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

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

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

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

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

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

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

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

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

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

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

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

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

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

GC opens dangerous door to post-challenge / after-the-fact 'rationalisation' of public procurement evaluations (T-349/13)

In its Judgment of 4 July 2016 in case Orange Business Belgium SA v Commission, T-349/13, EU:T:2016:385, the General Court (GC) dealt with a highly technical challenge of a procurement decision concerning IT services. The GC Judgment is interesting in a broader context, though, as it deals with the very tricky question of the level of precision that evaluation teams need to employ when they draft evaluation documents and the possibility to take into account post-challenge (after-the-fact) 'rationalisations' of the original tender evaluations.

In the case at hand, the relevant dispute concerned the misapplication of an award sub-criterion for the assessment of IT network performance (service level agreement, or SLA). In my view, the relevant points to note are that:

  1. According to the tender documentation, as clarified by a "Questions and Answers" document published by the contracting authority following a request for clarification of the applicable award criteria and sub-criteria, the specific sub-criterion 6b was to be assessed as follows: "Points will be granted for the [RTD] and the [MF] separately, comparing the results of all bidders. To obtain the overall evaluation both points will be multiplied. To obtain the overall points, the evaluation result will be multiplied by a factor and rounded in order to obtain 10 points for the best bidder" (T-349/13, para 62; NB: what RTD and MF means is not relevant for our discussion).
  2. As regards award sub-criterion 6b, the applicant’s tender was evaluated as follows: ‘The provided [MF] [confidential] for the calculation of network performance [SLA] liquidated damages was considered EXCELLENT’ (T-349/13, para 64).
  3. According to the extract from the evaluation report concerning the successful tender, ‘the provided [MF] (redacted data) for the calculation of network performance SLA liquidated damages was welcomed and therefore the evaluation committee quoted the quality of the network performance SLA as VERY GOOD’ (T-349/13, para 65).

Thus, in basic terms, the main ground underlying the applicant's challenge is that the contracting authority deviated from its disclosed award criteria. Specifically, '[t]he main point of disagreement between the parties relates to whether the Commission [as contracting authority] had taken into account not only the information concerning the MF, but also the information concerning the RTD for the evaluation of the tenders in the light of award sub-criterion 6b' (T-349/13, para 69).

Remarkably, the GC establishes that '[i]t is apparent from reading the extract of the evaluation report which referred directly to award sub-criterion 6b that the information concerned indeed only the MF ... The Commission [as contracting authority] indeed accepts this moreover'. In my view, this would (and should) be sufficient to end the legal analysis and move on to whether the deviation from the disclosed award criteria is material and, if so, whether sticking to the disclosed criteria would have altered the award decision. However, this is not the analytical route followed by the GC.

Controversially, in order to assess this claim, the GC relies on the additional examination report (a further evaluation document) prepared by the contracting authority after the initial challenge of the evaluation by the disappointed bidder. Indeed, the GC takes into account that

it is expressly apparent from the additional examination report that the RTD was taken into consideration in order to evaluate the tenders in the light of award sub-criterion 6b. The fact that that report is subsequent to the award decision cannot affect either the validity or reliability of the comments set out therein (sic). It must be noted that Article 171(1) of the Rules of Application provides for the possibility of carrying out an additional examination if expressly requested by the unsuccessful tenderers. That provision would be rendered inoperative if every additional examination of that type were automatically deemed biased or subject to caution (T-349/13, para 75, emphasis added, emphasis added).

The GC also relies in a table produced by the contracting authority only in its defence document, which the contracting authority confirmed 'had been drawn up during the administrative procedure and before the present action was brought' (T-349/13, para 75, paras 76-78).

Overall, then, the GC's dismissal of this specific ground for challenge rests (at least partially) on reliance on a post-challenge additional examination report and an undated evaluation table self-certified to pre-date the challenge by the defending contracting authority. There are more issues concerning both the facts of the evaluation process and the debriefing meetings, but I do not think it is necessary to focus on them to discuss the GC approach from a general standpoint.

In my view, it is very dangerous to open the door to post-challenge (after-the-fact) rationalisations of evaluation documents. It is also evidentiary very weak to accept a document produced by one of the parties and take it at face value to have been prepared at an indetermined time 'during the administrative procedure and before the present action was brought'. The same way that significant restrictions have been developed in the case law to ensure that tenderers do not alter their tenders under the excuse that they are actually only 'clarifying' them (which has admittedly resulted in a grey zone that still requires further guidance), one would expect the same level of scrutiny for evaluation documents.

I am not advocating for absolute strictness in the interpretation of the evaluation reports, as the information they convey is oftentimes complex and open to (re)interpretation, but I think that the GC has moved way too far in granting such a degree of deference to the contracting authority in this case.

