More Nuanced Procurement Transparency to Protect Competition: Has the Court of Justice Hit the Brakes on Open Procurement Data in Antea Polska (C-54/21)?

** This comment was first published as an Op-Ed for EU Law Live on 8 December 2022 (see formatted version). I am reposting it here in case of broader interest. **

In Antea Polska (C-54/21), the Court of Justice provided further clarification of the duties incumbent on contracting authorities to protect the confidentiality of different types of information disclosed by economic operators during tender procedures for the award of public contracts. Managing access to such information is challenging. On the one hand, some of the information will have commercial value and be sensitive from a market competition perspective, or for other reasons. On the other hand, disappointed tenderers can only scrutinise and challenge procurement decisions reliant on that information if they can access it as part of the duty to give reasons incumbent on the contracting authority. There is thus a clash of private interests that the public buyer needs to mediate as the holder of the information.

However, in recent times, procurement transparency has also gained a governance dimension that far exceeds the narrow confines of the tender procedures and related disputes. Open contracting approaches have focused on procurement transparency as a public governance tool, emphasising the public interest in the availability of such information. This creates two overlapping tracks for discussions on procurement transparency and its limitations: a track concerning private interests, and a track concerning the public interest. In this Op-Ed, I examine the judgment of Court of Justice in Antea Polska from both perspectives. I first consider the implications of the judgment for the public interest track, ie the open data context. I then focus on the specifics of the judgment in the private interest track, ie the narrower regulation of access to remedies in procurement. I conclude with some broader reflections on the need to develop the institutional mechanisms and guidance required by the nuanced approach to procurement transparency demanded by the Court of Justice, which is where both tracks converge.

Procurement Transparency and Public Interest

In the aftermath of the covid-19 pandemic, procurement transparency became a mainstream topic. Irregularities and corruption in the extremely urgent direct award of contracts could only be identified where information was made public, sometimes after extensive litigation to force disclosure. And the evidence that slowly emerged was concerning. The improper allocation of public funds through awards not subjected to most (or any) of the usual checks and balances renewed concerns about corruption and maladministration in procurement. This brought the spotlight back on proactive procurement transparency as a governance tool and sparked new interest in open data approaches. These would generate access to (until then) confidential procurement information without the need for an explicit request by the interested party.

A path towards ‘open by default’ procurement data has been plotted in the Open Data Directive, the Data Governance Act, and the new rules on Procurement eForms. Combined, these measures impose minimum open data requirements and allow for further ‘permissioned’ openness, including the granting of access to information subject to the rights of others—eg on grounds of commercial confidentiality, the protection of intellectual property (IP) or personal data (see here for discussion). In line with broader data strategies (notably, the 2020 Data Strategy), EU digital law seems to gear procurement towards encouraging ‘maximum transparency’—which would thus be expected to become the new norm soon (although I have my doubts, see here).

However, such ‘maximum transparency’ approach does not fit well the informational economics of procurement. Procurement is at its core an information or data-intensive exercise, as public buyers use tenders and negotiations to extract private information from willing economic operators to identify the contractor that can best satisfy the relevant needs. Subjecting the private information revealed in procurement procedures to maximum (or full) transparency would thus be problematic, as the risk of disclosure could have chilling and anticompetitive effects. This has long been established in principle in EU procurement law—and more generally in freedom of information law—although the limits to (on-demand and proactive) procurement transparency remain disputed and have generated wide variation across EU jurisdictions (for extensive discussion, see the contributions to Halonen, Caranta & Sanchez-Graells, Transparency in EU Procurements (2019)).

The Court’s Take

The Court of Justice’s case law has progressively made a dent on ‘maximum transparency’ approaches to confidential procurement information. Following its earlier Judgment in Klaipėdos regiono atliekų tvarkymo centras (C-927/19), the Court of Justice has now provided additional clarification on the limits to disclosure of information submitted by tenderers in public procurement procedures in its Judgment in Antea Polska. From the open data perspective, the Court’s approach to the protection of public interests in the opacity of confidential information are relevant.

Firstly, the Court of Justice has clearly endorsed limitations to procurement transparency justified by the informational economics of procurement. The Court has been clear that ‘the principal objective of the EU rules on public procurement is to ensure undistorted competition, and that, in order to achieve that objective, it is important that the contracting authorities do not release information relating to public procurement procedures which could be used to distort competition, whether in an ongoing procurement procedure or in subsequent procedures. Since public procurement procedures are founded on a relationship of trust between the contracting authorities and participating economic operators, those operators must be able to communicate any relevant information to the contracting authorities in such a procedure, without fear that the authorities will communicate to third parties items of information whose disclosure could be damaging to those operators’; Antea Polska (C-54/21, para 49). Without perhaps explicitly saying it, the Court has established the protection of competition and the fostering of trust in procurement procedures as elements inherently placed within the broader public interest in the proper functioning of public procurement mechanisms.

