AG Cruz Villalon opposes Italian minimum #tariffs for #publicprocurement #certification (C-327/12)

In his Opinion of 5 September 2013 in case C-327/12 Soa Nazionale Costruttori (not available in English), AG Cruz Villalon analyses the compatibility with EU free movement (ie freedom of establishment as per art 49 TFEU) and competition rules (arts 101, 102 and 106 TFEU) of the Italian system of tenderers' certification whereby private certification bodies are legally required to charge minimum mandatory tariffs to the companies seeking to obtain certificates of viability in order to participate in public tenders (as foreseen in art 52 dir 2004/18). 

The most controversial aspect of the system is that it includes a tariff calculation formula that automatically multiplies the rate payable for the certification activities according to the number of tenders for public works for which the applicant company seeks verification. This system was challenged under both competition and free movement rules.

Under the competition analysis, AG Cruz Villalon considers that art 106 TFEU is inapplicable, given that the private certification bodies are not entrusted with 'special or exclusive rights', as defined in Ambulanz Glockner (C-475/99). According to the AG, in Italy, private certification bodies

operate in a market strongly limited, in the sense that there is no cross competition with similar services. That is, the certification of public works companies is a service that, as such, does not compete directly or indirectly with any other, since there are no similar services that a company can use in order to compete in a tender for Italian public works. In such a context, that of a market that could be qualified as "captive", the fact that all [private certification bodies] exercise the special powers that the legislature has decided to entrust the private sector with, excludes any risk of competitive advantage over another market operator. There is no sector that is harmed by allotting ex lege to the [private certification bodies] the power to issue certifications as raised here. Thus, it is not possible to conclude that the Italian State has attributed to [private certification bodies] "special or exclusive rights" within the meaning of Article 106 TFEU. This conclusion implies, obviously, that  that provision is inapplicable to the present case (para 35, own translation from Spanish).

In my view, the argument is rather counterintuitive (since, precisely only private certification bodies can carry out these activities and, consequently, the system does have an element of protection granted to a limited? number of companies that can substantially affect the ability of other undertakings to perform the economic activity in question in the same territory in conditions essentially equivalent, as required in Ambulanz Glockner) but it makes sense (only) on the working condition that any undertaking can request and obtain authorisation to act as a private certification body (as is indeed the case, see para 57 of the Opinion). 

In this scenario, it is the absence of a numerus clausus, rather than the inexistence of an impact on potential competition (which can be highly doubted, as the inexistence of substitutive services is a mere artificial result of the reserve of activity to the benefit of the private certification bodies), that would justify the non-existence of an exclusive or special right under Article 106 TFEU. In my view, hence, the analysis carried out by the AG is blurred and should have been limited to the fact that there is no predetermined (limited) number of authorisations to act as a private certification body and, as a consequence, that market can be considered open and (somehow) competitive.

The AG equally dismisses that the setting of minimum tariffs runs contrary to the State action doctrine on the basis of Articles 4(3) TEU and 101, 102 and 106 TFEU (as described in Arduino C-35/99, and Cipolla C-94/04), given that there is no trace of active involvement of the private certification bodies in the setting of those tariffs (which, in my view, tends to perpetuate the lack of teeth of this theory and continues to significantly restrict the ability of the CJEU to set limits on anticompetitive market behaviour imposed by public authorities--such as setting floors to price competition by way of minimum tariffs...).

In any case, the AG moves past the analysis from the competition law perspective and engages in an assessment of the Italian rules on minimum tariffs for public procurement certification purposes under Article 49 TFEU. After dismissing that private certification bodies exercise public powers (or public authority, which would activate the derogation in art 51 TFEU, but is excluded on the basis of the case law in Commission v Portugal C-438/08, and Commission v Germany C-404/05), the AG clearly considers the minimum tariff system as a restriction of the freedom of establishment and assesses its compatibility with the internal market on the basis of its potential justification on grounds of general public interest (which is accepted) and its proportionality. It is interesting to note that the AG takes into consideration the specific circumstances of the market in order to accept the suitability of the tariffs

the adequacy of mandatory minimum rates must be determined, in this case, in the context of a small size market and in which it is necessary to safeguard the [private certification bodies'] decisional autonomy against possible requirements or interests of their clients. Seen this way, the imposition of a binding mandatory minimum tariff regime by the State is a measure consistent with the purpose of ensuring the quality of the service and the independence of the companies responsible for the certification (para 58, own translation from Spanish).

The analysis of necessity and proportionality of the minimum tariffs as measures designed to ensure the quality and independence of the certification service is then carried out in somehow surprising terms. The AG considers (at paras 61 and 62) that the requirement of independence of the private certification bodies is of such a nature that it justifies the coexistence of a very strict oversight and disciplinary regime enforced by the public contracts authority (Autorità per la vigilanza sui contratti pubblici di lavori, servizi e forniture) AND the minimum tariffs--which, in my view, is clearly excessive, because the element of price negotiation should not affect the regulatory controls in any relevant manner. In my view, the considerations of the AG would justify the existence of minimum tariffs in a multiplicity of markets (such as audit services, for instance), and this should not be accepted as a matter of principle.

However, the AG does take issue with the proportionality of the tariffs and, more specifically, with the fact that they are automatically multiplied (i.e. collected) every time the undertaking seeks to participate in a public contract. According to the AG

65. [...] this system raises serious questions concerning the need of the measure, where certification is requested for various public work tenders. As I said, it is justified that bidders pay a minimum fee required at the time of undergoing certification [...] What does not seem to have enough explanation [...] is that [a private certification body] can automatically multiply the amount of its fees simply because a firm aims to participate in different tenders. The structure, activities, staff, physical, and other features of the company are usually the same, and it is normal that a company with sufficient resources is able to perform various public works at a time, either of low or high values.

66. It is true that in the event that a company aims to participate in several public works the [private certification body] should appreciate its individual situation in the light of the several contracts. Logically the workload of the [private certification body] is increased and it is acceptable that in such circumstances the required minimum rate reflects this increased responsibility. However, a system that automatically multiplies the amount of the required minimum rate depending on the number of works for which undertakings are competing does not respond objectively to the greater burden borne by the [private certification bodies]. On the contrary, the [...] system allows for an evaluation of a single company but applying a mandatory minimum rate much higher than required in the event that it had aimed to submit a single bid.

67. Therefore, and in view of the above, a calculation formula as presented, which in the case of an application for certification for various public works automatically multiplies the amount of the fee depending by the number of intended bids, goes beyond what would be necessary to achieve the pursued objectives of quality and independence. Consequently, I understand that in this specific point the mandatory minimum tariff regime applicable to [private certification bodies], and in particular the calculation formula applicable in case of seeking certification for various public work tenders is not justified by overriding reasons of general interest and therefore not compatible with Article 49 TFEU (paras 65 to 67, own translation from Spanish).

In my view, the conclusion that the AG reaches is appropriate. However, I would rather have the CJEU determining that, in the presence of a sound oversight and disciplinary regime, no minimum tariffs are justifiable, regardless of the proportionality or lack thereof in their calculation.

Risk of 'sweet deals' for public sector #mutuals under the new #EU #publicprocurement rules leading to #monopolisation of social services

Article 76a of the final compromise text for a new Directive on public procurement creates a significant risk of abuse in the award of contracts for social services that may be of particular concern when read side by side with the UK Government's public sector mutualisation strategy.

Article 76a allows contracting authorities to reserve for the participation of given types of organisations (such as ‘public sector mutuals’, for instance) the award of contracts for certain services included in specific categories of the Common Procurement Vocabulary[1] in the areas of health, social and cultural services[2]—which basically comprise all or the most relevant medical services, personal services, educational and training services (including eLearning), sports and cultural services. 

In such cases, the contracting authority will need to make sure that the (type of) organisation chosen to be awarded the contract meets the following requirements: (a) its objective is the pursuit of a public service mission linked to the delivery of the services to be contracted; (b) its profits are reinvested with a view to achieving the organisation’s objective (and where profits are distributed or redistributed, this should be based on participatory considerations); (c) the structures of management or ownership of the organisation performing the contract shall be based on employee ownership or participatory principles, or shall require the active participation of employees, users or stakeholders; and (d) the organisation shall not have been awarded a contract for the services concerned by the contracting authority concerned pursuant to this Article within the past three years. Moreover, the maximum duration of the contract shall not be longer than three years and the call for competition shall make reference to this Article. There is no (maximum) value threshold for this exclusion to be effective.

Given that the Mutuals Taskforce has clearly recommended that the UK Government use the (direct) award of contracts as a tool to support, foster and consolidate the creation of public sector mutuals (Recomm 9), there is a risk that the carve-out (negotiated?) in the new EU public procurement rules leaves the award of such 'start-up contracts' fundamentally unchecked, since there will basically be no EU rules applicable in this case, regardless of the value of the contracts [which is also valid in relation to the EU rules on the control of State aid, which exclude health care and other social services from their scope of application; see art 2 of Decision 2012/21/EU].

