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.

When will you show me the papers? Technical capacity, technical dossiers and verification during the procurement process (C-14/17)

In his Opinion of 28 February 2018 in VAR, C-14/17, EU:C:2018:135 (not available in English), AG Campos Sánchez-Bordona addressed a tricky preliminary question regarding the procurement of spare parts for buses, trolleybuses and tramways under the 2004 Utilities Procurement Directive (Dir 2004/17/EC). The legal dispute concerned the procedural stage at which contracting authorities must require tenderers to provide certificates attesting compliance with the applicable technical specifications. AG Campos suggested that such phase needs not always be prior to the award of the contract.

This case is relevant in the context of the contracting authorities’ verification duties prior to the award of the contract. In my view, while couched in promising pro-competitive terms aimed at preventing the imposition of disproportionate participation requirements, the approach followed by AG Campos can create legal uncertainty and an irreconcilable functional tension with prior cases such as EVN and Wienstrom (C-448/01, EU:C:2003:651). Therefore, the VAR Opinion merits some critical discussion.

Background

It is important to note that the VAR case has the relevant peculiarity that the contracting authority (presumably) owning a stock of vehicles of a given brand, had specified for the spare parts to be of such named brand ‘or equivalent’ as part of the technical specifications. Therefore, the relevant certificates were not of compliance with functional technical specifications or prescribed technical standards, but rather ‘certificates of equivalence’ between the offered parts and the named branded parts. The contracting authority had indicated in the tender documentation that such certificates of equivalence had to be submitted with the first supply of equivalent parts. As a result, the chosen tenderer was awarded the contract without having provided documentary evidence of the equivalence between the (cheaper) offered parts and the (pricier) branded ones. As could be expected, after the contract was awarded to the competing supplier, the ‘original equipment manufacturer’ (OEM, or owner of the brand) challenged the decision on the grounds that Dir 2004/17 required submission of the relevant certificates pre-award and that the contracting authority could not legally award a contract without having carried out minimal technical compliance verification.

The canonical view

The position taken by the disappointed tenderer that equivalence certificates should have been required prior to the award of the contract represents, in my opinion, the canonical view. Indeed, this was also the position of the Italian Government and the European Commission in this case, both of which held that a systemic interpretation of the relevant rules (ie Art 34(8), in relation to Art 34(3) and 34(4) Dir 2004/17) leads to the conclusion that certificates must be required prior to the award of the contract (see AGO, para 22).

As AG Campos sums up their arguments (see paras 38-41), such systemic/functional interpretation would derive from the fact that (i) proof of technical equivalence is a necessary element for the contracting authority to reach a judgment on which is the most economically advantageous tender amongst those received; (ii) in the absence of a prior verification of the tenderers’ ability to deliver on their contractual obligations, a contracting authority faced with non-compliant supplies would only be left with the option to terminate the contract, which is undesirable; and (iii) given that Art 34(8) Dir 2004/17 solely establishes the exceptionality of the recourse to a named brand and prohibits it except if twinned with the explicit mention of the acceptability of equivalent solutions, the general requirements for verification of technical compliance under Arts 34(3) and 34(4) Dir 2004/17—both of which require pre-award submission of documentation—should be applicable to cases where the contracting authority has made use of the exceptional reference to branded products.

In my view, this reflects the correct interpretation of the rules on verification of technical compliance under Dir 2004/17—and the same logic that remains applicable under the revised rules of the 2014 Public Procurement Package.

An alternate view

However, taking an alternate view, AG Campos suggested that Dir 2004/17 does not necessarily require tenderers to provide—and, implicitly, does not necessarily require contracting authorities to demand that tenderers submit—the relevant certificates prior to award of the contract if (i) the contracting authority has specified products of a named brand ‘or equivalent’, and (ii) it has indicated that such documents need only be submitted with the first supply of spare parts (para 74). The reasons given for this approach—which are flanked by thought-provoking references to the competition law rules applicable to the distribution of vehicles and their parts (not to be discussed in this post)—can be summarised as follows (see paras 42 and ff):

(1) AG Campos considers that the possibility to use a direct reference to branded products ‘or equivalent’ changes the contours of the technical verification to be undertaken by the contracting authority. The rules requiring pre-award verification are justified by the uncertainty or indetermination derived from the discretion conferred to the contracting authority in the way it can set technical specifications (eg by performance requirements alone, or mixed with technical standards). In contrast, “[w]hat explains the singular mention of a trademark, a patent or similar figures (always with the addition of their ‘equivalents’) is that the space of indetermination disappears. When, for example, it is only possible to supply spare parts for vehicles corresponding to a single brand …, or their equivalents, the contracting authority has already chosen to make "a sufficiently precise and intelligible description of the object of the contract". This is the key difference with respect to paragraphs 3 and 4 of Article 34 of Directive 2004/17, which makes it possible to deal disparately with the requirements on certificates of equivalence” (AGO C-14/17, para 43, own translation from Spanish). In other words, the reference to the brand ‘or equivalent’ would have made the technical specifications so precise that no verification of technical compliance would be necessary prior to the award of the contract.

In my view, this is a functionally and logically untenable position. Given that the use of a reference to branded products is only acceptable “on an exceptional basis, where a sufficiently precise and intelligible description of the subject-matter of the contract pursuant to paragraphs 3 and 4 is not possible”, the recourse to the brand can only be considered as short-hand or a proxy for what are otherwise insufficiently precise or inintelligible technical descriptions of the goods to be supplied. This cannot be seen as excluding the need to assess technical equivalence, but simply as setting the technical benchmark against which such verification needs to be carried out—for otherwise, how could the contracting authority make sure that the supplies of anyone by the OEM meet the requirements?

(2) AG Campos also considers that there is a clash of public and private interests that excludes a requirement of unavoidable pre-award verification of technical compliance. Or, in other words, “[i]t is of course legitimate to have the concern not to frustrate the success of the procedure, which could happen if the contracting authority that had not previously required [the equivalence certificates] would find, in the end, that the successful tenderer is not in a position to prove the equivalence of the pieces … That aspiration, however, cannot supersede the essential principles of public procurement, in particular, the need to guarantee bidders have equal access and are not confronted with ‘unjustified obstacles to the opening of public contracts to competition’” (AGO C-14/17, paras 48-49, own translation from Spanish).

This clash of interests between the contracting authority’s interest in carrying out sound pre-award technical compliance verification and the tenderers’ interest in being allowed access to the tender is constructed on the assumption that, for a supplier to be able to participate in a tender requiring the supply of original or equivalent spare parts, it would need to have individualised certificates for each and every one of the spare parts to be supplied (in the case at hand, over 2,000 parts). This would indeed give an advantage to the OEM manufacturer, which is of course under no need to certify compliance with its own technical standards.

