Not all investors are equal ... or not equal to the EU financial institutions anyway (re 2012 Greek debt crisis) (T-79/13)

In its Judgment of 7 October 2015 in Accorinti and Others v ECB, T-79/13, EU:T:2015:756 (not available in English, but a press release is), the General Court of the Court of Justice of the European Union (GC) dismissed a claim for compensation against the European Central Bank (ECB) as a result of the 53.5% haircut that private investors in Greek sovereign debt suffered in 2012. 

Indeed, the GC ruled that the loss suffered in 2012 by the private holders of Greek debt instruments in connection with the restructuring of the public debt of the Greek State is not attributable to the ECB, but to the economic risks ordinarily inherent in financial sector activities. The claimants had submitted three main grounds for illegality of the ECB's participation in the restructuring of Greek debt: 

1. breach of the legitimate expectations allegedly created by the general declarations of the subsequent ECB Presidents Mr Trichet and Mr Draghi and, in particular, the open and repeated opposition of the ECB to a restructuring of the Greek public debt and a Greek selective default, which eventually happened; 
2. breach of the principle of equal treatment as a result of the selective nature of the haircut, which affected private investors but not the ECB that also held Greek public debt at the time; and 
3. improper exercise of competences linked to the objective of safeguarding price stability and the objective relating to the sound management of monetary policy as per Article 127 TFEU. 

In claimants' view, such illegalities (or any of them) would suffice to engage the non-contractual liability of the ECB under Article 340 TFEU. The GC dismissed the action in full. The arguments of the GC are interesting, particularly because they create a clear-cut restriction on this sort of arguments to seek liability derived from macroeconomic policy intervention. Specifically, as the press release indicates, 

'the GC holds that the private investors cannot rely on the principle of the protection of legitimate expectations or on the principle of legal certainty in a field such as that of monetary policy, the objective of which involves constant adjustment to reflect changes in economic circumstances. The private investors were deemed to have knowledge of the highly unstable economic circumstances which determined the fluctuation in the value of the Greek securities. They could therefore not exclude the risk of a restructuring of the Greek public debt, given the differences of view prevailing in that regard within the Eurosystem and in the other institutions involved (Commission, IMF and ECB). The Court then states, that the press releases and the public statements of some ECB staff members were of a general nature and came from an institution which did not have the power to decide on a possible restructuring of the public debt of a Member State. In addition, those press releases and statements did not include specific and unconditional assurances from authorised and reliable sources, capable, for that reason, of giving rise to legitimate expectations' (emphasis added) 

Moreover, there is an obiter dictum that I find particularly interesting in paragraph 82, where the GC stresses that the investors acted in a way that displays a clear risk-taking strategy (if not pure speculation), which reduces their ability to rely on arguments ultimately based on good faith, such as legitimate expectations.

Regarding the second line of argument, in a quite measured and detailed analysis of the applicability of the principle of equality to the private investors and the ECB (which, in my view, could have been dispensed with in much less space than paras 85-103 in view of its prima facie ludicrousness), and as the press release also summarises, the GC 

'considers that the general principle of equal treatment cannot apply, since the private savers or creditors and the ECB (as well as NCBs [national central banks] of the Eurosystem) were not in a comparable situation: confronted with the Greek financial crisis and the exceptional circumstances attached to it, the ECB was exclusively guided by public interest objectives, such as, in particular, the objective of safeguarding price stability and the objective relating to the sound management of monetary policy. By contrast, the private investors or savers acted in pursuit of a purely private interest, namely obtaining a maximum return on their investments' (emphasis added). 

There is another obiter dictum (?) bit of the Judgment that I find particularly interesting in paragraphs 99-103, where the GC discusses a sub-argument linked to equality of treatment, whereby the claimants had submitted that a general pari passu clause [ie an obligation to receive the same treatment as other creditor holding the same type of securities] would have prevented the ECB from avoiding the effects of the haircut suffered by private investors. In that regard, the GC rejects the existence of a general pari passu clause under EU law (para 99) and, even in stronger terms, determines that

if a rule that would impose the pari passu implied an obligation to treat all creditors equally without having regard to the various situations in which they find themselves and, in particular, on the one hand, private investors and, on the other hand, the central banks of the Eurosystem acting in the exercise of the duties conferred upon them by Article 127 TFEU and Article 18 of the [ECB] Statute, the recognition of such a rule in the legal order of the Union might be contrary to the principle of equal treatment (para 100, own translation from Spanish and emphasis added).

Finally, the GC also rejects the arguments based on the improper exercise of monetary policy competences, largely because they were founded on the same reasons that it had already rejected under the previous heads of claims.

Overall, the Accorinti and Others v ECB Judgment is interesting because it recasts the relevant case law of the CJEU in terms of EU Institutions' liability and applies it in a way that consolidates the hands-off approach that the CJEU seems to have definitely adopted to issues of macroeconomic policy and monetary stability of the Euro (along the lines of Pringle, C-370/12, EU:C:2012:756). 

It also sends out a very clear message that the Court remains committed to avoid creating a legal framework where EU Institutions are the object of spurious litigation. This is very clear from para 69 of the Judgment, where the GC stressed that

regarding the regulatory activities of the institutions, in which the adoption by the ECB of acts of general application ... can be included, the Court held that the restrictive construction of the responsibility of the Union in the exercise of its regulatory activity is explained, firstly, by the fact that the exercise of the legislative function, even when there is a mechanism of judicial review of the legality of the acts, should not be hindered by the prospect of actions for damages every time the general interest of the Union requires the adoption of policy measures that may adversely affect the interests of individuals and, [secondly], by the fact that, in a legislative context characterized by the existence of broad discretion that is essential for the implementation of a policy of the Union, the latter shall not incur liability unless the institution concerned has exceeded, manifestly and seriously, the [limits for the] exercise of its powers (see, to that effect, the judgment of 9 September 2008, FIAMM and other / Council and Commission, C-120/06 P and C-121/06 P, Rec, EU: C: 2008: 476, paragraph 174) (para 69, own translation from Spanish and emphasis added).

In my view, the Judgment and the line of case law it consolidates has the advantage of establishing a clear red line that should exclude future litigation. It should thus be welcome.

An EU Competition Law Primer for Public Procurement Students

My friend and colleague Dr Carina Risvig Hamer asked me to contribute a chapter on EU competition law to her forthcoming handbook on EU public procurement she is about to publish with Djøf Forlag. She is writing it in Danish to support her teaching at the University of Southern Denmark. Thus, the book is unlikely to reach a wider English-speaking audience. This is why I decided to post the chapter on SSRN, in case there are some non-Danish procurement students interested in a first introduction to EU competition law issues.

As the abstract indicates, this chapter aims to identify the key areas where EU competition law is relevant from a public procurement perspective: that is, mainly, the prevention and sanctioning of procurement manipulation by suppliers (bid rigging) and the granting of distortive State aid that advantages some of them over others. It also focuses on potential abuses of market power by undertakings holding a dominant position, but it assesses this potential distortion of competition to a more limited extent. Once these areas are identified, the chapter describes the basic EU competition rules that apply in each of these different cases, as well as their interpretation in the case law of the CJEU. The main goal of this chapter is to provide public procurement students with an overall view and basic understanding of the EU competition rules more directly relevant to procurement practice.

The paper's full reference is: A Sanchez-Graells, 'An EU Competition Law Primer for Public Procurement Students' (October 18, 2015). Available at SSRN: http://ssrn.com/abstract=2675787.

CCS' Guidance on electronic communications and the issue of initial disclosure of procurement documents

As discussed in relation to regs. 53 and 28 of the Public Contracts Regulations 2015 (PCR2015), there has been unrest in the UK public procurement practitioner community derived from an assumption that new procurement rules required contracting authorities to disclose absolutely all contract documents in full and final form when they first published a notice calling for competition for a specific contract.

My preliminary view was that such strict reading of reg.53(1) PCR2015 was unnecessarily overcautious and that contracting authorities could carry on disclosing tender documents in a staggered manner provided they complied with general principles of transparency and equal treatment, and they made sure that no interested undertaking or tenderer was placed at a disadvantage (see here).

The Crown Commercial Service (CCS) has now published Guidance on e-Procurement and electronic communications that, in my view, supports this flexible approach and should reassure contracting authorities that the new rules preserve the level of flexibility existing under the pre-2014 Directives. The key to that flexibility stems from a reasonable and dynamic approach to the concept of 'procurement documents', which the CCS takes to provide

a wide explanation of what might constitute procurement documents and that where individual regulations refer to “procurement documents”, what is meant by that wording changes based on the different stages of the process that has been reached. As the procurement and competition becomes more crystallised, CCS expect more of the documents falling within that wide definition of procurement documents to be generated and therefore supplied. In contrast, at very early stages, fewer of the documents, if any, would be included. We believe a purposive interpretation is appropriate here.

Such interpretative approach is well suited to a functional interpretation of the general rules in the PCR2015 (and Directive 2014/24, by implication), which adjusts the meaning of concepts and rules to the operational requirements of each of the specific procedures they apply to. This seems particularly clear in this passage:

... for procedures involving negotiations, or two stage process, the contracting authority would need to publish all the documents that are available so the market could make the decision on whether to express an interest or not. In construction for example, detailed specifications are normally not available until further into the procurement process and therefore those documents would not be required to be published at the advert stage. However the procurement documents that explain what the final output would be, volume/size, any specific specialities etc would be required at advert stage as the supplier needs them so they can make the decision on whether to express an interest or not, and whether they would have the capacity and capability to do the work, and if not time to start preparing to build that capacity/capability. These documents would then be added to as more detailed information is developed. 

I think that this guidance should be welcome and that the discussion can be left behind, as it seems clear that the interpretation of the rules is not going to be as unreasonable and tight as some initially feared. 

Another excessively formalistic Judgment on conflicts of interest in public procurement (T-403/12)

Following its incipient line of public procurement case law that sets the burden of proof of conflicts of interest too high (see here), the General Court (GC) of the Court of Justice of the European Union has once more taken a very formalistic approach to the assessment of situations were certain bidders should be presumed to hold an unfair competitive advantage. In its Judgment of 13 October 2015 in Intrasoft International v Commission, T-403/12, EU:T:2015:774, the GC has adopted a  very formalistic approach to the 'objective' assessment of an unfair competitive advantage derived from prior involvement of a tenderer in the preparation of documentation used in a specific tender. Once more, the case involves procurement by the EU Institutions, but the legal arguments and the reasoning of the GC is relevant for procurement under the general EU rules.

In Intrasoft International v Commission, the excluded tenderer had been involved in the preparation of tender documents in an indirect way or as a result of relative happenstance. Indeed, the tenderer had not drafted documents specifically for the tender at hand, but it had been involved in the drafting of tender documentation for a previous project that ended up being 'reused' by the contracting authority. This situation was assessed in conflicting ways between the contracting authority (the European Commission) and the excluded tenderer.

According to the Commission, the (indirect) previous involvement sufficed to provide the tenderer with an undue competitive advantage that required its exclusion from the tender process as the only remedy to that conflict of interest. As summarised by the GC

the Commission argues that ... a certain number of documents drafted by the applicant under the previous contract were joined to the terms of reference for the new tendering procedure. These documents ‘constitute[d] the basis for an important portion of the activities due under the ongoing tender’. The Commission does not dispute, as the applicant observes, that the documents were made available to all potential candidates. However, it contends that the applicant had access to them before the other tenderers and thus enjoyed a competitive advantage, in particular, in searching for qualified experts. Furthermore, while not claiming that this was actually the situation in the present case, the Commission suggests that, having participated in their drafting, the applicant would have been in a position to draft the documents in a way that gave it a competitive advantage for the procurement contract at issue (T-403/12, para 65).

Not surprisingly, the excluded tenderer disagrees and has an opposite assessment of the advantage derived from the previous (indirect) involvement in the drafting of the tender documentation

the applicant states that it was not involved in drafting the terms of reference or the project-related requirements for [the specific tender]. The applicant states, in addition, that it did not have in its possession any more information than that available to all the tenderers. Consequently, according to the applicant, the fact that it had taken part in drawing up a number of technical documents in connection with another tendering procedure could not, in itself, constitute a sufficient reason to draw the unfavourable inference that the applicant was subject to a conflict of interest. Further, it considers that it is apparent from the Court’s case-law (judgment of 3 March 2005 in Fabricom, C-21/03 and C-34/03, ECR, EU:C:2005:127) that the experience acquired under a previous contract is not capable of distorting competition, because if that were the case most tenderers would have to be excluded from new tendering procedures on that ground (T-403/12, para 63).

In addressing these diverging assessments of the situation of conflict of interest potentially affecting the excluded tenderer, the GC adopts a very formalistic approach, which builds up as follows:

76 The awarding authorities are under no absolute obligation to exclude systematically tenderers in a situation of a conflict of interests, such exclusion not being justified in cases in which it is possible to show that that situation had no impact on their conduct in the context of the tender procedure and that it entails no actual risk of practices liable to distort competition between tenderers. On the other hand, the exclusion of a tenderer where there is a conflict of interests is essential where there is no more appropriate remedy to avoid any breach of the principles of equal treatment of tenderers and transparency (judgment in Nexans France v Entreprise commune Fusion for Energy, [T-415/10], EU:T:2013:141, paragraphs 116 and 117).

79 It is apparent from the case-law ... that the reasoning in terms of risk of conflict of interests requires a concrete assessment, first, of the tender and, second, of the situation of the tenderer concerned, and that the exclusion of that tenderer is a remedy designed to ensure respect for the principles of transparency and equality of opportunity for tenderers.

80 In order to determine whether, in the present case, there has been an infringement ... it is, therefore, necessary to examine, in the context of an objective analysis without taking into account the applicant’s intentions, whether the risk of a conflict of interests stems from the applicant’s situation and from a concrete assessment of its tender.

81 In the first place, it should be noted that, according to the Commission, the exclusion of the applicant because of a conflict of interests has the purpose of ensuring observance of the principle of equal treatment of tenderers. It argues that the applicant had access, before the others, to certain documents used as the basis for some of the activities connected with the call for tenders at issue, on the ground that the applicant was part of the consortium which drafted the documents in question for another call for tenders. It is apparent from the letter of 10 August 2012 that that access would have made available to the applicant ‘privileged information’ ... The Commission therefore takes the view, in accordance with what appears in the letter in question, that that access, before the other tenderers, would have given the applicant a competitive advantage in relation to those tenderers.

82 However, it cannot be accepted that the risk of a conflict of interests can be based on the mere fact that the applicant had access, before the other tenderers, to the documents specific to another call for tenders because it belonged to the consortium which prepared those documents which, subsequently, were retained to be used as a reference for the activities associated with the call for tenders at issue in the present case (T-403/12, paras 76 and 79-82, emphasis added).

