Collusion in procurement book launch, 10 Dec 2020

Dear How to Crack a Nut friends,

You are kindly invited to the book launch of Katarzyna Kuźma and Dr Wojciech Hartung's Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar, 2020). It will take place online on 10 December 2020 at 11.30 UK time via Zoom. The authors will be joined by Dr hab. Piotr Bogdanowicz and Jesper Fabricius, as well as yours truly, to discuss recent developments in the treatment of joint bidding under Article 57 of Directive 2014/24/EU, as well as the outstanding legal uncertainty on the interpretation and application of this provision, which Katarzyna and Wojciech have analysed in detail in their book.

More details and free registration here: https://www.eventbrite.co.uk/e/combating-collusion-in-public-procurement-book-launch-and-discussion-tickets-130271675087.

All the best, Albert

Litigation in Spanish railroad electrification cartel highlights further inadequacies of regulation of bid rigger exclusion

In a new episode of the Spanish sainete of the railroad electrification cartel (see here for an overview), it has now emerged that one of the companies affected by the exclusion ground (prohibición de contratar) declared in the resolution of the Spanish National Commission on Markets and Competition (CNMC) of 14 March 2019 subsequently secured interim measures suspending its effectiveness on 19 July 2019.

The freezing order prevents (Spanish) contracting authorities from relying on the exclusion ground and thus shortens the maximum period of (future) exclusion of the colluding companies, unless the CJEU revises its case law on the time-limit calculation for such grounds established in Vossloh-Laeis (24 October 2018, C-124/17, EU:C:2018:855). The decision also highlights issues concerning the cross-border effects of litigation on exclusion grounds. In this follow-up post, I discuss these two issues.

The interim measures decision

Quick recap: it should be stressed that the Spanish transposition of Article 57(4)(d) has resulted in a system whereby the exclusion of economic operators on the basis of previous infringements of competition law is mandatory under Article 71 of Law 9/2017 on Public Sector Procurement (LCSP). However, the scope and duration of such exclusion generates some difficulties, in particular when they are not established in the original decision declaring the infraction and imposing the measure—which is precisely the case of the railroad electrification cartel. In such cases, a further administrative procedure needs to be completed and the scope and duration of the mandatory exclusion (prohibición de contratar) are to be established by decision of the competent Minister.

The effectiveness of the mandatory exclusion ground in the period running from the initial infringement decision and the further Ministerial decision is contested. Two opposing schools of thought exist. One that gives automatic effect to the exclusion ground despite the future specification of its scope and duration, and the opposing view that considers that the measure is incomplete and cannot generate (negative) effects against the sanctioned undertaking until the Ministerial decision is adopted.

The CNMC expressed the first view in its railroad electrification decision, when it stated that ‘regardless of the time limits within which the duration and scope [of the prohibition] must be set [by the Minister of Finance] ... it is possible to identify an automatism in the prohibition of contracting derived from competition law infringements, which derives ope legis or as a mere consequence of the adoption of a decision that declares said infraction, as established in the mentioned Article 71.1.b) of [Law 9/2017]‘ (page 319, own translation full decision available in Spanish).

The Spanish High Court (Audiencia Nacional), in a Judgment of 19 July 2019 (ES:AN:2019:1673A, hat tip to Alfonso Rincón García-Loygorri for posting it on LinkedIn) adopted the same view and recognised that the measure was bound to immediately restrict the affected undertakings’ ability to participate in public tenders. Considering that it is likely that the final decision on the main appeal of the cartel decision arrives after the expiry of the three year maximum duration foreseen for the exclusion ground and that (should the appellant prevail) the effects of such exclusion would be very difficult, if not impossible to correct at that stage, the High Court decided to suspend the effectiveness of the mandatory exclusion ground.

Implications in terms of maximum duration of the exclusion

Quick recap: the CJEU has established that ‘where an economic operator has been engaged in conduct falling within the ground for exclusion referred to in Article 57(4)(d) of that directive, which has been penalised by a competent authority, the maximum period of exclusion is calculated from the date of the decision of that authority‘ (Vossloh Laeis, above, para 42).

I criticised the CNMC for creating legal uncertainty by not establishing the scope and duration of the exclusion ground in its initial decision. I argued that the CNMC knew or should have known that, as a matter of directly applicable EU law, de facto the maximum exclusion period can run for three years, up to 14 March 2022. Therefore, by referring the file to the Minister and creating legal uncertainty as to the interim effects of the prohibition to contract with a yet to be specified scope and duration, the CNMC actually bought the competition infringers time and created a situation where any finally imposed prohibition to contract is likely to last for much less than the maximum three years.

The High Court’s Judgment raises the same criticisms. While the High Court explicitly took into account the fact that the undertakings could find themselves in a position of not being easily compensated for the undue exclusion from public tenders in case of prevailing in their appeal of the CNMC decision, the High Court ignored that its freezing order will create the reverse effect in case the appeal is dismissed. By preventing (Spanish) contracting authorities from excluding the competition infringers from tenders for an indefinite period starting on 19 July 2019, the High Court has created the risk that the undertakings are never excluded from public tenders because such exclusion is time barred by the time the CNMC decision becomes final—which does not solely depend on the outcome of the High Court’s proceedings, but is subject to a potential further appeal to the Supreme Court.

This highlights once again the inadequacy—or, at least, partiality—of the CJEU Vossloh criterion that the maximum period of exclusion starts running at the time of adoption of the initial infringement decision. It seems clear that, where that decision is contested and, in particular, where interim measures are obtained to freeze its effects—the maximum period of exclusion needs to be calculated taking that into account. Otherwise, the simple fact of litigating buys competition infringers immunity from the debarment system foreseen in Directive 2014/24/EU and thus excludes its effet utile. That cannot be right.

Territoriality of effects

The new episode of the Spanish sainete also raises questions concerning the cross-border effects of the CNMC decision. While Spanish contracting authorities are effectively enjoined from giving effect to the mandatory exclusion ground, the situation is by no means necessarily the same in other EU/EEA jurisdictions. Non-Spanish contracting authorities could (justifiably) be tempted to apply domestic mandatory or discretionary exclusion grounds based on the fact that the relevant undertakings were sanctioned for bid rigging by the CNMC. This could be the case whether they are aware or not of the High Court Judgment, in particular where they have discretion in this matter.

Should any such decision be challenged, the issue should make its way to the CJEU, which would have a hard time finding ways of squaring this practical difficulty with the differentiated treatment that Art 57 of Directive gives to grounds based on a ‘conviction by final judgment‘ (Art 57(1)) and those based on decisions and judgments not subjected to that finality requirement (notably, Art 57(4)), as well as with the self-imposed constraint of the way the maximum time-limit is calculated as per Vossloh.