However, this seems like an extremely rigid approach to technical compliance verification through documentation, which is only explained by the conflation of qualitative selection and technical verification carried out in the next set of reasons. A contracting authority could have taken a proportionate approach eg by requiring the submission of samples with the tender, together with a certificate of equivalence of the sample parts or sufficient technical information about the sample parts as to demonstrate that equivalence of the contractual supplies would be achieved. That would allow for a non-restrictive design of the tender procedure not requiring the award of the contract without carrying out sufficient verification of technical compliance.

(3) As AG Campos explains in his Opinion (see paras 57 and ff), in the case at hand, the contracting authority was able to award the contract without the need to receive documentation attesting technical equivalence because it had carried out an unduly restrictive qualitative selection by requiring that tenderers demonstrated experience in supplying a high value of spare parts of the named brand or equivalent in the previous three years. Indeed, he considers that “[p]rocurement documentation drawn up in those terms is restrictive, since it circumscribes the circle of recipients to those who have already manufactured spare parts of the [named] brand, whether original or equivalent, which excludes the participation of other manufacturers … the procuring entity, which had already imposed this rigorous conditions, could reasonably rely on them as criteria to assess the technical standing of the tenderers, without having to require them, in addition, to initially provide the certificates of equivalence of the 2,195 pieces referred to in the supply contract” (AGO C-14/17, para 60, own translation from Spanish).

In my view, this determines the existence not of one, but two, breaches of EU public procurement law. First, because the qualitative selection criteria are indeed too narrow and exclude the possibility for other OEMs or other ‘generic spare parts’ manufacturers to tender for the supply of pieces equivalent to the specific named brand on the basis of technical capability and previous experience in delivering original or equivalent pieces of other named brands (or OEMs). Second and on an alternative understanding of the facts, because in VAR the contracting authority would not have actually waived its obligation to carry out pre-award technical compliance certification by accepting certificates with the first supplies, but it would rather have carried out the verification at qualitative selection stage—which does not seem in line with the distinction between qualitative selection and award criteria according to Lianakis (C-532/06, EU:C:2008:40). Indeed, from a functional perspective, it seemed clear that in VAR the contracting authority screened potential suppliers on the basis of their ability to meet the particular technical specifications of the supplies it required, rather than on the basis of general technical capabilities to produce original or equivalent spare parts for buses, trolleybuses and tramways.

By taking the (inadvertent?) position that ‘two wrongs make a right’, AG Campos may have missed an additional important point. In practice, his position would allow contracting authorities to include requirements in the tender documentation that they have no intention of verifying prior to the award of the contract. This runs functionally contrary to the precedent of EVN and Wienstrom. There, the CJEU clearly established that “where a contracting authority lays down an award criterion indicating that it neither intends, nor is able, to verify the accuracy of the information supplied by the tenderers, it infringes the principle of equal treatment, because such a criterion does not ensure the transparency and objectivity of the tender procedure” (C-448/01, para 51). The difficulty here is not that the information cannot be verified at all, but that the information cannot be verified during the tender procedure—which in my view is a logical implication of the EVN and Wienstrom Judgment. Even if I would not support such an approach, this possibility for deferred verification during contractual execution could maybe only change now that contract modification is explicitly regulated in the 2014 Public Procurement Package; but any such logic would not apply to procurement covered by the 2004 Utilities Directive.

Moreover, the deferral of verification of technical compliance to contract execution and award of the contract without documentary or sample-based checks would create two undesirable effects: (i) opening up the possibility of self-certification of technical compliance by the tenderers and (ii) conflating verification of compliance with technical specifications for award purposes and quality control for contract performance purposes, which are not necessarily identical functions and certainly serve two distinct legal aims; respectively, ensuring the objectivity and probity of the award decision and ensuring compliance with contractual obligations.

Overall consideration

On the whole, in my view, the VAR Opinion is flawed by a misconstruction of the tests and verification carried out by the contracting authority, as well as by a misunderstanding of the technical simplification expected to derive from the exceptional recourse to branded ‘or equivalent’ supplies. As a matter of principle, contracting authorities should not be allowed to award contracts without carrying out sound checks on technical compliance. They should also not be allowed to defer them to contract execution without more. Contracting authorities should also not be allowed to use technical specifications as qualitative selection criteria due to the artificial narrowing of competition that involves (as clearly stressed, but not thoroughly analysed, by AG Campos in his Opinion).

Therefore, I would argue for the CJEU not to follow AG Campos on this occasion and rather clarify that (i) technical compliance cannot be deferred beyond the award of the contract, regardless of the use of references to branded ‘or equivalent’ products, and (ii) it is for the national court to determine whether the rules on technical specifications and qualitative selection were infringed in the design of the procedure in the case at hand. Otherwise, if the CJEU decided to follow the VAR Opinion, its case law would continue to add internal inconsistencies and unnecessary complexity in this already difficult area of procurement regulation.

Further clarification on non-contractual liability vis-a-vis abnormally low tenderers in EU Institutional procurement (C-198/16 P)

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In its Judgment of 19 October 2017 in Agriconsulting Europe v Commission, C-198/16 P, EU:C:2017:784, the Court of Justice of the European Union (CJEU) has provided additional clarification on the conditions for EU Institutions to incur in non-contractual liability (ex Art 340 TFEU) in the context of an investigation of apparently abnormally low tenders in public procurement governed by the Financial Regulation (in that case, the no longer in force 2002 version, but note that the reasoning is generally applicable to current rules).

The Agriconsulting Judgment consolidates a balanced approach to the obligations incumbent upon a contracting authority investigating apparently abnormally low bids, and formulates the emerging principle that tenderers submitting abnormally low tenders are unlikely to have the right to claim for potential damages derived from other shortcomings in the evaluation of their tenders.

In Agriconsulting, the CJEU decided on an appeal of a previous General Court Judgment (T-570/13, EU:T:2016:40) that rejected the claims made by Agriconsulting against the way in which the Commission had assessed its tender and eventually decided that it was abnormally low and thus non-compliant with the tender specifications. The case concerned a services contract that was split between main and additional tasks, and where the tender documentation established minimum levels of staff to be assigned to each of them. This was to be assessed under award criterion 3: 'practical organisation of the tasks'. Under the circumstances, Agriconsulting's tender was found not to meet the minimum staffing requirements in the tender documents.

However, this only emerged after additional details were requested as part of an investigation of the apparent abnormality of its tender, which was €1 million (ie 43%) lower than the competing tender, and €1.2 million (47%) lower than the maximum budget for the contract. The information provided by Agriconsulting did not address the concerns about the abnormality of its tender, which led the evaluation committee to change its preliminary assessment--where Agriconsulting was ranked first but suspected of abnormality--and to reach the final position that its tender did not merit the required minimum points under award criterion 3 to be awarded the contract. Agriconsulting raised a number of claims against this, of which two are particularly interesting: (1) that even if its tender was properly found to be abnormally low under award criterion 3, it could have a right to compensation for damages if it could demonstrate other errors by the contracting authority; and (2) that it had been discriminated against because the competing tender was not investigated for abnormality.

