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

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

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

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

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

Background to the TenderNed case

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

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

As explained in more detail by the CJEU,

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

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

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

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

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

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

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

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

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

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

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

The (in)divisibility test in TenderNed

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

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

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

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

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

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

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

The application of the test in TenderNed

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Final thoughts

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

Funding of in-house entities, CPBs and risks of state aid, some thoughts re Aanbestedingskalender (T-138/15)

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In its Judgment of 28 September 2017, Aanbestedingskalender & Others v Commission, T-138/15, EU:T:2017:675, the General Court (GC) rejected a complaint against a previous Commission decision (SA.34646) that the Netherlands had not breached EU State aid rules by funding TenderNed--an in-house e-procurement platform run by PIANOo, the tendering expertise centre for the Dutch government. The complaint derived from the fact that, prior to the creation of TenderNed, private providers of e-procurement services had been offering their services to Dutch contracting authorities. The creation of TenderNed and the offering of services free of charge to contracting authorities by this in-house entity logically killed the e-procurement services industry (or a part of it), which triggered the complaint. The circumstances of the case raise some issues that would be common to any intervention by a Member State that in-sourced (or nationalised) previously outsourced services, but the legal challenge was limited to State aid considerations.

In a nutshell, the GC decided that the Netherlands was not in breach of EU State aid law because TenderNed is not an undertaking, in the sense that it is not engaged in an economic activity because its services are closely linked to the exercise of public powers by the Dutch State and the Dutch contracting authorities that use this service. The State aid aspects of the Judgment are insightfully discussed in more detail by Prof Nicolaides.

Reading the case, one of the statements by the GC that caught my attention was that "e-procurement was a service of general interest, and not an inherent economic activity, which could be commercially exploited so long as the State did not offer that service itself" (para 108). In this post, I offer some thoughts on the potential implications of this finding for the funding of in-house entities and of central purchasing bodies (CPBs), in particular if the EU Courts were to take further steps down the road of considering the exercise of the procurement function non-economic and/or a service of general economic interest (SGEI)--and, in so doing, I pick up on some of the issues discussed in more detail in A Sanchez-Graells & I Herrera Anchustegui, 'Impact of Public Procurement Aggregation on Competition: Risks, Rationale and Justification for the Rules in Directive 2014/24', in R Fernández Acevedo y P Valcárcel Fernández (eds), Centralización de compras públicas (Madrid, Civitas, 2016) 129-163.

The consideration of e-procurement as an SGEI

In its Judgment, the GC arrived to the position that e-procurement is an SGEI on the basis of the following:

... the claim that, because commercial platforms offer services similar to those of TenderNed, the Commission should have concluded that TenderNed’s activities are economic in nature, does not take into consideration the developments that have taken place in the e-procurement market.

In that respect, it must be noted that that market had developed before Directives 2014/24 and 2014/25 were adopted and imposed an obligation on the Member States to implement e-procurement in those States. The fact that that obligation was decided upon at EU level implies that it was considered important to put in place mechanisms which would ensure greater effectiveness and transparency in public procurement. As the Slovak Republic indicated in its statement in intervention, the trend in the development of public procurement systems in Europe is towards e-procurement. The fact that Directives 2014/24 and 2014/25 were adopted is indicative of the intention to harmonise public procurement within the European Union, through actions by the Member States, so that it is carried out electronically throughout the European Union.

In addition, the Netherlands authorities stated ... that the existing commercial platforms did not offer the conditions relating to price, objective quality characteristics, continuity and access to the services provided that would be necessary to fulfil the general interest objectives established by those authorities.

Thus, in the light of those developments in public procurement rules, driven by public interest considerations, the Commission was entitled to state ... that e-procurement was a service of general interest, and not an inherent economic activity, which could be commercially exploited so long as the State did not offer that service itself (T-138/15, paras 105-108, emphases added).

In my view, this part of the Aanbestedingskalender Judgment is particularly weak because the arguments of EU harmonisation and unsatisfactory private supply can hardly be considered determinative of the nature of SGEI of a given service. The 2014 Public Procurement Package imposes an obligation to carry out e-procurement, but that does not make this an SGEI, as the competence to establish what an SGEI lies with the Member States (see Art 14 and Protocol No 26 TFEU). Moreover, if private provision is unsatisfactory, the Member State could opt to regulate minimum standards mandatory for all private (or public) providers. The Member State could also have established a framework agreement or other mechanism for the provision of the services by a non-in-house entity, or created public service obligations linked to the provision of e-procurement services. Thus, the conclusion that the evolution of the regulation of e-procurement at EU level implies its treatment as an SGEI is far from justified.

