add the fact that, sometimes, corruption is coupled with collusion (or bid rigging), which can generate an increase in prices of approximately 20% (with instances of around 40%), the numbers may be easily brought up to losses due to illegal and indecent behavior representing 40% to 50% of its value--i.e. around 8-10% of GDP.

The power of these facts seems unbeatable and we should all have it now clear in our minds that only decency can save us from the economic crisis.

However we want to run the numbers or reduce them to be conservative in our claims, even a reduction of 50% of the perceived level of corruption would not only avoid most of the cuts being imposed on the budgets for the provision of public services, but it would also allow for a relaxation of tax pressure on individuals and companies, and to provide effective economic incentives to entrepreneurship and innovation. 

Even in clearer terms: addressing the issue of corruption and collusion in procurement would single-handedly bring the EU from recession/depression into economic growth. In this regard, the initiative of the European Commission to move from rhetoric to results in the fight against corruption (in public procurement) in the EU must be echoed, voiced and supported.

This is something we intend to do at workshops B5 and B6 of the Global Revolution VI Conference next June in Nottingham. Suggestions and active participation is encouraged and definitely more than welcome!

One more #publicprocurement Judgment in the Evropaïki Dynamiki Saga (T-9/10)

The General Court's Judgment of 21 February 2013 in case T-9/10 Evropaïki Dynamiki v Commission (Microsoft SharePoint) is a new addition to this seemingly never-ending saga of cases where the Greek IT company challenges procurement award decision on the two-fold basis of failure to state reasons and presence of manifest errors of assessment.

This Judgment basically reiterates the position of the EU Courts on the duty to state reasons but, interestingly, includes an obiter paragraph that is not always expressly mentioned in the growing case law in this area of EU public procurement. 

In my opinion, paragraph 26 of this latest Evropaïki Dynamiki Judgment deserves emphasis, as the GC indicates that

It should also be borne in mind that the requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations (see Case C‑367/95 P Commission v Sytraval and Brink’s France [1998] ECR I‑1719, paragraph 63 and case-law cited, and Case T‑465/04 Evropaïki Dynamiki v Commission, paragraph 49) (emphasis added).

This offers the basis for a far more restricted disclosure of information to unsuccessful candidates and disappointed bidders than usually provided by contracting authorities, and could (should) be used as the basis to rationalise this area of the law--where contracting authorities are indeed under significant pressure to provide excessive information during debriefing and bid protest procedures. 

In fact, in the case at hand,  

the Commission considers that it provided a statement of reasons exceeding that laid down in Article 100(2) of [the Financial Regulation] by informing the applicant of the reasons why its tender had been rejected as well as providing the scores obtained by the tenderers at the award stage, even though the applicant had not passed the selection phase (T-9/10 at para. 24, emphasis added). 

Situations such as this should be avoided, given the negative impacts that excessive transparency can generate in terms of potential collusion and access to confidential information and business secrets of competitors. Therefore, once again, it seems desirable to clarify and rationalise this area of EU public procurement law in the current process of revision of the EU Directives on public procurement.

The Future of European Legal Education -- Comment on Maduro's views

Prof. Miguel Poiares Maduro has published an interesting piece on The Future of European Legal Education, where he identifies some challenges derived from a tension between law as legal practice and law as science and highlights how those challenges can become an opportunity to reform legal education. 

In my view, his critical analysis is mostly accurate and supports his (relatively implicit) claim for a study of law in context, following the 'classic' proposals of Weiler (with whom Maduro has been working closely in related academic projects) and Snyder, who 23 years ago stressed that 

So far European Community law has been conceived mainly as 'black-letter law' [...] it is time to draw upon perspectives from other social sciences and to move in new directions. We must place European Community law in its social, economic and political context. Only in this way can we achieve the deeper and broader understanding—both practical and theoretical—of European Community law [F Snyder, New Directions in European Community Law (Law in Context) 30 (2nd edtn. 1990)].

Some of this certainly not-so-new worries go beyond Europe and are echoed by the work of the American Bar Association's Task Force on the Future of Legal Education, which is also concerned with the challenges that legal education faces as a result of the rapid and substantial changes in the legal profession, legal services, the national and global economy, and markets affecting legal education.

