ECJ allows contracting authorities to require performance bonds as selection criteria (C-76/16)

In its Judgment of 13 July 2017 in INGSTEEL and Metrostav, C-76/16, EU:C:2017:549, the European Court of Justice (ECJ) has followed the Opinion of AG Campos (discussed here) and accepted the use of financial guarantees (performance bonds) as economic selection criteria rather than as contract compliance clauses (which was the Commission's approach). The ECJ has also set some minimum requirements of proportionality in their assessment. The Judgment is based on the 2004 public procurement rules, but will be relevant in the context of the 2014 Directive as well.

In the case at hand, the tender documentation “required the participants in the tendering procedure to provide a statement from a Slovak bank or a Slovak branch office of a foreign bank confirming that it would grant them credit in the amount of at least EUR 3 000 000, a sum which should be available to them throughout the entire duration of the contract. That statement was to be in the form of a loan agreement or credit facility agreement and have been given by a person authorised to commit the bank in question” (C-76/16, para 16, please note that the description is not entirely coincidental with that of the AG Opinion, which did not refer to a 'loan agreement or credit facility', but rather to a 'guarantee ... to ensure performance of the contract'; however, the issue of the legal nature of the requirement may not have played a significant role in the ECJ's decision).

The disappointed tenderer did not provide such a bank statement, but rather "a statement, given by a bank, which contained information on the opening of a current-account credit facility for an amount exceeding EUR 5 000 000, and a sworn statement from the tenderer certifying that, if its bid was successful, it would have available in its current account, at the time of conclusion of the contract for works and throughout the period of performance of the contract, a minimum amount of EUR 3 000 000" (C-76/16, para 17).

The difference in the content of the bank statements is important because the core of the issue was that, as argued by the disappointed tenderer, it would have been "objectively impossible for it to satisfy the requirements relating to economic and financial standing set by the contracting authority in any other way, drawing on statements made by Slovak banks questioned by the latter to the effect that a binding undertaking to grant credit, such as that required by the contract notice, could be issued only after approval of the transaction covered by the credit and satisfaction of all the requirements laid down by the bank for the conclusion of a loan agreement" (C-76/16, para 18).

Taking the view that the unsuccessful tenderer had not satisfied the economic and financial standing requirements, the contracting authority decided to exclude it from the tendering procedure. The rejection was eventually challenged before the Supreme Court of the Slovak Republic, and the preliminary reference to the ECJ derives from a procedure mainly aimed at assessing (i) whether the contracting authority could introduce this requirement in compliance with the rules on economic and financial standing (Art 47(1)(a) and (4) Dir 2004/18); and (ii) whether the contracting authority should have accepted the documentation as alternative to the specified bank certificate (Art 47(5) Dir 2004/18). Only the first point deserves analysis, as the ECJ has left the second point completely open and referred it back for assessment by the domestic court.

It is also worth stressing that the Commission had challenged the approach of assessing performance bond requirements as selection criteria and submitted that: (i) the requirement for financial guarantees that had to be effective post-award should be assessed as a contract compliance clause under Art 26 Dir 2004/18 and, further, (ii) that given that such provision does not exhaustively govern the special conditions for performance, those conditions may be assessed in accordance with primary EU law. AG Campos rejected the Commission's approach and invited the ECJ to assess the requirement in the framework of economic selection criteria. The ECJ has now followed that approach and, after reiterating its case law on the setting of economic and financial selection criteria and the discretion that contracting authorities enjoy to that effect (paras 25-34), it has established that

35      As regards, first, the requirement expressly laid down in the contract notice that the financial guarantee should be provided ‘to ensure performance of the contract’, it appears ... that the contracting authority believed that that requirement was not satisfied since the credit granted to the tenderer, although exceeding the amount required by the contract notice, was a current-account credit facility that was not tied to performance of the contract.

