It's for the GC to decide, but it's not ok: CJEU rules on 'excessive duration' of competition law litigation (C-40/12 P)

In a batch of impatiently expected Judgments of 26 November 2012, the CJEU has ruled on the procedural and substantial rules applicable to a claim that (competition law) litigation before the General Court was of an 'excessive duration' and, consequently, breached Article 47 of the Charter of Fundamental Rights of the EU. In my view, this is another instance of a rather convoluted legal construction by the CJEU whereby it rejects its jurisdiction (on formal points), but actually addresses the substantial points in a way that leaves no room whatsoever for the GC when the matter is presented before it for a fresh consideraton--and, consequently, raises the question whether the system is sensibly designed to begin with...

 

In its Judgment in case C-40/12 P Gascogne Sack Deutschland (anciennement Sachsa Verpackung) v Commission, the CJEU has clearly indicated that

89 [...] the sanction for a breach, by a Court of the European Union, of its obligation under the second paragraph of Article 47 of the Charter to adjudicate on the cases before it within a reasonable time must be an action for damages brought before the General Court, since such an action constitutes an effective remedy.

90 It follows that a claim for compensation for the damage caused by the failure by the General Court to adjudicate within a reasonable time may not be made directly to the Court of Justice in the context of an appeal, but must be brought before the General Court itself.

91 As regards the criteria for assessing whether the General Court has observed the reasonable time principle, it must be borne in mind that the reasonableness of the period for delivering judgment is to be appraised in the light of the circumstances specific to each case, such as the complexity of the case and the conduct of the parties (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 181 and the case-law cited).

92 The Court has held in that regard that the list of relevant criteria is not exhaustive and that the assessment of the reasonableness of a period does not require a systematic examination of the circumstances of the case in the light of each of them, where the duration of the proceedings appears justified in the light of one of them. Thus, the complexity of the case or the dilatory conduct of the applicant may be deemed to justify a duration which is prima facie too long (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 182 and the case-law cited).

93 In examining those criteria, it must be borne in mind that, in the case of proceedings concerning infringement of competition rules, the fundamental requirement of legal certainty on which economic operators must be able to rely and the aim of ensuring that competition is not distorted in the internal market are of considerable importance not only for an applicant itself and its competitors but also for third parties, in view of the large number of persons concerned and the financial interests involved (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 186 and the case-law cited).

94 It will also be for the General Court to assess both the actual existence of the harm alleged and the causal connection between that harm and the excessive length of the legal proceedings in dispute by examining the evidence submitted for that purpose.

95 In that regard, it should be noted that, in an action for damages based on a breach by the General Court of the second paragraph of Article 47 of the Charter, in so far as it failed to have regard to the requirement that the case be dealt with within a reasonable time, the General Court must, in accordance with the second paragraph of Article 340 TFEU, take into consideration the general principles applicable in the legal systems of the Member States for actions based on similar breaches. In that context, the General Court must, in particular, ascertain whether it is possible to identify, in addition to any material loss, any other type of harm sustained by the party affected by the excessive period, which should, where appropriate, be suitably compensated.

96 It is therefore for the General Court, which has jurisdiction under Article 256(1) TFEU, to determine such claims for damages, sitting in a different composition from that which heard the dispute giving rise to the procedure whose duration is criticised and applying the criteria set out in paragraphs 91 to 95 above (C-40/12 P at paras 89-96, emphasis added).

So far, the general framework depicted by the CJEU makes sense and, even if it creates a potential problem of conflict of interest derived from the 'self-assessment' required from the GC (despite its seating in a different composition), the remedy is clearly outlined and the material or substantive conditions that should be taken into account are also spelled out in a relatively easy to apply test (although some deference towards lengthy competition litigation seems to be readable between the lines).

 

However, the temptation ends up being too strong and the CJEU, maybe aware of the intractability of that conflict of interest, cannot refrain itself from actually settling the matter (despite concluding it has to reject the ground for appeal!). Hence, the CJEU carries on to make clear that

97 That said, it must be stated that the length of the proceedings before the General Court, which amounted to approximately 5 years and 9 months, cannot be justified by any of the particular circumstances of the present case.

98 It is apparent, in particular, that the period between the end of the written procedure, when the Commission’s rejoinder was lodged in February 2007, and the opening, in December 2010, of the oral procedure lasted for approximately 3 years and 10 months. The length of that period cannot be explained by the circumstances of the case, whether it be the complexity of the dispute, the conduct of the parties or supervening procedural matters.

99 As regards the complexity of the dispute, it is apparent from examining the action brought by the appellant, as summarised in paragraphs 12 and 13 above, that, while requiring a detailed examination, the pleas relied on did not present any particular difficulties. Although it is true that around 15 addressees of the contested decision brought actions for its annulment before the General Court, that fact could not prevent it from scrutinising the documents in the case and preparing for the oral procedure within a period of less than 3 years and 10 months.

100 It must be pointed out that, during that period, the procedure was not interrupted or delayed by the adoption of any measures of organisation of procedure by the General Court.

101 As regards the conduct of the parties and supervening procedural matters, the fact that the appellant requested, in October 2010, the reopening of the written procedure cannot justify the period of 3 years and 8 months which had already elapsed since it was closed. In addition, as the Advocate General observed in point 134 of her Opinion, the fact that the appellant was notified in December 2010 that there would be a hearing in February 2011 shows that that procedural matter had only a minimal effect on the overall length of proceedings, or even no effect at all.

102 In the light of the foregoing, it must be found that the procedure in the General Court breached the second paragraph of Article 47 of the Charter in that it failed to comply with the requirement that it adjudicate within a reasonable time, which constitutes a sufficiently serious breach of a rule of law that is intended to confer rights on individuals (Case C-352/98 P Bergaderm and Goupil v Commission [2000] ECR I-5291, paragraph 42).

103 It is, however, clear from the considerations set out at paragraphs 81 to 90 above that the fourth ground of appeal must be rejected (sic) (C-40/12 P at paras 97-103, emphasis added). 

In my view, even if there is no question that the formal treatment of the claim for damages (ie the ground for appeal) is correct, the fact that the CJEU felt the urge to settle the matter from a substantive perspective shows that the attribution of the competence to hear cases concerned with the excessive duration of litigation before the GC to the GC itself (albeit in a different seating) makes poor sense and is likely to result in almost 100% of cases in a further appeal before the CJEU.

 

To be fair, if the CJEU assumed the competence from the beginning, other problems derived from a single-step or one-shot system where the claims would be shielded from potential appeals would also arise. So, it looks like we may be facing one of those areas where a clear limitation of the institutional design of the EU Courts seems apparent and where pressure for the future potential referral of the cases to the Strasbourg Court may be felt.

 

However, as indicated yesterday when commenting a timely editorial opinion of Advocate General Sharpston (here), it may well be that the granting of excessive procedural rights to competition law defendants end up in an unmanageable workload for the EU Courts (as well as for the European Court of Human Rights) and, consequently, a deeper revision of the system seems necessary [see my further developed aruments in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?].

"You have been warned": AG Sharpston's concerns should be sorted out differently

In an interesting and provocative editorial comment entitled 'Effective Judicial Protection through Adequate Judicial Scrutiny—Some Reflections' [Journal of European Competition Law & Practice (2013) 4(6): 453-454], Advocate General Eleanor Sharpston comments on the difficulties that the Court of Justice of the EU faces in its endeavor to uphold the right to effective judicial protection enshrined both in the European Convention of Human Rights (art 13) and in the Charter of Fundamental Rights of the European Union (art 47)--which, in competition law enforcement, also involves some due process guarantees of Article 6 ECHR.

 

Basically, AG Sharpston is concerned with whatever can be done to ensure that effective judicial review of competition law sanctions does not produce unreasonable delay and thus defeats the purpose of the exercise.

 

By reference to recent cases in which the review conducted by the General Court has been challenged on the basis of the fundamental right to obtain judicial review within a reasonable time, AG Sharpston offers a rather detailed account of the practical difficulties and burdens derived from the way the EU Courts work and explores potential avenues of (institutional) reform that could alleviate those constraints. Maybe not surprinsingly, after considering that incremental change (or change by means of internal reform) has clear limits, AG Sharpston suggests that the EU Courts (particularly the General Court) should grow in terms of available judicial manpower and that the members of the EU Courts should be given more continuity and stability in their appointments. A political economy analysis of these proposals may be interesting (is it not in the essence of any institution to aim to grow and perpetuate itself?), but is not what I consider more interesting after reading the editorial. I think that there are two elements in AG Sharpston's reflections that deserve some emphasis.

 

On the one hand, I think that this is a case that shows the need for some clear boundaries in what active members of the judiciary in its highest ranks, such as an Advocate General, may say and publish. There is a clear need for them to thread lightly and think carefully about the (personal) opinions that they decide to make public. I say this because, in a very provocative passage, AG Sharpston advances a 'creative' solution to the problem of the excessive workload of the EU Courts in the following terms:

the advocate pleading competition cases before the EU courts, or the in-house adviser analysing the merits of challenging a Commission decision or lodging an appeal—can also make a major contribution towards ensuring that the courts function effectively and smoothly and can deliver effective judicial review. Please (I beg you) consolidate your arguments and only run with the points that have some real substance to them. Don't put in an application with six grounds of appeal, each divided into several sub-points (you know, and I know, that not all are of equal merit!). Please plead succinctly and clearly (think of translation!) and please don't throw in an additional 600 pages of annexes in case something there might help to swing the case your way. And, by the way: please don't appeal a clearly hopeless case to the Court of Justice just to show the client that you've tried everything you can. We too are worried about our workload—particularly the part of that workload that consists of wholly unmeritorious or manifestly inadmissible appeals—and we are looking at ways to streamline how we deal with such cases. You have been warned.

This half friendly, half jokingly-made warning may not be totally void of an underlying truth (in some cases at least), but many (myself for one) may see it as rather confrontational and such undercover criticisms of the bar may not sit well with non-UK practitioners. Moreover, it may put the Advocate General in a difficult situation when she has to intervene in cases where she may want to consider the claims unmeritorius (surely, if everybody is warned, she may feel more at ease to hand down rather blunt opinions, won't she?).

 

But, more importantly, I think that AG Sharpston is caught in the 'thinking inside the box' approach that she somehow criticises when she dismisses the potential for incremental change (or change by means of internal reform) to contribute to alleviate the current (permanent?) excessive workload of the EU Courts. Most of her views, and those expressed more generally by the CJEU when it comes to the interpretation and application of Articles 6 & 13 ECHR or 47 CFREU derive from the premise that

'[These rights are] increasingly frequently invoked by individuals claiming individual rights under EU law. [They are], however, no less a right for ‘undertakings’ (ordinary businesses) who fall foul of the competition rules and who find themselves on the receiving end of adverse decisions' (emphasis added).

I beg to fundamentally disagree with AG Sharpston on this crucial point. As I submitted in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?, undertakings (or companies) deserve a relatively more limited protection than individuals under the ECHR and, more specifically, under Article 6(1) ECHR—at least as regards non-core due process guarantees, such as the standard of review applicable to the revision of competition law decisions. In my opinion, only by acknowledging this and redimensioning the procedural guarantees granted to undertakings can the system be made manageable and the workload of the EU Courts rationalised and focused in areas of EU Law that require more effort and investment in terms of (human capital, judicial) resources. By following in the path dependence of granting undertakings full protection (ie implicitly, by making them beneficiaries of 'corporate human rights'), the problems can only become more and more intractable.

 

This is an issue on which I am conducting further research (which I hope to be able to publish soon) but, for the time being, suffice it to say that I consider AG Sharpston's editorial comment a clear indication of the fact that the CJEU does not seem to be aware that it is putting a nose around its neck by part-taking in the inflation of 'corporate human rights'--just as it is doing by favouring the hypertrophy of the preliminary reference mechanism, as already criticised here. If it wants to be part of the solution, maybe it could well start by minimising the problem.

