I am taking a few days off from blogging to finish an edited collection and then take a few energising walks in Wales.
I will resume normal activity on 4 April 2016. In the meantime, I wish you all a Happy Easter break!
Interesting paper on International Trade and Regulatory Cooperation in Public Procurement (Hoekman, 2015)
I have just read the recent paper by Prof B Hoekman, 'International Cooperation on Public Procurement Regulation' (November 1, 2015). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2015/88. I found his insights into how to move the development of trade policies through public procurement very suggestive. As his abstract explains,
Most governments have yet to agree to binding disciplines on government procurement regulation, whether in the WTO or a preferential trade agreement. Empirical research suggests that reciprocally-negotiated market access commitments have not been effective in inducing governments to buy more from foreign suppliers. Foreign sourcing by governments has been rising for most countries, however, independent of whether States have made international commitments to this effect – although there is some evidence that this trend was reversed post-2008 in several countries that had the freedom to do so. The stylized facts suggest a reconsideration of the design of international cooperation on procurement regulation, with less emphasis on specific market access reciprocity and greater focus on good procurement practice and principles, efforts to boost transparency, and pursuit of pro-competitive policies more generally (emphasis added).
Hoekman's discussion of the reasons why the current focus on bilateral market access reciprocity 'is unlikely to have much of an effect' is particularly interesting:
One reason why market access reciprocity arguably has limited returns is that many contracts that are issued by procuring entities concern products that are difficult to supply on a cross-border basis. Construction and services of many kinds will generally have to be supplied locally and there may be good reasons for procuring locally even if a good is tradable. If the products procured are intangible (services) or there are problems in monitoring and enforcing contract compliance, discrimination can increase the likelihood of performance by suppliers. The best (economic) case for discrimination revolves around situations where there is asymmetric information, e.g., difficulties in monitoring the performance of a contractor if buyer and provider are located far from each other, or there is a need to offer a firm quasi-rents in order to increase the probability of contract compliance through the threat of losing repeat business (Evenett and Hoekman, 2013). Moreover, geographic proximity may be a precondition for effectively contesting procurement markets—making some products, in particular services, in essence non-tradable. Problems of asymmetric information and contract compliance may imply that entities can economize on monitoring costs by choosing suppliers that are located within their jurisdictions. In turn, this will make it more difficult for foreign firms to successfully bid for contracts, even if the goods or services involved are tradable and in the absence of formal discrimination. Such rationales have been explored extensively by Laffont and Tirole (1993); many of the underlying technical arguments are summarized and synthesized in Breton and Salmon (1995). The policy issue that arises in such situations is whether there are barriers against establishment (FDI) by foreign suppliers, as this is a precondition for them to bid for/supply contracts (Evenett and Hoekman, 2005) (pp. 16-17, emphasis added, for complete references, see bibliography in his paper).
This passage is particularly relevant in the context of EU public procurement, not least because it spells out in very clear economic terms the reasons why an 'obsession' with cross-border trade as a metric of good procurement is highly unlikely to actually result in better (economic) procurement results [for discussion of the current policy, see here, A Sanchez-Graells, 'Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? — A View on Proposals to Lower that Barrier and Spur Growth', in C Tvarnø, GS Ølykke & C Risvig Hansen, EU Public Procurement: Modernisation, Growth and Innovation (Copenhagen, DJØF, 2012) 107-133.; and ibid, 'Collaborative Cross-Border Procurement in the EU: Future or Utopia?' (2016) Upphandlingsrättslig Tidskrift (Procurement Law Journal), forthcoming].
I also found very interesting that Hoekman presents in very straightforward terms the economic view that, put simply, procurement is not a 'magic wand' with which to implement all sort of secondary policies. In his clear exposition:
The pursuit of non-economic objectives by governments can have very different implications for economic efficiency. In principle, policy should target directly the source of problem at hand: lack of economic opportunities for minority groups; regional economic wealth differentials; market failures, and so forth. For example, take the case where a government awards a tender to an SME instead of a large company that submitted a lower cost bid because of an SME preference policy. It may be more effective and efficient if instead the government were to address the factors that impede the ability of SMEs to compete with larger firms. This can of course be due to different factors, ranging from financial market imperfections to excessively burdensome administrative requirements that are too costly for SMEs to meet. Dealing with these constraints directly as opposed to using a SME preference policy will be more efficient (Evenett and Hoekman, 2013) (p. 17, emphasis added, full references in his paper).
In the end, Hoekman recommends that the best way of ensuring good procurement outcomes is to 'promote a pro-competitive environment' (p. 21). I could not agree more and, once again, turning to the situation in the EU, this is what I have suggested is the best way forward in order to achieve the Europe2020 goals [see A 'Truly competitive public procurement as a Europe 2020 lever: what role for the principle of competition in moderating horizontal policies?' (2016) 22(2) European Public Law Journal, forthcoming]. I hope policy makers will start taking economic insight into account, particularly when it is presented in such clear and persuasive terms as Prof Hoekman does.
A more commercial approach to procurement? Reply to Uddalak Datta
The extent to which English universities are bound to comply with EU public procurement rules is an issue of growing practical relevance and increasing attention in public debates.
In his recent blog piece 'A more commercial approach to procurement?', Uddalak Datta (Senior Associate at Shakespeare Martineau) argues that
'The big procurement news story for the [higher education] sector in 2016 is likely to be the increasing boldness of universities to consider themselves outside of the regulated procurement regime. Following changes to the funding of higher education, outlined in the 2011 White Paper: Students at the Heart of the System, the funding model for universities shifted from a system of grants to repayable fees which are allocated on the basis of student choice. This was heavily trailed in the White Paper as reducing the regulatory burden on universities: “because, in the future, most funding will follow students in the form of loans and direct grant funding from the Government will decrease, fewer institutions may be subject to EU public procurement rules”. This position was met with some scepticism amongst the procurement community.
However, this year we have had sourced expert advice from a leading procurement Queen’s Counsel who takes the view that the funds provided to universities by the Student Loans Company and repayable by students on generous terms should be treated as “private funding”. As a result, this opens the way for those universities to adopt a more commercial approach to procurement. This allows universities the ability to move more quickly than the procurement legislation requires. My university clients all adopt a sensible commercial approach, so are likely to continue to adopt a procurement strategy involving widely advertised competitive tenders. The real business case lies in reducing the potential costs and delay of dealing with challenges by aggrieved bidders' (emphasis added).
So, in short and on the basis of the legal opinion of J Coppel QC (as reported by Datta in a different blog post, which unfortunately requires subscription), Datta suggests that English universities can free themselves from the strictures of EU public procurement law.
I strongly disagree with this legal assessment, principally because under the applicable EU public procurement and State aid rules, the fees that the Student Loans Companies pays English universities on behalf of designated students remains "public funding" for the purposes of EU law. This is one of the main conclusions that Dr Andrea Gideon and myself reached in our paper 'When are Universities Bound by EU Public Procurement Rules as Buyers and Providers? - English Universities as a Case Study' (2016) 1 Ius Publicum, art 4.
Andrea and I very much look forward to any opportunity to further explain our position and to contribute to this important debate on the economic governance of English universities. If you are interested, please be in touch (a.sanchez-graells@bristol.ac.uk).
Should evaluation committees Be Banned From Using 'soft quality metrics' when they assess Public tenders? (C-6/15)
In his Opinion of 10 March 2016 in TNS Dimarso, C-6/15, EU:C:2016:160, Advocate General Mengozzi has addressed the general question whether EU public procurement rules 'read in the light of the principles of equal treatment and transparency, [require] that a contracting authority should always, or, if not, in certain circumstances, make known in advance, in the contract notice or the contract documents, the method of evaluation or weighting rules used to assess tenderers’ bids'. The case is to be decided by the Court of Justice of the European Union (CJEU) on the basis of the phasing-out rules in Art 53(2) of Directive 2004/18, but the interpretation will be relevant for the future application of Art 67(5) of Directive 2014/24.
In my view, the case is interesting, not primarily because of the discussion on whether evaluation methods need to be disclosed together with award criteria and their weightings, but more importantly because it brings to light the simple fact that some evaluation methods are unable to meet the requirements of the EU rules--to the effect that the award phase needs to enable the contracting authority to actually determine which is the most economically advantageous tender with a sufficient degree of precision and certainty. Thus, I critically assess AG Mengozzi's excellent opinion from this perspective.
