What level of transparency for award/call-off decisions within framework agreements?

During several recent conversations with participants at the Global Revolution conference, and particularly with my colleague Dr Marta Andrecka and some members of the European Institutions, I have been asked repeatedly about my views on the level of transparency that should apply to award/call-off decisions within framework agreements. 

There is no doubt that full transparency is mandated regarding the conclusion of the framework agreement itself and, subject to my general concerns about excessive transparency (here), I agree that this is the existing legal situation. However, there is significant uncertainty and an ongoing practical debate regarding the level of 'intra-framework' transparency that the EU rules require (as well as the applicability of rules on award criteria to those decisions, but that is a topic for another day).

There is no rule that expressly covers this issue from the perspective of the individual rights of information of contractors/tenderers either under Article 55 of Directive 2014/24 or reg.55 of the Public Contracts Regulations 2015 (PCR2015), which only make reference to transparency/debriefing obligations related to the conclusion (or not) of the framework agreement itself, but not the subsequent awards/call-offs within the framework. This creates uncertainty as to the applicability of these (or analogous) rights to be informed in relation to intra-framework awards/call-offs [for in-depth 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) 1153 and ff, esp 1156-57, and 1347].

More generally, when it comes to transparency of the awards/call-offs within framework agreements, the general transparency rules are clearly limited in Art 50 Dir 2014/24, according to which "[i]n the case of framework agreements... contracting authorities shall not be bound to send a notice of the results of the procurement procedure for each contract based on that agreement. Member States may provide that contracting authorities shall group notices of the results of the procurement procedure for contracts based on the framework agreement on a quarterly basis. In that case, contracting authorities shall send the grouped notices within 30 days of the end of each quarter." 

As I criticised in relation to reg.50 PCR2015 [see here], the drafting of this clause may make it susceptible of being interpreted as fully discretionary for Member States, which could opt  (like the UK) for not imposing any sort of transparency obligation (quarterly, or otherwise) connected to the results of the procurement procedure for contracts based on the framework agreement. I argued that such an approach could be an infringement of EU law and, more specifically, the requirements of the principle of transparency in Art 18(1) Dir 2014/24.

To my surprise (I should have known, though), the uncertainty seems to be much more limited when it comes to the draft new procurement rules for the European Institutions under the foreseen 2016 Financial Regulation (proposal available here), which Art 113 [equivalent to Art 55 Dir 2014/24] expressly excludes almost all 'intra-framework' transparency when it comes to award/call-off decisions. According to that provision,

2. The contracting authority shall notify all candidates or tenderers whose requests to participate or tenders are rejected of the grounds on which the decision was taken, as well as the duration of the standstill period referred to in Article 118(2). For the award of specific contracts under a framework contract with reopening of competition, the contracting authority shall inform the tenderers of the result of the evaluation.

3. The contracting authority shall inform each tenderer who is not in a situation of exclusion, whose tender is compliant with the procurement documents and who makes a request in writing of any of the following: (a) the characteristics and relative advantages of the successful tender and the name of the tenderer to whom the contract is awarded, except in the case of a specific contract under a framework contract with reopening of competition; (emphasis added).

This comes to determine that there is no transparency obligation whatsoever for award/call-off decisions that do not follow a 'mini-competition' and, in even in the case of such reopening of competition, the transparency obligation is limited to the evaluation (likely of their own tender), but does not seem to cover other aspects of the award/call-off decision. 

The European Court of Auditors criticised this situation in its January 2015 Opinion on the draft revised Financial Regulation (available here) in the following terms: "The proposed wording of Article 113(2)(2) and (3)(a) would not require the contracting authority, in the case of specific contracts awarded under a framework contract with reopening of competition, to notify the contractors whose tenders have been rejected of the reasons for their rejection, the relative advantages of the successful tender and the name of the tenderer to whom the contract is awarded. This exception to the rules governing transparency and the obligation to state reasons cannot be justified" (para 37, emphasis added).

In my view, this is an indication that my previous assessment regarding the lack of compatibility with EU law of the total lack of transparency of intra-framework awards is not shared by the European Commission (unless that Institution is looking to impose stricter standards to Member States' procurement than to its own and that of the rest of European Institutions). It could also be that DG BUDGET has a more process-oriented (buyer) approach to procurement regulation than DG GROWTH, which would explain the difference in willingness to (self)impose transparency obligations. However, be it as it may, I still think that this is not a desirable regulatory option and I would like to see the proposal for a new Financial Regulation amended on this point.

I would not favour full transparency of intra-framework award decisions. However, I accept that contractors included in a framework agreement (and third parties) should be given information regarding the evolution of the intra-framework, at least of a 'historical' and overall nature, so that they can have a rough idea of how the implementation of the contract is being carried out. 

Moreover, there is no clear reason why frameworks would require being less transparent than dynamic purchasing systems (which are, in the end, open frameworks), particularly because the contracting authority is in a good position to identify any instances of intra-framework collusion in which the contractors could engage on the basis of the periodical reports they may get. 

Consequently, I would favour the creation of a system of delayed and grouped (quarterly) reporting of the intra-framework award/call-off decisions, along the lines of what Art 50(3) Dir 2014/24 and reg.50(5) PCR2015 establish for dynamic purchasing systems.

Modification of contracts during their term under Reg. 72 Public Contracts Regulations 2015

Reg. 72 of the Public Contracts Regulations 2015 (PCR2015) transposes the rules on modification of contracts during their term newly established by Article 72 of Directive 2014/24. I have some comments on the new regime from a competition perspective (below) and an observation concerning the wording of reg.72 PCR2015 from a transposition perspective. Pedro's shorter and possibly sharper remarks are here.

The transposition alters the structure of the provision and groups some limitations [reg.72(2) PCR2015] in a way that eliminates repetition and slightly simplifies it. Reg.72 does not transpose the possibility under Art 72(1)(d)(iii) Dir 2014/24 for contracting authorities to assume themselves the main contractor’s obligations towards its subcontractors, since this was not included in reg.71 PCR2015. This does not represent any infringement of the transposition obligations.

Differently, the only point where re.72 PCR2015 diverges from Art 72 Dir 2014/24 in a (seemingly) material way concerns the possibility to modify contracts under reg.72(1)(b) PCR2015 due to technical or economic issues, particularly concerning interchangeability and interoperability requirements. Art 72(1)(b) Dir 2014/24 allows for such modifications up to 50 % of the value of the original contract (per modification) where the following two cumulative conditions are met: "a change of contractor (i) cannot be made for economic or technical reasons such as requirements of interchangeability or interoperability with existing equipment, services or installations procured under the initial procurement; and (ii) would cause significant inconvenience or substantial duplication of costs for the contracting authority". Conversely, reg.72(1)(b) presents both conditions as alternative "a change of contractor (i) cannot be made for economic or technical reasons such as requirements of interchangeability or interoperability with existing equipment, services or installations procured under the initial procurement, or (ii) would cause significant inconvenience or substantial duplication of costs for the contracting authority".

This is an issue that Dr Totis Kotsonis discussed in Global Revolution VII last Tuesday (and went beyond this general overview). In my own view, the divergence is material because the second condition seems to impose a "threshold of significant inconvenience/duplication of cost" that gets lost if both conditions are not met simultaneously. In my view, this may potentially lead to an infringement of EU law and, consequently, contracting authorities will be well advised to make sure that they comply with both requirements in case they modify contracts under this heading.

More generally, from a competition perspective, my views are as follows [Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 426-429]. I have further thoughts on the extension of contracts (ie the modifications covered by reg.72(1)(c) and 72(5) PCR2015, but I save them for some other time.

Renegotiation of the Main Conditions of the Contract and its Modification 

Renegotiation of the contract during its implementation is another circumstance partially covered previously in the analysis of the closely related issue of negotiations immediately before or shortly after contract award. As a preliminary issue, it is necessary to distinguish between modifications of certain elements of the contract according to the rules included in the call for tenders and contractual conditions—such as, for instance, price adjustments according to the evolution of a given index over time, or the revision of deadlines for the execution of certain parts of the contract that depend on future events—and proper renegotiations of the terms of the contract in other cases.[1] 

While the former, which we could label ‘contractual adjustments’ or ‘contractual revisions’, are not strictly affected by the ban on negotiations (as they result from the direct implementation of contractual clauses and tender conditions set and disclosed from the beginning—which, logically, are not re-negotiated at this stage), the amendment of basic or substantial elements of the contract during its implementation raises significant concerns. In this regard, it is worth remembering that negotiation and amendments to the call for tenders and the tenders themselves are generally restricted, especially before the award of the contract. By the same token, renegotiation at later stages of contract implementation has to be approached from a restrictive perspective,[2] since it could be used to provide favourable treatment to the awardee and, in the end, generate significant distortions of competition.[3]

In this regard, it should be stressed that there can be a larger need for limited renegotiation as the implementation of the contract progresses (as compared to the same renegotiation right before or shortly after the award of the contract), as contractors and contracting authorities might be faced with unexpected situations that require an adjustment of the contract.[4] However, those renegotiations should normally refer to relatively secondary issues related to the subject-matter of the contract, and so the adjustment should not require a material amendment of the basic or fundamental elements of the contract (such as liability clauses, rules regarding transfer of risk, insurance or guarantee schemes, etc)—perhaps with the only exception of the scope, delay and price for the works, goods and services, provided they do not alter the essence of the contract, which should be analysed separately as instances of extension or award of additional works.

Therefore, in order to prevent potential discrimination and distortions of competition, the same rules applicable to (re)negotiations at earlier stages of the process should apply, so that changes in the basic, substantial or fundamental elements of the contract are prevented. In case the contracting authorities’ needs can no longer be satisfied without introducing such material amendments to the contractual relationship, it is submitted that the only option will then be to proceed to the termination of the current contract and the re-tendering of its subject-matter under new conditions adjusted to the present circumstances (subject to certain limits). This position has now been endorsed by recital (107) of Directive 2014/24, which clearly indicates that

It is necessary to clarify the conditions under which modifications to a contract during its performance require a new procurement procedure … A new procurement procedure is required in case of material changes to the initial contract, in particular to the scope and content of the mutual rights and obligations of the parties, including the distribution of intellectual property rights. Such changes demonstrate the parties’ intention to renegotiate essential terms or conditions of that contract. This is the case in particular if the amended conditions would have had an influence on the outcome of the procedure, had they been part of the initial procedure (emphasis added).

Indeed, these issues have now been regulated in Directive 2014/24, which includes a new article 72 on the modification of contracts during their term. Most of the novelties in the Directive 2014/24 are clearly aligned with the proposals outlined above.[5] 

First, article 72(1)(a) of Directive 2014/24 recognises the possibility to carry out modifications that have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses, such as price revision clauses, or options, and irrespective of their monetary value.[6] In order to prevent abuses in the use of this possibility, it requires that such clauses shall state the scope and nature of possible modifications or options as well as the conditions under which they may be used, and that they shall not provide for modifications or options that would alter the overall nature of the contract or the framework agreement.[7] 

Secondly, article 72(4) of Directive 2014/24 prevents modifications of contracts that render them materially different in character from the one initially concluded. Article 72(4) also provides a list of conditions that will trigger a modification being considered substantial,[8] which include the following situations: (a) the change of conditions that restricted competition in earlier phases (ie modifications that introduce conditions which, had they been part of the initial procurement procedure, would have allowed for the admission of other candidates than those initially selected or for the acceptance of a tender other than that originally accepted or would have attracted additional participants in the procurement procedure); (b) changes in the economic balance of the contract or the framework agreement in favour of the contractor in a manner which was not provided for in the initial contract or framework agreement; (c) modifications that considerably extend the scope of the contract or framework agreement; or (d) where a new contractor replaces the one to which the contracting authority had initially awarded the contract, except in cases excluded by article 72(1)(d).[9]

However, none of these situations is absolute and, in particular, Directive 2014/24 exempts some sorts of substantial modifications in view of their need or their limited effects. At this point, it is important to stress that, as mentioned, articles 72(1)(a) and 72(4)(a) of Directive 2014/24 exempt modifications of any value or relevance that are carried out in accordance with previously disclosed revision clauses or options, provided they are clear, precise and unequivocal—which, no doubt, will be the focus of significant litigation in the future.[10] In a similar vein, there is some room for modifications that affect the economic balance of the contract (art 72(4)(c)) and/or extend its scope (art 72(4)(d)) by means of additional work.