This first part of the argument seems to follow the general Fabricom approach against instances of automatic exclusion of tenderers previously involved in the design of tender procedures. However, the specific application of this approach to the circumstances of the case becomes very quickly very formal and restrictive by putting what I see as excessive reliance on the fact that the tender documents 'originally belonged' to a different procedure or, in other words, were not exclusive for the tender procedure at hand. That part of the GC's argument goes as follows:

84 Within the meaning of the case-law ... the risk of a conflict of interests exists for the person responsible for the preparatory work for a public contract who participates in that same contract. In this respect it should be noted that, when the Court of Justice used the expression ‘preparatory work’ at paragraph 29 of the judgment in Fabricom, cited in paragraph 63 above (EU:C:2005:127), it was referring to work carried out in the context of one and the same call for tenders.

85 Therefore, the Commission was not entitled to treat the preparation of documents drafted in the course of another call for tenders in the same way as preparatory works under the tendering procedure at issue, within the meaning of the case-law mentioned at paragraph 63 above, unless to show objectively and specifically, first, that those documents had been prepared in the light of the tendering procedure at issue and, secondly, that they had given the applicant a real advantage. If this is not demonstrated, the documents prepared in the course of another tendering procedure, and chosen subsequently by the contracting authority as a reference for part of the activities in a different tendering procedure, are not considered ‘preparatory works’ within the meaning of the case-law previously cited ...

86 In the present case it must be stated that the applicant’s exclusion from the award of the contract was based on the mere fact that it was part of a consortium which drafted the documents under a previous tendering procedure, whereas it has not been argued that the other tenderers did not have access to those same documents in sufficient time. Furthermore, the preparation of those documents did not involve the applicant’s participation in the preparation of the tendering specifications in the call for tenders at issue. Therefore, it has not been established that the applicant was in possession of more information than the other tenderers, which would have amounted to a breach of the principles of equal treatment and of transparency.

87 It follows that the documents at issue do not constitute ‘privileged information’ ... The exclusion of the applicant, contrary to what is claimed by the Commission, is not therefore covered ... and is thus not justified by an infringement of the principles of equal treatment and transparency.

88 Moreover, to classify the documents prepared in the context of another tendering procedure as ‘preparatory work’, on the basis that they have been retained by the contracting authority as a reference for the activities connected to a subsequent tendering procedure, would lead, as the applicant rightly maintains, to it being automatically considered that the experience acquired through participation in an earlier call for tenders is liable to distort competition (T-403/12, paras 84-88, emphasis added).

The specific decision in the case at hand resulted in an annulment of the exclusion decision, but primarily on the basis of lack of evidence of the actual advantage enjoyed by the tenderer previously (indirectly) involved in the preparation of tender documentation. 

Beyond the specific case, the formal approach taken by the GC can create difficulties in actually excluding tenderers with a previous indirect involvement in the preparation of documents used in a specific tender process, particularly because the test created in para 85 of Intrasoft International v Commission comes to set a very high burden of proof that will be hard to discharge: the contracting authority cannot 'treat the preparation of documents drafted in the course of another call for tenders in the same way as preparatory works under the tendering procedure at issue, unless to show objectively and specifically, first, that those documents had been prepared in the light of the tendering procedure at issue and, secondly, that they had given the applicant a real advantage'. Such element of 'linkage' to the specific tender will definitely be very problematic. In my opinion, it can also infringe the general requirement that the assessment of conflicts of interest be totally objective, as stressed by the GC itself in this same case: 

The concept of a conflict of interests is objective in nature and, in order to establish it, it is appropriate to disregard the intentions of those concerned, in particular whether they acted in good faith (see judgment of 20 March 2013 in Nexans France v Entreprise commune Fusion for Energy, T-415/10, ECR, EU:T:2013:141, paragraph 115 and the case-law cited) (T-403/12, para 75, emphasis added).

If the expression 'prepared in the light of the tendering procedure at issue' is constructed to require (positive, recorded) knowledge by the tenderer preparing the documentation that it would be used in more than one tender procedure, then the GC may have just created a requirement of probatio diabolica where it is hard to see how that could be proved in cases where the 'reuse' of the documentation is decided subsequently to the involvement of the tenderer or, more importantly, where it is decided from the beginning but that decision is informal or never recorded (and regardless of it actually being disclosed to the tenderer participating in its preparation). 

Once more, thus, the development of the case law on conflicts of interest in public procurement under a strict and formalistic approach seems to leave a number of questions open. It will be interesting to see how the Court of Justice itself addresses them if they ever reach its docket.

Interesting case on the award of public contracts and 'prudential budgetary reserves' (T-90/14)

The tension between budgetary rules and public procurement law was rather evident in a recent case before the General Court (GC) of the Court of Justice of the European, which it decided in its Judgment of 8 October 2015 in Secolux v Commission, T-90/14, EU:T:2015:772 (only available in French). The case concerned procurement by the EU Institutions, but the situation seems to be applicable mutatis mutandis to procurement covered under the general EU rules for procurement carried out by the Member States.

In the case at hand, the European Commission received a tender valued at 4,222,680 euros and selected it for award of the contract, therefore disclosing that information to all other bidders as part of the general debriefing process. However, the Commission finally awarded the contract for a value of 5,070,000 euros and disclosed this information in the relevant contract award notice. There was no indication of the reasons behind this higher contract value in the contract award notice.

In view of this significant discrepancy between both contract values, a disappointed tenderer challenged the award decision on the basis of an infringement of the requirements of transparency, equal treatment and non-discrimination resulting from the applicable rules. Quite surprisingly, the GC dismissed this claim, on the basis of the following reasoning:

27. At the outset, it should be noted that, as the Commission has explained, the amount of the successful offer was 4,222,680 euros ... The contract has been awarded for 5 070 000 euros euros ... This later amount is equivalent to the rounded price of the offer of the successful tenderer, increased by 20% for indexing and contingencies.

29. In this context, the applicant alleges in particular infringement of the principles of transparency and equal treatment ... as well as rules on advertising.

32. ... it is understood that the applicant's complaint, in essence, is directed against the award of the contract for an amount equivalent to the offer of the successful tenderer , increased by 20% for indexing and contingencies.

37 According to the relevant case law, the principle of transparency, which is essentially aimed to ensure the absence of favoritism or arbitrariness on the part of the contracting authority, means that all terms and conditions of the award procedure must be drawn in a clear, precise and unequivocal manner in the contract notice or in the contract documents (judgments of 29 April 2004, Commission / CAS Succhi di Frutta, C-496/99 P, EU: C: 2004: 236, paragraph 111, and of 26 September 2014, Evropaïki Dynamiki / Commission, T-498/11, EU: T: 2014: 831, paragraph 119).

38 In order to ensure respect for equal treatment and transparency, it is important that all the elements taken into consideration by the contracting authority to identify the economically most advantageous tender and, if possible, their relative importance are known potential bidders when preparing their tenders (judgment of 21 July 2011, Evropaïki Dynamiki / EMSA, C-252/10 P, EU: C: 2011: 512, paragraph 30, and Evropaïki Dynamiki / Commission, paragraph 37 above, EU: T: 2014: 831, paragraph 121).

39 All these requirements were satisfied in this case. Indeed, it clearly appears from the case file that the terms and conditions of the award process have been clearly established in the call for tenders. In addition, the allocation by the Commission for a market value including indexing and contingencies was irrelevant in the identification of the most economically advantageous tender. 

40 ... the first plea must be rejected as in part inoperative and in part unfounded. None of the arguments advanced by the applicant is in any event undermine that conclusion. 

41 First, it should be stressed that the Commission limited itself to  the creation of a budgetary reserve, which will not be used in the absence of contingencies and applications for price indexing. Therefore, it is not a unilateral increase of the price proposed by the successful tenderer. Moreover, the reservation of a higher budget to deal with unforeseen circumstances constitutes prudential behavior on the part of the Commission (T-90/14, paras 27, 29, 32 and 37 to 411, own translation from French and emphasis added).

The reasoning of the GC is quite surprising because, regardless of the budgetary mechanisms or restrictions affecting the Commission's decision (eg under the applicable rules, there was no specific provision allowing for contract modification, which would have created an incentive for the Commission to create a budgetary reserve by means of inflating the award price), the contract was in fact awarded at a higher price than the tender submitted by the bidder, which is a significant deviation of the standard procedural requirement and opens the door to post-award negotiations that can completely undermine the pre-award competition. 

Such preservation of the result of the ex ante competition for the contract is precisely the reason why contract modification has been the object of specific regulation under Art 72 Dir 2014/24. In short, pre-empting the effectiveness of rules on contract modification (either inexistent rules that prevent it or positive rules that constrain it) by artificially increasing the price of the contract at award stage should not be seen as legitimate prudential behaviour on the part of the contracting authority, but a deviation of power that certainly infringes the basic requirements of the duty of good administration.

Moreover, in the case at hand, there were allegations that the offer was abnormally low and that the chosen tenderer would be unable to perform the contract at the prices offered. Under those circumstances, the GC would have been well advised to dig deeper into the (actual) reasons for the Commission to create such a budgetary reserve by means of an artificially high contract price (which is certainly not best or even standard practice), which could reasonably have been motivated by an actual knowledge that the execution of the contract could not be performed at the offered prices without increases (due to indexation, contingencies or otherwise). And this seems particularly suspicious in view of the fact that the awardee of the contract was an incumbent provider of services to the European Commission.

Thus, in my opinion, the decision of the GC in Secolux v Commission is either naive or way too formal and a better analysis of the behaviour of the Commission would be necessary. I am no expert in EU budgetary law at all, but I find it odd that the Commission can simply decide to create 'prudential budgetary reserves' by means of a manipulation of the prices of the contracts it awards. If there is a further appeal to the CJEU, I would prompt the Court to consider the issue under a more stringent framework.

A very expensive slip of the pen? GC takes hard line in assessment of debriefing letter and awards compensation for loss of opportunity (T-299/11)

In its Judgment of 7 October 2015 in European Dynamics Luxembourg and Others v OHIM, T-299/11, EU:T:2015:757, the General Court of the Court of Justice of the European Union (GC) has once again revised the conclusion of framework agreements that include a cascade mechanism for the allocation of call-off contracts within the framework (see previous case Evropaïki Dynamiki v EASA, T-297/09, EU:T:2015:184 and comments here).

On this occasion, the GC considered that OHIM infringed the applicable procurement rules and determined that European Dynamics is entitled to compensation for the loss of an opportunity to be awarded the framework contract as the contractor ranked first in the cascade. Looking at the reasoning of the GC can be of interest.

In the Judgment, the GC finds that OHIM incurred in several substantive and formal errors in the evaluation of tenders leading up to the eventually quashed award decision. In my view, some of the substantive claims result from the not very careful drafting of the debriefing letter sent by OHIM to European Dynamics, which is very unfortunate. The point that I consider more troublesome from a practical perspective is as follows.

In the tender documentation, and amongst (very!) many other technical issues, tenderers were informed that part of the evaluation would rely on their project management strategy. As the GC explains (T-299/11, para 6), this was formulated in award criterion 1, according to which

[Award] Criterion 1: based on its methodology and experience, the tenderer must present the tasks and activities he/she would perform in terms of project management. This includes in particular (but not exclusively):

a. Progress control [that is to say checking the progress of the work];

b. Issue management process;

c. Change management process;

d. Escalations;

e. Lessons learnt programme;

f. Communications plan;

g. Deliverable acceptance procedures

(maximum 40 points with a minimum threshold of 20 points);

European Dynamics did not receive the highest score under this criterion. When it requested further details of the evaluation under criterion 1 from OHIM, it received a letter whereby it was explained that "the offers with very good or excellent criterion 1 ... “Identified change management and communication as the two most essential tasks for the success of the project”" (T-299/11, paras 23 and 41).

On this particular point, and in view of this (possibly less than careful) drafting of the debriefing letter, European Dynamics complained that it was not clear "from the tender specifications that the two sub-criteria ‘change management’ and ‘communication’ were, in OHIM’s view, the ‘most essential’. Accordingly, the contracting authority introduced, a posteriori, a new criterion and gave a new weighting to those sub-criteria" (T-299/11, para 42, emphasis added).

The GC upheld this complaint of European Dynamics with the following reasoning:

48 ... the Court finds that the applicants rightly argue that the contracting authority indeed gave to the sub-criteria ‘change management’ and ‘communication’ a more significant weight than the other criteria set out in the first award criterion. The reasons unambiguously set out in OHIM’s letter ... according to which the bids from the other successful tenderers ‘identified change management and communication as the two most essential tasks for the success of the project’, cannot be understood otherwise. It demonstrates that the contracting authority endorsed the approach proposed by the other successful tenderers on the basis of a weighting of those sub-criteria which is not clear from the wording of the first award criterion ... the contracting authority cannot apply a weighting of sub-criteria which it has not previously brought to the tenderers’ attention (see, to that effect, judgment of 24 January 2008 in Lianakis and Others, C-532/06, ECR, EU:C:2008:40, paragraph 38).

49 In that regard, first, it should be noted that the ‘change management’ and ‘communications plan’ comprised only two sub-criteria among a set of seven sub-criteria which were listed at the same level and on a non-exclusive basis under the first award criterion, namely, progress control, issue management process, change management process, escalations, lessons learnt programme, communications plan and deliverable acceptance procedures, and in respect of which the contracting authority intended to award a maximum number of 40 points ... Nor is it apparent from the wording of that criterion or other relevant parts of the tender specifications that the contracting authority intended, where appropriate and for specific undisclosed reasons, to afford a different weight to those sub-criteria for the presentation of the project presented in Work Hypothesis No 1, or even to assign, when evaluating the bids submitted in the light of the first award criterion, higher or lower scores depending on whether those bids focused on either one or the other of those sub-criteria. That is particularly so, in respect of the sub-criteria ‘change management’ and ‘communications plan’, in respect of which it was not stated in the tender specifications that the contracting authority considered that they represented ‘the two most essential tasks for the success of the project’.

50 Second, in accordance with the general explanations, in the tender specifications, of the requirements which have to be fulfilled by the tenderers, those tenderers were invited to present ‘the tasks and activities to be executed to manage and successfully achieve the project presented in Work Hypothesis No 1’ which were set out in Annex 18 to the tender specifications and covered the establishment by OHIM of a ‘project to build an information system’. As a result, the description in the bids submitted of the tasks and the activities related to the various sub-criteria under the first award criterion referred necessarily to that project which was by definition the same for all tenderers.