The original reasoning of the European Commission is equally unconvincing

Such services might have previously been needed because of the complexity of legislation, the lack of user-friendliness of analogue or digital tools offered by the government services, or because companies find it more convenient to outsource such activities. However, the State does not forego the right to carry out an activity that it deems necessary to ensure its public bodies comply with their statutory obligations by acting at a point in time when private operators – perhaps due to lack of prior action by the State – have already taken the initiative to offer services to the same end. Ensuring public authorities comply with their statutory obligations by channelling public procurement may be an economic activity for the complainants. It is not, however, an inherent economic activity, but rather a service of general interest, which can be commercially exploited only so long as the State fails to offer that service itself (SA.34646, para 68, reference omitted and emphasis added).

This fails to properly characterise the nature of the activities, which I think are better understood as the provision of the IT services and infrastructure necessary to carry out e-procurement, rather than as a public power of channelling procurement to an electronic platform (which is what the 2014 Public Procurement Package has done, or tried to do).

Moreover, this is functionally contrary to the position taken in the 2016 Notice on the notion of State aid, which explicitly establishes that '[t]he decision of a public authority not to allow third parties to provide a certain service (for example, because it wishes to provide the service in-house) does not rule out the existence of an economic activity. In spite of such market closure, an economic activity can exist where other operators would be willing and able to provide the service in the market concerned. More generally, the fact that a particular service is provided in-house has no relevance for the economic nature of the activity' (para 14). In this case, it seems clear that the creation and funding of TenderNed is functionally equivalent to the reservation of activity (which contracting authority would pay a private provider for the services it can get for free from TenderNed?) and it is obvious that there are third parties willing to provide those services (the complainants). Consequently, the position reached in the case at hand does not make much sense.

The functional incompatibility is even larger when contrasted with a different passage of the same Notice on notion of State aid, which foresees that

The fact that the authorities assign a public service to an in-house provider (even if they were free to entrust that service to third parties) does not as such exclude a possible distortion of competition. However, a possible distortion of competition is excluded if the following cumulative conditions are met: (a) a service is subject to a legal monopoly (established in compliance with EU law); (b) the legal monopoly not only excludes competition on the market, but also for the market, in that it excludes any possible competition to become the exclusive provider of the service in question; (c) the service is not in competition with other services; and (d) if the service provider is active in another (geographical or product) market that is open to competition, cross-subsidisation has to be excluded. This requires that separate accounts are used, costs and revenues are allocated in an appropriate way and public funding provided for the service subject to the legal monopoly cannot benefit other activities (para 188, references omitted).

In the TenderNed case, it was clear that 'while contracting authorities and special sector entities may ultimately be obliged to publish their offers via TenderNed, they are not prohibited from using other platforms like those of the complainants in parallel. Likewise, the Dutch authorities have emphasised that private e-procurement platforms can export TenderNed notifications on their own portal as well as import their notices to TenderNed. Commercial operators are, in other words, free to develop a differentiated offer of public procurement-related services in terms of quality or added value' (SA.34646, para 69, reference omitted and emphasis added). Therefore, the existence of a situation with potential anticompetitive effects derived from the public funding of TenderNed would hve required careful analysis, but for the finding that its activities are covered by the public power exemption (ie are non-economic, and thus TenderNed is not an undertaking; and not so much for their potential classification as an SGEI).

In my view, these functional inconsistencies are problematic. The simple reasoning that because EU procurement law mandates (or encourages) a specific form or modality of procurement, this means that it is an SGEI or a non-economic activity (which is also unclear in the reasoning highlighted above) is tricky and potentially problematic. In a case such as TenderNed, and even if TenderNed does not offer services to private buyers and does not receive any payments from contracting authorities and is centrally funded by the Dutch government, this is problematic because it has the impact of wiping out an entire industry (or category of services within an industry). And, in other cases where the entity considered to be carrying out an SGEI offers other types of non-SGEI services to the public or private sector, because of the potential additional distortions of competition in those neighbouring markets. The latter case would concern in-house and CPB if they were to be classed as SGEIs.

