Open season for new EU public procurement rules: direct effect, indirect effect and State liability

18 April 2016 marks the end of the transposition period for the 2014 Public Procurement Package, including Directive 2014/23 on concessions, Directive 2014/24 on public sector procurement and Directive 2014/25 on procurement in the utilities sector. As of close of business on 15 April 2016, only 7 Member States (the UK, Denmark, France, Germany, Spain, Lithuania and Hungary) had notified implementing measures for Directive 2014/24 to the European Commission—although some of them are only partial (such as the case of Spain)—which means that in most Member States, the Directives are effective from today despite the (total or partial) lack of domestic transposition measures (for some previous initial thoughts, see here). Even in those Member States that have transposed, should there be any interpretative doubts as to the compatibility of the transposing measures with the 2014 Public procurement package, it is now uncontroversial that the new EU public procurement Directives trump any domestic rules and must be given full effectiveness.

This post explores in streamlined terms the three avenues open for economic operators and, more importantly, for public administrations and entities carrying out public procurement activities to guarantee the effectiveness of the 2014 Public Procurement Package under general EU law—and explores in particular detail the obligation for Member States’ courts and administrative authorities to ensure its effectiveness under the doctrine of indirect effect—as well as the residual possibility to claim State liability.

Direct effect

Where the 2014 Public Procurement Package creates individual rights (a number of important provisions spring to mind, eg new rules on exclusion and self-cleaning, new rules on contract modification and contract termination, use of the European Single Procurement Document ESPD, etc), these are susceptible of enforcement under the doctrine of direct effect of EU law, which ensures that ‘a directive has direct effect when its provisions are unconditional and sufficiently clear and precise and when the EU country has not transposed the directive by the deadline’ (Van Duyn, C-41/74, EU:C:1974:133). This will be a viable enforcement route for the provisions of the 2014 Public Procurement Package that establish identifiable individual rights, so that an interested undertaking (or public administration) can rely on them despite the lack of transposition. However, in my view, this need not be the main (and definitely not the only) enforcement strategy in the period prior to the (delayed) transposition of the 2014 Public Procurement Package because the doctrine of indirect effect is a much more powerful tool.

Indirect effect

The Court of Justice of the European Union (CJEU) has clearly established a general obligation for Member States to interpret and to enforce national legislation according to the principles of the TFEU and other principles and basic objectives of EU rules. According to this principle of consistent interpretation (harmonious interpretation, convergent construction or interprétation conforme) and as a ramification of the positive duties imposed by the TFEU, Member States’ courts and authorities are to interpret national law so as to ensure that the objectives of the directives are achieved and that national law is consistent with the relevant provisions of EU law [Case 14/83 Von Colson and Kamman [1984] ECR 1891 para 26; and Case 79/83 Harz [1984] ECR 1921 para 26. Specifically in the field of public procurement, see Case 103/88 Costanzo [1989] ECR 1839 paras 28-33; and, more recently, Case C-357/06 Frigerio Luigi [2007] ECR I-12311 paras 28-29; and Joined Cases C-147/06 and C-148/06 SECAP [2008] ECR I-3565 para 22]—hence, giving it indirect effect through the interpretation and enforcement of domestic law [on the extension of these duties not only to national courts, but also and notably to national authorities, see J Temple Lang, ‘The Duty of National Courts under Community Constitutional Law’ (1997) 22 European Law Review 3; and ibid, ‘The Duty of National Authorities under European Constitutional Law’ (1998) 23 European Law Review 109, 114].

In other words, in applying national law, national courts and authorities are required, as far as possible, to interpret the national law (whether adopted before or after the directive) in the light of the wording and the purpose of the directive in order to achieve its intended results [see Case C-160/01 Mau [2003] ECR I-4791 para 34; Joined Cases C-397/01 to C-403/01 Pfeiffer and others [2004] ECR I-8835 paras 113-114; Case C-212/04 Adeneler [2006] ECR I-6057 paras 108-111; and Joined Cases C-187/05 to 190/05 Agorastoudis and others [2006] ECR I-7775 para 43]. The principle of consistent interpretation also requires that settled domestic case law is reinterpreted in light of the directives, so that not only statutory legislation, but also judge-made law, is constructed in a convergent manner with EU law [Case C-456/98 Centrosteel [2000] ECR I-6007 para 17].

In principle, the EU case law has held that this obligation of courts and national authorities of the Member States is not absolute, and certain limits could be found (i) in the initially restrictive approach towards horizontal direct effect of directives, (ii) in the prohibition of contra legem interpretation of domestic laws, and (iii) in the necessary respect of certain time limits generally applicable to the transposition of directives. However, a closer analysis of these general restrictions on the duty of consistent interpretation shows that they have been construed in very narrow terms in the case law. As a result, none of these apparent limits actually restricts in a significant manner the duty of Member States to ensure consistent construction of domestic legislation with EU rules—and, as of 18 April 2016, their obligation to ensure that their existing public procurement rules, interpreting case law and administrative doctrine are aligned with the 2014 Public Procurement Package.

