AG Wahl issues excessively formalistic Opinion on 'crumbling' reliance on third party capacities (C-223/16)

In his Opinion of 11 May 2017 in Casertana Costruzioni, C-223/16, EU:C:2017:365, AG Wahl has analysed the compatibility with the 2004 EU public procurement rules (Dir 2004/18/EC, Arts 47(2) and 48(3)) of national legislation providing for the automatic exclusion from the tendering procedure of a tenderer that relies on the capacities of another entity which, during that procedure, ceases to have the required capacities--without allowing for the the possibility of replacing that entity for another third party with the appropriate capacity. 

AG Wahl follows a functional approach close to that of AG Bobek in Esaprojekt, and submits that the rule on automatic exclusion is compatible with EU public procurement law. His reasoning deserves close scrutiny, in particular concerning the automaticity of the exclusion, which I am not convinced necessarily derives from his interpretation of previous case law.

At this stage, it is important to stress that AG Wahl follows the approach of the European Court of Justice (ECJ) in Partner Apelski Dariusz to the effect of excluding the possibility of resorting to Directive 2014/24/EU (Art 63) in search for interpretive criteria to be applied to the 2004 rules. In AG Wahl's view, "[i]n permitting economic operators to replace entities which are to be excluded or which do not meet the relevant criteria, Article 63(1) of Directive 2014/24 manifestly introduces new elements as compared to the rules laid down in Article 47(2) and Article 48(3) of Directive 2004/18" (para 36). Therefore, it seems clear that, whether the ECJ follows AG Wahl's Opinion or not in the Casertana Costruzioni Judgment, this will have limited practical effect because, under Directive 2014/24/EU, the automatic exclusion of a tenderer on the basis that its reliance on third party capacities has crumbled is no longer compatible with EU law.  

Referring back to procurement subjected to the 2004 rules, it is important to stress that AG Wahl conceptualises the core legal issue as concerning whether EU law requires Member States to permit the substitution of the entity that has lost the required capacity with one which possesses the required capacity. He rightly points out that this cannot be assessed in abstract terms, but rather needs to be linked to the relevant phase of the procurement procedure. In that regard, he distinguishes three situations, depending on whether the loss of capacity by the third party takes place (i) before the time limit for receipt of the bids expires, (ii) after the expiry of the time limit for receipt of the bids, but before the public authority makes the final award or (iii) after the award of the contract (see paras 18-25).

In AG Wahl's view, substitution of the third party cannot be allowed in situation (i) because in cases where the loss of capacity by the third party happens before the expiry of the time limit for the submission of bids, tenderers are free to withdraw the offer that is no longer compliant with the tender documentation and submit a new offer where they rely on the capacities of a different third party. AG Wahl does not express a view on situation (iii)--and, therefore, skips the opportunity to offer some clarification on the rules concerning the substitution of consortium members [for discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) 339-340].

Most of AG Wahl's analysis thus concerns situation (ii), where the loss of capacity by the third party takes place during the evaluation stage of the award procedure (strictly, after the deadline for the submission of offers--although I would submit that the same approach should be followed in borderline situations between (i) and (ii), where the bidder only discovers the loss of capacity by the third party after the deadline for submission of tenders, or without sufficient time to submit a fresh offer). He clearly submits that the ECJ should declare that no EU rule or general principle of law requires national authorities to permit tenderers, in that situation, to replace the third party that has lost the required capacity. I am not convinced that this is the case.

Concerning explicit rules, AG Wahl is clear in emphasising that "Directive 2004/18 does not contain any provision which expressly requires Member States to allow tenderers to replace economic entities on whose capabilities they have relied, when those entities are to be excluded or do not meet the relevant criteria. Nor is there any provision, in that directive, that could be read as implicitly containing such a rule or principle"; and, consequently, due to the minimum harmonisation nature of the procurement Directive, "which leaves some regulatory discretion to the Member States for what is not expressly regulated therein", "the possible replacement of third parties on which a tenderer has relied ... is an aspect which is, in principle, for the Member States to regulate" (paras 41 and 42).

He then moves on to assess the situation in relation with the general principles of EU public procurement law, which could constrain Member States' legislative discretion. In that regard, he is also clear in establishing that "allowing a tenderer to replace an entity on whose capabilities it sought to rely cannot be regarded either as a clarification of, or as the correction of clerical errors in, its tender. In point of fact, such a change appears to constitute an amendment of an important element of the tender which is, therefore, in principle not permissible" (para 47, emphasis added), which he considers contrary to the requirements of the principles of equal treatment and non-discrimination and the obligation of transparency (para 45).

