Specific exclusions for service contracts under Reg.10 Public Contracts Regulations 2015

Following the list of specific derogations in Art 10 of Directive 2014/24, reg. 10 of the Public Contracts Regulations 2015 (PCR2015) lists a significant number of services contracts that are excluded from the procurement rules of its Part 2. 

Under the specific exclusions for service contracts, a relatively large number of categories are excluded concerning rental of land, existing buildings or other immovable property, audiovisual and radio programmes, arbitration and conciliation services, legal services, financial services, loans, employment contracts, civil defence, rail and metro transportation services, as well as political campaigns. These exclusions are exactly the same at domestic and EU level and some of them have been included as a result of the suppression of Part B services in the 2014 rules. 

In my view, some of the justifications are easier to support than others. All those concerned with legal services seem quite problematic, though, as there seems to be no clear advantage for the public sector in having unfettered discretion to choose its legal counsel. Similar considerations make the exclusion of financial services dubious. 

Other professional services are covered by the rules in Dir 2014/24 and the PCR2015, which raises the question of which difficulty would there be to choose appropriate providers of legal and financial services under the applicable rules (eg, through a competitive procurement with negotiation with particular requirements in terms of experience and accreditation of the specific members of staff to provide the services, in the case of legal services; or through reverse electronic auctions within a dynamic purchasing system for the provision of financial services, which seems rather close to the liquidity auctions that central banks have been conducting for decades anyway).

In my view (and Pedro's to a large  extent), then, the list of exclusions is excessive and should be pruned. Obviously, one cannot expect the UK to do so unilaterally, particularly in view of the relevance of its legal and financial sectors. However, I would put such a reduction of the list of exclusions in my wishlist for the next round of reform of the EU rules.

Procurement pursuant to international rules under Reg.9 Public Contracts Regulations 2015

Reg.9 of the Public Contracts Regulations 2015 (PCR2015) establishes an exemption for public contracts awarded, and design contests organised, pursuant to international rules and, once more, it follows very closely (but improves) the drafting of Art 9 of Directive 2014/24 (see Pedro's remarks). 

Reg.9 PCR2015 (and art 9 Dir 2014/24) basically creates three specific rules. Firstly, it creates space for compliance with international law obligations, which can become more and more relevant in the immediate future as the EU exercises its external relations powers.

Secondly, it creates a specific criterion that money rules, so that procurement funded by international organisations or international funders is subjected to their procurement processes (this can, however, create difficulties in the integration of rules where the international organisation/funder relies on domestic procedures for all or part of the procurement process, which could create a spiral of cross-referrals). 

Thirdly, it allows for negotiated solutions to mix-funded projects, where the international organisations/funders only provide part of the funds. In this case, it seems logical to require that the applicable rules are at least subjected to requirements of equivalence and effectiveness, so as to avoid infringement of general Treaty rules and the general principles of public procurement (see art 18 dir 2014/24 and reg. 18 PCR2015). 

Finally, reg.9(4) PCR2015 (and art 9(3) dir 2014/24) introduces an (unnecessary) cross-referral to the rules applicable to defence and security procurement for those cases in which the specific "international" procurement concerns goods, works or services covered by the special rules (see reg.17 PCR2015  and art 17 dir 2014/24).

This is a topic where Dr Baudouin Heuninckx has expertly written on repeated occasions [see "Applicable Law to the Procurement of International Organisations in Europe" (2011) 20(4) Public Procurement Law Review 103-22, as well as his Private Contribution to the Commission Green Paper on the modernisation of EU public procurement policy (2011)], so it is worth re-reading his proposals for improvement of the previous rules.

In my view, even if the 2014 rules now implemented by the PCR2015 have created some clarity (cf art 15 Dir 2004/18), there still seems to be room for clarification as to the concepts of "international organisation" or "international financing institution", as well for the introduction of a safeguard clause in case the procedures to be followed under other rules create a gap in scope of coverage or result in otherwise undesirable protectionism or direct award of contracts. However, these are issues that deserve separate analysis and do not affect the PCR2015 exclusively, so they are saved for some other time.

An interesting different take on public procurement decision-making (reference to Crowder, 2015)

I have just read an interesting piece of research that sheds different light on public procurement decision-making processes. That short, accessible and interesting piece, [M Crowder, "Public procurement: the role of cognitive heuristics" (2015) 35(2) Public Money & Management 127-34] explores the cognitive heuristics of public procurement processes. As the abstract makes clear

Public procurement processes have been extensively studied, but previous research has not sought to explain public procurement in terms of cognitive heuristics. This paper examines the award of a large public sector contract and outlines how the decisions were made. Heuristics were used throughout the process. Three heuristics—EBA [elimination by aspects], conjunctive, and WADD [weighted additive]—were used in combination to reduce the number of bidders for the contract from a somewhat unmanageable 63 down to four. This paper allows the underlying stages to be viewed from this perspective and therefore it explores procurement in a way that sheds new light on the processes involved.

The paper is easy to follow if one has some experience in public procurement evaluation or, absent that, some knowledge of the rules on exclusion, qualitative selection and short-listing of tenderers [for a summary of the rules under the new Directive 2014/24, see 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]. As the conclusions stress, the paper shows

that procurement decisions can be explained in terms of cognitive heuristics. The EBA heuristic makes a decision on the basis of a single aspect; the conjunctive heuristic makes a decision on the basis that a number of requirements are all met; and the WADD heuristic makes a decision by weighing up various factors and offsetting the good against the bad. This was reflected in the procurement under study, where the number of bidders under consideration was reduced in precisely this way.

The paper offers a good perspective to complement our understanding of procurement decision-making and provokes some thoughts on how to better regulate these processes in order to avoid weaknesses derived from cognitive biases. 

This is an area that promises to open roads towards interdisciplinary efforts to incorporate the insights of psychology and other sciences into legal research on public procurement. And this seems to me like an area of high research potential, so it may be worth keeping an eye on it!

Specific exclusions in the field of electronic communications under Reg.8 Public Contracts Regulations 2015

Reg.8 of the Public Contracts Regulations 2015 (PCR2015) sets certain Specific exclusions in the field of electronic communications, which apply to the exploitation of public communications networks or the provision to the public of one or more electronic communications services by contracting authorities, as defined in Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services. 

Reg.8 PCR2015 adopts the almost exact wording of art 8 Directive 2014/24, with the only addition that the reference to the definitions included in Directive 2002/21 includes "as amended from time to time", which creates a dynamic referral to avoid future amendments, should the EU rules change.

Other than that, this is a provision that deserves no further comment (see Pedro's, though).

Utilities' exclusion under Reg.7 Public Contracts Regulations 2015

Reg. 7 of the Public Contracts Regulations 2015 (PCR2015) sets the exclusion from its Part 2 rules for utilities-related procurement, which is instead covered by the Utilities Contracts Regulations 2006 (SI 2006/6, as amended--and which are now to be adjusted to the rules of Directive 2014/25, either through a repeal or further amendment). Reg.7 PCR2015 significantly departs from the structure and content of Art 7 of Directive 2014/24 on exclusions applicable to the water, energy, transport and postal services sectors (see Pedro's comments here).

 Art 7 Dir 2014/24 establishes a direct cross-reference to Dir 2014/25 and excludes from its own rules the public contracts and design contests that are either covered by Directive 2014/25 or expressly excluded from its scope of application. Instead of following the same approach, reg.7 PCR2015 keeps a "domestic" list of exclusions with references to the definitions and schedules of activities of the Utilities Contracts Regulations 2006. 

This creates the practical difficulty of assessing the compatibility or otherwise of such "old" definitions and schedules with the new coverage of Dir 2014/25 (and art 7 Dir 2014/24). However, given that the scope of application of the utilities rules has not been altered significantly in the 2014 revision (ie, Dir 2004/17 and Dir 2014/25 have almost the same scope of application), this is not a significant practical problem. 

Indeed, "[t]he only change in this regard is in relation to the energy sector where the exploration for oil and gas [is] no longer be regulated" [T Kotsonis, "The 2014 Utilities Directive of the EU: codification, flexibilisation and other misdemeanours" (2014) 23(4) Public Procurement Law Review 169-187, 170]. Such exclusion for exploration is included in reg.7(e)(iii) PCR2015.

Hence, it seems that the coordination of the scope of application of the PCR2015 and the Utilities Contracts Regulations 2006 remains aligned with the coordination provisions of Dir 2014/24 and Dir 2014/25.

Methods for calculating the estimated value of procurement under Reg.6 Public Contracts Regulations 2015

After having cross-referred to Directive 2014/24 regarding the value thresholds that trigger compliance with its Part 2 rules, reg.6 of the Public Contracts Regulations 2015 (PCR2015) establishes the Methods for calculating the estimated value of procurement. The rules under reg.6 PCR2015 also follow extremely closely those of art 5 Dir 2014/24, with some minor drafting changes and a renumbering and consolidation of subsections that provides some improvements. There are two points that deserve some comments (Pedro's are here).

