Additional Austrian postal services to be exempted from compliance with EU (utilities) procurement rules (T-463/14) -- a warning of procedural rebalancing under dir 2014/25?

In its Judgment of 27 April 2016 in Österreichische Post v Commission, T-463/14, EU:T:2016:243 (not available in English), the General Court (GC) of the Court of Justice of the European Union ruled on judicial review of the Commission Implementing Decision exempting certain services in the postal sector in Austria from the application of Directive 2004/17 on utilities procurement, in particular as carried out by Österreichische Post AG (the Austrian national universal service provider, under public ownership of 52.8% of its capital).

The GC quashed the Commission's Decision regarding the denial of exemption for cross-border postal services for addressed (‘outbound’) business to business and business to consumer letters ('B2X letters'), as well as for addressed (‘outbound’) letters between private customers and between private customers and business customers ('C2X letters')--ie, in relation with the activities covered in paras [43]-[50].

The Commission's Decision was based on Art 30 Dir 2004/17, which allowed for utilities procurement linked to activities directly exposed to competition to be exempted from compliance with the otherwise applicable EU public procurement rules. The same regime is now foreseen in Art 34 of Directive 2014/25 on utilities procurement. Thus, the GC's Judgment in Österreichische Post v Commission is interesting in order to gain a better understanding of the procedure (and evidentiary requirements) for the exemption of activities directly exposed to competition from compliance with the revised EU utilities public procurement rules.

the contested decision

In its Implementing Decision, the Commission had considered that

(46) Competition for cross-border letter post is very different for private persons and for companies. Private persons generally have no real choice but to send international mail with their national universal service provider. The volumes sent by private persons are generally too low to offer incentives for new entrants into the market.

(47) It is noted that the competitive situation depends also on the size/population of each city due to the fact that cross-border service providers do not maintain a nationwide access network but generally collect the mail directly at the customer's premises. 

(48) Previous Commission practice... made a distinction between the cross-border postal services for addressed B2X letters market and the cross-border postal services for addressed C2X letters market. 

(49) There is no evidence that the situation is different in Austria,  therefore, for the purposes of this Decision and without prejudice to competition law, two separate product markets will be considered, namely the cross-border postal services for outbound B2X addressed letters and the cross-border postal services for outbound C2X addressed letters. 

(50) Austrian Post could not provide detailed information ... on its relevant shares in each market, nor the market shares of its main competitors. In the absence of information on the degree of competition in each of those markets, it is not possible to conclude that the conditions for granting an exemption under Article 30(1) of Directive 2004/17/EC to cross-border postal services for outbound B2X addressed letters and to cross-border postal services for outbound C2X addressed letters in Austria are met. Consequently, Article 30(1) of Directive 2004/17/EC does not apply to contracts intended to enable the pursuit of those activities in Austria (Implementing Decision 2014/184/EU, paras 46-50, references omitted).

In reviewing this argumentation, which seems to fundamentally rely on the ultimate ratio that Österreichische Post had not discharged the burden of proof imposed by Art 30 Dir 2004/17 (now Art 34 Dir 2014/25), the GC raises some important issues about the level of detail with which the Commission needs to assess estimated figures provided by applicants for exemption from compliance with EU public procurement rules:

(161) ... the applicant states that, following its own argument, the Commission should have exempted at least the B2X international market from the application of Directive 2004/17. It adds that, given that, according to paragraph 46 of the contested decision, its services were not substitutable in the C2X international market, its market share in the B2X international market should be significantly below [confidential]%, which it also corresponded with the Commission's assessment contained in paragraph 47 of the contested decision that the applicant's competitors were mainly in urban areas.

(162) This argument must be accepted. Indeed, on the one hand, the Commission did not dispute that the market share of the applicant in the market for postal services for addressed ['outbound'] B2X and C2X letters at international level was below [confidential]%, as stated in ... the application of the applicant. Moreover, as stated by the applicant, recital 46 of the contested decision shows that the services in question were not substitutable in the C2X international market, since, according to the Commission, private persons generally have no real choice but to send international mail with their national universal service provider. It follows that the market share of the applicant in the market for postal services for addressed B2X letters at international level should be well below [confidential]%, which the Commission did not take into account when considering that those postal services were not directly exposed to competition. In view of these considerations, it must be concluded that the Commission incurred in a manifest error of assessment in not exempting postal address for addressed B2X letters at international level from the application of Directive 2004/17.

(163) Accordingly, the fourth plea must be upheld in so far as it relates to the postal services for addressed B2X letters at international level and dismissed as regards postal services for addressed C2X letters at international level (T-463/14, paras 161-163, own translation from Spanish).

Cracking the specifics of the reasoning is complicated due to the confidential nature of the initial application for exemption under Art 30 Dir 2004/17, as well as the confidentiality of the market share data used by the GC. However, it seems clear that the Commission is subjected to a very demanding standard of data assessment and that it is obliged to use any information provided by the applicants in order to make educated guesses where market intelligence is insufficient to support a direct analysis. Looking to the future, this stringent approach highlights one of the differences between the 'old' regime of Art 30 Dir 2004/17 and the 'new' rules of art 34 Dir 2014/25, which may well make the Commission's life easier.

what Dir 2014/25 has changed

Under the procedural provisions of Art 30(6) Dir 2004/17, 'For the adoption of a Decision [exempting activities directly exposed to competition from compliance with Dir 2004/17] the Commission shall be allowed a period of three months commencing on the first working day following the date on which it receives the notification or the request. However, this period may be extended once by a maximum of three months in duly justified cases, in particular if the information contained in the notification or the request or in the documents annexed thereto is incomplete or inexact or if the facts as reported undergo any substantive changes'.

Conversely, Dir 2014/25 now has a new Art 35 on the procedure applicable for exemption decisions for activities exposed to competition under Art 34. And this is complemented by the additional rules in Annex IV, according to which second paragraph, 'The Commission may require the Member State or the contracting entity concerned or the independent national authority referred to under paragraph 1 or any other competent national authority to provide all necessary information or to supplement or clarify information given within an appropriate time limit. In the event of late or incomplete answers, the periods set out in the first subparagraph of paragraph 1 shall be suspended for the period between the expiry of the time limit set in the request for information, and the receipt of the complete and correct information'.

The change of the extension of the maximum period for a decision to exempt activities exposed to competition for a suspension of the period to adopt such decision is important because, both under the old [Art 30(4)(II) Dir 2004/17] and the new rules [Art 35(3)(II)(b) Dir 2014/25], in the absence of a decision within the specified time period (3 months in the old rules, and 90 working days under the new ones), the Directive ceases to apply to contracts intended to enable the activity exposed to competition. Consequently, a combination of a ticking time limit and the impossibility to reject claims based on what the Commission may have considered unreliable or insufficient evidence, would have resulted in significant pressure on the Commission under the old rules. Thus, it seems clear that, under the new rules and with the ability to 'stop the clock', the Commission will be able to relocate the burden of proof squarely onto the applicant's shoulders, which may well minimise or neutralise the tough approach indicated by the GC in its Österreichische Post v Commission Judgment.

AG Sharpston rightly opposes use of financial guarantees as pre-requisite for procurement challenges (C-439/14 and C-488/14)

In Opinion of 28 April 2016 in joined cases Star Storage and Max Boegl România and Construcții Napoca, C-439/14 and C-488/14, EU:C:2016:307, AG Sharpston considered 'whether EU law precludes a Member State from requiring an applicant to lodge a ‘good conduct guarantee’ in order to access review procedures for public procurement decisions by contracting authorities' or,  'how far can the Member States set up financial requirements for challenging contracting authorities’ decisions in order to reduce the risk of frivolous challenges, that is to say, challenges that are inherently likely to be unsuccessful and whose purpose is merely to impede the public contract award procedure?'.

The case comes on the back of a challenge against Romanian procedural rules whereby undertakings seeking the review of procurement decisions need to lodge such a 'good conduct guarantee' of 1% of the estimated value of the contract (with progressive caps at €10k, €25k and €100k), and contracting authorities retain the good conduct guarantee where the body competent to review their decisions rejects the challenge or where the applicant abandons it. For the sake of completes, the Opinion also assesses whether a guarantee that was returned to the applicant regardless of the outcome of the case would be compatible with EU law.

AG Sharpston's Opinion is interesting because it covers arguments linked both to the right to an effective remedy before a tribunal recognised by Article 47 of the EU Charter of Fundamental Rights (which is clearly of prominence in this area; see Fastweb, C-19/13, EU:C:2014:2194), and to the more precise rights to access to rapid and effective review procedures and remedies in the field of public procurement under the Remedies Directive (and the identical provisions of the Utilities Remedies Directive).

After a very detailed assessment (see below), AG Sharpston unsurprisingly concludes that the Remedies Directive and the Utilities Remedies Directive, 'read in the light of Article 47 of the Charter, preclude national legislation ... which requires an applicant to lodge a ‘good conduct guarantee’ in order to obtain access to review of a contracting authority’s decisions relating to public procurement and under which the contracting authority must retain that guarantee if the challenge is rejected or withdrawn, regardless of whether or not the challenge is frivolous'. Equally, that 'the same provisions of EU law also preclude national legislation which requires an applicant to lodge a ‘good conduct guarantee’ in order to obtain access to review of a contracting authority’s decisions and under which that applicant automatically gets back the guarantee at the end of the challenge, whatever its outcome'.

These issues generally concern the delineation of the locus standi to challenge procurement decisions, which I have submitted needs to be interpreted in broad terms because 'the adoption of open or broad rules on active standing is a crucial element—particularly because, in this area, one of the major problems is the reluctance of public contractors and offerors to initiate litigation' [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 439-441]. AG Sharpston's Opinion is clearly in line with such general expansive interpretation of rules recognising active standing in procurement review procedures. Therefore, her Opinion must be welcome and it is submitted that the Court of Justice should follow it. However, I also submit that she could have been bolder in assessing these issues in the broader context of the use of financial guarantees in public procurement. From this perspective, I think that some of the specific elements of Sharpston's analysis are interesting in their detail.

AG Sharpston's analysis on the basis of art 47 charter

When setting the legal background to the dispute, AG Sharpston emphases that the right under Art 47 of the Charter is not absolute, but that it can only be limited subject to the principle of proportionality and only if the limitation is necessary and genuinely meets objectives of general interest recognised by the EU, or the need to protect the rights and freedoms of others [as per Art 52(1) Charter]. She also stresses that under Art 1(1) of the Remedies Directive, Member States must 'ensure that ... decisions taken by the contracting authorities may be reviewed effectively and, in particular, as rapidly as possible ... on the grounds that such decisions have infringed [EU] law in the field of public procurement or national rules transposing that law', and that under Art 1(3) of the Remedies Directive, 'the review procedures [shall be] available, under detailed rules which the Member States may establish, at least to any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement'.

AG Sharpston also clearly stresses that the Remedies Directive only sets 'minimum conditions which the review procedures under domestic law must satisfy in order to comply with EU public procurement law [so that if] no specific provision governs the matter, it is for each Member State to lay down the detailed rules of administrative and judicial procedures governing actions for safeguarding rights which individuals derive from EU public procurement law' (para 30, references omitted). Thus, given that the Remedies Directive 'contains [no] rules on financial requirements which economic operators may have to fulfil in order to obtain access to review procedures against decisions of contracting authorities. National provisions ... fall within the procedural autonomy of the Member States, subject to the principles of equivalence and effectiveness' (para 31).

However, AG Sharpston raises two relevant issues: 'First, can [the principle of effectiveness] be limited to verifying that a national procedural requirement ... renders practically impossible or excessively difficult the exercise of the right to review procedures set out in [the Remedies Directive]? Or is it broader in that it requires any national rule which undermines those provisions to be set aside?' (para 33, emphasis in the original). To which she answers that 'what matters ultimately is to ensure that the rights which EU law confers on individuals receive more, rather than less, protection. [The Remedies Directive gives] specific expression to the right to an effective remedy. It is therefore not possible to limit the analysis of the principle of effectiveness to whether a procedural requirement such as that in issue in the main proceedings is liable to render practically impossible or excessively difficult the exercise of that right. Rather, in that specific context, the effectiveness test must surely involve examining whether such a requirement is liable to undermine the right to effective review procedures which those provisions guarantee' (para 35, emphasis in the original).

'Second, what impact does the fundamental right to an effective remedy under Article 47 of the Charter have on the principle of effectiveness as a limit to the procedural autonomy of the Member States?' (para 36). And, in that regard, she clearly explains that 'Article 47 of the Charter applies in the main proceedings. Providing the good conduct guarantee is a pre-condition for getting any challenge examined. That requirement therefore constitutes a limitation on the right to an effective remedy before a tribunal within the meaning of Article 47. Such a limitation can therefore be justified only if it is provided for by law, if it respects the essence of that right and, subject to the principle of proportionality, if it is necessary and genuinely meets objectives of general interest recognised by the EU or the need to protect the rights and freedoms of others. That test is similar to the test that the Strasbourg Court applies when it examines whether financial restrictions on access to courts are compatible with Article 6(1) of the ECHR' (para 37, references omitted).

This is an interesting analytical approach, which leads to the further consideration that the rules are underpinned by a legitimate purpose. In Sharpston's words, 'the national provisions establishing the good conduct guarantee are intended in essence to protect ... from frivolous challenges which economic operators (including those who are not tenderers) might initiate for purposes other than those for which the review procedures were established. Such an objective is undeniably legitimate. In particular, discouraging frivolous challenges enables the bodies in charge of reviewing decisions of contracting authorities to concentrate on ‘genuine’ challenges. That is likely to contribute to satisfying the requirement that Member States must ensure that decisions of contracting authorities may be reviewed effectively and, in particular, as rapidly as possible where it is claimed that such decisions infringe EU public procurement law or national rules transposing that law' (para 44, references omitted).

AG Sharpston also considers that the possibility of loosing significant amounts (up to €25k or €100k depending on the type of contract) meets the requirement that the rules are capable of achieving that objective because 'costs of that magnitude are such as to deter the lodging of frivolous challenges because the latter are, by their very nature, likely to be rejected and, therefore, to result automatically in loss of the entire good conduct guarantee and the associated costs' (para 47).

However, she submits that the rules on 'good conduct guarantees' do not meet the requirements of the principle of proportionality as derived from Art 52(1) of the Charter because there is no indication that they do no go further than is necessary to attain their objective. She assesses the situation in two scenarios. First, where the guarantee is automatically forfeited in case the challenge is rejected or withdrawn. In this case, there is no question that the rule is not proportionate because '[w]here a challenge was rejected or withdrawn, the ... competent court might for example have been given latitude to ascertain whether that challenge was frivolous or not, taking into account all relevant circumstances, and to decide in consequence whether retaining (all or part of) the good conduct guarantee was justified' (para 50, references omitted). Second, where the the applicant gets back the good conduct guarantee irrespective of the challenge’s outcome (which was a transitional regime proposed by Romania), AG Sharpston considers 'that such a procedural requirement does not protect contracting authorities adequately from frivolous challenges. Under the transitional regime, the contracting authority has to return the good conduct guarantee to the applicant within five days following the date on which the decision ... or the judgment has become final, even where the applicant manifestly abused his right to access review procedures. The costs which the transitional regime involves may therefore not be such as to discourage an economic operator from lodging a challenge that pursues an objective other than those for which the review procedures are established — for example, harming a competitor. They may nevertheless prove an obstacle to an economic operator with an arguable claim but limited means' (para 56). Therefore, she also considers it contrary to EU law.

scope for a bolder approach?

In my view, AG Sharpston is right on all issues she discusses, particularly given the framework of analysis she creates. However, the Opinion leaves space for Member States to still develop mechanisms whereby they require the submission of 'bid protest guarantees' that will only be forfeited in case of spurious litigation and on a case by case assessment. Broadly, this is not in line with the normative position that the use of financial guarantees in public procurement (primarily, at bidding stage, but also at review stage) needs to be minimised and only used where there is an actual risk against which the contracting authority cannot (self)protect by other means--which will very rarely be the case [see my Public procurement and the EU competition rules (2015) 326-327 & 425-426]. In my view, the risks derived from litigation are a given for the public sector and, consequently, unless there is a special circumstance that raises the possibility of damage to the public sector above abnormal levels, the need for the financial guarantee can be doubted.

