I have now uploaded the full recording of my talk of 30 October 2017 "Understanding the Catalan Conflict from a Spanish Constitutional Perspective" on youtube. I hope it is of interest.
Discretion in public procurement—notes of a very energising workshop
I have the great privilege and pleasure of participating in a research project on ‘Discretion in public procurement’ funded by the Swedish Competition Authority and led by Profs Groussot, Hettne and Bogojević of the Universities of Lund and Oxford. In the context of the project, a workshop was held at Lady Margaret Hall (Oxford) on 3 November. The discussions brought together leading general EU law, environmental law and public procurement law academics, and this created a very open-minded atmosphere conducive to very productive discussions.
The results of the research project will be published in due course by Hart, as part of the series Studies of the Oxford Institute of European and Comparative Law (IECL). For now, I am happy to share my notes of the seminar. Needless to say, all valuable insights should be attributed to relevant colleagues, and any errors or misunderstandings are my own responsibility. I hope these notes serve to promote further debate.
Public Procurement and Internal Market
Prof Phil Syrpis used his previous discussion of the two constitutional visions on the interaction between primary and secondary EU law (see P Syrpis, ‘The relationship between primary and secondary law in the EU’ (2015) 52(2) Common Market Law Review 461) to assess the extent to which such primary-secondary interaction shapes the spaces for the exercise in the field of public procurement (see P Syrpis, ‘RegioPost—A Constitutional Perspective’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 2).
In particular, he discussed RegioPost (C-115/14, EU:C:2015:760), and how the interaction of Art 56 TFEU, the Posted Workers Directive and the rules in Directive 2004/18/EC shaped the space for the exercise of discretion concerning the imposition of minimum wage requirements in the execution of public contracts—emphasising that this is an area of non-exhaustive EU harmonisation, thus triggering EU primary law analysis. Phil criticised the conflation of primary law (Art 56 TFEU) and secondary law (Posted Workers Directive), and the ‘horizontal interaction’ between directives in which the RegioPost case resulted (where the interpretation of the procurement rules hinged on the interpretation of the Posted Workers Directive), as muddling the constitutional position on the value of the sources.
The discussion raised issues concerning the blurry lines around exhaustive/non-exhaustive harmonisation areas, and whether there is displacement or rather procedural juxtaposition of primary and secondary law. Whether a hierarchical approach already contains the seeds of heteronormative interpretation of EU primary law was also considered—in particular in view of the open textured and permeable nature of EU Treaty provisions, and the tendency of the CJEU to consider secondary law as a source of inspiration for the interpretation of primary law, sub silentio. The discussion also raised issues of the potential impact of Art 4(2) TEU (respect for national identities) on the scope for discretion at national level.
Prof Stephen Weatherill used the image of public procurement law as ‘internal market law made better’ and discussed the way in which EU internal market law has generally been developed to constrain the exercise of discretion of (public and private) national actors, and compared the situation in the field of procurement with general internal market law—thus reaching the conclusion that procurement law is more developed and perfected (in constraining national discretion more tightly), and in particular in the area of remedies, which creates a significantly different enforcement scenario and possibly more effectiveness of procurement law compared to general internal market rules (which is jeopardised by the procedural obstinacy of the Member States). He also reflected on the contradiction between the existence of that dense legal framework regulating public procurement in the internal market, and the enduring fragmentation of that market along uncompetitive national lines.
The discussion concentrated on issues surrounding the difficulties in bringing together the analysis in the area of free movement of goods and services, in particular services of general economic interest, the wiggle room for the CJEU to shy away or not from addressing specific cases by using jurisdictional criteria (cfr Comune di Ancona (C-388/12, EU:C:2013:734) and Tecnoedi Costruzioni (C-318/15, EU:C:2016:747)), as well as issues concerning the extent to which the 2014 Public Procurement Package, by creating more discretion or flexibility, may have eroded the component of ‘internal market law made better’ and potentially make public procurement move back to the median (effectiveness) of EU internal market law.
Prof Jörgen Hettne discussed public procurement and technical standards, and whether the specific rules constituted mechanisms to limit discretion or rather a democratic threat. He discussed the multi-faceted nature of technical standards as potential technical barriers, or rather trade facilitators or trade promoters—and focussed on the latter under the new approach to EU standards (CE mark) and the presumption of compliance embedded in the rules on technical specifications in the 2014 Public Procurement Package. He also concentrated on the quasi-binding nature that technical standards are acquiring (eg Nordiska Dental (C-288/08, EU:C:2009:718), James Elliot Construction (C-613/14, EU:C:2016:821)—and see also Medipac - Kazantzidis (C-6/05, EU:C:2007:337), and Commission v Greece (C-489/06, EU:C:2009:165)).
He wondered whether the obligation to respect the CE mark in the context of public procurement is problematic due to its requirement of ‘blind trust’ in the harmonisation system, and whether this is a democratic threat—in particular due to the way in which broad participation is (not) working in the context of standard-setting. He also discussed the constraints in an alternative approach based on the flexibility around the use of functional requirements embedded in Art 44(6) of Directive 2014/24/EU.
Public Procurement Discretion: Limits and Opportunities
Prof Chris Bovis reflected on the drivers and boundaries of discretion in the award of public contracts. He discussed the evolution of the regulatory space left to discretion throughout the five generations of EU procurement directives, and raised issues concerning the scale or structural dimension of discretion, in particular due to the different nature of the issues left to the discretion of the Member States (system-level issues) or the contracting authorities (procurement/procedure-level issues). His reflections also prompted discussion on the dynamics and interaction between exposure to competition, accelerating market dynamics (eg regarding innovation) and exercise of (administrative) discretion.
Dr Dieter Klaus explored the lessons that can be learnt from an analysis of the constraints on discretion in the public procurement setting, as a case study of broader issues concerning the regulation of discretion under EU law. He started with conceptual remarks on ‘discretion’ and the general approach to discretion (deplorable exception or rather a valuable instrument?) and the tension between different pulls and levers in EU law (flexibility, subsidiarity, harmonisation, compliance and potential over-regulation risks). He also stressed the risks and difficulties in EU level concept-building around (eponymous) notions that carry specific connotations in the context of national legal systems, which triggers risks of possible misunderstandings—as well as the interaction between spheres of discretion and intensity of judicial review of (discretion-based) executive decisions.
He used examples that compared case law on gambling (eg Politanò (C-225/15, EU:C:2016:645), Unibet International (C-49/16, EU:C:2017:491) or Vereniging Hoekschewaards Landschap (C-281/16, EU:C:2017:774)) and case law on public procurement (TNS Dimarso (C-6/15, EU:C:2016:555), LitSpecMet (C-567/15, EU:C:2017:736) or Borta (C-298/15, EU:C:2017:266)), with a particular emphasis on the intensity of judicial scrutiny for the justifications backing up discretionary decisions by the Member States. In concluding his reflections, he wondered whether there is something that makes procurement law special within the framework of EU internal market rules—which he thought probably not, in particular if one considers the fact that discretion works in different ways in different areas of EU internal market law, and that EU public procurement law displays the whole range of scenarios where discretion is subjected to different constraints.
The discussion raised the issues of whether the discretion under analysis (in the case law) is only that exercised by the contracting authority in executive decisions, or whether macro/systemic issues are subjected to the same issues and constraints. It also raised issues on the interaction between incompleteness of the regulatory system and (unforeseen) sources of discretion. The discussion also raised the point of whether Art 18 Dir 2014/24 is the natural ‘home’ of discretion within the system (as a horizontal issue), or whether the Directives somehow operate on the basis of a more undercover position for discretion.
In my presentation, I discussed the extent to which the general principles in Article 18(1) of Directive 2014/24/EU set out the relevant constraints on the exercise of executive discretion in the context of procurement and, in particular, the role that the prohibition for contracting authorities to artificially narrow down competition can be used to create effective substantive and/or procedural tests to control the exercise of such discretion.
Following up on my previous proposals (mainly, in Public Procurement and the EU Competition Rules, 2nd edn (Hart, 2015) ch 5) I suggested that Article 18(1)II Dir 2014/24/EU provides the basis for a competition-orientated or competition driven adaptation of a general proportionality test. I suggested that the existing case law of the CJEU, in particular concerning anti-circumvention rules, can form the basis for a substantive test oriented towards the consideration of the counterfactual decision adopted by a diligent contracting authority. I acknowledged that such a test may be difficult to craft in a way that does not create risks of ex post facto reassessment of decisions that would have originally not been seen as restrictive of competition.
I also suggested that a procedural test may be preferable, in the sense of creating a presumption of conformity with the requirements of the Directive where the contracting authority can provide an adequate paper trail (ex Art 84(2) Dir 2014/24) demonstrating having given due consideration to competition impacts of the decisions taken along the procurement design and implementation phase. My preliminary idea is that the procedural test would create a rebuttable presumption of conformity and that, in case of indicia to the contrary, the substantive test would then be applied.
The ensuing discussion concerned challenges on my claim about the competition-orientatedness of the regime in Directive 2014/24/EU and the 2014 Public Procurement Package more generally, discussion of the different concepts of competition (either as a mechanism or as a benchmark demanding economic efficiency in absolute terms) and the links that could be drawn before the substantive test I propose and the more general test of abuse of EU internal market law.
Environmental and Social Clauses
Dr Marta Andrecka discussed limits of contracting authority discretion in the pursuit of sustainability, and drew from previous analysis on her recently edited monographic issue of the European Procurement & Public Private Partnership Law Review (2017) 12:3. Her reflections concerned the balance between the flexibility created to support sustainability goals in procurement through the ‘toolbox approach’ in the 2014 Public Procurement Package and ensuing Commission guidance, on the one hand, and the necessary checks and balances, on the other—in particular by reference to the interpretation of Art 18(2) of Directive 2014/24/EU and difficulties to fit different understandings of ‘public interest’ at EU and national level in this context. She gave significant weight to the addition of sustainability as a strategic goal of procurement under the new rules, very much in line with the European Commission’s approach in the October 2017 Communication on ‘Making public procurement work in and for Europe’. She also mapped out emerging obligations to include sustainability considerations in the context of other (horizontal) EU policies with an impact on procurement—such as the current proposal for a European Accessibility Act.
The ensuing discussion concerned the boundaries of the concepts of public interest and public policy within the context of EU internal market law, and the extent to which that is directly applicable and/or transferable to the interpretation and enforcement of the 2014 Public Procurement Package. It also concerned the link between the increasing sophistication and complications derived from sustainability-orientated procurement and emerginginitiatives on professionalization and capacity building as part of the broader procurement strategy.
Dr Sanja Bogojević mapped environmental contestation points in EU procurement law and policy, as a way of bringing attention to problems and opportunities for the pursuit of environmental policies in the context of public procurement. She recreated the discourse on green procurement through the case law of the CJEU after Concordia Bus Finland (C-513/99, EU:C:2002:495) and EVN and Wienstrom (C-448/01, EU:C:2003:651), and compared it to the discourse in broader internal market case law, to finally arrive to the current expressions of green public procurement aims and goals in policy documents, such as the 7th Environmental Action Plan or the Europe 2020 Strategy. Concentrating on Directive 2014/24/EU, her discussion considered the way green procurement is presented in relation to technical standards, labels and life-cycle costing rules.
Once the mapping was complete, she identified 5 points of contestation: (1) role of sustainable development and the risk it creates of squeezing environmental protection act; (2) reviewability of environmental models used in life-cycle costing (eg as exemplified in the litigation leading to R (ClientEarth) [2016] EWHC 2740); (3) what is the nature of the obligation in Art 11 TFEU (‘environmental protection requirements must be integrated into the definition and implementation of the Union policies and activities’ – is this solely a procedural minimum?); (4) discretionary climate change policy and ways in which policy can be used to create obligations (eg along the lines of the Dutch Urgenda case); and (5) the role of EU public procurement law in non-EU countries looking to access the EU (eg Serbia) or on the way out (UK). Ultimately, she made a compelling case for more interdisciplinary work and efforts of legal imagination to try to find workable legal solutions to global challenges.
Dr Jeremias Prassl discussed means, ends and conflicts in attempting to carry out social procurement. He introduced the clash between labour rights and internal market rules and restrictions (ie a clash of the economic vs the social)—which underlies calls for broad exemptions from internal market law from scholars such as Prof Alan Bogg ('Viking and Laval: The International Labour Law Perspective', in M R Freedland & J Prassl (eds), Viking, Laval and Beyond (Hart, 2016) ch 3)—and considered whether public procurement is more sensitive or atuned to labour law considerations than general internal market. He also reflected on whether the relevant clash was not one between economic and social rights, but rather between social rights of different collectives. He then developed each of the different narratives to see how they have shaped law and policy in the context of EU social and procurement law—in particular around the Posted Workers Directive.
His discussion provided insights on how the application of the internal market logic and its broader normativity comes to water down labour law’s protective effects (building on the analysis of L Rodgers, ‘The Operation of Labour Law as the Exception: The Case of Public Procurement’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 8). He assessed these issues of normativity and exception from Viking (C-438/05, EU:C:2007:772) and Laval (C-341/05, EU:C:2007:809) to the more recent cases of Bundesdruckerei (C-549/13, EU:C:2014:2235) and RegioPost. He also relied on Prof Weatherill’s approach ('Viking and Laval: The EU Internal Market Perspective', in M R Freedland & J Prassl (eds), Viking, Laval and Beyond (Hart, 2016) ch 2; see also S Weatherill, The Internal Market as a Legal Concept (OUP, 2017)) to criticising the insensitivity of internal market case law to legitimate and democratically expressed national priorities—which Jeremias considers is currently softening, as the CJEU approach in RegioPost indicates.
He also critically reflected on whether the seeming growing scope for labour policies in the context of procurement is likely to generate the maximum practical effects that would be desirable. In closing his paper, he wondered whether the heterogeneity of workers and the conflicts between different groups of workers (insiders vs outsiders) would provide a better narrative and analytical perspective to reassess this topic. In doing that, he drew on Prof Catherine Barnard’s contrast between the equal treatment logic of the procurement rules and the differentiation logic of the traditional rules on posting of workers, which is now being tamed in the revision of the Posted Workers Directive (see C Barnard, ‘Fair’s Fair: Public Procurement, Posting and Pay’, in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 10).
The ensuing discussion concentrated on how attempts to integrate social and environmental considerations in a public procurement regime that already tried to address other goals—mainly, economic and internal market-orientated—triggers issues around the extent to which social and environmental considerations should be a more intrinsic element of internal market law generally, as a sort of ‘softer market’, rather than an issue to be addressed sectorially.
Prof Xavier Groussot and Ms Angelica Ericsson wrapped up the discussions with a reflection on the tension between discretion and proportionality in the use of social clauses in procurement. They discussed (i) the elements of discretion, (ii) the application of procedural proportionality to control discretion—and in particular from the perspective of transparency—and (iii) whether recent case law seemingly deviating from the principle of proportionality creates a problem, mainly in light of the application of covert proportionality through consistency in RegioPost (contra P Bogdanowicz, ‘Article 56 TFEU and the Principle of Proportionality: Why, When and How Should They be Applied After RegioPost?,’ in A Sanchez-Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018) ch 3). In the first part of the discussion, they explored the connections between the application of discretion under EU law and under ECHR law, and how that comparison can be best assessed using a variation of the framework set out by Tridimas (‘Proportionality in Community Law. Searching for the Appropriate Standard of Scrutiny’, in E Ellis (ed), The Principle of Proportionality in the Laws of Europe (Hart, 1999) 65 ff), and the additional issue of harmonisation raised by Thym (‘The Constitutional Dimension of Public Policy Justification’, in P Koutrakos, N Nic Shuibhne, & P Syrpis, Exceptions from EU Free Movement Law: Derogation, Justification and Proportionality (Hart, 2016) ch 9): (1) the interest, (2) the proceeding, and (3) the level of harmonization (cfr Opinion of AG Cruz-Villalon in dos Santos Palhota and Others (C-515/08, EU:C:2010:589)).