Once again, we are yet to see the final act of this sainete…

Bid rigging conspiracy in railroad electrification works: A very Spanish 'sainete'

A case of bid rigging in works contracts for high-speed and conventional railroad electrification in Spain evidences a number of shortcomings in the domestic transposition of the 2014 rules on discretionary exclusion of competition law offenders from public procurement tenders, as well as some dysfunctionalities of their interpretation by the Court of Justice of the European Union (CJEU) in its Judgment of 24 October 2018 in Vossloh Laeis, C-124/17, EU:C:2018:855. The unilateral price adjustment of live contracts sought by the main victim of the cartel, the Spanish rail network administrator ADIF comes to raise very significant issues on the limits to the ‘self-protection’ (or private justice) for contracting authorities that are victims of bid rigging. In this post, I point to the main issues that puzzle me in this very Spanish sainete. I am sure there will be plenty debate in Spanish legal circles after the holidays…

Legal background: EU level: Art 57(4)(c) and (d) of Directive 2014/24/EU

As is well known, Article 57(4) of Directive 2014/24/EU establishes discretionary grounds for the exclusion of economic operators from public procurement tenders. In relation to economic operators that have breached competition law, there are two relevant grounds.

First, Art 57(4)(c) foresees the possibility of exclusion ‘where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable‘. This was interpreted by the CJEU as covering entities that had been sanctioned for breaches of competition law in relation to the earlier rules of Directive 2004/18/EC (Art 45(2)(d)) as an instance of their being ‘guilty of grave professional misconduct proven by any means which the contracting authorities can demonstrate’. The CJEU established in unambiguous terms that ‘the commission of an infringement of the competition rules, in particular where that infringement was penalised by a fine, constitutes a cause for exclusion under Article 45(2)(d) of Directive 2004/18’ in its Judgment of 18 December 2014 in Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469 (para 35).

Second, Art 57(4)(d) allows for the exclusion ‘where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition‘. The relationship between both exclusion grounds relating to competition law infringements is somewhat debated. I have argued elsewhere that Art 57(4)(c) should still be used as the legal basis for the exclusion of economic operators that have already been sanctioned for previous bid rigging offences, whereas Art 57(4)(d) creates an additional ground for exclusion based on indicia of contemporary collusion. For details, see A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd ed, Hart, 2015) 296-301.

Of course, discretionary exclusion on grounds of infringements of competition law can be modulated by the rules on self-cleaning in Art 57(6) Directive 2014/24/EU. It is also important to add that these discretionary exclusion grounds can be applied for a period not exceeding three years from the date of the relevant event, as per Art 57(7) Directive 2014/24/EU. The CJEU has interpreted the ‘relevant event’ in this context, and clarified that ‘where an economic operator has been engaged in conduct falling within the ground for exclusion referred to in Article 57(4)(d) of that directive, which has been penalised by a competent authority, the maximum period of exclusion is calculated from the date of the decision of that authority‘ (Vossloh Laeis, above, para 42)

Legal background: domestic level: the transposition by Law 9/2017

The transposition into Spanish law of these provisions has introduced some important modifications.

First, these exclusion grounds have been made mandatory under Article 71 of Law 9/2017 on Public Sector Procurement, as discussed by P Valcarcel, ‘Transposition of Directive 2014/24/EU in Spain: between EU demands and national peculiarities‘ in S Treumer & M Comba (eds), Modernising Public Procurement: The Member States Approach, vol. 8 European Procurement Law Series (Edward Elgar, 2018) 236-237. For a broader description of the Spanish system of mandatory exclusion (ie through ‘prohibiciones de contratar,’ or prohibitions on contracting), see A Sanchez-Graells, 'Qualification, Selection and Exclusion of Economic Operators under Spanish Public Procurement Law' in M Burgi, S Treumer & M Trybus (eds), Qualification, Selection and Exclusion in EU Procurement, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) 159-188.

Second, the grounds in Art 57(4)(c) and (d) of Directive 2014/24/EU have been transposed in a seemingly defective manner. Art 57(4)(d) has been omitted and Art 57(4)(c) is reflected in Art 71(1)(b) of Law 9/2017, according to which there is a prohibition to enter into a contract with an ‘economic operator … guilty of grave professional misconduct, which renders its integrity questionable, in matters such as market discipline, distortion of competition … in accordance with current regulations’ (own translation from Spanish).

Thirdly, Art 72(2) of Law 9/2017 foresees two ways in which the mandatory exclusion ground based on a prior firm sanction for competition infringements can operate. On the one hand, the prohibition to enter into a contract with competition law infringers ‘will be directly appreciated by the contracting bodies when the judgment or administrative resolution [imposing the sanction] had expressly established its scope and duration, and will be in force during the term indicated therein’ (own translation from Spanish). On the other hand—and logically, as a subsidiary rule—it is also foreseen that ‘In the event that the judgment or administrative resolution does not contain a ruling on the scope or duration of the prohibition to contract … the scope and duration of the prohibition shall be determined by means of a procedure instructed for this purpose, in accordance with the provisions of this article’ (own translation from Spanish). Such procedure is rather convoluted and involves a decision of the Minister of Finance on the advice of the State Consultative Board on Public Procurement.

Fourthly, and in an extreme pro-leniency fashion, Art 72(5)II of Law 9/2017 has established that the prohibition to enter into contracts will not apply to economic operators that have self-cleaned and, in particular, to those that have obtained leniency in the context of competition enforcement procedures. That is, there is an exemption from the otherwise applicable exclusion ground based on infringements of competition law for undertakings that demonstrate the ‘adoption of appropriate technical, organisational and personnel measures to avoid the commission of future administrative infractions, which include participating in the clemency program in the field of competition law‘ (own translation from Spanish).

It is also odd that the provision does not require economic operators to have ‘clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities‘, which was the main issue at stake in the Vossloh Laeis litigation.

A controversial decision by the Spanish National Commission on Markets and Competition (CNMC)

On 14 March 2019, the CNMC adopted a decision against 15 construction companies finding them responsible for a long-lasting bid rigging scheme to manipulate the tenders for public contracts works relating to different aspects of high-speed and conventional railroad electrification (full decision available in Spanish). One of the novel aspects of the decision is that the CNMC explicitly activated the prohibition to enter into contracts against the competition infringers. However, the CNMC did so in very peculiar manner.

The oddity of the decision mainly lies on the fact that CNMC decided not to establish the scope and duration of the prohibition to contract, but simply to refer the case to the State Consultative Board on Public Procurement (see pages 317-320). This was the object of criticism in a dissenting vote by Councillor María Pilar Canedo, who stressed that the CNMC should have set the scope and duration of the prohibition to contract in its decision (pages 366-370). The position of the CNMC is certainly difficult to understand.

On the one hand, the CNMC stressed that ‘regardless of the time limits within which the duration and scope [of the prohibition] must be set [by the Minister of Finance] ... it is possible to identify an automatism in the prohibition of contracting derived from competition law infringements, which derives ope legis or as a mere consequence of the adoption of a decision that declares said infraction, as established in the mentioned Article 71.1.b) of [Law 9/2017]‘ (page 319). On the other hand, however, the CNMC decided to (potentially) kick the effectiveness of such prohibition into the long grass by not establishing its scope and duration in its decision—and explicitly saying so (unnecessarily…). No wonder, contracting authorities will have some difficulty applying the automaticity of a prohibition which time and scope are yet to be determined.

