Discretion in public procurement—notes of a very energising workshop

iecl-final-350x350.png

I have the great privilege and pleasure of participating in a research project on ‘Discretion in public procurement’ funded by the Swedish Competition Authority and led by Profs Groussot, Hettne and Bogojević of the Universities of Lund and Oxford. In the context of the project, a workshop was held at Lady Margaret Hall (Oxford) on 3 November. The discussions brought together leading general EU law, environmental law and public procurement law academics, and this created a very open-minded atmosphere conducive to very productive discussions.

The results of the research project will be published in due course by Hart, as part of the series Studies of the Oxford Institute of European and Comparative Law (IECL). For now, I am happy to share my notes of the seminar. Needless to say, all valuable insights should be attributed to relevant colleagues, and any errors or misunderstandings are my own responsibility. I hope these notes serve to promote further debate.

Public Procurement and Internal Market

Prof Phil Syrpis used his previous discussion of the two constitutional visions on the interaction between primary and secondary EU law (see P Syrpis, ‘The relationship between primary and secondary law in the EU’ (2015) 52(2) Common Market Law Review 461) to assess the extent to which such primary-secondary interaction shapes the spaces for the exercise in the field of public procurement (see P Syrpis, ‘RegioPost—A Constitutional Perspective’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 2).

In particular, he discussed RegioPost (C-115/14, EU:C:2015:760), and how the interaction of Art 56 TFEU, the Posted Workers Directive and the rules in Directive 2004/18/EC shaped the space for the exercise of discretion concerning the imposition of minimum wage requirements in the execution of public contracts—emphasising that this is an area of non-exhaustive EU harmonisation, thus triggering EU primary law analysis. Phil criticised the conflation of primary law (Art 56 TFEU) and secondary law (Posted Workers Directive), and the ‘horizontal interaction’ between directives in which the RegioPost case resulted (where the interpretation of the procurement rules hinged on the interpretation of the Posted Workers Directive), as muddling the constitutional position on the value of the sources.

The discussion raised issues concerning the blurry lines around exhaustive/non-exhaustive harmonisation areas, and whether there is displacement or rather procedural juxtaposition of primary and secondary law. Whether a hierarchical approach already contains the seeds of heteronormative interpretation of EU primary law was also considered—in particular in view of the open textured and permeable nature of EU Treaty provisions, and the tendency of the CJEU to consider secondary law as a source of inspiration for the interpretation of primary law, sub silentio. The discussion also raised issues of the potential impact of Art 4(2) TEU (respect for national identities) on the scope for discretion at national level.

Prof Stephen Weatherill used the image of public procurement law as ‘internal market law made better’ and discussed the way in which EU internal market law has generally been developed to constrain the exercise of discretion of (public and private) national actors, and compared the situation in the field of procurement with general internal market law—thus reaching the conclusion that procurement law is more developed and perfected (in constraining national discretion more tightly), and in particular in the area of remedies, which creates a significantly different enforcement scenario and possibly more effectiveness of procurement law compared to general internal market rules (which is jeopardised by the procedural obstinacy of the Member States). He also reflected on the contradiction between the existence of that dense legal framework regulating public procurement in the internal market, and the enduring fragmentation of that market along uncompetitive national lines.

The discussion concentrated on issues surrounding the difficulties in bringing together the analysis in the area of free movement of goods and services, in particular services of general economic interest, the wiggle room for the CJEU to shy away or not from addressing specific cases by using jurisdictional criteria (cfr Comune di Ancona (C-388/12, EU:C:2013:734) and Tecnoedi Costruzioni (C-318/15, EU:C:2016:747)), as well as issues concerning the extent to which the 2014 Public Procurement Package, by creating more discretion or flexibility, may have eroded the component of ‘internal market law made better’ and potentially make public procurement move back to the median (effectiveness) of EU internal market law.

Prof Jörgen Hettne discussed public procurement and technical standards, and whether the specific rules constituted mechanisms to limit discretion or rather a democratic threat. He discussed the multi-faceted nature of technical standards as potential technical barriers, or rather trade facilitators or trade promoters—and focussed on the latter under the new approach to EU standards (CE mark) and the presumption of compliance embedded in the rules on technical specifications in the 2014 Public Procurement Package. He also concentrated on the quasi-binding nature that technical standards are acquiring (eg Nordiska Dental (C-288/08, EU:C:2009:718), James Elliot Construction (C-613/14, EU:C:2016:821)—and see also Medipac - Kazantzidis (C-6/05, EU:C:2007:337), and Commission v Greece (C-489/06, EU:C:2009:165)).

He wondered whether the obligation to respect the CE mark in the context of public procurement is problematic due to its requirement of ‘blind trust’ in the harmonisation system, and whether this is a democratic threat—in particular due to the way in which broad participation is (not) working in the context of standard-setting. He also discussed the constraints in an alternative approach based on the flexibility around the use of functional requirements embedded in Art 44(6) of Directive 2014/24/EU.

Public Procurement Discretion: Limits and Opportunities

Prof Chris Bovis reflected on the drivers and boundaries of discretion in the award of public contracts. He discussed the evolution of the regulatory space left to discretion throughout the five generations of EU procurement directives, and raised issues concerning the scale or structural dimension of discretion, in particular due to the different nature of the issues left to the discretion of the Member States (system-level issues) or the contracting authorities (procurement/procedure-level issues). His reflections also prompted discussion on the dynamics and interaction between exposure to competition, accelerating market dynamics (eg regarding innovation) and exercise of (administrative) discretion.

Dr Dieter Klaus explored the lessons that can be learnt from an analysis of the constraints on discretion in the public procurement setting, as a case study of broader issues concerning the regulation of discretion under EU law. He started with conceptual remarks on ‘discretion’ and the general approach to discretion (deplorable exception or rather a valuable instrument?) and the tension between different pulls and levers in EU law (flexibility, subsidiarity, harmonisation, compliance and potential over-regulation risks). He also stressed the risks and difficulties in EU level concept-building around (eponymous) notions that carry specific connotations in the context of national legal systems, which triggers risks of possible misunderstandings—as well as the interaction between spheres of discretion and intensity of judicial review of (discretion-based) executive decisions.

He used examples that compared case law on gambling (eg Politanò (C-225/15, EU:C:2016:645), Unibet International (C-49/16, EU:C:2017:491) or Vereniging Hoekschewaards Landschap (C-281/16, EU:C:2017:774)) and case law on public procurement (TNS Dimarso (C-6/15, EU:C:2016:555), LitSpecMet (C-567/15, EU:C:2017:736) or Borta (C-298/15, EU:C:2017:266)), with a particular emphasis on the intensity of judicial scrutiny for the justifications backing up discretionary decisions by the Member States. In concluding his reflections, he wondered whether there is something that makes procurement law special within the framework of EU internal market rules—which he thought probably not, in particular if one considers the fact that discretion works in different ways in different areas of EU internal market law, and that EU public procurement law displays the whole range of scenarios where discretion is subjected to different constraints.

The discussion raised the issues of whether the discretion under analysis (in the case law) is only that exercised by the contracting authority in executive decisions, or whether macro/systemic issues are subjected to the same issues and constraints. It also raised issues on the interaction between incompleteness of the regulatory system and (unforeseen) sources of discretion. The discussion also raised the point of whether Art 18 Dir 2014/24 is the natural ‘home’ of discretion within the system (as a horizontal issue), or whether the Directives somehow operate on the basis of a more undercover position for discretion.

In my presentation, I discussed the extent to which the general principles in Article 18(1) of Directive 2014/24/EU set out the relevant constraints on the exercise of executive discretion in the context of procurement and, in particular, the role that the prohibition for contracting authorities to artificially narrow down competition can be used to create effective substantive and/or procedural tests to control the exercise of such discretion.

Following up on my previous proposals (mainly, in Public Procurement and the EU Competition Rules, 2nd edn (Hart, 2015) ch 5) I suggested that Article 18(1)II Dir 2014/24/EU provides the basis for a competition-orientated or competition driven adaptation of a general proportionality test. I suggested that the existing case law of the CJEU, in particular concerning anti-circumvention rules, can form the basis for a substantive test oriented towards the consideration of the counterfactual decision adopted by a diligent contracting authority. I acknowledged that such a test may be difficult to craft in a way that does not create risks of ex post facto reassessment of decisions that would have originally not been seen as restrictive of competition.

I also suggested that a procedural test may be preferable, in the sense of creating a presumption of conformity with the requirements of the Directive where the contracting authority can provide an adequate paper trail (ex Art 84(2) Dir 2014/24) demonstrating having given due consideration to competition impacts of the decisions taken along the procurement design and implementation phase. My preliminary idea is that the procedural test would create a rebuttable presumption of conformity and that, in case of indicia to the contrary, the substantive test would then be applied.

The ensuing discussion concerned challenges on my claim about the competition-orientatedness of the regime in Directive 2014/24/EU and the 2014 Public Procurement Package more generally, discussion of the different concepts of competition (either as a mechanism or as a benchmark demanding economic efficiency in absolute terms) and the links that could be drawn before the substantive test I propose and the more general test of abuse of EU internal market law.

