Transparency in Procurement by the EU Institutions

The next collaboration of the European Procument Law Group (EPLG) will be on 'Transparency in public procurement'. Thanks to Dr Kirsi-Maria Halonen, we will meet in Helsinki on 4-5 September 2017 to discuss comparative reports on 11 jurisdictions, including 10 EU Member States and the rules applicable to the procurement of the EU Institutions. I was tasked with the last topic, and my draft report on 'Transparency in Procurement by the EU Institutions' is here: https://ssrn.com/abstract=3020168. Comments most welcome: a.sanchez-graells@bristol.ac.uk.

New paper on EU public procurement and national interest

I have recently finished a new paper on the regulatory space for Member States' national interest under EU public procurement law, which will be published in an edited collection putting together the main academic outputs of an international project led by Dr Varju (Institute for Legal Studies, Hungarian Academy of Sciences).

Its abstract is as follows:

EU public procurement law has been increasingly criticised for the restrictions it places on Member States’ regulatory autonomy and for the imposition of neoliberal conceptions of State intervention in the economy that do not necessarily match the general preferences of Member States with a social market economy orientation. Following that view, it could be thought that there is a limited (and possibly narrowing) space for Member State interests in EU public procurement law—or, in other words, that pursuing national interests goes against the grain of the internal market foundations of the 2014 Public Procurement Package.

The purpose of this chapter is to dispel this conception by making three points. First, that despite its competition-orientedness, the 2014 Public Procurement Package does not impose a ‘one-size-fits-all’ straitjacket on domestic economic systems, but is rather compatible with diversity of economic models at national level. A series of complex trade-offs resulting from the last revision of the EU public procurement rules, where Member State interests played a multifaceted role, have consolidated a competition-based model with significant flexibility for non-market and non-competed mechanisms, as repeatedly tested before and confirmed by the Court of Justice. Second, that EU public procurement law, however, does appropriately prevent Member States from pursuing protectionist policies, even if they consider them to be in their national interest—quod non, because the proper working of the internal market is both in the collective interest of the EU and of the individual Member States. Third, that EU public procurement law, in particular in its current incarnation in the 2014 Public Procurement Package, emphasises the ability of Member States to pursue secondary policies (such as the promotion of innovation or sustainability) in a diverse manner, in accordance with their domestic interests and local particularism. On the whole, thus, EU public procurement law allows Member States significant space to pursue their national interests, always provided that they are also compatible with their own interest in the proper functioning of the internal market.

The full paper is freely downloadable on SSRN: A Sanchez-Graells, 'Against the Grain? -- Member State Interests and EU Procurement Law' (August 18, 2017). To be published in M Varju (ed), Between Compliance and Particularism: Member State Interests and European Union Law (Springer, forthcoming). Available at SSRN: https://ssrn.com/abstract=3022053. As always, comments most welcome: a.sanchez-graells@bristol.ac.uk. 

UK Government's Position Paper on CJEU jurisdiction: A Short List of Tricky Issues

Earlier today, the UK Government has published its position paper on the jurisdiction of the CJEU post-Brexit: Enforcement and dispute resolution - a future partnership paper (23 August 2017). The paper has been received as constructive by eg David Allen Green and Prof Armstrong, and Prof Peers has stressed on twitter that there is a clash of redlines despite the effort the paper makes to distinguish issues of enforcement (of individual rights) and dispute resolution (between the UK and the EU). I am sure I have already missed some useful reactions and that the commentary on the position paper will keep piling up in the coming hours.

With this post, I only intend to highlight some of the tricky issues that I have identified on first reading of the paper. They are presented in the same order of the relevant paragraphs of the paper where they first appear, but this does not necessarily reflect their level of trickiness.

1. The way the position in EU is depicted may be too simplistic, in particular concerning the acceptance of international dispute resolution agreements. For example, paragraph 20 refers to the Association Agreements with Ukraine and Moldova as instances where the EU has accepted submission to binding (international) arbitration mechanisms.
   
   However, taking the EU-Ukraine Agreement as example, the arbitration mechanism is limited due to the need to ensure CJEU supremacy when it comes to interpretation of EU law. In that regard, Art 322(2) clearly establishes that '[w]here a dispute raises a question of interpretation of a provision of EU law [relating to regulatory approximation contained in Chapter 3 (Technical Barriers to Trade), Chapter 4 (Sanitary and Phytosanitary Measures), Chapter 5 (Customs and Trade Facilitation), Chapter 6 (Establishment, Trade in Services and Electronic Commerce), Chapter 8 (Public Procurement) or Chapter 10 (Competition), or which otherwise imposes upon a Party an obligation defined by reference to a provision of EU law], the arbitration panel shall not decide the question, but request the Court of Justice of the European Union to give a ruling on the question. In such cases, the deadlines applying to the rulings of the arbitration panel shall be suspended until the Court of Justice of the European Union has given its ruling. The ruling of the Court of Justice of the European Union shall be binding on the arbitration panel'. Given that these are matters that would be at the core of an EU-UK agreement, the extent to which agreeing on binding internal arbitration would circumvent (direct) CJEU jurisdiction to interpret EU law and identical provisions can be questioned.
   
   This is however presented in very soft terms in the position paper. In relation with the EU-Moldova Agreement, and under the heading 'Provision for voluntary references to CJEU for interpretation', the position paper indicates that '[t]his approach can apply in respect of both judicial and political dispute resolution models. For example, Article 403 of the EU Moldova Association Agreement requires that an arbitration panel established to resolve disputes shall, where the dispute concerns interpretation of EU law, refer the question to the CJEU and be bound by its interpretation' (para 56, emphasis added); and that 'In the case of the Moldova Association Agreement, the responsibility to make a reference rests with the arbitration panel ... These examples do not involve one party to the agreement deciding, unilaterally, to seek a binding interpretation of the agreement from the CJEU' (para 58). While this is *technically* correct, it is also presented in a misleading way because should an arbitration panel not seek the CJEU's interpretation, whcih it is required to do so, the final award would clearly not be enforceable. Ultimately, in my view, the restrictions derived from the need to ensure the CJEU's position as sole interpreter of EU law create a much harder and relevant restriction on the design of international arbitration or other dispute resolution mechanisms than the image that evaporates from the position paper.
   
   In fairness, this is somehow recognised in para 38 of today's position paper: 'there are limitations to the matters on which the EU can subject itself to the binding decisions of a quasi-judicial or judicial authority, like an arbitration panel. The arbitration panel cannot adjudicate on matters of interpretation of EU law so as to bind the EU and its Member States'. However, this is not followed by a view on how to resolve this limitation, should the future EU-UK agreement be subjected to international arbitration--maybe this is just aimed at creating space for negotiations, but a clearer position of the UK Government on the acceptance (or not) of a reference mechanism to the CJEU as part of arbitration-based dispute resolution mechanisms will be needed sooner rather than later and the answer seems constrained to a binary yes/no ...
    
2. Whether the EU would accept to the creation of another, parallel court, like the EFTA Court can be highly questioned. The assumption in para 21 that the EFTA court is a 'model' that can be replicated seems to me difficult to accept. In my opinion, the only way of benefiting from that solution would be for the UK to become a member of the European Economic Area (which the UK Government does not want to pursue), or else for the EFTA Court to be reformed to expand its jurisdiction to the EEA + UK (which seems unlikely). In my opinion, the creation of another institution with EFTA Court features but with jurisdiction only for the EU-UK relationship does not seem plausible.
   
   This has a major effect on the viability of post-Brexit coordination of UK and CJEU case law as discussed in paras 46-51 of the position paper because, as is clear from all the examples in that section, the mechanisms for mutual coordination of jurisprudence have so far only been accepted within the scope of the EEA (+ Switzerland). Outside of the scope of the EEA / EFTA Court jurisdiction, it seems difficult to see the EU accepting this type of mechanisms, which are the historical result of a different time of the European integration process. Moreover, the UK government seems to point at differential approaches to case law coordination when it indicates that 'extent to which this approach may be valuable depends on the extent to which there is agreement that divergence should be avoided in specific areas' (para 51). It seems difficult to accept that the EU can tolerate divergence in any areas that are considered of relevance in the context of the future EU-UK relationship (and those not relevant, are likely to be or end up outside of the framework).
    
3. The position that 'in both the UK and the EU, individuals and businesses will be able to enforce rights and obligations within the internal legal orders of the UK and the EU respectively, including through access to the highest courts within those legal orders. This would be the case in respect of both the Withdrawal Agreement, including an agreement on citizens’ rights, and the future partnership' (para 23) seems to simplistic to me. First, because this is precisely one of the redlines of the EU's negotiating position, which has indicated that there has to be a 'possibility of administrative or court proceedings to be initiated post-exit for facts that have occurred before the withdrawal date' (para 16 of EU negotiating guidelines), which implies the need to preserve CJEU intervention for the interpretation of the relevant EU law provisions as they applied at the time of the material facts. Second, because litigation is likely to raise complex issues of conflict of laws that can hardly be addressed unilaterally by either of the legal systems.
   
   As recognised in yesterday's position paper on cross-border civil and commercial litigation: 'Ending the direct jurisdiction of the CJEU in the UK will not weaken the rights of individuals, nor call into question the UK’s commitment to complying with its obligations under international agreements; where appropriate, the UK and the EU will need to ensure future civil judicial cooperation takes into account regional legal arrangements, including the fact that the CJEU will remain the ultimate arbiter of EU law within the EU' (para 20, emphasis added). The same will, of course, happen in every other dimension of legal relationships and, consequently, the same mechanism to 'take account of the position of the CJEU' will need to be extended universally. In my view, this is far away from the streamlined assumption that litigation will be contained in either of the jurisdictions.
   
   Interestingly and confusingly, para 24 of today's position paper takes a different approach and stresses that 'Ending the direct jurisdiction of the CJEU in the UK will not weaken the rights of individuals, nor call into question the UK’s commitment to complying with its obligations under international agreements. The UK’s commitment to the rule of law has been built over centuries, and reaffirmed time and again by effective, independent courts. That commitment to the rule of law means that anyone seeking redress within the UK’s legal systems will know they will be judged by clear rules applied in accordance with the law by the UK’s expert, independent and internationally respected judiciary.' The extent to which both position papers are in contradiction, or the extent to which the UK government can seriously aim to create CJEU-friendly mechanisms for civil and commercial matters and simultaneously CJEU-avoiding mechanisms for eg public law seems to me to be prone to provoke more than a few headaches for anyone trying to solve the puzzle.
    

Overall, I think that the conclusion in the position paper that 'there are a number of additional means [not involving the direct jurisdiction of the CJEU] by which the EU has entered into agreements which offer assurance of effective enforcement and dispute resolution and, where appropriate, avoidance of divergence, without necessitating the direct jurisdiction of the CJEU over a third party' (para 67) may be overstated and that the position paper, while more flexible than could have been expected, still seems to head full steam ahead for a clash with the unique position of the CJEU in interpreting EU law and preserving individual (citizens') rights. Time will tell.

AG Kokott Advocates Restrictive Interpretation of Security-Based Derogations of EU Procurement Law (C-187/16)

In her Opinion of 20 July 2017 in case Commission v Austria, C-187/16, EU:C:2017:578, AG Kokott assessed the limits of the exemption on security grounds, under Article 346 TFEU and the Rules on Defence and Security Procurement (Directive 2009/81/EC), from the obligation to carry out a tender procedure for the award of a contract for the manufacture of identity and other official documents (such as biometric passports, driving licences or residence permits).

Even if based on previous generations of EU public procurement rules (both the 1992 and the 2004 procurement directives controlling the award of service contracts), the Opinion and future decision by the Court of Justice will be important for the coordination of the 2014 Public Procurement Package and the rules on Defence and Security Procurement.

As AG Kokott aptly put it, the main legal issue in the dispute requires ascertaining whether Member States are justified in directly awarding contracts for the manufacture of such documents to undertakings they 'consider to be particularly trustworthy' (para 2), in particular if they happen to be 'formerly State-owned undertaking[s] which [have] now been privatised' (para 3, which triggers considerations on the limits of the in-house exemption as well, see paras 29 and ), on the basis of the undisputed argument that such documents 'must be manufactured in compliance with particular secrecy and security requirements, as the issue of such documents is an expression of the exercise of fundamental State functions. The documents are used as part of everyday life and the importance of public confidence in their authenticity and veracity is not to be underestimated. Consequently, highest priority is given to security of supply, protection against counterfeiting and responsible handling of these documents, including of data processed in their manufacture, and abuse must be effectively prevented' (para 1)--all of which are ultimately incarnated in the rules of Regulation 2252/2004/EC on standards for security features and biometrics in passports and travel documents issued by Member States (see paras 13-14). Regardless of the peculiarities of the documents, the position taken by the European Commission is that it is 'perfectly possible to organise a public invitation to tender in such a way that only undertakings which [specialise] in the manufacture of documents subject to special security requirements and [are] supervised accordingly could be successful' (para 21). Austria, as the defending Member State in the case, opposes this reasoning and defends its use of the Article 346 TFEU exemption on the basis of the need to ensure the 'protection of essential national security interests. Protection of secret information, safeguarding of the authenticity and veracity of the documents concerned, security of supply and guaranteed protection of sensitive data' (para 20).

On that note, in her Opinion, AG Kokott also stresses that the case will give the Court of Justice an opportunity to go beyond procurement and provide further clarification of the limits of the security-based derogations from EU law that Member States can undertake under Article 346 TFEU (para 4). I am not necessarily convinced that the Court will follow that route, for it tends to avoid making general declarations on the meaning and interpretation of EU law, and it is clearly possible for the Court to take a narrow approach and provide a decision solely for the case at hand, without aiming to establish bright lines on the scope of Article 346 TFEU more generally. In any case, the Court's approach can in itself be interesting.

