Public consultation on procurement planning by the Spanish Competition Authority now open (until 20/12)

The Spanish Competition Authority (Comisión Nacional de los Mercados y la Competencia, CNMC) is in the process of revising its 2011 Guide on public procurement and competition to reflect recent developments and the change of regulatory framework derived from the transposition of the 2014 EU Public Procurement Package [for a critical assessment of the original guide, in Spanish, see A Sanchez-Graells, ‘Una Visión Crítica de la 'Guía Sobre Contratación Pública y Competencia' Publicada por la CNC’ (2011) 21 Gaceta Jurídica de la Unión Europea y de la Competencia 15-31].

The CNMC plans to update their guidance in steps, and has started the process by focusing on procurement planning. In order to gather input into the formulation of guidance on procurement planning from a competition perspective, the CNMC has published a short preliminary working paper (in Spanish), is holding a public conference on 3 December (in which I am honoured to participate), and has also opened a public consultation (closes 20 Dec 2019).

Even thought, unfortunately, this is a process mainly conducted in Spanish, I am sure the CNMC would welcome any contributions on best procurement planning practices and on the impact of planning on competition via email: dp.ayudaseinformesnormativos@cnmc.es (subject: “Consulta pública Planificación de la contratación pública", indicating whether your contribution can be published or should remain confidential). In case of interest, below is my own contribution to the public consultation (in Spanish).

10 years on, the CJEU creates more uncertainty about the (in)divisibility of public powers and economic activities in public procurement (C-687/17 P)

© F. Antolín Hernández/Flickr.

In its Judgment of 7 November 2019 in Aanbestedingskalender and Others v Commission, C-687/17 P, EU:C:2019:932 (the ‘TenderNed’ case), the Court of Justice of the European Union (CJEU) rejected the appeal against the earlier Judgment of the General Court (GC) of 28 September 2017 (T-138/15, EU:T:2017:675) and thus left intact the GC’s upholding of the European Commission’s finding that ‘e-procurement was a service of general interest, and not an inherent economic activity, which could be commercially exploited so long as the State did not offer that service itself’ (T-138/15, para 108, for discussion see the earlier comment in this blog).

However, in TenderNed, the CJEU did not rely on the consideration of e-procurement as a service of general interest as such (which is a less than persuasive argument), but rather on the basis of its persistently confusing case law on the separability of economic activities and those connected with the exercise of public powers [for discussion, see A Sanchez-Graells & I Herrera Anchustegui, 'Revisiting the concept of undertaking from a public procurement law perspective – A discussion on EasyPay and Finance Engineering' (2016) 37(3) European Competition Law Review 93-98; and, more in depth, A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd edn, Hart 2015) ch 4].

The reasoning followed by the CJEU deserves close analysis, as it once again relies on the artificial indivisibility or interconnection between the economic and non-economic activities carried out by an entity tasked with a public procurement role; as it already did, initially in 2006, in FENIN v Commission, C-205/03 P, EU:C:2006:453; and 10 years ago in Selex Sistemi Integrati v Commission, C-113/07 P, EU:C:2009:191. Remarkably, this is another CJEU Judgment without Advocate General Opinion, despite the complexity of the issue and the far-fetched potential implications of the case.

Indeed, the way the TenderNed Judgment recasts the applicable (in)divisibility test is less than clear cut and can thus create renewed difficulties for the analysis of predominantly economic activities carried out by entities with some public powers—or tasked with an SGEI involving them—which is increasingly the case of central purchasing bodies [such as eg the English NHS supply chain management entity; as briefly discussed in A Sanchez-Graells, 'State Aid and EU Public Procurement: More Interactions, Fuzzier Boundaries' in L Hancher & JJ Piernas López (eds), Research Handbook on European State Aid Law (2nd edn, Edward Elgar 2020) forthcoming, section 8].

Background to the TenderNed case

In simple terms, the case concerned the controversial decision by the Dutch government to intervene in the market for the provision of electronic procurement platform services through the creation of TenderNed—an in-house e-procurement platform run by PIANOo, the tendering expertise centre for the Dutch government.

Prior to the creation of TenderNed, private providers of e-procurement services had been offering their services to Dutch contracting authorities. The creation of TenderNed and the offering of services free of charge to contracting authorities by this in-house entity logically killed the e-procurement services industry (or a part of it), which triggered the litigation.

As explained in more detail by the CJEU,

TenderNed offers a number of functionalities, made available to contracting authorities and special sector entities … free of charge. It provides the following functionalities:

– a publication module, which can be used for the publication of tender notices as well as associated tender documents (“the publication module”);

– a tendering (submission) module, offering functionalities such as the exchange of questions and answers, and the uploading and downloading of tenders and bids. That module also includes a “virtual company” section in which economic operators can introduce and manage their data (“the submission module”);

– an e-guide, which supports interested parties in using TenderNed (“the e-guide”) (C-687/17 P, para 3).

However, in providing the relevant background, the CJEU glosses over one aspect that is particularly damaging to private providers of e-procurement services, as not only is the availability of TenderNed free of charge, but contracting authorities are also obliged to use some of TenderNed’s functionalities (what the CJEU calls the “publication module” and the GC had earlier described as the “notice board”). Indeed, as explicitly stated in the TenderNed website itself: ‘All Dutch authorities are obliged to publish their national and European tenders on Tenderned’s announcement platform’. It is also clear that contracting authorities can then decide whether ‘businesses must submit their offer digitally in TenderNed’.

This stems from the fact that, as explicitly established under Dutch law, ‘while the Netherlands legislature expressly considered the publication module to be a service of general economic interest, it did not concern itself in any way with the question of whether the submission module, as an economic activity, was of general economic interest or not. Indeed, it considered that part of TenderNed’s activities to be a “simple” economic activity’ (as argued by the appellants; see C-687/17 P, para 25).

In functional terms, the unavoidable use of TenderNed for the publication of the mandatory tender notices works as an anchor for contracting authorities, which will have a strong incentive to rely on the rest of TenderNed’s free functionalities rather than pay for separate e-procurement services (even if, at least theoretically, they were of a higher quality). This creates an important issue that would be assessed as bundling under competition law, were these rules applicable. Any such argument, however, as well as the main argument on State aid in the TenderNed case, rely on the analysis of whether the entity providing the services (TenderNed) is an undertaking or not.

Succinctly, the relevant test to determine whether an entity is or not an undertaking relies on the analysis of whether it is engaged in an economic activity or not; as competition and State aid rules apply to economic activities, but not to the exercise of public powers. And this is the crux of the TenderNed case: the CJEU’s recast and application of its case law on the (in)divisibility of public powers and economic activities carried out by the same entity.

As the CJEU summarises in relation to the appellant’s claim, the issue requires determining whether:

a simple ‘connection’, even if it is a connection by their nature, by their aim and by the rules to which the activities are subject, is not sufficient to classify those activities as activities falling within the exercise of public powers, if the criterion stemming from the judgment of 12 July 2012, Compass-Datenbank (C‑138/11, EU:C:2012:449), is not to be deprived of its full meaning. The Court of Justice held … that, when an entity exercises an activity which can be separated from the exercise of its public powers, that entity, in relation to that activity, acts as an undertaking, while, if that economic activity cannot be separated from the exercise of those public powers, the activities exercised by that entity as a whole remain activities connected with the exercise of those public powers. According to the appellants, compliance with that criterion is much more difficult than with a mere criterion of ‘connection’ (C-687/17 P, para 13).

It is thus a matter of establishing an appropriate test to assess the intensity and severability of the connection between the public powers and the economic activities carried out by the relevant entity.

The (in)divisibility test in TenderNed

The CJEU recast its earlier case law on this issue as follows:

… in so far as a public entity carries on an economic activity, since that activity is not connected to the exercise of its public powers, that entity, in relation to that activity, acts as an undertaking, while, if that same economic activity cannot, however, be separated from other activities connected with the exercise of public powers, the activities exercised by that entity as a whole remain activities connected with the exercise of those public powers.

The ‘separation’ criterion ... is in fact referred to by the Court ... only in the particular situation where certain activities of a public entity do not, as such, form part of the exercise of public powers and must be considered, in isolation, to be economic activities (C-687/17 P, paras 18-19).

This is another puzzling ‘clarification’ from the CJEU (see also the recent Irgita case, discussed by Janssen & Olsson in this blog), which raises a number of potential interpretive quagmires. The verbose test in para 18 is relatively straightforward: if the different activities carried out by a single entity cannot be separated, they are exempted from competition/State aid law as a whole (as the entity cannot be classed as an undertaking); whereas if the activities are separable (or ‘not connected’, and here lies the catch?) then only the activities that do not involve the exercise of a public power are subjected to competition/State aid law (as the entity is classed as an undertaking in relation to those activities only).

The more concise clarification in para 19 is much more confusing, though. In my opinion, the CJEU’s statement is circular. It makes no sense to state that the test of ‘separation’ is only applicable to activities that ‘do not, as such, form part of the exercise of public powers’ because the whole and only point of assessing whether two sets of activities are separate or not lies in the fact of determining whether some of them are to be considered economic activities. The CJEU seems to indicate that the ‘separation’ criterion is to be applied in a second-tier of analysis, once it is clear that some activities are, in isolation, to be considered economic activities because they ‘do not, as such, form part of the exercise of public powers’. This begs the question what is the first-tier criterion for the relevant analysis.

A very convoluted systematic interpretation of both paragraphs could indicate that the first-tier criterion is that of ‘connection’, whereas the second-tier criterion is that of ‘separation’. This could make some sense as the first-tier would seek to establish whether there is an approximation between two connected sets of activities, whereas the second-tier would assess the intensity (or severability) of such connection. However, a literal interpretation of paragraph 18 dispels the illusion of such possibility, as the CJEU contraposes economic activities ‘connected to’ the exercise of public powers to economic activities that can be ‘separated from’ such exercise of public powers; thus indicating that ‘connection’ and ‘separation’ are used interchangeably for the purposes of the main test.

Therefore, in my view, the recast or clarification of the test in paragraphs 18 and 19 of the TenderNed Judgment brings nothing new (except some scope for linguistic contortion) and the issue continues to revolve around the need to assess the intensity and severability of the connection between the public powers and the economic activities carried out by the relevant entity. Such assessment has been carried out in a notoriously vague manner by the CJEU in earlier cases, and this is no different in TenderNed.

The application of the test in TenderNed

Indeed, in TenderNed, the ‘connection’/’separation’ test is applied in a rather convoluted and three-step process, in a way that overlaps across different steps and creates confusion as to the relevant scope of the analysis. In any case, the most relevant part comes at paragraphs 43 to 45, which state that

43 As regards the submission module, in order to find that there is a connection between that functionality and the exercise of public powers, the General Court held … that … separating the submission module from the publication module and the e-guide, or even removing it entirely from the overall TenderNed framework, would interfere with TenderNed’s activities and undermine the objectives pursued by [the 2014 Public Procurement rules].

44 In that respect, it should be pointed out, on the one hand, that it is apparent from the case-law of the Court of Justice that two activities can be considered not able to be separated when one of them would be rendered largely useless in the absence of the other (see, to that effect, … Compass-Datenbank, … paragraph 41) or where those two activities are closely linked (see, to that effect, … Selex Sistemi Integrati v Commission, … paragraphs 76 and 77). On the other hand, as noted in paragraph 18 of the present judgment, if an economic activity carried out by a public entity nevertheless cannot be separated from other activities connected with the exercise of public powers, the activities of that entity as a whole must be regarded as being connected with the exercise of public powers.

45 It follows that the General Court was fully entitled to deduce from the factual assessments set out in paragraph 43 of the present judgment,… that the submission module cannot be separated from the publication module, so that those two activities must be regarded as being connected to the exercise of public powers (C-687/17 P, paras 43-45, emphasis added).

If we synthesise the CJEU’s reasoning, the TenderNed case comes to say that “when the separation of activities would interfere with the functioning of the entity and undermine the objectives it pursues [at least, as long as they are mandated by EU law], those activities cannot be separated and those activities must be regarded as being connected to the exercise of public powers”.

This test of ‘interference’ or ‘goal undermining’ is most bizarre and difficult to understand. It also seems to introduce an even more light-touch approach than the original ‘separation’ test, which the CJEU explicitly restated in TenderNed as still representing good law (at paragraph 18)—subject to the circular ‘clarification’ (in paragraph 19).

It may be worth revisiting the original factual assessment carried out by the GC at paragraph 51 of its Judgment (to which the CJEU refers in para 43), according to which:

It must be noted that considering TenderNed’s various functionalities in isolation, or reducing TenderNed to one of those functionalities, by regarding them as independent of each other, when they are all indispensable for e-procurement and constitute different facets of one and the same activity, would interfere with that activity and disregard the objective pursued by [the 2014 Public Procurement rules] (T-138/15, paragraph 51).

But, alas, this is another of the largely unsubstantiated analyses that pepper this line of case law. The reasoning of the GC was structured as follows: (1) one of the objectives of the 2014 EU Public Procurement rules ‘is that procurement procedures should be carried out via electronic means throughout the European Union’ and, to that effect, ‘when implementing e-procurement, Member States were obliged to provide guidance and support to contracting authorities and economic operators’ (para 44). (2) ‘TenderNed was created and implemented by the Kingdom of the Netherlands precisely in order to comply with those obligations’, even if it did so ahead of the adoption of the 2014 EU Public Procurement rules and on the basis of draft texts (para 45). It follows that (3) ‘considering TenderNed’s various functionalities in isolation, or reducing TenderNed to one of those functionalities, by regarding them as independent of each other, when they are all indispensable for e-procurement and constitute different facets of one and the same activity, would interfere with that activity and disregard the objective pursued by [the 2014 Public Procurement rules]’ (para 51).

The key issue here is that the GC does not explain, in any meaningful way, why TenderNed’s functionalities ‘are all indispensable for e-procurement and constitute different facets of one and the same activity’. As a matter of fact, the different functionalities are easily separable from a technical perspective and the existence of decentralised e-procurement systems coordinated through a central database (such as in the case of Ukraine’s Prozorro) is definitive evidence of this. The separability of the activities was raised by the appellants and the CJEU summarised their arguments at paragraphs 26 and 27 of the TenderNed Judgment, as follows:

… the Netherlands legislature itself regarded the submission module as distinct from the publication module. Moreover, in the appellants’ view, the day-to-day practical operation of TenderNed confirms that the publication module, on the one hand, can be separated from the submission module, on the other.

In addition, the General Court wrongly held … that it is as a whole that TenderNed assists in achieving the objective of harmonisation and technical integration in the field of public procurement and that TenderNed’s activities as a whole constitute facets of the same activity. The mere fact that two activities contribute to the same objective is not sufficient for them to be considered to be facets of the same activity. The appellants point out, in that respect, that that same activity is carried out in a large number of Member States by private companies (C-687/17 P, paras 26 & 27).

However, confusingly, the CJEU did not take this into account when upholding the GC’s factual assessment (at paras 43-45), which was the third step of its analysis of the ‘connection’/’separation’ of the activities, but rather dismissed it earlier (paras 30-32).

Therefore, the strange salami slicing of the relevant issues by the CJEU leads it to confirm a disputed factual assessment by the GC without engaging with the arguments provided by the appellants to support their views. This could not be more puzzling.

Final thoughts

Not to mince words, I find TenderNed to be another highly-criticisable CJEU Judgment, due to its poor technical foundations and the additional uncertainty it creates for the assessment of the economic and non-economic activities carried out by entities with public procurement functions. The CJEU has further obscured the relevant tests and, in the end, continued to expand the procurement activities beyond the reach of competition and State aid law on the basis of flimsy assessments of separability of activities. To my mind, the litmus test to this approach will come with challenges against the activities of central purchasing bodies. I am not optimistic of the chances of a correction of this defective line of case even then. We will have to wait and see if the right case emerges from national practice and litigation, though.

The public cooperation-saga continues in Irgita [guest post by Dr Willem A Janssen & Erik Olsson, LLM]

Last month, the Court of Justice issued a confusing and potentially revolutionary Judgment in the Irgita case, which concerned the award of a contract to an in-house entity. In this blog post, Dr Willem A Janssen and Erik Olsson, LLM give us a sketch of the deep implications that the case could have and the interpretive complications it is already generating. Their ideas provide plenty food for thought and will probably be expanded in a forthcoming (even) more detailed academic article.