Environmental and Social Clauses

Dr Marta Andrecka discussed limits of contracting authority discretion in the pursuit of sustainability, and drew from previous analysis on her recently edited monographic issue of the European Procurement & Public Private Partnership Law Review (2017) 12:3. Her reflections concerned the balance between the flexibility created to support sustainability goals in procurement through the ‘toolbox approach’ in the 2014 Public Procurement Package and ensuing Commission guidance, on the one hand, and the necessary checks and balances, on the other—in particular by reference to the interpretation of Art 18(2) of Directive 2014/24/EU and difficulties to fit different understandings of ‘public interest’ at EU and national level in this context. She gave significant weight to the addition of sustainability as a strategic goal of procurement under the new rules, very much in line with the European Commission’s approach in the October 2017 Communication on ‘Making public procurement work in and for Europe’. She also mapped out emerging obligations to include sustainability considerations in the context of other (horizontal) EU policies with an impact on procurement—such as the current proposal for a European Accessibility Act.

The ensuing discussion concerned the boundaries of the concepts of public interest and public policy within the context of EU internal market law, and the extent to which that is directly applicable and/or transferable to the interpretation and enforcement of the 2014 Public Procurement Package. It also concerned the link between the increasing sophistication and complications derived from sustainability-orientated procurement and emerginginitiatives on professionalization and capacity building as part of the broader procurement strategy.

Dr Sanja Bogojević mapped environmental contestation points in EU procurement law and policy, as a way of bringing attention to problems and opportunities for the pursuit of environmental policies in the context of public procurement. She recreated the discourse on green procurement through the case law of the CJEU after Concordia Bus Finland (C-513/99, EU:C:2002:495) and EVN and Wienstrom (C-448/01, EU:C:2003:651), and compared it to the discourse in broader internal market case law, to finally arrive to the current expressions of green public procurement aims and goals in policy documents, such as the 7th Environmental Action Plan or the Europe 2020 Strategy. Concentrating on Directive 2014/24/EU, her discussion considered the way green procurement is presented in relation to technical standards, labels and life-cycle costing rules.

Once the mapping was complete, she identified 5 points of contestation: (1) role of sustainable development and the risk it creates of squeezing environmental protection act; (2) reviewability of environmental models used in life-cycle costing (eg as exemplified in the litigation leading to R (ClientEarth) [2016] EWHC 2740); (3) what is the nature of the obligation in Art 11 TFEU (‘environmental protection requirements must be integrated into the definition and implementation of the Union policies and activities’ – is this solely a procedural minimum?); (4) discretionary climate change policy and ways in which policy can be used to create obligations (eg along the lines of the Dutch Urgenda case); and (5) the role of EU public procurement law in non-EU countries looking to access the EU (eg Serbia) or on the way out (UK). Ultimately, she made a compelling case for more interdisciplinary work and efforts of legal imagination to try to find workable legal solutions to global challenges.

Dr Jeremias Prassl discussed means, ends and conflicts in attempting to carry out social procurement. He introduced the clash between labour rights and internal market rules and restrictions (ie a clash of the economic vs the social)—which underlies calls for broad exemptions from internal market law from scholars such as Prof Alan Bogg ('Viking and Laval: The International Labour Law Perspective', in M R Freedland & J Prassl (eds), Viking, Laval and Beyond (Hart, 2016) ch 3)—and considered whether public procurement is more sensitive or atuned to labour law considerations than general internal market. He also reflected on whether the relevant clash was not one between economic and social rights, but rather between social rights of different collectives. He then developed each of the different narratives to see how they have shaped law and policy in the context of EU social and procurement law—in particular around the Posted Workers Directive.

His discussion provided insights on how the application of the internal market logic and its broader normativity comes to water down labour law’s protective effects (building on the analysis of L Rodgers, ‘The Operation of Labour Law as the Exception: The Case of Public Procurement’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 8). He assessed these issues of normativity and exception from Viking (C-438/05, EU:C:2007:772) and Laval (C-341/05, EU:C:2007:809) to the more recent cases of Bundesdruckerei (C-549/13, EU:C:2014:2235) and RegioPost. He also relied on Prof Weatherill’s approach ('Viking and Laval: The EU Internal Market Perspective', in M R Freedland & J Prassl (eds), Viking, Laval and Beyond (Hart, 2016) ch 2; see also S Weatherill, The Internal Market as a Legal Concept (OUP, 2017)) to criticising the insensitivity of internal market case law to legitimate and democratically expressed national priorities—which Jeremias considers is currently softening, as the CJEU approach in RegioPost indicates.

He also critically reflected on whether the seeming growing scope for labour policies in the context of procurement is likely to generate the maximum practical effects that would be desirable. In closing his paper, he wondered whether the heterogeneity of workers and the conflicts between different groups of workers (insiders vs outsiders) would provide a better narrative and analytical perspective to reassess this topic. In doing that, he drew on Prof Catherine Barnard’s contrast between the equal treatment logic of the procurement rules and the differentiation logic of the traditional rules on posting of workers, which is now being tamed in the revision of the Posted Workers Directive (see C Barnard, ‘Fair’s Fair: Public Procurement, Posting and Pay’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 10).

The ensuing discussion concentrated on how attempts to integrate social and environmental considerations in a public procurement regime that already tried to address other goals—mainly, economic and internal market-orientated—triggers issues around the extent to which social and environmental considerations should be a more intrinsic element of internal market law generally, as a sort of ‘softer market’, rather than an issue to be addressed sectorially.

Prof Xavier Groussot and Ms Angelica Ericsson wrapped up the discussions with a reflection on the tension between discretion and proportionality in the use of social clauses in procurement. They discussed (i) the elements of discretion, (ii) the application of procedural proportionality to control discretion—and in particular from the perspective of transparency—and (iii) whether recent case law seemingly deviating from the principle of proportionality creates a problem, mainly in light of the application of covert proportionality through consistency in RegioPost (contra P Bogdanowicz, ‘Article 56 TFEU and the Principle of Proportionality: Why, When and How Should They be Applied After RegioPost?,’ in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 3). In the first part of the discussion, they explored the connections between the application of discretion under EU law and under ECHR law, and how that comparison can be best assessed using a variation of the framework set out by Tridimas (‘Proportionality in Community Law. Searching for the Appropriate Standard of Scrutiny’, in E Ellis (ed), The Principle of Proportionality in the Laws of Europe (Hart, 1999) 65 ff), and the additional issue of harmonisation raised by Thym (‘The Constitutional Dimension of Public Policy Justification’, in P Koutrakos, N Nic Shuibhne, & P Syrpis, Exceptions from EU Free Movement Law: Derogation, Justification and Proportionality (Hart, 2016) ch 9): (1) the interest, (2) the proceeding, and (3) the level of harmonization (cfr Opinion of AG Cruz-Villalon in dos Santos Palhota and Others (C-515/08, EU:C:2010:589)).

In the second part, they discussed discretion and procedural proportionality, and reflected about ‘what would a high level of discretion mean for a proportionality assessment’ both in theory and in practice. They stressed that the level of discretion and the intensity of proportionality review should theoretically be inversely proportionate (much along the lines presented by Dr Kraus earlier in the day, but with inverted causality), and that this is demonstrated in practice in the area of public procurement (such as in Politanò), where the CJEU shows more deference to administrative discretion (ie a lighter-touch proportionality analysis) where a higher level of discretion exists ex ante. Specifically in the context of procedural proportionality (eg Beentjes v State of the Netherlands (C-31/87, EU:C:1988:422)), and in the context of transparency obligations, they suggested that procurement is a good testing ground for the correlation between higher discretion and more limited proportionality scrutiny by the CJEU (eg in RegioPost, where regulatory transparency may have saved the social clause). They concluded that (i) high level policy discretion for Member States must not translate into unfettered discretionary/arbitrary decision-making by contracting authorities, (ii) procedural scrutiny is spreading beyond public procurement (R Caranta, ‘Public Procurement Law: Limitations, Opportunities and Paradoxes’ in U Neergaard, C Jacqueson & GS Ølykke (eds), XXVI FIDE Congress in Copenhagen, vol 3 (DJØF, 2014), where he claims principles of procurement becoming general principles of EU administrative law more generally), (iii) EU law principles (eg transparency) may be fuelled by different justifications than (eponymous) national ones.

Finally, in the third part, and drawing from French administrative law, they explored the possibilities of developing a taxonomy of CJEU case law that would distinguish between a procedural approach (controle minimum), substantive approach (controle normal) and a balancing approach (controle maximum).

The discussion concentrated mostly on the boundaries of the procedural proportionality approach and the categories that could most usefully be used to create a taxonomy of approaches by the CJEU. This was linked to the discussion to the standard of review of decisions in other areas of EU law—eg competition law, where the connection between EU and ECHR standards has been questioned (eg Menarini, as discussed in extenso in A Sanchez-Graells, ‘The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?’, in Kosta, Skoutaris & Tzevelekos (eds), The Accession of the EU to the ECHR (Hart, 2014) 255-70).

