Bid rigging, self-cleaning, leniency and claims for damages: A beautiful procurement mess? (C-124/17)

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In his Opinion of 16 May 2018 in Vossloh Laeis, C-124/17, EU:C:2018:316 (not available in English), Advocate General Campos Sánchez-Bordona has offered an interesting view on the interpretation of the grounds for discretionary exclusion of economic operators engaged in bid rigging. In particular, his proposed interpretation concerns the limitations of the contracting authority's ability to demand full and unrestricted cooperation from undertakings seeking to reassure them that they have self-cleaned after participating in collusive practices in public markets. This Opinion and the forthcoming CJEU Judgment in Vossloh Laeis will be relevant for the interpretation of Article 57 of Directive 2014/24/EU, as well as Article 80 of Directive 2014/25/EU, on which the case rests. In my view, the Vossloh Laeis Opinion raises difficult questions about the coordination of enforcement of mechanisms to prevent bid rigging in the fields of public procurement and competition law. It also creates some functional tensions with recent cases such as Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469; and Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000. Thus, it deserves some close analysis.

Vossloh Laeis - Background

This case concerns the aftermath of an investigation into bid rigging practices by the German competition authority (Bundeskartellamt), which established that '[d]uring the period from 2001 to 2011 Vossloh Laeis concluded agreements with other companies on the supply of rails and switches to the detriment of local public transport companies, private, regional and industrial railway companies and construction companies. The aim of the agreements was to divide up tenders and projects among the members of the cartel'. This resulted in the imposition of a fine of just under 3.5 million euros on the company Vossloh Laeis in 2016 by the Bundeskartellamt.

In the case that triggered the reference to the CJEU, a contracting entity whose procurement is covered by Directive 2014/25/EU (Stadwerke München) sought to exclude Vossloh Laeis from its qualification system on the basis that it had been fined for its participation in the cartel. It is important to stress that the relevance of the cartel for Stadwerke München was not simply remote or theoretical, but concerned it rather closely because this entity had been a victim of the anticompetitive practices carried out by Vossloh Laeis. This led Stadwerke München to seek damages compensation from Vossloh Laeis in civil litigation, as well as to exclude it from its list of approved contractors.

Vossloh Laeis sought to resist its exclusion from Stadwerke München's qualification system on the basis that it had taken self-cleaning measures and should thus be reinstated in the list of approved contractors on the basis of Article 57(6) of Directive 2014/24, to which the applicable Article 80 of Directive 2014/25 refers. In particular, Vossloh Laeis sought to persuade the contracting entity that it had taken organizational and personnel measures to clarify the facts and prevent their future repetition. It also indicated that it would compensate the damage caused by its illicit behavior. 

Stadwerke München rejected the claims of self-cleaning on the basis that (i) despite the uncovering of the cartel in 2011, Vossloh Laeis had not addressed the contracting entity or undertaken any initiative to clarify the facts as a whole; (ii) only in 2016 had Vossloh Laeis ceased to deny, in front of Stadwerke München, its participation in the relevant collusive practices, and even then it stressed that it had challenged the decision imposing the fine. Most importantly, Stadwerke München took issue with Vossloh Laeis' behaviour because (iii) it had not agreed to furnish a copy of the Bundeskartellamt's decision imposing the fine, so that Stadwerke München could examine it. Neither did Vossloh Laeis agree to cooperate with Stadwerke München in clarifying the infringement committed, since it understood that his cooperation with the competition authority was sufficient.

The Vossloh Laeis Opinion states that '[t]he referring court does not dispute (as it was stated in the sanctioning decision itself) that Vossloh Laeis had collaborated continuously and without restrictions with the German competition authority during the infringement procedure procedure' (para 17, own translation from Spanish). This creates a situation that may seem difficult to understand. Why would an undertaking that has already cooperated unreservedly with the competition authority not take the same approach to cooperation with the contracting entity? Is it a matter of opposition to red tape and duplication of effort? Or is there any secret that the economic operator is seeking to protect? Equally, on the side of the contracting entity, why is it so interested in the nitty-gritty details of the decision imposing the fine? Could it not just accept that the economic operator was sanctioned and is now trying to move on?

The importance of leniency programmes in this context

Even if the Opinion of AG Campos does not mention this at all, the dispute about access to the Bundeskartellamt's decision and Vossloh Laeis' refusal to cooperate with Stadwerke München in a parallel clarification of the facts needs to be placed in the context of the applicable leniency programme run by the Bundeskartellamt, and the civil litigation around the action for damages against Vossloh Laeis. This is important to understand the position of the parties, as well as the shadows that loom over the approach taken by AG Campos (discussed below).

As part of a leniency programme (not only Bundeskartellamt's, but those run by the contracting authorities of other Member States and the European Commission itself), economic operators that have participated in bid rigging offences can seek an exemption or reduction of the fines that would otherwise be applicable if they uncover the cartel and/or cooperate with the competition authority in its investigation (the degree of cooperation and the relevance of the information provided determining the level of 'discount' on the otherwise applicable fine).

In return for their cooperation, cartellists not only benefit from exemption or reduction of the fines, but also from some protection against claims for damages by the victims of their collusive behaviour. Indeed, competition authorities will take measures to ensure that leniency statements are not disclosed to the public, will include minimal parts of them in their final decisions imposing fines, and will redact relevant material from the public version of those decisions. This makes it virtually impossible for 'outsiders' to learn about the detailed ways in which the cartel functioned on the basis of public information resulting from the infringement procedure. Moreover, leniency programmes are specially protected by the Directive on competition damages (2014/104/EU), which requires Member States to ensure that 'for the purpose of actions for damages, national courts cannot at any time order a party or a third party to disclose ... leniency statements' (Art 6(6)(a)) (see also the position of the CJEU here).