36      In this respect, it must be noted that a requirement to obtain a loan tied to performance of the contract is, objectively, a reasonable means of obtaining information on the economic ability of the tenderer to perform the contract successfully. As the European Commission noted, the grant of a loan is an appropriate means of establishing that the tenderer has at its disposal resources which it does not itself own and which are necessary for the performance of the contract (see, to that effect, judgment of 2 December 1999, Holst Italia, C‑176/98, EU:C:1999:593, paragraph 29). It is, however, once again for the referring court to confirm that the amount required in the contract notice is proportionate to the subject matter of the contract.

37      In respect, second, of the requirement, also laid down in the contract notice, regarding the grant of credit in a minimum amount of EUR 3 000 000 ‘for the period of performance of the contract (48 months)’, although, admittedly Article 47 of Directive 2004/18 does not expressly provide that the contracting authority may require a tenderer to have at its disposal the resources necessary for the performance of the contract throughout the duration of the performance of the contract, it must be noted, as the Advocate General observed in point 46 of his Opinion, that the contracting authority’s verification of the tenderer’s compliance with the economic and financial criteria in a tendering procedure, is intended to provide that authority with the assurance that the successful tenderer will indeed be able to use whatever resources it relies on throughout the period covered by the contract (see, to that effect, judgment of 14 January 2016, Ostas celtnieks, C‑234/14, EU:C:2016:6, paragraph 26 and the case-law cited).

38      Moreover, the continued availability of the amount required throughout the period of performance of the contract is a useful tool in assessing, in a tangible manner, the economic and financial standing of the tenderer with respect to its commitments. The proper performance of the contract is indeed intrinsically linked to whether the tenderer has the financial means for the execution of the contract.

39      Therefore, in the present case, the condition requiring the tenderer to have the funds available throughout the period of performance of the contract is appropriate for securing the objectives of Article 47(1) of Directive 2004/18.

40      However, it is for the national court to determine the relevance of the evidence provided by the tenderer for that purpose, in particular the contract opening a current-account credit facility.

41      It follows from the foregoing that the answer to the first question is that Article 47(1)(a) and (4) of Directive 2004/18 must be interpreted as meaning that a contracting authority may exclude a tenderer from a tender procedure on the ground that it does not fulfil the criterion regarding economic and financial standing laid down in the contract notice with respect to the provision of a statement given by a bank undertaking to grant credit in the amount specified in the contract notice and to guarantee that that amount will be available to the tenderer throughout the period of performance of the contract (C-76/16, paras 35-41, emphasis added).

In my view, and as I said in relation with the AG Opinion in this case, the analysis carried out by the ECJ is technically flawed. Put simply, the EU public procurement directives (both the 2004 and the 2014 generations) do not regulate the possibility for contracting authorities to demand financial guarantees from economic operators participating in tender procedures – neither tender/participation guarantees, nor performance/completion guarantees [see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 326-7 & 425-6]. Such requirements are not regulated as part of the assessment of the economic operator’s economic and financial standing for selection purposes – which is designed as an information-based screening process, not as a phase where the contracting authority can secure financial rights for itself –and this is also not related to the conditions for the performance of the contract. Moreover, a reinterpretation of the selection rules on economic and financial standing (but also on professional or technical standing) that made them forward looking creates significant distortions in the system of EU public procurement law, as well as potentially make it impossible to assess.

The specific reasoning of the ECJ in this case supports the fact that an assessment of performance bonds as selection criteria is problematic. The ECJ has stressed that the two main reasons why it considers these requirements acceptable concern the fact that (i) "a requirement to obtain a loan tied to performance of the contract is, objectively, a reasonable means of obtaining information on the economic ability of the tenderer to perform the contract successfully" (para 36), and that "the continued availability of the amount required throughout the period of performance of the contract is a useful tool in assessing, in a tangible manner, the economic and financial standing of the tenderer with respect to its commitments. The proper performance of the contract is indeed intrinsically linked to whether the tenderer has the financial means for the execution of the contract" (para 38).

