Procurement governance and complex technologies: a promising future?

Thanks to the UK’s Procurement Lawyers’ Association (PLA) and in particular Totis Kotsonis, on Wednesday 6 March 2019, I will have the opportunity to present some of my initial thoughts on the potential impact of complex technologies on procurement governance.

In the presentation, I will aim to critically assess the impacts that complex technologies such as blockchain (or smart contracts), artificial intelligence (including big data) and the internet of things could have for public procurement governance and oversight. Taking the main risks of maladministration of the procurement function (corruption, discrimination and inefficiency) on which procurement law is based as the analytical point of departure, the talk will explore the potential improvements of governance that different complex technologies could bring, as well as any new governance risks that they could also generate.

The slides I will use are at the end of this post. Unfortunately, the hyperlinks do not work, so please email me if you are interested in a fully-accessible presentation format (a.sanchez-graells@bristol.ac.uk).

The event is open to non-PLA members. So if you are in London and fancy joining the conversation, please register following the instructions in the PLA’s event page.

A Duty to ‘Save’ Seemingly Non-Compliant Tenders for Public Contracts? -- New SSRN paper

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I have published a short paper commenting on the transposition of Article 56(3) of Directive 2014/24/EU  through the 2017 reform version of Article 72 of the Portuguese Code of Public Contracts. I think this is an interesting case study on some of the difficulties that the new provision on the contracting authority's power to seek clarifications can pose in practice--and maybe anticipates some of the future challenges in the development of the Slovensko-Manova-Archus and Gama case law. The abstract of the paper is as follows:

This paper provides a critical assessment of the rules regarding the clarification, supplementation and correction of tenders in procedures for the award of public contracts regulated by the EU 2014 Public Procurement Package. It does so through a detailed assessment of the transposition of Article 56(3) of Directive 2014/24/EU by means of the post-2017 reform version of Article 72 of the Portuguese Code of Public Contracts. The paper concentrates on four main issues: the existence of a mere discretionary power or a positive duty to seek clarifications, corrections or supplementations of tenders and their accompanying documentation; the constraints imposed on such power or duty; the desirability of unilateral tender corrections by the contracting authority; and the transparency given to the correction, supplementation or clarification of tenders. The paper assesses each of these issues against the backdrop of the existing case law of the Court of Justice of the European Union, as well as with a functional approach to the operationalisation of the Portuguese rules on correction, supplementation and clarification of tenders for public contracts.

The paper is freely downloadable from SSRN: A Sanchez-Graells, 'A Duty to "Save" Seemingly Non-Compliant Tenders for Public Contracts? - Comments on Art 72 of the 2017 Portuguese Code of Public Contracts' (2018) 2 Revista de Direito Administrativo 59-68.

CJEU greenlights ‘remedying procedural short-comings in return for (proportionate) payment’ (C-523/16 & C-536/16)

In its Judgment of 28 February 2018 in MA.T.I. SUD, C-523/16, EU:C:2018:135, the Court of Justice of the European Union (CJEU) accepted the compatibility with EU public procurement law (2004 version) in principle of domestic rules allowing for the 'remedying of procedural shortcomings in return for payment', whereby a contracting authority can invite any tenderer whose tender is vitiated by serious irregularities to rectify that tender, subject to the payment of a financial penalty--provided that the amount of that penalty is proportionate.

However, given previous case law excluding the possibility to remedy serious shortcomings in submitted tenders, the CJEU has stressed that such 'remedial mechanism in return for payment' is subject to the limitation that, despite the existence of such financial penalty, the contracting authority cannot require a tenderer to remedy the lack of a document which, according to the express provisions in the contract documentation, must result in the exclusion of that tenderer, or to eliminate irregularities such that any corrections or changes would amount to a new tender (para 65).

It is important to note, though, that despite establishing this position in principle, the CJEU also provided extremely clear indications that, in its view, there is a need to subject the assessment of the adequacy of the correction of the tenders to a strict assessment to make sure that they do not imply a new tender or the circumvention of the tender documentation (or, in other words, to make sure that the correction is not really of a serious irregularity, but rather a minor one), and that the penalties threatened in the Italian domestic cases that generated the preliminary reference cannot be considered proportionate (paras 62 & 64).

This anticipated analysis of incompatibility in concreto despite compatibility in abstracto begs the question whether the position in principle taken by the CJEU--ie the acceptaibility of non-serious modifications subject to proportionate financial penalties--is an adequate default rule, or whether a different default rule would be preferable--ie the acceptability of non-serious modifications without penalty.

In my view, and largely for the same reasons given in criticising the Opinion of AG Campos Sanchez-Bordona that the CJEU has now followed (see here, where they are developed in detail), in tolerating the imposition of financial penalties as a condition for the remediation of minor procedural defects, the MA.T.I. SUD Judgment sets the wrong default rule and is undesirable for its potential anti-SME effects, as well as due to the potential blurring of the narrow space that actually exists for the correction of serious irregularities under the Manova-Slovensko-Archus and Gama case law (see here, here and here). In adopting a seemingly more flexible approach in principle, in MA.T.I. SUD the CJEU may be creating more confusion than providing clarity, solely with the aim of maintaining a questionable space for domestic procedural administrative discretion. On balance, I would have thought it preferable for the CJEU to indicate more clearly and simply that serious irregularities cannot be corrected (with or without financial penalty), and that the correction of minor irregularities needs to be always accepted without sanction.

In MA.T.I. SUD, the CJEU assessed the compatibility with Art 51 of Directive 2004/18/EC of an Italian provision that enabled tenderers for public contracts to remedy any irregularities in their tenders, but at the same time imposed on them a financial penalty proportional to the value of the contract--of between 0.1% and 1% of the value of the contract, with a maximum ceiling of €50,000. The amount of the penalty was to be set in advance by the contracting authority and guaranteed by a provisional security (or bid bond), and could not be adjusted according to the gravity of the irregularity that it remedied. The maximum penalty was later reduced to €5,000, and eventually suppressed. This reduces the immediate impact of the MA.T.I. SUD Judgment. However, this CJEU ruling will be relevant beyond the specific context of Italian procurement rules, not only in relation with the now phased out transposition of Art 51 of Directive 2004/18, but also with Art 59 of Directive 2014/24/EU (which was not applicable ratione temporis). Both provisions foresee that contracting authorities can seek clarifications from tenderers under specified conditions.

There are some passages of the Judgment I consider relevant:

... when they implement the possibility provided for in Article 51 of Directive 2004/18 [whereby the contracting authority may invite economic operators to supplement or clarify the certificates and documents submitted to it], the Member States must ensure that they do not jeopardise the attainment of the objectives pursued by that directive or undermine the effectiveness of its provisions and other relevant provisions and principles of EU law, particularly the principles of equal treatment and non-discrimination, transparency and proportionality ...

It must also be borne in mind that Article 51 of Directive 2004/18 cannot be interpreted as allowing the contracting authority to accept any rectification of omissions which, as expressly provided for in the contract documentation, had to lead to the exclusion of the tenderer ...

... a request for clarification cannot make up for the lack of a document or information whose production was required by the contract documents, the contracting authority being required to comply strictly with the criteria which it has itself laid down ...

In addition, such a request may not lead to the submission by a tenderer of what would appear in reality to be a new tender

... the very concept of substantial irregularity ... does not appear to be compatible with Article 51 of Directive 2004/18 or with the requirements to which the clarification of a tender in the context of a public contract falling within the scope of Directive 2004/17 is subject, according to the case-law of the Court ...

It follows that the mechanism of assistance in compiling the documentation [under dispute] ... is not applicable if the tender submitted by a tenderer cannot be rectified or clarified within the meaning of the case-law referred ... above, and that, consequently, no penalty can be imposed on the tenderers in such a case (C-523/16, paras 48-49, 51-52 & 55-56 references omitted and emphasis added).

In my view, this reasoning of the CJEU reflects the state of the law and a desirable normative position. It would have allowed the CJEU to simply declare the Italian system incompatible due to the excess that a correction of serious irregularities would imply in comparison with the boundaries on tender modification derived from Manova-Slovensko-Archus and Gama. And the CJEU could have done that without entering into a discussion of whether proportionate penalties for non-substantial modifications are acceptable. On this point, it should be stressed that contested Italian rule also foresaw that '[i]n the case of non-substantial irregularities, that is, any non-essential absence or incompleteness of declarations, the contracting authority shall not require the remedying thereof or impose any penalty' (AGO, C-523/16, para 5). Therefore, in the case at hand, the narrow regulatory space left by the CJEU for the imposition of sanctions would not be occupied by the Italian rules, as the Italian legislator saw no need to sanction any such minor tender corrections.

On the whole, then, the MA.T.I. SUD Judgment seems to unnecessarily create a default rule that can be problematic in the interpretation and operationalisation of the rules in Arts 56 and 59 of Dir 2014/24. This stems from the fact that the CJEU has endorsed the underlying principle that 'the imposition of a financial penalty is indeed an appropriate means of achieving the legitimate objectives pursued by the Member State related to the need to place responsibility on the tenderers in submitting their tenders and to offset the financial burden that any regularisation represents for the contracting authority' (para 63). In my view, this runs contrary to the pro-competitive and pro-SME orientation of the 2014 Public Procurement Package. It also reflects a general understanding of public procurement law not as a mode of governance aimed at ensuring best value for money in the expenditure of public funds, but rather a set of fully justiciable rules aimed at discharging the cost and risk of the procurement function on the economic operators, which is then of course putting pressure at the other end of the spectrum via claims for damages where (complex) justiciable rules are not complied with absolutely. In my view, this creates an unrealistic framework for the carrying out of procurement efforts, and more scope for collaborative approaches within the boundaries of the requirements for equal treatment and competition would be superior.

Therefore, I can only hope that, in the future and with a right case, the CJEU will be able to further clarify its position--or, rectius, to reverse position and rule out the possibility of intra-tender sanctions for minor modifications. This is a normative point and, as I said before, the same way I argue against charging potentially interested tenderers for access to the tender documentation, I also take the normative position that imposing fines for the remediation of documentation shortcomings is undesirable, which leads me to propose their eradication de lege ferenda (by analogy, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 280-281).

 

 

AG suggests CJEU should declare fines for clarification or supplementation of procurement documents as contrary to EU law only if disproportionate (C-523/16)

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In his Opinion of 15 November 2017 in case MA.T.I. SUD, C-523/16, EU:C:2017:868, Advocate General Campos Sánchez-Bordona has considered whether, in a situation where a tenderer for a public contract has submitted incomplete information, national rules subjecting the possibility of supplementing that documentation to the payment of a fine are compatible with EU public procurement law.

The dispute concerned a 2014 reform of the Italian law transposing 'Article 51 of Directive 2004/18/EC in a manner which enabled tenderers for public contracts to remedy any irregularities in their tenders, but at the same time imposed on them a financial penalty proportional to the value of the contract' (para 1)--of between 0.1% and 1% of the value of the contract, with a maximum ceiling of €50,000 (para 5, by reference to Art 38(2a) of the Italian Legislative Decree No 163 of 2006). Interestingly, the rule also foresaw that '[i]n the case of non-substantial irregularities, that is, any non-essential absence or incompleteness of declarations, the contracting authority shall not require the remedying thereof or impose any penalty' (idem).

AG Campos has submitted that Art 51 Dir 2004/18 did not prohibit the imposition of such fines, 'provided that [the national legislation] ensures compliance with the principles of transparency and equal treatment, that the remedying of those irregularities does not make possible the submission of what, in reality, would be a new tender and that the burden is proportionate to the objectives justifying it' (para 80), but that, under the circumstances of the case, a fine of between 0.1% and 1% with a maximum of €50,000 was not allowable (para 80). The AG Opinion and the future Judgment of the Court of Justice will be relevant for the interpretation of Articles 56 and 59 of Directive 2014/24/EU, but I am not sure that the reasoning can be simply carried forward to a regulatory setting that indicates more clearly the conditions for the request of clarifications. In this post, I pick on a few elements of the analysis of AG Campos Sánchez-Bordona in his MA.T.I. SUD Opinion, and reflect on the applicability of the reasoning to the post-2014 setting.

Some preliminary normative thoughts

As a preliminary point, though, I think it worth stressing that the functioning of a system allowing for ‘remedying procedural shortcomings in return for payment’ is probably better understood as a system allowing 'avoiding exclusion for payment', in the sense that an undertaking that has submitted incomplete or unclear documentation is given a chance to avoid exclusion from the procurement procedure under the double condition that (a) it is able to submit a clarification or supplementary documentation that does not materially alter its tender, and (b) it is able (and willing) to pay the financial sanction. While (a) is relevant to the goals of the procurement 'triage' process because the contracting authority has a structural interest in attracting as many (in open procedures) or the best (in restricted and different variations of negotiated procedures) qualified tenderers, (b) is irrelevant unless and except in the case in which the inability to pay the fine signals financial difficulties or bankruptcy--which should in any case be captured by discretionary exclusion grounds based on that specific circumstance. Therefore, (b) comes to create a functional distortion of the procurement procedure and, in particular, of the aims of the qualitative selection phase. 

While sanctions in this setting may be seen as an incentive for undertakings to submit full and accurate documentation, this can also be the type of provision that creates a disincentive to participate, and one that seeks to displace part of the costs of the administrative procedure from the contracting authority unto the tenderers (for, statistically, there will be errors and this type of cost should thus be seen as part of the ordinary costs of running procurement processes). While the financial impact of the 'fine-based remedial system' will then largely be borne by the tenderers, the benefits will also fall on the contracting authority (at least in those cases where the 'paying, sloppy undertaking' ends up being awarded the contract for having submitted the most advantageous tender). This creates a strange trade-off between private costs and private and public benefits, which can be further complicated where the imposition of the fine has a discretionary element to it (eg the possibility to waive the fine for non-essential defects, where the determination of the threshold of 'essentiality' is far from clear-cut and objective).

At first sight, then, this seems like the type of rule that can create perverse incentives--in particular in terms of SME access to procurement procedures, or their ability to continue in the race when they commit mistakes--which comes to raise the threshold of 'professionalism' needed to participate in procurement processes without risking significant financial consequences. On the whole, then, from a normative perspective, I think that this is the kind of rule that seeks to reduce the administrative cost of procurement at the expense of reduced (potential) competition for public contracts, in particular from SMEs. The same way I argue against charging potentially interested tenderers for access to the tender documentation, I would also take the normative position that imposing fines for the remediation of documentation shortcomings is undesirable, and would propose their eradication de lege ferenda (by analogy, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 280-281).

This should be kept in mind when reading the remainder of this post, as this line of normative argumentation was used by the parties. In particular, in the clear formulation of the European Commission, which stressed that 'the contrast between paying a fine for a minor irregularity and the uncertainty of being awarded a contract may cause tenderers, especially small and medium-sized undertakings, not to participate in tenders or, where applicable, to withdraw their participation after the tenders have been submitted' (para 38, although the Commission goes on to note that the payment would be allowable despite its dissuasive effects, 'provided that it pursues a legitimate objective of general interest. Such objectives may include both the aim of making undertakings behave responsibly (encouraging them to act seriously and promptly when supplying the documentation for their tenders) and that of financially compensating the contracting authority for the work involved in the more complicated and extended procedure of remedying procedural shortcomings', para 39, which is not completely aligned with my normative position).

‘Remedying procedural shortcomings in return for payment’ under the pre-2014 EU public procurement rules

In the pre-Slovensko (C-599/10, EU:C:2012:191), pre-Manova (C-336/12, EU:C:2013:647) setting, where some doubts could be harboured as to the possibility for contracting authorities to seek clarifications of the tender documentation, and its limits, the only guidance the then current EU rules provided was to be found in the sparse Article 51 Dir 2004/18/EC, which foresaw that 'The contracting authority may invite economic operators to supplement or clarify the certificates and documents submitted pursuant to Articles 45 to 50'--that is, clarifications or supplements to the certificates and documents concerning (i) the personal situation of the candidate or tenderer (art 45); (ii) its suitability to pursue the professional activity (art 46); (iii) its economic and financial standing (art 47); (iv) its technical and/or professional ability (art 48); (v) its quality assurance standards (art 49); and (vi) its environmental management standards (art 50).

However, Slovensko and Manova came to clarify the possibility for clarifications to be sought (which in my view can result in a duty to seek clarifications under certain conditions, see here), and this seemed to prompt a legislative reaction in Italy. Given the need to allow for clarifications and modifications of the tender documentation in certain cases, Italian procurement law was modified from a system of strict disqualification for formal shortcomings, to as system allowing for 'remedying procedural shortcomings for payment' [see M Comba, 'Qualification, Selection and Exclusion of Economic Operators (Tenderers and Candidates) in Italy', in M Burgi, M Trybus & S Treumer (eds), Qualification, Selection and Exclusion in EU Procurement (DJØF Publishing, 2016) 85, 97-100]. However, this modification of the rules and the increased procedural flexibility were subjected to the payment of an administrative fine by the undertakings that had presented incomplete or unclear documentation (see above).

AG Campos assesses the compatibility of this approach to financially-conditional clarification or supplementation of documents under the rules in Directive 2004/18/EC (as Directive 2014/24/EU was not applicable ratione temporis, see paras 50-52 of his Opinion). In his view, there is 'nothing in [the case-law of the Court on Directive 2004/18] which might preclude the Member States from providing for contracting authorities to charge a certain amount (in this case, as a penalty) to tenderers who have placed themselves in that situation' (para 56, reference omitted). Further, he considers that there is no objection in principle and that any EU-law derived restriction on this possibility would be a matter for a proportionality assessment. In his words,

... national legislation may ... authorise the remedying of formal shortcomings in the tenders, while imposing on the tenderers a certain economic burden in order to encourage them to submit their tenders correctly and to pass on to them the additional cost (if any) arising from the procedure for remedying shortcomings. However, national legislation of that kind, which, owing to the magnitude of that burden, constitutes a not easily surmountable obstacle to the participation of undertakings (in particular, small and medium-sized ones) in public procurement procedures, would run counter to Directive 2014/18 and to the principles underlying it; moreover, this would also undermine the competition to be desired in respect of those procedures (para 58, references omitted and emphasis added).

This leads him to stress that he does 'not consider ... that objections of principle can be raised to a mechanism which makes the correction of shortcomings in the submission of a tender subject to a payment by the person responsible for those shortcomings and required to remedy them' (para 59, emphasis in the original).

AG Campos then proceeds to assess whether such non-negligible restriction to participation is created by the Italian rule at stake. He also addresses the issue whether the Italian provision may be in breach with the Court of Justice's case law on the limits to the allowable modifications and clarifications to tender documentation (paras 60-65). However, this concerns a literal interpretation of the Italian rule (which foresees the possibility of remedying '[a]ny absence, incompleteness or any other substantial irregularity in the information'). However, even if part of the rule should be quashed for exceeding the relevant case law, the possibility would have remained to require payment for the remediation of a 'Manova-like' situation that concerned the absence of (pre-dating) information. Thus, the analysis of the rule remains interesting even in the case of partial incompatibility.

A tricky proportionality assessment

In AG Campos' view, the relevant point is thus to establish whether the financial burden derived from the 'remedy for payment' rule is not an 'easily surmountable obstacle' to participation in procurement procedures, in particular by SMEs. In the second part of his Opinion, he deals with this point and considers two sets of issues. First, he carries out a strict proportionality assessment. Second, he goes back to points of principle despite his previous position that no objections of principle could be raised against the mechanism, which is slightly puzzling.

On the strict proportionality front, the Opinion submits that

The two criticisms of that instrument ... are, on the one hand, that the amount of the penalty is determined a priori, in the contract notice itself, without attempting to assess the magnitude of the irregularities committed or the infringing tenderer’s economic circumstances, and, on the other hand, that the resulting amounts (up to a maximum of EUR 50 000) do not comply with the principle of proportionality. Moreover, the exorbitant amount of the penalty is such as to deter participation in the tendering process, especially by small and medium-sized undertakings, thereby restricting competition.

... the objectives which might justify the imposition of the penalties are not consistent with the minimum and maximum amounts of those penalties...

Of course, the argument of higher administrative costs does not justify such substantial amounts: it should be borne in mind that even the minimum of 0.1 per cent (and a fortiori 1 per cent), in contracts subject to [Union] directives, is in itself high, given the lower thresholds for the application of those directives. That argument is also not consistent with a single amount which is established a priori and consists in a percentage of the amount of the contract, since it would be logical, following that line of thought, to tailor to each individual case to the resulting higher costs.

The disproportionate nature of the penalties is evident in the present two cases, which merely arise from the practical application of the legal provision: an executive’s forgetting to sign and the failure to provide a sworn statement regarding a criminal record result in fines of EUR 35 000 and EUR 50 000 respectively. I find it difficult to accept that the higher cost to the contracting authorities, merely for detecting those two anomalies and for inviting the tenderers to remedy them, corresponds to those amounts, which seem rather to be designed to increase their revenue (paras 71-74, references omitted and emphasis in the original).