In the second part, they discussed discretion and procedural proportionality, and reflected about ‘what would a high level of discretion mean for a proportionality assessment’ both in theory and in practice. They stressed that the level of discretion and the intensity of proportionality review should theoretically be inversely proportionate (much along the lines presented by Dr Kraus earlier in the day, but with inverted causality), and that this is demonstrated in practice in the area of public procurement (such as in Politanò), where the CJEU shows more deference to administrative discretion (ie a lighter-touch proportionality analysis) where a higher level of discretion exists ex ante. Specifically in the context of procedural proportionality (eg Beentjes v State of the Netherlands (C-31/87, EU:C:1988:422)), and in the context of transparency obligations, they suggested that procurement is a good testing ground for the correlation between higher discretion and more limited proportionality scrutiny by the CJEU (eg in RegioPost, where regulatory transparency may have saved the social clause). They concluded that (i) high level policy discretion for Member States must not translate into unfettered discretionary/arbitrary decision-making by contracting authorities, (ii) procedural scrutiny is spreading beyond public procurement (R Caranta, ‘Public Procurement Law: Limitations, Opportunities and Paradoxes’ in U Neergaard, C Jacqueson & GS Ølykke (eds), XXVI FIDE Congress in Copenhagen, vol 3 (DJØF, 2014), where he claims principles of procurement becoming general principles of EU administrative law more generally), (iii) EU law principles (eg transparency) may be fuelled by different justifications than (eponymous) national ones.
Finally, in the third part, and drawing from French administrative law, they explored the possibilities of developing a taxonomy of CJEU case law that would distinguish between a procedural approach (controle minimum), substantive approach (controle normal) and a balancing approach (controle maximum).
The discussion concentrated mostly on the boundaries of the procedural proportionality approach and the categories that could most usefully be used to create a taxonomy of approaches by the CJEU. This was linked to the discussion to the standard of review of decisions in other areas of EU law—eg competition law, where the connection between EU and ECHR standards has been questioned (eg Menarini, as discussed in extenso in A Sanchez-Graells, ‘The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?’, in Kosta, Skoutaris & Tzevelekos (eds), The Accession of the EU to the ECHR (Hart, 2014) 255-70).
Alternative Procurement Models
Dr Ohad Graber-Soudry presented the procurement rules of European Research Infrastructure Consortia (ERICs) under the specific regulatory framework of Council Regulation 723/2009/EC, which creates significant space for each ERIC to adopt its own procurement rules. His presentation concentrated on the uncertainties derived from the treatment of ERICs as international organisations and the impact these have on ERICs’ discretion to develop their own procurement rules, as well as the treatment of discretion within those (self-developed) rules.
The ensuing discussion mainly concerned the limits and effects of Art 7(3) of Regulation 723/2009, whereby ‘[a]n ERIC is an international organisation within the meaning of Article 15(c) of Directive 2004/18/EC’, which now corresponds to Article 9(1)(b) of Directive 2014/24/EU.
Closing the workshop, Prof Ulf Bernitz discussed the peculiarities of the Swedish system, and stressed the particular use and weight of transparency obligations in that jurisdiction.
Understanding the Catalan Conflict from a Spanish Constitutional Perspective
I had the great pleasure of giving a talk on the Catalan conflict and its fit within the Spanish constitutional framework within the Bristol Student Law Conference Lecture Series yesterday. These are the slides of the talk, updated to 30 October 2017 3pm, and a voice recording is available on demand. If you are interested, please email me at a.sanchez-graells@bristol.ac.uk.
Public procurement for a circular economy: some thoughts on policy coordination and fluffy guidance
The European Commission has published 'Public procurement for a circular economy. Good practice and guidance', where it offers its views on how to implement procurement policies that go beyond green public procurement to engage in circular procurement, understood as 'the process by which public authorities purchase works, goods or services that seek to contribute to closed energy and material loops within supply chains, whilst minimising, and in the best case avoiding, negative environmental impacts and waste creation across their whole life-cycle'.
Therefore, circular procurement seems to be a sub-type of green procurement (in turn, a sub-type of smart procurement) mainly concerned with life-cycle and life-cycle costing. So the adoption of this guidance only a few days after the adoption of the Communication on 'Making public procurement work in and for Europe' (see here) raises some questions on coordination of policy efforts and messages from the Commission. If the Commission knew that this guidance was bound to be adopted, why did it not mention it in the Communication earlier this month? Is this a sign of discoordination between different Directorates General within the Commission (in particular, Environment and Growth)? Would linked-up policy efforts not yield better results?
Regardless of those political economy issues, and probably as a result of the new 'circular procurement guidance' being a product of DG Environment, most of the guidance is of a high level of generality and mainly concentrates on issues of political and organisational buy-in. From a practical and legal perspective, the document does not do much more than refer back to pre-existing guidance on the use of green procurement criteria (which have been expanded to new product groups) and reiterate some general remarks about the flexibility created in the 2014 Public Procurement Package for the inclusion of environmentally-orientated technical specifications and award criteria, and their evaluation.
In short, other than some examples of innovative practices, I did not find the 'circular procurement guidance' all that useful, and I think that the Commission needs to make much more significant efforts to provide practical and useful guidance if it wants to support the uptake of green, and in particular circular, procurement at Member State level. Currently, the lack of guidance on life-cycle costing (Art 68 Dir 2014/24/EU) is probably the single most relevant obstacle in significant uptake of circular procurement. When will this gap be filled?
Further clarification on non-contractual liability vis-a-vis abnormally low tenderers in EU Institutional procurement (C-198/16 P)
In its Judgment of 19 October 2017 in Agriconsulting Europe v Commission, C-198/16 P, EU:C:2017:784, the Court of Justice of the European Union (CJEU) has provided additional clarification on the conditions for EU Institutions to incur in non-contractual liability (ex Art 340 TFEU) in the context of an investigation of apparently abnormally low tenders in public procurement governed by the Financial Regulation (in that case, the no longer in force 2002 version, but note that the reasoning is generally applicable to current rules).
The Agriconsulting Judgment consolidates a balanced approach to the obligations incumbent upon a contracting authority investigating apparently abnormally low bids, and formulates the emerging principle that tenderers submitting abnormally low tenders are unlikely to have the right to claim for potential damages derived from other shortcomings in the evaluation of their tenders.
In Agriconsulting, the CJEU decided on an appeal of a previous General Court Judgment (T-570/13, EU:T:2016:40) that rejected the claims made by Agriconsulting against the way in which the Commission had assessed its tender and eventually decided that it was abnormally low and thus non-compliant with the tender specifications. The case concerned a services contract that was split between main and additional tasks, and where the tender documentation established minimum levels of staff to be assigned to each of them. This was to be assessed under award criterion 3: 'practical organisation of the tasks'. Under the circumstances, Agriconsulting's tender was found not to meet the minimum staffing requirements in the tender documents.
However, this only emerged after additional details were requested as part of an investigation of the apparent abnormality of its tender, which was €1 million (ie 43%) lower than the competing tender, and €1.2 million (47%) lower than the maximum budget for the contract. The information provided by Agriconsulting did not address the concerns about the abnormality of its tender, which led the evaluation committee to change its preliminary assessment--where Agriconsulting was ranked first but suspected of abnormality--and to reach the final position that its tender did not merit the required minimum points under award criterion 3 to be awarded the contract. Agriconsulting raised a number of claims against this, of which two are particularly interesting: (1) that even if its tender was properly found to be abnormally low under award criterion 3, it could have a right to compensation for damages if it could demonstrate other errors by the contracting authority; and (2) that it had been discriminated against because the competing tender was not investigated for abnormality.
Abnormality and rejection of the tender
In simple terms, the first ground of appeal concerns a claim by Agriconsulting that can be understood as intimating that, even if the rejection of its tender as abnormally low due to its not having met the minimum requirements of award criterion 3 was correct, the existence of errors in the evaluation of its tender under other award criteria could still give rise to liability of the contracting authority.
The argument arises from the fact that, in its application, Agriconsulting had claimed that there was a causal link between the improper assessment of its tender under criterion 3, and that unlawful acts concerning award criteria 1 and 2 "supported" its claim. The GC had dealt with this in the following terms:
42 The applicant contends that the condition relating to the causal link is satisfied because its tender was ranked in first place and it would have been awarded the contract had it not been for the alleged infringements.
43 Nonetheless, it must be stated that the rejection of the applicant’s tender is based only on the assessments concerning award criterion 3 and the abnormally low nature of its tender. The applicant’s tender was indeed ranked in first place following the examination of the tender from an economic standpoint. That ranking was altered for two reasons, namely the changes to the evaluation of the tender in the light of award criterion 3, which was considered to be insufficient, and the classification of the tender as abnormally low. The applicant also states in its application that the harm at issue is the direct result of the evaluation committee’s decision to lower the score for award criterion 3 and to find that the tender was abnormally low.
44 Furthermore, as the Commission points out, the applicant has not, at any time, explained how the award of a higher score for award criteria 1 and 2 could have had a favourable impact on its chances of being awarded the contract.
45 The applicant is therefore wrong to assert that the contract would have been awarded to it if it had not been for the infringements and errors concerning award criteria 1 and 2. Even a higher score for those award criteria would not have affected the assessment of its tender in the light of award criterion 3 and the finding that the tender was abnormally low.
46 Accordingly, the alleged illegalities concerning award criteria 1 and 2, even if proven, have no direct causal link to the alleged harm, relating to the loss of the opportunity to conclude the contract and the expenses incurred in order to participate in the tendering procedure (T-570/13, paras 42-46, emphasis added).
Thus, the issue in front of the CJEU was to assess whether, in dismissing its claim and thus finding that (even if proven) infringements concerning criteria 1 and 2 would not have met the causality requirements to give rise to liability, the GC had erred in law. In its Judgment, the CJEU dismisses this claim by indicating that
... the General Court did not hold in a general and abstract manner that the unlawful acts affecting a tender procedure, such as those alleged in the present case by Agriconsulting in relation to award criteria 1 and 2, can never entitle a tenderer to compensation. In the present case, the General Court merely assessed in concreto whether such a right to compensation existed, in the light of the arguments submitted by the appellant concerning the causal link and by carrying out an assessment of the facts of the case (C-198/16 P, para 21, emphasis added).
I find this interesting for two reasons. First, because it can be read to mean that, where a tender is properly rejected for being abnormally low, there is no liability that can possibly arise vis-a-vis that tenderer due to any other failings in the way the contracting authority assessed the tender. This seems adequate as, in more general terms, a tenderer submitting an abnormally low tender cannot hold legitimate expectations of being awarded the contract. Second, I find this interesting because the CJEU also leaves the door open to the possibility that unlawful acts affecting a tender procedure give rise to liability of the contracting authority where they have a negative impact on a tenderer's chances of being awarded the contract. However, this probably needs to be understood as a slim or remote possibility, applicable only where the unlawful acts are substantive and affect the possibilities of being awarded a contract in a sufficient or material manner.
Abnormality and equal treatment
As mentioned above, the second issue raised by Agriconsultingin its third ground of appeal concerned a notional duty of contracting authorities that engage in the investigation of a tender as apparently abnormally low to investigage all tenders received in that procedure for abnormality. The CJEU summarises the claim as follows:
48 ... the General Court ... stated that [the competitor]’s tender, calculated on the basis of the formula set out in the tender specifications, was slightly lower than the budget ceiling provided for in those specifications for the performance of the contract and higher, by almost EUR 1 million, than Agriconsulting’s tender. It thus concluded that [the competitor] was not in the same situation as Agriconsulting and that therefore the Commission was entitled, without infringing the principle of equal treatment, to verify the abnormally low nature of [Agriconsulting]’s tender, without applying the same treatment to [the competitor]’s tender.
49 It must be stated that the differential treatment of the tenders of Agriconsulting and of [the competitor] is intrinsically linked to the issue of identifying abnormally low tenders and the procedure reserved for them. Assessing the merits of the reasons given by the General Court ... will require revisiting the relevant obligations imposed on the contracting authority (C-198/16 P, paras 48-49, emphasis added).
This also seems like the proper approach to assessing any unequal treatment, and links to the procedural obligations that contracting authorities face in the presence of allegations or suspicions of abnormality--which have been recently discussed in European Dynamics Luxembourg and Others v Agence, T-392/15, EU:T:2017:462 (see here).
Following the same functional approach, the CJEU reiterated in Agriconsulting that:
52 It is only on condition that the reliability of a tender is, a priori, doubtful that the obligations ... are imposed on the contracting authority, including, in the present case, that of verifying in detail the seriousness of the prices offered using the reference economic parameters.
53 In the present case, since the evaluation committee had identified the appellant’s tender as being, prima facie, abnormally low, and had considered that [the competitor]’s tender did not, a priori, present any abnormality, it could, without infringing the principle of equal treatment between tenderers, initiate the adversarial procedure ... against the appellant and verify in detail its prices using the reference economic parameters without applying the same treatment to [the competitor]. The General Court was therefore correct in finding ... that both undertakings, as regards their respective tenders, were not in the same situation (C-198/16 P, paras 52-53, emphasis added).
This is also a welcome development because it creates continuity in the position reached in European Dynamics Luxembourg and Others v Agence that contracting authorities do not have motu proprio obligations beyond reaching an initial view on the absence of concerns regarding the abnormality of a tender, and that any additional obligations only arise from explicit claims to that effect. This is further clarified by the CJEU when it stresses that 'Agriconsulting would ... have had to establish the reasons why the contracting authority should, prima facie, have doubted the reliability of [the competitor]’s tender' (C-198/16 P, para 58).
CJEU provides some clarification on functional limits to in-house exemption: no two bites of the cherry? (C-567/15)
In its Judgment of 5 October 2017 in LitSpecMet, C-567/15, EU:C:2017:736, the Court of Justice of the European Union (CJEU) has considered the limits of the in-house exemption from the procurement rules in scenarios where a contracting authority controls an in-house entity and, in turn, the in-house entity engages in activities with third parties--or, in other words, the CJEU has assessed the functional limits of the exemption in relatively complex public house situations.
The CJEU has not really followed the thrust of the Opinion of AG Campos (which was largely based on competition considerations, see here), but rather provided a clarification that focuses the assessment of the applicability of the EU procurement rules to the purchases by the in-house entity from third parties on an independent analysis of whether the in-house entity 'at the end of the public house chain' meets the definition of 'body governed by public law'. This offers some clarification that could be useful in the future, but the way the CJEU applies the tweaked test also creates new areas of uncertainty and opens up the case law to criticisms on the basis of the conflation of activities along the 'public house chain' despite setting out to avoid such conflation.
In LitSpecMet, more specifically, the CJEU considered "whether the second subparagraph of Article 1(9) of Directive 2004/18 must be interpreted as meaning that a company which, firstly, is wholly owned by a contracting authority the activity of which is to meet needs in the general interest and which, secondly, carries out both transactions for that contracting authority and transactions on the competitive market may be classified as a ‘body governed by public law’ within the meaning of that provision and if so, in that regard, what is the effect of the fact that the value of the in-house transactions may in future represent less than 90% or not the main part of the total financial turnover of the company" (C-567/15, para 23).
The case was decided on the basis of Art 1(9) of Directive 2004/18/EC but, given that its terms are largely coincidental with Article 2(1)(4) of Directive 2014/24/EU, it is of broad and future relevance. In the end, both provisions establish three cumulative conditions for the consideration of an entity as a 'body governed by public law': (a) be established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character; (b) have legal personality; and (c) (i) be financed, for the most part, by the State, regional or local authorities, or by other bodies governed by public law; or (ii) be subject to management supervision by those authorities or bodies; or (iii) have an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional or local authorities, or by other bodies governed by public law.
