Transposing Directives no longer so discretionary! The Court of Justice forces transposition of discretionary exclusion grounds and hints at ‘intra-State’ vertical direct effect (C‑66/22)

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

On the face of it, in Infraestruturas de Portugal and Futrifer Indústrias Ferroviárias (C-66/22), the Court of Justice had to assess whether Member States can limit the exclusion of competition law violators from participation in tenders for public contracts to cases where the national competition authority has previously imposed such debarment as an ancillary penalty. While this is a plausible transposition approach that seeks to centralise competition law analysis under the control of the specialist administrative authority, it can also reduce the effectiveness of procurement mechanisms seeking to preserve (much needed) competition for public contracts. It is thus fair enough to test the boundaries of the discretion that contracting authorities can retain in this context. However, in Infraestruturas, the Court of Justice did two other things that are potentially significant beyond the narrower field of procurement governance. First, the Court reversed its previous case law and established that Member States are (no longer) allowed not to transpose discretionary exclusion grounds. This says something (but I am not too sure what) about the more general level of discretion that Member States retain in the transposition of (prescriptively worded) Directives into their national systems under Art 288 TFEU. Second, the Court furthered a line of reasoning that comes to assign ‘individual rights’ to contracting authorities—that is, entities within the public sector—in what could seem like the creation of an ‘intra-State’ modality of vertical direct effect. In this Op-Ed, I try to make some sense of these two developments and leave aside for now the details of the interpretation of the specific grounds for the exclusion of economic operators under Directive 2014/24/EU.

No longer discretionary to transpose discretionary exclusion grounds

It is trite EU law that, under Art 288 TFEU, Member States retain discretion in the choice of form and methods for the transposition of a Directive. While Directives can be prescriptive about their aims and goals and, sometimes, about specific modes of protection of the relevant legal interest, there seems to be a (theoretical) agreement that Directives still (must) leave a margin of discretion to Member States—else, they surreptitiously shapeshift into Regulations. Such discretion would seem to cover in particular those elements of a Directive that are explicitly labelled as discretionary. This ‘orthodoxy’ seemed to be straightforwardly applied by the Court of Justice in the analysis of the constraints on the transposition of the Public Procurement Directive 2014/24.

The Public Procurement Directive contains a set of rules on the exclusion from tenders for public contracts of economic operators that have fallen short of their legal obligations. In Art. 57, in addition to setting rules applicable to all exclusion decisions, the Directive distinguishes between, on the one hand, mandatory exclusion grounds that require contracting authorities to exclude economic operators convicted by final judgment for one of a series of breaches (Art. 57(1)) and, on the other hand, discretionary exclusion grounds that allow contracting authorities to exclude the affected economic operators (Art. 57(4)). Member States are explicitly allowed to turn discretionary exclusion grounds mandatory under their transposing legislation. Conversely, until now, the Court had been clear that Member States were allowed not to transpose discretionary exclusion grounds. So far, so good.

In Infraestruturas, however, the Court of Justice U-turned. It stated that:

… the first subparagraph of Article 57(4) of Directive 2014/24 … states that ‘contracting authorities may exclude or may be required by Member States to exclude any economic operator from participation in a procurement procedure’ in any of the situations referred to in points (a) to (i) of that provision.

In that connection, it admittedly follows from certain judgments of the Court … that the Member States can decide whether or not to transpose the facultative grounds for exclusion referred to in that provision. The Court has in fact held that … the Member States are free not to apply the facultative grounds for exclusion set out in that directive or to incorporate them into national law with varying degrees of rigour according to legal, economic or social considerations prevailing at national level (see, to that effect, judgments of 19 June 2019, Meca, C‑41/18, EU:C:2019:507, paragraph 33; of 30 January 2020, Tim, C‑395/18, EU:C:2020:58, paragraphs 34 and 40; and of 3 June 2021, Rad Service and Others, C‑210/20, EU:C:2021:445, paragraph 28).

However, an analysis of the wording of the first subparagraph of Article 57(4) of Directive 2014/24, the context into which that provision fits, and the aim that the latter pursues within the framework of that directive, shows that contrary to what is apparent from those judgments, the Member States are under the obligation to transpose that provision into their national law (C-66/22, paras. 48-50, emphases added).

In my view, this U-turn challenges the ‘orthodoxy’ to the extent that the Court subjects the margin of discretion left to the Member States by the EU legislators to the Court’s assessment of whether what is clearly labelled as discretionary—and was as such treated in earlier case law—is permissibly left to the discretion of the Member States in view of the aims of the Directive. I think that this introduces a potentially tricky line of challenge of the content of EU Directives on the grounds that the EU legislators could not have left to the Member States’ discretion specific aspects of their content without undermining the goals of the Directive itself. This can ultimately constrain the upstream discretion in the choice of legal instrument under Art 288 TFEU by the EU legislators themselves, and further erode the distinction between Regulations and Directives if the content of the Directives can in fact eventually be binding in their entirety and directly applicable in all Member States. Further, this U-turn is based on a rather peculiar interpretation of the wording of the Public Procurement Directive that comes to assign ‘individual rights’ to the public sector. Given this peculiarity, I am not too sure whether the deviation from the orthodoxy in Infraestruturas indicates a significant shift by the Court of Justice or ‘just’ an exception or oddity that may confirm the general rule.

