Rejection of tenders for EU research funding, any lessons for procurement? (T-76/15)

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In its Judgment of 18 January 2018 in Kenup Foundation and Others v EIT, T-76/15, EU:T:2018:9, the General Court of the Court of Justice of the EU (GC) assessed the compatibility with EU law of the rejection of a tender for funding under the Horizon 2020 framework programme for research and innovation. Some of the GC's analysis in this context can provide interesting insights for the rejection of tenders in procedures controlled by the EU public procurement rules, if evaluation and award decisions are adopted through two-tier bodies (eg a technical evaluation and an overall 'political' decision-making). This could be particularly relevant in the context of competitive dialogues or innovation partnerships. To be sure, the Kenup case hinges on EU administrative law, but I think it raises issues that can be comparable in some domestic settings in the Member States.

In Kenup, the European Institute of Innovation and Technology (EIT) issued a call for the designation of a Knowledge and Innovation Community (KIC) in the field of innovation for healthy living and active ageing. The cooperation established between the EIT and the KIC would take the form of a framework partnership, with an initial duration of seven years, in the course of which grants could be paid by the EIT on the basis of the conclusion of specific agreements. The call for proposals established specific criteria for the exclusion, eligibility and selection of proposals, which were to be undertaken under EIT's responsibility. The decision on the designation of the KIC was subjected to a three-tier process, as follows:

According to the rules in ... that call for tenders, which the parties agree were complied with both by the independent experts and by the EIT, eligible proposals were to be evaluated by high-level independent external experts. Each proposal was thus examined by five experts, that is to say three thematic experts and two ‘horizontal’ experts, each responsible for an evaluation report for each proposal. The panel of experts was then required to draw up a consolidated evaluation report for each proposal. Next, the three proposals with the best rankings were evaluated by a second panel of high-level independent experts responsible for making a final recommendation containing an overview of those three proposals as well as recommendations for their improvement or reinforcement. Finally, representatives of the three proposals with the best scores were to be heard by the governing board before it designated the selected KIC (T-76/15, para 58).

Therefore, the decision on the designation of the KIC was to be made by the EIT's governing board, on the basis of the recommendation made by the second panel of experts, which only had to take into consideration the three top proposals as 'filtered' by the first panel of experts. In principle, this seems like a rather robust evaluation mechanism, in particular of the technical aspects of the proposals. However, it can also raise issues of compliance with rules on 'fully-informed' decision-making or 'unrestricted' executive discretion, as the Kenup case evidences.

In response to the call for proposals, the Kenup consortium submitted a tender under the coordination of the Stiftung Universität Lüneburg. After assessment of the proposals received in accordance with the evaluation mechanism described above, the governing board of EIT selected a  proposal for the KIC and rejected the other proposals, including Kenup's. Kenup then challenged the EIT's decision on several grounds, including issues concerned with an alleged failure by EIT to state the reasons for its decision, as well as a breach of the principles of transparency and equal treatment of tenderers.

All of these arguments are common place in the challenge of procurement decisions and their analysis would have been interesting. However, the case was decided solely on an issue concerning the implicit constraints on the exercise of executive discretion by the EIT's governing board due to the initial 'filtering' of proposals by a panel of high-level experts. This merits some close analysis.

As presented by the GC,

It follows from the evaluation process for the proposals ... that the panel of experts responsible for the final recommendation only had to examine the three proposals with the best scores following the evaluation by the first panel of experts. In addition, only representatives of those three proposals were to be heard by the governing board. In that regard, it should be noted that the call for proposals clearly indicated that the KIC would be selected by the EIT on the basis, first, of the consolidated evaluation reports relating to the three best proposals, as established by the panel of experts, secondly, of the report drawn up by the panel responsible for the final recommendation and, thirdly, of the outcome of the hearings. Accordingly, the EIT was required to make its selection only on the basis of the work carried out by the independent experts on the three proposals with the best scores and the outcome of the hearings carried out with the representatives of those proposals.

