A hot potato? CJEU faces questions on rules applicable to cross-border procurement litigation (C-480/22)

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).

Joint cross-border procurement in the EU/EEA (plus UK) 2019-2021 -- update on Locatelli's (2019) TED analysis

A couple of years ago, Ivo Locatelli — a Senior Procurement Expert at the European Commission — published a first analysis of the emerging trends in cross-border procurement in the EU/EEA based on TED data and, in particular, based on the publication of contract award notices (CANs). His paper is available as: I Locatelli, ‘Do European public buyers purchase together? An assessment of joint cross-border procurement contracts published in TED in 2017 and beyond’ (2019) 1 Ius Publicum art 1.

Locatelli reported that, in 2017 only, 34 CANs were published concerning joint cross-border procedures involving buyers in different Member States. The paper provides detailed analysis and classification of those 34 instances of cross-border joint procurement. The paper acknowledged that, in the grand scheme of things, this was meagre (but important) cross-border experimentation, and Locatelli was hopeful for more intense cross-border joint procurement in the future, once the best practices of a ‘group of brave buyers’ were disseminated and some policy interventions by the European Commission took root.

I am now working on a paper on cross-border procurement with Kirsi-Maria Halonen, so I thought it would be a good idea to try to update Locatelli’s analysis, following as close a methodology as I could. This should allow for a longer view analysis of emerging trends over an almost five year period (2017, as per Locatelli's analysis, plus 2018-2021 to date). This blogpost reports the results and reflects on some issues preventing a proper understanding of the emergence of cross-border joint procurement ‘on the ground’ [for theoretical analysis, see A Sanchez-Graells, ‘The Emergence of Trans-EU Collaborative Procurement: A “Living Lab” for European Public Law’ (2020) 29(1) Public Procurement Law Review 16-41].

‘Mining’ TED for 2018-21

Given how counterintuitive I find the advanced searches in TED, I thought I would cast my net wide (if anyone has suggestions for a more effective approach, I would be most grateful to receive them). So, I searched TED for CANs with the free text “joint procurement” and then manually checked whether there was a cross-border element. I thought the search would, if anything, be overinclusive, as the mandatory CAN standard form requires in part I.2) to indicate whether there is any element of joint procurement and ‘In the case of joint procurement involving different countries, state applicable national procurement law’.

184 results were returned. This is the breakdown of what came up, organized by country of the buyer:

The results were a little surprising, if nothing else for being such few, as well as for the very clear bulges of ‘activity’ in the UK and Norway and, to a lesser extent, Denmark. In order make the analysis of the CANS for the 2018-2021 period comparable to Locatelli’s for 2017, I screened them manually and applied the same exclusion criteria detailed in the paper.

To carry out his analysis of emerging trends in ‘true’ cross-border procurement, Locatelli conducted an ‘assessment of joint cross-border procurement … limited to cases of a contract being awarded, or a framework agreement being concluded, either jointly or via a joint entity, by several contracting authorities located in various Member States or via two foreign CPBs. Therefore, coordinated procurement implying several parallel procedures managed by buyers in different Member States is not covered here.’ The paper also clarified that ‘CANs relating to European Union (EU) institutions’ procurement procedures that are open to agencies and institutions located in different Member States are not covered by this assessment’, and that ‘CANs concerning pre-commercial procurement are not included since public procurement Directives apply to public service contracts for research and development services only where specific conditions are met’.

Doing that resulted in only 11 eligible cross-border joint procurement projects for the period 2018-2021 — with only very few pre-commercial procurements and procurements of the EU Institutions excluded. Interestingly, the bulk of the CANs referred to single-country joint procurement and mostly to municipal or regional collaboration in Norway and the UK, to utilities collaboration in Denmark, as well as collaboration within the English national healthcare system.

What was in TED for 2018-21?

The CANs identified above show a limited picture of cross-border collaboration mainly in the Nordic countries (and remarkably in defence and security procurement), and mostly where there is either a physical or regulatory network requiring (or justifying) cross-border management, or where there is EU funding for a specific activity. The sample is way too small to try to extrapolate any clear trends, so it is worth listing the 11 projects here (from newer to older), in case anyone wants to dive deeper:

General procurement (with EU funding)

• Spanish-led collaboration with UK for the procurement of innovative healthcare services, funded by the EU (project RITMOCORE) [2021/S 040-100288 (and also 2020/S 255-642149)]

• Swedish-led collaboration with Finland for a digital service gathering travel information for visitors in the Stockholm and Turku archipelago, with EU funding (EU Central Baltic funding: CB767) [2020/S 107-259917]

• French-led collaboration (with Spain, Germany and Italy) for the acquisition of super-computers, funded by the EU (under PPI4HPC) [2020/S 092-219297]

  Network procurement (not necessarily utilities)

• Swedish-led Nordic (plus Dutch) collaboration for the maintenance and further development of software for financial reporting via the Northern Transaction Reporting System (NTRS), which was already jointly procured in 2016 [2021/S 094-247849]

• Austrian-led collaboration (with Slovakia, Croatia, Bulgaria and Romania) for the setting up of a transnational Waterway Monitoring System (“WAMOS”) within the Framework of the programme “FAIRway Danube”, co-financed by the Connecting Europe Facility (CEF) programme [2018/S 097-221820]

• German-led collaboration (for the entire Eurosystem, under the auspices of EPCO) to acquire rating agency services [2018/S 069-153490]

• Finnish-led collaboration (with Estonia, Latvia and Lithuania) regarding the identification of the most suitable option for a Baltic-Finnish energy market [2018/S 014-029097]

  Defence and security procurement

• Norwegian-led collaboration with Denmark for a joint procurement for inspections and maintenance of the respective countries’ C130J Hercules planes [2021/S 076-195801]

• Swedish-led collaboration with Norway to acquire UAS-Systems (Unmanned Air System) for their police forces [2019/S 182-442948]

• Danish-led collaboration with Norway for the purchase of type rated courses to maintain the C-130J Block 6.1 Hercules air crafts [2018/S 179-407131]

• Swedish-led collaboration with Finland to procure strategic sealift operations [2018/S 031-068254]

Is this really all the cross-border joint procurement there is?

I think there are problems with this information. Anecdotally, I am aware of a cross-border joint procurement between France and Italy in 2019 that did not show in the search results. There are also some examples in this recent iProcureNet report that also do not show in the search results. More broadly, I think that the poor form-filling that tends to affect TED notices may mask some of the joint cross-border procurement taking place, in particular because mistakes in a small sample can have more relevant effects than in a large sample (contra, Locatelli 2019: 7-8).

Be it as it may, even if the search was defective and the results were massively under-reported by (say) 10 to 1, the picture that emerges is one of extremely limited action in joint cross-border procurement. If the EU-funded projects are excluded and Nordic defence collaboration is set aside, all that is left is joint procurement linked to physical or regulatory network activities with an obvious EU dimension. Therefore, there seems to be very little ‘grassroots’ collaboration on the public buyer side of the EU’s public procurement internal market, except at its margins.

What then?