This part of the reasoning seems unobjectionable and comes to challenge the possibility of imposing a fine for the remedying of documentation, rather than imposing a duty to cover any additional administrative costs ensuing from the remedial action--which would have been preferable, even if still normatively undesirable (see above). Importantly, this part of the reasoning would have sufficed to quash the Italian provision at stake. However, the Opinion proceeds to assert that

Nor does the aim of ensuring the seriousness of tenders justify such large fines. In the first place, because such fines are imposed (as stated in the tender specifications) regardless of the number of irregularities, that is, regardless of the type of information or document which is missing or must be supplemented and of its greater or lesser significance. The provision treats the offences in a uniform manner and allows their level of complexity to be disregarded.

In the second place, that aim [of ensuring the seriousness of tenders] must be weighed against that of promoting the widest possible participation of tenderers, resulting in greater competition and, in general, the best service to public interests. An excessive penalty will probably deter undertakings with smaller financial resources from participating in calls for tenders for high-value contracts, given the percentage limits stated above. They might also be deterred from participating in future calls for tenders which include the same penalty provision.

Moreover, such a burden will be even more of a deterrent to ‘tenderers established in other Member States, inasmuch as their level of knowledge of national law and the interpretation thereof and of the practice of the national authorities cannot be compared to that of national tenderers’.

In short, a provision the purpose of which was, precisely, to help to remedy formal errors made by tenderers (by amending the previous national rule) and, thereby, to increase their chances of successfully participating in public procurement procedures ultimately deters such participation by imposing financial burdens which are disproportionate to its objective (paras 75-78, references omitted and emphasis added).

In this second part, AG Campos seems to adopt a half-way approach to the objection in principle to the establishment of dissuasive barriers to participation, but only through disproportionate or excessive penalties. I find this problematic because it is very difficult establish at which level the dissuasive effect will kick-in, regardless of what can be considered excessive or disproportionate for the purposes of finding an infringement of EU internal market law. Thus, as mentioned above, I think that there are good reasons to oppose the creation of these mechanisms out of principle (the principle of maximising competition for public contracts, to be precise) and, from that perspective, I find the Opinion in MA.T.I. SUD unnecessarily shy or insufficiently ambitious. This does not affect the outcome of the specific case, but perpetuates the problem in view of the 2016 reform of the controversial Italian law, as discussed below.

‘Remedying procedural shortcomings in return for payment’ under the post-2014 EU public procurement rules

Interestingly, the case comprises a dynamic element that remains unresolved. It is worth noting that the Italian rule at stake in MA.T.I. SUD has been amended, and a 2016 reform relaxed 'the conditions for requiring the fine (imposing it only if rectification is required) and reduced its maximum ceiling (from EUR 50 000 to EUR 5 000)' (para 8). Additionally, any substantive assessment of the revised rule will now have to take place within the setting of the rules in Directive 2014/24/EU, where it can be argued that contracting authorities are under a duty to seek clarifications [for discussion, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 321-323]. In my view, in this setting, the analysis should not rely on a matter of proportionality, but on a more sophisticated understanding of the functions and balance of interests involved in the qualitative selection phase of each procurement procedure, which very much opposes the levying of financial penalties for clarifications sought by the contracting authority, regardless of their amount.

My view seems to run contrary to that of AG Campos and the European Commission, which both seem to have hinted at the fact that the new maximum amount of €5,000 for necessary rectifications saves the mechanism. This is seen with favour by both the European Commission in its submissions ('a maximum ceiling of EUR 5 000, such as that adopted by the new Public Contracts Code, is more reasonable', para 41) and, in less clear terms, by the AG ('Perhaps that reform, by significantly reducing the absolute maximum ceiling to EUR 5 000, was a response to the national legislature’s belief that that ceiling had been excessive, as the referring court implies', para 72).

If this represented the position the European Commission would defend in a future case involving the revised Italian rule, and/or the position taken in an Advocate General Opinion, I would strongly disagree because I do not consider helpful the view that €5,000 per rectification is 'more reasonable' or 'less excessive' than €50,000 per error (unless waived due to its non-essential character). Going back to the principles behind the creation of this type of mechanisms, important questions remain as to whether the goals it seeks to achieve are either justified in the public interest, or not already sought by other aspects of the procurement rules.

As submitted by the Italian Government and the Commission, the double legitimate goal of the measure would be 'first, to make the tenderer responsible for acting diligently when producing the documentation which will accompany his tender and, second, to compensate the contracting authority for the additional work involved in administering a procurement procedure which allows for the possibility of remedying those irregularities' (para 70).

On the second point, I am not sure that there is a clear public interest in seeking to recover part or all of the administrative costs involved in rectifying qualitative selection decisions in the view of supplemented or clarified information, in particular because this recovery of costs comes at the expense of an immeasurable potential reduction of competition (and, if one is to adopt AG Campos' reasoning, particularly acute in the case of undertakings from other jurisdictions, see para 77--although I am not sure this part of the argument is persuasive). On the first point, the argument that the financial penalty will ensure that undertakings participating in tender procedures will act diligently seems moot. The main incentive for undertakings to act diligently in the preparation of their tenders is the economic incentive derived from being awarded the contract. Thus, creating a negative incentive that works in the same direction that the main economic incentive (ie to prompt undertakings to submit their best possible tender) makes no economic sense because it creates a double-whammy on less diligent tenderers, whereas it adds no incentive for diligent tenderers.

By isolating the qualitative selection phase and thinking that tenderers have an interest in acting in less than diligent terms (within their abilities) seems to me to miss the point. While the frustration at the administrative burden of carrying out several (or at least two) iterations of inspection of documents where there have been mistakes is understandable, that should not lead to the creation of financial penalty mechanism that is bound to both be ineffective in what it tries to achieve and to create a likely high shadow cost in terms of lost potential competition for public contracts. In that regard, I would have preferred for the Italian mechanism to be quashed as a matter of principle on this occasion. But, even if this does not happen and the Court of Justice follows the intermediate approach of AG Campos' Opinion, I would still hope that a fresh consideration of the revised Italian rule under the setting of Directive 2014/24/EU delivered that result.

Postscript [16 Nov 2017, 9am]

After publishing this post, it was brought to my attention that I had missed the additional information in fn 5 of AG Campos' Opinion, where he explains that the Italian fees for remediation of documentation shortcomings has been abolished. Indeed, the fn says:

Although it can have no bearing on the consideration of the questions referred ... a further, more radical amendment of the Code ... occurred in 2017. In fact, Legislative Decree No 56/2017 of 19 April issued a new draft of Article 89(3) which definitively removed the requirement to pay for the remedying of shortcomings upon its entry into force (20 May 2017). Since then, economic operators have been able to rectify the absence of any formal element from their proposals (except those relating to the economic and technical aspects of the tender) without incurring any kind of penalty or other similar charge.

Thus, the issue will remain unresolved, unless similar charges or financial penalties exist in other jurisdictions.

Discretion in public procurement—notes of a very energising workshop

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I have the great privilege and pleasure of participating in a research project on ‘Discretion in public procurement’ funded by the Swedish Competition Authority and led by Profs Groussot, Hettne and Bogojević of the Universities of Lund and Oxford. In the context of the project, a workshop was held at Lady Margaret Hall (Oxford) on 3 November. The discussions brought together leading general EU law, environmental law and public procurement law academics, and this created a very open-minded atmosphere conducive to very productive discussions.

The results of the research project will be published in due course by Hart, as part of the series Studies of the Oxford Institute of European and Comparative Law (IECL). For now, I am happy to share my notes of the seminar. Needless to say, all valuable insights should be attributed to relevant colleagues, and any errors or misunderstandings are my own responsibility. I hope these notes serve to promote further debate.

Public Procurement and Internal Market

Prof Phil Syrpis used his previous discussion of the two constitutional visions on the interaction between primary and secondary EU law (see P Syrpis, ‘The relationship between primary and secondary law in the EU’ (2015) 52(2) Common Market Law Review 461) to assess the extent to which such primary-secondary interaction shapes the spaces for the exercise in the field of public procurement (see P Syrpis, ‘RegioPost—A Constitutional Perspective’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 2).

In particular, he discussed RegioPost (C-115/14, EU:C:2015:760), and how the interaction of Art 56 TFEU, the Posted Workers Directive and the rules in Directive 2004/18/EC shaped the space for the exercise of discretion concerning the imposition of minimum wage requirements in the execution of public contracts—emphasising that this is an area of non-exhaustive EU harmonisation, thus triggering EU primary law analysis. Phil criticised the conflation of primary law (Art 56 TFEU) and secondary law (Posted Workers Directive), and the ‘horizontal interaction’ between directives in which the RegioPost case resulted (where the interpretation of the procurement rules hinged on the interpretation of the Posted Workers Directive), as muddling the constitutional position on the value of the sources.

The discussion raised issues concerning the blurry lines around exhaustive/non-exhaustive harmonisation areas, and whether there is displacement or rather procedural juxtaposition of primary and secondary law. Whether a hierarchical approach already contains the seeds of heteronormative interpretation of EU primary law was also considered—in particular in view of the open textured and permeable nature of EU Treaty provisions, and the tendency of the CJEU to consider secondary law as a source of inspiration for the interpretation of primary law, sub silentio. The discussion also raised issues of the potential impact of Art 4(2) TEU (respect for national identities) on the scope for discretion at national level.

Prof Stephen Weatherill used the image of public procurement law as ‘internal market law made better’ and discussed the way in which EU internal market law has generally been developed to constrain the exercise of discretion of (public and private) national actors, and compared the situation in the field of procurement with general internal market law—thus reaching the conclusion that procurement law is more developed and perfected (in constraining national discretion more tightly), and in particular in the area of remedies, which creates a significantly different enforcement scenario and possibly more effectiveness of procurement law compared to general internal market rules (which is jeopardised by the procedural obstinacy of the Member States). He also reflected on the contradiction between the existence of that dense legal framework regulating public procurement in the internal market, and the enduring fragmentation of that market along uncompetitive national lines.

The discussion concentrated on issues surrounding the difficulties in bringing together the analysis in the area of free movement of goods and services, in particular services of general economic interest, the wiggle room for the CJEU to shy away or not from addressing specific cases by using jurisdictional criteria (cfr Comune di Ancona (C-388/12, EU:C:2013:734) and Tecnoedi Costruzioni (C-318/15, EU:C:2016:747)), as well as issues concerning the extent to which the 2014 Public Procurement Package, by creating more discretion or flexibility, may have eroded the component of ‘internal market law made better’ and potentially make public procurement move back to the median (effectiveness) of EU internal market law.

Prof Jörgen Hettne discussed public procurement and technical standards, and whether the specific rules constituted mechanisms to limit discretion or rather a democratic threat. He discussed the multi-faceted nature of technical standards as potential technical barriers, or rather trade facilitators or trade promoters—and focussed on the latter under the new approach to EU standards (CE mark) and the presumption of compliance embedded in the rules on technical specifications in the 2014 Public Procurement Package. He also concentrated on the quasi-binding nature that technical standards are acquiring (eg Nordiska Dental (C-288/08, EU:C:2009:718), James Elliot Construction (C-613/14, EU:C:2016:821)—and see also Medipac - Kazantzidis (C-6/05, EU:C:2007:337), and Commission v Greece (C-489/06, EU:C:2009:165)).

He wondered whether the obligation to respect the CE mark in the context of public procurement is problematic due to its requirement of ‘blind trust’ in the harmonisation system, and whether this is a democratic threat—in particular due to the way in which broad participation is (not) working in the context of standard-setting. He also discussed the constraints in an alternative approach based on the flexibility around the use of functional requirements embedded in Art 44(6) of Directive 2014/24/EU.

Public Procurement Discretion: Limits and Opportunities

Prof Chris Bovis reflected on the drivers and boundaries of discretion in the award of public contracts. He discussed the evolution of the regulatory space left to discretion throughout the five generations of EU procurement directives, and raised issues concerning the scale or structural dimension of discretion, in particular due to the different nature of the issues left to the discretion of the Member States (system-level issues) or the contracting authorities (procurement/procedure-level issues). His reflections also prompted discussion on the dynamics and interaction between exposure to competition, accelerating market dynamics (eg regarding innovation) and exercise of (administrative) discretion.

Dr Dieter Klaus explored the lessons that can be learnt from an analysis of the constraints on discretion in the public procurement setting, as a case study of broader issues concerning the regulation of discretion under EU law. He started with conceptual remarks on ‘discretion’ and the general approach to discretion (deplorable exception or rather a valuable instrument?) and the tension between different pulls and levers in EU law (flexibility, subsidiarity, harmonisation, compliance and potential over-regulation risks). He also stressed the risks and difficulties in EU level concept-building around (eponymous) notions that carry specific connotations in the context of national legal systems, which triggers risks of possible misunderstandings—as well as the interaction between spheres of discretion and intensity of judicial review of (discretion-based) executive decisions.

He used examples that compared case law on gambling (eg Politanò (C-225/15, EU:C:2016:645), Unibet International (C-49/16, EU:C:2017:491) or Vereniging Hoekschewaards Landschap (C-281/16, EU:C:2017:774)) and case law on public procurement (TNS Dimarso (C-6/15, EU:C:2016:555), LitSpecMet (C-567/15, EU:C:2017:736) or Borta (C-298/15, EU:C:2017:266)), with a particular emphasis on the intensity of judicial scrutiny for the justifications backing up discretionary decisions by the Member States. In concluding his reflections, he wondered whether there is something that makes procurement law special within the framework of EU internal market rules—which he thought probably not, in particular if one considers the fact that discretion works in different ways in different areas of EU internal market law, and that EU public procurement law displays the whole range of scenarios where discretion is subjected to different constraints.

The discussion raised the issues of whether the discretion under analysis (in the case law) is only that exercised by the contracting authority in executive decisions, or whether macro/systemic issues are subjected to the same issues and constraints. It also raised issues on the interaction between incompleteness of the regulatory system and (unforeseen) sources of discretion. The discussion also raised the point of whether Art 18 Dir 2014/24 is the natural ‘home’ of discretion within the system (as a horizontal issue), or whether the Directives somehow operate on the basis of a more undercover position for discretion.

In my presentation, I discussed the extent to which the general principles in Article 18(1) of Directive 2014/24/EU set out the relevant constraints on the exercise of executive discretion in the context of procurement and, in particular, the role that the prohibition for contracting authorities to artificially narrow down competition can be used to create effective substantive and/or procedural tests to control the exercise of such discretion.

Following up on my previous proposals (mainly, in Public Procurement and the EU Competition Rules, 2nd edn (Hart, 2015) ch 5) I suggested that Article 18(1)II Dir 2014/24/EU provides the basis for a competition-orientated or competition driven adaptation of a general proportionality test. I suggested that the existing case law of the CJEU, in particular concerning anti-circumvention rules, can form the basis for a substantive test oriented towards the consideration of the counterfactual decision adopted by a diligent contracting authority. I acknowledged that such a test may be difficult to craft in a way that does not create risks of ex post facto reassessment of decisions that would have originally not been seen as restrictive of competition.

I also suggested that a procedural test may be preferable, in the sense of creating a presumption of conformity with the requirements of the Directive where the contracting authority can provide an adequate paper trail (ex Art 84(2) Dir 2014/24) demonstrating having given due consideration to competition impacts of the decisions taken along the procurement design and implementation phase. My preliminary idea is that the procedural test would create a rebuttable presumption of conformity and that, in case of indicia to the contrary, the substantive test would then be applied.

The ensuing discussion concerned challenges on my claim about the competition-orientatedness of the regime in Directive 2014/24/EU and the 2014 Public Procurement Package more generally, discussion of the different concepts of competition (either as a mechanism or as a benchmark demanding economic efficiency in absolute terms) and the links that could be drawn before the substantive test I propose and the more general test of abuse of EU internal market law.

Environmental and Social Clauses

Dr Marta Andrecka discussed limits of contracting authority discretion in the pursuit of sustainability, and drew from previous analysis on her recently edited monographic issue of the European Procurement & Public Private Partnership Law Review (2017) 12:3. Her reflections concerned the balance between the flexibility created to support sustainability goals in procurement through the ‘toolbox approach’ in the 2014 Public Procurement Package and ensuing Commission guidance, on the one hand, and the necessary checks and balances, on the other—in particular by reference to the interpretation of Art 18(2) of Directive 2014/24/EU and difficulties to fit different understandings of ‘public interest’ at EU and national level in this context. She gave significant weight to the addition of sustainability as a strategic goal of procurement under the new rules, very much in line with the European Commission’s approach in the October 2017 Communication on ‘Making public procurement work in and for Europe’. She also mapped out emerging obligations to include sustainability considerations in the context of other (horizontal) EU policies with an impact on procurement—such as the current proposal for a European Accessibility Act.

The ensuing discussion concerned the boundaries of the concepts of public interest and public policy within the context of EU internal market law, and the extent to which that is directly applicable and/or transferable to the interpretation and enforcement of the 2014 Public Procurement Package. It also concerned the link between the increasing sophistication and complications derived from sustainability-orientated procurement and emerginginitiatives on professionalization and capacity building as part of the broader procurement strategy.

Dr Sanja Bogojević mapped environmental contestation points in EU procurement law and policy, as a way of bringing attention to problems and opportunities for the pursuit of environmental policies in the context of public procurement. She recreated the discourse on green procurement through the case law of the CJEU after Concordia Bus Finland (C-513/99, EU:C:2002:495) and EVN and Wienstrom (C-448/01, EU:C:2003:651), and compared it to the discourse in broader internal market case law, to finally arrive to the current expressions of green public procurement aims and goals in policy documents, such as the 7th Environmental Action Plan or the Europe 2020 Strategy. Concentrating on Directive 2014/24/EU, her discussion considered the way green procurement is presented in relation to technical standards, labels and life-cycle costing rules.

Once the mapping was complete, she identified 5 points of contestation: (1) role of sustainable development and the risk it creates of squeezing environmental protection act; (2) reviewability of environmental models used in life-cycle costing (eg as exemplified in the litigation leading to R (ClientEarth) [2016] EWHC 2740); (3) what is the nature of the obligation in Art 11 TFEU (‘environmental protection requirements must be integrated into the definition and implementation of the Union policies and activities’ – is this solely a procedural minimum?); (4) discretionary climate change policy and ways in which policy can be used to create obligations (eg along the lines of the Dutch Urgenda case); and (5) the role of EU public procurement law in non-EU countries looking to access the EU (eg Serbia) or on the way out (UK). Ultimately, she made a compelling case for more interdisciplinary work and efforts of legal imagination to try to find workable legal solutions to global challenges.

Dr Jeremias Prassl discussed means, ends and conflicts in attempting to carry out social procurement. He introduced the clash between labour rights and internal market rules and restrictions (ie a clash of the economic vs the social)—which underlies calls for broad exemptions from internal market law from scholars such as Prof Alan Bogg ('Viking and Laval: The International Labour Law Perspective', in M R Freedland & J Prassl (eds), Viking, Laval and Beyond (Hart, 2016) ch 3)—and considered whether public procurement is more sensitive or atuned to labour law considerations than general internal market. He also reflected on whether the relevant clash was not one between economic and social rights, but rather between social rights of different collectives. He then developed each of the different narratives to see how they have shaped law and policy in the context of EU social and procurement law—in particular around the Posted Workers Directive.

His discussion provided insights on how the application of the internal market logic and its broader normativity comes to water down labour law’s protective effects (building on the analysis of L Rodgers, ‘The Operation of Labour Law as the Exception: The Case of Public Procurement’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 8). He assessed these issues of normativity and exception from Viking (C-438/05, EU:C:2007:772) and Laval (C-341/05, EU:C:2007:809) to the more recent cases of Bundesdruckerei (C-549/13, EU:C:2014:2235) and RegioPost. He also relied on Prof Weatherill’s approach ('Viking and Laval: The EU Internal Market Perspective', in M R Freedland & J Prassl (eds), Viking, Laval and Beyond (Hart, 2016) ch 2; see also S Weatherill, The Internal Market as a Legal Concept (OUP, 2017)) to criticising the insensitivity of internal market case law to legitimate and democratically expressed national priorities—which Jeremias considers is currently softening, as the CJEU approach in RegioPost indicates.

He also critically reflected on whether the seeming growing scope for labour policies in the context of procurement is likely to generate the maximum practical effects that would be desirable. In closing his paper, he wondered whether the heterogeneity of workers and the conflicts between different groups of workers (insiders vs outsiders) would provide a better narrative and analytical perspective to reassess this topic. In doing that, he drew on Prof Catherine Barnard’s contrast between the equal treatment logic of the procurement rules and the differentiation logic of the traditional rules on posting of workers, which is now being tamed in the revision of the Posted Workers Directive (see C Barnard, ‘Fair’s Fair: Public Procurement, Posting and Pay’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 10).

The ensuing discussion concentrated on how attempts to integrate social and environmental considerations in a public procurement regime that already tried to address other goals—mainly, economic and internal market-orientated—triggers issues around the extent to which social and environmental considerations should be a more intrinsic element of internal market law generally, as a sort of ‘softer market’, rather than an issue to be addressed sectorially.