In LitSpecMet, the CJEU started by reiterating its case law on the cumulative conditions that determine the status of 'body governed by public law' (paras 29-30) and on the functional and broad approach to the interpretation of the personal scope of application of EU procurement rules (para 31). Given that in LitSpecMet it was uncontroversial that the relevant entity had separate legal personality and was controlled by a contracting authority (para 32), the analysis rested on whether the entity constituted a "body established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character" (para 33).
Specific purpose of meeting needs in the public interest
In this analysis, and decoupling the different phases of the relevant test, the CJEU stressed that
34 It is clear ... that the requirement [for the entity to have been 'established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character'] must be satisfied by the entity whose classification is being examined and not by another entity, even if the latter is the parent company of the former which supplies the latter with goods or services. It is therefore not sufficient that an undertaking was established by a contracting authority or that its activities are financed by funds derived from activities pursued by a contracting authority in order for it to be regarded as a contracting authority itself (judgment of 15 January 1998, Mannesmann Anlagenbau Austria and Others, C‑44/96, EU:C:1998:4, paragraph 39).
35 In addition, it is necessary to take into consideration the fact that the use of the term ‘specific’ shows the EU legislature’s intention to make only entities established for the specific purpose (sic) of meeting needs in the general interest, not having an industrial or commercial character, the activity of which meets such needs, subject to the binding rules on public contracts.
36 Accordingly, it is necessary to determine, first of all, whether [the in-house entity] was established for the specific purpose of meeting needs in the general interest, the activity of which meets such needs before, if necessary, examining whether or not those needs have an industrial or commercial character (see, to that effect, judgment of 22 May 2003, Korhonen and Others, C‑18/01, EU:C:2003:300, paragraph 40) (C-567/15, paras 34-36, emphasis added).
Even if the drafting could have been clearer, particularly that of para 35 (which is tautological and, frankly, impossible for me to crack), the thrust of the test set out by the CJEU in LitSpecMet comes to assess the functional purpose of the in-house entity under consideration, rather than the nature of the activities it carries out. This comes to severe any intended chains of justification based on the activities in the general interest carried out by contracting authorities further up the 'public house chain' and concentrates on the purpose of the in-house entity 'at the end of the public house chain'--which must have been specifically established for general interest purposes.
This seems like the proper approach in abstract terms. However, the difficulty is that such a strict approach to the assessment of the activities of the in-house entity are likely to lead to the conclusion that it does not carry out activities in the general interest, which creates a difficult functional conundrum. This is visible in LitSpecMet where, in my view, the CJEU creates a great deal of confusion in the way it applies the test to the relevant entity in LitSpecMet in two ways.
First, in the way that the CJEU considers the purpose of the entity, which is to supply goods and services to enable its parent company to carry out the latter's activity (para 37), to be in the general interest because its "activity, in particular the manufacture and maintenance of locomotives and rolling stock and the supply of those goods and services to [the parent company], appears necessary for [the parent company] to be able to carry out its activity intended to meet needs in the general interest" (para 38).
To me, this seems wrong because the supply activity is not in the public interest, but in the interest of the parent company, which means that the entity whose classification is being examined does not meet the requirement (ie, in contravention of para 34) and because functionally it conflates the main activity of the parent company (in the general interest) with the ancillary (commercial/industrial) activity of the in-house entity 'at the bottom of the public house chain'. Otherwise, this would be tantamount to saying that a (private) supplier of the public sector carries out activities in the general interest where its supplies are necessary for a public authority to carry them out--quod non. In that regard, the test suggested by AG Campos concerning whether the in-house entity indirectly contributed to the general interest activities would seem preferable.
Second, and more importantly, the CJEU creates additional confusion when it indicates that, in the assessment of whether the in-house entity was specifically established for the purpose of meeting needs in the general interest,
40 ... it is irrelevant that, in addition to the activities intended to meet needs in the general interest, the entity in question also carries out other activities for profit on the competitive market (see, to that effect, judgments of 15 January 1998, Mannesmann Anlagenbau Austria and Others, C‑44/96, EU:C:1998:4, paragraph 25, and of 10 April 2008, Ing. Aigner, C‑393/06, EU:C:2008:213, paragraph 46 and the case-law cited).
41 Thus, the fact that [the in-house entity] does not carry out only activities intended to meet needs in the general interest through internal transactions with [its parent company], so that [the parent company] may carry out its transport activities, but also other profit-making activities is irrelevant in that regard (C-567/15, paras 40-41, emphasis added).
Once more, with the ultimate goal of preventing an 'escape' from the procurement rules by in-house entities carrying out activities outside of the public house, this seems to me to wrongly ignore the focus previously put on the assessment of the activity of the entity whose classification is being examined. Functionally, where an entity carries out activities in the public interest and activities of a commercial or industrial nature, it makes no sense to treat all activities the same.
This is not the approach followed in the context of utilities procurement under Directive 2014/25/EU. Furthermore, in EU competition law, where entities carry out activities that represent the exercise of public powers and economic activities, their assessment is based on the severability of the activities. In my view, the same approach would be appropriate here and, even more, in keeping with the functional logic of the in-house and public-public cooperation exemptions from compliance with EU public procurement rules, it would seem that the opposite approach should be preferred--to the effect that, where an entity carries out a significant volume of its activities for the benefit of entities outside the public house, it should not be considered a 'body governed by public law' for the purposes of subjecting it to the procurement rules but at the same time, the exemption from compliance with public procurement rules in the award of public contracts by other entities in the public house should disappear.
In other words, functionally, I do not think it makes sense to take such a strict approach to the assessment of the existence of activities in the general interest for the purpose of assessing the classification of the in-house entity as a 'body governed by public law', but rather to take a more holistic approach to the assessment of the position of the entity within the public house--ie, the entity must be either in or out of the public house.
Thus, in my opinion, the formulation of the test (and its sequencing) seems appropriate, but its application and the conflation of activities--both (i) the conflation of the activities of the controlling and the controlled entity, and (ii) the conflation of the activities in the general interest and the commercial or industrial activities of the latter inter se--is erroneous and comes to create significant confusion that muddies the waters of the intended clarification.
Needs not having an industrial or commercial character
Moreover, given that the CJEU considered the in-house entity 'at the bottom of the public house chain' to have been established specifically to meet needs in the general interest, the Court continued setting out the detailed test, and established that
43 ... in the assessment of [needs in the general interest, not having an industrial or commercial] character account must be taken of relevant legal and factual circumstances, such as those prevailing when the body concerned was formed and the conditions in which it carries on its activity, including, inter alia, lack of competition on the market, the fact that its primary aim is not the making of profits, the fact that it does not bear the risks associated with the activity, and any public financing of the activity in question.
44 ... if, with regard to the activities intended to meet needs in the general interest, the body operates in normal market conditions, aims to make a profit and bears the losses associated with the exercise of its activity, it is unlikely that the needs it seeks to meet are not of an industrial or commercial nature (judgment of 16 October 2003, Commission v Spain, C‑283/00, EU:C:2003:544, paragraphs 81 and 82 and the case-law cited).
45 That being the case, the existence of significant competition does not, of itself, allow the conclusion to be drawn that there is no need in the general interest, which is not of an industrial or commercial character.
46 In those circumstances, it is for the referring court to ascertain ... whether... the activities carried out by [the in-house entity], seeking to meet needs in the general interest, were exercised in competitive conditions and in particular whether [the in-house entity] was able ... to be guided by non-economic considerations (C-567/15, paras 43-46, emphasis added).
I also find the formulation of this part of the test confusing, not least due to the unclear position that the existence of competitive markets assumes. As I mentioned when discussing the Opinion of AG Campos, the sole fact that the controlling entities within the public house are directly awarding contracts to the in-house entity without having to comply with the procurement rules suffices to exclude a consideration that those entities are actually exposed to the vagaries of the market because they have a captive demand from the controlling entities--which significantly insulates them from market risk where such demand is enough to absorb 80% of the entities' turnover. Ultimately, then, either there is an exemption at the level of the relationship between the contracting authority and the in-house entity, or there is an obligation to tender at that level (which then frees the otherwise in-house entity from public procurement duties). But, either way, the logic of exposition to competition in the market does not allow for both exclusions. In addition to that consideration, I think that the position of the CJEU in LitSpecMet creates additional issues.
First, it is not clear to me whether the analysis in this second step needs to be constrained to the activities "intended to meet needs in the general interest" (para 44, particularly in relation to para 40) or to all the activities of the in-house entity (as suggested in para 46?), particularly where the in-house entity carries out for-profit activities with third parties, but also carries out not-for-profit (or not fully commercial) activities with the controlling entity and/or other entities within the public house. Would profit-seeking activities with third parties (even if of a relatively small volume, say 10% or 20% of the turnover of the in-house entity) suffice to make it fall foul of the definition of 'body governed by public law'? Second, it is not clear to me how to assess whether an entity is "able to be guided by non-economic considerations". Third, it is also unclear to me whether transactions are carried out in competitive conditions where the mere existence of the in-house entity may suppress any relevant comparator.
Ultimately, I guess that what is relevant is to try to understand the functional rationale and implications of the second part of the test. The situation here is one where an in-house entity carries out procurement activities ancillary to the activity in the general interest of its parent company (first step of the test) and, at this point, the assessment of whether its activities are competitive or not, and whether it can be guided by non-economic factors, determine the applicability of procurement rules to its purchases from third parties (second step of the test).
In my reading, that means that (a) if the in-house entity carries out its relevant activities in competitive conditions, it falls foul of the definition of 'body governed by public law' and does not need to comply with the procurement rules in its acquisitions from third parties; and (b) if the in-house entity does not carry out its relevant activities in competitive conditions and/or can be guided by non-economic considerations, then it will be classed as a 'body governed by public law' and thus obliged to comply with the procurement rules. At least (a) can be problematic in some scenarios--although (b) can also be problematic where the analysis is constrained to solely part of the activities of the in-house entity.
Regarding (a)-type situations, where the in-house entity that receives the direct award of contracts from other entities in the public house without subjection to public procurement rules carries out competitive activities, the test seems to allow it to benefit from its in-house position to compete in the market without having to comply with procurement rules in its purchases--which is functionally opposite to the restrictions on market activities of the in-house entity under Art 12 Dir 2014/24/EU (as mentioned above).
Overall consideration
I think that my uneasiness with the Judgment in LitSpecMet primarily derives from the fact that, where assessing the activities of in-house entities 'at the bottom of the in-house chain', the first part of the test ignores whether, in addition to (indirect) activities in the general interest, the entities carry out additional for-profit activities with third parties. And, subsequently, the second part of the test (potentially) concentrates on the existence of such activities (and the existence of profit goals and business risk) to exclude the non-commercial and non-industrial nature of those activities. Even if I cannot say exactly why, I sense a disconnection between both parts of the test. I will have to give this case some additional thought but, for now, I think that the CJEU would have been better off by adopting a functional approach to the in-house exemption and its limits, rather than a functional approach to the concept of 'body governed by public law', which implementation creates confusion.
Making public procurement great again?* COMMENTS on the commission's Communication of 3 october 2017
Continuing with our procurement tennis on the Commission's October 2017 procurement package, it is now turn for Pedro and me to concentrate on the Communication "Making Public Procurement work in and for Europe" COM(2017) 572 final, which is the main pillar of a renewed policy push that has a strong emphasis on the interaction between procurement and investment in the single market.
In this Communication, the Commission outlines 6 strategic priorities for public procurement policy in areas "where clear and concrete action can transform public procurement into a powerful instrument in each Member State’s economic policy toolbox, leading to substantial benefits in procurement outcomes". These include: (i) Ensuring wider uptake of strategic public procurement; (ii) Professionalising public buyers; (iii) Improving access to procurement markets; (iv) Increasing transparency, integrity and better data; (v) Boosting the digital transformation of procurement; and (vi) Cooperating to procure together.
In this post, I offer some critical comments on the 6 strategic priorities (three of which I consider highly questionable, and three which require further thought), as well as some overall considerations in the way the Commission seems to have started to shift away from its role of Guardian of the Treaties, and to morph into something else as it "commits to firmly support a change of the public procurement culture in Member States".
General comments
Overall, the Communication has undertones that bring it closer to an industrial policy for the single market, including the promotion of 'sustainability-orientated' secondary policies, than to a strategy to improve procurement as a working tool for the public sector. Indeed, procurement is presented as "a fundamental element of the investment ecosystem" because "a substantial part of public investment in our economy is spent through public procurement, representing 14 % of the EU GDP", which is language clearly linked to the instrumental use of procurement. And, to say it all, the Communication formulates that "sustainable industrial investment policy" through weird choices of words that echo the slogans of populist movements on both sides of the Atlantic--which may not send the right messages to trade partners monitoring issues such as the initiative on third country access to EU procurement markets. Therefore, it will probably not be surprising to read that I am not convinced that this is the best possible steer for public procurement policy in the EU context--much along the lines I already sketched here and here.
It will probably not be surprising either that the scant empirical evidence underlying the formulation of this policies is once again a source of criticism of the Commission's efforts. In the Communication (section 2), the Commission lists a series of examples of what it considers "encouraging steps ... to radically reform procurement practices or structures". Amongst them, the Commission resorts once more to the HAPPI Project, which it presents as having enabled"innovative solutions for healthy aging [to] have been procured jointly by contracting authorities in several Member States". However, the reality of things is that this project is far from a success story due to the extremely low take-up of the technologies procured and the limited use of the framework agreements put in place (as evidenced by reports financed by the Commission itself; see here). The Commission also presents as a success story the fact that "Slovakia has put in place a contract register that gives public access to all contracts concluded by the public authorities in the country, thus improving transparency and allowing for public scrutiny", without acknowledging that transparency in procurement remains a significant challenge and that the Commission's own initiative to promote the creation of such registries triggers some concerns (see here, here and here, as well as this paper by K-M Halonen). On the whole, the formulation of a policy priorities such as those contained in the October 2017 Communication should be supported by detailed empirical evidence and careful impact assessments. Their absence creates some questions as to the actual justification for the policies, which is regrettable.
It is also regrettable that, much as in the creation of the Internal Market Scoreboard (see here), the Commission continues to adopt random thresholds to assess the desirable intensity of specific procurement policies. For instance, the Commission indicates that there is significant scope for more strategic procurement because "55% of procurement procedures still use the lowest price as the only award criterion ... Yet, most economically advantageous tenders on the basis of a cost effectiveness approach which may include social, environmental, innovative, accessibility or other qualitative criteria are still underused". This conflates two or possibly three issues. Firstly, what is the threshold at which the use of price only would stop indicating unexploited opportunities for 'smart(er) procurement'? 10%? 20%? 30%? Why not 55%? Second, it is possible, in particular for standard products including eg environmental or accessibility requirements to be tendered on the basis of price only where sufficiently detailed technical specifications can be drafted. Thus, a simple analysis of the award criterion only tells part of the story concerning the intensity of the use of 'smart procurement' techniques. Third, the use of best price-quality ratios (BPQR, see Art 67(2) Dir 2014/24/EU) can hide or mask less than transparent procurement practices, so there is a clear (and unacknowledged) trade-off between non-price-only procurement and the integrity of the procurement procedure, as well as the costs of its administration.
In the same fashion, the Communication also indicates that "Contracting authorities are rarely buying together, as only 11 % of procedures are carried out by cooperative procurement", and that "[a]lthough not all types of purchases are suitable for aggregation, overall low aggregation rates suggest lost opportunities". Using a percentage threshold to assess whether centralised and collaborative procurement is sufficiently developed is equally unsettling, particularly because there is no good reason to consider that any given volume of procurement should be centralised. Moreover, given that the Commission has set at 10% the value of the indicator on 'cooperative procurement' for the purposes of the Internal Market Scorecard (see indicator [4]), it seems obvious that the Commission itself has no clue whether 10% of collaborative procurement suffices or not. Thus, setting policy priorities on the basis of unjustified % thresholds continues to be a dangerous path to follow.
