I won't fly to your conference, but I hope you will still invite me to participate

I was really proud to see that the University of Bristol declared a climate emergency. It was one of those moments that makes you feel part of a worthwhile institution (despite its many other flaws, like all institutions). Inspired by the exploding #Fridaysforclimate movement and the speeches of brave activist @GretaThunberg, I had been thinking about what I could personally do to contribute to the needed paradigm change. It did not take much reflection to realise that the most effective change in my professional life would clearly be to cut down travel, specially by air. And so, the University’s announcement prompted me to ‘go public’ with it.

This tweet prompted a series of exchanges with colleagues from Bristol and elsewhere. The reaction was mainly in three directions. First, that such a personal ‘no travel policy’ may be impossible to adopt in the context of (UK) academia, where public and conference speaking is used as both a measure of ‘academic productivity’ and as a proxy for esteem/standing in the field for the purposes of eg promotion—so, either you travel, or you may be seen as not doing your job or/and not worthy of (further) promotion. Second, that this would reduce the likely impact of my research and cut me off from potentially relevant audiences. Third, that this would exclude some of the very enjoyable moments that come with academic conferences, where you end up socialising with likely-minded colleagues and developing networks of collaborators and, if lucky, friends.

All of these are important points, so I have given this a little bit more thought.

First, I have to concede that not traveling to conferences will be an issue in terms of justifying my engagement with the academic (and policy-making) communities unless I manage to find a way to still participate in conferences. But this should not be too difficult. Today, there is large number of options to organise webinars and to allow for remote participation in meetings, so there is really no excuse not to take advantage of them. The technology is there and most institutions offer the required equipment and software, so it is high time that academics (and policy-makers) start using it as the default way of organising our interactions. This can even have secondary positive effects, such as the possibility of recording and publishing all or part of the conferences/meetings, so that different people can engage with the discussion at different times.

I also concede that not traveling to conferences and workshops can have a negative impact on ‘CV-building’ and that this will reduce any academic’s prospect of promotion. But I can only say that, to my shame and regret, I have been burning too much CO2 to get to my current academic position. In current lingo, I have exhausted (or, more likely, exceeded) my CO2 budget for conferences, so I can no longer afford to do it. If this means that my employer may not consider me deserving of a higher academic position as they may otherwise have, then I will have to accept any delays that come from implementing a no travel policy. In the grand scheme of things, this is a tiny sacrifice.

I acknowledge that this is something I can do from the very privileged academic position I am lucky to have, so I have no intention of proselytising. However, I do plan to try to change the system. I will work with my local trade union branch to see if we can make specific proposals to reduce the CO2 footprint of the promotions procedure. I will also organise webinars and non-presential conferences and offer every opportunity I can, in particular to early career researchers, so that academics can carry on with ‘CV-building’ (and, more importantly, knowledge-exchange) despite not traveling. These are the remedial actions I can and will implement. If you can think of others, please let me know. I would be more than happy to chip in.

Second, I must say that I have generally reached the audience for my academic work online. Only very rarely have I spoken at a conference or workshop where participants did not know my work from my SSRN page and this blog. With the partial exception of Brussels-based policy-makers (when I have been member of expert groups), every other policy-making body and NGO that has engaged with my work has done so remotely and, oftentimes, without any sort of direct conversation or exchange. There are plenty opportunities for academics to share their work online on open access and this has made the need for last-century-type conferences and workshops largely redundant for the purposes of knowledge and research dissemination. We need to realise this and use it to the advantage of a lower CO2 footprint for knowledge exchange.

Third, the social component is more difficult to address. There is no question that socialising at conferences and workshops has value in and of itself. It is also clear that, once you establish a network, you do not need to meet regularly with your collaborators and friends (however nice it is) to keep it going. So this may be the only aspect of conference travel that could justify going to a very specific event eg to establish new connections or to rekindle/deepen existing ones. But maybe this can be done without flying—eg in the case of UK-based academics like me, to prioritise conferences in Europe and convincing our employers and ourselves to take the extra time to travel by train or bus (anecdotally, most academics I know love train trips).

So, all in all, I have reaffirmed myself in the commitment to minimise my conference travel and, from today, I plan to not accept invitations to speak at or attend any conferences that require me to fly (although I will still fulfill the few prior commitments that I have). I will always ask for a ‘virtual alternative’, though, and I am really hoping that this will be acceptable (or even welcome).

Thus, in case you organise a conference on a topic within my expertise, here is my message: I will not fly to your conference, but I hope you will still invite me to participate. I hope you will because we have the technology to do this and because I value of our exchanges.

Response to UK Cabinet Office consultation on 'Social Value in Government Contracts'

The UK Cabinet Office is currently consulting on its draft policy on ‘Social Value in Government Contracts’ and will be receiving submissions until 10 June 2019. Below is my contribution to the public consultation, which will probably make more sense if read after the consultation paper. Comments and feedback most welcome.

Further thoughts on data and policy indicators a-propos two recent papers on procurement regulation & competition: comments re (Tas: 2019a&b)

The EUI Robert Schuman Centre for Advanced Studies’ working papers series has two interesting recent additions on the economic analysis of procurement regulation and its effects on competition, efficiency and value for money. Both papers are by BKO Tas.

The first paper: ‘Bunching Below Thresholds to Manipulate Public Procurement’ explores the effects of a contracting authority’s ‘bunching strategy’ to seek to exercise more discretion by artificially estimating the value of future contracts just below the thresholds that would trigger compliance with EU procurement rules. This paper is relevant to the broader discussion on the usefulness and adequacy of current EU (and WTO GPA) value thresholds (see eg the work of Telles, here and here), as well as on the regulatory decisions that EU Member States face on whether to extend the EU rules to ‘below-threshold’ contracts.

The second paper: ‘Effect of Public Procurement Regulation on Competition and Cost-Effectiveness’ uses the World Bank’s ‘Benchmarking Public Procurement’ quality scores to empirically test the positive effects of improved regulation quality on competition and value for money, measured as increases in the number of bidders and the probability that procurement price is lower than estimated cost. This paper is relevant in the context of recent discussions about the usefulness or not of procurement benchmarks, and regarding the increasing concern about reduced number of bids in EU-regulated public tenders.

In this blog post, I reflect on the methodology and insights of both papers, paying particular attention to the fact that both papers build on datasets and/or indexes (TED, the WB benchmark) that I find rather imperfect and unsuitable for this type of analysis (regarding TED, in the context of the Single Market Scoreboard for Public Procurement (SMPP) that builds upon it, see here; regarding the WB benchmark, see here). Therefore, not all criticisms below are to the papers themselves, but rather to the distortions that skewed, incomplete or misleading data and indicators can have on more refined analysis that builds upon them.

Bunching Below Thresholds to Manipulate Procurement (Tas: 2019a)

It is well-known that the EU procurement rules are based on a series of jurisdictional triggers and that one of them concerns value thresholds—currently regulated in Arts 4 & 5 of Directive 2014/24/EU. Contracts with an estimated value above those thresholds are subjected to the entire EU procurement regulation, whereas contracts of a lower value are solely subjected to principles-based requirements where they are of ‘cross-border interest’. Given the obvious temptation/interest in keeping procurement shielded from EU requirements, the EU Directives have included an anti-circumvention rule aimed at preventing Member States from artificially splitting contracts in order to keep their award below the relevant jurisdictional thresholds (Art 5(3) Dir 2014/24). This rule has been interpreted expansively by the Court of Justice of the European Union (see eg here).

‘Bunching Below Thresholds to Manipulate Public Procurement’ examines the effects of a practice that would likely infringe the anti-circumvention rule, as it assesses a strategy of ‘bunching estimated costs just below thresholds’ ‘to exercise more discretion in public procurement’. The paper develops a methodology to identify contracting authorities ‘that have higher probabilities of bunching estimated values below EU thresholds’ (ie manipulative authorities) and finds that ‘[m]anipulative authorities have significantly lower probabilities of employing competitive procurement procedure. The bunching manipulation scheme significantly diminishes cost-effectiveness of public procurement. On average, prices of below threshold contracts are 18-28% higher when the authority has an elevated probability of bunching.’ These are quite striking (but perhaps not surprising) results.

The paper employs a regression discontinuity approach to determine the likelihood of bunching. In order to do that, the paper relies on the TED database. The paper is certainly difficult to read and hardly intelligible for a lawyer, but there are some issues that raise important questions. One concerns the authors’ (mis)understanding of how the WTO GPA and the EU procurement rules operate, in particular when the paper states that ‘Contracts covered by the WTO GPA are subject to additional scrutiny by international organizations and authorities (sic). Accordingly, contracts covered by the WTO GPA are less likely to be manipulated by EU authorities’ (p. 12).  This is simply an acritical transplant of considerations made by the authors of a paper that examined procurement in the Czech Republic, where the relevant threshold between EU covered and non-EU covered procurement would make sense. Here, the distinction between WTO GPA and EU-covered procurement simply makes no sense, given that WTO GPA and EU thresholds are coordinated. This alone raises some issues concerning the tests designed by the author to check the robustness of the hypothesis that bunching leads to inefficiency in procurement expenditure.

Another issue concerns the way in which the author equates open procedures to a ‘first price auction mechanism’ (which they are not exactly) and dismisses other procedures (notably, the restricted procedure) as incapable of ensuring value for money or, more likely, as representative of a higher degree of discretion for the contracting authority—which is a highly questionable assumption.

More importantly, I am not sure that the author understood what is in the TED database and, crucially, what is not there (see section 2 of Tas (2019a) for methodology and data description). Albeit not very clearly, the author presents TED as a comprehensive database of procurement notices—ie, as if 100% of procurement expenditure by Member States was recorded there. However, in the specific context of bunching below thresholds, the TED database is very likely to be incomplete.

Contracting authorities tendering contracts below EU thresholds are under no obligation to publish a contract notice (Art 49 Dir 2014/24). They could publish voluntarily, in particular in the form of a voluntary ex ante transparency (VEAT) notice, but that would make no sense from the perspective of a contracting authority that seeks to avoid compliance with EU rules by bunching (ie manipulating) the estimated contract value, as that would expose it to potential litigation. Most authorities that are bunching their procurement needs (or, in simple terms) avoiding compliance with the EU rules will not be reflected in the TED database at all, or will not be identified by the methodology used by Tas (2019a), as they will not have filed any notices for contracts below thresholds.

How is it possible that TED includes notices regarding contracts below the EU thresholds, then? Well, this is anybody’s guess, but mine is that a large proportion of those notices will be linked to either countries with a tradition of full transparency (over-reporting), to contracts where there are any doubts about the potential cross-border interest (sometimes assessed over-cautiously), or will be notices with mistakes, where the estimated value of the contract is erroneously indicated as below thresholds.

Even if my guess was incorrect and all notices for contracts with a value below thresholds were accurate and justified by the existence of a potential cross-border interest, the database cannot be considered complete. One of the issues raised (imperfectly) by the Single Market Scoreboard (indicator [3] publication rate) is the relatively low level of procurement that is advertised in TED compared to the (putative/presumptive) total volume of procurement expenditure by the Member States. Without information on the conditions of the vast majority of contract awards (below thresholds, unreported, etc), any analysis of potential losses of competitiveness / efficiency in public expenditure (due to bunching or otherwise) is bound to be misleading.

Moreover, Tas (2019a) is premised on the hypothesis that procurement below EU thresholds allows for significantly more discretion than procurement above those thresholds. However, this hypothesis fails to recognise the variety of transposition strategies at Member State level. While some countries have opted for less stringent below EU threshold regimes, others have extended the EU rules to the entirety of their procurement (or, perhaps, to contracts up to and including much lower values than the EU thresholds, to the exception of some class of ‘micropurchases’). This would require the introduction of a control that could refine Tas’ analysis and distinguish those cases of bunching that do lead to more discretion and those that do not (at least formally)—which could perhaps distinguish between price effects derived from national-only transparency from those of more legally-dubious maneuvering.

In my view, regardless of the methodology and the math underpinning the paper (which I am in no position to assess in detail), once these data issues are taken into account, the story the paper tries to tell breaks down and there are important shortcomings in its empirical strategy that, in my view, raise significant issues around the strength of its findings—assessed not against the information in TED, but against the (largely unknown, unrecorded) reality of procurement in the EU.

I have no doubt that there is bunching in practice, and that the intuition that it raises procurement costs must be right, but I have serious doubts about the possibility to reliably identify bunching or estimate its effects on the basis of the information in TED, as most culprits will not be included and the effects of below threshold (national) competition only will mostly not be accounted for.

(Good) Regulation, Competition & Cost-Effectiveness (Tas: 2019b)

It is also a very intuitive hypothesis that better regulation should lead to better procurement outcomes and, consequently, that more open and robust procurement rules should lead to more efficiency in the expenditure of public funds. As mentioned above, Tas (2019b) explores this hypothesis and seeks to empirically test it using the TED database and the World Bank’s Benchmarking Public Procurement (in its 2017 iteration, see here). I will not repeat my misgivings about the use of the TED database as a reliable source of information. In this second part, I will solely comment on the use of the WB’s benchmark.

The paper relies on four of the WB’s benchmark indicators (one further constructed by Djankov et al (2017)): the ‘bid preparation score, bid and contract management score, payment of suppliers score and PP overall index’. The paper includes a useful table with these values (see Tas (2019b: Table 4)), which allows the author to rank the countries according to the quality of their procurement regulation. The findings of Tas (2019b) are thus entirely dependent on the quality of the WB’s benchmark and its ability to capture (and distinguish) good procurement regulation.

In order to test the extent to which the WB’s benchmark is a good input for this sort of analysis, I have compared it to the indicator that results from the European Commission’s Single Market Scoreboard for Public Procurement (SMSPP, in its 2018 iteration). The comparison is rather striking …

Source: own elaboration.

Source: own elaboration.

Clearly, both sets of indicators are based on different methodologies and measure relatively different things. However, they are both intended to express relevant regulators’ views on what constitutes ‘good procurement regulation’. In my view, both of them fail to do so for reasons already given (see here and here).

The implications for work such as Tas (2019b) is that the reliability of the findings—regardless of the math underpinning them—is as weak as the indicators they are based on. Likely, plugging the same methods to the SMSPP instead of the WB’s index would yield very different results—perhaps, that countries with very low quality of procurement regulation (as per the SMSPP index) achieve better economic results, which would not be a popular story with policy-makers…  and the results with either index would also be different if the algorithms were not fed by TED, but by a more comprehensive and reliable database.

So, the most that can be said is that attempts to empirically show effects of good (or poor) procurement regulation remain doomed to fail or , in perhaps less harsh terms, doomed to tell a story based on a very skewed, narrow and anecdotal understanding of procurement and an incomplete recording of procurement activity. Believe those stories at your own peril…

Data and procurement policy: some thoughts on the Single Market Scoreboard for public procurement

There is a growing interest in the use of big data to improve public procurement performance and to strengthen procurement governance. This is a worthy endeavour and, like many others, I am concentrating my research efforts in this area. I have not been doing this for too long. However, soon after one starts researching the topic, a preliminary conclusion clearly emerges: without good data, there is not much that can be done. No data, no fun. So far so good.

It is thus a little discouraging to confirm that, as is widely accepted, there is no good data architecture underpinning public procurement practice and policy in the EU (and elsewhere). Consequently, there is a rather limited prospect of any real implementation of big data-based solutions, unless and until there is a significant investment in the creation of a proper data foundation that can enable advanced analysis and policy-making. Adopting the Open Contracting Data Standard for the European Union would be a good place to start. We could then discuss to what extent the data needs to be fully open (hint: it should not be, see here and here), but let’s save that discussion for another day.