On the specific issue whether there was an obligation to tender the contract for the manufacturing of the official documents, AG Kokott suggests that the Court of Justice should declare the existence of such an obligation and, therefore, a breach of EU procurement law by Austria. Her main arguments are that:

• The award of the contracts that gave rise to the dispute was covered by an obligation to launch an EU-wide tender procedure where the relevant value thresholds were exceeded (ie for all but one type of official documents) (paras 30-32).
• The undeniably sensitive nature of the documents object of the contract does not justify the invocation of a public security exemption compatible with either the specific rules of the procurement directives (based on the fact that their performance requires compliance with special security measures, or on requirements linked to the protection of essential interests of the State), or with Article 346 TFEU more generally (paras 40-45).
  • A derogation from EU law based on the protection of essential national security interests requires Member States 'to offer substantiated evidence to show precisely which national security interests are affected and to what extent compliance with certain obligations under EU law would in practice be contrary to those security interests' (para 48).
  • Where the State shows the existence of a sufficient national interest at stake, the derogation from EU law, being an exception to fundamental internal market freedoms, needs to be interpreted strictly--and this applies to both derogations based on Article 346 TFEU in general, and to any specific derogations under secondary EU law, including the procurement directives (para 53). The test ultimately requires the 'Member State to prove that it is necessary to have recourse to the measures taken by it in order to protect its essential national security interests' (para 54).
  • In the case at hand, neither (i) the need for centralised performance of the printing contracts (paras 56-58), (ii) the need for effective official controls (paras 59-63), or (iii) the need to ensure the trustworthiness of the contractor (paras 64-72), are sufficient to demonstrate the necessity of directly awarding the contract because, in relation with each of the requirements, the Member State had a satisfactory less restrictive alternative measure available.
    • AG Kokott does not consider the need for centralised performance a good enough reason to exclude the tendering of the contract because, even if security justifications based on the easier control or one than several undertakings, and the ensuing reduced risk of access to security arrangements or sensitive materials by unauthorised parties are convincing, because that 'can ultimately only explain why the printing contracts at issue are only ever awarded to a single undertaking (and not to several at the same time). On the other hand, there is no plausible justification, based on the need for centralisation, why it should be necessary, in order to protect essential national security interests, to commission only ever the same undertaking' (para 57).
    • She also dismisses the argument based on the need to carry out special official controls because it is largely based on restrictions self-imposed on Austrian authorities by Austrian legislation (paras 61 and 63) and because, in any case, the need for the official controls does not justify the absolute exclusion of EU procurement rules because it is disproportionate (paras 62 and 63).
    • Finally, and in a very clear manner, AG Kokott dismisses claims based on the need to preserve on-going 'special relationships of trust' between public authorities and specific contractors. As she eloquently puts it: 'it would run flagrantly counter to the basic principle underpinning the European internal market in general and public procurement law in particular if a Member State almost arbitrarily classified a single undertaking — especially its formerly State-owned and now privatised ‘historic’ provider in a certain area — as particularly reliable and trustworthy according to the motto ‘tried and tested’, whilst a priori denying or at least questioning the reliability and trustworthiness of all other undertakings' (para 66, references omitted).
    • To stress the restrictions on the possibility for the Member State to derogate from EU law in order to avoid disclosure of security-related information to foreign undertakings or undertakings controlled by foreign nationals (paras 69-70), AG Kokott highlights the need for such concerns to inform Member State decisions in a 'consistent and systemic manner'. In that regard, AG Kokott dismisses Austria's claim on the basis that 'Austria has not ... taken precautions which could effectively prevent [its formerly State-owned undertaking] falling under the control of foreign shareholders or becoming a subsidiary of a foreign legal person. The Austrian State has neither stipulated, for reasons of security, voting rights in [its formerly State-owned undertaking] in the form of a special share (‘golden share’) nor made the sale of shares in [its formerly State-owned undertaking] subject to any restrictions on security grounds' (para 70, references omitted).

On the whole, I think that AG Kokott's Opinion is well-argued and her arguments are convincing. From the public procurement perspective, it seems clear that in cases where the Member State can resort to less restrictive measures--such as carrying out a tender with high requirements embedded in the relevant selection criteria (including an exceptional obligation to carry out the performance of the contract in the territory of the contracting authority; see para 63 and the cited Judgment of 4 December 1986, Commission v Germany, C-205/84, EU:C:1986:463) and imposing extensive confidentiality obligations--the possibility to exclude compliance with EU law should be excluded.

There are other aspects of the Opinion that seem more open to opposing arguments, such as the need to ensure watertight consistency in the use of derogations based on Article 346 TFEU (where warranted), or some of the (implicit) elements of mutual trust and recognition between Member States in the context of their cooperation in security issues. In my view, it is not likely that the Court of Justice will engage with them in detail. If I were to guess, I would expect a short Judgment in this case, simply stating that Austria's interpretation of the exemptions from the EU public procurement rules was too wide and that, in any case, the direct award of the contract fails a strict proportionality assessment. We will know soon enough.

Good news and happy holidays

One more year, the time for the summer break has arrived. Thank you all for following the blog and for all the interactions we have had at conferences, workshops and training sessions during the academic year that just finished. Your continuous encouragement and support has helped me develop professionally and this has now been reflected in my promotion to Reader in Economic Law at the University of Bristol Law School from 1 August 2017. 

I will now take a break from blogging to celebrate the promotion, go on holidays and write up a couple of articles that require some concentration. I will return to blogging in the run up to the next academic year. I hope you will all have an enjoyable summer and hope to find you here in September.

All best wishes, Albert

ECJ confirms that procurement rules do not apply to allocation of airport space to groundhandling companies (C-701/15)

In its Judgment of 13 July 2017 in Malpensa Logistica Europa, C-701/15, EU:C:2017:545, the European Court of Justice (ECJ) has established that the 2004 Utilities Procurement Directive did not require conducting a public selection procedure prior to the allocation, including a temporary allocation, of areas within airports to be used for the provision of groundhandling services for which no remuneration is to be paid by the manager of the airport.

The reasoning of the Court is straightforward and considers that the allocation of space to groundhandling operators does not fall within the scope of the relevant public procurement rules because "the managing body responsible for Malpensa Airport did not acquire a service provided by the supplier in return for remuneration" (para 29). In my view, and as I discussed in relation to the Opinion of AG Campos in this case (discussed here) , this is the correct approach. Indeed, it is now clear that a procedure for the allocation of airport space to groundhandling operators authorised to provide services in that airport should not be covered by the utilities procurement directive (either the 2004 version, or the current 2014 version, or the 2014 concessions directive) because the body managing the airport is not procuring services from those companies when it takes the space allocation decision. 

In my view, the ECJ could have been clearer in establishing the error implicit in the Italian case law that originated the referral. Indeed, as presented by the referring court, "according to [Italian] national case-law, the exploitation of airport areas (geographical areas), including, therefore, internal areas, in connection with the activities usually performed by air carriers falls within the material scope of the rules governing [procurement in the] special sectors" (para 21), which led to the conclusion that "the provision of groundhandling services in airports, by the exploitation of geographical areas, also falls within the material scope of those rules" (para 22). In that regard, the ECJ could have clarified the multiple dimensions involved in an assessment of scope of coverage of the EU procurement rules (in the utilities or special sectors), which cannot be constrained to an assessment of the activities involved, but more importantly need to include an explicit consideration of the extent to which the contracting authority or entity is engaged in procurement (ie sourcing goods, services or works) or other types of (quasi-regualtory) activities.

In any case, given the simple functional criterion that derives from the Malpensa Logistica Europa Judgment, this is a welcome clarification.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

New Paper on Extraterritoriality of EU Procurement Rules

I am presenting a paper on the extraterritoriality of EU public procurement rules at the research workshop "Extraterritoriality of EU Law & Human Rights after Lisbon: Scope and Boundaries", held at the Sussex European Institute on 13 & 14 July 2017.

The paper is entitled "An Ever-Changing Scope? The Expansive Boundaries of EU Public Procurement Rules, Extraterritoriality and the Court of Justice", and is available at SSRN: https://ssrn.com/abstract=3000256.

As the abstract indicates:

This paper looks at how the EU public procurement rules have shown a tendency to permanently expand their scope of application, both within and outside the EU. Inside the EU, the expansion has primarily resulted from blurred coverage boundaries and a creeping application outside their explicit scope. Outside the EU, the extraterritoriality has concerned scenarios such as the applicability of EU financial rules to procurement carried out as part of the EU’s external action in other areas (such as common foreign and security policy), or the regulatory transfer (or ‘export’) of EU procurement rules as part of trade deals—notably, the EU-Canada CETA, but also the EU-Ukraine DCFTA.

Concentrating solely on the ‘external’ dimension of the expansive scope of EU public procurement rules, in trying to explore some of the impacts of the extraterritorial effects of EU public procurement law on the legal and regulatory systems of third countries, this paper focuses on the implications that this expansion and extraterritoriality can have in terms of jurisdiction of the Court of Justice, as well as in terms of difficulties for the coordination of remedies systems in the area of public procurement. The paper concludes that the extraterritorial expansiveness of the EU’s public procurement rules is creating areas of potential legal uncertainty that deserve further analysis. Given the highly speculative nature of those scenarios at this stage, however, the paper does not attempt to provide any specific answers or tentative solutions to the issues it raises.

I intend to review the paper after the workshop and will appreciate any additional feedback that helps me improve it so, if you have the time and inclination to read the paper, please email me any comments to a.sanchez-graells@bristol.ac.uk, or feel free to post them in the comments section. Thank you in advance for any input.

Comments to Danish Draft Guidelines on Joint Tendering

The Danish Competition and Consumer Authority has published draft guidelines on joint bidding under competition law and invited comments by 1 September 2017. The following are the comments I have provided in the context of this public consultation. It will be interesting for me to see if the Authority takes any of these issues into account in the final version of its guidance.

The document provides a useful overview of the issues involved in an analysis of the compatibility of undertakings’ collaboration for the submission of joint tenders for public contracts with Article 101 TFEU (and domestic equivalents). The guidance is largely applicable to subcontracting arrangements as well, and it usefully incorporates recent examples of competition investigations in Scandinavian jurisdictions—with special attention given to the recent EFTA Ski Taxi Judgment.[1] It is particularly welcome that the Danish Competition and Consumer Authority has made the effort of publishing the guidelines in English, which can position them as an important point of reference in all EU/EEA jurisdictions after their official adoption.

The draft guidelines pivot centrally around the consideration of whether undertakings seeking to collaborate in the submission of a joint tender could bid independently for a given contract. That is, they follow the standard approach of considering that collaboration in the form of joint bidding (or subcontracting) is problematic where it reduces the level of competition that could otherwise exist for a public contract, unless it generates net efficiencies that are passed on to the contracting authority.[2] From that perspective, the draft guidelines send some useful clear messages, such as the need:

1. for undertakings to conduct objective self-assessments of their own capacity to individually perform the contract prior to engaging in discussions with potential consortium partners;
2. to tailor the analysis to the size and requirements of the lots in which a contract can be divided, rather than limiting the assessment to a holistic view in relation to the execution of the whole contract;
3. to carry out case-by-case assessments of that capacity and the ensuing warning against stable joint tendering arrangements that fail to meet the thresholds for the creation of a full functioning joint venture; and
4. to keep adequate records of those assessments for the purposes of enabling full and considerate responses to requests for information in the context of a competition investigation.

Given the complexity of the topic, however, there are some aspects of the draft guidelines that are less clear cut and where, in my opinion, there is scope for improvement and further clarification in the guidance finally adopted by the Authority. The assessment of relationships of potential competition in the context of restrictions of competition by object and the treatment of risk-driven collaborations deserve some careful consideration. These are issues that have spillover effects on the treatment of exchanges of information between undertakings considering bidding jointly for a public tender. This contribution addresses these three issues.

1. Treatment of potential competition

 The guidelines concentrate on the analysis of joint tendering by competitors and, implicitly, recognise that non-competing undertakings can freely cooperate in the context of public procurement (as in any other area of economic activity). This could be said explicitly, but there is no indication to the contrary in the draft guidelines. However, given the broad approach to the consideration of potential competition relationships between consortium members, and the assumption that joint bidding can be assessed as a restriction of competition by object because it involves price setting (following the EFTA Ski Taxi Judgement, above, in p. 20, box 2.11), the guidelines create some uncertainty.

On the one hand, because they indicate the possibility of joint tendering benefitting from block exemption regulations (BERs, see p. 30, para 3.2), despite the fact that price fixing is a hardcore restriction that excludes the applicability of the BERs. It would thus need to be clarified whether the Authority considers joint tendering as a restriction by object structurally involving price fixing or not, as well as the consequences of the position taken on this point. On the other hand, the guidelines create uncertainty because they do not address the tricky boundary issue of joint tendering by potential competitors as clearly as it would be possible.

The ambivalence or lack of clarity of the guidelines on this issue permeates the analysis and sometimes results in confusing expressions, such as the indication that chapter 3 assesses “the conditions that must be fulfilled for a consortium (including between competitors) to be exempted from the prohibition against agreements that restrict competition” (p. 23, introduction, emphasis added). Literally, this statement is incorrect, as joint bidding by consortia between non-competing undertakings does not run against the prohibition of Article 101(1) TFEU. In this case, it is possible that some word (such as “potential” competitors) is missing, but it is also possible that the guidelines are not too clearly set on the limits to the extension of the prohibition of Article 101(1) TFEU to (theoretically) potential competitors for a public contract.

This is an issue that has been recently discussed to some length,[3] and one which affects different aspects of the analysis under Article 101(1) and 101(3) TFEU that do not appear explicitly interconnected in the draft guidelines. In my view, there are two aspects that can be clarified.

First, the guidelines are not explicit in indicating how to carry out the analysis of an undertaking’s condition of potential competitor for a contract. There is just a mention to the effect that, in the assessment of “whether a company [rectius, undertaking] could [potentially] be able to bid individually, the Authority looks at whether this could constitute a sustainable economic strategy for the company (sic). This means firstly that a mere theoretical possibility of carrying out a contract is not enough; the possibility must be real and is shall include assessing that the offer must be profitable. The assessment shall be made on an objective basis” (p. 9, para 2.2).

This triggers two issues. One concerns the relevance of economic sustainability where the execution of a public contract is a one-off instance or involves a short to medium term project, where sustainability does not seem to raise particular issues or be the prime consideration. Another one concerns the assessment of profitability, in terms of the existence of economic incentives that justify potential additional investments, which requires a complex analysis of risk (discussed below 2). It seems clear that it is not sufficient to simply establish that an undertaking could have invested in additional resources to tender for the contract individually, but that it is necessary to establish that such investment was the rational economic decision to make under the circumstances (rather than engaging in a joint tender), which is always an ex post facto determination. In my opinion, great caution needs to be exercised here to avoid creating disincentives for joint tendering.

The guidelines could be improved by sketching, at the minimum, the circumstances in which the Authority would be willing to accept that an undertaking is justified in foregoing the potential investment to participate in the public tender, and the extent to which this can (and how it should) be documented. Logically, the same conditions need to justify a decision not to tender at all. If an undertaking is justified in not tendering (i.e., that is considered as the economically rational strategy), then it should also be justified in seeking collaboration. As mentioned below, this relates to an implicit duty to tender or else have a good rational for the tender hold-up, which seems more adequate for analysis under Article 102 TFEU than under Article 101(1) TFEU. In any case, difficult issues arise around any expectation or duty to participate in public tenders and the undertakings’ freedom to conduct a business under Art 16 of the EU Charter of Fundamental Rights, so careful consideration is necessary.