This creates significant difficulties in the context of follow-on damages actions, where the previous investigation by the competition authority is of no avail to victims seeking redress. This would explain why Stadwerke München insisted in having access to the confidential version of the decision imposing a fine, and why Vossloh Laeis resisted such disclosure. It also clarifies how, in this specific context, cooperation with the competition authority is of no use to contracting entities and authorities seeking to understand the behaviour of the economic operator, as the opacity surrounding leniency programmes prevents them from benefiting from the investigation and findings of the competition authority. 

The Vossloh Laeis Opinion in its own terms

In own terms, the Opinion of AG Campos seems to be solely based on the conceptual premise that the dispute between Stadwerke München and Vossloh Laeis resulted not from the background discussed above, but rather from the peculiarity of the German rules that transposed Article 57(6) of Directive 2014/24/EU, which required that, for the purposes of self-cleaning, economic operators must demonstrate that they have 'fully clarified the facts and circumstances by actively collaborating with the investigating authorities and the contracting authority' (Art 125(1)(2) Gesetz gegen Wettbewerbsbeschränkungen, as reported in para 10 of the Opinion). This deviates from the literal wording of Article 57(6) of Directive 2014/24/EU, which foresees that 'the economic operator shall prove that it has ... clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities'. The analysis in the Opinion, thus, largely rests on the interpretation of the concept of 'investigating authorities' in Article 57(6) with the purpose of establishing whether it covers the contracting authority or entity itself (see para 2). The Opinion offers a good synthesis of the competing arguments in paras 26-36.

In that regard, the Opinion provides some relevant positions. First, that the requirements explicitly listed in Article 57(6) of Directive 2014/24/EU are mandatory and, consequently, contracting authorities and entities cannot accept claims of self-cleaning that do not meet them all (paras 40-41). Therefore, establishing the scope of the duty of collaboration in the clarification of the facts becomes paramount because its breach determines the impossibility of benefiting from any other self-cleaning measures adopted.

Second, on the specific issue of the entities included in the concept of 'investigating authorities', AG Campos takes the view that, despite the fact that Article 57 of Directive 2014/24/EU grants contracting authorities and entities some investigative powers, 'the exercise of these functions does not make the contracting authority one of the "investigating authorities" referred to in Article 57 (6), second paragraph of Directive 2014/24' (para 47, own translation from Spanish). In addition to other functional reasons on the way contracting authorities carry out their limited investigation for the purposes  of establishing the existence of an exclusion ground (paras 48-50), AG Campos concludes that, in general terms, 'the "investigating authorities" referred to in Article 57, paragraph 6, second paragraph, of Directive 2014/24 will not coincide with the contracting authorities. In front of the latter, the tenderer (or the company that aspires to be part of a classification system, as in this case) must prove that it has actively and thoroughly collaborated with the investigating authorities to clarify the facts. But this collaboration must be, by force, with an institution other than the contracting authority itself: otherwise, [the collaboration] would be, for the latter, a notorious fact that does not require any proof' (para 51, own translation from Spanish).

Finally, AG Campos also rejects the possibility for Member States to go beyond the scope of the collaboration foreseen in Article 57(6) of Directive 2014/24/EU in demanding that the economic operator seeking to benefit from its self-cleaning efforts not only collaborates with the 'investigating authorities' but also with the contracting authority or entity (paras 55-61). Interestingly, AG Campos stresses two main issues against this possibility: (i) that it would create a duplication of obligations required against those who, like the investigating authorities and the contracting authorities, perform different functions and (ii) that it 'could place the economic operator in a situation close to defenselessness when, in circumstances such as those in this case, the contracting authority claims to have suffered damages, because of the infringing conduct that led to the exclusion of [the economic operator], for which it requests compensation' (para 60, own translation from Spanish).

It is worth stressing that the case also concerns issues surrounding the maximum period of exclusion of economic operators that cannot benefit from self-cleaning (paras 62-86). However this post concentrates solely on the interpretation of Article 57(6) of Directive 2014/24/EU.

In my view, the Opinion of AG Campos advances a plausible interpretation of Article 57(6) of Directive 2014/24/EU. However, I would disagree with two issues. First, the fact that Member States cannot go beyond the minimum mandatory self-cleaning requirements established in the Directive on the grounds that this would result in a duplication of effort for economic operators does not make sense to me, in particular after the recent CJEU Judgment in Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000 (see comment here), which AG Campos acknowledges but sets aside in his Opinion (para 57). Second, and more importantly, I think that the Opinion of AG in Vossloh Laeis does not work in the context of infringements of competition law covered by leniency programmes, which triggers the second of the arguments against an expansive functional interpretation of Article 57(6) on the grounds of the undertaking's procedural rights.

The Vossloh Laeis Opinion in the broader context of leniency programmes

Indeed, the main difficulty I have with the AG Opinion in Vossloh Laeis is functional. It is worth stressing that the implication of this Opinion is that a contracting entity or authority that knows that it has been the victim of a cartel offence cannot oppose self-cleaning of the competition law violator on the basis of its lack of cooperation, despite being in litigation with that undertaking over damages compensation. From the perspective of the infringer, this also means that participation in a leniency programme not only provides a shield from administrative fines and some protection from actions for damages, but also some protection from exclusion from procurement procedures. These are two negative results from the perspective of ensuring the effectiveness of competition law in public procurement markets and, in my view, runs against the thrust of previous decisions such as Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469 (see comment here).

