CJEU opens door to manipulation of evaluations and fails to provide useful guidance on the use of 'soft quality metrics' in the award of public contracts (C-6/15)

In its Judgment of 14 July 2016 in TNS Dimarso, C-6/15, EU:C:2016:555, the Court of Justice of the European Union (CJEU) issued some important clarifications on the requirements applicable to the disclosure of evaluation methods under the EU public procurement rules. However, it also turned down the opportunity of clarifying what are the limits of the discretion that contracting authorities enjoy when deciding which evaluation methods to use and, more importantly, it failed to address the important and quite specific concerns about the use of 'soft quality metrics' that AG Mengozzi had raised in his Opinion in this case (as discussed here, where background to the case is offered).

The case broadly raised two main legal issues. First, whether in addition to the disclosure of the award criteria and their weighting (as required by Art 53(2) Dir 2004/18 and now Art 67(5) Dir 2014/24), contracting authorities must also disclose in the tender documentation, or at some point prior to the review of the offers, the evaluation methods they plan to use in the assessment of the tenders. Second, whether having disclosed a numerical weighting applicable to the quality and price criteria (50/100 each), the contracting authority was right to assess the quality criterion in accordance with a soft qualitative ‘high — satisfactory — low’ scale, not referred to in the contract documents.

no obligation to disclose (or indeed establish) evaluation rules prior to the review of the tenders

Regarding the first issue, after reiterating its case law on the purpose of the rules on disclosure of award criteria and their weighting, and stressing their relevance in ensuring equality of treatment between tenderers both when they formulate their tenders and when those tenders are being assessed by the contracting authority (para 22), the CJEU adopted a position that I find surprising. The CJEU stressed that

it is possible for a contracting authority to determine, after expiry of the time limit for submitting tenders, weighting factors for the sub-criteria which correspond in essence to the criteria previously brought to the tenderers’ attention, provided that three conditions are met, namely that that subsequent determination, first, does not alter the criteria for the award of the contract set out in the tender specifications or contract notice; secondly, does not contain elements which, if they had been known at the time the tenders were prepared, could have affected their preparation; and, thirdly, was not adopted on the basis of matters likely to give rise to discrimination against one of the tenderers (see judgment of 21 July 2011 in Evropaïki Dynamiki v EMSA, C‑252/10 P, not published, EU:C:2011:512, paragraph 33 and the case-law cited) (C-6/15, para 26). 

However, it did not apply this reasoning by analogy to evaluation methods as could have been expected. On the contrary, the CJEU adopted a very lenient approach and, after confirming that neither the rules in the Directive nor the previous case law referred to an obligation to disclose evaluation methods, it went on to establish that

29 ... an evaluation committee must be able to have some leeway in carrying out its task and, thus, it may, without amending the contract award criteria set out in the tender specifications or the contract notice, structure its own work of examining and analysing the submitted tenders (see judgment of 21 July 2011 in Evropaïki Dynamiki v EMSA, C‑252/10 P, not published, EU:C:2011:512, paragraph 35).

30 That leeway is also justified by practical considerations. The contracting authority must be able to adapt the method of evaluation that it will apply in order to assess and rank the tenders in accordance with the circumstances of the case.

31 In accordance with the principles governing the award of contracts provided for in Article 2 of Directive 2004/18 and in order to avoid any risk of favouritism, the method of evaluation applied by the contracting authority in order to specifically evaluate and rank the tenders cannot, in principle, be determined after the opening of the tenders by the contracting authority. However, in the event that the determination of that method is not possible for demonstrable reasons before the opening of the tenders, as noted by the Belgian Government, the contracting authority cannot be criticised for having established it only after that authority, or its evaluation committee, reviewed the content of the tenders.

32 In any event, pursuant to the principles governing the award of contracts ... the determination by the contracting authority of the method of evaluation after the publication of the contract notice or the tender specifications cannot have the effect of altering the award criteria or their relative weighting (C-6/15, paras 29-32, emphasis added). 

The reasoning of the CJEU raises two surprising issues, in my view. First, the CJEU seems to conflate the need for the contracting authority to establish an evaluation method that is adapted to the particularities of a given tender (which seems correct, para 30) with the need for the contracting authority to be able to do that at any time (which seems incorrect, para 31). Accepting that the contracting authority can design ad hoc evaluation methods for each of the contracts it tenders does not imply that it can leave this important aspect of the evaluation process for a late stage. Logically, it would seem that setting the award criteria, their weighting and establishing the rules according to which they will be evaluated are different aspects of one same decision: how will the tenders be evaluated so that the contracting authority can decide which one is the most economically advantageous?

It does not seem diligent for the contracting authority to set out the award criteria and their weighting without having determined the way these will be applied in the evaluation. It also seems to create unnecessary uncertainty to tenderers. This is very clear in relation to the use of automatic formulae in electronic auctions, which need to be disclosed to the tenderers prior to their use (Art 54(5) Dir 2004/18 and Art 35(6) Dir 2014/24).  There does not seem to be a good reason for these considerations not to apply to the use of evaluation methods and to require that the contracting authority is diligent in setting them up in a timely manner (ie when it is setting out the award criteria and their weighting).

Second, and more surprisingly, the CJEU fails to extend to the evaluation method the most obvious and minimal guarantee to avoid (impossible to prove) discrimination, ie determining the illegality of establishing (evaluation) criteria relevant for the assessment of the tenders after the evaluation committee has reviewed them (para 31). Before anything else, it must be noted that the CJEU accepts that 'the method of evaluation applied by the contracting authority in order to specifically evaluate and rank the tenders cannot, in principle, be determined after the opening of the tenders by the contracting authority'. The reasoning should not have been as a matter of principle, but as a point of absolute requirement.

However, it is not clear why the CJEU concedes that 'in the event that the determination of that method is not possible for demonstrable reasons before the opening of the tenders, as noted by the Belgian Government, the contracting authority cannot be criticised for having established it only after that authority, or its evaluation committee, reviewed the content of the tenders'. There is no indication whatsoever in the Judgment of which reasons may have been adduced by the Belgian Government to try to justify the impossibility of establishing the evaluation method before having reviewed the tenders. This is amazing because it makes it impossible to understand where the threshold of impossibility lies and, more importantly, because there do not seem to be any good reasons to accept that a diligent evaluation committee can be allowed to decide on the evaluation method after it has already seen the content of the tenders. Whether this is done in a presential meeting or remotely, there is no justification for the assessors not to agree on the evaluation rules first (and document them), and then proceed to the evaluation. In my view, the CJEU has neglected the need to ensure the right to good administration and, in particular, the need to ensure the most basic guarantees that tenderers are treated impartially and fairly, and that relevant matters are dealt with in a timely fashion (as required by Article 41(1) Charted of Fundamental Rights).

The final protection that the CJEU tries to (re)establish in the case by stressing that 'the determination by the contracting authority of the method of evaluation after the publication of the contract notice or the tender specifications cannot have the effect of altering the award criteria or their relative weighting' is inane and insufficient because the possibility of establishing and playing with evaluation rules after having seen the content of the tenders leaves way too much scope to coming up with rules that allow for an ex post rationalisation of the choice of a given winning in tender without necessarily violating the pre-disclosed information on the applicable award criteria and weightings. This deserves stern criticism.

the use of 'soft quality metrics' in the evaluation of tenders

Moving on to the second issue concerning the use of 'soft quality metrics', such as the ‘high — satisfactory — low’ scale in the case at issue, in my opinion, the CJEU also carried out a defective analysis. The shortcomings of the analysis derive from the fact that the CJEU uses the answer to this second aspect to try to compensate for the weakness of its answer to the first question. Indeed, the CJEU premises the analysis of the use of the 'soft quality metrics' on the assessment of whether their use altered the applicable award criteria and their relative weighting. The reasoning of the CJEU is as follows:

35 It appears that that procedure did not make it possible to reflect, when ranking the tenderers in order to identify the most economically advantageous tender, differences in the quality of their tenders relative to their price, while taking account of the relative weighting of the award criteria resulting from the indication ‘(50/100)’. In particular, it appears that that procedure was capable of affecting the price criterion by giving it decisive weight relative to the tenders ranked in the [‘high — satisfactory — low’] scale of quality ... It is for the referring court to ascertain whether the relative weighting of each of the award criteria published in the contract notice was in fact complied with by the contracting authority during the evaluation of the tenders.

36 While the contracting authority may use a scale for the evaluation of one of the award criteria without it being published in the call for tenders or the tender specifications, that scale may not, however ... have the effect of altering the relative weighting of the award criteria published in those documents (C-6/15, paras 35-36, emphasis added). 

I find this problematic because it does not address the core problem of using 'soft quality metrics' at all. Should they have been disclosed to tenderers or, more importantly, should they have been published in the tender documentation together with an explanation of why specific weightings could not be established, the use of this scale would be unobjectionable under the TNS Dimarso test, while still allowing for very subjective and difficult to objectively verify comparisons of the tenders. This leaves the question of which evaluation rules are compatible with the two main requirements in the evaluation of tenders--ie that the award rules, not only the award criteria themselves and their weighting, have to '(i) to be linked to the subject matter of the contract (ie, to be ‘relevant’), and (ii) to allow the contracting authority actually to determine which tender is economically the most advantageous (ie, to be ‘enabling’)' [A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 380]. By failing to clarify that 'soft quality metrics' are not enabling and do not provide sufficient objectivity to the evaluation process so as to make sure that the contracting authority does not overstep the limits of its discretion, in my view, the CJEU has left too much space for manipulation in the assessment of tenders.

This is something I had criticised [A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 388], even if in relation to the award criteria (but the arguments apply equally to evaluation rules meant to assess them] considering the following:

Restrictions Derived from the Inclusion of Non-Quantifiable or Subjective Award Criteria, and the Ensuing Need to Objectify Treatment of Qualitative Criteria. Another way in which the selection and weighting of award criteria could give rise to distortions of competition—and, probably, to discrimination amongst tenderers—would be through the introduction of non-quantifiable criteria, or essentially qualitative or subjective criteria that significantly diminished the possibilities of an overall objective appraisal of the tenders or conferred on contracting authorities unrestricted freedom of choice amongst tenderers. In this regard, even if article 67(2)(a) of Directive 2014/24 allows for the taking into consideration of this type of criterion—referring, in general terms, to criteria such as ‘technical merit’ or ‘aesthetic characteristics’—the requirements of relevance and enabling character of the award criteria (see above, this section), as well as the need to avoid conferring on contracting authorities unrestricted freedom of choice and to ensure that the award criteria make provision for an objective assessment of tenderers, should be taken into particular consideration and constrain the decisions adopted by the public buyer.[1]

As regards the requirement of relevance of such qualitative award criteria, it should be stressed that the circumstances under which considerations such as aesthetic characteristics or technical merit will be relevant and material to the subject-matter of the contract are relatively limited (at least if they are unrelated to performance or functional requirements, which are quantifiable and, hence, do not generate significant difficulties). Moreover, it is submitted that they will generally be associated with tenders that should be ruled by the requirements applicable to design contests—which are specifically regulated and set special rules in this respect (see arts 78 to 82 of dir 2014/24),[2] particularly aimed at ensuring the objectivity and independence of the members of the committee entrusted with the evaluation of qualitative or subjective elements of the proposals. Consequently, aesthetic characteristics or technical merit might be assigned very limited relevance in other types of tendering procedures. The substantial irrelevance of such qualitative or non-quantifiable aspects will, then, require only limited consideration in the majority of the cases, if at all.

Moreover, in order to ensure transparency and impartiality, contracting authorities should (as far as possible) set objective or quantifiable proxies to measure primarily subjective or qualitative characteristics of the tenders; or, at least, set up mechanisms (possibly based on the rules regarding design contests) to ensure an impartial appraisal of subjective or qualitative dimensions of the tenders. If such quantification, or ‘proximisation’ or approximation, is possible, the possibilities for discrimination or distortion of competition will be smaller. Consequently, the adoption of this requirement seems desirable whenever its implementation is feasible.

Therefore, a restrictive approach towards the permissibility of the use of these criteria as the basis for the award of contracts—again, in cases other than design contests—seems appropriate. Consequently, this type of consideration should remain as a secondary criterion, or as a rather marginal complement, to objective and easily quantifiable criteria used to determine the award of the contract to the most economically advantageous tender. Along these lines, and attending to the subject-matter of the contract, contracting authorities should give proper weighting to qualitative or subjective criteria (even if ‘quantified’)—which, in our opinion, should be rather limited and marginal in most instances.

To sum up, it is submitted that contracting authorities are bound to ensure the objective and transparent assessment of tenders, particularly by i) avoiding undue recourse to qualitative or non-quantifiable (subjective) award criteria in procedures other than design contests, and ii) assigning them a proper (limited) weighting; and, in general, they are under a duty to exercise self-restraint in their decisions regarding such criteria, particularly when failure to do so could result in their exercise of unrestricted freedom of choice amongst tenderers and/or generate distortions of competition or discrimination of tenderers.

[1] See: S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 766–71.
[2] See S Arrowsmith, The Law of Public and Utilities Procurement, 2nd edn (London, Sweet & Maxwell, 2005) 829–39;  PA Trepte, Public Procurement in the EU: A Practitioner’s Guide, 2nd edn (Oxford, Oxford University Press, 2007) 232–4; and C Bovis, EC Public Procurement: Case Law and Regulation (Oxford, Oxford University Press, 2006) 248–51.

CJEU rejected AG Wathelet's proposal for vicarious liability for agent's behaviour in competition law: a more stringent test, but how stringent? (C-542/14)

In its Judgment of 21 July 2016 in VM Remonts and Others, C-542/14, EU:C:2016:578, the Court of Justice of the European Union (CJEU) issued an important clarification of the rules applicable to the attribution of (vicarious) liability for infringements of EU competition law, thus expanding its case law on the subjective elements (ie mens rea-like requirements) of the prohibition of anticompetitive behaviour in Art 101(1) TFEU.

In doing so, the CJEU rejected the proposal for stringent vicarious liability formulated by AG Wathelet (see my criticism here) and formulated a more stringent test for the attribution of anticompetitive behaviour of an independent agent. The test formulated by the CJEU raises some interpretative issues, though, and it deserves some comment.

It is worth reminding that the case addressed issues concerning the imputability of anticompetitive practices in which a third party services provider is engaged to the 'client' undertaking that hired those services (ie how to make the 'client' undertaking liable for the anticompetitive behaviour of one of its services providers). 

The case was quite convoluted because it concerned the imputability of a bid rigging offence to a supplying company that engaged a consultant to help it formulate a bid in a tender for a public contract. After the fact, it became apparent that the consultant engaged in collusion with other tenderers in the same bid. The question was, thus, to what extent the bidder should be liable for the collusion that resulted from the allegedly independent activity of the consultant (third party services supplier) and, in any case, what level of proof of anticompetitive intent would be necessary to impose liability on the 'client' undertaking.

In addressing this issue, the CJEU rejected a parallelism between the rules applicable to an undertaking's employees to its agents, and determined that 'where a service provider offers, in return for payment, services on a given market on an independent basis, that provider must be regarded, for the purpose of applying rules aimed at penalising anti-competitive conduct, as a separate undertaking from those to which it provides services and the acts of such a provider cannot automatically be attributed to one of those undertakings' (C-542/14, para 25, emphasis added).

However, the CJEU stressed that this different treatment is based on the independence of market activity of the service provider and, consequently, it would not be justified where the client undertaking exerted significant control over the apparently independent service provider. To that effect, the CJEU determined that

Article 101(1) TFEU must be interpreted as meaning that an undertaking may, in principle, be held liable for a concerted practice on account of the acts of an independent service provider supplying it with services only if one of the following conditions is met:

–  the service provider was in fact acting under the direction or control of the undertaking concerned, or
– that undertaking was aware of the anti-competitive objectives pursued by its competitors and the service provider and intended to contribute to them by its own conduct, or
–  that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which they entailed (C-542/14, para 33, emphasis added).

Of particular relevance in the field of public procurement, the CJEU also provided some clarification regarding the unauthorised disclosure of commercially sensitive information by the agent, by stressing that

Whilst it is true that [an undertaking is liable for a competition infringement] when that undertaking intended, through the intermediary of its service provider, to disclose commercially sensitive information to its competitors, or when it expressly or tacitly consented to the provider sharing that commercially sensitive information with them ... the condition is not met when that service provider has, without informing the undertaking using its services, used the undertaking’s commercially sensitive information to complete those competitors’ tenders (C-542/14, para 32, emphasis added).