Second, the guidelines could be clearer in terms of the place for the establishment of counterfactual assessments. It seems that the guidelines do not consider the possibility of establishing an undertaking’s condition of potential competitor for a contract on the basis that it could have jointly tendered with undertaking(s) other than the one(s) it is eventually collaborating with. Such a possibility is only mentioned in relation with the assessment of the indispensability of an existing joint tendering agreement, where the draft guidelines indicate that, for an anticompetitive joint tender between (potential) competitors to be justified under Article 101(3) TFEU, “[t]here shall be no other economically viable and less restricting ways of achieving the efficiencies. This can be either in the form of bidding instead individually or forming a consortium with undertakings other than the ones in the current consortium” (p. 29, para 3.1.3, footnote omitted and emphasis added).

The fact that the existence of potential alternatives for collaboration is not use both to establish potential competition and the existence of potentially less restrictive forms of competition (ie, that it is not used both under an assessment of the Art 101(1) prohibition and the Art 101(3) exemption) should be welcome.

However, in my view, its use for the purposes of Art 101(3) is problematic. Once an undertaking has expressed its preference in collaborating with given consortium partner(s), it is difficult to accept the Authority’s role in second-guessing that an alternative collaboration would have been preferable (not only in competition terms, but also in business terms). The analysis of Art 101(3) TFEU should not involve this type of speculation, and it should suffice to establish that the joint bidders have not exceeded the limits required for the generation of the efficiencies derived from their agreement.

The possibility of having partnered with other undertakings seems to belong to the same logical plane as the decision not to partner with anyone (ie bid solo), or whether to tender at all. This is indicated in the draft guidelines itself themselves (see quote above), by linking the assessment of the undertaking’s ability to tender individually or to partner with other undertakings to do so. Those two decisions are equivalent in terms of establishing the undertaking’s condition of potential competitor for the contract, but they are not equally suitable for an assessment of whether less restrictive means existed, for the following reasons.

Where two potential competitors team up, then it can be argued that none of the restrictions was necessary at all and thus the assessment under Article 101(3) TFEU must fail. Conversely, where the agreement is between undertakings that would not have been potential competitors by themselves, the fact that a theoretically superior joint bidding arrangement could be conceived is irrelevant because the analysis under Article 101(3) TFEU must be limited to whether the arrangement in place generates efficiencies by the least restrictive means concerning the undertakings involved in the consortium. Considerations concerning third parties should be limited to an assessment of the fourth condition, concerning the consortium’s ability to eliminate competition for the contract—or, eventually, issues concerning infringements of Article 102 TFEU by the tenderer that could have participated solo and rather decided to ‘grab’ a partner that could have been strategic for a third party.

Therefore, it would seem more appropriate to move the assessment of the counterfactual consisting in the potential teaming with third party undertakings to the analysis of Art 101(1) TFEU with the sole purpose of establishing whether the joint tendering agreement is anticompetitive to begin with. In that setting, the circumstances in which a theoretically potential collaboration that is foregone is anticompetitive should also be clarified (as mentioned above) and, in my view, the clarification should be that such theoretical third arrangement is irrelevant.

Overall, taken together, these two issues point towards the need for more clarity in the guidelines concerning the assessment of situations where an undertaking is considered a potential competitor for a given public contract because it could have tendered for it (either individually, or in collaboration with third parties) but rather decides to team up with another potential competitor. As mentioned above, this seems to fit the framework of the rules applicable to a tender hold-up, which could be functionally assimilated to refusals to deal. In my view, developing the draft guidelines along these lines would improve them.

2. Treatment of risk-driven collaborations

The second main area where the draft guidelines could benefit from some clarification concerns the treatment of risk assessments carried out by undertakings considering the possibility to tender for a contract (either at all, or as part of a given consortium).

The first issue concerning risk-assessments that could be clarified is the extent to which they will actually be taken into account by the Authority. It seems contradictory or, at least confusing, that the draft guidelines indicate that “risk spreading is an element of the overall assessment of whether an undertaking can complete a contract on its own or whether it is objectively necessary to work with one or more undertakings” (p. 10, para 2.2) and at the same time that “[i]t will be difficult for a competition authority to make an ex post objective assessment of the risk taking on a contract … In this context, the issue of risk spreading will not necessarily be considered as an element when the Danish Competition and Consumer Authority assesses an undertaking’s capacity” (p. 11, same para). I find this difficult to understand and can see how the undertakings to which the draft guidelines are addressed may be confused. More clarity on the conditions in which the Authority will use or not internal documentation concerning risk-assessments would be desirable.

A second issue concerns the extent to which simultaneous tendering for different public contracts and their impact on the undertaking’s productive capacity features in the analysis. The draft guidelines usefully include a section on the analysis of the undertaking’s available capacity to undertake a contract and they recognise that, in some circumstances, foreseeable (recurring) commitments can be taken into account to establish that an undertaking does not have sufficient capacity to individually participate in a tender (pp. 14-15, para 2.2.4).

However, the guidelines do not seem to take into due consideration that undertakings active in procurement markets may (regularly) be tendering simultaneously for various contracts, which prospects of award are difficult to establish. In these cases, it is possible that a prudent business strategy requires the reservation of certain capacity in case the undertaking is successful in all of the simultaneous tenders (and this includes tenders which process of evaluation is live at the time of preparing the next tender), or at least a mitigation of that risk via cooperation with third parties (either by forming consortia, or through subcontracting).

Given the relevance (and, I would say, practical prevalence) of this circumstance, it would be desirable that the guidelines addressed it explicitly. Not only due to its impact on the assessment of the condition of potential competitor for a contract under Article 101(1) TFEU, but also due to the relevance that the draft guidelines give to this issue in terms of exemption under Article 101(3) TFEU (p. 26, para 3.1.1.1). In that regard, the guidelines indicate that “[i]n many cases, the risk of taking on a specific contract cannot in itself justify that companies shall not be considered competitors with regards to the contract. In such cases, risk considerations will only determine that the agreement is lawful under the competition rules if risk diversification leads to or contributes to companies submitting a better bid together than they would have been able to individually”. However, it could be that sometimes a joint bid is the only bid that potential competitors are willing to consider because their second best option is not a solo tender, but rather to withhold a tender for a contract that, if awarded, could tip them over their maximum capacity. In my view, more nuance could be introduced in relation with this aspect.

A third issue concerning risk assessment relates to the relevance given in the draft guidelines to the consortium’s expectation of competition for the contract. It is not clear to me why it would be relevant or adequate to consider that “[i]f a consortium that (sic) for instance participates in a public call for tenders where there are many participants and therefore there is effective competition for the contract, there will be greater likelihood that efficiencies are passed on to consumers in terms of lower offer price than if the consortium expects for example only another participant in the call for tenders” (p. 28, para 3.1.2). I find this inconsistent with economic theory. What is important to test the consortium’s incentives to tender aggressively (or the constraints to a limit pricing strategy) is whether they anticipate any (including only one) tender by an equally or more efficient tenderer. And, in any case, I struggle to envisage a legal test that could determine the extent to which the consortium was anticipating more or less competition for the contract. In that regard, I think that this element of risk management / strategic bidding should be clarified in the final version of the guidelines.

3. Spillover effects on exchanges of information

Given the issues surrounding the assessment of risk and the uncertainties concerning the effectiveness of using risk assessments to exclude the consideration of potential competitors of the consortium members or the existence of acceptable efficiencies in their joint tendering, the way in which the illegality of information exchanges is presented could constitute a significant disincentive for undertakings considering joint participation in public tenders.

In particular, the dissuasive effect can derive from the drafting of the paragraph that indicates that “[i]f it turns out that the undertakings that have considered entering into a consortium will themselves be able to bid for the contract and, thus, they are competitors, the information exchange that has taken place, will in fact constitute information exchange between competitors. This will be a criminal offence if the information is sensitive from a competition perspective. It is therefore important that each undertaking clarifies beforehand whether it can complete the contract individually and thus whether the undertakings are competitors” (p. 31, para 4.1, emphasis added).

It is possible that this dissuasion is mitigated by introducing more clarity concerning aspects of risk assessment identified above, in particular concerning the possibility of having teamed up with third parties and the assessment of potential capacity constraints. Otherwise, it could be advisable to provide more detail of the circumstances in which such exchange of information could lead to a prosecution.

In that regard, it would also be necessary to avoid statements that could be potentially misleading. In particular, in my view, it would be necessary to reconsider the indication that seeking legal advice could reduce the likelihood of an investigation or prosecution, not least because that could potentially run contrary to the interpretation of Article 101 TFEU by the Court of Justice of the European Union in its Schenker Judgment,[4] where it clearly indicated that “legal advice given by a lawyer cannot, in any event, form the basis of a legitimate expectation on the part of an undertaking that its conduct does not infringe Article 101 TFEU or will not give rise to the imposition of a fine”.[5]

_______________________

[1] For discussion, see here and A Sanchez-Graells, “Ski Taxi: Joint Bidding in Procurement as Price-Fixing?” (2017) 8(6) Journal of European Competition Law & Practice, forthcoming, available at https://academic.oup.com/jeclap/article-lookup/doi/10.1093/jeclap/lpx043, last accessed 07/07/2017.

[2] This is, in my view, the right general approach. See A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 336-340.

[3] E.g. see here, here, C Thomas, “Two Bids or not to Bid? An Exploration of the Legality of Joint Bidding and Subcontracting Under EU Competition Law” (2015) 6(9) Journal of European Competition Law & Practice 629-638; C Ritter, Joint Tendering Under EU Competition Law (February 1, 2017), available at https://ssrn.com/abstract=2909572, last accessed 07/07/2017; and most recently, and with a consolidation of all previous debates, I Herrera Anchustegui, “Joint Bidding and Object Restrictions of Competition: The EFTA Court’s Take in the ‘Taxi Case’” (2017) European Competition & Regulatory Law Review (CoRe) 174-179, available at https://ssrn.com/abstract=2966374, last accessed 07/07/2017.

[4] Judgment of 18 June 2013 in Schenker & Co. and Others, C-681/11, EU:C:2013:404.

[5] Idem, para 41.

Comments on draft Catalan regional law on public procurement

I had the honour of being invited by the Catalan Parliament's Commission on Economy and Public Finances to submit comments to the draft Catalan regional law on urgent public procurement measures. These may be of limited interest and are written in Catalan (so not very accessible), but I thought I would post them here anyway. The full text of the draft law to which the comments refer is accessible here.

A LA MESA DE LA COMISSIÓ D’ECONOMIA I HISENDA

 APORTACIONS PER ESCRIT EN RELACIÓ AL PROJECTE DE LLEI DE
MESURES URGENTS EN MATÈRIA DE CONTRACTACIÓ PÚBLICA (tram. 200-00009/11)

Distingits membres de la Comissió d’Economia i Hisenda del Parlament de Catalunya,

Els agraeixo l’oportunitat de presentar observacions en relació al projecte de llei de mesures urgents en matèria de contractació pública.

Com a nota preliminar, voldria aclarir que la perspectiva d’aquesta aportació és la del dret europeu de contractació pública i, per tant, la major part de les meves observacions tendeixen a analitzar el contingut del projecte de llei amb l’objectiu d’assegurar el compliment de la normativa de la Unió. En concret les meves observacions es limiten a la compatibilitat amb la Directiva 2014/23/UE, de 26 de febrer de 2014, relativa a l’adjudicació dels contractes de concessió i amb la Directiva 2014/24/UE, de 26 de febrer de 2014, sobre contractació pública. Per tant, qüestions d’interacció entre el projecte de llei catalana i la futura llei estatal de contractes del sector públic – actualment en tramitació parlamentària al Congrés dels Diputats – queden al marge d’aquestes aportacions.

Addicionalment, cal tenir en compte que aquestes observacions no pretenen oferir una visió exhaustiva del projecte de llei, ans es limiten a aquelles qüestions problemàtiques on, en la meva opinió, aquesta Comissió hauria de plantejar-se la necessitat d’introduir canvis i esmenes al projecte de llei.

Sotmeto a la seva consideració les següents observacions:

01. Preàmbul

El preàmbul conté una afirmació incorrecta que cal aclarir, sobretot per la rellevància que es dona a aquesta afirmació en termes de la necessitat d’aprovar una llei de mesures urgents. En concret, és incorrecte indicar que l’aprovació de la Directiva 2014/24/UE ha produït una “reducció dels supòsits en què es pot utilitzar el procediment negociat sense publicitat que es deriva de l’aplicació directa dels articles 26 i 32 de la Directiva 2014/24/UE i que, si bé d’una banda aporta més transparència als procediments de contractació, de l’altra obliga a recórrer a procediments més llargs i complexos amb un impacte substancial en la tramitació dels procediments de licitació que impedeix, en un termini relativament breu de temps, fer front a la contractació de serveis públics.”

En aquest sentit, cal tenir en compte que el contingut material de l’article 31 de l’anterior Directiva 2004/18/CE, regulador dels supòsits en què és legítim recórrer a l’adjudicació directa de contractes, s’ha traslladat íntegrament a la Directiva 2014/24/EU, però no únicament als articles 26 i 32, sinó també a l’article 72, en relació a l’adjudicació directa de contractes per entregues addicionals. Més clarament, el supòsit de l’antic article 31(4)(a) de la Directiva 2004/18/EC (entregues addicionals resultants de necessitats imprevisibles de l’administració, fins a un 50% del valor original del contracte) té correlació directa amb el supòsit del nou article 72(1)(b) de la Directiva 2014/24/UE (que només ha alterat la redacció de les condicions aplicables a aquest supòsit). Per tant, les consideracions basades en el caràcter aparentment més restrictiu de la nova normativa de la Unió no estan justificades per un canvi real de dret substantiu i, en la meva opinió, això s’ha de reflectir adequadament en el preàmbul del projecte de llei.