Therefore, there is a clear risk that the public sector reform strategy ends up creating (3-year long, local) monopolies for the provision of those services in the hands of the newly spun-off public sector mutuals, which may extend their dominance beyond that point in time as incumbency advantages pile up. That would result in distortions of competition similar to those just identified by the Competition Commission in the market enquiry on private health care services and, in my view, is an undesirable prospect. 

In that regard, then, the OFT (and, soon enough, the CMA) seems to have a mounting amount of pressure to uphold its commitment in the 2013-14 Annual Plan to "focus on IT and local government issues in particular and work with government partners on a range of issues relating to the public sector reform agenda to ensure that government interventions maintain competitive markets. In addition to advocacy and influencing, [the OFT] will consider using the full range of tools at our disposal to tackle any breaches of competition law identified in public service markets" (emphasis added).

Otherwise, the structural changes that non-competitive mutualisation under the umbrella of Article 76a of the new EU public procurement rules can create may be difficult (if not impossible) to revert in the future. At any rate, however, the difficulty derived from the blurred application of competition rules in the health care sector after the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 were approved may require some creative enforcement efforts on the part of the OFT (and the European Commission).

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[1] See the consolidated version available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2002R2195:20090807:EN:PDF, last accessed 2 September 2013.

[2] The specific references are 75121000-0 (Administrative educational services), 75122000-7 (Administrative healthcare services), 75123000-4 (Administrative housing services), 79622000-0 (Supply services of domestic help personnel), 79624000-4 (Supply services of nursing personnel), 79625000-1 (Supply services of medical personnel), 80110000-8 (Pre-school education services), 80300000-7 (Higher education services), 80420000-4 (E-learning services), 80430000-7 (Adult-education services at university level), 80511000-9 (Staff training services), 80520000-5 (Training facilities), 80590000-6 (Tutorial services), from 85000000-9 to 85323000-9 (fundamentally, all types of medical services), 92500000-6 (Library, archives, museums and other cultural services), 92600000-7 (Sporting services), 98133000-4 (Services furnished by social membership organisations), and 98133110-8 (Services provided by youth associations). 

Principle of #competition to be recognised in new #EU #PublicProcurement Rules

In the final compromise text of 12 July 2013 for a new Directive on Public Procurement (available here), the principle of competition is clearly reinstated (see my advocacy for this here) and bound to be clearly and expressly recognised in Article 15 on 'Principles of Procurement'. 

In the very clear drafting, the new rules are bound to clarify that:

The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement was made with the intention of unduly favouring or disadvantaging certain economic operators (emphasis added).

It will now be without doubt that market integration in procurement must go hand in hand with promoting and protecting effective competition for public contracts, and that the new rules are ultimately based on this general principle of EU Law already explicitly recognised in the public procurement case law and, more timidly, in its regulation [Sanchez Graells (2009) 'The Principle of Competition Embedded in EC Public Procurement Directives').

This will strengthen the push towards a more competition-oriented public procurement system and, in my view, will boost some of the interpretative proposals that seek to maximise participation in procurement and to minimise the anticompetitive effects of the activities of the public buyer [for my fully-detailed proposals, see Sanchez Graells (2011), Public Procurement and the EU Competition Rules, Hart Publishing].

It is definitely a most welcome development in EU public procurement rules!

UK's Competition Commission issues provisional findings on private healthcare markets

The UK's Competition Commission (CC) has published today its provisional findings and remedies to improve competition in private healthcare markets. All relevant documents can be accessed here.

The CC's provisional findings show a situation where hospitals hold a significant degree of market power derived from a lack of local competition (particularly in the case of companies that own clusters of hospitals in a given region), which is not compensated by the countervailing power of (even the largest) private medical insurance companies. The CC is consequently envisaging to recommend some structural remedies that may include the divestiture of up to 20 hospitals in different areas of the UK.

In my view, the analysis of this sector is difficult to understand because it is conducted in isolation. My impression is that public and private healthcare markets should be analysed together--or that, at least, their connections should receive more attention--since public healthcare seems an obvious constraint on the offer and demand of private healthcare. If that was correct, then, the proposed structural changes in this sector should take into consideration the significant reform of the National Health System (NHS) that is taking place and the effects that the recently adopted National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 may generate in the provision of (public) healthcare in the UK in the near future.

In any case, it seems clear that the competitive landscape of the healthcare sector in the UK is about to suffer a significant change (in both its public and private dimensions) and that this is an area that deserves some careful policy-making for its immediate impact on the welfare of citizens and the costs (for private and public entities) of continuing to offer them satisfactory standards of healthcare. In that regard, it will be interesting to see what are the final remedies and recommendations due to be adopted by the CC in April 2014.

CJEU 'warns' against tax breaks based on employment goals: State aid rules (may) oppose them (C-6/12)

In its Judgment of 18 July 2013 in case C-6/12 P Oy, the Court of Justice of the EU (CJEU) assessed the compatibility with EU State aid rules of the Finnish regime of deduction of tax losses by undertakings subjected to corporate control changes (see a Finnish comment here). 

In my view, the most interesting part of the CJEU Judgment in the case lies not with the "boilerplate" analysis of the Finnish tax law provisions but, remarkably, with the not so concealed warning it has sent out to Member States that may be tempted to create 'too soft' tax regimes for companies which activities may have a "particular impact on employment".

Basically, Finnish tax rules allow companies to carry their losses forward up to 10 years after incurring them for the purposes of compensating their benefits and diminishing their tax burden. However, in order to prevent strategic acquisitions of 'bags of losses' within the shields of inactive companies, the Finnish tax code establishes a special regime in case of changes of corporate control. According to the relevant provisions, "losses sustained by a company are not deductible if, during the year in which they arise or thereafter, more than half of the company’s shares have changed ownership otherwise than by way of inheritance or will, or more than half of its members are replaced." However, "the competent tax office may, for special reasons, where it is necessary for the continuation of the activities of the company, authorise the deduction of losses when such an application is made" (emphasis added). 

By way of a guidance letter, the Finnish Tax Directorate interpreted the concept of "special reasons" and considered that, inter alia, could include the fact that the company requesting permission to carry fiscal losses forward despite a change of corporate control had "particular impact on employment". Indirectly, this raised the issue whether the granting of such an authorisation based on (non-strictly) tax reasons would meet the selectivity requirement of Article 107(1) TFEU and, consequently, could be challenged under the EU State aid rules.

In a very clear manner (despite the non-binding general tone of the Judgment, where the CJEU claims not to have sufficient information to reach a final position), the CJEU has indicated that:

26 […] the application of an authorisation system which enables losses to be carried forward to later tax years, such as that in question in the present case, cannot, in principle, be considered to be selective if the competent authorities have, when deciding on an application for authorisation, only a degree of latitude limited by objective criteria which are not unrelated to the tax system established by the legislation in question, such as the objective of avoiding trade in losses.

27 On the other hand, if the competent authorities have a broad discretion to determine the beneficiaries or the conditions under which the financial assistance is provided on the basis of criteria unrelated to the tax system, such as maintaining employment, the exercise of that discretion must then be regarded as favouring ‘certain undertakings or the production of certain goods’ in comparison with others which, in the light of the objective pursued, are in a comparable factual and legal situation (see, to that effect, C‑107/09 P Commission and Spain v Government of Gibraltar and United Kingdom [2011] ECR I‑0000,  paragraph 75). […]

30 […] if the competent authorities were to be able to determine the beneficiaries of the deduction of losses on the basis of criteria unrelated to the tax system, such as maintaining employment, such an exercise of that power should then be regarded as favouring ‘certain undertakings or the production of certain goods’ in comparison with others which, in the light of the objective pursued, are in a comparable factual and legal situation (C-6/12 at paras 26 to 30, emphasis added).

In my view, the CJEU has gone out of its way in this case (where it could have simply declined to provide an answer on the basis of the lack of information submitted by the referring court) with the aim of sending out a clear message to the governments of all Member States: if they intend to use (selective) tax measures to prevent negative impacts on employment, they need to obtain approval by the European Commission first.

This is not a revolution and may even have a second order of importance but, in my view, the CJEU has clearly backed the European Commission's efforts to control Member States' measures to (continue trying to) react to the economic crisis and has clearly indicated that corporate taxation cannot be used as a tool for these purposes. We shall see if the message reaches the intended ears...

Happy Summer Time

http://youtu.be/ppIp0y0_GsE

Happy Holidays Everyone! How to Crack a Nut will be back in mid-August.

AG Jääskinen revisits PreussenElektra and minimises implications of Doux Elevages (C-262/12)

As a continuation of the Judgment of the Court of Justice of the EU of 30 May 2013 in case C-677/11 Doux Élevages and Coopérative agricole UKL-AREE, where the CJEU (re)analysed the concept of 'State aid' and stressed that aid cannot exist if the economic advantage under analysis is not funded by 'State resources' and there is no 'imputability to the State' (commented here); in his Opinion of 11 July 2013 in case C-262/12 Vent De Colère and Others, Advocate General Jääskinen has assessed a French scheme of support to electric distribution companies and revisited the well-known PreussenElektra criteria.