I will not spend much time on the other fluff that surrounds the policy recommendations in the Communication. Suffice it to say that I am not convinced that "public procurement matters more than ever" (arguably, it has always mattered and will continue to matter for as long as the public sector engages with markets in the context of the development of its public interest activities, even if some of the notable challenges on the table are addressed in the future), or that the expression "a broad partnership for common success" has any relevant meaning. I would rather have the Commission avoid this type of language in communications aimed at formulating policies in relatively technical areas of EU economic law or, in the Commission's words, in a document aimed at promoting the "smart application of the new rules in practice", but that does not seem to be the thrust of the times--so let's move on and concentrate on the policy priorities.
(i) Ensuring wider uptake of strategic public procurement
The Commission takes the view that "[s]trategic public procurement should play a bigger role for central and local governments to respond to societal, environmental and economic objectives, such as the circular economy". Thus, it wants to promote the mainstreaming of "innovative, green, and social criteria, a more extensive use of pre-market consultation or qualitative assessments (MEAT) as well as procurement of innovative solutions at the pre-commercial stage". It acknowledges that this may not be feasible in all countries, where "there are still shortcomings in the proper functioning of the public procurement system", but it assumes that this not only a feasible, but also a desirable policy development elsewhere.
In my view, there are two main issues with the assumption that strategic procurement should play a bigger role. The first one is that while some aspects of 'smart procurement' are compatible with the internal market (eg green or innovative procurement), others are structurally disaligned with internal market rules (most notably, the use of labour and social requirements, which are almost impossible to separate from their protectionist effects). Thus, talking about 'strategic' or 'smart' procurement as a solid reality is problematic. The second issue is that the inclusion of green, innovation (and social) considerations is bound to increase the cost of procurement--which is a major concern in economies still recovering from austerity periods--and will also reduce the possibilities for SME access to procurement, in particular if the public sector moves significantly away from market standards in a push for the strategic use of procurement as a market-making or making-shaping tool. All of these issues should create concern, and are in part in contradiction with other goals of the Communication (in particular, with the issue of SME access, see below iii), so a more nuanced approach may be necessary.
In addition, there is no consideration of the limits that need to be placed on strategic procurement from the perspective of public accountability (is it really in the public interest for every buyer to have its own secondary policy agenda?) and from the perspective of preventing distortions of competition created by the public buyer. Presenting strategic procurement as the 'must adopt' strategy without stressing the need for robust checks and balances even in countries with no perceived shortcomings in the functioning of their public procurement system presents a rather distorted view.
(ii) Professionalising public buyers
This is an issue developed in much more detail in the flaking initiative on professionalisation presented by the Commission on 3 October 2017, and which Pedro and I already discussed (here and here).
(iii) Improving access to procurement markets
Surprisingly, this is one of the most disappointing aspects of the October 2017 Communication. The Commission indicates that improving access to procurement is mainly geared "to increase the SME share of public procurement in line with their overall weight in the economy", in particular "in view of promoting more cross-border procurement". However, the only specific actions mentioned by the Commission concern (i) the Remedies Directive (and, specifically, its criticisable decision not to review it, see here and here), (ii) the initiative on third country access to EU procurement markets (see here), and (iii) a sectorial initiative to increase SME participation in defence and security contracts. This is puzzling.
While those initiatives can have some effect on increasing SME access to procurement markets, they are unlikely to facilitate a step change. Much more is needed in terms of guidance and best practice on facilitating SME access to procurement domestically and in an EU cross-border context (which the Commission should undertake), and there are obvious limitations derived from the cost of having the administrative (and language!) capacity needed to export. In that regard, the proposals in the Communication do not even brush the surface of what could be done at EU-level--starting with practical guidelines on how to maximise the advantages derived from the fact that, in the Commission's own terms, "[t]he 2014 directives include measures that should facilitate the access of companies including SMEs to public procurement, also cross-border". It would certainly be helpful for the Commission to flesh that view out in more detail.
(iv) Increasing transparency, integrity and better data
Broadly, the Commission stresses four different initiatives in this area: (1) a boost of data collection / big data, (2) a potential initiative on whistleblowing, (3) an initiative to produce tools addressing bid rigging and raising awareness to minimise the risks of collusive behaviours on procurement markets, and (4) guidelines on the application of the new EU procurement directives on exclusion grounds on collusion.
I think that initiatives 1, 3 and 4 should be welcome. I am particularly interested in the Commission's pledge to take "actions to improve the market knowledge of contracting authorities, support to contracting authorities careful planning and design of procurement processes and better cooperation and exchange of information between public procurement and competition authorities". However, in this area, it will be interesting to see the extent to which the Commission builds upon existing efforts (such as the OECD's recommendation and guidelines on bid rigging, or the draft Danish guidelines on the application of Art 101 TFEU in procurement settings, see here) and the extent to which it carries out meaningful consultations.
I am less convinced about initiative 2 on whistleblowing, as I am not sure why this would be necessary in contexts where public procurement is regularly subjected to judicial and administrative review. I do not grasp who would be in need for protection and for what purpose. In that regard, the Commission's statement that it "is currently assessing the need, legal feasibility and scope for horizontal or further sectorial action at EU level for strengthening the protection of whistleblowers" is way too cryptic.
(v) Boosting the digital transformation of procurement
This is another area where the Commission could have been clearer on what it is trying to achieve, and where its thoughts are scattered throughout the Communication. While the aim of harnessing the opportunities that "[n]ew digital technologies offer ... to streamline and simplify the procurement process through the roll-out of electronic public procurement", as well as the ambition for "the whole public procurement process [to undergo] digital transformation", are welcome--it is not clear to me where the e-procurement / digitalisation of procurement boundary lies. I am also not sure whether the Commission has already given up on the possibility of making efforts to ensure that the deadline for full roll-out of e-procurement takes place within the deadline of October 2018 (which will no doubt be missed by a majority of Member States), and whether a focus on digitalisation is an attempt to create a smoke curtain to cover the simple fact that e-procurement will soon be around 15 years late.
I am personally interested in exploring the regulatory challenges that digitalisation and automation can require and facilitate, but reading this part of the Communication left me with the impression that the Commission will work on a piecemeal fashion, rather than trying to come up with a more ambitious plan (to pilot) fully digital procurement. In my view, this is an area where the Commission could be more ambitious, and where it could explore wacky and disruptive initiatives, such as an ideas competition. Any takers?
(vi) Cooperating to procure together
Finally, the Communication also puts significant emphasis on pushing for more collaborative and centralised procurement. However, the Commission simply assumes that "[j]oint cross-border procurement, where contracting authorities from different countries jointly organise their procurement procedures, is greatly facilitated by the new EU rules". However, this overlooks the simple fact that there is a great deal of legal uncertainty surrounding articles 37 to 39 of Directive 2014/24/EU (and the equivalents in Dir 2014/25/EU, see here, here and the recent working paper by I Herrera Anchustegui, here), and that the Commission should take a much more robust approach than simply aiming to "raise awareness and promote good practice for joint cross-border procurement".
Guidance on the interpretation of the relevant provisions of the 2014 Public Procurement Package is long overdue and, in my view, the Commission continues to conflate issues of collaboration stricto sensu with issues of professionalisation and innovative procurement processes, which it considers central purchasing bodies (CPBs) to be in a good position to promote. The Commission also overlooks the impacts of centralisation on competition in procurement markets, as well as the need to ensure that standards of competitive neutrality are ensured where CPBs engage in economic activity (eg in the context of professionalisation or consultancy). In my view, the Commission's proposals here are both weak and naive, and more focused legal guidance should be the priority.
* The title for this post is far from original. See eg http://spendmatters.com/2016/02/08/make-procurement-great-again/.
The European Commission's Recommendation on procurement professionalisation: Show me the money
In a second ‘mini-round’ of ‘procurement tennis’, Pedro Telles and I are critically assessing the European Commission’s October 2017 package of communications on public procurement. We started with the ‘voluntary ex ante mechanism for large infrastructure projects’ (see here and here), and Pedro has followed with his views on the ‘recommendation on professionalisation’ (see here). I will also discuss this document now. In two following pairs of posts, we plan to discuss the consultation on guidance on procurement of innovation and the communication on 'Making public procurement work in and for Europe' itself. Watch this space.
Focusing on the recommendation on professionalisation, Pedro has raised important points about the limited effects that professionalisation (understood as training and career management) can have in the absence of financial and reputational incentives for procurers, as well as specific issues concerning the aspects of the recommendation that deal with issues that have no (or almost no) bearing with a discussion on professionalization—such as issues concerning environmental and sustainable procurement, e-procurement or anti-corruption measures. Pedro has also raised important points concerning the need to look beyond the EU in search for best practices, and the need to distinguish between exchange of experiences and exchange of best practices (that is, the need to create a filter to ensure that different procurement communities do not replicate erroneous or illegal solutions that seemed to work in a specific context).
I fully subscribe Pedro’s criticism of the proposal of the Commission and would go even further. There are quite a few aspects that can be criticised, both in the recommendation itself (which is unfocused, exceeds the scope of professionalisation (in particular in part III) and tends to simply state the obvious) and in the staff working document that accompanies it (which is sloppily drafted, breaks up and repeats examples in a way that comes to inflate their number, and has for no reason been published as a pdf with the promise of a future interactive online tool, rather than being directly in that format—for what was the rush?). They are both also fatally flawed by a lack of recognition of the real costs of training a procurement workforce, in particular in terms of the time and effort of those being trained (as indicated by Pedro, and as masked with the only example that contains costing figures, No 2, from Consip) and of the long-term strategies and measures that need to be developed. In this post, however, I will concentrate particularly on six issues that I consider particularly restrictive of any effectiveness of the Commission’s recommendation, which largely ignores them.
In my view, the main areas for criticism of the recommendations on professionalisation formulated by the Commission are: (1) that procurement is not different from other areas of public sector activity requiring specialist skills, (2) that skills (human capital) need to be recompensed and incentivised if the public sector wants to avoid capacity drainage and cross-subsidisation, (3) that increasingly complex systems and sophisticated procurement do not require ‘super-procurers’ but rather ‘teams of procurers’, (4) that language is a very relevant barrier, both for advocacy/awareness efforts and cross-learning, (5) that the Commission cannot pass on to Member States the hot potato of issuing procurement guidance, and (6) that any initiatives will not be implemented in the vacuum or in a blank slate, which requires both consideration of change management and competition neutrality. I will keep my comments on each of these points short.
(1) Procurement is not different from other areas of public sector activity requiring specialist skills
The recommendation on professionalization largely assumes that developing and retaining a skilled workforce is a particular challenge in procurement, and it only mentions customs clearance as an area with equivalent needs and with a previous experience meriting study at EU level. However, from the perspective of a Member State, resourcing procurement is not less or more challenging than resourcing regulatory agencies (competition, energy, telecoms, etc), oversight bodies (central banks, insurance authorities), entities with budgetary responsibility (courts of auditors) and a number of other functions (food control, patents, consumer protection, ...). Importantly, in several Member States, the systems are generally developed around a model of relatively generalist civil servants that then go on to specialise in specific tasks as they are called to particular positions. This has two big implications: one, that it will hardly be acceptable for ‘procurers’ to be trained, recompensed and supported in ways much different than those dedicated to other activities. Second, that the State will probably not be in a position to undertake a significant reform of its entire civil service (access, training and remuneration) in the short term. These are rather complex issues and it is not realistic to think that procurement can change much more, or at a faster pace, than general civil service reforms. Some (small) parts of the procurement workforce can receive a different treatment in the context of ‘private-form’ procurement entities (such as central purchasing bodies, or CPBs), but this can hardly be a general solution.
(2) Skills (human capital) need to be recompensed and incentivised if the public sector wants to avoid capacity drainage and cross-subsidisation
The recommendation on professionalization ignores the evidence contained in itself. I find it quite telling that both RESAH in France (example No 34) and BBG in Austria (example No 35), which is one of the CPBs portrayed as having been more successful in creating a training programme in the staff working document, indicate that they have significant retention issues, as their trained employees/ members are scooped by other entities. This echoes similar trends in other countries (such as Hansel in Finland and Pianoo in the Netherlands, although this is less clear in the document), and is a simple matter of common sense. Given that there is a general shortage of skills in procurement across the economy, if a part of the public sector invests in training in a context where retention is an issue, then it is simply cross-subsidising other parts of the public sector or, more likely, the private sector. Again, this is an endemic problem that has affected countries with strong systems of training of their public service and judicature (such as Spain) and the only way of trying to contain it is to impose statutory or contractual obligations to stay in post (not a great incentive, as demonstrated by levels of turnaround of employees having completed CIPS training in UK institutions) or to improve the working conditions (and pay) of highly skilled individuals (which is really difficult to do in an austerity context and, given what I mentioned above, the difficulty of making ‘exceptions’ for procurement).
(3) Increasingly complex systems and sophisticated procurement do not require ‘super-procurers’ but rather ‘teams of procurers’
In simple terms, the entire recommendation on professionalization is premised on the basis that, if sufficiently skilled/educated, individuals can carry out complex procurement satisfactorily on their own. While I will be the first to submit that an overall understanding of procurement processes and the business context in which it takes places is necessary, I do not think that sophisticated procurement (eg projects including elements of innovation or sustainability, or negotiations, or complex goods or services, or infrastructure …) can be carried out by individuals, however skilled. More and more, it is necessary to think along the lines of teams with complementary and interdisciplinary expertise. There is no such thing as a ‘super-procurer’, and the Commission and the Member States would be foolish to try to find her (or educate her). In that regard, if there are competency schemes that require developing (which is a big if), they should not be premised on individuality, but rather on team work and collaborative approaches. This will mean that teams of engineers (or technical personnel), economists and lawyers will need to be put together so that they can complement each. Some training to give them an overall understanding of what they are collectively doing will be necessary and helpful, but that is a long way away from expecting them to each master a sufficiently advanced knowledge of law, economics and technology.
(4) Language is a very relevant barrier, both for advocacy/ awareness efforts and cross-learning
The recommendation on professionalisation also ignores the fact that learning from others’ experiences and using others’ documents (technical, guidance or advocacy documents) requires, amongst other things, a sufficient knowledge of other languages—which are not necessarily English. There are very clear examples, such as the French vademecum (example No 55) or the Greek bid rigging guidelines (example No 53), which will be completely incomprehensible for a large part of the procurement taskforce of any given Member State. This will create difficulties more generally in any cross-border initiative, and can end up creating inadvertent language barriers and/or facilitating the prominence (if not imperialism) of practices created in native English-speaking jurisdictions, which is not necessarily a guarantee of success.
(5) The Commission cannot pass on to Member States the hot potato of issuing procurement guidance
The recommendation on professionalisation repeatedly stresses the need for Member States to provide guidance (see in particular recommendation 8), thus expecting them to ‘give legal certainty on EU and national law or requirements stemming from the EU’s international obligations’. Not to be blunt, but this is risible. The Commission, having so far been so reluctant and slow in issuing any guidance on the novelties of the 2014 Public Procurement Package, can hardly expect Member States to be in a better position to do so. And, even if that was the case, having each Member State issue its own guidance, based on its own interpretation of EU law and the requirements stemming from the EU’s international obligations is a recipe for contradictions and further legal uncertainty. This is precisely an area where the Commission has both a better position to issue guidance and (hopefully, at least) the relevant expertise. Of course, the Commission has included some soft promises for guidance as part of the broader October 2017 package (on green and innovative procurement, and remedies, which we will discuss in due course), but it would have been well-advised to refrain from recommending Member States to fill in the gap (even if only temporarily).