Firstly, the only difference in drafting that is worth emphasizing concerns the timing of the calculation of the estimated value of the procurement. While art 5(4) Dir 2014/24 indicates that the "estimated value shall be valid at the moment at which the call for competition is sent ..." (emphasis added), reg.6(7) PCR2015 indicates that the "estimated value shall be calculated as at the moment at which the call for competition is sent ..." (emphasis added). 

The consequences of this divergence depend on how literally the rules are interpreted. Under a strict literal interpretation, reg.6(7) PCR2015 seems more limiting for contracting authorities, as it imposes a positive obligation to calculate the estimated value at a specific time (ie dispatch of the relevant notice or start of the procurement), whereas art 5(4) Dir 2014/24 requires a check of (a previous?) calculation at that time. However, it seems clear that contracting authorities need to actually check the estimated value at the same point in time either under reg.6(7) or art 5(4), which makes the drafting rather irrelevant in practical terms.

Secondly, it is worth stressing that reg.6(14) keeps references to values in Euro when it comes to exempt the award of contracts for individual lots. This creates a significant problem of a financial moving target that Pedro identified in his previous post (although I disagree with the fact that it applies to reg.5 PCR2015 as well). As Pedro rightly stressed, the problem with keeping values in Euro 

is that Central Government decided to trade certainty in practice for lawmaking simplicity. It can be argued that the new way is the correct one to ensure sterling values do not deviate from the original euro ones ... but the price to pay is to force every single public procedure close to those values to be manually checked by the contracting authority before tender. Furthermore, for really close call cases it is not clear what is the correct approach to determine the exchange rate applicable: is it the mid-market value? The end of day? Is it the value from the day before launching the procedure or when the decision of launching a procedure is being taken? (emphasis added).

Given that the European Commission has been including the corresponding values in currencies other than Euro for the 80,000 and 1,000,000 thresholds in its previous communications for these purposes, it would have been much more preferable for the UK Government to follow the technique used in relation to the thresholds covered by reg.5 PCR. 

Indeed, they should have extend the rule under reg.5(4), whereby "The value in pounds sterling of any amount expressed in euro in any of the provisions of the Public Contracts Directive ... shall be taken to be the value for the time being determined by the Commission for the purpose of that provision and published from time to time in the Official Journal in accordance with Article 6 of the Public Contracts Directive. This would have avoided significant legal uncertainty and would have reduced the administrative costs to contracting authorities willing to benefit from this derogation to compliance with the rules of Dir 2014/24 in the award of "low-value" lots. 

Postscript

Pedro has spotted the issue of the difficulty in valuing framework agreements or innovation partnerships and has raised the issue of "a perverse incentive for contracting authorities to establish framework agreements with procurement values below thresholds to avoid any sort of transparency. Now let's marry this idea with a short initial term of the framework (say, one year) which [coincidentally] justifies a below-threshold calculation value and that the framework then gets extended to the maximum 4 year period afterwards." I agree with the existence of the risk, however, I think that this is the sort of issue clearly covered by the anti-circumvention prohibition in art 5(3) Dir 2014/24 and reg.6(5) and 6(6) PCR2015, which clearly set out that "The choice of the method used to calculate the estimated value of a procurement shall not be made with the intention of excluding it from the scope of this Directive [Part]. A procurement shall not be subdivided with the effect of preventing it from falling within the scope of this Directive, unless justified by objective reasons."

The following are my comments on this issue, as they will be soon published in A Sanchez Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 261-63.

Specific rules have been developed to deter such strategic use of public procurement thresholds, or the unjustified resort to ‘unregulated’ public procurement activities. As regards the strategic conduct of public procurement below the thresholds set by the EU directives on public procurement, article 5(3) of Directive 2014/24 expressly states that the object of public contracts may not be subdivided to prevent its coming within the scope of the directive. More specifically, it establishes that the choice of the method used to calculate the estimated value of a procurement shall not be made with the intention of excluding it from the scope of this Directive,[1] and that a procurement shall not be subdivided with the effect of preventing it from falling within the scope of this Directive, unless justified by objective reasons.

The latter caveat allowing for the objective justification of a subdivision of a contract that makes it fall below the relevant thresholds was not present in the equivalent rule of art 9(3) dir 2004/18 (‘No works project or proposed purchase of a certain quantity of supplies and/or services may be subdivided to prevent its coming within the scope of this Directive’). It is submitted that this new caveat is prone to create significant litigation, particularly if the European Commission identifies numerous instances of recourse to ‘objective reasons’ on the part of the Member States and the latter argue for a broad interpretation of the exception—which should be rejected.[2] However, given the additional explanation provided in recital (20) of Directive 2014/24, it is submitted that the addition of the caveat is largely irrelevant and only aimed at a further prevention of the artificial split of contracts in the framework of centralised procurement. In that regard, it is important to take into account that, according to the recital, the rationale for the ‘objective reasons’ caveat is that

For the purposes of estimating the value of a given procurement, it should be clarified that it should be allowed to base the estimation of the value on a subdivision of the procurement only where justified by objective reasons. For instance, it could be justified to estimate contract values at the level of a separate operational unit of the contracting authority, such as for instance schools or kindergartens, provided that the unit in question is independently responsible for its procurement. This can be assumed where the separate operational unit independently runs the procurement procedures and makes the buying decisions, has a separate budget line at its disposal for the procurements concerned, concludes the contract independently and finances it from a budget which it has at its disposal. A subdivision is not justified where the contracting authority merely organises a procurement in a decentralised way (emphasis added).

In my view, then, the caveat should be interpreted as creating a strengthened requirement for a justification that intends to escape the rule on prohibited division of contracts on the basis of (allegedly) objective reasons and, particularly, aims to anticipate and prevent potential infringements of the EU rules by contracting authorities that manage (de)centralised procurement systems. Generally speaking, however, the discussion seems to need being re-oriented towards the definition of contracting authority and the recouse to collaborative procurement (below).

Generally, though, the anti-split or anti-circumvention rule is clear and establishes a prohibition of strategic use of public procurement thresholds. To be sure, these rules do not prevent contracting authorities from splitting or dividing the contracts into as many lots as they deem fit or objectively justified (on issues regarding the division of contracts in lots and the aggregation of lots, see below §II.A.xviii), but rather focus on their obligation to take the aggregate value of those lots into consideration when determining whether the relevant thresholds are met—and, hence, whether their award should be conducted pursuant to the rules of the EU directives on public procurement (see art 5(8) and 5(9) dir 2014/24).[3] Consequently, the prohibition on circumventing the application of the directives is not violated per se by dividing the contracts in lots, but only by failing to treat those lots as a single economic and technical unit and, consequently, by failing to award them in compliance with public procurement rules.[4]

This prohibition has also been clearly interpreted by the EU judicature, which has provided guidance as to what constitutes an ‘artificial’ division of the object of a contract to circumvent public procurement rules—by putting emphasis on the criterion of the economic and technical unity of the object of the various contracts whose award should have been conducted jointly.[5] Therefore, a public buyer that artificially divided into separate contracts or purchases certain of its requirements that should objectively be considered to constitute a single economic and technical unit would be found in breach of the EU directives on public procurement. A different dimension is that of the temporal compatibility between the spread of the needs and the periodicity of the contracts or purchases conducted by the public buyer.[6] Where a significant mismatch can be identified—ie, when purchases below the thresholds occur too often—the public buyer should equally be found in breach of the EU public procurement rules, since the conduct of an excessive number of purchases or the conclusion of an excessive number of contracts should equally be considered an artificial split of the object of the contract in circumvention of the EU rules.

From a competition perspective, the rule against the artificial division of the contract to exclude it from public procurement rules seems to be sound and, in general, should prevent the exercise of strategic public procurement below the thresholds. Nonetheless, it is suggested that, when exercising their discretion as regards the need to group their requirements into a single or few contracts—rectius, when assessing the extent of the obligation not to split them—contracting authorities should not only bear in mind a criterion of strict proportionality (between the inconveniencies and costs of running a procurement process and the unity or separability of its requirements), but also the principle of competition. In cases where the application of the proportionality principle might be neutral towards the aggregation or not of contracts, competition considerations might become relevant. In those cases, if recourse to public procurement rules can generate increased competition for the contract—or, put otherwise, if the conduct of ‘unregulated’ procurement activities might generate a negative impact on market dynamics—the contracting authority should opt for the aggregation of its requirements and the conduct of the corresponding tender. The same criteria apply to both the conduct of procurement below EU and national thresholds, since the competition element is equally important in both cases. In the end, it is submitted that public buyers should not divide their requirements to avoid compliance with public procurement rules not only when it is unwarranted or disproportionate, but also when it could result in a negative impact on market competitive dynamics.

---

[1] For a discussion on the very problematic use of intentional elements in the 2014 Directives and, in particular, in the context of the principle of competition embedded in art 18 dir 2014/24, see above ch 5, §III.

[2] Case C-394/02 Commission v Greece [2005] ECR I-4713 33; Case C-337/05 Commission v Italy [2008] ECR I-2173 57; C-250/07 Commission v Greece [2009] ECR I-4369 17.