To my mind, this poses a few relevant questions. First, whether the existence of language and legal barriers that are generally brushed under the carpet in EU policy-making need a serious reconsideration (and I am not the only one to think this; see eg MA Simovart, ‘Choice of law applicable to joint cross-border public procurement by central purchasing bodies or under occasional collaboration agreements’ (2021) 1 Procurement Law Journal 1-18). Second, whether joint cross-border procurement can really be the channel for trans-EU collaboration that the European Commission hopes — eg in relation to the adoption of AI, where the Commission considers that ‘collaborative cross-border procurement has the potential to exploit synergies and achieve higher critical mass in bringing AI solutions to the public sector market across Europe‘ [as announced in the 2018 Coordinated Plan on AI, and detailed in a recent Innovation Procurement Newsletter]. Third, whether the low uptake of collaboration between public buyers and the structurally low level of (direct) cross-border tendering by foreign potential suppliers (as recently reconfirmed, in this new Study on the measurement of cross-border penetration in the EU public procurement market) warrant the current regulatory approach, not only by the Commission, but also by the European Court of Justice.

As you see, there is plenty to think about and discuss. Kirsi and I hope to publish a draft of our paper in a few months. So stay tuned if this is of interest. And, as always, all comments and suggestions most welcome: a.sanchez-graells@bristol.ac.uk.

The Emergence of Trans-EU Collaborative Procurement: A 'Living Lab' for European Public Law

I have uploaded a new working paper on SSRN: ‘The Emergence of Trans-EU Collaborative Procurement: A “Living Lab” for European Public Law’ (March 14, 2019) https://ssrn.com/abstract=3392228. Its abstract is as follows:

Trans-EU collaborative procurement is a fertile ‘living lab’ for the observation, theorisation and critical assessment of developments in European public law. This paper maps the emergence of this novel type of cross-border administrative collaboration and scrutinises the new rules of Directive 2014/24/EU, which evidence the tension between promoting economic co-operation across borders within the internal market and the concern to respect the Member States’ administrative autonomy. The paper critically assesses the EU legislative competence in this area, extracts consequences for balancing trans-EU collaboration with ‘mandatory public law requirements’ at Member State level and proposes minimum functional guarantees to be expected in the implementation of trans-EU collaborative procurement.

Tecnoedi: An overlooked distortion of the ECJ’s approach to the assessment of cross-border interest for public contracts? (C-318/15)

In its Judgment of 6 October 2016 in Tecnoedi Construzioni, C-318/15, EU:C:2016:747, the European Court of Justice (ECJ) declared inadmissible a request for a preliminary reference sent by the Piedmont Regional Administrative Court, Italy. The case concerned the (in)compatibility with Arts 49 and 56 TFEU of an Italian public procurement rule applicable to (well) below-threshold contracts (ie tenders for works of a value below €1M), which allowed for the automatic rejection of tenders that exceeded an ‘anomaly threshold’ set by the contracting authority, without inter partes procedure.

The case offered the ECJ an opportunity to revisit very close issues to those decided in SECAP and Santorso, C-147/06 and C-148/06, EU:C:2008:277 -- which could also, conversely, have given it the opportunity of determining that the question was unnecessary and that the first principles of that decision stood. However, the ECJ decided to reject the receivability of the case for other reasons. By rejecting the request for a preliminary ruling, the ECJ did not take the opportunity to clarify (or rather, develop) the law in this area. So far, so good.

Given that it does not advance our understanding of the constraints that general EU free movement rules (or possibly general principles of EU public procurement law) impose on the treatment of apparently abnormally low tenders, the Tecnoedi case may easily fall under the radar of both practitioners (with some exceptions, see here and here) and academics (save for readers of the PPLR, which featured a comment by A Brown, 'The requirement for "certain cross-border interest" before EU Treaty obligations apply to below-threshold contacts: the EU Court of Justice ruling in case C-318/15 Tecnoedi', 2017 (1) PPLR NA14) —or, at least, that is the excuse I have given myself to seek justification for having overlooked this case for almost six months... However, not paying attention to Tecnoedi may lead us to miss a potential distortion in the ECJ’s approach to the assessment of the existence of cross-border interest for public (works) contracts.

This is an area where the ECJ’s approach is far from consistent, to say the least. The proper way of determining the (in)existence of cross-border interest for a contract remains elusive and the ECJ has not hammered down an unequivocal or clear test. In one of its most flexible and functional approximations (which I favour), the ECJ accepted that a (concession) contract of very limited financial value (due to the inclusion of a prohibition on profit-making activity) could still be of cross-border interest for business strategy reasons, such as an undertaking's goal to 'establish itself on the market of that State and to make itself known there with a view to preparing its future expansion' [see Comune di Ancona, C-388/12, EU:C:2013:734, para [51] ,discussed here].

Even if that is seen as a relative outlier, or contextualised in the line of case law aimed at establishing basic principles for the tender of services concessions prior to their subjection to the 2014 Concessions Directive, the ECJ’s more general approximation to the existence of cross-border interest for a public contract can be understood, as the referring court put it in Tecnoedi, as establishing that:

In accordance with the Court’s case-law, a contract (sic, tender) may have a certain cross-border interest not only as a result of the financial value of the contract to which it relates, but also as a result of the technical characteristics of the work and the place where the work is to be carried out (para 15).

Furthermore, in accordance with the Court’s case-law, there may be certain cross-border interest, without its (sic) being necessary that an economic operator has actually manifested its interest (judgment of 14 November 2013, Belgacom, C-221/12, EU:C:2013:736, paragraph 31 and case-law cited) (para 16).

This (seemingly) creates the need to carry out a case by case analysis based on rather open-ended indicators and aimed at demonstrating (or excluding) the scope for potential (ex ante) rather than evidenced or actual (ex post) cross border interest for the tendered contract [for discussion, see C Risvig Hansen, Contracts Not Covered or Not Fully Covered by the Public Sector Directive (DJØF, 2012) 121-160].

In the case at hand, the referring court understood that there was potential for cross-border interest for the contract because

… notwithstanding the fact that the works contract at issue … is for an estimated value of EUR 1,158,899.97, it cannot be ruled out that the contract does not have certain cross-border interest as Fossano [the place of execution of the works] is located within 200 km of the border between France and Italy and several of the tenderers admitted to the tender procedure are Italian companies which are established in regions which are not neighbouring, such as … at a distance of approximately [between 600 and 800 km] from Fossano (para 16, emphasis added).

In my view, a reasonable application of the ECJ’s previous approach/test would have waved through the case as (potentially) having cross-border interest. However, in Tecnoedi, this would have required the ECJ to deal with a very complex question and, more importantly, to keep developing non-statutory EU public procurement law on the basis of general internal market freedoms (or possibly general principles of EU public procurement law). Thus, in my view in order to avoid this difficult issue and (likely) criticisms for its judicial activism, the ECJ took a very strict approach to the assessment of potential cross-border interest in this case.

The ECJ first proceeded to recast its test for the assessment of potential cross-border interest as follows:

As regards the objective criteria which may indicate certain cross-border interest, the Court has previously held that such criteria may be, in particular, the fact that the contract in question is for a significant amount, in conjunction with the place where the work is to be carried out or the technical characteristics of the contract and the specific characteristics of the products concerned (para 20, emphasis added).