Janssen & Olsson make a very timely reference to another confusing and complicated recent Judgment, that in the TenderNed case, where the position that eProcurement can be classified as an SGEI withstood appeal before the CJEU. Keep an eye on the blog for a comment of that case soon.

The public cooperation-saga continues in Irgita: harmonization, competition & free movement

Many contracting authorities across the European Union (EU) sighed with relief when article 12 of Directive 2014/24/EU was adopted in 2014. After years of lingering uncertainties not solved by the case-law of the Court of Justice of the EU (CJEU), the new rules in article 12 provided more legal leeway and clarity for institutionalized and non-institutionalized cooperation between public authorities. Some perhaps even hoped it would also put an end to legal discussions about in-house and public-public cooperation in the public procurement context. With new laws, however, come new uncertainties. It did not take too long for the CJEU to show that the public procurement law community will still continue to discuss these exemptions in the future—for when a door closes, a window opens. Indeed, the CJEU has once again shaken the foundations of the ‘public house’ exemptions to the EU public procurement rules with its Judgment of 3 October 2019 in the Lithuanian case Irigita (C-285/18, EU:C:2019:829).

After providing a short overview of the Irgita case (Section 1), we scrutinize some of the CJEU’s conclusions and provide an initial mapping exercise to gage their potential implications for future discussions in this post. More specifically, we discuss the third preliminary question about the legality of national rules that limit the scope of the institutionalised exemption of article 12 Dir 2014/24/EU through adjusted or additional criteria (Section 2). We expect, however, that most future discussions will delve into the Court’s answer to the fourth preliminary question, whereby the CJEU’s reasoning seemingly created two new requirements, including that the ‘conclusion of an in-house transaction which satisfies the conditions laid down in Article 12(1)(a) to (c) of Directive 2014/24 is not as such compatible with EU law’, for such provision ‘cannot relieve the Member States or the contracting authorities of the obligation to have due regard to, inter alia, the principles of equal treatment, non-discrimination, mutual recognition, proportionality and transparency’. This position is far from clear and potentially raises far-reaching consequences for the general functioning of article 12 (Section 3). Hence, we discuss – at least - two interpretative issues, namely what the legal relevance of the impact on competition caused by a cooperation is (Section 3.1), and if the fulfillment of article 12’s criteria provides a general exception from EU law (Section 3.2). We also offer some concluding remarks.

1. A short introduction to the Irgita case

The legal context and circumstances of the Irgita case can be summarized as follows. The Lithuanian legislature implemented article 12 Dir 2014/24/EU through Article 10 of the Law on Public Procurement (as applicable on 1 July 2017). This was not a copy-paste implementation. The legislature clearly limited the application of article 12 through additional criteria in both the Law on Public Procurement and the Competition Act (Irgita, par. 8-10). For instance, the scope of article 12 Dir 2014/24/EU was limited by article 10(2) Law on Public Procurement, which required that:

‘an in-house transaction may be concluded only in an exceptional case, when the conditions set out in paragraph 1 of this article are satisfied and the continuity, good quality and availability of services cannot be ensured if they are purchased through public procurement procedures.’

Article 4 Competition Act also contains an additional criterion:

‘when carrying out the assigned tasks relating to the regulation of economic activities within the Republic of Lithuania, entities of public administration must ensure freedom of fair competition’.

The Lithuanian legislature also banned private capital participation in an institutionalised cooperation entirely (Irgita, par. 9). This is an example of an altered implementation of article 12(1)(c), which contrarily does allow some categories of private participation (‘non-controlling and non-blocking forms of private capital participation required by national legislative provisions, in conformity with the Treaties, which do not exert a decisive influence on the controlled legal person’).

The Irgita case takes place within this legal framework. Shortly said, there are two relevant awards of public contracts in this case. Firstly, the municipality of Kaunus awarded a contract for the maintenance and management of plantations, forests and forest parks following a public procurement procedure to Irgita (a private operator) in February of 2014. Secondly, the municipality decided to directly award a contract for similar services to another entity, the publicly-controlled Kauno švare, in March 2016. This latter contractual relationship fulfilled the control-, activities- and private participation-criteria of the institutionalised exemption (i.e. 100% shares, more than 90% of activities for the municipality, etc.). Irgita challenged the validity of the second award in light of the Lithuanian competition provision, whilst acknowledging that the criteria of the institutionalised exemption were indeed fulfilled.

Following a legal battle trough the national courts, the Lithuanian Supreme Court posed questions to the CJEU [as discussed at the time by Dr Deividas Soloveičik in this same blog]. As mentioned above, we consider the third and fourth preliminary questions particularly relevant. 

2. Harmonization of self-organisation

The third preliminary question (part a) considered the discretionary power of the Lithuanian legislature to implement the additional or altered criteria mentioned above in light of article 12 Dir 2014/24/EU. This is also relevant for other Member States, such as Finland, Italy and Poland, which have in their own way also limited the scope of this provision.

We argue that this question requires scrutiny of the harmonisation method of article 12. Milestone cases, such as Rätti (C-148/78, EU:C:1979:110) and Gallaher (C-11/92, EU:C:1993:262), had clarified that the 1) objective, 2) structure and 3) wording of a legal provision are relevant to determine if it concerns total or minimum harmonisation. The latter would leave discretion for national legislatures to introduce additional and adjusted criteria, whereas the former would not.

Amongst other arguments, we argue that it would, for instance, be relevant to consider that a limited implementation of article 12 in fact aids the coming about of the internal market, thereby implying that this provision concerns minimum harmonisation. This is also the approach taken by Advocate-General Hogan in his opinion of 7 May 2019 in Irgita (C-285/18, EU:C:2019:369) [for such a full analysis based on the Lithuanian and Finnish context, see also W A Janssen, ‘Swimming against the Tide: The Harmonisation of Self-organisation trough Article 12 Directive 2014/24/EU’ (2019) 14(3)  European Procurement & Public Private Partnership Law Review 145-155).

Contrary to the Advocate-General, however, the Court does not mention the relevance of the type of harmonisation in article 12 Dir 2014/24/EU, but instead emphasises the following (Irgita, par. 45-46):

‘The freedom of the Member States as to the choice of means of providing services whereby the contracting authorities meet their own needs follows moreover from recital 5 of Directive 2014/24, which states that ‘nothing in this Directive obliges Member States to contract out or externalise the provision of services that they wish to provide themselves or to organise by means other than public contracts within the meaning of this Directive’, thereby reflecting the case-law of the Court prior to that directive.

Thus, just as Directive 2014/24 does not require the Member States to have recourse to a public procurement procedure, it cannot compel them to have recourse to an in-house transaction where the conditions laid down in Article 12(1) are satisfied.’

Despite the granted clarity on the relevant discretion to legislate, it is unclear why this reasoning would provide a conclusive and final argument for the national legislatures to legislate additional or adjusted criteria. Whereas an analysis of harmonisation would provide it, the CJEU’s arguments seem to only be the first step in a more extensive analysis. It supports the long-standing idea that the EU legislature cannot impinge on the discretion of the Member States to organise themselves as they see fit [in accordance with their chosen socio-economic model, as discussed in detail in A Sanchez-Graells, ‘Against the Grain? Member State Interests and EU Procurement Law’, in M Varju (ed), Between Compliance and Particularism: Member State Interests and European Union Law (Springer 2019) 171-189; see chapter 3, W A Janssen, EU Public Procurement Law & Self-organisation: A Nexus of Tensions & Reconciliations (Eleven Publishers 2018) on the development of a right to self-organisation in article 4(2) TEU]. The subsequent argument to be made would be to consider the discretion of national legislatures to legislate. 

The second paragraph above perhaps attempts to make this explicit, but could also be a response to the Advocate-General’s conclusion. Whilst arguing in favour of minimum harmonisation, the Advocate-General surprisingly stated that article 12 could not concern total harmonisation, because it would mean that contracting authorities would be obliged to apply the institutionalised exemption if the criteria were met (A-G’s opinion in Irgita, par. 46). The Court seems to explicitly take the contrary position. More practically, however, the outcome of the Court’s approach or an argumentation based on harmonisation is still the same: the Member States can in principle limit the scope of article 12.

Finally, the CJEU does rightly emphasise two aspects. Firstly, the Court concludes that additional or adjusted criteria cannot result in a limitation of the internal market, namely a violation of the fundamental freedoms and the derived principles (Irgita, par. 48). Secondly, it concludes that the principle of transparency must be interpreted as meaning that the conditions to which the Member States subject the conclusion of in-house transactions must be made known by means of precise and clear rules of the substantive law governing public procurement, which must be sufficiently accessible, precise and predictable in their application to avoid any risk of arbitrariness (see preliminary question 3b in Irgita, par. 57).

3. Issues of cooperation, competition & free movement

In a rather lengthy fourth preliminary question, the Lithuanian Supreme Court aimed to further inquire if the fulfillment of the criteria of article 12(1)(a-c) Dir 2014/24/EU (i.e. control, activities, and private participation) would deem the entire transaction in the Irgita case compatible with the entire body of EU law. The Supreme Court referred in its question to a variety of legal obligations, including to article 2 of Directive 2004/18/EC and 2014/24/EU, articles 18, 49, 56, 106 TFEU, and the case law of the CJEU on institutionalized cooperation (ANAV, Teckal, Sea, Undis Servizi and others). The general gist of the CJEU’s dictum was not surprising (Irgita, par. 64):

‘The answer therefore to the fourth question is that the conclusion of an in-house transaction which satisfies the conditions laid down in Article 12(1)(a) to (c) of Directive 2014/24 is not as such compatible with EU law.’

This conclusion appears correct, because the institutionalized exemption vested in article 12 only exempts the application of Directive 2014/24/EU in which it is included. However, the Court’s reasoning raises various difficult interpretative issues. We have attempted to categorize them into issues relating to (1) competition and (2) free movement. Furthermore, we aim to shed some light on possible interpretations.

3.1. Competition & cooperation

After the CJEU repeated the relevance of the control-, activities- and private participation criteria as stipulated by article 12(1) Dir 2014/24/EU in its answer to the fourth question (Irgita, par. 59), a seemingly new notion appears on the stage in paragraph 62:

‘It must moreover be observed that recital 31 of that directive states, in relation to cooperation between entities belonging to the public sector, that it should be ensured that any cooperation of that kind, which is excluded from the scope of that directive, does not result in a distortion of competition in relation to private economic operators.’

The question can be raised what the significance of this inclusion is. Two potential interpretations seem to be relevant. One more limited, the other rather open-ended. A third interpretation strikes some sort of balance between the two, but is also linked to the free movement rules, and is thus discussed in Section 3.2 below.

1st interpretation: an existing obligation

Paragraph 62 could be a general reference to the already existing private participation criterion of the institutionalised exemption. A similar consideration was included in light of the non-institutionalised exemption, when the CJEU introduced this criterion in the milestone case of Commission/Germany (C-480/06, EU:C:2009:357, par. 47):

‘the principal objective of the Community rules on public procurement, that is, the free movement of services and the opening-up of undistorted competition in all the Member States’

and the Court continued by stating in the same paragraph:

‘that no private undertaking is placed in a position of advantage vis-à-vis competitors’.

In Stadt Halle (C-26/03, EU:C:2005:5), the CJEU referred to such a consideration in relation to the institutionalised exemption (par. 59):

‘Second, the award of a public contract to a semi-public company without calling for tenders would interfere with the objective of free and undistorted competition and the principle of equal treatment of the persons concerned, referred to in Directive 92/50, in particular in that such a procedure would offer a private undertaking with a capital presence in that undertaking an advantage over its competitors.’

This was also interpreted in an expansive manner in Centro Hospitalar de Setúbal and SUCH (C-574/12, EU:C:2014:2004; as discussed by Sanchez-Graells in this same blog). Article 12 sub 1(c) Dir 2014/24/EU is a codification of this ban on private participation, and could thus be a mere reference to the ratio of this article. If such an interpretation is correct, paragraph 59 merely re-emphasises a current obligation and, thus, provides nothing new under the sun. This is further confirmed again in paragraph 61, which would imply that the private participation criterion is indeed relevant, because the Court refers to these principles prior to its reference to competition:

‘As follows, in essence, from paragraph 48 of the present judgment, the fact that an in-house transaction, within the meaning of Article 12(1) of Directive 2014/24, does not fall within the scope of that directive cannot relieve the Member States or the contracting authorities of the obligation to have due regard to, inter alia, the principles of equal treatment, non-discrimination, mutual recognition, proportionality and transparency.’

This interpretation would also fit in well with the last part of recital 31 Dir 2014/24/EU, which the Court did not include in paragraph 62 of its Irgita ruling, and which states that:

‘It should be ensured that any exempted public-public cooperation does not result in a distortion of competition in relation to private economic operators in so far as it places a private provider of services in a position of advantage vis-à-vis its competitors.’ (emphasis added)

If the above were correct, paragraph 62 would contain a simple repetition of an existing obligation. Contrarily, it could be argued that the references in Commission/Germany and Stadt Halle are in fact distinct from the notion that is introduced in Irgita. Whereas these cases refer to an economic operator that can benefit from an exempted contract, the Irgita case concerns a scenario in which the exempted contract could affect competition in a different manner. This is supported by the facts of the Irgita case, which do not refer to a scenario in which private participation was included, because the municipality was a 100% shareholder in the in-house entity. Consequently, it questions why the Court would have included this paragraph in the first place and does not explain why the Court would consider competitive concerns in a scenario between a public-public cooperation and an private operator (public-private) in addition to a competitive scenario between economic operators (private-private). 

2nd interpretation: a new general criterion for the institutionalised exemption

Alternatively, paragraph 62 could generate much more significant consequences if it introduces a new criterion for the institutionalised exemption. It could require cooperating public authorities to consider the impact of their cooperation on the market. This introduction of a ‘distortion of competition’ test could require cooperation authorities to analyse if their presence on the market, should they use the discretion granted by article 12 to engage in market activities up to 20% of turnover, would create a distortion of competition. Questionably, however, this test is already covered by the state aid rules (Arts 106 to 108 TFEU), which aim to prevent such distortions—and a straightforward application of the competition rules (Arts 101 and 102 TFEU) to the in-house entity would also serve the same purpose. Furthermore, it could also mean that the use of exemptions like article 12 decreases the potential volume available on the market, thereby also distorting competition.

This interpretation might in fact make the application of the institutionalised exemption entirely impossible, because such distortion would always exist. It seemingly also undermines the standpoint that the Member States are free to organise their public tasks on the national level through cooperation as they see fit, which finds its roots in, amongst other things, article 345 TFEU, art 14 TFEU, article 4(2) TEU and CJEU cases, such as Remondis (C-51/15, EU:C:2016:985) and Stadt Halle  (see reference above in Sanchez-Graells 2019; Janssen 2018). If anything, it definitely feeds into discussion about the existence of a principle of competition and its effects within EU public procurement law (A. Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd ed, Bloomsbury-Hart 2015).

3.2. Free movement & cooperation

In addition to the competition issues, the most pertinent issue is the relationship between article 12 Dir 2014/24/EU and, amongst other things, the free movement rules. In its answer to preliminary question 4, the CJEU considers in paragraph 63:

‘In this case, it is particularly the task of the referring court to assess whether, by concluding the in-house transaction at issue in the main proceedings, the subject matter of which overlaps with that of a public contract still in force and performed by Irgita, as the party to whom that contract was awarded, the contracting authority has not acted in breach of its contractual obligations, arising from that public contract, and of the principle of transparency; whether it had to be established that the contracting authority failed to define its requirements sufficiently clearly, in particular by not guaranteeing the provision of a minimum volume of services to the party to whom that contract was awarded, or, further, whether that transaction constitutes a substantial amendment of the general structure of the contract concluded with Irgita.’

Prior to this paragraph, the CJEU states that article 12 provides an exemption from Directive 2014/24, and that contracting authorities must ‘have due regard to, inter alia, the principles of equal treatment, non-discrimination, mutual recognition, proportionality and transparency’ (Irgita, par. 61). Again, this paragraph brings about interpretative difficulties for which - at least - two interpretations could be relevant.

1st interpretation: an onerous double test of public-public cooperation

The least favorable interpretation would have a significant legal impact, because it would introduce an onerous double test for public-public cooperation. It would mean that, even though the criteria of article 12 are met, that the first contract awarded to Irgita and the second contract awarded to the in-house entity are still under an obligation to fulfill the requirements of the free movement rules (Irgita, par. 63). One effect of this interpretation would be that an exempted in-house contract would still need to comply with the transparency principle.