Alternative Procurement Models

Dr Ohad Graber-Soudry presented the procurement rules of European Research Infrastructure Consortia (ERICs) under the specific regulatory framework of Council Regulation 723/2009/EC, which creates significant space for each ERIC to adopt its own procurement rules. His presentation concentrated on the uncertainties derived from the treatment of ERICs as international organisations and the impact these have on ERICs’ discretion to develop their own procurement rules, as well as the treatment of discretion within those (self-developed) rules.

The ensuing discussion mainly concerned the limits and effects of Art 7(3) of Regulation 723/2009, whereby ‘[a]n ERIC is an international organisation within the meaning of Article 15(c) of Directive 2004/18/EC’, which now corresponds to Article 9(1)(b) of Directive 2014/24/EU.

Closing the workshop, Prof Ulf Bernitz discussed the peculiarities of the Swedish system, and stressed the particular use and weight of transparency obligations in that jurisdiction.

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

nablo-eggs.jpg

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ECJ avoids providing guidance on intensity of judicial review of procurement decisions by sticking to strictly formalistic approach: The Gaping hole remains (C-171/15)

In its Judgment of 14 December 2016, Connexxion Taxi Services, C-171/15, EU:C:2016:948, the European Court of Justice (ECJ) has provided clarification on whether contracting authorities can decide to subject their decisions to exclude economic operators from procurement procedures to a proportionality assessment even where such assessment would deviate from the strict rules created in the tender documentation by the contracting authorities themselves.

In the case at hand, a Dutch contracting authority had published tender documents that seemed to create an automatic obligation to exclude by stating that: 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'. However, the contracting authority subsequently sought to rely on generally applicable Dutch administrative law (in particular, the Explanatory Memorandum of the law transposing the 2004 public procurement Directive) to subject the exclusion decision to a proportionality assessment. On the basis of that proportionality analysis, the contracting authority decided not to exclude the tenderer and to award it the contract.

This triggered the challenge by a competing tenderer, which claimed that, having found that the tenderer had been guilty of grave professional misconduct, the contracting authority was not in a position to make an assessment of proportionality. That assessment would have already been carried out by including the misconduct as an absolute ground for exclusion in the descriptive document. Given the wording of the latter, it was argued that it would be contrary to the principles of public access, transparency and equality in matters of administrative procurement for the contracting authority to have the power to assess the proportionality of the ground for exclusion.

The Dutch referring court asked the ECJ to consider whether Art 45(2) of Directive 2004/18/EC precluded a contracting authority from being obliged to assess under national law, and in accordance with the principle of proportionality, whether a tenderer which had been guilty of grave professional misconduct should be excluded from a contract. The referring court put particular stress on the fact that the ECJ had not adjudicated on the importance to be attached to the fact that, in the tender conditions, the contracting authority had provided for the rejection, without any examination of the substance, of any tender to which a ground of exclusion applies. In answering those questions, the ECJ decided to stick very closely to two of its lines of case law that, ultimately, create a very difficult (dis)functional situation.

First, following precedents in La Cascina and Others, C‑226/04 and C‑228/04, EU:C:2006:94, and in Consorzio Stabile Libor Lavori Pubblici, C‑358/12, EU:C:2014:2063, the ECJ reiterated that the discretionary exclusion grounds regulated in Art 45(2) Dir 2004/18 (and now in art 57(4) Dir 2014/24) do 'not provide for uniform application at EU level of the grounds of exclusion it mentions, since the Member States may choose not to apply those grounds of exclusion at all or to incorporate them into national law with varying degrees of rigour according to legal, economic or social considerations prevailing at national level. In that context, the Member States have the power to make the criteria laid down in Article 45(2) less onerous or more flexible' (C-171/15, para 29). This led the ECJ to establish that

31 As far as concerns the grounds for excluding a tenderer which has been guilty of grave professional misconduct from a contract, it is clear from the order for reference that [Dutch] legislation requires the contracting authority concerned, which establishes that the tenderer has been guilty of such misconduct, to determine, in accordance with the principle of proportionality, whether the tenderer should in fact be excluded.
32 Thus, it appears that that assessment of the proportionality of the exclusion makes the application of the ground of exclusion relating to grave professional misconduct laid down in Article 45(2)(d) of Directive 2004/18 more flexible ... Furthermore, it follows from recital 2 thereof that the principle of proportionality applies in a general manner to public procurement procedures (C-171/15, paras 31-32, emphasis added).

Ultimately, then, national legislation which requires a contracting authority to assess, in accordance with the principle of proportionality, whether it is in fact appropriate to exclude from a public contract a tenderer which has been guilty of grave professional misconduct is compatible with EU public procurement law (C-171/15, para 33).

Second, and in stark contrast with this seemingly functional and principles-oriented interpretation of the rules in Directive 2004/18/EC, the ECJ then moved on to adopt a very formalistic approach when considering the specific situation where the contracting authority would have excluded the possibility of such proportionality assessment in the tender documentation by establishing that exclusion on specific grounds would not be subjected to any substantive assessment. It may have been relevant at this point to know with more precision whether that would have been illegal under Dutch law for the tender documentation could be seen as contra legem (as, in my view, it would have been eg under Spanish law due to the public administration's duty to conduct its business with subjection to the applicable laws and regulations).

Be it as it may, the ECJ framed the issue in the following terms:

 36 It is conceivable that, when the contract documents are drafted, the contracting authority concerned may take the view, in accordance with the nature of that contract, the sensitive nature of the services which are its subject, and the requirements of professional honesty and reliability of the economic operators which arise from that, that the commission of grave professional misconduct must result in the automatic rejection of the tender and the exclusion of the tenderer at fault, provided that the principle of proportionality is observed when the seriousness of that misconduct is assessed.
37 Such a clause, inserted into the contract documents in unambiguous terms ... enables all economic operators which are reasonably well informed exercising ordinary care to be apprised of the requirements of the contracting authority and the conditions of the contract so they may act accordingly (C-171/15, paras 36-37, emphasis added).

I find these passages, and in particular para 36, very confusing. It seems to indicate that the contracting authority, despite the discretion it has in deciding to include as applicable the ground of discretionary exclusion due to grave professional misconduct in the tender documentation or not, remains bound to ensure that 'the principle of proportionality is observed when the seriousness of that misconduct is assessed'. That would, in and of itself, exclude the possibility of predetermining that the exclusion on that ground will be absolute and not subjected to any further (substantive) assessment. Therefore, making this be followed by para 37, where the contrary underlying position exists in the determination that setting a clause of automatic exclusion in unambiguous terms provides tenderers with a clear view of the requirements, is at least disconcerting.

The ECJ then decided to follow very formalistic precedents whereby 'the contracting authority must comply strictly with the criteria which it has itself laid down (see, to that effect, judgment of 10 October 2013, Manova, C‑336/12, EU:C:2013:647, paragraph 40 and the case-law cited) in the light, in particular, of Annex VII A, paragraph 17, to Directive 2004/18' (C-171/15, para 38). It also added that, following its more recent Judgment in Pizzo, C‑27/15, EU:C:2016:404, 'the principle of equal treatment requires tenderers to be afforded equality of opportunity when formulating their tenders, which therefore implies that the bids of all tenderers must be subject to the same conditions' and that 'the obligation of transparency requires that all the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner in the contract notice or specifications so that, first, all reasonably informed tenderers exercising ordinary care can understand their exact significance and interpret them in the same way and, second, the contracting authority is able to ascertain whether the tenders submitted satisfy the criteria applying to the contract in question' (for discussion, see here).

On the basis of this, the ECJ creates an argument whereby tenderers from different Member States will be less likely to submit tenders when they are affected by an exclusion ground because they may not be aware of the possibility of their exclusion actually being subjected to a proportionality assessment despite the explicit terms of the tender documents, which the ECJ considers domestic tenders would do. From that, the ECJ concludes that 'the assessment of the exclusion at issue in the light of the principle of proportionality, where the tender conditions of the contract concerned provide for the rejection of tenders which are covered by such an exclusion clause without any assessment of that principle, is liable to place the economic operators concerned in an uncertain position and adversely affect the principle of equal treatment and compliance with the obligation of transparency' (see C-171/15, paras 41-43). Ultimately, then, the ECJ considers that the decision to subject the decision whether to exclude the tenderer to a proportionality assessment despite the explicit terms of the tender documents was contrary to EU public procurement law.

Critical remarks

I find the Connexxion Taxi Services Judgment very confusing because it seems to answer two interconnected questions about the relevance and effectiveness of the general principles of public procurement in an intrinsically contradictory manner, and it seems to me that the ECJ has taken another step down the formalist road. In the case at hand, and following the proposals of Advocate General Campos Sánchez-Bordona (see here), I considered that it must be right that contracting authorities are always under a general obligation to act in a proportionate manner and, consequently, each decision they adopt needs to be proportionate under the circumstances and pro-competitive, and that ultimately 'a contracting authority must retain the power to assess, on a case-by-case basis, the gravity of the circumstances that would lead to exclusion of the tenderer. And ... it must also balance them against the effects that such exclusion would have on competition' [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 293, references omitted].  