The Dimarso case
In this case, a Belgian contracting authority issued a call for tenders for the provision of services and indicated that the award criteria would be as follows:
1 Quality of the tender (50/100)
Quality of the preparation, organisation and execution of the work on the ground, and of the encryption and initial data processing. The services proposed must be described in as much detail as possible. It must be clear from the tender that the tenderer is capable of taking on the whole contract (minimum 7 000 samples / maximum 10 000 samples) within the prescribed 12-month delivery deadline.
2 Price (50/100)
Cost of delivering the contract in relation to the basic sample (7 000 samples) and cost per additional batch of 500 addresses supplied (amounts inclusive of VAT).
There was no further indication of how these criteria would be applied. When it came to evaluation of the tenders received, the evaluation team 'evaluated and compared with each other on the basis of the criteria set out above. First, the tenders were examined and evaluated on the basis of the “quality” criterion. For this, each tender was unanimously assigned a given score (high — satisfactory — low). Then, the price criterion was applied. On the basis of those scores, a final ranking was established' (Opinion in C-6/15, para 5, emphasis added).
Dimarso submitted a bid that scored high on quality grounds and was the highest on price. The contract was awarded to a competing tenderer which offer also scored high on quality and was lower in price. Dimarso challenges the way the evaluation team applied the award criteria on the following grounds:
the evaluation committee appears to have evaluated the tenders on the basis of the ‘high — satisfactory — low’ scale, not referred to in the contract documents, in relation to the tender quality criterion, whereas, according to Dimarso, it is clear from the contract documents that a score of 0 to 50 points should have been allocated to each tender. As regards the price criterion, the evaluation committee also failed to carry out an adequate examination, comparison and final assessment of the tenders taking into account the award criteria as set out in the contract documents, including the “50/100” weighting given to each of the award criteria in the call for tenders (Opinion in C-6/15, para 8, emphasis added).
This question raises then two issues: (1) whether the evaluation committee could rely on 'soft metrics' in order to apply the quality award criterion; and (2) whether such 'soft metrics' could be combined with straightforward price comparisons. I find these two questions of great practical relevance, so it is worth looking closely at AG Mengozzi's reasoning on these issues.
Assessment under Art 53(2) Dir 2004/18
It is worth reminding that Art 53(2) Dir 2004/18 established that
[when the award is made to the tender most economically advantageous from the point of view of the contracting authority], the contracting authority shall specify in the contract notice or in the contract documents ... the relative weighting which it gives to each of the criteria chosen to determine the most economically advantageous tender.
Those weightings can be expressed by providing for a range with an appropriate maximum spread.
Where, in the opinion of the contracting authority, weighting is not possible for demonstrable reasons, the contracting authority shall indicate in the contract notice or contract documents or, in the case of a competitive dialogue, in the descriptive document, the criteria in descending order of importance.
At this point, it is worth stressing that the only difference between Art 53(2) Dir 2004/18 and Art 67(5) Dir 2014/24 is that, in relation to the third paragraph, the seemingly permissive drafting of Art 53(2)III Dir 2004/18 ('Where, in the opinion of the contracting authority, weighting is not possible for demonstrable reasons') is tightened up in Art 67(5)III Dir 2014/24 ('Where weighting is not possible for objective reasons'). Given the strict interpretation that AG Mengozzi proposes for Art 53(2) Dir 2004/18 (which is to be shared), his Opinion will be equally relevant for the future interpretation of Art 67(5) Dir 2014/24 [along the same lines, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 384-385].
Going back to the Dimarso case, AG Mengozzi starts by summing up the content of this provision by stressing that
the obligation to indicate not only the award criteria but also ... the relative weighting given to each of those criteria, except where there are good reasons why weighting is not possible, at the time of publication of the contract notice or contract documents ... serves to fulfil the requirement of compliance with the principle of equal treatment and the associated obligation of transparency (Opinion in C-6/15, para 20).
And that
contracting authorities have an obligation to indicate the weightings of the award criteria in the contract notice or the contract documents. It is only in the event that this proves impossible, for demonstrable reasons, that those entities may opt to prioritise those criteria, which prioritisation must in any event be adequately disclosed in the contract notice or the contract documents (Opinion in C-6/15, para 23, emphasis added).
The AG clarifies (paras 24-28) that the dispute in the case at hand is not whether having indicated that Quality (50/100) and Price (50/100) meant that both award criteria had equal weight or how they had to be combined amongst themselves to reach a final ranking of tenders, but that it is rather
in essence, [whether] the method of evaluation used (‘low — medium — high’) was so vague that it prompted the contracting authority to downgrade the assessment of the ‘quality’ criterion relative to that of the ‘price’ criterion, since the second criterion alone was actually capable of eliminating three of the four tenders submitted. In reality, therefore, Dimarso contends, the price criterion benefited from a higher relative weighting than the 50% previously announced in the contract documents. In other words, Dimarso submits that, if the method of evaluation had been made known to tenderers in advance, at the stage when the contract documents were published, it would inevitably have had an effect on the preparation of the tenders (Opinion in C-6/15, para 29, emphasis added).
AG Mengozzi then approaches this argument in stages. His reasoning heavily rests on two aspects. First, that it is clear that Art 53(2) Dir 2004/18 does not explicitly impose an obligation to disclose the evaluation method in addition to disclosure of award criteria and their weightings (para 32). Second, and notwithstanding that literal interpretation of Art 53(2) Dir 2004/18, that the CJEU has been clear in the imposition of restrictions on the way the evaluation team carries out its tasks (paras 37 ff). In my reading, the bone of his argument is as follows.
In relation to the setting of sub-weightings (or weighting factors for award sub-criteria), the CJEU has indicated that this is not a breach of EU procurement rules provided three conditions are met: ie '[1] that it does not alter the criteria for the award of the contract set out in the contract documents or the contract notice, [2] that it does not contain elements which, if they had been known at the time the tenders were prepared, could have affected that preparation, and [3] that it was not adopted taking into account matters likely to give rise to discrimination against one of the tenderers' [with reference to judgments in ATI EAC e Viaggi di Maio and Others (C‑331/04, EU:C:2005:718, paragraph 32); Lianakis and Others (C‑532/06, EU:C:2008:40, paragraph 43); and Evropaïki Dynamiki v EMSA (C‑252/10 P, EU:C:2011:512, paragraph 33); Opinion in C-6/15, para 40, emphasis added].
The same restrictions should be applicable to the adoption of an evaluation method because it can create the same effects as the adoption of sub-weightings--or, in his words, 'it is not inconceivable that a method of evaluation may have an effect not so much on the award criteria themselves as on the weighting of those criteria and, as such, may contain elements which would have been capable of influencing the preparation of tenders if that method had been made known to tenderers in advance... In that event, the ex post determination of such a method for evaluating tenders by a contracting authority would be unlawful and should, therefore, have been disclosed in advance in the contract notice or the contract documents' (Opinion in C-6/15, para 46). Therefore, 'the lawfulness of a method for evaluating tenders which is determined by a contracting authority ex post depends on whether the three conditions established by the Court’s case-law ... are met' (Opinion in C-6/15, para 47).
© iStockphoto.com/RichVintage
Opportunity for further clarification
Having disposed of the core of the case, AG Mengozzi goes on to suggest that the CJEU take this opportunity to clarify its case law and to stress that the adoption of evaluation methods need to be subjected to tighter requirements. His arguments are based on the use of 'soft quality metrics'--and, more specifically, on the distrust in their ability to actually enable the contracting authority to identify the most economically advantageous tender (MEAT)--as it emerges from his explanation of his main concern:
let us imagine that, of the tenders submitted, one was far superior, in terms of quality, to the other three, including those that were rated ‘high’. In other words, one of those tenders could have been ranked ‘excellent’ in the assessment of the ‘quality’ criterion. The price proposed by that tenderer would then have reflected the excellence of the quality of the services proposed by it and would therefore in all probability have been higher than the prices offered by the other tenderers. However, since ‘excellent’ did not feature on the range of scores (low — satisfactory — high) chosen by the evaluation committee, that tender of excellent quality could not but be rated ‘high’, at the very most, in relation to the ‘quality’ criterion. Since the price proposed by the tenderer of that bid was higher than those proposed by the others, possibly even by some tens or hundreds of euros, that bid had to be rejected... in that situation, ... the contracting authority might have been deprived of the tender representing the best value for money, contrary to the spirit in which the selection of tenderers on the basis of the most economically advantageous tender takes place (Opinion in C-6/15, paras 56-57, emphasis added).
