Golden nugget or poison pill? 'Clearly minor' breach of EU law in the Whistleblower Protection Directive

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The recently-adopted Directive 2019/1937 of 23 October 2019 on the protection of persons who report breaches of Union law (aka the ‘Whistleblower Protection Directive’ or WPD) explicitly covers reports of breaches of public procurement law (Art 2(1)(a)(i) WPD)—with a limited exception for defence and security procurement not covered by the relevant EU rules (Art 3(2) WPD and Annex, Part I(A) WPD).

The Whistleblower Protection Directive needs to be transposed towards the end of 2021 (with a further delay to 2023 for covered SMEs). The decisions made by Member States in the transposition of the Whistleblower Protection Directive may generate significant impacts on public procurement practice in the medium term. However, the likely future effectiveness of the Directive hinges on a problematic discretionary provision on ‘clearly minor’ breaches of EU law, on which this blog post will focus.

Background

Implicitly, the coverage of public procurement by the Whistleblower Protection Directive is a recognition of the limitations of the public enforcement of (EU) public procurement law, as well as their private enforcement through the procurement remedies system (despite the Commission’s recent decision not to reform the Remedies Directives…).

Indeed, the recitals of the Whistleblower Protection Directive stress that procurement coverage is necessary

… to enhance the enforcement of Union law on public procurement. It is necessary, not only to prevent and detect procurement-related fraud and corruption in the context of the implementation of the Union budget, but also to tackle insufficient enforcement of rules on public procurement by national contracting authorities and contracting entities in relation to the execution of works, the supply of products or the provision of services. Breaches of such rules create distortions of competition, increase costs for doing business, undermine the interests of investors and shareholders and, in general, lower attractiveness for investment and create an uneven playing field for all businesses across the Union, thus affecting the proper functioning of the internal market (rec 6 WPD, emphasis added).

Therefore, creating (or boosting) national mechanisms to enable whistleblowers to shine a light on potential infringements of EU public procurement law is expected to generate gains on procurement compliance and probity. This is largely aimed at reporting by ‘insiders’, to the extent that there are already other strategies to seek to increase the visibility of procurement information and trigger engagement by civil society and external stakeholders, eg through the new rules on eForms, due to be transposed by end of 2022.

Broadly, the Whistleblower Protection Directive seeks to enhance compliance with EU law, and in particular public procurement rules, by requiring Member States to mandate private and public entities to create new internal and external reporting mechanisms, as well as to afford specific protective measures to (good faith) whistleblowers that report internally or externally, or publicly disclose, breaches of EU law on the basis of information gained in a work-related context. The Directive creates rather granular requirements depending on the size of the private or public sector entity allegedly involved in the EU law breach.

‘Clearly minor’ breaches

In the context of external reporting of suspected breaches of EU (public procurement) law, Art 11(3) of the Whistleblower Protection Directive establishes that

Member States may provide that competent authorities, after having duly assessed the matter, can decide that a reported breach is clearly minor and does not require further follow-up pursuant to this Directive, other than closure of the procedure (emphasis added).

Different to other fields covered by the Directive (eg securities regulation or competition law), I think that this will be the crux of the whistleblowing system in the context of procurement, in particular if Member States opt to designate procurement review bodies as those competent to receive and/or process reports on potential infringements of EU public procurement law—which seems like a rather natural option. However, this would largely amount to a mere broadening of the active standing to launch procurement review procedures.

I would expect most Member States to avail themselves of the discretionary nature of this provision. Thus, I think that the effectiveness of the system will hinge on the provisions of Art 11(3) WPD because external reporting of non-obvious breaches is the most likely focus of (potential) whistleblower activity.

First, because internal reporting mechanisms are unlikely to gain much traction in either private entities (I find it difficult to see how a company that has taken a specific position in the context of a tender would be willing to reverse it due to an internal report, unless it had a very decentralised system to approve the offers) or public entities (again, as the mechanisms of control and decision-making should have already addressed any concerns and, failing that, would have galvanised the public buyers’ position).

It is hard for me to envisage a significant number of inadvertent breaches of procurement law that go undetected and can easily be fixed upon realisation, as is also hard to imagine the possibility of creating a multi-track system whereby concerns harboured by those ‘in the know’ within an organisation can be reported in a manner that results in a significant revision of the situation (barring, perhaps, in the context of very large organisations, or shared mechanisms for intermediate ones).

