'Experimental' WEF/UK Guidelines for AI Procurement: some comments

ⓒ Scott Richard, Liquid painting (2015).

ⓒ Scott Richard, Liquid painting (2015).

On 20 September 2019, and as part of its ‘Unlocking Public Sector Artificial Intelligence’ project, the World Economic Forum (WEF) published the White Paper Guidelines for AI Procurement (see also press release), with which it seeks to help governments accelerate efficiencies through responsible use of artificial intelligence and prepare for future risks. WEF indicated that over the next six months, governments around the world will test and pilot these guidelines (for now, there are indications of adoption in the UK, the United Arab Emirates and Colombia), and that further iterations will be published based on feedback learned on the ground.

Building on previous work on the Data Ethics Framework and the Guide to using AI in the Public Sector, the UK’s Office for Artificial Intelligence has decided to adopt its own draft version of the Guidelines for AI Procurement with substantially the same content, but with modified language and a narrower scope of some principles, in order to link them to the UK’s legislative and regulatory framework (and, in particular, the Data Ethics Framework). The UK will be the first country to trial the guidelines in pilot projects across several departments. The UK Government hopes that the new Guidelines for AI Procurement will help inform and empower buyers in the public sector, helping them to evaluate suppliers, then confidently and responsibly procure AI technologies for the benefit of citizens.

In this post, I offer some first thoughts about the Guidelines for AI Procurement, based on the WEF’s version, which is helpfully summarised in the table below.

Source: WEF, White Paper: ‘Guidelines for AI Procurement’ at 6.

Source: WEF, White Paper: ‘Guidelines for AI Procurement’ at 6.

Some Comments

Generally, it is worth being mindful that the ‘guidelines provide fundamental considerations that a government should address before acquiring and deploying AI solutions and services. They apply once it has been determined that the solution needed for a problem could be AI-driven’ (emphasis in original). As the UK’s version usefully stresses, many of the important decisions take place at the preparation and planning stages, before publishing a contract notice. Therefore, more than guidance for AI procurement, this is guidance on the design of a framework for the governance of innovative digital technologies procurement, including AI (but easily extendable to eg blockchain-based solutions), which will still require a second tier of (future/additional) guidance on the implementation of procurement procedures for the acquisition of AI-based solutions.

It is also worth stressing from the outset that the guidelines assume both the availability and a deep understanding by the contracting authority of the data that can be used to train and deploy the AI solutions, which is perhaps not fully reflective of the existing difficulties concerning the availability and quality of procurement data, and public sector data more generally [for discussion, see A Sanchez-Graells, 'Data-Driven and Digital Procurement Governance: Revisiting Two Well-Known Elephant Tales' (2019) Communications Law, forthcoming]. Where such knowledge is not readily available, it seems likely that the contracting authority may require the prior engagement of data consultants that could carry out an assessment of the data that is or could be available and its potential uses. This creates the need to roll-back some of the considerations included in the guidelines to that earlier stage, much along the lines of the issues concerning preliminary market consultations and the neutralisation of any advantages or conflicts of interest of undertakings involved in pre-tender discussions, which are also common issues with non-AI procurement of innovation. This can be rather tricky, in particular if there is a significant imbalance in expertise around data science and/or a shortfall in those skills in the contracting authority. Therefore, perhaps as a prior recommendation (or an expansion of guideline 7), it may be worth bearing in mind that the public sector needs to invest significant resources in hiring and retaining the necessary in-house capacities before engaging in the acquisition of complex (digital) technologies.

1. Use procurement processes that focus not on prescribing a specific solution, but rather on outlining problems and opportunities and allow room for iteration.

The fit of this recommendation with the existing regulation of procurement procedures seems to point towards either innovation partnerships (for new solutions) or dynamic purchasing systems (for existing or relatively off-the-shelf solutions). The reference to dynamic purchasing systems is slightly odd here, as solutions are unlikely to be susceptible of automatic deployment in any given context.

Moreover, this may not necessarily be the only possible approach under EU law and there seems to be significant scope to channel technology contests under the rules for design contests (Arts 78 and ff of Directive 2014/24/EU). The limited appetite of innovative start-ups for procurement systems that do not provide them with ‘market exposure’ (such as large framework agreements, but likely also dynamic purchasing systems) may be relevant, depending on market conditions (see eg PUBLIC, Buying into the Future. How to Deliver Innovation through Public Procurement (2019) 23). This could create opportunities for broader calls for technological innovation, perhaps as a phase prior to conducting a more structured (and expensive) procurement procedure for an innovation partnership.

All in all, it would seem like—at least at UK level, or in any other jurisdictions seeking to pilot the guidance—it could be advisable to design a standard procurement procedure for AI-related market engagement, in order to avoid having each willing contracting authority having to reinvent the wheel.

2. Define the public benefit of using AI while assessing risks.

Like with many other aspects of the guidelines, one of the difficulties here is to try to establish actionable measures to deal with ‘unknown unknowns’ that may emerge only in the implementation phase, or well into the deployment of the solution. It would be naive to assume that the contracting authority—or the potential tenderers—can anticipate all possible risks and design adequate mitigating strategies. It would thus perhaps be wise to recommend the use of AI solutions for public sector / public service use cases that have a limited impact on individual rights, as a way to gain much necessary expertise and know-how before proceeding to deployment in more sensitive areas.

Moreover, this is perhaps the recommendation that is more difficult to instrument in procurement terms (under the EU rules), as the consideration of ‘public benefit’ seems to be a matter for the contracting authority’s sole assessment, which could eventually lead to a cancellation—with or without retendering—of the procurement. It is difficult to see how to design evaluation tools (in terms of both technical specifications and award criteria) capable of capturing the insight that ‘public benefit extends beyond value for money and also includes considerations about transparency of the decision-making process and other factors that are included in these guidelines’. This should thus likely be built into the procurement process through opportunities for the contracting authority to discontinue the project (with no or limited compensation), which also points towards the structure of the innovation partnership as the regulated procedure most likely to fit.