‘Intra-State’ vertical direct effect?

In justifying its U-turn, the Court of Justice stresses that, under Art. 57(4) of the Public Procurement Directive:

… the choice as to the decision whether or not to exclude an economic operator from a public procurement procedure on one of the grounds set out in that provision falls to the contracting authority, unless the Member States decide to transform that option to exclude into an obligation to do so. Accordingly, the Member States must transpose that provision either by allowing or by requiring contracting authorities to apply the exclusion grounds laid down by the latter provision. … a Member State cannot omit those grounds from its national legislation transposing Directive 2014/24 and thus deprive contracting authorities of the possibility – which must, at the very least, be conferred on them by virtue of that provision – of applying those grounds.

… it should be noted that recital 101 of that directive states that ‘contracting authorities should … be given the possibility to exclude economic operators which have proven unreliable’. That recital thus confirms that a Member State must transpose that provision in order not to deprive contracting authorities of the possibility referred to in the preceding paragraph and that recital.

…

Lastly, as to the objective pursued by Directive 2014/24 in so far as concerns the facultative grounds for exclusion, the Court has acknowledged that that objective is reflected in the emphasis placed on the powers of contracting authorities. Thus the EU legislature intended to confer on the contracting authority, and on it alone, the task of assessing whether a candidate or tenderer must be excluded from a procurement procedure during the stage of selecting the tenderers (see, to that effect, judgments of 19 June 2019, Meca, C‑41/18, EU:C:2019:507, paragraph 34, and of 3 October 2019, Delta Antrepriză de Construcţii şi Montaj 93, C‑267/18, EU:C:2019:826, paragraph 25).

The option, or indeed obligation, for the contracting authority to apply the exclusion grounds set out in the first subparagraph of Article 57(4) of Directive 2014/24 is specifically intended to enable it to assess the integrity and reliability of each of the economic operators participating in a public procurement procedure.

The EU legislature thus intended to ensure that contracting authorities have, in all Member States, the possibility of excluding economic operators who are regarded as unreliable by those authorities (C-66/22, paras. 51-52 and 55-57, emphases added).

Even if not altogether new—see Meca (C-41/18) and Delta (C-267/18)—I find this line of reasoning puzzling. The way the Court of Justice has interpreted Art. 57(4) of the Public Procurement Directive equates to an ‘individual right’ for contracting authorities not to contract with economic operators they deem unreliable and, crucially, this is an ‘individual right’ that Member States cannot deprive them from. The protection of such right implies an ‘intra-State’ modality of vertical direct effect—at least to the extent that, after Infraestruturas, a contracting authority of any Member State with centralised exclusion decision-making can challenge any constraints on its administrative discretion and simply set aside the domestic rules and directly rely on the Directive to proceed to exclusion on the basis of discretionary grounds.

To my mind, this line of reasoning extracts the wrong implications from the wording of the Directive because of the quasi-anthropomorphism of contracting authorities. Given that the Directive conceptualises contracting authorities as the relevant unit of decision-making, references to contracting authorities should be seen as references to decisions within a procurement procedure, not as references to agents that derive rights independently from—or even against—the structure of the State into which they are embedded. In the end, contracting authorities are defined as ‘the State, regional or local authorities, bodies governed by public law or associations formed by one or more such authorities or one or more such bodies governed by public law’ (Art. 2(1)(1) Directive 2014/24). A functional interpretation of the wording of Article 57(4) of the Public Procurement Directive would recognise that the meaning of ‘contracting authorities may exclude or may be required by Member States to exclude’ is that ‘in a covered procurement procedure, it is permissible to exclude, and it can be made mandatory to exclude’—which would then straightforwardly follow the orthodoxy in allowing Member States to exercise the discretion on the form and method of transposition of that possibility.

I submit that the Court of Justice has followed a line of reasoning that is also problematic in relation to other provisions of the Public Procurement Directive, in particular in relation to the potential effects it could have in ‘empowering’ contracting authorities to take courses of action (eg international collaboration) that could imply domestic ultra vires.

Final thoughts

What I find most confusing in this part of the Infraestruturas Judgment is that the Court could have found much less disruptive and confusing ways to reach the same conclusion. For example, it could have found that, in empowering the national competition authority to make decisions on the exclusion of tenderers through the imposition of ancillary penalties, Portugal had decided to transpose the relevant discretionary exclusion ground, but done so incorrectly or defectively by simultaneously transposing the ground but limiting the discretion of the contracting authority. I would still find issue with that approach, but at least it would be easier to reconcile with important parts of the orthodoxy of fundamental aspects of EU law.

Combating collusion in procurement: webinar recording and slides

It was a pleasure to host today the book launch of Katarzyna Kuźma and Dr Wojciech Hartung's Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar, 2020). The authors were joined by Dr hab. Piotr Bogdanowicz and Jesper Fabricius, as well as yours truly, to discuss recent developments in the treatment of joint bidding under Article 57 of Directive 2014/24/EU, as well as the outstanding legal uncertainty on the interpretation and application of this provision, which Katarzyna and Wojciech have analysed in detail in their book. The slides used for the presentation are available (via dropbox) and a recording of the session (minus Q&A) is also available via the image below (or this link).

The authors would be happy to receive feedback or more general questions about the book and its subject-matter. They can be contacted at katarzyna.kuzma@dzp.pl and wojciech.hartung@dzp.pl.