The issue is, therefore, of high currency and of global relevance, and deserves some good thought. In that regard, I think that it is remarkable that one of Maduro's main claims is that

These changes [derived from increased global economic and social integration] are bound to challenge not only the content of the law but also how it needs to be taught. This context of legal pluralism and legal miscegenation requires different hermeneutics and the interaction between legal cultures, which is triggered by the Europeanisation of the law, will confront each national legal culture with many of its unarticulated assumptions. Change in what you study is often the fastest way to break path-dependencies on how you study (p. 456).

While I agree that these global aspects need to be understood and mastered in order to become a well-rounded lawyer (be it in practice, be it in the academy, or anywhere in between), I remain skeptical that such a 'global' or 'delocalised' approach can be adopted from minute one in anyone's legal education.

Not to sound parochial, but I think that law is and will always be a jurisdiction-specific phenomenon (in our case, EU+Member State-specific) and I doubt that you can understand the very complex issues of the global legal reality if you have not first been (solely and thoroughly) trained in the law of one specific jurisdiction. 

This does not mean that legal studies throughout the EU need not be more 'Europeanised' (as, indeed, restricting EU law to a self-standing module is no longer a sensible option), but I think that it raises the issue that before you can engage in highly sophisticated comparative and contextualised legal analysis, you need to have a deep knowledge of a (self-contained) domestic system. As the saying goes, you must learn to walk before you can run.

Therefore, I would agree with Maduro's diagnosis and recommendations for the development of better postgraduate legal education programs, but I think that extending them to initial or basic legal studies may overshoot the mark. Maduro himself hints at this by the end of his contribution (p. 461), which maybe would have required some clearer disclosure in his general criticism to the development of legal theory.

http://youtu.be/4PkcfQtibmU

Why is #competition law so special? Or how #leniency will kill private #damages actions (AG C-536/11)

In his Opinion of 7 February 2013 in case C-536/11 Donau Chemie and Others, Advocate General Jääskinen has developed a line of reasoning that goes well beyond the issue at hand (whether access to judicial documents should be granted to a potential claimant for damages derived from anticompetitive behaviour) and encapsulates the growing risk that an excessive level of protection of leniency applicants will kill (all) potentially significant developments in damages litigation. 

Indeed, as clearly emphasised by AG Jääskinen,

36. In my opinion it is inarguable that such proceedings [ie damages actions based on infringement of EU competition law] are comparable to either ordinary civil or criminal procedures, given that neither is concerned with the protection of leniency programmes or other specific features of public law proceedings in the context of enforcing competition policy (emphasis added).

For such strong claims, the AG's reasoning remains rather sparse and implicit, and seems to oversee the fact that in certain criminal procedures a similar scheme of plea-bargain can exist in some Member States and that, in any case, the current trend in competition law enforcement seems to search for a more balanced approach between public and private enforcement, or even for a boost of private enforcement (as is the case in the UK).

Moreover, if his argument was carried to the extreme, there would be no difficulty for Member States to create a 'damages-proof' system that completely excluded damages actions when they risked the effectiveness of the public enforcement of competition law (and, notably, of leniency programmes). 

But surely this cannot be in line with the (declared) policy of the European Commission--or with the functional and pro-effective stance taken by the CJEU in Courage and in Manfredi--despite the very clear Opinion of AG Jääskinen, who expressly states that 'the Courage and Crehan/Manfredi right of private parties to seek damages from economic operators that have breached EU competition law should not, in my opinion, be developed to a point that would imperil the efficacy of public law enforcement mechanisms, whether they be European or national' (para 62). In my opinion, this is a seriously troubling position, as it clearly sets a glass ceiling on the development of private enforcement of competition law in the EU and, ultimately, may be the final thrust against its true development.

I think that the criticism against the bluntness of the AG's Opinion is not dispelled by his effort to square the circle by making compatible the 'damages proofness' of leniency applications with a right of effective access to justice for antitrust litigants. In my opinion, there are two frontally contradicting arguments in the AG's Opinion.

On the one hand, and on the basis of the general requirements of the principle of effectiveness (effet utile) of EU law, the AG claims that

51. […] subjecting access to public law competition judicial files to the consent of the infringer of the competition rules amounts to a significant deterrent of the exercise to a right to claim civil damages for breach of EU competition law. The Court has ruled that if an individual has been deterred from bringing legal proceedings in good time by the wrong-doer, the latter will not be entitled to rely on national procedural rules concerning time limits for bringing proceedings. I can see no reason for confining the application of this principle to limitation periods, and would advocate its extension to onerous rules of evidence that have an analogous deterrent effect. I would further query the compliance of remedies that deter enforcement of EU law rights with Article 19(1) TEU (footnotes omitted, emphasis added).