I also think that the way in which the Vossloh Laeis Opinion frames the issue of defenselessness is artificial. An economic operator that has infringed competition law and received a reduced fine as a result of its leniency application has already obtained a relevant practical advantage. Therefore, I see no problem in making it face a simple choice between either (i) sticking to the secrecy created by the leniency mechanism and thus accepting exclusion from procurement procedures for an adequate period of time, or (ii) waiving that secrecy vis-a-vis the contracting authority (which would implicitly require compensation of the damage resulting from the cartel), so that the contracting authority can form an adequate view of whether the organisational and personnel self-cleaning measures really address the root causes of the past illegal behaviour and, if appropriate, set aside the relevant exclusion ground.

The Vossloh Laeis Opinion allows the economic operator to avoid this simple choice and to have two bites at the cherry. It also makes it difficult for the contracting authority to satisfactorily carry our its limited investigative functions under Art 57(6). Without knowing exactly what happened, it is difficult to judge whether the self-cleaning measures are 'appropriate to prevent further criminal offences or misconduct'. Additionally, it forces the contracting authority to make this decision in a context where it can have other grounds to doubt the economic operators' loss of integrity, such as its resistence to provide damages compensation despite having engaged in illegal behaviour that damaged the contracting authority's interests.

Ultimately, if AG Campos was worried about the existence of a conflict of interest between the contracting authority that has an outstanding claim for damages and at the same time needs to assess the self-cleaning efforts of the economic operator--which is a fair enough point--it would have been interesting to learn about the ways in which Article 24 of Directive 2014/24/EU needs to be applied and interpreted in situations such as this. It would have also been interesting to explore in more detail the extent to which the discrete requirements for satisfactory self-cleaning in Article 57(6) interact as, in the case of leniency-related situations, the lack of collaboration with the contracting authority or entity has a bearing on the extent to which the economic operator can be seen to have 'undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct'. 

However, by not addressing these issues, the Vossloh Laeis Opinion seems to seek to protect the effectiveness of leniency programmes without even mentioning them, which in my view is an odd position to take.

ECJ confirms discretion to exclude tenderers for not updating self-certifications and points towards potential general obligation of sincere cooperation (C-178/16)

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In its Judgment of 20 December 2017 in Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000 (Mantovani e Guerrato), the Court of Justice (ECJ) declared the compatibility with the 2004 EU public procurement rules of a contracting authority's decision to exclude an economic operator that, having self-certified as not being affected by exclusion grounds, subsequently failed to update the contracting authority when one of its former directors' criminal conviction for invoice fraud became final. Remarkably, the exclusion was upheld despite the fact that the 'conviction had become final following [the economic operator's] own declarations [and despite the fact ...] that, in order to fully and effectively dissociate the company from [its director]’s actions, the latter was immediately removed from his management role ..., the management bodies of the company had been reorganised, [his] shares had been bought back and an action for damages had been brought against him' (para 11). Therefore, the exclusion was upheld despite an attempt at self-cleaning. 

In declaring the compatibility with EU procurement law of this strict approach in the exercise of discretionary exclusion powers, the ECJ largely followed the Opinion of AG Campos Sánchez-Bordona (discussed here, where more background on the case is provided) and, in my view, confirmed a welcome functional approach to the exercise of discretion to exclude economic operators on the grounds of evidence that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable [Art 45(2)(d) Dir 2004/18 and now Art 57(4)(c) Dir 2014/24]. In my view, there are some relevant passages in the Mantovani e Guerrato Judgment that will be of importance in the assessment of self-cleaning claims under the 2014 rules, given the recognition of the possibility for Member States to create an overarching obligation of sincere cooperation with the contracting authority befalling upon economic operators under the 2004 rules--which may well carry over to the new provisions at EU level. The relevance of such recognition of a general obligation stems from its crucial role in the original exclusion decision, which was 'in essence, [based on the fact] that although, in the absence of a final judgment, Mantovani’s statement could not be classified as a "misrepresentation", the lack of timely notification of criminal proceedings concerning one of the [relevant] persons ... may constitute an infringement of the obligation of sincere cooperation with the contracting authority, and accordingly impede the full and effective dissociation from the person concerned' (para 12).

In my view, it is important to stress that the ECJ reaches its position after reiterating its general case law position that

... Article 45(2) of Directive 2004/18 does 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, 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, Member States have the power to make the criteria laid down in Article 45(2) less onerous or more flexible ... Member States therefore enjoy some discretion in determining the requirements governing the application of the optional grounds for exclusion laid down in Article 45(2) of Directive 2004/18 (paras 31-32, references omitted).

And it is also important to stress that the ECJ finds the legal basis for the obligation of sincere cooperation not on the 2004 EU procurement rules, but on the domestic law of the Member State concerned (Italy):

... the Member State is entitled to ease the requirements governing the application of the optional grounds for exclusion and, thus, to waive the application of a ground for exclusion in the event of a dissociation between the tenderer and the conduct constituting an offence. In the present case, it is also entitled to determine the requirements governing that dissociation and to require, as Italian law does, that the tenderer inform the contracting authority of a conviction of its director, even if the conviction is not yet final.

The tendering company, which must meet those requirements, may submit all the evidence which, in its view, is evidence of such a dissociation.