[3] It is important to stress that the system allows for certain flexibility and that, despite the rules preventing the artificial split into lots in art 5(8) and 5(9) dir 2014/24, contracting authorities may award contracts for individual lots without applying the procedures provided for under the Directive, provided that the estimated value net of VAT of the lot concerned is less than EUR 80 000 for supplies or services or EUR 1 million for works. However, the aggregate value of the lots thus awarded without applying the Directive shall not exceed 20 % of the aggregate value of all the lots into which the proposed work, the proposed acquisition of similar supplies or the proposed provision of services has been divided (art 5(10) dir 2014/24).

[4] Along the same lines, although with reference to the equivalent provisions in Directive 93/38, see Opinion of AG Jacobs in case C-16/98 Commission v France 34–37. From the opposite perspective, analysing whether the improper or artificial aggregation of contracts that do not constitute a single economic and technical unity could result in a breach of the same provisions, see Opinion of AG Mischo in case C-411/00 Swoboda 53–64. In very clear terms, the ECJ concluded that the purpose that inspires these provisions ‘(the concern to avoid any risk of manipulation) also precludes a contracting authority from artificially grouping different services in the same contract solely in order to avoid the application in full of the directive to that contract’; see Case C-411/00 Swoboda [2002] ECR I-10567 58.

[5] Case C-16/98 Commission v France [2000] ECR I-675; and Case C-412/04 Commission v Italy [2008] ECR I-619 72. See also Opinion of AG Jacobs in case C-16/98 Commission v France. Similarly, albeit in less elaborated terms, see Opinion of AG Kokott in case C-220/05 Auroux 65 fn 58; Opinion of AG Ruiz-Jarabo Colomer in Case C-412/04 Commission v Italy 85–88; and Opinion of AG Mengozzi in case C-237/05 Commission v Greece 76–79. See also Opinion of AG Trstenjak in Case C-271/08 European Commission v Federal Republic of Germany 165. For recent cases discussing the splitting of contracts, see T-384/10 Spain v Commission [2013] pub. electr. EU:T:2013:277 and T-358/08 Spain v Commission [2013] pub. electr. EU:T:2013:371. Both of them respectively appealed as C-429/13 and C-513/13, which will give the ECJ an opportunity to update its doctrine on the artificial split of contracts. (*)

[6] The temporal dimension was also analysed, although in a limited way, in the Opinion of AG Jacobs in case C-16/98 Commission v France 71.

(*) The text of the foonote indicates that the appeals are pending due to the fact that I closed the 2nd edition of the bookin the fall of 2014. Both cases have now been decided by the CJUE: C-429/13 and C-513/13. I am grateful to Jonn Sannes Ramsvik for having raised this issue to my attention.

Threshold amounts under Reg.5 Public Contracts Regulations 2015

I know that Pedro will feast (*) on the rules applicable to Threshold amounts under reg.5 of the Public Contracts Regulations 2015 (PCR2015), as he has been working on the issue of value thresholds and cross-border interest for quite a while now [see his "The Good, the Bad and the Ugly: EU's Internal Market, Public Procurement Thresholds and Cross-Border Interest" (2013) 43 Public Contract Law Journal 3-25, with an interesting Editor's Note by Prof Schooner, one of our commonly admired procurement gurus]. 

Also, we are due to have an in person face-off about this in the coming Public Procurement: Global Revolution VII Conference in Nottingham in June (workshop A7). Hence, I will restrict my comments to the transposition of the regulation itself and a criticism of the continued disconnect that they create with the case law of the CJEU, at least as a matter of tendency. This is something I already criticised in relation with the concessions Directive 2014/23 here, so I will try to avoid repetition.

As far as reg.5 PCR2015 goes, there is not much to say really. Reg.5(1) simply creates a system of referrals to the thresholds set by Art 4 of Directive 2014/24. On its part, reg.5(2) refers to the conversion of those amounts into pounds sterling according to the rules of Art 6 Dir 2014/24. Hence, the transposition is rather automatic and ensures that it can be applied in a dynamic way without need for reform each time the European Commission reviews the applicable value thresholds.

However, reg.5 may be more important for what it does not do. It does not clarify what rules are applicable below the relevant value thresholds and perpetuates a situation whereby the 

"United Kingdom had not adopted specific legislation regulating low value public procurement ... Consistent with an historical reluctance to regulate low value public procurement, the United Kingdom legislator has not extended the application of the Directives to contracts below EU thresholds ... Instead, this field of activity is governed primarily by general policy guidance promulgated at the national level as well as individual rules adopted by procuring authorities" [L Butler,"Below threshold and Annex II B service contracts in the United Kingdom: A common law approach", in R Caranta and D Dragos (eds) Outside the EU Procurement Directives—Inside the Treaties?, vol. 4 European Procurement Law Series (Copenhagen, DJØF, 2012) 283, 285].

Interestingly, then, and as already pointed out during the drafting of the PCR2015,

Contracts worth less than the threshold figures would not, generally, be subject to the new public procurement rules, although a number of Lord Young's recommendations on opening up public sector procurement opportunities and removing barriers to SME participation are set to be implemented in the new legislation and would apply to 'below threshold' contracts that are above certain minimum levels – £10,000 for central government contracts and £25,000 for any other public sector contract [Out-law, 24.09.14, Public bodies can deviate from procurement process under reforms outlined by Cabinet Office, emphasis added].

Of course, this is a legitimate regulatory strategy. However, it is also one that significantly increases risks of non-compliance in case threshold values are improperly calculated (on that, see comment to reg.6 PCR2015) and, more generally, leaves UK (England & Wales) contracting authorities open to legal challenge on the basis of the general principles of EU public procurement law (now in reg.18 PCR2015, also to be commented), at least where cross-border interest can be found. 

Now that significant (excessive?) flexibility has been introduced in Dir 2014/24, particularly as the use of procedures involving negotiations are concerned, it seems that the UK has lost an opportunity to re-imagine its procurement rules and create a system applicable to contracts of all values. However, this is a project that would take too long to explain here, and one in which I am planning to work in the coming months.

Postscript

(*) Pedro's contribution to the debate came on the same day as the comment above. He takes issue with the cross-reference of values that reg.5 PCR2015 makes to art 4 Dir 2014/24 and considers that "It seems we moved from a system controlled by Central Government to a casuistic approach where for every procurement with a value close to the thresholds, contracting authorities will have to calculate the conversion in the days before launching the procedure to assess what if the value is above or below the thresholds."I disagree with this reading, given that reg.5(4) PCR2015 indicates that "The value in pounds sterling of any amount expressed in euro in any of the provisions of the Public Contracts Directive mentioned in this regulation shall be taken to be the value for the time being determined by the Commission for the purpose of that provision and published from time to time in the Official Journal in accordance with Article 6 of the Public Contracts Directive." 

Art 6(3) Dir 2014/24 indeed authorises the Commission to "determine the values, in the national currencies of the Member States, whose currency is not the euro, of the thresholds referred to in" Art 4. Hence the European Commission will continue publishing instruments such as Communication of 14.12.2013 on corresponding values of the thresholds of Directives 2004/17/EC, 2004/18/EC and 2009/81/EC of the European Parliament and of the Council [OJ C366/1], which avoids any issues of thresholds as financial "moving targets" due to fluctuations in currency exchange. I agree with Pedro on the (implicit) criticism that, in terms of currency volatility, the economic value of the contracts deemed to be of cross-border interest is altered, but I disagree with the point on legal uncertainty derived from the cross-reference in reg.5 PCR2015.

Mixed procurement under Reg.4 Public Contracts Regulations 2015

Mixed procurement involves tendering of contracts that involve elements of a different nature (works, services or supplies) or contracts covered by different sets of rules, and is one of the areas that is creating more difficulties in EU public procurement law, particularly as a result of the multiplication of EU Directives that regulate procurement processes in different sectors (utilities, defence) or specific types of contracts (concessions). 

This creates complexity, at least where contracts are subjected to different sets of rules, and could have been avoided through a consolidation of all EU public procurement rules into a single Directive [as proposed by S Arrowsmith, 'Modernising the European Union’s Public Procurement Regime: a Blueprint for Real Simplicity and Flexibility' (2012) 21 Public Procurement Law Review 71–82]. However, and regrettably, that was not the chosen regulatory option and domestic governments and legislators have been left with a rather complex puzzle, which reg.4 on Mixed procurement of the Public Contracts Regulations 2015 (PCR2015) tries to sort out. It is interesting, though, that this regulation departs from the (even more complicated) drafting of Art 3 of Directive 2014/24, and tries to simplify the rules.

As reg.4 PCR2015 indicates, although not in the clearest terms, mixed procurement can involve contracts in which all of their elements are covered by the same set of rules [and, in this case, Part 2 PCR2015 itself, see reg.4(1)], or contracts which elements are covered by different sets of rules [such as the PCR2015 and rules on utilities procurement, see regs.4(2), 4(3) and 16, although there are other aspects covered in an even larger number of regulations]. The first case is easier to sort out, whereas the second one creates more difficulties. Moreover, in both cases, the several elements involved in the mixed procurement can be either objectively separable or not, and this should create even more regulatory choice or complexity-This point last point is controversial under the PCR2015, which seem to limit the issue of objective separation to cases in which the several elements of the contract are covered by different sets of rules; see reg.4(2) (see below).