Some thoughts on the transposition of the concessions directive after a comparative conference in Brescia

On 31 May and 1 June 2017, I had the pleasure of attending a conference on the transposition of the concessions directive (Dir 2014/23) organised at the Law Faculty of the University of Brescia. The discussions formally covered the transposition in Belgium, Spain, the UK, the Netherlands and Italy, and colleagues from other jurisdictions provided additional views from Denmark, Romania and beyond. After two days of debates and rather detailed discussions (and amazing food, wine and weather, all be said), I have jotted down some rough thoughts on the issues and challenges resulting from the initial transposition efforts in these jurisdictions—which may result in litigation and case law in the future. All views are my own and any misunderstandings of the rules in any of these jurisdictions are solely mine, and are probably influenced by my previous views on the concessions directive (see here and here).

Conceptual / Scoping Issues

01. The word concession remains a dangerous misnomer in countries with a tradition of using this label for extractive concessions (coal, gas, etc), domain concessions (ie authorisations to use public spaces or infrastructure) or for activity concessions (rectius, authorisations or permits), which sometimes have experienced an independent legislative evolution in parallel (or even rather separately) from the discipline of public contracts. This creates some interesting (and difficult) trends of resistance and influence (or deformation) in the transposition of the concessions directive, as well as continuing (perceived) lack of clarity in the contours of the concept of concession.

02. It seems that there could have been an alternative approach had the EU decided to use a different (new) term without historical connotations or domestic implications for the purposes of establishing the scope of the rules, and thus allowed Member States to choose their nomenclature / domestic legal institution that better matched the EU definition / concept. Given that this was not the case, at the current juncture, it seems that a further development at EU level of the concept of authorisation/licence, and a more consistent and technically accurate use of the (EU) terms concession and authorisation/licence at domestic level could be a solution for the future—although this can have an impact on the (previously) homonymous domestic institutions and could continue to create some irritation (in the sense of the comparative law literature on legal transplants).

03. The controversy surrounding the legal nature of concessions as either public contracts, special (private) contracts or a tertium genus also remains on the table. This does not seem clearly conducive to functional regulation, in particular in terms of post-award remedies. Similarly, some jurisdictions (such as Spain) establish special rules for concessions involving the provision of services directly to the end user / citizen, which also introduces conceptual difficulties by establishing different types of service concessions on the basis of non-EU criteria. The extent to which this is in line with the need to keep homogeneous concepts in the transposition of the concessions directive remains an open question.

04. Other issues around the concept of concession (proper), and notably the issue of the transfer of significant operating risk so as to expose the concessionaire to the vagaries of the market, are creating quite some puzzling analyses in some jurisdictions, at least in academic circles. It seems that there are difficulties in integrating an economic/financial understanding of risk with more traditional categories of risk as understood by lawyers (sometimes taken as almost a synonym of liability) and related to the position of the concessionaire as an agent, delegate or substitute of the public administration, as well as to the transfer or not of public powers as part of the concession relationship.

05. The requirement for risk transfer is sometimes presented as an implicit condition for the public administration’s decision to stop directly exercising public powers and rather resort to the market for the provision of public infrastructure and/or services (almost as if the risk had to be created in order to have the option of resorting to the concession mechanism)—whereas, in my view, this is rather related to the more limited coverage of concession contracts in the 2004 rules (ie exclusion of services concessions) and the softer-touch regulatory regime in the 2014 package (which influenced the ECJ’s development of the concept of concession so far), and which rather rest on the need to allow for the existence of a closer (contractual) relationship between concessionaire and procuring entity, rather than the other way around. I have this idea in the back of my head that some of the peculiarities of the concessions regime derive from a sort of need to allow for an intuitu personae to be created, which would run contrary to the idea of risk transfer as a sort of market-making or market-incentivising device (which, however, will take me some time to formulate in full).

06. There is talk of ‘hot’ and ‘cold’ concessions, or concessions ‘in the light’ and ‘in the shadows’, or ‘unilateral’, ‘bilateral’ or ‘triangular’ concessions … depending on the sources of revenue/turnover for the concessionaire—which (unnecessarily) complicates issues of analysis of risk transfer (and about the existence of risks, even at a more basic level). In some cases, this leads to difficulties in the setting of boundaries between concession contracts and other forms of public-private partnering or collaboration, which continues to create issues of compatibility of legal regime and normative coordination that could otherwise be avoided through a clearer operationalisation of the procedural flexibility applicable to complex contracts as a more general category.

07. There are also issues concerning the identification of cross-border interest for concessions below the value threshold in the concessions directive—and in line with the ECJ case law, notably in Comune di Ancona—and this raises an additional element of fuzziness of the scope of application of the directive. Given that it is structured as principle-based regulation and that below threshold concessions of cross-border interest are subjected to compliance with general principles (see below), this creates further uncertainty as to the limits of its substantive scope of application. In some jurisdictions (notably the Netherlands), this is particularly clear due to the consolidation into domestic law of the ECJ case law on general principles applicable to below-threshold concessions, and where there is an erosion of the requirement of cross-border interest and substantive convergence between EU and domestic homonymous principles (notably, non-discrimination and equal treatment). This is bound to reduce the scope/risk for reverse discrimination and could simplify the existing multiplicity of (formally) distinct principles-based obligations, and the Dutch experience seems to offer a good case study of substantive consolidation in the area of procurement, in my opinion.

