Don't skip a beat: CJEU intends to strengthen consumer protection of medical devices, but does it? (C-503/13)

In the interesting Judgment in Boston Scientific Medizintechnik, C-503/13, EU:C:2015:148, the Court of Justice of the European Union (CJEU) has clarified the requirements for the application of the EU rules on liability for damage caused by defective products to the manufacturers of potentially defective medical devices which substitution require surgical intervention. 

In the case at hand, the issue was whether the manufacturer of potentially defective pacemakers and implantable cardioverter defibrillators was liable to cover the cost of surgery and related damages to patients that needed those potentially defective products replaced. 

In a clear and rather short Judgment, the CJEU has ruled that such situations are covered by the special liability regime. This is bound to trigger commercial adjustments in this sector, as well as in the insurance sector and I would not be surprised if the Boston Scientific Medizintechnik is strongly criticised. I can think of some reasons why, which I sketch below.

The key controversial legal issues were whether the mere fact that a specific product is potentially defective suffices to classify it as defective for the purposes of EU law and, if so, whether the surgery needed to replace (potentially) defective medical devices was within the scope of the damages imposed on the producer. The CJEU has answered both questions in the affirmative. Some of its reasoning is worth considering in detail.

Firstly, regarding the way in which potentially defective medical devices should be treated, the CJEU determined that

37 ... a product is defective when it does not provide the safety which a person is entitled to expect, taking all the circumstances into account, including the presentation of the product, the use to which it could reasonably be expected that it would be put and the time when the product was put into circulation. Moreover ... that assessment must be carried out having regard to the reasonable expectations of the public at large.
38 The safety which the public at large is entitled to expect ... must therefore be assessed by taking into account, inter alia, the intended purpose, the objective characteristics and properties of the product in question and the specific requirements of the group of users for whom the product is intended.
39 With regard to medical devices such as the pacemakers and implantable cardioverter defibrillators at issue in the main proceedings, it is clear that, in the light of their function and the particularly vulnerable situation of patients using such devices, the safety requirements for those devices which such patients are entitled to expect are particularly high.
40 Moreover, as observed, in essence, by the Advocate General at point 30 of his Opinion, the potential lack of safety which would give rise to liability on the part of the producer ... stems, for products such as those at issue in the main proceedings, from the abnormal potential for damage which those products might cause to the person concerned.
41 Accordingly, where it is found that such products belonging to the same group or forming part of the same production series have a potential defect, it is possible to classify as defective all the products in that group or series, without there being any need to show that the product in question is defective (C-503/13, paras 37 to 41, emphasis added).

This is a very significant line of reasoning, as it clearly establishes that the potential for damage is an element to take into consideration when assessing the level of safety that users of specific products can expect. In that regard, the higher the potential for damages (in this case, possibly, death), the lower the threshold for the special liability regime to be applicable. This basically comes to create a further objectification of the test for the imposition of objective liability under the EU rules and, in my view, significantly raises the financial risks faced by producers of medical devices. 

A law and economics detailed assessment would be necessary, but this case seems like a good candidate in the list of cases where the good intentions of the CJEU may create unforeseen and undesirable effects, eg by imposing additional costs on producers of medical devices that they pass-on to consumers, ultimately pricing out those with a lower acquisition power [for general discussion, see A Sanchez Graells,  The Importance of Assessing the Economic Impact of the Case Law of the Court of Justice of the European Union: Some Exploratory Thoughts (April 18, 2013)].

An alternative approach could have been explored by focusing on the level of security that medical professionals could expect, as medical devices are clearly not products directly offered to their end users. More alternatives could have been explored in view of the fact that the claimants in the case are mandatory insurance funds and not the ultimate users of the medical devices, which could also have triggered an analysis of the justification for medical insurance itself and the eventual obligation of medical insurers to absorb some of the risks they are perceived to insure. However, none of these issues are addressed by the CJEU in its Boston Scientific Medizintechnik Judgment.

http://candorville.com/2013/08/16/hypocritical-oath/

Secondly, regarding the classification of the surgery costs and related damages as "damage caused by death or by personal injuries" for the purposes of EU law, the CJEU made a distinction based on the recommendations of the manufacturer as to how best to minimise or reduce the risk derived from the potential defect. In that regard, it is worth stressing that