CJEU toys with the one stop shop approach and muddies the waters of State Aid analysis (C-284/12)

In its Judgment of 21 November 2013 in case C-284/12 Deutsche Lufthansa, the Court of Justice of the EU has further defined the role of domestic courts hearing State aid cases and has clarified the legal effects that result from an Article 108(2) TFEU Decision whereby the European Commission decides to open a formal investigation and expresses a preliminary opinion on the incompatibility of certain State aid measures with Article 107(1) TFEU.

 

In the case at hand, Lufthansa intended to avail itself of a Commission's Article 108(2) TFEU Decision that opened an in-depth investigation on certain types of aid received by Ryanair for its activities at Frankfurt Hahn Civil Airport (operated by FFH). Prior to the Commission's investigation, Lufthansa initiated private litigation and sought an order for the recovery of certain payments made to Ryanair and an additional order that there be no future aid for the benefit of Ryanair. The initial dismissal of Lufthansa's action was under appeal when the Commission formally decided to investigate the case.

 

After learning that the Commission had opened an in-depth investigation, Lufthansa contended that the domestic courts were barred from conducting their separate assessment under Articles 107 and 108 TFEU and were bound to follow the preliminary assessment of the Commission--which indicated that 'each of the measures in question was selective and constituted State aid within the meaning of Article 107(1) TFEU, unless it satisfied the private investor principle. As regards that principle, the Commission noted that, on the basis of the information available to it at the time of the adoption of the [Decision], the airport fees paid by Ryanair were not enough to cover the costs incurred by FFH'.

 

The German courts were not satisfied and asked the Commission for its opinion under the relevant provisions in the Notice on the enforcement of State aid law by national courts. Unsurprisingly,  the Commission supported Lufthansa and replied that the domestic court itself was not required to assess whether the measures in question could or could not be classified as State aid as it could take the Commission's Decision as a basis for drawing all the necessary inferences from the infringement of Article 108(3) TFEU. The German court was still not persuaded and made a preliminary reference.

 

In its Lufthansa Judgment, the CJEU has ruled that:

37 While the assessments carried out in the decision to initiate the formal examination procedure are indeed preliminary in nature, that does not mean that the decision lacks legal effects.

38 It must be pointed out in that regard that, if national courts were able to hold that a measure does not constitute aid within the meaning of Article 107(1) TFEU and, therefore, not to suspend its implementation, even though the Commission had just stated in its decision to initiate the formal examination procedure that that measure was capable of presenting aid elements, the effectiveness of Article 108(3) TFEU would be frustrated.

39 On the one hand, if the preliminary assessment in the decision to initiate the formal examination procedure is that the measure at issue constitutes aid and that assessment is subsequently confirmed in the final decision of the Commission, the national courts would have failed to observe their obligation under Article 108(3) TFEU [...] to suspend the implementation of any aid proposal until the adoption of the Commission’s decision on the compatibility of that proposal with the internal market.

40 On the other hand, even if in its final decision the Commission were to conclude that there were no aid elements, the preventive aim of the State aid control system established by the TFEU [...] requires that, following the doubt raised in the decision to initiate the formal examination procedure as to the aid character of that measure and its compatibility with the internal market, its implementation should be deferred until that doubt is resolved by the Commission’s final decision.

41 It is also important to note that the application of the European Union rules on State aid is based on an obligation of sincere cooperation between the national courts, on the one hand, and the Commission and the Courts of the European Union, on the other, in the context of which each acts on the basis of the role assigned to it by the Treaty. In the context of that cooperation, national courts must take all the necessary measures, whether general or specific, to ensure fulfilment of the obligations under European Union law and refrain from those which may jeopardise the attainment of the objectives of the Treaty, as follows from Article 4(3) TEU. Therefore, national courts must, in particular, refrain from taking decisions which conflict with a decision of the Commission, even if it is provisional.

42 Consequently, where the Commission has initiated the formal examination procedure with regard to a measure which is being implemented, national courts are required to adopt all the necessary measures with a view to drawing the appropriate conclusions from an infringement of the obligation to suspend the implementation of that measure (C-284/12, paras 37-42, emphasis added).

So far, the solution is clear cut and seems to impose a very clear preference for Commission (preliminary) assessment over any other assessment independently carried out by domestic courts. This would strengthen the one stop shop approach derived from the Commission's monopoly over the enforcement of Article 107 and 108 [except for the direct effect of 108(3) TFEU] and would strengthen the current centralised enforcement system.

 

However, in the two followning paragraphs, the CJEU muddies the waters by further ellaborating and indicating that:

43 To that end [ie to draw the appropriate conclusions from an infringement of the obligation to suspend the implementation of that measure] national courts may decide to suspend the implementation of the measure in question and order the recovery of payments already made. They may also decide to order provisional measures in order to safeguard both the interests of the parties concerned and the effectiveness of the Commission’s decision to initiate the formal examination procedure.

44 Where they entertain doubts as to whether the measure at issue constitutes State aid within the meaning of Article 107(1) TFEU or as to the validity or interpretation of the decision to initiate the formal examination procedure, national courts may seek clarification from the Commission and, in accordance with the second and third paragraphs of Article 267 TFEU, as interpreted by the Court, they may or must refer a question to the Court for a preliminary ruling (see, to that effect, as regards requests for preliminary rulings on the validity of State aid, Case C-222/04 Cassa di Risparmio di Firenze and Others [2006] ECR I-289, paragraphs 72 to 74) (C-284/12, paras 43-44, emphasis added).

In my view, this reopens the question and destroys the one stop shop approach (or, in more clear terms, the approach in para 44 basically deactivates all the reasoning in paras 39-40 and introduces a level of uncertainty and procedural complication that seems unnecessary). And I wonder where are the concerns about the effectiveness of Article 108(3) TFEU that had previously been alluded to in para 38, particularly if the preliminary reference is made before any interim measures are adopted (and what would be the use for it otherwise?). 

 

As I already indicated when I criticised the Advocate General's Opinion in this case (here), this can create significant complications by way of parallel procedures (before the Commission, the national courts and the CJEU) in one and the same case. Such duplication of procedures can only result in a waste of resources and, most likely, in legal uncertainty and potentially contradictory outcomes.

 

Leaving the door open for a reference for a preliminary ruling (of validity) against a provisional assessment of the European Commission is excessively deferential towards domestic courts and can have significant undesirable effects. This is not satisfactory and it starts to be evident that there is a need for the adoption of a more streamlined procedural system where (in the absence of a decentralised enforcement system for State aid, which may well be superior), national courts would have to suspend their powers of interpretation of the concept of aid and limit their role to the adoption of effective interim measures when the Commission is still completing its investigation on a given measure.

In my view, this could be easily achieved by simply applying Article 4(3) of the Treaty on European Union, since the need for sincere cooperation in this type of matters seems out of the question (an argument the CJEU has used differently in Lufthansa). Nonetheless, it is now clear that the CJEU is not willing to go very far in striking a more sustainable balance between the sphere of jurisdiction/competence of domestic courts and ensuring a manageable procedural system in State aid law. In my view, domestic courts should resort to the possibilities outlined in para 44 of the Lufthansa Judgment only in very extreme cases (if ever).

GPS' strategy and planning framework agreement could have been fatally flawed (or the joys of copy & paste)

The Government Procurement Service (GPS) has recently announced the entry into force of a new framework agreement for strategy & planning services that gives all public sector organisations access to 15 agencies providing strategic communications support including campaign strategy development, trend forecasting and target audience identification.  According to GPS,

The new framework makes the most of the public sector’s buying power and will deliver savings of up to £1 million a year for the taxpayer, whilst maximising the quality of innovative work offered by agencies. With 60% of suppliers on the framework being small and medium enterprises (SMEs), the new framework gives SMEs real opportunities to secure government contracts.

It is interesting to stress that the conclusion of this framework agreement could have been fatally flawed due to a significant oversight in the tender documentation--which originally failed to meet the fundamental requirement that 'multiparty' framework agreements must expressly indicate the contracting authorities that call-off work under the agreement.

 

Under Article 32(2)II of Directive 2004/18,

Contracts based on a framework agreement [...] may be applied only between the contracting authorities and the economic operators originally party to the framework agreement.

The European Commission has interpreted that requirement in the following terms:

in the case of a framework agreement concluded by a central purchasing body acting as an intermediary [...] it would not therefore be sufficient to indicate that the agreement can be used by “contracting authorities” established in the Member State in question. In fact, such an indication might not render it possible to identify the entities that are parties to the agreement due to the difficulties that may arise in determining whether an entity does or does not meet the definition of a body governed by public law. On the other hand, a description permitting immediate identification of the contracting authorities concerned — for example “the municipalities of x province or of y region” – renders it possible to verify that the provision of Article 32(2), second indent has been observed.

Such a requirement is well-know to GPS since, under its previous existence as the Office of Government Commerce (OGC), it published Guidance on Framework Agreements where it went beyond the interpretation of the European Commission and indicated that

When class descriptions do not allow ‘immediate identification of the contracting authorities concerned”, a reference to where details of the authorities covered can be obtained should be included in the notice. For example, if there is an accessible list of contracting authorities in a relevant “class”, or an organisation with responsibility for maintaining details of the members of a “class”, that list or organisation should be quoted in the Contract Notice and, where possible, a link to this information included.

In view of all such guidance as to the required level of precision of the scope of application of framework agreements, it seems rather clear that the initial tender documentation for GPS' strategy & planning services framework was indeed incomplete. The Schedule of Requirements for the tender indicated that

Full details of the Contracting Bodies eligible to access the Strategy and Planning Framework Agreement, can be found in the OJEU Contract Notice. Only those listed (including the organisations described on the appropriate webpage links) will be able to access the Framework Agreement.

However, in the notice sent to the Official Journal of the European Union (OJEU), there was no such list. GPS indicated that

Government Procurement Service as the Contracting Authority is putting in place a Pan Government Collaborative Framework Public Sector bodies have a need for a range of strategy & planning services within the communications / marketing sector. This requirement is not seeking market research, creative or mediabuying services. Agreement for use by the UK public sector bodies identified at VI.3 (and any future successors to these organisations), which include Central Government Departments and their Arm's Length Bodies and Agencies, Non Departmental Public Bodies, NHS bodies and Local Authorities.

And the, in the relevant part of the notice (VI.3), it is simply stated that:

Government Procurement Service wishes to establish a Framework Agreement for use by the following UK public sector bodies (and any future successors to these organisations): “Copy the latest version of the Customer List here” (emphasis added). 

Now, this may just seem too embarrassing to be true (where are the proof-readers?), but such a failure to include the list of contracting authorities that can resort to the framework agreement to call-off contracts for strategy & planning services would have rendered the whole framework agreement ineffective under EU public procurement rules.

 

Luckily, someone eventually spotted the mistake and GPS published an addition to the original OJEU notice, where a full list of 'classes' of contracting entities and public bodies (with weblinks to further developed lists) was included. GPS has not kept this additional publication in its publicly available file, so it took some digging to find it out. However, it is clear to me that the initial omission has been effectively corrected.

 

Nonetheless, I think that the case is still worth considering a bit further. In case the additional information had not been published and some litigation followed the conclusion of the framework agreement, it would all have boiled down to determining whether the ommission of the specific list of bodies covered by the framework agreement was cured or covered by the general description that the agreement would have been available to 'Government Departments and their Arm's Length Bodies and Agencies, Non Departmental Public Bodies, NHS bodies and Local Authorities.'

 

In my view, such a description would have been too vague to meet the requirements of current Article 32(2)II of Directive 2004/18. This conclusion may be slightly less clear under the future rules on framework agreements, as Article 31(2)II of the new public sector procurement Directive is bound to mandate that

Contracts based on a framework agreement [...] may be applied only between those contracting authorities clearly identified for this purpose in the call for competition or the invitation to confirm interest and those economic operators party to the framework agreement as concluded.

However, I would submit that the 'clearly identified' prong of the test still would need to follow the guidance provided by the European Commission and OGC (discussed above), so that at least a reference to where details of the authorities covered can be obtained should be included in the notice.