08. Despite the existence of these conceptual and boundary issues, most jurisdictions operate on the same underlying assumption as the 2014 Public Procurement Package and establish a separate legal regime for the award of concession contracts (either within the same statutory framework, such as in the Netherlands or in the Spanish draft legislation, or in a separate instrument, such as in the UK). In my view, this masks the underlying incentives for compliance with general procurement rules in order to avoid situations of ex post realisation that the concessions regime was inapplicable—eg due to the distribution of risk resulting from negotiations or successive rounds of renewed offers, or due to the (limited) extent of potential losses in view of the final financial make-up of the concession contract. In general, a cautious approach to comply with the general procurement rules when in doubt may well neutralise most of the efforts in creating a separate legal regime for ‘covered concessions’ and other concessions, which perpetuates the situation prior to the adoption of the concessions directive.

09. In general, given the uncertainties in pinning-down the specific instances in which a concession contract will remain squarely and solely within the scope of application of the concessions directive, there is an uncomfortable feeling that this process may just be much ado about nothing because the number of contracts that will be solely subjected to this legal regime is likely to be limited, if not residual. However, this once more depends on the domestic interpretation of the scope of application of the rules (and, notably, the concept of concession of a cross-border interest) and the emerging trends show quite some differences, with Italy having advertised in the OJEU over 120 concessions and the UK almost 60, while the Netherlands have advertised around 15 and Denmark only 10 in the first year of effectiveness of the concessions directive.

Gold plating and distinct legal regime

10. The avoidance of gold plating in the transposition of the concessions directive (ie not going beyond what is strictly required by the directive) may be creating practical difficulties due to a copy out (or direct copy+paste) of the EU rules (notably, in the UK, but also in other jurisdictions such as, to some extent, Italy). This results in the insufficient development of an overarching system or mechanism for the award of concession contracts, which mirrors the excesses (or rather shortcomings) of Art 30 and recital (68) Dir 2014/23, and may leave contracting authorities to their own devices and risking the reinvention of the wheel every time they undertake a concession project. In my personal opinion, this may be an instance of improper/insufficient transposition, as the lack of development of the rules applicable to the award of concession contracts leave potentially interested undertakings none the wiser concerning the general framework applicable in the given jurisdiction.

11. In my view, the position underlying a lack of development of the bare bone rules of the concessions directive reflects a rather extreme understanding of Art 30(1) Dir 2014/23 where it indicates that, when tendering a concession, “the contracting authority or contracting entity shall have the freedom to organise the procedure leading to the choice of concessionaire subject to compliance with this Directive”. This seems to be read as mandating unrestricted freedom for each contracting authority or entity—as a sort of (quasi) subjective right to freedom from intervention or constraint in the running of tenders for concession contracts—and thus preventing Member States from creating a limited set of choices or even a default standard procedure for the award of concession contracts. However, the Netherlands seems to take an approach that deviates from this by indicating that Art 30 does not provide unrestricted freedom and that compliance with the general rules may be a way of ensuring compliance with the minimum requirements of the concessions directive.

12. Such an extreme understanding of Art 30(1) Dir 2014/23 does not make much sense, either from the perspective of respecting the principle of free administration by public authorities foreseen in Art 2 thereof (which aims to respect decisions on organisation taken by national, regional and local authorities in conformity with national and Union law), or from facilitating administrative efficiency and oversight possibilities. It also creates legal uncertainty and confusion as to the rules applicable to the tendering of concession contracts, which runs contrary to the stated aims of the concessions directive (see recital (1)) and therefore does not fit with a teleological interpretation of its provisions.

13. Interestingly, though, despite the scarcity of detail in the regime applicable to the tendering of concessions, some jurisdictions (eg in Romania, Belgium, and tendentially the Netherlands too) seem to be moving rather close to the general rules of the public sector directive (Dir 2014/24, either applicable directly or mutatis mutandis) where the concessions directive contains an insufficient regime, which reinforces the idea that there was no need whatsoever for a different instrument and that the flexibility sought for the award of this type of contracts could have been created by a few special provisions under the general directive (as was the Dutch position, and which has influenced transposition in that jurisdiction). Other jurisdictions are opting to move away from statutory rules and rather establishing soft law with the same goal of creating flexibility (possibly at the cost of legal certainty or justiciability, such as in Italy).

14. I also find it interesting that no argument is raised concerning any difficulties in awarding (works) concession contracts under the rules and procedural requirements of the 2004 EU Directives, which begs the question why was it necessary to create such exceptionality or flexibility—particularly in choice of procedures—in the 2014 revision. There are discussions about the special propensity of concession contracts to being modified during their term (both due to their complexity and duration), but interestingly enough, there is not much of a difference in flexibility in the regime of contractual modification in the concessions directive and in the general procurement directive. Overall, then, both the need and the operationalisation of a full-functioning legal regime for the award of concession contracts seems to still carry significant shortcomings when the concessions directive is transposed.

General principles and general administrative law

15. The relevance of general principles for ‘below threshold’ concessions is a muddy terrain and given the largely principles-based approach of the regulation in the concessions directive, it is difficult to establish clear differences in the substantive legal regime for concessions above thresholds and for other concessions with a cross-border interest—which are subject to the general administrative law principles of those jurisdictions that have an established corpus of regulation of unilateral administrative acts (such as Belgium), as well as the obvious application of the general principles of EU (procurement) law across the board.