Equally, articles 72(1)(d) and and 72(4)(d) of Directive 2014/24 exempt certain unavoidable changes of contractor, which include three cases: (i) changes that derive from the application of an unequivocal review clause or option (which, probably, would not have needed this reiterative regulation); (ii) changes of contractor derived from the universal or partial succession into the position of the initial contractor, following corporate restructuring, including takeover, merger, acquisition or insolvency, provided that the economic operator taking over fulfils the criteria for qualitative selection initially established, and provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of the Directive; or (iii) in the event that the contracting authority itself assumes the main contractor’s obligations towards its subcontractors where this possibility is provided for under national legislation pursuant to Article 71. Of these three possibilities, and from a competition perspective, the only one that deserves careful consideration is the second one, given that it is the only one that changes the competitive dynamics in the market. In that regard, the application of the last anti-circumvention clause may be particularly relevant in controlling cases of fraudulent corporate restructurings.

Finally, article 72(5) of Directive 2014/24 is very clear in establishing that a new procurement procedure in accordance with its rules (ie, the termination of the existing contract and the consequent re-tendering of the substantially modified contract) will be necessary in all situations where the modification of the contract is substantial and does not derive either from clear, precise and unequivocal revision clauses, or from changes justified on grounds of necessity.

Globally, then, the new rules on the modification of contracts during their term fundamentally keep a pro-competitive orientation and set an appropriate framework that, if properly applied, should minimise competition distortions. However, the rules are not fully-compliant with the needs of a pro-competitive procurement system when it comes to the issue of contractual extensions and the award of additional works, which have received a particularly lenient treatment in Directive 2014/24, as discussed in the following sub-section.

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[1] For further details on modifications of certain (even basic) elements of the contract according to predefined rules clearly included in the call for tenders, see Case C-496/99 P Succhi di Frutta [2004] ECR I-3801 118; where the ECJ determined that, for the contracting authority to be able to amend some conditions of the invitation to tender after the successful tenderer has been selected, this possibility has to be expressly regulated in the tender documentation in a way that determines the framework applicable to this revision and guarantees that all tenderers are on equal footing when formulating their respective tenders.

[2] Arrowsmith et al (n 50) 488–503.

[3] Arrowsmith (n 293) 127 and 145.

[4] For discussion, see ME Comba, ‘Contract Execution in Europe: Different Legal Models with a Common Core’ (2013) European Procurement & Public Private Partnership Law Review 302.

[5] Which were already included in the first edition of this book, see Sanchez Graells (n 176) 345–46.

[6] See recital (111) dir 2014/24.

[7] See ST Poulsen, ‘The possibilities of amending a public contract without a new competitive tendering procedure under EU law’ (2012) 21 Public Procurement Law Review 167–87; K Hartlev and M Wahl Liljenbøl, ‘Changes to Existing Contracts under the EU Public Procurement Rules and the Drafting of Review Clauses to Avoid the Need for a New Tender’ (2013) 22 Public Procurement Law Review 51–73; and K Smith, ‘Contract adjustments and public procurement: an analysis of the law and its application’ (PPRG PhD Conference Paper, 2014), available at nottingham.ac.uk/pprg/documentsarchive/phdconference2014/smith.pdf.

[8] It has been stressed that the key criteria for the assessment of whether a change should be considered as substantial are in accordance with the ruling in Case C-454/06 Pressetext Nachrichtenagentur [2008] ECR I-4401. See Treumer ‘Contract changes and the duty to retender under the new EU public procurement Directive’ (2014) 149, who also stresses the differences in drafting between article 72(4) dir 2014/24 and Pressetext.

[9] See recital (110), which provides clarification regarding cases of justified and unjustified substitution of the contractor with or without a new procurement procedure.

[10] Similarly, Hartlev and Wahl Liljenbøl, ‘Drafting of Review Clauses to Avoid the Need for a New Tender’ (2013).

Subcontracting under Reg. 71 Public Contracts Regulations 2015

After some refreshing and thought-provoking discussions at the Global Revolution VII conference in Nottingham earlier this week [yes, we inadvertently showed up in the exact same attire... but presented different topics: Pedro's paper is here and mine is here], we now restart our procurement tennis. We have 52 regulations to go, so this will be an interesting summer and we hope that you will continue joining us in the debate. 

Pedro's serve on reg.71 is available here. He rightly questions whether contracting authorities have the right incentives to actually engage in significant supply chian monitoring beyond limited obligations for works and services carried out in their premises. I agree. I also think that contracting authorities should not extensively use subcontracting powers to either mandate or prevent subcontracting (see below).

Reg.71 of the Public Contracts Regulations 2015 transposes Art 71 of Directive 2014/24 concerning rules applicable to subcontracting. This is an area where the Commission introduced novelties to foster SMEs' (indirect) participation in procurement through streamlined subcontracting opportunities, as well as some rules strengthening the supply/value added chain monitoring possibilities for contracting authorities [see rec (105) dir 2014/24]. 

In that regard,  and without prejudice to the main contractor's liability vis-a-vis the contracting authority [reg.71(2) PCR2015; that is, without establishing a direct contractual relationship between the subcontractor(s) and the contracting authority], the latter may ask tenderers to indicate any share of the contract that they may intend to subcontract to third parties and any proposed subcontractors [reg.71(1)], and it shall do so where works and/or services are to be provided at a facility under the direct oversight of the contracting authority [reg.71(3) PCR2015]. Any changes in the subcontracting structure for the contract need to be notified to the contracting authority promptly [reg.71(4) PCR2015]. Contracting authorities can extend this obligation to certain contracts not carried out in facilities under the direct oversight of the contracting authority, as well to suppliers involved in works or services contracts, and they can go down the chain beyond the first subcontracting tier [reg.71(7) PCR2015].

This immediately places the contracting authority in a situation where it can monitor and influence the subcontracting activity related to a given contract. However, the transposition of Art 71 Dir 2014/24 in reg.71 PCR2015 has not maximised the subcontracting management possibilities foreseen in the EU rule.

Reg.71 PCR2015 does not include some of the optional mechanisms in Art 71 Dir 2014/24, such as the possibility to create mechanisms of direct payment to subcontractors as per Art 71(3) and (7) Dir 2014/24. However, there are specific rules in reg.113 of Part 4 PCR2015 requiring that 30 day payment terms are flowed down the public sector supply chain, which may mitigate the effects of such transposition option (as we will discuss in due course).

The new rules in reg.71 PCR2015 also try to mitigate the burden of controlling the supply chain that contracting authorities may otherwise face. It is interesting to note that Art 71(1) Dir 2014/24 stresses that "Observance of the obligations referred to in Article 18(2) by subcontractors is ensured through appropriate action by the competent national authorities acting within the scope of their responsibility and remit." Consequently, the duty for contracting authorities to monitor and ensure compliance with environmental, social and labour law by subcontractors is limited to the general principle of reg.56(2) PCR2015, which refers to the tender itself and seems to restrict the scope of monitoring obligations in a significant way. 

This is without prejudice of their discretion to check that subcontractors are not affected by exclusion grounds under reg.57 PCR2015 [see reg.71(8) PCR2015] and seems to fall short from the possibilities foreseen in Art 71 Dir 2014/24 (and, particularly, the lack of transposition of rules imposing joint liability between subcontractors and the main contractor for compliance with environmental, social and labour law (which is, however, not excluded and thus subjected to general contract and tort law principles).

In relation to the enforcement of exclusion grounds on subcontractors, reg. 71(9) PCR2015 determines that the contracting authority shall require that the economic operator replaces a subcontractor in respect of which the verification has shown that there are compulsory grounds for exclusion; and may require the economic operator to do so where there are non-compulsory grounds for exclusion.

Subcontracting and competition 

Beyond these supply/value added chain management issues, subcontracting can trigger competition-related concerns that, in my view, also deserve some thought. In that regard, this is what I have submitted in my Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 215) 353-355.

EU public procurement directives establish rules on subcontracting with the specific ‘secondary’ policy objective of encouraging the involvement of small and medium-sized undertakings in the public contracts procurement market (eg, recital (78) dir 2014/24). In this regard, article 71(2) of Directive 2014/24 establishes that contracting authorities may ask tenderers to indicate any share of the contract they may intend to subcontract to third parties and any proposed subcontractors—with the aim of providing transparency in the subcontracting chain (rec (105) dir 2014/24). It also makes it clear that subcontracting does not alter the principal economic operator’s liability (art 71(4) dir 2014/24) and, in any case, leaving Member States’ discretion to opt for more stringent liability rules under national law (art 71(7) dir 2014/24). 

The rest of article 71 introduces new rules on the control of subcontractors and their compliance with exclusion and qualitative selection criteria and, particularly, compliance with the environmental and social rules indicated in article 18(2) of Directive 2014/24 (art 71(6) dir 2014/24), as well as new rules on the required checks when subcontractors are to perform contractual obligations at a facility under the direct oversight of the contracting authority (art 71(5) dir 2014/24). It also introduces new rules concerning the direct payment to subcontractors by the contracting authority. Firstly, it facilitates the establishment of mechanisms of direct payment to subcontractors upon their request (art 71(3) dir 2014/24) and, secondly, it allows Member States to go further, for instance, by providing for direct payments to subcontractors without it being necessary for them to request such direct payment (art 71(7) dir 2014/24).  Therefore, the directive does not impose, but seems to favour, buying strategies aimed at inducing or mandating the subcontracting of significant parts of the tendered contracts.[1]

In this regard, it should be stressed that, although there is no express indication in the directive to that effect, the percentage of work to be subcontracted by tenderers could in principle be used as an award criterion in determining the most economically advantageous tender (ex art 67(2) dir 2014/24)—although doubts can be harboured as to the relevance of this criterion, particularly for its questionable link to the subject-matter of the contract (which should not be affected by direct execution or subcontracting of the works, as long as the undertaking entrusted with the activity meets the relevant suitability criteria), and for the difficulties in envisaging the economic advantage that can derive from different levels of subcontracting (for further details as regards the requirements applicable to award criteria).

Finally, it is also worth underlining that, according to the interpreting case law of the EU judicature—and largely in the opposite direction of the approach followed by Directive 2014/24 in article 71, but in line with what is established in article 63(2)[2]—contracting authorities can prohibit or restrict

the use of subcontracting for the performance of essential parts of the contract [more] precisely in the case where the contracting authority has not been in a position to verify the technical and economic capacities of the subcontractors when examining the tenders and selecting the lowest tenderer.[3]

Indeed, unchecked subcontracting could be used to circumvent the controls set up by the public procurement system, particularly as regards the evaluation of the professional, economic and technical standing of tenderers. Therefore, restrictions on subcontracting can be justified under certain circumstances.

In general, then, according to the rules of the EU public procurement directives and the relevant case law, contracting authorities enjoy substantial discretion to induce, mandate or prohibit (depending on the circumstances) the subcontracting of significant parts of the tendered contracts. However, as economic theory has shown and as experts have rightly warned, ‘measures to facilitate sub-contracting (or an explicit requirement to subcontract) may have undesirable competition effects because they could reduce participation and facilitate collusion’.[4] Consequently, it seems appropriate to undertake an assessment of these rules in the light of the principle of competition.

From an economic perspective, it is important to stress that it has been shown that subcontracting does not usually reallocate work in an efficient manner and provides the main contractor with the ability to extract rents from its subcontractors.[5] Consequently, contrary to the common wisdom encapsulated in recital (78) of Directive 2014/24 (and previously in recital (32) of Directive 2004/18),[6] induced or mandatory subcontracting is an inadequate instrument to ‘spread’ work or foster efficient SME participation in public procurement—or, at least, is inferior to alternative measures such as lot division.[7] Moreover, subcontracting amongst competitors can be an effective way to enforce collusive agreements,[8] or to impose restrictions of competition that could go beyond the indispensible limits to ensure the proper deployment of the subcontract.[9] Therefore, in general terms, there seems to be no good reason for contracting authorities to induce or mandate tenderers to subcontract any significant amount of the works, services or supplies involved in the tendered contract—particularly taking into account that the alternative (and less restrictive) mechanism of lot division is available to them in order to increase competition and foster participation, specially by SMEs.

In the light of the potential distortions of competition that can arise from subcontracting requirements, and as yet another instance of application of the competition principle embedded in the EU public procurement directives, it is submitted that contracting authorities should refrain from mandating or inducing subcontracting (in particular, by using the percentage of subcontracted work as an award criterion) if this could result in restrictions or distortions of competition—which is a highly probable situation. It could be argued that, in such scenario, a general prohibition of subcontracting could be preferable as the default rule—which could be waived where the subject matter of the contract or the industry structure so requires. However, this more restrictive rule would require the contracting authority to second-guess the subcontracting decisions of the market. Therefore, it is submitted that an obligation to abstain from requiring or mandating subcontracting is preferable to banning it altogether.

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[1] See: S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell,2014) 1325–28.