Isn't silence golden? A comment on Menager's "Communication in Procurement" (2013)

In a recent thought-provoking paper, Lucie Ménager questions one of the basic assumptions in competition law enforcement against bidding rings in public procurement: that pre-tender communication amongst bidders is prejudicial. In her working paper "Communication in procurement: silence is not golden", she claims that

Contrary to the conventional wisdom, the buyer's expected revenue and the surplus need not decrease with collusion, and the ex-ante surplus increases with the amount of information revealed in equilibrium. This is because when communication is cheap, bidders cannot directly collude on higher prices. Rather, communication leads to a competition between fewer, but more aggressive bidders, which entails more allocative efficiency and a decrease in the total wasteful entry cost (emphasis added).

The proposition indeed seems to challenge conventional wisdom about cartelization in public procurement markets and, consequently, the assumptions of the model deserve some close consideration. It is also relevant to stress that, throughout the paper, the author herself waters down this claim and its implications--which may have warranted a revision of the abstract (?).

 

In my view, the example used as the rationale for the paper (the well known Boeing-Airbus struggle over a $40bn USAF aircraft contract between 2008-11) might have primed the author in some of her considerations, which may downplay the relevance of the fact that reputation-based messages or threats are usually of scant significance in public procurement markets, unless very specific circumstances concur--which, mainly, boil down to the (pre-)existence of a very closed oligopoly, the presence of (very high) bidding costs, and a situation where all members of the colluding oligopoly communicate public messages before the tender [conditions that will be introduced slowly and progressively into the model, but which are not clearly spelled out from the beginning].

 

The paper eventually acknowledges these restrictions in its technical construction (where the preexistence of a cartel is clearly indicated as a condition for the 'cheap-talk' game; see pages 10 and 12), but it may not be equally clear in the narrative--where there is no clear indication as to the very rare occurrence of all of the conditions for the game equilibria to hold. 

 

Moreover, the author itself stresses that, even within the model,

Keeping participation secret from bidders could then be a way to prevent collusion. This is consistent with the competition authorities' recommendation according to which sellers should not be allowed to communicate about their intention to participate. Though, this solution is practically hard to implement in the case of public procurements, for which bid preparation may last several years (p. 17, emphasis added).

This also bears stressing, as only a very limited number of procurement projects require the preparation of bids over a number of years.

  

Also, it needs to be underlined that the 'cheap talk' strategy is only relevant if there are significant (discrete) participation costs that the bidder can (completely) avoid if (as a result of the signalling derived from the 'cheap talk phase') it decides to stay out of the procurement. However, and very relevant here, significant participation costs are incurred upfront where bidders are invited/accepted to complex procurement procedures (such as competitive dialogues in the EU) and which are necessary to even reach the phase where bidders have a relatively clear idea of the 'private' valuation or production costs--and that, in my view, would require incorporating the role of 'sunk costs' into the decision-making processes analysed in the game.

 

Finally, it is also worth emphasising that, despite the design of the model as a repeated game (or, at least, its requiring some prior experience by the bidders in tendering against each other), dynamic (welfare) effects are not taken into account. In that regard, it would still be required to assess whether the potential allocative efficiency derived from a decrease in total wasteful participation costs is not outweighed by negative dynamic effects, such as market exit, reduction of innovation or, eventually, the evolution of the 'soft cartel' necessary for the model to work into a full-fledged hard cartel (where cheap talk is no longer cheap, but an all encompassing bid rigging strategy--something that the author will reckon as a sort of an after-thought in her concluding remarks).

 

In my view, the very extreme (and sometimes artificial and disconnected from the way particularly complex procurement processes work) assumptions of the model may reduce the validity (or, rectius, the practical relevance) of some of the findings of the paper--or, at least, of the normative propositions that could be derived therefrom. To her merit, it should be stressed that the author herself acknowledges that by indicating that

We do not think [these] results advocate authorizing communication between sellers in public procurements, though. Clearly, if communication is not cheap, sellers can either collude on higher prices, which indeed increases public spending, or on bid rotation schemes which are generally inefficient. Rather, we think these results emphasize how di fferent can be the outcome implications of cheap-talk and binding communication(emphasis added).

After reading the paper, and particularly because cheap talk is twinned to high participation costs (which eventually force bidders to put their money where their mouth is), it is hard to actually appreciate the differences between such 'cheap talk' and other forms of 'binding' communication within cartel rings. It follows that it is also difficult to extract any normative recommendation from the paper (and this should be stressed, as a superficial reading of the title, abstract and introduction may provide the contrary impression). Its scope is much narrower than it could seem at first glance and no changes on the existing rules and enforcement priorities agains bid rigging should be derived from the findings of the paper. Much ado about nothing? Nonetheless, in purely intellectual terms, it is interesting to read, particularly for game theory scholars.

CJEU rejects avoidance of litigation as a valid 'overriding reason in the public interest' justifying a direct award of a concession contract (C-212/12)

In its Judgment of 14 November 2013 in case C-221/12 Belgacom, the CJEU has rejected that the avoidance of litigation can be considered a valid 'overriding reason in the public interest' justifying a direct award of a concession contract. In other terms, the fact that the award of the services concession forms part of a settlement agreement is irrelevant for the purposes of determining compliance with the EU primary law requirements applicable to the award of such contracts.

 

In very clear terms, the CJEU has indicated that

37 [...] since such a concession is of certain cross-border interest, its award, in the absence of any transparency, to an undertaking located in the Member State to which the contracting authority belongs, amounts to a difference in treatment to the detriment of undertakings which might be interested in that concession but which are located in other Member States. In excluding those undertakings, that difference in treatment works primarily to their detriment and therefore amounts to indirect discrimination on grounds of nationality, which is, in principle, prohibited by Articles 49 TFEU and 56 TFEU (see, to that effect, ASM Brescia, paragraphs 59 and 60 and the case-law cited).

38 Such a measure might, exceptionally, be allowed on one of the grounds set out in Article 52 TFEU or justified by overriding reasons in the public interest, in accordance with the Court’s case-law (see, by analogy, Engelmann, paragraphs 51 and 57 and the case-law cited, and Joined Cases C‑357/10 to C‑359/10 Duomo Gpa and Others [2012] ECR I-0000, paragraph 39 and the case-law cited). On this last point, it is clear from a combined reading of paragraphs 51 and 57 of Engelmann that no distinction need be drawn between objective circumstances and overriding reasons in the public interest. Objective circumstances must, ultimately, be accepted as overriding reasons in the public interest.

39 The grounds put forward in the application in the present case, whether considered separately or together, cannot be regarded as being overriding reasons in the public interest.

40 The principle of legal certainty, which is a general principle of European Union law, provides ample justification for observance of the legal effects of an agreement, including – in so far as that principle requires – in the case of an agreement concluded before the Court has ruled on the implications of the primary law on agreements of that kind and which, after the fact, turn out to be contrary to those implications (see, to that effect, ASM Brescia, paragraphs 69 and 70). However, that principle may not be relied on to give an agreement an extended scope which is contrary to the principles of equal treatment and non-discrimination and the obligation of transparency deriving therefrom. It is of no import in that regard that that extended scope may offer a suitable solution for putting an end to a dispute which has arisen between the parties concerned, for reasons outside their control, as to the scope of the agreement by which they are bound (Case C-221/12 at paras 37-40, emphasis added).

This is a very important finding, as it comes to limit the discretion of contracting authorities to (re)negotiate contract awards and to extend the scope of contracts in order to settle arising legal disputes. It may be seen as a significant restriction of sensible contract and dispute management strategies in the altar of transparency, but the CJEU seems to have opted to err on the cautious side of the balance--which I consider appropriate, given that renegotiations are an area prone to massive manipulation and rule avoidance in public procurement in many Member States.

 

However, the practical effects of the Belgacom Judgment may be relatively limited once the future procurement Directives are adopted, as they will expressly regulate contract modification and set clear limits that will trigger the obligation to retender the contract (see art 72 of the new public sector procurement Directive and art 42 of the new Concessions Directive).

CJEU kicks new #concessions Directive in the shins (C-388/12)

In its Judgment of 14 November 2013 in case C-388/12 Comune di Ancona, the CJEU has put forward an argument for the existence of cross-border interest in the award of (public service) concession contracts that openly challenges the quantitative rationale followed by the planned new Directive on Concessions.

The new Directive on Concessions is premised on the basis that cross-border interest will (only?) exist where the value of the contract is above €5 million, calculated as the estimated total turnover of the concessionaire generated over the duration of the contract, net of VAT (art 6). This is clearly indicated in its Recital (10):

This Directive should only apply to concession contracts whose value is equal to or greater than a certain threshold, which should reflect the clear cross-border interest of concessions to economic operators located in other Member States (emphasis added).

Such a quantitative approach to determining the existence of a cross-border interest may be difficult to reconcile with the qualitative approach followed by the CJEU in Comune de Ancona.

In the case at hand, a concession for the management of a European Regional Development Fund (ERDF)-supported portuary infrastructure (a slipway) was directly awarded by the Comune di Ancona to the local fishermen cooperative. The justification provided for the direct award was, rather simply, that 'it was not necessary, for the purposes of granting a concession for management of the slipway, to publish a call for tenders, in so far as no operators apart from the Pescatori cooperative were interested in that concession' (C-388/12 at para 16). In part, one of the reasons to consider that there would be no other bidder for the concession was that the concession was awarded

subject to a number of conditions. These included the obligation to pay the Comune di Ancona an annual charge calculated in such a way as to avoid substantial net revenue being generated for either the concession-granting authority or the concessionaire; a prohibition on modifying the implementation conditions of the operation eligible for funding; a prohibition on engaging in profit-making activity; the obligation to comply with all the applicable EU directives and standards; and the obligation to maintain the public-service function and intended use of the structure at issue. It was also stated that the slipway was to remain, in any event, the property of the Comune di Ancona (C-388/12 at para 12).

In a thoughtful and market-realistic approach to the existence of potential (corporate) interest in being awarded a non-revenue generating concession as a first step into a new market, the CJEU has clearly indicated that

50 [...] the Comune di Ancona has not invoked any objective facts capable of explaining the lack of any transparency in the award of the concession. On the contrary, it maintained that the concession was not liable to interest undertakings located in other Member States, in so far as the concession granted to the Pescatori cooperative was designed so as not to be capable of generating substantial net revenue for its beneficiary or an undue advantage for the latter or for the municipality.

51 However, the fact that a concession is not capable of generating substantial net revenue or an undue advantage for an undertaking or for a public body does not, in itself, support the inference that the concession is of no economic interest for undertakings located in Member States other than that of the contracting authority. In the context of an economic strategy to extend part of its activities to another Member State, an undertaking may take the tactical decision to seek the award in that State of a concession despite the fact that that concession is incapable as such of generating sufficient profit, since that opportunity could nevertheless enable the undertaking to establish itself on the market of that State and to make itself known there with a view to preparing its future expansion.

52 [...] in circumstances such as those of the case before the referring court, EU law does not preclude the award, without a call for tenders, of a public service concession relating to works, provided that that award is consistent with the principle of transparency, observance of which, without necessarily entailing an obligation to call for tenders, must make it possible for an undertaking located in the territory of a Member State other than that of the contracting authority to have access to appropriate information regarding that concession before it is awarded, so that, if that undertaking so wishes, it would be in a position to express its interest in obtaining that concession (C-388/12 at paras 50-52, emphasis added).

In my view, the argument used by the CJEU in para 51 of Comune di Ancona is sound in terms of business strategy and makes perfect sense. However, even if it focusses on 'net revenue' and the threshold of Art 6 of the future Concessions Directive only refers to 'total turnover' (hence, they are not in stark conflict, as the threshold may catch concessions with a high turnover but very low operational or commercial margins), the qualitative approach followed by the CJEU should trigger some red flags.