3. Aim to include your procurement within a strategy for AI adoption across government and learn from others.

This is mainly aimed at ensuring cross-sharing of experiences and at concentrating the need for specific AI-based solutions, which makes sense. The difficulty will be in the practical implementation of this in a quickly-changing setting, which could be facilitated by the creation of a mandatory (not necessarily public) centralised register of AI-based projects, as well as the consideration of the creation and mandatory involvement of a specialised administrative unit. This would be linked to the general comment on the need to invest in skills, but could alleviate the financial impact by making the resources available across Government rather than having each contracting authority create its own expert team.

4. Ensure that legislation and codes of practice are incorporated in the RFP.

Both aspects of this guideline are problematic to a lawyer’s eyes. It is not a matter of legal imperialism to simply consider that there have to be more general mechanisms to ensure that procurement procedures (not only for digital technologies) are fully legally compliant.

The recommendation to carry out a comprehensive review of the legal system to identify all applicable rules and then ‘Incorporate those rules and norms into the RFP by referring to the originating laws and regulations’ does not make a lot of sense, since the inclusion or not in the RFP does not affect the enforceability of those rules, and given the practical impossibility for a contracting authority to assess the entirety of rules applicable to different tenderers, in particular if they are based in other jurisdictions. It would also create all sorts of problems in terms of potential claims of legitimate expectations by tenderers. Moreover, under EU law, there is case law (such as Pizzo and Connexxion Taxi Services) that creates conflicting incentives for the inclusion of specific references to rules and their interpretation in tender documents.

The recommendation on balancing trade secret protection and public interest, including data privacy compliance, is just insufficient and falls well short of the challenge of addressing these complex issues. The tension between general duties of administrative law and the opacity of algorithms (in particular where they are protected by IP or trade secrets protections) is one of the most heated ongoing debates in legal and governance scholarship. It also obviates the need to distinguish between the different rules applicable to the data and to the algorithms, as well as the paramount relevance of the General Data Protection Regulation in this context (at least where EU data is concerned).

5. Articulate the technical feasibility and governance considerations of obtaining relevant data.

This is, in my view, the strongest part of the guidelines. The stress on the need to ensure access to data as a pre-requisite for any AI project and the emphasis and detail put in the design of the relevant data governance structure ahead of the procurement could not be clearer. The difficulty, however, will be in getting most contracting authorities to this level of data-readiness. As mentioned above, the guidelines assume a level of competence that seems too advanced for most contracting authorities potentially interested in carrying out AI-based projects, or that could benefit from them.

6. Highlight the technical and ethical limitations of using the data to avoid issues such as bias.

This guideline is also premised on advanced knowledge and understanding of the data by the contracting authority, and thus creates the same challenges (as further discussed below).

7. Work with a diverse, multidisciplinary team.

Once again, this will be expensive and create some organisational challenges (as also discussed below).

8. Focus throughout the procurement process on mechanisms of accountability and transparency norms.

This is another rather naive and limited aspect of the guidelines, in particular the final point that ‘If an algorithm will be making decisions that affect people’s rights and public benefits, describe how the administrative process would preserve due process by enabling the contestability of automated decision-making in those circumstances.' This is another of the hotly-debated issues surrounding the deployment of AI in the public sector and it seems unlikely that a contracting authority will be able to provide the necessary answers to issues that are yet to be determined—eg the difficult interpretive issues surrounding solely automated processing of personal data under the General Data Protection Regulation, as discussed in eg M Finck, ‘Automated Decision-Making and Administrative Law’ (2019) Max Planck Institute for Innovation and Competition Research Paper No. 19-10.

9. Implement a process for the continued engagement of the AI provider with the acquiring entity for knowledge transfer and long-term risk assessment.

This is another area of general strength in the guidelines, which under EU procurement law should be channeled through stringent contract performance conditions (Art 70 Directive 2014/24/EU) or, perhaps even better, by creating secondary regulation on mandatory on-going support and knowledge transfer for all AI-based implementations in the public sector.

The only aspect of this guideline that is problematic concerns the mention that, in relation to ethical considerations, ‘Bidders should be able not only to describe their approach to the above, but also to provide examples of projects, complete with client references, where these considerations have been followed.’ This would clearly be a problem for new entrants, as well as generate rather significant first-mover advantages for undertakings with prior experience (likely in the private sector). In my view, this should be removed from the guidelines.

10. Create the conditions for a level and fair playing field among AI solution providers.

This section includes significant challenges concerning issues related to the ownership of IP on AI-based solutions. Most of the recommendations seem rather complicated to implement in practice, such as the reference to the need to ‘Consider strategies to avoid vendor lock-in, particularly in relation to black-box algorithms. These practices could involve the use of open standards, royalty-free licensing and public domain publication terms’, or to ‘'consider whether [the] department should own that IP and how it would control it [in particular in the context of evolution or new design of the algorithms]. The arrangements should be mutually beneficial and fair, and require royalty-free licensing when adopting a system that includes IP controlled by a vendor’. These are also extremely complex and debated issues and, once again, it seems unlikely that a contracting authority will be able to provide all relevant answers.

Overall assessment

The main strength of the guidelines lies in its recommendations concerning the evaluation of data availability and quality, as well as the need to create robust data governance frameworks and the need to have a deep insight into data limitations and biases (guidelines 5 and 6). There are also some useful, although rather self-explanatory reminders of basic planning issues concerning the need to ensure the relevant skillset and the unavoidable multidisciplinarity of teams working in AI (guidelines 3 and 7). Similarly, the guidelines provide some very high-level indications on how to structure the procurement process (guidelines 1, 2 and 9), which will however require much more detailed (future/additional) guidance before they can be implemented by a contracting authority.