Despite the fact that the Connexxion Taxi Services Judgment sticks to the traditional formalist approach whereby the Court does not allow contracting authorities to deviate from the strictures of the published tender documentation, and this must at this stage not come as a surprise, the decision strikes as particularly odd because the ECJ does not seem to give much weight to the general principle of proportionality--either as enacted under the disputed Dutch rules, or more generally under the EU public procurement rules themselves--despite having accepted that the general principle can (and should?) control all procurement decisions. Remarkably, the ECJ deviated from the more progressive and flexible approach advanced by the AG and also created a strange focus of analysis by moving from the assessment of the decision of the contracting authority to the potential incentives of participation for non-domestic economic operators in a way that I also find very formalistic and potentially misguided.

Considering Connexxion Taxi ServicesManova and other precedents together, what seems clear is that contracting authorities can only reduce the scope of their discretion by self-imposed restrictions published in the tender documents. Thus, they would be better off by publishing bare bones tender documents and then exercising administrative discretion subject only to compliance with general principles of public procurement, as well as applicable domestic rules. However, this would fly on the face of Pizzo where the way the contracting authority justifies its decisions does not result immediately from the tender documents, which then gives contracting authorities the contrary incentive to reiterate all domestic rules in the tender documentation.

Other than contradictory, these sets of case law are also extremely formalistic and ultimately built on a non-functional obsession with the integration of the single market that can get on the way of the development of sound public procurement practice. Ultimately, the general principles of public procurement should be there to create sufficient checks and balances and, in their generality, they should rank higher than tender documents. Actually, it is not foreign to the ECJ case law to consider that tender requirements that are disproportionate or discriminatory cannot be included in the tender documentation (or need to be set aside, or ultimately determine the ineffectiveness of the procurement exercise). Thus, it would be desirable for that logical hierarchy to remain a constant, even if it means that cross-border participation in procurement processes does not come at zero transaction costs and that interested undertakings need to make themselves familiar with the domestic rules of the jurisdiction in which they are tendering.

Beyond that, it also seems to me that the ECJ is inadvertently creating an absolute need for an exclusion-related special procedural phase, where tenderers other than those affected by potential exclusion have a justiciable right to force the contracting authority to review the circumstances of other tenderers. This is not necessarily an overall undesirable development, but it can be problematic in many ways, not least because the EU substantive and procedural rules are not adapted to that function [see A Sanchez-Graells, “‘If It Ain't Broke, Don't Fix It'? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts”, in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming]. 

Last, but not least, it is also worth noting that, by answering in the way it has, the ECJ has avoided the need to provide clarification on the requirements of intensity of judicial review of public procurement decisions at Member State level, on which AG Campos Sánchez-Bordona had put together a rather stringent and not uncontroversial proposal (see here). Unfortunately, then, given the ECJ's unwillingness to answer that question, we will continue puzzledly looking at the gaping hole that Prof Caranta identified in the ECJ's jurisprudence concerning public procurement remedies [see R Caranta, 'Many Different Paths, but Are They All Leading to Effectiveness?', in S Treumer & F Lichère (eds), Enforcement of the EU Public Procurement Rules, vol 3 European Procurement Law Series (Copenhagen, DJØF Publishing, 2011) 53, 84].

 

AG delineates boundaries of administrative proportionality assessments and intensity of judicial review requirements under EU public procurement law (C-171/15)

In his Opinion of 30 June 2016 in Connexxion Taxi Services, C-171/15, EU:C:2016:506, Advocate General Campos Sánchez-Bordona has addressed two important issues concerning the judicial review of a decision not to exclude an economic operator that had potentially incurred in serious professional misconduct despite the tender documentation indicating that 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'.

The preliminary reference sent to the Court of Justice of the European Union (CJEU) mainly raises two issues: firstly, whether it was possible for the contracting authority to apply a proportionality assessment before proceeding to exclude the economic operator--or, in the circumstances of the case, in order to decide not to exclude. And, secondly, whether EU law precluded national courts from solely engaging in ‘marginal’ review as to whether the contracting authority could reasonably have come to the decision not to exclude a tenderer notwithstanding the fact that that it was guilty of grave professional misconduct, rather than carrying out an ‘unrestricted’ judicial review of the assessment conducted on the basis of the principle of proportionality. Both are interesting issues. Both were to be decided under the 2004 EU public procurement rules, but both are clearly relevant under the revised 2014 package.

Again on the interaction between general (administrative) law and tender documentation

The first issue fundamentally stems from the fact that applicable Dutch law and its interpretative guidance foresee that 'the assessment of whether a tenderer must actually be excluded, having regard to the general principles of Directive 2004/18, must always be proportional and be carried out in a non-discriminatory manner' (Opinion in C-171/15, para 10). In the Connexxion Taxi Services case, the contracting authority engaged in such proportionality assessment despite having published tender documentation that seemed to create an automatic obligation to exclude by stating that: 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'. As a result of the proportionality analysis, it decided not to exclude a tenderer competing with Connexxion , according to which 'the contracting authority [was] not in a position to make an assessment of proportionality having found that the tenderer [had] been guilty of grave professional misconduct. That assessment [had] already been carried out by inclusion of the misconduct as a ground for exclusion in the descriptive document. Given the wording of the latter, it would be contrary to the principles of public access, transparency and equality in matters of administrative procurement for the contracting authority to have the power to assess the proportionality of the ground for exclusion.' (para 30). 

Somehow, this raises a question that can be seen as the mirror image of the controversy underlying the recent Pizzo Judgment (C-27/15, EU:C:2016:404, see comments here). In Pizzo, the contracting authority sought to rely on generally applicable administrative law rules to exclude economic operators. The CJEU ruled against that possibility and created a middle-path whereby a contracting authority seeking to engage in that exclusion would need to provide the tenderer an opportunity to regularise its position and comply with that general obligation within a period of time set by the contracting authority. Conversely, in Connexxion Taxi Services, the CJEU is expected to rule on whether reliance on generally applicable administrative law rules can be used to deactivate specific exclusion choices established in the tender documentation. AG Campos submits that the Court should answer in the affirmative and that this is not contrary to Pizzo. I agree.

In his Opinion, AG Campos stresses that

51. The requirement included in paragraph 3.1 of the descriptive document (‘a tender to which a ground for exclusion applies must be set aside’), precisely because of its quasi-regulatory nature, must, in my view, be read in the light of the interpretative rules applicable to all subordinate legal rules, which cannot disregard the more general rules which govern them. If the [applicable rule] provides that exclusion on the ground of grave professional misconduct requires that the contracting authority examine each particular case ‘on the basis of the nature and size of the public contract, the type and scope of the misconduct and the measures taken in the meantime by the undertaking’, the fact that the descriptive document is silent as to that necessary and individual application of the principle of proportionality cannot result in that principle being disregarded.
52. That approach is confirmed from the perspective of EU law. The case-law of the Court on the optional grounds for exclusion, rejecting their automatic application, confirms the need for that consistent interpretation. It follows from the judgment in Forposta and ABC Direct Contact that automatic exclusion (of a tenderer guilty of grave misconduct) could go beyond the discretion conferred on Member States by Article 45(2) of Directive 2004/18 (Opinion in C-171/15, paras 51-52, references omitted and emphasis added).

In my view, it must be right that contracting authorities are always under a general obligation of acting in a proportionate manner and, consequently, each decision they adopt needs to be proportionate under the circumstances and pro-competitive, and ultimately 'a contracting authority must retain the power to assess, on a case-by-case basis, the gravity of the circumstances that would lead to exclusion of the tenderer. And it is submitted that it must also balance them against the effects that such exclusion would have on competition' [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 293, references omitted]. Thus, the final consideration of AG Campos seems entirely correct when he stresses that

In the invitation to tender at issue, the conditions and the selection procedure, the same for all applicants, were not modified. The contracting authority checked that their tenders satisfied the criteria applicable to the contract and applied no ground for exclusion which was not provided for in the descriptive document. The fact that, in order to assess one of those grounds for exclusion expressly included in that document it applied the criterion of proportionality, which was not expressly referred to in the descriptive document but is required by the general ... rules on public procurement (as well as by the case-law of the Court), is, in my view, consistent with the principle of equal treatment and its corollary, the obligation to act transparently (Opinion in C-171/15, para 58, references omitted and emphasis added).

The more difficult issue of the standard of (intensity) of judicial review

The second question fundamentally focuses on the fact that, given the contracting authority's engagement in a proportionality analysis, a mere 'marginal' review of the decision in order to ascertain whether the contracting authority could reasonably have come to the decision not to exclude a tenderer could fall short of meeting the requirements of the Remedies Directive.