[2] Indeed, it should be taken into consideration that in the case of works contracts, service contracts and siting or installation operations in the context of a supply contract, contracting authorities may require that certain critical tasks be performed directly by the tenderer itself or by a participant in a group of economic operators as referred to in article 19(2) of Directive 2014/24, which seems to run contrary to the facilitation or mandate of subcontracting, at least under specific circumstances.

[3] Case C-314/01 ARGE [2004] ECR I-2549 45; and Opinion of AG Kokott in case C-454/06 Pressetext Nachrichtenagentur 56.

[4] OFT (n 13) 19 and 125–27. Along the same lines, OECD, Public Procurement: Role of Competition Authorities (2007) 9.

[5] Adams and Gray, Monopoly in America (1955) 104. For some empirical support in the same direction, see L Moretti and P Valbonesi, Subcontracting in Public Procurement: an empirical investigation (Department of Economics and Management, University of Padova, Working Paper No. 158, 2012) available at works.bepress.com/paola_valbonesi/24.

[6] See: Bovis (n 55) 68 and 116–17. In similar terms, Carpineti et al (n 214) 33.

[7] Grimm et al (n 386) 174 and 180; also V Grimm, ‘Sequential versus Bundle Auctions for Recurring Procurement’ (2007) 90 Journal of Economics 1, 2 and 18.

[8] See: OFT (n 13) 19 and 125–27; Carpineti et al (n 214) 34; and MJ Shockro, ‘An Antitrust Analysis of the Relationship between Primer Contractors and Their Subcontractors under a Government Contract’ (1982) 51 Antitrust Law Journal 725.

[9] See:  Trepte (n 23) 52–54.

Another interesting paper on corruption and (induced) collusion in public procurement (Gong & Zhou, 2015)

Still on the topic of interaction between corruption and collusion, or how corrupt officials can create or consolidate collusion in procurement markets, I have come across another interesting recent paper: T Gong & N Zhou, "Corruption and marketization: Formal and informal rules in Chinese public procurement" (2014) 9(1) Regulation & Governance 63-76. 

This time, the research focuses on the Chinese experience and shows shockingly (not) similar trends to the Russian case study mentioned yesterday. The paper forcefully argues that 'empirical findings from China indicate that the relationship between market liberalization and corruption is more complex and nuanced than conventional wisdom suggests'. 

Some of the most interesting insights refer to the collusion (in broad terms) of bidders and public officials to avoid the application of formal public procurement rules (72-73) which, once again, will sound very familiar to scholars and practitioners with experience in any jurisdiction.
 

Interesting paper on corruption and (induced) collusion in public procurement (Ostrovnaya & Podkolzina, 2015)

In their recent paper "Antitrust Enforcement in Public Procurement: the Case of Russia" (2015) 11(2) Journal of Competition Law & Economics 331-352, M Ostrovnaya and E Podkolzina of the International Laboratory for Institutional Analysis of Economic Reforms discuss an example of interaction between corruption and (apparent) collusion in public procurement for drugs in Russia. 

I found the paper an interesting read and some of their insights on how corrupt officials can create or consolidate collusion in procurement markets will certainly ring many bells. This was an issue we recently discussed extensively at a knowledge exchange event at the Law School of the University of Sussex, and one that seems to be triggering increased attention in academic and practitioner circles.

Ostrovnaya and Podkolzina's analysis clearly shows that antitrust intervention against the public sector's restrictive procurement practices was resisted by a specific public buyer, which most likely decided to resort to an orchestrated system of bid covers (or passive bidding, as they label it) to avoid further antitrust intervention--thus deviating the attention of the antitrust watchdog towards the behaviour of the (certainly non-innocent) bidders. 

Their case study will be a useful guideline for the development of more effective competition rules applicable to the public sector. Or, at least, a warning against naive assumptions that antitrust intervention can ipso facto exclude issues of (induced) collusion in procurement markets.

CJEU implicitly rejects GC's views on subjective assessment of two-part State aid measures under Art 107(1) TFEU (C-15/14)

In its Judgment in Commission v MOL, C-15/14, EU:C:2015:362, the CJEU upheld the previous Judgment of the GC where the selectivity of two-part State aid measures was assessed with very generous deference towards the State's exercise of regulatory powers (which I criticised here). 

 

The CJEU assessed the criticism by the Commission of the GC's position (T-499/10, paras 64 and 65) that the presence of a selective advantage cannot be deduced from the mere fact that the operator is left better off than other operators when the Member State concerned justifiably confined itself to exercising its regulatory power following a change on the market. 

 

Remarkably, the Commission took issue with the fact that the General Court linked "the assessment of the selective nature of the ... agreement, and therefore the measure at issue, to whether or not the Member State concerned had the intention, at the time of concluding that agreement, of protecting one or more operators from the application of a new fee regime" (C-15/14, para 85, emphasis added). As the CJEU stresses

According to the Commission, the General Court thus disregarded the settled case-law of the Court of Justice to the effect that Article 107(1) TFEU defines State interventions on the basis of their effects, and independently of the techniques used by the Member States to implement their interventions (see, inter alia, judgments in Belgium v Commission, C‑56/93, EU:C:1996:64, paragraph 79; Belgium v Commission, C‑75/97, EU:C:1999:311, paragraph 25; British Aggregates v Commission, C‑487/06 P, EU:C:2008:757, paragraph 89; and Commission v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraphs 91, 92 and 98) (C-15/14, para 86).

I had also criticised the GC for the inclusion of the element of "intention" in its previous Judgment. However, I also expressed doubts as to the CJEU's willingness to side by the GC. In my view back then,

If Article 107(1) TFEU is meant to avoid distortions of competition in the internal market, when confronted with sequential, two-part or complex aid measures, the fact that they all formed part of a 'master plan' from the outset or are the 'random or supervening' result of discrete interventions should be irrelevant. Otherwise, the burden of proving 'distortive intent' from the outset may simply make it impossible to pursue these cases. However, it may well be that the remarks made by the GC in para 67 of MOL v Commission will remain a 'mere' obiter dictum and that the assessment of two-part or complex measures will remain much more objective in the future.

Consequently, I was hoping that the CJEU would quash this part of the Judgment in T-499/10. However, the CJEU rejected the argument of the Commission and determined that the GC's argumentation in paras 64 to 67 and 82 of the Judgment in T-499/10 was not vitiated by any error of law. I disagree with the CJEU's arguments to support the GC's position, which deserve close scrutiny (below). However, given that the CJEU has managed to uphold the GC's reasoning and at the same time stress that two-part or complex State aid measures must be assessed without any reference to the "intention" of the Member State, I agree with the outcome of the case.

 

According to the CJEU,

92 ... the General Court stated, in paragraph 67 of the judgment under appeal, that [under] the case-law of the Court of Justice, ... for the purposes of Article 107(1) TFEU, a single aid measure may consist of combined elements on condition that, having regard to their chronology, their purpose and the circumstances of the undertaking at the time of their intervention, they are so closely linked to each other that they are inseparable from one another (judgment in Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others, C‑399/10 P and C‑401/10 P, EU:C:2013:175, paragraphs 103 and 104 and the case-law cited).

93 In that context, the General Court emphasised, in paragraph 67 of the judgment under appeal, that a combination of elements such as that relied upon by the Commission in the decision at issue may be categorised as State aid when the State acts in such a way as to protect one or more operators already present on the market, by concluding with them an agreement granting them fee rates guaranteed for the entire duration of that agreement, while having the intention at that time of subsequently exercising its regulatory power, by increasing the fee rate so that other market operators are placed at a disadvantage, be they operators already present on the market on the date on which that agreement was concluded or new operators.

94 It was in the light of those considerations that the General Court, in paragraph 68 of the judgment under appeal, decided that it was necessary to examine whether, in those proceedings, the Commission was entitled to consider that the contested measure was selective.

95 It follows from the foregoing that, as MOL contends, paragraphs 64 to 67 of the judgment under appeal do not, as such, concern the examination of the selectivity of the 2005 agreement, but are preliminary explanations aimed at introducing the relevant framework in relation to which the General Court examined whether the Commission was correct in finding that the measure at issue was selective (sic).

96 As the Advocate General stated in points 107 and 114 of his Opinion, by those preliminary explanations, the General Court in fact sought to deal with the issue of the links existing between the 2005 agreement and the 2008 amendment, which the Commission had not specifically addressed in the decision at issue, and more particularly, to underline the fact that, given that there is no chronological and/or functional link between those two elements, they cannot be interpreted as constituting a single aid measure.

97 By those preliminary explanations, the General Court merely applied the case-law laid down by the Court of Justice in the judgment in Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others (C‑399/10 P and C‑401/10 P, EU:C:2013:175), to which the General Court also expressly referred in paragraph 67 of the judgment under appeal, and according to which, since State interventions take various forms and have to be assessed in relation to their effects, it cannot be excluded that several consecutive measures of State intervention must, for the purposes of Article 107(1) TFEU, be regarded as a single intervention. That could be the case, in particular when consecutive interventions, having regard to their chronology, their purpose and the circumstances of the undertaking at the time of those interventions, are so closely related to each other that they are inseparable from one another (C-15/14, paras 92 to 97, emphasis added).

I find the reasoning of the CJEU very poor. By artificially breaking up paragraph 67 of the GC's Judgment in paras 92 and 93 of its own Judgment, the CJEU attempts to limit the requirement of the element of "intention" to some mysterious "preliminary explanations" excluded from the selectivity assessment, and this is very unsatisfactory and unconvincing.

In my view, the CJEU should have plain and simply said that the GC would have been wrong to include an element of "intention" in the test applicable to two-part or complex State aid measures, which assessment needs to be carried out in view of objective factors such as 'their chronology, their purpose and the circumstances of the undertaking at the time of their intervention, [or whether] they are so closely linked to each other that they are inseparable from one another' as per Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others.

Allowing the GC to save face by limiting its erroneous interpretation of that case law in para 67 of T-499/10, or failing to stress the fact that it was an unfortunate expression made obiter dictum (if they wanted to remain deferential) pays lip service to legal certainty. In my view, the CJEU could have decided otherwise because the element of "intention" is actually not assessed at any point of the GC's Judgment and the CJEU was ready to accept the selectivity analysis carried out by the GC. Consequently, there was no need for the strange and convoluted analysis in paras 92 to 97 of the Judgment in C-15/14. 

Be it as it may, the silver lining is in the fact that the CJEU has clearly rejected that the test it progressively laid down for the analysis of two-part or complex State aid measures encompasses any subjective element of "intention" on the part of the granting Member State. Consequently, the analysis of the selectivity of measures closely connected will continue to have to be carried out on the basis of purely objective factors, such as 'their chronology, their purpose and the circumstances of the undertaking at the time of their intervention, [or whether] they are so closely linked to each other that they are inseparable from one another. All is well that ends well.

Public procurement podcast series now launched

Dr Pedro Telles (Swansea University) has now launched the Public Procurement Podcast (PPP), a series of 20 podcasts where he will be interviewing early career researchers in public procurement over the course of the next 12 months. As he puts it, the PPP (funny acronym, talking about procurement) 'is a new and different way of disseminating knowledge related with public procurement. The PPP aims to provide a platform for Early Career Academics to talk about key topics of their research in a way and tone approachable to lay people'.

The PPP is part of a wider project kindly sponsored by the British Academy Rising Star Engagement Awards which will include an Early Career Academic Day during the next Procurement Week conference to be held in March 2016.

Overall, his project aims to give some voice and space to the "new blood" in public procurement and is bound to be a major contribution to the dissemination of very interesting research in the field. The website he has put together looks really good.

His only questionable decision in this project was to invite me for the first podcast, although I am flattered to be considered "young blood". Now seriously, I am really honored to participate in the PPP project and happy with the result of the interview, which is now available here. I think I managed to bomb the end of the recording, though... Listen for yourselves!

Conditions for performance of contracts under Reg. 70 Public Contracts Regulations 2015 [and pause]

Reg. 70 of the Public Contracts Regulations 2015 (PCR2015) transposes the rules of Article 70 of Directive 2014/24 on conditions for the performance of contracts, or contract performance clauses, whereby contracting authorities may lay down special conditions relating to the performance of a contract, provided that they are linked to the subject-matter of the contract within the meaning of reg.67(5) PCR2015 / art 67(3) Dir 2014/24, and indicated in the call for competition or in the procurement documents. It also clarifies that those conditions may include economic, innovation-related, environmental, social or employment-related considerations.

