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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.