After some interesting remarks on the gradual increase in the requirements of intensity of judicial review in areas of EU substantive law where there has been a harmonisation of remedies--which, consequently, reduce the scope of limitations derived from the general principle of procedural autonomy--AG Campos enounces what he considers should be covered by a mechanism of review compliant with the Remedies Directive. In his view,

the judicial review imposed by Directive 89/665 requires something more [than a mere 'marginal' review, or solely assessing whether or not the contested decision was arbitrary] to deserve that name. The assessment by the court cannot end with a mere assessment of the ‘reasonableness’ of the contested decisions, especially as those decisions must comply with detailed rules covering formal and substantive matters. A court hearing an application in this field will have to assess whether the disputed award observed the rules of the invitation to tender and whether the successful tenderer’s application can withstand the critical analysis which its competitors present in the action. That assessment will require, in many cases, verification of the decisive facts (which the administration may have determined incorrectly), as well as evidence concerning the relative merits of the various applications. It will also involve gauging whether the administrative action is duly reasoned and whether it is in line or at variance with the objectives which underlie it (in other words, whether there is evidence of misuse of powers) and the other legal provisions which govern it. Examination of all that evidence goes beyond, I repeat, a mere assessment of the ‘reasonableness’ of the contested measure and involves matters of fact and law of a more ‘technical’ and usually more complex nature, which every court having jurisdiction to review administrative acts usually carries out (Opinion in C-171/15, para 73, emphasis added). 

This leads him to suggest to the Court to declare that 

Articles 1 and 2 of Council Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts are not compatible with legislation, or the usual practice, of a Member State which limits the scope of the review procedures to a review merely of the reasonableness of the decisions of contracting authorities (Opinion in C-171/15, para 85, emphasis added).

On principle, this seems unobjectionable and, as AG Campos suggests, it would also be compatible with the CJEU decision in Croce Amica One Italia (C-440/13, EU:C:2014:2435, see comment here), where it effectively clarified that

Article 1(1) of Directive 89/665 requires the decision of the contracting authority withdrawing the invitation to tender for a public contract to be open to a review procedure, and to be capable of being annulled, where appropriate, on the ground that it has infringed EU law on public contracts or national rules transposing that law (para 34).

The question is whether (all) the specific details of the full review advanced by AG Campos in para 73 of his Opinion are necessary in order to allow the review body or court to assess compatibility of procurement decisions with EU law and domestic transposing measures. As I read his Opinion, he advocates for three main components: (1) a review of the decisive facts, (2) a review of the relative merits of the offers, (3) a review of the reasons given by the contracting authority for its choices and the soundness of those reasons (or, in his own words, to check that there has been no misuse of powers). In my view, elements (1) and (3) are relatively uncontroversial. However, element (2) is very likely to create difficulties if the review body or court is expected (or empowered) to second guess the technical evaluation of the tenderers and their tenders. I think that the risk of allowing review courts and bodies to substitute the contracting authority's discretion for their own would be going a step too far. Thus, while the minimum requirements of the review procedures mandated by the Remedies Directive clearly seem to indicate the need to go beyond a mere assessment of arbitrariness and engage in a full review of legality, it also seems clear to me that the review cannot go as far as to allow for a second-guessing of the contracting authority's discretion. 

This is clearly an area where drawing bright lines is complicated or, as AG Fennelly put it writing extra judicially,

There remains a somewhat imprecise formulation of the standard of substantive review. Respect, to the extent appropriate, is paid to the discretion of the awarding authority. Nonetheless, the cases show that the intensity of scrutiny is greater than in traditional cases, where judges have been very slow to substitute their own evaluation of the facts for that of the decision-maker. In tendering, it is natural, other things being equal, to expect the contract to be awarded to the lowest price. Even where the criterion adopted is the “most economically advantageous,” there will usually be an identifiable lowest price. It will normally be incumbent on the authority to claim that other things are not equal and to show why. Thus, the substantial justification for the decision shades into the adequacy of the reasons, even if sufficiency of reasons is usually treated as a separate ground of judicial review (emphasis added). 

It may well be that this discussion is more about the semantics than substance of how to describe the standard for judicial review. Be it as it may, however, it will be interesting to await for the final decision of the Court in the Connexxion Taxi Services case, which hopefully will bring some clarity on the specific requirements of intensity of judicial review that stem from the Remedies Directive.

Three recent cases on EU Institutions' procurement and one common theme: good administration and confidential information (T-498/11, T-91/12 & T-199/12)

Within the last week, the General Court has ruled on three disputes concerning public procurement activities of the European Commission to which the Financial Regulation was applicable. All cases involved the rejection of tenderers/tenders (at different stages of the procurement procedures) and challenges against the immediate rapport established between the Commission and the disappointed tenderers, which involved some sort of (discretionary) management of confidential information by the contracting authority. Remarkably, all cases have been decided in favour of the European Commission.

Reading them together, a common theme emerges from the Judgments in Evropaïki Dynamiki v Commission (OLAF), T-498/11, 
EU:T:2014:831Flying Holding and Others v Commission, T-91/12, EU:T:2014:832; and Euro-Link Consultants and European Profiles v Commission, T-199/12, EU:T:2014:848. Functionally, all these Judgments are concerned with the duty of good administration, some of its more specific requirements (such as the duty to provide reasons, or the duty to protect confidential information), and its boundaries--which is a topic of increasing relevance in EU public law and, particularly, in EU public procurement law [see J Mendes, ‘Good Administration in EU Law and the European Code of Good Administrative Behaviour’, EUI Working Paper Law 2009/09, and some related comments here].
 
In my view, these three Judgments clearly indicate that despite the increasing complexity and detail of the public procurement rules, most decisions end up being assessed on the basis of the reasonableness, objectivity and proportionality of the decisions taken by contracting authorities as implicit requirements of the principle of good administration. The following is a closer discussion on why I think this is so.
 
(1) Evropaïki Dynamiki v Commission (OLAF) is concerned with the rejection of an offer submitted for the services contract concerning the revamping of the website of the European Anti-Fraud Office (OLAF). More specifically, Evropaïki Dynamiki challenges the withholding of information regarding the technical aspects of the winning offer, which the Commission justified on the basis that it 'might affect the successful tenderer’s legitimate business interests ..., or might distort fair competition between the undertakings concerned' (which follows what is established in art 100(2) Financial Regulation, as discussed here, here and here). In the applicant's view, this amounts to a violation of the duty to state reasons and, ultimately, of the principle of good administration.
 
The GC engages in a detailed assessment of the duty to state reasons and the balance with the protection of the confidential information and business interest of other tenderers (and, particularly, the awardee of the contract) (paras 28-50). In my view, the argument is ultimately concerned with compliance with these two conflicting requirements of the more general duty of good administration. It is worth highlighting that the GC clarifies that
in order to fulfil its obligation to state reasons, the [contracting authority] was required to communicate to the applicant the reasons for the rejection of its tender, the characteristics and relative merits of the successful tender, and the name of the successful tenderer (order of 29 November 2011 in Case C-235/11 P Evropaïki Dynamiki v Commission, not published in the ECR, paragraph 46). By contrast, it does not follow from those provisions or from the judgment of 10 September 2008 in Case T-59/05 Evropaïki Dynamiki v Commission, not published in the ECR [...] that the [contracting authority] was required to provide the applicant with a complete copy of the evaluation report (see, to that effect, order of 20 September 2011 in Case C-561/10 P Evropaïki Dynamiki v Commission, not published in the ECR, paragraph 25) (T-498/11 at para 43).
It is also important to stress that the GC finds no shortcoming based on the principle of good administration in the use of relatively generic justifications for the withholding of information:
It is thus apparent that the [contracting authority] fulfilled its obligation to state reasons [...] regardless of the fact that the wording of those letters was stereotypical in nature as regards the reasons for the removal of some information (see, to that effect, judgment of 24 April 2012 in Case T‑554/08 Evropaïki Dynamiki v Commission, not published in the ECR, paragraph 141). Such wording is permissible in light of the fact that it may be impossible to state the reasons precisely justifying the confidentiality of each of the pieces of information concerned without disclosing them and therefore negating the effectiveness of the second subparagraph of Article 100(2) of the Financial Regulation (T-498/11 at para 45, emphasis added).
In my view, this Judgment is important in that it should reinforce the message that the principle of good administration requires a careful balance of the duty to state reasons against the duty to protect propietary and confidential business information, which should allow contracting authorities to give more importance to the second element and be less afraid of litigation on the basis of alleged shortcomings in the duty to state reasons. Generally, it may contribute to a better balance between transparency and competition in the public procurement setting, which should be welcome [for discussion, see A Sánchez Graells, Albert, 'The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives' (2013) University of Leicester School of Law Research Paper No. 13-11].
 
(2) Flying Holding and Others v Commission (not available in English) concerned the hire of aerotaxis for the President and other members of the EU Institutions and was organised as a two-stage restricted procedure. In this case, Flying Holding and its subsidiaries were not invited to the second phase of the tender due to the incompleteness of the documentation supporting their expression of interest and, in particular, certain security audits.

