Confidentiality under Reg. 21 Public Contracts Regulations 2015

As Pedro analysed yesterday (with a rebuttal based on this entry, which I mention below*), reg.21(1) of the Public Contracts Regulations 2015 (PCR2015) establishes confidentiality duties on the contracting authorities, so that they shall not disclose information forwarded by an economic operator and designated by that economic operator as confidential, including, but not limited to, technical or trade secrets and the confidential aspects of tenders. 

Reg.21(2) sets some restrictions in order to allow for certain minimal publicity and transparency to take place, as well as to coordinate these provisions with rules on freedom of information and access to public documents; and, finally, reg.21(3) allows contracting authorities to impose confidentiality duties on candidates and tenderers aimed at protecting the confidential nature of information which the contracting authorities make available throughout the procurement procedure. This is a very close transposition (with some good reordering) of the rules in Art 21 of Directive 2014/24.

Generally, this is a set of rules aimed at striking a balance between transparency (a general principle of procurement, see reg.18 PCR2015) and the protection of sensitive commercial or official information, and needs to be complemented with the further rules in reg.55(3) PCR2015 on debriefing of disappointed tenderers (to be commented in due course). 

This is an area where the case law of the CJEU has stressed the relevance of protection of confidential information and provided some general guidance on how to balance competing needs; see Varec, C-450/06, EU:C:2008:91 and K von Papp, Case C-450/06, 'Varec SA v. Belgian State, judgment of the Court (Third Chamber) of 14 February 2008, [2008] ECR I-58' (2009) 46 Common Market Law Review 991–1000].
In my view, the most significant difficulties that such a balance entails concern the impact of transparency on competition in public procurement markets. As clearly put by the OECD:The formal rules governing public procurement can make communication among rivals easier, promoting collusion among bidders. While collusion can emerge in both procurement and “ordinary” markets, procurement regulations may facilitate collusive arrangements’ [OECD, Public Procurement: Role of Competition Authorities (2007) 7].

The risk for a strategic use of access to confidential information (through debriefing processes, or otherwise) seems at least twofold. On the one hand, tenderers could try to gain access to confidential information which could be used later to compete unfairly with the affected tenderers. On the other hand, excessive disclosure of information can increase market transparency and be used as a means to collude or to reinforce collusion by tenderers [generally, see RC Marshall and LM Marx, The Economics of Collusion. Cartels and Bidding Rings (London, MIT Press, 2012); and SE Weishaar, Cartels, Competition and Public Procurement. Law and Economics Approaches to Bid Rigging (Cheltenham, Edgar Elgar, 2013); see also A Heimler, ‘Cartels in public procurement’ (2012) 8(4) Journal of Competition Law & Economics 849–62].

Indeed, the fact that public procurement rules increase the likelihood of collusion among bidders has been convincingly proven in economic literature, and has also been stressed for a long time by legal doctrine. It is out of question that, under most common market conditions, procurement regulations significantly increase the transparency of the market and facilitate collusion among bidders through repeated interaction [see WE Kovacic et al, ‘Bidding Rings and the Design of Anti-Collusive Measures for Auctions and Procurements’ in N Dimitri et al (eds), Handbook of Procurement (Cambridge, CUP, 2006) 381, 402; and C Estevan de Quesada, ‘Competition and transparency in public procurement markets’ (2014) 23 Public Procurement Law Review 229].

Therefore, rules on disclosure of information and their implementation by contracting authorities should take into account their potentially restrictive or distortive effects on competition [for discussion, see A Sanchez Graells, 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 (University of Leicester School of Law Research Paper No. 13-11, 2013) and here]. 

Indeed, in the exercise of the discretion that contracting authorities retain in relation to confidentiality, and as a mandate of the principle of competition [reg.18(1) PCR2015], contracting authorities are bound to restrict the disclosure of information given to tenderers to prevent instances of subsequent unfair competition or collusion—and, in order to do that properly, must identify and properly justify the negative effects which the withholding of the information seeks to avoid [see VIP Car Solutions, T-89/07, EU:T:2009:163]. Hence, I would like to see a refined and intense use of reg.21 PCR2015 in the future.

(*) [Postscript] In his rebuttal, Pedro offers some interesting diverging thoughts and some of the links he builds between openness/liquidity of markets and transparency are worth thinking about. Of course, each market setting would require fine-tuned, granular transparency solutions. I struggle to see how in most market situations of more transparency to cure the diseases of transparency could work, but this is definitely an issue where a controlled experiment would be needed, as he rightly pointed out in twitter.

However, I fundamentally disagree with his claim that "Avoiding collusion is not an end in itself and a wider view of other competition-impacting aspects needs to be taken into equation", or at least with the first part. Avoiding collusion must be an end in itself, regardless of other competition impacts. Not least, because it is hard to see how the adequate reduction of transparency (ie not of contract opportunities, which I never challenged, but of contract results or procurement outputs) could generate a negative impact on competition. 

Avoiding collusion is, in my view, an end in itself and an important one. It must not be achieved at any cost, true. However, the fact that most competition authorities are prioritising enforcement of anti-cartel provisions in procurement markets is a strong indicator of the pervasiveness of bid rigging and the (not only economic) relevance of getting rid of it, or minimising it. In any case, this is an area where Pedro and I share a research interest, so I would expect further developments in the coming months.