49 Compensation for damage thus relates to all that is necessary to eliminate harmful consequences and to restore the level of safety which a person is entitled to expect...
50 As a consequence, in the case of medical devices, such as pacemakers and implantable cardioverter defibrillators, which are defective ... compensation for damage must cover, inter alia, the costs relating to the replacement of the defective product.
51 In the present case ... [the manufacturer/importer] recommended to surgeons that they should consider replacing the pacemakers in question.
52 In that case, the Court finds that the costs relating to the replacement of such pacemakers, including the costs of the surgical operations, constitute damage ... for which the producer is liable...
53 That finding may be different in the case of implantable cardioverter defibrillators, as [the manufacturer/importer] recommended ... that the magnetic switch of those medical devices should simply be deactivated.
54 In that regard, it is for the national court to determine whether, having regard to the particularly vulnerable situation of patients using an implantable cardioverter defibrillator, the deactivation of the magnetic switch is sufficient for the purpose of overcoming the defect in that product, bearing in mind the abnormal risk of damage to which it subjects the patients concerned, or whether it is necessary to replace that product in order to overcome the defect (C-503/13, paras 49 to 54, emphasis added).

In my view, this nuanced approach of the CJEU that makes the imposition of liability dependent on the recommendation issued by the manufacturer/importer of the potentially defective medical devices is tricky. On the one hand, it shows some space for technical considerations and allows manufacturers to take responsibility in finding the best ways to correct the defect or substitute the defective product. 

 

On the other hand, however, the CJEU is not very clear on this point and hints at the fact that the "particularly vulnerable situation of patients using an implantable cardioverter defibrillator" may tilt the national court's assessment on whether the manufacturer/importer's recommendation was actually fit for purpose. Once more, the focus seems to be in the wrong place, as the technical criteria of the doctors is not being taken into consideration.

If doctors performed an operation to substitute certain medical devices despite the fact that the manufacturer/importer had recommended a less intrusive approach, the medical criterion should be taken into account and, most likely, prevail. A doctor under the Hippocratic Oath is under a duty not to impose (unnecesary) suffering or damage. In this specific context, a doctor would be liable for performing an unnecessary surgery to replace a potentially defective medical device that could be satisfactorily fixed in an alternative way.

 

Hence, determining that the intervention was not necessary (ie releasing the manufacturer/importer from liability) would almost automatically trigger liability for the doctor. This, again, would create undesirable incentives for physicians, who would abstain from replacement surgery where the manufacturer/importer recommendation was different. In that case, there would be no technical check on the manufacturer/importer's views, and users (rectius, patients) could be at a clear disadvantage.

All in all, then, I think that the CJEU's Boston Scientific Medizintechnik Judgment creates significant distortions in the incentives that all parties involved have when medical devices are potentially defective. In my view, this derives from a lack of thought on the implications derived from the fact that medical devices are not acquired freely or willingly by their users, but under a strong prescriptive supervision by the medical profession. And that, in turn, their activities are further overseen (and influenced) by medical insurers. This is something that I would like to see gain more space in future Judgments or, otherwise, the consumerization of healthcare will end up actually under-protecting patients.

Principles of procurement under Reg.18 Public Contracts Regulations 2015

One of the relevant changes introduced by Directive 2014/24 is that is has for the first time consolidated the "general principles of procurement" that have emerged from the case law of the CJEU into a specific provision, hence raising the relevance of compliance with these general principles where contracting authorities exercise their administrative discretion. 

This approach could seem at first sight easier to fit in a civil law context than a common law approach to public procurement. However, it can hardly be doubted that English Administrative Law is based on general principles that are fundamentally aligned with those derived from EU Administrative Law [for discussion, see P Cane, Administrative Law, 5th edn, Clarendon Law Series (Oxford, OUP, 2011) 9-11]. In my view, this approach should not be seen as a legal transplant and much less create any irritation in the context of the transposition of the EU procurement rules.

Art 18(1) Dir 2014/24 indeed sets out that procurement needs to be conducted in accordance with the principles of equality, non-discrimination, transparency, proportionality and competition [for discussion on the implicit existence of this principle under the previous set of EU rules, see A Sanchez Graells, Competition and the Public Buyer Towards a More Competition-Oriented Procurement: The Principle of Competition Embedded in EC Public Procurement Directives (May 15, 2009)].

