Revisiting the Fosen-Linjen Saga on threshold for procurement damages

I had the honour of being invited to contribute to a future publication to celebrate the EFTA Court’s 30th Anniversary in 2024. I was asked to revisit the Fosen-Linjen Saga on the EFTA Court’s interpretation of the threshold for liability in damages arising from breaches of EU/EEA procurement law.

The abstract of my chapter is as follows:

The 2017-2019 Fosen-Linjen Saga saw the EFTA Court issue diametrically opposed views on the threshold for damages liability arising from breaches of EEA/EU public procurement law. Despite the arguably clear position under EU law following the European Court of Justice’s 2010 Judgment in Spijker—ie that liability in damages under the Remedies Directive only arises when the breach is ‘sufficiently serious’—Fosen-Linjen I stated that a ‘simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority’. Such an approach would have created divergence between EEA and EU procurement law and generated undesired effects on the administration of procurement procedures and excessive litigation. Moreover, Fosen-Linjen I showed significant internal and external inconsistencies, which rendered it an unsafe interpretation of the existing rules, tainted by judicial activism on the part of the EFTA Court under its then current composition. Taking the opportunity of a rare second referral, and under a different Court composition, Fosen-Linjen II U-turned and stated that the Remedies Directive ‘does not require that any breach of the rules governing public procurement in itself is sufficient to award damages’. This realigned EEA law with EU law in compliance with the uniform interpretation goal to foster legal homogeneity. This chapter revisits the Fosen-Linjen Saga and offers additional reflections on its implications, especially for a long-overdue review of the Remedies Directive.

The full chapter is available as: A Sanchez-Graells, ‘The Fosen-Linjen Saga: not so simple after all?’ in The EFTA Court and the EEA: 30 Years On (Oxford, Hart Publishing, forthcoming): https://ssrn.com/abstract=4388938.

Wishful legal analysis as a trade strategy? A rebuttal to the Minister for International Trade

In the context of the Parliamentary scrutiny of the procurement chapters of the UK’s Free Trade Agreements with Australia and New Zealand, I submitted several pieces of written evidence, which I then gathered together and reformulated in A Sanchez-Graells, ‘The Growing Thicket of Multi-Layered Procurement Liberalisation between WTO GPA Parties, as Evidenced in Post-Brexit UK’ (2022) 49(3) Legal Issues of Economic Integration 247–268. I was also invited to submit oral evidence to the Public Bills Comittee for the Trade (Australia and New Zealand) Bill.

In my research, I raised some legal issues on the way the UK-AUS and UK-NZ procurement chapters would interact with the World Trade Agreement Government Procurement Agreement (GPA)—to which UK, AUS and NZ are members—and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—to which the UK seeks accession and both AUS and NZ are members. I also raised issues with the rules on remedies in particular, both in relation to UK-AUS and the CPTPP.

I have now become aware of a letter from the Minister for International Trade, where the UK Government simply dismisses my legal analysis in an unconvicing manner. In this post, I try to rebut their position—although their lack of arguments makes this rather difficult—and stress some of the misunderstandings that the letter evidences. The letter seems to me to reflect a worrying strategy of ‘wishful legal analysis’ that does not bode well for post-Brexit UK trade realignment.

Interaction between the GPA, FTAs and the CPTPP

In my analysis and submissions, I stressed how deviations in the UK’s FTAs from the substantive obligations set in the GPA generate legal uncertainty and potential problems in ‘dual regulation’ situations, where one of the contracting parties (eg the UK) would be under the impossibility of complying at the same time with the obligations resulting from the GPA with tenderers from GPA countries and those arising from the FTAs with AUS or NZ with their tenderers—without either breaching GPA obligations or, what is more likely, ignoring the deviation in the FTAs to ensure GPA compliance. It would also generate issues where compliance with the more demanding standards in the FTAs would be automatically propagated to the benefit of economic operators from other jurisdictions. I also raised how the deviations can generate legal uncertainty and make it more difficult for UK tenderers to ascertain their legal position in AUS and NZ. And I also raised how this situation can get further complicated if the UK accesses CPTPP.

My concerns were discussed in Committee and the Minister had the following to say:

The [GPA] and the [CPTPP] are plurilateral agreements between twenty-one and eleven parties respectively, including in each case Australia and New Zealand. As recognised in Committee, the [GPA] in particular establishes a global baseline for international procurement. Nonetheless, neither prevents its members from entering into bilateral free trade agreements to sit alongside the [GPA] and [CPTPP] while at the same time going further in terms of the procurement commitments between members.

These Agreements with Australia and New Zealand do just that, going beyond both the [GPA] and the [CPTPP] baselines. … Although the texts of the Agreements with Australia and New Zealand are sometimes laid out differently to the way they are in the Agreement on Government Procurement, they in no way dilute or reduce the global baseline established by the [GPA]. (emphases added).

There are two points to note, here. The first one is that the fact that the GPA and the CPTPP allow for bilateral agreements between their parties does not clarify how the overlapping treaties would operate, which is exactly what I analysed. Of note, under the 1969 Vienna Convention on the Law of Treaties (Art 30), when States conclude successive treaties relating to the same subject matter, the most recent treary prevails, and the provisions of the earlier treaty/ies only apply to the extent that they are not incompatible with those of the later treaty.

This is crucial here, especially as the Minister indicates that the UK-AUS and UK-NZ go beyond not only the GPA, but also the CPTPP. This would mean that entering into CPTPP after UK-AUS and UK-NZ—as the UK is currently in train of doing—could negate some of the aspects that go beyond CPTPP in both those FTAs. Moreover, the simple assertion that the FTAs do not dilute the GPA baseline is unconvincing, as detailed analysis shows that there are significant problems with eg the interpretation of the national treatment under the different treaties.

Secondly, the explanation provided does not resolve the practical problems arising from ‘dual regulation’ that I have identified and leaves the question open as to how the obligations under the FTAs will be interpreted and complied with in triangular situations involving tenderers not from AUS or NZ. Either the UK will apply the more demanding obligations—which will then benefit all GPA parties, not only AUS and NZ—or will stick to the GPA baseline in breach of the FTAs. There is no recognition of this issue in the letter.

The Minister also indicated that:

There was also suggestion in Committee that it would be difficult for suppliers in the United Kingdom to navigate the Agreements with Australia and New Zealand, as well as the [CPTPP] in the future. I would like to reassure the Committee that when bidding for United Kingdom procurements, the only system that British suppliers need to concern themselves with is United Kingdom’s procurement regulations. (emphasis added).

The Minister has either not understood the situation, or is seeking to obscure the analysis here. The concerns about legal uncertainty do not relate to UK businesses tendering for contracts in the UK, but to UK businesses tendering for contracts in AUS or NZ—which are the ones that would be seeking to benefit from the trade liberalisation pursued by those FTAs. Nothing in the Minister’s letter addresses this issue.

Domestic review rights under the Australian procurement chapter

One of the specific deviations from the GPA baseline that I identified in my research concerns the exclusion of access to remedies on grounds of public interest. While the GPA only allows excluding interim measures on such grounds, the AUS-UK FTA and CPTPP seem to allow for public interest to also bar access to remedies such as compensation—and, if this does not limit access to remedies as I submit, at least it does cause legal uncertainty in that respect.

My submission is met with the following response by the Minister [the mentioned annex is reproduced at the end of this post]:

The Committee also considered the evidence raised by Professor Sánchez-Graells regarding domestic review procedures … The Government respectfully disagrees with the analysis presented at that session that a provision in the government procurement chapter of the [UK-AUS FTA] ‘allows for the exclusion of legal remedies completely on the basis of public interest’.

The public interest exclusion only applies to temporary measures put in place to ensure aggrieved suppliers may continue to participate in a procurement.

…

The Government also respectfully disagrees with the suggestion in the witness evidence that this public interest exclusion is not similarly reflected in the [GPA] or the [UK-NZ FTA]. The Government acknowledges that the specific position of the exclusion differs between these agreements and is closer to the approach adopted in the [CPTPP]. Nonetheless, the Government do not consider this alters the legal effect or gives rise to legal uncertainty. For the benefit of the Committee, the relevant provisions from each of the [FTAs], the [GPA] and the [CPTPP] are set out in an annex to this letter.

The Minister’s explanations are not supported by any arguments. There is no reasoning to explain why the order of the clauses and subclauses in the relevant provisions does not alter their legal interpretation or effects. There is also no justification whatsoever for the opinion that textual differences do not give rise to legal uncertainty. The Government seems to think that it can simply wish the legal issues away.

The table included in the annex to the letter (below) is revealing of the precise issue that raises legal uncertainty and, potentially, a restriction on access to remedies other than interim measures beyond the GPA (and thus, in breach thereof). Why would treaties that seem to replicate the same rules draft them differently? How can any legal interpreter be of the opinion that the positioning of the exception clause does not have an effect on the interpretation of its scope of application? Is the fact that these agreements post-date the GPA and still deviate from it not of legal relevance?

Of course, there are arguments that could be made to counter my analysis. They could eg focus on the use of different (undefined) terms in different sub-clauses (such as ‘measures’ and ‘corrective action’). They could also focus on any preparatory works to the treaties (especially the CPTPP and UK-AUS FTA, which I have not yet been able to locate). They could even be more creative and attempt functional or customary interpretation arguments. But the letter contains no arguments at all.

Conclusion

It is a sad state of affairs where detailed legal analysis—whether correct or not—is dismissed without offering any arguments to the contrary and simply seeking to leverage the ‘authority’ of a Minister or Department. If this is the generalised approach to assessing the legal implications of the trade agreements negotiated (at speed) by the UK post-Brexit, it does not bode well for the legal certainty required to promote international investments and commercial activities.

The reassurances in the letter are void of any weight, in my view. I can only hope that the Committee is not persuaded by the empty explanations contained in the letter either.

What's in a consultation? -- comments on the UK Government's Transforming Public Procurement response

On 6 December 2021, almost a year after launching the public consultation on Transforming Public Procurement in the UK post-Brexit, the Cabinet Office published its long-awaited Government response (the response). This now moves the process of reform of the UK procurement rulebook to the pre-legislative stage, with a Procurement Bill expected to be introduced in Parliament in the relatively near future and changes entering into force not earlier than 2023 — and, in any case, with a planned six months’ notice of “go-live”, once the legislation has been concluded.

The response has been published a few months later than initially expected (due to the high level of interest it attracted, see below) and legislation is likely to be introduced to Parliament with a significant delay as well. The legislative reform process is unlikely to generate practical results much earlier than 2024. This can only be an indication (if any was needed) of the complexity and the difficulty of significantly changing the procurement rulebook, which the consultation and now the response largely gloss over. For comparison, it is worth recalling that the process of reform of the EU procurement rules spanned a period of roughly three years (2011-2014), which the UK’s reform (despite not requiring complex inter-governmental and inter-institutional discussions and negotiations, or does it?) is unlikely to beat by much.

The response is meant to reflect on the 629 (unpublished) submissions to the public consultation and, in itself, the way the analysis of the responses has been carried out deserves some comment. The content of the response, perhaps less so, as it largely leaves the proposals unchanged and is thus liable to the same criticisms the original proposals attracted (in addition to my own comments here, here and here, see eg those of Pedro Telles, or the Local Government Association).

Consultation process: all submissions are equal, or are they?

Shortly after the response was published, it became apparent that the Cabinet Office had dealt with the feedback it received in the same ‘consultation by numbers’ approach that has characterised recent consultations on the reform of other aspects of UK procurement regulation, such as the rules applicable to the commissioning of healthcare services for the English National Health Service (NHS, see comment here) that seek to implement the NHS Long-Term Plan. This is not unique to the UK and, in fact, EU-level consultations on procurement reform broadly followed the same method.

Under this approach, the response provides limited or no engagement with specific submissions or arguments, and simply discloses statistical information on the level of support for each of the different parts of the consultation (as per the government’s own coding of the responses, that is). As the response makes explicit, ‘Throughout this document ‘[clear] majority’ means more than [70%] 50% of respondents, ‘about half’ means 50% ± a few percentage points, ‘some’ means 30-50%, ‘a few’ means 10-30% and ‘a small number’ means less than 10%’ (page 10, fn 1).

This is far from unproblematic, given the diversity of backgrounds and positions of those making submissions to the public consultation. While this was half-jokingly but well encapsulated by Peter Smith on twitter (see image), it is a serious flaw in the approach to public consultations for two reasons. The first and rather obvious is that not all submissions should carry the same weight because the institution or person making the submission and their expertise (own agenda, etc) matter, especially in fields of technical regulation where there is limited scope for canvassing general support for policy direction and the consultation is rather focused on complex legislative changes. While such a ‘referendum-like’ approach to public consultation may suit yes/no policy questions (eg should the UK de-legalise a specific substance?), it can hardly work for more complex proposals. If nothing else, the limited suitability of the approach is implicitly recognised in the response and its frequent indication that a significant number of submissions stressed the need for much more detail on the proposals before passing judgement on them.

The second problem is that such a bunching of responses and presentation of proposals as being supported by the majority can make the relevance of the changes introduced in view of the ‘minority’ opinion of respondents difficult to understand, as well as hide the origin of those changes. This is important from the perspective of accountability in the policy formulation process, but also more prosaically in terms of crediting good ideas and suggestions where credit is due.

Taking Q1 on principles of procurement as an example, the response indicates that ‘a clear majority of respondents (92% of the 477 responses to this question) were in favour of the principles [of public procurement: the public good, value for money, transparency, integrity, fair treatment of suppliers and non-discrimination]’ (at [28]). The rest of the summary of submissions indicates some concerns with the removal of proportionality (20%), and some issues around labelling of the principle of ‘fair treatment’, or how they can be implemented in practice. There is no reference to calls for maintaining the principle of competition, which were quite forcefully made by the Competition and Markets Authority (CMA), or myself if I can say so.

Given that the criticism of an absence of a competition principle is not reflected in the summary of submissions, it is probably difficult to understand (for anyone not having made that point themselves, or having read the very few submissions that are publicly available) why, in the response — seemingly out of the blue — the government indicates that ‘We will introduce an additional objective of promoting the importance of open and fair competition that will draw together a number of different threads in the Green Paper that encourage competitive procurement’ (at [39]). It is also unclear whether this will be narrowly understood as an anti-collusion goal/principle seeking to focus contracting authorities’ attention in the reduction of the risk of illegal bid-rigging cartels, as proposed by the CMA (at [3.3]), or a broader goal/principle in line with my own proposals (at pp 11-12) (or someone else’s).

Of course, it would be difficult and tedious (and probably not very useful) to provide a comprehensive discussion of all submissions received, but the response should be expected to provide much better reasons for changes on the initial proposals, as well as some traceability of the origin of those counter-proposals. In their absence, it is difficult to assess whether the changes are properly justified, or rather reflect some sort of ‘mob rule’ (where a ‘majority’ supported the change) or, conversely, an instance of regulatory capture by a special interest (where a change is untraceable, but likely to have originated from a (super)minority, or perhaps a single or limited number of submissions).

In any case, the response makes it clear that there are limited changes resulting from the public consultation process and that the Procurement Bill will be largely based on the initial consultation proposals. The rest of this post highlights some of the (few) notable changes.

What will change after the consultation?

It would take long to stress what has not changed in the Cabinet Office’s approach to procurement reform after the public consultation, but a couple of unchanged elements of the overall strategy merit some highlight.

The first one is the continuation of the claim that the process will simplify the procurement regulatory framework, while it is clear that this is not a true simplification exercise, but rather one of legislative offloading that will complicate enforcement. This is, in my view, obvious in the response’s proposed next steps, which include the ‘plan to produce a detailed and comprehensive package of published resources (statutory and non-statutory guidance on the key elements of the regulatory framework, templates, model procedures and case studies)’ (at [24]). Post-reform, procurement practitioners will have to fully understand not only the new legislation (primary and secondary), but also the entirety of that ‘comprehensive package’ and the interaction between the different documents. This is not a scenario I would be looking forward to if I hoped for a simpler rulebook post-reform.

The second one is the continued lack of commitment of funding for the training programme (and additional recruitment?) required to deliver the gains expected of the reform. The response continues to indicate that ‘subject to future funding decisions, we intend to roll out a programme of learning and development to meet the varying needs of stakeholders’ (at [24]). This perpetuates the uncertainty on whether the rollout of the new regulatory package will be properly supported and it is difficult to understand why the commitment to fully fund this transformation programme has not yet been made (not even at a political level, unless I missed something). Given the state of UK finances in the foreseeable future, this is a major implementation risk that should have required a different approach.