(A) Regarding mixed contracts which have as their subject-matter different types of procurement all of which are covered by Part 2 PCR2015, reg.4(1) sets out two rules. The general rule in reg.4(1)(a) is that contracts "shall be awarded in accordance with the provisions applicable to the type of procurement that characterises the main subject-matter of the contract in question". Reg.4(1)(b) sets a special rule based on value for mixed contracts consisting (i) partly of social and other specific services (covered by Section 7) and partly of other services, or (ii) partly of services and partly of supplies, in which case "the main subject-matter shall be determined in accordance with which of the estimated values of the respective services, or of the respective services and supplies, is the highest". These rules are in line with the case law of the CJEU (see particularly Commission v Italy, C-412/04, EU:C:2008:102].

As briefly mentioned, this seems to impose an obligation of tendering a single contract for all elements of the mixed procurement, which may not necessarily be the best solution and definitely not necessarily the only option under Art 3 Dir 2014/24 (although it must be acknowledged that this is not very clear, particularly in view of the wording and position of art 3(6) dir 2014/24). In that regard, Rec (12) Dir 2014/24 seems to usefully shed some light by stressing that

In the case of mixed contracts which can be separated, contracting authorities are always free to award separate contracts for the separate parts of the mixed contract, in which case the provisions applicable to each separate part should be determined exclusively with respect to the characteristics of that specific contract. On the other hand, where contracting authorities choose to include other elements in the procurement, whatever their value and whatever the legal regime the added elements would otherwise have been subject to, the main principle should be that, where a contract should be awarded pursuant to the provisions of this Directive, if awarded on its own, then this Directive should continue to apply to the entire mixed contract (emphasis added).

On this point, it is important to note that, provided there is no intention to avoid the application of specific rules, contracting authorities should indeed be free to tender either as many discrete contracts as elements with a different nature, or a single contract for the mixed procurement (which would then be governed by the rules applicable to the main characteristic of the subject-matter). This would reflect an analogical application of the case law of the CJEU concerning anti-avoidance rules concerned with the value of contracts rather than the nature of their subject matter, where the CJEU has been clear in stressing that the possibility to divide or to group requirements should be led by technical and economical considerations [Commission v France, C-16/98, EU:C:2000:541 and Commission v Italy, C-412/04, EU:C:2008:102] and that, in any case, is not possible to group or divide requirements where that (is aimed to? or) results in the circumvention of (stricter) rules [Swoboda, C-411/00, EU:C:2002:660].

(B) Regarding mixed contracts which have as their subject-matter procurement covered by Part 2 PCR2015 and procurement not covered thereby, reg.4(2) PCR2015 sets out two different rules depending on whether the parts are separable or not, and closely follows the rules in art 3 Dir 2014/24. Reg.4(2)(b) clarifies that "where the different parts of a given contract are objectively not separable, the applicable legal regime shall be determined on the basis of the main subject-matter of that contract". On the contrary, where the the different parts of a given contract are objectively separable, contracting authorities have a choice. Firstly, if the contracting authority opts to tender separate contracts, "the decision as to which legal regime applies to any one of such separate contracts shall be taken on the basis of the characteristics of the separate part concerned". And, secondly, where contracting authorities choose to award a single contract, the ensuing mixed contract shall be tenderer under Part 2 of the PCR2015 "irrespective of the value of the parts that would otherwise fall under a different legal regime, and of which legal regime those parts would otherwise have been subject to". This is in line with Directive 2014/24 and does not seem to create specific issues.

Finally, reg. 4(3) excludes the applicability of the previous rules where part of a given contract is covered by Article 346 of TFEU or the Defence and Security Regulations, in which case regulation 16 applies instead of paragraph (1) or (2) (see brief comment on issues raised by the multiple references to Art 346 TFEU regarding reg.3 here).

It is important to stress that, taken together, the rules included in reg.4 PCR2015 omit two cases covered in art 3(4) and 3(5) Dir 2014/24. On the one hand, reg.4 does not address the coordination with the rules on the award of concessions under art 3(4) Dir 2014/24, according to which "mixed contracts containing elements of supply, works and service contracts and of concessions ... shall be awarded in accordance with this Directive, provided that the estimated value of the part of the contract which constitutes a contract covered by this Directive ... is equal to or greater than the relevant threshold". My interpretation is that the need for a separate regulation of this case can be avoided if the interpretation of reg.4(2)(a) is such that mixed contracts involving elements of concession are always awarded under Part 2 of the PCR2015, regardless of the value of the non-concession elements. That would not result in a breach of EU law because it would result in "over-compliance" (given that the rules under Dir 2014/24 are much more stringent than those under Dir 2014/23). Any other interpretation of the rules under reg.4(2) PCR2015 would create risks of non-compliance.

On its part, Art 3(5) Dir 2014/24 determines that "[i]n the case of contracts which have as their subject both procurement covered by this Directive and procurement for the pursuit of an activity which is subject to Directive 2014/25/EU, the applicable rules shall ... be determined pursuant to Articles 5 and 6 of Directive 2014/25/EU." Again, the need to include this case can also be avoided following the same reasoning as above. Particularly in view of the very significant similarity of Arts 5 and 6 Dir 2014/25 with the functional criteria included in Art 3 Dir 2014/24 and, more specifically, the special rule under Art 6(1) in fine Dir 2014/25, whereby "[t]he choice between awarding a single contract or awarding a number of separate contracts shall not, however, be made with the objective of excluding the contract or contracts from the scope of application either of this Directive or, where applicable, Directive 2014/24/EU or Directive 2014/23/EU."

Hence, in my view, reg.4 PCR2015 has effectively managed to simplify the rules under Art 3 Dir 2014/24 and avoids the unnecessary regulation of cases covered by its general criteria--and, particularly, by the rules of reg.4(2), which needs to be interpreted in view of its vis attractiva. The only point where a more flexible approach should be adopted regards the interpretation of reg.4(1) PCR2015, which should not prevent the application of the "severability" option where all parts of mixed contracts are covered by its Part 2.

Pedro's comments, and some disagreement regarding reg.4(1) are available here.

Subject-matter and scope under Reg.3 Public Contracts Regulations 2015

Reg. 3 Public Contracts Regulations 2015 (PCR2015) defines their subject-matter and scope and aims at clarifying the limits on their applicability as both the content and the value of the contract are concerned. In my view, however (and Pedro fundamentally agrees in his comment from earlier today), reg.3 PCR2015 has very limited content of its own and, despite trying to provide some clarity as to the scope of application of its rules (an issue that will keep us entertained for a while), actually muddies some issues. 

On the one hand, reg.3(1)(a) PCR2015 simply describes the function of this statutory instrument by indicating that its operative part "establishes rules on the procedures for procurement by contracting authorities with respect to public contracts and design contests". This seems to be superficial and unnecessary, as the purpose of the instrument is abundantly clear in the Explanatory Memorandum. Moreover, from a strictly conceptual point of view, this description is partly tautological, as design contests are procedures in themselves [see definition in reg.2(1) PCR2015]. Hence, nothing would have been lost if this clause had been avoided (as, indeed, Directive 2014/24 does not include any similar article).

On the other hand, reg.3(1)(b) PCR2015 stresses that the contracts covered by its rules are those of "a value estimated to be not less than the relevant threshold mentioned in regulation 5" (which will be discussed in due course, and simply aims at freeing below-threshold contracts from compliance with Part 2 PCR2015), provided that they "are not excluded from the scope of this Part by any other provision in this Section"--or, in other words, provided they are not mixed contracts that must be tendered under alternative rules in view of the criteria set out in reg.4 PCR2015 (to be discussed tomorrow). Hence, reg.3(1)(b) PCR2015 is also an unnecessary repetition of what is established in regs.4 and 5.

Finally, and maybe of more interest, reg.3(2) PCR2015 stresses that the rules in the PCR2015 are "subject to Article 346 of TFEU", which allows Member States to derogate from Internal Market rules when their essential security interests are at stake [see Commission's interpretative communication on the application of Article [346] of the Treaty in the field of defence procurement (COM(2006) 779 final) and, for discussion, A Georgopoulos, 'The Commission's Interpretative Communication on the application of Article 296 EC in the field of defence procurement' (2007) 3 Public Procurement Law Review NA43-52]. 

In my view, however, this is also an unnecessary clause. To begin with, because the need to take into consideration the special requirements derived from the application of Art 346 TFEU in the field of defence procurement resulted in Directive 2009/81 on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security [see the references provided by Pedro in his blog, as well as B Heuninckx, 'The EU Defence and Security Procurement Directive: trick or treat?' (2011) 1 Public Procurement Law Review 9-28, and M Trybus, 'The tailor-made EU Defence and Security Procurement Directive: limitation, flexibility, descriptiveness, and substitution' (2013) 38(1) European Law Review 3-29]; and that Directive has been implemented through the Defence and Security Public Contracts Regulations 2011 (SI 2011/1848, as amended). And, secondly, because the interaction between the rules in the PCR2015 and defence and security-related issues is also expressly detailed in reg.15 on Defence and security procurement. Consequently, this final clause of reg.3 PCR2015 is also unnecessary.