AG Wahl refers to AG Bobek's Opinion in Esaprojekt to indicate that

such a change may lead to the contracting authority being required to carry out additional checks and could even affect the choice of candidates being invited to present an offer. Furthermore, [Bobek] noted that giving a tenderer a second chance to decide on which entities’ capabilities it wishes to rely, ‘could certainly procure it an advantage that would be at odds with the requirement of equal treatment’.
I agree. I would also add that upholding Casertana Costruzioni’s argument would essentially amount to creating a judge-made rule that grants the possibility of amending bids at a late stage, a possibility which, in the light of the applicable national and EU rules, was not foreseeable by the other tenderers. As mentioned, that would hardly be reconcilable with the principle of equal treatment. Nor would it be compatible with the obligation of transparency incumbent upon the public authorities. Indeed, neither the Italian nor the EU rules in force at the material time provided for such a possibility. Nor was a specific provision on this point included in the invitation to tender (paras 49-50, footnotes omitted). 

On their facts, I am not sure that the comparison with the Esaprojekt case is helpful. Esaprojekt concerns a situation (i) in terms of AG Wahl's classification, in the sense that the third entity in which the tenderer relied (in that case, a consortium of which the tenderer itself formed part) did not meet the requirements of the tender documentation when the offer was submitted. Thus, this situation can be distinguished from the analysis in Casertana Construzioni in relation with situation (ii) scenarios. In the latter case, therefore, the issue does not seem to be framed in the most useful terms because it can be argued that, having taken place after the submission of the offer (which AG assumes to be the case, see para 24), the loss of capacity of the third party was not foreseeable by the tenderer either, which deactivates part of the reasoning bases on potential discrimination.

Moreover, provided that the way in which the contracting authority allowed for the substitution between third entities on which capacity the tenderer relied did not confer a competitive advantage to the tenderer, there can be good reasons to allow it. For example, if the application of the qualitative selection criteria did not involve a ranking, but was rather on a pass / no pass basis, and where the terms of the tender were not altered at all because the new entity simply stepped into the shoes of the no longer capable entity, there seems to be limited scope to consider that the tenderer derives a competitive advantage.

AG Wahl seems to take the opposite view on the basis of the reasoning underlying the ECJ's analysis of a prohibition to change subcontractors in Wall (which AG Wahl discusses in paras 53-56), in relation to which he stresses that it "could be considered [that the substitution of subcontractor] ‘[altered] an essential term of the concession and [thus necessitated] a new tender procedure’ because, in particular, ‘the concession-holder [had] relied on the reputation and technical expertise of the subcontractor when submitting its tender’." However, this is also conceptually problematic because it refers to a situation (iii), and the prohibition of the substitution of subcontractor can have more to do with the ECJ's requirement that contracting authorities are in a position to verify the standing of any subcontractors (as generally discussed by AG Sharpston in her Opinion in Borta, discussed here).

Ultimately, the difficulty with the assessment carried out by AG Wahl in Casertana Construzioni derives from the fact that he considers that "the capabilities of a third party which allow a tenderer to participate in a tender procedure can hardly be regarded as a non-essential element of a bid. The conclusion might have been different, obviously, if the tenderer had itself the required capabilities or if it had relied, for the same requirement, on more than one entity having those capabilities" (para 58, emphasis added). In my view, this is excessively formalistic and a more nuanced analysis would be required. In the specific case, and on the basis of the limited information about the factual situation, it seems that reliance on the third party capacity primarily (or exclusively) served the purpose of ticking the box of holding a formal classification via registration in the relevant classification system (see para 11). If that is the case, then it seems difficult to justify that this constitutes an essential element of the bid, as it could hardly affect its terms or the execution of the works. More generally, it is not clear that any aspect of reliance on third party capacity can be considered an essential element of a bid by definition, and a more detailed assessment seems necessary (along the lines established by the ECJ in Borta, see here).

From that perspective, the analysis based on discrimination and equal treatment does not seem the most relevant to me, and a focus on proportionality between the administrative burden linked to the substitution of third parties and the preservation of competition for the contract would be much more relevant--in which AG Wahl refuses to engage (see paras 62-65). In my view, this is the biggest flaw of the Opinion in this case. I would suggest that, contrary to what AG Wahl considers, the principle of proportionality should have provided the key legal test in this case.

Thus, I would rather have the ECJ depart from his Opinion and declare that the general principles of EU procurement law, and in particular the principle of proportionality coupled with the principle of competition, oppose the automatic exclusion of tenderers that have relied on the capacities of third parties that later lose them, unless the contracting authority can demonstrate that allowing for the substitution of the third party would either infringe the principles of equal treatment, non-discrimination and the obligation of transparency (eg in a situation where the qualitative selection criteria were not assessed on a pass/no pass basis), or would create a disproportionate administrative burden or delay in the conclusion of the procurement procedure. This could create closer functional compatibility in the case law on reliance on third parties and on subcontracting, which I think are currently at risk of imposing functionally incompatible interpretations of the relevant EU public procurement rules.