The consideration of in-house provision and/or CPB activities as SGEIs

Together with e-procurement, two other main areas of reform in the 2014 Public Procurement Package concerned the expansion of the in-house exemption (Art 12) and the more detailed and expansive regulation of the activities of central purchasing bodies (CPBs, Art 37). In both cases, the fact that contracting authorities assign contracts directly to these entities raises important risks of distortions of competition where there is private provision for the relevant works, goods or services. Thus, the award of public contracts under the exemptions foreseen in Arts 12 and 37 of Directive 2014/24/EU generates risks of State aid (see G S Ølykke, 'Commission Notice on the notion of state aid as referred to in article 107(1) TFEU - is the conduct of a public procurement procedure sufficient to eliminate the risk of granting state aid?' (2016) 25(5) Public Procurement Law Review 197-212), and the continued stream of revenue derived from reserved or directly awarded public business can put the undertaking in a favourable position when competing with other entities for private or non-in-house public business.

One potential defence against claims of violation of EU competition law and/or State aid law by in-house entities or CPBs would thus concern the possibility of classifying their activities as SGEIs (regarding CPBs, this is a claim Ignacio Herrera and I dispelled in the article referred to above, and similar arguments apply for in-house entities). And, if the thrust of the approach in the Aanbestedingskalender Judgment was to be followed, the European Commission and national competition authorities could be tempted to consider that in-house provision or CPB activities are SGEIs, solely on the basis that these are activities promoted or facilitated in the 2014 Public Procurement Package and, concerning CPBs, in subsequent Commission policy. However, in my view, this would be a wrong justification for the classification of those activities as SGEIs.

What would be the implications?

The main implication of classing an activity as an SGEI is that it both (i) allows the Member State to shield the entity providing the SGEI from compliance with competition rules "in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them" (Art 106(2) TFEU, and (ii) Member States have increased freedom for the funding of SGEIs than for the granting of other types of State aid [see generally, A Sanchez-Graells, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing Services of General Economic Interest: Reform and Modernization, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181]. A fundamental element in this extended discretion for the funding of SGEIs is that an EU-compliant procurement exercise excludes the existence of State aid under the so-called Altmark fourt condition. This has been developed in some more detail in the 2016 Notice on the concept of State aid (paras 89 and ff), but it still assumes that an EU-compliant procurement is, for these purposes, one where there is a public tender and an element of competition--a position that the 2013 Guide to the application of the European Union rules on state aid, public procurement and the internal market to services of general economic interest, and in particular to social services of general interest does not completely clarify.

Therefore, the conundrum that a broad classification of in-house or CPB activities as SGEIs would create is that, in a setting where the direct award of contracts (however lucrative or benefitial) to in-house entities or CPBs is compliant with the rules in Directive 2014/24/EU (Art 12, Art 37(1), Art 37(4)) despite not having involved any element of competition, and where the conditions of those contracts cannot be tested against EU State aid rules because a very broad understanding of the public power exclusion of the classification of an activity as economic, and therefore of the in-house entity or CPB as an undertaking for the purposes of Art 107(1) TFEU, there may be no rule capable of controlling the channelling of public funds to these entities, regardless of the distortions in the market that their activities would create--which would also be excluded from assessment under the core competition rules of Arts 101 and 102 TFEU precisely for the same reason of the entities not being classed as undertakings due to the non-economic nature of their activities.

On the whole, then, I think that the greatest threat that results from the thrust of the Aanbestedingskalender Judgment is that too broad an understanding of what procurement activities imply the exercise of public powers, and an overlapping consideration of procurement activities as SGEI would lead to a complete exclusion of the applicability of all EU competition law mechanisms in this large sector of the economy. This would be an expansion of the problems derived from the FENIN-Selex doctrine, and one which I think requires urgent reconsideration by competition enforcers and, in particular, the European Commission [for in-depth discussion of the shortcomings of the FENIN-Selex doctrine, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) ch 4].

New paper with extended comments on EasyPay from a public procurement perspective (C-185/14)

Ignacio Herrera Anchustegui, from the Faculty of Law of the University of Bergen, and I have just uploaded on SSRN a new paper where we offer comments from a public procurement perspective on the Judgment of the Court of Justice of the European Union of 22 October 2015 in EasyPay and Finance Engineering, C-185/14, EU:C:2015:716 (for an initial reaction, see here).