On the other hand, however, the AG carves out a truly significant exception for leniency applications:

55. Article 47 [of the Charter of Fundamental Rights] is also relevant to the case to hand because it guarantees the fairness of hearings, which serves to protect the interests of the undertakings that have participated in the cartel. In my opinion, access by third parties to voluntary self-incriminating statements made by a leniency applicant should not in principle be granted. The privilege against self-incrimination is long established in EU law, and it is directly opposable to national competition authorities that are implementing EU rules.

56. It is true that leniency programmes do not guarantee protection against claims for damages and that the privilege against self-incrimination does not apply in private law contexts. Despite this, both public policy reasons and fairness towards the party having given incriminating declarations within the context of a leniency programme weigh heavily against giving access to the court files of public law competition proceedings where the party benefiting from them has acted as a witness for the prosecuting competition authority (footnotes omitted, emphasis added). 

In my view, both positions are logically irreconcilable in that leniency applicants would have (by definition) prevented by their own unilateral will, access by third parties to the parts of the file that could be used to claim damages against them (something the AG rightly criticises at para. 51 of his Opinion).

Moreover, I find unjustified the final statement whereby AG tries to balance them exclusively on the basis of the peculiarities of leniency programmes:

64. [...] from the point of view of proportionality, in my opinion a legislative rule would be more appropriate that provided absolute protection for the participants in a leniency programme, but which required the interests of other participants to a restrictive practice to be balanced against the interests of the alleged victims. [...] Furthermore, in my view and except for undertakings benefiting from leniency (sic!), participation in and of itself in an unlawful restriction on competition does not constitute a business secret that merits protection by EU law (emphasis added).

* * *

But, beyond the specifics of the reasoning, I think that the Opinion in Donau Chemie is troublesome because it indicates a very strong resistance against effective private actions and, in my view, excessive deference towards leniency applicants--and, what is more important, low priority to granting effective economic compensation to the victims of cartels. 

Maybe this is just an indication that a 'public enforcement only' model is better suited to EU competition law and its institutional architecture. But then, if such is the case, maybe it is better to accelerate the process and not wait for leniency protection to (slowly) kill private actions. Let's just bury them and avoid unnecessary litigation. Or, if we want them in the EU competition toolbox, let's abandon the 'pro-public' approach expressed in the AG Opinion. Otherwise, competition law evolution will continue running in circles... to everyone's loss.

Las tasas judiciales como límite a la efectividad del Derecho UE: Una razón (más) para su supresión

El debate en torno a la imposición de nuevas tasas judiciales parece estar perdiendo algo de fuerza, pese a las recientes decisiones del Tribunal Constitucional sobre las tasas judiciales catalanas y la decisión de la Audiencia Nacional de no suspender su efectividad. 

Dada la desproporcionada limitación al derecho a la tutela judicial efectiva previsto en el artículo 24 de nuestra Constitución, creo que este importante asunto merece mucha más atención.

Para contribuir a (re)avivar el debate, creo que hay que añadir la perspectiva del Derecho comunitario, que da argumentos adicionales para la supresión de las tasas, al menos allí donde limitan la efectividad de la normativa de la UE y, en especial, en cuanto limita los derechos de los ciudadanos comunitarios, cuya última base es el artículo 20 TFUE. Habida cuenta de que estamos celebrando el 50º Aniversario de la Sentencia Van Gend en Loos, que dio inicio a la importante doctrina de la supremacía y efecto directo del Derecho de la UE, creo que estos argumentos deben tenerse en especial consideración.

Pongamos un ejemplo concreto. Creo que es ilustrativo el caso de las indemnizaciones por retrasos y cancelaciones de vuelos conforme al Reglamento (CE) n° 261/2004 del Parlamento Europeo y del Consejo, de 11 de febrero de 2004, por el que se establecen normas comunes sobre compensación y asistencia a los pasajeros aéreos en caso de denegación de embarque y de cancelación o gran retraso de los vuelos. Conforme al Reglamento 261/2004, los pasajeros que sufran retrasos significativos o cancelaciones tienen derecho a reclamar una compensación de entre 250 y 600 Euros por trayecto (art 7 Rgto 261/2004). 