I am not a fan of such contract compliance clauses because they are an easy way of imposing restrictions on participation of economic agents by including forward-looking criteria that would require significant monitoring after contract award. My argument is as follows:

An (admittedly controversial) way in which competition could be distorted and equal treatment not guaranteed would be by means of the introduction of requirements that are not possible to validate at tender evaluation stage by the contracting authority, independent certifying companies or other tenderers—or, in the event of a review of the contracting decision, by the review board or authority. Such requirements would be largely related to ‘contract compliance’ conditions or ‘conditions for performance of contracts’ and to commitments by tenderers to accept the contractual obligation to develop a certain activity or to comply with certain forward-looking requirements. This is in principle openly accepted in the modernised rules (see reg.70 PCR2015 and art 70 dir 2014/24). However, it is important to stress that the CJEU has recently quashed the use of this provision for purposes such as the establishment of mínimum wage requirements, given that it would prevent economic operators from exploiting their competitive (cost) advantages, which in my opinion comes to restrict very significantly the virtuality of this provision. In that regard, see Case C-549/13 Bundesdruckerei [2014] pub. electr. EU:C:2014:2235.].

In these cases, competition could be rather easily distorted by strategic tenderers offering to comply with those additional requirements ex ante—thereby formally complying with the award criterion—and breaching the contractual covenant ex post—being then subject to penalties or other contractual remedies, which are largely irrelevant for analytical purposes [in similar terms, harbouring doubts about the legality of forward-looking award criteria, see Racca, Cavallo Perin & Albano, ‘Competition in the Execution Phase of Public Procurement’ (2011) 41(1) Public Contract Law Journal 89].

Ensuring that the award of contracts according to this type of award criteria— particularly if they are given significant weight by the contracting authority—does not result in discrimination or a distortion of competition through the strategic behaviour of tenderers (and, eventually, of contracting authorities) would require a significant amount of monitoring and surveillance after the award of the contract—which is costly and difficult to conduct by any agent other than the parties to the contract. In such circumstances, the room for discrimination and distortions of competition is widened and, consequently, the possibilities for the exercise of unlimited discretion and for the generation of discriminatory and anti-competitive outcomes might be unduly increased. 

In this regard, unless very relevant circumstances make the adoption or weighting of such criteria essential or difficult to avoid in relation to the subject-matter of the contract, contracting authorities are bound not to adopt, or to give marginal weight to, award criteria of a forward-looking nature that are not possible to verify or validate at tender evaluation stage (or, more generally, before contract implementation) [on the ban against using award criteria that are not possible to verify, see Case C-448/01 EVN and Wienstrom [2003] ECR I-14527 52. However, cf. with the situation in Case C-19/00 SIAC Construction [2001] ECR I-7725.].

[Pause] I pause for now because this daily commentary is much less fun since Pedro had to take a break. The added value of discussing each other's views is difficult to create with a 4-5 day lag.

Hence, I will resume commenting the provisions of the PCR2015 once Pedro has had time to catch up, which will probably be from Monday 15 June. In the meantime, why not listen to our interview in his first podcast in the PPP series? Click here.

Postscript:  Pedro has now caught up, and his views are here.

Abnormally low tenders under Reg. 69 Public Contracts Regulations 2015

Reg.69 of the Public Contracts Regulations 2015 (PCR 2015) transposes the rules of Article 69 of Directive 2014/24 regarding the treatment of abnormally low tenders. Pedro's views are here.

The treatment of abnormally low tenders is configured as a mechanism that allows contracting authorities to depart from the automatic or ‘acritical’ application of award criteria in cases where, for a given contract, tenders appear to be abnormally low in relation to the goods, works or services concerned [reg.69(1) PCR2015]. In these cases, contracting authorities are entitled to reject tenders that, in relation to any of the relevant parameters and award criteria (ie, not only price, at least where the award criterion is that of the most economically advantageous offer; see Case T-495/04 Belfass [2008] ECR II-781 100), appear to be abnormally low.

To do so, contracting authorities should, before rejecting those tenders, request in writing details of the constituent elements of the tender which are considered relevant for the appraisal or verification of its apparent anomaly, such as: the economics of the manufacturing process, of the services provided or of the construction method; technical solutions chosen or exceptionally favourable conditions available to the tenderer for the supply of the products or services or for the execution of the work; originality of the work, supplies or services proposed by the tenderer; compliance with the environmental, labour and social obligations referred to in reg.56(2); compliance with the subcontracting obligations established in reg.71 and the possibility of the tenderer obtaining State aid [reg.69(2) PCR2015]. I will not touch upon the issue of abnormally low tenders tainted with State aid [for that, 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].

The list in reg.69)2) PCR2015 ‘is not exhaustive, [but] it is also not purely indicative, and therefore does not leave contracting authorities free to determine which are the relevant factors to be taken into consideration before rejecting a tender which appears to be abnormally low’ [see Case C-292/07 Commission v Belgium [2009] I-59 159; and Case C-599/10 Slovensko [2011] ECR I-10873 30].

In view of the evidence supplied by the tenderer upon consultation, the contracting authority shall verify those constituent elements and reach a final decision on whether to reject the apparently abnormally low tender or not [reg.69(3) PCR2015; for a discussion of the standard applicable to the justification of this decision, particularly in the context of a challenge to that decision, see Case T-638/11 European Dynamics Belgium and Others v EMA [2013] pub. electr. EU:T:2013:530.]. 

In that regard, the new rules under Directive 2014/24 establish a limited discretionality for the contracting authority. As a matter of guidance, recital (103) indicates that ‘[w]here the tenderer cannot provide a sufficient explanation, the contracting authority should be entitled to reject the tender’. Generally, a contracting authority may only reject the tender where the evidence supplied does not satisfactorily account for the low level of price or costs proposed [reg.69(4) PCR2015]. However, the contracting authority shall reject the tender where it has established that the tender is abnormally low because it does not comply with applicable obligations referred to in reg.56(2) [reg.69(5) PCR2015, in yet another instance of the use of procurement as a lever to enforce compliance with those rules]. In the case of rejection of the abnormally low tender, the contracting authority is under a special duty to provide reasons for that decision [art 84(1)(c) dir 2014/24].

It has been stressed by EU case law that this is ‘a fundamental requirement in the field of public procurement, which obliges a contracting authority to verify, after due hearing of the parties and having regard to its constituent elements, every tender appearing to be abnormally low before rejecting it’ [Case T-495/04 Belfass [2008] ECR II-781 98. Similarly, Joined Cases C-285/99 and C-286/99 Lombardini and Mantovani [2001] ECR I-9233 51]. Indeed, as the CJEU has clearly emphasised, this is a positive and unavoidable requirement, and ‘Article 55 of Directive 2004/18 [now art 69 dir 2014/24] does preclude … a contracting authority from claiming … that it is not obliged to request a tenderer to clarify an abnormally low price’ [Case C-599/10 Slovensko [2011] ECR I-10873 34]. 

To be sure, other than in the case of violations of the obligations established in reg.56(2) PCR2015, contracting authorities are not expressly obliged to reject abnormally low tenders—their duty is just to identify suspect tenders and scrutinise them following the inter partes procedure established in the directives, whereby ‘the contracting authority must set out clearly the request sent to the tenderers concerned so that they are in a position fully and effectively to show that their tenders are genuine’ [Case C-599/10 Slovensko [2011] ECR I-10873 31]. In this regard, the CJEU has been clear in stressing that the contracting authority is

under a duty, first, to identify suspect tenders, secondly to allow the undertakings concerned to demonstrate their genuineness by asking them to provide the details which it considers appropriate, thirdly to assess the merits of the explanations provided by the persons concerned, and, fourthly, to take a decision as to whether to admit or reject those tenders [Joined Cases C-285/99 and C-286/99 Lombardini and Mantovani [2001] ECR I-9233 55].

Hence, the rules of the directive exclusively impose procedural guarantees to be complied with by contracting authorities prior to rejecting apparently abnormally low tenders, and, consequently, seem to be mainly oriented towards providing affected tenderers with the opportunity to demonstrate that their tenders are genuine—ie, are primarily a mechanism to prevent discretionary (or arbitrary) decisions by contracting authorities. In this regard, contracting authorities are obliged to take into account the explanations and proof provided by the affected tenderers and, consequently, cannot apply automatic or simple mathematic rules to reject apparently abnormal tenders—although the use of such rules to identify suspicious tenders should not be ruled out.

As stressed by the case law, the directives do not provide a definition of ‘abnormally low tenders’, or a method to calculate an ‘anomaly threshold’—which are issues consequently left to Member States’ domestic regulation, and should be determined for each contract according to the specific purpose it is intended to fulfill (ie, it must be tender-specific). Therefore, the rules of the directives seem to be adequately conceived as a check or balance to the general power of contracting authorities to reject abnormally low tenders—which is an instance of exercise of their broad discretion with regard to the factors to be taken into account for the purpose of deciding to award a contract, or not to award it to a given tenderer.

The justification for this empowerment of contracting authorities to reject abnormally low tenders seems to be that they should not be forced to award the contract under circumstances where there is a reasonable risk of non-performance of the contract or of financial instability or disequilibrium, or a risk of breach of applicable legislation by the contractor during the execution of the contract under the tendered conditions (particularly as regards labour and risk prevention legislation, which have now been transformed into mandatory rejection grounds for abnormally low tenders); since such an award would hardly satisfy the needs of the contracting authorities and/or would force them to assume certain risks that they might not be willing to accept. The appraisal of such risks must be undertaken by contracting authorities from a neutral or objective perspective and be sufficiently motivated [by analogy with reg.69(4) PCR2015]. 

To be sure, contracting authorities cannot exercise unlimited discretion in the assessment and eventual rejection of abnormally low tenders and their decisions should be guided by and be compliant with the general principles of the procurement directives and the TFEU—notably, non-discrimination and competition. In this regard, it should be remembered that the treatment of abnormally low tenders by contracting authorities might generate competition distortions and/or have a negative impact on innovation and, consequently, its analysis also merits further consideration.

This is an area where Dr Grith Skovgaard Ølykke made a significant contribution with her PhD [Abnormally Low Tenders—with an Emphasis on Public Tenderers (Copenhagen, DJØF, 2010)] and where she continues to research very actively. For her views on the novelties regarding abnormally low tenders in Dir 2014/24, see this video of last year's Procurement Week.

(c) ICPS Bangor

My own views on the novelties and the interpretation of Art 69 Dir 2014/24, which apply without changes to reg.69 PCR2015, are further developed in Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 400-410, as well as in 'Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions', M Comba & S Treumer (eds) Award of Contracts in EU Procurements, vol. 5 European Procurement Law Series (Copenhagen, DJØF, 2013) 267-302.

Life-cycle costing under Reg. 68 Public Contracts Regulations 2015

Reg.68 of the Public Contracts Regulations 2015 (PCR2015) introduces new rules on life-cycle costing and transposes Article 68 of Directive 2014/24. This is an area of heated debate. See Pedro's views and the stream of comments in his blog.

It is interesting to stress the rationale given in recital (96) Dir 2014/24 for the adoption of life-cycle costing, which presents it as a particular methodology linked to the award of contracts under either the most cost effective (MCE) or the best price-quality ratio (BPQR) criterion in any cases where price is not the only consideration. 

It should be taken into account that Dir 2014/24 allows Member States to prohibit or restrict the use of price only or cost only to assess the most economically advantageous tender (MEAT), where they deem this appropriate 'to encourage a greater quality orientation of public procurement' (rec (90) and art 67(2) in fine dir 2014/24). The PCR2015, however, have not included such a restriction and, consequently, contracting authorities in England and Wales can still opt for price-only award where they consider it a workable award criterion.

Generally, though, Dir 2014/24 is clear in stressing that 'except where it is assessed on the basis of price only, contracting authorities can determine the most economically advantageous tender and the lowest cost using a life-cycle costing approach ... [which] includes all costs over the life cycle of works, supplies or services.' This is reflected in reg.67(2) PCR2015, according to which the MEAT 'shall be identified on the basis of the price or cost, using a cost-effectiveness approach, such as life-cycle costing'.

That general approach is fleshed out in reg.68(1) PCR2015, according to which contracting authorities can take into consideration the prices offered by tenderers and other costs included in the applicable life cycle costing methodology, if any, which would include both (a) costs borne by the contracting authority or other users such as costs relating to acquisition, costs of use, such as consumption of energy and other resources, maintenance costs, or end of life costs, such as collection and recycling costs; and (b) costs imputed to environmental externalities linked to the product, service or works during its life cycle. However, these externalities can only be taken into account if their monetary value can be determined and verified [reg.68(1)(b) PCR2015]. 

Such externality-related costs may include the cost of emissions of greenhouse gases and of other pollutant emissions and other climate change mitigation costs [reg.68(2) PCR2015; for discussion, see D Dragos and B Neamtu, ‘Sustainable Public Procurement: Life-Cycle Costing in the New EU Directive Proposal’ (2013) European Procurement & Public Private Partnership Law Review 19–30. See also O Perera, B Morton and T Perfrement, Life Cycle Costing in Sustainable Public Procurement: A Question of Value (IISD Paper, 2009)].