51 In those circumstances, the phrase ‘identified change management and communication as the two most essential tasks for the success of the project’ can be understood only as comprising an absolute and general value judgment on the particular importance of the sub-criteria ‘change management’ and ‘communications plan’ (‘the most essential’) as part of the project envisaged by OHIM under Work Hypothesis No 1 (‘for the success of the project’), of which the bids of the other successful tenderers would have taken account, and, conversely, as a criticism of the first applicant’s bid for failing to have followed an approach similar to that proposed by those successful tenderers to that end.

52 In that regard, OHIM is not justified in claiming, in essence, that the reasoning referred to above should be understood as a value judgment on the sufficient quality of the bids of the other successful tenderers which was based on the identification of two specific sub-criteria, namely ‘change management’ and ‘communications’, since that judgment is not severable from a specifically abstract and preliminary upgrading of the sub-criteria as compared to the other five sub-criteria listed in the first award criterion. Moreover, if only for the reasons set out in paragraphs 48 to 51 above, it does not appear credible that the contracting authority failed to assign a specific number of points from the total of 40 points available to the various sub-criteria which were referred to therein ...

53 Thus, it must be concluded that the negative comparative judgment made by the contracting authority on the first applicant’s bid on that point has no support in the wording of the first award criterion. In particular, the weighting underlying that judgment did not appear to be sufficiently clear, precise and unequivocal from that criterion to enable all reasonably well-informed and normally diligent tenderers to understand their precise scope and to interpret them in the same manner. By applying, contrary to the requirements arising from the case-law ... a weighting of the various sub-criteria within that award criterion which was not provided for by the tender specifications or communicated in advance to the tenderers, OHIM therefore breached, to the detriment of the applicants, the principles of equal opportunities and transparency (T-299/11, paras 48-53, emphasis added).

Technically, the GC's argument is rather solid and, at least at a conceptual level, not much can be criticised. However, given its strong reliance on the specific wording of the letter and arguments concerning implicit underlying sub-criteria and their presumed weightings, it does not seem very persuasive because a more careful and nuanced drafting of the debriefing letter would have completely changed the assessment. 

Indeed, a worrying potential implication of the European Dynamics v OHIM Judgment is that it creates a very powerful incentive for contracting authorities to be disingenuous in their debriefing letters and, where several sub-criteria are listed in the tender documentation, to include references to all of them in the qualitative explanations of the superiority of the tenders chosen for award. 

Such 'holistic' approach to debriefing letter drafting would reduce the quality of the information disclosed--both for the tenderer (who is in any case probably not really seeking to understand the actual superiority of competing bids, but simply a way to litigate) and  also for the reviewing court (which will be receiving more general statements).

As an example, under the circumstances of the case, a debriefing letter with a statement such as ''the offers with very good or excellent criterion 1 ... [struck an appropriate balance between competing implementation needs and provided realistic strategies regarding] most essential tasks for the success of the project [including in particular (but not exclusively): progress control; issue management; change management; escalations; lessons learnt programme; communications plan; and deliverable acceptance procedures]”, would probably have sufficed to nullify European Dynamics' claim and, in my view, would not necessarily infringe the duty to provide reasons as it relates to qualitative technical assessments were technical discretion is rather wide (unless a disproportionately high burden of motivation was imposed, which cannot be completely discarded in view of previous decisions of the GC). In any case, this is just a rough and fast drafting and more considerate wording would probably strike a better balance between provision of reasons and avoidance of litigation.

However, such a debriefing letter would not be as good as the one provided by OHIM in the case at hand, where it naively (?) indicated the actual reasons it had considered to provide better quality management strategies, as it tried to explain to an unimpressed GC (para 52 above)--or, more simply, did not put a great deal of thought on the specific wording of the contentious paragraph of the debriefing letter, which it merely intended to provide qualitative feedback of a general nature. Thus, the European Dynamics v OHIM Judgment puts even more pressure on contracting authorities to be extremely careful in their debriefing (see here and here) and makes this task a nightmarish phase of the procurement process.

Given that such situations carry significant financial consequences (in this case, of an uncertain magnitude because the GC ordered OHIM and European Dynamics to agree between themselves the proper amount of compensation; see paras 149-157), this is an area of procurement practice where contracting authorities would be well advised to start investing more resources. 

At the same time, it is necessary to promote a change of mentality in courts and review bodies dealing with this type of cases, as decisions such as the GC Judgment in European Dynamics v OHIM clearly establish strong financial incentives to litigate and the position of the contracting authorities dealing with complex technical issues requiring qualitative/subjective assessments may be excessively weakened by taking such a hard line in the assessment of debriefing documentation.

CJEU reiterates case law on mutual recognition of certificates and free movement of goods (C-354/14)

In its Judgment in Capoda Import-Export, C-354/14, EU:C:2015:658, the Court of Justice of the European Union (CJUE) has reiterated its case law on the mutual recognition of certificates for the purposes of free movement of goods within the internal market. 

In a timid Judgment, probably due to the limited amount of information made available by the referring court, the CJEU has reiterated the parameters under which Member States are obliged to allow the free circulation of goods legally produced or marketed in other EU countries.

In the case at hand, a Romanian dealer of car spare parts was fined for selling goods that had not been subjected to homologation in Romania. The dealer relied instead on a certificate issued by a German distributor of those goods. Romanian authorities did not consider such certificate sufficient and they insisted in either a manufacturer certificate or full homologation in Romania. Capoda challenged their decision on the basis of EU free movement rules.

The case is legally complicated because the relevant EU regime for mutual recognition of car spare parts has not (yet) been properly developed (see Directive 2007/46/EC of the European Parliament and of the Council of 5 September 2007 establishing a framework for the approval of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles and, particularly, Annex XIII), which requires to assess the issue of recognition of the distributor certificate under the general rules on free movement of goods (paras 34-38).

Succinctly, the CJEU stressed that 

39 ... it is settled case-law that all measures of a Member State which are capable of hindering, directly or indirectly, actually or potentially, trade within the European Union must be considered to be measures having an effect equivalent to quantitative restrictions within the meaning of Article 34 TFEU (see, inter alia, judgments in Dassonville, 8/74, EU:C:1974:82, paragraph 5, and in Juvelta, C-481/12, EU:C:2014:11, paragraph 16).

40 It follows, in particular, that, even in the absence of harmonising European Union measures, products lawfully produced and marketed in a Member State must be able to be marketed in another Member State without being subject to additional controls. In order to be justified, national legislation imposing such controls must be covered by one of the exceptions provided for in Article 36 TFEU or one of the overriding requirements recognised by the case-law of the Court and, in either case, must be appropriate for securing the attainment of that objective and not go beyond what is necessary in order to attain it (see judgments in ATRAL, C-14/02, EU:C:2003:265, paragraph 65, and Commission v Portugal, C-432/03, EU:C:2005:669, paragraph 42).

41 It is apparent from the file sent to the Court that the legislation at issue in the main proceedings imposes the application of an approval or homologation procedure to the products at issue in those proceedings, which is liable to constitute a measure having equivalent effect for the purpose of Article 34 TFEU unless that legislation also lays down exceptions to those procedures so as to ensure that products lawfully produced and marketed in other Member States are exempted.

42 However, it would also appear from that file that Article 1(8) of Government Decree No 80/2000 lays down such exceptions [which would cover to original products or to original spare parts, and would trigger the presumption that unless the contrary is proven, that the products are original if the part manufacturer certifies that the products match the quality of the components used for the assembly of the vehicle in question and have been manufactured in accordance with the specifications and production standards of the vehicle manufacturer]; it is for the referring court to verify whether that is the case.

43 If that should prove not to be the case, it would then be for the competent national authorities to show that that barrier to trade can be justified, in view of the products liable to be affected, by the objectives of protection of road safety and protection of the environment, which, according to the case-law, constitute overriding reasons in the public interest capable of justifying a measure having an effect equivalent to quantitative restrictions and that it is not only necessary, but proportionate in relation to such objectives (see, inter alia, judgment in Commission v Belgium, C-150/11, EU:C:2012:539, paragraphs 54 and 55).

44 As to whether EU law precludes the refusal to consider documents such as those adduced by Capoda [documents issued by distributors and not by the manufacturers] as being sufficient to demonstrate that parts, such as those at issue in the main proceedings, have already been approved or homologated or that they are original parts or spare parts of matching quality, for the purpose of national law, which are exempted, on that basis, from the procedure of approval or homologation by the RAR, it must be noted that it is for the Member States, in the absence of any European Union rules governing the matter, to determine the evidence which may be adduced in that respect, subject to the principles of equivalence and of effectiveness.

45 Subject to that proviso, EU law therefore does not preclude a rule that only certificates issued by the manufacturer and not by the distributor are capable, in principle, of establishing that the parts in question have already been approved or homologated or constitute original parts or spare parts of matching quality, for the purpose of national law. It should, moreover, be pointed out that Article 3(26) of Directive 2007/46, which defines the concept of ‘original parts or equipment’ for the purpose of that directive, provides that it is presumed, unless the contrary is proven, that parts constitute original parts if the manufacturer certifies them as being so (C-354/14, paras 39-45, emphasis added).

This leaves us with the uncertainty of knowing whether Romanian courts must equate the certificate from the distributor to that of the manufacturer, or whether a chain of certificates could be acceptable. However, in general terms, the reminder of the applicable rules and requirements under Arts 34 and 36 TFEU is a good refresher.

Strange question about obligation to refer issues for preliminary ruling to CJEU under Art 267 TFEU (C-452/14)

In its Judgment in Doc Generici, C-452/14, EU:C:2015:644, the Court of Justice of the EU (CJEU) was requested to interpret certain provisions of the EU framework for the evaluation of medicinal products by the Italian Consiglio di Stato. Beyond the technical details of the case concerning medicinal product evaluation, I find the Doc Generici case interesting because it presents a very strange question concerning the obligation to refer issues for preliminary ruling to CJEU under Art 267 TFEU.

Presented with contradictory interpretations of the relevant EU rules on medicinal product evaluation, the Consiglio di Stato decided to stay proceedings and to refer some questions to the CJEU for a preliminary ruling (C-452/14, para 27). This would seem to accord to the ordinary working of Art 267 TFEU, according to which second paragraph "any court or tribunal of a Member State [confronted with an issue regarding the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union] may, if it considers that a decision on the question is necessary to enable it to give judgment, request the [CJEU] to give a ruling thereon." 

This clause in Art 267.II TFEU is generally understood as an enabling mechanism and, as far as I am aware, there is no controversy about the possibility for domestic courts to avail themselves of the preliminary ruling mechanism--which is, in any case, subjected to a check by the CJEU, which can reject the reference on several grounds (including the fact that such interpretation is already available to the referring court by means of previous case law of the CJEU). Thus, nothing out of the ordinary seemed to take place in Doc Generici and the referral by Consiglio di Stato could hardly be interpreted as a procedural anomaly.

However, the Consiglio di Stato does not seem worried about whether it is allowed to refer the questions for preliminary ruling, but about whether it is obliged to do so. In that regard, in Doc Generici, the Consiglio di Stato asked the CJEU whether '[i]n the circumstances in the present proceedings, may or must, as held by this court [ie the Consiglio di Stato itself], the question be referred to the Court of Justice?'.

In my view, given the Consiglio di Stato's willingness to refer the questions on the substantive EU law provisions for interpretation, the further question whether it could or had to do so seems quite superficial and legally irrelevant. The controversy about the obligation to refer questions generally arises when the would-be referring court does not intend to ask the CJEU to provide a preliminary ruling, in which case the extent to which the clause in Art 267.III TFEU forces it to do so can be controversial.

Under Art 267.III TFEU, "[w]here any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court" (emphasis added). This has given raise to a significant body of case law, including the relatively recent developments as to the liability in which the Member State incurs when its highest courts fail to comply with Art 267.III TFEU. In any case, though, as mentioned, this is only controversial when there is no referral.

In Doc Generici, the question of the Consiglio di Stato on whether it was obliged to refer the questions for interpretation under Art 267.III TFEU, or whether it was simply doing so out of a discretionary measure under Art 267.II TFEU, seems to respond to some argument of the parties in the case at hand (which domestic law implications exceed my imagination), but it is irrelevant from the perspective of EU law. 

In fact, the answer given by the CJEU in paras 42-45 could not be more inane, as it simply reiterates the existing doctrine that 

In accordance with the third paragraph of Article 267 TFEU, a court or tribunal against whose decisions there is no judicial remedy under national law is required, where a question of EU law is raised before it, to comply with its obligation to bring the matter before the Court of Justice, unless it has established that the question raised is irrelevant or that the provision of EU law in question has already been interpreted by the Court or that the correct application of EU law is so obvious as to leave no scope for any reasonable doubt (see, inter alia, judgments in Cilfit and Others, 283/81, EU:C:1982:335, paragraph 21, and Boxus and Others, C-128/09 to C-131/09, C-134/09 and C-135/09, EU:C:2011:667, paragraph 31) (C-452/14, para 43).

After that reminder, the CJEU simply proceeds to stress that the Consiglio di Stato was right in considering itself obliged to refer the question because

it is clear from the explanations provided by the Consiglio di Stato that it considers that it is obliged to make a reference to the Court of Justice for a preliminary ruling. Indeed, it is of the view that the dispute in the main proceedings raises a question of interpretation of EU law which is relevant and novel and the answer to which is not so clear as to leave no scope for any reasonable doubt as to the solution (C-452/14, para 44, emphasis added).

However, this is quite empty or circular reasoning, not least because the circumstances of the case the CJEU refers to are 'internal' to the decision of the Consiglio di Stato--ie the referring court is the one that assesses whether the question is useful and is not covered by the doctrine of acte claire. Under EU law, the CJEU would only second-guess such a judgment of a would-be referring court when there is no referral, and only when the non-referring domestic court incurred in a "manifest infringement" of the applicable EU law. 

Thus, in a scenario where the domestic highest court decides to refer, the CJEU is hardly ever going to answer in a way that determines that the referral was not mandatory under 263.III TFEU, even if it eventually decides not to answer the specific questions referred for interpretation. Not least, because even if it was not mandatory, it was in any case possible, so the CJEU need not worry about how the question got to its docket--it need only be concerned when a question that had to be referred is not.

Overall, then, the issue of the obligation or mere possibility for a referral to the CJEU by the Consiglio di Stato in Doc Generici seems the result of an unnecessary domestic imbroglio concerning the effects of such a referral and, in my view, simply serves to strengthen the point that, when in (reasonable) doubt, highest domestic courts must refer questions for preliminary ruling to the CJEU. I am still curious as to the background reasons why the Consiglio di Stato felt the need to justify that it had to refer the issues to the CJEU. If any Italian reader would tell us in the comments, I would remain much obliged.