In my view, the VM Remonts Judgment should be welcome for what it does not do. That is, for its rejection of AG Wathelet's proposal for a reversal of the burden of proof, to the effect that the 'client' undertaking would have been considered liable unless it could adduce sufficiently convincing evidence (i) relating to the fact that the agent (services provider) had acted outside the scope of the functions that had been entrusted to it, (ii) regarding the precautionary measures taken by the ‘client’ undertaking at the time of designation of the agent and during the monitoring of the implementation of the functions in question, and (iii) regarding the ‘client’ undertaking's conduct upon becoming aware of prohibited behaviour--so as to demand a public distancing and positive reporting, under the analogous rules of Dansk Rørindustri and Others v Commission, C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P, EU:C:2005:408.

However, regarding the positive test that it sets for the assessment of whether anti-competitive activity by an agent can be imputed to the client undertaking, the VM Remonts Judgment seems less satisfactory, in particular due to the last condition of the test in its paragraph [33], whereby 'an undertaking may, in principle, be held liable for a concerted practice on account of the acts of an independent service provider supplying it with services ... if  ... that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which they entailed' (emphasis added).

This seems to be an adaptation of the test developed in Commission v Anic Partecipazioni, C-49/92 P, EU:C:1999:356, paragraph [87], to which the CJEU refers in VM Remonts to stress that 'an undertaking may be held liable for agreements or concerted practices having an anti-competitive object when it intended to contribute by its own conduct to the common objectives pursued by all the participants and was aware of the actual conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and was prepared to accept the risk' (C-542/14, para 29, emphasis added).

The adaptation of this test to cases of anticompetitive behaviour by an agent seems problematic because it stretches its last part concerning the acceptance of a risk of occurrence of anticompetitive behaviour by third parties (in that case, co-conspirators). In Anic, the undertaking concerned had been attending meetings with other undertakings that formed part of a cartel. Therefore, the assessment of whether the undertaking could reasonably foresee specific types of anti-competitive conduct by its co-conspirators (formally, third parties) derives from its own participation in meetings--that is, derives from its own observation of the behaviour of other entities that participate in the anti-competitive practice.

This cannot be the case in a scenario such as that presented by VM Remonts, where the client undertaking does not participate in any meetings and where it has no (proven) knowledge of the activity of the agent. In these cases, it would seem that the first two prongs of the VM Remonts test would suffice: ie the client undertaking is liable for the anticompetitive behaviour of the agent if (a) it controls the agent or (b) is aware of the anti-competitive behaviour between the agent and third parties, and aims to contribute to it. Introducing the third condition, according to which the client undertaking can also be liable if (c) it could have reasonably foreseen anticompetitive behaviour between its agent and third parties and was prepared to accept the risk which they entailed, seems to far fetched. 

Whereas in an Anic-like scenario the reasonable prediction of anticompetitive behaviour by co-conspirators derives from information directly acquired in the meetings in which the undertaking participates--that is, can be presumed under logical rules--in a VM Remonts-like scenario, any claim as to the undertaking's duty to foresee anticompetitive behaviour would be pure speculation.

If the client undertaking has no positive knowledge of the anticompetitive behaviour in which the agent [otherwise, the prong (b) of the test would apply], how is it ever going to be possible to determine that it ought to have foreseen it? If this is on the basis of its relationship with the agent, this dangerously reopens the door to a test like the one developed by AG Wathelet or, worse, creates a sort of culpa in eligendo of its agent that is equally troublesome.

If (factual) speculation is to be avoided and the imposition of vicarious liability is rejected by the CJEU in VM Remonts (para 26, although see para 27, which makes it less clear-cut), the only reasonable interpretation of the prong (c) of the test developed in paragraph [33] of VM Remonts is that it can simply never be applied. In which case, one can be forgiven for wondering if the CJEU did not pay sufficient consideration to the adaptation of the Anic test to a situation involving an independent service provider.

ECA's Special Report on access to EU Institutions' procurement: will it give a push to further reform?

On 13 July 2016, the European Court of Auditors published its Special Report No 17/2016 "The EU institutions can do more to facilitate access to their public procurement", where it examines how accessible the EU Institutions make their public contracts. I had the honour and pleasure of being invited to act as an academic expert during the preparation of this report, as well as to participate in a stakeholder meeting where the report was discussed with its main addressees, including the business community and the EU Institutions themselves. However, please note that the following only reflects my personal opinions about the report and any future developments.

To put the relevance of the report and the activities under investigation in perspective, it is worth stressing that the European Court of Auditors estimated the procurement carried out by the EU Institutions in 2014 in €4.2 bn. In particular, it is worth stressing that the European Commission manages just over €3 bn, while the Parliament and the European Central Bank manage €500 mn each, and the Council follows with more limited procurement activities of €171 mn.

These figures are important, particularly because they stress how the European Commission's procurement value exceeded that of some of the smaller Member States in 2014, such as Malta (€0.8 bn), Cyprus (€1.3 bn), Estonia (€2.5 bn) or Latvia (€2.7 bn); and the combined procurement of the EU Institutions also exceeded that carried out by Lithuania (€3.6 bn), and was very close to Bulgaria (€4.8 bn) and Slovenia (€4.9 bn). In my view, this indicates that the effects (positive or negative) of the regulation and development of public procurement by the EU Institutions should attract more attention than it usually does.

The report is generally positive on compliance issues, and it is clear that the European Court of Auditors takes no issue with the way in which the EU Institutions manage their procurement activities from a legal compliance perspective, since it found that 'the management and control arrangements were robust and reduced the risk of errors which could deter businesses from participating and prevent fair treatment'. However, the European Court of Auditors considered that the approach to procurement could be more strategic or market-oriented and, in particular, that EU Institutions could do more to facilitate SME access. 

In order to promote a more commercial approach to procurement, in particular, the European Court of Auditors included the following recommendations:

1. In order to facilitate the monitoring of the accessibility of their procurement activities, all EU institutions should collect and analyse data both on the initial number of requests to participate and offers received and the number of offers which were taken into account for the final award decision.
2. For the upcoming 2016 revision of the EU Financial Regulation the Commission should consolidate all relevant provisions into a single rulebook for public procurement. Participation of small and medium‑sized enterprises should be explicitly encouraged.
3. The EU institutions should proactively use preliminary market consultations wherever appropriate with a view to preparing the procurement and informing economic operators of their procurement plans.
4. The EU institutions should divide contracts into lots wherever possible to increase participation in their procurement procedures.
5. The EU institutions should create a common electronic one‑stop shop for their procurement activities allowing economic operators to find all relevant information in a single online location and to interact with the EU institutions through this website.
6. The Commission should propose a mechanism for a rapid review of complaints from economic operators who consider that they have been unfairly treated. Such a review should take place before economic operators may turn to the EU Ombudsman or to the EU Courts.
7. To allow effective ex post monitoring of their procurement activities the EU institutions should set up a single public repository of information related to their procurement contracts which could be developed as part of TED eTendering.
8. The European Anti‑Fraud Office OLAF should produce reports and statistics on the different types of allegations under investigation and the outcome of these investigations.
9. The EU institutions should use peer reviews for mutual learning and exchange of best practice.

Most of these recommendations are welcome and the European Court of Auditors should be encouraged to put some pressure on the EU Institutions, so that they materialise. There are, however, two recommendations that deserve some additional comments: recommendation 6 on remedies and recommendation 7 on the creation of a single public repository.

Recommendation #6 & EU Institution's resistance to facilitate review and flexible remedies

Given the reduced effectiveness of the informal resolution mechanisms provided by the European Ombudsman, which are significantly curtailed by the strictness of the procurement rules, and the cost and delay of challenging procurement decisions of the EU Institutions before the General Court (to these effects, see paras 76-88 of the report), it should come as no surprise that the European Court of Auditors recommended the creation of 'a mechanism for a rapid review of complaints from economic operators who consider that they have been unfairly treated', and that 'such a review should take place before economic operators may turn to the EU Ombudsman or to the EU Courts'.

What is more surprising, or maybe not, is that both the Council and the Parliament decided to omit this recommendation from their replies to the report, and that the Commission expressly opposed it. Indeed, in its reply to the report, the Commission indicated that

As far as the EU institutions are concerned, the Commission considers that the setting-up of a non-judicial review body, in addition to the already existing review mechanism provided for in the Financial Regulation, is neither needed nor appropriate as it would generate disproportionate costs for the benefits sought.

The Financial Regulation already provides that the unsuccessful tenderers are notified of the grounds and details reasons for their rejection and they may request additional information ... Such requests are subject to a strict deadline: the contracting authority must provide this information as soon as possible and in any case within 15 days of receiving the request.

In addition, whenever an act adversely affecting the rights of the candidates or tenderers is notified to the economic operators in the course of a procurement procedure (e.g. rejection), such notification will refer to the available means of redress (Ombudsman complaint and judicial review).

The Commission considers that the limited number of actions before the General court which dealt with procurement by the Union institutions (17) and the fact that compensation for alleged damages is rarely granted by the Court are strong indicators that the system in place is efficient and fit for purpose. Hence, the setting up of the suggested rapid review is not only not needed but it would also represent a disproportionate measure, not in line with cost-efficiency and not a good use of administrative resources (reply to point 78 of the report, emphasis added).

This is surprising because the European Commission does not seem willing to apply to its own procurement activities the standards of independent review that it promotes for Member States. In my opinion, a domestic system could not avoid a serious investigation on the effectiveness of its procurement remedies system with the argument that there are very few cases and those are unsuccessful, not least because the general principle of EU law that requires effectiveness of remedies ultimately requires that the available remedies do not make it practically impossible to claim the corresponding EU rights, which could be the case here.

When the procurement cases in front of the General Court last on average 35 months (see para 82 of the report) and the cost of litigation at the highest EU level is taken into consideration, one should not be too ready to accept the Commission's submission that the reduced number of such cases indicates the lack of need for more accessible, speedier and more effective review mechanisms. Moreover, the creation of such an alternative mechanism could also contribute to reduce the pressures on the General Court's procurement docket and, in general, facilitate specialisation and more flexibility in the resolution of conflicts.

Thus, the blanket rejection of the recommendation by the Commission seems to require some rethinking, and it would seem advisable to explore suitable alternatives, such as the creation of a procurement review agency, the submission of the procurement of the EU Institutions to the procurement remedies system of the relevant Member State, or some other similar option--including the possibility of creating a specialised chamber within the General Court, although this is an unlikely option for reasons that would take us too far from the discussion.

It is also important to stress that the creation of robust remedies mechanisms in public procurement (and in other areas of EU economic law) is not solely for the benefit of undertakings that partake in those procedures, but in the ultimate benefit of the taxpayer and society at large. In the case of procurement, if potential suppliers do not consider that they have a fair chance of protecting their interests, they will refrain from making investments in the submission of tenders. Such reduction of competition for public contracts carries an important implicit cost. Thus, aiming to save on direct administrative costs may well be self-defeating if this results in much larger shadow or indirect costs. This is not to mean that remedies should be promoted beyond the point necessary to ensure the integrity and probity of the procurement process, or that (generous or disproportionate) damages claims are the best way to ensure those remedies. What seems clear to me is that the issue of public procurement remedies under EU law requires further research and thought, and most certainly legal reform to adapt the existing system to the reforms of the 2014 Public Procurement Package. In that regard, it seems desirable for the Commission to carry on with the (seemingly abandoned) review of the Remedies Directive--and that such would be the ideal occasion to include the issue of remedies in the setting of EU Institutions' procurement in the proper considerations.

Recommendation #7 & risk of excessive procurement transparency

The second recommendation that deserves some comments is number 7, whereby the European Court of Auditors recommended that, in order to 'allow effective ex post monitoring of their procurement activities the EU institutions should set up a single public repository of information related to their procurement contracts'.

This raises, once more, the very tricky issue of the appropriate level of transparency of public procurement procedures and their outcomes, and the undesirable (unforeseen) effects that it can create. There is no doubt that the European Court of Auditors, like any audit body at national or international level, requires this information in order to discharge its functions. However, it is far from clear that there is a positive value in publishing all this information. While making this information public could contribute to some aspects of public governance (such as NGO and press scrutiny of these activities), it is by no means less clear that creating excessive transparency would contribute to anti-competitive strategies and potentially result in the cartelisation of public procurement markets.

In that regard, I would reiterate once more the need for a more nuanced approach to the compilation and publication of this type of information. 
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 full transparency approach implicit in recommendation 7 of the European Court of Auditors' report, whereby all information is made available to everyone via a public registry or repository, 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 should be subjected to further discussion in the roll-out of recommendation #7. 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.

CJEU confirms incompatibility between automatic judicial inhibition rules and references for a preliminary ruling: need for reform? (C-614/14)

In its Judgment of 5 July 2016 in Ognyanov, C-614/14, EU:C:2016:514, the Court of Justice of the European Union (CJEU) has taken a final decision on whether domestic (criminal) procedural rules concerned with safeguards against judicial bias need to be set aside if their application is such as to jeopardise the functioning of the system of referrals for a preliminary ruling in the interpretation of EU law established by Article 267 TFEU.

It is worth stressing that the case at hand concerned criminal law enforcement in Bulgaria, where a domestic rule concerning breaches of judicial impartiality could be interpreted so as to require a referring national court that had laid out the factual background and the law applicable to the case for the purposes of the reference to the CJEU, to inhibit itself from any further decisions in a criminal case (and face disciplinary action).

In short, the CJEU has followed the Opinion of AG Bot (see here) and has decided that such a rule is incompatible with EU law and that the domestic courts not only cannot be obliged to refrain from taking any further decisions in a given criminal case on the basis that they referred a preliminary question to the CJEU where they laid out the facts of the case and the law applicable to them, but they are also prevented from voluntarily stepping down of the case on the basis that they consider themselves biased after having referred the question to the CJEU.

I do not have much of an issue with the first part of the Judgment, where the CJEU considers contrary to EU law a rule implying that any referral of a case for a preliminary ruling is a ground for automatic judicial recusal or inhibition; but I find the second part of the CJEU's decision worrying because the opposite position, whereby a judge cannot recuse herself on the basis of a bias created or identified at the point of sending the request for a preliminary ruling, or whereby she would be breaching EU law if she decided to inhibit herself from any further decision in the case, cannot be right.

In my view, the main issue with the Ognyanov Judgment derives from the (logical) formality of the CJEU's reasoning. After having determined that 'a national rule which is interpreted in such a way as to oblige a referring court to disqualify itself from a pending case, on the ground that it set out, in its request for a preliminary ruling, the factual and legal context of that case' is contrary to EU law, the CJEU engaged in the analysis of whether that rule could be applied voluntarily by the court concerned on the basis that 'that rule ensures a higher degree of protection of the parties’ fundamental rights'. The CJEU analysis was as follows:

32 ...  the fact that a national court sets out, in the request for a preliminary ruling ... the factual and legal context of the main proceedings is not, in itself, a breach of [the right to a fair trial]. Consequently, the obligation to disqualify itself, imposed by that rule on a referring court which has, in a reference for a preliminary ruling, acted in that way cannot be considered as serving to enhance the protection of that right.

36 ... in this case, the referring court is obliged to ensure that Article 267 TFEU is given full effect, and if necessary to disapply, of its own motion [the domestic rule requiring its inhibition] where that interpretation is not compatible with EU law (see, to that effect, judgment of 19 April 2016, DI, C‑441/14, EU:C:2016:278, paragraph 34).

37      In the light of the foregoing, ... EU law must be interpreted as precluding a referring court from applying a national rule, such as that at issue in the main proceedings, which is deemed to be contrary to EU law (C-614/14, paras 32 and 36-37, emphasis added).

In my view, the biggest issue with the Ognyanov Judgment is that the CJEU seems to only take into account one of two possibilities. It is certainly true that, as the CJEU emphasises, setting out the factual and legal context of the main proceedings to which the request for a preliminary refers 'is not, in itself [always or necessarily], a breach of that fundamental right', but it is not less true that the way in which a court lays out such factual and legal context can be sufficient to establish the existence of judicial bias because the referring court may demonstrate that it has pre-judged the issues at stake and thus expressed a legal position that prevents it from remaining involved in the criminal investigation without jeopardising the fundamental rights of the accused. Therefore, a more nuanced approach is needed.

I would suggest that a careful holistic interpretation of the Ognyanov Judgment could result in such nuanced approach, particularly if it was understood that the CJEU only considers contrary to EU law for a domestic court to inhibit itself from any further decisions in an on-going (criminal) case exclusively on the basis that it had laid down the factual and legal context of that case for the purposes of the request for a preliminary ruling--that is, exclusively in view of its having met the requirements of Art 267 TFEU and Art 94 of the rules on procedure--but it does not consider the same incompatibility with EU law if the domestic court identifies any (additional) substantive (and substantial?) indication of (its own) bias in the way that factual and legal background is laid out.

