Public procurement and [AI] source code transparency, a (downstream) competition issue (re C-796/18)

Two years ago, in its Judgment of 28 May 2020 in case C-796/18, Informatikgesellschaft für Software-Entwicklung, EU:C:2020:395 (the ‘ISE case’), the Court of Justice of the European Union (CJEU) answered a preliminary ruling that can have very significant impacts in the artificial intelligence (AI) space, despite it being concerned with ‘old school’ software. More generally, the ISE case set the requirements to ensure that a contracting authority does not artificially distort competition for public contracts concerning (downstream) software services generally, and I argue AI services in particular.

The case risks going unnoticed because it concerned a relatively under-discussed form of self-organisation by the public administration that is exempted from the procurement rules (i.e. public-public cooperation; on that dimension of the case, see W Janssen, ‘Article 12’ in R Caranta and A Sanchez-Graells, European Public Procurement. Commentary on Directive 2014/24/EU (EE 2021) 12.57 and ff). It is thus worth revisiting the case and considering how it squares with regulatory developments concerning the procurement of AI, such as the development of standard clauses under the auspices of the European Commission.

The relevant part of the ISE case

In the ISE case, one of the issues at stake concerned whether a contracting authority would be putting an economic operator (i.e. the software developer) in a position of advantage vis-à-vis its competitors by accepting the transfer of software free of charge from another contracting authority, conditional on undertaking to further develop that software and to share (also free of charge) those developments of the software with the entity from which it had received it.

The argument would be that by simply accepting the software, the receiving contracting authority would be advantaging the software publisher because ‘in practice, the contracts for the adaptation, maintenance and development of the base software are reserved exclusively for the software publisher since its development requires not only the source code for the software but also other knowledge relating to the development of the source code’ (C-796/18, para 73).

This is an important issue because it primarily concerns how to deal with incumbency (and IP) advantages in software-related procurement. The CJEU, in the context of the exemption for public-public cooperation regulated in Article 12 of Directive 2014/24/EU, established that

in order to ensure compliance with the principles of public procurement set out in Article 18 of Directive 2014/24 … first [the collaborating contracting authorities must] have the source code for the … software, second, that, in the event that they organise a public procurement procedure for the maintenance, adaptation or development of that software, those contracting authorities communicate that source code to potential candidates and tenderers and, third, that access to that source code is in itself a sufficient guarantee that economic operators interested in the award of the contract in question are treated in a transparent manner, equally and without discrimination (para 75).

Functionally, in my opinion, there is no reason to limit that three-pronged test to the specific context of public-public cooperation and, in my view, the CJEU position is generalisable as the relevant test to ensure that there is no artificial narrowing of competition in the tendering of software contracts due to incumbency advantage.

Implications of the ISE case

What this means is that, functionally, contracting authorities are under an obligation to ensure that they have access and dissemination rights over the source code, at the very least for the purposes of re-tendering the contract, or tendering ancillary contracts. More generally, they also need to have a sufficient understanding of the software — or technical documentation enabling that knowledge — so that they can share it with potential tenderers and in that manner ensure that competition is not artificially distorted.

All of this is of high relevance and importance in the context of emerging practices of AI procurement. The debates around AI transparency are in large part driven by issues of commercial opacity/protection of business secrets, in particular of the source code, which both makes it difficult to justify the deployment of the AI in the public sector (for, let’s call them, due process and governance reasons demanding explainability) and also to manage its procurement and its propagation within the public sector (e.g. as a result of initiatives such as ‘buy once, use many times’ or collaborative and joint approaches to the procurement of AI, which are seen as strategically significant).

While there is a movement towards requiring source code transparency (e.g. but not necessarily by using open source solutions), this is not at all mainstreamed in policy-making. For example, the pilot UK algorithmic transparency standard does not mention source code. Short of future rules demanding source code transparency, which seem unlikely (see e.g. the approach in the proposed EU AI Act, Art 70), this issue will remain one for contractual regulation and negotiations. And contracts are likely to follow the approach of the general rules.

For example, in the proposal for standard contractual clauses for the procurement of AI by public organisations being developed under the auspices of the European Commission and on the basis of the experience of the City of Amsterdam, access to source code is presented as an optional contractual requirement on transparency (Art 6):

<optional> Without prejudice to Article 4, the obligations referred to in article 6.2 and article 6.3 [on assistance to explain an AI-generated decision] include the source code of the AI System, the technical specifications used in developing the AI System, the Data Sets, technical information on how the Data Sets used in developing the AI System were obtained and edited, information on the method of development used and the development process undertaken, substantiation of the choice for a particular model and its parameters, and information on the performance of the AI System.