However, in all other aspects, the guidelines work as an issue-spotting instrument rather than as a guidance tool. This is clearly the case concerning the tensions between data privacy, good administration and proprietary protection of the IP and trade secrets underlying AI-based solutions (guidelines 4, 8 and 10). In my view, rather than taking the naive—and potentially misleading—approach of indicating the issues that contracting authorities need to address (in the RFP, or elsewhere) as if they were currently (easily, or at all) addressable at that level of administrative practice, the guidelines should provide sufficiently precise and goal-oriented recommendations on how to do so if they are to be useful. This is not an easy task and much more work seems necessary before the document can provide useful support to contracting authorities seeking to implement procedures for the procurement of AI-based solutions. I thus wonder how much learning can the guidelines generate in the pilots to be conducted in the UK and elsewhere. For now, I would recommend other governments to wait and see before ‘adopting’ the guidelines or treating them as a useful policy tool, in particular if that discouraged them from carrying out their own efforts in developing actionable guidance on how to procure AI-based solutions.

Finally, it does not take much reading between the lines to realise that the challenges of developing an enabling data architecture and upskilling the public sector (not solely the procurement workforce, and perhaps through specialised units, as a first step) so that it is able to identify the potential for AI-based solutions and to adequately govern their design and implementation remain as very likely stumbling blocks in the road towards deployment of public sector AI. In that regard, general initiatives concerning the availability of quality procurement data and the necessary reform of public procurement teams to fill the data science and programming gaps that currently exist should remain the priority—at least in the EU, as discussed in A Sanchez-Graells, EU Public Procurement Policy and the Fourth Industrial Revolution: Pushing and Pulling as One? (2019) SSRN working paper, and in idem, 'Some public procurement challenges in supporting and delivering smart urban mobility: procurement data, discretion and expertise', in M Finck, M Lamping, V Moscon & H Richter (eds), Smart Urban Mobility – Law, Regulation, and Policy, MPI Studies on Intellectual Property and Competition Law (Berlin, Springer, 2020) forthcoming.

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.

Legal Archaeology: Timing of Brexit, CJEU case law & substantive public procurement rules

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At the extremely thought-provoking conference "Trade Relations after Brexit: Impetus for the Negotiation Process", I had the chance to present some thoughts on the regulatory challenges that Brexit poses for EU public procurement regulation, and to explore potential solutions that could/should be designed in the context of an agreement regulating future EU-UK relationships. I already posted my general views here. However, the discussions at the conference made me think in more detail about the specific challenge of fostering substantive coordination post-Brexit--which is an unavoidable challenge if the UK is to have any sort of meaningful access to the EU internal market, and all the more in the context of an ambitious FTA.

Of course, this challenge is not all that peculiar to the area of public procurement, and the general problems that section 6(2) of the European Union (Withdrawal) Bill (EUWB) creates concerning the non-bindingness of the future case law of the Court of Justice have been extensively discussed by others. Indeed, by establishing that 'A court or tribunal need not have regard to anything done on or after exit day by the European Court, another EU entity or the EU but may do so if it considers it appropriate to do so', if unchanged, the EU (Withdrawal) Act would create a level of legal uncertainty that nobody desires--first and foremost, prominent UK Judges such as Lord Neuberger.

However, it seems to me that, should Brexit day come some time in 2019 or 2020, the effects of the EUWB could be rather undesirable--unless, of course, UK courts decided to systematically (and voluntarily) keep a close eye on the CJEU future case interpreting the 2014 Public Procurement Package. Why is that?

The UK transposed the 2014 Public Procurement Package by copying it out, primarily into the Public Contracts Regulations 2015 [A Sanchez-Graells, 'The Implementation of Directive 2014/24/EU in the UK', in S Treumer & M Comba (eds), Implementation of Directive 2014/24, vol. 8 European Procurement Law Series (Edward Elgar, forthcoming). ]. Thus, barring any intervening 'fine-tuning' of the transposition, on Brexit Day (and until such time as the PCR2015 are reformed, or EU procurement law subject to further revision), the domestic UK rules will be perfectly aligned with EU public procurement law. However, and rather counterintuitively, this cannot by itself ensure substantive coordination in the foreseeable future. How come?

As things stand, and unless I have missed something, the CJEU is yet to issue any judgment interpreting the three Directives included in the 2014 Public Procurement Package (Dirs 23, 24 and 25/2014/EU). On occasion, the Court has indirectly taken into consideration some of the reforms the 2014 Package brought about, but most of the rules where there is a sharp distinction between the pre-2014 and the post-2014 rules (which sometimes involve a 'flexible recast' or implicit reform of case law that got incorporated to the new Directives) remain untouched. Enter the EUWB.

According to section 6(3) EUWB, "Any question as to the validity, meaning or effect of any retained EU law is to be decided, so far as that law is unmodified on or after exit day and so far as they are relevant to it—(a) in accordance with any retained case law and any retained general principles of EU law, ...". So, when confronted with the need to interpret the PCR2015 (identical to the 2014 Package), the UK Courts will only be able to rely on 'old' CJEU case law, which may or may not be a good proxy of the interpretation the CJEU would (will) make of the revised rules, in particular where there is a clash between such 'old' case law and the new rules [for extended discussion, see GS Ølykke & A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules (Edward Elgar, 2016)].

Moreover, given the different techniques of statutory interpretation applicable in the UK and those the CJEU tends to follow, even the most willing UK court may find itself carrying out complex exercises in 'legal archeology' to ascertain the extent to which the 'old' case law buried under the new rules is of any use in the construction of the latter. Oddly enough, should the UK courts--willingly, due to convenience, or inadvertently--give more weight to the 'old' case law than the CJEU itself (which could decide to go by the literal tenor of the new rules, even if they deactivate previous jurisprudential positions, to show deference to the EU legislators) the UK could end up with 'purer' EU public procurement rules than the EU itself. Surely not what the drafters of section 6(2) and (3) EUWB had in mind.

