The adoption of Directive 2014/24 of 26 February 2014 has
resulted in the consolidation of the principle of competition in Article 18.
According to the wording of this provision: "The design of the procurement
shall not be made with the intention of […] artificially narrowing competition.
Competition shall be considered to be artificially narrowed where the design of
the procurement is made with the intention of unduly favouring or
disadvantaging certain economic operators".
In my opinion, despite the
positive aspects of the express recognition of the principle of competition in
the new EU Directive, the inclusion of a subjective element and the reference
to the prevention of corruption or the avoidance of conflicts of interest by
establishing an irrebuttable presumption of competitive distorsion, raise many questions that are
difficult to answer that may give rise to more litigation. In this post, I
venture some further thoughts on this "new" principle of competition
in Directive 2014/24 (for an initial reaction, see here; please bear in mind
that this is a translation of a contribution to http://www.obcp.es/ soon to be published in Spanish,
which justifies (?) the references to Spanish domestic law).
Explicit recognition of the principle of competition
Importantly, and unlike in Spanish national legislation on
public procurement (art 1 of RDL 3/2011, of 14 November, approving the consolidated
text of the Law on Public Sector Contracts: "This law aims to regulate
public sector procurement in order to [...] ensure [...] an efficient use of
funds [...] by [...] safeguarding free competition"); so far, the
principle of competition in public procurement was only reflected somewhat
partially and in a fractionated manner at EU law level, by means of both Directive2004/18 (and earlier versions of the procurement Directives that it
consolidated) and the interpretative case law of the Court of Justice of the EU
(CJEU) in cases such as Fracasso and
Leitschutz (C-27/98, para 31 . "to meet the objective of developing
effective competition in the area of public contracts"), Lombardini and Mantovani (C-285/99, para
76: "all the requirements imposed by Community law must unquestionably be
complied with in the context of the various aspects of the national procedures
for awarding public works contracts, which must moreover be applied in such a
manner as to ensure compliance with the principles of free competition")
and SECAP (Opinion of AG in C-147/06, para 29 "those
directives pursue a limited direct aim, namely the coordination of procedures
governed by the sectoral directives with a view to encouraging the development
of effective competition in the field of public contracts", as endorsed by the CJEU in the Judgment in C-147/96, para 29: "assess tenders which are submitted to them under conditions of effective competition").
Additionally, the contours of the principle of competition
were somewhat fuzzy and required a considerable interpretive effort to
delineate the obligations derived therefrom (for further details, see A Sanchez
Graells, "Competition and the Public Buyer Towards a More Competition -
Oriented Procurement: The Principle of Competition Embedded in EC PublicProcurement Directives").
From this perspective, the explicit recognition of the principle of competition
in the new EU directive is to be welcomed. However, the explicit formulation
adopts the policy is problematic for at least two reasons.
Inclusion of a very problematic subjective element: can we
"objectify" it?
In my opinion, this task is very complex, as it requires establishing
the parameters by which a decision that often involves various individuals (and
potentially several administrative bodies) is considered affected by an
underpinning anticompetitive intent. In fact, I think that this task is virtually
impossible, given that the traditional mechanisms of allocation of subjective
factors in (administrative) disciplinary or criminal law are not applicable and
very clearly require an "objectifying" reinterpretation of the
intentional element in the provision.
The reasons for the "objectification" of the
wording of Article 18 of Directive 2014/24 are multiple and derived mainly from
the need for coordination of this new rule with some of its "functional neighbours".
Firstly, such coordination should take into account the objective character of
the restrictions of competition derived from the rules of the Treaty on the
Functioning of the EU (TFEU) and its interpretation by the CJEU. Indeed, the
prohibitions in Articles 101 and 102 TFEU (and their national counterparts,
such as in Articles 1 and 2 of the Spanish Law 15/ 2007 of 3 July, on the defence
of competition) apply in abstraction from any volitional element of the
offending parties. A competitive restriction in the market automatically results
in a violation of those prohibitive norms, irrespective of the intention with
which market players have conducted the practice restrictive of competition.