If that dissociation cannot be proved to the satisfaction of the contracting authority, the necessary consequence is the application of the ground for exclusion.

... in a situation where the judgment relating to an offence concerning the professional conduct of the director of a tendering company is not yet final, Article 45(2)(d) of Directive 2004/18 may apply. That provision makes it possible to exclude a tendering company which has been found guilty of grave professional misconduct, established by any means which the contracting authorities can provide proof of (paras 41-44).

Even if the ECJ seems to incur in some imprecision in interpreting Italian law (which, as far as I can see, did not require the tenderer to inform the contracting authority of the non-final conviction of its former director, but rather to update or substitute the relevant self-certification once that conviction becomes final), it seems clear that it foresees the possibility for Member States to create an overarching obligation of sincere cooperation as part of the relevant self-cleaning requirements. Given that self-cleaning was not regulated by Dir 2004/18, this is the only legal basis that could have been used in the case. However, given the inclusion of explicit rules in Dir 2014/24, an argument can be made that the ratio of the Mantovani e Guerrato Judgment will carry over to the new EU self-cleaning regime.

Indeed, when the functional principle underlying the Mantovani e Guerrato Judgment is put in connection with the new rules in Article 57(6) of Dir 2014/24, the legal basis of such an overarching obligation may now be seen as having potentially shifted to the EU level. Indeed, it is important to stress that, as minimum requirements for the recognition of self-cleaning capable of excluding the application of exclusion grounds (both mandatory and discretionary), the second paragraph of Art 57(6) Dir 2014/24 requires that 'the economic operator shall prove that it has paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct, clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities and taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct' (emphasis added).

This comes to establish an 'EU obligation of sincere cooperation' that, even if it seems oriented towards the 'investigating authorities' (which does not seem to automatically cover the contracting authority itself), can easily be extended in the same functional terms required by Italian law on the basis of the logic in the Mantovani e Guerrato Judgment. Therefore, in my view, when assessing self-cleaning claims--and as a result of a joint interpretation of Art 57(4)(c) and Art 57(6)II Dir 2014/24 from the functional perspective of the Mantovani e Guerrato Judgment--contracting authorities will be on safe grounds if they decide to reject self-cleaning claims on the basis of a lack of update of on-going criminal and administrative investigations that are susceptible of nullifying the effectiveness of self-certifications submitted by the economic operators concerned.

 

 

 

Recent case law on EU Institutional Procurement under the Financial Regulation (I): Self-Cleaning

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Before the summer recess, the General Court adopted two interesting decisions on public procurement carried by the EU Institutions. One concerns the debarment of tenderers that have been found to breach EU procurement rules and negatively affect the financial interests of the Union (T-151/16). The other concerns the obligation to state reasons in the context of allegations that a tender is abnormally low (T-392/15). This blog discusses the first case, while a subsequent post comments on the second.

Judgment of 27 June 2017, NC v Commission, T-151/16, EU:T:2017:437, is concerned with the registration in the Early Warning and Detection System database (ie the registry of tenderers and contractors debarred from EU Institutional procurement, currently relabelled as Early Detection and Exclusion System, EDES) of tenderers that have been found  to have committed serious breaches of contractual obligations--in this case, as established by OLAF, the simulation of procurement procedures for the acquisition of equipment ultimately funded by the EU. The case is affected by the additional difficulty that the rules controlling EU Institutional procurement (ie the Financial Regulation and its Rules of Application) were modified in the period between the irregularities were committed (2008 and 2009) and the time of the imposition of the sanction of debarment by the Commission (which crossed over between 2015 and 2016). This triggered two legal complications in terms of retroactivity of most favourable/lenient substantive rules: first, the effect that needed to be given to a reduction in the maximum period of debarment from 5 to 3 years; second, the possibility to neutralise a ground for exclusion on the basis that the affect undertaking had taken sufficient remedial measures demonstrating its reliability (ie had self-cleaned). On top of that, there were procedural complications due to the revised procedures leading to registration in EDES, which currently require a panel opinion that was not part of the pre-2016 procedure for the registration in the Early Warning and Detection System database.

On the procedural point, which the GC examines first, the dispute hinges on the fact that the debarment decision was adopted on 28 January 2016 (which would have required an involvement of the EDES panel, active from 1 January 2016; see para 32), but the Commission considered the administrative procedure 'completed' on 17 December 2015 (thus subjecting it to the 'no-panel' procedure in force until 31 December 2015; see para 34). This ground is ultimately dismissed by the GC on the basis that there is no reason to establish the retroactive application of the procedural rules to investigations started before 1 January 2016, which would 'imply recommencing the preliminary procedure completed properly before that date, in particular having regard to compliance with the adversarial principle' (para 43).

This decision goes against the general principle that new procedural rules that do not contain specific transitional provisions accompanying the fixing of their general application date also apply to on-going/pending procedures (see para 36). The decision is based on an exception to such created in the Judgment of 8 November 2007, Andreasen v Commission, F-40/05, EU:F:2007:189, whereby that rule can be excluded to avoid 'the retroactive annulment of procedures or procedural steps which complied with the rule in force when they were completed' (para 38; see also para 43 of T-151/16).