What a recent twitter threat has reminded me is that there is a bigger downside to the existence of poor data than being unable to apply advanced big data analytics: the formulation of procurement policy on the basis of poor data and poor(er) statistical analysis.

This reflection emerged on the basis of the 2018 iteration of the Single Market Scoreboard for Public Procurement (the SMSPP), which is the closest the European Commission is getting to data-driven policy analysis, as far as I can see. The SMSPP is still work in progress. As such, it requires some close scrutiny and, in my view, strong criticism. As I will develop in the rest of this post, the SMSPP is problematic not solely in the way it presents information—which is clearly laden by implicit policy judgements of the European Commission—but, more importantly, due to its inability to inform either cross-sectional (ie comparative) or time series (ie trend) analysis of public procurement policy in the single market. Before developing these criticisms, I will provide a short description of the SMSPP (as I understand it).

The Single Market Scoreboard for Public Procurement: what is it?

The European Commission has developed the broader Single Market Scoreboard (SMS) as an instrument to support its effort of monitoring compliance with internal market law. The Commission itself explains that the “scoreboard aims to give an overview of the practical management of the Single Market. The scoreboard covers all those areas of the Single Market where sufficient reliable data are available. Certain areas of the Single Market such as financial services, transport, energy, digital economy and others are closely monitored separately by the responsible Commission services“ (emphasis added). The SMS organises information in different ways, such as by stage in the governance cycle; by performance per Member State; by governance tool; by policy area or by state of trade integration and market openness (the latter two are still work in progress).

The SMS for public procurement (SMSPP) is an instance of SMS by policy area. It thus represents the Commission’s view that the SMSPP is (a) based on sufficiently reliable data, as it is fed from the database resulting from the mandatory publications of procurement notices in the Tenders Electronic Daily (TED), and (b) a useful tool to provide an overview of the functioning of the single market for public procurement or, in other words of the ‘performance’ of public procurement, defined as a measure of ‘whether purchasers get good value for money‘.

The SMSPP determines the overall performance of a given Member States by aggregating a number of indicators. Currently, the SMSPP is based on 12 indicators (it used to be based on a smaller number, as discussed below): [1] Single bidder; [2] No calls for bids; [3] Publication rate; [4] Cooperative procurement; [5] Award criteria; [6] Decision speed; [7] SME contractors; [8] SME bids; [9] Procedures divided into lots; [10] Missing calls for bids; [11] Missing seller registration numbers; [12] Missing buyer registration numbers. As the SMSPP explains, the addition of these indicators results in the measure of ‘overall performance’, which

is a sum of scores for all 12 individual indicators (by default, a satisfactory performance in an individual indicator increases the overall score by one point while an unsatisfactory performance reduces it by one point). The 3 most important are triple-weighted (Single bidder, No calls for bids and Publication rate). This is because they are linked with competition, transparency and market access–the core principles of good public procurement. Indicators 7-12 receive a one-third weighting. This is because they measure the same concepts from different perspectives: participation by small firms (indicators 7-9) and data quality (indicators 10-12).

The most recent snapshot of overall procurement performance is represented in the map below, which would indicate that procurement policy is rather disfunctional—as most EEA countries do not seem to be doing very well.

Source: European Commission, 2018 Single Market Scorecard for Public Procurement (based on 2017 data).

Source: European Commission, 2018 Single Market Scorecard for Public Procurement (based on 2017 data).

In my view, this use of the available information is very problematic: (a) to begin with, because the data in TED can hardly be considered ‘sufficiently reliable‘. The database in TED has problems of various sorts because it is a database that is constructed as a result of the self-declaration of data by the contracting authorities of the Member States, which makes its content very dishomogeneous and difficult to analyse, including significant problems of under-inclusiveness, definitional fuzziness and the lack of filtering of errors—as recognised, repeatedly, in the methodology underpinning the SMSPP itself. This should make one take the results of the SMSPP with more than a pinch of salt. However, these are not all the problems implicit in the SMSPP.

More importantly: (b) the definition of procurement performance and the ways in which the SMSPP seeks to assess it are far from universally accepted. They are rather judgement-laden and reflect the policy biases of the European Commission without making this sufficiently explicit. This issue requires further elaboration.

The SMSPP as an expression of policy-making: more than dubious judgements

I already criticised the Single Market Scoreboard for public procurement three years ago, mainly on the basis that some of the thresholds adopted by the European Commission to establish whether countries performed well or poorly in relation to a given indicator were not properly justified or backed by empirical evidence. Unfortunately, this remains the case and the Commission is yet to make a persuasive case for its decision that eg, in relation to indicator [4] Cooperative procurement, countries that aggregate 10% or more of their procurement achieve good procurement performance, while countries that aggregate less than 10% do not.

Similar issues arise with other indicators, such as [3] Publication rate, which measures the value of procurement advertised on TED as a proportion of national Gross Domestic Product (GDP). It is given threshold values of more than 5% for good performance and less than 2.5% for poor performance. The Commission considers that this indicator is useful because ‘A higher score is better, as it allows more companiesto bid, bringing better value for money. It also means greater transparency, as more information is available to the public.’ However, this is inconsistent with the fact that the SMSPP methodology stresses that it is affected by the ‘main shortcoming … that it does not reflect the different weight that government spending has in the economy of a particular’ Member State (p. 13). It also fails to account for different economic models where some Member States can retain a much larger in-house capability than others, as well as failing to reflect other issues such as fiscal policies, etc. Moreover, the SMSPP includes a note that says that ‘Due to delays in data availability, these results are based on 2015 data (also used in the 2016 scoreboard). However, given the slow changes to this indicator, 2015 results are still relevant.‘ I wonder how is it possible to establishes that there are ‘slow changes’ to the indicator where there is no more current information. On the whole, this is clearly an indicator that should be dropped, rather than included with such a phenomenal number of (partially hidden) caveats.

On the whole, then, the SMSPP and a number of the indicators on which it is based is reflective of the implicit policy biases of the European Commission. In my view, it is disingenuous to try to save this by simply stressing that the SMSPP and its indicators

Like all indicators, however, they simplify reality. They are affected by country-specific factors such as what is actually being bought, the structure of the economies concerned, and the relationships between different tendering options, none of which are taken into account. Also, some aspects of public procurement have been omitted entirely or covered only indirectly, e.g. corruption, the administrative burden and professionalism. So, although the Scoreboard provides useful information, it gives only a partial view of EU countries' public procurement performance.

I would rather argue that, in these conditions, the SMSPP is not really useful. In particular, because it fails to enable analysis that could offer some valuable insights even despite the shortcomings of the underlying indicators: first, a cross-sectional analysis by comparing different countries under a single indicator; second, a trend analysis of evolution of procurement “performance” in the single market and/or in a given country.

The SMSPP and cross-sectional analysis: not fit for purpose

This criticism is largely implicit in the previous discussion, as the creation of indicators that are not reflective of ‘country-specific factors such as what is actually being bought, the structure of the economies concerned, and the relationships between different tendering options’ by itself prevents meaningful comparisons across the single market. Moreover, a closer look at the SMSPP methodology reveals that there are further issues that make such cross-sectional analysis difficult. To continue the discussion concerning indicator [4] Cooperative procurement, it is remarkable that the SMSPP methodology indicates that

[In previous versions] the only information on cooperative procurement was a tick box indicating that "The contracting authority is purchasing on behalf of other contracting authorities". This was intended to mean procurement in one of two cases: "The contract is awarded by a central purchasing body" and "The contract involves joint procurement". This has been made explicit in the [current methodology], where these two options are listed instead of the option on joint procurement. However, as always, there are exceptions to how uniformly this definition has been accepted across the EU. Anecdotally, in Belgium, this field has been interpreted as meaning that the management of the procurement procedure has been outsource[d] (e.g. to a legal company) -which explains the high values of this indicator for Belgium.

In simple terms, what this means is that the data point for Belgium (and any other country?) should have been excluded from analysis. In contrast, the SMSPP presents Belgium as achieving a good performance under this indicator—which, in turn, skews the overall performance of the country (which is, by the way, one of the few achieving positive overall performance… perhaps due to these data issues?).

This should give us some pause before we decide to give any meaning to cross-country comparisons at all. Additionally, as discussed below, we cannot (simply) rely on year-on-year comparisons of the overall performance of any given country.

The SMSPP and time series analysis: not fit for purpose

Below is a comparison of the ‘overall performance’ maps published in the last five iterations of the SMSPP.

Source: own elaboration, based on the European Commission’s Single Market Scoreboard for Public Procurement for the years 2014-2018 (please note that this refers to publication years, whereas the data on which each of the reports is based corresponds to the previous year).

Source: own elaboration, based on the European Commission’s Single Market Scoreboard for Public Procurement for the years 2014-2018 (please note that this refers to publication years, whereas the data on which each of the reports is based corresponds to the previous year).

One would be tempted to read these maps as representing a time series and thus as allowing for trend analysis. However, that is not the case, for various reasons. First, the overall performance indicator has been constructed on the basis of different (sub)indicators in different iterations of the SMSPP:

  • the 2014 iteration was based on three indicators: bidder participation; accessibility and efficiency.

  • the 2015 SMSPP included six indicators: single bidder; no calls for bids; publication rate; cooperative procurement; award criteria and decision speed.

  • the 2016 SMSPP also included six indicators. However, compared to 2015, the 2016 SMSPP omitted ‘publication rate’ and instead added an indicator on ‘reporting problems’.

  • the 2017 SMSPP expanded to 9 indicators. Compared to 2016, the 2017 SMSPP reintroduced ‘publication rate’ and replaced ‘reporting problems’ for indicators on ‘missing values’, ‘missing calls for bids’ and ‘missing registration numbers’.

  • the 2018 SMSPP, as mentioned above, is based on 12 indicators. Compared to 2017, the 2018 SMSPP has added indicators on ‘SME contractors’, ‘SME bids’ and ‘procedures divided into lots’. It has also deleted the indicator ‘missing values’ and disaggregated the ‘missing registration numbers’ into ‘missing seller registration numbers’ and ‘missing buyer registration numbers’.

It is plain that there are no two consecutive iterations of the SMSPP based on comparable indicators. Moreover, the way that the overall performance is determined has also changed. While the SMSPP for 2014 to 2017 established the overall performance as a ‘deviation from the average’ of sorts, whereby countries were given ‘green’ for overall marks above 90% of the average mark, ‘yellow’ for overall marks between 80 and 90% of the average mark, and ‘red’ for marks below 80% of the average mark; in the 2018 SMSPP, ‘green’ indicates a score above 3, ‘yellow’ indicates a score below 3 and above -3, and ‘red’ indicates a score below -3. In other words, the colour coding for the maps has changed from a measure of relative performance to a measure of absolute performance—which, in fairness, could be more meaningful.

As a result of these (and, potentially, other) issues, the SMSPP is clearly unable to support trend analysis, either at single market or country level. However, despite the disclaimers in the published documents, this remains a risk (to the extent that anyone really engages with the SMSPP).

Overall conclusion

The example of the SMSPP does not augur very well for the adoption of data analytics-based policy-making. This is a case where, despite acknowledging shortcomings in the methodology and the data, the Commission has pressed on, seemingly on the premise that ‘some data (analysis) is better than none’. However, in my view, this is the wrong approach. To put it plainly, the SMSPP is rather useless. However, it may create the impression that procurement data is being used to design policy and support its implementation. It would be better for the Commission to stop publishing the SMSPP until the underlying data issues are corrected and the methodology is streamlined. Otherwise, the Commission is simply creating noise around data-based analysis of procurement policy, and this can only erode its reputation as a policy-making body and the guardian of the single market.


An incomplete overview of (the promises of) GovTech: some thoughts on Engin & Treleaven (2019)

I have just read the interesting paper by Z Engin & P Treleaven, 'Algorithmic Government: Automating Public Services and Supporting Civil Servants in using Data Science Technologies' (2019) 62(3) The Computer Journal 448–460, https://doi.org/10.1093/comjnl/bxy082 (available on open access). The paper offers a very useful, but somehow inaccurate and slightly incomplete, overview of data science automation being deployed by governments world-wide (ie GovTech), including the technologies of artificial intelligence (AI), Internet of Things (IoT), big data, behavioral/predictive analytics, and blockchain. I found their taxonomy of GovTech services particularly thought-provoking.

Source: Engin & Treleaven (2019: 449).

Source: Engin & Treleaven (2019: 449).

In the eyes of a lawyer, the use of the word ‘Government’ to describe all these activities is odd, in particular concerning the category ‘Statutes and Compliance’ (at least on the Statutes part). Moving past that conceptual issue—which reminds us once more of the need for more collaboration between computer scientist and social scientists, including lawyers—the taxonomy still seems difficult to square with an analysis of the use of GovTech for public procurement governance and practice. While some of its aspects could be subsumed as tools to ‘Support Civil Servants’ or under ‘National Public Records’, the transactional aspects of public procurement and the interaction with public contractors seem more difficult to place in this taxonomy (even if the category of ‘National Physical Infrastructure’ is considered). Therefore, either additional categories or more granularity is needed in order to have a more complete view of the type of interactions between technology and public sector activity (broadly defined).

The paper is also very limited regarding LawTech, as it primarily concentrates on online dispute resolution (ODR) mechanisms, which is only a relatively small aspect of the potential impact of data science automation on the practice of law. In that regard, I would recommend reading the (more complex, but very useful) book by K D Ashley, Artificial Intelligence and Legal Analytics. New Tools for Law Practice in the Digital Age (Cambridge, CUP, 2017).

I would thus recommend reading Engin & Treleaven (2019) with an open mind, and using it more as a collection of examples than a closed taxonomy.

Governance, blockchain and transaction costs

Bitcoin Traces / Martin Nadal (ES)

Bitcoin Traces / Martin Nadal (ES)

Blockchain is attracting increasing attention as a new technology capable of ‘revolutionising’ governance, both in the private or public sector. In simple terms, blockchain is seen as an alternative to the way information is (securely) stored and rules are enforced, regardless of whether those rules are agreed in a contract, or result from legislation or administrative decision-making.

Some examples include the governance of illegal agreements to distort competition (cartels) (see eg this paper by Thibault Shrepel), or the management of public procurement (eg in this paper by Hardwick, Akram and Markantonakis, or these thoughts by Bertrand Maltaverne). These examples explore how the technology allows for the creation of ‘self-executing’ sets of rules that would be capable of overcoming so far intractable governance problems (mostly, about trust: eg among the cartellists, or in public officials).

This could create opposite effects in the governance of public procurement. For instance, this could make the detection and correction of bid rigging very difficult (if not impossible) or, conversely, allow for a corruption-free procurement architecture. Therefore, the impact of the technology (in principle neutral) on existing governance systems can ultimately be seen as an ‘arms race’ between the private and public sector as, ultimately, the one that gets ahead will be able to exploit the technology to its advantage.

This justifies some calls for both investment in new technologies by the public sector (as the private sector has its own incentives for investment), and regulation of private (and public) use of the technology. I have no objection to either of these recommendations. However, I think there is an important piece of the puzzle that tends to go missing in this type of analysis.

Indeed, most of this discussion brushes over the important limitations of smart contracts. These limitations are both linked to the fact that the computational logic underpinning smart contracts can only operate on the basis of complete information/rules, and that the computing power necessary to implement smart contracts can currently only process extremely simple contracts.