It certainly seems wrong to me to adopt a broader reading of the Ognyanov Judgment whereby any judicial inhibition (or recusal) on the basis of bias shown within the context of a request for a preliminary ruling is barred as a matter of (non)compliance with EU law.

Ultimately, and beyond these considerations, in my view, the difficulties derived from the reconciliation of domestic rules on judicial impartiality (in criminal law matters) and the EU preliminary reference mechanism seem to be more than a good reason to revisit the assumption that the same rules can apply without causing significant problems for civil/administrative and criminal references for a preliminary ruling to the CJEU.

GC opens dangerous door to post-challenge / after-the-fact 'rationalisation' of public procurement evaluations (T-349/13)

In its Judgment of 4 July 2016 in case Orange Business Belgium SA v Commission, T-349/13, EU:T:2016:385, the General Court (GC) dealt with a highly technical challenge of a procurement decision concerning IT services. The GC Judgment is interesting in a broader context, though, as it deals with the very tricky question of the level of precision that evaluation teams need to employ when they draft evaluation documents and the possibility to take into account post-challenge (after-the-fact) 'rationalisations' of the original tender evaluations.

In the case at hand, the relevant dispute concerned the misapplication of an award sub-criterion for the assessment of IT network performance (service level agreement, or SLA). In my view, the relevant points to note are that:

1. According to the tender documentation, as clarified by a "Questions and Answers" document published by the contracting authority following a request for clarification of the applicable award criteria and sub-criteria, the specific sub-criterion 6b was to be assessed as follows: "Points will be granted for the [RTD] and the [MF] separately, comparing the results of all bidders. To obtain the overall evaluation both points will be multiplied. To obtain the overall points, the evaluation result will be multiplied by a factor and rounded in order to obtain 10 points for the best bidder" (T-349/13, para 62; NB: what RTD and MF means is not relevant for our discussion).
2. As regards award sub-criterion 6b, the applicant’s tender was evaluated as follows: ‘The provided [MF] [confidential] for the calculation of network performance [SLA] liquidated damages was considered EXCELLENT’ (T-349/13, para 64).
3. According to the extract from the evaluation report concerning the successful tender, ‘the provided [MF] (redacted data) for the calculation of network performance SLA liquidated damages was welcomed and therefore the evaluation committee quoted the quality of the network performance SLA as VERY GOOD’ (T-349/13, para 65).

Thus, in basic terms, the main ground underlying the applicant's challenge is that the contracting authority deviated from its disclosed award criteria. Specifically, '[t]he main point of disagreement between the parties relates to whether the Commission [as contracting authority] had taken into account not only the information concerning the MF, but also the information concerning the RTD for the evaluation of the tenders in the light of award sub-criterion 6b' (T-349/13, para 69).

Remarkably, the GC establishes that '[i]t is apparent from reading the extract of the evaluation report which referred directly to award sub-criterion 6b that the information concerned indeed only the MF ... The Commission [as contracting authority] indeed accepts this moreover'. In my view, this would (and should) be sufficient to end the legal analysis and move on to whether the deviation from the disclosed award criteria is material and, if so, whether sticking to the disclosed criteria would have altered the award decision. However, this is not the analytical route followed by the GC.

Controversially, in order to assess this claim, the GC relies on the additional examination report (a further evaluation document) prepared by the contracting authority after the initial challenge of the evaluation by the disappointed bidder. Indeed, the GC takes into account that

it is expressly apparent from the additional examination report that the RTD was taken into consideration in order to evaluate the tenders in the light of award sub-criterion 6b. The fact that that report is subsequent to the award decision cannot affect either the validity or reliability of the comments set out therein (sic). It must be noted that Article 171(1) of the Rules of Application provides for the possibility of carrying out an additional examination if expressly requested by the unsuccessful tenderers. That provision would be rendered inoperative if every additional examination of that type were automatically deemed biased or subject to caution (T-349/13, para 75, emphasis added, emphasis added).

The GC also relies in a table produced by the contracting authority only in its defence document, which the contracting authority confirmed 'had been drawn up during the administrative procedure and before the present action was brought' (T-349/13, para 75, paras 76-78).

Overall, then, the GC's dismissal of this specific ground for challenge rests (at least partially) on reliance on a post-challenge additional examination report and an undated evaluation table self-certified to pre-date the challenge by the defending contracting authority. There are more issues concerning both the facts of the evaluation process and the debriefing meetings, but I do not think it is necessary to focus on them to discuss the GC approach from a general standpoint.

In my view, it is very dangerous to open the door to post-challenge (after-the-fact) rationalisations of evaluation documents. It is also evidentiary very weak to accept a document produced by one of the parties and take it at face value to have been prepared at an indetermined time 'during the administrative procedure and before the present action was brought'. The same way that significant restrictions have been developed in the case law to ensure that tenderers do not alter their tenders under the excuse that they are actually only 'clarifying' them (which has admittedly resulted in a grey zone that still requires further guidance), one would expect the same level of scrutiny for evaluation documents.

I am not advocating for absolute strictness in the interpretation of the evaluation reports, as the information they convey is oftentimes complex and open to (re)interpretation, but I think that the GC has moved way too far in granting such a degree of deference to the contracting authority in this case.

At the end of the day, if the evaluation audit trail cannot be guaranteed and challengers of procurement decisions can be undermined by the production of additional 'rationalisations' of defective evaluation reports, the remedies system will be severely damaged and the integrity of public procurement processes put at risk. Thus, a much tighter approach to the dating/timing of documents (one of the much awaited advantages of eProcurement and time-stamping), and an analysis of the evaluation reports that recognises obvious limitations and omissions as insufficient to support any 'reinterpretation' seems much preferable. Particularly because such an approach would provide evaluation teams the right incentives to do a proper job documenting their decisions from the outset and throughout the procurement procedure, which can only result in strengthened procedural robustness and (hopefully) improved decision-making.

For these reasons, at least from the perspective of the first principles applicable to a robust bid protest system capable of ensuring an acceptable level of procedural integrity, I consider the GC Judgment in Orange Business Belgium SA v Commission a very dangerous decision and would very much favour its annulment in case it got further appealed.

AG delineates boundaries of administrative proportionality assessments and intensity of judicial review requirements under EU public procurement law (C-171/15)

In his Opinion of 30 June 2016 in Connexxion Taxi Services, C-171/15, EU:C:2016:506, Advocate General Campos Sánchez-Bordona has addressed two important issues concerning the judicial review of a decision not to exclude an economic operator that had potentially incurred in serious professional misconduct despite the tender documentation indicating that 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'.

The preliminary reference sent to the Court of Justice of the European Union (CJEU) mainly raises two issues: firstly, whether it was possible for the contracting authority to apply a proportionality assessment before proceeding to exclude the economic operator--or, in the circumstances of the case, in order to decide not to exclude. And, secondly, whether EU law precluded national courts from solely engaging in ‘marginal’ review as to whether the contracting authority could reasonably have come to the decision not to exclude a tenderer notwithstanding the fact that that it was guilty of grave professional misconduct, rather than carrying out an ‘unrestricted’ judicial review of the assessment conducted on the basis of the principle of proportionality. Both are interesting issues. Both were to be decided under the 2004 EU public procurement rules, but both are clearly relevant under the revised 2014 package.

Again on the interaction between general (administrative) law and tender documentation

The first issue fundamentally stems from the fact that applicable Dutch law and its interpretative guidance foresee that 'the assessment of whether a tenderer must actually be excluded, having regard to the general principles of Directive 2004/18, must always be proportional and be carried out in a non-discriminatory manner' (Opinion in C-171/15, para 10). In the Connexxion Taxi Services case, the contracting authority engaged in such proportionality assessment despite having published tender documentation that seemed to create an automatic obligation to exclude by stating that: 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'. As a result of the proportionality analysis, it decided not to exclude a tenderer competing with Connexxion , according to which 'the contracting authority [was] not in a position to make an assessment of proportionality having found that the tenderer [had] been guilty of grave professional misconduct. That assessment [had] already been carried out by inclusion of the misconduct as a ground for exclusion in the descriptive document. Given the wording of the latter, it would be contrary to the principles of public access, transparency and equality in matters of administrative procurement for the contracting authority to have the power to assess the proportionality of the ground for exclusion.' (para 30). 

Somehow, this raises a question that can be seen as the mirror image of the controversy underlying the recent Pizzo Judgment (C-27/15, EU:C:2016:404, see comments here). In Pizzo, the contracting authority sought to rely on generally applicable administrative law rules to exclude economic operators. The CJEU ruled against that possibility and created a middle-path whereby a contracting authority seeking to engage in that exclusion would need to provide the tenderer an opportunity to regularise its position and comply with that general obligation within a period of time set by the contracting authority. Conversely, in Connexxion Taxi Services, the CJEU is expected to rule on whether reliance on generally applicable administrative law rules can be used to deactivate specific exclusion choices established in the tender documentation. AG Campos submits that the Court should answer in the affirmative and that this is not contrary to Pizzo. I agree.

In his Opinion, AG Campos stresses that

51. The requirement included in paragraph 3.1 of the descriptive document (‘a tender to which a ground for exclusion applies must be set aside’), precisely because of its quasi-regulatory nature, must, in my view, be read in the light of the interpretative rules applicable to all subordinate legal rules, which cannot disregard the more general rules which govern them. If the [applicable rule] provides that exclusion on the ground of grave professional misconduct requires that the contracting authority examine each particular case ‘on the basis of the nature and size of the public contract, the type and scope of the misconduct and the measures taken in the meantime by the undertaking’, the fact that the descriptive document is silent as to that necessary and individual application of the principle of proportionality cannot result in that principle being disregarded.

52. That approach is confirmed from the perspective of EU law. The case-law of the Court on the optional grounds for exclusion, rejecting their automatic application, confirms the need for that consistent interpretation. It follows from the judgment in Forposta and ABC Direct Contact that automatic exclusion (of a tenderer guilty of grave misconduct) could go beyond the discretion conferred on Member States by Article 45(2) of Directive 2004/18 (Opinion in C-171/15, paras 51-52, references omitted and emphasis added).

In my view, it must be right that contracting authorities are always under a general obligation of acting in a proportionate manner and, consequently, each decision they adopt needs to be proportionate under the circumstances and pro-competitive, and ultimately 'a contracting authority must retain the power to assess, on a case-by-case basis, the gravity of the circumstances that would lead to exclusion of the tenderer. And it is submitted that it must also balance them against the effects that such exclusion would have on competition' [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 293, references omitted]. Thus, the final consideration of AG Campos seems entirely correct when he stresses that

In the invitation to tender at issue, the conditions and the selection procedure, the same for all applicants, were not modified. The contracting authority checked that their tenders satisfied the criteria applicable to the contract and applied no ground for exclusion which was not provided for in the descriptive document. The fact that, in order to assess one of those grounds for exclusion expressly included in that document it applied the criterion of proportionality, which was not expressly referred to in the descriptive document but is required by the general ... rules on public procurement (as well as by the case-law of the Court), is, in my view, consistent with the principle of equal treatment and its corollary, the obligation to act transparently (Opinion in C-171/15, para 58, references omitted and emphasis added).

The more difficult issue of the standard of (intensity) of judicial review

The second question fundamentally focuses on the fact that, given the contracting authority's engagement in a proportionality analysis, a mere 'marginal' review of the decision in order to ascertain whether the contracting authority could reasonably have come to the decision not to exclude a tenderer could fall short of meeting the requirements of the Remedies Directive.

After some interesting remarks on the gradual increase in the requirements of intensity of judicial review in areas of EU substantive law where there has been a harmonisation of remedies--which, consequently, reduce the scope of limitations derived from the general principle of procedural autonomy--AG Campos enounces what he considers should be covered by a mechanism of review compliant with the Remedies Directive. In his view,

the judicial review imposed by Directive 89/665 requires something more [than a mere 'marginal' review, or solely assessing whether or not the contested decision was arbitrary] to deserve that name. The assessment by the court cannot end with a mere assessment of the ‘reasonableness’ of the contested decisions, especially as those decisions must comply with detailed rules covering formal and substantive matters. A court hearing an application in this field will have to assess whether the disputed award observed the rules of the invitation to tender and whether the successful tenderer’s application can withstand the critical analysis which its competitors present in the action. That assessment will require, in many cases, verification of the decisive facts (which the administration may have determined incorrectly), as well as evidence concerning the relative merits of the various applications. It will also involve gauging whether the administrative action is duly reasoned and whether it is in line or at variance with the objectives which underlie it (in other words, whether there is evidence of misuse of powers) and the other legal provisions which govern it. Examination of all that evidence goes beyond, I repeat, a mere assessment of the ‘reasonableness’ of the contested measure and involves matters of fact and law of a more ‘technical’ and usually more complex nature, which every court having jurisdiction to review administrative acts usually carries out (Opinion in C-171/15, para 73, emphasis added). 

This leads him to suggest to the Court to declare that 

Articles 1 and 2 of Council Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts are not compatible with legislation, or the usual practice, of a Member State which limits the scope of the review procedures to a review merely of the reasonableness of the decisions of contracting authorities (Opinion in C-171/15, para 85, emphasis added).

On principle, this seems unobjectionable and, as AG Campos suggests, it would also be compatible with the CJEU decision in Croce Amica One Italia (C-440/13, EU:C:2014:2435, see comment here), where it effectively clarified that

Article 1(1) of Directive 89/665 requires the decision of the contracting authority withdrawing the invitation to tender for a public contract to be open to a review procedure, and to be capable of being annulled, where appropriate, on the ground that it has infringed EU law on public contracts or national rules transposing that law (para 34).

The question is whether (all) the specific details of the full review advanced by AG Campos in para 73 of his Opinion are necessary in order to allow the review body or court to assess compatibility of procurement decisions with EU law and domestic transposing measures. As I read his Opinion, he advocates for three main components: (1) a review of the decisive facts, (2) a review of the relative merits of the offers, (3) a review of the reasons given by the contracting authority for its choices and the soundness of those reasons (or, in his own words, to check that there has been no misuse of powers). In my view, elements (1) and (3) are relatively uncontroversial. However, element (2) is very likely to create difficulties if the review body or court is expected (or empowered) to second guess the technical evaluation of the tenderers and their tenders. I think that the risk of allowing review courts and bodies to substitute the contracting authority's discretion for their own would be going a step too far. Thus, while the minimum requirements of the review procedures mandated by the Remedies Directive clearly seem to indicate the need to go beyond a mere assessment of arbitrariness and engage in a full review of legality, it also seems clear to me that the review cannot go as far as to allow for a second-guessing of the contracting authority's discretion. 

This is clearly an area where drawing bright lines is complicated or, as AG Fennelly put it writing extra judicially,

There remains a somewhat imprecise formulation of the standard of substantive review. Respect, to the extent appropriate, is paid to the discretion of the awarding authority. Nonetheless, the cases show that the intensity of scrutiny is greater than in traditional cases, where judges have been very slow to substitute their own evaluation of the facts for that of the decision-maker. In tendering, it is natural, other things being equal, to expect the contract to be awarded to the lowest price. Even where the criterion adopted is the “most economically advantageous,” there will usually be an identifiable lowest price. It will normally be incumbent on the authority to claim that other things are not equal and to show why. Thus, the substantial justification for the decision shades into the adequacy of the reasons, even if sufficiency of reasons is usually treated as a separate ground of judicial review (emphasis added). 

It may well be that this discussion is more about the semantics than substance of how to describe the standard for judicial review. Be it as it may, however, it will be interesting to await for the final decision of the Court in the Connexxion Taxi Services case, which hopefully will bring some clarity on the specific requirements of intensity of judicial review that stem from the Remedies Directive.

Brexit may have negative effects for the control of public expenditure, particularly regarding subsidies to large companies

In the current state of turmoil, it is difficult to speculate on the exact relationship between the EU and the UK that can result from the Brexit vote and the future negotiations to be held under Article 50 TEU, in case it gets triggered. However, in order to contribute to the debate of what that relationship should look like in the interest of taxpayers in the UK, it is important to consider the implications that a post-Brexit deal could have in terms of the potential disappearance of the EU rules applicable to the control of how public funds are spent. A reduction in the control mechanisms applicable to certain types of public expenditure could indeed diminish the effectiveness of policies funded by UK taxpayers and create shortcomings in public governance more generally.

This is particularly clear in the case of the EU State aid rules in Articles 107 to 109 TFEU and accompanying secondary legislation, which ultimately aim to avoid subsidy races, as well as the protectionist financing of national champions by Member States. Ultimately, these rules establish a set of controls over the selective channelling of public funds to companies, be it in the form of direct subsidies, or in more indirect ways such as tax exemptions, special contributions to pension plans, or the transmission of public assets (such as public land) in below-market conditions.