AG Mengozzi considers that this is an unsatisfactory state of affairs and, in my reading, proposes that the existing case law of the CJEU is clarified so that contracting authorities do not create a situation where tenderers submit offers which positive attributes are not captured by the evaluation method. His proposal thus focuses on the need to disclose the evaluation method to be used from the start of the procurement process. In his view, 'the likelihood is ... that, if the method for evaluating tenders in the light of the ‘quality’ criterion, as established by the contracting authority, had been known in advance by the potential tenderers, it would have been capable of affecting the preparation of their tenders' (Opinion in C-6/15, para 60). Therefore,
the contracting authority (to which it will fall to ensure that the tendering procedure benefits from maximum legal certainty and to protect itself against actions for the annulment of that procedure) must determine the method or methods to be used to evaluate tenders in the light of the award criteria as early as possible. It would be reasonable to suggest, then, that, if that is the case, there does not appear to be any overriding reason such as to justify a refusal by the contracting authority to make known to potential tenderers the methods of evaluation in question, which it will in any event already have had to determine before the call for tenders (Opinion in C-6/15, para 63, emphasis added).
AG Mengozzi then goes on to discuss whether the condition should be to only require upfront disclosure of evaluation methods which have the potential to create a substantial impact effect on the preparation of the tenders, which he dismisses (paras 70 ff), on the basis that the system would be properly balanced 'by the obligation incumbent on the unsuccessful tenderer, which bears the burden of proof, to demonstrate, by reference to specific examples in its legal action, the differences (substantive as well as purely formal) which its tender would have exhibited if the elements of the method of evaluation in question or the method itself, which the contracting authority neglected to communicate, had been adequately disclosed before the tenders were prepared' (Opinion in C-6/15, para 73).
personal critique
I share AG Mengozzi's views and concern, but I think that his proposal simply to disclose evaluation methods upfront would only carry us half way in sorting out the unresolved issue of the use of of 'soft quality metrics' in the evaluation of tenders. Regardless of upfront disclosure, which needs to take place, a method for the evaluation of quality aspects of procurement tenders that classifies tenders in pre-determined, tight 'quality levels' is bound to offer sub-optimal results. In the extreme,
a binary approach—ie, an approach based on meeting or not meeting a criterion, or an ‘all-or-nothing’ (or zero/one) approach—seems less desirable than a gradual approach or the adoption of sliding-scale-based evaluation rules ... whenever possible, it seems preferable that contracting authorities evaluate the degree to which tenders comply with each of the specified award criteria on a sliding scale (such as granting them points from 0 to 10, or 1 to 5, or any other scale). In this regard, the weighting of criteria will become less harsh and the appraisal of the tenders will arguably reflect with greater accuracy their relative strengths and weaknesses according to the overall set of award criteria' [A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 391; Along the same lines, but opting for a monetary equivalent approach, see MA Bergman and S Lundberg, ‘Tender Evaluation and Supplier Selection Methods in Public Procurement’ (2013) 19(2) Journal of Purchasing and Supply Management 73].
More importantly, the assessment of quality elements needs to take place in a manner that does result in a loss of information of the relative quality of the offers. It has been the settled case law of the CJEU that
although [the EU rules do] not set out an exhaustive list of the criteria which may be chosen by the contracting authorities, and therefore leaves it open to the authorities awarding contracts to select the criteria on which they propose to base their award of the contract, their choice is nevertheless limited to criteria aimed at identifying the tender which is economically the most advantageous (Case C-532/06 Lianakis [2008] ECR I-251 29 (emphasis added); Case 31/87 Beentjes [1988] ECR 4635 19; Case C-19/00 SIAC Construction [2001] ECR I-7725 35–36; Case C-513/99 Concordia Bus Finland [2002] ECR I-7213 54 and 59; and Case C-315/01 GAT [2003] ECR I-6351 63–64. See also Case C-448/01 EVN and
Wienstrom [2003] ECR I-14527 37).
In my view, it is particularly relevant 'to stress the need for award criteria (i) to be linked to the subject matter of the contract (ie, to be ‘relevant’), and (ii) to allow the contracting authority actually to determine which tender is economically the most advantageous (ie, to be ‘enabling’)' [A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 380]. The same reasoning must apply (functionally) to the selection of evaluation methods (for the reasons explained by AG Mengozzi, ie that they create the same effects).
Quite frankly, in view of the clear example AG Mengozzi has given us (para 56), I would have no doubt that the use of 'soft quality metrics' is not enabling because it does not allow the contracting authority to identify, with an adequate level of precision and certainty, the most economically advantageous offer. Ultimately, thus, they should be banned as a matter of EU law--and, more generally, of good procurement practice. I do not expect the CJEU to go as far as to agree with this, but I think it would be the only consistent solution, and one that would do away with the problem, rather than trying to fix it simply with the remedy of more transparency--which seems to be the token fix-all solution in procurement law.
CJEU rules on Greek Support to The Agricultural Sector under the 2008 and 2009 State Aid Frameworks: A Blow to the Commission's Waiver of Discretion? (C-431/14 P)
In its Judgment of 8 March 2016 in Greece v Commission (ELGA), C-431/14 P, EU:C:2016:145, the Court of Justice of the European Union (CJEU) ruled on the compatibility of certain measures of financial support to the Greek agricultural sector in the aftermath of the 2008 financial crisis with the EU rules on State aid--ie mainly, Art 107 TFEU and the Temporary Community Framework for State aid measures adopted by the Commission in 2008 (the 2008 TCF), as amended in 2009 (the 2009 amended TCF).
The Judgment is interesting because it assesses the boundaries of the temporary discretionary measures adopted by the Commission in order to flexibilise the enforcement of EU rules in times of economic and financial distress, on the basis that they aim 'to remedy a serious disturbance in the economy of a Member State', ex Art 107(3)(b) TFEU. In particular, the ELGA Judgment assesses whether Member States can validly raise arguments based on Art 107(3)(b) TFEU directly, regardless of the Commission's delineation of its State aid policy based on that same legal basis. Or, in simple terms, whether a valid Art 107(3)(b) TFEU can exist outside of the (temporary) scope of the 2008 TCF and the 2009 amended TCF. The case may seem very specific because of its link to the economic crisis. However, the CJEU makes some broader points about the Commission's discretion that are worth taking into careful consideration.
This discussion is relevant from a legal perspective, due to the clarification of the so far unknown exemption of the State aid prohibition of Art 107(1) TFEU on the basis of Art 107(3)(b) TFEU regarding aid aimed to remedy a serious disturbance in the economy of a Member State' [see P Nicolaides & IE Rusu, 'The Financial Crisis and State Aid' (2010) 55(4) The Antitrust Bulletin 759-782]. It is also relevant for the policy implications of the CJEU's support for the Commission's intervention [for discussion of a general framework, see H Kassim & B Lyons, 'The New Political Economy of EU State Aid Policy' (2013) 13(1) Journal of Industry, Competition and Trade 1-21; and TJ Doleys, 'Managing the Dilemma of Discretion: The European Commission and the Development of EU State Aid Policy' (2013) 13(1) Journal of Industry, Competition and Trade 23-38].
The case of the Greek support to the agricultural sector through ELGA
The specific case concerns a long-running action of the Greek State for the annulment of a 2011 Commission Decision concerning compensation payments made by the Greek Agricultural Insurance Organisation (ELGA) in 2008 and 2009, which the General Court (GC) upheld on appeal (T‑52/12, EU:T:2014:677). One of the difficulties with this case is the sequence of events. From the regulatory perspective, it is worth stressing that the 2008 TCF, which entered into force in 17 December 2008, did not cover aid to the agricultural sector. This was eventually made clear in the 2009 amended TCF, according to which
The possibility under [the TCF] to grant a compatible limited amount of aid does not apply to undertakings active in the primary production of agricultural products. Farmers, however, encounter increased difficulties to obtain credit as a consequence of the financial crisis ... it is appropriate to introduce a separate compatible limited amount of aid for undertakings active in the primary production of agricultural products.