A less restrictive alternative would be to devise a system of penalties which public procurement review bodies and courts could apply in case of spurious litigation. That would avoid front-loading the financial burden and would dissipate negative effects on access to review procedures. Conversely, it would leave the public sector exposed to bankruptcy risk in case the frivolous challengers did not have the ability to pay the fine. But this is not different from the general risk the public sector (and society at large) faces in terms of the effects of bankruptcy on the effectiveness of administrative sanctions. Thus, once more, the risk does not seem to be specific enough as to justify the requirement of specific 'bid protest guarantees' and, from that perspective, I submit that AG Sharpston could have been bolder in her Opinion in Star Storage and Max Boegl România and Construcții Napoca. However, on balance, her Opinion is certainly a positive step.

Can you ask for what you already have? GC tightens access to documents of EU institutions (T-221/08)

©European Commission.

In its Judgment of 26 April 2016 in case Strack v Commission, T-221/08, EU:T:2016:242 (not available in English, not even the official extracts) the General Court (GC) of the Court of Justice of the European Union decided some interesting practical issues related to the rules on access access to European Parliament, Council and Commission documents under Regulation 1049/2001. The point I consider most interesting is whether documents to which the claimant has had previous access by means other than the rights provided by Reg 1049/2001 can be excluded from an access request. Or, in other words, whether Reg 1049/2001 allows you to ask for what you already have.

This point is important because different "access routes" to the documents imply different uses for those documents, particularly if the applicant intends to reveal them to third parties or to the general public. As the applicant in the case submitted to the court,

Only a transmission on the basis of [Reg 1049/2001] would make the document automatically available to third parties and would enable the applicant to achieve his goal, that is, to provide the public, in a fully legally-compliant form, with information on how his complaint was handled by OLAF (T-221/08, para 124, own translation from French).

In the case at hand, the applicant required access to voluminous documentation held by OLAF. Among those documents were correspondence between OLAF and the applicant and OLAF and a mediator, which had previously been disclosed to the applicant (in the course of that correspondence or in relation to mediation efforts). OLAF excluded those documents from the request for access on the basis that they were previously disclosed (PD documents). The applicant challenged this exclusion from his request.

Interestingly, the GC deals with this issue in a rather comprehensive manner and determines that

128 The purpose of Regulation 1049/2001 is to ensure that documents of the institutions are accessible to the general public ... and ... a document disclosed under that regulation document enters the public domain.

129 This result is also reflected in Article 9, paragraph 2, point e) of the annex to the Rules of Procedure of the Commission on the provisions relating to the application of Regulation 1049/2001 ... under which documents already disclosed in response to a previous [Reg 1049/2001] request will be "automatically" provided on [further] request.

130 It is true that ... in the case Miettinen v Council (T-303/13, EU:T:2014:48, paragraphs 17 to 19) the Court stated that, since the applicant was granted access to the requested document, it had obtained the only result that its action could provide. However, contrary to what happens in this case, in the Miettinen v Council case ... the requested document had been released to the public, so it can not be inferred from that decision that the mere fact that the person concerned had had access to the document requested for any reason would prevent her, in every case, to request access to the same document on the basis of Regulation no 1049/2001, when such document has not been disclosed to the public.

131 It is therefore apparent that the first decision of OLAF, insofar as it refused the applicant access to [PD documents] on the basis of Regulation no 1049/2001, prevents those documents being considered public, which is precisely what the applicant claims and which corresponds to the objective pursued by Regulation 1049/2001, which is to grant the widest possible access to documents with a view to greater openness, to ensure greater participation of citizens in the process of decision making, and greater legitimacy, effectiveness and accountability of government to citizens in a democratic system ...

132 Consequently, the fact that the applicant already had the documents concerned by his request for access and that the objective of the latter was not, therefore, to give him access to their content but rather to disclose them to third parties is indifferent, especially because the reasons for applicant's decision to submit such a request are irrelevant, since Regulation 1049/2001 does not require that the person concerned motivates her request for access to documents, and the reasons for such a request cannot have any impact on its admission or refusal ... (T-221/08, paras 128 to 132, references omitted, own translation from Spanish and emphasis added).

This is quite an important clarification because, in my view, it will force European Institutions to tighten their procedures under Reg 1049/2001 and always assess access to documents requests on their merits. Importantly as well, the Judgment comes to clarify in very strong terms that documents disclosed under Reg 1049/2001 enter the public domain and, consequently, there can be no restrictions on their further use by the applicant or any third parties.

In the area of public procurement, this means that the European Institutions, when they act as contracting authorities, need to be particularly careful in the way they assess requests that concern documents which can impact on the commercial interests of economic operators, including intellectual property, which once made available will become part of the public domain--and may need to start (re)considering ways in which to ensure appropriate protection of business secrets along the lines of the standards created by the new Directive on trade secrets, even if it will not be directly applicable. Once again, this is linked to the issue of the level of transparency in public procurement and the need to seek a difficult balance between transparency and competition in procurement processes, and a more market-oriented approach such as that emerging in the UK may be a good example to take into consideration.

Interesting political science theories I would like to use in Future "Law and ..." research

Participating in the ECPR 2016 Joint Sessions of Workshops in Pisa this week is giving me the opportunity to exchange ideas with political scientist, public administration scholars, management researchers and other social scientists, and to get exposed to new (political science) theories yet unknown to me,--which I am starting to think can be used very fruitfully in the assessment of public procurement policy design and public procurement legal reform.

This is an area of growing interest for me, particularly after editing a collection on a "law and political science" approach to the reform of EU public procurement rules by means of the 2014 public procurement package--to be soon published as GS Ølykke & A Sanchez-Graells (eds), Reformation or deformation of the EU Public Procurement Rules (Edward Elgar Publishing, 2016).

In particular, I am finding these theories very thought-provoking:

• Garbage can policy-making model. As aptly summarised by Prof Cairney (here and here), this theory derives from the 1972 seminal work of Cohen et al, 'A Garbage Can Model of Organizational Choice', and "contrasts with ‘comprehensively rational’ policymaking in which – in this order – policymakers identify problems (or their aims), bureaucracies perform a comprehensive analysis to produce various solutions (or ways to meet those aims), and policymakers select the best solution. Instead, [under the garbage can model] policymaker aims and policy problems are ambiguous and bureaucrats struggle to research issues and produce viable solutions quickly. Sometimes people wait for the right time to present their ready-made solutions. Sometimes aimless policymakers just want to look busy and decisive. So, Cohen et al suggest that the problem identification, solution production, and choice are ‘relatively independent streams.' The garbage can is where a mix of problems, solutions and choices are dumped" (emphasis added). This is a very interesting theoretical framework in which to rethink the way public procurement policy gets constructed, and one which I would like to link to my recent criticism of the push for collaborative cross-border procurement in the EU.
   
• Bureau-shaping model. This theory was developed by Prof Dunleavy in his 1991 book Democracy, Bureaucracy and Public Choice: Economic Approaches in Political Science and, at its basics, proposes a line of analysis that deviates from the previous consensus that "the main interest of senior bureaucrats is in maximizing the budgets of their bureau because a larger budget will mean greater status and higher salaries for the bureaucrats ... In contrast, the bureau-shaping model takes issue with this emphasis on budget maximization, arguing that senior bureaucrats are most interested in maximizing the status and quality of their work. In particular, Dunleavy contends that senior civil servants are most interested in their policy advisory functions: when high-ranking officials are faced with institution-wide cuts, they reshape their bureaux into small staff agencies in order both to protect themselves and their agencies, and to allow themselves to concentrate on the policy-advisory role which they prefer" [as summarised by Marsh, Smith & Richards (2000), emphasis added]. I also find this interesting and difficult to assess in public procurement, where the effect of the financial crisis may well prove Dunleavy right in terms of the creation of specialised (centralised) agencies that gain policy-making clout. However, it is also my intuition/observation that (centralised) agencies are also indicating traits of strict budget maximisation (or empire building, to link this with corporate governance literature) in that these agencies aim to achieve more and more (theoretical) economies of scale that are definitely size-related. Thus, I would like to explore this issues in relation with the ascendancy of central purchasing bodies and, in particular, those of a more commercial orientation.
   
• The role of the European Commission as a policy innovator. This is fundamentally an extension of Dunleavy's model and was developed by Alexopoulos in his 2000 'The European Commission as Policy Innovator: Bureaucratic politics in Perspective', where he developed the analysis of the Commission's activity under the bureau-shaping model in relation with maritime and tourism policy. I would be most interested in trying to replicate the study 15 years after and in the area of public procurement, and possibly try to complement it or reconcile insights offered by the garbage can model mentioned above.

I am not sure when I will have time to push these ideas further, but if anyone is interested in collaborating in any of these (or related issues) involving a "law and political science"--or "law and political economy", or "law and economics" to widen the spectrum to the "law and ..." of public procurement research--please be in touch.

Would a Brexit significantly change the way the English public sector buys supplies and services?

With two months to go for the all important UK referendum on EU membership, I thought it was about time to open the Brexit can of worms. This is a blog post I wrote for wider dissemination through the University of Bristol engagement channels. Comments welcome!

There has been some serious thought put into the potential implications of Brexit for the ways in which the UK public sector buys supplies and services—or, in technical terms, on the Brexit implications from a public procurement perspective. Academics, such as Dr Pedro Telles, and practitioners such as Michael Bowsher QC, Peter Smith, Roger Newman or Kerry Teahan have started to reflect on the likely consequences from a legal and business case perspective.

The overwhelming consensus is that a Brexit is highly unlikely to result in any significant substantive changes of the rules applicable to the public sector’s buying activity and that existing ‘EU-based regulation’ (notably, the Public Contracts Regulations 2015, as already amended by the Public Procurement (Amendments, Repeals and Revocations) Regulations 2016) is very likely to be replaced by an almost identical ‘English-reimagined regulation’. Economic studies, such as that carried out by Global Counsel, have also considered the likely impact of Brexit on public procurement as moderate—although in the economic area there is less consensus, as pointed out by Procurious.

Overall, it may seem that public procurement is an area where a Brexit would be unlikely to create much more than legal uncertainty and some economic costs (which are for the UK population to evaluate) and that, after a suitable (possibly long) period of time, new rules would be in place and the sector would carry on as usual. Optimists may identify an opportunity to improve existing rules once the EU requirements are set aside and a distinct English-reimagined regulation can be adopted and implemented (if that is at all possible, which most commentators reject). I would like to entertain that possibility for a second and consider to what extent the creation of a significantly better English-reimagined public procurement regulation is likely to materialise.

At the risk of being considered a pessimist or excessively critical, I do not think this possible at all, much less in a tight time-scale of around two years. I think that the process of transposition of the most recent EU rules (notably Directive 2014/24/EU) into the Public Contracts Regulations 2015 is a cautionary tale. That process of transposition required a reform of UK public procurement rules and had a two-year timeline, so the regulatory reform scenario could not be more similar and timely.

When the modernisation of the pre-existing EU procurement rules was first proposed, the Cabinet Office set out a clear negotiation strategy with ambitious goals, which mainly revolved around the creation of space for employee led organisations/mutuals to enable employees to gain experience of running public services prior to full and open competition, the shortening of procedures and reduction of red tape, the flexibilisation of the rules in order to allow for better commercial practices, and measures to enhance SME access to public procurement. All of this was achieved and the Cabinet Office was clear in stressing that the ‘revised [EU] package represents an excellent overall outcome for the UK, with progress achieved on all of our priority objectives’.

After having successfully secured most of the UK desired reforms during the 2011-2014 negotiation process, and in order to benefit from them as soon as possible, the Public Contracts Regulations 2015 were very quickly adopted in under a year. However, in part as a result of such rush to secure the benefits mentioned above, and possibly also as a side effect of the self-imposed restriction derived from ‘the government’s policies on “copy-out” of European Directives (where available) and avoidance of “gold-plating”, [which] further limit[ed] the extent to which Cabinet Office can deviate from the wording of the EU directive when casting the national UK implementing regulations’, the new UK procurement legislation is rather defective (as discussed in this podcast).

The 2015 reform was a significant opportunity to improve the regulation of public procurement in the UK and to rethink a system based on the flexible alternatives now included in the 2014 EU public procurement package, but it was misused and is now lost. By not adding domestic detailed rules to the EU framework, or developing significant guidance (there is some in selected areas, such as public-public contracts or contract modification), and by rushing an insufficiently developed transposition, the Cabinet Office created a situation where procurement practice is very likely to carry on as usual unless old rules are now barred (most are still compatible with the revised framework, though) or the specific contracting authority identifies any clear advantage in adopting new practices. Piece meal legal reform, piece meal guidance and piece meal procedural innovation is unlikely to result in any deep transformation of the way the UK public sector buys supplies and services.

In my view, this is a cautionary tale because fundamentally rethinking the public procurement function and its processes, and then designing a coherent system of rules that effectively support them, is a very hard thing to do (and one to which I intend to dedicate significant effort in the coming years). Moreover, the policy priorities expressed by the UK during the process of modernising the EU framework are now embedded in the revised EU and UK procurement rules. This seems to leave nothing left for the UK to want to push for in any subsequent legal reform, so there is no actual public interest or clear public policy driver for any additional reform of current rules—bar the need for technical adjustments. Thus, overall, a Brexit is very unlikely to result in any significant change in the way the English public sector buys supplies and services. Not because of EU impositions—then as a trade requirement rather than a regulatory obligation—but due to the lack of internal drive and practical need for an English-reimagined public procurement regulation.

Study on administrative capacity to manage public procurement in the EU - some critical remarks on public procurement transparency

The European Commission has published the study 'Stock-taking of administrative capacity, systems and practices across the EU to ensure the compliance and quality of public procurement involving European Structural and Investment (ESI) Funds' (PwC, Jan 2016), which offers an interesting perspective on the existing administrative capacity to manage public procurement in the EU. In its own terms, '[the] study offers a unique and unprecedented overview of the current state of administrative capacity in the field of public procurement in the EU with a special focus on the implementation of the European Structural and Investment (ESI) Funds. It looks at the systems and structures in the individual Member States and provides valuable information as to how to improve the quality of public procurement and ensure more efficiency, transparency and regularity, in line with the Investment Plan for Europe and the EU budget focused on results initiative'.

The study has country-specific profiles with 'recommendations regarding specific needs identified in the 28 Member States and the areas where they could improve performance and effectiveness of public procurement benefiting from the cases of good practice contained in the study'. Such recommendations build up on a general section on 'good practices', where the study focuses on  seven categories of issues that PwC considers relevant for the proper administration of a well-functioning public procurement system, including:

• Ad hoc support [to contracting authorities having issues with procurement rules or practice];
• Guidance documents for contracting authorities;
• Professionalisation of public procurement practitioners;
• Initiatives which ensure the quality of public procurement;
• Review processes;
• Measures for simplification and efficiency;
• Data monitoring and practices fostering transparency.

Some of these recommendations are already shaping EU policy in the public procurement field. In particular, the 'good practices' on ad hoc support are informing the Commission's project to set up and roll-out a 'voluntary ex ante assessment mechanism of the procurement aspects of certain large-scale infrastructure projects' (as included in the 2015 Strategy for the upgrade of the internal market), which may well result in the creation of a help-desk or hotline structured around the existing experiences in France, Slovenia, Finland of the Netherlands; see pp. 72-74 of the PwC report).

Similarly, the considerations around good practices concerning public procurement transparency (pp. 85-86) are also likely to inform the Commission's project to encourage Member States to create centralised public procurement registers as part of its commitment to pursue '[i]nitiatives for better governance of public procurement through the establishment of contract registers, improved data collection and a networking of review bodies' (as also included in the 2015 Strategy for the upgrade of the internal market; for discussion, see here and here). In that regard, it is worth looking closely at what the PwC report considers good practices in this area. According to the report,

The online publication of detailed and regularly updated public procurement data is a key component of an effective monitoring and transparency system. This can benefit to a wide range of stakeholders, from the public authorities who can use this data to monitor and evaluate their own purchasing activities to economic operators who can better assess the public sector markets. Besides, the publication of public procurement data also helps civil society groups to conduct their oversight activities on public spending.

Key success factors: Comprehensive and quality data covering various aspects of procurement (e.g. number, economic value, procedure); User-friendly and intuitive websites to easily access the data; Data made available online should be comparable, freely released, and downloaded in usable format; Regular update of the data published.

