Direct award of concession contracts to holders of exclusive rights: the puzzle of Art 10(1) Dir 2014/23

I have been exchanging views with colleagues of the University of Turin on the justification, scope and implications of Art 10(1) of the Concessions Directive (2014/23). This is a rather complex provision that has hidden links with a number of equivalent provisions in the Public Sector Directive (2014/24) and the Utilities Directive (2014/25). 

It has taken us some time to clarify these issues--and I am actually not a 100% sure that we have finished with that conversation. Given that the publication where all this debate and analysis will be reflected will take some to be available, I thought it useful to upload here my draft. Comments will be most welcome.

Article 10(1) of the Concessions Directive states: 

This Directive shall not apply to services concessions awarded to a contracting authority or to a contracting entity as referred to in point (a) of Article 7(1) or to an association thereof on the basis of an exclusive right.

This Directive shall not apply to services concessions awarded to an economic operator on the basis of an exclusive right which has been granted in accordance with the TFEU and Union legal acts laying down common rules on access to the market applicable to activities referred to in Annex II.

My views are set out below.

10.1. Concessions awarded on the basis of exclusive rights

The exclusion in Article 10(1) for concessions awarded on the basis of exclusive rights is functionally equivalent to those in Article 11 of the Public Sector Directive and Article 22 of the Utilities Directive for services contracts. As briefly indicated by the European Commission in its factsheet “Concessions: Excluded concessions”, the purpose of this exclusion is to cover “Concessions awarded by (sic, to?) public authorities as well as contracting entities other than public undertakings and private entities enjoying of exclusive rights, both in the ‘classic’ and ‘utilities’ sectors.” However, the drafting of the exclusion for services concessions diverges from those applicable to services contracts in some respects, which aim to accommodate the requirements of both other directives

Firstly, it should be taken into account that Recital (32) of the Concessions Directive indicates that 

In certain cases, a given contracting authority or contracting entity which is a State, regional or local authority or body governed by public law or a given association thereof might be the sole source for a given service, for the provision of which it enjoys an exclusive right pursuant to national laws, regulations or published administrative provisions which are compatible with the TFEU. It should be clarified that in those situations a contracting authority or contracting entity as referred to in this recital or association thereof may award concessions to such bodies without this Directive being applied.”

This results in the exclusion in the first paragraph of Article 10(1) being applied to “services concessions awarded to a contracting authority or to a contracting entity as referred to in point (a) of Article 7(1) or to an association thereof on the basis of an exclusive right”. This drafting deviates from that of Article 11 of the Public Sector Directive and Article 22 of the Utilities Directive for services contracts. Focussing on the drafting of Article 11 of the Public Sector Directive, it is worth stressing that, due to the dual treatment of contracting authorities in the Concessions Directive as ‘proper’ contracting authorities (under Article 6) and as contracting entities by virtue of the activity in which they engage [under Article 7(1)(a)], the first paragraph of Article 10(1) of the Concessions Directive does not only mention contracting authorities, but also contracting entities “as referred to in point (a) of Article 7(1)”. However, this does not extend the personal scope of the exclusion as compared with that in Article 11 of the Public Sector Directive or that in Article 22 of the Utilities Directive. 

 

Still in that comparison, it is worth mentioning that the Concessions Directive does not include the requirement that the exclusive rights of the contracting authorities (proper and improper) are enjoyed “pursuant to a law, regulation or published administrative provision which is compatible with the TFEU”. However, given that the requirement is included in the definition of exclusive right in Article 5(10) of the Concessions Directive (“‘exclusive right’ means a right granted by a competent authority of a Member State by means of any law, regulation or published administrative provision which is compatible with the Treaties…”), this does not actually create a difference in treatment of the exclusion in the Public Sector and the Utilities Directives either.

 

Turning to the exclusion in the second paragraph of Article 10(1) of the Concessions Directive, which makes it inapplicable to services concessions awarded to economic operators that hold exclusive rights “granted in accordance with the TFEU and Union legal acts laying down common rules on access to the market applicable to activities referred to in Annex II”, it seems clear that this is an exclusion that aims to coordinate the Concessions Directive with sectoral regulation adopted in compliance with the existing EU framework.

This seems clear from Recital (33), which foresees that:

It is also appropriate to exclude from the scope of this Directive certain services concessions awarded to economic operators, where they are awarded on the basis of an exclusive right which that operator enjoys under national laws, regulations or published administrative provisions and which has been granted in accordance with the TFEU and Union acts laying down common rules on access to the market applicable to activities referred to in Annex II, since such exclusive right makes it impossible to follow a competitive procedure for the award. By way of derogation and without prejudice to the legal consequences of the general exclusion from the scope of this Directive, concessions as referred to in the second subparagraph of Article 10(1) should be subject to the obligation to publish a concession award notice in view of ensuring basic transparency unless the conditions of such transparency are provided for in sectoral legislation. In order to reinforce transparency, where a Member State grants an exclusive right to an economic operator for the exercise of one of the activities referred to in Annex II, it should inform the Commission thereof.

As briefly indicated by the European Commission in its factsheet “Concessions: Excluded concessions”, the purpose of this exclusion is to cover

Concessions awarded to an economic operator on the basis of an exclusive right

This exclusion applies only to service concessions awarded to economic operators which are active in the ‘utilities’ sector. It is subject to two conditions:

i) The economic operator has a prior exclusive right to provide the services that are the subject of the concession;

ii) This right was granted under a published national law or administrative act in accordance with the Treaty and with EU acts that lay down common rules on access to the market applicable to any of the ‘utilities’ activities (e.g. concessions in the electricity sector covered by Directive 2003/54/EC, modified by Directive 2009/72/EC and gas concessions covered by Directive 2009/73/EC).

Indeed, the coordination with sectoral regulation takes place both at the stage of definition of the contracting entities covered by the Concessions Directive [see Article 7 of the Concessions Directive, and Article 4(3) of the Utilities Directive] and at this stage of exclusion of the concessions awarded to certain types of entities. 

Firstly, Recital (22) of the Concessions Directive offers some clarification in that regard: 

entities which are neither contracting entities pursuant to point (a) of Article 7(1) nor public undertakings are subject to [the Concessions Directive] only to the extent that they exercise one of the activities covered on the basis of such rights. However, they will not be considered to be contracting entities if such rights have been granted by means of a procedure based on objective criteria, in particular pursuant to Union legislation, and for which adequate publicity has been ensured. That legislation should include Directive 2009/73/EC of the European Parliament and of the Council, Directive 2009/72/EC of the European Parliament and of the Council, Directive 97/67/EC of the European Parliament and of the Council, Directive 94/22/EC of the European Parliament and of the Council and Regulation (EC) No 1370/2007 of the European Parliament and of the Council. It should also be clarified that that listing of legislation is not exhaustive and that rights in any form, which have been granted by means of other procedures based on objective criteria and for which adequate publicity has been ensured are not relevant for the purposes of determining the contracting entities covered by this Directive.

This implies that the granting of concessions to these entities will not be covered by the first paragraph of Article 10(1), as the way in which their rights had been granted excludes them from the definition of contracting entity for these purposes.

However, secondly, this situation would result in a more limited possibility to directly award contracts on the basis of exclusive rights under the Concessions Directive than under the Public Sector and the Utilities Directives. It should be borne in mind that Article 32(2)(b)(iii) of the Public Sector Directive allows for the use of the negotiated procedure without prior publication if it is necessary for the protection of exclusive rights, and always provided that no reasonable alternative or substitute exists and the absence of competition is not the result of an artificial narrowing down of the parameters of the procurement. Article 50(c)(iii) of the Utilities Directive contains the same provision regarding the equivalent negotiated procedure without prior call for competition. Hence, under those sets of rules, the direct award of a contract to an economic operator on the basis of an exclusive right is still possible, even if not covered by Article 11 of the Public Sector Directive or Article 22 of the Utilities Directive. With the inclusion of the second paragraph of Article 10(1) Concessions Directive, this possibility is accommodated through an exclusion of the application of the Directive, with the only exception of the reinstatement of transparency obligations similar to those required by Articles 32(2)(b)(iii) of the Public Sector Directive and 50(c)(iii) of the Utilities Directive by means of Article 10(2) of the Concessions Directive.

The ultimate justification for this exclusion is, consequently, of a seemingly double nature. On the one hand, it seems clear that the interest of potential tenderers in obtaining the concession had already been protected by substantially equivalent means at the stage of granting of the exclusive right that triggers the exclusion under the second paragraph of Article 10(1)  of the Concessions Directive and, consequently, there is no need to reopen the competition at this stage. On the other hand, it serves the purpose of creating a functional equivalent to Articles 32(2)(b)(iii) of the Public Sector Directive and 50(c)(iii) of the Utilities Directive in order to allow for the direct award of concession contracts to holders of exclusive rights.

CJEU criticisably supports taxi monopoly in State aid case on use of London's bus lanes (C-518/13)

The Court of Justice of the EU has ruled in Eventech, C-518/13, EU:C:2015:9 and has broadly followed AG Wahl's approach to the case (criticised here) to determine that "The practice of permitting, in order to establish a safe and efficient transport system, Black Cabs to use bus lanes on public roads during the hours when the traffic restrictions relating to those lanes are operational, while prohibiting minicabs from using those lanes, except in order to pick up and set down passengers who have pre-booked such vehicles, does not appear, though it is for the referring court to determine, to be such as to involve a commitment of State resources or to confer on Black Cabs a selective economic advantage for the purpose of Article 107(1) TFEU."

The Eventech Judgment is criticisable for the same reasons identified in view of the AG Opinion (see here) and, in my view, constitutes a bad precendent in the treatment of access to (quasi?) essential facilities under public property. The analysis of the economic exploitation of the bus lanes is particularly weak, as it completely avoids the clear issue that black cabs do use that infrastructure in order to develop an economic activity--which, consequently, creates important issues of free access to public goods that the CJEU has simply disregarded. It can just be lamented that the CJEU did not identify the logical traps that affected the AG Opinion and deviated from them. Maybe, at least, the case can be used as yet another clear indication of the need to involve economists in the decision-making process of the CJEU [for some exploratory thoughts, see A Sanchez Graells, The Importance of Assessing the Economic Impact of the Case Law of the Court of Justice of the European Union: Some Exploratory Thoughts (April 18, 2013)]. 

Exclusive rights, State aid and lottery: a winning ticket worth an extended monopoly? (T-58/13)

In its Judgment in Club Hotel Loutraki and Others v Commission, T-58/13, EU:T:2015:1, the General Court (GC) has confirmed the previous Decision of the European Commission and considered that Greece had not granted illegal State aid to Organismos Prognostikon Agonon Podosfairou AE (OPAP) through the simultaneous extension of its existing exclusive right to operate certain games of chance and the granting of a new exclusive right to exploit 35,000 Video Lottery Terminals (‘VLTs’) for a period of 10 years in Greece. 