Hay que tener en cuenta que el TJUE ha interpretado de manera claramente expansiva el ámbito de protección de los pasajeros afectados por cancelaciones y retrasos (basta ver la muy reciente STJUE de 31 de enero de 2013 contra Ryanair en el caso del cierre del espacio aéreo de gran parte de la UE en 2010 por la actividad del volcán islandés Eyjafjallajökull), de modo que el grado de protección de los ciudadanos comunitarios que utilizan el transporte aéreo (o de extranjeros que viajan por la UE) sea suficiente y efectivo.

Sin embargo, esta importante normativa y jurisprudencia comunitaria pueden quedar sin efecto para los ciudadanos españoles o para quienes opten por reclamar en España frente a aerolíneas españolas por la necesidad de pagar tasas judiciales para ejercitar su reclamación. Y esto no será infrecuente en el futuro inmediato, por ejemplo, debido a la inminente huelga de los trabajadores de Iberia de estos meses de febrero y marzo--que seguramente generarán numerosas situaciones de retraso o cancelación de vuelos.

Efectivamente, en España, una vez agotada la vía amistosa de reclamación directa frente a la aerolínea, que tiende claramente a negar la responsabilidad de compensar (al menos en mi experiencia personal), sólo queda la posibilidad de interponer una demanda de proceso verbal para tratar de obtener la compensación por parte de la aerolínea. Y resulta que, para la interposición de una reclamación de 250 Euros, la tasa aplicable es de 150 Euros (es decir, del 60% del valor de la reclamación, o un poco menos si la autoliquidación se presenta electrónicamente). Para el caso de la mayor reclamación, de 600 Euros, la tasa aplicable es de 180 Euros (el 30% del valor de la reclamación). La barrera al acceso a una tutela judicial efectiva no podría ser más palmario.

No deberá sorprender a nadie que, a salvo de casos excepcionales en que se acumulen reclamaciones de mucho mayor cantidad o se ejerciten acciones colectivas (con todas las dificultades que acarrean), lo racional para los viajeros que hayan sufrido retrasos o cancelaciones es olvidarse de la reclamación y simplemente elegir otra aerolínea en el futuro. La restricción a la efectividad del Derecho comunitario en la materia no podría ser, tampoco, más clara.

En definitiva, creo que este ejemplo (que puede multiplicarse casi hasta el infinito en relación con todas las normas de tutela de consumidores y usuarios, entre otras) debería bastar para entender que no sólo hay argumentos muy contundentes de Derecho constitucional interno, sino también de Derecho comunitario, para la supresión de las tasas judiciales (o, cuanto menos, para una revisión en profundidad que garantice que no generan un efecto disuasorio para la tutela efectiva de los derechos de los ciudadanos).

CJEU prevents competitors from taking the law into their hands (C-68/12)

In its Judgment of 7 February 2013 in case Slovenská sporiteľňa, the Court of Justice of the EU (CJEU) has clarified that the fact that an agreement between competitors is concluded in order to prevent a situation of allegedly illegal competition by a third party is irrelevant for its analysis under Article 101 TFEU.

In the very clear terms of the Slovenská sporiteľňa Judgment,

18 Article 101 TFEU is intended to protect not only the interests of competitors or consumers but also the structure of the market and thus competition as such (Joined Cases C‑501/06 P, C‑513/06 P, C‑515/06 P and C‑519/06 P GlaxoSmithKline Services and Others v Commission and Others [2009] ECR I‑9291, paragraph 63).

19 In that regard, it is apparent from the order for reference that the agreement entered into by the banks concerned specifically had as its object the restriction of competition and that none of the banks had challenged the legality of Akcenta’s business before they were investigated in the case giving rise to the main proceedings. The alleged illegality of Akcenta’s situation is therefore irrelevant for the purpose of determining whether the conditions for an infringement of the competition rules are met.

20 Moreover, it is for public authorities and not private undertakings or associations of undertakings to ensure compliance with statutory requirements. The Czech Government’s description of Akcenta’s situation is evidence enough of the fact that the application of statutory provisions may call for complex assessments which are not within the area of responsibility of those private undertakings or associations of undertakings.