(6) Any initiatives will not be implemented in the vacuum or in a blank slate, which requires both consideration of change management and competition neutrality
The recommendation on professionalization does not take into account that in different Member States, there will be different structures in place (eg universities, private firms) offering capacity and training services, as well as consultancy services aimed at closing skills gaps, in particular in relation to complex procurement (law firms, consultancies, etc). There is a strong push, although rather implicit, for the public sector to create its own ‘knowledge centres’ and use them to offer the same type of services across the public sector. In particular, there is a repeated suggestion that CPBs can be in a good position to do so. Such recommendation ignores the fact that there will be issues of competition neutrality involved in such a practice (for example, the growing consultancy business of CPBs such as Hansel in Finland), which merits separate discussion at some other time. It also ignores that there can be difficulties around managing change where ‘new’ professionalisation and training initiatives are meant to replace previous structures. All of this could (and should) be addressed more explicitly in the recommendation. It is to be welcome that the Commission explicitly excludes the creation of ‘professional bodies’ in procurement, but this is only one of the potential negative impacts of the suggestions included in the recommendation from a competition perspective. Where Member States create semi-markets or public provision in liberalised (training and education) markets, a much more in-depth and careful assessment will be necessary.
Overall assessment
I think that, for the reasons discussed here and in Pedro’s post (some of which, clearly, overlap), it is highly unlikely that, however well-intended, the recommendation on professionalization can catalyse a significant change at Member State level. It also masks a significant number of issues that have very limited to do with professionalisation and training, such as sustainable procurement, e-procurement or the fight against corruption, but I will save my comments on that for some other time. In my view, even if marginal improvements can result from Member States efforts as a result of these recommendations—particularly for those that build on a lower capability level—changes will be constrained due to budgetary and resource restrictions, language issues and inability (or unsuitability) to offer proper guidance. Rather than having the Commission engage in this type of ‘human resources consultancy’ activities, I would have it dedicate whatever resources it could muster to provide effective guidance and, where possible, to provide financial and logistic support to Member States.
Interesting clarification (and broadening) of the Foster test on 'emanation of the State' for purposes of direct effect of EU Directives (C-413/15)
In its Judgment of 10 October 2017 in Farrell, C-413/15, EU:C:2017:745, the Court of Justice of the European Union (CJEU) has followed the Opinion of AG Sharpston (here) and provided some clarity on the test initially created in Foster and Others v British Gas, C-188/89, EU:C:1990:313 to establish when an entity can be considered an 'emanation of the State' and, consequently, be subjected to the consequences of the direct effect of EU Directives. The CJEU has clarified that the conditions set out in the so-called Foster-test are not cumulative and, in any event, that it suffices for an entity (even a private law one, not necessarily subjected to State control) to have been delegated the performance of a task in the public interest by the Member State and to possess for that purpose special powers.
The test, as applied in Foster, was formulated in the following terms:
... a body, whatever its legal form, which has been made responsible, pursuant to a measure adopted by the State, for providing a public service under the control of the State and has for that purpose special powers beyond those which result from the normal rules applicable in relations between individuals is included in any event among the bodies against which the provisions of a directive capable of having direct effect may be relied upon (C-188/89 at [20], emphasis added).
However, also in Foster, the CJEU had offered a broader formulation of the test, indicating that:
a directive [capable of direct effect] could be relied on against organisations or bodies which were subject to the authority or control of the State or had special powers beyond those which result from the normal rules applicable to relations between individuals (C-188/89 at [18], emphasis added).
The interpretation of the Foster-test has been a relatively contentious issue in EU scholarship since its formulation in 1990. In particular, there have been opposing views on whether the conditions in which the test breaks down are cumulative or not and, in case they are cumulative, whether they include three conditions (entrustment of public service, State control and special powers), or only two (thus suppressing the requirement to provide a public service) [cfr eg M Bobek, 'The effects of EU law in the national legal systems', in C Barnad & S Peers (eds), European Union Law (Oxford, OUP, 2014) 140, 151 (two conditions, non-cumulative), TC Hartley, The Foundations of European Union Law, 7th edn (Oxford, OUP, 2010) 232 (identifying four conditions, cumulative, but indicating that the test is non-exhaustive), K Lenaerts & P Van Nuffel, European Union Law, 3rd edn (London, Sweet & Maxwell, 2011) 903-04 (two conditions, including public service provision, cumulative), or R Schütze, European Union Law (Cambridge, CUP, 2015) 100 (equally, two conditions, including public service provision, cumulative)]
Uncertainty about the exact limits and implications of the Foster-test have remained for a surprisingly long time, and the CJEU had so far only provided limited and piecemeal clarifications--most recently, in its Judgment of 12 December 2013 in Portgás, C-425/12, EU:C:2013:829, where the CJEU still referred in less than clear-cut terms to 'bodies which, under the control of [the] authorities [of a Member State], have been given responsibility for a public-interest service and which have, for that purpose, special powers' (at [34], for discussion, see here).
In Farrell, the CJEU has now clarified that, in Foster, 'the Court was not attempting to formulate a general test designed to cover all situations in which a body might be one against which the provisions of a directive capable of having direct effect might be relied upon' (at [26]) and, consequently, that '[p]aragraph 20 of [Foster] must be read in the light of paragraph 18 of the same judgment, where the Court stated that such provisions can be relied on by an individual against organisations or bodies which are subject to the authority or control of the State or have special powers beyond those which result from the normal rules applicable to relations between individuals' (at [27]). Ultimately, then, the CJEU has clarified that the Foster-test is actually formulated at [18] (see also Farrell at [33]) and, consequently, that
... the conditions that the organisation concerned must, respectively, be subject to the authority or control of the State, and must possess special powers beyond those which result from the normal rules applicable to relations between individuals cannot be conjunctive (C-413/15 at [28], emphasis added).
Adding some further clarity, the CJEU explained that the 'emanations of the State' that are relevant for the purposes of ensuring direct effect of EU Directives after the expiry of their transposition period
... can be distinguished from individuals and must be treated as comparable to the State, either because they are legal persons governed by public law that are part of the State in the broad sense, or because they are subject to the authority or control of a public body, or because they have been required, by such a body, to perform a task in the public interest and have been given, for that purpose, such special powers.
Accordingly, a body or an organisation, even one governed by private law, to which a Member State has delegated the performance of a task in the public interest and which possesses for that purpose special powers beyond those which result from the normal rules applicable to relations between individuals is one against which the provisions of a directive that have direct effect may be relied upon (C-413/15 at [34]-[35], emphasis added).
In my view, this is a welcome clarification and one that can potentially catalyse a higher level of effectiveness of secondary EU law. It comes to clearly establish three prongs for the test of whether an entity is an emanation of the State (shall we re-label it the Farrell-test, for clarity?), which the entity will be if either (1) it is governed by public law, (2) it is subject to the authority or control of a public body, or (3) it performs a public interest task on the basis of special powers. This can have interesting implications in areas other than general EU law (eg in State aid law, to the effect of reducing the scope of the Judgment of 30 May 2013 in Doux Élevages and Coopérative agricole UKL-AREE, C-677/11, EU:C:2013:348--as criticised here) and, more generally, follows a welcome functional approach.
I envisage that the next potential frontier for litigation will concern what should be considered special powers, and whether they have to be substantial for an entity carrying out tasks in the public interest by delegation of the State to be considered 'emanations of the State' for these purposes. In Farrell, the special powers consisted in statutory powers 'to require [private entities] to become members of [the entity considered an emanation of the State] and to contribute funds for the performance of the task conferred on it by the [the Member] State' (C-413/15 at [40]). This seemed like a clear instance. However, there may be more difficulties in drawing clear lines where the powers are exercised in the context of a situation of a relationship of special dependence from the State, where the special powers form part of the task delegated to the entity. This can be particularly relevant in the context of contracted-out public services in sectors such as care, corrections or education, where the existence or not of special powers (eg to discipline) will trigger complex issues in the future.
On the whole, however, it seems to me that Farrell resolves one of the important areas of uncertainty in the area of the effectiveness of EU secondary legislation. It should thus be welcome.
The Commission's procurement mechanism for large infrastructure projects, soft law with a new twist, or catch 22?
On 3 October 2017, the European Commission launched a strategy aimed at "Making Public Procurement work in and for Europe". As the accompanying press release indicates, the strategy has four main strands: (i) the definition of priority areas for improvement at Member State level; (ii) voluntary ex-ante assessment of large infrastructure projects; (iii) a Recommendation on professionalisation of public buyers; and (iv) a consultation on stimulating innovation through public procurement.
The first initiative consists in a policy push to prompt Member States to concentrate efforts on six priorities: "greater uptake of innovative, green and social criteria in awarding public contracts; professionalisation of public buyers; improving access by SMEs to procurement markets in the EU and by EU companies in third countries; increasing transparency, integrity and quality of procurement data; digitisation of procurement processes; and more cooperation among public buyers across the EU". None of the priority areas concern issues that I would consider of immediate practical relevance, in particular in terms of legal clarification of the 2014 Public Procurement Package (see here), but rather reflect issues that have been at the top of procurement policy-making agendas at least for the last 10 years, and where all efforts (and gains) are at best incremental. I find the push for further 'strategic' use of procurement particularly interesting, as well as the push for more procurement collaboration, including centralised and cross-border procurement. These are issues that will deserve further discussion some time soon.
The third initiative on professionalisation will also be the object of a future post, while I will aim to submit my views on the use of procurement to foster innovation in the context of the official consultation. Here, I am particularly interested in the second initiative, the voluntary ex-ante assessment of large infrastructure projects (already announced in the 2015 Strategy on Upgrading the Single Market), which is described in more detail in the accompanying Communication "Helping investment through a voluntary ex-ante assessment of the procurement aspects for large infrastructure projects".
The initiative is structured around three main elements: (i) a helpdesk where the Commission can provide clarifications on issues of interpretation of the EU procurement rules or their application to a specific case within one month, and which answers (once anonymised) will be published for more general use; (ii) a notification system aimed to apply to broader procurement plans, where Member States can ask the "Commission services [to] express their views on whether the procurement plan complies with EU procurement rules, without prejudice to any future legal interpretation or assessment"; and (iii) an information exchange mechanism meant to be a knowledge management tool for use by national authorities and contracting authorities/entities, ultimately geared towards building up reference classes of similar projects as a means of sharing experience, and to serve as a platform for exchanges on different aspects related to projects.
There are significant practical issues, in particular concerning the third strand, and especially concerning the utility of a collection of past projects where there is no indication that the information will be checked from a legal compliance perspective by the Commission (!), and where "[d]ocuments can be provided in any of the official languages of the EU [and] [t]he database will include a machine translation facility". That can significantly reduce the practical relevance of this part of the initiative, in particular given the significant difficulties in obtaining accurate machine translation of eg technical specifications or complex contract clauses.
More importantly, however, I think that this mechanism, and in particular the notification system, raise issues as to the legal nature of the assessments and clarifications obtained from the Commission, as well as some more practical issues concerning the resourcing of the helpdesk on which the mechanism relies. I will solely concentrate on the first issue for now, as the challenge of ensuring sufficient human capital to field all questions and notifications potentially coming from the Member States is ultimately a managerial issue dependent on budget availability.
Non-bindingness of specific legal assessments?
In simple terms, the Commission describes the mechanism as follows:
Complex projects can go wrong right from the beginning if the project managers do not fully grasp the complex rules that apply to large-scale procurement. The Commission will set up a helpdesk that can answer specific questions at an early stage related to projects with an estimated value over €250 million. For projects of high importance for the Member State concerned or with a total estimated value above €500 million, relevant authorities can ask the Commission to check the complete procurement plan for compatibility with the EU procurement legislation, significantly reducing uncertainties and the risk of delays and legal challenges. The mechanism is voluntary, the Commission's advice is non-binding, and information will be handled subject to strict confidentiality requirements (emphasis added).
This is also highlighted at the start of the fuller description of the mechanism, where the Commission indicates that "[n]ational authorities and contracting authorities/entities have the option to use the mechanism on a voluntary basis to raise questions with the Commission and receive an assessment of a project’s compatibility with the EU regulatory framework before taking important steps", but that the "views expressed by the Commission services in their assessment are not legally binding on those using the mechanism or on the Commission, and are without prejudice to the interpretation of the relevant rules by the Court of Justice of the European Union" (COM(2017) 573, at 4, some footnotes omitted, except footnote 10).
Already at this level of design of the mechanism for ex-ante assessment of the procurement, EU lawyers will probably raise their eyebrows in surprise, wondering how is it possible that a specific review by the Commission, where it issues a specific opinion on the compliance or not with EU law, can be considered non-binding. In my view, and particularly if there are EU funds involved in a project which risk being withdrawn, this will certainly end up being litigated on the basis of the principle of legitimate expectations (or administrative estoppel). On that note, it is worth recalling that, in its latest formulation, the Court of Justice has reiterated that, in accordance with its settled case-law,
the right to rely on the principle of the protection of legitimate expectations extends to any person whom an institution of the European Union has caused, by giving him precise assurances, to entertain justified hopes. Information which is precise, unconditional and consistent, in whatever form it is given, constitutes such assurances (Judgment of 13 September 2017, Pappalardo and Others v Commission, EU:C:2017:672, para 39; see also references cited therein).
I would have thought that a contracting authority (and winning tenderer) that had obtained a document from the Commission indicating that the project complied with EU law could, at the very least, wave it against the Commission in case of a subsequent infringement procedure. Conversely, where the Commission issued a negative opinion and the contracting authority decided to carry on regardless, that document could end up being used against the contracting authority in domestic litigation and prove rather persuasive to review boards or domestic courts. Additionally, it is hard to see how the pre-existence of the negative opinion would not be used against the Member State in a potential infringement procedure, and how this would not raise due process claims on the Member State's side. All in all, then, this seems like another instance of soft law bound to harden, but this time with a twist, because it would be the result of a specific procedure created by the Commission to that effect--rather than as a byproduct or unintended consequence of regular administrative procedures subject to EU administrative law.
The Commission could, of course, argue that they will couch their views in such terms as to avoid a level of detail specific enough to create legitimate expectations (which would however empty this mechanism of any effectiveness or appeal), and that they will resist public disclosure of these assessments to avoid these effects (which I do not really think possible, given the duty to grant access to documents under Regulation 1049/2001, discussed here). That would not be very convincing, though. Each of these issues requires some further assessment, because none of them seem to hold much water.
Precision and legal effects
In trying to make the mechanism attractive to the Member States which it sets out to support, in the Communication, the Commission indicates that, the helpdesk can deal with rather particular and potentially complicated issues, such as
- the applicable EU legal framework governing the project: classic procurement or utilities directives; concessions directive, etc.
- conditions for exclusions from the directives;
- procurement procedures to be used and their specific features;
- selection and award criteria;
- inclusion of green, social and innovative considerations;
- how to implement joint procurement under Article 39 of Directive 2014/24/EU.
Regardless of the nature of the question, an within one month from the time when the Commission has all the information it considers necessary to answer it, the Commission will aim to provide a specific reply. That reply will later be anonymised and published on the website of the ex-ante mechanism. However, at this point and probably in awareness (and worry) of the potential legal effects of such answers to specific and potentially rather complex and tricky questions, the Communication contains a cross-referential footnote that indicates again that "[t]he views expressed by the Commission services in their assessment are not legally binding on those using the mechanism or on the Commission, and are without prejudice to the interpretation of the relevant rules by the Court of Justice of the European Union".
Similarly, concerning the notification of a procurement plan by the relevant authority, or issues specific contract amendments, and within a period of three months, "[t]he Commission services will then provide an assessment, in which the Commission services express their views on whether the procurement plan complies with EU procurement rules, without prejudice to any future legal interpretation or assessment." Interestingly, once more, at this point the Communication contains another cross-reference to the by now famous footnote 10, which indicates that "[t]he views expressed by the Commission services in their assessment are not legally binding on those using the mechanism or on the Commission, and are without prejudice to the interpretation of the relevant rules by the Court of Justice of the European Union".