In the abstract and taken into account in their own terms, these statements may seem uncontroversial. However, the extent to which they reflect the nature of the requirement for a performance bond or financial guarantee can be doubted. The economic and financial standing of the contractor is assessed in general terms at selection stage and the contracting authority always run an implicit risk that the economic and financial standing of the contractor may change during the execution of the contract, in particular if this is of a long duration. Thus, the requirement of performance-related financial guarantees does not have an informative aim, but rather a risk management aim and possibly a cashflow management aim.

By requiring the contractor to have an available credit of 12% of the procurement value (€3mn for a €25.5mn contract), the contracting authority seems to want to cover risks of mis- or under-performance (possibly through the imposition of contractual penalties) and/or to anticipate that the contractor will always be making investments ahead of expected payments for partial completion of the works. In that case, the function of the requirement is not to allow the contracting authority to assess the undertaking's financial standing, but rather to have access to implicit finance for the project and/or to reduce the financial risk of the project for the authority itself. Moreover, it is not clear whether the funds have to be 'frozen' and available throughout the duration of the contract, or if the contractor can use them to perform the contract. In the second case, assuming that a credit of 12% (or any other value, except for an excess of 100%) ensures adequate performance of the contract is only partially justified because at some point in the execution of the contract, the 12% funds will be exhausted and, barring the existence of other sources of finance (including payments by the contracting authority), the very same issues that the financial guarantee is supposed to exclude would arise.

From that perspective, in my opinion, both the suitability and the proportionality of the requirement need to be taken into account. It should be assessed whether the contracting authority has made efforts to design the contract in a cashflow neutral way (including initial downpayments, for instance), or if there are any other ways in which the management of risk can be satisfactorily conducted without requiring performance bonds. This is something that the ECJ has not done, and it has simply referred the issue back to the domestic court, so that it assesses "the relevance of the evidence provided by the tenderer for [the purpose of having funds available throughout the period of performance of the contract], in particular the contract opening a current-account credit facility" (C-76/16, para 40).

The problem, in my view, is that the ECJ has implicitly accepted that the requirement is legitimate and that contracting authorities can require undertakings to have specific levels of funds available to them during the execution of the contract as a matter of qualitative selection. This can be problematic because the creation of imbalanced cashflows can exclude undertakings from competition for the contract (in particular, SMEs) and because contracting authorities are not necessarily in the best position to assess the financial arrangements that undertakings have put in place for their operations. Moreover, if this was the best way of assessing the undertakings' economic and financial standing, then qualitative selection could be limited to demanding performance guarantees (possibly of 100% of the value) rather than assessing the undertakings' financial documentation. There would be no need to assess annual turnover or any other indicators, as contracting authorities would be absolutely certain that the contract would be financed. However, this clearly seems excessive and, in any way, excessive as compared to the role and purpose of qualitative selection. As the ECJ stressed in the INGSTEEL Judgment, 

the requirements in terms of economic and financial standing must be objectively such as to provide information on such standing of an economic operator and must be adapted to the size of the contract concerned in that they constitute objectively a positive indication of the existence of a sufficient economic and financial basis for the performance of that contract, without, however, going beyond what is reasonably necessary for that purpose (C-76/16, para 33, emphasis added).

In my view, requirements of performance bonds or financial guarantees do not aim to obtain "positive indications" of the financial viability of the project, but rather "positive assurances" to that effect. In that regard, they do not relate to the general standing of the undertaking, but rather to the specific risk profile of the tender, and as such need to be assessed as contract performance clauses and under a strict proportionality test. The fact that the ECJ has taken a different analytical approach is, in my view, a lost opportunity.

Can a requirement to furnish financial guarantees (performance bonds) be considered a selection criterion based on economic and financial standing (C-76/16)?