Second, the Court has recognised that ‘it is permissible for each Member State to strike a balance between the confidentiality [of procurement information] and the rules of national law pursuing other legitimate interests, including that … of ensuring “access to information”, in order to ensure the greatest possible transparency in public procurement procedures’; Antea Polska (C-54/21, para 57). However, in that regard, the exercise of such discretion cannot impinge on the effectiveness of the EU procurement rules seeking to align practice with the informational economics of procurement (ie to protect competition and the trust required to facilitate the revelation of private information, as above) to the extent that they also protect public interests (or private interests with a clear impact on the broader public interest, as above). Consequently, the Court stressed that ‘[n]ational legislation which requires publicising of any information which has been communicated to the contracting authority by all tenderers, including the successful tenderer, with the sole exception of information covered by the [narrowly defined] concept of trade secrets [in the Trade Secrets Directive], is liable to prevent the contracting authority … from deciding not to disclose certain information pursuant to interests or objectives [such as the protection of competition or commercial interests, but also the preservation of law enforcement procedures or the public interest], where that information does not fall within that concept of a trade secret’; Antea Polska (C-54/21, para 62).

In my view, the Court is clear that a ‘maximum transparency’ approach is not permissible and has stressed the duties incumbent on contracting authorities to protect public and private interests opposed to transparency. This is very much in line with the nuanced approach it has taken in another notable recent Judgment concerning open beneficial ownership data: Luxembourg Business Registers (C‑37/20 and C‑601/20) (see here for discussion). In Antea Polska, the Court has emphasised the need for case-by-case analysis of the competing interests in the confidentiality or disclosure of certain information.

This could have a significant impact on open data initiatives. First, it comes to severely limit ‘open by default’ approaches. Second, if contracting authorities find themselves unable to engage with nuanced analysis of the implications of information disclosure, they may easily ‘clam up’ and perpetuate (or resort back to) generally opaque approaches to procurement disclosure. Developing adequate institutional mechanisms and guidance will thus be paramount (as below).

Procurement Transparency and Private Interest

In its more detailed analysis of the specific information that contracting authorities need to preserve in order to align their practice with the informational economics of procurement (ie to promote trust and to protect market competition), the Court’s views in Antea Polska are also interesting but more problematic. The starting point is that the contracting authority cannot simply take an economic operator’s claim that a specific piece of information has commercial value or is protected by IP rights and must thus be kept confidential (Antea Polska, C-54/21, para 65), as that could generate excessive opacity and impinge of the procedural rights of competing tenderers. Moving beyond this blanket approach requires case-by-case analysis.

Concerning information over which confidentiality is claimed on the basis of its commercial value, the Court has stressed that ‘[t]he disclosure of information sent to the contracting authority in the context of a public procurement procedure cannot be refused if that information, although relevant to the procurement procedure in question, has no commercial value in the wider context of the activities of those economic operators’; Antea Polska (C-54/21, para 78). This requires the contracting authority to be able to assess the commercial value of the information. In the case, the dispute concerned whether the names of employees and subcontractors of the winning tenderer should be disclosed or not. The Court found that ‘in so far as it is plausible that the tenderer and the experts or subcontractors proposed by it have created a synergy with commercial value, it cannot be ruled out that access to the name-specific data relating to those commitments must be refused on the basis of the prohibition on disclosure’; Antea Polska (C-54/21, para 79). This points to the emergence of a sort of rebuttable presumption of commercial value that will be in practice very difficult to overcome by a contracting authority seeking to disclose information—either motu proprio, or on the request of a disappointed tenderer.

Concerning information over which confidentiality is claimed on the basis that it is protected by an IP right, in particular by copyright, the Court stressed that it is unlikely that copyright protection will apply to ‘technical or methodological solutions’ of procurement relevance (Antea Polska, C-54/21, para 82). Furthermore, ‘irrespective of whether they constitute or contain elements protected by an intellectual property right, the design of the projects planned to be carried out under the public contract and the description of the manner of performance of the relevant works or services may … have a commercial value which would be unduly undermined if that design and that description were disclosed as they stand. Their publication may, in such a case, be liable to distort competition, in particular by reducing the ability of the economic operator concerned to distinguish itself using the same design and description in future public procurement procedures’; Antea Polska (C-54/21, para 83). Again, this points to the emergence of a rebuttable presumption of commercial value and anticompetitive potential that will also be very difficult to rebut in practice.

The Court has also stressed that keeping this type of information confidential does not entirely bar disclosure. To discharge their duty to give reasons and facilitate access to remedies by disappointed tenderers, contracting authorities are under an obligation to disclose, to the extent possible, the ‘essential content’ of the protected information; Antea Polska (C-54/21, paras 80 and 84). Determining such essential content and ensuring that the relevant underlying (competing) rights are adequately protected will also pose a challenge to contracting authorities.

In sum, the Court has stressed that preserving competing interests related to the disclosure of confidential information in procurement requires the contracting authority to ‘assess whether that information has a commercial value outside the scope of the public contract in question, where its disclosure might undermine legitimate commercial concerns or fair competition. The contracting authority may, moreover, refuse to grant access to that information where, even though it does not have such commercial value, its disclosure would impede law enforcement or would be contrary to the public interest. A contracting authority must, where full access to information is refused, grant that tenderer access to the essential content of that information, so that observance of the right to an effective remedy is ensured’; Antea Polska (C-54/21, para 85). Once again, developing adequate institutional mechanisms and guidance will thus be paramount (as below).