Moving on to the changes in the original proposals, the following is a non-exhaustive list of the primary changes and some short comments relating to a few of them.

• The response announces the introduction of a distinction between objectives and principles of procurement, ‘so that the obligations on contracting authorities are clearer’ (at [34]). Further, some ‘other concepts set out in the Green Paper will be established as statutory “objectives”, ensuring that they will influence decision-making in the procurement process. With some limited exceptions these objectives will apply throughout the procurement lifecycle (at [38]).
  Quite how this will provide clarity is anybody’s guess, or at least it escapes me (and it has since 2009, as I already struggled with distinguishing between a goal and a principle of competition in my PhD thesis…).
  It is also not clear which will be the statutory objectives, but it seems that ‘public good’ (framed as maximising ‘public benefit’), ‘value for money’ and ‘integrity’ will be statutory objectives (at [40]). This would leave the principles of transparency, fair treatment of suppliers and non-discrimination as the only procurement principles (stricto sensu) and would, in the end, solely imply a repeal of the principle of proportionality (or, rather, its relabelling as ‘fair treatment’), largely neutralised (confusingly) by an atomisation of proportionality requirements throughout the new regulations (at [42], eg in relation to award criteria at [128]). It is hard to see much of a (substantive) change compared to the current regulation of procurement principles in reg.18 PCR2015. Plus ça change …

• Introduction of ‘an additional objective of promoting the importance of open and fair competition’ (at [39]). This is a welcome development, but the devil will be in the detail (see above).

• Revision of the proposal for the creation of a new Procurement Review Unit (PRU) (at [46]), supported by a non-statutory panel of subject-matter experts (at [49], and see also [61-3]), tasked with delivering the same service as the Public Procurement Review Service (at [47]) but with a main focus on ‘on addressing systemic or institutional breaches of the procurement regulations’ (at [48]). Legislation will provide the PRU with new powers (at [52]). PRU will be able to issue mandatory recommendations to address legal compliance (at [53-4]), but not in relation to specific procurement decisions (at [53], ie it will not act as a review body). PRU will also be able to issue statutory guidance if it identifies common patterns of non-compliance (at [56]).

• The response maintains the goal of creating a single rulebook combining the existing four sets of regulations, but there will be exceptions for utilities (see also [78-85]), defence & security procurement (see also [87-91]), and a completely separate regime for healthcare services commissioning (at [69-72]). There will also be some specific rules concerning concessions (at [86]).
  The extent to which there will be a single rulebook other than in name will depend on the scope and number of such special rules, but I have my doubts that there will be much of a practical change other than (harmless) duplication of (mostly identical) provisions across the existing sets of regulations.

• The response proposes to abandon the regulation of a new regime of ‘crisis procurement’ and to instead ‘include a limited tendering ground, in the form of a new power for a Minister of the Crown (via statutory instrument) to “declare when action is necessary to protect life” and allow contracting authorities to procure within specific parameters without having to meet all the tests of the current extreme urgency ground’. This would be based on Article III of the WTO Agreement on Government Procurement (GPA) and only be used extremely rarely and subject to parliamentary scrutiny (at [102]).

• Re-introduction, with some (unspecified) modifications of the light-touch regime for social and special services, including the possibility to exempt from competition those services where service user choice is important (at [118-121]).
  Here, the response seems to fail to recognise that user-choice systems are not covered by the PCR2015 (as interpreted in line with CJEU case law such as Falk Pharma and Tirkkonen).

• Creation of a new exclusions framework going beyond the more limited original proposals (at [151-8]), including abandoning the proposal to include Deferred Prosecution Agreements (DPAs) as discretionary exclusion grounds (at [161-165]).
  Much detail is still to be published in the draft Procurement Bill and secondary legislation, guidance, etc, but the retention of the distinction between mandatory and discretionary exclusion grounds, as well as the classification of some of them (eg ‘risk to national security’ being a discretionary ground) raise quite a few questions. If a complete overhaul of the system is planned, would it not be better to have a single category of exclusion grounds and a clear set of requirements for their disapplication (eg due to self-cleaning, or in the public interest)? Here, it seems that UK policymakers have been unable to break away of the EU legislative design, even in an area where there are clear practical problems in the EU Directives.

• The response proposes to retain the creation of a DPS+ mechanism, but relabelling it as Dynamic Market, which will be available not only for common purchases, but for all types of procurement (at 198-203]).

• The response proposes some limited changes to the transparency requirements included in the original consultation (at [220-8]), including: not requiring disclosure of tenders submitted in a procurement (at [221], a good development); introducing a value threshold of £2 million for the requirement to publish redacted contract documents (at [222], which however means that large parts of eg services procurement could remain below the threshold. Should transparency thresholds relative to coverage thresholds be considered instead?); introducing a restricted disclosure of evaluation documents implying ‘sharing with all participants certain redacted evaluation documents (on the winning bid only) and sending the unsuccessful bidders their own documents privately’ (at [223], also a welcome development, but one that makes the changes regarding debriefing letters rather unclear, see [263-6]); and changes to some of the proposed transparency notices, in particular concerning beneficial ownership (at [224]).

• The response abandons the process of independent contracting authority review proposed in addition to the review system (at [241-2]).

• The proposal abandons the possibility of using an existing tribunal to deal with low value claims and issues relating to ongoing competitions (at 246-7]).
  This is perhaps one of the most regrettable changes in the response, as the creation of a review tribunal (not in the terms of the original proposal, but still) is very much needed, especially in a context of more regulatory complexity and increased discretion.

• Significant changes in remedies, including abandoning specific proposals on pre-contractual remedies (at [249}), and abandoning the cap on the level of damages available to aggrieved bidders (at [254-5]), as well as the proposal to cap profits on contract extensions where the incumbent supplier challenges a new contract award (at [294-5]). However, the proposed new test concerning lifting of automatic suspensions remains on the table (at [251-2]).

• Increased scope for the (de)regulation of contract modifications, including specific rules for the modification of complex contracts (at [281]), flexibility for uncapped modifications in utilities contracts (at [282]), and minimisation of constraints in the modification of defence & security contracts (at 283]).

Final thoughts

In my view, the outcome of the consultation is mostly unsatisfactory in its limited effect on the initial proposals (other than some very high level issues regarding the principles of the system), its introduction of further sources of complexity through an increased number of exceptions (eg for utilities and defence), but also for social and special services, and its abandonment of the few procedural and remedy-related innovations (ie the creation of a new tribunal) that could have made a practical difference.

Linked to the criticism of the way in which the consultation was carried out (above), it seems like a significant number of these changes could be the result of regulatory capture by specific groups (utilities, MOD, third sector providers of care services) and the reasons for abandoning proposed changes are not always very clear.

All in all, however, the post-consultation Transforming Public Procurement agenda remains largely intact and, as above, liable of the same criticism already raised in relation to the original proposals. Not much more can be said until a Procurement Bill is made public and, then, it will be interesting to see to which extent it can survive the legislative process without suffering a Frankenstein-like deformation in the hands of special interest groups and other agents with specific agendas. The seeming ease with which some interest-specific changes have cropped up after the consultation does not, in my view, bode well for the new UK procurement rulebook.

An early winter present? The UK's 'Transforming public procurement' green paper

The UK Government has published today its green paper on ‘Transforming public procurement’. This is a much awaited publication that will be subjected to public consultation until 10 March 2021. Contributions are encouraged, as this is perhaps a one in a generation opportunity to influence procurement rules. In this blog post, I just aim to provide a hot take on the green paper.

The green paper presents a vision for post-Brexit reform of the UK procurement ‘rule-book’ (for there should be a new, consolidated one), that partially aligns with the proposals of Prof Arrowsmith (see here and here)—and, in fact, Prof Arrowsmith has already published a comparison between her proposals and the green paper (here).

I have just had a read through the green paper and there will be plenty to comment in a submission to the public consultation (stay tuned towards the end of the consultation period). For now, I just have a few observations or rather, general thoughts, that I will need to mull over.

In very many respects, the green paper is is an indictment of the copy-out approach to the transposition of the EU rules in the UK (on which see here). For example, many of the reform proposals are compatible with the current EU rules and relate to areas where the UK decided not to transpose discretionary mechanisms (eg around subcontractor pay). Similarly, most of the proposals on remedies and enforcement mechanisms would be compatible with the current remedies rules. Other proposals seek to create some flexibility beyond the existing EU constraints although, to be fair, most of those are subjected to exceptional circumstances to be regulated by ‘clear regulatory frameworks’ yet to be defined, and which workability raises a few questions.

Other reform proposals concern the (past) unwillingness to impose more demanding standards (eg on publication of transparency) than those mandated by the Directives on grounds of avoiding gold-plating, which now seems to be gone—or the unwillingness or inability to impose obligations to which the UK Government had committed (eg in terms of OCDS or, again, concerning the publication of information). In that regard, the vision behind the green paper seems to be willing to create a much more developed (or far-reaching) regulatory architecture for procurement, which would be welcome.

However, this is directly in tension with another of the driving forces underpinning the green paper’s vision: deregulation and the will to create spaces for the exercise of ‘commercial judgement’ at contracting authority level. This creates a dual tension. On the one hand, the more sophisticated architecture would rely on bare bones procedural rules and would ultimately impose high transaction costs on both contracting authorities and tenderers (which the green paper acknowledges, but dismisses as ‘bedding in problems’). This could be a high-powered incentive to rely on centralised procurement organised by central purchasing bodies, although there is no clarity on the strategic approach to this in the green paper. On the other hand, relatedly, it should be noted that (if read between the lines?) the green paper is also an indictment on the current status of the commercial capacity of (most of the) UK’s public sector, as there are constant calls for more training, upskilling and quality control in the functioning of the procurement function.

This creates a chicken and egg problem on the suitability of the deregulatory approach to reforming the rules to create more commercial space. Most of the proposals are advanced on the (implicit empirical) basis that the flexibility of the existing framework is insufficient (or, rather, insufficiently exploited). This should raise a few questions on whether seriously committing to increase commercial capability and training investment would not suffice. Additionally, if we are starting at a low level of commercial capability, it would seem that creating a more deregulated framework will require even higher (ie beyond catch-up) investment in commercial upskilling. Whether the two moves should take place at the same time should be thought-trough (not least because it will be difficult to train anyone on a new system, on which there will be limited, if any, amount of reliable trainers).

In quite a few other respects, the green paper seems premised on the existence of large regulatory divergences between the GPA and the EU regime (on which see here). While this is the case in some areas, such as remedies, in most other areas the space between both regulatory baselines is narrower than the green paper would suggest, and the scope for reform is limited. This is most evident in the relabelling of procedures or award criteria, which effectively seem to seek to mask the narrowness of the regulatory space (if you cannot really change something, at least call it something different).

I am also surprised at the apparent EU-obsession underlying the green paper, which is also largely a criticism of the current EU rules (as directly copied into UK law, see above), and the complete lack of reference to useful tools for the design of a procurement system, such as the UNCITRAL Model Law and its guide to enactment. It may not have been a bad idea to seek to rely on that sort of guidelines to a larger extent, at least if the new regime is to draw on tested solutions. However, much of the green paper seems to want to achieve an ‘EU+’ level of procurement regulation (notoriously, in the regulation of a new so-called DPS+ commercial vehicle) or, perhaps, to create the next ‘world leading’ system of procurement (which would not be totally disaligned with other approaches of the current UK Government). Whether this will be a successful strategy remains to be seen.

Finally, there are a few strange elements in the green paper, which may be the result of current times (such as the extensive focus on the creation of new rules for crisis procurement), or a reflection of the particular interests of some of the actors involved in driving the reform forward (such as the explicit recognition of the possibility to charge suppliers fees for their participation in commercial vehicles, such as the proposed new DPS+, which seems to be of strategic importance to central purchasing bodies).

All in all, there is plenty to reflect upon. So this may be a good note on which to close the ‘procurement year’. I hope all readers will have a good winter break and to see you back here after the (long) hiatus, as I disappear into the horizon on my period of shared parental leave. All the best!

A note on Reg 73 of the Public Contracts Regulations (and by extension Art 73 of the EU Public Procurement Directive) [Guest post* by Dr Aris Christidis]

In this guest post, Dr Aris Christidis follows up on the issue of termination of contracts where the contracting authority has exceeded the limits of permissible contract modifications under Article 72 of Directive 2014/24/EU, focusing in particular on the shortcomings of Art 73 thereof and its transposition in the UK through reg.73 Public Contracts Regulations 2015.

A note on Regulation 73 of the Public Contracts Regulations (and by extension Article 73 of the EU Public Procurement Directive)

In this earlier post about the alleged unlawfulness of the NHSX contract modification, Albert argued that ‘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’.

I want to pick up on this point and provide some thoughts on the scope of Regulation 73 and by extension on Article 73 of the EU Public Procurement Directives.

Let me start by examining the position under the EU Directives. The 2014 directives have included a provision (Art 73 of Dir 2014/24/EU and the equivalent of Art 90 of Dir 2014/25/EU and Art 44 of Dir 2014/23/EU) which requires the Member States to empower their contracting authorities, under their national laws with the option of unilaterally terminating a contract during its term at least under the following three situations:

(a) the contract has been subject to a substantial modification, which would have required a new procurement procedure pursuant to Article 72;

(b) the contractor has, at the time of contract award, been in one of the situations referred to in Article 57(1) and should therefore have been excluded from the procurement procedure;

(c) the contract should not have been awarded to the contractor in view of a serious infringement of the obligations under the Treaties and this Directive that has been declared by the Court of Justice of the European Union in a procedure pursuant to Article 258 TFEU.

While such a remedial measure is in the right direction because it allows contracting authorities to correct their violations after a contract comes into effect, it does not address various issues on how this remedy is supposed to operate. These issues are to be determined solely by national laws.

Also, it is not clear why the only option for contracting authorities is to terminate a contract, instead of providing other remedial alternatives such as the shortening of the duration of the contract—similarly with the ineffectiveness remedy.

Surely, even if contracting authorities are under an obligation to terminate a contract, this should not be automatic. Public interest considerations such as the urgency of executing the contract should be carefully considered before any decision to prematurely discharge such a contract is made.

Finally, the EU legislator does not explain convincingly the rationale behind the reason why in the aforementioned violations the contracting authorities should have the right (rather than the obligation – see next section) to terminate an existing contract and why other violations should not necessarily constitute reasons to terminate an existing contract (e.g. finding of conflict of interest or direct awards).

Does Article 73 impose a positive obligation?

Undoubtedly, Article 73 (c) - unlike the other two– has a mandatory effect. This is because it concerns a violation that has been declared under Article 258 TFEU, which Member States must comply with under Article 260 TFEU.

The purpose of this provision seems to be to ensure that a duty of a Member State to terminate a contract is fulfilled as quickly as possible and avoid any possible cumbersome procedural issues that may be imposed under national law.

An issue that requires some consideration is what amounts to a ‘serious infringement’ that may lead to an obligation to terminate a contract (interestingly, the proposal for the 2014 directive (COM (2011) 896) did not refer to the wording ‘serious infringement’ rather it stated: ‘…a Member State has failed to fulfil its obligation under the Treaties…’).

Following the ruling of the CJEU in Waste (C-503/04), which concerned a decision under Article 258 TFEU, a ‘serious infringement’ will constitute any violation that restricts the fundamental freedoms of the internal market, in that case, the fact that an unlawful direct award had the effect of restricting other economic operators from providing the particular service. 

It is submitted that serious breach may constitute any violation that influences the outcome of competition and that termination of an existing contract seems relevant, inter alia, in the following situations: when a tender should have been excluded because of prior involvement of candidates in the submission of bids, when a conflict of interest is found or when a tender should have been rejected because it did not comply with tender conditions.

What seems to be certain is that a ‘serious infringement’ would most probably be regarded by the CJEU as any violation of the other two explicit reasons for termination as provided in the Article at hand - namely, violations with regards to the modification of contracts (see case C-601/10 Commission v Hellenic Republic available in French and Greek) and the entering to a contract with a provider who should have been disqualified from the awarding process.

This argument, in turn, raises the concern on whether the provisions of Article 73 are facultative or in effect contracting authorities are under an obligation to terminate a contract when the prescribed violations take place. In other words, whether EU law raises a positive obligation for contracting authorities.

On the one hand, the wording of this Article is clear: ‘Member States shall ensure that contracting authorities have the possibility… under the conditions determined by the applicable national law, to terminate a public contract during its term…’ (emphasis added).

On the other hand, this wording does not align with the rationale behind the adoption of this measure. According to Recital 112, ‘contracting authorities are sometimes faced with circumstances that require the early termination of public contracts in order to comply with obligations under EU law in the field of public procurement’ (emphasis added).

