Does (outsorcing) procurement contribute to public sector productivity? (Dunleavy, 2015)

I have recently read P Dunleavy. "Public Sector Productivity: Puzzles, Conundrums, Dilemmas and Their Solutions", in J Wanna, H-A Lee & S Yates (eds), Managing Under Austerity, Delivering Under Pressure: Performance and Productivity in Public Service (ANU Press, 2015) 25-42. I found Prof Dunleavy's piece highly thought-provoking and would recommend it to anyone interested in the working of the public sector and current outsourcing tendencies, including mutualisation of (spin-off) public services.

Dunleavy offers a very straightforward proposal to start cracking the problem of measuring public sector productivity and reports the findings of a larger study based on relatively simple indicators. Focusing on public procurement, Dunleavy offers some insights that are worth pondering. His paper reports findings concerning the outsourcing of services and the hiring of IT consultants and stresses the following:

So, why does outsourcing not work? It is because government service offices are highly imperfect and they are not going to stop being highly imperfect if two or three contractors are brought in. The markets created are oligopolistic. In Britain we have large problems with our IT sector—62 per cent of the market is dominated by the top contractor, and the top five contractors have 95 per cent of the market. There are usually only two or three tenders for any given contract, and the tenders are very expensive. The idea that more firms can bid is not feasible, because a firm needs to have a large governmental relations unit and a contracting unit just to understand the e-procurement system; this will always be the case. Contract specification works directly against productivity because an organisation needs to specify what it wants the contractor to do. It has to fix a whole service specification and then as needs change, and demand changes, and society changes, it has to go back to the contractor and renegotiate (p. 37).

Public servants also tend to use outsourcing in a very rational way—if we have better business to be attending to and there is something that we really hate doing, we tend to outsource it. This means that nothing changes in that area. The contractor will not want to change—as soon as we outsource it to them, they will want to freeze the technology and keep things exactly the same. This may seem irrational, because at the end of the contract they will have to re-tender, but it is actually cheaper for contractors to work that way (p. 38).

One final note—contestability is a great word, and it may do some good when trying to introduce product diversity, or when attempting to engage different kinds of contractors. The arrival of mutuals might make a difference, but keep in mind that mutuals only have 1/70th of the outsourcing market in the UK, so they are not a serious threat to the big outsourcers yet. On the whole, outsourcing contestability will not grow government productivity (p. 39). 

These are challenges and structural difficulties that do not only concern the UK. And they support a serious strategy to rethink the most productive way of structuring the public sector and deciding which activities to retain in house and which activities to outsource. Dunleavy's general recommendation for the future in that regard is to think about the following:

The question is, can we have genuine demand transfers across suppliers? Can we get genuine supplier succession, genuine competition or contestability? I think we could if we had public sector suppliers who could scale up their services; who could move from one area to another and enlarge. More mixed public/private competition could also improve the situation, and mutuals may help in a small way here (p. 41).

These are all very suggestive ideas, but all of them are based on structural changes in the supply side of the market. I would stress the need for demand side reforms, aimed at improving the way the procurement rules are used, so as to tender shorter-term, adaptive and flexible contracts that avoid lock-in and promote effective supplier competition in more dynamic procurement markets. It would also be worth reconsidering to what extent the creation of markets for some services is too expensive and inefficient, so as not to compensate the transaction costs implied--to that extent, a "rediscovery" of OE Williamson's work on markets and hierarchies (notably, in The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting, NY: Free Press, 1985) and its application to the public sector would certainly be beneficial. Plenty food for thought.

CJEU clarifies scope of application of concessions directive and services directive, and confirms their mutual exclusivity (C-458/14)

In its Judgment of 14 July 2016 in Promoimpresa, C-458/14, EU:C:2016:558, the Court of Justice of the European Union (CJEU) issued a ruling concerned with the interaction between the EU public procurement rules and the Services Directive (Dir 2006/123/EC) In particular, Promoimpresa is concerned with the potential interaction between the EU public procurement and the rules of the Services Directive (Art 12) for the allocation of authorisations to carry out a given economic activity when only a limited number of authorisations is available due to the scarcity of available natural resources or technical capacity.

The case touches upon similar issues as the ongoing litigation on whether the EU procurement rules area applicable to the granting of betting licences (see Politano’, C-225/15, here), which are however excluded from the scope of the Services Directive (Art 2).

Thus, the Promoimpresa Judgment is relevant in the area of services concessions, broadly and loosely understood [on this, for background, 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; and CJ Wolswinkel, 'From public contracts to limited authorisations and vice versa: Exploring the EU Court’s corollary approach on award procedures, Public Procurement Law Review' (2015) 24(5) Public Procurement Law Review 137].