At this point, one will be forgiven for wondering whether contracting authorities will have any incentive to raise issues with the Commission knowing that they will have to wait for a month (helpdesk) or three months (full-fledged notifications of procurement plans) and that all they will obtain is a view from the Commission that the Commission itself is not willing to be bound by, and at the risk of being faced with specific recommendations or warnings on how to carry out the procurement. There seems to be an opposing incentive for contracting authorities to ignore these mechanisms and the delay they imply altogether, except where they cannot afford independent legal advice (which seems rare where there is a project budget of €250 mn or €500 mn) and may see the Commission as the only source of available (free) expertise.
How confidential is confidential?
The second important issue concerns potential difficulties in preserving the confidentiality of the documents exchanged with the Commission. Indeed, as the Commission itself reminds (in another footnote!, n 23), "Regulation (EC) No 1049/2001 of the European Parliament and of the Council of 30 May 2001 regarding public access to European Parliament, Council and Commission documents applies to all documents drawn up or received by the Commission and in its possession".
This means that, even where the Commission and the contracting authority share a view on whether a piece of information is confidential or not, the fact that the Commission holds the documentation triggers a risk of disclosure (or, at least, of disclosure-related litigation) under the EU rules. This may be particularly challenging for contracting authorities in Member States imposing lower levels of transparency than the European standard. It also means that, where the Commission and the contracting authority do not share a view on the confidentiality of some information, there is additional potential for litigation. Even if the Commission was willing to defer to Member States and reassure them that the second type of problem will not arise, the first one is unavoidable.
Even if there are good reasons to think that Reg 1049/2001 (Art 4) contains sufficient exceptions to disclosure of information of the type that can worry a contracting authority, the simple fact that the Commission has felt the need to introduce specific references to those rules in relation to every document that could include confidential or sensitive information indicates that the Institution, itself, is in no position to ensure watertight confidentiality.
The devil is in the footnotes, or catch 22?
All in all, then, the mechanisms included by the Commission in its initiative on the voluntary ex-ante assessment of large infrastructure projects, including its related helpdesk and information exchange mechanism, seem to be affected by two main issues: first, an unavoidable tension between, on the one hand, the need to provide detailed assessments that make consulting the Commission worth the contracting authorities' while (in particular, in terms of time) and, on the other, the belt and braces approach to disclaiming any legal effectiveness of those assessments. Second, a risk of public exposure of all or parts of a project that can have highly sensitive implications (in political and commercial terms).
The Commission seems to have relied on the existence of a large amount of (good) willingness from contracting authorities, and the hope that the mechanism will be perceived and understood as soft (also by economic and political agents with other agendas). However, as PhD supervisors and peer-reviewers will know well, the devil is in the footnotes, where we all tend to hide those arguments that we know will be more controversial or those issues that we want to avoid having to deal with more openly. In my view, footnotes 10 (no legal effects) and 23 (confidentiality warning) and the multiple cross-references, are good indicators that this mechanism will be problematic. And this is simply because, even if it is clear that contracting authorities will always benefit from additional expertise and (good) free legal advice (in particular, but not only, when they deal with complex projects), the simple fact is that the Commission is not in a position to provide it. First, structurally, because of the legal framework within which it operates--which questions its ability to engage in this type of advocacy plus initiative at all. Second, because of important resourcing constraints, which may well become obvious rather soon if the mechanism is used.
On the whole, I think that this voluntary ex ante mechanism is the paradigm of a catch 22 for the Commission. What is noticeable is that this is one that the Commission has created for itself (ignoring the lessons of the now long-abandoned notification mechanism in the context of Article 101(3) TFEU). And what saddens me personally is that I know for a fact that the Commission heard all of these arguments long before publishing the Communication--as evidenced by the minutes of the meeting of the Stakeholder Expert Group on Public Procurement of 17 February 2016 (note the last two bullet point of para 2).
Recent case law on EU Institutional Procurement
These are the slides of the talk I gave to the 2017 Annual Meeting of the Network of Agencies Procurement Officers, which took place in Parma on 28-29 September (unfortunately, I could only participate via skype, so I missed out on the local cuisine ...).
The slides discuss recent cases that I find relevant for procurement officers of the EU Institutions and raise some issues of broader relevance. The specific topics include: jurisdictional issues, transparency, debarment and rejection of offers, abnormally low tenders and contract modifications.
As always, comments most welcome: a.sanchez-graells@bristol.ac.uk.
reasons for the deduction of points at tender evaluation must be fully disclosed to their last detail: AG MENGOZZI ON DUTY TO MOTIVATE PROCUREMENT DECISIONS (C-376/16 P)
Image: Sébastien Thibault.
AG Mengozzi has put pressure on the Court of Justice (ECJ) to continue pushing for excessive transparency in the context of procurement litigation. On this occasion, the AG has invited the ECJ to establish an extremely stringent requirement for the disclosure of detailed comparisons of the evaluation reports to the level of award sub-criteria, without assessing the extent to which the contracting authority can have legitimate reasons to withhold parts of the evaluation.
In my view, this approach would create significant imbalances between the duty to provide reasons to disappointed tenderers and the duty to preserve competition for public contracts and sufficient protection of business and commercial information, which is problematic [for discussion, see K-M Halonen, 'Disclosure Rules in EU Public Procurement: Balancing between Competition and Transparency’ (2016) 16(4) Journal of Public Procurement 528; A Sanchez-Graells, ‘The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives’ (2013) Univ. of Leicester School of Law Research Paper No. 13-11]. Therefore, I argue that the ECJ should deviate from the Opinion of AG Mengozzi in its final Judgment in this case.
It is worth noting that the case is subjected to a previous version of the procurement rules in the EU Financial Regulation, but the ECJ's Judgment will be more generally relevant, both in the context of the current Financial Regulation controlling EU Institutional procurement and, more generally, for procurement controlled by the rules in the 2014 EU Public Procurement Package.
The AG Opinion
In his Opinion of 28 September 2017 in case EUIPO v European Dynamics Luxembourg and Others, C-376/16 P, EU:C:2017:729, AG Mengozzi has once more attempted a delineation of the obligation to state reasons for a decision to reject a tender and, in particular, "with regard to the correlation between the specific negative assessments set out in the evaluation report and the deductions of net points made by the contracting authority" (para 19). Or, in other words, AG Mengozzi has indicated the way in which the case law of the Court of Justice (ECJ) on the duty to provide justifications in the context of procurement debriefing applies to the reasons for the deduction of points on the basis of negative judgements of the evaluation committee [for general discussion of this obligation, see A Sanchez-Graells, “Transparency in Procurement by the EU Institutions”, in K-M Halonen, R Caranta & A Sanchez-Graells (eds), Disclosure Rules within Public Procurement Procedures and During Contract Period, vol 9 EPL Series (Edward Elgar, forthc.)].
This point of law was raised by EUIPO against the previous finding of the General Court (GC) that, despite the fact that contracting authorities are not required to provide unsuccessful tenderers with a detailed summary of how each aspect of their tenders was taken into account for its evaluation, however,
when the contracting authority makes specific assessments as to the manner in which the tender in question fulfils or otherwise [award] criteria and sub-criteria, which are clearly relevant to the overall score of the tender, the duty to state reasons necessarily includes the need to explain how, in particular, negative assessments gave rise to the deduction of points (Judgment of 27 April 2016 in European Dynamics Luxembourg and Others v EUIPO, T-556/11, EU:T:2016:248, para 250).
In the specific case, the GC considered it particularly important because the evaluation method included relative measures, so that "any deduction of net points in respect of certain sub-criteria automatically resulted, under the formula applied by the contracting authority, in the increase in the number of gross points to be allocated to the successful tenderers’ tenders in respect of their technical quality" (AGO C-376/16 P, para 24 & T-556/11, para 251).
The circumstances of the case where such that EUIPO disclosed the overall score for each of the three technical or qualitative criteria used in tender evaluation, but not the detailed breakdown for each of the award sub-criteria taken into consideration by the evaluation committee. In those circumstances, the GC found that "it was impossible, both for [the disappointed tenderer] and for the Court, to understand the calculation or precise breakdown of the points deducted for each sub-criterion, or even for each of the sub-points, and that it was therefore also not possible to verify whether and to what extent those deductions actually corresponded to the negative assessments made in the evaluation report and, accordingly, whether they were justified or not, or, at the very least, sufficiently plausible" (AGO C-376/16 P, para 26 & T-556/11, para 252).
EUIPO opposed that finding, and the more general point of law made by the GC, on the basis that neither the applicable rules, nor the case law of the CJEU required the debriefing information provided to a disappointed tenderer to include a demonstration of "which negative comment led to which deduction of points for each specific sub-criterion or sub-point" (AGO C-376/16 P, para 28 - for details of the reasons, see paras 29-31).
Thus, the main point of contention concerns the limits of the duty to disclose details of the evaluation process and report. Or, as AG Mengozzi put it, the question is "in essence, whether the [GC] was right in holding that the decision to reject the tender did not satisfy the requirements to state reasons stemming from [the applicable rules], as interpreted by the case-law, or whether the [GC] applied an overly strict test compared with the aforementioned provisions and the relevant case-law of the [ECJ]" (AGO, C-376/16 P, para 32).
After a short restatement of the ECJ case law on the limits of the obligation to provide reasons and disclose relevant parts of the evaluation report, and despite stressing that "the contracting authority [is not] under an obligation to provide an unsuccessful tenderer, upon written request from it, with a full copy of the evaluation report" (AGO, C-376/16 P, para 36), in short, AG Mengozzi has invited the ECJ to establish that the right disclosure standard is one where
(i) the extracts of the evaluation reports disclosed by the [contracting authority] [make] it possible to deduce the number of points obtained by the appellant in question in comparison with the successful tenderer, broken down each time for each sub-criterion, and the weight of each sub-criterion in the overall evaluation, and (ii), the comments of the evaluation committee which [are] disclosed [explain], for each award criterion, on the basis of which sub-criteria the [contracting authority] had found the tender of the successful tenderer or that of the appellant in question to be the best (AGO C-376/16 P, para 47, emphases in the original).
AG Mengozzi suggests that this would have already been implicitly established in the Judgment of 4 October 2012 in Evropaïki Dynamiki v Commission, C-629/11 P, EU:C:2012:617, para 11, where the circumstances of the case reflected this level of disclosure.
Criticism
In my view, this is not an adequate test.
First of all, I struggle to see where the boundary lies between having to disclose the evaluation report in full and having to provide an absolutely broken down comparative assessment of the evaluation of the disappointed tenderers' tender and that of the preferred tenderer. To be fair, the previous case law is riddled with such tensions and it is difficult to establish clear boundaries on the obligation to disclose information contained in the evaluation report. However, in my view, the step taken by AG Mengozzi (and previously by the GC) comes to nullify the general (minimum) safeguard that contracting authorities are not required to disclose the evaluation report in full.
Secondly, I am not sure that in the assessment of these issues enough consideration is given to the fact that the relevant rules allow contracting authorities not to disclose certain details where disclosure would hinder application of the law, would be contrary to the public interest or would harm the legitimate business interests of public or private undertakings or could distort fair competition between those undertakings. In my view, there is a clear case to be made for restricting the level of disclosure of the points given to competing tenderers to a level of generality (eg award criteria rather than sub-award criteria) that strikes a balance between allowing for the review of the procurement decision while preserving competing interests. If the case law of the ECJ develop in the direction suggested by AG Mengozzi, it will be almost impossible for contracting authorities to protect legitimate interests in the context of procurement, and this will have chilling effects on participation.
Third, such a test would potentially make sense in terms of disclosure between the contracting authority and the review body or court, but not in relation to the disappointed tenderer. It would make much more sense to allow for disclosure limited to the level of award criteria at debriefing stage and, only in case the disappointed tenderer is not satisfied and launches an administrative or judicial review, for that information to be released to the review body of court, with stringent rules on access to that confidential information (for example, along the lines of the guidelines recently adopted in England). In the absence of this differential access to sensitive information, the adoption of the test proposed by AG Mengozzi is excessive and creates structural risks for abuse and competitive distortions--which makes it an undesirable test.
On the whole, I think that this Opinion and the previous decision by the GC show that the logic and operation of the rules on disclosure of information in the context of procurement litigation require a careful reassessment. In a case such as this one, where the record shows that EUIPO made significant efforts to disclose information to the disappointed tenderer, while still (maybe implicitly) aiming to protect sensitive information, the imposition of higher levels of disclosure obligations seems to me excessive. Once more, this militates in favour of the regulation of specific procedural steps to assess issues of confidentiality and, in particular, the need to create some asymmetrically opaque review mechanisms that allow for proper scrutiny of procurement decisions in a way that does not jeopardise competition in the market or anyone's legitimate business and commercial interests.
Interesting report on CJEU case handling by the EU Court of Auditors
The European Court of Auditors has published today a report on the handling of cases by the Court of Justice of the European Union (see report here and press release from the Court of Justice here). The report is interesting in many respects.
In terms of CJEU activity linked to EU economic law, I find it interesting that, in the sample taken for the report, competition and procurement cases requiring a preliminary ruling tended to take between 2 years and 2 years and a half. This likely places them towards the top right corner of the complexity/duration chart created by the Court of Auditors (below).
In not too dissimilar a fashion, it is also interesting to stress that the lengthier cases before the General Court involve competition and State aid issues.
Taken together, these seem to be signs of the need for the creation of a specialised chamber for economic law to absorb part of the workload and try to deliver judgments within a timeline better adjusted to the needs of market dynamics.
In that connection, it is worth stressing that the Court of Auditors reminds us that:
By 26 December 2020, the Court of Justice must report to the European Parliament, the Council and the Commission on the functioning of the General Court, covering its efficiency, the necessity and effectiveness of the increase to 56 Judges, the use and effectiveness of resources and the further establishment of specialised chambers and/or other structural changes (see Article 3(1) of Regulation (EU, Euratom) 2015/2422).
In my view, that will be an adequate moment to propose the delegation of preliminary rulings to the General Court in matters of EU economic law and the creation of a specialised court.
A couple of papers on procurement and discretion
I am preparing a paper on discretion and competition under the EU public procurement rules for a workshop at Lady Margaret Hall (Oxford) in November. In looking for new ideas and making sure I cover the necessary background, I have been reading recent economics and political science papers on the topic.
After a few reads, I think I am starting to identify an emerging trend of support for both (i) expanded use of discretion and (ii) claims of positive effects of the exercise of that discretion on procurement outcomes. I think both issues are interesting and tricky, and have found the two papers below thought-provoking (even if not entirely convincing). I would recommend reading them if you are interested in this topic.
- J Gutman, 'Is there room for discretion? Reforming public procurement in a compliance-oriented world' (2014) Brookings Global Economy and Development Working Paper No 74 (published online June 2016).
This is a political science paper aimed for a non-academic audience and it maps the discussions behind the choice on whether to promote or constrain discretion by procurement officers. It follows the US discussion and goes back to the arguments developed by Kelman in 1990. However, the paper largely ignores the ensuing discussion in the US where, primarily Schooner (2001, 2004), raised important issues around the oversight of the exercise of discretion. The interested reader would be well advised to incorporate Schooner's insights in the mix.
Gutman also stresses the need to extend procurement regulation and the possibility to exercise discretion to the execution phase. In that, he raises issues that are currently being asked across the EU, in particular concerning oversight of contractual modifications (see here). A reader familiar with these issues will not find much new in Gutman's paper, but it offers a good entry point for newcomers to the issue.
D Coviello, A Guglielmo & G Spagnolo, 'The effect of discretion on procurement performance' (2017) Management Science (published in advanced access in February 2017).
