Looking closely at the RegioPost case: two new papers on public procurement and labour standards under eu law

I have been working on the implications of the RegioPost Judgment for a while (I can't believe it will soon be a year since the conference we held at the University of Bristol Law School), and finally uploaded two new papers on SSRN where I discuss different aspects of the case and its implications for the enforcement of labour standards through public procurement regulated by the 2014 EU Public Procurement Package.

The first paper is concerned with the regulatory substitution implicit in the inclusion of social and employment-related considerations in public procurement. The second paper is concerned with the competition and State aid implications of the asymmetrical rules on minimum wage requirements that result from RegioPost, Rüffert and Bundesdruckerei. Below are some additional details on each of the papers. I hope that both papers manage to provide complementary views on the many issues that derive from the interaction between EU public procurement law, EU labour law and EU free movement law. Feedback most welcome!

Regulatory Substitution between Labour & Public Procurement Law: EU's Shifting Approach to Enforcing Labour Standards in Public Contracts

In this paper, I reflect about a recent regulatory trend concerning the enforcement of labour standards through contract compliance clauses and other requirements of public contracts tendered under European Union public procurement law. On the back of recent developments in the case law of the European Court of Justice regarding cross-border situations of procurement-based enforcement of labour standards, notably in the re-examination of the Rüffert case in both the Bundesdruckerei and RegioPost cases, I reflect on this phenomenon from the perspective of regulatory substitution. In setting out a basic framework to assess regulatory substitution, I hypothesise that most of the difficulties evidenced by the case law stem from the transfer of labour regulation goals to the public procurement sphere. I then aim to test this hypothesis by means of an analysis of labour policy-oriented mechanisms included in the 2014 revision of the EU public procurement rules. I then go on to critically assess the fitness for purpose of the procurement mechanisms from the perspective of contributing to the enforcement of labour standards. And I ultimately extract some general conclusions that can be of relevance in non-EU jurisdictions where similar trends of regulatory substitution between labour and public procurement law may be emerging.

Sanchez-Graells, Albert, Regulatory Substitution between Labour and Public Procurement Law: The EU's Shifting Approach to Enforcing Labour Standards in Public Contracts (April 25, 2017). Available at SSRN: https://ssrn.com/abstract=2958297.

Competition and State Aid Implications of ‘Public’ Minimum Wage Clauses in EU Public Procurement after the Regiopost Judgment

This chapter assesses the use of public procurement to enforce labour standards from a competition and State aid perspective, and concentrates on the establishment of contract compliance clauses under the rules of Article 26 of Directive 2004/18/EC and Article 70 of Directive 2014/24/EU and in relation with the Posted Workers Directive. In particular, it assesses the case law of the European Court of Justice in Rüffert, Bundesdruckerei and RegioPost from an economic perspective. This highlights the potential negative competitive implications that derive from the asymmetrical rules the case law creates for the cross-border and the inter-regional provision of services to the public sector. It also underlines the risk of (regional) economic protectionism that they create. The chapter then assesses these issues from the perspective the EU public procurement, competition and State aid rules. It concludes that, given the current ineffectiveness of the checks and balances theoretically oriented towards the prevention of these undesirable effects, contracting authorities and policy makers would be well advised to abandon their efforts of setting partial, incomplete and difficult to monitor minimum/living wage requirements for public contracts only.

Sanchez-Graells, Albert, Competition and State Aid Implications of ‘Public’ Minimum Wage Clauses in EU Public Procurement after the Regiopost Judgment (April 25, 2017). Prepared for future publication in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards—Pushing the Discussion after RegioPost (Bloomsbury-Hart). Available at SSRN: https://ssrn.com/abstract=2958296.

Some thoughts on the principle of competition's direct and indirect effects in public procurement from 18 April 2016

It was a pleasure to speak at Upphandlings Dagarna 2016 in Stockholm on the principle of competition enacted in Article 18(1) of Directive 2014/24 and Article 36(1) of Directive 2014/25 [for background reading, see here]. The recording of the livestreaming is available here (starts at 1:30, main remarks after 8:00).

One of the issues that featured prominently in the discussions with my panellists is the legal value of the principle under EU law, and how to make it effective in case Member States do not transpose it (or are late in the transposition, which will certainly be a common situation for a while). 

In my view, and in simplified terms, there are two main routes that EU law provides for the enforcement of the principle regardless of the transposition decisions the Member States adopt. Firstly, the principle can be given direct effect. And, secondly (and probably with greater practical relevance), the principle must be given indirect effect. I develop these ideas for the enforcement of the principle of competition, particularly through indirect effect or interpretation conforme, in Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 215-227, available here.

Direct effect can be given to the presumption in Art 18(1) Dir 2014/24 / Art 36(1) Dir 2014/25 that 'Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators'. In my view, this provision sets out a clear, precise and unconditional individual right for candidates and tenderers not to be unduly disadvantaged, which therefore meets the requirements for direct effect as per Van Duyn (C-41/74, EU:C:1974:133). It will be particularly relevant to coordinate any legal claims with the clear push for effectiveness of the EU public procurement rules in the Remedies Directive.