Moreover, the CNMC was aware of the CJEU decision in Vossloh Laeis (above), to which it referred to in its own decision (in a strange manner, though). In that regard, the CNMC knew or should have known that, as a matter of directly applicable EU law, de facto the maximum exclusion period can run for three years, up to 14 March 2022. Therefore, by referring the file to the Minister of Finance via the State Consultative Board on Public Procurement and creating legal uncertainty as to the interim effects of a seemingly prohibition to contract with a yet to be specified scope and duration, the CNMC actually bought the competition infringers time and created a situation where any fianlly imposed prohibition to contract is likely to last for much less than the maximum three years.

The (for now) final twist: ADIF takes justice in its own hands

As if this was not enough, according to the Spanish press (see the main story in El Pais), the main victim of the cartel—the Spanish rail network administrator, ADIF—has now decided to take justice in its own hands.

According to the report, ADIF has written to the relevant companies announcing claims for damages—which is the ordinary reaction that could be expected. However, it has also taken the decision of demanding an anticipation of the compensation from those companies with which it has ‘live’ contracts, to which it has demanded a 10% price reduction. What is more, ADIF has decided to withhold 10% of the contractual price and to deposit in an escrow account before a notary, as a sort of sui generis self-created interim measure to ensure some compensation for the damages suffered from the cartel. The legal issues that this unilateral act generates are too many to list here. And these will surely be the object of future litigation.

What I find particularly difficult to understand is that, in contrast with this decisively aggressive approach to withholding payment, ADIF has awarded contracts to some of the competition infringers after the publication of the CNMC decision. And not a small number of contracts or for little amounts. In fact, ADIF has awarded over 280 contracts for a total value close to €300 million.

Thus, ADIF has largely carried out its business as usual in the award of public works contracts, both ignoring the rather straightforward argument of automaticity of the prohibition to contract hinted at by the CNMC— though based on a convoluted and rather strained interpretation of domestic law (Art 72(2) Law 9/2017)—and, more importantly, the discretionary ground for exclusion in Art 57(4)(d) of Directive 2014/24/EU.

There will certainly be some more scenes in this sainete…

ECJ confirms discretion to exclude tenderers for not updating self-certifications and points towards potential general obligation of sincere cooperation (C-178/16)

In its Judgment of 20 December 2017 in Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000 (Mantovani e Guerrato), the Court of Justice (ECJ) declared the compatibility with the 2004 EU public procurement rules of a contracting authority's decision to exclude an economic operator that, having self-certified as not being affected by exclusion grounds, subsequently failed to update the contracting authority when one of its former directors' criminal conviction for invoice fraud became final. Remarkably, the exclusion was upheld despite the fact that the 'conviction had become final following [the economic operator's] own declarations [and despite the fact ...] that, in order to fully and effectively dissociate the company from [its director]’s actions, the latter was immediately removed from his management role ..., the management bodies of the company had been reorganised, [his] shares had been bought back and an action for damages had been brought against him' (para 11). Therefore, the exclusion was upheld despite an attempt at self-cleaning. 

In declaring the compatibility with EU procurement law of this strict approach in the exercise of discretionary exclusion powers, the ECJ largely followed the Opinion of AG Campos Sánchez-Bordona (discussed here, where more background on the case is provided) and, in my view, confirmed a welcome functional approach to the exercise of discretion to exclude economic operators on the grounds of evidence that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable [Art 45(2)(d) Dir 2004/18 and now Art 57(4)(c) Dir 2014/24]. In my view, there are some relevant passages in the Mantovani e Guerrato Judgment that will be of importance in the assessment of self-cleaning claims under the 2014 rules, given the recognition of the possibility for Member States to create an overarching obligation of sincere cooperation with the contracting authority befalling upon economic operators under the 2004 rules--which may well carry over to the new provisions at EU level. The relevance of such recognition of a general obligation stems from its crucial role in the original exclusion decision, which was 'in essence, [based on the fact] that although, in the absence of a final judgment, Mantovani’s statement could not be classified as a "misrepresentation", the lack of timely notification of criminal proceedings concerning one of the [relevant] persons ... may constitute an infringement of the obligation of sincere cooperation with the contracting authority, and accordingly impede the full and effective dissociation from the person concerned' (para 12).

In my view, it is important to stress that the ECJ reaches its position after reiterating its general case law position that

... Article 45(2) of Directive 2004/18 does not provide for uniform application at EU level of the grounds of exclusion it mentions, since the Member States may choose not to apply those grounds of exclusion, or to incorporate them into national law with varying degrees of rigour according to legal, economic or social considerations prevailing at national level. In that context, Member States have the power to make the criteria laid down in Article 45(2) less onerous or more flexible ... Member States therefore enjoy some discretion in determining the requirements governing the application of the optional grounds for exclusion laid down in Article 45(2) of Directive 2004/18 (paras 31-32, references omitted).

And it is also important to stress that the ECJ finds the legal basis for the obligation of sincere cooperation not on the 2004 EU procurement rules, but on the domestic law of the Member State concerned (Italy):

... the Member State is entitled to ease the requirements governing the application of the optional grounds for exclusion and, thus, to waive the application of a ground for exclusion in the event of a dissociation between the tenderer and the conduct constituting an offence. In the present case, it is also entitled to determine the requirements governing that dissociation and to require, as Italian law does, that the tenderer inform the contracting authority of a conviction of its director, even if the conviction is not yet final.

The tendering company, which must meet those requirements, may submit all the evidence which, in its view, is evidence of such a dissociation.

If that dissociation cannot be proved to the satisfaction of the contracting authority, the necessary consequence is the application of the ground for exclusion.

... in a situation where the judgment relating to an offence concerning the professional conduct of the director of a tendering company is not yet final, Article 45(2)(d) of Directive 2004/18 may apply. That provision makes it possible to exclude a tendering company which has been found guilty of grave professional misconduct, established by any means which the contracting authorities can provide proof of (paras 41-44).

Even if the ECJ seems to incur in some imprecision in interpreting Italian law (which, as far as I can see, did not require the tenderer to inform the contracting authority of the non-final conviction of its former director, but rather to update or substitute the relevant self-certification once that conviction becomes final), it seems clear that it foresees the possibility for Member States to create an overarching obligation of sincere cooperation as part of the relevant self-cleaning requirements. Given that self-cleaning was not regulated by Dir 2004/18, this is the only legal basis that could have been used in the case. However, given the inclusion of explicit rules in Dir 2014/24, an argument can be made that the ratio of the Mantovani e Guerrato Judgment will carry over to the new EU self-cleaning regime.

Indeed, when the functional principle underlying the Mantovani e Guerrato Judgment is put in connection with the new rules in Article 57(6) of Dir 2014/24, the legal basis of such an overarching obligation may now be seen as having potentially shifted to the EU level. Indeed, it is important to stress that, as minimum requirements for the recognition of self-cleaning capable of excluding the application of exclusion grounds (both mandatory and discretionary), the second paragraph of Art 57(6) Dir 2014/24 requires that 'the economic operator shall prove that it has paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct, clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities and taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct' (emphasis added).