The European Commission has created a framework that allows Member States to use State aid for horizontal purposes (such as the support of environmental, innovation or employment-related activities), but also aims to prevent the use of public funds in order to benefit specific companies, in particular through a subsidisation of their operating costs. The European Commission enforces these rules and can bring Member States that breach them before the Court of Justice of the European Union. Additionally, competitors of the companies that receive State aid can challenge those decisions in their domestic courts.

Even if these rules are admittedly imperfect and their enforcement could be improved,* there is no question that the European Commission has been active and rather effective in combating the use of public funds to benefit specific large companies. Remarkably, Member States need to notify State aid measures to the European Commission and must not provide any aid until the Commission has authorised it. Overall, this means that in cases involving large companies, no State aid contrary to the EU rules is generally put in effect, as demonstrated by the discussions surrounding the Hinkley Point project. Where Member States infringe this standstill obligation, the Commission can force a recovery of the aid. The recent tax avoidance cases involving Starbucks or Fiat are a clear testimony of this important role in controlling the way public funds are spent in support of large companies.

The European Commission is thus heavily involved in the State aid measures aimed at specific large companies and acts as a filter to ensure that the expenditure of public funds pursues a legitimate objective in compliance with EU law. This was particularly the case of the State aid channelled to banks in the aftermath of the 2008 financial crisis.

Overall, then, at least for cases of State aid involving large sums of money and large companies, the Commission acts as an important filter to prevent damaging economic interventions in the economy, which constitutes an important check on how public money is spent. Whether such a tight system could be relaxed in order to enable a more proactive EU-wide industrial policy is a subject of significant debate, but the constraints that EU State aid rules currently impose on the provision of direct and indirect financial support to large companies are certainly not perceived as minor.

The question is thus whether a post-Brexit deal could free the UK Government from such State aid control, at least in the medium to long-run, so that it could engage in largely unchecked public subsidy policies, such as creating particularly beneficial tax conditions in order to try to retain or attract large multinational companies considering relocating elsewhere in the EU, or channelling public funds to chosen companies, either in support of industrial policy goals or otherwise.

These would be policy interventions clearly tackled by the European Commission under existing rules, and they would also be caught by the EFTA Surveillance Authority in case the post-Brexit deal resulted in the UK joining the European Economic Area (the so-called ‘Norwegian option’), which would require compliance with the same rules. However, whether interventions aimed at subsidising large companies would be caught in case of a ‘WTO-based’ trade scenario is less clear because the WTO rules on subsidies are not as tight as the EU’s, and their enforcement ultimately relies on other WTO Members bringing a complaint against the UK to the dispute settlement board, which is a very political decision ultimately reliant on trade calculations. To be sure, the EU itself could bring cases against the UK, but this would be a highly contentious issue in the framework of a relationship already very strained by the UK’s exit from the EU and detachment from the EEA.

Should the UK not be a part of the internal market via membership of the EU or the EEA, and in the absence of effective WTO-based external checks on the use of public funds to provide financial support to large companies, the control of this form of public expenditure would fall solely to Parliament and the domestic UK institutions, such as the National Audit Office.

This can be seen as an advantage by those convinced by arguments of self-control and UK-centric governance, but economic regulatory capture theory, and public policy theory more generally, have repeatedly demonstrated that such a self-policing architecture is unlikely to prevent ‘politicised’ uses of public funds. It seems clear to me that, in that case, the possibilities for any given Government to engage in expenditures of this type would be greater than they currently are, which would not necessarily result in the pursuance of the best interests of taxpayers in the UK.

Therefore, if there is value in having an external control of subsidies to large companies in order to avoid anti-economical protectionist policies or redistributive policies that take money away from other pressing social priorities—and I would certainly argue that there is—it seems clear to me that any post-Brexit deal that does not include the application of EU/EEA State aid rules would imply a net loss in terms of public governance and, in particular, in terms of an effective control of public expenditure, particularly regarding subsidies to large companies. Ultimately, then, from this perspective, it seems to me to be in the interest of taxpayers in the UK to strongly support a post-Brexit arrangement that retains State aid control, either by the European Commission or the EFTA Surveillance Authority.

__________________

* A Sanchez-Graells, “Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis” (2016) 4(1) Journal of Antitrust Enforcement 157-187.

New International Public Procurement Blog Launched by Prof Yukins

Prof Chris Yukins (George Washington University Law School, DC, USA) has launched a new international public procurement blog. As its motto indicates, this is a new resource on public procurement practice, policy and law, from around the globe.

So far, its content has been quite focused on Brexit and its implications from the perspective of the revision of UK procurement law, but it is clearly meant as a platform to bridge scholarship and practitioner-academic engagement worldwide. This is a project Prof Yukins has been clearly advocating for and working towards in the last decade or so, and the blog is a good tool to raise the visibility of work on public procurement at the international level. Do not forget to bookmark it in your favourites tab!!!

Some thoughts on Brexit and its implications

© Barry Blitt / New Yorker

Brexit occurred and it is difficult to overcome the shock and focus your thoughts on what’s next. 

From a legal perspective, in my mind, the only clear thing is that nothing has yet happened and nothing will happen until Article 50 TEU is formally engaged. With Cameron leaving, the Tory leadership in the air and the Labour leadership under mounting pressure, the problem is though that the EU is going to push hard to receive the Article 50(2) TEU notification as soon as possible. Political pressure has started to mount, although Chancellor Merkel seems intended to at least soften the tone of the opening salvos by representatives of the European Institutions.

Nevertheless, the pain of waiting for an internal UK decision to pull the Article 50 TEU trigger may be too big a bullet to bite, particularly if the bleeding in the financial markets continues and there are further signs of internal destabilising pressures by Eurosceptic groups (from France, the Netherlands, Denmark… or elsewhere). In the end, for the EU, every concession to the UK in this time of turmoil is a very dangerous path—as the echoes of Le Pen’s statement that ‘The UK has started a movement that will not stop’ clearly evidence.

Reasonably, the only way to show ability to manage the situation in an orderly and effective way is to get started as quickly as possible with the negotiations leading to an Article 50(3) TEU withdrawal agreement, either upon request of the (new) UK Government or unilaterally by an EU that may well get to the limit of its patience sooner rather than later and seek ways to construct the necessary notice as served in order to force the UK to sit at the negotiating table. All legal possibilities must certainly be under consideration in different corners of the EU.

In my opinion, and strictly from the perspective of EU law, there are good arguments to consider that a prompt Article 50(1) TEU notification is part of the duty of loyalty and sincere cooperation under Article 4(3) TEU. However, it also seems clear that getting the clock ticking towards the 2-year guillotine when one of the parties is not ready or willing to negotiate may be more than counterproductive. And, more generally, it also seems clear that there is no obvious enforcement mechanism for such duty to notify (if it indeed exists) and that any attempt by the European Commission to bring the UK to the Court of Justice of the European Union would not only be self-defeating but also probably ineffective in the long run. So, all in all, it seems that EU law is very limited in its ability to overcome classic problems of enforceability of international public law when the issues that need addressing are classical problems of strategic behaviour by a sovereign state.

To complicate matters further, the situation is somewhat surreal and difficult to tackle from a legal perspective because the significant complexities of internal UK constitutional law cast a very long shadow on the ‘realness’ of Brexit and the (theoretical) possibilities to disregard the result of the referendum either at the Westminster Parliament or in the corridors of Whitehall. Moreover, as lawyers, we are in danger of falling into a fallacy of presumed effectiveness of the law as we conceive it, particularly if we forget that enforcing EU law against the UK will be particularly difficult and time-sensitive in any given scenario.

Thus, the sad reality is that, more than ever, law is now a slave of politics and the existing legal framework will undoubtedly be bent beyond recognition in order to accommodate whatever is politically feasible at any given point of the impossible to anticipate chain of developments. This creates growing frustration because the impossibility to enforce the legal framework may well lead to its disregard, which threatens to have long-lasting damaging effects on the trust in the rule of law in the UK and the EU.

Hard times for legal pragmatism, which probably advises us to stay away from the craziness of the initial developments after the Brexit referendum and save our thoughts for later, when specific proposals reach the public sphere. However, it is very hard to refrain from commenting, not least because so much is at stake. 

Another State aid decision by GC follows restrictive approach to standing of interested parties (T-118/13)

Following its previous restrictive case law on the granting of active standing to challenge State aid decisions to competitors of their beneficiaries (see here), the General Court (GC) of the Court of Justice of the European Union (CJEU) reiterated this position in its Judgment of 22 June 2016 in case Whirlpool Europe v Commission, T-118/13, EU:T:2016:365.

The case at hand is a long-lasting saga where producers of large household appliances (Electrolux and by Whirlpool) have been challenging France's restructuring aid to one of their competitors (Fagor France). In this iteration of the approval of the aid and its ensuing challenge, the Commission has adopted the strategy of challenging on of the competitors' standing. Whirlpool has opposed this approach on several basis, including the fact that its legal standing had not been challenged in the previous iteration of approval / challenge, that its market share is affected by keeping Fagor in the market, and due to Whirlpool's very close involvement in the case throughout.

The Commission dismisses all arguments. In the Commission's view,

the fact that an undertaking’s views were heard and that the conduct of the procedure was largely determined by its observations, although a factor which is relevant to the assessment of locus standi, does not relieve that undertaking of having to show that the aid at issue is liable to result in its market position being ‘substantially affected’. As regards that ‘substantial effect’, the Commission states that, in accordance with the case-law, it cannot suffice, in order to prove that the undertaking at issue is individually concerned, to establish that the aid at issue may exercise ‘an influence’ on the competitive relationships and that the undertaking concerned is in a competitive relationship with the addressee of the aid. On the contrary, it should be demonstrated that the applicant was particularly affected by the aid in relation to its competitors (T-118/13, para 28, emphasis added).

In short, the GC has accepted the Commission's arguments and, in particular, stressed that

44 Where an undertaking calls into question the merits of the decision appraising the aid ... the mere fact that it may be regarded as concerned within the meaning of Article 108(2) TFEU cannot suffice to render the action admissible. It must go on to demonstrate that it has a particular status within the meaning of the judgment of 15 July 1963 in Plaumann v Commission (25/62, EU:C:1963:17) ... That applies in particular where its market position is substantially affected by the aid to which the decision at issue relates (see, to that effect, judgment of 13 December 2005 in Commission v Aktionsgemeinschaft Recht und Eigentum, C‑78/03 P, EU:C:2005:761, paragraph 37 and the case-law cited).

45 In that regard, not only the undertaking in receipt of the aid but also the undertakings competing with it which have played an active role in the procedure initiated pursuant to Article 108(2) TFEU in respect of an individual aid have been recognised as individually concerned by the Commission decision closing that procedure, provided that their position on the market is substantially affected by the aid which is the subject of the contested decision. An undertaking cannot therefore rely solely on its status as a competitor of the undertaking in receipt of aid but must additionally show, in the light of its participation in the procedure and the magnitude of the harm to its position on the market, that its factual circumstances distinguish it in a similar way to the undertaking in receipt of the aid (see order of 7 March 2013 in UOP vCommission, T‑198/09, not published, EU:T:2013:105, paragraphs 25 and 26 and the case-law cited; see also, to that effect, judgment of 28 January 1986 in Cofaz and Others v Commission, 169/84, ECR, EU:C:1986:42, paragraph 25, and order of 27 May 2004 in Deutsche Post and DHL v Commission, T‑358/02, EU:T:2004:159, paragraphs 33 and 34).

46 As regards establishing such an effect, the Court of Justice has had occasion to explain that the mere fact that a measure such as the contested decision may have some influence on the competitive relationships existing on the relevant market and that the undertaking concerned was in a competitive relationship with the addressee of that measure cannot in any event suffice for that undertaking to be regarded as individually concerned by that measure (see, to that effect, judgments of 10 December 1969 in Eridania and Others v Commission, 10/68 and 18/68, EU:C:1969:66, paragraph 7, and 22 December 2008 in British Aggregates v Commission, C‑487/06 P, EU:C:2008:757, paragraph 47).

47 According to settled case-law, the applicant must provide evidence to establish the particularity of its competitive situation (order of 27 May 2004 in Deutsche Post and DHL v Commission, T‑358/02, EU:T:2004:159, paragraph 38, and judgment of 10 February 2009 in Deutsche Post and DHL International v Commission, T‑388/03, EU:T:2009:30, paragraphs 49 and 51) and demonstrate that its competitive position is substantially affected in comparison with the other undertakings competing in the market at issue (see, to that effect, order of 27 May 2004 in Deutsche Post and DHL v Commission, T‑358/02, EU:T:2004:159, paragraph 41; see also, to that effect, judgments of 10 February 2009 in Deutsche Post and DHL International v Commission, T‑388/03, EU:T:2009:30, paragraph 51; 13 September 2010 in TF1 v Commission, T‑193/06, EU:T:2010:389, paragraph 84; 15 January 2013 in Aiscat v Commission, T‑182/10, EU:T:2013:9, paragraph 68; 5 November 2014 in Vtesse Networks v Commission, T‑362/10, EU:T:2014:928, paragraph 55; and 3 December 2014 in Castelnou Energía v Commission, T‑57/11, EU:T:2014:1021, paragraphs 35 to 37) (T-118/13, paras 44 to 47, emphasis added).

Once more, the substantive analysis in which the GC engages in Whirlpool Europe v Commission results in a threshold of 'comparatively more adverse substantive negative competitive impact' that is almost impossible to discharge. This is bound to keep on restricting the number of State aid cases that can be successfully challenged, which will continue to contribute to a reduction in the effectiveness of the State aid control system [as criticised in A Sanchez-Graells, 'Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis' (2016) 4(1) Journal of Antitrust Enforcement 157-187]. Thus, this Judgment must also receive criticism for its disproportionately restrictive assessment of the conditions to grant active standing to challenge State aid decisions under Art 263 TFEU.

New Paper: Introduction to law and economics / economic analysis of law

I just uploaded on SSRN the paper 'Economic Analysis of Law, or Economically-Informed Legal Research', which will be published in Dawn Watkins and Mandy Burton (eds), Research Methods in Law, 2nd edn (Routledge, 2017). Almost unbelievably, it is my 70th SSRN paper! Its abstract is as follows:

In this chapter, I aim to reflect on the topic of ‘lay decision-making in the legal system’ from the perspective of the economic analysis of law. Or, in other words, I attempt to look at the ways in which economic theory and insight can help resolve issues of legal decision-making by providing both a methodology for the analysis of the legal reality to which the decision relates (that is, contributing to the decision-making process by structuring it and helping us focus on relevant factors), and a normative framework and workable criteria to favour some alternatives over others (i.e. providing a decision-making benchmark). Broadly, then, I am concerned with the question of how can economic analysis help us improve legal decision-making generally. After this broad discussion, which is confessedly superficial, and in order to stress the link with the rest of the contributions to this book, I briefly focus on the potential application of some of these theories to research that aims to assess specific issues of lay decision-making in the legal system. Some final thoughts stress the importance of carrying out economically-informed legal research more generally.

The full reference for the paper is: A Sanchez-Graells,  'Economic Analysis of Law, or Economically-Informed Legal Research', in Dawn Watkins and Mandy Burton (eds), Research Methods in Law, 2nd edn (Routledge, 2017, forthcoming), available on SSRN: http://ssrn.com/abstract=2798193.

Do public procurement rules apply to "concessions" (rectius, licences or authorisations) for betting and gambling services? (C-225/15)

In his Opinion of 16 June 2016 in case Politano’, C-225/15, EU:C:2016:456 (not available in English), Advocate General Wahl had to assess the applicability of Directive 2004/18 on public procurement, and in particular its Art 47 on economic and financial standing requirements, to a public contest for the award of concessions (ie licences or authorisations) for the provision of betting and gambling services.

In his Opinion, and in very streamlined terms, AG Wahl considered that Art 47 Dir 2004/18 was not applicable to the tendering of such 'concessions' for the provision of betting and gambling services for the following reasons:

a concession for the provision of betting services, such as that at issue in the main proceedings, is not a public service contract within the meaning of Article 1, paragraph 2, point d) of Directive 2004/18. Not only is the "service" under analysis not provided on behalf of the contracting authority but, additionally, the economic operators that tender for such concessions are not remunerated by public funds. Also, the concessionaire bears the entire risk associated with the exercise of the activity of collecting and transmitting bets (para 51, own translation from Spanish).

