The Court of Justice has received a very interesting preliminary reference from the Austrian Supreme Administrative Court (Verwaltungsgerichtshof) concerning international conflict of laws issues relating to cross-border public procurement involving contracting entities from different Member States (Case C-480/22, EVN Business Service and Others, hereafter the ‘EVN II’ case). The preliminary reference covers issues of judicial competence and applicable procedural law to cross-border challenges of procurement decisions.
Interestingly, the case concerns a negative conflict of jurisdiction, where neither the Bulgarian nor the (first instance) Austrian courts consider themselves competent. The case thus seems to be a bit of a hot potato—although the referring (higher) Austrian court seems interested in nipping the issue in the bud, presumably to avoid a situation of deprivation of procurement remedies that would ultimately violate EU procurement rules and general requirements of access to justice under the Charter of Fundamental Rights (though this is not explicit in the preliminary reference).
The root of the problem is that the conflict of laws dimension of the administrative review of procurement decisions involving contracting authorities from different Member States is not explicitly addressed in the 2014 Procurement Directives. Although the case concerns the interpretation of Article 57 of Directive 2014/25/EU, it is of direct relevance to the interpretation of Article 39 of Directive 2014/24/EU, as the wording of provisions is near identical (with the exception of references to contracting entities rather than contracting authorities in Art 57 Dir 2014/25/UE, and the suppression of specific public sector rules on awards under framework contracts that are not relevant to this case).
I have been interested in the regulatory gaps left by Art 39 Dir 2014/24/EU for a while. In this post, I address the first two questions posed to the CJEU, as the proposed answers would make it unnecessary to answer the third question. My analysis is based on my earlier writings on the topic: A Sanchez-Graells, ‘The Emergence of Trans-EU Collaborative Procurement: A “Living Lab” for European Public Law’ (2020) 29(1) PPLR 16-41 (hereafter Sanchez-Graells, ‘Living Lab’)); and idem, ‘Article 39 - Procurement involving contracting authorities from different Member States’ in R Caranta and A Sanchez-Graells (eds), European Public Procurement. Commentary on Directive 2014/24/EU (Edward Elgar 2021) 436-447 (hereafter Sanchez-Graells, ‘Art 39’).
The ‘EVN II’ case
Based on the facts of the preliminary reference, the legal dispute originates in a ‘public house’ environment within the Austrian EVN group. The Land of Lower Austria owns 51% of EVN AG, which in turn indirectly wholly owns both (i) EVN Business Service GmbH (‘EBS GmbH’), an Austrian central purchasing body (CPB), and (ii) Elektrorazpredelenie YUG EAD (‘EY EAD’), a Bulgarian utilities company. EBS GmbH had the task of procuring services on behalf of and for the account of EY EAD through a framework agreement on the performance of electrical installation works and related construction and dismantling works divided into 36 lots, the place of performance being located in Bulgaria.
Notably, in the invitation to tender, the Landesverwaltungsgericht Niederösterreich (Regional Administrative Court, Lower Austria) was named as the competent body for appeal proceedings/review procedures. Austrian law is stated as the law applicable to the ‘procurement procedure and all claims arising therefrom’, and Bulgarian law as the law applicable to ‘the performance of the contract’.
Two Bulgarian companies unsuccessfully submitted tenders for several lots and subsequently sought to challenge the relevant award decisions. However, those claims were dismissed by the Austrian Regional Administrative Court on grounds of lack of competence. The Court argued that a decision on whether a Bulgarian undertaking may conclude a contract with a contracting entity located in Bulgaria, which is to be performed in Bulgaria and executed in accordance with Bulgarian law, would interfere massively with Bulgaria’s sovereignty, thereby giving rise to tension with the territoriality principle under international law. Moreover, the Court argued that it is not apparent from the Austrian Federal Law on public procurement which procedural law is to be applied to the review procedure.
The case thus raises both an issue of the competence for judicial review and the applicable procedural law. The conflict of jurisdiction is negative because the Bulgarian Supreme Administrative Court confirmed the lack of competence of the Bulgarian procurement supervisory authority.
An avoidable gap in the 2014 Directives
The issue of cross-border use of CPB services is regulated by Art 57(3) Dir 2014/25/EU, which in identical terms to Art 39(3) Dir 2014/24/EU, establishes that ‘The provision of centralised purchasing activities by a central purchasing body located in another Member State shall be conducted in accordance with the national provisions of the Member State where the central purchasing body is located.’
