CJEU clarifies obligation of national supreme and constitutional courts to refer preliminary questions (C-322/16)

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In its Judgment of 20 December 2017 in Global Starnet, C-322/16, EU:C:2017:985, the Court of Justice of the European Union (CJEU) followed the Opinion of AG Wahl and clarified that a national court of last instance is under an Art 267 TFEU obligation to refer a question for preliminary ruling to the CJEU even if the constitutional court of that Member State has already assessed the constitutionality of national rules in the light of regulatory parameters with content similar to rules under EU law.

The case concerned the amendment of the terms of licences for the online operation of gaming during their term, and the challenge was based on principles of legal certainty and protection of legitimate expectations, which are common to EU law and to the constitutional frameworks of the EU's Member States (in this case, Italy). From that perspective, the Global Starnet Judgment can be particularly relevant for cases involving claims based on the EU Charter of Fundamental Rights and could create a push for a more significant role for the CJEU as a constitutional court for the Union.

There are a few passages of the Global Starnet Judgment that I find particularly interesting:

... a national court which, in a case concerning EU law, considers that a provision of national law is not only contrary to EU law, but also unconstitutional, does not lose the right, or escape the obligation under Article 267 TFEU, to refer questions to the Court of Justice on the interpretation or validity of EU law by reason of the fact that the declaration that a rule of national law is unconstitutional is subject to a mandatory reference to the constitutional court. The effectiveness of EU law would be in jeopardy if the existence of an obligation to refer a matter to a constitutional court could prevent a national court hearing a case governed by EU law exercising the right conferred on it by Article 267 TFEU to refer to the Court questions concerning the interpretation or validity of EU law in order to enable it to decide whether or not a provision of national law was compatible with that EU law ...

... the effectiveness of EU law would be impaired and the effectiveness of Article 267 TFEU diminished if, as a result of there existing a procedure for review of constitutionality, the national court were precluded from referring questions to the Court for a preliminary ruling and immediately applying EU law in a manner consistent with the Court’s decision or case-law ...

Furthermore, although it is true that the procedure laid down in Article 267 TFEU is an instrument for cooperation between the Court of Justice and the national courts, by means of which the former provides the latter with the points of interpretation of EU law necessary in order for them to decide the disputes before them, the fact remains that when there is no judicial remedy under national law against the decision of a court or tribunal of a Member State, that court or tribunal is, in principle, obliged to bring the matter before the Court of Justice under the third paragraph of Article 267 TFEU where a question relating to the interpretation of EU law is raised before it ...

The fact that the [domestic Constitutional Court] gave a ruling on the compatibility of the provisions of national law ... with the provisions of the [national] Constitution which the referring court regarded as constituting, in essence, the same regulatory parameters as [EU law] has no bearing on the obligation, laid down in Article 267 TFEU, to refer questions concerning the interpretation of EU law to the Court of Justice (C-322/16, paras 21 & 23-25, references omitted and emphases added).

CJEU backs automatic exclusion of tenderers that had relied on no longer qualified third parties (C-223/16)

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In its Judgment of 14 September 2017 in Casertana Construzioni, C-223/16, EU:C:2017:685, the Court of Justice of the European Union (CJEU) has confirmed the legality of the automatic exclusion of an economic operator that had relied on the capacities of an auxiliary undertaking, where the latter lost the required qualifications after the submission of the tender. The CJEU has ruled that the relevant provisions of Directive 2004/18/EC (Arts 47(2) and 48(3)) did not preclude such automatic exclusion, and that they did not require offering the concerned tenderer the possibility to replace the now not-qualifying auxiliary undertaking.

In doing so, the CJEU has followed the Opinion of Advocate General Wahl (criticised here), and created a precedent that is at odds with the new rules in Directive 2014/24/EU (Art 63) and that raises new interpretive difficulties. This post will first rehearse the main reasons why AG Wahl's and now the CJEU's approach is criticisable. It will then look into the interpretive difficulties that can carry through to the interpretation of Article 63 of Directive 2014/24/EU.

Not necessarily a proportionate or pro-competitive approach

In a nutshell, the reasons given by the CJEU to accept the automatic exclusion of a tenderer that relied on the capacities of an auxiliary undertaking that disappear once the offer has been submitted are the same as those of AG Wahl, and are summarised by the CJEU as follows:

as the Advocate General observed ..., the possibility afforded, unpredictably, exclusively to a consortium of undertakings to replace a third-party undertaking which belongs to that consortium and has lost a qualification that is required in order not to be excluded would amount to a substantial change of the tender and the very identity of the consortium. Indeed, such a change of the tender would compel the contracting authority to carry out new checks whilst at the same time granting a competitive advantage to that consortium which might attempt to optimise its tender in order to deal better with its competitors’ tenders in the procurement procedure at issue.

Such a situation would be contrary to the principle of equal treatment which requires that tenderers be afforded equality of opportunity when formulating their bids and which implies that the bids of all tenderers must be subject to the same conditions, and would amount to a distortion of healthy and effective competition between undertakings participating in a public procurement procedure (C-223/16, paras 39-40, emphasis added).

This encapsulates three reasons: (i) discrimination because one consortium is given the opportunity and other tenderers are not, (ii) discrimination because the beneficiary consortium can substantially alter the terms of its tender, and (iii) additional work for the contracting authority. In my opinion, the first reason is spurious because the opportunity to substitute would only arise where a consortium is affected by the loss of qualification of one of its auxiliary undertakings and, barring a case where two or more competing consortia found themselves in that predicament, there is no discrimination for allowing substitutions on a need basis.

The second reason is equally unpersuasive, in particular because it conflates the strict issue of substitution of the member of a consortium with the separate problem of changes to the content of the tender. As I said in relation to AG Wahl's Opinion, provided that the way in which the contracting authority allowed for the substitution between third entities on which capacity the tenderer relied did not confer a competitive advantage to the tenderer, there can be good reasons to allow it. For example, if the application of the qualitative selection criteria did not involve a ranking, but was rather on a pass / no pass basis, and where the terms of the tender were not altered at all because the new entity simply stepped into the shoes of the no longer capable entity, there seems to be limited scope to consider that the tenderer derives a competitive advantage (for more details, see here). Thus, rather than excluding the possibility altogether, the CJEU could have imposed conditions to establish what is an acceptable substitution of auxiliary undertakings and what is not.

Finally, the point on additional checks being required from the contracting authority is relevant. However, rather than considering it a sufficient reason to prevent the substitution, a proportionality assessment would have seemed more appropriate. Given that the exclusion narrows down competition for the contract, the contracting authority should be able to demonstrate that there are sufficient administrative difficulties to justify proceeding this way.

