A network of papers on competition in public procurement: What a summer

If anyone has followed my SSRN account over the summer, they could not be blamed for thinking that I have been uploading quite a number of relatively similar papers on the interaction of competition and public procurement rules, and particularly the interpretation of Article 18(1) of Directive 2014/24. Given that this is something I explore in detail in Public Procurement and the EU Competition Rules, 2nd end (Oxford, Hart, 2015) 195-237 (generously made freely available by Hart Publishing here), the reader may wonder what else was there to say about this.

It is true that some of these papers touch upon connected issues and even have some overlapping sections. This could indeed lead readers to think that the papers are a simple iteration of the same ideas and, consequently, there is no point in reading them. This post explains how these papers interact and relate to each other--and it will hopefully clarify that I have not simply engaged in a massive exercise of self-plagiarism (or at least not willingly!). The papers address different specific issues or have different overall aims, which I hope makes them interesting to different scholars and practitioners for different reasons.

(1) The paper with a more general view is 'Competition Law and Public Procurement', which explores two of the areas in which antitrust prohibitions and public procurement law interact. This forms part of a larger project led by Dr Jonathan Galloway of the Newcastle Law School, which researches the way in which antitrust law (ie arts 101 and 102 TFEU) has developed through its interaction with other sets of economic law rules, both in the public and private law sphere. Thus, the paper provides an overview of the areas where the antitrust rules and EU public procurement law overlap, and zooms in to propose that the principle of competition in Art 18(1) of Dir 2014/24 may serve as a transmission belt to bring competition considerations and analysis to the public procurement sphere.

(2) With a similar general approach, I have updated 'Public Procurement and Competition: Some Challenges Arising from Recent Developments in EU Public Procurement Law' (originally drafted in 2013), to be included in Professor Chris Bovis' Research Handbook on European Public Procurement (Edward Elgar, forthcoming). This paper aims to map some of the challenges for a better integration of competition and public procurement rules that remain after the adoption of Dir 2014/24, and pays attention to issues related to eProcurement and the need of further professionalization of procurement. The paper points at research questions that may lead to further research, so it will hopefully be relevant to academics and postgraduate students looking for not so trodden paths to further our knowledge in this area of EU economic law.

(3) The most recent paper 'A Deformed Principle of Competition? – The Subjective Drafting of Article 18(1) of Directive 2014/24' provides a contextual analysis of the legislative process that led to the adoption of Dir 2014/24. Again, this paper forms part of a larger project led by Dr Grith Skovgaard Ølykke and myself that explores broader issues of the EU legislative process and the interaction of the EU Institutions involved, using the 2011-2014 EU public procurement reform as a case study. From this perspective, the paper focuses on the EU legislative process that led to the consolidation of the principle of competition in Art 18(1) of Dir 2014/24, as well as the modifications that its drafting suffered as a consequence of the negotiations between the Member States at the Council and the further amendment proposals by the European Parliament in preparation of the trialogue with the European Commission. This is, on its whole, a 'law and political science' paper--which is a methodological approach that we are trying to embrace as part of the project.

(4) Following this approach of assessing the interaction between law and policy, 'Truly Competitive Public Procurement as a Europe 2020 Lever: What Role for the Principle of Competition in Moderating Horizontal Policies?' tackles the implications of the principle of competition for the pursuit of horizontal policies as part of the broader Europe 2020 strategy. The paper takes the view that the principle of competition in Art 18(1) of Dir 2014/24 is the main tool in the post-2014 procurement toolkit and the moderating factor in the implementation of any horizontal (green, social, innovation) policies under the new rules — that is, that competition remains the main consideration in public procurement and that the pursuit any horizontal policies, including those aimed at delivering the Europe 2020 strategy, need to respect the requirements of undistorted competitive tendering. This is part of a broader discussion on the position and role of public procurement in the Europe 2020 strategy with Dr Richard Craven, Dr Sylvia de Mars and Dr Rike Kraemer at the forthcoming UACES conference.