Some reflections on the working languages of the European Union and its Institutions (à-propos T-124/13 and T-191/13)

In its Judgment of 24 September 2015 in Italy v Commission, joined cases T-124/13 and T-191/13, EU:T:2015:690 (funnily enough, not available in English or German), the General Court of the Court of Justice of the European Union (GC) ruled that EPSO, the Commission’s recruitment office, is breaking its own rules by forcing applicants to use English, French, or German (see short comment in English here). 

Beyond its implications in the way EU Institutions recruit their staff, which are certainly not minor, the case is very important in at least two other ways: firstly, it is important from a legal-technical perspective because it follows up on the string of case law concerned with language requirements to access employment at the EU institutions started in the CJEU Judgment of 27 November 2012 in Italy v Commission, C-566/10 P, EU:C:2012:752 and severely limits the possibilities to justify those requirements under the framework that the CJEU had created (thus, crying out loud for an appeal of the GC's Judgment by the Commission); and, secondly, the case is relevant from a legal-functional (or policy) perspective because of its broader implications in terms of the tension between the EU's languages policy and the workability of its institutions [for discussion of the language policy element of the tension, see Stefaan van der Jeught's remarks here].

On the first point, from a technical perspective, I find the reasoning of the GC remarkably narrow-minded and disappointing. In the 2012  Italy v Commission CJEU Judgment, a reasonable framework was created by recognising the discretion of the EU Institutions to establish a balance between language requirements linked to the interest of the service (ie avoiding them becoming a sad 21st-century reincarnation of Babel's Tower) and the limitation in the selection of the best candidates should they not command the languages specifically chosen. The general principles of that framework were as follows:

88 ... it is apparent ... that the interest of the service may be a legitimate objective that can be taken into consideration. In particular, [relevant EU law] authorises limitations on the principles of non-discrimination and proportionality. Those interests of the service must however be objectively justified and the required level of knowledge of languages must be proportionate to the genuine needs of the service (see, to that effect, Case 79/74 Küster vParliament [1975] ECR 725, paragraphs 16 and 20, and Case 22/75 Küster v Parliament [1975] ECR 1267, paragraphs 13 and 17).
93. In so far as a legitimate objective of general interest may be relied upon and be shown to be genuine, it should be noted that a difference in treatment on the grounds of language must also observe the principle of proportionality, that is to say, it must be appropriate for attaining the objective pursued and must not go beyond what is necessary to achieve it (see, to that effect, Joined Cases C-453/03, C-11/04, C-12/04 and C-194/04 ABNA and Others [2005] ECR I-10423, paragraph 68).
94 ... the recruitment of officials is to be directed to securing for the institution the services of officials of the highest standard of ability, efficiency and integrity. Since that objective can best be achieved when the candidates are allowed to sit the selection tests in their mother tongue or in the second language of which they think they have the best command, it is, in that regard, for those institutions to weigh the legitimate objective justifying the limitation of the number of languages of the competition against the objective of identifying the most competent candidates.
97 ... it is therefore a matter for the institutions to weigh the legitimate objective justifying the limitation of the number of languages of the competitions against the opportunities for recruited officials of learning, within the institutions, the languages necessary in the interest of the service (C-566/10 P, paras 88, 93-94 and 97, emphasis added).

Given this framework, which the GC recognises in its 2015 Italy v Commission Judgment, the decision it reaches is really surprising because the Commission went out of its way to justify very precisely the reasons why it insisted on candidates commanding one of either English, French or German as a second language (including those whose native tongue was one of them). In paras 74 and ff of its Judgment, the GC details how the Commission justified the discretionary choice to impose those language requirements and, in fact, concludes that 'the contested calls certainly contain a motivation aimed at justifying the requirement that candidates must have a satisfactory knowledge of German, English or French, languages ​​to which their choice of the second language for the selection process is limited. Therefore, its author, EPSO, cannot be found to have breached the obligation to state reasons. The issue of the justification for this motivation is different, and will be discussed separately' (T-124/13 and T-191/13, para 83, own translation from Spanish).

Precisely in that analysis of the justification provided to motivate the imposition of the language requirements is where, in my view, the GC goes astray and engages in a sort of analysis that nobody acquainted with the way in which EU Institutions work could consider realistic or reflective of reality. This is particularly clear in this passage:

110 The [Commission's] claim that the three languages ​​mentioned above "remain the most widely used languages" in view, specifically, of "the practice already firmly established in the EU institutions with regard to the languages ​​used for internal communication" occupies a key position in this reasoning. However, it must be said that this is a vague statement, which is not supported by specific indications. 

111 Indeed, this alleged (sic) practice of the EU institutions with regard to the languages ​​used for internal communication is not explained in any way. In particular, [the Commission] does not specify if it involves parallel use of these languages ​​as languages ​​of internal communication in all services of all the institutions affected by the contested calls or, rather, some services use one of these languages ​​and some another. In the latter case, there is a risk that services which may be interested in candidates who have passed the controversial oppositions do not use either of the three languages ​​mentioned above as the language of internal communication, which would challenge the reasonableness and proportionality of the limitation, to these three languages, of the choice of a second language for the controversial selection process. Indeed, in that case, either some candidates that have passed the selection process will not be contracted, or the services in question will be forced to appoint, in part, candidates who do not speak the language of internal communication, in which case the a question of the meaning and utility of the above limitation may be legitimately raised. 

 112 The Commission has provided some details in his writings in this regard and submitted additional evidence. However, their analysis does not dispel the serious doubts raised by the above statements contained in the contested calls (T-124/13 and T-191/13, paras 110-112, own translation from Spanish and emphasis added).

In my view and based on my experience of interaction with the European Commission, this is a formal analysis with no grounding on reality. In fact, in my experience, the Commission fundamentally works only in English, and I would think that anyone familiar with the working of the Institutions would have a similar experience in views. Thus, the GC seems to have been chasing ghosts and imposed a burden on the Commission to justify that "alleged" language practice despite the fact that it is vox populi. 

The GC is also very dismissive of all statistics and arguments submitted by the Commission to try to justify that practice (paras 113-144), which in my view exceeds the level of adequate substantive judicial review established in Art 263 TFEU, and concludes 'that the limitation ... to German, English and French of the choice of the second language for the selection process ... is not objectively justified or proportionate to its aim, which, according to the Commission, is to select officials and agents are immediately operational'  (T-124/13 and T-191/13, para 145, own translation from Spanish).

In my opinion, by engaging in such a tough and dismissive analysis of the reasons provided by EPSO to justify the language requirements it saw fit to ensure the needs of the service, the GC went too far and emptied the analytical framework created by the CJEU in 2012 of any meaning by actually dismissing the important point that it is 'for those institutions to weigh the legitimate objective justifying the limitation of the number of languages of the competition against the objective of identifying the most competent candidates' and 'a matter for the institutions to weigh the legitimate objective justifying the limitation of the number of languages of the competitions against the opportunities for recruited officials of learning, within the institutions, the languages necessary in the interest of the service' (C-566/10 P, paras 94 & 97). Reading the GC's Judgment, it seems clear that the GC has substituted EPSO's discretion with its own, which does not seem to me to be compatible with the CJEU's approach.

Generally then, on the second point of policy, it seems clear that the GC (and the CJEU to a more limited extent, at least for now) is not ready to support the workability of the European Union and its institutions by decoupling issues of language recognition and support under cultural policies from issues of operability and efficiency of the institutional architecture of the EU. Entire books have been dedicated to these issues [eg T.J.M. van Els, 'The European Union, its Institutions and its Languages: Some Language Political Observations' (2001) 2(4) Current Issues in Language Planning 311-360], but very limited advances have been attained (other than sporadic highlights, such as the acceptance of languages restrictions for the purposes of the Single European Patent; see here). Thus, the problem remains unsolved and, by the looks of it, it will only grow more and more difficult to sort out... 

Further thoughts on the competition implications of public contract registries: rebuttal to Telles

Some 10 days ago, Dr Pedro Telles and I engaged in another of our procurement tennis games. This time, the topic of contention is the impact of public contract registers on competition. I published a first set of arguments (here) and Pedro replied (here) mainly stressing that I had not paid enough attention to the potential upsides of such registers. 

Pedro advocated some potential sources of economic benefits derived from the use of public contract registers aimed at full transparency of tender and post-award procurement documentation, of which I would pick: 1) reduced opportunities for price arbitrage and 2) more scope for antitrust intervention by competition authorities possessing better data on what is going on in procurement markets. His arguments are well developed and can be seen as attractive. However, on reflection, there are still reasons why they do not necessarily work. In this post, I address these two issues and explain why I am still sceptical that they can result in any actual economic upsides. I am expecting Pedro to follow up with more arguments, which would be certainly welcome.

1) What about the 'single market theory = law of one price' approach?

The discussion on price arbitrage implicitly rests on the economic 'law of one price' whereby, in simple terms, a specific good should be traded at a single price in all locations. However, that 'economic law' rests on a large number of assumptions, which are particularly fit to commodity markets and ill suited to complex contracts for goods, or most definitely for services. 

In fact, even in highly competitive markets for commoditised products, the law of one price does not hold, at least if conceived in strong terms (ie strictly one price for a given good) instead of relaxing it to require a convergence or clustering of prices [for an interesting empirical paper stressing these insights, see K Graddy, 'Testing for Imperfect Competition at the Fulton Fish Market' (1995) 26(1) The RAND Journal of Economics 75-92]. 

Thus, focussing on arbitrage issues for anything other than very homogeneous commodities traded under standard contract clauses can fall foul of the due recognition of the assumptions underlying the 'law of one price'. Pedro acknowledges this: "yes, I am talking about a commodity, but then a lot of public procurement is made around commodities, including oil". On this point, however, I think data does not support his views.

According to the 2011 PwC-London Economics-Ecorys study for the European Commission 'Public procurement in Europe-Cost and effectiveness', commodities and manufactured goods only account for about 10% in value and 14% in number of procurement procedures subjected to the EU rules (see here page 45). Thus, the issue of price arbitrage is certainly not of first magnitude when the effects of public contract registers are assessed from an economic perspective.

(c) Anderson for eQuest

2) What about more intervention by competition authorities based on better (big) data?

On this point, Pedro and I agree partially. It is beyond doubt that, as he puts it, there are "potential upsides of having more data available in terms of cartel fighting. What can be done when reams and reams of contract data are available? You can spot odd behaviours. For example, you can corroborate a whistleblower account and you can then check if certain collusive practice/tactic is happening in other sectors as well." That is why, on my original post, I advocated for "[o]versight entities, such as the audit court or the competition authority, [to] have full access" to public contract registers.

However, as I also suggested (probably not in the clearest terms), in order to enable competition law enforcement on the basis of better data, there is no need for everyone to have (unlimited) access to that data. The only agent that needs access is the competition authority. More importantly, indiscriminate disclosure is not technically necessary, particularly when public contract registries are electronic and can be designed around technical devices giving differentiated access to information to different stakeholders.

This is an important issue. In a different but comparable context, disclosure obligations in the field of securities and financial regulation have been criticised for failing to address their excessive rigidity in certain multi-audience scenarios, where investors and competitors can access the same information and, consequently, firms have conflicting incentives to disclose and not to disclose specific bits of commercially sensitive information [for a very interesting discussion, see S Gilotta, 'Disclosure in Securities Markets and the Firm's Need for Confidentiality: Theoretical Framework and Regulatory Analysis' (2012) 13(1) European Business Organization Law Review 45-88].

In that setting, selective disclosure of sensitive information has been considered the adequate tool to strike a balance of interest between the different stakeholders wanting access to the information, and this is becoming a worldwide standard with a significant volume of emerging best practices [eg Brynn Gilbertson and Daniel Wong, 'Selective disclosure by listed issuers: recent “best practice” developments', Lexology, 9 Sept 2014].

Therefore, by analogy (if nothing else), I still think that 

Generally, what is needed is more granularity in the levels of information that are made accessible to different stakeholders. The current full transparency approach whereby all information is made available to everyone falls very short from the desired balance between transparency and competition goals of public procurement. A system based on enabling or targeted transparency, whereby each stakeholder gets access to the information it needs for a specific purpose, is clearly preferable.

New Paper (in Spanish) on Agency Theory and Conflicts of Interest in Public Procurement

I have written a paper in Spanish (a rare occurrence) for the special issue on law and economics of the Revista de Economía Industrial, which I have now posted on SSRN as 'La Aplicación de la Teoría de Agencia a la Prevención de Conflictos de Interés en la Contratación Pública bajo la Directiva 2014/24' [Application of Agency Theory to the Prevention of Conflicts of Interest in Public Procurement Under Directive 2014/24] (September 22, 2015). Revista de Economía Industrial, número monográfico sobre Análisis Económico del Derecho. http://ssrn.com/abstract=2663947. Its abstract is as follows:

ABSTRACT

Law and economics analyses of public procurement have provided important contributions regarding contract design, particularly from the perspective of bidders’ incentives, as well as facilitated the formalisation of studies on collusion and corruption in settings of strict transparency obligations and rigid demand planning requirements. This paper does not focus on any of those facets of economic analysis of public procurement, but rather on the less developed application of agency theory to the activities of the public buyer. Building upon the contributions by Trepte (2004) and Yukins (2010), this paper explores the varied dimensions in which public procurement gives rise to agency problems, as well as some of the solutions to remedy them developed in Directive 2014/24.

RESUMEN

El análisis económico del derecho de la contratación pública ha dado lugar a importantes contribuciones relacionadas con el diseño de los contratos desde el punto de vista de los incentivos de los licitadores, así como a avances en la formalización de estudios relacionados con la colusión y la corrupción en escenarios sujetos a estrictas normas de transparencia y a rígidos ejercicios de planificación de la demanda. Este artículo no se fija en ninguna de estas facetas, sino en la menos desarrollada aplicación de la teoría de agencia a las actividades del comprador público. Basándose en las contribuciones de Trepte (2004) y Yukins (2010), el artículo explora las varias dimensiones en que la contratación pública se ve afectada por problemas de agencia, así como algunas de las soluciones que la nueva Directiva 2014/24 ha desarrollado para tratar de remediarlas.

The full paper can be accessed here: http://ssrn.com/abstract=2663947.

Why are public contracts registers problematic?

This past week, I had the pleasure and honour of starting my participation in the European Commission Stakeholder Expert Group on Public Procurement (PPEP). The first batch of discussions  revolved, firstly, around the use of the best price quality ratio (BPQR) award criterion and, secondly, around the use of transparency tools such as public contract registers. 