 

I find that this shows that the quantitative approach adopted by the future Directive on Concessions will not mark the end of the story in the ongoing discussion regarding the rules and requirements applicable to contracts not covered by the procurement Directives--and, more specifically, to services concessions. It seems to me that a dual legal regime will persist between 'Directive concessions' and 'Ancona concessions', where the CJEU will continue pointing out to the potential existence of cross-border interest for concessions with a value below €5mn (or in the excluded and preferential sectors, such as water or social services).

 

If that is so, the passing of the new Directive on Concessions will only have increased legal complexity in this area and should not be seen as a necessarily positive development [as discussed in A Sánchez Graells, 'What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of Their Economic Balance?' (2012) European Public Private Partnerships Law Review 2: 94-104]. I guess that, once more, we will need to keep an eye on further developments of the CJEU case law.

Difficult balance between #transparency and #competition in #publicprocurement

I have just uploaded a new paper on SSRN on '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'. The abstract is as follows:

This paper stresses the negative impact that the excessive levels of transparency imposed by public procurement rules can have on competition for public contracts and, more generally, on the likelihood of cartelisation of the markets where public procurement takes place. The paper critically assesses some recent Judgments of the Court of Justice of the European Union and the General Court from this perspective and shows how the top EU Courts are still oblivious to the fact that excessive transparency may diminish the effectiveness of procurement by reducing competition. It also indicates that the case law itself has unused balancing tools that may help reduce the negative impact of excessive transparency, particularly if coupled with a reduction of the financial incentives offered to litigants that have no other claim than a 'mere' lack of compliance with full transparency. The paper concludes that a reform in the enforcement and oversight mechanisms oriented towards the setting up of a semi-opaque review system would overcome some of the deficiencies identified in the current case law from a law and economics perspective.

Sánchez Graells, A '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' (November 2013). University of Leicester School of Law Research Paper No. 13-11. Available at SSRN: http://ssrn.com/abstract=2353005.

GC rules on two-part State aid measures and selectivity under Art 107(1) TFEU (T-499/10)

In its Judgment of 12 November 2013 in case T-499/10 MOL v Commission, the General Court has found that an authorisation agreement that froze the mining fees payable for the explotaition of hydrocarbon reserves and that exempted the beneficiary from complying with a posterior law that increased the applicable mining fees does not constitute State aid incompatible with the internal market. In my view, the Judgment is interesting for the guidance it provides regarding the analysis of two-part or complex State aid measures.

 

In the case, MOL and the Hungarian State entered into an authorisation agreement in 2005 whereby the mining rights assigned to MOL were extended and the mining fees payable in return were determined on a non-revisable basis for the period 2005-2020. Later, a 2008 law reform significantly increased the mining fees that would have been payable for the exploitation of those same fields. However, in view of the 2005 agreement, MOL was exempted from topping up the mining fees it was liable to pay. Competitiors and potential new entrants were subject to the revised (higher) fees.

 

The Commission took the view that, given the way the 2005 agreement and the provisions of the 2008 amendment had been designed, they should be regarded as part of the same measure and it concluded that their combined effect conferred an unfair advantage to MOL.

 

According to the Commission, even if the 2005 agreement was concluded in accordance with the Mining Act then in force and even if it was up to the Member State to set the mining fees, the effects produced were not necessarily compatible with the State aid rules of the Treaty, although, taken in isolation, neither the 2005 agreement nor the 2008 amendment was contrary to these rules.

 

It is important to stress that MOL was the only operator in the hydrocarbons sector to have obtained an extension of its mining rights, since other extension agreements concerned undertakings extracting solid minerals, for which mining fees were not amended.  The Commission considered that the measure fulfilled the criteria enshrined in Article 107(1) TFEU and should be considered as State aid, and that there was nothing to indicate that it could be compatible with the internal market.

 

The Hungarian authorities challenged the Commission's position arguing that the measure did not constitute State aid, since the 2005 agreement conferred MOL no advantage and was not selective, as the company received no preferential treatment resulting from that agreement. Hungary further stressed that undertakings making large investments in mining projects require long‑term certainty in respect of the applicable mining fees and charges and that, consequently, mining fees subject to agreement should be fixed and stable for the entire duration of the respective agreement.

  

 

The GC has reviewed the Commission's decision and, mainly on the basis of the 'selectivity' requirement under Article 107(1) TFEU, has found that:

46 [...] although the Commission considered that the contested measure had, in those two constituent elements, favoured the applicant, it drew attention to the fact that the extension agreement was, by itself, selective, on account of the manner in which it had been negotiated and concluded [...]. In stating that the 2005 agreement and the 2008 amendment had resulted in the applicant’s benefiting from lower mining fees than those of the other operators until 2020, the Commission drew attention to the selective nature of the 2005 agreement vis-à-vis the applicant only [...], since the benefit of such mining fees stems solely from the agreement, which sets the rate of the increased mining fee for each of the fifteen years of duration of the agreement, and which provides that the rates thus set will be determined solely in accordance with its provisions and that those rates will stay unchanged [...]. Moreover, by concluding that the applicant was subject to a specific regime shielding it from any increase in mining fees [...], the Commission necessarily took the view that the criterion of selectivity of the contested measure had been met, on the ground that, in the light of its characteristics mentioned above, the 2005 agreement was selective. [...]

54 With respect to the selective nature of the aid measure, it must also be observed that Article 107(1) TFEU does not distinguish between measures of State intervention by reference to their causes or their aims but defines them in relation to their effects (Case C‑409/00 Spain v Commission [2003] ECR I‑1487, paragraph 46). It follows that the application of that provision only requires it to be determined whether under a particular statutory scheme a State measure is such as to favour ‘certain undertakings or the production of certain goods’ over others which are in a legal and factual situation that is comparable in the light of the objective pursued by the measure in question (see Spain v Commission, paragraph 47 and the case-law cited). If so, the aid measure satisfies the condition of selectivity which defines State aid as laid down by that provision. [...]

62 As a preliminary point, it should be recalled that the contested measure consists of two elements, namely the 2005 agreement, which sets mining fee rates for all the applicant’s fields, whether in production or the subject of extension, for each of the fifteen years of duration thereof, and the 2008 amendment, which increases mining fee rates for all hydrocarbon fields under authorisation, but does not contain any provisions relating to fields that have already been the subject of an extension agreement.

63 In that regard, it should be noted at the outset that the Commission was right to state [...] that the 2005 agreement is not contrary to the State aid rules. Since the fees stipulated by the 2005 agreement, which were applicable to both fields already in production and fields concerned by extension of authorisation, were higher than the statutory fees applicable at the time of its conclusion, that agreement did not involve any State aid element for the purposes of Article 107 TFEU.

64 Next, the Court considers that, where a Member State concludes with an economic operator an agreement which does not involve any State aid element for the purposes of Article 107 TFEU, the fact that, subsequently, conditions external to such an agreement change in such a way that the operator in question is in an advantageous position vis‑à‑vis other operators that have not concluded a similar agreement is not a sufficient basis on which to conclude that, together, the agreement and the subsequent modification of the conditions external to that agreement can be regarded as constituting State aid.

65 In the absence of such a principle, any agreement that an economic operator might conclude with a State which does not involve any State aid element for the purposes of Article 107 TFEU would always be open to challenge, where the situation on the market on which the operator party to the agreement is active evolves in such a way that an advantage is conferred on it [...] or where the State exercises its regulatory power in an objectively justified manner following a market evolution whilst observing the rights and obligations resulting from such an agreement.

66 However, a combination of elements such as that observed by the Commission in the contested decision may be categorised as State aid where the terms of the agreement concluded were proposed selectively by the State to one or more operators rather than on the basis of objective criteria laid down by a text of general application that are applicable to any operator. In that regard, it must be pointed out that the fact that only one operator has concluded an agreement of that type is not sufficient to establish the selective nature of the agreement, since that may result inter alia from an absence of interest by any other operator.

67 Moreover, it should be recalled that, for the purposes of Article 107(1) TFEU, a single aid measure may consist of combined elements on condition that, having regard to their chronology, their purpose and the circumstances of the undertaking at the time of their intervention, they are so closely linked to each other that they are inseparable from one another (see, to that effect, Joined Cases C‑399/10 P and C‑401/10 P Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others [2013] ECR I‑0000, paragraphs 103 and 104). In that context, a combination of elements such as that relied upon by the Commission in the contested decision may be categorised as State aid where the State acts in such a way as to protect one or more operators already present on the market, by concluding with them an agreement granting them fee rates guaranteed for the entire duration thereof, whilst having the intention at that time of subsequently exercising its regulatory power, by increasing the fee rate so that other market operators are placed at a disadvantage, be they operators already present on the market on the date on which the agreement was concluded or new operators.

68 It is in the light of those considerations that it is necessary to examine whether, in the present case, the Commission was entitled to consider that the contested measure was selective, on the ground that, in so far as the 2005 agreement sets the rate of the increased mining fee for each of the fifteen years of its duration and provides that the rates thus set would remain unchanged, it was selective (T-499/10 at paras 46-68, emphasis added).

On the basis of the very specific circumstances of the case, the GC finds that the 2005 agreement was not selective that its combination with the 2008 amendment does not alter this finding and, consequently, annuls the Commission's incompatibility Decision.

 

Beyond the specific circumstances of the case, I think that the analytical framework sketched by the GC includes some useful guidance [such as the stress on the close chronological requirement, or the selectivity element (implicitly) required in all the components of a two-stage or complex State aid measure] but also some troubling hints at a less than objective assessment.

 

In that respect, regardless of the emphasis put on the standard legal position that 'Article 107(1) TFEU does not distinguish between measures of State intervention by reference to their causes or their aims but defines them in relation to their effects' (para 54), the GC goes on to stress that 'a combination of elements such as that relied upon by the Commission in the contested decision may be categorised as State aid where the State acts in such a way as to protect one or more operators already present on the market, by concluding with them an agreement granting them fee rates guaranteed for the entire duration thereof, whilst having the intention at that time of subsequently exercising its regulatory power, by increasing the fee rate so that other market operators are placed at a disadvantage' (para 67). Therefore, the GC does build in an element of (reverse) causality or, probably more accurately, of volition or intention that seems extraneous to the State aid control system.

 

If Article 107(1) TFEU is meant to avoid distortions of competition in the internal market, when confronted with sequential, two-part or complex aid measures, the fact that they all formed part of a 'master plan' from the outset or are the 'random or supervening' result of discrete interventions should be irrelevant. Otherwise, the burden of proving 'distortive intent' from the outset may simply make it impossible to pursue these cases. However, it may well be that the remarks made by the GC in para 67 of MOL v Commission will remain a 'mere' obiter dictum and that the assessment of two-part or complex measures will remain much more objective in the future (as indeed, is the case with the rest of the Judgment).

Is Costa v Enel forgotten? CJEU trips over supremacy and direct effect in case concerning Art 41(2)(c) CFREU (C-313/12)

In its Judgment of 7 Movember in case C-313/12 Romeo, the Court of Justice of the EU issued an important ruling concerned with the extension of the obligation to state reasons derived from Article 41(2)(c) of the Charter of Fundamental Rights of the EU in purely domestic situations.

 

In the case at hand, the CJEU was especifically presented with a query regarding the compatibility with Article 41(2)(c) CFREU (and, more generally, with the case law on the duty to state reasons) of an Italian rule whereby faulty administrative decisions would not be quashed if the authorities supplemented their statement of reasons in subsequent court proceedings.

 

In my view, the reasons offered by the CJEU to decline jurisdiction to respond to the questions referred by the Italian court show a poor understanding of (or a lack of willingness to give effect to) the changed nature of the Charter after the entry into force of the Treaty of Lisbon. As very clearly stated, 'the EU Charter of Fundamental Rights is now legally binding, having the same status as primary EU law' [for discussion, see S Douglas-Scott, 'The European Union and Human Rights after the Treaty of Lisbon' (2011) Human Rights Law Review 11(4): 645-682].