02. Article 3. Càlcul del valor estimat de les concessions

La metodologia de càlcul del valor estimat de les concessions i, en concret, la regla general de l’article 3.1 del projecte de llei es desvia de la regla prevista per l’article 8(2) de la Directiva 2014/23/UE. Aquesta darrera norma preveu que el valor d’un futur contracte de concessió serà equivalent al volum de negoci estimat de la futura empresa concessionària durant la durada total del contracte, excloent-ne exclusivament l’IVA. En canvi, l’article 3.1 del projecte de llei preveu la possibilitat d’excloure, no només l’IVA, sinó també “qualsevol altre tribut que fos d’aplicació”. Aquesta desviació respecte la norma europea és molt rellevant, sobretot si dona peu a interpretacions encaminades a permetre l’exclusió de l’impost de societats, però també en el supòsit de descomptar altres impostos, com ara els relacionats amb la propietat d’immobles, o altres tributs locals, directes o indirectes. Per tant, l’article 3.1 s’ha de modificar per suprimir aquest esment final, de manera que indiqui que “... el valor estimat del contracte es calcula en base al volum de negoci estimat de la futura empresa concessionària, com a conseqüència de l’adjudicació de la concessió, excloent-ne l’IVA”.

De manera similar, l’article 3.2 del projecte de llei es desvia de la regla prevista per l’article 8(3) de la Directiva 2014/23/UE, ja que la llista de criteris que, com a mínim, s’han de tenir en compte per determinar el valor estimat de les concessions es incomplerta. Per tant, l’Article 3.2 del projecte de llei s’ha de modificar, de manera que estableixi que:

“... ha de tenir en compte, com a mínim:

 – El valor de les possibles modificacions i les pròrrogues.

– Les rendes procedents de l’abonament de les tarifes i qualssevol multes per part dels usuaris, quan no siguin tarifes, taxes o preus públics recaptats a compte i per ingressar a l’òrgan contractant.

– Els pagaments, subvencions o avantatges financers que s’abonin a l’empresa concessionària, per part de l’òrgan de contractació, de qualsevol altra administració o ens públics, o de tercers, derivats de la concessió, incloent-hi qualsevol compensació pel compliment d’obligacions de servei públic i subvencions a la inversió pública.

– Les rendes derivades de la venda o arrendament de qualsevol bé o actiu que formi part de la concessió.

– El valor de tots els béns, subministraments i serveis que l’òrgan de contractació posi a disposició de l’empresa concessionària, sempre que siguin necessaris per a la prestació del servei o l’execució de les obres.

– Les primes o pagaments als candidats o empreses licitadores.”

03. Article 4. Documentació acreditativa del compliment de requisits de capacitat i solvència

Convindria completar la regulació d’aquest article en dos sentits. D’una banda, a efectes de garantir el compliment de la obligació creada per l’article 59(4) segon paràgraf de la Directiva 2014/24/UE, cal aclarir de manera expressa l’obligació dels òrgans de contractació de demanar, abans de l’adjudicació del contracte, que la empresa seleccionada com a futura contractista presenti documentació actualitzada que demostri la veracitat i correcció del contingut de la declaració responsable. D’altra banda, convé establir un període adequat per a la presentació d’aquesta documentació, així com les conseqüències derivades de la falta de presentació, que haurien d’assegurar la desqualificació de l’empresa afectada i l’adjudicació del contracte a la següent empresa en ordre de valoració de les ofertes rebudes.

04. Article 6. Valoració de les proposicions

En relació a l’article 6.2 del projecte de llei, cal prendre en consideració que els criteris que s’indiquen per a la valoració del cicle de vida no són suficients per donar efectivitat a la possibilitat prevista per l’article 68 de la Directiva 2014/24/UE. En el seu cas, conforme a l’article 68(2) d’aquesta norma, la valoració del cicle de vida s’ha de dur a terme conforme a una metodologia pre-establerta que ha de complir totes i cadascuna de les següents condicions:

(A) Es basa en criteris objectivament verificables i no discriminatoris. En particular, quan no s'hagi establert per a una aplicació repetida o contínua, no ha d'afavorir o desavantatjar indegudament qualsevol operador econòmic;

(B) És accessible a totes les parts interessades;

(C) Les dades requerides per a l’aplicació de la metodologia es poden proporcionar amb un esforç raonable per part d'operadors econòmics normalment diligents, inclosos els operadors econòmics de països tercers que formen part de l’acord de l’Organització Mundial del Comerç sobre Contractació Pública Governamental o altres acords internacionals pels quals la Unió Europea estigui vinculada.

Com a mínim, això s’hauria d’incloure expressament en un nou apartat de l’article 6 del projecte de llei.

05. Article 8. Mesures de gestió eficient en la tramitació

Hi ha tres qüestions específiques del règim de gestió eficient que poden esdevenir problemàtiques.

D’una banda, en relació a l’apartat d), és difícil preveure que el requisit d’inscripció obligatòria no limiti la concurrència. Per tant, no sembla adient que es creï la possibilitat d’exigir aquesta inscripció amb caràcter absolut. Convé tenir en compte que, tot i que aquest règim sigui aplicable a contractes de valor inferior als llindars comunitaris, si un contracte té interès comunitari el requisit d’inscripció obligatòria pot resultar contrari al dret europeu. Per tant, proposo que es consideri la supressió d’aquest apartat.

D’altra banda, convé tenir en compte que la revelació excessiva d’informació pot afavorir la col·lusió entre empreses competidores per contractes públics. Per tant, en línia amb allò previst per l’article 55(3) de la Directiva 2014/24/UE, és adient incloure a continuació del tercer paràgraf de l’apartat f) que:

“Durant la fase pública i, en general, en relació amb tota la informació inclosa a l’expedient, la mesa de contractació i altres departaments de l’òrgan de contractació han de garantir la protecció d’informació confidencial i assegurar que no es revela informació que pugui impedir l'aplicació de la llei o la revelació de la qual, de qualsevol altra manera, sigui contrària a l'interès públic, perjudiqui els interessos comercials legítims d'un operador econòmic en particular, ja sigui públic o privat, o pugui afectar la competència efectiva entre operadors econòmics.”

Finalment, en relació amb l’apartat i), convé considerar l’oportunitat de preveure expressament que qualsevol queixa contra la decisió d’adjudicació que s’interposi durant el període de 5 dies suspendrà la possibilitat de formalitzar el contracte en tant no s’hagi resolt la disputa.

06. Article 9. Causes de modificació dels contractes

Aquest article crea un règim excessivament simplificat en relació a l’article 72 de la Directiva 2014/24/UE. Es tracta d’un article que introdueix desviacions rellevants respecte al règim comunitari i que, a la vegada, crea confusió a causa de l’apartat 3, que fa una referència total al règim del dret de la Unió. Convindria un replantejament complet d’aquest article i seria recomanable transposar, sense canvis, el text literal de l’article 72 de la Directiva 2014/24/EU. En defecte d’aquesta solució, com a mínim s’haurien de fer els següents canvis:

a)   L’article 9.1 s’ha de modificar per garantir la seva compatibilitat amb l’article 72(1)(b) de la Directiva 2014/24/EU, per tal que estableixi que “Els contractes es podran modificar quan sigui necessari perquè calgui realitzar prestacions addicionals que hagin esdevingut necessàries, no estiguin previstes en el contracte original i que únicament pugui portar a terme el contractista original per raons econòmiques o tècniques, o perquè una nova adjudicació pugui generar inconvenients significatius, com ara requisits d'intercanviabilitat o interoperabilitat amb equips, serveis o instal·lacions existents obtingudes en virtut de la contractació inicial, o un augment substancial de costos per a l’Administració. En qualsevol cas, el límit màxim global d’una modificació per aquesta causa serà del 50% del valor inicial del contracte. Quan es facin diverses modificacions successives, aquesta limitació s'aplicarà al valor de cada modificació.”

b)   L’article 9.2 s’ha de modificar per garantir la seva compatibilitat amb l’article 72(1)(a) i (d) de la Directiva 2014/24/EU, que no preveu la possibilitat de modificar el contracte només pel fet de que es produeixi una cessió. Per tant, cal canviar el tenor literal de l’article per tal que indiqui que: “La successió en la persona del contractista per fusió, absorció, escissió, aportació o transmissió d’empresa o branca d’activitat, així com la revisió de preus en cas que, en aquest darrer supòsit, s’admetin en els plecs, s’hauran de tramitar com a modificació de contracte.”

07. Disposicions addicionals

Tinc dubtes de compatibilitat amb el dret europeu de la regulació de les “formules no contractuals de gestió de serveis socials” prevista en les disposicions addicionals. Els dubtes principals estan en relació amb (i) l’assumpció que aquestes “fórmules no contractuals” no són contractes públics a efectes de la normativa de la Unió, (ii) la preferència que es pretén crear per a entitats sense ànim de lucre, i (iii) la delegació reglamentària de la vigència màxima d’aquestes fórmules. Les principals raons pels meus dubtes són les següents:

(i)      L’estructura d’aquest sistema d’autorització + concert correspon, a efectes de la definició de contractació pública prevista per l’article 1(2) de la Directiva 2014/24/UE, a una fórmula contractual que, per tant, s’ha de regir per la totalitat d’aquestes normes (com indico després). La jurisprudència del Tribunal de Justícia ja s’ha ocupat de la interpretació d’aquest concepte de contractació pública (‘procurement’) en la Sentència de 2 de juny de 2016 en el cas Falk Pharma, C-410/14, EU:C:2016:399. Allí el Tribunal va establir que llevat dels casos on la selecció del proveïdor no depengui de l’elecció de l’administració pública, aquesta mena de sistemes de conveni s’han de sotmetre a la normativa de la Directiva 2014/24/UE. Per tant, llevat que els pacients i beneficiaris dels serveis tinguin una llibertat total per a l’elecció del proveïdor de serveis, no és possible considerar el sistema creat per les disposicions addicionals com a “fórmules no contractuals” a efectes de compliment amb la normativa de la Unió.

(ii)    La creació de preferències per l’adjudicació de contractes públics a entitats sense ànim de lucre és, en general, contrària al dret de la Unió. Així ho va establir el Tribunal de Justícia a la Sentència d’11 de desembre de 2014 al cas Azienda sanitaria locale n. 5 «Spezzino» and Others, C-113/13, EU:C:2014:2440, on només va admetre la creació d’aquesta mena de preferències quan el marc constitucional de l’Estat membre en qüestió així ho permeti (com era el cas d’Itàlia). En la meva opinió, la Constitució espanyola de 1978 no ofereix aquesta possibilitat i, per tant, la creació d’una tal preferència vulnera el dret comunitari.

(iii)   La durada màxima dels contractes ha d’ésser establerta a nivell de llei. Addicionalment, ja que el sistema previst és, com a mínim, funcionalment equivalent als acords marcs de l’article 33 de la Directiva 2014/24/EU, la seva durada màxima no pot excedir els quatre anys.

Amb caràcter més general, em sembla que el projecte de llei no pren en consideració les particularitats de règim jurídic que els articles 74 a 77 de la Directiva 2014/24/UE estableixen per a aquesta mena de serveis socials i especials, que permetrien la creació d’un sistema de reserva de contractes de durada màxima de tres anys per a entitats sense ànim de lucre. En definitiva, em sembla que els objectius de política social implícits en el sistema previst a les disposicions addicionals es pot fer compatible amb el dret de la Unió, però no de la forma establerta. Si fos d’interès per a aquesta Comissió, i amb temps i finançament adequats, podria contribuir amb una contra-proposta detallada.

Agraint-los novament l’oportunitat de presentar aquestes consideracions, quedo a la seva disposició.

3 de juliol de 2017

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

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

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

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

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

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

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

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

In my view, this functional approach also stresses the need to create effective inter partes procedures for the economic operator and the contracting authority to exchange information prior to the exclusion decision being effective, as well as ensuring swift review of those decisions at a stage where they can still be undone (as the logic in Marina del Mediterraneo requires, see here). Thus, this supports, once more, the need to revise and reform the remedies directive, largely along the lines I drew in A Sanchez-Graells, "'If It Ain't Broke, Don't Fix It'? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts", in S Torricelli & F Folliot Lalliot (eds), Administrative Oversight and Judicial Protection for Public Contracts (Larcier, 2017, forthc)].

Anti-competitive, excessively broad, long-term service contracts as a substitute for legislated reform of the NHS in England? -- re manchester out of hospital care tender

In my previous post, I had tried to scope the potential impact of Brexit for NHS procurement in England. There, I stressed the peculiarities derived from the traditional purchaser-provider split that has characterised the activities of the English NHS since the 1990s. That split has evolved beyond a pure "public management" tool and, over the past 25 years or so, resulted in the emergence of mixed markets where public and private undertakings compete for the provision of certain services that are procured or commissioned by a different (buying) branch of the NHS. Those markets are controlled by competition and public procurement rules, which are in part of EU origin, and in part purely domestic instruments -- such as the Health and Social Care Act 2012 and the NHS (Procurement, Patient Choice & Competition) No 2 Regulations 2013.

I also stressed that this domestic policy aimed at creating an "NHS internal market" with clear elements of a mixed economy was (and is) not mandated by EU law. In my view, there is nothing in EU law that obliges member states to open up public healthcare services to competition (see Art 14 and Protocol (No 26) TFEU). EU law simply sets specific rules and constraints applicable to situations where member states independently decide to open up those markets to competition. My arguments for this are largely along the same lines of those maintained by Hervey & McHale (2015, see ch 9).

Therefore, if policy-makers identified the NHS purchaser-provider split as a problem for the introduction of reforms in the way NHS England operates, with or without Brexit, it would be possible to move back to a fully integrated public healthcare system without infringing EU law. Or, in other words, there is no reason why policy reform aimed at undoing the purchaser-provider split in the English NHS could not fit within the blueprint of EU law. 

However, the way in which such change of model can be legally delivered is not without constraints, both under UK and EU law. In my opinion, it is not possible for policy-makers to move away from the current "NHS internal market" without changing its basic regulatory framework (ie without legal reform), and decisions aimed at bringing the existing mixed markets under public control under an appearance of compliance with public procurement and competition law are highly problematic. An on-going project to alter the market for the provision of out of hospital care services in Manchester offers a clear example of this. Given that Manchester's is the first in a series of parallel on-going projects, this can well serve as a cautionary tale.