The main contention in the case is whether Article 57(3) of Directive 2014/25 must be interpreted as covering not only the procurement procedure itself, but also the rules governing the review procedure. The argument put forward by the Bulgarian challengers is that if the CPB is required to apply Austrian law from a substantive point of view, the appeal proceedings before the Austrian review bodies must also be conducted in accordance with Austrian procedural law.
As mentioned above, conflict of laws issues are not regulated in the 2014 Procurement Directives, despite explicit rules having been included by the European Commission in the 2011 proposal for a new utilities procurement directive (COM(2011) 895 final, Art 52) and the 2011 proposal for a new public sector procurement directive (COM(2011) 896 final, Art 38). With identical wording, the proposed rule was that
Several contracting [authorities/entities] may purchase works, supplies and/or services from or through a central purchasing body located in another Member State. In that case, the procurement procedure shall be conducted in accordance with the national provisions of the Member State where the central purchasing body is located [Art 52(2)/Art 38(2) of the respective proposals].
Decisions on the award of public contracts in cross-border public procurement shall be subject to the ordinary review mechanisms available under the national law applicable [Art 52(8)/Art 38(8) of the respective proposals].
The 2011 proposals would thus have resolved the conflict of laws in favour of the jurisdiction where the CPB is based. Reference to subjection ‘to the ordinary review mechanisms available under the national law applicable’ would also have encompassed the issue of applicable procedural law. The 2011 proposals also included explicit rules on the mutual recognition and collaboration in the cross-border execution of procurement review decisions (for discussion, see Sanchez-Graells, ‘Living Lab’, 25-26).
However, the 2014 Directives omit such rules. While there are indications in the recitals that the ‘new rules on cross-border joint procurement … should determine the conditions for cross-border utilisation of central purchasing bodies and designate the applicable public procurement legislation, including the applicable legislation on remedies’ (rec (82) Dir 2014/25/EU and, identically, rec (73) Dir 2014/24/EU), this is not reflected in the provisions of the Directives. While the position in the recitals could be seen as interpretive guide to the effect that the system of conflict of laws rules implicit in the Directives is unitary and the location of the CPB is determinative of the jurisdiction and applicable law for the review of its procurement decisions, this is not necessarily a definitive argument as the CJEU has made clear that recitals may be insufficient to create rules [see C-215/88, Casa Fleischhandel v BALM, EU:C:1989:331, para 31; Sanchez-Graells, ‘Art 39’, para 39.26. For discussion, see S Treumer and E Werlauff, ‘The leverage principle: Secondary Community law as a lever for the development of primary Community law’ (2003) 28(1) European Law Review 124-133].
Questions before the CJEU — and proposed answers
Given the lack of explicit solution in the 2014 Procurement Directives, the CJEU now faces two relevant questions in the EVN II case. The first question concerns the scope of the rules on the provision of cross-border CPB services, which is slightly complicated by the ‘public house’ background of the case. The second question concerns whether the rules subjecting such procurement to the law of the CPB extend to both the legislation applicable to review procedures and the competence of the review body.
Question 1 - contracting authorities/entities from different Member States
In the EVN II case, the CJEU is first asked to establish whether Art 57(3) Dir 2014/25/EU (and, implicitly Art 39(3) Dir 2014/24/EU) should be interpreted as meaning that the provision of centralised purchasing activities by a CPB located in another Member State exists where the contracting entity – irrespective of the question as to the attribution of the control exercised over that contracting entity – is located in a Member State other than that of the CPB. The issue of attribution of control arises from the fact that, in the case at hand, the ‘client’ Bulgarian contracting entity is financially controlled by an Austrian regional authority—which, incidentally, also controls the CPB providing the centralised purchasing services. This raises the question whether the client entity is ‘truly’ foreign, or whether it needs to be reclassified as Austrian on the basis of the financial control.
While I see the logic of the question in terms of the formal applicability of the Directive, from a functional perspective, the question does not make much sense and an answer other than yes would create significant complications.