This can in itself be seen as a significant deviation -- if not an outright partial reading -- of previous case law and, in particular of SECAP and Santorso, C-147/06 and C-148/06, EU:C:2008:277, paragraph 31, on which the ECJ relies expressly in Tecnoedi. In fact, in that very paragraph, the ECJ indicated that

It is permissible ... for legislation to lay down objective criteria ... indicating that there is certain cross-border interest. Such criteria could be, inter alia, the fact that the contract in question is for a significant amount, in conjunction with the place where the work is to be carried out. The possibility of such an interest may also be excluded in a case, for example, where the economic interest at stake in the contract in question is very modest (see, to that effect, Case C‑231/03 Coname [2005] ECR I‑7287, paragraph 20). However, in certain cases, account must be taken of the fact that the borders straddle conurbations which are situated in the territory of different Member States and that, in those circumstances, even low-value contracts may be of certain cross-border interest (SECAP, para 31, emphasis added).

Thus, the ECJ seemed in Tecnoedi rather open to a certain conflation of value and cross-border interest (a move that can ow be traced back to Enterprise Focused Solutions, C-278/14, EU:C:2015:228, para 20, on which the ECJ also relies in Tecnoedi), which did not seem to follow from the previous case on which it relied. On this basis, and taking into account the arguments of the referring court on Fossano’s proximity to France and the evidence that domestic tenderers located further away decided to participate, the ECJ then established that

… a conclusion that there is certain cross-border interest cannot be inferred hypothetically from certain factors which, considered in the abstract, could constitute evidence to that effect, but must be the positive outcome of a specific assessment of the circumstances of the contract at issue. More particularly, the referring court may not merely submit to the Court of Justice evidence showing that certain cross-border interest cannot be ruled out but must, on the contrary[,] provide information capable of proving that it exists. …

… it may not be argued that a works contract … for an amount which does not equate even to a quarter of the threshold laid down by EU law and whose place of performance is located 200 km away from the border with another Member State can be of certain cross-border interest solely because a certain number of tenders were submitted by undertakings established in the Member State in question, which are located at a considerable distance from the place where the work at issue is to be carried out.

That evidence is clearly insufficient having regard to the circumstances of the case …, and, in any event, cannot be the only evidence which must be taken into account, in so far as potential tenderers from other Member States may face additional constraints and burdens relating, inter alia, to the obligation to adapt to the legal and administrative framework of the Member State where the work is to be carried out, as well as to language requirements [Tecnoedi, paras 22-25, emphases added].

This assessment by the ECJ is bound to create perplexity, not least because it adopts an anti-integrative logic that comes to say: “since there are clear regulatory and language barriers to the functioning of the internal market for public contracts, let’s not even bother to consider the extent to which fundamental market freedoms have a role in bringing them down”.

It also seems to encapsulate an approach that could limit the relevance of its case law on the application of general principles of EU public procurement law to contracts that are sufficiently close to the thresholds triggering the application of the substantive directives. This triggers questions such as how close must the value be to the directive’s thresholds for cross-border interest to be likely? If very close, then what is the purpose of this line of case law anyway, and would it not have been better to stick (strictly) to the value thresholds as redlines for EU competence (including that of the ECJ)? If not very close, then how many shades of grey do we have in this area, and how can a contracting authority (or review tribunal or court) reasonably establish the (likelihood of) applicability of general principles and fundamental internal market freedoms?

To me, these defects alone are sufficient to consider Tecnoedi a troubling distortion of the ECJ’s approach to the assessment of cross-border interest for public contract—fundamentally because it creates a crack in (if not smashes) the normative and functional logic of previous case law and, on the whole, creates a risk of significant restriction of application of the general principles of EU public procurement law going forward.

Moreover, and at a lower level of generality, I also harbour the strong suspicion that the ECJ sees this as a relatively safe or unobjectionable assessment because it concerns a rule on the treatment of (automatically identified) abnormally low tenders that may be (improperly) considered not to create a barrier to free movement because it applies at evaluation rather than selection stage—and also because the request for the preliminary ruling was clearly defective in its lack of clarity of both the content of the Italian rule and its application to the specific case (which seems not to be possible on the basis of the limited information provided in the ECJ’s judgment). Thus, the ECJ probably may have seen this approach to the assessment of cross-border interest as an easy way to return the hot potato to the referring court without burning its hands.

However, in my opinion, this approach is clearly unsafe and objectionable when put in a different (broader perspective). Let’s imagine that the challenge had been directed at a rule on selection or exclusion (eg a rule restricting participation in tenders for this type of works contracts to undertakings located in the relevant Italian region, in this case Piedmont). In that case, the ECJ may (would) have been more willing to accept that the (same) test of (potential) cross-border interest based on the exact same indicia of economic irrelevance of a 200 km distance lent itself the opposite conclusion, and thus resulted in jurisdiction of the ECJ to interpret the relevant Italian (regional) rule against Arts 49 and 56 TFEU – or, even further, in its jurisdiction to (uphold) an Art 258 TFEU decision of the European Commission finding Italy in breach of EU law for such blatantly discriminatory rule, ultimately based on the tenderers’ nationality (which could easily dwarf the ECJ’s qualms about accepting the existence of potential cross-border interest in cases such as this).

Overall, for these reasons, I consider the Tecnoedi judgment very troubling. I can only hope that it will not go unnoticed and that the ECJ will backtrack from this rigid approach to the existence of (potential) cross-border interest in a tender for a public (works) contract.

RegioPost and its implications: personal notes of the full extended discussion at Bristol conference

Pictures by @PetraOden & @asanchezgraells

Spending a whole day with friends and distinguished academics discussing the RegioPost judgment and its implications for the enforcement of labour law standards in public procurement settings under EU law proved to be both intellectually challenging and very rewarding. I am sincerely grateful to all speakers and participants for the excellent exchange of ideas (the event was definitely not short on controversy ...).

It will take us some time to get the formal publication of the proceedings of the conference in place, so I thought it would useful to advance here some of the most salient issues discussed at the event. These are my (lengthy) personal notes and, even if I tried to capture the essence of the speakers' presentations, they may not represent their views and they do not bind them in any way; all mistakes in these notes are my own.

Joanne Conaghan gave us a very warm welcome (literally, for it was a really hot day in Bristol after the gorgeous weekend weather) and stressed the relevance of putting the discussions to be held in the broader context of the constant struggle of harmonising economic and social considerations in any regulatory and policy framework.

With this in mind, the discussions for the day were organised around four panels, covering in turn different perspectives of the RegioPost judgment and, more generally, the difficulties and challenges in enforcing labour standards through public procurement. 

Panel 1: Constitutional and Internal Market Aspects of the Enforcement of Labour Standards in the EU

Constitutional view on RegioPost

Phil Syrpis' paper addressed the constitutional framework considering the dynamic relationship between secondary and primary EU law, and in particular how the posting of workers directive (PWD) impacts on provision of services in the EU. Two constitutional visions: a) all secondary legislation is under the Treaties and, consequently, secondary law cannot have any influence on the way the CJEU interprets primary law; b) more organic or heterarchical model, the CJEU’s monopoly on the interpretation of primary law is necessarily complemented by legislative action whereby the legislative institutions provide input on the context of the rights and, consequently, the CJEU should take this into account when interpreting rights under the Treaties.