21 It follows from those considerations that the answer to the first and second questions is that Article 101 TFEU must be interpreted as meaning that the fact that an undertaking that is adversely affected by an agreement whose object is the restriction of competition was allegedly operating illegally on the relevant market at the time when the agreement was concluded is of no relevance to the question whether the agreement constitutes an infringement of that provision (C-68/12 at paras. 18 to 21, emphasis added).

In my view, the general principle reinforced by the CJEU is sensible and prevents undertakings from taking the law into their own hands--and, even further, from trying to disguise anticompetitive agreements behind an appearance of law-reinforcing behaviour. It clearly establishes a positive obligation for undertakings (either unilaterally or through a sectoral association?) to report instances of potential illegal competition to the competent authorities. Also, although not mentioned by the CJEU, undertakings may be able to file judicial claims (including requests for interim measures) on the basis of unfair competition rules under the relevant domestic legislation [which offers yet one more instance of potential (dis)coordination between unfair competition and antitrust rules in the EU; see Ulrich's reflective piece Anti-Unfair Competition Law and Anti-Trust Law - A Continental Conundrum?].

Moreover, in the view of the CJEU, the existence of such avenues for legal reaction / opposition exclude the possibility to apply the exemption of Article 101(3) TFEU:

35 Even if [the first] condition were met [regarding the protection of conditions for healthy competition and, in the broader sense, thus seeked to promote economic progress], the agreement at issue in the main proceedings does not appear to meet the other three conditions – more particularly, the third condition, whereby an agreement must not impose on the undertakings concerned restrictions which are not indispensable to the attainment of the objectives referred to in the first condition laid down in Article 101(3) TFEU. Even if, as stated by the parties to that agreement, the purpose was to force Akcenta to comply with Slovak law, it was for those parties [...] to lodge a complaint with the competent authorities in that respect and not to take it upon themselves to eliminate the competing undertaking from the market. (C-68/12 at para. 35, emphasis added).

Again, the general position of the CJEU seems highly appropriate. However, a feeling remains that the CJEU's Slovenská sporiteľňa Judgment may be too blunt and that the assessment of fulfillment of the conditions could be refined by leaving a door open for a justification in view of Article 101(3) TFEU in some (extreme) cases where lack of reaction on the part of the established industry could result in irreversible changes to market structure, or where other (superior) conflicting interests may be affected. Indeed, a reading of paragraph 35 of the Judgment seems to disqualify the standard position that it is possible to exempt any agreements prohibited under Article 101(1) TFEU if the four conditions of Article 101(3) TFUE are fully met (as indicated by the CJEU only in para. 31).

In any case, as a matter of principle, it must be welcome that the CJEU has excluded the "an eye for an eye" principle and strongly pushed for undertakings to resort to the established regulatory and judicial avenues in order to try to prevent instances of illegal competition in their markets. At the same time, it seems to generate some (positive) pressure on sectoral regulators and the courts to integrate competition law analysis (or competition implications) when deciding on the existence of potential illegal competition or intrusion in a given market.

US GAO report on interagency contracting: A mirror for centralised purchasing strategies in the EU?

The US Government Accountability Office (GAO) has just published an interesting report and recommendations for executive action regarding interagency contracting.

In the US, interagency contracting refers to a strategy whereby 'one agency either places an order directly against another agency's contract or uses the contracting services of another agency to obtain supplies or services'. The EU rough equivalent is the use of centralised purchasing strategies and, in particular, the carrying out of cooperative procurement--most often through dedicated central purchasing bodies. 

In view of the importance given to these 'smart procurement' strategies in the revision of the current EU rules (see October 2012 compromise text for a 'state of play' on centralised procurement strategies), learning from the lessons offered by the experience in the US looks like a promising opportunity.

In my view, the relevance of the GAO interagency contracting report relies on its realism and practical approach. Indeed, GAO 'designated the management of interagency contracting as a high risk area in 2005, in part because of the need for stronger internal controls and clear definitions of agency roles and responsibilities'. 

