Reading O Blažo, 'Public Procurement Directive and Competition Law - Really United in Diversity?' (2015), I have found some interesting and thought-provoking remarks on the impact of public procurement regulation over the effectiveness of competition law enforcement. The paper focuses 'mainly on three problematic issues: participation of companies of the same economic group in public procurement procedure, disqualification for cartel infringement, attractiveness of leniency programme'.
Multiple bidding by members of an economic group
Blažo's discussion of the issue of multiple participation by companies of the same economic group discusses Assitur (C-538/07, EU:C:2009:317), where the Court of Justice of the European Union (CJEU) declared contrary to EU public procurement law an Italian rule not allowing companies linked by a relationship of control or significant influence to participate, as competing tenderers, in the same procedure for the award of a public contract. The CJEU determined that, 'while pursuing legitimate objectives of equality of treatment of tenderers and transparency in procedures for the award of public contracts, [a national rule that] lays down an absolute prohibition on simultaneous and competing participation in the same tendering procedure by undertakings linked by a relationship of control or affiliated to one another, without allowing them an opportunity to demonstrate that that relationship did not influence their conduct in the course of that tendering procedure' is incompatible with EU public procurement law (para 33, emphasis added).
Blažo considers that this 'appears as “over-regulation” and “under-regulation” [at] the same time in his context: it does not solve problem of participation of several companies forming of one economic group in one tender procedure and on the other hand outlaws their automatic exclusion'. I would disagree with this critical assessment and submit that the CJEU reached a good balance of competing interests (ie ensuring sufficient intra-tender competition vs avoiding collusion or manipulation risks). As I wrote in Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 341-342 (references omitted):
the grounds for exclusion based on professional qualities of the tenderers—and the existence of relationships of control between them, or their control structure, is clearly a professional quality—are exhaustively listed in article 57 of Directive 2014/24, which precludes Member States or contracting authorities from adding other grounds for exclusion based on criteria relating to professional qualities of the candidate or tenderer, such as professional honesty, solvency and economic and financial capacity. Nevertheless, it does not preclude the option for Member States to maintain or adopt substantive rules designed, in particular, to ensure, in the field of public procurement, observance of the principle of equal treatment and of the principle of transparency. Given that the extension of the ban on multiple bidding has as its clear rationale the prevention of discrimination between self-standing entities and those integrated in group structures, prima facie it seems to constitute a case of permitted additional ground for the exclusion of tenderers not regulated by article 57 of Directive 2014/24.
However, as also noted, when establishing these additional grounds for the exclusion of tenderers, Member States must comply with the principle of proportionality and the automatic exclusion of tenderers for the sole fact of belonging to the same legal group seems to be in breach of this latter requirement. Interestingly, EU case law seems to be moving in the direction of restricting the scope of this type of (extended) prohibition by outlawing the automatic exclusion from tendering procedures of tenderers between which there exists a relationship of control (as defined by national law) without giving them an opportunity to prove that, in the circumstances of the case, that relationship had not led to an infringement of the principles of equal treatment of tenderers and of transparency.
This would be in line with the rules applicable to the treatment of conflicts of interest (art 24 Dir 2014/24), which only justify the exclusion of candidates and tenderers ‘where a conflict of interest … cannot be effectively remedied by other less intrusive measures’ (art 57(4)(e) Dir 2014/24).
Exclusion of competition law infringers, Self-cleaning & impact on the attractiveness of leniency programmes
Interestingly, Blažo explains that, under the version of Slovak procurement law prior to the transposition of Dir 2014/24, contracting authorities were bound to exclude tenderers that had been convicted of infringements of competition law [on this, see Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469, and discussion here], but 'undertaking[s] who successfully qualified for the leniency program (immunity as well as fine
reduction)' were not excluded from participation in public procurement procedures. Or, in more detail, 'The scheme excluding entrepreneurs who have been convicted of a cartel in public procurement applies automatically, therefore there is no need to issue any other disqualification decision. It is also a compulsory system, thus the contracting authority authority shall be obliged to exclude such an undertaking ex officio, and the law does not allow any way to alleviate such sanctions. Only the undertaking who takes part in an agreement restricting competition in public procurement can avoid exclusion from public procurement, its cooperation with the Antimonopoly Office in leniency program' (Blažo, p. 1494).
