Do EU procurement & State aid rules conflict on possibility for consortium members to 'go it alone'? (C-127/16 P)

In its Judgment of 7 March 2018 in SNCF Mobilités v Commission, C-127/16 P, EU:C:2018:165, in the context of the analysis of a measure of State aid for restructuring and recapitalisation involving a bidding process, the Court of Justice of the European Union (CJEU) indicated that it is not acceptable for the assets to be transferred to a bidder that had initially participated in the process as a member of a consortium but subsequently decided to 'go it alone' and submitted a solo bid for the assets. In establishing this principle, the CJEU seems to have taken a position that can potentially be functionally incompatible with its previous case law in the area of public procurement and, in particular, in its Judgment of 24 May 2016 in MT Højgaard and Züblin, C-396/14, EU:C:2016:347 (see here). This blog post discusses this potential functional contradiction in the case law of the Court.

 

SNCF Mobilités v Commission

In simple terms, this dispute concerned France's obligation to recover State aid given to SNCF (its national state-owned railway company) that was declared incompatible with EU law (Art 107 TFEU) by the European Commission. One of the possibilities that France had was to sell all assets of the relevant company within the SNCF group (Sernam) 'en bloc ... at market price through a transparent and open procedure to a company that has no legal link with SNCF' (C-127/16 P, para 7). The process for the sale of Sernam's assets en bloc was rather complicated, but the relevant part of the mechanism was as follows:

... Sernam’s economic situation failed to elicit any proposals based on a positive valuation in the call for tenders conducted on SNCF’s behalf by a bank. All the offers submitted under that procedure concluded that the value was very negative. As no firm offer had been submitted, the decision was taken to continue the discussions solely with the consortium established by candidate 5 who was associated with Sernam’s management team. On 15 June 2005, candidate 5 ultimately informed SNCF orally that it was not in a position to submit a takeover offer — not even a conditional one — before 30 June 2005. On 30 June 2005, SNCF took the decision to conclude the sale with Financière Sernam, which was wholly owned by Sernam’s management team (C-127/16 P, paras 8-9).

In the context of the dispute whether France met the requirements of the previous Commission decision requiring recovery of the State aid, one of the legal issues triggered by the French authorities' decision to enter into a sale agreement with Sernam's management team (through Financière Sernam) is whether it met the requirements for the transfer to result from 'a transparent and open procedure'. The Commission took the view that this was not the case. Before the CJEU considered this issue on appeal, the General Court (GC) had assessed the situation in its Judgment of 17 December 2015 in SNCF v Commission, T-242/12, EU:T:2015:1003.

In the relevant part of the Judgment (T-242/12, paras 162 and ff), the GC explains how, in the context of the procedure aimed at finding a buyer Sernam's assets en bloc, a final round of negotiations resulted in two offers. In simple terms, there was an offer by candidate 4 that valued the assets at - €65.2mn and an offer by a consortium composed of candidate 5 and Sernam's management team that valued the assets at -€56.4mn. In view of this, it was agreed to solely continue discussions with candidate 5 and Sernam’s management (para 164). During these discussions, as mentioned above, candidate 5 withdrew from the process and the management team submitted a solo offer that valued the assets at -€95.5mn (para 167). The acceptance of this offer by SNCF triggered two main issues.

First, given their significant divergence in the valuation of Sernam's assets, whether the solo offer submitted by Sernam's management team was comparable to the prior indicative offer of the consortium with candidate 5. The GC considered that 'the Commission was correct in not considering equivalent in terms of credibility and soundness the offer from a financial investor, candidate 5, who, moreover, was proposing to inject a significant amount of capital into Sernam, and the offer from 84 management and director employees financing a low amount, being EUR 2 million of the price, from their own resources' (T-242/12, para 168). Second, and more relevant for our discussion, there were concerns about the transparency and openness of the procedure for the sale of the assets en bloc. In that regard, the GC established that

... [SNCF] and the French Republic observe that the requirement that a procedure be transparent and open does not cease once the best bidder has been selected and the other candidates have, by definition, been rejected, and that the discussions continue with the ‘last interested party’.

The ‘last interested person’ in the transparent and open tendering procedure in this case was candidate 4 ... the management team’s firm offer, for EUR ‑95.5 million, was also less attractive for the vendor than the preliminary second-round offer from candidate 4, with its negative price of EUR ‑65.2 million ... As observed by the Commission in its written pleadings, following candidate 5’s withdrawal, recourse should have been had to candidate 4, who had been part of the process since the beginning and had also indicated its interest at the end of the second round.