The dispute revolves around the (lack of) clarity of the documentary requirements included in the call for expressions of interest, as well as the Commission's unwillingness to accept the belated submission of those documents by Flying Holding due to a previous false declaration that they did not exist. The arguments of the challenger fundamentally rely on alleged breaches of the principles of proportionality, right to defence, and good administration. Interestingly, the GC has upheld the initiative taken by the Commission to directly contact the relevant aviation authorities to enquire about the safety of the operations of Flying Holding and its subsidiaries in the absence of documentation in the expression of interest. Furthermore, the GC has considered that even if the way in which such contact was carried out may have amounted to a violation of the right of defence, that would not have altered the outcome of the procedure due to the automatic application of the exclusion grounds based on falsity of (self)declarations in the public procurement setting (under art 94 Financial Regulation).
 
The reasoning of the GC is riddled with very technical points (see paras 41-50) but, in my opinion, the ultimate functional reading is that contracting authorities that proactively seek to clarify the (in)existence of a ground for exclusion/qualitative selection of tenderers are adequately discharging their duties under the principle of good administration, even if they contact third parties or authorities [for discussion of the new rules under Directive 2014/24, see A Sánchez Graells, 'Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive 2014/24', in F Lichere, R Caranta and S Treumer (ed) Novelties in the 2014 Directive on Public Procurement, vol. 6 European Procurement Law Series, (Copenhagen, Djøf Publishing, 2014)]. The requirements of the right of defence in that case are limited to communicating the result of such enquiries to the candidate or tenderer concerned, as well as providing it with an opportunity to comment.
 
It is also interesting to stress the reasoning the GC undertakes in relation to false or inexact (self)declarations and their relationship with the right to defend against the imposition of administrative sanctions (paras 51-79), which in my view are bound to trigger significant litigation in non-institutional (or general) procurement once Directive 2014/24 gets transposed (and, particularly, its rules on the European Single Procurement Document of art 59). The GC sees no breach of the principle of proportionality in the application of very strict standards in the interpretation and enforcement of exclusion grounds (paras 81-91). On that point, some more space may be created in the treatment of non-fully compliant tenderers, in the same way as for abnormally low and non-fully compliant bids [for discussion, see A Sánchez Graells, (2013), 'Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions' in M Comba & S Treumer (eds), Award of Contracts in EU Procurements, vol. 5 European Procurement Law Series, Copenhagen, DJØF, 2013, 267-302].
 
(3) Euro-Link Consultants and European Profiles v Commission concerned the provision of services related to the 'Crimean tourism diversification and support project', for which the challenging consortium's offer was not selected. Legally, this case is peculiar because the application of the Financial Regulation derives from the Practical Guide to Contract Procedures for EU external actions, in its 2010 version, updated in March 2011 (‘the PRAG’). Generally, the case is interesting because it focusses on the irregular situation where the disappointed tenderer seemed to have gained access to confidential information while the tender procedure was still under way, which triggered the involvement of the European Anti-Fraud Office (OLAF) [however, I could not find public information on that strand of the case].
 
As procurement is concerned, in the case at hand, Euro-link had access to a version of the CV of the team leader proposed by a competing tenderer and used it to challenge the technical assessment of her experience. Avoiding issues of confidentiality of that document, the GC considered that, even if the two versions of the CV (the one submitted by the competing consortium and the one used by Euro-link in its challenge) were different, this was not relevant. In its words,
As regards the alleged infringement of the principle of equal treatment, it must be noted that, according to settled case-law, that principle requires that comparable situations not be treated differently and different situations not be treated alike unless such treatment is objectively justified (see judgment of 10 October 2013 in Manova, C‑336/12, ECR, EU:C:2013:647, paragraph 30 and the case-law cited). In the present case, it must be noted that the different treatment of the version of Ms T.’s CV submitted to the Evaluation Committee by the consortium led by GDSI and that submitted by the applicants is justified by the different situations in which those two documents were submitted. The first, submitted in the context of the evaluation procedure, was intended to be examined by the contracting authority, whereas the second, submitted after the contract had been awarded, did not constitute, subject to the examinations carried out by the Commission, evidence capable of calling into question the probative value of the first (T-199/12 para 78).
This reasoning based on the principle of equal treatment seems odd and it is submitted that an alternative assessment based on the principle of good administration may have led to the same conclusion. Where the Commission has carried out a proper evaluation procedure and is satisfied that all requirements are met by a given tenderer, there is no breach of its duty of good administration if it does not reassess that position on the basis of (confidential) documentation submitted by a tenderer that does not provide substantial new facts.
 
As a tentative working conclusion, I think that this group of cases highlight the increasing trend of litigation of procurement decisions based on general principles of EU administrative and public law. Moreover, it makes it clear that contracting authorities will not be blamed for balancing the duty to state the reasons for their decisions with competing needs, even if they: 1) ensure a high level of protection of confidential information, particularly where third party (business) interests are at stake; 2) take proactive steps in the verification of the information provided by candidates (hence, lifting partially the confidentiality of the procedure or seeking access to third party confirmation, provided defence rights are upheld); or 3) disregard competing claims based on confidential information if they have carried out their own verification procedures (at evaluation stage).
 
Generally, I think that this group of cases should show that contracting authorities that exercise discretion in the management of confidential information are much less open to (viable) legal challenge than could have been though. And this should reduce the existing pressure towards excessive transparency in the public procurement setting, which can ultimately result in a healthier competitive environment. Consequently, this line of legal development must be welcome.

CJEU rubber stamps Italian minimum tariffs for certification in public procurement, subject to proportionality (C-327/12)


In its Judgment of 12 December 2013 in case C-327/12 Soa Nazionale Costruttori, the Court of Justice of the EU has followed rather closely AG Cruz Villalon's Opinion (commented here) and declared that a scheme of compulsory minimum tariffs for certification services supplied to undertakings seeking to participate in procedures for the award of public contracts is not per se contrary to EU competition and free movement rules, always provided that it is not disproportionate (which determination it referred back to the domestic courts).
 
One of the remarkable features of the Judgment is the level of detail in which the CJEU has summarised its State action doctrine. In this useful reminder, the CJEU has stressed that
37 [...] although it is true that Articles 101 TFEU and 102 TFEU are concerned solely with the conduct of undertakings and not with laws or regulations emanating from Member States, those articles, read in conjunction with Article 4(3) TEU, which lays down a duty of cooperation between the European Union and the Member States, none the less require the latter not to introduce or maintain in force measures, even of a legislative or regulatory nature, which may render ineffective the competition rules applicable to undertakings (see Joined Cases C‑94/04 and C‑202/94 Cipolla and Others [2006] ECR I‑11421, paragraph 46, and Case C‑393/08 Sbarigia [2010] ECR I‑6337, paragraph 31).

38 Articles 101 TFEU or 102 TFEU, read in conjunction with Article 4(3) TEU, are infringed where a Member State requires or encourages the adoption of agreements, decisions or concerted practices contrary to Article 101 TFEU or reinforces their effects, or where it divests its own rules of the character of legislation by delegating to private economic operators responsibility for taking decisions affecting the economic sphere, or requires or encourages abuses of a dominant position (see, to that effect, Cipolla and Others, paragraph 47)
[C-327/12 at paras 37-38, emphasis added].
Further than this, and after dismissing the applicability of the State action doctrine on the basis of a lack of evidence of the existence of such effects--which is at least questionable where we are in presence of a de facto agreement on minimum prices between certification entities--the CJEU rejects the application of Art 106 TFEU on the basis that the authorisation given by the Italian State to the certification entities is not an exclusive or special right because there is no numerus clausus of authorisations. On this point, the CJEU must be praised for sticking to its stated case law in Ambulanz Glockner and not accepting the rather counterintuitive remarks made by the AG in his Opinion (criticised here).
 