In his Opinion of 21 March 2017 in INGSTEEL and Metrostav, C-76/16, EU:C:2017:226, Advocate General Campos Sánchez-Bordona addressed the compatibility of tender requirements aimed at ensuring the (future) provision of performance guarantees related to the execution of a works contract with the rules of the 2004 EU public procurement directive (Dir 2004/18). He submitted to the European Court of Justice (ECJ) that such requirements are compatible with EU law and, in particular, with the rules on selection criteria based on the economic and financial standing of economic operators seeking to be awarded public contracts under Art 47 Dir 2004/18. In doing so, he rejected the European Commission’s submission that such requirements, inasmuch as they affected the phase of execution of the contract, ought to be assessed in accordance with the rules on the setting of conditions for the performance of contracts under Art 26 Dir 2004/18.

AG Campos also addressed a point on the time-sensitivity of remedies’ availability (ie whether challenges by disappointed tenderers are barred where the performance of the contract by the awardee is almost complete) under the EU Remedies Directive (Dir 89/665 as amended by Dir 2007/66). He considered that, as interpreted in connection with Art 47 of the European Charter of Fundamental Rights, the procedural rights created by the Remedies Directive do not lapse simply due to the fact that the successful tenderer has almost completed performance of the contract at the time the disappointed tenderer launches its challenge, or the review authority or court is to issue its ruling.

While I fully agree with AG Campos concerning the procedural aspects of his Opinion (which I would have thought both clear and uncontroversial), I think that his analysis of the substantive issues improperly characterises the requirement for the (future) provision of a performance guarantee as a valid selection criterion based on the economic operator’s economic and financial standing. On that point, I consider the analytical framework proposed by the European Commission (partially) preferable. This post develops the reasons why I think the ECJ should not follow AG Campos on the substantive points of his INGSTEEL and Metrostav Opinion.

In the case at hand, “the contract notice required a ‘statement by the bank (loan agreement or credit facility agreement) recording the bank’s undertaking to the effect that the tenderer, in the event of acceptance of its tender, will be in a position to provide a guarantee of EUR 3,000,000 to ensure performance of the contract. The evidence must show that the funds will be available to the tenderer after conclusion of the contract. The evidence must be certified by a person authorised by the bank for that purpose.’” (para 15, emphasis added).

It is hard to make sense of the requirement (which may be a translation issue), but this seems to concern the need to provide a stand-by financial guarantee to the benefit of the contracting authority, which the issuing bank commits to firm up upon award of the contract.

Be it as it may, the disappointed tenderer did not provide such a bank statement, but rather proof of the opening of a current-account credit facility for an amount exceeding EUR 5,000,000 and a sworn statement that, if awarded the contract, they would keep a minimum of EUR 3,000,000 for the duration of the contract (para 17). It is not clear from the factual description in the Opinion whether there was any commitment to provide a guarantee using those funds as collateral, but it does not seem to be the case.

The contracting authority did not accept these documents as evidence of the economic and financial standing of the tenderer and thus excluded it from further participation. The rejection was eventually challenged before the Supreme Court of the Slovak Republic, and the preliminary reference to the ECJ derives from a procedure mainly aimed at assessing (i) whether the contracting authority could introduce this requirement in compliance with the rules on economic and financial standing (Art 47(1)(a) and (4) Dir 2004/18); and (ii) whether the contracting authority should have accepted the documentation as alternative to the specified bank certificate (Art 47(5) Dir 2004/18). Only the first point deserves analysis.

It is important to note here that the European Commission has challenged the legal subsumption of the material facts under Art 47 Dir 2004/18 and submitted that “Article 47 of Directive 2004/18 relates to the economic and financial standing of the tenderer at the time of award of the contract. However, the tenderer’s economic and financial standing during performance of the contract is governed by Article 26 of that directive, concerning conditions for performance of the contract. At all events, in the light of the wording of the question, the Commission suggests that the condition imposed on the tenderer should be examined under both Article 26 and Article 47 of Directive 2004/18” (para 28).