As part of the implementation of a sustainability and transformation plan (STP), Manchester authorities responsible for health and social care (including three Clinical Commissioning Groups, CCGs, and the Manchester City Council) tendered a contract for the creation of a ‘Local Care Organisation’ (LCO) for a range of out of hospital health and care services for Manchester. The LCO would aim to "deliver sustainable, high quality, safe and affordable prevention, primary, community, secondary health and social care services, through a blend of direct and sub-contracted provision." Furthermore, the contract notice also indicated that "Over time, some services currently provided in the acute sector may be transferred to the LCO; commissioning intentions may result in the transfer of some low acuity, non-surgical (or non-complex surgical) services, into the LCO from year 3 (2020/21) at the earliest, and possibly thereafter over the contract term." In short, this was a contract for the provision of virtually all health and social care services with the exception of in-hospital services. The tendered contract was for a duration of 10 years and an estimated value of £5.9 billion, and was designed as a single block, thus excluding the possibility of awarding it by lots. This was the biggest ever NHS tender at the time of being launched, but other similar contracts are already being sought by local NHS commissioners (see here).

It is worth stressing that the contract was advertised on 14 March 2017 and expressions of interest had to be submitted by 28 April 2017, which does not seem like a particularly long time frame, given the complexity and duration of the contract. The tender notice also explicitly indicated that "The contract will be awarded without further advertisement of this opportunity and there will be no further opportunity to express interest", which clearly created time pressure and possibly discouraged potentially interested tenderers that did not consider it possible to submit a competitive (or even a complete) qualification questionnaire within 6 weeks.

Unsurprisingly, it has now emerged that only one offer has been received fro this contract, and that this offer has been submitted by "the Manchester Provider Board, which is a consortium made up of Manchester City Council, local GP federations, the city's three acute trusts [ie hospitals], community service providers and the Greater Manchester Mental Health Trust". In my view, there are two plausible reasons for this less than competitive outcome: first, that the tendered contract exceeds the delivery capabilities of any given organisation (as demonstrated by the fact that the only offer comes from a collaborative effort that aggregates virtually the entirety of the public providers -- which probably also count on continued reliance on private providers); and, second, that the entities participating in the design of the Manchester STP had, at least, a clear time advantage to prepare their tender (if not also information not available to other potentially interested tenderers). On the whole, it seems that the advertising of the contract was never intended to create real competition, and is simply a formal step aimed at creating an appearance of legality of this strategy aimed at side-stepping the (NHS) market.

I am concerned about at least three dimensions or implications of the strategy followed in the (partial) delivery of the Manchester STP through the tendering of such excessively broad, long-term services contract in less than competitive conditions.

First, at the immediate level of the tender, I am concerned that its design is anti-competitive and potentially breaches the requirements of the principle of competition established in reg. 18(2) and (3) of the Public Contracts Regulations 2015 (in transposition of Art 18(1) Dir 2014/24, on which see here), which requires contracting entities not to artificially narrow competition, in particular by favouring or disadvantaging certain economic operators. Similar issues of interpretation of the requirement of effective competition in the tendering of procurement contracts in the health sector has arisen in other jurisdictions and, in the specific case of Finland, there is an important precedent against the creation of exceedingly large contracts leading to a single potential supplier (for discussion, see here). If I am right and there is a breach of this principle, the whole procurement process should be quashed (although it also seems clear that litigation is unlikely at this stage).

Second, and at a more general level, I think that the effort behind the STP is not merely aimed at streamlining the functioning of the existing NHS market for the provision of out of hospital health and social care services, but rather at setting aside that market altogether. Rather than simply searching for better service delivery through aggregation in the patients' interest (within the limits of the NHS (Procurement, Patient Choice & Competition) No 2 Regulations 2013 -- for discussion, see here), this aims to deliver a change of model for the management of the NHS (and ancillary social services) and clearly exceeds the policy-making space of the procurement regime. If this is the case, I do not think that this can be done through the procurement of a massive umbrella contract capable of eating up the NHS market (while also indicating that there is space for subcontracting and for the future placement of additional services under that umbrella). Legal reform is necessary, in particular to ensure full debate in Parliament of the move away from the purchaser-provider split, as well as the broader implications of the (apparent) project of de-marketisation of the NHS. This is necessary because a change of model is not without consequences, in particular if (foreign) investors in private health care providers raised claims against the UK Government for what could amount to an expropriation in terms of international investment law, as well as a potentially disproportionate (ex post) restriction of EU fundamental freedoms of establishment and movement.

Third, and looking at the future, I am concerned that the delivery of this macro umbrella contract will be highly challenging and difficult to achieve within the terms of the original contract (although I have not seen them). It seems clear that such a long-term and broad contractual object will require permanent adjustments and modifications, which may trigger litigation down the line. The fact that a single contract has such a large scope creates legal risks of its own, in particular if it was to be set aside or terminated in the future. I am sure that there will be contractual provisions aiming to minimise disruption in the provision of such crucial health and social care services should contract execution run into serious difficulties, but it is hard to see that all contingencies can be covered.

Overall, I do not think that EU law (or domestic law) opposes or prevents the end result that the Manchester (and other) STPs aims to achieve. However, they do oppose and raise significant issues in the way that this very fundamental change (ie reversion) of the NHS internal market model is being delivered. Before the Manchester strategy is rolled over or mimicked in other areas, I would suggest that a deeper rethinking and a commensurate reform of the applicable legal framework is necessary. It is clear that the Government is not in the best position to undertake such a large scale project in the context of the Brexit negotiations and the aftermath of the June General Election, but allowing for such reform to be carried out under the radar of Parliamentary scrutiny seems to me both politically wrong and legally risky.

Scoping the impact of Brexit for NHS procurement

NHS England spends over £20 billion every year on goods and services, which typically accounts for around 30% of the operating costs of each hospital. A significant part of the remainder of NHS non-salary budget involves the commissioning of health care services. This expenditure and commissioning is controlled by NHS procurement rules, which in part derive from EU law. Different procurement rules apply in different countries within the UK, and both Scotland and Northern Ireland both have separate regulatory schemes. Even though this post only focuses on the situation in England, some issues reflect broader concerns in the UK context. Generally, NHS procurement rules are regularly criticised for imposing excessive red tape and compliance costs on the NHS, and calls for NHS procurement reform to free it from such strictures are common.

In this context, Brexit could be seen as an opportunity to overhaul NHS procurement and to move away from the perceived excesses of EU law (see eg Cram: 2016). However, I think that it is far from clear that such reform could not fit within the blueprint of EU law, and that most of the constraints on NHS procurement rather derive from independent decisions adopted by the UK over the last 25 years. Moreover, from an economic perspective, Brexit will probably hurt the functioning of the NHS (including its procurement), with or without significant regulatory reforms.

This post is based on my presentation at the event Brexit, Regulation and Society, held by ManReg: The Manchester Centre for Regulation, Governance and Public Law (slides at the bottom of this post), and concentrates on two issues. First, does EU law prevent significant reforms of NHS procurement and, if so, can Brexit suppress such constraints? Second, is the way the Brexit process is unfolding conducive to an improvement of NHS procurement, both from an economic and a regulatory perspective?

Starting point, where were we before Brexit?

Since the 1990s, in England, the activities of the NHS have been characterised by a peculiar purchaser-provider split. Some branches of the NHS act as purchasers or commissioners of health care services (currently, clinical commissioning groups, or CCGs), while other branches of the NHS (trusts and foundation trusts) act as providers of health care services and compete with private providers in some markets. The activities of these entities are overseen by NHS Improvement as sector regulator.

The purchaser-provider split policy was introduced with the aim of creating an “NHS internal market” to generate competition-based incentives for the improvement of service delivery and cost management. However, the system has been permanently evolving (a ‘continuous revolution’, Maynard:2016), and this has both created increased scope for public-private competition (Odudu: 2012; Hunter: 2016), and notable difficulties in keeping pace with the successive waves of NHS procurement re-regulation.

Currently, NHS procurement is primarily covered by two sets of domestic rules (as well as a large volume of soft law). The core bodies of rules applicable to NHS procurement are:

• Public Contracts Regulations 2015 (which transpose EU law and, in my view, are grossly misunderstood and perceived to impose many more constraints than they actually do); and
• Health and Social Care Act 2012 and the NHS (Procurement, Patient Choice & Competition) No 2 Regulations 2013 (whose interaction with the PCR2015 is not fully clear).

Additionally, given the organisation of the system as a mixed market with public and private suppliers in different forms of competition for different services, NHS procurement is also subject to a host of EU and UK competition rules, such as:

• The Competition Act 1998 and the Enterprise Act 2002 (as domestic statutes that replicate, to a large extent, substantive EU law prohibitions); and the
• Treaty on the Functioning of the EU, including State aid rules – and in particular those for the financial support to the provision of Services of General Economic Interest.

On the whole, this results in a rather complex regulatory setting that is commonly criticised as imposing significant constraints on the way NHS procurement is carried out. However, it is important to stress that these constraints ultimately depend on the existence of the purchaser-provider split and the establishment of a mixed market for health care services—which are decisions independently made by successive UK governments rather than an EU imposition. There is nothing in EU law that obliges member states to open up public services to competition, and the UK could move back to a fully integrated public system without infringing EU law. In other words, EU law is not the cause of any shortcomings identified in the existing regulation of NHS procurement of health care services.

Could Brexit alter the situation?

Given the above, in regulatory terms, the short answer is that Brexit should mostly not have any meaningful effect on the regulation of NHS procurement. Significant reforms are possible under current EU law. They would however require political drive and changes in funding schemes. Indeed, already before the referendum, it was clearly stressed that “leaving the EU is an irrelevance when it comes to what many regard as the creeping marketisation of the NHS” (Hunter: 2016; and in similar terms, later reiterated by McKenna: 2016; Taylor: 2016).

Leaving the single market would not lift constraints on the reform of NHS procurement, or NHS governance more generally, but it could affect it in practical terms. Indeed, it was clear that Brexit could have negative operational impacts for NHS procurement. This would be the case both if: (1) the “NHS internal market” was kept, because exiting the EU’s single market could have negative impacts on private competition in health care provision, including in the market for health care insurance in the UK; or (2) if the “NHS internal market” was to be dismantled, since the acquisition of equipment and supplies from outside the UK would face barriers and additional costs (Hall: 2017), which can only be exacerbated by the negative impact of Brexit on the economy, both in terms of economic slowdown and inflation (which are now materialising; ONS: 2017).

NHS (procurement) in the Brexit and general election campaigns

NHS funding featured prominently in the political campaign leading to the Brexit vote. Most discussion concentrated on the level of funding for a cash-strapped NHS. However, the deeper impacts of Brexit on the NHS – in particular those of a hard Brexit that implied the UK’s exit from the EU’s single market and customs union – received much less attention (not least because leaving the single market was back then explicitly rejected as an option for the future).

Nonetheless, it was clear that any impact of Brexit on NHS procurement was compounded by the uncertainty surrounding the framework for UK-EU trade post-Brexit. This was not clarified during the Brexit campaign, and the following plans unveiled by the UK Government failed to provide any further specifics. Neither the Brexit White Paper nor the Great Repeal White Paper reduced such uncertainty. The Brexit White Paper simply stated that the Government’s intention is to “not be seeking membership of the Single Market, but … pursue instead a new strategic partnership with the EU, including an ambitious and comprehensive Free Trade Agreement and a new customs agreement.” The Great Repeal White Paper only included one mention of procurement as an example of a ‘negative procedure’ for the adjustment of EU-derived law post-Brexit.

This situation continued during the recent electoral campaign, where issues around NHS funding were more prominent than issues surrounding reform of the NHS system, including NHS procurement. However, there seemed to be some commonality to the long-term strategic goals of both main political parties around a correction (to different degrees) of the current market-based purchaser-provider split system. Both the Conservative and the Labour manifestos pledged more funding for the NHS. Both alluded to a change of system.

Labour promised to “reverse privatisation of our NHS and return our health service into expert public control [including the] repeal [of] the Health and Social Care Act  … and [making] the NHS the preferred provider”. The contours of this proposal are rather vague. However, in terms of NHS regulation, this would seem to suppress public-private competition for the provision of health services (possibly excluding the application of competition law) and the NHS procurement regime, by mandating provision of services by the NHS (at least as preferred provider).

The Tories indicated that they would “consult and make the necessary legislative changes. This includes the NHS’s own internal market, which can fail to act in the interests of patients and creates costly bureaucracy. So we will review [its] operation … and, in time for … the 2018 financial year, we will make non-legislative changes to remove barriers to the integration of care”. This seems even less clear, but could imply a simple reform of NHS procurement policy with the aim of maximising the effectiveness of the concept of ‘patient interest’ under the NHS Regulations (No 2) 2013.

Interestingly, both changes to the purchaser-provider split seem possible within the constraints of the existing EU regulatory framework, and they seem to require political choices unaffected by Brexit – with the obvious exception of funding, which is directly (and negatively) affected.

Brexit … one year on – What now?

Almost a year after the UK’s vote to leave the EU, and after the surprising result of the General Election, the only thing that can be said with a minimum of confidence about the impact of Brexit on NHS procurement is that uncertainty prevails (similarly, Simpkin & Mossialos: 2017), and the economic impacts are probably going to be both negative and severe. This seems to run in the opposite direction of the aims (and promises) of those supporting Brexit.

The situation may have been worsened as a result of the General Election, as the Tory government is seeking to reach an agreement with the DUP for support of a minority Conservative government. Either way, this seems likely to require concessions in terms of funding for public services in Northern Ireland, which could impact plans to boost investment in the NHS in England. However, there is no clear indication that other reforms of NHS procurement should necessarily be altered. The question thus remains: Will NHS procurement be reformed along the lines of the Conservative manifesto and, if so, what will that entail?

On-going reforms and uncertainties

Assuming continuity of recent policy developments, it is worth stressing that, since the adoption of the Five Years Forward View for the NHS in England in 2014, the system has been progressively reoriented. Current reforms are geared towards experimentation with the so-called sustainability and transformation plans (STPs), which aim to suppress the purchaser-provider split, including through the creation of accountable care organisations (ACOs). Recently, Stevens (CEO NHS England) clearly indicated this goal by stressing that STPs “will for the first time since 1990 effectively end the purchaser-provider split, bringing about integrated funding and delivery for a given geographical population”. The strategy is still not clearly spelled out and there are open questions concerning its feasibility and/or desirability (Hare:2017).

However, even if this strategy was completely carried out, it seems unlikely that the NHS would not have to comply with procurement rules at all. While a suppression of the purchaser-provider split would potentially allow for a derogation from the NHS Regulations (No 2) 2013, the NHS would still need to buy a number of goods and services from the market. Thus, the reforms to NHS procurement refer to the suppression of a layer of complication and constraints in NHS governance (that derived from the purchaser-provider split), but not a complete shielding of the NHS from procurement and competition rules.