On its part, Art 18(2) establishes an obligation for Member States to ensure the legality of procurement, particularly as compliance with applicable obligations in the fields of environmental, social and labour law established by international, EU and national law, as well as collective agreements.

Reg.18 of the Public Contracts Regulations 2015 (PCR2015) follows closely the first set of issues regulated in Art 18(1) Dir 2014/24 and also determines that procurement needs to be conducted in accordance with the principles of equality, non-discrimination, transparency, proportionality and competition [reg.18(1) PCR2015]. Particularly in regards with the principle of competition, it is worth noting that reg.18(2) and (3) adopt the same wording as Art 18(1)II Dir 2014/24, which carries the interpretative difficulties created by the EU rule (see my comments here).

It may seem surprising that reg.18 PCR2015 does not include the content of Art 18(2) Dir 2014/24. However, a possible explanation is that the UK government has interpreted that the obligations it imposes are incumbent upon the State itself, which may make them unfit for incorporation into domestic regulations addressed at contracting authorities, because its wording establishes that "Member States shall take appropriate measures to ensure that in the performance of public contracts economic operators comply with ...". 

An alternative to the omission of this provision would have been to draft it as imposing an obligation on the specific contracting authority to take appropriate measures to ensure that in the performance of public contracts economic operators comply with environmental, social and labour law obligations. However, it should not be surprising that a Member State (and the UK at that) would want to avoid making that obligation so specific.

In any case, though, such an omission does not create any gap in the transposition of the EU rules, particularly in view of the fact that reg.56(2) PCR2015 establishes the same duty/possibility than Art 56(2) Dir 2014/24 for contracting authorities to "decide not to award a contract to the tenderer submitting the most economically advantageous tender where they have established that the tender does not comply with applicable obligations in the fields of environmental, social and labour law established by EU law, national law, collective agreements or by the international environmental, social and labour law provisions listed in Annex X to the Public Contracts Directive as amended from time to time." (which is in itself problematic, as commented in due course).

Procurements involving defence or security aspects which are awarded or organised pursuant to international rules under Reg.17 Public Contracts Regulations 2015

Reg.17 of the Public Contracts Regulations 2015 (PCR2015) transposes Art 17 of Directive 2014/24 almost word by word. Similarly to the relationship between regs.4 and 16 PCR2015 regarding mixed procurement including elements of defence and security, reg. 17 PCR2015 establishes rules especial to those in reg.9 for public contracts and design contests involving defence or security aspects which are awarded or organised pursuant to international rules (for discussion of reg.9 on procurement pursuant to international rules generally, see here and here).

Indeed, it should be reminded that reg.9(4) PCR2015 (and art 9(3) dir 2014/24) introduces an (unnecessary) cross-referral to the rules applicable to defence and security procurement for those cases in which the specific "international" procurement concerns goods, works or services covered by the special rules. Hence, once more, it will be interesting to try to identify to what extent the rules under reg.17 differ from those under reg.9 PCR2015.

In that light, it is worth reminding that reg.9 PCR2015 established three basic rules: 1) it creates space for compliance with international law obligations; 2) it creates a specific criterion that money rules, so that procurement funded by international organisations or international funders is subjected to their procurement processes; and 3) it allows for negotiated solutions to mix-funded projects, where the international organisations/funders only provide part of the funds.

Surprisingly (or maybe not), reg.17 PCR2015 establishes the same three basic rules, so that: 1) the rules of Part 2 do not apply to procurement carried out under an international law framework, ie in compliance with the an international agreement or arrangement (including those for the stationing of troops and concerning the undertakings of a member State or a third country) [reg.17(1) PCR2015]; 2) it replicates a specific criterion that money rules, so that procurement  involving defence or security aspects that is funded by international organisations or international funders is subjected to their procurement processes [reg.17(2) PCR2015]; and 3) it allows for negotiated solutions to mix-funded projects, where the international organisations/funders only provide part of the funds [reg.17(3) PCR2015].