Generally, then, reg.3 PCR2015 is superfluous and its inclusion despite the nonexistence of an equivalent provision in Dir 2014/24 seems to indicate both an intention to overemphasize the 'limited' scope of application of the PCR2015 (by creating unnecessary repetition of the rules that restrict their scope) and a certain fear that coordination with other mandatory instruments (either of an EU or domestic origin) may be faulty. 

On this last point, the worry of the UK legislator must be shared, as the system that results from the existing substantive procurement directives creates a fiendish web of cross-referrals that generates significant uncertainty when mixed contracts are concerned. Hence, the need for specific rules at EU level to simplify this entangled web couldn't be overemphasized. In the meantime, though, the options of domestic legislators are limited and the strategy followed in the PCR2015 of 'better be safe than sorry' is understandable, although it results in unnecessary repetition and, in certain points, tautology.

Definitions under Reg.2 Public Contracts Regulations 2015

Reg. 2 Public Contracts Regulations 2015 (PCR2015) sets out the Definitions used in Part 2 of the instrument. In a clear display of superior legislative technique than that used in the drafting of Directive 2014/24, its contents are alphabetically ordered. The first observation that this regulation triggers is that its content is different from that of Art 2 Dir 2014/24, which is also concerned with some applicable public procurement definitions. Some of the discrepancies between reg.2 PCR2015 and Art 2 Dir 2014/24 derive from the need to include some "autochthonous" definitions (below). 

Reg.2 PCR2015 includes a significant number (23) of definitions already included in Directive 2014/24 and it mostly either repeats them verbatim or introduces some limited further specifications (mainly a change in the cross-references to other parts of the PCR2015). It only omits or alters two of the definitions: centralised purchasing activities (where a reference to reg.37(10) PCR2015, but the content of the definition under art.2(1)(14) Dir 2014/24 is kept) and procurement service provider (which is not included in reg.2(1) PCR2015; see art.2(1)(17) Dir 2014/24). 

One wonders about the need to include this material, particularly in view of the fact that reg.2(2) PCR2015 establishes that "Unless the context otherwise requires, any expression used both in Part 2 and in the Public Contracts Directive has the meaning that it bears in that Directive", which should ensure the coordination needed between both instruments. 

On second thought, though, the difficulty with reg.2(2) PCR2015 is that the first caveat ("Unless the context otherwise requires") is actually either inconsequential or a potential source of infringements of EU public procurement law. Given the supremacy and direct effect of Directive 2014/24 from the moment of its transposition (Van Duyn v Home Office, C-41/74, EU:C:1974:133) and the duty of consistent interpretation (Marleasing v Comercial Internacional de Alimentación, C-106/89, EU:C:1990:395), UK Courts (for England and Wales) are bound by the concepts contained in the Directive and by their interpretation by the Court of Justice. Hence, the first part of reg.2(2) is completely meaningless, as the context in which a defined term is used in Part 2 PCR2015 cannot alter the content of the "EU definition". Any diverging interpretation may result in an infringement of EU public procurement rules.

As far as the rest of the definitions are concerned, reg.2(1) PCR2015 includes the following "autochthonous" definitions: academy, call for competition(*), Commission(*), common technical specification(*), contest notice(*), contract notice(*), CPV(*), defence and security regulations, disabled, dynamic purchasing system(*), ESPD(*), EU publications office(*), European standard(*), European technical assessment(*), framework agreement(*), GPA(*), international standard(*), invitation to confirm interest(*), legal person, maintained school, national standard(*), NHS trust, Official Journal(*), prior information notice(*), procurement(*) [although this definition incorporates the content of art 1(2) Dir 2014/24], public contracts directive, selection criteria(*), standard, technical reference(*), technical specifications(*), TFEU(*), the Treaties(*), VAT(*) and working day. 

Most of these definitions are either expressly included in parts of Directive 2014/24 other than its Art 2 on definitions, or seem quite superfluous (I marked them with *). The only ones that bear emphasis are those concerned with the procurement of education or healthcare services (ie academy, maintained school and NHS trust) because they are already indicating the special treatment that these social and special services will be afforded under the PCR2015 (as already hinted yesterday, and an issue to return to in due course).

Finally, regs.2(3) and 2(4) PCR2015 set specific rules regarding time limits and the calculation of periods of time. The rules on periods of time are quite straightforward and do not require much comment.

Pedro's reply and assessment of reg.2 is available here.

Public Contracts Regulations 2015: A four hand commentary

As my friend and colleague Dr Pedro Telles (now in Swansea University) has been announcing on twitter (@Detig), upon suggestion of our friend Dr Carina Risvig Hamer, we are engaging in a four-hand article by article commentary/debate on the Public Contracts Regulations 2015 (SI 2015/102)--or, as he likes to call it, we are playing some "public procurement tennis". We have created the hashtag #pubcontregs2015 to make our discussion easily traceable and we hope some of you will join us. There are other distinguished bloggers already active in this field (see Abby Semple's recent remarks), so it would be great if this would become the first instance of "real time" academic and practitioner commentary on-line.

The project requires that both of us comment on a specific regulation every working day (so we should see the end of the game in about 6 months). As a result, we should have created a fairly comprehensive (if brief and probably informal at times) commentary of this important piece of legislation for England and Wales (not Scotland, as he kindly reminds me), which may serve as a guideline or sounding board for other Member States in their path towards transposition of Directive 2014/24, due on 18 April 2016 (art 90 dir 2014/24).
 

Pedro has published his first views on the general part of the Regulations and Reg 1 earlier today. Mine are below. Let the games begin.

I share some of Pedro's preliminary views regarding the "cut and paste" approach to legal transposition in the UK. However, I would suggest that there are two disingenuous potential explanations. On the one hand, the Government was in a rush to make effective some of the reforms strongly lobbied for in Brussels (and the important carve-out from procurement rules provided for in regulation 77 on Reserved contracts for certain services quickly pops to mind as a key element of the on-going public sector reform and mutualisation initiative; for discussion see A Sanchez-Graells & ESzyszczak, 'Modernising Social Services in the Single Market: Putting the Market into the Social' (2013) and my recent remarks here).

On the other hand, there is a long-lasting culture against 'gold-plating' in the transposition of EU rules, which creates incentives for the Government to benefit from the poor technical quality of the 2014 EU rules. I agree that this is not conducive to legal certainty and that is in itself a problem, but from the perspective of a Government soon to be confronted with an EU opt-out referendum, there is a "strong" (perceived) benefit in showing that it simply does the minimum it is actually required to do under EU law.

Regarding reg.1 PCR2015 Citation, commencement, extent and application, there are limited comments one can make regarding the extent and application of the rules, as they are oriented towards ensuring the effectiveness of the devolution of powers (at different levels) to Wales, Northern Ireland and Scotland. This is an internal constitutional issue and, as much as the regulation of "below-threshold" contracts could benefit from development in the UK and elsewhere [see the various contributions to R Caranta and D Dragos (eds) Outside the EU Procurement Directives—Inside the Treaties?, vol. 4 European Procurement Law Series (Copenhagen, DJØF, 2012), including Luke Butler's contribution on the UK and mine on Spain], from an EU law point of view, this remains fundamentally out of bounds due to the principle of autonomous organisation--subject "only" to compliance with the general principles of EU law [as discussed extensively by Carina in her book Contracts not Covered, or not Fully Covered, by the Public Sector Directive (Copenhagen, DJØF, 2012)]. Hence, I have nothing to add on this point.

Secondly, as the timing for transposition is concerned, the approach adopted in reg.1 PCR2015 is again fundamentally a mere cut and paste of the transposition deadlines set by Directive 2014/24 (art. 90). The PCR2015 is designed to map and maximise the flexibility for transposition allowed for under the EU rules (which set the same extended deadlines of 18 April 2017, 18 April 2018 and 18 October 2018 as electronic means of communication and certain aspects of the conduct of centralised procurement are concerned). Differently from Pedro, I am not necessarily an eProcurement enthusiast (not least because of the impact that the investment in technology can have for some 'traditional' SMEs, as well as for the public sector itself, as well as the competitive impacts it can have on neighbouring markets, such as software and hardware), so I take no issue with the space that the UK Government has decided to keep for the design and roll-over of a proper eProcurement strategy. 

I also see no problem in providing for a three week vacatio legis for the entry into force of the PCR2015, particularly because "business as usual" (ie procurement carried on under the Public Contracts Regulations 2006, as amended) would comply with PCR2015. Hence, if the contracting authorities in England and Wales want to take advantage of the changes in the PCR2015, they can do so promptly. Conversely, if they are not interested, do not (yet) know about the new rules, or simply take longer to implement the changes, then there is no detriment from an operational perspective.

All in all, it looks like this first provision, aseptic as it may have seemed, is already open to different views. I honestly can't wait for our debate on more substantial and controversial issues. I am sure that there will be days when we may have nothing much to say or we may not disagree, but most of the days there should be scope for different approaches and opinions.

Today I had the easy job of "responding", but I will be more than happy to open the conversation on other matters. Needless to say, any feedback and comments will be most welcome. For now, I hope that this first (pair of) appetizer(s) has been thought-provoking. Stay tuned for more!