The key to the analysis conducted by the Commission and now upheld by the GC is that by overpaying for the extension of the existing exclusive right, OPAP has been able to secure a much larger exclusive right to operate VLTs in Greece. As the GC summarises:

10 As regards, first, the Addendum [which extended the existing exclusive rights for the period 2020-2030], the Commission observed that the study provided by the Greek authorities was based on sales projections elaborated by an independent company specialised in the gambling sector. The net present value of the Addendum was calculated on the basis of those projections, which were considered by the Commission to be reliable.
11 Following that calculation, the Commission found that the amount paid by OPAP in exchange for the Addendum, including the levy imposed by the Greek State corresponding to 5% of the gross gaming revenues generated by the games concerned for the period from 13 October 2020 to 12 October 2030 (see paragraph 4 above), was higher than the net present value of the Addendum.
12 As regards, secondly, the VLT Agreement, the Commission also calculated its net present value on the basis of the study commissioned by the Greek authorities.
13 On the basis of that calculation, the Commission stated that the net present value of the VLT Agreement was significantly higher than the amount of EUR 560 million provided for in the VLT Agreement, which would economically advantage OPAP.
14 However, the Commission stated that it was logical for the conformity of the VLT Agreement and the Addendum with Article 107(1) TFEU to be assessed jointly. In that way, the overpayment by OPAP for the Addendum was taken into account in order to assess the conformity of the VLT Agreement with that article. The Commission stated that the overpayment reduced the gap between the net present value of the VLT Agreement and the amount of EUR 560 million owed by OPAP [...] (T-58/13, paras 10-14, emphasis added).

Even if it is true that the Commission managed to impose an additional payment on VLT revenues to further close the economic gap as an amendment to the State aid scheme, the crucial point remains:

17 [...] Referring to the amendment introduced by the Greek authorities, and taking account of the overpayment for the Addendum, the Commission found, on average, OPAP would pay more than the value of the VLT Agreement.
18 In other words, the Commission took the view that, following the amendments to the initial notification, OPAP would pay the Greek State a higher amount than the cumulated values of the exclusive rights granted by the VLT Agreement and the Addendum (including a reasonable return for OPAP) (T-58/13, paras 17-18, emphasis added).

Hence, as mentioned, the crucial point for the legality of the (conflated) scheme is still the fact that the overpayment for the extension of an existing exclusive right is used to secure the approval of the underpayment in the granting of a new exclusive right. Moreover, the final finding of the European Commission simply makes no sense, as no market agent would pay a higher price for those exclusive rights than their accumulated value, as this would not be a rational investment decision. Consequently, there are many issues that would require some deeper scrutiny.

More importantly, in my view, the general acceptance of the 'cross-overpayment' amounts to allowing dominant undertakings with exclusive rights to buy their way into an extended monopoly (in a rather evident economic leverage) and, consequently, the case should be criticised--and quashed by the Court of Justice upon appeal (if it gets further appealed). Not least because it follows an emerging trend of improper assessment of two-part State aid measures (in favour of former State companies) that I find worrying and potentially dangerous for a credible and effective State aid control regime (see a previous instance here). The reasoning followed by the Commission and the GC, then, deserves some analysis.

Some of the arguments presented by the applicants have (willfully?) not been properly understood, nor analysed by the GC. Amongst other important arguments, the applicants clearly referred to the problem of the extension of the existing exclusive rights by cross-subsidisation in the following terms (in the words of the GC):

79 The applicants claim first of all that the Commission recognised, in paragraph 37 of the contested decision, that the Addendum and the VLT Agreement refer to distinct markets. Nevertheless, the Commission assessed them jointly. The applicants submit that the existence of an advantage for the purpose of Article 107(1) TFEU must be assessed for each market and not on the basis of joint consideration of similar measures concerning different markets, even though the measures examined concern the same recipient. If it were otherwise, the protection of competition would be incomplete because measures constituting an anti-competitive advantage for the purpose of Article 107(1) TFEU in a given market might escape the prohibition laid down in that provision on the basis of a joint assessment. Conversely, measures which grant no economic advantage in a given market might nevertheless be covered by that provision on the basis of a joint assessment with a measure affecting another market. [...]
81 The applicants claim that the VLT and slot machine market cannot be assessed jointly with the 13 games of chance covered by the Addendum since they have no relation to the market of the 13 games of chance on which OPAP has an absolute legal monopoly. By virtue of that monopoly, OPAP could carry out cross-subsidisation practices allowing OPAP to undercut the applicants’ prices on the VLT and slot machine market, by financing that operation by a price increase on the market for the 13 games of chance. However, the joint assessment of the notified measures does not take into account the possibility of such practices (T-58/13, paras 79 and 81, emphasis added).

To be fair, if the arguments were presented in this way (but this seems open to debate), it takes some digging to see that there are two layers of potential cross-subsidy. The first one, which is the one criticised above, is that the overpayment in one leg of the measure (extension of monopoly) secures State aid compatibility of the other leg of the measure (creation of an additional monopoly over VLTs). The second one concerns the operation of the rights in case they had been assigned to different operators, as it would concern a situation in which both OPAP and third parties had been granted licences for the operation of VLTs. The second argument is, in my view, moot or improperly addressed, as it refers to a hypothetical, counterfactual scenario. However, the first argument should have been enough to quash the Commission's Decision. Nonetheless, the GC decided differently.

In its analysis of the fourth plea submitted by the appellants of the Commission's Decision (the other three are basically procedural, so I am skipping them for now), the GC found that:

94 As regards [...] the applicants’ argument relating to subsidisation practices made possible by OPAP’s monopoly over the 13 games of chance covered by the Addendum, it should be noted, first, that it is based on the assumption that OPAP is free to increase prices at will on those 13 games in order to compensate for lower prices on the VLT market. The applicants accordingly submit that OPAP will not sustain competitive pressures in its pricing policy. That argument is not, however, substantiated. In fact, the applicants do not support or demonstrate that the 13 games in question are not subject to competition from other games of chance.
95 Next, the applicants do not explain why the alleged practices of cross-subsidies between the lower prices on the VLT market and the higher prices on the market of the 13 games covered by the Addendum preclude the two notified measures being jointly assessed. Indeed, if such practices were to exist, they would create a link between the VLTs and the 13 games of chance, which instead supports the two measures being jointly assessed.
96 It follows from all the foregoing that the applicants have not demonstrated the existence of an error of law when the Commission carried out a joint assessment of the VLT Agreement and of the Addendum (T-58/13, paras 94-96, emphasis added).

This is troubling because the GC inverts the order of the arguments on cross-subsidisation and dismisses them in the wrong way. Firstly, it is hard to see how the GC can rely on a theoretical competitive pressure on OPAP when the situation is that it holds basically exclusive rights on all relevant games of chance in Greece. Secondly, it is unacceptable that the GC buys a justification for the joint analysis of the measures precisely because OPAP engages in cross-subsidisation. If this is not a clear deductive fallacy, there is none. Overall, then, the arguments of the GC are disappointingly thin, or simply incongruous.  Consequently, for all the above, I hope the CJEU will receive better economic advice and will reverse the Hotel Loutraki Judgment. Otherwise, the game will be over for the analysis of two-part or leveraged instances of clear State aid.

Some thoughts on a paper on the Concessions Directive and competition law [Farley-Pourbaix, (2015) JECLAP 6(1): 15-25]

Martin Farley and Nicolas Pourbaix have recently published a paper on the interaction between competition and public procurement law in light of the rules of new Directive 2014/23 on concession contracts. The paper is 'The EU Concessions Directive: Building (Toll) Bridges between Competition Law and Public Procurement?' (2015) 6(1) Journal of European Competition Law & Practice  15-25. 

The paper is extremely thinly researched in an area that is generating a significant amount of scholarly commentary and, as such, it is rather disappointing because the authors seem to be (re)discovering powder by emphasising the interaction between procurement and competition law rules. However, some of the main points the authors make in relation to the pre-existing case law of the CJEU are worth considering.

Firstly, they stress the practical complications that the open-ended definition of concession creates, particularly in terms of the difficulty of assessing when the transfer of risks to the concessionaire suffices to be covered by Directive 2014/23 instead of Directive 2014/24 or Directive 2014/25 [for discussion, see C Risvig Hansen, Contracts not covered or not fully covered by the Public Sector Directive (Copenhagen, DJOF, 2012)76-102; A Sanchez-Graells, 'What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of their Economic Balance?' (2012) 2 European Public Private Partnership Law Review 94-104; and R Craven, 'The EU's 2014 Concessions Directive’ (2014) 23 Public Procurement Law Review 188-200].

Secondly, they explore the applicability of Art 101 TFEU to bidders that opt to team up or bid jointly for concession contracts. Their remarks are interesting and topical, as the recent publication of the 'Consortium Bidding' guidelines by the Irish Competition and Consumer Protection Commission evidences. I found their warning on the need to limit the exchanges of information between consortium partners particularly relevant (pp. 19-20), as joint participation in selected procurement projects could be the conduit for cartelising behaviour and this is an issue that requires careful consideration.

Thirdly, they revisit the never-ending discussion on the exclusion of contracting authorities from the concept of undertaking for the purposes of the application of (EU) competition law on the basis of the FENIN-SELEX line of case law [FENIN v Commission, C-205/03, EU:C:2006:453; and Selex v Commission, C-113/07, EU:C:2009:191] [for discussion, see A Sanchez-Graells, 'Distortions of Competition Generated by the Public (Power) Buyer: A Perceived Gap in EC Competition Law and Proposals to Bridge It' (2009) University of Oxford, Center for Competition Law and Policy, CCLP (L). 23]. 

On this point, it is interesting to see how Farley and Pourbaix stress that utilities concessions may trigger the application of competition law because, almost by definition, the contracting entity will be engaged in 'downstream' economic activities. Their discussion of the Luton Airport case is certainly informative [Arriva the Shires Ltd v London Luton Airport Operations Ltd [2014] EWHC 64 (Ch)].

This may be a point to take into consideration in the future to (possibly) limit the FENIN-SELEX exemption in case contracting authorities outside the utilities sector engage in (partial) downstream economic activity, which is likely to be the case of some in-house or public-public cooperation arrangements, which can now offer up to 20% of their supplies or services in the 'private market' under the rules of Directive 2014/24. This would be particularly easy on the basis of the 'severability' of activities for the purposes of competition law [Aéroports de Paris v Commission, C‑82/01, EU:C:2002:617], which in my view would be a most welcome development of this area of the law.

Finally, Farley and Pourbaix focus on specific competition law aspects of the new EU Concessions Directive. Of the issues they mention (other than the duration of the concession contract), the most interesting are the possibility to exclude infringers of competition law (on which see the recent case law of the CJEU here), and the interaction between State aid rules and the modification of concession contracts [for discussion, see A Sanchez-Graells, 'Public Procurement and State Aid: Reopening the Debate?' (2012) 21(6) Public Procurement Law Review 205-212]. 

