Did you use AI to write this tender? What? Just asking! -- Also, how will you use AI to deliver this contract?

The UK’s Cabinet Office has published procurement policy note 2/24 on ‘Improving Transparency of AI use in Procurement’ (the ‘AI PPN’) because ‘AI systems, tools and products are part of a rapidly growing and evolving market, and as such, there may be increased risks associated with their adoption … [and therefore] it is essential to take steps to identify and manage associated risks and opportunities, as part of the Government’s commercial activities’.

The crucial risk the AI PPN seems to be concerned with relates to generative AI ‘hallucinations’, as it includes background information highlighting that:

‘Content created with the support of Large Language Models (LLMs) may include inaccurate or misleading statements; where statements, facts or references appear plausible, but are in fact false. LLMs are trained to predict a “statistically plausible” string of text, however statistical plausibility does not necessarily mean that the statements are factually accurate. As LLMs do not have a contextual understanding of the question they are being asked, or the answer they are proposing, they are unable to identify or correct any errors they make in their response. Care must be taken both in the use of LLMs, and in assessing returns that have used LLMs, in the form of additional due diligence.’

The PPN has the main advantage of trying to tackle the challenge of generative AI in procurement head on. It can help raise awareness in case someone was not yet talking about this and, more seriously, it includes an Annex A that brings together the several different bits of guidance issued by the UK government to date. However, the AI PPN does not elaborate on any of that guidance and is thus as limited as the Guidelines for AI procurement (see here), relatively complicated in that it points to rather different types of guidance ranging from ethics, to legal, to practical considerations, and requires significant knowledge and expertise to be operationalised (see here). Perhaps the best evidence of the complexity of the mushrooming sets of guidance is that the PPN itself includes in Annex A a reference to the January 2024 Guidance to civil servants on use of generative AI, which has been superseded by the Generative AI Framework for HMG, to which it also refers in Annex A. In other words, the AI PPN is not a ‘plug-and-play’ document setting out how to go about dealing with AI hallucinations and other risks in procurement. And given the pace of change in this area, it is also bound to be a PPN that requires multiple revisions and adaptations going forward.

A screenshot showing that the January guidance on generative AI use has been superseded (taken on 26 March 2024 10:20am).

More generally, the AI PPN is bound to be controversial and has already spurred insightful discussion on LinkedIn. I would recommend the posts by Kieran McGaughey and Ian Makgill. I offer some additional thoughts here and look forward to continuing the conversation.

In my view, one of the potential issues arising from the AI PPN is that it aims to cover quite a few different aspects of AI in procurement, as well as neglecting others. Slightly simplifying, there are three broad areas of AI-procurement interaction. First, there is the issue of buying AI-based solutions or services. Second, there is the issue of tenderers using (generative) AI to write or design their tenders. Third, there is the issue of the use of AI by contracting authorities, eg in relation to qualitative selection/exclusion, or evaluation/award decisions. The AI PPN covers aspects of . However, it is not clear to me that these can be treated together, as they pose significantly different policy issues. I will try to disentangle them here.

Buying and using AI

Although it mainly cross-refers to the Guidelines for AI procurement, the AI PPN includes some content relevant to the procurement and use of AI when it stresses that ‘Commercial teams should take note of existing guidance when purchasing AI services, however they should also be aware that AI and Machine Learning is becoming increasingly prevalent in the delivery of “non-AI” services. Where AI is likely to be used in the delivery of a service, commercial teams may wish to require suppliers to declare this, and provide further details. This will enable commercial teams to consider any additional due diligence or contractual amendments to manage the impact of AI as part of the service delivery.’ This is an adequate and potentially helpful warning. However, as discussed below, the PPN suggests a way to go about it that is in my view wrong and potentially very problematic.

AI-generated tenders

The AI PPN is however mostly concerned with the use of AI for tender generation. It recognises that there ‘are potential benefits to suppliers using AI to develop their bids, enabling them to bid for a greater number of public contracts. It is important to note that suppliers’ use of AI is not prohibited during the commercial process but steps should be taken to understand the risks associated with the use of AI tools in this context, as would be the case if a bid writer has been used by the bidder.’ It indicates some potential steps contracting authorities can take, such as:

• ‘Asking suppliers to disclose their use of AI in the creation of their tender.’

• ‘Undertaking appropriate and proportionate due diligence:

  • If suppliers use AI tools to create tender responses, additional due diligence may be required to ensure suppliers have the appropriate capacity and capability to fulfil the requirements of the contract. Such due diligence should be proportionate to any additional specific risk posed by the use of AI, and could include site visits, clarification questions or supplier presentations.

  • Additional due diligence should help to establish the accuracy, robustness and credibility of suppliers’ tenders through the use of clarifications or requesting additional supporting documentation in the same way contracting authorities would approach any uncertainty or ambiguity in tenders.’

• ‘Potentially allowing more time in the procurement to allow for due diligence and an increase in volumes of responses.’

• ‘Closer alignment with internal customers and delivery teams to bring greater expertise on the implications and benefits of AI, relative to the subject matter of the contract.’

In my view, there are a few problematic aspects here. While the AI PPN seems to try not to single out the use of generative AI as potentially problematic by equating it to the possible use of (human) bid writers, this is unconvincing. First, because there is (to my knowledge) no guidance whatsoever on an assessment of whether bid writers have been used, and because the AI PPN itself does not require disclosure of the engagement of bid writers (o puts any thought on the fact that third-party bid writers ma have used AI without this being known to the hiring tenderer, which would then require an extension of the disclosure of AI use further down the tender generation chain). Second, because the approach taken in the AI PP seems to point at potential problems with the use of (external, third-party) bid writers, whereas it does not seem to object to the use of (in-house) bid writers, potentially by much larger economic operators, which seems to presumptively not generate issues. Third, and most importantly, because it shows that perhaps not enough has been done so far to tackle the potential deceit or provision of misleading information in tenders if contracting authorities must now start thinking about how to get expert-based analysis of tenders, or develop fact-checking mechanisms to ensure bids are truthful. You would have thought that regardless of the origin of a tender, contracting authorities should be able to check their content to an adequate level of due diligence already.

In any case, the biggest issue with the AI PPN is how it suggests contracting authorities should deal with this issue, as discussed below.

AI-based assessments

The AI PPN also suggests that contracting authorities should be ‘Planning for a general increase in activity as suppliers may use AI to streamline or automate their processes and improve their bid writing capability and capacity leading to an increase in clarification questions and tender responses.’ One of the possibilities could be for contracting authorities to ‘fight fire with fire’ and also deploy generative AI (eg to make summaries, to scan for errors, etc). Interestingly, though, the AI PPN does not directly refer to the potential use of (generative) AI by contracting authorities.

While it includes a reference in Annex A to the Generative AI framework for HM Government, that document does not specifically address the use of generative AI to manage procurement processes (and what it says about buying generative AI is redundant given the other guidance in the Annex). In my view, the generative AI framework pushes strongly against the use of AI in procurement when it identifies a series of use cases to avoid (page 18) that include contexts where high-accuracy and high-explainability are required. If this is the government’s (justified) view, then the AI PPN has been a missed opportunity to say this more clearly and directly.

The broader issue of confidential, classified or proprietary information

Both in relation to the procurement and use of AI, and the use of AI for tender generation, the AI PPN stresses that it may be necessary:

• ‘Putting in place proportionate controls to ensure bidders do not use confidential contracting authority information, or information not already in the public domain as training data for AI systems e.g. using confidential Government tender documents to train AI or Large Language Models to create future tender responses.‘; and that

• ‘In certain procurements where there are national security concerns in relation to use of AI by suppliers, there may be additional considerations and risk mitigations that are required. In such instances, commercial teams should engage with their Information Assurance and Security colleagues, before launching the procurement, to ensure proportionate risk mitigations are implemented.’

These are issues that can easily exceed the technical capabilities of most contracting authorities. It is very hard to know what data has been used to train a model and economic operators using ‘off-the-shelf’ generative AI solutions will hardly be in a position to assess themselves, or provide any meaningful information, to contracting authorities. While there can be contractual constraints on the use of information and data generated under a given contract, it is much more challenging to assess whether information and data has been inappropriately used at a different link of increasingly complex digital supply chains. And, in any case, this is not only an issue for future contracts. Data and information generated under contracts already in place may not be subject to adequate data governance frameworks. It would seem that a more muscular approach to auditing data governance issues may be required, and that this should not be devolved to the procurement function.

How to deal with it? — or where the PPN goes wrong

The biggest weakness in the AI PPN is in how it suggests contracting authorities should deal with the issue of generative AI. In my view, it gets it wrong in two different ways. First, by asking for too much non-scored information where contracting authorities are unlikely to be able to act on it without breaching procurement and good administration principles. Second, by asking for too little non-scored information that contracting authorities are under a duty to score.

Too much information

The AI PPN includes two potential (alternative) disclosure questions in relation to the use of generative AI in tender writing (see below Q1 and Q2).

I think these questions miss the mark and expose contracting authorities to risks of challenge on grounds of a potential breach of the principle of equal treatment and the duty of good administration. The potential breach of the duty of good administration could be on grounds that the contracting authority is taking irrelevant information into account in the assessment of the relevant tender. The potential breach of equal treatment could come if tenders with some AI-generated elements were subjected to significantly more scrutiny than tenders where no AI was used. Contracting authorities should subject all tenders to the same level of due diligence and scrutiny because, at the bottom of it, there is no reason to ‘take a tenderer at its word’ when no AI is used. That is the entire logic of the exclusion, qualitative selection and evaluation processes.

Crucially, though, what the questions seem to really seek to ascertain is that the tenderer has checked for and confirms the accuracy of the content of the tender and thus makes the content its own and takes responsibility for it. This could be checked generally by asking all tenderers to confirm that the content of their tenders is correct and a true reflection of their capabilities and intended contractual delivery, reminding them that contracting authorities have tools to sanction economic operators that have ‘negligently provided misleading information that may have a material influence on decisions concerning exclusion, selection or award’ (reg.57(8)(i)(ii) PCR2015 and sch.7 13(2)(b) PA2023). And then enforcing them!

Checking the ‘authenticity’ of tenders when in fact contracting authorities are meant to check their truthfulness, accuracy and deliverability would be a false substitution of the relevant duties. It would also potentially eschew the incentives to disclose use of AI generation (lest contracting authorities find a reliable way of identifying it themselves and start applying the exclusion grounds above)—as thoroughly discussed in the LinkedIn posts referred to above.

too little information

Conversely, the PPN takes too soft and potentially confusing an approach to the use of AI to deliver the contract. The proposed disclosure question (Q3) is very problematic. It presents as ‘for information only’ a request for information on the use of AI or machine learning in the context of the actual delivery of the contract. This is information that will either relate to the technical specifications, award criteria or performance clauses (or all of them) and there is no meaningful way in which AI could be used to deliver the contract without this having an impact on the assessment and evaluation of the tender. The question is potentially misleading not only because of the indication that the information would not be scored, but also because it suggests that the use of AI in the delivery of a service or product is within the discretion of the tenderers. In my view, this would only be possible if the technical specifications were rather loosely written in performance terms, which would then require a very thorough description and assessment of how that performance is to be achieved. Moreover, the use of AI would probably require a set of organisational arrangements that should also not go unnoticed or unchecked in the procurement process. Moreover, one of the main challenges may not be in the use of AI in new contracts (were tenderers are likely to highlight it to stress the advantages, or to justify that their tenders are not abnormally low in comparison with delivery through ‘manual’ solutions), but in relation to pre-existing contracts. It also seems that a broader policy, recommendation and audit of the use of generative AI for the delivery of existing contracts and its treatment as a (permissible??) contract modification would have been needed.

Final thought

The AI PPN is an interesting development and will help crystallise many discussions that were somehow hovering in the background. However, a significant rethink is needed and, in my view, much more detailed guidance is needed in relation to the different dimensions of the interaction between AI and procurement. There are important questions that remain unaddressed and, in my view, one of the most pressing ones concerns the balance between general regulation and the use of procurement to regulate AI use. While the UK government remains committed to its ‘pro-innovation’ approach and no general regulation of AI use is put in place, in particular in relation to public sector AI use, procurement will continue to struggle and fail to act as a regulator of the technology.

Procurement tools for AI regulation by contract. Not the sharpest in the shed

I continue exploring the use of public procurement as a tool of digital regulation (or ‘AI regulation by contract’ as shorthand)—ie as a mechanism to promote transparency, explainability, cyber security, ethical and legal compliance leading to trustworthiness, etc in the adoption of digital technologies by the public sector.

After analysing procurement as a regulatory actor, a new draft chapter for my book project focuses on the procedural and substantive procurement tools that could be used for AI regulation by contract, to assess their suitability for the task.

The chapter considers whether procurement could effectively operationalise digital regulation goals without simply transferring regulatory decisions to economic operators. The chapter stresses how the need to prevent a transfer or delegation (ie a privatisation) of regulatory decisions as a result of the operation of the procurement rules is crucial, as technology providers are the primary target in proposals to use procurement for digital regulation by contract. In this post, I summarise the main arguments and insights in the chapter. As always, any feedback will be most warmly received: a.sanchez-graells@bristol.ac.uk.

Background

A first general consideration is that using procurement as a tool of digital regulation requires high levels of digital and commercial skills to understand the technologies being procured and the processes influencing technological design and deployment (as objects of regulation), and the procurement rules themselves (as regulatory tools). Gaps in those capabilities will jeopardise the effectiveness of using procurement as a tool of AI regulation by contract, beyond the limitations and constraints deriving from the relevant legal framework. However, to assess the (abstract) potential of procurement as a regulatory tool, it is worth distinguishing between practical and legal challenges, and to focus on legal challenges that would be present at all levels of public buyer capability.

A second general consideration is that this use of procurement could be seen as either a tool of ‘command and control’ regulation, or a tool of responsive regulation. In that regard, while there can be some space for a ‘command and control’ use of procurement as a tool of digital regulation, in the absence of clear (rules-based) regulatory benchmarks and legally-established mandatory requirements, the responsive approach to the use of procurement as a tool to enforce self-regulatory mechanisms seems likely to be predominant —in the sense that procurement requirements are likely to focus on the tenderers’ commitment to sets of practices and processes seeking to deliver (to the largest possible extent) the relevant regulatory attributes by reference to (technical) standards.

For example, it is hard to imagine the imposition of an absolute requirement for a digital solution to be ‘digitally secure’. It is rather more plausible for the tender and contract to seek to bind the technology provider to practices and procedures seeking to ensure high levels of cyber security (by reference to some relevant metrics, where they are available), as well as protocols and mechanisms to anticipate and react to any (potential) security breaches. The same applies to other desirable regulatory attributes in the procured digital technologies, such as transparency or explainability—which will most likely be describable (or described) by reference to technical standards and procedures—or to general principles, such as ethical or trustworthy AI, also requiring proceduralised implementation. In this context, procurement could be seen as a tool to promote co-regulation or (responsible) self-regulation both at tenderer and industry level, eg in relation to the development of ethical or trustworthy AI.

Against this background, it is relevant to focus on whether procurement tools could effectively operationalise digital regulation goals without simply transferring regulatory decisions to economic operators—ie operating as an effective tool of (responsive) meta-regulation. The analysis below takes a cradle-to-grave approach and focuses on the tools available at the phases of tender preparation and design, tender execution, and contract design and implementation. The analysis is based on EU procurement law, but the functional insights are broadly transferable to other systems.

Tender preparation and design

A public buyer seeking to use procurement as a tool of digital regulation faces an unavoidable information asymmetry. To try to reduce it, the public buyer can engage in a preliminary market consultation to obtain information on eg different technologies or implementation possibilities, or to ‘market-test’ the level of regulatory demand that could be met by existing technology providers. However, safeguards to prevent the use of preliminary market consultations to advantage specific technology providers through eg disclosure of exchanged information, as well as the level of effort required to participate in (detailed) market consultations, raise questions as to their utility to extract information in markets where secrecy is valued (as is notoriously the case of digital technology markets—see discussions on algorithmic secrecy) and where economic operators may be disinclined (or not have the resources) to provide ‘free consultancy’. Moreover, in this setting and given the absence of clear standards or industry practices, there is a heightened risk of capture in the interaction between the public buyer and potential technology providers, with preliminary market consultations not being geared for broader public consultation facilitating the participation of non-market agents (eg NGOs or research institutions). Overall, then, preliminary market consultations may do little to reduce the public buyer’s information asymmetry, while creating significant risks of capture leading to impermissible (discriminatory) procurement practices. They are thus unlikely to operate as an adequate tool to support regulation by contract.

Relatedly, a public buyer facing uncertainty as to the existing off-the-shelf offering and the level of adaptation, innovation or co-production required to otherwise achieve the performance sought in the digital technology procurement, faces a difficult choice of procurement procedure. This is a sort of chicken and egg problem, as the less information the public buyer has, the more difficult it is to choose an adequate procedure, but the choice of the procedure has implications on the information that the public buyer can extract. While the theoretical expectation could be that the public buyer would opt for a competitive dialogue or innovation partnership, as procedures targeted at this type of procurement, evidence of EU level practice shows that public buyers have a strong preference for competitive procedures with negotiations. The use of this procedure exposes the public buyer to direct risks of commercial capture (especially where the technology provider has more resources or the upper hand in negotiations) and the safeguards foreseen in EU law (ie the setting of non-negotiable minimum requirements and award criteria) are unlikely to be effective, as public buyers have a strong incentive to avoid imposing excessively demanding minima to avoid the risk of cancellation and retendering if no technology provider is capable (or willing) to meet them.

In addition, the above risks of commercial capture can be exacerbated when technology providers make exclusivity claims over the technological solutions offered, which could unlock the use of a negotiated procedure without prior publication—on the basis of absence of competition due to technical reasons, or due to the need to protect seclusive rights, including intellectual property rights. While the legal tests to access this negotiated procedure are in principle strict, the public buyer can have the wrong incentives to push through while at the same time controlling some of the safeguarding mechanisms (eg transparency of the award, or level of detail in the relevant disclosure). Similar issues arise with the possibility to creatively structure remuneration under some of these contracts to keep them below regulatory thresholds (eg by ‘remunerating in data’).

In general, this shows that the phase of tender preparation and design is vulnerable to risks of regulatory capture that are particularly relevant when the public buyer is expected to develop a regulatory role in disciplining the behaviour of the industry it interacts with. This indicates that existing flexible mechanisms of market engagement can be a source of regulatory risk, rather than a useful set of regulatory tools.

Tender execution

A public buyer seeking to use procurement as a tool of digital regulation could do so through the two main decisions of tenderer selection and tender evaluation. The expectation is that these are areas where the public buyer can exercise elements of ‘command and control’, eg through tenderer exclusion decisions as well as by setting demanding qualitative selection thresholds, or through the setting of mandatory technical specifications and the use of award constraints.

Tenderer selection

The public buyer could take a dual approach. First, to exclude technology providers with a previous track record of activity falling short of the relevant regulatory goals. Second, to incentivise or recompense high levels of positive commitment to the regulatory goals. However, both approaches present challenges.

First, the use of exclusion grounds would require clearly setting out in the tender documentation which types of digital-governance activities are considered to amount to ‘grave professional misconduct, which renders [the technology provider’s] integrity questionable’, and to reserve the possibility to exclude on grounds of ‘poor past performance’ linked to digital regulation obligations. In the absence of generally accepted standards of conduct and industry practices, and in a context of technological uncertainty, making this type of determinations can be difficult. Especially if the previous instance of ‘untrustworthy’ behaviour is being litigated or could (partially) be attributed to the public buyer under the previous contract. Moreover, a public buyer cannot automatically rely on the findings of another one, as the current EU rules require each contracting authority to come to its own view on the reliability of the economic operator. This raises the burden of engaging with exclusion based on these grounds, which may put some public buyers off, especially if there are complex technical questions on the background. Such judgments may require a level of expertise and available resources exceeding those of the public buyer, which could eg justify seeking to rely on third party certification instead.