Investing in the Way Forward

As I have argued elsewhere, and the Antea Polska Judgment has made abundantly clear, under EU procurement (and digital) law, it is simply not possible to create a system that makes all procurement data open. Conversely, the Judgment also makes clear that it is not possible to operate a system that keeps all procurement data confidential (Antea Polska, C-54/21, para 68).

Procurement data governance therefore requires the careful management of a system of multi-tiered access to different types of information at different times, by different stakeholders and under different conditions. This will require investing in data and analysis capabilities by public buyers, which can no longer treat the regulation of confidentiality in procurement as an afterthought or secondary consideration. In the data economy, public buyers need to create the required institutional mechanisms to discharge their growing data governance obligations.

Moreover, and crucially, creating adequate data governance approaches requires the development of useful guidance by the European Commission and national competition authorities, as well as procurement oversight bodies. The Court of Justice’s growing case law points to the potential emergence of (difficult to challenge) rebuttable presumptions of justified confidentiality that could easily result in high levels of procurement opacity. To promote a better balance of the competing public and private interests, a more nuanced approach needs to be supported by actionable guidance. This will be very important across all EU jurisdictions, as it is not only jurisdictions that had embraced ‘maximum transparency’ that now need to correct course—but also those that continue to lag in the disclosure of procurement information. Ensuring a level playing field in procurement data governance depends on the harmonisation of currently widely diverging practices. Procurement digitalisation thus offers an opportunity that needs to be pursued.

Urgent: 'no eForms, no fun' -- getting serious about building a procurement data architecture in the EU

‘EU Member States only have about one year to make crucial decisions that will affect the procurement data architecture of the EU and the likelihood of successful adoption of digital technologies for procurement governance for years or decades to come’. Put like that, the relevance of the approaching deadline for the national implementation of new procurement eForms may grab more attention than the alternative statement that ‘in just about a year, new eForms will be mandatory for publication of procurement notices in TED’.

This latter more technical (obscure, and uninspiring?) understanding of the new eForms seems to have been dominating the approach to eForms implementation, which does not seem to have generally gained a high profile in domestic policy-making at EU Member State level despite the Publications Office’s efforts.

In this post, I reflect about the strategic importance of the eForms implementation for the digitalisation of procurement, the limited incentives for an ambitious implementation that stem from the voluntary approach of the most innovative aspects of the new eForms, and the opportunity that would be lost with a minimalistic approach to compliance with the new rules. I argue that it is urgent for EU Member States to get serious about building a procurement data architecture that facilitates the uptake of digital technologies for procurement governance across the EU, which requires an ambitious implementation of eForms beyond their minimum mandatory requirements.

eForms: some background

The EU is in the process of reforming the exchange of information about procurement procedures. This information exchange is mandated by the EU procurement rules, which regulate a variety of procurement notices with the two-fold objective of (i) fostering cross-border competition for public contracts and (ii) facilitating the oversight of procurement practices by the Member States, both in relation to the specific procedure (eg to enable access to remedies) and from a broad policy perspective (eg through the Single Market Scoreboard). In other words, this information exchange underpins the EU’s approach to procurement transparency, which mainly translates into publication of notices in the Tenders Electronic Daily (TED).

A 2019 Implementing Regulation established new standard forms for the publication of notices in the field of public procurement (eForms). The Implementing Regulation is accompanied by a detailed Implementation Handbook. The transition to eForms is about to hit a crucial milestone with the authorisation for their voluntary use from 14 November 2022, in parallel with the continued use of current forms. Following that, eForms will be mandatory and the only accepted format for publication of TED notices from 25 October 2023. There will thus have been a very long implementation period (of over four years), including an also lengthy (11-month) experimentation period about to start. This contrasts with previous revisions of the TED templates, which had given under six months’ notice (eg in 2015) or even just a 20-day implementation period (eg in 2011). This extended implementation period is reflective of the fact that the transition of eForms is not merely a matter of replacing a set of forms with another.

Indeed, eForms are not solely the new templates for the collection of information to be published in TED. eForms represent the EU’s open standard for publishing public procurement data — or, in other words, the ‘EU OCDS’ (which goes much beyond the OCDS mapping of the current TED forms). The importance of the implementation of a new data standard has been highlighted at strategic level, as this is the cornerstone of the EU’s efforts to improve the availability and quality of procurement data, which remain suboptimal (to say the least) despite continued efforts to improve the quality and (re)usability of TED data.

In that regard, the 2020 European strategy for data, emphasised that ‘Public procurement data are essential to improve transparency and accountability of public spending, fighting corruption and improving spending quality. Public procurement data is spread over several systems in the Member States, made available in different formats and is not easily possible to use for policy purposes in real-time. In many cases, the data quality needs to be improved.’ The European Commission now stresses how ‘eForms are at the core of the digital transformation of public procurement in the EU. Through the use of a common standard and terminology, they can significantly improve the quality and analysis of data’ (emphasis added).