This second topic is of my particular interest, so I have tried to push the discussion a step forward in a document circulated to the PPEP Members. Given the general nature of the discussion document, I thought it could be interesting to post it here. Any comments will be most welcome and will help enrich the views presented to the European Commission in the next meeting. Thank you for reading and commenting.

Centralised Procurement Registers and their Transparency Implications—Discussion Non-Paper for the European Commission Stakeholder Expert Group on Public Procurement ~ Dr Albert Sanchez-Graells[1]

Background

In its efforts to increase the effectiveness of EU public procurement law in practice and to steer Member States towards the mutual exchange and eventual adoption of best practices,[2] the European Commission has identified the emerging trend of creating public contracts registers as an area of increasing interest.[3] Such registers go beyond the well-known electronic portals of information on public contract opportunities, such as TED[4] at EU level or Contracts Finder in the UK,[5] and aim to publish very detailed tender and contractual information, which in some cases include aspects of the competition generated prior to the award of the contract (such as names of the undertakings that submitted tenders) and the actual contractual documents signed by the parties. Such registers exist at least in Portugal,[6] Italy[7] and Slovakia.[8] The European Commission is interested in assessing the benefits and risks that such public contracts registers generate, particularly in terms of transparency of public tendering and the subsequent management of public contracts. This discussion non-paper aims to assess such benefits and risks and to sketch some proposals for risk mitigation measures.

Why are public contract registries created?

Traditional registers of contract opportunities are fundamentally based on transaction cost theory insights and aim to reduce the search costs that undertakings face in trying to identify opportunities to supply the public sector. By making the information readily available, contracting authorities expect to receive expressions of interest and/or offers from a larger number of undertakings, thus increasing competition for public contracts and reducing the information asymmetries that affect contracting authorities themselves. In the end, that sort of pre-award transparency mechanism aims at enabling the contracting authority to benefit from competition. It also creates the additional benefit of avoiding favouritism and corrupt practices in the selection of public suppliers and, in the context of the EU’s internal market, supports the anti-discrimination agenda embedded in the basic fundamental freedoms of movement of goods, services and capital through pan-European advertisement.

The justification for ‘advanced’ public contracts registers that include post-award transparency mechanisms is more complex and, in short, this type of registers is created for a number of reasons that mainly include objectives at two different levels:

1. At a general level, these registers aim at

• Reacting to perceived shortcomings in public governance, particularly in the aftermath of corruption scandals, or as part of efforts to strengthen public administration processes
• Complementing ‘traditional’ public audit and oversight mechanisms through enhanced access to information by stakeholders and civil society organisations, as well as enabling more intense scrutiny by the press, in the hope of ‘private-led’ oversight and audit. The possibilities that digitisation and big data create in this area of public governance are a significant driver or steer to the development of these registers.[9]

2. At a specific level, these registers aim at

• Facilitating contract management oversight and creating an additional layer of public exposure of contract-related decision-making, thus expanding the scope of procurement transparency beyond the award phase
• Facilitating private enforcement of public procurement rules by allowing interested parties to prompt administrative and/or judicial review of specific procurement decisions,[10] both pre-award and during the execution phase

Generally, then, these additional transparency mechanisms are not intended to foster competition. Their main goal and justification is to preserve the integrity of public contract administration and to increase the robustness of anticorruption tools by facilitating social or private oversight. They significantly increase the levels of transparency already achieved through pre-award disclosure mechanisms and, in simple terms, they aim at creating full transparency of public procurement and public contract management, basically for the purposes of legitimising public expenditure by means of increased (expected) accountability as a result of such full transparency and tougher oversight.

Why are public contract registries problematic from a competition perspective?

Public contract registries are problematic precisely due to the levels of transparency they create. Economic theory has conclusively demonstrated that the levels of transparency created by public procurement rules and practices (such as these registers) facilitate collusion and anticompetitive behaviour between undertakings, thus eroding (and potentially negating) the benefits contracting authorities can obtain from organising tenders for public contracts.[11] This is an uncontroversial finding that led the OECD to stress that “[t]he formal rules governing public procurement can make communication among rivals easier, promoting collusion among bidders … procurement regulations may facilitate collusive arrangements”.[12]

The specific reasons why and conditions under which increased transparency facilitates collusion are beyond the scope of this discussion non-paper, but suffice it to stress here that transparency will be particularly pernicious when it allows undertakings that are already colluding to identify the detailed conditions under which they did participate in a particular bid or refrained from participating (by, for instance, disclosing the names of participating tenderers and the specific conditions of the winning tender).[13] Moreover, conditions of full transparency are not only problematic in relation to already existing cartels, but they are also troublesome regarding the creation of new cartels because increased transparency alters the incentives to participate in bid rigging arrangements.[14]

Furthermore, full transparency can also damage competition in industries with strong dominant undertakings. In those settings, transparency may not lead to cartelisation, but it can facilitate exclusionary strategies by the dominant undertaking by allowing them to focus exclusionary practices (such as predatory pricing) in markets or segments of the market where it detects entry by new rivals or innovative tenderers. Even in cases where collusion or price competition may not be a prime issue, full transparency can create qualitative distortions of competition, such as technical levelling[15] or reduced participation due to undertakings’ interest in protecting business secrets (as discussed below). Overall, it is beyond doubt that excessive transparency in public procurement is self-defeating because it erodes or nullifies any benefits derived from the organisation of public tenders.

All these economic insights led the OECD to adopt a formal Recommendation to prompt its members to “assess the various features of their public procurement laws and practices and their impact on the likelihood of collusion between bidders. Members should strive for public procurement tenders at all levels of government that are designed to promote more effective competition and to reduce the risk of bid rigging while ensuring overall value for money”.[16] Thus the impact of increased procurement transparency on the likelihood of collusion and cartelisation in procurement markets, as well as the other potential negative impacts on the intensity or quality of competition, requires closer scrutiny and the competition implications of excessive transparency cannot simply be overseen in the name of anti-corruption goals.[17] Not least, because a large number of cartels discovered and prosecuted by competition authorities involve public procurement markets[18]—which demonstrates that the economic impact of such collusion-facilitative implications of full transparency is not trivial. 

Estimating the economic impact of cartels in public procurement is a difficult task.[19] However, generally accepted estimates always show that the negative economic effect is by no means negligible and that anticompetitive overcharges can easily reach 20% of contract value.[20] Thus, particularly in view of the Europe 2020 goal to ensure ‘the most efficient use of public funds’,[21] issues of excessive transparency in public procurement markets need to be addressed so as to avoid losses of efficiency derived from the abnormal operation of market forces due to procurement rules and practices.

This does not mean that transparency needs to be completely abandoned in the public procurement setting, but a more nuanced approach that accommodates competition concerns is necessary. As has been rightly stressed, “transparency measures should at least be limited to those needed in order to enhance competition and ensure integrity, rather than being promoted as a matter of principle. Transparency should be perceived as a means to an end, rather than a goal in itself”.[22] This is in line with the OECD’s specific recommendation that “[w]hen publishing the results of a tender, [contracting authorities] carefully consider which information is published and avoid disclosing competitively sensitive information as this can facilitate the formation of bid-rigging schemes, going forward”.[23] The final section of this non-paper presents some normative recommendations to that purpose, which highlight much needed restrictions to the promotion of full transparency as a matter of principle.

Are there other reasons why procurement registries can be problematic?

As briefly mentioned above, another source of possible negative impacts derived from public contract registries is their potential chilling effect on undertakings keen to protect their business secrets. It is often stressed that tenders contain sensitive information and that disclosure of that information can damage the commercial interests of bidders if those secrets are at risk of being disclosed through the public contracts registries or otherwise.[24] Thus, undertakings can either decide not to participate in particularly sensitive tenders, or submit offers and documentation in such a way as to keep their secrets concealed, hence diminishing their quality or increasing the information cost/asymmetry that the contracting authority needs to overcome in their assessment. Either way, these business secret protective strategies reduce the intensity and quality of the competition. Moreover, transparency of certain elements of human resources-related information (particularly in view of the increasing importance of work teams in the area of services procurement) not only can trigger data protection concerns,[25] but also facilitate unfair business practices such as the poaching of key employees.

However, despite the clear existence of business secret and commercial interest justifications for the preservation of certain levels of secrecy, there is a tendency to minimise the relevance of these issues by creating a private interest-public interest dichotomy and stressing the relevance of public (anti-corruption) goals. This is problematic. What is often overlooked is that contracting authorities have themselves a commercial interest in keeping business secrets protected. That interest derives immediately from their need to minimise the abovementioned chilling effect (ie not crowding out or scaring away undertakings wary of excessive disclosure), so that competition remains as strong as possible. And such interest in avoiding excessive disclosure also derives, in the mid to long-term, from the need not to thwart innovation by means of technical levelling or de facto standard setting.

These issues were recently well put in the context of UK litigation concerning a freedom of information request that the contracting authority rejected on the basis of relevant business secret and commercial interest protection. As clarified by the First Tier Tribunal,

There is a public interest in maintaining an efficient competitive market for leisure management systems. If the commercial secrets of one market entity were revealed, its competitive position would be eroded and the whole market would be less competitive. As the Court of Appeal put it in Veolia ES Nottinghamshire Ltd v Nottinghamshire County Council and others [2012] P.T.S.R. 185 at [111], a company’s confidential information is often “the life blood of an enterprise”. The [Information Commissioner’s Office] argued that this is particularly so in an industry such as the provision of leisure management systems because such systems are a complex amalgam of technologies, customer support networks, and user interfaces, which involve elements individual to particular companies. Those individual elements drive competition to the benefit of public authorities and consumers.[26]

Thus, the protection of business secrets and commercial interests should not be seen as a limitation of the public (anti-corruption) interest in the benefit of private interests, but as a balancing exercise between two competing public interest goals: efficiency and integrity of procurement. Once this realignment of goals is understood, restrictions of public procurement transparency based on competition considerations should receive support also from a public governance perspective.

A final consideration in terms of potential negative impacts of public contract registries derives from the way they are financed. At least in the case of Italy, economic operators are required to pay fees towards the funding of the relevant public contract registry when they first participate in any given tender. This becomes a financial burden linked to procurement participation that can have clear chilling effects, particularly for SMEs with limited financial resources. It is widely accepted that financial barriers to participation should be suppressed as a matter of best practice[27]—and, in certain occasions, as a matter of compliance with internal market regulation as well. Thus, the creation of any sort of public contract registry which funding requires upfront payments from interested undertakings should not be favoured.

How could competition and confidentiality concerns be embedded in the design of public contract registries, so that their risks are minimised?

The discussion above supports a nuanced approach to the level of transparency actually created by public contract registries, which needs to fall short of the full transparency paradigm in which they have been conceived and started to be implemented. As a functional criterion, only the information that is necessary to ensure proper oversight and the effectiveness of anti-corruption measures should be disclosed, whereas the information that can be most damaging for competition should be withheld. 

Generally, what is needed is more granularity in the levels of information that are made accessible to different stakeholders. The current full transparency approach whereby all information is made available to everyone falls very short from the desired balance between transparency and competition goals of public procurement. A system based on enabling or targeted transparency, whereby each stakeholder gets access to the information it needs for a specific purpose, is clearly preferable.

In more specific terms, the following normative recommendations are subjected to further discussion. They are by no means exhaustive and simply aim to specify the sort of nuanced approach to disclosure of public procurement information that is hereby advocated.

• Public contract registers should not be fully available to the public. Access to the full registry should be restricted to public sector officials under a strong duty of confidentiality protected by appropriate sanctions in cases of illegitimate disclosure.
• Even within the public sector, access to the full register should be made available on a need to know basis. Oversight entities, such as the audit court or the competition authority, should have full access. However, other entities or specific civil servants should only access the information they require to carry out their functions.
• Limited versions of the public contract registry that are made accessible to the public should aggregate information by contracting authority and avoid disclosing any particulars that could be traced back to specific tenders or specific undertakings.
• Representative institutions, such as third sector organisations, or academics should have the opportunity of seeking access to the full registry on a case by case basis where they can justify a legitimate or research-related interest. In case of access, ethical approval shall be obtained, anonymization of data attempted, and specific confidentiality requirements duly imposed.
• Delayed access to the full public registry could also be allowed for, provided there are sufficient safeguards to ensure that historic information does not remain relevant for the purposes of protecting market competition, business secrets and commercial interests.
• Tenderers should have access to their own records, even if they are not publicly-available, so as to enable them to check their accuracy. This is particularly relevant if public contract registries are used for the purposes of assessing past performance under the new rules.
• Big data should be published on an anonymised basis, so that general trends can be analysed without enabling ‘reverse engineering’ of information that can be traced to specific bidders.
• The entity in charge of the public contracts registry should regularly publish aggregated statistics by type of procurement procedure, object of contract, or any other items deemed relevant for the purposes of public accountability of public buyers (such as percentages of expenditure in green procurement, etc).
• The entity in charge of the public contracts registry should develop a system of red flag indicators and monitor them with a view to reporting instances of potential collusion to the relevant competition authority.

---

[1] Senior Lecturer in Law, University of Bristol Law School and Member of the European Commission Stakeholder Expert Group on Public Procurement (E02807) (2015-2018). This paper has been prepared for discussion within the Expert Group, following an initial exchange of ideas in the meeting held in Brussels on 14 September 2015. The views presented on this paper are my own and in no way bind any of the abovementioned institutions. Comments and suggestions welcome: a.sanchez-graells@bristol.ac.uk.

[2] For discussion of this regulatory and governance approach in the area of public procurement, see C Harlow and R Rawlings, Process and Procedure in EU Administration (Oxford, Hart, 2014) 142-169.

[3] Point 2 ‘’contract registers to enhance full transparency of data related to public procurement”, included in the agenda for the Stakeholder Expert Group on Public Procurement of 14 September 2015, available at http://ec.europa.eu/internal_market/publicprocurement/docs/expert-group/150914-agenda_en.pdf.

[4] Tenders Electronic Daily (TED) http://ted.europa.eu/TED/main/HomePage.do.

[5] https://www.gov.uk/contracts-finder.

[6] Base: Contratos Publicos Online, http://www.base.gov.pt/Base/pt/Homepage.

[7] Banca Dati Nazionale dei Contratti pubblici, http://portaletrasparenza.avcp.it/microstrategy/html/index.htm.

[8] A case study based on the Slovakian Online Central Register of Contracts is available at https://joinup.ec.europa.eu/community/epractice/case/slovakian-online-central-register-contracts.

[9] See eg the efforts of the Sunlight Foundation by means of its Procurement Open Data Guidelines http://sunlightfoundation.com/procurement/opendataguidelines. See also the Open Contracting Data Standard project http://standard.open-contracting.org/.