This analysis is correct. However, it is then surprising that AG Wahl embarks on some considerations about the possible applicability of Art 38(1) of Directive 2014/23 on concession contracts to the award of such concessions (rectius, licences or authorisations) for the provision of betting and gambling services (para 52). It seems clear to me that, exactly for the same reasons established in para 51, Dir 2014/23 would not be applicable. Not least because its Art 5(1)(b) defines a services concession in the following terms:

a contract for pecuniary interest concluded in writing by means of which one or more contracting authorities or contracting entities entrust the provision and the management of services other than the execution of works ... to one or more economic operators, the consideration of which consists either solely in the right to exploit the services that are the subject of the contract or in that right together with payment.

Put simply, the fact that 'the "service" under analysis [is] not provided on behalf of the contracting authority' excludes this type of concession (rectius, authorisation or licence) from the scope of application of Dir 2014/23. Consequently, it may have been better for AG Wahl to completely avoid the consideration of Dir 2014/23 (it was clearly not applicable to the facts of the case anyway) and not provide such obiter comments, which can create confusion.

Indeed, this is an area where there is a floating lack of clarity [for general discussion and analysis, see GS Ølykke, 'Is the granting of special and exclusive rights subject to the principles applicable to the award of concessions? Recent developments in case law and their implications for one of the last sanctuaries of protectionism' (2014) 23(1) Public Procurement Law Review 1-20; CJ Wolswinkel, 'From public contracts to limited authorisations and vice versa: Exploring the EU Court’s corollary approach on award procedures' (2015) 24(5) Public Procurement Law Review 137-163; and I Herrera Anchustegui, 'EFTA Court case E-24/13 Casino Admiral AG v Wolfgang Egger: the obligation of transparency and consequences of its breach when awarding service concessions' (2015) 24(1) Public Procurement Law Review NA1-NA9].

It is relevant to note that Art 10(9) Dir 2014/23 explicitly excludes lottery concessions from the coverage of the Directive, but it does not go as far as preempting the coverage of any betting or gambling services in case they are actually structured in the form of a concession [as defined in Art 5(1)(b)]. The creation of this exclusion was controversial because the European Commission had not included it in its original proposal back in 2011.

The following are my comments to the creation of this exclusion in the forthcoming Brussels Commentary on EU Public Procurement Law, M Steinicke & PL Vesterdorf (eds) (Beck, 2016).

01. This exclusion was lacking in the 2011 proposal and was introduced as a result of the Amendments proposed by the European Parliament (see Amendments 19 and 110). The justification provided for this exclusion was as follows: “Gaming has, in addition, been excluded on account of the highly specific nature of the activities concerned and the need to ensure that Member States can continue to exercise oversight in order to pursue aims in the general interest (combating illegal gambling, fraud, and money laundering; preventing addiction). If gaming were subject to the rules of the directive, Member States would be deprived of flexibility and consequently impeded in their ability to act. National lotteries and similar games will therefore be excluded.” The text of the proposed new recital [proposed as (13a) and now numbered as (35)] and article [proposed as Article 8(5a) and now in Article 10(9)] are different than the ones finally adopted. In the final version, it is clear(er) that the exclusive right on the basis of which the concession is granted must comply with EU law and meet certain minimum requirements. Indeed, the proposed Amendment by the European Parliament would have excluded “service concessions for gambling activities involving a financial risk through investing a sum of money in games of chance (that is to say lotteries or betting), awarded to one or more bodies by one or more Member States on the basis of exclusive rights granted pursuant to applicable national laws, regulations or administrative provisions in accordance with the Treaties”. By contrast, Article 10(9) of the Concessions Directive excludes “service concessions for lottery services, which are covered by CPV code 92351100-7, awarded by a Member State to an economic operator on the basis of an exclusive right. For the purpose of this paragraph, the notion of exclusive right does not cover exclusive rights as referred to in Article 7(2). The grant of such an exclusive right shall be subject to publication in the Official Journal of the European Union.” The main differences seem to be the more clearly limited scope of the exemption by reference to the CPV code and the requirement of EU-wide publication of the exclusive right [which is an improper exclusive right as it must not meet the requirements of the definition in Article 5(10)].

02. As briefly indicated by the European Commission in its factsheet “Concessions: Excluded concessions”, the purpose of this exclusion is to cover lottery services and, more precisely

“Concessions for lottery operating services awarded on the basis of a prior exclusive right which has been granted pursuant to applicable national laws, regulations or administrative provisions in accordance with the Treaties are not covered.

However, in other cases, gambling activities are covered by the Directive when they assume the form of concession contracts (e.g. casino concessions). Gambling activities pursued on the basis of authorisations/licences are not covered.”

Under this interpretation, this specific exclusion is also redundant, as it could have been comprised under the more general exclusion of Article 10(1)—except for the cases where the special or exclusive rights are not awarded following transparent procedures based on objective, proportionate and non-discriminatory criteria, which seems to be the area of regulatory competence that Member States want to protect. Indeed, it should be acknowledged that Member States retain almost unlimited discretion to maintain gambling monopolies in their jurisdictions and that, consequently, the ECJ is likely to interpret this exclusion generously [see Case C-203/08 Sporting Exchange (Betfair) [2010] ECR I-04695]. In that regard, it could well be that the European Commission is interpreting the exclusion in an exceedingly restrictive manner because, in fact, EU law imposes very limited constraints on Member States regulation of gambling (on the basis of directly awarded exclusive rights). Hence, the exclusion of lottery services concessions should come as no surprise and the general situation seems to clearly be that, unless Member States reach a common understanding on the way gambling and lotteries should be regulated, this is an area of the internal market where cross-border competition and regulatory harmonisation cannot be realistically expected any time soon.

In view of AG Wahl's Opinion in Politano’, it may be worth stressing that, in my view, public procurement rules (and Dir 2014/23 in particular) will not be relevant for cases involving authorisations/licences for the provision of betting and gambling services (other than if applied by analogy or used as a benchmark to assess the openness, transparency and soundness of the procedure for their allocation under the general rules on freedom of provision of services and freedom of establishment). Mostly, because the provision of those services will not be 'on behalf of the contracting authority'. The only situation where this seems likely to happen involves lottery monopolies, but these benefit from the explicit exclusion in Art 10(9) Dir 2014/23.

Ultimately, and this seems to be a running topic in recent decisions, the irrelevance of Dir 2014/23 is justified because where the State is authorising the provision of specific services and thus regulating that market by means of a specific system of authorisations or licences (which should stop being called concessions for clarity), there is no procurement.

A conversation with the EFTA surveillance authority on competition, State aid, public procurement and their enforcement

I have the honour and pleasure of having been invited by the EFTA Surveillance Authority to speak at their lunchtime seminar series today. My remarks will be on the interaction between competition, State aid and public procurement rules, and the challenges this creates for the design of an effective enforcement strategy that ensures coordinated substantive assessments across these important rules of EU/EEA internal market law. My slides are available here.

Some suggestions to the EFTA Surveillance Authority from Albert Sanchez Graells

Some thoughts on Smart Procurement: what it is, what it is not, and its limits

Today, I am participating in the 3rd meeting of the European Commission Stakeholder Expert Group on Public Procurement, where we will focus on two issues: smart procurement and professionalization of procurement. I will present some views on the limits of smart procurement. My slides are available here.

Strategic procurement ASG remarks SEGPP meeting 15 june from Albert Sanchez Graells

Some (anecdotal) updates on the transposition of the 2014 Public Procurement Package

At Procurement Week 2016, we had an interesting session on the transposition of the 2014 public procurement package in some of the Member States. So, beyond the official information publicly available through Eur-lex, and for those of you anxiously following the transposition process (or its absence), I thought that it could be interesting to share some additional (anecdotal) updates on the process in the Member States represented in the panel.

Each panelist was asked to report on whether there had been transposition or what are the plans for it, as well as to choose three issues that can be considered controversial in the transposition. My notes of the discussion (responsibility for errors is solely mine) are as follows:

Czech Republic foresees to transpose by 01/10/2016. Their main three worries seem to be around the use of life cycle costing, the use of quality-only tenders in healthcare and the increasing discretion contracting authorities hold in terms of exclusion.

Denmark transposed and this transposition deviated from the previous copy-out approach, which has significantly changed the nature of procurement regulation in Denmark. It was suggested that a number of rules included in the procurement act are unnecessary and the result of specific lobby demands. Main issues pointed out as problematic included: obligation to disclose evaluation method, explicit obligation to terminate when the award decision is annulled, changes in the identity of participants as well as the possibility of the contracting authority to be obliged to accept certain types of changes, and issues concerning criminal records for the purposes of the ESPD.

Estonia has not yet transposed. The bill is in Parliament and there is hope that the transposition will take force by 1 January 2017. Meanwhile, however, the Estonian Ministry of Finance has issued guidelines with regard to parts of the new directives having a direct effect.*

Finland has not transposed and there is no clear time frame. A draft legislative act was promised by government by the end of June, with a view to have transposition in place by the end of 2016, but this does not seem too realistic.** The delay is remarkable because transposition was on track and a project was submitted to public consultation in good time. However, the process was subsequently derailed due to a change in government.*** [I wonder whether this comes to show the political relevance of procurement in Finland (and in Scandinavian countries more generally)]. Secrecy was mandated on civil servants involved in the transposition, which makes this particularly opaque. Some of the issues that are discussed, though, include the need to create an oversight body (probably to be assigned to the competition authority), issues around the non-public turnover limit for in-house and public-public collaboration and its interaction with domestic competition neutrality rules (which lead to the suggestion that the limit could be set anywhere short of 20%, and possibly in the 0-10% range), the need to review remedies despite lack of action at EU level, and possible gold-plating of SME-friendly measures.

Greece has not transposed. There was a series of public consultations in March for a law that would consist of 5 books and would be implementing the new directive. This law would also reform the public contracts regulations in general and this is where things got complicated and started to go wrong: when reforming the way remedies were sought, the legislator tried to create a special entity that would examine bidders' claims in the second instance (first instance is with the CA; second instance is now with a court). However the Greek Council of State found the creation of this new entity to be against the constitution and made requests for this and other provisions to be amended. This is causing further delay.^^^

Ireland transposed on 5 May 2016, except concessions.Their main issues relate to the light-touch regime, retrospective effect of new rules to contracts tendered after 18 April but before 5 May, and many difficulties concerning the implementation of the ESPD, particularly due to their issues with leaving 'suitability' assessments to the end and how this provides wrong incentives to contracting authorities to be 'lax' about selection and exclusion.

Italy transposed 1 day late, but it is not a full transposition and the implementing regulations are not ready yet. There are significant gold-plating issues, such as the prohibition to tender design and construction together (as per Mario's emails), or the limitation of the authorisation to carry out procurement to only 35 CPBs in the whole of Italy, thus banning the activities of individual contracting authorities except for minor contracts.

In the Netherlands, the transposition act was discussed in the Dutch Senate on 14 June and the subsequent vote will take place on 21 June. This would be the last hurdle for implementation, after which publication in the Staatsblad can follow. Therefore, it seems like the planning of the Ministry of Economic Affairs will be met (1 July). Predominant discussions in the Netherlands have related to: (i) In-house procurement and the question whether additional regulation of the make-or-buy decision is necessary. A proposal (motie) has been floored in the Senate on this subject. This relates to a recent trend of the central government to in-source scanning and cleaning activities; (ii) The question whether Dutch ministries and other organisational parts of the Dutch State are separate contracting authorities for the purpose of the in-house doctrine. This was discussed in parliament and at multiple legal conferences; (iii) In light of the recent decentralisation of many social acts (Jeugdwet, Participatiewet and Wmo) to the municipalities, it has been questioned if the introduced procedure for purchasing social services in relation to article 76(1) Directive 2014/24/EU is an adequate implementation of the Directive.****

Norway has not transposed either, but being an EEA State, it has more time. There has been a project since late 2015 and it is expected to come into force relatively shortly (pending the approval by the Parliament). ***** It interesting to note that all EEA Members had initially indicated 'constitutional requirements' for the transposition of the 2014 public procurement package. In particular, despite the fact that the Joint Committee Decision (JCD) no. 97/2016 was adopted on 29. April 2016 to incorporate Directive 2014/23/EC, Directive 2014/24/EC, and Directive 2014/25/EC into Annex XVI of the EEA Agreement, at the point of adoption all the EEA EFTA States indicated constitutional requirements. The JCD can consequently not enter into force until these requirements have been lifted and all the notifications under Article 103 (1) of the EEA Agreement have been made. The Norwegian parliament has now (16.6.16) approved the incorporation and Norway can therefore lift its constitutional requirements. It is now necessary for Iceland and Liectenstein to follow suit.^^

Poland has not transposed. A legislative proposal was published on 13 May with the intention of transposing in June, and this seems to be likely. Indeed, it seems that the classic and utilities directives could be transposed in July and the concessions directive in September.****** Polish procurement law has been reformed 50 times over 10 years, so there is experience (and complaints) about such continuous process of reform. Their main difficulties are in the transposition of rules in-house provision (particularly due to effects on waste management sector), the application of rules to below thresholds contracts related to investment in revitalization zones, the use of the ESPD, as well as rules on labour law requirements.

Portugal has not transposed either, although the Azores (being a devolved administration with competence for the transposition of procurement rules), have. The only rule that Portugal transposed in its entirety in August 2015 was art 22 dir 2014/24, which required an act with over 90 provisions. *******

Romania has completed the transposition.********

Spain has not transposed and transposition any time soon is highly unlikely due to the coming general elections on 26 June, which are not likely to result in the quick formation of a new government. Some regions have started to produce reports on direct effect of some provisions of Dir 2014/24 and, controversially, the region of Catalonia adopted a full transposition act on 31 May despite lacking the powers to do so. This raises complex internal constitutional issues and legal certainty is not necessarily fostered by the adoption of unconstitutional rules. This may have to do with the prospect of future liability for fines imposed by the CJEU for late transposition.

Sweden postponed transposition to 1 January 2017 but even that is unlikely. There is significant discussion on direct effect in the meantime, including for contracts below thresholds and reservable contracts for social and special services. The general discussion surrounding transposition is focusing on issues such as the possibility to use procurement to impose labour standards set in collective agreements, as well as innovation related topics.

UK (Eng & Wales) transposed in 2015 and amended rules in 2016. There is discussion in whether any benefits have been obtained from such early transposition. There is indication of increased use of competitive procedures with negotiations and dynamic purchasing systems. There is also an ongoing discussion concerning conflicts between the text of the regulations and guidance published by the Crown Commercial Services, which creates uncertainty at practical level.

I hope this is interesting/helpful/thought-provoking. Please feel free to use the comments function to provide additional updates on other Member States, or to expand the qualitative discussion on any of those mentioned above.

* Added thanks to Dr Mari Ann Simovart.

^^^ I am grateful to Panos Somalis for this update on Greece.

** Thanks to Dr Kirsi-Maria Halonen for the precision that draft legislation can still be expected this June.

*** Thanks also to Timo Rantanen for his additional insights.

**** Thanks to W. A. (Willem) Janssen for information on the Netherlands.

***** Thanks to Ignacio Herrera Anchustegui for information on Norway and some comments on Portugal.

^^ Thanks to Werner Miguel Kuhn for this detailed update on the EEA process.

****** Thanks to Dr Paweł Nowicki for further details on Poland.

******* Thanks to Dr Pedro Telles for information on Portugal.

******** Thanks to Ioan Baciu for the update on the Romanian transposition.

No special rules for calculation of value thresholds for the tendering of 'light-touch' public contracts

A Swedish colleague recently got in touch and told me that there is an on-going debate on how to deal with contracts for social services and other services below the €750,000 (£ 589,148) value threshold of Art 4(d) of  Dir 2014/24. In particular, there seems to be a discussion on whether the general rules for the calculation of value thresholds [Art 5 Dir 2014/24]--and, in particular, the anti-circumvention prohibition of splitting contracts to avoid their subjection to the EU public procurement rules [Art 5(3) Dir 2014/24]--apply to the new light regime for social services and other services.

My colleague gave me a specific example to illustrate the point:

Lets imagine that there is no regulation for contracts for social services and other services below the threshold of €750,000 in national law.

Contracting authority A decided to sign an agreement with non-profit organization X for the delivery of social services (let’s say for a cultural service) with a value of €500,000 (direct award). The contract is signed for 2 years starting 1 July 2017. Three months later, contracting authority A decides to sign an agreement for the delivery of the same service with another non-profit organization Y for 2 years and with a value of €500,000. Would this mean that contracting authority A has exceeded the threshold stipulated in Art 4(d) of Dir 2014/24? Must the contracting authority add the value of the above mentioned service contracts together? Or should the contracts be seen as separate contracts in the sense that both contracts are below the threshold of €750,000?

