Response to the UK’s March 2023 White Paper "A pro-innovation approach to AI regulation"

Together with colleagues at the Centre for Global Law and Innovation of the University of Bristol Law School, I submitted a response to the UK Government’s public consultation on its ‘pro-innovation’ approach to AI regulation. For an earlier assessment, see here.

The full submission is available at https://ssrn.com/abstract=4477368, and this is the executive summary:

The white paper ‘A pro-innovation approach to AI regulation’ (the ‘AI WP’) claims to advance a ‘pro-innovation, proportionate, trustworthy, adaptable, clear and collaborative’ model that leverages the capabilities and skills of existing regulators to foster AI innovation. This model, we are told, would be underpinned by a set of principles providing a clear, unified, and flexible framework improving upon the current ‘complex patchwork of legal requirements’ and striking ‘the right balance between responding to risks and maximising opportunities.’

In this submission, we challenge such claims in the AI WP. We argue that:

• The AI WP does not advance a balanced and proportionate approach to AI regulation, but rather, an “innovation first” approach that caters to industry and sidelines the public. The AI WP primarily serves a digital industrial policy goal ‘to make the UK one of the top places in the world to build foundational AI companies’. The public interest is downgraded and building public trust is approached instrumentally as a mechanism to promote AI uptake. Such an approach risks breaching the UK’s international obligations to create a legal framework that effectively protects fundamental rights in the face of AI risks. Additionally, in the context of public administration, poorly regulated AI could breach due process rules, putting public funds at risk.

• The AI WP does not embrace an agile regulatory approach, but active deregulation. The AI WP stresses that the UK ‘must act quickly to remove existing barriers to innovation’ without explaining how any of the existing safeguards are no longer required in view of identified heightened AI risks. Coupled with the “innovation first” mandate, this deregulatory approach risks eroding regulatory independence and the effectiveness of the regulatory regimes the AI WP claims to seek to leverage. A more nuanced regulatory approach that builds on, rather than threatens, regulatory independence is required.

• The AI WP builds on shaky foundations, including the absence of a mapping of current regulatory remits and powers. This makes it near impossible to assess the effectiveness and comprehensiveness of the proposed approach, although there are clear indications that regulatory gaps will remain. The AI WP also presumes continuity in the legal framework, which ignores reforms currently promoted by Government and further reforms of the overarching legal regime repeatedly floated. It seems clear that some regulatory regimes will soon see their scope or stringency limited. The AI WP does not provide clear mechanisms to address these issues, which undermine its core claim that leveraging existing regulatory regimes suffices to address potential AI harms. This is perhaps particularly evident in the context of AI use for policing, which is affected by both the existence of regulatory gaps and limitations in existing legal safeguards.

• The AI WP does not describe a full, workable regulatory model. Lack of detail on the institutional design to support the central function is a crucial omission. Crucial tasks are assigned to such central function without clarifying its institutional embedding, resourcing, accountability mechanisms, etc.

• The AI WP foresees a government-dominated approach that further risks eroding regulatory independence, in particular given the “innovation first” criteria to be used in assessing the effectiveness of the proposed regime.

• The principles-based approach to AI regulation suggested in the AI WP is undeliverable due to lack of detail on the meaning and regulatory implications of the principles, barriers to translation into enforceable requirements, and tensions with existing regulatory frameworks. The minimalistic legislative intervention entertained in the AI WP would not equip regulators to effectively enforce the general principles. Following the AI WP would also result in regulatory fragmentation and uncertainty and not resolve the identified problem of a ‘complex patchwork of legal requirements’.

• The AI WP does not provide any route towards sufficiently addressing the digital capabilities gap, or towards mitigating new risks to capabilities, such as deskilling—which create significant constraints on the likely effectiveness of the proposed approach.

Full citation: A Charlesworth, K Fotheringham, C Gavaghan, A Sanchez-Graells and C Torrible, ‘Response to the UK’s March 2023 White Paper "A pro-innovation approach to AI regulation"’ (June 19, 2023). Available at SSRN: https://ssrn.com/abstract=4477368.

"Can Procurement Be Used to Effectively Regulate AI?" [recording]

The recording and slides for yesterday’s webinar on ‘Can Procurement Be Used to Effectively Regulate AI?’ co-hosted by the University of Bristol Law School and the GW Law Government Procurement Programme are now available for catch up if you missed it.

I would like to thank once again Dean Jessica Tillipman (GW Law), Dr Aris Georgopoulos (Nottingham), Elizabeth "Liz" Chirico (Acquisition Innovation Lead at Office of the Deputy Assistant Secretary of the Army - Procurement) and Scott Simpson (Digital Transformation Lead, Department of Homeland Security Office of the Chief Procurement Officer - Procurement Innovation Lab) for really interesting discussion, and to all participants for their questions. Comments most welcome, as always.

First thoughts on the Commission's bid rigging exclusion guidance -- what difference will it make?

On 18 March 2021, the European Commission officially published its Notice on tools to fight collusion in public procurement and on guidance on how to apply the related exclusion ground (the ‘bid rigging exclusion guidance’). This document has been a long time in the making and officially announced almost four years ago, so it is no exaggeration to say that it was keenly awaited (by competition and procurement geeks like yours truly, at least).

The guidance is clearly addressed to contracting authorities — not economic operators — and is distinctly ‘pro exclusion’ in its minimisation of the practical difficulties and legal constraints inherent in the adoption of exclusion decisions. However, even with such clearly programmatic orientation, after a first reading, I have a few thoughts that do not make for an optimistic assessment of the guidance’s likely practical impact.

Mostly, because I do not think the Commission’s bid rigging exclusion guidance provides much by way of actionable practical advice to contracting authorities—and it certainly does not really go beyond already existing guidance, such as the OECD’s 2009 guidelines for fighting bid rigging in public procurement. By contrast with more general documents e.g. the OECD guidance, the Commission’s bid rigging exclusion guidance intends to concentrate on the possibility to exclude operators engaged in the manipulation of a tender. However, it includes lenghty discussion of measures to prevent collusion, as well as complementary measures such as training and data analysis and, when it comes to the specific issues that the interpretation and application of Art 57(4)(d) of Dir 2014/24/EU generates, it is mainly restricted to setting out issues that Member States’ domestic legislation cannot do — rather than focusing on what contracting authorities can (and should) do.

Moreover, its likely limited practical impact results from the fact that the guidance simply ignores that the EU rules (especially discretionary ones) need to be embedded in the Member States’ administrative/public law system and, in many places, the guidance is at odds with the latter. In that regard, the guidance seems to presume a sort of sphere of subjective rights for contracting authorities that they are capable of exercising even against the decisions of other (superior/centralised) administrative authorities, or in disregard of broader constraints and requirements for administrative action—such as burden of proof, the duty to state reasons, the increasing enforceability of exclusion grounds against other tenderers, or the very practical implications of risking damages compensation for unlawful exclusion—which is (as far as I know) an area of constant interest for tenderers and practitioners alike.

To be fair, this in part follows from the stance of the Court of Justice in some recent cases (referred to in the guidance), but that is still no excuse for the Commission’s guidance not to recognise that Member States retain significant discretion in their administrative self-organisation and that some of the issues raised in the practical implementation of the relevant provisions will be conditioned by pre-existing administrative law doctrines and procedures.

The most glaring example of this approach that sidesteps the difficulties in the domestic implementation of EU procurement law is the fact that the guidance simply states that ‘The possibility to exclude an economic operator for suspected collusion is not construed in the Directive as a penalty for its behaviour before or during the award procedure’ (section 5.2). That is at face value fine. But the Directive also does not say that exclusion is not a penalty or a sanction and, consequently, establishing the legal nature of an exclusion will be dependent on the relevant public/administrative law framework at Member State level. Moreover, exclusion has been framed as a penalty in at least one recent preliminary reference and the Court of Justice has not disabused the referring court from that prima facie legal classification (see eg Tim, C-395/18, EU:C:2020:58). Given the increasing relevance of the Charter of Fundamental Rights in the interpretation of economic operators’ rights in the context of procurement litigation, I think it is far from certain that exclusion will not be construed as a (quasi)penalty, in particular when it is grounded on the infringement of prohibitive legal rules (such as Art 101 TFEU), rather than on shortcomings in the standing of the economic operator or non-compliance of its tender with substantive and formal requirements included in the tender documents.