The latter issue may be dismissed as a mere ‘a matter of time’, but given that it has been estimated that it is currently only possible to create a blockchain-based procurement process capable of holding 700-word-long tender documentation (Hardwick, Akram and Markantonakis, 2018: 6), there seems to be a very long road ahead, even accepting Moore’s Law on the growth of computational power.

This first issue, though, is more difficult to set aside. As rightly stressed by Davidson, De Filippi and Potts in their ‘must read’ paper, ‘the obvious problem is that blockchains only work on complete contracts, whereas most in-the-world firms ... are largely (entirely?) made of incomplete contracts'; ‘a blockchain is an economic world of complete contracts’ (2016: 9).

In my view, this should raise significant doubts as to the likely extent of the ‘revolution’ that blockchain can create in complex settings where the parties structurally face incomplete information. Procurement is clearly one such setting. There are a few reasons for this, my top three being that:

  • First, the structural incompleteness of information in a setting where the public buyer seeks to use the public tender as a mechanism of information revelation cannot be overstated. If it is difficult for contracting authorities to design ‘sufficiently objective’ technical specifications and award criteria/evaluation methods, the difficulties of having to do so under the strictures of computational logic are difficult to imagine.

  • Second, the volume of entirely digital procurement (that is, the procurement of entirely digital or virtual goods and services) is bound to remain marginal, which creates the additional problem of connecting the blockchain to the real world, with all the fallibility and vulnerability that so-called oracles bring with them.

  • Third, blockchain technology in itself creates an additional layer of transaction costs—at least at the stage of setting up the system and ‘migrating’ to a blockchain-based procurement mechanism. Bearing in mind the noticeable and pervasive difficulties in the much simpler transition to e-procurement, this also seems difficult to overstate.

Therefore, while there will clearly be improvements in specific (sub)processes that can be underpinned by blockchain instead of other cryptographic/cybersecurity solutions, I remain quite skeptical of a blockchain-based revolution of procurement governance. It may be that I still have not advanced enough in my research to identify the 'magic technological solution’ that can do away with transaction costs, so any pointers would be most appreciated.

Procurement governance and complex technologies: a promising future?

Thanks to the UK’s Procurement Lawyers’ Association (PLA) and in particular Totis Kotsonis, on Wednesday 6 March 2019, I will have the opportunity to present some of my initial thoughts on the potential impact of complex technologies on procurement governance.

In the presentation, I will aim to critically assess the impacts that complex technologies such as blockchain (or smart contracts), artificial intelligence (including big data) and the internet of things could have for public procurement governance and oversight. Taking the main risks of maladministration of the procurement function (corruption, discrimination and inefficiency) on which procurement law is based as the analytical point of departure, the talk will explore the potential improvements of governance that different complex technologies could bring, as well as any new governance risks that they could also generate.

The slides I will use are at the end of this post. Unfortunately, the hyperlinks do not work, so please email me if you are interested in a fully-accessible presentation format (a.sanchez-graells@bristol.ac.uk).

The event is open to non-PLA members. So if you are in London and fancy joining the conversation, please register following the instructions in the PLA’s event page.

Changing directions -- new topics and new approach

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Dear How to Crack a Nut readers and friends,

It has been 9 months since the last post. I hope you have all been very well.

This has been a period full of happy news for me, as well as steep learning curves (nappies, feeding, identifying different types of crying, etc), very little and very interrupted sleep, and some time to reflect. It has also been a very distressing period due to the (lack of) Brexit developments,[1] which are increasingly keeping me awake at night. I hope that is not your case but, if it is, you have all my solidarity.

After a few internal fights and disagreements with myself, I have come to the realisation that it will not be possible to re-start the blog as it used to be. First because my new work/life balance seriously restricts the blogging time that I could fit into my working week—and, to be honest, the joy of rediscovering the world through the eyes of a 6-month old exceeds by several multiples that of any other potential uses of my free time.

Second, because now that I have finished a number of previous commitments[2] and found the time and energy to venture into a new research area, I have embarked on a new book project that moves away from the day-to-day commentary of case law and legal developments[3] and requires me to learn a great deal of new things about artificial intelligence, big data, smart contracts and the internet of things — to seek to understand their potential to improve the governance of public procurement. This requires my full attention span and I need to concentrate on this, at least for the remainder of the year of research leave that the University of Bristol Law School has generously given me. Maybe I will return to case law analysis when I am back to juggling teaching with research in January 2020.

I do not want to completely stop blogging, though, and I think there is scope to trial a reorientation of the blog. So, from now on, I will use it to reflect about my learning on ‘new technologies’ (such a nineties’ expression…) and procurement governance. This will hopefully serve as a springboard for new ideas and for exchanges about the ways in which we can re-imagine procurement practice and oversight on the basis of nascent applications of different modes of information processing. I hope you will find this of some interest.

All the best,
Albert
________

[1] And the few developments there have been are utterly depressing: see #Ferrygate. If the Withdrawal Agreement ever gets approved, then there will be relevant analysis in a forthcoming paper with Pedro Telles: ‘Brexit and Public Procurement: Transitioning into the Void?‘ [2019/2 European Law Review] and in my chapter ‘EU-UK Procurement-Based Trade Relations After Brexit: Some Thoughts‘, in F Kainer & R Repasi (eds), Trade Relations after Brexit: Impetus for the Negotiation Process (Nomos, 2019, forthc.). If not, this will have been a waste of time…
[2] Just before parental leave and/or at the start of research leave, I have completed papers on ‘Centralisation of Procurement and Supply Chain Management in the English NHS: Some Governance and Compliance Challenges‘ (2019) 70(1) NILQ 53-75; 'Transparency and Competition in Public Procurement: A Comparative View on Their Difficult Balance', in K-M Halonen, R Caranta & A Sanchez-Graells (eds), Transparency in EU Procurements: Disclosure within Public Procurement and during Contract Execution, Vol. 9 European Procurement Law Series (Edward Elgar, 2019, forthc); as well as a paper about cross-border joint procurement under Art 39(4) Dir 2014/24/EU that is currently under peer-review (soon to be published on SSRN).
[3] Those interested will find revised views, a new introductory chapter and a comprehensive coverage of the 2015/17 case law in the recently published A Sanchez-Graells & C De Koninck, Shaping EU Public Procurement Law: A Critical Analysis of the CJEU Case Law 2015–2017 (Kluwer, 2018).

Bid rigging, self-cleaning, leniency and claims for damages: A beautiful procurement mess? (C-124/17)

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In his Opinion of 16 May 2018 in Vossloh Laeis, C-124/17, EU:C:2018:316 (not available in English), Advocate General Campos Sánchez-Bordona has offered an interesting view on the interpretation of the grounds for discretionary exclusion of economic operators engaged in bid rigging. In particular, his proposed interpretation concerns the limitations of the contracting authority's ability to demand full and unrestricted cooperation from undertakings seeking to reassure them that they have self-cleaned after participating in collusive practices in public markets. This Opinion and the forthcoming CJEU Judgment in Vossloh Laeis will be relevant for the interpretation of Article 57 of Directive 2014/24/EU, as well as Article 80 of Directive 2014/25/EU, on which the case rests. In my view, the Vossloh Laeis Opinion raises difficult questions about the coordination of enforcement of mechanisms to prevent bid rigging in the fields of public procurement and competition law. It also creates some functional tensions with recent cases such as Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469; and Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000. Thus, it deserves some close analysis.

Vossloh Laeis - Background

This case concerns the aftermath of an investigation into bid rigging practices by the German competition authority (Bundeskartellamt), which established that '[d]uring the period from 2001 to 2011 Vossloh Laeis concluded agreements with other companies on the supply of rails and switches to the detriment of local public transport companies, private, regional and industrial railway companies and construction companies. The aim of the agreements was to divide up tenders and projects among the members of the cartel'. This resulted in the imposition of a fine of just under 3.5 million euros on the company Vossloh Laeis in 2016 by the Bundeskartellamt.

In the case that triggered the reference to the CJEU, a contracting entity whose procurement is covered by Directive 2014/25/EU (Stadwerke München) sought to exclude Vossloh Laeis from its qualification system on the basis that it had been fined for its participation in the cartel. It is important to stress that the relevance of the cartel for Stadwerke München was not simply remote or theoretical, but concerned it rather closely because this entity had been a victim of the anticompetitive practices carried out by Vossloh Laeis. This led Stadwerke München to seek damages compensation from Vossloh Laeis in civil litigation, as well as to exclude it from its list of approved contractors.

Vossloh Laeis sought to resist its exclusion from Stadwerke München's qualification system on the basis that it had taken self-cleaning measures and should thus be reinstated in the list of approved contractors on the basis of Article 57(6) of Directive 2014/24, to which the applicable Article 80 of Directive 2014/25 refers. In particular, Vossloh Laeis sought to persuade the contracting entity that it had taken organizational and personnel measures to clarify the facts and prevent their future repetition. It also indicated that it would compensate the damage caused by its illicit behavior. 

Stadwerke München rejected the claims of self-cleaning on the basis that (i) despite the uncovering of the cartel in 2011, Vossloh Laeis had not addressed the contracting entity or undertaken any initiative to clarify the facts as a whole; (ii) only in 2016 had Vossloh Laeis ceased to deny, in front of Stadwerke München, its participation in the relevant collusive practices, and even then it stressed that it had challenged the decision imposing the fine. Most importantly, Stadwerke München took issue with Vossloh Laeis' behaviour because (iii) it had not agreed to furnish a copy of the Bundeskartellamt's decision imposing the fine, so that Stadwerke München could examine it. Neither did Vossloh Laeis agree to cooperate with Stadwerke München in clarifying the infringement committed, since it understood that his cooperation with the competition authority was sufficient.

The Vossloh Laeis Opinion states that '[t]he referring court does not dispute (as it was stated in the sanctioning decision itself) that Vossloh Laeis had collaborated continuously and without restrictions with the German competition authority during the infringement procedure procedure' (para 17, own translation from Spanish). This creates a situation that may seem difficult to understand. Why would an undertaking that has already cooperated unreservedly with the competition authority not take the same approach to cooperation with the contracting entity? Is it a matter of opposition to red tape and duplication of effort? Or is there any secret that the economic operator is seeking to protect? Equally, on the side of the contracting entity, why is it so interested in the nitty-gritty details of the decision imposing the fine? Could it not just accept that the economic operator was sanctioned and is now trying to move on?

The importance of leniency programmes in this context

Even if the Opinion of AG Campos does not mention this at all, the dispute about access to the Bundeskartellamt's decision and Vossloh Laeis' refusal to cooperate with Stadwerke München in a parallel clarification of the facts needs to be placed in the context of the applicable leniency programme run by the Bundeskartellamt, and the civil litigation around the action for damages against Vossloh Laeis. This is important to understand the position of the parties, as well as the shadows that loom over the approach taken by AG Campos (discussed below).

As part of a leniency programme (not only Bundeskartellamt's, but those run by the contracting authorities of other Member States and the European Commission itself), economic operators that have participated in bid rigging offences can seek an exemption or reduction of the fines that would otherwise be applicable if they uncover the cartel and/or cooperate with the competition authority in its investigation (the degree of cooperation and the relevance of the information provided determining the level of 'discount' on the otherwise applicable fine).

In return for their cooperation, cartellists not only benefit from exemption or reduction of the fines, but also from some protection against claims for damages by the victims of their collusive behaviour. Indeed, competition authorities will take measures to ensure that leniency statements are not disclosed to the public, will include minimal parts of them in their final decisions imposing fines, and will redact relevant material from the public version of those decisions. This makes it virtually impossible for 'outsiders' to learn about the detailed ways in which the cartel functioned on the basis of public information resulting from the infringement procedure. Moreover, leniency programmes are specially protected by the Directive on competition damages (2014/104/EU), which requires Member States to ensure that 'for the purpose of actions for damages, national courts cannot at any time order a party or a third party to disclose ... leniency statements' (Art 6(6)(a)) (see also the position of the CJEU here).

This creates significant difficulties in the context of follow-on damages actions, where the previous investigation by the competition authority is of no avail to victims seeking redress. This would explain why Stadwerke München insisted in having access to the confidential version of the decision imposing a fine, and why Vossloh Laeis resisted such disclosure. It also clarifies how, in this specific context, cooperation with the competition authority is of no use to contracting entities and authorities seeking to understand the behaviour of the economic operator, as the opacity surrounding leniency programmes prevents them from benefiting from the investigation and findings of the competition authority. 

The Vossloh Laeis Opinion in its own terms

In own terms, the Opinion of AG Campos seems to be solely based on the conceptual premise that the dispute between Stadwerke München and Vossloh Laeis resulted not from the background discussed above, but rather from the peculiarity of the German rules that transposed Article 57(6) of Directive 2014/24/EU, which required that, for the purposes of self-cleaning, economic operators must demonstrate that they have 'fully clarified the facts and circumstances by actively collaborating with the investigating authorities and the contracting authority' (Art 125(1)(2) Gesetz gegen Wettbewerbsbeschränkungen, as reported in para 10 of the Opinion). This deviates from the literal wording of Article 57(6) of Directive 2014/24/EU, which foresees that 'the economic operator shall prove that it has ... clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities'. The analysis in the Opinion, thus, largely rests on the interpretation of the concept of 'investigating authorities' in Article 57(6) with the purpose of establishing whether it covers the contracting authority or entity itself (see para 2). The Opinion offers a good synthesis of the competing arguments in paras 26-36.

In that regard, the Opinion provides some relevant positions. First, that the requirements explicitly listed in Article 57(6) of Directive 2014/24/EU are mandatory and, consequently, contracting authorities and entities cannot accept claims of self-cleaning that do not meet them all (paras 40-41). Therefore, establishing the scope of the duty of collaboration in the clarification of the facts becomes paramount because its breach determines the impossibility of benefiting from any other self-cleaning measures adopted.

Second, on the specific issue of the entities included in the concept of 'investigating authorities', AG Campos takes the view that, despite the fact that Article 57 of Directive 2014/24/EU grants contracting authorities and entities some investigative powers, 'the exercise of these functions does not make the contracting authority one of the "investigating authorities" referred to in Article 57 (6), second paragraph of Directive 2014/24' (para 47, own translation from Spanish). In addition to other functional reasons on the way contracting authorities carry out their limited investigation for the purposes  of establishing the existence of an exclusion ground (paras 48-50), AG Campos concludes that, in general terms, 'the "investigating authorities" referred to in Article 57, paragraph 6, second paragraph, of Directive 2014/24 will not coincide with the contracting authorities. In front of the latter, the tenderer (or the company that aspires to be part of a classification system, as in this case) must prove that it has actively and thoroughly collaborated with the investigating authorities to clarify the facts. But this collaboration must be, by force, with an institution other than the contracting authority itself: otherwise, [the collaboration] would be, for the latter, a notorious fact that does not require any proof' (para 51, own translation from Spanish).

Finally, AG Campos also rejects the possibility for Member States to go beyond the scope of the collaboration foreseen in Article 57(6) of Directive 2014/24/EU in demanding that the economic operator seeking to benefit from its self-cleaning efforts not only collaborates with the 'investigating authorities' but also with the contracting authority or entity (paras 55-61). Interestingly, AG Campos stresses two main issues against this possibility: (i) that it would create a duplication of obligations required against those who, like the investigating authorities and the contracting authorities, perform different functions and (ii) that it 'could place the economic operator in a situation close to defenselessness when, in circumstances such as those in this case, the contracting authority claims to have suffered damages, because of the infringing conduct that led to the exclusion of [the economic operator], for which it requests compensation' (para 60, own translation from Spanish).