Thus, in outline, I would have preferred that the CJEU departed from AG Wahl's Opinion and declared that the general principles of EU procurement law, and in particular the principle of proportionality coupled with the principle of competition, oppose the automatic exclusion of tenderers that have relied on the capacities of third parties that later lose them, unless the contracting authority can demonstrate that allowing for the substitution of the third party would either infringe the principles of equal treatment, non-discrimination and the obligation of transparency (eg in a situation where the qualitative selection criteria were not assessed on a pass/no pass basis), or would create a disproportionate administrative burden or delay in the conclusion of the procurement procedure. This could create closer functional compatibility in the case law on reliance on third parties and on subcontracting, which I think are currently at risk of imposing functionally incompatible interpretations of the relevant EU public procurement rules.

In my view, my preferred interpretation is encapsulated in Article 63(1) of Directive 2014/24/EU, in particular as read in the light of the principle of competition in Article 18(1) thereof [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) 315-318]. However, the Casertana Judgment may raise some questions around that approach, which requires some closer analysis.

New doubts concerning Article 63(1) of Directive 2014/24/EU

In the Casertana Construzioni Judgment, the CJEU follows its previous approach in Partner Apelski Dariusz (paras 82-94, see here) and the Opinion of AG Wahl and rejects both (i) the application of Article 63(1) of Directive 2014/24/EU to the case ratione temporis (which is uncontroversial, as the tender took place in 2013) and (ii) the possibility of interpreting the rules of Directive 2004/18/EC in light of Article 63(1) of Directive 2014/24/EU. Casertana reiterates the finding in Partner that Article 63(1) of Directive 2014/24/EU introduces 'substantial amendments as regards the right of an economic operator to rely on the capacities of other entities in the context of public contracts' (C-223/16, para 26) and is therefore not suitable as an interpretive tool in relation to Directive 2004/18/EC because the latter is not affected by 'problems of interpretation' (C-223/16, para 28). However, the case is not limited to ignore Article 63(1), but rather seems to consolidate a strict interpretation of this provision. Additionally, given the divergence between Article 63(1) of Directive 2014/24/EU and the Casertana Judgment, the latter creates a potential difficulty concerning the cut-off point at which the possibility to replace non-qualified third parties ends.

Seemingly too restrictive (implicit) interpretation of Article 63(1) of Directive 2014/24/EU

Both the Partner and Casertana cases stress that the new rules foresee that "Article 63(1) of Directive 2014/24 now provides that economic operators may ‘only rely on the capacities of other entities where the latter will perform the works or services for which these capacities are required’ ... and that ‘the contracting authority shall require that the economic operator replaces an entity which does not meet a relevant selection criterion, or in respect of which there are compulsory grounds for exclusion’" (C-223/16, para 25). The second part of this statement has been discussed above (and could have been reconciled with the pre-2014 rules by operation of the principle of proportionality). The first part of the statement is problematic. 

Indeed, this incipient consolidation of the rules in Article 63(1) could trigger difficulties because, according to its literal wording, the restriction of reliance on third parties where they will perform the work or services for which the capacities are required solely concern "criteria relating to the educational and professional qualifications as set out in point (f) of Annex XII Part II [ie the educational and professional qualifications of the service provider or contractor or those of the undertaking’s managerial staff, provided that they are not evaluated as an award criterion], or to the relevant professional experience" -- or, in other words, economic operators are allowed to rely on financial, economic and other types of professional qualifications of third parties even if those parties will not directly carry out the works. This comes to allow for consultancy and technical support contracts to back up the tenders of economic operators that may not have all those resources in-house and is generally pro-competitive. By adopting a blanket approach to the requirement of direct involvement in the execution of the contract beyond the limited remit established in Article 63(1) of Directive 2014/24/EU, a broad reading of the Casertana and Partner cases could deactivate large parts of the flexibility for the formation of consortia that are inherent to the system.

In the specific case of Casertana, all we know is that 

Casertana participated in the call for tenders within the framework of an ad hoc tendering consortium under formation, as lead company, and declared that it relied, as regards the qualifications required by [the applicable Italian rules], on those of two auxiliary undertakings, one being Consorzio Stabile GAP. 

In the course of the procedure and after the end of the stage of admission to the call for tenders, that auxiliary undertaking [is Consorzio Stabile GAP] lost qualification for the required category of services, thus becoming qualified for a lower category of services only (C-223/16, paras 11-12).

Put simply, it is not known why Consorzio Stabile GAP saw its qualification reduced for a lower category of services. If the reasons were not linked to the educational and professional qualifications of its managerial staff or the relevant professional experience of the undertaking, then an acritical application of the decision of the CJEU to the case would imply an unnecessary (and illegal) restriction of the flexibility foreseen in Article 63(1) of Directive 2014/24/EU.

Unresolved timing issues -- when does Article 63(1) of Directive 2014/24/EU stop applying?

In Casertana, the CJEU simply indicated that there is no requirement to give the tenderer an opportunity to substitute auxiliary undertakings that have lost the required qualifications after the tender has been submitted because that would amount to allowing for a substantial change of the tender (see above). It also indicated that tenderers could not claim force majeure (or, more generally, the unpredictability of the loss of qualification by the auxiliary undertaking) to gain such an opportunity to substitute them because, although the procurement rules enable "a tenderer to rely on the capacities of one or more third party entities in addition to its own capacities in order to fulfil the criteria set by a contracting authority, that tenderer remains responsible, in its capacity as the lead undertaking in a consortium of undertakings, for the compliance of those undertakings with the obligations and conditions for participation in the call for tenders laid down by the contracting authority in the documents relating to the procurement procedure at issue" (C-223/16, para 41). A question arises on how to interpret these two issues in situations where Article 63(1) of Directive 2014/24/EU is applicable.

Taking the second aspect first, it seems clear that under Article 63(1) of Directive 2014/24/EU, the responsibility for ensuring compliance with the selection criteria included in the call for tenders is shared between the lead undertaking and the contracting authority. In that regard, it is worth emphasising that the provision foresees that

The contracting authority shall ...verify whether the entities on whose capacity the economic operator intends to rely fulfil the relevant selection criteria and whether there are grounds for exclusion ... The contracting authority shall require that the economic operator replaces an entity which does not meet a relevant selection criterion, or in respect of which there are compulsory grounds for exclusion. The contracting authority may require or may be required by the Member State to require that the economic operator substitutes an entity in respect of which there are non-compulsory grounds for exclusion.