Of course, this hypothetical scenario is bound to lose relevance as time goes by and the CJEU has the chance to engage in the direct interpretation of the 2014 Package--and a long transition period may do away with the peculiarity derived from the current 'estimated' timing of Brexit and the recent reform of EU public procurement law. More generally, all in all, this is probably highly theoretical or even absurd, but I think it militates in favour of a flexible mechanism for UK courts to (voluntarily, sure) send references on interpretation to the CJEU post-Brexit, if there is to be substantive coordination--not solely on procurement, but in all areas of 'regulatory allignment' of a flavour or other, in the context of the agreement for future EU-UK relationships. Will the next wave of negotiations raise to this challenge?

Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?

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Dr Pedro Telles and I have just published 'Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?' (2017) 47(1) Public Contract Law Journal 1-33 and, thanks to the permission of the American Bar Association, made it available through SSRN https://ssrn.com/abstract=3076543. This is the abstract:

The United Kingdom has formally started the process of leaving the European Union (so called Brexit). This has immersed the UK Government and EU Institutions in a two-year period of negotiations to disentangle the UK from EU law by the end of March 2019, and to devise a new legal framework for UK-EU trade afterwards. The UK will thereafter be adjusting its trading arrangements with the rest of the world. In this context, public procurement regulation is broadly seen as an area where a UK ‘unshackled by EU law’ would be able to turn to a lighter-touch and more commercially-oriented regulatory regime. There are indications that the UK would simultaneously attempt to create a particularly close relationship with the US, although recent changes in US international trade policy may pose some questions on that trade strategy. Overall, then, Brexit has created a scenario where UK public procurement law and policy may be significantly altered.

The extent to which this is a real possibility crucially depends on the framework for the future trading relationship between the UK and the EU. Whereas ”EU-derived law” will not restrict the UK’s freedom to regulate public procurement, the conclusion of a closely-knit EU-UK trade agreement covering procurement could thus well result in the country’s continued full compliance with EU rules. Nonetheless, this is not necessarily a guaranteed scenario and, barring specific requirements in future free trade agreements between the UK and the EU or third countries, including the US, the World Trade Organisation Government Procurement Agreement (GPA) seems to be the only regulatory constraint with which future UK public procurement reform needs to conform. However, the position of the UK under the GPA is far from clear. We posit that the UK will face a GPA accession process and GPA members may see Brexit as an opportunity to obtain new concessions from the UK and the EU, which could be both in terms of scope of coverage or regulatory conformity. Further, given the current trend of creating GPA plus procurement chapters in free trade agreements, such as the US-Korea FTA, the GPA regulatory baseline will gain even more importance as a benchmark for any future reform of public procurement regulation in the UK, even beyond the strict scope of coverage of the GPA. Given the diversity of GPA-compliant procurement systems (such as the EU’s and the US’), though, the extent to which the GPA imposes significant restrictions on UK public procurement reform is unclear. However, we argue that bearing in mind the current detailed regulation in the UK might itself limit deregulation due to the need to comply with the international law principle of good faith as included in the 1969 Vienna Convention on the Law of Treaties and, to a certain extent, the United Nations Convention Anti-Corruption. 

The aim of this paper is to try to disentangle the multi-layered complexities of Brexit and to explore the issues that Brexit has created in the area of international public procurement regulation, both from the perspective of ‘internal’ EU law-related issues and with regard to broader ‘external’ issues of international trade regulation, as well as to assess the GPA baseline regulatory requirements, and to reflect on the impact these may have on post-Brexit public procurement reform in the UK.

International Seminar on the Transposition of the 2014 Public Procurement Directives

I was honoured to take part in the International Seminar on the Transposition of the 2014 Public Procurement Directives organised by the Institute of Local Law of the Autonomous University of Madrid and the Madrid City Council. These are the slides (in Spanish) I used to present my views on the UK's transposition of the 2014 Public Procurement Package.

Concerted withdrawal of bids for legal aid work: a cartel in public procurement. Could it be justified?

I just found out yesterday (thanks @Detig) about the London Criminal Courts Solicitors' Association (LCCSA) campaign to boycott on-going legal aid reforms (ie cuts to legal aid). In a nutshell, the LCCSA is asking its members to exchange information about their willingness to withdraw the bids they submitted to the Legal aid crime tender 2015

The LCCSA intends to use the information to inform their ongoing engagement with the Ministry of Justice (ie, put pressure and stop the cuts). Generally, this could be seen as a worthwhile act of protest against a policy that will deepen inequality in access to justice. However, the way they are implementing it is deeply concerning from a competition and public procurement perspective.