On the issue of exclusion, the paper stresses burden of proof difficulties and advocates for a careful enforcement of the power to exclude undertakings suspected of competition violations, and points (without mentioning) at corporate human rights such as the presumption of innocence, which would have deserved more detailed consideration [for general discussion, see A Sanchez-Graells and F Marcos, '"Human Rights" Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?' (2014) University of Leicester School of Law Research Paper No. 14-04]. 

On the issue of State aid being (implicitly) granted as a result of a modification of a contract during its term, the paper emphasises that the increased flexibility in the choice of procedures and the possibility to modify the contract (potentially without value limit, despite the stress on 50% that Farley and Pourbaix wrongly put in p. 24-25) in a relatively generous array of cases restricts the 'Altmark' presumption and requires a substantive assessment of the conditions of the contract [something already advocated for in A Sanchez-Graells, Public procurement and the EU competition rules (Oxford, Hart, 2011) 118-121 and, in more detail, in ibid, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing SGEIs: State Aid. Reform and Modernisation, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181].

A point of contention, though, refers to the treatment of concession contracts as conduits for State aid. Farley and Pourbaix consider that:

Contracting Authorities may be able to take a certain amount of comfort from the fact that many concessions may not qualify as State aid in any event, on the basis that the remuneration was not granted through State resources. This will at least be the case in those situations where the concessionaire is remunerated entirely by third parties. Following the CJEU’s ruling in PreussenElektra [PreussenElektra, C-379/98, ECLI:EU:C:2001:160] this will still be the case even if the State sets the price that third parties need to pay for the relevant goods or services. (P. 24).

Even if they indicate that mixed arrangements which include some sort of subsidy could erode this possibility to duck State aid rules, I think that they present the situation in a way that excessively narrows down their application. Indeed, on that point, it may worth stressing that the CJEU has relatively recently adopted a less formalistic approach and considered that certain aspects of public control over third party revenue (which are common to concession contracts) may trigger the dis-application of the PreussenElektra exception (see comment here). 

In particular, in Vent De Colère and Others, C-262/12, EU:C:2013:851, the CJEU found that:

Article 107(1) TFEU must be interpreted as meaning that a mechanism for offsetting in full the additional costs imposed on undertakings [...] that is financed by all final consumers [...] constitutes an intervention through State resources (C-262/12, para 37).

Hence, even decisions concerning authorizations to raise user fees (without offering any additional public support or implying any extension of the length of the concession) may trigger State aid application, which is a case most concession contracts usually contemplate. Hence, the interaction between the prohibition of State aid in Art 107(1) TFEU and the rules on modification of concession contracts in Directive 2014/23 is more intense than Farley and Pourbaix's paper presents.

Overall, then, the paper is not groundbreaking and, if the existing literature had been researched, it would probably have been of a higher academic interest (as it is published, though, it certainly is oriented to practitioners) and could possibly have reached a deeper level of analysis. In any case, given the novelty of Directive 2014/23, Farley and Pourbaix's paper can certainly raise awareness of the important issues they mention.

Happy holidays and all best wishes for 2015

Thank you all for reading during 2014, which has been an amazing year for public procurement development in the EU, and for this blog. I look forward to continuing the exchange of views in 2015. The blog will be quiet between now and early January. I hope this will give us all some time to rest and enjoy ourselves. All best wishes, Albert

CJEU supports interaction between competition and public procurement rules (C-470/13)

In its Judgment in case Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469, the CJEU has adopted the very welcome position that sanctioned infringers of competition law can be excluded from public procurement procedures, even if those procedures are not covered by the EU Directives on procurement. More specifically, the CJEU has declared that arts 49 and 56 TFEU do not preclude the application of national legislation excluding the participation in a tendering procedure of an economic operator who has committed an infringement of competition law, established by a judicial decision having the force of res judicata, for which a fine was imposed.

In the case at hand, Generali was excluded from a procurement procedure for insurance services on the basis of a Hungarian domestic provision whereby contracting authorities "may provide in the contract notice that no one may take part in the procedure, as a tenderer, subcontractor or ancillary supplier seeking to take on more that 10% of the value of the public contract, or as a subcontractor ... who: a) has committed an infringement connected with his commercial or professional activity, established by court judgment having the force of res judicata given not more than five years ago" [Paragraph 61(1) of Law CXXIX of 2003 on public procurement]. Indeed, Generali was excluded as a result of its infringement of national competition law, which was confirmed by a court ruling having the force of res judicata, and for which a fine was imposed on it.

In my view, the issue should be uncontroversial and there is no reason to see any (unjustified) restriction of free movement rights in the debarment of competition law infringers, whether under the rules of the procurement Directives or otherwise [see A Sánchez Graells, "Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement" in G Racca & C Yukins (eds), Integrity and Efficiency in Sustainable Public Contracts (Brussles, Bruylant, 2014)]. However, the CJEU has felt the need to engage in a detailed reasoning that is worth looking at closely:

34 In relation to the exclusion of economic operators from a public contract in the context of freedom of establishment and the freedom to provide services under Articles 49 TFEU and 56 TFEU, it must be observed that Article 45(2)(d) of Directive 2004/18 makes it possible to exclude any operator who ‘has been guilty of grave professional misconduct proven by any means which the contracting authorities can demonstrate’.[This is now regulated in even clearer terms in art 57 dir 2014/24, see A Sánchez Graells, Albert, "Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive 2014/24" in F Lichere, R Caranta and S Treumer (ed) Novelties in the 2014 Directive on Public Procurement, vol. 6 European Procurement Law Series, (Copenhagen, Djøf Publishing, 2014)].

35 It must be observed that the concept of ‘professional misconduct’, for the purposes of that provision, covers all wrongful conduct which has an impact on the professional credibility of the operator at issue and not only the infringements of ethical standards in the strict sense of the profession to which that operator belongs (see, to that effect, judgment in Forposta and ABC Direct Contact, EU:C:2012:801, paragraph 27). In those circumstances, the commission of an infringement of the competition rules, in particular where that infringement was penalised by a fine, constitutes a cause for exclusion under Article 45(2)(d) of Directive 2004/18.

36 If such a cause for exclusion is possible under Directive 2004/18, it must a fortiori be regarded as justified in relation to public contracts which fall short of the threshold defined in Article 7 of that directive and which are consequently not subject to the strict special procedures laid down in that directive (see, to that effects, judgment in Consorzio Stabile Libor Lavori Pubblici, EU:C:2014:2063, paragraph 37).

37 Furthermore, recital 101 in the preamble to Directive 2014/24, adopted after the material time, which states that contracting authorities should be able to exclude economic operators, inter alia, for serious professional misconduct, such as infringement of the competition rules, as such misconduct may render an economic operator’s integrity questionable, shows that the cause for exclusion referred to in paragraph 35 above is considered to be justified in the light of EU law. Moreover, Article 57(4)(d) of that directive makes clear and precise provision for that cause for exclusion. [...]

39 In the light of the foregoing, the answer to the questions referred is that Articles 49 TFEU and 56 TFEU do not preclude the application of national legislation excluding the participation in a tendering procedure of an economic operator which has committed an infringement of competition law, established by a judicial decision having the force of res judicata, for which a fine was imposed (C-470/13, at paras. 34-39, emphasis added).

In my view this is a very clear cut Judgment and the CJEU's position should be welcome.

CJEU contributes to the blurring of public-private divide in public procurement (C-568/13)

In its Judgment in Data Medical Service, C-568/13, EU:C:2014:2466, the CJEU has reiterated very clearly that public procurement rules that exclude public hospitals from participation in tendering procedures for the award of public contracts as a result of their status as a public economic entity are contrary to the EU public procurement Directives, if and in so far as those entities are authorised to operate on the market in accordance with its institutional and statutory objectives.

In the case at hand, the CJEU followed its previous case law and stressed that

the possibility for public entities to participate in tendering procedures for public contracts, in parallel to the participation of private economic entities, is already evident from the wording of [the Directives] according to which ‘service provider’ is to mean any natural or legal person, including a public body, which offers services. Furthermore, such a possibility to participate was recognised by the Court in the judgment in Teckal, C‑107/98, EU:C:1999:562, paragraph 51, and was repeated in the subsequent judgments in ARGE, EU:C:2000:677, paragraph 40; CoNISMa, EU:C:2009:807, paragraph 38; and Ordine degli Ingegneri della Provincia di Lecce and Others, EU:C:2012:817, paragraph 26 (C-568/13 at para 33).

The only check and balance to the expansive interpretation of the criteria for participation in public contracts that the CJEU is willing to tolerate is based on the fact that 

Member States do, admittedly, have a discretion as to whether or not to allow certain categories of economic operators to provide certain services. They can regulate the activities of entities, such as universities and research institutes, which are non-profit-making and whose primary object is teaching and research. They can, inter alia, determine whether or not such entities are authorised to operate on the market, according to whether the activity in question is compatible with their objectives as an institution and those laid down in their statutes. However, if and to the extent that such entities are entitled to offer certain services in return for remuneration on the market, even occasionally, the Member States may not prevent those entities from participating in tendering procedures for the award of public contracts relating to the provision of those services. Such a prohibition would not be compatible with [the Directives] (see, in relation to the corresponding provisions of Directive 2004/18, the judgments in CoNISMa, EU:C:2009:807, paragraphs 47 to 49, and Ordine degli Ingegneri della Provincia di Lecce and Others, EU:C:2012:817, paragraph 27) (C-568/13 at para 36, emphasis added).

Consequently, the CJEU refers the issue to the regulation of specific activities or specific legal structures available to the public sector to organise the provision of services. In the absence of that sort of regulation (which would then be potentially subjected to the rules on freedom of establishment and free movement of services, where applicable), public procurement rules cannot be used to determine the remit of the economic activity of public entities.

That being said, the CJEU then proceeded to stress that, in case the public entity is in a position to offer contractual conditions impossible to match by private competitors--particularly in view of the funding it receives--then the contracting authority should scrutinise its offer under the general rules applicable to abnormally low offers (now in art 69 of Directive 2014/24). In the words of the CJEU:

the provisions of [the Directives] and in particular the general principles of freedom of competition, non-discrimination and proportionality which underlie that directive, must be interpreted as not precluding national legislation which allows a public hospital, such as that at issue in the main proceedings, participating in a tendering procedure to submit a tender which cannot be matched by any competitors as a result of the public funding which it receives. However, in the course of the examination of the abnormally low character of a tender on the basis of [the Directive], the contracting authority may take into consideration the existence of public funding which such an entity receives in the light of the option to reject that tender (C-568/13 at para 51, emphasis added). 