Specifically, the 2009 amended TCF provided that
The Commission will consider such State aid compatible with the common market on the basis of Article [107(3)(b) TFEU], provided all the following conditions are met: ... (h) … Where the aid is granted to undertakings active in the primary production of agricultural products ..., the cash grant (or gross grant equivalent) does not exceed EUR 15,000 per undertaking ...
This took effect on 28 October 2009, which raises a practical temporary difficulty because, '[f]ollowing protests in January 2009 by a large number of Greek agricultural producers about the losses suffered by them in 2008 as a result of adverse weather conditions..., the Hellenic Republic provided that compensation aid of EUR 425 million would be paid to producers on an exceptional basis by ELGA' (C-431/14 P, para 11). Upon investigation, the Commission found that most of that aid was incompatible with the internal market and, in particular, that '[t]he compensation aid of EUR [387.4 million] granted to producers on dates before 28 October 2009 is incompatible with the internal market' (C-431/14 P, para 14, emphasis added).
The issue is that, in plain terms, the Commission rejected Greece's claims that the exemption foreseen in Art 107(3)(b) TFEU could be directly applied in the case because of the economic difficulties that Greece had been experiencing. The Commission rejected such claim on the basis that Art 107(3)(b) TFEU had to be applied within the boundaries of the policy documents developed to that effect, ie the 2008 TCF and the 2009 amended TCF, which could only apply for the future--that is, only from their respective dates of entry into force--which, as the agricultural sector is concerned, was that of the 2009 amended TCF: 28 October 2009. The GC upheld the Commission's approach in the following terms
185 ... it is clear that, contrary to what the Hellenic Republic claims, the Commission had to base its decision on the [TCF] and not directly apply Article 107(3)(b) TFEU in order to assess the compatibility of the payments made by ELGA in 2009 on account of the economic crisis experienced in Greece.
186 It is clear from the case-law that, in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations (see judgment[s] in Germany and Others v Kronofrance, [C‑75/05 P and C‑80/05 P, EU:C:2008:482], paragraph 60 and the case-law cited, and … Holland Malt v Commission, C‑464/09 P, [EU:C:2010:733], paragraph 46).
187 ... in the specific area of State aid, the Commission is bound by the guidelines and notices that it issues, to the extent that they do not depart from the rules in the Treaty (see judgment in Holland Malt v Commission, [C‑464/09 P, EU:C:2010:733], paragraph 47 and the case-law cited).
188 Therefore, it is necessary to reject the arguments of the Hellenic Republic to the effect that, on account of the serious disturbance in the Greek economy due to the economic crisis experienced in Greece since the end of 2008 and in 2009, the Commission should have declared the payments made by ELGA in 2009 compatible directly on the basis of Article 107(3)(b) TFEU (T-52/12, paras 185-188, emphasis added).
The CJEU has now taken the same line of argument, but has introduced important nuances in determining that
69 ... as the General Court stated in paragraphs 186 and 187 of the judgment under appeal, the Court has also consistently held that, in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and, in principle, cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations (judgments in Holland Malt v Commission, C‑464/09 P, EU:C:2010:733, paragraph 46, and Banco Privado Português and Massa Insolvente do Banco Privado Português, C‑667/13, EU:C:2015:151, paragraph 69).
70 However, in the specific area of State aid, the Commission is bound by the guidelines that it issues, to the extent that they do not depart from the rules in the TFEU, including, in particular, Article 107(3)(b) TFEU (see, to that effect, judgment in Holland Malt v Commission, C‑464/09 P, EU:C:2010:733, paragraph 47), and to the extent that their application is not in breach of general principles of law, such as equal treatment, in particular where exceptional circumstances, different from those envisaged in those guidelines, distinguish a given sector of the economy of a Member State.
71 Consequently, first, the Commission may not fail to have regard to Article 107(3) TFEU by adopting guidelines vitiated by an error of law or a manifest error of assessment, nor may it waive, by the adoption of guidelines, the exercise of the discretion that that provision confers on it. Further, when, in the exercise of that discretion, it adopts guidelines of that nature, these must be kept under continuous review for the purposes of anticipating any major developments not covered by those measures.
72 Secondly, the adoption of such guidelines does not relieve the Commission of its obligation to examine the specific exceptional circumstances relied on by a Member State, in a particular case, for the purpose of requesting the direct application of Article 107(3)(b) TFEU, and to provide reasons for its refusal to grant such a request, should the case arise.
73 In the present case, it is not in dispute that, precisely because of the effect of the economic crisis experienced by the Member States, and in particular, the Hellenic Republic, on the primary agricultural sector of the European Union, the Commission exercised the discretion conferred on it by Article 107(3)(b) TFEU by adopting the TCF and then the amended TCF, since both the former and the latter expressly mention that sector.
74 However, the fact remains that although the Hellenic Republic claimed before the General Court that Article 107(3)(b) TFEU ought to be applied directly to the facts of the case, notwithstanding the existence of the rules of conduct set out in the TCF and the amended TCF, it did not argue, in support of that claim, that there were, in the present case, specific exceptional circumstances in the primary agricultural sector concerned ...
75 Indeed, it is apparent from the documents in the file that the material that the Hellenic Republic put before the General Court was intended to establish the existence of a very serious disturbance affecting the Greek economy from the end of 2008 and in 2009, but it was not such as to prove to the requisite legal standard that that economy was faced with specific exceptional circumstances that ought, in this case, to have led the Commission to assess the aid at issue directly in the light of Article 107(3)(b) TFEU (C-431/14 P, paras 69-75, emphasis added).
implications of the cjeu elga judgement
In my view, the implications of the case are two-fold, and they concern, first, the relationship between the Commission's disclosed State aid policy and the discretion that Art 107(3) TFEU gives it; and, second, the interpretation of Art 107(3)(b) TFEU in particular.
Regarding the issue of the extent to which the Commission can deviate from adopted and publicised State aid policy, the CJEU has now made it clear that 'in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and, in principle, cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations' (para 69, emphasis added); and that 'the Commission is bound by the guidelines that it issues, to the extent that they do not depart from the rules in the TFEU ... and to the extent that their application is not in breach of general principles of law, such as equal treatment, in particular where exceptional circumstances, different from those envisaged in those guidelines, distinguish a given sector of the economy of a Member State' (para 70, emphasis added). It is thus plain that 'the Commission may not fail to have regard to Article 107(3) TFEU ... nor may it waive, by the adoption of guidelines, the exercise of the discretion that that provision confers on it' (para 71, emphasis added).
Somehow, the CJEU has made it clear that the Commission cannot hide behind its disclosed State aid policy if there are relevant circumstances that require a specific discretionary decision. This can be far reaching because the CJEU ELGA Judgment clearly opens the door to Member States' claims beyond the boundaries set by the Commission in its disclosed State aid policy, and may be the end of an era of increasing push for box-ticking exercises and for the Commission's reliance on its predetermined conditions for State aid exemption under block exemption regulations. This may well lead to an increase in litigation by Member States, which may be more willing to challenge the Commission's 'self-enforcement' approach in its recently adopted State aid 2.0 strategy [for discussion, see A Sanchez-Graells, “Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis” (2016) Journal of Antitrust Enforcement, forthcoming].
The bit that puzzles me is that, in the specific circumstances of Art 107(3)(b) TFEU and its use in the aftermath of the economic and financial crisis, the Commission had not disclosed any policy documents prior to the 2008 TCF and the 2009 amended TCF. Thus, the issue whether the Commission could block any claims prior to the entry into force of those instruments could also have triggered an argument of retroactive application of beneficial discretionary measures, which I would have expected to read in a case like this. Somehow, the issue of the inter-temporal validity of policy and legal instruments in EU economic law continues to raise unresolved issues.