The question does not make much sense because the aim of the rule in Art 57(3) does not gravitate on the first part of the article: ‘The provision of centralised purchasing activities by a central purchasing body located in another Member State shall be conducted in accordance with the national provisions of the Member State where the central purchasing body is located.’ Rather, the relevance of the rule is in the extension of the law of the CPB to ‘(a) the award of a contract under a dynamic purchasing system; [and] (b) the conduct of a reopening of competition under a framework agreement’ by the ‘client’ (foreign) contracting authority or entity. The purpose of Art 57(3) Dir 2014/25/EU is thus the avoidance of potentially conflicting rules in the creation of cross-border CPB procurement vehicles and in the call-offs from within those vehicles (Sanchez-Graells, ‘Art 39’, paras 39.13-39.15).
Functionally, then, the logic of the entirety of Art 57(3) (and Art 39(3)) rests on the avoidance of a risk of conflicting procurement rules applicable to the cross-border use of CPB services, presumably for the benefit of participating economic operators, as well as in search of broader consistency of the substantive legal framework. Either such a risk exists, because the ‘client’ contracting entity or authority would otherwise be subjected to a different procurement legislation than that applicable to the CPB, or it doesn’t. That is in my view the crucial functional aspect.
If this approach is correct, the issue of (potential) Austrian control over the Bulgarian contracting entity is irrelevant, as the crucial issue is whether it is generally subjected to Bulgarian utilities procurement law or not when conducting covered procurement. There is no information in the preliminary reference, but I would assume it is. Primarily because of the formal criteria determining subjection to the domestic implementation of the EU Directives, which tends to be (implicitly) based on the place of location of the relevant entity or authority.
More fundamentally, if this approach is correct, the impingement on Bulgarian sovereignty feared by the Austrian first instance court is a result of EU procurement law. There is no question that the 2014 Directives generate the legal effect that contracting authorities of a given Member State (A) are bound to comply with the procurement legislation of a different Member State (B) when they resort to the services of that State (B) CPB and then implement their own call-off procedures, potentially leading to the award of a contract to an undertaking in their own Member State (A). This potentially puts the legislation of State B in the position of determining whether an undertaking of State A may conclude a contract with a contracting entity located in State A, which is to be performed in State A and executed in accordance with the law of State A. It is thus not easily tenable under EU law that this represents a massive interference with State A’s sovereignty—unless one is willing to challenge the EU’s legal competence for the adoption of the 2014 Directives (see Sanchez-Graells, ‘Living Lab’, 31-33).
A further functional consideration is that the cross-border provision of CPB services does not need to be limited to a two-country setting. If the CPB of country B is eg creating a framework agreement that can be used by contracting authorities and entities from countries A, C, D, and E, the applicability of Art 57(3) Dir 2014/25/EU (and Art 39(3) Dir 2014/24/EU) could not vary for entities from those different countries, or from within a country, depending on a case-by-case analysis of the location of the entities controlling the ‘client’ authorities and entities. In other words, Art 57(3) Dir 2014/25/EU (and Art 39(3) Dir 2014/24/EU) cannot reasonably be of variable application within a single procurement.
Taking the facts of the EVN II case, imagine that in addition to EY EAD, other Bulgarian utilities were also able to draw from the (same lots of the) framework agreement put in place by EBS GmbH. How could it be that Art 57(3) controlled the procurement for the ‘clearly’ Bulgarian utilities, whereas it may not be applicable for the Bulgarian utility controlled by an Austrian authority?
In my view, all of this provides convincing argumentation for the CJEU to answer the first question by clarifying that, from a functional perspective, the need to create a unitary legal regime applicable to procurement tenders led by CPBs where there is a risk of conflicting substantive procurement rules requires interpreting Art 57(3) Dir 2014/25/EU (and Art 39(3) Dir 2014/24/EU) as applicable where the location of ‘client’ contracting authorities or entities is in one or more Member States other than that where the CPB is itself located.
Question 2 - presumption of jurisdiction and applicable law
The second question put to the CJEU builds on the applicability of Art 57(3) Dir 2014/25/EU and asks whether its ‘conflict-of-law rule … according to which the “provision of centralised purchasing activities” by a [CPB] located in another Member State is to be conducted in accordance with the national provisions of the Member State where the [CPB] is located, also cover[s] both the legislation applicable to review procedures and the competence of the review body’. Other than on the basis of the interpretive guide included in the recitals of Dir 2014/25/EU (and Dir 2014/24/EU) as above, I think there are good reasons to answer this question in the affirmative.