As the abstract details,
In EasyPay and Finance Engineering (C-185/14), the Court of Justice of the European Union (CJEU) has revisited the concept of undertaking for the purposes of the application of EU competition law. It has clarified the test applicable to economic agents engaging in ‘mixed’ economic and non-economic activities. The EasyPay test determines that, in order not to be qualified as “economic” because of its links with another activity that fulfils an exclusively social function based on the principle of solidarity and entirely non-profit making, an activity must, by its nature, its aims and the rules to which it is subject, be inseparably connected to it. In the paper, we discuss how the CJEU has arguably given a stricter interpretation and adopted a less lenient approach to the severability or separation of activities than in previous cases like FENIN, Selex or Compass-Datenbank. In our view, this interpretation is anchored on a functional analysis of the concept of undertaking, and it is a welcome development that will have far reaching implications.

Beyond that general discussion, the paper focuses on the potential implications of the EasyPay test in the area of public procurement and, in particular, for the activities of central purchasing bodies. We submit that EasyPay facilitates a revision of the current position regarding the direct applicability of EU competition law to entities carrying out public procurement activities and, in particular, central purchasing bodies. We also submit that this is highly desirable because it grants legal certainty to economic operators when dealing with a central purchasing body, to the effect that the purchasing activities will be under competition law and the derived constrains on the market behaviour of large public buyers that may abuse of their buyer power.
The paper is available as: Sanchez-Graells, Albert and Herrera Anchustegui, Ignacio, Revisiting the Concept of Undertaking from a Public Procurement Law Perspective – A Discussion on Easypay and Finance Engineering (C-185/14) (November 26, 2015). Available at SSRN: http://ssrn.com/abstract=2695742.

New paper on intersection of competition law and public procurement

During the Spring of 2014, Dr Jonathan Galloway and Dr Francesco De Cecco of the Newcastle Law School organised a seminar series on ‘The Intersections of Antitrust: Competition Law and…’ and I was fortunate to be invited to present my views on the interaction between competiton law and public procurement. A condensed re-run of the presentations will take place in London on 15 September 2015 in a joint LSE/Newcastle event.

This seminar series is now turning into an edited collection to be published by Oxford University Press. I have uploaded my contribution on SSRN, which abstract is as follows:
The interaction between competition law and public procurement has been gaining visibility in recent years. This paper claims that these two bodies of EU economic law mainly intersect at two points, or in two different dimensions.

Firstly, they touch each other at the need to tackle anticompetitive practices (or bid rigging) in public tenders. This has attracted significant attention in terms of the enforcement priorities of competition authorities and led to recent regulatory developments in the 2014 EU public procurement Directives aimed at increasing the sanctions for bid riggers.

Secondly, competition and public procurement cross again at the need to avoid publicly-created distortions of competition as a result of the exercise of buying power by the public sector, or the creation of regulatory barriers to access to public procurement markets. This second intersection has been less explored and the development of regulatory solutions has been poor in both the fields of EU competition law and EU public procurement law. Moreover, the protection of the ‘public mission’ implicit in the public procurement activity led the CJEU to deform the concept of undertaking in a way that can distort EU antitrust enforcement beyond public procurement markets.

This paper assesses these issues and stresses the possibilities for a better integration of competition considerations in public procurement through the principle of competition of the 2014 Directives. 
Full details of the paper are: A Sanchez-Graells, 'Competition Law and Public Procurement', in J Galloway (ed), Intersections of Antitrust: Policy and Regulations (Oxford, OUP, 2016).

Why are NHS Commissioners 'undertakings' and, consequently, subject to competition law?

Some months ago, I held an interesting email exchange with some readers of my paper New Rules For Health Care Procurement in the UK. A Critical Assessment from the Perspective of EU Economic Law. They basically challenged my understanding of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 on the basis that NHS Commissioners could not be considered undertakings and, hence, their decisions should remain outside the scope of application of competition rules.
 
However, I thought and still think that NHS Commissioners are 'undertakings' for the purposes of (EU) competition law enforcement. These are the main reasons why I think so (apologies to non-competition law readers for the amount of 'slang' in this post, which reproduces parts of the email exchange.
 