16. Concession contracts create significant difficulties of interaction with general requirements of the procurement system of some jurisdictions. Eg in Belgium, the principles of fixed price for public contracts (which left all risks linked to the execution of the contract with the public contractor), or of services done and accepted (which controls public expenditure and prevents the making of payments in advance)—which has required the creation of some exemptions from such general rules in order to create flexibility. Similar things happen in Spain with the concepts of ius variandi, factum principis and restoration of the financial equilibrium of concessions. And the same applies to coordination with general administrative law principles in Romania. Thus, countries with a longer-lasting tradition of regulation of concessions under general administrative law may have peculiar difficulties of integration of the new EU regime within their general administrative law frameworks.

A few other issues

17. There are doubts as to the feasibility and conditions for carrying out preliminary market consultations for concessions contracts in keeping with substantive guarantees equivalent to the rules in Arts 40 and 41 Dir 2014/24. The difficulty in this case may derive from the fact that, in the absence of a defined procedure (see above), the issue of carrying out ‘pre-procurement’ activities becomes rather blurry and, in the end, is only restricted by the general requirement in Art 30(2) Dir 2014/23 to comply with the general principles of procurement and, in particular, “during the concession award procedure, [for] the contracting authority or contracting entity … not [to] provide information in a discriminatory manner which may give some candidates or tenderers an advantage over others”.

18. Issues concerning the interaction between rules on rescue/expropriation of concessions and their termination are also popping up, at least where the creation or existence of termination grounds based on the public interest are in conflict with rules on modification of contracts (ie in situations where impossibilities to modify the contract may lead to a rescue, as compared to situations in which a modification may trigger termination). This has an impact on an assessment of the transfer of risk to the concessionaire, which would bring the discussion back to the issue of the concept of concession and scope of application of the directive. In some jurisdictions (eg the UK) the possibility to regulate post-termination or post-ineffectiveness consequences via contractual provisions also muddies the effects of some of the rules in the concessions directive and raise questions as to the compatibility with the remedies directive.

International Seminar on the Transposition of the 2014 Public Procurement Directives

I was honoured to take part in the International Seminar on the Transposition of the 2014 Public Procurement Directives organised by the Institute of Local Law of the Autonomous University of Madrid and the Madrid City Council. These are the slides (in Spanish) I used to present my views on the UK's transposition of the 2014 Public Procurement Package.

La transposición de las Directivas de Contratacion Publica de 2014 en Reino Unido from Albert Sanchez Graells

Some (anecdotal) updates on the transposition of the 2014 Public Procurement Package

At Procurement Week 2016, we had an interesting session on the transposition of the 2014 public procurement package in some of the Member States. So, beyond the official information publicly available through Eur-lex, and for those of you anxiously following the transposition process (or its absence), I thought that it could be interesting to share some additional (anecdotal) updates on the process in the Member States represented in the panel.

Each panelist was asked to report on whether there had been transposition or what are the plans for it, as well as to choose three issues that can be considered controversial in the transposition. My notes of the discussion (responsibility for errors is solely mine) are as follows:

Czech Republic foresees to transpose by 01/10/2016. Their main three worries seem to be around the use of life cycle costing, the use of quality-only tenders in healthcare and the increasing discretion contracting authorities hold in terms of exclusion.

Denmark transposed and this transposition deviated from the previous copy-out approach, which has significantly changed the nature of procurement regulation in Denmark. It was suggested that a number of rules included in the procurement act are unnecessary and the result of specific lobby demands. Main issues pointed out as problematic included: obligation to disclose evaluation method, explicit obligation to terminate when the award decision is annulled, changes in the identity of participants as well as the possibility of the contracting authority to be obliged to accept certain types of changes, and issues concerning criminal records for the purposes of the ESPD.

Estonia has not yet transposed. The bill is in Parliament and there is hope that the transposition will take force by 1 January 2017. Meanwhile, however, the Estonian Ministry of Finance has issued guidelines with regard to parts of the new directives having a direct effect.*

Finland has not transposed and there is no clear time frame. A draft legislative act was promised by government by the end of June, with a view to have transposition in place by the end of 2016, but this does not seem too realistic.** The delay is remarkable because transposition was on track and a project was submitted to public consultation in good time. However, the process was subsequently derailed due to a change in government.*** [I wonder whether this comes to show the political relevance of procurement in Finland (and in Scandinavian countries more generally)]. Secrecy was mandated on civil servants involved in the transposition, which makes this particularly opaque. Some of the issues that are discussed, though, include the need to create an oversight body (probably to be assigned to the competition authority), issues around the non-public turnover limit for in-house and public-public collaboration and its interaction with domestic competition neutrality rules (which lead to the suggestion that the limit could be set anywhere short of 20%, and possibly in the 0-10% range), the need to review remedies despite lack of action at EU level, and possible gold-plating of SME-friendly measures.