This interpretation would go against the idea that the EU Public Procurement Directives, which legal basis is found in the internal market, are in fact a specification of the free movement rules. It is, therefore, often assumed that an exemption of these Directives would automatically also cover the free movement rules. Furthermore, the CJEU clarified already in Parking Brixen (C-458/03, EU:C:2005:605), a case about service concessions, that the criteria of the institutionalized exemption could also be applied under the free movement rules (Parking Brixen, par. 62), thereby implying that this exemption is relevant within and outside Directive 2014/24/EU. Needless to say, this interpretation would defeat the added value of the exemption altogether, because an in-house entity might still not be awarded an in-house contract should a double test indeed exist.

One softer - yet unlikely - interpretation of a double test could be that the principle of transparency would require contracting authorities to announce the fact that they are relying on the institutionalized exemption, and that these entities consider the relevant criteria fulfilled. This would fill a crevice that currently exists, which is the absence of knowledge about exempted contracts, thereby allowing these parties to challenge their legality. It is, needless to say, unknown if this is what the Court intended to refer to as the Irigita case is silent on this issue.

2nd interpretation: a double test only applies where a procurement has been made

A second – and seemingly most favorable - interpretation in which two scenarios are relevant for the free movement principles, would be as follows.

The first scenario in which the free movement principles apply concerns national legislatures that have chosen to limit the scope of the institutionalized exemption at the national level. This has been discussed in Section 2 in relation to preliminary question 3a and b.  Member States can, thus, clearly limit this exemption through national legislation, and will, if they choose to implement such limitations, be subjected to the principles of equal treatment, non-discrimination, mutual recognition, proportionality and transparency. This appears to be a classic application of the principles underlying the free movement rules to national legislation.

The second scenario relates to the relationship between the two contract awards in the Irgita case, which would integrate free movement and competitive issues discussed in this post. It would first require, however, to establish that the CJEU erroneously introduced the concept of ‘in-house transaction’ (Irgita, par. 58) as a separate concept under EU law. The Court appears to grant individual weight to this concept, because its repeatedly refers to it as a independent concept that includes both awards of contract (1. to Irgita and 2. to the in-house entity). The Court then implicitly poses the question if the fulfillment of the criteria of article 12 would exempt both awards from the scope of EU law. Other than phrasing it under the new umbrella of ‘in-house transaction’, this is not a new conclusion if one agrees that both awards of contract require separate scrutiny of EU law. In this light, it is not surprising that the Court states that, despite the fulfillment of article 12, the other award to economic operator Irgita still needs to uphold the principle of transparency, amongst other things in relation to contract amendments. Hence, this individual analysis per contract is then extended by the Court to the relationship between the two contracts.

Accordingly, the principle of transparency requires that it is made clear to a reasonably informed tenderer what is to be expected if they are awarded a contract.  If the second award of contract to the in-house entity undermines this transparency requirement, it would constitute a sort of “after the fact” breach of this requirement with regards to the first award of contract. Such a breach would be contrary to what can be reasonably expected from an economic operator in the first proceeding and, thus, undermine the effectiveness of Directive 2014/24/EU. Consequently, it could be argued that the national court should interpret and apply national contract law to the first contract that was awarded to Irgita based on the reasonable expectation of transparency based on this Directive.

In a national legal order in which reasonable expectations of the contracting parties are an important tool to interpret a contract, a national court could find that the principle of transparency would require a contracting authority to clearly spell out any right for the contracting authority to choose to purchase the services covered by the contract from a different supplier during the duration of the contract. In fact, Swedish courts have on a few occasions found that there is arguably an obligation for a contracting authority to be clearer and more precise in a contract that has been awarded following a public procurement procedure than what would be the case with a ‘normal’ contract (see Hovrätten för Nedre Norrland, case nr. T-678-14 and Hovrätten över Skåne och Blekinge, case nr. 2798-16).

This interpretation of Irgita’s free movement issue fits in the CJEU’s reasoning, when it focusses on the fact that the scope of the second contract “overlaps with that of a public contract still in force” and on whether the contracting authority has “acted in breach of its contractual obligations” (Irgita, par. 63). As a consequence, this interpretation means that the free movement rules would only apply to a scenario that is similar to the Irgita case in which two overlapping contract awards were made. The double test would in such situations basically be limited to the question of whether the contracting authority was transparent enough when it concluded the first contract about their intent to award a second contract for similar services during the term of the first contract. In other words, this obligation would not preclude the contracting authority from using the institutionalized exemption in the future (see comparatively, and perhaps even contrarily, the General Court’s and the CJEU’s ruling relating to the Dutch TenderNED case (C-687/17, EU:C:2019:932) in which e-procurement was deemed a Service of General Interest, and thus that EU law left room for national organization of procurement functions.)

Finally, it is also possible to construe the same scenario for the competition issues discussed in Section 3.1. Despite the general terminology of the CJEU in its reasoning, it could be that the reference to distortion of competition is solely related to the relationship between the two awards of contract in the Irgita case, making its impact significantly less than discussed in light of potential other interpretative scenarios. No conclusive answers can, however, be given at this point in time.

4. Concluding remarks

The above discussion has shown that the cooperation saga in the procurement context continues. It is clear that the Irgita case provides an interesting stomping ground for discussions about public-public cooperation, harmonization, competition and free movement. We have aimed to provide some initial thoughts on this case. More often than not, it has required us to read between the lines and fill interpretative gaps in an attempt to understand the CJEU’s reasoning.

Overseeing this case and its potential major consequences, we are still uncertain if the Court consciously aimed to change the playing field of cooperation or if the different interpretations have simply arisen due to the Lithuanian case-specific circumstances. Time - and perhaps future CJEU cases - will tell, but for now we are nonetheless left to wonder: is there still room for contractual cooperation between public authorities within EU law?

Dr Willem Janssen

Dr Willem A. Janssen is an Assistant Professor of European and Dutch Public Procurement Law at the PPRC and RENFORCE of Utrecht University’s Law School. He published his monograph on 'EU public procurement law & Self-organisation: a Nexus of Tensions and Reconciliations' in 2018 and has published in various international and national journals about public procurement law. He hosts the first Dutch procurement podcast 'Bestek - de Aanbestedingspodcast', is a monthly columnist at Gemeente.nu and is actively involved in improving public procurement law and practices.

Erik Olsson, LLM

Erik Olsson is an attorney and partner at Advokatfirman Kahn Pedersen in Sweden. He specializes in public procurement law. He regularly gives lectures on public procurement and is also a columnist in the Swedish European Law Review. Erik Olsson is one of the authors of Sweden’s leading book on procedural public procurement law, Judicial Review of Procurement – and other remedies under the LOU and LUF (Sw: Överprövning av upphandling – och andra rättsmedel enligt LOU och LUF).

3 priorities for policy-makers thinking of AI and machine learning for procurement governance

I find that carrying out research in the digital technologies and governance field can be overwhelming. And that is for an academic currently having the luxury of full-time research leave… so I can only imagine how much more overwhelming it must be for policy-makers thinking about the adoption of artificial intelligence (AI) and machine learning for procurement governance, to identify potential use cases and to establish viable deployment strategies.

Prioritisation seems particularly complicated, as managing such a significant change requires careful planning and paying attention to a wide variety of potential issues. However, getting prioritisation right is probably the best way of increasing the chances of success for the deployment of digital technologies for procurement governance — as well as in other areas of Regtech, such as financial supervision.

This interesting speech by James Proudman (Executive Director of UK Deposit Takers Supervision, Bank of England) on 'Managing Machines: the governance of artificial intelligence', precisely focuses on such issues. And I find the conclusions particularly enlightening:

First, the observation that the introduction of AI/ML poses significant challenges around the proper use of data, suggests that boards should attach priority to the governance of data – what data should be used; how should it be modelled and tested; and whether the outcomes derived from the data are correct.

Second, the observation that the introduction of AI/ML does not eliminate the role of human incentives in delivering good or bad outcomes, but transforms them, implies that boards should continue to focus on the oversight of human incentives and accountabilities within AI/ML-centric systems.

And third, the acceleration in the rate of introduction of AI/ML will create increased execution risks during the transition that need to be overseen. Boards should reflect on the range of skill sets and controls that are required to mitigate these risks both at senior level and throughout the organisation.

These seem to me directly transferable to the context of procurement governance and the design of strategies for the deployment of AI and machine learning, as well as other digital technologies.

First, it is necessary to create an enabling data architecture and to put significant thought into how to extract value from the increasingly available data. In that regard, there are two opportunities that should not be missed. One concerns the treatment of procurement datasets as high-value datasets for the purposes of the special regime of the Open Data Directive (for more details, see section 6 here), which will require careful consideration of the content and level of openness of procurement data in the context of the domestic transpositions that need to be in place by 17 July 2021. The other, related opportunity concerns the implementation of the new rules on eForms for procurement data publications, which Member States need to adopt by 14 November 2022. Building on the data architecture that will result from both sets of changes—which should be coordinated—will allow for the deployment of data analytics and machine learning techniques. The purposes and goals of such deployments also need to be considered carefully, as well as their potential implications.

Second, it seems clear that the changes in the management of procurement data and the quick development of analytics that can support procurement decision-making pile some additional training and upskilling needs on the already existing (and partially unaddressed?) current challenges of full consolidation of eProcurement across the EU. Moreover, it should be clear that there is no such thing as an objective and value neutral implementation of technological governance solutions and that all levels of accountability need to be provided with adequate data skills and digital literacy upgrades in order to check what is being done at the technical level (for crystal-clear discussion, see van der Voort et al, 'Rationality and politics of algorithms. Will the promise of big data survive the dynamics of public decision making?' (2019) 36(1) Government Information Quarterly 27-38). Otherwise, governance mechanism would be at risk of failure due to techno-capture and/or techno-blindness, whether intended or accidental.

Third, there is an increasing need to manage change and the risks that come with it. In a notoriously risk averse policy field such as procurement, this is no minor challenge. This should also prompt some rethinking of the way the procurement function is organised and its risk-management mechanisms.

Addressing these priorities will not be easy or cheap, but these are the fundamental building blocks required to enable the public procurement sector to benefit from the benefits of digital technologies as they mature. In consultancy jargon, these are the priorities to ‘future-proof’ procurement strategies. Will they be adopted?

Postscript

It is worth adding that, in particular the first and second issues, lend themselves to strong collaborations between policy-makers and academics. As rightly pointed out by Pencheva et al, 'Big Data and AI – A transformational shift for government: So, what next for research?' (2018) Public Policy and Administration, advanced access at 16:

... governments should also support the efforts for knowledge creation and analysis by opening up their data further, collaborating with – and actively seeking inputs from – researchers to understand how Big Data can be utilised in the public sector. Ultimately, the supporting field of academic thought will only be as strong as the public administration practice allows it to be.

Digital technologies, public procurement and sustainability: some exploratory thoughts

** This post is based on the seminar given at the Law Department of Pompeu Fabra University in Barcelona, on 7 November 2019. The slides for the seminar are available here. Please note that some of the issues have been rearranged. I am thankful to participants for the interesting discussion, and to Dr Lela Mélon and Prof Carlos Gómez Ligüerre for the kind invitation to participate in this activitity of their research group on patrimonial law. I am also grateful to Karolis Granickas for comments on an earlier draft. The standard disclaimer applies.**

Digital technologies, public procurement and sustainability: some exploratory thoughts

1. Introductory detour

The use of public procurement as a tool to further sustainability goals is not a new topic, but rather the object of a long-running discussion embedded in the broader setting of the use of procurement for the pursuit of horizontal or secondary goals—currently labelled smart or strategic procurement. The instrumentalisation of procurement for (quasi)regulatory purposes gives rise to a number of issues, such as: regulatory transfer; the distortion of the very market mechanisms on which procurement rules rely as a result of added regulatory layers and constraints; legitimacy and accountability issues; complex regulatory impact assessments; professionalisation issues; etc.

Discussions in this field are heavily influenced by normative and policy positions, which are not always clearly spelled out but still drive most of the existing disagreement. My own view is that the use of procurement for horizontal policies is not per se desirable. The simple fact that public expenditure can act as a lever/incentive to affect private (market) behaviour does not mean that it should be used for that purpose at every opportunity and/or in an unconstrained manner. Procurement should not be used in lieu of legislation or administrative regulation where it is a second-best regulatory tool. Embedding regulatory elements that can also achieve horizontal goals in the procurement process should only take place where it has clear synergies with the main goal of procurement: the efficient satisfaction of public sector needs and/or needs in the public interest. This generates a spectrum of potential uses of procurement of a different degree of desirability.

At one end, and at its least desirable, procurement can and is used as a trade barrier for economic protectionism. In my view, this should not happen. At the other end of the spectrum, at its most desirable, procurement can and is (sometimes) used in a manner that supports environmental sustainability and technical innovation. In my view, this should happen, and more than it currently does. In between these two ends, there are uses of procurement for the promotion of labour and social standards, as well as for the promotion of human rights. Controversial as this position is, in my view, the use of procurement for the pursuit of those goals should be subjected to strict proportionality analysis in order to make sure that the secondary goal does not prevent the main purpose of the efficient satisfaction of public sector needs and/or needs in the public interest.

From a normative perspective, thus, I think that there is a wide space of synergy between procurement and environmental sustainability—which goes beyond green procurement and extends to the use of procurement to support a more circular economy—and that this can be used more effectively than is currently the case, due to emerging innovative uses of digital technologies for procurement governance.

This is the topic in which I would like to concentrate, to formulate some exploratory thoughts. The following reflections are focused on the EU context, but hopefully they are of a broader relevance. I first zoom in on the strategic priorities of fostering sustainability through procurement (2) and the digitalisation of procurement (3), as well as critically assess the current state of development of digital technologies for procurement governance (4). I then look at the interaction between both strategic goals, in terms of the potential for sustainable digital procurement (5), which leads to specific discussion of the need for an enabling data architecture (6), the potential for AI and sustainable procurement (7), the potential for the implementation of blockchains for sustainable procurement (8) and the need to refocus the emerging guidelines on the procurement of digital technologies to stress their sustainability dimension (9). Some final thoughts conclude (10).

2. Public procurement and sustainability

As mentioned above, the use of public procurement to promote sustainability is not a new topic. However, it has been receiving increasing attention in recent policy-making and legislative efforts (see eg this recent update)—though they are yet to translate in the level of practical change required to make a relevant contribution to pressing challenges, such as the climate emergency (for a good critique, see this recent post by Lela Mélon).

Facilitating the inclusion of sustainability-related criteria in procurement was one of the drivers for the new rules in the 2014 EU Public Procurement Package, which create a fairly flexible regulatory framework. Most remaining problems are linked to the implementation of such a framework, not its regulatory design. Cost, complexity and institutional inertia are the main obstacles to a broader uptake of sustainable procurement.

The European Commission is alive to these challenges. In its procurement strategy ‘Making Procurement work in and for Europe’ [COM(2017) 572 final; for a critical assessment, see here], the Commission stressed the need to facilitate and to promote the further uptake of strategic procurement, including sustainable procurement.

However, most of its proposals are geared towards the publication of guidance (such as the Buying Green! Handbook), standardised solutions (such as the library of EU green public procurement criteria) and the sharing of good practices (such as in this library of use cases) and training materials (eg this training toolkit). While these are potentially useful interventions, the main difficulty remains in their adoption and implementation at Member State level.

While it is difficult to have a good view of the current situation (see eg the older studies available here, and the terrible methodology used for this 2015 PWC study for the Commission), it seems indisputable that there are massive differences across EU Member States in terms of sustainability-oriented innovation in procurement.

Taking as a proxy the differences that emerge from the Eco-Innovation Scoreboard, it seems clear that this very different level of adoption of sustainability-related eco-innovation is likely reflective of the different approaches followed by the contracting authorities of the different Member States.

Such disparities create difficulties for policy design and coordination, as is acknowledged by the Commission and the limitations of its procurement strategy. The main interventions are thus dependent on Member States (and their sub-units).

3. Public procurement digitalisation beyond e-Procurement

Similarly to the discussion above, the bidirectional relationship between the use of procurement as a tool to foster innovation, and the adaptation of procurement processes in light of technological innovations is not a new issue. In fact, the transition to electronic procurement (eProcurement) was also one of the main drivers for the revision of the EU rules that resulted in the 2014 Public Procurement Package, as well as the flanking regulation of eInvoicing and the new rules on eForms. eProcurement (broadly understood) is thus an area where further changes will come to fruition within the next 5 years (see timeline below).