[10] For discussion, see A Sanchez-Graells, “The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives” (November 2013), http://ssrn.com/abstract=2353005.

[11] A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 73-75.

[12] OECD, Public Procurement: Role of Competition Authorities (2007) 7, available at http://www.oecd.org/competition/cartels/39891049.pdf. For discussion, see A Sanchez-Graells, “Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement”, in G Racca & C Yukins (eds), Integrity and Efficiency in Sustainable Public Contracts (Brussels, Bruylant, 2014) 171-198, available at http://ssrn.com/abstract=2053414.

[13] For discussion, see A Heimler, “Cartels in Public Procurement” (2012) 8(4) Journal of Competition Law & Economics 849-862 and SE Weishaar, Cartels, Competition and Public Procurement. Law and Economics Approaches to Bid Rigging (Cheltenham, Edward Elgar, 2013) 28-36.

[14] P Gugler, “Transparency and Competition Policy in an Imperfectly Competitive World”, in J Forssbaeck & L Oxelheim (eds), Oxford Handbook of Economic and Institutional Transparency (Oxford, OUP, 2014) 144, 150.

[15] Sanchez-Graells, Public Procurement and the EU Competition Rules (n 11) 76.

[16] OECD, Recommendation on Fighting Bid Rigging in Public Procurement (2012), available at http://www.oecd.org/daf/competition/RecommendationOnFightingBidRigging2012.pdf. For discussion, see A Sanchez-Graells, “Public Procurement and Competition: Some Challenges Arising from Recent Developments in EU Public Procurement Law”, in C Bovis (ed), Research Handbook on European Public Procurement (Cheltenham, Elgar, 2016). Available at http://ssrn.com/abstract=2206502.

[17] For discussion, see RD Anderson, WE Kovacic and AC Muller, ‘Ensuring integrity and competition in public procurement markets: a dual challenge for good governance’ in S Arrowsmith & RD Anderson (eds), The WTO Regime on Government Procurement: Challenge and Reform (CUP, 2011) 681-718.

[18] This is true in all jurisdictions. See KL Haberbush, “Limiting the Government’s Exposure to Bid Rigging Schemes: A Critical Look at the Sealed Bidding Regime” (2000–2001) 30 Public Contract Law Journal 97, 98; and RD Anderson & WE Kovacic, ‘Competition Policy and International Trade Liberalisation: Essential Complements to Ensure Good Performance in Public Procurement Markets’ (2009) 18 Public Procurement Law Review 67. See also A Sanchez-Graells, “Public Procurement: A 2014 Updated Overview of EU and National Case Law” (2014). e-Competitions: National Competition Laws Bulletin, No. 40647. Available at http://ssrn.com/abstract=1968371.

[19] See the debate around the proposal to create a rebuttable presumption of overcharge at 20% in the Directive on actions for breach of the EU antitrust rules; Commission Staff Working Document SWD(2013) 203 final para 88, http://ec.europa.eu/competition/antitrust/actionsdamages/impact_assessment_en.pdf. However, given the controversy on specific figures, the final version of Art 17 of Directive 2014/104 includes an unquantified presumption. Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union [2014] OJ L 349/1.

[20] For a very modest estimation of cartel overcharges in the environment of 17%, see M Boyer & R Kotchoni, “How Much Do Cartels Overcharge?” (2014) Toulouse School of Economics Working Paper TSE‐462, available at http://www.tse-fr.eu/sites/default/files/medias/doc/wp/etrie/wp_tse_462_v2.pdf.

[21] Communication from the Commission of 3 March 2010, Europe 2020 A strategy for smart, sustainable and inclusive growth, COM (2010) 2020 final para 4.3, p. 24, available at http://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20%20%20007%20-%20Europe%202020%20-%20EN%20version.pdf. For discussion, see A Sanchez-Graells, “Truly competitive public procurement as a Europe 2020 lever: what role for the principle of competition in moderating horizontal policies?” (2016) 22(2) European Public Law Journal, available at http://ssrn.com/abstract=2638466.

[22] RD Anderson and AC Muller, “Promoting Competition and Deterring Corruption in Public Procurement markets: Synergies with Trade Liberalization”, draft paper to be published in the "E15 Expert Group on Competition Policy" (a joint initiative/facility of the World Economic Forum and the International Centre for Trade and Sustainable Development) 13 (on file with author).

[23] OECD, Guidelines for Fighting Bid Rigging in Public Procurement (2009) 7, available at http://www.oecd.org/competition/cartels/42851044.pdf.

[24] For discussion, see C Ginter, N Parrest & M-A Simovart, “Requirement to Protect Business Secrets and Disclose Procurement Contracts under Procurement Law” (2013) IX Juridica 658-665.

[25] These are beyond the scope of this discussion non-paper.

[26] Sally Ballan v Information Commissioner EA/2015/0021 (28 July 2015) para [25(c)], available at http://www.informationtribunal.gov.uk/DBFiles/Decision/i1609/Ballan,%20Sally%20EA.2015.0021%20%2828.07.15%29.pdf.

[27] Sanchez-Graells, Public Procurement and the EU Competition Rules (n 11) 280-281.

AG Opinion favours minimum pay in public contracts: why the CJEU should not follow (C-115/14)

In his Opinion in RegioPost, C-115/14, EU:C:2015:566 (not yet available in English), Advocate General Mengozzi has submitted that the relevant EU public procurement rules (still Directive 2004/18; Art 26 on conditions for performance of contracts), did not oppose the imposition of requirements to pay minimum hourly rates to workers executing specific public contracts if those requirements stem from domestic (regional) legislation that would be engaged as a result of the posted workers Directive. 

The AG makes significant efforts to distinguish the RegioPost case from previous Judgments of the CJEU in Rüffert (C-346/06, EU:C:2008:189) and Bundesdruckerei (C-549/13, EU:C:2014:2235, see my comments here), and his Opinion creates leeway for the inclusion of minimum wage requirements in the execution of certain types of services contracts (something discussed by Dr Richard Craven in a work-in-progress paper presented at the UACES conference earlier this week). Moreover, the analysis in the AG's Opinion is relevant for the interpretation and enforcement of the new EU public procurement rules (Directive 2014/24; Art 70 on Conditions for performance of contracts). Thus, his RegioPost Opinion deserves some analysis.

In the case at hand, according to Rhineland-Palatinate's regional legislation (ie at Länder-level, as opposed to Federal-level which did not at the relevant time regulate minimum wage), public contracts could not be awarded to tenderers that did not commit to pay a gross minimum hourly wage of €8,70 to the workers involved in the execution of the contract. Remarkably, such commitment had to be made in their own name and on behalf of any existing or potential subcontractors. 

RegioPost was interested in a contract for the provision of postal services, but considered the minimum-wage requirement contrary to EU law and submitted its offer without the necessary declaration committing to pay such minimum hourly wage. Its offer was excluded from the process and each of the lots in which the contract was divided was awarded to a competing tenderer. RegioPost appealed the exclusion/award decision.

The arguments put forward by RegioPost, which the Commission shared, stressed that the incompatibility of the minimum hourly wage requirement with EU law derived both from the fact that this was a special requirement for public contracts not applicable to the execution of private contracts (Rüffert), and that the imposition of such a requirement needed to be assessed in accordance with the posted workers Directive because the provision of postal services would (at least for interested tenderers not based in Germany) require hiring or posting workers (differently from the situation in Bundesdruckerei, where the disappointed tenderer intended to execute the services contract remotely). There is a third, very technical issue, but the CJEU would not need to engage in its assessment if it followed the approach suggested here, so I will not discuss it in any detail.

A 'subjective' legal assessment?

In his Opinion, AG Mengozzi rejects both arguments. Starting with the analytical framework, he rejects that the analysis needs to include the provisions in the posted workers Directive. In his view, in Bundesdruckerei, the CJEU limited the analysis to compatibility with Art 56 TFEU because the circumstances of the case would not have engaged the posted workers Directive. In that regard, AG Mengozzi stresses that RegioPost (being an undertaking based in Germany and that had not indicated its intention to subcontract the execution beyond German territory) would not have executed the contract in a way that engaged the posted workers Directive. Thus, the AG concludes that the posted workers Directive is not relevant and, consequently, the analysis needs to be limited to compatibility with Art 56 TFEU as in Bundesdruckerei (paras 45-60).

In my view, this is a very problematic analytical option. If RegioPost had been an undertaking not based in Germany or that intended to subcontract the execution of the contract to a non-German based company in all or in part, the analysis would have been different. Therefore, the legal analysis depends in this case from the fact that the situation that gives rise to RegioPost's challenge is strictly internal. However, in its analysis of the admissibility of the request for a preliminary ruling, the AG had gone to painstakingly long efforts to set aside this argument in order to justify the competence of the CJEU to rule on this issue (paras 27-44). 

Remarkably, the AG had stressed how 'it cannot be excluded in any way that, following its publication in the Official Journal of the European Union, this tender has been of interest for a number of companies established in Member States other than Germany, but these companies have not finally participated in the award procedure for reasons that could be related to the requirements [concerning the minimum hourly wage at stake]' (para 37, own translation from Spanish). In my view, this should suffice for the CJEU to adopt a view that does not depend on the specific tenderer that challenges the requirement, but on the objective compatibility of the requirement with EU law, particularly in protection of the interests of those potentially excluded cross-border tenderers.

A competence-based legal assessment?

In similar terms, AG Mengozzi rejects the argument that the imposition of the minimum hourly wage only to the execution of public contracts, but not to private contracts, determines its incompatibility with EU law a-la-Rüffert. The AG considers that the inclusion of Art 26 in Directive 2004/18 (and now Art 70 in Dir 2014/24) has overruled Rüffert by allowing for the imposition of special conditions for the execution of public contracts. In his view, this suffices to overcome the Rüffert line of case law and moves the analysis to a pure competence-based issue. In the AG's view, given that German Lander have competence to legislate on minimum wages solely for public contracts (but not general minimum wages), upholding the difference between special conditions for public contracts and those generally applicable to private contracts (as well) would result in the nullification of the Lander's legislative competence (paras 61-89).

This is a very complex and counter-intuitive approach to the issue. Particularly because the AG stresses that 'it is true that Member States with a federal structure, such as the Federal Republic of Germany, cannot claim the internal division of powers between the authorities of regional or local authorities and federal authorities in order to avoid compliance with the obligations imposed on them by EU law. In order to ensure compliance with these obligations, these different authorities are obliged to coordinate the exercise of their respective powers' para 83, own translation from Spanish and reference omitted). And, however, his Opinion goes on to protect the effectiveness of the internal split of competences in a way that, in my opinion, simply goes against those findings.

Moreover, the AG traces a parallelism between social and environmental considerations in public procurement and indicates that the possibility of including environmental considerations that apply solely to public contracts (and not to private contracts) further justifies such a deviation from the Rüffert approach to issues of implicit discrimination. However, the AG is mixing different issues because, as recently argued in a persuasive manner, the inclusion of environmental considerations is assessed in an inverted manner by means of the requirement for those considerations to be linked to the subject-matter of the contact [see the analysis by Dr Rike Krämer in a work-in-progress paper also presented at UACES earlier this week]. Thus, the analytical framework is different, not least because the EU has a significant volume of environment-related competences, whereas its ability to regulate in social matters is extremely limited, if not practically non-existent.

What should the CJEU do?

In my opinion, the CJEU should reject AG Mengozzi's RegioPost Opinion on both aspects. Starting with the second argument, the CJEU should reject the competence-based analysis because it would allow Member States to restrict the effectiveness of EU internal market rules on the basis of their internal split of competences, which has not been accepted by the CJEU in the past. By stressing the important point in Bundesdruckerei that 

imposing ... a fixed minimum wage corresponding to that required in order to ensure reasonable remuneration for employees in the Member State [or region] of the contracting authority in the light of the cost of living in that Member State [or region], but which bears no relation to the cost of living in the Member State in which the services relating to the public contract at issue are performed and for that reason prevents subcontractors established in that Member State from deriving a competitive advantage from the differences between the respective rates of pay ... national legislation goes beyond what is necessary to ensure that the objective of employee protection is attained (C-549/13, at para 34, emphasis added).

This would simply imply using the principle of undistorted competition as a moderating factor aimed at controlling potential excessed resulting from the pursuit of secondary considerations in public procurement and, in particular, using undistorted competition as a limit to the pursuit of social policies that can break-up the internal market and prevent cross-border participation in public tenders [as discussed in full detail in A Sanchez-Graells, 'Truly Competitive Public Procurement as a Europe 2020 Lever: What Role for the Principle of Competition in Moderating Horizontal Policies?' (2016) 22(2) European Public Law forthcoming].

Moreover, on the first aspect, the CJEU should expand its analysis under Bundesdruckerei and include the assessment of the situation where the execution of the contract would necessarily require a non-German based contractor to either post workers or subcontract to a German-based undertaking. In those cases, compliance with the posted workers Directive would be the applicable standard in terms of social protection. Therefore, that would be the analysis to be carried out in order to assess whether the imposition of the minimum hourly wage solely to workers involved in the execution of public works is acceptable. The answer would most likely be that it is not (Rüffert), regardless of the wording of Art 26 of Dir 2004/18 and Art 70 of Dir 2014/24, because both of them require that any such special conditions for the execution of public contracts comply with general EU law.

In short, the CJEU should not follow AG Mengozzi's Opinion on any of these two issues. It should stress the current limits on the inclusion of social considerations in public procurement and define clear boundaries. Granted, this is an area where Member States may want to achieve more leeway (see eg the UK's latest approach to internships, as discussed by Dr Pedro Telles here), but this would require further harmonisation of social legislation on an EU-basis to avoid a new fractioning of the internal market. In the absence of such harmonisation, public procurement remains the wrong regulatory tool to address those issues.

When a commercial lawyer is (also) a consumer: Excessive paternalism by the CJEU (C-110/14)

In its Judgment in Costea, C-110/14, EU:C:2015:271, the Court of Justice of the European Union (CJEU) has engaged in extreme formalism in the interpretation of the notion of 'consumer' under EU law [and, more precisely, under Article 2(b) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts]. Costea is, in my view, a criticisable Judgment because it pushes legal fiction too far and departs from what I would have considered a sensible functional approach to the concept of consumer. It is worth looking closer at the reasoning of the CJEU.

The CJEU provides a very useful summary of the facts of the case: 

Mr Costea practises as a lawyer and, as such, primarily handles cases in the field of commercial law... he concluded a credit agreement with Volksbank. The repayment of that loan was secured by a mortgage registered against a building belonging to Mr Costea’s law firm ... That credit agreement was signed by Mr Costea, not only in his capacity as borrower but also in his capacity as representative of his law firm, owing to the latter’s status of mortgage guarantor (C-110/14, para 9, emphasis added).