At this level of generality, the report is not massively useful because it leaves important issues of detail about the information to be published, whether access needs to be unrestricted and universal (I submit it should not) or different stakeholder should have access to different levels of information and at different times, etc. Moreover, the report makes some general statements that can be strongly contested. For instance, the report emphasises that

There is ... a benefit in collecting and publicising information not directly related to a specific procedure. For example, some [Member States], such as Latvia, Spain and Slovakia, require contracting authorities to publish pipelines of up-coming contracts, which can be invaluable tools for bidders to manage their businesses plans and prepare their most competitive officers. 

This is very problematic because this is the sort of excessive transparency that can easily result in cartelisation of (future) tender procedures and, in my view, there is no need whatsoever for this type of advance publication of contract opportunities if contracting authorities are willing to provide reasonable tender preparation times [for broader discussion, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 73-75, and ibid., 'The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives' (2013)]. Thus, a more nuanced and careful consideration of these issues would be needed before simply presenting more transparency as always and intrinsically positive, and as a 'good practice' that should be disseminated throughout the 28 EU Member States--which it simply is not.

When it comes to the assessment of specific cases, the PwC report includes five short case studies in this area: Spain (Public Contracts Registry), Lithuania (Monitoring and publication of data on framework agreements), Slovenia ("Supervizor" transparency tool), Portugal (BASE Public Contracts Portal) and Slovakia (Single-stop online portal for public procurement analysis). All these case studies stress that publication of procurement information is positive, and indicate that there are issues of quality of the data published and of accessibility and machine-readability that need to be addressed. On the basis of that, the report goes on to recommend that Member States:

• Integrate interoperability with the online publication system into the national eprocurement system so that the relevant data is automatically uploaded to the public website, minimising delays in publication;
• Incorporate a comprehensive and user friendly search engine in any online database so that users can identify the information that is relevant to them;
• Allow users to download search results in at least one commonly used and machine readable format such as CSV or Excel;
• Contracting authorities should be required to submit preliminary data on upcoming projects, either via an annual procurement plan, or an advanced notification requirement for major and recurring contracts. 

I would personally take issue with the final recommendation and challenge it as an instance of detrimental public procurement practice. Elaborating a procurement is probably a good governance tool. Publishing it is a very ill-informed decision. Not in vain, one of the recommendations included in the OECD's Guidelines for Fighting Bid Rigging in Public Procurement (2009) is for contracting authorities to avoid predictability and, in particular, to '[a]void predictability in your contract requirements: consider aggregating or disaggregating contracts so as to vary the size and timing of tenders'.

Thus, engaging in the type of advanced disclosure advocated by the PwC report is simply contrary to this recommendation and creates excessive predictability and certainty of demand for both major and recurring contracts. Simply put, this is an ill-informed recommendation and one that the Commission and the Member States should ignore. It will be particularly important for this not to feed into the Commission's initiatives under the 2015 Strategy for the upgrade of the internal market. Any development of rules on public procurement registers needs to be much more nuanced and informed by economic theory.

In my view, the main normative recommendations (ie 'good practices') on which public procurement registers should be based are as follows:

• Public contract registers should not be fully available to the public. Access to the full registry should be restricted to public sector officials under a strong duty of confidentiality protected by appropriate sanctions in cases of illegitimate disclosure.
• Even within the public sector, access to the full register should be made available on a need to know basis. Oversight entities, such as the audit court or the competition authority, should have full access. However, other entities or specific civil servants should only access the information they require to carry out their functions.
• Limited versions of the public contract registry that are made accessible to the public should aggregate information by contracting authority and avoid disclosing any particulars that could be traced back to specific tenders or specific undertakings.
• Representative institutions, such as third sector organisations, or academics should have the opportunity of seeking access to the full registry on a case by case basis where they can justify a legitimate or research-related interest. In case of access, ethical approval shall be obtained, anonymization of data attempted, and specific confidentiality requirements duly imposed.
• Delayed access to the full public registry could also be allowed for, provided there are sufficient safeguards to ensure that historic information does not remain relevant for the purposes of protecting market competition, business secrets and commercial interests.
• Tenderers should have access to their own records, even if they are not publicly-available, so as to enable them to check their accuracy. This is particularly relevant if public contract registries are used for the purposes of assessing past performance under the new rules.
• Big data should be published on an anonymised basis, so that general trends can be analysed without enabling ‘reverse engineering’ of information that can be traced to specific bidders.
• The entity in charge of the public contracts registry should regularly publish aggregated statistics by type of procurement procedure, object of contract, or any other items deemed relevant for the purposes of public accountability of public buyers (such as percentages of expenditure in green procurement, etc).
• The entity in charge of the public contracts registry should develop a system of red flag indicators and monitor them with a view to reporting instances of potential collusion to the relevant competition authority.

My full discussion and reasons for these recommendations are available here.

Open season for new EU public procurement rules: direct effect, indirect effect and State liability

18 April 2016 marks the end of the transposition period for the 2014 Public Procurement Package, including Directive 2014/23 on concessions, Directive 2014/24 on public sector procurement and Directive 2014/25 on procurement in the utilities sector. As of close of business on 15 April 2016, only 7 Member States (the UK, Denmark, France, Germany, Spain, Lithuania and Hungary) had notified implementing measures for Directive 2014/24 to the European Commission—although some of them are only partial (such as the case of Spain)—which means that in most Member States, the Directives are effective from today despite the (total or partial) lack of domestic transposition measures (for some previous initial thoughts, see here). Even in those Member States that have transposed, should there be any interpretative doubts as to the compatibility of the transposing measures with the 2014 Public procurement package, it is now uncontroversial that the new EU public procurement Directives trump any domestic rules and must be given full effectiveness.

This post explores in streamlined terms the three avenues open for economic operators and, more importantly, for public administrations and entities carrying out public procurement activities to guarantee the effectiveness of the 2014 Public Procurement Package under general EU law—and explores in particular detail the obligation for Member States’ courts and administrative authorities to ensure its effectiveness under the doctrine of indirect effect—as well as the residual possibility to claim State liability.

Direct effect

Where the 2014 Public Procurement Package creates individual rights (a number of important provisions spring to mind, eg new rules on exclusion and self-cleaning, new rules on contract modification and contract termination, use of the European Single Procurement Document ESPD, etc), these are susceptible of enforcement under the doctrine of direct effect of EU law, which ensures that ‘a directive has direct effect when its provisions are unconditional and sufficiently clear and precise and when the EU country has not transposed the directive by the deadline’ (Van Duyn, C-41/74, EU:C:1974:133). This will be a viable enforcement route for the provisions of the 2014 Public Procurement Package that establish identifiable individual rights, so that an interested undertaking (or public administration) can rely on them despite the lack of transposition. However, in my view, this need not be the main (and definitely not the only) enforcement strategy in the period prior to the (delayed) transposition of the 2014 Public Procurement Package because the doctrine of indirect effect is a much more powerful tool.

Indirect effect

The Court of Justice of the European Union (CJEU) has clearly established a general obligation for Member States to interpret and to enforce national legislation according to the principles of the TFEU and other principles and basic objectives of EU rules. According to this principle of consistent interpretation (harmonious interpretation, convergent construction or interprétation conforme) and as a ramification of the positive duties imposed by the TFEU, Member States’ courts and authorities are to interpret national law so as to ensure that the objectives of the directives are achieved and that national law is consistent with the relevant provisions of EU law [Case 14/83 Von Colson and Kamman [1984] ECR 1891 para 26; and Case 79/83 Harz [1984] ECR 1921 para 26. Specifically in the field of public procurement, see Case 103/88 Costanzo [1989] ECR 1839 paras 28-33; and, more recently, Case C-357/06 Frigerio Luigi [2007] ECR I-12311 paras 28-29; and Joined Cases C-147/06 and C-148/06 SECAP [2008] ECR I-3565 para 22]—hence, giving it indirect effect through the interpretation and enforcement of domestic law [on the extension of these duties not only to national courts, but also and notably to national authorities, see J Temple Lang, ‘The Duty of National Courts under Community Constitutional Law’ (1997) 22 European Law Review 3; and ibid, ‘The Duty of National Authorities under European Constitutional Law’ (1998) 23 European Law Review 109, 114].

In other words, in applying national law, national courts and authorities are required, as far as possible, to interpret the national law (whether adopted before or after the directive) in the light of the wording and the purpose of the directive in order to achieve its intended results [see Case C-160/01 Mau [2003] ECR I-4791 para 34; Joined Cases C-397/01 to C-403/01 Pfeiffer and others [2004] ECR I-8835 paras 113-114; Case C-212/04 Adeneler [2006] ECR I-6057 paras 108-111; and Joined Cases C-187/05 to 190/05 Agorastoudis and others [2006] ECR I-7775 para 43]. The principle of consistent interpretation also requires that settled domestic case law is reinterpreted in light of the directives, so that not only statutory legislation, but also judge-made law, is constructed in a convergent manner with EU law [Case C-456/98 Centrosteel [2000] ECR I-6007 para 17].

In principle, the EU case law has held that this obligation of courts and national authorities of the Member States is not absolute, and certain limits could be found (i) in the initially restrictive approach towards horizontal direct effect of directives, (ii) in the prohibition of contra legem interpretation of domestic laws, and (iii) in the necessary respect of certain time limits generally applicable to the transposition of directives. However, a closer analysis of these general restrictions on the duty of consistent interpretation shows that they have been construed in very narrow terms in the case law. As a result, none of these apparent limits actually restricts in a significant manner the duty of Member States to ensure consistent construction of domestic legislation with EU rules—and, as of 18 April 2016, their obligation to ensure that their existing public procurement rules, interpreting case law and administrative doctrine are aligned with the 2014 Public Procurement Package.

As just mentioned, a first apparent limit to consistent interpretation might be encountered in the lack of horizontal direct effect of the directives’ provisions, and so consistent interpretation may be restricted if it could lead to the imposition on an individual of an obligation laid down by a directive which has not been transposed into domestic law, at least if such a result is unacceptable in the light of the general principles of law (particularly, the principles of legal certainty and non-retroactivity). Nonetheless, the interpretation conducted by the case law of the requirements that the imposition on individuals is (i) of obligations ‘as such’ and (ii) by the directive ‘of itself’ has followed a restrictive approach, with the result that this apparent restriction falls short of preventing the application of the doctrine of convergent construction in every case in which the legal position of an individual is negatively affected [Case C-177/88 Dekker [1990] ECR I-3941; and Case C-180/95 Draehmpaehl [1997] ECR I-2195, where the CJEU applied the doctrine of consistent interpretation even if the legal position of the individuals concerned was significantly altered. Along the same lines, see Case C-456/98 Centrosteel [2000] ECR I-6007 para 19 and Joined Cases C-240/98 to C-244/98 Océano [2000] ECR I-4491 paras 31-32].

It follows that, in the end, consistent interpretation of national legislation with EU law can generate (indirect or ancillary) negative effects on the legal position of individuals, as long as the result is acceptable in light of the general principles of law—ie, unless it runs contrary to fundamental legal guarantees provided by these principles to individuals, which now include the need to respect the limits derived from the right to good administration under Article 41 of the Charter of Fundamental Rights of the European Union [which is triggered , see Åkerberg Fransson, C-617/10, EU:C:2013:105; and Siragusa, C-206/13, EU:C:2014:126], and which will impose particular obligations to motivate any change of rules or the (in)direct application of the 2014 Public Procurement Package in the absence of domestic transposing measures [for discussion, see see P Craig, ‘Article 41 – Right to Good Administration’ in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1069-98]. However, having in mind the content of the 2014 Public Procurement Package, it is highly unlikely that any individual is affected in intolerably negative terms, particularly if the application of the new rules is adopted progressively (eg ‘for the next phase’ of ongoing public procurement procedures).

Another apparent limit could be found in that national courts and authorities are not obliged to make a contra legem interpretation of the relevant provisions of national legislation. Nevertheless, this limit does not seem to constrict significantly the result of the convergent construction of domestic and EU law, in so far as national courts and authorities are obliged to disapply the provisions of national law that frontally contradict EU law, by virtue of the principle of supremacy—and so the same final results are generally achieved [see K Lenaerts and P van Nuffel, Constitutional Law of the European Union, 2nd edn (London, Thomson/Sweet & Maxwell, 2005) 775-778]. Once more, in the case of the 2014 Public Procurement Package, it is very unlikely that any rules in the domestic systems explicitly and openly prohibit actions now allowed under the more flexible approach of the new rules (and if they do, they need be set aside and not applied), which thus significantly erodes the relevance of this theoretical limitation.

Finally, a waiting period is in principle also applicable to the duty of consistent interpretation—that is, the obligation of harmonious interpretation of national legislation arises only after the time-limit for the transposition of the directive has expired—which is precisely the event that the calendar triggered today.

Therefore, given that the limits of the principle of consistent interpretation remain somewhat blurry and that the CJEU has adopted an expansive approach to the issue of the obligation of Member States to guarantee the effectiveness of directives, the limits of legal construction of Member States’ law with conformity to EU directives should be interpreted restrictively in order to favour to the maximum extent the (indirect) effectiveness of EU law and the goals pursued by EU directives. This is all the more necessary in view of recent developments of the rules of construction developed by the CJEU that are superseding the traditional boundaries of the theory of direct effect and point towards a more general doctrine of ‘legality review’ of the legislative actions of Member States, and towards the expansion of the boundaries of legal interpretation that conform to the TFEU and secondary rules The limit seems to lie where consistent interpretation requires national courts and authorities to overcome ‘merely’ interpretative functions (broadly defined) and to assume legislative functions. Nonetheless, drawing the dividing line will usually be a difficult task and, as already mentioned, the clear prevalence of a pro communitate interpretative principle must be identified in the relevant case law.

To sum up, Member States are under an almost absolute obligation to guarantee that domestic legislation is interpreted and applied in a manner that is consistent with EU law and, in particular in the case of directives, to ensure that their goals and intended effects are attained through national legislation—regardless of whether that legislation was adopted for the sake of transposing those directives, and regardless of the proper or improper transposition of those directives. If this is taken seriously, in my submission, all contracting authorities of non-transposition Member States should better start operating as if the 2014 Public Procurement Package had been transposed through a (UK-inspired) copy-out approach [for further analysis with reference to the specific direct and indirect effect of the competition principle consolidated in Art 18(1) Dir 2014/24], see A Sanchez Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 215-223].

State liability

Finally, it may be worth reminding that the lack of transposition by the 18 April 2016 deadline is a manifest and grave infringement of EU law that can give raise to Francovich State liability of the non-transposing Member States if, despite the arguments provided above, they reject their duty to give the 2014 Public Procurement Package full (indirect) effect and in doing so cause a recoverable damage on individual undertakings (for a basic summary of applicable rules, see here).

Some reflections on competition implications of new procurement developments

ERA annual public procurement conference 2016 from Albert Sanchez Graells

Later this week at ERA's Annual Conference on Public Procurement 2016, I am presenting some of my thoughts about the competition and other practical implications of two main recent developments in public procurement policy and practice.

On the one hand, I will reflect on centralisation and collaboration in procurement and the increasingly commercial activity of central purchasing bodies. My remarks will be focused on two main issues: the legal difficulties that a policy on (cross-border) collaborative procurement faces, as well as the competition law implications of CPBs going commercial full tilt.

On the other hand, I will explore my concerns about the trend of creation of public (online) central registries of public contracts and the excessive transparency they can create in procurement intensive markets, which may result in severe anticompetitive implications  (see here and here).

These are the slides I will use, with references to further reading.

CJEU offers further clarification on rules for reliance on third party capacities and the possibility to impose restrictions thereof(C-324/14)

 In its Judgment of 7 April 2016 in PARTNER Apelski Dariusz, C-324/14, EU:C:2016:214, the Court of Justice of the European Union (CJEU) has provided further clarification on the rules applicable to reliance on third party capacities under Directive 2004/18 (for previous case law, see here), but also included references to the new rules in Directive 2014/24 that merit some close analysis.

In the case at hand, the contracting authority rejected a tenderers' decision to rely on the technical capacity of a third party despite having submitted a commitment by that third party to make its capacity available to the main tenderer for the period of execution of the contract -- thus meeting the (formal and substantive?) requirement in Art 48(3) Dir 2004/18, and also in Art 63(1) Dir 2014/24.

The key issue for the assessment of whether the way in which the cooperation foreseen between the main tenderer and the third party was acceptable rested on the fact that the third party (PUM) 'made its capacities available to Partner [the main tenderer], in particular, its consulting services including, among others, training for Partner’s employees and help to resolve any problems which might arise at the performance stage of the contract. Partner also stated that, for the purposes of the performance of the contract that cooperation was to be governed by a contract between the two undertakings' (C-324/14, para 23). The contracting authority was dissatisfied because 'it took the view that PUM’s knowledge and experience could not be made available without the personal, actual participation of that company in the performance of the contract at issue' (ibid, para 25, emphasis added). This decision implied Partner's exclusion from the tender procedure, which gave rise to the challenge.