... the members of the governing board had access, via a protected website, to all the proposals submitted for the KIC on ‘Innovation for healthy living and active ageing’, including the Kenup consortium’s proposal. Furthermore, before the hearings, the director of the EIT indicated to the governing board the various stages of the evaluation procedure, including the various scores awarded overall and for sub-criteria to the five proposals submitted. However, none of the analyses of the Kenup consortium’s proposal carried out by the independent experts were submitted to the members of the governing board. Annex 1 to the information note of 1 December 2014 drawn up by the director of the EIT for the members of the governing board, produced by the EIT at the Court’s request, included merely a summary of the evaluation reports drawn up by the panel of experts relating solely to the proposals selected for the hearings. In addition, it does not follow from the procedure for the call for proposals, nor is it claimed, that members of the governing board attended the experts’ working sessions.

It is true, as the EIT maintains in its defence, that members of the governing board were free to raise questions and to request additional information concerning all the proposals and their evaluation by the experts. However, ... the members of the governing board did not possess any of the evaluations or a summary of the evaluations carried out by the panel of experts concerning the two proposals not selected for the hearings.

In any event, any initiatives of the governing board were unlikely to call into question the fact that only the three proposals with the best scores awarded by the experts could have been designated as the KIC on ‘Innovation for healthy living and active ageing’. The procedure established by the call for proposals entirely ruled out any possibility of the governing board’s selecting the Kenup consortium’s proposal and inviting its representatives to participate in the hearings, since that proposal was ranked in fourth position by the independent experts. That finding is confirmed by the wording of the letter of 10 December 2014 informing the coordinator of the Kenup consortium that its proposal had been rejected, which clearly links that exclusion with the ranking of the consortium’s proposal below third place. On that point, it may be noted ... that, in its reply to their request for further information, the EIT stated that the experts had been granted, by the call for proposals, a delegated power to preselect proposals.

Therefore, in accordance with the procedure defined in the call for proposals, the governing board could, following the hearings, only alter the ranking of the three best proposals selected by the experts ... The fact that, according to Article 15 of Regulation No 1290/2013, the selection of a KIC is made on the basis of the ranking of the proposals, in accordance with the evaluation carried out by independent experts, cannot mean that the EIT is bound, even in part, as regards the order of the proposals thus selected.

67      It follows from all the foregoing considerations that the applicants are justified in maintaining that the governing board failed fully to exercise its powers in respect of the selection of proposals, in breach of the provisions of Article 4 of Regulation No 294/2008, those powers having been delegated in part to experts without that board having, at any time, had the opportunity to make a proper assessment of the work they carried out on the proposals which were not ranked in the first three places (T-76/15, paras 61-65 & 67, emphases added).

As mentioned above, the Kenup Judgment is largely conditioned by a point of EU administrative law concerning the implicit delegation of the power to preselect proposals to the initial high-level expert panel. However, I find the case troubling in that context, and for any implications it could have in the context of procurement covered by the 2014 Public Procurement Package. I have two main issues with this Judgment.

First, and foremost, that it seems to follow the worrying trend of disrespect for expert opinion. Implicit in the GC Judgment, there is an assumption that the governing board of EIT would have been able to challenge expert reports prepared in a seemingly robust manner. This seems difficult to share. Either the independent technical evaluation was needed because the governing board does not have the expertise (or time) to sift through all proposals--in which case the assumption that the governing board will look at all documents and sort of reassess all proposals from scratch is ludicrous--or it was not needed at all, and should be abandoned--which seems equally unpersuasive. More generally, it seems that the GC misunderstands the context and boundaries of the executive discretion given to EIT's governing board by the relevant EU provisions, as well as the fact that EIT had endorsed the specific evaluation mechanism (thus potentially self-constraining any broader discretion it may have had, in a manner that the GC hardly demonstrates to run contrary to any relevant constraints). From that perspective, this Judgment is at best extremely formalistic and, at worse, simply misguided.