Abnormality and rejection of the tender

In simple terms, the first ground of appeal concerns a claim by Agriconsulting that can be understood as intimating that, even if the rejection of its tender as abnormally low due to its not having met the minimum requirements of award criterion 3 was correct, the existence of errors in the evaluation of its tender under other award criteria could still give rise to liability of the contracting authority.

The argument arises from the fact that, in its application, Agriconsulting had claimed that there was a causal link between the improper assessment of its tender under criterion 3, and that unlawful acts concerning award criteria 1 and 2 "supported" its claim. The GC had dealt with this in the following terms:

42 The applicant contends that the condition relating to the causal link is satisfied because its tender was ranked in first place and it would have been awarded the contract had it not been for the alleged infringements.

43 Nonetheless, it must be stated that the rejection of the applicant’s tender is based only on the assessments concerning award criterion 3 and the abnormally low nature of its tender. The applicant’s tender was indeed ranked in first place following the examination of the tender from an economic standpoint. That ranking was altered for two reasons, namely the changes to the evaluation of the tender in the light of award criterion 3, which was considered to be insufficient, and the classification of the tender as abnormally low. The applicant also states in its application that the harm at issue is the direct result of the evaluation committee’s decision to lower the score for award criterion 3 and to find that the tender was abnormally low.

44 Furthermore, as the Commission points out, the applicant has not, at any time, explained how the award of a higher score for award criteria 1 and 2 could have had a favourable impact on its chances of being awarded the contract.

45 The applicant is therefore wrong to assert that the contract would have been awarded to it if it had not been for the infringements and errors concerning award criteria 1 and 2. Even a higher score for those award criteria would not have affected the assessment of its tender in the light of award criterion 3 and the finding that the tender was abnormally low.

46 Accordingly, the alleged illegalities concerning award criteria 1 and 2, even if proven, have no direct causal link to the alleged harm, relating to the loss of the opportunity to conclude the contract and the expenses incurred in order to participate in the tendering procedure (T-570/13, paras 42-46, emphasis added).

Thus, the issue in front of the CJEU was to assess whether, in dismissing its claim and thus finding that (even if proven) infringements concerning criteria 1 and 2 would not have met the causality requirements to give rise to liability, the GC had erred in law. In its Judgment, the CJEU dismisses this claim by indicating that

... the General Court did not hold in a general and abstract manner that the unlawful acts affecting a tender procedure, such as those alleged in the present case by Agriconsulting in relation to award criteria 1 and 2, can never entitle a tenderer to compensation. In the present case, the General Court merely assessed in concreto whether such a right to compensation existed, in the light of the arguments submitted by the appellant concerning the causal link and by carrying out an assessment of the facts of the case (C-198/16 P, para 21, emphasis added).

I find this interesting for two reasons. First, because it can be read to mean that, where a tender is properly rejected for being abnormally low, there is no liability that can possibly arise vis-a-vis that tenderer due to any other failings in the way the contracting authority assessed the tender. This seems adequate as, in more general terms, a tenderer submitting an abnormally low tender cannot hold legitimate expectations of being awarded the contract. Second, I find this interesting because the CJEU also leaves the door open to the possibility that unlawful acts affecting a tender procedure give rise to liability of the contracting authority where they have a negative impact on a tenderer's chances of being awarded the contract. However, this probably needs to be understood as a slim or remote possibility, applicable only where the unlawful acts are substantive and affect the possibilities of being awarded a contract in a sufficient or material manner.

Abnormality and equal treatment

As mentioned above, the second issue raised by Agriconsultingin its third ground of appeal concerned a notional duty of contracting authorities that engage in the investigation of a tender as apparently abnormally low to investigage all tenders received in that procedure for abnormality. The CJEU summarises the claim as follows:

48 ... the General Court ... stated that [the competitor]’s tender, calculated on the basis of the formula set out in the tender specifications, was slightly lower than the budget ceiling provided for in those specifications for the performance of the contract and higher, by almost EUR 1 million, than Agriconsulting’s tender. It thus concluded that [the competitor] was not in the same situation as Agriconsulting and that therefore the Commission was entitled, without infringing the principle of equal treatment, to verify the abnormally low nature of [Agriconsulting]’s tender, without applying the same treatment to [the competitor]’s tender.

49 It must be stated that the differential treatment of the tenders of Agriconsulting and of [the competitor] is intrinsically linked to the issue of identifying abnormally low tenders and the procedure reserved for them. Assessing the merits of the reasons given by the General Court ... will require revisiting the relevant obligations imposed on the contracting authority (C-198/16 P, paras 48-49, emphasis added).

This also seems like the proper approach to assessing any unequal treatment, and links to the procedural obligations that contracting authorities face in the presence of allegations or suspicions of abnormality--which have been recently discussed in European Dynamics Luxembourg and Others v Agence, T-392/15, EU:T:2017:462 (see here).

Following the same functional approach, the CJEU reiterated in Agriconsulting that:

52 It is only on condition that the reliability of a tender is, a priori, doubtful that the obligations ... are imposed on the contracting authority, including, in the present case, that of verifying in detail the seriousness of the prices offered using the reference economic parameters.

53 In the present case, since the evaluation committee had identified the appellant’s tender as being, prima facie, abnormally low, and had considered that [the competitor]’s tender did not, a priori, present any abnormality, it could, without infringing the principle of equal treatment between tenderers, initiate the adversarial procedure ... against the appellant and verify in detail its prices using the reference economic parameters without applying the same treatment to [the competitor]. The General Court was therefore correct in finding ... that both undertakings, as regards their respective tenders, were not in the same situation (C-198/16 P, paras 52-53, emphasis added).

This is also a welcome development because it creates continuity in the position reached in European Dynamics Luxembourg and Others v Agence that contracting authorities do not have motu proprio obligations beyond reaching an initial view on the absence of concerns regarding the abnormality of a tender, and that any additional obligations only arise from explicit claims to that effect. This is further clarified by the CJEU when it stresses that 'Agriconsulting would ... have had to establish the reasons why the contracting authority should, prima facie, have doubted the reliability of [the competitor]’s tender' (C-198/16 P, para 58).

 

ECJ clarifies that reliance on third party capacities is not possible after the tenderer has been found not to comply with qualitative selection criteria (C-387/14)

In its Judgment of 4 May 2017 in Esaprojekt, C-387/14, EU:C:2017:338, the European Court of Justice (ECJ) provided clarification on some practical issues concerning the application of qualitative selection criteria to tenderers for public contracts seeking to rely on the capacities of third parties. The case is interesting because it concerns a situation where reliance on third party capacities is only sought once the contracting authority has reached a decision that the tenderer does not meet the relevant qualitative selection criteria on its own (or in the consortium configuration used in the submission of the initial tender).  

Thus, the case combines elements of clarification or supplementation of tender documentation with issues derived from the principles of non-discrimination, equal treatment and transparency. The Esaprojekt Judgment is based on the 2004 EU procurement rules (Dir 2004/18, Arts 2, 45, 48 and 51) but it is relevant for the interpretation of the 2014 rules as well (Dir 2014/24/EU, Arts 18, 19, 57 to 60, 63 and, specially, 56(3)).