Not clear how secondary law in conflict with previous case law of the CJEU should be dealt with, as both models are in tension. The case law of the CJEU is inconsistent and the Court has not clarified what is the right approach in cases of conflict between secondary law and previous case law interpreting primary law. As an aside – these issues raise important points for Brexit, particularly when some directives create individual rights, as well as the possibility for MS to shape social and citizenship rights and influence the case law of the CJEU.

Initial reaction to RegioPost is that it clarifies some issues, but it confuses others too. Essentially, the question was about compatibility with Art 56 TFEU for the regional government to insist on compliance with regional minimum wage. Usefully, the CJEU distinguished between exhaustive and non-exhaustive harmonisation. Where there is exhaustive harmonisation, the framework provided by the secondary legislation displaces that of the Treaty. From a constitutional perspective, that is the easy case. However, Art 26 Dir 2004/18 does not lay down exhaustive rules on contract performance and, consequently, the analysis of legality needs to be carried out under primary law—ie Art 56 TFEU. Moreover, Art 26 explicitly required for contract compliance clauses to be in compliance with Union Law.

However, in para 60 of RegioPost, despite saying they would assess under primary law, the Court actually assessed compliance with the PWD, which is a measure of non-exhaustive secondary legislation as well. In the light of the relationship between primary and secondary law, this approach is strange and complicates the issue of what the hierarchies are. The provision of regional law was determined to be compatible with EU law due to compliance with Art 3 PWD, rather that Art 56 TFEU, which is unusual and confusing.

Distinction between exhaustive and non-exhaustive harmonisation presupposes that most initiatives by the EU legislator will be of exhaustive harmonisation. However, exhaustive harmonisation is never the case, particularly in areas such as social or environmental law. This requires a more sophisticated approach to what to do in these areas in terms of compatibility with EU law.

PWD and Dir 2004/18 seem to be in a strange relationship because the legality under Dir 2004/18 ends up depending on the interpretation of the PWD—does this trigger a privileged position of the PWD over the procurement rules? RegioPost suggests that the CJEU’s controversial interpretation of the PWD is more important to the CJEU than the interpretation of the procurement rules. That is odd. What should the relationship between particular directive and the CJEU’s interpretation of the Treaty? ‘Provided they are compatible with the Treaties’ should imply some independent analysis of compatibility with Art 56 TFEU itself, almost regardless of compatibility with other rules of secondary EU law.

For the future: what is the likely impact for changes in the public procurement rules? Art 26 Dir 2004/18 vis-à-vis Arts 18(2) and 70 Dir 2014/24. Does the subtle wording in Dir 2014/24 alter the position of the procurement rules? Also, in view of the proposals for the revision of the PWD, there are queries as to the permeability of procurement rules to that reform. Finally, it is also unclear to what extent these changes in secondary law are likely to affect the CJEU’s case law and interpretation of primary law (will it reflect the organic model?).

Art 56 TFEU and the principle of proportionality

Piotr Bogdanowicz stressed that RegioPost has been described as the gold standard for the social protection of workers performing public contracts. However, there was no reference to proportionality in the judgment. Generally, there is a three step methodology in this area: restriction, justification and proportionality assessment. It is surprising that RegioPost does not engage in this three-step analysis because it had been used in Ruffert and Bundesdruckerei. The lack of this analysis is a shortcoming of this Judgment and, unfortunately, another case challenging the coherence of the case law of the CJEU.

Why should proportionality apply to RegioPost? Because Art 56 TFEU should apply, mainly due to the fact that procurement rules are a fundamental expression of free provision of services, as well as the fact that the fundamental freedoms are the legal basis for the adoption of the Directives. Furthermore, due to the lack of exhaustive harmonisation.

The analysis is odd because, should Art 26 Dir 2004/18 not have required compatibility with EU law, would this have been an issue? This is particularly relevant because Art 70 Dir 2014/24 does not require it. In Piotr's opinion, there is no need for this requirement to be written in secondary law because it derives simply from supremacy of EU law. And, in order to assess such compatibility, the three-step approach needs to be followed. Restrictions are easy to prove and the CJEU rarely rejects the public interest reasons raised by the Member States, so proportionality ends up being the key issue of analysis in almost all cases.

In procurement, proportionality is particularly relevant because it has been included from the early generations of public procurement directives. Proportionality has always been applied in the procurement setting as a general principle of EU law. It was applied in the case law anticipating RegioPost (Ruffert and Bundesdruckerei) and in both cases the CJEU found that national measures did not pass the proportionality test. The importance of proportionality is also reflected in Art 18(1) Dir 2014/24, where it is explicitly consolidated.

Why did the CJEU not apply proportionality? It is difficult to identify the reasons why, mainly because it derives from the construction of the judgment itself. In para 67, the CJEU stresses that interpretation of Art 26 Dir 2004/18 is supported by Art 56 TFEU, which is a strange argument. That is why the abrogation of the proportionality analysis is an odd analytical strategy. In Ruffert, the CJEU had gone the same way but did apply proportionality to assess compatibility with EU law (after the restriction was demonstrated under the PWD). Even if the CJEU wanted to distinguish RegioPost from Ruffert, it ought to have carried the proportionality analysis. As it is now, it seems that the PWD offers a safe haven for national law, which could have been done 8 years ago (in Ruffert), but not now because Art 26 Dir 2004/18 applied to the case and this should have triggered a different analysis.

This adds complication under Dir 2014/24 because of Art 70 + 18(1), which change wording and potentially the test. The case law of the CJEU shows that the more politically sensitive the case, the less intrusive the scrutiny seems to be. ‘Indulgent’ scrutiny was advocated for by AG Mengozzi because the measure is applicable to workers assigned to public contracts rather than workers in the private sector—this raises an issue of conflict between economic and non-economic goals (competition v social protection). This, however, should trigger a strict proportionality test.

The implications of lack of proportionality in RegioPost are severe. A recent report by Bruegel showed that there is 1.2 million posted workers in the EU, 40% come from Eastern countries (20% come from Poland). The CJEU seems to have adopted a more careful approach to the PWD and this may improve the situation for posted workers. This is something that requires further case law from the CJEU.

DEBATE

focused on complex issues around the way the preliminary reference ‘framed’ the CJEU’s assessment and why the CJEU ‘abrogated’ alternative analyses such as non-discrimination or split of competences. The discussion also covered the difficulty of applying proportionality in fields where we are dealing with incommensurate values. Moreover, this is complicated by the lack of clarity and consistency of the recitals in specifying what specific secondary law interventions aim to achieve—which is particularly muddy regarding Dir 2014/24.

Panel 2: Public Procurement and Labour Standards (I):
EU Procurement Law Perspective

Sustainable procurement and corporate experimentation

Nina Boeger shared some thoughts beyond RegioPost and an enquiry into two developments arising from the financial crisis: a) rise of polarisation of corporate governance models with, on the one hand, market responses to financial crisis that persevere on traditional approach to maximisation of return on investment and, on the other hand and as a counterbalance, new or revived corporate models, such as social enterprise, cooperative enterprise and commons-oriented enterprise; b) rise of sustainable or smart procurement driven by austerity politics and cuts on public budgets, which is also becoming polarised with, on the one extreme, traditional or economically-driven procurement, with focus on immediate value for money obtainable from service outputs and very much focussed on price and concrete delivery and, on the other extreme of the spectrum, smart / sustainable procurement that aims to change perspective of procurement and commissioning practices and moving towards longer-term perspectives on triple bottom line for the communities that are relevant for the procurement or commissioning body, as well as process sensitivity and long term relationships with providers of services.