Second, and also of importance, depending on the rules applicable under the general administrative law of the Member States, the thrust of the Kenup Judgment can result in significant difficulties (and potential challenges) in the context of complex procurement procedures where the overall (political) decision-making is supported by one or several rounds of technical evaluation aimed at filtering the initial proposals into shortlists or recommendations. If the logic in the Kenup Judgment was adopted, and the ultimate decision-makers of the contracting authorities and entities covered by the 2014 Public Procurement Package were required to have before them (and effectively engage with) the entirety of the documentation with a view to (potentially) challenging technical evaluations, complex procurement procedures could become exceedingly burdensome and/or (even more of a) box-ticking exercise. Moreover, it would be possible to generate inadvertent corruption risks if the non-expert (ie political) board could second-guess or deviate from robust technical assessments and have unfettered discretion. This would run in stark contrast with the case law of the CJEU on award criteria and unlimited freedom to choose a tender.

Consequently, my overall view of the Kenup Judgment is that it does not offer any valuable (or at least useful) lesson for procurement, and that the GC would have been well-advised to have followed the opposite direction of travel. By taking into consideration the case law on procurement that requires discretion to be constrained by solid technical evaluation, the decision in Kenup could (and should) have been the opposite. I can only hope that this case is limited to the way EU research funding is administered, and that the Kenup Judgment results in a change of EIT's internal governance rules in a way that preserves and enhances the role of independent high-level technical evaluations against the erosion that the GC's Judgment has generated.

Another conversation on procurement developments with the EFTA Surveillance Authority

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Last week, I had the great honor and pleasure of speaking at another EFTA Surveillance Authority lunchtime staff seminar two years after (see here for the 2016 edition), and to benefit again from the insights and challenging questions of its community of enforcers. This time, the conversation concentrated on recent policy and case law trends, and the impact they can have for the enforcement of EEA/EU internal market rules.

These are the slides I used. If time allows, I will try to publish a more complete account of my speech, although most of the issues have been covered in previous posts already, so hopefully the slides will be easy to follow. As always, feedback and comments more than welcome.

Post-Brexit Procurement: new European Commission (short) guidance, and some broader thoughts

The European Commission has published its 18 January 2018 Notice to stakeholders on 'Withdrawal of the United Kingdom and EU rules in the field of public procurement' (the 'Brexit and procurement notice). This notice is without prejudice to the previously disclosed European Commission position paper on the effects on procurement procedures that are on-going on Brexit day, and of current negotiating efforts to agree on a EU-UK withdrawal agreement. The notice simply sets out the legal implications that would result from a 'cliff-edge' scenario, which the Commission considers necessary in 'view of the considerable uncertainties, in particular concerning the content of a possible withdrawal agreement'.

The Brexit and procurement notice is thus what I would call a 'no deal information sheet'. It sets out the effects that would arise from a UK EU exit without a ratified withdrawal agreement and without an extension of the 2-year period following the Article 50 notification of 29 March 2017. Thus, the Brexit and procurement notice is necessarily limited in its scope and simply lays out the immediate consequences of the UK becoming a third country with no access to the single market. Those effects would result in a significant loss of economic advantages and procedural guarantees in all procurement procedures subject to EU law that started on 30 March 2019 or thereafter.

It is important to stress that those effects would not be mitigated by WTO rules (the general default position in other trade areas) because general WTO rules do not cover public procurement--which is rather covered by a separate multilateral agreement within the context of WTO membership, the  Government Procurement Agreement (WTO GPA). As detailed in a recent article, the UK is not a party to the WTO GPA and it would need to seek fresh accession after Brexit [see P Telles & A Sanchez-Graells, 'Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?' (2017) 47(1) Public Contract Law Journal 1-33]. 

Consequently, in the absence of a withdrawal agreement or transition period, as of 30 March 2019, there would be no legal framework ensuring privileged access to the single public procurement market for UK economic operators. This is clearly spelled out in the Commission's Brexit and procurement notice, which highlights the following consequences:

  • UK economic operators will have the status of operators from a third country with which the EU does not have any agreement providing for the opening of the EU procurement market. The consequences of this may not be immediately obvious, but one that I would raise is their potential loss of the right to challenge procurement decisions against their interests in the EU jurisdictions that operate strict reciprocal mechanisms (for a survey and additional analysis, see here). Other consequences would follow from the unwinding of important administrative collaboration mechanisms, which I discuss below.
  • In utilities procurement, covering the areas of water, energy, transport and postal services, tenders offering more than 50% of products originating from the UK may be rejected--given that the Utilities Directive affords this possibility where the third country does not afford comparable and effective access for EU undertakings to its markets, which would be the situation in a 'no-deal' UK EU exit. Even if not subject to outright rejection, tenders including more than 50% UK content would be disadvantaged because the contracting entities shall not award them the contract if there are equivalent offers with less than 50% of the products originating in third countries.
  • In defence procurement, there would also be significant impacts for UK tenderers, as the Defence and Security Procurement Directive allows EU Member States to decide whether or not to allow economic operators from third countries to participate in their defence and security procurement procedures. Equally, even if UK tenderers were allowed to participate, EU Member States would no longer have to accept their UK security clearances on grounds of mutual recognition. As the Commission stresses, this may lead to the exclusion of operators relying on a UK security clearance in EU defence and security public procurement procedures, unless and until they obtained additional ones from the relevant EU Member State.

These may seem minor issues, but I would certainly argue they are not. In particular because those effects would be mirrored in domestic UK procurement, where EU economic operators would face equivalent consequences. In written evidence submitted to a House of Lords enquiry last year, I made some observations that are as relevant now as they were then:

  1. Bilateral UK-EU procurement-related trade can be estimated at around 15% of the total value of procurement, or close to 2.5% of GDP. This includes both direct and indirect cross-border procurement-related trade. The magnitude is larger if access to WTO GPA markets is considered.
  2. The UK’s exposure to public procurement-related trade in services in the EU is particularly relevant; the UK alone accounts for 84 % of the total value procured at EU level in awards of more than 100 million euros (approx. £85 mn).
  3. Losing the possibility of this cross-border trade would clearly be detrimental to the UK public sector, which would be at risk of not obtaining top quality services and/or facing increased prices from reduced competition amongst domestic suppliers. UK businesses would also be negatively affected if they lost the option of direct and indirect trade in services to the EU.
    .......
  4. ‘Hard Brexit’, ie no trade agreement of any kind combined with loss of WTO GPA membership, would imply loss of access to EU and worldwide procurement markets, for services but also for goods and works. This would likely have a major impact both on the UK public sector and in its business community, particularly that reliant on cross-border direct and indirect procurement-related trade.

These are serious and very worrying potential implications of the type of scenario covered by the Brexit and procurement notice, which should prompt renewed and continued efforts on both the UK and EU side to at least reach an agreement on withdrawal terms that facilitates continued frictionless procurement-based trade. I say at least because my personal view is that Brexit should be stopped (for a persuasive case, see Prof Syrpis' post). But in the absence of that better solution and in the alternative, there is clearly value to be preserved in finding a better solution to the alternative 'do-deal' scenario.

In that regard, I am honoured to have been invited to speak at the conference 'Trade Relations after Brexit: Impetus for the Negotiation Process'  and have the chance to offer my views on what regulatory challenges arise from the current situation, and to propose some potential solutions. These are my draft slides for the talk, and I probably will post a more detailed account after the conference. As indicated in the slides, some of the areas of immediate worry should concern administrative cooperation and remedies mechanisms. However, as also indicated there, all my analysis (and everyone's) is purely speculative in the absence of an agreed position on the basic elements of the future EU-UK relationship. Thus, everything there needs to be taken with a pinch of salt.

 

 

Cross-border joint public procurement: some reflections on the puzzling Art 39(2) Dir 2014/24

I gave a seminar on "The emergence of trans-EU public law: public procurement as a case study" yesterday at UEA Law School. My presentation (below) was largely based on this earlier paper of mine, where I discuss the new rules on centralised, joint and cross-border procurement in Directive 2014/24/EU (Arts 37-39). It also aimed to go beyond the technical aspects of the paper in exploring how these new mechanisms of cross-border cooperation between public buyers can help us identify the emergence of trans-EU public law, either of a substantive or 'conflict of laws' type.

The discussion eventually turned on Art 39(1)II Dir 2014/24, which states: "Contracting authorities shall not use the means provided in this Article [ie mechanisms of cross-border collaborative procurement] for the purpose of avoiding the application of mandatory public law provisions in conformity with Union law to which they are subject in their Member State."