Following a first assessment in 2010 and the implementation of important policy reforms aimed at strengthening the governance and oversight of interagency contracting, GAO now issues a series of additional recommendations that, basically, boil down to giving effect to the 2011 Policy developed by the Office of Federal Procurement Policy (OFPP) and to strengthening the collection and analysis of data on interagency contracting. Some of the most interesting extracts are, in my opinion, the following:

OFPP issued guidance in September 2011 that requires agencies to develop business cases for creating new governmentwide acquisition contracts and multi-agency contracts. The business cases must address three key elements: (1) the scope of the contract vehicle and potential duplication with existing contracts; (2) the value of the new contract vehicle, including expected benefits and costs of establishing a new contract; and (3) the administration and expected interagency use of the contract vehicle.

The guidance also requires senior agency officials to approve the business cases and post them on an OMB website to provide interested federal stakeholders an opportunity to review and provide feedback. Feedback is addressed through various channels, including posting written comments through the website and sending letters or memos to stakeholders. According to OFPP, it also conducts follow-up with sponsoring agencies when significant questions are raised during the interagency vetting process, including questions related to potential value or duplication.

OFPP and GSA have taken a number of steps to address the need for better data on interagency contract vehicles. We previously have reported that a lack of reliable information on interagency contracts hampers agencies’ ability to do market research as well as efforts to manage and leverage them effectively. To promote better and easier access to data on existing interagency contracts, OFPP has worked to improve the Interagency Contract Directory, a searchable online database of indefinite delivery vehicles for interagency use created in 2003. [...] Short-term improvements include enhancing the search function and simplifying the presentation of search results, which should aid market research. Potential long-term enhancements include the ability to access vendor past performance information and upload contract documents, such as statements of work, to the system. OFPP officials also noted that this information will be helpful in providing data on the use of interagency contract vehicles, as the database provides information on the amount of obligations against the contracts, and eventually may provide other information such as a notification when contracts not designated for interagency use are being used in that manner.

In my view, the practical recommendations and the policy objectives set out by the OFPP and now strongly endorsed / recommended by GAO make sense and should be carried to the regulation of centralised procurement bodies/strategies in the forthcoming EU rules, with a particular focus on data collection and analysis (which has been significantly reduced with the proposed suppression of article 84 of the 2011 Commission's proposal and, particularly, of its paragraph 3(1) that mandated special public oversight of central purchasing bodies). 

I think that the more general transatlantic message to carry home in the revision of the current of the EU rules is that, as procurement strategies become more complicated, more planning and more oversight / analysis are required. Maybe not an easy lesson to square with the aim of procurement simplification, but definitely an operative need if we want to avoid creating (or nurturing) a 'regulatory beast' we may be unable to tame.

Latest GC on contract modification in #publicprocurement: Practical difficulties and the need for new rules in the 2013 Directive

In its Judgment of 31 January 2013 in case T-235/11 Spain v Commission (AVE), the General Court has set a very rigid position against the permissibility of contract modifications under EU public procurement rules. 

In a nutshell, and further developing the previous case law in Succhi di Frutta and Pressetext Nachrichtenagentur, the GC has declared that (non-insignificant) contract modifications amount to direct award of (complementary) public contracts and that, consequently, failure to do so in accordance with the rules of the Directives implies a breach of EU law by the contracting authority or entity.

Indeed, the GC has declared that:

69 [...] nor can the argument of the Kingdom of Spain that despite the alteration of certain of the characterizing elements of the services contracted, by keeping the contract initially concluded, the modification of the original contract cannot be considered substantial. As is clear from the case law, in order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during its validity constitute a new award of the contract when they have characteristics substantially different from those of the original contract and therefore highlight the willingness of the parties to renegotiate the essential aspects of the contract (see, to that effect, the judgment of the Court of 5 October 2000, Commission / France, C-337/98, ECR p. I-8377, paragraphs 44 and 46, see, by analogy, Pressetext Nachrichtenagentur, paragraph 60 above, paragraph 34).

70 The modification of a contract in force may be considered material when it introduces conditions that, had they been included in the initial award procedure, would have allowed the participation of tenderers other than those initially admitted, or would have allowed the selection of a tender other than the initially selected. Also, a modification of an initial contract can be considered substantial when the contract extends largely to works not originally foreseen. An amendment can also be considered substantial when it changes the economic balance of the contract in favor of the contractor in a way that was not foreseen in the terms of the original contract (see, by analogy, Case Pressetext Nachrichtenagentur [C‑454/06, Rec. p. I‑4401] paragraphs 35 to 37).