The offer from the management team cannot be considered that of the ‘last interested party’, since it did not participate independently in the transparent and open procedure.

... the applicant submits that it is not relevant to compare the management team’s firm offer with the non-binding offer from the consortium of which it was a part, as only the firm offer is valid, even if it is not the best bid.

That argument must be rejected, since the question here is whether the management team’s firm offer was the result of the tendering procedure, which necessarily involves an examination of the non-binding offers submitted during the tendering procedure.

Therefore, the argument aimed at establishing that the management team participated from the beginning of the tendering procedure must be rejected because it did not participate independently and did not submit alone the offer it had initially submitted with candidate 5. Its offer cannot therefore be considered to result from a transparent and open procedure (T-242/12, paras 169-174, emphases added).

Regardless of the issue of equivalence of the offers, the argumentation constructed by the GC in these passages (implicitly) relies on the principle that members of a consortium cannot be seen as participating both within the consortium and in their own name, which establishes an insurmountable impossibility against any decision to 'go it alone' if the other member(s) of the consortium withdraw.

This principle was directly challenged in the appeal before the CJEU. In short, the challenge was that '... candidate 5 and Sernam’s management team had, within a consortium, been associated with the tendering procedure from the start of that procedure and had proposed the least negative value for the assets en bloc. It was only after candidate 5 withdrew that Sernam’s management team decided to pursue the process and submit on their own the takeover offer initially put forward by the consortium. The applicant thus takes the view that such circumstances meet the requirements of an open and transparent tendering procedure as reflected in the Commission’s decision-making practice and the Court’s case-law' (C-127/16 P, para 62).

Remarkably, SNCF argued that 'it is possible to accept that the principles of openness and transparency in public procurement may be applicable by analogy to procedures involving transfers of assets. It is apparent from Directive 2014/24/EU ... and from Directive 2014/23/EU ... that EU law allows for awarding such a contract to an economic operator without prior advertising or competition following an unsuccessful first tendering procedure, including when the operator did not participate in that first procedure, without that constituting an infringement of the principles of openness and transparency. Those principles should a fortiori be deemed to have been observed where the assets have been transferred to the last interested party, the only one to have made a firm offer, when it has participated in the process in its entirety, initially as part of a consortium from which the other party withdrew in the course of the procedure' (C-127/16 P, para 64).

On this point, the CJEU reasoned as follows:

First of all, without it being necessary to rule on a potential analogy between the tendering procedure relevant to the present case and the principles that are applicable in public procurement ... it should be noted that the applicant’s argument concerning that potential analogy is based on the fact that, at the end of the tendering procedure, no bid or no appropriate bid had been submitted. That kind of argument can be successful only if it challenges the General Court’s findings of fact in paragraph 170 of the judgment under appeal, to the effect that ‘[t]he “last interested person” in the transparent and open tendering procedure in this case was candidate 4. … As observed by the Commission in its written pleadings, following candidate 5’s withdrawal, recourse should have been had to candidate 4, who had been part of the process since the beginning and had also indicated its interest at the end of the second round’. That argument, which asks the Court of Justice to substitute its analysis for the one carried out by the General Court as part of its sovereign assessment of the facts and evidence, is therefore inadmissible and must be rejected.

Next, the practice followed by the Commission in its decisions or its guidelines, even if that practice were to support the applicant’s argument cannot, in any event, bind the Court in its interpretation of the EU rules ...

In any event ... according the Court’s case-law, the question whether a tendering procedure has been open and transparent is determined on the basis of a body of indicia specific to the circumstances of each case ...

Accordingly, in the light of the facts of the present case, and having held in paragraphs 170 and 171 of the judgment under appeal, that the successful bid did not originate from a candidate who had participated autonomously in the tendering procedure from the beginning of that procedure, the General Court was correct in holding, in paragraph 174 of that judgment, that the requirement of an open and transparent procedure had not been observed (C-127/16 P, paras 66-69, references omitted).

Accordingly, the CJEU SNCF Mobilités Judgment explicitly upholds the fact that for a tenderer to be awarded the contract for the sale of assets en bloc as a result of an 'open and transparent procedure', it is an absolute requirement that the 'successful bid ... originate[s] from a candidate who had participated autonomously in the tendering procedure from the beginning of that procedure'. This is in functional conflict with the previous Judgment in MT Højgaard and Züblin, as discussed below.

MT Højgaard and Züblin

In this public procurement case based on the 2004 EU utilities procurement rules (Dir 2004/17/EC), the 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.