After reiterating its general case law on the possibility to rely on third party capacities for the purposes of participating in a public tender (paras 33-35), the CJEU stressed that

36 ... the fact that, under Article 48(3) of Directive 2004/18, an economic operator may rely on the resources of other entities ‘where appropriate’ cannot be interpreted as the referring court, in particular, appears to suggest, as meaning that it is only exceptionally that such an operator may rely on the resources of third party entities.

37 That being said, it must be stated, first, that, although it is free to establish links with the entities on whose resources it relies, and to choose the legal nature of those links, the tenderer is nonetheless required to produce evidence that it actually has available to it the resources of those entities or undertakings, which it does not itself own, and which are necessary for the performance of the contract (see to that effect, judgment in Holst Italia, C‑176/98, EU:C:1999:593, paragraph 29 and the case-law cited).

38 Thus, in accordance with Articles 47(2) and 48(3) of Directive 2004/18, a tenderer may not rely on the resources of other entities in order to satisfy in a purely formal manner the conditions required by the contracting authority (C-324/14, paras 36-38, emphasis added).

This seems to establish a proper general principle that requires a substantive assessment of the relationship between the main tenderer and third parties [for discussion, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 315 and ff]. Beyond that, the CJEU continued to note that

39 Second, ...the provisions of Directive 2004/18 do not preclude the exercise of the right established in Articles 47(2) and 48(3) thereof from being limited in exceptional circumstances (see, to that effect, judgment in Swm Costruzioni 2 and Mannocchi Luigino, C‑94/12, EU:C:2013:646, paragraph 36).

40 It is conceivable that there may be works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator, which, individually, would be inadequate. In such circumstances, the contracting authority would be justified in requiring that the minimum capacity level concerned be achieved by a single economic operator or, where appropriate, by relying on a limited number of economic operators, in accordance with the second subparagraph of Article 44(2) of Directive 2004/18, as long as that requirement is related and proportionate to the subject matter of the contract at issue (judgment in Swm Costruzioni 2 and Mannocchi Luigino, C‑94/12, EU:C:2013:646, paragraph 35).

41 Likewise, it is conceivable that, in specific circumstances, having regard to the nature and objectives of a particular contract, the capacities of a third party entity, which are necessary for the performance of a particular contract, cannot be transferred to the tenderer. Accordingly, in such circumstances, the tenderer may rely on those capacities only if the third party entity directly and personally participates in the performance of the contract concerned (C-324/14, paras 39-41, emphasis added).

This is interesting because this line of reasoning explicitly endorses the changes introduced by Art 63(1) Dir 2014/24, which establishes that '[w]ith regard to criteria relating to ... the relevant professional experience, economic operators may ... only rely on the capacities of other entities where the latter will perform the works or services for which these capacities are required'. Therefore, the Judgment in Partner is relevant because it anticipates the interpretation of the future rules [for discussion, see A Sanchez-Graells & GS Olykke, 'Under the political science magnifying glass: reformation or deformation of the EU public procurement rules in 2014?', in ibid (eds), Reformation or Deformation of the EU Public Procurement Rules in 2014 (Cheltenham, Edward Elgar Publishing, 2016) forthcoming].

Looking closer at the assessment of the CJEU under the circumstances of the case, it is worth stressing that

42 ... the referring court expresses doubts as to whether PUM’s capacities may genuinely be transferred to Partner so that the resources necessary for the performance of the contract at issue in the main proceedings may be placed at Partner’s disposal ..., given the fact that the resources in that case are made available simply by providing consultation and training services, without any direct participation by PUM in the performance of that contract.

43 In that connection, it must be observed that the public contract at issue in the main proceedings ... is for the comprehensive mechanical cleansing of the roadways of Warsaw in winter and summer for four consecutive years.

44 In particular, as regards winter cleansing, it is apparent ... that that service requires specific skills and a detailed knowledge of the topography of the city of Warsaw and, above all, the ability to react immediately in order to attain specific maintenance standards for the roadways within a specific period.

45 Furthermore, that service is based on the use of specific technology requiring a level of experience and a high degree of skill in using it, which alone enables the contract at issue in the main proceedings to be performed properly while avoiding dangerous consequences for road traffic.

46 In those circumstances, the actual performance of such a contract requires the involvement of experienced staff who, inter alia, by directly observing the state of the surface of the roadways and carrying out on-the-spot tests are able to anticipate or, in any event, respond appropriately to the specific needs of that contract.

47 Taking account of the subject matter of the contract at issue in the main proceedings and its objectives, it is conceivable that PUM’s proposed involvement, consisting simply in the provision of consultation and training services, cannot be regarded as sufficient in order to guarantee that Partner would have at its disposal the resources necessary for the performance of that contract ... (C-324/14, paras 42-47, emphasis added).

I find these considerations very relevant because it seems that the CJEU is willing to engage in a substantive analysis, but not necessarily subject it to a strict proportionality test. In any case, contracting authorities willing to request tenderers or third parties on which they rely to carry out certain activities directly will be well advised to make this particularly clear in the tender documentation, not least if they also want to complement this substantive requirement with additional rules on liability, as foreseen in Art 63(2) Dir 2014/24.

Interesting paper on political contestability and public contracts' rigidity [Beuve, Moszoro & Saussier (2016)]

In their interesting paper 'Political Contestability and Contract Rigidity: An Analysis of Procurement Contracts', Beuve, Moszoro & Saussier 'argue that a significant part of the contractual rigidity difference between purely private and public contracts [is] due to the specific nature of public contracts which are more permeable to the political environment'. This main claim is very interesting (and potentially controversial) because it implies that public contracts are per se more prone to ex ante formalisation and ex post modification and renegotiation.

Beuve, Moszoro & Saussier's argument lies in good measure in the insight that 'public contracts are characterized by intrinsic differences stemming from the fact that a substantial amount of supervision and control is done by political contesters and interest groups who have a stake in challenging and disrupting the contractual relationship. Thus, although politics is normally not necessary to understand private contracting, it becomes fundamental to understanding public contracting' (p. 2).

Furthermore, they stress that '[p]ublic contracting is characterized by formalized, standardized, bureaucratic, and rigid procedures, partly because politics must be secured against opportunistic third parties. What we call “contract rigidity” refers to rule-based (bureaucratic) implementation; i.e., the addition of contractual provisions and specifications that impose ex post stiff enforcement, intolerance to adaptation, and penalties for deviation'; and that '[m]oreover, when faced with unforeseen or unexpected circumstances, private parties— as long as the relationship remains worthwhile—adjust their required performance without the need for costly and formal renegotiation ... Conversely, public agents will be more likely to have these contractual changes formalized in amendments. The same insulation mechanism that triggers higher rigidity of public contracts compared to purely private contracts induces formalization of renegotiations through written amendments' (ibid).

They derive three propositions: 'First, public contracts are more rigid than equivalent transactions governed under private contracting. Second, contracts signed with public authorities in politically contestable jurisdictions are characterized by more rigid procedures than other public contracts; i.e., public authorities subject to third-party challenges increase the proceduralization of contractual agreements to insulate themselves from plausible politically motivated challenges. Third, public contracts renegotiations are more frequently formalized through amendments because of their initial rigidity (i.e., no relational adaptation) and as a means to avoid charges of discretionary misuse of public funds' (pp. 2-3).

They test these propositions using a rich database of car park contracts contracts signed between 1985 and 2009 in France. Remarkably, their dataset is quite unique in that they analyse contracts 'signed between one private operator and 24 private procurers ... and between the same private operator and 152 public authorities'. This allows them to isolate certain idiosyncratic characteristics of public contracts.  In their terms: 'Because there is only one contractor and car parks arguably entail a standardized product and service, a large part of the contractual heterogeneity comes from the procurers’ characteristics and time-varying political contestability' (p. 3).

Rather controversially, at least when confronted with the received wisdom that (public) contract renegotiation can derive from opportunism or even corruption [see, from a legal perspective, eg GM Racca & R Cavallo Perin, 'Material Amendments of Public Contracts during their Terms: From Violations of Competition to Symptoms of Corruption' (2013) 4 EPPPL 279-293], they submit that their 'results suggest that previous studies that surfaced public contracts’ inefficiencies related to high renegotiation rates ... might be somewhat misleading. Frequent renegotiations observed in public contracts can be understood as a consequence of their specific nature instead of a manifestation of opportunism: “In a sense, [...] the frequency of contract renegotiation may provide concessions a ‘relational’ quality” ... An important corollary is that the perceived inefficiency of public contracting is largely the result of contractual adaptation to different inherent hazards and thus is not directly remediable' (p. 4, emphasis added). Or, as they venture in their conclusions, '[w]hat can be interpreted, at first glance, as a sign of weakness (i.e., frequent amendments) might well be good news indicating that the contracting parties can make the contract adaptable through time' (p. 23).

I find Beuve, Moszoro & Saussier's a very thought-provoking claim and one that will be very relevant for the scholarship dealing with the challenges derived from the new rules on contract modifications included in Art 72 of Directive 2014/24--and the complex rules in which they will necessarily derive in their transposition into Member States' domestic legal systems. Thus, I think that this is a paper worth reading and its insights should be taken into account when shaping domestic modification controls, particularly in terms of oversight.

Public procurement keeps steady in CJEU's 2015 Annual Report--A quick look

The Court of Justice of the European Union has made available a preliminary version of its 2015 Annual Report (see here). It offers data that consolidates public procurement as a very significant area of activity, continuing with the trend identified since 2012 (and in 2014), and likely to be boosted by the need to interpret the new rules of the 2014 public procurement package, which enter into force in less than two weeks (on 18 April 2016), despite most Member States not having transposed. Pending a more detailed assessment of the data, some figures have caught my attention.

When it comes to the CJEU itself, in 2015, it opened 26 new public procurement cases (including 22 direct actions) and decided 14 cases (of which 12 were judgments and 2 were orders), thus also continuing the increasing trend of accumulated backlog of cases in this important area of EU law. It also reviewed two appeals against interim measures and denied both of them.

On its part, the General Court (GC), also in 2015, opened 23 new procurement cases and took 22 decisions (including 12 judgments and 10 orders), thus managing to cope with a balanced input/output of new workload, but probably not absorbing the backlog accumulated in previous years (which remains at 35 pending cases as of 31 December 2015, in line with the 36 pending in 2013 and the 34 pending in 2014). Regarding interim measures, the GC reviewed 7 applications and granted 3 of them. Of the 4 GC decisions appealed before the CJEU decided in 2015, 3 were upheld.

Overall, unfortunately, the same conclusion as in previous years seems clear: the CJEU and the GC are struggling to keep pace with their public procurement workload, and this is likely to get worse in the coming few years, particularly if preliminary questions regarding the direct effect of the 2014 public procurement package mushroom as a spillover of the late transposition in the Member States. In any case, also as in previous years, this quantitative information needs to be taken with a pinch of salt, as there are many qualitative nuances that cannot be identified at this level.

Non ci facciano perdere tempo... CJEU axes barriers to effective judicial review or procurement challenges and stresses 'obligation' to follow preliminary rulings (C-689/13)

Blogging from Turin, this case seems a bit too rightly timed

In its Judgment of 5 April 2016 in PFE, C-689/13, EU:C:2015:693, the Court of Justice of the European Union (CJEU) has confirmed the jurisprudential line started with Fastweb , C-100/12, EU:C:2013:448 (see comment here), and adopted a very clear position against procedural barriers that could prevent the effective review of public procurement challenges. It has also stressed the 'obligation' incumbent upon last instance courts to  ensure respect for (ie application of) the interpretation of EU law derived from the CJEU's answer to a reference for a preliminary ruling, or the previous case-law of the CJEU that already provides a clear answer to that question.

The case at hand concerned several procedural rules and practices applicable to the review of public procurement challenges in Italy and their compatibility with the Remedies Directive [Art 1(3)], as well as Art 267 TFEU and of the principles of effectiveness and the primacy of EU law.

The factual situation was different, but the technical setting was identical to Fastweb in that the challenger of the procurement decision (PFE) was confronted with a counterclaim by the would-be awardee of the contract (GSA) on the basis that PFE 'had no legal interest in bringing the proceedings as it did not fulfil the eligibility requirements for the tendering procedure and should therefore have been excluded from the procedure' (C-689/13, para 14). The first review court assessed GSA's counterclaim first and, finding in GSA's favour, dismissed PFE's main claim without a full review. 

Thus, the case once more concerns the Italian rule that 'if a counterclaim has been brought challenging the main action on the ground that it is inadmissible, the counterclaim must be given precedence and examined before the main action. Under the national legal system, such a counterclaim is classified as ‘exclusive’ or ‘paralysing’ on the basis that, where the counterclaim is deemed well founded, the court seised is required to dismiss the main action as inadmissible without assessing its merits' (C-689/13, para 15).

Despite the existence of the Fastweb Judgment, which explicitly opposes such procedural path, the Consiglio di Stato felt compelled to send the request for a preliminary reference because while 'in the case which gave rise to that judgment, only two undertakings submitted tenders and both of them had conflicting interests in the main action for annulment brought by the undertaking whose bid had been unsuccessful and in the counterclaim brought by the successful tenderer, ... in the [PFE] case, more than two undertakings submitted bids, even though only two of them have brought proceedings' (C-689/13, para 17).

It is not clear whether the Consiglio di Stato was attempting to prompt the CJEU to reconsider its Fastweb case law. Or maybe the case was just an 'excuse' to seize the CJEU en passant for a clarification of a different (arguably internal) matter about the Independence with which different chambers and divisions within the Consiglio di Stato operate for the purposes of sending references for preliminary rulings t the CJEU. In particular, and in the simplified terms adopted by the CJEU, the core of the second question was whether 'where a question concerning the interpretation or validity of EU law arises, a chamber of a court of final instance must, if it does not concur with the position adopted by decision of that court sitting in plenary session, refer the question to the plenary session and is thus precluded from itself making a request to the Court of Justice for a preliminary ruling' (C-689/13, para 31).

On the 'generality' of Fastweb

Unsurprisingly, the CJEU very clearly reaffirmed the position and clarified that Fastweb is a general ruling or, in more detailed terms:

28 The interpretation given by the Court in Fastweb ... is applicable in a context such as that of the main proceedings. First, each of the parties to the proceedings has a legitimate interest in the exclusion of the bids submitted by the other competitors. Second ... it cannot be ruled out that one of the irregularities justifying the exclusion of both the successful tenderer’s bid and that of the tenderer challenging the contracting authority’s decision may also vitiate the other bids submitted in the tendering procedure, which may result in that authority having to launch a new procedure.

29      The number of participants in the public procurement procedure concerned as well as the number of participants who have instigated review procedures and the differing legal grounds relied on by those participants are irrelevant to the question of the applicability of the principle established by the Fastweb (C‑100/12, EU:C:2013:448) case-law.

30      In the light of the foregoing considerations, the answer to the first question is that the third subparagraph of Article 1(1) and Article 1(3) of Directive 89/665 are to be interpreted as meaning that a main action for review brought by a tenderer with an interest in obtaining a particular contract who has been or may be adversely affected by an alleged breach of EU public procurement law or rules transposing that law, with a view to excluding another tenderer, cannot be dismissed as inadmissible under national procedural rules which provide that the counterclaim lodged by the other tenderer must be examined first (C-689/13, paras 28-30, emphasis added).

On the bounless access to the CJEU

Further to that, and in relation with the second question, the CJEU also unsuprisingly was unwilling to recognise any limitation of the possibility or duty for domestic courts to send cases for a preliminary ruling (see here). In clear terms, the CJEU confirmed that

32 ... national courts have the widest discretion in referring questions to the Court involving interpretation of relevant provisions of EU law ..., that discretion being replaced by an obligation for courts of final instance, subject to certain exceptions recognised by the Court’s case-law ... A rule of national law cannot prevent a national court, where appropriate, from using that discretion, ... or complying with that obligation.

33      Both that discretion and that obligation are an inherent part of the system of cooperation between the national courts and the Court of Justice established by Article 267 TFEU and of the functions of the court responsible for the application of EU law entrusted by that provision to the national courts.