Relatedly, it will be difficult to administer such tenderer screening to systems through the creation of lists of approved contractors or third-party certification (or equivalent mechanisms, such as dynamic purchasing systems administered by a central purchasing body, or quality assurance certification). In all cases, the practical difficulty will be that the public buyer will either see its regulatory function conditioned or precluded by the (commercially determined) standards underlying third-party certification, or face a significant burden if it seeks to directly scrutinise economic operators otherwise. The regulatory burden will to some extent be unavoidable because all the above-mentioned mechanisms foresee that (in some circumstances) economic operators that do not have access to the relevant certification or are under no obligation to register in the relevant list must be given the opportunity to demonstrate that they meet the relevant (substantive) qualitative selection criteria by other (equivalent) means.

There will also be additional challenges in ensuring that the relevant vetting of economic operators is properly applied where the digital technology solution relies on a long (technical) supply chain or assemblage, without this necessarily involving any (formal) relationship or subcontracting between the technology provider to be contracted and the developers of parts of the technical assemblage. This points at the significant burden that the public buyer may have to overcome in seeking to use qualitative selection rules to ‘weed out’ technology providers which (general, or past) behaviour is not aligned with the overarching regulatory goals.

Second, a more proactive approach that sought to go beyond exclusion or third-party certification to eg promote adherence to voluntary codes of conduct, or to require technology providers to justify how they eg generally ‘contribute to the development and deployment of trustworthy digital technologies’, would also face significant difficulties. Such requirements could be seen as unjustified and/or disproportionate, leading to an infringement of EU procurement law. They could also be altogether pre-empted by future legislation, such as the proposed EU AI Act.

Tender evaluation

As mentioned above, the possibility of setting demanding technical specifications and minimum requirements for tender evaluation through award constraints in principle seem like suitable tools of digital regulation. The public buyer could focus on the technical solutions and embedding the desired regulatory attributes (eg transparency, explainability, cyber security) and regulatory checks (on data and technology governance, eg in relation to open source code or interoperability, as well as in relation to ethical assessments) in the technical specifications. Award criteria could generate (further) incentives for regulatory performance, perhaps beyond the minimum mandatory baseline. However, this is far from uncomplicated.

The primary difficulty in using technical specifications as a regulatory tool relates to the challenge of clearly specifying the desired regulatory attributes. Some or most of the desired technological attributes are difficult to observe or measure, the processes leading to their promotion are not easy to establish, the outcomes of those processes are not binary and determining whether a requirement has been met cannot be subject to strict rules, but rather to (yet to be developed) technical standards with an unavoidable degree of indefinition, which may also be susceptible of iterative application in eg agile methods, and thus difficult to evaluate at tender stage. Moreover, the desired attributes can be in conflict between themselves and/or with the main functional specifications for the digital technology deployment (eg the increasingly clear unavoidable trade-off between explainability and accuracy in some AI technologies). This issue of the definitional difficulties and the incommensurability of some or most of the regulatory goals also relates to the difficulty of establishing minimum technical requirements as an award constraint—eg to require that no contract is awarded unless the tender reaches a specific threshold in the technical evaluation in relation to all or selected requirements (eg explainability). While imposing minimum technical requirements is permitted, it is difficult to design a mechanism to quantify or objectify the evaluation of some of the desired technological attributes, which will necessarily require a complex assessment. Such assessment cannot be conducted in such a way that the public buyer has an unrestricted freedom of choice, which will require clarifying the criteria and the relevant thresholds that would justify rejecting the tender. This could become a significant sticking point.

Designing technical specifications to capture whether a digital technology is ‘ethical’ or ‘trustworthy’ seems particularly challenging. These are meta-attributes or characteristics that refer to a rather broad set of principles in the design of the technology, but also of its specific deployment, and tend to proceduralise the taking into account of relevant considerations (eg which impact will the deployment have on the population affected). Additionally, in some respects, the extent to which a technological deployment will be ethical or trustworthy is out of the hands of the technology provider (eg may depend on decisions of the entity adopting the technology, eg on how it is used), and in some aspects it depends on specific decisions and choices made during contract implementation. This could make it impossible to verify at the point of the tender whether the end result will or not meet the relevant requirements—while including requirements that cannot be effectively verified prior to award would most likely breach current legal limits.

A final relevant consideration is that technical specifications cannot be imposed in a prescriptive manner, with technology providers having to be allowed to demonstrate compliance by equivalence. This limits the potential prescriptiveness of the technical specifications that can be developed by the public buyer, at least in relation to some of the desired technological attributes, which will always be constrained by their nature of standards rather than rules (or metrics) and the duty to consider equivalent modes of compliance. This erodes the practical scope of using technical specifications as regulatory instruments.

Relatedly, the difficulties in using award criteria to pursue regulatory goals stem from difficulties in the operationalisation of qualitative criteria in practice. First, there is a set of requirements on the formulation of award criteria that seek to avoid situations of unrestricted freedom of choice for the public buyer. The requirements tend to require a high level of objectivity, including in the structuring of award criteria of a subjective nature. In that regard, in order to guarantee an objective comparison and to eliminate the risk of arbitrary treatment, recent case law has been clear that award criteria intended to measure the quality of the tenders must be accompanied by indications which allow a sufficiently concrete comparative assessment between tenders, especially where the quality carries most of the points that may be allocated for the purposes of awarding the tender.

In part, the problem stems from the absence of clear standards or benchmarks to be followed in such an assessment, as well as the need to ensure the possibility of alternative compliance (eg with labels). This can be seen, for example, in relation to explainability. It would not suffice to establish that the solutions need to be explainable or to use explainability as an award criterion without more. It would be necessary to establish sub-criteria, such as eg ‘the solution needs to ensure that an individualised explanation for every output is generated’ (ie requiring local explainability rather than general explainability of the model). This would still need to be further specified, as to what type of explanation and containing which information, etc. The difficulty is that there are multiple approaches to local explainability and that most of them are contested, as is the general approach to post hoc explanations in itself. This puts the public buyer in the position of having to solve complex technical and other principled issues in relation to this award criterion alone. In the absence of standard methodologies, this is a tall order that can well make the procedure inviable or not used (with clear parallels to eg the low uptake of life-cycle costing approaches). However, the development of such methodologies parallels the issues concerning the development of technical standards. Once more, when such standards, benchmarks or methodologies emerge, reliance on them can thus (re)introduce risks of commercial determination, depending on how they are set.

Contract design and implementation

Given the difficulties in using qualitative selection, technical specifications and award criteria to embed regulatory requirements, it is possible that they are pushed to to the design of the contract and, in particular, to their treatment as contract performance conditions, in particular to create procedural obligations seeking to maximise attainment of the relevant regulatory goals during contract implementation (eg to create specific obligations to test, audit or upgrade the technological solution in relation to specific regulatory goals, with cyber security being a relatively straightforward one), or to pass on, ‘back-to-back’, mandatory obligations where they result from legislation (eg to impose transparency obligations, along the lines of the model standard clauses for AI procurement being developed at EU level).

In addition to the difficulty inherent in designing the relevant mechanisms of contractualised governance, a relevant limitation of this approach to embedding (self-standing) regulatory requirements in contract compliance clauses is that recent case law has made clear that ‘compliance with the conditions for the performance of a contract is not to be assessed when a contract is awarded’. Therefore, at award stage, all that can be asked is for technology providers to commit to such requirements as (future) contractual obligations—which creates the risk of awarding the contract to the best liar.

More generally, the effectiveness of contract performance clauses will depend on the contractual remedies attached to them and, in relation to some of the desirable attributes of the technologies, it can well be that there are no adequate contractual remedies or that the potential damages are disproportionate to the value of the contract. There will be difficulties in their use where obligations can be difficult to specify, where negative outputs and effects are difficult to observe or can only be observed with delay, and where contractual remedies are inadequate. It should be stressed that the embedding of regulatory requirements as contract performance clauses can have the effect of converting non-compliance into (mere) money claims against the technology provider. And, additionally, that contractual termination can be complicated or require a significant delay where the technological deployment has created operational dependency that cannot be mitigated in the short or medium term. This does not seem necessarily aligned with the regulatory gatekeeping role expected of procurement, as it can be difficult to create the adequate financial incentives to promote compliance with the overarching regulatory goals in this way—by contrast with, for example, the possibility of sanctions imposed by an independent regulator.

Conclusion

The analysis has stressed those areas where the existing rules prevent the imposition of rigid regulatory requirements or demands for compliance with pre-specified standards (to the exclusion of alternative ones), and those areas where the flexibility of the rules generates heightened risks of regulatory capture and commercial determination of the regulatory standards. Overall, this shows that it is either not easy or at all possible to use procurement tools to embed regulatory requirements in the tender procedure and in public contracts, or that those tools are highly likely to end up being a conduit for the direct or indirect application of commercially determined standards and industry practices.

This supports the claim that using procurement for digital regulation purposes will either be highly ineffective or, counterintuitively, put the public buyer in a position of rule-taker rather than rule-setter and market-shaper—or perhaps both. In the absence of non-industry led standards and requirements formulated eg by an independent regulator, on which procurement tools could be leveraged, each public buyer would either have to discharge a high (and possibly excessive) regulatory burden, or be exposed to commercial capture. This provides the basis for an alternative approach. The next step in the research project will thus be to focus on such mandatory requirements as part of a broader proposal for external oversight of the adoption of digital technologies by the public sector.

First thoughts on the Commission's bid rigging exclusion guidance -- what difference will it make?

On 18 March 2021, the European Commission officially published its Notice on tools to fight collusion in public procurement and on guidance on how to apply the related exclusion ground (the ‘bid rigging exclusion guidance’). This document has been a long time in the making and officially announced almost four years ago, so it is no exaggeration to say that it was keenly awaited (by competition and procurement geeks like yours truly, at least).

The guidance is clearly addressed to contracting authorities — not economic operators — and is distinctly ‘pro exclusion’ in its minimisation of the practical difficulties and legal constraints inherent in the adoption of exclusion decisions. However, even with such clearly programmatic orientation, after a first reading, I have a few thoughts that do not make for an optimistic assessment of the guidance’s likely practical impact.

Mostly, because I do not think the Commission’s bid rigging exclusion guidance provides much by way of actionable practical advice to contracting authorities—and it certainly does not really go beyond already existing guidance, such as the OECD’s 2009 guidelines for fighting bid rigging in public procurement. By contrast with more general documents e.g. the OECD guidance, the Commission’s bid rigging exclusion guidance intends to concentrate on the possibility to exclude operators engaged in the manipulation of a tender. However, it includes lenghty discussion of measures to prevent collusion, as well as complementary measures such as training and data analysis and, when it comes to the specific issues that the interpretation and application of Art 57(4)(d) of Dir 2014/24/EU generates, it is mainly restricted to setting out issues that Member States’ domestic legislation cannot do — rather than focusing on what contracting authorities can (and should) do.

Moreover, its likely limited practical impact results from the fact that the guidance simply ignores that the EU rules (especially discretionary ones) need to be embedded in the Member States’ administrative/public law system and, in many places, the guidance is at odds with the latter. In that regard, the guidance seems to presume a sort of sphere of subjective rights for contracting authorities that they are capable of exercising even against the decisions of other (superior/centralised) administrative authorities, or in disregard of broader constraints and requirements for administrative action—such as burden of proof, the duty to state reasons, the increasing enforceability of exclusion grounds against other tenderers, or the very practical implications of risking damages compensation for unlawful exclusion—which is (as far as I know) an area of constant interest for tenderers and practitioners alike.

To be fair, this in part follows from the stance of the Court of Justice in some recent cases (referred to in the guidance), but that is still no excuse for the Commission’s guidance not to recognise that Member States retain significant discretion in their administrative self-organisation and that some of the issues raised in the practical implementation of the relevant provisions will be conditioned by pre-existing administrative law doctrines and procedures.

The most glaring example of this approach that sidesteps the difficulties in the domestic implementation of EU procurement law is the fact that the guidance simply states that ‘The possibility to exclude an economic operator for suspected collusion is not construed in the Directive as a penalty for its behaviour before or during the award procedure’ (section 5.2). That is at face value fine. But the Directive also does not say that exclusion is not a penalty or a sanction and, consequently, establishing the legal nature of an exclusion will be dependent on the relevant public/administrative law framework at Member State level. Moreover, exclusion has been framed as a penalty in at least one recent preliminary reference and the Court of Justice has not disabused the referring court from that prima facie legal classification (see eg Tim, C-395/18, EU:C:2020:58). Given the increasing relevance of the Charter of Fundamental Rights in the interpretation of economic operators’ rights in the context of procurement litigation, I think it is far from certain that exclusion will not be construed as a (quasi)penalty, in particular when it is grounded on the infringement of prohibitive legal rules (such as Art 101 TFEU), rather than on shortcomings in the standing of the economic operator or non-compliance of its tender with substantive and formal requirements included in the tender documents.

To my mind, this (ie the nature of exclusion measures) can be one of the thorniest interpretive issues in this area, particularly because of the due process implications of exclusion being treated as a penalty or sanction—which is also not helped by the absence in the Remedies Directive of any procedural requirements applicable to the exclusion stage. The perpetuation of this disconnect with the Member States’ administrative law framework can in itself constitute the quicksands where the bid rigging exclusion guidance disappears, and certainly can continue to prevent an adequate use of the possibility to exclude tenderers suspected of bid rigging, because the fundamental issues raised by Art 57(4)(d) Dir 2014/24/EU remain unresolved — coupled with other sweeping statements concerning e.g. the level of demonstrability of the suspected collusion that contracting authorities need to meet (as discussed below).

For these and the reasons given below, I am afraid that the bid rigging exclusion guidance will not leave up to the expectations. I will carry out a more detailed and formal assessment of the guidance in a future research paper (likely after my shared parental leave… so not until mid summer or so), but here are my further initial observations, which do not attempt to be comprehensive.

Framing the issue

For those interested in understanding how to interpret and apply Art 57(4)(d) and the associated Art 57(6) self-cleaning possibilities, only section 5 and the Annex of the bid rigging exclusion guidance will be relevant. Indeed, the bid rigging exclusion guidance includes a rather lengthy explanation of what the Commission has done and what it expects to do (or for Member States to do) in the broader area of professionalisation and promotion of collaboration between competition and procurement authorities, which makes the document not very practical. This raises some questions on the fitness for purpose of the document, and whether alternative guidance format that had discharged most of sections 1 to 4 onto a different policy document would have been preferable, but perhaps this is mostly just presentational.

One of the most welcome aspects of the bid rigging exclusion guidance is that, in section 5.2, it makes it clear that the ground for exclusion based on suspected ‘contemporaneous’ collusion (or bid rigging) in Article 57(4)(d) of Directive 2014/24/EU is separate from (and compatible with) the possibility of excluding infringers of competition law as economic operators ‘guilty of grave professional misconduct’ under Article 57(4)(c). It is also to be welcome that, also in section 5.2, the Commission shares the view that, despite the different wording of Art 57(4)(d) and Art 101 TFEU, the former needs to be interpreted in a Treaty-consistent manner, which means that the exclusion must be possible for all types of behaviours caught by Art 101 TFEU — notably, concerted practices and decisions by associations of undertakings, in addition to agreements [for discussion, and advancing the positions now confirmed by the guidance, see A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd edn, Hart 2015) 296 ff].

The Commission also rightly stresses that contracting authorities in principle retain discretion not to exclude economic operators suspected of bid rigging, as the exclusion ground in Art 57(4)(d) is discretionary. However, this obviates not only the possibility for Member States to transpose it as a mandatory exclusion ground, but also more general EU law duties (such as the duty not to deprive Art 101 TFEU of its effet utile), and domestic administrative law duties (such as equivalent duties not to promote or tolerate illegal activity, or duties mandating inter-administrative collaboration with competition authorities). In that regard, the bid rigging exclusion guidance could have usefully developed a checklist of reasons that could (objectively) justify not excluding economic operators despite there being sufficiently plausible indications to conclude that the economic operator had entered into agreements with other economic operators aimed at distorting competition. In the end, it will not (or should not) be entirely up to the contracting authority to decide to turn a blind eye on those indicia.

Lack of practical guidance, or guidance that is impractical

Despite the largely correct framing of the issue, and despite acknowledging that tackling bid rigging in procurement is fraught with difficulties, the bid rigging exclusion guidance fails to deliver the much needed practical orientations on how to identify contemporaneous bid rigging and how to apply (as opposed to interpret) the relevant exclusion ground of Art 57(4)(d) Dir 2014/24.

The guidance does not really provide practical tips on how to identify bid rigging in a single tender scenario (which is the most likely to be faced by most contracting authorities). If indications of the existence of bid rigging that require cross-sectional or time series analysis are left to one side (as those are generally not for contracting authorities, but rather for competition authorities to screen for and analyse), and with the exception of flagging as suspicious unexpected tender withdrawals (annex, section 3), the only indications highlighted in the guidance (section 5.3) are:

• The text of the tenders (for instance, the same typos or phrases in different tenders or comments left by mistake in the text of the tender indicating collusion among tenderers).

• The prices offered in the award procedure (for instance, tenderers who ... offer excessively high or low prices) [although the interaction of this with the rules on abnormally low tenders is not explored]

• Administrative details (for instance, tenders submitted by the same business representative)

This is then slightly expanded in the annex (section 3), which details indicia such as:

• Identical mistakes or spelling errors in different tenders.

• Different tenders drafted with similar handwriting [in 2021!] or typeface [except default in most commonly used software applications, one would hope!].

• Tenders using another tenderer’s letterhead or contact details.

• Different tenders with identical miscalculations or identical methodologies to estimate the cost of certain items.

• Tenders submitted by the same person or with persons having the same contact details.

This can only help contracting authorities identify clumsy economic operators, potentially involved in collusion. However, in all seriousness, this is unlikely to result in much practical results as once these types of issues are included in official guidelines, it is likely that economic operators will make sure to avoid those mistakes when thy submit rigged bids [for discussion, in the context of automated treatment of bids, see A Sanchez-Graells, '"Screening for Cartels" in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold?' (2019) 10(4) Journal of European Competition Law & Practice 199–211].

The guidance also incurs in temporal inconsistencies, such as when it uses as an indication of bid rigging that contracting authorities should take into account for the purposes of exclusion: ‘The selected tenderer subcontracting work to unsuccessful tenderers for the same contract or the selected tenderer not accepting to sign the contract and later found to be a subcontractor of the tenderer that is finally awarded the contract may be considered sufficiently plausible indications of collusion’ (annex). This can well be an indication of bid rigging, but at this stage no exclusion can take place because the contract will have been awarded. Consequently, the relevant consequence here should be reporting this issue to the competition authority as well as, where possible, terminating the contract (which is not, however, explicitly foreseen in the Directive).

The guidance is also somewhat naive or flippant, for example in its remarks concerning the contracting authority’s (potential) knowledge that a tenderer ‘has pre-ordered the material needed to perform the specific contract in question well before the evaluation of the tenders is concluded’. Quite how a contracting authority would get to this knowledge, or how specific the pre-order should be for it not to be susceptible of confusion with just a standard supply of the economic operators is anybody’s guess.

It can also generate confusion when it, on the one hand, recommends resorting to centralised procurement as a way of avoiding collusion and, on the other, stresses that framework agreements managed by central purchasing bodies are more susceptible to collusion than ordinary tender procedures (annex, section 2).

Moreover, the guidance lacks detail in crucial aspects and, in particular, concerning the extremely complex analysis of joint tenders and subcontracting among (potential) competitors (section 5.6). Here, the Commission’s guidance does not even cross-refer to the more detailed guidelines published by some Member States’ competition authorities — notably, the Danish Competition and Consumers Authority. Similarly, the guidance largely brushes over the complex issue of multiple participation by economic operators belonging to the same corporate group (section 5.5), and also sets aside the difficulties of deciding the scope of application of exclusion decisions that need to respect the doctrine of the single economic entity under competition law [for discussion, see K Kuzma and W Hartung, Combating Collusion in Public Procurement (Elgar, 2020)].