I lean towards the more formalistic interpretation, that is, there is no positive obligation. In my view, the Directive is not sufficiently clear on this and, as discussed below, the UK has not made termination a requirement but rather an option for the contracting authorities.

The implementation in the UK

Regulation 73 of the Public Contract Regulations 2015 (PCR) has transposed the EU law requirement of empowering contracting authorities to terminate an existing contract. Regulation 73 did not opt to include other violations that could give the right to a contracting authority to terminate an existing contract.

Two things should be noted about this unilateral power. The first is that Regulation 73(1) makes it clear that it is up to the discretion of a contracting authority to terminate a contract or not. It specifically states that ‘…contracting authorities shall ensure that every public contract which they award contains provisions enabling the contracting authority to terminate the contract where…’ (emphasis added; see for example the Model Contract for Services by the Government Legal Department at clause 33). Therefore, contracting authorities can simply refrain from exercising such power even if the relevant violations have taken place.

The second is that Regulation 73(3) clarifies that when provisions for termination are not provided within the terms of the contract, such power shall be an implied term of the contract. In other words, Regulation 73 overrides the absence of express contractual terms by providing a statutory basis for such unilateral power to be exercised.

In my view, Regulation 73 has little practical effect. In principle, it is a very good idea to empower contracting authorities to unilaterally terminate a contract. They are, indeed, in the best position to correct any unlawful acts especially when these are unintentional. Also, the disposal of such power minimises the possibility of litigation by third parties and ensures that any violations are remedied with minimum costs and in the public interest.

However, the way Article 73 was implemented in the UK shows the problematic design of this measure. There is nothing to compel contracting authorities to terminate an existing contract even if, on the face of it, they have violated the relevant rules. To require compliance, you need some form of external enforcement or recommendation. Otherwise, who is to determine whether the prescribed rules have been violated or not and who may induce a contracting authority to terminate a contract?

The only way for the government to be compelled to terminate a contract which is the result of unlawful modification or other serious infringement is if the Commission brought a case before the CJEU under Article 258 TFEU. In the current, COVID-19, and Brexit environment, I very much doubt that this will happen.

What if the government decides to terminate a contract under Regulation 73?

A final issue that perhaps requires some attention, is how are consequential matters between parties treated where the government decides to terminate the contract based on Regulation 73.

The first point to note is that Article 73 Directive 2014/24/EU does not give any indication as to how such consequential matters are to be regulated by the Member States and this is another problematic aspect of the design of this provision at the EU level.

Indeed, if the purpose of this remedial measure is to correct violations by returning a contract to the status quo ante then surely any compensation to the contractor due to early termination should be reasonable and proportionate.

Therefore, any form of redress must in principle be based on restitution, that is, a contractor must not be able to recover anything further that the value of what has been performed and has benefited the contracting authority.

The Commission had indicated that this is a requirement for the ineffectiveness remedy. In particular, Recital 21 of the Remedies Directive states that the objective to be achieved where the Member States lay down the rules which ensure ‘that the rights and obligations of the parties under the contract should cease to be enforced and performed’.

It goes on to say that ‘the consequences concerning the possible recovery of any sums which may have been paid, as well as all other forms of possible restitution, including restitution in value where restitution in kind is not possible, are to be determined by national law’. Similar careful thinking and considerations were not given for Article 73.

In the content of the PCR, Regulation 73(2) provides that consequential matters in case of termination should be regulated by express contractual provisions. Hence, the provisions of a contract itself will stipulate how these matters are to be regulated between parties and not some contract or administrative law principle.

The Model Contract for Services by the Government Legal Department provides some signs as to how the government will treat consequential matters in case of termination pursuant to Regulation 73. For instance, clause 34.5 (b) provides that in case of termination due to a substantial modification any costs from this termination should lie where they fall. This seems to be an appropriate form of compensation.

Some final thoughts

The current crisis has triggered a conversation about the design of the procurement rules all over the world. Perhaps this is also a good time both for the EU and the UK to think harder as to the scope of the exercise of unilateral termination powers by contracting authorities.

This is an excellent remedial tool. It is less costly and more time-efficient than any other form of enforcement when a contract has been concluded unlawfully. However, various issues need to be considered carefully. The following are some suggestions:

1. Careful consideration of the type of violations that should give rise to termination. Legislators could consider the gravity of the violation and perhaps make a distinction between violations that require termination and violations for which a contracting authority can exercise discretion as to whether to terminate or not.

2. An independent body with powers to compel contracting authorities to terminate or at least make suggestions to consider termination. In the UK, for instance, such power may be exercised by the Public Procurement Review Service which current remit does not allow the exercise such powers.

3. Clear indication as to how consequential matters are treated. As argued above, any compensation in case of unilateral termination due to violation of procurement rules should be based on restitution to align with the purpose of this remedy, which is to restore the public contract market in the status quo ante.

Dr Aris Christidis

Dr Aris Christidis is a Lecturer in Law at Newcastle Law School, which he joined in January 2018. He previously taught at the University of Nottingham, where he completed his PhD in December of 2018 (without corrections). He currently teaches Introduction to Business Law and Contract Law. Aris’ current research lies in public procurement law and the interaction of public with private law in the context of public contracts. His research interests are in comparative law, the law of obligations, public procurement law and in the economic analysis of law.

* Guest blogging at HTCAN: If you would like to contribute a blog post for How to Crack a Nut, please feel free to get in touch at a.sanchez-graells@bristol.ac.uk. Your proposals and contributions will be most warmly welcomed!

Challenges and Opportunities for UK Procurement During and After the Pandemic

On 30 April, I delivered a webinar on “Challenges and Opportunities for UK Procurement During and After the Pandemic” for the LUPC/SUPC Annual Conference. The slides are available via SlideShare and the recording is available via YouTube (below). Feedback most welcome: a.sanchez-graells@bristol.ac.uk.

LUPC/SUPC Conference 2020 30th April - Webinar 1 Challenges and Opportunities for UK Procurement During and After the COVID-19 Crisis Led by: Professor Alber...

The Norwegian Supreme Court Gives its Final Word in the Fosen-Linjen Saga [guest post by Dag Sørlie Lund]

The Fosen-Linjen Saga has finally come to a close with the Norwegian Supreme Court’s Judgment. Dag Sørlie Lund* kindly provides a sharp summary of the case while we await for any official translations. His fuller critical assessment of the Judgment will be included in the EPPPL special issue we are working on.

The Norwegian Supreme Court Gives its
Final Word in the Fosen-Linjen Saga

The so-called Fosen-Linjen Saga has finally come to its long-awaited end by the judgment of the Norwegian Supreme Court of 27 September 2019, more than 6 years after the company AtB tendered for the procurement of ferry services between Brekstad and Valset in the County of Trøndelag.

The contract was initially awarded to the company Norled. The competitor, Fosen-Linjen, which was ranked as the runner-up, claimed Norled had been awarded the contract unlawfully, and managed to stop the signing of the contract through interim measures. In the interim measures procedure two errors were identified by the courts:

1. AtB had not required the necessary documentation for the award criteria “environment”; and

2. AtB had not verified the viability in Norled’s offer regarding fuel consumption (which was part of the criteria “environment”).

As a result of this, AtB decided to cancel the tender procedure, and restart the whole process.

Fosen-Linjen did not submit a new tender, but instead filed a law suit against AtB claiming damages for the positive interest, or, in the alternative, the negative contract interest. The negative contract interests essentially amounts to the costs of tendering (damnum emergens), while the positive contract interest essentially amounts to the loss of profit (lucrum cessans).

The Supreme Court’s judgment clarifies several key questions about public procurement law related to the threshold for damages, and for the requirement of causality between the breach and the damages. Furthermore, the ruling contains interesting assessments of legitimate grounds to cancel a tender procedure, and the significance of the fact that a tenderer submits an offer despite being aware of errors in the procurement documents for the possibility to receive damages. The judgment is unanimous for all but the question of causality for damages for the negative contract interest, where one justice had a concurring opinion with a slightly different approach. For the purposes of this summary, I will not go further into the differences in the concurring opinion.

The Principle of State liability for breaches of EEA Law

The Supreme Court starts out by grounding the liability for damages in the general principle of State liability for breaches of EEA law. According to this principle an EEA State may be held liable for breaches of its obligations where the following three conditions are met:

1. The breached provision of EEA law must be intended to confer rights on individuals and economic operators;

2. The breach must be considered as sufficiently serious; and

3. There must be a direct causal link between the breach of the obligation in question and the damage suffered by the aggrieved party.

The first condition was clearly met, and the case before the Supreme Court thus mainly concerned the question of the threshold for receiving damages and what it takes to establish a direct causal link for damages for negative costs. A particularly disputed question in the Fosen-Linjen Saga, has been whether the threshold for damages for the negative and the positive contract interests is different. Under Norwegian law, it has traditionally been easier to receive compensation for the negative costs than for the positive costs.

The Positive Contract Interest

The Supreme Court rejected Fosen-Linjen’s claim for damages for the positive interest since there were sufficient grounds to cancel the tender procedure. In fact, there were two grounds for cancelling the procedure.

First, the Supreme Court considered that the identification of the two errors in the interim measures proceedings raised serious doubts about the lawfulness of the procedure. These doubts were considered as sufficient grounds to cancel the tender procedure.

Second, it was also considered that the fact that AtB did not require the necessary documentation for the award criteria “environment”, also constituted sufficient grounds to cancel.

Consequently, the Supreme Court concluded that since the cancellation was lawful, Fosen-Linjen could not receive damages for the positive contract interest. This part of the judgment is somewhat confusing, since it appears to consider the question of causality rather than the question of whether the breach was sufficiently serious: since the tender procedure was lawfully cancelled, no one could ever be awarded the contract, and thus no one would ever have a claim for the loss of profit.

This is particularly confusing since the Appeals Selection Committee of the Supreme Court had explicitly rejected the question of causality for the positive contract interest from being heard by the Supreme Court. This is all the more puzzling since the Supreme Court appears to have been aware of this distinction, noting that the cancellation did not exclude the possibility for damages for the negative contract interest, which shows that the question of liability was not conceptually excluded by the fact of the cancellation.

The Negative Contract Interest

As mentioned, the traditional approach in Norwegian torts law is that the threshold is lower when it comes to damages for the negative costs.

Based on its reading of case law from the CJEU and the EFTA Court, the Supreme Court held, however, that the test for receiving damages, regardless of the categorization of the damages as negative or positive costs, is whether the breach in question may be considered “sufficiently serious”. The Supreme Court outright rejected the suggestion that the threshold might be lower under Norwegian tort law.

In the assessment of whether a breach is sufficiently serious, the Supreme Court noted that it may not be required to demonstrate fault or fraud, although both subjective and objective factors included in the traditional assessment of liability under national tort law, may be relevant to take into account.

Same same, but different

Despite this description of the test for receiving damages, the Supreme Court emphasized that the norm could not be characterized as more or less strict than would otherwise follow from Norwegian tort law, but that the assessment may be somewhat different.

The Supreme Court identified the norm as a sliding scale where the crucial point appears to be the level of discretion enjoyed by the contracting authority – from wide to none at all.

The rule that was breached in the tender procedure – namely the obligation to require necessary documentation for an award criterion – was found to be clear and precise. Accordingly, the Supreme Court found that AtB was liable for the negative costs. In that regard, it was pointed out that AtB twice received questions that raised doubts as to the lawfulness of the award criteria, which combined with the consequences caused by the breach, led to the conclusion that the threshold of “sufficiently serious” was passed.

It’s worth noting that despite the fact that the Supreme Court rejected that a contracting authority might escape liability by claiming not to possess the necessary powers, knowledge, means or resources, it still considered the complexity of the public procurement rules indicated a certain restraint or caution in establishing liability.

Direct Causal Link

Concerning the question of a direct causal link between the breach and the damage, the Supreme Court asked whether the tenderer would have submitted an offer if they had known about the error committed.

Even though the fact that AtB had not required the necessary documentation for the award criteria “environment” was clearly visible for Fosen-Linjen, the Supreme Court considered that this criterion was met since AtB had considered the procurement documents to be lawful despite the fact that the error had been pointed out twice during the tendering procedure. This part of the judgment is also confusing, as it is not entirely clear why the subjective view of the contract authority is relevant when assessing the question of causality.

Unanswered questions

The Supreme Court thus disentangled many key questions about liability for breaches of procurement rules, but some issues remain unanswered. For example, the Supreme Court did not rule on the question of whether liability is conceptually possible where the tendering process should have been cancelled, but this doesn’t happen. Furthermore, as mentioned above, the question regarding direct causal link for damages for the positive interest was not accepted to be heard by the Supreme Court, so the particularities of that assessment was not further clarified. Considering the attention these questions have received through the Fosen-Linjen Saga, it is probably only a matter of time before these will materialize themselves in future cases, with new sagas in national courts and in Luxembourg.

Dag Sørlie Lund

Dag Sørlie Lund is part of our European and Competition law team. He has previously worked at the Department of Legal Affairs in the Ministry of Foreign Affairs, the EFTA Court, the EFTA Surveillance Authority (ESA), and as an attorney. He has experience in advising clients in EU/EEA and competition law, including state aid and public procurement law.

Dag has handled a number of cases concerning the EFTA Surveillance Authority, and has pleaded several cases before the Court of Justice for the European Union and the EFTA Court. Dag has lived in Spain, Belgium and Luxembourg, and speaks Spanish and English fluently.

EFTA Court reverses position on liability threshold for procurement damages (Fosen-Linjen II, E-7/18)

In its Judgment of 1 August 2019 in Fosen-Linjen AS, supported by Næringslivets Hovedorganisasjon (NHO) v AtB AS (E-7/18, Fosen-Linjen II), the EFTA Court has remarkably reversed its earlier position on the liability threshold for procurement damages claims, which it had previously established in its Judgment of 31 October 2017 in (E-16/16, Fosen-Linjen I ).

I had strongly criticised the original Fosen-Linjen I Judgment in this blog (here and here), at a seminar at the University of Bergen and, in extended detail, in A Sanchez-Graells, ‘You Can’t Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law After the EFTA Court’s Fosen-Linjen Opinion' (2018) 1(1) Nordic Journal of European Law 1-23.

Therefore, I am truly glad to see this outcome of the Norwegian Supreme Court’s (creative) referral of the case to the EFTA Court for a second opinion.

It will be recalled that, in Fosen-Linjen I, the EFTA Court controversially found that

A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of Directive 89/665/EEC, provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link (E-16/16, para 82).

In a 180-degree U-turn, in Fosen-Linjen II, the EFTA Court has now rather established that

... Article 2(1)(c) of the Remedies Directive does not require that any breach of the rules governing public procurement in itself is sufficient to award damages for the loss of profit to persons harmed by an infringement of EEA public procurement rules (E-7/18, para 121).

To be sure, this reversal is likely to generate further commentary (we are thinking of a special issue to collect some different views, so stay tuned) but my hot take is that with the Fosen-Linjen II Judgment, the EFTA Court has corrected the excesses of the earlier Fosen-Linjen I approach and (re)aligned EEA with EU law in the area of liability in damages for breaches of public procurement law.

Important EFTA case on procurement damages: Was the court of one mind, and will the CJEU follow? (E-16/16)

In its Judgment of 31 October 2017 in Fosen-Linjen AS v AtB AS, the EFTA Court issued an important Opinion on the interpretation of the procurement Remedies Directive (Dir 89/665/EEC, as amended by Dir 2007/66/EC) and, in particular, on the conditions for the recognition of a right to damages compensation where the contracting authority uses an illegal award criterion and subsequently decides to cancel the tender for that reason. That is, cases where it is clear (and acknowledged by the contracting authority itself) that the procurement procedure was not fully compliant with substantive EU/EEA public procurement rules--which comes to constrain the legal analysis to the question whether the irregularity is such as to allow disappointed tenderers to claim damages compensation.

The Fosen-Linjen case raised a number of issues in the six questions sent to the EFTA Court, such as the threshold for liability, evidentiary requirements, causation, exoneration causes and due diligence requirements. All of them are important but, in my view, the main relevance of the case concerns the threshold of liability, on which the EFTA Court found that 

A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of Directive 89/665/EEC, provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link (E-16/16, para 82).

The EFTA Court reached this position in answer to a series of questions and sub-questions concerning whether liability under the Remedies Directive was conditional upon the contracting authority having deviated markedly from a justifiable course of action, upon it having incurred a material error that justified a finding of culpability under a general assessment, or upon it having incurred in an inexcusable'material, gross and obvious error' (question 1), or whether liability can be triggered under a test of 'sufficiently qualified breach' where the contracting authority was left with no discretion as to how to interpret or apply the infringed substantive rule (question 2). 