In the case at hand, and in simple terms, the tenderer that submitted the preferred bid for the provision of IT services (Konsultant Komputer) had declared that it had the required previous experience through the execution of two contracts prior to the tender. However, on a challenge from a disappointed bidder (Esaprojekt), the contracting authority found that such previous experience was not acceptable because it did not concern contracts of the same type required in the tender documentation. At this stage, Konsultant Komputer sought to 'complement' the documentation evidencing its experience by providing the contracting authority with "a new list of supplies in which it relied on the experience of another entity, Medinet Systemy Informatyczne sp. z o.o. concerning two supplies ... It also sent an undertaking from Medinet Systemy Informatyczne to provide, as an advisor and consultant, the resources necessary for the performance of the contract ..." (C-387/14, para 27).

The contracting authority was satisfied with the submission of such 'complement' to the previous documentation, but (unsurprisingly), this was challenged by Esaprojekt on the basis that "Konsultant Komputer ... had submitted false information and had failed to prove that it had fulfilled the conditions for participation in the procedure" (para 29). The Polish court referring the case for preliminary ruling to the ECJ condensed the main legal issues as concerning whether the EU procurement rules (1) "preclude an economic operator, when it supplements documents at the request of the contracting authority, from relying on supplies of services other than those it included in its initial bid or from being able to rely, in that regard, on supplies of services made by another entity on whose resources it did not rely in its initial bid" (para 30); (2) whether, in the circumstances of the case, "the economic operator is able to ... rely on the capacities of other entities where it does not itself fulfil the minimum conditions required in order to take part in the tender procedure for a service contract" (para 31); and (3) the need to determine "in which circumstances an economic operator may be held liable for serious misconduct and, therefore, be excluded from taking part in a public contract" due to the supply of incorrect or misleading information concerning its previous experience (para 32). However, the questions referred to the ECJ do not map these three legal issues, but rather raise some other (more specific) issues.

It will not be surprising to find that the ECJ, in general, declared that proceeding as Konsultant Komputer and the contracting authority did was not allowed under the relevant provisions. On the main point concerning whether there was a breach of the requirements derived from the procurement rules and the general principles of procurement, after relying extensively on the principled framework consolidated in Partner Apelski Dariusz, the ECJ clarified that "Konsultant Komputer submitted documents to the contracting authority which were not included in its initial bid after the expiry of the time limit laid down for submitting applications for the public tender concerned. In particular ... it relied on a contract performed by another entity and the undertaking by the latter to place at the disposal of that operator the resources necessary for the performance of the contract ... Such further information, far from being merely a clarification made on a limited or specific basis or a correction of obvious material errors ... is in reality a substantive and significant amendment of the initial bid, which is more akin to the submission of a new tender" (paras 41-42). Thus, "by allowing the presentation by the economic operator concerned of the documents in question in order to supplement its original tender, the contracting authority unduly favour[ed] that operator as compared with other candidates and, thereby, breache[d] the principles of equal treatment and non-discrimination of economic operators and the obligation of transparency which derives from them" (para 44).

The ECJ later addressed more specific issues. The following is thus just a short excerpt of the relevant parts of the Esaprojekt Judgment in relation to each of the issues--while some more critical reflections are saved for the final part of this post.

First, the ECJ considered the possibility of combining the knowledge and experience of two entities to meet a selection criterion where those entities do not separately have the capacities required to perform a particular contract, and where the contracting authority considers that the contract concerned cannot be divided and must thus be performed by a single operator. On that point, after slightly reinterpreting the question, the ECJ established that the relevant rules do "not allow an economic operator to rely on the capacities of another entity ... by combining the knowledge and experience of two entities which, individually, do not have the capacities required for the performance of a particular contract, where the contracting authority considers that the contract concerned cannot be divided, in that it must be performed by a single operator, and that such exclusion of the possibility to rely on the experience of several economic operators is related and proportionate to the subject matter of the contract which must be therefore performed by a single operator" (para 54).

Second, it considered the possibility for an economic operator that participates individually in an award procedure for a public contract to rely on the experience of a group of undertakings, of which it was part in connection with another public contract, irrespective of the nature of its participation in the performance of the latter. The ECJ found that the EU rules allow "an economic operator, for a particular contract, to rely on the capacities of other entities, such as a group of undertakings of which it is a member, so long as it proves to the contracting authority that that operator will have at its disposal the resources necessary for the execution of the contract" (para 60). Further, it clarified that "where an economic operator relies on the experience of a group of undertakings in which it has participated, that experience must be assessed in relation to the effective participation of that operator and, therefore, to its actual contribution to the performance of an activity required of that group in the context of a specific public contract" because, from a practical perspective, "an economic operator acquires experience not by the mere fact of being a member of a group of undertakings without any regard for its contribution to that group, but only by directly participating in the performance of at least part of the contract, the whole of which is to be performed by that group" and, consequently, "an economic operator cannot rely on the supplies of services by other members of a group of undertakings in which it has not actually and directly participated as experience required by the contracting authority" (paras 62-64).

Third, the ECJ was asked whether the possibility to exclude economic operators that are guilty of serious misrepresentation when supplying information requested by the contracting authority may be applied where the information is of such a nature as to affect the outcome of the call for tenders, irrespective of whether the economic operator acted intentionally or not. On this point, the ECJ concluded that the discretionary exclusion "may be applied where the operator concerned is guilty of a certain degree of negligence, that is to say negligence of a nature which may have a decisive effect on decisions concerning exclusion, selection or award of a public contract, irrespective of whether there is a finding of wilful misconduct on the part of that operator" (para 78) and, more explicitly, that "in order to sanction an economic operator which has submitted false declarations by excluding its participation in a public contract, the contracting authority is not required ... to provide evidence of the existence of wilful misconduct on the part of that economic operator" (para 72).

Finally, the considered whether EU procurement law allows an economic operator to justify compliance with an experience-based selection criterion by relying simultaneously on two or more contracts as a single contract (or, in other words, by combining different partial elements of experience), despite the fact that the contracting authority has not expressly provided for such a possibility either in the contract notice or in the tender specifications. On this point, the ECJ found that "it is conceivable prima facie that the experience necessary for the performance of the contract concerned, acquired by the economic operator in the performance of not one, but two or more different contracts, may be regarded as sufficient by the contracting authority and thereby enables that operator to win the public contract concerned" (para 85) and, therefore, "in so far as the possibility to rely on experience acquired in relation to several contracts has not been excluded either in the contract notice or in the tender specifications, it is for the contracting authority, subject to review by the competent national courts, to check whether the experience gained from two or more contracts, having regard to the nature of the works concerned and the subject matter and purpose of the contract concerned, ensures the proper performance of that contract" (para 87).