Regarding the specific interpretation of Art 107(3)(b) TFEU, the implications of the ELGA Judgment are mixed. On the one hand, it seems clear that the CJEU recognises that Member States can claim the existence of specific circumstances in its economy, and this would tail up with the drafting of Art 107(3)(b) TFEU, which indicates that the exemption is available for aid aimed to remedy a serious disturbance in the economy of a Member State. On the other hand, though, the CJEU seems to require Member States to demonstrate that those circumstances 'distinguish a given sector of the economy of a Member State' (para 70) and, in the specific case, 'specific exceptional circumstances in the primary agricultural sector concerned' (para 74). This seems problematic on two fronts.
First, it clearly goes beyond the wording of Art 107(3)(b) TFEU, which has no reference to specific sectors of the economy and seems to accept the possibility of exceptional rules aimed at a distressed economy as a whole. One is left with the doubt whether this requirement to have demonstrated specific exceptional circumstances in the agricultural sector derives from the CJEU's unwillingness to quash the Commission's decision--reading the case, it seems clear that the controversy about the existence of sufficient evidence in the file could have been a driver for this outcome--or, on the contrary, it is a purposeful interpretation of Art 107(3)(b) TFEU in a way that reduces its scope. If the latter is the real reason, then the CJEU could have been more explicit in determining the parameters of such narrow interpreation, not least because of the absence of a sufficient volume of case law that interprets this provision.
And, second, it seems to create a significant limitation in the Member States' design of their macroeconomic (emergency) policies in a way that some could argue falls foul of the principle of subsidiarity. In that regard, the CJEU could have been more explicit as to the reasons for the imposition of a requirement of economic intervention in the specific sectors affected by the serious economic disturbance--which, in my view, would be relatively easy to support on the basis of the general requirements of suitability and proportionality applicable to State measures that aim to benefit from exemptions of Treaty prohibitions under EU economic law, generally.
How far can Member States push formal requirements in self-certifications? Will the CJEU give Member States a wake up call? (a propos AG Wathelet in C-46/15 )
In his Opinion of 3 March 2016 in Ambisig, C-46/15, EU:C:2016:137, Advocate General Wathelet explored the limits of the formal requirements that Member States can impose on self-certifications provided by tenderers in public procurement procedures. The case discusses the limits under the 2004 rules of EU public procurement, where the use of self-certification was certainly exceptional. However, it is interesting to consider this case as an opportunity for the Court of Justice of the European Union (CJEU) to give Member States a wake up call in the roll-out of the 2014 EU public procurement rules, where self-certification has pretty much become the rule rather than the exception. Not least, because AG Wathelet has invited the CJEU by engaging in arguments regarding the future rules.
Why will this ruling be relevant in the future?
Under the 2004 rules [specifically, Art 48(2)(a) of Dir 2004/18], economic operators taking part in public procurement procedures were allowed to furnish evidence of their technical abilities by one or more specified means of proof, which included a list of the principal deliveries effected or the main services provided in the past three years. If the contracting authority indicated that it wishes to receive such a list [Art 48(6) Dir 2004/18], evidence of delivery and services provided had to be be given in the form of certificates issued or countersigned by the competent authority that received the services or deliveries or, 'where the recipient was a private purchaser, by the purchaser’s certification or, failing this, simply by a declaration by the economic operator' [Art 48(2)(a)(ii) of Dir 2004/18, emphasis added]. Thus, the use of such self-declaration of private sector experience was foreseen as a mechanism of last resort or escape clause. This has now been significantly amended in the 2014 rules.
On the one hand, the system now relies in the self-declarations underlying the European Single Procurement Document [ESPD, Art 59 Dir 2014/24 and , see Part IV, Section B, para (1a), fn 40], which allows economic operators to simply declare that they meet the the relevant selection criteria that have been set out by the contracting authority. Only at the request of the contracting authority, and ideally only if they are chosen for the award of the contract, must economic operators furnish certificates and means of proof backing up their self-declaration [Art 59(4) Dir 2014/24]. There is no doubt, then, that the system is one where self-declarations are now the norm.
Moreover, on the other hand, it should be taken into account that '[c]ontracting authorities shall indicate the required conditions of participation ... together with the appropriate means of proof, in the contract notice or in the invitation to confirm interest' [Art 58(5) Dir 2014/24]. Their choice of means of proof is however limited. Contracting authorities shall not require means of proof other than those referred to in Article 60 Dir 2014/24. For our purposes, according to the relevant provision, the requirement remains that evidence of the economic operators’ technical abilities may be provided by one or more of several specified means of proof, which include a list of the principal deliveries effected or the main services provided over at the most the past three years (Part II of Annex XII Dir 2014/24). However, there is no specific reference of the way in which these lists need to be backed up by economic operators. Thus, the rule disputed in Ambisig that where the recipient was a private purchaser, the economic operator must back-up the relevant entry in its experience list 'by the purchaser’s certification or, failing this, simply by a declaration by the economic operator ' is gone.
The question remains, though, how will Member States (or contracting authorities) deal with self-certifications of experience under the new rules at a practical level. It does not seem too far-fetched to assume that they will carry on as usual and require the same types of supporting (self)certifications that they are used to handle under the 2004 rules. Thus, an analysis of the Opinion of AG Wathelet in Ambisig is relevant, not only in relation to the already phasing out 2004 rules, but also for the proper roll-out of the 2014 rules.
The issues surrounding formalities in Ambisig under the 2004 rules
The dispute in Ambisig was multi-dimensional, particularly because the Portuguese interpretation of Art 48(2)(a)(ii) of Dir 2004/18 was rather complex (or rather, exceedingly formalistic) when it came to the possibility of accepting certifications from private purchasers, which was expressed in the following stylised terms in the contract notice of the procurement in dispute: In order to be selected, the candidates must submit the following application documents: ... a declaration by the client on headed, stamped paper confirming ... in accordance with the model declaration in Annex ... to this contract notice. The declaration must bear a signature certified by a notary, lawyer or other competent entity, specifying the capacity of the person signing.
This raises many issues, particularly in relation with the impossibility to provide a mere self-declaration by the economic operator itself (which is no longer a legal issue under the 2014 rules). However, for the purposes of assessing the relevance of this case for the future, the relevant question before the CJEU, and towards which AG Wathelet's Opinion provides an interesting answer is as follows:
Must Article 48(2)(a)(ii), second indent, of Directive 2004/18 be interpreted to the effect that it precludes the application of rules laid down by the contracting authority, which, on pain of exclusion, require the private purchaser’s certification to contain authentication of the signature by a notary, lawyer or other competent entity?
In my view, for the reasons explained above, this will apply mutatis mutandi to any requirements applicable to certificates to be provided as back of an ESPD self-declaration of experience under the 2014 rules.
Interestingly, after engaging in another tripping exercise of law and language where a literal analysis of several language versions of the contested provision are compared and contrasted without reaching any firm position on its proper interpretation (for a recent previous case of such analysis, on that occasion by the General Court, see here), AG Wathelet considers the following:
62. First of all, the Court has consistently held that Article 48 of Directive 2004/18 establishes a closed system which limits the methods of assessment and verification available to contracting authorities and, therefore, limits their opportunities to lay down requirements.
63. The Court has also stated that even within the framework of an open system ... contracting authorities’ freedom is not unlimited and the aspects chosen must be ‘objectively such as to provide information on such standing … without, however, going beyond what is reasonably necessary for that purpose’.
64. The same considerations apply, a fortiori, to the requirements laid down in the closed evidential system under Article 48 of Directive 2004/18. In my opinion, requiring authentication of the signature of a private purchaser attesting to a delivery effected or a service provided by an economic operator who has applied for a contract goes beyond what is necessary to prove the technical ability of the operator in question and is excessively formalistic when compared to the straightforward declaration by the economic operator, which is the subsidiary form of evidence permitted under the second indent of Article 48(2)(a)(ii) of Directive 2004/18.
65. If the contracting authority has concerns about the veracity of the document submitted to it, it may also, in my view, request additional information to demonstrate the authenticity of the certification provided. Indeed, as part of the contextual analysis, it must be recalled that Article 45(2)(g) of Directive 2004/18 makes it possible to exclude from the contract any operator who ‘is guilty of serious misrepresentation in supplying the information required’ (Opinion in C-46/15, paras 62-65, references omitted, emphasis in italics in the original, emphasis in bold added).