Further, the Commission indicated that “Article 26 of Directive 2004/18 provides that the conditions for performance must appear in the contract notice, a requirement fulfilled in this case, and must be compatible with EU law. Citing the case-law of the Court, the Commission argues that, as Directive 2004/18 does not exhaustively govern the special conditions for performance, those conditions may be assessed in accordance with primary EU law” (para 29, emphasis added).

AG Campos disagreed with the Commission and considered that the approach of assessing the requirement as a performance clause was incorrect. He emphasised that Art 26 Dir 2004/18 is concerned with other issues “and applies, in particular, to social and environmental objectives” (para 43). More importantly, he considered that “in requiring certain minimum levels of economic and financial standing, the presumption in Articles 44 and 47 of Directive 2004/18 is that the proof of that standing must refer to the period of performance of the contract. It would not be reasonable to require economic and financial standing only at the time of award of the contract and for the contracting authority not to have the right to request guarantees that the future successful contractor will retain its economic and financial standing during the period of performance of the contract” (para 44 emphasis added).

Furthermore, after creating an analogy with the case law concerned with reliance on third party capacities, he gave significant weight to the functional criterion that “[w]hen financial or economic resources are concerned, it is reasonable that these should not be ephemeral but should last until the contractual obligations have been performed” (para 48). In any case, AG Campos explicitly saved the requirement due to the fact that the value (EUR 3,000,000) “was related and proportionate to the subject-matter of the contract” and that the duration of the financial guarantee “was the same as the period of performance of the contract” (para 50). However, he did not provide any reasons for the finding that a 12% financial guarantee is proportionate (the estimated value of the contract was just above EUR 25,000,000), or why a duration of 48 moths without a reduction in the value of the guarantee did not need to be assessed in relation to the potential evolution (ie reduction) of risk as the completion of the contract progressed.

In my view, even if the outcome of the analysis may be seen as defensible (of which I am not convinced), the analysis itself is technically flawed. Put simply, the EU public procurement directives (both the 2004, as well as the 2014 generation) do not regulate the possibility for contracting authorities to demand financial guarantees from economic operators participating in tender procedures – neither tender/participation guarantees, nor performance/completion guarantees [see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 326-7 & 425-6]. This not regulated as part of the assessment of the economic operator’s economic and financial standing for selection purposes – which is designed as an information-based screening process, not as a phase where the contracting authority can secure financial rights for itself –and this is also not related to the conditions for the performance of the contract. Moreover, a reinterpretation of the selection rules on economic and financial standing (but also on professional or technical standing) that made them forward looking would create significant distortions in the system created by EU public procurement law, as well as potentially make it impossible to assess.

In the absence of rules on financial guarantees in the relevant EU public procurement directives (ie Dir 2004/18), the analysis of requirements for economic operators to furnish them to the contracting authority should be analysed in accordance with primary EU law – as the Commission rightly stressed, although on the basis of the applicability of Art 26 Dir 2004/18, with which I disagree. In that context, the AG (and in the immediate future, the ECJ) should have assessed whether the requirement of providing a 12% financial guarantee for a duration of 48 months is a barrier to free movement – which I think it is – and whether it can be justified – which I am not sure it can be, as both (i) the public interest in reducing the financial exposure of contracting authorities engaging in public contracts is questionable, and (ii) it may well be (strictly) disproportionate due to the impact it can have on SME access to procurement.

Therefore, the analysis of proportionality need not be intra-tender or confined to the terms of the contract (which could already make it fail), but rather of a higher level of generality, concerning the policy of demanding financial guarantees and its justification from a public interest perspective. Given its detrimental effects for competition, I would not think that demanding these guarantees is necessarily exemptable under free movement rules, at least in relation with contracts that do not raise specific or extraordinary risks.

From that perspective, the proportionality assessment carried out by AG Campos in INGSTEEL and Metrostav almost obiter may not necessarily cover all bases, as it is carried out from the perspective of the link of the requirement to the subject matter of the contract, rather than the perspective of seeking to justify a restriction of a fundamental internal market freedom. But, even if the same result was to be achieved, the analytical path would still be important—ie the limited scope of the exercise of assessing economic operators’ economic and financial standing should not be unduly extended.