34      As a consequence, where a national court before which a case is pending considers that a question concerning the interpretation or validity of EU law has arisen in that case, it has the discretion, or is under an obligation, to request a preliminary ruling from the Court of Justice, and national rules imposed by legislation or case-law cannot interfere with that discretion or that obligation.

35      In the present case, a provision of national law cannot prevent a chamber of a court of final instance faced with a question concerning the interpretation of Directive 89/665 from referring the matter to the Court of Justice for a preliminary ruling (C-689/13, paras 32-35, references omitted and emphasis added).

On the need to follow-up and 'ask responsibly'

Maybe to compensate for the boundless access to the preliminary ruling procedure, the CJEU also sent a 'friendly' warning to (all, but mainly the Italian) national courts of last instance in what could be considered a reenactment of the boundaries of the acte claire doctrine (see here).

 38 ... a judgment in which the Court gives a preliminary ruling is binding on the national court, as regards the interpretation or the validity of the acts of the EU institutions in question, for the purposes of the decision to be given in the main proceedings ... Accordingly, the national court which, adjudicating as court of final instance, has complied with its obligation to make a reference to the Court for a preliminary ruling under the third paragraph of Article 267 TFEU, is bound, for the purposes of the decision to be given in the main proceedings, by the interpretation of the provisions at issue given by the Court and must, if necessary, disregard any national case-law which it considers inconsistent with EU law ...

39      It should also be noted that the effectiveness of Article 267 TFEU would be impaired if the national court were prevented from forthwith applying EU law in accordance with the decision or the case-law of the Court.

40      A national court which is called upon, within the exercise of its jurisdiction, to apply provisions of EU law is under a duty to give full effect to those provisions, if necessary refusing of its own motion to apply any conflicting provision of national legislation, even if adopted subsequently, and it is not necessary for the court to request or await the prior setting aside of such provision by legislative or other constitutional means.

41      Any provision of a national legal system and any legislative, administrative or judicial practice that might impair the effectiveness of EU law by withholding from the national court with jurisdiction to apply such law the power to do everything necessary at the moment of its application to set aside national legislative provisions that might prevent EU rules from having full force and effect are incompatible with those requirements, which are the very essence of EU law (C-689/13, paras 38-41, references omitted and emphasis added).

Difficulties derived from the asymmetrical economic integration in the EU: some reflections on the way forward? – re Bieling, Jäger & Ryner (2016)

In their recent paper ‘Regulation Theory and the Political Economy of the European Union’ (2016) 54(1) Journal of Common Market Studies 53-69, Bieling, Jäger & Ryner critically assess ‘how regulation theory has interpreted the single market, financial liberalization and EMU as a suppression of alternatives to neoliberal post-Fordism, or finance-led accumulation, in Europe’.

Their paper focuses on a high-level discussion of two selected economic crises (the 1970s and the ongoing crisis started in 2008) and uses it to situate the EU’s regulatory responses within a Gramscian analytical framework, thus arguing that ‘understanding the EU’s current conjecture of Eurozone crisis management requires a neo-Gramscian extension of regulatory theory, stressing transnational patterns of capitalist accumulation and power relations’.

The paper is interesting because they claim that the ‘implemented institutional and regulatory reforms can be interpreted as the manifestation of what Gramsci [Selections from the prison notebooks of Antonio Gramsci (Int’l Pub, 1971) 104] called a “passive revolution”, i.e. of power-preserving piecemeal changes “from above” without active mass politics … the passive revolution within the EU is, however, unlikely to become successful. At least for the time being, it is in trouble because central contradictions of accumulation and the latent overaccumulation crisis remain unsolved. The rift between the core and the periphery is deepening and uneven development in the European Union is very likely to remain a severe threat for the future of European integration’ (Bieling, Jäger & Ryner, 2016: 65).

Their observation of the overall trend and current weakness of the European integration strategy can hardly be contested and it seems clear that more fundamental changes are necessary for the European (but not only) economic crisis to be cured at its roots. Their paper clearly puts the European financial capitalism model at such root position – which is relatively uncontroversial. One of the passages of their analysis I find particularly relevant is that they stress that part of the causes that fuelled the ‘financialization’ of the (European) economy was a change in economic structural conditions three decades ago.

As they point out. ‘[s]ince the 1990s, European integration has … been characterized not only by intensified – institutional and regulatory – competition and a rather restrictive monetary and financial policy setting, but also by the transition towards a European financial capitalism … This transition took place against the background of structural over-accumulation of capital, so that, in view of missing fields of productive investment, increasing amounts of profits and savings were absorbed by banks and institutional investors, both trying to exploit prospected yields offered by deregulated financial markets … some other processes stimulated finance-dominated accumulation as well, such as rising public debt; the privatization of public enterprises such as industrial conglomerates, banks, insurance companies or providers of other public services and infrastructure; and, most importantly, the introduction and promotion of (private) capital market-based pension schemes’ (Bieling, Jäger & Ryner, 2016: 62).

Their paper is clear in stopping at the level of identifying the issues that support the insufficiency of the (current version) of the European financial capitalism model to offer a solution for the future, and laying out a research agenda for the future. However, in my view, their approach already seems to clearly suggest a need for a reversal of some of the trends that led to the (current version) of the European financial capitalism model. If that is the case, then I would disagree with that path of development, at least at the regulatory level.

The difficulties derived from liberalisation and competition-based reliance in the market cannot only be overcome by abandoning the path of development of the European (financial) capitalism model, which is not constrained to neoliberal post-Fordism. An alternative view of Bieling, Jäger & Ryner’s account is that the difficulties derived from the asymmetrical economic integration in the EU result not from too much centralisation of economic decision-making and regulation-based liberalisation, but from too little economic integration and solid regulatory and oversight mechanisms.

Thus, the alternative system for the future need not lie too far from neoliberal post-Fordism, and can well be developed on the basis of a properly understood liberal economic model based on sound public policy (and, possibly, a further federalisation of the European Union) – or what has been termed a (neo)-ordoliberal approach to European economic integration and regulation [for background discussion, see I Herrera Anchustegui, 'Competition law through an Ordoliberal Lens' (2015) 2 Oslo Law Review 139-174].

Doing otherwise would presume that the State can be a better manager of economic growth, technological development and social wealth than it (has been) a monitor of private arrangements building up to social preferences. I do not think this to be a solid point of departure and could hardly see the public sector directly developing the activities needed to overcome current challenges when it is hardly able to react and reconduct their spillovers.

Looming security issues aside for the purposes of this discussion, there are areas where the State clearly needs to revisit its role and policy – and taxation and social welfare are the two obvious priorities in my view, together with a reconstruction of the system of independent regulatory agencies and a clear push for an effective use of information technologies to improve all of these roles. Other than that, the issue of the de-financialization of the European economy seems beyond the reach of the State, exception made of the use of taxation to create incentives in that direction.

In this day and age, it is hard to see how claims of the existence of ‘a “passive revolution”, i.e. of power-preserving piecemeal changes “from above” without active mass politics’ talk to reality. Mass politics have not disappeared, they have simply morphed into mass apathy (or wilful ignorance), and the politics of the day are of social media window-dressing activism, coupled with non-acknowledged consumerist hypocrisy. The real challenge is for each of us to really start putting our money where our mouth is or, conversely, to be honest and put our mouths where our money is. But, quite simply, the State cannot do it for us and should not substitute our liberty for its discretion. All it can do is create mechanisms that constrain our choices, both directly (taxation) and indirectly (market regulation, including the imposition of desirable environmental and social standard throughout the economy).

More specifically from the perspective of my pet topic of public procurement law, the State needs to stop pretending to act as a ‘good citizen’ by buying green and social, or coming up with any new wave of ‘smart’ procurement policies that only apply to 20% of GDP  – thus allowing it to resort to the same window-dressing strategy to cover its broader regulatory failures (the bulk of the economy, 80% cannot be reoriented or changed merely ‘by example’) that we enjoy in covering our poor consumerist choices with social media activist stunts – and start focusing on the proper use of public procurement as a tool to channel the ever scarcer public funds in the most effective way possible.

In my view, this is the progressive approach that is required in order to overcome the difficulties derived from the asymmetrical economic integration in the EU and the (current version) of the European financial capitalism model. Aborting the project of transformation of the European state from a 19th century model towards a true 21st century model half way through would be unwise. I will not be surprised if this triggers more criticism as a neoliberal scholar, though ....

Happy Easter break

I am taking a few days off from blogging to finish an edited collection and then take a few energising walks in Wales.
I will resume normal activity on 4 April 2016. In the meantime, I wish you all a Happy Easter break!

Interesting paper on International Trade and Regulatory Cooperation in Public Procurement (Hoekman, 2015)

I have just read the recent paper by Prof B Hoekman, 'International Cooperation on Public Procurement Regulation' (November 1, 2015). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2015/88. I found his insights into how to move the development of trade policies through public procurement very suggestive. As his abstract explains,

Most governments have yet to agree to binding disciplines on government procurement regulation, whether in the WTO or a preferential trade agreement. Empirical research suggests that reciprocally-negotiated market access commitments have not been effective in inducing governments to buy more from foreign suppliers. Foreign sourcing by governments has been rising for most countries, however, independent of whether States have made international commitments to this effect – although there is some evidence that this trend was reversed post-2008 in several countries that had the freedom to do so. The stylized facts suggest a reconsideration of the design of international cooperation on procurement regulation, with less emphasis on specific market access reciprocity and greater focus on good procurement practice and principles, efforts to boost transparency, and pursuit of pro-competitive policies more generally (emphasis added).

Hoekman's discussion of the reasons why the current focus on bilateral market access reciprocity 'is unlikely to have much of an effect' is particularly interesting:

One reason why market access reciprocity arguably has limited returns is that many contracts that are issued by procuring entities concern products that are difficult to supply on a cross-border basis. Construction and services of many kinds will generally have to be supplied locally and there may be good reasons for procuring locally even if a good is tradable. If the products procured are intangible (services) or there are problems in monitoring and enforcing contract compliance, discrimination can increase the likelihood of performance by suppliers. The best (economic) case for discrimination revolves around situations where there is asymmetric information, e.g., difficulties in monitoring the performance of a contractor if buyer and provider are located far from each other, or there is a need to offer a firm quasi-rents in order to increase the probability of contract compliance through the threat of losing repeat business (Evenett and Hoekman, 2013). Moreover, geographic proximity may be a precondition for effectively contesting procurement markets—making some products, in particular services, in essence non-tradable. Problems of asymmetric information and contract compliance may imply that entities can economize on monitoring costs by choosing suppliers that are located within their jurisdictions. In turn, this will make it more difficult for foreign firms to successfully bid for contracts, even if the goods or services involved are tradable and in the absence of formal discrimination. Such rationales have been explored extensively by Laffont and Tirole (1993); many of the underlying technical arguments are summarized and synthesized in Breton and Salmon (1995). The policy issue that arises in such situations is whether there are barriers against establishment (FDI) by foreign suppliers, as this is a precondition for them to bid for/supply contracts (Evenett and Hoekman, 2005) (pp. 16-17, emphasis added, for complete references, see bibliography in his paper).

This passage is particularly relevant in the context of EU public procurement, not least because it spells out in very clear economic terms the reasons why an 'obsession' with cross-border trade as a metric of good procurement is highly unlikely to actually result in better (economic) procurement results [for discussion of the current policy, see here, A Sanchez-Graells, 'Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? — A View on Proposals to Lower that Barrier and Spur Growth', in C Tvarnø, GS Ølykke & C Risvig Hansen, EU Public Procurement: Modernisation, Growth and Innovation (Copenhagen, DJØF, 2012) 107-133.; and ibid, 'Collaborative Cross-Border Procurement in the EU: Future or Utopia?' (2016) Upphandlingsrättslig Tidskrift (Procurement Law Journal),  forthcoming].

I also found very interesting that Hoekman presents in very straightforward terms the economic view that, put simply, procurement is not a 'magic wand' with which to implement all sort of secondary policies. In his clear exposition:

The pursuit of non-economic objectives by governments can have very different implications for economic efficiency. In principle, policy should target directly the source of problem at hand: lack of economic opportunities for minority groups; regional economic wealth differentials; market failures, and so forth. For example, take the case where a government awards a tender to an SME instead of a large company that submitted a lower cost bid because of an SME preference policy. It may be more effective and efficient if instead the government were to address the factors that impede the ability of SMEs to compete with larger firms. This can of course be due to different factors, ranging from financial market imperfections to excessively burdensome administrative requirements that are too costly for SMEs to meet. Dealing with these constraints directly as opposed to using a SME preference policy will be more efficient (Evenett and Hoekman, 2013) (p. 17, emphasis added, full references in his paper).

In the end, Hoekman recommends that the best way of ensuring good procurement outcomes is to 'promote a pro-competitive environment' (p. 21). I could not agree more and, once again, turning to the situation in the EU, this is what I have suggested is the best way forward in order to achieve the Europe2020 goals [see A 'Truly competitive public procurement as a Europe 2020 lever: what role for the principle of competition in moderating horizontal policies?' (2016) 22(2) European Public Law Journal, forthcoming]. I hope policy makers will start taking economic insight into account, particularly when it is presented in such clear and persuasive terms as Prof Hoekman does.

A more commercial approach to procurement? Reply to Uddalak Datta

The extent to which English universities are bound to comply with EU public procurement rules is an issue of growing practical relevance and increasing attention in public debates. 

In his recent blog piece 'A more commercial approach to procurement?',  Uddalak Datta (Senior Associate at Shakespeare Martineau) argues that

'The big procurement news story for the [higher education] sector in 2016 is likely to be the increasing boldness of universities to consider themselves outside of the regulated procurement regime. Following changes to the funding of higher education, outlined in the 2011 White Paper: Students at the Heart of the System, the funding model for universities shifted from a system of grants to repayable fees which are allocated on the basis of student choice. This was heavily trailed in the White Paper as reducing the regulatory burden on universities: “because, in the future, most funding will follow students in the form of loans and direct grant funding from the Government will decrease, fewer institutions may be subject to EU public procurement rules”. This position was met with some scepticism amongst the procurement community. 
 
However, this year we have had sourced expert advice from a leading procurement Queen’s Counsel who takes the view that the funds provided to universities by the Student Loans Company and repayable by students on generous terms should be treated as “private funding”. As a result, this opens the way for those universities to adopt a more commercial approach to procurement. This allows universities the ability to move more quickly than the procurement legislation requires. My university clients all adopt a sensible commercial approach, so are likely to continue to adopt a procurement strategy involving widely advertised competitive tenders. The real business case lies in reducing the potential costs and delay of dealing with challenges by aggrieved bidders' (emphasis added).

So, in short and on the basis of the legal opinion of J Coppel QC (as reported by Datta in a different blog post, which unfortunately requires subscription), Datta suggests that English universities can free themselves from the strictures of EU public procurement law.

I strongly disagree with this legal assessment, principally because under the applicable EU public procurement and State aid rules, the fees that the Student Loans Companies pays English universities on behalf of designated students remains "public funding" for the purposes of EU law. This is one of the main conclusions that Dr Andrea Gideon and myself reached in our paper 'When are Universities Bound by EU Public Procurement Rules as Buyers and Providers? - English Universities as a Case Study' (2016) 1 Ius Publicum, art 4.

Andrea and I very much look forward to any opportunity to further explain our position and to contribute to this important debate on the economic governance of English universities. If you are interested, please be in touch (a.sanchez-graells@bristol.ac.uk).

Should evaluation committees Be Banned From Using 'soft quality metrics' when they assess Public tenders? (C-6/15)

In his Opinion of 10 March 2016 in TNS Dimarso, C-6/15, EU:C:2016:160, Advocate General Mengozzi has addressed the general question whether EU public procurement rules 'read in the light of the principles of equal treatment and transparency, [require] that a contracting authority should always, or, if not, in certain circumstances, make known in advance, in the contract notice or the contract documents, the method of evaluation or weighting rules used to assess tenderers’ bids'. The case is to be decided by the Court of Justice of the European Union (CJEU) on the basis of the phasing-out rules in Art 53(2) of Directive 2004/18, but the interpretation will be relevant for the future application of Art 67(5) of Directive 2014/24.

In my view, the case is interesting, not primarily because of the discussion on whether evaluation methods need to be disclosed together with award criteria and their weightings, but more importantly because it brings to light the simple fact that some evaluation methods are unable to meet the requirements of the EU rules--to the effect that the award phase needs to enable the contracting authority to actually determine which is the most economically advantageous tender with a sufficient degree of precision and certainty. Thus, I critically assess AG Mengozzi's excellent opinion from this perspective.