These would remain particularly relevant in terms of new investments in physical and IT architecture for the NHS, which have been pledged by the Conservatives (and by Labour). Expenditure of NHS funds would remain subject to the strictures of the Public Contracts Regulations 2015, which could only be reformed or derogated post-Brexit in the absence of a UK-EU free trade agreement covering procurement.

Overall assessment

In view of all this, I would reach two conclusions. First, that the discussion surrounding the regulation of NHS procurement needs to concentrate on the fundamentals of the potential alternative models: ie a system of integrated NHS governance subject only to public law checks and balances, vs a mixed market system for the provision of health care services for the purposes of the NHS (including some form of purchaser-provider split) subject (also) to market regulation. Most of the pre-Brexit and current discussion conflates elements of both models without acknowledging that both fit within the EU regulatory framework and, consequently, decisions on the model that should be adopted (and the regulatory implications that follow) exclusively depend on UK political decisions.

Second, that the broader economic context in which NHS procurement takes place has a deep influence on the ability of the NHS procurement function to support the provision of high quality health care services. From that perspective, the deterioration of the economic climate created by Brexit and the uncertainty surrounding the future UK-EU trading framework are damaging NHS procurement as much as they are damaging the UK’s economy and public sector more generally. In this context, whichever reforms of the NHS model that may follow from the above will be negatively affected by Brexit. In these circumstances, I find limited space for hope for an improvement in the functioning of the NHS, including its procurement function, at least in the medium term.

Brexit & NHS procurement in England from Albert Sanchez Graells

Interesting Opinion on duty of EU constitutional courts to refer questions for preliminary ruling to ECJ (C-322/16)

In his Opinion of 8 June 2016 in Global Starnet, C-322/16, EU:C:2017:442, AG Wahl has addressed the extent to which "the fact that a constitutional court of a Member State has declared a national measure compatible with the constitution has any bearing on the obligation, imposed on national courts of last instance under Article 267 TFEU, to refer a question concerning the interpretation of EU law to the Court, when the national rules forming the basis of the constitutional court’s assessment are similar to the relevant EU rules."

AG Wahl's answer to that question is negative, and for very clear reasons, which I consider fully adequate. I recommend reading paras 13-23 of his Opinion, which provide a concise and useful summary of the ECJ's case law on the scope and limits of the obligations imposed by Art 267 TFEU on the highest domestic courts of the Member States.

Some thoughts on procurement flexibility and accountability after the 2014 EU Public Procurement Package & recent trends in case law

I had the honour of being invited to deliver a keynote presentation at the annual conference on procurement organised by FCG in Helsinki on 2 June. The organisers invited me to address two topics: first, an overview of the 2014 reform of EU public procurement rules from the perspective of flexibility, discretion and checks and balances. Second, a more focused discussion of recent ECJ case law in three areas of relevance for the Finnish practice after the transposition of the EU rules: the exemption for in-house provision and public-public cooperation, the requirements derived from general principles of procurement law, and the rules on discretionary exclusion and self-cleaning.

These are the two sets of presentations I used, which I hope reflect some of the ideas I presented, and which gave rise to very stimulating debate.

Analysis of recent procurement reforms from perspective of flexibility from Albert Sanchez Graells

Recent ECJ public procurement case law on selected topics from Albert Sanchez Graells

Some thoughts on the transposition of the concessions directive after a comparative conference in Brescia

On 31 May and 1 June 2017, I had the pleasure of attending a conference on the transposition of the concessions directive (Dir 2014/23) organised at the Law Faculty of the University of Brescia. The discussions formally covered the transposition in Belgium, Spain, the UK, the Netherlands and Italy, and colleagues from other jurisdictions provided additional views from Denmark, Romania and beyond. After two days of debates and rather detailed discussions (and amazing food, wine and weather, all be said), I have jotted down some rough thoughts on the issues and challenges resulting from the initial transposition efforts in these jurisdictions—which may result in litigation and case law in the future. All views are my own and any misunderstandings of the rules in any of these jurisdictions are solely mine, and are probably influenced by my previous views on the concessions directive (see here and here).

Conceptual / Scoping Issues

01. The word concession remains a dangerous misnomer in countries with a tradition of using this label for extractive concessions (coal, gas, etc), domain concessions (ie authorisations to use public spaces or infrastructure) or for activity concessions (rectius, authorisations or permits), which sometimes have experienced an independent legislative evolution in parallel (or even rather separately) from the discipline of public contracts. This creates some interesting (and difficult) trends of resistance and influence (or deformation) in the transposition of the concessions directive, as well as continuing (perceived) lack of clarity in the contours of the concept of concession.

02. It seems that there could have been an alternative approach had the EU decided to use a different (new) term without historical connotations or domestic implications for the purposes of establishing the scope of the rules, and thus allowed Member States to choose their nomenclature / domestic legal institution that better matched the EU definition / concept. Given that this was not the case, at the current juncture, it seems that a further development at EU level of the concept of authorisation/licence, and a more consistent and technically accurate use of the (EU) terms concession and authorisation/licence at domestic level could be a solution for the future—although this can have an impact on the (previously) homonymous domestic institutions and could continue to create some irritation (in the sense of the comparative law literature on legal transplants).

03. The controversy surrounding the legal nature of concessions as either public contracts, special (private) contracts or a tertium genus also remains on the table. This does not seem clearly conducive to functional regulation, in particular in terms of post-award remedies. Similarly, some jurisdictions (such as Spain) establish special rules for concessions involving the provision of services directly to the end user / citizen, which also introduces conceptual difficulties by establishing different types of service concessions on the basis of non-EU criteria. The extent to which this is in line with the need to keep homogeneous concepts in the transposition of the concessions directive remains an open question.

04. Other issues around the concept of concession (proper), and notably the issue of the transfer of significant operating risk so as to expose the concessionaire to the vagaries of the market, are creating quite some puzzling analyses in some jurisdictions, at least in academic circles. It seems that there are difficulties in integrating an economic/financial understanding of risk with more traditional categories of risk as understood by lawyers (sometimes taken as almost a synonym of liability) and related to the position of the concessionaire as an agent, delegate or substitute of the public administration, as well as to the transfer or not of public powers as part of the concession relationship.

05. The requirement for risk transfer is sometimes presented as an implicit condition for the public administration’s decision to stop directly exercising public powers and rather resort to the market for the provision of public infrastructure and/or services (almost as if the risk had to be created in order to have the option of resorting to the concession mechanism)—whereas, in my view, this is rather related to the more limited coverage of concession contracts in the 2004 rules (ie exclusion of services concessions) and the softer-touch regulatory regime in the 2014 package (which influenced the ECJ’s development of the concept of concession so far), and which rather rest on the need to allow for the existence of a closer (contractual) relationship between concessionaire and procuring entity, rather than the other way around. I have this idea in the back of my head that some of the peculiarities of the concessions regime derive from a sort of need to allow for an intuitu personae to be created, which would run contrary to the idea of risk transfer as a sort of market-making or market-incentivising device (which, however, will take me some time to formulate in full).

06. There is talk of ‘hot’ and ‘cold’ concessions, or concessions ‘in the light’ and ‘in the shadows’, or ‘unilateral’, ‘bilateral’ or ‘triangular’ concessions … depending on the sources of revenue/turnover for the concessionaire—which (unnecessarily) complicates issues of analysis of risk transfer (and about the existence of risks, even at a more basic level). In some cases, this leads to difficulties in the setting of boundaries between concession contracts and other forms of public-private partnering or collaboration, which continues to create issues of compatibility of legal regime and normative coordination that could otherwise be avoided through a clearer operationalisation of the procedural flexibility applicable to complex contracts as a more general category.

07. There are also issues concerning the identification of cross-border interest for concessions below the value threshold in the concessions directive—and in line with the ECJ case law, notably in Comune di Ancona—and this raises an additional element of fuzziness of the scope of application of the directive. Given that it is structured as principle-based regulation and that below threshold concessions of cross-border interest are subjected to compliance with general principles (see below), this creates further uncertainty as to the limits of its substantive scope of application. In some jurisdictions (notably the Netherlands), this is particularly clear due to the consolidation into domestic law of the ECJ case law on general principles applicable to below-threshold concessions, and where there is an erosion of the requirement of cross-border interest and substantive convergence between EU and domestic homonymous principles (notably, non-discrimination and equal treatment). This is bound to reduce the scope/risk for reverse discrimination and could simplify the existing multiplicity of (formally) distinct principles-based obligations, and the Dutch experience seems to offer a good case study of substantive consolidation in the area of procurement, in my opinion.

08. Despite the existence of these conceptual and boundary issues, most jurisdictions operate on the same underlying assumption as the 2014 Public Procurement Package and establish a separate legal regime for the award of concession contracts (either within the same statutory framework, such as in the Netherlands or in the Spanish draft legislation, or in a separate instrument, such as in the UK). In my view, this masks the underlying incentives for compliance with general procurement rules in order to avoid situations of ex post realisation that the concessions regime was inapplicable—eg due to the distribution of risk resulting from negotiations or successive rounds of renewed offers, or due to the (limited) extent of potential losses in view of the final financial make-up of the concession contract. In general, a cautious approach to comply with the general procurement rules when in doubt may well neutralise most of the efforts in creating a separate legal regime for ‘covered concessions’ and other concessions, which perpetuates the situation prior to the adoption of the concessions directive.

09. In general, given the uncertainties in pinning-down the specific instances in which a concession contract will remain squarely and solely within the scope of application of the concessions directive, there is an uncomfortable feeling that this process may just be much ado about nothing because the number of contracts that will be solely subjected to this legal regime is likely to be limited, if not residual. However, this once more depends on the domestic interpretation of the scope of application of the rules (and, notably, the concept of concession of a cross-border interest) and the emerging trends show quite some differences, with Italy having advertised in the OJEU over 120 concessions and the UK almost 60, while the Netherlands have advertised around 15 and Denmark only 10 in the first year of effectiveness of the concessions directive.

Gold plating and distinct legal regime

10. The avoidance of gold plating in the transposition of the concessions directive (ie not going beyond what is strictly required by the directive) may be creating practical difficulties due to a copy out (or direct copy+paste) of the EU rules (notably, in the UK, but also in other jurisdictions such as, to some extent, Italy). This results in the insufficient development of an overarching system or mechanism for the award of concession contracts, which mirrors the excesses (or rather shortcomings) of Art 30 and recital (68) Dir 2014/23, and may leave contracting authorities to their own devices and risking the reinvention of the wheel every time they undertake a concession project. In my personal opinion, this may be an instance of improper/insufficient transposition, as the lack of development of the rules applicable to the award of concession contracts leave potentially interested undertakings none the wiser concerning the general framework applicable in the given jurisdiction.

11. In my view, the position underlying a lack of development of the bare bone rules of the concessions directive reflects a rather extreme understanding of Art 30(1) Dir 2014/23 where it indicates that, when tendering a concession, “the contracting authority or contracting entity shall have the freedom to organise the procedure leading to the choice of concessionaire subject to compliance with this Directive”. This seems to be read as mandating unrestricted freedom for each contracting authority or entity—as a sort of (quasi) subjective right to freedom from intervention or constraint in the running of tenders for concession contracts—and thus preventing Member States from creating a limited set of choices or even a default standard procedure for the award of concession contracts. However, the Netherlands seems to take an approach that deviates from this by indicating that Art 30 does not provide unrestricted freedom and that compliance with the general rules may be a way of ensuring compliance with the minimum requirements of the concessions directive.

12. Such an extreme understanding of Art 30(1) Dir 2014/23 does not make much sense, either from the perspective of respecting the principle of free administration by public authorities foreseen in Art 2 thereof (which aims to respect decisions on organisation taken by national, regional and local authorities in conformity with national and Union law), or from facilitating administrative efficiency and oversight possibilities. It also creates legal uncertainty and confusion as to the rules applicable to the tendering of concession contracts, which runs contrary to the stated aims of the concessions directive (see recital (1)) and therefore does not fit with a teleological interpretation of its provisions.

13. Interestingly, though, despite the scarcity of detail in the regime applicable to the tendering of concessions, some jurisdictions (eg in Romania, Belgium, and tendentially the Netherlands too) seem to be moving rather close to the general rules of the public sector directive (Dir 2014/24, either applicable directly or mutatis mutandis) where the concessions directive contains an insufficient regime, which reinforces the idea that there was no need whatsoever for a different instrument and that the flexibility sought for the award of this type of contracts could have been created by a few special provisions under the general directive (as was the Dutch position, and which has influenced transposition in that jurisdiction). Other jurisdictions are opting to move away from statutory rules and rather establishing soft law with the same goal of creating flexibility (possibly at the cost of legal certainty or justiciability, such as in Italy).

14. I also find it interesting that no argument is raised concerning any difficulties in awarding (works) concession contracts under the rules and procedural requirements of the 2004 EU Directives, which begs the question why was it necessary to create such exceptionality or flexibility—particularly in choice of procedures—in the 2014 revision. There are discussions about the special propensity of concession contracts to being modified during their term (both due to their complexity and duration), but interestingly enough, there is not much of a difference in flexibility in the regime of contractual modification in the concessions directive and in the general procurement directive. Overall, then, both the need and the operationalisation of a full-functioning legal regime for the award of concession contracts seems to still carry significant shortcomings when the concessions directive is transposed.

General principles and general administrative law

15. The relevance of general principles for ‘below threshold’ concessions is a muddy terrain and given the largely principles-based approach of the regulation in the concessions directive, it is difficult to establish clear differences in the substantive legal regime for concessions above thresholds and for other concessions with a cross-border interest—which are subject to the general administrative law principles of those jurisdictions that have an established corpus of regulation of unilateral administrative acts (such as Belgium), as well as the obvious application of the general principles of EU (procurement) law across the board.

16. Concession contracts create significant difficulties of interaction with general requirements of the procurement system of some jurisdictions. Eg in Belgium, the principles of fixed price for public contracts (which left all risks linked to the execution of the contract with the public contractor), or of services done and accepted (which controls public expenditure and prevents the making of payments in advance)—which has required the creation of some exemptions from such general rules in order to create flexibility. Similar things happen in Spain with the concepts of ius variandi, factum principis and restoration of the financial equilibrium of concessions. And the same applies to coordination with general administrative law principles in Romania. Thus, countries with a longer-lasting tradition of regulation of concessions under general administrative law may have peculiar difficulties of integration of the new EU regime within their general administrative law frameworks.