This can be seen as an anti-circumvention clause aimed at ensuring that contracting authorities do not seek to disapply mandatory domestic rules by 'escaping' their jurisdiction through international collaboration--and, consequently, as a rule aimed at preserving the competential split between Member States and the EU in an area that arguably exceeds the procurement remit and goes to the core of the principle of national procedural and organisational autonomy.

However, participants in the seminar raised the point that it can also be seen as a 'Trojan horse' indicating further legal integration (and further regulation of these mechanisms in a future 6th iteration or generation of EU public procurement Directives) through the test of 'EU compatibility' of domestic mandatory public law provisions. I find this a very interesting thought, which is worth exploring in more depth. For now, I can only offer a few initial reflections.

From that perspective of 'EU law tests creeping into mandatory domestic public law requirements', and taking the example of free movement of goods, the question would be whether Art 39(1)II Dir 2014/24 does no more than recreate the mechanism of Art 36 TFEU--ie bring to the area of public procurement a 'public policy' (+ proportionality) test that mandatory public law requirements need to meet in order to justify the restriction on free movement that derives from preventing contracting authorities from resorting to enabling provisions for collaborative cross-border procurement. Or, on the contrary, whether it creates a separate test of 'EU law compatibility' that can actually go beyond what could be defended by Member States from a free movement of goods perspective by forcing an interpretation based on the effet utile of the rules in Dir 2014/24 itself--which would, almost by definition, result in more limited scope for absolute restrictions on the possibility to engage in collaborative cross-border joint procurement.

Either way, and having in mind recent cases on 'public policy' justifications for restrictions on free movement of goods, such as the DocMorris 2 case, it seems plausible that Art 39(1)II Dir 2014/24 may effectively be used in the future to demolish traditional public law requirements applicable to public procurement (such as subjection to domestic public contract law, language requirements, etc) on the basis that they disproportionately (or absolutely) restrict the possibility to engage in collaborative cross-border procurement.

For the purposes of the emergence of trans-EU public law, this would be a clear lever for the transformation of Member States' domestic public law requirements applicable to procurement activities, not least because internal market-type analysis would start being applied to public purchasing arrangements and their regulation in a different and possibly more stringent fashion.

So this is an area where I plan to keep an eye in the future and where I would appreciate input concerning any cases that may be developing at domestic level in the Member States. Either now or in the future.

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

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

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

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

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

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

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

US GAO reports on test commercial items program for #publicprocurement


In a recently published report, the US Government Accountability Office (GAO) assessed the status of a test program for the acquisition of commercial items and services--i.e. are those that generally available in the commercial marketplace in contrast with items developed to meet specific governmental requirements.
 
The report is interesting, and it highlights that US federal agencies are conducting around 2% of their procurement through this program and that, overall, the "test program reduced contracting lead time and administrative burdens and generally did not incur additional risks above those on other federal acquisition efforts for those contracts GAO reviewed." Therefore, there seems to be scope for further use of the commercial items acquisition program.
 
Importantly too, GAO warns that, however, a significant number of these contracts were "awarded noncompetitively [and that, w]hile these awards were justified and approved in accordance with federal regulations when required, GAO and others have found that noncompetitive contracting poses risks of not getting the best value because these awards lack a direct market mechanism to help establish pricing." Consequently, GAO has recommended the interested federal agencies to look in more detail into the use of the program and to take measures to ensure that thorough market research is conducted before a commercial items contract is awarded noncompetitively.
 
In my view, the emphasis that GAO places on the collection and analysis of data in order to determine the benefits and success of the commercial items program offers valuable insights to procurement regulators in other jurisdictions--and, particularly, in the EU, where Member States should start considering procurement reform in view of the imminent publication of the new Directives in the Official Journal.