The Dimarso case

In this case, a Belgian contracting authority issued a call for tenders for the provision of services and indicated that the award criteria would be as follows:

1 Quality of the tender (50/100)
Quality of the preparation, organisation and execution of the work on the ground, and of the encryption and initial data processing. The services proposed must be described in as much detail as possible. It must be clear from the tender that the tenderer is capable of taking on the whole contract (minimum 7 000 samples / maximum 10 000 samples) within the prescribed 12-month delivery deadline.

2 Price (50/100)
Cost of delivering the contract in relation to the basic sample (7 000 samples) and cost per additional batch of 500 addresses supplied (amounts inclusive of VAT).

There was no further indication of how these criteria would be applied. When it came to evaluation of the tenders received, the evaluation team 'evaluated and compared with each other on the basis of the criteria set out above. First, the tenders were examined and evaluated on the basis of the “quality” criterion. For this, each tender was unanimously assigned a given score (high — satisfactory — low). Then, the price criterion was applied. On the basis of those scores, a final ranking was established' (Opinion in C-6/15, para 5, emphasis added).

Dimarso submitted a bid that scored high on quality grounds and was the highest on price. The contract was awarded to a competing tenderer which offer also scored high on quality and was lower in price. Dimarso challenges the way the evaluation team applied the award criteria on the following grounds:

the evaluation committee appears to have evaluated the tenders on the basis of the ‘high — satisfactory — low’ scale, not referred to in the contract documents, in relation to the tender quality criterion, whereas, according to Dimarso, it is clear from the contract documents that a score of 0 to 50 points should have been allocated to each tender. As regards the price criterion, the evaluation committee also failed to carry out an adequate examination, comparison and final assessment of the tenders taking into account the award criteria as set out in the contract documents, including the “50/100” weighting given to each of the award criteria in the call for tenders (Opinion in C-6/15, para 8, emphasis added).

This question raises then two issues: (1) whether the evaluation committee could rely on 'soft metrics' in order to apply the quality award criterion; and (2) whether such 'soft metrics' could be combined with straightforward price comparisons. I find these two questions of great practical relevance, so it is worth looking closely at AG Mengozzi's reasoning on these issues.

Assessment under Art 53(2) Dir 2004/18

It is worth reminding that Art 53(2) Dir 2004/18 established that

[when the award is made to the tender most economically advantageous from the point of view of the contracting authority], the contracting authority shall specify in the contract notice or in the contract documents ... the relative weighting which it gives to each of the criteria chosen to determine the most economically advantageous tender.
Those weightings can be expressed by providing for a range with an appropriate maximum spread.
Where, in the opinion of the contracting authority, weighting is not possible for demonstrable reasons, the contracting authority shall indicate in the contract notice or contract documents or, in the case of a competitive dialogue, in the descriptive document, the criteria in descending order of importance.

At this point, it is worth stressing that the only difference between Art 53(2) Dir 2004/18 and Art 67(5) Dir 2014/24 is that, in relation to the third paragraph, the seemingly permissive drafting of Art 53(2)III Dir 2004/18 ('Where, in the opinion of the contracting authority, weighting is not possible for demonstrable reasons') is tightened up in Art 67(5)III Dir 2014/24 ('Where weighting is not possible for objective reasons'). Given the strict interpretation that AG Mengozzi proposes for Art 53(2) Dir 2004/18 (which is to be shared), his Opinion will be equally relevant for the future interpretation of Art 67(5) Dir 2014/24 [along the same lines, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 384-385].

Going back to the Dimarso case, AG Mengozzi starts by summing up the content of this provision by stressing that

the obligation to indicate not only the award criteria but also ... the relative weighting given to each of those criteria, except where there are good reasons why weighting is not possible, at the time of publication of the contract notice or contract documents ... serves to fulfil the requirement of compliance with the principle of equal treatment and the associated obligation of transparency (Opinion in C-6/15, para 20).

And that

contracting authorities have an obligation to indicate the weightings of the award criteria in the contract notice or the contract documents. It is only in the event that this proves impossible, for demonstrable reasons, that those entities may opt to prioritise those criteria, which prioritisation must in any event be adequately disclosed in the contract notice or the contract documents (Opinion in C-6/15, para 23, emphasis added).

The AG clarifies (paras 24-28) that the dispute in the case at hand is not whether having indicated that Quality (50/100) and Price (50/100) meant that both award criteria had equal weight or how they had to be combined amongst themselves to reach a final ranking of tenders, but that it is rather

in essence, [whether] the method of evaluation used (‘low — medium — high’) was so vague that it prompted the contracting authority to downgrade the assessment of the ‘quality’ criterion relative to that of the ‘price’ criterion, since the second criterion alone was actually capable of eliminating three of the four tenders submitted. In reality, therefore, Dimarso contends, the price criterion benefited from a higher relative weighting than the 50% previously announced in the contract documents. In other words, Dimarso submits that, if the method of evaluation had been made known to tenderers in advance, at the stage when the contract documents were published, it would inevitably have had an effect on the preparation of the tenders (Opinion in C-6/15, para 29, emphasis added).

AG Mengozzi then approaches this argument in stages. His reasoning heavily rests on two aspects. First, that it is clear that Art 53(2) Dir 2004/18 does not explicitly impose an obligation to disclose the evaluation method in addition to disclosure of award criteria and their weightings (para 32). Second, and notwithstanding that literal interpretation of Art 53(2) Dir 2004/18, that the CJEU has been clear in the imposition of restrictions on the way the evaluation team carries out its tasks (paras 37 ff). In my reading, the bone of his argument is as follows.

In relation to the setting of sub-weightings (or weighting factors for award sub-criteria), the CJEU has indicated that this is not a breach of EU procurement rules provided three conditions are met: ie '[1] that it does not alter the criteria for the award of the contract set out in the contract documents or the contract notice, [2] that it does not contain elements which, if they had been known at the time the tenders were prepared, could have affected that preparation, and [3] that it was not adopted taking into account matters likely to give rise to discrimination against one of the tenderers' [with reference to judgments in ATI EAC e Viaggi di Maio and Others (C‑331/04, EU:C:2005:718, paragraph 32); Lianakis and Others (C‑532/06, EU:C:2008:40, paragraph 43); and Evropaïki Dynamiki v EMSA (C‑252/10 P, EU:C:2011:512, paragraph 33); Opinion in C-6/15, para 40, emphasis added].

The same restrictions should be applicable to the adoption of an evaluation method because it can create the same effects as the adoption of sub-weightings--or, in his words, 'it is not inconceivable that a method of evaluation may have an effect not so much on the award criteria themselves as on the weighting of those criteria and, as such, may contain elements which would have been capable of influencing the preparation of tenders if that method had been made known to tenderers in advance... In that event, the ex post determination of such a method for evaluating tenders by a contracting authority would be unlawful and should, therefore, have been disclosed in advance in the contract notice or the contract documents' (Opinion in C-6/15, para 46). Therefore, 'the lawfulness of a method for evaluating tenders which is determined by a contracting authority ex post depends on whether the three conditions established by the Court’s case-law ... are met' (Opinion in C-6/15, para 47).

© iStockphoto.com/RichVintage

Opportunity for further clarification

Having disposed of the core of the case, AG Mengozzi goes on to suggest that the CJEU take this opportunity to clarify its case law and to stress that the adoption of evaluation methods need to be subjected to tighter requirements. His arguments are based on the use of 'soft quality metrics'--and, more specifically, on the distrust in their ability to actually enable the contracting authority to identify the most economically advantageous tender (MEAT)--as it emerges from his explanation of his main concern:

let us imagine that, of the tenders submitted, one was far superior, in terms of quality, to the other three, including those that were rated ‘high’. In other words, one of those tenders could have been ranked ‘excellent’ in the assessment of the ‘quality’ criterion. The price proposed by that tenderer would then have reflected the excellence of the quality of the services proposed by it and would therefore in all probability have been higher than the prices offered by the other tenderers. However, since ‘excellent’ did not feature on the range of scores (low — satisfactory — high) chosen by the evaluation committee, that tender of excellent quality could not but be rated ‘high’, at the very most, in relation to the ‘quality’ criterion. Since the price proposed by the tenderer of that bid was higher than those proposed by the others, possibly even by some tens or hundreds of euros, that bid had to be rejected... in that situation, ... the contracting authority might have been deprived of the tender representing the best value for money, contrary to the spirit in which the selection of tenderers on the basis of the most economically advantageous tender takes place (Opinion in C-6/15, paras 56-57, emphasis added).

AG Mengozzi considers that this is an unsatisfactory state of affairs and, in my reading, proposes that the existing case law of the CJEU is clarified so that contracting authorities do not create a situation where tenderers submit offers which positive attributes are not captured by the evaluation method. His proposal thus focuses on the need to disclose the evaluation method to be used from the start of the procurement process. In his view, 'the likelihood is ... that, if the method for evaluating tenders in the light of the ‘quality’ criterion, as established by the contracting authority, had been known in advance by the potential tenderers, it would have been capable of affecting the preparation of their tenders' (Opinion in C-6/15, para 60). Therefore,

the contracting authority (to which it will fall to ensure that the tendering procedure benefits from maximum legal certainty and to protect itself against actions for the annulment of that procedure) must determine the method or methods to be used to evaluate tenders in the light of the award criteria as early as possible. It would be reasonable to suggest, then, that, if that is the case, there does not appear to be any overriding reason such as to justify a refusal by the contracting authority to make known to potential tenderers the methods of evaluation in question, which it will in any event already have had to determine before the call for tenders (Opinion in C-6/15, para 63, emphasis added).

AG Mengozzi then goes on to discuss whether the condition should be to only require upfront disclosure of evaluation methods which have the potential to create a substantial impact effect on the preparation of the tenders, which he dismisses (paras 70 ff), on the basis that the system would be properly balanced 'by the obligation incumbent on the unsuccessful tenderer, which bears the burden of proof, to demonstrate, by reference to specific examples in its legal action, the differences (substantive as well as purely formal) which its tender would have exhibited if the elements of the method of evaluation in question or the method itself, which the contracting authority neglected to communicate, had been adequately disclosed before the tenders were prepared' (Opinion in C-6/15, para 73). 

personal critique

I share AG Mengozzi's views and concern, but I think that his proposal simply to disclose evaluation methods upfront would only carry us half way in sorting out the unresolved issue of the use of of 'soft quality metrics' in the evaluation of tenders. Regardless of upfront disclosure, which needs to take place, a method for the evaluation of quality aspects of procurement tenders that classifies tenders in pre-determined, tight 'quality levels' is bound to offer sub-optimal results. In the extreme,

a binary approach—ie, an approach based on meeting or not meeting a criterion, or an ‘all-or-nothing’ (or zero/one) approach—seems less desirable than a gradual approach or the adoption of sliding-scale-based evaluation rules ... whenever possible, it seems preferable that contracting authorities evaluate the degree to which tenders comply with each of the specified award criteria on a sliding scale (such as granting them points from 0 to 10, or 1 to 5, or any other scale). In this regard, the weighting of criteria will become less harsh and the appraisal of the tenders will arguably reflect with greater accuracy their relative strengths and weaknesses according to the overall set of award criteria' [A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 391; Along the same lines, but opting for a monetary equivalent approach, see MA Bergman and S Lundberg, ‘Tender Evaluation and Supplier Selection Methods in Public Procurement’ (2013) 19(2) Journal of Purchasing and Supply Management 73]. 

More importantly, the assessment of quality elements needs to take place in a manner that does result in a loss of information of the relative quality of the offers. It has been the settled case law of the CJEU that 

although [the EU rules do] not set out an exhaustive list of the criteria which may be chosen by the contracting authorities, and therefore leaves it open to the authorities awarding contracts to select the criteria on which they propose to base their award of the contract, their choice is nevertheless limited to criteria aimed at identifying the tender which is economically the most advantageous (Case C-532/06 Lianakis [2008] ECR I-251 29 (emphasis added); Case 31/87 Beentjes [1988] ECR 4635 19; Case C-19/00 SIAC Construction [2001] ECR I-7725 35–36; Case C-513/99 Concordia Bus Finland [2002] ECR I-7213 54 and 59; and Case C-315/01 GAT [2003] ECR I-6351 63–64. See also Case C-448/01 EVN and
Wienstrom [2003] ECR I-14527 37).

In my view, it is particularly relevant 'to stress the need for award criteria (i) to be linked to the subject matter of the contract (ie, to be ‘relevant’), and (ii) to allow the contracting authority actually to determine which tender is economically the most advantageous (ie, to be ‘enabling’)' [A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 380]. The same reasoning must apply (functionally) to the selection of evaluation methods (for the reasons explained by AG Mengozzi, ie that they create the same effects). 

Quite frankly, in view of the clear example AG Mengozzi has given us (para 56), I would have no doubt that the use of 'soft quality metrics' is not enabling because it does not allow the contracting authority to identify, with an adequate level of precision and certainty, the most economically advantageous offer. Ultimately, thus, they should be banned as a matter of EU law--and, more generally, of good procurement practice. I do not expect the CJEU to go as far as to agree with this, but I think it would be the only consistent solution, and one that would do away with the problem, rather than trying to fix it simply with the remedy of more transparency--which seems to be the token fix-all solution in procurement law.

CJEU rules on Greek Support to The Agricultural Sector under the 2008 and 2009 State Aid Frameworks: A Blow to the Commission's Waiver of Discretion? (C-431/14 P)

In its Judgment of 8 March 2016 in Greece v Commission (ELGA), C-431/14 P, EU:C:2016:145, the Court of Justice of the European Union (CJEU) ruled on the compatibility of certain measures of financial support to the Greek agricultural sector in the aftermath of the 2008 financial crisis with the EU rules on State aid--ie mainly, Art 107 TFEU and the Temporary Community Framework for State aid measures adopted by the Commission in 2008 (the 2008 TCF), as amended in 2009 (the 2009 amended TCF).

The Judgment is interesting because it assesses the boundaries of the temporary discretionary measures adopted by the Commission in order to flexibilise the enforcement of EU rules in times of economic and financial distress, on the basis that they aim 'to remedy a serious disturbance in the economy of a Member State', ex Art 107(3)(b) TFEU. In particular, the ELGA Judgment assesses whether Member States can validly raise arguments based on Art 107(3)(b) TFEU directly, regardless of the Commission's delineation of its State aid policy based on that same legal basis. Or, in simple terms, whether a valid Art 107(3)(b) TFEU can exist outside of the (temporary) scope of the 2008 TCF and the 2009 amended TCF. The case may seem very specific because of its link to the economic crisis. However, the CJEU makes some broader points about the Commission's discretion that are worth taking into careful consideration.

This discussion is relevant from a legal perspective, due to the clarification of the so far unknown exemption of the State aid prohibition of Art 107(1) TFEU on the basis of Art 107(3)(b) TFEU regarding aid aimed to remedy a serious disturbance in the economy of a Member State' [see P Nicolaides & IE Rusu, 'The Financial Crisis and State Aid' (2010) 55(4) The Antitrust Bulletin 759-782]. It is also relevant for the policy implications of the CJEU's support for the Commission's intervention [for discussion of a general framework, see H Kassim & B Lyons, 'The New Political Economy of EU State Aid Policy' (2013) 13(1) Journal of Industry, Competition and Trade 1-21; and TJ Doleys, 'Managing the Dilemma of Discretion: The European Commission and the Development of EU State Aid Policy' (2013) 13(1) Journal of Industry, Competition and Trade 23-38].

The case of the Greek support to the agricultural sector through ELGA

The specific case concerns a long-running action of the Greek State for the annulment of a 2011 Commission Decision concerning compensation payments made by the Greek Agricultural Insurance Organisation (ELGA) in 2008 and 2009, which the General Court (GC) upheld on appeal (T‑52/12, EU:T:2014:677). One of the difficulties with this case is the sequence of events. From the regulatory perspective, it is worth stressing that the 2008 TCF, which entered into force in 17 December 2008, did not cover aid to the agricultural sector. This was eventually made clear in the 2009 amended TCF, according to which

The possibility under [the TCF] to grant a compatible limited amount of aid does not apply to undertakings active in the primary production of agricultural products. Farmers, however, encounter increased difficulties to obtain credit as a consequence of the financial crisis ... it is appropriate to introduce a separate compatible limited amount of aid for undertakings active in the primary production of agricultural products.