Ultimately, how should the value of several contracts, with different service providers, for the same type of social service (each of them below the threshold of €750,000) be considered? This question is quite crucial for the practical implications and scope of the new provisions on social services, and we would appreciate very much if you could share any of your ideas on this issue.

In my view, the answer is very simple. There is nothing in the light-touch regime of Arts 74-77 of Dir 2014/24 that indicates that the rules in Art 5 Dir 2014/24 do not apply to these contracts. On the contrary, it is a logical requirement for the application of the light-touch regime that the contracts need to have a value above the threshold of €750,000 established in Art 4(d) Dir 2014/24. A basic systematic interpretation of the Directive clearly determines that such value needs to be established in accordance with the rules of Art 5 thereof, which sets out explicit rules for that purpose.

Then, it is also clear to me that the anti-splitting prohibition of Art 5(3) Dir 2014/24 applies to the award of these contracts. In that regard, it is important to refresh our knowledge of the case law of the Court of Justice of the European Union in that respect. There are two important aspects to consider: first, the objective requirement to aggregate the value of contracts that are economically, technically or temporarily connected; and, second, the strict rules applicable to the assessment of de facto splits of contracts.

General requirement to aggregate contract value for the purpose of compliance with EU public procurement rules

As I discuss in A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 262-264, 

Specific rules have been developed to deter such strategic use of public procurement thresholds, or the unjustified resort to ‘unregulated’ public procurement activities. As regards the strategic conduct of public procurement below the thresholds set by the EU directives on public procurement, article 5(3) of Directive 2014/24 expressly states that the object of public contracts may not be subdivided to prevent its coming within the scope of the directive. More specifically, it establishes that the choice of the method used to calculate the estimated value of a procurement shall not be made with the intention of excluding it from the scope of this Directive,[1] and that a procurement shall not be subdivided with the effect of preventing it from falling within the scope of this Directive, unless justified by objective reasons.

The latter caveat allowing for the objective justification of a subdivision of a contract that makes it fall below the relevant thresholds was not present in the equivalent rule of art 9(3) dir 2004/18 (‘No works project or proposed purchase of a certain quantity of supplies and/or services may be subdivided to prevent its coming within the scope of this Directive’). It is submitted that this new caveat is prone to create significant litigation, particularly if the European Commission identifies numerous instances of recourse to ‘objective reasons’ on the part of the Member States and the latter argue for a broad interpretation of the exception—which should be rejected.[2] However, given the additional explanation provided in recital (20) of Directive 2014/24, it is submitted that the addition of the caveat is largely irrelevant and only aimed at a further prevention of the artificial split of contracts in the framework of centralised procurement. In that regard, it is important to take into account that, according to the recital, the rationale for the ‘objectiev reasons’ caveat is that

For the purposes of estimating the value of a given procurement, it should be clarified that it should be allowed to base the estimation of the value on a subdivision of the procurement only where justified by objective reasons. For instance, it could be justified to estimate contract values at the level of a separate operational unit of the contracting authority, such as for instance schools or kindergartens, provided that the unit in question is independently responsible for its procurement. This can be assumed where the separate operational unit independently runs the procurement procedures and makes the buying decisions, has a separate budget line at its disposal for the procurements concerned, concludes the contract independently and finances it from a budget which it has at its disposal. A subdivision is not justified where the contracting authority merely organises a procurement in a decentralised way (emphasis added).

In my view, then, the caveat should be interpreted as creating a strengthened requirement for a justification that intends to escape the rule on prohibited division of contracts on the basis of (allegedly) objective reasons and, particularly, aims to anticipate and prevent potential infringements of the EU rules by contracting authorities that manage (de)centralised procurement systems. Generally speaking, however, the discussion seems to need being re-oriented towards the definition of contracting authority and the recourse to collaborative procurement ...

Generally, though, the anti-split or anti-circumvention rule is clear and establishes a prohibition of strategic use of public procurement thresholds. To be sure, these rules do not prevent contracting authorities from splitting or dividing the contracts into as many lots as they deem fit or objectively justified ..., but rather focus on their obligation to take the aggregate value of those lots into consideration when determining whether the relevant thresholds are met—and, hence, whether their award should be conducted pursuant to the rules of the EU directives on public procurement (see art 5(8) and 5(9) dir 2014/24).[3] Consequently, the prohibition on circumventing the application of the directives is not violated per se by dividing the contracts in lots, but only by failing to treat those lots as a single economic and technical unit and, consequently, by failing to award them in compliance with public procurement rules.[4]

This prohibition has also been clearly interpreted by the EU judicature, which has provided guidance as to what constitutes an ‘artificial’ division of the object of a contract to circumvent public procurement rules—by putting emphasis on the criterion of the economic and technical unity of the object of the various contracts whose award should have been conducted jointly.[5] Therefore, a public buyer that artificially divided into separate contracts or purchases certain of its requirements that should objectively be considered to constitute a single economic and technical unit would be found in breach of the EU directives on public procurement. A different dimension is that of the temporal compatibility between the spread of the needs and the periodicity of the contracts or purchases conducted by the public buyer.[6] Where a significant mismatch can be identified—ie, when purchases below the thresholds occur too often—the public buyer should equally be found in breach of the EU public procurement rules, since the conduct of an excessive number of purchases or the conclusion of an excessive number of contracts should equally be considered an artificial split of the object of the contract in circumvention of the EU rules.

[1] For a discussion on the very problematic use of intentional elements in the 2014 Directives and, in particular, in the context of the principle of competition embedded in art 18 dir 2014/24, see above ch 5, §III.
[2] Case C-394/02 Commission v Greece [2005] ECR I-4713 33; Case C-337/05 Commission v Italy [2008] ECR I-2173 57; C-250/07 Commission v Greece [2009] ECR I-4369 17.
[3] It is important to stress that the system allows for certain flexibility and that, despite the rules preventing the artificial split into lots in art 5(8) and 5(9) dir 2014/24, contracting authorities may award contracts for individual lots without applying the procedures provided for under the Directive, provided that the estimated value net of VAT of the lot concerned is less than EUR 80 000 for supplies or services or EUR 1 million for works. However, the aggregate value of the lots thus awarded without applying the Directive shall not exceed 20 % of the aggregate value of all the lots into which the proposed work, the proposed acquisition of similar supplies or the proposed provision of services has been divided (art 5(10) dir 2014/24).
[4] Along the same lines, although with reference to the equivalent provisions in Directive 93/38, see Opinion of AG Jacobs in case C-16/98 Commission v France 34–37. From the opposite perspective, analysing whether the improper or artificial aggregation of contracts that do not constitute a single economic and technical unity could result in a breach of the same provisions, see Opinion of AG Mischo in case C-411/00 Swoboda 53–64. In very clear terms, the ECJ concluded that the purpose that inspires these provisions ‘(the concern to avoid any risk of manipulation) also precludes a contracting authority from artificially grouping different services in the same contract solely in order to avoid the application in full of the directive to that contract’; see Case C-411/00 Swoboda [2002] ECR I-10567 58.
[5] Case C-16/98 Commission v France [2000] ECR I-675; and Case C-412/04 Commission v Italy [2008] ECR I-619 72. See also Opinion of AG Jacobs in case C-16/98 Commission v France. Similarly, albeit in less elaborated terms, see Opinion of AG Kokott in case C-220/05 Auroux 65 fn 58; Opinion of AG Ruiz-Jarabo Colomer in Case C-412/04 Commission v Italy 85–88; and Opinion of AG Mengozzi in case C-237/05 Commission v Greece 76–79. See also Opinion of AG Trstenjak in Case C-271/08 European Commission v Federal Republic of Germany 165. For recent cases discussing the splitting of contracts, see T-384/10 Spain v Commission [2013] pub. electr. EU:T:2013:277 and T-358/08 Spain v Commission [2013] pub. electr. EU:T:2013:371. Both of them respectively appealed as C-429/13 and C-513/13, which will give the ECJ an opportunity to update its doctrine on the artificial split of contracts.
[6] The temporal dimension was also analysed, although in a limited way, in the Opinion of AG Jacobs in case C-16/98 Commission v France 71.

Strict rules applicable to the assessment of de facto contract splitting

Additionally, it is also worth stressing that the assessment of whether a contracting authority has artificially split contracts and thus excluded them from compliance with the EU public procurement rules is subjected to a strict objective test. As I develop in A Sanchez-Graells,  'Assessing the Public Administration’s Intention in EU Economic Law: Chasing Ghosts or Dressing Windows?', in KA Armstrong (ed), Cambridge Yearbook of European Legal Studies 2016 (Cambridge, CUP, 2017) forthcoming, the case law has been very clear in establishing an objective test to determine infringements of the anti-circumvention rules now located in Art 5(3) Dir 2014/24. In that regard, it is worth stressing that:

Under the applicable rules, it is clear that ‘[t]he choice of the method used to calculate the estimated value of a procurement shall not be made with the intention of excluding it from the scope of this Directive’ and, in particular, that a ‘procurement shall not be subdivided with the effect of preventing it from falling within the scope of this Directive, unless justified by objective reasons’.[1]

In that regard, it is important to stress that the CJEU departed from the literal wording of that provision—which requires an intentional element identical ...—and clearly adopted an objective assessment based on the effects and consequences of the contracting authorities’ decisions concerning the estimation of the value of contracts that should have been tendered under the applicable EU rules. In a consistent line of case law, the CJEU stressed that the analysis needs to be based on objective elements that create indicia of the intentional artificial split of the contract, such as ‘the simultaneous issuance of invitations to tender … similarities between contract notices, the initiation of contracts within a single geographical area and the existence of a single contracting authority’ all of which ‘provide additional evidence militating in favour of the view that, in actual fact, the separate works contracts relate to a single work’.[2] Indeed, the intentional element has been excluded where, on the basis of such analysis, there were objective reasons that justified the decision adopted by the contracting authority.[3] Moreover, the prohibition of artificially splitting the contract with the intention of circumventing the application of the EU procurement rules has been applied directly to determine the incompatibility of legal rules that objectively diminished the applicability of the relevant directives, without engaging in any sort of subjective assessment (which would have been impossible).[4] ...

It is true that the CJEU has not gone as far as simply presuming the existence of the intention to avoid the applicability of the EU procurement rules in all cases. As aptly put by Advocate General Trstenjak,

Although the Court is decidedly strict in its examination of that prohibition, such intention to circumvent cannot be presumed without more. Each individual case in which a contract was split for the purposes of an award must be examined according to its context and specificities and, in that regard, particular attention must be given to whether there are good reasons pointing in favour of or, on the contrary, against the split ...[5]

However, the need to carry out a case by case analysis does not detract from the fact that the CJEU has excluded any consideration of the subjective intention of the contracting authority or any of its members. This was made exceedingly clear in a recent Judgment, whereby the General Court (GC) stressed that

a finding that a contract has been split in breach of European Union procurement legislation does not require proof of a subjective intention to circumvent the application of the provisions contained therein … it is irrelevant whether the infringement is the result of intention or negligence on the part of the Member State responsible, or of technical difficulties encountered by it … the Court considered that for the purpose of finding [an infringement] it was not necessary … to show beforehand that the Member State concerned intended to circumvent the obligations … by splitting the contract.[6]

Overall, thus, when it comes to the assessment of the seemingly subjective element included in the anti-circumvention provisions in the successive generations of procurement Directives, the existing case law of the CJEU clearly established that the analysis solely needs to be conducted on the basis of objective evidence and arguments regarding two aspects: firstly, whether objectively the conduct of the contracting authority created the effect proscribed by the rule and, secondly, whether there were objective good reasons for such behaviour (ie, an alternative explanation to the then presumed intention to circumvent). It could not be more objective and, clearly, no further proof of a subjective intention to circumvent the application of the EU public procurement rules is required.

[1] See Article 5(3) of Directive 2014/24, which absorbed the content of Article 9(7) of Directive 2004/18 of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts [2004] OJ L 134/114. Previously, see Article 6 of Council Directive 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts [1993] OJ L 199/54.
[2] As stressed very recently, see Spain v Commission, T-384/10, EU:T:2013:277, paras 65-68 (emphasis added); the Judgment has, however, been set aside on appeal by CJEU on procedural issues (disregard of a time limit by the Commission); see Spain v Commission, C-429/13 P, EU:C:2014:2310. Nonetheless, the same wording had been used in Commission v France, C-16/98, EU:C:2000:541; Commission v Italy, joined cases C-187/04 and C-188/04, EU:C:2005:652; Auroux and Others, C-220/05, EU:C:2007:31; and Commission v Germany, C-574/10, EU:C:2012:145.
[3] Swoboda, C-411/00, EU:C:2002:660, paras 57-60.
[4] Commission v Italy, C-412/04, EU:C:2008:102, paras 72-74.
[5] Opinion of AG Trstenjak in Commission v Germany, C-271/08, EU:C:2010:183, para 165 (emphasis added and references omitted). cf Opinion of AG Jacobs in Commission v France, C-16/98, EU:C:2000:99, para 38, where the AG stresses that the intentional or subjective element cannot be eliminated, but suggests that the applicable test still lies on whether the decision under assessment can be ‘justified on objective grounds’.
[6] Spain v Commission, T-384/10, EU:T:2013:277, para 95 (references omitted).

Overall assessment

Taking all of this into account, it seems clear to me that, unless there are objective (good) reasons for the sequential award of contracts for the provision of social and other specific services, the scenario suggested above would clearly constitute an infringement of EU public procurement law--and, in particular, Art 5(3) Dir 2014/24. In my view, the test applicable to the assessment of any objective reasons provided by the contracting authority cannot cover situations of lack of planning / foresight, purely economic reasons, or the pursuit or any horizontal policies.

Post script. If my intuition is correct and the discussion is catching up in Sweden because these sequential contracts are justified by a claim of emergency / force majeure / imprevisibility linked to the need to tackle the refugee crisis (which has triggered significant issues in Sweden and where the Swedish National Agency for Public Procurement has been issuing relevant guidance, unfortunately not in English), then it would seem clear to me that an overall assessment needs to be carried out of the situation and that it is not acceptable to allow each contracting authority to claim protection from the need to tender those contracts on the basis of unforeseeability and (con)sequential development of new or additional needs. Once the situation has been a source of general concern and operational difficulty across the country, a more general solution needs to be pursued, possibly on the basis of the rules for dynamic purchasing systems. However, this may require further analysis.

Another wrong decision on what is subjected to (EU) public procurement rules (QSRC v NHSE, [2015] EWHC 3752)

I was at the South West Administrative Lawyers Association (SWALA) meeeting yesterday and this gave me an opportunity to catch up with colleagues practising procurement before English courts, who are always an excellent source for updates regarding a body of (growing) national case law that is not always easy to find, despite the excellent BAILII.

Talking to Emily Heard about the Falk Pharma case (see here), she mentioned that there was a recent English case that could be of interest from the perspective of 'what is prourement' or 'what should be subjected to the (EU) procurement rules'. She was right, and the case of QSRC Ltd ("Qsrc"), R (on the application of) v National Health Service Commissioning Board ("NHS England") & Anor [2015] EWHC 3752 (Admin) (21 December 2015) deserves some comments. Of course, the opinion below is solely my own.

In QSRC v NHSE, the procurement dispute arose from the decision by the relevant contracting authority not to enter into a contract for the provision of specialised medical services (gamma knife treatment, a particular type of radiosurgical treatment) with QSRC while extending previous contracts for the provision of those services with existing suppliers.

The factual background of the case is very complex due to the fact that the initial decision not to enter into such contract took place towards the end of 2012, at the time when NHS procurement was being reformed in preparation for the entry into force of the National Health Service (Procurement, Patient Choice and Competition) (No 2) Regulations 2013.

However, as I read the facts and for analytical purposes, the relevant issues were that the relevant contracting authority, by deciding to extend the contracts with pre-existing suppliers and not tendering more fully (on the justification that such fuller procurement would take place in the near future once the new system was operational) incurred in the direct award of (implicit) public contracts to the pre-existing providers. Moreover, that by rejecting to enter into a contract with QSRC as well, it treated potential providers unequally.

Then, the main dispute for the purposes of our discussion was to determine whether, by not running a tender for the provision of the interim services, the relevant contracting authority had breached the then applicable Public Contracts Regulations 2006 (which transposed Directive 2004/18, and have since been replaced by the Public Contracts Regulations 2015 in transposition of Directive 2014/24). Linked to that, it was also contentious whether by not entering into a direct award with QSRC as well, the contracting authority breached its obligations under reg.3(2) NHS Procurement (No 2) 2013 Regs to act transparently and proportionately, and not to discriminate between providers.