New Paper: A critical assessment of the new health care procurement rules in the UK

The recently adopted UK National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 include an interesting (and somehow unsettling) provision authorising anti-competitive behaviour in the commissioning of health care services by the National Health Service (NHS), if that is in the (best) interest of health care users.
As briefly discussed here, generally, it seems that under the new public procurement and competition rules applicable to the NHS, whatever is considered in the “interest of patients” could trump pro-competitive requirements and allow the commissioning entity to engage in distortions of competition (either directly, or by facilitating anti-competitive behaviour by tenderers and service providers)—as long as a sort of qualitative cost-benefit analysis shows that net advantages derived from the anti-competitive procurement activity. The apparent oddity of such general “authorisation” for public buyers to engage in anti-competitive procurement of health care services deserves some careful analysis, which this new paper carries out.

The
paper assesses Regulation 10 of the NHS Procurement, Patient Choice and Competition Regulations 2013 and the substantive guidance published by the UK's health care sector regulator (Monitor) from the perspective of EU economic law (and, more specifically, in connection to public procurement and competition rules). The paper claims that there is a prima facie potential incompatibility between Regulation 10 of the 2013 NHS Procurement, Patient Choice and Competition Regulations and both EU competition law and public procurement law—which are, in principle, opposed to any anti-competitive or competition restrictive behaviour in the conduct of public procurement activities. Consequently, there is a need for an EU law compliant, restrictive interpretation and enforcement of the provision—at least where there is a cross border effect on competition and/or a cross border interest in tendering for the health care contracts, which triggers the application of both EU competition law and public procurement law.
 
Sánchez Graells, Albert, New Rules For Health Care Procurement in the UK. A Critical Assessment from the Perspective of EU Economic Law (February 2, 2014). University of Leicester School of Law Research Paper No. 14-03. Available at SSRN: http://ssrn.com/abstract=2389719.

Duty to give reasons under EU procurement law and EU trademark law: is there a contradiction?

Even if they may seem two rather disconnected areas of legal practice, reading cases on EU public procurement and on EU trademark law sometimes offers interesting insights into broader issues of EU Economic Law or, more generally, EU Law. For instance, some recent case law on the duty to provide reasons under each of the specific adminsitrative procedures that govern contract tendering and trademark registration shows what, in my view, is rather a contradiction.

On the one hand, and as commented recently here, the General Court issued his Judgment in Sviluppo Globale GEIE v Commission where it imposed a very demanding standard for the duty to give reasons in procurement cases. Indeed, the GC held that:
27 [...] despite the information contained in [debriefing] letters, and taking into account the relevant case law [Evropaïki Dynamiki/OEDT, T-63/06 at para 112, and Evropaïki Dynamiki/Commission, T-300/07 at para 50] the applicant has not received a response from the Commission showing in a clear and unequivocal fashion the reasoning followed in the adoption of the contested decision. [...]
30 [...] the Commission has not made a formal comparison of the projects described by the applicant in its expression of interest against the benchmark of the three criteria set out in paragraph 21.3.a) of the contract notice. In particular, it did not explain which of these three criteria was not satisfied by the projects [submitted by the applicant]. In these circumstances, the applicant was not able to know if the reason for the rejection of her expression of interest in the procurement in question concerned the minimum number of projects implemented, their budget, their completion in a timely manner or the areas in which they were executed. [...]
35 [...] when, as in this case, a European institution has a wide discretion, the guarantees conferred by the Community legal order in administrative procedures is of an even more fundamental relevance. Those guarantees include, in particular, the duty of the competent institution to state sufficient reasons for its decisions (Technische Universität München, C-269/90 at para 14; Le CanneCommission, T-241/00 at paras 53 and 54, and Evropaïki Dynamiki v Commission, T-300/07  at para 45). [...]
40 In light of the foregoing, it must be held that the applicant properly submits that, to the extent that the Commission has not developed further the reasons why her candidacy did not meet the technical selection criteria set in the contract notice, it has not received in a clear and unequivocal fashion the reasoning of the Commission, which would have allowed her to know the reasons for the decision not to be included in the shortlist of the contract at issue. Moreover, she could not sue without knowing what those reasons are. It is noteworthy in this regard that the right to good administration under Article 41 of the Charter of Fundamental Rights of the European Union (OJ 2007 C 303, p. 1) sets an obligation on the administration to justify its decisions and that this motivation is not only in general, the expression of the transparency of administrative action, but it must also allow the individual to decide, with full knowledge of the facts, if it is useful for her to apply to a court. There is therefore a close relationship between the obligation to state reasons and the fundamental right to effective judicial protection and the right to an effective remedy under Article 47 of the Charter of Fundamental Rights. (GC T-183/10, at paras 27 to 40, emphasis added, own translation from French).
As I said, this detailed debriefing standard imposes a very high burden on the contracting authorities and entities to provide very detailed reasons concerning every single criterion used in the evaluation of bids. Therefore, contracting authorities and entities will have a powerful incentive to be extremely cautious in the level of detail they provide in debriefing letters and meetings and, in case of doubt, they may feel that the safer position is to err on the side of providing excessive rather than insufficient information. And this generates some troubling incentives and risks, as discussed here.