Specifically, the 2009 amended TCF provided that

The Commission will consider such State aid compatible with the common market on the basis of Article [107(3)(b) TFEU], provided all the following conditions are met: ... (h) … Where the aid is granted to undertakings active in the primary production of agricultural products ..., the cash grant (or gross grant equivalent) does not exceed EUR 15,000 per undertaking ...

This took effect on 28 October 2009, which raises a practical temporary difficulty because, '[f]ollowing protests in January 2009 by a large number of Greek agricultural producers about the losses suffered by them in 2008 as a result of adverse weather conditions..., the Hellenic Republic provided that compensation aid of EUR 425 million would be paid to producers on an exceptional basis by ELGA' (C-431/14 P, para 11). Upon investigation, the Commission found that most of that aid was incompatible with the internal market and, in particular, that '[t]he compensation aid of EUR [387.4 million] granted to producers on dates before 28 October 2009 is incompatible with the internal market' (C-431/14 P, para 14, emphasis added).

The issue is that, in plain terms, the Commission rejected Greece's claims that the exemption foreseen in Art 107(3)(b) TFEU could be directly applied in the case because of the economic difficulties that Greece had been experiencing. The Commission rejected such claim on the basis that Art 107(3)(b) TFEU had to be applied within the boundaries of the policy documents developed to that effect, ie the 2008 TCF and the 2009 amended TCF, which could only apply for the future--that is, only from their respective dates of entry into force--which, as the agricultural sector is concerned, was that of the 2009 amended TCF: 28 October 2009. The GC upheld the Commission's approach in the following terms

185 ... it is clear that, contrary to what the Hellenic Republic claims, the Commission had to base its decision on the [TCF] and not directly apply Article 107(3)(b) TFEU in order to assess the compatibility of the payments made by ELGA in 2009 on account of the economic crisis experienced in Greece.

186 It is clear from the case-law that, in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations (see judgment[s] in Germany and Others v Kronofrance, [C‑75/05 P and C‑80/05 P, EU:C:2008:482], paragraph 60 and the case-law cited, and … Holland Malt v Commission, C‑464/09 P, [EU:C:2010:733], paragraph 46).

187 ... in the specific area of State aid, the Commission is bound by the guidelines and notices that it issues, to the extent that they do not depart from the rules in the Treaty (see judgment in Holland Malt v Commission, [C‑464/09 P, EU:C:2010:733], paragraph 47 and the case-law cited).

188 Therefore, it is necessary to reject the arguments of the Hellenic Republic to the effect that, on account of the serious disturbance in the Greek economy due to the economic crisis experienced in Greece since the end of 2008 and in 2009, the Commission should have declared the payments made by ELGA in 2009 compatible directly on the basis of Article 107(3)(b) TFEU (T-52/12, paras 185-188, emphasis added).

The CJEU has now taken the same line of argument, but has introduced important nuances in determining that

69 ... as the General Court stated in paragraphs 186 and 187 of the judgment under appeal, the Court has also consistently held that, in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and, in principle, cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations (judgments in Holland Malt v Commission, C‑464/09 P, EU:C:2010:733, paragraph 46, and Banco Privado Português and Massa Insolvente do Banco Privado Português, C‑667/13, EU:C:2015:151, paragraph 69).

70 However, in the specific area of State aid, the Commission is bound by the guidelines that it issues, to the extent that they do not depart from the rules in the TFEU, including, in particular, Article 107(3)(b) TFEU (see, to that effect, judgment in Holland Malt v Commission, C‑464/09 P, EU:C:2010:733, paragraph 47), and to the extent that their application is not in breach of general principles of law, such as equal treatment, in particular where exceptional circumstances, different from those envisaged in those guidelines, distinguish a given sector of the economy of a Member State.

71      Consequently, first, the Commission may not fail to have regard to Article 107(3) TFEU by adopting guidelines vitiated by an error of law or a manifest error of assessment, nor may it waive, by the adoption of guidelines, the exercise of the discretion that that provision confers on it. Further, when, in the exercise of that discretion, it adopts guidelines of that nature, these must be kept under continuous review for the purposes of anticipating any major developments not covered by those measures.

72      Secondly, the adoption of such guidelines does not relieve the Commission of its obligation to examine the specific exceptional circumstances relied on by a Member State, in a particular case, for the purpose of requesting the direct application of Article 107(3)(b) TFEU, and to provide reasons for its refusal to grant such a request, should the case arise.

73      In the present case, it is not in dispute that, precisely because of the effect of the economic crisis experienced by the Member States, and in particular, the Hellenic Republic, on the primary agricultural sector of the European Union, the Commission exercised the discretion conferred on it by Article 107(3)(b) TFEU by adopting the TCF and then the amended TCF, since both the former and the latter expressly mention that sector.

74      However, the fact remains that although the Hellenic Republic claimed before the General Court that Article 107(3)(b) TFEU ought to be applied directly to the facts of the case, notwithstanding the existence of the rules of conduct set out in the TCF and the amended TCF, it did not argue, in support of that claim, that there were, in the present case, specific exceptional circumstances in the primary agricultural sector concerned ...

75      Indeed, it is apparent from the documents in the file that the material that the Hellenic Republic put before the General Court was intended to establish the existence of a very serious disturbance affecting the Greek economy from the end of 2008 and in 2009, but it was not such as to prove to the requisite legal standard that that economy was faced with specific exceptional circumstances that ought, in this case, to have led the Commission to assess the aid at issue directly in the light of Article 107(3)(b) TFEU (C-431/14 P, paras 69-75, emphasis added).

implications of the cjeu elga judgement

In my view, the implications of the case are two-fold, and they concern, first, the relationship between the Commission's disclosed State aid policy and the discretion that Art 107(3) TFEU gives it; and, second, the interpretation of Art 107(3)(b) TFEU in particular.

Regarding the issue of the extent to which the Commission can deviate from adopted and publicised State aid policy, the CJEU has now made it clear that 'in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and, in principle, cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations' (para 69, emphasis added); and that 'the Commission is bound by the guidelines that it issues, to the extent that they do not depart from the rules in the TFEU ... and to the extent that their application is not in breach of general principles of law, such as equal treatment, in particular where exceptional circumstances, different from those envisaged in those guidelines, distinguish a given sector of the economy of a Member State' (para 70, emphasis added). It is thus plain that 'the Commission may not fail to have regard to Article 107(3) TFEU ... nor may it waive, by the adoption of guidelines, the exercise of the discretion that that provision confers on it' (para 71, emphasis added).

Somehow, the CJEU has made it clear that the Commission cannot hide behind its disclosed State aid policy if there are relevant circumstances that require a specific discretionary decision. This can be far reaching because the CJEU ELGA Judgment clearly opens the door to Member States' claims beyond the boundaries set by the Commission in its disclosed State aid policy, and may be the end of an era of increasing push for box-ticking exercises and for the Commission's reliance on its predetermined conditions for State aid exemption under block exemption regulations. This may well lead to an increase in litigation by Member States, which may be more willing to challenge the Commission's 'self-enforcement' approach in its recently adopted State aid 2.0 strategy [for discussion, see A Sanchez-Graells, “Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis” (2016) Journal of Antitrust Enforcement, forthcoming].

The bit that puzzles me is that, in the specific circumstances of Art 107(3)(b) TFEU and its use in the aftermath of the economic and financial crisis, the Commission had not disclosed any policy documents prior to the 2008 TCF and the 2009 amended TCF. Thus, the issue whether the Commission could block any claims prior to the entry into force of those instruments could also have triggered an argument of retroactive application of beneficial discretionary measures, which I would have expected to read in a case like this. Somehow, the issue of the inter-temporal validity of policy and legal instruments in EU economic law continues to raise unresolved issues.

Regarding the specific interpretation of Art 107(3)(b) TFEU, the implications of the ELGA Judgment are mixed. On the one hand, it seems clear that the CJEU recognises that Member States can claim the existence of specific circumstances in its economy, and this would tail up with the drafting of Art 107(3)(b) TFEU, which indicates that the exemption is available for aid aimed to remedy a serious disturbance in the economy of a Member State. On the other hand, though, the CJEU seems to require Member States to demonstrate that those circumstances 'distinguish a given sector of the economy of a Member State' (para 70) and, in the specific case, 'specific exceptional circumstances in the primary agricultural sector concerned' (para 74). This seems problematic on two fronts.

First, it clearly goes beyond the wording of Art 107(3)(b) TFEU, which has no reference to specific sectors of the economy and seems to accept the possibility of exceptional rules aimed at a distressed economy as a whole. One is left with the doubt whether this requirement to have demonstrated specific exceptional circumstances in the agricultural sector derives from the CJEU's unwillingness to quash the Commission's decision--reading the case, it seems clear that the controversy about the existence of sufficient evidence in the file could have been a driver for this outcome--or, on the contrary, it is a purposeful interpretation of Art 107(3)(b) TFEU in a way that reduces its scope. If the latter is the real reason, then the CJEU could have been more explicit in determining the parameters of such narrow interpreation, not least because of the absence of a sufficient volume of case law that interprets this provision.

And, second, it seems to create a significant limitation in the Member States' design of their macroeconomic (emergency) policies in a way that some could argue falls foul of the principle of subsidiarity. In that regard, the CJEU could have been more explicit as to the reasons for the imposition of a requirement of economic intervention in the specific sectors affected by the serious economic disturbance--which, in my view, would be relatively easy to support on the basis of the general requirements of suitability and proportionality applicable to State measures that aim to benefit from exemptions of Treaty prohibitions under EU economic law, generally.

How far can Member States push formal requirements in self-certifications? Will the CJEU give Member States a wake up call? (a propos AG Wathelet in C-46/15 )

In his Opinion of 3 March 2016 in Ambisig, C-46/15, EU:C:2016:137, Advocate General Wathelet explored the limits of the formal requirements that Member States can impose on self-certifications provided by tenderers in public procurement procedures. The case discusses the limits under the 2004 rules of EU public procurement, where the use of self-certification was certainly exceptional. However, it is interesting to consider this case as an opportunity for the Court of Justice of the European Union (CJEU) to give Member States a wake up call in the roll-out of the 2014 EU public procurement rules, where self-certification has pretty much become the rule rather than the exception. Not least, because AG Wathelet has invited the CJEU by engaging in arguments regarding the future rules.

Why will this ruling be relevant in the future?

Under the 2004 rules [specifically, Art 48(2)(a) of Dir 2004/18], economic operators taking part in public procurement procedures were allowed to furnish evidence of their technical abilities by one or more specified means of proof, which included a list of the principal deliveries effected or the main services provided in the past three years. If the contracting authority indicated that it wishes to receive such a list [Art 48(6) Dir 2004/18], evidence of delivery and services provided had to be be given in the form of certificates issued or countersigned by the competent authority that received the services or deliveries or, 'where the recipient was a private purchaser, by the purchaser’s certification or, failing this, simply by a declaration by the economic operator' [Art 48(2)(a)(ii) of Dir 2004/18, emphasis added]. Thus, the use of such self-declaration of private sector experience was foreseen as a mechanism of last resort or escape clause.  This has now been significantly amended in the 2014 rules.

On the one hand, the system now relies in the self-declarations underlying the European Single Procurement Document [ESPD, Art 59 Dir 2014/24 and , see Part IV, Section B, para (1a), fn 40], which allows economic operators to simply declare that they meet the the relevant selection criteria that have been set out by the contracting authority. Only at the request of the contracting authority, and ideally only if they are chosen for the award of the contract, must economic operators furnish certificates and means of proof backing up their self-declaration [Art 59(4) Dir 2014/24]. There is no doubt, then, that the system is one where self-declarations are now the norm.

Moreover, on the other hand, it should be taken into account that '[c]ontracting authorities shall indicate the required conditions of participation ... together with the appropriate means of proof, in the contract notice or in the invitation to confirm interest' [Art 58(5) Dir 2014/24]. Their choice of means of proof is however limited. Contracting authorities shall not require means of proof other than those referred to in Article 60 Dir 2014/24. For our purposes, according to the relevant provision, the requirement remains that evidence of the economic operators’ technical abilities may be provided by one or more of several specified means of proof, which include a list of the principal deliveries effected or the main services provided over at the most the past three years (Part II of Annex XII Dir 2014/24). However, there is no specific reference of the way in which these lists need to be backed up by economic operators. Thus, the rule disputed in Ambisig that where the recipient was a private purchaser, the economic operator must back-up the relevant entry in its experience list 'by the purchaser’s certification or, failing this, simply by a declaration by the economic operator ' is gone.

The question remains, though, how will Member States (or contracting authorities) deal with self-certifications of experience under the new rules at a practical level. It does not seem too far-fetched to assume that they will carry on as usual and require the same types of supporting (self)certifications that they are used to handle under the 2004 rules. Thus, an analysis of the Opinion of AG Wathelet in Ambisig is relevant, not only in relation to the already phasing out 2004 rules, but also for the proper roll-out of the 2014 rules.

The issues surrounding formalities in Ambisig under the 2004 rules

The dispute in Ambisig was multi-dimensional, particularly because the Portuguese interpretation of Art 48(2)(a)(ii) of Dir 2004/18 was rather complex (or rather, exceedingly formalistic) when it came to the possibility of accepting certifications from private purchasers, which was expressed in the following stylised terms in the contract notice of the procurement in dispute: In order to be selected, the candidates must submit the following application documents: ... a declaration by the client on headed, stamped paper confirming ... in accordance with the model declaration in Annex ... to this contract notice. The declaration must bear a signature certified by a notary, lawyer or other competent entity, specifying the capacity of the person signing.

This raises many issues, particularly in relation with the impossibility to provide a mere self-declaration by the economic operator itself (which is no longer a legal issue under the 2014 rules). However, for the purposes of assessing the relevance of this case for the future, the relevant question before the CJEU, and towards which AG Wathelet's Opinion provides an interesting answer is as follows:

Must Article 48(2)(a)(ii), second indent, of Directive 2004/18 be interpreted to the effect that it precludes the application of rules laid down by the contracting authority, which, on pain of exclusion, require the private purchaser’s certification to contain authentication of the signature by a notary, lawyer or other competent entity?

In my view, for the reasons explained above, this will apply mutatis mutandi to any requirements applicable to certificates to be provided as back of an ESPD self-declaration of experience under the 2014 rules.

Interestingly, after engaging in another tripping exercise of law and language where a literal analysis of several language versions of the contested provision are compared and contrasted without reaching any firm position on its proper interpretation (for a recent previous case of such analysis, on that occasion by the General Court, see here), AG Wathelet considers the following:

62. First of all, the Court has consistently held that Article 48 of Directive 2004/18 establishes a closed system which limits the methods of assessment and verification available to contracting authorities and, therefore, limits their opportunities to lay down requirements.

63. The Court has also stated that even within the framework of an open system ... contracting authorities’ freedom is not unlimited and the aspects chosen must be ‘objectively such as to provide information on such standing … without, however, going beyond what is reasonably necessary for that purpose’.

64. The same considerations apply, a fortiori, to the requirements laid down in the closed evidential system under Article 48 of Directive 2004/18. In my opinion, requiring authentication of the signature of a private purchaser attesting to a delivery effected or a service provided by an economic operator who has applied for a contract goes beyond what is necessary to prove the technical ability of the operator in question and is excessively formalistic when compared to the straightforward declaration by the economic operator, which is the subsidiary form of evidence permitted under the second indent of Article 48(2)(a)(ii) of Directive 2004/18.

65. If the contracting authority has concerns about the veracity of the document submitted to it, it may also, in my view, request additional information to demonstrate the authenticity of the certification provided. Indeed, as part of the contextual analysis, it must be recalled that Article 45(2)(g) of Directive 2004/18 makes it possible to exclude from the contract any operator who ‘is guilty of serious misrepresentation in supplying the information required’ (Opinion in C-46/15, paras 62-65, references omitted, emphasis in italics in the original, emphasis in bold added).

AG Watheler's glimpse into the future

Remarkably, after carrying out a historical analysis of the way in which the 2004 rules came to have their wording, AG Wathelet uses the 2014 rules as an interpretation tool. Beyond the time-consistency (or not) of such an approach to statutory interpretation, his analysis includes policy arguments around the following considerations:

73. ... Directive 2014/24 ... goes even further in the sense of reducing evidential formalities by removing all references to certification by the purchaser.