Similarly to past action from the Bar (see @AngusMacCulloch's good piece here), this is a textbook cartel (see also @PublicProcure additional remarks here). Independent firms are exchanging confidential commercial information in a way that is not required by their activity in the market. This is prohibited by the relevant UK and EU rules, as interpreted by the Court of Justice of the EU (CJEU) in several cases. Most recently, in MasterCard (C-382/12, EU:C:2014:2201, para 62), the CJEU stressed that
Without prejudice to the right of economic operators to adapt themselves intelligently, but independently, to the existing or anticipated conduct of their competitors (see judgments in Suiker Unie and Others v Commission, 40/73 to 48/73, 50/73, 54/73 to 56/73, 111/73, 113/73 and 114/73, EU:C:1975:174, paragraph 174; Ahlström Osakeyhtiö and Others v Commission, C‑89/85, C‑104/85, C‑114/85, C‑116/85, C‑117/85 and C‑125/85 to C‑129/85, EU:C:1993:120, paragraph 71; and Asnef-Equifax and Administración del Estado, C‑238/05, EU:C:2006:734, paragraph 53 and the case-law cited), Article [101 TFEU] catches all forms of cooperation and of collusion between undertakings, including by means of a collective structure or a common body, such as an association, which are calculated to produce the results which that provision aims to suppress (see, to that effect, judgments in Nederlandse Vereniging voor de fruit en groentenimporthandel and Frubo v Commission, 71/74, EU:C:1975:61, paragraph 30; van Landewyck and Others v Commission, 209/78 to 215/78 and 218/78, EU:C:1980:248, paragraph 88; and Eurofer v Commission, C‑179/99 P, EU:C:2003:525, paragraph 23).
Regarding the prohibition to exchange information in itself, in Asnef-Equifax (C-238/05, EU:C:2006:734, paras 51-52), the Court very clearly stressed that
According to the case-law on agreements on the exchange of information, such agreements are incompatible with the rules on competition if they reduce or remove the degree of uncertainty as to the operation of the market in question with the result that competition between undertakings is restricted (John Deere v Commission, paragraph 90, and Case C-194/99 P Thyssen Stahl v Commission [2003] ECR I-10821, paragraph 81).
In effect, it is inherent in the Treaty provisions on competition that every economic operator must determine autonomously the policy which it intends to pursue on the common market. Thus, according to that case-law, such a requirement of autonomy precludes any direct or indirect contact between economic operators of such a kind as either to influence the conduct on the market of an actual or potential competitor or to reveal to such a competitor the conduct which an operator has decided to follow itself or contemplates adopting on the market, where the object or effect of those contacts is to give rise to conditions of competition which do not correspond to the normal conditions of the market in question, taking into account the nature of the products or the services provided, the size and number of the undertakings and also the volume of the market (see Commission v Anic Partecipazioni, paragraphs 116 and 117, as well as the case-law cited).
Thus, there is no doubt that LCCSA's activity is in contravention of the applicable competition law provisions. It is true that the LCCSA is trying to create some safeguards on the circulation of that information.  According to their 'invitation to indicate a willingness to de-tender':
This information will be held on a confidential basis, with responses sent to and collated by one named solicitor member of the LCCSA committee who will not disclose the names of the firms submitting information to anyone including officers and any other committee members of the LCCSA unless and until that firm’s consent has been obtained for their name to be released to the LCCSA officers and committee.
The solicitor holding the information (who is from a firm not submitting any tender) would be able to provide to the President and the Vice President of the LCCSA committee the number of responses received, the numbers bidding, the numbers not bidding, the numbers indicating a willingness to refuse an offer if made or withdrawing a bid and the areas involved. 
However, these safeguards are insufficient to ensure that (with the consent of the participating firms), the information will not end up in the hands of their competitors. Moreover, the aim of the exchange of information is to boycott the Legal aid crime tender 2015, which in my view is a clear anti-competitive agreement prohibited because its object is to restrict or distort competition, so the actual effects of the exchange of information need not be proved. 

Moreover, it is taking place in a public procurement scenario, which can have further implications in terms of future debarment of these firms if found guilty [for discussion, see here and A Sanchez Graells, "Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive 2014/24" in F Lichere, R Caranta and S Treumer (ed) Novelties in the 2014 Directive on Public Procurement, vol. 6 European Procurement Law Series, (Copenhagen, Djøf Publishing, 2014)].

Photograph: Sean Smith for the Guardian
Sean Smith/Guardian
Could it be justified?
Despite the clear prohibition of the conduct in which LCCSA has engaged, given that it pursues a declared worthwhile objective and, in any case, could be seen as a manifestation of (informal) collective labour action and/or a right to demonstrate against the government, it is relevant to assess whether the invitation to indicate a willingness to de-tender campaign could be justified.

In my view, the possibility to justify it under Art 101(3) TFEU is very slim, if there is any. As stressed in Asnef-Equifax (para 65),
The applicability of the exemption provided for in Article [101(3) TFEU is subject to the four cumulative conditions laid down in that provision. First, the arrangement concerned must contribute to improving the production or distribution of the goods or services in question, or to promoting technical or economic progress; secondly, consumers must be allowed a fair share of the resulting benefit; thirdly, it must not impose any non-essential restrictions on the participating undertakings; and, fourthly, it must not afford them the possibility of eliminating competition in respect of a substantial part of the products or services in question (see, to that effect, Joined Cases 43/82 and 63/82 VBVB and VBBB v Commission [1984] ECR 19, paragraph 61, as well as Remia and Others v Commission, paragraph 38).  
And the application of the second condition requires that 'objective economic advantages might be such as to offset the disadvantages of such a possible restriction' (para 67), which is a very difficult test to apply in this case, particularly in view of the undertain outcome of LCCSA's campaign and the ensuing regulatory response by the Ministry of Justice, if any.

A longer shot would be to try to apply the doctrine of the CJEU regarding infringements of EU law based on the exercise of fundamental rights--as discussed in Schmidberger (C-112/00, EU:C:2003:333, paras 80 and ff). In that situation, which concerned a restriction of free movement of goods and not a competition infringement (and this, in itself, creates significant uncertainty as to the possibility of extrapolating the argument without more), 
neither the freedom of expression nor the freedom of assembly ... appears to be absolute but must be viewed in relation to its social purpose. Consequently, the exercise of those rights may be restricted, provided that the restrictions in fact correspond to objectives of general interest and do not, taking account of the aim of the restrictions, constitute disproportionate and unacceptable interference, impairing the very substance of the rights guaranteed (see, to that effect, Case C-62/90 Commission v Germany [1992] ECR I-2575, paragraph 23, and Case C-404/92 P X v Commission [1994] ECR I-4737, paragraph 18).
In those circumstances, the interests involved must be weighed having regard to all the circumstances of the case in order to determine whether a fair balance was struck between those interests.
The competent authorities enjoy a wide margin of discretion in that regard. Nevertheless, it is necessary to determine whether the restrictions placed upon intra-Community trade are proportionate in the light of the legitimate objective pursued, namely, in the present case, the protection of fundamental rights.
In a case involving similar acts of demonstration (albeti with use of force) for the purpose of forcing engagement with negotiations (Laval un Partneri, C-341/05, EU:C:2007:809), the assessment of proportionality of the boycott was strict and the CJEU determined that EU law prevented 'a trade union ... from attempting, by means of collective action in the form of a blockade (‘blockad’) of sites ... to force a provider of services ... to enter into negotiations with it'. Thus, this potential justification also seems unlikely to cover LCCSA's campaign.