On the other hand and on the same day, the GC issued its Judgment of 10 October 2012 in case Case T-569/10 Bimbo v OHMI - Panrico (BIMBO DOUGHNUTS), where the challenger of OHIM's decision contended, among other grounds for appeal, that OHIM had not expressly addressed some of the arguments presented during the trademark review procedure. In this case, the GC found that:39 The applicant is in fact arguing that the Board of Appeal infringed the obligation to state reasons provided for in the first sentence of Article 75 of Regulation No 207/2009
39 The applicant is in fact arguing that the Board of Appeal infringed the obligation to state reasons [...]
40 It is to be observed that in the present case the Board of Appeal set out in the contested decision the facts and legal considerations which led it to take that decision [...]
41 As regards, more particularly, the applicant’s argument that the Board of Appeal failed to respond to two specific arguments which it had put forward during the procedure before OHIM, the following points should be made.
42 Firstly, with regard to the applicant’s argument that the word ‘doughnuts’ is regarded by the Spanish public as descriptive of the goods in question, the Board of Appeal addressed that argument by stating, in paragraph 18 of the contested decision, that for the average Spanish consumer (excluding those who speak English) the word ‘doughnuts’ did not describe the goods or their qualities. It also held that the earlier sign, like the sign applied for, would be perceived as a foreign or fantasy term ‘by most consumers’.
43 Thus, the Board of Appeal implicitly held that the majority of average Spanish consumers did not speak English or, at least, did not speak it well enough to know the meaning of the word ‘doughnuts’. In that context, it should be observed that the reasoning of the decision of a Board of Appeal may be implicit, on condition that it enables the persons concerned to know the reasons for the Board of Appeal’s decision and provides the competent Court with sufficient material for it to exercise its power of review (Case T‑304/06 Reber v OHIM – Chocoladefabriken Lindt & Sprüngli (Mozart) [2008] ECR II‑1927, paragraph 55).
44 In this case, the Board of Appeal’s reasoning rejecting the argument based on the allegedly descriptive character of the ‘doughnuts’ element of the trade mark was sufficient to enable the applicant to understand the reasons that had led the Board of Appeal to adopt the contested decision and to enable the Court to exercise its power of review.
45 Secondly, with regard to the applicant’s argument based on the reputation of the ‘bimbo’ element of the trade mark applied for, it is true that the Board of Appeal did not explicitly address that argument in the contested decision. However, it pointed out that the ‘doughnuts’ element in the trade mark applied for ‘[would] catch the attention of the relevant Spanish public, as it appears unusual in Spanish due to the atypical combination of vowels “ou” and the accumulation of consonants “ghn”’. The Board thus held that that element could not be disregarded in the comparison in question. Thus, it follows from the contested decision that the Board of Appeal did not consider that the ‘bimbo’ element of the mark applied for dominated the overall impression created by the mark applied for to such an extent that the other component – the ‘doughnuts’ element – could be disregarded. The reasoning relating to this point was also sufficient to enable the applicant to know the reasons for the contested decision and to enable the Court to review the legality of the decision on that point.
46 The statement of reasons in the contested decision is thus sufficient in law.
(GC T-569/10, at paras 39 to 46, emphasis added).
In my reading, the position of the GC in Bimbo Doughnuts is a more balanced review of the reasons provided by the authority than in Sviluppo Globale, and the focus is ultimately functional. Even if the bottom limit or the minimum standard concerning the duty to give reasons set by the GC in both Sviluppo Globale and Bimbo Doughnuts points towards the same functional requirement [ie that the affected party (either a bidder or a trademark applicant) must be able to decide whether to apply to a court to challenge the decision on the basis of its supporting elements, and that such court must be able to exercise its power of review], there seems to be a clear contradiction--or, at the very least--a significant discrepancy in the level of scrutiny in both cases.