Let’s ignore the administrative legal framework

The Commission’s bid rigging exclusion guidance largely ignores the administrative legal framework at Member State level. This is not only in relation to the treatment of exclusion as (not) a penalty, but also in relation to evidentiary requirements and the related duty to provide reasons. In that regard, the literal interpretation of the Directive leading to the conclusion that ‘national rules should comply with both the letter and the spirit of the Directive, which requires only “indications” of participating in illegal agreements that distort competition in an award procedure and not formal evidence, such as a court judgment confirming such participation’ (section 5.4) is misleading and conflates the need for a prior administrative or judicial decision with the existence of ‘evidence’ of collusion.

First, the guidance is right to exclude the need for a previous administrative or judicial decision, but that should not be treated as excluding ‘evidence’ of collusion, but rather as a precedent decision that has the effects of (quasi) res iudicata or, at least, constitutes a legal fact that the contracting authority cannot ignore. It is also wrong to indicate that ‘plausible indications’ of collusion include, for example, ‘information brought to the attention of the contracting authority of an investigation launched by the competition authority or of penal charges brought against the management of the operator for suspected collusion either in the pending award procedure or in other award procedures’, as this raises fundamental issues concerning the presumption of inocence (which treatment will also differ across jurisdictions, depending on e.g. the trigger for the opening of an administrative investigation). Here the guidance makes the reverse mistake of conflating a formal decision with the evidence (presumably) underpinning it.

Second, the guidance ignores the legal meaning of ‘evidence’ when it establishes that ‘contracting authorities are not required to have evidence of collusion in a pending award procedure, as this would contradict the letter of the Directive’. ‘Plausible indicia’ are a type of evidence, falling short of direct (uncontrovertible) evidence, but clearly above the absence of evidence. This should have been clear from the excerpt that the guidance quotes, where the CJEU stressed that ‘anti-competitive behaviour, “may be proved not only by direct evidence, but also through indicia, provided that they are objective and consistent and that the related tenderers are in a position to submit evidence in rebuttal”’ (Specializuotas transportas, C-531/16, EU:C:2018:324, paragraph 37).

Indiciary evidence is still evidence and the unresolved problem is where to draw the line to decide that the contracting authority has enough evidentiary support to adopt an exclusion decision. Moreover, this is of paramount relevance to the adequate discharge of the duty to state reasons. Here, it not only is impossible for a contracting authority to act in the absence of evidence, but the administrative file will usually be accessible to the economic operator for the purposes of its legal defence. This makes the further recommendation for contracting authorities not to disclose to economic operators that they suspect the existence of bid rigging largely impractical, as the contracting authority will only be able to keep this under wraps up to the point where it must make a formal decision and notification to the economic operator affected by the (potential) exclusion.

Some problematic statements

Unfortunately, in addition to the shortcomings stressed above (and some others), the guidance includes some unhelpful statements concerning the interpretation and application of Art 57(7) of Directive 2014/24/EU, in particular when it states that ‘If an economic operator, who has been excluded from award procedures for a certain period under Article 57(7) of the Directive, submits a tender during the period of exclusion, the contracting authority, without any further need for assessment, must automatically reject that tender’ (section 5.9), and when it reiterates that ‘It goes without saying that if the economic operator has been excluded from all award procedures in your country for a period of time and submits a tender during this period, you must exclude it from your award procedure without assessing the tender submitted.’ (section 3 of Annex) (both emphases added).

These statements are, at best, confusing and misleading and, at worse, legally incorrect. In that regard, it should be stressed that Art 57(6) Dir 2014/24/EU is very clear that the conditions for lengthy exclusions stipulated by Member States in the implementation of Art 57(7) are to be applied ‘if no measures as specified in paragraph 6 are taken by the economic operator to demonstrate its reliability’. Therefore, the statements above should have made it clear that further assessment is required and contracting authorities must carry it out where an economic operator, who has been excluded from award procedures for a certain period under Article 57(7) of the Directive, submits a tender during the period of exclusion and it claims to have implemented the sort of measures detailed in Art 57(6).

This is the sort of problematic drafting that should be avoided in official guidance and, in this instance, rectified by the Commission as soon as possible.

Final thoughts

On the whole, a first reading of the guidance does not call for optimism. While the Commission’s bid rigging exclusion guidance does contain some useful information, it is at its weakest in relation to the particularities of the interpretation and application of Art 57(4)(d) and related provisions of Directive 2014/24/EU, which are supposed to constitute its core concentration.

I would not be surprised if contracting authorities found little to no comfort in the guidance when pondering how to address the key issue of how to spot collusion in single-tender settings, how to decide if there are sufficient plausible indications, and how to go about the adoption of an exclusion decision that is, in almost all likelihood, going to be challenged on the basis that it constitutes a sanction/penalty for a (suspected) breach of competition law that the contracting authority has no competence to enforce, or which has not followed the heightened procedural requirements of procedures leading to the imposition of a sanction. It should be obvious that exclusion on these grounds generates the additional risk of a follow-on investigation by the competition authority and/or private litigation, so no economic operator should be expected to just accept an exclusion on grounds of contemporaneous bid rigging under Art 57(4)(d) Dir 2014/24/EU (or, rather, its domestic transposition).

I will continue reflecting on the guidance and its implications, and I am sure there will be a lively debate in the months and years to come. As always, any feedback and comments will be most welcome.

'Public procurement' for Global Dictionary of Competition Law

I have been invited to contribute an entry on ‘public procurement’ for a new Global Dictionary of Competition Law (Concurrences Books, forthcoming). The initial draft of the entry is below. Comments welcome: a.sanchez-graells@bristol.ac.uk.

Public Procurement
Albert Sanchez-Graells
University of Bristol Law School

Definition

Public procurement rules govern the award of government or public contracts for the acquisition of supplies, works or services, including the direct provision of public services to citizens. Public procurement rules seek to foster effective competition for public contracts to generate value for money, and to harness competition as an anticorruption tool to ensure integrity and probity in the expenditure of public funds. The main challenges to effective competition in public procurement settings are bid rigging (or collusion among bidders), which risk is heightened by the transparency inherent to procurement processes, and anticompetitive requirements imposed by the public buyer.

Commentary

The effectiveness of public procurement and its ability to deliver value for money depend on the existence of two layers of competition: competition in the market for the goods, works or services to be acquired, and competition within the tender for a specific contract. While most competition analysis focuses on the existence (or absence) of competition within the tender and tends to assimilate this with models of competition for the market, this is a short-sighted approach. Except for very rare public contracts for goods, services or works for which the public buyer is a monopsonist—mainly in sectors such as defence—most public tenders take place in a framework of competition in the market, and one with many private and public buyers seeking to purchase from a range of potential suppliers (for example, tenders for the acquisition of cloud services, general supplies, or school meals). Therefore, it is important not only to ensure that procurement rules and administrative practices prevent distortions of competition within a given tender, but also that they do not generate negative knock-on effects on (dynamic) competition in the relevant market.

The most commonly discussed distortion of competition within a public tender concerns anticompetitive agreements between bidders (bid rigging) that seek to manipulate the competition for the public contract and to extract excessive rents from the public buyer. The mechanics of bid rigging schemes are widely understood, including predominant strategies such as cover bidding, bid suppression, bid rotation and market allocation. However, these anticompetitive practices are also difficult to prevent in oligopolistic or concentrated markets because the transparency inherent to public tenders significantly facilitates monitoring of the cartelists’ bidding behaviour, and because the atomisation of public tenders requires a significant investment in market screening tools to spot suspicious patterns across regional markets and over time. Fighting cartels in public procurement settings has become a high priority for most competition authorities in recent years, in part as a result of the OECD’s work on this area—see its 2012 Recommendation on Fighting Bid Rigging in Public Procurement—as well as the push by the International Competition Network. There is also hope in the development of effective systems of automated screening and red flags where public procurement is conducted electronically (of which there is longstanding experience eg in Korea in relation to its eProcurement platform KONEPS), but these require a solid procurement data architecture which absence has marred recent attempts in jurisdictions such as the UK and its now abandoned ‘Screening for cartels’ tool.

An additional difficulty in ensuring effective competition within a given tender derives from the unclear boundary between anticompetitive practices such as bid rigging and procompetitive cooperation through teaming, joint bidding and subcontracting arrangements between bidders. There is currently significant debate about the limits to cooperation between (potential) competitors in the context of procurement procedures, as well as whether it should be treated as a restriction of competition by object or by effect for the purposes of Article 101 TFEU. The debate is particularly alive in Scandinavian countries, following a 2016 Decision by the EFTA Court in the Ski and Follo Taxi case, and a more recent 2019 Judgment by the Danish Supreme Court in the Road Markings case, which has led to a revision of the Danish Competition and Consumer Authority’s guidelines on joint bidding. The main points of contention about the state of the law concern the counterfactual to be used to determine that joint bidders are (potential) competitors, as well as the measurement of any efficiencies passed on to the public buyer.

In order to empower public buyers to self-protect against bid rigging and to strengthen the effectiveness of competition law in public procurement settings, EU procurement rules have created discretionary grounds for the exclusion of bidders ‘where the contracting authority has sufficiently plausible indications to conclude that the economic operator has entered into agreements with other economic operators aimed at distorting competition’, as well as in cases ‘where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable’—which the Court of Justice of the EU has interpreted as inclusive of non-procurement related breaches of competition law (Generali-Providencia Biztosító). Recent Court of Justice case law has clarified the extent to which these exclusion grounds are applicable where bidders have benefitted from leniency, as well as the intensity of the duty to cooperate incumbent upon bidders seeking to avoid exclusion through self-cleaning measures (Vossloh Laeis). The system created under the EU rules is converging with those of other major jurisdictions, such as the US, where the Federal Acquisitions Regulations allow for similar approaches to assessing the responsiveness (or reliability) of bidders engaged in anticompetitive practices.

Beyond the abovementioned issues, which are all concerned with bidder behaviour, it is important to stress that competition within a public tender can be restricted through decisions made by the public buyer, such as the imposition of excessive participation requirements, the choice of suppliers in less than fully open procedures or foreclosure through eg the use of excessively broad and excessively long framework agreements. Such restrictions of competition can not only generate losses of value for money in the allocation of the specific contract, but also have negative effects on dynamic competition in the relevant market. Unfortunately, the direct application of competition law (ie Article 102 TFEU) to the public buyer has been excluded by the case law of the Court of Justice, except in rather rare situations where the public buyer is engaged in downstream market activities (FENIN). However, a principle of competition has been explicitly enshrined in EU public procurement law to prevent public buyers from ‘artificially narrowing competition’, in particular where ‘the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators’. This is a promising tool to prevent publicly-generated restrictions of competition in public procurement settings, although its interpretation generates some difficulties and its application is yet to be tested in the EU Courts.

Case References

Case C-205/03 P FENIN v Commission, EU:C:2006:453.

Case C-470/13 Generali-Providencia Biztosító, EU:C:2014:2469.

Case C-124/17 Vossloh Laeis, EU:C:2018:855.

EFTA Court, Judgment in Case E-3/16, Ski Taxi SA, Follo Taxi SA og Ski Follo Taxidrift AS v Staten v/Konkurransetilsynet, 22 December2016.

Danish Supreme Court, Judgment in the Road Markings case, 27 November 2019. The case is not available in English, but a comprehensive discussion by Heidi Sander Løjmand can be found at https://www.howtocrackanut.com/blog/2019/11/28/the-danish-supreme-courts-ruling-in-the-road-marking-case-the-end-of-a-joint-bidding-era-guest-post-by-heidi-sander-ljmand-msc [accessed 22 Jan 2021].

Bibliography

Robert Anderson, William Kovacic and Anna Caroline Müller, Promoting Competition and Deterring Corruption in Public Procurement Markets: Synergies with Trade Liberalisation (2016) http://e15initiative.org/publications/promoting-competition-and-deterring-corruption-in-public-procurement-markets-synergies-with-trade-liberalisation/ [accessed 22 Jan 2021].

Alison Jones, ‘Spotlight on Cartels: Bid Rigging Affecting Public Procurement’ (Concurrentialiste, 16 Nov 2020) https://leconcurrentialiste.com/jones-bid-rigging/ [accessed 22 Jan 2021].

Katarzyna Kuźma and Wojciech Hartung, Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar 2020).

Albert Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd edn, Hart 2015), Chapter 5.

Albert Sanchez-Graells, ‘“Screening for Cartels” in Public Procurement: Cheating at Solitaire to Sell Fool’s Gold?’ (2019) 10(4) Journal of European Competition Law & Practice 199-211.

Combating collusion in procurement: webinar recording and slides

It was a pleasure to host today the book launch of Katarzyna Kuźma and Dr Wojciech Hartung's Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar, 2020). The authors were joined by Dr hab. Piotr Bogdanowicz and Jesper Fabricius, as well as yours truly, to discuss recent developments in the treatment of joint bidding under Article 57 of Directive 2014/24/EU, as well as the outstanding legal uncertainty on the interpretation and application of this provision, which Katarzyna and Wojciech have analysed in detail in their book. The slides used for the presentation are available (via dropbox) and a recording of the session (minus Q&A) is also available via the image below (or this link).

The authors would be happy to receive feedback or more general questions about the book and its subject-matter. They can be contacted at katarzyna.kuzma@dzp.pl and wojciech.hartung@dzp.pl.

New lengthy reference by Lithuanian Supreme Court raises a range of difficult questions (C-927/19, Klaipėdos regiono atliekų tvarkymo centras) [guest post by Dr Deividas Soloveičik*]

This guest post by Dr Deividas Soloveičik provides interesting background and critical remarks on a recent Lithuanian reference to the Court of Justice for a preliminary ruling on issues concerning several aspects of the 2014 rules, in particular interesting boundary issues between qualitative selection and technical specifications, as well as exclusion of consortium partners. It will be interesting to keep an eye on the case, as it brings an opportunity for the CJEU to expand its case law.

Some difficult questions

The very end of the 2019 was highlighted by a new lengthy preliminary reference to the CJEU by the Supreme Court of Lithuania (the Supreme Court), in a case that raises a broad range of issues concerning economic and financial standing requirements, the boundary between qualitative selection and technical specification criteria, confidentiality of procurement documents in the context of ensuing litigation and the consequences of the provision of false information. This case and the initial findings of the Supreme Court will be  assessed in this “executive summary” of the references sent to the CJEU—which, at the time of writing (17 January 2020) are yet to be admitted (although the referral has been assigned case number C-927/19, Klaipėdos regiono atliekų tvarkymo centras).

Before proceeding to the analysis, it is worth recalling that, in relation specifically to the point on submission of false information and its impact on the potential exclusion of the tenderer concerned the Supreme Court was perfectly aware of the recent Judgments in Meca (C-41/18, EU:C:2019:507, not available in English) and Delta (C-267/18, EU:C:2019:826) case-law at the time of the reference to the CJEU. However, the Court extends its query and mainly is seeking to find out whether (i) the act of provision of false information by one of the consortium partners “infects” the rest of the team and (ii) what the role of the national court hearing this kind of legal case in the light of the above-mentioned Meca and Delta case-law is, when the CJEU previously specifically emphasized the importance of the discretion of the contracting authority while handling these kind of legal (procurement) situations.

Background

The Lithuanian contracting authority started an open tender for the services of municipal waste gathering and removal to landfill treatment facilities. The procurement procedure was regulated by national and Directive 2014/24/EU. The procurement documents inter alia included the following requirements:

• Technical specification: the service provider uses vehicles for waste management services that are in line with the requirements of EURO 5 standard; all vehicles must have installed constantly functioning GPS transmitters that would allow the contracting authority monitoring the exact location and movement route of the vehicle. The supplier must allow the contracting authority and the administration of the Neringa municipality to use its installed GPS as much as it is necessary to monitor the location and movement routes of the vehicles used in providing the services of waste management and transporting waste to landfill. If sub-suppliers are involved, this requirement is also applicable for their vehicles.

• Technical and professional capacity: the supplier must own or lease (or possess otherwise) the necessary quantity of vehicles needed to execute the public contract and these must comply with the requirements listed in the technical specifications. The requirements for qualification and technical specification were almost identical.

• Financial and economic capacity: tenderers’ average annual operating income from carrying out the activities related to the management of mixed municipal waste during the past 3 financial years (or the period since the supplier’s registration date if the supplier carried out the activities for a period less than 3 financial years) had to be not less than EUR 20,000 EUR excluding VAT.

There were three tenderers in a procedure: the plaintiff, another company and an awardee of the public contract, which was a consortium comprised by three individual companies. The plaintiff took second place. The plaintiff submitted the claim against the contracting authority claiming that the winner had not complied with the: (i) technical specifications – the vehicle indicated by the supplier is not for the mixed waste transportation and considering the years of manufacture – it does not comply with the requirements of the EURO 5 standard; (ii) financial and economic requirements - the average annual operating income of the supplier while carrying out the activities related to the management of mixed municipal waste during the past 3 financial years must be not less than EUR 20 000 EUR excluding VAT, but one of the joint venture partners of the supplier does not carry out waste management activities overall. The crux of the dispute was thus the following: one of the consortium partners made a statement that it had experience in management of mixed municipal waste. The claimant contended that this might not have been the truth because this partner of the consortium had never rendered any services of this type. So the claimant maintained that (a) this consortium partner did not have the needed qualification and (b) that this consortium partner made a false statement. This must have led, in the opinion of the claimant, to rejection of the consortium’s tender.

The court of first instance dismissed the claim but the appeal was successful, and the court obliged the contracting authority to re-execute the evaluation of the tenders. The Court of Appeals considered that the winner of the tender did not prove that it had the technical capacity, because the original tender did not include the information on the required vehicles, which were provided by the tenderer only after the submission of the bid to the contracting authority.

The initial awardee of the contract did not agree with the findings of the Court of Appeals and filed a cassation complaint which was accepted by the Supreme Court.

Regarding the financial and economic capacity as a qualification criterion

By raising the question on the scope of the qualification requirement to hold a relevant financial and economic capacity, the Supreme Court addressed the above-mentioned statements of the procurement documentation which required each tenderer to have an annual operating income from carrying out the activities related to the management of mixed municipal waste during the past 3 financial years or the period since the supplier’s registration date (if the supplier carried out the activities for a period less than 3 financial years) of not less than EUR 20,000 EUR excluding VAT. There were three legal aspects which triggered the Court’s doubts.

First, by reading Art. 58(3) of Directive 2014/24/EU the Supreme Court was prone to conclude that the latter limited the discretion of the contracting authority to require the suppliers to have a turnover from a very specific (niche) economic (business) activity as a sole and main financial criterion. The Court reasoned that the main goal of Art. 58(3) of the Directive was to help contracting authorities finding a financially trustworthy and economically stable contract partner. Therefore, the Court believed that, on the one hand, it allowed the contracting authorities to request from the tenderers having a general financial turnover (as specified in the procurement documentation) and, on the other hand, it left leeway to request the proof of the financial (monetary) capacity gained from a more specific business activity, because the wording of Art. 58(3) of the Directive 2014/24 contains a statement “... including a certain minimum turnover in the area covered by the contract”. However, the Court considered that any requirement for the suppliers’ qualification which is based on Art. 58(3) of Directive 2014/24 (and respectively the national procurement law) should (or even must) a priori address the general financial turnover and must not use a turnover from a niche commercial activity autonomously (i.e. as a sole requirement for financial and economic qualification). In the given case, it seems that the Supreme Court doubted if the contracting authority had a right to require an annual operating income to be received from carrying out the activities related to the management of mixed municipal waste as a single selection ground. The wording of the ruling suggests that the Supreme Court deemed that the contracting authority had a right to require a general turnover (e.g. 200,000 EUR annually) and an income from a specific activity (e.g. 20,000 EUR from management of mixed municipal waste), but not only the latter.