(5) Finally, adopting a different perspective, 'Assessing Public Administration’s Intention in EU Economic Law: Chasing Ghosts or Dressing Windows?' looks at public procurement and State aid rules as two examples of areas of EU economic law subjected to interpretative and enforcement difficulties due to the introduction, sometimes veiled, of subjective elements in their main prohibitions. The paper explores the main thesis that such intentional elements need to be ‘objectified’, so that EU economic law can be enforced against the public administration to an adequate standard of legal certainty. Thus, the paper does not delve into the substantive implications of the principle of competition in Art 18(1) of Dir 2014/24, but on the technical aspects implied in its apparent requirement of assessing the intention of contracting authorities whose procurement activities are covered by the EU rules.

Overall, in my view, the papers offer quite a complementary set of perspectives on the general issue of the interaction between competition law and public procurement (1, 2), the way in which this interaction is fleshed out in the EU legislative process (3), the way in which diverging and conflicting policy goals can be balanced-out in a pro-competitive way (4) and the broader implications of the development of EU administrative law issues within these fields of EU economic law (5). Their common theme or common denominator is the permanent main focus on the principle of competition consolidated in Art 18(1) of Dir 2014/24. However, when taken as a whole, that is solely the conduit for the exploration of broader issues. Thus, I hope they will still be relevant for interested readers. From now on, I will focus on different issues. Enough of this topic, at least for the summer!

Yet another paper on the principle of competition in the 2014 public procurement Directive

I have uploaded a new paper on SSRN: 'A Deformed Principle of Competition? – The Subjective Drafting of Article 18(1) of Directive 2014/24', forthcoming in GS Ølykke & A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules in 2014 (Cheltenham, Edward Elgar Publishing, 2016). Available at SSRN: http://ssrn.com/abstract=2642971. 

The paper focuses on the EU legislative process that led to the consolidation of the principle of competition in Article 18(1) of Directive 2014/24, as well as the modifications that its drafting suffered as a consequence of the negotiations between the Member States at the Council and the further amendment proposals by the European Parliament in preparation of the trialogue with the European Commission. As detailed in the abstract:

In its 2011 Proposal for a new Directive on public procurement, the European Commission included the consolidation of the general principles of procurement. For the first time, in addition to the ‘classic’ triad of equality, non-discrimination and transparency, it expressly included the principle of competition amongst such general principles. In the 2011 Proposal, the Commission referred to an objective concept of restriction of competition, which would be proscribed by the future Directive. Successive negotiations allowed the Council and the European Parliament to alter the drafting of this provision. The final text in Article 18(1) of the 2014 Directive thus contains a different version of the principle of competition. In this final version, both a subjective element and a presumption of distortion of competition are included, which could diminish the effectiveness of the principle. Moreover, both deviations from the initial proposal by the Commission are difficult to reconcile with the existing case law of the Court of Justice of the European Union (CJEU).

This paper traces the legislative evolution of the principle of competition in public procurement and looks for explanations for the alteration of its initial drafting. Looking to the future, it considers whether the CJEU will stand by the new drafting and limit the principle as desired by the Council and the Parliament or, conversely, it will promote a functional approach along the lines of the objective conception initially proposed by the Commission. This paper proposes that the second option is preferable and, in any case, more likely in view of the CJEU's treatment of similar issues in other areas of EU public procurement law (such as the classical anti-circumvention provisions), as well as EU economic law more generally (and, remarkably, competition law and the granting of State aid).

The paper is part of a larger project where Dr Grith Skovgaard Ølykke and myself will be editing a book that explores broader issues of the EU legislative process and the interaction of the EU Institutions involved, using the 2011-2014 EU public procurement reform as a case study. We are thrilled to have a long list of excellent young and raising scholars contributing to the book. Stay tuned for further developments.

The "new" principle of competition in Directive 2014/24: a new set of presumptions?

The adoption of Directive 2014/24 of 26 February 2014 has resulted in the consolidation of the principle of competition in Article 18. According to the wording of this provision: "The design of the procurement shall not be made with the intention of […] artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators".