Given this wording, and in case the contracting authority issues a favourable opinion on the qualifications held by a given auxiliary undertaking (or fails to check them, as was the case in Casertana, where the loss of qualification was only raised in the context of a counter-claim against Casertana's challenge to the award of the contract to a different consortium), issues will arise concerning legitimate expectations, in particular concerning the ability to replace no loner qualifying third parties at any point of the procurement process, all the way through to award (including any litigation concerning findings of loss of compliance with selection criteria at tender evaluation stage). However, this would be in stark contrast with the first aspect of the Casertana Judgment, which considers a substitution of auxiliary undertaking an impermissible tender modification. Therefore, the question will arise whether Article 63(1) is applicable throughout the procurement procedure, or only up to the point of submission of tenders.

In my view, the answer to the question cannot be all-or-nothing (as has been the case in AG Wahl's Opinion and in the Judgment), but rather require an analysis of the terms of the substitution (if the new auxiliary undertaking simply assumes all obligations of the previous undertaking in the exact same conditions, where is the advantage?), as well as a proportionality assessment of any new verification work required from the contracting authority as a result of the substitution (in the Casertana case, the issue revolved around qualifications administered by a third party [ie a Certification Body], so it would have seemed rather easy to substitute auxiliary undertakings without requiring much from the contracting authority). Failing that, there is a risk of limiting Article 63(1) to a one-shot remedial opportunity restricted to the contracting authority's first assessment of the tenderer's (and its auxiliary's) compliance with exclusion and qualitative selection rules. Even if this would be an improvement over the 2004 system (in particular as interpreted in Casertana), it would fall short from the flexibility that can be derived from a broader and more dynamic reading of Article 63(1) of Directive 2014/24/EU.

AG Wahl issues excessively formalistic Opinion on 'crumbling' reliance on third party capacities (C-223/16)

In his Opinion of 11 May 2017 in Casertana Costruzioni, C-223/16, EU:C:2017:365, AG Wahl has analysed the compatibility with the 2004 EU public procurement rules (Dir 2004/18/EC, Arts 47(2) and 48(3)) of national legislation providing for the automatic exclusion from the tendering procedure of a tenderer that relies on the capacities of another entity which, during that procedure, ceases to have the required capacities--without allowing for the the possibility of replacing that entity for another third party with the appropriate capacity. 

AG Wahl follows a functional approach close to that of AG Bobek in Esaprojekt, and submits that the rule on automatic exclusion is compatible with EU public procurement law. His reasoning deserves close scrutiny, in particular concerning the automaticity of the exclusion, which I am not convinced necessarily derives from his interpretation of previous case law.

At this stage, it is important to stress that AG Wahl follows the approach of the European Court of Justice (ECJ) in Partner Apelski Dariusz to the effect of excluding the possibility of resorting to Directive 2014/24/EU (Art 63) in search for interpretive criteria to be applied to the 2004 rules. In AG Wahl's view, "[i]n permitting economic operators to replace entities which are to be excluded or which do not meet the relevant criteria, Article 63(1) of Directive 2014/24 manifestly introduces new elements as compared to the rules laid down in Article 47(2) and Article 48(3) of Directive 2004/18" (para 36). Therefore, it seems clear that, whether the ECJ follows AG Wahl's Opinion or not in the Casertana Costruzioni Judgment, this will have limited practical effect because, under Directive 2014/24/EU, the automatic exclusion of a tenderer on the basis that its reliance on third party capacities has crumbled is no longer compatible with EU law.  

Referring back to procurement subjected to the 2004 rules, it is important to stress that AG Wahl conceptualises the core legal issue as concerning whether EU law requires Member States to permit the substitution of the entity that has lost the required capacity with one which possesses the required capacity. He rightly points out that this cannot be assessed in abstract terms, but rather needs to be linked to the relevant phase of the procurement procedure. In that regard, he distinguishes three situations, depending on whether the loss of capacity by the third party takes place (i) before the time limit for receipt of the bids expires, (ii) after the expiry of the time limit for receipt of the bids, but before the public authority makes the final award or (iii) after the award of the contract (see paras 18-25).

In AG Wahl's view, substitution of the third party cannot be allowed in situation (i) because in cases where the loss of capacity by the third party happens before the expiry of the time limit for the submission of bids, tenderers are free to withdraw the offer that is no longer compliant with the tender documentation and submit a new offer where they rely on the capacities of a different third party. AG Wahl does not express a view on situation (iii)--and, therefore, skips the opportunity to offer some clarification on the rules concerning the substitution of consortium members [for discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) 339-340].

Most of AG Wahl's analysis thus concerns situation (ii), where the loss of capacity by the third party takes place during the evaluation stage of the award procedure (strictly, after the deadline for the submission of offers--although I would submit that the same approach should be followed in borderline situations between (i) and (ii), where the bidder only discovers the loss of capacity by the third party after the deadline for submission of tenders, or without sufficient time to submit a fresh offer). He clearly submits that the ECJ should declare that no EU rule or general principle of law requires national authorities to permit tenderers, in that situation, to replace the third party that has lost the required capacity. I am not convinced that this is the case.

Concerning explicit rules, AG Wahl is clear in emphasising that "Directive 2004/18 does not contain any provision which expressly requires Member States to allow tenderers to replace economic entities on whose capabilities they have relied, when those entities are to be excluded or do not meet the relevant criteria. Nor is there any provision, in that directive, that could be read as implicitly containing such a rule or principle"; and, consequently, due to the minimum harmonisation nature of the procurement Directive, "which leaves some regulatory discretion to the Member States for what is not expressly regulated therein", "the possible replacement of third parties on which a tenderer has relied ... is an aspect which is, in principle, for the Member States to regulate" (paras 41 and 42).

He then moves on to assess the situation in relation with the general principles of EU public procurement law, which could constrain Member States' legislative discretion. In that regard, he is also clear in establishing that "allowing a tenderer to replace an entity on whose capabilities it sought to rely cannot be regarded either as a clarification of, or as the correction of clerical errors in, its tender. In point of fact, such a change appears to constitute an amendment of an important element of the tender which is, therefore, in principle not permissible" (para 47, emphasis added), which he considers contrary to the requirements of the principles of equal treatment and non-discrimination and the obligation of transparency (para 45).

AG Wahl refers to AG Bobek's Opinion in Esaprojekt to indicate that

such a change may lead to the contracting authority being required to carry out additional checks and could even affect the choice of candidates being invited to present an offer. Furthermore, [Bobek] noted that giving a tenderer a second chance to decide on which entities’ capabilities it wishes to rely, ‘could certainly procure it an advantage that would be at odds with the requirement of equal treatment’.
I agree. I would also add that upholding Casertana Costruzioni’s argument would essentially amount to creating a judge-made rule that grants the possibility of amending bids at a late stage, a possibility which, in the light of the applicable national and EU rules, was not foreseeable by the other tenderers. As mentioned, that would hardly be reconcilable with the principle of equal treatment. Nor would it be compatible with the obligation of transparency incumbent upon the public authorities. Indeed, neither the Italian nor the EU rules in force at the material time provided for such a possibility. Nor was a specific provision on this point included in the invitation to tender (paras 49-50, footnotes omitted). 