At the end of the day, if the evaluation audit trail cannot be guaranteed and challengers of procurement decisions can be undermined by the production of additional 'rationalisations' of defective evaluation reports, the remedies system will be severely damaged and the integrity of public procurement processes put at risk. Thus, a much tighter approach to the dating/timing of documents (one of the much awaited advantages of eProcurement and time-stamping), and an analysis of the evaluation reports that recognises obvious limitations and omissions as insufficient to support any 'reinterpretation' seems much preferable. Particularly because such an approach would provide evaluation teams the right incentives to do a proper job documenting their decisions from the outset and throughout the procurement procedure, which can only result in strengthened procedural robustness and (hopefully) improved decision-making.

For these reasons, at least from the perspective of the first principles applicable to a robust bid protest system capable of ensuring an acceptable level of procedural integrity, I consider the GC Judgment in Orange Business Belgium SA v Commission a very dangerous decision and would very much favour its annulment in case it got further appealed.

Is the flexibilisation of formal requirements in public procurement going both ways? (T-394/12)

In its Judgment in Alfastar Benelux v Council, T-394/12, EU:T:2014:992, the General Court (GC) resolved a dispute concerning public procurement activity of the European Institutions (in this case, the Council). One of the main claims of the disappointed bidder was that the Council had failed to discharge its obligation to state reasons because one of the sentences of the extracted evaluation report that was made available to it by the Council was incomplete.
 
In the applicant's view, the incompleteness of the extract prevented it from assessing the reasons that justified the Council's decision to award the contract to another tenderer. The applicant submitted that the fact that the Council had complemented the extract at a later stage did not overcome the initial ommission and that the Council should be made liable for damages. The GC rejected the claim. The reasoning of the GC in dismissing the action triggers some comments.
 
Firstly, it is worth emphasising that the GC has continued pushing for a strengthening of the duty to provide reasons in abstracto (and, indirectly, as a result of the bindingness of the right to good administration as recognised in Art 41(2)(c) of the EU Charter of Fundamental Rights). Indeed, the GC emphasised that, as a general point of law,
since infringement of the obligation to give reasons is a matter of public interest, the European Union judicature must raise it of its own motion and, therefore, the fact that the applicant raised it belatedly does not render such a plea inadmissible (see, to that effect, BP Products North America v Council, T-385/11, EU:T:2014:7, paragraph 164) (T-394/12 at para 25, emphasis added).
This creates a strong incentive for contracting authorities to 'err on the side of excessive disclosure' when it comes to the reasons for the adoption of a procurement decision, which may be detrimental for competition and for the protection of the legitimate commercial interests of other tenderers (as clearly recognised in art 55(3) Dir 2014/24 and art 113(2)II Financial Reg, but not always properly understood or applied). This also follows on the GC's previous tough approach and continues to create excessive incentives towards transparency in public procurement (as criticised here, here and in A Sánchez Graells, 'The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives', University of Leicester School of Law Research Paper No. 13-11). Hence, the general approach continues to create the wrong incentives and should be reassessed.
 
Secondly, however, when it comes to the specifics of the case, the GC adopts a very sensible and reasonable approach to the assessment of the claim of breach of the duty to state reasons in particular. Indeed, the GC dismisses the claim on the basis that the incomplete sentence only omitted a limited amount of information concerning the general comments of the evaluators and, additionally, the tenderer had been provided with more details in the remainder of the extract from the evaluation report. Interestingly, the GC stressed that
The general comments may easily be inferred from the detailed technical evaluations of the successful tenderer’s bid which are not concerned by the formatting error, since the general comments constitute a succinct summary of material contained in the contested decision (T-394/12 at para 30, emphasis added).
As such, this reasoning should not be surprising and the GC could hardly be expected to have decided otherwise. Having adopted a more formalistic approach would not only have annulled a procurement decision for no good reason, but would also have opened the floodgates to an unforeseeable volume of litigation (particularly if one takes into account that the guarantees provided by Art 41 EUCFR are applicable in all procurement covered by Dir 2014/24). Hence, it is a sensible decision.
 
However, the better question seems to be whether this same 'anti-formalistic' approach will hold when the clerical mistakes and partial ommissions affect the documentation submitted by the tenderers. Functionally, the rules applicable to the interpretation of documents and the avoidance of formal requirements where the parties engaged in the procurement process 'can make sense' of the documentation exchanged should go both ways. However, this is not necessarily the case yet, as recently discussed regarding Cartiera dell’Adda and Cartiera di Cologno, C-42/13, EU:C:2014:2345 (see here).
 