Again, the claim is complicated due to the overlap betwen the NHS Procurement (No 2) 2013 Regs and the PCR2006 (and currently the PCR2015), but the relevant issue is that compliance with PCR2006 (and now PCR2015) is mandatory to the extent that they are applicable to the procurement of goods and services for the purposes of the NHS, which is otherwise (or additionally) regulated by the NHS Procurement (No 2) 2013 Regs.

The further complication is that the position of the parties is slightly odd. The Claimant was not interested in relying on the PCR2006 because it would imply that its claim was out of time and should thus be rejected without substantive analysis. Conversely, the Defendant wanted to insist on its (alleged) breach under PCR2006, so as to time bar the action.

Thus, in short, the High Court (Foskett J) had to determine whether there had been a breach of the PCR2006 in the decision not to run a tender for the provision of interim services, which would oddly have resulted in an end of the analysis due to time limitation rules (which could explain the outcome of the analysis...).

The relevant paragraph is [115], where it is established that:

The issue, therefore, is whether, as the Defendant contends, the decision made not to contract with the Claimant was "governed by the Public Contracts Regulations 2006" or whether, as the Claimant contends, it was not. [The Defendant] submitted that the essence of the claim is that the Defendant should have procured ... services from the Claimant instead of merely from Barts and the Cromwell ... and contends that "the refusal to do so is a decision the legality of which may be affected by duties owed to [the Claimant] under" the 2006 Regulations. It seems to me that the issue is not whether the decision "may be affected" by the Regulations, but whether they are governed by them. [The Claimant] submits that they are not so governed, but they are governed by the 2013 Regulations. He accepts that in some respects there may be a degree of overlap, but argues this was not a situation where the "contracting authority" was seeking offers in relation to a proposed public supply contract (see Regulation 5) and, accordingly, the Regulations did not apply. Indeed he emphasises that no offers have yet been sought. He submits that no decision was taken under the 2006 Regulations which is or was capable of challenge pursuant to its terms (first emphasis in the original, second emphasis added).

Foskett J concluded that the Claimant's 'submissions [were] correct in the circumstances of this case'. It would then seem that the decision to consider the PCR2006 as not applicable is heavily influenced by the willingness of the Court to engage in a substantive assessment of the situation and to circumvent the time bar that would derive from the opposite conclusion. However, the argument simply does not hold even a mild degree of scrutiny.

In simple terms, the argument is that procurement rules apply when contracting authorities actually seek offers from potential providers, but not when they 'merely' (or potentially) ought to seek those offers. This would immediately exclude all cases of direct award of contracts that should have been tendered from review due to a breach of the applicable procurement rules. This is simply flagrantly in conflict with the purposes not only of the substantive EU Directives (2004/18 and 2014/24) as transposed byt he PCR2006 and now the PCR2015, but in radical opposition to the aims and mandates of the Remedies Directive (Dir 89/665/EEC, as amended by Dir 2007/66)--seeing that it goes at great lengths to stress that the direct award of contracts is the most egregious violation of (EU) public procurement rules and therefore triggers the strictness of sanctions: ineffectiveness [Art 2d(1)(a)].

Consequently, regardless of the outcome of the QSRC v NHSE case, which is not relevant now, the reasons for the decision to consider the direct award of the interim services contract not within the scope of the PCR2006 (and probably exempted but from minimum formal requirements due to the nature of the services as Annex II B services), must be criticised as plainly incorrect. It is wrong to enter into a logical argument that results in a circular test whereby compliance with the (EU) public procurement rules is only required if the contracting authority actually decides to engage in a procurement exercise, without assessing whether it had such an obligation to do so precisely under those rules. Or, even in simpler terms, it is wrong to accept that a decision not to comply with the applicable (EU) procurement rules shields the contracting authority from challenges on the basis of the infringed rules.

More generally, then and going back to the link with Falk Pharma, it seems that the proper understanding of what procurement is and when the (EU) public procurement rules should apply to market interactions by the public buyer is not yet satisfactorily settled, which is odd in a discipline that has been around for almost 45 years at EU level and for centuries in some of its Member States (acknowledgedly, not in the UK). More work should be done in this area, and I will try to rope in some of the colleagues participating in Procurement Week 2016 in such a project. Watch this space.

ECJ gets first principles of EU public procurement law wrong, as demonstrated by the regulation of dynamic purchasing systems (C-410/14)

In its Judgment of 2 June 2016 in Falk Pharma, C-410/14, EU:C:2016:399, the European Court of Justice (ECJ) had to revisit the very concepts of procurement and of public contract for the purposes of the interpretation and application of EU public procurement law. The ECJ decided to approach the issue from a 'first principles' perspective and to work deductively on the basis of the general principles and main aims of EU public procurement in order to delineate the contours of what a public contract is. In my opinion, the result of this process is faulty and needs to be criticised because the ECJ only looked at part of the general principles and aims of EU public procurement law and, more importantly, by avoiding a systematic analysis and ignoring the regulation of dynamic purchasing systems, reached a solution that creates internal inconsistency within the system of EU public procurement regulation.

The dispute in the Falk Pharma case

In the case at hand, the ECJ was requested to interpret whether a so-called 'authorisation system' implemented by German authorities in relation with the acquisition of pharmaceutical products was covered by the EU public procurement rules or not. In simple terms, under the relevant part of German social security law concerned with statutory health insurance, 'in the case of the supply of a medicinal product which has been prescribed by indicating its active ingredient and whose replacement by a medicinal product with an equivalent active ingredient is not excluded by the prescribing doctor, pharmacists must replace the medicinal product prescribed with another medicinal product with an equivalent active ingredient in respect of which a rebate contract has been concluded' (C-410/14, para 11). Or, in other words, when operating under the statutory health insurance scheme, German pharmacists are under an obligation to dispense generics for which a rebate scheme is in place unless the prescribing doctor has insisted on a specific branded product.

In order to establish such a rebate system for a given anti-inflammatory drug used to treat inflammatory bowel disease (mesalazine), in the Falk Pharma case, the relevant authorities 'published in the supplement to the Official Journal of the European Union a notice concerning an "authorisation procedure" for the conclusion of rebate contracts ... concerning medicinal products whose active ingredient is mesalazine. The rebate rate was fixed at 15% of the ‘ex-factory’ price and the period covered ran from 1 October 2013 to 30 September 2015' (para 13). It should be noted that the 'procedure provided for the authorisation of all interested undertakings meeting the authorisation criteria and for the conclusion with each of those undertakings of identical contracts whose terms were fixed and non-negotiable. Furthermore, any other undertaking fulfilling those criteria also had the opportunity of acceding on the same terms to the rebate contract scheme during the contract period' (para 14). The German authorities considered that this scheme was not covered by the EU public procurement rules (para 15).

As a result of the procedure, the German authorities entered into only one rebate contract with Kohlpharma. A competing interested undertaking challenged the setting up of the rebate scheme on the basis that the so-called 'authorisation procedure' was actually a public contract and, consequently, should have been advertised and awarded in compliance with the applicable EU rules (at the time, Directive 2004/18). The referring court explained how German courts were divided on this issue. 'For certain courts a public contract is a contract which gives the chosen operator exclusivity, so that a contract which is concluded with all the operators who wish to conclude such a contract does not constitute a public contract. Other courts take the view that all contracts concluded by a contracting authority are public contracts and that the choice of one of the tenderers, and therefore the grant of exclusivity, is an obligation of a contracting authority' (para 22).

After an elaborate discussion on the arguments both for and against the consideration of these schemes as public contracts (paras 23-30), the basic question posed to the ECJ is to determine 'whether Art 1(2)(a) Dir 2004/18 must be interpreted as meaning that a contract scheme ... through which a public entity intends to acquire goods on the market by contracting throughout the period of validity of that scheme with any economic operator who undertakes to provide the goods concerned on fixed terms, without choosing between the interested operators, and allows those operators to accede to that scheme throughout its period of validity, must be classified as a public contract within the meaning of that directive' (para 32).

The ECJ's position in the Falk Pharma case

The ECJ's first reaction is to stress that '[a]dmittedly, ... such a scheme leads to the conclusion of contracts for a pecuniary interest between a public entity, which could be a contracting authority within the meaning of Directive 2004/18, and economic operators whose objective is to supply goods, which corresponds to the definition of "public contracts" laid down in Article 1(2)(a) of that directive' (para 33). In my view, the analysis should have ended here and the ECJ should have limited itself to declare the authorisation scheme covered by EU public procurement rules (more details on the reasons why, below).

However, in order to answer more fully this seemingly simple question, the ECJ decided to go back to the very basics and interrogate Dir 2004/18 for its general aims and goals. In that regard, and after repeating some standard arguments on the EU procurement rules' goal to avoid favouritism in the award of public contracts (paras 34-36), the ECJ establishes the most controversial part of the Falk Pharma Judgment by finding that:

37 ... where a public entity seeks to conclude supply contracts with all the economic operators wishing to supply the goods concerned in accordance with the conditions specified by that entity, the fact that the contracting authority does not designate an economic operator to whom contractual exclusivity is to be awarded means that there is no need to control, through the detailed rules of Directive 2004/18, the action of that contracting authority so as to prevent it from awarding a contract in favour of national operators.

38      It is therefore apparent that the choice of a tender and, thus, of a successful tenderer, is intrinsically linked to the regulation of public contracts by that directive and, consequently, to the concept of ‘public contract’ within the meaning of Article 1(2) of that directive (C-410/14, paras 37 & 38, emphasis added).

I find both points faulty for the reasons explored below. Moreover, I find this position very worrying because of the sweeping implications it has for the definition of public contract and because this understanding of public procurement as an activity necessarily requiring the choice of a successful tenderer will carry over to the interpretation and enforcement of Directive  2014/24 because, according to the ECJ:

40 ... that principle is expressly set out in the definition of the concept of ‘procurement’, now set out in Article 1(2) of Directive 2014/24, in respect of which one aspect is the choice by the contracting authority of the economic operator from whom it will acquire by means of a public contract the works, supplies or services which are the subject matter of that contract (C-410/14, para 40, emphasis added).

What the ECJ got wrong

The absence of risk of protectionism or competitive restriction

Regarding the finding of the ECJ in para 37 of Falk Pharma that there is no need to control the conclusion of this type of contractual mechanisms under the specific rules of the EU public procurement directives because there is no risk of award those contracts in favour of national operators, I submit that the ECJ failed to understand the mechanics of the supply chain involved in the so-called 'authorisation scheme' or 'rebate contracts' and that this led to an improper assessment of the risk of favouritism or protectionism of certain economic operators. Moreover, I also submit that, in any case, this is not the correct logic to follow and that a competition-based assessment should lead to a different conclusion.

These rebate contracts only make sense for entities active in Germany and with working distribution mechanisms whereby their medicine is made available to German pharmacies. The mechanics of the rebate are quite obvious in requiring two pre-conditions for the actual delivery of the medicine by a specific provider. One, it is necessary for the provider to conclude the required rebate contract with the authorities managing the statutory health insurance system. Two, it is necessary for the provider to have its products available in German pharmacies. Even then, there is no guarantee to end up selling the product if a competing supplier has a rebate scheme in place, has its products available at the pharmacy and has a lower selling price because, despite being obliged to grant the same rebate (in the case, 15%) it has a lower ex-factory price (for details on this, see the recent report on pharmaceutical product pricing).

Therefore, in my view and to the extent to which it is possible to grasp the economic reality behind the case on the basis of the pyrrhic information available in the Falk Pharma Judgment, the creation of this rebate scheme still clearly has potential 'protectionistic' effects in that it favours pharmaceutical companies already established and active in Germany over potential suppliers that would need to enter the pharmacy distribution channels in order to take part in the 'authorisation scheme'. Thus, in my view, even from the perpective of limiting EU public procurement rules to an anti-protectionism goal, the ECJ would have gotten the assessment wrong by remaining at a level of generality that masks the fact that the scheme formally open to any willing supplier is actually skewed in favour of pharmaceutical companies already active in Germany--which, in terms of the ECJ's analysis, are more likely to be domestic companies.

But, beyond this, I think that the ECJ's assessment was also affected by tunnel vision and failed to evaluate the situation from the perspective of the pro-competitive orientation of the EU public procurement rules, despite the referring court's stress on the fact that 'EU law on public contracts has always been characterised by an element of competition' (para 25). From this functional perspective, it is criticisable that the ECJ decided to exclude the 'authorisation scheme' from the scope of application of the EU public procurement directives on the basis that it does not constitute a public contract, while at the same time going back to the obscure requirement that its award is based on a procedure that 'in so far as its subject matter is of certain cross-border interest, is subject to the fundamental rules of the [TFEU], in particular the principles of equal treatment and of non-discrimination between economic operators and the consequent obligation of transparency, that obligation requiring that there be adequate publicity. In that regard, Member States have some latitude in a situation such as that at issue in the main proceedings for the purpose of adopting measures intended to ensure observance of the principles of equal treatment and the obligation of transparency' (para 44).

This only creates legal uncertainty and potentially limits competition for the contract. It would have been preferable for the ECJ to actually look at the entirety of the goals of the EU public procurement rules and, it being clear that the 'authorisation scheme' 'leads to the conclusion of contracts for a pecuniary interest between a public entity ... and economic operators whose objective is to supply goods' (para 33), subject it to compliance with the specific rules of the EU public procurement directives (concerning dynamic purchasing systems, as elaborated below), if nothing else for the purpose of ensuring competition for these contracts.

The need to make a final choice as an essential element of procurement procedures

Furthermore, the ECJ's finding in para 38 of the Falk Pharma Judgment, that 'one aspect [of the concept of procurement] is the choice by the contracting authority of the economic operator from whom it will acquire by means of a public contract the works, supplies or services', should also be criticised. First, because too strict an interpretation of this element of choice of the specific contractor, supplier or service provider (ab initio or from the start of the contractual relationship) by the contracting authority can result in ridiculous results, e.g. where end users are given choice between alternative suppliers, be it within framework agreements or dynamic purchasing systems, or where the contracting authority draws from contractual systems set up by third parties (such as central purchasing bodies, or through other types of collaborative procurement). In many a case, the contracting authority that sets up the general contractual scheme does not necessarily end up choosing the provider itself or in a direct manner. But this should not exclude the applicability of the EU public procurement rules.

Secondly, reliance on the specific wording of Art 1(2) Dir 2014/24 should also be criticised because the ECJ seems to read too much into the definition of procurement created ex novo in this instrument. Remarkably, when the European Commission proposed the text of the new Directive in 2011, it defined procurement in a broader and functional manner by indicating that: 'Procurement within the meaning of this Directive is the purchase or other forms of acquisition of works, supplies or services by one or more contracting authorities from economic operators chosen by those contracting authorities, whether or not the works, supplies or services are intended for a public purpose'. The justification given by the Commission for this introduction was that '[t]he basic concept of "procurement" ... has been newly introduced in order to better determine the scope and purpose of procurement law and to facilitate the application of the thresholds'. However, there is no further explanation of the purpose of this definition.

The final text of Art 1(2) of Dir 2014/24 deviates from the proposal by establishing that 'Procurement within the meaning of this Directive is the acquisition by means of a public contract of works, supplies or services by one or more contracting authorities from economic operators chosen by those contracting authorities, whether or not the works, supplies or services are intended for a public purpose' (the emphasis indicates the differences). This change of drafting originates from the second compromise text of the Council (see here), and the debate seems to only have revolved around the need for a public contract to exist in order to trigger the application of the Directive. To the best to my knowledge, the element of choice of economic operator was not controversial and did not attract any relevant attention in the legislative process--as evidenced, for instance, by the fact that the provision is not dealt with in any detail in relevant scholarship: Constant De Koninck, Thierry Ronse and William Timmermans, European Public Procurement Law. The Public Sector Procurement Directive 2014/24/EU Explained through 30 Years of Case Law by the Court of Justice of the European Union, 2nd edn  (Wolters Kluwer Law & Business, 2015). 

As clearly criticised by Caranta, 'the new definition provided in Article 1(2) of Directive 2014/24 still [leaves] wide margins of ambiguity' and, further, '[t]he legislative drafting technique here leaves much to be desired. The two provisions might easily have been merged, and the distinction between “procurement” and “public contract” is simply lost in most of the other language versions. Moreover, “public contract” is clearly the genus, with “procurement” being the species. The genus should have been defined first, with the specification elements (in writing, acquisition, pecuniary interest, and so on) added at a later stage' [see R Caranta, 'The changes to the public contract directives and the story they tell about how EU law works' (2015) 52(2) Common Market Law Review 391-459, emphasis added]. As Caranta points out, the definition seems to only bring about a change in terms of stressing the requirement for an 'acquisition' to take place (for the reasons he explains), which in the Falk Pharma case is uncontroversial.