 

In my opinion, despite the positive aspects of the express recognition of the principle of competition in the new EU Directive, the inclusion of a subjective element and the reference to the prevention of corruption or the avoidance of conflicts of interest by establishing an irrebuttable presumption of competitive distorsion, raise many questions that are difficult to answer that may give rise to more litigation. In this post, I venture some further thoughts on this "new" principle of competition in Directive 2014/24 (for an initial reaction, see here; please bear in mind that this is a translation of a contribution to http://www.obcp.es/ soon to be published in Spanish, which justifies (?) the references to Spanish domestic law).

 

Explicit recognition of the principle of competition

 

Importantly, and unlike in Spanish national legislation on public procurement (art 1 of RDL 3/2011, of 14 November, approving the consolidated text of the Law on Public Sector Contracts: "This law aims to regulate public sector procurement in order to [...] ensure [...] an efficient use of funds [...] by [...] safeguarding free competition"); so far, the principle of competition in public procurement was only reflected somewhat partially and in a fractionated manner at EU law level, by means of both Directive2004/18 (and earlier versions of the procurement Directives that it consolidated) and the interpretative case law of the Court of Justice of the EU (CJEU) in cases such as Fracasso and Leitschutz (C-27/98, para 31 . "to meet the objective of developing effective competition in the area of public contracts"), Lombardini and Mantovani (C-285/99, para 76: "all the requirements imposed by Community law must unquestionably be complied with in the context of the various aspects of the national procedures for awarding public works contracts, which must moreover be applied in such a manner as to ensure compliance with the principles of free competition") and SECAP (Opinion of AG in C-147/06, para 29 "those directives pursue a limited direct aim, namely the coordination of procedures governed by the sectoral directives with a view to encouraging the development of effective competition in the field of public contracts", as endorsed by the CJEU in the Judgment in C-147/96, para 29: "assess tenders which are submitted to them under conditions of effective competition").

 

Additionally, the contours of the principle of competition were somewhat fuzzy and required a considerable interpretive effort to delineate the obligations derived therefrom (for further details, see A Sanchez Graells, "Competition and the Public Buyer Towards a More Competition - Oriented Procurement: The Principle of Competition Embedded in EC PublicProcurement Directives"). From this perspective, the explicit recognition of the principle of competition in the new EU directive is to be welcomed. However, the explicit formulation adopts the policy is problematic for at least two reasons.

 

Inclusion of a very problematic subjective element: can we "objectify" it?

As we have seen, Article 18 of Directive 2014/24 provides a formulation of the principle of competition in which the subjective or intentional element of any restriction of competition is emphasized: "The design of the procurement shall not be made with the intention of […] artificially narrowing competition" (emphasis added). This intentional element is common to different language versions of the Directive ("intención" in Spanish, "intention" in French, "intento" in Italian, "intuito" in Portuguese or "Absicht" in German), so it cannot be justified as a deficiency in translation or an error in the wording of the provision. However, the recitals of the directive do not provide any clarification and, ultimately, this provision opens the door to complex problems of identification and attribution of intentional elements in the field of public procurement—or, more generally, in administrative (economic) law.

In my opinion, this task is very complex, as it requires establishing the parameters by which a decision that often involves various individuals (and potentially several administrative bodies) is considered affected by an underpinning anticompetitive intent. In fact, I think that this task is virtually impossible, given that the traditional mechanisms of allocation of subjective factors in (administrative) disciplinary or criminal law are not applicable and very clearly require an "objectifying" reinterpretation of the intentional element in the provision.

The reasons for the "objectification" of the wording of Article 18 of Directive 2014/24 are multiple and derived mainly from the need for coordination of this new rule with some of its "functional neighbours". Firstly, such coordination should take into account the objective character of the restrictions of competition derived from the rules of the Treaty on the Functioning of the EU (TFEU) and its interpretation by the CJEU. Indeed, the prohibitions in Articles 101 and 102 TFEU (and their national counterparts, such as in Articles 1 and 2 of the Spanish Law 15/ 2007 of 3 July, on the defence of competition) apply in abstraction from any volitional element of the offending parties. A competitive restriction in the market automatically results in a violation of those prohibitive norms, irrespective of the intention with which market players have conducted the practice restrictive of competition.