Greece has not transposed. There was a series of public consultations in March for a law that would consist of 5 books and would be implementing the new directive. This law would also reform the public contracts regulations in general and this is where things got complicated and started to go wrong: when reforming the way remedies were sought, the legislator tried to create a special entity that would examine bidders' claims in the second instance (first instance is with the CA; second instance is now with a court). However the Greek Council of State found the creation of this new entity to be against the constitution and made requests for this and other provisions to be amended. This is causing further delay.^^^

Ireland transposed on 5 May 2016, except concessions.Their main issues relate to the light-touch regime, retrospective effect of new rules to contracts tendered after 18 April but before 5 May, and many difficulties concerning the implementation of the ESPD, particularly due to their issues with leaving 'suitability' assessments to the end and how this provides wrong incentives to contracting authorities to be 'lax' about selection and exclusion.

Italy transposed 1 day late, but it is not a full transposition and the implementing regulations are not ready yet. There are significant gold-plating issues, such as the prohibition to tender design and construction together (as per Mario's emails), or the limitation of the authorisation to carry out procurement to only 35 CPBs in the whole of Italy, thus banning the activities of individual contracting authorities except for minor contracts.

In the Netherlands, the transposition act was discussed in the Dutch Senate on 14 June and the subsequent vote will take place on 21 June. This would be the last hurdle for implementation, after which publication in the Staatsblad can follow. Therefore, it seems like the planning of the Ministry of Economic Affairs will be met (1 July). Predominant discussions in the Netherlands have related to: (i) In-house procurement and the question whether additional regulation of the make-or-buy decision is necessary. A proposal (motie) has been floored in the Senate on this subject. This relates to a recent trend of the central government to in-source scanning and cleaning activities; (ii) The question whether Dutch ministries and other organisational parts of the Dutch State are separate contracting authorities for the purpose of the in-house doctrine. This was discussed in parliament and at multiple legal conferences; (iii) In light of the recent decentralisation of many social acts (Jeugdwet, Participatiewet and Wmo) to the municipalities, it has been questioned if the introduced procedure for purchasing social services in relation to article 76(1) Directive 2014/24/EU is an adequate implementation of the Directive.****

Norway has not transposed either, but being an EEA State, it has more time. There has been a project since late 2015 and it is expected to come into force relatively shortly (pending the approval by the Parliament). ***** It interesting to note that all EEA Members had initially indicated 'constitutional requirements' for the transposition of the 2014 public procurement package. In particular, despite the fact that the Joint Committee Decision (JCD) no. 97/2016 was adopted on 29. April 2016 to incorporate Directive 2014/23/EC, Directive 2014/24/EC, and Directive 2014/25/EC into Annex XVI of the EEA Agreement, at the point of adoption all the EEA EFTA States indicated constitutional requirements. The JCD can consequently not enter into force until these requirements have been lifted and all the notifications under Article 103 (1) of the EEA Agreement have been made. The Norwegian parliament has now (16.6.16) approved the incorporation and Norway can therefore lift its constitutional requirements. It is now necessary for Iceland and Liectenstein to follow suit.^^

Poland has not transposed. A legislative proposal was published on 13 May with the intention of transposing in June, and this seems to be likely. Indeed, it seems that the classic and utilities directives could be transposed in July and the concessions directive in September.****** Polish procurement law has been reformed 50 times over 10 years, so there is experience (and complaints) about such continuous process of reform. Their main difficulties are in the transposition of rules in-house provision (particularly due to effects on waste management sector), the application of rules to below thresholds contracts related to investment in revitalization zones, the use of the ESPD, as well as rules on labour law requirements.

Portugal has not transposed either, although the Azores (being a devolved administration with competence for the transposition of procurement rules), have. The only rule that Portugal transposed in its entirety in August 2015 was art 22 dir 2014/24, which required an act with over 90 provisions. *******

Romania has completed the transposition.********

Spain has not transposed and transposition any time soon is highly unlikely due to the coming general elections on 26 June, which are not likely to result in the quick formation of a new government. Some regions have started to produce reports on direct effect of some provisions of Dir 2014/24 and, controversially, the region of Catalonia adopted a full transposition act on 31 May despite lacking the powers to do so. This raises complex internal constitutional issues and legal certainty is not necessarily fostered by the adoption of unconstitutional rules. This may have to do with the prospect of future liability for fines imposed by the CJEU for late transposition.

Sweden postponed transposition to 1 January 2017 but even that is unlikely. There is significant discussion on direct effect in the meantime, including for contracts below thresholds and reservable contracts for social and special services. The general discussion surrounding transposition is focusing on issues such as the possibility to use procurement to impose labour standards set in collective agreements, as well as innovation related topics.

UK (Eng & Wales) transposed in 2015 and amended rules in 2016. There is discussion in whether any benefits have been obtained from such early transposition. There is indication of increased use of competitive procedures with negotiations and dynamic purchasing systems. There is also an ongoing discussion concerning conflicts between the text of the regulations and guidance published by the Crown Commercial Services, which creates uncertainty at practical level.

I hope this is interesting/helpful/thought-provoking. Please feel free to use the comments function to provide additional updates on other Member States, or to expand the qualitative discussion on any of those mentioned above.

* Added thanks to Dr Mari Ann Simovart.

^^^ I am grateful to Panos Somalis for this update on Greece.

** Thanks to Dr Kirsi-Maria Halonen for the precision that draft legislation can still be expected this June.

*** Thanks also to Timo Rantanen for his additional insights.

**** Thanks to W. A. (Willem) Janssen for information on the Netherlands.

***** Thanks to Ignacio Herrera Anchustegui for information on Norway and some comments on Portugal.

^^ Thanks to Werner Miguel Kuhn for this detailed update on the EEA process.