Reg.68 PCR2015 then goes on to specify that the methods used for assessing costs imputed to environmental externalities should be established in advance in an objective and non-discriminatory manner and be accessible to all interested parties. Such methods can be established at national, regional or local level, but they should, to avoid distortions of competition through tailor-made methodologies, remain general in the sense that they should not be set up specifically for a particular public procurement procedure [see rec (96) Dir 2014/24]. In the specific terms of reg.68(3)(a) PCR2015, the methods must be 'based on objectively verifiable and non-discriminatory criteria and, in particular, where [they have] not been established for repeated or continuous application, [they] shall not unduly favour or disadvantage certain economic operators'.

Common methodologies should be developed at Union level for the calculation of life-cycle costs for specific categories of supplies or services. Where such common methodologies are developed, their use should be made compulsory [reg.68(5) PCR2015]. However, it is worth stressing that, to date, the only methodology developed at EU level affects vehicles (see Directive 2009/33/EC of the European Parliament and of the Council and additional information here).

Rec (96) Dir 2014/24 goes beyond reg.68 PCR2015 (and art 68 dir 2014/24) and expresses a political desideratum that, furthermore, the feasibility of establishing a common methodology on social life cycle costing should be examined, taking into account existing methodologies such as the Guidelines for Social Life Cycle Assessment of Products adopted within the framework of the United Nations Environment Programme.

What to make of this? Or, actually, what not to make of this...

In my view, the treatment of life-cycle costing must be distinguished in two parts. A relatively feasible part (which is desirable and should be promoted) and a science-fiction part (which is loaded with space for political and strategic behaviour and should be avoided). 

The relatively feasible part concerns the costs actually borne by the contracting authority or third parties and is limited to the costs comprised by reg.68(1)(a) PCR2015, that is, costs relating to acquisition, costs of use, such as consumption of energy and other resources, maintenance costs, and end of life costs, such as collection and recycling costs. 

This is life-cycle costing strictly speaking and it should be possible to develop costing models that are sufficiently simple and easy to apply so as to comply with the requirement of reg.68(3)(c) PCR2015--for some reason, not directly applicable to this specific bit of life-cycle costing (but an obvious implicit requirement in operative terms)--that 'the data required [must be susceptible of being] provided with reasonable effort by normally diligent economic operators, including economic operators from third countries'.

In contrast, the science-fiction part concerns the imputation of environmental externalities, given that they refer to costs not actually (directly) borne by any specific economic agent [or reversely, indirectly borne by us all, in the textbook example of the tragedy of the commons; see G Hardin, 'The Tragedy of the Commons' (1968) 162(3859) Science 1243-1248]. If read in its straightforward literal meaning, the provisions related to the calculation of costs covered by reg.68(1)(b) are dis-applied by the final caveat that 'costs imputed to environmental externalities linked to the product, service or works during its life cycle [can be taken into account] provided their monetary value can be determined and verified.'

As things stand today, and regardless of the well-intended promotion of studies and research in the environmental economics field, it is actually impossible to determine the monetary value of those externalities to any degree of predictability that could be operationalised in a well-functioning legal rule. 

Any non-market based model is bound to be based on an enormous and vastly complicated set of assumptions that make its verification (as in reality check) impossible [see M Sagoff, 'The rise and fall of ecological economics. A cautionary tale' (2012) 2 Breakthrough Journal 45-58; and I Røpke, The emergence and current challenges of ecological economics (Inagural lecture, University of Aarhus)]. Environmental economists are confronted with a very notable set of difficulties when trying to price or monetize very significant elements of their models [for discussion, see the brief account of difficulties presented by SL Conner & MR Hyman, 'Adjusting prices for externalities' (2012) Readings and Cases in Sustainability Marketing: A Strategic Approach to Social Responsibility 1-25]. Consequently, the difficulties faced by this branch of economics makes it at least premature (if not reckless) to import their models and apply them in practice. Not to mention the complexity of using those models, which would in any case make it disproportionate for most contracting authorities to engage in this sort of complicated exercise for their regular purchases.

Equally, any market-based model is bound to fail  [for thought-provoking discussion, see P Bond, ‘Climate’s value, prices and crises. Geopolitical limits to financialization’s ecological fix’ (2015) Leverhulme Centre for the Study of Value Working Paper Series No. 9], not least due to the lack of actual political will of the Member States to create a properly working European market for greenhouse emission rights trading, despite the repeated efforts of the European Union [as warned by even kind approaches to an assessment of its effectiveness; see T Laing, M Sato, M Grubb & C Comberti, ‘Assessing the effectiveness of the EU Emissions Trading Scheme’ (2013) Centre for Climate Change Economics and Policy Working Paper No. 126]. The hands-off approach adopted by the CJEU and its reluctance to twist the Member States' arms in this area definitely doesn't help.

Consequently, in my opinion, contracting authorities will be well advised to use only the life-cycle costing provisions related to costs actually borne by specific economic agents (either themselves or third parties) under reg.68(1)(a) PCR2015, and to leave overly-complicated and technically unsolved issues with the pricing of environmental externalities aside, regardless of the legally enabling nature of reg.68(1)(b) and (2) PCR2015.

New SSRN short paper on Art 18(1) Dir 2014/24 and other competition and procurement issues

I have been invited by the e-Competitions Bulletin to write the third edition of my foreword to their special issue on public procurement. I have uploaded the draft on SSRN and the paper is now downloadable as A Sanchez Graells, 'Public Procurement: A 2015 Updated Overview of EU and National Case Law' (June 1, 2015), available at http://ssrn.com/abstract=2613076.

Contract award criteria under Reg. 67 Public Contracts Regulations 2015

Reg.67 of the Public Contracts Regulations 2015 (PCR2015) transposes Art 67 of Directive 2014/24 regarding the rules applicable to the selection and application of award criteria. Pedro has contributed some sharp critical remarks here.

The 2014 EU rules (and now the PCR2015) introduce some significant changes on this crucial issue and, primarily, aim to erode the traditional distinction between selection and award criteria derived from Lianakis, which is now 'adjusted' to allow for the consideration of the experience of specific members of staff as an award criterion [reg.67(3)(b) PCR2015]. 

They also aim at furthering the flexibility given by the CJEU in the Dutch coffee case, and therefore allowing for the use of 'invisible' factors as award criteria even where those factors do not form part of the material substance of the works, supplies or services covered by the contract, provided that they are involved in either (a) the specific process of production, provision or trading of those works, supplies or services, or (b) a specific process for another stage of their life cycle [reg.67(5) PCR2015]. 

Nonetheless, or precisely as an important check to that increased flexibility, the new rules keep the classical pro-competitive requirement whereby award criteria 'shall ensure the possibility of effective competition' [reg.67(7)(a) PCR2015]. This needs to be connected to the general principle of competition in reg.18(2) PCR2015, and it is not hard to foresee that a significant number of cases where infringement of the general principle is raised will be concerned with issues with award criteria and/or their interpretation and application.

I think that Art 67 Dir 2014/24 deserves quite extensive analysis and I have covered most of the issues I can identify in that provision in my Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 378-391. They are too lengthy to repeat them here. Hence, I will only discuss the two main changes that Art 67 has brought about. I hope that, despite being limited, the comments will be interesting.

The sticky issue of separation between selection and award criteria

The interpretative case law has been clear in restricting the use of certain types of criteria for the determination of the offer with the best price-quality ratio (and, ultimately, of the most economically advantageous offer)—which, although relevant in general terms, are not tender-specific criteria. In the first place, as already mentioned, criteria of economic and financial standing and of technical capability, and criteria that concern the tenderers’ suitability to perform the contract in general terms do not have the status of award criteria—but must be considered qualitative selection criteria under the rules of the directives. As stressed by the EU judicature, ‘“award criteria” do not include criteria that are not aimed at identifying the tender which is economically the most advantageous, but are instead essentially linked to the evaluation of the tenderers’ ability to perform the contract in question’ [Case C-532/06 Lianakis [2008] ECR I-251 30].

Therefore, ‘a contracting authority is precluded … from taking into account as “award criteria” rather than as “qualitative selection criteria” the tenderers’ experience, manpower and equipment, or their ability to perform the contract by the anticipated deadline’ [ibid, 32; 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]. Hence, with no doubts, the case law of the CJEU prior to the entry into effect of the 2014 rules prevents contracting authorities from using the past experience of the tenderer as an award criterion [S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 749-61].

However, it must be stressed that this has been the object of a significant reform in Directive 2014/24, given the specific introduction of a modified experience criterion that, according to article 67(2)(b), allows contraction authorities to determine the BPQR offer partially on the basis of the ‘experience of staff assigned to performing the contract, where the quality of the staff assigned can have a significant impact on the level of performance of the contract’. In that way, Directive 2014/24 decouples the treatment of the general experience of the tenderer as a qualitative selection criterion [art 58(4), where the CJEU case law 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) dir 2014/24, which restricts, specifies or modifies the CJEU position]. 

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 fulfill 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 avoid distortions of competition such as first comer advantages for incumbent contractors.

Indeed, it must be stressed that admissible award criteria must in any case be tender-specific, or relate to the tender as such, not to the general qualities of the tenderer that have already (or should have) been analysed by the contracting authority in previous phases of the procedure. The EU judicature has been crystal clear in emphasising this limitation, by stressing that

it is settled case law that the quality of tenders must be evaluated on the basis of the tenders themselves and not on that of the experience acquired by the tenderers with the contracting authority in connection with previous contracts or on the basis of the selection criteria (such as the technical standing of candidates) which were checked at the stage of selecting applications and which cannot be taken into account again for the purpose of comparing the tenders [Case T-148/04 TQ3 Travel Solutions [2005] ECR II-2627 86. See also Case 31/87 Beentjes [1988] ECR 4635 15; and Case T-169/00 Esedra [2002] ECR II-609 158.].

Consequently, the award criteria must be relevant from a tender-specific standpoint.

Restrictions Derived from Award Criteria that Result in de facto Exclusion of Tenders or the Advantage of Some Tenders over Others

Even if rules on qualitative selection and non-discrimination requirements are formally complied with in a given tender, the adoption of certain award criteria could generate the same results as an infringement of those rules. That could be the case if the award criteria or their weighting favoured tenders submitted by certain operators on the basis of conditions that could not have been used for the purposes of the qualitative selection of candidates or that automatically exclude de facto a significant number of tenders (or even restrict the number of compliant tenders to one). 

For instance, they could do so by requiring the implementation of quality management systems for the purposes of the specific contract that would have proven excessive or irrelevant for the purposes of assessing the general suitability of the tenderer [however, this has been accepted as a proportionate requirement by the GC in Kieffer Omnitec v Commission, T-288/11, EU:T:2013:228; for criticism, see here]; or that exclude certain operators because they focus on requirements whose implementation would be impossible for tenderers that did not comply with these or other requirements beforehand, or whose partial implementation would not be economically viable with regard exclusively to the specific contract. 

These sort of requirements are now potentially covered by article 67(2) of Directive 2014/24, given that it allows contracting authorities to include award criteria that do not relate ‘to an intrinsic characteristic of a product, that is to say something which forms part of the material substance thereof’ and, consequently, can focus on factors involved in the specific process of production, provision or trading or a specific process for another stage of their life cycle, ‘even where such factors do not form part of their material substance’ In these instances, it is still important to highlight that the adoption of such award criteria could generate significant distortions or restrictions of competition—without, it must be admitted, generating a substantial potential for discrimination and, currently, with an apparent legal coverage under article 67(2) of Directive 2014/24. 

Therefore, in view of the requirements of the principle of competition, such a strategy should be significantly restricted and contracting authorities should guarantee that the award criteria and their weighting ensure equality of opportunity of all tenderers and, consequently, should not focus on or advantage compliance with criteria not restricted to the tender itself—ie, criteria that undertakings would be in a position to comply with or not depending on previous or general conditions unrelated (or not specifically related) to the subject-matter of the contract. 

For instance, if certifying compliance with a given quality standard for the product required the previous certification of the general operations of the undertaking as being compliant with a more general quality control system, and the tender documents did not require tenderers to be certified under that standard—then, giving better evaluations to certified than to non-certified products would generate a distortion of competition by de facto excluding or reducing the chances of award to non-certified undertakings (which would not be in a position to get the products certified only for the purposes of the tender). Therefore, by indirectly advantaging or requiring compliance with a condition not imposed at the qualitative selection stage, which refers to more general conditions unrelated to the specific contract, the contracting authority would be distorting competition in a way that should be declared to run contrary to the directives. 

Drawing the line between, on the one hand, justified award criteria related to production processes or elements related to other stages in the life cycle of the products or services and, on the other hand, excessive and unjustified requirements that de facto advantage certain competitors over others will be difficult. In my view, it should be conducted on the basis of a strict proportionality requirement aimed at preventing unjustified distortions of competition. 