Should Damages in Public Procurement Hinge on Disappointed Bidders’ Commercial Interests? A Comment on Energy Solutions EU Ltd v Nuclear Decommissioning Authority

This comment has been previously published in eutopialaw. I am thankful to Christopher Brown for having brought this stimulating case to my attention.

In its recent Judgment of 23 January 2015 in Energy Solutions EU Ltd v Nuclear Decommissioning Authority [2015] EWHC 73 (TCC), the High Court ruled on a preliminary issue in a public procurement dispute and held that the review court has no discretion (not) to grant damages for losses resulting from a breach of the public procurement rules. In my view, the Energy Solutions v NDA Judgment should be criticised at least for two reasons: firstly, because it misinterprets the EU rules on public procurement remedies and their link with the general principle of State liability for breaches of EU law; and secondly, because it creates an analytical framework based on the commercial decisions of disappointed bidders that would result in excessive (strategic) claims for damages. Moreover, the Energy Solutions v NDA Judgment sheds light on an important shortcoming of the system of public procurement remedies that is perpetuated under the recently adopted Public Contracts Regulations 2015 (SI 2015/102). This comment addresses these issues in turn.

Background

The dispute arises after Energy Solutions (as part of a bidding consortium, but that is not relevant for our purposes) was not chosen as the winning bidder in a tender for a nuclear waste management contract with the Nuclear Decommissioning Authority (NDA). After expressing its disagreement with the award decision and seeking additional information in the ensuing debriefing process, Energy Solutions eventually challenged the tender procedure within the 30-day limit applicable under reg.47D(2) of the applicable Public Contracts Regulations 2006 (SI 2006/5, as amended, primarily by SI2009/2992). By the time the challenge was effected, NDA had already entered into a contract with the winning bidder. Energy Solutions sought compensation for the damages it alleged to have suffered as a result of the improper conduct of the tender procedure

NDA tried to bar the damages action by arguing that a failure to challenge the award decision within the 10-day standstill period provided for under reg.32(3) Public Contracts Regulations 2006 (which could have prevented it from entering into the contract) broke the causal link between any breach of the applicable procurement rules and the ensuing damages (which, If any, would then derive from the tardiness of the challenge). NDA basically claimed that having foregone the possibility to prevent the award of the contract to another tenderer by activating the suspension foreseen in reg. 47G Public Contracts Regulations 2006, Energy Solutions had also lost the possibility to seek damages compensation. In support of that position, NDA submitted that, under reg.47J(2)(c) Public Contracts Regulations 2006, the review court retained discretion (not) to award damages resulting from a breach of public procurement rules in circumstances such as those in the case (ie the lost opportunity of litigating within the standstill period).

The High Court ruled against NDA on both points. Edwards-Stuart J found no basis for the

submission that any award of damages is dependent on the level of gravity of the breach, or any other such factor, and thus dependent on an exercise of judicial "discretion" or judgment, or whether, absent any failure to mitigate its loss, having proved a breach of the [public procurement rules] a claimant is entitled to anything other than damages that should be assessed by reference to ordinary principles. It may well be that the claimant's conduct will have been such that the court will be very reluctant to make any assumptions in its favour in relation to damages, but that is simply an aspect of the usual approach of the court to the assessment of damages (para 86).

As mentioned above, this finding is open to criticism, both for its inconsistency with EU law and because it creates an analytical framework that may result in excessive claims for damages. Each of these issues is addressed in turn. The problem derived from the diverging duration of the standstill period and the time limit for the challenge of award decisions is discussed last, as it also affects the brand new Public Contracts Regulations 2015.

The improper conceptualisation of the damages remedy with an EU law origin

In order to reach a conclusion on the discretionary or automatic nature of the damages remedy under reg.47J(2)(c) Public Contracts Regulations 2006, Edwards-Stuart J embarked on an assessment of the original provision that this regulation transposes, that is, art.2(1)(c) of Directive 89/665/EC (as amended by Directive 2007/66/EC), as well as its interpreting case law (primarily, Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others, C-568/08, EU:C:2010:751). However, in my view, his Judgment fails to extract the adequate conclusions.

It is worth stressing that, as stressed in paragraph 87 of Spijker (and repeated in para 69 of Energy Solutions v NDA), art.2(1)(c) of Directive 89/665 “gives concrete expression to the principle of State liability for loss and damage caused to individuals as a result of breaches of EU law for which the State can be held responsible” (emphasis added). In my view, Edwards-Stuart J completely misses the point when he tries to distinguish the Energy Solutions v NDA case by stating that

This is not a claim against a Member State for a breach of EU law which was intended to confer a right upon a person such as the Claimant. This is a claim brought by a corporate body against a national public body under the Regulations, an English national provision [sic] (para 83, emphasis added).

If nothing else, this position simply misses the entire EU law doctrine of supremacy and direct effect of Directives (Van Duyn v Home Office, C-41/74, EU:C:1974:133) and the duty of consistent interpretation (Marleasing v Comercial Internacional de Alimentación, C-106/89, EU:C:1990:395). Moreover, it is unnecessary for the analysis the High Court needed to complete in the case at hand. In that regard, it is also worth stressing that, as clearly established by the Court of Justice in Spijker (and repeated in para 70 of Energy Solutions v NDA)

In the absence of EU provisions in that area, it is for the legal order of each Member State to determine the criteria on the basis of which damage arising from an infringement of EU law on the award of public contracts must be determined and estimated … In the absence of any provision of EU law in that area, it is for the internal legal order of each Member State, once those conditions have been complied with, to determine the criteria on the basis of which the damage arising from an infringement of EU law on the award of public contracts must be determined and estimated, provided the principles of equivalence and effectiveness are complied with (Spijker, paras 90 and 92, emphasis added).

Hence, in order to stress the point of procedural autonomy (subject only to equivalence and effectiveness), Edwards-Stuart J did not need to take the difficult (and unacceptable) position of trying to decouple Energy Solutions’ claim from its obvious EU origin by rejecting its true essence.

Following on this aspect of the Judgment, it is also important to stress that counsel properly identified a further development of relevance in terms of assessing the effectiveness requirement. Indeed, in Danske Slagterier (C-445/06, EU:C:2009:178), the Court of Justice issued additional guidance on the possibility of imposing certain duties on disappointed tenderers before they can claim compensation for damages. That case concerned a German rule whereby reparation for loss or damage cannot be obtained by an injured party that has wilfully or negligently failed to utilise an available legal remedy (§839(3) BGB). The dispute concerned precisely the level of diligence that could be required under EU law from a claimant in damages that had forgone other (theoretically) available remedies before claiming for compensation.

In a situation that is clearly comparable to the one in Energy Solutions v NDA (as implicitly acknowledged by Edwards-Stuart J in para 73), the Court of Justice ruled that

it is a general principle common to the legal systems of the Member States that the injured party must show reasonable diligence in limiting the extent of the loss or damage, or risk having to bear the loss or damage himself … It would, however, be contrary to the principle of effectiveness to oblige injured parties to have recourse systematically to all the legal remedies available to them even if that would give rise to excessive difficulties or could not reasonably be required of them … [Union] law does not preclude the application of a national rule such as that laid down in para. 839(3) of the BGB, provided that utilisation of the legal remedy in question can reasonably be required of the injured party. It is for the referring court to determine … whether that is so (paras 61 to 64).

In my view, this provides the proper framework for the analysis of Energy Solutions v NDA, as it places the High Court in the position of assessing whether requiring claimants to challenge award decisions within the 10-day standstill period is reasonable and can become a pre-condition for their damages claims, despite the fact that the applicable regulations provide them with a 30-day period to do so. That is the point of “discretion” (rectius, non-automaticity) in the award of damages derived from public procurement infringements on which the parties disagreed, and one to which I will return below.

However, Edwards-Stuart J insisted (para 78) on his view that the domestic remedy has nothing to do with the general principle of State liability under EU law (in a frontal disregard of Spijker para 87), which excludes the applicability of any guidance ultimately based on the State liability doctrine (Brasserie du pêcheur and Factortame, C-46/93, EU:C:1996:79). In my view, this creates significant confusion and implies a breach of EU law within the UK legal system (which could, if not remedied, end up resulting in liability under Köbler, C-224/01, EU:C:2003:513).

The improper focus on the commercial choices or gambles of the disappointed bidder, which could trigger excessive litigation seeking procurement damages compensation

My second criticism of the Judgment in Energy Solutions v NDA derives from the isolated and commercially-led analysis of the system of remedies provided by Directive 89/665, as transposed by the Public Contracts Regulations 2006 (and now the Public Contracts Regulations 2015). The point of departure for the analysis of the remedies system and, particularly, the granting of damages, needs to rest on two basic points. 

The first one is a point of law. Damages are conceptualised as an ancillary remedy under Directive 89/665 [for discussion see S Treumer, ‘Damages for breach of the EC public procurement rules - changes in European regulation and practice’ (2006) 17(4) Public Procurement Law Review 159-170]. In my view, this is particularly clear after the 2007 reforms [similarly, S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 178; see also R Caranta, The Comparatist’s Lens on Remedies in Public Procurement (Istituto Universitario di Studi Europei, WP 2011-1) 7-8], which aimed at ensuring the effectiveness of the public procurement rules through stronger requirements of ineffectiveness of contracts concluded in their breach. This is the proper interpretation of the ensemble of remedies established under the EU rules and, in particular, given that art.2e(2) in fine Directive 89/665 expressly indicates that “[t]he award of damages does not constitute an appropriate penalty”.