71 In the present case, the technical specifications that were modified cannot be considered ancillary, but of a greater importance, as they relate, in particular, to the implementation of important works (such as the execution false tunnels, a viaduct, deepening of foundations, strengthening of technical armor blocks, extension of drainage works, etc..). Therefore, the Kingdom of Spain cannot claim that the work to be executed remains the one initially designed, ie, the high-speed train line, not that the object of the initial contract remained essentially unaltered. (T-231/11 at paras. 69-71, own translation from Spanish; emphasis added).

This position generates practical difficulties, particularly in technically complicated projects, where the use of non-modifiable fixed-price contracts could deter bidders from participating or could generate an increase of total procurement costs due to the need of contractors to create a 'financial cushion' in their offers to cover any unexpected needs for amendments in the scope of works.

This seems now recognized in the current version of the Compromise Text for the reform of current EU public procurement Directives, which includes a (more flexible) rule on contract modification that reduces the risk of (illegal) direct award of public contracts where modifications are justified and necessary.

Article 72 Modification of contracts during their term

1. A substantial modification of the provisions of a public contract or a framework agreement during its term shall be considered as a new award for the purposes of this Directive and shall require a new procurement procedure in accordance with this Directive. In the cases referred to in paragraphs 3, 4 or 5, modifications shall not be considered as substantial.

2. A modification of a contract or a framework agreement during its term shall be considered substantial within the meaning of paragraph 1, where it renders the contract or the framework agreement materially different in character from the one initially concluded. In any case, without prejudice to paragraphs 3, 4 or 5, a modification shall be considered substantial where one of the following conditions is met:

(a) the modification introduces conditions which, had they been part of the initial procurement procedure, would have allowed for the admission of other candidates than those initially selected or for the acceptance of an offer other than that originally accepted or would have attracted additional participants in the procurement procedure;

(b) the modification changes the economic balance of the contract or the framework agreement in favour of the contractor in a manner which was not provided for in the initial contract or framework agreement;

(c) the modification extends the scope of the contract or framework agreement considerably to encompass supplies, services or works not initially covered.

3. Modifications shall not be considered substantial within the meaning of paragraph 1 where they have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses or options. Such clauses shall state the scope and nature of possible modifications or options as well as the conditions under which they may be used. They shall not provide for modifications or options that would alter the overall nature of the contract or the framework agreement.

4. Where the value of a modification can be expressed in monetary terms, the modification shall not be considered to be substantial within the meaning of paragraph 1, where its value does not exceed the thresholds set out in Article 4 and where it is below 10% of the initial contract value, provided that the modification does not alter the overall nature of the contract or framework agreement. Where several successive modifications are made, the value shall be assessed on the basis of the net cumulative value of the successive modifications.

5. A modification shall not be considered to be substantial within the meaning of paragraph 1, where the following cumulative conditions are fulfilled:

(a) the need for modification has been brought about by circumstances which a diligent contracting authority could not foresee;

(b) the modification does not alter the overall nature of the contract;

(c) any increase in price is not higher than 50% of the value of the original contract or framework agreement.

Contracting authorities shall publish in the Official Journal of the European Union a notice on such modifications. Such notices shall contain the information set out in Annex VI part G and be published in accordance with Article 49. 

6. Without prejudice to paragraph 3, the substitution of a new contractor for the one to which the contracting authority had initially awarded the contract shall be considered a substantial modification within the meaning of paragraph 1. However, the first subparagraph shall not apply in the event of universal or partial succession into the position of the initial contractor, following corporate restructuring, including takeover, merger, […] acquisition or insolvency, of another economic operator that fulfils the criteria for qualitative selection initially established provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of this Directive.

As can be seen, the current proposal incorporates the (formalistic) criteria used by the GC in Spain v Commission (AVE), but also creates some flexibility both in terms of setting a value threshold that excludes the need to run a new procurement procedure to increase contract value of up to 10% (as long as the addition remains below EU thresholds, which does not seem to be a necessary or practical requirement), and recognizing that there are sets of circumstances where contract modifications are simply needed and, consequently, legitimate.

In my view, the adoption of new Article 72 in the 2013 EU public procurement Directive is much needed from a practical perspective, although the final wording could still be improved to enhance the effectiveness of its paragraph 4.