In that case, the contracting authority had indicated that it wanted to proceed to negotiations with between four and six candidates. It received expressions of interest from five candidates, which included interest by a consortium 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. 

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. Aarsleff decided to 'go it alone' and 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 (or, in the terms of the SNCF Mobilités Judgment (above) that it had not 'participated autonomously in the tendering procedure from the beginning') 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 deliberation and information to all remaining candidates, Aarsleff was  allowed to submit a solo tender and, after a further round of best and final offers between the three better placed tenderers, it was awarded the contract.

In reviewing the compatibility of this decision with general principles of EU public procurement law, the CJEU established that, in the absence of specific rules on this subject, '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' (C‑396/14, para 36). In carrying out such analysis, the CJEU determined that

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 ...

...  [the rules on qualitative selection] may be qualified in order to ensure, in a negotiated procedure, adequate competition ...

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.

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
(C-396/14, paras 38, 41, 43-44 & 47, references omitted and emphases added). 

As is clear from these passages, in MT Højgaard and Züblin, the CJEU rejected the principle that transparency and equal treatment required that a tenderer had 'participated autonomously in the tendering procedure from the beginning'. It rather established a more nuanced approach that required that the 'going it alone' tenderer was in a position to meet all relevant requirements of previous phases of the procedure (in that case, qualitative selection) and that it gained no competitive advantage--or, conversely, that no other tenderer was placed at a competitive disadvantage.

Overall comments

In my view, the SNCF Mobilités Judgment is problematic for the dogmatic principle that it sets out in terms of an absolute requirement of autonomous participation from the beginning. The MT Højgaard and Züblin Judgment can be criticised on other grounds (see here) but, from that perspective, its more nuanced approach towards tolerating decisions to 'go it alone' may be preferable in contexts where retention of a solo tender by the remaining member of a disbanded consortium can be determinative of the competitive tension within the tender procedure [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 339].

More importantly, in my view, the SNCF Mobilités Judgment could have reached the same conclusions if it applied the more nuanced approach of MT Højgaard and Züblin. Indeed, it is hard to argue against the view that, by continuing conversations solely with Sernam's management team and accepting an offer that valued the assets at a very significant value below the previous consortium offer as well as the previous offer by candidate 4, SNCF put Sernam's management team at a clear advantage. In view of the withdrawal of candidate 5, SNCF would have been better advised to go back to the immediate previous step of the procedure and compare whichever solo offer Sernam's management team could submit with that of candidate 4. Doing that would also respect the basic principles of stage rounds of negotiations, whereby ceteris paribus the offers presented in each of the rounds should improve upon previous offers.

On the whole, then, I think that the SNCF Mobilités Judgment is a missed opportunity to have created more integration and compatibility between the procedural requirements applicable under EU State aid and public procurement rules. At the same time, given that the CJEU avoided engaging in the 'potential analogy between the tendering procedure [for the sale of assets en bloc] and the principles that are applicable in public procurement', it is to be hoped that the dogmatic approach of the SNCF Mobilités Judgment will not muddy the waters of the case law on modification of the composition of bidding consortia for the strict purposes of EU public procurement law.

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.

Some difficult questions on the interaction between public procurement and competition law

I was invited to participate in the Irish Society for European Law (ISEL) Public Procurement Forum a couple of days ago. 

The session started off with two presentations from distinguished members of the Irish Competition and Consumer Protection Commission (Pat Kenny, Member with responsibility for Criminal Enforcement and Úna Butler, Legal Advisor, Competition and Consumer Protection Commission), who respectively addressed issues concerning bid rigging and consortium bidding in public tenders by SMEs. Both presentations were excellent and I had not much left to say. In view of that, I just launched some 10 groups of difficult questions to the audience. The debate that ensued was really interesting. 

I am reproducing a reworked version of the 10 questions below, in the hope that they can be useful to researchers trying to find topics in the area of public procurement and competition law. Hopefully, some (of my) answers will be available in the 2nd edition of my book. Of course, I am happy to exchange views on these and any other issues at: a.sanchez-graells@le.ac.uk.

A) In relation to bid rigging and the application of Article 57(4) of Directive 2014/24

1. How will contracting authorities treat instances of contemporaneous bid rigging? Will they be allowed (by Member States) to exclude tenderers or candidates right away or will they have to stay proceedings and get the competition authorities involved? How will this play-out in relation to the very short deadlines required by procurement procedures and, in particular, the 10-day standstill obligation under Directive 2007/66

2. What procedural guarantees will be necessary to ensure that a "presumption of guiltiness" is not constructed? How wide will the protection under Article 47 CFREU be [on that key point, see M Safjan and D Düsterhaus, "A Union of Effective Judicial Protection: Addressing a Multi-level Challenge through the Lens of Article 47 CFREU" (2014) 33(1) Yearbook of European Law 3-40]. What if, in the future, they are proven wrong? Will excluded tenderers and candidates be entitled to significant damages?