In his analysis, AG Jääskinen uses the two main criteria of 'imputability' and existence of 'State resources' in order to determine whether some contributions paid by final customers of electricity--which are then used to compensate for the costs of the mandatory purchase of wind energy by electricity distributors at above the market prices--amount to State aid.

Very briefly, under the controverted scheme, producers of wind energy benefit from an obligation of mandatory purchase of their electricity by energy distributors at prices above the market. Distribution companies can then claim full compensation for those additional costs (which are classed as costs derived from public service obligations) from CDC (Caisse des Dépôts group, which is a "public group serving general interest and economic development"). CDC's compensation is ultimately financed by the final consumers of electricity, who pay that compensation as part of their electricity bill.

According to AG Jääskinen, the scheme constitutes State aid because there is both State imputability and the measure is financed by State resources. As to the first element, the AG considers that the fact the contribution to be paid by consumers is directly determined in a law implies that the adoption of such a measure is imputable to the public powers of the French State (para 32 of hi Opinion). 

It is interesting to stress that the AG distinguishes this case from the very recent Doux Elevages Judgment by stressing that the intervention of the State in this case was not of a 'merely instrumental' nature, but that the French State took full ownership of the compensation scheme for producers of wind electricity (para 40).

As to the more controversial issue of the consumer contributions amounting to the existence of 'State resources', the AG stresses that 'the fact that these resources constantly remain under public control and, therefore, are available to the competent national authorities, suffices to qualify them as State funds to finance the measure, which then falls within the scope of Article 107(1) TFEU' (para 34, own translation from Spanish). AG Jääskinen confirms this positive finding in view of the control that the French State exercises over CDC, the status of CDC as the organism that intervenes in the transmission of the funds between consumers and distributors of energy, and the nature of the controverted funds.

In my view, it is worth noting that AG Jääskinen advocates for a rather streamlined test of 'origin/absorption' of private funds once they are managed by a public entity by clearly submitting that he does 'not agree with the general statement that the public nature of an organism does not entail that the resources available to it  are to be regarded as State funds' (para 46, own translation from Spanish). I think that this is an appropriate approach that would overcome a formalistic assessment of the avenues that financial support follows and, in the end, would broaden the definition of State aid under a more functional approach.

Also, and once more, AG Jääskinen distinguishes this case from the Doux Elevages Judgment by stressing the fact that all consumers are indiscriminately affected by the compensation scheme (regardless of their use of wind energy or not) and, consequently, the scheme is of a (quasi)fiscal nature (at least, this is my understading of his considerations in paras 50-54 of his Opinion). I think that this should also be welcome, as such an approach would contribute to limit the possibilities for States to effectively create (disguised) aid schemes by means of (pseudo)fiscal interventions.

In general, in my opinion, AG Jääskinen's Opinion in Vent de Colere should be welcome, not least because of his clear and well-thought proposals to distinguish (and restrict) the implications of the Doux Elevages Judgment. 

Let's hope that the CJEU follows him and also adopts a clear position towards limiting the potentially far-fetched implications of Doux Elevages.

CJEU protects right to challenge public procurement decisions by non-compliant tenderers (C-100/12)

In its Judgment of 4 July 2013 in case C-100/12 Fastweb, the Court of Justice of the European Union (CJEU) has strengthened the effectiveness of the public procurement remedies system by protecting the right to challenge (illegal) award decisions by tenderers that do not comply with all the (technical) requirements imposed by the tender documentation themselves.

In the case at hand, a disappointed tenderer challenged the award decision on the basis that none of the two awardees in a framework agreement complied with the technical specifications set by the contracting authority. The awardees of the contract intervened in the procedure and raised a counterclaim stating that the challenger did not comply with the technical specifications (either). Under Italian law, the counterclaim had to be analysed first and, if successful, would bar the challenge on the basis of a lack of locus standi of the disappointed tenderer (who could not have been awarded the contract anyway and, consequently, would be prevented from challenging the outcome of the procedure).

The CJEU found such an interpretation of the rules on active standing contrary to the EU public procurement remedies directives (as amended by dir 2007/66), inasmuch as 'the aim of [those directives] is to ensure that decisions made by contracting authorities in breach of European Union law can be effectively reviewed' (C-100/12 at para 25). Following a functional approach that deserves praise, the CJEU found that:

a counterclaim filed by the successful tenderer cannot bring about the dismissal of an action for review brought by a tenderer where the validity of the bid submitted by each of the operators is challenged in the course of the same proceedings and on identical grounds. In such a situation, each competitor can claim a legitimate interest in the exclusion of the bid submitted by the other, which may lead to a finding that the contracting authority is unable to select a lawful bid (C-100/12 at para 33).

Consequently, the CJEU has determined that the counterclaim concerning the locus standi of a tenderer that should have been excluded (or whose tender should have been rejected) cannot preempt the analysis of the legality of the award decision adopted by the contracting authority. 

By (implicitly) adopting such a broad interpretation of the concept of 'any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement' [art 1(3) dir 2007/66], the CJEU has increased the chances of attaining effective and substantive review of the award decisions adopted by contracting authorities, regardless of the specific procedural rules within each of the EU Member States (as mandated by the principle of effectiveness of EU law) and seems to point clearly towards a principle or criterion of 'favor revisionis', so that review bodies and courts tend to assess the material conditions of award decisions, despite the presence of apparent procedural difficulties to carry out such an assessment. 

In my opinion, this is a favourable development of EU public procurement law and one that is conducive to ensuring an absence (or correction at review stage) of distortions of competition. As argued elsewhere [A Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart, 2011) pp. 353-355], my view is coincidental with the approach adopted by the CJEU in that 

the best reading of the standing requirements imposed by Directive 2007/66 is that Member States have to adopt a broad approach to the setting of detailed rules regulating active standing to access bid protests and review procedures, and that they have to do so attending both to the criterion of participation in the tender, and to the criterion of the effects actually or potentially generated by the alleged infringement—so that bid protest and review procedures are open to any party that has taken part in the tender or that can otherwise prove that it has been harmed or risks being harmed as a result of the alleged infringement, regardless of its actual participation (or lack of it) in the specific tender that gave rise to it.

AG (dangerously) stresses possibility to indirectly challenge State Aid decisions via Art 267 TFEU

In his Opinion of 27 June 2013 in case C-284/12 Deutsche Lufthansa, Advocate General Mengozzi stressed that (provisional) Decisions of the European Commission in State Aid cases are open to (indirect) challenges via a reference for a preliminary ruling on their validity under Article 267 of the Treaty on the Functioning of the European Union. 

In the case at hand, the complainant before the Commission seeked interim measures against the beneficiary of a measure that the Commission qualified as State aid in its decision to open a formal investigation. The domestic court competent in the matter remained unconvinced by the Commission's preliminary assessment and seeked ways not to adopt interim measures on the basis of such an assessment. It referred the following question to the CJEU:

Does the uncontested decision of the Commission to initiate the formal investigation procedure under Article 108 paragraph 3, second sentence, result in the national court seised of a procedure which aims to recover payments already made and the prohibition of future payments being bound by the legal assessment expressed by the Commission in that decision on the state aid character of the measure in question?

In paragraph 42 of his Opinion, AG Mengozzi indicates that:

under the combined effect of Article 108 paragraph 3, last sentence, and the qualification as a new aid of the controverted measure [in the provisional decision of the Commission], the opening of the formal investigation procedure generates the obligation of the Member State concerned to suspend its execution from the date of adoption of the decision to open the investigation and until a final decision is reached, regardless of the objective nature of the controverted measure [...]. National courts will therefore be obliged to take all necessary measures to ensure compliance with this requirement and to eliminate the consequences of any breach thereof, regardless of any previous assessment of the measure under Article 107, paragraph 1. In case national courts harbour doubts about whether the requirements to qualify the measure as aid are met in the given case, which justify the initiation of the formal investigation procedure, national courts may refer a question of validity under Article 267 TFEU, first paragraph, letter b) (Opinion in C-284/12 at para 42, own translation from Spanish).

This comes to stress the (procedural) difficulties derived from the joint competence of domestic courts and the Commission to interpret and apply the notion of aid under Article 107(1) TFEU--as stressed in paragraph 10 of the Commission Notice on the enforcement of State Aid law by national courts, which also metions the possibility for a preliminary reference in paragraph 90, but (impliedly) in a context where no concurrent Commission investigation is in place--and can create significant complications by way of parallel procedures (before the Commission, the national courts and the CJEU) in one and the same case. Such duplication of procedures can only result in a waste of resources and, most likely, in legal uncertainty and potentially contradictory outcomes.

In my view, leaving the door open for a reference for a preliminary ruling (of validity) against a provisional assessment of the European Commission is excessively deferential towards domestic courts and can have significant undesirable effects. This is not satisfactory and would justify the adoption of a more streamlined procedural system whereby national courts would have to suspend their powers of interpretation of the concept of aid and limit their role to the adoption of effective interim measures when the Commission is still completing its investigation on a given measure. 