Indirect effect must be given to the broad principle of competition in Art 18(1) Dir 2014/24 / Art 36(1) Dir 2014/25 that 'The design of the procurement shall not be made with the intention ... of artificially narrowing competition.' This is not only a clear general principle of EU law (which could also engage Mangold, C-144/04, EU:C:2005:709), but a fundamental pillar of the procurement system and, in particular, of the system created by the 2014 new public procurement Directives. The Commission could not have stressed this more clearly in the recent strategy for the Upgrade of the Single Market, where it highlighted that 'In 2014, the EU adopted a major overhaul of the EU procurement framework .... This was aimed at making public procurement more efficient and strategic, fulfilling the principles of transparency and competition to the benefit of both public purchasers and economic operators, in particular SMEs' (emphasis added). Overall, the obvious and pervasive pro-competitive orientation of the 2014 Directives and the explicit consolidation of the principle of competition triggers an obligation to interpret any domestic procurement rules in light of the principle of competition under as per Von Colson (C-14/83, EU:C:1984:153).

In short, even if Member States did not transpose (in time, or at all) the principle of competition in Art 18(1) Dir 2014/24 / Art 36(1) Dir 2014/25, EU law requires national administrative bodies, review bodies and courts to give it full effectiveness, both under  the direct and indirect effect doctrines. This obligation kicks in on 18 April 2016 at the latest (although arguments for an already existing obligation to do so have been on the table since, at least, 2011). This is likely to spur an initial wave of litigation likely to result in references to the CJEU for clarification of the content, meaning and extent of the principle of competition. I for one will keep a close look at these developments.

The "new" principle of competition in Directive 2014/24: a new set of presumptions?

The adoption of Directive 2014/24 of 26 February 2014 has resulted in the consolidation of the principle of competition in Article 18. According to the wording of this provision: "The design of the procurement shall not be made with the intention of […] artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators".
 
In my opinion, despite the positive aspects of the express recognition of the principle of competition in the new EU Directive, the inclusion of a subjective element and the reference to the prevention of corruption or the avoidance of conflicts of interest by establishing an irrebuttable presumption of competitive distorsion, raise many questions that are difficult to answer that may give rise to more litigation. In this post, I venture some further thoughts on this "new" principle of competition in Directive 2014/24 (for an initial reaction, see here; please bear in mind that this is a translation of a contribution to http://www.obcp.es/ soon to be published in Spanish, which justifies (?) the references to Spanish domestic law).
 
Explicit recognition of the principle of competition
 
Importantly, and unlike in Spanish national legislation on public procurement (art 1 of RDL 3/2011, of 14 November, approving the consolidated text of the Law on Public Sector Contracts: "This law aims to regulate public sector procurement in order to [...] ensure [...] an efficient use of funds [...] by [...] safeguarding free competition"); so far, the principle of competition in public procurement was only reflected somewhat partially and in a fractionated manner at EU law level, by means of both Directive2004/18 (and earlier versions of the procurement Directives that it consolidated) and the interpretative case law of the Court of Justice of the EU (CJEU) in cases such as Fracasso and Leitschutz (C-27/98, para 31 . "to meet the objective of developing effective competition in the area of public contracts"), Lombardini and Mantovani (C-285/99, para 76: "all the requirements imposed by Community law must unquestionably be complied with in the context of the various aspects of the national procedures for awarding public works contracts, which must moreover be applied in such a manner as to ensure compliance with the principles of free competition") and SECAP (Opinion of AG in C-147/06, para 29 "those directives pursue a limited direct aim, namely the coordination of procedures governed by the sectoral directives with a view to encouraging the development of effective competition in the field of public contracts", as endorsed by the CJEU in the Judgment in C-147/96, para 29: "assess tenders which are submitted to them under conditions of effective competition").
 
Additionally, the contours of the principle of competition were somewhat fuzzy and required a considerable interpretive effort to delineate the obligations derived therefrom (for further details, see A Sanchez Graells, "Competition and the Public Buyer Towards a More Competition - Oriented Procurement: The Principle of Competition Embedded in EC PublicProcurement Directives"). From this perspective, the explicit recognition of the principle of competition in the new EU directive is to be welcomed. However, the explicit formulation adopts the policy is problematic for at least two reasons.
 
Inclusion of a very problematic subjective element: can we "objectify" it?
As we have seen, Article 18 of Directive 2014/24 provides a formulation of the principle of competition in which the subjective or intentional element of any restriction of competition is emphasized: "The design of the procurement shall not be made with the intention of […] artificially narrowing competition" (emphasis added). This intentional element is common to different language versions of the Directive ("intención" in Spanish, "intention" in French, "intento" in Italian, "intuito" in Portuguese or "Absicht" in German), so it cannot be justified as a deficiency in translation or an error in the wording of the provision. However, the recitals of the directive do not provide any clarification and, ultimately, this provision opens the door to complex problems of identification and attribution of intentional elements in the field of public procurement—or, more generally, in administrative (economic) law.