Smart procurement involves a recognition of the risk that contracting with shareholder-driven corporations entails (large corporations are “too big to fail” and the risk of failure that the public sector faces requires a more diffuse provider base), as well as the passing on of costs to the tax payer. There is also a concern on the risks of insufficient specification (under-specification) and uncertainty, which is an integral part of procurement and commissioning. Corporate governance and the way they are structured will affect the way they deal with these issues of risk and how they will respond. Alignment of corporate governance and risk issues is necessary and contracting authorities are searching for trust and reliability in addition to capacity. New corporate models (such as social enterprises) that are struggling to make their business sustainable are dying to access public demand, both to raise funds for their sustainability and to raise social awareness.

In view of these trends, it looks like there are promising possibilities in procurement in aligning two very important structural developments: emergence of new corporate forms and the development of smart procurement. The question now is whether there is enough flexibility in the legal regime to allow public authorities to procure in this way? [this looks like a watershed moment for EU public procurement law, which is still fulfilling a traditional role of non-discrimination, transparency and workable market openness; but is also fulfilling the role of a change agent by supporting the development of those new models—the tension is not anymore on what the EU / the MS can do, but rather about thinking about new structures of capitalism].

The issue of flexibility then hinges on certain aspects of Dir 2014/24, such as market engagement (Art 40), the possibility of reserving non-profit contracts (Spezzino), grounds for exclusion also help some experimentation (Art 57), reservation of contracts for employee-led organisations (Art 77—which is incredibly narrow) … but the main problem for the development of ‘corporate governance’ clauses in procurement is the requirement of link to the subject matter (LtSM), which has been extended massively compared to Dir 2004/18. This poses the question how do we make sure that we can distinguish corporate governance requirements linked to the provision of the service from the limits on mandating general corporate policies. It is necessary to have these conversations so that the developments can move forward.

Minimum and living wage in public contracts:
Enforceability after RegioPost

Abby Semple started off stressing that the discussion on the enforcement of labour (pay) standards needs to be more specific and we need a taxonomy that distinguishes minimum wage, sectoral minimum wage [in particular, wages specific to public contracts], collectively agreed wage and living wage (which is a voluntary undertaking to pay a wage above the legally-mandated minimum wage). There is also an interesting argument on whether requirements for fair trade that link to wages paid to producers can be included as part of the same analysis. She also stressed that minimum wages show great disparity in the 28 Member States, even when adjusted by parity of purchasing power. This raises significant practical difficulties.

What does RegioPost say? The CJEU distinguished the Ruffert case very strongly because it was then a non-universal collective agreement that set the minimum wage in dispute, whereas in RegioPost the minimum wage is a result of (regional) law, in which case it does not matter that it only applies to the public sector. The CJEU also acknowledged the social protection argument as potential justification (like in Bundesdruckerei), but did not engage in full proportionality assessment (maybe because it did not need to do so, but leaves RegioPost vulnerable to future case law where the CJEU may engage in proportionality review).

Proportionality review should be a mechanism of last resort because Dir 2014/24 sets precise rules and, if they were not shielded from proportionality review, then contracting authorities would have no liberty to rely on the secondary rules.

Interestingly, the CJEU did not distinguish from Bundesdruckerei. The CJEU did not make any assessment / statement on the issue of lack of a cross-border situation in RegioPost. This is important in itself. It is also relevant that the CJEU engaged with an analysis with the PWD, primarily because the referring court had raised it. Also because Art 26 Dir 2004/18 is an empty / reenvoi clause that required engaging with PWD (this is cross-referenced in Recital 34 of Dir 2004/18C and Recital 98 of Dir 2014/24).

It is also relevant to stress that RegioPost makes some conceptualisations of contract compliance / performance clauses problematic. Nord pas de Calais, which reinterpreted Beentjes, also created a circular self-justifying doctrine that indicated that contract performance clauses did not allow for exclusion of those that did not meet the requirements. The RegioPost judgment now allows for exclusion of tenderers that are not committing to comply with contract performance requirements, which conflicts with the Commission’s understanding under the previous case law.

Looking specifically at minimum wage clauses, it is relevant to look at the Fair trade coffee case (C-368/10), where the CJEU stressed that you could have fair trade as an award criterion. Fair trade includes, amongst other things, the payment of wage premia to producers—this creates a problem if a contracting authority can do it in a third jurisdiction, but not in its own jurisdiction. There is evidence that the Commission does not accept that payment of a living wage could be a pass/fail criterion (Scottish government sent repeated letters to the Commission, to which it replied in the negative). How to address living wage as an award criterion? Could you use the wages the tenderer is willing to pay as an award criterion? Semple does not see any reason why it is not possible.

Scenarios for further thought. 1. Could you have a maximum wage clause in the contract for cost-control purposes? 2. Where a contract is affected by TUPE, the obligation to apply same terms and conditions, as the contracting authority, you need to effectively require pre-existing terms and conditions including wages (and you NEED to do that, including where the incumbent is the contracting authority itself in case of outsourcing).

RegioPost allows for legally-embedded sectorial [public sector] minimum wages. It does not deal specifically with living wages but the argument can be made in light of fair trade coffee.

Competition and State aid implications of
minimum wage clauses in EU public procurement

Albert Sanchez-Graells' presentation focused on the trade / social dumping rationale for minimum wage requirements, and I submitted that the PWD is the anti-dumping standard under EU economic law, so that no more demanding standard can be allowed without subjecting them to a very strict proportionality test. I also submitted that the approach of the CJEU to the interpretation of the PWD in the public procurement scenario does not make economic sense because it creates double standards for cross-border and inter-regional situations, which results in an impossible situation for contracting authorities that, at the time of tendering, cannot foresee whether they will manage a purely domestic or cross-border procurement project (as that depends on actual interest from cross-border tenderers).

On that basis, I discussed the problems of reverse discrimination and unforeseen consequences (anti-SME, pro-delocalisation, etc) that can derive from strict enforcement of the contradictory rules created by the Bundesdrukerei-RegioPost tandem. I moved on to stress the competition law implications that can result from this situation and the difficulties in capturing such anticompetitive effects with the competition law prohibitions in Arts 101 and 102 TFEU, included the supporting State action theory.

I finally tackled issues of application of State aid and submitted that the payment of above-market wages by the contracting authorities is an economic advantage that triggers the prohibition of Art 107 TFEU and, in turn, this cannot be justified either under the 2014 general block exemption regulation (it does not fit the regulated categories of disadvantaged/disabled employment, or creation of jobs), or the de minimis regulation (the aid is not transparent). Thus, I submitted that State aid enforcement in this area can raise difficult issues in the near future.