In the case at hand, the EFTA Court decided to group these questions and address them together. In my view, this has been determinative of the outcome of the case. Had the Court addressed the questions sequentially, and inverting the order, it would have been possible to establish that a breach of a substantive provision for which interpretation and application the contracting authority has no discretion constitutes a 'sufficiently serious breach' of EU/EEA procurement law triggering liability (if all other requirements are met) (question 2), which would have rendered the other issues (question 1) moot and unnecessary in this case. By choosing not to do so, the EFTA Court grabbed an opportunity to influence the development of EU/EEA law in the area of procurement remedies in a way that I am not sure will be productive in the long run, particularly because the rather extreme position taken by the EFTA Court--ie that any simple breach of EU/EEA procurement law suffices to generate liability for damages--was not really necessary under the circumstances and does not easily sit with previous developments in the case law of the Court of Justice of the European Union (CJEU).

Ultimately, this finding is controversial because of (1) the way the EFTA Court couches the deviation of liability standards under the Remedies Directive and under the general doctrine of State liability for breach of EU/EEA law, as well as (2) due to the fact that the EFTA Court engages in contradictory normative assessments in the reasoning that leads to this conclusion--which makes the interpretation and operationalisation of its main finding rather tricky. In my view, these two points of contention make it unclear that the CJEU--which is not bound by the EFTA Court's interpretation--will adopt the same approach. I will explore these two issues in turn.

Is public procurement special?

One of the normative and doctrinal issues in the background of the discussion surrounding the threshold of liability under the Remedies Directive concerns its relationship with the general doctrine of State liability for breach of EU/EEA law. The position taken by the EFTA Court on this point is not very clear--despite explicit submissions to that effect by the parties, the Norwegian government and the EFTA Surveillance Authority--but it seems to indicate that the Court considers that procurement law is somehow special.

While it is commonly accepted that the State liability doctrine is premised on the existence of a sufficiently serious breach of EU/EEA law (as seminally established in Francovich and Others, C‑6/90 and C‑9/90, EU:C:1991:428, para 35, and in Brasserie du Pêcheur and Factortame, C‑46/93 and C‑48/93, EU:C:1996:79, paras 31 and 51, and consistently reiterated by the CJEU, most recently in Ullens de Schooten, C-268/15, EU:C:2016:874, para 41), the EFTA Court is not willing to retain this threshold of liability in the area of procurement. As the EFTA Court indicated

... it has already been established that a national rule making the award of damages conditional on proof of fault or fraud would make actions for damages more difficult and costly, thereby impairing the full effectiveness of the public procurement rules ... The same must apply where there exists a general exclusion or a limitation of the remedy of damages to only specific cases. This would be the case, for example, if only breaches of a certain gravity would be considered sufficient to trigger the contracting authority’s liability, whereas minor breaches would allow the contracting authority to incur no liability (E-16/16, para 77, emphasis added).

In other words, the EFTA Court is not willing to tolerate a situation where what could be termed de minimis breaches of EU/EEA public procurement law remain unchallenged and, in that regard, the Court seems to have been influenced by the European Commission's position that 'any infringement of public procurement law should be followed up and should not be left unattended because the breach is not “sufficiently serious”' (E-16/16, para 59). The EFTA Court thus seems to consider that the establishment of an almost absolute right to claim damages is necessary to ensure the desirable effectiveness of EU/EEA procurement law.

The Court also considers that '[a] requirement that only a breach of a certain gravity may give rise to damages could also run contrary to the objective of creating equal conditions for the remedies available in the context of public procurement. Depending on the circumstances, a breach of the same provision on EEA public procurement could lead to liability in one EEA State while not giving rise to damages in another EEA State' (E-16/16, para 78), which is by no means obvious, in particular if the preliminary reference mechanism works appropriately. 

In my opinion, this general line of reasoning conflates two separate issues. First, whether any infringement of EU/EEA substantive law should trigger a ground for the review of the procurement decision concerned and, if justified, to set it aside. Second, whether any infringement of EU/EEA substantive law should provide a right to claim damages. By conflating both issues, the EFTA Court implicitly assumes that claims for damages are the only effective remedy. The Court does not take into account the existence of public oversight mechanisms able to 'pick up' on those de minimis infringements of EU/EEA public procurement law, and seems not to think it possible for disappointed tenderers to exercise rights of review in the absence of the financial incentives resulting from damages claims. This comes both to establish a hierarchy of remedies that is absent in the Remedies Directive [see A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' in S Torricelli & F Folliot Lalliot (eds), Contrôles et contentieux des contrats publics (Bruylant, 2018) forthc.], and to create the same risk of deformation of EU tort law that we have witnessed in other areas of EU economic law [see O Odudu & A Sanchez-Graells, 'The interface of EU and national tort law: Competition law', in P Giliker (ed), Research Handbook on EU Tort Law (Elgar, 2017); as well as the rest of contributions to that volume].

From a normative perspective, I find this approach problematic due to the perverse incentives it creates--and which I think the EFTA Court was somehow aware of (see below). Moreover, I am not persuaded that this would necessarily be the position of the CJEU, which has in the past held that Art.2(1)(c) of Directive 89/665 'gives concrete expression to the principle of State liability for loss and damage caused to individuals as a result of breaches of EU law for which the State can be held responsible' (Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others, C-568/08, EU:C:2010:751, para 87, emphasis added). From that perspective, and even if the CJEU is likely to continue developing its line of case law that prevents the creation of additional requirements for the existence of liability in damages (as is clear it did by rejecting the imposition of a requirement of fault in Strabag and Others, C-314/09, EU:C:2010:567), I see no reason why it would accept that the requirement for a 'sufficiently serious breach' does not apply in this sub-field of State liability.

In my view, this is particularly important because the position taken by the EFTA Court was both unnecessary for the resolution of the case, and not explicitly premised on a deviation of the State liability doctrine, which leaves the CJEU an easy way out if it decides to take a different approach in the future. In my view, this is likely, because from a normative point of view, the position taken by the EFTA Court is not easily tenable.

What are the implications for contracting authorities and tenderers?

One of the important normative aspects on which the EFTA Court's Fosen-Linjen Judgment rests concerns the incentives that different liability thresholds and requirements create. In that regard, the Court seems to adopt two contradictory normative standpoints in dealing with the twin question of the threshold for liability and the causality requirement--which are indivisibly interlinked in its overall finding that 'A simple breach of public procurement law is in itself sufficient to trigger the liability ... provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link' (E-16/16, para 82, emphasis added). The contradiction is as follows.

On the one hand, the EFTA Court considers that a simple infringement of EU/EEA public procurement rules must suffice to trigger liability because

... damages seek to achieve a three-fold objective: to compensate for any losses suffered; to restore confidence in the effectiveness of the applicable legal framework; and to deter contracting authorities from acting in such a manner, which will improve future compliance with the applicable rules. Liability through damages may also provide a strong incentive for diligence in the preparation of the tender procedure, which will, ultimately, prevent the waste of resources and compel the contracting authority to evaluate the particular market’s features. Were liability to be excluded, this may lead to a lack of restraint of the contracting authority (E-16/16, para 76, emphasis added).

Thus, in this part of the Judgment, the EFTA Court considers a high likelihood of liability a proper incentive for adequate diligence and decision-making on the part of the contracting authority.

Conversely, on the other hand, when assessing the causality requirements for the recognition of a right to damages compensation (in the context of the fourth question referred by the Norwegian court), the EFTA Court stresses that

... there must be a balance between the different interests at stake. While liability of the contracting authority for any errors committed promotes, in principle, the overall compliance with the applicable legal framework, exaggerated liability of the contracting authority could lead to excessive avoidance costs, reduce the flexibility of the applicable framework and may even lead to the unjust enrichment of an unsuccessful tenderer. Furthermore, excessive liability may provide an incentive for a contracting authority to complete award procedures, that were evidently unlawful, or impinge upon the freedom to contract (E-16/16, para 101, emphasis added). 

This clearly indicates that the existence of liability needs to be constrained or modulated. The EFTA Court seems to want to do so by establishing a complicated approach to causality requirements that would distinguish between those applicable to claims for negative and positive damages (ie bid costs and loss of profits). Even in the context of the first question, the EFTA Court had already shown some inconsistency when establishing that 'a claim for damages can only succeed if certain other conditions are fulfilled, such as the condition that there must be a sufficient causal link between the infringement committed and the damage incurred' (E-16/16, para 81, emphasis added)--which, however, is not equally reflected in the wording of its general finding, which only makes reference to 'the condition of a causal link' (para 82). 

In my view, the approach (implicitly) followed by the EFTA Court is not better than the alternative approach of having closely stuck to a requirement for a sufficient breach of EU/EEA public procurement rules. Even if a combination of low liability threshold (simple breach) and high causality requirements ('sufficient causality') could lead to the same practical results that a requirement for 'sufficiently serious breach', the EFTA approach creates legal uncertainty and more scope for divergence across EU/EEA jurisdictions, not the least because causation is within the remit of domestic law. more importantly, it can create a wave of litigation based on any (minimal, formal, irrelevant) errors in the conduct of procurement procedures in an attempt to test the boundaries of that test.

In my view, on the whole, it would have been preferable to stick to the general framework of the State action doctrine as specified in the Remedies Directive, which is compatible with a finding of a requirement for there to be a 'sufficiently serious breach' of EU/EEA procurement law and, at the same time, with a finding that breaching a provision for which interpretation and application the contracting authority has no discretion (eg the obligation to be in a position to verify the content of tenders against its requirements and award criteria, as in Fosen-Linjen) suffices to trigger liability (the same way that the mere lack of transposition of a Directive triggers State liability under the general test). Therefore, I very much hope that this issue is brought to the CJEU soon, and I would strongly advocate for the CJEU to explicitly reject the EFTA Court's approach.

New Paper on Extraterritoriality of EU Procurement Rules

I am presenting a paper on the extraterritoriality of EU public procurement rules at the research workshop "Extraterritoriality of EU Law & Human Rights after Lisbon: Scope and Boundaries", held at the Sussex European Institute on 13 & 14 July 2017.

The paper is entitled "An Ever-Changing Scope? The Expansive Boundaries of EU Public Procurement Rules, Extraterritoriality and the Court of Justice", and is available at SSRN: https://ssrn.com/abstract=3000256.

As the abstract indicates:

This paper looks at how the EU public procurement rules have shown a tendency to permanently expand their scope of application, both within and outside the EU. Inside the EU, the expansion has primarily resulted from blurred coverage boundaries and a creeping application outside their explicit scope. Outside the EU, the extraterritoriality has concerned scenarios such as the applicability of EU financial rules to procurement carried out as part of the EU’s external action in other areas (such as common foreign and security policy), or the regulatory transfer (or ‘export’) of EU procurement rules as part of trade deals—notably, the EU-Canada CETA, but also the EU-Ukraine DCFTA.

Concentrating solely on the ‘external’ dimension of the expansive scope of EU public procurement rules, in trying to explore some of the impacts of the extraterritorial effects of EU public procurement law on the legal and regulatory systems of third countries, this paper focuses on the implications that this expansion and extraterritoriality can have in terms of jurisdiction of the Court of Justice, as well as in terms of difficulties for the coordination of remedies systems in the area of public procurement. The paper concludes that the extraterritorial expansiveness of the EU’s public procurement rules is creating areas of potential legal uncertainty that deserve further analysis. Given the highly speculative nature of those scenarios at this stage, however, the paper does not attempt to provide any specific answers or tentative solutions to the issues it raises.

I intend to review the paper after the workshop and will appreciate any additional feedback that helps me improve it so, if you have the time and inclination to read the paper, please email me any comments to a.sanchez-graells@bristol.ac.uk, or feel free to post them in the comments section. Thank you in advance for any input.

[Input sought] Access to procurement remedies and reciprocity in EU/EEA Member States

I have been thinking for a while about a comparative procurement law question on which I would appreciate your help and input (please comment below or send me an email to a.sanchez-graells@bristol.ac.uk if you have information about your jurisdiction that you can share, for which I would be most grateful). The question concerns the extent to which contracting authorities in the EU/EEA Member States apply an access filter for bids coming from non-EU/non-GPA covered states -- that is, whether contracting authorities check that the tenderer/tender are covered by trade-liberalising instruments or not at the initial stages of a procurement process -- and the extent to which that filter or its absence may then carry on to the access of non-EU/non-GPA tenderers to domestic remedies in those jurisdictions -- that is, whether remedies are limited to EU/GPA tenderers or are more broadly available.

My interest in this topic comes from the fact that, one of the issues that keep arising in the context of the Brexit debate (particularly in view of Prof Arrowsmith's proposals, which I criticised here, and Pedro Telles also criticised here) concerns the future access for UK tenderers/candidates to domestic remedies in the EU27/EEA jurisdictions in case of no deal with the EU and the UK resorting to GPA rules. This links to the broader question of which tenderers/candidates have access to procurement processes and to domestic remedies in the EU27/EEA jurisdictions, as mentioned above.

In my view, Member States can either control coverage by EU/GPA rules at the start of the process or not, and this may result from either an obligation to check or discretion to check. Later, in relation to the point on remedies, there are probably only four relevant (legal) options:

(a) all tenderers/candidates have access to all domestic remedies regardless of their nationality (ie totally open remedies system).

(b) all tenderers/candidates have access to some domestic remedies regardless of their nationality, but only EU/EEA tenderers/candidates have access to 'premium' remedies mandated by EU law (ie those with standstill, etc) (ie open EU+ remedies system).

(c) only tenderers/candidates covered by GPA/WTO, EU/EEA or bilateral FTAs have access to all domestic remedies (ie trade-led remedies system).

(d) only tenderers/candidates covered by GPA/WTO, EU/EEA or bilateral FTAs have access to some domestic remedies, but only EU tenderers/candidates have access to 'premium' remedies mandated by EU law (ie those with standstill, etc) (ie trade-led EU+ remedies system).

I am interested in writing a short paper on this issue and would really appreciate your input on: (i) whether there is some other legally-compliant model I may have overlooked and, (ii) more importantly, what is the model in your jurisdiction (specially if you are based in an EU27/EEA country). So far, the information I have been able to gather is as follows [apologies to those of you who have helped me with this if I have misinterpreted it -- corrections welcome; when reading this, please bear in mind that the content evolves as I discuss these issues with national experts and explore the ideas further, particularly in terms of the contours between models (a) and (c)]:

1. Austria (thanks to Michael Fruhmann): Federal Procurement Law states, that procurement procedures shall be carried out in compliance with the fundamental principles of EU Law, the principles of free and fair competition and the equal treatment of all applicants and tenderers. However, different treatment of applicants and tenderers on grounds of their nationality or of the origin of goods which is permissible under international law remains unaffected by this obligation. The (legal) consequence is, that if no union or international obligations (re latter: this depends on the existence and scope of FTAs, RTAs also) exist to open PP procedures to foreign bidders, contracting authorities are free to admit participation or to deny the participation of such bidders. However, if such bidders are allowed to participate they have the same standing as national/EU bidders (also as regards remedies). In practice this comes down to the question, whether the contracting authority wants such bidders to participate. This is a case by case decision depending i.a. on the subject matter of the contract, the interest to intensify/safeguard competition in a given procedure. This decision (no admittance) can of course be reviewed (and has been reviewed) but the courts confirmed that without any EU/international obligation it's fully within the competence of the contracting authority to decide either way. Generally, this points towards the model being generally (c), but with the possibility of going beyond that and getting closer to (a) depending on the contracting authority's discretion.
2. Belgium (thanks to Baudoin Heuninckx): a contracting authority may reject the request to participate or tender by undertakings from countries outside of EU/WTO or without an FTA, so there is a potential "filter" at the very beginning of the procedure. In terms of remedies, every candidate or tenderer has access to all remedies regardless of nationality. Potentially, this leads to the remedies model being (c).
3. Czech Republic (thanks to Jaroslav Mencik): contracting authorities may not restrict participation in public tenders of suppliers from the EU, the EEA, Switzerland, or other states with which the Czech Republic or the EU has concluded international agreements which guarantee that suppliers from such a state will have access to the public contract being awarded. It follows that contracting authorities are required neither to check the nationality of tenderers nor exclude non-EU/non-GPA tenderers (but may choose to do so). Remedies follow model (a), all tenderers participate on equal terms.
4. Denmark (thanks to Carina Risvig Hamer): it is not foreseen in legislation, but contracting authorities can decide not to allow participation from non-EU/non-GPA tenderers. All candidates and tenderers have full access to remedies. Potentially, this leads to the remedies model being (c). 
5. Estonia (thanks to Mari Ann Simovart): remedies are available to any "interested party" without any restriction based on the country of origin. In short, model (a) applies. However, a contracting authority can restrict access to a particular procurement procedure for tenderers of EU/EEA/WTO only - in which case, tenderers outside EU/EEA/WTO can be regarded as having no "interest" towards the particular procurement and thus no standing to claim review.
6. Finland (thanks to Kirsi-Maria Halonen): contracting authorities would not always check whether a tenderer is covered by the agreements, but could do so at the beginning of the tendering procedure. If accepted to participate/tender, the candidate/tenderer would likely have access to all domestic remedies. This leads to the remedies being closer to model (c), but it is possible that de facto, contracting authorities may be granting equal treatment beyond GPA/EU/FTA coverage in sui generis basis (model (a)). It is in the contracting authorities' discretion whether to even look into the matter/exclude. If tenderers are not excluded, they'll have equal rights for remedies. However, it is worth bearing in mind that this is untested in the courts.
7. Germany (thanks to Gabriella Gyori): not taking into account decentralized matters (due to the differences among the "Bundesländern"), according to the federal public procurement legislation related to above threshold procedures, tenderers from outside of Germany are allowed to participate, treated equally and have equal rights. Remedies follow model (a). 
8. Greece (thanks to Marios Skiadas): in order to be eligible to participate in a public tender, economic operators must be based in an EU, EEA, GPA or other countries which have signed bilateral or multilateral agreements with the EU in matters related to public procurement procedures. Contracting authorities have a first chance of checking this requirement when they assess the ESPD or equivalent documentation. Additionally, during the final stage of the awarding phase, the winning bidder is required to submit all legal documents regarding company establishment, operation and representation. Therefore, the contracting authority will in practice have a “second chance” to check conformance. Access to remedies applies to all parties with an interest in being awarded a public contract. By combining this to the eligibility criteria stated above,Greece follows model (c).
9. Hungary (thanks to Gabriella Gyori): economic operators shall be excluded from participating in the procedure as a tenderer, candidate, subcontractor or an organization participating in the certification of suitability, if have their fiscal domicile in a country outside the EU, the EEA or the OECD or in a non WTO/GPA country or outside the overseas countries specified in the TFEU or in a country which has not signed any agreement with Hungary on avoiding double taxation or which has not signed a bilateral agreement with the EU concerning public procurement. Claims can be submitted by a contracting authority, a tenderer(s) or any other interested person whose right or legitimate interest is being harmed or risks being harmed by an activity or default which is in conflict with the procurement legislation. This brings the remedies system close to model (c).
10. Ireland (thanks to James Farrell): based on long-standing practices, there are not requirements of EU/EEA/GPA membership as a qualifying requirement for tenderers, or references to different treatment of tenderers emanating from non-EU/EEA/GPA countries in any policy or guidance documents issued by the relevant Irish authorities. The general approach, driven by Ireland's open trading policy, is to take value wherever it can be found. There have been no court challenges in Ireland where an unsuccessful tenderer sought to argue that a winning tender should be disqualified because of the country of origin/registration/domicile of the tendering entity. Regarding remedies, apart from reliefs arising under the Remedies Directive there are also domestic reliefs such as Judicial Review, Injunctions etc that would be available to tendering entities regardless of nationality. Therefore, Ireland follows model (a).
11. Italy (thanks to Roberto Caranta): only tenderers/candidates from MS/parties to GPA/WTO, EU/EEA or bilateral FTAs are eligible to bid. Eligible suppliers then have access to all domestic remedies; so the systems follows model (c).
12. Lithuania (thanks to Deividas Soloveičik): there is no obligation for contracting authorities to check non-EU/ non-GPA suppliers. Remedies follow model (a), all suppliers participate on equal terms.
13. Netherlands (thanks to Tim Beukema): Dutch law states that a contracting authority shall not grant any advantage in regard to the tender and the contract that is not granted to parties from countries within the EU. In regard to rejection of participants, contracting authorities may reject the request to participate by undertakings from countries outside of the GPA, EU or FTA. Entities operating in the water, energy, transport and postal services sectors (special sectors) have the possibility to reject a participation or tender if the goods that a party provides consists of more than 50% from countries on which the EU has no obligation to, i.e. countries outside the GPA, EU or FTA. A special sector company has the obligation to decline an offer of such party in the case of an equal bid from a undertaking within the GPA, EU or FTA that has less than 50% of the goods from within these countries. Claims can be submitted by parties who are interested in the tender in the case that his rights are being harmed or could be harmed because of the fact that the tender procedure breaches the procurement rules, which is a remedies system in accordance with model (c).
14. Norway (thanks to Eirik Rise): follows model (c); only tenderers/candidates covered by GPA/WTO, EU/EEA or bilateral FTAs have access to domestic remedies, and only to the extent that it is covered in the relevant FTA.
15. Poland (thanks to Paweł Nowicki and Piotr Bogdanowicz):  There is a newly introduced obligation to comply with WTO GPA and other international agreements to which the EU is a party, and there is no explicit obligation to exclude non-EU/non-GPA tenderers. Remedies follow model (a).
16. Portugal (thanks to Pedro Telles): [not clear yet whether there is an initial filter]. Remedies follow model (a).
17. Romania (thanks to Dacian Dragos): [not clear yet whether there is an initial filter]. Remedies follow model (a).
18. Slovenia (thanks to Njives Prelog): suppliers from all over are allowed to participate, treated equally and have equal rights. Remedies follow model (a). 
19. Spain: at the initial stage, contracting authorities have an obligation to check coverage by EU/GPA rules or to require confirmation of reciprocal access for Spanish tenderers in the country of origin of non-EU/non-GPA tenderers (which are also required to have a branch office in Spain). Remedies follow closely model (a) because remedies are open to all those admitted to tender procedures [ie go beyond (c), but are still somehow trade-led due to reciprocity requirement].
20. Sweden (thanks to Andrea Sundstrand): there is no check at the start of the procedure and suppliers from all over are welcome to participate on equal terms. Remedies follow model (a) and all suppliers have access to exactly the same remedies regardless of whether they are from countries that Sweden has trade agreements with.
21. United Kingdom (thanks to Aris Christidis and Pedro Telles for discussions): The UK system replicates the EU Directive in terms of extending equal treatment (which can be seen to include access) to economic operators covered by EU law, the WTO GPA, or other international agreements by which the EU is bound (see reg. 25 PCR2015). The remedies system is limited to those economic operators to which contracting authorities are legally taken to owe a duty to comply with public procurement rules. Effectively, this is limited to economic operators from the EEA, GPA signatories (provided the procurement is covered) and countries with bilateral agreements in force (see regs. 89 and 90 PCR2015).

This initial scoping exercise seems to indicate clustering around models (a) and (c). It would be amazing if we could collectively cover most of the EU27/EEA and complete the exercise, not only in order to gain a better understanding of this issue, but also because this will be relevant for Brexit negotiations around procurement in the immediate future. Your contribution will, of course, be duly acknowledged and gratefully received.

ECJ creates randomness in right to challenge procurement decisions by excluded tenderers (C-355/15)

In its Judgment of 21 December 2016 in Technische Gebäudebetreuung and Caverion Österreich, C-355/15, EU:C:2016:988, the European Court of Justice (ECJ) offered additional interpretation of the rules on active standing to challenge public procurement decisions under the Remedies Directive (RD) and, in particular, its Article 1(3), according to which 'Member States shall ensure that the review procedures are available, under detailed rules which the Member States may establish, at least to any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement'.

This provision had been interpreted in broad terms ('favor revisionis') in Fastweb (C‑100/12, EU:C:2013:448, see here), where the ECJ strengthened the right of non-compliant tenderers to challenge procurement decisions. It is in comparison to Fastweb that Technische Gebäudebetreuung and Caverion Österreich raises some tricky issues--and, once more, it is surprising that this ECJ judgment was adopted without an Advocate General opinion.

In the case at hand, and given the wording of the Austrian transposition of Art 1(3) RD granting active standing to 'An[y] undertaking which had an interest in the conclusion of a contract...', the legal question for the ECJ concerned a new aspect of the concept of 'any person having or having had an interest in obtaining a particular contract', as it relates to economic operators that have participated in the tender, but are no longer under active consideration by the contracting authority.

The interpretive difficulty stemmed in part from the contrast between the open wording of Art 1(3) RD and the seemingly more limited concept that could be extracted from Art 2a(2) RD, when it establishes a standstill obligation in relation only to concerned tenderers, which are defined as those who 'have not yet been definitively excluded. An exclusion is definitive if it has been notified to the tenderers concerned and has either been considered lawful by an independent review body or can no longer be subject to a review procedure'. Given that Art 2a(1) RD establishes that 'Member States shall ensure that the persons referred to in Article 1(3) have sufficient time for effective review of the contract award decisions taken by contracting authorities, by adopting the necessary provisions respecting the minimum conditions set out in paragraph 2 of this Article', the link between the general rule on active standing in Art 1(3) RD and the more limited rule on standstill in Art 2a(2) that aims to make that active standing effective does raise some complex issues.

In Technische Gebäudebetreuung and Caverion Österreich, the question arose from the fact that the challenger of the procurement decision had been excluded from the procedure by a decision of the contracting authority that had become final (after two appeals) at the time of the challenge. The Austrian review courts considered that the finality of the exclusion extinguished the right to challenge the award decision because 'the rights of a tenderer whose bid has been properly excluded cannot be infringed by illegalities relating to the procedure followed to select another bid for the purposes of awarding the contract' (C-355/15, para 16).

In order to determine the compatibility of this position with EU law, the ECJ broke down the issue in two parts. It first distinguished the current case from Fastweb. It then proceeded to clarify the purpose of the challenge rights provided by Art 1(3) RD. While each of the two parts of the reasoning make some sense independently, their lack of coordination can create difficult cases under spurious circumstances.

In distinguishing the cases, the ECJ indicated that

29 ...  the judgment of ... Fastweb ... gave concrete expression to the requirements of the third subparagraph of Article 1(1) and Article 1(3) of Directive 89/665 in a situation in which, following a public procurement procedure, two tenderers bring an action for review, each seeking the exclusion of the other. In such a situation, both of the tenderers have an interest in obtaining a particular contract.

30      However, the situation at issue in the main proceedings is very clearly distinguishable from the situations at issue in the two cases giving rise to the judgments of ... Fastweb and ... PFE (C‑689/13, EU:C:2016:199).

31      First, the bids of the tenderers concerned in [Fastweb and PFE] had not been the subject of an exclusion decision of the contracting authority, unlike the bid submitted by the consortium in the main proceedings in the present case.

32      Secondly, it was in the course of the same, single set of review proceedings relating to the award decision that, in both cases, each tenderer challenged the validity of the other tenderer’s bid, each competitor having a legitimate interest in the exclusion of the bid submitted by the other, which may lead to a finding that the contracting authority is unable to select a lawful bid ... In the main proceedings in the present case, by contrast, the consortium brought an action, first, against the exclusion decision adopted in respect of it and, secondly, against the award decision, and it is in the course of that second set of proceedings that it contends that the successful tenderer’s bid is unlawful.

33      It follows that the principle of case-law stemming from the judgments of [Fastweb and PFE] does not apply to the procedure and litigation at issue in the main proceedings (C-355/15, paras 29-33, references omitted).

Despite being very formalistic and relying on procedural aspects of the litigation rather than on the material situation (ie, tenders with only two bidders in which each holds an interest in the exclusion of the other so that, in case of dual exclusion, the contracting authority is obliged to re-run the procedure and, thus, each has a fresh opportunity to participate), this is not an unreasonable approach and the ECJ seems clear in establishing an implicit condition for active standing that requires the contracting authority itself to not have excluded the tenderer (or its offer) at the time where the challenge of the award decision takes place. This is however a restriction of the (potential) widest interpretation of Art 1(3) RD. And this restriction brings complications in light of the second part of the analysis carried out by the ECJ in Technische Gebäudebetreuung and Caverion Österreich.

Indeed, in addressing the specific issue of the finality of exclusion decisions that exclude the right to challenge under Art 1(3) RD, the ECJ considered that

34 ... as is apparent from Article 1(3) and Article 2a of Directive 89/665, that directive ensures effective review of unlawful decisions adopted in the context of a public procurement procedure, by enabling any excluded tenderer to challenge not only the exclusion decision, but also, as long as that challenge has not been resolved, the subsequent decisions which would harm it if its exclusion were annulled.

35 In those circumstances, Article 1(3) of that directive cannot be interpreted as precluding a tenderer such as the consortium from being refused access to the review of the award decision, provided that it must be considered a definitively excluded tenderer within the meaning of the second subparagraph of Article 2a(2) of that directive (C-355/15, paras 29-33, emphases added).

In my view, this interpretation is criticisable both in own terms, and due to the effects it creates. The ECJ has adopted an interpretation of Art 1(3) that is conditioned by Art 2a(2)--that is, a sort of systemic interpretation where the special rule may be seen to exclude or restrict the general rule--without first addressing the possible coordination of both provisions without the second altering the scope of application of the first one--ie, in a true systemic interpretation.

This excludes an alternative, broader interpretation of the rules on active standing in the Remedies Directive that I would have much rather preferred, which would have determined that all economic operators having had an interest in the award of the contract (included definitely excluded ones) have the right to challenge the award decision under Art 1(3) RD, even if only those that are concerned tenderers or candidates benefit from the facilitative procedural measures derived from standstill under Art 2a(2) RD [see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 439-441]. This would have respected the fact that, in the revision of the RD in 2007 (when Art 2a(2) was introduced), the wording of the relevant part of Art 1(3) was not amended. It would also not diminished or altered the effectiveness of Art 2a(2) RD, as the standstill period would in any case not benefited excluded tenderers ro candidates, who would have to overcome the additional burden of following the tender procedure very closely when they intended to challenge the final award decision.

Additionally, the position adopted by the ECJ in Technische Gebäudebetreuung and Caverion Österreich creates an element of randomness derived from the uncertainty around decision times for challenges, appeals (and further appeals) of exclusion decisions. Thus, in swift jurisdictions where exclusion decisions can very quickly become final, the rights to challenge award decisions by tenderers excluded by the contracting authority can be effectively suppressed. In contrast, in slower jurisdictions where finality of exclusion decisions takes longer to reach, tenderers excluded by the contracting authority will still have the opportunity to challenge award decisions. In either case, there is no requirement for a coordination of both procedures, so it could well be that the challenge brought by an excluded tenderer is decided before an eventual confirmation of the exclusion decision, which seems to create an undesirable situation under the logic of the ECJ in Technische Gebäudebetreuung and Caverion Österreich. Overall, this Judgment creates this element of randomness in the recognition or not of active standing to challenge award decisions to tenderers excluded by the contracting authority, which is undesirable.

More generally, this case indicates once more the shortcomings of the system created by the Remedies Directive, which is patchy and incomplete, and requires a fundamental revision [see A Sanchez-Graells, "If It Ain't Broke, Don't Fix It'? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts", S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming]. If nothing else, to clarify whether this is solely about justiciability of review rights of economic operators that can have an interest in being awarded that specific contract under the conditions in which it is tendered (a narrow interpretation), or whether it serves broader purposes of control and review of procurement activity, as a substitute for faltering public oversight of this important public sector function (a broad interpretation). There are arguments both ways, but not having this very basic and foundational aspect clear does create problems as the case law of the ECJ continues shaping the system one preliminary reference at a time...

A second look at the CJEU's public procurement activity--and a reflection on its implications in terms of remedies and the effectiveness of eu judicial activity

The Court of Justice of the European Union (CJEU) has now published the final version of its Judicial Activity 2015 Annual Report. The release of these final statistics on the CJEU activity for the past year provides a chance to take a second look at the evolution of procurement cases over a long(ish) time period--statistics are now available for a full decade regarding the General Court (GC) and for the period since 2010 for the Court of Justice (ECJ). A quick look at the the statistics shows a continuation of the trend of increasing backlog in this area (see here), and a closer look reveals how the backlog at the ECJ level has been deteriorating rather quickly in recent years.