Hence, damages are not an alternative or substitute remedy for the ineffectiveness of illegally awarded contracts (which can only be replaced with proper penalties imposed on the infringing contracting authority where public interest mandates the continuation of the illegally-awarded contract). Moreover, damages are not a free standing remedy, as they must be based on a (sufficiently serious) breach of procurement rules, which necessarily carries the consequence of either ineffectiveness of the contract or penalties for the contracting authority. This is also very clear from the wording of reg.47J Public Contracts Regulations 2006, which requires the review court to make findings on ineffectiveness and civil penalties, while it (simple?) authorises the court to make findings regarding damages compensation (this is discussed in paras 62ff of the Energy Solutions v NDA Judgment, but in a way that goes against the literal reading of the provision).

The second point is a point of general policy based on economic incentives. In my view, disappointed tenderers will always have an incentive to seek damages compensation. Once they have participated in a tender procedure and not been awarded the contract, it is more favourable for them to seek damages (particularly if loss of profits is recoverable) than to seek the specific performance of the tender procedure being brought back to the point previous to the relevant infringement, or even the award of the contract as such. Once they are put in a position where they have an automatic claim for damages based on the infringement of the procurement rules, they will always prefer its exercise to any alternative remedy that either does not secure them the contract (because it forces a re-tendering) or awards them the contract (as getting direct financial compensation for the lost profits is better than having to – properly – execute a contract in order to create them). 

In short, creating an automatic right to damages compensation for breach of public procurement rules would become a ‘winning lottery ticket’ for disappointed bidders. It is simple to see how such unbalanced rights to remedies would trigger excessive litigation. From a policy perspective, then, it should be required that contractors only be entitled to damages when a specific, non-financial remedy is not available (ie, when the illegally awarded contract must be protected in view of a sufficient public interest).

From this perspective, it is hard to understand how Edwards-Stuart J can consider that

If the claimant is seeking to have the award of the contract suspended, then it must start proceedings within the standstill period or, in any event, within the 30 day period and before the award of the contract. However, if the claimant is merely seeking damages, then it need only start proceedings within the 30 day period. I do not see any basis for treating these two remedies as being of different importance: that depends on a claimant's circumstances and what it is seeking to achieve - the Regulations give it a choice (para 79, emphasis added).

The relevant point, in my view, is that the Regulations do not give a choice to the Court (not the claimant) in terms of the content of the challenge against an award decision. If the Court finds that there is an infringement, it must impose the relevant remedies (not only damages), as clearly established in reg.47J Public Contracts Regulations 2006 for cases in which the contract has already been entered into (and in relatively less stringent terms, in reg. 47I Public Contracts Regulations 2006 when the contract has still not been entered into). Hence, regardless of whether the claimant complements the claim for damages with a claim for ineffectiveness or not, the Court must always consider the possibility and desirability of setting the illegally-awarded contract aside. Consequently, there should actually not be any difference, from the point of view of the Court, between the two sets of remedies indicated above. Maybe in blunter terms, under the applicable Regulations, a claimant is never allowed to actually only seek damages because the Court is never allowed to only rule on damages.

Hence, considerations such as those developed in paragraphs 87 to 91 of the Energy Solutions v NDA Judgment must be rejected, since they rely on the consideration that a claimant can legitimately conclude “for various commercial reasons, that damages would be an adequate remedy in all the circumstances” (para 87, emphasis added), and that this needs to be the guiding principle in the construction of the system of remedies for public procurement infringements.

I of course acknowledge that this is an approach that implicitly recognises that disappointed bidders do not challenge award decisions only in their own interest, but also exercise a (residual, implicit) ‘general attorney-like’ function aimed at catching and sanctioning infringements of (EU) public procurement law—in a sort of private enforcement akin but different from that developed for the equivalent competition law rules. However, I struggle to see how the system of remedies could be developed in satisfactory way exclusively considering disappointed bidders’ commercial interests.

The source of the problems: diverging time-limits beyond mandatory standstill periods

The final issue that bears comment (and much further thought) refers to the existence of time-limits for the challenge of procurement decisions that reach beyond mandatory standstill periods. The situation created under the Public Contracts Regulations 2006 has just been perpetuated under the recently adopted Public Contracts Regulations 2015, which regs.87 and 92(2) perpetuate the problem of a general time-limit for the start of proceedings that exceeds the mandatory 10-day standstill period. As Edwards-Stuart J rightly pointed out in the Energy Solutions v NDA

the Regulations permit an unsuccessful tenderer to start proceedings after the expiry of the standstill period, and therefore at a time after which the authority may have entered into the contract with the successful tenderer: indeed, the Regulations expressly contemplate this eventuality. I therefore have considerable difficulty in seeing how a decision not to start proceedings within the standstill period could be said to be unreasonable. But, as I have already said, this is a question of fact (para 54).

Hence, the problem that is (now, clearly) on the table is that the part of the time-limit for the start of proceedings that runs beyond the duration of the mandatory standstill creates space for strategic litigation, particularly if coupled with the ‘automaticity’ (or lack of discretion) for the award of damages resulting from a breach of public procurement rules discussed above. There are two possible options. On the one hand, to overrule Energy Solutions v NDA and go back to a Spijker-compliant interpretation of the Public Contracts Regulations (2006 and 2015), so that a judgment of ‘reasonableness’ of the time at which the proceedings are started is conducted by the court on a case by case basis. This option creates legal uncertainty and may trigger further litigation at EU level. On the other hand, to amend the Public Contracts Regulations 2015 so that the standstill period and the time-limit to initiate actions coincide. In that case, I would expect the standstill to be extended, rather than the time-limit to be reduced. One way or the other, though, the system needs fixing in order to close the gaps that can now trigger excessive (strategic) litigation.

Marketing and the perfect crime? CJEU engages in a strange discussion of operational vs commercial discounts and issues ruling against mail consolidators (C-340/13, bpost)

In its Judgment in bpost, C-340/13, EU:C:2015:77, the CJEU has ruled that a discount system that offers reduced postal tariffs to high-volume senders but excludes bulk mailers and mail consolidators is not discriminatory under the applicable EU postal liberalisation rules. In its bpost Judgment, the CJEU sets a distinction between operation discounts (which must be offered to bulk senders and mail consolidators in a non-discriminatory way) and marketing discounts (which can be limited to bulk senders or, more clearly, exclude (competing) mail consolidators).

The reasoning of the CJEU is as follows:

47 ... although the bulk mailers and consolidators could be in comparable situations as regards operational discounts, as follows from the judgment in Deutsche Post and Others (EU:C:2008:141), that is not necessarily the case as regards quantity discounts, such as those at issue in the main proceedings. The quantity discounts per sender are such as to encourage the senders to hand on more mail to bpost, enabling it thereby to make economies of scale. However, the activity carried out by the consolidators does not contribute, of itself ... to an increase in the mail handed on to bpost and, accordingly, to bpost achieving those savings.

48 ... bulk mailers and consolidators are not in comparable situations as regards the objective pursued by the system of quantity discounts per sender, which is to stimulate demand in the area of postal services, since only bulk mailers are in a position to be encouraged, by the effect of that system, to increase the volume of their mail handed on to bpost and, accordingly, the turnover of that operator. Consequently, the different treatment as between those two categories of clients which follows from the application of the system of quantity discounts per sender does not constitute discrimination prohibited under Article 12 of Directive 97/67 (C-340/13, paras 47-48, emphasis added).

In my view, the CJEU has fallen into a marketing reasoning trap and is myopic. By buying into a dodgy justification for a specific discount strategy--which exclusionary effects are evident--the CJEU is using EU postal liberalisation rules to rubber-stamp a practice that would hardly pass legal muster under an analysis based on abuse of a dominant position under Art 102 TFEU. In that regard, in my view, the bpost Judgment is flawed and should raise significant red flags in terms of ensuring a sound and consistent enforcement of liberalisation and competition rules, as two key parts of EU economic law. 

Ultimately, by buying into the 'marketing' justification for the discount (and overlooking the fact of the commonality of issues that the economies of scale that are aimed at by all sorts of bulk discounts create), the CJEU has allowed bpost to commit the perfect crime. By 'smartly' disguising a protectionist exclusion from the discount policy under the cloak of a marketing campaign to increase post volume (and is it a good thing, environmental considerations taken into account?), bpost has managed to raise its rivals' costs. This makes poor economic sense and is a bad decision in terms of market impact. Certainly, if the effectiveness of Art 102 TFEU in liberalised sectors where universal service obligations exist is to be promoted, this should not become a trend.

Delays in public procurement and liquidated damages (Dosi & Moretto, 2015): a further justification for new rules on modification and termination

In their recent paper, 'Procurement with Unenforceable Contract Time and the Law of Liquidated Damages' [(2015) 31(1) Journal of Law, Economics & Organisation 160-186], Cesare Dosi and Michele Moretto of the University of Padova find an interaction between the rules on liquidated damages for time overruns in public procurement and the (risky) bidding behaviour of tenderers.
 