Hence, it will be interesting to see if the incipient push towards a more functional approach to public procurement takes root and ends up creating a system that is less 'based on rights' and more oriented towards good procurement outcomes [a problem that also affects 'the other side of the Atlantic', as discussed in S Schooner & P Kovacs, "Affirmatively Inefficient Jurisprudence?: Confusing Contractors’ Rights to Raise Affirmative Defenses with Sovereign Immunity" (2012) 21 Federal Circuit Bar Journal 686].

Who is an interested undertaking in procurement and State aid cases? (T-182/10)

The recent Judgment of the General Court of 15 January 2013 in case T-182/10 Aiscat v Commission (not available in English) raises a relevant question for the EU system of oversight of public procurement procedures that may have State aid implications--in the case at hand, due to the direct award of a works concession contract, as well as in view of the terms of the remuneration paid to the works concessionaire. 

In particular, the Aiscat Judgment establishes who is to be considered an "interested undertaking" and, consequently, who can act as complainant before the Commission and, eventually, challenge its Decisions in a State aid procedure based on Regulation 659/1999. In my view, a detailed analysis of the position of the GC in Aiscat shows certain inconsistencies between the (broad) concept of "disappointed bidder" under the EU public procurement regime and the concept of "affected undertaking" under State aid rules--which can diminish the effectiveness of a coordinated enforcement of both sets of rules.

In Aiscat, the Italian association of road concessionaires challenged the direct award of a works concession in the Padua region. The complaint submitted to the European Commission had a dual set of legal grounds. On the one hand, a "pure" public procurement claim that challenged the legality of the direct award of the contract under the in-house provision doctrine (which the Commission dismissed by considering that the awardee was in fact a "Teckal" entity controlled by the Italian contracting authorities). And, on the other hand, a State aid claim whereby the (illegal) direct award of the works concession contract and its terms of remuneration were considered an undue economic advantage in breach of Article 107 TFEU (which was also dismissed by the European Commission on the basis of the previously declared legality of the award and the absence of "direct" public funding).

Aiscat challenged the State aid decision of the Commission before the GC, which the Commission opposed on the basis of lack of active standing on the part of the association. In my view, the analysis conducted by the GC regarding the standing of the association to challenge the direct award of the contract is particularly relevant:
61 [...] with respect to the area of State aid, persons other than the recipients who question the merits of the decision appraising the aid are considered individually concerned by that decision if their market position is substantially affected by the aid analysed in the decision in question (see, to that effect, Cofaz/ Commission [169/84, ECR p. 391] paragraphs 22 to 25, and Commission / Aktionsgemeinschaft Recht und Eigentum, [C-78/03, ECR I-10737] paragraphs 37 and 70).
62 This issue should be examined separately with respect to each of the two measures challenged by the applicant before the General Court, namely the award of the concession contract of the Passante without competitive bidding and increasing toll on the Tangenziale [which was the undue advantage identified by the appellant].
- The award without competitive bidding for the concession on the Passante
63 In the absence of any indication of the parties on the relevant market, it must be identified as that of motorway concessions in Italy, a market in which the 23 members of the applicant association that operate toll roads represent the demand, while the the State, represented by ANAS, which awards grants, represents the offer. According to statistics presented by the applicant, in November 2009, the toll road network in Italy extended over about 5,500 km.
64 As regards the determination of a substantial impairment of the market position, the Court of Justice has observed that the mere fact that an act such as the contested decision could influence the competitive relationships existing in market in question, and that the affected undertaking is in a competitive relationship of any kind with the beneficiary of that act does not suffice to conclude that it is of concern to that undertaking (see, to that effect, Case Justice of 10 December 1969, Eridania and others / Commission, 10/68 and 18/68, ECR p. 459, paragraph 7, the order of the Court of Justice of 21 February 2006, Deutsche Post and DHL Express / Commission, C-367/04 P, not published in the ECR, paragraph 40, and the judgment of the Court of 22 November 2007, Spain / Lenzing, C-525/04 P, ECR p. I-9947 , paragraph 32).
65 Therefore, an undertaking cannot rely solely on its status as a competitor of the beneficiary, but must also prove that it is in a factual situation that individualises it just as much as the beneficiary (judgment of the Court of May 23, 2000, Comité d'entreprise de la Société française de production and others / Commission, C-106/98 P, ECR p. I-3659, paragraph 41; Deutsche Post and DHL Express / Commission, cited in paragraph 64 above, paragraph 41, and judgment in Spain / Lenzing, cited in paragraph 64 above, paragraph 33).
66 However, the evidence that the position of a competitor in the market was significantly affected cannot be limited to the presence of certain elements indicating a worsening of its commercial or financial results, but may result from demonstrating the existence of a loss of revenue or less favorable business evolution than would have taken place had such aid not been granted (judgment in Spain / Lenzing, cited in paragraph 64 above, paragraph 35).
67 In the present case, in what respects the substantial affectation of the market position of the members of the applicant association due to the award of the concession on the Passante without competitive bidding, it should be noted that the applicant states in the claim the reasons why it considers that such direct award constitutes a breach of the principle of prohibition of State aid. As part of its observations on the objection of inadmissibility, the applicant claims an interest of its 23 members, as they were allegedly deprived from the opportunity to participate in a public tender for the award of the contract for the management and exploitation of the Passante.
68 However, in a market that consists of 5,500 km of toll roads, although the award without competitive bidding for the concession on a stretch of highway of about 32 km may have some impact on competition because other operators have not had the opportunity to increase the length of the networks that each exploits, it cannot be regarded that as such, this constitutes a substantial impairment of the competitive position of those other operators. Therefore, the applicant association has not demonstrated that the contested decision affected its members differently than all other operators wishing to exploit the concession on the Passante.
69 Consequently, the Court concludes that, with respect to the award of the concession on the Passante without competitive bidding, the contested decision did not affect the individual members of the applicant association. Consequently, they are not entitled to bring an action themselves to that effect and the applicant association also lacks standing to bring an action on behalf of those interests. (T-182/10, paras 61 to 69, own translation, emphasis added).