To my mind, this (ie the nature of exclusion measures) can be one of the thorniest interpretive issues in this area, particularly because of the due process implications of exclusion being treated as a penalty or sanction—which is also not helped by the absence in the Remedies Directive of any procedural requirements applicable to the exclusion stage. The perpetuation of this disconnect with the Member States’ administrative law framework can in itself constitute the quicksands where the bid rigging exclusion guidance disappears, and certainly can continue to prevent an adequate use of the possibility to exclude tenderers suspected of bid rigging, because the fundamental issues raised by Art 57(4)(d) Dir 2014/24/EU remain unresolved — coupled with other sweeping statements concerning e.g. the level of demonstrability of the suspected collusion that contracting authorities need to meet (as discussed below).

For these and the reasons given below, I am afraid that the bid rigging exclusion guidance will not leave up to the expectations. I will carry out a more detailed and formal assessment of the guidance in a future research paper (likely after my shared parental leave… so not until mid summer or so), but here are my further initial observations, which do not attempt to be comprehensive.

Framing the issue

For those interested in understanding how to interpret and apply Art 57(4)(d) and the associated Art 57(6) self-cleaning possibilities, only section 5 and the Annex of the bid rigging exclusion guidance will be relevant. Indeed, the bid rigging exclusion guidance includes a rather lengthy explanation of what the Commission has done and what it expects to do (or for Member States to do) in the broader area of professionalisation and promotion of collaboration between competition and procurement authorities, which makes the document not very practical. This raises some questions on the fitness for purpose of the document, and whether alternative guidance format that had discharged most of sections 1 to 4 onto a different policy document would have been preferable, but perhaps this is mostly just presentational.

One of the most welcome aspects of the bid rigging exclusion guidance is that, in section 5.2, it makes it clear that the ground for exclusion based on suspected ‘contemporaneous’ collusion (or bid rigging) in Article 57(4)(d) of Directive 2014/24/EU is separate from (and compatible with) the possibility of excluding infringers of competition law as economic operators ‘guilty of grave professional misconduct’ under Article 57(4)(c). It is also to be welcome that, also in section 5.2, the Commission shares the view that, despite the different wording of Art 57(4)(d) and Art 101 TFEU, the former needs to be interpreted in a Treaty-consistent manner, which means that the exclusion must be possible for all types of behaviours caught by Art 101 TFEU — notably, concerted practices and decisions by associations of undertakings, in addition to agreements [for discussion, and advancing the positions now confirmed by the guidance, see A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd edn, Hart 2015) 296 ff].

The Commission also rightly stresses that contracting authorities in principle retain discretion not to exclude economic operators suspected of bid rigging, as the exclusion ground in Art 57(4)(d) is discretionary. However, this obviates not only the possibility for Member States to transpose it as a mandatory exclusion ground, but also more general EU law duties (such as the duty not to deprive Art 101 TFEU of its effet utile), and domestic administrative law duties (such as equivalent duties not to promote or tolerate illegal activity, or duties mandating inter-administrative collaboration with competition authorities). In that regard, the bid rigging exclusion guidance could have usefully developed a checklist of reasons that could (objectively) justify not excluding economic operators despite there being sufficiently plausible indications to conclude that the economic operator had entered into agreements with other economic operators aimed at distorting competition. In the end, it will not (or should not) be entirely up to the contracting authority to decide to turn a blind eye on those indicia.

Lack of practical guidance, or guidance that is impractical

Despite the largely correct framing of the issue, and despite acknowledging that tackling bid rigging in procurement is fraught with difficulties, the bid rigging exclusion guidance fails to deliver the much needed practical orientations on how to identify contemporaneous bid rigging and how to apply (as opposed to interpret) the relevant exclusion ground of Art 57(4)(d) Dir 2014/24.

The guidance does not really provide practical tips on how to identify bid rigging in a single tender scenario (which is the most likely to be faced by most contracting authorities). If indications of the existence of bid rigging that require cross-sectional or time series analysis are left to one side (as those are generally not for contracting authorities, but rather for competition authorities to screen for and analyse), and with the exception of flagging as suspicious unexpected tender withdrawals (annex, section 3), the only indications highlighted in the guidance (section 5.3) are:

• The text of the tenders (for instance, the same typos or phrases in different tenders or comments left by mistake in the text of the tender indicating collusion among tenderers).

• The prices offered in the award procedure (for instance, tenderers who ... offer excessively high or low prices) [although the interaction of this with the rules on abnormally low tenders is not explored]

• Administrative details (for instance, tenders submitted by the same business representative)

This is then slightly expanded in the annex (section 3), which details indicia such as:

• Identical mistakes or spelling errors in different tenders.

• Different tenders drafted with similar handwriting [in 2021!] or typeface [except default in most commonly used software applications, one would hope!].

• Tenders using another tenderer’s letterhead or contact details.

• Different tenders with identical miscalculations or identical methodologies to estimate the cost of certain items.

• Tenders submitted by the same person or with persons having the same contact details.

This can only help contracting authorities identify clumsy economic operators, potentially involved in collusion. However, in all seriousness, this is unlikely to result in much practical results as once these types of issues are included in official guidelines, it is likely that economic operators will make sure to avoid those mistakes when thy submit rigged bids [for discussion, in the context of automated treatment of bids, see A Sanchez-Graells, '"Screening for Cartels" in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold?' (2019) 10(4) Journal of European Competition Law & Practice 199–211].

The guidance also incurs in temporal inconsistencies, such as when it uses as an indication of bid rigging that contracting authorities should take into account for the purposes of exclusion: ‘The selected tenderer subcontracting work to unsuccessful tenderers for the same contract or the selected tenderer not accepting to sign the contract and later found to be a subcontractor of the tenderer that is finally awarded the contract may be considered sufficiently plausible indications of collusion’ (annex). This can well be an indication of bid rigging, but at this stage no exclusion can take place because the contract will have been awarded. Consequently, the relevant consequence here should be reporting this issue to the competition authority as well as, where possible, terminating the contract (which is not, however, explicitly foreseen in the Directive).

The guidance is also somewhat naive or flippant, for example in its remarks concerning the contracting authority’s (potential) knowledge that a tenderer ‘has pre-ordered the material needed to perform the specific contract in question well before the evaluation of the tenders is concluded’. Quite how a contracting authority would get to this knowledge, or how specific the pre-order should be for it not to be susceptible of confusion with just a standard supply of the economic operators is anybody’s guess.

It can also generate confusion when it, on the one hand, recommends resorting to centralised procurement as a way of avoiding collusion and, on the other, stresses that framework agreements managed by central purchasing bodies are more susceptible to collusion than ordinary tender procedures (annex, section 2).

Moreover, the guidance lacks detail in crucial aspects and, in particular, concerning the extremely complex analysis of joint tenders and subcontracting among (potential) competitors (section 5.6). Here, the Commission’s guidance does not even cross-refer to the more detailed guidelines published by some Member States’ competition authorities — notably, the Danish Competition and Consumers Authority. Similarly, the guidance largely brushes over the complex issue of multiple participation by economic operators belonging to the same corporate group (section 5.5), and also sets aside the difficulties of deciding the scope of application of exclusion decisions that need to respect the doctrine of the single economic entity under competition law [for discussion, see K Kuzma and W Hartung, Combating Collusion in Public Procurement (Elgar, 2020)].

Let’s ignore the administrative legal framework

The Commission’s bid rigging exclusion guidance largely ignores the administrative legal framework at Member State level. This is not only in relation to the treatment of exclusion as (not) a penalty, but also in relation to evidentiary requirements and the related duty to provide reasons. In that regard, the literal interpretation of the Directive leading to the conclusion that ‘national rules should comply with both the letter and the spirit of the Directive, which requires only “indications” of participating in illegal agreements that distort competition in an award procedure and not formal evidence, such as a court judgment confirming such participation’ (section 5.4) is misleading and conflates the need for a prior administrative or judicial decision with the existence of ‘evidence’ of collusion.