Prof Xavier Groussot and Ms Angelica Ericsson wrapped up the discussions with a reflection on the tension between discretion and proportionality in the use of social clauses in procurement. They discussed (i) the elements of discretion, (ii) the application of procedural proportionality to control discretion—and in particular from the perspective of transparency—and (iii) whether recent case law seemingly deviating from the principle of proportionality creates a problem, mainly in light of the application of covert proportionality through consistency in RegioPost (contra P Bogdanowicz, ‘Article 56 TFEU and the Principle of Proportionality: Why, When and How Should They be Applied After RegioPost?,’ in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 3). In the first part of the discussion, they explored the connections between the application of discretion under EU law and under ECHR law, and how that comparison can be best assessed using a variation of the framework set out by Tridimas (‘Proportionality in Community Law. Searching for the Appropriate Standard of Scrutiny’, in E Ellis (ed), The Principle of Proportionality in the Laws of Europe (Hart, 1999) 65 ff), and the additional issue of harmonisation raised by Thym (‘The Constitutional Dimension of Public Policy Justification’, in P Koutrakos, N Nic Shuibhne, & P Syrpis, Exceptions from EU Free Movement Law: Derogation, Justification and Proportionality (Hart, 2016) ch 9): (1) the interest, (2) the proceeding, and (3) the level of harmonization (cfr Opinion of AG Cruz-Villalon in dos Santos Palhota and Others (C-515/08, EU:C:2010:589)).

In the second part, they discussed discretion and procedural proportionality, and reflected about ‘what would a high level of discretion mean for a proportionality assessment’ both in theory and in practice. They stressed that the level of discretion and the intensity of proportionality review should theoretically be inversely proportionate (much along the lines presented by Dr Kraus earlier in the day, but with inverted causality), and that this is demonstrated in practice in the area of public procurement (such as in Politanò), where the CJEU shows more deference to administrative discretion (ie a lighter-touch proportionality analysis) where a higher level of discretion exists ex ante. Specifically in the context of procedural proportionality (eg Beentjes v State of the Netherlands (C-31/87, EU:C:1988:422)), and in the context of transparency obligations, they suggested that procurement is a good testing ground for the correlation between higher discretion and more limited proportionality scrutiny by the CJEU (eg in RegioPost, where regulatory transparency may have saved the social clause). They concluded that (i) high level policy discretion for Member States must not translate into unfettered discretionary/arbitrary decision-making by contracting authorities, (ii) procedural scrutiny is spreading beyond public procurement (R Caranta, ‘Public Procurement Law: Limitations, Opportunities and Paradoxes’ in U Neergaard, C Jacqueson & GS Ølykke (eds), XXVI FIDE Congress in Copenhagen, vol 3 (DJØF, 2014), where he claims principles of procurement becoming general principles of EU administrative law more generally), (iii) EU law principles (eg transparency) may be fuelled by different justifications than (eponymous) national ones.

Finally, in the third part, and drawing from French administrative law, they explored the possibilities of developing a taxonomy of CJEU case law that would distinguish between a procedural approach (controle minimum), substantive approach (controle normal) and a balancing approach (controle maximum).

The discussion concentrated mostly on the boundaries of the procedural proportionality approach and the categories that could most usefully be used to create a taxonomy of approaches by the CJEU. This was linked to the discussion to the standard of review of decisions in other areas of EU law—eg competition law, where the connection between EU and ECHR standards has been questioned (eg Menarini, as discussed in extenso in A Sanchez-Graells, ‘The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?’, in Kosta, Skoutaris & Tzevelekos (eds), The Accession of the EU to the ECHR (Hart, 2014) 255-70).

Alternative Procurement Models

Dr Ohad Graber-Soudry presented the procurement rules of European Research Infrastructure Consortia (ERICs) under the specific regulatory framework of Council Regulation 723/2009/EC, which creates significant space for each ERIC to adopt its own procurement rules. His presentation concentrated on the uncertainties derived from the treatment of ERICs as international organisations and the impact these have on ERICs’ discretion to develop their own procurement rules, as well as the treatment of discretion within those (self-developed) rules.

The ensuing discussion mainly concerned the limits and effects of Art 7(3) of Regulation 723/2009, whereby ‘[a]n ERIC is an international organisation within the meaning of Article 15(c) of Directive 2004/18/EC’, which now corresponds to Article 9(1)(b) of Directive 2014/24/EU.

Closing the workshop, Prof Ulf Bernitz discussed the peculiarities of the Swedish system, and stressed the particular use and weight of transparency obligations in that jurisdiction.

CJEU provides some clarification on functional limits to in-house exemption: no two bites of the cherry? (C-567/15)

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In its Judgment of 5 October 2017 in LitSpecMet, C-567/15, EU:C:2017:736, the Court of Justice of the European Union (CJEU) has considered the limits of the in-house exemption from the procurement rules in scenarios where a contracting authority controls an in-house entity and, in turn, the in-house entity engages in activities with third parties--or, in other words, the CJEU has assessed the functional limits of the exemption in relatively complex public house situations.

The CJEU has not really followed the thrust of the Opinion of AG Campos (which was largely based on competition considerations, see here), but rather provided a clarification that focuses the assessment of the applicability of the EU procurement rules to the purchases by the in-house entity from third parties on an independent analysis of whether the in-house entity 'at the end of the public house chain' meets the definition of 'body governed by public law'. This offers some clarification that could be useful in the future, but the way the CJEU applies the tweaked test also creates new areas of uncertainty and opens up the case law to criticisms on the basis of the conflation of activities along the 'public house chain' despite setting out to avoid such conflation.

In LitSpecMet, more specifically, the CJEU considered "whether the second subparagraph of Article 1(9) of Directive 2004/18 must be interpreted as meaning that a company which, firstly, is wholly owned by a contracting authority the activity of which is to meet needs in the general interest and which, secondly, carries out both transactions for that contracting authority and transactions on the competitive market may be classified as a ‘body governed by public law’ within the meaning of that provision and if so, in that regard, what is the effect of the fact that the value of the in-house transactions may in future represent less than 90% or not the main part of the total financial turnover of the company" (C-567/15, para 23).

The case was decided on the basis of Art 1(9) of Directive 2004/18/EC but, given that its terms are largely coincidental with Article 2(1)(4) of Directive 2014/24/EU, it is of broad and future relevance. In the end, both provisions establish three cumulative conditions for the consideration of an entity as a 'body governed by public law': (a) be established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character; (b) have legal personality; and (c) (i) be financed, for the most part, by the State, regional or local authorities, or by other bodies governed by public law; or (ii) be subject to management supervision by those authorities or bodies; or (iii) have an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional or local authorities, or by other bodies governed by public law.

In LitSpecMet, the CJEU started by reiterating its case law on the cumulative conditions that determine the status of 'body governed by public law' (paras 29-30) and on the functional and broad approach to the interpretation of the personal scope of application of EU procurement rules (para 31). Given that in LitSpecMet it was uncontroversial that the relevant entity had separate legal personality and was controlled by a contracting authority (para 32), the analysis rested on whether the entity constituted a "body established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character" (para 33).

Specific purpose of meeting needs in the public interest

In this analysis, and decoupling the different phases of the relevant test, the CJEU stressed that

34 It is clear ... that the requirement [for the entity to have been 'established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character'] must be satisfied by the entity whose classification is being examined and not by another entity, even if the latter is the parent company of the former which supplies the latter with goods or services. It is therefore not sufficient that an undertaking was established by a contracting authority or that its activities are financed by funds derived from activities pursued by a contracting authority in order for it to be regarded as a contracting authority itself (judgment of 15 January 1998, Mannesmann Anlagenbau Austria and Others, C‑44/96, EU:C:1998:4, paragraph 39).

35 In addition, it is necessary to take into consideration the fact that the use of the term ‘specific’ shows the EU legislature’s intention to make only entities established for the specific purpose (sic) of meeting needs in the general interest, not having an industrial or commercial character, the activity of which meets such needs, subject to the binding rules on public contracts.

36 Accordingly, it is necessary to determine, first of all, whether [the in-house entity] was established for the specific purpose of meeting needs in the general interest, the activity of which meets such needs before, if necessary, examining whether or not those needs have an industrial or commercial character (see, to that effect, judgment of 22 May 2003, Korhonen and Others, C‑18/01, EU:C:2003:300, paragraph 40) (C-567/15, paras 34-36, emphasis added).

Even if the drafting could have been clearer, particularly that of para 35 (which is tautological and, frankly, impossible for me to crack), the thrust of the test set out by the CJEU in LitSpecMet comes to assess the functional purpose of the in-house entity under consideration, rather than the nature of the activities it carries out. This comes to severe any intended chains of justification based on the activities in the general interest carried out by contracting authorities further up the 'public house chain' and concentrates on the purpose of the in-house entity 'at the end of the public house chain'--which must have been specifically established for general interest purposes.

This seems like the proper approach in abstract terms. However, the difficulty is that such a strict approach to the assessment of the activities of the in-house entity are likely to lead to the conclusion that it does not carry out activities in the general interest, which creates a difficult functional conundrum. This is visible in LitSpecMet where, in my view, the CJEU creates a great deal of confusion in the way it applies the test to the relevant entity in LitSpecMet in two ways.

First, in the way that the CJEU considers the purpose of the entity, which is to supply goods and services to enable its parent company to carry out the latter's activity (para 37), to be in the general interest because its "activity, in particular the manufacture and maintenance of locomotives and rolling stock and the supply of those goods and services to [the parent company], appears necessary for [the parent company] to be able to carry out its activity intended to meet needs in the general interest" (para 38).

To me, this seems wrong because the supply activity is not in the public interest, but in the interest of the parent company, which means that the entity whose classification is being examined does not meet the requirement (ie, in contravention of para 34) and because functionally it conflates the main activity of the parent company (in the general interest) with the ancillary (commercial/industrial) activity of the in-house entity 'at the bottom of the public house chain'. Otherwise, this would be tantamount to saying that a (private) supplier of the public sector carries out activities in the general interest where its supplies are necessary for a public authority to carry them out--quod non. In that regard, the test suggested by AG Campos concerning whether the in-house entity indirectly contributed to the general interest activities would seem preferable.

Second, and more importantly, the CJEU creates additional confusion when it indicates that, in the assessment of whether the in-house entity was specifically established for the purpose of meeting needs in the general interest, 

40 ... it is irrelevant that, in addition to the activities intended to meet needs in the general interest, the entity in question also carries out other activities for profit on the competitive market (see, to that effect, judgments of 15 January 1998, Mannesmann Anlagenbau Austria and Others, C‑44/96, EU:C:1998:4, paragraph 25, and of 10 April 2008, Ing. Aigner, C‑393/06, EU:C:2008:213, paragraph 46 and the case-law cited).

41      Thus, the fact that [the in-house entity] does not carry out only activities intended to meet needs in the general interest through internal transactions with [its parent company], so that [the parent company] may carry out its transport activities, but also other profit-making activities is irrelevant in that regard (C-567/15, paras 40-41, emphasis added).

Once more, with the ultimate goal of preventing an 'escape' from the procurement rules by in-house entities carrying out activities outside of the public house, this seems to me to wrongly ignore the focus previously put on the assessment of the activity of the entity whose classification is being examined. Functionally, where an entity carries out activities in the public interest and activities of a commercial or industrial nature, it makes no sense to treat all activities the same.

This is not the approach followed in the context of utilities procurement under Directive 2014/25/EU. Furthermore, in EU competition law, where entities carry out activities that represent the exercise of public powers and economic activities, their assessment is based on the severability of the activities. In my view, the same approach would be appropriate here and, even more, in keeping with the functional logic of the in-house and public-public cooperation exemptions from compliance with EU public procurement rules, it would seem that the opposite approach should be preferred--to the effect that, where an entity carries out a significant volume of its activities for the benefit of entities outside the public house, it should not be considered a 'body governed by public law' for the purposes of subjecting it to the procurement rules but at the same time, the exemption from compliance with public procurement rules in the award of public contracts by other entities in the public house should disappear. 

In other words, functionally, I do not think it makes sense to take such a strict approach to the assessment of the existence of activities in the general interest for the purpose of assessing the classification of the in-house entity as a 'body governed by public law', but rather to take a more holistic approach to the assessment of the position of the entity within the public house--ie, the entity must be either in or out of the public house.

Thus, in my opinion, the formulation of the test (and its sequencing) seems appropriate, but its application and the conflation of activities--both (i) the conflation of the activities of the controlling and the controlled entity, and (ii) the conflation of the activities in the general interest and the commercial or industrial activities of the latter inter se--is erroneous and comes to create significant confusion that muddies the waters of the intended clarification.

Needs not having an industrial or commercial character

Moreover, given that the CJEU considered the in-house entity 'at the bottom of the public house chain' to have been established specifically to meet needs in the general interest, the Court continued setting out the detailed test, and established that

43 ... in the assessment of [needs in the general interest, not having an industrial or commercial] character account must be taken of relevant legal and factual circumstances, such as those prevailing when the body concerned was formed and the conditions in which it carries on its activity, including, inter alia, lack of competition on the market, the fact that its primary aim is not the making of profits, the fact that it does not bear the risks associated with the activity, and any public financing of the activity in question.

44 ... if, with regard to the activities intended to meet needs in the general interest, the body operates in normal market conditions, aims to make a profit and bears the losses associated with the exercise of its activity, it is unlikely that the needs it seeks to meet are not of an industrial or commercial nature (judgment of 16 October 2003, Commission v Spain, C‑283/00, EU:C:2003:544, paragraphs 81 and 82 and the case-law cited).

45 That being the case, the existence of significant competition does not, of itself, allow the conclusion to be drawn that there is no need in the general interest, which is not of an industrial or commercial character.

46      In those circumstances, it is for the referring court to ascertain ... whether... the activities carried out by [the in-house entity], seeking to meet needs in the general interest, were exercised in competitive conditions and in particular whether [the in-house entity] was able ... to be guided by non-economic considerations (C-567/15, paras 43-46, emphasis added). 

I also find the formulation of this part of the test confusing, not least due to the unclear position that the existence of competitive markets assumes. As I mentioned when discussing the Opinion of AG Campos, the sole fact that the controlling entities within the public house are directly awarding contracts to the in-house entity without having to comply with the procurement rules suffices to exclude a consideration that those entities are actually exposed to the vagaries of the market because they have a captive demand from the controlling entities--which significantly insulates them from market risk where such demand is enough to absorb 80% of the entities' turnover. Ultimately, then, either there is an exemption at the level of the relationship between the contracting authority and the in-house entity, or there is an obligation to tender at that level (which then frees the otherwise in-house entity from public procurement duties). But, either way, the logic of exposition to competition in the market does not allow for both exclusions. In addition to that consideration, I think that the position of the CJEU in LitSpecMet creates additional issues.

First, it is not clear to me whether the analysis in this second step needs to be constrained to the activities "intended to meet needs in the general interest" (para 44, particularly in relation to para 40) or to all the activities of the in-house entity (as suggested in para 46?), particularly where the in-house entity carries out for-profit activities with third parties, but also carries out not-for-profit (or not fully commercial) activities with the controlling entity and/or other entities within the public house. Would profit-seeking activities with third parties (even if of a relatively small volume, say 10% or 20% of the turnover of the in-house entity) suffice to make it fall foul of the definition of 'body governed by public law'? Second, it is not clear to me how to assess whether an entity is "able to be guided by non-economic considerations". Third, it is also unclear to me whether transactions are carried out in competitive conditions where the mere existence of the in-house entity may suppress any relevant comparator. 

Ultimately, I guess that what is relevant is to try to understand the functional rationale and implications of the second part of the test. The situation here is one where an in-house entity carries out procurement activities ancillary to the activity in the general interest of its parent company (first step of the test) and, at this point, the assessment of whether its activities are competitive or not, and whether it can be guided by non-economic factors, determine the applicability of procurement rules to its purchases from third parties (second step of the test).

In my reading, that means that (a) if the in-house entity carries out its relevant activities in competitive conditions, it falls foul of the definition of 'body governed by public law' and does not need to comply with the procurement rules in its acquisitions from third parties; and (b) if the in-house entity does not carry out its relevant activities in competitive conditions and/or can be guided by non-economic considerations, then it will be classed as a 'body governed by public law' and thus obliged to comply with the procurement rules. At least (a) can be problematic in some scenarios--although (b) can also be problematic where the analysis is constrained to solely part of the activities of the in-house entity.

Regarding (a)-type situations, where the in-house entity that receives the direct award of contracts from other entities in the public house without subjection to public procurement rules carries out competitive activities, the test seems to allow it to benefit from its in-house position to compete in the market without having to comply with procurement rules in its purchases--which is functionally opposite to the restrictions on market activities of the in-house entity under Art 12 Dir 2014/24/EU (as mentioned above).

Overall consideration

I think that my uneasiness with the Judgment in LitSpecMet primarily derives from the fact that, where assessing the activities of in-house entities 'at the bottom of the in-house chain', the first part of the test ignores whether, in addition to (indirect) activities in the general interest, the entities carry out additional for-profit activities with third parties. And, subsequently, the second part of the test (potentially) concentrates on the existence of such activities (and the existence of profit goals and business risk) to exclude the non-commercial and non-industrial nature of those activities. Even if I cannot say exactly why, I sense a disconnection between both parts of the test. I will have to give this case some additional thought but, for now, I think that the CJEU would have been better off by adopting a functional approach to the in-house exemption and its limits, rather than a functional approach to the concept of 'body governed by public law', which implementation creates confusion.

 

reasons for the deduction of points at tender evaluation must be fully disclosed to their last detail: AG MENGOZZI ON DUTY TO MOTIVATE PROCUREMENT DECISIONS (C-376/16 P)

AG Mengozzi has put pressure on the Court of Justice (ECJ) to continue pushing for excessive transparency in the context of procurement litigation. On this occasion, the AG has invited the ECJ to establish an extremely stringent requirement for the disclosure of detailed comparisons of the evaluation reports to the level of award sub-criteria, without assessing the extent to which the contracting authority can have legitimate reasons to withhold parts of the evaluation.

In my view, this approach would create significant imbalances between the duty to provide reasons to disappointed tenderers and the duty to preserve competition for public contracts and sufficient protection of business and commercial information, which is problematic [for discussion, see K-M Halonen, 'Disclosure Rules in EU Public Procurement: Balancing between Competition and Transparency’ (2016) 16(4) Journal of Public Procurement 528; A Sanchez-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’ (2013) Univ. of Leicester School of Law Research Paper No. 13-11]. Therefore, I argue that the ECJ should deviate from the Opinion of AG Mengozzi in its final Judgment in this case.

It is worth noting that the case is subjected to a previous version of the procurement rules in the EU Financial Regulation, but the ECJ's Judgment will be more generally relevant, both in the context of the current Financial Regulation controlling EU Institutional procurement and, more generally, for procurement controlled by the rules in the 2014 EU Public Procurement Package.

The AG Opinion

In his Opinion of 28 September 2017 in case EUIPO v European Dynamics Luxembourg and Others, C-376/16 P, EU:C:2017:729, AG Mengozzi has once more attempted a delineation of the obligation to state reasons for a decision to reject a tender and, in particular, "with regard to the correlation between the specific negative assessments set out in the evaluation report and the deductions of net points made by the contracting authority" (para 19). Or, in other words, AG Mengozzi has indicated the way in which the case law of the Court of Justice (ECJ) on the duty to provide justifications in the context of procurement debriefing applies to the reasons for the deduction of points on the basis of negative judgements of the evaluation committee [for general discussion of this obligation, see A Sanchez-Graells, “Transparency in Procurement by the EU Institutions”, in K-M Halonen, R Caranta & A Sanchez-Graells (eds), Disclosure Rules within Public Procurement Procedures and During Contract Period, vol 9 EPL Series (Edward Elgar, forthc.)].

This point of law was raised by EUIPO against the previous finding of the General Court (GC) that, despite the fact that contracting authorities are not required to provide unsuccessful tenderers with a detailed summary of how each aspect of their tenders was taken into account for its evaluation, however,

when the contracting authority makes specific assessments as to the manner in which the tender in question fulfils or otherwise [award] criteria and sub-criteria, which are clearly relevant to the overall score of the tender, the duty to state reasons necessarily includes the need to explain how, in particular, negative assessments gave rise to the deduction of points (Judgment of 27 April 2016 in European Dynamics Luxembourg and Others v EUIPO, T-556/11, EU:T:2016:248, para 250).

In the specific case, the GC considered it particularly important because the evaluation method included relative measures, so that "any deduction of net points in respect of certain sub-criteria automatically resulted, under the formula applied by the contracting authority, in the increase in the number of gross points to be allocated to the successful tenderers’ tenders in respect of their technical quality" (AGO C-376/16 P, para 24 & T-556/11, para 251).

The circumstances of the case where such that EUIPO disclosed the overall score for each of the three technical or qualitative criteria used in tender evaluation, but not the detailed breakdown for each of the award sub-criteria taken into consideration by the evaluation committee. In those circumstances, the GC found that "it was impossible, both for [the disappointed tenderer] and for the Court, to understand the calculation or precise breakdown of the points deducted for each sub-criterion, or even for each of the sub-points, and that it was therefore also not possible to verify whether and to what extent those deductions actually corresponded to the negative assessments made in the evaluation report and, accordingly, whether they were justified or not, or, at the very least, sufficiently plausible" (AGO C-376/16 P, para 26 & T-556/11, para 252).

EUIPO opposed that finding, and the more general point of law made by the GC, on the basis that neither the applicable rules, nor the case law of the CJEU required the debriefing information provided to a disappointed tenderer to include a demonstration of "which negative comment led to which deduction of points for each specific sub-criterion or sub-point" (AGO C-376/16 P, para 28 - for details of the reasons, see paras 29-31).