The only difference between regs.9 and 17 PCR2015 (and arts 9 and 17 dir 2014/24) is in the specific international law instruments that give rise to the exception under the first rule (ie recognition of international law obligations). While reg.9(1)(a) refers to "a legal instrument creating international law obligations, such as an international agreement, concluded in conformity with the Treaties,", reg.17(1)(a) and (b) refer to "an international agreement or arrangement, concluded in conformity with the Treaties" and simply to "an international agreement or arrangement", respectively.

The reader will forgive my limited knowledge of international public law (see Pedro's diverging approach and the enlightening comment that our colleague Dr Paolo Vargiu posted below), but those provisions create no difference whatsoever in my view. The definition in Art 2(1)(a) of the Vienna Convention on the Law of Treaties refers to "Treaties" as "international agreement(s) concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation" (emphasis added). If one resorts to the sources of international law as described in Art 38 of the Statute of the International Court of Justice, there is only one definition/description of internal law that derives from explicit agreements between States, and it refers to them as "international conventions, whether general or particular, establishing rules expressly recognized by the contesting states" [art 38(1)(a)]. It is the general consensus, as far as I can grasp it, that "Treaties can be referred to by a number of different names: international conventions, international agreements, covenants, final acts, charters, protocols, pacts, accords, and constitutions for international organizations. Usually these different names have no legal significance in international law." [Treaties and International Agreements introductory guide, Berkeley Law, accessed 10/03/2015].

Consequently, in my view, reg.17 PCR2015 (and art 17 dir 2014/24) is completely redundant of the rules in reg.9 PCR2015 (and art 9 dir 2014/24) and should have been omitted in the interest of simplification. It would have sufficed, if anything was actually necessary, to include a simple definition (or a reference) along the lines of that in Art 2(1)(a) of the Vienna Convention on the Law of the Treaties. In my view, this is probably a symptom of a deeper problem derived from excessive specialization of law drafters and policy-makers, but that is a conversation for some other time.

Mixed procurement involving defence or security aspects under Reg.16 Public Contracts Regulations 2015

Reg. 16 of the Public Contracts Regulations 2015 (PCR2015) is concerned with mixed procurement involving defence or security aspects. As Pedro has pointed out, it raises again issues concerning the divisibility or indivisibility of mixed contracts (see comments to reg.4 PCR2015 here and here), as well as some interpretative difficulties derived from the change in drafting adopted in the transposition--as compared to the technically not much better Art 16 of Directive 2014/24. 

One of the points to note is that reg.4(3) PCR2015 expressly excluded the application of the rules in that regulation "where part of a given contract is covered by Article 346 of TFEU or the Defence and Security Regulations", in which case reg. 16 PCR2015 applies instead. The justification for that exclusion is that, despite the fact that the criteria on how to determine the subjection of mixed contracts to a specific set of rules are broadly common under both regs.4 and 16 PCR2015 (ie both are based on whether the different elements of a procurement are separable), reg.16 PCR2015 (and art 16 Dir 2014/24) are apparently more permissive in excluding the applicability of the general rules to the entirety of the procurement.

As a reminder, for not defence and security related mixed contracts, reg.4 PCR2015 established two basic or main groups of rules. Firstly, if the several parts of a contract were separable, contracting authorities were allowed to tender each part separately under the specific rules applicable to that part (provided there was no avoidance of the applicable rules due to the separation of the different parts of the contract into different procurements). This was not particularly clear were all parts of the contract are covered by Part 2 PCR2015, but it was submitted that this was the best interpretation of the rules, in view of their EU origin.

Secondly, reg. 4 PCR2015 established different rules when the several parts of a contract were not separable. On the one hand, where a contract had elements covered by different rules under Part 2 of the PCR2015, the contract had to be tendered "in accordance with the provisions applicable to the type of procurement that characterises the main subject-matter of the contract in question", if necessary, calculated "in accordance with which of the estimated values of the respective services, or of the respective services and supplies, is the highest". On the other hand, where some parts were covered by Part 2 PCR2015 and other parts were not covered, "the applicable legal regime shall be determined on the basis of the main subject-matter of that contract".