However, even a maximum implementation of the EU-level eProcurement rules would still fall short of creating a fully digitalised procurement system. There are, indeed, several aspects where current technological solutions can enable a more advanced and comprehensive eProcurement system. For example, it is possible to automate larger parts of the procurement process and to embed compliance checks (eg in solutions such as the Prozorro system developed in Ukraine). It is also possible to use the data automatically generated by the eProcurement system (or otherwise consolidated in a procurement register) to develop advanced data analytics to support procurement decision-making, monitoring, audit and the deployment of additional screens, such as on conflicts of interest or competition checks.

Progressing the national eProcurement systems to those higher levels of functionality would already represent progress beyond the mandatory eProcurement baseline in the 2014 EU Public Procurement Package and the flanking initiatives listed above; and, crucially, enabling more advanced data analytics is one of the effects sought with the new rules on eForms, which aim to significantly increase the availability of (better) procurement data for transparency purposes.

Although it is an avenue mainly explored in other jurisdictions, and currently in the US context, it is also possible to create public marketplaces akin to Amazon/eBay/etc to generate a more user-friendly interface for different types of catalogue-based eProcurement systems (see eg this recent piece by Chris Yukins).

Beyond that, the (further) digitalisation of procurement is another strategic priority for the European Commission; not only for procurement’s sake, but also in the context of the wider strategy to create an AI-friendly regulatory environment and to use procurement as a catalyst for innovations of broader application – along lines of the entrepreneurial State (Mazzucato, 2013; see here for an adapted shorter version).

Indeed, the Commission has formulated a bold(er) vision for future procurement systems based on emerging digital technologies, in which it sees a transformative potential: “New technologies provide the possibility to rethink fundamentally the way public procurement, and relevant parts of public administrations, are organised. There is a unique chance to reshape the relevant systems and achieve a digital transformation” (COM(2017) 572 fin at 11).

Even though the Commission has not been explicit, it may be worth trying to map which of the currently emerging digital technologies could be of (more direct) application to procurement governance and practice. Based on the taxonomy included in a recent OECD report (2019a, Annex C), it is possible to identify the following types and specific technologies with potential procurement application:

AI solutions

• Virtual Assistants (Chat bots or Voice bots): conversational, computer-generated characters that simulate a conversation to deliver voice- or text-based information to a user via a Web, kiosk or mobile interface. A VA incorporates natural-language processing, dialogue control, domain knowledge and a visual appearance (such as photos or animation) that changes according to the content and context of the dialogue. The primary interaction methods are text-to-text, text-to-speech, speech-to-text and speech-to-speech;

• Natural language processing: technology involves the ability to turn text or audio speech into encoded, structured information, based on an appropriate ontology. The structured data may be used simply to classify a document, as in “this report describes a laparoscopic cholecystectomy,” or it may be used to identify findings, procedures, medications, allergies and participants;

• Machine Learning: the goal is to devise learning algorithms that do the learning automatically without human intervention or assistance;

• Deep Learning: allows computational models that are composed of multiple processing layers to learn representations of data with multiple levels of abstraction;

• Robotics: deals with the design, construction, operation, and use of robots, as well as computer systems for their control, sensory feedback, and information processing;

• Recommender systems: subclass of information filtering system that seeks to predict the "rating" or "preference" that a user would give to an item;

• Expert systems: is a computer system that emulates the decision-making ability of a human expert;

Digital platforms

• Distributed ledger technology (DLT): is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions. There is no central administrator or centralised data storage. A peer-to-peer network is required as well as consensus algorithms to ensure replication across nodes is undertaken; Blockchain is one of the most common implementation of DLT;

• Smart contracts: is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract;

• IoT Platform: platform on which to create and manage applications, to run analytics, and to store and secure your data in order to get value from the Internet of Things (IoT);

Not all technologies are equally relevant to procurement—and some of them are interrelated in a manner that requires concurrent development—but these seem to me to be those with a higher potential to support the procurement function in the future. Their development needs not take place solely, or primarily, in the context of procurement. Therefore, their assessment should be carried out in the broader setting of the adoption of digital technologies in the public sector.

4. Digital technologies & the public sector, including procurement

The emergence of the above mentioned digital technologies is now seen as a potential solution to complex public policy problems, such as the promotion of more sustainable public procurement. Keeping track of all the potential use cases in the public sector is difficult and the hype around buzzwords such as AI, blockchain or the internet of things (IoT) generates inflated claims of potential solutions to even some of the most wicked public policy problems (eg corruption).

This is reflective of the same hype in private markets, and in particular in financial and consumer markets, where AI is supposed to revolutionise the way we live, almost beyond recognition. There also seems to be an emerging race to the top (or rather, a copy-cat effect) in policy-making circles, as more and more countries adopt AI strategies in the hope of harnessing the potential of these technologies to boost economic growth.

In my view, digital technologies are receiving excessive attention. These are immature technologies and their likely development and usefulness is difficult to grasp beyond a relatively abstract level of potentiality. As such, I think these technologies may be receiving excessive attention from policy-makers and possibly also disproportionate levels of investment (diversion).

The implementation of digital technologies in the public sector faces a number of specific difficulties—not least, around data availability and data skills, as stressed in a recent OECD report (2019b). While it is probably beyond doubt that they will have an impact on public governance and the delivery of public services, it is more likely to be incremental rather than disruptive or revolutionary. Along these lines, another recent OECD report (2019c) stresses the need to take a critical look at the potential of artificial intelligence, in particular in relation to public sector use cases.

The OECD report (2019a) mentioned above shows how, despite these general strategies and the high levels of support at the top levels of policy-making, there is limited evidence of significant developments on the ground. This is the case, in particular, regarding the implementation of digital technologies in public procurement, where the OECD documents very limited developments (see table below).

Of course, this does not mean that we will not see more and more widespread developments in the coming years, but a note of caution is necessary if we are to embrace realistic expectations about the potential for significant changes resulting from procurement digitalisation. The following sections concentrate on the speculative analysis of such potential use of digital technologies to support sustainable procurement.

5. Sustainable digital procurement

Bringing together the scope for more sustainable public procurement (2), the progressive digitalisation of procurement (3), and the emergence of digital technologies susceptible of implementation in the public sector (4); the combined strategic goal (or ideal) would be to harness the potential of digital technologies to promote (more) sustainable procurement. This is a difficult exercise, surrounded by uncertainty, so the rest of this post is all speculation.

In my view, there are different ways in which digital technologies can be used for sustainability purposes. The contribution that each digital technology (DT) can make depends on its core functionality. In simple functional terms, my understanding is that:

• AI is particularly apt for the massive processing of (big) data, as well as for the implementation of data-based machine learning (ML) solutions and the automation of some tasks (through so-called robotic process automation, RPA);

• Blockchain is apt for the implementation of tamper-resistant/evident decentralised data management;

• The internet of things (IoT) is apt to automate the generation of some data and (could be?) apt to breach the virtual/real frontier through oracle-enabled robotics

The timeline that we could expect for the development of these solutions is also highly uncertain, although there are expectations for some technologies to mature within the next four years, whereas others may still take closer to ten years.

© Gartner, Aug 2018.

Each of the core functionalities or basic strengths of these digital technologies, as well as their rate of development, will determine a higher or lower likelihood of successful implementation in the area of procurement, which is a highly information/data-sensitive area of public policy and administration. Therefore, it seems unavoidable to first look at the need to create an enabling data architecture as a priority (and pre-condition) to the deployment of any digital technologies.

6. An enabling data architecture as a priority

The importance of the availability of good quality data in the context of digital technologies cannot be over-emphasised (see eg OECD, 2019b). This is also clear to the European Commission, as it has also included the need to improve the availability of good quality data as a strategic priority. Indeed, the Commission stressed that “Better and more accessible data on procurement should be made available as it opens a wide range of opportunities to assess better the performance of procurement policies, optimise the interaction between public procurement systems and shape future strategic decisions” (COM(2017) 572 fin at 10-11).

However, despite the launch of a set of initiatives that seek to improve the existing procurement data architecture, there are still significant difficulties in the generation of data [for discussion and further references, see A Sanchez-Graells, “Data-driven procurement governance: two well-known elephant tales” (2019) 24(4) Communications Law 157-170; idem, “Some public procurement challenges in supporting and delivering smart urban mobility: procurement data, discretion and expertise”, in M Finck, M Lamping, V Moscon & H Richter (eds), Smart Urban Mobility – Law, Regulation, and Policy, MPI Studies on Intellectual Property and Competition Law (Springer 2020) forthcoming; and idem, “EU Public Procurement Policy and the Fourth Industrial Revolution: Pushing and Pulling as One?”, Working Paper for the YEL Annual Conference 2019 ‘EU Law in the era of the Fourth Industrial Revolution’].

To be sure, there are impending advances in the availability of quality procurement data as a result of the increased uptake of the Open Contracting Data Standards (OCDS) developed by the Open Contracting Partnership (OCP); the new rules on eForms; the development of eGovernment Application Programming Interfaces (APIs); the 2019 Open Data Directive; the principles of business to government data sharing (B2G data sharing); etc. However, it seems to me that the European Commission needs to exercise clearer leadership in the development of an EU-wide procurement data architecture. There is, in particular, one measure that could be easily adopted and would make a big difference.

The 2019 Open Data Directive (Directive 2019/1024/EU, ODD) establishes a special regime for high-value datasets, which need to be available free of charge (subject to some exceptions); machine readable; provided via APIs; and provided as a bulk download, where relevant (Art 14(1) ODD). Those high-value datasets are yet to be identified by the European Commission through implementing acts aimed at specifying datasets within a list of thematic categories included in Annex I, which includes the following datasets: geospatial; Earth observation and environment; meteorological; statistics; companies and company ownership; and mobility. In my view, most relevant procurement data can clearly fit within the category of statistical information.

More importantly, the directive specifies that the ‘identification of specific high-value datasets … shall be based on the assessment of their potential to: (a) generate significant socioeconomic or environmental benefits and innovative services; (b) benefit a high number of users, in particular SMEs; (c) assist in generating revenues; and (d) be combined with other datasets’ (Art 14(2) ODD). Given the high-potential of procurement data to unlock (a), (b) and (d), as well as, potentially, generate savings analogous to (c), the inclusion of datasets of procurement information in the future list of high-value datasets for the purposes of the Open Data Directive seems like an obvious choice.

Of course, there will be issues to iron out, as not all procurement information is equally susceptible of generating those advantages and there is the unavoidable need to ensure an appropriate balance between the publication of the data and the protection of legitimate (commercial) interests, as recognised by the Directive itself (Art 2(d)(iii) ODD) [for extended discussion, see here]. However, this would be a good step in the direction of ensuring the creation of a forward-looking data architecture.

At any rate, this is not really a radical idea. At least half of the EU is already publishing some public procurement open data, and many Eastern Partnership countries publish procurement data in OCDS (eg Moldova, Ukraine, Georgia). The suggestion here would bring more order into this bottom-up development and would help Member States understand what is expected, where to get help from, etc, as well as ensure the desirable level of uniformity, interoperability and coordination in the publication of the relevant procurement data.

Beyond that, in my view, more needs to be done to also generate backward-looking databases that enable the public sector to design and implement adequate sustainability policies, eg in relation to the repair and re-use of existing assets.

Only when the adequate data architecture is in place, will it be possible to deploy advanced digital technologies. Therefore, this should be given the highest priority by policy-makers.

7. Potential AI uses for sustainable public procurement

If/when sufficient data is available, there will be scope for the deployment of several specific implementations of artificial intelligence. It is possible to imagine the following potential uses:

• Sustainability-oriented (big) data analytics: this should be relatively easy to achieve and it would simply be the deployment of big data analytics to monitor the extent to which procurement expenditure is pursuing or achieving specified sustainability goals. This could support the design and implementation of sustainability-oriented procurement policies and, where appropriate, it could generate public disclosure of that information in order to foster civic engagement and to feedback into political processes.

• Development of sustainability screens/indexes: this would be a slight variation of the former and could facilitate the generation of synthetic data visualisations that reduced the burden of understanding the data analytics.

• Machine Learning-supported data analysis with sustainability goals: this could aim to train algorithms to establish eg the effectiveness of sustainability-oriented procurement policies and interventions, with the aim of streamlining existing policies and to update them at a pace and level of precision that would be difficult to achieve by other means.

• Sustainability-oriented procurement planning: this would entail the deployment of algorithms aimed at predictive analytics that could improve procurement planning, in particular to maximise the sustainability impact of future procurements.

Moreover, where clear rules/policies are specified, there will be scope for:

• Compliance automation: it is possible to structure procurement processes and authorisations in such a way that compliance with pre-specified requirements is ensured (within the eProcurement system). This facilitates ex ante interventions that could minimise the risk of and the need for ex post contractual modifications or tender cancellations.

• Recommender/expert systems: it would be possible to use machine learning to assist in the design and implementation of procurement processes in a way that supported the public buyer, in an instance of cognitive computing that could accelerate the gains that would otherwise require more significant investments in professionalisation and specialisation of the workforce.

• Chatbot-enabled guidance: similarly to the two applications above, the use of procurement intelligence could underpin chatbot-enabled systems that supported the public buyers.

A further open question is whether AI could ever autonomously generate new sustainability policies. I dare not engage in such exercise in futurology…

8. Limited use of blockchain/DLTs for sustainable public procurement

By contrast with the potential for big data and the AI it can enable, the potential for blockchain applications in the context of procurement seems to me much more limited (for further details, see here, here and here). To put it simply, the core advantages of distributed ledger technologies/blockchain derive from their decentralised structure.

Whereas there are several different potential configurations of DLTs (see eg Rauchs et al, 2019 and Alessie et al, 2019, from where the graph is taken), the configuration of the blockchain affects its functionalities—with the highest levels of functionality being created by open and permissionless blockchains.

However, such a structure is fundamentally uninteresting to the public sector, which is unlikely to give up control over the system. This has been repeatedly stressed and confirmed in an overview of recent implementations (OECD, 2019a:16; see also OECD, 2018).

Moreover, even beyond the issue of public sector control, it should be stressed that existing open and permissionless blockchains operate on the basis of a proof-of-work (PoW) consensus mechanism, which has a very high carbon footprint (in particular in the case of Bitcoin). This also makes such systems inapt for sustainable digital procurement implementations.

Therefore, sustainable blockchain solutions (ie private & permissioned, based on proof-of-stake (PoS) or a similar consensus mechanisms), are likely to present very limited advantages for procurement implementation over advanced systems of database management—and, possibly, even more generally (see eg this interesting critical paper by Low & Mik, 2019).

Moreover, even if there was a way to work around those constraints and design a viable technical solution, that by itself would still not fix underlying procurement policy complexity, which will necessarily impose constraints on technologies that require deterministic coding, eg

• Tenders on a blockchain - the proposals to use blockchain for the implementation of the tender procedure itself are very limited, in my opinion, by the difficulty in structuring all requirements on the basis of IF/THEN statements (see here).

• Smart (public) contracts - the same constraints apply to smart contracts (see here and here).

• Blockchain as an information exchange platform (Mélon, 2019, on file) - the proposals to use blockchain mechanisms to exchange information on best practices and tender documentation of successful projects could serve to address some of the confidentiality issues that could arise with ‘standard’ databases. However, regardless of the technical support to the exchange of information, the complexity in identifying best practices and in ensuring their replicability remains. This is evidenced by the European Commission’s Initiative for the exchange of information on the procurement of Large Infrastructure Projects (discussed here when it was announced), which has not been used at all in its first two years (as of 6 November 2019, there were no publicly-available files in the database).

9. Sustainable procurement of digital technologies

A final issue to take into consideration is that the procurement of digital technologies needs to itself incorporate sustainability considerations. However, this does not seem to be the case in the context of the hype and over-excitement with the experimentation/deployment of those technologies.

Indeed, there are emerging guidelines on procurement of some digital technologies, such as AI (UK, 2019) (WEF, 2019) (see here for discussion). However, as could be expected, these guidelines are extremely technology-centric and their interaction with broader procurement policies is not necessarily straightforward.

I would argue that, in order for these technologies to enable a more sustainable procurement, sustainability considerations need to be embedded not only in their application, but may well require eg an earlier analysis of whether the life-cycle of existing solutions warrants replacement, or the long-term impacts of the implementation of digital technologies (eg in terms of life-cycle carbon footprint).