Overall, the level of clarification provided by the ECJ in the Esaprojekt should be welcome, although it also raises the broader issue of the extent to which national courts should be willing to engage in principles-based reasoning without referring extremely detailed references for preliminary rulings. There is a clear trade-off to be achieved between ensuring homogeneous interpretation of the EU public procurement rules and (not) overburdening the ECJ. If every case where the general principles of public procurement (now in Art 18(1) Dir 2014/24/EU) are applicable is referred to the ECJ, the system will not be able to cope. In my view, none of the issues raised in this case were particularly complex or controversial, and could have been resolved by general reference to the principles of equal treatment and transparency, which makes me wonder if there may not be a need for a different approach to these issues.

For example, discussion between practitioners has raised the issue whether it would be acceptable for an undertaking in a situation similar to Konsultant Komputer's first submission to 'complement' the selection documentation by supplying a fresh list of new own references (or references to its own experience not submitted in the original documentation). I would submit that it is not allowed. In my view, it is clearly not allowed if the experience has been gained after the date for the submission of tenders, because that establishes the relevant cut off point for the assessment of qualitative suitability (or responsiveness). And, also clearly (although it may be more debatable), this would not be allowed if the experience was gained before that date but the economic operator failed to include the relevant references in the original documentation. I think that this is the case because such an omission of previous experience is not observable by the contracting authority in view of the submitted documentation alone (how could it second guess whether the economic operator provided a full, or even the best, set of references?)--which, in my opinion, excludes it from the scope of application of the rules controlling the request for clarifications under both the Manova case law and the specific provisions of Art 56(3) Dir 2014/24/EU, except if the entire document concerning experience was missing (which would make the defect visible to the contracting authority). Functionally, I would think that this contributes to the manageability of the selection process, while being entirely compliant with the principles of equal treatment and non-discrimination.

Anyway, the point I am trying to make is that, if issues at this level of detail need to be clarified by the ECJ in relation with each of the provisions of the procurement directives, the potential gains of having regulation partly based on general principles will be lost. Therefore, I wonder if it would be possible to reconsider the need for preliminary references where the application of general principles could do.

Are the EU Institutions (about to start) breaching Art 50 TEU & EU public procurement law in the context of Brexit?

The Financial Times has reported that "Brussels starts to freeze Britain out of EU contracts ~ Commission memo tells staff to prepare to ‘disconnect’ UK". According to the FT, an internal European Commission memorandum urges its senior officials to start introducing Brexit considerations in their decision-making, seemingly to avoid “unnecessary additional complications”. As public procurement is concerned, the FT indicates that 

Where legally possible, the [C]ommission and its agencies will be expected in all activities to “take account” of the fact that Britain may be “a third country” within two years, including in appointing staff and in awarding billions of euros of direct contracts for research projects or services.

“Apart from the legal requirement for a contracting party to be established in the EU, there may be political or practical reasons that speak in favour of contracting parties established in a specific member state, not only at the conclusion of the contract, but also throughout the duration of the contract,” the note states.

The FT piece lacks the necessary detail for a full legal assessment and the caveat that this strategy should be undertaken "where legally possible" may well deactivate it [in legal terms]. However, at least in its thrust, this is a rather clear breach of Article 50(3) TEU.

Inasmuch as it states that "The Treaties shall cease to apply to [a withdrawing Member] State ... from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification" (given by the UK on 29 March 2017), unless this period is extended unanimously by the European Council; Art 50(3) TEU does not allow for any anticipatory effects of a decision to withdraw. Until withdrawal and its terms are actually agreed and legally effective, both the withdrawing Member State and the EU Institutions remain bound by EU law in its supremacy, direct effect and the mandate to respect the rule of law (Art 2 TEU). This is an appropriate measure aimed at the preservation of the rule of law in the form of compliance with EU law during the withdrawal negotiations, not least because nobody knows if withdrawal is legally irreversible and unavoidable -- and, quite frankly, every day that goes by without the EU Institutions (as well as the UK) seeking clarification from the Court of Justice of the European Union is a missed opportunity and another blow to the foundations of the rule of law in the EU.

Such prohibition of anticipatory effect goes both in the direction of preventing the 'freeing up' of the withdrawing Member State from compliance with EU law (which is obvious from Art 50(3) TEU itself), as well as in the opposite direction of preventing the EU Institutions from discriminating against the withdrawing Member State. It is clear to me that EU law will always bind the EU Institutions vis-a-vis a withdrawing Member State all the way up to the point of legal withdrawal - and from then onward, the legal regime setting up mutual duties will be that of any transitory arrangements created by the withdrawal agreement, and/or the legal regime governing the "the framework for [the withdrawing Member States'] future relationship with the Union". Violating the absolute mandate of subjection to EU law up to the point of withdrawal would be an infringement of Art 50(3) TEU by the EU Institutions -- if not by itself, certainly in combination with the duty of non-discrimination and equal treatment between Member States of Art 4(2) TEU, as well as the duty of sincere cooperation of Art 4(3) TEU.

In the specific area of public procurement, just as it was illegal for the UK's Department for International Trade to tender contracts screening contractors on the basis of their commitment to support the delivery of Brexit as a cultural fitness criterion (see here), it is also illegal for the EU Institutions to tender contracts on the basis of "political or practical reasons that speak in favour of contracting parties established in a specific member state, not only at the conclusion of the contract, but also throughout the duration of the contract". Article 102 of the Financial Regulation governing the award of contracts by EU Institutions clearly establishes that "All public contracts financed in whole or in part by the [EU] budget shall respect the principles of transparency, proportionality, equal treatment and non-discrimination". Imposing requirements around the Member State of incorporation, registration or sit of a public contractor runs against these general principles.

There may be some specific circumstances or projects (the FT piece mentions the Galileo project) where it would not be possible for public contractors to be based outside the EU, but these are clearly exceptional and need to be subjected to a very strict proportionality analysis. In most cases, particularly for services and research contracts, there is no need for any physical presence in the EU (or elsewhere). This is clearly demonstrated by the coverage of a good number of Brexit-sensitive services markets in the EU's market access concessions under the World Trade Organisation's Government Procurement Agreement (albeit on a reciprocal basis, for obvious trade policy reasons).

Moreover, the extent to which it would be impossible for UK-based contractors to complete the execution of public contracts post-Brexit depends on the existence or not of transitory arrangements, as well as the framework for the future EU-UK relationship (which may well imply mutual coverage of services procurement in WTO GPA terms). Therefore, a decision made now that determined such impossibility and thus served as the basis for the exclusion of UK tenderers from procedures carried out by the EU Institutions would be legally defective.

Beyond these technical issues, it is shocking and worrying to see the EU Institutions engage in what can be seen as trade war by erecting non-tariff barriers against a withdrawing Member State, just as it was worrying and unacceptable to see the UK do that. If both parties to the withdrawing negotiations "prepare" for a disorderly Brexit in this manner, this will be a self-fulfilling prophecy. And the only stopper to such noxious developments is to be found in the rule of law and the EU's and the withdrawing Member States' obligations under the Treaties to comply with EU law until the withdrawal is effective in terms of Art 50(3) TEU. If the European Commission is itself not able to abide in this manner, then my pessimism about the irreversible effects of Brexit on EU law can only plummet even further....