On their facts, I am not sure that the comparison with the Esaprojekt case is helpful. Esaprojekt concerns a situation (i) in terms of AG Wahl's classification, in the sense that the third entity in which the tenderer relied (in that case, a consortium of which the tenderer itself formed part) did not meet the requirements of the tender documentation when the offer was submitted. Thus, this situation can be distinguished from the analysis in Casertana Construzioni in relation with situation (ii) scenarios. In the latter case, therefore, the issue does not seem to be framed in the most useful terms because it can be argued that, having taken place after the submission of the offer (which AG assumes to be the case, see para 24), the loss of capacity of the third party was not foreseeable by the tenderer either, which deactivates part of the reasoning bases on potential discrimination.

Moreover, provided that the way in which the contracting authority allowed for the substitution between third entities on which capacity the tenderer relied did not confer a competitive advantage to the tenderer, there can be good reasons to allow it. For example, if the application of the qualitative selection criteria did not involve a ranking, but was rather on a pass / no pass basis, and where the terms of the tender were not altered at all because the new entity simply stepped into the shoes of the no longer capable entity, there seems to be limited scope to consider that the tenderer derives a competitive advantage.

AG Wahl seems to take the opposite view on the basis of the reasoning underlying the ECJ's analysis of a prohibition to change subcontractors in Wall (which AG Wahl discusses in paras 53-56), in relation to which he stresses that it "could be considered [that the substitution of subcontractor] ‘[altered] an essential term of the concession and [thus necessitated] a new tender procedure’ because, in particular, ‘the concession-holder [had] relied on the reputation and technical expertise of the subcontractor when submitting its tender’." However, this is also conceptually problematic because it refers to a situation (iii), and the prohibition of the substitution of subcontractor can have more to do with the ECJ's requirement that contracting authorities are in a position to verify the standing of any subcontractors (as generally discussed by AG Sharpston in her Opinion in Borta, discussed here).

Ultimately, the difficulty with the assessment carried out by AG Wahl in Casertana Construzioni derives from the fact that he considers that "the capabilities of a third party which allow a tenderer to participate in a tender procedure can hardly be regarded as a non-essential element of a bid. The conclusion might have been different, obviously, if the tenderer had itself the required capabilities or if it had relied, for the same requirement, on more than one entity having those capabilities" (para 58, emphasis added). In my view, this is excessively formalistic and a more nuanced analysis would be required. In the specific case, and on the basis of the limited information about the factual situation, it seems that reliance on the third party capacity primarily (or exclusively) served the purpose of ticking the box of holding a formal classification via registration in the relevant classification system (see para 11). If that is the case, then it seems difficult to justify that this constitutes an essential element of the bid, as it could hardly affect its terms or the execution of the works. More generally, it is not clear that any aspect of reliance on third party capacity can be considered an essential element of a bid by definition, and a more detailed assessment seems necessary (along the lines established by the ECJ in Borta, see here).

From that perspective, the analysis based on discrimination and equal treatment does not seem the most relevant to me, and a focus on proportionality between the administrative burden linked to the substitution of third parties and the preservation of competition for the contract would be much more relevant--in which AG Wahl refuses to engage (see paras 62-65). In my view, this is the biggest flaw of the Opinion in this case. I would suggest that, contrary to what AG Wahl considers, the principle of proportionality should have provided the key legal test in this case.

Thus, I would rather have the ECJ depart from his Opinion and declare that the general principles of EU procurement law, and in particular the principle of proportionality coupled with the principle of competition, oppose the automatic exclusion of tenderers that have relied on the capacities of third parties that later lose them, unless the contracting authority can demonstrate that allowing for the substitution of the third party would either infringe the principles of equal treatment, non-discrimination and the obligation of transparency (eg in a situation where the qualitative selection criteria were not assessed on a pass/no pass basis), or would create a disproportionate administrative burden or delay in the conclusion of the procurement procedure. This could create closer functional compatibility in the case law on reliance on third parties and on subcontracting, which I think are currently at risk of imposing functionally incompatible interpretations of the relevant EU public procurement rules.

 

Interesting AG Sharpston's Opinion on Lithuanian rules on subcontracting (C-298/15) -- warning on the use & transposition of 63(2) Dir 2014/24 & 79(3) Dir 2014/25?

In her Opinion in Borta, C-298/15, EU:C:2016:921, AG Sharpston assessed, amongst other things, the compatibility with EU law of a prohibition to subcontract part of a public works contract not covered by the relevant EU public procurement directive (in the case, Dir 2004/17). Her assessment thus relies on fundamental rules and general principles of the TFEU (in particular the free movement principles in Articles 49 and 56 TFEU).  

The dispute concerned a Lithuanian tender for the construction of a quay at the port of Klaipėda that ended up in litigation, not least due to a relevant change of participation requirements after the tender had been launched. In my view, the interesting point is that the Supreme Court of Lithuania raised of its own motion the question whether EU public procurement law precludes a provision of Lithuanian law that prohibits subcontracting ‘the main work’ in the context of public works contracts.

This concerns Art 24(5) of the Lithuanian Law on public procurement, according to which the procurement documents require the candidate or tenderer to specify in its tender any proposed subcontractors and may require the candidate or tenderer to specify the share of the contract that it is intended to subcontract to those subcontractors. However, where subcontractors are invited to carry out a works contract, the main work, as specified by the contracting authority, must be performed by the supplier.

Procedural aspects

The admissibility of this referral of its own motion by the Supreme Court of Lithuania could be considered problematic because Art 24(5) of the Law on public procurement was not clearly applicable to the dispute (as stressed in the AGO, C-298/15, para 40). However, AG Sharpston considers that the ECJ has jurisdiction to address the question because 

According to settled case-law, the Court cannot give a ruling on a question referred by a national court where it is quite obvious that the interpretation or the assessment of the validity of a provision of EU law sought by the national court bears no relation to the actual nature of the case or to the subject matter of the main action. That is not however the case here. Paragraph 4.3 of the tender specifications, which lies at the centre of the dispute in the main proceedings, contains an express reference to Article 24(5) of the Law on public procurement. Against that background, it does not appear that [restriction on subcontracting in Article 24(5) of the Law on public procurement] manifestly bears no relation to the actual nature or the subject matter of the action and that question is therefore admissible (AGO, C-298/15, para 41, references omitted and emphasis added).