Pursuing technological development for its own sake can have significant environmental impacts that must be assessed.

10. Concluding thoughts

This (very long…) blog post has structured some of my thoughts on the interaction of sustainability and digitalisation in the context of public procurement. By way of conclusion, I would just try to translate this into priorities for policy-making (and research). Overall, I believe that the main area of effort for policy-makers should now be in creating an enabling data architecture. Its regulation can thus focus research in the short term. In the medium-term, and as use cases become clearer in the policy-making sphere, research should be moving towards the design of digital technology-enabled solutions (for sustainable public procurement, but not only) and their regulation, governance and social impacts. The long-term is too difficult for me to foresee, as there is too much uncertainty. I can only guess that we will cross that bridge when/if we get there…

Is Circular Economy a move towards or away from sustainability? A short piece on the (ab)use of the concept of circularity [guest post by Dr Lela Mélon]

With business sustainability in mind and in search of sustainable governmental behaviour, especially in terms of public purchasing practices, circularity seems like a fitting concept for fulfilling public needs in a sustainable manner (see eg Geissdoerfer et al: 2016). Given the hurdles with the implementation of green public procurement practices across the EU, and the struggles in furthering sustainable public procurement (going beyond environmental to also add social concerns), I expected that circular public procurement would be an exception and applicable only to a handful of cases. And indeed, it did not take much research to verify that the application of circularity across European public procurement is scarce at its best: while listed under green public procurement, circular public procurement exhibits few best practices across the EU that mostly arose at the local level (see eg this 2018 best practice report).

While it might be argued that circularity by definition requires local action, that does not prevent the development of practices at a regional, national or even supra-national level in specific sectors with potential to become circular, e.g. energy sector, construction sector and waste management. Yet, whether we speak about circularity in the framework of private markets or public procurement, it is absolutely indispensable to embed circular practices in the framework of sustainability and not simply formulate it under the framework of waste management.

Much has been said on recycling, less on the cycle. Seeing circularity as an exercise of recycling and bringing materials back into the loop has been widespread, leading to even higher production and consumption and straying away from true sustainability. That being said, the underpinning reasons for such developments do not lie solely in private market practices, but also stem from the lack of knowledge on circularity and policy incoherence on the national and EU level in general.

What is (true) circularity?

Applying to both private and public markets, the notion of circularity should be clear. Recycling comes last. The whole purchasing procedure needs to be rethought and redesigned to accommodate more sustainable decisions and close the loop of linear practices as in ‘buy, use, dispose.’ Already at the stage of making the purchase decision, circularity demands us to rethink: do we need the product, service or works in question? Could we upcycle a product that we already own to fulfil that need? Could the need be filled by buying a service instead of the product or conversely leasing or renting the product? If the answer to those questions is no, then we need to purchase the product, service or work in question demanding a long life-time evaluation model.

Here the companies engaging in circular production need to provide a life-long guarantee, user manual, strategic design that facilitates reparability, minimal use of raw materials and energy (and its responsible sourcing, accounting for the social aspect of sustainability), use of renewable energy and efficient service and maintenance in case of a product fault. Spare part guarantee, service agreements, small repairs, standard components and easy disassembly are the must-haves under a truly sustainable circular economy.

Reuse and sometimes upcycling are the key. Recycling under a circular model is truly the last resort and its success in extracting useful materials for further production actually depends on the way the product was designed: the absence of hazardous materials, the possibility to disassemble the product into different materials with ease, the possibility of downcycling and upcycling of the materials. These notions all run counter to the current linear economy: and the implications of such systemic change on business models and private markets as we know them will be significant, causing significant policy spill over effects and demanding the elimination of existing policy incoherences inhibiting such a transition. This piece aims to provide further food for thought on the system as it is regarding private and public markets; discussing the current state of affairs, the impediments to a higher uptake of circular practices and the policy spill over effects of a successful implementation of circularity as a general exercise.

Where are we at? – the European Commission’s Action Plan

In terms of EU policy on circular economy in general, the European Commission has issued an ambitious circular economy package—which surprisingly focuses on waste management and bringing resources back in the loop—coupled with two subsequent implementation reports in 2017 and 2019. While the package recognises that the value of circular economy lies also in job creation, savings for businesses and the reduction of EU carbon emissions; the action plan on the matter focuses heavily on reforming the waste management legislation, albeit briefly reflecting also on the broader aspects of circular economy such as job creation, innovative design, business models, research, re-manufacturing, product development and food waste. The wrong signal is therefore sent to the private and public market: the focus on getting scarce materials back into the loop instead of a systemic change of production processes themselves. This influences private and public markets and reinforces the idea that the only issue with traditional linear production and consumption processes is the scarcity of (raw) materials.

Further reinforcing this idea, the EU study on Accelerating the transition to the circular economy focuses on public funds employed to that effect, omitting the fact that this represents only a fraction of the funds needed for a true systemic change. The study has been seen as an accelerator for the deployment of the circular economy, discussed in the framework of new circular business models and in the framework of waste management (id at 10). While the need for extensive financing has been repeatedly highlighted (eg in this 2017 report’s estimate of EUR 320 billion by 2025) for a systemic transition to circular economy (with estimated combined benefits of such shift of EUR 500 billion), the focus of the report has been on providing such finance in the current ‘business as usual’ framework, advocating for higher investment in such transition by the EU, without a comparative assessment of the current private financial market frameworks and its indispensable role in such transition (cfr this call for integrating externalities in the existing risk assessment frameworks).

Arguing for a systemic approach and a stronger focus on private finance offerings, especially with regards to small and medium-size enterprises (see here and here), points to the insufficiency of public funds for the transition to a more circular economy. To boost the private finance offerings, there is a need for a systemic change of financial systems to account for the inherent risks of the current linear business models, thereby eliminating persistent unfair competitive advantage for linear business models in the access-to-finance scenario. Not incorporating the change of linear risk assessment practices in greater detail into the EU action plan is a pitfall that needs to be remedied, qualifying change that needs to occur regarding the traditional access-to-funding setting in order to accommodate circular business and the changes it entails for ‘business-as-usual’ also in terms of the access-to-finance.

The structural flaw of underestimating the risks of linear projects and overestimating the risks of circular economy projects will not be remedied simply by taxonomy and EU funds: the financial systems on their own need to ‘circularise’ their finance offerings: the world as we know it, business as usual, is about to change and it could cost them more than just their reputation. Asset backed loans will need to change into ‘relationship’ backed loans, which presupposes also changes and ameliorations to contract laws to ensure monetised value to relationships as steering wheels of the new circular economy.

The lack of circularity in finance influences the offerings of the private market and the innovation necessary for circular solutions, which will in turn influence also the success of circular public procurement: the public funds and practices in innovation procurement cannot produce a sufficient amount of circular procurement to create a strong movement on the private market.

What are the impediments to a higher uptake of circular practices and what are their implications?

Aside from these two broader policy concerns, there are some specific impediments to circularity in public procurement: the first is the low uptake of green public procurement (GPP) across the EU,[1] impeding the insertion of circularity as the next step of GPP and the second the lack of regional, national and supranational best practices to that effect.

The integration between public procurement and circular economy itself is at its early stages at the EU level, where the incorporation of social, environmental and economic specifications into public procurement is not at a sufficiently high level to produce an indirect effect on products and consumers themselves and thereby stimulating circular economy. Furthermore, as majority of circular innovation stems from small and medium sized enterprises, it is crucial to further facilitate their access to public procurement systems, aside from general efforts to support the implementation of sustainable public procurement.

While the Eco-design Directive 2009/125/EC incentivises Member States to implement waste-preventing public procurement strategies according to information about the products’ technical durability, simultaneously suggesting the recycling requirements to be designed accounting for corresponding requirements for waste treatment in the waste legislation related to product, significantly supporting the circular flow of substances and materials, it is still strongly focused on waste management. Once again, here the notion of circularity supports more the linear production models than it does true circularity: while waste management and preservation of materials is important, determining the initial need for production and the potential for lease, reuse and upcycle is more important in terms of circularity.

The second supporting tool for circular public procurement, the Environmental Footprint Initiative of the European Commission, aims at providing a harmonisation process for the development of a scientific and consensus-based method, trying to inform and direct consumer choices with clear and comparable environmental information. Again, while reliable information is an indispensable steppingstone for determining sustainability hotspots, it is a truly preliminary and indirect step towards circular procurement. It does not provide for a true move from linearity to circularity.

Aside from the general concerns introduced above, the private sector further encounters impediments to circularity in current legislation on plastics recycling, competition law and the general corporate law favouring and prioritising linear business practices, lacking clear guidance on circularity. These are all examples of policy incoherence, some representing a direct example of incoherence (the silence of corporate legal frameworks on the social norm of shareholder primacy,[2] the plastic packaging requirements preventing the use of recycled plastics), others an indirect example (competition law).

Coupled with the abovementioned issues of financial law, these impediments are sufficient to significantly reduce the development of new circular solutions beyond pure recycling efforts. Additionally, the indirect policy incoherence in terms of competition policy as it stands, needs to be revised simultaneously to other sustainable changes to EU legal frameworks, and we have not accounted yet for those changes to a significant extent. If circularity is to be a tool towards achieving true sustainability, the traditional notions of ‘separating’ competitors and keeping them from cooperating will need to be revised. Circular systems have a need to be interconnected, cooperating and sharing, especially as reuse, repair and upcycling are the building blocks of circular economy. This calls for a systemic change of competition laws in themselves.

Furthermore, to aid the financing of this transition, traditional property and contract law will need to develop additional institutions to account for a different economy, one not based on assets as in material assets but rather relationships as assets. The road towards true circularity is still long, but these policy spill over considerations need to be resolved simultaneously with other sustainable changes to areas directly connected with sustainability in order to achieve a timely change towards truly sustainable circularity.

Where to now?

To conclude, a systemic change requires efforts of policymakers, private and public market actors as well as consumers. The above presented reflections represent just a fraction of what we will have to deal with in terms of transition towards sustainability and I would love to hear about any additional concerns and/or solutions to the policy issue that you have encountered in your professional field. I would gratefully any feedback or suggestions at lela.melon@upf.edu.

Dr Lela Mélon

Lela Mélon is a lawyer and an economist, specialised in sustainable corporate law. Lela started her sustainability career in 2014 with her research on shareholder primacy in corporate law. She is currently charge of the Marie Curie Sklodowska funded project ‘Sustainable Company’ at the Pompeu Fabra University in Barcelona. She has co-authored and authored monographs, published several scientific articles in the field of sustainable corporate lawand sustainable public procurement and presented her work at conferences across Europe, as well as introduced sustainable corporate law curricula in several universities in Europe.

[1] Mélon, L. ‘More than a nudge? Arguments and tools for mandating green public procurement in the EU.’ Working Paper, Conference Corporate Sustainability Reforms Oslo 2019.

[2] Mélon, L. Shareholder Primacy and Global Business (Routledge 2018); Sjafjell, B. (2015) Shareholder Primacy: The Main Barrier to Sustainable Companies, University of Oslo Faculty of Law Research Paper No. 2015-37.

Some thoughts on evaluation framing, based on my academic experience with REF2021

As an academic, you are frequently required to evaluate other people’s work—and, for obvious reasons, your work is also permanently being assessed. After having completed quite a few evaluation tasks in the last few months, and having received feedback on my own work, I have generated some thoughts that I will seek to organise here.

These thoughts mainly concern a hypothesis or hunch I have developed, which would posit that framing the evaluation in ways that seek to obtain more information about the reasons for a specific ‘grade’ can diminish the quality of the evaluation. This is due to the fact that the evaluator can externalise the uncertainty implicit in the qualitative evaluation. Let me try to explain.

Some background

Academic evaluations come in different flavours and colours. There is the rather obvious assessment of students’ work (ie marking). There are the also well-known peer-review assessments of academic papers. The scales used (eg 1 to 10 for students, or a four-point scale involving rejection/major corrections (aka revise & resubmit)/minor corrections/acceptance for paper) for these type of evaluations are generally well-known in each relevant context, and can be applied with varying degrees of opacity or the reviewers’ and the reviewees’ identities.

There are perhaps less well-known evaluations of colleagues’ work for promotion purposes, as well as the evaluation of funding proposals or the assessment of academic outputs for other (funding-related) purposes, such as the REF2021 in the case of English universities.

The REF2021 provides the framework in which I can structure my thoughts more easily.

Internal REF2021 evaluations

REF2021 is an exercise whereby academic outputs (among other things) are rated on a five point scale—from unclassified (= 0) to a maximum of 4*. The rating is supposed to be based on a holistic assessment of the three notoriously (let’s say, porous) concepts of ‘originality, significance and rigour'—although there are lengthy explanations on their intended interpretation.

The difficult evaluation dynamic that the REF2021 has generated is a guessing game whereby universities try to identify which of the works produced by their academics (during the eligible period) are most likely to be ranked at 4* by the REF panel, as that is where the money is (and perhaps more importantly, the ‘marker of prestige’ that is supposed to follow the evaluation, which in turn feeds into university rankings… etc).

You would think that the relevant issue when asked to assess a colleague’s work (whether anonymously or not, let’s leave that aside) for ‘REF-purposes’ would be for you to express your academic criterion in the same way as the experts in the panel will. That is, giving it a mark of 0 to 4*. That gives you five evaluation steps and you need to place the work in one of them. This is very difficult and there is a mix of conflicting loyalties, relative expertise gaps, etc that will condition that decision. That is why the evaluation is carried out by (at least) two independent evaluators, with possible intervention of a third (or more) in case of significant discrepancies.

Having to choose a specific rating between 0 and 4* forces the evaluator to internalise any uncertainties in its decision. This is a notoriously invidious exercise and the role of internal REF evaluator is unenviable.

It also creates a difficulty for decision-makers tasked with establishing the overall REF submission—in the best case scenario, thus having to chose the ‘best 4*’ of a pool of academic outputs internally assessed at 4* that exceeds the maximum allowed submissions. Decision-makers have nothing but the rating (4*) on which to choose. So it is tempting to introduce additional mechanisms to gather more information from the internal assessors in order to perform comparisons.

Change in the evaluation framing

Some of the information the decision-makers would want to gather concerns ‘how strong’ is the rating given by the evaluator with some more granularity. A temptation is to transform the 5-point scale (0 to 4) into a 9 (or even 10) point scale by halving each step (0, 0.5*, 1* etc up to 4* — or even 4.5* or 4*+)—and there are, of course, possibilities to create more steps. Another temptation is to disaggregate the rating and ask for separate marks for each of the criteria (originality, significance and rigour), with or without an overall rating.

Along the same lines, the decision-makers may also want to know how confident the evaluator is of its rating. This can be captured through narrative comments, or asking the evaluator to indicate its confidence in any scale (from low to high confidence, with as many intermediate steps as you could imagine). While all of this may create more information about the evaluation process—as well as fuel the indecision or overconfidence of the evaluator, as the case may be—I would argue that it does not result in a better rating for the purposes of the REF2021.

A more complex framing of the decision allows the evaluator to externalise the uncertainty in its decision, in particular by allowing it to avoid hard choices by using ‘boundary steps’ in the evaluation scale, as well as disclosing its level of confidence on the rating. When a 4* that had ‘only just made it’ in the mind of the evaluator morphs into a 3.5* with a moderate to high level of confidence and a qualitative indication that the evaluation could be higher, the uncertainty squarely falls with the decision-maker and not the evaluator.

As well as for other important governance reasons that need not worry us now, this is problematic in the specific REF2021 setting because of the need to reconcile more complex internal evaluations with the narrower and more rigid criteria to be applied by the external evaluators. Decision-makers faced with the task of identifying the specific academic outputs to be submitted need to deal with the uncertainty externalised by the evaluators, which creates an additional layer of uncertainty, in particular as not all evaluators will provide homogenous (additional) information (think eg of the self-assessment of the degree of confidence).

I think this also offers broader insights into the different ways in which the framing of the evaluation affects it.

Tell me the purpose and I’ll tell you the frame

I think that one of the insights that can be extracted is that the framing of the evaluation changes the process and that different frames should be applied depending on the main purpose of the exercise—beyond reaching the best possible evaluation (as that depends on issues of expertise that do not necessarily change due to framing).

Where the purpose of the exercise is to extract the maximum information from the evaluator in a standardised manner, an evaluation frame that forces commitment amongst a limited range of possible outcomes seems preferable due to the internalisation of the uncertainty in the agent that can best assess it (ie the evaluator).