****** Thanks to Dr Paweł Nowicki for further details on Poland.

******* Thanks to Dr Pedro Telles for information on Portugal.

******** Thanks to Ioan Baciu for the update on the Romanian transposition.

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

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

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

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

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

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

Is Inter-Environnement Wallonie alive? It is, but the CJEU does not maximise use of Directive's anticipatory effects (C-104/04)

In Federconsorzi and Liquidazione giudiziale dei beni ceduti ai creditori della Federconsorzi (Federconsorzi), C-104/14, EU:C:2015:125, the Court of Justice of the EU (CJEU) has addressed a rather obscure issue of succession of exemptions to comply with EU Directives that I find interesting. In my view, the underlying issue is one of good faith and estoppel related to the case law on anticipatory effect of Directives [such as Inter-Environnement Wallonie and Mangold; see M Klamert, The Principle of Loyalty in EU Law, Oxford Studies in European Law (Oxford, OUP, 2014) 76-77], although the CJEU has reached a different solution in Federconsorzi.

The preliminary reference sent by the Corte suprema di cassazione (Italy) concerned certain difficulties in the transition from the implementation of Directive 2000/35 to that of Directive 2011/7, both of them on combating late payment in commercial transactions, regarding Italian legislation modifying the interest on a debt predating those directives to the detriment of a State creditor.

Due to Italian post-WWII mechanisms to ensure supply of certain agricultural products that were in place until 1967, a large number of agricultural cooperatives held a significant volume of credit against the State (about €512 mn) due to the management of that centralised supply of cereals and other agri-food products. That debt was assigned to Federconsorzi (now in liquidation) in 1999 as part of a broader reform of the legislation applicable to agricultural cooperatives. The applicable 1999 legislation determined that the credits held by Federconsorzi against the State "up to 31 December 1997, shall be satisfied by the allocation [...] of government securities by the Minister for the Treasury, the Budget and Economic Planning". 

This rule was complemented in 2003 by a provision whereby the “interest referred [applicable to those credits] is calculated up to 31 December 1995 on the basis of the official discount rate, plus 4.4 points, with annual capitalisation, and for the years 1996 and 1997, only at the statutory interest rate.” In 2012 there was a further reform of these rules, whereby all outstanding credits against Federconsorzi (not only those up to 31.12.97) "shall bear interest calculated up to 31 December 1995 on the basis of the official discount rate, plus 4.4 points, with annual capitalisation, and for the subsequent period only at the statutory interest rate."

In simple terms, Federconsorzi's claim is that both the 2003 and the 2012 reforms impose a detriment on the State creditors by setting too low interest rates on debts accrued after 1995, which would run contrary to (both the 2000 and 2011) EU rules on combating late payment in commercial transactions. The difficulty from a technical perspective is that Italy opted to limit the temporal effects of both Dir 2000/35 and Dir 2011/7 in their respective transpositions, so that the rules derived from Dir 2000/35 did not apply to contracts concluded before 8 August 2002, and those transposing Dir 2011/7 only apply to transactions concluded on or after 1 January 2013.

The most interesting point is thus to determine whether the legally-mandated changes (ie reduction or cap) of the interest rates applicable to credits derived from pre-existing contracts with Federsconsorzi, but which were enacted in the period of effectiveness of the rules transposing Dir 2000/35 (both of them happened between 8 Aug 2002 and 1 Jan 2013) and one of them during the period for transposition of Dir 2011/7, are contrary to EU law--implicitly, at least in the second case, on the basis of the latter's anticipatory effect.

The CJEU has found that the relevant provision of EU law, including the third paragraph of Art 288 TFEU, "must be interpreted as not precluding a Member State which has made use of the option under Article 6(3)(b) of Directive 2000/35 [ie has limited its effects to after 8 August 2002] from adopting, during the period prescribed for transposition of Directive 2011/7, legislative provisions, such as those at issue in the main proceedings, which are capable of modifying, to the detriment of a creditor of the State, the interest on a debt arising out of the performance of a contract concluded before 8 August 2002." 

The reasoning followed by the CJEU to reach this conclusion deserves some closer look. According to the CJEU,

31 ... the option for a Member State, when transposing Directive 2000/35, of excluding contracts concluded before 8 August 2002, as the Italian Republic did [...] is expressly provided for in Article 6(3)(b) of that directive and, when exercised, that option has the effect of rendering all the provisions of that directive inapplicable ratione temporis to those contracts.

32 Furthermore, modifications to the disadvantage of a creditor of the State, made by a legislative act adopted during the period prescribed for transposition of Directive 2011/7, of the interest on a debt arising from the performance of a contract concluded before 16 March 2013 may not in any event be regarded as being capable of seriously compromising the attainment of the objective pursued by that directive (see judgment in Inter-Environnement Wallonie, C‑129/96, EU:C:1997:628, paragraph 45), as Article 12(4) of that directive gives Member States the option of excluding contracts concluded before that date, and the Member State concerned could therefore consider exercising that option.