Thus, the main point of contention concerns the limits of the duty to disclose details of the evaluation process and report. Or, as AG Mengozzi put it, the question is "in essence, whether the [GC] was right in holding that the decision to reject the tender did not satisfy the requirements to state reasons stemming from [the applicable rules], as interpreted by the case-law, or whether the [GC] applied an overly strict test compared with the aforementioned provisions and the relevant case-law of the [ECJ]" (AGO, C-376/16 P, para 32). 

After a short restatement of the ECJ case law on the limits of the obligation to provide reasons and disclose relevant parts of the evaluation report, and despite stressing that "the contracting authority [is not] under an obligation to provide an unsuccessful tenderer, upon written request from it, with a full copy of the evaluation report" (AGO, C-376/16 P, para 36), in short, AG Mengozzi has invited the ECJ to establish that the right disclosure standard is one where

(i) the extracts of the evaluation reports disclosed by the [contracting authority] [make] it possible to deduce the number of points obtained by the appellant in question in comparison with the successful tenderer, broken down each time for each sub-criterion, and the weight of each sub-criterion in the overall evaluation, and (ii), the comments of the evaluation committee which [are] disclosed [explain], for each award criterion, on the basis of which sub-criteria the [contracting authority] had found the tender of the successful tenderer or that of the appellant in question to be the best (AGO C-376/16 P, para 47, emphases in the original).

AG Mengozzi suggests that this would have already been implicitly established in the Judgment of 4 October 2012 in Evropaïki Dynamiki v Commission, C-629/11 P, EU:C:2012:617, para 11, where the circumstances of the case reflected this level of disclosure.

Criticism

In my view, this is not an adequate test.

First of all, I struggle to see where the boundary lies between having to disclose the evaluation report in full and having to provide an absolutely broken down comparative assessment of the evaluation of the disappointed tenderers' tender and that of the preferred tenderer. To be fair, the previous case law is riddled with such tensions and it is difficult to establish clear boundaries on the obligation to disclose information contained in the evaluation report. However, in my view, the step taken by AG Mengozzi (and previously by the GC) comes to nullify the general (minimum) safeguard that contracting authorities are not required to disclose the evaluation report in full.

Secondly, I am not sure that in the assessment of these issues enough consideration is given to the fact that the relevant rules allow contracting authorities not to disclose certain details where disclosure would hinder application of the law, would be contrary to the public interest or would harm the legitimate business interests of public or private undertakings or could distort fair competition between those undertakings. In my view, there is a clear case to be made for restricting the level of disclosure of the points given to competing tenderers to a level of generality (eg award criteria rather than sub-award criteria) that strikes a balance between allowing for the review of the procurement decision while preserving competing interests. If the case law of the ECJ develop in the direction suggested by AG Mengozzi, it will be almost impossible for contracting authorities to protect legitimate interests in the context of procurement, and this will have chilling effects on participation.

Third, such a test would potentially make sense in terms of disclosure between the contracting authority and the review body or court, but not in relation to the disappointed tenderer. It would make much more sense to allow for disclosure limited to the level of award criteria at debriefing stage and, only in case the disappointed tenderer is not satisfied and launches an administrative or judicial review, for that information to be released to the review body of court, with stringent rules on access to that confidential information (for example, along the lines of the guidelines recently adopted in England). In the absence of this differential access to sensitive information, the adoption of the test proposed by AG Mengozzi is excessive and creates structural risks for abuse and competitive distortions--which makes it an undesirable test.

On the whole, I think that this Opinion and the previous decision by the GC show that the logic and operation of the rules on disclosure of information in the context of procurement litigation require a careful reassessment. In a case such as this one, where the record shows that EUIPO made significant efforts to disclose information to the disappointed tenderer, while still (maybe implicitly) aiming to protect sensitive information, the imposition of higher levels of disclosure obligations seems to me excessive. Once more, this militates in favour of the regulation of specific procedural steps to assess issues of confidentiality and, in particular, the need to create some asymmetrically opaque review mechanisms that allow for proper scrutiny of procurement decisions in a way that does not jeopardise competition in the market or anyone's legitimate business and commercial interests.

 

A couple of papers on procurement and discretion

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I am preparing a paper on discretion and competition under the EU public procurement rules for a workshop at Lady Margaret Hall (Oxford) in November. In looking for new ideas and making sure I cover the necessary background, I have been reading recent economics and political science papers on the topic.

After a few reads, I think I am starting to identify an emerging trend of support for both (i) expanded use of discretion and (ii) claims of positive effects of the exercise of that discretion on procurement outcomes. I think both issues are interesting and tricky, and have found the two papers below thought-provoking (even if not entirely convincing). I would recommend reading them if you are interested in this topic.
 

This is a political science paper aimed for a non-academic audience and it maps the discussions behind the choice on whether to promote or constrain discretion by procurement officers. It follows the US discussion and goes back to the arguments developed by Kelman in 1990. However, the paper largely ignores the ensuing discussion in the US where, primarily Schooner (2001, 2004), raised important issues around the oversight of the exercise of discretion. The interested reader would be well advised to incorporate Schooner's insights in the mix.

Gutman also stresses the need to extend procurement regulation and the possibility to exercise discretion to the execution phase. In that, he raises issues that are currently being asked across the EU, in particular concerning oversight of contractual modifications (see here). A reader familiar with these issues will not find much new in Gutman's paper, but it offers a good entry point for newcomers to the issue.

This is an econometrics paper that uses an interesting (and rather large) database of Italian contracts to 'document the causal effect of increasing buyers’ discretion on procurement outcomes'. They design their study around two different procedures for the award of works contracts: 'Works with a value above a given threshold have to be awarded through an open auction. Works below this threshold can be more easily awarded through a restricted auction, where the buyer has some discretion in terms of who (not) to invite to bid.' Or, in other words, they compare situations where the contracting authority is free to engage in a negotiated procedure with situations where a restricted procedure was mandated. In that regard, they consider that the contracting authority has a larger ability to exclude tenderers from the negotiation than from restricted procedures. I am not convinced about this, as the screening for a restricted procedure under the EU rules is rather strict and contracting authorities are not prevented from adopting any controls they would in a choice of negotiating partners. However, even with that in mind, reading the paper is interesting.

Coviello, Guglielmo & Spagnolo claim that 'Our main result is that discretion increases the probability that the same firm wins repeatedly, and it does not deteriorate (and may improve) the procurement outcomes we observe. The effects of discretion persist when we repeat the analysis controlling for the geographical location, corruption, social capital, and judicial efficiency in the region of the public buyers running the auctions'. I think that the first part of their findings is rather important, as they find discretion to entrench incumbents, either as a result of corruption or any other unobservable incumbency or first mover advantages. It is important to stress that this result is not affected by any assumptions or qualified by causality claims, as this is the straightforward result of crunching the numbers.

On the contrary, the claims of causality of discretion over improved procurement outcomes is affected by assumptions and their claims are weaker and depend on counter-explanations for the same results. On that, I am not sure that the authors carried out all controls that would be necessary or possible in terms of the advantages they find (which are small in scale, in any case), as a control by complexity of the project seems a rather clear missing piece in their testing strategy. Therefore, their results need to be taken with a pinch of salt.

As mentioned above, I think that these two papers reflect a broader trend of support for the exercise of discretion in the context of procurement -- in particular during the execution phase -- and emerging evidence (or at least claims to that evidence) that the exercise of such discretion can result in positive effects beyond the procurement phase of the public expenditure cycle. On the whole, this could push for reduced controls on the exercise of that discretion (or a lax approach to it) and a move of the focus on the design and award of the contract towards its execution.

This triggers me to think about the constraints on the exercise of that discretion (during the execution phase, but also in earlier procurement stages) that can be necessary to ensure that only positive results are achieved. Not surprisingly, I think that the key will be in the principle of competition and a pro-competitive orientated application of the proportionality principle. Roughly, that is what I will try to do in my forthcoming paper. I will post it here when ready. In the meantime, comments are most welcome.

In-depth discussions on contract modifications at the Danish Association for Public Procurement

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I had the honour of being invited to speak at the workshop on "Contract Changes in a European Perspective" organised by the Danish Association for Public Procurement (Dansk Forening for Udbudsret), where I shared thoughts with academic colleagues that have been researching on the topic for a long time--such as Prof Steen Treumer, Dr Piotr Bogdanowicz and Dr Carina Risvig Hamer--as well as with practitioners, such as Erik Kjær-Hansen, facing the increasingly complex task of advising contracting authorities and economic operators.

In my presentation, I covered general issues concerning the interaction between contract modifications and competition for public contracts (slides below), Piotr concentrated on specific interpretive difficulties raised by Article 72 of Directive 2014/24/EU, and the general discussion raised interesting topics based on Danish practice--which is rather sophisticated, and also in a state of shock after the CJEU's Finn Frogne decision of last year (see here).

In my view, there are significant challenges derived from the extension of EU rules to the execution phase of public contracts and the pro-competitive logic that generally inspires the rules in Article 72 of Directive 2014/24/EU, as well as the previous case law of the CJEU, is limited and bound to continue hitting the wall of unnecessary inflexibility of procurement procedures unless some more commercially-oriented sophistication is introduced in future case law (which should limit, if not reverse, Finn Frogne).

In the meantime, there is notable pressure on lawyers involved in the drafting of contract modification clauses, which are after an impossible mix of flexibility and predictability. Definitely an area where further discussions are needed. If you want to get involved in the conversation, please feel free to email me at a.sanchez-graells@bristol.ac.uk (or comment below).

Comments to Danish Draft Guidelines on Joint Tendering

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The Danish Competition and Consumer Authority has published draft guidelines on joint bidding under competition law and invited comments by 1 September 2017. The following are the comments I have provided in the context of this public consultation. It will be interesting for me to see if the Authority takes any of these issues into account in the final version of its guidance.

The document provides a useful overview of the issues involved in an analysis of the compatibility of undertakings’ collaboration for the submission of joint tenders for public contracts with Article 101 TFEU (and domestic equivalents). The guidance is largely applicable to subcontracting arrangements as well, and it usefully incorporates recent examples of competition investigations in Scandinavian jurisdictions—with special attention given to the recent EFTA Ski Taxi Judgment.[1] It is particularly welcome that the Danish Competition and Consumer Authority has made the effort of publishing the guidelines in English, which can position them as an important point of reference in all EU/EEA jurisdictions after their official adoption.

The draft guidelines pivot centrally around the consideration of whether undertakings seeking to collaborate in the submission of a joint tender could bid independently for a given contract. That is, they follow the standard approach of considering that collaboration in the form of joint bidding (or subcontracting) is problematic where it reduces the level of competition that could otherwise exist for a public contract, unless it generates net efficiencies that are passed on to the contracting authority.[2] From that perspective, the draft guidelines send some useful clear messages, such as the need:

  1. for undertakings to conduct objective self-assessments of their own capacity to individually perform the contract prior to engaging in discussions with potential consortium partners;
  2. to tailor the analysis to the size and requirements of the lots in which a contract can be divided, rather than limiting the assessment to a holistic view in relation to the execution of the whole contract;
  3. to carry out case-by-case assessments of that capacity and the ensuing warning against stable joint tendering arrangements that fail to meet the thresholds for the creation of a full functioning joint venture; and
  4. to keep adequate records of those assessments for the purposes of enabling full and considerate responses to requests for information in the context of a competition investigation.

Given the complexity of the topic, however, there are some aspects of the draft guidelines that are less clear cut and where, in my opinion, there is scope for improvement and further clarification in the guidance finally adopted by the Authority. The assessment of relationships of potential competition in the context of restrictions of competition by object and the treatment of risk-driven collaborations deserve some careful consideration. These are issues that have spillover effects on the treatment of exchanges of information between undertakings considering bidding jointly for a public tender. This contribution addresses these three issues.

1. Treatment of potential competition

 The guidelines concentrate on the analysis of joint tendering by competitors and, implicitly, recognise that non-competing undertakings can freely cooperate in the context of public procurement (as in any other area of economic activity). This could be said explicitly, but there is no indication to the contrary in the draft guidelines. However, given the broad approach to the consideration of potential competition relationships between consortium members, and the assumption that joint bidding can be assessed as a restriction of competition by object because it involves price setting (following the EFTA Ski Taxi Judgement, above, in p. 20, box 2.11), the guidelines create some uncertainty.

On the one hand, because they indicate the possibility of joint tendering benefitting from block exemption regulations (BERs, see p. 30, para 3.2), despite the fact that price fixing is a hardcore restriction that excludes the applicability of the BERs. It would thus need to be clarified whether the Authority considers joint tendering as a restriction by object structurally involving price fixing or not, as well as the consequences of the position taken on this point. On the other hand, the guidelines create uncertainty because they do not address the tricky boundary issue of joint tendering by potential competitors as clearly as it would be possible.

The ambivalence or lack of clarity of the guidelines on this issue permeates the analysis and sometimes results in confusing expressions, such as the indication that chapter 3 assesses “the conditions that must be fulfilled for a consortium (including between competitors) to be exempted from the prohibition against agreements that restrict competition” (p. 23, introduction, emphasis added). Literally, this statement is incorrect, as joint bidding by consortia between non-competing undertakings does not run against the prohibition of Article 101(1) TFEU. In this case, it is possible that some word (such as “potential” competitors) is missing, but it is also possible that the guidelines are not too clearly set on the limits to the extension of the prohibition of Article 101(1) TFEU to (theoretically) potential competitors for a public contract.

This is an issue that has been recently discussed to some length,[3] and one which affects different aspects of the analysis under Article 101(1) and 101(3) TFEU that do not appear explicitly interconnected in the draft guidelines. In my view, there are two aspects that can be clarified.

First, the guidelines are not explicit in indicating how to carry out the analysis of an undertaking’s condition of potential competitor for a contract. There is just a mention to the effect that, in the assessment of “whether a company [rectius, undertaking] could [potentially] be able to bid individually, the Authority looks at whether this could constitute a sustainable economic strategy for the company (sic). This means firstly that a mere theoretical possibility of carrying out a contract is not enough; the possibility must be real and is shall include assessing that the offer must be profitable. The assessment shall be made on an objective basis” (p. 9, para 2.2).

This triggers two issues. One concerns the relevance of economic sustainability where the execution of a public contract is a one-off instance or involves a short to medium term project, where sustainability does not seem to raise particular issues or be the prime consideration. Another one concerns the assessment of profitability, in terms of the existence of economic incentives that justify potential additional investments, which requires a complex analysis of risk (discussed below 2). It seems clear that it is not sufficient to simply establish that an undertaking could have invested in additional resources to tender for the contract individually, but that it is necessary to establish that such investment was the rational economic decision to make under the circumstances (rather than engaging in a joint tender), which is always an ex post facto determination. In my opinion, great caution needs to be exercised here to avoid creating disincentives for joint tendering.

The guidelines could be improved by sketching, at the minimum, the circumstances in which the Authority would be willing to accept that an undertaking is justified in foregoing the potential investment to participate in the public tender, and the extent to which this can (and how it should) be documented. Logically, the same conditions need to justify a decision not to tender at all. If an undertaking is justified in not tendering (i.e., that is considered as the economically rational strategy), then it should also be justified in seeking collaboration. As mentioned below, this relates to an implicit duty to tender or else have a good rational for the tender hold-up, which seems more adequate for analysis under Article 102 TFEU than under Article 101(1) TFEU. In any case, difficult issues arise around any expectation or duty to participate in public tenders and the undertakings’ freedom to conduct a business under Art 16 of the EU Charter of Fundamental Rights, so careful consideration is necessary.

Second, the guidelines could be clearer in terms of the place for the establishment of counterfactual assessments. It seems that the guidelines do not consider the possibility of establishing an undertaking’s condition of potential competitor for a contract on the basis that it could have jointly tendered with undertaking(s) other than the one(s) it is eventually collaborating with. Such a possibility is only mentioned in relation with the assessment of the indispensability of an existing joint tendering agreement, where the draft guidelines indicate that, for an anticompetitive joint tender between (potential) competitors to be justified under Article 101(3) TFEU, “[t]here shall be no other economically viable and less restricting ways of achieving the efficiencies. This can be either in the form of bidding instead individually or forming a consortium with undertakings other than the ones in the current consortium” (p. 29, para 3.1.3, footnote omitted and emphasis added).

The fact that the existence of potential alternatives for collaboration is not use both to establish potential competition and the existence of potentially less restrictive forms of competition (ie, that it is not used both under an assessment of the Art 101(1) prohibition and the Art 101(3) exemption) should be welcome.

However, in my view, its use for the purposes of Art 101(3) is problematic. Once an undertaking has expressed its preference in collaborating with given consortium partner(s), it is difficult to accept the Authority’s role in second-guessing that an alternative collaboration would have been preferable (not only in competition terms, but also in business terms). The analysis of Art 101(3) TFEU should not involve this type of speculation, and it should suffice to establish that the joint bidders have not exceeded the limits required for the generation of the efficiencies derived from their agreement.

The possibility of having partnered with other undertakings seems to belong to the same logical plane as the decision not to partner with anyone (ie bid solo), or whether to tender at all. This is indicated in the draft guidelines itself themselves (see quote above), by linking the assessment of the undertaking’s ability to tender individually or to partner with other undertakings to do so. Those two decisions are equivalent in terms of establishing the undertaking’s condition of potential competitor for the contract, but they are not equally suitable for an assessment of whether less restrictive means existed, for the following reasons.

Where two potential competitors team up, then it can be argued that none of the restrictions was necessary at all and thus the assessment under Article 101(3) TFEU must fail. Conversely, where the agreement is between undertakings that would not have been potential competitors by themselves, the fact that a theoretically superior joint bidding arrangement could be conceived is irrelevant because the analysis under Article 101(3) TFEU must be limited to whether the arrangement in place generates efficiencies by the least restrictive means concerning the undertakings involved in the consortium. Considerations concerning third parties should be limited to an assessment of the fourth condition, concerning the consortium’s ability to eliminate competition for the contract—or, eventually, issues concerning infringements of Article 102 TFEU by the tenderer that could have participated solo and rather decided to ‘grab’ a partner that could have been strategic for a third party.

Therefore, it would seem more appropriate to move the assessment of the counterfactual consisting in the potential teaming with third party undertakings to the analysis of Art 101(1) TFEU with the sole purpose of establishing whether the joint tendering agreement is anticompetitive to begin with. In that setting, the circumstances in which a theoretically potential collaboration that is foregone is anticompetitive should also be clarified (as mentioned above) and, in my view, the clarification should be that such theoretical third arrangement is irrelevant.

Overall, taken together, these two issues point towards the need for more clarity in the guidelines concerning the assessment of situations where an undertaking is considered a potential competitor for a given public contract because it could have tendered for it (either individually, or in collaboration with third parties) but rather decides to team up with another potential competitor. As mentioned above, this seems to fit the framework of the rules applicable to a tender hold-up, which could be functionally assimilated to refusals to deal. In my view, developing the draft guidelines along these lines would improve them.

2. Treatment of risk-driven collaborations

The second main area where the draft guidelines could benefit from some clarification concerns the treatment of risk assessments carried out by undertakings considering the possibility to tender for a contract (either at all, or as part of a given consortium).

The first issue concerning risk-assessments that could be clarified is the extent to which they will actually be taken into account by the Authority. It seems contradictory or, at least confusing, that the draft guidelines indicate that “risk spreading is an element of the overall assessment of whether an undertaking can complete a contract on its own or whether it is objectively necessary to work with one or more undertakings” (p. 10, para 2.2) and at the same time that “[i]t will be difficult for a competition authority to make an ex post objective assessment of the risk taking on a contract … In this context, the issue of risk spreading will not necessarily be considered as an element when the Danish Competition and Consumer Authority assesses an undertaking’s capacity” (p. 11, same para). I find this difficult to understand and can see how the undertakings to which the draft guidelines are addressed may be confused. More clarity on the conditions in which the Authority will use or not internal documentation concerning risk-assessments would be desirable.

A second issue concerns the extent to which simultaneous tendering for different public contracts and their impact on the undertaking’s productive capacity features in the analysis. The draft guidelines usefully include a section on the analysis of the undertaking’s available capacity to undertake a contract and they recognise that, in some circumstances, foreseeable (recurring) commitments can be taken into account to establish that an undertaking does not have sufficient capacity to individually participate in a tender (pp. 14-15, para 2.2.4).

However, the guidelines do not seem to take into due consideration that undertakings active in procurement markets may (regularly) be tendering simultaneously for various contracts, which prospects of award are difficult to establish. In these cases, it is possible that a prudent business strategy requires the reservation of certain capacity in case the undertaking is successful in all of the simultaneous tenders (and this includes tenders which process of evaluation is live at the time of preparing the next tender), or at least a mitigation of that risk via cooperation with third parties (either by forming consortia, or through subcontracting).

Given the relevance (and, I would say, practical prevalence) of this circumstance, it would be desirable that the guidelines addressed it explicitly. Not only due to its impact on the assessment of the condition of potential competitor for a contract under Article 101(1) TFEU, but also due to the relevance that the draft guidelines give to this issue in terms of exemption under Article 101(3) TFEU (p. 26, para 3.1.1.1). In that regard, the guidelines indicate that “[i]n many cases, the risk of taking on a specific contract cannot in itself justify that companies shall not be considered competitors with regards to the contract. In such cases, risk considerations will only determine that the agreement is lawful under the competition rules if risk diversification leads to or contributes to companies submitting a better bid together than they would have been able to individually”. However, it could be that sometimes a joint bid is the only bid that potential competitors are willing to consider because their second best option is not a solo tender, but rather to withhold a tender for a contract that, if awarded, could tip them over their maximum capacity. In my view, more nuance could be introduced in relation with this aspect.