Conversely, where the purpose of the exercise is to monitor the way the evaluator carries out its assessment, then a frame that generates additional information can enhance oversight, but generates fuzziness in the grades. It can also create a different set of incentives for the evaluator, depending on additional circumstances, such as identification of the evaluator and or the author of the work being evaluated, whether this is a repeated game (thus triggering reputational issues) etc.

Therefore, where the change of frame alters the dynamics and the outputs of the evaluation process, there is a risk that an evaluation system initially designed to extract expert judgment ends up being perceived as a mechanism to judge the expert. The outcomes cannot be expected to simply improve, despite the system becoming (apparently) more decision-maker friendly.

Competition and public procurement: a mind map

I have been asked to teach a workshop on competition and public procurement for an audience of postgraduate students and practitioners in this week’s session of the Competition Specialist Advanced Degree convened by Prof Antonio Robles Martin-Laborda at Universidad Carlos III of Madrid.

It has been some time since I last taught the topic, so I had to reconstruct my mind map in preparation for the workshop. This is a sketch of what I have come up with (not mind-blowing graphics…). Some additional bullet-points of the key issues in each of the areas of interaction and cross-references to papers where I have developed my ideas regarding each of the topics are below.

Bid rigging

• In principle, this is the least controversial area of competition and procurement interaction; bid rigging being an instance of anticompetitive conduct ‘by object’ (under Art 101(1) TFEU) (see here for discussion)

• Fighting bid rigging in procurement is high on competition authority’s enforcement agendas

• Procurement structurally increases likelihood of collusion; which is partially compensated by the counter-incentive created by the rules on exclusion of competition infringers (Art 57(4)(c) and (d) Dir 2014/24/EU), provided leniency does not negate its effects

Joint tendering

• Analytical difficulties to establish a boundary between bid rigging (object-based analysis) and anticompetitive collaboration for the submission of joint tenders

• Emerging approach to the treatment of joint bidding as a restriction of competition by object (cf EFTA Court Ski Taxi, 2018 Danish guidelines, see also here for analysis of their draft)

• Particular complications concern the analysis of potential competition under Art 101(1) and 101(3) TFEU, in particular in cases where this is both used to subsume the practice under prohibition in Art 101(1) and also to assess whether the restriction is indispensable to the generation of efficiencies (or whether there were less restrictive forms to achieve them) under Art 101(3) TFEU (see here and here).

Exclusion & self-cleaning

• Conceptual difficulties with boundary between Art 57(4)(c) and (d) of Directive 2014/24/EU, as well as applicable tests (see here)

• Application complicated in leniency cases (see eg Vossloh Laeis, C-124/17, EU:C:2018:855, as well as due to different approaches to judicial and administrative finality (see eg Meca, C-41/18, EU:C:2019:507, not available in English)

• These difficulties are particularly complex once the rules are implemented at the national level, as evidenced by the on-going Spanish sainete in the railroad electrification works cartel (see here and here)

Public buyer power

• Inapplicability of EU antitrust rules (ie Art 101 and 102 TFEU) directly to the public buyer, given the FENIN-Selex case law (see here)

• However, potential clawback under EasyPay’s strictest approach to separation test (see here)

CPBs

• Difficult exemption from EU antitrust rules even under FENIN, given exclusive activity (see here and here)

• Very minimal regulation and oversight, especially in the context of their cross-border activities (see here, here and here)

SGEI & In-house

• Interaction complicated in these settings, both in terms of State aid rules (see here), as well as in potential accumulation of conflicting rules under Articles 102 and 106(2) TFEU (ie publicly-mandated or generated abuses of a dominant position)

• Increasingly complicated tests to assess SGEI entrustment (Altmark, Spezzino, German slaughterhouses)

• Move towards declaration of some types of procurement (eProcurement, centralised procurement) as an SGEI themselves

State aid (more generally)

• Difficulties remain after the 2016 Commission notice on the notion of aid (see here)

Abnormally low tenders

• Difficulties also remain after Art 69 Directive 2014/24/EU, in particular concerning those tainted by State aid (see here)

• Mechanism hardly used to monitor ‘adequate competition’ or to prevent predatory pricing

Contract changes

• Difficult analogical application of notice on notion of aid and almost impossible market benchmark in most cases

• Similarly complicated interaction between merger control and public procurement rules on change of contractor, although these are partially alleviated by Art 72(1)(d)(ii) Dir 2014/24/EU (but cfr ‘economic operator that fulfils the criteria for qualitative selection initially established provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of this Directive’)

Principle of competition

• Established in Art 18(1)II Dir 2014/24/EU, has the potential to be the gangway between competition and procurement spheres of EU economic law

• Difficulties in its interpretation (see here), as well as in its application (see here)

AI & sustainable procurement: the public sector should first learn what it already owns

ⓒ Christophe Benoit (Flickr).

[This post was first published at the University of Bristol Law School Blog on 14 October 2019].

While carrying out research on the impact of digital technologies for public procurement governance, I have realised that the deployment of artificial intelligence to promote sustainability through public procurement holds some promise. There are many ways in which machine learning can contribute to enhance procurement sustainability.

For example, new analytics applied to open transport data can significantly improve procurement planning to support more sustainable urban mobility strategies, as well as the emergence of new models for the procurement of mobility as a service (MaaS). Machine learning can also be used to improve the logistics of public sector supply chains, as well as unlock new models of public ownership of eg cars. It can also support public buyers in identifying the green or sustainable public procurement criteria that will deliver the biggest improvements measured against any chosen key performance indicator, such as CO2 footprint, as well as support the development of robust methodologies for life-cycle costing.

However, it is also evident that artificial intelligence can only be effectively deployed where the public sector has an adequate data architecture. While advances in electronic procurement and digital contract registers are capable of generating that data architecture for the future, there is a significant problem concerning the digitalisation of information on the outcomes of past procurement exercises and the current stock of assets owned and used by the public sector. In this blog, I want to raise awareness about this gap in public sector information and to advocate for the public sector to invest in learning what it already owns as a potential major contribution to sustainability in procurement, in particular given the catalyst effect this could have for a more circular procurement economy.

Backward-looking data as a necessary evidence base

It is notorious that the public sector’s management of procurement-related information is lacking. It is difficult enough to have access to information on ‘live’ tender procedures. Accessing information on contract execution and any contractual modifications has been nigh impossible until the very recent implementation of the increased transparency requirements imposed by the EU’s 2014 Public Procurement Package. Moreover, even where that information can be identified, there are significant constraints on the disclosure of competition-sensitive information or business secrets, which can also restrict access. This can be compounded in the case of procurement of assets subject to outsourced maintenance contracts, or in assets procured under mechanisms that do not transfer property to the public sector.

Accessing information on the outcomes of past procurement exercises is thus a major challenge. Where the information is recorded, it is siloed and compartmentalised. And, in any case, this is not public information and it is oftentimes only held by the private firms that supplied the goods or provided the services—with information on public works more likely to be, at least partially, under public sector control. This raises complex issues of business to government (B2G) data sharing, which is only a nascent area of practice and where the guidance provided by the European Commission in 2018 leaves many questions unanswered.

I will not argue here that all that information should be automatically and unrestrictedly publicly disclosed, as that would require some careful considerations of the implications of such disclosures. However, I submit that the public sector should invest in tracing back information on procurement outcomes for all its existing stock of assets (either owned, or used under other contractual forms)—or, at least, in the main categories of buildings and real estate, transport systems and IT and communications hardware. Such database should then be made available to data scientists tasked with seeking all possible ways of optimising the value of that information for the design of sustainable procurement strategies.

In other words, in my opinion, if the public sector is to take procurement sustainability seriously, it should invest in creating a single, centralised database of the durable assets it owns as the necessary evidence base on which to seek to build more sustainable procurement policies. And it should then put that evidence base to good use.

More circular procurement economy based on existing stocks

In my view, some of the main advantages of creating such a database in the short-, medium- and long-term would be as follows.

In the short term, having comprehensive data on existing public sector assets would allow for the deployment of different machine learning solutions to seek, for example, to identify redundant or obsolete assets that could be reassigned or disposed of, or to reassess the efficiency of the existing investments eg in terms of levels of use and potential for increased sharing of assets, or in terms of the energy (in)efficiency derived from their use. It would also allow for a better understanding of potential additional improvements in eg maintenance strategies, as services could be designed having the entirety of the relevant stock into consideration.

In the medium term, this would also provide better insights on the whole life cycle of the assets used by the public sector, including the possibility of deploying machine learning to plan for timely maintenance and replacement, as well as to improve life cycle costing methodologies based on public-sector specific conditions. It would also facilitate the creation of a ‘public sector second-hand market’, where entities with lower levels of performance requirements could acquire assets no longer fit for their original purpose, eg computers previously used in more advanced tasks that still have sufficient capacity could be repurposed for routine administrative tasks. It would also allow for the planning and design of recycling facilities in ways that minimised the carbon footprint of the disposal.

In the long run, in particular post-disposal, the existence of the database of assets could unlock a more circular procurement economy, as the materials of disposed assets could be reused for the building of other assets. In that regard, there seem to be some quick wins to be had in the construction sector, but having access to more and better information would probably also serve as a catalyst for similar approaches in other sectors.

Conclusion

Building a database on existing public sector-used assets as the outcome of earlier procurement exercises is not an easy or cheap task. However, in my view, it would have transformative potential and could generate sustainability gains not only aimed at reducing the carbon footprint of future public expenditure but, more importantly, at correcting or somehow compensating for the current environmental impacts of the way the public sector operates. This could make a major difference in accelerating emissions reductions and should consequently be a matter of sufficient priority for the public sector to engage in this exercise. In my view, it should be a matter of high priority.

A quick, non-comprehensive update on circular economy and public procurement

A friend and I have been discussing sustainability and property regulation for a while. In particular, he has been quizzing me on the potential for public procurement to promote a (more) circular economy for a few years now. We last touched upon this in mid-2015. In a recent email exchange, he asked me to look at what had happened since at EU level. This is what I came up with. I thought I would share it in case someone is interested in a quick, non-comprehensive update on circular economy and public procurement. Here it is. Please feel free to add to this in the comments section!

In June 2017, the European Parliament published a report it had commissioned on 'Green Public Procurement and the EU Action Plan for the Circular Economy'. In October 2017, the Directorate General for the Environment of the European Commission published this brochure of best practices (of which I was rather critical in my blog). There have been additional best practice guides put together by entities receiving EU funding, eg ICLEI or CircularPP.

This is still a weak policy intervention in the form of best practice dissemination (ie even weaker than soft law guidelines), which is supported with some additional initiatives, such as the Circular Europe Network. However, in their own words 'the integration between PP and circular economy is still at its early stage at the EU level.' (Factsheet on Public Procurement and Circular Economy, tab 2.3).

Some countries are taking the use of procurement to push for a more circular economy to reduce the environmental impact of public sector activities more seriously than others, and the construction sector seems to be ahead of others (see eg this recent report). Denmark is perhaps at the forefront of trying to use procurement for a circular economy (see eg this case study), together with the other Nordic countries and The Netherlands (see eg this 2017 report, or the 10 case studies included in the construction sector report above). There is not much going on in the UK at all (I could only find a 2016 4-pager on general aspects of circular economy that mentions procurement in passing).

There are a couple of interesting-looking academic papers: Witjes & Lozano (2016) and Alhola et al (2018), the latter being the same authors of the report on the Nordic countries above.

** Postscript (11/10/2019 11.20am) - Thanks to Dr Lela Mélon for highlighting the March 2019 Report on ‘Accelerating the transition to a circular economy‘ and for pointing out that this is ‘an overarching policy example that omits the amount of private capital needed for a transition to occur at a noteworthy scale (e.g. mentioning the EU public funds to be employed to that effect but omitting the size of the whole funding needed for the transition)‘.

New working paper: "State aid and EU public procurement: more interactions, fuzzier boundaries"

I have uploaded a new working paper on SSRN. It is entitled “State aid and EU public procurement: more interactions, fuzzier boundaries“ and I have prepared for a new edition of the Research Handbook on European State Aid Law. Its abstract is as follows:

This chapter revisits the interaction between the EU rules on State aid and on public procurement. It probes the standard presumption that compliance with EU procurement rules excludes the existence of State aid because public tenders are apt to replicate market conditions and thus suppress any undue economic advantage. The chapter assesses the increasing number of points of interaction between both sets of rules that emerge from the novelties in the 2014 EU Public Procurement Package and the constant evolution of case law; and highlights some shortcomings of the standard presumption in relation to: the notion of State aid; R&D and pre-commercial procurement; ‘public house’ situations; negotiated procurement; abnormally low tenders; the procurement of services of general economic interest (SGEI); procurement itself as an SGEI; and procurement from ‘special organisations’. The chapter concludes that the boundaries of what constitutes State aid in the context of public procurement are fuzzier than ever. In doing so, the chapter offers a roadmap for further research in this area of EU economic law, as well as identifying areas that could benefit from additional guidance from the European Commission, in particular on benchmarking.

Full details of paper are as: Sanchez-Graells, Albert, State aid and EU public procurement: more interactions, fuzzier boundaries (October 8, 2019). To be published in L Hancher & JJ Piernas López (eds), Research Handbook on European State Aid Law (2nd edn, Edward Elgar, 2020) forthcoming. Available at SSRN: https://ssrn.com/abstract=3466288. As always, comments most welcome.

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

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

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

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

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

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

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

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

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

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

The Principle of State liability for breaches of EEA Law

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

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

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

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

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

The Positive Contract Interest

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

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

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

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

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

The Negative Contract Interest

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

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

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

Same same, but different

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

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

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

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

Direct Causal Link

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

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

Unanswered questions

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

Dag Sørlie Lund

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

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

Some quick thoughts on NHS’s recommendations to Government and Parliament for an NHS Bill

On 26 September 2019, NHS England and NHS Improvement Strategy and Innovation Directorate published the "NHS’s recommendations to Government and Parliament for an NHS Bill" supporting the NHS Long-term Plan. This is a document that provides additional details on the initial proposals of 28 February 2019, after the results of a public consultation have been taken into account.

Having read and mulled it over, I think a specific passage of para 96 (in blue) evidences two major misunderstandings underpinning the approach adopted by NHS England and NHS Improvement.

First, there is an improper characterisation of the rules in the Public Contracts Regulations 2015 as exceedingly rigid and as preventing procurement of NHS services on the basis of quality and patient experience considerations over price or cost. This flies in the face of reg 67 PCR2015, which explicitly allows for trade-offs between price/cost and quality considerations in the award of *any type* of public contract, as the contracting authority is free to determine what is best value / most economically advantageous. This also ignores i.a. the special award criteria for healthcare and other social services in reg 76 PCR2015 and the extra flexibility this creates, as per the Crown Commercial Service’s guidance, or academic commentary such as eg Pedro Telles and mine.

Second, the subjection of NHS services procurement to PCR2015 rules is attributed to EU law. However, this ignores the UK's unilateral power to exercise discretion under very significant possibilities for structuring NHS governance in a manner that wouldn't trigger those rules. This includes the space for in-house & public-public cooperation under Directive 2014/24/EU, as well as possibility of creating voucher systems underpinning patient choice in a manner that would exclude procurement rules (under Falk Pharma/Tirkonnen, see here).

Ultimately, the totality of the Sept 2019 proposals continues to ignore the origin and implications of the UK's domestic choice of structuring NHS governance around an 'NHS internal market', and solely seek to de-regulate rather than de-marketise the NHS. The same issues I raised in written evidence to the House of Commons Health and Social Care Committee regarding the previous iteration of proposals by NHS England and NHS Improvement remain relevant.

In my opinion, they should be taken into due consideration in the context of scrutinising any future NHS Bill. After all, the new proposals have cherry-picked from the Health and Social Care Committee's report and ignored crucial parts of its recommendations [2] and [7] (see here for more details).

Failing to explore all possibilities under current rules (including under EU law) and pushing for the mere de-regulation of the NHS could have severe negative impacts on efficiency and oversight of NHS expenditure. I submit that it would not be in the public interest.

'Experimental' WEF/UK Guidelines for AI Procurement: some comments

ⓒ Scott Richard, Liquid painting (2015).