First, the guidance is right to exclude the need for a previous administrative or judicial decision, but that should not be treated as excluding ‘evidence’ of collusion, but rather as a precedent decision that has the effects of (quasi) res iudicata or, at least, constitutes a legal fact that the contracting authority cannot ignore. It is also wrong to indicate that ‘plausible indications’ of collusion include, for example, ‘information brought to the attention of the contracting authority of an investigation launched by the competition authority or of penal charges brought against the management of the operator for suspected collusion either in the pending award procedure or in other award procedures’, as this raises fundamental issues concerning the presumption of inocence (which treatment will also differ across jurisdictions, depending on e.g. the trigger for the opening of an administrative investigation). Here the guidance makes the reverse mistake of conflating a formal decision with the evidence (presumably) underpinning it.

Second, the guidance ignores the legal meaning of ‘evidence’ when it establishes that ‘contracting authorities are not required to have evidence of collusion in a pending award procedure, as this would contradict the letter of the Directive’. ‘Plausible indicia’ are a type of evidence, falling short of direct (uncontrovertible) evidence, but clearly above the absence of evidence. This should have been clear from the excerpt that the guidance quotes, where the CJEU stressed that ‘anti-competitive behaviour, “may be proved not only by direct evidence, but also through indicia, provided that they are objective and consistent and that the related tenderers are in a position to submit evidence in rebuttal”’ (Specializuotas transportas, C-531/16, EU:C:2018:324, paragraph 37).

Indiciary evidence is still evidence and the unresolved problem is where to draw the line to decide that the contracting authority has enough evidentiary support to adopt an exclusion decision. Moreover, this is of paramount relevance to the adequate discharge of the duty to state reasons. Here, it not only is impossible for a contracting authority to act in the absence of evidence, but the administrative file will usually be accessible to the economic operator for the purposes of its legal defence. This makes the further recommendation for contracting authorities not to disclose to economic operators that they suspect the existence of bid rigging largely impractical, as the contracting authority will only be able to keep this under wraps up to the point where it must make a formal decision and notification to the economic operator affected by the (potential) exclusion.

Some problematic statements

Unfortunately, in addition to the shortcomings stressed above (and some others), the guidance includes some unhelpful statements concerning the interpretation and application of Art 57(7) of Directive 2014/24/EU, in particular when it states that ‘If an economic operator, who has been excluded from award procedures for a certain period under Article 57(7) of the Directive, submits a tender during the period of exclusion, the contracting authority, without any further need for assessment, must automatically reject that tender’ (section 5.9), and when it reiterates that ‘It goes without saying that if the economic operator has been excluded from all award procedures in your country for a period of time and submits a tender during this period, you must exclude it from your award procedure without assessing the tender submitted.’ (section 3 of Annex) (both emphases added).

These statements are, at best, confusing and misleading and, at worse, legally incorrect. In that regard, it should be stressed that Art 57(6) Dir 2014/24/EU is very clear that the conditions for lengthy exclusions stipulated by Member States in the implementation of Art 57(7) are to be applied ‘if no measures as specified in paragraph 6 are taken by the economic operator to demonstrate its reliability’. Therefore, the statements above should have made it clear that further assessment is required and contracting authorities must carry it out where an economic operator, who has been excluded from award procedures for a certain period under Article 57(7) of the Directive, submits a tender during the period of exclusion and it claims to have implemented the sort of measures detailed in Art 57(6).

This is the sort of problematic drafting that should be avoided in official guidance and, in this instance, rectified by the Commission as soon as possible.

Final thoughts

On the whole, a first reading of the guidance does not call for optimism. While the Commission’s bid rigging exclusion guidance does contain some useful information, it is at its weakest in relation to the particularities of the interpretation and application of Art 57(4)(d) and related provisions of Directive 2014/24/EU, which are supposed to constitute its core concentration.

I would not be surprised if contracting authorities found little to no comfort in the guidance when pondering how to address the key issue of how to spot collusion in single-tender settings, how to decide if there are sufficient plausible indications, and how to go about the adoption of an exclusion decision that is, in almost all likelihood, going to be challenged on the basis that it constitutes a sanction/penalty for a (suspected) breach of competition law that the contracting authority has no competence to enforce, or which has not followed the heightened procedural requirements of procedures leading to the imposition of a sanction. It should be obvious that exclusion on these grounds generates the additional risk of a follow-on investigation by the competition authority and/or private litigation, so no economic operator should be expected to just accept an exclusion on grounds of contemporaneous bid rigging under Art 57(4)(d) Dir 2014/24/EU (or, rather, its domestic transposition).

I will continue reflecting on the guidance and its implications, and I am sure there will be a lively debate in the months and years to come. As always, any feedback and comments will be most welcome.

UK Government (NHSX) modified existing contracts to buy additional data services to react to COVID-19 -- 'The greater includes the lesser' when it comes to extreme urgency procurement?

COVID-19 related procurement is the gift that keeps on giving (at least for procurement professionals and aficionados). Dr Pedro Telles has now found another emerging procurement controversy concerning the modification of pre-existing public contracts to award ‘additional services’ to mine and analyse data to inform the UK Government’s response to the pandemic—as reported by the Guardian (12 Apr 2020) and, in more detail from a procurement perspective, by the Byline Times (22 Apr 2020) . I would expect Pedro to blog about it soon, so keep an eye on telles.eu.

In short—and setting aside the controversy that surrounds the links of the awardees with political figures in the UK and the US, which is nonetheless also rather worrying—the situation is that, in the context of boosting the UK Government’s access to data science analysis as an input to its broader decision-making on pandemic response, NHSX modified a pre-existing contract with Faculty, ‘which had a pre-existing contract with other companies to help build a £250 million artificial intelligence lab for the NHSX.’

This is another procurement exercise where there is very limited public information, so my comments are based on the Byline story taken at face value. Whether entirely accurate or not, I think the story raises an important set of questions on the limits of the extreme urgency exemption from procurement rules and its interaction with the regulation of existing contracts.

The questions that immediately spring to mind are: why would NHSX modify an existing contract, and what are the implications of the contractual expansion? Given the extreme urgency in gaining better insights on the evolution of the COVID-19 pandemic, which seems to me beyond doubt, would it not have been possible (as well as neater and easier to oversee and manage ex post) to directly award a new contract? Are there any particular implications of the choice to modify rather than award a separate contract?

Given the limited public information, all I can do at this stage is speculate. However, I think that some of the unanswered questions below should be added to the already lengthy list that should form the core of a post-crisis public inquiry into COVID-19 related procurement.

Rules on modification and extreme urgency

The modification of the NHSX contract would have been justified on the basis of reg. 72 of the Public Contracts Regulations 2015, which transposes Art. 72 of Directive 2014/24/EU. In particular, the Byline piece refers to reg.72(1)(b) and (c) PCR2015, both of which allow for a contractual modification of up to 50% of the value of the original contract. Both rules simply transpose the equivalent rules of Art 72 Dir 2014/24/EU and need to be interpreted in the same manner.

Awarding additional services in the way that NHSX seems to have done it boggles the mind, mainly because the award of the additional services to mine and analyse COVID-19 related data is unlikely to be covered by either of the two rules—which need to be interpreted restrictively [for details, see A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd ed, Hart 2015) 429 ff].

Reg. 72(1)(b) PCR2015 allows for a contract to be extended to include additional services that ‘have become necessary and were not included in the initial procurement, where a change of contractor—(i) cannot be made for economic or technical reasons such as requirements of interchangeability or interoperability with existing equipment, services or installations procured under the initial procurement, and (ii) would cause significant inconvenience or substantial duplication of costs for the contracting authority’.