In my view, this could be easily achieved by simply applying Article 4(3) of the Treaty on European Union, since the need for sincere cooperation in this type of matters seems out of the question. It will be interesting to see how far the CJEU is willing to go in the balance between the sphere of jurisdiction/competence of domestic courts and ensuring a mangeable procedural system in State aid law.

CJEU gives blow to competition lawyers: Your (legal) opinion is worthless (C-681/11)

In its Judgment of 18 June 2013 in case C-681/11 Schenker and Others, the Court of Justice of the European Union has settled the difficult issue of whether an error with regard to the lawfulness of market conduct is 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.

The CJEU has gone beyond the very strict test proposed by Advocate General Kokott (see comments here) and has very bluntly determined that

38 […] the fact that the undertaking concerned has characterised wrongly in law its conduct upon which the finding of the infringement is based cannot have the effect of exempting it from imposition of a fine in so far as it could not be unaware of the anti-competitive nature of that conduct. 
40 […] the national competition authorities may exceptionally decide not to impose a fine although an undertaking has infringed Article 101 TFEU intentionally or negligently. That may in particular be the case where a general principle of European Union law, such as the principle of the protection of legitimate expectations, precludes imposition of a fine. 
41 However, a person may not plead breach of the principle of the protection of legitimate expectations unless he has been given precise assurances by the competent authority (see Case C‑221/09 AJD Tuna [2011] ECR I‑1655, paragraph 72, and Case C‑545/11 Agrargenossenschaft Neuzelle [2013] ECR I‑0000, paragraph 25). It follows that legal advice given by a lawyer cannot, in any event, form the basis of a legitimate expectation on the part of an undertaking that its conduct does not infringe Article 101 TFEU or will not give rise to the imposition of a fine. 
43 Consequently, the answer to the first question is that Article 101 TFEU must be interpreted as meaning that an undertaking which has infringed that provision may not escape imposition of a fine where the infringement has resulted from that undertaking erring as to the lawfulness of its conduct on account of the terms of legal advice given by a lawyer or of the terms of a decision of a national competition authority (C-681/11at paras 38 to 43, emphasis added).

As I said already, but particularly as a result of the very blunt approach to this matter by the CJUE, in my view, in practice, this approach 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 will now 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.

I suggested that the CJEU should depart from the Opinion of AG Kokott by adopting a more flexible approach and setting a less demanding standard for this defence (and,consequently, creating some room for an effective 'serious legal advice' defence).

In my view, that would have been 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. 

However, today's Judgment provides anything but consistency in that regard and gives a strong blow to everyone involved in legal advice in competition law matters. It seems unclear to me that the net outcome will be more (investment in) compliance with EU Competition Law.

Current Proposals on Exclusion, Qualitative Selection and Shortlisting in EU Public Procurement

I have just uploaded on SSRN a short new paper, which provides some initial thoughts on the new rules on exclusion, qualitative selection and short-listing in the 2011 proposal for a new public sector procurement Directive, as amended by the 30 November 2012 Compromise Text published by the Council. The assessment is based on a comparison with the equivalent rules under current Directive 2004/18/EC, as well as on the implementation difficulties that I envisage.

In the paper, I reach the following conclusions:

As this brief overview of the novelties and changes proposed by the Compromise Text on the rules concerning exclusion, qualitative selection and short-listing has shown, the Commission has presented (and the Council is willing to allow for) reform proposals that aim to generate some simplification and flexibilisation of the current rules. The Compromise Text has also tried to clarify and improve the drafting of the current Directives and to consolidate requirements and avoid duplication where possible.

The search for flexibility and simplification is particularly clear concerning the rules that aim to make exclusion of economic operators a dynamic activity (§2.2), that increase the scope and power for contracting authorities to seek clarifications and source additional information from tenderers (§2.4), that allow for an evaluation of the effectiveness of self-cleaning measures adopted by economic operators that should otherwise be excluded (§3.3), or that allow for a ‘certificate-less’ qualitative selection of candidates, subject to an ex post verification of the self-declarations submitted (§4.5). However, such flexibility does not come without risks and contracting authorities must tread lightly if they want to avoid challenges based on potential abuses of their (increased) administrative discretion. Moreover, the extent and weight of the obligations derived from the principle of good administration are expanding and this needs being duly taken into consideration.

There are also clear indications of a clearer integration of public procurement and competition rules (such as the possibility to exclude bid riggers, §3.2) and of the use of public procurement as a lever to ensure compliance with social, labour and environmental rules, in a classic example of pursuit of secondary (or horizontal) considerations in procurement (§2.3). This shows that, despite the search for simplification, the (asymmetrical) integration of public procurement and other economic and non-economic policies by necessity depicts a more complicated scenario that requires further professionalism and capacity building in the Member States, as well as more cooperation between contracting authorities and other competent authorities, such as national competition or environmental agencies.

All in all, in my view, EU public procurement regulation continues becoming more and more sophisticated (and complicated), the Compromise Text does not solve all problems and creates some new and, consequently, public procurement litigation will continue playing a key role in the clarification of the applicable rules.

 

Enforcement of State Aid Rules for SGEIs before Public Procurement Review Bodies and Courts

I just posted a new paper on SSRN: Enforcement of State Aid Rules for Services of General Economic Interest Before Public Procurement Review Bodies and Courts. 

I will be presenting it at the "Competition and State Aid Litigation – The Effect of Procedures on Substance", CLaSF/University of Luxembourg Conference, 19-20 September 2013.

ABSTRACT: One of the criticisms against the new rules applicable to the granting of State aid to finance the provision of services of general economic interest in the "Almunia package" is that enforcement is likely to be their weakest point. Similarly, in the more general setting of the "private" enforcement of State aid rules, the 2006 Study on the Enforcement of State Aid Law at National Level recommended that the European Commission created a common minimum standard of remedies applicable in all EU jurisdictions, stressing that "one possible means of creating such a standard would be to adopt a remedies directive for State aid cases, which could be modelled on the remedies directive for procurement cases".

Building up on these considerations, the extent to which the existing remedies within the system for the enforcement of EU public procurement rules provide an effective platform to enforce EU State aid rules (and, more specifically, those for the financing of SGEIs) before public procurement review bodies and courts is assessed. The paper describes the main groups of cases where public procurement litigation "phagocytises" State aid considerations. It then proceeds to explore the viability, from an EU law perspective, of configuring public procurement review bodies and courts as "State aid courts" for the purposes of the simultaneous enforcement of both sets of rules in a single setting of "private" litigation. It also submits that using the public procurement system in this way provides effective remedies for the enforcement of the Almunia Package for the financing of SGEIs.

La propuesta de 'Directiva de Daños’ crearía efectos de cosa juzgada para las decisiones finales de la Comisión Nacional de Mercados y Competencia

La Comisión Europea presentó ayer su esperada propuesta de Directiva sobre ciertas reglas relativas a las reclamaciones de daños derivados de infracciones del Derecho comunitario y nacional de la competencia. 

Entre otras muchas cuestiones controvertidas—como la protección de los documentos relativos a las solicitudes de clemencia, de los acuerdos de transacción y de la práctica integridad del expediente administrativo de las autoridades de competencia (al menos hasta la conclusión de los correspondientes procedimientos de infracción), que vienen a limitar muy significativamente la efectividad de las reglas de revelación de documentos previstas en la propia propuesta (como critiqué ayer)—la Directiva de Daños contiene algunas previsiones que pueden tener un significativo impacto en el ordenamiento jurídico español (véase la reseña del Prof. Díez Estella en blog del Prof. Alfaro).

Una de las que me parecen más destacables es la posible creación de efectos de cosa juzgada para decisiones administrativas que devengan firmes. De acuerdo con lo previsto en el Articulo 9 de la propuesta de Directiva de Daños, 

Los Estados miembros velarán por que, en el marco de las acciones de reclamación de daños y perjuicios derivados de infracciones de los artículos 101 o 102 del Tratado o del Derecho nacional de la competencia, cuando los órganos jurisdiccionales nacionales conozcan de acuerdos, decisiones o prácticas que ya hayan sido objeto de una decisión definitiva de infracción emitida por una autoridad nacional de competencia o por un tribunal de revisión, los jueces y tribunales no puedan tomar decisiones contrarias a la existencia de la infracción ya declarada. Esta obligación se entiende sin perjuicio de los derechos y obligaciones previstos en el artículo 267 del Tratado (traducción propia del inglés).

Por tanto, conforme al sistema previsto en la propuesta de Directiva de Daños, las decisiones de la Comisión Nacional de los Mercados y la Competencia (o de la Comisión Europea, o de cualquier otra autoridad nacional de competencia de la UE) que devengan firmes y definitivas por no resultar recurridas en vía judicial pasarán a vincular, con efecto de cosa juzgada, a los Jueces de lo Mercantil (y a las instancias de revisión en vía civil, incluido el Tribunal Supremo) que conozcan de las correspondientes acciones de daños. 