AG Watheler's glimpse into the future
Remarkably, after carrying out a historical analysis of the way in which the 2004 rules came to have their wording, AG Wathelet uses the 2014 rules as an interpretation tool. Beyond the time-consistency (or not) of such an approach to statutory interpretation, his analysis includes policy arguments around the following considerations:
73. ... Directive 2014/24 ... goes even further in the sense of reducing evidential formalities by removing all references to certification by the purchaser.
74. From now on, Article 60(4) of that directive — which replaces Article 48(2) of Directive 2004/18 — simply provides that ‘evidence of the economic operators’ technical abilities may be provided by one or more of the means listed in Annex XII Part II, in accordance with the nature, quantity or importance, and use of the works, supplies or services’.
75. Under Annex XII Part II(a)(ii) of Directive 2014/24, the means of evidence attesting to economic operators’ technical abilities are ‘a list of the principal deliveries effected or the main services provided over at the most the past three years, with the sums, dates and recipients, whether public or private, involved. Where necessary in order to ensure an adequate level of competition, contracting authorities may indicate that evidence of relevant supplies or services delivered or performed more than three years before will be taken into account’. The need for this list to be accompanied by a certification from the purchaser has therefore disappeared.
76. Even though Directive 2014/24 does not apply to the dispute in the main proceedings, this new directive, which repeals Directive 2004/18, is relevant in that it expresses the current intention of the EU legislature. It may therefore be of assistance in ascertaining the current meaning of an earlier, similar provision, provided, however, that such interpretation is not contra legem.
77. In the present case, it seems to me that Directives 92/50 and 2014/24 confirm the EU legislature’s continuing intention not to make evidence of the technical ability of an economic operator subject to any specific formality and do so in a way that does not conflict with the wording of the applicable provision.
78. In other words, viewed in its context and from a historical perspective, the second indent of Article 48(2)(a)(ii) of Directive 2004/18 imposes no other requirement than the assurance or confirmation, by the purchaser, that the service on which the economic operator relies with a view to securing the contract was actually provided (Opinion in C-46/15, paras 73-78, references omitted, emphasis added).
I am not sure that AG Wathelet's consideration in para 75 would necessarily be the natural interpretation of Annex XII Part II(a)(ii) of Directive 2014/24, because contracting authorities may well be tempted to consider that the Directive does not actually exclude any mechanisms of certification from the purchaser (it simply just not foresees them) and, in any case, they could be tempted to exercise their prerogative to 'invite economic operators to supplement or clarify the certificates received' [Art 59(4) in fine Dir 2014/24] by requesting similarly formalised (private) purchaser certifications. Thus, his interpretation, which I personally very much share, runs against that possibility and an explicit endorsement by the CJEU would be most welcome.
In any case, what is clear is that, in AG Wathelet (and my) opinion, the 2004 and ad maiorem the 2014 EU public procurement rules preclude 'the application of rules laid down by a contracting authority which, on pain of exclusion, require the private purchaser’s certification to bear a signature certified by a notary, lawyer or other competent entity'. We can just hope that the CJEU will endorse this approach.
State aid in rescue of firms in difficulty, merger control and patent litigation (T-79/14): quite a mix
In its Judgment of 1 March 2016, Secop v Commission, T-79/14, EU:T:2016:118, the General Court (GC) has ruled on the procedural rights of interested parties in a State aid case (for discussion of related case law in this area, see here). The Secop Judgment is interesting because it includes some analysis of the similarities and differences of the rights of interested (third) parties for the purposes of, on the one hand, State aid control (Arts 107-108 TFEU and Reg 2015/1589 and its predecessor Reg 659/1999) and, on the other, merger control (Reg 139/2004) under EU law.
The analysis in the Secop case is complicated by two elements. First, by the fact that the State aid was given under the guidelines on rescue and restructuring aid (in their 2004 version) and, because parts of the restructuring plan implied the acquisition of assets of the financially distressed group (ACC) by a competitor (Secop), this required merger control clearance from the European Commission. Second, the analysis is complicated by the subsequent emergence of a patent litigation between the two industrial conglomerates involved in both State aid and merger procedures (ie between the 'surviving' parts of the distressed ACC group and Secop as the acquirer of some of its assets), which have an open dispute as to whether a valid licence agreement for the use of proprietary patented technology was entered into as part of the rescue plan. This dispute has led to two sets of proceedings concerning those patents, respectively before the German and Italian courts. It is interesting to look at the case and the GC's reasoning.
background of the case
The case concerned two industrial conglomerates: ACC and Secop. ACC was an industrial conglomerate with an Italian holding company and a number of subsidiaries at different levels. For the purposes of the case, it is only necessary to note that HCH was the holding company of the group, ACC Compressors was the operating subsidiary of first level, and ACC Austria was an operating subsidiary of second level. Following financial difficulties within the ACC group, all its subsidiaries and the holding company itself were eventually declared insolvent. As the GC summarises, 'following a call for tenders launched in the context of ACC Austria’s insolvency proceedings, a purchase agreement for the assets of ACC Austria was signed between [Secop] ... and ACC Austria’s insolvency administrators. That contract was made subject to the suspensive condition of a declaration by the European Commission that the transaction was compatible with the internal market' (para 3).
In order to cover the liquidity needs of the ACC group and to allow it to continue its activities pending the preparation of a restructuring or liquidation plan, Italy gave ACC Compressors (the parent company ACC Austria) a State guarantee of 6 months for credit lines in support of liquidity needs of a total amount of EUR 13.6 million. Subsequently, the European Commission decided not to raise objections to the acquisition of ACC Austria’s assets by Secop (see Case No COMP/M.6996 - Secop/ ACC Austria, the ‘merger decision’), thereby validating the contract between Secop and ACC Austria's insolvency administrators. Shortly afterwards, the Commission also decided not to raise objections to the State aid given by Italy to ACC Compressors (see Case No COMP/SA.37640 - Rescue aid for ACC Compressors S.p.A. - Italy, the 'contested State aid decision').
What I find interesting in the case is that the challenger of the State aid (Secop) is the beneficiary of the asset disposal under the merger procedure, which was in turn opposed by ACC Compressors as the parent company of the 'traded subsidiary' under insolvency administration (ACC Austria). Thus, Secop and ACC, as industrial conglomerates, hold opposite interests in the merger and the State aid cases.
It would seem that, by aiming to enforce the exclusive rights deriving from the patents acquired together with ACC Austria's assets against the former parent company (ACC Compressors), as well as challenging the State aid given by the Italian Republic to that same company, Secop is clearly engaging in an all-out strategy to eliminate a competitor at at time when it faces financial difficulties (which would nullify the Italian intervention to rescue it). Conversely, it could also seem that by selling assets linked to specific patents and claiming to have retained a right of use of the patents (through the entering of a valid licence agreement, or otherwise), and at the same time receiving State aid from Italy, ACC could be trying to obtain dual support in times of financial difficulty--ultimately at the expense of a competitor (Secop) that acquired assets at a time of distress. These issues and considerations are not particularly clear in the Secop Judgment, but my intuition is that they influenced the outcome of the case.
In particular, the GC's Secop Judgment refers to the action by Secop seeking the annulment of the State aid received by ACC Compressors after the transfer of ACC Austria's assets took place. For the purposes of our discussion, the two main arguments submitted by Secop are that: 1) the European Commission should have taken into account that, following the transfer of ACC Austria's assets, ACC Compressors would not be legally entitled to keep on using certain patents now held by Secop, which would prevent ACC from carrying on with its industrial activity and, ultimately, infringe the 2004 guidelines for rescue and restructuring aid; and 2) that it is discriminatory for ACC Compressors to have been able to oppose the acquisition of ACC Austria's assets by Secop in the framework of the merger control procedure (where ACC Compressors was recognised as an interested party), whereas Secop has been denied the equivalent possibility in the State aid case because the Commission decided not to open a formal investigation. The discussion focuses on each of these arguments in turn.