DEBATE

focused mainly on the issues of the social economy model and the extent to which competition law / State aid can apply to these issues at all, as well as the undesirability of a strict proportionality assessment that would kill innovation. It is also discussed to what extent a proportionality analysis is at all possible and whether social requirements are necessarily protectionist or not, and whether this should be dealt with as an issue of direct or indirect discrimination and how EU law would regulate them, which comes back to issues of proportionality of restrictions vis-à-vis their intended goals. The debate then also moved upwards and looked at the different treatment under WTO GPA and the EU rules, as well as the possibility to coordinate them. The issue of the heterogeneity of what is considered a ‘social consideration’ was also explored in some detail.

Panel 3: Public Procurement and Labour Standards (II):
EU Labour Law Perspective

Government as a socially-responsible market actor after RegioPost

ACL Davies took a step back and looked at the discussion from first principles. Use of contracts to pursue contract-unrelated policy is controversial. It is useful to distinguish two dimensions: a) reinforcing existing legal requirements, and b) creating requirements that go beyond existing legal duties. a) may see superfluous but the leverage of contracting can make up for deficiencies in enforcement elsewhere (in the UK case, given the lack of labour inspectorate). b) has attracted significant opposition + international drive to reduce the use of contracting authorities’ discretion is a way of reducing the chance for them to adopt protectionist strategies, willingly or otherwise.

The justification for the use of procurement to enforce social goals is as follows: 1) consistency and trust in government (legislative process not only aspect of democratic mandate given to government), so if the government is committed to a public policy, it should enforce it through contracting (to show consistency and avoid silo mentality, all of these foster trust in government). This is linked to the doctrine of legitimate expectations to get government to follow promises made in the past. This use has a long tradition (government as a model employer, and procurement as an aspect of that). 2) stronger argument in modern times is to prevent the harm that competitive tendering can create. This is linked to ILO standards for government contracting. This is particularly relevant in labour-intensive services, where government can create a level playing field in terms of employment conditions, so that alternative providers compete on other dimensions and labour standards are taken out of competition.

Two issues with RegioPost: lack of understanding of procurement and lack of understanding of wage clauses in procurement. Before the negatives, RegioPost is generally welcome if nothing else because it reverses Ruffert on the basis of Art 26 Dir 2004/18.

BUT.

Art 56 TFEU and its key test for determining whether something is restrictive requires to assess whether it ‘constitutes an additional economic burden that may prohibit, impede or render less attractive the provision of their services in the host Member State’. This is applied in RegioPost and the minimum wage is characterised as an additional economic burden that makes the activities less attractive. The cost linked to the minimum wage can be a burden, but the cost can be passed on to the government and, from that perspective, there is no impediment or restriction to the provision in another Member State because the additional cost is covered by government. However, the services can be less advantageous by limiting the profit that the provider could achieve. This disadvantage is very artificial because it does not carry a loss for the service provider, but merely a missed opportunity for a larger benefit. This should not be covered by Art 56 TFEU or, at least, given that the disadvantage is very marginal. Maybe it is State aid (the government pays for it and State aid can be discussed), but it cannot also be exclusionary. It is either one or the other.

From the perspective of minimum wages, we need to remind ourselves that EU law does not say a great deal about wages. The difficulty of regulating pay at an EU-wide level is significant. This does not stop the CJEU from scrutinising different issues regarding pay in the internal market perspective, but the CJEU lacks a point of reference in this setting. This is what leads it to rely on the PWD and the importance on the wage being a minimum wage. The interpretation of the PWD in Laval is a clear attempt to elevate the PWD to the standard applicable in terms of social dumping in the EU. What’s wrong with the emphasis on minimum wage? The issue is with the justification on worker protection as the justification for the measure discussed in RegioPost. Minimum wage is of course a protection. The elephant in the room is that the minimum wage is only for public contracts, which diminishes the relevance of the argument as compared with contexts of general economic regulation.

In the public procurement setting, minimum wage is not a concern as in the labour market as a whole, but a protection against the competitive nature of government contracts and the ensuing downward pressure on worker protection. So the analysis should be procurement context-specific.

So, upshot, it is better that Ruffert, but RegioPost misses the difference between procurement and regulation, procurement being the space where the government is ready to put its money where its mouth is. This ought to do with preventing the harm that procurement might otherwise cause.

Labour law in the state of exception

Lisa Rodgers looked at labour law as an exception to economic rules and tried to see how far that helps us when thinking about labour standards in public procurement. It is worth stressing the link between economic and social law, and the theory of the ‘state of exception’ derived from neoliberal thought following the crisis. Labour law is an exception or concession against the basic economic foundation that we have. Following the crisis and austerity measures, this exceptionality has become more clear. The focus on procurement is an expression of this exceptionalism.

The state of exception is a theoretical perspective that uses the importance of the exception itself. The argument is that the ‘exception’ is the most important element in any system of regulation because it is at the edge of the legal system and it shows how politics get involved in the adjudication of legal issues. Used this way, it crowds out political considerations because the law starts covering it all.

Positive claims about inclusion of labour law in economic standards: 1) labour law’s concerns are included within the law; 2) labour law’s concerns become part of the economic paradigm; 3) law is subject to interpretation by favourable CJEU; 4) other Treaty provisions can help; 5) incorporation of international legal standards is facilitated.

Responses to the claims: 1) labour law is an exception or a concession, so it is included (by exclusion) as a discretion rather than a mandatory condition [eg Arts 56(1) and 57(4) Dir 2014/24] and some innovations do not include social/economic concerns [eg Art 68 Dir 2014/24]; 2) as an ‘exception’, labour law is only part of the economic paradigm, which weakens the political power of labour law institutions; 3) the CJEU has given broad discretion to consider employment and social considerations as part of the public procurement process (Beentjes), BUT the link to the subject-matter of the contract (LtSM) is an increasingly constraining economic test, which means that the contracting authority cannot influence the policy it applies; 4) relationship between labour standards, public procurement and other EU law provisions and policies (including soft law) show a shift in those instruments and a prevalence of macroeconomic policies that downgrades labour law standards’ relevance; 5) finally, there is a very limiting approach to the inclusion of international standards [narrow list included in Dir 2014/24 and NO reference to ILO convention 94 on public contracts) + Art 18(2)].

In conclusion, labour law is increasingly seen as important in the context of the public procurement directives, but there are some important risks if labour law is seen as an exception or a concession to economic law and economic goals. Labour standards are restricted because they need to comply with economic paradigms, there is a tendency to promote individual over collective rights, the institutions of labour law can find their power to challenge the law reduced.

Scope for collective bargaining in posting and procurement

Tonia Novitz looked at Laval and Ruffert and their impact on collective bargaining in public procurement, and positioned them in historical context (decided in 2007 and 2008), which has changed very significantly as a result of the economic crisis. Elektrobudwa and RegioPost indicate new horizons for trade union protection of posted workers and space for regional protection, but not for collective negotiation. This indicates stark shortcomings in proposals for the revision of the PWD.

Laval was a case of a trade union trying to improve conditions for a group of workers. This was generally seen as problematic. Collective negotiation and action could only be permitted in the context of social dumping. This is a very controversial judgment and has been heavily criticised. Laval had a negative impact on the ability of trade unions to call for action with cross-border effects. There is a strong clash between the EU approach and international standards, which cannot be easily reconciled.