 

In that regard, keeping in mind that Article 6(1) of the Treaty on European Union now very clearly indicates that 'The Union recognises the rights, freedoms and principles set out in the Charter of Fundamental Rights of the European Union of  [...] which shall have the same legal value as the Treaties' (emphasis added), it is very hard to understand how the CJEU can have unblinkingly held that:

it cannot be concluded that [...] Article 41(2)(c) of the Charter or indeed other rules of European Union law concerning the obligation to state reasons for acts have been made directly and unconditionally applicable (sic), as such, by [the relevant Italian rules], so that internal situations and situations relating to European Union law are treated in the same way. Therefore it must be held that, in the present case, there is no clear European Union interest in a uniform interpretation of provisions or concepts taken from European Union law, irrespective of the circumstances in which those provisions or concepts are to apply (C-313/12 at para 37, emphasis added).

I cannot get my head around the fact that, as no one would doubt, the CJEU has kept for time immemorial the position that the Treaties (now including the Charter of Fundamental Rights  for these purposes) are supreme and directly effective without any need for internal measures that receive them or recognise that they are directly and unconditionally applicable in all EU Member States--and, yet, it shows a stark resistance to apply these principles to the Charter (see also C-482/10 Cicala).

 

As very clearly summarised in Costa v Enel,

A Member State's obligation under the [Treaty], which is neither subject to any conditions nor, as regards its execution or effect, to the adoption of any measure either by the States or by the Commission, is legally complete and consequently capable of producing direct effects on the relations between Member States and individuals. Such an obligation becomes an integral part of the legal system of the Member States, and thus forms part of their own law, and directly concerns their nationals in whose favour it has created individual rights which national courts must protect (6/64, summary, point 7).

This, together with Art 6(1) TEU surely determines the supremacy and direct effect of the Charter--as also supported by an a contrario interpretation of Protocol No 30 on the Application of the Charter of Fundamental Rights of the European Union to Poland and the United Kingdom (what would be the purpose of the Protocol if not precisely to exclude such supremacy and direct effect regarding the UK and Poland?). Then, if the CJEU has not forgotten Costa v Enel, the only relevant question is: how are Judgments like Cicala and Romeo possible? Why is the CJEU (suddenly) so averse to (continuying to) act as constitutional court at EU level?

Missed opportunity for the CJEU to confirm 'non bis in idem' in State aid enforcement (C-560/12 P and C-587/12 P)

In contrast to its very recent Judgment in case C-77/12 P Deutsche Post, where the CJEU clearly barred the European Commission from adopting an indefinite number of 'follow up' decisions concerned with a single State aid investigation (in what I read as an incipient 'ne bis in idem principle' in State aid enforcement); in its  twin Judgments of 7 November 2013 in case C-560/12 P Wam Industriale v Commission and in case C-587/12  P Italy v Commission (only available in French and Italian), the CJEU has brushed aside a similar argument on the basis of its insufficient development by the appellant (C-560/12 P) and (implicitly) on the basis of the lack of independent legal effects of the fresh assessment carried out by the European Commission of the evidence on file after the initial decision had been quashed at judicial review (C-587/12 P). In my view, the Deutsche Post and (the set of) Wam Judgments are difficult to reconcile

 

In Wam, the European Commission had adopted a 2004 decision declaring the unlawfulness of State aid granted by the Italian State to support market expansion projects in Japan, Korea and China. After the quashing of the Commission's 2004 Decision by the GC in 2006 (T-304/04 and T-316/04) and the confirmation of that decision in 2009 by the CJEU (C-494/06), the Commission adopted a new incompatibility Decision in 2010.

 

In its challenge against the Commission's 2010 Decision (C-560/12 P), Wam argued that

the contested [2010] decision is not [merely] vitiated either by a 'procedural irregularity' or a 'formal defect', since the failure to state reasons does not constitute such a defect, but it rather lacks an "essential element", which effectively determines its nullity. In this case, therefore, there is a subjective claim preclusion between the parties [res iudicata] and, accordingly, the Commission, being under the obligation to give effect to the judgments of the Court in Italy and Wam v Commission [T-304/04 and T-316/04] and Commission v Italy and Wam [C-494/06], could not "in any way have adopted a new decision on the matter". The Court should therefore "for this [reason] only", have annulled the contested decision (C-560/12 P, para 6, own translation from Italian).

The argument sounds very similar to the one raised by Deutsche Post (although in that case the 'follow up' decision was not concerned with a full reassessment of the same measures, but with a fresh assessment of measures not expressly considered in the initial Decision eventually quashed), which the CJEU analysed in detail and actually backed in C-77/12 P.

However, in Wam the CJEU does not show the same appetite for the development of a strong limit on the Commission's ability to reopen a case after losing it on appeal (a sort of procedural estoppel or ne bis in idem), and dismisses the argument on the (very formal basis) that

15 By the first part of the first plea, it should be noted that the applicant merely submits that, for the mere fact [of the existence of] the judgments of the Court in Italy and Wam v Commission and Commission v Italy and Wam, the Commission would have been in any case precluded from adopting a new decision.
16 In that regard it should be noted that the argument concerning that matte is limited to a dozen lines on pages 26 and 27 of the appeal, the substance of which is taken up in paragraph 7 [sic, 6] of this judgment.
17 However, such an argument, marred by a lack of precision, clearly does not fulfill the conditions laid down in Article 169, paragraph 2, of the Rules of Procedure of the Court. Consequently, it must be rejected as inadmissible (C-560/12 P, paras 15-17, own translation from Italian).

In my view, in adopting this approach, the CJEU has been too keen to take an easy way out and has missed an opportunity to reaffirm and give further guidance on the limits applicable to the reopening of State aid investigations by the European Commission. However, the CJEU does look into more detail to a similar submission made by Italy in the other Judgment concerned with the same State aid measures, of the same date (C-587/12 P).

According to the Italian Republic,

7 [ ...] the Court erred in holding that the Commission did not have an obligation to open a new contradictory investigation procedure with the national authorities. Contrary to what the Court found, the point would not have been to establish, in general and in theory if, after a judgment of annulment for failure to state reasons, the Commission could or could not take up the procedure from the adoption of the [annulled] act.
8 The Italian Republic considers that, given that the Commission has "renew[ed] completely" the examination of all matters in the contested decision, introducing new facts, it has hence recognized that the "defects criticized", despite being considered as defects of the duty to state reasons, actually had substantial implications that made ​​it necessary to "redo from scratch" the 2004 decision.
9 The Italian Republic considers that the [...] factual elements consisting of the alleged "relative strengthening" of Wam and the alleged "freeing up of resources" could never have been deducted from the [initial] investigation procedure. Consequently, them being decisive elements for the demonstration of the existence of aid, the Commission should have opened a new adversarial procedure with the parties concerned [...]
10 The Commission claims that the first part of the first plea is unfounded. It points out that the annulment of the 2004 decision was based on a lack of motivation because [...] that decision did not explain in what way the aid in question could affect competition and trade between Member States. On the contrary, the Court failed to criticize the inquiry into the matter as carried out during the administrative procedure, nor did it identify any deficiency in this regard (C-587/12 P, paras 7-10, own translation from Italian).

The CJEU sides with the European Commission in the following terms:

11 It should be remembered that in the judgment of the Court in Italy and Wam v Commission as well as in the judgment in Commission v Italy and Wam, the investigation conducted by the Commission on the aid in question was not at all criticized.
12 [...] the General Court correctly pointed out that, according to settled case-law, the procedure for replacing an unlawful act that has been cancelled can be resumed at the point at which the illegality occurred, that the cancellation of a Union act does not necessarily affect the preparatory acts and, furthermore, that the annulment of an act that puts an end to an administrative proceeding which comprises several stages does not necessarily entail the annulment of the entire procedure prior to the adoption of  the contested measure for whatever reason, procedural or substantive, taken into account in the judgment of annulment.
13 [...] the Court also correctly pointed out that if, despite of the investigations that enable a comprehensive analysis of the compatibility of the aid, the Commission's analysis is found to be incomplete, and it involves the illegality of the decision, the procedure for replacing such a decision may be resumed at that point making a new analysis of the investigatory measures.
14 As regards the present case [...] the Court stated that the illegality of the 2004 decision [...] concerned the inadequate statement of reasons thereof. [...] the Court has, in fact, merely stated that this decision did not contain sufficient arguments that would allow the conclusion that they met all the conditions for the application of Article 107, paragraph 1, TFEU which was confirmed by the Court in its judgment in Commission v Italy and Wam. The illegality of the 2004 decision did not affect the proceedings before it. No argument leads to the conclusion that that procedure was, in itself, vitiated by any illegality.
15 As to the argument put forward by the applicant's claim that the Court failed to take account of the fact that the Commission has completely revisited the examination of all the evidence in the file and introduced new elements, it should be noted that this argument is not supported by anything which could demonstrate a misrepresentation of the facts relating to it by the Court.
16 As regards the applicant's claim that the Court, in the remainder of its reasoning, ignored any arguments to refute the conclusion set out in paragraph 50 of the judgment under appeal, the Court notes that, in paragraph 57 of that judgment, the Court stated that the circumstances relating to the strengthening of Wam's position and the release of resources were correctly assessed in the contested decision. The Court added in such a point that, in any case, it was not new factual circumstances, but considerations arising from the analysis of the Commission, based on elements with respect to which nothing allowed it to believe that they were not known at the time when the decision was taken in 2004. [...]
19 In these conditions [...] the General Court correctly concluded that the execution of the judgment of the Court in Italy and Wam v Commission and the judgment in Commission v Italy and Wam did not require the Commission to take on again the whole process provided for in Article 108 TFEU and that the Commission had erred, as a result of the same judgment, by not initiating a new formal investigation procedure.
20 The first part of the first plea is therefore unfounded (C-587/12 P, paras 11-20, own translation from Italian, emphasis added).

In my view, this is contradictory with Deutsche Post. There, the CJEU basically prevented the Commission from conducting a fresh (additional) assessment of the facts already contained in the file because, even if they were present from the beginning and known by the parties, because the initial decision adopted had exhausted the procedure and closed the investigation completely. Following the same line of reasoning, the Judgment in Wam should have been pointing in that direction by preventing the Commission from adopting a fresh 'theory of harm' on the basis of the facts already on file, as that would equally alter the legal position of the parties and would disregard the fact that the Commission had completely closed the investigation when adopting the initial (now quashed) incompatibility decision.

 

Effectively, Deutsche Post denied the Commission a second bite of the cherry, whereas Wam basically (potentially) allows for multiple bites. I find this inconsistency insatisfactory and, as I said already I would advocate for an approach where once a measure has been analysed and the Commission reaches a final decision, then the same measure should not be subjected to additional enquiries and no new findings of incompatibility should be acceptable.

 

In maybe more blunt terms, the Commission should have one shot (and only one) at each controversial State aid measure, in order to protect legal certainty and as an (implicit) requirement of the principle of good administration.

 

Overall, I would consider such a general principle a positive development in EU State aid law. It remains to be seen, however, whether there is true CJEU appetite for such a development.

Spanish competition watchdog CNMC issues report on health care outsourcing procurement

The Spanish Competition Authority has recently published a report on the application of its Guide on Public Procurement and Competition to public health care provision-related procurement in Spain (only available in Spanish: Aplicación de la Guía de Contratación y Competencia a los procesos de licitación para la provisión de la sanidad pública en España). 

The report is interesting to read and it identifies some common trends in competition-reductive procurement practices (if not fully suppressive of meaningful competition) and areas for massive improvement in Spanish health care-related procurement. 

Some of them may offer valuable insights for other countries that also organise their health care provision around a national health system. These are some of the aspects of the report that I find more interesting:

1. The report is mainly concerned with outsourcing processes, whereby the competent (regional) public authorities tender contracts for the construction and management, or only the management, of health care facilities (mainly hospitals). This is an area that will remain lightly regulated in the future EU Directive on concessions (Art 17) and in the new version of the Directive on public sector procurement (Arts 74 to 76a). Consequently, the recommendations and best practices identified in the CNMC report may help in the construction of a fuller set of (binding and non-binding) guidelines for health care management outsourcing.