These issues were recently analysed (in general terms) by the CJEU in relation to requirements concerning corporate social responsibility policies and, more specifically, with a focus on requirements of compliance with ‘criteria of sustainability of purchases and socially responsible business’. These are requirements that clearly affect tenderers as a whole and are remotely related to the specific scope of the contract (where contracting authorities can, however, avail themselves from the use of social labels) [Commission v Netherlands, C-368/10, EU:C:2012:284 98-112]. In that regard, and in line with what is here submitted, it is important to stress that the CJEU rejected the possibility to consider such requirements as the establishment of minimum levels of professional or technical ability and emphasised that such type of considerations are incompatible with the rules of the procurement Directives when they are unrelated or go beyond the subject matter of the contract [ibid, 106-108]. 

Consequently, in order to avoid distortions of competition (and regardless of the creation of discriminatory situations), contracting authorities must refrain from setting such type of requirements as either selection or award criteria that result in de facto exclusion of tenders or the advantage of some tenders over others. In my opinion, the reasoning of the CJEU regarding those requirements at qualitative selection phase are transferable mutatis mutandis to their introduction as award criteria under article 67(2) of Directive 2014/24. Otherwise, the use of this new provision would further erode and damage the distinction between selection and award criteria, which the CJEU has recently emphasised and which, consequently, should be respected in the detailed application of the rules concerning award criteria [Spain v Commission, C-641/13 P, EU:C:2014:2264].

Reduction of candidates, tenders and solutions under Regs. 65 and 66 Public Contracts Regulations 2015

Reg. 65 of the Public Contracts Regulations 2015 (PCR2015) transposes Article 65 of Directive 2014/24 on the rules applicable to the reduction of the number of otherwise qualified candidates to be invited to participate. Reg.66 PCR transposes art 66 Dir 2014/24 on the rules on reduction of the number of tenders and solutions. This is an area where the new rules fundamentally provide for continuity of the previous system.

Indeed, the content of Article 44(3) Directive 2004/18 has been moved to Art 65 of Dir 2014/24 and the content of Art 44(4) Dir 2004/18 has been moved to Article 66 of Dir 2014/24. There are no changes in these rules, other than some minor drafting changes and an update of the cross-references to other parts of the Directive.

Grosso modo, the rules continue to allow for contracting authorities to limit the number of candidates that they will invite to tender or to negotiate in procedures other than open (and negotiated without prior publication). In that case, they have to establish the minimum (and maximum) number of candidates they intend to invite (at least five in the restricted procedure and three in the competitive procedure with negotiation, in the competitive dialogue procedure and in the innovation partnership).

Contracting entities must ‘indicate, in the contract notice or in the invitation to confirm interest, the objective and non-discriminatory criteria or rules they intend to apply’ to short-list candidates [reg.65(2) PCR2015 and art 65(2) dir 2014/24]. Once the short-listing is completed, they must invite a number of candidates at least equal to the minimum number and where the number of candidates meeting the selection criteria and the minimum levels of ability is below that minimum, they may continue the procedure by inviting the candidates with the required capabilities but ‘the contracting authority shall not include economic operators that did not request to participate, or candidates that do not have the required capabilities’ [reg.65(8) PCR2015 and art 65(2) in fine dir 2014/24].

Similar rules apply to the reduction of the tenders to be negotiated or the solutions to discussed but, at any rate, in the final stage, the number arrived at shall make for genuine competition insofar as there are enough solutions, qualified candidates or tenderers [reg.66(2)PCR2015 and art 66 dir 2014/24].

By sticking to the same rules, the PCR2015 and Dir 2014/24 do not resolve the problems that, in my opinion, a strict interpretation of these rules may generate (such as short-listing that only leaves one tenderer out) [for discussion, see A Sanchez Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 312-315]. Pedro shares some similar concerns.

Recognition of official lists of approved economic operators and certification by certification bodies under Reg. 64 Public Contracts Regulations 2015

Reg.64 of the Public Contracts Regulations 2015 (PCR2015) transposes Article 64 of Directive 2014/24 regarding the rules applicable to the recognition of official lists of approved economic operators and certification by certification bodies for the purposes of qualitative selection. The UK (England and Wales) has decided not to create its own official list or certification system [reg.64(10) PCR2015] and, consequently, the rules only apply to the recognition in the UK of inscription in official lists or certification obtained in other Member States. In my view, the transposition is correct. Pedro has some interesting additional insights.

The following remarks are based on my Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015)323-325, and focus on the text of the Directive. However, they are equally applicable to reg. 64 PCR2015. 

Official Lists of Contractors and Certification Systems. The same logic and criteria applied in the analysis of the rules relating to the qualitative selection of candidates and bidders are of relevance in the analysis of the rules regulating the establishment of official lists of contractors, suppliers or service providers,[1] or of systems of certification by public or private bodies complying with European certification standards within the meaning of Annex VII of Dir 2014/24.[2] 

Such registers[3] and certification systems are aimed at reducing administrative costs and at simplifying the documentation requirements involved in tender procedures,[4] allowing undertakings (or groups of undertakings) to register or get certified for a given period of time, and thereby comply with the formalities regarding professional, economic, financial, quality and environmental standing in all tenders developed during that period of time simply by producing proof of registration or certification (art 64(3) dir 2014/24).[5] They also provide partial or limited proof of suitability to contracting authorities of other Member States by the registered or certified contractors of the Member State holding the official list (art 64(4), 64(5) and 64(6)), and particularly ‘certified registration on official lists by the competent bodies or a certificate issued by the certification body shall constitute a presumption of suitability with regard to requirements for qualitative selection encompassed by the official list or certificate’, thereby partially carrying on this reduction of the administrative burden to the participation in cross-border tender procedures.

These systems can create significant competition problems, particularly depending on the domestic rules applicable by Member States as concerns the authorisation for private certification entities to operate in the market, or the tariffs and prices applicable to certification services, which can raise significant barriers of access to the procurement market. However, these are issues not covered by Dir 2014/24 and, consequently, are dealt with under the applicable competition rules.[6]

In order to guarantee the functionality of these registration and certification systems, Dir 2014/24 establishes certain additional rules—such as a prohibition of revision of information which can be deduced from the ensuing certificates by contracting authorities without justification (art 64(5)), the obligation to run the systems in a non-discriminatory manner (art 64(6)), the non-mandatory character of such systems for operators of other Member States, or the recognition of equivalent certificates and alternative means of proof (art 64(7) dir 2014/24). It also creates some additional mechanisms for the exchange of information between Member States in order to further reduce the administrative burden (art 64(8) dir 2014/24).

From a substantive point of view, it is worth noting that the requirements available to Member States in the design of such registration and certification systems are guided by the general rules and criteria regarding qualitative selection of candidates (art 64(2) dir 2014/24). This is a logical requirement, since these systems should be conceived as instances of (indirect) qualitative selection of bidders with potential effects over a large number of tenders. Indeed, as directed by article 64(2) of Dir 2014/24, Member States shall adapt the conditions for registration on these lists and for the issue of certificates by certification bodies to the relevant provisions regulating qualitative selection criteria, including the specific rules applicable to groups of undertakings. 

Therefore, in general terms, the same pro-competitive requirements already discussed apply here. Notwithstanding this general idea, registers of approved contractors and certification systems present an additional feature that seems to merit detailed analysis: the establishment of the categories or types of contracts, as well as the quantitative thresholds for which registration or certification is available. In this regard, it should be noted that nothing in Dir 2014/24 expressly regulates the categories and thresholds applicable to certification and registration procedures. Establishing excessively narrow or excessively broad categories for registration or certification might generate distortions of competition between registered and non-registered (or certified and non-certified) tenderers, as well as competition amongst tenderers included in each of these groups.

In this regard, it is submitted that an objective, transparent and competition-neutral way to organise the registration and certification systems is to adopt the classifications and descriptions contained in the Common Procurement Vocabulary (CPV)[7]—which, in my opinion, are binding on Member States for these purposes (art 4 in fine Commission Regulation 213/2008). In this regard, certification and registration for each activity and for each product should be available separately, without affecting the possibility of obtaining joint registration or certification for multiple activities and/or products by a single undertaking or group of undertakings. 

Also, the economic thresholds set for certification or registration—that is, the value of the contracts for which certification or registration is obtainable should not be set at excessively high levels—thereby limiting the competitive ability of undertakings in the high range of each of the categories. On the contrary, if possible, the system should allow for ‘continuous’ certification or registration—ie, for a continuous sliding scale of values, perhaps grouped at small intervals—so that each undertaking can get certified or registered to tender for contracts with a value up to whichever amount is proportionate to its particular economic and financial standing, without the need to meet specific minimum thresholds.[8]

In any case, it should be emphasised that the establishment of these registration and certification systems should not prevent unregistered or uncertified operators from proving that they meet the applicable professional, technical, economic, financial, quality and environmental requirements by means other than the relevant certificates—so that lack of registration or certification shall not per se determine the exclusion of interested undertakings from a given tender procedure.[9] Put otherwise, registration or certification cannot be used as a mandatory selection requirement by contracting authorities. This is specifically regulated with relation to economic operators from other Member States, who cannot be obliged to undergo such registration or certification in order to participate in a public contract (art 64(7) dir 2014/24). 

As regards domestic economic operators, it is submitted that the anti-formalist logic applicable to the system of qualitative selection, as well as the mandates of the principle of competition and the principle of equality and non-discrimination, prevent contracting authorities from excluding domestic contractors due to the sole fact that they are not registered or certified for a given category of contracts.[10] In this regard, official lists of contractors and certification systems should be seen as an instrument aimed at easing and fostering participation in tender procedures, but cannot constitute barriers or impediments to access such procedures. Therefore, contracting authorities should be obliged to adopt a possibilistic approach and accept proof of compliance with the relevant professional, technical, economic, financial, quality and environmental requirements by means other than certification or registration (analogically, as regards the obligation to accept proof by means other than certification of compliance with quality and environmental standards, see arts 60 and 62 dir 2014/24).

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[1] The practice of developing and keeping bidders’ mailing lists has long been used in some Member States. For a review of the use of the same technique in the US, see RE Lieblich, ‘Bidder Pre-Qualification: Theory in Search of Practice’ (1972) 5 Public Contract Law Journal 32; P Shnitzer, Government Contract Bidding, 3rd edn (Washington, Longman–Federal Publications, 1987) 4–9; and KM Jackson, ‘Prequalification and Qualification: Discouragement of New Competitors’ (1989–1990) 19 Public Contract Law Journal 702.

[2] See: S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 1311–20;  PA Trepte, Public Procurement in the EU: A Practitioner’s Guide, 2nd edn (Oxford, Oxford University Press, 2007) 358–63; and C Bovis, EC Public Procurement: Case Law and Regulation (Oxford, Oxford University Press, 2006) 136–37, 170–71 and 231–32.

[3] For related discussion, see W Kostka, ‘Vendors' list for procurement following expressions of interest - a critical analysis of a new procurement mechanism for the EU institutions’ (2014) 23 Public Procurement Law Review 219–28.

[4] See: S Arrowsmith, ‘Framework Purchasing and Qualification Lists under the European Procurement Directives’ (part 1) (1999) 8 Public Procurement Law Review 115, 116.

[5] However, given the functional and anti-formalistic interpretation of the ECJ regarding the possibility to rely on the capacity of other entities, particularly in Case C-94/12 Swm Costruzioni 2 and Mannocchi Luigino [2013] pub. electr. EU:C:2013:646 35 and 36, the actual effectiveness of these systems and their continued existence can be queried. Indeed, it can be argued that certification systems should only cover ‘works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator’ as, otherwise, the whole certification system is completely superficial if the contracting authority must (as indeed it shall) accept any ‘jigsaw’ of (partial) certifications presented by a group of undertakings (or by an incapable main contractor that enters into subcontract agreements) in order to prove that they have sufficient (aggregate) economic, technical and financial standing.

[6] For a recent case where the CJEU rubber stamped the Italian minimum tariffs for certification in public procurement, subject to proportionality, see Case C-327/12 Soa Nazionale Costruttori [2013] pub. electr. EU:C:2013:827.

[7] Commission Regulation (EC) No 213/2008 of 28 November 2007 amending Regulation (EC) No 2195/2002 of the European Parliament and of the Council on the common procurement vocabulary (CPV) and Directives 2004/17/EC and 2004/18/EC of the European Parliament and of the Council on public procurement procedures, as regards the revision of the CPV (Regulation 213/2008) [2008] OJ L74/1.