In short, then, Mr Costea was legally acting in several capacities in a single commercial transaction, where he was both borrowing money personally and representing the legal entity that acted as his guarantor. However, he claimed protection under EU law so as to detach both legal positions and avoid his professional qualification from reducing the protection that he would otherwise be afforded as a lay consumer.

His claim was, in very simple terms, that he was at the same time a commercial lawyer acting for his firm and a consumer acting for himself. Given the impossibility of splitting the human mind and detaching oneself from knowledge already acquired, it is very hard to understand how--beyond the legal fiction derived from his ability to represent a legal entity created and owned by himself, as well as his own personal interests--he could ever be considered to functionally hold two very opposite positions: ie that of the knowledgeable commercial lawyer that acts under the general duties of his lex artis, and that of the unknowing consumer that deserves special protection when it enters into complex transactions.

However, the CJEU does precisely that. Following the Opinion of AG Cruz Villalón (see a comment here), the CJEU engages in the following reasoning:

17 It is ... by reference to the capacity of the contracting parties, according to whether or not they are acting for purposes relating to their trade, business or profession, that the directive defines the contracts to which it applies (judgments in Asbeek Brusse and de Man Garabito, C-488/11, EU:C:2013:341, paragraph 30, and Šiba, C-537/13, EU:C:2015:14, paragraph 21).
18 That criterion corresponds to the idea on which the system of protection implemented by that directive is based, namely that the consumer is in a weaker position vis-à-vis the seller or supplier, as regards both his bargaining power and his level of knowledge. This leads to the consumer agreeing to terms drawn up in advance by the seller or supplier without being able to influence the content of those terms (judgments in Asbeek Brusse and de Man Garabito, C-488/11, EU:C:2013:341, paragraph 31, and Šiba, C-537/13, EU:C:2015:14, paragraph 22).
21 The concept of ‘consumer’, within the meaning of Article 2(b) of Directive 93/13, is ... objective in nature and is distinct from the concrete knowledge the person in question may have, or from the information that person actually has (C-110/14, paras 17-18 and 21, emphasis added).

In setting up this analytical framework, the CJEU conflates two arguments. The first one relates to the weak position of the consumer in terms of unequal bargaining power. The second one relates to the information imperfection that can affect the consumer. At least on this second point, the CJEU is extremely formalist and engages in an interpretation of EU law that is not adjusted to commercial reality, but simply aimed at the world of ideas. By  flatly rejecting that the specific knowledge and expertise of the consumer can alter its legal position, the CJEU preempts any granularity in EU consumer law, at least when it comes to a potential reduction of the standard of protection of the savvy consumer--which is also functionally in stark contrast with the increased protection afforded to the particularly vulnerable consumer, and thus creates a clear imbalance in the development of this area of EU economic law.

Moreover, this formalism exacerbates the paternalism of the CJEU in its aim to protect consumers, even when they are in a situation where they do not actually deserve protection because they are not affected by an information asymmetry or imperfection [for extended discussion on this rationale for consumer protection law, see F Gomez Pomar, 'EC Consumer Protection Law and EC Competition Law: How related are they? A Law and Economics perspective' (2003) InDret 113, pp. 10 and ff]. Thus, the Costea Judgment is bound to expand consumer protection beyond its desirable remit.

The line of argument based on the consumer's limited bargaining power is the one that allows the CJEU to afford protection to Mr Costea as an individual. It is harder to take issue with the reasoning of the CJEU in paras 24-27 because the CJEU assesses the relative bargaining power of a lawyer in the abstract and concludes that 'even if a lawyer were considered to display a high level of technical knowledge ..., he could not be assumed not to be a weak party compared with a seller or supplier'. However, this should have been left for a factual assessment under the circumstances of the case, in which it could actually be proven (not presumed or assumed) that the lawyer was in no weaker position.

This is where the CJEU again engages in a line of reasoning that is extremely formalistic, particularly because it loses perspective of the fact that several legal persons are actually embodied in a single natural person. According to the CJEU

28 As regards the fact that the debt arising out of the contract in question is secured by a mortgage taken out by a lawyer in his capacity as representative of his law firm and involving goods intended for the exercise of that lawyer’s profession, such as a building belonging to that firm, it should be held that ... it has no bearing on the assessment carried out in ... this judgment.

29 The case in the main proceedings concerns the determination of the status (that of consumer or of seller or supplier) of the person who has concluded the main agreement (the credit agreement) and not the status of that person under the ancillary agreement (the mortgage), securing the payment of the debt arising from the main agreement. In a case such as that at issue in the main proceedings, the categorisation, as a consumer or as a seller or supplier, of the lawyer in the context of his taking out a mortgage cannot, consequently, determine his status under the main credit agreement (C-110/14, paras 28-29, emphasis added).

In my view, this is simply functionally absurd. The CJEU failed to look at the transaction as a whole and afforded protection beyond what might have been necessary. Moreover, the reasoning seems exceedingly simplistic in its dichotomy: ie in a given contract, each of the parties is either a consumer or a seller/supplier. This is not in line with the fact that, as AG Cruz Villalón pointed out in his Opinion, 'the contrast between the concepts of seller or supplier and consumer does not operate in completely symmetrical terms' (para 21). A functional approach should certainly allow for a more nuanced approach, so that a specific party (ie the one that demands the services in the transaction) can be categorised as consumer/no-consumer. This is certainly the case with legal entities [Judgment in Cape and Idealservice MN RE, C-541/99 and C-542/99, EU:C:2001:625, para 16], and there seems to be no good reason to automatically exclude such analysis in the case of professionals.

Overall, then, the Costea Judgment seems like an exceedingly formalistic exercise and leaves a flavour of undue expansion of consumer protection that could well backfire by allowing professionals to access unnecessary protection by the simple use of separate legal entities (which they can create and control). Will this lead to a future extension of the doctrine of lifting the corporate veil to the area of consumer protection? That would certainly be bonkers...

Public Contracts Regulations 2015 ... THE END

It seems incredible that the procurement tennis that Dr Pedro Telles and I started on 16 February 2015 (see here and here) has come to an end with today's comments (Pedro has also declared game over). Thank you all for reading and contributing to the debate, and for the encouragement we received from so many of you!

In April, Peter Smith wrote about our 'Herculean' task. In his kind words 'by the time Telles and Sánchez Graells have finished, this will be a considerable and useful resource for public procurers. And although the material is by definition somewhat technical at times, it is accessible for practitioners and it should be essential reading for anyone interested in staying within EU and national rules, yet also getting the most flexibility possible out of the regulations in order to generate better results and performance.' We hope we have delivered to those high expectations.

In any case, as a result of these 244 posts, we have a pretty bulky draft of what could become a more formal commentary to the Public Contracts Regulations 2015. We are thinking about ways of polishing and improving the material, as well as platforms to make it available both online and in print. Any suggestions would be welcome. We will keep you posted.

On the 'human' side of the project, Pedro published some reflections on the experience half way through (30 June 2015). I will still need some time to digest this project, which has made blawging certainly more intense than it used to be for me. I guess that the only lesson I have really learnt is that committing to blog daily on a predetermined topic is quite a challenge. So don't!

I now look forward to the freedom of choosing what to blog about, and I hope some of the readers of How to Crack a Nut will remain interested despite the likely change of focus away from public procurement, at least for a while. I hope I will not have too much writers block...

Revocation, amendments, savings, transitional provisions and temporary exceptions under regs.115 to 122 Public Contracts Regulations 2015

Regs.115 to 122 of the Public Contracts Regulations 2015 (PCR2015) contain rules on revocation, amendments, savings, transitional provisions and temporary exceptions. These rules are intended to maintain the effects of procurements carried out under pre-2015 rules and to establish the delayed entry into force of the 2015 rules in certain areas (Pedro has a similar view).

Reg.116 revokes the 2006 Public Contracts Regulations (PCR2006) and provides that the consequential and miscellaneous amendments set out in Schedule 6 PCR2015 have effect. Given the difference in scope of coverage of concession contracts between the PCR2006 and the PCR2015, reg.117 PCR2015 establishes a general saving in respect of certain concession contracts and determines that nothing in the PCR2015 affects public works or services concession contracts within the meaning of the PCR2006, or procedures for the award of such contracts. 

Reg.118 establishes a general transitional provision and saving where procurement procedures commenced before 26th February 2015, and reg.119 PCR2015 establishes an equivalent transitional provision and saving where utilities procurement procedure commenced before 26th February 2015.

On its part, and as mentioned in relation to regs.77 and 113 PCR2015, reg.12o PCR2015 establishes a temporary exemption and saving for certain NHS procurements, whereby nothing in the PCR2015 affects (a) any contract award procedure that relates to the procurement of health care services for the purposes of the NHS within the meaning and scope of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013, and is commenced before 18th April 2016; or (b) any contract awarded as a result of such a procedure.

Reg.121 PCR2015 establishes a delayed entry into force of certain obligations concerning eProcurement and the use of electronic means of communication. During such transitory period prior to the full commencement of reg.22(1) to (7) PCR2015--ie, the period between 26th February 2015 and 17th October 2018--contracting authorities may choose between the following means of communication: electronic means in accordance with reg.22 PCR2015; post or other suitable carrier; fax; or a combination of those means. That choice is available for all communication and information exchange in respect of which both the following criteria are met: (a)the use of electronic means would, in accordance with reg.22(1) to (5), have been required if those provisions had been in force; and (b) the use of electronic means is not required by any other provision of the PCR2015 that is in force.

Finally, reg.122 PCR2015 establishes special rules concerning compliance with reg.113 PCR2015 whereby, in relation to any financial year ending before 1st April 2016, a contracting authority may comply with reg.113(7) as if sub-paragraph (b) referred to the total amount of interest actually paid instead of the total amount of liability accrued.

General provisions applicable to Part 4 under reg.114 Public Contracts Regulations 2015

Reg.114 of the Public Contracts Regulations 2015 (PCR2015) closes its Part 4 and sets two general provisions (see Pedro's brief comments here). Before looking at them in detail, it is worth reminding that Part 4 (regs. 105 to 114 PCR2015): (a) expands (both ex ante and ex post) transparency obligations domestically by requiring publications in Contracts Finder and, in particular, creates transparency obligations for below EU-threshold contracts (regs.110 and 112PCR2015); (b) restricts the use of PQQs (either prohibiting them for below threshold contracts, or limiting them to a standardised PQQ); and (c) reinforces some obligations to pay promptly.

Reg.114(2) PCR2015 establishes that nothing in Part 4 requires a contracting authority to disclose any information if it considers that the disclosure would be contrary to the security interests of the United Kingdom. There is not much to say about this, other than stressing the need to interpret this provision in very narrow terms and subject it to a strict proportionality analysis--ultimately based on the case law concerned with Art 36 TFEU and its functional equivalents when it comes to derogating from internal market freedoms on the basis of public interest and security concerns.

More importantly, reg.114(1) PCR2015 declares that a material failure to comply with any requirement of Part 4 does not, of itself, affect the validity of a public contract that has been entered into. This creates uncertainty as to the consequences of such a breach, particularly because the remedies in Part 3 are not available for breaches of duties under Part 4 (see reg.98 PCR2105, and comments here). 

However, at least where the contract is of cross-border interest, it is quite clear that reg.114(1) PCR2015 would be contrary to the case law of the CJEU, at least in relation to infringements relating to reg.110 PCR2015 if they resulted in excessively diminished levels of ex ante transparency. In that regard, it is worth stressing that contracts covered by reg.110 can be of cross-border interest despite not meeting the value thresholds of reg.5 PCR2015.

In those cases, a consolidated body of case law of the CJEU  (mainly, Telaustria and Telefonadress, C-324/98, EU:C:2000:669; and Coname, C-231/03, EU:C:2005:487) has imposed certain obligations derived from the general principles of EU law (now consolidated in reg.18 PCR2015). Amongst those obligations, there is a relatively undefined requirement to ensure a 'sufficient degree of advertising', or ex ante transparency [for discussion, see C Risvig Hansen, Contracts Not Covered or Not Fully Covered by the Public Sector Directive (Copenhagen, DJØF, 2012) 121-160 (cross-border interest) and 161-186 (transparency)]. 

In its most recent formulation, the CJEU has reiterated that 'the principles of equal treatment and of non-discrimination on grounds of nationality impose, particularly on the contracting authority, a duty of transparency, consisting in the duty to ensure, for the benefit of any potential tenderer, a degree of publicity sufficient to enable the award procedure to be opened up to competition and the impartiality of that procedure to be reviewed, without necessarily implying an obligation to call for tenders' (Comune di Ancona, C-388/12, EU:C:2013:734, para 46). Thus, infringements of rules requiring ex ante disclosure of contract opportunities can imply breaches of EU law--provided there is a cross-border interest for the contract.

Thus, it is not clear at all that reg.114(1) PCR2015 suffices to actually create a legal situation whereby 'a material failure to comply with any requirement of Part 4 [PCR2015] does not, of itself, affect the validity of a public contract that has been entered into', so contracting authorities should not disregard the importance of compliance therewith.

Payment of undisputed invoices within 30 days by contracting authorities, contractors and subcontractors under reg.113 Public Contracts Regulations 2015

Reg. 113 of the Public Contracts Regulations 2015 (PCR2015) establishes rules for the payment of undisputed invoices within 30 days. Reg.113 clearly aims to shorten the delay in payments down the supply chain and, somehow,  comes to make up for the fact that reg.71 PCR2015 does not include some of the optional mechanisms in Art 71 of Directive 2014/24 to that effect, such as the possibility to create mechanisms of direct payment to subcontractors.

On the whole, reg.113(2) PCR2015 tries to achieve the goal of ensuring prompt payments down the supply chain by establishing that contracting authorities shall ensure that every public contract which they award contains suitable provisions to require: 

(a) that any payment due from the contracting authority to the contractor under the contract is to be made no later than the end of a period of 30 days from the date on which the relevant invoice is regarded as valid and undisputed;

(b) that any invoices for payment submitted by the contractor are considered and verified by the contracting authority in a timely fashion and that undue delay in doing so is not to be sufficient justification for failing to regard an invoice as valid and undisputed; and

(c) that any subcontract awarded by the contractor contains suitable provisions to impose, as between the parties to the subcontract (i)requirements to the same effect as those which sub-paragraphs (a) and (b) require to be imposed as between the parties to the public contract; and a requirement for the subcontractor to include in any subcontract which it in turn awards suitable provisions to impose, as between the parties to that subcontract, requirements to the same effect as those required by this sub-paragraph (c).