It should thus be clear that the eForms implementation is not only about low level form-filling, but also (or primarily) about building a procurement data architecture that facilitates the uptake of digital technologies for procurement governance across the EU. Therefore, the implementation of eForms and the related data standard seeks to achieve two goals: first, to ensure the data quality (eg standardisation, machine-readability) required to facilitate its automated treatment for the purposes of publication of procurement notices mandated by EU law (ie their primary use); and, second, to build a data architecture that can facilitate the accumulation of big data so that advanced data analytics can be deployed by re-users of procurement data. This second(ary) goal is particularly relevant to our discussion. This requires some unpacking.

The importance of data for the deployment of digital technologies

It is generally accepted that quality (big) data is the primary requirement for the deployment of digital technologies to extract data-driven insights, as well as to automate menial back-office tasks. In a detailed analysis of these technologies, I stress the relevance of procurement data across technological solutions that could be deployed to improve procurement governance. In short, the outcome of robotic process automation (RPA) can only be as good as its sources of information, and adequate machine learning (ML) solutions can only be trained on high-quality big data—which thus conditions the possibility of developing recommender systems, chatbots, or algorithmic screens for procurement monitoring and oversight. Distributed Ledger Technology (DLT) systems (aka blockchain) can manage data, but cannot verify its content, accuracy, or reliability. Internet of Things (IoT) applications and software oracles can automatically capture data, which can alleviate some of the difficulties in generating an adequate data infrastructure. But this is only in relation with the observation of the ‘real world’ or in relation to digitally available information, which quality raises the same issues as other sources of data. In short, all digital technologies are data-centric or, more clearly, data-dependent.

Given the crucial relevance of data across digital technologies, it is hard to emphasise how any shortcomings in the enabling data architecture curtail the likelihood of successful adoption of digital technologies for procurement governance. With inadequate data, it may simply be impossible to develop digital solutions at all. And the development and adoption of digital solutions developed on poor or inadequate data can generate further problems—eg skewing decision-making on the basis of inadequately derived ‘data insights’. Ultimately, then, ensuring that adequate data is available to develop digital governance solutions is a challenging but unavoidable requirement in the process of procurement digitalisation. Success, or lack of it, in the creation of an enabling data architecture will determine the viability of the deployment of digital technologies more generally. From this perspective, the implementation of eForms gains clear strategic importance.

eForms Implementation: a flexible model

Implementing eForms is not an easy task. The migration towards eForms requires a complete redesign of information exchange mechanisms. eForms are designed around universal business language and involve the use of a much more structured information schema, compatible with the EU’s eProcurement Ontology, than the current TED forms. eForms are also meant to collect a larger amount of information than current TED forms, especially in relation to sub-units within a tender, such as lots, or in relation to framework agreements. eForms are meant to be flexible and regularly revised, in particular to add new fields to facilitate data capture in relation to specific EU-mandated requirements in procurement, such as in relation with the clean vehicles rules (with some changes already coming up, likely in November 2022).

From an informational point of view, the main constraint that remains despite the adoption of eForms is that their mandatory content is determined by existing obligations to report and publish tender-specific information under the current EU procurement rules, as well as to meet broader reporting requirements under international and EU law (eg the WTO GPA). This mandatory content is thus rather limited. Ultimately, eForms’ main concentration is on disseminating details of contract opportunities and capturing different aspects of decision-making by the contracting authorities. Given the process-orientedness and transactional focus of the procurement rules, most of the information to be mandatorily captured by the eForms concerns the scope and design of the tender procedure, some aspects concerning the award and formal implementation of the contract, as well as some minimal data points concerning its material outcome—primarily limited to the winning tender. As the Director-General of the Publications Office put it an eForms workshop yesterday, the new eForms will provide information on ‘who buys what, from whom and for what price’. While some of that information (especially in relation to the winning tender) will be reflective of broader market conditions, and while the accumulation of information across procurement procedures can progressively generate a broader view of (some of) the relevant markets, it is worth stressing that eForms are not designed as a tool of market intelligence.

Indeed, eForms do not capture the entirety of information generated by a procurement process and, as mentioned, their mandatory content is rather limited. eForms do include several voluntary or optional fields, and they could be adapted for some voluntary uses, such as in relation to detection of collusion in procurement, or in relation to the beneficial ownership of tenderers and subcontractors. Extensive use of voluntary fields and the development of additional fields and uses could contribute to generating data that enabled the deployment of digital technologies for the purposes of eg market intelligence, integrity checks, or other sorts of (policy-related) analysis. For example, there are voluntary fields in relation to green, social or innovation procurement, which could serve as the basis for data-driven insights into how to maximise the effects of such policy interventions. There are also voluntary fields concerning procurement challenges and disputes, which could facilitate a monitoring of eg areas requiring guidance or training. However, while the eForms are flexible, include voluntary fields, and the schema facilitates the development of additional fields, is it unclear that adequate incentives exist for adoption beyond their mandatory minimum content.

Implementation in two tiers

The fact that eForms are in part mandatory and in part voluntary will most likely result in two separate tiers of eForms implementation across the EU. Tier 1 will solely concern the collection and exchange of information mandated by EU law, that is the minimum mandatory eForm content. Tier 2 will concern the optional collection and exchange of a much larger volume of information concerning eg the entirety of tenders received, as well as qualitative information on eg specific policy goals embedded in a tender process. Of course, in the absence of coordination, a (large) degree of variation within Tier 2 can be expected. Tier 2 is potentially very important for (digital) procurement governance, but there is no guarantee that Member States will decide to implement eForms covering it.