This is a very narrow analysis of the actual interest of potential bidders to participate in a tender and it follows a "de minimis-like approach" that does not match (easily) the requirements of Art 1(3) of Directive 2007/66/EC on public procurement remedies, which requires that "Member States shall ensure that the review procedures are available, under detailed rules which the Member States may establish, at least to any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement". In my view [Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 354], this means that
Directive 2007/66 requires Member States to adopt a broad approach to the setting of detailed rules regulating active standing to access bid protests and review procedures (as clearly indicated by the requirement of making these procedures available ‘at least’ to potentially affected parties—which seems to be oriented towards not excluding systems granting universal standing); and to do so attending both to the criterion of participation in the tender, and to the criterion of the effects generated or potentially generated by the alleged infringement.
To be sure, an alternative reading could suggest a more restrictive approach, requiring a potential challenger to meet simultaneously participation and harm requirements in order to have standing in bid protest and review procedures. However, from a logical perspective, configuring both requirements in a cumulative manner seems superfluous—since it would be very difficult to envisage a situation where a person having had an interest in obtaining a particular contract would not risk being harmed by an alleged infringement of public procurement rules. Moreover, it would seem an overly restrictive measure—particularly in cases where compliance with the first criterion is factually impossible, eg because a given contract was awarded without tender. Along the same lines, a systematic interpretation of Directive 2007/66 seems to exclude the possibility of restricting the standing for review to the candidates and tenderers that have participated in the tender, which are defined as ‘tenderers and candidates concerned’ [art 2a(2) dir 89/665 and art 2a(2) dir 92/13 (both as amended by dir 2007/66)]. The use of a much broader wording as regards the rule on standing [art 1(3) dir 89/665 and art 1(3) dir 92/13 (both as amended by dir 2007/66)] seems to clearly depart from its narrow construction. Moreover, it is submitted that such a restrictive approach would be undesirable from the perspective of guaranteeing the effectiveness of EU public procurement directives in general—and the embedded principle of competition in particular—and, therefore, would be contrary to the main goal of Directive 2007/66. Therefore, as anticipated, in our view, the best reading of the standing requirements imposed by Directive 2007/66 is that Member States have to adopt a broad approach to the setting of detailed rules regulating active standing to access bid protests and review procedures, and that they have to do so attending both to the criterion of participation in the tender, and to the criterion of the effects actually or potentially generated by the alleged infringement—so that bid protest and review procedures are open to any party that has taken part in the tender or that can otherwise prove that it has been harmed or risks being harmed as a result of the alleged infringement, regardless of its actual participation (or lack of it) in the specific tender that gave rise to it.
Therefore, by requiring a "singular" negative effect of the direct award on a complainant to allow it to raise a challenge on the basis of State aid rules generates frictions in the system. In some scenarios, it is not hard to see how an undertaking may be unable to challenge a direct award of a contract both under "pure" public procurement and State aid rules. And, certainly, this is not a situation that leads to effective enforcement of either of these important sets of EU economic law.
 
In my view, a revision of the Aiscat Judgment by the CJEU would be desirable in order to broaden the active standing of "disappointed bidders" (broadly conceived), and would also give the CJEU an opportunity to clarify its unclear decision in case C-496/99 Succhi di Frutta [2004] ECR I-3801 (where it seemed to adopt a similarly restrictive approach to active standing contrary to the posterior criteria of Directive 2007/66/EC).