74. From now on, Article 60(4) of that directive — which replaces Article 48(2) of Directive 2004/18 — simply provides that ‘evidence of the economic operators’ technical abilities may be provided by one or more of the means listed in Annex XII Part II, in accordance with the nature, quantity or importance, and use of the works, supplies or services’.

75. Under Annex XII Part II(a)(ii) of Directive 2014/24, the means of evidence attesting to economic operators’ technical abilities are ‘a list of the principal deliveries effected or the main services provided over at the most the past three years, with the sums, dates and recipients, whether public or private, involved. Where necessary in order to ensure an adequate level of competition, contracting authorities may indicate that evidence of relevant supplies or services delivered or performed more than three years before will be taken into account’. The need for this list to be accompanied by a certification from the purchaser has therefore disappeared.

76. Even though Directive 2014/24 does not apply to the dispute in the main proceedings, this new directive, which repeals Directive 2004/18, is relevant in that it expresses the current intention of the EU legislature. It may therefore be of assistance in ascertaining the current meaning of an earlier, similar provision, provided, however, that such interpretation is not contra legem.

77.  In the present case, it seems to me that Directives 92/50 and 2014/24 confirm the EU legislature’s continuing intention not to make evidence of the technical ability of an economic operator subject to any specific formality and do so in a way that does not conflict with the wording of the applicable provision.

78. In other words, viewed in its context and from a historical perspective, the second indent of Article 48(2)(a)(ii) of Directive 2004/18 imposes no other requirement than the assurance or confirmation, by the purchaser, that the service on which the economic operator relies with a view to securing the contract was actually provided (Opinion in C-46/15, paras 73-78, references omitted, emphasis added).

I am not sure that AG Wathelet's consideration in para 75 would necessarily be the natural interpretation of Annex XII Part II(a)(ii) of Directive 2014/24, because contracting authorities may well be tempted to consider that the Directive does not actually exclude any mechanisms of certification from the purchaser (it simply just not foresees them) and, in any case, they could be tempted to exercise their prerogative to 'invite economic operators to supplement or clarify the certificates received' [Art 59(4) in fine Dir 2014/24] by requesting similarly formalised (private) purchaser certifications. Thus, his interpretation, which I personally very much share, runs against that possibility and an explicit endorsement by the CJEU would be most welcome.

In any case, what is clear is that, in AG Wathelet (and my) opinion, the 2004 and ad maiorem the 2014 EU public procurement rules preclude 'the application of rules laid down by a contracting authority which, on pain of exclusion, require the private purchaser’s certification to bear a signature certified by a notary, lawyer or other competent entity'. We can just hope that the CJEU will endorse this approach.

State aid in rescue of firms in difficulty, merger control and patent litigation (T-79/14): quite a mix

In its Judgment of 1 March 2016, Secop v Commission, T-79/14, EU:T:2016:118, the General Court (GC) has ruled on the procedural rights of interested parties in a State aid case (for discussion of related case law in this area, see here). The Secop Judgment is interesting because it includes some analysis of the similarities and differences of the rights of interested (third) parties for the purposes of, on the one hand, State aid control (Arts 107-108 TFEU and Reg 2015/1589 and its predecessor Reg 659/1999) and, on the other, merger control (Reg 139/2004) under EU law.

The analysis in the Secop case is complicated by two elements. First, by the fact that the State aid was given under the guidelines on rescue and restructuring aid (in their 2004 version) and, because parts of the restructuring plan implied the acquisition of assets of the financially distressed group (ACC) by a competitor (Secop), this required merger control clearance from the European Commission. Second, the analysis is complicated by the subsequent emergence of a patent litigation between the two industrial conglomerates involved in both State aid and merger procedures (ie between the 'surviving' parts of the distressed ACC group and Secop as the acquirer of some of its assets), which have an open dispute as to whether a valid licence agreement for the use of proprietary patented technology was entered into as part of the rescue plan. This dispute has led to two sets of proceedings concerning those patents, respectively before the German and Italian courts. It is interesting to look at the case and the GC's reasoning.

background of the case

The case concerned two industrial conglomerates: ACC and Secop. ACC was an industrial conglomerate with an Italian holding company and a number of subsidiaries at different levels. For the purposes of the case, it is only necessary to note that HCH was the holding company of the group, ACC Compressors was the operating subsidiary of first level, and ACC Austria was an operating subsidiary of second level. Following financial difficulties within the ACC group, all its subsidiaries and the holding company itself were eventually declared insolvent. As the GC summarises,  'following a call for tenders launched in the context of ACC Austria’s insolvency proceedings, a purchase agreement for the assets of ACC Austria was signed between [Secop] ... and ACC Austria’s insolvency administrators. That contract was made subject to the suspensive condition of a declaration by the European Commission that the transaction was compatible with the internal market' (para 3).

In order to cover the liquidity needs of the ACC group and to allow it to continue its activities pending the preparation of a restructuring or liquidation plan, Italy gave ACC Compressors (the parent company ACC Austria) a State guarantee of 6 months for credit lines in support of liquidity needs of a total amount of EUR 13.6 million. Subsequently, the European Commission decided not to raise objections to the acquisition of ACC Austria’s assets by Secop (see Case No COMP/M.6996 - Secop/ ACC Austria, the ‘merger decision’), thereby validating the contract between Secop and ACC Austria's insolvency administrators. Shortly afterwards, the Commission also decided not to raise objections to the State aid given by Italy to ACC Compressors (see Case No COMP/SA.37640 - Rescue aid for ACC Compressors S.p.A. - Italy, the 'contested State aid decision').

What I find interesting in the case is that the challenger of the State aid (Secop) is the beneficiary of the asset disposal under the merger procedure, which was in turn opposed by ACC Compressors as the parent company of the 'traded subsidiary' under insolvency administration (ACC Austria). Thus, Secop and ACC, as industrial conglomerates, hold opposite interests in the merger and the State aid cases.

It would seem that, by aiming to enforce the exclusive rights deriving from the patents acquired together with ACC Austria's assets against the former parent company (ACC Compressors), as well as challenging the State aid given by the Italian Republic to that same company, Secop is clearly engaging in an all-out strategy to eliminate a competitor at at time when it faces financial difficulties (which would nullify the Italian intervention to rescue it). Conversely, it could also seem that by selling assets linked to specific patents and claiming to have retained a right of use of the patents (through the entering of a valid licence agreement, or otherwise), and at the same time receiving State aid from Italy, ACC could be trying to obtain dual support in times of financial difficulty--ultimately at the expense of a competitor (Secop) that acquired assets at a time of distress. These issues and considerations are not particularly clear in the Secop Judgment, but my intuition is that they influenced the outcome of the case.

In particular, the GC's Secop Judgment refers to the action by Secop seeking the annulment of the State aid received by ACC Compressors after the transfer of ACC Austria's assets took place. For the purposes of our discussion, the two main arguments submitted by Secop are that: 1) the European Commission should have taken into account that, following the transfer of ACC Austria's assets, ACC Compressors would not be legally entitled to keep on using certain patents now held by Secop, which would prevent ACC from carrying on with its industrial activity and, ultimately, infringe the 2004 guidelines for rescue and restructuring aid; and 2) that it is discriminatory for ACC Compressors to have been able to oppose the acquisition of ACC Austria's assets by Secop in the framework of the merger control procedure (where ACC Compressors was recognised as an interested party), whereas Secop has been denied the equivalent possibility in the State aid case because the Commission decided not to open a formal investigation. The discussion focuses on each of these arguments in turn. 

Arguments regarding the use of patents

On the substance of the dispute, primarily, Secop contends that 'following the disposal of ACC Austria’s assets, the patents at issue can no longer be used by ACC Compressors, which must, therefore, be considered to be a firm emerging from the liquidation of an existing firm and, consequently, a newly created firm ... failing the ability to use the disputed patents, ACC Compressors does not have sufficiently developed structures to be eligible for rescue aid' (para 30). This argument concerns point 12 of the 2004 guidelines for rescue and restructuring aid, which indicated that 'a newly created firm is not eligible for rescue or restructuring aid even if its initial financial position is insecure. This is the case, for instance, where a new firm emerges from the liquidation of a previous firm or merely takes over that undertaking’s assets. A firm is in principle considered to be newly created for the first three years following the start of operations in the relevant field of activity. Only after that period will it become eligible for rescue or restructuring aid …’. The GC dismisses this argument on the following grounds:

35 First, ACC Compressors and ACC Austria were initially part of one and the same undertaking in that the two companies produced the same products, on two different sites, but under the same economic management. Upon the transfer of ACC Austria’s earning assets ... it is true that the volume of activity of this firm had been reduced, since the activities corresponding to the production site located in Austria no longer formed part of it. Thus, the undertaking to which the contested aid ... was granted comprised only ACC Compressors’ earning assets. Nevertheless, ACC Compressors managed the undertaking concerned, both before and after the transfer, and ... it carried on ... albeit in a reduced fashion, the production and marketing of compressors, which was the traditional activity of that undertaking. Therefore, contrary to the applicant’s claims, it was the same undertaking as that which had been making compressors since 1960.

36 Second, ... in the situation in which the assets are transferred, it is not the entity formed of the economic activities retained by the transferor company that is relevant, for the purpose of the classification ‘newly created firm’ but the entity made up of the economic activities of the transferee company, within which the transferred assets were integrated. It is also normal and reasonable for a firm in difficulty to dispose of certain assets and focus its activity on its core business, whether from a geographical or sectoral perspective, in order to improve the chances of economic recovery. Point 39 of the Guidelines thus expressly envisages the divestment of assets as a means of preventing undue distortions of competition, in the context of the examination of a restructuring plan for the purpose of granting restructuring aid. It would be contrary to the overall purpose of the Guidelines for such a sale of assets to lead systematically to the exclusion of the transferring company from the benefit of rescue aid.

37 The fact that a legal dispute over the ... patents is under way between ACC Compressors and [Secop] cannot lead to a different assessment.

38 Indeed, at the time the contested [State aid] decision was adopted, the Commission could take into account only the factual and legal situation of ACC Compressors as it was at the date of that adoption; at the most, it had to take into account the foreseeable evolution of that situation, for the period for which rescue aid was granted, namely, six months ... However ... at the date of the adoption of the contested [State aid] decision, ACC Compressors was still using the disputed patents to manufacture compressors ... and there was nothing to indicate that this situation could have changed in the six following months.

39 In addition, the existence of the patent dispute was not relevant for the purposes of assessing the compatibility of the contested aid with the internal market. It is true that, had [Secop] won the case in the patent dispute, it would have been conceivable that ACC Compressors could no longer have used the disputed patents and would, accordingly, have had to cease production of a significant range of compressors ... However, this also depended on the question of whether, after a possible defeat in the courts, ACC Compressors could obtain a user license for those patents. Moreover, it could not be ruled out from the outset that it could offset the possible disposal of its activity producing ... compressors against the development of other lines or activities. In any event, it must be considered that it was not for the Commission to anticipate the outcome of the patent dispute, pending before the national courts at the date of adoption of the contested decision, by substituting its assessment for that of the competent courts, seized of that dispute.

40 Finally, it is appropriate to reject the applicant’s argument ... that the Commission ought to have taken into account that, in the context of the merger procedure, ACC Compressors itself had indicated that, if [Secop] were to purchase the assets of ACC Austria, it could not pursue its production of compressors, since it would not then be able to use the disputed patents any longer.

41  In the merger decision, the Commission considered ACC Compressors’ claims and found that, given, in particular, the patent dispute between the two parties, it was not inconceivable that an agreement on a licence should be concluded between them. The Commission had therefore already found, in the merger proceedings, that ACC Compressors’ claims that it could not pursue the production of compressors when there was no licence for the disputed patents were hypothetical (T-79/14, paras 35-41, emphasis added).

I find the second part of the GC's position difficult to share. In particular, I struggle to understand why the Commission did not require the granting of a sufficient licence as a condition for the clearance of the merger. This would have avoided all issues leading to the existing patent litigation and, in the specific circumstances of the State aid case, it would have also allowed for the rescue and restructuring plan to avoid a major risk of discontinuation of industrial activity by the beneficiary of the aid, which would have seemed desirable.

It is clear that the GC cannot review or alter the merger decision when reviewing the contested State aid decision, but it seems strange that it shows such deference to the Commission's argumentation in the merger decision, which is very weak. Indeed, the Commission's considerations (as presented by the GC in para 40 and 41) are equally hypothetical and rather counterintuitive--why would the companies reach a licence agreement now, when they could have included it in the negotiations leading up to the contract for the purchase of the assets? Were there any impediments for ACC Compressors to obtain that licence via the insolvency administrators of its subsidiary ACC Austria.

Somehow, it seems that the Commission was cutting corners in its analysis during the merger control procedure, particularly by failing to impose a behavioural remedy that could certainly have dispelled uncertainties in the market prognosis. Then, it seems once again too lenient for the GC to allow the Commission to also cut corners in the State aid case by refusing to open a formal investigation, where it would have had to take Secop's arguments into consideration and dispose of them in a more robust manner. 

Arguments regarding the asymmetrical access by interested parties to merger and State aid procedures

On the procedural side of the dispute, in short, Secop submits that 'it has not had the opportunity to present its views in the State aid procedure, initiated for the benefit of ACC Compressors, in order to oppose the grant of the contested aid to the latter ... On the other hand, ACC Compressors has had the opportunity, as part of the merger procedure, to oppose the takeover of ACC Austria’s assets by [Secop]. In its view, it is a violation of the principle of equal treatment, since the competitive relationship between the ACC group and the Secop group ought to have been assessed in both procedures' (para 61). The GC also dismisses this argument, following this reasoning:

62 ... the principle of equal treatment, as a general principle of EU law, requires comparable situations not to be treated differently and different situations not to be treated in the same way, unless such treatment is objectively justified ...

63 ... both in the context of a State aid procedure and in a merger procedure, the competitors of the firms at issue have no right to be automatically associated with the procedure, and this is particularly so in the context of the initial phase of the procedure, in the course of which the Commission makes a preliminary assessment of either the aid at issue, or the notified merger.

64 Indeed, first, as far as concerns State aid ... It is only in connection with the [the actual investigation stage referred to by Article 108(2)], which is designed to allow the Commission to be fully informed of all the facts of the case, that the FEU Treaty imposes an obligation, for the Commission, to give interested parties notice to submit their comments ... It follows that interested parties, other than the Member State concerned, including competitors of the aid recipient, such as the applicant in the present case, have no right to be associated with the procedure in the preliminary examination stage.

65 Secondly, as regards mergers, ... the Commission may hear — on its own motion — natural or legal persons other than the notifiers and other parties to the proposed merger, but it is obliged to do so only on the two conditions that those persons have a sufficient interest and that they make such a request ...

66 ... ACC Compressors’ position in the merger procedure was not only that of a competitor of [Secop], the undertaking notifying the merger, but also one of an ‘interested party’ ... in that, as ACC Austria’s parent company, all assets of which were to be sold, it had to be assimilated to the vendor of those assets and, therefore, had the status of party to the proposed merger. However, unlike its competitors ... interested parties have the right to express their view at all stages of the procedure, including the preliminary phase ...

67 It must therefore be stated that the situation of the applicant, under the State aid procedure that led to the contested decision, is different from that of ACC Compressors under the merger procedure that led to the decision on the merger, in that ACC Compressors had a right to be heard before the adoption of that latter decision. Consequently, the fact that the Commission did not, before adopting the contested decision, give the applicant the opportunity to state its point of view does not infringe the principle of equal treatment (T-79/14, paras 62-67, emphasis added and references to further case law have been omitted).

I find this analysis too formalistic and, in my view, the GC has ultimately failed to engaged with the argument on discrimination at a substantive level. The recognition of specific rights to interested parties in merger proceedings is not a useful comparator in this case. Rather, the GC could (should) have focused on the different access to the Commission given to competitors in merger cases and in State aid cases, particularly at the initial stage of proceedings, and assessed from a functional perspective whether that difference makes sense (ie is justified and proportionate). In my view, it is not. 

More importantly, the Secop Judgment moves in the same direction as a line of case law where the GC is making it increasingly difficult for competitors to challenge State aid decisions. This is very counter-productive for the consolidation of a State aid 2.0 control system, where the Commission needs to increasingly rely on market intelligence provided by third parties and market complaints raised by competitors. This line of case law will, ultimately, consolidate the ineffectiveness of the EU State aid rules [as discussed in detail in A Sanchez-Graells, “Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis” (2016) Journal of Antitrust Enforcement, forthcoming]. This is an undesirable development of EU economic law in this area.