A third issue concerning risk assessment relates to the relevance given in the draft guidelines to the consortium’s expectation of competition for the contract. It is not clear to me why it would be relevant or adequate to consider that “[i]f a consortium that (sic) for instance participates in a public call for tenders where there are many participants and therefore there is effective competition for the contract, there will be greater likelihood that efficiencies are passed on to consumers in terms of lower offer price than if the consortium expects for example only another participant in the call for tenders” (p. 28, para 3.1.2). I find this inconsistent with economic theory. What is important to test the consortium’s incentives to tender aggressively (or the constraints to a limit pricing strategy) is whether they anticipate any (including only one) tender by an equally or more efficient tenderer. And, in any case, I struggle to envisage a legal test that could determine the extent to which the consortium was anticipating more or less competition for the contract. In that regard, I think that this element of risk management / strategic bidding should be clarified in the final version of the guidelines.

3. Spillover effects on exchanges of information

Given the issues surrounding the assessment of risk and the uncertainties concerning the effectiveness of using risk assessments to exclude the consideration of potential competitors of the consortium members or the existence of acceptable efficiencies in their joint tendering, the way in which the illegality of information exchanges is presented could constitute a significant disincentive for undertakings considering joint participation in public tenders.

In particular, the dissuasive effect can derive from the drafting of the paragraph that indicates that “[i]f it turns out that the undertakings that have considered entering into a consortium will themselves be able to bid for the contract and, thus, they are competitors, the information exchange that has taken place, will in fact constitute information exchange between competitors. This will be a criminal offence if the information is sensitive from a competition perspective. It is therefore important that each undertaking clarifies beforehand whether it can complete the contract individually and thus whether the undertakings are competitors” (p. 31, para 4.1, emphasis added).

It is possible that this dissuasion is mitigated by introducing more clarity concerning aspects of risk assessment identified above, in particular concerning the possibility of having teamed up with third parties and the assessment of potential capacity constraints. Otherwise, it could be advisable to provide more detail of the circumstances in which such exchange of information could lead to a prosecution.

In that regard, it would also be necessary to avoid statements that could be potentially misleading. In particular, in my view, it would be necessary to reconsider the indication that seeking legal advice could reduce the likelihood of an investigation or prosecution, not least because that could potentially run contrary to the interpretation of Article 101 TFEU by the Court of Justice of the European Union in its Schenker Judgment,[4] where it clearly indicated that “legal advice given by a lawyer cannot, in any event, form the basis of a legitimate expectation on the part of an undertaking that its conduct does not infringe Article 101 TFEU or will not give rise to the imposition of a fine”.[5]

_______________________

[1] For discussion, see here and A Sanchez-Graells, “Ski Taxi: Joint Bidding in Procurement as Price-Fixing?” (2017) 8(6) Journal of European Competition Law & Practice, forthcoming, available at https://academic.oup.com/jeclap/article-lookup/doi/10.1093/jeclap/lpx043, last accessed 07/07/2017.

[2] This is, in my view, the right general approach. See A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 336-340.

[3] E.g. see here, here, C Thomas, “Two Bids or not to Bid? An Exploration of the Legality of Joint Bidding and Subcontracting Under EU Competition Law” (2015) 6(9) Journal of European Competition Law & Practice 629-638; C Ritter, Joint Tendering Under EU Competition Law (February 1, 2017), available at https://ssrn.com/abstract=2909572, last accessed 07/07/2017; and most recently, and with a consolidation of all previous debates, I Herrera Anchustegui, “Joint Bidding and Object Restrictions of Competition: The EFTA Court’s Take in the ‘Taxi Case’” (2017) European Competition & Regulatory Law Review (CoRe) 174-179, available at https://ssrn.com/abstract=2966374, last accessed 07/07/2017.

[4] Judgment of 18 June 2013 in Schenker & Co. and Others, C-681/11, EU:C:2013:404.

[5] Idem, para 41.

New analysis of joint tendering under EU competition law: a few comments on Ritter (2017)

Cyril Ritter has made a new contribution to the analysis of joint tendering for public contracts under EU competition law in this interesting recent paper. Ritter's paper goes beyond previous discussion of the topic [eg my critical remarks on Thomas (2015), see here] and proposes an alternate analytical approach in many points. I find his analysis of different 'theories of harm' applicable to joint tendering interesting and insightful, and the special criteria he suggests for negotiated procedures and for tenders where one contractor is indispensable to two or more tenderers are thought-provoking. However, there are also aspects of Ritter's proposals which I do not see entirely clear, and where I do not think his paper goes much further than previous discussion of the topic.

One of the key issues that require clarification for the purposes of assessing whether join tendering breaches EU competition law (Art 101 TFEU) as an instance of anticompetitive joint selling concerns whether the members of the joint tender are competitors or not. On that point, Ritter emphasises that "what matters here is whether they are competitors for the purpose of the particular procurement procedure at issue" (p 4). After a review of the relevant ECJ case law, Commission's guidelines and administrative practice in the area of EU competition law enforcement, he proposes that the relevant question is to assess whether a firm has "real concrete possibilities" to bid for the contract being tendered (see p. 6). In his view, the burden of proof rests with the authority, but it can be shifted where the "authority brings substantial evidence that the parties are potential competitors" (ibid). Substantively, his main test requires assessing whether the firms have independent ability to bid for the contract, which is determined by the "ability to meet the tender specifications -- in terms of having sufficient spare capacity, equipment, staff, regulatory permits, quality certifications, etc" (p. 7). Interestingly, Ritter excludes the possibility of carrying out an analysis of the undertakings' intention to bid for the contract (pp. 9-10).

At this point, Ritter reaches the need to assess the extent to which it can be objectively determined that an undertaking had the ability to bid independently for a contract for which it has decided to bid jointly with others. He points out at the disagreement between Thomas an myself (see here) concerning whether the possibility of giving up alternative projects can/should (not) be included in the analysis. Ritter considers that the discussion may be beside the point, and that the issue rather requires an assessment of "what happens when a party to the joint tender would not be able to bid on its own (perhaps because capacity is allocated to other projects), but could have done so by hiring more staff, buying or renting more equipment, or teaming up with someone else? Should it be considered a potential competitor?" (p. 8).

Interestingly, this brings Ritter's proposed test very close to Thomas', where the latter indicates that it is important not to ignore "the possibility that each undertaking might nonetheless be able to submit an independent bid, by bringing in specialist resources from outside. If it were in fact feasible for each undertaking to submit a tender in this way, then surely it cannot be excluded that a joint bid would restrict competition. The real question is rather whether, in the absence of the joint bid, there could in fact have been two or more independent bids". And, more specifically, when Thomas clarifies that "One possible approach to this issue would be to ask whether, in the ordinary course of business, each undertaking would normally bring in such resources from outside. Alternatively, and more precisely, are such resources demonstrably available on reasonable terms and in time to prepare and submit the tender, from an undertaking that is not a competitor in the procurement procedure?".

As I said when I commented on Thomas' paper, I find this line of argument exceedingly restrictive. Conceptually, because it relies on an assessment of whether the parties of the teaming/joint bidding agreement could have cooperated with other undertakings or complemented their capacities in a different way (including the need to source additional capacity from elsewhere), which fundamentally and in itself proves the point that they were unable to submit bids individually or with a total independence from third parties (including suppliers or providers of services, as well as employees, although this raises the tricky issue of the need to contain the analysis within the limits of the concept of undertaking for the purposes of EU competition law enforcement). Once this is clear, I see no good reason for the assessment to rely on whether there were alternative potential partners that joint bidders could have (independently?) teamed up with, not least because this would require an excessive amount of second-guessing by procurement and competition authorities, who may not be the best placed to query business decisions ex post facto.

Indeed, the difficulty with this line of assessment is that it would require second-guessing business strategies and preferences actually revealed by the undertaking -- which decided to participate in the joint bid with its specific partners, rather than engaging in any of the other (theoretically) possible alternative business strategies -- and compare them with an alternative scenario envisaged by the enforcement authority. Even if Ritter advises against extracting hard and fast conclusions from such an analysis (p. 9), he does indicate that "the rule of thumb is that the parties to a joint tender are competitors if it reduces the number of tenders that realistically could have been made otherwise" (ibid).

Overall, this comes to indicate the difficulties in excluding the applicability of Art 101(1) TFEU to cases of joint tendering, which are likely to be considered potentially restrictive of competition in most instances if a strict objective assessment of the joint tenderers' ability to have tendered for the contract (independently, or with others) is carried out, as proposed by Thomas and Ritter. However, this does not necessarily eschew the analysis (although it does effectively reverse the burden of proof) towards the finding of infringements, provided that the possibility of declaring prima facie restrictive joint tendering agreements exempted under Art 101(3) TFEU properly concentrates on the analysis of their efficiency. Ritter addresses this issue towards the end of his paper (pp. 15-16).

In that regard, Ritter considers that the parties to the joint tendering agreement need to be able to show that

  • the joint tender improves the value proposition to the customer, e.g. in terms of price, or, more likely, in terms of quality (first and second conditions of Article 101(3); this assessment may require giving a monetary value to non-price factors);
  • achieving those efficiencies would not have been possible through a less restrictive alternative, such as hiring personnel or equipment, or teaming up with another firm which is not a competitor (third condition of Article 101(3); this assessment may entail an element of counterfactual analysis); and
  • the joint tender does not "afford such undertakings the possibility of eliminating competition" with respect to the procurement procedure at issue, i.e. the joint tender is unlikely to be the only tender (fourth condition of Article 101(3)) (Ritter (2017) 16, emphasis added)

Once more, this test also seems rather stringent and, in particular, its second aspect can be rather problematic. In its literal reading, the equivalent condition of Art 101(3) TFEU requires that the agreement does not "impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives". A strict reading, such as Ritter's, to the effect that this requires that "achieving those efficiencies would not have been possible through a less restrictive alternative, such as hiring personnel or equipment, or teaming up with another firm which is not a competitor (third condition of Article 101(3); this assessment may entail an element of counterfactual analysis)" would create the effect of conflating the test for the application of Art 101(1) TFEU and the exemption of Art 101(3) TFEU with the logically circular and perverse implication that any teaming agreement that is found prima facie restrictive and in breach of Art 101(1) TFEU because the parties could have sought additional personnel or equipment, or teamed up with a third party (itself not a competitor), is also necessarily excluded from exemption under Art 101(3) TFEU precisely because of those reasons.

The need to distinguish the elements for an analysis under Art 101(1) and Art 101(3) TFEU when the assessment includes the need to consider potential competition triggers some difficult issues. In the context of public procurement, this requires settling whether the assessment of the need for the (potential) competitive restriction implicit in the joint tender to generate the claimed efficiencies is, either (a) limited to the agreement under analysis, or (b) should also include the potential alternative business strategy which (theoretical) existence brought the joint tendering agreement under scrutiny in the first place. Existing European Commission Guidelines on  the application of Article 101(3) of the Treaty can provide a framework for this analysis.

The key part of the Art 101(3) TFEU Guidelines is para [76] and, more precisely, the consideration that "It is particularly relevant to examine whether, having due regard to the circumstances of the individual case, the parties could have achieved the efficiencies by means of another less restrictive type of agreement and, if so, when they would likely be able to obtain the efficiencies. It may also be necessary to examine whether the parties could have achieved the efficiencies on their own" (emphasis added). Applied to the specific point, I read this to require an assessment of whether a less restrictive agreement between the same parties would have allowed the joint tender and, potentially, whether they could have generated the same efficiencies (strictly) on their own, quod non because of the previous determination that they would have needed "hiring personnel or equipment or teaming up with a non-competitor" -- which in my view does not fit the counterfactual of an analysis of the ability of the party to bid for the tender all things being equal, which would have determined its classification as an actual competitor. My objection is that proceeding in the way Ritter suggests (ie considering the potential scenario of alterative business strategy both at Art 101(1) and Art 101(3) stages) would create, if not a circular or self-referential logic, at least a double whammy for the joint tenderers because their condition of potential competitors would not only be used to bring their agreement under Article 101(1) TFEU, but also to exclude its exemption under Article 101(3) TFEU -- which does create substantive analytical conflation in my view.

In my opinion, an alternative analysis is preferable, to the effect that 

... undertakings concluding joint bidding and teaming agreements should be able to prove that they can only submit a compliant tender if they participate together, or that the terms of their joint tender are substantially better for the public buyer than those they could offer independently—ie, that there are specific and measurable efficiencies derived from the teaming or joint bidding strategy and that they are passed on to the public buyer. For their part, contracting authorities will need to be on the lookout for potential negative impacts on competition in the market, as well as the inclusion of unnecessary restrictions in the teaming and joint bidding documents (A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 339, footnote omitted and emphasis added).

Or, in other words, I think that -- for the purposes of the application of Art 101(3) TFEU -- the analysis needs to rest on whether the joint tenderers have limited their collaboration to what was necessary to create the efficiency of their joint bid, or have rather improperly taken that chance to further restrict competition amongst them. But it should not revisit the same theoretical counterfactual analysis that brought the agreement under Art 101(1) TFEU scrutiny to begin with.

Some thoughts on regulatory substitution, public procurement and labour objectives

I am thrilled to participate in the event 'Socially Sustainable Public Procurement' organized by Dr Richard Craven at the University of Leicester tomorrow. Together with Richard and Dr Eleanor Aspey, I will be reflecting on issues around the use of public procurement for the enforcement of labour standards.

My comments (which I expect to reflect the minoritarian view) will be centered on issues of regulatory substitution and the competition implications that the ECJ's case law in Bundesdruckerei and Regiopost have created. This will help me sharpen the arguments for two papers that are in the making. More details soon. The slides for tomorrow's presentation are here:

CJEU on solo bids by consortium member after partner's bankruptcy: a competition-friendly test? (C-396/14)

In its Judgment of 24 May 2016 in MT Højgaard and Züblin, C-396/14, EU:C:2016:347, the Court of Justice of the European Union (CJEU) ruled on whether the principle of equal treatment of economic operators must be interpreted as precluding a contracting entity from allowing an economic operator that is a member of a group of two undertakings which was pre-selected and which submitted the first tender in a negotiated procedure for the award of a public contract, to continue to take part in that procedure in its own name, after the dissolution of that group due to the bankruptcy of the other partner.

This case is important because, even if it is based on the 2004 EU utilities procurement rules (Dir 2004/17), it makes general statements that carry over to public procurement covered by any other set of EU rules (notably Dir 2014/24), or even simply covered by the EU general principle of equal treatment and non-discrimination--thus pervading (almost) all instances of procurement at Member State level. Also of note, the MT Højgaard and Züblin Judgment explores the implications of the application of the principle of equal treatment for intra-tender competition and supports a flexible approach to the modification of bidding consortia that seems to be clearly pro-competitive. However, the CJEU's reasoning in the specific case comes with some difficulties attached, particularly in terms of the desirability of bidding consortia beyond the specific tender and the compatibility of EU public procurement and competition law.

Findings of the Court

In MT Højgaard and Züblin, the CJEU was presented with a case where a contracting authority was running a negotiated procedure with a prior call for competition, and where the contracting authority indicated that it wanted to proceed to negotiations with between four and six candidates. It received expressions of interest from five candidates, which included both the group consisting of MT Højgaard and Züblin (‘the Højgaard and Züblin group’) and the group consisting of Per Aarsleff and E. Pihl og Søn A/S (‘the Aarsleff and Pihl group’). The contracting authority pre-selected all five candidates and invited them to submit tenders. One of the pre-selected candidates subsequently withdrew from the procedure. 

There are some procedural complications due to the parallel existence of the domestic bankruptcy proceedings but, for the purposes of our discussion, the relevant fact is that Pihl entered into bankruptcy prior to the submission of the tender, which de facto implied the dissolution of the Aarsleff and Pihl group, but Aarsleff decided to proceed as a solo tenderer. The contracting authority was thus left with two options: (a) to consider that Aarsleff was not qualified on its own merits and to carry on with the negotiated procedure with 'only' three tenders; or, conversely, (b) to consider that Aarsleff could benefit from the qualification of the group to which it initially belonged and go forward with its desired minimum of four tenders.

After some analysis, the contracting authority 'informed all the tenderers of its decision to allow Aarsleff to continue to take part, alone, in the procedure. [It] explained that decision by stating that Aarsleff, which was the leading contracting company in Denmark in terms of turnover for the financial years 2012 and 2013, satisfied the conditions required for participation in the negotiated procedure, even in the absence of the technical and financial capacities of Pihl . In addition, Aarsleff had taken over the contracts of more than 50 salaried staff of Pihl, including the individuals who were key to the implementation of the project concerned' (C-396/14, para 14). Aarsleff was thus allowed to submit a tender and, after a further round of best and final offers between the three better placed tenderers, it was awarded the contract. Unsurprisingly, the Højgaard and Züblin group challenged the award decision.

As we will see, allowing Aarsleff to progress to the negotiation phase as a solo tenderer raises two separate issues: 1) whether Aarsleff needed to team up with Pihl at all in order to participate in the negotiated procedure [notably because, as confirmed by the referring Danish public procurement complaints board, 'on the basis of the information provided concerning Aarsleff, that company would have been pre-selected if it had sought an invitation to take part in its own name instead of doing so through the intermediary of the Aarsleff and Pihl group', para 18]; and 2) whether Aarsleff's technical standing was being reassessed at a point where no other candidates or potentially interested undertakings were having their technical standing assessed, which would in itself be a competitive advantage. However, the CJEU does not really focus on either of these issues in detail and the test it creates seems to miss some important analytical issues--which assessment is too conveniently left to the referring authority.

Rather, the CJEU focuses on an analysis of the situation as a modification of the composition of the bidding consortium formed by Aarsleff and Pihl. In doing so, the CJEU resorts to its case law in Makedoniko Metro and Michaniki (C‑57/01, EU:C:2003:47) and considers that in the absence of EU and Danish rules on the composition of bidding consortia, 'the question of whether a contracting entity may allow such an alteration must be examined with regard to the general principles of EU law, in particular the principle of equal treatment and the duty of transparency that flows from it, and the objectives of that law in relation to public procurement' (para 36). It then carries on with such an assessment and, fundamentally, determines that

38 The principle of equal treatment of tenderers, the aim of which is to promote the development of healthy and effective competition between undertakings taking part in a public procurement procedure, requires that all tenderers must be afforded equality of opportunity when formulating their tenders, and therefore implies that the tenders of all competitors must be subject to the same conditions ...
41 ...  [the rules on qualitative selection] may be qualified in order to ensure, in a negotiated procedure, adequate competition ...
42 ... the contracting entity considered that there should be at least four candidates in order to ensure such competition.
43 If, however, an economic operator is to continue to participate in the negotiated procedure in its own name, following the dissolution of the group of which it formed part and which had been pre-selected by the contracting entity, that continued participation must take place in conditions which do not infringe the principle of equal treatment of the tenderers as a whole.
44 In that regard, a contracting entity is not in breach of that principle where it permits one of two economic operators, who formed part of a group of undertakings that had, as such, been invited to submit tenders by that contracting entity, to take the place of that group following the group’s dissolution, and to take part, in its own name, in the negotiated procedure for the award of a public contract, provided that it is established, first, that that economic operator by itself meets the requirements laid down by the contracting entity and, second, that the continuation of its participation in that procedure does not mean that the other tenderers are placed at a competitive disadvantage.
45      In the main proceedings, it must, first, be stated that it is apparent  that had Aarsleff, alone, made an application for an invitation to take part in the procedure, it would have been pre-selected ...
47      Last, as regards the fact that, after the dissolution of the Aarsleff and Pihl group, Aarsleff took on the contracts of 50 salaried staff of Pihl, including individuals who were key to the implementation of the construction project concerned, it is for the referring court to determine whether Aarsleff thereby acquired a competitive advantage at the expense of the other tenderers (C-396/14, paras 38-47, references omitted and emphasis added). 

There are some initial remarks to make in view of this. First, the CJEU continues to be largely captured by the trap of tender-specific reasoning when it indicates that 'the aim of [the principle of equal treatment of tenderers] is to promote the development of healthy and effective competition between undertakings taking part in a public procurement procedure' (para 38, emphasis added). This is so because the CJEU fails to take into account that modification of procedural requirements (such as qualitative selection) once the tender is on-going can have discriminatory effects against interested undertakings that decided not to participate in the tender due to the requirements now being modified.

More importantly, the CJEU seems to give great weight to the fact that the contracting authority had determined that, for there to be effective competition in that specific tender, 'there should be at least four candidates in order to ensure such competition' (para 42). This is troubling both because the establishment of a bracket of four to six candidates is an arbitrary decision and it is hard to accept that having three offers is insufficient in the specific tender while the contracting authority decided to have a round of final and best offers precisely with three tenderers only.