2. The report offers a radiography of the hospital sector in Spain, which shows that it is rather large and that there is a very relevant presence of private investment in the sector. Overall, there are 789 hospitals in Spain (162,070 beds), which means that each hospital serves an average of roughly 59,300 inhabitants (290 inh/bed). 

However, there are significant regional differences in availability of total hospital services, ranging from Andalusia at 378 inh/bed to Catalonia at 218 inh/bed. Furthermore, it is also interesting that only 325 of the 789 hospitals are public (41%), but they accumulate almost 67% of available beds--which means that the availability of public hospital services actually ranges between Catalonia at 523 inh/bed and Aragon at 308 inh/bed. All regions have schemes of arrangement with private hospitals, so that they extend 'public' coverage through private hospitals (49% of private hospitals are included in such schemes, again with large variations ranging from 100% of private hospitals being included in the 'extended public network' in La Rioja to only 22% of private hospitals in Catalonia). 

The big discrepancies between the availability of total and public hospital services shows large regional differences in private investment and alternative (ie non-public) health care management strategies. This also seems to show that private hospitals tend to be smaller than public hospitals (116 v 334 beds on average)--and, probably, easier (but more expensive) to manage, at least in terms of general costs if economies of scale are properly exploited in the public system (a big if, I think, although the report offers no data to test this). It may also be worth stressing that 21% of private hospital capacity (by number of beds) is controlled and run by the Catholic church and religious organisations. The next larger private (or non-public) player only reaches 4%.

The distribution by areas of activity is also relevant, and it is worth noting that generalist, geriatric and psichiatric hospitals accumulate almost 90% of the available beds--which seems to indicate that there is room for further specialisation in the sector.

The report also offers more detailed analysis of the regions where there has already been some outsourcing of public health care management: Catalonia, Madrid, Valencia, La Rioja and Navarra.

3. The main body of the report focusses on the 5 aspects of health care management outsourcing that are more susceptible to create distortions of competition: (i) the design of the tender procedure and the setting up of the technical specifications, (ii) the setting up of selection criteria, (iii) the choice and weighting of award criteria, particularly those related to (non-measurable) qualitative elements, and (iv) issues related to contract modification.

It is remarkable that, in all of these areas, the CNMC has identified specific examples of very clear distortions of competition. It is worth noting, for instance, that:

a) There has been an excessive degree of bundling of specialist and general services in hospital outsourcing (sometimes forcing the hospital concessionaire to enter into existing public services contracts with third party providers of specialist services, such as image diagnostics or laboratory analysis).

b) Regional authorities have not availed themselves of proper strategic division of tenders into lots and the dominant strategy (one lot, one hospital) may have facilitated collusion.

c) Initial contract duration may have been excessive, with a median of 30+ years for works concessions (building + managing hospitals) and 10 years for service concessions/public service contracts (management only of an existing hospital). Some of them also include relatively generous extension/renewal provisions.

d) Of the 19 contracts that included health management (others were limited to the management of the premises, but included no sanitary provision), 15 were awarded to the only tenderer submitting an offer. In the other 4 instances, only 2 offers were received. This seems to indicate that participation requirements were exceedingly restrictive (or, in an alternative and very personal view, that there was no expectation of effective competition, either due to the existence of a market sharing agreement or widespread corruption, particularly in the case of Valencia and Madrid, where criminal investigations are underway).

e) The setting of very demanding selection criteria (particularly in terms of financial standing and previous experience) have limited dramatically the number of potential offerors and been particularly alienating for temporary unions of undertakings, as a relevant part of the tender documents required that each of the undertakings individually considered met all of the requirements. This is a stark breach of procurement law and, as such, should have been the object of legal challenges.

f) There was an insufficient publicity and advertisement of the tendering for public service concessions worth Eur 4,000 mn in the Madrid region (advertised only in the region itself). This indicates that, in reality, there may be some need for the extension of publicity requirements to concession contracts as the future Directive aims to do. However, this may also have been a breach of EU law requirements, given that the contracts seem to have (at least potential) cross border interest.

g) There was an insufficient disclosure of information with relevant financial implications, such as the personnel costs to be assumed by concessionaires of existing hospitals, or the system of mutual invoicing between public hospitals (which made it difficult to calculate the cost and revenue structure of the concession, particularly for relatively unexperienced tenderers). The information asymmetries were even higher when it came to disclosure of health planning and other requirements.

h) There was widespread misuse of the price criterion as one of the key elements to award the contract. Price assessment formulae based on average prices, or that gave a very low weight to prices (of 30% in construction concessions), or that included irrelevant criteria (such as giving 30% of weight to the establishment of a stock-option scheme by the concessionaire) might have limited the ability of regional authorities to obtain value for money in the outsourcing of hospital management.

i) There were several instances of double-count of elements as both selection and award criteria, particularly as previous experience is concerned. This is another blatant breach of procurement law and, as such, should have been the object of legal challenges.

j) Insufficient or too basic quality control mechanisms and penalties for breaches thereof were included in a significant number of concession schemes. Also, remuneration was always calculated on a per capita basis, so that concessionaires and public service providers would always be remunerated almost regardless of the level of quality or actual provision of services (80% of the per capita support working as a common floor or minimum remuneration).

k) Most tender documentation either imposed or facilitated subcontracting of up to 50-60% of the contract and no proper oversight mechanisms were in place, so that concessionaires were basically free to subcontract very significant parts of their contracts as they saw fit.

l) Excessive resort to contractual modifications: "Of the 38 contracts for which information is available, there have been changes in 24 of them (64%). In 7 of the 24 contracts modified there have been two changes to the contract."

4. In its conclusions (a bit too mild in my opinion, particularly in view of the major irregularities documented in the report), the CNMC recommends, among others, the following measures (see press release in English):

• When designing tender processes, the open procedure must be used whenever possible, as that procedure is the most conducive to competition and precludes contracts that cannot be justified on account of the pay-back times for investments.
• As regards access to tenders for participants, publication should be more widespread in order to open up access to the highest number of potential bidders possible.
• With respect to the weighting of criteria and the procedure for the award of contracts, a suitable weighting should be attached to the variables to avoid leaving excessive discretion to the award body. In the case of healthcare services, the overarching goal is to ensure quality in the provision of services to patients, so that a balance must be struck between competition in the price variable and the quality of the service.
• Lastly, as regards the implementation of contracts, it is proposed, among other recommendations, that the specifications should describe the elements that define the quality of contract performance and should contain credible and robust mechanisms for monitoring and penalising failures to meet the requirements of those elements. The specifications should also lay down remuneration and transparency mechanisms that encourage the awardee to provide high quality services (emphasis added).

In my view, this Report brings to light a very serious problem and a massive challenge in the modernisation and reform of health care management in Spain. I started wondering if a sectoral regulator would not be necessary, as the ones existing in England (Monitor) or The Netherlands (NZa), as this sector seems to really be crying for some close scrutiny...

Unacceptable pull back of Erasmus grants in Spain

The Spanish government has decided to change the rules applicable to Erasmus funding for exchange students midway the academic year. It has now announced a cut in its contribution to the Erasmus fund that will leave thounsands of Spanish students currently enrolled in programmes abroad without funding that had been pre-approved (see the coverage by The Guardian).

 

In my view, this is a myopic measure that breaches the most basic guarantee of legal certainty and legitimate expectations. It also shows a significant disregard for one of the most popular mechanisms of development of a true European demos and one of the more palpable examples of the potential implications of the European Citizenship enshrined in Article 20 of the Treaty on the Functioning of the European Union. Deplorable!

OFT takes a close look at ICT procurement

As a part of its ongoing market study on Supply of information and communications technology to the public sector, the Office of Fair Trading (OFT) is seeking information and evidence on the perceived restrictions of competition in the markets for the supply of ICT products to the public sector.

 

More specifically, the OFT is seeking confirmation or an alternative explanation of the issues identified in its Report on the findings of the call for information into the supply of ICT to the public sector of 15 October 2013. The market study is particularly concerned with the supply of commercial off the shelf software and IT outsourcing. Submissions can be made until 20 December 2013 by emailing ict.consultation@oft.gsi.gov.uk.

 

For academics and practitioners in general, it will be interesting to read the final report, expected to be released in March 2014.

Clouds in the horizon of Spanish airport operator privatisation?

According to recent press reports (for instance, Reuters or CincoDias), the Spanish government is seeking to privatise 50%+ of the capital of AENA, the Spanish airport operator. This process of privatisation and the strategy apparently devised by the government raise some issues of compatibility with EU Law that, in my view, might be highly relevant--particularly after the recent CJEU Judgment in Essent, where the application of free movement of capital to privatisation processes has been re-energised.

 

According to the most complete account of the government's strategy, up to 60% of AENA's capital would be privatised. A first package of around 30% would be divided between 3 to 5 'core (institutional) investors' and the other 30% would be floated in the (Madrid?) stock exchange.

 

The worrying part of the privatisation strategy lies, in my view, on the conditions of selection and participation of the 'core (institutional) investors'. These would be chosen on the basis of a restricted (tender) procedure, whereby they would be assigned 5-10% capital packages on the basis of the price offered and their commitments to both hold the investment at that level and not to increase it above 10% for the longest possible time period.

 

 

Therefore, the main selection criteria (other than price) will revolve around a 'voluntary' refusal to exercise investment freedom (both in terms of acquiring additional shares and divesting the ones acquired in the privatisation process). This clearly rings a bell of similarity with the Essent case, where an absolute prohibition to dispose of the shares (ie an absolute prohibition on privatisation) was subjected to a proportionality analysis.

 

The Spanish government's intention behind this privatisation strategy is to retain a sort of 'joint' control over AENA despite reducing its shareholding to 40% of the capital, and it (seems to) expect the selected 'core (institutional) investors' to remain faithful and to support the government's airport management strategy. In my view, there seems to be no clear public interest justifying such a strategy, as airport management can (easily) be regulated and there are clear indications of successful privatisation in other EU countries (pertinently enough, the privatisation of the London Luton airport, precisely managed by AENA).

 

Further, even if such a public interest could be fleshed out by the Spanish government, the (contractual) restrictions on the disposition of the investments (or their enlargement) by the 'core (institutional) investors' will now need to be subjected to a proportionality test under the Essent line of authority. In my view, the Spanish government's strategy is unlikely to pass legal muster. Only time will tell if the CJEU will have an opportunity to rule on this one.

"Ne bis in idem" in State aid control? CJEU quashes Deutsche Post decision (C-77/12 P)

In its Judgment of 24 October 2013 in case C-77/12 P Deutsche Post v Commission, the Court of Justice of the EU quashed a Judgment of the General Court (T-421/07) and (indirectly) questioned a decision taken by the European Commission concerning the State aid granted by Germany to Deutsche Post in the 1990s. The Commission had adopted an initial negative decision in 2002 (ultimately quashed by the CJEU in C-399/08 P) and, following a request by the initial complainants to look into the matter in more detail, it decided to extend the scope of the original investigation in a 'follow-up' enquiry carried out in 2007 (while the GC was still considering the legality of the original negative decision).

 

Germany challenged the decision of the European Commission on the general basis that, contrary to its allegations, this 'follow-up' enquiry would alter the legal effects of the initial decision (now annulled) and that such an enforcement strategy would be against the most fundamental principles of due process and good administration.

 

The GC (T-421/07) took no issue with the opening of the 'follow-up' investigation, as it considered that such a decision did not alter the legal standing of the State aid measures under investigation, since they had already been flagged as potentially illegal in the initial decision to open an investigation that the Commission adopted in 1999 (and regardless of the fact that they were not included in the original negative decision of 2002). In even more controversial terms, the GC brushed aside the argument that the annulment of the 2002 negative decision should also be taken into consideration in order to bar any 'follow-up' investigation that ultimately had the same origin. As the CJEU summarises,

In addition, the [General] Court observed in paragraphs 77 and 79 of the contested judgment, that this conclusion is not undermined by the judgment in Deutsche Post / Commission [...]. Indeed, this decision did not rule on the question whether the formal investigation procedure initiated in 1999 in respect of the disputed measures has been closed. The Court further considersed that this decision had the effect of retroactively eliminating the 2002 negative decision, so that "this decision can in no way affect the conclusion that the 2002 [negative] decision had no impact on the existence of any independent legal effects generated by [the contested decision] (C-77/12 P at para 37, own translation from French).