To put it simply, reg. 72(1)(b) PCR2015 contains a rule concerning contract modifications for ‘more of the same’ services under the relevant contract. This is also the clear indication based on recital (108) of Directive 2014/24/EU, which states that: ‘Contracting authorities may be faced with situations where additional works, supplies or services become necessary; in such cases a modification of the initial contract without a new procurement procedure may be justified, in particular where the additional deliveries are intended either as a partial replacements or as the extension of existing services, supplies or installations where a change of supplier would oblige the contracting authority to acquire material, works or services having different technical characteristics which would result in incompatibility or disproportionate technical difficulties in operation and maintenance.’

Reg. 72(1)(c) PCR2015 allows for a non-competed contractual modification to add services to an existing contract where ‘(i) the need for modification has been brought about by circumstances which a diligent contracting authority could not have foreseen; [and] (ii) the modification does not alter the overall nature of the contract’.

Reg. 72(1)(c) PCR2015 contains a rule that gets close to the general possibility to award contracts without competition (under reg.32(2)(c) PCR2015). However, this possibility is subjected to the important constraint that it cannot be used to procure something different from the object of the original contract. This is also rather clear in recital (109) of Directive 2014/24/EU: ‘Contracting authorities can be faced with external circumstances that they could not foresee when they awarded the contract, in particular when the performance of the contract covers a long period. In this case, a certain degree of flexibility is needed to adapt the contract to those circumstances without a new procurement procedure. The notion of unforeseeable circumstances refers to circumstances that could not have been predicted despite reasonably diligent preparation of the initial award by the contracting authority, taking into account its available means, the nature and characteristics of the specific project, good practice in the field in question and the need to ensure an appropriate relationship between the resources spent in preparing the award and its foreseeable value. However, this cannot apply in cases where a modification results in an alteration of the nature of the overall procurement, for instance by replacing the works, supplies or services to be procured by something different or by fundamentally changing the type of procurement since, in such a situation, a hypothetical influence on the outcome may be assumed’ (emphasis added).

We are thus in a situation where the legality of the contractual modification will crucially depend on the object of the initial contract. However, it seems really difficult to see how what NHSX describes as a bespoke data store and dashboard to monitor the evolution of the COVID-19 pandemic (see eg this blog) can fit within the remit or previous contracts, not least because it is meant to ‘self-destroy’ after the pandemic: ‘When the pandemic abates and the outbreak is contained, we will close the Covid-19 datastore. The Data Processing agreements put in place with the organisations listed above include the steps which need to be taken to cease processing and to either destroy or return data to NHS England and NHS Improvement once the public health emergency situation has ended‘.

It is quite difficult to see how the services provided in the creation of the datastore and the dashboard can be additional (in the sense of interoperable or directly complementary) to what was already contracted (see eg a rather detailed description here, where there is no reference to population-wide dashboards), when the COVID-19 specific solutions will be completely abandoned and thus, arguably not support the functioning of the NHS going forward. It is also quite difficult to see how the services provided are not substantially different from what was covered in the original contracts.

Of course, it could be possible to find some compatibility if the original contracts were not for specific solutions, but rather for activities—but, even then, this seems to be a rather distorted use of the rules on contract modification.

Assuming modification was illegal, should we care?

Of course, the discussion above can seem rather academic. If the UK Government (including NHSX) was allowed to enter into direct awards on the basis of the extreme urgency procurement exemption (as I have argued myself, eg here), what difference would it make if the modifications were illegal?

I think there are a few relevant differences. The first one concerns the need to ensure that the distortions to the normal functioning of the procurement rules that ensue from their deactivation in cases of extreme urgency are contained and, mainly, result in clear and traceable creations of new contractual relationships that allow for ex post control and oversight. The second, more practical one, is that the remedies for breach of the relevant rules are different.

While a breach of reg.32(2)(c) PCR2015 in the context of the pandemic can leave disappointed tenderers and the general public without much of a remedy, other than the possible (but in my view, rather unlikely) payment of damages, a breach of reg.72(1)(b) and/or (c) PCR2015 can have more significant and lasting effects, as the remedies in that case include the potential termination of the original contracts (see reg.73 PCR2015).

Indeed, reg.73(1)(a) establishes that ‘Contracting authorities shall ensure that every public contract which they award contains provisions enabling the contracting authority to terminate the contract where—the contract has been subject to a substantial modification which would have required a new procurement procedure in accordance with regulation 72’.

Now, this opens another potentially tricky statutory interpretation issue, which concerns whether the implicit direct award of the contract for the additional services would have required a new procurement procedure under reg. 72, given that it could have been exempted under reg.32. This creates two possibilities (or perhaps there are some additional ones we could find with more time to think about it).

First, a functional interpretation along the lines of ‘the greater includes the lesser’, so that we could waive the potential termination of the contract even in case of breach of reg.72, given that the award of the implicit contract would not have in casu required a new procurement procedure.

Second, a more formalistic interpretation, under which the cause for termination could not be waived because reg.73 is meant as a safeguard against abuses of reg.72 and, thus, is unavoidably triggered the moment the boundaries of reg.72 are exceeded.

Whether one option is preferable to the other can be debated de lege ferenda. For now, de lege data, I would incline towards the second option, as I think this is the one more in line with the case law of the CJEU to date—in particular, Finn Frogne.

So, in my view, I think we should very much care that the rules on contract modification may have been breached, and this creates a risk of termination of the modified NHSX contracts.

Why would they modify rather than award fresh contracts?

The possibility and risk of termination of the pre-existing contracts must have crossed the minds of the lawyers advising NHSX. I think this cannot be a simple oversight or a massive discounting of the risk of termination. There are likely to be some reasons why the modification of a pre-existing contract was used at the same time as the UK Government was directly awarding rather substantial contracts (eg in the context of the Ventilator Challenge).

Those reasons are difficult to disentangle with the available information, but my hunch is that they relate to the intellectual property clauses in the contracts and the likely possibility for NHSX’s contractors to retain very valuable know-how and other IP-protectable outputs of the COVID-19 data store and dashboard project. If this was the implication of the decision to modify pre-existing contracts with potentially favourable terms IP-related terms, then the modification could have been used as a shield against some of the scrutiny that these contracts were known to be likely to attract.

All in all, I think there are very relevant questions on this legal strategy that NHSX needs to answer in the context of a post-crisis public inquiry.

How does the UK Government's ventilator procurement strategy fit with the Commission's Guidance on COVID-19 procurement?

© FT Montage/Ian Bott.

In one more episode of this series—let’s call it #ventilatorgate already, shall we?—Dr Pedro Telles has quickly highlighted the UK Government’s response to an FT story (and twitter thread) that strongly criticised its approach to the procurement of medical ventilators.

One of the interesting parts of the Government’s (entirely predictable) response is the statement that ‘The Government’s strategy to increase ventilator capacity has always focused on three pillars: first, procuring more devices from existing manufacturers overseas; second, scaling up production of existing ventilator suppliers, and third, working with industry to design and manufacture new devices. It has also involved seeking specialist support in other areas including logistics, component and peripheral procurement, and technical expertise.’

Pedro has rightly stressed that ‘This is fascinating insight into the process. … why did the Government follow a pathway that could not (and [h]as not!) provide the NHS immediately with ventilators? The third leg of the stool is not really an appropriate answer here since they could never be approved quickly enough before going into production.’ He also added that ‘It is also a crucial recognition by the Government that ventilator designing and validating *new* ventilator designs takes years effectively meaning that there is no way the new designs could be validated and put in service in due time to deal with the current pandemic. There is an obvious consequence to this assumption and that is to clear any doubts that the Dyson contract illegal since it does not solve an immediate need.’