Thus, from a material point of view, the way the CJEU conceptualises the relevant competitive framework (as intra-tender, and subject to the minimum participation of four candidates) is very artificial. Nonetheless, these issues do not seem to weigh too heavily in the actual reasoning of the CJEU, which  imposes a flexible approach to the rules on modification of bidding consortia, subject to respect for the qualitative selection requirements imposed by the contracting authority (ie, no selective/preferential waivers), as well as the absence of competitive advantage.

changes in the composition of bidding consortia prior to award,
even when they are only a duo

In abstract and general terms, the approach taken by the CJEU should be welcome because it focuses on the creation of the maximum possible flexibility so as to preserve (intra-tender) competitive pressure. This is something I had broadly advocated for:

Member States should depart from formal criteria based on rigid interpretations of the principle of equal treatment in designing their domestic provisions on bidding consortia—such as rules regulating their composition, their modification, etc. Rules on bidding consortia should adopt a pro-competitive orientation and, consequently, should foster participation of consortia to the maximum possible extent permitted by competition law. In this regard, the general criterion should be to allow the most flexible solutions unless their implementation could be materially negative for the development of the tender process. Along these lines, in relation with, for example, modifications of a group of contractors—such as the inclusion of new members, exclusion or substitution of previous members, re-allocation of shares to the consortium, or of responsibilities and tasks, etc—these should be allowed under national public procurement rules if they are not material, in the sense that the modified composition or internal rules of the consortium have not altered the contracting authority’s decision to qualify the group or to allow it to proceed to any of the stages of the procurement process already conducted. It is submitted that this flexibility should go as far as to allow for the substitution of a consortium with one of its (leading) members, as long as it can prove that it still fulfils all the relevant requirements set by the tender specifications and documents (for instance, by subcontracting to the former members of the consortium or with equally acceptable or equivalent third companies)—since, at least functionally, the group of undertakings involved in the tender would not be materially altered, even though the distribution of risks, responsibilities and benefits amongst them might have significantly changed. Such flexibility is required by the need to favour the continued participation of consortia (or, at least, their core members) in the tender process, since it increases competition and enhances the chances of the public buyer obtaining value for money [A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 339, footnotes omitted].

However, the issue here is that, in the specific case, it is unclear how Aarsleff could simultaneously have been qualified without resort to Pihl's specialist technical capabilities (particularly, in terms of human resources), and at the same time the fact that it took over the contracts of 50 of Pihl's employees is relevant in terms of ensuring that the changes to the consortium are not material for the purposes of allowing it to proceed as a solo tenderer. Without more details on the case, this is difficult to assess this issue, but it would seem that for Aarsleff's to meet the qualitative selection criteria on its own, it should have demonstrated to have capacity to carry out the specialist bits of the project independently. If this is true, then it would seem that Aarsleff and Pihl's consortium should not have been allowed at all, due to the uncompensated restriction of competition implicit in such type of teaming arrangement (see below).

However, if Aarsleff  had not demonstrated specialist capabilities at qualitative selection stage (because it was not a qualitative selection requirement) and this is only assessed at award stage, it seems that allowing it to rely on the fact that it took over employees from Pihl is a borderline case of conflation of selection and award criteria (not allowed under the rules of Dir 2004/17, but now allowed under the 2014 public procurement package). This can be problematic on its own, but the case does not provide enough information to assess it. At any rate, though, what seems very clear is that the contracting authority seemed to take a "dynamic approach" to the assessment of the technical capabilities of Aarsleff (first as part of the consortium and then on its own, but having taken over part of Pihl's workforce), which seems to create a competitive advantage per se [or, at least, to warrant a very close scrutiny, as stressed by AG Mengozzi in his Opinion (EU:C:2015:774, paras 80-82, not available in English)].

By not establishing this in clear terms and including this concern only as a caveat of the main test created in the MT Højgaard and Züblin Judgment, the CJEU leaves the assessment open to the consideration of the referring Danish complaints board. In that regard, it is important to stress that, in the latter's view,

[the contracting authority] laid down minimum conditions as to quality with respect to the technical capacities of the tenderers and was to undertake a qualitative assessment of the applications only if their number was greater than six. Aarsleff could therefore have been pre-selected in its own name, without being part of the Aarsleff and Pihl group. The fact that Aarsleff took the place of that group had, moreover, no effect on the situation of tenderers, in so far as none of the candidates was excluded in the pre-selection phase and none would have been rejected if Aarsleff itself had applied for an invitation to take part (C-396/14, para 19).

This may well lead the Danish complaints board to conclude that Aarsleff did not gain any competitive advantage over the other candidates participating in the tender. If nothing else, from the beginning, they knew that the capacities of Aarsleff and Pihl would be combined to submit a competing tender. The fact that Aarleff did that under its own name rather than in the name of the group could be seen as a formality without any practical relevance.

However, the broader point is that, once more, this type of reasoning can be affected by the trap of tender-specific reasoning. If it had been foreseeable for undertakings that decided not to participate in the tender that they would only need to demonstrate specialist technical capacity at tender award stage, then this is correct. However, if it would have been the reasonable interpretation that interested economic operators had to demonstrate such specialist capacity at qualitative selection stage, then the analysis would be wrong by failing to identify the discrimination/ disadvantage/ unequal treatment of potentially interested candidates that decided not to participate in the tender.

Thus, it would seem legally sounder to decide the case on the basis of whether the possibility to demonstrate that capacity at tender-specific level (ie award stage) was foreseeable ex ante (and legal, which seems difficult to justify on the basis of Dir 2004/17 and the Lianakis line of case law that controlled its interpretation), rather than whether it is discriminatory ex post. In any case, however, there is the broader issue that the CJEU does not tackle head on, and this is whether the Aarsleff and Pihl's consortium should not have been allowed at all due to its potential incompatibiity with competition law, which requires some attention.

the desirability of bidding consortia more broadly; did the CJEU miss it?

Overall, and from a logical perspective, the discussion on the rules applicable to changes in the composition of bidding consortia and their permissibility necessarily comes second to the broader question of the desirability of bidding consortia in themselves. In my view, this should be assessed under the following framework:

public procurement rules on teaming and joint bidding should be in perfect compliance with article 101 TFEU on agreements between undertakings and its case law—since public procurement rules cannot establish derogations or carve-outs to this fundamental provision of primary EU law ... In this regard, teaming and joint bidding must be seen as instances of collaboration between undertakings and, consequently, should be prohibited if they have as their object or effect the prevention, restriction or distortion of competition (ex art 101(1) TFEU), unless (i) they meet the requirements for the legal exemption of article 101(3) TFEU, (ii) they can be considered de minimis, or (iii) they are otherwise exempted from the general prohibition. Of particular relevance here will be the interpretation that should be given to article 101(3) TFEU in the field of public procurement—ie, what requirements should be met by efficient teaming and joint bidding agreements to benefit from the legal exemption. In this regard, it should be noted that—provided the conditions regarding the indispensability of the restrictions derived from the agreement, and regarding the preservation (rectius, non-elimination) of competition in the market are complied with, so that teaming and joint bidding agreements do not distort competition in the market—otherwise restrictive consortia agreements are desirable if they expand the number of candidates or tenderers (ie, if they are concluded between firms that do not have the economic capabilities to undertake the procured contract individually) and/or if they intensify the competition between existing candidates or tenderers (ie, if they improve upon the participants’ efficiency to the benefit of the public buyer). Therefore, the relevant criteria from a competition law perspective seem to be that teaming and joint bidding must contribute to intensifying competition within the tender while not generating significant competitive distortions in the market—eg, not generating significant exclusionary effects or otherwise imposing unnecessary restrictions on the market behaviour of the parties to the consortium agreement [Sanchez-Graells, Public procurement and the EU competition rules (2015) 338-339, footnotes omitted and emphasis added].

In this specific case, and on the basis of the limited information available in the MT Højgaard and Züblin Judgment, there seems to be a prima facie case to consider that Aarsleff could have participated in the tender on its own and, consequently, there was no justification for it to team up with Pihl if it was a potential competitor, or to prevent the creation of valuable subcontracting relationships between Pihl and third parties. At the very least, Aarsleff should be required to demonstrate and justify the advantages that it intended to achieve with its collaboration with Pihl and how these would have (or indeed have) been passed on to the contracting authority.Thus, a more detailed assessment would be necessary to determine whether the formation of the Aarsleff and Pihl group was in itself restrictive of competition--eg by allowing Aarsleff to 'grab' the specialist technical capabilities of Pihl in order to prevent it from teaming up with a potential competitor or to compete for the contract on its (if it had the necessary capacities)--or not. This is something only the Danish complaints board can do at this stage, if at all.

Final Comments

Overall, it can well be that all the issues discussed here are simply apparent problems derived from the very stylised version of the facts available in the MT Højgaard and Züblin CJEU Judgment. However, in my view, they serve as a cautionary tale against the adoption of seemingly competition-friendly solutions to deal with specific public procurement issues, without previously checking that the competitive situation is not conceived in an artificial manner (ie the need to avoid the trap of tender-specific reasoning) and that the more general compatibility between EU public procurement and competition law is ensured.

Interesting short paper on public procurement and competition law: Blažo (2015)

Reading O Blažo, 'Public Procurement Directive and Competition Law - Really United in Diversity?' (2015), I have found some interesting and thought-provoking remarks on the impact of public procurement regulation over the effectiveness of competition law enforcement. The paper focuses 'mainly on three problematic issues: participation of companies of the same economic group in public procurement procedure, disqualification for cartel infringement, attractiveness of leniency programme'.

Multiple bidding by members of an economic group

Blažo's discussion of the issue of multiple participation by companies of the same economic group discusses Assitur (C-538/07, EU:C:2009:317), where the Court of Justice of the European Union (CJEU) declared contrary to EU public procurement law an Italian rule not allowing companies linked by a relationship of control or significant influence to participate, as competing tenderers, in the same procedure for the award of a public contract. The CJEU determined that, 'while pursuing legitimate objectives of equality of treatment of tenderers and transparency in procedures for the award of public contracts, [a national rule that] lays down an absolute prohibition on simultaneous and competing participation in the same tendering procedure by undertakings linked by a relationship of control or affiliated to one another, without allowing them an opportunity to demonstrate that that relationship did not influence their conduct in the course of that tendering procedure' is incompatible with EU public procurement law (para 33, emphasis added). 

Blažo considers that this 'appears as “over-regulation” and “under-regulation” [at] the same time in his context: it does not solve problem of participation of several companies forming of one economic group in one tender procedure and on the other hand outlaws their automatic exclusion'. I would disagree with this critical assessment and submit that the CJEU reached a good balance of competing interests (ie ensuring sufficient intra-tender competition vs avoiding collusion or manipulation risks). As I wrote in Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 341-342 (references omitted): 

the grounds for exclusion based on professional qualities of the tenderers—and the existence of relationships of control between them, or their control structure, is clearly a professional quality—are exhaustively listed in article 57 of Directive 2014/24, which precludes Member States or contracting authorities from adding other grounds for exclusion based on criteria relating to professional qualities of the candidate or tenderer, such as professional honesty, solvency and economic and financial capacity. Nevertheless, it does not preclude the option for Member States to maintain or adopt substantive rules designed, in particular, to ensure, in the field of public procurement, observance of the principle of equal treatment and of the principle of transparency. Given that the extension of the ban on multiple bidding has as its clear rationale the prevention of discrimination between self-standing entities and those integrated in group structures, prima facie it seems to constitute a case of permitted additional ground for the exclusion of tenderers not regulated by article 57 of Directive 2014/24.
However, as also noted, when establishing these additional grounds for the exclusion of tenderers, Member States must comply with the principle of proportionality and the automatic exclusion of tenderers for the sole fact of belonging to the same legal group seems to be in breach of this latter requirement. Interestingly, EU case law seems to be moving in the direction of restricting the scope of this type of (extended) prohibition by outlawing the automatic exclusion from tendering procedures of tenderers between which there exists a relationship of control (as defined by national law) without giving them an opportunity to prove that, in the circumstances of the case, that relationship had not led to an infringement of the principles of equal treatment of tenderers and of transparency.
This would be in line with the rules applicable to the treatment of conflicts of interest (art 24 Dir 2014/24), which only justify the exclusion of candidates and tenderers ‘where a conflict of interest … cannot be effectively remedied by other less intrusive measures’ (art 57(4)(e) Dir 2014/24). 

Exclusion of competition law infringers, Self-cleaning & impact on the attractiveness of leniency programmes

Interestingly, Blažo explains that, under the version of Slovak procurement law prior to the transposition of Dir 2014/24, contracting authorities were bound to exclude tenderers that had been convicted of infringements of competition law [on this, see Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469, and discussion here], but 'undertaking[s] who successfully qualified for the leniency program (immunity as well as fine
reduction)
' were not excluded from participation in public procurement procedures. Or, in more detail, 'The scheme excluding entrepreneurs who have been convicted of a cartel in public procurement applies automatically, therefore there is no need to issue any other disqualification decision. It is also a compulsory system, thus the contracting authority authority shall be obliged to exclude such an undertaking ex officio, and the law does not allow any way to alleviate such sanctions. Only the undertaking who takes part in an agreement restricting competition in public procurement can avoid exclusion from public procurement, its cooperation with the Antimonopoly Office in leniency program' (Blažo, p. 1494).

Blažo then goes on to assess the changes that the transposition of Dir 2014/24 will require [in particular, art 57(4)(d) on the exclusion of competition law infringers and art 57(6) on self-cleaning, for discussion, see here and A Sanchez-Graells, 'Exclusion, Qualitative Selection and Short-listing', in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129], noting that 'the directive does not expressly mention leniency program as an exemption from exclusion'; and, in particular, criticises the fact that Art 57(7) requires that Member States 'shall, in particular, determine the maximum period of exclusion if no [self-cleaning] measures ... are taken by the economic operator to demonstrate its reliability. Where the period of exclusion has not been set by final judgment, that period shall not exceed ... three years from the date of the relevant event in the cases referred to in paragraph 4'. In view of this, Blažo concludes that

If the contracting entity wishes to establish an infringement using a final decision of competition authority (or judgment dismissing the action against such a decision), it is almost unrealistic to have these documents available within three years from the infringement, or the time for which the undertaking can be excluded from public procurement will be very short. It is obvious that word-by-word transposition of the PPD into Slovak legal order eliminates current patterns punishment of undertakings for bid rigging and replaces it with a system that does not constitute a sufficient threat of sanctions, which would have preventive effects against cartels in public procurement. Furthermore even in case of effective application of this system, it may discourage leniency applicants and thus undermine effective public enforcement of competition law (p. 1495).

I share some of his concerns about the difficulty of establishing appropriate timeframes for exclusion based on competition law infringements. As I pointed out in Public procurement and the EU competition rules, 2nd edn (2015) 291:

This raises the issue of how to compute the maximum duration, particularly in the case of article 57(4) violations, as the reference to the ‘relevant event’ admits different interpretations (ie, either from the moment of the relevant violation, or the moment in which the contracting authority is aware of it or can prove it). Given that some of the violations may take time to identify (eg, emergence of a previous bid rigging conspiracy that can be tackled under art 57(4)(c) Dir 2014/24), a possibilistic interpretation will be necessary to avoid reducing the effectiveness of these exclusion grounds. In any case, compliance with domestic administrative rules will be fundamental.

However, I am not sure that I share the concerns about the effectiveness of leniency programmes and their attractiveness for undertakings that may risk exclusion from procurement procedures. First, I am generally sceptical of the claim that leniency programmes need to be protected at all costs (see here, here and here). Second, and looking specifically at the worry that not having a mention to leniency programmes in Dir 2014/24 may exclude or reduce the possibility for contracting authorities (or Member States) to treat leniency applicants favourably in the procurement context, I am not sure that this is the case, mainly, because it would still seem possible for competition rules to foresee that any final decisions declaring the infringement of competition law should not include sanctions concerning debarment from public procurement procedures for leniency applicants (I am not convinced that this is desirable, but it is certainly possible). In that case, there would be no final judgment from which the exclusion could derive and, consequently, contracting authorities intending to exclude the leniency applicant in view of its previous infringement of competition law would be using their discretion to exclude without the constraints derived from the previous decision. This has a significant impact in terms of self-cleaning.

While Art 57(6) in fine foresees that 'An economic operator which has been excluded by final judgment from participating in procurement ... shall not be entitled to make use of the [self-cleaning] possibility ... during the period of exclusion resulting from that judgment in the Member States where the judgment is effective' [something I criticised in 'Exclusion, Qualitative Selection and Short-listing' (2014) 113], this restriction does not apply in the absence of a final judgment imposing the exclusion. Thus, the successful leniency applicant would still be able to rely on its leniency application and collaboration with the competition authority in order to claim it has complied with the requirements of the self-cleaning provisions in Art 57(6) Dir 2014/24. The sticky point would be the need to 'prove that it has paid or undertaken to pay compensation in respect of any damage caused by the ... misconduct'. Of course, this takes us back to the claim that leniency programmes will not be attractive if, in addition to exempting the applicant from the competition fine that would otherwise be applicable (let's remember it can be up to 10% of its turnover), they do not also shield competition law infringers from claims for damages--and now public procurement debarment. As mentioned, I am highly sceptical of these claims and, from a normative perspective, I am not persuaded that leniency should come at such high cost.

In any case, these are interesting issues and it would be very relevant to engage in empirical research to see if the entry into force of Dir 2014/24 last month actually has an impact on the effectiveness of leniency programmes in the EU.

 

RegioPost and its implications: personal notes of the full extended discussion at Bristol conference

Pictures by @PetraOden & @asanchezgraells

Pictures by @PetraOden & @asanchezgraells

Spending a whole day with friends and distinguished academics discussing the RegioPost judgment and its implications for the enforcement of labour law standards in public procurement settings under EU law proved to be both intellectually challenging and very rewarding. I am sincerely grateful to all speakers and participants for the excellent exchange of ideas (the event was definitely not short on controversy ...).

It will take us some time to get the formal publication of the proceedings of the conference in place, so I thought it would useful to advance here some of the most salient issues discussed at the event. These are my (lengthy) personal notes and, even if I tried to capture the essence of the speakers' presentations, they may not represent their views and they do not bind them in any way; all mistakes in these notes are my own.

Joanne Conaghan gave us a very warm welcome (literally, for it was a really hot day in Bristol after the gorgeous weekend weather) and stressed the relevance of putting the discussions to be held in the broader context of the constant struggle of harmonising economic and social considerations in any regulatory and policy framework.

With this in mind, the discussions for the day were organised around four panels, covering in turn different perspectives of the RegioPost judgment and, more generally, the difficulties and challenges in enforcing labour standards through public procurement. 

Panel 1: Constitutional and Internal Market Aspects of the Enforcement of Labour Standards in the EU

Constitutional view on RegioPost

Phil Syrpis' paper addressed the constitutional framework considering the dynamic relationship between secondary and primary EU law, and in particular how the posting of workers directive (PWD) impacts on provision of services in the EU. Two constitutional visions: a) all secondary legislation is under the Treaties and, consequently, secondary law cannot have any influence on the way the CJEU interprets primary law; b) more organic or heterarchical model, the CJEU’s monopoly on the interpretation of primary law is necessarily complemented by legislative action whereby the legislative institutions provide input on the context of the rights and, consequently, the CJEU should take this into account when interpreting rights under the Treaties.

Not clear how secondary law in conflict with previous case law of the CJEU should be dealt with, as both models are in tension. The case law of the CJEU is inconsistent and the Court has not clarified what is the right approach in cases of conflict between secondary law and previous case law interpreting primary law. As an aside – these issues raise important points for Brexit, particularly when some directives create individual rights, as well as the possibility for MS to shape social and citizenship rights and influence the case law of the CJEU.

Initial reaction to RegioPost is that it clarifies some issues, but it confuses others too. Essentially, the question was about compatibility with Art 56 TFEU for the regional government to insist on compliance with regional minimum wage. Usefully, the CJEU distinguished between exhaustive and non-exhaustive harmonisation. Where there is exhaustive harmonisation, the framework provided by the secondary legislation displaces that of the Treaty. From a constitutional perspective, that is the easy case. However, Art 26 Dir 2004/18 does not lay down exhaustive rules on contract performance and, consequently, the analysis of legality needs to be carried out under primary law—ie Art 56 TFEU. Moreover, Art 26 explicitly required for contract compliance clauses to be in compliance with Union Law.

However, in para 60 of RegioPost, despite saying they would assess under primary law, the Court actually assessed compliance with the PWD, which is a measure of non-exhaustive secondary legislation as well. In the light of the relationship between primary and secondary law, this approach is strange and complicates the issue of what the hierarchies are. The provision of regional law was determined to be compatible with EU law due to compliance with Art 3 PWD, rather that Art 56 TFEU, which is unusual and confusing.

Distinction between exhaustive and non-exhaustive harmonisation presupposes that most initiatives by the EU legislator will be of exhaustive harmonisation. However, exhaustive harmonisation is never the case, particularly in areas such as social or environmental law. This requires a more sophisticated approach to what to do in these areas in terms of compatibility with EU law.

PWD and Dir 2004/18 seem to be in a strange relationship because the legality under Dir 2004/18 ends up depending on the interpretation of the PWD—does this trigger a privileged position of the PWD over the procurement rules? RegioPost suggests that the CJEU’s controversial interpretation of the PWD is more important to the CJEU than the interpretation of the procurement rules. That is odd. What should the relationship between particular directive and the CJEU’s interpretation of the Treaty? ‘Provided they are compatible with the Treaties’ should imply some independent analysis of compatibility with Art 56 TFEU itself, almost regardless of compatibility with other rules of secondary EU law.