From a procedural perspective, this is interesting in itself and shows the wide scope for the referral of questions for a preliminary ruling by the ECJ by the highest courts of the Member States even where the clarification of those questions is not core, central or essential to the main dispute. In a different context, this is of relevance for the Brexit litigation before the UK Supreme Court (for discussion see here and here). More generally, the contours of the preliminary reference mechanism seem clearly wide and facilitative of inter-judicial dialogue, as supported by the recently revised Recommendations to national courts and tribunals, in relation to the initiation of preliminary ruling proceedings.

Substantive aspects

Moving on to the assessment of the compatibility with EU law of the prohibition to subcontract the main work under Art 24(5) of the Lithuanian Law on public procurement, there is an interesting preliminary point to note:

The Lithuanian Government submitted at the hearing that Article 24(5) of the Law on public procurement transposed the new rule on subcontracting in Article 79(3) of Directive 2014/25/EU before the expiry of the period prescribed for transposing that directive and that, consequently, the Court should examine the present reference from the perspective of that directive only ... The Commission argued that, on the contrary, Directive 2014/25 could not be taken into account. First, Article 24(5) of the Law on public procurement was passed before that directive was adopted. Second, Lithuania had omitted to notify the measures transposing Directive 2014/25 into Lithuanian law to the Commission (AGO, C-298/15, para 25, references omitted).

AG Sharpston is clear in excluding this analytical approach (which may have resulted in a different outcome of the case) on the basis that

As the Court has held recently in relation to Directive 2014/24, to apply that directive before the expiry of the period prescribed for its transposition would prevent not only the Member States but also contracting authorities and economic operators from benefiting from a sufficient period in which to adapt to the new provisions it introduced. ... to do so would also be inconsistent with the principle of legal certainty. The same applies by analogy to Directive 2014/25 (AGO, C-298/15, para 27, references omitted).

Thus, the analysis of the Lithuanian rule had to be carried out in relation with the EU public procurement acquis at the time of launching the tender: ie, Dir 2004/17. However, given that the value of the contract remained below its quantitative thresholds, and in view of the fact that it had cross-border interest (para 37), the rule had to be

examined against the background of the general principles of transparency and equal treatment arising from Articles 49 and 56 TFEU, which must be respected when awarding public contracts. Given that Articles 49 and 56 TFEU apply ... the [contracting authority] is required to respect the prohibition on discrimination on the grounds of nationality and the obligation as to transparency which those articles lay down (AGO, C-298/15, para 38, references omitted).

In carrying out that assessment, AG Sharpston reverted to the general functional approach to the EU regulation of below threshold public procurement:

Articles 49 and 56 TFEU preclude any national measure which, even though it is applicable without discrimination on grounds of nationality, is liable to prohibit, impede or render less attractive the exercise by nationals of the European Union of the freedom of establishment and the freedom to provide services guaranteed by those provisions.
As regards public contracts and the freedom of establishment and the freedom to provide services, the European Union is concerned to ensure the widest possible participation by tenderers in a call for tenders, even where directives on public procurement are not applicable. That is in the interest of the contracting authority itself, which will thus have greater choice as to the most advantageous tender which is most suitable for its needs. One of the principal functions of the principle of the equal treatment of tenderers and the corollary obligation of transparency is thus to ensure the free movement of services and the opening-up of undistorted competition in all the Member States (AGO, C-298/15, paras 43-44, references omitted).

After clarifying that the prohibition to subcontract the main work under Art 24(5) of the Lithuanian Law on public procurement 'restricts the freedom to provide services and the freedom of establishment' (para 46), she also stressed that 'such a restriction may be justified in so far as it pursues a legitimate objective in the public interest, and to the extent that it complies with the principle of proportionality in that it is suitable for securing the attainment of that objective and does not go beyond what is necessary in order to attain it' (para 47).

In that connection, it is interesting to note that the AG stresses that one of the elements to be taken into account is that 'the contracting authority is entitled to prohibit the use of subcontractors whose capacities could not be verified during the examination of tenders and selection of the contractor for the performance of essential parts of the contract' (para 49, with reference to Siemens and ARGE Telekom, C‑314/01, EU:C:2004:159, paragraph 45, and Wrocław - Miasto na prawach powiatu, C‑406/14, EU:C:2016:562, paragraph 34--and see here). 

Applying this test, AG Sharpston established that

First, that restriction applies even where the contracting authority is in fact in a position to verify the technical and economic capacity of subcontractors during the contract award procedure. An alternative to that restriction would (for example) have been to require the main contractor to identify subcontractors when submitting his tender and to demonstrate both that he will actually have available to him the resources of those subcontractors necessary for the performance of the contract and that those subcontractors are suitable for carrying out the tasks he intends to entrust to them.
Second, Article 24(5) is also both too rigid and too vague to satisfy the proportionality test. Although contracting authorities appear to enjoy flexibility when defining, for each contract, what ‘the main work’ is, the restriction on subcontracting resulting from that provision is defined in particularly broad terms. It applies regardless of the subject matter of the public works contract and is binding upon contracting authorities when they conclude any type of public works contract, even when they may consider that there is no obvious reason for imposing such a restriction at all.
... the restriction on subcontracting in Article 24(5) of the Law on public procurement differs in that regard from Article 79(3) of Directive 2014/25. That provision merely enables a contracting authority, in particular, to require that certain critical tasks be performed directly by the tenderer itself. Contracting authorities may thus assess whether such a limitation is opportune, depending on the circumstances. It follows that, even if, as the Lithuanian Government submits, Article 24(5) of the Law on public procurement were to be regarded as transposing Article 79(3) of Directive 2014/25 into Lithuanian law, that transposition would be incorrect.
For those reasons ... in the context of a public contract not subject to Directive 2004/17 or Directive 2004/18, but which has a clear cross-border interest, the prohibition on discrimination on the grounds of nationality and the obligation of transparency which arise under Articles 49 and 56 TFEU preclude a national rule such as that contained in Article 24(5) of the Law on public procurement, under which the tenderer has itself to carry out the ‘main work’, as identified by the contracting authority, without it being possible to subcontract that part of the contract (AGO, C-298/15, paras 51-54, references omitted and emphasis added).

This is interesting because, even if Dir 2014/25 (and 2014/24) was not relevant to the case, it indicates the direction in which a proportionality assessment of the rule in Art 79(3) Dir 2014/25 and Art 63(2) Dir 2014/24--as transposed into domestic law and as applied by contracting authorities--is likely to be carried out in the future [with a view to minimise their scope, which I would favour, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 353-354].