Whereas Sviluppo Globale indicates the need to "show in a clear and unequivocal fashion the reasoning followed in the adoption of the contested decision", Bimbo Doughnuts leaves more room to administrative restrictions of the information provided by accepting that "the reasoning of the decision may be implicit and even not expressly address all points raised by the applicant", provided always that the information given is sufficient to understand the reasons for the contested decision. In my opinion, the second position is much less formal and allows for a more workable system of administration of EU rules. Therefore, it seems preferable and should be extended to the public procurement arena and, more generally, to all areas of EU Law.

In this regard, the codification of a proper set of rules (or standards) on EU Administrative Law seems a worthy regulatory exercise. For very interesting proposals, please see the projects conducted under the Research Network on EU Administrative Law http://www.reneual.eu/.

Do unto others... The CJEU juggles with the presumption of control through ownership

In its Grand Chamber Judgment of 19 July 2012 in case C‑337/09 P Council v Zhejiang Xinan Chemical Industrial Group (Xinanchem), the CJEU has analysed the potential difference between 'State control' through ownership of an undertaking with corporate form and the exercise of 'significant State interference' in the economic decisions adopted by such undertaking. 

In Xinanchem, the CJEU has endorsed the antiformalistic approach taken by the GC in the appealed Judgment, and has rejected the assumption that by holding the largest number of shares and appointing the majority (actually, the entirety) of the members of the Board of Directors of a company China exercised 'significant State interference' in the market activities of that undertaking for the purposes of EU anti-dumping legislation. According to the CJEU:
State control, such as that observed in the present case [where the distribution of the shares allowed the State shareholders to control the undertaking], cannot be equated, as a matter of principle, to ‘significant State interference’ within the meaning of the first indent of Article 2(7)(c) of [Council Regulation (EC) No 384/96 of 22 December 1995 on protection against dumped imports from countries not members of the European Community, as amended by Council Regulation (EC) No 461/2004 of 8 March 2004] and cannot therefore relieve the Council and the Commission of the obligation to take into account the evidence, submitted by the producer concerned, of the real factual, legal and economic context in which it operates (Xinanchem at para. 78).
Although some parts of the (literal) reasoning of the CJEU in Xinanchem remain obscure or tautological and, therefore, open to criticism ["the use of the word ‘interference’ indicates that it is not sufficient that a State may have a certain amount of influence over those decisions, but implies actual interference (sic) in them" Xinanchem at para. 80]; the adoption of such antiformalistic criterion, which clearly advocates for a free(r) and holistic appraisal of all factors determining whether the company actually reacts to market signals or stimuli, must be welcome.

However, one is left scratching the back of his head when comparing this approach with the rather more formalistic presumptions of control through ownership existing in other areas of EU economic law, such as competition law (where parental liability is subjected to a much stricter and formal test, as reminded on the same date in Judgment in case C-628/10 P Alliance One International and Standard Commercial Tobacco v Commission at para. 46, regardless of the presumption being rebuttable) or public procurement (in the particular issue of the excpetion for so-called in-house provision, following the well-known Teckal criteria of its Judgment in case Case C-107/98, and its ulterior refinements). 

This seems to me rather as a (broad) area of EU economic law where further consistency is necessary because, according to the current state of the case law, we face a counterintuitive (and most likely unintended) situation where foreign undertakings controlled by foreign States may have more flexibility to demonstrate lack of effective control or influence (and hence, to gain liberty in their market activities) than domestic (ie European) undertakings. Not to sound protectionist, but this inconsistency in EU economic law seems difficult to stomach, particularly in this day and age.