Esto va mucho mas allá de la teoría general de las fuentes del Derecho y, en particular, de la vinculatoriedad del precedente administrativo (véase el estudio de S Díez Sastre, El precedente administrativo. Fundamentos y eficacia vinculante, Madrid-Barcelona: Marcial Pons, 2008) y puede resultar de difícil encaje en nuestro ordenamiento jurídico. En contra de lo que opina el Prof. Díez Estella ("En la medida en que sólo las decisiones de las autoridades de la competencia que sean firmes tendrán este valor [de “prueba fehaciente”], no parece que haya problemas de constitucionalidad de la Propuesta"), personalmente no lo tengo tan claro. En el caso concreto de decisiones administrativas nunca recurridas (por ejemplo, por resultar de un acuerdo de transacción), puede preverse alguna dificultad que otra.

En todo caso, a la vuelta de los años, quizá este cambio pueda acabar extendiendo el mismo efecto de ‘cosa juzgada administrativa’ a ámbitos distintos del derecho de la competencia, especialmente en vista de la unificación de reguladores implícita en la creación de la Comisión Nacional de los Mercados y la Competencia. De producirse este ‘injerto’ en nuestro ordenamiento jurídico con la aprobación de la propuesta de Directiva de Daños, en mi opinión, esta será una cuestión a seguir de cerca (y, quizá, un muy buen tema para una tesis doctoral ¿sobre órganos administrativos independientes de naturaleza cuasi-jurisdiccional?).

(Non)disclosure of leniency applications in the proposed 'Damages Directive': Commission v CJEU?

The European Commission has finally published its Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union [COM(2013) 404] (the proposed 'Damages Directive'). 

Amongst many other interesting (and controversial rules), the proposed Damages Directive tackles the issue of the disclosability of leniency materials, which has been recently analysed by the Court of Justice of the European Union (CJEU) in Donau Chemie and had been previously analysed in Pfleiderer (which were discussed here).

The proposed 'Damages Directive' follows the prior Resolution of the Meeting of the Heads of the European Competition Authorities of 23 May 2012, on the protection of leniency material in the context of civil damages actions and is based on the argument that

In the absence of legally binding action at the EU level, the effectiveness of the leniency programmes — which constitute a very important instrument in the public enforcement of the EU competition rules — could thus be seriously undermined by the risk of disclosure of certain documents in damages actions before national courts.

Remarkably, this argument was adopted by Advocate General Jääskinen in his Donau Chemie Opinion (para 56), but was later rejected in very clear terms by the CJEU in the Donau Chemie Judgment, where it very clearly emphasised that:

as regards the public interest of having effective leniency programmes [...] it should be observed that, given the importance of actions for damages brought before national courts in ensuring the maintenance of effective competition in the European Union (see C‑453/99 Courage and Crehan [2001] ECR I‑6297, paragraph 27), the argument that there is a risk that access to evidence contained in a file in competition proceedings which is necessary as a basis for those actions may undermine the effectiveness of a leniency programme in which those documents were disclosed to the competent competition authority cannot justify a refusal to grant access to that evidence (C-536/11 at para 46, emphasis added).

Consequently,  the CJEU restricted the possibility to reject the disclosure of leniency documents to very specific and narrow circumstances by stressing that

The mere risk that a given document may actually undermine the public interest relating to the effectiveness of the national leniency programme is liable to justify the non-disclosure of that document (C-536/11 at paras 48, emphasis added).

This is in clear contrast with the Commission's policy-based approach in the proposed 'Damages Directive', where specific rules against the disclosure of leniency documents are established in Article 6 on the limits on the disclosure of evidence from the file of a competition authority:

1. Member States shall ensure that, for the purpose of actions for damages, national courts cannot at any time order a party or a third party to disclose any of the following categories of evidence:

(a) leniency corporate statements; and

(b) settlement submissions.

2. Member States shall ensure that, for the purpose of actions for damages, national courts can order the disclosure of the following categories of evidence only after a competition authority has closed its proceedings or taken a decision referred to in Article 5 of Regulation No 1/2003 or in Chapter III of Regulation No 1/2003:

(a) information that was prepared by a natural or legal person specifically for the proceedings of a competition authority;

(b) information that was drawn up by a competition authority in the course of its proceedings.

3. Disclosure of evidence in the file of a competition authority that does not fall into any of the categories listed in paragraphs 1 or 2 of this Article may be ordered in actions for damages at any time.

As the explanatory memorandum clarifies, the rules have the following aims:

To prevent that the disclosure of evidence jeopardises the public enforcement of the competition rules by a competition authority, the proposed Directive also establishes common EU-wide limits to disclosure of evidence held in the file of a competition authority:

(a) First, it provides for absolute protection for two types of documents which are considered to be crucial for the effectiveness of public enforcement tools. The documents referred to are the leniency corporate statements and settlement submissions. The disclosure of these documents risks seriously affecting the effectiveness of the leniency programme and of settlements procedures. Under the proposed Directive, a national court can never order disclosure of such documents in an action for damages.

(b) Second, it provides for temporary protection for documents that the parties have specifically prepared for the purpose of public enforcement proceedings (e.g. the party’s replies to the authority’s request for information) or that the competition authority has drawn up in the course of its proceedings (e.g. a statement of objections). Those documents can be disclosed for the purpose of an antitrust damages action only after the competition authority has closed its proceedings.

(c) Apart from limiting the national court’s ability to order disclosure, the above protective measures should also come into play if and when the protected documents have been obtained in the context of public enforcement proceedings (e.g. in the exercise of one of the parties’ right of defence). Therefore, where one of the parties in the action for damages had obtained those documents from the file of a competition authority, such documents are not admissible as evidence in an action for damages (documents of category (a) above) or are admissible only when the authority has closed its proceedings (documents of category (b) above).

(d) Documents which fall outside the above categories can be disclosed by court order at any moment in time. However, when doing so, national courts should refrain from ordering the disclosure of evidence by reference to information supplied to a competition authority for the purpose of its proceedings. While the investigation is on-going, such disclosure could hinder public enforcement proceedings, since it would reveal what information is in the file of a competition authority and could thus be used to unravel the authority’s investigation strategy. However, the selection of pre-existing documents that are submitted to a competition authority for the purposes of the proceedings is in itself relevant, as undertakings are invited to supply targeted evidence in view of their cooperation. The willingness of undertakings to supply such evidence exhaustively or selectively when cooperating with competition authorities may be hindered by disclosure requests that identify a category of documents by reference to their presence in the file of a competition authority rather than their type, nature or object (e.g. requests for all documents in the file of a competition authority or all documents submitted thereto by a party). Therefore, such global disclosure requests for documents should normally be deemed by the court as disproportionate and not complying with the requesting party's duty to specify categories of evidence as precisely and narrowly as possible.

(e) Finally, to prevent documents obtained through access to a competition authority’s file becoming an object of trade, only the person who obtained access to the file (or his legal successor in the rights related to the claim) should be able to use those documents as evidence in an action for damages.

In my view, the rules that support points (a) to (d) are in contrast with the Donau Chemie Judgment and are bound to clash with existing EU Law in two respects: firstly, they can be disproportionately limiting the possibilities to obtain effective redress and, consequently, limiting the effectiveness of Articles 101 and 102 TFEU as interpreted by the CJEU in Courage. And, secondly, they can be disproportionately restricting the procedural autonomy of Member States by excluding the ability of domestic courts to conduct the balancing of interests between leniency defendants and damages claimants that the CJEU has stressed both in Pfleiderer and Donau Chemie. 

Hence, in my opinion, the rules in the Commission's proposed 'Damages Directive' are inadequate and should be revised, particularly as the absolute protection of  leniency corporate statements and settlement submissions are concerned, which are based on a policy option that has been disapproved by the CJEU very recently. 

The rest of the rules on temporary protection of evidence and preemption of discovery-like requests of evidence should also be revised, since they may make it very burdensome for potential claimants to actually have access to the requested evidence (for alternative proposals discussed in view of the 2005 Green Paper on Damages, see Sanchez Graells, 'Discovery, Confidentiality and Disclosure of Evidence Under the Private Enforcement of EU Antitrust Rules'). Otherwise, there will be very significant difficulties for the claim of damages in private actions due to infringements of the EU's and Member States' competition rules.

GC (T-668/11): 'mere' non-compliance with formal #publicprocurement rules does not trigger liability for loss of profits

In its Judgment of 6 June 2013 in case T-668/11 VIP Car Solutions v Parliament II, the General Court of the European Union (EU) has addressed the issue whether non-compliance with the duties of transparency and motivation by a contracting authority can generate a right to claim damages for disappointed bidders and, more specifically, whether they would be entitled to claim loss of profit compensation.

In this clear Judgment, the GC does not exclude that possibility as a matter of principle, but it sets a very clear line of analysis of the causality required between the lack of motivation or failure to disclose certain information and the damages claimed by disappointed bidders--which makes this type of claims very difficult to succeed. 