This comes to establish an 'EU obligation of sincere cooperation' that, even if it seems oriented towards the 'investigating authorities' (which does not seem to automatically cover the contracting authority itself), can easily be extended in the same functional terms required by Italian law on the basis of the logic in the Mantovani e Guerrato Judgment. Therefore, in my view, when assessing self-cleaning claims--and as a result of a joint interpretation of Art 57(4)(c) and Art 57(6)II Dir 2014/24 from the functional perspective of the Mantovani e Guerrato Judgment--contracting authorities will be on safe grounds if they decide to reject self-cleaning claims on the basis of a lack of update of on-going criminal and administrative investigations that are susceptible of nullifying the effectiveness of self-certifications submitted by the economic operators concerned.

CJEU makes interesting points regarding illegal presumptions of restriction of competition in public procurement (C-425/14)

In its Judgment in Impresa Edilux and SICEF, C-425/14, EU:C:2015:721, the Court of Justice of the European Union (CJEU) was asked to establish the parameters under which an economic operator can be excluded from a procurement procedure below EU thresholds for not supplying a declaration of acceptance of a legality protocol on combating criminal activity. This case is interesting because it involves the use of self-declarations as participation requirements in procurement procedures, which is bound to gain more and more importance under Directive 2014/24.

However, the Judgment in Impresa Edilux and SICEF is also remarkable because the CJEU (maybe only by coincidence) makes very important points regarding the establishment of excessive presumptions of restrictions of competition as part of this type of self-declarations. By looking in detail at the content of the declarations required from interested tenderers, the CJEU identifies a public procurement practice that results in the establishment of irrebutable presumptions of distortion of competition that go beyond what is required to uphold the principle of competition in the public procurement setting. In doing so, the CJEU establishes clear red lines regarding this type of presumptions.

This blog post focuses on both sets of issues in turn. First, it concentrates on the analysis of anti-criminal activity protocols and self-declarations. Secondly, it moves on to assess the treatment of the presumptions of competitive distortion that can derive from certain types of self-declarations.

1. Compatibility of anti-criminal activity protocols with EU procurement rules

The case at hand concerned public procurement in Italy, where Article 1(17) of Law No 190 on measures for the prevention and suppression of corruption and illegal conduct in the public administration of 6 November 2012 (‘Law No 190/2012’) foresees that ‘Contracting authorities may state in public procurement notices... that failure to comply with the clauses of legality protocols or integrity agreements is to constitute a ground for exclusion from the tendering procedure.’ 

The CJEU emphasises that, according to the referring court (ie the Council of Administrative Justice for the Region of Sicily, Italy), 'the purpose of introducing legality protocols into Italian law is to prevent and combat the pernicious phenomenon of the infiltration of organised crime, firmly entrenched in some regions of southern Italy, into the public procurement sector. The referring court takes the view that those protocols are also essential in order to protect the fundamental principles of competition and transparency underlying Italian and EU public procurement legislation' (C-425/14, para 13).

Thus, the main legal issue put to the CJEU for preliminary interpretation concerned the compatibility of exclusion grounds such as that of Article 1(17) of Law No 190/2012 with EU law in the case of public procurement procedures not covered by the relevant EU rules because the value of the contract does not meet the relevant thresholds. 

This is an important point to note. Should the value of the contract have met or exceeded the EU thresholds, the case would have concerned the compatibility of such exclusion ground with the specific rules of Article 45 of Directive 2004/18 now repealed by Article 57 of Directive 2014/24 (which, for these purposes, is fundamentally equivalent). This could have altered the legal analysis in view of the constant case law of the CJEU that interprets the exclusion clauses in Art 45 Dir 2004/18 (and now Art 57 Dir 2014/18) as listing exhaustively the grounds based on objective considerations of professional quality which can serve to justify the exclusion of a contractor from participation in a public contract. 

That is, the constant position in the case law that those provisions preclude Member States or contracting authorities from adding other grounds for exclusion based on criteria relating to the professional qualities of the candidate or tenderer, and more specifically professional honesty, solvency, and economic and financial capacity (see Case 76/81 Transporoute [1982] ECR 417 para 9; Joined Cases C-226/04 and C-228/04 La Cascina [2006] ECR I-1347 para 21–22; and Case C-213/07 Mikhaniki [2008] ECR I-9999 para 40–43. This has recently been reiterated in case C-376/08 Serrantoni and Consorzio stabile edili [2009] ECR I-12169 para 31; C-74/09 Bâtiments and Ponts Construction and WISAG Produktionsservice [2010] ECR I-7271 para 43; and Case Forposta and ABC Direct Contact, C-465/11, EU:C:2012:801 para 38]. 

As the referring court indicated, this would have required an assessment of the extent to which 'Article 1(17) of Law No 190/2012 could be consistent with the third sentence of Article 45(1) of [Directive 2004/18], which, in its view, provides a derogation from the exhaustive nature of the grounds for exclusion for overriding requirements in the general interest, such as those relating to public order and the prevention of crime.' In my view, that would not be possible under Art 45(1) 2004/18 and much less now under the revised wording of Art 57(3) of Directive 2014/24. 

However, given that the contract in the case at hand was below the thresholds, the CJEU did not assess such compatibility with Art 45 Dir 2004/18 (Art 57 Dir 2014/24), and ruled exclusively in relation to the general principles of EU public procurement law (paras 18-24). Indeed, the CJEU reformulated the question in the following terms:

whether the fundamental rules and general principles of the Treaty, in particular the principles of equal treatment and of non-discrimination and the consequent obligation of transparency, must be interpreted as precluding a provision of national law under which a contracting authority may provide that a candidate or tenderer be excluded from a tendering procedure relating to a public procurement contract for not having lodged, with its tender, a written acceptance of the commitments and declarations contained in a legality protocol, such as that at issue in the main proceedings, the purpose of which is to prevent organised crime infiltrating the public procurement sector (C-425/14, para 25).

In answering that question, the CJEU makes a couple of interesting points:

28 It is clear that, by preventing criminal activity and distortions of competition in the public contracts sector, a measure such as the obligation to declare acceptance of that type of legality protocol appears to be such as to strengthen equal treatment and transparency in procurement procedures. In addition, inasmuch as that obligation is incumbent upon every candidate or concession-holder without distinction, it does not conflict with the principle of non-discrimination.

29 However, in accordance with the principle of proportionality, which constitutes a general principle of EU law, such a measure must not go beyond what is necessary to achieve the intended objective (see, to that effect, judgment in Serrantoni and Consorzio stabile edili, C-376/08, EU:C:2009:808, paragraph 33 and the case-law cited).

30 In that regard, it is appropriate ... to reject Edilux and SICEF’s argument that a declaration of acceptance of certain commitments is an ineffective means of combatting the infiltration of organised crime since observance of those commitments can be determined only after the contract concerned has been awarded. ...

32 ... as regards the content of the legality protocol ..., the commitments which must be given by candidates or tenderers under subparagraphs (a) to (d) of the legality protocol are, in essence, to indicate the progress of the works, the purpose, amount and recipients of subcontracts and derived contracts and the procedures for selecting contractors; to report any attempted interference, irregularity or distortion in the conduct of the tendering procedure and during performance of the contract, to cooperate with the police, by reporting any attempt at extortion, intimidation or influence of a criminal nature, and to include the same clauses in subcontracts. Those commitments overlap with the declarations contained in that protocol, under subparagraphs (h) to (j).