On 20 September 2019, and as part of its ‘Unlocking Public Sector Artificial Intelligence’ project, the World Economic Forum (WEF) published the White Paper Guidelines for AI Procurement (see also press release), with which it seeks to help governments accelerate efficiencies through responsible use of artificial intelligence and prepare for future risks. WEF indicated that over the next six months, governments around the world will test and pilot these guidelines (for now, there are indications of adoption in the UK, the United Arab Emirates and Colombia), and that further iterations will be published based on feedback learned on the ground.

Building on previous work on the Data Ethics Framework and the Guide to using AI in the Public Sector, the UK’s Office for Artificial Intelligence has decided to adopt its own draft version of the Guidelines for AI Procurement with substantially the same content, but with modified language and a narrower scope of some principles, in order to link them to the UK’s legislative and regulatory framework (and, in particular, the Data Ethics Framework). The UK will be the first country to trial the guidelines in pilot projects across several departments. The UK Government hopes that the new Guidelines for AI Procurement will help inform and empower buyers in the public sector, helping them to evaluate suppliers, then confidently and responsibly procure AI technologies for the benefit of citizens.

In this post, I offer some first thoughts about the Guidelines for AI Procurement, based on the WEF’s version, which is helpfully summarised in the table below.

Source: WEF, White Paper: ‘Guidelines for AI Procurement’ at 6.

Some Comments

Generally, it is worth being mindful that the ‘guidelines provide fundamental considerations that a government should address before acquiring and deploying AI solutions and services. They apply once it has been determined that the solution needed for a problem could be AI-driven’ (emphasis in original). As the UK’s version usefully stresses, many of the important decisions take place at the preparation and planning stages, before publishing a contract notice. Therefore, more than guidance for AI procurement, this is guidance on the design of a framework for the governance of innovative digital technologies procurement, including AI (but easily extendable to eg blockchain-based solutions), which will still require a second tier of (future/additional) guidance on the implementation of procurement procedures for the acquisition of AI-based solutions.

It is also worth stressing from the outset that the guidelines assume both the availability and a deep understanding by the contracting authority of the data that can be used to train and deploy the AI solutions, which is perhaps not fully reflective of the existing difficulties concerning the availability and quality of procurement data, and public sector data more generally [for discussion, see A Sanchez-Graells, 'Data-Driven and Digital Procurement Governance: Revisiting Two Well-Known Elephant Tales' (2019) Communications Law, forthcoming]. Where such knowledge is not readily available, it seems likely that the contracting authority may require the prior engagement of data consultants that could carry out an assessment of the data that is or could be available and its potential uses. This creates the need to roll-back some of the considerations included in the guidelines to that earlier stage, much along the lines of the issues concerning preliminary market consultations and the neutralisation of any advantages or conflicts of interest of undertakings involved in pre-tender discussions, which are also common issues with non-AI procurement of innovation. This can be rather tricky, in particular if there is a significant imbalance in expertise around data science and/or a shortfall in those skills in the contracting authority. Therefore, perhaps as a prior recommendation (or an expansion of guideline 7), it may be worth bearing in mind that the public sector needs to invest significant resources in hiring and retaining the necessary in-house capacities before engaging in the acquisition of complex (digital) technologies.

1. Use procurement processes that focus not on prescribing a specific solution, but rather on outlining problems and opportunities and allow room for iteration.

The fit of this recommendation with the existing regulation of procurement procedures seems to point towards either innovation partnerships (for new solutions) or dynamic purchasing systems (for existing or relatively off-the-shelf solutions). The reference to dynamic purchasing systems is slightly odd here, as solutions are unlikely to be susceptible of automatic deployment in any given context.

Moreover, this may not necessarily be the only possible approach under EU law and there seems to be significant scope to channel technology contests under the rules for design contests (Arts 78 and ff of Directive 2014/24/EU). The limited appetite of innovative start-ups for procurement systems that do not provide them with ‘market exposure’ (such as large framework agreements, but likely also dynamic purchasing systems) may be relevant, depending on market conditions (see eg PUBLIC, Buying into the Future. How to Deliver Innovation through Public Procurement (2019) 23). This could create opportunities for broader calls for technological innovation, perhaps as a phase prior to conducting a more structured (and expensive) procurement procedure for an innovation partnership.

All in all, it would seem like—at least at UK level, or in any other jurisdictions seeking to pilot the guidance—it could be advisable to design a standard procurement procedure for AI-related market engagement, in order to avoid having each willing contracting authority having to reinvent the wheel.

2. Define the public benefit of using AI while assessing risks.

Like with many other aspects of the guidelines, one of the difficulties here is to try to establish actionable measures to deal with ‘unknown unknowns’ that may emerge only in the implementation phase, or well into the deployment of the solution. It would be naive to assume that the contracting authority—or the potential tenderers—can anticipate all possible risks and design adequate mitigating strategies. It would thus perhaps be wise to recommend the use of AI solutions for public sector / public service use cases that have a limited impact on individual rights, as a way to gain much necessary expertise and know-how before proceeding to deployment in more sensitive areas.

Moreover, this is perhaps the recommendation that is more difficult to instrument in procurement terms (under the EU rules), as the consideration of ‘public benefit’ seems to be a matter for the contracting authority’s sole assessment, which could eventually lead to a cancellation—with or without retendering—of the procurement. It is difficult to see how to design evaluation tools (in terms of both technical specifications and award criteria) capable of capturing the insight that ‘public benefit extends beyond value for money and also includes considerations about transparency of the decision-making process and other factors that are included in these guidelines’. This should thus likely be built into the procurement process through opportunities for the contracting authority to discontinue the project (with no or limited compensation), which also points towards the structure of the innovation partnership as the regulated procedure most likely to fit.

3. Aim to include your procurement within a strategy for AI adoption across government and learn from others.

This is mainly aimed at ensuring cross-sharing of experiences and at concentrating the need for specific AI-based solutions, which makes sense. The difficulty will be in the practical implementation of this in a quickly-changing setting, which could be facilitated by the creation of a mandatory (not necessarily public) centralised register of AI-based projects, as well as the consideration of the creation and mandatory involvement of a specialised administrative unit. This would be linked to the general comment on the need to invest in skills, but could alleviate the financial impact by making the resources available across Government rather than having each contracting authority create its own expert team.

4. Ensure that legislation and codes of practice are incorporated in the RFP.

Both aspects of this guideline are problematic to a lawyer’s eyes. It is not a matter of legal imperialism to simply consider that there have to be more general mechanisms to ensure that procurement procedures (not only for digital technologies) are fully legally compliant.

The recommendation to carry out a comprehensive review of the legal system to identify all applicable rules and then ‘Incorporate those rules and norms into the RFP by referring to the originating laws and regulations’ does not make a lot of sense, since the inclusion or not in the RFP does not affect the enforceability of those rules, and given the practical impossibility for a contracting authority to assess the entirety of rules applicable to different tenderers, in particular if they are based in other jurisdictions. It would also create all sorts of problems in terms of potential claims of legitimate expectations by tenderers. Moreover, under EU law, there is case law (such as Pizzo and Connexxion Taxi Services) that creates conflicting incentives for the inclusion of specific references to rules and their interpretation in tender documents.

The recommendation on balancing trade secret protection and public interest, including data privacy compliance, is just insufficient and falls well short of the challenge of addressing these complex issues. The tension between general duties of administrative law and the opacity of algorithms (in particular where they are protected by IP or trade secrets protections) is one of the most heated ongoing debates in legal and governance scholarship. It also obviates the need to distinguish between the different rules applicable to the data and to the algorithms, as well as the paramount relevance of the General Data Protection Regulation in this context (at least where EU data is concerned).

5. Articulate the technical feasibility and governance considerations of obtaining relevant data.

This is, in my view, the strongest part of the guidelines. The stress on the need to ensure access to data as a pre-requisite for any AI project and the emphasis and detail put in the design of the relevant data governance structure ahead of the procurement could not be clearer. The difficulty, however, will be in getting most contracting authorities to this level of data-readiness. As mentioned above, the guidelines assume a level of competence that seems too advanced for most contracting authorities potentially interested in carrying out AI-based projects, or that could benefit from them.

6. Highlight the technical and ethical limitations of using the data to avoid issues such as bias.

This guideline is also premised on advanced knowledge and understanding of the data by the contracting authority, and thus creates the same challenges (as further discussed below).

7. Work with a diverse, multidisciplinary team.

Once again, this will be expensive and create some organisational challenges (as also discussed below).

8. Focus throughout the procurement process on mechanisms of accountability and transparency norms.

This is another rather naive and limited aspect of the guidelines, in particular the final point that ‘If an algorithm will be making decisions that affect people’s rights and public benefits, describe how the administrative process would preserve due process by enabling the contestability of automated decision-making in those circumstances.' This is another of the hotly-debated issues surrounding the deployment of AI in the public sector and it seems unlikely that a contracting authority will be able to provide the necessary answers to issues that are yet to be determined—eg the difficult interpretive issues surrounding solely automated processing of personal data under the General Data Protection Regulation, as discussed in eg M Finck, ‘Automated Decision-Making and Administrative Law’ (2019) Max Planck Institute for Innovation and Competition Research Paper No. 19-10.

9. Implement a process for the continued engagement of the AI provider with the acquiring entity for knowledge transfer and long-term risk assessment.

This is another area of general strength in the guidelines, which under EU procurement law should be channeled through stringent contract performance conditions (Art 70 Directive 2014/24/EU) or, perhaps even better, by creating secondary regulation on mandatory on-going support and knowledge transfer for all AI-based implementations in the public sector.

The only aspect of this guideline that is problematic concerns the mention that, in relation to ethical considerations, ‘Bidders should be able not only to describe their approach to the above, but also to provide examples of projects, complete with client references, where these considerations have been followed.’ This would clearly be a problem for new entrants, as well as generate rather significant first-mover advantages for undertakings with prior experience (likely in the private sector). In my view, this should be removed from the guidelines.

10. Create the conditions for a level and fair playing field among AI solution providers.

This section includes significant challenges concerning issues related to the ownership of IP on AI-based solutions. Most of the recommendations seem rather complicated to implement in practice, such as the reference to the need to ‘Consider strategies to avoid vendor lock-in, particularly in relation to black-box algorithms. These practices could involve the use of open standards, royalty-free licensing and public domain publication terms’, or to ‘'consider whether [the] department should own that IP and how it would control it [in particular in the context of evolution or new design of the algorithms]. The arrangements should be mutually beneficial and fair, and require royalty-free licensing when adopting a system that includes IP controlled by a vendor’. These are also extremely complex and debated issues and, once again, it seems unlikely that a contracting authority will be able to provide all relevant answers.

Overall assessment

The main strength of the guidelines lies in its recommendations concerning the evaluation of data availability and quality, as well as the need to create robust data governance frameworks and the need to have a deep insight into data limitations and biases (guidelines 5 and 6). There are also some useful, although rather self-explanatory reminders of basic planning issues concerning the need to ensure the relevant skillset and the unavoidable multidisciplinarity of teams working in AI (guidelines 3 and 7). Similarly, the guidelines provide some very high-level indications on how to structure the procurement process (guidelines 1, 2 and 9), which will however require much more detailed (future/additional) guidance before they can be implemented by a contracting authority.

However, in all other aspects, the guidelines work as an issue-spotting instrument rather than as a guidance tool. This is clearly the case concerning the tensions between data privacy, good administration and proprietary protection of the IP and trade secrets underlying AI-based solutions (guidelines 4, 8 and 10). In my view, rather than taking the naive—and potentially misleading—approach of indicating the issues that contracting authorities need to address (in the RFP, or elsewhere) as if they were currently (easily, or at all) addressable at that level of administrative practice, the guidelines should provide sufficiently precise and goal-oriented recommendations on how to do so if they are to be useful. This is not an easy task and much more work seems necessary before the document can provide useful support to contracting authorities seeking to implement procedures for the procurement of AI-based solutions. I thus wonder how much learning can the guidelines generate in the pilots to be conducted in the UK and elsewhere. For now, I would recommend other governments to wait and see before ‘adopting’ the guidelines or treating them as a useful policy tool, in particular if that discouraged them from carrying out their own efforts in developing actionable guidance on how to procure AI-based solutions.

Finally, it does not take much reading between the lines to realise that the challenges of developing an enabling data architecture and upskilling the public sector (not solely the procurement workforce, and perhaps through specialised units, as a first step) so that it is able to identify the potential for AI-based solutions and to adequately govern their design and implementation remain as very likely stumbling blocks in the road towards deployment of public sector AI. In that regard, general initiatives concerning the availability of quality procurement data and the necessary reform of public procurement teams to fill the data science and programming gaps that currently exist should remain the priority—at least in the EU, as discussed in A Sanchez-Graells, EU Public Procurement Policy and the Fourth Industrial Revolution: Pushing and Pulling as One? (2019) SSRN working paper, and in idem, 'Some public procurement challenges in supporting and delivering smart urban mobility: procurement data, discretion and expertise', in M Finck, M Lamping, V Moscon & H Richter (eds), Smart Urban Mobility – Law, Regulation, and Policy, MPI Studies on Intellectual Property and Competition Law (Berlin, Springer, 2020) forthcoming.

Litigation in Spanish railroad electrification cartel highlights further inadequacies of regulation of bid rigger exclusion

In a new episode of the Spanish sainete of the railroad electrification cartel (see here for an overview), it has now emerged that one of the companies affected by the exclusion ground (prohibición de contratar) declared in the resolution of the Spanish National Commission on Markets and Competition (CNMC) of 14 March 2019 subsequently secured interim measures suspending its effectiveness on 19 July 2019.

The freezing order prevents (Spanish) contracting authorities from relying on the exclusion ground and thus shortens the maximum period of (future) exclusion of the colluding companies, unless the CJEU revises its case law on the time-limit calculation for such grounds established in Vossloh-Laeis (24 October 2018, C-124/17, EU:C:2018:855). The decision also highlights issues concerning the cross-border effects of litigation on exclusion grounds. In this follow-up post, I discuss these two issues.

The interim measures decision

Quick recap: it should be stressed that the Spanish transposition of Article 57(4)(d) has resulted in a system whereby the exclusion of economic operators on the basis of previous infringements of competition law is mandatory under Article 71 of Law 9/2017 on Public Sector Procurement (LCSP). However, the scope and duration of such exclusion generates some difficulties, in particular when they are not established in the original decision declaring the infraction and imposing the measure—which is precisely the case of the railroad electrification cartel. In such cases, a further administrative procedure needs to be completed and the scope and duration of the mandatory exclusion (prohibición de contratar) are to be established by decision of the competent Minister.

The effectiveness of the mandatory exclusion ground in the period running from the initial infringement decision and the further Ministerial decision is contested. Two opposing schools of thought exist. One that gives automatic effect to the exclusion ground despite the future specification of its scope and duration, and the opposing view that considers that the measure is incomplete and cannot generate (negative) effects against the sanctioned undertaking until the Ministerial decision is adopted.

The CNMC expressed the first view in its railroad electrification decision, when it stated that ‘regardless of the time limits within which the duration and scope [of the prohibition] must be set [by the Minister of Finance] ... it is possible to identify an automatism in the prohibition of contracting derived from competition law infringements, which derives ope legis or as a mere consequence of the adoption of a decision that declares said infraction, as established in the mentioned Article 71.1.b) of [Law 9/2017]‘ (page 319, own translation full decision available in Spanish).

The Spanish High Court (Audiencia Nacional), in a Judgment of 19 July 2019 (ES:AN:2019:1673A, hat tip to Alfonso Rincón García-Loygorri for posting it on LinkedIn) adopted the same view and recognised that the measure was bound to immediately restrict the affected undertakings’ ability to participate in public tenders. Considering that it is likely that the final decision on the main appeal of the cartel decision arrives after the expiry of the three year maximum duration foreseen for the exclusion ground and that (should the appellant prevail) the effects of such exclusion would be very difficult, if not impossible to correct at that stage, the High Court decided to suspend the effectiveness of the mandatory exclusion ground.

Implications in terms of maximum duration of the exclusion

Quick recap: the CJEU has established that ‘where an economic operator has been engaged in conduct falling within the ground for exclusion referred to in Article 57(4)(d) of that directive, which has been penalised by a competent authority, the maximum period of exclusion is calculated from the date of the decision of that authority‘ (Vossloh Laeis, above, para 42).