In my view, the Judgment in Data Medical Service simply consolidates the existing case law and prompts the contracting authority to assess the potential abnormality of the tender submitted by the public entity. The question that remains unanswered is whether there (actually) is a subsequent obligation to reject the tender, which is a particularly controversial point [for discussion, see A Sánchez Graells, "Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions", in M Comba & S Treumer (eds) Award of Contracts in EU Procurements, vol. 5 European Procurement Law Series (Copenhagen, DJØF, 2013) 267-302]. Arguably, in most of the cases, there can be an obligation to reject on the basis of the principle of competition stressed by the CJEU and now consolidated in Art 18(1) Dir 2014/24.

Moreover, one cannot discard the application of the EU and domestic rules on competition (arts 101 and 102 TFEU and their equivalents) to the public entities when they engage in such economic activity [hence, immediately deactivating the FENIN-Selex exemption; see A Sánchez Graells, "Distortions of Competition Generated by the Public (Power) Buyer: A Perceived Gap in EC Competition Law and Proposals to Bridge It" (August 21, 2009). University of Oxford, Center for Competition Law and Policy, CCLP (L). 23], or even the application of domestic unfair competition law rules if the activity is caught in their substantive scope. 

Hence, situations like the one that triggered the Data Medical Service simply blur the distinction between public and private in public procurement, but by no means make the participation of public entities in procurement bullet-proof in terms of the application of general competition rules. This is an area where significant developments can be expected in the immediate future, as the public sector seeks to find new sources of funding or revenue for its activities. Hence, this is an area where more definite answers from the CJEU would be welcome in the future.

Contracting authorities should not be scared to exclude misbehaving tenderers, for the CJEU has their back (C-440/13)

In its Judgment in Croce Amica One Italia, C-440/13, EU:C:2014:2435, the Court of Justice of the EU (CJEU) has decided a complex situation concerning the exclusion of a tenderer based on an on-going criminal investigation derived from an allegation of fraud and misrepresentation in the submission of the documentation for that specific tender (ie an, 'intra-tender' ground for exclusion). The reasoning of the CJEU is complex because it conflates the application of exclusion grounds and the withdrawal of an invitation to tender under Directive 2004/18 and its interpreting case law--and, consequently, deserves some close consideration.

In the case at hand, the contracting authority announced an open procedure for certain specialist transportation services and received four offers. Three of the four offers where rejected on technical grounds. The contract was provisionally awarded to the fourth tenderer (Croce Amica One), but an investigation was initiated due to the evaluation scores being seemingly too high (ie carrying more than 80% of the maximum points in both the technical and the economic evaluation, which triggers specific scrutiny under the applicable Italian rules). As a result of the inquiry, the evaluation team determined that the tender was anomalous. Simultaneously, a preliminary criminal law investigation for fraud and intentional false statements was launched concerning, among others, the legal representative of Croce Amica One. It is not relevant for the assessment (as it comes ex post facto), but the investigation actually found that there had been fraud.

In view of all this, the contracting authority decided to cancel the tender. Its reasoning was as follows: ‘given the circumstances described, apart from the anomalous nature of the tender, the [contracting authority] [could] not in any event, for evident reasons of expediency and reasons connected with the principle of sound administration, proceed to award the services contract to the tenderer Croce Amica One … nor, given the vital nature of the services in question, [could] it postpone the award of the contract pending the outcome of the criminal proceedings or even the conclusion of the investigations currently under way’ (para 17, emphasis added).

One of the difficulties in the case concerned the 'timing' of the application of the exclusion ground by the contracting authority. Implicitly, the allegation was that the contracting authority could only have applied the exclusion ground prior to deciding on the (provisional) award of the contract--following the logical sequence of exclusion, selection, award that Directive 2004/18 seemed to impose. By deviating from that apparently mandatory sequence or, in other words, by applying the exclusion ground at an inappropriate moment (ie too late in terms of the procurement procedure, and too early in terms of the parallel criminal investigation, which was on-going), the contracting authority would have breached the EU rules. Those rules would have been furthermore breached due to the unjustified cancellation of the tender--which, however, derives from the fact of excluding the only tenderer left and, consequently, it is hard to see why this second dimension would be (independently) relevant.

Unfortunately, and due to some procedural restrictions derived from the mechanics of the preliminary reference mechanism (para 28), the CJEU does not focus on the timing for the application of the exclusion ground (it simply mentions that the circumstances of the case are clearly covered under art 45(2) dir 2004/18, para 28) and, instead, looks at whether the cancellation of the tender (or the implicit withdrawal of the invitation to tender) is justified (paras 29-37). Hence, the reasoning of the CJEU in Croce Amica One does not seem very helpful in establishing whether, under the rules in dir 2004/18, exclusion grounds can be applied by contracting authorities after completing the initial selection screening , or whether they can base the exclusion on (suspected) breaches that occur during the tender procedure.

Thus, the Croce Amica One Judgment may at first sight seem to come too late or be of limited temporary relevance because this situation is now expressly regulated in art 57(5) of Directive 2014/24, which allows contracting authorities to apply the revised exclusion grounds 'at any time during the procedure' and 'in view of acts committed or omitted either before or during the procedure'. However, even if based on the (not necessarily) inter-linked point of the cancellation of the tender, the reasoning of the CJEU in Croce Amica One should remain valid after the entry into force of dir 2014/24 as a clear back-up to contracting authorities that decide to exercise their discretion and apply art 57(5) in view of exclusion grounds based on concurrent tendering (mis)behaviour. 

Indeed, it is worth stressing that the CJEU has clarified that:

EU law does not preclude Member States from providing in their legislation for the possibility of adopting a decision to withdraw an invitation to tender. The grounds for such a decision may thus be based on reasons which reflect, inter alia, the assessment as to whether it is expedient, from the point of view of the public interest, to carry an award procedure to its conclusion, having regard, among other things, to any change that may arise in the economic context or factual circumstances, or indeed the needs of the contracting authority concerned (C-440/13, para 35, emphasis added).

In my view, this reinforces the powers that art 57(5) dir 2014/24 gives to contracting authorities to 'self-protect' from entering into contracts with (potentially) unreliable suppliers. This will have to be coupled with certain procedural guarantees (as the CJEU stresses in paras 38-46), but the general principle is, in my view, that contracting authorities need to feel empowered to react to their informed and demonstrable suspicions by excluding tenderers affected by exclusion grounds.

However, there is also a final caveat in the Croce Amica One line of reasoning that looks very dangerous to me because of its potentially misleading content. Continuing with the exploration of the reasons that can justify the cancellation of a tender, the CJEU indicates that: The grounds for such a decision may also relate to there being an insufficient degree of competition, due to the fact that, at the conclusion of the award procedure in question, only one tenderer was qualified to perform the contract (C-440/13, para 35, emphasis added). 

I find this last bit of the reasoning potentially dangerous for two reasons. Firstly, because economics tells us that this is not a situation that per se can be interpreted as evidencing insufficient competition [see JM Keisler & WA Buehring, ‘How Many Vendors Does It Take To Screw Down A Price? A Primer on Competition’ (2005) 5 Journal of Public Procurement 291]. And, secondly, because it is prone to abuse in cases where the contracting authority is left with only one tenderer that it simply dislikes or does not want to engage with for reasons not covered by exclusion grounds or qualitative selection criteria. In such case, the random result that only one tenderer (of many participating) can actually perform the contract would be the (unexpected) perfect excuse to discriminate against it by cancelling the tender.

Hence, I would urge for a very restrictive interpretation of this last part of para 35 of the Croce Amica One Judgment, particularly in view of a proper interpretation of the principle of competition embedded in art 18(1) dir 2014/24--ie because the blank rejection of the only tender that meets all the requirements of the contracting authority would, if not otherwise justified, be an artificial restriction of the (outcome of) the competition actually materialised in the procedure.

Is Altmark not applicable to ambulance services? Or is San Lorenzo & Croce Verde not very clear? (C-113/13)

In view of the Judgment in San Lorenzo and Croce Verde Cogema, C-113/13, EU:C:2014:2440, the rules applicable to the provision of emergency ambulance services is definitely clear as mud. In the case at hand, the applicants challenged an Italian law whereby emergency ambulance services must be awarded on a preferential basis and by direct award, without any advertising, to certain voluntary bodies (such as the Red Cross). This rule has, ultimately, constitutional protection in Italy, as 'the Italian Republic has incorporated into its constitution the principle of voluntary action by its citizens. Thus, the last paragraph of Article 118 thereof provides that citizens, acting individually or in an association, may participate in activities of public interest with the support of the public authorities, on the basis of the principle of subsidiarity' (para 9).

The applicants' argument was not necessarily of a constitutional level, but rather that freedom of establishment is unduly restricted by a preferential scheme that excludes the tendering out of those ambulance services. They brought forward arguments based on general free movement provisions, public procurement rules and competition rules. The latter are not examined because the CJEU considered that the public procurement analysis makes it unnecessary (para 64).

In my view, if read paragraph by paragraph, the reasoning of the CJEU is accurate and technically precise, but the overall Judgment is too timid in spelling out the conditions for the application of the 'public service exception' under art 106(2) TFEU (or otherwise) tot he direct award of emergency ambulance services to voluntary action associations. I will try to summarise my criticism and doubts as succinctly as possible. This is an area where more considered research is definitely needed.

On the bright side, I think that some positions of the CJEU can be clearly spelled out. 

(1) When fully applicable, both Dir 2004/18 and Dir 2014/24, preclude legislation such as that at issue in the main proceedings which provides that the local authorities are to entrust the provision of urgent and emergency ambulance services on a preferential basis and by direct award, without any advertising, to the voluntary bodies mentioned in the agreement (para 44). However, Dir 2004/18 does not automatically apply to ambulance services (see 2 below) and art 10(h) Dir 2014/24 clearly excludes these contracts from its scope of application (para 8). Hence, this clear position is not that useful in practice.

(2) Where the Directives are not fully applicable (ie where contracts can be tendered under part B services rules under dir 2004/18, or under the special regime for social services under arts 74-77 dir 2014/24), the general principles of transparency and equal treatment flowing from articles 49 TFEU and 56 TFEU would be applicable (para 45) if the contract is of cross-border interest (paras 46-50). In that case, it is also clear that such a preferential scheme would run contrary to the Directives, which are: 'intended to ensure the free movement of services and the opening-up to competition in the Member States which is undistorted and as wide as possible' (para 51). 

(3) Implicitly, then, where the Directives do not apply at all but the contract is still of cross-border interest (ie the new likely situation under art 10(h) dir 2014/24), the award of the contract is 'merely' subjected to the (residual/general) requirements of articles 49 TFEU and 56 TFEU. In that case (not expressly assessed in the San Lorenzo & Croce Verde Judgment), the contracting authority still would need to go through the applicable assessment under the market access test generally applicable to restrictions of freedom of establishment [for two thought provoking attempts to rationalise this test, see E Christodoulidis, 'The European Court of Justice and Total Market Thinking' (2013) 14 German Law Journal 2005; and MS Jansson & H Kalimo, 'De minimis meets “market access”: Transformations in the substance – and the syntax – of EU free movement law?' (2014) 51(2) Common Market Law Review 523].