Second, because very major shortcomings in the probity of the procurement process (ie straight out corruption) or major deviations from procurement law (eg illegal direct awards or ‘cooking’ of the technical specifications or award criteria) should already be covered by other mechanisms, including criminal law. In that context, the main issue is not the administrative responsibility or liability of those involved in the illegality (criminality?), and probably also not (primarily) an issue of work-related retaliation against the whistleblower (which is the core coverage of the protective measures of Art 19 WPD, as far as I can see).

So, unless there is a fear that criminal behaviour is widespread and largely under-reported and under-detected in the field of EU public procurement practice due specifically to limited protections for whistleblowers (which I find a relatively implausible claim), in my opinion, the area of EU procurement law compliance that can probably be practically targeted is somewhat intermediate—ie that of relatively unclear rules of EU public procurement law, of the (mis)implementation of rules in non-observable manner (eg the ‘doctoring’ of evaluation reports), as well as deviations that fall within the area of discretion afforded to contracting authorities.

In those cases, and for the reasons indicated above, the most likely materialisation of any whistleblowing is an external report to the competent authority, which will then have to assess the extent to which the reported breach is (or not) ‘clearly minor and does not require further follow-up’ pursuant to the Whistleblower Protection Directive—ie, presumably, whether the issue of (strict) compliance can be left to the ordinary (if faulty?) enforcement mechanisms for EU (public procurement) law.

Why is public procurement different?

Against that practical backdrop, in my view, the importance of Art 11(3) WPD in the context of procurement stems from the long-lasting discussion of the types of infringements of EU law—ie ‘any breach’, a ‘sufficiently serios breach’, etc—that should trigger relevant consequences; eg the termination of the contract under Art 73 of Directive 2014/24/EU, the ineffectiveness of an awarded contract under Art 2d of the Remedies Directive, or more recently State liability in damages, in the context of the Fosen-Linjen saga (see here).

What constitutes a ‘clearly minor’ breach will need to be somewhat reconciled with the existing rules on procurement remedies. It would seem not only undesirable, but also counter-intuitive, for the Whistleblower Protection Directive to be interpreted in a more stringent way than other rules on procurement remedies. If a public entity could legally follow a course of action under regular administrative and liability rules, why would it be subjected to a more stringent threshold of compliance solely due to the origin of the information/report that prompts the review of its actions and decisions?

Moreover, the application of a common standard would seem a natural consequence of the accumulation of competences for the review of procurement complaints by the same authorities, where this happens. Therefore, as indicated above, it seems to me that the effect of the implementation of the Whistleblower Protection Directive is largely constrained to expanding the active standing to launch procurement review procedures. Whether this can make a significant difference remains an empirical unknown.

Other effects would only be generated if the choices leading to the domestic implementation resulted eg in the attribution of the competence to investigate procurement whistleblowing reports to authorities other than procurement review bodies—but this would create all sorts of practical complications in terms of expertise availability and two-track review procedures, eg in the case of a whistleblowing report concerning a tender in relation to which disappointed tenderers also launch ‘standard’ review procedures.

All in all, then, I think that the likely future effectiveness of the application of the Whistleblower Protection Directive in the field of procurement will hinge on the concept of ‘clearly minor’ breach and its relationship to the current standards triggering ineffectiveness of procurement procedures, awarded contract and/or liability in damages at the domestic level. This is thus perhaps an area where the European Commission could issue interpretive guidance ahead of the transposition deadline of 17 December 2021.

AG proposes to reduce safe harbour for directly awarded public contracts subjected to prior transparency (C-19/13)

In his Opinion of 10 April 2014 in case C-19/13 Fastweb, Advocate General Bot has proposed an interpretation of Art 2d(4) of Directive 89/665 (as amended by dir 2007/66) that would seriously erode the safe harbour (apparently) created by that provision for contracts that have been directly awarded by the contracting authority (without competition), provided that the following cummulative conditions are met: 
 
— the contracting authority considers that the award of a contract without prior publication of a contract notice in the Official Journal of the European Union is permissible in accordance with Directive 2004/18/EC,
 — the contracting authority has published in the Official Journal of the European Union a notice (...) expressing its intention to conclude the contract, and,
 — the contract has not been concluded before the expiry of a period of at least 10 calendar days with effect from the day following the date of the publication of this notice (emphasis added).
 