Second, by reading a text of the ruling it seems that the Supreme Court reasoned that if the interpretation of the Art. 58(3) of the Directive 2014/24 was otherwise, i.e. as allowing the contracting authority to require financial and economic standing on the basis of a narrow experience (like in a given case from management of mixed municipal waste), then, in the Supreme Courts’ view, there would be a blurred line between the qualification related to financial and economic standing and the one connected to technical and professional ability. There would hardly be a difference between Art. 58(3) and Art. 58(4) of Directive 2014/24. In other words, the Supreme Court considered that even if legally the requirement for qualification was named as a financial and economical one, it in fact would be the requirement for technical and professional ability when it required financial flows to be gained from a very specific practice. Therefore, it might be said that the Court’s question to the CJEU has an indirect perspective, namely the Court wants the CJEU to clarify the lines between Arts. 58(3) and 58(4) of the Directive 2014/24/EU.

Third, the Court went on to examine the CJEU case-law in Esaprojekt (C-387/14, EU:C:2017:338) and its possible application to the case at hand. It must be recalled that the awardee of the public contract was a consortium of three companies. One of these companies (say company A) constantly held that it had the required financial qualification, because it maintained that this requirement was not personal and could be relied upon as a capacity gained from the execution of a previous public contract which was executed by the consortium to which company A was a member. However, company A did not itself render the services related to the management of mixed waste and therefore it had not received any income from that.  Therefore, the claimant contended that the company A could not hold that it had received any income from the management of mixed municipal waste and, therefore, it did not have a required qualification. The Court recalled that in Esaprojekt the CJEU stated that an economic operator cannot refer to the qualification gained by the whole consortium and may only be deemed to be qualified to the extent it itself executed the relevant (part of) public contract. Therefore, the Supreme Court wonders if this ratio decidendi, delivered in Esaprojekt in respect of technical and professional ability as a qualification requirement, should be applied on the same grounds while dealing with financial and economic standing of the suppliers.

In the light of these considerations, the Court asked the CJEU to answer:

(i) if the requirement to prove the annual income of the relevant size, received from a specific commercial activity (the management of mixed municipal waste), should be subsumed under Art. 58(3) or Art. 58(4) of the Directive 2014/24;

(ii) if the answer to the previous question had any effect on the application of the rules, provided in Esaprojekt, namely, whether it is allowed under the EU public procurement law to disregard the financial and economical capacity, gained during the joint bidding and execution of the previous public contract, if this capacity in corpore is relied upon by a single member of consortium in a later procurement procedure. In other words, the Supreme Court seeks to find out if a consortium member (company A) in a present tender can rely on a qualification, gained by another consortium, to which this company A was also a member, although company A did not actually and directly execute the part of the contract to which it seeks to rely in the later (present) tender (in this case – the management of mixed waste).

Regarding the separation between professional and technical capacity and technical specifications

It is a consistent and already an old national case-law which makes a very clear and precise dividing line between the requirements of the suppliers’ qualification (selection criteria) and technical specification. The Supreme Court maintains a principle that this separation has a substantial practical implication because under the settled case-law of the Lithuanian courts each discrepancy of the tender that is related to qualification (missing document, insufficient provision of required information on qualification, etc.), may be easily rectified. This means that it is forbidden to reject the a tender without at least requesting for a decent explanation from the supplier. The Supreme Court holds that such approach is in line with the view of the CJEU, expressed in such cases as SAG ELV Slovensko (C-599/10, EU:C:2012:191) or Manova (C-336/12, EU:C:2013:647). Meanwhile, any part of the tender that is connected to the requirements of technical specification cannot be amended, rectified or explained by an economic operator at a later stage of procurement in such a way as to turn the non-compliant original tender into a compliant one.

It must be recalled that in this case the requirements for the technical and professional capacity (the supplier must own or lease (or possess otherwise) the necessary quantity of technical measures needed to execute the public contract) were copy-pasted to the technical specification. Therefore, the situation itself became confusing: if those conditions were deemed as criterion for qualification, then there must have been a possibility to provide the additional information upon the request of the contracting authority (what was one of the arguments by the respondent in a case). Meanwhile, in case of an opposite legal approach, i.e. that such requirements are a part of technical specification, any amendment to the original tender after the submission deadline would undergo a much stricter test.

Therefore, the Supreme Court cast doubts on the legal possibility of the mentioned technical and professional qualification requirement. Although the Court referred to Commission v. Netherlands case (C-368/10, EU:C:2012:284) as the one allowing “relevant similar simultaneous requirements both as a condition of technical specification and criteria for entering into a public contract or its execution”, the Supreme Court was not sure if the qualification criterion can be so detailed and exhaustive as it was in the disputed procurement. The Court went on with its reasoning that the more detailed the requirement on qualification was, the more likely it was already a condition of the technical specification and not a selection criterion. In other words, it seems that the Supreme Court was prone to consider that the requirement on qualification cannot be so detailed as it should be in case of technical specification.

Thus, the Court asked the CJEU if the requirement of the procurement documentation that the economic operator used the vehicles needed for waste management services, that were in line with the requirements of EURO 5 standard; all vehicles must have had installed constantly functioning GPS transmitters, that would have allowed the contracting authority monitoring the exact location and movement route of the vehicle fell within the scope of regulation of Directive 2014/24 a) Art. 58(4), b) Art. 42 together with the Annex VII or c) Art. 70.

Regarding the scope of obligation of confidentiality in the light of effective remedies in public procurement

Although since Varec (C-450/06, EU:C:2008:91) there has not been a major development of the concept of confidentiality in public procurement law, on the contrary, in Lithuania it is one of the hottest legal topics during the recent five years. It has been circulated in all possible layers of the legal world, starting from the legislation and ending with the widely elaborated case-law [more on this might be read here: D Soloveičik, ‘Rethinking the confidentiality in public procurement: does public mean naked public?’ (2018) 1 UrT 11-26; for comparative perspectives, see the contributions to K-M Halonen, R Caranta & A Sanchez-Graells (eds), Transparency in EU Procurements. Disclosure Within Public Procurement and During Contract Execution (Elgar 2019)). In a nutshell the current national legal ecosystem in respect of confidentiality could be described as promoting extreme transparency in public procurement and thus limiting the disclosure of competitors’ information in very rare cases, mostly related to top commercial secrets of private parties. The Supreme Court considers that the mentioned “pro disclosure” case-lawis in line not only with the requirements of the principle of effectiveness of remedies in public procurement, but also with the regulation of Directive 2016/943/EU on the protection of trade secrets.

Despite the legal ecosystem, where the transparency should prosper, paradoxically the administrative practice during the procurement procedure is usually different. The contracting authorities, albeit being precisely aware of the mentioned juridical requirements to grant access to the relevant documentation, still are very disclosure averse. In a majority of procurement cases the contracting authorities deny the tenderers their right to gain the access to the competitors’ commercial proposal by arguing that this might lead to an illicit leak of a commercial secret. Moreover, while rejecting the claims of the tenderers, contracting authorities tend to give very abstract and uncomprehensive answers.

This leads to a situation where tenderers launch their legal challenges in from of the courts without having seeing the full picture of the procurement process and, therefore, being refused  an effective protection of their rights as required by the EU public procurement remedies directives. Usually in such cases the situation is rectified by the courts, which tend to disclose the information if it is not a commercial secret. As there is a two-layer procurement dispute system in Lithuania, where access to the court is guaranteed only after the prior submission of the claim to the contracting authority itself, the Supreme Court raised the issue of consistency and rationality of such practice when contracting authorities try to hide the information (usually the winners’) and then such information is only gained at the stage of litigation in court. This makes the procurement dispute at the stage of contracting authority useless. Therefore, the Court referred to Art. 1(1)(3) of Directive 89/665/EEC, Art. 21 of Directive 2014/24/EU and Directive 2016/943/EU and asked the CJEU if:

(i) if the contracting authority must deliver to the requesting tenderer the information comprising the competitors’ tender if such request is related to a legal challenge of such tender and is needed to verify its compliance with the requirements of the procurement documentation, subject to the fact that the claiming tenderer previously asked for this information. It is interesting to note that actually the main point of that question is whether the contracting authorities should be obliged to disclose the required information in order to avoid the mentioned practice that the information is locked during an early stage of the dispute, meanwhile it will still most likely be unlocked when it reaches the court. The hidden idea of the inquiry is that if it appears that the answer to the question is positive and the contracting authorities would be obliged to be almost fully open, then less disputes might reach the courts as the tenderers, after seeing the competitors’ tender, may find out that their claim would be unfounded.

(ii) In case the contracting authority rejects the suppliers’ claim, if its answer must be comprehensive, clear and informative, even though such an answer and its wording may disclose the confidential information. In other words, the Supreme Court wants to know to what extent the contracting authorities may be reserved while replying to the disclosure requests from tenderers, on the grounds that providing a detailed justification for the rejection could in itself constitute a breach of confidential treatment.

(iii) The mentioned provisions of the EU law must be understood as allowing the tenderer to separately challenge before the court the decision of the contracting authority each time it decides to reject the suppliers’ request for access to the competitors’ bid. It has to be mentioned that it is a long-standing national case-law which allows this kind of legal action in Lithuania. So, it seems that the Supreme Court knows the answer because it gave it to all the practitioners itself a long time ago. However, the inquiry sent to the Luxembourg is more an implicit request for verification if such case-law is in line with the EU legal regulation. An additional aspect to this inquiry is that the Supreme Court wanted to know if in the above-mentioned legal situations the tenderer may claim only the denial of the access to information, leaving the rest of possible legal claims, related to the competitors bid, aside. It seems that the Court is prone to think that if the answer to this question was positive, it would most likely mean that such tenderer would not lose its right to challenge these additional irregularities of the competitors’ tender after it receives the relevant information from the contracting authority, even if it is done with the assistance of the court. In other words, this part of the question is related to possible (non)application of limitation of actions.

(iv) Another two questions were related to a procedural law. The Court asked if the national court, hearing the public procurement dispute, in all cases must require the information on the challenged competitors’ tender from the contracting authority, despite its previous actions during the public procurement procedure. And a related question: if Art. 9(2)(3) of Directive 2016/943/EU must be understood as requiring the court, which declined the disclosure of the competitors’ tender to the claimant (but having this information in a file), to take this information into consideration while deciding on a merits of the case. In other words, the Supreme Court is asking whether the courts hearing the public procurement cases and having the information on one of the tenderers’ tender and which they decided to leave locked (meaning that the claimant would not see this data), are under an obligation to examine such information ex officio and take it into consideration while deciding the case. This means that in case of a positive answer to that question, the claimant might still have a chance to win the case, even without seeing the whole materials of a case-file, if there were actual irregularities of the competitors’ tender and the court spotted them.

Regarding the legal consequences of submitting false information and the courts’ discretion to decide upon this

Under the national provisions of the Law on Public Procurement, economic operators can be “blacklisted” if they provide false information to the contracting authority during the procurement procedure. In case of a joint bidding, all of the consortium members are included into this list.

In the case before the Court, one of the members of the consortium that was awarded the public contract was presenting to the contracting authority an inconsistent information regarding its previous financial income. The Supreme Court mentioned that according to the Esaprojekt ruling (above), there is no need to identify the intentional misbehavior of the tenderer in order to reject its bid. The Court reminded that purely negligent actions are sufficient to disqualify the tenderer if such actions could seriously mislead the contracting authority and negatively affect the result of the procurement. Therefore, taking into consideration the facts of a case, the Supreme Court stated that the actions of the mentioned consortium member, in Court’s view, might be considered as negligent.

After the Court came to such a conclusion, on the one hand it most likely must have decided that the tender of the consortium was invalid and that all the members were blacklisted. On the other hand, the Court was stopped from moving towards this legal direction because of two reasons. Firstly, the contracting authority was of the opposite opinion. It did not hold the tenderer negligent and neither it considered the consortiums’ given information as false. Therefore, the Court had a doubt if it can decide on its’ own initiative completely opposite to the direct will of the contracting authority. Secondly, these doubts were amplified by the recent findings of the CJEU in the above-mentioned Delta and Meca cases, where the Court of Luxembourg emphasized that it is a contracting authority, and only it, which is empowered to decide regarding the reliability of the economic operator. In the light of these conclusions, the Supreme Court decided to stay proceedings and request for explanation from the CJEU on the scope and limits of the discretion of national courts in such legal situations.

Besides, the Supreme Court raised a question on whether in case of submission of false information to the contracting authority the consequences of blacklisting must be applied to all members of the consortium. The Court noted that it is natural to expect the possibility of legal risks, related to the participation in a tender (e.g. the need to replace the partner due to its default, etc.). However, the Supreme Court considered that any such risk should be limited to the particular procurement and not be implemented in a way of a total ban on participation for a specified period of time and for all the consortium members. Although the Court did not use this wording, but it implied that this might be disproportionate.

Therefore, the Court asked the CJEU two following questions:

(i) If, in the light of the Art. 57(4)(h) of Directive 2014/24/EU and the Delta case, the national court is allowed, despite the will of the contracting authority, to ex officio decide that the economic operator intentionally or by negligence provided the contracting authority with false information and must have been excluded from the public tender.

(ii) If, in the light of the Art. 57(4)(h) of Directive 2014/24/EU and the principle of proportionality, the disqualification of a tenderer from a procurement procedure with the possible consequences of being “blacklisted” for the specified period of time is applicable against all the members of a joint bidding consortium or just against the economic operator responsible for such misbehavior.

Conclusion

There is no doubt that the Lithuanian Supreme Court triggered important issues related to public procurement practice. The answers from the CJEU are much awaited because procurement professionals face similar situations daily. Some of the areas, such as confidentiality, are extremely different across many EU jurisdictions, albeit all procurers operate under the same EU law on public procurement. Therefore, the interpretation suggested by the CJEU will be used to further unify practice across the internal market.

Dr. Deividas Soloveičik, LL.M

Dr Deividas Soloveičik is a Partner and Head of Public Procurement practice at COBALT Lithuania. He represents clients before national courts at all instances and arbitral institutions in civil and administrative cases, provides legal advice to Lithuanian and foreign private clients and contracting authorities, including the European Commission , on the legal aspects of public procurement and pre-commercial procurement.

Dr Soloveičik is an Associate Professor and researcher in commercial law at Vilnius University and a contributor to legal publications. He also closely cooperates with globally recognized academic members of the legal profession. Since 2011, MCIArb. Dr Soloveičik is a member of the Chartered Institute of Arbitrators; since 2016, he is a member of the European Assistance for Innovation Procurement – EAFIP initiative promoted by the European Commission and a recommended arbitrator at Vilnius Court of Commercial Arbitration.

* Guest blogging at HTCAN: If you would like to contribute a blog post for How to Crack a Nut, please feel free to get in touch at a.sanchez-graells@bristol.ac.uk. Your proposals and contributions will be most warmly welcomed!

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)

Some resources on procurement debarment from a global perspective can help clarify issues with eu law

There is no question that one of the key aspects in seeking to ensure the integrity of public procurement procedures and the legitimacy of the corresponding expenditure of public funds requires contracting authorities to exclude (suspend or debar, depending on terminology) unreliable companies whose professional integrity prevents them from doing business with the public sector.

The topic of exclusion (and self-cleaning) of unreliable contractors continues to cause some difficulties after the implementation of the 2014 EU Public Procurement Package, where it featured as an area of significant legal reform—as discussed at length in 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; and in A Sanchez-Graells, L Butler and P Telles, 'Exclusion and Qualitative Selection of Economic Operators under Public Procurement Procedures: A Comparative View on Selected Jurisdictions', in M Burgi, S Treumer & M Trybus (eds), Qualification, Selection and Exclusion in EU Procurement, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) 245-274.

For example, in Spain, and amidst doubts as to the fitness for purpose of the 2017 implementation of the 2014 EU rules, the National Competition and Markets Commission has sent waves of concern after two recent decisions, where it adopted a debarment decision (prohibición de contratar) against companies that had engaged in bid rigging but refused to determine the duration of the debarment, thus passing the hot potato on to the central national register of public contractors. Given the recent clarification by the CJEU that the exclusion period for infringements of competition law starts to run at the time of the adoption of the relevant administrative decision (see Vossloh Laeis, C-124/17, EU:C:2018:855), the situation is resulting in a (potential) implicit reduction of the maximum debarment period due to difficult to understand competence and procedural issues that are, let’s say it, rather parochial.

No doubt, this is just an example of many more complicated situations derived from the limited experience with the rules in the new Directive, which understanding is not always as full as would be desirable. In this context, there are two recent contributions to global literature that can help us reflect on the (mal)functioning of the proto-systems developed in some Member States after the implementation of the EU rules and (why not?) rethink them and improve them.

One of these contributions is the recent World Bank report on the pilot project ‘A Global View of Debarment: Understanding Exclusion Systems Around the World‘ (April 2019), which provides useful comparative information on 11 jurisdictions (including the EU and some of the Member States, such as Germany, Italy, Spain or the UK).

Another, more substantive contribution can be found in the recent paper by Christopher R Yukins and Michal Kania, 'Suspension and Debarment in the U.S. Government: Comparative Lessons for the EU’s Next Steps in Procurement' (2019) 19(2) UrT 47-73. In this paper, Yukins and Kania rely on the US’ extensive experience in suspension and debarment of government contractors to propose three very specific areas of improvement for European systems: ‘a broader reliance on corporate compliance among contractors, centralizing authority over the exclusion of contractors, and the use of administrative agreements and independent monitors as an alternative to debarment’.

As they stress, the two first proposals are already broadly aligned with (best) practice in some Member States. Their proposal to use administrative agreements and independent monitors is certainly worth pondering, although its fit with some administrative law traditions may be slightly difficult to square.

Bid rigging, self-cleaning, leniency and claims for damages: A beautiful procurement mess? (C-124/17)

In his Opinion of 16 May 2018 in Vossloh Laeis, C-124/17, EU:C:2018:316 (not available in English), Advocate General Campos Sánchez-Bordona has offered an interesting view on the interpretation of the grounds for discretionary exclusion of economic operators engaged in bid rigging. In particular, his proposed interpretation concerns the limitations of the contracting authority's ability to demand full and unrestricted cooperation from undertakings seeking to reassure them that they have self-cleaned after participating in collusive practices in public markets. This Opinion and the forthcoming CJEU Judgment in Vossloh Laeis will be relevant for the interpretation of Article 57 of Directive 2014/24/EU, as well as Article 80 of Directive 2014/25/EU, on which the case rests. In my view, the Vossloh Laeis Opinion raises difficult questions about the coordination of enforcement of mechanisms to prevent bid rigging in the fields of public procurement and competition law. It also creates some functional tensions with recent cases such as Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469; and Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000. Thus, it deserves some close analysis.

Vossloh Laeis - Background

This case concerns the aftermath of an investigation into bid rigging practices by the German competition authority (Bundeskartellamt), which established that '[d]uring the period from 2001 to 2011 Vossloh Laeis concluded agreements with other companies on the supply of rails and switches to the detriment of local public transport companies, private, regional and industrial railway companies and construction companies. The aim of the agreements was to divide up tenders and projects among the members of the cartel'. This resulted in the imposition of a fine of just under 3.5 million euros on the company Vossloh Laeis in 2016 by the Bundeskartellamt.

In the case that triggered the reference to the CJEU, a contracting entity whose procurement is covered by Directive 2014/25/EU (Stadwerke München) sought to exclude Vossloh Laeis from its qualification system on the basis that it had been fined for its participation in the cartel. It is important to stress that the relevance of the cartel for Stadwerke München was not simply remote or theoretical, but concerned it rather closely because this entity had been a victim of the anticompetitive practices carried out by Vossloh Laeis. This led Stadwerke München to seek damages compensation from Vossloh Laeis in civil litigation, as well as to exclude it from its list of approved contractors.