This is an econometrics paper that uses an interesting (and rather large) database of Italian contracts to 'document the causal effect of increasing buyers’ discretion on procurement outcomes'. They design their study around two different procedures for the award of works contracts: 'Works with a value above a given threshold have to be awarded through an open auction. Works below this threshold can be more easily awarded through a restricted auction, where the buyer has some discretion in terms of who (not) to invite to bid.' Or, in other words, they compare situations where the contracting authority is free to engage in a negotiated procedure with situations where a restricted procedure was mandated. In that regard, they consider that the contracting authority has a larger ability to exclude tenderers from the negotiation than from restricted procedures. I am not convinced about this, as the screening for a restricted procedure under the EU rules is rather strict and contracting authorities are not prevented from adopting any controls they would in a choice of negotiating partners. However, even with that in mind, reading the paper is interesting.
Coviello, Guglielmo & Spagnolo claim that 'Our main result is that discretion increases the probability that the same firm wins repeatedly, and it does not deteriorate (and may improve) the procurement outcomes we observe. The effects of discretion persist when we repeat the analysis controlling for the geographical location, corruption, social capital, and judicial efficiency in the region of the public buyers running the auctions'. I think that the first part of their findings is rather important, as they find discretion to entrench incumbents, either as a result of corruption or any other unobservable incumbency or first mover advantages. It is important to stress that this result is not affected by any assumptions or qualified by causality claims, as this is the straightforward result of crunching the numbers.
On the contrary, the claims of causality of discretion over improved procurement outcomes is affected by assumptions and their claims are weaker and depend on counter-explanations for the same results. On that, I am not sure that the authors carried out all controls that would be necessary or possible in terms of the advantages they find (which are small in scale, in any case), as a control by complexity of the project seems a rather clear missing piece in their testing strategy. Therefore, their results need to be taken with a pinch of salt.
As mentioned above, I think that these two papers reflect a broader trend of support for the exercise of discretion in the context of procurement -- in particular during the execution phase -- and emerging evidence (or at least claims to that evidence) that the exercise of such discretion can result in positive effects beyond the procurement phase of the public expenditure cycle. On the whole, this could push for reduced controls on the exercise of that discretion (or a lax approach to it) and a move of the focus on the design and award of the contract towards its execution.
This triggers me to think about the constraints on the exercise of that discretion (during the execution phase, but also in earlier procurement stages) that can be necessary to ensure that only positive results are achieved. Not surprisingly, I think that the key will be in the principle of competition and a pro-competitive orientated application of the proportionality principle. Roughly, that is what I will try to do in my forthcoming paper. I will post it here when ready. In the meantime, comments are most welcome.
In-depth discussions on contract modifications at the Danish Association for Public Procurement
I had the honour of being invited to speak at the workshop on "Contract Changes in a European Perspective" organised by the Danish Association for Public Procurement (Dansk Forening for Udbudsret), where I shared thoughts with academic colleagues that have been researching on the topic for a long time--such as Prof Steen Treumer, Dr Piotr Bogdanowicz and Dr Carina Risvig Hamer--as well as with practitioners, such as Erik Kjær-Hansen, facing the increasingly complex task of advising contracting authorities and economic operators.
In my presentation, I covered general issues concerning the interaction between contract modifications and competition for public contracts (slides below), Piotr concentrated on specific interpretive difficulties raised by Article 72 of Directive 2014/24/EU, and the general discussion raised interesting topics based on Danish practice--which is rather sophisticated, and also in a state of shock after the CJEU's Finn Frogne decision of last year (see here).
In my view, there are significant challenges derived from the extension of EU rules to the execution phase of public contracts and the pro-competitive logic that generally inspires the rules in Article 72 of Directive 2014/24/EU, as well as the previous case law of the CJEU, is limited and bound to continue hitting the wall of unnecessary inflexibility of procurement procedures unless some more commercially-oriented sophistication is introduced in future case law (which should limit, if not reverse, Finn Frogne).
In the meantime, there is notable pressure on lawyers involved in the drafting of contract modification clauses, which are after an impossible mix of flexibility and predictability. Definitely an area where further discussions are needed. If you want to get involved in the conversation, please feel free to email me at a.sanchez-graells@bristol.ac.uk (or comment below).
CJEU backs automatic exclusion of tenderers that had relied on no longer qualified third parties (C-223/16)
In its Judgment of 14 September 2017 in Casertana Construzioni, C-223/16, EU:C:2017:685, the Court of Justice of the European Union (CJEU) has confirmed the legality of the automatic exclusion of an economic operator that had relied on the capacities of an auxiliary undertaking, where the latter lost the required qualifications after the submission of the tender. The CJEU has ruled that the relevant provisions of Directive 2004/18/EC (Arts 47(2) and 48(3)) did not preclude such automatic exclusion, and that they did not require offering the concerned tenderer the possibility to replace the now not-qualifying auxiliary undertaking.
In doing so, the CJEU has followed the Opinion of Advocate General Wahl (criticised here), and created a precedent that is at odds with the new rules in Directive 2014/24/EU (Art 63) and that raises new interpretive difficulties. This post will first rehearse the main reasons why AG Wahl's and now the CJEU's approach is criticisable. It will then look into the interpretive difficulties that can carry through to the interpretation of Article 63 of Directive 2014/24/EU.
Not necessarily a proportionate or pro-competitive approach
In a nutshell, the reasons given by the CJEU to accept the automatic exclusion of a tenderer that relied on the capacities of an auxiliary undertaking that disappear once the offer has been submitted are the same as those of AG Wahl, and are summarised by the CJEU as follows:
as the Advocate General observed ..., the possibility afforded, unpredictably, exclusively to a consortium of undertakings to replace a third-party undertaking which belongs to that consortium and has lost a qualification that is required in order not to be excluded would amount to a substantial change of the tender and the very identity of the consortium. Indeed, such a change of the tender would compel the contracting authority to carry out new checks whilst at the same time granting a competitive advantage to that consortium which might attempt to optimise its tender in order to deal better with its competitors’ tenders in the procurement procedure at issue.
Such a situation would be contrary to the principle of equal treatment which requires that tenderers be afforded equality of opportunity when formulating their bids and which implies that the bids of all tenderers must be subject to the same conditions, and would amount to a distortion of healthy and effective competition between undertakings participating in a public procurement procedure (C-223/16, paras 39-40, emphasis added).
This encapsulates three reasons: (i) discrimination because one consortium is given the opportunity and other tenderers are not, (ii) discrimination because the beneficiary consortium can substantially alter the terms of its tender, and (iii) additional work for the contracting authority. In my opinion, the first reason is spurious because the opportunity to substitute would only arise where a consortium is affected by the loss of qualification of one of its auxiliary undertakings and, barring a case where two or more competing consortia found themselves in that predicament, there is no discrimination for allowing substitutions on a need basis.
The second reason is equally unpersuasive, in particular because it conflates the strict issue of substitution of the member of a consortium with the separate problem of changes to the content of the tender. As I said in relation to AG Wahl's Opinion, 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 (for more details, see here). Thus, rather than excluding the possibility altogether, the CJEU could have imposed conditions to establish what is an acceptable substitution of auxiliary undertakings and what is not.
Finally, the point on additional checks being required from the contracting authority is relevant. However, rather than considering it a sufficient reason to prevent the substitution, a proportionality assessment would have seemed more appropriate. Given that the exclusion narrows down competition for the contract, the contracting authority should be able to demonstrate that there are sufficient administrative difficulties to justify proceeding this way.
Thus, in outline, I would have preferred that the CJEU departed from AG Wahl's Opinion and declared 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.
In my view, my preferred interpretation is encapsulated in Article 63(1) of Directive 2014/24/EU, in particular as read in the light of the principle of competition in Article 18(1) thereof [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) 315-318]. However, the Casertana Judgment may raise some questions around that approach, which requires some closer analysis.
New doubts concerning Article 63(1) of Directive 2014/24/EU
In the Casertana Construzioni Judgment, the CJEU follows its previous approach in Partner Apelski Dariusz (paras 82-94, see here) and the Opinion of AG Wahl and rejects both (i) the application of Article 63(1) of Directive 2014/24/EU to the case ratione temporis (which is uncontroversial, as the tender took place in 2013) and (ii) the possibility of interpreting the rules of Directive 2004/18/EC in light of Article 63(1) of Directive 2014/24/EU. Casertana reiterates the finding in Partner that Article 63(1) of Directive 2014/24/EU introduces 'substantial amendments as regards the right of an economic operator to rely on the capacities of other entities in the context of public contracts' (C-223/16, para 26) and is therefore not suitable as an interpretive tool in relation to Directive 2004/18/EC because the latter is not affected by 'problems of interpretation' (C-223/16, para 28). However, the case is not limited to ignore Article 63(1), but rather seems to consolidate a strict interpretation of this provision. Additionally, given the divergence between Article 63(1) of Directive 2014/24/EU and the Casertana Judgment, the latter creates a potential difficulty concerning the cut-off point at which the possibility to replace non-qualified third parties ends.
Seemingly too restrictive (implicit) interpretation of Article 63(1) of Directive 2014/24/EU
Both the Partner and Casertana cases stress that the new rules foresee that "Article 63(1) of Directive 2014/24 now provides that economic operators may ‘only rely on the capacities of other entities where the latter will perform the works or services for which these capacities are required’ ... and that ‘the contracting authority shall require that the economic operator replaces an entity which does not meet a relevant selection criterion, or in respect of which there are compulsory grounds for exclusion’" (C-223/16, para 25). The second part of this statement has been discussed above (and could have been reconciled with the pre-2014 rules by operation of the principle of proportionality). The first part of the statement is problematic.
Indeed, this incipient consolidation of the rules in Article 63(1) could trigger difficulties because, according to its literal wording, the restriction of reliance on third parties where they will perform the work or services for which the capacities are required solely concern "criteria relating to the educational and professional qualifications as set out in point (f) of Annex XII Part II [ie the educational and professional qualifications of the service provider or contractor or those of the undertaking’s managerial staff, provided that they are not evaluated as an award criterion], or to the relevant professional experience" -- or, in other words, economic operators are allowed to rely on financial, economic and other types of professional qualifications of third parties even if those parties will not directly carry out the works. This comes to allow for consultancy and technical support contracts to back up the tenders of economic operators that may not have all those resources in-house and is generally pro-competitive. By adopting a blanket approach to the requirement of direct involvement in the execution of the contract beyond the limited remit established in Article 63(1) of Directive 2014/24/EU, a broad reading of the Casertana and Partner cases could deactivate large parts of the flexibility for the formation of consortia that are inherent to the system.
In the specific case of Casertana, all we know is that
Casertana participated in the call for tenders within the framework of an ad hoc tendering consortium under formation, as lead company, and declared that it relied, as regards the qualifications required by [the applicable Italian rules], on those of two auxiliary undertakings, one being Consorzio Stabile GAP.
In the course of the procedure and after the end of the stage of admission to the call for tenders, that auxiliary undertaking [is Consorzio Stabile GAP] lost qualification for the required category of services, thus becoming qualified for a lower category of services only (C-223/16, paras 11-12).
Put simply, it is not known why Consorzio Stabile GAP saw its qualification reduced for a lower category of services. If the reasons were not linked to the educational and professional qualifications of its managerial staff or the relevant professional experience of the undertaking, then an acritical application of the decision of the CJEU to the case would imply an unnecessary (and illegal) restriction of the flexibility foreseen in Article 63(1) of Directive 2014/24/EU.
Unresolved timing issues -- when does Article 63(1) of Directive 2014/24/EU stop applying?
In Casertana, the CJEU simply indicated that there is no requirement to give the tenderer an opportunity to substitute auxiliary undertakings that have lost the required qualifications after the tender has been submitted because that would amount to allowing for a substantial change of the tender (see above). It also indicated that tenderers could not claim force majeure (or, more generally, the unpredictability of the loss of qualification by the auxiliary undertaking) to gain such an opportunity to substitute them because, although the procurement rules enable "a tenderer to rely on the capacities of one or more third party entities in addition to its own capacities in order to fulfil the criteria set by a contracting authority, that tenderer remains responsible, in its capacity as the lead undertaking in a consortium of undertakings, for the compliance of those undertakings with the obligations and conditions for participation in the call for tenders laid down by the contracting authority in the documents relating to the procurement procedure at issue" (C-223/16, para 41). A question arises on how to interpret these two issues in situations where Article 63(1) of Directive 2014/24/EU is applicable.
Taking the second aspect first, it seems clear that under Article 63(1) of Directive 2014/24/EU, the responsibility for ensuring compliance with the selection criteria included in the call for tenders is shared between the lead undertaking and the contracting authority. In that regard, it is worth emphasising that the provision foresees that
The contracting authority shall ...verify whether the entities on whose capacity the economic operator intends to rely fulfil the relevant selection criteria and whether there are grounds for exclusion ... The contracting authority shall require that the economic operator replaces an entity which does not meet a relevant selection criterion, or in respect of which there are compulsory grounds for exclusion. The contracting authority may require or may be required by the Member State to require that the economic operator substitutes an entity in respect of which there are non-compulsory grounds for exclusion.
Given this wording, and in case the contracting authority issues a favourable opinion on the qualifications held by a given auxiliary undertaking (or fails to check them, as was the case in Casertana, where the loss of qualification was only raised in the context of a counter-claim against Casertana's challenge to the award of the contract to a different consortium), issues will arise concerning legitimate expectations, in particular concerning the ability to replace no loner qualifying third parties at any point of the procurement process, all the way through to award (including any litigation concerning findings of loss of compliance with selection criteria at tender evaluation stage). However, this would be in stark contrast with the first aspect of the Casertana Judgment, which considers a substitution of auxiliary undertaking an impermissible tender modification. Therefore, the question will arise whether Article 63(1) is applicable throughout the procurement procedure, or only up to the point of submission of tenders.
In my view, the answer to the question cannot be all-or-nothing (as has been the case in AG Wahl's Opinion and in the Judgment), but rather require an analysis of the terms of the substitution (if the new auxiliary undertaking simply assumes all obligations of the previous undertaking in the exact same conditions, where is the advantage?), as well as a proportionality assessment of any new verification work required from the contracting authority as a result of the substitution (in the Casertana case, the issue revolved around qualifications administered by a third party [ie a Certification Body], so it would have seemed rather easy to substitute auxiliary undertakings without requiring much from the contracting authority). Failing that, there is a risk of limiting Article 63(1) to a one-shot remedial opportunity restricted to the contracting authority's first assessment of the tenderer's (and its auxiliary's) compliance with exclusion and qualitative selection rules. Even if this would be an improvement over the 2004 system (in particular as interpreted in Casertana), it would fall short from the flexibility that can be derived from a broader and more dynamic reading of Article 63(1) of Directive 2014/24/EU.
Increasing space for unfair competition from the public sector in procurement markets ~ What now?
Last week, I had the pleasure of participating in the Scottish Competition Forum discussion on 'Unfair competition from the public sector in commercial markets'. In my presentation (slides below), I concentrated on the increasing space that recent reforms in EU public procurement law have created for situations of potential unfair competition and crowding out of private economic initiative by the commercial activities of the public sector, in particular in small markets.
The discussions at SCF indicated that there is scope (and need) for additional regulation ensuring competitive neutrality where "arms' length" organisations (such as in-house entities, vehicles for public-public cooperation, or central purchasing bodies) engage in economic activities in competition with the private sector. This is along the lines of the work that my co-author Dr Ignacio Herrera Anchustegui and I have been carrying out concerning the submission of these entities (in particular, central purchasing bodies) to competition rules -- see here and here.
This is also in line with some of the insights resulting from other discussions in a recent event organised by the Finnish Procurement Association, on which I plan to blog soon. Keep an eye on this space if you are interested in the emerging challenges derived from increased marketisation / commercialisation of the activities of instrumental entities carrying out procurement.