In Promoimpresa, the legal dispute arose from Italian decisions not to renew a pre-existing "concession" (rectius, exclusive right or authorisation) for the occupancy and management of State-owned land, and to subject the award of lakeside "concessions" (idem) to a comparative selection procedure (C-458/14, para 2). Thus, the case concerns 'concessions granted by public authorities of State-owned maritime and lakeside property relating to the exploitation of State land for tourist and leisure-oriented business activities' (para 40). The use of the term "concession" to refer to this type of authorisations could be problematic in theory, as it could give rise to doubts as to the applicability of the Services Directive, the Concessions Directive (Dir 2014/23/EU), or both to their award. Luckily, though, this is an issue of coordination of the scope of application of these legal instruments that both address explicitly.

Recital 57 of the Services Directive states that ‘The provisions of this Directive relating to authorisation schemes should concern cases where the access to or exercise of a service activity by operators requires a decision by a competent authority. This concerns neither decisions by competent authorities to set up a public or private entity for the provision of a particular service nor the conclusion of contracts by competent authorities for the provision of a particular service which is governed by rules on public procurement, since this Directive does not deal with rules on public procurement’ (emphasis added).

From a complementary perspective, Recital 15 of Concessions Directive is also clear in stating that ‘… Certain agreements having as their object the right of an economic operator to exploit certain public domains or resources under private or public law, such as land or any public property, in particular in the maritime, inland ports or airports sector, whereby the State or contracting authority or contracting entity establishes only general conditions for their use without procuring specific works or services, should not qualify as concessions within the meaning of this Directive. This is normally the case with public domain or land lease contracts which generally contain terms concerning entry into possession by the tenant, the use to which the property is to be put, the obligations of the landlord and tenant regarding the maintenance of the property, the duration of the lease and the giving up of possession to the landlord, the rent and the incidental charges to be paid by the tenant’ (emphasis added).

In the Promoimpresa Judgment, in a ruling that should come as no surprise, the CJEU confirmed the mutual exclusivity of the Services Directive and the Concessions Directive in the following terms:

45 ... the provisions of [the Services Directive] relating to authorisation schemes cannot apply to concessions of public services capable, inter alia, of falling within the scope of [the Concessions Directive].

46      ... a services concession is characterised, inter alia, by a situation in which the right to operate a particular service is transferred by the contracting authority to the concessionaire and that the latter enjoys, in the framework of the contract which has been concluded, a certain economic freedom to determine the conditions under which that right is exercised and, in addition, is, to a large extent, exposed to the risks of operating the service (see, to that effect, judgment of 11 June 2009 in Hans & Christophorus Oymanns, C‑300/07, EU:C:2009:358, paragraph 71).

47      However, in the cases in the main proceedings ... the concessions do not concern the provision of a particular service by the contracting entity, but an authorisation to exercise an economic activity on State-owned land. It follows that the concessions at issue in the main proceedings do not fall within the category of service concessions (see, by analogy, judgment of 14 November 2013 in Belgacom, C‑221/12, EU:C:2013:736, paragraphs 26 to 28) (C-458/14, paras 45-47).

To be sure, the wording of some parts of the Promoimpresa Judgment could be clearer--e.g., paragraph [47], where it seems to imply that contracting authorities provide services under a services concession, while the whole point of those concessions is for the concessionaire to provide and manage those services on behalf of, or upon the entrustment of the contracting authority [see definition of services concession in Art 5(1)(b) of the Concessions Directive]. However, the functional criterion of mutual exclusivity of the Services Directive and the Concessions Directive seems now clear enough and it can be welcome that this is now the explicit interpretation of the CJEU, rather than merely indicative considerations in the recitals of both directives.

New paper on the need to review the Remedies Directive

I have uploaded a new paper on SSRN: ‘If it Ain't Broke, Don't Fix It’? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts, to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming.

As detailed in the abstract: 

EU public procurement law relies on the specific enforcement mechanisms of the Remedies Directive, which sets out EU requirements of administrative oversight and judicial protection for public contracts. Recent developments in the case law of the CJEU and the substantive reform resulting from the 2014 Public Procurement Package may have created gaps in the Remedies Directive, which led the European Commission to publicly consult on its revision in 2015. One year after, the outcome of the consultation has not been published, but such revision now seems to have been shelved. This chapter takes issue with the shelving of the revision process and critically assesses whether the Remedies Directive is still fit for purpose. 

The chapter focuses on selected issues, such as the interplay between the Remedies Directive and the Charter of Fundamental Rights, and with the general administrative law of the Member States. It also assesses the difficulties of applying the Remedies Directive ‘as is’ to some of the new rules of the 2014 Public Procurement Package, which creates uncertainty as to its scope of application, and gives rise to particular challenges for the review of exclusion decisions involving the exercise of discretion. The chapter also raises some issues concerning the difficulties derived from the lack of coordination of different remedies available under the Remedies Directive and briefly considers the need to take the development of ADR mechanisms into account. Overall, the chapter concludes that there are important areas where the Remedies Directive requires a revision, and submits that the European Commission should relaunch the review process as a matter of high priority.

The paper is freely downloadable at http://ssrn.com/abstract=2821828. As always, comments welcome.

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.