This can have major relevance, not least because of the change that the consolidation of the principle of competition in Art 18(1) Dir 2014/24 has brought about. In the future (ie, where Dir 2014/24 is applicable to the case), in my opinion, the inclusion of requirements to provide financial guarantees should be subjected to assessment from the perspective of a potential artificial narrowing of competition. If, in a case such as INGSTEEL and Metrostav, the contracting authority excludes a tenderer on the basis of some (seemingly) formal deviation of the way in which it proposes to provide financial assurance to the contracting authority, this is bound to infringe the requirements of the competition principle. Surely, this analysis could be carried out even if the requirement was considered to pertain to the assessment of the economic operator’s economic and financial standing, but the consolidated recognition of the contracting authorities’ discretion to set those requirements in the first place may muddy the analysis. It seems conceptually preferable to consider it an independent issue, and thus subject to general principles.

Therefore, I would urge the ECJ not to follow AG Campos’ Opinion in INGSTEEL and Metrostav and rather determine that the requirement of financial guarantees was not covered by the 2004 EU public procurement rules and must thus be subjected to a standard assessment under primary EU law (and a strict proportionality test). I would also submit that, under those rules, the requirement was contrary to EU law.

AG Sharpston rightly opposes use of financial guarantees as pre-requisite for procurement challenges (C-439/14 and C-488/14)

In Opinion of 28 April 2016 in joined cases Star Storage and Max Boegl România and Construcții Napoca, C-439/14 and C-488/14, EU:C:2016:307, AG Sharpston considered 'whether EU law precludes a Member State from requiring an applicant to lodge a ‘good conduct guarantee’ in order to access review procedures for public procurement decisions by contracting authorities' or,  'how far can the Member States set up financial requirements for challenging contracting authorities’ decisions in order to reduce the risk of frivolous challenges, that is to say, challenges that are inherently likely to be unsuccessful and whose purpose is merely to impede the public contract award procedure?'.

The case comes on the back of a challenge against Romanian procedural rules whereby undertakings seeking the review of procurement decisions need to lodge such a 'good conduct guarantee' of 1% of the estimated value of the contract (with progressive caps at €10k, €25k and €100k), and contracting authorities retain the good conduct guarantee where the body competent to review their decisions rejects the challenge or where the applicant abandons it. For the sake of completes, the Opinion also assesses whether a guarantee that was returned to the applicant regardless of the outcome of the case would be compatible with EU law.

AG Sharpston's Opinion is interesting because it covers arguments linked both to the right to an effective remedy before a tribunal recognised by Article 47 of the EU Charter of Fundamental Rights (which is clearly of prominence in this area; see Fastweb, C-19/13, EU:C:2014:2194), and to the more precise rights to access to rapid and effective review procedures and remedies in the field of public procurement under the Remedies Directive (and the identical provisions of the Utilities Remedies Directive).

After a very detailed assessment (see below), AG Sharpston unsurprisingly concludes that the Remedies Directive and the Utilities Remedies Directive, 'read in the light of Article 47 of the Charter, preclude national legislation ... which requires an applicant to lodge a ‘good conduct guarantee’ in order to obtain access to review of a contracting authority’s decisions relating to public procurement and under which the contracting authority must retain that guarantee if the challenge is rejected or withdrawn, regardless of whether or not the challenge is frivolous'. Equally, that 'the same provisions of EU law also preclude national legislation which requires an applicant to lodge a ‘good conduct guarantee’ in order to obtain access to review of a contracting authority’s decisions and under which that applicant automatically gets back the guarantee at the end of the challenge, whatever its outcome'.