One of the major obstacles to the broad adoption of a procurement data model so far, at least in the European Union, relates to the slow uptake of e-procurement (as discussed eg here). Without an underlying highly automated e-procurement system, the generation and capture of procurement data is a main challenge, as it is a labour-intensive process prone to input error. The entry into force of the eForms rules could serve as a further push for the completion of the transition to e-procurement—at least in relation to procurement covered by EU law (as below thresholds procurement is a voluntary potential use of eForms). However, it is also possible that low e-procurement uptake and generalised unsophisticated approaches to e-procurement (eg reduced automation) will limit the future functionality of eForms, with Member States that have so far lagged behind restricting the use of eForms to tier 1. Non life-cycle (automated) e-procurement systems may require manual inputs into the new eForms (or the databases from which they can draw information) and this implies that there is a direct cost to the implementation of each additional (voluntary) data field. Contracting authorities may not perceive the (potential) advantages of incurring those costs, or may more simply be constrained by their available budget. A collective action problem arises here, as the cost of adding more data to the eForms is to be shouldered by each public buyer, while the ensuing big data would potentially benefit everyone (especially as it will be published—although there are also possibilities to capture but not publish information that should be explored, at least to prevent excessive market transparency; but let’s park that issue for now) and perhaps in particular data re-users offering for pay added-value services.

In direct relation to this, and compounding the (dis)incentives problem, the possibility (or likelihood) of minimal implementation is compounded by the fact that, in many Member States, the operational adaptation to eForms does not directly concern public sector entities, but rather their service providers. e-procurement services providers compete for the provision of large volume, entirely standardised platform services, which are markets characterised by small operational margins. This creates incentives for a minimal adaptation of current e-sending systems and disincentives for the inclusion of added-value (data) services potentially unlikely to be used by public buyers. Some (or most) optional aspects of the eForm implementation will thus remain unused due to these market structure and dynamics, which does not clearly incentivise a race to the top (unless there is clear demand pull for it).

With some more nuance, it should be stressed that it is also possible that the adoption of eForms is uneven within a given jurisdiction where the voluntary character of parts of the eForm is kept (rather than made mandatory across the board through domestic legislation), with advanced procurement entities (eg central purchasing bodies, or large buyers) adopting tier 2 eForms, and (most) other public buyers limiting themselves to tier 1.

Ensuing data fragmentation

While this variety of approaches across the EU and within a Member State would not pose legal challenges, it would have a major effect on the utility of the eForms-generated data for the purposes of eg developing ML solutions, as the data would be fragmented, hardly representative of important aspects of procurement (markets), and could hardly be generalisable. The only consistent data would be that covered by tier 1 (ie mandatory and standardised implementation) and this would limit the potential use cases for the deployment of digital technologies—with some possibly limited to the procurement remit of the specific institutions with tier 2 implementations.

Relatedly, it should be stressed that, despite the effort to harmonise the underlying data architecture and link it to the Procurement Ontology, the Implementation Handbook makes clear that ‘eForms are not an “off the shelf” product that can be implemented only by IT developers. Instead, before developers start working, procurement policy decision-makers have to make a wide range of policy decisions on how eForms should be implemented’ in the different Member States.

This poses an additional challenge from the perspective of data quality (and consistency), as there are many fields to be tailored in the eForms implementation process that can result in significant discrepancies in the underlying understanding or methodology to determine them, in addition to the risk of potential further divergence stemming from the domestic interpretation of very similar requirements. This simply extends to the digital data world the current situation, eg in relation to diverging understandings of what is ‘recyclable’ or what is ‘social value’ and how to measure them. Whenever open-ended concepts are used, the data may be a poor source for comparative and aggregate analysis. Where there are other sources of standardisation or methodology, this issue may be minimised—eg in relation to the green public procurement criteria developed in the EU, if they are properly used. However, where there are no outside or additional sources of harmonisation, it seems that there is scope for quite a few difficult issues in trying to develop digital solutions on top of eForms data, except in relation to quantitative issues or in relation to information structured in clearly defined categories—which will mainly link back to the design of the procurement.

An opportunity about to be lost?

Overall, while the implementation of eForms could in theory build a big data architecture and facilitate the development of ML solutions, there are many challenges ahead and the generalised adoption of tier 2 eForms implementations seems unlikely, unless Member States make a positive decision in the process of national adoption. The importance of an ambitious tier 2 implementation of eForms should be assessed in light of its downstream importance for the potential deployment of digital technologies to extract data-driven insights and to automate parts of the procurement process. A minimalistic implementation of eForms would significantly constrain future possibilities of procurement digitalisation. Primarily in the specific jurisdiction, but also with spillover effects across the EU.