Secondly, and in a more subtle but functionally relevant
relationship, the objectification of the competition principle standard must be
coordinated with the criminal law rules applicable to the criminal liability of
legal entities—which establish (at least in Spain) a clearly objective and
independent regime, disconnected from any subjective element of the specific
individuals who have committed crimes or offences whose responsibility extends to
legal persons (see Article 31bis.3 of the Spanish Criminal Code, as introduced
by LO 5/2010, of June 22, amending the Organic Law 10/1995 of 23 November, on
the Criminal Code).
Therefore, the objectification of Article 18 of Directive
2014/24 seems the most appropriate functional solution—but, acknowledgedly, it
can be seen as lying somewhat far away from a literal interpretation of the
provision. Broadly speaking, in my opinion, this objectification of the principle
should be carried out by establishing a rebuttable presumption of restrictive
intent in cases where, in fact, the tendering procedure has been designed in a
manner that is restrictive of competition.
The disproval of this rebuttable presumption would require
the contracting authority or entity to justify the existence of objective, legitimate
and proportionate reasons for the adoption of the criteria restrictive of competition
(ie, to provide a plausible justification for the imposition of restrictive
conditions of competition in tendering the contract, so as to exclude the plain
and simple explanation that it was intended to restrict competition therewith).
In other words, if it could be justified that a "reasonable and
disinterested contracting entity" (meaning free from any intent to restrict
competition) would have taken the same decision on the design of the tender in
a form restrictive of competition, the presumption of restrictive intent would
not be applicable and, ultimately, the tender would be compliant with Article
18 of Directive 2014/24. Obviously, this test requires further development (and
I will devote some time to developing a more refined proposal in the coming
months).
Linking distortions of competition and favouritism or
corruption: a bidirectional and biunivocal relationship?
The second problematic aspect in the wording of Article 18
of Directive 2014/24 is, in my opinion, the establishment of a iuris et de iure presumption of competitive
distortion in: "Competition shall be considered to be
artificially narrowed where the design of the procurement is made with the
intention of unduly (sic) favouring or disadvantaging certain economic
operators".
This assumption raises a potential problem of (logical) "capture"
of the interpreters of this rule, as they may be tempted to consider that in
the absence of (undue!) favouritism or corruption, no restrictions on
competition are contrary to the precept—that is, they can be inclined to decide
not to apply the "residual" part of the prohibition and limit it exclusively
to cases covered by the presumption. Additionally, while it is true that most
cases of favouritism or corruption will result in a restriction of competition,
this is not always necessarily the case. For example, in cases where the
beneficiary of favouritism could be awarded the contract under competitive
conditions, or in cases in which corrupt practices are added to previous
restrictions of competition created by the bidders active in the market; it
could be argued that there is no (independent) restriction competition and,
therefore, that the presumption is unnecessary or unjustified.
In any case, the instances of favouritism included in the irrebuttable
presumption would (also) be covered by the new rules relating to conflicts of
interest envisaged in Article 24 of Directive 2014/24: "Member States
shall ensure that contracting authorities take appropriate measures to
effectively prevent, identify and remedy conflicts of interest arising in the
conduct of procurement procedures so as to avoid any distortion of competition
and to ensure equal treatment of all economic operators", and can even fit
into one of the headings of mandatory exclusion of Article 57(1)(b) for corruption,
as supplemented by the obligation to terminate the contract under Article 73(b).
Therefore, the establishment of the presumption of
anticompetitive intent in cases of favouritism or discrimination is, in my
opinion, unnecessary and may be counterproductive. Ultimately, I think that it will
be necessary for the bodies responsible for the implementation of these
provisions to clearly distinguish instances of corruption from those of
(simple) restriction of competition and, in the latter scenario, apply the
first part of the principle of competition in an "objectified" manner,
as advocated above.
Conclusion
The consolidation of the principle of competition in Article
18 of Directive 2014/24 should be welcomed, but its wording requires two major
adjustments designed to ensure functionality. On the one hand, it is necessary
to objectify the interpretation and application of the provision and, in my
opinion, this should be done by establishing a rebuttable presumption of competition restrictive intent. Moreover, the irrebuttable presumption of restriction of
competition in cases of favouritism or corruption should be interpreted as not being
exhaustive and should not prevent the widespread application of the (not
necessarily residual) general test of competitive restraint in the absence of (clear)
discrimination.
In any case, it should come as no surprise if the new Article
18 of Directive 2014/24 gives rise to a significant level of litigation.