It is worth stressing that the case also concerns issues surrounding the maximum period of exclusion of economic operators that cannot benefit from self-cleaning (paras 62-86). However this post concentrates solely on the interpretation of Article 57(6) of Directive 2014/24/EU.

In my view, the Opinion of AG Campos advances a plausible interpretation of Article 57(6) of Directive 2014/24/EU. However, I would disagree with two issues. First, the fact that Member States cannot go beyond the minimum mandatory self-cleaning requirements established in the Directive on the grounds that this would result in a duplication of effort for economic operators does not make sense to me, in particular after the recent CJEU Judgment in Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000 (see comment here), which AG Campos acknowledges but sets aside in his Opinion (para 57). Second, and more importantly, I think that the Opinion of AG in Vossloh Laeis does not work in the context of infringements of competition law covered by leniency programmes, which triggers the second of the arguments against an expansive functional interpretation of Article 57(6) on the grounds of the undertaking's procedural rights.

The Vossloh Laeis Opinion in the broader context of leniency programmes

Indeed, the main difficulty I have with the AG Opinion in Vossloh Laeis is functional. It is worth stressing that the implication of this Opinion is that a contracting entity or authority that knows that it has been the victim of a cartel offence cannot oppose self-cleaning of the competition law violator on the basis of its lack of cooperation, despite being in litigation with that undertaking over damages compensation. From the perspective of the infringer, this also means that participation in a leniency programme not only provides a shield from administrative fines and some protection from actions for damages, but also some protection from exclusion from procurement procedures. These are two negative results from the perspective of ensuring the effectiveness of competition law in public procurement markets and, in my view, runs against the thrust of previous decisions such as Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469 (see comment here).

I also think that the way in which the Vossloh Laeis Opinion frames the issue of defenselessness is artificial. An economic operator that has infringed competition law and received a reduced fine as a result of its leniency application has already obtained a relevant practical advantage. Therefore, I see no problem in making it face a simple choice between either (i) sticking to the secrecy created by the leniency mechanism and thus accepting exclusion from procurement procedures for an adequate period of time, or (ii) waiving that secrecy vis-a-vis the contracting authority (which would implicitly require compensation of the damage resulting from the cartel), so that the contracting authority can form an adequate view of whether the organisational and personnel self-cleaning measures really address the root causes of the past illegal behaviour and, if appropriate, set aside the relevant exclusion ground.

The Vossloh Laeis Opinion allows the economic operator to avoid this simple choice and to have two bites at the cherry. It also makes it difficult for the contracting authority to satisfactorily carry our its limited investigative functions under Art 57(6). Without knowing exactly what happened, it is difficult to judge whether the self-cleaning measures are 'appropriate to prevent further criminal offences or misconduct'. Additionally, it forces the contracting authority to make this decision in a context where it can have other grounds to doubt the economic operators' loss of integrity, such as its resistence to provide damages compensation despite having engaged in illegal behaviour that damaged the contracting authority's interests.

Ultimately, if AG Campos was worried about the existence of a conflict of interest between the contracting authority that has an outstanding claim for damages and at the same time needs to assess the self-cleaning efforts of the economic operator--which is a fair enough point--it would have been interesting to learn about the ways in which Article 24 of Directive 2014/24/EU needs to be applied and interpreted in situations such as this. It would have also been interesting to explore in more detail the extent to which the discrete requirements for satisfactory self-cleaning in Article 57(6) interact as, in the case of leniency-related situations, the lack of collaboration with the contracting authority or entity has a bearing on the extent to which the economic operator can be seen to have 'undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct'. 

However, by not addressing these issues, the Vossloh Laeis Opinion seems to seek to protect the effectiveness of leniency programmes without even mentioning them, which in my view is an odd position to take.

The false promise of e-procurement portals? A comment on Yukins & Ramish (2018) from a European perspective

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In a very thought-provoking recent paper*, Chris Yukins and Dan Ramish discuss two proposed reforms of US defence procurement law that would reduce access to bid protest mechanisms as an (unintended) consequence of efforts to streamline procurement on the basis of new (?) technologies. They concentrate, in particular, on the proposal to 'launch a pilot program to allow federal officials to buy directly from electronic portals [which] could—depending on its implementation—allow procurements to bypass the normal public solicitation process, and foreclose pre-award protests [the 'section 846 proposal']. The second set of proposals [... the 'section 809 proposal' ...] might radically streamline off-the-shelf purchasing, which again could make pre-award protests practically impossible' (p 4).

In simple terms, Yukins and Ramish analyse the impact that direct access to e-procurement portals could have for the system of checks and balances resulting from bid protest possibilities. As they put it, '[a]s a practical matter, if either initiative ... ultimately means that federal officials will be allowed to purchase commercially available goods and services directly from commercial electronic marketplaces without the prior publication normally required ..., that streamlined procedure could exempt billions of procurement dollars from accountability in the bid protest process. That, in turn, could have serious consequences, only some of which are fully foreseeable' (p 5).

Their paper provides an excellent overview of the relevance of bid protest (or procurement challenge) mechanisms for the proper functioning of the procurement function. It also stresses the relevance that review procedures have in international law--and in particular for the United Nations Convention Against Corruption, and the World Trade Organisation Government Procurement Agreement (WTO GPA)--which is particularly relevant in the context of the on-going Brexit process (for discussion, see P Telles & A Sanchez-Graells, 'Examining Brexit Through the GPA's Lens: What Next for UK Public Procurement Reform?' (2017) 47(1) PCLJ 1-33).

Maybe of even more interest, Yukins and Ramish raise very important points about the potential unintended consequences of the implementation of a policy that relied on e-procurement portals or an e-marketplace for the public sector in terms of the incentives for the exercise of administrative discretion. In their view

Because of the important protections they provide against error and corruption, bid protests have been adopted across the U.S., and indeed around the world (p 1, emphasis added).

... bid protests ... give vendors competing in international procurement markets a means of challenging unfair barriers to competition (p 2, emphasis added).

If the [section 846 proposal] results in direct purchases from electronic portals (thus in practice exempting an entire phase of procurement from protest), these changes would make it easier for officials to indulge in pre-award discrimination and could pose serious questions ... (p 4, emphasis added).

These considerations are best understood under the framework of Yukins' previous work on agency theory and procurement [see 'A Versatile Prism: Assessing Procurement Law Through the Principal-Agent Model' (2010) 40 PCLJ 63-86]. From that perspective, it is clear that pre-award bid protests serve as both a mechanism to incentivise and to discipline the public buyer as an agent. It creates incentives to design the procurement properly and in a pro-competitive manner to avoid the delays implicit in bid protests, as well as to achieve best value for money (which is the prime concern the procuring agent should have, and which an adequate system of rewards and performance evaluation should support). It also deters improper conduct through the threat of litigation (and, potentially, personal liability, depending on the specific features of the bid protest system, and the criminalisation of corrupt practices).

In short, bid protest mechanisms serve to improve the quality of procurement--in particular, through incentives to carry out market research prior to the launch of a procurement procedure--and its probity and integrity--through mechanisms to challenge discrimination and corrupt practices. Ultimately, then, the existence of bid protest mechanisms is in the public interest--even if they are engaged by private actors (disappointed bidders), acting as private attorney general. This does not detract from the need to design the bid protest mechanism in a way that weeds out spurious litigation. However, as a matter of principle, agency theory supports that having a bid protest mechanism is better than not having it.

Against this backdrop, it seems obvious that a suppression of the possibility of pre-award bid protest will erode public interest by creating a risk of both lower quality procurement design and diminished procurement probity. Whether these increased risks are countered by the practical advantages derived from streamlined e-procurement practices may be controversial. However, in the absence of evidence about the redundancy of bid protest mechanisms, and in view of the functional role they serve, I happily sit with Yukins' and Ramish's call not to suppress them in the name of (theoretical) procedural expeditiousness.

The risk of allowing contracting authorities to simply go to the (e)market is that it (re)creates the same problems of misuse of public funds that procurement rules are there to minimise. In every conversation about public procurement, the question arises what are these rules for, and the answer ends up converging towards: 'competition, transparency, and integrity', as proxies to promote value for money and probity [see S Schooner 'Desiderata: Objectives for a System of Government Contract Law' (2002) 11 PPLR 103]. The difficulty with the use of an e-marketplace for public buyers is that, either it is created within the same system of checks and balances of the procurement rules, or the procurement function will be exposed to the shortcomings of inadequate or limited competition (in particular if the gatekeeper of the e-market has a way of extracting rents from willing suppliers) and discrimination or corruption (if there is the possibility for either the gatekeeper or the agent, ie the public buyer, to appropriate rents). More importantly, the monitoring of the 'quality of the marketplace' and its integrity will be eroded by the suppression of the specific mechanisms included in procurement regulation--possibly leaving it all to antitrust/competition law, with its notorious shortcomings in addressing similar issues in platform markets with strong potential for innovation. On the whole, then, the risks created by unbridled access to e-markets are not different from the risks of uncontrolled access to standard markets that justified the emergence of procurement law centuries ago.

In the context of European procurement law, I think that this is an important reflection to engage with. A move towards e-procurement portals and off-the-shelf purchasing would, as things stand and in principle, require the existence of procurement challenge mechanisms at the point of setting up those mechanisms--either as framework agreements or dynamic purchasing systems, or as a result of the intervention of a centralised purchasing body tasked with the creation (and operation) of the e-marketplace. However, there have been recent developments that jeopardise this position, such as the contraction of the concept of procurement in Falk Pharma and Tirkkonen, or the underlying problem that led to the regulation of the activities of 'separate operational units' within a contracting authority for the purposes of value aggregation. These issues raise important questions as to whether the evolution of EU procurement (case) law is also creating an (inadvertent) threat of erosion of the quality and probity of the system whereby public funds are channelled towards the meeting of needs in the public interest.

* C R Yukins & D Ramish, 'Section 809 and "E-Portal" Proposals, by Cutting Bid Protests in Federal Procurement, Could Breach International Agreements and Raise New Risks of Corruption' (2018) 60 GOV’T CONTRACTOR ¶ 138. Available at SSRN: https://ssrn.com/abstract=3176223.

A Duty to ‘Save’ Seemingly Non-Compliant Tenders for Public Contracts? -- New SSRN paper

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I have published a short paper commenting on the transposition of Article 56(3) of Directive 2014/24/EU  through the 2017 reform version of Article 72 of the Portuguese Code of Public Contracts. I think this is an interesting case study on some of the difficulties that the new provision on the contracting authority's power to seek clarifications can pose in practice--and maybe anticipates some of the future challenges in the development of the Slovensko-Manova-Archus and Gama case law. The abstract of the paper is as follows:

This paper provides a critical assessment of the rules regarding the clarification, supplementation and correction of tenders in procedures for the award of public contracts regulated by the EU 2014 Public Procurement Package. It does so through a detailed assessment of the transposition of Article 56(3) of Directive 2014/24/EU by means of the post-2017 reform version of Article 72 of the Portuguese Code of Public Contracts. The paper concentrates on four main issues: the existence of a mere discretionary power or a positive duty to seek clarifications, corrections or supplementations of tenders and their accompanying documentation; the constraints imposed on such power or duty; the desirability of unilateral tender corrections by the contracting authority; and the transparency given to the correction, supplementation or clarification of tenders. The paper assesses each of these issues against the backdrop of the existing case law of the Court of Justice of the European Union, as well as with a functional approach to the operationalisation of the Portuguese rules on correction, supplementation and clarification of tenders for public contracts.

The paper is freely downloadable from SSRN: A Sanchez-Graells, 'A Duty to "Save" Seemingly Non-Compliant Tenders for Public Contracts? - Comments on Art 72 of the 2017 Portuguese Code of Public Contracts' (2018) 2 Revista de Direito Administrativo 59-68.

'Certain cross-border interest' for a public contract cannot be purely hypothetical (C-486/17)

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I am currently-re-reading all CJEU procurement decisions of 2015, 2016 and 2017 for a new book that will consolidate and revise the comments published in this blog and in other papers (more details on this soon), as well as new comments on those cases I did not manage to cover at the time (there are 10 of those). Doing that, I came upon the Order of 23 November 2017 in Olympus Italia, C-486/17, EU:C:2017:899 (only available in FR and IT), which I find interesting because it reinforces the Tecnoedi approach to the burden of proof of the existence of a 'certain cross-border interest' that engages the CJEU's jurisdiction to provide the relevant interpretation of EU public procurement law (for discussion, see here).

In Olympus Italia, the CJEU was sent a request for interpretation of Directive 2014/24/EU and, in particular, in relation to the regulation of negotiated procedures and the possibility for tenderers to amend their tenders in that context. However, the CJEU rejected the request on the basis that the referring court had provided insufficient information to establish the existence of a certain cross-border interest in a contract for an "all-hazards" technical assistance service for flexible endoscopes and machines used for washing such devices. 

As justification for the rejection of the case, the CJEU stressed that

... the objective criteria which may indicate certain cross-border interest ... may be, in particular, the fact that the contract in question is for a significant amount, in conjunction with the place where the work is to be carried out or the technical characteristics of the contract and the specific characteristics of the products concerned. In that context, it is also possible to take account of the existence of complaints brought by operators situated in other Member States, provided that it is determined that those complaints are real and not fictitious...

...  a conclusion that there is certain cross-border interest cannot be inferred hypothetically from certain factors which, considered in the abstract, could constitute evidence to that effect, but must be the positive outcome of a specific assessment of the circumstances of the contract at issue. More particularly, the referring court may not merely submit to the Court of Justice evidence showing that certain cross-border interest cannot be ruled out but must, on the contrary provide information capable of proving that it exists ...

In the present case, it is common ground, that the amount of the public contract at issue in the main proceedings amounts to EUR 85,000, which is considerably below the thresholds for application laid down in Article 4 of Directive 2014/24 ... On the other hand, in its reference for a preliminary ruling, the referring court has not provided any information enabling the Court to ... demonstrate the existence of a certain cross-border interest ... In those circumstances, the Court finds itself unable to provide a useful answer to the question raised... (C-486/17, paras 17-22, references omitted, own translation from French and emphasis added).

I find the Olympus Italia case interesting (and potentially worrying) if it is indicative of the willingness of the CJEU to avoid answering preliminary references on the basis of the absence of irrefutable proof of the existence of cross-border interest. I think that there have been plenty other cases where the CJEU was unable to establish this and, in any case, it provided an answer on the premise that the referring court would first have to assess whether such cross-border interest existed (for recent examples, see eg the 2015 Judgments in UNIS, C-25/14, EU:C:2015:821; or Enterprise Focused Solutions, C-278/14, EU:C:2015:228). If the CJEU is using the (evidence of the) existence of a certain cross-border interest as a 'docket-management' device, we can only expect further distortions of the case law in an area that is not precisely clear...

No obligation to revise prices payable under public contracts. OK, but for the wrong reasons? (C-152/17)

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In its recent Judgment of 19 April 2018 in Consorzio Italian Management e Catania Multiservizi,
C-152/17, EU:C:2018:264, the Court of Justice of the European Union (CJEU) clarified that EU public procurement law (in this case, the 2004 Utilities Directive) does not create an obligation to review prices after the award of a public services contract. This seems largely uncontroversial, not least due to the lack of concern of the pre-2014 EU procurement rules with contract execution. However, the reasons given by the CJEU to exclude mandatory price revision and, beyond that, the mistrust it places on price review clauses, are dubious. The way in which the CJEU refers back to Finn Frogne (see here) should also set off some alarm bells.