In the Judgment, the GC has stressed that:

In this regard, it should be noted that it is true that the Court held that the [contested] decision should be annulled on the grounds, first, that the Parliament had violated the obligation to disclose the price proposed by the successful bidder and, secondly, that the decision was vitiated by an inadequate statement of reasons. However, it is clear that the non-disclosure of the price and the lack of motivation do not establish that the award of the contract to another tenderer was a fault, or that there is a causal link between this fact and the loss claimed by the applicant (see, to that effect, the Judgment of 25 February 2003, Renco / Council T-4/01, Rec. p. II-171, paragraph 89, and of 20 October 2011, Alfastar Benelux / Council T-57/09, not published in the ECR, paragraph 49). Indeed, there is nothing to suggest that the Parliament should award the contract in question to the applicant if the original decision had been sufficiently motivated or if the Parliament had disclosed the price of the successful bidder. It follows that the claim for compensation for the alleged damage suffered as a result of the first decision must be rejected as unfounded in so far as it is based on inadequate reasoning of that decision and the non-disclosure of the price proposed by the winning bidder (T-668/11 at para 38, own translation from French, emphasis added).

In view of this analysis of strict causality, which is appropriate, it seems clear that disappointed bidders that succeed in challenging public procurement decisions exclusively on the grounds of lack of compliance with transparency obligations and the duty to provide reasons are likely to only be entitled to claim legal costs and any other expenses related to the challenge of the award procedure. 

This should be welcome, despite the fact that it may reduce the incentives for disappointed bidders to challenge procedurally incorrect public procurement decisions because, unless they can prove that there has been a material (in terms of substantive) breach and that, but for that illegality they should have been awarded the contract, it is very unlikely that they can obtain any compensation for their efforts. 

This may (marginally?) diminish the effectiveness of challenge procedures (at least where no material rule has been breached), but an excessively generous rule that awarded damages exclusively due to 'mere' procedural shortcomings would generate a perverse incentive towards excessive litigation. This may justify the need for stronger mechanisms of public oversight, as it seems clear that the incentives for disappointed bidders to act 'in the public interest' have just been delimited in a proper, but narrow, manner.

#CJEU disagrees with AG Jaaskinen on access to #leniency files for damages claims purposes (C-536/11)

In its Judgment of 6 June 2013 in case C-536/11 Donau Chemie and Others, the Court of Justice of the European Union (CJEU) has disagreed with the Opinion of Advocate General Jääskinen on the need for an (almost) absolute protection of leniency applications from disclosure to third parties interested in claiming damages (which was criticised here). 

In my opinion, this development should be most welcome and puts pressure on the European Commission to change its own position regarding the disclosure of leniency applications for the purposes of damages actions before the national courts of the Member States.

It should be recalled that AG Jääskinen tried to carve out a truly significant exception for leniency applications not to be subjected to general rules on disclosure of evidence to potential damages claimants. In his opinion, he indicated that, on the one hand, and on the basis of the general requirements of the principle of effectiveness (effet utile) of EU law

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 considered that

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). 

As I said, 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).

In light of that debate, I think that the Donau Chemie Judgment should be welcome for the more balanced approach that the CJEU adopts:

39 […] in so far as the national legal measure or rule at issue in the main proceedings allows the parties to the main proceedings having infringed Article 101 TFEU the possibility of preventing persons allegedly adversely affected by the infringement of that provision from having access to the documents in question, without taking account of the fact that that access may be the only opportunity those persons have to obtain the evidence needed on which to base their claim for compensation, that rule is liable to make the exercise of the right to compensation which those persons derive from European Union law excessively difficult.

40 That interpretation is not called into question by the Austrian Government’s argument to the effect that such a rule is especially necessary in respect of documents lodged by parties in a file relating to proceedings under a leniency programme, in order to ensure the effectiveness of such a programme and therefore also that of the application of Article 101 TFEU.

41 Admittedly [...] Member States must not apply the rules on file access in such a manner as to undermine public interests such as the effectiveness of anti-infringement policies in the area of competition law.

42 The Court has recognised that leniency programmes are useful tools if efforts to uncover and bring an end to infringements of competition rules are to be effective and thus serve the objective of effective application of Articles 101 TFEU and 102 TFEU. The effectiveness of those programmes could be compromised if documents relating to leniency proceedings were disclosed to persons wishing to bring an action for damages. The view can reasonably be taken that a person involved in an infringement of competition law, faced with the possibility of such disclosure, would be deterred from taking the opportunity offered by such leniency programmes (C-360/09 Pfleiderer [2011] ECR I-5161, paragraphs 25 to 27).

43 It is clear, however, that although those considerations may justify a refusal to grant access to certain documents contained in the file of national competition proceedings, they do not necessarily mean that that access may be systematically refused, since any request for access to the documents in question must be assessed on a case-by-case basis, taking into account all the relevant factors in the case (see, to that effect, Pfleiderer, paragraph 31).

44 In the course of that assessment, it is for the national courts to appraise, firstly, the interest of the requesting party in obtaining access to those documents in order to prepare its action for damages, in particular in the light of other possibilities it may have.

45 Secondly, the national courts must take into consideration the actual harmful consequences which may result from such access having regard to public interests or the legitimate interests of other parties.

46 In particular, as regards the public interest of having effective leniency programmes referred to by the Austrian Government in the present case, it should be observed that, given the importance of actions for damages brought before national courts in ensuring the maintenance of effective competition in the European Union (see C‑453/99 Courage and Crehan [2001] ECR I‑6297, paragraph 27), the argument that there is a risk that access to evidence contained in a file in competition proceedings which is necessary as a basis for those actions may undermine the effectiveness of a leniency programme in which those documents were disclosed to the competent competition authority cannot justify a refusal to grant access to that evidence.

47 By contrast, the fact that such a refusal is liable to prevent those actions from being brought, by giving the undertakings concerned, who may have already benefited from immunity, at the very least partial, from pecuniary penalties, an opportunity also to circumvent their obligation to compensate for the harm resulting from the infringement of Article 101 TFEU, to the detriment of the injured parties, requires that refusal to be based on overriding reasons relating to the protection of the interest relied on and applicable to each document to which access is refused.

48 The mere risk that a given document may actually undermine the public interest relating to the effectiveness of the national leniency programme is liable to justify the non-disclosure of that document (C-536/11 at paras 39-48, emphasis added).

By rejecting the general criterion proposed by AG Jääskinen that leniency documents should in principle be protected from disclosure, the CJEU has preserved the potentiality for  damages actions to actually develop in the EU. 

However, the conditions under which the considerations regarding the circumstances in which the mere risk of disclosure of a specific document can be sufficient to prevent it on the basis that it could 'actually undermine the public interest relating to the effectiveness of the national leniency programme' (para 48) could have been explored in some more detail. A comparison of the English and the French, Spanish and Italian versions supports, in my view, the need for a very restrictive interpretation of this 'escape clause' created by the CJEU--which should only be applied under relatively extreme circumstances where the potential damage to the leniency system could be so great as to render it practically useless.

In view of the Donau Chemie Judgment, it may now be time for the European Commission to revise its own approach to the disclosure of leniency applications and to modify the policy adopted in the Notice on Cooperation with the National Courts, where it is clearly established that

the Commission may refuse to transmit information to national courts for overriding reasons relating to the need to safeguard the interests of the Community or to avoid any interference with its functioning and independence, in particular by jeopardising the accomplishment of the tasks entrusted to it(45). Therefore, the Commission will not transmit to national courts information voluntarily submitted by a leniency applicant without the consent of that applicant (para 26, emphasis added).

Such an absolute protection seems clearly at odds with the approach adopted by the CJEU and, consequently, a revision seems in order as a matter of institutional loyalty. Let's see how quickly it can take place... 

US DoD to consolidate contracting for healthcare professionals in view of GAO recommendation

The US Government Accountability Office (GAO) has released a Report on Defense Health Care (GAO-13-322), where it concludes that the Department of Defense (DoD) needs a strategic approach to contracting for health care professionals. According to GAO, 

DoD does not have a consolidated agency-wide acquisition strategy for medical services. In the absence of such a strategy, contracting for health care professionals is largely fragmented. For example, the military departments had not consolidated their staffing requirements by developing joint contracts beyond a limited number of instances amounting to about 8 percent of the fiscal year 2011 spending on health care professionals. The departments have made efforts to use multiple-award contracts to consolidate intraservice staffing requirements, but GAO identified several instances where multiple task orders were placed for the same type of provider in the same area or facility. A more consolidated strategic sourcing strategy could allow DOD to acquire medical services in a more cost-effective way.

Therefore, GAO is recommending that the Secretary of Defense develops a DoD-wide strategic approach to contracting for health care professionals, with which DoD concurs. This means that there are winds of consolidation in US DoD healthcare procurement. Hopefully it will take into consideration previous GAO recommendations concerned with consolidation and centralisation, as discussed here in relation to inter-agency agreements.

A missed opportunity to analyse a potential #abuse of a #dominantposition created by #publicprocurement (T-74/11)

In its Judgment in case T-74/11 Omnis Group v Commission (and Microsoft), the General Court of the European Union (GC) dismissed the appeal against the Decision of the European Commission (COMP/39.784 – Omnis/Microsoft) not to open a full investigation and rejecting the complaint submitted by Omnis  against Microsoft for the alleged abuse of its dominant position in certain software markets (in the EU and in Romania more specifically).