33 As regards a declaration such as that in subparagraph (g) of the legality protocol at issue in the main proceedings, whereby the participant declares that it has not concluded and will not conclude any agreement with other participants in the tendering procedure seeking to restrict or avoid competition, it is limited to the purpose of protecting the principles of competition and transparency in public procurement procedures.

34 Such commitments and declarations concern the honest conduct of the candidate or tenderer towards the contracting authority at issue in the main proceedings and cooperation with law enforcement. They do not, therefore, go beyond what is necessary in order to prevent organised crime infiltrating the public contract awards sector (C-425/14, paras 28-34, emphasis added).

Up to this point, the Judgment in Impresa Edilux and SICEF remains within what could be expected and the CJEU takes the chance to support Member States measures to prevent organised criminality where those initiatives do not conflict with explicit EU rules. As I mentioned, I am not sure that the same result would have been possible under the rules of Art 45 Dir 2004/18, or now Art 57 Dir 2014/24, unless the CJEU engaged in a line of reasoning along the lines followed in para 33 and opened the door to exclusion grounds that can be interpreted as remaining sufficiently close to the grounds actually listed in those provisions--and, in the case at hand, establishing a sufficient link with the mandatory grounds for exclusion based on participation in a criminal organisation or corruption, as regulated in Art 57(1)(a) and (b) of Directive 2014/24.

Moreover, along these same lines, the CJEU stresses that requiring a declaration to the effect of ensuring that the tenderer has not entered into anticompetitive agreements is not disproportionate--which seems useful for the interpretation of Art 59 Dir 2014/24 regarding the self-declarations that can be required from economic operators under the new mechanism of the European Single Procurement Document (ESPD). Therefore, up to this point, the case is useful but not necessarily ground-breaking.

Nonetheless, the specifics of the reasoning of the CJEU hide another interesting dimension of the case that, as mentioned, concerns a public procurement practice that results in the establishment of irrebutable presumptions of distortion of competition that go beyond what is required to uphold the principle of competition in the public procurement setting. We now turn to this second dimension of the Judgment in Impresa Edilux and SICEF.

2. Incompatibility of undercover or disguised restrictions of competition

Interestingly, after dealing with those core issues of the case, the CJEU keeps on with the very detailed assessment of the content of the specific declaration of acceptance of the legality protocol on combating criminal activity that was required from the tenderers. The purpose of this analysis is to exhaust the issue of proportionality but, maybe as a coincidence and in any case as a positive spillover, brings to light the fact that some of these protocols can include disguised measures restricting competition in terms of unduly preventing cooperation between undertakings, including  legitimate subcontracting.

In the specific case, the issue was that the required declaration included some requirements not necessarily linked with criminal behaviour, such as the obligation of participating tenderers to 'expressly and solemnly declare' that they: (e) are 'not in a relationship of control or association (legal and/or factual) with other competitors and that [they have] not concluded and will not conclude any agreement with other participants in the tendering procedure'; or (f) 'will not subcontract any type of tasks to other companies participating in the tender [...] and [are] aware of the fact that, otherwise, those subcontracts will not be authorised'. 

The CJEU assesses this requirement as follows:

36 ... it follows from the case-law of the Court that the automatic exclusion of candidates or tenderers who are in such a relationship [of control or of association] with other candidates or tenderers goes beyond what is necessary to prevent collusive behaviour and, therefore, to ensure the application of the principle of equal treatment and observance of the obligation of transparency. Such an automatic exclusion constitutes an irrebutable presumption of mutual interference in the respective tenders, for the same contract, of undertakings linked by a relationship of control or of association. Accordingly, it precludes the possibility for those candidates or tenderers of showing that their tenders are independent and is therefore contrary to the EU interest in ensuring the widest possible participation by tenderers in a call for tenders (see, to that effect, judgments in Assitur, C-538/07, EU:C:2009:317, paragraphs 28 to 30, and Serrantoni and Consorzio stabile edili, C-376/08, EU:C:2009:808, paragraphs 39 and 40).

37 ... the legality protocol also includes a declaration that the participant has not concluded and will not conclude any agreement with other participants in the tendering procedure. By excluding in this way any agreements between the participants, including agreements not capable of restricting competition, such a declaration goes beyond what is necessary to safeguard the principle of competition in the public procurement sector.

38 It follows that an obligation for a participant in a tendering procedure to declare, on the one hand, that it is not in a relationship of control or of association with other competitors and, on the other, that it has not concluded any agreement with other participants in the tendering procedure, with the consequence that, failing such a declaration, that participant is automatically excluded from that procedure, infringes the principle of proportionality.

39 Similar considerations must also apply as regards the declaration ... by which the participant declares that it will not subcontract any type of tasks to other undertakings participating in the tendering procedure and is aware of the fact that, otherwise, those subcontracts will not be authorised. In fact, such a declaration involves an irrebuttable presumption that any subcontract by the successful tenderer, after the contract has been awarded, to another participant in the same call for tenders resulted from collusion between the two undertakings concerned, without giving them the opportunity to show that is not the case. Thus, such a declaration goes beyond what is necessary to prevent collusive behaviour (C-425/14, paras 36-39, emphasis added).

These arguments of the CJEU should not be lost as a result of the apparently technical and disconnected case in which they have been made. They are essential to the assessment of the compatibility with EU law of collaboration agreements between (otherwise) competing undertakings for the tendering and execution of public contracts. In my view, these are very positive approaches by the CJEU to the issue of collaboration between tenderers and subcontracting schemes, not least because they are in line with Article 101 TFEU--and particularly 101(3) TFEU--in terms of potential justification of economically efficient instances of cooperation between economic operators.

In that regard, I consider that the CJEU has pushed for the preservation of sufficient space for a competition-law compliant analysis of teaming, joint bidding and subcontracting arrangements, for which I advocate in Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 336-340 and 353-355. In particular, I find this development particularly in line with the following arguments (p 294):

... the establishment of grounds for exclusion that tend to narrow down excessively the pool of potential participants in a tender, or that completely exclude a given type or entire category of potential bidders, will need to be scrutinised carefully. This will be one of the cases where the application of the principle of proportionality alone might be insufficient (see above chapter five) and where a purposive interpretation might be required to ensure a more pro-competitive outcome. Additional grounds for exclusion will therefore not only need to be proportionate, but should not generate unnecessary distortions to competition.

The argument can be pushed further to require that the additional rules for the exclusion of tenderers be designed exclusively to prevent undertakings from exploiting certain unlawful competitive advantages in the public procurement setting. As the ECJ has clarified, the purpose of the basic principles of equality and non-discrimination and the ensuing obligation of transparency is to guarantee that ‘tenderers [are] in a position of equality both when they formulate their tenders and when those tenders are being assessed by the contracting authority’.[1] Therefore, the underlying rationale of the system of exclusion of tenderers is to prevent the participation of tenderers that are ex ante advantaged vis-a-vis the rest of competitors from resulting in a breach of the principle of equal treatment. Hence, the additional grounds for exclusion established by Member States should be designed in such a way that only situations under which a potential competitive advantage is clearly envisioned are covered—ie, they should not be designed exclusively in accordance with formal considerations of equality or non-discrimination. Moreover, in their implementation, contracting authorities need to be able to prove the existence of an actual advantage for the candidate or tenderer whose exclusion is being considered,[2] and an opportunity to show that no such advantage exists in the particular instance under consideration should be granted to the affected candidate or tenderer (ie, the establishment of irrebuttable presumptions should not be allowed).[3]

Therefore, it is submitted that it should be expressly recognised and taken into account that the establishment of grounds for exclusion of tenderers other than those listed in article 57 of Directive 2014/24 needs to be based on competition considerations and, more specifically, aimed at preventing the exploitation of actual unlawful competitive advantages by candidates or tenderers—since the establishment of purely formal grounds for the exclusion of tenderers not justified by the existence of associated distortions of competition would unnecessarily restrict access to public procurement.