In my opinion, this task is very complex, as it requires establishing the parameters by which a decision that often involves various individuals (and potentially several administrative bodies) is considered affected by an underpinning anticompetitive intent. In fact, I think that this task is virtually impossible, given that the traditional mechanisms of allocation of subjective factors in (administrative) disciplinary or criminal law are not applicable and very clearly require an "objectifying" reinterpretation of the intentional element in the provision.
The reasons for the "objectification" of the wording of Article 18 of Directive 2014/24 are multiple and derived mainly from the need for coordination of this new rule with some of its "functional neighbours". Firstly, such coordination should take into account the objective character of the restrictions of competition derived from the rules of the Treaty on the Functioning of the EU (TFEU) and its interpretation by the CJEU. Indeed, the prohibitions in Articles 101 and 102 TFEU (and their national counterparts, such as in Articles 1 and 2 of the Spanish Law 15/ 2007 of 3 July, on the defence of competition) apply in abstraction from any volitional element of the offending parties. A competitive restriction in the market automatically results in a violation of those prohibitive norms, irrespective of the intention with which market players have conducted the practice restrictive of competition.
 
Secondly, and in a more subtle but functionally relevant relationship, the objectification of the competition principle standard must be coordinated with the criminal law rules applicable to the criminal liability of legal entities—which establish (at least in Spain) a clearly objective and independent regime, disconnected from any subjective element of the specific individuals who have committed crimes or offences whose responsibility extends to legal persons (see Article 31bis.3 of the Spanish Criminal Code, as introduced by LO 5/2010, of June 22, amending the Organic Law 10/1995 of 23 November, on the Criminal Code).
Therefore, the objectification of Article 18 of Directive 2014/24 seems the most appropriate functional solution—but, acknowledgedly, it can be seen as lying somewhat far away from a literal interpretation of the provision. Broadly speaking, in my opinion, this objectification of the principle should be carried out by establishing a rebuttable presumption of restrictive intent in cases where, in fact, the tendering procedure has been designed in a manner that is restrictive of competition.
The disproval of this rebuttable presumption would require the contracting authority or entity to justify the existence of objective, legitimate and proportionate reasons for the adoption of the criteria restrictive of competition (ie, to provide a plausible justification for the imposition of restrictive conditions of competition in tendering the contract, so as to exclude the plain and simple explanation that it was intended to restrict competition therewith). In other words, if it could be justified that a "reasonable and disinterested contracting entity" (meaning free from any intent to restrict competition) would have taken the same decision on the design of the tender in a form restrictive of competition, the presumption of restrictive intent would not be applicable and, ultimately, the tender would be compliant with Article 18 of Directive 2014/24. Obviously, this test requires further development (and I will devote some time to developing a more refined proposal in the coming months).
 
Linking distortions of competition and favouritism or corruption: a bidirectional and biunivocal relationship?
 
The second problematic aspect in the wording of Article 18 of Directive 2014/24 is, in my opinion, the establishment of a iuris et de iure presumption of competitive distortion in: "Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly (sic) favouring or disadvantaging certain economic operators".
 
This assumption raises a potential problem of (logical) "capture" of the interpreters of this rule, as they may be tempted to consider that in the absence of (undue!) favouritism or corruption, no restrictions on competition are contrary to the precept—that is, they can be inclined to decide not to apply the "residual" part of the prohibition and limit it exclusively to cases covered by the presumption. Additionally, while it is true that most cases of favouritism or corruption will result in a restriction of competition, this is not always necessarily the case. For example, in cases where the beneficiary of favouritism could be awarded the contract under competitive conditions, or in cases in which corrupt practices are added to previous restrictions of competition created by the bidders active in the market; it could be argued that there is no (independent) restriction competition and, therefore, that the presumption is unnecessary or unjustified.
In any case, the instances of favouritism included in the irrebuttable presumption would (also) be covered by the new rules relating to conflicts of interest envisaged in Article 24 of Directive 2014/24: "Member States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators", and can even fit into one of the headings of mandatory exclusion of Article 57(1)(b) for corruption, as supplemented by the obligation to terminate the contract under Article 73(b).
Therefore, the establishment of the presumption of anticompetitive intent in cases of favouritism or discrimination is, in my opinion, unnecessary and may be counterproductive. Ultimately, I think that it will be necessary for the bodies responsible for the implementation of these provisions to clearly distinguish instances of corruption from those of (simple) restriction of competition and, in the latter scenario, apply the first part of the principle of competition in an "objectified" manner, as advocated above.
Conclusion
The consolidation of the principle of competition in Article 18 of Directive 2014/24 should be welcomed, but its wording requires two major adjustments designed to ensure functionality. On the one hand, it is necessary to objectify the interpretation and application of the provision and, in my opinion, this should be done by establishing a rebuttable presumption of competition restrictive intent. Moreover, the irrebuttable presumption of restriction of competition in cases of favouritism or corruption should be interpreted as not being exhaustive and should not prevent the widespread application of the (not necessarily residual) general test of competitive restraint in the absence of (clear) discrimination.
In any case, it should come as no surprise if the new Article 18 of Directive 2014/24 gives rise to a significant level of litigation.