As just mentioned, a first apparent limit to consistent interpretation might be encountered in the lack of horizontal direct effect of the directives’ provisions, and so consistent interpretation may be restricted if it could lead to the imposition on an individual of an obligation laid down by a directive which has not been transposed into domestic law, at least if such a result is unacceptable in the light of the general principles of law (particularly, the principles of legal certainty and non-retroactivity). Nonetheless, the interpretation conducted by the case law of the requirements that the imposition on individuals is (i) of obligations ‘as such’ and (ii) by the directive ‘of itself’ has followed a restrictive approach, with the result that this apparent restriction falls short of preventing the application of the doctrine of convergent construction in every case in which the legal position of an individual is negatively affected [Case C-177/88 Dekker [1990] ECR I-3941; and Case C-180/95 Draehmpaehl [1997] ECR I-2195, where the CJEU applied the doctrine of consistent interpretation even if the legal position of the individuals concerned was significantly altered. Along the same lines, see Case C-456/98 Centrosteel [2000] ECR I-6007 para 19 and Joined Cases C-240/98 to C-244/98 Océano [2000] ECR I-4491 paras 31-32].

It follows that, in the end, consistent interpretation of national legislation with EU law can generate (indirect or ancillary) negative effects on the legal position of individuals, as long as the result is acceptable in light of the general principles of law—ie, unless it runs contrary to fundamental legal guarantees provided by these principles to individuals, which now include the need to respect the limits derived from the right to good administration under Article 41 of the Charter of Fundamental Rights of the European Union [which is triggered , see Åkerberg Fransson, C-617/10, EU:C:2013:105; and Siragusa, C-206/13, EU:C:2014:126], and which will impose particular obligations to motivate any change of rules or the (in)direct application of the 2014 Public Procurement Package in the absence of domestic transposing measures [for discussion, see see P Craig, ‘Article 41 – Right to Good Administration’ in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1069-98]. However, having in mind the content of the 2014 Public Procurement Package, it is highly unlikely that any individual is affected in intolerably negative terms, particularly if the application of the new rules is adopted progressively (eg ‘for the next phase’ of ongoing public procurement procedures).

Another apparent limit could be found in that national courts and authorities are not obliged to make a contra legem interpretation of the relevant provisions of national legislation. Nevertheless, this limit does not seem to constrict significantly the result of the convergent construction of domestic and EU law, in so far as national courts and authorities are obliged to disapply the provisions of national law that frontally contradict EU law, by virtue of the principle of supremacy—and so the same final results are generally achieved [see K Lenaerts and P van Nuffel, Constitutional Law of the European Union, 2nd edn (London, Thomson/Sweet & Maxwell, 2005) 775-778]. Once more, in the case of the 2014 Public Procurement Package, it is very unlikely that any rules in the domestic systems explicitly and openly prohibit actions now allowed under the more flexible approach of the new rules (and if they do, they need be set aside and not applied), which thus significantly erodes the relevance of this theoretical limitation.

Finally, a waiting period is in principle also applicable to the duty of consistent interpretation—that is, the obligation of harmonious interpretation of national legislation arises only after the time-limit for the transposition of the directive has expired—which is precisely the event that the calendar triggered today.

Therefore, given that the limits of the principle of consistent interpretation remain somewhat blurry and that the CJEU has adopted an expansive approach to the issue of the obligation of Member States to guarantee the effectiveness of directives, the limits of legal construction of Member States’ law with conformity to EU directives should be interpreted restrictively in order to favour to the maximum extent the (indirect) effectiveness of EU law and the goals pursued by EU directives. This is all the more necessary in view of recent developments of the rules of construction developed by the CJEU that are superseding the traditional boundaries of the theory of direct effect and point towards a more general doctrine of ‘legality review’ of the legislative actions of Member States, and towards the expansion of the boundaries of legal interpretation that conform to the TFEU and secondary rules The limit seems to lie where consistent interpretation requires national courts and authorities to overcome ‘merely’ interpretative functions (broadly defined) and to assume legislative functions. Nonetheless, drawing the dividing line will usually be a difficult task and, as already mentioned, the clear prevalence of a pro communitate interpretative principle must be identified in the relevant case law.

To sum up, Member States are under an almost absolute obligation to guarantee that domestic legislation is interpreted and applied in a manner that is consistent with EU law and, in particular in the case of directives, to ensure that their goals and intended effects are attained through national legislation—regardless of whether that legislation was adopted for the sake of transposing those directives, and regardless of the proper or improper transposition of those directives. If this is taken seriously, in my submission, all contracting authorities of non-transposition Member States should better start operating as if the 2014 Public Procurement Package had been transposed through a (UK-inspired) copy-out approach [for further analysis with reference to the specific direct and indirect effect of the competition principle consolidated in Art 18(1) Dir 2014/24], see A Sanchez Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 215-223].

State liability

Finally, it may be worth reminding that the lack of transposition by the 18 April 2016 deadline is a manifest and grave infringement of EU law that can give raise to Francovich State liability of the non-transposing Member States if, despite the arguments provided above, they reject their duty to give the 2014 Public Procurement Package full (indirect) effect and in doing so cause a recoverable damage on individual undertakings (for a basic summary of applicable rules, see here).