Vossloh Laeis sought to resist its exclusion from Stadwerke München's qualification system on the basis that it had taken self-cleaning measures and should thus be reinstated in the list of approved contractors on the basis of Article 57(6) of Directive 2014/24, to which the applicable Article 80 of Directive 2014/25 refers. In particular, Vossloh Laeis sought to persuade the contracting entity that it had taken organizational and personnel measures to clarify the facts and prevent their future repetition. It also indicated that it would compensate the damage caused by its illicit behavior. 

Stadwerke München rejected the claims of self-cleaning on the basis that (i) despite the uncovering of the cartel in 2011, Vossloh Laeis had not addressed the contracting entity or undertaken any initiative to clarify the facts as a whole; (ii) only in 2016 had Vossloh Laeis ceased to deny, in front of Stadwerke München, its participation in the relevant collusive practices, and even then it stressed that it had challenged the decision imposing the fine. Most importantly, Stadwerke München took issue with Vossloh Laeis' behaviour because (iii) it had not agreed to furnish a copy of the Bundeskartellamt's decision imposing the fine, so that Stadwerke München could examine it. Neither did Vossloh Laeis agree to cooperate with Stadwerke München in clarifying the infringement committed, since it understood that his cooperation with the competition authority was sufficient.

The Vossloh Laeis Opinion states that '[t]he referring court does not dispute (as it was stated in the sanctioning decision itself) that Vossloh Laeis had collaborated continuously and without restrictions with the German competition authority during the infringement procedure procedure' (para 17, own translation from Spanish). This creates a situation that may seem difficult to understand. Why would an undertaking that has already cooperated unreservedly with the competition authority not take the same approach to cooperation with the contracting entity? Is it a matter of opposition to red tape and duplication of effort? Or is there any secret that the economic operator is seeking to protect? Equally, on the side of the contracting entity, why is it so interested in the nitty-gritty details of the decision imposing the fine? Could it not just accept that the economic operator was sanctioned and is now trying to move on?

The importance of leniency programmes in this context

Even if the Opinion of AG Campos does not mention this at all, the dispute about access to the Bundeskartellamt's decision and Vossloh Laeis' refusal to cooperate with Stadwerke München in a parallel clarification of the facts needs to be placed in the context of the applicable leniency programme run by the Bundeskartellamt, and the civil litigation around the action for damages against Vossloh Laeis. This is important to understand the position of the parties, as well as the shadows that loom over the approach taken by AG Campos (discussed below).

As part of a leniency programme (not only Bundeskartellamt's, but those run by the contracting authorities of other Member States and the European Commission itself), economic operators that have participated in bid rigging offences can seek an exemption or reduction of the fines that would otherwise be applicable if they uncover the cartel and/or cooperate with the competition authority in its investigation (the degree of cooperation and the relevance of the information provided determining the level of 'discount' on the otherwise applicable fine).

In return for their cooperation, cartellists not only benefit from exemption or reduction of the fines, but also from some protection against claims for damages by the victims of their collusive behaviour. Indeed, competition authorities will take measures to ensure that leniency statements are not disclosed to the public, will include minimal parts of them in their final decisions imposing fines, and will redact relevant material from the public version of those decisions. This makes it virtually impossible for 'outsiders' to learn about the detailed ways in which the cartel functioned on the basis of public information resulting from the infringement procedure. Moreover, leniency programmes are specially protected by the Directive on competition damages (2014/104/EU), which requires Member States to ensure that 'for the purpose of actions for damages, national courts cannot at any time order a party or a third party to disclose ... leniency statements' (Art 6(6)(a)) (see also the position of the CJEU here).

This creates significant difficulties in the context of follow-on damages actions, where the previous investigation by the competition authority is of no avail to victims seeking redress. This would explain why Stadwerke München insisted in having access to the confidential version of the decision imposing a fine, and why Vossloh Laeis resisted such disclosure. It also clarifies how, in this specific context, cooperation with the competition authority is of no use to contracting entities and authorities seeking to understand the behaviour of the economic operator, as the opacity surrounding leniency programmes prevents them from benefiting from the investigation and findings of the competition authority. 

The Vossloh Laeis Opinion in its own terms

In own terms, the Opinion of AG Campos seems to be solely based on the conceptual premise that the dispute between Stadwerke München and Vossloh Laeis resulted not from the background discussed above, but rather from the peculiarity of the German rules that transposed Article 57(6) of Directive 2014/24/EU, which required that, for the purposes of self-cleaning, economic operators must demonstrate that they have 'fully clarified the facts and circumstances by actively collaborating with the investigating authorities and the contracting authority' (Art 125(1)(2) Gesetz gegen Wettbewerbsbeschränkungen, as reported in para 10 of the Opinion). This deviates from the literal wording of Article 57(6) of Directive 2014/24/EU, which foresees that 'the economic operator shall prove that it has ... clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities'. The analysis in the Opinion, thus, largely rests on the interpretation of the concept of 'investigating authorities' in Article 57(6) with the purpose of establishing whether it covers the contracting authority or entity itself (see para 2). The Opinion offers a good synthesis of the competing arguments in paras 26-36.

In that regard, the Opinion provides some relevant positions. First, that the requirements explicitly listed in Article 57(6) of Directive 2014/24/EU are mandatory and, consequently, contracting authorities and entities cannot accept claims of self-cleaning that do not meet them all (paras 40-41). Therefore, establishing the scope of the duty of collaboration in the clarification of the facts becomes paramount because its breach determines the impossibility of benefiting from any other self-cleaning measures adopted.

Second, on the specific issue of the entities included in the concept of 'investigating authorities', AG Campos takes the view that, despite the fact that Article 57 of Directive 2014/24/EU grants contracting authorities and entities some investigative powers, 'the exercise of these functions does not make the contracting authority one of the "investigating authorities" referred to in Article 57 (6), second paragraph of Directive 2014/24' (para 47, own translation from Spanish). In addition to other functional reasons on the way contracting authorities carry out their limited investigation for the purposes  of establishing the existence of an exclusion ground (paras 48-50), AG Campos concludes that, in general terms, 'the "investigating authorities" referred to in Article 57, paragraph 6, second paragraph, of Directive 2014/24 will not coincide with the contracting authorities. In front of the latter, the tenderer (or the company that aspires to be part of a classification system, as in this case) must prove that it has actively and thoroughly collaborated with the investigating authorities to clarify the facts. But this collaboration must be, by force, with an institution other than the contracting authority itself: otherwise, [the collaboration] would be, for the latter, a notorious fact that does not require any proof' (para 51, own translation from Spanish).

Finally, AG Campos also rejects the possibility for Member States to go beyond the scope of the collaboration foreseen in Article 57(6) of Directive 2014/24/EU in demanding that the economic operator seeking to benefit from its self-cleaning efforts not only collaborates with the 'investigating authorities' but also with the contracting authority or entity (paras 55-61). Interestingly, AG Campos stresses two main issues against this possibility: (i) that it would create a duplication of obligations required against those who, like the investigating authorities and the contracting authorities, perform different functions and (ii) that it 'could place the economic operator in a situation close to defenselessness when, in circumstances such as those in this case, the contracting authority claims to have suffered damages, because of the infringing conduct that led to the exclusion of [the economic operator], for which it requests compensation' (para 60, own translation from Spanish).

It is worth stressing that the case also concerns issues surrounding the maximum period of exclusion of economic operators that cannot benefit from self-cleaning (paras 62-86). However this post concentrates solely on the interpretation of Article 57(6) of Directive 2014/24/EU.

In my view, the Opinion of AG Campos advances a plausible interpretation of Article 57(6) of Directive 2014/24/EU. However, I would disagree with two issues. First, the fact that Member States cannot go beyond the minimum mandatory self-cleaning requirements established in the Directive on the grounds that this would result in a duplication of effort for economic operators does not make sense to me, in particular after the recent CJEU Judgment in Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000 (see comment here), which AG Campos acknowledges but sets aside in his Opinion (para 57). Second, and more importantly, I think that the Opinion of AG in Vossloh Laeis does not work in the context of infringements of competition law covered by leniency programmes, which triggers the second of the arguments against an expansive functional interpretation of Article 57(6) on the grounds of the undertaking's procedural rights.

The Vossloh Laeis Opinion in the broader context of leniency programmes

Indeed, the main difficulty I have with the AG Opinion in Vossloh Laeis is functional. It is worth stressing that the implication of this Opinion is that a contracting entity or authority that knows that it has been the victim of a cartel offence cannot oppose self-cleaning of the competition law violator on the basis of its lack of cooperation, despite being in litigation with that undertaking over damages compensation. From the perspective of the infringer, this also means that participation in a leniency programme not only provides a shield from administrative fines and some protection from actions for damages, but also some protection from exclusion from procurement procedures. These are two negative results from the perspective of ensuring the effectiveness of competition law in public procurement markets and, in my view, runs against the thrust of previous decisions such as Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469 (see comment here).

I also think that the way in which the Vossloh Laeis Opinion frames the issue of defenselessness is artificial. An economic operator that has infringed competition law and received a reduced fine as a result of its leniency application has already obtained a relevant practical advantage. Therefore, I see no problem in making it face a simple choice between either (i) sticking to the secrecy created by the leniency mechanism and thus accepting exclusion from procurement procedures for an adequate period of time, or (ii) waiving that secrecy vis-a-vis the contracting authority (which would implicitly require compensation of the damage resulting from the cartel), so that the contracting authority can form an adequate view of whether the organisational and personnel self-cleaning measures really address the root causes of the past illegal behaviour and, if appropriate, set aside the relevant exclusion ground.

The Vossloh Laeis Opinion allows the economic operator to avoid this simple choice and to have two bites at the cherry. It also makes it difficult for the contracting authority to satisfactorily carry our its limited investigative functions under Art 57(6). Without knowing exactly what happened, it is difficult to judge whether the self-cleaning measures are 'appropriate to prevent further criminal offences or misconduct'. Additionally, it forces the contracting authority to make this decision in a context where it can have other grounds to doubt the economic operators' loss of integrity, such as its resistence to provide damages compensation despite having engaged in illegal behaviour that damaged the contracting authority's interests.

Ultimately, if AG Campos was worried about the existence of a conflict of interest between the contracting authority that has an outstanding claim for damages and at the same time needs to assess the self-cleaning efforts of the economic operator--which is a fair enough point--it would have been interesting to learn about the ways in which Article 24 of Directive 2014/24/EU needs to be applied and interpreted in situations such as this. It would have also been interesting to explore in more detail the extent to which the discrete requirements for satisfactory self-cleaning in Article 57(6) interact as, in the case of leniency-related situations, the lack of collaboration with the contracting authority or entity has a bearing on the extent to which the economic operator can be seen to have 'undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct'. 

However, by not addressing these issues, the Vossloh Laeis Opinion seems to seek to protect the effectiveness of leniency programmes without even mentioning them, which in my view is an odd position to take.

Rejection of tenders for EU research funding, any lessons for procurement? (T-76/15)

In its Judgment of 18 January 2018 in Kenup Foundation and Others v EIT, T-76/15, EU:T:2018:9, the General Court of the Court of Justice of the EU (GC) assessed the compatibility with EU law of the rejection of a tender for funding under the Horizon 2020 framework programme for research and innovation. Some of the GC's analysis in this context can provide interesting insights for the rejection of tenders in procedures controlled by the EU public procurement rules, if evaluation and award decisions are adopted through two-tier bodies (eg a technical evaluation and an overall 'political' decision-making). This could be particularly relevant in the context of competitive dialogues or innovation partnerships. To be sure, the Kenup case hinges on EU administrative law, but I think it raises issues that can be comparable in some domestic settings in the Member States.

In Kenup, the European Institute of Innovation and Technology (EIT) issued a call for the designation of a Knowledge and Innovation Community (KIC) in the field of innovation for healthy living and active ageing. The cooperation established between the EIT and the KIC would take the form of a framework partnership, with an initial duration of seven years, in the course of which grants could be paid by the EIT on the basis of the conclusion of specific agreements. The call for proposals established specific criteria for the exclusion, eligibility and selection of proposals, which were to be undertaken under EIT's responsibility. The decision on the designation of the KIC was subjected to a three-tier process, as follows:

According to the rules in ... that call for tenders, which the parties agree were complied with both by the independent experts and by the EIT, eligible proposals were to be evaluated by high-level independent external experts. Each proposal was thus examined by five experts, that is to say three thematic experts and two ‘horizontal’ experts, each responsible for an evaluation report for each proposal. The panel of experts was then required to draw up a consolidated evaluation report for each proposal. Next, the three proposals with the best rankings were evaluated by a second panel of high-level independent experts responsible for making a final recommendation containing an overview of those three proposals as well as recommendations for their improvement or reinforcement. Finally, representatives of the three proposals with the best scores were to be heard by the governing board before it designated the selected KIC (T-76/15, para 58).

Therefore, the decision on the designation of the KIC was to be made by the EIT's governing board, on the basis of the recommendation made by the second panel of experts, which only had to take into consideration the three top proposals as 'filtered' by the first panel of experts. In principle, this seems like a rather robust evaluation mechanism, in particular of the technical aspects of the proposals. However, it can also raise issues of compliance with rules on 'fully-informed' decision-making or 'unrestricted' executive discretion, as the Kenup case evidences.

In response to the call for proposals, the Kenup consortium submitted a tender under the coordination of the Stiftung Universität Lüneburg. After assessment of the proposals received in accordance with the evaluation mechanism described above, the governing board of EIT selected a  proposal for the KIC and rejected the other proposals, including Kenup's. Kenup then challenged the EIT's decision on several grounds, including issues concerned with an alleged failure by EIT to state the reasons for its decision, as well as a breach of the principles of transparency and equal treatment of tenderers.

All of these arguments are common place in the challenge of procurement decisions and their analysis would have been interesting. However, the case was decided solely on an issue concerning the implicit constraints on the exercise of executive discretion by the EIT's governing board due to the initial 'filtering' of proposals by a panel of high-level experts. This merits some close analysis.

As presented by the GC,

It follows from the evaluation process for the proposals ... that the panel of experts responsible for the final recommendation only had to examine the three proposals with the best scores following the evaluation by the first panel of experts. In addition, only representatives of those three proposals were to be heard by the governing board. In that regard, it should be noted that the call for proposals clearly indicated that the KIC would be selected by the EIT on the basis, first, of the consolidated evaluation reports relating to the three best proposals, as established by the panel of experts, secondly, of the report drawn up by the panel responsible for the final recommendation and, thirdly, of the outcome of the hearings. Accordingly, the EIT was required to make its selection only on the basis of the work carried out by the independent experts on the three proposals with the best scores and the outcome of the hearings carried out with the representatives of those proposals.

... the members of the governing board had access, via a protected website, to all the proposals submitted for the KIC on ‘Innovation for healthy living and active ageing’, including the Kenup consortium’s proposal. Furthermore, before the hearings, the director of the EIT indicated to the governing board the various stages of the evaluation procedure, including the various scores awarded overall and for sub-criteria to the five proposals submitted. However, none of the analyses of the Kenup consortium’s proposal carried out by the independent experts were submitted to the members of the governing board. Annex 1 to the information note of 1 December 2014 drawn up by the director of the EIT for the members of the governing board, produced by the EIT at the Court’s request, included merely a summary of the evaluation reports drawn up by the panel of experts relating solely to the proposals selected for the hearings. In addition, it does not follow from the procedure for the call for proposals, nor is it claimed, that members of the governing board attended the experts’ working sessions.

It is true, as the EIT maintains in its defence, that members of the governing board were free to raise questions and to request additional information concerning all the proposals and their evaluation by the experts. However, ... the members of the governing board did not possess any of the evaluations or a summary of the evaluations carried out by the panel of experts concerning the two proposals not selected for the hearings.

In any event, any initiatives of the governing board were unlikely to call into question the fact that only the three proposals with the best scores awarded by the experts could have been designated as the KIC on ‘Innovation for healthy living and active ageing’. The procedure established by the call for proposals entirely ruled out any possibility of the governing board’s selecting the Kenup consortium’s proposal and inviting its representatives to participate in the hearings, since that proposal was ranked in fourth position by the independent experts. That finding is confirmed by the wording of the letter of 10 December 2014 informing the coordinator of the Kenup consortium that its proposal had been rejected, which clearly links that exclusion with the ranking of the consortium’s proposal below third place. On that point, it may be noted ... that, in its reply to their request for further information, the EIT stated that the experts had been granted, by the call for proposals, a delegated power to preselect proposals.

Therefore, in accordance with the procedure defined in the call for proposals, the governing board could, following the hearings, only alter the ranking of the three best proposals selected by the experts ... The fact that, according to Article 15 of Regulation No 1290/2013, the selection of a KIC is made on the basis of the ranking of the proposals, in accordance with the evaluation carried out by independent experts, cannot mean that the EIT is bound, even in part, as regards the order of the proposals thus selected.

67      It follows from all the foregoing considerations that the applicants are justified in maintaining that the governing board failed fully to exercise its powers in respect of the selection of proposals, in breach of the provisions of Article 4 of Regulation No 294/2008, those powers having been delegated in part to experts without that board having, at any time, had the opportunity to make a proper assessment of the work they carried out on the proposals which were not ranked in the first three places (T-76/15, paras 61-65 & 67, emphases added).

As mentioned above, the Kenup Judgment is largely conditioned by a point of EU administrative law concerning the implicit delegation of the power to preselect proposals to the initial high-level expert panel. However, I find the case troubling in that context, and for any implications it could have in the context of procurement covered by the 2014 Public Procurement Package. I have two main issues with this Judgment.

First, and foremost, that it seems to follow the worrying trend of disrespect for expert opinion. Implicit in the GC Judgment, there is an assumption that the governing board of EIT would have been able to challenge expert reports prepared in a seemingly robust manner. This seems difficult to share. Either the independent technical evaluation was needed because the governing board does not have the expertise (or time) to sift through all proposals--in which case the assumption that the governing board will look at all documents and sort of reassess all proposals from scratch is ludicrous--or it was not needed at all, and should be abandoned--which seems equally unpersuasive. More generally, it seems that the GC misunderstands the context and boundaries of the executive discretion given to EIT's governing board by the relevant EU provisions, as well as the fact that EIT had endorsed the specific evaluation mechanism (thus potentially self-constraining any broader discretion it may have had, in a manner that the GC hardly demonstrates to run contrary to any relevant constraints). From that perspective, this Judgment is at best extremely formalistic and, at worse, simply misguided.

Second, and also of importance, depending on the rules applicable under the general administrative law of the Member States, the thrust of the Kenup Judgment can result in significant difficulties (and potential challenges) in the context of complex procurement procedures where the overall (political) decision-making is supported by one or several rounds of technical evaluation aimed at filtering the initial proposals into shortlists or recommendations. If the logic in the Kenup Judgment was adopted, and the ultimate decision-makers of the contracting authorities and entities covered by the 2014 Public Procurement Package were required to have before them (and effectively engage with) the entirety of the documentation with a view to (potentially) challenging technical evaluations, complex procurement procedures could become exceedingly burdensome and/or (even more of a) box-ticking exercise. Moreover, it would be possible to generate inadvertent corruption risks if the non-expert (ie political) board could second-guess or deviate from robust technical assessments and have unfettered discretion. This would run in stark contrast with the case law of the CJEU on award criteria and unlimited freedom to choose a tender.

Consequently, my overall view of the Kenup Judgment is that it does not offer any valuable (or at least useful) lesson for procurement, and that the GC would have been well-advised to have followed the opposite direction of travel. By taking into consideration the case law on procurement that requires discretion to be constrained by solid technical evaluation, the decision in Kenup could (and should) have been the opposite. I can only hope that this case is limited to the way EU research funding is administered, and that the Kenup Judgment results in a change of EIT's internal governance rules in a way that preserves and enhances the role of independent high-level technical evaluations against the erosion that the GC's Judgment has generated.