For the reasons above, I would argue that a clause such as that one is not at all voluntary, but a basic requirement in the procurement of AI if the contracting authority is to be able to legally discharge its obligations under EU public procurement law going forward. And given the uncertainty on the future development, integration or replacement of AI solutions at the time of procuring them, this seems an unavoidable issue in all cases of AI procurement.

Let’s see if the CJEU is confronted with a similar issue, or the need to ascertain the value of access to data as ‘pecuniary interest’ (which I think, on the basis of a different part of the ISE case, is clearly to be answered in the positive) any time soon.

New paper: Territorial Extension and Case Law of the Court of Justice: Good Administration and Access to Justice in Procurement as a Case Study

I have uploaded a new paper on SSRN on 'Territorial Extension and Case Law of the Court of Justice: Good Administration and Access to Justice in Procurement as a Case Study', which develops previously sketched ideas on the challenges that the 'regulatory export' of EU procurement rules can create for the functioning of the CJEU and the Commission in the context of the EU's external trade activity (see here). The abstract of the paper is as follows:

This paper explores some of the legal implications of the territorial extension or extraterritoriality of EU public procurement law through free trade agreements and planned flanking retaliatory EU trade policy. The paper has the starting position that, with this policy and regulatory approach, the EU pursues two main goals: first, to further global standards of human rights protection and, second, to further regulatory convergence towards its own procurement standards. The paper concentrates on the pursuit of this second goal and, in particular, on the implications of such territorial extension or extraterritoriality of EU procurement law for the case law of the Court of Justice on good administration and access to justice, as recognised in the Charter of Fundamental Rights of the European Union. The paper concentrates on public procurement due to its relevance in free trade agreements between the EU and third countries, as well as the relevance of statutory and case law requirements concerning procurement remedies. The paper assesses both the outwards and inwards implications of the functional territorial extension for the case law of the Court of Justice. The discussion in the paper also raises general issues concerning procedural design and the consideration of foreign law by the Court of Justice in different settings.

The paper is freely available through SSRN: https://ssrn.com/abstract=3081061

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

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

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

Things for your procurement radar before the Easter break

Dear reader, 

This has been a busy start of the year and I look forward to unwinding for a while during Easter break. I hope you will also have a good break and to find you again here after the holiday. In the meantime, I thought I would put some things on your procurement radar:

The ECJ decided two important cases on 5 April 2017, which I will comment in detail in forthcoming posts after the break: 

  • Borta, C-298/15, EU:C:2017:266, on the incompatibility with EU procurement law of a national rule partially prohibiting subcontracting by establishing that, where subcontractors are relied on for the performance of a public works contract, the tenderer is required to perform itself the main works, as defined by the contracting entity. In this case, the ECJ has largely followed the Opinion of AG Sharpston (commented here).
  • Marina del Mediterráneo and Others, C-391/15, EU:C:2017:268, on the scope of the Remedies Directives. In short, the ECJ found that, where there are allegations that a decision allowing a tenderer to participate in a procurement procedure was adopted in breach of EU public procurement law or the national legislation transposing it, national rules must subject such decision to an independent judicial review. This is bound to further judicialise exclusion decisions and puts renewed pressure on the development of more robust procurement review procedures--possibly requiring a reform of the Remedies Directives themselves, as I discuss at length in "'If It Ain't Broke, Don't Fix It'? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts",  in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (forthcoming).  

I have just finished two papers:

If you decide to read any of these cases or papers during the Easter break, happy reading!

 

Public procurement in the CJEU's 2016 Annual Report - What a Busy Year and How Much New Case Law To Keep Up With

The Court of Justice of the European Union (CJEU) has published its 2016 Annual Report, including a detailed assessment of its judicial activity. Even at first read, it is clear that public procurement features more prominently in this year's edition, where the CJEU offers some comments on key ECJ cases, such as Falk Pharma, Partner Apelski Dariusz and Wrocław — Miasto na prawach powiatu, and PFE (see Judicial Activity Report, pp 64-65); as well as some comments on key GC cases on public procurement by the EU Institutions and on Commission's Decisions on Utilities Procurement, such as Österreichische Post v Commission, or European Dynamics Luxembourg and Others v EUIPO on the concept of conflict of interest (currently under appeal) (pp. 182-183).

The 2016 Annual Report also allows for an expansion of previous statistical analysis of the ECJ's and GC's case load in the area of public procurement (see also analyses for 2015, 2014 and 2012).

Interestingly, 2016 data shows a reduction in the accumulation of procurement-related backlog, which is now reduced to its 2010 level if the institution is taken as a whole. As the graphs below show, this reduction in backlog is mainly due to increased decision-making at ECJ level and to a significant reduction of new cases at GC level. It is worth taking a closer look at both issues.