The appeal has several grounds and GC analyses in detail whether the Commission manifestly erred in its assessment of the facts or abused its discretion not to conduct a full investigation against Microsoft. The case is interesting to read (in French or Romanian only, unfortunately) for the detailed description of the elements and criteria the Commission must take into account before dismissing a complaint.

However, in connection with public procurement, it is interesting to note that, due to the poor information apparently submitted by the complainant, an important legal point was not explored by the Commission. To be fair, the arguments as presented by the Complainant are slightly far fetched, as they are based on the conclusion of a cartel-type agreement between Microsoft and the Romanian Government. As the Commission summarised it, 'Omnis Group [alleged] that Microsoft has entered into an illegal strategic partnership in contravention of Articles 101 and 106 TFEU with the Romanian Government which conferred an illegal monopoly on Microsoft in Romania and that such agreements amount to an illegal cartel or "cartel-type" behaviour' (COMP/39.784, para 16). 

In any case, the allegation that an exclusive right granted through public procurement (or in violation of the applicable rules) actually allowed Microsoft to distort competition (abusing a dominant position, or otherwise) seemed to require detailed scrutiny. DG COMP nevertheless brushed it aside: 'the complaint has been forwarded to the unit in charge of public procurement issues in the Commission's Internal Market Directorate General and to the European Anti-Fraud Office ("OLAF") in order to investigate the allegations which do not directly concern competition law. This decision will therefore solely address the competition law concerns raised in the complaint' (COMP/39.784, para 12).

Moreover, the Commission considered (maybe lightly) that the 'allegations that these mere procurement contracts would instate a monopoly of Microsoft in the relevant market or a cartel between the Romanian Government and Microsoft remain unsubstantiated by any reference to concrete provisions of these contracts and/or their anticompetitive implementation on the relevant market. It is therefore highly unlikely that an infringement of Articles 101 and Art 106 TFEU could be established on the basis of the information provided by the complainant' (COMP/39.784, para 44). In my view, the Commission could have done more to access those contracts, which are bound to remain confidential and, consequently, out of reach for an independent complainant.

In that regard, I find it remarkable that the GC finds no fault in that approach:

98 The applicant maintains that Microsoft's dominant position on the Romanian market and its agreements with the Romanian State have the effect of requiring third parties to use Microsoft programs for compatibility reasons. This position on the Romanian [markets for certain business software products] prevents the existence and development of competitors. By ignoring the existence of such a dominant position, the Commission wrongly refused to consider this complaint.

99 On the one hand, to the extent that this argument is concerned with Article 102 TFEU, it should be noted that the reasons put forward are similar to those rejected in the context of the first plea [where the GC has backed the European Commission's view that Microsoft was not dominant in the relevant markets]. It is therefore necessary to reject this plea for the same reasons as those set out [...] above.

100 On the other hand, given that this plea aims to challenge the assessment carried out by the Commission under Articles 101 TFEU and 106 TFEU, this argument must also be rejected.

101 Indeed, in the contested decision, the Commission found that the allegations of strategic partnership with the Romanian government fell within the scope of the rules on public procurement and that the claims regarding Microsoft's monopoly or the existence of an agreement Microsoft and the Romanian government were not supported (see paragraph 15 above). The Commission has therefore concluded that it was highly unlikely that can be established a violation of Articles 101 TFEU and 106 TFEU on the basis of information provided by the complainant (T-74/11, paras 98-101, own translation from French and emphasis added).

In my view, and with the disadvantage of not having access to the file or the arguments presented by the complainant, this seems like a missed opportunity to further the joint enforcement of EU public procurement and competition rules and to assess whether public procurement rules (or agreements entered into in compliance, or not, with them) generated a negative market impact equivalent to the abuse of a dominant position. It seems to respond to a 'compartmentalised' or 'silo-based' enforcement structure by the European Commission (DG COMP seems to have brushed the procurement argument aside as if it was not relevant, at least within its sphere of action), which may need revision if public procurement and competition concerns are to be truly integrated and jointly enforced--which would bring about significant potential improvements.

#CJEU incorrectly analyses 'State imputability' and gives green light to (pseudo)fiscal #Stateaid schemes (C-677/11)

In its Judgment of 30 May 2013 in case C-677/11 Doux Élevages and Coopérative agricole UKL-AREE  the Court of Justice of the European Union (CJEU) has carried on with its line of case law in C-345/02 Pearle and Others and stressed that, according to Art 107(1) TFEU, State aid cannot exist if the economic advantage under analysis is not funded by 'State resources' and there is no 'imputability to the State'.

In the case at hand CIDEF, a French agricultural inter-trade organisation (for poultry), introduced the levying of a 'cotisation volontaire obligatoire' (sic) (CVO) for the purposes of financing common activities decided on by that organisation. The contribution was initially introduced in 2007 as a voluntary measure for the members of CIDEF, but it was extended to all traders in the sector on a compulsory basis in 2009 by a tacit Ministerial decision to accept that extension (see press release).

Two complainants challenged the extension of the CVO on the basis that making it a mandatory payment for all traders in the sector (ie going beyond the group of members of CIDEF) involved State aid. The French Conseil d’État referred the matter to the CJEU for a preliminary ruling, which has decided that there is no element of State aid in the mandatory extension of the CVO to all traders in the industry concerned.

The reasoning of the CJEU indeed follows its previous line of case law in the area of State aid and adopts a very narrow approach to the concept of economic advantages 'granted by a Member State or through State resources'. On the point of the involvement of State resources, the CJEU finds that

the contributions [...] are made by private‑sector economic operators – whether members or non-members of the inter‑trade organisation involved – which are engaged in economic activity on the markets concerned. That mechanism does not involve any direct or indirect transfer of State resources, the sums provided by the payment of those contributions do not go through the State budget or through another public body and the State does not relinquish any resources, in whatever form (such as taxes, duties, charges and so on), which, under national legislation, should have been paid into the State budget. The contributions remain private in nature throughout their lifecycle and, in order to collect those contributions in the event of non‑payment, the inter-trade organisation must follow the normal civil or commercial judicial process, not having any State prerogatives (C-677/11 at para 32, emphasis added).

This should come as no big surprise, since this has become the standard position in the case law of the CJEU (ie that if the State 'does not touch' and 'should not have touched' the money, it cannot constitute a 'State resource'). However, one may wonder why the Court has not addressed the point of the (pseudo)fiscal nature of the imposition of a contribution (ie a levy) on undertakings that do not belong to the private organisation charging it. In the absence of a voluntarily established association (via membership), the prerogative of the inter-trade association to require payments from undertakings surely goes beyond the sphere of powers created by private law (taxation is one of the very exclusive powers of the State). In that regard, the reasoning followed by the CJEU on the point of 'imputability to the State' requires some close scrutiny. The Court finds that

35 […] Article 107(1) TFEU covers all the financial means by which the public authorities may actually support undertakings, irrespective of whether or not those means are permanent assets of the public sector. Therefore, even if the sums corresponding to the measure in question are not permanently held by the Treasury, the fact that they constantly remain under public control, and therefore available to the competent national authorities, is sufficient for them to be categorised as State resources (see [C‑482/99 France v Commission (2002) ECR I‑4397], paragraph 37 and the case-law cited).

36 In the case in the main proceedings, the conditions laid down by the Court in paragraph 37 of the judgment in France v Commission are not met. It is clear that the national authorities cannot actually use the resources resulting from the [CVOs] to support certain undertakings. It is the inter-trade organisation that decides how to use those resources, which are entirely dedicated to pursuing objectives determined by that organisation. Likewise, those resources are not constantly under public control and are not available to State authorities.

37 Any influence that the Member State may exercise over the functioning of the inter-trade organisation by means of its decision extending an inter-trade agreement to all traders in an industry is not capable of altering the findings made in paragraph 36 of this judgment.

38 It is clear from the case-file submitted to the Court that the legislation at issue in the main proceedings does not confer upon the competent authority the power to direct or influence the administration of the funds. Moreover, as the Advocate General noted in point 71 of his Opinion, according to the case-law of the competent national courts, the provisions of the Rural Code governing the extension of an agreement introducing the levying of contributions within an inter-trade organisation do not permit public authorities to exercise control over CVOs except to check their validity and lawfulness.

39 Regarding that control, it should be noted that Article L. 632-3 of the Rural Code does not permit making the extension of an agreement dependent upon the pursuit of political objectives which are specific, fixed and defined by the public authorities, given that that article non‑exhaustively lists the very general and varied objectives that an inter-trade agreement must promote in order to be capable of being extended by the competent administrative authority. That conclusion cannot be undermined by the obligation imposed by Article L. 632-8-I of that code to inform the authorities of the way in which CVOs have been used.