Where no such provisions exist, reg.113(6) PCR2015 determines that very similar terms will be implied in the relevant contracts.

Hence, the three main obligations that derive from reg.113(2) and (6) are: a duty to verify invoices in a timely fashion, a duty to pay within 30 days all invoices regarded as valid and undisputed (which is inexcusable in case of undue delay in the verification process), and a duty to include (or have implicitly included) those terms in all contracts and subcontracts.

Reg.113(7) PCR2015 requires contracting authorities to publish on the internet each year how they have performed on this including the proportion of invoices paid on time to their first tier suppliers /prime contractors.

There are several issues regarding reg.113 that deserve detailed comments (Pedro has focused on the impact of this rules on highly-complex contracts here).

(1) Need to coordinate Reg.113 PCR2015 and Directive 2011/7 on late payments

Directive 2011/7/EU on combating late payment in commercial transactions imposes specific obligations to ensure prompt payment in commercial transactions, both when payments are due to the main contractor, and when they are due between undertakings (in the case of subcontracts) [see Department for Business, Innovation and Skills, A Users Guide to the recast Late Payment Directive (October 2014)]. 

Those obligations clearly apply in concurrence to the specific rules of reg.113, as implicitly acknowledged in its paragraph (3), whereby reg.113(2) is without prejudice to any contractual or statutory provision under which any payment is to be made earlier than the time required by that paragraph. 

Under Art 4(3)(a)(i) Dir 2011/7, in commercial transactions where the debtor is a public authority, the period for payment cannot exceed 30 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment. However, under Art 4(3)(a)(iv) Dir 2011/7, where a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for by statute or in the contract and if the debtor receives the invoice or the equivalent request for payment earlier or on the date on which such acceptance or verification takes place, the period for payment cannot exceed 30 calendar days after that date. 

In any case, under Art 4(5) Dir 2011/7, for such acceptance or verification procedure to be valid for these purposes, its maximum duration must not exceed 30 calendar days from receipt of the goods or services, unless otherwise expressly agreed in the contract and any tender documents and provided it is not grossly unfair to the creditor (Art 7 Dir 2011/7).

In view of all this, there are two risks derived from an approach of strict compliance with reg.113(2)(a) and (b) PCR2015 that could leave contracting authorities exposed to pay statutory damages, without the necessity of a reminder, in the form of statutory interest for late payment--ie simple interest for late payment at a rate which is equal to the sum of the reference rate and at least eight percentage points.

The first risk is that contracting authorities may incur in liability for late payment under Art 4(3)(a)(1) Dir 2011/7 if they do not pay invoices within 30 days from their date because they engage in non-contractual acceptance or verification processes. In my view, the scant provisions in reg.113(2)(b) and 113(6)(b) are insufficient to meet the requirement for such procedures to be considered statutory for the purposes of Art 4(3)(a)(iv) Dir 2011/7. Hence, unless they include a regulation (even if by reference) of those verification and acceptance procedures in the public contract, they are bound to pay within 30 days from invoice date.

The second risk is that, as a combined effect of Art 4(3)(a)(iv) and Art 4(5) Dir 2011/7, and unless otherwise expressly agreed in the contract and any tender documents and provided it is not grossly unfair to the creditor (Art 7 Dir 2011/7), the combined length of those verification and acceptance procedures and payment cannot exceed 60 days. Consequently, contracting authorities cannot in any case pay later than 60 days after receipt of the goods or services, regardless of any autonomous interpretation of the requirements in reg.113(2)(b).

Consequently, as interpreted in compliance with Dir 2011/7, reg.113 PCR2015 imposes payment dates that are potentially stricter than a simple reading of the provision could indicate. In fact, reg.113 does not create any obligation to pay any quicker than contracting authorities had to do under EU law in any case. 

The situation is different when it comes to payment obligations between contractors and sub-contractors, or further down the supply chain. In that regard, it is worth stressing that under Art 3(5) Dir 2011/7, contracts regarding commercial transactions between undertakings cannot specify payment periods beyond 60 days, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor (Art 7 Dir 2011/7). In that regard, the virtuality of reg.113(2) and (6) PCR2015 is to enforce that limit and, probably, reduce it where the contracting authority pays in a shorter period.

(2) Formal exceptions for NHS and  schools' and academies' procurement

A second point that deserves comments concerns reg.113(1) PCR2015, which excludes contracts for the procurement of health care services for the purposes of the NHS within the meaning and scope of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013; and contracts awarded by a contracting authority which is a maintained school or an Academy, from compliance with the requirements of the regulation.

In my view, and given the discussion above, this exclusion is perfectly useless, at least in relation to the NHS. Given that all contracting authorities [Art 2(2) Dir 2011/7] need to pay within the 30 calendar day limits set by Art 4(3) Dir 2011/7, the exclusion of reg.113(1) has no practical effect. Under Art 4(4) Dir 2011/7, the UK could have decided to apply for longer payment periods for health services and other commercial activities carried out by public entities. However, the Government decided not to do so [see Department for Business, Innovation and Skills, Directive 2011/7/EU on Combating Late Payment in Commercial Transactions. Government Response to Consultation (February 2013)]. Similar reasons apply to the exclusion for schools and academies.

Thus, it is unclear why reg.113(1) PCR2015 aims to create such an exclusion and, in my view, it is in any case ineffectual.

(3) Statutory Guidance Issued under Reg.113 --Standard Term Not Useful At All

Reg.113(4) PCR2015 establishes that contracting authorities shall have regard to any guidance issued by the Minister for the Cabinet Office; and reg.113(5) PCR2015 further determines that such guidance may, in particular, recommend model provisions, including provisions defining the circumstances in which an invoice is to be regarded as being, or as having become, valid and undisputed including, for example: (a) provisions deeming an invoice to have become valid and undisputed if not considered and verified in a timely manner; and (b) addressing what is to be considered, for that purpose, to be a timely manner in various circumstances. 

Such guidance has now been published and is available here. However, it simply provides a standard term on prompt payment that contracting authorities can include in their contracts. The standard terms simply provides the following (and a clause on sub-contracts):

1. Where the Contractor submits an invoice to the Authority [in accordance with paragraph [•]], the Authority will consider and verify that invoice in a timely fashion.
2. The Authority shall pay the Contractor any sums due under such an invoice no later than a period of 30 days from the date on which the Authority has determined that the invoice is valid and undisputed.
3. Where the Authority fails to comply with paragraph 1 and there is an undue delay in considering and verifying the invoice, the invoice shall be regarded as valid and undisputed for the purposes of paragraph (2) after a reasonable time has passed.

In my view, such a clause does not regulate the procedure for verification and acceptance to an acceptable standard in terms of Art 4(5) Dir 2011/7. In particular, the first paragraph is insufficient to consider that it sets out a "procedure of acceptance or verification by which the conformity of the goods or services with the contract is to be ascertained". Thus, contracting authorities will be well-advised to pay all their invoices within 30 days from their date in order to meet the requirements under Art 4(3) Dir 2011/7. Otherwise, they will have to start paying statutory damages in the form of statutory interest for late payment very soon and very often.

A network of papers on competition in public procurement: What a summer

If anyone has followed my SSRN account over the summer, they could not be blamed for thinking that I have been uploading quite a number of relatively similar papers on the interaction of competition and public procurement rules, and particularly the interpretation of Article 18(1) of Directive 2014/24. Given that this is something I explore in detail in Public Procurement and the EU Competition Rules, 2nd end (Oxford, Hart, 2015) 195-237 (generously made freely available by Hart Publishing here), the reader may wonder what else was there to say about this.

It is true that some of these papers touch upon connected issues and even have some overlapping sections. This could indeed lead readers to think that the papers are a simple iteration of the same ideas and, consequently, there is no point in reading them. This post explains how these papers interact and relate to each other--and it will hopefully clarify that I have not simply engaged in a massive exercise of self-plagiarism (or at least not willingly!). The papers address different specific issues or have different overall aims, which I hope makes them interesting to different scholars and practitioners for different reasons.

(1) The paper with a more general view is 'Competition Law and Public Procurement', which explores two of the areas in which antitrust prohibitions and public procurement law interact. This forms part of a larger project led by Dr Jonathan Galloway of the Newcastle Law School, which researches the way in which antitrust law (ie arts 101 and 102 TFEU) has developed through its interaction with other sets of economic law rules, both in the public and private law sphere. Thus, the paper provides an overview of the areas where the antitrust rules and EU public procurement law overlap, and zooms in to propose that the principle of competition in Art 18(1) of Dir 2014/24 may serve as a transmission belt to bring competition considerations and analysis to the public procurement sphere.

(2) With a similar general approach, I have updated 'Public Procurement and Competition: Some Challenges Arising from Recent Developments in EU Public Procurement Law' (originally drafted in 2013), to be included in Professor Chris Bovis' Research Handbook on European Public Procurement (Edward Elgar, forthcoming). This paper aims to map some of the challenges for a better integration of competition and public procurement rules that remain after the adoption of Dir 2014/24, and pays attention to issues related to eProcurement and the need of further professionalization of procurement. The paper points at research questions that may lead to further research, so it will hopefully be relevant to academics and postgraduate students looking for not so trodden paths to further our knowledge in this area of EU economic law.

(3) The most recent paper 'A Deformed Principle of Competition? – The Subjective Drafting of Article 18(1) of Directive 2014/24' provides a contextual analysis of the legislative process that led to the adoption of Dir 2014/24. Again, this paper forms part of a larger project led by Dr Grith Skovgaard Ølykke and myself that explores broader issues of the EU legislative process and the interaction of the EU Institutions involved, using the 2011-2014 EU public procurement reform as a case study. From this perspective, the paper focuses on the EU legislative process that led to the consolidation of the principle of competition in Art 18(1) of Dir 2014/24, as well as the modifications that its drafting suffered as a consequence of the negotiations between the Member States at the Council and the further amendment proposals by the European Parliament in preparation of the trialogue with the European Commission. This is, on its whole, a 'law and political science' paper--which is a methodological approach that we are trying to embrace as part of the project.

(4) Following this approach of assessing the interaction between law and policy, 'Truly Competitive Public Procurement as a Europe 2020 Lever: What Role for the Principle of Competition in Moderating Horizontal Policies?' tackles the implications of the principle of competition for the pursuit of horizontal policies as part of the broader Europe 2020 strategy. The paper takes the view that the principle of competition in Art 18(1) of Dir 2014/24 is the main tool in the post-2014 procurement toolkit and the moderating factor in the implementation of any horizontal (green, social, innovation) policies under the new rules — that is, that competition remains the main consideration in public procurement and that the pursuit any horizontal policies, including those aimed at delivering the Europe 2020 strategy, need to respect the requirements of undistorted competitive tendering. This is part of a broader discussion on the position and role of public procurement in the Europe 2020 strategy with Dr Richard Craven, Dr Sylvia de Mars and Dr Rike Kraemer at the forthcoming UACES conference.

(5) Finally, adopting a different perspective, 'Assessing Public Administration’s Intention in EU Economic Law: Chasing Ghosts or Dressing Windows?' looks at public procurement and State aid rules as two examples of areas of EU economic law subjected to interpretative and enforcement difficulties due to the introduction, sometimes veiled, of subjective elements in their main prohibitions. The paper explores the main thesis that such intentional elements need to be ‘objectified’, so that EU economic law can be enforced against the public administration to an adequate standard of legal certainty. Thus, the paper does not delve into the substantive implications of the principle of competition in Art 18(1) of Dir 2014/24, but on the technical aspects implied in its apparent requirement of assessing the intention of contracting authorities whose procurement activities are covered by the EU rules.

Overall, in my view, the papers offer quite a complementary set of perspectives on the general issue of the interaction between competition law and public procurement (1, 2), the way in which this interaction is fleshed out in the EU legislative process (3), the way in which diverging and conflicting policy goals can be balanced-out in a pro-competitive way (4) and the broader implications of the development of EU administrative law issues within these fields of EU economic law (5). Their common theme or common denominator is the permanent main focus on the principle of competition consolidated in Art 18(1) of Dir 2014/24. However, when taken as a whole, that is solely the conduit for the exploration of broader issues. Thus, I hope they will still be relevant for interested readers. From now on, I will focus on different issues. Enough of this topic, at least for the summer!

Yet another paper on the principle of competition in the 2014 public procurement Directive

I have uploaded a new paper on SSRN: 'A Deformed Principle of Competition? – The Subjective Drafting of Article 18(1) of Directive 2014/24', forthcoming in GS Ølykke & A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules in 2014 (Cheltenham, Edward Elgar Publishing, 2016). Available at SSRN: http://ssrn.com/abstract=2642971. 

The paper focuses on the EU legislative process that led to the consolidation of the principle of competition in Article 18(1) of Directive 2014/24, as well as the modifications that its drafting suffered as a consequence of the negotiations between the Member States at the Council and the further amendment proposals by the European Parliament in preparation of the trialogue with the European Commission. As detailed in the abstract:

In its 2011 Proposal for a new Directive on public procurement, the European Commission included the consolidation of the general principles of procurement. For the first time, in addition to the ‘classic’ triad of equality, non-discrimination and transparency, it expressly included the principle of competition amongst such general principles. In the 2011 Proposal, the Commission referred to an objective concept of restriction of competition, which would be proscribed by the future Directive. Successive negotiations allowed the Council and the European Parliament to alter the drafting of this provision. The final text in Article 18(1) of the 2014 Directive thus contains a different version of the principle of competition. In this final version, both a subjective element and a presumption of distortion of competition are included, which could diminish the effectiveness of the principle. Moreover, both deviations from the initial proposal by the Commission are difficult to reconcile with the existing case law of the Court of Justice of the European Union (CJEU).

This paper traces the legislative evolution of the principle of competition in public procurement and looks for explanations for the alteration of its initial drafting. Looking to the future, it considers whether the CJEU will stand by the new drafting and limit the principle as desired by the Council and the Parliament or, conversely, it will promote a functional approach along the lines of the objective conception initially proposed by the Commission. This paper proposes that the second option is preferable and, in any case, more likely in view of the CJEU's treatment of similar issues in other areas of EU public procurement law (such as the classical anti-circumvention provisions), as well as EU economic law more generally (and, remarkably, competition law and the granting of State aid).

The paper is part of a larger project where Dr Grith Skovgaard Ølykke and myself will be editing a book that explores broader issues of the EU legislative process and the interaction of the EU Institutions involved, using the 2011-2014 EU public procurement reform as a case study. We are thrilled to have a long list of excellent young and raising scholars contributing to the book. Stay tuned for further developments.