I fully agree. Of the three pillars of the UK Government’s strategy, only the first two are in line with the EU and UK procurement rules and, in particular, the extreme urgency procurement exemption. This is clear in the European Commission’s Guidance on using the public procurement framework in the emergency situation related to the COVID-19 crisis [2020] OJ C108I/1 (see here for comments). There is no doubt that, according to existing CJEU case law, ‘if extreme urgency is invoked, the procurement need has to be satisfied without delay. The exception cannot be invoked for the award of contracts that take longer than they would have taken if a transparent, open or restricted, procedure had been used, including accelerated (open or restricted) procedures‘ (Guidance, part 2.3.2, with reference to the Order of the Court of Justice of 20 June 2013 in Consiglio Nazionale degli Ingegneri, C-352/12, EU:C:2013:416, paragraphs 50-52).

Therefore, if the award of contracts under the ‘Ventilator Challenge’ was justified on grounds of extreme urgency, then those direct awards are illegal inasmuch as they concern new models or prototypes without regulatory approval and that would not be in a position to obtain it imminently (which seems to only be the case of the Penlon ventilators, which only required adaptation). If an alternative legal basis was used, the Government should disclose it without delay, as the illegality of the awards triggers serious risks of legal challenge and, potentially, pay-outs in damages. The need for a post-crisis public inquiry into these awards only keeps growing by the day.

I think this analysis is uncontroversial. However, it may perhaps be useful to also point out that this is not an instance of (EU) procurement law getting on the way of the Government’s bold ambitions or innovative approaches—else, this can further fuel the claims already been made by the UK Government that now more than ever there is a need for the UK to rid itself from the constraints of EU law, as well as the PM’s bonfire of procurement rules. This is not a time to allow procurement rules to be made a scapegoat for yet another attempt by the UK Government to use procurement to seek to boost the domestic industry, much as in the case of #ferrygate.

In fact, it should be stressed that the European Commission’s Guidance endorses similar approaches and unconventional commercial strategies to react to the COVID-19 emergency, just not within the narrow confines of the extreme urgency exemption. The Commission’s Guidance stresses that, within the narrow extreme urgency exception and ‘[t]o satisfy their needs, public buyers may have to look for alternative and possibly innovative solutions, which might already be available on the market or could be capable of being deployed at (very) short notice‘ (part 1). This highlights the requirement of the (near) immediacy in the supply to cover for the extremely urgent need—such as the adaptation of existing models.

This is distinguished from non-immediate alternatives and innovations, such as the development of new (to be tested and authorised) models, in relation to which the Guidance indicates that ‘Public buyers are fully empowered under the EU framework to engage with the market and in matchmaking activities. There are various ways to interact with the market to stimulate the supply and for the medium term needs, the application of urgent procedures could prove a more reliable means of getting better value for money and wider access to available supplies. In addition: ... Public buyers may use innovative digital tools ... to trigger a wide interest among economic actors able to propose alternative solutions. For example, they could launch hackathons for new concepts that enable reusing protective masks after cleaning, for ideas on how to protect medical staff effectively, for ways to detect the virus in the environment, etc’ (part 1, emphasis added).

By the UK Government’s own admission, the Ventilator Challenge was a (sort of) hackathon. Indeed, the Government’s response stresses that ‘[n]o one was under any illusions at the time of launching the Challenge that producing new designs for domestic production would be anything other than a significant and exacting test. Ventilators are highly complex medical devices requiring hundreds of individual components. That was precisely the point of issuing a public Challenge. Alongside new devices, the Challenge has pursued scaling up a number of existing, proven ventilators…’

Therefore, the adequate approach would have been to follow urgent procedures (either open or restricted), which would have required the UK Government to advertise the contractual opportunity (for 15, or 15+10 days, respectively). Given that the Ventilator Challenge was launched on 16 March 2020 and that, at the time of the Government response (19 April 2020), no new ventilators had received regulatory approval, there is no evidence that the same (sadly, so far, unproductive) result could not have been achieved by resorting to urgent (but not extremely urgent) procurement procedures.

However, openly advertising the requirements rather than holding a (by invitation only) conference call with UK manufacturers would probably not have satisfied the Government’s more veiled ambition of using this as an industrial policy opportunity. And this seems to have been an important element of the strategy too. And one that, once again, merits very close scrutiny in a public inquiry.

European Commission's Guidance on Extreme Emergency Procurement and COVID-19 -- some thoughts and a word on the Dyson contract

On 1 April 2020, the European Commission published its Guidance on using the public procurement framework in the emergency situation related to the COVID-19 crisis [2020] OJ C108I/1. In this Guidance, the European Commission explains ‘which options and flexibilities are available under the EU public procurement framework for the purchase of the supplies, services, and works needed to address the crisis‘. For a good critical first stab at the Guidance, see the comments by Dr Pedro Telles in his blog. My take on the guidance—and some of its implications in the UK are different from Pedro’s (see end of post).

The Guidance stresses that the EU public procurement framework ‘allows and encourages public buyers to pursue a multi-stage strategy. First, for their immediate and projected short-term needs, they should fully exploit the flexibilities of the framework. As a complementary tool, they are encouraged to procure jointly and to take advantage of the Commission’s joint procurement initiatives. Procedures with reduced deadlines serve their needs in the medium term, as they are in principle more reliable means of getting better value for money and [ensuring] wider access of companies to the business opportunities and a wider range of available supplies.‘

What I find extremely reassuring and apt is to see the Commission take the same extremely flexible and pragmatic approach already hinted in the earlier guidance issued at domestic level, eg in the UK (see here). Indeed, the Commission Guidance stresses that it ‘focusses especially on procurements in cases of extreme urgency, which enable public buyers to buy within a matter of days, even hours, if necessary. Precisely for a situation such as the current COVID-19 crisis which presents an extreme and unforeseeable urgency, the EU directives do not contain procedural constraints‘ (emphasis added).

The Commission’s Guidance confirms the view that the negotiated procedure without prior publication does not require any specific minimum level of competition between potential contractors — and should thus dispel any stringent approaches by the Member States, such as requiring at least three offers from potential contractors, as well as some negotiation with all of them.

The Guidance could not be clearer in stressing that under ‘Art. 32 of Directive 2014/24/EU (the ‘Directive’), public buyers may negotiate directly with potential contractor(s) and there are no publication requirements, no time limits, no minimum number of candidates to be consulted, or other procedural requirements. No procedural steps are regulated at EU level. In practice, this means that authorities can act as quickly as is technically/physically feasible – and the procedure may constitute a de facto direct award only subject to physical/technical constraints related to the actual availability and speed of delivery‘ (emphasis added).

The Commission also explicitly endorses ‘active buying’ techniques, which should reassure contracting authorities taking abnormal steps to try and secure emergency supplies of PPE, ventilators and any other needed equipment and consumables. The Commission Guidance explicitly mentions that: ‘In order to speed up their procurements public buyers may also consider to: contact potential contractors in and outside the EU by phone, e-mail or in person, hire agents that have better contacts in the markets, send representatives directly to the countries that have the necessary stocks and can ensure immediate delivery, [or] contact potential suppliers to agree to an increase in production or the start or renewal of production.‘ This is certainly welcome and will provide comfort to those taking a more commercial approach than they usually would to market engagement (or scouting).

Further than that, the Commission also endorses the use of urgent procurement to spur market innovation and matchmaking, thus dispelling doubts about the legality (under procurement rules) of even more active interventions in the market whereby the contracting authority is directly involved in structuring the collaboration between potential suppliers (and even potential competitors, although this will require careful competition law assessment), for example through COVID-19 challenges or hackathons.

In that regard, the Guidance is also clear that ‘To satisfy their needs, public buyers may have to look for alternative and possibly innovative solutions, which might already be available on the market or could be capable of being deployed at (very) short notice. Public buyers will have to identify solutions and interact with potential suppliers in order to assess whether these alternatives meet their needs … Public buyers are fully empowered under the EU framework to engage with the market and in matchmaking activities. There are various ways to interact with the market to stimulate the supply and for the medium term needs, the application of urgent procedures could prove a more reliable means of getting better value for money and wider access to available supplies’. 

The Guidelines also stress the relevance of these approaches in terms of boosting the uptake of other strategic considerations so that ‘environmental, innovative and social requirements, including accessibility to any services procured, are integrated in the procurement process’. However, it is unlikely that contracting authorities will be able to concentrate efforts on this, even if they can obtain some of the benefits due to engaging in some ‘unconventional’ procurement approaches, including more digital procurement (and innovation related to 3D printing, for example).