On the basis of those considerations, the GC considered that the 2007 decision to carry out a 'follow-up enquiry' was not open to an annulment action under Article 263(4) TFEU and, consequently, dismissed Deutsche Post's challenge. The CJEU has taken a different view.

 

I find it interesting to stress that the CJEU has argued that:

52 As regards, in particular, the binding legal effects of a decision to initiate the procedure provided for in Article [108], paragraph 2 [TFEU] with respect to a measure running and qualified as new aid, such a decision necessarily changes the legal status of the measure, as well as the legal position of the beneficiaries, particularly in regard to its implementation. After the adoption of such a decision, there is at least a significant doubt about the legality of this measure, which must lead the Member State to suspend the payment, since the opening of the procedure laid down in Article [108], paragraph 2 [TFEU] excludes an immediate decision on the compatibility with the common market that would allow for the regular execution of the measure. Such a decision could be invoked before a national court called upon to draw all the consequences of the violation of Article [108], paragraph 3, last sentence, [TFEU]. Finally, it is likely to lead beneficiaries of the measure to refuse in any event new payments or to provision the necessary funds for any subsequent repayments. The beneficiaries will also be affected in their relations with other agents, which will take into consideration the weakened legal and financial situation of the former (see judgment of 9 October 2001, Italy / Commission, C-400/99, Rec . P. I- 7303, paragraph 59).

53 It should be added that […] such a decision to open an investigation with respect to a measure that the Commission describes as new aid is not simply a preparatory step in that it has independent legal effects, particularly with regard to the suspension of the measure under consideration.

54 In this case, it should be noted that […] in the contested decision, the Commission qualified as new aid the transfer payments made by DB-Telekom and the system of public guarantees. Furthermore, as regards the public pension fund, this institution has expressed its doubts about the extent to which this funding granted an economic advantage to [Deutsche Post]. The Commission also pointed out […] that Germany was under the obligation to suspend the measures challenged by the decision.

55 It follows that the 2007 opening decision is an act that is likely to affect the interests of [Deutsche Post] by altering its legal status and, therefore, it meets all the elements of an act within the meaning of Article [263 TFEU].

56 Contrary to what the Court considered […] that finding is not challenged by the existence of the decision to open an investigation in 1999, by which the Commission opened the procedure laid down in Article [108], paragraph 2 [TFEU] in respect of a series of measures being implemented.

57 Indeed, it is clear that, in any event, the Commission, by its negative decision of 2002, closed the formal investigation procedure in 1999.

58 In this regard, it should be noted that the Commission dealt in its negative decision of 2002, of all the measures challenged by the opening 1999 decision, as argued rightly [Deutsche Post] (C-77/12 P at paras 52-58, own translation from French, emphasis added).

Even if this may not be the end of the story in this particular case, which has been sent back to the GC, I think that the principle established by the CJEU could be read as a sort of 'ne bis in idem' in the area of State aid enforcement. Once a measure has been analysed and the Commission reaches a final decision, then the same measure should not be subjected to additional enquiries and no new findings of incompatibility should be acceptable.

 

In maybe more blunt terms, the Commission has one shot (and only one) at each controversial State aid measure, in order to protect legal certainty and as an (implicit) requirement of the principle of good administration.

 

Overall, I would consider such a general principle a positive development in EU State aid law. It remains to be seen, however, whether this reasoning is only case-specific or the CJEU is willing to flesh out such a general principle in even clearer terms, should the opportunity arise in the future.

Maybe not such a global appraisal of State aid after all: CJEU backtracks from a truly economic approach (C-124/10)

In an interesting recent paper, Pablo Ibáñez Colomo conducts a very detailed statistical overview of State Aid Litigation before EU Courts (2004–2012) [Journal of European Competition Law & Practice (2013) doi: 10.1093/jeclap/lpt057]. One of his relevant findings is that the 'private investor test' and its application by the European Commission was one of the most litigated areas of EU State Aid law in that period and that '[a]nnulments were more likely where the ‘private investor test’ was raised as a ground'.

 

In its Judgment of 24 October 2013 in Joined Cases C-214/12 P, C-215/12 P and C-223/12 P Land Burgenland v Commission, the Court of Justice of the EU has been confronted again with the test--this time in the mirror image of the ‘private vendor test'--and, on this occasion, has upheld the approach taken by the European Commission. In my opinion, there are several passages of the Judgment that bear stressing, particularly because the CJEU is backtracking from a much more economically oriented assessment of State aid that was (at least) suggested in Commission v EDF (C-124/10 P).

 

The case involved the existence of State aid in the privatisation of HYPO Bank Burgenland AG, where the relevant Austrian authorities decided to sell the bank to GRAWE despite the fact that the price it offered (EUR 100.3 million) was significantly lower than the price offered by a competing Austro-Ukrainian consortium (EUR 155 million). As the CJEU explains:

The decision was based, in particular, on a [...] recommendation by HSBC  [which] essentially states that, although on the basis of the proposed purchase price the decision should be made in favour of the Consortium, it was recommended that BB be sold to GRAWE, in view of the other selection criteria, namely the reliability of the purchase price payment, the continued operation of BB while avoiding the use of Ausfallhaftung [ie the Austrian performance guarantee system for public credit institutions], capital increases and transaction security (C-214/12 P at para 9).

Not surprisngly, the Consortium challenged the decision claiming that the Republic of Austria had infringed State aid rules during the privatisation of BB and stressing that, amongst other irregularities, the tender procedure had been unfair, untransparent and discriminatory towards it--which resulted in the sale of BB not to the highest bidder, namely the Consortium, but to GRAWE.

The European Commission found that Austria had indeed granted illegal State aid to GRAWE in the privatisation Bank Burgenland because it failed to meet the requirements of the 'private investor test'. In the Commission's view, a private seller would only reject the highest bid in two circumstances: either where it is obvious that the sale to the highest bidder is not realisable, or where consideration of factors other than the price is justified, subject to the proviso that only those factors which would have been taken into consideration by a private vendor are taken into account.

The key aspect then becomes whether the (likely) avoidance of the use of the Ausfallhaftung that would follow the sale to GRAWE rather than to the Consortium was a valid justification under the second scenario (ie whether it was a risk which avoidance justified the transaction). The Commission clearly considered that according the private investor test excludes risks stemming from potential liability to make payment under a guarantee which has to be classified as State aid, such as Ausfallhaftung. The reasoning was similar to the one followed (or, at least, the one I identified) in Commission v EDF, where the CJEU rejected a similarly formalistic approach followed by the Commission.

 

In that case, the CJEU found that

in view of the objectives underlying [Article 107(1) TFEU] and the private investor test, an economic advantage must – even where it has been granted through fiscal means – be assessed inter alia in the light of the private investor test, if, on conclusion of the global assessment that may be required, it appears that, notwithstanding the fact that the means used were instruments of State power, the Member State concerned conferred that advantage in its capacity as shareholder of the undertaking belonging to it (C-124/10 P, para 92, emphasis added).

 

In essence, this supported the approach followed by the General Court, which had ruled that

the purpose of the private investor test is to establish whether, despite the fact that the State has at its disposal means which are not available to the private investor, the private investor would, in the same circumstances, have taken a comparable investment decision. It follows that neither the nature of the claim, nor the fact that a private investor cannot hold a tax claim, is of any relevance (C-124/10 P, at para. 37, emphasis added).

In that regard, it would seem that in the Burgenland case, the GC and the CJEU should also reject the Commission's argument and, consequently, allow the selling authorities to integrate the total potential costs of the use of the Ausfallhaftung as a valid reduction of the nominal price offered by the Consortium and, dependeing on the result of such an assessment, potentially award the contract to GRAWE, as they effectively did. It would have been expected, as the Austrian authorities claimed, that the nature and origin of potential liabilities would be considered irrelevant and that a gloabl (economic) appraisal of the offers received for the Burgenland Bank would have been considered in line with EU law.

 

However, the CJEU reexamines the interpretation of the 'private investor (rectius, vendor) test' to take into account this issue and rules in the following terms:

46 In their first argument, the Province of Burgenland, the Republic of Austria and GRAWE claim, in essence, that the General Court failed to appreciate, in the light of Ausfallhaftung’s characteristics, both the role of the Province of Burgenland as owner and shareholder of BB and, therefore, the private investor test, such as it emerges from Spain v Commission and Germany v Commission. […]

48 the General Court found, in line with that case-law that, when applying the private investor test, it must be determined whether the measures in question are those which such an investor, who counts on making a profit in the short or long term, could have granted.

49 Finally, […] the General Court found, in its assessment of the facts which cannot be appealed, that Ausfallhaftung was not entered into on normal market conditions, given its characteristics.

50 In those circumstances, the General Court rightly concluded […] that Ausfallhaftung could not be taken into account when assessing the conduct of the Austrian authorities in the light of the private vendor test (sic) and that, consequently, the Commission could not be criticised for having rejected Ausfallhaftung’s relevance when evaluating the offers submitted by the Consortium and by GRAWE.

51 Further, as regards the impact of Commission v EDF, it must be pointed out that that judgment was principally concerned with whether the private investor test was applicable in the circumstances of that case, which was rejected by the Commission in the decision at issue in that case, and not how that test was applied in the particular case (see Commission v EDF judgment, paragraph 75). However, in the present cases, it is undisputed that the Commission applied the private vendor test and the Province of Burgenland, the Republic of Austria and GRAWE are in actual fact challenging the General Court’s approval of the manner in which the Commission applied that test.

52 As regards the application of that test, Commission v EDF confirmed the case-law which emerges, in particular, from Spain v Commission and Germany v Commission, according to which, in order to assess whether the same measure would have been adopted in normal market conditions by a private vendor in a situation as close as possible to that of the State, only the benefits and obligations linked to the situation of the State as shareholder – to the exclusion of those linked to its situation as a public authority – are to be taken into account (see, to that effect, Commission v EDF, paragraph 79).

53 In Commission v EDF judgment, the Court further made it clear that, when carrying out that assessment, the manner in which the advantage is provided and the nature of the manner by which the State intervenes are irrelevant where the Member State concerned conferred that advantage in its capacity as shareholder of the undertaking concerned (see Commission v EDF, paragraphs 91 and 92).

54 […] The General Court examined whether Ausfallhaftung had to be taken into account when implementing the private vendor test and found that a private vendor would not have entered into such a guarantee (sic).

55 The Province of Burgenland, the Republic of Austria and GRAWE do not put forward any argument liable to put that finding into doubt, but claim themselves that Ausfallhaftung is a State aid, as the Commission had moreover found in Decision C(2003) 1329 final.

56 In those circumstances, and since, by granting aid, a Member State pursues, by definition, objectives other than that of making a profit from the resources granted to an undertaking belonging to it, it must be held that those resources are, in principle, granted by the State exercising its prerogatives as a public authority.

57 In so far as the Province of Burgenland, the Republic of Austria claim that, through Ausfallhaftung, the Province of Burgenland was none the less seeking to make profit or, at the very least, attempting to do so in addition to its other objectives, it must be recalled that, if a Member State relies on a test such as the private vendor test, it must, where there is doubt, establish unequivocally and on the basis of objective and verifiable evidence that the measure implemented is to be ascribed to the State acting as shareholder (see, to that effect, Commission v EDF, paragraph 82).

58 That evidence must show clearly that, before or at the same time as conferring the economic advantage, the Member State concerned took the decision to make an investment, by means of the measure actually implemented, in the public undertaking (Commission v EDF, paragraph 84).