For the future: what is the likely impact for changes in the public procurement rules? Art 26 Dir 2004/18 vis-à-vis Arts 18(2) and 70 Dir 2014/24. Does the subtle wording in Dir 2014/24 alter the position of the procurement rules? Also, in view of the proposals for the revision of the PWD, there are queries as to the permeability of procurement rules to that reform. Finally, it is also unclear to what extent these changes in secondary law are likely to affect the CJEU’s case law and interpretation of primary law (will it reflect the organic model?).

Art 56 TFEU and the principle of proportionality

Piotr Bogdanowicz stressed that RegioPost has been described as the gold standard for the social protection of workers performing public contracts. However, there was no reference to proportionality in the judgment. Generally, there is a three step methodology in this area: restriction, justification and proportionality assessment. It is surprising that RegioPost does not engage in this three-step analysis because it had been used in Ruffert and Bundesdruckerei. The lack of this analysis is a shortcoming of this Judgment and, unfortunately, another case challenging the coherence of the case law of the CJEU.

Why should proportionality apply to RegioPost? Because Art 56 TFEU should apply, mainly due to the fact that procurement rules are a fundamental expression of free provision of services, as well as the fact that the fundamental freedoms are the legal basis for the adoption of the Directives. Furthermore, due to the lack of exhaustive harmonisation.

The analysis is odd because, should Art 26 Dir 2004/18 not have required compatibility with EU law, would this have been an issue? This is particularly relevant because Art 70 Dir 2014/24 does not require it. In Piotr's opinion, there is no need for this requirement to be written in secondary law because it derives simply from supremacy of EU law. And, in order to assess such compatibility, the three-step approach needs to be followed. Restrictions are easy to prove and the CJEU rarely rejects the public interest reasons raised by the Member States, so proportionality ends up being the key issue of analysis in almost all cases.

In procurement, proportionality is particularly relevant because it has been included from the early generations of public procurement directives. Proportionality has always been applied in the procurement setting as a general principle of EU law. It was applied in the case law anticipating RegioPost (Ruffert and Bundesdruckerei) and in both cases the CJEU found that national measures did not pass the proportionality test. The importance of proportionality is also reflected in Art 18(1) Dir 2014/24, where it is explicitly consolidated.

Why did the CJEU not apply proportionality? It is difficult to identify the reasons why, mainly because it derives from the construction of the judgment itself. In para 67, the CJEU stresses that interpretation of Art 26 Dir 2004/18 is supported by Art 56 TFEU, which is a strange argument. That is why the abrogation of the proportionality analysis is an odd analytical strategy. In Ruffert, the CJEU had gone the same way but did apply proportionality to assess compatibility with EU law (after the restriction was demonstrated under the PWD). Even if the CJEU wanted to distinguish RegioPost from Ruffert, it ought to have carried the proportionality analysis. As it is now, it seems that the PWD offers a safe haven for national law, which could have been done 8 years ago (in Ruffert), but not now because Art 26 Dir 2004/18 applied to the case and this should have triggered a different analysis.

This adds complication under Dir 2014/24 because of Art 70 + 18(1), which change wording and potentially the test. The case law of the CJEU shows that the more politically sensitive the case, the less intrusive the scrutiny seems to be. ‘Indulgent’ scrutiny was advocated for by AG Mengozzi because the measure is applicable to workers assigned to public contracts rather than workers in the private sector—this raises an issue of conflict between economic and non-economic goals (competition v social protection). This, however, should trigger a strict proportionality test.

The implications of lack of proportionality in RegioPost are severe. A recent report by Bruegel showed that there is 1.2 million posted workers in the EU, 40% come from Eastern countries (20% come from Poland). The CJEU seems to have adopted a more careful approach to the PWD and this may improve the situation for posted workers. This is something that requires further case law from the CJEU.

DEBATE

focused on complex issues around the way the preliminary reference ‘framed’ the CJEU’s assessment and why the CJEU ‘abrogated’ alternative analyses such as non-discrimination or split of competences. The discussion also covered the difficulty of applying proportionality in fields where we are dealing with incommensurate values. Moreover, this is complicated by the lack of clarity and consistency of the recitals in specifying what specific secondary law interventions aim to achieve—which is particularly muddy regarding Dir 2014/24.

Panel 2: Public Procurement and Labour Standards (I):
EU Procurement Law Perspective

Sustainable procurement and corporate experimentation

Nina Boeger shared some thoughts beyond RegioPost and an enquiry into two developments arising from the financial crisis: a) rise of polarisation of corporate governance models with, on the one hand, market responses to financial crisis that persevere on traditional approach to maximisation of return on investment and, on the other hand and as a counterbalance, new or revived corporate models, such as social enterprise, cooperative enterprise and commons-oriented enterprise; b) rise of sustainable or smart procurement driven by austerity politics and cuts on public budgets, which is also becoming polarised with, on the one extreme, traditional or economically-driven procurement, with focus on immediate value for money obtainable from service outputs and very much focussed on price and concrete delivery and, on the other extreme of the spectrum, smart / sustainable procurement that aims to change perspective of procurement and commissioning practices and moving towards longer-term perspectives on triple bottom line for the communities that are relevant for the procurement or commissioning body, as well as process sensitivity and long term relationships with providers of services.

Smart procurement involves a recognition of the risk that contracting with shareholder-driven corporations entails (large corporations are “too big to fail” and the risk of failure that the public sector faces requires a more diffuse provider base), as well as the passing on of costs to the tax payer. There is also a concern on the risks of insufficient specification (under-specification) and uncertainty, which is an integral part of procurement and commissioning. Corporate governance and the way they are structured will affect the way they deal with these issues of risk and how they will respond. Alignment of corporate governance and risk issues is necessary and contracting authorities are searching for trust and reliability in addition to capacity. New corporate models (such as social enterprises) that are struggling to make their business sustainable are dying to access public demand, both to raise funds for their sustainability and to raise social awareness.

In view of these trends, it looks like there are promising possibilities in procurement in aligning two very important structural developments: emergence of new corporate forms and the development of smart procurement. The question now is whether there is enough flexibility in the legal regime to allow public authorities to procure in this way? [this looks like a watershed moment for EU public procurement law, which is still fulfilling a traditional role of non-discrimination, transparency and workable market openness; but is also fulfilling the role of a change agent by supporting the development of those new models—the tension is not anymore on what the EU / the MS can do, but rather about thinking about new structures of capitalism].

The issue of flexibility then hinges on certain aspects of Dir 2014/24, such as market engagement (Art 40), the possibility of reserving non-profit contracts (Spezzino), grounds for exclusion also help some experimentation (Art 57), reservation of contracts for employee-led organisations (Art 77—which is incredibly narrow) … but the main problem for the development of ‘corporate governance’ clauses in procurement is the requirement of link to the subject matter (LtSM), which has been extended massively compared to Dir 2004/18. This poses the question how do we make sure that we can distinguish corporate governance requirements linked to the provision of the service from the limits on mandating general corporate policies. It is necessary to have these conversations so that the developments can move forward.

Minimum and living wage in public contracts:
Enforceability after RegioPost

Abby Semple started off stressing that the discussion on the enforcement of labour (pay) standards needs to be more specific and we need a taxonomy that distinguishes minimum wage, sectoral minimum wage [in particular, wages specific to public contracts], collectively agreed wage and living wage (which is a voluntary undertaking to pay a wage above the legally-mandated minimum wage). There is also an interesting argument on whether requirements for fair trade that link to wages paid to producers can be included as part of the same analysis. She also stressed that minimum wages show great disparity in the 28 Member States, even when adjusted by parity of purchasing power. This raises significant practical difficulties.

What does RegioPost say? The CJEU distinguished the Ruffert case very strongly because it was then a non-universal collective agreement that set the minimum wage in dispute, whereas in RegioPost the minimum wage is a result of (regional) law, in which case it does not matter that it only applies to the public sector. The CJEU also acknowledged the social protection argument as potential justification (like in Bundesdruckerei), but did not engage in full proportionality assessment (maybe because it did not need to do so, but leaves RegioPost vulnerable to future case law where the CJEU may engage in proportionality review).

Proportionality review should be a mechanism of last resort because Dir 2014/24 sets precise rules and, if they were not shielded from proportionality review, then contracting authorities would have no liberty to rely on the secondary rules.

Interestingly, the CJEU did not distinguish from Bundesdruckerei. The CJEU did not make any assessment / statement on the issue of lack of a cross-border situation in RegioPost. This is important in itself. It is also relevant that the CJEU engaged with an analysis with the PWD, primarily because the referring court had raised it. Also because Art 26 Dir 2004/18 is an empty / reenvoi clause that required engaging with PWD (this is cross-referenced in Recital 34 of Dir 2004/18C and Recital 98 of Dir 2014/24).

It is also relevant to stress that RegioPost makes some conceptualisations of contract compliance / performance clauses problematic. Nord pas de Calais, which reinterpreted Beentjes, also created a circular self-justifying doctrine that indicated that contract performance clauses did not allow for exclusion of those that did not meet the requirements. The RegioPost judgment now allows for exclusion of tenderers that are not committing to comply with contract performance requirements, which conflicts with the Commission’s understanding under the previous case law.

Looking specifically at minimum wage clauses, it is relevant to look at the Fair trade coffee case (C-368/10), where the CJEU stressed that you could have fair trade as an award criterion. Fair trade includes, amongst other things, the payment of wage premia to producers—this creates a problem if a contracting authority can do it in a third jurisdiction, but not in its own jurisdiction. There is evidence that the Commission does not accept that payment of a living wage could be a pass/fail criterion (Scottish government sent repeated letters to the Commission, to which it replied in the negative). How to address living wage as an award criterion? Could you use the wages the tenderer is willing to pay as an award criterion? Semple does not see any reason why it is not possible.

Scenarios for further thought. 1. Could you have a maximum wage clause in the contract for cost-control purposes? 2. Where a contract is affected by TUPE, the obligation to apply same terms and conditions, as the contracting authority, you need to effectively require pre-existing terms and conditions including wages (and you NEED to do that, including where the incumbent is the contracting authority itself in case of outsourcing).

RegioPost allows for legally-embedded sectorial [public sector] minimum wages. It does not deal specifically with living wages but the argument can be made in light of fair trade coffee.

Competition and State aid implications of
minimum wage clauses in EU public procurement

Albert Sanchez-Graells' presentation focused on the trade / social dumping rationale for minimum wage requirements, and I submitted that the PWD is the anti-dumping standard under EU economic law, so that no more demanding standard can be allowed without subjecting them to a very strict proportionality test. I also submitted that the approach of the CJEU to the interpretation of the PWD in the public procurement scenario does not make economic sense because it creates double standards for cross-border and inter-regional situations, which results in an impossible situation for contracting authorities that, at the time of tendering, cannot foresee whether they will manage a purely domestic or cross-border procurement project (as that depends on actual interest from cross-border tenderers).

On that basis, I discussed the problems of reverse discrimination and unforeseen consequences (anti-SME, pro-delocalisation, etc) that can derive from strict enforcement of the contradictory rules created by the Bundesdrukerei-RegioPost tandem. I moved on to stress the competition law implications that can result from this situation and the difficulties in capturing such anticompetitive effects with the competition law prohibitions in Arts 101 and 102 TFEU, included the supporting State action theory.

I finally tackled issues of application of State aid and submitted that the payment of above-market wages by the contracting authorities is an economic advantage that triggers the prohibition of Art 107 TFEU and, in turn, this cannot be justified either under the 2014 general block exemption regulation (it does not fit the regulated categories of disadvantaged/disabled employment, or creation of jobs), or the de minimis regulation (the aid is not transparent). Thus, I submitted that State aid enforcement in this area can raise difficult issues in the near future.

DEBATE

focused mainly on the issues of the social economy model and the extent to which competition law / State aid can apply to these issues at all, as well as the undesirability of a strict proportionality assessment that would kill innovation. It is also discussed to what extent a proportionality analysis is at all possible and whether social requirements are necessarily protectionist or not, and whether this should be dealt with as an issue of direct or indirect discrimination and how EU law would regulate them, which comes back to issues of proportionality of restrictions vis-à-vis their intended goals. The debate then also moved upwards and looked at the different treatment under WTO GPA and the EU rules, as well as the possibility to coordinate them. The issue of the heterogeneity of what is considered a ‘social consideration’ was also explored in some detail.

Panel 3: Public Procurement and Labour Standards (II):
EU Labour Law Perspective

Government as a socially-responsible market actor after RegioPost

ACL Davies took a step back and looked at the discussion from first principles. Use of contracts to pursue contract-unrelated policy is controversial. It is useful to distinguish two dimensions: a) reinforcing existing legal requirements, and b) creating requirements that go beyond existing legal duties. a) may see superfluous but the leverage of contracting can make up for deficiencies in enforcement elsewhere (in the UK case, given the lack of labour inspectorate). b) has attracted significant opposition + international drive to reduce the use of contracting authorities’ discretion is a way of reducing the chance for them to adopt protectionist strategies, willingly or otherwise.

The justification for the use of procurement to enforce social goals is as follows: 1) consistency and trust in government (legislative process not only aspect of democratic mandate given to government), so if the government is committed to a public policy, it should enforce it through contracting (to show consistency and avoid silo mentality, all of these foster trust in government). This is linked to the doctrine of legitimate expectations to get government to follow promises made in the past. This use has a long tradition (government as a model employer, and procurement as an aspect of that). 2) stronger argument in modern times is to prevent the harm that competitive tendering can create. This is linked to ILO standards for government contracting. This is particularly relevant in labour-intensive services, where government can create a level playing field in terms of employment conditions, so that alternative providers compete on other dimensions and labour standards are taken out of competition.

Two issues with RegioPost: lack of understanding of procurement and lack of understanding of wage clauses in procurement. Before the negatives, RegioPost is generally welcome if nothing else because it reverses Ruffert on the basis of Art 26 Dir 2004/18.

BUT.

Art 56 TFEU and its key test for determining whether something is restrictive requires to assess whether it ‘constitutes an additional economic burden that may prohibit, impede or render less attractive the provision of their services in the host Member State’. This is applied in RegioPost and the minimum wage is characterised as an additional economic burden that makes the activities less attractive. The cost linked to the minimum wage can be a burden, but the cost can be passed on to the government and, from that perspective, there is no impediment or restriction to the provision in another Member State because the additional cost is covered by government. However, the services can be less advantageous by limiting the profit that the provider could achieve. This disadvantage is very artificial because it does not carry a loss for the service provider, but merely a missed opportunity for a larger benefit. This should not be covered by Art 56 TFEU or, at least, given that the disadvantage is very marginal. Maybe it is State aid (the government pays for it and State aid can be discussed), but it cannot also be exclusionary. It is either one or the other.

From the perspective of minimum wages, we need to remind ourselves that EU law does not say a great deal about wages. The difficulty of regulating pay at an EU-wide level is significant. This does not stop the CJEU from scrutinising different issues regarding pay in the internal market perspective, but the CJEU lacks a point of reference in this setting. This is what leads it to rely on the PWD and the importance on the wage being a minimum wage. The interpretation of the PWD in Laval is a clear attempt to elevate the PWD to the standard applicable in terms of social dumping in the EU. What’s wrong with the emphasis on minimum wage? The issue is with the justification on worker protection as the justification for the measure discussed in RegioPost. Minimum wage is of course a protection. The elephant in the room is that the minimum wage is only for public contracts, which diminishes the relevance of the argument as compared with contexts of general economic regulation.

In the public procurement setting, minimum wage is not a concern as in the labour market as a whole, but a protection against the competitive nature of government contracts and the ensuing downward pressure on worker protection. So the analysis should be procurement context-specific.

So, upshot, it is better that Ruffert, but RegioPost misses the difference between procurement and regulation, procurement being the space where the government is ready to put its money where its mouth is. This ought to do with preventing the harm that procurement might otherwise cause.

Labour law in the state of exception

Lisa Rodgers looked at labour law as an exception to economic rules and tried to see how far that helps us when thinking about labour standards in public procurement. It is worth stressing the link between economic and social law, and the theory of the ‘state of exception’ derived from neoliberal thought following the crisis. Labour law is an exception or concession against the basic economic foundation that we have. Following the crisis and austerity measures, this exceptionality has become more clear. The focus on procurement is an expression of this exceptionalism.

The state of exception is a theoretical perspective that uses the importance of the exception itself. The argument is that the ‘exception’ is the most important element in any system of regulation because it is at the edge of the legal system and it shows how politics get involved in the adjudication of legal issues. Used this way, it crowds out political considerations because the law starts covering it all.

Positive claims about inclusion of labour law in economic standards: 1) labour law’s concerns are included within the law; 2) labour law’s concerns become part of the economic paradigm; 3) law is subject to interpretation by favourable CJEU; 4) other Treaty provisions can help; 5) incorporation of international legal standards is facilitated.

Responses to the claims: 1) labour law is an exception or a concession, so it is included (by exclusion) as a discretion rather than a mandatory condition [eg Arts 56(1) and 57(4) Dir 2014/24] and some innovations do not include social/economic concerns [eg Art 68 Dir 2014/24]; 2) as an ‘exception’, labour law is only part of the economic paradigm, which weakens the political power of labour law institutions; 3) the CJEU has given broad discretion to consider employment and social considerations as part of the public procurement process (Beentjes), BUT the link to the subject-matter of the contract (LtSM) is an increasingly constraining economic test, which means that the contracting authority cannot influence the policy it applies; 4) relationship between labour standards, public procurement and other EU law provisions and policies (including soft law) show a shift in those instruments and a prevalence of macroeconomic policies that downgrades labour law standards’ relevance; 5) finally, there is a very limiting approach to the inclusion of international standards [narrow list included in Dir 2014/24 and NO reference to ILO convention 94 on public contracts) + Art 18(2)].

In conclusion, labour law is increasingly seen as important in the context of the public procurement directives, but there are some important risks if labour law is seen as an exception or a concession to economic law and economic goals. Labour standards are restricted because they need to comply with economic paradigms, there is a tendency to promote individual over collective rights, the institutions of labour law can find their power to challenge the law reduced.

Scope for collective bargaining in posting and procurement

Tonia Novitz looked at Laval and Ruffert and their impact on collective bargaining in public procurement, and positioned them in historical context (decided in 2007 and 2008), which has changed very significantly as a result of the economic crisis. Elektrobudwa and RegioPost indicate new horizons for trade union protection of posted workers and space for regional protection, but not for collective negotiation. This indicates stark shortcomings in proposals for the revision of the PWD.

Laval was a case of a trade union trying to improve conditions for a group of workers. This was generally seen as problematic. Collective negotiation and action could only be permitted in the context of social dumping. This is a very controversial judgment and has been heavily criticised. Laval had a negative impact on the ability of trade unions to call for action with cross-border effects. There is a strong clash between the EU approach and international standards, which cannot be easily reconciled.

Ruffert adopted the Laval approach whole-heartedly on the basis of another rigorous reading of the PWD and, in particular, about Art 3(8) setting out the ways in which collective agreements can be declared generally applicable. Ruffert failed to meet those. MS could exclude the construction industry from these requirements under Art 3(10) PWD, but that did not save the situation either. The imposition of such large limitations on the collective setting of rights for posted workers’ rights led to an understanding of the PWD as a ceiling rather than a floor of employment rights. This could not be overcome as a result of the Monti II Regulation, which was abandoned for different reasons.

It may be worth revisiting these issues by going back to the basics of the need for the PWD, particularly in view of the vulnerability of posted workers, which supports the case for their access to collective representation. It is also worth stressing that the capacity of labour inspectorates across the EU has been severely eroded as a result of the financial crisis. Additionally, memoranda and other crisis-related recommendations have been in line of flexibility and minimising collective negotiation to enterprise level-agreements. Overall, this makes the requirement of universal application stressed in Laval and Ruffert seems very outdated in the context of 2016.

Currently, the number of posted workers is at about 1.9 million and has increased by 49% compared to prior to the crisis. The treatment of posted workers is also reported to suffer from 51% lower wages, higher instances of work-related accidents and displacement issues. This can be triggering a mild shift of the case law regarding collective bargaining.

In Elektrobudwa, there was support for regional collective action on behalf of posted workers. This is linked to the issue of individual claims because in this specific case, there is direct representation by the trade union. There is nothing to indicate sympathy for collective bargaining for posted workers, but it could be seen as a first step in that direction. In RegioPost you can also identify a first step away from Ruffert, but they stress that there was no collective agreement and, therefore, the distinct treatment between public and private workers did not matter. However, none of these cases make significant inroads into collective bargaining in public procurement. RegioPost was very cautious in the way it treated collective agreements.

Commission’s proposals from February 2016 can potentially make a difference around collective agreements that could have a spillover effect on procurement. Of these proposals, the rules concerning subcontract chains, including those that foresee the posting of workers, can have significant effects. But, for this to be relevant, there has to be a move beyond ‘minimum rates of pay’ (absolute minimum) towards ‘remuneration’ (so as to cover a variety of different elements), which should then be equally applicable to all employees regardless of subcontracting chains. This has a connection with Art 71(6) Dir 2014/24 in terms of control of subcontracting chains. It is also a nod to international standards, but a timid one.