Beyond these general policy and strategic guidelines, which clearly convey the basic message that procurement professionals should do all they can to obtain the urgently required supplies, as well as aim to transition to a more sustainable (and planned, and hopefully less expensive and more innovative) approach in the medium term, the Commission also offers more detailed and technical guidance. Of that, I would stress the specific analysis of the conditions for resorting to the negotiated procedure without publication on grounds of extreme emergency.

It will be recalled that Art 32(2)(c) of Directive 2014/24/EU allows for this ‘insofar as is strictly necessary where, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, the time limits for the open or restricted procedures or competitive procedures with negotiation cannot be complied with. The circumstances invoked to justify extreme urgency shall not in any event be attributable to the contracting authority’. The Commission’s Guidance offers useful interpretation on the three main requirements: unforeseeability, impossibility of an alternative approach and causal link or direct relation between the extremely urgent need and the scope of the procurement, which implies an element of temporality.

The Commission addresses each of them as follows:

‘Events unforeseeable by the contracting authority in question’

The number of COVID-19 patients requiring medical treatment is rising daily and, in most Member States, is expected to increase further until the peak will be reached.

These events and especially their specific development has to be considered unforeseeable for any contracting authority. The specific needs for hospitals, and other health institutions to provide treatment, personal protection equipment, ventilators, additional beds, and additional intensive care and hospital infrastructure, including all the technical equipment could, certainly, not be foreseen and planned in advance, and thus constitute an unforeseeable event for the contracting authorities.

Extreme urgency making compliance with general deadlines impossible

It cannot be doubted that the immediate needs the hospitals and health institutions (supplies, services and public works) have to be met with all possible speed.

Whether this makes it impossible to respect even the very short deadlines of the accelerated open or restricted procedure (15 and 10 days respectively to submit the offers) will have to be assessed on a case-by-case basis, but it is likely in most cases, at least as regards the significantly increased short-term needs as the infection curve rises.

As clarified in the Court’s jurisprudence, if extreme urgency is invoked, the procurement need has to be satisfied without delay. The exception cannot be invoked for the award of contracts that take longer than they would have taken if a transparent, open or restricted, procedure had been used, including accelerated (open or restricted) procedures.

Causal link between the unforeseen event and the extreme urgency

For the satisfaction of the immediate needs of hospitals and health institutions within a very short timeframe the causal link with the COVID-19 pandemic cannot reasonably be doubted.

Only used in order to cover the gap until more stable solutions can be found

Negotiated procedures without prior publication may offer the possibility to meet immediate needs. They cover the gap until more stable solutions can be found, such as framework contracts for supplies and services, awarded through regular procedures (including accelerated procedures) [emphases added and references omitted].

This is truly good, clear and actionable guidance by the European Commission and it should be most welcome.

A final word on the UK Dyson contract

Those following the daily developments on COVID-19 related procurement in the UK will be aware of the award of a contract to Dyson for the supply of 10,000 ventilators, despite the fact that its prototype still needs to receive regulatory approval and can thus not be immediately put into production or delivered for use in the NHS.

You will find an excellent analysis of the background in several posts by Dr Pedro Telles in his blog (starting 24 March). He has been putting forward the claim that the award of that contract (and, presumably, the rest of contracts for emergency supply of ventilators to the UK Government; although he has been trying to distinguish them) is illegal because the UK Government decided not to participate in the EU’s JPA ahead of the immediate need of the ventilators. We have been discussing this on twitter (see below), so it may be time to bring this discussion to the blog.

My view is that the specific need for ventilators (and PPE, and other supplies needed in this pandemic emergency) is and will remain unforeseeable for quite a while. I do not think that high level political decisions (however wrong) should deactivate the possibility of recourse to extreme emergency procurement at an operational level. I think today’s Commission Guidance supports this view when it stresses that ‘These events and especially their specific development has to be considered unforeseeable for any contracting authority‘.

Pedro disagrees (with the Commission): ‘The Commission argues regarding the lack of foreseeability by the contracting authority that the specific needs for medical equipment and infrastructure (including ventilators) could not be foreseen and planned in advance. On this I do not agree fully with the Commission. It is true that there is a moment when the need could not be foreseen and planned in advance, but if after that moment no action was duly taken (as the UK Government did with the ventilators) then the extreme urgency was actually brought about by the contracting authority.‘

I disagree with Pedro. I think the extreme urgency procurement procedure needs to be the conduit for the first effort to address the pandemic, which will still take a long period. This is not time to engage in new theories about the imputability to the procurement function of rather complicated political calculations (I sense there is a PhD thesis to be written on that, after the dust settles).

However, that does not mean that this is a free for all. The Commission has also clearly indicated that ‘if extreme urgency is invoked, the procurement need has to be satisfied without delay. The exception cannot be invoked for the award of contracts that take longer than they would have taken if a transparent, open or restricted, procedure had been used, including accelerated (open or restricted) procedures‘ (which are 15 and 25 days respectively). That is the reason why I think the award of the contract for 10,000 ventilators to Dyson is very likely illegal (on this overall conclusion, Pedro and I are agreed) and that the UK Parliament (when out of recess, or virtually active) and the National Audit Office need to take a very close look into this award. As I said on twitter, this starts to look very much like #ferrygate.

Extreme emergency procurement and COVID-19 -- re today's UK guidance

The UK Government has issued guidance on using public procurement to respond to the COVID-19 emergency earlier today (see PPN 1/20). This follows other EU countries’ introduction of emergency legislation and guidance on the same topic (see eg Pedro Telles’ discussion of Portugal’s).

If any EU country is yet to issue guidance or legislation, they should not necessarily be expected to do so as, strictly speaking, that should not be necessary because EU law (and, implicitly, most domestic transpositions) already contains the necessary escape valve to allow for the setting aside of most constraints on the contracting authority’s discretion through extensive use of direct awards where extreme urgency makes them indispensable eg to protect human health or orderly social functioning. Domestic emergency legislation may only be necessary where domestic rules impose other constraints (eg budgetary authorisation, legal compliance checks) that also need to be waived or suspended.

From an EU law perspective, it is worth reminding ourselves that Art 32(2)(c) of Directive 2014/24/EU clearly establishes that contracting authorities can resort to the negotiated procedure without prior publication ‘in so far as is strictly necessary where, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, the time limits for the open or restricted procedures or competitive procedures with negotiation cannot be complied with. The circumstances invoked to justify extreme urgency shall not in any event be attributable to the contracting authority.’ That is, contracting authorities facing extremely urgent needs can carry out either a negotiated procedure with limited competition on the basis of direct approaches to potential contractors, or a direct award of a contract to a specific supplier without any competition.

The UK guidance is particularly relevant to understand the limits of this exception, as the domestic transposition had followed a strict copy-out approach and reg.32(2)(c) of the Public Contracts Regulations 2015 has the same content as Art 32(2)(c) Dir 2014/24. In that regard, the content of PPN 1/20 usefully explains that:

… in responding to COVID-19, contracting authorities may enter into contracts without competing or advertising the requirement so long as they are able to demonstrate the following tests have all been met:

1) There are genuine reasons for extreme urgency, eg:

• you need to respond to the COVID-19 consequences immediately because of public health risks, loss of existing provision at short notice, etc;

• you are reacting to a current situation that is a genuine emergency - not planning for one.

2) The events that have led to the need for extreme urgency were unforeseeable, eg:

• the COVID-19 situation is so novel that the consequences are not something you should have predicted.

3) It is impossible to comply with the usual timescales in the PCRs, eg:

• there is no time to run an accelerated procurement under the open or restricted procedures or competitive procedures with negotiation;

• there is no time to place a call off contract under an existing commercial agreement such as a framework or dynamic purchasing system.

4) The situation is not attributable to the contracting authority, eg:

• you have not done anything to cause or contribute to the need for extreme urgency.