59 In that regard, it may be necessary to produce evidence showing that the decision is based on economic evaluations comparable to those which, in the circumstances, a rational private vendor in a situation as close as possible to that of the Member State would have had carried out, before making the investment, in order to determine its future profitability (see, to that effect, Commission v EDF, paragraph 84).

60 It is only in cases where the Member State concerned provides the Commission with the necessary evidence that the onus is on the Commission to carry out a global assessment, taking into account – in addition to the evidence provided by that Member State – all other relevant evidence enabling it to determine whether the Member State took the measure in question in its capacity as shareholder or as a public authority (see, to that effect, Commission v EDF, paragraph 86).

61 However, neither during the administrative procedure nor before the General Court did the Province of Burgenland, the Republic of Austria or GRAWE put forward any evidence showing that the introduction or retention of Ausfallhaftung was based on economic evaluations carried out by the Province of Burgenland for the purposes of establishing its profitability. It follows that the Commission was not required to undertake such a global assessment as regards Ausfallhaftung and that the Burgenland and GRAWE judgments were not vitiated by any errors in that regard (C-214/12 P at paras 46-61, emphasis added).

 

 

I am puzzled by the findings of the CJEU. If it rightly held in Commission v EDF that the fiscal nature of the credit converted into capital was irrelevant for the assessment of the transaction as a whole, why is it now relevant that the potential liability incurred in the use of the Ausfallhaftung by the disappointed Consortium derives from a public law system? Surely, if it was not questioned that 'the General Court [rightly] rejected the Commission’s argument that the private investor test could not be applied to the conversion into capital of a tax claim, since a private investor could never hold a tax claim against an undertaking, but only a civil or commercial claim' (C-124/10 P, at paras 37 and 95), it should not be now relevant that a private investor could have not entered into a guarantee scheme such as the Ausfallhaftung (C-214/12 P at para 54).

 

Moreover, an economic assessment should be carried out regardless of the subjective intentions of the State authority (cfr. C-214/12 P at para 59) and, in any case, it was cristal clear in the Burgenland case that an (independent) economic evaluation was carried out by (HSBC), which clearly indicated that, all factors considered, the rational decision was to enter into the transaction with the lowest bidder. Why is the CJEU now not willing to assess the economic transaction as a whole is something I cannot come to grips with.

 

I guess that this will be an area that, as Ibáñez Colomo's study shows, will continue to occupy a significant amount of cases and, possibly, remain one of the obscure areas of State aid litigation for quite some time.

Planning for US DOD pharmaceutical benefits procurement: A need to think outside the box and a lesson for the EU

The US Department of Defense (DOD) offers health care coverage through its TRICARE program. DOD contracts with managed care support contractors to provide medical services, and separately with a pharmacy benefit manager to provide pharmacy services that include the TRICARE mail-order pharmacy and access to a retail pharmacy network. Its current contract for the management of pharmaceutical benefits expires in the fall of 2014 and DOD has already started planning the next stage of procurement.

 

According to the US Government Accountability Office (GAO) report of 30 September 2013,

During acquisition planning for the upcoming TRICARE pharmacy services contract, DOD solicited feedback from industry through its market research process to align the contract requirements with industry best practices and promote competition. For example, DOD issued requests for information (RFI) in which DOD asked questions about specific market trends, such as ensuring that certain categories of drugs are distributed through the most cost-effective mechanism. DOD also issued an RFI to obtain information on promoting competition, asking industry for opinions on the length of the contract period. DOD officials told [GAO] that responses indicated that potential offerors would prefer a longer contract period because it would allow a new contractor more time to recover any capital investment made in implementing the contract. The request for proposals for the upcoming contract, issued in June 2013, included a contract period of 1 base year and 7 option years. DOD also identified changes to contract requirements in response to legislative changes to the TRICARE pharmacy benefit. For example, the National Defense Authorization Act (NDAA) for fiscal year 2013 required DOD to implement a mail-order pilot for maintenance drugs for beneficiaries who are also enrolled in Medicare Part B. DOD officials incorporated this change in the requirements for the upcoming pharmacy services contract.

At first sight, this looks like a proper exercise of procurement planning and one that is specifically concerned with promoting effective competition in the next stage of pharmaceutical benefits management procurement. However, GAO has very high standards and considers that the exercise carried out by DOD is insufficient and that the Department needs to think outside of the box (of the current structure of benefit management contracts) to see if an even better scenario is achievable. In that regard, GAO considers that

DOD has not conducted an assessment of the appropriateness of its current pharmacy services contract structure that includes an evaluation of the costs and benefits of alternative structures. Alternative structures can include incorporating all pharmacy services into the managed care support contracts—a carve-in structure—or a structure that incorporates certain components of DOD’s pharmacy services, such as the mail-order pharmacy, into the managed care support contracts while maintaining a separate contract for other components. DOD officials told GAO they believe that DOD’s current carve-out contract structure continues to be appropriate, as it affords more control over pharmacy data that allows for detailed data analyses and cost transparency, meets program goals, and has high beneficiary satisfaction. However, there have been significant changes in the pharmacy benefit management market in the past decade, including mergers and companies offering new services that may change the services and options available to DOD. GAO has previously reported that sound acquisition planning includes an assessment of lessons learned to identify improvements. Additionally, GAO has reported that a comparative evaluation of the costs and benefits of alternatives can provide an evidence-based rationale for why an agency has chosen a particular alternative. Without this type of evaluation, DOD cannot effectively demonstrate that it has chosen the most appropriate contract structure in terms of costs to the government and services for beneficiaries.

DOD is now required to conduct an evaluation of the potential costs and benefits of alternative structures for the TRICARE pharmacy services contract, and incorporate such an evaluation into acquisition planning. GAO will report again once this additional exercise is completed.

 

In my view, this case shows how important it is to develop effective and demanding standards of market investigation and procurement planning in order for contracting authorities to reap all the benefits of effective market competition. It may well be that the result of the enquiry shows that current structures are the most efficient. But, even in that case, the additional market research would not have been an sterile exercise. By avoiding path dependency and seeking for alternative modes of provision (ie by actually knowing the markets where they contract from), contracting authorities can obtain true value for money.

 

Hence, this type of mandatory market intelligence should be seen as best practice and, in my opinion, imported into the procurement systems of many European countries (and, definitely, Spain). Only in that way will public procurement really contribute to smart growth and be truly aligned with the Europe 2020 strategy. Hopefully the revision of the domestic procurement systems as a part of the process for the transposition of the soon to be adopted new EU rules on procurement will offer Member States an opportunity to also reflect on these issues and to strengthen their market intelligence requirements and infrastructures.

Neutrality of ownership is not unconditional: CJEU sets red lines for privatisation prohibitions (C-105/12 to C-107/12)

In its Judgment of 22 October 2013 in Joined Cases C-105/12 to C-107/12 Essent and Others, the Court of Justice of the EU has explored the boundaries of Article 345 TFEU--which has, so far, remained (and still is) an obscure provision of the Treaties [see B Akkermans & E Ramaekers, 'Article 345 TFEU (ex Article 295 EC), Its Meanings and Interpretations' (2010) European Law Journal 16(3): 292-314].

 

In Essent, the CJEU was concerned with the compatibility with EU law of an absolute privatisation ban. More specifically, it had to analyse a Dutch rule whereby shares in companies that operate distribution networks of electricity and gas can be transferred only within the circle of public authorities, ie cannot be privatised (for a comment, see here).

 

Advocate General Jaaskinen had considered the absolute ban on privatisation compatible with both Article 345 TFEU and Article 63 TFEU on free movement of capital (see his Opinion, not available in English, here). The CJEU has reached the same conclusions.

 

In my view, one of the most interesting legal points of the Essent Judgment is that Article 345 TFEU does not write Member States a blank check when they regulate their property systems or, put othewise, that the principle of neutrality of ownership enshrined in that provision is not unconditional.

 

Hence, the reasoning of the CJEU should be seen as an exercise to draw some red lines that Member States cannot overstep when designing their property systems and that, fundamentally, boil down to full compliance with the rules on free movement of capital.

29 Article 345 TFEU is an expression of the principle of the neutrality of the Treaties in relation to the rules in Member States governing the system of property ownership.
30 In that regard, it is apparent from the Court’s case-law that the Treaties do not preclude, as a general rule, either the nationalisation of undertakings (see, to that effect, Case 6/64 Costa [1964] ECR 585, at 598) or their privatisation (see, to that effect, Case C‑244/11 Commission v Greece [2012] ECR I‑0000, paragraph 17).
31 It follows that Member States may legitimately pursue an objective of establishing or maintaining a body of rules relating to the public ownership of certain undertakings.
32 […] the prohibition of privatisation, within the meaning of the national legislation at issue in the main proceedings, allows, in essence, the transfer of shares held in a distribution system operator only to the authorities and to legal persons owned, directly or indirectly, by those authorities, since any transfer which has the result that the shares become the property of persons other than such authorities and legal persons is prohibited.
33 It follows that the prohibition of privatisation precludes ownership by any private individual of shares in an electricity or gas distribution system operator active in the Netherlands. Its objective is therefore to maintain a body of rules relating to public ownership in respect of those operators.
34 Such a prohibition falls within the scope of Article 345 TFEU. […]36 However, Article 345 TFEU does not mean that rules governing the system of property ownership current in the Member States are not subject to the fundamental rules of the FEU Treaty, which rules include, inter alia, the prohibition of discrimination, freedom of establishment and the free movement of capital (see, to that effect, Case 182/83 Fearon [1984] ECR 3677, paragraph 7; Case C‑302/97 Konle [1999] ECR I‑3099, paragraph 38; Case C‑452/01 Ospelt and Schlössle Weissenberg [2003] ECR I‑9743, paragraph 24; Case C‑171/08 Commission v Portugal [2010] ECR I‑6817, paragraph 64; Case C‑271/09 Commission v Poland [2011] ECR I‑0000, paragraph 44; and Commission v Greece, paragraph 16).
37 Consequently, the fact that the Kingdom of the Netherlands has established, in the sector of electricity or gas distribution system operators active in its territory, a body of rules relating to public ownership covered by Article 345 TFEU does not mean that that Member State is free to disregard, in that sector, the rules relating to the free movement of capital (see, by analogy, Commission v Poland, paragraph 44 and the case‑law cited).
38 Accordingly, the prohibition of privatisation falls within the scope of Article 63 TFEU and must be examined in the light of that article […] (C-105/12 ti C-107/12 at paras 29-38, emphasis added).

This finding of the CJEU effectively subjects the principle of neutrality of ownership to a proportionality test and, generally, seems to restrict its scope--actually, it seems to me that the Essent Judgment makes Article 345 TFEU less than neutral in that it imposes a justification burden on the ownership systems designed at Member State level.

This may be an opening door for a stricter control of ownership rules in the Member States and, once more, for an implicit redistribution of competences between the EU and the Member States [see the interesting discussion by F Losada Fraga et al, 'Property and European Integration: Dimensions of Article 345 TFEU' (2012) Helsinki Legal Studies Research Paper No. 17]. However, more clarification will be necessary, particularly in cases where the public interest justifications for restrictions of (private) ownership are less clear cut than in the Essent case and that, consequently, will be likely to result in an effective restriction of domestic rules on (public) ownership.

European Procurement Law Series

Allow me some marketing of the European Procurement Law Series that a group of colleagues and I are developing. The latest issue (fifth) on the Award of Contracts in EU Procurements is in print and will be available shortly. In my opinion, it provides an interesting overview of practical issues concerned with the award of public contracts, as the abstract stresses:

The award phase is of crucial importance for the outcome of the competition for the contract and it is therefore not surprising that it has been considered in thousands of public procurement disputes in the Member States of the EU.
The subject of this book has for obvious reasons already received scholarly attention in the many books and articles on EU public procurement law. However, the existing literature has seldom been based on a comparative approach covering a broad range of Member States of the European Union with diversified national approaches to EU public procurement law. The present publication is original in this sense and consequently provides the reader with an insight that cannot be found elsewhere.