There are some limitations of the statistical information that need to be stressed from the outset. First, as with previous editions of the judicial activity report (see previous comments of the 2012 and 2014 reports), having had more information on the status of pending cases would have helped gain a better understanding of the situation, particularly at ECJ level. It is still hard to understand why the GC explicitly reports on pending cases, while the ECJ does not. Second, not all cases are exactly comparable. While the activity at GC level is limited to challenges to procurement procedures carried out by the EU Institutions, the activity of the ECJ includes a mix of preliminary references (the vast majority of new cases) and appeals against GC decisions. In 2015, of the 26 new cases before the ECJ, 22 were preliminary references and 4 were appeals. This makes the assessment of the overall evolution of public procurement activity not very meaningful. Thus, I will rather discuss the evolution at the GC and ECJ level separately.

Evolution of procurement cases at GC level--what are the implications in terms of the effectiveness of remedies for eu institutions' procurement?

The GC has been managing to slightly reduce its backlog of pending cases in the last 5 years and the trend seemed to roughly remain stationary in 2015, when it opened 23 new cases and completed another 22. Provided that no cases are "left at the bottom of the pile", it would thus seem that the GC is in a position to manage and cope with its public procurement docket.

However, this should not be too surprising, given the low pressure that being the review court for all the procurement activities developed by the EU Institutions creates. According to the recent Special Report No 17/2016 of the European Court of Auditors (ECA) on EU institutional procurement (see here), the EU Institutions carried out procurement for a value of €4.2 bn in 2014. According to ECA: "In the 6‑year period from 2009 to 2014 the General Court completed 3,419 cases of which 106 dealt with public procurement by the EU institutions (3.1 %), or on average 17.6 cases per year. The 106 cases relating to public procurement gave rise to a total of 123 decisions: 66 judgments and 57 orders" (p. 44).

The Commission generally estimates that it awards more than 9,000 contracts per year. However, on average, there are less than 20 challenges of those procurement decisions per year. This would roughly indicate that less than 0.25% of procurement decisions of the EU Institutions get challenged before the GC. This is a very low caseload for a court in charge of reviewing procurement activity of a value of €4.2 bn. Searching for valid comparators is difficult because each jurisdiction organises procurement remedies in different ways and there are important cultural and practical factors that can determine very different litigation rates (going from the possible extreme of high litigation in Italy, where around 40% of the cases in the administrative courts are public procurement cases, to the UK, where there is only a handful of public procurement cases every year).

However, one gets the sense that 20 cases per year is a very low litigation rate by taking into consideration that EU Member States with similar or lower estimated procurement expenditure show more intense litigation. For example, based on the Commission's data, Bulgaria has over 1,000 cases per year (estimated procurement covered by the EU rules of €2.83 bn), Latvia has over 200 cases (€3.55 bn), Luxembourg has over 50 cases (€0.56 bn), and the Slovak Republic has over 1,000 cases (€3.98 bn). If we calculate the incidence of litigation by volume of (estimated) expenditure (covered by the EU rules), we would get the (very, very) rough measure of cases by billion Euro of expenditure. Using the information available (which is far from ideal), we can construct the table on the left-handside column.

This information should be taken with immense caution, and none of the specific figures for any of the countries of the list should be used as an indication of the actual intensity of litigation in that jurisdiction. However, I think that his serves to make the broader point that the level of litigation of procurement decisions adopted by the EU Institutions is indeed very low, at least by an order of magnitude.

The implication of this insight in terms of a potential review of the remedies mechanisms available to challenge procurement decisions by the EU Institutions--which has been advocated by ECA and should be strongly supported (see here)--is that the GC (in its current configuration and without a significant expansion of resources) is probably incapable of digesting any relevant increase of procurement litigation to a level in line with the jurisdictions of the Member States, except those with a lower intensity of procurement litigation. 

In my view, thus, it would seem advisable to explore suitable alternatives, such as the creation of a procurement review agency in charge of the oversight of the procurement carried out by the EU Institutions, the submission of the procurement of the EU Institutions to the procurement remedies system of the relevant Member State, or some other similar option--including the possibility of creating a specialised chamber within the General Court, in case the provision of additional resources to this entity was considered preferable than a more substantial reform of the remedies system.

Evolution of procurement cases at ECJ level--will a new wave of preliminary references flood the court and dampen the papers?

The ECJ has been accumulating a significant backlog of procurement cases over the last 5 years (no earlier statistics are available). What seems worrying is that, for the last 3 years, the backlog has been increasing at a pace of approximately 10 cases per year, and the total backlog at the end of 2015 trebled the level in 2010.

In view of the expiry of deadline for the transposition of the 2014 Public Procurement Package in 2016 (and even if a significant number of Member States are delayed), it seems reasonable to expect a new wave of preliminary references for the interpretation of the ever so complex new rules and their coordination with the previous case law in this area of EU economic law. Thus, it would seem reasonable to expect the ECJ to consider strategies to cope not only with the existing backlog, but also with the likely increase in referrals in the period between now and, say, 2020.

Of course, it is difficult to develop a strategy that prioritises public procurement over other areas of judicial activity, and there may be good reasons to consider other types of cases (including within EU economic law, such as tax avoidance cases) equally or more relevant or urgent. However, the advantage of procurement is that, it being a very specialistic and relatively self-contained area, it would not be too difficult to create a task force to deal with procurement cases in a swift manner. This would require an investment in human capital for a temporary period.

The European Commission did this in the wake of the financial crisis in order to deal with the increased volume of State aid cases [for discussion, see A Sanchez-Graells, “Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis” (2016) Journal of Antitrust Enforcement, forthcoming]. The possibility of introducing similar flexibility at ECJ level could help boost the effectiveness of EU law (and public procurement law in particular) through a swifter process for the clarification of new rules that, otherwise, may remain in legal limbo for quite some time.

In terms of looking for resource to do so, of course, the elephant in the room is the issue of the cost of language management (as in translation and interpretation) at the CJEU. This is probably heretical, but I think that a reduction of the resource dedicated to language management would be the easiest and quickest way of boosting the ability of the CJEU to deal with a larger docket of legal issues. The Management Report in the 2015 Annual Report makes this overwhelmingly clear. To my mind, the fact that 37.4% of the posts at the CJEU are judicial (including Cabinets, Registries, Research and Documentation, Library, Protocol, Communication and Publications), while 51.0% of the posts are languages positions (including Translation and Interpretation), is troubling. Basically, because this heaviness of language management has the combined effect of: a) draining resource that could be put to a different use and, b) delaying the functioning of the CJEU.

Overall conclusion

It is probably not surprising that a look at the statistical information on judicial activity shows that the CJEU is not prepared for the likely developments in litigation in the area of public procurement law. It may well be overwhelmed by developments at the EU level that triggered a higher intensity of procurement litigation--should the remedies system for EU Institutional procurement be developed along the lines proposed by the European Court of Auditors; and it is most certainly in a bad position to absorb any significant increase in the number of questions referred for a preliminary ruling that results from the Member States application of the 2014 Public Procurement Package in a systematic manner.

In my opinion, the CJEU (and the EU Institutions more generally) should look for creative ways of preparing for these changes. Otherwise, the effectiveness of the EU public procurement rules may be jeopardised and/or significantly delayed, particularly concerning the interpretation of the 2014 Public Procurement Package, which is certainly not without legal controversy.

New paper on the need to review the Remedies Directive

I have uploaded a new paper on SSRN: ‘If it Ain't Broke, Don't Fix It’? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts, to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming.

As detailed in the abstract: 

EU public procurement law relies on the specific enforcement mechanisms of the Remedies Directive, which sets out EU requirements of administrative oversight and judicial protection for public contracts. Recent developments in the case law of the CJEU and the substantive reform resulting from the 2014 Public Procurement Package may have created gaps in the Remedies Directive, which led the European Commission to publicly consult on its revision in 2015. One year after, the outcome of the consultation has not been published, but such revision now seems to have been shelved. This chapter takes issue with the shelving of the revision process and critically assesses whether the Remedies Directive is still fit for purpose. 

The chapter focuses on selected issues, such as the interplay between the Remedies Directive and the Charter of Fundamental Rights, and with the general administrative law of the Member States. It also assesses the difficulties of applying the Remedies Directive ‘as is’ to some of the new rules of the 2014 Public Procurement Package, which creates uncertainty as to its scope of application, and gives rise to particular challenges for the review of exclusion decisions involving the exercise of discretion. The chapter also raises some issues concerning the difficulties derived from the lack of coordination of different remedies available under the Remedies Directive and briefly considers the need to take the development of ADR mechanisms into account. Overall, the chapter concludes that there are important areas where the Remedies Directive requires a revision, and submits that the European Commission should relaunch the review process as a matter of high priority.

The paper is freely downloadable at http://ssrn.com/abstract=2821828. As always, comments welcome.

ECA's Special Report on access to EU Institutions' procurement: will it give a push to further reform?

On 13 July 2016, the European Court of Auditors published its Special Report No 17/2016 "The EU institutions can do more to facilitate access to their public procurement", where it examines how accessible the EU Institutions make their public contracts. I had the honour and pleasure of being invited to act as an academic expert during the preparation of this report, as well as to participate in a stakeholder meeting where the report was discussed with its main addressees, including the business community and the EU Institutions themselves. However, please note that the following only reflects my personal opinions about the report and any future developments.

To put the relevance of the report and the activities under investigation in perspective, it is worth stressing that the European Court of Auditors estimated the procurement carried out by the EU Institutions in 2014 in €4.2 bn. In particular, it is worth stressing that the European Commission manages just over €3 bn, while the Parliament and the European Central Bank manage €500 mn each, and the Council follows with more limited procurement activities of €171 mn.

These figures are important, particularly because they stress how the European Commission's procurement value exceeded that of some of the smaller Member States in 2014, such as Malta (€0.8 bn), Cyprus (€1.3 bn), Estonia (€2.5 bn) or Latvia (€2.7 bn); and the combined procurement of the EU Institutions also exceeded that carried out by Lithuania (€3.6 bn), and was very close to Bulgaria (€4.8 bn) and Slovenia (€4.9 bn). In my view, this indicates that the effects (positive or negative) of the regulation and development of public procurement by the EU Institutions should attract more attention than it usually does.

The report is generally positive on compliance issues, and it is clear that the European Court of Auditors takes no issue with the way in which the EU Institutions manage their procurement activities from a legal compliance perspective, since it found that 'the management and control arrangements were robust and reduced the risk of errors which could deter businesses from participating and prevent fair treatment'. However, the European Court of Auditors considered that the approach to procurement could be more strategic or market-oriented and, in particular, that EU Institutions could do more to facilitate SME access. 

In order to promote a more commercial approach to procurement, in particular, the European Court of Auditors included the following recommendations:

1. In order to facilitate the monitoring of the accessibility of their procurement activities, all EU institutions should collect and analyse data both on the initial number of requests to participate and offers received and the number of offers which were taken into account for the final award decision.
2. For the upcoming 2016 revision of the EU Financial Regulation the Commission should consolidate all relevant provisions into a single rulebook for public procurement. Participation of small and medium‑sized enterprises should be explicitly encouraged.
3. The EU institutions should proactively use preliminary market consultations wherever appropriate with a view to preparing the procurement and informing economic operators of their procurement plans.
4. The EU institutions should divide contracts into lots wherever possible to increase participation in their procurement procedures.
5. The EU institutions should create a common electronic one‑stop shop for their procurement activities allowing economic operators to find all relevant information in a single online location and to interact with the EU institutions through this website.
6. The Commission should propose a mechanism for a rapid review of complaints from economic operators who consider that they have been unfairly treated. Such a review should take place before economic operators may turn to the EU Ombudsman or to the EU Courts.
7. To allow effective ex post monitoring of their procurement activities the EU institutions should set up a single public repository of information related to their procurement contracts which could be developed as part of TED eTendering.
8. The European Anti‑Fraud Office OLAF should produce reports and statistics on the different types of allegations under investigation and the outcome of these investigations.
9. The EU institutions should use peer reviews for mutual learning and exchange of best practice.

Most of these recommendations are welcome and the European Court of Auditors should be encouraged to put some pressure on the EU Institutions, so that they materialise. There are, however, two recommendations that deserve some additional comments: recommendation 6 on remedies and recommendation 7 on the creation of a single public repository.

Recommendation #6 & EU Institution's resistance to facilitate review and flexible remedies

Given the reduced effectiveness of the informal resolution mechanisms provided by the European Ombudsman, which are significantly curtailed by the strictness of the procurement rules, and the cost and delay of challenging procurement decisions of the EU Institutions before the General Court (to these effects, see paras 76-88 of the report), it should come as no surprise that the European Court of Auditors recommended the creation of 'a mechanism for a rapid review of complaints from economic operators who consider that they have been unfairly treated', and that 'such a review should take place before economic operators may turn to the EU Ombudsman or to the EU Courts'.

What is more surprising, or maybe not, is that both the Council and the Parliament decided to omit this recommendation from their replies to the report, and that the Commission expressly opposed it. Indeed, in its reply to the report, the Commission indicated that

As far as the EU institutions are concerned, the Commission considers that the setting-up of a non-judicial review body, in addition to the already existing review mechanism provided for in the Financial Regulation, is neither needed nor appropriate as it would generate disproportionate costs for the benefits sought.

The Financial Regulation already provides that the unsuccessful tenderers are notified of the grounds and details reasons for their rejection and they may request additional information ... Such requests are subject to a strict deadline: the contracting authority must provide this information as soon as possible and in any case within 15 days of receiving the request.

In addition, whenever an act adversely affecting the rights of the candidates or tenderers is notified to the economic operators in the course of a procurement procedure (e.g. rejection), such notification will refer to the available means of redress (Ombudsman complaint and judicial review).

The Commission considers that the limited number of actions before the General court which dealt with procurement by the Union institutions (17) and the fact that compensation for alleged damages is rarely granted by the Court are strong indicators that the system in place is efficient and fit for purpose. Hence, the setting up of the suggested rapid review is not only not needed but it would also represent a disproportionate measure, not in line with cost-efficiency and not a good use of administrative resources (reply to point 78 of the report, emphasis added).

This is surprising because the European Commission does not seem willing to apply to its own procurement activities the standards of independent review that it promotes for Member States. In my opinion, a domestic system could not avoid a serious investigation on the effectiveness of its procurement remedies system with the argument that there are very few cases and those are unsuccessful, not least because the general principle of EU law that requires effectiveness of remedies ultimately requires that the available remedies do not make it practically impossible to claim the corresponding EU rights, which could be the case here.

When the procurement cases in front of the General Court last on average 35 months (see para 82 of the report) and the cost of litigation at the highest EU level is taken into consideration, one should not be too ready to accept the Commission's submission that the reduced number of such cases indicates the lack of need for more accessible, speedier and more effective review mechanisms. Moreover, the creation of such an alternative mechanism could also contribute to reduce the pressures on the General Court's procurement docket and, in general, facilitate specialisation and more flexibility in the resolution of conflicts.

Thus, the blanket rejection of the recommendation by the Commission seems to require some rethinking, and it would seem advisable to explore suitable alternatives, such as the creation of a procurement review agency, the submission of the procurement of the EU Institutions to the procurement remedies system of the relevant Member State, or some other similar option--including the possibility of creating a specialised chamber within the General Court, although this is an unlikely option for reasons that would take us too far from the discussion.

It is also important to stress that the creation of robust remedies mechanisms in public procurement (and in other areas of EU economic law) is not solely for the benefit of undertakings that partake in those procedures, but in the ultimate benefit of the taxpayer and society at large. In the case of procurement, if potential suppliers do not consider that they have a fair chance of protecting their interests, they will refrain from making investments in the submission of tenders. Such reduction of competition for public contracts carries an important implicit cost. Thus, aiming to save on direct administrative costs may well be self-defeating if this results in much larger shadow or indirect costs. This is not to mean that remedies should be promoted beyond the point necessary to ensure the integrity and probity of the procurement process, or that (generous or disproportionate) damages claims are the best way to ensure those remedies. What seems clear to me is that the issue of public procurement remedies under EU law requires further research and thought, and most certainly legal reform to adapt the existing system to the reforms of the 2014 Public Procurement Package. In that regard, it seems desirable for the Commission to carry on with the (seemingly abandoned) review of the Remedies Directive--and that such would be the ideal occasion to include the issue of remedies in the setting of EU Institutions' procurement in the proper considerations.

Recommendation #7 & risk of excessive procurement transparency

The second recommendation that deserves some comments is number 7, whereby the European Court of Auditors recommended that, in order to 'allow effective ex post monitoring of their procurement activities the EU institutions should set up a single public repository of information related to their procurement contracts'.