The key element of his Opinion is, in my view, his interpretation of the extent to which the discretion of the contracting authority in 'considering' that it can avail itself from the possibility to award a contract without prior publication of a contract notice is subject to judicial review. A literal reading of the provision seems to indicate that the standard of review is very low (if not inexistent) and that, provided the transparency requirement and standstill period are respected, the directly awarded contract cannot be declared ineffective--leaving the challenging tenderer with the only option of seeking compensation for damages.
 
However, AG Bot argues that this would create a paradox and opposes such a literal interpretation of the provision, subjecting that exercise of discretion to effective (full) judicial review. As AG Bot argues,
74. Indeed, it should be noted that Directive 89/665 is specifically designed to increase the guarantees of transparency and non-discrimination in the context of procedures for the award of public contracts so that the injured economic operator receives complete legal protection. Moreover, it should also be remembered that the European Union legislature opted to strengthen in Directive 2007/ 66 the effectiveness of review procedures to combat the illegal direct award of public contracts and to protect potential tenderers against the arbitrariness of the contracting authority.
 
75 . Secondly, [if the judgment made by the contracting authority was not open to judicial review], in these circumstances, the contracting authority [would be allowed] to directly award a contract in contravention of the requirements laid down in Directive 2004/18, by serving minimum formalities and exposing itself to a minimum punishment, giving rise to potential abuses of the rights thereby recognized (AG Bot in C-19/13, at paras 74-75, own translation from Spanish and references omitted).
 
Further, AG Bot considers that
One must not lose sight of the dact that the maintenance of the effects of the contract provided for in Article 2d paragraph 4 of Directive 89/665 is based on the good faith of the contracting authority and seeks to preserve legal certainty for the contracting parties. The European Union legislature expressly recognized this in the twenty-sixth recital of Directive 2007/66, by insisting on the need to "avoid legal uncertainty which may result from ineffectiveness" of the contract. In addition, the Court has expressly admitted this in the judgment in Commission / Germany [EU:C:2007:432, para 33] (AG Bot in C-19/13, at para 82, own translation from Spanish and emphasis added).
In view of these (and other) considerations, AG Bot proposes that the CJEU interprets that
Article 2d , paragraph 4 of Council Directive 89/665 (...) read in the light of the principle of equal treatment and the right to effective judicial protection, must be interpreted as not precluding that a Member State grants the body responsible for appeal proceedings the freedom to appreciate the extent to which a contract awarded without prior publication of a notice in the Official Journal of the European Union must be declared ineffective when it finds that, despite the publication in the Official Journal of the European Union of a notice stating its intention to conclude the contract and the observance of a minimum standstill period of ten days, the contracting authority has violated in a deliberate and intentional way the advertising standards and the requirements of opening up to competition laid down in Directive 2004/18 (own translation from Spanish, emphasis added).
Basically, AG Bot argues against an automatic exclusion of the possibility to declare contracts ineffective under Art 2d(4) of Directive 89/665 and advocates for an extension of the scope of judicial review in order to assess whether contracting authorities acted in good faith. In my view, this potential development in the interpretation of EU procurement rules is troubling because it points towards a tendency to include subjective assessments in procurement review procedures (see Art 18 Directive 2014/24) and departs from the standards of judicial review: manifest error in law or in fact, and abuse of power/procedure.
 
The same result [ie inapplicability of the safe harbour of art 2d(4) of dir 89/665] could be achieved by simply stating that the first condition (that is, that the contracting authority considers that the award of a contract without prior publication is permissible in accordance with Directive 2004/18) is subject to that 'consideration' not being manifestly incorrect in law or in fact, or that the contracting authority has not abused its powers in the award of the contract.
I would prefer the CJEU to rule in that regard without embarking on analyses related to the good faith or otherwise of the contracting authority. Let's hope that the final judgment in the Fastweb case does not open the door to a myriad of complications in order to determine such type of subjective elements.