What then?
Given that LCCSA's 'invitation to indicate a willingness to de-tender' and, generally, its attempts to boycott the MoJ's Legal aid crime tender 2015 run against competition law and they cannot be justified or exempted from the prohibition, the association may want to desist from this course of action and think about more creative (legal) ways of opposing the policy of cuts in this area. Otherwise, their efforts will be in vain and their main goal of positively influencing a system that ensures access to justice will be further diminished in case the LCCSA is found in breach of competition law and forced to pay penalties.

A political scientist's call (to the UK) to strengthen competition in the procurement of social services (Lamothe, 2014)

In its interesting paper 'How Competitive is "Competitive" Procurement in the Social Services?' (2014) The American Review of Public Administration 1-23 (advanced on-line access available here), Scott Lamothe conducts an interesting empirical study where he shows that using measures of competition for contracts that go beyond the crude number of tenders received (ie, assessing the quality of the bids submitted) casts new light on the assessment of the degree of effective competition in procurement settings. 

More importantly, his findings indicate that "while the measures used in earlier studies align reasonably well with the raw number of initial responders to competitive solicitations, they tend to overestimate competition when the quality component is included in the analysis. That is, social service markets may be even weaker than previously reported.

In view of that evidence from the US, EU policy-makers and legislators will be well-advised to read this paper and digest its insights before they embark into the transposition of Art 74-77 of Directive 2014/24 in a way that allows for a reduction in the competition for social services contracts that makes these markets even weaker. 

In the UK, this is particularly relevant for the transposition of Art 77 Dir 2014/24, where the Government insists in maximising the possibilities of limiting competition for the procurement of social and special services. This has been very recently stressed in the Government's response to the consultation on transposition through the Public Contracts Regulations 2015, which clearly emphasises that "The implementation of the proposed Regulation 77 [equivalent to Art 77 in the Directive] regarding reserved contracts for certain services is a strategic Government priority to support the mutuals programme" (para 132).  

The empirical evidence mentioned above suggests that this strategy is bound to create very poor results in the medium term, particularly because the lack of proper competition will not create appropriate checks and balances to the provision of those services by de facto monopolists.

Hence, the UK Government would be advised to further reconsider their strategy to maximise the carve-out from competitive procedures in the procurement of social and special services--not least because the regulatory constraints on these markets are also attenuated due to the structural conflict of interest that affects the sector regulator's ability to enforce competition and procurement rules in a proper way; as discussed in A Sanchez-Graells, Monitor and the Competition and Markets Authority (2014) University of Leicester School of Law Research Paper No. 14-32]. Will the UK Government respond to this wake up call?

Risk of 'sweet deals' for public sector #mutuals under the new #EU #publicprocurement rules leading to #monopolisation of social services

Article 76a of the final compromise text for a new Directive on public procurement creates a significant risk of abuse in the award of contracts for social services that may be of particular concern when read side by side with the UK Government's public sector mutualisation strategy.

Article 76a allows contracting authorities to reserve for the participation of given types of organisations (such as ‘public sector mutuals’, for instance) the award of contracts for certain services included in specific categories of the Common Procurement Vocabulary[1] in the areas of health, social and cultural services[2]—which basically comprise all or the most relevant medical services, personal services, educational and training services (including eLearning), sports and cultural services. 

In such cases, the contracting authority will need to make sure that the (type of) organisation chosen to be awarded the contract meets the following requirements: (a) its objective is the pursuit of a public service mission linked to the delivery of the services to be contracted; (b) its profits are reinvested with a view to achieving the organisation’s objective (and where profits are distributed or redistributed, this should be based on participatory considerations); (c) the structures of management or ownership of the organisation performing the contract shall be based on employee ownership or participatory principles, or shall require the active participation of employees, users or stakeholders; and (d) the organisation shall not have been awarded a contract for the services concerned by the contracting authority concerned pursuant to this Article within the past three years. Moreover, the maximum duration of the contract shall not be longer than three years and the call for competition shall make reference to this Article. There is no (maximum) value threshold for this exclusion to be effective.

Given that the Mutuals Taskforce has clearly recommended that the UK Government use the (direct) award of contracts as a tool to support, foster and consolidate the creation of public sector mutuals (Recomm 9), there is a risk that the carve-out (negotiated?) in the new EU public procurement rules leaves the award of such 'start-up contracts' fundamentally unchecked, since there will basically be no EU rules applicable in this case, regardless of the value of the contracts [which is also valid in relation to the EU rules on the control of State aid, which exclude health care and other social services from their scope of application; see art 2 of Decision 2012/21/EU].

Therefore, there is a clear risk that the public sector reform strategy ends up creating (3-year long, local) monopolies for the provision of those services in the hands of the newly spun-off public sector mutuals, which may extend their dominance beyond that point in time as incumbency advantages pile up. That would result in distortions of competition similar to those just identified by the Competition Commission in the market enquiry on private health care services and, in my view, is an undesirable prospect. 

In that regard, then, the OFT (and, soon enough, the CMA) seems to have a mounting amount of pressure to uphold its commitment in the 2013-14 Annual Plan to "focus on IT and local government issues in particular and work with government partners on a range of issues relating to the public sector reform agenda to ensure that government interventions maintain competitive markets. In addition to advocacy and influencing, [the OFT] will consider using the full range of tools at our disposal to tackle any breaches of competition law identified in public service markets" (emphasis added).

Otherwise, the structural changes that non-competitive mutualisation under the umbrella of Article 76a of the new EU public procurement rules can create may be difficult (if not impossible) to revert in the future. At any rate, however, the difficulty derived from the blurred application of competition rules in the health care sector after the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 were approved may require some creative enforcement efforts on the part of the OFT (and the European Commission).