Ruffert adopted the Laval approach whole-heartedly on the basis of another rigorous reading of the PWD and, in particular, about Art 3(8) setting out the ways in which collective agreements can be declared generally applicable. Ruffert failed to meet those. MS could exclude the construction industry from these requirements under Art 3(10) PWD, but that did not save the situation either. The imposition of such large limitations on the collective setting of rights for posted workers’ rights led to an understanding of the PWD as a ceiling rather than a floor of employment rights. This could not be overcome as a result of the Monti II Regulation, which was abandoned for different reasons.

It may be worth revisiting these issues by going back to the basics of the need for the PWD, particularly in view of the vulnerability of posted workers, which supports the case for their access to collective representation. It is also worth stressing that the capacity of labour inspectorates across the EU has been severely eroded as a result of the financial crisis. Additionally, memoranda and other crisis-related recommendations have been in line of flexibility and minimising collective negotiation to enterprise level-agreements. Overall, this makes the requirement of universal application stressed in Laval and Ruffert seems very outdated in the context of 2016.

Currently, the number of posted workers is at about 1.9 million and has increased by 49% compared to prior to the crisis. The treatment of posted workers is also reported to suffer from 51% lower wages, higher instances of work-related accidents and displacement issues. This can be triggering a mild shift of the case law regarding collective bargaining.

In Elektrobudwa, there was support for regional collective action on behalf of posted workers. This is linked to the issue of individual claims because in this specific case, there is direct representation by the trade union. There is nothing to indicate sympathy for collective bargaining for posted workers, but it could be seen as a first step in that direction. In RegioPost you can also identify a first step away from Ruffert, but they stress that there was no collective agreement and, therefore, the distinct treatment between public and private workers did not matter. However, none of these cases make significant inroads into collective bargaining in public procurement. RegioPost was very cautious in the way it treated collective agreements.

Commission’s proposals from February 2016 can potentially make a difference around collective agreements that could have a spillover effect on procurement. Of these proposals, the rules concerning subcontract chains, including those that foresee the posting of workers, can have significant effects. But, for this to be relevant, there has to be a move beyond ‘minimum rates of pay’ (absolute minimum) towards ‘remuneration’ (so as to cover a variety of different elements), which should then be equally applicable to all employees regardless of subcontracting chains. This has a connection with Art 71(6) Dir 2014/24 in terms of control of subcontracting chains. It is also a nod to international standards, but a timid one.

Overall, however, this seems very unlikely to be adopted in the near future, and it may well be only after a monitoring of the implementation of the PWD enforcement measures. However, a case could reach the CJEU on the basis of a case based on strike action including both posted and non-posted workers, which will trigger issues of evidence-based social dumping and may not allow the CJEU to set aside this type of collective action as easily as in the past.

DEBATE

focused on issues of localism and devolution, and the way that this can impact the use of procurement to enforce labour standards, particularly in the UK. It also explored the implications of the post-Lisbon social market economy on the issue of the ‘exceptionalism’ of labour law. The audience also questioned whether Laval is really not still the relevant standard and whether the restrictive approach to collective bargaining is not still the rule. There was also discussion on whether wage-based advantages deserve a different treatment where there are and where there are not posted workers, as well as what actually amounts as a restriction on the freedom of provisions of services in terms of two-tier employment scales and issues of discrimination / disadvantage of workers within one same undertaking.

Panel 4: Procurement and Labour Standards (III):
Domestic UK Perspective

Labour standards, domestic law and public procurement

Michael Ford focused on how non-pay labour standards (such as blacklisting [note: of workers involved in trade union activities, not of undertakings from public procurement procedures] or discrimination rules) can be applied in the public procurement setting. UK history shows that the underlying issues have been discussed repeatedly in the past. However, there have been significant developments, such as the use of procurement to promote non-discrimination law. Section 149 Equality Act 2010 (EA 2010) imposes an explicit duty on public authorities to prevent discrimination and give effect to advancing equality law. It is also important to stress the importance of sectoral collective bargaining and quasi-collective bargaining in the UK, which lead to legally binding pay rates and holiday terms. Currently, though, this has been discontinued and there is no legal mechanism for the determination of sectoral pay. Query is whether this will not change again in the future.

From a practical perspective, looking at procurement litigation, it is worth reminding that this is an area institutionally dominated by large commercial organisations with large budgets to litigate, which skews the litigation field. It is also affected by other pragmatic tensions, which raises issues of the different access to statutory review vs judicial review of procurement decisions. Pragmatically, it is also very difficult to apply standard legal tools (proportionality) to non-pay labour standards and, in particular, in issues of non-discrimination—not least due to the absolute protection of non-discrimination concerns over economic issues. Thus, even if it is fundamentally difficult, pay is relatively straightforward compared to non-pay labour standards.

The counterfactual question is, though, what would have happened in EU procurement law if there had been no PWD? Would the CJEU engaged in an untrammelled proportionality test based on ultimate considerations of discrimination? That would have been highly political and this is why the CJEU has sheltered behind the PWD, which has effectively provided the CJEU with a relatively easy answer compared to the alternative of having to legitimise its decisions. This is exemplified in Bundesdruckerei in that there was not AG Opinion to support the CJEU, which considered the use of the PWD straightforward.

However, let’s assume that the PWD is a useful point of departure. Can the government use 'administrative provisions' [which are not defined, under Art 3(1) PWD] to enforce pay policies, particularly reinvigorating sectoral rate setting mechanism? This raises a set of issues: would it still qualify as minimum wage of pay despite the existence of a lower universally applicable minimum wage? Yes, it would. Would it be possible to give legal effect to the result of the collective bargaining? Yes, it would because the rate, despite the collective bargaining origin, derives from law. Could you use a RegioPost type system where you already have a national minimum wage (ie creating a higher minimum wage only for public contracts)? It looks as if the CJEU considered it central that in RegioPost there was no minimum wage, but it is not clear why it would not be possible to go above that ceiling with a RegioPost-like mechanism.

An alternative to the legal enforcement of rates of pay, which is not in line with UK tradition, would be to rely on Art 70 Dir 2014/24 rather than on Art 3(1) PWD (ie base it on discretion of the contracting authority). However, this is still a confusing environment.

A connected issue is blacklisting, in relation with the ILO conventions, which is now illegal under UK law. However, this could be possible under Art 18(2), Art 57(3) and Art 70 Dir 2014/24 by focusing on the tender rather than the tenderer [as in the enactment of reg.56(2) PCR2015]. This should not be subjected to a proportionality analysis under Art 18(2) Dir 2014/24, which only requires proof of breach of any of the international standards.

Another issue is whether there is a tension between the public sector equality duty under the EA 2010 and public procurement. One difficulty is whether you can use procurement as a preference for undertakings that have equal opportunity policies, equal pay audits, etc. This would fit within Art 70 Dir 2014/24, complemented with the relevant ILO conventions. There is again a tension with the issue of minimum standards in the PWD or not.

The answer is that PWD, even when it applies, it does not give the answer—particularly outside the area of pay, it is very difficult to figure out how to effectively carry out a proportionality assessment when there are procurement measures that go beyond agreed (EU) standards.