---

[1] Case C-19/00 SIAC Construction [2001] ECR I-7725 34; Case C-448/01 EVN and Wienstrom [2003] ECR I-14527 47; and Case C-213/07 Mikhaniki [2008] ECR I-9999 45.

[2] Joined Cases C-21/03 and C-34/03 Fabricom [2005] ECR I-1559 33 and 35; and Case C-213/07 Mikhaniki [2008] ECR I-9999 62. For a recent application of the advantage criterion that, in our view, imposes an exceedingly demanding requirement as regards its proof, see Case T-4/13 Communicaid Group v Commission [2014] pub. electr. EU:T:2014:437.

[3] That would particularly be the case according to the reading of Fabricom made by the EGC, which has considered that the ECJ ‘held that a candidate or tenderer cannot automatically be excluded from a tendering procedure without having the opportunity to comment on the reasons justifying such exclusion’; Joined Cases T-376/05 and T-383/05 TEA–CEGOS [2006] ECR II-205 65. See also Case C-213/07 Mikhaniki [2008] ECR I-9999 69; Case C-538/07 Assitur [2009] ECR I-4219 30; and Opinion of AG Mazák in case C-538/07 Assitur 44 and fn 22, where it is argued that those measures may result in the exclusion of persons whose participation entails no risk whatsoever for the equal treatment of tenderers and the transparency of procedures for the award of public contracts—which is clearly undesirable.

Some thoughts on a paper on the Concessions Directive and competition law [Farley-Pourbaix, (2015) JECLAP 6(1): 15-25]

Martin Farley and Nicolas Pourbaix have recently published a paper on the interaction between competition and public procurement law in light of the rules of new Directive 2014/23 on concession contracts. The paper is 'The EU Concessions Directive: Building (Toll) Bridges between Competition Law and Public Procurement?' (2015) 6(1) Journal of European Competition Law & Practice  15-25. 

The paper is extremely thinly researched in an area that is generating a significant amount of scholarly commentary and, as such, it is rather disappointing because the authors seem to be (re)discovering powder by emphasising the interaction between procurement and competition law rules. However, some of the main points the authors make in relation to the pre-existing case law of the CJEU are worth considering.

Firstly, they stress the practical complications that the open-ended definition of concession creates, particularly in terms of the difficulty of assessing when the transfer of risks to the concessionaire suffices to be covered by Directive 2014/23 instead of Directive 2014/24 or Directive 2014/25 [for discussion, see C Risvig Hansen, Contracts not covered or not fully covered by the Public Sector Directive (Copenhagen, DJOF, 2012)76-102; A Sanchez-Graells, 'What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of their Economic Balance?' (2012) 2 European Public Private Partnership Law Review 94-104; and R Craven, 'The EU's 2014 Concessions Directive’ (2014) 23 Public Procurement Law Review 188-200].

Secondly, they explore the applicability of Art 101 TFEU to bidders that opt to team up or bid jointly for concession contracts. Their remarks are interesting and topical, as the recent publication of the 'Consortium Bidding' guidelines by the Irish Competition and Consumer Protection Commission evidences. I found their warning on the need to limit the exchanges of information between consortium partners particularly relevant (pp. 19-20), as joint participation in selected procurement projects could be the conduit for cartelising behaviour and this is an issue that requires careful consideration.

Thirdly, they revisit the never-ending discussion on the exclusion of contracting authorities from the concept of undertaking for the purposes of the application of (EU) competition law on the basis of the FENIN-SELEX line of case law [FENIN v Commission, C-205/03, EU:C:2006:453; and Selex v Commission, C-113/07, EU:C:2009:191] [for discussion, see A Sanchez-Graells, 'Distortions of Competition Generated by the Public (Power) Buyer: A Perceived Gap in EC Competition Law and Proposals to Bridge It' (2009) University of Oxford, Center for Competition Law and Policy, CCLP (L). 23]. 

On this point, it is interesting to see how Farley and Pourbaix stress that utilities concessions may trigger the application of competition law because, almost by definition, the contracting entity will be engaged in 'downstream' economic activities. Their discussion of the Luton Airport case is certainly informative [Arriva the Shires Ltd v London Luton Airport Operations Ltd [2014] EWHC 64 (Ch)].

This may be a point to take into consideration in the future to (possibly) limit the FENIN-SELEX exemption in case contracting authorities outside the utilities sector engage in (partial) downstream economic activity, which is likely to be the case of some in-house or public-public cooperation arrangements, which can now offer up to 20% of their supplies or services in the 'private market' under the rules of Directive 2014/24. This would be particularly easy on the basis of the 'severability' of activities for the purposes of competition law [Aéroports de Paris v Commission, C‑82/01, EU:C:2002:617], which in my view would be a most welcome development of this area of the law.

Finally, Farley and Pourbaix focus on specific competition law aspects of the new EU Concessions Directive. Of the issues they mention (other than the duration of the concession contract), the most interesting are the possibility to exclude infringers of competition law (on which see the recent case law of the CJEU here), and the interaction between State aid rules and the modification of concession contracts [for discussion, see A Sanchez-Graells, 'Public Procurement and State Aid: Reopening the Debate?' (2012) 21(6) Public Procurement Law Review 205-212]. 

On the issue of exclusion, the paper stresses burden of proof difficulties and advocates for a careful enforcement of the power to exclude undertakings suspected of competition violations, and points (without mentioning) at corporate human rights such as the presumption of innocence, which would have deserved more detailed consideration [for general discussion, see A Sanchez-Graells and F Marcos, '"Human Rights" Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?' (2014) University of Leicester School of Law Research Paper No. 14-04]. 

On the issue of State aid being (implicitly) granted as a result of a modification of a contract during its term, the paper emphasises that the increased flexibility in the choice of procedures and the possibility to modify the contract (potentially without value limit, despite the stress on 50% that Farley and Pourbaix wrongly put in p. 24-25) in a relatively generous array of cases restricts the 'Altmark' presumption and requires a substantive assessment of the conditions of the contract [something already advocated for in A Sanchez-Graells, Public procurement and the EU competition rules (Oxford, Hart, 2011) 118-121 and, in more detail, in ibid, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing SGEIs: State Aid. Reform and Modernisation, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181].

A point of contention, though, refers to the treatment of concession contracts as conduits for State aid. Farley and Pourbaix consider that:

Contracting Authorities may be able to take a certain amount of comfort from the fact that many concessions may not qualify as State aid in any event, on the basis that the remuneration was not granted through State resources. This will at least be the case in those situations where the concessionaire is remunerated entirely by third parties. Following the CJEU’s ruling in PreussenElektra [PreussenElektra, C-379/98, ECLI:EU:C:2001:160] this will still be the case even if the State sets the price that third parties need to pay for the relevant goods or services. (P. 24).