This raises, once more, the very tricky issue of the appropriate level of transparency of public procurement procedures and their outcomes, and the undesirable (unforeseen) effects that it can create. There is no doubt that the European Court of Auditors, like any audit body at national or international level, requires this information in order to discharge its functions. However, it is far from clear that there is a positive value in publishing all this information. While making this information public could contribute to some aspects of public governance (such as NGO and press scrutiny of these activities), it is by no means less clear that creating excessive transparency would contribute to anti-competitive strategies and potentially result in the cartelisation of public procurement markets.

In that regard, I would reiterate once more the need for a more nuanced approach to the compilation and publication of this type of information. 
As a functional criterion, only the information that is necessary to ensure proper oversight and the effectiveness of anti-corruption measures should be disclosed, whereas the information that can be most damaging for competition should be withheld. 

Generally, what is needed is more granularity in the levels of information that are made accessible to different stakeholders. The full transparency approach implicit in recommendation 7 of the European Court of Auditors' report, whereby all information is made available to everyone via a public registry or repository, falls very short from the desired balance between transparency and competition goals of public procurement. A system based on enabling or targeted transparency, whereby each stakeholder gets access to the information it needs for a specific purpose, is clearly preferable.

In more specific terms, the following normative recommendations should be subjected to further discussion in the roll-out of recommendation #7. They are by no means exhaustive and simply aim to specify the sort of nuanced approach to disclosure of public procurement information that is hereby advocated.

• Public contract registers should not be fully available to the public. Access to the full registry should be restricted to public sector officials under a strong duty of confidentiality protected by appropriate sanctions in cases of illegitimate disclosure.
• Even within the public sector, access to the full register should be made available on a need to know basis. Oversight entities, such as the audit court or the competition authority, should have full access. However, other entities or specific civil servants should only access the information they require to carry out their functions.
• Limited versions of the public contract registry that are made accessible to the public should aggregate information by contracting authority and avoid disclosing any particulars that could be traced back to specific tenders or specific undertakings.
• Representative institutions, such as third sector organisations, or academics should have the opportunity of seeking access to the full registry on a case by case basis where they can justify a legitimate or research-related interest. In case of access, ethical approval shall be obtained, anonymization of data attempted, and specific confidentiality requirements duly imposed.
• Delayed access to the full public registry could also be allowed for, provided there are sufficient safeguards to ensure that historic information does not remain relevant for the purposes of protecting market competition, business secrets and commercial interests.
• Tenderers should have access to their own records, even if they are not publicly-available, so as to enable them to check their accuracy. This is particularly relevant if public contract registries are used for the purposes of assessing past performance under the new rules.
• Big data should be published on an anonymised basis, so that general trends can be analysed without enabling ‘reverse engineering’ of information that can be traced to specific bidders.
• The entity in charge of the public contracts registry should regularly publish aggregated statistics by type of procurement procedure, object of contract, or any other items deemed relevant for the purposes of public accountability of public buyers (such as percentages of expenditure in green procurement, etc).
• The entity in charge of the public contracts registry should develop a system of red flag indicators and monitor them with a view to reporting instances of potential collusion to the relevant competition authority.

CJEU decouples limitation periods for award challenges and for damages actions in EU public procurement (C-166/14)

In its Judgment in MedEval, C-166/14, EU:C:2015:779, the Court of Justice of the European Union (CJEU) has clarified the rules on the establishment of limitation periods applicable to damages actions based on the infringement of EU public procurement rules. The CJEU has interpreted the EU Remedies Directive in a way that excludes the establishment of absolute time periods. In particular, the CJEU has ruled that , when it comes to damages actions for breach of EU public procurement rules, the establishment of an absolute 6-month limitation period from the day after the date of the award of the public contract in question runs contrary to the principle of effectiveness of EU law. 

In the case at hand, which concerned Austrian procurement rules, actions seeking damages for the illegal award of a public contract could only be derived or of a follow-on nature. That is, damages actions were conditional upon a prior declaration by the competent procurement supervisory authority that the implementation of a public procurement procedure without prior notice or without prior call for competition was unlawful. Such original action, from which the damages claim could only derive, had to be lodged within 6 months of the day following the date of the award of the contract. As a result of this dual requirement, and even if no specific time period was foreseen for damages actions themselves, the latter were absolutely time barred at the expiry of a 6-month period from the day after the date of the award of the public contract.

MedEval challenged this implicit or indirect absolute 6-month limitation period for the exercise of damages claims on the basis that it made it particularly difficult, if not totally impossible, to challenge direct awards that were never disclosed to the public. Under Austrian law, and under a strict interpretation of those cumulative requirements, it would be possible for a contracting authority to enter into an illegal direct award and shield itself from any liability in damages, provided only that it could keep such illegal direct award secret for 6 months. 

In MedEval's view, it should be possible for disappointed bidders to challenge illegal direct awards and obtain reparation in damages provided they acted promptly from the moment when they became aware of the unlawfulness of the procedure at issue. Ultimately, as the referring court stressed, that would be in line with the Judgment in Uniplex (UK) (C-406/08, EU:C:2010:45), according to which the period for bringing proceedings to obtain damages should start to run from the date on which the claimant knew, or ought to have known, of that alleged infringement.

The CJEU has accepted such an approach and has stressed that, indeed, the establishment of absolute limitation periods would have a very negative impact on the effectiveness of EU public procurement law. In the MedEval Judgment, the CJEU reasoned that

35 As regards actions for damages, it must be noted that Directive 89/665 provides ... that Member States may provide that where damages are claimed, the contested decision must first be set aside ‘by a body having the necessary powers’ without, however, laying down a rule as regards the time-limits for bringing actions or other conditions for the admissibility of such actions.

36 In the present case it appears, in principle, that ... Directive 89/665 does not preclude a provision of national law ... under which a claim for damages is admissible only if there has been a prior finding of an infringement of procurement law. However, the combined application [of the 6-month time limit applicable to that prior action] ... has the effect that an action for damages is inadmissible in the absence of a prior decision finding that the public procurement procedure for the contract in question was unlawful, where the action for a declaration of unlawfulness is subject to a six-month limitation period which starts to run on the day after the date of the award of the public contract in question, irrespective of whether or not the applicant was in a position to know of the unlawfulness affecting that award decision.

37 ... it is for the Member States to lay down the detailed procedural rules governing actions for damages. Those detailed procedural rules must, however, be no less favourable than those governing similar domestic actions (principle of equivalence) and must not render practically impossible or excessively difficult the exercise of rights conferred by EU law (principle of effectiveness) (see, to that effect, judgments in eVigilo, C-538/13, EU:C:2015:166, paragraph 39, and Orizzonte Salute, C-61/14, EU:C:2015:655, paragraph 46).

38 In consequence, it is necessary to examine whether the principles of effectiveness and equivalence preclude a national rule such as that set out in paragraph 36 of the present judgment.

39 As regards the principle of effectiveness, it is appropriate to point out that the degree of necessity for legal certainty concerning the conditions for the admissibility of actions is not identical for actions for damages and actions seeking to have a contract declared ineffective.

40 Rendering a contract concluded following a public procurement procedure ineffective puts an end to the existence and possibly the performance of that contract, which constitutes a significant intervention by the administrative or judicial authority in the contractual relations between individuals and State bodies. Such a decision can thus cause considerable upset and financial losses not only to the successful tenderer for the public contract in question, but also to the awarding authority and, consequently, to the public, the end beneficiary of the supply of work or services under the public contract in question. ... the EU legislature placed greater importance on the requirement for legal certainty as regards actions for a declaration that a contract is ineffective than as regards actions for damages.

41 Making the admissibility of actions for damages subject to a prior finding that the public procurement procedure for the contract in question was unlawful because of the lack of prior publication of a contract notice, where the action for a declaration of unlawfulness is subject to a six-month limitation period, irrespective of whether or not the person harmed knew that there had been an infringement of a rule of law, is likely to render impossible in practice or excessively difficult the exercise of the right to bring an action for damages.

42 Where there has been no prior publication of a contract notice, such a limitation period of six months is likely not to enable a person harmed to gather the necessary information with a view to a possible action, thus preventing that action from being brought.

43 Awarding damages to persons harmed by an infringement of the public procurement rules constitutes one of the remedies guaranteed under EU law. Thus, in circumstances such as those at issue in the main proceedings, the person harmed is deprived not only of the possibility of having the awarding authority’s decision annulled, but also of all the remedies provided for in ... Directive 89/665.

44 Consequently, the principle of effectiveness precludes a system such as that at issue in the main proceedings (C-166/14, paras 35-44, emphasis added).

This Judgment is particularly important for jurisdictions that set absolute time limits for the start of proceedings, particularly if they create similar cumulative effects of definitely time-barring actions for damages based on infringements of EU public procurement law (ie where damages actions are necessarily of a derivative or follow-on nature). Those jurisdictions will likely need to change their procedural rules to adapt to MedEval. 

In the UK, however, there seems to be no need to reform reg.92 of the Public Contracts Regulations 2015, which already establishes time periods based on the the starting point of when the economic operator first knew or ought to have known that grounds for starting the proceedings had arisen (see here).

Should Damages in Public Procurement Hinge on Disappointed Bidders’ Commercial Interests? A Comment on Energy Solutions EU Ltd v Nuclear Decommissioning Authority

This comment has been previously published in eutopialaw. I am thankful to Christopher Brown for having brought this stimulating case to my attention.

In its recent Judgment of 23 January 2015 in Energy Solutions EU Ltd v Nuclear Decommissioning Authority [2015] EWHC 73 (TCC), the High Court ruled on a preliminary issue in a public procurement dispute and held that the review court has no discretion (not) to grant damages for losses resulting from a breach of the public procurement rules. In my view, the Energy Solutions v NDA Judgment should be criticised at least for two reasons: firstly, because it misinterprets the EU rules on public procurement remedies and their link with the general principle of State liability for breaches of EU law; and secondly, because it creates an analytical framework based on the commercial decisions of disappointed bidders that would result in excessive (strategic) claims for damages. Moreover, the Energy Solutions v NDA Judgment sheds light on an important shortcoming of the system of public procurement remedies that is perpetuated under the recently adopted Public Contracts Regulations 2015 (SI 2015/102). This comment addresses these issues in turn.

Background

The dispute arises after Energy Solutions (as part of a bidding consortium, but that is not relevant for our purposes) was not chosen as the winning bidder in a tender for a nuclear waste management contract with the Nuclear Decommissioning Authority (NDA). After expressing its disagreement with the award decision and seeking additional information in the ensuing debriefing process, Energy Solutions eventually challenged the tender procedure within the 30-day limit applicable under reg.47D(2) of the applicable Public Contracts Regulations 2006 (SI 2006/5, as amended, primarily by SI2009/2992). By the time the challenge was effected, NDA had already entered into a contract with the winning bidder. Energy Solutions sought compensation for the damages it alleged to have suffered as a result of the improper conduct of the tender procedure

NDA tried to bar the damages action by arguing that a failure to challenge the award decision within the 10-day standstill period provided for under reg.32(3) Public Contracts Regulations 2006 (which could have prevented it from entering into the contract) broke the causal link between any breach of the applicable procurement rules and the ensuing damages (which, If any, would then derive from the tardiness of the challenge). NDA basically claimed that having foregone the possibility to prevent the award of the contract to another tenderer by activating the suspension foreseen in reg. 47G Public Contracts Regulations 2006, Energy Solutions had also lost the possibility to seek damages compensation. In support of that position, NDA submitted that, under reg.47J(2)(c) Public Contracts Regulations 2006, the review court retained discretion (not) to award damages resulting from a breach of public procurement rules in circumstances such as those in the case (ie the lost opportunity of litigating within the standstill period).

The High Court ruled against NDA on both points. Edwards-Stuart J found no basis for the

submission that any award of damages is dependent on the level of gravity of the breach, or any other such factor, and thus dependent on an exercise of judicial "discretion" or judgment, or whether, absent any failure to mitigate its loss, having proved a breach of the [public procurement rules] a claimant is entitled to anything other than damages that should be assessed by reference to ordinary principles. It may well be that the claimant's conduct will have been such that the court will be very reluctant to make any assumptions in its favour in relation to damages, but that is simply an aspect of the usual approach of the court to the assessment of damages (para 86).

As mentioned above, this finding is open to criticism, both for its inconsistency with EU law and because it creates an analytical framework that may result in excessive claims for damages. Each of these issues is addressed in turn. The problem derived from the diverging duration of the standstill period and the time limit for the challenge of award decisions is discussed last, as it also affects the brand new Public Contracts Regulations 2015.

The improper conceptualisation of the damages remedy with an EU law origin

In order to reach a conclusion on the discretionary or automatic nature of the damages remedy under reg.47J(2)(c) Public Contracts Regulations 2006, Edwards-Stuart J embarked on an assessment of the original provision that this regulation transposes, that is, art.2(1)(c) of Directive 89/665/EC (as amended by Directive 2007/66/EC), as well as its interpreting case law (primarily, Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others, C-568/08, EU:C:2010:751). However, in my view, his Judgment fails to extract the adequate conclusions.

It is worth stressing that, as stressed in paragraph 87 of Spijker (and repeated in para 69 of Energy Solutions v NDA), art.2(1)(c) of Directive 89/665 “gives concrete expression to the principle of State liability for loss and damage caused to individuals as a result of breaches of EU law for which the State can be held responsible” (emphasis added). In my view, Edwards-Stuart J completely misses the point when he tries to distinguish the Energy Solutions v NDA case by stating that

This is not a claim against a Member State for a breach of EU law which was intended to confer a right upon a person such as the Claimant. This is a claim brought by a corporate body against a national public body under the Regulations, an English national provision [sic] (para 83, emphasis added).

If nothing else, this position simply misses the entire EU law doctrine of supremacy and direct effect of Directives (Van Duyn v Home Office, C-41/74, EU:C:1974:133) and the duty of consistent interpretation (Marleasing v Comercial Internacional de Alimentación, C-106/89, EU:C:1990:395). Moreover, it is unnecessary for the analysis the High Court needed to complete in the case at hand. In that regard, it is also worth stressing that, as clearly established by the Court of Justice in Spijker (and repeated in para 70 of Energy Solutions v NDA)

In the absence of EU provisions in that area, it is for the legal order of each Member State to determine the criteria on the basis of which damage arising from an infringement of EU law on the award of public contracts must be determined and estimated … In the absence of any provision of EU law in that area, it is for the internal legal order of each Member State, once those conditions have been complied with, to determine the criteria on the basis of which the damage arising from an infringement of EU law on the award of public contracts must be determined and estimated, provided the principles of equivalence and effectiveness are complied with (Spijker, paras 90 and 92, emphasis added).

Hence, in order to stress the point of procedural autonomy (subject only to equivalence and effectiveness), Edwards-Stuart J did not need to take the difficult (and unacceptable) position of trying to decouple Energy Solutions’ claim from its obvious EU origin by rejecting its true essence.

Following on this aspect of the Judgment, it is also important to stress that counsel properly identified a further development of relevance in terms of assessing the effectiveness requirement. Indeed, in Danske Slagterier (C-445/06, EU:C:2009:178), the Court of Justice issued additional guidance on the possibility of imposing certain duties on disappointed tenderers before they can claim compensation for damages. That case concerned a German rule whereby reparation for loss or damage cannot be obtained by an injured party that has wilfully or negligently failed to utilise an available legal remedy (§839(3) BGB). The dispute concerned precisely the level of diligence that could be required under EU law from a claimant in damages that had forgone other (theoretically) available remedies before claiming for compensation.

In a situation that is clearly comparable to the one in Energy Solutions v NDA (as implicitly acknowledged by Edwards-Stuart J in para 73), the Court of Justice ruled that

it is a general principle common to the legal systems of the Member States that the injured party must show reasonable diligence in limiting the extent of the loss or damage, or risk having to bear the loss or damage himself … It would, however, be contrary to the principle of effectiveness to oblige injured parties to have recourse systematically to all the legal remedies available to them even if that would give rise to excessive difficulties or could not reasonably be required of them … [Union] law does not preclude the application of a national rule such as that laid down in para. 839(3) of the BGB, provided that utilisation of the legal remedy in question can reasonably be required of the injured party. It is for the referring court to determine … whether that is so (paras 61 to 64).

In my view, this provides the proper framework for the analysis of Energy Solutions v NDA, as it places the High Court in the position of assessing whether requiring claimants to challenge award decisions within the 10-day standstill period is reasonable and can become a pre-condition for their damages claims, despite the fact that the applicable regulations provide them with a 30-day period to do so. That is the point of “discretion” (rectius, non-automaticity) in the award of damages derived from public procurement infringements on which the parties disagreed, and one to which I will return below.