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Regarding the treatment of NHS commissioners as undertakings, I think that the FENIN/Selex exemption is inapplicable and probably I should have made this clear in my paper (I simply assumed that this would not be controversial). As you probably know better that myself, the reason for that is basically that (most) GPs are engaged in economic activity as self-employed providers of services to the NHS (http://www.nhscareers.nhs.uk/explore-by-career/doctors/pay-for-doctors/) under the so-called General Medical Services Contract (http://www.nhsemployers.org/PayAndContracts/GeneralMedicalServicesContract/Pages/Contract.aspx). Indeed, they hold contracts for the provision of those services and, consequently, everything that they procure or commission needs to be assessed in light of such ‘downstream’ or parallel economic activity (which, in my view, immediately deactivates the FENIN/Selex exemption). Moreover, GPs located in a given area are in competition between themselves in order to attract patients and retain them, and that has an impact on their level of remuneration by the NHS. All this indicates that they do engage in economic activity ‘downstream’ or in parallel to the services and goods that they commission and purchase in their public procurement (‘upstream’?) activities. That is enough to justify the direct applicability of competition law (EU and domestic) to their activities.
In my view, this conclusion is robust even if those services are generally not directly paid for by the end users in most of the cases, since that should not affect either: 1) their inclusion within the scope of application of EU internal market law (C-372/04 Watts, dealing particularly with the NHS, although with hospital care provision), or 2) the fact that GPs are undertakings, as the requirement of provision of services in the market for remuneration does not require direct payments; under the classic formulation of the concept of an undertaking, it encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed. So, I guess that the largest point of disagreement between us is that you may consider that GPs (individually or collectively as part of a Clinical Commissioning Group, CCG) are not engaged in economic activity. However, as self-employed providers of services, I think that that assessment would not be in line with the generally functional approach to the concept of undertaking and that it is not covered by the FENIN/Selex case law. I do not think that GPs would be covered by the ‘social’ exclusion for systems based on solidarity either, given that the system in the UK promotes choice and competition and, by itself, that goes against the requirements of mandatory participation that the CJEU has included in its sickness funds-relate case law.
Finally, I also think that there would be a possibility of circumventing any possible exclusion of the (direct) applicability of the rules to the GPs and CCGs as undertakings (or groupings/associations of undertakings) via a State action doctrine approach (basically, on the basis of Cipolla) given that the UK as a State has delegated economic decisions on a type of organs (CCGs) that are in a structural (mild?) conflict of interest when they adopt commissioning (economic) decisions and, consequently, liability (of the UK) could be found on the basis of Art 4(3) + 101 TFEU. That would clearly justify the consideration and application of EU competition rules by Monitor as the ultimate watchdog in charge of ensuring compliance with (EU and UK) competition rules—as it is indeed co-competent with the new CMA in the healthcare sector. Again, you may consider this a weak legal basis, but I would disagree with that.

Another step back in the definition of (public) undertakings for the purposes of EU competition law

Earlier this year, Advocate General  Jääskinen issued his opinion in case C‑138/11 Compass-Datenbank GmbH v Republik Österreich, and I criticised his approach here (in Spanish). The Court of Justice of the EU issued his final Judgment last 12 July 2012 and has substantially followed AG Jääskinen's approach in deciding that
[...] the activity of a public authority consisting in the storing, in a database, of data which undertakings are obliged to report on the basis of statutory obligations, in permitting interested persons to search for that data and/or in providing them with print-outs thereof does not constitute an economic activity, and that public authority is not, therefore, to be regarded, in the course of that activity, as an undertaking, within the meaning of Article 102 TFEU. The fact that those searches and/or that provision of print-outs are carried out in consideration for remuneration provided for by law and not determined, directly or indirectly, by the entity concerned, is not such as to alter the legal classification of that activity (Compass-Datenbank at para. 51).
In my view, the position of the CJEU in Compass-Datenbank is another step in the wrong direction when it comes to applying the concept of 'undertaking' for the purposes of competition law to public bodies developing (actual) economic activities--which follows the already criticised approach in FENIN (C-205/03 P, 11 July 2006) and Selex (C-113/07-P, 26 March 2009) [see http://ssrn.com/abstract=1458949].

Just like it did in FENIN and in Selex, in Compass-Datenbank the CJEU has adopted an economically unsound approach towards the definition of 'economic activity' by finding that:
In the light of the entirety of that case-law, it must be observed that a data collection activity in relation to undertakings, on the basis of a statutory obligation on those undertakings to disclose the data and powers of enforcement related thereto, falls within the exercise of public powers. As a result, such an activity is not an economic activity.
Equally, an activity consisting in the maintenance and making available to the public of the data thus collected, whether by a simple search or by means of the supply of print-outs, in accordance with the applicable national legislation, also does not constitute an economic activity, since the maintenance of a database containing such data and making that data available to the public are activities which cannot be separated from the activity of collection of the data. The collection of the data would be rendered largely useless in the absence of the maintenance of a database which stores the data for the purpose of consultation by the public (Compass-Datenbank at paras. 40 and 41, emphasis added).
In my view, this reasoning falls again in the deffect (or misleading argument) of pegging an activity that is clearly economic (ie maintenance and exploitation of the database) to a non-economic activity (creation of the database by mandatory disclosure and reporting) and considering them non-separable despite the fact that there is no technical or economic hurdle to do so. It is quite telling that the CJEU does not provide any reasons for the finding that the creation of the database and its ulterior economic exploitation 'are activities which cannot be separated'.