33 Consequently, it does not follow from the obligation to transpose Directive 2011/7, nor can it be inferred from Article 12(3) of that directive, allowing Member States to retain or adopt provisions more favourable to the creditor than the provisions necessary to comply with that directive, or from Article 7 of that directive, on abusive agreements, terms or practices, that a Member State which has made use of the option under Article 6(3)(b) of Directive 2000/35 may not modify, to the detriment of a creditor of the State, during the period prescribed for transposition of Directive 2011/7, the interest on a debt arising out of the performance of a contract concluded before 8 August 2002, without prejudice, however, to the possibility of there being remedies under domestic law against such a modification (C-104/14, paras 31-33, emphasis added).

In my view, the reasoning of the CJEU at para 32 of Federconsorzi can be challenged regarding amendments of pre-existing credits that take place during the period of (unexcludable) validity of the Directives. An alternative reading would be that Member States are allowed to keep pre-existing credits as they were prior to 8 August 2002, but they cannot reduce commercial creditor protection because that goes against the very explicit goals of the Directives on combating late payment in commercial transactions. 

That could easily be squared with the Inter-Environnement test of compromising the objective pursued by the Directives, given that it originally was to "prohibit abuse of freedom of contract to the disadvantage of the creditor. Where an agreement mainly serves the purpose of procuring the debtor additional liquidity at the expense of the creditor ... these may be considered to be factors constituting such an abuse" (rec 19 Dir 2000/35), and did not change later (if not to stress the objective to avoid abuses) with its 2011 rewording: "[t]his Directive should prohibit abuse of freedom of contract to the disadvantage of the creditor. As a result, where a term in a contract or a practice relating to ... the rate of interest for late payment ... is not justified on the grounds of the terms granted to the debtor, or it mainly serves the purpose of procuring the debtor additional liquidity at the expense of the creditor, it may be regarded as constituting such an abuse" (rec 28 Dir 2011/7, emphasis added).


Consequently, I think that once again the CJEU has taken an easy way out in order to provide legal certainty to Member States at the expense of substantive compliance with EU law.

However, the Federconsorzi Judgment at least clarifies two points regarding Directive's anticipatory effect: 1) that it is alive and kicking, in terms of it being a general principle of EU law that, during the period of transposition of a Directive, Member States must refrain from any legislative measure that may "be regarded as being capable of seriously compromising the attainment of the objective pursued by that directive"; and 2) that the easiest option for Member States to avoid that anticipatory effect is to include cut-off deadlines in the Directives themselves.

The new Directive on Concessions is basically unnecessary, but creates red tape, duplication & legal uncertainty (Dir 2014/23)

I have been working on the preparation of a commentary to the first part of the new Directive 2014/23 on the award of concession contracts [OJ L 94, 28/03/2014, p. 1–64] and have realised that, unfortunately, it has indeed become a basically unnecessary piece of EU legislation that creates significant red tape and muddles an already complicated area of EU Economic Law.

Unfortunately, as I anticipated [What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of Their Economic Balance? (2012) European Procurement & Public Private Partnership Law Review 2/2012: pp. 94-104], most of the general provisions of Directive 2014/23 are a copy (or a 'Frankenstein copy') of provisions already available in other procurement Directives and, mainly, in Directive 2014/24 on public sector procurement. Such a duplication makes me think that the EU legislator would indeed have been better off by just including a limited set of specific provisions dealing with concession contracts within Directive 2014/24. By not doing so, it has created unnecessary duplication and complication.

As clear evidence of the basic unnecessity of Directive 2014/23, suffice it to stress that only 10 of its first 29 articles include specific rules for concession contracts (and, only 5 articles of those 10 are exclusively relevant for concession contracts, while the other 5 are slight modifications of general rules). All other articles are simply a repetition of provisions of other Directives. The table below clarifies this assessment. Hopefully Member States will take this significant duplication into account and will adopt a sensible (unified) approach in the transposition of Directives 2014/23, 2014/24 and 2014/25 to their domestic legal systems before April 2016, avoiding unnecessary repetitions.

 

 

Avoiding gold plating in the transposition of #EUlaw: A distinctive UK approach?

The Department for Business, Innovation and Skills has recently published its March 2013 'Gold-plating review' as a Report on the Operation of the Transposition Principles in the Government’s Guiding Principles for EU Legislation. The Report covers 88 proposals to implement EU measures over the eighteen-month period, from 1 July 2011 to 31 December 2012.

In my view, the Report clearly shows resistance to the prompt incorporation of EU Law into the UK legal system, as clearly indicated by the fact that "in 95% of cases over the eighteen-month period Departments have implemented on or after the transposition deadline, with only four examples where Departments sought agreement to implement measures early" (emphasis added).

Most remarkably, the UK Government is not shy to acknowledge the infringement of EU Law that belated transposition implies. And this should be worrying, not least because it can trigger the initiation of infringement procedures by the European Commission.

In my view, it is legitimate for Member States to take advantage of the transposition periods as they consider in their best interest. But it cannot be in the (national) public interest to breach EU Law by belatedly transposing Directives into the UK legal system. Even taking into consideration the interest of the UK in eventually renegotiating its terms of membership of the EU, only an exquisite compliance strategy will build a solid negotiating platform.

Therefore, contrary to the generally positive conclusion of the Report, I think that the UK Government should implement an effective strategy to make sure that no Directive gets transposed after its transposition deadline. That is a clear requirement for the proper transposition of EU Law. And it should not be overseen.