40 Moreover, there is nothing in the case-file submitted to the Court permitting it to consider that the initiative for imposing the CVOs originated with the public authorities rather than the inter-trade organisation. It is important to emphasise, as the Advocate General observed in point 90 of his Opinion, that the State was simply acting as a ‘vehicle’ in order to make the contributions introduced by the inter-trade organisations compulsory, for the purposes of pursuing the objectives established by those organisations.

41 Thus, neither the State’s power to recognise an inter-trade organisation under Article L. 632-1 of the Rural Code, nor the power of that State to extend an inter‑trade agreement to all the traders in an industry under Articles L. 632-3 and 632-4 of that code permit the conclusion that the activities carried out by the inter‑trade organisation are imputable to the State (sic) (C-677/11 at paras 35 to 41, emphasis added).

The reasoning followed by the CJEU could not be more puzzling, particularly at para 41, which to me seems plainly wrong. Given the literal tenor of Art 107(1) TFEU, which sets that the prohibition of State aid covers 'any aid granted by a Member State or through State resources in any form whatsoever' it is clear that the analysis of the 'imputability to the State' must cover the aid measure and not the activities of the beneficiary of such measure. 

Therefore, the conclusion reached in para 41 of C-677/11 is simply a non sequitur. After having recognised that 'the State was simply (sic) acting as a ‘vehicle’ in order to make the contributions introduced by the inter-trade organisations compulsory, for the purposes of pursuing the objectives established by those organisations' (para 40), it is an illogical step to conclude that such (vehicular) intervention is not imputable to the State. In my opinion, this plainly makes no sense.

The implications of the Judgment in Doux Élevages are likely to be far fetched, since they open the door to a floodgate of (pseudo)fiscal measures designed by Member States (by indirect influence to the relevant inter-trade or similar organisations, which should not be readily proven, see para 40 ab initio) to compensate for the stricter (?) controls on aid directly granted by public authorities. 

The only remaining hope at this point is that, under the relevant constitutional law of the Member States, such (pseudo)fiscal levies are considered unconstitutional limitations to the right to property, since the State is the only entity vested with powers to extract money payments not voluntarily accepted, at least as a general implication of the membership of an association (as was the case in Pearle, although any element of mandatory membership obviously would grant the same conclusion). And, consequently, this (pseudo)fiscal structure  that allows non-State entities to extract mandatory payments can be seen as an excessive restriction of the right to property under some Member States constitutional law (such as in Spain, for instance).

Maybe with the accession of the EU to the European Convention on Human Rights and a (stronger) duty to protect the right to property under Art 1 Protocol No. 1 ECHR (which includes rules on taxation not mentioned in the right to property recognised in Art 17 of the Charter of Fundamental Rights of the EU), the CJEU will need to revisit this line of case law.

Avoidance of EU #publicprocurement rules by artificial contract split triggers #reduction in cohesion funds for #Spain (T-384/10)

In its Judgment of 29 May 2013 in case T-384/10 Spain v Commission, the General Court of the EU (GC) has dismissed the appeal against a 2010 Commission Decision that reduced the contribution of the structural and cohesion funds to several water management infrastructure projects in Andalusia due to various infringements of the applicable EU public procurement rules.

In its audit of the execution of the project, the European Commission identified several infringements of the EU public procurement rules by the project management firm appointed by the Andalusian regional authorities (which was mandated  by art 8(1) of Regulation 1164/94 to comply with public procurement rules due to the project being financed with EU funds). 

More specifically, the Commission considered that some contracts had been illegally split in order to keep them below the value thresholds that trigger the application of EU public procurement rules, in others technical criteria had illegally required undertakings to prove they had prior experience in Spain (which constitutes a discrimination on the basis of nationality), or award criteria had illegally included 'average prices' rather than a sound economic assessment of the offers, recourse to negotiated procedures had been abused, mandatory time limits had not been respected, and the ban on negotiations after the award of the contracts had not been respected. All in all, indeed, the project seemed to be severely mismanaged in terms of public procurement compliance.

In view of such shortcomings and infringements, and considering that full cancellation of the funding would however be a disproportionate penalty, the European Commission decided to impose financial corrections that partially reduced the contribution of the EU funds to the water management infrastructure projects by between 10 and 25% of the original contribution.

Spain tried to counter the Commission Decision and justify the inexistence of the alleged infringements, but to no avail. The discussion before the GC mainly revolved around the issue of the artificial split of the contracts in order to exclude the application of the EU rules (which is discussed in paras 65-97 of T-384/10). In order to address this issue, the GC offers a recapitulation of the criteria applicable to the assessment of whether a complex project involves a single or several detachable works.

66 As a preliminary point, it should be recalled that, under Article 6, paragraph 4 of Directive 93/37, no work or contract may be split up with the intention of avoiding the application of that Directive. Moreover, Article 1, letter c) of the Directive defines the term "work" as the outcome of building or civil engineering works taken as a whole that is sufficient of itself to fulfil an economic and technical function. Therefore, to determine whether the Kingdom of Spain infringed Article 6, paragraph 4 of the Directive, it must be ascertained whether the subject of the contracts at issue was one and the same work in the sense of Article 1, letter c), of the Directive.

67 According to the case law, the existence of a "work" within the meaning of Article 1, letter c) of Directive 93/37 must be assessed in light of the economic and technical function expected from the result of the works that are the object of the corresponding public contracts (judgments of the Court of 5 October 2000, Commission / France, C-16/98, ECR p. I-8315, paragraphs 36, 38 and 47, to October 27, 2005, Commission / Italy, C-187/04 and C-188/04, not published in the ECR, paragraph 27, of January 18, 2007, Auroux and Others, C-220/05, ECR p. I-385, paragraph 41, and of March 15, 2012, Commission / Germany, C-574/10, not published in the ECR, paragraph 37).

68 Moreover, it should be noted that the Court has stated that, for the result of various works to qualify as 'work' within the meaning of Article 1, letter c) of Directive 93/37, it suffices that those meet either the same economic function or the same technical function (Commission / Italy, paragraph 67 above, paragraph 29). The verification of the economic identity and of the technical identity are thus alternative and not cumulative, as submitted by the Kingdom of Spain.

69 Lastly, it should be noted that according to the case law, the simultaneity of the call for tenders, the similarity of the notices, the unity of the geographical framework within which tenders are called for and the existence of a single contracting entity constitute additional evidence that can support the finding that different works contracts actually correspond to a single work (see, to that effect, Commission / France, paragraph 67 above, paragraph 65). [T-384/10 at paras 66-9, own translation from Spanish].

It is also worth stressing that the GC confirms prior case law and clarifies that there is no need to prove any intention on the part of the contracting authorities in order to find that they have infringed the rules against the artificial split of the contracts. In that regard,

94 Finally, the Kingdom of Spain argues that, in order to declare the existence of an infringement of Article 6, paragraph 4 of Directive 93/37, the Commission should have tested the concurrence of a subjective element, namely, the Spanish authorities' intention to split the contracts in question for the purpose of evading the obligations of the Directive. This argument cannot be accepted.

95 In that regard, suffice it to note that the finding that a contract has been split in contravention of EU rules on public procurement does not require a prior demonstration of a subjective intent to avoid the application of the provisions contained in these regulations (see, to that effect, Commission / Germany, paragraph 67 above, paragraph 49). When, as in this case, such a finding has been proven, it is irrelevant to assess whether or not the infringement results from the will of the Member State to which it is attributable, from its negligence, or even from technical difficulties that it had to face (see, to that effect, the Court of Justice of October 1, 1998, Commission / Spain, C-71/97, ECR p. I-5991, paragraph 15). In addition, it must be remembered that, in the judgment in Commission / France and Auroux and Others, cited in paragraph 67 above, in order to declare the existence of an infringement of Article 6, paragraph 4 of Directive 93/37, the Court saw no need  for the Commission to previously prove the intention of the member State concerned to avoid the obligations imposed by the Directive by splitting the contract. [T-384/10 at paras 94-5, own translation from Spanish].

The case also discusses the issue of the cross border interest of some of the contracts that, even after the prior criteria against the artificial split of contracts were applied, remained below the EU procurement thresholds. The considerations of the GC revolve basically around the fact that the works were to be conducted very close to the Portuguese border and, consequently, their cross-border interest cannot be excluded. 

Once this is found, the inclusion of discriminatory technical criteria requiring undertakings to prove they had prior experience in Spain (and, even more precisely, in Andalusia and with the specific contracting entity) shows too clearly the discriminatory design of the procurement procedures and the ensuing breach of the EU public procurement rules (in this case, the general principles applicable to tendering of contracts not covered by the Directive).

In view of all such infringements, the GC confirms the adequacy of the financial adjustments imposed by the European Commission, without finding any fault in the fact that they were determined as lump sums proportional to the initial value of the contribution by the EU funds.

In my opinion, the Judgment in Spain v Commission does not create new law in this area, but it provides clarification (particularly on the fact that single works can constitute a technical or an economic unit, at para 68) and useful guidance on the criteria applicable in the assessment of compliance with EU public procurement rules in the tendering of large and complicated infrastructure projects, which should be welcome.