Hence, there are always concerns and constraints derived from EU law (either general, or the specific rules of public procurement) if the contract is of cross-border interest. Nonetheless, they are of varying degrees of intensity and it looks as if upon the entry into force of Directive 2014/24, the award of service contracts for emergency ambulance services  (either exclusively, or for most of their value if the contracts include other sorts of ambulance services) will exclusively be governed by the general rules on freedom of establishment.

On the shady side, though, once the potential incompatibility with EU public procurement or general free movement law is established (and, really, there seems to be no escape to 1-3 above except if the contract has no cross-border interest whatsoever--and, on that, see the  Ancona issue here), the CJEU will apply a Sodemare-like test because the provision of ambulance services falls within the (very broad) remit of the organisation of healthcare and social security systems (paras 55-59). In that case, then, it will particularly important that "EU law does not detract from the power of the Member States to organise their public health and social security systems" (para 55), but that "it is for the Member States, which have a discretion in the matter, to decide on the degree of protection which they wish to afford to public health and on the way in which that degree of protection is to be achieved" (para 56). So far, so good.

On the dark side, however, and significantly departing from the more developed approach in Altmark for SGEIs (is the CJEU implicitly recognising--without analysis--that ambulance services are per se SSGIs?), the CJEU has created an economically oriented safeguard that leaves too much room for maneuver by ruling that

Having regard to the general principle of EU law on the prohibition of abuse of rights (see, by analogy, judgment in 3M Italia, C‑417/10, EU:C:2012:184, paragraph 33), the application of that legislation cannot be extended to cover the wrongful practices of voluntary associations or their members. Thus, the activities of voluntary associations may be carried out by the workforce only within the limits necessary for their proper functioning. As regards the reimbursement of costs, it must be ensured that profit making, even indirect, cannot be pursued under the cover of a voluntary activity and that volunteers may be reimbursed only for expenditure actually incurred for the activity performed, within the limits laid down in advance by the associations themselves (C-113/13, para 62, emphasis added).

In my view, this is way too timid. Indeed, the CJEU constructs a rather weak safeguard by not focussing at all in the economic efficiency of the voluntary activities (which, even on a non-profit, reimbursement basis can be extremely inefficient) and imposes a sort of 'anti-fraud' test that, in my view, misses the point. In order to ensure compatibility with State aid provisions (which should not have been set aside so quickly in para 64), an efficiency based test like the one existing in the fourth condition of Altmark should have been imposed [for discussion, see A Sanchez Graells, “The Commission’s Modernization Agenda for Procurement and SGEI”, in E Szyszczak & J van de Gronden (eds) Financing SGEIs: State Aid. Reform and Modernisation, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181]. 

Indeed, the analysis of the applicability of Art 106(2) TFEU to the case is totally missing and this is strange. It looks like the difference between SGEIs and SSGIs will haunt all of us also under the 2014 Directives and revised guidance from the European Commission is becoming urgently needed, given the implicit vacuum that can exist if Member States maximise the possibilities of direct award under art 10(h) dir 2014/24, but equally under its arts 74-77 (and particularly, the latter).

As briefly mentioned, this is an area where more research is needed. I hope I can convince some colleagues to put together a research project on this soon. Interested contributors, please feel free to contact me at asanchezgraells@gmail.com.

Teaser: Why are ambulance services different, and why is it so complicated to procure them? (C-113/13)

In its Judgment in San Lorenzo and Croce Verde Cogema, C-113/13 (only press release available for now), the CJEU seems to have ruled that emergency ambulance services "may be entrusted on a preferential basis and by direct award to voluntary associations. In order to do so, the system must actually contribute to the pursuit of the objectives of the good of the community and budgetary efficiency". 

Without knowing the details of the full Judgment, it is hard to see the exact space for such direct award and all the caveats implicit in it. However, as a first reaction, it seems clear that this adds yet another layer of complication to the procurement regime applicable to ambulance services under the EU public procurement rules. Recital (28), art 74 and annex XIV of Directive 2014/24 will need to be reconciled with the Judgment in San Lorenzo and Croce Verde Cogema, which may result in some legal uncertainty as to whether direct award is really possible or the simplified regime in art 74 (or even art 77) trump the position of the CJEU.

I will look at this in detail once the full Judgment is available, but the application of EU procurement rules to ambulance services seems to be unnecessarily complicated.

Justifications for apparently abnormally low tenders need to be in sync with original tender (T-422/11)

In its Judgment in Computer Resources International (Luxembourg) v Commission, T-422/11, EU:T:2014:927, the General Court (GC) has clarified (although limited if any doubt could be bharboured) that the reasons provided by tenderers to justify the viability of their apparently abnormally low tenders need to be compatible with the terms of their initial tender.

 

In the case at hand, the apparent abnormality of the offer derived from the low manpower costs offered in relation to the provision of IT services in Luxembourg. Upon request of the contracting authority, the participating consortium tried to justify the low cost included in the tender on the basis that the services would (actually) be provided as a mix of presential support in Luxembourg and remote support from Romania. The contracting authority rejected this explanation as inadmissible and rejected the offer for being abnormally low. The GC has confirmed this decision (paras 53-55 and 82 and ff).

 

Maybe more interestingly, the GC also rejected an argument based on a sort of estoppel, whereby the participating consortium challenged the abnormally low consideration of costs that had, however, been accepted by the same contracting authority in a different procurement exercise. As a general point, the GC determined that the contracting authority

correctly took the view that a comparison of the prices proposed in the applicant’s tenders with the prices proposed within the context of other tendering procedures was irrelevant. Contrary to the applicant’s claim that no precedent is irrelevant when it is in the ‘same market’, the content of a tender must be examined in the light of the call for tenders to which it responds (T-422/11, para 69, emphasis added).

In my view, this is the only criticisable point in the Judgment (and an unnecessary one, given the lack of support for the applicant's arguments) and should be limited to the obiter dictum character it has in the specific circumstances of the case. Indeed, looking at the prices the contracting authority has accepted in contemporaneous and comparable procurement exercises would be relevant to the assessment of abnormality--not so much in order to create a (constructive) estoppel, but as an economic benchmark.

Other than that, the Judgment of the GC in Computer Resources International is an interesting summary and case study of the specific obligations imposed on contracting authorities that suspect that an offer (or some of its components) is abnormally low. This should serve as guidance in the interpretation and enforcement of article 69 of Directive 2014/24.

The best way to deal with a petition to the European Parliament? Admit it and then we'll see (C-261/13)

In its Judgment in case Schönberger v Parliament, C-261/13, EU:C:2014:2423, the CJEU has assessed the limits of the right to petition the European Parliament under art 227 TFEU, as informed by art 44 of the EU Charter of Fundamental Rights. In a case that confirms a previous Judgment by the GC [EU:T:2013:111, not available in English], the CJEU has clarified the controls, checks and balances applicable to a rejection of a petition and, maybe more counterintuitively, the lack of controls applicable to the admission of a petition. This may sound absurd and unnecessary, given that there would seem to be no need to control the reasons why the European Parliament admits petitions.

 

However, the discussion seems to actually not have been about how to control de admission of petitions, but the actions that the European Parliament decides to engage in once the petition is admitted. On this point, and showing a very clear deference for the political process involved in the right to petition, the CJEU has stressed that

it is clear from the provisions of the TFEU and from the rules adopted by the Parliament for the organisation of the right of petition that, where the Parliament takes the view that a petition meets the conditions laid down in Article 227 TFEU, it has a broad discretion, of a political nature, as regards how that petition should be dealt with. It follows that a decision taken in that regard is not amenable to judicial review, regardless of whether, by that decision, the Parliament itself takes the appropriate measures or considers that it is unable to do so and refers the petition to the competent institution or department so that that institution or department may take those measures (C-261/13, para 24, emphasis added).

The question at this point is how to interpret this passage, which seems to either not require any reaction at all from Parliament, or a very minimum 'referral' of the petition to a different institution or department. Ie, in the best case scenario, all the Parliament needs to do is to pass the hot potato onto somebody else. In the worst case, it may just decided that there is nothing that can be done.

 

 

The lack of appetite for a control of the actions that follow a petition is understandable. However, an extreme reading of Schönberger v Parliament would simply result in the European Parliament never rejecting any petition in the future (that would be open to judicial review) and instead admitting them and immediately declaring that there is nothing they can do (with, or without further referral). Whether this provides any meaningful effectiveness to art 44 EUCFR and art 227 TFEU is at least debatable. However, there is nothing I can say about this. Hopefully the experts will.

Paper on centralisation of procurement and competition law

Ignacio Herrera Anchustegui, from BECCLE - University of Bergen, and I have just completed a working paper on the new rules on centralisation and occasional procurement under articles 37-39 of Directive 2014/24. The paper assesses the risks, rationale and justification for the rules on centralisation and aggregation of public procurement in Directive 2014/24. The paper is entitled "Impact of public procurement aggregation on competition. Risks, rationale and justification for the rules in Directive 2014/24" and is now part of the University of Leicester School of Law Research Paper Series.

 

The paper explores the justifications advanced for the aggregation of purchasing and the countervailing risks it generates. In both cases, it focusses in economic and administrative aspects. It then proceeds to a summary overview of the new rules for the aggregation of public procurement in Directive 2014/24, and emphasised how the Directive is expressly recognising possibilities that clearly exceed the more modest approach in Directive 2004/18. Moving on, it then focusses on the potential justification for certain activities now permitted by the 2014 rules, and engages in a critical assessment of their competitive impact. The paper briefly highlights the far-reaching and not necessarily positive implications that a maximisation of the centralisation and aggregation possibilities under Directive 2014/24 could have, and proposes that strict competition law enforcement will be necessary to avoid undesired consequences. Some suggestions for further research are provided by way of conclusions.

 

The full paper is available for download on SSRN. Its full citation is:

Sánchez Graells, Albert and Herrera Anchustegui, Ignacio, Impact of Public Procurement Aggregation on Competition. Risks, Rationale and Justification for the Rules in Directive 2014/24 (December 5, 2014). University of Leicester School of Law Research Paper No. 14-35. Available at SSRN:  http://ssrn.com/abstract=2534496.

 

 

Is the flexibilisation of formal requirements in public procurement going both ways? (T-394/12)

In its Judgment in Alfastar Benelux v Council, T-394/12, EU:T:2014:992, the General Court (GC) resolved a dispute concerning public procurement activity of the European Institutions (in this case, the Council). One of the main claims of the disappointed bidder was that the Council had failed to discharge its obligation to state reasons because one of the sentences of the extracted evaluation report that was made available to it by the Council was incomplete.