Discretion and labour objectives

Richard Craven presented preliminary findings of on-going research funded by the British Academy and Leverhulme, where he assesses practitioners’ reactions to existing rules on the possibility to enforce labour standards within the limits of discretion given to public procurement officers.

DEBATE

focused on the difficulties of extrapolating qualitative insights and the insufficiency of public procurement data, which could allow for complementary quantitative research.

Interesting paper on International Trade and Regulatory Cooperation in Public Procurement (Hoekman, 2015)

I have just read the recent paper by Prof B Hoekman, 'International Cooperation on Public Procurement Regulation' (November 1, 2015). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2015/88. I found his insights into how to move the development of trade policies through public procurement very suggestive. As his abstract explains,

Most governments have yet to agree to binding disciplines on government procurement regulation, whether in the WTO or a preferential trade agreement. Empirical research suggests that reciprocally-negotiated market access commitments have not been effective in inducing governments to buy more from foreign suppliers. Foreign sourcing by governments has been rising for most countries, however, independent of whether States have made international commitments to this effect – although there is some evidence that this trend was reversed post-2008 in several countries that had the freedom to do so. The stylized facts suggest a reconsideration of the design of international cooperation on procurement regulation, with less emphasis on specific market access reciprocity and greater focus on good procurement practice and principles, efforts to boost transparency, and pursuit of pro-competitive policies more generally (emphasis added).

Hoekman's discussion of the reasons why the current focus on bilateral market access reciprocity 'is unlikely to have much of an effect' is particularly interesting:

One reason why market access reciprocity arguably has limited returns is that many contracts that are issued by procuring entities concern products that are difficult to supply on a cross-border basis. Construction and services of many kinds will generally have to be supplied locally and there may be good reasons for procuring locally even if a good is tradable. If the products procured are intangible (services) or there are problems in monitoring and enforcing contract compliance, discrimination can increase the likelihood of performance by suppliers. The best (economic) case for discrimination revolves around situations where there is asymmetric information, e.g., difficulties in monitoring the performance of a contractor if buyer and provider are located far from each other, or there is a need to offer a firm quasi-rents in order to increase the probability of contract compliance through the threat of losing repeat business (Evenett and Hoekman, 2013). Moreover, geographic proximity may be a precondition for effectively contesting procurement markets—making some products, in particular services, in essence non-tradable. Problems of asymmetric information and contract compliance may imply that entities can economize on monitoring costs by choosing suppliers that are located within their jurisdictions. In turn, this will make it more difficult for foreign firms to successfully bid for contracts, even if the goods or services involved are tradable and in the absence of formal discrimination. Such rationales have been explored extensively by Laffont and Tirole (1993); many of the underlying technical arguments are summarized and synthesized in Breton and Salmon (1995). The policy issue that arises in such situations is whether there are barriers against establishment (FDI) by foreign suppliers, as this is a precondition for them to bid for/supply contracts (Evenett and Hoekman, 2005) (pp. 16-17, emphasis added, for complete references, see bibliography in his paper).

This passage is particularly relevant in the context of EU public procurement, not least because it spells out in very clear economic terms the reasons why an 'obsession' with cross-border trade as a metric of good procurement is highly unlikely to actually result in better (economic) procurement results [for discussion of the current policy, see here, A Sanchez-Graells, 'Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? — A View on Proposals to Lower that Barrier and Spur Growth', in C Tvarnø, GS Ølykke & C Risvig Hansen, EU Public Procurement: Modernisation, Growth and Innovation (Copenhagen, DJØF, 2012) 107-133.; and ibid, 'Collaborative Cross-Border Procurement in the EU: Future or Utopia?' (2016) Upphandlingsrättslig Tidskrift (Procurement Law Journal),  forthcoming].

I also found very interesting that Hoekman presents in very straightforward terms the economic view that, put simply, procurement is not a 'magic wand' with which to implement all sort of secondary policies. In his clear exposition:

The pursuit of non-economic objectives by governments can have very different implications for economic efficiency. In principle, policy should target directly the source of problem at hand: lack of economic opportunities for minority groups; regional economic wealth differentials; market failures, and so forth. For example, take the case where a government awards a tender to an SME instead of a large company that submitted a lower cost bid because of an SME preference policy. It may be more effective and efficient if instead the government were to address the factors that impede the ability of SMEs to compete with larger firms. This can of course be due to different factors, ranging from financial market imperfections to excessively burdensome administrative requirements that are too costly for SMEs to meet. Dealing with these constraints directly as opposed to using a SME preference policy will be more efficient (Evenett and Hoekman, 2013) (p. 17, emphasis added, full references in his paper).

In the end, Hoekman recommends that the best way of ensuring good procurement outcomes is to 'promote a pro-competitive environment' (p. 21). I could not agree more and, once again, turning to the situation in the EU, this is what I have suggested is the best way forward in order to achieve the Europe2020 goals [see A 'Truly competitive public procurement as a Europe 2020 lever: what role for the principle of competition in moderating horizontal policies?' (2016) 22(2) European Public Law Journal, forthcoming]. I hope policy makers will start taking economic insight into account, particularly when it is presented in such clear and persuasive terms as Prof Hoekman does.

Collaborative Cross-Border Procurement in the EU: Future or Utopia?

I have uploaded a new paper on SSRN, which I will be presenting at the workshop on ‘Collaborative Efficiency in Government: The Trend, The Implications’ during the forthcoming ECPR Joint Sessions, Scuola Superior Sant’Anna and University of Pisa, 24-28 April 2016. 

The paper is entitled 'Collaborative Cross-Border Procurement in the EU: Future or Utopia?' and, in short, tries to conceptualise and look critically at the immensely complex legal issues that Directive 2014/24 has left unresolved. In order to conceptualise the political, economic and legal issues, I use a theoretical scenario that looks like this (so maybe it needs to be read with pen and paper, apologies!):

As the abstract explains in more detail:

Collaborative public procurement has been gaining traction in recent years and could be considered at the spearhead of public procurement reform and innovation. The 2014 reform of the EU public procurement rules (mainly Directive 2014/24) has expanded the tool-kit available to contracting authorities willing to engage in joint or centralised procurement activities, and in particularly in cross-border procurement collaboration. In a push forward, and as part of the Strategy for a deeper and fairer single market in its larger context, the European Commission is developing a policy to facilitate and promote cross-border collaborative public procurement in the European Union.

This paper adopts a sceptical approach and critically assesses the political, economic and in particular legal factors that can facilitate or block such development. To do so, it focuses on a case study based on a theoretical scenario of cross-border collaboration between centralised purchasing bodies in different EU Member States. The paper ultimately aims to establish a blueprint for future legal research in this area, in particular regarding the emergence of trans-EU public law.

This is an area where much more thoughtful legal research is needed, and I intend to do so in a paper I am just starting on the 'The emergence of trans-EU public law. Public procurement as a case study'. For now, though, the exploratory paper is out and comments would be most welcome!

The full paper is available: A Sanchez-Graells, Collaborative Cross-Border Procurement in the EU: Future or Utopia? (February 18, 2016). Available at SSRN: http://ssrn.com/abstract=2734123.