These issues generally concern the delineation of the locus standi to challenge procurement decisions, which I have submitted needs to be interpreted in broad terms because 'the adoption of open or broad rules on active standing is a crucial element—particularly because, in this area, one of the major problems is the reluctance of public contractors and offerors to initiate litigation' [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 439-441]. AG Sharpston's Opinion is clearly in line with such general expansive interpretation of rules recognising active standing in procurement review procedures. Therefore, her Opinion must be welcome and it is submitted that the Court of Justice should follow it. However, I also submit that she could have been bolder in assessing these issues in the broader context of the use of financial guarantees in public procurement. From this perspective, I think that some of the specific elements of Sharpston's analysis are interesting in their detail.

AG Sharpston's analysis on the basis of art 47 charter

When setting the legal background to the dispute, AG Sharpston emphases that the right under Art 47 of the Charter is not absolute, but that it can only be limited subject to the principle of proportionality and only if the limitation is necessary and genuinely meets objectives of general interest recognised by the EU, or the need to protect the rights and freedoms of others [as per Art 52(1) Charter]. She also stresses that under Art 1(1) of the Remedies Directive, Member States must 'ensure that ... decisions taken by the contracting authorities may be reviewed effectively and, in particular, as rapidly as possible ... on the grounds that such decisions have infringed [EU] law in the field of public procurement or national rules transposing that law', and that under Art 1(3) of the Remedies Directive, 'the review procedures [shall be] available, under detailed rules which the Member States may establish, at least to any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement'.

AG Sharpston also clearly stresses that the Remedies Directive only sets 'minimum conditions which the review procedures under domestic law must satisfy in order to comply with EU public procurement law [so that if] no specific provision governs the matter, it is for each Member State to lay down the detailed rules of administrative and judicial procedures governing actions for safeguarding rights which individuals derive from EU public procurement law' (para 30, references omitted). Thus, given that the Remedies Directive 'contains [no] rules on financial requirements which economic operators may have to fulfil in order to obtain access to review procedures against decisions of contracting authorities. National provisions ... fall within the procedural autonomy of the Member States, subject to the principles of equivalence and effectiveness' (para 31).

However, AG Sharpston raises two relevant issues: 'First, can [the principle of effectiveness] be limited to verifying that a national procedural requirement ... renders practically impossible or excessively difficult the exercise of the right to review procedures set out in [the Remedies Directive]? Or is it broader in that it requires any national rule which undermines those provisions to be set aside?' (para 33, emphasis in the original). To which she answers that 'what matters ultimately is to ensure that the rights which EU law confers on individuals receive more, rather than less, protection. [The Remedies Directive gives] specific expression to the right to an effective remedy. It is therefore not possible to limit the analysis of the principle of effectiveness to whether a procedural requirement such as that in issue in the main proceedings is liable to render practically impossible or excessively difficult the exercise of that right. Rather, in that specific context, the effectiveness test must surely involve examining whether such a requirement is liable to undermine the right to effective review procedures which those provisions guarantee' (para 35, emphasis in the original).

'Second, what impact does the fundamental right to an effective remedy under Article 47 of the Charter have on the principle of effectiveness as a limit to the procedural autonomy of the Member States?' (para 36). And, in that regard, she clearly explains that 'Article 47 of the Charter applies in the main proceedings. Providing the good conduct guarantee is a pre-condition for getting any challenge examined. That requirement therefore constitutes a limitation on the right to an effective remedy before a tribunal within the meaning of Article 47. Such a limitation can therefore be justified only if it is provided for by law, if it respects the essence of that right and, subject to the principle of proportionality, if it is necessary and genuinely meets objectives of general interest recognised by the EU or the need to protect the rights and freedoms of others. That test is similar to the test that the Strasbourg Court applies when it examines whether financial restrictions on access to courts are compatible with Article 6(1) of the ECHR' (para 37, references omitted).