 

In the applicant's view, the incompleteness of the extract prevented it from assessing the reasons that justified the Council's decision to award the contract to another tenderer. The applicant submitted that the fact that the Council had complemented the extract at a later stage did not overcome the initial ommission and that the Council should be made liable for damages. The GC rejected the claim. The reasoning of the GC in dismissing the action triggers some comments.

 

Firstly, it is worth emphasising that the GC has continued pushing for a strengthening of the duty to provide reasons in abstracto (and, indirectly, as a result of the bindingness of the right to good administration as recognised in Art 41(2)(c) of the EU Charter of Fundamental Rights). Indeed, the GC emphasised that, as a general point of law,

since infringement of the obligation to give reasons is a matter of public interest, the European Union judicature must raise it of its own motion and, therefore, the fact that the applicant raised it belatedly does not render such a plea inadmissible (see, to that effect, BP Products North America v Council, T-385/11, EU:T:2014:7, paragraph 164) (T-394/12 at para 25, emphasis added).

This creates a strong incentive for contracting authorities to 'err on the side of excessive disclosure' when it comes to the reasons for the adoption of a procurement decision, which may be detrimental for competition and for the protection of the legitimate commercial interests of other tenderers (as clearly recognised in art 55(3) Dir 2014/24 and art 113(2)II Financial Reg, but not always properly understood or applied). This also follows on the GC's previous tough approach and continues to create excessive incentives towards transparency in public procurement (as criticised here, here and in A Sánchez Graells, 'The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives', University of Leicester School of Law Research Paper No. 13-11). Hence, the general approach continues to create the wrong incentives and should be reassessed.

 

Secondly, however, when it comes to the specifics of the case, the GC adopts a very sensible and reasonable approach to the assessment of the claim of breach of the duty to state reasons in particular. Indeed, the GC dismisses the claim on the basis that the incomplete sentence only omitted a limited amount of information concerning the general comments of the evaluators and, additionally, the tenderer had been provided with more details in the remainder of the extract from the evaluation report. Interestingly, the GC stressed that

The general comments may easily be inferred from the detailed technical evaluations of the successful tenderer’s bid which are not concerned by the formatting error, since the general comments constitute a succinct summary of material contained in the contested decision (T-394/12 at para 30, emphasis added).

As such, this reasoning should not be surprising and the GC could hardly be expected to have decided otherwise. Having adopted a more formalistic approach would not only have annulled a procurement decision for no good reason, but would also have opened the floodgates to an unforeseeable volume of litigation (particularly if one takes into account that the guarantees provided by Art 41 EUCFR are applicable in all procurement covered by Dir 2014/24). Hence, it is a sensible decision.

 

However, the better question seems to be whether this same 'anti-formalistic' approach will hold when the clerical mistakes and partial ommissions affect the documentation submitted by the tenderers. Functionally, the rules applicable to the interpretation of documents and the avoidance of formal requirements where the parties engaged in the procurement process 'can make sense' of the documentation exchanged should go both ways. However, this is not necessarily the case yet, as recently discussed regarding Cartiera dell’Adda and Cartiera di Cologno, C-42/13, EU:C:2014:2345 (see here).

 

Hence, it will be interesting to see if the incipient push towards a more functional approach to public procurement takes root and ends up creating a system that is less 'based on rights' and more oriented towards good procurement outcomes [a problem that also affects 'the other side of the Atlantic', as discussed in S Schooner & P Kovacs, "Affirmatively Inefficient Jurisprudence?: Confusing Contractors’ Rights to Raise Affirmative Defenses with Sovereign Immunity" (2012) 21 Federal Circuit Bar Journal 686].

Short procurement reflection

I am teaching an undergraduate module on EU Public Procurement Law as an option for the LLB students at Leicester. One of the activites I have designed consists in asking students to submit short (500-word) 'reflection papers' assessing streamlined cases. The objective of this activity is to make sure that they have a strong hold of the mechanics of the system and the basic elements that contracting authorities need to take into account when making procurement decisions.

 

The first exercise asked them to “Highlight the advantages and the legal risks of resorting to a competitive procedure with negotiation instead of an open procedure for the supply of medical supplies such as vaccines.” They submitted some interesting reflections and, on that basis and with my own views, I have prepared the following model answer to give them feedback. I thought it could be of interest, despite its simplicity, so I am posting it here for your consideration. Comments welcome!

 

Medical supplies are highly commoditised goods[1] and relatively easy to subject to strict technical specifications (art 42(3)(b) dir2014/24), particularly when EU standards exist and may limit the ability of the contracting authority to reject standardised and CE-marked products (Medipac-Kazantzidis, C-6/05, EU:C:2007:337). This is particularly clear in the case of vaccines, given the very stringent processes that regulate their commercialisation.[2] Their supply can consequently be procured through open procedures (art 27 dir2014/24) and, possibly, even focus on cost-efficiency only (art 67(2) dir2014/24).

However, such a procurement strategy is likely to trigger a significant number of offers, which can result in significant evaluation and administrative costs for the contracting authority (CA). Hence, resorting to other procedures (or framework agreements) could be in the CA’s interest if it can limit the costs linked to the administration of the procedure without sacrificing technical or commercial advantages derived from significant competition.

A competitive procedure with negotiation (art 29 dir2014/24) would be available in this case if the CA can justify that it meets one of the grounds for its use (art 26(4) dir2014/24), and probably if it can justify the need for negotiations prior to award (art 26(4)(iii)). However, resorting to this procedure can be risky if avoidance of other options (mainly, a restricted procedure, art 28 dir2014/24) is seen as a circumvention of the applicable rules. The use of negotiated procedures has been limited in the case law (Commission v Italy, 199/85, EU:C:1987:115) and the changes introduced by Directive 2014/24 create uncertainty regarding CA’s actual freedom to negotiate.[3] However, this risk can be minimised by shortlisting in a transparent manner (art 65 dir2014/24).

The second main risk derives from the negotiation capacity of the CA. If the CA is inexperienced in negotiations, it can incur in both commercial risks derived from its inability to obtain the best possible economic conditions, and legal risks derived from an improper or discriminatory development of the negotiations (art 29(5) dir2014/24). It could also create risks if it does not have solid management procedures for confidential information and business secrets (idem).

Hence, in order to reap the benefits derived from the lower cost of the competitive procedure with negotiations, the CA needs to have strong legal and commercial expertise. If it does, this is a procedure from which it can benefit. Otherwise, the CA will be better off with the open procedure.

---

[1] EY, Pulse of the industry: Differentiating differently, Medical technology report 2014, 5. http://www.ey.com/Publication/vwLUAssets/ey-pulse-of-the-industry-report/$FILE/ey-pulse-of-the-industry-report.pdf (Accessed: 21.11.2014).

[2] For background information, see http://www.vaccineseurope.eu/about-vaccines/eu-regulatory-framework-for-vaccines/ (Accessed: 21.11.2014).

[3] For discussion, see P Telles and L Butler, ‘Public Procurement Award Procedures in Directive 2014/24/EU’, in F Lichère, R Caranta and S Treumer (eds), Novelties in the 2014 Directive on Public Procurement, vol. 6 European Procurement Law Series, (Copenhagen, DJØF Publishing, 2014). http://ssrn.com/abstract=2443438 (Accessed: 21.11.2014).

"Monitor and the Competition and Markets Authority": My new paper on health care, procurement and competition in the UK

I have just uploaded my new piece "Monitor and the Competition and Markets Authority" as the University of Leicester School of Law Research Paper No. 14-32. The paper looks at the institutional design for the enforcement of competition and public procurement rules in the health care sector in the UK and criticises the concurrency regime developed in 2013. It is linked to my previous paper on the substantive aspects of the NHS Competition, Choice and Procurement Regulations 2013 (about to be published in the Public Procurement Law Review and available here).

I will be presenting this new paper at the EUI (Florence), at a workshop on Antitrust Law in Healthcare organised by Prof Giorgio Monti. Comments welcome!

Abstract 

As part of its enforcement duties under the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013, and in exercise of the powers assigned to it by the Health and Social Care Act 2012, the health care sector regulator for England (Monitor) is co-competent with the competition watchdog (Competition and Markets Authority) to enforce competition law in health care markets. Oddly, though, unlike other sector regulators, Monitor does not have a duty to promote competition but ‘simply’ to prevent anti-competitive behaviour. Monitor is also competent to carry out reviews and to decide bid disputes concerning procurement carried out by health care bodies, provided there is no formal challenge under the Public Contracts Regulations 2006.

This paper contends that such a concentration of regulatory, competition enforcement and procurement review powers puts Monitor in a unique situation of (potential) structural conflict of interest that can diminish significantly its ability to act as an effective (co-competent) competition authority. This paper focusses on this difficult structure for the enforcement of competition law in the health care sector in England, in particular due to the asymmetrical, sui generis concurrency regime created by the Enterprise and Regulatory Reform Act 2013 and the Concurrency Regulations 2014. As examples of such conflict of interest and its implications, the paper assesses Monitor’s incentives to bend the interpretation of both art.101(3) TFEU and the new special regime on procurement of social services (arts.72-77 dir 2014/24). The paper concludes that this situation requires regulatory reform to devolve powers to the Competition and Markets Authority.

A Sánchez Graells, 'Monitor and the Competition and Markets Authority' (November 20, 2014). University of Leicester School of Law Research Paper No. 14-32. Available at SSRN: http://ssrn.com/abstract=2528569.

CJEU confirms strict approach against acceptance of incomplete submissions in public procurement (C-42/13)

In its Judgment in Cartiera dell’Adda and Cartiera di Cologno, C-42/13, EU:C:2014:2345, the Court of Justice of the European Union (CJEU) has confirmed its strict approach against the acceptance of incomplete submissions in public procurement procedures, at least where the tender documentation imposes the (automatic, non-discretionary) rejection of non-compliant or non-fully compliant submissions. This Judgment is fully in line with its previous Judgment in Manova, C-336/12, EU:C:2013:647 and, consequently, Cartiera dell'Adda does not advance EU procurement law in a significant manner. However, given its brevity and the harshness of the solution adopted by the CJEU (at least if analysed in functional or practical terms), I think that the case deserves some further consideration.

 

In short, the CJEU has confirmed that the exclusion of a tenderer that omitted a declaration is acceptable under EU law, even if the declaration was not necessary or, in any case, the facts concerned by the declaration would not trigger exclusion. In an extreme reading, the case confirms the legality under EU procurement law of an absolute obligation to reject submissions that are 'merely' affected by strictly formal shortcomings [for discussion, see A Sanchez Graells, 'Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions', in M Comba & S Treumer (eds), Award of Contracts in EU Procurement, vol. 5 European Procurement Law Series (Copenhagen, DJØF, 2013) 289]. As mentioned, this is an area of very significant practical relevance and there is a need to properly understand the conditions under which such a stringent case law is being developed.