ECJ confirms discretion to exclude tenderers for not updating self-certifications and points towards potential general obligation of sincere cooperation (C-178/16)

In its Judgment of 20 December 2017 in Impresa di Costruzioni Ing. E. Mantovani and RTI Mantovani e Guerrato, C-178/16, EU:C:2017:1000 (Mantovani e Guerrato), the Court of Justice (ECJ) declared the compatibility with the 2004 EU public procurement rules of a contracting authority's decision to exclude an economic operator that, having self-certified as not being affected by exclusion grounds, subsequently failed to update the contracting authority when one of its former directors' criminal conviction for invoice fraud became final. Remarkably, the exclusion was upheld despite the fact that the 'conviction had become final following [the economic operator's] own declarations [and despite the fact ...] that, in order to fully and effectively dissociate the company from [its director]’s actions, the latter was immediately removed from his management role ..., the management bodies of the company had been reorganised, [his] shares had been bought back and an action for damages had been brought against him' (para 11). Therefore, the exclusion was upheld despite an attempt at self-cleaning. 

In declaring the compatibility with EU procurement law of this strict approach in the exercise of discretionary exclusion powers, the ECJ largely followed the Opinion of AG Campos Sánchez-Bordona (discussed here, where more background on the case is provided) and, in my view, confirmed a welcome functional approach to the exercise of discretion to exclude economic operators on the grounds of evidence that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable [Art 45(2)(d) Dir 2004/18 and now Art 57(4)(c) Dir 2014/24]. In my view, there are some relevant passages in the Mantovani e Guerrato Judgment that will be of importance in the assessment of self-cleaning claims under the 2014 rules, given the recognition of the possibility for Member States to create an overarching obligation of sincere cooperation with the contracting authority befalling upon economic operators under the 2004 rules--which may well carry over to the new provisions at EU level. The relevance of such recognition of a general obligation stems from its crucial role in the original exclusion decision, which was 'in essence, [based on the fact] that although, in the absence of a final judgment, Mantovani’s statement could not be classified as a "misrepresentation", the lack of timely notification of criminal proceedings concerning one of the [relevant] persons ... may constitute an infringement of the obligation of sincere cooperation with the contracting authority, and accordingly impede the full and effective dissociation from the person concerned' (para 12).

In my view, it is important to stress that the ECJ reaches its position after reiterating its general case law position that

... Article 45(2) of Directive 2004/18 does not provide for uniform application at EU level of the grounds of exclusion it mentions, since the Member States may choose not to apply those grounds of exclusion, or to incorporate them into national law with varying degrees of rigour according to legal, economic or social considerations prevailing at national level. In that context, Member States have the power to make the criteria laid down in Article 45(2) less onerous or more flexible ... Member States therefore enjoy some discretion in determining the requirements governing the application of the optional grounds for exclusion laid down in Article 45(2) of Directive 2004/18 (paras 31-32, references omitted).

And it is also important to stress that the ECJ finds the legal basis for the obligation of sincere cooperation not on the 2004 EU procurement rules, but on the domestic law of the Member State concerned (Italy):

... the Member State is entitled to ease the requirements governing the application of the optional grounds for exclusion and, thus, to waive the application of a ground for exclusion in the event of a dissociation between the tenderer and the conduct constituting an offence. In the present case, it is also entitled to determine the requirements governing that dissociation and to require, as Italian law does, that the tenderer inform the contracting authority of a conviction of its director, even if the conviction is not yet final.

The tendering company, which must meet those requirements, may submit all the evidence which, in its view, is evidence of such a dissociation.

If that dissociation cannot be proved to the satisfaction of the contracting authority, the necessary consequence is the application of the ground for exclusion.

... in a situation where the judgment relating to an offence concerning the professional conduct of the director of a tendering company is not yet final, Article 45(2)(d) of Directive 2004/18 may apply. That provision makes it possible to exclude a tendering company which has been found guilty of grave professional misconduct, established by any means which the contracting authorities can provide proof of (paras 41-44).

Even if the ECJ seems to incur in some imprecision in interpreting Italian law (which, as far as I can see, did not require the tenderer to inform the contracting authority of the non-final conviction of its former director, but rather to update or substitute the relevant self-certification once that conviction becomes final), it seems clear that it foresees the possibility for Member States to create an overarching obligation of sincere cooperation as part of the relevant self-cleaning requirements. Given that self-cleaning was not regulated by Dir 2004/18, this is the only legal basis that could have been used in the case. However, given the inclusion of explicit rules in Dir 2014/24, an argument can be made that the ratio of the Mantovani e Guerrato Judgment will carry over to the new EU self-cleaning regime.

Indeed, when the functional principle underlying the Mantovani e Guerrato Judgment is put in connection with the new rules in Article 57(6) of Dir 2014/24, the legal basis of such an overarching obligation may now be seen as having potentially shifted to the EU level. Indeed, it is important to stress that, as minimum requirements for the recognition of self-cleaning capable of excluding the application of exclusion grounds (both mandatory and discretionary), the second paragraph of Art 57(6) Dir 2014/24 requires that 'the economic operator shall prove that it has paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct, clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities and taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct' (emphasis added).

This comes to establish an 'EU obligation of sincere cooperation' that, even if it seems oriented towards the 'investigating authorities' (which does not seem to automatically cover the contracting authority itself), can easily be extended in the same functional terms required by Italian law on the basis of the logic in the Mantovani e Guerrato Judgment. Therefore, in my view, when assessing self-cleaning claims--and as a result of a joint interpretation of Art 57(4)(c) and Art 57(6)II Dir 2014/24 from the functional perspective of the Mantovani e Guerrato Judgment--contracting authorities will be on safe grounds if they decide to reject self-cleaning claims on the basis of a lack of update of on-going criminal and administrative investigations that are susceptible of nullifying the effectiveness of self-certifications submitted by the economic operators concerned.

Interesting AG Opinion on treatment of on-going criminal cases & self-cleaning under 2004 rules (C-178/16)

In his Opinion of 21 June 2017 in Impresa di Costruzioni Ing. E. Mantovani and Guerrato, C-178/16, EU:C:2017:487 (not available in English), Advocate General Campos Sanchez-Bordona analysed an Italian case concerning the interaction between mandatory and discretionary exclusion grounds related to an undertakings' director's criminal record, as well as the self-cleaning measures adopted by the undertaking as it aimed to carry on participating in tenders for public contracts. The case requires the interpretation of the 2004 EU public procurement rules, but its rationale will be relevant in the future interpretation of Art 57 of Directive 2014/24.

In the case at hand, a former director (Mr B) of a tenderer (Mantovani) was under criminal investigation for having run a scheme of fraudulent invoices, and it was publicly known (vox populi) that he had entered into a plea bargain deal. When Mantovani submitted a tender for the construction of a new prison in Bolzano (the irony is inescapable...), and as part of the documentation aimed at demonstrating its good personal and professional standing, it submitted a self-certification indicating that Mr B had ceased his position as president of the board of directors 4 months prior to the start of the tender procedure and that, to the best of Mantovani's knowledge, no conviction by final judgment or plea bargain deal had been had been adopted.

Relying on the public information of which it was aware, the contracting authority requested a copy of Mr B's criminal record. It revealed that a sentence based on the plea bargain deal had become final after the submission of the self-certification by Mantovani (the sentence being adopted only the day after the submission of the first self-certification by Mantovani). The contracting authority decided to exclude Mantovani, which challenged this decision on the basis that: (a) the conviction had been published and become final after the submission of the self-certification, and (b) that it had taken remedial action to severe all ties with Mr B (including cessation of his directorship, restructuring of the board of directors, repurchase of Mr B's shares in Mantovani, and suing Mr B for director's liability).

Interestingly, the contracting authority asked for consultation to the Italian Anti-Corruption Agency (ANAC), which advised that, even if it could be found that Mantovani did not submit a false self-declaration (which onus probandi fell on the contracting authority), and in particular due to the (technical) fact that the conviction was not final at the time of the self-declaration, the contracting authority has a duty to assess the effectiveness of the self-cleaning measures and it is conceivable that Mantovani's integrity is compromised due to the fact that it had not taken positive steps to make the conviction know to the contracting authority once it became official and final. In ANAC's view, and according to Italian case law, failure to actively keep the contracting authority informed of developments in a criminal investigation (where there is an eventual conviction) reveals the absence of disengagement with the former director, and is thus a violation of the duty of loyal cooperation that can justify its exclusion from the procurement procedure.

The contracting authority decided to keep Mantovani's exclusion, and this was challenged. The assessment of the case is complicated by the peculiarities of the Italian rules (which triggered significant debate between the interveners before the ECJ, and which AG Campos rightly  considers the Court incompetent to rule on, see paras 37-38), as well as by the fact that the new rules on self-cleaning are not applicable ratione temporis, which creates some vacuum in the framework for the assessment of the contracting authority's exercise of discretion in this case. However, AG Campos' assessment of the case offers some interesting interpretive pointers. In my view, these are the relevant points of the Opinion:

• The key issue concerns the contracting authority's decision to exclude Mantovani not directly on the basis of the criminal conviction of Mr B, but rather on Mantovani's own failure to keep the contracting authority informed once that conviction was official. This thus requires an assessment of compatibility with the ground of exclusion based on the existence of evidence that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable [Art 45(2)(d) Dir 2004/18 and now Art 57(4)(c) Dir 2014/24] (paras 42-46).
• Member States have significant discretion to regulate the conditions applicable to discretionary exclusion grounds, and this is only limited by the impact that such grounds and their exercise can have on freedom of establishment and freedom to provide services. Such impact needs to be subjected to a balancing exercise vis-a-vis the public interest in the probity of the procurement process, under a proportionality assessment (paras 51-53).
• Under that analytical framework, nothing prevents an extension to the economic operator of (some of) the consequences of the criminal behaviour of one of its former directors, and it is adequate to make the burden of proving effective disengagement and adoption of effective remedial measures (ie, self-cleaning) on the undertaking (paras 54-65).
• It is adequate, and certainly not incompatible with EU law, to treat the economic operators' silence (or the omission of an implicit duty to keep the contracting authority informed based on a more general duty of loyal cooperation) as evidence of professional misconduct capable of justifying a decision to exclude it from the tender procedure. Where no documentary evidence exists that could allow for a pre-defined check of compliance with (or absence of) exclusion grounds -- notably, those concerning professional misconduct or failure to supply required/adequate/truthful information -- the contracting authority enjoys a broad degree of discretion to assess the circumstances and evidence potentially leading to an exclusion decision (paras 72-83).
• Importantly, given that the exclusion of the economic operator is not automatic, but rather based on an ad casum assessment, and that such discretionary assessment is subjected to judicial review, this does not place the economic operator in a situation where it cannot defend its interests (para 84).

I think that AG Campos shows two interesting guiding principles that the ECJ should support in its Judgment in Impresa di Costruzioni Ing. E. Mantovani and Guerrato, as well as more generally in the future. First, that contracting authorities need to be given space to exercise discretion aimed at ensuring the probity of the procurement process. And, second and equally important, that the exercise of that discretion needs to be subjected to appropriate checks and balances, including an opportunity to challenge exclusion decisions under appropriate procedural guarantees.

In my view, this functional approach also stresses the need to create effective inter partes procedures for the economic operator and the contracting authority to exchange information prior to the exclusion decision being effective, as well as ensuring swift review of those decisions at a stage where they can still be undone (as the logic in Marina del Mediterraneo requires, see here). Thus, this supports, once more, the need to revise and reform the remedies directive, largely along the lines I drew in A Sanchez-Graells, "'If It Ain't Broke, Don't Fix It'? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts", in S Torricelli & F Folliot Lalliot (eds), Administrative Oversight and Judicial Protection for Public Contracts (Larcier, 2017, forthc)].

ECJ clarifies that reliance on third party capacities is not possible after the tenderer has been found not to comply with qualitative selection criteria (C-387/14)

In its Judgment of 4 May 2017 in Esaprojekt, C-387/14, EU:C:2017:338, the European Court of Justice (ECJ) provided clarification on some practical issues concerning the application of qualitative selection criteria to tenderers for public contracts seeking to rely on the capacities of third parties. The case is interesting because it concerns a situation where reliance on third party capacities is only sought once the contracting authority has reached a decision that the tenderer does not meet the relevant qualitative selection criteria on its own (or in the consortium configuration used in the submission of the initial tender).  

Thus, the case combines elements of clarification or supplementation of tender documentation with issues derived from the principles of non-discrimination, equal treatment and transparency. The Esaprojekt Judgment is based on the 2004 EU procurement rules (Dir 2004/18, Arts 2, 45, 48 and 51) but it is relevant for the interpretation of the 2014 rules as well (Dir 2014/24/EU, Arts 18, 19, 57 to 60, 63 and, specially, 56(3)).

In the case at hand, and in simple terms, the tenderer that submitted the preferred bid for the provision of IT services (Konsultant Komputer) had declared that it had the required previous experience through the execution of two contracts prior to the tender. However, on a challenge from a disappointed bidder (Esaprojekt), the contracting authority found that such previous experience was not acceptable because it did not concern contracts of the same type required in the tender documentation. At this stage, Konsultant Komputer sought to 'complement' the documentation evidencing its experience by providing the contracting authority with "a new list of supplies in which it relied on the experience of another entity, Medinet Systemy Informatyczne sp. z o.o. concerning two supplies ... It also sent an undertaking from Medinet Systemy Informatyczne to provide, as an advisor and consultant, the resources necessary for the performance of the contract ..." (C-387/14, para 27).

The contracting authority was satisfied with the submission of such 'complement' to the previous documentation, but (unsurprisingly), this was challenged by Esaprojekt on the basis that "Konsultant Komputer ... had submitted false information and had failed to prove that it had fulfilled the conditions for participation in the procedure" (para 29). The Polish court referring the case for preliminary ruling to the ECJ condensed the main legal issues as concerning whether the EU procurement rules (1) "preclude an economic operator, when it supplements documents at the request of the contracting authority, from relying on supplies of services other than those it included in its initial bid or from being able to rely, in that regard, on supplies of services made by another entity on whose resources it did not rely in its initial bid" (para 30); (2) whether, in the circumstances of the case, "the economic operator is able to ... rely on the capacities of other entities where it does not itself fulfil the minimum conditions required in order to take part in the tender procedure for a service contract" (para 31); and (3) the need to determine "in which circumstances an economic operator may be held liable for serious misconduct and, therefore, be excluded from taking part in a public contract" due to the supply of incorrect or misleading information concerning its previous experience (para 32). However, the questions referred to the ECJ do not map these three legal issues, but rather raise some other (more specific) issues.

It will not be surprising to find that the ECJ, in general, declared that proceeding as Konsultant Komputer and the contracting authority did was not allowed under the relevant provisions. On the main point concerning whether there was a breach of the requirements derived from the procurement rules and the general principles of procurement, after relying extensively on the principled framework consolidated in Partner Apelski Dariusz, the ECJ clarified that "Konsultant Komputer submitted documents to the contracting authority which were not included in its initial bid after the expiry of the time limit laid down for submitting applications for the public tender concerned. In particular ... it relied on a contract performed by another entity and the undertaking by the latter to place at the disposal of that operator the resources necessary for the performance of the contract ... Such further information, far from being merely a clarification made on a limited or specific basis or a correction of obvious material errors ... is in reality a substantive and significant amendment of the initial bid, which is more akin to the submission of a new tender" (paras 41-42). Thus, "by allowing the presentation by the economic operator concerned of the documents in question in order to supplement its original tender, the contracting authority unduly favour[ed] that operator as compared with other candidates and, thereby, breache[d] the principles of equal treatment and non-discrimination of economic operators and the obligation of transparency which derives from them" (para 44).

The ECJ later addressed more specific issues. The following is thus just a short excerpt of the relevant parts of the Esaprojekt Judgment in relation to each of the issues--while some more critical reflections are saved for the final part of this post.

First, the ECJ considered the possibility of combining the knowledge and experience of two entities to meet a selection criterion where those entities do not separately have the capacities required to perform a particular contract, and where the contracting authority considers that the contract concerned cannot be divided and must thus be performed by a single operator. On that point, after slightly reinterpreting the question, the ECJ established that the relevant rules do "not allow an economic operator to rely on the capacities of another entity ... by combining the knowledge and experience of two entities which, individually, do not have the capacities required for the performance of a particular contract, where the contracting authority considers that the contract concerned cannot be divided, in that it must be performed by a single operator, and that such exclusion of the possibility to rely on the experience of several economic operators is related and proportionate to the subject matter of the contract which must be therefore performed by a single operator" (para 54).

Second, it considered the possibility for an economic operator that participates individually in an award procedure for a public contract to rely on the experience of a group of undertakings, of which it was part in connection with another public contract, irrespective of the nature of its participation in the performance of the latter. The ECJ found that the EU rules allow "an economic operator, for a particular contract, to rely on the capacities of other entities, such as a group of undertakings of which it is a member, so long as it proves to the contracting authority that that operator will have at its disposal the resources necessary for the execution of the contract" (para 60). Further, it clarified that "where an economic operator relies on the experience of a group of undertakings in which it has participated, that experience must be assessed in relation to the effective participation of that operator and, therefore, to its actual contribution to the performance of an activity required of that group in the context of a specific public contract" because, from a practical perspective, "an economic operator acquires experience not by the mere fact of being a member of a group of undertakings without any regard for its contribution to that group, but only by directly participating in the performance of at least part of the contract, the whole of which is to be performed by that group" and, consequently, "an economic operator cannot rely on the supplies of services by other members of a group of undertakings in which it has not actually and directly participated as experience required by the contracting authority" (paras 62-64).

Third, the ECJ was asked whether the possibility to exclude economic operators that are guilty of serious misrepresentation when supplying information requested by the contracting authority may be applied where the information is of such a nature as to affect the outcome of the call for tenders, irrespective of whether the economic operator acted intentionally or not. On this point, the ECJ concluded that the discretionary exclusion "may be applied where the operator concerned is guilty of a certain degree of negligence, that is to say negligence of a nature which may have a decisive effect on decisions concerning exclusion, selection or award of a public contract, irrespective of whether there is a finding of wilful misconduct on the part of that operator" (para 78) and, more explicitly, that "in order to sanction an economic operator which has submitted false declarations by excluding its participation in a public contract, the contracting authority is not required ... to provide evidence of the existence of wilful misconduct on the part of that economic operator" (para 72).

Finally, the considered whether EU procurement law allows an economic operator to justify compliance with an experience-based selection criterion by relying simultaneously on two or more contracts as a single contract (or, in other words, by combining different partial elements of experience), despite the fact that the contracting authority has not expressly provided for such a possibility either in the contract notice or in the tender specifications. On this point, the ECJ found that "it is conceivable prima facie that the experience necessary for the performance of the contract concerned, acquired by the economic operator in the performance of not one, but two or more different contracts, may be regarded as sufficient by the contracting authority and thereby enables that operator to win the public contract concerned" (para 85) and, therefore, "in so far as the possibility to rely on experience acquired in relation to several contracts has not been excluded either in the contract notice or in the tender specifications, it is for the contracting authority, subject to review by the competent national courts, to check whether the experience gained from two or more contracts, having regard to the nature of the works concerned and the subject matter and purpose of the contract concerned, ensures the proper performance of that contract" (para 87).