Blažo then goes on to assess the changes that the transposition of Dir 2014/24 will require [in particular, art 57(4)(d) on the exclusion of competition law infringers and art 57(6) on self-cleaning, for discussion, see here and A Sanchez-Graells, 'Exclusion, Qualitative Selection and Short-listing', in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129], noting that 'the directive does not expressly mention leniency program as an exemption from exclusion'; and, in particular, criticises the fact that Art 57(7) requires that Member States 'shall, in particular, determine the maximum period of exclusion if no [self-cleaning] measures ... are taken by the economic operator to demonstrate its reliability. Where the period of exclusion has not been set by final judgment, that period shall not exceed ... three years from the date of the relevant event in the cases referred to in paragraph 4'. In view of this, Blažo concludes that
If the contracting entity wishes to establish an infringement using a final decision of competition authority (or judgment dismissing the action against such a decision), it is almost unrealistic to have these documents available within three years from the infringement, or the time for which the undertaking can be excluded from public procurement will be very short. It is obvious that word-by-word transposition of the PPD into Slovak legal order eliminates current patterns punishment of undertakings for bid rigging and replaces it with a system that does not constitute a sufficient threat of sanctions, which would have preventive effects against cartels in public procurement. Furthermore even in case of effective application of this system, it may discourage leniency applicants and thus undermine effective public enforcement of competition law (p. 1495).
I share some of his concerns about the difficulty of establishing appropriate timeframes for exclusion based on competition law infringements. As I pointed out in Public procurement and the EU competition rules, 2nd edn (2015) 291:
This raises the issue of how to compute the maximum duration, particularly in the case of article 57(4) violations, as the reference to the ‘relevant event’ admits different interpretations (ie, either from the moment of the relevant violation, or the moment in which the contracting authority is aware of it or can prove it). Given that some of the violations may take time to identify (eg, emergence of a previous bid rigging conspiracy that can be tackled under art 57(4)(c) Dir 2014/24), a possibilistic interpretation will be necessary to avoid reducing the effectiveness of these exclusion grounds. In any case, compliance with domestic administrative rules will be fundamental.
However, I am not sure that I share the concerns about the effectiveness of leniency programmes and their attractiveness for undertakings that may risk exclusion from procurement procedures. First, I am generally sceptical of the claim that leniency programmes need to be protected at all costs (see here, here and here). Second, and looking specifically at the worry that not having a mention to leniency programmes in Dir 2014/24 may exclude or reduce the possibility for contracting authorities (or Member States) to treat leniency applicants favourably in the procurement context, I am not sure that this is the case, mainly, because it would still seem possible for competition rules to foresee that any final decisions declaring the infringement of competition law should not include sanctions concerning debarment from public procurement procedures for leniency applicants (I am not convinced that this is desirable, but it is certainly possible). In that case, there would be no final judgment from which the exclusion could derive and, consequently, contracting authorities intending to exclude the leniency applicant in view of its previous infringement of competition law would be using their discretion to exclude without the constraints derived from the previous decision. This has a significant impact in terms of self-cleaning.
While Art 57(6) in fine foresees that 'An economic operator which has been excluded by final judgment from participating in procurement ... shall not be entitled to make use of the [self-cleaning] possibility ... during the period of exclusion resulting from that judgment in the Member States where the judgment is effective' [something I criticised in 'Exclusion, Qualitative Selection and Short-listing' (2014) 113], this restriction does not apply in the absence of a final judgment imposing the exclusion. Thus, the successful leniency applicant would still be able to rely on its leniency application and collaboration with the competition authority in order to claim it has complied with the requirements of the self-cleaning provisions in Art 57(6) Dir 2014/24. The sticky point would be the need to 'prove that it has paid or undertaken to pay compensation in respect of any damage caused by the ... misconduct'. Of course, this takes us back to the claim that leniency programmes will not be attractive if, in addition to exempting the applicant from the competition fine that would otherwise be applicable (let's remember it can be up to 10% of its turnover), they do not also shield competition law infringers from claims for damages--and now public procurement debarment. As mentioned, I am highly sceptical of these claims and, from a normative perspective, I am not persuaded that leniency should come at such high cost.
In any case, these are interesting issues and it would be very relevant to engage in empirical research to see if the entry into force of Dir 2014/24 last month actually has an impact on the effectiveness of leniency programmes in the EU.