What I find interesting, though, is that the GC considers that such assessment is not altered '[e]ven if the introduction of that panel was intended to strengthen the rights of the defence of parties contracting with the Union who may be subject to a penalty under the Financial Regulation' (ibid). In my view, this is a very ad hoc finding, which the GC reaches only because it considers the pre-2016 rules already sufficiently protective of individual rights of the affected undertaking, and to have been adequately followed in the specific instance. Had this not been the case (eg, had the previous procedure been seen to fall short of complying with the adversarial principle), the decision by the GC may well have been the opposite. Thus, on this point, the decision of the GC seems difficult to extrapolate to other contexts and the exception that seems to derive from Andreasen and now NC needs to be taken with a pinch of salt.

On the substantive points, first concerning the retroactivity of a more lenient rule allowing for self-cleaning, the GC takes the view that the possibility to self-clean and thus exclude debarment makes the new rules clearly more favourable (para 57). On that basis, the GC takes issue with the fact that the Commission took into account remedial measures for the purpose of setting the duration of the exclusion below the maximum exclusion period (initially at 2 years, later reduced to 18 months) but did not assess it with a view to completely exclude the debarment on the basis of satisfactory self-cleaning. As the GC put it: 'Although the contested decision shows that the remedial measures taken by the applicant were taken into account to determine the duration of the exclusion imposed, no reason is given in that decision as to why those measures were insufficient to satisfy the conditions' for an operator that has taken certain remedial measures demonstrating its reliability not to be excluded from the contracts and grants of the Union (para 58). Second, and along the same lines, on the assessment of the implications of a reduction the maximum debarment period from 5 to 3 years, the GC considers that the new spread of debarment times should have been explicitly taken into account by the Commission (paras 59-60). This eventually leads to an annulment of the debarment decision (para 63).

In my view, this strict approach adopted by the GC on the basis of the guarantees enshrined in Article 49 of the Charter of Fundamental Rights of the EU and interpretive case law (paras 53-55) comes to strengthen the procedural guarantees involved in the adoption of debarment decisions. Extrapolating this to procedures not covered by the rules on EU Institutional procurement, but rather by the 2014 Public Procurement Package and its transposition at domestic level by the Member States, it seems clearer than ever to me that there is a need for the revision of the remedies directive in order to ensure the effectiveness of the same level of protection--as discussed, over a year ago, in A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' (August 11, 2016), to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (forthc). Available at SSRN: https://ssrn.com/abstract=2821828.

Interesting AG Opinion on treatment of on-going criminal cases & self-cleaning under 2004 rules (C-178/16)

In his Opinion of 21 June 2017 in Impresa di Costruzioni Ing. E. Mantovani and Guerrato, C-178/16, EU:C:2017:487 (not available in English), Advocate General Campos Sanchez-Bordona analysed an Italian case concerning the interaction between mandatory and discretionary exclusion grounds related to an undertakings' director's criminal record, as well as the self-cleaning measures adopted by the undertaking as it aimed to carry on participating in tenders for public contracts. The case requires the interpretation of the 2004 EU public procurement rules, but its rationale will be relevant in the future interpretation of Art 57 of Directive 2014/24.

In the case at hand, a former director (Mr B) of a tenderer (Mantovani) was under criminal investigation for having run a scheme of fraudulent invoices, and it was publicly known (vox populi) that he had entered into a plea bargain deal. When Mantovani submitted a tender for the construction of a new prison in Bolzano (the irony is inescapable...), and as part of the documentation aimed at demonstrating its good personal and professional standing, it submitted a self-certification indicating that Mr B had ceased his position as president of the board of directors 4 months prior to the start of the tender procedure and that, to the best of Mantovani's knowledge, no conviction by final judgment or plea bargain deal had been had been adopted.

Relying on the public information of which it was aware, the contracting authority requested a copy of Mr B's criminal record. It revealed that a sentence based on the plea bargain deal had become final after the submission of the self-certification by Mantovani (the sentence being adopted only the day after the submission of the first self-certification by Mantovani). The contracting authority decided to exclude Mantovani, which challenged this decision on the basis that: (a) the conviction had been published and become final after the submission of the self-certification, and (b) that it had taken remedial action to severe all ties with Mr B (including cessation of his directorship, restructuring of the board of directors, repurchase of Mr B's shares in Mantovani, and suing Mr B for director's liability).

Interestingly, the contracting authority asked for consultation to the Italian Anti-Corruption Agency (ANAC), which advised that, even if it could be found that Mantovani did not submit a false self-declaration (which onus probandi fell on the contracting authority), and in particular due to the (technical) fact that the conviction was not final at the time of the self-declaration, the contracting authority has a duty to assess the effectiveness of the self-cleaning measures and it is conceivable that Mantovani's integrity is compromised due to the fact that it had not taken positive steps to make the conviction know to the contracting authority once it became official and final. In ANAC's view, and according to Italian case law, failure to actively keep the contracting authority informed of developments in a criminal investigation (where there is an eventual conviction) reveals the absence of disengagement with the former director, and is thus a violation of the duty of loyal cooperation that can justify its exclusion from the procurement procedure.