Overall, the level of clarification provided by the ECJ in the Esaprojekt should be welcome, although it also raises the broader issue of the extent to which national courts should be willing to engage in principles-based reasoning without referring extremely detailed references for preliminary rulings. There is a clear trade-off to be achieved between ensuring homogeneous interpretation of the EU public procurement rules and (not) overburdening the ECJ. If every case where the general principles of public procurement (now in Art 18(1) Dir 2014/24/EU) are applicable is referred to the ECJ, the system will not be able to cope. In my view, none of the issues raised in this case were particularly complex or controversial, and could have been resolved by general reference to the principles of equal treatment and transparency, which makes me wonder if there may not be a need for a different approach to these issues.

For example, discussion between practitioners has raised the issue whether it would be acceptable for an undertaking in a situation similar to Konsultant Komputer's first submission to 'complement' the selection documentation by supplying a fresh list of new own references (or references to its own experience not submitted in the original documentation). I would submit that it is not allowed. In my view, it is clearly not allowed if the experience has been gained after the date for the submission of tenders, because that establishes the relevant cut off point for the assessment of qualitative suitability (or responsiveness). And, also clearly (although it may be more debatable), this would not be allowed if the experience was gained before that date but the economic operator failed to include the relevant references in the original documentation. I think that this is the case because such an omission of previous experience is not observable by the contracting authority in view of the submitted documentation alone (how could it second guess whether the economic operator provided a full, or even the best, set of references?)--which, in my opinion, excludes it from the scope of application of the rules controlling the request for clarifications under both the Manova case law and the specific provisions of Art 56(3) Dir 2014/24/EU, except if the entire document concerning experience was missing (which would make the defect visible to the contracting authority). Functionally, I would think that this contributes to the manageability of the selection process, while being entirely compliant with the principles of equal treatment and non-discrimination.

Anyway, the point I am trying to make is that, if issues at this level of detail need to be clarified by the ECJ in relation with each of the provisions of the procurement directives, the potential gains of having regulation partly based on general principles will be lost. Therefore, I wonder if it would be possible to reconsider the need for preliminary references where the application of general principles could do.

ECJ extends justiciability of procurement infringements: No need to review the Remedies Directive? (C-391/15)

In its Judgment of 5 April 2017 in Marina del Mediterráneo and Others, C-391/15, EU:C:2017:268, the European Court of Justice (ECJ) issued another preliminary ruling on the scope of the Remedies Directive. The case required clarification on the concrete type of decisions that interested tenderers can challenge under the Remedies Directive.

In particular, the case sought clarification on whether the review procedures mandated by Art 2(1), and applicable to "decisions taken by the contracting authorities" (as per Art 1(1) Remedies Directive), had to allow a tenderer to challenge a decision by which the contracting authority allowed another economic operator to submit a tender in a public procurement procedure. That is, whether the Remedies Directive created standing to challenge exclusion and selection decisions that concerned other tenderers.

This issue can be seen as controversial because there are two ways in which the analysis can be framed. Firstly, it can be considered that a decision not to exclude (or to select) a competing tenderer does not necessarily produce adverse legal effects for other tenderers--and, consequently, there are no subjective rights to be protected at this stage. Secondly, and to the contrary, it can be considered that a decision that determines the number of competing tenderers among which the contracting authority needs to choose the awardee of the contract produces legal effects on all tenderers involved--and, consequently, there can be (soft?) subjective rights meriting protection both in decisions to exclude (vis-a-vis the excluded tenderer) and not to exclude (vis-a-vis all other tenderers).

The first approach to this issue would be closer to a strict interpretation of the procedural rights implicit in the participation in a procurement process--ie that unless a decision makes it impossible for a tenderer to continue its participation in the tender, there is no decision for which revision it has a legitimate interest / legal standing. The second approach is probably closer to a substantive interpretation of those same procedural rights, as well as supportive of a system of private oversight of compliance with (EU) public procurement law through private actions, where challenges on the basis of the illegality of exclusion and selection decisions are easier to accommodate.

In Marina del Mediterráneo, the relevant Spanish rules followed the first approach, and determined that: "the following acts may be the subject of the application [for judicial review]: (a) Contract notices, specifications and contractual documents laying down the conditions which will govern the procurement procedure; (b) Preparatory acts adopted in the tendering procedure, provided that they decide, directly or indirectly, the award of the contract, make it impossible to continue the procedure or to put up a defence, or cause irreparable harm to legitimate rights or interests. Acts of the procurement board which decide to exclude tenderers will be considered preparatory acts which make it impossible to continue the procedure; (c) Award decisions adopted by the contracting authorities" (C-391/15, para 11, emphasis added).

Thus, under Spanish law, a decision to exclude a tenderer can be challenged 'there and then' by the excluded tenderer, but a decision not to exclude (or to select) that tenderer can only be challenged by other tenderers at the end of the procedure (ie during standstill) and only on the basis of the illegality of the decision to award the contract to that particular tenderer and/or any of the preparatory acts for that decision. 

Therefore, by challenging the Spanish rule, the preliminary reference fundamentally--but rather implicitly--concerned the extent to which Arts 1(1) and 2(1) of the Remedies Directive can be transposed/interpreted in a way that limits the procurement decisions open to (separate, immediate) review to those that negatively affect the subjective rights of a tenderer (in a narrow construction), or whether those provisions create a catch-all category that makes (virtually) all decisions taken by the contracting authority along the procurement processes susceptible of (separate and particularised) review.

That not absolutely all decisions need to be subjected to the review procedures of the Remedies Directive was suggested on the basis of Commission v Spain (C‑214/00, EU:C:2003:276, para 80), where the Commission challenged the same Spanish rule for failing to ‘allow review to be sought of all decisions adopted by the contracting authorities, including all procedural measures, during the procedure for the award of public contracts’, and the ECJ rejected that maximalist approach on the basis that ‘the Commission has not established that that legislation does not provide adequate judicial protection for individuals harmed by infringements of the relevant rules of [Union] law or of the national rules transposing that law’. This could be seen as a decision purely on the (lack of) evidence adduced by the Commission. However, even if a wider reading of the ECJ decision is adopted to the effect that there may be procurement decisions that do not harm individual rights in a manner that merits (separate, immediate) review, the boundaries of the categories of decisions covered by the Remedies Directive remained all but fuzzy, and the extent to which Arts 1(1) and 2(1) of the Remedies Directive had to be interpreted in a restrictive or an expansive way required clarification.

It is worth stressing that AG Bobek (Opinion of 8 September 2016, C-391/15, EU:C:2016:651) was convinced by the first approach outlined above (ie a restrictive interpretation of the Remedies Directive) because constructing the remedies system "in such a broad and rather limitless way would mean that every single decision, however marginal and ancillary, could be immediately attacked, and the award procedure effectively halted. Yet, ... a reasonable balance must be struck between the different interests at stake in public procurement procedures, namely, the right of access to court and judicial review to challenge aspects of the procedure, on the one hand, and effectiveness of the overall procedure and judicial expediency, on the other" (para 34, footnote ommitted). 

Therefore, in an Opinion that seemingly tried to avoid declaring the necessary justiciability of (every) exclusion and selection decision, invited the ECJ to declare that national procedural rules could avoid subjecting those decision to direct (and specific) review provided that: "(a) the national legislation does not hinder immediate review of preparatory acts that produce adverse legal effects on undertakings; and (b) a plea of illegality of preparatory acts that do not produce adverse legal effects on undertakings, such as a decision to admit a candidate to a tendering procedure, can be made in support of an action against the final decision awarding the contract taken on the basis of those preparatory acts" (para 67) . 

In short, the ECJ disagreed with AG Bobek and found that, where there are allegations that a decision allowing a tenderer to participate in a procurement procedure was adopted in breach of EU public procurement law or the national legislation transposing it, national rules must class such decision among the preparatory acts of a contracting authority which may be subject to an independent judicial review--or, in simpler terms, that exclusion and selection decisions concerning other tenderers are open to the review procedures of the Remedies Directive. the reasons given by the ECJ are primarily that:

[the] broad construction of the concept of a ‘decision’ taken by a contracting authority is confirmed by the fact that Article 1(1) of [the Remedies Directive] does not lay down any restriction with regard to the nature or content of the decisions it refers to. Moreover, a restrictive interpretation of that concept would be incompatible with the terms of Article 2(1)(a) of that directive which requires Member States to make provision for interim relief procedures in relation to any decision taken by the contracting authorities (para 27).

And that:

... although [the Remedies Directive] has not formally laid down the time from which the possibility of review, as provided for in Article 1(1), must be open, the objective of that directive, as referred to in the preceding paragraph, does not authorise Member States to make the exercise of the right to apply for review conditional on the fact that the public procurement procedure in question has formally reached a particular stage ...  the fact that the national legislation at issue ... requires, in all cases, a tenderer to wait for a decision awarding the contract in question before it may apply for a review of a decision allowing another tenderer to participate in that procurement procedure infringes the provisions of [the Remedies Directive] (paras 31 and 34).

In my view, even if there are issues of consistency with previous case law that may require some additional fine tuning, there is no question that the ECJ has taken a very expansive approach to the interpretation of the Remedies Directive on this occasion, and that the thrust of the Marina del Mediterráneo Judgment reflects a wide approach to the provision of procurement remedies.

This puts significant pressure on domestic review procedures to ensure that virtually all decisions taken by a contracting authority can be challenged, and that the challenge is available as soon as possible -- and definitely before the award of the contract because as expressed in the "first and second recitals, [the Remedies Directive] is intended to strengthen the existing mechanisms, both at national and EU levels, to ensure the effective application of the directives relating to public procurement, in particular at a stage when infringements can still be corrected" (para 30). This is particularly relevant in view of the (unnecessary) declaration by the ECJ that "Articles 1(1) and 2(1)(a) and (b) of [the Remedies Directive have direct effect" (para 41), which will provide robust legal foundation to challenges against existing domestic rules on access to review procedures.

This approach is bound to further judicialise public procurement oversight through expanded justiciability of (exclusion, but not only) decisions, and puts renewed pressure on the development of more robust procurement review procedures by the Member States--possibly requiring a reform of the Remedies Directives themselves, as I discuss at length in "'If It Ain't Broke, Don't Fix It'? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts",  in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (forthcoming). In my view, this is not necessarily a blueprint for desirable regulatory reform and more thought needs to go into the balance between public compliance oversight and private enforcement of the EU public procurement rules. However, it seems out of the question that legal reform will be necessary (in Spain and elsewhere) and, in my view, that the European Commission abandoned the revision of the Remedies Directives too quickly.

New paper: Competition Infringements and Procurement Blacklisting

I have uploaded my last working paper of 2016 on SSRN. It is entitled "Competition Infringements and Procurement Blacklisting" and will appear in the Competition Law Journal next year. Its abstract is as follows:

In this article I explore the rules for the blacklisting of competition infringers under relevant EU and UK public procurement law, including their interpretation by the European Court of Justice. I also consider the practical difficulties for their enforcement by procurement professionals in the UK and suggest additional roles that the Competition and Markets Authority (CMA) and Crown Commercial Service (CCS) could have in order to facilitate their effectiveness. Finally, I also stress the existence of a trade-off between a more active enforcement of procurement blacklisting rules and the attractiveness of the CMA’s leniency policy. By way of concluding remarks, I set out a blueprint for targeted policy reform. I submit that this should include the development of mechanisms for the provision of CMA support to procurement professionals that identify indicia of bid rigging, the development of a policy on the imposition of procurement blacklisting as a sanction for competition law infringers, and the creation of a UK-wide blacklisting register operated by CCS.

The full reference for the paper is: Sanchez-Graells, Albert, Competition Infringements and Procurement Blacklisting (December 14, 2016). Forthcoming in the Competition Law Journal.. Available at SSRN: https://ssrn.com/abstract=2885278.

ECJ avoids providing guidance on intensity of judicial review of procurement decisions by sticking to strictly formalistic approach: The Gaping hole remains (C-171/15)

In its Judgment of 14 December 2016, Connexxion Taxi Services, C-171/15, EU:C:2016:948, the European Court of Justice (ECJ) has provided clarification on whether contracting authorities can decide to subject their decisions to exclude economic operators from procurement procedures to a proportionality assessment even where such assessment would deviate from the strict rules created in the tender documentation by the contracting authorities themselves.

In the case at hand, a Dutch contracting authority had published tender documents that seemed to create an automatic obligation to exclude by stating that: 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'. However, the contracting authority subsequently sought to rely on generally applicable Dutch administrative law (in particular, the Explanatory Memorandum of the law transposing the 2004 public procurement Directive) to subject the exclusion decision to a proportionality assessment. On the basis of that proportionality analysis, the contracting authority decided not to exclude the tenderer and to award it the contract.

This triggered the challenge by a competing tenderer, which claimed that, having found that the tenderer had been guilty of grave professional misconduct, the contracting authority was not in a position to make an assessment of proportionality. That assessment would have already been carried out by including the misconduct as an absolute ground for exclusion in the descriptive document. Given the wording of the latter, it was argued that it would be contrary to the principles of public access, transparency and equality in matters of administrative procurement for the contracting authority to have the power to assess the proportionality of the ground for exclusion.

The Dutch referring court asked the ECJ to consider whether Art 45(2) of Directive 2004/18/EC precluded a contracting authority from being obliged to assess under national law, and in accordance with the principle of proportionality, whether a tenderer which had been guilty of grave professional misconduct should be excluded from a contract. The referring court put particular stress on the fact that the ECJ had not adjudicated on the importance to be attached to the fact that, in the tender conditions, the contracting authority had provided for the rejection, without any examination of the substance, of any tender to which a ground of exclusion applies. In answering those questions, the ECJ decided to stick very closely to two of its lines of case law that, ultimately, create a very difficult (dis)functional situation.

First, following precedents in La Cascina and Others, C‑226/04 and C‑228/04, EU:C:2006:94, and in Consorzio Stabile Libor Lavori Pubblici, C‑358/12, EU:C:2014:2063, the ECJ reiterated that the discretionary exclusion grounds regulated in Art 45(2) Dir 2004/18 (and now in art 57(4) Dir 2014/24) do 'not provide for uniform application at EU level of the grounds of exclusion it mentions, since the Member States may choose not to apply those grounds of exclusion at all or to incorporate them into national law with varying degrees of rigour according to legal, economic or social considerations prevailing at national level. In that context, the Member States have the power to make the criteria laid down in Article 45(2) less onerous or more flexible' (C-171/15, para 29). This led the ECJ to establish that

31 As far as concerns the grounds for excluding a tenderer which has been guilty of grave professional misconduct from a contract, it is clear from the order for reference that [Dutch] legislation requires the contracting authority concerned, which establishes that the tenderer has been guilty of such misconduct, to determine, in accordance with the principle of proportionality, whether the tenderer should in fact be excluded.

32 Thus, it appears that that assessment of the proportionality of the exclusion makes the application of the ground of exclusion relating to grave professional misconduct laid down in Article 45(2)(d) of Directive 2004/18 more flexible ... Furthermore, it follows from recital 2 thereof that the principle of proportionality applies in a general manner to public procurement procedures (C-171/15, paras 31-32, emphasis added).

Ultimately, then, national legislation which requires a contracting authority to assess, in accordance with the principle of proportionality, whether it is in fact appropriate to exclude from a public contract a tenderer which has been guilty of grave professional misconduct is compatible with EU public procurement law (C-171/15, para 33).

Second, and in stark contrast with this seemingly functional and principles-oriented interpretation of the rules in Directive 2004/18/EC, the ECJ then moved on to adopt a very formalistic approach when considering the specific situation where the contracting authority would have excluded the possibility of such proportionality assessment in the tender documentation by establishing that exclusion on specific grounds would not be subjected to any substantive assessment. It may have been relevant at this point to know with more precision whether that would have been illegal under Dutch law for the tender documentation could be seen as contra legem (as, in my view, it would have been eg under Spanish law due to the public administration's duty to conduct its business with subjection to the applicable laws and regulations).

Be it as it may, the ECJ framed the issue in the following terms:

 36 It is conceivable that, when the contract documents are drafted, the contracting authority concerned may take the view, in accordance with the nature of that contract, the sensitive nature of the services which are its subject, and the requirements of professional honesty and reliability of the economic operators which arise from that, that the commission of grave professional misconduct must result in the automatic rejection of the tender and the exclusion of the tenderer at fault, provided that the principle of proportionality is observed when the seriousness of that misconduct is assessed.

37 Such a clause, inserted into the contract documents in unambiguous terms ... enables all economic operators which are reasonably well informed exercising ordinary care to be apprised of the requirements of the contracting authority and the conditions of the contract so they may act accordingly (C-171/15, paras 36-37, emphasis added).

I find these passages, and in particular para 36, very confusing. It seems to indicate that the contracting authority, despite the discretion it has in deciding to include as applicable the ground of discretionary exclusion due to grave professional misconduct in the tender documentation or not, remains bound to ensure that 'the principle of proportionality is observed when the seriousness of that misconduct is assessed'. That would, in and of itself, exclude the possibility of predetermining that the exclusion on that ground will be absolute and not subjected to any further (substantive) assessment. Therefore, making this be followed by para 37, where the contrary underlying position exists in the determination that setting a clause of automatic exclusion in unambiguous terms provides tenderers with a clear view of the requirements, is at least disconcerting.

The ECJ then decided to follow very formalistic precedents whereby 'the contracting authority must comply strictly with the criteria which it has itself laid down (see, to that effect, judgment of 10 October 2013, Manova, C‑336/12, EU:C:2013:647, paragraph 40 and the case-law cited) in the light, in particular, of Annex VII A, paragraph 17, to Directive 2004/18' (C-171/15, para 38). It also added that, following its more recent Judgment in Pizzo, C‑27/15, EU:C:2016:404, 'the principle of equal treatment requires tenderers to be afforded equality of opportunity when formulating their tenders, which therefore implies that the bids of all tenderers must be subject to the same conditions' and that 'the obligation of transparency requires that all the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner in the contract notice or specifications so that, first, all reasonably informed tenderers exercising ordinary care can understand their exact significance and interpret them in the same way and, second, the contracting authority is able to ascertain whether the tenders submitted satisfy the criteria applying to the contract in question' (for discussion, see here).

On the basis of this, the ECJ creates an argument whereby tenderers from different Member States will be less likely to submit tenders when they are affected by an exclusion ground because they may not be aware of the possibility of their exclusion actually being subjected to a proportionality assessment despite the explicit terms of the tender documents, which the ECJ considers domestic tenders would do. From that, the ECJ concludes that 'the assessment of the exclusion at issue in the light of the principle of proportionality, where the tender conditions of the contract concerned provide for the rejection of tenders which are covered by such an exclusion clause without any assessment of that principle, is liable to place the economic operators concerned in an uncertain position and adversely affect the principle of equal treatment and compliance with the obligation of transparency' (see C-171/15, paras 41-43). Ultimately, then, the ECJ considers that the decision to subject the decision whether to exclude the tenderer to a proportionality assessment despite the explicit terms of the tender documents was contrary to EU public procurement law.

Critical remarks

I find the Connexxion Taxi Services Judgment very confusing because it seems to answer two interconnected questions about the relevance and effectiveness of the general principles of public procurement in an intrinsically contradictory manner, and it seems to me that the ECJ has taken another step down the formalist road. In the case at hand, and following the proposals of Advocate General Campos Sánchez-Bordona (see here), I considered that it must be right that contracting authorities are always under a general obligation to act in a proportionate manner and, consequently, each decision they adopt needs to be proportionate under the circumstances and pro-competitive, and that ultimately 'a contracting authority must retain the power to assess, on a case-by-case basis, the gravity of the circumstances that would lead to exclusion of the tenderer. And ... it must also balance them against the effects that such exclusion would have on competition' [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 293, references omitted].  