Therefore, a minimalistic eForms implementation approach would perpetuate (most of the) data deficit that prevents effective procurement digitalisation. It would be a short-sighted saving. Moreover, the effects of a ‘middle of the road’ approach should also be considered. A minimalistic implementation with a view to a more ambitious extension down the line could have short-term gains, but would delay the possibility of deploying digital technologies because the gains resulting from the data architecture are not immediate. In most cases, it will be necessary to wait for the accumulation of sufficiently big data. In some cases of infrequent procurement, missing data points will generate further time lags in the extraction of valuable insights. It is no exaggeration that every data point not captured carries an opportunity cost.

If Member States are serious about the digitalisation of public procurement, they will make the most of the coming year to develop tier 2 eForms implementations in their jurisdiction. They should also keep an eye on cross-border coordination. And the European Commission, both DG GROW and the Publications Office, would do well to put as much pressure on Member States as possible.

The perils of not carrying out technology-centered research into digital technologies and procurement governance -- re Sava and Dragos (2022), plus authors' response

This is a post in two parts. The first part addresses my methodological concerns with research on digital technologies and public procurement (and public governance more generally), as exemplified by a recent paper. The second part collects the response by the authors of that paper.

This pair of points of view are offered together to try to create debate. While the authors found my comments harsh (I cannot judge that), they engaged with them and provided their own counter-arguments. In itself, I think that is laudable and already has value. Any further discussion with the broader community, via comments (or email), would be a bonus.

Part 1: The perils of not carrying out technology-centered research into digital technologies and procurement governance -- re Sava and Dragos (2022)

When I started researching the interaction between digital technologies and procurement governance, it was clear to me that a technology-centered legal method was required. A significant amount of the scholarship that is published fails to properly address the governance implications of digital technologies because it simply does not engage with their functionality—or, put otherwise, because the technology is not understood. This can lead to either excessive claims of what ‘technology fixes’ can achieve or, perhaps even more problematic, it can generate analysis that is based on a misleading, shallow and oftentimes purely literal reading of the labels with which the technology is described and referred to.

A recent paper on smart contracts and procurement clearly exemplifies this problem: N.A. Sava & D. Dragos, ‘The Legal Regime of Smart Contracts in Public Procurement’ (2022) Transylvanian Review of Administrative Sciences, No. 66 E/2022, pp. 99–112.

Conceptual problems

From the outset, the paper is at pains to distinguish blockchain and smart contracts, and proposes ’a needed conceptual distinction that would fit the public contracts theory: before a contract is signed, it is logical to refer to blockchain technology when discussing digital means of awarding the procurement contract. As a result of this award, the concluded contract could be a “smart contract”’ (at 101).

The trap into which the paper falls, of course, is that of believing that blockchain and smart contracts can be distinguished ‘conceptually’ (in a legal sense), rather than on the basis of their technological characteristics and functionality.

Blockchain is a type of distributed ledger technology (DLT). In some more detail: ‘A DLT system is a system of electronic records that enables a network of independent participants to establish a consensus around the authoritative ordering of cryptographically-validated (‘signed’) transactions. These records are made persistent by replicating the data across multiple nodes, and tamper-evident by linking them by cryptographic hashes. The shared result of the reconciliation/consensus process - the ‘ledger’ - serves as the authoritative version for these records’ (M Rauchs et al, Distributed Ledger Technology Systems. A Conceptual Framework (2018), at 24). Blockchain is thus a ‘passive’ digital technology in the sense that it cannot perform any sort of automation of (decision-making) processes because it simply serves to create a data infrastructure.

In turn, smart contracts are a type of ‘active’ (or automating) digital technology that can be deployed on top of a DLT. In more detail: ‘Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met’ (IBM, What are smart contracts on blockchain? (undated, accessed 1 July 2022)).

What this means is that, functionally, ‘smart contracts’ may or may not map onto the legal concept of contract, as a ‘smart contract’ can be a unilaterally programmed set of instructions aimed at the automation of a workflow underpinned by data held on a DLT.

Taking this to the public procurement context, it is then clear that both the management of the award process and the execution of an awarded public contract, to the extent that they could be automated, would both need to be instrumentalised via smart contracts plus an underlying blockchain (I would though be remiss not to stress that the practical possibilities of automating either of those procurement phases are extremely limited, if at all realistic; see here and here, which the paper refers to in passing). It does not make any (technological/functional) sense to try to dissociate both layers of digital technology to suggest that ‘blockchain technology [should be used] when discussing digital means of awarding the procurement contract. As a result of this award, the concluded contract could be a “smart contract”’ (Sava & Dragos, above, 101).

This is important, because that technology-incongruent conceptual distinction is then the foundation of legal analysis. The paper e.g. posits that ‘the award of public contracts is a unilateral procedure, organized by state authorities according to specific rules, and that automation of such procedure may be done using blockchain technology, but it is not a ‘“smart contract” (sic). Smart contracts, on the other hand, can be an already concluded procurement contract, which is executed, oversaw (sic) and even remedied transparently, using blockchain technology (sic)’ (ibid, 103, emphasis added).

There are three problems here. First, the automation of the procurement award procedure carried out on top of a DLT layer would require a smart contract (or a number of them). Second, the outcome of that automated award would only be a ‘smart contract’ in itself if it was fully coded and its execution fully automated. In reality, it seems likely that some parts of a public contract could be coded (e.g. payments upon invoice approval), whereas other parts could not (e.g. anything that has to happen offline). Third, the modification of the smart contract (ie coded) parts of a public contract could not be modified (solely) using blockchain technology, but would require another (or several) smart contract/s.