The case at hand (N.B. Defective English version of the Judgment)

In this case, Rete Ferroviaria Italiana (RFI) had awarded a services contract to Consorzio Italian Management and Catania multiservizi (CIMCM) for the cleaning, maintenance and ancillary services at stations, installations, offices and workshops at various sites throughout the region of Cagliari. The contract included a clause limiting price review. Despite that, and as a result of increasing staff costs, CIMCM requested RFI to review the prices payable under the contract (ie the claim seemed to be a statutory claim contra the explicit terms of the public contract). RFI rejected the request for the price revision, which triggered the underlying dispute. Establishing the legal architecture underlying the claim requires some legal funambulism.

The award of the contract had been subject to the rules of the 2004 Utilities Directive, as well as domestic law transposing it. At the relevant time, the Italian procurement code (Legislative Decree No 163/2006) established that in 'the absence of any express provisions' in the procurement rules, the Italian Civil Code (Codice Civile, CC) would provide default rules for contractual arrangements between contracting authorities or entities and their contractors. It is important to clarify that the Italian procurement code had a two-tier approach whereby it established a full regime applicable to general procurement (tier 1) and then specified a sub-set of rules applicable to utilities procurement (tier 2, Art 206 Legislative Decree No 163/2006). Tier 2 set a numerus clausus of provisions applicable to contracts linked to the activities referred to in Articles 3 to 7 of the 2004 Utilities Directive.

Concerning the review of contractual prices, Art 115 of the Italian procurement code established that '[a]ll contracts for the supply of goods or services on an ongoing basis must include a clause providing for periodic review of the price'. This provision was however inapplicable to public contracts in the utilities sectors [N.B. despite the English version of the Judgment (para 11), where it is indicated that 'Article 115 of that Legislative Decree was one of the provisions which, under Article 206 thereof, were applicable to public contracts', this is contradicted by eg the French ('L’article 115 de ce décret législatif ne figurait pas ...') and Italian ('L’articolo 115 di tale decreto legislativo non era indicato ...') versions of the Judgment, as well as the logic of the decision]. It is thus worth taking into account that, where Art 115 was not applicable, the default rule in the Italian Civil Code would provide for price revision linked to circumstances of 'hardship' (ie cost increases above 10% of the overall price agreed; Article 1664 CC).

The dispute between CIMCM and RFI is fundamentally concerned with a domestic issue of contractual and statutory interpretation. However, given that the scope of application of the domestic rules is pegged to the scope of application of the 2004 Utilities Directive, it acquired EU relevance.

At first instance, the challenge was dismissed by the regional administrative tribunal on the basis that 'the supply of cleaning services at stations, installations, offices and workshops was ancillary to the performance of activities covered by special sectors, in that those services related to elements forming an essential part of the rail transport network' (C-152/17, para 16, emphasis added). This justified the subjection of the contract to the tier 2 procurement regime, and thus excluded the mandatory price review clause of Art 115 of the Italian procurement code. Beyond that, the regional administrative court reached the additional finding that 'price review was not mandatory under Article 1664 of the Civil Code, as the parties to a contract may derogate from that provision by inserting in the contract a contract term limiting price review, which was the case in the main proceedings' (ibid). 

Given the implicit reference to Art 5 of the 2004 Utilities Directive in terms of scoping the applicability of the relevant rules, which was challenged in the appeal of the first instance decision, the dispute required clarification from the CJEU. Moreover, the claimants raised a challenge of validity against the 2004 Utilities Directive by arguing that, should it allow for the award of contracts excluding price revision, it would infringe Articles 3(1) TEU, Articles 26, 56 to 58 and 101 TFEU, and Article 16 of the Charter, ‘in the light of the unfairness, disproportionality and distortion of contractual balance and, therefore, of the rules governing an efficient market’ (C-152/17, para 19). The reasoning of the CJEU on these two matters (scope of application and validity of the 2004 Utilities Directive) is interesting.

Functional scope of application

The issue here seems simply to require an understanding of the functional approach followed b y the CJEU in determining the scope of application of the 2004 Utilities Directive. In that regard, the CJEU stressed that

... as regards the interpretation of Directive 2004/17 and of the underlying general principles, the referring court considers that the contract at issue in the main proceedings falls within the scope of that directive, since it was awarded by a contracting authority within the meaning of that directive, namely RFI, and that it is functionally linked to rail transport operations falling within the scope of that directive.

In that regard, it follows from the Court’s case-law that Directive 2004/17 in fact applies not only to contracts awarded in the sphere of one of the activities expressly listed in Articles 3 to 7 thereof, but also to contracts which, even though they are different in nature and could as such normally fall within the scope of Directive 2004/18/EC ..., are used in the exercise of activities defined in Directive 2004/17. Consequently, where a contract awarded by a contracting entity is connected with an activity which that entity carries out in the sectors listed in Articles 3 to 7 of that directive, that contract is subject to the procedures laid down in that directive (C-152/17, paras 25-26, references omitted and emphasis added).

This creates the functional criterion that ancillary activities are covered by the Utilities procurement regime because, as a matter of determining the scope of the activities listed in Arts 3 to 7 of Dir 2004/17, EU procurement law also comprises ancillary activities.

No 'EU law' obligation to revise prices

Beyond that, the CJEU also stressed that 

... it is not apparent from any provision of that directive that it must be interpreted as precluding rules of national law, such as Article 115, in conjunction with Article 206, of Legislative Decree No 163/2006, which do not provide for periodic review of prices after contracts are awarded in the sectors covered by the directive, since the latter does not impose any specific obligation on Member States to lay down provisions requiring the contracting entity to grant its contractual partner an upwards review of the price after the contract has been awarded (C-152/17, para 29, emphases added)

In my view, this is correct, and there is no question that the 2004 Utilities Directive did not create an 'EU law' obligation to include contract review clauses. However, the reasons given by the CJEU on the basis of the general principles of procurement should raise some eyebrows. Indeed, the CJEU found that

... the general principles underlying Directive 2004/17, in particular the principle of equal treatment and the consequent obligation of transparency enshrined in Article 10 of that directive do not preclude such rules either. On the contrary, it cannot be ruled out that a price review after the contract has been awarded may run counter to that principle and that obligation (see, by analogy, judgment of 7 September 2016, Finn Frogne, C‑549/14, EU:C:2016:634, paragraph 40). Indeed, as the Commission points out in its written observations, the contract price is an element of great importance in the assessment of tenders by a contracting entity, as well as in its decision to award the contract to an operator. This is also clear from the reference to the price in both of the criteria for the award of contracts mentioned in Article 55(1) of Directive 2004/17. In those circumstances, rules of national law which do not provide for periodic price review after the award of contracts in the sectors covered by that directive are, in fact, likely to encourage compliance with those principles.

It follows from those considerations that Directive 2004/17 and the general principles that underlie it are to be interpreted as not precluding national rules, such as those at issue in the main proceedings, which do not provide for periodic price review after a contract has been awarded in the sectors covered by that directive (C-152/17, paras 30-31, emphases added).

Wrong reasons?

The reasoning of the CJEU is certainly hard to share, in particular in view of the precise reasoning of Finn Frogne--unless read in an extreme manner. It is also hard to reconcile with Art 72(1)(a) of Directive 2014/24 and Art 89(1)(a) of Directive 2014/25.

The reasoning of the CJEU is hard to reconcile with the fact that the relevant Italian rules (Art 115) established that price revision clauses had to be included in the relevant contract (but did not prescribe their content) and had to establish that the price 'revision shall be carried out on the basis of an investigation by the managers responsible for the acquisition of goods and services on the basis of the data' regulated in other parts of the Italian procurement code (C-152/17, para 11). How this is incompatible with Finn Frogne is beyond me, as the Court stated there that the position that 'following the award of a public contract, a material amendment cannot be made to that contract without a new tendering procedure ... would be different only if the contract documents provided for the possibility of adjusting certain conditions, even material ones, after the contract had been awarded and fixed the detailed rules for the application of that possibility' (C-549/14, para 40, emphasis added). Two thoughts come to mind here. First, that a review clause compliant with Art 115 of the Italian procurement code would meet precisely the requirements of Finn Frogne. Second, that the issue whether the exclusion or limitation of price review under the specific contract was allowable rested solely on the point of determination of the scope of application of the 2004 Utilities Directive, so why did the CJEU feel the need to include this obiter dictum?

Looking forward, it is difficult to understand what the CJEU has in mind concerning equal treatment, transparency and price revision clauses. While in Finn Frogne --and, incidentally, in Art 72(1)(a) of Directive 2014/24 and Art 89(1)(a) of Directive 2014/25-- the position is that contractual price revision clauses are perfectly compliant with EU procurement rules and the principles of transparency and equal treatment; in Consorzio Italian Management the CJEU seems to be of the opposite view and stress that 'rules of national law which do not provide for periodic price review after the award of contracts ... are, in fact, likely to encourage compliance with those principles' (C-152/17, para 30). Of course, taken in isolation, both approaches make sense, but I would struggle to reconcile them if there was a claim that a contractual price revision clause was discriminatory because it either had different impact on different potential contractors, or because its interpretation could favour some suppliers over others. What is more objective, to have a contractual price review clause or not to have it? In addition, what is the problem with having legislative requirements for those clauses, as was the case in Art 115 of the Italian procurement code?

What about Art 16 of the Charter?

Another point worth mentioning is the CJEU's approach to the analysis of the compatibility of the inexistence of a right to price revision with Art 16 of the Charter, enshrining the freedom to conduct a business. Here, it would seem possible to expect from the CJEU an analysis of whether the inexistence of such a right as a matter of EU law is in compliance with the Charter. However, the CJEU refused to answer that question on the grounds that it was hypothetical (see paras 37-40). However, the CJEU did engage on the analysis of compatibility within the context of the first question, and almost as a matter of jurisdictional rather than substantive analysis. In that regard, the CJEU stressed that

... as regards the interpretation of Article 16 of the Charter, it must be recalled that, under Article 51(1) of the Charter, its provisions are addressed to the Member States only when they are implementing EU law. Under Article 51(2) of the Charter, the Charter does not establish any new power or task for the Union, or modify powers and tasks as defined in the Treaties. Accordingly, the Court is called upon to interpret EU law, in the light of the Charter, within the limits of the powers conferred on it ...

In that regard, it should be borne in mind that the concept of ‘implementing Union law’ within the meaning of Article 51 of the Charter presupposes a degree of connection between the measure of EU law and the national measure at issue. In particular, the Court has ruled that fundamental European Union rights could not be applied in relation to national legislation because the provisions of EU law in the area concerned did not impose any specific obligation on Member States with regard to the situation at issue in the main proceedings ...

In the present case, since it is apparent from paragraphs 29 and 30 above that neither Directive 2004/17 nor its underlying general principles impose on Member States a specific obligation to lay down provisions requiring the contracting entity to grant its contractual partner an upwards price review after the award of a contract, the provisions of Legislative Decree No 163/2006 at issue in the main proceedings, in so far as they do not provide for periodic price review within the sectors covered by that directive, do not have any connection with that directive and cannot, therefore, be regarded as implementing EU law (C-152/17, paras 33-35, references omitted and emphases added).

First, it is worth stressing that it is hard to imagine a legal strategy that will make the CJEU engage with the compatibility of secondary EU legislation with the Charter, in particular in relation to the absence of guarantees, as compared to its review concerning positive obligations for the addressees of the domestic implementing measures. Normatively, this is undesirable for the limited engagement the CJEU shows with substantive Charter-based analysis. And even from a positive perspective, this approach is criticisable. I find the CJEU's logic puzzling.

In a situation (maybe different from the case at hand, where the absence of the price revision guarantee ultimately results from a rule on the delimitation of applicable EU law regimes, rather than the direct implementation of a specific, single regime) where the claim was that the domestic rules implementing EU law failed to create a Charter-compliant (or rather Charter-mandated) guarantee not imposed by the implemented Directive, the CJEU would probably also take this route and argue that the absence of creation of an obligation at domestic level which is not required by EU rules is not connected with the EU rules in a manner that triggers the analysis of compatibility with the Charter. Would this make sense? I would not think so, but I guess we will have to wait for the relevant case to see whether the CJEU sticks to this analysis.

Can Member States prohibit or restrict the use of in-house arrangements? [guest post* by Dr Deividas Soloveičik]

This new guest post by Dr Deividas Soloveičik provides interesting background on another reference for a preliminary ruling to the CJEU by the Supreme Court of Lithuania. On this occasion, the case raises interesting questions around the balance between procurement and competition law, but also about the regulatory and self-organisation space left to Member States in the context of the EU regulation of in-house provision arrangements. It will be interesting to keep an eye on the case, as it brings an opportunity for the CJEU to expand its case law after its recast in eg Art 12 of Directive 2014/24/EU.

NOTHING LEFT TO SAY ABOUT THE IN-HOUSE EXEMPTION? THINK TWICE

On April 13, 2018 the Supreme Court of Lithuania (SCoL) decided to stay proceedings and refer a question for preliminary ruling to the Court of Justice of the European Union (CJEU) in a case that raises new questions related to the in-house exemption (civil case No. e3K-3-120-469/2018). This time, the SCoL wishes to find out if Member States are allowed to limit or even ban the use of the in-house exemption, as is the case in Lithuania. Besides, the SCoL seeks clarification on the balance to be struck between public procurement and competition law. In particular, the SCoL wishes to know whether the in-house exemption may be applicable where the same supply of goods or services can be delivered by the market. In other words, whether the contracting authority can buy in-house when there is available supply in the market. These are challenging issues and the CJEU’s views will be much awaited. Before providing an overview of the facts of the case, it is worth noting the Lithuanian legal background, which influenced the decision of the SCoL to refer the case to the CJEU, as well as the whole legal problem.

Lithuanian legal background

The in-house exemption has been regulated in the public procurement law of Lithuania since 2010. The criteria for its use were those set by the CJEU in Teckal and the subsequent case-law on the subject. Since then, in-house contracts became very common in particular at local level. Many contracting authorities and entities used them with their controlled companies, and in many cases the exemption became the general rule. However, this practice became both a legal problem and a national political scandal when it was noticed that the in-house exception was implemented in order to support a modus operandi whereby contracting authorities used the in-house exemption to award contracts to their subsidiaries, so that the latter did not have to hold themselves as contracting authorities and could thus buy services and supplies from the market like private operators. This created a situation where contracting authorities circumvented the public procurement rules just by using an intermediary (their subsidiaries) that triggered the in-house exemption. This practice even generated the Litspecmet case (C-567/15, EU:C:2017:736), already decided by the CJEU (see a comment here).

