Commission issues first salvo to tardy Member States: what next for transposition of public procurement reform?

The European Commission has formally reacted to the tardiness of the vast majority of EU Member States in the transposition of the 2014 public procurement package. 21 out of the 28 Member States have been addressed letters of formal notice whereby the Commission reminds them of their overdue obligation to transpose Directives 2014/23/EU, 2014/24/EU, and 2014/25/EU into national law. Logically, if the Member States do not react promptly, the Commission should be opening infringement procedures under Art 258 TFEU (maybe after the summer?), which could eventually lead to the imposition of fines to Member States that continue to fail in their obligation to transpose.

This first salvo can be seen as an indication of the seriousness with which the Commission may intend to oversee the transposition of this significant reform, which seems justified by its belief that the 'new rules make it easier and cheaper for small and medium enterprises to bid for public contracts and respect the EU’s principles of transparency and competition. Increased transparency improves accountability and helps combat corruption. The rules also allow the authorities to use public procurement to work towards broader policy objectives, such as environmental and social goals and innovation' [an alternative view seems to emerge from a closer analysis of the rules, though, as will soon be apparent in the contributions to GS Ølykke and A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules (Edward Elgar, 2016)].

However, maybe from a more cynical perspective, it also seems like a first indication of the difficulties that lay ahead in terms of the effective transposition of the new procurement rules. Issues such as the transition to full, proper eProcurement, the need to oversee in an effective manner the conduct of an increasing volume of negotiated procedures, the complications derived from aggregation of procurement and cross-border collaboration (if it ever happens), or the need to reform the remedies system to make sure that the new substantive rules have sufficient bite (which the Commission however now seems to have dropped from its regulatory agenda), just to name a few of the relatively obvious issues, are clear points of future friction between the Commission and the Member States.

Also, it seems clear that infringement procedures are unlikely to fix any of these issues in a satisfactory manner, particularly where Member States simply do no have the resources (economic or otherwise, such as an adequately trained workforce) to implement the rules. Thus, all this can lead to is a futile exercise of transposition on paper (passing laws is relatively cheap and can certainly put a lid on the Commission's oversight strategy, unless it is willing to resource it properly on its own end) and maybe hope for private litigation to force its effectiveness--which would be patchy and incomplete in any case.

All in all, I think that the system is close to bursting at the seams (or at least at some of the seams) unless procurement is better resources at Member State level soon, which does not seem to be feasible in the short run. If that does not happen, any illusion of (formal) transposition will be misleading. And the litigation could in any case exist on the basis of the direct and indirect effect of the directives, which already enable a guerrilla strategy for savvy economic operators. Thus, what the Commission aims to achieve with this first salvo is unclear to me. And I am not sure that it has thought its strategy through to its ultimate consequences. Let's see if Member States hurry up to transpose (at least on paper).

(Progressively formed) res iudicata all'italiana: or how EU law's supremacy can deactivate final judgments (C-213/13)

In its Judgment in Impresa Pizzarotti, C-213/13, EU:C:2014:2067 the CJEU followed the Opinion of AG Wahl (EU:C:2014:335, commented here) and determined that, on a proper construction of the applicable public procurement directives, where the main object of a contract is the execution of a work corresponding to the requirements expressed by the contracting authority (in the case at hand, the building of a new city of justice in Bari), that contract constitutes a public works contract and is not, therefore, covered by the exclusion applicable to public service contracts for the acquisition or rental, by whatever financial means, of land, existing buildings or other immovable property or concerning rights thereon, even if it contains an undertaking to let the work in question.

 

From the strict perspective of procurement law, the Impresa Pizzarotti Judgment is straightforward and clarifies the fact that a decisive influence of the contracting authority in the design of the works to be carried out suffices to trigger the application of the procurement rules (paras 39-52). Hence, in the case at hand, the lack of tender for the contract which implementation Pizzarotti intended rendered it illegal and, under the applicable remedies Directives, excluded any legal value to such contract for the future lease of buildings still to be constructed.

 

In my view, however, the case raises a second issue that may be much more relevant. As part of the convoluted litigation that led to the referral to the CJEU, the Italian Consiglio di Stato had recognised certain rights to Pizzarotti under the applicable Italian administrative law provisions. However, giving effect to those rights would result in a situation contrary to EU law, given the (unfulfilled) obligation to tender the contract for the lease of the buildings to be constructed. The difficulty of avoiding the breach of EU law derived from the fact that the previous ruling of the Consiglio di Stato had become final and had the force of res iudicata. 

 

In those circumstances, however, the Consiglio di Stato indicated to the CJEU that its own case-law made provision for an exceptional "progressively formed res iudicata" that would allow it to "supplement the original operative part of one of its judgments by an implementation decision" (para 27 or, rectius, disregard its finality?) and asked whether it was appropriate to do so under the circumstances of the case.

 

The CJEU reacted in the only possible manner and, after stressing the importance of the principle of res iudicata and its belonging to the procedural autonomy of Member States, did not let the opportunity of relishing a capriccio all'italiana in the form of progressively formed res iudicata.

Given the relatively surrealist reasoning to which the CJEU is forced by the naivety of the Consiglio di Stato's referral, it is worth reproducing it almost in full:

53      [...] the referring court asks, in essence, whether it may decide that a ruling which it has made which has led to a situation which is incompatible with the EU legislation on public works contracts is ineffective.