New paper on principle of competition and pursuit of horizontal policies in public procurement


The paper discusses issues of balance between promotion of competition and the pursuit of horizontal or secondary policies in public procurement under the rules of Directive 2014/24. The abstract is as follows:
Public procurement is a pillar in the Europe 2020 strategy and one of the core policies derived from the Single Market Acts I and II. Majoritarian views advocate for an interventionist approach and instrumental utilisation of procurement for the promotion of horizontal policies seen as deeply embedded in the Europe 2020 strategy. Conversely, public procurement can only make such a contribution by promoting the maximum degree of competition and being open to market-led innovation, instead of trying to mandate or ‘drive’ such innovation or ‘greening’ of procurement.

This paper takes the view that the principle of competition is the main tool in the post-2014 procurement toolkit and the moderating factor in the implementation of any horizontal (green, social, innovation) policies under the new rules—that is, that competition remains the main consideration in public procurement and that the pursuit any horizontal policies, including those aimed at delivering the Europe 2020 strategy, need to respect the requirements of undistorted competitive tendering. To substantiate that claim, the paper focusses on the interpretation of Article 18(1) of Directive 2014/24, which consolidates the principle of competition, and proposes a strict proportionality test applicable to the promotion of horizontal procurement policies where such ‘strategic’ or ‘smart’ use of public procurement can generate market distortions.
The full reference is: Sanchez-Graells, Albert, Truly Competitive Public Procurement as a Europe 2020 Lever: What Role for the Principle of Competition in Moderating Horizontal Policies? (July 31, 2015). Available at SSRN: http://ssrn.com/abstract=2638466. Comments welcome!

New paper on the continuing relevance of general principles of EU public procurement after the Concessions Directive

I have just uploded on the University of Leicester School of Law Research Paper SSRN series a new article on "The Continuing Relevance of the General Principles of EU Public Procurement Law after the Adoption of the 2014 Concessions Directive", which follows up on my criticism of the adoption of this regulatory instrument when it was first proposed [see A Sanchez-Graells, "What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of their Economic Balance?" (2012) 2 European Public Private Partnership Law Review 94-104].

This new paper aims to offer some further reflections on the legal relevance of general principles of EU public procurement law after the adoption of the 2014 package of substantive Directives on public procurement. It focusses on the field of concession contracts because one of the explicit justifications for the adoption of Directive 2014/23 was to achieve a "uniform application of the principles of the TFEU across all Member States and the elimination of discrepancies in the understanding of those principles … at Union level in order to eliminate persisting distortions of the internal market". 

The paper claims that Directive 2014/23 has failed on three grounds. Firstly, because it has not created any relevant substantive harmonisation of tender requirements for concessions that fall within its scope of application. Secondly, because it cannot limit the CJEU’s extension of obligations derived from general principles beyond its scope of application. And, thirdly, because it fails to acknowledge all general principles of EU public procurement law and, in particular, the principle of competition—creating a risk of inconsistency with the rest of the 2014 Procurement Package.

The full citation for the paper is A Sanchez-Graells, "The Continuing Relevance of the General Principles of EU Public Procurement Law after the Adoption of the 2014 Concessions Directive" (March 20, 2015). University of Leicester School of Law Research Paper No. 15-12. Available at SSRN: http://ssrn.com/abstract=2581683. I will be preseting it at the Public Procurement: Global Revolution VII conference in June 2015 at the University of Nottingham.

GC sets burden of proof of conflicts of interest in procurement too high (T-4/13)

In its Judgment in Communicaid Group v Commission, T-4/13, EU:T:2014:431, the General Court (GC) decided another appeal against EU Institution's public procurement decisions. In this case, the procurement was for language training services for staff of the institutions, bodies and agencies of the European Union in Brussels, and the appellant challenged the rejection of its tender on several grounds, including violations of the principles of transparency and equal treatment.
 
The case raises a number of issues, but I think that it can be particularly interesting from the perspective of conflicts of interest in the evaluation of tenders, since the appellant submitted that "one of the seconded national experts who had been employed by the Commission in its Directorate-General (DG) for human resources (‘Commission unit B.3’) in the months prior to publication of the contract notice at issue and who had sat on a tender evaluation committee in a similar award procedure was now employed by the successful tenderer, and had played a role in the preparation of the latter’s tenders." In the appellants view, this situation resulted in a breach of the principle of equal treatment and, in the end, should be sufficient grounds for the annulment of the negotiated procedure for language training services framework contracts.

The GC framed the analysis of this situation in the following way:
53 [...] according to the case-law, the fact that a tenderer, even though he has no intention of doing so, is capable of influencing the conditions of a call for tenders in a manner favourable to himself constitutes a situation of a conflict of interests. In that regard, the conflict of interests constitutes a breach of the equal treatment of candidates and of equal opportunities for tenderers (Joined Cases C‑21/03 and C‑34/03 Fabricom [2005] ECR I‑1559, paragraphs 29 and 30, and Case T‑160/03 AFCon Management Consultants and Others v Commission [2005] ECR II‑981, paragraph 74).

 However, that situation is slightly different from the one at hand in Communicaid, given that the advantage that the tenderer would have had would not derive from the ability to influence the terms of the call (as was the issue in Fabricom), but from the fact that it had access to 'privileged'/'insider' information about how to respond to the tender. Hence, this creates a factually different scenario, which analysis will be interesting.
 
Before looking at the analysis that the GC carried out, and further to the precedent concerned with the prior involvement of consultants that then become tenderers in Fabricom, Joined cases C-21/03 and C-34/03, EU:C:2005:127 [for discussion see S Treumer, "Technical Dialogue and the Principle of Equal Treatment: Dealing with conflicts of Interests after Fabricom" (2007) Public Procurement Law Review, No. 2, 99-115]; it is worth noting that conflicts of interest are now regulated in Art 24 of Directive 2014/24 (not directly applicable to EU institutions procurement, but with a clear potential to work as guidance for the EU courts in the future). According to this new provision:
Member States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators.
The concept of conflicts of interest shall at least cover any situation where staff members of the contracting authority or of a procurement service provider acting on behalf of the contracting authority who are involved in the conduct of the procurement procedure or may influence the outcome of that procedure have, directly or indirectly, a financial, economic or other personal interest which might be perceived to compromise their impartiality and independence in the context of the procurement procedure.
The new rules, then, seem to set out a rather demanding obligation to avoid conflicts of interest in the members of evaluation teams. Under the 'minimum' definition in the second paragraph of Art 24 dir 2014/24, it is clear that contracting authorities must avoid Fabricom-like conflicts of interest. However, the case of Communicaid was concerned with a 'bordeline' situation of potential conflict of interest, which subsumption under the 'minimum' definition of conflicts of interest will need to be tested. I would argue that they are caught by the general mandate of the first paragraph, but I am sure that there is scope for much discussion on the interpretation of this provision [and recital (16) dir 2014/24 does not shed any bright light: "Contracting authorities should make use of all possible means at their disposal under national law in order to prevent distortions in public procurement procedures stemming from conflicts of interest. This could include procedures to identify, prevent and remedy conflicts of interests."].
 