 

In that regard, it is important to highlight that, as the CJEU emphasises, the grounds for exclusion of tenderers expressly disclosed by the contracting authority in the tender documentation included situations where 

one of the documents and/or one of the sworn statements the purpose of which is to demonstrate that both the general and special requirements have been complied with is incomplete or irregular, except where any irregularity is of a purely formal nature and may be remedied but is not decisive for the assessment of the tender (C-42/13, para 10).

 

After juggling with the other (rather complicated) circumstances of the case, the CJEU clarifies the relevant legal dispute as a question of the

compatibility with European Union law of the fact that it is impossible for ... a tenderer, after submitting his bid, to remedy the fact that he failed to annex ... a statement to his bid [confirming that its technical director was not affected by mandatory exclusion grounds related to criinal records], whether by submitting such a statement to the contracting authority directly or by showing that the person concerned was identified as the technical director in error (C-42/13, para 40).

 

At this point, the CJEU reiterates its position in Manova, and stresses that "the contracting authority must comply strictly with the criteria which it has itself established, so that it is required to exclude from the contract an economic operator who has failed to provide a document or information which he was required to produce under the terms laid down in the contract documentation, on pain of exclusion" (para 42, emphasis added). The CJEU further reiterates that this strict requirement derives from the principles of equal treatment and transparency (paras 43-49).

 

It is also important to stress that the CJEU clearly indicates that "in so far as the contracting authority takes the view that that omission is not a purely formal irregularity, it cannot allow the tenderer subsequently to remedy the omission in any way after the expiry of the deadline for submitting bids" (para 45), which seems to create significant space for the flexibilisation of ommissions that can be remedied, particularly before the expiry of the deadline for submission of tenderers--but equally of omissions that can be reduced to purely formal irregularities.

 

More generally, in my view, the Manova - Cartiera dell'Adda line of case law offers some interesting opportunities for Member States and contracting authorities to avoid such impractical situations, provided they restrict themselves to the general rules under the new art 56(3)  of Directive 2014/24. This provision indeed stresses that

Where information or documentation to be submitted by economic operators is or appears to be incomplete or erroneous or where specific documents are missing, contracting authorities may, unless otherwise provided by the national law implementing this Directive [or excluded by themselves in the specific tender documents, as per Manova and Cartiera dell'Adda], request the economic operators concerned to submit, supplement, clarify or complete the relevant information or documentation within an appropriate time limit, provided that such requests are made in full compliance with the principles of equal treatment and transparency.

Consequently, any criticism against the Manova - Cartiera dell'Adda line of case law seems rather unjustified in view of the fact that the origin of any potential obligation to automatically and non-discretionally exclude non-compliant or incomplete submissions does not have an origin on the EU rules or their general principles (now in art 18(1) of dir 2014/24), but on excessively stringent domestic rules or, even worse, in the specific conditions imposed by the contracting authority in its own tender documentation. In the absence of those restrictions, EU law as interpreted in Manova - Cartiera dell'Adda does not constrain the proper exercise of administrative discretion in this area. Hence, contracting authorities (and Member States) will be clever not to put a noose around their own necks. In the end, the only thing the CJEU has done in Manova - Cartiera dell'Adda is to pull their legs...

My approach to public procurement and competition: A rebuttal to Prof Arrowsmith (2012) and Prof Kunzlik (2013)

I am at the latest stages of updating my monograph Public Procurement and the EU Competition Rules (Oxford, Hart), which 2nd edn will be published by Hart again in 2015. Preparing the revision of the book, and seeing that the 1st edn raised some criticism by very notable procurement scholars, I thought that it would be good to write an introduction that provides some context. The following is from this introduction and basically amounts to a rebuttal of the arguments developed by Professor Sue Arrowsmith and Professor Peter Kunzlik to my 1st edn, both of them published in the Cambridge Yearbook of European legal studies. Hopefully, this rebuttal will contribute to a transparent academic debate about public procurement--and it will persuade readers to look for the new edition as soon as it is available.  Needless to say, further comments from Arrowsmith or Kunzlik would be enriching.

 

* * *

 

From an academic perspective, it has been remarkable to see how the first edition of this book has sparked a rather intense, estimulating and fruitful debate between Professor Sue Arrowsmith, Professor Peter Kunzlik and myself about the ultimate goal of the EU public procurement rules. More specifically, we seem to hold very different views about the meaning of ‘competition’ and the ensuing economic efficiency, as well as their place in the EU procurement Directives. I think that the readers of this second edition will benefit from a short summary of this academic debate, since it fundamentally underpins the work in this book.

 

(1) Professor Sue Arrowsmith’s contention that the pro-competitive framework on which this book is based constitutes a stretched and distorted reading of the competition elements included in the EU public procurement Directives and their interpreting case law.

Professor Sue Arrowsmith criticises my competition-oriented approach in a section of her article ‘The Purpose of the EU Procurement Directives: Ends, Means and the Implications for National Regulatory Space for Commercial and Horizontal Procurement Policies’ [(2011-2012) 14 Cambridge Yearbook of European legal studies 1–47].

 

She argues for her own interpretation of the goal of the EU rules and tries to limit their scope in search for some ‘regulatory space’ for Member States. This is part of a larger endeavour of hers, likely to carry on in the written proceedings of her coming conference on “Rethinking ‘economic’ derogations and justifications under the EU’s free movement rules” within the Current Legal Problems 2014-15 series.  

 

In her 2012 paper, Professor Arrowsmith considered that my book espouses ‘a broad notion of competition as a tool for replicating the private sector market’ in the public procurement setting. She considers that such point of departure should be rejected, as it is a misunderstanding of the concept of competition embedded in the pre-2014 public procurement Directives, which she considers limited to ‘removing discrimination and barriers to entry into the competitive market, and implementation of the competitive procedures for transparency reasons’. She adopted a rather positivistic approach and stressed that ‘[i]t seems significant that while non-discrimination, transparency and equal treatment were written into the directives as general principles, [its] ‘competition’ provisions are confined to specific areas’. She eventually concluded that ‘a broad interpretation of the directives as being concerned with replicating market competition is incorrect. While apparently supported by some statements in the jurisprudence these are based on misunderstanding and such a broad interpretation, it is submitted, represents unwarranted judicial reorientation of the directives’ rules’ (all quotes from pages 25–34). My reaction to the line of criticism voiced by Professor Arrowsmith is as follows.

Firstly, I am not sure that my approach can be conceptualised as an attempt to make the directives ‘replicate market competition’. I would submit that it is rather an attempt to properly integrate them within an environment of market competition. Or, put differently, this is an attempt to avoid public procurement rules from distorting or restricting the competition that already takes place in the market, or from preventing the competition that would emerge but for the constraints imposed by the procurement rules. 

Secondly, as to the point that this approach is flawed and based on misunderstandings, taking exclusively into account the pre-2014 materials, I would suggest that Professor Arrowsmith’s views do not lie on the strongest economic foundations. Professor Arrowsmith basically comes to the view that EU public procurement rules are concerned with preventing barriers to trade within the internal market (by means of transparency and non-discrimination), but that this has nothing to do with economic efficiency derived from undistorted competition because the ultimate objective of the rules (beyond internal market integration per se) belongs to the domestic regulatory space of the Member States. However, economic efficiency must, by necessity, derive from the completion of the internal market if that results in stronger competitive pressures for economic operators.

 

Furthermore, as the Court of Justice of the EU has very recently stressed in an interpretation of the 2004 public procurement Directives, the ultimate objective of the internal market rules and the EU public procurement Directives is to allow all the economic operators involved to achieve economic efficiency derived from competition strategies unaffected by restrictive procurement decisions—in particular, even if that is attained by deriving a competitive advantage from the differences between the respective rates of pay applicable in different Member States (Judgment in Bundesdruckerei, C-549/13, EU:C:2014:2235, 34). It seems very clear that EU public procurement rules, just as everywhere else, are concerned with economic efficiency. Hence, limited doubt can seriously be cast on the fundamental proposition that the development of the internal market, including public procurement rules, and its supporting system of competition rules aim at generating economic efficiency by relying on (economic) market mechanisms.

Thirdly, and from a more legalistic perspective, the development of the EU public procurement rules in the revised 2014 Directives also disprove the point that the general principle of competition does not exist and that competition considerations are limited or confined to specific areas. As discussed at length in Chapter 5 of this second edition, article 18(1) of Directive 2014/24 now clearly consolidates the principle of competition amongst the general principles of the system. It is true that the wording of this provision could have been clearer and that there are significant interpretative questions that need being addressed, but it should be acknowledged that by clearly stating that ‘The design of the procurement shall not be made with the intention … of artificially narrowing competition [and that]competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators’, Directive 2014/24 stresses the relevance of competition considerations across the board and provides an interpretative tool that is likely to further develop the pro-competitive orientation of the system of EU public procurement rules in the coming years. In my view, this is a truly welcome development, and not only because it clearly supports the ideas and approach developed in the first edition of this book and now further refined in this second edition. As has always been my conviction, a competition-oriented public procurement system is necessary for the public sector to properly carry out their missions with the minimum distortion of private sector activities and, ultimately, with the minimum loss of social welfare. 

In the 2005 second edition of her magnificent treatise The Law of Public and Utilities Procurement, 2nd edn (London, Sweet and Maxwell, 2005) 432, Professor Arrowsmith had indicated that ‘competition might be developed as a general principle with the same status as transparency and equal treatment. The very broad conception of competition endorsed by the Advocate General [Stix-Hackl in case C-247/02 Sintesi] was criticised … it was suggested that the directives are merely concerned with removing restrictions on participation in competitions held in public markets. However, a general principle of competition could properly be developed to support this latter objective of removing restrictions on participation’. Consequently, even if back in 2005 she already stressed the same points she later emphasised in the 2012 paper regarding transparency and non-discrimination, she seemed to be open to a development such as the ‘creation’ of a principle of competition like the one now included in article 18(1) of Directive 2014/24.

 

However, when she now reads that article in 2014, she considers that it ‘appears to be simply a manifestation of the more general equal treatment principle, as designing any aspect of the procurement for this reason [ie, ‘unduly favouring or disadvantaging certain economic operators’] rather than based on the needs and preferences in the project would clearly infringe that principle’ (The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 631). Professor Arrowsmith has overlooked the first part of the clause of article 18(1) of Directive 2014/24, where contrary to what she concluded regarding the 2004 rules, it is at least clear that competition is ‘elevated’ to the same altar of the general principles of the EU public procurement system as equality, non-discrimination, transparency and proportionality.