54      [...] in the absence of EU legislation in this area, the rules implementing the principle of res judicata are a matter for the national legal order, in accordance with the principle of the procedural autonomy of the Member States, but must be consistent with the principles of equivalence and effectiveness (see, to that effect, the judgment in Fallimento Olimpiclub, C‑2/08, EU:C:2009:506, paragraph 24 and the case-law cited).

55 In its request for a preliminary ruling, the referring court indicates that, according to its case-law, it may, under certain conditions, supplement the original operative part of one of its judgments by implementation decisions, that possibility giving rise to what it terms ‘progressively formed res judicata’.

56 If — and it is for the referring court to ascertain whether this is the case — the conditions for applying that procedure are met in respect of the decision in Judgment No 4267/2007, a decision which is mentioned in paragraph 15 of this judgment and which — according to the order for reference — alone has the force of res judicata in the present case, it is for that court, having regard to the principle of equivalence, to make use of that procedure, favouring, from among ‘the numerous different possibilities of implementation’ which it states may be used in respect of that decision, the solution which, in accordance with the principle of effectiveness, ensures compliance with the EU legislation on public works contracts.

57      [...]

58 On the other hand, if the referring court is led to the view that the correct application of that legislation conflicts, having regard to the applicable domestic rules of procedure, with its Judgment No 4267/2007 or with its decisions of 15 April and 3 December 2010 implementing that judgment, attention should be drawn to the importance, both in the legal order of the European Union and in national legal systems, of the principle of res judicata. In order to ensure both stability of the law and legal relations and the sound administration of justice, it is important that judicial decisions which have become definitive after all rights of appeal have been exhausted or after expiry of the time-limits provided for in that connection can no longer be called into question (judgments in Kapferer, C‑234/04, EU:C:2006:178, paragraph 20; Commission v Luxembourg, C‑526/08, EU:C:2010:379, paragraph 26; and ThyssenKrupp Nirosta v Commission, C‑352/09 P, EU:C:2011:191, paragraph 123).

59 Therefore, EU law does not require a national court to disapply domestic rules of procedure conferring finality on a judgment, even if to do so would make it possible to remedy a domestic situation which is incompatible with EU law (see, to that effect, the judgments in Eco Swiss, C‑126/97, EU:C:1999:269, paragraphs 46 and 47; Kapferer, EU:C:2006:178, paragraphs 20 and 21; Fallimento Olimpiclub, EU:C:2009:506, paragraphs 22 and 23; Asturcom Telecomunicaciones, C‑40/08, EU:C:2009:615, paragraphs 35 to 37; and Commission v Slovakia, C‑507/08, EU:C:2010:802, paragraphs 59 and 60).

60 Accordingly, EU law does not require a judicial body automatically to go back on a judgment having the authority of res judicata in order to take into account the interpretation of a relevant provision of EU law adopted by the Court after delivery of that judgment.

61 That analysis cannot be undermined by the judgment in Lucchini (C‑199/05, EU:C:2007:434), cited by the referring court: it was in a highly specific situation, in which the matters at issue were principles governing the division of powers between the Member States and the European Union in the area of State aid, that the Court found, in essence, that EU law precludes the application of a provision of national law, such as Article 2909 of the Italian Civil Code, which seeks to lay down the principle of res judicata, in so far as the application of that provision would prevent the recovery of State aid which was granted in breach of EU law and which has been found to be incompatible with the common market in a decision of the European Commission which has become final (see, to that effect, the judgment in Fallimento Olimpiclub, EU:C:2009:506, paragraph 25). However, issues of that nature, relating to the division of powers, do not arise in the present case.

62 That said, if the applicable domestic rules of procedure provide the possibility, under certain conditions, for a national court to go back on a decision having the authority of res judicata in order to render the situation compatible with national law, that possibility must prevail if those conditions are met, in accordance with the principles of equivalence and effectiveness, so that the situation at issue in the main proceedings is brought back into line with the EU legislation on public works contracts.

63 In that regard, it should be emphasised that that legislation contains fundamental rules of EU law in that it is intended to ensure the application of the principles of equal treatment of tenderers and of transparency in order to open up undistorted competition in all the Member States (see, to that effect, the judgments in Commission v Portugal, C‑70/06, EU:C:2008:3, paragraph 40; Michaniki, C‑213/07, EU:C:2008:731, paragraph 55; Commission v Cyprus, C‑251/09, EU:C:2011:84, paragraphs 37 to 39; and Manova, C‑336/12, EU:C:2013:647, paragraph 28).

64 In the light of the foregoing, the answer to the second question is that, to the extent that it is authorised to do so by the applicable domestic rules of procedure, a national court — such as the referring court — which has given a ruling at last instance, without a reference having first been made to the Court of Justice under Article 267 TFEU, that has led to a situation which is incompatible with the EU legislation on public works contracts must either supplement or go back on that definitive ruling so as to take into account any interpretation of that legislation provided by the Court subsequently (C-213/13 at paras 53-64, emphasis added).

In my view, given the consequences that an infringement of EU law by the domestic courts can have and the ensuing potential for State liability claims (see Traghetti del Mediterraneo, C-173/03, EU:C:2006:391], Member States would be quite foolish not to adopt the concept of (progressively formed) res iudicata all'italiana, at least for instances of subsequent violation of EU law. Unless they take legal certainty and predicatability seriously, that is!