Finally, and looking at the compatibility with freedom of establishment rules (art 49 TFEU), in the Soa Nazionale Construttori Judgment, the CJEU has followed very closely the Opinion of the Advocate General and accepted some premises for the existence of mandatory public procurement certification schemes subject to (non-disproportionate) minimum tariffs that I find objectionable. In particular, I think that the CJEU should have avoided declaring such a system adequate to protect a public interest in the following terms:
59 A restriction on the freedom of establishment may be justified where it serves overriding requirements relating to the public interest, is suitable for securing the attainment of the objective which it pursues and does not go beyond what is necessary in order to attain it (see DKV Belgium, paragraph 38).
60 Unionsoa and the Italian Government consider that the national legislation at issue in the main proceedings seeks to ensure the independence of SOAs and the quality of the certification services which they supply. Competition between SOAs at the level of tariffs negotiated with their customers and the possibility of fixing those tariffs at a very low level would risk compromising their independence with respect to those customers and having a negative impact on the quality of the certification services.
61 In that regard, it must be observed that the public interest in the protection of recipients of services can justify a restriction on the freedom of establishment (see Case C‑451/03 Servizi Ausiliari Dottori Commercialisti [2006] ECR I‑2941, paragraph 38).
62 In this case, first, SOAs are entrusted with certification of undertakings, receipt of an appropriate certificate being a necessary condition in order for the undertakings concerned to participate in public works contracts. In that context, the Italian legislation seeks to ensure the lack of any commercial or financial interest such as to result in unimpartial or discriminatory behaviour on the part of SOAs with regard to those undertakings.
63 Secondly, as is apparent from the order for reference, SOAs may only carry out certification activities. Moreover, they are required, in accordance with national legislation, to have resources and procedures suitable for ensuring that their services are carried out effectively and in good faith.
64 It is with a view to protecting the recipients of the services that the independence of SOAs vis-à-vis the specific interests of their customers is particularly important. A certain restriction of the possibility to negotiate the prices of services with those customers is likely to strengthen their independence.
65 In those circumstances, it must be held, as the Advocate General essentially stated in point 58 of his Opinion, that the setting of minimum tariffs for the supply of such services is intended, in principle, to ensure the quality of those services and it is suitable for attaining the objective of protecting the recipients of those services [C-327/12 at paras 59-65, emphasis added].
In my view, the CJEU's position is exceedingly lenient. Particularly if one takes into consideration that the ultimate "beneficiaries" of the certification services (i.e.the Italian contracting authorities) cannot impose the provision of those certificates to all entities willing to participate in their tenders for public contracts. Under Art 52(5) of Directive 2004/18 (the same provision that allows for the creation of certification entities such as the Italian SOAs) it is clearly stated that 'economic operators from other Member States may not be obliged to undergo such registration or certification in order to participate in a public contract. The contracting authorities shall recognise equivalent certificates from bodies established in other Member States. They shall also accept other equivalent means of proof' (emphasis added). So, even if only in relation to non-national undertakings, it is clear that contracting authorities need to retain independent capacity to assess alternative methods of proof of suitability of tenderers. Moreover, under Art 52(4), contracting authorities can challenge the certifications (or the information derived therefrom) as long as they have a sufficient reason to distrust it. Therefore, their reliance on the certificates (of domestic) tenderers is not intended to be acritical or necessarily automatic if there are reasons that justify a request for further information.
 
Consequently, the creation of systems of mandatory certification seem to protect a weak public interest inasmuch as they are simply a mechanism of administrative simplification (or red tape reduction). If this is borne in mind, the reasoning based on the independence of the certifying entities and the need to set minimum prices in order to preserve it so that contracting authorities' interests are sufficiently protected seems to fade away rather quickly.
 
Moreover, the CJEU's lukewarm approach to the proportionality of the Italian minimum certification tariffs (which is limited to indicate that 'It is for the referring court to determine whether, in the light of, inter alia, the method of calculating the minimum tariffs, particularly in the light of the number of categories of work for which the certificate is drawn up, that national legislation goes beyond what is necessary to attain that objective', para 69) does not establish a sufficiently clear indication of the lack of proportionality of a system that, effectively, forces (!) certification entities to charge larger sums for exactly the same amount of work depending on the number of contracts the certified undertaking wants to tender for. In this regard, the Opinon of Advocate General Cruz Villalon is much more detailed and convincing.
 
All in all, in my view, this is a formally correct and substantially very deficient Judgment of the CJEU, and one that keeps a very formal approach to restrictions on free movement (as the CJEU has only looked at restrictions on the freedom of establishment, forgetting completely about the implications of the system on the free movement of goods and free provision of services subjected to the EU public procurement rules). A more holistic and funcional approach would have been preferable.

A jigsaw of qualifications or a procurement puzzle?: CJEU launches a depth charge against certification systems (C-94/12)

In its Judgment of 10 October 2013 in case C-94/12 Swm Costruzioni 2 and Mannocchi Luigino, the Court of Justice of the EU has followed the Opinion of AG Jääskinen (which I praised and supported here) and expanded its antiformalistic case law on the interpretation of the rules controlling participation and selection requirements in public procurement covered by the EU Directives. In my view, this Judgment is a (well-aimed?) depth charge against certification systems based on Article 52 of Directive 2004/18.
 
More specifically, the CJEU was presented with a request for a preliminary reference concerning the compatibility with EU law of an Italian provision applicable to all works contracts with a value in excess of 150,000 Euro, whereby undertakings that needed to 'team up' and rely on the abilities of other undertakings in order to tender for public works contracts could only do so on a one-to-one basis (ie main contractors were not allowed to build up a 'jigsaw' of qualifications provided by several subcontractors, but had to rely exclusively on the abilities of one subcontractor that was able to deliver the whole of the performance for that given category of works concerned).
 
Under the controversial Italian rule, "For works contracts, the tenderer may rely on the capacities of only one auxiliary undertaking for each qualification category. The invitation to tender may permit reliance on the capacity of more than one auxiliary undertaking having regard to the value of the contract or the special nature of the services to be provided" (emphasis added).
 
The CJEU rephrased the question referred by the Italian court and understood that, in essence, it had to rule wheter Articles 47(2) and 48(3) of Directive 2004/18 must be interpreted as precluding a national provision which prohibits, as a general rule, economic operators participating in a tendering procedure for a public works contract from relying on the capacities of more than one undertaking for the same qualification/certification category.
 
Interestingly, the CJEU spells out that its analysis is based on the final goal of maximising competition (in particular, by means of facilitating SME participation) and finds that:
33 […] it must be held that Directive 2004/18 permits the combining of the capacities of more than one economic operator for the purpose of satisfying the minimum capacity requirements set by the contracting authority, provided that the candidate or tenderer relying on the capacities of one or more other entities proves to that authority that it will actually have at its disposal the resources of those entities necessary for the execution of the contract.
34 Such an interpretation is consistent with the objective pursued by the directives in this area of attaining the widest possible opening-up of public contracts to competition to the benefit not only of economic operators but also contracting authorities (see, to that effect, Case C‑305/08 CoNISMa [2009] ECR I‑12129, paragraph 37 and the case-law cited). In addition, as the Advocate General noted at points 33 and 37 of his Opinion, that interpretation also facilitates the involvement of small- and medium-sized undertakings in the contracts procurement market, an aim also pursued by Directive 2004/18, as stated in recital 32 thereof.
35 It is true that there may be works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator, which, individually, would be inadequate. In such circumstances, the contracting authority would be justified in requiring that the minimum capacity level concerned be achieved by a single economic operator or, where appropriate, by relying on a limited number of economic operators, in accordance with the second subparagraph of Article 44(2) of Directive 2004/18, as long as that requirement is related and proportionate to the subject-matter of the contract at issue.
36 However, since those circumstances constitute an exception, Directive 2004/18 precludes that requirement being made a general rule under national law, which is the effect of a provision such as
[the controversial Italian provision] (C-94/12, paras 33-36, emphasis added).
 
In my view, the Swm Costruzioni Judgment should be welcome as it concerns the anti-formalistic and possibilistic interpretation of the rules on selection of contractors in Directive 2004/18--which are about to be modernised in the new procurement directive, also as 'teaming up' provisions are concerned (see my recent paper: "Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive").
 
Moreover, it is worth noting that the Judgment does (inadvertently? and) implicitly throw a depth charge against national certification systems. Taking the logic behind the Swm Costruzioni Judgment to its logical extremes, those certification systems should only be in place to cover those contracts where objective circumstances justify the need for the contracting authority to make sure that a single undertaking carry out a specific contract.
 
Certification systems, then, should only cover "works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator" as, otherwise, the whole certification system is completely superficial if the contracting authority must (as indeed it shall) accept any 'jigsaw' of (partial) certifications presented by a group of undertakings (or by an uncapable main contractor that enters into subcontract agreements) in order to prove that they have sufficient (aggregate) economic, technical and financial standing [something I advocated for in Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 266-268].
 
Therefore, in my view, the Swm Costruzioni Judgment is actually raising a red flag and stressing that such requirements to be certified or included in the list of pre-approved contractors will ultimately only be compliant with EU law if the specific characteristics of the works to be tendered do justify the need for a single (or very limited number) of undertakings to carry out the project.
 

Now, this will be puzzling in many jurisdictions that strongly rely on certification systems and pre-approved lists of contractors fro all types (and almost all values) of works contracts, but the (implicit) message seems clear. Therefore, procurement authorities may be better off dismantling those existing systems altogether and bracing themselves (ie getting training and staffing themselves properly) for the revolution that the European Single Procurement Document (ESPD, effectively a set of self-declarations) is about to bring upon.

#CJEU pushes for EU single fiscal territory in ban of Spanish 'cross-border' tax on unrealised capital gains (C-64/11 Commission v Spain)

In its Judgment of 25 April 2013 in case C-64/11 Commission v Spain (press release), the Court of Justice of the EU has pushed for the further consolidation of the EU single fiscal territory by preventing any discriminatory tax treatment between companies that transfer their place of residence inside a Member State (domestic transfer) and those that transfer it to another EU Member State (EU transfer).