The contracting authority decided to keep Mantovani's exclusion, and this was challenged. The assessment of the case is complicated by the peculiarities of the Italian rules (which triggered significant debate between the interveners before the ECJ, and which AG Campos rightly  considers the Court incompetent to rule on, see paras 37-38), as well as by the fact that the new rules on self-cleaning are not applicable ratione temporis, which creates some vacuum in the framework for the assessment of the contracting authority's exercise of discretion in this case. However, AG Campos' assessment of the case offers some interesting interpretive pointers. In my view, these are the relevant points of the Opinion:

  • The key issue concerns the contracting authority's decision to exclude Mantovani not directly on the basis of the criminal conviction of Mr B, but rather on Mantovani's own failure to keep the contracting authority informed once that conviction was official. This thus requires an assessment of compatibility with the ground of exclusion based on the existence of evidence that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable [Art 45(2)(d) Dir 2004/18 and now Art 57(4)(c) Dir 2014/24] (paras 42-46).
  • Member States have significant discretion to regulate the conditions applicable to discretionary exclusion grounds, and this is only limited by the impact that such grounds and their exercise can have on freedom of establishment and freedom to provide services. Such impact needs to be subjected to a balancing exercise vis-a-vis the public interest in the probity of the procurement process, under a proportionality assessment (paras 51-53).
  • Under that analytical framework, nothing prevents an extension to the economic operator of (some of) the consequences of the criminal behaviour of one of its former directors, and it is adequate to make the burden of proving effective disengagement and adoption of effective remedial measures (ie, self-cleaning) on the undertaking (paras 54-65).
  • It is adequate, and certainly not incompatible with EU law, to treat the economic operators' silence (or the omission of an implicit duty to keep the contracting authority informed based on a more general duty of loyal cooperation) as evidence of professional misconduct capable of justifying a decision to exclude it from the tender procedure. Where no documentary evidence exists that could allow for a pre-defined check of compliance with (or absence of) exclusion grounds -- notably, those concerning professional misconduct or failure to supply required/adequate/truthful information -- the contracting authority enjoys a broad degree of discretion to assess the circumstances and evidence potentially leading to an exclusion decision (paras 72-83).
  • Importantly, given that the exclusion of the economic operator is not automatic, but rather based on an ad casum assessment, and that such discretionary assessment is subjected to judicial review, this does not place the economic operator in a situation where it cannot defend its interests (para 84).

I think that AG Campos shows two interesting guiding principles that the ECJ should support in its Judgment in Impresa di Costruzioni Ing. E. Mantovani and Guerrato, as well as more generally in the future. First, that contracting authorities need to be given space to exercise discretion aimed at ensuring the probity of the procurement process. And, second and equally important, that the exercise of that discretion needs to be subjected to appropriate checks and balances, including an opportunity to challenge exclusion decisions under appropriate procedural guarantees.

In my view, this functional approach also stresses the need to create effective inter partes procedures for the economic operator and the contracting authority to exchange information prior to the exclusion decision being effective, as well as ensuring swift review of those decisions at a stage where they can still be undone (as the logic in Marina del Mediterraneo requires, see here). Thus, this supports, once more, the need to revise and reform the remedies directive, largely along the lines I drew in 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, forthc)].

ECJ backs up tough Italian approach to exclusion of non-payers of social security contributions -- will this carry on under Directive 2014/24? (C-199/15)

In its Judgment of 10 November 2016 in Ciclat, C-199/15, EU:C:2016:853 (only in FR and IT), the European Court of Justice (ECJ) has issued a preliminary ruling concerning the compatibility with the pre-2014 EU public procurement rules (Dir 2004/18) of a set of Italian rules that mandates the exclusion of undertakings that have been found to have gravely failed to meet all their social security obligations at the time of the tender, and irrespective of any subsequent regularisation of the situation prior to the award of the contract, or even prior to the assessment of that situation by the contracting authority.

According to the relevant Italian rules, contracting authorities must exclude undertakings that have been definitively found to have committed serious offences regarding the payment of social security contributions in accordance with Italian legislation or that of the State in which they are established (C-199/15, para 8, own translation from French). The only tolerance against this ground of mandatory exclusion is that an offence against the social security will not be considered grave where the difference between the sums owed and those paid does not exceed EUR 100 and is less than 5% of the sums owed (C-199/15, para 11, own translation from French). 

The Ciclat case can be seen as a twin of the previous Judgment of 10 July 2014 in Consorzio Stabile Libor Lavori Pubblici (C-358/12, EU:C:2014:2063) where the ECJ assessed the compatibility with EU law of the same Italian rules for the exclusion of undertakings that have committed serious offences against the social security of their country of establishment, but in the context of the procurement of contracts below the EU thresholds. In that case, the ECJ considered that the Italian rule was compatible with Articles 49 TFEU and 56 TFEU and the principle of proportionality. Equally and unsurprisingly, in Ciclat, the ECJ has determined that

Article 45 of Directive 2004/18 ... does not preclude national legislation ... which obliges contracting authorities to consider as grounds for exclusion an offense in relation to the payment of social security contributions, which is established in a certificate automatically requested by the contracting authority and issued by the social security institutions, where such infringement existed at the date of participation in a tender, even if it no longer existed on the date of the award of the contract or that of the automatic control by the contracting authority (C-199/15, para 40, own translation from French). 

Despite not advancing EU public procurement law in any relevant way, the Ciclat Judgment can be criticised on two accounts.

First, because the ECJ ducked a relevant question of reverse discrimination due to the different documentary rules applicable to Italian companies (which were subject to the stringent system of automatic certification by the social security administration that gave rise to the case), whereas non-Italian EU tenderers could benefit from the greater flexibility of self-certification (see C-199/15, paras 38-39). At some point, the ECJ will have to stop avoiding problematic issues of reverse discrimination and start constructing a better line of case law that is more attuned to the needs of undertakings competing in an internal market.