Even if they indicate that mixed arrangements which include some sort of subsidy could erode this possibility to duck State aid rules, I think that they present the situation in a way that excessively narrows down their application. Indeed, on that point, it may worth stressing that the CJEU has relatively recently adopted a less formalistic approach and considered that certain aspects of public control over third party revenue (which are common to concession contracts) may trigger the dis-application of the PreussenElektra exception (see comment here). 

In particular, in Vent De Colère and Others, C-262/12, EU:C:2013:851, the CJEU found that:

Article 107(1) TFEU must be interpreted as meaning that a mechanism for offsetting in full the additional costs imposed on undertakings [...] that is financed by all final consumers [...] constitutes an intervention through State resources (C-262/12, para 37).

Hence, even decisions concerning authorizations to raise user fees (without offering any additional public support or implying any extension of the length of the concession) may trigger State aid application, which is a case most concession contracts usually contemplate. Hence, the interaction between the prohibition of State aid in Art 107(1) TFEU and the rules on modification of concession contracts in Directive 2014/23 is more intense than Farley and Pourbaix's paper presents.

Overall, then, the paper is not groundbreaking and, if the existing literature had been researched, it would probably have been of a higher academic interest (as it is published, though, it certainly is oriented to practitioners) and could possibly have reached a deeper level of analysis. In any case, given the novelty of Directive 2014/23, Farley and Pourbaix's paper can certainly raise awareness of the important issues they mention.

CJEU supports interaction between competition and public procurement rules (C-470/13)

In its Judgment in case Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469, the CJEU has adopted the very welcome position that sanctioned infringers of competition law can be excluded from public procurement procedures, even if those procedures are not covered by the EU Directives on procurement. More specifically, the CJEU has declared that arts 49 and 56 TFEU do not preclude the application of national legislation excluding the participation in a tendering procedure of an economic operator who has committed an infringement of competition law, established by a judicial decision having the force of res judicata, for which a fine was imposed.

In the case at hand, Generali was excluded from a procurement procedure for insurance services on the basis of a Hungarian domestic provision whereby contracting authorities "may provide in the contract notice that no one may take part in the procedure, as a tenderer, subcontractor or ancillary supplier seeking to take on more that 10% of the value of the public contract, or as a subcontractor ... who: a) has committed an infringement connected with his commercial or professional activity, established by court judgment having the force of res judicata given not more than five years ago" [Paragraph 61(1) of Law CXXIX of 2003 on public procurement]. Indeed, Generali was excluded as a result of its infringement of national competition law, which was confirmed by a court ruling having the force of res judicata, and for which a fine was imposed on it.

In my view, the issue should be uncontroversial and there is no reason to see any (unjustified) restriction of free movement rights in the debarment of competition law infringers, whether under the rules of the procurement Directives or otherwise [see A Sánchez Graells, "Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement" in G Racca & C Yukins (eds), Integrity and Efficiency in Sustainable Public Contracts (Brussles, Bruylant, 2014)]. However, the CJEU has felt the need to engage in a detailed reasoning that is worth looking at closely:

34 In relation to the exclusion of economic operators from a public contract in the context of freedom of establishment and the freedom to provide services under Articles 49 TFEU and 56 TFEU, it must be observed that Article 45(2)(d) of Directive 2004/18 makes it possible to exclude any operator who ‘has been guilty of grave professional misconduct proven by any means which the contracting authorities can demonstrate’.[This is now regulated in even clearer terms in art 57 dir 2014/24, see A Sánchez Graells, Albert, "Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive 2014/24" in F Lichere, R Caranta and S Treumer (ed) Novelties in the 2014 Directive on Public Procurement, vol. 6 European Procurement Law Series, (Copenhagen, Djøf Publishing, 2014)].

35 It must be observed that the concept of ‘professional misconduct’, for the purposes of that provision, covers all wrongful conduct which has an impact on the professional credibility of the operator at issue and not only the infringements of ethical standards in the strict sense of the profession to which that operator belongs (see, to that effect, judgment in Forposta and ABC Direct Contact, EU:C:2012:801, paragraph 27). In those circumstances, the commission of an infringement of the competition rules, in particular where that infringement was penalised by a fine, constitutes a cause for exclusion under Article 45(2)(d) of Directive 2004/18.

36 If such a cause for exclusion is possible under Directive 2004/18, it must a fortiori be regarded as justified in relation to public contracts which fall short of the threshold defined in Article 7 of that directive and which are consequently not subject to the strict special procedures laid down in that directive (see, to that effects, judgment in Consorzio Stabile Libor Lavori Pubblici, EU:C:2014:2063, paragraph 37).

37 Furthermore, recital 101 in the preamble to Directive 2014/24, adopted after the material time, which states that contracting authorities should be able to exclude economic operators, inter alia, for serious professional misconduct, such as infringement of the competition rules, as such misconduct may render an economic operator’s integrity questionable, shows that the cause for exclusion referred to in paragraph 35 above is considered to be justified in the light of EU law. Moreover, Article 57(4)(d) of that directive makes clear and precise provision for that cause for exclusion. [...]

39 In the light of the foregoing, the answer to the questions referred is that Articles 49 TFEU and 56 TFEU do not preclude the application of national legislation excluding the participation in a tendering procedure of an economic operator which has committed an infringement of competition law, established by a judicial decision having the force of res judicata, for which a fine was imposed (C-470/13, at paras. 34-39, emphasis added).

In my view this is a very clear cut Judgment and the CJEU's position should be welcome.

Contracting authorities should not be scared to exclude misbehaving tenderers, for the CJEU has their back (C-440/13)

In its Judgment in Croce Amica One Italia, C-440/13, EU:C:2014:2435, the Court of Justice of the EU (CJEU) has decided a complex situation concerning the exclusion of a tenderer based on an on-going criminal investigation derived from an allegation of fraud and misrepresentation in the submission of the documentation for that specific tender (ie an, 'intra-tender' ground for exclusion). The reasoning of the CJEU is complex because it conflates the application of exclusion grounds and the withdrawal of an invitation to tender under Directive 2004/18 and its interpreting case law--and, consequently, deserves some close consideration.

In the case at hand, the contracting authority announced an open procedure for certain specialist transportation services and received four offers. Three of the four offers where rejected on technical grounds. The contract was provisionally awarded to the fourth tenderer (Croce Amica One), but an investigation was initiated due to the evaluation scores being seemingly too high (ie carrying more than 80% of the maximum points in both the technical and the economic evaluation, which triggers specific scrutiny under the applicable Italian rules). As a result of the inquiry, the evaluation team determined that the tender was anomalous. Simultaneously, a preliminary criminal law investigation for fraud and intentional false statements was launched concerning, among others, the legal representative of Croce Amica One. It is not relevant for the assessment (as it comes ex post facto), but the investigation actually found that there had been fraud.