Overall, then, I cannot understand why the ECJ got so hung up on the specific wording of Art 1(2) Dir 2014/24 and why it gave such relevance to the need to choose a supplier for procurement to exist. From a functional perspective, it would seem superior to interpret procurement as any contractual mechanism whereby the contracting authority determines which suppliers can supply and under which conditions, regardless of whether there is any element of exclusivity or whether any potential supplier is excluded from the scheme. This functional approach certainly bodes better with the regulation of undisputed (if not too regularly used) EU public procurement mechanisms such as the dynamic purchasing system, which was simply ignored by the ECJ.

How the ECJ ignored the regulation of dynamic purchasing systems

Indeed, beyond the general criticisms above, the Falk Pharma Judgment must also be criticised because the ECJ enters into a very limited systematic analysis of the EU public procurement architecture that ignores the regulation of dynamic purchasing systems, both in Dir 2004/18 and Dir 2014/24. Indeed, the ECJ simply considered that

41 ... it should be noted that the special feature of a contractual scheme, such as that at issue in the main proceedings, namely its permanent availability for the duration of its validity to interested operators and, therefore, its not being limited to a preliminary period in the course of which undertakings are invited to express their interest to the public entity concerned, suffices to distinguish that scheme from a framework agreement. In accordance with Article 32(2), second paragraph, of Directive 2004/18, contracts based on a framework agreement can only be awarded to economic operators who are originally parties to that framework agreement (C-410/14, para 41, emphasis added).

That is true. But the ECJ's analysis flagrantly failed to assess the compatibility of those general features (ie permanent availability of the possibility to opt in to interested operators, despite not having expressed initial interest) with the regulation of dynamic purchasing systems under Art 33 Dir 2004/18, which are precisely this type of contractual arrangement. Granted, the specific rules on the running of the dynamic purchasing system would have required some further assessment and the fact that pharmacists draw from the electronic catalogue resulting from the rebate agreements could have created some difficulties regarding the specific mechanics of the dynamic purchasing systems envisaged in Dir 2004/18 regarding the need for indicative tenders and the mini-competitions for each award (not so much under the revised rules of Art 34 Dir 2014/24, especially if coupled with the rules on electronic catalogues in Art 36 Dir 2014/24), but that should not have excluded from the scope of application of EU public procurement rules (both under Dir 2004/18 and, more importantly, Dir 2014/24) any type of contractual scheme permanently open to economic operators willing to supply for the entirety of its duration. In my view, this is bound to result in a major systematic incongruence--why call something a dynamic purchasing system and comply with EU public procurement rules if you can call it 'authorisation process' or any other creative name and do away those requirements? Definitely not a desirable outcome from the perspective of regulatory consistency.

Final thoughts

For all the reasons explored above, I think that the Falk Pharma Judgment is an undesirable development of EU public procurement law. Moreover, I am puzzled by the absence of an Advocate General Opinion. Given the fundamental relevance of the concept of public contract, and now of procurement itself, for the application of this regulatory system, the worse thing to do is to carry out analyses based on linguistics without exploring the systematic and functional implications of definitional issues. In my view, this is an issue worth resending to the CJEU for clarification at the earliest possible opportunity as soon as any slightly different "authorisation scheme" or "alternative acquisition mechanism" is tendered in any of the Member States, so that the full ECJ and, if possible, on the back of a strong Advocate General Opinion, has the opportunity to fix this--or, on the contrary, continues a dangerous path of recognition (and legitimacy) of "non-procurement acquisition systems" subjected to the basic principles of the EU Treaties and the requirements derived from the internal market fundamental freedoms, but not to the EU public procurement rules, which would extend the difficulties traditionally linked to below-thresholds and not-covered contracts to a whole new dimension of acquisition contractual mechanisms, and which I would certainly find undesirable.

ECJ opens door to remedial possibilities when contracting authorities aim to exclude on the basis of shady participation requirements (C-27/15)

In its Judgment of 2 June 2016 in Pizzo, C-27/15, EU:C:2016:404, the European Court of Justice (ECJ) has provided interpretative guidance on some aspects of the qualitative selection process that contracting authorities need to carry out prior to the award of public contracts covered by the relevant EU rules. It is worth noting that, even if the Pizzo Judgment is based on the rules of Directive 2004/18 (Arts 47 and 48), but the functional criteria it sets will be equally relevant under the new rules of Directive 2014/24 (Arts 56 to 58).

In particular, the Pizzo Judgment clarifies the scope of the discretion given to contracting authorities to interpret tender documents in a way that would unfavourably result in the exclusion of economic operators (following Manova, C‑336/12, EU:C:2013:647, see here; and Cartiera dell'Adda, C‑42/13, EU:C:2014:2345, see here), as well as the limits of the possibility given to economic operators to remedy formal shortcomings in the documentation presented in the course of their participation in the tender for a public contract in order to avoid such exclusion.

Pizzo also follows the flexible approach previously established by the ECJ regarding reliance on third party capacities (as per Swm Costruzioni 2 and Mannocchi Luigino, C-94/12, EU:C:2013:646, see here; and in a related fashion to Ostas celtnieks, C-234/14, EU:C:2016:6, see here). 

The case concerned the tender of a public service contract for the management of waste and cargo residues produced on board ships calling at ports within the contracting authority’s territorial jurisdiction (ie the Messina area, in Italy). The contracting authority received four tenders but decided to exclude three tenderers due to the lack of payment of an administrative fee that it considered a mandatory participation requirement, which led the authority to award the contract to the only remaining tenderer (Pizzo).

One of the excluded tenderers (CGRT) appealed the exclusion decision on the basis that the payment of the fee was only mandatory for works contracts, not for services contracts, and that the authority required such payment on the basis of a broad interpretation of the relevant rules and its general powers under Italian administrative law. In CGRT's submission, before proceeding to its exclusion from the tender, the authority should at least have given it the possibility to remedy the situation and pay the fee. CGRT's action was faced with a counterclaim by Pizzo whereby it challenged CGRT's compliance with the economic standing requirements for the participation in the tender due to the fact that it had relied on third party capacities (in the case, those of RIAL). 

Therefore, the case raised two issues: 1) to what extent can a contracting authority engage in a (discretionary) broad interpretation of the tender documents in a way that incorporates the requirement to pay a fee and proceed to the exclusion of those tenderers that had not paid the fee without giving them the opportunity to remedy the situation; and 2) to what extent must contracting authorities follow a flexible approach to the assessment of economic and technical standing requirements when tenderers rely on third party capacities. The first issue is more interesting and controversial than the second one. Thus, let's focus on the second issue first.

Again, on the flexible approach to reliance on third party capacities and how it carries over to new rules of directive 2014/24

In Pizzo, the ECJ revisits its consolidated case law in this area, without adding much to the already clear position that the applicable EU rules create significant flexibility for tenderers to rely on third party capacity, unless the tender documents establish reasonable and proportionate restrictions justified by the subject matter of the contract. In its own terms:

23      The Court has held that EU law does not require that, in order to be classified as an economic operator qualifying for tendering, a person wishing to enter into a contract with a contracting authority must be capable of direct performance using his own resources (see, to that effect, judgment of 23 December 2009 in CoNISMa, C‑305/08, EU:C:2009:807, paragraph 41).

24      ... Article 47(2) and Article 48(3) of Directive 2004/18 does not lay down any general prohibition regarding a candidate or tenderer’s reliance on the capacities of one or more third-party entities in addition to its own capacities in order to fulfil the criteria set by a contracting authority (see Swm Costruzioni 2, paragraph 30).

25      ... those provisions recognise the right of every economic operator to rely, for a particular contract, upon the capacities of other entities, ‘regardless of the nature of the links which it has with them’, provided that it proves to the contracting authority that it will have at its disposal the resources necessary for the performance of the contract (see Ostas celtnieks, paragraph 23).

26      It must therefore be held that Directive 2004/18 permits the combining of the capacities of more than one economic operator for the purpose of satisfying the minimum capacity requirements set by the contracting authority, provided that the candidate or tenderer relying on the capacities of one or more other entities proves to that authority that it will actually have at its disposal the resources of those entities necessary for the execution of the contract (see Swm Costruzioni 2, paragraph 33).

27      Such an interpretation is consistent with the objective pursued by the directives in this area of attaining the widest possible opening-up of public contracts to competition to the benefit not only of economic operators but also contracting authorities (see, to that effect, CoNISMa, paragraph 37 and the case-law cited). In addition, that interpretation also facilitates the involvement of small- and medium-sized undertakings in the contracts procurement market, an aim also pursued by Directive 2004/18, as stated in recital 32 thereof (see Swm Costruzioni 2, paragraph 34).

28      ... however ... there may be works the special requirements of which necessitate a certain capacity which cannot be obtained by combining the capacities of more than one operator, which, individually, would be inadequate. It has thus acknowledged that, in such circumstances, the contracting authority would be justified in requiring that the minimum capacity level concerned be achieved by a single economic operator or by relying on a limited number of economic operators as long as that requirement is related and proportionate to the subject matter of the contract at issue. The Court has, however, stated that since those circumstances represent an exception, the requirements in question cannot be made general rules under national law (see, to that effect, Swm Costruzioni 2, paragraphs 35 and 36) (C-27/15, paras 23-28, references shortened).

The only novelty to be found in Pizzo is that the ECJ anticipates the interpretation of Art 63 Dir 2014/24 by stressing that

the specific provisions ... provide that it is possible for the contracting authority to require that the entity which is relied on to satisfy the conditions laid down with regard to economic and financial standing is to be jointly liable (Article 63(1), third subparagraph, of Directive 2014/24) or to require that, with regard to certain types of contracts, certain critical tasks are to be performed directly by the tenderer (Article 63(2) of that directive). Those provisions do not therefore impose specific limits on the possibility of divided reliance on the capacities of third-party undertakings and, in any event, such limits should have been expressly set out for in the call for tenders in respect of the contract at issue, which is not the case in the main proceedings (C-27/15, para 33, emphasis added).

This is in line with the interpretation of Art 63 Dir 2014/24 I hold in Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 315-318, but it is worth stressing that the ECJ has not yet tackled some of the restrictions allowed for under Art 63(2) Dir 2014/24 (ie the requirement that certain critical tasks are to be performed directly by the tenderer) which in my view run contrary to its previous case law. Thus, in this instance, the fact that the ECJ makes obiter comments on the likely future interpretation of the rules of Dir 2014/24 is worrying because there are two possible readings of paragraph 33 in Pizzo: (a) that the ECJ is giving carte blanche to the potential restrictions created by Art 63(1) and (2), or (b), that the ECJ is simply stressing that (regardless of their substantive merit and from a prior formal perspective), for such requirements to apply, they need to be created in the applicable tender documents (which, having not happened in this case, makes them irrelevant). I strongly vouch for (b), but I am certain that there will be claims based on (a) when the issue properly arises in litigation. Thus, in this case, the probably well-intended effort by the ECJ to anticipate the interpretation of the new rules may have created more shadows than lights.

On the tricky issue of the interpretation of tender documents, the duty to seek clarification or, at least, allow for remediation of short-comings leading to exclusion of economic operators

When tackling the challenge of the contracting authority's broad interpretation of the obligation to pay an administrative fee and its decision to exclude, without possibility to remedy such short-coming, the economic operators that had failed to pay it, the rephrased the question to mean 'whether the principle of equal treatment and the obligation of transparency are to be interpreted as precluding an economic operator from being excluded from a procedure for the award of a public contract as a result of that economic operator’s non-compliance with an obligation which does not expressly arise from the documents relating to that procedure or out of the national law in force, but from an interpretation of that law and from the incorporation of provisions into those documents by the national authorities or administrative courts' (C-27/15, para 35).

In that regard, the ECJ makes the following arguments and establishes the following reasoning:

36 ... all the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner in the contract notice or specifications so that, first, all reasonably informed tenderers exercising ordinary care can understand their exact significance and interpret them in the same way and, second, the contracting authority is able to ascertain whether the tenders submitted satisfy the criteria applying to the contract in question (see, to that effect, Cartiera dell’Adda, paragraph 44 and the case-law cited).

37      The Court has also held that the principles of transparency and equal treatment which govern all procedures for the award of public contracts require the substantive and procedural conditions concerning participation in a contract to be clearly defined in advance and made public, in particular the obligations of tenderers, in order that those tenderers may know exactly the procedural requirements and be sure that the same requirements apply to all candidates ...

45 ... in the case in the main proceedings, the alleged obligation to pay a fee to the AVCP [the Supervisory Authority on Public Procurement] can be identified only by the interaction between the 2006 Finance Law, the AVCP’s decision-making practice and the judicial practice of the Italian administrative courts in applying and interpreting Law No 266/2005.

46      As the Advocate General points out ... a condition governing the right to participate in a public procurement procedure which arises out of the interpretation of national law and the practice of an authority ... would be particularly disadvantageous for tenderers established in other Member States, inasmuch as their level of knowledge of national law and the interpretation thereof and of the practice of the national authorities cannot be compared to that of national tenderers.

48 ... it is apparent from the order for reference that there is no possibility of rectifying non-compliance with that condition that a fee must be paid.

49      According to paragraph 46 of the judgment in Cartiera dell’Adda ..., the contracting authority may not accept any rectification of omissions which, as expressly provided for in the contract documentation, must result in the exclusion of the bid. The Court stated, in paragraph 48 of that judgment, that the obligation concerned was clearly laid down in the contract documentation, on pain of exclusion.

50      However, in a situation where ... a condition for participating in a procedure for the award of a contract, on pain of exclusion from that procedure, is not expressly laid down in the contract documentation and that condition can be identified only by a judicial interpretation of national law, the contracting authority may grant the excluded tenderer a sufficient period of time in order to rectify its omission (C-27/15, paras 36-50, some references omitted and emphasis added).

I agree with the main reasoning of the ECJ on this issue as it coincides with a possibilistic and functional approach to the management of the exclusion and qualitative selection procedure aimed at minimising exclusion for causes that can be remedied without infringing the principle of equal treatment [for discussion, see A Sanchez-Graells, 'Exclusion, Qualitative Selection and Short-listing', in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129; and ibid, 'Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions', M Comba & S Treumer (eds) Award of Contracts in EU Procurements, vol. 5 European Procurement Law Series (Copenhagen, DJØF, 2013) 267-302].

However, I am not convinced by the way the ECJ has limited the opportunity to remedy the (interpreted) shortcomings in the tender documentation (or material requirements) to a mere possibility. As phrased in the operational part of the Pizzo Judgment, the ECJ has interpreted that

the principle of equal treatment and the obligation of transparency must be interpreted as precluding an economic operator from being excluded from a procedure for the award of a public contract as a result of that economic operator’s non-compliance with an obligation which does not expressly arise from the documents relating to that procedure or out of the national law in force, but from an interpretation of that law and those documents and from the incorporation of provisions into those documents by the national authorities or administrative courts. Accordingly, the principles of equal treatment and of proportionality must be interpreted as not precluding an economic operator from being allowed to regularise its position and comply with that obligation within a period of time set by the contracting authority (C-27/45, para 51, emphasis added).

I find this approach too lenient and I would have expected the ECJ to create a mandatory vis-a-vis procedure similar to the one applicable in case the contracting authority suspects an offer to be abnormally low under Art 69 Dir 2014/24. Generally, I think that rather than focusing solely on the principle of equal treatment and non-discrimination, it is worth stressing the relevance of the principle of good administration as well. From that perspective, if the contracting authority identifies a participation requirement that was not obvious from the tender documentation, it should be subjected to a mandatory phase whereby it allows tenderers to remedy the situation. The same would go for the interpretation of Art 56(3) Dir 2014/24 in terms of the possibility (in my view, non-discretionary) to seek clarifications from tenderers and to 'take all appropriate steps to avoid the rejection of candidates on the basis of shortcomings in the available documentation that could be overcome if the contracting authority were to exercise the appropriate level of diligence' [Public procurement and the EU competition rules (2015) 321-323].

Overall, I think that this is an area where the ECJ is avoiding a much needed delineation of the limits (or at least checks and balances) to be imposed on the discretion of the contracting authorities to proceed to exclusion without exhausting the possibilities for clarification or remedy of formal shortcomings in the submission of tenders. This is likely to be an area of continued litigation, particularly as the Pizzo case opens the door to different treatment of participation requirements that directly derive from the tender documentation (where the contracting authority is likely to have its hands tied and not be able to provide any scope for remedial action beyond the very limited possibilities foreseen in Manova and Cartiera dell’Adda) or that indirectly arise from its contextual interpretation (where the Pizzo approach seems to open a rather big door to the enablement of remedial actions). Thus, the last word is certainly not yet written...