Second, the Ciclat Judgment can be criticised for its excessive rigidity. Not only due to the lack of consideration of the very low threshold amounts of tolerance for unpaid social security contributions (or taxes)--which was already the position after Consorzio Stabile Libor Lavori Pubblici--but also due to the irrelevance given to an effective remediation of the infringement by the tenderer, which goes against trends aimed at facilitating substantial compliance and corporate (voluntary) self-cleaning. 

However, this second criticism may seem as not really relevant from a practical perspective in view of the greater flexibility that Article 57(2) Dir 2014/24 has introduced if compared with Art 45 Dir 2004/18 (see discussion here). Indeed, under the 2014 rules, exclusion on the basis of an infringement of social security law (or tax law), even if the infringement has been established by a judicial or administrative decision having final and binding effect in accordance with the legal provisions of the country in which it is established, this exclusion ground will cease to apply where "the economic operator has fulfilled its obligations by paying or entering into a binding arrangement with a view to paying the taxes or social security contributions due, including, where applicable, any interest accrued or fines."

But a close consideration of this provision shows that the moment in which consideration must be paid by the contracting authority to the remedial action taken by the tenderer that was initially found to infringe social security (or tax) law is not specified, and therefore left to the national implementing conditions adopted in each Member State on the basis of Art 57(7) Dir 2014/24. Thus, a possible reading of Ciclat would be to consider that it is compatible with EU procurement law to establish the last date for the submission of tenders as the cut-off date for the assessment of compliance with (or remedy of an infringement of) social security (and tax) law--to the exclusion of any remedial action taken before the contracting authority evaluates the tenders, or even before the contracting authority actually assesses compliance with exclusion and selection criteria. In my view, that would deprive the new rules in Art 57(2) [and, for the same reasons, in Art 57(6) on self-cleaning] of practical effect.

Consequently, the Ciclat Judgment keeps adding reasons to the need to establish a special inter partes procedure where the contracting authority gives a chance to the undertaking to clarify its current situation of compliance or not with social security (and tax) requirements [but, more generally, in relation to any exclusion ground the contracting authority aims to enforce] before proceeding to its effective exclusion. This is not only a practical need, but a requirement derived from the general principles in the EU public procurement Directives and, more generally, the duty of good administration of Art 41 of the Charter of Fundamental Rights of the European Union. Fur further discussion of this important issue, see A Sanchez-Graells, "If it Ain't Broke, Don't Fix It’? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts", to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming.

Interesting short paper on public procurement and competition law: Blažo (2015)

Reading O Blažo, 'Public Procurement Directive and Competition Law - Really United in Diversity?' (2015), I have found some interesting and thought-provoking remarks on the impact of public procurement regulation over the effectiveness of competition law enforcement. The paper focuses 'mainly on three problematic issues: participation of companies of the same economic group in public procurement procedure, disqualification for cartel infringement, attractiveness of leniency programme'.

Multiple bidding by members of an economic group

Blažo's discussion of the issue of multiple participation by companies of the same economic group discusses Assitur (C-538/07, EU:C:2009:317), where the Court of Justice of the European Union (CJEU) declared contrary to EU public procurement law an Italian rule not allowing companies linked by a relationship of control or significant influence to participate, as competing tenderers, in the same procedure for the award of a public contract. The CJEU determined that, 'while pursuing legitimate objectives of equality of treatment of tenderers and transparency in procedures for the award of public contracts, [a national rule that] lays down an absolute prohibition on simultaneous and competing participation in the same tendering procedure by undertakings linked by a relationship of control or affiliated to one another, without allowing them an opportunity to demonstrate that that relationship did not influence their conduct in the course of that tendering procedure' is incompatible with EU public procurement law (para 33, emphasis added). 

Blažo considers that this 'appears as “over-regulation” and “under-regulation” [at] the same time in his context: it does not solve problem of participation of several companies forming of one economic group in one tender procedure and on the other hand outlaws their automatic exclusion'. I would disagree with this critical assessment and submit that the CJEU reached a good balance of competing interests (ie ensuring sufficient intra-tender competition vs avoiding collusion or manipulation risks). As I wrote in Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 341-342 (references omitted): 

the grounds for exclusion based on professional qualities of the tenderers—and the existence of relationships of control between them, or their control structure, is clearly a professional quality—are exhaustively listed in article 57 of Directive 2014/24, which precludes Member States or contracting authorities from adding other grounds for exclusion based on criteria relating to professional qualities of the candidate or tenderer, such as professional honesty, solvency and economic and financial capacity. Nevertheless, it does not preclude the option for Member States to maintain or adopt substantive rules designed, in particular, to ensure, in the field of public procurement, observance of the principle of equal treatment and of the principle of transparency. Given that the extension of the ban on multiple bidding has as its clear rationale the prevention of discrimination between self-standing entities and those integrated in group structures, prima facie it seems to constitute a case of permitted additional ground for the exclusion of tenderers not regulated by article 57 of Directive 2014/24.
However, as also noted, when establishing these additional grounds for the exclusion of tenderers, Member States must comply with the principle of proportionality and the automatic exclusion of tenderers for the sole fact of belonging to the same legal group seems to be in breach of this latter requirement. Interestingly, EU case law seems to be moving in the direction of restricting the scope of this type of (extended) prohibition by outlawing the automatic exclusion from tendering procedures of tenderers between which there exists a relationship of control (as defined by national law) without giving them an opportunity to prove that, in the circumstances of the case, that relationship had not led to an infringement of the principles of equal treatment of tenderers and of transparency.
This would be in line with the rules applicable to the treatment of conflicts of interest (art 24 Dir 2014/24), which only justify the exclusion of candidates and tenderers ‘where a conflict of interest … cannot be effectively remedied by other less intrusive measures’ (art 57(4)(e) Dir 2014/24). 