[8] The only minimum threshold that could be relevant would be the setting of the threshold that triggers the application of the EU public procurement directives. However, if Member States opt for the development of a certification or registration system, they might as well also adopt it for procurement activities not covered by the directives (ie, procurement below thresholds) and, consequently, then, there would be no clear justification for the setting of minimum economic thresholds—other than, arguably, considerations related to the administrative costs of running the certification or registration system which, in this case, should be proportionate to the minimum thresholds set.

[9] Generally, on certain types of mandatory qualification lists and the undesirability of their restrictive effects—although based on the previous utilities directive—see S Arrowsmith, ‘Framework Purchasing and Qualification Lists under the European Procurement Directives’ (part 2) (1999) 8 Public Procurement Law Review 161, 171–80 and 185–86.

[10] Although based in the previous EU directives, see Arrowsmith, Framework Purchasing and Qualification Lists (part 2) (1999) 175–76, who found support for this argument in Case C-87/94 Commission v Belgium [1996] ECR I-2043 51–56, where the ECJ determined that ‘the principle of equality underlying the directive applies as much to domestic as to foreign firms’.

Reliance on the capacities of other entities under Reg. 63 Public Contracts Regulations 2015

Reg.63 of the Public Contracts Regulations 2015 (PCR2015) determines the requirements applicable to economic agents willing to rely on the capacities of other entities in order to participate in tenders for public contracts, and transposes the equivalent rules under Article 63 of Directive 2014/24. See Pedro's complementary comments here.

Reliance on the capacities of other entities is an issue recently discussed by the CJEU in Swm Costruzioni 2 and Mannocchi Luigino (C-94/12, EU:C:2013:646, see discussion here), where the CJEU clearly stressed that the EU regime 'permits the combining of the capacities of more than one economic operator for the purpose of satisfying the minimum capacity requirements set by the contracting authority, provided that the candidate or tenderer relying on the capacities of one or more other entities proves to that authority that it will actually have at its disposal the resources of those entities necessary for the execution of the contract' (para 33). 

This resonates with reg.63(1) PCR2015, according to which an economic operator may, where appropriate and for a particular contract, rely on the economic and financial standing and technical and professional ability of other entities, regardless of the legal nature of the links which it has with them. Consequently, this facilitative approach needs to inform the interpretation of reg.63 PCR2015 / Art 63 Dir 2014/24.

The following are comments relating to Art 63 Dir 2014/24, but they apply equally to reg.63 PCR2015. A fuller version is available at: A Sanchez Graells, 'Exclusion, Qualitative Selection and Short-listing', in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129. 

Article 63 of Dir 2014/24 maintains the functional approach in Directive 2004/18 and consolidates the rules on reliance on the capacities of other entities scattered in Arts 47(2), 47(3), 48(3) and 48(4) of that Directive. It continues to make it clear that, as long as it is appropriate for a particular contract, any economic operator can ‘rely on the capacities of other entities, regardless of the legal nature of the links which it has with them’ to which aim it ‘it shall prove to the contracting authority that it will have at its disposal the resources necessary, for example, by producing a commitment by those entities to that effect’. Equally and under the same conditions, ‘a group of economic operators […] may rely on the capacities of participants in the group or of other entities’[1]. However, the new Directive goes beyond these general rules and imposes more specific (and restrictive) criteria concerning reliance on other operators for certain requirements.

Firstly, with regard to criteria relating to the educational and professional qualifications or to the relevant professional experience, economic operators may only rely on the capacities of other entities where the latter will perform the works or services for which these capacities are required. 

Secondly, the contracting authority shall verify whether the other entities on whose capacity the economic operator intends to rely fulfill the relevant selection criteria or whether there are grounds for their exclusion. Consequently, an entity which does not meet a relevant selection criterion, or in respect of which there are grounds for exclusion, may be excluded (ie may not be relied upon). In the precise terms of Art 63(1) Dir 2014/24 ‘[t]he contracting authority shall require that the economic operator replaces an entity which does not meet a relevant selection criterion, or in respect of which there are compulsory grounds for exclusion. The contracting authority may require or may be required by the Member State to require that the economic operator substitutes an entity in respect of which there are non-compulsory grounds for exclusion.’ 

Thirdly, Member States may provide that in the case of works contracts, service contracts and siting or installation operations in the context of a supply contract, contracting authorities may require that certain critical tasks be performed directly by the tenderer itself or, where the tender is submitted by a group of economic operators, by a participant in that group.  

Finally, where an economic operator relies on the capacities of other entities with regard to criteria relating to economic and financial standing, the contracting authority may require that the economic operator and those entities be jointly liable for the execution of the contract. 

In my view, the first two additions are sensible and aim to prevent instances where reliance on third party capabilities is merely formal. However, the same cannot be said from the other two requirements. On the one hand, there is no good reason to require that the conduct of critical tasks be carried out by the main contractor, given that it is already assuming full liability for such tasks. Imposing a requirement that the task is actually carried out by the main contractor can have the effect of excluding other tenderers that could actually fulfill the contract relying on the capabilities of third parties and, consequently, runs contrary to the functional approach in the current Directive, goes beyond the terms of Art 19 of Dir 2014/24[2] and, ultimately, of the case law of the CJEU on teaming and joint bidding[3]. 

On the other hand, and on a related note, the last requirement of joint liability for the execution of the contract can make it very difficult to reach subcontracting agreements or similar arrangements for the reliance on third parties for the partial execution of a minor part of the contract. Moreover, it can result in complicated structures of side letters of indemnity that raise the legal costs linked to participation. In my opinion, in relation with both requirements, the contracting entity should be satisfied with the liability of the main contractor and, if need be, ‘self-protect’ through requirements for adequate professional risk indemnity insurance under Art 58(3) of Dir 2014/24.

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[1] Interestingly, Article 19 of Dir 2014/24 provides specific rules for groups of operators.

[2] Indeed, it only requires that ‘in the case of public service and public works contracts as well as public supply contracts covering in addition services or siting and installation operations, legal persons may be required to indicate, in the tender or the request to participate, the names and relevant professional qualifications of the staff to be responsible for the performance of the contract in question’.

[3] A Sanchez Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 336-340.

My preliminary thoughts on why UK's Referendum Bill franchise infringes Art 18 TFEU

This is just a short development of my thoughts regarding why UK's Referendum Bill franchise infringes Art 18 TFEU. For an analysis of the voting franchise and the difficult issues it raise, see Prof Jo Shaw's excellent piece here. I will develop lengthier arguments in view of the debate I hope this will spur. For now, this is a broad brushstroke presentation of the argument:

Art 18 TFEU prohibits any discrimination on grounds of nationality, and that prohibition of discrimination applies within the scope of application of the Treaties and without prejudice to any special provisions contained therein. As recently stressed by the CJEU in Dano (C-333/13, EU:C:2014:2358) “Every Union citizen may therefore rely on the prohibition of discrimination on grounds of nationality laid down in Article 18 TFEU in all situations falling within the scope ratione materiae of EU law. These situations include those relating to the exercise of the right to move and reside within the territory of the Member States conferred by point (a) of the first subparagraph of Article 20(2) TFEU and Article 21 TFEU”… “the principle of non-discrimination, laid down generally in Article 18 TFEU, is given more specific expression in … Directive 2004/38 in relation to Union citizens who … exercise their right to move and reside within the territory of the Member States” (59 & 61).

I will limit my points to non-UK EU citizens that have resided in the UK for more than five years, which have acquired permanent residency under Art 16 Dir 2004/38 (thought the same arguments apply functionally to the rest of non-UK EU citizens residing in the UK, at least those who are not an unreasonable burden on the social assistance system). 

Those non-UK residents will (likely) see their permanent residency right affected (if not taken away) should the UK pull out (barring a general grandfathering of those rights). While some non-UK EU citizens are given right to vote in the referendum (Irish, Maltese, Cypriots) regardless of any other condition linked to their right to residence under Art 16 Dir 2004/38 or otherwise; others (rest of nationalities) do not get the right to vote on an issue that affects the continuity of the rights acquired under Dir 2004/38—and, ultimately, Arts 20-21 TFEU, which clearly engages Art 18 TFEU. This is discrimination based on nationality and, consequently, prohibited by Art 18 TFEU. Moreover, given the relevance of permanent residence rights for the development of basic human rights as recognised in the EU Charter (such as private and family life, Art 7; or property, Art 17, just to mention the most likely to be affected), this sort of discrimination is unacceptable.

Of course, the only valid argument against this is that Art 50(1) TEU determines that “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements”. However, even then, it seems contrary to UK constitutional principles to force non-UK citizens to apply for citizenship (if they can) in order to have their basic fundamental rights upheld. Hence, this is not only politically and socially unacceptable, but legally flawed and open to challenge before the Court of Justice of the European Union.

Quality assurance standards and environmental management standards under Reg. 62 Public Contracts Regulations 2015

Reg.62 of the Public Contracts Regulations 2015 (PCR2015) sets out substantive and documentary requirements linked to determining compliance with quality assurance standards and environmental management standards, in terms very close to Article 62 of Directive 2014/24. Pedro's short views are available here (I guess we'll have to wait for him to catch up, so that he can draw first on some issues soon!).

Reg.62 PCR2015 establishes three main rules: (1) when imposing compliance with quality assurance and/or environmental management, contracting authorities should refer to the relevant European standards and require certificates of compliance issued by accredited bodies; (2) contracting authorities shall recognise equivalent certificates from bodies established in other Member States; and (3) where economic operators have not had the possibility to obtain the required certificates within the time limits set by the contracting authorities for reasons not attributable to the economic operator concerned, contracting authorities shall accept other evidence of equivalent compliance, provided that the economic operator proves that the proposed quality assurance and/or environmental management measures comply with the required standards.

Reg.62 PCR2015 (and, originally, art 62 dir 2014/24) fundamentally consolidate the rules in Arts 49 and 50 of Directive 2004/18, with some updates to the standards referred to and with some changes in drafting, the only of which seems relevant is that contracting authorities must now only accept other evidence of equivalent quality assurance standards and environmental management standards where the economic operator concerned has no access to such certificates, or no possibility of obtaining them within the relevant time limits for reasons that are not attributable to that economic operator. This seems to reduce the scope for the submission of equivalent certificates in some instances and could be unduly restrictive of competition. However, this effect will largely depend on the interpretation given to this ‘waiver clause’, whereby the contracting authority can reject to take into consideration alternative means of proof. 

Once more, thus, I would submit that contracting authorities are bound to follow a possibilistic approach and be flexible when it comes to determining compliance with quality assurance and environmental management requirements [see also regs.44 and 60 PCR2015]. This is particularly important when the environmental management and/or quality assurance requirements are linked to processes and certificates that would impact the economic operator beyond the scope of the contract--ie, when certification exclusively for the purposes of the contract is not possible because the systems needed affect the whole of the undertaking's activities. 

This is an issue very closely related to the acceptable award criteria under reg.67 PCR2015. Given that such provision requires many other comments, I think it is worth anticipating now my views on this frontier issue. The following remarks are based on my Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 387-88.

Restrictions Derived from Award Criteria that Result in de facto Exclusion of Tenders or the Advantage of Some Tenders over Others. Even if rules on qualitative selection and non-discrimination requirements are formally complied with in a given tender, the adoption of certain award criteria could generate the same results as an infringement of those rules. That could be the case if the award criteria or their weighting favoured tenders submitted by certain operators on the basis of conditions that could not have been used for the purposes of the qualitative selection of candidates or that automatically exclude de facto a significant number of tenders (or even restrict the number of compliant tenders to one).

For instance, they could do so by requiring the implementation of quality management systems for the purposes of the specific contract that would have proven excessive or irrelevant for the purposes of assessing the general suitability of the tenderer;[1] or that exclude certain operators because they focus on requirements whose implementation would be impossible for tenderers that did not comply with these or other requirements beforehand, or whose partial implementation would not be economically viable with regard exclusively to the specific contract.[2] These sort of requirements are now potentially covered by article 67(2) of Directive 2014/24, given that it allows contracting authorities to include award criteria that do not relate ‘to an intrinsic characteristic of a product, that is to say something which forms part of the material substance thereof’ and, consequently, can focus on factors involved in the specific process of production, provision or trading or a specific process for another stage of their life cycle, ‘even where such factors do not form part of their material substance’.

In these instances, it is still important to highlight that the adoption of such award criteria could generate significant distortions or restrictions of competition—without, it must be admitted, generating a substantial potential for discrimination and, currently, with an apparent legal coverage under article 67(2) of Directive 2014/24. Therefore, in view of the requirements of the principle of competition, such a strategy should be significantly restricted and contracting authorities should guarantee that the award criteria and their weighting ensure equality of opportunity of all tenderers and, consequently, should not focus on or advantage compliance with criteria not restricted to the tender itself—ie, criteria that undertakings would be in a position to comply with or not depending on previous or general conditions unrelated (or not specifically related) to the subject-matter of the contract.[3]

Drawing the line between, on the one hand, justified award criteria related to production processes or elements related to other stages in the life cycle of the products or services and, on the other hand, excessive and unjustified requirements that de facto advantage certain competitors over others will be difficult. In my view, it should be conducted on the basis of a strict proportionality requirement aimed at preventing unjustified distortions of competition.