Reality seems to indicate otherwise, and there are several Member States (like Spain), where private companies successfully use the databases created by public authorities or chambers of commerce as a result of the mandatory disclosure and reporting of corporate statements and accounts--and there is no clear technical or economic barrier for this market not to flourish in Austria or any other country. Some additional facts or arguments on the non-separability of the activities would have been extremely desirable in order to understand the reasoning behind the CJEU's decision in Compass-Datenbank (which, in my opinion, results exclusively from the hands-off approach the CJEU has been keeping for too long in connection with the antitrust treatment of public undertakings).

The position of the CJEU is equally criticisable when it comes to disregarding the expliotation of IP rights by public entities as an instance of 'economic activity' for the purposes of EU competition law. In its very broad terms, the position in Compass-Datenbank equates to a blank exclusion of public IP-related activities from competition scrutiny, as the Court found that:
[...] a public entity which creates a database and which then relies on intellectual property rights, and in particular the abovementioned sui generis right, with the aim of protecting the data stored therein, does not act, by reason of that fact alone, as an undertaking. Such an entity is not obliged to authorise free use of the data which it collects and make available to the public. [...] a public authority may legitimately consider that it is necessary, or even mandatory in the light of provisions of its national law, to prohibit the re-utilisation of data appearing in a database such as that at issue in the main proceedings, so as to respect the interest which companies and other legal entities which make the disclosures required by law have in ensuring that no re-use of the information concerning them is possible beyond that database  (Compass-Datenbank at para. 47, emphasis added). 
Once again, this does not make any functional sense. If the whole purpose of collecting and disseminating the corporate information in the first place is to guarantee that third parties dealing with the undertakings concerned have reliable access under reasonable economic conditions to information that may be crucial for their dealings and market activities, identifying a public interest in keeping the use of such information limited is simply a non sequitur. Therefore, there does not seem to be a good justification for the exclusion of IP rights' exploitation as an economic activity as such either.

Finally, the CJEU enters into a circular reasoning when it comes to appraise whether the fact that the public body obtains revenues makes any difference in the analysis:
The fact that the making available of data from a database is remunerated does not have any bearing on whether a prohibition on the re-use of such data is or not economic in nature, provided that that remuneration is not itself of such a nature as to enable the activity concerned to be classified as economic [...]. To the extent that the remuneration for the making available of data is limited and regarded as inseparable from it, reliance on intellectual property rights in order to protect that data, and in particular to prevent its re-use, cannot be considered to be an economic activity. Such reliance is, accordingly, inseparable from the making available of that data (Compass-Datenbank at para. 49, emphasis added).
Some questions spring to mind as to how to determine at which point remuneration for any services alter their classification from a non-economic (ie free?) to an economic (ie profit-making) activity. Other than that, if the generation of revenue depends on its source for the purposes of determining whether the revenue-generating activity is economic or not, then it is not a separate criterion and this type of circular reasonings should be avoided to prevent unnecessary confusion in the CJEU's case law.

In short, in my opinion, the position of the CJEU in Compass-Datenbank  simply defies the economic rational underlying the functional approach towards the concept of undertaking in the previous case law--which defines it as any entity that carries out an 'economic activity', regardless of its legal nature and source of financing. If 'economic activities' are not properly identified (as in FENIN, Selex and, now, Compass-Datenbank), the concept of 'undertaking' becomes unjustifiedly narrow and leaves unscrutinised public (actually economic) activities that raise significant competition law concerns (in the Compass-Datenbank due to the existence of a legal monopoly that excludes the existence of competition in the market for company information services). One cannot avoid wondering whether the analysis of the situation under the 'essential facilities doctrine' in Microsoft (Case T-201/04, 17 September 2007) would offer the same results (ie whether similar actions by a private undertaking would qualify as 'economic activities' and, hence, trigger tough antitrust intervention).

In conclusion, simply, I consider the recent Judgment of the CJEU in Compass-Datenbank  another step back in the definition of (public) undertakings for the purposes of EU competition law.