In view of all this, the contracting authority decided to cancel the tender. Its reasoning was as follows: ‘given the circumstances described, apart from the anomalous nature of the tender, the [contracting authority] [could] not in any event, for evident reasons of expediency and reasons connected with the principle of sound administration, proceed to award the services contract to the tenderer Croce Amica One … nor, given the vital nature of the services in question, [could] it postpone the award of the contract pending the outcome of the criminal proceedings or even the conclusion of the investigations currently under way’ (para 17, emphasis added).

One of the difficulties in the case concerned the 'timing' of the application of the exclusion ground by the contracting authority. Implicitly, the allegation was that the contracting authority could only have applied the exclusion ground prior to deciding on the (provisional) award of the contract--following the logical sequence of exclusion, selection, award that Directive 2004/18 seemed to impose. By deviating from that apparently mandatory sequence or, in other words, by applying the exclusion ground at an inappropriate moment (ie too late in terms of the procurement procedure, and too early in terms of the parallel criminal investigation, which was on-going), the contracting authority would have breached the EU rules. Those rules would have been furthermore breached due to the unjustified cancellation of the tender--which, however, derives from the fact of excluding the only tenderer left and, consequently, it is hard to see why this second dimension would be (independently) relevant.

Unfortunately, and due to some procedural restrictions derived from the mechanics of the preliminary reference mechanism (para 28), the CJEU does not focus on the timing for the application of the exclusion ground (it simply mentions that the circumstances of the case are clearly covered under art 45(2) dir 2004/18, para 28) and, instead, looks at whether the cancellation of the tender (or the implicit withdrawal of the invitation to tender) is justified (paras 29-37). Hence, the reasoning of the CJEU in Croce Amica One does not seem very helpful in establishing whether, under the rules in dir 2004/18, exclusion grounds can be applied by contracting authorities after completing the initial selection screening , or whether they can base the exclusion on (suspected) breaches that occur during the tender procedure.

Thus, the Croce Amica One Judgment may at first sight seem to come too late or be of limited temporary relevance because this situation is now expressly regulated in art 57(5) of Directive 2014/24, which allows contracting authorities to apply the revised exclusion grounds 'at any time during the procedure' and 'in view of acts committed or omitted either before or during the procedure'. However, even if based on the (not necessarily) inter-linked point of the cancellation of the tender, the reasoning of the CJEU in Croce Amica One should remain valid after the entry into force of dir 2014/24 as a clear back-up to contracting authorities that decide to exercise their discretion and apply art 57(5) in view of exclusion grounds based on concurrent tendering (mis)behaviour. 

Indeed, it is worth stressing that the CJEU has clarified that:

EU law does not preclude Member States from providing in their legislation for the possibility of adopting a decision to withdraw an invitation to tender. The grounds for such a decision may thus be based on reasons which reflect, inter alia, the assessment as to whether it is expedient, from the point of view of the public interest, to carry an award procedure to its conclusion, having regard, among other things, to any change that may arise in the economic context or factual circumstances, or indeed the needs of the contracting authority concerned (C-440/13, para 35, emphasis added).

In my view, this reinforces the powers that art 57(5) dir 2014/24 gives to contracting authorities to 'self-protect' from entering into contracts with (potentially) unreliable suppliers. This will have to be coupled with certain procedural guarantees (as the CJEU stresses in paras 38-46), but the general principle is, in my view, that contracting authorities need to feel empowered to react to their informed and demonstrable suspicions by excluding tenderers affected by exclusion grounds.

However, there is also a final caveat in the Croce Amica One line of reasoning that looks very dangerous to me because of its potentially misleading content. Continuing with the exploration of the reasons that can justify the cancellation of a tender, the CJEU indicates that: The grounds for such a decision may also relate to there being an insufficient degree of competition, due to the fact that, at the conclusion of the award procedure in question, only one tenderer was qualified to perform the contract (C-440/13, para 35, emphasis added). 

I find this last bit of the reasoning potentially dangerous for two reasons. Firstly, because economics tells us that this is not a situation that per se can be interpreted as evidencing insufficient competition [see JM Keisler & WA Buehring, ‘How Many Vendors Does It Take To Screw Down A Price? A Primer on Competition’ (2005) 5 Journal of Public Procurement 291]. And, secondly, because it is prone to abuse in cases where the contracting authority is left with only one tenderer that it simply dislikes or does not want to engage with for reasons not covered by exclusion grounds or qualitative selection criteria. In such case, the random result that only one tenderer (of many participating) can actually perform the contract would be the (unexpected) perfect excuse to discriminate against it by cancelling the tender.

Hence, I would urge for a very restrictive interpretation of this last part of para 35 of the Croce Amica One Judgment, particularly in view of a proper interpretation of the principle of competition embedded in art 18(1) dir 2014/24--ie because the blank rejection of the only tender that meets all the requirements of the contracting authority would, if not otherwise justified, be an artificial restriction of the (outcome of) the competition actually materialised in the procedure.

Current Proposals on Exclusion, Qualitative Selection and Shortlisting in EU Public Procurement

I have just uploaded on SSRN a short new paper, which provides some initial thoughts on the new rules on exclusion, qualitative selection and short-listing in the 2011 proposal for a new public sector procurement Directive, as amended by the 30 November 2012 Compromise Text published by the Council. The assessment is based on a comparison with the equivalent rules under current Directive 2004/18/EC, as well as on the implementation difficulties that I envisage.

In the paper, I reach the following conclusions:

As this brief overview of the novelties and changes proposed by the Compromise Text on the rules concerning exclusion, qualitative selection and short-listing has shown, the Commission has presented (and the Council is willing to allow for) reform proposals that aim to generate some simplification and flexibilisation of the current rules. The Compromise Text has also tried to clarify and improve the drafting of the current Directives and to consolidate requirements and avoid duplication where possible.

The search for flexibility and simplification is particularly clear concerning the rules that aim to make exclusion of economic operators a dynamic activity (§2.2), that increase the scope and power for contracting authorities to seek clarifications and source additional information from tenderers (§2.4), that allow for an evaluation of the effectiveness of self-cleaning measures adopted by economic operators that should otherwise be excluded (§3.3), or that allow for a ‘certificate-less’ qualitative selection of candidates, subject to an ex post verification of the self-declarations submitted (§4.5). However, such flexibility does not come without risks and contracting authorities must tread lightly if they want to avoid challenges based on potential abuses of their (increased) administrative discretion. Moreover, the extent and weight of the obligations derived from the principle of good administration are expanding and this needs being duly taken into consideration.

There are also clear indications of a clearer integration of public procurement and competition rules (such as the possibility to exclude bid riggers, §3.2) and of the use of public procurement as a lever to ensure compliance with social, labour and environmental rules, in a classic example of pursuit of secondary (or horizontal) considerations in procurement (§2.3). This shows that, despite the search for simplification, the (asymmetrical) integration of public procurement and other economic and non-economic policies by necessity depicts a more complicated scenario that requires further professionalism and capacity building in the Member States, as well as more cooperation between contracting authorities and other competent authorities, such as national competition or environmental agencies.

All in all, in my view, EU public procurement regulation continues becoming more and more sophisticated (and complicated), the Compromise Text does not solve all problems and creates some new and, consequently, public procurement litigation will continue playing a key role in the clarification of the applicable rules.