Exclusion of competition law infringers, Self-cleaning & impact on the attractiveness of leniency programmes

Interestingly, Blažo explains that, under the version of Slovak procurement law prior to the transposition of Dir 2014/24, contracting authorities were bound to exclude tenderers that had been convicted of infringements of competition law [on this, see Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469, and discussion here], but 'undertaking[s] who successfully qualified for the leniency program (immunity as well as fine
reduction)
' were not excluded from participation in public procurement procedures. Or, in more detail, 'The scheme excluding entrepreneurs who have been convicted of a cartel in public procurement applies automatically, therefore there is no need to issue any other disqualification decision. It is also a compulsory system, thus the contracting authority authority shall be obliged to exclude such an undertaking ex officio, and the law does not allow any way to alleviate such sanctions. Only the undertaking who takes part in an agreement restricting competition in public procurement can avoid exclusion from public procurement, its cooperation with the Antimonopoly Office in leniency program' (Blažo, p. 1494).

Blažo then goes on to assess the changes that the transposition of Dir 2014/24 will require [in particular, art 57(4)(d) on the exclusion of competition law infringers and art 57(6) on self-cleaning, for discussion, see here and A Sanchez-Graells, 'Exclusion, Qualitative Selection and Short-listing', in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129], noting that 'the directive does not expressly mention leniency program as an exemption from exclusion'; and, in particular, criticises the fact that Art 57(7) requires that Member States 'shall, in particular, determine the maximum period of exclusion if no [self-cleaning] measures ... are taken by the economic operator to demonstrate its reliability. Where the period of exclusion has not been set by final judgment, that period shall not exceed ... three years from the date of the relevant event in the cases referred to in paragraph 4'. In view of this, Blažo concludes that

If the contracting entity wishes to establish an infringement using a final decision of competition authority (or judgment dismissing the action against such a decision), it is almost unrealistic to have these documents available within three years from the infringement, or the time for which the undertaking can be excluded from public procurement will be very short. It is obvious that word-by-word transposition of the PPD into Slovak legal order eliminates current patterns punishment of undertakings for bid rigging and replaces it with a system that does not constitute a sufficient threat of sanctions, which would have preventive effects against cartels in public procurement. Furthermore even in case of effective application of this system, it may discourage leniency applicants and thus undermine effective public enforcement of competition law (p. 1495).

I share some of his concerns about the difficulty of establishing appropriate timeframes for exclusion based on competition law infringements. As I pointed out in Public procurement and the EU competition rules, 2nd edn (2015) 291:

This raises the issue of how to compute the maximum duration, particularly in the case of article 57(4) violations, as the reference to the ‘relevant event’ admits different interpretations (ie, either from the moment of the relevant violation, or the moment in which the contracting authority is aware of it or can prove it). Given that some of the violations may take time to identify (eg, emergence of a previous bid rigging conspiracy that can be tackled under art 57(4)(c) Dir 2014/24), a possibilistic interpretation will be necessary to avoid reducing the effectiveness of these exclusion grounds. In any case, compliance with domestic administrative rules will be fundamental.

However, I am not sure that I share the concerns about the effectiveness of leniency programmes and their attractiveness for undertakings that may risk exclusion from procurement procedures. First, I am generally sceptical of the claim that leniency programmes need to be protected at all costs (see here, here and here). Second, and looking specifically at the worry that not having a mention to leniency programmes in Dir 2014/24 may exclude or reduce the possibility for contracting authorities (or Member States) to treat leniency applicants favourably in the procurement context, I am not sure that this is the case, mainly, because it would still seem possible for competition rules to foresee that any final decisions declaring the infringement of competition law should not include sanctions concerning debarment from public procurement procedures for leniency applicants (I am not convinced that this is desirable, but it is certainly possible). In that case, there would be no final judgment from which the exclusion could derive and, consequently, contracting authorities intending to exclude the leniency applicant in view of its previous infringement of competition law would be using their discretion to exclude without the constraints derived from the previous decision. This has a significant impact in terms of self-cleaning.

While Art 57(6) in fine foresees that 'An economic operator which has been excluded by final judgment from participating in procurement ... shall not be entitled to make use of the [self-cleaning] possibility ... during the period of exclusion resulting from that judgment in the Member States where the judgment is effective' [something I criticised in 'Exclusion, Qualitative Selection and Short-listing' (2014) 113], this restriction does not apply in the absence of a final judgment imposing the exclusion. Thus, the successful leniency applicant would still be able to rely on its leniency application and collaboration with the competition authority in order to claim it has complied with the requirements of the self-cleaning provisions in Art 57(6) Dir 2014/24. The sticky point would be the need to 'prove that it has paid or undertaken to pay compensation in respect of any damage caused by the ... misconduct'. Of course, this takes us back to the claim that leniency programmes will not be attractive if, in addition to exempting the applicant from the competition fine that would otherwise be applicable (let's remember it can be up to 10% of its turnover), they do not also shield competition law infringers from claims for damages--and now public procurement debarment. As mentioned, I am highly sceptical of these claims and, from a normative perspective, I am not persuaded that leniency should come at such high cost.

In any case, these are interesting issues and it would be very relevant to engage in empirical research to see if the entry into force of Dir 2014/24 last month actually has an impact on the effectiveness of leniency programmes in the EU.