A few other issues

17. There are doubts as to the feasibility and conditions for carrying out preliminary market consultations for concessions contracts in keeping with substantive guarantees equivalent to the rules in Arts 40 and 41 Dir 2014/24. The difficulty in this case may derive from the fact that, in the absence of a defined procedure (see above), the issue of carrying out ‘pre-procurement’ activities becomes rather blurry and, in the end, is only restricted by the general requirement in Art 30(2) Dir 2014/23 to comply with the general principles of procurement and, in particular, “during the concession award procedure, [for] the contracting authority or contracting entity … not [to] provide information in a discriminatory manner which may give some candidates or tenderers an advantage over others”.

18. Issues concerning the interaction between rules on rescue/expropriation of concessions and their termination are also popping up, at least where the creation or existence of termination grounds based on the public interest are in conflict with rules on modification of contracts (ie in situations where impossibilities to modify the contract may lead to a rescue, as compared to situations in which a modification may trigger termination). This has an impact on an assessment of the transfer of risk to the concessionaire, which would bring the discussion back to the issue of the concept of concession and scope of application of the directive. In some jurisdictions (eg the UK) the possibility to regulate post-termination or post-ineffectiveness consequences via contractual provisions also muddies the effects of some of the rules in the concessions directive and raise questions as to the compatibility with the remedies directive.

A Scandinavian cautionary tale on lot division and distortions of competition for public contracts (E-3/16)

I have recently written a case comment on the EFTA Court's Judgment of 22 December 2016 in the case Ski Taxi SA, Follo Taxi SA og Ski Follo Taxidrift AS v Staten v/Konkurransetilsynet, E-03/16, which will soon be published in the Journal of European Competition Law & Practice.

The case concerned an instance of joint tendering by two competing taxi companies and it is interesting from a competition law perspective because the EFTA Court treated the joint bid as an anticompetitive price-fixing agreement by object (which limits the need to assess its effects in the market).

Thinking about the case from a public procurement perspective, I think that it also offers a cautionary tale about the restrictions of competition that can derive from decisions on the division of a single procurement into lots. This second perspective is the focus of this post.

The relevant facts of the case are as follows. In 2010, Oslo University Hospital (OUH) ran a public procurement tender for the award of framework agreements for the provision of patient transport services. The object of the tender was divided into nine geographical lots, which related to different catchment areas in the vicinity of the hospital.

For two of those lots, OUH only received a single tender, which was jointly submitted by two taxi companies that OUH would have expected to compete for the contracts. In view of this situation, which OUH interpreted as a privately-created restriction of competition for those lots (and thus insufficient to enable it to obtain value for money), it decided to cancel the procedure for those two lots. It also reported the joint bidders to the Norwegian Competition Authority,which eventually led to the imposition of fines for a price-fixing agreement (as discussed in the case comment).

OUH then launched a new tender procedure. In this occasion, OUH redesigned the geographical coverage and divided the object of the procurement in five areas instead of two. Interestingly, the taxi companies that submitted the joint bid in the previous tender also submitted a joint bid for all five lots, as did two competing taxi companies. OUH eventually entered framework agreements with all three companies, and assigned the joint tenderers second priority in all five areas.

On reflection (and hindsight, of course), it seems plausible that the limited competition in the first round of procurement derived not solely from the decision to submit a joint bid by two of the taxi companies active in those areas, but probably also from the decision to create too broad geographical catchment in the initial design of the lots. If the re-run of the procurement on the basis of smaller geographical lots attracted more competition (while still not changing the strategy of the tenderers that decided to bid jointly), it seems clear that the design of the object of the procurement is key in the prevention (or creation) of publicly-initiated restrictions of competition. From that perspective, more thought (and more market intelligence) is needed if the design of the procurement process is not to result in insufficient competition and thus limit the opportunities for the contracting authority to obtain value for money without distorting competitive trends in the market.

In the specific case, if the single bid for two of the lots had been submitted by a single taxi company (or if an anticompetitive agreement between the joint bidders consisted in an allocation of lots rather than a price-centered strategy), OUH may not have been able to spot the existence of any problems, but it may still have suffered the consequences of the limited competition for the contract that derived from the design of the procurement.

Overall, then, I think that this case offers a valid cautionary tale for contracting authorities regarding the need to make more extensive use of market intelligence and to approach lot division with a more competition-oriented mindset.

Procurement sandboxes, mock procurements and some other thoughts on trying to create space for ‘real world’ experimentation

One of the issues discussed at the most recent meeting of the European Commission Stakeholder Expert Group on Public Procurement (SEGPP) concerned the difficult balance between, on the one hand, promoting integrity in procurement, imposing strict record-keeping requirements (in line with Art 84(2) Dir 2014/24) and ensuring procedural soundness and, on the other hand, avoiding stifling discretion and killing procurement innovation by imposing an excessively rigid straitjacket on procurement professionals (ie how to ensure procurement probity without scaring procurement professionals into following a narrow well-trodden tick-boxing path). In the background, the worry was that procurement professionals that tried to do something 'differently' would be under the Damocles sword of litigation and liability--which would prevent most of them from exploring the boundaries of existing regulation, or possibly induce the most daring to do things under the radar and either not document or not share their practices.

In this context, I suggested that it could be interesting to follow the example of UK financial regulation of FinTech and RegTech innovation (of which I only know a bit thanks to the work of my Bristol colleagues Prof Stanton & Dr Powley, see here) and consider the possibility of creating sandbox experimentation programmes at national level (with the oversight and support of the European Commission). These would be pilot initiatives where, following an application for an exemption from standard enforcement procedures (that is, both infringement procedures under Art 258 TFEU and domestic remedies systems), contracting authorities wanting to explore innovative procedural approaches could seek to take ‘challenge worries’ out of the equation and concentrate on experimenting around innovative procurement processes or on trying out approaches that may not necessarily (easily) fit within the existing regulatory constraints.

Let’s say that the proposal was met with scepticism, but (hopefully) noted for future discussion and consideration.

On further reflection, I truly think that this would be an important contribution to the improvement of public procurement practice and, in the long term, an important input for more practice-oriented regulation. It would, first and foremost, avoid ‘innovative’ or ‘risk-seeking’ public authorities the pains of having to take the issue in their own hands and possibly engage in non-compliant (ie illegal) procedures for the sake of commercial or operative considerations. It would also allow participating undertakings to test the limits of the system and to contribute to a more business-friendly regulation of public procurement. Finally, it would provide a useful space for ‘natural’ experimentation and avoid procurement policy-making (and scholarship!) being always based on theoretical constructions, or on ex post facto conceptualisations/justifications. All in all, in such an applied field of public law/public administration/public management activity, the possibility of resorting to ‘real world’ experimentation would be most welcome and, if done well, potentially very productive.

Thus, I think it may be appropriate to spell out my proposal in some more detail and to invite you all, dear readers, to engage in the discussion—which I will do my best to bring to the attention of my colleagues at the SEGPP and the European Commission in future meetings.

A fuller sketch of my proposal for the creation of procurement sandbox programmes

In compliance with a voluntary general framework created by the European Commission, Member States would create their ‘procurement experimentation programmes’, which would include a choice of options amongst the creation of procurement sandboxes, opportunities (and funding) for mock procurement, and other similar alternatives aimed at facilitating procurement innovation (mind, not the procurement of innovation) by limiting the risk of legal challenge and liability due to an open and transparent engagement in ‘real world’ experimentation with ideas for an improvement of procurement practice—and, on the basis of the learning derived from that practice, of procurement regulation too. Ideally, there could be a prize for best procurement innovation and best contribution to innovation by a participating undertaking, as well as clear pathways for researchers to feed ideas and seek support for experimentation and/or use of the data resulting from the programme.

In order to be ‘allowed to play in the procurement sandbox’, contracting authorities would need to provide a clear rationale of the benefits they sought to obtain with the experiment, as well as a clear description of the specific issues with which they thought compliance would be impossible or tricky, their initial plan of how to deal with them, and a method for the assessment, reporting, and dissemination of insights. In view of such application, the European Commission and the competent domestic authority would decide whether to grant authorisation, as well as the scope of the experiment (in terms of value, duration, and conditions for the experiment). Approved ‘sandbox procurement’ would be advertised as such and participating tenderers would explicitly have to provide a waiver of their right to challenge the final decision on the basis of any of the ‘sandboxed’ issues.

For example, if the contracting authority wanted to experiment around modes of delivery of a specific service, then challenges on the basis of the evaluation of delivery services or the award of parallel contracts (or lots) to providers using different delivery alternatives would not be justiciable—while other issues, such as breaches of transparency requirements or the duty to provide reasons for the specific decisions would be open to challenge.

Similarly, if the contracting authority wanted to experiment around documentary requirements, or around the possibility of doing trial runs in parallel with different suppliers as part of an extended negotiation, or if the contracting authority wanted to trial some ‘sophisticated’ information management strategy during an electronic auction, etc – then, interested undertakings would need to ‘be game’ and accept that their participation in the procedure was primarily for the purpose of experimentation, but would not give them enforceable rights. Of course, in order to incentivise participation, sandbox procurement could (and should) be sweetened by the contracting authority through the payment of participation fees.

Sandbox procurement could also be (randomly) conducted in the context of mock procurement trials not leading to the award of an actual contract—provided the tenderers did not know whether there was a contract to be gained at the end of the process or not (in which case, they would receive a compensation for the participation costs)—similarly to the carrying out of medical experiments involving the use of placebo—although in this case the issue would not necessarily be aimed at creating a control group, but rather at allowing for procurement experimentation with limited financial implications (in particular if the experiment went badly).

Needless to say, sandbox procurement would be most appropriate in scenarios involving scalable procurement innovations, and coordination on an EU-wide basis could allow for the replication of experiments in the context of different legal and business settings, as well as a reduction (if not avoidance) of duplication of innovative efforts.

Upon conclusion of the experiment, the contracting authority and the participating tenderers would draw a report that would be publicly accessible and, progressively, contribute towards the creation of a database of procurement experiments. This would allow for cross-dissemination of innovative best practices, as well as provide good insights into procurement improvement, both at policy-making and legislative levels.

I am aware that this is a controversial, and definitely only half-baked proposal, but I think this is one worth discussing and exploring in the future. Please let me know your thoughts.

AG Wahl issues excessively formalistic Opinion on 'crumbling' reliance on third party capacities (C-223/16)

In his Opinion of 11 May 2017 in Casertana Costruzioni, C-223/16, EU:C:2017:365, AG Wahl has analysed the compatibility with the 2004 EU public procurement rules (Dir 2004/18/EC, Arts 47(2) and 48(3)) of national legislation providing for the automatic exclusion from the tendering procedure of a tenderer that relies on the capacities of another entity which, during that procedure, ceases to have the required capacities--without allowing for the the possibility of replacing that entity for another third party with the appropriate capacity. 

AG Wahl follows a functional approach close to that of AG Bobek in Esaprojekt, and submits that the rule on automatic exclusion is compatible with EU public procurement law. His reasoning deserves close scrutiny, in particular concerning the automaticity of the exclusion, which I am not convinced necessarily derives from his interpretation of previous case law.

At this stage, it is important to stress that AG Wahl follows the approach of the European Court of Justice (ECJ) in Partner Apelski Dariusz to the effect of excluding the possibility of resorting to Directive 2014/24/EU (Art 63) in search for interpretive criteria to be applied to the 2004 rules. In AG Wahl's view, "[i]n permitting economic operators to replace entities which are to be excluded or which do not meet the relevant criteria, Article 63(1) of Directive 2014/24 manifestly introduces new elements as compared to the rules laid down in Article 47(2) and Article 48(3) of Directive 2004/18" (para 36). Therefore, it seems clear that, whether the ECJ follows AG Wahl's Opinion or not in the Casertana Costruzioni Judgment, this will have limited practical effect because, under Directive 2014/24/EU, the automatic exclusion of a tenderer on the basis that its reliance on third party capacities has crumbled is no longer compatible with EU law.  

Referring back to procurement subjected to the 2004 rules, it is important to stress that AG Wahl conceptualises the core legal issue as concerning whether EU law requires Member States to permit the substitution of the entity that has lost the required capacity with one which possesses the required capacity. He rightly points out that this cannot be assessed in abstract terms, but rather needs to be linked to the relevant phase of the procurement procedure. In that regard, he distinguishes three situations, depending on whether the loss of capacity by the third party takes place (i) before the time limit for receipt of the bids expires, (ii) after the expiry of the time limit for receipt of the bids, but before the public authority makes the final award or (iii) after the award of the contract (see paras 18-25).

In AG Wahl's view, substitution of the third party cannot be allowed in situation (i) because in cases where the loss of capacity by the third party happens before the expiry of the time limit for the submission of bids, tenderers are free to withdraw the offer that is no longer compliant with the tender documentation and submit a new offer where they rely on the capacities of a different third party. AG Wahl does not express a view on situation (iii)--and, therefore, skips the opportunity to offer some clarification on the rules concerning the substitution of consortium members [for discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) 339-340].

Most of AG Wahl's analysis thus concerns situation (ii), where the loss of capacity by the third party takes place during the evaluation stage of the award procedure (strictly, after the deadline for the submission of offers--although I would submit that the same approach should be followed in borderline situations between (i) and (ii), where the bidder only discovers the loss of capacity by the third party after the deadline for submission of tenders, or without sufficient time to submit a fresh offer). He clearly submits that the ECJ should declare that no EU rule or general principle of law requires national authorities to permit tenderers, in that situation, to replace the third party that has lost the required capacity. I am not convinced that this is the case.

Concerning explicit rules, AG Wahl is clear in emphasising that "Directive 2004/18 does not contain any provision which expressly requires Member States to allow tenderers to replace economic entities on whose capabilities they have relied, when those entities are to be excluded or do not meet the relevant criteria. Nor is there any provision, in that directive, that could be read as implicitly containing such a rule or principle"; and, consequently, due to the minimum harmonisation nature of the procurement Directive, "which leaves some regulatory discretion to the Member States for what is not expressly regulated therein", "the possible replacement of third parties on which a tenderer has relied ... is an aspect which is, in principle, for the Member States to regulate" (paras 41 and 42).

He then moves on to assess the situation in relation with the general principles of EU public procurement law, which could constrain Member States' legislative discretion. In that regard, he is also clear in establishing that "allowing a tenderer to replace an entity on whose capabilities it sought to rely cannot be regarded either as a clarification of, or as the correction of clerical errors in, its tender. In point of fact, such a change appears to constitute an amendment of an important element of the tender which is, therefore, in principle not permissible" (para 47, emphasis added), which he considers contrary to the requirements of the principles of equal treatment and non-discrimination and the obligation of transparency (para 45).