In my view, however, given the permissive treatment applied by the GC in Communicaid, these situations are unlikely to be effectively covered by Article 24 of Directive 2014/24--unless the CJEU develops a more stringent approach when it interprets that provision. Indeed, the GC considered that:
57 The applicant also argues that the successful tenderer enjoyed an unfair advantage because of the former seconded national expert’s participation in a previous call for tenders as a member of the evaluation committee.
58 In that respect, it must be pointed out that, according to the Commission, the applicant has not proved that the former seconded national expert participated in the drafting of the successful tenders for Lots 1 to 9. In order to prove that he did, the applicant has produced statements prepared by three of its employees, describing conversations they had with the former seconded national expert at the dinner on 13 November 2012 [...]. However, it must be noted that those statements do not show conclusively that the former seconded national expert participated in the drafting of the successful tenders for Lots 1 to 9, since the impressions of the applicant’s employees as to whether that was the case have been expressly contradicted by the person concerned himself. In any event, even if those statements did prove such participation by the former seconded national expert, it must be noted that their probative value is weak since they were made by the applicant’s employees, who have a particular interest in the contract being awarded to the applicant.
59 In the present case, even supposing that the former seconded national expert did participate in the drafting of the successful tenders, it must be pointed out that the applicant, by the evidence which it has submitted, has proved neither the participation of the former seconded national expert in the preparation of the call for tenders at issue, nor the unfair advantage that the successful tenderer allegedly enjoyed because its new employee was a member of a tender evaluation committee in a previous, similar procurement procedure. Furthermore, as the Commission rightly points out, the applicant has provided language training services to the EU institutions since 2008 and collaborated with the Commission in the context of the contract previous to the call for tenders at issue, with the result that it had information on the needs and requirements of the European institutions, notwithstanding the fact that the contract previous to the call for tenders at issue, contrary to the present call for tenders, did not include blended learning.
60 It follows from all the foregoing that the applicant has not proved that the fact that one of the successful tenderer’s employees worked at the Commission as a seconded national expert gave it an unfair advantage in the procurement procedure at issue of such a kind as to infringe the principles of non-discrimination and of equal treatment. Nor, moreover, has the applicant proved the infringement of the principle of transparency (T-4/13 at paras 57-60, emphasis added).
In my view, the GC has applied an excessively demanding burden of proof of not only the existence of a conflict of interest, but of its effects (ie of the existence of an actual de facto advantage derived from the existence of the conflict of interest). Such a high burden will result in a very weak effectiveness of the rules on conflicts of interest, given that they tend to involve the need to resort to indirect methods of proof and to indicia of advantage. Hence, this should not be welcome as a functional approach to adjudication of instances of (evident) conflict of interest and, at some point, it would have been necessary to resort to the techniques of presumption of advantage or, at least, reversal of the burden of proof. When conflicts of interest are concerned, it is worth remembering that Caesar's wife must be above suspicion...

CJEU: vertical effect of Directives goes both ways (C-425/12)


The Judgment of the CJEU of 12 December 2013 in case C-425/12 Portgás may appear to be of interest only for public procurement aficionados (and, even then, only for hardcore ones), as it deals with the potential applicability of the old 1993 utilities procurement Directive (no longer current) to a company entrusted with a gas distribution concession in Portugal. Hardly a topic bound to spur heated debates. Hence, it seems a case doomed to receive very little attention amongst EU lawyers...
 
However, it contains one of the very few potential (r)evolutions in the theory of Directives' direct effect since Mangold and Kücükdeveci by holding that their vertical direct effect goes both ways (i.e. both up and down). In my view, Portgás should become the new Foster and claim a main spot in general EU law (text)books.
 
I think that the Portgás Judgment indeed develops the existing law on Directives' vertical effect. Implicitly, that theory was always concerned with upwards vertical effect, in the sense of allowing particulars to claim EU law protection against the infringing Member State. The theory has clearly been conceptualised on the basis of an (implicit) bottom up claim.
 
However, it is not at all clear whether a downwards application of the theory is at all possible. In general terms, however, the canon (as an extension of the no-horizontal direct effect declared in Marshall) would dictate that such a vertical direct effect cannot go down because the infringing Member State cannot rely on the (non-transposed or deffectively transposed) Directive to affect the legal position of particulars (just as one particular cannot do it against another one).
 
The Foster line of extension of the "standard" upwards vertical direct effect of Directives started to tackle what we may now call 'mezzanine' situations, where a particular did not want to claim protection against the State itself, but against one of its 'emanations' (as a way to circumvent the harshness of the no-horizontal direct effect dogma). In that case, the CJEU was clear to stress that the upwards dimension of Directives' direct effect reaches such a mezzanine situation and declared, as is well known, that particulars can rely on EU law protection under certain circumstances.
 
In Portgás the situation is the opposite. The CJEU was asked to determine whether in a comparable 'mezzanine' situation, the State could claim downwards direct effect of a non-transposed Directive against one of its Foster-emanations. The first bet may be that the principle of legitimate expectations may prevent such an extension of the doctrine. However, such a position has now been rejected by the CJEU.
 