Overall, there is very little left to support Professor Arrowsmith’s view that the pro-competitive approach advocated for in this book is based on misunderstanding. On the contrary, I would claim that the arguments presented in the first edition paved the way for a stronger recognition of the existence of the principle of competition embedded in the EU public procurement Directives, which has now culminated in its explicit consolidation in article 18(1) of Directive 2014/24. That being said, this second edition will provide the reader with arguments why this is a development that still requires further fine-tuning and optimisation. And this is an endeavour to which I plan to continue dedicating my academic efforts.

 

(2) Professor Peter Kunzlik’s argument that this book ‘as well as being a scholarly analysis within the neoliberal normative frame, is a manifesto for the neoliberalisation of public procurement regulation in the EU’ and is ‘the most systematic statement’ of the argument that ‘the dominating aim of the EU procurement directives is to advance competition in the sense of a competition doctrine intended only to achieve efficiency’.

The further debate with Professor Peter Kunzlik was equally refreshing. Indeed, he thought that Arrowsmith had fallen short from exhausting the criticism of the first edition of this book and further expanded it in his article ‘Neoliberalism and the European Public Procurement Regime’ [(2012-2013) 15 Cambridge yearbook of European legal studies 283, 312–56]. Interestingly, Kunzlik took a completely different approach and focussed his criticism on the ideology that he imputes to the book (and myself, by extension). I must say that I am not completely dissatisfied by the label of ‘neoliberal manifesto’ and that, as Kunzlik recognises, this is something I disclose rather openly in the book when I warn the reader that 'this is a ‘free-market type’ study of competition in the public procurement environment'. However, when it comes to the details of his criticism, I think that Kunzlik fails to provide a convincing argument for the following reasons.

Kunzlik starts off with a very lengthy discussion of Neoliberalism to set the tone for his criticism, and then goes on to acknowledge Arrowsmith’s position. Taking issue with both her and my positions, Kunzlik indicates that he aims to ‘offer a third approach to the relevance of competition and value for money in EU public procurement regulation’. He considers that ‘the concept of ‘competition’ to which the public procurement directives relate is not the ‘efficiency’ concept suggested by [Sanchez] Graells, but rather a ‘structure of competition’ concept that is concerned to protect the structure of the market and equality of competitive opportunity of traders in the interests of customers, competitors and ultimate consumers. It is a concept that in the public procurement context simply requires that the law must ensure equality of opportunity for potential tenderers and a structure of competition for public contracts that allows sufficient opportunities for EU-wide competition, thereby ensuring the integrity of the internal market—the very same objectives that are asserted by Arrowsmith’ (quotes from pages 327 and 335). Kunzlik was trying to square a circle between Arrowsmith’s and my position. However, beyond the dismissive way in which he uses the terms efficiency and neoliberalism, there are no such differences in the implications of his and my arguments. Indeed, I do not see any third view in his proposal.

I find it even harder to understand how his argument deviates from the ones presented in this book when he stresses that ‘the public procurement directives do have a competition objective. However, … the objective in question is not to achieve ‘efficiency’ in the sense contended by [Sanchez] Graells, but to ensure a structure of competition for public contracts to be opened up to EU-wide competition on the basis of equality of competitive opportunity’ (340). Tertium non datur. I struggle to understand how equality of competitive opportunity on an EU-wide level does not amount to (facilitating) economic efficiency. Consequently, I hope the reader will agree with me in that there is no ‘third view’ and that, once it is accepted (as he does) that the public procurement directives do have a competition objective, the argument is over—regardless of the ideological content one tries to give to it.

Overall, then, I think that the academic debate (as I understand it) strongly supports the approach taken in this book, where these and other criticisms are addressed in further detail. There is nothing left for me to say. It is now for you, dear reader, to decide.

CJEU keeps Lianakis interpretation relevant under Directive 2014/24 (C-641/13)

In its Judgment in Spain v Commission (financial support for cuenca hidrográfica del Júcar), C-641/13, EU:C:2014:2264 (not available in English), the Court of Justice of the EU has reiterated in very clear terms the currency of its Lianakis case law [C-532/06, EU:C:2008:40]. Indeed, in Spain v Commission (paras 33-41), the CJEU has clearly stressed that Lianakis (paras 30-32) and Commission v Greece [C-199/07, EU:C:2009:693, paras 55-56] prevent the past experience of the tenderer being used as an award criterion. Given the brevity and clarity of the reasoning of the CJEU, few doubts can remain as to the rather absolute character of the prohibition.

 

This should come as no suprise, as this was the majoritarian interpretation of the Lianakis Judgment [for a possibilistic interpretation seeking flexibility, though, see S Treumer, ‘The Distinction between Selection and Award Criteria in EC Public Procurement Law—A Rule without Exception’ (2009) 18 Public Procurement Law Review 103, and A Sanchez Graells, Public procurement and the EU competition rules (Oxford, Hart Publishing, 2011) 310-12]. Moreover, this was precisely one of the points in which the 2011 proposals for new EU public procurement Directives aimed to deviate (or fine-tune) the case law of the CJEU [for discussion, see M Orthmann, 'The experience of the Bidder as Award Criterion in EU Public Procurement Law' (2014) 1 Humboldt Forum Recht 1 ff].

 

With this in mind, it is worth stressing that Directive 2014/24 now (well, as soon as the Member States transpose it, which they must do by 18 April 2016) deviates from the standard reading of the Lianakis case law. Directive 2014/24 decouples the treatment of the general experience of the tenderer as a qualitative selection criterion [art 58(4), where Lianakis applies full-force] from the assessment of more limited and specific aspects of experience evaluation clearly linked to the subject-matter of the contract, which allow for the specific experience of staff assigned to performing the contract to be taken into consideration at award stage, 'where the quality of the staff assigned can have a significant impact on the level of performance of the contract' [art 67(2)(b), which restricts, specifies of modifies Lianakis].

 

The justification given by Directive 2014/24 for this change is that

Wherever the quality of the staff employed is relevant to the level of performance of the contract, contracting authorities should also be allowed to use as an award criterion the organisation, qualification and experience of the staff assigned to performing the contract in question, as this can affect the quality of contract performance and, as a result, the economic value of the tender. This might be the case, for example, in contracts for intellectual services such as consultancy or architectural services. Contracting authorities which make use of this possibility should ensure, by appropriate contractual means, that the staff assigned to contract performance effectively fulfil the specified quality standards and that such staff can only be replaced with the consent of the contracting authority which verifies that the replacement staff affords an equivalent level of quality [rec (94), emphasis added].

In my view, all of this indicates that the use of staff (specific) experience at award stage will need to be assessed under strict proportionality terms (particularly as the 'significance' of its impact on the level of performance of the contract is concerned), given that exceptions[art 67(2)(b)] to the general rules [art 58(4)] of Directive 2014/24 and the applicable interpretative case law need to be constructed strictly. Moreover, recourse to this sort of award criterion will still need to comply with general requirements and, in my view, avoid distortions of competition such as first comer advantages for incumbent contractors.

Competition lawyers, please, please, please be aware of public procurement rules: A comment on Bornico & Walden (2011)

I have just read L Bornico & I Walden, 'Ensuring Competition in the Clouds: The Role of Competition Law?' (2011) 12(2) ERA Forum 265-85 (part of the largest QMUL Cloud Legal Project) and have been, once more, surprised at the complete oversight of the public procurement rules that would have been relevant to the competition law analysis.

The paper engages in an exploratory analysis of the role of EU competition law could have in keeping the cloud computing industry competitive and, if possible at all, free from (potential) abuses of dominance by its main players. The paper has the good intuition to suggest that public procurement decisions by governments may play a key role in either the promotion of undistorted competition (if they opt for transparent standards based on interoperability) or, on the contrary, the creation of a very concentrated and potentially monopolistic market structure (if they unduly impose specific technological solutions). This is a very important point, and one that public procurement economists and commentators have been stressing for a long time.

However, when the paper moves on to suggest how to legally prevent and control those issues, it is completely oblivious to the existence of EU public procurement rules. Indeed, Bornico & Walden indicate that, where the contracting authority imposes a given (propietary) technological solution

... harmed competitors may challenge the choice of the public administration alleging that their specifications fit best the requirements ... or may challenge the behaviour of the firm whose specifications were chosen, but only if the firm can be considered dominant. More importantly competitors may challenge the choice of the public administration under Article 107 TFEU if the outcome of public procurement distorts competition.  The choice of formal specifications may soon be a source of disputes in the EU market, along the lines of the Google dispute in the US [by reference to  Google Inc. and Onix Networking Corporation v. The United States and Softchoice Corporation (United States Court of Federal Claims 2011)]; although it is too early to tell how technological choices made by public administrations will be dealt with by competition authorities in the EU. (p. 27, emphasis added).

There are three important points to stress here. Firstly, this is nothing new, but State aid litigation based on public procurement decisions is very limited, generally unsuccessful, and likely to be 'phagocytised' by 'pure' procurement litigation [for an extended discussion, see A Sanchez Graells, 'Enforcement of State Aid Rules for Services of General Economic Interest before Public Procurement Review Bodies and Courts' (2014) 10(1) Competition Law Review 3-34]. 

Secondly, aggrieved competitors would have a much better shot under the applicable rules on the design of technical specifications. Indeed, it has long been the position of the ECJ, now consolidated in the applicable Directives 2004/18 (and/or 2014/24, where transposed), that '[u]nless justified by the subject-matter of the contract, technical specifications shall not refer to a specific make or source, or a particular process, or to trade marks, patents, types or a specific origin or production with the effect of favouring or eliminating certain undertakings or certain products. Such reference shall be permitted on an exceptional basis, where a sufficiently precise and intelligible description of the subject-matter of the contract ... is not possible; such reference shall be accompanied by the words "or equivalent".' (emphasis added) [art 23(8) dir 2004/18, and now art 42(4) dir 2014/24; for discussion, see S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and UK, 3rd edn, vol. 1 (London, Sweet & Maxwell, 2014) 254-55 and 1068 ; and A Sanchez Graells, Public procurement and the EU competition rules (Oxford, Hart Publishing, 2011) 271-72]. Consequently, specific technological choices that excluded equivalent solutions would immediately be in breach of EU public procurement rules.

Thirdly, a breach of those rules gives aggrieved bidders and other interested economic operators a ground to challenge the procurement procedure before domestic courts or procurement complaints boards, under the provisions of Directives 89/665 and 92/13 (as amended by dir 2007/66). This is a much clearer litigation path and one that would yield much better results to disappointed bidders and competing (technological) firms.

Consequently, in this specific area, competition law is not the best tool to achieve pro-competitive results in the public procurement setting. Public procurement law is. So, competition lawyers, please familiarise yourselves with public procurement rules. In the end, they are two sides of the same coin [C Munro, ‘Competition Law and Public Procurement: Two Sides of the Same Coin?’ (2006) 15 Public Procurement Law Review 352; and A Sanchez Graells, 'Competition Law Against Public Restraints in the Public Procurement Field: Importing Competition Considerations into the EU Public Procurement Directives' (2010)].