However, Edwards-Stuart J insisted (para 78) on his view that the domestic remedy has nothing to do with the general principle of State liability under EU law (in a frontal disregard of Spijker para 87), which excludes the applicability of any guidance ultimately based on the State liability doctrine (Brasserie du pêcheur and Factortame, C-46/93, EU:C:1996:79). In my view, this creates significant confusion and implies a breach of EU law within the UK legal system (which could, if not remedied, end up resulting in liability under Köbler, C-224/01, EU:C:2003:513).

The improper focus on the commercial choices or gambles of the disappointed bidder, which could trigger excessive litigation seeking procurement damages compensation

My second criticism of the Judgment in Energy Solutions v NDA derives from the isolated and commercially-led analysis of the system of remedies provided by Directive 89/665, as transposed by the Public Contracts Regulations 2006 (and now the Public Contracts Regulations 2015). The point of departure for the analysis of the remedies system and, particularly, the granting of damages, needs to rest on two basic points. 

The first one is a point of law. Damages are conceptualised as an ancillary remedy under Directive 89/665 [for discussion see S Treumer, ‘Damages for breach of the EC public procurement rules - changes in European regulation and practice’ (2006) 17(4) Public Procurement Law Review 159-170]. In my view, this is particularly clear after the 2007 reforms [similarly, S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 178; see also R Caranta, The Comparatist’s Lens on Remedies in Public Procurement (Istituto Universitario di Studi Europei, WP 2011-1) 7-8], which aimed at ensuring the effectiveness of the public procurement rules through stronger requirements of ineffectiveness of contracts concluded in their breach. This is the proper interpretation of the ensemble of remedies established under the EU rules and, in particular, given that art.2e(2) in fine Directive 89/665 expressly indicates that “[t]he award of damages does not constitute an appropriate penalty”.

Hence, damages are not an alternative or substitute remedy for the ineffectiveness of illegally awarded contracts (which can only be replaced with proper penalties imposed on the infringing contracting authority where public interest mandates the continuation of the illegally-awarded contract). Moreover, damages are not a free standing remedy, as they must be based on a (sufficiently serious) breach of procurement rules, which necessarily carries the consequence of either ineffectiveness of the contract or penalties for the contracting authority. This is also very clear from the wording of reg.47J Public Contracts Regulations 2006, which requires the review court to make findings on ineffectiveness and civil penalties, while it (simple?) authorises the court to make findings regarding damages compensation (this is discussed in paras 62ff of the Energy Solutions v NDA Judgment, but in a way that goes against the literal reading of the provision).

The second point is a point of general policy based on economic incentives. In my view, disappointed tenderers will always have an incentive to seek damages compensation. Once they have participated in a tender procedure and not been awarded the contract, it is more favourable for them to seek damages (particularly if loss of profits is recoverable) than to seek the specific performance of the tender procedure being brought back to the point previous to the relevant infringement, or even the award of the contract as such. Once they are put in a position where they have an automatic claim for damages based on the infringement of the procurement rules, they will always prefer its exercise to any alternative remedy that either does not secure them the contract (because it forces a re-tendering) or awards them the contract (as getting direct financial compensation for the lost profits is better than having to – properly – execute a contract in order to create them). 

In short, creating an automatic right to damages compensation for breach of public procurement rules would become a ‘winning lottery ticket’ for disappointed bidders. It is simple to see how such unbalanced rights to remedies would trigger excessive litigation. From a policy perspective, then, it should be required that contractors only be entitled to damages when a specific, non-financial remedy is not available (ie, when the illegally awarded contract must be protected in view of a sufficient public interest).

From this perspective, it is hard to understand how Edwards-Stuart J can consider that

If the claimant is seeking to have the award of the contract suspended, then it must start proceedings within the standstill period or, in any event, within the 30 day period and before the award of the contract. However, if the claimant is merely seeking damages, then it need only start proceedings within the 30 day period. I do not see any basis for treating these two remedies as being of different importance: that depends on a claimant's circumstances and what it is seeking to achieve - the Regulations give it a choice (para 79, emphasis added).

The relevant point, in my view, is that the Regulations do not give a choice to the Court (not the claimant) in terms of the content of the challenge against an award decision. If the Court finds that there is an infringement, it must impose the relevant remedies (not only damages), as clearly established in reg.47J Public Contracts Regulations 2006 for cases in which the contract has already been entered into (and in relatively less stringent terms, in reg. 47I Public Contracts Regulations 2006 when the contract has still not been entered into). Hence, regardless of whether the claimant complements the claim for damages with a claim for ineffectiveness or not, the Court must always consider the possibility and desirability of setting the illegally-awarded contract aside. Consequently, there should actually not be any difference, from the point of view of the Court, between the two sets of remedies indicated above. Maybe in blunter terms, under the applicable Regulations, a claimant is never allowed to actually only seek damages because the Court is never allowed to only rule on damages.

Hence, considerations such as those developed in paragraphs 87 to 91 of the Energy Solutions v NDA Judgment must be rejected, since they rely on the consideration that a claimant can legitimately conclude “for various commercial reasons, that damages would be an adequate remedy in all the circumstances” (para 87, emphasis added), and that this needs to be the guiding principle in the construction of the system of remedies for public procurement infringements.

I of course acknowledge that this is an approach that implicitly recognises that disappointed bidders do not challenge award decisions only in their own interest, but also exercise a (residual, implicit) ‘general attorney-like’ function aimed at catching and sanctioning infringements of (EU) public procurement law—in a sort of private enforcement akin but different from that developed for the equivalent competition law rules. However, I struggle to see how the system of remedies could be developed in satisfactory way exclusively considering disappointed bidders’ commercial interests.

The source of the problems: diverging time-limits beyond mandatory standstill periods

The final issue that bears comment (and much further thought) refers to the existence of time-limits for the challenge of procurement decisions that reach beyond mandatory standstill periods. The situation created under the Public Contracts Regulations 2006 has just been perpetuated under the recently adopted Public Contracts Regulations 2015, which regs.87 and 92(2) perpetuate the problem of a general time-limit for the start of proceedings that exceeds the mandatory 10-day standstill period. As Edwards-Stuart J rightly pointed out in the Energy Solutions v NDA

the Regulations permit an unsuccessful tenderer to start proceedings after the expiry of the standstill period, and therefore at a time after which the authority may have entered into the contract with the successful tenderer: indeed, the Regulations expressly contemplate this eventuality. I therefore have considerable difficulty in seeing how a decision not to start proceedings within the standstill period could be said to be unreasonable. But, as I have already said, this is a question of fact (para 54).

Hence, the problem that is (now, clearly) on the table is that the part of the time-limit for the start of proceedings that runs beyond the duration of the mandatory standstill creates space for strategic litigation, particularly if coupled with the ‘automaticity’ (or lack of discretion) for the award of damages resulting from a breach of public procurement rules discussed above. There are two possible options. On the one hand, to overrule Energy Solutions v NDA and go back to a Spijker-compliant interpretation of the Public Contracts Regulations (2006 and 2015), so that a judgment of ‘reasonableness’ of the time at which the proceedings are started is conducted by the court on a case by case basis. This option creates legal uncertainty and may trigger further litigation at EU level. On the other hand, to amend the Public Contracts Regulations 2015 so that the standstill period and the time-limit to initiate actions coincide. In that case, I would expect the standstill to be extended, rather than the time-limit to be reduced. One way or the other, though, the system needs fixing in order to close the gaps that can now trigger excessive (strategic) litigation.

AG proposes to reduce safe harbour for directly awarded public contracts subjected to prior transparency (C-19/13)

In his Opinion of 10 April 2014 in case C-19/13 Fastweb, Advocate General Bot has proposed an interpretation of Art 2d(4) of Directive 89/665 (as amended by dir 2007/66) that would seriously erode the safe harbour (apparently) created by that provision for contracts that have been directly awarded by the contracting authority (without competition), provided that the following cummulative conditions are met: 

 

— the contracting authority considers that the award of a contract without prior publication of a contract notice in the Official Journal of the European Union is permissible in accordance with Directive 2004/18/EC,

 — the contracting authority has published in the Official Journal of the European Union a notice (...) expressing its intention to conclude the contract, and,

 — the contract has not been concluded before the expiry of a period of at least 10 calendar days with effect from the day following the date of the publication of this notice (emphasis added).

 

The key element of his Opinion is, in my view, his interpretation of the extent to which the discretion of the contracting authority in 'considering' that it can avail itself from the possibility to award a contract without prior publication of a contract notice is subject to judicial review. A literal reading of the provision seems to indicate that the standard of review is very low (if not inexistent) and that, provided the transparency requirement and standstill period are respected, the directly awarded contract cannot be declared ineffective--leaving the challenging tenderer with the only option of seeking compensation for damages.

 

However, AG Bot argues that this would create a paradox and opposes such a literal interpretation of the provision, subjecting that exercise of discretion to effective (full) judicial review. As AG Bot argues,

74. Indeed, it should be noted that Directive 89/665 is specifically designed to increase the guarantees of transparency and non-discrimination in the context of procedures for the award of public contracts so that the injured economic operator receives complete legal protection. Moreover, it should also be remembered that the European Union legislature opted to strengthen in Directive 2007/ 66 the effectiveness of review procedures to combat the illegal direct award of public contracts and to protect potential tenderers against the arbitrariness of the contracting authority.

 

75 . Secondly, [if the judgment made by the contracting authority was not open to judicial review], in these circumstances, the contracting authority [would be allowed] to directly award a contract in contravention of the requirements laid down in Directive 2004/18, by serving minimum formalities and exposing itself to a minimum punishment, giving rise to potential abuses of the rights thereby recognized (AG Bot in C-19/13, at paras 74-75, own translation from Spanish and references omitted).

 

Further, AG Bot considers that

One must not lose sight of the dact that the maintenance of the effects of the contract provided for in Article 2d paragraph 4 of Directive 89/665 is based on the good faith of the contracting authority and seeks to preserve legal certainty for the contracting parties. The European Union legislature expressly recognized this in the twenty-sixth recital of Directive 2007/66, by insisting on the need to "avoid legal uncertainty which may result from ineffectiveness" of the contract. In addition, the Court has expressly admitted this in the judgment in Commission / Germany [EU:C:2007:432, para 33] (AG Bot in C-19/13, at para 82, own translation from Spanish and emphasis added).

In view of these (and other) considerations, AG Bot proposes that the CJEU interprets that

Article 2d , paragraph 4 of Council Directive 89/665 (...) read in the light of the principle of equal treatment and the right to effective judicial protection, must be interpreted as not precluding that a Member State grants the body responsible for appeal proceedings the freedom to appreciate the extent to which a contract awarded without prior publication of a notice in the Official Journal of the European Union must be declared ineffective when it finds that, despite the publication in the Official Journal of the European Union of a notice stating its intention to conclude the contract and the observance of a minimum standstill period of ten days, the contracting authority has violated in a deliberate and intentional way the advertising standards and the requirements of opening up to competition laid down in Directive 2004/18 (own translation from Spanish, emphasis added).

Basically, AG Bot argues against an automatic exclusion of the possibility to declare contracts ineffective under Art 2d(4) of Directive 89/665 and advocates for an extension of the scope of judicial review in order to assess whether contracting authorities acted in good faith. In my view, this potential development in the interpretation of EU procurement rules is troubling because it points towards a tendency to include subjective assessments in procurement review procedures (see Art 18 Directive 2014/24) and departs from the standards of judicial review: manifest error in law or in fact, and abuse of power/procedure.

 

The same result [ie inapplicability of the safe harbour of art 2d(4) of dir 89/665] could be achieved by simply stating that the first condition (that is, that the contracting authority considers that the award of a contract without prior publication is permissible in accordance with Directive 2004/18) is subject to that 'consideration' not being manifestly incorrect in law or in fact, or that the contracting authority has not abused its powers in the award of the contract.

I would prefer the CJEU to rule in that regard without embarking on analyses related to the good faith or otherwise of the contracting authority. Let's hope that the final judgment in the Fastweb case does not open the door to a myriad of complications in order to determine such type of subjective elements.

CJEU protects right to challenge public procurement decisions by non-compliant tenderers (C-100/12)

In its Judgment of 4 July 2013 in case C-100/12 Fastweb, the Court of Justice of the European Union (CJEU) has strengthened the effectiveness of the public procurement remedies system by protecting the right to challenge (illegal) award decisions by tenderers that do not comply with all the (technical) requirements imposed by the tender documentation themselves.

In the case at hand, a disappointed tenderer challenged the award decision on the basis that none of the two awardees in a framework agreement complied with the technical specifications set by the contracting authority. The awardees of the contract intervened in the procedure and raised a counterclaim stating that the challenger did not comply with the technical specifications (either). Under Italian law, the counterclaim had to be analysed first and, if successful, would bar the challenge on the basis of a lack of locus standi of the disappointed tenderer (who could not have been awarded the contract anyway and, consequently, would be prevented from challenging the outcome of the procedure).

The CJEU found such an interpretation of the rules on active standing contrary to the EU public procurement remedies directives (as amended by dir 2007/66), inasmuch as 'the aim of [those directives] is to ensure that decisions made by contracting authorities in breach of European Union law can be effectively reviewed' (C-100/12 at para 25). Following a functional approach that deserves praise, the CJEU found that:

a counterclaim filed by the successful tenderer cannot bring about the dismissal of an action for review brought by a tenderer where the validity of the bid submitted by each of the operators is challenged in the course of the same proceedings and on identical grounds. In such a situation, each competitor can claim a legitimate interest in the exclusion of the bid submitted by the other, which may lead to a finding that the contracting authority is unable to select a lawful bid (C-100/12 at para 33).

Consequently, the CJEU has determined that the counterclaim concerning the locus standi of a tenderer that should have been excluded (or whose tender should have been rejected) cannot preempt the analysis of the legality of the award decision adopted by the contracting authority. 

By (implicitly) adopting such a broad interpretation of the concept of 'any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement' [art 1(3) dir 2007/66], the CJEU has increased the chances of attaining effective and substantive review of the award decisions adopted by contracting authorities, regardless of the specific procedural rules within each of the EU Member States (as mandated by the principle of effectiveness of EU law) and seems to point clearly towards a principle or criterion of 'favor revisionis', so that review bodies and courts tend to assess the material conditions of award decisions, despite the presence of apparent procedural difficulties to carry out such an assessment. 

In my opinion, this is a favourable development of EU public procurement law and one that is conducive to ensuring an absence (or correction at review stage) of distortions of competition. As argued elsewhere [A Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart, 2011) pp. 353-355], my view is coincidental with the approach adopted by the CJEU in that 

the best reading of the standing requirements imposed by Directive 2007/66 is that Member States have to adopt a broad approach to the setting of detailed rules regulating active standing to access bid protests and review procedures, and that they have to do so attending both to the criterion of participation in the tender, and to the criterion of the effects actually or potentially generated by the alleged infringement—so that bid protest and review procedures are open to any party that has taken part in the tender or that can otherwise prove that it has been harmed or risks being harmed as a result of the alleged infringement, regardless of its actual participation (or lack of it) in the specific tender that gave rise to it.

Enforcement of State Aid Rules for SGEIs before Public Procurement Review Bodies and Courts

I just posted a new paper on SSRN: Enforcement of State Aid Rules for Services of General Economic Interest Before Public Procurement Review Bodies and Courts. 

I will be presenting it at the "Competition and State Aid Litigation – The Effect of Procedures on Substance", CLaSF/University of Luxembourg Conference, 19-20 September 2013.

ABSTRACT: One of the criticisms against the new rules applicable to the granting of State aid to finance the provision of services of general economic interest in the "Almunia package" is that enforcement is likely to be their weakest point. Similarly, in the more general setting of the "private" enforcement of State aid rules, the 2006 Study on the Enforcement of State Aid Law at National Level recommended that the European Commission created a common minimum standard of remedies applicable in all EU jurisdictions, stressing that "one possible means of creating such a standard would be to adopt a remedies directive for State aid cases, which could be modelled on the remedies directive for procurement cases".

Building up on these considerations, the extent to which the existing remedies within the system for the enforcement of EU public procurement rules provide an effective platform to enforce EU State aid rules (and, more specifically, those for the financing of SGEIs) before public procurement review bodies and courts is assessed. The paper describes the main groups of cases where public procurement litigation "phagocytises" State aid considerations. It then proceeds to explore the viability, from an EU law perspective, of configuring public procurement review bodies and courts as "State aid courts" for the purposes of the simultaneous enforcement of both sets of rules in a single setting of "private" litigation. It also submits that using the public procurement system in this way provides effective remedies for the enforcement of the Almunia Package for the financing of SGEIs.