Despite the fact that the Connexxion Taxi Services Judgment sticks to the traditional formalist approach whereby the Court does not allow contracting authorities to deviate from the strictures of the published tender documentation, and this must at this stage not come as a surprise, the decision strikes as particularly odd because the ECJ does not seem to give much weight to the general principle of proportionality--either as enacted under the disputed Dutch rules, or more generally under the EU public procurement rules themselves--despite having accepted that the general principle can (and should?) control all procurement decisions. Remarkably, the ECJ deviated from the more progressive and flexible approach advanced by the AG and also created a strange focus of analysis by moving from the assessment of the decision of the contracting authority to the potential incentives of participation for non-domestic economic operators in a way that I also find very formalistic and potentially misguided.

Considering Connexxion Taxi Services, Manova and other precedents together, what seems clear is that contracting authorities can only reduce the scope of their discretion by self-imposed restrictions published in the tender documents. Thus, they would be better off by publishing bare bones tender documents and then exercising administrative discretion subject only to compliance with general principles of public procurement, as well as applicable domestic rules. However, this would fly on the face of Pizzo where the way the contracting authority justifies its decisions does not result immediately from the tender documents, which then gives contracting authorities the contrary incentive to reiterate all domestic rules in the tender documentation.

Other than contradictory, these sets of case law are also extremely formalistic and ultimately built on a non-functional obsession with the integration of the single market that can get on the way of the development of sound public procurement practice. Ultimately, the general principles of public procurement should be there to create sufficient checks and balances and, in their generality, they should rank higher than tender documents. Actually, it is not foreign to the ECJ case law to consider that tender requirements that are disproportionate or discriminatory cannot be included in the tender documentation (or need to be set aside, or ultimately determine the ineffectiveness of the procurement exercise). Thus, it would be desirable for that logical hierarchy to remain a constant, even if it means that cross-border participation in procurement processes does not come at zero transaction costs and that interested undertakings need to make themselves familiar with the domestic rules of the jurisdiction in which they are tendering.

Beyond that, it also seems to me that the ECJ is inadvertently creating an absolute need for an exclusion-related special procedural phase, where tenderers other than those affected by potential exclusion have a justiciable right to force the contracting authority to review the circumstances of other tenderers. This is not necessarily an overall undesirable development, but it can be problematic in many ways, not least because the EU substantive and procedural rules are not adapted to that function [see A Sanchez-Graells, “‘If It Ain't Broke, Don't Fix It'? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts”, in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming]. 

Last, but not least, it is also worth noting that, by answering in the way it has, the ECJ has avoided the need to provide clarification on the requirements of intensity of judicial review of public procurement decisions at Member State level, on which AG Campos Sánchez-Bordona had put together a rather stringent and not uncontroversial proposal (see here). Unfortunately, then, given the ECJ's unwillingness to answer that question, we will continue puzzledly looking at the gaping hole that Prof Caranta identified in the ECJ's jurisprudence concerning public procurement remedies [see R Caranta, 'Many Different Paths, but Are They All Leading to Effectiveness?', in S Treumer & F Lichère (eds), Enforcement of the EU Public Procurement Rules, vol 3 European Procurement Law Series (Copenhagen, DJØF Publishing, 2011) 53, 84].

ECJ backs up tough Italian approach to exclusion of non-payers of social security contributions -- will this carry on under Directive 2014/24? (C-199/15)

In its Judgment of 10 November 2016 in Ciclat, C-199/15, EU:C:2016:853 (only in FR and IT), the European Court of Justice (ECJ) has issued a preliminary ruling concerning the compatibility with the pre-2014 EU public procurement rules (Dir 2004/18) of a set of Italian rules that mandates the exclusion of undertakings that have been found to have gravely failed to meet all their social security obligations at the time of the tender, and irrespective of any subsequent regularisation of the situation prior to the award of the contract, or even prior to the assessment of that situation by the contracting authority.

According to the relevant Italian rules, contracting authorities must exclude undertakings that have been definitively found to have committed serious offences regarding the payment of social security contributions in accordance with Italian legislation or that of the State in which they are established (C-199/15, para 8, own translation from French). The only tolerance against this ground of mandatory exclusion is that an offence against the social security will not be considered grave where the difference between the sums owed and those paid does not exceed EUR 100 and is less than 5% of the sums owed (C-199/15, para 11, own translation from French). 

The Ciclat case can be seen as a twin of the previous Judgment of 10 July 2014 in Consorzio Stabile Libor Lavori Pubblici (C-358/12, EU:C:2014:2063) where the ECJ assessed the compatibility with EU law of the same Italian rules for the exclusion of undertakings that have committed serious offences against the social security of their country of establishment, but in the context of the procurement of contracts below the EU thresholds. In that case, the ECJ considered that the Italian rule was compatible with Articles 49 TFEU and 56 TFEU and the principle of proportionality. Equally and unsurprisingly, in Ciclat, the ECJ has determined that

Article 45 of Directive 2004/18 ... does not preclude national legislation ... which obliges contracting authorities to consider as grounds for exclusion an offense in relation to the payment of social security contributions, which is established in a certificate automatically requested by the contracting authority and issued by the social security institutions, where such infringement existed at the date of participation in a tender, even if it no longer existed on the date of the award of the contract or that of the automatic control by the contracting authority (C-199/15, para 40, own translation from French). 

Despite not advancing EU public procurement law in any relevant way, the Ciclat Judgment can be criticised on two accounts.

First, because the ECJ ducked a relevant question of reverse discrimination due to the different documentary rules applicable to Italian companies (which were subject to the stringent system of automatic certification by the social security administration that gave rise to the case), whereas non-Italian EU tenderers could benefit from the greater flexibility of self-certification (see C-199/15, paras 38-39). At some point, the ECJ will have to stop avoiding problematic issues of reverse discrimination and start constructing a better line of case law that is more attuned to the needs of undertakings competing in an internal market.

Second, the Ciclat Judgment can be criticised for its excessive rigidity. Not only due to the lack of consideration of the very low threshold amounts of tolerance for unpaid social security contributions (or taxes)--which was already the position after Consorzio Stabile Libor Lavori Pubblici--but also due to the irrelevance given to an effective remediation of the infringement by the tenderer, which goes against trends aimed at facilitating substantial compliance and corporate (voluntary) self-cleaning. 

However, this second criticism may seem as not really relevant from a practical perspective in view of the greater flexibility that Article 57(2) Dir 2014/24 has introduced if compared with Art 45 Dir 2004/18 (see discussion here). Indeed, under the 2014 rules, exclusion on the basis of an infringement of social security law (or tax law), even if the infringement has been established by a judicial or administrative decision having final and binding effect in accordance with the legal provisions of the country in which it is established, this exclusion ground will cease to apply where "the economic operator has fulfilled its obligations by paying or entering into a binding arrangement with a view to paying the taxes or social security contributions due, including, where applicable, any interest accrued or fines."

But a close consideration of this provision shows that the moment in which consideration must be paid by the contracting authority to the remedial action taken by the tenderer that was initially found to infringe social security (or tax) law is not specified, and therefore left to the national implementing conditions adopted in each Member State on the basis of Art 57(7) Dir 2014/24. Thus, a possible reading of Ciclat would be to consider that it is compatible with EU procurement law to establish the last date for the submission of tenders as the cut-off date for the assessment of compliance with (or remedy of an infringement of) social security (and tax) law--to the exclusion of any remedial action taken before the contracting authority evaluates the tenders, or even before the contracting authority actually assesses compliance with exclusion and selection criteria. In my view, that would deprive the new rules in Art 57(2) [and, for the same reasons, in Art 57(6) on self-cleaning] of practical effect.

Consequently, the Ciclat Judgment keeps adding reasons to the need to establish a special inter partes procedure where the contracting authority gives a chance to the undertaking to clarify its current situation of compliance or not with social security (and tax) requirements [but, more generally, in relation to any exclusion ground the contracting authority aims to enforce] before proceeding to its effective exclusion. This is not only a practical need, but a requirement derived from the general principles in the EU public procurement Directives and, more generally, the duty of good administration of Art 41 of the Charter of Fundamental Rights of the European Union. Fur further discussion of this important issue, see A Sanchez-Graells, "If it Ain't Broke, Don't Fix It’? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts", to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (Larcier, 2017) forthcoming.

AG delineates boundaries of administrative proportionality assessments and intensity of judicial review requirements under EU public procurement law (C-171/15)

In his Opinion of 30 June 2016 in Connexxion Taxi Services, C-171/15, EU:C:2016:506, Advocate General Campos Sánchez-Bordona has addressed two important issues concerning the judicial review of a decision not to exclude an economic operator that had potentially incurred in serious professional misconduct despite the tender documentation indicating that 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'.

The preliminary reference sent to the Court of Justice of the European Union (CJEU) mainly raises two issues: firstly, whether it was possible for the contracting authority to apply a proportionality assessment before proceeding to exclude the economic operator--or, in the circumstances of the case, in order to decide not to exclude. And, secondly, whether EU law precluded national courts from solely engaging in ‘marginal’ review as to whether the contracting authority could reasonably have come to the decision not to exclude a tenderer notwithstanding the fact that that it was guilty of grave professional misconduct, rather than carrying out an ‘unrestricted’ judicial review of the assessment conducted on the basis of the principle of proportionality. Both are interesting issues. Both were to be decided under the 2004 EU public procurement rules, but both are clearly relevant under the revised 2014 package.

Again on the interaction between general (administrative) law and tender documentation

The first issue fundamentally stems from the fact that applicable Dutch law and its interpretative guidance foresee that 'the assessment of whether a tenderer must actually be excluded, having regard to the general principles of Directive 2004/18, must always be proportional and be carried out in a non-discriminatory manner' (Opinion in C-171/15, para 10). In the Connexxion Taxi Services case, the contracting authority engaged in such proportionality assessment despite having published tender documentation that seemed to create an automatic obligation to exclude by stating that: 'A tender to which a ground for exclusion applies shall be set aside and shall not be eligible for further (substantive) assessment'. As a result of the proportionality analysis, it decided not to exclude a tenderer competing with Connexxion , according to which 'the contracting authority [was] not in a position to make an assessment of proportionality having found that the tenderer [had] been guilty of grave professional misconduct. That assessment [had] already been carried out by inclusion of the misconduct as a ground for exclusion in the descriptive document. Given the wording of the latter, it would be contrary to the principles of public access, transparency and equality in matters of administrative procurement for the contracting authority to have the power to assess the proportionality of the ground for exclusion.' (para 30). 

Somehow, this raises a question that can be seen as the mirror image of the controversy underlying the recent Pizzo Judgment (C-27/15, EU:C:2016:404, see comments here). In Pizzo, the contracting authority sought to rely on generally applicable administrative law rules to exclude economic operators. The CJEU ruled against that possibility and created a middle-path whereby a contracting authority seeking to engage in that exclusion would need to provide the tenderer an opportunity to regularise its position and comply with that general obligation within a period of time set by the contracting authority. Conversely, in Connexxion Taxi Services, the CJEU is expected to rule on whether reliance on generally applicable administrative law rules can be used to deactivate specific exclusion choices established in the tender documentation. AG Campos submits that the Court should answer in the affirmative and that this is not contrary to Pizzo. I agree.

In his Opinion, AG Campos stresses that

51. The requirement included in paragraph 3.1 of the descriptive document (‘a tender to which a ground for exclusion applies must be set aside’), precisely because of its quasi-regulatory nature, must, in my view, be read in the light of the interpretative rules applicable to all subordinate legal rules, which cannot disregard the more general rules which govern them. If the [applicable rule] provides that exclusion on the ground of grave professional misconduct requires that the contracting authority examine each particular case ‘on the basis of the nature and size of the public contract, the type and scope of the misconduct and the measures taken in the meantime by the undertaking’, the fact that the descriptive document is silent as to that necessary and individual application of the principle of proportionality cannot result in that principle being disregarded.

52. That approach is confirmed from the perspective of EU law. The case-law of the Court on the optional grounds for exclusion, rejecting their automatic application, confirms the need for that consistent interpretation. It follows from the judgment in Forposta and ABC Direct Contact that automatic exclusion (of a tenderer guilty of grave misconduct) could go beyond the discretion conferred on Member States by Article 45(2) of Directive 2004/18 (Opinion in C-171/15, paras 51-52, references omitted and emphasis added).

In my view, it must be right that contracting authorities are always under a general obligation of acting in a proportionate manner and, consequently, each decision they adopt needs to be proportionate under the circumstances and pro-competitive, and ultimately 'a contracting authority must retain the power to assess, on a case-by-case basis, the gravity of the circumstances that would lead to exclusion of the tenderer. And it is submitted that it must also balance them against the effects that such exclusion would have on competition' [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 293, references omitted]. Thus, the final consideration of AG Campos seems entirely correct when he stresses that

In the invitation to tender at issue, the conditions and the selection procedure, the same for all applicants, were not modified. The contracting authority checked that their tenders satisfied the criteria applicable to the contract and applied no ground for exclusion which was not provided for in the descriptive document. The fact that, in order to assess one of those grounds for exclusion expressly included in that document it applied the criterion of proportionality, which was not expressly referred to in the descriptive document but is required by the general ... rules on public procurement (as well as by the case-law of the Court), is, in my view, consistent with the principle of equal treatment and its corollary, the obligation to act transparently (Opinion in C-171/15, para 58, references omitted and emphasis added).

The more difficult issue of the standard of (intensity) of judicial review

The second question fundamentally focuses on the fact that, given the contracting authority's engagement in a proportionality analysis, a mere 'marginal' review of the decision in order to ascertain whether the contracting authority could reasonably have come to the decision not to exclude a tenderer could fall short of meeting the requirements of the Remedies Directive.

After some interesting remarks on the gradual increase in the requirements of intensity of judicial review in areas of EU substantive law where there has been a harmonisation of remedies--which, consequently, reduce the scope of limitations derived from the general principle of procedural autonomy--AG Campos enounces what he considers should be covered by a mechanism of review compliant with the Remedies Directive. In his view,

the judicial review imposed by Directive 89/665 requires something more [than a mere 'marginal' review, or solely assessing whether or not the contested decision was arbitrary] to deserve that name. The assessment by the court cannot end with a mere assessment of the ‘reasonableness’ of the contested decisions, especially as those decisions must comply with detailed rules covering formal and substantive matters. A court hearing an application in this field will have to assess whether the disputed award observed the rules of the invitation to tender and whether the successful tenderer’s application can withstand the critical analysis which its competitors present in the action. That assessment will require, in many cases, verification of the decisive facts (which the administration may have determined incorrectly), as well as evidence concerning the relative merits of the various applications. It will also involve gauging whether the administrative action is duly reasoned and whether it is in line or at variance with the objectives which underlie it (in other words, whether there is evidence of misuse of powers) and the other legal provisions which govern it. Examination of all that evidence goes beyond, I repeat, a mere assessment of the ‘reasonableness’ of the contested measure and involves matters of fact and law of a more ‘technical’ and usually more complex nature, which every court having jurisdiction to review administrative acts usually carries out (Opinion in C-171/15, para 73, emphasis added). 

This leads him to suggest to the Court to declare that 

Articles 1 and 2 of Council Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts are not compatible with legislation, or the usual practice, of a Member State which limits the scope of the review procedures to a review merely of the reasonableness of the decisions of contracting authorities (Opinion in C-171/15, para 85, emphasis added).

On principle, this seems unobjectionable and, as AG Campos suggests, it would also be compatible with the CJEU decision in Croce Amica One Italia (C-440/13, EU:C:2014:2435, see comment here), where it effectively clarified that

Article 1(1) of Directive 89/665 requires the decision of the contracting authority withdrawing the invitation to tender for a public contract to be open to a review procedure, and to be capable of being annulled, where appropriate, on the ground that it has infringed EU law on public contracts or national rules transposing that law (para 34).

The question is whether (all) the specific details of the full review advanced by AG Campos in para 73 of his Opinion are necessary in order to allow the review body or court to assess compatibility of procurement decisions with EU law and domestic transposing measures. As I read his Opinion, he advocates for three main components: (1) a review of the decisive facts, (2) a review of the relative merits of the offers, (3) a review of the reasons given by the contracting authority for its choices and the soundness of those reasons (or, in his own words, to check that there has been no misuse of powers). In my view, elements (1) and (3) are relatively uncontroversial. However, element (2) is very likely to create difficulties if the review body or court is expected (or empowered) to second guess the technical evaluation of the tenderers and their tenders. I think that the risk of allowing review courts and bodies to substitute the contracting authority's discretion for their own would be going a step too far. Thus, while the minimum requirements of the review procedures mandated by the Remedies Directive clearly seem to indicate the need to go beyond a mere assessment of arbitrariness and engage in a full review of legality, it also seems clear to me that the review cannot go as far as to allow for a second-guessing of the contracting authority's discretion. 

This is clearly an area where drawing bright lines is complicated or, as AG Fennelly put it writing extra judicially,

There remains a somewhat imprecise formulation of the standard of substantive review. Respect, to the extent appropriate, is paid to the discretion of the awarding authority. Nonetheless, the cases show that the intensity of scrutiny is greater than in traditional cases, where judges have been very slow to substitute their own evaluation of the facts for that of the decision-maker. In tendering, it is natural, other things being equal, to expect the contract to be awarded to the lowest price. Even where the criterion adopted is the “most economically advantageous,” there will usually be an identifiable lowest price. It will normally be incumbent on the authority to claim that other things are not equal and to show why. Thus, the substantial justification for the decision shades into the adequacy of the reasons, even if sufficiency of reasons is usually treated as a separate ground of judicial review (emphasis added). 

It may well be that this discussion is more about the semantics than substance of how to describe the standard for judicial review. Be it as it may, however, it will be interesting to await for the final decision of the Court in the Connexxion Taxi Services case, which hopefully will bring some clarity on the specific requirements of intensity of judicial review that stem from the Remedies Directive.

Interesting short paper on public procurement and competition law: Blažo (2015)

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.

New Paper: "Exclusion of Economic Operators from Public Procurement Procedures. A Comparative View on Selected Jurisdictions"

I have uploaded a new paper on SSRN, entitled: 'Exclusion of Economic Operators from Public Procurement Procedures. A Comparative View on Selected Jurisdictions'. In this paper, I focus on issues that may be relevant for Member States transitioning from the exclusion rules under Directive 2004/18 towards those in Directive 2014/24. 

In the more elaborate terms of the abstract:

This chapter takes a comparative view on the rules applicable to the exclusion of economic operators from public procurement procedures covered by the EU rules. It focuses on seven Member States (France, Germany, Italy, Portugal, Romania, Spain and the United Kingdom) and in their law, administrative and judicial practice under the framework created by Directive 2004/18. When possible, the chapter also looks into the likely changes that the transposition of Directive 2014/24 will bring about, particularly in those of the covered jurisdictions that have been quicker to move towards its transposition (namely, France, the United Kingdom and, to some extent, Germany).

The chapter pays attention to both substantive and procedural issues regarding the exclusion of economic operators. Given that the 2004 framework was limited to substantive provisions (ie grounds for exclusion included in art 45 dir 2004/18), one would expect to see convergence on substantive issues, as well as a relatively high level of variety in both the procedural setting, the legal mechanisms and the actual practice of exclusion of economic operators. This chapter tests this intuition by looking in detail at several substantive and procedural regulatory choices adopted by the Member States, mostly under the 2004 framework. It then reflects on the implications of those findings for the implementation of the revised 2014 framework for the exclusion of economic operators from procurement procedures. The chapter submits that for discretion-oriented Member States the main challenges will revolve around compliance with the Charter of Fundamental Rights of the European Union, whereas for procedure-oriented Member States the challenges will lie in trying to gain advantage of the flexibility afforded by the new rules in Directive 2014/24, as well as to avoid liability for the imposition of unjustified requirements on economic operators.

As always, comments most welcome. The full citation of the paper is A Sanchez-Graells, 'Exclusion of Economic Operators from Public Procurement Procedures. A Comparative View on Selected Jurisdictions', in M Burgi & M Trybus (eds), Qualification, Exclusion and Selection in EU Procurements, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) forthc. Available at SSRN: http://ssrn.com/abstract=2739363.