AG Wahl refers to AG Bobek's Opinion in Esaprojekt to indicate that

such a change may lead to the contracting authority being required to carry out additional checks and could even affect the choice of candidates being invited to present an offer. Furthermore, [Bobek] noted that giving a tenderer a second chance to decide on which entities’ capabilities it wishes to rely, ‘could certainly procure it an advantage that would be at odds with the requirement of equal treatment’.

I agree. I would also add that upholding Casertana Costruzioni’s argument would essentially amount to creating a judge-made rule that grants the possibility of amending bids at a late stage, a possibility which, in the light of the applicable national and EU rules, was not foreseeable by the other tenderers. As mentioned, that would hardly be reconcilable with the principle of equal treatment. Nor would it be compatible with the obligation of transparency incumbent upon the public authorities. Indeed, neither the Italian nor the EU rules in force at the material time provided for such a possibility. Nor was a specific provision on this point included in the invitation to tender (paras 49-50, footnotes omitted). 

On their facts, I am not sure that the comparison with the Esaprojekt case is helpful. Esaprojekt concerns a situation (i) in terms of AG Wahl's classification, in the sense that the third entity in which the tenderer relied (in that case, a consortium of which the tenderer itself formed part) did not meet the requirements of the tender documentation when the offer was submitted. Thus, this situation can be distinguished from the analysis in Casertana Construzioni in relation with situation (ii) scenarios. In the latter case, therefore, the issue does not seem to be framed in the most useful terms because it can be argued that, having taken place after the submission of the offer (which AG assumes to be the case, see para 24), the loss of capacity of the third party was not foreseeable by the tenderer either, which deactivates part of the reasoning bases on potential discrimination.

Moreover, provided that the way in which the contracting authority allowed for the substitution between third entities on which capacity the tenderer relied did not confer a competitive advantage to the tenderer, there can be good reasons to allow it. For example, if the application of the qualitative selection criteria did not involve a ranking, but was rather on a pass / no pass basis, and where the terms of the tender were not altered at all because the new entity simply stepped into the shoes of the no longer capable entity, there seems to be limited scope to consider that the tenderer derives a competitive advantage.

AG Wahl seems to take the opposite view on the basis of the reasoning underlying the ECJ's analysis of a prohibition to change subcontractors in Wall (which AG Wahl discusses in paras 53-56), in relation to which he stresses that it "could be considered [that the substitution of subcontractor] ‘[altered] an essential term of the concession and [thus necessitated] a new tender procedure’ because, in particular, ‘the concession-holder [had] relied on the reputation and technical expertise of the subcontractor when submitting its tender’." However, this is also conceptually problematic because it refers to a situation (iii), and the prohibition of the substitution of subcontractor can have more to do with the ECJ's requirement that contracting authorities are in a position to verify the standing of any subcontractors (as generally discussed by AG Sharpston in her Opinion in Borta, discussed here).

Ultimately, the difficulty with the assessment carried out by AG Wahl in Casertana Construzioni derives from the fact that he considers that "the capabilities of a third party which allow a tenderer to participate in a tender procedure can hardly be regarded as a non-essential element of a bid. The conclusion might have been different, obviously, if the tenderer had itself the required capabilities or if it had relied, for the same requirement, on more than one entity having those capabilities" (para 58, emphasis added). In my view, this is excessively formalistic and a more nuanced analysis would be required. In the specific case, and on the basis of the limited information about the factual situation, it seems that reliance on the third party capacity primarily (or exclusively) served the purpose of ticking the box of holding a formal classification via registration in the relevant classification system (see para 11). If that is the case, then it seems difficult to justify that this constitutes an essential element of the bid, as it could hardly affect its terms or the execution of the works. More generally, it is not clear that any aspect of reliance on third party capacity can be considered an essential element of a bid by definition, and a more detailed assessment seems necessary (along the lines established by the ECJ in Borta, see here).

From that perspective, the analysis based on discrimination and equal treatment does not seem the most relevant to me, and a focus on proportionality between the administrative burden linked to the substitution of third parties and the preservation of competition for the contract would be much more relevant--in which AG Wahl refuses to engage (see paras 62-65). In my view, this is the biggest flaw of the Opinion in this case. I would suggest that, contrary to what AG Wahl considers, the principle of proportionality should have provided the key legal test in this case.

Thus, I would rather have the ECJ depart from his Opinion and declare that the general principles of EU procurement law, and in particular the principle of proportionality coupled with the principle of competition, oppose the automatic exclusion of tenderers that have relied on the capacities of third parties that later lose them, unless the contracting authority can demonstrate that allowing for the substitution of the third party would either infringe the principles of equal treatment, non-discrimination and the obligation of transparency (eg in a situation where the qualitative selection criteria were not assessed on a pass/no pass basis), or would create a disproportionate administrative burden or delay in the conclusion of the procurement procedure. This could create closer functional compatibility in the case law on reliance on third parties and on subcontracting, which I think are currently at risk of imposing functionally incompatible interpretations of the relevant EU public procurement rules.

ECJ extends the Manova principles to the submission of samples & clarifies the scope of Remedies Directive in a Utilities Procurement setting (C-131/16)

In its Judgment of 11 May 2017 in Archus and Gama, C-131/16, EU:C:2017:358, the European Court of Justice (ECJ) issued two sets of clarifications concerning the rules applicable to utilities procurement, which are however of general relevance, due to the identity of the relevant provisions under the general and the utilities procurement rules.

First, the ECJ explicitly extended the Manova and Slovensko line of case law to utilities procurement and in relation to the submission of samples, thus trying to clarify the boundaries of the possibility for contracting entities to request  and/or accept clarifications or additional documentation (and samples) from tenderers while still complying with the principles of equal treatment, non-discrimination and the obligation of transparency. This first part of the Archus and Gama Judgment will thus be relevant to the interpretation and application of Art 76(4) of Directive 2014/25/EU (which is identical to Art 56(3) of Directive 2014/24/EU). 

Second, the ECJ also provided clarification of the rules on standing to challenge procurement decisions under Art 1(3) of the Utilities Remedies Directive (which is identical to Art 1(3) of the general procurement Remedies Directive), and clarified that having or having had an interest in the award of the contract extends to situations where the remedy sought by the challenger cannot result in the award of such contract, but is likely to concern the initiation of a new award procedure for the award of a (different) contract with the same subject matter.

Extension of Manova to the submission of samples

In the case at hand, tenderers were required to submit samples of micro-filmed material together with their tenders. The "quality of the microfilm sample was to be assessed according to the ‘satisfies/does not satisfy’ rule, it being stipulated that if the sample was not satisfactory the offer was to be rejected" (para 14). After submission of their tender and during the evaluation phase, joint tenderers Archus and Gama sent the contracting authority a request for a correction of their tender, arguing that "there had been an inadvertent mistake [... and] seeking to substitute a new microfilm sample for that annexed to their tender, which did not conform to the tender specifications" (para 17). The contracting authority accepted the substitution of the microfilm but requested further clarification from the tenderers because it considered that "they had not provided information on the method for microfilming the sample and the [relevant] technical parameters" (para 18). The contracting authority eventually rejected the tender as non-compliant.

In a rather convoluted drafting influenced by the question referred by the domestic court, the ECJ established that the legal issue arising from these circumstances required it to determine "whether the principle of equal treatment ... must be interpreted as precluding ... a contracting authority from inviting tenderers to provide the required declarations or documents which were not supplied by them within the prescribed period for the submission of tenders or to correct those declarations or documents in case of errors, without that contracting authority also being required to point out to those tenderers that they are prohibited from altering the content of the tenders submitted" (para 24). However, there are two factual elements that seems missing here: first, the fact that the initiative for the correction initiated from the tenderers; and, second, the fact that the correction concerned a sample rather than a declaration or document, and therefore it was not information-based. Disappointingly, none of these important details feature with much prominence in the ECJ's analysis (despite para 35 referring to the fact that "it was [the] tenderers who sent the contracting authority a request for their tender to be corrected"). 

Indeed, in this part of the Judgment (paras 29-33), the ECJ provides a summary of the Manova and Slovensko line of case law and, in simplified terms, reiterates that "the principle of equal treatment does not preclude the correction or amplification of details of a tender, where it is clear that they require clarification or where it is a question of the correction of obvious clerical errors, subject, however, to the fulfilment of certain requirements" (para 29, emphasis added), such as:

• a request for clarification of a tender cannot be made until after the contracting authority has looked at all the tenders and must, as a general rule, be sent in an equivalent manner to all undertakings which are in the same situation and must relate to all sections of the tender which require clarification (para 30)
• that request may not lead to the submission by a tenderer of what would appear in reality to be a new tender (para 31)
• as a general rule, when exercising its discretion as regards the right to ask a tenderer to clarify its tender, the contracting authority must treat tenderers equally and fairly, in such a way that a request for clarification does not appear unduly to have favoured or disadvantaged the tenderer or tenderers to which the request was addressed, once the procedure for selection of tenders has been completed and in the light of its outcome (para 32)

The ECJ also reiterated that "a request for clarification cannot, however, make up for the lack of a document or information whose production was required by the contract documents, the contracting authority being required to comply strictly with the criteria which it has itself laid down" (para 33, emphasis added). 

When trying to apply these general principles to the situation at hand, the ECJ established that "a request sent by the contracting authority to a tenderer to supply the declarations and documents required cannot, in principle, have any other aim than the clarification of the tender or the correction of an obvious error vitiating the tender. It cannot, therefore, permit a tenderer generally to supply declarations and documents which were required to be sent in accordance with the tender specification and which were not sent within the time limit for tenders to be submitted. Nor can it ... result in the presentation by a tenderer of documents containing corrections where in reality they constitute a new tender" (para 36); ultimately leaving it to the "referring court to determine whether ... the substitution made by Archus and Gama remained within the limits of the correction of an obvious error vitiating its tender" (para 38, emphasis added).

I find this reasoning of limited assistance in assessing the legal issue at hand. It would seem to me that the fact that the tenderers unilaterally sought to modify their tender in relation with a sample of the output of the services they were offering should have been given more weight (as this did not result from the observation of an obvious shortcoming or mistake by the contracting authority), and the difficulties in establishing objectively what is obviously wrong with a sample probably should have been enough relevance to provide a more conclusive answer against the acceptability of the substitution of samples.

From that perspective, confronted with a defective sample, the contracting authority could simply observe a deviation from the tender requirements, but it could hardly establish whether the defect resulted from an obvious mistake (ie whether the tenderer mistakenly submitted the wrong sample, as they claimed), or establish a way of clarifying the reasons for the defectiveness of the sample without allowing for the submission of a sample equivalent to the submission of a different tender. Differently from documents and declarations, or from the inclusion of insufficient details or mistakes in an offer, a sample is meant to evidence the product to be supplied or to result from the provision of the services. It is difficult to imagine circumstances under which a contracting authority could meet the strictures of the Manova-Slovensko case law while prompting the tenderer to submit an alternative sample. Moreover, under the rules applicable to the tender, it seems clear that a defective sample should trigger rejection of the tender, without any further analysis, which the ECJ does not seem to give much relevance to either.

Overall, I think that there is enough to justify the rejection of the possibility to substitute samples (in particular at the initiative of the tenderers) within the confines of the Manova-Slovensko test. However, I find this part of the Archus and Gama Judgment slightly confusing due to its open ended wording and, more importantly, to the practical difficulties in applying a test originally meant to correct missing or obviously erroneous information in documents to issues concerning the manifestation of technical aspects in a sample.

On this occasion, I tend to think that the ECJ has possibly pushed too far in trying to create procedural flexibility. While the absence of a sample could have allowed for the contracting authority to request the submission of one (because the problem with the tender would have been obvious), an attempt by the tenderers to substitute a previously submitted sample raises a whole host of other issues. In cases such as this, it may be preferable to have a clear cut rule against the possibility to substitute the sample. Moreover, given that the tender documents had explicitly indicated that rejection of the sample would also imply the rejection of the offer, it is difficult to understand why the ECJ has deviated from its previous approach to imposing compliance with the specific rules created in the tender documentation by the contracting authority itself (not that I find it always or generally convincing (see eg here), but a deviation from that approach seems to create inconsistency). Thus, I do not think this part of the Archus and Gama Judgment deserves a positive assessment.

Clarification of the scope of active standing under the remedies directive

In relation to a rather distinct aspect of the same case, the ECJ was also asked to clarify "whether Article 1(3) of [the Utilities Remedies Directive] must be interpreted as meaning that the concept of ‘a particular contract’ ... refers to a specific public procurement procedure or the actual subject matter of the contract which is to be awarded following a public procurement procedure, in a situation where only two tenders have been submitted and where the tenderer whose tender has been rejected may be regarded as having an interest in seeking the rejection of the tender of the other tenderer and, as a result, the initiation of a new public procurement procedure" (para 47).

Maybe in simpler words, the question concerned whether the EU rules grant legal standing to challenge a procurement decision to disappointed tenderers that are found to be properly excluded and, rather than seeking a remedy concerning the award of the contract as part of the procedure where the dispute arose (which would not be possible), may rather be interested in the cancellation of that procedure and the start of a fresh tender. In the end, the clarification concerned the tenability under EU law of a position that interpreted that "an economic operator who has submitted a tender in a public procurement procedure does not, where his tender is rejected, have an interest in bringing proceedings against the decision awarding the public contract" (para 48).

The answer provided by the ECJ is narrowly tailored to the specific circumstances of the case, as it established that "in a situation ... in which ... two tenders have been submitted and the contracting authority has adopted two simultaneous decisions rejecting the offer of one tenderer and awarding the contract to the other, the unsuccessful tenderer who brings an action against those two decisions must be able to request the exclusion of the tender of the successful tenderer, so that the concept of ‘a particular contract’ within the meaning of Article 1(3) of [the Utilities Remedies Directive] may, where appropriate, apply to the possible initiation of a new public procurement procedure" (para 59).

This interpretation seems generally uncontroversial and follows the same path of extension of the justiciability of exclusion and qualitative selection grounds as the recent Marina del Mediterráneo Judgment (see here). However, it also seems very limited to circumstances that may be difficult to meet in practice in a large number of procedures, such as the fact that only two tenderers participated in the procedure, or that the decisions to reject one tender and award the contract to the other were adopted simultaneously. In that regard, the ECJ could have been slightly bolder and simply clarified that retaining the possibility of being awarded a contract under the same (administrative) procedure is not a pre-requisite for the recognition of active standing to challenge procurement procedures under the EU rules. I would have preferred this broader approach, which could have saved future preliminary references on the basis of cases with minor variations of the underlying factual scenario.