These issues were recently analysed (in general terms) by the CJEU in relation to requirements concerning corporate social responsibility policies and, more specifically, with a focus on requirements of compliance with ‘criteria of sustainability of purchases and socially responsible business’. These are requirements that clearly affect tenderers as a whole and are remotely related to the specific scope of the contract (where contracting authorities can, however, avail themselves from the use of social labels).[4] In that regard, and in line with what is here submitted, it is important to stress that the CJEU rejected the possibility to consider such requirements as the establishment of minimum levels of professional or technical ability and emphasised that such type of considerations are incompatible with the rules of the procurement Directives when they are unrelated or go beyond the subject matter of the contract.[5]

Consequently, in order to avoid distortions of competition (and regardless of the creation of discriminatory situations), contracting authorities must refrain from setting such type of requirements as either selection or award criteria that result in de facto exclusion of tenders or the advantage of some tenders over others. In my opinion, the reasoning of the CJEU regarding those requirements at qualitative selection phase are transferrable mutatis mutandis to their introduction as award criteria under article 67(2) of Directive 2014/24. Otherwise, the use of this new provision would further erode and damage the distinction between selection and award criteria, which the CJEU has recently emphasised and which, consequently, should be respected in the detailed application of the rules concerning award criteria.[6]

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[1] However, this has been accepted as a proportionate requirement by the GC in Case T-288/11 Kieffer Omnitec v Commission [2013] pub. electr. EU:T:2013:228. For criticism, see A Sanchez Graells, GC on quality assurance standards in public procurement: A knee-jerk reaction (T-288/11) (7 May 2013) howtocrackanut.blogspot.co.uk/2013/05/gc-on-quality-assurance-standards-in.html.

[2] In similar terms, rejecting the possibility of establishing general requirements that go further than required by the object of the contract, see PA Trepte, Regulating Procurement. Understanding the Ends and Means of Public Procurement Regulation (Oxford, Oxford University Press, 2004) 197–98.

[3] For instance, if certifying compliance with a given quality standard for the product required the previous certification of the general operations of the undertaking as being compliant with a more general quality control system, and the tender documents did not require tenderers to be certified under that standard—then, giving better evaluations to certified than to non-certified products would generate a distortion of competition by de facto excluding or reducing the chances of award to non-certified undertakings (which would not be in a position to get the products certified only for the purposes of the tender). Therefore, by indirectly advantaging or requiring compliance with a condition not imposed at the qualitative selection stage, which refers to more general conditions unrelated to the specific contract, the contracting authority would be distorting competition in a way that should be declared to run contrary to the directives.

[4] Case C-368/10 Commission v Netherlands [2012] pub. electr. EU:C:2012:284 98–112.

[5] ibid 106–108.

[6] Case C-641/13 P Spain v Commission [2014] pub. electr. EU:C:2014:2264.

AG Jääskinen confirms GC and CJEU jurisdiction to review procurement decisions linked to EU's external action: Time to rethink? (C‑439/13 P)

In his second Opinion of 21 May 2015 in case Elitaliana v Eulex Kosovo, C-439/13 P, EU:C:2015:341 (not available in EN), AG Jääskinen has submitted that the EU Courts have competence for the review of decisions awarding public contracts financed by the EU budget in the context of the EU's external action.

In the case at hand, the challenge concerned the award of a services contract for helicopter emergency medical services [transportation] and air ambulance services tendered by the European Union Rule of Law Mission in Kosovo (Eulex Kosovo), which is the largest civilian mission ever launched by the European Union under the Common Security and Defence Policy (CSDP) by means of Joint Action 2008/124 (as amended).

AG Jääskinen's Opinion could not be clearer in stressing that "insofar as it relates to public contracts awarded in the context of the external action of the European Union, [the challenge] certainly comes within the scope of the budgetary provisions of EU law", which makes the General Court and the Court of Justice of the European Union competent. I fully agree with his view.

The point of departure that the AG takes is to stress that, under what is now Article 41 TEU, CSDP missions "are funded by the Member States based on their gross national product (GNP) when it comes to military operations, while civil and military expenses are borne by the European Union" (para 38, own translation). And, more specifically, that Art 16 of Joint Action 2008/124 determines that "all the costs of Eulex Kosovo are managed in accordance with the rules and procedures applicable to the general budget of the European Union" (para 39, own translation). Consequently, the "jurisdiction of the Court of Justice follows from the budgetary commitment made ​​by the Union and the adoption of decisions that aim to ensure its implementation within the framework of the functions exercised by entities established pursuant to the acts of the CFSP" (para 41, own translation). 

This leads AG Jääskinen to reject the arguments against the CJEU's jurisdiction based on the "extraneousness" of public procurement rules to the CFSP/CSDP (as submitted by the Commission), or the "political gravitas" of CFSP/CSDP acts, which would require the CJEU to refrain from exercising jurisdiction (as submitted by Eulex Kosovo).

In his Opinion, the AG stresses that there is no doubt whatsoever about the applicability of the relevant EU financial regulation to the contracts awarded in the execution of CSDP missions, in as far as they are financed by the EU Budget--as clearly indicated in the practical guide on contracting procedures applying to all EU external actions financed from the EU general budget and the European Development Fund published by the European Commission (see  2014 version).

At this point, the AG examines the only exception to the previous rules, stressing that

although the jurisdiction of the General Court and the Court of Justice to hear the dispute over public contracts awarded in the context of the external action of the Union has been established, the conclusion of such contracts could however escape the jurisdiction of the Union courts if the contracts include military action. Indeed ... in the light of Article 41 TEU, operations that have an impact on the fields of the military or defense are borne by the budgets of Member States, unless the Council decides otherwise. However, with regard to public procurement of a civil nature, the competence of the Court is indisputable (para 60, own translation).

In view of all the above, AG Jääskinen concludes that: "the courts of the European Union cannot avoid future disputes concerning the insufficient protection of the rights of individuals in the context of external action. Thus, the debate on the status of missions and their personnel, to the extent that they benefit from privileges and immunities, must be accompanied by the provision to individuals of legal means to challenge the acts of the missions that affect their rights and obligations" (para 66, own translation).

The question that remains open, then, is to what extent there is a need to revise the EU's Financial  Regulation to include provisions on mixed civil-military/defence procurement along the lines of the regime foreseen in Directive 2009/81, so that compliance with the rules is not too burdensome for CSDP missions, at least in their early stages. To be fair, running the CSDP missions is clearly challenging and procurement probably does not rank very high in the priorities of bodies and agents that need to make it happen. And, in those circumstances, it is fair to say that the regime for urgent procurement can still be rather limiting, particularly as challenges and protests are concerned. Hence, this may be an area that needs regulatory reform.

Other than that, and from the strict perspective of the scope of competence of the Union courts in the field of public procurement, it may also be a good occasion to rethink the role of the General Court and the CJEU as public procurement review bodies. In my opinion, developments such as the Elitaliana v Eulex Kosovo case (if the CJEU follows AG Jääskinen, of course) point to the need to either create a specialized review chamber parallel to the EU Civil Service Tribunal, or to subject procurement review processes to alternative dispute resolution mechanisms. Maybe this is a second area in need of regulatory reform/institutional redesign.

Recourse to e-Certis under Reg. 61 Public Contracts Regulations 2015

Reg. 61 of the Public Contracts Regulations 2015 (PCR2015) is really straightforward and transposes the requirement to have recourse to e-Certis in the same terms as Article 61(2) of Directive 2014/24. 

It is worth stressing that the UK has availed itself of the possibility to defer the use of e-Certis until 18 October 2018 under Art 90(5) Dir 2014/24 [see reg.1(5) PCR2015], but that does not preclude contracting authorities from using it already. Pedro considers this general delay a shame, and I agree.

Reg.61(1) indeed determines that 'contracting authorities shall have recourse to e-Certis and shall require primarily such types of certificates or forms of documentary evidence as are covered by e-Certis'. And reg.61(2) PCR2015 clarifies that  “e-Certis” means the online repository established by the Commission and referred to as “e-Certis” in Dir 2014/24.

It is important to stress that, under Art 61(1) Dir 2014/24, Member States shall ensure that the information concerning certificates and other forms of documentary evidence introduced in e-Certis established by the Commission is constantly kept up-to-date. 

The bit that the Directive assumes and the PCR2015 do not tackle is that contracting authorities need training in order to gain an understanding of the information available in e-Certis and the ways to retrieve it. There is an online tutorial available (here), but more training will certainly be needed before the full roll-out of e-Certis use.

In that regard, the legal consequences of failing to use e-Certis could have been clarifies. In my view, reg.61 PCR2015 could have clarified to what extent contracting authorities need to have procedures in place to avoid requiring any documentation available on e-Certis, and in particular it should have clarified whether contracting authorities have a positive duty to check e-Certis when candidates and tenderers fail to supply documentation that, if existing, should be available via e-Certis. In my view, this is the case, but the vagueness of reg.61(1) PCR2015 (contracting authorities shall have recourse to e-Certis') does not necessarily allow for such a conclusion.

Overall, then, there is a need for further development of the actual implementation of e-Certis use under PCR2015.

Means of proof under Reg. 60 Public Contracts Regulations 2015

Reg. 60 of the Public Contracts Regulations 2015 (PCR2015) transposes Article 60 and Annex XII of Directive 2014/24 regarding the means of proof that contracting authorities can require or be forced to accept in relation to exclusion grounds and selection criteria when running tender procedures. This provision is functionally related to reg.44 PCR2015 on test reports, certificates and other means of proof connected to technical specifications (see here and here) and, in my view, must be subjected to the same possibilistic interpretation.

As regards the formalities associated to the exclusion and qualitative selection of candidates and tenderers, reg.60 PCR2015 determines in minute detail the certificates, statements and other means of proof that contracting authorities can require in order to check for the absence of grounds of exclusion and compliance with qualitative selection criteria and makes it clear that, together with reg.62 PCR2015 on quality assurance standards and environmental management standards, it sets a closed list (numerus clausus) of documentation that can be required from economic operators [Pedro concurs]. This is particularly clear from reg.60(2) PCR2015, which stresses that contracting authorities 'shall not require from economic operators means of proof other than those referred to in this regulation and in' regs.58(16) and 62 PCR2015.

The rules in reg.60 PCR2015 are thus fundamentally limited to setting the formal requirements that contracting authorities can impose on candidates as regards the certificates and other formalities to be provided to prove that they meet the qualitative selection criteria set in the tender documents, with the clear aim of limiting the requirements that can be imposed on candidates and of introducing a certain degree of flexibility which allows interested undertakings to prove their standing and abilities through alternative means. 

This is particularly clear in regs.60(8) PCR2015 in connection with economic and financial standing, given that '[w]here, for any valid reason, the economic operator is unable to provide the references or other information required by the contracting authority, it may prove its economic and financial standing by any other document which the contracting authority considers appropriate' (emphasis added).

Reg.60(9) PCR2015 determines the documentation that contracting authorities can require regarding candidates' and tenderers' technical and professional ability. Similarly to what was argued in relation to technical specifications under reg.44 PCR2015, I submit that contracting authorities are under an obligation to adopt a neutral and flexible approach to the determination of economic operators’ technical abilities and, particularly as regards the acceptable means of proof, and that they are bound to the adoption of a possibilistic approach. 

Therefore, contracting authorities must be prepared to verify economic operators’ technical abilities on the basis of references different from previous experience—even if they have not been expressly included in the notice or in the invitation to tender—and should adopt a pro-competitive approach in the determination of the equivalence of the alternative references and the minimum previous experience requirements set in the tender documents. In short, the contracting authority cannot demand specific types of documents--particularly if the imposition of specific documentary requirements would impose a disproportionate burden on candidates and tenderers from other Member States.

This is made explicit in reg.60(5) PCR2015 when it comes to means of proof of non-existence of exclusion grounds, to the effect that where the member State or country of origin or the country where the economic operator is established does not issue specific documents or certificates, or to the extent that these do not cover all required information, 'they may be replaced by a declaration on oath or, in member States or countries where there is no provision for declarations on oath, by a solemn declaration made by the person concerned before a competent judicial or administrative authority, a notary or a competent professional or trade body, in the member State or country of origin or in the member State or country where the economic operator is established'.

In my view, the same anti-formalistic approach needs to control all documentary requirements related to the means of proof of the absence of grounds for exclusion and the fulfillment of selection criteria.