Some more problems

Similarly, the lack of technology-centricity of the analysis leads the paper to present as open policy choices some issues that are simply technologically-determined.

For example, the paper engages in this analysis:

… the question is where should the smart public contracts be awarded? In the electronic procurement systems already developed by the different jurisdictions? On separate platforms using blockchain technology? The best option for integrating smart contracts into the procurement procedures may be the already existing digital infrastructure, therefore on the electronic procurement platforms of the member states. We believe this would be an optimal solution, as smart contracts should enhance the current electronic procurement framework and add value to it, thus leveraging the existing system and not replacing it (at 103, emphasis added).

Unless the existing electronic procurement platforms ran on blockchain—which I do not think they do—then this is not a policy option at all, as it is not possible to deploy smart contracts on top of a different layer of information. It may be possible to automate some tasks using different types of digital technologies (e.g. robotic process automation), but not smart contracts (if the technological concept, as discussed above, is to be respected).

The problems continue with the shallow approach to the technology (and to the underlying legal and practical issues), as also evidenced in the discussion of the possibility of automating checks related to the European Single Procurement Document (ESPD), which is a self-declaration that the economic operator is not affected by exclusion grounds (see Art 59 Directive 2014/24/EU).

The paper states

In the context of automatized checks, the blockchain technology can provide an avenue for checking the validity of proofs presented. The system could automate the verifications of the exclusion grounds and the selection criteria by checking the original documents referenced in the ESPD in real time (that is, before determining the winning tender). The blockchain technology could verify the respect of the exclusions grounds and rule out any economic operator that does not comply with this condition (at 104, emphasis added).

This is a case of excessive claim based on a misunderstanding of the technology. A smart contract could only verify whatever information was stored in a DLT. There is no existing DLT capturing the information required to assess the multiplicity of exclusion grounds regulated under EU law. Moreover, the check would never be of the original documents, but rather of digital records that would either be self-declared by the economic operators or generated by a trusted authority. If the latter, what is the point of a blockchain (or other DLT), given that the authority and veracity of the information comes from the legal authority of the issuer, not the consensus mechanism?

There are also terminological/conceptual inconsistencies in the paper, which does not consistently stick to its conceptual distinction that blockchain should be used to refer to the automation of the award procedure, with smart contracts being reserved to the awarded contract. For example, it (correctly) asserts that ‘When it comes to selection criteria, the smart contract could also perform automatic checks on the elements listed in the contract notice’ (at 104). However, this can creates confusion for a reader not familiar with the technology.

Other issues point at the potentially problematic implications of analysis based on a lack of in-depth exploration of the technologies. For example, the paper discusses a project in Colombia, which ‘created a blockchain software that allowed for record keeping, real time auditability, automation through smart contracts and enhanced citizen engagement’ (at 105). After limited analysis, the paper goes on to stress that ‘Our opinion is that the system in Colombia resembles very much the regular e-procurement systems in Europe. For instance, Romania’s SEAP (Electronic Public Procurement System) insures exactly the same features — non-alteration of bids, traceability and automatic evaluation of tenders (price). So, the question is whether the smart contract system in Colombia is anything else than a functional e-procurement system’ (ibid). This reflects a conflation of functionality with technology, at best.

In the end, the lack of technology-centered (legal) analysis significantly weakens the paper and makes its insights and recommendations largely unusable.

The need for a technology-centric legal methodology

To avoid this type of problems in much-needed legal scholarship on the impact of digital technologies on public governance, it is necessary to develop a technology-centric legal methodology. This is something I am working on, in the context of my project funded by the British Academy. I will seek to publish a draft methodology towards the end of the year. Comments and suggestions on what to take into account would be most welcome: a.sanchez-graells@bristol.ac.uk.

Part 2: authors’ response

Dear Professor,

As a first-year PhD student, being read and offered feedback, especially in the incipient phase of the research, is an amazing learning opportunity. Not all PhD students have the chance to exchange on their topic, and even more with a revered name in the doctrine of public procurement like yourself, therefore am I am very grateful for this debate (Sava).

The co-author Dragos also shares the respect and gratitude for the scholarly critique, although considers the comments rather theoretical and lacking an alternative constructive conclusion.

Concerning the need to conduct a ʻtechnology-centered legal’ research, I fully agree, and I will try to integrate more technology-centered research into the thesis.

However, being lawyers, we believe that technology-centered research does not take into account the established concepts from law and especially public procurement law, therefore an interdisciplinary perspective is needed.

Now we will address the arguments you formulated.

1) Conceptual problems

Concerning the definitions of blockchain and smart contract that you offer, we are of course familiar with them and agree with them.

We agree that blockchain-based smart-contracts could automate certain aspects of the procurement procedures, both in the award and in the execution phase. In our paper, we acknowledge the fact that ʻsmart contracts could automate any process that can be presented as an IF+THEN formula’ (p. 100-101). In this sense, like you noticed, we give the example of automating the check of the selection criteria: ‘When it comes to selection criteria, the smart contract could also perform automatic checks on the elements listed in the contract notice’ (p. 104).