Consequently, as general principles, reg. 4 PCR2015 established, first, that divisible contracts could be either tendered as a single contract (implicitly) under the rules of Part 2 PCR2015 or as separate discrete contracts, each under its rules. And, second, that indivisible contracts had to be tendered under the rules corresponding to the main subject-matter of that contract. This later part is the one that reg.16 PCR2015 deviates from.

At a first level, reg.16(2) and (3) PCR2015 repeat the general rule that where the different parts of a given public contract are objectively separable, contracting authorities may choose to award separate contracts for the separate parts or to award a single contract, always provided that decision is not taken for the purpose of excluding contracts from the application of the relevant rules. In that case, each contract is to be procured under the rules applicable to that specific part [reg.16(4) PCR2015]. So far, the rule is fundamentally the same as under reg.4 PCR2015.

At a second level, reg.16(5) to (7) PCR2015 impose less stringent rules for contracts not necessarily indivisible, but where "the award of a single contract is justified by objective reasons", in which case they can be excluded from compliance with Part 2 PCR2015 if one of their parts is covered by either Art 346 TFEU or the special defence and security procurement rules, regardless of "the applicable legal regime ... on the basis of the main subject-matter of that contract".

At a third level, reg.16(8) PCR2015 also establishes that "where the different parts of a given contract are objectively not separable, the contract may be awarded without applying this Part where it includes elements to which Article 346 of TFEU applies; otherwise it may be awarded in accordance with the Defence and Security Regulations." 

All in all, then, and regardless of the specific anti-circumvention rule in reg.16(3) PCR2015 ("The decision to award a single contract shall not ... be taken for the purpose of excluding contracts from the application of either this Part or the Defence and Security Regulations"), it does set up a system where there is no vis attractiva for Part 2 PCR2015 rules, and contracting authorities are able to exclude its application not only when the contract is indivisible and the main subject-matter of that contract is not covered by those rules (which would be the result under reg.4 PCR2015), but a) when that contract is indivisible and includes elements covered by Art 346 TFEU or defence and procurement rules, or b) is divisible but there is an objective reason for the award of a single contract under rules other than those of Part 2 PCR2015.

Consequently, it is a regime clearly geared towards facilitating the exclusion of compliance with general procurement rules in the case of mixed contracts. Nonetheless, in my view, the key to its interpretation and practice will hinge on the constraints that the CJEU (or domestic courts?) consider that reg.16(3) PCR2015 effectively creates. Once more, I would consider reg.18 PCR2015 (Art 18(1) Dir 2014/24) essential in that determination, as the principles of proportionality and competition should become regulatory devices of the exercise of this sort of discretion.

Defence and Security Procurement under Reg.15 Public Contracts Regulations 2015

Reg.15 of the Public Contracts Regulations 2015 (PCR2015) establishes coverage rules for defence and security procurement that aim to coordinate the general rules with those of the Defence and Security Public Contracts Regulations 2011 (derived from the transposition of Directive 2009/81). 

The content of reg.15 is identical to that of Art 15 of Directive 2014/24 with some minor drafting and structural changes, which deserve no further comment (cf Pedro's more elaborate view here). For an in-depth analysis of the rules applicable to defence and  security procurement, as well as the coordination issues that such a special regime creates, see M Trybus, Buying Defence and Security in Europe. The EU Defence and Security Procurement Directive in Context (Cambridge, CUP, 2014).

Research and Development Services under Reg.14 Public Contracts Regulations 2015

Reg. 14 of the Public Contracts Regulations 2015 (PCR2015) subjects certain R&D services to its Part 2 public procurement rules if the benefits of the R&D services accrue exclusively to the contracting authority for its use in the conduct of its own affairs, and the service provided is wholly remunerated by the contracting authority. This is an almost literal transcription of Art 14 of Directive 2014/24 and deserves no comment (however, see Pedro's remarks, which are interesting).

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.

Contracts subsidised by contracting authorities under Reg.13 Public Contracts Regulations 2015

Reg.13 of the Public Contracts Regulations 2015 (PCR2015) establishes coverage rules for contracts subsidised by contracting authorities, which are identical to those of Art 13 of Directive 2014/24. 