In the passages that deserve more attention in the Portgás Judgment, the CJEU analyses the possibility for the Portuguese government to claim financial recovery of amounts paid to Portgás to finance the acquisition of equipment (gas meters) due to the fact that the undertaking did not tender the contract in accordance with the requirements of the 1993 utilities procurement Directive. However, at the time of the purchase of the equipment, Portugal had not implemented the Directive. Consequently, Portgás raised the defence that Portugal cannot require compliance with a set of rules it had not itself transposed. The CJEU, however, takes a different approach based on the effet utile of EU law and argues that:
33 [...] although the Court has held that unconditional and sufficiently precise provisions of a directive may be relied on by individuals against a body which has been given responsibility, under the control of the State, for a public-interest service and which has, for that purpose, special powers (see, to that effect, Foster and Others, paragraphs 18 and 20, and Dominguez, paragraphs 38 and 39 and the case-law cited), the case in the main proceedings has arisen in a context different from the context of that case-law.
34 In the context of the present case, it should be recalled that, according to the case-law of the Court, the obligation on a Member State to take all the measures necessary to achieve the result prescribed by a directive is a binding obligation imposed by the third paragraph of Article 288 TFEU and by the directive itself. That duty to take all appropriate measures, whether general or particular, is binding on all the authorities of the Member States (see Case C‑129/96 Inter-Environnement Wallonie [1997] ECR I‑7411, paragraph 40 and the case-law cited) as well as on bodies which, under the control of those authorities, have been given responsibility for a public-interest service and which have, for that purpose, special powers. It follows that the authorities of the Member States must be in a position to ensure that such bodies comply with the provisions of Directive 93/38.
35 It would be contradictory to rule that State authorities and bodies satisfying the conditions set out in paragraph 24 of the present judgment [Foster conditions] are required to apply Directive 93/38, while denying those authorities the possibility to ensure compliance, if necessary before national courts, with the provisions of that directive by a body satisfying those conditions when that body must itself also comply with Directive 93/38.
36 Furthermore, the Member States would be able to take advantage of their own failure to comply with European Union law in failing correctly to transpose a directive into national law if compliance with the provisions of Directive 93/38 by such bodies could not be ensured on the initiative of a State authority.
37 Lastly, that approach would make it possible for a private competitor to rely on the provisions of Directive 93/38 against a contracting entity which satisfies the criteria set out in paragraph 24 of the present judgment [Foster conditions], whereas State authorities could not rely on the obligations flowing from that directive against such an entity. Consequently, whether or not such a contracting entity would be required to comply with the provisions of Directive 93/38 would depend on the nature of the persons or bodies relying on Directive 93/38. In those circumstances, Directive 93/38 would no longer be applied in a uniform manner in the domestic legal system of the Member State concerned.
38 It follows that a private undertaking, which has been given responsibility, pursuant to a measure adopted by the State, for providing, under the control of the State, a public-interest service and which has, for that purpose, special powers going beyond those which result from the normal rules applicable in relations between individuals, is obliged to comply with the provisions of Directive 93/38 and the authorities of a Member State may therefore rely on those provisions against it (C-425/12 at paras 33-38, emphasis added).
I think that it is plain to see that Portgás is somehow the mirror image of Foster. Its practical implications may seem small in that the number of Foster-emanations that Member States hold is probably relatively small. However, in the area of public procurement and, more generally, of EU economic law, it is not hard to imagine a relatively important number of potential 'Portgás' entities that can see their rights and (financial) interests compromised as a result of the 'sandwich' situation that this latest CJEU Judgment creates. And this may be a situation that triggers litigation on the basis of the protection of legitimate expectations, rights to property or other fundamental rights by those companies (which stresses the relevance of rethinking the current trends of granting of 'corporate human rights'--see some discussion here).
 
What may be more controversial is to claim, as I would, that this is the last frontier before the full recognition of Directives' direct effect. All in all, as the law currently stands, there is a very limited field where Directives are not directly effective (after their period of transposition) and that, by itself, may justify a simplification (repeal?) of the no-horizontal direct effect dogma. It remains to be seen if the CJEU will ever be willing to cross that bridge.

Principle of #competition to be recognised in new #EU #PublicProcurement Rules

In the final compromise text of 12 July 2013 for a new Directive on Public Procurement (available here), the principle of competition is clearly reinstated (see my advocacy for this here) and bound to be clearly and expressly recognised in Article 15 on 'Principles of Procurement'. 

In the very clear drafting, the new rules are bound to clarify that:
The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement was made with the intention of unduly favouring or disadvantaging certain economic operators (emphasis added).
It will now be without doubt that market integration in procurement must go hand in hand with promoting and protecting effective competition for public contracts, and that the new rules are ultimately based on this general principle of EU Law already explicitly recognised in the public procurement case law and, more timidly, in its regulation [Sanchez Graells (2009) 'The Principle of Competition Embedded in EC Public Procurement Directives').

This will strengthen the push towards a more competition-oriented public procurement system and, in my view, will boost some of the interpretative proposals that seek to maximise participation in procurement and to minimise the anticompetitive effects of the activities of the public buyer [for my fully-detailed proposals, see Sanchez Graells (2011), Public Procurement and the EU Competition Rules, Hart Publishing].

It is definitely a most welcome development in EU public procurement rules!

What is wrong with the principle of competition in procurement? Back to the non-discrimination rhetoric

Much to my disappointment, one of the changes included in the compromise text that reflects the current status of negotiations for the modernisation of  EU public procurement rules  is a change of wording in Article 15 of the proposal for a new Directive replacing 2004/18(http://tinyurl.com/modernisationcompromise).

According to the initial proposal, that provision dedicated to the 'Principles of procurement' read: "Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate way. The design of the procurement shall not be made with the objective of excluding it from the scope of this Directive or of artificially narrowing competition" (emphasis added). In my view, this was an excellent development of EU public procurement rules.

As I said some months ago (Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? A View on Proposals to Lower that Barrier and Spur Growth: http://ssrn.com/abstract=1986114), it seemed to be getting clearer and clearer that market integration in procurement must go hand in hand with promoting and protecting effective competition for public contracts, and the drafting of Article 15 of the proposal for a new Directive finally overcame some difficulties in the development of EU procurement rules--which still suffer the problem of being excessively focused on preventing discrimination based on nationality (which has overshadowed other discrimination problems, protectionist policies and competition restrictions and distortions in European public procurement; Public Procurement and the EU Competition Rules [2011] Hart Publishing 108-110 and 212-219)—although a broader objective of fostering competition on the basis of fair and open access to procurement (not only for bidders from different Member States) can be identified in Directive 2004/18 and is further reinforced in the proposed new procurement Directive.

Now, with the compromise text, we go back to square zero and the non-discrimination rhetoric, since the new drafting of Article 15 reads: "Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner that avoids or remedies conflicts of interest and prevents corrupt practices. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of unduly favouring or disadvantaging certain economic operators or certain works, supplies or services" (emphasis added).

In my view, this is a step back in the modernisation of the EU procurement system and I cannot see what would be wrong with the consolidation of the principle of competition in the text of the Directives, since it is a general principle of EU Law already explicitly recognised in the field of public procurement (The Principle of Competition Embedded in EC Public Procurement Directives, http://ssrn.com/abstract=1928724) and that provides a fantastic analytical framework on which to develop welfare-enhancing public procurement rules and practice.

Therefore I would personally like to see the text of the intial proposal reinstated in Article 15 of the new Directive. Otherwise, there will still be scope for (apparently) non-discriminatory restrictions of competition in public procurement, and that would only result in losses of economic welfare for EU citizens [Distortions of Competition Generated by the Public (Power) Buyer: A Perceived Gap in EC Competition Law and Proposals to Bridge It http://ssrn.com/abstract=1458949].