As a result of these abuses, the implementation of the 2014 EU Public procurement directives led Lithuania to practically ban the in-house mechanism. The new Lithuanian procurement law states that any governmental authority and / or private companies directly controlled or owned by the State shall have no right to enter into in-house agreements of whatsoever nature. Other contracting authorities, such as municipalities and their controlled companies, have the privilege of the in-house exemption. However, this only applies in cases when there is either (i) no supply from the market, or (ii) there are no possibilities to buy good quality in a way that guarantees the quality, availability or continuity of the services and (iii) if the awardee is a contracting authority itself. Moreover, the Competition Council became very active in tracing each contracting authority that uses the in-house exception and seeking the judicial repeal of such agreements on the basis of the Law on competition, which inter alia states that neither the State, governmental or other official authorities may have any privilege against any other market player (ie sets out a principle of competitive neutrality). Therefore, in fact, on the few occasions where in-house agreements are not forbidden by the Lithuanian Law on public procurement, they will most likely be challenged by the Competition Council on the basis of the Lithuanian Law on competition. Thus, in practice the possibility for the award of public contracts in-house is either excluded or very risky.

The Irgita case

In the case the SCoL has now referred to the CJEU, a Municipality concluded a public contract for the upkeep of green areas with economic operator Irgita. It was specified in the contract that the volume of services was a maximum and that the contracting authority was not obliged to buy all the services. The Municipality was to solely pay for the services actually provided according to the rates specified in the contract. Thus, the final price payable to the service provider depended on the volume of services rendered by the latter. In case the services required by the contracting authority exceeded the maximum amount specified in the contract, a separate procurement would be arranged.

Later on, the contracting authority approached the Public Procurement Office in order to get approval to conclude an in-house contract regarding the same services with another economic operator that (i) is a contracting authority itself, (ii) is controlled by the contracting authority (Municipality) and (iii) receives 90 percent of its income from the contracting authority (Municipality). Such approval was granted, and the contracting authority concluded the in-house contract with its controlled economic operator.

After the in-house contract was concluded, Irgita filed a claim by which it argued that the decision of the Municipality was unlawful, on the basis of the following arguments: (i) the contracting authority was not in a position to enter into the in-house contract because, at the time of its conclusion, the public contract with the claimant was still in force; (ii) the disputed decision and the in-house contract did not meet the requirements set in the Law on public procurement and the Law on competition of Lithuania, as it distorts free and fair competition between economic operators because the contracting authority’s contractual partner is being granted privileges while the other (private) economic operators are being discriminated against.

The court of first instance did not establish a breach of competition, while the Court of Appeals considered that the in-house contract was unlawful, in particular because it reduced the volume of services available for provision by Irgita in the first place. In deciding to refer the case to the CJEU, the SCoL started its reasoning by the stating that this was the first time it had an opportunity to examine the balance between public procurement and competition law in the context of in-house arrangements. The SCoL found that it was very likely that the concept of in-house agreement in the realm of public procurement law was a category of EU law and thus not open to separate interpretation under national legislation. If that was the case, then it would be very dubious that Member States were entitled to limit the right of the contracting authority to engage in this kind of transactions.

The SCoL held that:

  • The CJEU has substantiated the in-house doctrine as an exemption from compliance with otherwise applicable public procurement requirements;
  • The CJEU has repeatedly held that since the concept of a public contract does not refer to the national legal regulation of the Member States, the notion and the whole concept of in-house agreement must be regarded as falling exclusively within the scope of EU law and must be interpreted without regard to national law (Jean Auroux Case, C-220/05). In this matter, the SCoL stated that CJEU case-law implies a possibility of treating the in-house exemption as an independent legal norm of EU law;
  • From the case-law of the CJEU, it is clear that the in-house exemption does not infringe the rights of private economic operators, they are not discriminatory, because the economic operators controlled by the contracting authorities do not enjoy any privileges (Sea, C-573/07; Carbotermo ir Consorzio Alisei, C-340/04; Undis Servizi, C-553/15). In other words, the SCoL emphasized that if it is deemed that the in-house agreements are legitimate, then it hardly can be that they limit and distort the competition in all cases. Otherwise, they would not be allowed pursuant to the long-standing jurisprudence of the CJEU.

On the basis of the above-mentioned considerations, the SCoL considered that there is a need to address the following questions to the CJEU for a preliminary ruling:

1.    In circumstances such as those in the present case, where the procedure for the conclusion of the in-house contract was initiated under Directive 2004/18, but the contract itself was concluded on 19 May 2016, does the in-house contract fall within the scope of Directive 2014/18 or Directive 2014/24 in case of an invalidity?

2.    Assuming that the disputed in-house contract falls within the scope of Directive 2004/18:

(a)  must Article 1(2)(a) of this Directive (but not limited to this provision), in accordance with the judgments of the CJEU in Teckal (C-107/98), Jean Auroux and Others (C-220/05) and ANAV (C-410/04) etc be understood and interpreted in such a way that the concept of in-house falls within the scope of EU law and the content and application of that concept is not affected by the national law of the Member States, inter alia, restrictions on the conclusion of such contracts, such as the condition that public service contracts cannot guarantee the quality, availability or continuity of the services provided?

(b)  If the answer to the preceding question is negative, i.e. the concept of in-house in part or in full falls within the scope of the national law of the Member States, is the abovementioned provision of the Directive 2004/18 to be interpreted as meaning that the Member States have the discretion to impose restrictions or additional conditions for the establishment of the in-house contract (in comparison with EU law and the interpretation of the CJEU case-law), but it can be implemented only by specific and clear rules of the substantive law on public procurement ?

3.    Assuming that the disputed in-house contract falls within the scope of Directive 2014/24:

(a)    must Article 1(4), Article 12 and Article 36 of the Directive, jointly or severally (but not limited to), in accordance with the judgments of the CJEU in Teckal (C-107/98), Jean Auroux and Others (C-220/05) and ANAV (C-410/04) etc be understood and interpreted in such way that the concept of in-house falls within the scope of EU law and that the content and application of this concept are not affected by the national law of the Member States, inter alia, restrictions on the conclusion of such contracts, such as the condition that public service contracts cannot guarantee quality, availability or continuity of the services provided?

(b)    If the answer to the preceding question is negative, i.e. the concept of in-house is partly or fully covered by the national law of the Member States, must the provisions of Article 12 of Directive 2014/24 be interpreted in such way that the Member States have the discretion to impose restrictions or additional conditions for the establishment of in-house contracts (in comparison with EU law and the interpretation of the CJEU case-law), but it can be implemented only by specific and clear rules of the substantive law on public procurement?

4.    Irrespective of which of the directives covers the in-house contracts, must the principles of equality, non-discrimination and transparency (Article 2 of the Directive 2004/18, Article 18 of Directive 2014/24), the general prohibition of discrimination on grounds of nationality (Article 18 TFEU), freedom of establishment (Article 49 TFEU) and freedom to provide services (Article 56 TFEU), the possibility of granting exclusive rights to undertakings (Article 106 TFEU), and the case-law of the CJEU (Teckal, ANAV, Sea, Undis Servizi etc) be understood and interpreted as meaning that an in-house contract concluded by a contracting authority and another distinct legal entity which is controlled by the contracting authority in a manner similar to its own departments and where part of such legal entity’s activities is in the interest of the contracting authority, is per se lawful, and that it does not infringe the rights of the other economic operators to fair competition, to not being discriminated against and for no privileges to be provided to the controlled legal entity that has concluded the in-house contract?

The enquiry made by the SCoL shows that it basically wishes to clarify a few very interesting and important legal points, which will influence the development of the in-house exception. Firstly, the SCoL tries to understand whether the in-house exemption is an autonomous concept of EU law or not. Because if it really is, then naturally there will be less discretion left to the Member States in terms of in-house procurement regulation. In other words, Member States would not be allowed to limit the in-house agreement possibility and only the case-law would be the source of the in-house legality in each particular case. Secondly, the SCoL tries to understand, at least indirectly, what are the dynamics between competition law and the law on public procurement.

The situation where, on the one hand, public procurement law allows for in-house arrangements but, on the other hand, the Competition Council and its application of the rules of the Law on competition will be waiting around the corner, is not acceptable. The SCoL correctly noted that such situations jeopardise the legitimate expectations of economic operators and contracting authorities and make the whole legal ecosystem related to this issue very blurry. Without a doubt, the now much anticipated answers from the CJEU will have a strong impact on the application of the in-house exception. In Lithuania it might even mean, in case of positive answers given by the CJEU to most of the questions, that half of Art. 10 of the Law on public procurement, which regulates the “remainders” of in-house exemption, will be inapplicable due to the supremacy of the EU law and will have to be amended by the legislator.

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Dr. Deividas Soloveičik, LL.M

Dr Deividas Soloveičik is a Partner and Head of Public Procurement practice at COBALT Lithuania. He represents clients before national courts at all instances and arbitral institutions in civil and administrative cases, provides legal advice to Lithuanian and foreign private clients and contracting authorities, including the European Commission , on the legal aspects of public procurement and pre-commercial procurement.

Dr Soloveičik is an Associate Professor and researcher in commercial law at Vilnius University and a contributor to legal publications. He also closely cooperates with globally recognized academic members of the legal profession. Since 2011, MCIArb. Dr Soloveičik is a member of the Chartered Institute of Arbitrators; since 2016, he is a member of the European Assistance for Innovation Procurement – EAFIP initiative promoted by the European Commission and a recommended arbitrator at Vilnius Court of Commercial Arbitration.

Guest blogging at HTCAN: If you would like to contribute a blog post for How to Crack a Nut, please feel free to get in touch at a.sanchez-graells@bristol.ac.uk. Your proposals and contributions will be most warmly welcomed!

Brexit & Procurement: Transitioning into the Void?

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Dr Pedro Telles and I are putting the last touches to a new paper on Brexit and procurement (see here for an earlier analysis). In this working paper, we concentrate on the implications of the draft transition agreement of March 2018, as well as some of the aspects of a potential future EU-UK FTA. The abstract of the paper, which is available on SSRN and on which we sincerely invite any feedback, is as follows:

On 29 March 2017, the UK notified its intention of leaving the EU. This activated the two-year disconnection period foreseen in Article 50 TEU, thus resulting in a default Brexit at the end of March 2019. The firming up of a draft agreement on a transition period to run until 31 December 2020 can now provide a longer timescale for the Brexit disconnection, as well as some clarity on the process of disentanglement of the UK’s and EU’s legal systems. The draft transition agreement of 19 March 2018 provides explicit rules on public procurement bound to regulate ‘internal’ procurement trade between the UK and the EU for a period of over 15 months. However, the uncertainty concerning the future EU-UK relationship remains, and the draft agreement does not provide any indication on the likely legal architecture for future EU-UK trade, including through public procurement. The draft agreement has thus not suppressed the risk of a ‘cliff-edge’ disconnection post-Brexit, but rather solely deferred it. The transition is currently not into an alternative system of procurement regulation, but rather into the void. There have also been very limited developments concerning the UK’s and EU’s repositioning within the World Trade Organisation Government Procurement Agreement (WTO GPA), which creates additional legal uncertainty from the perspective of ‘external’ trade in procurement markets due to the absence of a ‘WTO rules’ default applicable to public procurement.

Against the backdrop of this legal uncertainty, this paper critically assesses the implications for public procurement of the March 2018 draft transition agreement. In particular, the paper identifies three shortcomings that would have required explicit regulation: first, the (maybe inadvertent) exclusion from the scope of coverage of the of the draft transition agreement of procurement carried out by the EU Institutions themselves; second, the continued enforcement of the rules on contract modification and termination; and third, the interaction between procurement and other rules. The paper also and flags up some of the areas for future EU-UK collaboration that require further attention. The paper then goes on to revisit the continued uncertainty concerning the EU’s and UK’s position within the WTO GPA. It concludes that it is in both the UK’s and the EU’s interest to reach a future EU-UK FTA that ensures continued collaboration and crystallises current compliance with EU rules, and to build on it to reach a jointly negotiated solution vis-a-vis the rest of WTO GPA parties.

The full details of the paper are as follows: P Telles & A Sanchez-Graells, 'Brexit and Public Procurement: Transitioning into the Void?' (April 20, 2018) SSRN working paper https://ssrn.com/abstract=3166056.

Why call it essential national interest when you mean control? Thoughts on the converging exceptions to the EU procurement rules a propos the Austrian passports case (C-187/16)

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In its Judgment of 20 March 2018 in Commission v Austria (Imprimerie d'État), C-187/16, EU:C:2018:194, the Court of Justice of the European Union (CJEU) assessed the extent to which Austria could rely on claims of national security interest and/or essential national interest to justify the direct award of several contracts for the printing of passports and other secure documents to the former Austrian national printing office (ÖS). In rejecting this possibility, the CJEU followed AG Kokott’s strict approach to the interpretation of derogations of the EU public procurement rules (as discussed here) and, crucially, determined that ‘a Member State which wishes to avail itself of those derogations must establish that the protection of such interests could not have been attained within a competitive tendering procedure as provided for by’ the relevant EU public procurement rules (para 79).

The case is interesting, but hardly novel, in the narrow approach taken by the CJEU in the interpretation of exceptions from competitive tendering under the EU procurement rules (paras 69-96), as well as in relation to the standard of proof required to justify the existence of a ‘certain cross-border interest’ in the tendering of contracts not covered by the EU rules (paras 103-111, which largely follow the recent case of Tecnoedi, see here). However, I think that the case is also interesting for the ‘forward continuity’ and systemic convergence it shows amongst the different exceptions to the EU public procurement rules, which requires an appreciation of the case in the context of the evolution of EU public procurement law. I explore this idea in this post.

It is worth stressing that the case was decided in relation to the third and fourth generation of EU procurement rules, as Directives 92/50/EEC and 2004/18/EC were applicable to the case ratione temporis. Differently from the current Directive 2014/24/EU, both the 1992 and the 2004 version of the EU procurement rules preceded the adoption of Directive 2009/81/EC on defence and security procurement, as well as the development (Dir 92/50) and consolidation (Dir 2004/18) of the in-house providing and public-public cooperation exemptions (as Teckal dates back to 1999 and Commission v Germany (Hamburg waste) dates back to 2009). This is relevant in the interpretation of their exemptions based on security or essential national interests.

‘Forward continuity’ in the treatment of security or essential interest-based exemptions

Dir 92/50 foresaw the possibility for Member States to exempt the direct (or less than fully competitive) award of contracts for the provision of ‘services which are declared secret or the execution of which must be accompanied by special security measures in accordance with the laws, regulations or administrative provisions in force in the Member State concerned or when the protection of the basic interests of that State’s security so requires’ (Art 4(2), emphasis added). Similarly, Dir 2004/18 contained an equivalent exemption for ‘public contracts when they are declared to be secret, when their performance must be accompanied by special security measures in accordance with the laws, regulations or administrative provisions in force in the Member State concerned, or when the protection of the essential interests of that Member State so requires’ (Art 14, emphasis added).

This functionally-equivalent exemption under the 1992 and 2004 versions of the EU public procurement rules could have been used, for example, to justify the direct award of a contract to an entity controlled (or heavily influenced/supervised?) by the contracting authority in order to protect the relevant essential / security national interest through an organic governance relationship rather than through contract. In fact, this seems to be the thrust of the justifications put forward by Austria in the case now decided by the CJEU, given that most of the arguments are (rather implicitly based) on the ‘special relationship’ that Austria has established with ÖS (or rather, kept after ÖS’ privatisation). These exemptions would, in the end, possibly be seen as simple clarification that the existence of the EU public procurement rules did not require the contractualisation (and prior award) of the management of this type of services—provided that the existence of the security/essential national interest existed and the exemption from EU procurement rules passed muster under a (strict) proportionality assessment—although this approach to exemption based on the relationship between the contracting authority and the service provider seems to now be clearly within the functional realm of the in-house and public-public collaboration exemptions, rather than that of defence-related exemptions (see below).