 

Secondly, and in a more subtle but functionally relevant relationship, the objectification of the competition principle standard must be coordinated with the criminal law rules applicable to the criminal liability of legal entities—which establish (at least in Spain) a clearly objective and independent regime, disconnected from any subjective element of the specific individuals who have committed crimes or offences whose responsibility extends to legal persons (see Article 31bis.3 of the Spanish Criminal Code, as introduced by LO 5/2010, of June 22, amending the Organic Law 10/1995 of 23 November, on the Criminal Code).

Therefore, the objectification of Article 18 of Directive 2014/24 seems the most appropriate functional solution—but, acknowledgedly, it can be seen as lying somewhat far away from a literal interpretation of the provision. Broadly speaking, in my opinion, this objectification of the principle should be carried out by establishing a rebuttable presumption of restrictive intent in cases where, in fact, the tendering procedure has been designed in a manner that is restrictive of competition.

The disproval of this rebuttable presumption would require the contracting authority or entity to justify the existence of objective, legitimate and proportionate reasons for the adoption of the criteria restrictive of competition (ie, to provide a plausible justification for the imposition of restrictive conditions of competition in tendering the contract, so as to exclude the plain and simple explanation that it was intended to restrict competition therewith). In other words, if it could be justified that a "reasonable and disinterested contracting entity" (meaning free from any intent to restrict competition) would have taken the same decision on the design of the tender in a form restrictive of competition, the presumption of restrictive intent would not be applicable and, ultimately, the tender would be compliant with Article 18 of Directive 2014/24. Obviously, this test requires further development (and I will devote some time to developing a more refined proposal in the coming months).

 

Linking distortions of competition and favouritism or corruption: a bidirectional and biunivocal relationship?

 

The second problematic aspect in the wording of Article 18 of Directive 2014/24 is, in my opinion, the establishment of a iuris et de iure presumption of competitive distortion in: "Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly (sic) favouring or disadvantaging certain economic operators".

 

This assumption raises a potential problem of (logical) "capture" of the interpreters of this rule, as they may be tempted to consider that in the absence of (undue!) favouritism or corruption, no restrictions on competition are contrary to the precept—that is, they can be inclined to decide not to apply the "residual" part of the prohibition and limit it exclusively to cases covered by the presumption. Additionally, while it is true that most cases of favouritism or corruption will result in a restriction of competition, this is not always necessarily the case. For example, in cases where the beneficiary of favouritism could be awarded the contract under competitive conditions, or in cases in which corrupt practices are added to previous restrictions of competition created by the bidders active in the market; it could be argued that there is no (independent) restriction competition and, therefore, that the presumption is unnecessary or unjustified.

In any case, the instances of favouritism included in the irrebuttable presumption would (also) be covered by the new rules relating to conflicts of interest envisaged in Article 24 of Directive 2014/24: "Member States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators", and can even fit into one of the headings of mandatory exclusion of Article 57(1)(b) for corruption, as supplemented by the obligation to terminate the contract under Article 73(b).

Therefore, the establishment of the presumption of anticompetitive intent in cases of favouritism or discrimination is, in my opinion, unnecessary and may be counterproductive. Ultimately, I think that it will be necessary for the bodies responsible for the implementation of these provisions to clearly distinguish instances of corruption from those of (simple) restriction of competition and, in the latter scenario, apply the first part of the principle of competition in an "objectified" manner, as advocated above.

Conclusion

The consolidation of the principle of competition in Article 18 of Directive 2014/24 should be welcomed, but its wording requires two major adjustments designed to ensure functionality. On the one hand, it is necessary to objectify the interpretation and application of the provision and, in my opinion, this should be done by establishing a rebuttable presumption of competition restrictive intent. Moreover, the irrebuttable presumption of restriction of competition in cases of favouritism or corruption should be interpreted as not being exhaustive and should not prevent the widespread application of the (not necessarily residual) general test of competitive restraint in the absence of (clear) discrimination.

In any case, it should come as no surprise if the new Article 18 of Directive 2014/24 gives rise to a significant level of litigation.