B) In relation to joint participation or consortium bidding [particularly in relation to Arts 19(2) and 63 of Directive 2014/24]

3. From a competition law perspective, it is clear that joint bidding will be controversial when actual or potential competitors enter into consortium agreements.In that case, the application of Article 101(3) TFEU requires efficiencies to be generated by the agreement (and those to be passed on to consumers). This creates some difficult issues, such as: must those efficiencies be solely economic? If yes, how can we square that with the growing inclusion of non-economic considerations in award criteria, and particularly with the special rules in Art 76 of Directive 2014/24 regarding the procurement of social and special services? If not, how can we square this with the general enforcement of Art 101(3) TFEU [and the on-going controversy on the use of non-economic factors]? Can we take into account SME-specific issues, such as the existence of high opportunity costs (such as iddleness of capacity available to the contracting authority) or the creation of social benefits? Can efficiencies be created in the public procurement market at the expense of general open markets, or reversely [on this, see the thought provoking post by Alfonso Lamadrid "On the (mis)application of Article 101(3): of judicial capture and cross-market assessments", Chillin' Competition].

4. How must those efficiencies or other advantages be documented? Can at some point the burden of proof reverse, so that the contracting authority needs to disprove indicia of advantage submitted by the (wannabe) joint tenderers? Will the competition authority be involved/available to assess that evidence? How can they make sure that they are building the right counter factuals? Is this not too complicated within the scope of a procurement process with tight deadlines?

5. On the point of exchanges of information, when is the exchange assessed, during the exploratory conversations (where maybe too much information could be disclosed) or at the moment of submission of the tenders? How can companies make sure that they exchange the absolute minimum of necessary information and how can a "need to know" test be developed safely? Given that SMEs may be reluctant or incapable of protecting their proprietary information through IP rights, how can they not be deterred from participating in order to protect their business secrets? Which specific assurances can they get that their information will not be disclosed at debriefing stage (particularly if a competitor challenges the technical capacity of the consortium)?

6. How will ancillary restrictions be treated in the field of consortium agreements? Would non-poaching clauses be allowed? If so, would it be justified to include 2 year non-compete/non-poaching clauses on employees and consortium partners, even if the tender is unsuccesful? If not, how can this not become a significant deterrent for SMEs strongly reliant on the technical knowledge of a very limited number of (difficult to replace) staff?

7. Even if the rules in Art 63(3) in fine of Directive 2014/24 establishes that contracting authorities can require joint liability for the execution of the contract, members of consortia (and particularly SMEs) will be tempted to reallocate liability internally (through side letters, or otherwise). Is this compatible with the procurement rules? If it is, should the contracting authorities be informed? Should financial guarantees be required to a larger extent? If it is not allowed, would such liability redistribution / indemnity agreements fall foul of Art 63(3) Dir 2014/24 and/or Art 101(2) TFEU? If the law is not clear on this point, will this not be a very significant deterrent for consortium bidding?

8. Where an undertaking participates in more than one bid, particularly as a specialised sub-contractor, it holds (relative) market power. Does this bring it under the prohibitions of Art 102 TFEU, particularly as price discrimination is concerned? Would that sub-contractor, then, be forced to quote the same prices and conditions to all groupings of tenderers? Can they not enter into exclusivity agreements or simply decide to only deal with a given consortium on the strength of existing business relationships?

9. Can rules on conflict of interest now affect the possibility to participate as part of different consortia with different composition of members in different projects? At what point would being in a "network" of consortia arrangements create significant risks for the undertaking, particularly as being perceived as a nexus for the exchange of information?

10. What is the interaction between SME support, public procurement and State aid? Particularly in innovation partnerships that may be concluded with a consortium of innovative SMEs (or start-ups), how is it possible to avoid the undercover granting of State aid [cf the issues that arise whene SMEs that spin-off from universities enter into subsequent contracts here: State aid and (university) software licensing: who's interested? (T-488/11)]? How and when should the evaluation of the expected innovation be carried out? Can SMEs actually engage in the complex legal negotiations needed to comply with the requirements of Art 31(6) of Directive 2014/24 ex ante?