I criticised the CNMC for creating legal uncertainty by not establishing the scope and duration of the exclusion ground in its initial decision. I argued that the CNMC knew or should have known that, as a matter of directly applicable EU law, de facto the maximum exclusion period can run for three years, up to 14 March 2022. Therefore, by referring the file to the Minister and creating legal uncertainty as to the interim effects of the prohibition to contract with a yet to be specified scope and duration, the CNMC actually bought the competition infringers time and created a situation where any finally imposed prohibition to contract is likely to last for much less than the maximum three years.

The High Court’s Judgment raises the same criticisms. While the High Court explicitly took into account the fact that the undertakings could find themselves in a position of not being easily compensated for the undue exclusion from public tenders in case of prevailing in their appeal of the CNMC decision, the High Court ignored that its freezing order will create the reverse effect in case the appeal is dismissed. By preventing (Spanish) contracting authorities from excluding the competition infringers from tenders for an indefinite period starting on 19 July 2019, the High Court has created the risk that the undertakings are never excluded from public tenders because such exclusion is time barred by the time the CNMC decision becomes final—which does not solely depend on the outcome of the High Court’s proceedings, but is subject to a potential further appeal to the Supreme Court.

This highlights once again the inadequacy—or, at least, partiality—of the CJEU Vossloh criterion that the maximum period of exclusion starts running at the time of adoption of the initial infringement decision. It seems clear that, where that decision is contested and, in particular, where interim measures are obtained to freeze its effects—the maximum period of exclusion needs to be calculated taking that into account. Otherwise, the simple fact of litigating buys competition infringers immunity from the debarment system foreseen in Directive 2014/24/EU and thus excludes its effet utile. That cannot be right.

Territoriality of effects

The new episode of the Spanish sainete also raises questions concerning the cross-border effects of the CNMC decision. While Spanish contracting authorities are effectively enjoined from giving effect to the mandatory exclusion ground, the situation is by no means necessarily the same in other EU/EEA jurisdictions. Non-Spanish contracting authorities could (justifiably) be tempted to apply domestic mandatory or discretionary exclusion grounds based on the fact that the relevant undertakings were sanctioned for bid rigging by the CNMC. This could be the case whether they are aware or not of the High Court Judgment, in particular where they have discretion in this matter.

Should any such decision be challenged, the issue should make its way to the CJEU, which would have a hard time finding ways of squaring this practical difficulty with the differentiated treatment that Art 57 of Directive gives to grounds based on a ‘conviction by final judgment‘ (Art 57(1)) and those based on decisions and judgments not subjected to that finality requirement (notably, Art 57(4)), as well as with the self-imposed constraint of the way the maximum time-limit is calculated as per Vossloh.

Once again, we are yet to see the final act of this sainete…

Two related comments on the Fosen-Linjen saga

**This post is only for enthusiasts of the regulation of procurement damages out there**

You may have missed it (though being an enthusiast, you probably didn’t) but, in the middle of the summer, the EFTA Court U-turned in its Fosen-Linjen II Judgment by stressing that ‘Article 2(1)(c) of the Remedies Directive does not require that any breach of the rules governing public procurement in itself is sufficient to award damages’ (see here).

Notoriously, this was a 180° move away from its earlier Fosen-Linjen I Judgment, where it had controversially stated that ‘A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority … pursuant to Article 2(1)(c) of Directive 89/665/EEC‘ (see here and here and, for extended discussion, A Sanchez-Graells, ‘You Can’t Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law after the EFTA Court’s Fosen-Linjen Opinion’ (2018) 1(1) Nordic Journal of European Law 1-23).

The Fosen-Linjen saga deserves careful analysis and we are putting together a special issue of the European Procurement & Public Private Partnership Law Review that will provide complementary perspectives from EEA, Norwegian, EU, comparative and fundamental rights law. I have also prepared a longer case note for another law review. In case they are of interest, I have made drafts of both of those available on SSRN. Some overlap was unavoidable, so please read selectively!

• Sanchez-Graells, Albert, Liability threshold for damages in public procurement: The EFTA Court’s Fosen-Linjen Saga (September 17, 2019). Available at SSRN: https://ssrn.com/abstract=3455222.

• Sanchez-Graells, Albert, The EFTA Court’s Fosen-Linjen saga on the liability threshold for damages claims for breach of EU public procurement law: a there and back again walk (September 16, 2019). To be published in a forthcoming special issue of the European Procurement & Public Private Partnership Law Review. Available at SSRN: https://ssrn.com/abstract=3455213.

Feedback welcome on working paper on smart urban mobility and procurement

I have been invited to present a paper at a workshop on smart urban mobility organised by the Max Planck Institute for Innovation and Competition on 22-23 November 2019. I have uploaded on SSRN a work-in-progress version of the paper I am preparing, on which I would really welcome any feedback. The title of the paper is ‘Some public procurement challenges in supporting and delivering smart urban mobility: procurement data, discretion and expertise‘, and its abstract is as follows. Thank you in advance for any comments you may send me to a.sanchez-graells@bristol.ac.uk.

This paper explores three of the challenges that public buyers face when designing public tenders to support the delivery of smart urban mobility initiatives and when supervising the execution of the relevant contracts. First, the paper covers emerging issues around access and reuse of transport data that may be hindering ‘out of the box’ thinking and the deployment of artificial intelligence in this area. Second, the paper also discusses some well-known issues ‘within the regulatory box’ around the exercise of discretion in the choice of sustainable technical solutions, the constraints surrounding certain types of complex and collaborative procurement and the difficulties in monitoring contract compliance clauses. Third, the paper arrives at the realisation that the main challenges in delivering and supporting smart urban mobility through procurement relate to the higher-level or cross-cutting challenge of the professionalisation of the procurement taskforce and the need to bridge significant (and growing) knowledge gaps, and thus explores existing policy interventions aimed at the professionalisation and networking of procurement officials. The paper concludes with some overall reflections and a call for a more active role by the new Von der Leyen Commission.

Public procurement digitalisation: A step forward or two steps back? [guest post by Dr Kirsi-Maria Halonen]

In this guest post, Dr Kirsi-Maria Halonen offers some exploratory thoughts on the digitalisation of public procurement, its difficulties and some governance and competition implications. This post is based on the presentation she gave at a Finnish legal research seminar “Oikeustieteen päivät”, Aalto University, on 28-29 September 2019.

Digitalisation of procurement - background and goals

Digitalisation and e-procurement are considered to enhance the efficiency of the procurement process in the EU’s internal market. In line with the European Commission’s 2017 Procurement Strategy, procurement digitalisation can unlock better and faster transparency across the internal market, thus ensuring the possibility for economic operators to become aware of business opportunities, the facilitation of access to public tenders and the dissemination of information on the conditions of the award of public contracts.

Beyond mere transparency gains, procurement digitalisation is also expected to Increase the integrity of the awarding process and the public officials involved, thus fostering corruption prevention and good administrative practices. Finally, digitalisation is also expected to open new, more efficient monitoring possibilities both before and after contract execution, as well as the deployment of advanced big data analytics.

Directive 2014/24/EU and procurement digitalisation

Digitalisation and e-procurement are some of the main goals of Directive 2014/24/EU. Since October 2018, these rules impose the mandatory use of electronic communications throughout the whole public contract award procedure (eCommunication), the submission of tenders in electronic form (eSubmission) and created detailed rules for procedures meant solely for eProcurement, as well as simplified information exchange mechanisms (such as the ESPD) to facilitate electronic processing of procurement information.

Although the digital requirements in the Directive do not yet cover pre-award market consultations or post-award contracts and contract amendments, there are some trends to indicate that these may be the next areas of digitalisation of procurement.

State of the art at Member State level

Many Member States have taken digitalisation and transparency in public procurement even further than the requirements of Directive 2014/24/EU. Many contracting authorities use eProcurement systems for the management of the entire life-cycle of the tendering process. In Finland, there is now consolidated experience with not only an eProcurement system, but also with an open access Government spend database. Similarly, Portugal, Spain, Italy, Slovakia and Poland have also created open access contract registers for all public contracts and contract amendments.

Additionally, many Member States are committed to wider transparency outside the procurement procedures. For example, there is an emerging practice of publication of pre-tendering market consultation documents or audio/video meeting records. It is also increasingly common to provide open access to contract performance documents, such as bills, payments and performance acceptance (eg the UK national action plan on open contracting).

Concerns and opportunities in the digitalisation of procurement

Given the current trends of development of digital procurement, it is necessary to reflect not only on the opportunities that the roll-out of these technologies creates, but also some concerns that arise from increased transparency and the implications of this different mode of procurement governance. Below are some thoughts on four interrelated dimensions: corruption, SME participation, adoption of blockchain-base and algorithmic tools, and competition for public contracts.

Corruption

Public Procurement and other commercial relationships (eg real estate development) between public and private sector are most vulnerable to corruption (as repeatedly stressed by the OECD, Transparency International, Finnish National Bureau of Investigation, etc). In that regard, it seems clear that the digitalisation of procurement and the increased transparency it brings with it can prevent corruption and boost integrity. Companies across the EU become aware of the contract award, so there is less room for national arrangements and protectionism. Digitalisation can make tendering less bureaucratic, thus lessening the need and room for bribes. eProcurement can also prevent (improper) direct communication between the contracting authority and potential tenderers. Finally, the mere existence of electronic documentation makes it easier to track and request documents at a later stage: illegal purchases are not that easy to “hide”.

Yet, even after the roll-out of electronic documentation and contract registers, there will remain issues such as dealing with receipts or fabricating needs for additional purchases, which are recurring problems in many countries. Therefore, while digitalisation can reduce the scope and risk of corruption, it is no substitute for other checks and balances on the proper operation of the procurement function and the underlying expenditure of public funds.

SME participation

One of the goals of Directive 2014/24/EU was to foster procurement digitalisation to facilitate SME participation by making tendering less bureaucratic . However, tendering is still very bureaucratic. Sometimes it is difficult for economic operators to find the “right” contracts, as it requires experience not only in identifying, but also in interpreting contract notices. Moreover, the effects of digitalisation are still local due to language barriers – eg in Finland, tendering documents are mostly in Finnish.

Moreover, the uncertainty of winning and the need to put resources into tendering are the main reasons for not-bidding by SMEs (Jääskeläinen & Tukiainen, 2018); and this is not resolved by digital tools. On the contrary, and in a compounding manner, SMEs can be disadvantaged in eProcurement settings. SMEs rarely can compete in price, but the use of e-procurement systems "favours" the use of a price only criterion (in comparison to price-quality-ratio) as quality assessment requires manual assessment of tenders. The net effect of digitalisation on SME participation is thus less than clear cut.

Blockchain-based and algorithmic tools

The digitalisation of procurement creates new possibilities for the use of algorithms: it opens endless possibilities to implement algorithmic test for choosing “the best tender” and to automate the procurement of basic products and services; it allows for enhanced control of price adjustments in e-catalogues (which currently requires manual labor); and it can facilitate monitoring: eg finding signs for bid rigging, cartels or corruption. In the future, transparent algorithms could also attack corruption by minimizing or removing human participation from the course of the procurement procedure.

Digitalisation also creates possibilities for using blockchain: for example, to manage company records, official statements and documents, which can be made available to all contracting authorities across EU. However, this also creates risks linked to eg EU wide blacklists: a minor infringement in one Member State could lead to the economic operator’s incapability of participating in public tenders throughout the EU.

The implications of the adoption of both algorithmic and blockchain-based tools still requires further thought and analysis, and this is likely to remain a fertile area for practical experimentation and academic debate in the years to come.

Competition

Open public contract registers have become a part of public procurement regime in EU Member States where corruption is high or with a tradition of high levels of public sector transparency. The European Commission is pushing for their creation in all EU jurisdictions as part of its 2017 Procurement Strategy. These contract registers aim to enhance integrity of the procurement system and public official and to allow public scrutiny of public spending by citizens and media.

However, these registers can facilitate collusive agreements. Indeed, easier access to detailed tendering information facilitates monitoring existing cartels by its members: it provides means to make sure ”cartel discipline” is being followed. Moreover, it may facilitate the establishment of new cartels or lead to higher / not market-based pricing without specific collusive agreements.

Instead of creating large PDF-format databases of scanned public contracts, the European Commission indeed encourages Member States to create contract registers with workable datasets (user friendly, open, downloadable and machine-readable information on contracts and especially prices and parties of the contract). This creates huge risks of market failure and tendering with pricing that is not based on the market prices. It thus requires further thought.

Conclusions

Digitalisation has and is transforming public procurement regime and procedures. It is usually considered as a positive change: less bureaucracy, enhanced efficiency, better and faster communication and strengthening integrity of public sector. However, digitalisation keeps challenging the public procurement regime through eg automated processes and production of detailed data - leaving less room for qualitative assessments. One can wonder whether this contributes to the higher-level objectives of increasing SME participation and generating better value for money.

Digitalisation brings new tools for monitoring contracting authorities and to detect competition distortions and integrity failures. However, there is a clear risk in providing “too much” and “too detailed” pricing and contract information to the market operators – hence lowering the threshold of different collusive practices. It is thus necessary to reconsider current regulatory trends and to perhaps develop a more nuanced regulatory framework for the transparency of procurement information in a framework of digitalised governance.

Guest blogger

Dr Kirsi-Maria Halonen is a Doctor of Laws and Adjunct Professor, Senior Lecturer in Commercial Law at University of Lapland. She is also a current Member of the European Commission’s Stakeholders Expert Group on Public Procurement (SEGPP, E02807), the Research Council at Swedish Competition Authority, the Finnish Ministry of Finance national PP strategy working group (previously also national general contract terms for PP (JYSE) working group), the Finnish Public Procurement Association, of which she is a board member and previous chair, and the European Procurement Law Group (EPLG).

In addition to public procurement law, Kirsi-Maria is interested in contract law, tort law, corruption and transparency matters as well as state aid rules. She is the author of several articles (both in English and in Finnish) and a few books (in Finnish). Most recently, she has co-edited Transparency in EU Procurements. Disclosure within Public Procurement and during Contract Execution, vol 9 European Procurement Law Series (Edward Elgar, 2019), together with Prof R Caranta and Prof A Sanchez-Graells.

The Emergence of Trans-EU Collaborative Procurement: A 'Living Lab' for European Public Law

I have uploaded a new working paper on SSRN: ‘The Emergence of Trans-EU Collaborative Procurement: A “Living Lab” for European Public Law’ (March 14, 2019) https://ssrn.com/abstract=3392228. Its abstract is as follows:

Trans-EU collaborative procurement is a fertile ‘living lab’ for the observation, theorisation and critical assessment of developments in European public law. This paper maps the emergence of this novel type of cross-border administrative collaboration and scrutinises the new rules of Directive 2014/24/EU, which evidence the tension between promoting economic co-operation across borders within the internal market and the concern to respect the Member States’ administrative autonomy. The paper critically assesses the EU legislative competence in this area, extracts consequences for balancing trans-EU collaboration with ‘mandatory public law requirements’ at Member State level and proposes minimum functional guarantees to be expected in the implementation of trans-EU collaborative procurement.

Reflecting on data-driven and digital procurement governance through two elephant tales

Elephants in a 13th century manuscript. THE BRITISH LIBRARY/ROYAL 12 F XIII

I have uploaded to SSRN the new paper ‘Data-driven and digital procurement governance: Revisiting two well-known elephant tales‘ (21 Aug 2019), which I will present at the Annual Conference of the IALS Information Law & Policy Centre on 22 November 2019.

The paper condenses my current thoughts about the obstacles for the deployment of data-driven digital procurement governance due to a lack of reliable quality procurement data sources, as well as my skepticism about the potential for blockchain-based solutions, including smart contracts, to have a significant impact in public procurement setting where the public buyer is extremely unlikely to give up centralised control of the procurement function. The abstract of the paper is as follows:

This paper takes the dearth of quality procurement data as an empirical point of departure to assess emerging regulatory trends in data-driven and digital public procurement governance and, in particular, the European Commission’s ambition for the single digital procurement market. It resorts to two well-known elephant tales to send a message of caution. It first appeals to the image of medieval bestiary elephants to stress the need to develop a better data architecture that reveals the real state of the procurement landscape, and for the European Commission to stop relying on bad data in the Single Market Scoreboard. The paper then assesses the promises of blockchain and smart contracts for procurement governance and raises the prospect that these may be new white elephants that do not offer significant advantages over existing sophisticated databases, or beyond narrow back-office applications—which leaves a number of unanswered questions regarding the desirability of their implementation. The paper concludes by advocating for EU policymakers to concentrate on developing an adequate data architecture to enable digital procurement governance.

If nothing else, I hope the two elephant tales are convincing.