CJEU opens door to manipulation of evaluations and fails to provide useful guidance on the use of 'soft quality metrics' in the award of public contracts (C-6/15)

In its Judgment of 14 July 2016 in TNS Dimarso, C-6/15, EU:C:2016:555, the Court of Justice of the European Union (CJEU) issued some important clarifications on the requirements applicable to the disclosure of evaluation methods under the EU public procurement rules. However, it also turned down the opportunity of clarifying what are the limits of the discretion that contracting authorities enjoy when deciding which evaluation methods to use and, more importantly, it failed to address the important and quite specific concerns about the use of 'soft quality metrics' that AG Mengozzi had raised in his Opinion in this case (as discussed here, where background to the case is offered).

The case broadly raised two main legal issues. First, whether in addition to the disclosure of the award criteria and their weighting (as required by Art 53(2) Dir 2004/18 and now Art 67(5) Dir 2014/24), contracting authorities must also disclose in the tender documentation, or at some point prior to the review of the offers, the evaluation methods they plan to use in the assessment of the tenders. Second, whether having disclosed a numerical weighting applicable to the quality and price criteria (50/100 each), the contracting authority was right to assess the quality criterion in accordance with a soft qualitative ‘high — satisfactory — low’ scale, not referred to in the contract documents.

no obligation to disclose (or indeed establish) evaluation rules prior to the review of the tenders

Regarding the first issue, after reiterating its case law on the purpose of the rules on disclosure of award criteria and their weighting, and stressing their relevance in ensuring equality of treatment between tenderers both when they formulate their tenders and when those tenders are being assessed by the contracting authority (para 22), the CJEU adopted a position that I find surprising. The CJEU stressed that

it is possible for a contracting authority to determine, after expiry of the time limit for submitting tenders, weighting factors for the sub-criteria which correspond in essence to the criteria previously brought to the tenderers’ attention, provided that three conditions are met, namely that that subsequent determination, first, does not alter the criteria for the award of the contract set out in the tender specifications or contract notice; secondly, does not contain elements which, if they had been known at the time the tenders were prepared, could have affected their preparation; and, thirdly, was not adopted on the basis of matters likely to give rise to discrimination against one of the tenderers (see judgment of 21 July 2011 in Evropaïki Dynamiki v EMSA, C‑252/10 P, not published, EU:C:2011:512, paragraph 33 and the case-law cited) (C-6/15, para 26). 

However, it did not apply this reasoning by analogy to evaluation methods as could have been expected. On the contrary, the CJEU adopted a very lenient approach and, after confirming that neither the rules in the Directive nor the previous case law referred to an obligation to disclose evaluation methods, it went on to establish that

29 ... an evaluation committee must be able to have some leeway in carrying out its task and, thus, it may, without amending the contract award criteria set out in the tender specifications or the contract notice, structure its own work of examining and analysing the submitted tenders (see judgment of 21 July 2011 in Evropaïki Dynamiki v EMSA, C‑252/10 P, not published, EU:C:2011:512, paragraph 35).
30 That leeway is also justified by practical considerations. The contracting authority must be able to adapt the method of evaluation that it will apply in order to assess and rank the tenders in accordance with the circumstances of the case.
31 In accordance with the principles governing the award of contracts provided for in Article 2 of Directive 2004/18 and in order to avoid any risk of favouritism, the method of evaluation applied by the contracting authority in order to specifically evaluate and rank the tenders cannot, in principle, be determined after the opening of the tenders by the contracting authority. However, in the event that the determination of that method is not possible for demonstrable reasons before the opening of the tenders, as noted by the Belgian Government, the contracting authority cannot be criticised for having established it only after that authority, or its evaluation committee, reviewed the content of the tenders.
32 In any event, pursuant to the principles governing the award of contracts ... the determination by the contracting authority of the method of evaluation after the publication of the contract notice or the tender specifications cannot have the effect of altering the award criteria or their relative weighting (C-6/15, paras 29-32, emphasis added). 

The reasoning of the CJEU raises two surprising issues, in my view. First, the CJEU seems to conflate the need for the contracting authority to establish an evaluation method that is adapted to the particularities of a given tender (which seems correct, para 30) with the need for the contracting authority to be able to do that at any time (which seems incorrect, para 31). Accepting that the contracting authority can design ad hoc evaluation methods for each of the contracts it tenders does not imply that it can leave this important aspect of the evaluation process for a late stage. Logically, it would seem that setting the award criteria, their weighting and establishing the rules according to which they will be evaluated are different aspects of one same decision: how will the tenders be evaluated so that the contracting authority can decide which one is the most economically advantageous?

It does not seem diligent for the contracting authority to set out the award criteria and their weighting without having determined the way these will be applied in the evaluation. It also seems to create unnecessary uncertainty to tenderers. This is very clear in relation to the use of automatic formulae in electronic auctions, which need to be disclosed to the tenderers prior to their use (Art 54(5) Dir 2004/18 and Art 35(6) Dir 2014/24).  There does not seem to be a good reason for these considerations not to apply to the use of evaluation methods and to require that the contracting authority is diligent in setting them up in a timely manner (ie when it is setting out the award criteria and their weighting).

Second, and more surprisingly, the CJEU fails to extend to the evaluation method the most obvious and minimal guarantee to avoid (impossible to prove) discrimination, ie determining the illegality of establishing (evaluation) criteria relevant for the assessment of the tenders after the evaluation committee has reviewed them (para 31). Before anything else, it must be noted that the CJEU accepts that 'the method of evaluation applied by the contracting authority in order to specifically evaluate and rank the tenders cannot, in principle, be determined after the opening of the tenders by the contracting authority'. The reasoning should not have been as a matter of principle, but as a point of absolute requirement.

However, it is not clear why the CJEU concedes that 'in the event that the determination of that method is not possible for demonstrable reasons before the opening of the tenders, as noted by the Belgian Government, the contracting authority cannot be criticised for having established it only after that authority, or its evaluation committee, reviewed the content of the tenders'. There is no indication whatsoever in the Judgment of which reasons may have been adduced by the Belgian Government to try to justify the impossibility of establishing the evaluation method before having reviewed the tenders. This is amazing because it makes it impossible to understand where the threshold of impossibility lies and, more importantly, because there do not seem to be any good reasons to accept that a diligent evaluation committee can be allowed to decide on the evaluation method after it has already seen the content of the tenders. Whether this is done in a presential meeting or remotely, there is no justification for the assessors not to agree on the evaluation rules first (and document them), and then proceed to the evaluation. In my view, the CJEU has neglected the need to ensure the right to good administration and, in particular, the need to ensure the most basic guarantees that tenderers are treated impartially and fairly, and that relevant matters are dealt with in a timely fashion (as required by Article 41(1) Charted of Fundamental Rights).