[1] See the consolidated version available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2002R2195:20090807:EN:PDF, last accessed 2 September 2013.
[2] The specific references are 75121000-0 (Administrative educational services), 75122000-7 (Administrative healthcare services), 75123000-4 (Administrative housing services), 79622000-0 (Supply services of domestic help personnel), 79624000-4 (Supply services of nursing personnel), 79625000-1 (Supply services of medical personnel), 80110000-8 (Pre-school education services), 80300000-7 (Higher education services), 80420000-4 (E-learning services), 80430000-7 (Adult-education services at university level), 80511000-9 (Staff training services), 80520000-5 (Training facilities), 80590000-6 (Tutorial services), from 85000000-9 to 85323000-9 (fundamentally, all types of medical services), 92500000-6 (Library, archives, museums and other cultural services), 92600000-7 (Sporting services), 98133000-4 (Services furnished by social membership organisations), and 98133110-8 (Services provided by youth associations). 

UK's Competition Commission issues provisional findings on private healthcare markets

The UK's Competition Commission (CC) has published today its provisional findings and remedies to improve competition in private healthcare markets. All relevant documents can be accessed here.

The CC's provisional findings show a situation where hospitals hold a significant degree of market power derived from a lack of local competition (particularly in the case of companies that own clusters of hospitals in a given region), which is not compensated by the countervailing power of (even the largest) private medical insurance companies. The CC is consequently envisaging to recommend some structural remedies that may include the divestiture of up to 20 hospitals in different areas of the UK.

In my view, the analysis of this sector is difficult to understand because it is conducted in isolation. My impression is that public and private healthcare markets should be analysed together--or that, at least, their connections should receive more attention--since public healthcare seems an obvious constraint on the offer and demand of private healthcare. If that was correct, then, the proposed structural changes in this sector should take into consideration the significant reform of the National Health System (NHS) that is taking place and the effects that the recently adopted National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 may generate in the provision of (public) healthcare in the UK in the near future.

In any case, it seems clear that the competitive landscape of the healthcare sector in the UK is about to suffer a significant change (in both its public and private dimensions) and that this is an area that deserves some careful policy-making for its immediate impact on the welfare of citizens and the costs (for private and public entities) of continuing to offer them satisfactory standards of healthcare. In that regard, it will be interesting to see what are the final remedies and recommendations due to be adopted by the CC in April 2014.

Anticompetitive behaviour in NHS #publicprocurement: Regulating distortions of competition?

The recently adopted National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 include an interesting (highly unsettling) provision authorising the carrying out of anti-competitive behaviour in the commissioning of NHS services, as long as that is in the interest of health care users. 

The oddity of such 'authorisation' for public buyers to engage in anti-competitive procurement deserves some careful analysis. According to the Regulations:

10.—(1) When commissioning health care services for the purposes of the NHS, a relevant body must not engage in anti-competitive behaviour [i.e. behaviour which would (or would be likely to) prevent, restrict or distort competition], unless to do so is in the interests of people who use health care services for the purposes of the NHS which may include—
(a) by the services being provided in an integrated way (including with other health care services, health-related services, or social care services); or
(b) by co-operation between the persons who provide the services in order to improve the quality of the services.
(2) An arrangement for the provision of health care services for the purposes of the NHS must not include any term or condition restricting competition which is not necessary for the attainment of—
(a) intended outcomes which are beneficial for people who use such services; or
(b) the objective referred to in regulation 2.

The only explanation provided in the Explanatory Memoradum is that

The Regulations place further requirements on commissioners to ensure accountability and transparency in their expenditure. In particular: [...] not to engage in anti-competitive behaviour unless to do so is in the interest of patients. Regulation 10 makes clear that behaviour in the interests of patients may include services being provided in an integrated way or co-operation between providers in order to improve the quality of services. This reflects the Government’s firm view that competition is a means to improving services and not an end in itself.

Generally, then, it seems that under the new NHS public procurement rules, whatever is considered in the 'interest of patients' can trump pro-competitive requirements and allow the commissioning entity to engage in distortions of competition. Even if Regulation 10(2) sets a clear proportionality requirement, my general impression is that this is at odds with the general requirements of EU public procurement law and, more specifically, with the principle of competition embedded in the public procurement Directives--so that the application of Regulation 10(1) for contracts covered by EU law (ie when there is cross-border interest) may result in a breach of those Directives.

In that regard, the substantive guidance published by the UK's healthcare sector regulator Monitor for public consultation is particularly relevant. According to such draft substantive guidance, Monitor will assess the appropriateness of engaging in anti-competitive behaviour on the basis of a cost/benefit analysis. Indeed, it is explained that:

When will behaviour be anti-competitive and not in the interests of users of health care services?
Where a commissioner’s conduct is in the interests of patients its behaviour will not be inconsistent with the prohibition on anti-competitive behaviour in Regulation 10.
In assessing whether or not anti-competitive behaviour is in the interests of health care service users, Monitor will carry out a cost/benefit analysis. Monitor will consider whether by preventing, restricting or distorting competition behaviour gives rise to material adverse effects (costs) for health care service users.
If we find that behaviour gives rise to material costs, we will consider whether it also gives rise to benefits that could not be achieved without the restriction on competition.
Monitor will then weigh the benefits and costs against each other.

The methodology for the carrying out of that cost/benefit (both clinical and non-clinical) analysis is explained and, at the bottom line, when weighing their relevance, Monitor will take into consideration that

This is not a mathematical exercise, but rather a qualitative assessment. Relevant benefits might outweigh costs when, for example, as a result of a commissioner’s actions there is a reduction of competition between a small number of providers, but a significant number of other providers of the relevant services remain and the clinical benefits of the initiative are significant and well evidenced. 

Given the very open-ended methodology described in the document and this final consideration, my impression is that the analysis to be carried out by Monitor may err on the side of allowing for an excessive amount of anti-competitive behaviour--particularly in view of the potential relevance given to qualitative (and, hence, difficult to measure, benefits). 