In assessing whether these tests are met, it will be important to remember that the CJEU has not imposed a threshold of absolute impossibility of alternative procurement approaches (in particular if they are evidenced ex post). In that regard, even if the interpretation of the grounds for access to extreme urgency procedures need to be interpreted narrowly and the CJEU has stressed that recourse to direct awards need to be subjected to a strict assessment of whether the contracting authority “acted diligently and whether it could legitimately hold that the conditions [for recourse to this procedure] were in fact satisfied” (Fastweb, C-19/13, EU:C:2014:2194, para 50), which make it clear that this procedure must be understood as exceptional (Fastweb, para 106)—in my opinion, there is little doubt that contracting authorities working to react to the challenges of COVID-19 can broadly rely on this exception for the first wave of reactive measures that require emergency supplies or services, provided only that they make sure that they respect the proportionality of the measures and that they document their decision-making adequately.

In that regard, the UK guidance is once again helpful when it establishes that

Contracting authorities should keep a written justification that satisfies these tests. You should carry out a separate assessment of the tests before undertaking any subsequent or additional procurement to ensure that they are all still met, particularly to ensure that the events are still unforeseeable. For example, as time goes on, what might amount to unforeseeable now, may not do so in future.

You should limit your requirements to only what is absolutely necessary both in terms of what you are procuring and the length of contract.

Delaying or failing to do something in time does not make a situation qualify as extremely urgent, unforeseeable or not attributable to the contracting authority. This is because:

• the PCRs expect a contracting authority to plan its time efficiently so that it is able to use a competitive procedure;

• competitive alternatives (eg. an accelerated open procedure) can be completed quickly;

• case law has held that knowing that something needs to be done means it is foreseeable;

• a contracting authority’s delay or failure to do something is likely to mean that the situation is attributable to the contracting authority.

The guidance strikes an adequate balance when stressing the relevance of the passage of time in terms of unforeseeability of the need, which should make contracting authorities think about phased approaches involving eg extreme urgency direct awards for short-term supplies or services (eg the next three to six months), and urgent procedures for the following period/s. However, in the opposite direction, it could be that the passage of time and the impact of the emergency measures on public contractors trigger the need for further access to extreme urgency procedures due to the possible future breakdown of procurement mechanisms currently in place — eg if suppliers fail to deliver (eg due to lockdown of their premises, supply chain breakdown or any other problems), or demand is such that they cannot fill in the requirements of all contracting authorities placing orders (eg in the context of a framework agreement). This is also covered by the notice, which shows great commercial awareness to the fact that the unforeseeability does not only refer to the public health situation generating the relevant need, but also to the material availability of the requirement.

These are uncertain times and flexibility and adaptability will be crucial in providing the best possible responses to the mounting challenges of the pandemic and the socio-economic implications of the measures being adopted (or not) by national Governments. Luckily, for once, procurement law is not in the way. The only requirement that should currently be on procurement officers’ minds is to keep adequate records of their decisions and apply sanity checks to the acceptable default position to directly award contracts for extremely urgent needs. At least for the next few months.

As we learn more of the virus, observe the effects of the pandemic and, hopefully, start to see the impacts of governmental intervention, there will be time to start to consider the end point at which the extreme urgency procurement genie should be put back in the bottle. For now, I would not worry about that at all.

Public consultation on procurement planning by the Spanish Competition Authority now open (until 20/12)

The Spanish Competition Authority (Comisión Nacional de los Mercados y la Competencia, CNMC) is in the process of revising its 2011 Guide on public procurement and competition to reflect recent developments and the change of regulatory framework derived from the transposition of the 2014 EU Public Procurement Package [for a critical assessment of the original guide, in Spanish, see A Sanchez-Graells, ‘Una Visión Crítica de la 'Guía Sobre Contratación Pública y Competencia' Publicada por la CNC’ (2011) 21 Gaceta Jurídica de la Unión Europea y de la Competencia 15-31].

The CNMC plans to update their guidance in steps, and has started the process by focusing on procurement planning. In order to gather input into the formulation of guidance on procurement planning from a competition perspective, the CNMC has published a short preliminary working paper (in Spanish), is holding a public conference on 3 December (in which I am honoured to participate), and has also opened a public consultation (closes 20 Dec 2019).

Even thought, unfortunately, this is a process mainly conducted in Spanish, I am sure the CNMC would welcome any contributions on best procurement planning practices and on the impact of planning on competition via email: dp.ayudaseinformesnormativos@cnmc.es (subject: “Consulta pública Planificación de la contratación pública", indicating whether your contribution can be published or should remain confidential). In case of interest, below is my own contribution to the public consultation (in Spanish).

NHS England [On-going] Consultation on management of conflicts of interest

Following the National Audit Office (NAO) 2015 Report on Managing conflicts of interest in NHS clinical commissioning groups, which led to a revision of NHS England's Statutory guidance on managing conflicts of interest for clinical commissioning groups in June 2016, it is interesting to note that the on-going [closes on 31 October] public consultation on the broader issue of Managing conflicts of interest in the NHS includes a section on conflicts of interest in procurement.

The management of conflicts of interest in procurement is an interesting area of growing practical relevance, but also one where the law applicable to the activities of NHS England is increasingly complex and in need of consolidation (see the main findings of a recent research project I carried out at the University of Bristol Law School here). In that context, the adoption of additional guidance seems appropriate, although it should be carefully designed to ensure that it does not conflict with mandatory legal requirements.

The Managing conflicts of interest in the NHS consultation document is interesting in many aspects and puts forward a rather specific and quite polished view of the need to increase the transparency of both the rules and the decisions concerning the management of conflicts of interest across the activities of the public health system in England. However, it also contains some principles and rules which, in my view, could be improved and I hope that they will be revised as a result of the public consultation. With that aim, I have submitted a response to the consultation, which I am happy to share with anyone interested via email (a.sanchez-graells@bristol.ac.uk). I would also encourage anyone with a couple of hours to spare to contribute to the public consultation before it closes on Monday.

I will write again about this once the final recommendations of the Task and Finish Group of experts are published.

UK issues guidance on social and environmental aspects of procurement, but it is not very useful

The UK's Crown Commercial Service has issued Guidance on social and environmental aspects of public procurement carried out under the Public Contracts Regulations 2015 (see full commentary here), which transposed Directive 2014/24/EU into UK law. The Guidance on S&E aspects includes an overview of the use of procurement to further environmental and social considerations, stresses key points to consider, offers a list of measures that a contracting authority can implement in order to ensure compliance with environmental and social aspects (although it boils down to making sure that it obtains the right information from the contractor), has a list of FAQs and includes suggested contract clauses in its appendix B.

Overall, though, the Guidance on S&E aspects does not go much beyond the text of the relevant rules and, when it provides specific examples, it does not work out the limits derived from general principles of procurement and, most importantly, the requirement for a link to the subject matter of the contract and the implicit proportionality analysis [on that, see A Semple, 'The Link to the Subject-Matter: A Glass Ceiling for Sustainable Public Contracts?']. Thus, in my opinion, the Guidance on S&E aspects is bound to not to be of much practical assistance to contracting authorities.

In uncontroversial terms, the Guidance on S&E aspects stresses that the new Directives "have clarified that contracting authorities may consider incorporating social, ethical and environmental aspects into specifications, contract conditions and award criteria. In addition specific rules have been included for handling abnormally low tenders, and on the exclusion of suppliers who have violated certain social, labour and environmental laws." It also stresses the new light touch regime for social and special services (on which it has also published guidance), as well as the possibility to reserve contracts for sheltered workshops as tools for the inclusion of social aspects in procurement. 

It then goes on to list the rules it considers relevant for the design of social or environmentally-oriented public tenders and goes on to discuss the flexibility they create, including all stages of the procurement process. It includes some useful guidance on the context within which checks of compliance with labour standards need to be carried out by indicating that "It is the law of the country where the work or services are taking place that is relevant. If services are provided at a distance, for example call centres, then it is where the call centre is located and the employees’ work that is key rather than the country to which the services are directed. Consequently a tenderer may only be excluded from a tender for non-compliance with labour law if that labour law is the law of the EU Member State in which the employees are working". This is correct and in line with the recent case law of the ECJ in Bundesdruckerei and in RegioPost. However, it does not provide guidance on the next step of practical difficulty, which concerns the ways in which a UK-based contracting authority can (or not) check compliance with, for example, Spanish employment law and labour standards. 