The rules are straightforward (however, see Pedro's comments) and intend to catch works contracts and services contracts connected to those works when a contracting authority subsidises them by more than 50%, provided: i) their value is above the relevant thresholds (again, including a direct reference to the values in Dir 2014/24, which creates the same issues discussed in relation to reg.5 PCR2015 here and here), and ii) the works involve civil engineering activities as listed in Schedule 2 PCR2015, or building work for hospitals, facilities intended for sports, recreation and leisure, school and university buildings and buildings used for administrative purposes.

The rule that deserves some comment refers to the responsibility of the financing contracting authorities, which "shall ensure compliance" with Part 2 of the PCR2015 (and Dir 2014/24) "where they do not themselves award the subsidised contract or where they award that contract for and on behalf of other entities". 

This provision has been strengthened from its previous wording in Art 8 Dir 2004/18 ("Member States shall take the necessary measures to ensure that the contracting authorities awarding such subsidies ensure", which set a sort of two-tier compliance responsibility that made it rather diffuse, under a sort of "best effort" approach) and now seems to place a much more direct and objective responsibility on funding contracting authorities to ensure compliance with the public procurement rules. 

The issue of liability for lack of compliance with procurement rules in one that is bound to trigger litigation and interpretative difficulties, particularly as cooperative procurement is involved (see comments to regs.37 ff PCR2015 in due course). Hence, it is important to stress that funders of works covered by reg.13 PCR2015 (if they themselves are contracting authorities) retain liability for infringement of the procurement rules, which may well incentivise them to tender the contract directly.

(c) NotFromUtrecht University of Leicester, View of Campus Towers.

Public contracts between entities within the public sector under Reg.12 Public Contracts Regulations 2015

The in-house revolution created by Art 12 of Directive 2014/24 has been transposed by a (not so) simple 'copy-out' in reg. 12 of the Public Contracts Regulations 2015 (PCR2015) on public contracts between entities within the public sector. These provisions consolidate both the public-public cooperation exception (Hamburg) and the in-house providing exception (Teckal) to the EU public procurement rules, but also include significant deviations from the previous case law of the CJEU aimed at creating very ample flexibility for Member States to resort to non-market (?) alternatives to procurement (for critical remarks, see here, here & here; Pedro's comments are here). 

More detailed comments on the novelties at the EU level exceed this blog post and will soon be available in the second edition of my book. In terms of the UK transposition strictly considered, it is worth stressing that reg.12 PCR2015 deviates in two significant ways from art 12 Dir 2014/24, apart from the standard re-ordering and re-numbering of its content.

Firstly, reg.12(1) PCR2015 establishes the conditions under which a contract awarded by a public authority to a controlled (in-house) entity exclude the procurement from compliance with its Part 2 rules. This provision only mentions contracts "awarded by a contracting authority to a legal person" and suppresses the further specification in art 12(1) Dir 2014/24 that such legal person can be "governed by private or public law". In my view, the suppression does not alter the content of the provision and this deserves no further analysis. 

Secondly, reg.12(2) in fine PCR2015 deviates from art 12(2) Dir 2014/24 in a way that could be more relevant. Art 12(2) Dir 2014/24 establishes a new "public-house" extension of the in-house doctrine that covers "inverted" and "horizontal" in-house situations whereby a controlled legal entity awards contracts to its controlling contracting authority, or to another legal person controlled by the same contracting authority. These situations are subject to an alternative condition: either i) that there is no direct private capital participation in the legal person being awarded the public contract; or, as an exception, ii) that the only private capital participation is limited to non-controlling and non-blocking forms of participation required by national legislative provisions, in conformity with the Treaties, and that private capital does not exert a decisive influence.

The difference comes in the wording of this final condition. Whereas art 12(2) Dir 2014/24 requires that "private capital participation ... [does] not exert a decisive influence on the controlled legal person" (emphasis added), reg.12(2) in fine PCR2015 indicates that the requirement is instead for "private capital participation ... [not to] exert a decisive influence on the legal person being awarded the contract", that is, the controlling contracting authority, or another legal person controlled by the same contracting authority. 

The divergence in wording creates some doubts, as it seems to set a control-test applicable to different legal entities depending on whether the "controlled legal person" in the final reference of art 12(2) Dir 2014/24 is understood to be either i) the awarding downstream contracting authority (which would be justified because the provision starts in that way), or ii) the contracting authority to which the contract is awarded and which is the one which private capital participation is being assessed (which is the reading that makes sense from a functional perspective).