The final protection that the CJEU tries to (re)establish in the case by stressing that 'the determination by the contracting authority of the method of evaluation after the publication of the contract notice or the tender specifications cannot have the effect of altering the award criteria or their relative weighting' is inane and insufficient because the possibility of establishing and playing with evaluation rules after having seen the content of the tenders leaves way too much scope to coming up with rules that allow for an ex post rationalisation of the choice of a given winning in tender without necessarily violating the pre-disclosed information on the applicable award criteria and weightings. This deserves stern criticism.

the use of 'soft quality metrics' in the evaluation of tenders

Moving on to the second issue concerning the use of 'soft quality metrics', such as the ‘high — satisfactory — low’ scale in the case at issue, in my opinion, the CJEU also carried out a defective analysis. The shortcomings of the analysis derive from the fact that the CJEU uses the answer to this second aspect to try to compensate for the weakness of its answer to the first question. Indeed, the CJEU premises the analysis of the use of the 'soft quality metrics' on the assessment of whether their use altered the applicable award criteria and their relative weighting. The reasoning of the CJEU is as follows:

35 It appears that that procedure did not make it possible to reflect, when ranking the tenderers in order to identify the most economically advantageous tender, differences in the quality of their tenders relative to their price, while taking account of the relative weighting of the award criteria resulting from the indication ‘(50/100)’. In particular, it appears that that procedure was capable of affecting the price criterion by giving it decisive weight relative to the tenders ranked in the [‘high — satisfactory — low’] scale of quality ... It is for the referring court to ascertain whether the relative weighting of each of the award criteria published in the contract notice was in fact complied with by the contracting authority during the evaluation of the tenders.
36 While the contracting authority may use a scale for the evaluation of one of the award criteria without it being published in the call for tenders or the tender specifications, that scale may not, however ... have the effect of altering the relative weighting of the award criteria published in those documents (C-6/15, paras 35-36, emphasis added). 

I find this problematic because it does not address the core problem of using 'soft quality metrics' at all. Should they have been disclosed to tenderers or, more importantly, should they have been published in the tender documentation together with an explanation of why specific weightings could not be established, the use of this scale would be unobjectionable under the TNS Dimarso test, while still allowing for very subjective and difficult to objectively verify comparisons of the tenders. This leaves the question of which evaluation rules are compatible with the two main requirements in the evaluation of tenders--ie that the award rules, not only the award criteria themselves and their weighting, have to '(i) to be linked to the subject matter of the contract (ie, to be ‘relevant’), and (ii) to allow the contracting authority actually to determine which tender is economically the most advantageous (ie, to be ‘enabling’)' [A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 380]. By failing to clarify that 'soft quality metrics' are not enabling and do not provide sufficient objectivity to the evaluation process so as to make sure that the contracting authority does not overstep the limits of its discretion, in my view, the CJEU has left too much space for manipulation in the assessment of tenders.

This is something I had criticised [A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 388], even if in relation to the award criteria (but the arguments apply equally to evaluation rules meant to assess them] considering the following:

Restrictions Derived from the Inclusion of Non-Quantifiable or Subjective Award Criteria, and the Ensuing Need to Objectify Treatment of Qualitative Criteria. Another way in which the selection and weighting of award criteria could give rise to distortions of competition—and, probably, to discrimination amongst tenderers—would be through the introduction of non-quantifiable criteria, or essentially qualitative or subjective criteria that significantly diminished the possibilities of an overall objective appraisal of the tenders or conferred on contracting authorities unrestricted freedom of choice amongst tenderers. In this regard, even if article 67(2)(a) of Directive 2014/24 allows for the taking into consideration of this type of criterion—referring, in general terms, to criteria such as ‘technical merit’ or ‘aesthetic characteristics’—the requirements of relevance and enabling character of the award criteria (see above, this section), as well as the need to avoid conferring on contracting authorities unrestricted freedom of choice and to ensure that the award criteria make provision for an objective assessment of tenderers, should be taken into particular consideration and constrain the decisions adopted by the public buyer.[1]
As regards the requirement of relevance of such qualitative award criteria, it should be stressed that the circumstances under which considerations such as aesthetic characteristics or technical merit will be relevant and material to the subject-matter of the contract are relatively limited (at least if they are unrelated to performance or functional requirements, which are quantifiable and, hence, do not generate significant difficulties). Moreover, it is submitted that they will generally be associated with tenders that should be ruled by the requirements applicable to design contests—which are specifically regulated and set special rules in this respect (see arts 78 to 82 of dir 2014/24),[2] particularly aimed at ensuring the objectivity and independence of the members of the committee entrusted with the evaluation of qualitative or subjective elements of the proposals. Consequently, aesthetic characteristics or technical merit might be assigned very limited relevance in other types of tendering procedures. The substantial irrelevance of such qualitative or non-quantifiable aspects will, then, require only limited consideration in the majority of the cases, if at all.
Moreover, in order to ensure transparency and impartiality, contracting authorities should (as far as possible) set objective or quantifiable proxies to measure primarily subjective or qualitative characteristics of the tenders; or, at least, set up mechanisms (possibly based on the rules regarding design contests) to ensure an impartial appraisal of subjective or qualitative dimensions of the tenders. If such quantification, or ‘proximisation’ or approximation, is possible, the possibilities for discrimination or distortion of competition will be smaller. Consequently, the adoption of this requirement seems desirable whenever its implementation is feasible.
Therefore, a restrictive approach towards the permissibility of the use of these criteria as the basis for the award of contracts—again, in cases other than design contests—seems appropriate. Consequently, this type of consideration should remain as a secondary criterion, or as a rather marginal complement, to objective and easily quantifiable criteria used to determine the award of the contract to the most economically advantageous tender. Along these lines, and attending to the subject-matter of the contract, contracting authorities should give proper weighting to qualitative or subjective criteria (even if ‘quantified’)—which, in our opinion, should be rather limited and marginal in most instances.
To sum up, it is submitted that contracting authorities are bound to ensure the objective and transparent assessment of tenders, particularly by i) avoiding undue recourse to qualitative or non-quantifiable (subjective) award criteria in procedures other than design contests, and ii) assigning them a proper (limited) weighting; and, in general, they are under a duty to exercise self-restraint in their decisions regarding such criteria, particularly when failure to do so could result in their exercise of unrestricted freedom of choice amongst tenderers and/or generate distortions of competition or discrimination of tenderers.
[1] See: S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 766–71.
[2] See S Arrowsmith, The Law of Public and Utilities Procurement, 2nd edn (London, Sweet & Maxwell, 2005) 829–39;  PA Trepte, Public Procurement in the EU: A Practitioner’s Guide, 2nd edn (Oxford, Oxford University Press, 2007) 232–4; and C Bovis, EC Public Procurement: Case Law and Regulation (Oxford, Oxford University Press, 2006) 248–51.

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 case on the award of public contracts and 'prudential budgetary reserves' (T-90/14)

The tension between budgetary rules and public procurement law was rather evident in a recent case before the General Court (GC) of the Court of Justice of the European, which it decided in its Judgment of 8 October 2015 in Secolux v Commission, T-90/14, EU:T:2015:772 (only available in French). The case concerned procurement by the EU Institutions, but the situation seems to be applicable mutatis mutandis to procurement covered under the general EU rules for procurement carried out by the Member States.