Since its regulation in Dir 92/50 (and to a large extent, Dir 2004/18), the possibility to avoid contractualising (and tendering) the entrustment of the provision of services involving security or essential interests (through contracts or other types of ‘written agreements’, of which domestic administrative law regulates a garden variety) and/or the tendering of such public contracts has since evolved in two meaningful ways. First, Dir 2009/81 has come to establish a clearer instrument for the regulation of procurement involving defence and security interests and I argue that the subjection of a contract not covered by that specific instrument to the general rules of Dir 2014/24 will be largely dependent on a strict analysis similar to that carried out by the CJEU in the case against Austria, as Art 15(2) Dir 2014/24 echoes the wording of the Judgment. This will ensure ‘forward continuity’ in the assessment of these matters under EU procurement law.

Indeed, in relation to the pre-2014 rules, the CJEU has found that a ‘Member State which wishes to avail itself of those derogations must show that such derogation is necessary in order to protect its essential security interests’ (para 78) and that ‘the protection of such interests could not have been attained within a competitive tendering procedure’ (para 79), which assessment needs to take into account that ‘the requirement to impose an obligation of confidentiality does not in itself prevent the use of a competitive tendering procedure for the award of a contract’ (para 89) and that this is compatible with ‘the confidential nature of data can be protected by a duty of secrecy, without it being necessary to contravene public procurement procedures’ (para 90). Moreover, the exemption of a direct award needs to overcome a strict proportionality based on the absence of less intrusive measures, such as the possibility of establishing effective control mechanisms (para 86) and screening the trustworthiness of potential service providers based in a different Member State (para 87).

This is mirrored by the 2014 Directive’s requirement that it ‘shall not apply to public contracts and design contests … to the extent that the protection of the essential security interests of a Member State cannot be guaranteed by less intrusive measures, for instance by imposing requirements aimed at protecting the confidential nature of information which the contracting authority makes available in a contract award procedure as provided for in this Directive’ (Art 15(2) emphases added). This basically comes to ‘consolidate’ or sum up the requirements set by the CJEU in the Judgment in Commission v Austria, which is thus fully aligned with the rules in Dir 2014/24. In that regard, there will be a clear continuity in the analysis of these situations despite the approval of Dir 2009/18 in the intervening period.

Convergence with exemptions based on control of the service provider

Second, and maybe less self-evidently, the interpretation of the exemptions in Dir 92/50 and Dir 2004/18 need to be coordinated with the consolidation of the in-house and public-public cooperation exemptions in the case law of the CJEU to date—which may however experience further transformation in the future, as the rules in Dir 2014/24 start being interpreted by the CJEU.

It seems clear that, as a result of the Teckal and Hamburg doctrines, and even before their ‘recast’ in Art 12 of Dir 2014/24, Member States could have exempted the direct award of contracts for the printing of passports—or any other contracts involving security/essential national interests—not on those grounds, but on the basis of the ‘special’ relationship between the contracting authority and the provider of those ‘sensitive’ services. Where the relationship was one of ‘administrative mutualism’, the direct award could be exempted under the public-public exemption. Where the relationship was one of ‘similar control’ by the contracting authority, the exemption could be justified on the in-house providing doctrine.

In either of the cases, the relationship underlying the exemption requires a certain element of intuitu personae (to put it that way) between the entities participating in the non-tendered (contractual) arrangement. The existence of that ‘special nexus’ would justify a conceptualisation of the decision to award the contract as subjected to organic relationships and administrative governance, rather than contractualised mechanisms based on market-based governance and competition-based checks and balances. Conversely, where the contracting authority decided to contractualise the management of the relationship, and in the absence of special links with the arm’s length provider of the services, the contracting authority had to comply with the EU procurement rules.

The Commission v Austria case is interesting in that, underlying the reasoning of the Court (as well as the analysis of AG Kokott in her Opinion, see here) is an element of dismissiveness of the ‘special relationship’ created between Austria and ÖS. To put it in rather simple and tentative terms, my reading of the Judgment is that the CJEU is reluctant to recognise the exemption of a direct award where the mechanisms set up by the Member State to administer the security/essential national interest implicit in the provision of the services are fungible, in the sense that they could be easily recreated in relation to an alternative provider (or providers).

This is clear in the same paragraphs where the CJEU demonstrates the lack of proportionality of the direct award of the contract for the printing of passports (mainly, paras 80-94), where the Court repeatedly stresses the possibility for the Austrian authorities to have created adequate safeguards through contractual mechanisms aimed at: (i) ensuring the centralised execution of the contract (paras 81-83), (ii) the establishment of effective administrative supervision mechanisms (paras 84-86), (iii) guarantee of supply (para 87), (iv) the screening of the trustworthiness of the provider and confidentiality of sensitive information (paras 88-94).

This is compatible with the fact that, under the in-house and public-public cooperation doctrines, the entrustment of the provision of services to entities lacking that intuitu personae or special nexus—ie those governed by contract rather organic relationships—must comply with EU public procurement rules. This excludes the exemptability of direct awards such as that attempted by Austria, which is implicitly what the CJEU has established here by stressing the replicability with a suitable alternative provider of the ‘control’ or influence/oversight mechanisms that Austria has over ÖS—which would then fail to justify both (or either) exemption under the defence/essential interest doctrine and the in-house/public-public cooperation approach.

In my view, this is welcome as it reflects internal functional convergence across exemptions from compliance with EU public procurement rules on the basis of a distinction between the governance of relationships based on organic/administrative relationships and those based on markets and a competition logic. I think that this is a perspective worthy of further consideration, and it will be interesting to see of the CJEU makes this more explicit in future judgments.

Becoming a digital scholar -- some thoughts

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This post is based on a session of the South West Doctoral Training Partnership (SWDTP) 2017/18 student conference, and will also soon be published in its student-run journal.

The increasing digitisation of the world we live in is producing pervasive changes on the object of social science scholarship (both teaching and research) and on the ways in which scholarship across all fields is conducted, published and disseminated (for detailed analysis, see Daniels & Thistlethwaite, 2016). It is thus no wonder that PhD and early career researchers (ECRs) have developed a keen interest in understanding what this all means and in developing effective strategies to become ‘digital scholars’. This is not to say that scholars that have been in the game a bit longer have all gone digital, and ‘technology-averse’ or ‘technology-averting’ scholars are still very much present. However, as with many other entry requirements to the academic profession, it now seems that access to an academic job is almost conditional on establishing (or having established) a digital presence.

Against this background, I think it was a good call for the organisers of the SWDTP Student Conference to include a session on this topic as part of the programme dedicated to reflecting on ‘Research in a Changing World: Critical Encounters’. I am not so sure they chose the best facilitator for the session, but it was my great pleasure to exchange views and experiences with a great group of PhDs and ECRs. The following is a summary of the most salient points I took home from the discussion, which may or may not provide some useful guidance to scholars approaching their ‘digital transformation’.

1. There are different levels of engagement for ‘digital scholars’, and everyone can find an intensity with which they find themselves comfortable

Almost everyone employed by a higher education institution, research centre, public sector or private services provider will have some ‘involuntary’ online presence—if nothing else, due to the creation of a (possibly pictureless) personal profile page in their institutional website. Beyond that, developing a digital presence can mean different things to different people. Some will be comfortable with having their papers available in open access repositories (be they institutional, or general like SSRN), other people will take the additional step of blogging (again, either in institutional or specialised blogs, or in their own—which can be easily created with blogger, wordpress or my favourite squarespace), and the most enthusiastic will create profiles in social networks—either professional (academia, linkedin) or mixed (facebook, snapchat)—and/or engage with twitter (as well as some of the more techy-oriented add-ons, such as tweetdeck or hashtagify). I am not sure whether this would count as supporting one’s digital presence or goes beyond that, but there also are increasing possibilities to share presentations (slideshare, prezi) and videos (youtube) in digital platforms, which are used in different ways by academics and academic institutions.

It is important to decide ‘how far to go digital’ depending on one’s personal circumstances, but also bearing in mind that for a digital presence to be effective and convey the right messages (of being active and engaged, of having interwoven digital interactions as part of general academic activities), it will be necessary to keep a certain level of update or activity. While posting new papers on SSRN can hardly require any specific timing for updates and contributing guest posts to institutional or other blogs can also be done sporadically, running your own blog will require something between 3 and 10 posts a month, and having a ‘satisfied’ following on twitter will probably require some daily activity.

Therefore, it is important to consider how much time and energy it is possible to spend in these activities and how they fit around daily/weekly routines. Conversely, though, it also seems to me important to have very good reasons not to engage in non-recurring activities such as facilitating open access to scholarly publications and writing up more accessible blogs—as these can generate clear advantages (see below) and do not create an on-going commitment with the ‘digital world’. Thus, I would wholeheartedly invite everyone reading this to try to create a blog post on the basis of their most recently completed piece of research (Prof Dunleavy offers great tips on how to do so). The exercise will not be in vain, as it will help you reflect on your writing and, once you have your blog post, you will be one step closer to creating or boosting your digital presence (eg, by sending the blog post to a suitable platform in your field of expertise).

2. There can be great gains from nurturing a visible digital presence, but they may come late and most of them are rather serendipitous

Other than for those that genuinely enjoy those interactions, or those that use digital tools as part of their research method, the main advantage of engaging with the ‘digital world’ is probably not for the academic, at least in the short term, but rather for society at large. A big part of the content and effort that is put into developing the digital presence (eg blogs, active twitter interactions, etc) will primarily be for the benefit of the audience to which it is addressed—and, ultimately, for anyone engaging with those insights, with the knowledge, as a public good. Scholars will only benefit from making the content accessible to such broader audience—which would otherwise largely ignore academic research behind pay walls or solely disseminated in academic circles—to the extent that there is an engagement with the research and, in particular, if that research is adopted or followed by relevant stakeholders and policy-makers. Therefore, the main role that digital scholarship can have is that of supporting the core academic endeavour of pursuing and exchanging knowledge both for its own sake and for the bettering of society.

From a more utilitarian perspective, in my view, there are two additional important points to bear in mind here. One, that while one has control over his or her own digital strategy, the availability of content and one side of the engagement efforts, there is always an uncontrollable element in that ‘shouting at the internet’ does not mean that anyone is necessarily listening. This should not detract from the value of putting ourselves and our research ‘out there’ because we never know when someone might start listening. Second, it is worth stressing that impact (in particular in REF terms) can hardly be fabricated, but it can be facilitated. And, in an environment where most people (including professional researchers, journalists and policy-makers) are getting their information online (Google knows it all), having a digital presence can make a big difference in terms of being noticed and benefiting from important opportunities.

In my own personal experience, it has taken a long time of sustained effort in building a digital presence until it has generated some tangible benefits—but these have been rather substantial. I started blogging in 2011 in Spanish and then switched to English in 2012 when I joined UK academia. It took the best part of three years of blogging regularly to get my personal blog positioned as the blog of reference in my core area of expertise (EU public procurement law). But once the blog’s presence and reputation (and mine, indirectly) were established, a few high-profile opportunities emerged, such as the possibility of acting as an expert for the European Court of Auditors (2014), the European Commission (since 2015), being invited to submit evidence to the House of Lords (2016) and to engage with the Department for International Trade (2018). I am thanked regularly by practitioners for the update and insight provided by the blog, and I have also been contacted by journalists who had identified me as an expert in the areas they were intending to report about (sometimes rightly, sometimes not). Of course, this is not solely the result of my blogging and tweeting activities, but had my ‘deeper’ research or my ‘standard’ expertise not been disseminated through the blog, twitter and SSRN, they probably would have gone largely unnoticed. I think my experience may serve as an indication that there is value in being digitally present, even if it is not clear whether anyone is watching or listening, and even if the advantages are not immediate (or even observable). Thus, the investment of time and energy in blogging, tweeting or otherwise being active in social networks needs to be seen as cumulative and for the long term.

Of course, it must be acknowledged that more digital exposure also means more space for criticism or even trolling, in particular if one engages with controversial topics and/or holds controversial views (such as the ones I held concerning Brexit or the Catalan independence challenge). While constructive criticism should always be welcome (and digital exchanges are great at facilitating timely feedback), trolling or even online abuse can be quite annoying. That said, unless one becomes an ‘academic celebrity’, it is also fairly unlikely that dealing with the less pleasing side of twitter or other interactions cannot be restrained by simply ignoring or blocking a few trolls—who also tend to lose interest rather quickly.

3. What and how much to show?

A final point bearing some consideration before embarking in the construction or reconstruction of one’s digital presence is to consider how to balance academic (or professional) and personal aspects. Some people will not make a hard distinction between personal and academic personas (I do not, although I have a separate twitter handle for my blog and for myself), while others will prefer to keep their digital presence purely academic. This is certainly a matter of personal choice and I can see advantages and disadvantages in both approaches.

On the one hand, it may be that the audience one is trying to address is rather formal or even institutional, so that content or interaction based on personal experiences, hobbies or non-expert opinions is not necessary, welcome or even frowned upon. On the other hand, however, and within limits, it seems interesting to know more about the researcher/academic and his or her world view. Moreover, some distinctions can be somehow artificial. While I would have no problem in refraining from tweeting about jazz music or bread-making if I wanted to keep my twitter account ‘academic’, I would not be sure where to draw the line when I engage with current events, exchange political views, or discuss issues outside my core area of expertise.

I think that there will not be a right or wrong approach (although it is always good to consider whether we would be happy to share personal details and information with perfect strangers in a face-to-face interaction, which can help deflate a certain ‘online hype of anonymity’), but it is worth considering this issue at the outset and to keep a consistent approach, and with which one feels comfortable.

Wrapping up

On the whole, I think there is plenty that researchers and academics can happily embrace in the process of becoming digital scholars or building up a digital presence. I think that everyone should be pushing open-access agendas as far as possible and blogging about their research, with no exception. Other steps, which require more energy and time, will appeal to different people at different levels of intensity. The only advice I would venture is to consider those demands in advance and, if in doubt, to step into the digital world incrementally. I think that doing so and disseminating research to the widest possible audiences has value in and of itself. I also think that it can generate significant benefits for researchers and academics in the long run, which should influence the level of investment in time and energy and provide some comfort when the effort may seem to be lost. Finally, like in everything else, we need to decide what persona to project in the digital sphere, and the one certainty is that there is no one size fits all.

Easter 2018 Procurement Radar [back on w/c 9 April]

©  maxmaria .

Dear How to Crack a Nut friends,

I am sure you will have had as full a first quarter of the year as me, and I hope you can enjoy a well-deserved break over the Easter period.

I have a few things on the radar, on which I am thinking but have not had time to write blog posts (see below, in case you need some reading, and thanks to those of you who alerted me to some of these issues).

However, I need to take a break from blogging to concentrate on a couple of papers and an edited book that I have neglected for too long. So, I thought I would stop for the duration of the Easter judicial vacation of the Court of Justice. I will thus aim to resume blogging on the week commencing 9 April.

I hope to find you here then.
Best wishes,
Albert

On the radar

  • On conflicts of interest and damages compensation for loss of opportunity in public procurement of the EU Institutions (ie under Art 340 TFEU), see the Judgment of the General Court (Third Chamber, Extended Composition) of 28 February 2018 in Vakakis kai Synergates v Commission, T-292/15,  EU:T:2018:103.