Moreover, in key aspects such as the use of labels, the use of award criteria, the requirements linked to fair trade certification or life cycle costing methodologies, the Guidance on S&E aspects simply summarises the rules in the PCR2015 and Dir 2014/24, and offers very generic or too open-ended examples. 

For example, it indicates that "Fair trade requirements related to the contract subject matter may be included as a contract award criterion, including the requirement to pay a minimum price and price premium to producers, provided they meet the principles [of proportionality, non-discrimination and transparency]". Or that "Award criteria may include environmental and / or social aspects that relate to any respect and any stage of a life-cycle of the requirements as long as they relate to the subject matter of the contract, namely the works, supplies or services provided under the contract. For example, requesting confirmation that the production of an item did not include toxic materials, or services were and are performed using energy efficient machines, resource efficiency and waste minimization".

This limited level of detail in the examples does not provide very effective guidance. Some of these issues could have been addressed at the level of setting technical specifications and the Guidance on S&E aspects does not include any suggestion of how should contracting authorities decide to go down one or the other route. It could, for example, have stressed that the use as technical specifications (particularly if linked to labels) will imply a pass/no pass assessment, whereas the use as award criteria will allow for a more nuanced approach that allows the contracting authority to balance those considerations with other aspects of the offer (and, very clearly, its price). Moreover, both examples given in terms of life-cycle requirements could be challenged on grounds of proportionality and/or lack of specificity. Thus, the Guidance on S&E aspects may end up creating more uncertainties than intended.

The Guidance on S&E aspects is also confusing because it further indicates that contracting authorities "could, for example, include Fair Trade requirements as contract performance conditions where they are linked to the subject matter of the contract. (See [above] for more details on how fair trade, can be taken into account at an earlier stages)". Reading all this together makes one wonder what additional fair trade requirements could be included as contract compliance requirements that were not already either product specifications (either via labels or as self-standing requirements) or award criteria. They would seem to be linked to employment or labour standards during the execution of the contract, but then this is not necessarily consistent with the part of the guidance mentioned above that clearly stresses that an analysis of those issues is dependent on the jurisdiction where the work is being performed. It also does not address whether this is dependent on that jurisdiction being in the EU, a country covered by the WTO GPA, or otherwise. This does not contribute in any meaningful way to reduce the uncertainties in this area.

It is also worth stressing that the Guidance on S&E aspects also contain some controversial issues regarding the inclusion of social considerations in procurement. That is the case of the reference to the additional guidance on Steel procurement in major projects, which I do not necessarily consider as leading to practices 100% compatible with EU law (see also Pedro Telles' criticism here). The stress put in that additional Steel guidance on issues such as transportation costs and effects on employment and health and safety can clearly be interpreted and used as measures equivalent to non-tariff barriers to trade (in steel), which were coincidentally adopted at the time when the British steel industry was under great international pressure due to its loss of competitiveness. The significant drop in the value of the British pound that has followed Brexit may now have made this redundant, but the fact remains that the (soft) Buy British Steel policy created by that additional guidance had clear protectionist elements.

Further, there are "clarifications" that can lead to the creation of the wrong incentives for tenderers. A case in point is the answer to the following question: "Why is it mandatory to reject an abnormally low tender when it has been proved that costs are low because the tenderer has not complied with environmental, social or labour laws (regulation 69(5)), but only optional to decide not to award a contract when it is proved that the tender does not comply with environmental, social and labour laws (regulation 56(2))?". This is actually a legitimate concern and, in my view, indicates that jurisdictions that want to be serious about smart or sustainable procurement should have made the discretionary exclusion ground mandatory for contracting authorities, as Directive 2014/24 permits. What I find puzzling is CCS' answer to this question in the Guidance on S&E aspects, where it indicates that:

These two are similar in that they both breach the requirement to comply with the applicable environmental, social and labour laws, however, the difference lies in the effects of this non-observance: normal pricing in one case and abnormally low in the other (sic). Tenders that are abnormally low because they are not observing environmental, social and labour laws can lead to ‘social dumping’ and therefore they must be rejected. Where the pricing is normal, the risk of ‘social dumping’ is reduced and the contracting authority has the option to award the contract if it considers the non-compliance is tolerable, or if it works with the supplier to ensure compliance going forward (sic). The UK Government’s policy is that contracting authorities must take appropriate measures to ensure compliance throughout the procurement process. Contracting authorities have flexibility to determine those measures on a case-by-case basis. CCS strongly recommends that when contracting authorities are exercising their option whether or not to award a contract to a tenderer that does not comply with environmental, social and labour laws, that the contracting authority takes note of overarching procurement policy and statutory requirements and carefully considers the potential damage to the environment and society before accepting such a contract (footnotes omitted and emphasis added).  

I find at least two aspects of this answer problematic. First, I do not understand the link that CCS creates between non-compliance and 'normal'/abnormal pricing. If the company infringing labour, social or environmental standards has the right information (and transparency in procurement will generally facilitate that), it will be able to engage in limit pricing so as to avoid an investigation of abnormality of its tender while still undercutting compliant companies. By not rejecting tenders that appear to have 'normal' prices where there is evidence of infringement of the relevant rules, the contracting authority is actually encouraging this doubly-damaging behaviour of legal non-compliance and artificial creation of financial margins to cover for the effects of non-compliance (and/or to extract additional rents derived from non-compliance). Thus, this does not seem to me to make any economic sense.

Second, because the contracting authority cannot "work with the supplier to ensure compliance going forward", or at least not in all cases, because this would potentially imply substantive modifications of the tender and the contract, which can fall foul of a number of additional requirements in the PCR2015 and Dir 2014/24/EU, not least the principle of transparency and equal treatment. Overall, then, I think that the Guidance on S&E aspects offers a wrong and dangerous answer to this question and I would rather see it modified to ensure that contracting authorities do not create perverse financial incentives and do not breach basic procurement guarantees, even if they are acting on the good intention of promoting compliance with otherwise breached social, labour and environmental standards.

Finally, it is worth focusing on the suggested contract clauses for social and environmental issues included in Appendix B. There are clauses concerned with sub-contracting, but those create the same shortcomings as the general clauses, so it is worth focusing on the clause  giving the Authority the right to terminate if the Contractor fails to comply with social, environmental or labour law obligations. It has two options:

Option 1 (free-standing) The Authority may terminate this Agreement [with x months’ notice] if the Contractor fails to comply in the performance of the Services with legal obligations in the fields of environmental, social or labour law.

Option 2 (where there is a defined Supplier Termination Event giving the Authority the right to terminate) Add to definition of Supplier Termination Event - (..) a failure by the Supplier to comply in the performance of the Services with legal obligations in the fields of environmental, social or labour law.

NOTE: in either case the consequences of termination must be considered in the light of the other provisions in the contract.

I find these suggested contract clauses of very limited use. First, because they fail to determine which obligations in the fields of environmental, social or labour law are those that can trigger termination, as well as which evidence of infringement will be required. Second, because it is not clear whether the breaches refer to the execution of the specific contract (in which case there is a closer link to the subject matter) or the general activities of the contractor (in which case there could be issues around the proportionality of the requirement, in particular if the "legal obligations in the fields of environmental, social or labour law" are some that could not have been included in the contract as specific contract compliance requirements, for example). And third because there is no attempt to establish links to other necessary mechanisms to give effectiveness to these clauses, such as information obligations or potential certification by third parties.

Overall, I find the Guidance on S&E aspects rather poor and I would think that contracting authorities will be better off by relying on the European Commission's guidance on buying green and buying social which, despite its own shortcomings and need for an updated in the case of social aspects, have a more practical orientation.