In the case at hand, the European Commission received a tender valued at 4,222,680 euros and selected it for award of the contract, therefore disclosing that information to all other bidders as part of the general debriefing process. However, the Commission finally awarded the contract for a value of 5,070,000 euros and disclosed this information in the relevant contract award notice. There was no indication of the reasons behind this higher contract value in the contract award notice.

In view of this significant discrepancy between both contract values, a disappointed tenderer challenged the award decision on the basis of an infringement of the requirements of transparency, equal treatment and non-discrimination resulting from the applicable rules. Quite surprisingly, the GC dismissed this claim, on the basis of the following reasoning:
27. At the outset, it should be noted that, as the Commission has explained, the amount of the successful offer was 4,222,680 euros ... The contract has been awarded for 5 070 000 euros euros ... This later amount is equivalent to the rounded price of the offer of the successful tenderer, increased by 20% for indexing and contingencies.
29. In this context, the applicant alleges in particular infringement of the principles of transparency and equal treatment ... as well as rules on advertising.
32. ... it is understood that the applicant's complaint, in essence, is directed against the award of the contract for an amount equivalent to the offer of the successful tenderer , increased by 20% for indexing and contingencies.
37 According to the relevant case law, the principle of transparency, which is essentially aimed to ensure the absence of favoritism or arbitrariness on the part of the contracting authority, means that all terms and conditions of the award procedure must be drawn in a clear, precise and unequivocal manner in the contract notice or in the contract documents (judgments of 29 April 2004, Commission / CAS Succhi di Frutta, C-496/99 P, EU: C: 2004: 236, paragraph 111, and of 26 September 2014, Evropaïki Dynamiki / Commission, T-498/11, EU: T: 2014: 831, paragraph 119).
38 In order to ensure respect for equal treatment and transparency, it is important that all the elements taken into consideration by the contracting authority to identify the economically most advantageous tender and, if possible, their relative importance are known potential bidders when preparing their tenders (judgment of 21 July 2011, Evropaïki Dynamiki / EMSA, C-252/10 P, EU: C: 2011: 512, paragraph 30, and Evropaïki Dynamiki / Commission, paragraph 37 above, EU: T: 2014: 831, paragraph 121).
39 All these requirements were satisfied in this case. Indeed, it clearly appears from the case file that the terms and conditions of the award process have been clearly established in the call for tenders. In addition, the allocation by the Commission for a market value including indexing and contingencies was irrelevant in the identification of the most economically advantageous tender
40 ... the first plea must be rejected as in part inoperative and in part unfounded. None of the arguments advanced by the applicant is in any event undermine that conclusion. 
41 First, it should be stressed that the Commission limited itself to  the creation of a budgetary reserve, which will not be used in the absence of contingencies and applications for price indexing. Therefore, it is not a unilateral increase of the price proposed by the successful tenderer. Moreover, the reservation of a higher budget to deal with unforeseen circumstances constitutes prudential behavior on the part of the Commission (T-90/14, paras 27, 29, 32 and 37 to 411, own translation from French and emphasis added).
The reasoning of the GC is quite surprising because, regardless of the budgetary mechanisms or restrictions affecting the Commission's decision (eg under the applicable rules, there was no specific provision allowing for contract modification, which would have created an incentive for the Commission to create a budgetary reserve by means of inflating the award price), the contract was in fact awarded at a higher price than the tender submitted by the bidder, which is a significant deviation of the standard procedural requirement and opens the door to post-award negotiations that can completely undermine the pre-award competition. 

Such preservation of the result of the ex ante competition for the contract is precisely the reason why contract modification has been the object of specific regulation under Art 72 Dir 2014/24. In short, pre-empting the effectiveness of rules on contract modification (either inexistent rules that prevent it or positive rules that constrain it) by artificially increasing the price of the contract at award stage should not be seen as legitimate prudential behaviour on the part of the contracting authority, but a deviation of power that certainly infringes the basic requirements of the duty of good administration.

Moreover, in the case at hand, there were allegations that the offer was abnormally low and that the chosen tenderer would be unable to perform the contract at the prices offered. Under those circumstances, the GC would have been well advised to dig deeper into the (actual) reasons for the Commission to create such a budgetary reserve by means of an artificially high contract price (which is certainly not best or even standard practice), which could reasonably have been motivated by an actual knowledge that the execution of the contract could not be performed at the offered prices without increases (due to indexation, contingencies or otherwise). And this seems particularly suspicious in view of the fact that the awardee of the contract was an incumbent provider of services to the European Commission.

Thus, in my opinion, the decision of the GC in Secolux v Commission is either naive or way too formal and a better analysis of the behaviour of the Commission would be necessary. I am no expert in EU budgetary law at all, but I find it odd that the Commission can simply decide to create 'prudential budgetary reserves' by means of a manipulation of the prices of the contracts it awards. If there is a further appeal to the CJEU, I would prompt the Court to consider the issue under a more stringent framework.

CJEU flexibilises treatment of formally non-compliant bids in public procurement (C-336/12)

In its Judgment of 10 October 2013 in case C-336/12 Manova, the Court of Justice of the EU (CJEU) has  followed its own approach in Slovensko and created some room for the flexible interpretation of the rules on formal compliance of bids submitted in public procurement procedures.
 
In Manova, the contracting authority had requested some of the tenderers to provide financial statements that had not been included in their bids after the deadline for their submission had ellapsed. Given that this decision was challenged on the grounds of a potential breach of the principle of equal treatment, the referring court decided to request a preliminary ruling from the CJEU, which was asked "whether the principle of equal treatment is to be interpreted as precluding a contracting authority from asking a candidate, after the deadline for applying to take part in a tendering procedure, to provide documents describing that candidate’s situation – such as a copy of its published balance sheet – which were called for in the contract notice, but were not included with that candidate’s application".
 
In rather clear terms (although some caveats may have been dispensed with, in my opinion), the CJEU ruled that:
the principle of equal treatment must be interpreted as not precluding a contracting authority from asking a candidate, after the deadline for applying to take part in a tendering procedure, to provide documents describing that candidate’s situation – such as a copy of its published balance sheet – which can be objectively shown to pre-date that deadline, so long as it was not expressly laid down in the contract documents that, unless such documents were provided, the application would be rejected. That request must not unduly favour or disadvantage the candidate or candidates to which it is addressed (C-336/12 at para 42).
In my view, the Manova Judgment must be welcome, both for its functional approach and for its alignment with domestic practices in a significant number of EU Member States--as discussed in Sánchez Graells, A, "Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions", in S Treumer and M Comba (eds), Award of Public Contracts under EU Procurement Law, vol. 5 European Procurement Law Series, (Copenhagen, DJØF, 2013) 267-302. This seems a good step in the direction of avoiding that overly strict formal requirements get in the way of actual good public procurement practices.