However, beyond these two concepts (blockchain and smart contracts), there is a third concept, that of a ʻsmart legal contract’.

DiMatteo, L., Cannarsa, M. and Poncibò, C., in The Cambridge Handbook of Smart Contracts, Blockchain Technology and Digital Platforms (Cambridge: Cambridge University Press, 2019, p. 63) draw attention to the inadequacy of the terminology: ʻFor blockchain-based smart contracts, a useful dichotomy can be drawn between the ‘smart contract code’ that is, the computer code that is ‘– stored, verified, and executed on a blockchain and the ‘smart legal contract’ - a complement (or maybe even a substitute) for a legal contract that applies that technology. In essence, a ‘smart legal contract’ is a combination of the ‘smart contract code’ and traditional legal language.

'The LawTech panel recently decided that (...) smart contracts could still be legally binding provided that they include the typical elements of a contract.’ (https://juro.com/learn/smart-contracts, consulted on the 2nd of July 2022). Like you mention, ‘functionally, ‘smart contracts’ may or may not map onto the legal concept of contract, as a ‘smart contract’ can be a unilaterally programmed set of instructions aimed at the automation of a workflow underpinned by data held on a DLT’.

Therefore, the correct conceptual distinction would be between ʻsmart contract code’ and ʻsmart legal contract’. In the paper, we tried to focus on the smart legal contract, and discuss its compatibility with public procurement contracts. Through the conceptual distinction, we actually wanted to point out the fact that it would be difficult to imagine a smart legal contract (legally binding) exclusively in the award phase. On the other hand, concerning the ʻsmart contract code’ we agree that it could be applicable to both the award and the execution phase, although the terminology remains debatable.

2) The question of where to integrate smart contracts

We state that ʻThe best option for integrating smart contracts into the procurement procedures may be the already existing digital infrastructure, therefore on the electronic procurement platforms of the member states. We believe this would be an optimal solution, as smart contracts should enhance the current electronic procurement framework and add value to it, thus leveraging the existing system and not replacing it’ (p. 103).

Of course, we do not believe that the current system works on blockchain (in the paper we explore why this would be a difficult task), but we did discuss the integration of emerging technologies in the existing context of e-procurement tools. However, this would be an integration among the e-procurement tools, not on top of the existing tools, as adequate infrastructure would be needed.

Actually we mean exactly what you pointed out in your conclusions, so we are in agreement here: some aspects of the procedure could be automated, yet the rest of the procedure could function based on the rules already in place. By the idea of not replacing the e-procurement system, we mean automatizing some punctual aspects, but not replacing the entire system.

3) The ESPD

The idea was that smart contracts could automatically check certain documents, such as the ones referenced in the ESPD.

In our text, we only discuss the idea of a verification, we do not describe in detail how this should be performed and we do not state that the DLT should capture on its own ʻthe information required to assess the multiplicity of exclusion grounds regulated under EU law’. Of course, these documents would need to be uploaded to the DLT and the uploaded documents would have a digital form. By ‘original document’ we refer to the document per se, the reference document and not the simple declaration from the ESPD.

An analogy of this idea could be made with the Canadian ‘Supplier information registration system, which facilitates the registration of supplier information on blockchain to validate it against different records and to validate it in an automated way’ (NTT Data Presentation at EPLD Meeting, May 2022).

4) The Colombian example

We could not understand your critique here. The referenced example described a system for selecting economic operators in public procurement (for more information: https://www.weforum.org/reports/exploring-blockchain-technology-for-government-transparency-to-reduce-corruption/), which we believe is comparable with a regular e-procurement portal.

5) Conclusions

Through our analysis, we intended to raise the following question: would automating some aspects of the public procurement procedure through “smart contracts” ensure the same characteristics and guarantees as the ones offered by an e-public procurement system of an EU member state? In that case, what is the added value of “smart contracts” in public procurement? It is a research question that we will try to focus on in the future, we merely pose it here.

This paper is an exploratory and incipient one. For the moment, our goal was to raise some questions and to explore some potential paths. Apart from theoretical “what ifs”, it is hard to find specificities of assertions that new digital technologies will definitely have numerous and game-changing applications in the procurement process, as long as the procurement process is still managed unilaterally by public bodies and entertains a public law regime.

The intention is to challenge a rather theoretical assumption on the role of digital technologies in public procurement and subsequently trying to find real, practical examples or applications, if any.

In no circumstance did we state that we are formulating policy recommendations, this was misunderstood. Only after extensive research conclusions may lead to policy recommendations but we are still far from that moment.

However, we believe that in order to actually draw some conclusions on the use of such technologies in public procurement, scholars should delve in more depth into the topic, by critically assessing the current literature in the field and trying to have an interdisciplinary (legal, technological and managerial) look at the topic. As of now, the literature is too theoretical.

In other words, in our opinion, the exclusive tech-centered approach that you suggest would be equally harmful as an exclusively legal one.

Thank you for this chance of a constructive dialogue, we are looking forward to future exchange on the topic.