However, such lenient approach is not exactly matched when Monitor indicates the type of factors it will take into consideration when assessing whether a commissioner has engaged in disproportionate or unjustified anti-competitive behaviour, which include examples such as whether the commissioner:

·               has limited the extent to which providers are able to compete to attract patients to their services, for example, by limiting the total number of patients a provider can treat or the income a provider can earn, or by restricting the providers to whom a provider can refer patients for further treatment, without objective justification;
·               has restricted the ability of providers to differentiate themselves to attract patients, such as, for example, by imposing minimum waiting times that providers must adhere to or restricting opening hours without objective justification; and
·               has reduced the incentives on providers to compete, such as, for example, by disclosing commercially sensitive information belonging to one provider to a different provider without objective justification.

Therefore, it seems that the substantive guidance is strict in terms of promoting (or not reducing) competition of providers in their interface with patients, unless the cost benefit/analysis indicates a (qualitative) advantage for patients that derives from any restriction of competition--such as vertical or horizontal integration of services, joint provision, or standardisation of conditions [as indicated by Regulation 10(1)].

After reading the substantive guidance, it is not clear to me whether the structurally strict approach of Regulation 10(2) will restrict the 'anti-competitive authorisation' of Regulation 10(1) or, on the contrary, if Regulation 10(2) will also be affected by the 'qualitative' approach of Regulation 10(1). In that regard, it would be desirable for Monitor to make it clearer if it intends to use Regulation 10(1) only exceptionally and in cases where the cost/benefit analysis is clearly positive, or if it envisages a more lenient approach. 

I would personally favour the first option, since the authorisation of anti-competitive behaviour in public procurement is prone to generate clear social losses derived from the direct and knock-on effects that non-competitive public procurement generates (see here and here), whereas the (qualitative) benefits sought are hard to measure and to realise. In any case, it will be interesting to see how the final guidance may be affected by the current consultation period, which will be open until the 15th of July 2013.

Public sector reform in the UK: A procurement battlefield in the horizon?

With is forthcoming announcement of a new wave of privatisation, the Cabinet Office is envisaging a significant redesign of the public sector and the provision of public services in the UK

In broad strokes, the Ministers are preparing to spin off a significant number of state-owned services into independent companies that will be owned by the Government, private investors (with a share of up to 50%) and workers (up to 25%), and to which the Government will then guarantee contracts for a number of years – with the businesses free to sell their services in the market.

Such a strategy will reshape the UK public sector, but it will also have a very significant impact on competition in services markets (since the Cabinet Office is focusing on IT, personnel and legal functions, which could be provided by existing private suppliers in the markets concerned).

This is a strategy that deserves close scrutiny by the competition watchdog--as anticipated by the OFT in its 2013-14 Annual Plan, where it stresses that it "may focus on IT and local government issues in particular and work with government partners on a range of issues relating to the public sector reform agenda to ensure that government interventions maintain competitive markets. In addition to advocacy and influencing, [the OFT] will consider using the full range of tools at our disposal to tackle any breaches of competition law identified in public service markets." Maintaining competitive neutrality will be a major issue, as indicated by the OECD recently.

Importantly, the public sector reform will need monitoring from the public procurement perspective. Depending on how the privatisation and contracting out strategy is carried out, the Cabinet Office will create a complex scenario by running auctions  to acquire 'minority' stakes in the spin-off companies and (simultaneously?) running (open?) tenders or directly awarding the contracts to the newly created companies. 

If these procedures are not structured and timed in the proper manner, the UK government could easily fall foul of the relevant rules and exceptions to the current EU public procurement Directives--including, to name the most relevant ones, the 'public-public' cooperation exception, the 'in-house' provision exception, and the direct award of contracts on the basis of exclusive rights (which abuse determines the ineffectiveness of the contracts). 

It is worth noting that the current proposals for the reform of the EU procurement rules include some potential changes that could contribute to further legal complication, depending on the final calendar for the transposition of the new EU rules.

Moreover, the rules on State aid to services of general economic interest will also be relevant, particularly once the spin-off companies start competing in the market and incumbents or new entrants raise claims that public participation and public contracts allow them to cross-subsidise activities and compete unfairly for public and private business.

Given the multiple competition, public procurement and State aid implications of the new wave of public sector reform in the UK, this sector deserves close monitoring and will provide a myriad of opportunities for legal and economic analysis and research. Moreover, given that this is not the only strategy for public sector reform (since, at local level, aggregation of demand and pure public-public cooperation schemes are being developed), this promises to be an interesting battlefield.

Avoiding gold plating in the transposition of #EUlaw: A distinctive UK approach?

The Department for Business, Innovation and Skills has recently published its March 2013 'Gold-plating review' as a Report on the Operation of the Transposition Principles in the Government’s Guiding Principles for EU Legislation. The Report covers 88 proposals to implement EU measures over the eighteen-month period, from 1 July 2011 to 31 December 2012.

In my view, the Report clearly shows resistance to the prompt incorporation of EU Law into the UK legal system, as clearly indicated by the fact that "in 95% of cases over the eighteen-month period Departments have implemented on or after the transposition deadline, with only four examples where Departments sought agreement to implement measures early" (emphasis added).

Most remarkably, the UK Government is not shy to acknowledge the infringement of EU Law that belated transposition implies. And this should be worrying, not least because it can trigger the initiation of infringement procedures by the European Commission.

In my view, it is legitimate for Member States to take advantage of the transposition periods as they consider in their best interest. But it cannot be in the (national) public interest to breach EU Law by belatedly transposing Directives into the UK legal system. Even taking into consideration the interest of the UK in eventually renegotiating its terms of membership of the EU, only an exquisite compliance strategy will build a solid negotiating platform.

Therefore, contrary to the generally positive conclusion of the Report, I think that the UK Government should implement an effective strategy to make sure that no Directive gets transposed after its transposition deadline. That is a clear requirement for the proper transposition of EU Law. And it should not be overseen.