Overall, however, this seems very unlikely to be adopted in the near future, and it may well be only after a monitoring of the implementation of the PWD enforcement measures. However, a case could reach the CJEU on the basis of a case based on strike action including both posted and non-posted workers, which will trigger issues of evidence-based social dumping and may not allow the CJEU to set aside this type of collective action as easily as in the past.

DEBATE

focused on issues of localism and devolution, and the way that this can impact the use of procurement to enforce labour standards, particularly in the UK. It also explored the implications of the post-Lisbon social market economy on the issue of the ‘exceptionalism’ of labour law. The audience also questioned whether Laval is really not still the relevant standard and whether the restrictive approach to collective bargaining is not still the rule. There was also discussion on whether wage-based advantages deserve a different treatment where there are and where there are not posted workers, as well as what actually amounts as a restriction on the freedom of provisions of services in terms of two-tier employment scales and issues of discrimination / disadvantage of workers within one same undertaking.

Panel 4: Procurement and Labour Standards (III):
Domestic UK Perspective

Labour standards, domestic law and public procurement

Michael Ford focused on how non-pay labour standards (such as blacklisting [note: of workers involved in trade union activities, not of undertakings from public procurement procedures] or discrimination rules) can be applied in the public procurement setting. UK history shows that the underlying issues have been discussed repeatedly in the past. However, there have been significant developments, such as the use of procurement to promote non-discrimination law. Section 149 Equality Act 2010 (EA 2010) imposes an explicit duty on public authorities to prevent discrimination and give effect to advancing equality law. It is also important to stress the importance of sectoral collective bargaining and quasi-collective bargaining in the UK, which lead to legally binding pay rates and holiday terms. Currently, though, this has been discontinued and there is no legal mechanism for the determination of sectoral pay. Query is whether this will not change again in the future.

From a practical perspective, looking at procurement litigation, it is worth reminding that this is an area institutionally dominated by large commercial organisations with large budgets to litigate, which skews the litigation field. It is also affected by other pragmatic tensions, which raises issues of the different access to statutory review vs judicial review of procurement decisions. Pragmatically, it is also very difficult to apply standard legal tools (proportionality) to non-pay labour standards and, in particular, in issues of non-discrimination—not least due to the absolute protection of non-discrimination concerns over economic issues. Thus, even if it is fundamentally difficult, pay is relatively straightforward compared to non-pay labour standards.

The counterfactual question is, though, what would have happened in EU procurement law if there had been no PWD? Would the CJEU engaged in an untrammelled proportionality test based on ultimate considerations of discrimination? That would have been highly political and this is why the CJEU has sheltered behind the PWD, which has effectively provided the CJEU with a relatively easy answer compared to the alternative of having to legitimise its decisions. This is exemplified in Bundesdruckerei in that there was not AG Opinion to support the CJEU, which considered the use of the PWD straightforward.

However, let’s assume that the PWD is a useful point of departure. Can the government use 'administrative provisions' [which are not defined, under Art 3(1) PWD] to enforce pay policies, particularly reinvigorating sectoral rate setting mechanism? This raises a set of issues: would it still qualify as minimum wage of pay despite the existence of a lower universally applicable minimum wage? Yes, it would. Would it be possible to give legal effect to the result of the collective bargaining? Yes, it would because the rate, despite the collective bargaining origin, derives from law. Could you use a RegioPost type system where you already have a national minimum wage (ie creating a higher minimum wage only for public contracts)? It looks as if the CJEU considered it central that in RegioPost there was no minimum wage, but it is not clear why it would not be possible to go above that ceiling with a RegioPost-like mechanism.

An alternative to the legal enforcement of rates of pay, which is not in line with UK tradition, would be to rely on Art 70 Dir 2014/24 rather than on Art 3(1) PWD (ie base it on discretion of the contracting authority). However, this is still a confusing environment.

A connected issue is blacklisting, in relation with the ILO conventions, which is now illegal under UK law. However, this could be possible under Art 18(2), Art 57(3) and Art 70 Dir 2014/24 by focusing on the tender rather than the tenderer [as in the enactment of reg.56(2) PCR2015]. This should not be subjected to a proportionality analysis under Art 18(2) Dir 2014/24, which only requires proof of breach of any of the international standards.

Another issue is whether there is a tension between the public sector equality duty under the EA 2010 and public procurement. One difficulty is whether you can use procurement as a preference for undertakings that have equal opportunity policies, equal pay audits, etc. This would fit within Art 70 Dir 2014/24, complemented with the relevant ILO conventions. There is again a tension with the issue of minimum standards in the PWD or not.

The answer is that PWD, even when it applies, it does not give the answer—particularly outside the area of pay, it is very difficult to figure out how to effectively carry out a proportionality assessment when there are procurement measures that go beyond agreed (EU) standards.

Discretion and labour objectives

Richard Craven presented preliminary findings of on-going research funded by the British Academy and Leverhulme, where he assesses practitioners’ reactions to existing rules on the possibility to enforce labour standards within the limits of discretion given to public procurement officers.

DEBATE

focused on the difficulties of extrapolating qualitative insights and the insufficiency of public procurement data, which could allow for complementary quantitative research.

An extended discussion of RegioPost--teaser

On Monday 9 May 2016, and in celebration of Europe Day 2016, at the University of Bristol Law School, we are hosting the event "Public Procurement & Labour Standards–Reopening the Debate after RegioPost", where we will discuss in depth the implications of the Judgment of the Court of Justice of 17 November 2015 in RegioPost, C-115/14, EU:C:2015:760 (for my own views, see here and here).

We will be live tweeting from the event (follow #regiopostandbeyond), and I will post a summary of the discussions next week. For now, as a teaser, these are the slides that I will be using in my own presentation regarding the competition and State aid law implications of RegioPost.

Interesting Procurement Paper (Li & Xu, 2016): A Blueprint for Variable Remuneration of Public Procurement Officers? A Warning against some types of Centralised Procurement?

I have just read the paper by D Z Li and M Xu, 'Competition in Procurement Auctions with Corruption' (February 2, 2016), which assesses an interesting scenario of competition in public procurement tenders where the person in charge of running the procedure (the procurement officer, or 'bureaucrat', in their terminology) can require bribes from winning bidders, and where those bribes can be proportionate to the final value of the contract awarded.

Their paper is interesting because it fleshes out the incentives that a bureaucrat that expects to obtain a rent at the end of the procedure has, both in terms of affecting the number of bidders (to reduce it), and the level of disclosure of information (to conceal information in order to cover the corrupt practice). My personal intuition is that their insights should be useful to consider non-corrupt scenarios involving buyer rents other than bribes and, in particular, the introduction of bonuses or other variable retribution mechanisms for public buyers, which could well create the same incentives (as discussed below). Moreover, I find the paper thought-provoking because (legitimate) kick-backs are used to finance the activities of central purchasing bodies, which raises issues of their impact on social welfare if they behave like individual bureaucrats would (as also discussed below).

The paper and its model

As they explain in their abstract:

We study the effects of corruption on equilibrium competition and social welfare in a public procurement auction. A bureaucrat runs the auction on behalf of the government. He invites firms into the auction at positive costs, and may request a bribe from the winning firm afterward[s]. We first show that, in the absence of corruption, the bureaucrat invites more firms than social optimum under quite standard assumptions. Secondly, the effects of corruption on competition and social welfare vary across different forms of bribery. In the case of fixed bribe, corruption has no effect on equilibrium competition, yet [it does] induce social welfare loss due to the distortion cost of increased public spending. In the case of proportional bribe, the corrupt bureaucrat will invite less firms into the auction, which may result in Pareto-improving allocation in equilibrium. Finally, we also show that information disclosure may consistently induce more firms to be invited, if compared with the case of no information disclosure, no matter [whether] there is corruption or not.

I find some of the assumptions and insights of their paper particularly thought-provoking. They (implicitly) base their model on the existence of an agency relationship between the bureaucrat and the government, as well as between the government and society at large [for discussion, see here and here and, in Spanish, here]. This makes the model interesting from the perspective of the social externalities that improperly designed public procurement models can create, particularly if they allow public buyers to pursue (self-serving) goals that do not align with promotion of social welfare.

In their paper, Li & Xu explain that 'the government is modelled as a government division ... who cares about its own procurement pay-off rather than the overall social welfare' (p. 2). This can lead to designing the procurement process in a manner that invites too many interested bidders because 'the optimal number of firms that maximizes the government's pay-off is larger than the efficient number of firms that maximizes social welfare' (ibid), and due to the fact that 'the government prefers [a] higher level of competition in the procurement process' than would be socially efficient (p. 3). The undesirability of the excessive number of bidders is mainly derived from the costs they incur in order to participate in the tender, which are wasted for all those that did not stand a real chance of winning the contract (or, indeed, for all except the winning bidder).

The main insight of their paper is that, while the existence of a fixed bribe hurts both the government and society at large due to the higher cost of procurement, the existence of a proportionate bribe may 'increase social welfare [by inducing an efficient number of firms, or just one firm, to be invited], yet it hurts the government, as the government prefers higher level of competition in the procurement process' because that reduces its (private) procurement cost and imposes the externality derived from excessive tendering costs assumed by the disappointed private bidders [for discussion on the absence of consideration of these costs in economic surveys supporting recent public procurement law reforms in the EU, see here].

Their insight is based, among other elements, on the 'standard assumption for procurement auctions that firms' cost distribution is of decreasing reversed hazard rate (DRHR)' (p. 1, for an explanation of the reversed hazard rate and how it operates, see here). As Li & Xu explain, 'The intuition behind this ... is that increasing competition will gradually squeeze out the expected rent of the winning firm. Furthermore, the expected rent converges to zero when the number of firms approaches to infinity'. Or, in very simple words, that the lower the number of bidders, the higher the expected rent by those that participate. That is what would allow bidders to tender less competitive prices when competitive pressure is reduced (ie less bidders are invited), which would also be in the interest of the bureaucrat expecting to receive a proportional bribe (a higher rent for the winning bidder carries a higher rent for the bureaucrat as well).

They also stress in clear terms that 'information disclosure will increase both the efficiency and the optimal number of firms in the procurement auction. The intuition is that, under information disclosure, firms' cost estimates become more heterogen[e]ous, and therefore, for [a] given number of firms, the auction becomes less competitive than before' (p. 13). Furthermore, 'under information disclosure, firms become more heterogen[e]ous in their cost estimates, and the winning rent, which [in their model] is the difference between the lowest and second lowest costs, may also get larger as well'. However, t'when a corrupt bureaucrat can control information release, it would be more difficult to detect corruption. As we know, information disclosure implies more firms to be invited into the auction, and corruption under the proportion[ate] bribe implies less firms to be invited. The combined effects of these two are mixed'. Overall, then, the implications of their findings seems to be that a corrupt bureaucrat will have mixed incentives on whether to reduce the volume of information disclosed in the tender process because more information may increase its own proportionate rent, but it will also trigger both more interest in the tender and more risk of detection of the corruption.

a blueprint for variable remuneration of procurement officers?

As mentioned, my intuition is that these insights can be useful to consider non-corrupt scenarios involving 'bureaucrat' rents other than bribes and, in particular, the introduction of bonuses or other variable retribution mechanisms for public buyers, which could well create the same incentives. My intuition is that, should the bureaucrat have a legal financial incentive to obtain a rent a the end of the tender, and should the existence of this rent not need to be hidden, it would have an incentive to pursue strategies that maximize social value (even if not necessarily government pay-offs) by disclosing information that reduces the number of potentially interested bidders for which the tender is not actually competitive. Moreover, the financial incentive could include an element of reverse proportionality, so that the bonus would be larger when the government pay-off is increased (ie when the total cost of the procurement is reduced as much as possible within the framework of the competition between the efficient number of bidders). If this is true, then, one of the main aspects that Member States should consider going forward would not only be linked to decisions on how to transpose and develop the rules for restricted procedures and for procurement procedures involving negotiations, but also linked to the establishment of appropriate systems of incentives for procurement officers (bureaucrats) to make the right choice of procedure and to conduct the tender in a way that is aligned with social welfare and with (intra)governmental pay-offs.

what implications for kick-back based central purchasing financing?

Central purchasing bodies (CPBs) can be financed in many ways, but a popular model is for them to receive kick-backs (in the form of rappels of fees) from suppliers included in the framework agreements and other contracts that CPBs manage. Those kick-backs are generally proportionate the value of the call-offs that end-user contracting authorities place with each supplier. In that case, the CPB is not in a different economic position than a procurement officer (bureaucrat) expecting to receive a proportionate rent (or bribe) at the end of the procurement process it runs. Therefore, it seems to me that one of the transferable insights of Li & Xu's paper is that CPBs will be structurally in a situation where they might as well aim to achieve the highest rent, which would require for them to reduce the number of bidders and (possibly, but not necessarily) the information disclosed at the outset of the procedure, so as to reduce the number of competitors and increase their expected rents--thus triggering higher kick-backs for the CPB. This would match well with the intuition that CPBs can become self-interested organisations in the way they run their framework agreements, and not pay excessive attention to the real interest of their principal (end-user contracting authorities) or society at large, particularly if the use of their services is mandatory (ie if they do not need to justify net advantages, at least for the end-user contracting authorities, in order to attract volume of orders).

If this intuition holds true, it would be interesting to look at the impact of the financing of CPBs through kick-backs in more detail, in order to assess whether this system of financial incentives and rewards fosters social welfare overall, or is only beneficial for the CPB (and/or, the government) at the expense of broader social interests. This would be particularly relevant if, as anecdotal evidence indicates, access to centralised procurement is difficult for most firms (and, in particular, SMEs), so that CPBs structurally reduce the number of bidders for their (large) contracts, which the model in the paper would suggest increases the rents for both the CPBs and the included suppliers, but imposes both direct costs on government (through higher procurement costs that could be achievable in alternative settings of increased competition within CPB procurement) and indirect social costs via externalities [for discussion of some of these economic issues, see here].

Announcing event on public procurement, competition, conflicts of interest and NHS commissioning (Bristol, 23.06.16)

 (c) Dominic Lipinski/PA, via Guardian.
I am organising the event "Taking stock of NHS governance after the 2013 reforms: Public procurement, competition and conflicts of interest in NHS commissioning". It will be held by the University of Bristol Law School on 23 June 2016 in the interesting premises of OpenSpace, with the generous sponsorship of PolicyBristol and Bevan Brittan. Registration is now open here.

This event has two main objectives. First, it intends to bring together Clinical Commissioning Groups (CCGs), NHS Trusts, legal practitioners and academics, so that we can collectively take stock of this aspect of the new NHS governance framework almost 3 years after its adoption. Secondly, and more specifically, it aims to explore issues of interaction between public procurement and competition rules in relation to potential conflicts of interest in NHS commissioning. This exploration should allow for the emergence of some initial lessons-learned, as well as help shape research agendas in this area of public governance, which will undoubtedly gain relevance over the coming years.

The panel of academic and practitioner experts that will participate in the event include:
Through interaction of experts and participants, in particular, the event aims to:
  1. Assess how the sectoral rules created by the National Health Service (Procurement, Patient Choice and. Competition) (No. 2) Regulations 2013 compare with general regimes applicable to conflicts of interest under public procurement and competition law.
  2. Explore the implications for CCGs and NHS Trusts of any potential discrepancies between the sectoral regime and general public procurement and competition rules, with a particular focus on the remedies that can be enforced against them, which in turn determine their operational risks and potential liabilities.
  3. Assess the need for any further reforms of the system once the Public Contracts Regulations 2015 become applicable to health care sector in April 2016.
Thus, this event aims to clarify the current and future public procurement and competition law constraints on NHS commissioning activities, as well as to facilitate knowledge exchange between CCGs, NHS Trusts, academics and legal practitioners in this field of economic law of increasing relevance.

The event is divided in two parts. The morning sessions, consisting presentations be leading academics and solicitors, are open to all, and in particular to academics, PhD students and legal practitioners. The afternoon sessions are reserved for a workshop on practical issues and future challenges is reserved to CCG and NHS Trust members only. This workshop follows up on the discussions held in the morning sessions. It is intended to provide a time for CCG and NHS Trust practitioners to brainstorm and exchange ideas on the main practical issues and future challenges for NHS Commissioning under the combined application of2013 Regulations 2013 and the PCR 2015 to the tendering of NHS contracts.

Overall, then, this event aims to facilitate knowledge exchange between CCGs, NHS Trusts, academics and legal practitioners in this field of economic law of increasing relevance. If you are interested, please register here. For further details, please contact me: a.sanchez-graells@bristol.ac.uk.

Excellent @E15Initiative Think Piece on Competition, Corruption and Trade dimensions of Public Procurement Regulation (Anderson, Kovacic and Müller: 2016)

The E15Initiative jointly implemented by the International Centre for Trade and Sustainable Development (ICTSD) and the World Economic Forum aims to generate strategic analysis and recommendations for government, business, and civil society geared towards strengthening the global trade and investment system for sustainable development. One of their great initiatives is to publish 'think pieces' to stimulate a more informed debate about how trade policy and institutions can best be adapted to the highly interconnected global economy of the 21st century.

One of these first think pieces is Anderson, Kovacic and Müller, Promoting Competition and Deterring Corruption in Public Procurement Markets: Synergies with Trade Liberalisation (Feb 2016). In this well-thought and persuasive piece, the authors expand on their previous thoughts in this area [“Ensuring integrity and competition in public procurement markets: a dual challenge for good governance,” in Arrowsmith & Anderson (eds), The WTO Regime on Government Procurement: Challenge and Reform (Cambridge University Press, 2011) 681-718] and make a compelling case for the careful integration and balancing of competition, corruption and trade considerations in public procurement regulation. Their abstract is as follows:
Efficient and effective government procurement markets are critical to economic growth, development, and the welfare of citizens. Yet, two very serious challenges bear on the performance of these markets: (i) ensuring integrity in the procurement process (preventing corruption on the part of public officials); and (ii) promoting effective competition among suppliers. Typically, these challenges are viewed as separate and distinct: the former (corruption) is treated primarily as a principal-agent problem in which the official (the “agent”) enriches himself/herself at the expense of the government or the public (the “principal”); while the latter (promoting competition) involves preventing collusive practices among potential suppliers and removing barriers that impede participation in relevant markets. This think-piece demonstrates that these two problems often overlap, for example where public officials are paid to turn a blind eye to collusive tendering schemes or to release information that facilitates collusion. As well, while transparency requirements are often central to efforts to eradicate corruption, such measures can, if not properly tailored, facilitate collusion and thereby undermine efforts to strengthen competition. Thus, careful coordination of measures to deter corruption and to foster competition is needed. Further, the think-piece argues that participation in the WTO Agreement on Government Procurement (GPA), or in similar regional arrangements, can play an important role both in promoting competition and in deterring corruption. The GPA enhances possibilities for healthy competition in relevant markets through participation by foreign-based or affiliated contractors. It helps to prevent corruption by requiring adherence to appropriate (tailored) transparency measures, and by exposing procurement activities to checks and balances including domestic review (“bid protest” or “remedy”) systems and international scrutiny.
Focusing on my pet topic of transparency in public procurement regulation and how this can affect competition in markets where public procurement is an important demand component, I am thrilled to read that Anderson, Kovacic and Müller stress that:
... increasingly, some challenges in the design of appropriate levels of transparency at the different stages of the procurement process have been recognised in both the procurement and competition communities. The OECD (2007) points out that: 
Governments need to find an adequate balance between the objectives of ensuring transparency, providing equal opportunities for bidders, and other concerns, in particular efficiency. The drive for transparency must therefore be tempered by making transparent what sufficiently enables corruption control. 
Indeed ... certain kinds of transparency measures can clearly facilitate collusion and, consequently, are problematic from a competition policy point of view (Marshalland Marx 2012; Sanchez Graells 2015A). While, for example, there may be no way around the need for publication of award criteria and technical specifications in public procurement if responsive tenders are to be solicited, their usefulness as tools for facilitating inter-supplier agreement needs to be recognised. Similarly, the publication of procurement outcomes, while enabling monitoring by the public as the “principal,” can also serve cartel participants in policing anti-competitive agreements and thereby enhancing cartel stability. Sanchez Graells (2015B) discusses specific possible concerns regarding transparency measures that may be associated with centralised procurement registers. 
A further complication is that optimal transparency levels may differ from country to country. “Solutions” that are potentially workable in some contexts may be highly problematic in others. For example, in jurisdictions where outright corruption problems are believed to be minimal, some lessening of transparency measures might be considered, for the sake of preventing collusion. On the other hand, in economies where corruption is rampant, any lessening of transparency measures may be a recipe for disaster. This explains why the very high priority that is given to transparency in public procurement processes in some countries in Eastern Europe may, in fact, be appropriate notwithstanding possible collusion facilitation concerns, at least as an interim measure. In any case, as explained below, both competition law enforcement and competition advocacy are clearly part of the solution (pp.9-10).
Of course, I am really thankful that they picked up on some of my recent research and I hope that their think piece will help disseminate these insights, which I consider extremely important for the proper design of public procurement rules in a way that is socially advantageous [for further discussion, see A Sanchez-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' (November 2013)].

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.