  • On the protection of essential interests of the Member States (special security measures) as an exception to compliance with EU public procurement law, see Judgment of the Court of Justice of the European Union of 20 March 2018 in Commission v Austria, C-187/16, EU:C:2018:194. For discussion of the Opinion of AG Kokkot in this case, see my previous blog entry.

  • On the threshold for liability in damages due to breach of public procurement law, in addition to the discussion of Fosen-Linjen (see here and here), you may be interested in the views of the Irish Court of Appeals--which followed the UK Supreme Court's approach and implicitly rejected the EFTA Court's position by establishing that 'in the case of Francovich damages (and, by extension, damages for breach of public procurement rules under Article 9(6) of the 2010 Regulations), it is necessary to show not simply that there had been an objective breach of breach of E.U. law, but rather that such breach was either “grave or manifest” or “inexcusable”'; Word Perfect Translation Services Limited -v- Minister for Public Expenditure and Reform [2018] IECA 35, para 56.

  • On the classification of concessions contracts as for works or for services, see the Judgment of the EFTA Court of 21 March 2018 in  EFTA Surveillance Authority v Norway (Kristiansand's parking), case E-4/17 (and a press release also available).

  • On public-private partnerships and their failure to deliver adequate value for money, see the hot-off-the-press European Court of Auditors Special report 09/2018: Public Private Partnerships in the EU: Widespread shortcomings and limited benefits.

  • Even if it was published a while back, it may be worth catching up with the European Commission's February 2018 Public Procurement Guidance on avoiding the most common errors in projects funded by the European structural and investment funds. 

Do EU procurement & State aid rules conflict on possibility for consortium members to 'go it alone'? (C-127/16 P)

In its Judgment of 7 March 2018 in SNCF Mobilités v Commission, C-127/16 P, EU:C:2018:165, in the context of the analysis of a measure of State aid for restructuring and recapitalisation involving a bidding process, the Court of Justice of the European Union (CJEU) indicated that it is not acceptable for the assets to be transferred to a bidder that had initially participated in the process as a member of a consortium but subsequently decided to 'go it alone' and submitted a solo bid for the assets. In establishing this principle, the CJEU seems to have taken a position that can potentially be functionally incompatible with its previous case law in the area of public procurement and, in particular, in its Judgment of 24 May 2016 in MT Højgaard and Züblin, C-396/14, EU:C:2016:347 (see here). This blog post discusses this potential functional contradiction in the case law of the Court.

 

SNCF Mobilités v Commission

In simple terms, this dispute concerned France's obligation to recover State aid given to SNCF (its national state-owned railway company) that was declared incompatible with EU law (Art 107 TFEU) by the European Commission. One of the possibilities that France had was to sell all assets of the relevant company within the SNCF group (Sernam) 'en bloc ... at market price through a transparent and open procedure to a company that has no legal link with SNCF' (C-127/16 P, para 7). The process for the sale of Sernam's assets en bloc was rather complicated, but the relevant part of the mechanism was as follows:

... Sernam’s economic situation failed to elicit any proposals based on a positive valuation in the call for tenders conducted on SNCF’s behalf by a bank. All the offers submitted under that procedure concluded that the value was very negative. As no firm offer had been submitted, the decision was taken to continue the discussions solely with the consortium established by candidate 5 who was associated with Sernam’s management team. On 15 June 2005, candidate 5 ultimately informed SNCF orally that it was not in a position to submit a takeover offer — not even a conditional one — before 30 June 2005. On 30 June 2005, SNCF took the decision to conclude the sale with Financière Sernam, which was wholly owned by Sernam’s management team (C-127/16 P, paras 8-9).

In the context of the dispute whether France met the requirements of the previous Commission decision requiring recovery of the State aid, one of the legal issues triggered by the French authorities' decision to enter into a sale agreement with Sernam's management team (through Financière Sernam) is whether it met the requirements for the transfer to result from 'a transparent and open procedure'. The Commission took the view that this was not the case. Before the CJEU considered this issue on appeal, the General Court (GC) had assessed the situation in its Judgment of 17 December 2015 in SNCF v Commission, T-242/12, EU:T:2015:1003.

In the relevant part of the Judgment (T-242/12, paras 162 and ff), the GC explains how, in the context of the procedure aimed at finding a buyer Sernam's assets en bloc, a final round of negotiations resulted in two offers. In simple terms, there was an offer by candidate 4 that valued the assets at - €65.2mn and an offer by a consortium composed of candidate 5 and Sernam's management team that valued the assets at -€56.4mn. In view of this, it was agreed to solely continue discussions with candidate 5 and Sernam’s management (para 164). During these discussions, as mentioned above, candidate 5 withdrew from the process and the management team submitted a solo offer that valued the assets at -€95.5mn (para 167). The acceptance of this offer by SNCF triggered two main issues.

First, given their significant divergence in the valuation of Sernam's assets, whether the solo offer submitted by Sernam's management team was comparable to the prior indicative offer of the consortium with candidate 5. The GC considered that 'the Commission was correct in not considering equivalent in terms of credibility and soundness the offer from a financial investor, candidate 5, who, moreover, was proposing to inject a significant amount of capital into Sernam, and the offer from 84 management and director employees financing a low amount, being EUR 2 million of the price, from their own resources' (T-242/12, para 168). Second, and more relevant for our discussion, there were concerns about the transparency and openness of the procedure for the sale of the assets en bloc. In that regard, the GC established that

... [SNCF] and the French Republic observe that the requirement that a procedure be transparent and open does not cease once the best bidder has been selected and the other candidates have, by definition, been rejected, and that the discussions continue with the ‘last interested party’.

The ‘last interested person’ in the transparent and open tendering procedure in this case was candidate 4 ... the management team’s firm offer, for EUR ‑95.5 million, was also less attractive for the vendor than the preliminary second-round offer from candidate 4, with its negative price of EUR ‑65.2 million ... As observed by the Commission in its written pleadings, following candidate 5’s withdrawal, recourse should have been had to candidate 4, who had been part of the process since the beginning and had also indicated its interest at the end of the second round.

The offer from the management team cannot be considered that of the ‘last interested party’, since it did not participate independently in the transparent and open procedure.

... the applicant submits that it is not relevant to compare the management team’s firm offer with the non-binding offer from the consortium of which it was a part, as only the firm offer is valid, even if it is not the best bid.

That argument must be rejected, since the question here is whether the management team’s firm offer was the result of the tendering procedure, which necessarily involves an examination of the non-binding offers submitted during the tendering procedure.

Therefore, the argument aimed at establishing that the management team participated from the beginning of the tendering procedure must be rejected because it did not participate independently and did not submit alone the offer it had initially submitted with candidate 5. Its offer cannot therefore be considered to result from a transparent and open procedure (T-242/12, paras 169-174, emphases added).

Regardless of the issue of equivalence of the offers, the argumentation constructed by the GC in these passages (implicitly) relies on the principle that members of a consortium cannot be seen as participating both within the consortium and in their own name, which establishes an insurmountable impossibility against any decision to 'go it alone' if the other member(s) of the consortium withdraw.

This principle was directly challenged in the appeal before the CJEU. In short, the challenge was that '... candidate 5 and Sernam’s management team had, within a consortium, been associated with the tendering procedure from the start of that procedure and had proposed the least negative value for the assets en bloc. It was only after candidate 5 withdrew that Sernam’s management team decided to pursue the process and submit on their own the takeover offer initially put forward by the consortium. The applicant thus takes the view that such circumstances meet the requirements of an open and transparent tendering procedure as reflected in the Commission’s decision-making practice and the Court’s case-law' (C-127/16 P, para 62).

Remarkably, SNCF argued that 'it is possible to accept that the principles of openness and transparency in public procurement may be applicable by analogy to procedures involving transfers of assets. It is apparent from Directive 2014/24/EU ... and from Directive 2014/23/EU ... that EU law allows for awarding such a contract to an economic operator without prior advertising or competition following an unsuccessful first tendering procedure, including when the operator did not participate in that first procedure, without that constituting an infringement of the principles of openness and transparency. Those principles should a fortiori be deemed to have been observed where the assets have been transferred to the last interested party, the only one to have made a firm offer, when it has participated in the process in its entirety, initially as part of a consortium from which the other party withdrew in the course of the procedure' (C-127/16 P, para 64).

On this point, the CJEU reasoned as follows:

First of all, without it being necessary to rule on a potential analogy between the tendering procedure relevant to the present case and the principles that are applicable in public procurement ... it should be noted that the applicant’s argument concerning that potential analogy is based on the fact that, at the end of the tendering procedure, no bid or no appropriate bid had been submitted. That kind of argument can be successful only if it challenges the General Court’s findings of fact in paragraph 170 of the judgment under appeal, to the effect that ‘[t]he “last interested person” in the transparent and open tendering procedure in this case was candidate 4. … As observed by the Commission in its written pleadings, following candidate 5’s withdrawal, recourse should have been had to candidate 4, who had been part of the process since the beginning and had also indicated its interest at the end of the second round’. That argument, which asks the Court of Justice to substitute its analysis for the one carried out by the General Court as part of its sovereign assessment of the facts and evidence, is therefore inadmissible and must be rejected.

Next, the practice followed by the Commission in its decisions or its guidelines, even if that practice were to support the applicant’s argument cannot, in any event, bind the Court in its interpretation of the EU rules ...

In any event ... according the Court’s case-law, the question whether a tendering procedure has been open and transparent is determined on the basis of a body of indicia specific to the circumstances of each case ...

Accordingly, in the light of the facts of the present case, and having held in paragraphs 170 and 171 of the judgment under appeal, that the successful bid did not originate from a candidate who had participated autonomously in the tendering procedure from the beginning of that procedure, the General Court was correct in holding, in paragraph 174 of that judgment, that the requirement of an open and transparent procedure had not been observed (C-127/16 P, paras 66-69, references omitted).

Accordingly, the CJEU SNCF Mobilités Judgment explicitly upholds the fact that for a tenderer to be awarded the contract for the sale of assets en bloc as a result of an 'open and transparent procedure', it is an absolute requirement that the 'successful bid ... originate[s] from a candidate who had participated autonomously in the tendering procedure from the beginning of that procedure'. This is in functional conflict with the previous Judgment in MT Højgaard and Züblin, as discussed below.

MT Højgaard and Züblin

In this public procurement case based on the 2004 EU utilities procurement rules (Dir 2004/17/EC), the CJEU ruled on whether the principle of equal treatment of economic operators must be interpreted as precluding a contracting entity from allowing an economic operator that is a member of a group of two undertakings which was pre-selected and which submitted the first tender in a negotiated procedure for the award of a public contract, to continue to take part in that procedure in its own name, after the dissolution of that group due to the bankruptcy of the other partner.

In that case, the contracting authority had indicated that it wanted to proceed to negotiations with between four and six candidates. It received expressions of interest from five candidates, which included interest by a consortium consisting of Per Aarsleff and E. Pihl og Søn A/S (‘the Aarsleff and Pihl group’). The contracting authority pre-selected all five candidates and invited them to submit tenders. One of the pre-selected candidates subsequently withdrew from the procedure. 

For the purposes of our discussion, the relevant fact is that Pihl entered into bankruptcy prior to the submission of the tender, which de facto implied the dissolution of the Aarsleff and Pihl group. Aarsleff decided to 'go it alone' and proceed as a solo tenderer. The contracting authority was thus left with two options: (a) to consider that Aarsleff was not qualified on its own merits (or, in the terms of the SNCF Mobilités Judgment (above) that it had not 'participated autonomously in the tendering procedure from the beginning') and to carry on with the negotiated procedure with 'only' three tenders; or, conversely, (b) to consider that Aarsleff could benefit from the qualification of the group to which it initially belonged and go forward with its desired minimum of four tenders. After some deliberation and information to all remaining candidates, Aarsleff was  allowed to submit a solo tender and, after a further round of best and final offers between the three better placed tenderers, it was awarded the contract.

In reviewing the compatibility of this decision with general principles of EU public procurement law, the CJEU established that, in the absence of specific rules on this subject, 'the question of whether a contracting entity may allow such an alteration must be examined with regard to the general principles of EU law, in particular the principle of equal treatment and the duty of transparency that flows from it, and the objectives of that law in relation to public procurement' (C‑396/14, para 36). In carrying out such analysis, the CJEU determined that

The principle of equal treatment of tenderers, the aim of which is to promote the development of healthy and effective competition between undertakings taking part in a public procurement procedure, requires that all tenderers must be afforded equality of opportunity when formulating their tenders, and therefore implies that the tenders of all competitors must be subject to the same conditions ...

...  [the rules on qualitative selection] may be qualified in order to ensure, in a negotiated procedure, adequate competition ...

If, however, an economic operator is to continue to participate in the negotiated procedure in its own name, following the dissolution of the group of which it formed part and which had been pre-selected by the contracting entity, that continued participation must take place in conditions which do not infringe the principle of equal treatment of the tenderers as a whole.

In that regard, a contracting entity is not in breach of that principle where it permits one of two economic operators, who formed part of a group of undertakings that had, as such, been invited to submit tenders by that contracting entity, to take the place of that group following the group’s dissolution, and to take part, in its own name, in the negotiated procedure for the award of a public contract, provided that it is established, first, that that economic operator by itself meets the requirements laid down by the contracting entity and, second, that the continuation of its participation in that procedure does not mean that the other tenderers are placed at a competitive disadvantage
(C-396/14, paras 38, 41, 43-44 & 47, references omitted and emphases added). 

As is clear from these passages, in MT Højgaard and Züblin, the CJEU rejected the principle that transparency and equal treatment required that a tenderer had 'participated autonomously in the tendering procedure from the beginning'. It rather established a more nuanced approach that required that the 'going it alone' tenderer was in a position to meet all relevant requirements of previous phases of the procedure (in that case, qualitative selection) and that it gained no competitive advantage--or, conversely, that no other tenderer was placed at a competitive disadvantage.

Overall comments

In my view, the SNCF Mobilités Judgment is problematic for the dogmatic principle that it sets out in terms of an absolute requirement of autonomous participation from the beginning. The MT Højgaard and Züblin Judgment can be criticised on other grounds (see here) but, from that perspective, its more nuanced approach towards tolerating decisions to 'go it alone' may be preferable in contexts where retention of a solo tender by the remaining member of a disbanded consortium can be determinative of the competitive tension within the tender procedure [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 339].

More importantly, in my view, the SNCF Mobilités Judgment could have reached the same conclusions if it applied the more nuanced approach of MT Højgaard and Züblin. Indeed, it is hard to argue against the view that, by continuing conversations solely with Sernam's management team and accepting an offer that valued the assets at a very significant value below the previous consortium offer as well as the previous offer by candidate 4, SNCF put Sernam's management team at a clear advantage. In view of the withdrawal of candidate 5, SNCF would have been better advised to go back to the immediate previous step of the procedure and compare whichever solo offer Sernam's management team could submit with that of candidate 4. Doing that would also respect the basic principles of stage rounds of negotiations, whereby ceteris paribus the offers presented in each of the rounds should improve upon previous offers.

On the whole, then, I think that the SNCF Mobilités Judgment is a missed opportunity to have created more integration and compatibility between the procedural requirements applicable under EU State aid and public procurement rules. At the same time, given that the CJEU avoided engaging in the 'potential analogy between the tendering procedure [for the sale of assets en bloc] and the principles that are applicable in public procurement', it is to be hoped that the dogmatic approach of the SNCF Mobilités Judgment will not muddy the waters of the case law on modification of the composition of bidding consortia for the strict purposes of EU public procurement law.