In my view, the fact that reg.12(2) in fine clearly opts for this second, functional reading does not result in any significant deviation in the legal test applicable to the new 'public-house' exception where there is legally-mandated private capital participation. The wording of art 12(2) Dir 2014/24 is clearly defective and the wording under reg.12(2) in fine clarifies that both alternative conditions apply to the contracting authority being awarded the contract. Hence, despite the different wording, the transposition seems to remain clearly within the (expanded) limits of the public-public  and in-house exceptions as recast in Dir 2014/24.

Service contracts awarded on the basis of an exclusive right under Reg.11 Public Contracts Regulations 2015

Reg.11 of the Public Contracts Regulations 2015 (PCR2015) creates the first carve-out for (pseudo) public-public cooperation (more to follow under reg.12 PCR2015) and excludes from the rules of Part 2 PCR2015 'public service contracts awarded by a contracting authority to another contracting authority on the basis of an exclusive right which the latter enjoys pursuant to a law, regulation or published administrative provision which is compatible with TFEU.' This is an instance of quasi self-supply, which has been regulated in Art 18 of Directive 2004/18 and is now maintained in Art 11 of Directive 2014/24. The reference to compatibility with the TFEU is primarily to Art 106 and public undertakings (however, see Pedro's expanded view on this).

The rule in Art 11 Dir 2014/24 is fundamentally the same, but reg.11 PCR2015 deviates from the EU provision in that the latter also excludes public services contracts awarded to 'an association of contracting authorities' and, consequently, reg. 11 PCR2015 seems to reduce the flexibility of public-public cooperation rules after their transposition. However, the PCR2015 Explanatory Memorandum offers no justification for such a restriction of the scope of application of this exclusion.

The purpose of the exclusion in reg.11 PCR2015 may seem superficial because both Art 32(2)(b)(iii) Dir 2014/24 and reg.32(2)(b)(iii) PCR2015 allow for the use of a negotiated procedure without prior publication (which is functionally equivalent to an exclusion from compliance with the rules, except for some very limited transparency obligations) where the works, supplies or services can be supplied only by a particular economic operator protected by an exclusive right, including intellectual property rights. However, the specific exclusion in reg.11 PCR2015 may not be considered (completely) superficial or unnecessary if two details are taken into consideration.

Firstly, a literal interpretation (or a natural reading) of reg/art 32(2)(b)(iii) could seem to exclude 'contracting authorities (or associations of contracting authorities' from their scope of application if they were not considered 'economic operators'. However, once this is checked against the definitions in art 2(1)(10) Dir 2014/24 / reg.2(1) PCR2015, it is clear that 'contracting authorities (or associations of contracting authorities' would be covered, as economic operators are defined as 'any natural or legal person or public entity or group of such persons and/or entities, including any temporary association of undertakings, which offers the execution of works and/or a work, the supply of products or the provision of services on the market'. Hence, from this perspective, the specific exclusion in reg.11 PCR2015 seems unnecessary.

Secondly, however, it is worth stressing that the special rule under art/reg 32(2)(b)(iii) 'shall only apply when no reasonable alternative or substitute exists and the absence of competition is not the result of an artificial narrowing down of the parameters of the procurement'. Hence, the specific (quasi) public-public cooperation exception in reg/art 11 seems to be oriented at suppressing the requirement for an assessment of availability of alternative or substitute works, products or services that could be procured. Under this light, this exception seems to now acquire a specific purpose.

In my view, however, if the goal of art/reg 11 is to deactivate the additional requirements of absence of alternative/substitute supplies or artificial narrowing down of the procurement, then these rules are bound to fail and become ineffective. Indeed, it should be stressed here that art/reg 18 include the principle of competition amongst the general principles of procurement and, as a general requirement, impose an obligation for contracting authorities to design the procurement in a way that does not artificially narrow competition. Consequently, a systematic interpretation of art/reg 11 does not allow for an interpretation that is functionally any different than art/reg 32(2)(b)(iii). Thus, ultimately, reg/art 11 is an unnecessary rule and could have been avoided in view of the (proper) public-public and in-house provision rules in Dir 2014/24 and the PCR2015 (commented next).