More specifically, considering a scenario of insufficient (negative) incentives to meet time commitments due to suboptimal liquidated damages, they demonstrate that "[t]he inability to force sellers to meet their contractual obligations determines their bidding behavior. Conversely, bidding behavior alters the incentive to meet the contract time. In particular, by placing more aggressive bids, all bidders may become potential violators of the contractual agreement, and the more the bidders and/or the higher the expected cost volatility [of relevant inputs], the higher the probability of breach."

In my view, their general findings are interesting in themselves in the design of liquidated damages clauses to be included in procurement contracts. But, more importantly, their findings also stress a key justification for the new rules on contractual modifications and contract termination in Arts 72 and 73 of Directive 2014/24, which need to serve to actually empower contracting authorities to enforce the terms of the original contract as awarded. In economic terms and from this perspective, these rules deserve both criticism and praise.

In terms of contractual modification, and from the perspective of creating red lines that enforce time commitments, the rules in the new Directive can be criticised because Art 72 does not specifically address the issue of modification of deadlines for the execution of the contract--which is left to the residual clause in Art 72(1)(e) "modifications [that], irrespective of their value, are not substantial", in relation to 72(4)(a) "the modification introduces conditions which, had they been part of the initial procurement procedure, would have allowed for the admission of other candidates than those initially selected or for the acceptance of a tender other than that originally accepted or would have attracted additional participants in the procurement procedure". This sets a very difficult standard when it comes to interpret whether a deadline is essential and its modification is, consequently, "substantial" to the contract overall. This restricts the possibility to limit time-related negotiations between contractors and contracting entities during the term of the contract and perpetuates a problem that ultimately depends on domestic rules in the Member States.

Secondly, in terms of contract termination, that criticism is carried over to the rules in art 73, as one of the main causes for contractual termination is derived from an infringement of Art 72. However, it is also worth stressing that there is the possibility to create  causes for termination other than those expressly established by the Directive, for instance, to strengthen the consequences for contractors to miss contractual deadlines. In that regard, it is interesting that Art 73 is open ended and could create regulatory space for Member States to develop effective time-related termination rules (eg imposing contractual termination for breach of predetermined contractual milestones). 

Moreover, it is also interesting to note that Art 57(4)(g) Dir 2014/24 allows contracting authorities to exclude operators "where the economic operator has shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract, a prior contract with a contracting entity or a prior concession contract which led to early termination of that prior contract, damages or other comparable sanctions". This would, again, increase the impact of failing to meet contractual deadlines. And, overall, it would counter one of the issues raised by Dosi & Moretto in their model: "[t]he inability to force sellers to meet their contractual obligations", which in turn would "determin[e] their bidding behavior" in a less risky way, so that they make sure ex ante that they can comply with contractual deadlines and the overall risk of non-compliance is reduced.

AG Szpunar submits that German nuclear taxes are not State aid, but his reasoning is totally unimaginative (C-5/14)

In its Opinion in Kernkraftwerke Lippe-Ems, C-5/14, EU:C:2015:51 (not available in English), AG Spuznar has submitted to the CJEU that a German tax on fissionable nuclear materials used for the production of electricity does not constitute State aid within the meaning of Art 107(1) TFEU, regardless of the fact that such a tax only applies to companies that produce electricity commercially.

From the State aid perspective, the reasoning of AG Spuznar deserves some analysis, as it is based on a rather uncreative (rectius, unimaginative) counterfactual situation that excludes the possibility of any different theoretical methods of taxation of electricity production. 

Indeed, the AG considers that, prior to the creation of the "nuclear tax"

German law does not include any general system for the taxation of electricity production. However, in certain circumstances, establishing a new tax only for certain undertakings in a comparable category can have the same effect as an exemption from an existing tax [for the other undertakings]. Is it possible then to conceive a general tax system under which all electricity producers are equally taxed in their production?
It is characteristic of electricity that it can be produced under numerous techniques, which are very different from each other; namely the combustion of fossil fuels (coal, natural gas or oil) and their derivatives, nuclear reaction, or the use of different sources of renewable energy such as water, wind, solar energy, geothermal energy, etc. 
Thus, it seems impossible to create a system of prior imposition that considers all these production processes equally. In other words, companies producing electricity under these different technologies are not in a comparable factual situation in terms of any prior taxation. All they have in common is their final product, ie electricity.
Therefore, not having previously taxed electricity generated by means other than nuclear energy is not an advantage in the light of the overall tax system, because such a system cannot exist. Thus, the disputed tax in the main proceedings is a specific tax that can only apply to the nuclear sector.
Since such a general system of prior imposition of electricity producers is not an imaginable framework of reference, failure to submit these producers [ie, non-nuclear] to a system of this type cannot be perceived as a mitigation of charges normally included in the budget of an undertaking (paras 69-73, references omitted, emphasis added).

In my view, the problem with the AG's reasoning is that it fundamentally relies on the acceptance that an alternative tax system could not be conceived. I struggle to accept this at face value. Surely, if the tax trigger was the production of electricity using inputs that cannot be disposed of safely or that create very high risks of catastrophic accidents (as one can conceive nuclear material does), then the system could be designed objectively to cover all modes of electricity production. 

If any of the producers with other technologies met those characteristics to a reduced degree (eg, oil also creates risks, particularly in terms of spills, but it may be considered less dangerous than nuclear material), the system could be constructed in a progressive way. 

This would have the double advantage of being clearly not selective and, more importantly, it would be pursuing environmental considerations to a higher level. And this is just one option. I am sure that clever tax lawyers could find more tax triggers that could support an "imaginable" general system for the taxation of electricity production--which would always be general, even if it meant that "clean" energy production was taxed at zero rates.

Just as the AG may have been, I am torn with the situation (from a normative perspective, I agree that nuclear production should be heavily taxed in order to discourage it), as accepting the existence of such an alternative system would strike the German nuclear tax down due to its incompatibility with Art 107(1) TFEU. 

This could have some short-term negative effects and would put significant heat under the seats of the CJEU, as environmental associations would see them as siding with nuclear production of energy. However, it would also require Germany (and all other 27 Member States) to rethink the taxation of electricity production, which is not necessarily a bad thing. And, more importantly, it would not push for a development of EU State aid law that is fundamentally based on a (self-perceived) impossibility of existence of alternative systems of taxation, which is not that sound. Hence, I would ask the CJEU to take the burn and depart from Spuznar's unimaginative way of dodging the bullet.

A political scientist's call (to the UK) to strengthen competition in the procurement of social services (Lamothe, 2014)

In its interesting paper 'How Competitive is "Competitive" Procurement in the Social Services?' (2014) The American Review of Public Administration 1-23 (advanced on-line access available here), Scott Lamothe conducts an interesting empirical study where he shows that using measures of competition for contracts that go beyond the crude number of tenders received (ie, assessing the quality of the bids submitted) casts new light on the assessment of the degree of effective competition in procurement settings. 

More importantly, his findings indicate that "while the measures used in earlier studies align reasonably well with the raw number of initial responders to competitive solicitations, they tend to overestimate competition when the quality component is included in the analysis. That is, social service markets may be even weaker than previously reported." 

In view of that evidence from the US, EU policy-makers and legislators will be well-advised to read this paper and digest its insights before they embark into the transposition of Art 74-77 of Directive 2014/24 in a way that allows for a reduction in the competition for social services contracts that makes these markets even weaker. 

In the UK, this is particularly relevant for the transposition of Art 77 Dir 2014/24, where the Government insists in maximising the possibilities of limiting competition for the procurement of social and special services. This has been very recently stressed in the Government's response to the consultation on transposition through the Public Contracts Regulations 2015, which clearly emphasises that "The implementation of the proposed Regulation 77 [equivalent to Art 77 in the Directive] regarding reserved contracts for certain services is a strategic Government priority to support the mutuals programme" (para 132).  

The empirical evidence mentioned above suggests that this strategy is bound to create very poor results in the medium term, particularly because the lack of proper competition will not create appropriate checks and balances to the provision of those services by de facto monopolists.

Hence, the UK Government would be advised to further reconsider their strategy to maximise the carve-out from competitive procedures in the procurement of social and special services--not least because the regulatory constraints on these markets are also attenuated due to the structural conflict of interest that affects the sector regulator's ability to enforce competition and procurement rules in a proper way; as discussed in A Sanchez-Graells, Monitor and the Competition and Markets Authority (2014) University of Leicester School of Law Research Paper No. 14-32]. Will the UK Government respond to this wake up call?

200,000 thank yous

Thank you all for supporting this blog and helping it reach 200,000 visits. What started off in February 2011 as a small project to support my Corporate and Commercial Law classes at the Pontifical University Comillas (Madrid) and then translated into an English blog on Competition and Procurement Law when I moved to the University of Hull in May 2012, is now one of my favorite research-realted activities at the University of Leicester. Seeing it grow makes me proud and motivates me to engage in more research. So, ultimately, thank you for the motivation you provide me with. Best wishes, Albert