Sharp reduction in number of new cases before the GC

The number of new procurement cases before the GC dropped from 23 in 2015 to only 9 in 2016, which marks the all time lowest level since 2006, when the statistical series started. This sharp reduction in new cases allowed the GC to catch up with some of its backlog from previous periods and to reduce it by one third (from 35 to 24 pending cases in the 2015-2016 comparison). However, the low number of cases at GC level, which mostly concerns challenges to procurement decisions by the EU Institutions, continues to indicate that the creation of more effective remedies mechanisms applicable to EU institutional procurement remains a priority for regulatory reform (as stressed by the Court of Auditors). 

Increased Decision-Making at ECJ Level

It is particularly remarkable that the ECJ managed to significantly increase its decision-making in the area of public procurement, moving from an average of 10 decided cases in the 2010-2015 period (with a highest output of 14 decisions in 2015) to 31 decisions in 2016. Coupled with a reduction in the number of new cases from 26 to 19 in the 2015-2016 comparison, this increased level of decision-making activity has cut the backlog of pending cases by one third, thus bringing it back to its 2014 level and stopping (at least for now) the worrying trend observed throughout this decade.

It is interesting to dig a bit deeper in the analysis of this remarkable surge in decision-making activity by the ECJ. The graph below shows the evolution of the public procurement decisions adopted by the ECJ, breaking down annual totals between those closed by Judgment or Opinion (ie substantive decision-making) and those closed by Order (ie procedural decision-making).

As the graph shows, the increased volume of decision-making has resulted in an increased total volume of both substantive and procedural decisions. The impact of this evolution on the different type of decisions may be easier to grasp through a simple ratio. As the table below shows, the increase in decision-making has in part been the result of the adoption of a larger proportion of procedure-based decisions. This may point towards the need for further case-by-case analysis in order to understand if this reflects any new trends concerning the ECJ's management of procurement cases, or if it is simply the result of the larger overall case load in this area. In any case, what is clear is that 2016 was a year of unprecedented substantive decision-making by the ECJ in the area of public procurement. No wonder it felt like such a busy year and that it was hard to keep up with all developments!

Free to use research project idea

I am in the process of editing a collection of papers on the Regiopost judgment for a book and, in one of them, my colleague Prof Tonia Novitz raises the point that the ECJ could have taken Directive 2014/24 into consideration even if it was not applicable ratione temporis. I found this a very valid point and it got me thinking about whether the ECJ is consistent (or not) in taking into account new(er) iterations of existing directives when they resolve disputes to which the (now) old directive still applies.

In the specific case of procurement, and based only on the 2016 cases I commented in this blog, I could find that the ECJ has sometimes considered ‘in anticipation’ the 2014 version of the public procurement directive (2014/24/EU) in cases where it was not applicable ratione temporis--and thus decided under the 2004 version (2004/18/EC). This happened, for example, in

  • Judgment of 8 December 2016 in Undis Servizi, C-553/15, EU:C:2016:935
  • Judgment of 2 June 2016 in Falk Pharma, C-410/14, EU:C:2016:399
  • Judgment of 2 June 2016 in Pizzo, C-27/15, EU:C:2016:404
  • Judgment of 7 April 2016 in PARTNER Apelski Dariusz, C-324/14, EU:C:2016:214

The ECJ has also engaged with other procurement directives (on Concessions, Dri 2014/23) before they were applicable, such as

  • Judgment of 14 July 2016 in Promoimpresa, C-458/14, EU:C:2016:558

However, there are also cases where the ECJ rejected to do so, such as

  • Judgment of 10 November 2016 in Ciclat, C-199/15, EU:C:2016:853
  • Judgment of 27 October 2016 in Hörmann Reisen, C-292/15, EU:C:2016:817
  • Judgment of 8 September 2016 in Politanò, C-225/15, EU:C:2016:645

More detailed analysis would be necessary to establish the type of cases in which the ECJ decided (not) to resort to the newer version of the directive, and the reasons it offered (not) to do so. It would also be interesting to expand the study significantly, both to make sure it is exhaustive in the area of public procurement (ie 2014-2017 + checking for additional cases) and to identify some additional area of internal market law to use as a comparator.

Like in (too many) other occasions, I am not sure I will have the opportunity to explore these issues any time soon. So here is the idea for a research project. Anyone that is interested and has the time / mental bandwidth for it, feel free to use it.

ECLI and the new method of citing case law of the CJEU

The Court of Justice of the European Union is in the process of changing the way its Judgments are reported (now only electronically and in monthly sets) and cited. A transition period has started and the movement towards full use of the ECLI (European Case-Law Identifier) referencing system should be completed within the first semester of 2014.

This change is fundamentally oriented towards enhancing the usability of the case law as an enriched information source, facilitating the introduction and use of metadata in citations and the searchability of European case law. All these changes should be welcome and, if possible, pushed forward so that Member States also adopt ECLI citation quickly.