The first line of arguments is systematic and considers the treatment of conflict of laws situations within Art 57 Dir 2014/25/EU (and 39 Dir 2014/24/EU; see Sanchez-Graells, ‘Living Lab’, 21-24). In that regard, while there is a hard conflict of laws rule in Art 57(3) (and 39(3)) that selects the law of the CPB to the entirety of the procurement procedure, including ‘foreign’ call-offs, the situation is very different in the remainder of the provision. Indeed, when it comes to occasional cross-border joint procurement, in the absence of a binding international agreement, the choice of the applicable substantive procurement legislation is left to the agreement of the participating contracting authorities or entities (Art 57(4) Dir 2014/25/EU, and Art 39(4) Dir 2014/24/EU). Similarly, where the cross-border procurement is carried out through a joint entity, including European Groupings of territorial cooperation, the participating contracting authorities have a choice between the law of the Member State where the joint entity has its registered office, or that of the Member State where the joint entity is carrying out its activities (Art 57(5) Dir 2014/25/EU, and Art 39(5) Dir 2014/24/EU). This indicates that the choice of law rule applicable to the cross-border provision of CPB services leaves much less space (indeed, no space) to the application of a substantive procurement law other than that of the CPB. An extension of this argument supports answering the question in the affirmative and extending the choice of law rule to both the legislation applicable to review procedures and the competence of the review body.
A second line of argument concerns the effectiveness of the available procurement remedies. Such effectiveness would, on the one hand, be increased by a reduced judicial burden of considering foreign procurement law where the location of the CPB determines jurisdiction and procedural applicable law, which can also be expected to be coordinated with substantive procurement law. On the other hand, answering the question in the affirmative would require economic operators to challenge decisions concerning potential contracts with a domestic contracting authority or entity in a foreign court. However, given that the substantive rules are those of the foreign jurisdiction and that they were expected to tender (or tendered) in that jurisdiction, the effect may be relatively limited where the CPB decisions are being challenged—as compared to a challenge of the call-off decision carried out by their domestic contracting authority or entity, but subject to foreign procurement law. In my view, the last set of circumstances is very unlikely, as the applicability of the ‘foreign’ law of the CPB generates a very strong incentive for the CPBs to also carry out the call-off phase on behalf of the client authority or entity (Sanchez-Graells, ‘Art 39’, 39.14).
Overall, in my view, the CJEU should answer the second question by clarifying that the reference to the national provisions of the Member State where the CPB is located in Art Art 57(3) Dir 2014/25/EU (and 39(3) Dir 2014/24/EU, also covers both the legislation applicable to review procedures and the competence of the review body.
Some further thoughts
Beyond the specific issues before the CJEU, the EVN II case raises broader concerns around the flexible contractualised approach (not to say the absence of an approach) to conflict of laws issues in the 2014 Procurement Directives—which leave significant leeway to participating contracting authorities and entities to craft the applicable legal regime.
While the situation can be relatively easy to sort out with an expansive interpretation of Art 57(3) Dir 2014/25/EU and Art 39(3) Dir 2014/24/EU in the relatively simple case of the cross-border provision of CPB services (as above), these issues will be much more complex in other types of procurement involving contracting authorities from (multiple) different Member States. The approach followed by the first instance Austrian court in EVN II seems to me reflective of more generalised judicial approaches and attitudes towards unregulated conflict of laws situations where they can be reluctant to simply abide by whatever is published in the relevant procurement notices—as was the case in EVN II, where the invitation to tender was explicit about allocation of jurisdiction and selection of applicable procedural law and, that notwithstanding, the first instance court found issues on both grounds.
This can potentially be a major blow to the ‘contractualised’ approach underpinning the 2014 Procurement Directives, especially where situations arise that require domestic courts of a Member State to make decisions imposing liability on contracting authorities of another Member State, and the subsequent need to enforce that decision. The issue of the conflict of laws dimension of the administrative review of procurement decisions involving contracting authorities from different Member States will thus not be entirely addressed by the Judgement of the CJEU in EVN II, although the CJEU could hint at potential solutions, depending on how much it decided to rely on the 2011 proposals as a steppingstone towards an expansive interpretation of the current provisions—which is by no means guaranteed, as the suppression of explicit rules could as easily be interpreted as a presumption or as a rejection of those rules by the CJEU.
It seems clearer than ever that the procurement remedies Directives need to be reformed to create a workable and transparent system of conflict of laws dimension of the administrative review of procurement decisions involving contracting authorities from different Member States, as well as explicit rules on cross-border enforcement of those decisions (Sanchez-Graells, ‘Living Lab’, 39-40).