Recent Case Law on EU Institutional Procurement under the Financial Regulation (II): Abnormally Low Tenders
Before the summer recess, the General Court adopted two interesting decisions on public procurement carried by the EU Institutions. One concerns the debarment of tenderers that have been found to breach EU procurement rules and negatively affect the financial interests of the Union (T-151/16). The other concerns the obligation to state reasons in the context of allegations that a tender is abnormally low (T-392/15). The first case was discussed in a previous post, while this blog now discusses the second case.
In its Judgment of 4 July 2017, European Dynamics Luxembourg and Others v Agence, T-392/15, EU:T:2017:462, the GC assessed once more the limits of the obligation incumbent upon contracting authorities to state reasons in the context of an assessment of an apparently abnormally low tender. The case is decided under the rules of EU Institutional Procurement (ie the Financial Regulation and Rules of Application), but its basic principles seem to me to be also of relevance for procurement covered by the 2014 Public Procurement Package and, in particular, Article 69 of Directive 2014/24/EU.
The distinctive peculiarity of the case is that the challenge concerns the retendering of lots of a previous procedure that had been partially cancelled. As a result of the cancellation of the original procedure post-evaluation and the disclosure of information in the debriefing linked to that tender, participants in the retendering had the advantage of availability of substantial pricing information concerning their competitors (which is certainly one more reason to take confidentiality of information in these processes very carefully, in particular where disclosure of information allows for a 'reverse engineering' of the prices offered by other tenderers--see the discussion in A Sanchez-Graells, 'Transparency in Procurement by the EU Institutions' (August 16, 2017). As a result of having that information, one of the tenderers challenged the award decision in the retendering on the basis that some of the values of the preferred tenders were 'excessively low' and that the contracting authority, having access to that information, was under a duty to provide explicit reasons why it did not consider the tenders received in the second run abnormally low (see paras 68-69) .
In order to decide on the dispute, the GC first recasts the existing provisions and case law on the duty to provide reasons as part of the right to good administration under Article 41 of the Charter of Fundamental Rights of the EU (paras 72-80) and stresses that 'the obligation to state reasons for an act depends on the factual and legal context in which it was adopted' which in the specific requires that 'account ... be taken of the ... regulatory framework applicable in the present case governing abnormally low tenders' (para 81). The GC then discusses such regulatory framework (paras 82-90), stressing that previous case law 'has held that the contracting authority’s obligation to check the seriousness of a tender arises where there are doubts beforehand as to its reliability, bearing in mind that the main purpose of that [investigation] is to enable a tenderer not to be excluded from the procedure without having had an opportunity to explain the terms of its tender which appears abnormally low. Thus, it is only where such doubts exist that the evaluation committee is required to request relevant information on the composition of the tender, before, if necessary, rejecting it' (para 85, references omitted). This creates a two-stage approach to the analysis, where first the authority needs to assess if there is an appearance or suspicion of abnormally low values and,only in that case, engage in the inter partes detailed investigation that will trigger the need for additional justification of its final position on the abnormality or not of the tender. In the analysis of the GC, thus, whether there is a duty to investigate in detail and the extent to which reasons need to be given depend on whether 'there is evidence which arouses a suspicion that a tender may be abnormally low' (para 89).
Elaborating on this, the GC establishes that 'the contracting authority need, in the first stage, only carry out a prima facie assessment of the abnormally low character of a tender, that its duty to state reasons is limited in scope. To require the contracting authority to set out in detail why a tender does not appear to be abnormally low does not take into account the distinction between the two stages of the examination' (para 92). Thus, in even clearer terms, 'where a contracting authority accepts a tender, it is not required to state explicitly in response to any request for a statement of reasons ... [why] the tender it accepted does not appear to it to be abnormally low. If that tender is accepted by the contracting authority, it follows implicitly, although not necessarily, that the contracting authority considers that there was no evidence that that tender was abnormally low. However, such reasons must be brought to the attention of an unsuccessful tenderer which has expressly requested them' (para 93).
In my view, this test is helpful, as it sets a clear balance of duties between the contracting authority -- a duty to assess whether there is evidence to support a suspicion of abnormality, but no duty to justify why it does not consider that this is the case in each and every single instance -- and the tenderers -- which can express their concerns about the appearance of abnormality of competing tenders and demand that the contracting authority clarifies the reasons for its disagreement, where prompted to do so. In my view, this is a useful and practical approach generally applicable to procurement, both under the rules of EU Institutional procurement and that covered by the 2014 Public Procurement Package.
Recent case law on EU Institutional Procurement under the Financial Regulation (I): Self-Cleaning
Before the summer recess, the General Court adopted two interesting decisions on public procurement carried by the EU Institutions. One concerns the debarment of tenderers that have been found to breach EU procurement rules and negatively affect the financial interests of the Union (T-151/16). The other concerns the obligation to state reasons in the context of allegations that a tender is abnormally low (T-392/15). This blog discusses the first case, while a subsequent post comments on the second.
Judgment of 27 June 2017, NC v Commission, T-151/16, EU:T:2017:437, is concerned with the registration in the Early Warning and Detection System database (ie the registry of tenderers and contractors debarred from EU Institutional procurement, currently relabelled as Early Detection and Exclusion System, EDES) of tenderers that have been found to have committed serious breaches of contractual obligations--in this case, as established by OLAF, the simulation of procurement procedures for the acquisition of equipment ultimately funded by the EU. The case is affected by the additional difficulty that the rules controlling EU Institutional procurement (ie the Financial Regulation and its Rules of Application) were modified in the period between the irregularities were committed (2008 and 2009) and the time of the imposition of the sanction of debarment by the Commission (which crossed over between 2015 and 2016). This triggered two legal complications in terms of retroactivity of most favourable/lenient substantive rules: first, the effect that needed to be given to a reduction in the maximum period of debarment from 5 to 3 years; second, the possibility to neutralise a ground for exclusion on the basis that the affect undertaking had taken sufficient remedial measures demonstrating its reliability (ie had self-cleaned). On top of that, there were procedural complications due to the revised procedures leading to registration in EDES, which currently require a panel opinion that was not part of the pre-2016 procedure for the registration in the Early Warning and Detection System database.
On the procedural point, which the GC examines first, the dispute hinges on the fact that the debarment decision was adopted on 28 January 2016 (which would have required an involvement of the EDES panel, active from 1 January 2016; see para 32), but the Commission considered the administrative procedure 'completed' on 17 December 2015 (thus subjecting it to the 'no-panel' procedure in force until 31 December 2015; see para 34). This ground is ultimately dismissed by the GC on the basis that there is no reason to establish the retroactive application of the procedural rules to investigations started before 1 January 2016, which would 'imply recommencing the preliminary procedure completed properly before that date, in particular having regard to compliance with the adversarial principle' (para 43).
This decision goes against the general principle that new procedural rules that do not contain specific transitional provisions accompanying the fixing of their general application date also apply to on-going/pending procedures (see para 36). The decision is based on an exception to such created in the Judgment of 8 November 2007, Andreasen v Commission, F-40/05, EU:F:2007:189, whereby that rule can be excluded to avoid 'the retroactive annulment of procedures or procedural steps which complied with the rule in force when they were completed' (para 38; see also para 43 of T-151/16).
What I find interesting, though, is that the GC considers that such assessment is not altered '[e]ven if the introduction of that panel was intended to strengthen the rights of the defence of parties contracting with the Union who may be subject to a penalty under the Financial Regulation' (ibid). In my view, this is a very ad hoc finding, which the GC reaches only because it considers the pre-2016 rules already sufficiently protective of individual rights of the affected undertaking, and to have been adequately followed in the specific instance. Had this not been the case (eg, had the previous procedure been seen to fall short of complying with the adversarial principle), the decision by the GC may well have been the opposite. Thus, on this point, the decision of the GC seems difficult to extrapolate to other contexts and the exception that seems to derive from Andreasen and now NC needs to be taken with a pinch of salt.
On the substantive points, first concerning the retroactivity of a more lenient rule allowing for self-cleaning, the GC takes the view that the possibility to self-clean and thus exclude debarment makes the new rules clearly more favourable (para 57). On that basis, the GC takes issue with the fact that the Commission took into account remedial measures for the purpose of setting the duration of the exclusion below the maximum exclusion period (initially at 2 years, later reduced to 18 months) but did not assess it with a view to completely exclude the debarment on the basis of satisfactory self-cleaning. As the GC put it: 'Although the contested decision shows that the remedial measures taken by the applicant were taken into account to determine the duration of the exclusion imposed, no reason is given in that decision as to why those measures were insufficient to satisfy the conditions' for an operator that has taken certain remedial measures demonstrating its reliability not to be excluded from the contracts and grants of the Union (para 58). Second, and along the same lines, on the assessment of the implications of a reduction the maximum debarment period from 5 to 3 years, the GC considers that the new spread of debarment times should have been explicitly taken into account by the Commission (paras 59-60). This eventually leads to an annulment of the debarment decision (para 63).
In my view, this strict approach adopted by the GC on the basis of the guarantees enshrined in Article 49 of the Charter of Fundamental Rights of the EU and interpretive case law (paras 53-55) comes to strengthen the procedural guarantees involved in the adoption of debarment decisions. Extrapolating this to procedures not covered by the rules on EU Institutional procurement, but rather by the 2014 Public Procurement Package and its transposition at domestic level by the Member States, it seems clearer than ever to me that there is a need for the revision of the remedies directive in order to ensure the effectiveness of the same level of protection--as discussed, over a year ago, in A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' (August 11, 2016), to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (forthc). Available at SSRN: https://ssrn.com/abstract=2821828.
Interesting guidance on confidentiality of commercial secrets in procurement litigation issued by the TCC
In July 2017, the Technology and Construction Court (a sub-division of the Queen's Bench Division, part of the High Court of Justice for England and Wales) adopted new guidance on procedures for public procurement litigation (see Appendix H to the Technology and Construction Court Guide; the TCC guidance).
The TCC guidance includes two interesting sets of recommendations. One concerns an invitation to exhaust the possibilities for alternative dispute resolution before proceeding to full-fledged litigation (see paras [4] to [8]). The other concerns the disclosure of confidential information between the parties of the dispute (see paras [27] to [48]).
The latter is an issue that raises difficult problems for the protection of business secrets, and I find the TCC guidance interesting in the balance it tries to achieve between ensuring that disappointed tenderers gain access to the information they need to support their claims, and the broader considerations surrounding the need to ensure adequate protection of business secrets in order not to deter participation in public tenders (which is a tricky issue facing all EU jurisdictions, including the rules applicable to procurement carried out by the EU Institutions, and on which we are concentrating in the on-going research of the EPLG).
As the TCC guidance puts it, indeed, "[c]onfidentiality is not a bar to disclosure. However, the need to protect confidential information needs to be balanced by the basic principle of open justice", at para [27]. The TCC guidance aims to achieve such balance through practical approaches and general criteria for the balancing of interests. The approaches adopted by the TCC have been praised for being less restrictive than some of the decisions previously adopted in the context of procurement litigation in England and Wales (Kotsonis & Williams).
In my view, beyond the effects it can have in litigation in England and Wales, the TCC guidance can be useful as a benchmark for the treatment of confidential information in other jurisdictions -- provided that the practical solutions that derive from the peculiarities of the British legal culture are adapted to domestic idiosyncrasies.
In particular, there are three aspects that I would identify as best practice susceptible of replication or adaptation in other legal contexts:
1. Promotion of the use of redacted versions of documentation rather than absolute bans on the disclosure of materials, as the use of redacted documents enables documents to be more widely disclosable (see paras [32]-[33]), and thus avoids decisions on confidentiality being taken on an 'all-or-nothing' basis for each of the documents. The guidance also indicates the best way of preparing and submitting to the court redacted versions of documents containing confidential information in a manner that allows for scrutiny and a speedy narrowing down of any discrepancies between the parties on the need to redact any specific bits of information.
2. Creation of one- or two-tier confidentiality rings. TCC guidance defines confidentiality rings as comprising persons to whom documents containing confidential information may be disclosed on the basis of their undertakings to preserve confidentiality, at para [34]. Importantly, the guidance indicates both that the party's external legal advisors will need to be included in the confidentiality ring (para [37]) and that the inclusion of personnel of the parties, including their in-house lawyers, will need to be assessed on the basis of relevant factors likely to include "that party’s right to pursue its claim, the principle of open justice, the confidential nature of the document and the need to avoid distortions of competition and/or the creation of unfair advantages in the market (including any retender) as a result of disclosure" (para [39], emphasis added). In reaching a decision about a specific individual, account needs to be taken of "his/her role and responsibilities within the organisation; the extent of the risk that competition will be distorted as a result of disclosure to them; the extent to which that risk can be avoided or controlled by restrictions on the terms of disclosure; and the impact that any proposed restrictions would have on that individual (for example by prohibiting them from participating in a re-tender or future tenders for a period of time)" (para [40], emphasis added). Similar reasoning would apply to other specialist advisors (such as accountants or other experts) (see para [43]).
Interestingly, the TCC guidance clarifies that employee representatives may need to be "admitted to a confidentiality ring on different terms from external representative" (para [41]), this giving rise to two-tier confidentiality rings--which administration can take different forms: ie, either court administered, with the judicial body establishing the conditions of access by different categories of representatives of the parties, or by delegating the management of the access to the confidentiality ring to the external advisors of the parties, who would then act as gatekeepers of the confidential information (para [42]). This second possibility may be foreign to practice and legal culture in other jurisdictions, but the first (court-administered) possibility for a two-tier confidentiality ring seems quite promising to me.
3. Establishment of (enforceable) undertakings to prevent unauthorised uses of the information gained as part of a confidentiality ring. TCC guidance establishes that access to confidential information will only be allowed where the members of confidentiality rings provide undertakings that "will preclude the use of the relevant material other than for the purposes of the proceedings and prevent disclosure outside the ring" (para [44]). More importantly, the TCC guidance explicitly contemplates the possibility for additional undertakings to be necessary "where there are concerns that disclosure could have an impact on competition and/or any subsequent procurement", and that such additional measures can include: "(1) Preventing employee representatives from holding copies of documents at their place of work and requiring them to inspect the material at a defined location (such as the offices of their external lawyers) ; (2) Limiting the involvement of a recipient of a document in any re-procurement of the contract which is the subject of the litigation; (3) Limiting the role which a recipient can play in competitions for other similar contracts for a fixed period of time in a defined geographic area; and/or (4) Preventing the recipient from advising on or having any involvement in certain matters, again for a fixed period of time" (para [45], emphasis added).
Of course, the monitoring of such undertakings will be complex and there can be very difficult evidentiary issues linked to claims of undue subsequent use of confidential information gained in the context of previous procurement litigation. On that issue, the TCC guidance establishes a strict proportionality test, whereby "[w]hilst the Court will give weight to the need to protect competition in the market, the more onerous the proposed restriction is, the more clearly it will need to be justified" (para [46]). In my view, this will play both ways. On the one hand, high risks of competition distortions will be able to justify the imposition of heavy restrictions on future activity of the employee concerned. On the other, an in reverse reasoning, the Court will have to ensure that future restrictions are not disproportionate to the value of the information and the position of the employee within its organisation.
However, there is a third implication that may bear spelling out, which is that some risks of future distortions of competition will be so high, that no acceptable restrictive measure can be designed--in which case I would argue against the inclusion of the relevant person in the confidentiality ring (eg I would not grant the CFO of a company access to the detailed financial schedule of any of its competitors).
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Overall, I think that the TCC guidance will be useful and it will be interesting to see to what extent the practical roll-out of these recommendations provide an even more detailed case study that can serve as benchmark in other jurisdictions seeking to regulate the disclosure of confidential information in the context of public procurement litigation.