Arguments regarding the use of patents
On the substance of the dispute, primarily, Secop contends that 'following the disposal of ACC Austria’s assets, the patents at issue can no longer be used by ACC Compressors, which must, therefore, be considered to be a firm emerging from the liquidation of an existing firm and, consequently, a newly created firm ... failing the ability to use the disputed patents, ACC Compressors does not have sufficiently developed structures to be eligible for rescue aid' (para 30). This argument concerns point 12 of the 2004 guidelines for rescue and restructuring aid, which indicated that 'a newly created firm is not eligible for rescue or restructuring aid even if its initial financial position is insecure. This is the case, for instance, where a new firm emerges from the liquidation of a previous firm or merely takes over that undertaking’s assets. A firm is in principle considered to be newly created for the first three years following the start of operations in the relevant field of activity. Only after that period will it become eligible for rescue or restructuring aid …’. The GC dismisses this argument on the following grounds:
35 First, ACC Compressors and ACC Austria were initially part of one and the same undertaking in that the two companies produced the same products, on two different sites, but under the same economic management. Upon the transfer of ACC Austria’s earning assets ... it is true that the volume of activity of this firm had been reduced, since the activities corresponding to the production site located in Austria no longer formed part of it. Thus, the undertaking to which the contested aid ... was granted comprised only ACC Compressors’ earning assets. Nevertheless, ACC Compressors managed the undertaking concerned, both before and after the transfer, and ... it carried on ... albeit in a reduced fashion, the production and marketing of compressors, which was the traditional activity of that undertaking. Therefore, contrary to the applicant’s claims, it was the same undertaking as that which had been making compressors since 1960.
36 Second, ... in the situation in which the assets are transferred, it is not the entity formed of the economic activities retained by the transferor company that is relevant, for the purpose of the classification ‘newly created firm’ but the entity made up of the economic activities of the transferee company, within which the transferred assets were integrated. It is also normal and reasonable for a firm in difficulty to dispose of certain assets and focus its activity on its core business, whether from a geographical or sectoral perspective, in order to improve the chances of economic recovery. Point 39 of the Guidelines thus expressly envisages the divestment of assets as a means of preventing undue distortions of competition, in the context of the examination of a restructuring plan for the purpose of granting restructuring aid. It would be contrary to the overall purpose of the Guidelines for such a sale of assets to lead systematically to the exclusion of the transferring company from the benefit of rescue aid.
37 The fact that a legal dispute over the ... patents is under way between ACC Compressors and [Secop] cannot lead to a different assessment.
38 Indeed, at the time the contested [State aid] decision was adopted, the Commission could take into account only the factual and legal situation of ACC Compressors as it was at the date of that adoption; at the most, it had to take into account the foreseeable evolution of that situation, for the period for which rescue aid was granted, namely, six months ... However ... at the date of the adoption of the contested [State aid] decision, ACC Compressors was still using the disputed patents to manufacture compressors ... and there was nothing to indicate that this situation could have changed in the six following months.
39 In addition, the existence of the patent dispute was not relevant for the purposes of assessing the compatibility of the contested aid with the internal market. It is true that, had [Secop] won the case in the patent dispute, it would have been conceivable that ACC Compressors could no longer have used the disputed patents and would, accordingly, have had to cease production of a significant range of compressors ... However, this also depended on the question of whether, after a possible defeat in the courts, ACC Compressors could obtain a user license for those patents. Moreover, it could not be ruled out from the outset that it could offset the possible disposal of its activity producing ... compressors against the development of other lines or activities. In any event, it must be considered that it was not for the Commission to anticipate the outcome of the patent dispute, pending before the national courts at the date of adoption of the contested decision, by substituting its assessment for that of the competent courts, seized of that dispute.
40 Finally, it is appropriate to reject the applicant’s argument ... that the Commission ought to have taken into account that, in the context of the merger procedure, ACC Compressors itself had indicated that, if [Secop] were to purchase the assets of ACC Austria, it could not pursue its production of compressors, since it would not then be able to use the disputed patents any longer.
41 In the merger decision, the Commission considered ACC Compressors’ claims and found that, given, in particular, the patent dispute between the two parties, it was not inconceivable that an agreement on a licence should be concluded between them. The Commission had therefore already found, in the merger proceedings, that ACC Compressors’ claims that it could not pursue the production of compressors when there was no licence for the disputed patents were hypothetical (T-79/14, paras 35-41, emphasis added).
I find the second part of the GC's position difficult to share. In particular, I struggle to understand why the Commission did not require the granting of a sufficient licence as a condition for the clearance of the merger. This would have avoided all issues leading to the existing patent litigation and, in the specific circumstances of the State aid case, it would have also allowed for the rescue and restructuring plan to avoid a major risk of discontinuation of industrial activity by the beneficiary of the aid, which would have seemed desirable.
It is clear that the GC cannot review or alter the merger decision when reviewing the contested State aid decision, but it seems strange that it shows such deference to the Commission's argumentation in the merger decision, which is very weak. Indeed, the Commission's considerations (as presented by the GC in para 40 and 41) are equally hypothetical and rather counterintuitive--why would the companies reach a licence agreement now, when they could have included it in the negotiations leading up to the contract for the purchase of the assets? Were there any impediments for ACC Compressors to obtain that licence via the insolvency administrators of its subsidiary ACC Austria.
Somehow, it seems that the Commission was cutting corners in its analysis during the merger control procedure, particularly by failing to impose a behavioural remedy that could certainly have dispelled uncertainties in the market prognosis. Then, it seems once again too lenient for the GC to allow the Commission to also cut corners in the State aid case by refusing to open a formal investigation, where it would have had to take Secop's arguments into consideration and dispose of them in a more robust manner.
Arguments regarding the asymmetrical access by interested parties to merger and State aid procedures
On the procedural side of the dispute, in short, Secop submits that 'it has not had the opportunity to present its views in the State aid procedure, initiated for the benefit of ACC Compressors, in order to oppose the grant of the contested aid to the latter ... On the other hand, ACC Compressors has had the opportunity, as part of the merger procedure, to oppose the takeover of ACC Austria’s assets by [Secop]. In its view, it is a violation of the principle of equal treatment, since the competitive relationship between the ACC group and the Secop group ought to have been assessed in both procedures' (para 61). The GC also dismisses this argument, following this reasoning:
62 ... the principle of equal treatment, as a general principle of EU law, requires comparable situations not to be treated differently and different situations not to be treated in the same way, unless such treatment is objectively justified ...
63 ... both in the context of a State aid procedure and in a merger procedure, the competitors of the firms at issue have no right to be automatically associated with the procedure, and this is particularly so in the context of the initial phase of the procedure, in the course of which the Commission makes a preliminary assessment of either the aid at issue, or the notified merger.
64 Indeed, first, as far as concerns State aid ... It is only in connection with the [the actual investigation stage referred to by Article 108(2)], which is designed to allow the Commission to be fully informed of all the facts of the case, that the FEU Treaty imposes an obligation, for the Commission, to give interested parties notice to submit their comments ... It follows that interested parties, other than the Member State concerned, including competitors of the aid recipient, such as the applicant in the present case, have no right to be associated with the procedure in the preliminary examination stage.
65 Secondly, as regards mergers, ... the Commission may hear — on its own motion — natural or legal persons other than the notifiers and other parties to the proposed merger, but it is obliged to do so only on the two conditions that those persons have a sufficient interest and that they make such a request ...
66 ... ACC Compressors’ position in the merger procedure was not only that of a competitor of [Secop], the undertaking notifying the merger, but also one of an ‘interested party’ ... in that, as ACC Austria’s parent company, all assets of which were to be sold, it had to be assimilated to the vendor of those assets and, therefore, had the status of party to the proposed merger. However, unlike its competitors ... interested parties have the right to express their view at all stages of the procedure, including the preliminary phase ...
67 It must therefore be stated that the situation of the applicant, under the State aid procedure that led to the contested decision, is different from that of ACC Compressors under the merger procedure that led to the decision on the merger, in that ACC Compressors had a right to be heard before the adoption of that latter decision. Consequently, the fact that the Commission did not, before adopting the contested decision, give the applicant the opportunity to state its point of view does not infringe the principle of equal treatment (T-79/14, paras 62-67, emphasis added and references to further case law have been omitted).