In the case at hand, Spanish corporate taxation law makes unrealised capital gains form part of the basis of assessment for the tax year, where the place of residence or the assets of a company established in Spain are transferred to another Member State. This rule has been challenged by the Commission as a restriction of freedom of establishment in that it puts the companies which have exercised that freedom at a cash-flow disadvantage.


The CJEU has indeed found that the immediate taxation of unrealised capital gains on the transfer of the place of residence or of the assets of a company established in Spain to another Member State amounts to a restriction on the freedom of establishment since, in such cases, a company is penalised financially as compared with a similar company which carries out such transfers in Spanish territory--in respect of which capital gains generated as a result of such transactions do not form part of the basis of assessment for corporate taxation until the transactions are actually carried out.


The CJEU has struck down such restriction as disproportionate in considering that Spain could preserve its powers in taxation matters by means of measures which are less harmful to the freedom of establishment. The CJEU considers it possible, for example, to request payment of the tax debt following the transfer, at the point at which the capital gains would have been taxed if the company had not made that transfer outside of Spanish territory. Moreover, the mechanisms of mutual assistance which exist between the authorities of the Member States are sufficient to enable the Member State of origin to assess the veracity of declarations made by companies which opt to defer payment of the tax. Thus, the Court clearly finds that the right to the freedom of establishment does not preclude capital gains generated in a territory from being taxed, even if they have not yet been realised, but it does preclude a requirement that that tax be paid immediately.



In this Judgment, the CJEU is clearly pushing for a suppression of tax borders within the EU and for an effective treatment of corporate changes of residence within the single market as domestic transfers. The CJEU strongly relies on the effectiveness of the current mechanisms of administrative cooperation in the field of taxation (as sufficient to enable Member States to exercise effective monitoring of transferred companies). These cooperation mechanisms (timidly created in 1977 by Council Directive 77/799/EEC) were revamped in 2011 by means of Council Directive 2011/16/EU and its Implementing Regulation 1156/2012

Directive 2011/16 had to be transposed into national laws by 1 January 2013 but, as of today, several Member States have not yet communicated any implementing measures to the Commission--including Belgium, Czech Republic, Germany, Greece, Italy, Hungary, Poland and Portugal. This means that Member States need to get up to speed and effectively implement measures of administrative cooperation in tax matters if they want to keep (or improve) the effectiveness of their tax systems in the (growing) EU single fiscal territory.

As indicated in Directive 2011/16, Member States need to use their  'power to efficiently cooperate at international level to overcome the negative effects of an ever-increasing globalisation on the internal market'. Surely, developments and best practices generated in this inter-institutional cooperation setting will be relevant in the (likely?) future creation of a single EU tax authority.

Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions

In this new paper, I attempt a concise comparison of the rules applicable to the rejection of abnormally low and non-compliant tenders in a number of EU jurisdictions (namely, Denmark, France, Germany, Italy, Poland, Romania, Spain and the United Kingdom). 

In order to set the common ground for the analysis of such domestic rules, which are solely applicable to non-negotiated procedures, the paper first offers a description of the rules in the EU public procurement Directives and the case law of the European Courts (ie GC and CJEU), and then proceeds to compare them against this benchmark and amongst themselves. Where possible, the paper highlights innovative or different solutions, as well as potential deviations from EU law.

  • Sánchez Graells, Albert, Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions (April 11, 2013). European Procurement Law Series, Vol 6 (forth). http://ssrn.com/abstract=224859

GC on non-disclosure of ECB documents: Carte blanche to public market manipulation? (T-590/10)

Today's Judgment of the General Court of the EU in case T-590/10 Gabi Thesing and Bloomberg Finance LP v ECB has provided clarification on the reasons that the ECB (and, by analogy, other EU Institutions) can provide to reject a request of access to its documents. The GC has backed the ECB in its non-disclosure decision on the basis of the protection of public interest and has adopted a broad view of such an exception. 

In general terms, the position of the ECB and the GC seem appropriate to grant  sufficient administrative discretion to the EU Institutions in their assessment of the public interest at stake. However, the specifics of the GC Judgment are a bit troubling, if one takes the position of the GC to its logical extreme. In my view, the following bears emphasizing:
43 [...] the ECB must be recognised as enjoying a wide discretion for the purpose of determining whether the disclosure of documents relating to the fields covered by that exception could undermine the public interest. The European Union judicature’s review of the legality of such a decision must therefore be limited to verifying whether the procedural rules and the duty to state reasons have been complied with, whether the facts have been accurately stated, and whether there has been a manifest error of assessment or a misuse of powers (see, by analogy, Case C‑266/05 P Sison v Council [2007] ECR I‑1233, paragraph 34). [...]
45 [...] with respect to the applicants’ arguments that the ECB incorrectly failed to take account of the public interest considerations in favour of disclosure and that there is a compelling public interest for disclosure of the documents at issue which would in fact further the public interest, the Court notes that the exceptions to the right of access to documents provided for in Article 4(1)(a) of Decision 2004/258 are framed in mandatory terms. It follows that the ECB is obliged to refuse access to documents falling under any one of those exceptions once the relevant circumstances are shown to exist, and no weighing up of an ‘overriding public interest’ is provided for in that provision, in contrast with the exceptions referred to in Article 4(2) and (3) of that decision (see, by analogy, Joined Cases T‑3/00 and T‑337/04 Pitsiorlas v Council and ECB [2007] ECR II‑4779, paragraph 227 and the case-law cited). [...]
51 As regards the issue whether disclosure of the first document would specifically and effectively undermine the protected interest in question, it is common ground [...] that, at the time of the adoption of the contested decision, the European financial markets were in a very vulnerable environment. The stability of those markets was fragile, in particular, because of the economic and financial situation of the Hellenic Republic. It is also common ground that that situation and the related sales of Greek financial assets were causing strong depreciations in the value of those assets, which also triggered losses for Greek and other European holders. The applicants did not dispute that that development had the potential of leading to negative spillover effects on the solvency and funding conditions of other issuers and countries in the euro area. In such an environment, it is clear that market participants use the information disclosed by central banks and that their analyses and decisions are considered a particularly important and reliable source to assess current and prospective financial market developments. Moreover, the ECB was entitled to find that public confidence is an essential element affecting the proper functioning of the financial markets. The ECB was not indeed contradicted in this respect by the applicants. [...]
56 [...] the fact that, on 21 October 2010, the data contained in the first document were outdated and that they gave only a snapshot of the factual situation at the time that the document was drafted does not permit the conclusion that, in the event of disclosure of that document, financial market participants would also have regarded as outdated and therefore of no value ECB staff assumptions and views regarding the impact of off-market swaps on government deficit and on government debt which are contained in that document.
57 Although it is true that those participants are professionals who can be expected to use information taken from documents in the context of their work, the fact remains that they consider assumptions and views originating from the ECB to be particularly important and reliable for assessing the financial market. It cannot reasonably be precluded that, even if those assumptions and views were made on the basis of data available well before 21 October 2010, they would have been regarded as still valid on that date. Moreover, it can be assumed that, by relying on those assumptions and views that were based on a certain known factual situation, those professionals might have inferred, on the basis of additional data, assumptions and views allegedly held by the ECB regarding the government deficit and government debt at the time that the ECB definitively refused access to that document. In this respect, any clarification by the ECB on the disclosed version of that document, indicating that the information contained therein was no longer up to date, would not have been able to prevent disclosure of that document from misleading the public and financial market participants in particular on the situation regarding the government deficit and government debt as assessed by the ECB.
58 In the light of the very vulnerable environment in which the financial markets found themselves at the time of adoption of the contested decision, the assessment that such an error would undermine the economic policy of the Union and the Hellenic Republic cannot be rejected as manifestly incorrect. Indeed, such an error might have had negative consequences on access, in particular for that Member State, to the financial markets and might therefore have affected the effective conduct of economic policy in the Hellenic Republic and the Union. (T-590/10, paras 43 to 58, emphasis added).
In my view, to put it clearly, the reasoning of the GC diminishes the analytical capacity of the financial sector and disregards the ability of professional financial advisors and analysts to separate the chaff from the grain and boldly assumes that panic and shortsightedness would have dominated the analysis of the documents which disclosure was requested (a rather strong assumption, at any rate). Moreover, in its analysis of the cumulative impact that disclosure may have had, the GC basically opposes all basic tenets that financial markets can only work effectively on the basis of full disclosure of any potentially relevant information [an assumption that, on the other hand, is strongly defended under EU rules on market abuse]. 

All in all, in an (acknowledged) extreme reading of the GC's Thesing Judgment, the ECB (and other EU Institutions) may have been given carte blanche to manipulate financial markets (by withholding information) if they deem such manipulation in the public interest. That can surely not be acceptable under EU Law. Therefore, a correction of the Thesing broad reasoning seems desirable, in order to keep any degree of effectiveness in the provisions of article 15 TFEU -- and so that everything is not effectively lost in the field of EU governance.