This is an interesting analytical approach, which leads to the further consideration that the rules are underpinned by a legitimate purpose. In Sharpston's words, 'the national provisions establishing the good conduct guarantee are intended in essence to protect ... from frivolous challenges which economic operators (including those who are not tenderers) might initiate for purposes other than those for which the review procedures were established. Such an objective is undeniably legitimate. In particular, discouraging frivolous challenges enables the bodies in charge of reviewing decisions of contracting authorities to concentrate on ‘genuine’ challenges. That is likely to contribute to satisfying the requirement that Member States must ensure that decisions of contracting authorities may be reviewed effectively and, in particular, as rapidly as possible where it is claimed that such decisions infringe EU public procurement law or national rules transposing that law' (para 44, references omitted).

AG Sharpston also considers that the possibility of loosing significant amounts (up to €25k or €100k depending on the type of contract) meets the requirement that the rules are capable of achieving that objective because 'costs of that magnitude are such as to deter the lodging of frivolous challenges because the latter are, by their very nature, likely to be rejected and, therefore, to result automatically in loss of the entire good conduct guarantee and the associated costs' (para 47).

However, she submits that the rules on 'good conduct guarantees' do not meet the requirements of the principle of proportionality as derived from Art 52(1) of the Charter because there is no indication that they do no go further than is necessary to attain their objective. She assesses the situation in two scenarios. First, where the guarantee is automatically forfeited in case the challenge is rejected or withdrawn. In this case, there is no question that the rule is not proportionate because '[w]here a challenge was rejected or withdrawn, the ... competent court might for example have been given latitude to ascertain whether that challenge was frivolous or not, taking into account all relevant circumstances, and to decide in consequence whether retaining (all or part of) the good conduct guarantee was justified' (para 50, references omitted). Second, where the the applicant gets back the good conduct guarantee irrespective of the challenge’s outcome (which was a transitional regime proposed by Romania), AG Sharpston considers 'that such a procedural requirement does not protect contracting authorities adequately from frivolous challenges. Under the transitional regime, the contracting authority has to return the good conduct guarantee to the applicant within five days following the date on which the decision ... or the judgment has become final, even where the applicant manifestly abused his right to access review procedures. The costs which the transitional regime involves may therefore not be such as to discourage an economic operator from lodging a challenge that pursues an objective other than those for which the review procedures are established — for example, harming a competitor. They may nevertheless prove an obstacle to an economic operator with an arguable claim but limited means' (para 56). Therefore, she also considers it contrary to EU law.

scope for a bolder approach?

In my view, AG Sharpston is right on all issues she discusses, particularly given the framework of analysis she creates. However, the Opinion leaves space for Member States to still develop mechanisms whereby they require the submission of 'bid protest guarantees' that will only be forfeited in case of spurious litigation and on a case by case assessment. Broadly, this is not in line with the normative position that the use of financial guarantees in public procurement (primarily, at bidding stage, but also at review stage) needs to be minimised and only used where there is an actual risk against which the contracting authority cannot (self)protect by other means--which will very rarely be the case [see my Public procurement and the EU competition rules (2015) 326-327 & 425-426]. In my view, the risks derived from litigation are a given for the public sector and, consequently, unless there is a special circumstance that raises the possibility of damage to the public sector above abnormal levels, the need for the financial guarantee can be doubted.

A less restrictive alternative would be to devise a system of penalties which public procurement review bodies and courts could apply in case of spurious litigation. That would avoid front-loading the financial burden and would dissipate negative effects on access to review procedures. Conversely, it would leave the public sector exposed to bankruptcy risk in case the frivolous challengers did not have the ability to pay the fine. But this is not different from the general risk the public sector (and society at large) faces in terms of the effects of bankruptcy on the effectiveness of administrative sanctions. Thus, once more, the risk does not seem to be specific enough as to justify the requirement of specific 'bid protest guarantees' and, from that perspective, I submit that AG Sharpston could have been bolder in her Opinion in Star Storage and Max Boegl România and Construcții Napoca. However, on balance, her Opinion is certainly a positive step.