I find this analysis too formalistic and, in my view, the GC has ultimately failed to engaged with the argument on discrimination at a substantive level. The recognition of specific rights to interested parties in merger proceedings is not a useful comparator in this case. Rather, the GC could (should) have focused on the different access to the Commission given to competitors in merger cases and in State aid cases, particularly at the initial stage of proceedings, and assessed from a functional perspective whether that difference makes sense (ie is justified and proportionate). In my view, it is not.
More importantly, the Secop Judgment moves in the same direction as a line of case law where the GC is making it increasingly difficult for competitors to challenge State aid decisions. This is very counter-productive for the consolidation of a State aid 2.0 control system, where the Commission needs to increasingly rely on market intelligence provided by third parties and market complaints raised by competitors. This line of case law will, ultimately, consolidate the ineffectiveness of the EU State aid rules [as discussed in detail in A Sanchez-Graells, “Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis” (2016) Journal of Antitrust Enforcement, forthcoming]. This is an undesirable development of EU economic law in this area.
New Paper: "Exclusion of Economic Operators from Public Procurement Procedures. A Comparative View on Selected Jurisdictions"
I have uploaded a new paper on SSRN, entitled: 'Exclusion of Economic Operators from Public Procurement Procedures. A Comparative View on Selected Jurisdictions'. In this paper, I focus on issues that may be relevant for Member States transitioning from the exclusion rules under Directive 2004/18 towards those in Directive 2014/24.
In the more elaborate terms of the abstract:
This chapter takes a comparative view on the rules applicable to the exclusion of economic operators from public procurement procedures covered by the EU rules. It focuses on seven Member States (France, Germany, Italy, Portugal, Romania, Spain and the United Kingdom) and in their law, administrative and judicial practice under the framework created by Directive 2004/18. When possible, the chapter also looks into the likely changes that the transposition of Directive 2014/24 will bring about, particularly in those of the covered jurisdictions that have been quicker to move towards its transposition (namely, France, the United Kingdom and, to some extent, Germany).
The chapter pays attention to both substantive and procedural issues regarding the exclusion of economic operators. Given that the 2004 framework was limited to substantive provisions (ie grounds for exclusion included in art 45 dir 2004/18), one would expect to see convergence on substantive issues, as well as a relatively high level of variety in both the procedural setting, the legal mechanisms and the actual practice of exclusion of economic operators. This chapter tests this intuition by looking in detail at several substantive and procedural regulatory choices adopted by the Member States, mostly under the 2004 framework. It then reflects on the implications of those findings for the implementation of the revised 2014 framework for the exclusion of economic operators from procurement procedures. The chapter submits that for discretion-oriented Member States the main challenges will revolve around compliance with the Charter of Fundamental Rights of the European Union, whereas for procedure-oriented Member States the challenges will lie in trying to gain advantage of the flexibility afforded by the new rules in Directive 2014/24, as well as to avoid liability for the imposition of unjustified requirements on economic operators.
As always, comments most welcome. The full citation of the paper is A Sanchez-Graells, 'Exclusion of Economic Operators from Public Procurement Procedures. A Comparative View on Selected Jurisdictions', in M Burgi & M Trybus (eds), Qualification, Exclusion and Selection in EU Procurements, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) forthc. Available at SSRN: http://ssrn.com/abstract=2739363.
The Legal Status of the Agreement of the Heads of State or Government (re Brexit)
By Dr Phil Syrpis, Reader in Law (University of Bristol Law School).
(c) http://arthur.co.uk/
On 19 February 2016, sometime well after breakfast, the members of the European Council reached an agreement concerning a new settlement for the United Kingdom within the EU. The Government was quick to proclaim that the UK’s ‘special status’ in ‘a reformed European Union’ amounts to ‘the best of both worlds’. David Cameron’s ‘hard-headed assessment’ is that the UK will be stronger, safer and better off by remaining inside this reformed European Union, and so he is recommending that the British people vote to ‘remain’ in the in-out referendum on 23 June.
The substance of the reforms, which focus on economic governance, competitiveness, sovereignty, and welfare and free movement, is and will continue to be much debated. This contribution instead focuses on a more technical question - the legal status of the deal – a subject which is now said to be creating ‘open warfare’ in the Tory party.
Let me attempt to distil the question. To do so I focus on one key aspect of the Agreement; the agreement to restrict the social benefits payable to migrants. In this area, there is pre-existing Court of Justice case law interpreting the provisions of the Treaties and the relevant secondary legislation. Many governments have argued that the case law goes too far, and that it creates threats to the sustainability of social security systems. This agreement amounts to a further attempt to limit the rights which will be available for migrants; specifically in the UK. It includes elements relating to the interpretation of current EU rules, and proposes changes to EU secondary legislation. The specific question I am addressing here is whether the Agreement will be successful in influencing the Court's interpretation of the Treaties; others have already commented on the extent to which we can be sure that the legislation (and future Treaty change) envisaged in various parts of the Agreement will be adopted.
The Heads of State or Government certainly appear to have intended to attach the greatest possible legal significance to their Agreement. They assert that ‘the content of the Decision is fully compatible with the Treaties’. Its intent is to clarify ‘certain questions of particular importance to the Member States so that such clarification will have to be taken into consideration as being an instrument for the interpretation of the Treaties’ (emphasis added). The UK Government is at pains to make the same point. In its White Paper it includes a section assuring us that the agreement is ‘legally-binding’ (see paras 2.128-2.145). It makes the points that the Agreement is legally binding under international law; and that it will be registered as a Treaty with the United Nations if the British people vote to remain in the EU. Most pertinently, it argues that agreements between Member States on the meaning of the EU Treaties are required to be taken into account by the Court of Justice when interpreting the Treaties in the future (here it refers to the Court’s judgment in Rottman). It also refers to a note by Professor Sir Alan Dashwood which suggests that there is nothing in the Agreement ‘likely to encounter the disapproval of the CJEU’, and no proposed amendments to EU legislation which would ‘run a serious risk of being struck down by the CJEU’.
I have written (in the 2015 Common Market Law Review) on the relationship between EU primary and secondary law, essentially asking a question which resonates with public lawyers – whether the adoption of secondary legislation is able to influence the Court's interpretation of the Treaties. I framed the discussion in the following way: ‘Most lawyers would, at first blush, assume that there is a simple hierarchical relationship between primary and secondary law, that primary law does and should take priority over secondary law, and that the adoption of secondary legislation should not affect the way in which primary law is interpreted. Political scientists on the other hand, might expect the passage of legislation to have a greater impact on the case law of the Court. The somewhat confused reality which this article exposes, illuminates the tensions between the judiciary and the legislature in the EU, and between what may be termed the “legal” or “political” nature of the EU’s constitutional settlement.’ My main conclusion was that ‘it is almost impossible to predict with any certainty what effect the passage of secondary legislation will have on the pre-existing case law of the Court on the interpretation of primary law’.
The issues raised by the Agreement are, notwithstanding the claims made for its status, similar to those raised by the passage of secondary legislation. The extent to which the political institutions are, and ought to be, able, to tie the hands of the Court remains a matter of acute academic controversy. I argue that the Court should be more responsive to the interventions of the political institutions; and that it ‘should strive to maintain clearer standards as regards not only the intensity of judicial review, but also the way in which its arsenal of interpretative strategies are deployed and combined’.
Any uncertainty of course plays into the hands of the ‘leave’ campaign. It is an unavoidable feature of all constitutional systems that it falls to courts to assess the legality of, and to interpret, the interventions of the political institutions with reference to constitutional texts; and so certainty is, for better or worse, unattainable. But, like Sir Alan Dashwood, I am confident that the Court will not attempt to unpick the Agreement of the Heads of State. In its case law relating to, for example, economic and monetary union and citizenship (most recently last week…), the Court has shown itself increasingly willing to embrace political reality and endorse the choices of the Member States in areas of high political salience. This Agreement represents an unambiguous attempt by the political institutions at the highest level to influence the Court’s interpretation of the Treaties. It is unusually clear and forthright. And while the legal obligation on the Court is indeed no stronger than an obligation to take the political signal ‘into account’, the mind of the Court should be concentrated. In its future case law, it will be faced with a stark choice – either choose an interpretation of the Treaties which is in conformity with the Agreement and endorse the new restrictions; or precipitate huge constitutional conflict within the EU by insisting on interpreting the Treaties in a manner antithetical to the Agreement. It only has one realistic choice.