Some thoughts on recent ECJ case law at ERA's annual conference on European Procurement Law

One more year, it has been a pleasure to participate in ERA's Annual Conference on European Public Procurement Law, and to exchange views with practitioners and policy-makers about recent developments and future challenges in this important area of EU economic law. It has also been an honour to contribute to the celebrations of ERA's 25 years of good work towards improving our knowledge of EU law.

This year, I was invited to provide some critical remarks on recent case law of the ECJ in some areas of practical relevance and, in particular, on case law concerning:

1. the rules on subcontracting and teaming or consortium bidding,
2. the rules on contract modification and termination; and
3. the scope of the concessions Directive.

My main remarks concentrated on

1. the difficulties of keeping the right balance between preserving the maximum possible procedural flexibility to ensure participation in tenders by groupings of economic operators (loosely defined) and allowing the contracting authority to scrutinise the technical and economic standing of joint bidders--while ensuring that competition rules are respected and the supreme and directly effective provisions of the TFEU (notably Art 101) are enforced at all levels of procurement activity;
2. the challenges in adapting a commercially-oriented approach to the adjudication of disputes at execution phase where the risks of discriminatory or anti-competitive procurement are largely absent; and
3. the limited advances made so far in fine tuning the definition of a concession contract, in particular in cases not involving relatively straightforward instances of improper use of the label 'concession' (such as using it to refer to licences or authorisations), or not involving the need to differentiate the scope of application of the rules in what is now Dir 2014/23 and competing frameworks, such as the Services Directive or the Transport Regulation.

The slides I used appear below. The presentation was recorded and will soon be available (keep an eye on @how2crackanut for details).

Impact of the ECJ’s jurisprudence in practice (ERA March 2017) from Albert Sanchez Graells

Study on the feasibility of joint cross-border procurement published (teaser)

The European Commission has recently published the "Feasibility study concerning the actual implementation of a joint cross-border procurement procedure by public buyers from different Member States" prepared by BBG and SKI. This study is a follow up on the Commission's work on collaborative procurement (see here and here) and is primarily meant to "to carry out a feasibility study on the possible implementation of Joint Cross-Border Public Procurement (JCBPP), in particular focusing on the legal, administrative and organisational aspects of four selected JCBPP projects" (p. 9).

At least in part, the study would have to address the complex legal issues involved in JCBPP projects, which I mapped out in my paper “Collaborative Cross-Border Procurement in the EU: Future or Utopia?” (2016) 3(1) Upphandlingsrättslig Tidskrift 11-37 (to which the study refers). However, the study does not really dig deep on any of those legal issues and keeps the analysis at a very shallow level -- eg stressing on repeated occasions that "JCBPP is more a matter of legal complexity than of legal barriers", which I struggle to understand.

I find particularly puzzling that its main conclusions concerning legal aspects of JCBPP is that

... we must be aware of the fact that the evolution of the legal framework dealing with JCBPP is still in progress and that the regulatory approach towards the complex theme of JCBPP has not wholly settled yet in all its details. Just as in other areas of EU harmonisation legislation, a number of questions will have to be dealt with by the Member State’s legislation and jurisdiction, but may eventually also need answering by the European Court of Justice. However, the relevant legal provisions on the EU level show some gaps, are not always fully coherent and definitely pose a number of interpretational problems of their own. Non[e]theless in looking at the cases portrayed in this study, we also see that from a legal point of view (sic) JCBPP initiatives are not necessarily only a risky endeavour, but also open up opportunities for achieving the goal of enhancing efficiency in public procurement (p. 111, emphasis added).

I am going to re-read the study carefully and comment on it in more detail soon, trying to identify in particular the ways in which the case studies it discusses offer viable legal solutions or allow contracting authorities to exclude or mitigate the legal risks derived from JCBPP. For now, I just wanted to raise awareness of the publication of the report.

We will find out soon enough ~ or maybe not. Some final thoughts on Brexit before the trigger of Art 50

I have spent the last 24 hours in London, attending two very different academic events with only one common theme: Brexit and its long shadow over all areas of law. As a result of the discussions in both events, I have become more painfully aware than ever before (and also rather depressed) about two things.

First, the existence of (explicit and/or implicit) mutually-incompatible redlines on both the UK and the EU negotiating position that, by any objective assessment, make it extremely difficult (to understate this point) that the withdrawal negotiation process due to start on 29 March 2017 will yield significant progress (either at all, or any time soon) -- unless and until the parties significantly deviate from their stated (or expected) demands, which does not seem politically feasible at the moment.

Second, the wild divergence of expectations between UK-based and EU-based scholars and practitioners (which is possibly due to a pragmatic vs a principled approach to the analysis of Brexit and its implications) concerning the possibility of actually (ever) finding legally workable solutions to a myriad issues without requiring long transitional periods leading to not less long-term significant constitutional changes, and a whole host of renegotiation of international agreements (in particular concerning WTO law).

On the whole, I think that the process about to unfold will unavoidably damage EU law as a system. It seems to me unavoidable because, if EU law is upheld, it will be the prime constraint on the (EU's) flexibility to strike a withdrawal deal acceptable to the UK. On the contrary, if EU law is not upheld or if its application is fudged, its effectiveness will be eroded and the European project will become (or deepen its character of being) political rather than based on the rule of law. Finally, in what I consider the worse case scenario, even if Brexit is eventually abandoned or reversed, the strain put on the legal foundations of the EU's legal system during the withdrawal negotiations may well damage the foundations to the point of collapse (in the mid to long run).

I cannot avoid being extremely pessimistic about the developments that we will witness in the next two years or so, and about their long-lasting effects for the EU legal order. I am not sure we are about to see a constitutional moment for EU law, but rather a deformative episode from which I (still) doubt the rule of law will emerge reinforced. As a legal scholar, this saddens me. And I also still wish I got all of this wrong. I guess we will will find out soon enough ~ or maybe not.

Can a requirement to furnish financial guarantees (performance bonds) be considered a selection criterion based on economic and financial standing (C-76/16)?

In his Opinion of 21 March 2017 in INGSTEEL and Metrostav, C-76/16, EU:C:2017:226, Advocate General Campos Sánchez-Bordona addressed the compatibility of tender requirements aimed at ensuring the (future) provision of performance guarantees related to the execution of a works contract with the rules of the 2004 EU public procurement directive (Dir 2004/18). He submitted to the European Court of Justice (ECJ) that such requirements are compatible with EU law and, in particular, with the rules on selection criteria based on the economic and financial standing of economic operators seeking to be awarded public contracts under Art 47 Dir 2004/18. In doing so, he rejected the European Commission’s submission that such requirements, inasmuch as they affected the phase of execution of the contract, ought to be assessed in accordance with the rules on the setting of conditions for the performance of contracts under Art 26 Dir 2004/18.

AG Campos also addressed a point on the time-sensitivity of remedies’ availability (ie whether challenges by disappointed tenderers are barred where the performance of the contract by the awardee is almost complete) under the EU Remedies Directive (Dir 89/665 as amended by Dir 2007/66). He considered that, as interpreted in connection with Art 47 of the European Charter of Fundamental Rights, the procedural rights created by the Remedies Directive do not lapse simply due to the fact that the successful tenderer has almost completed performance of the contract at the time the disappointed tenderer launches its challenge, or the review authority or court is to issue its ruling.

While I fully agree with AG Campos concerning the procedural aspects of his Opinion (which I would have thought both clear and uncontroversial), I think that his analysis of the substantive issues improperly characterises the requirement for the (future) provision of a performance guarantee as a valid selection criterion based on the economic operator’s economic and financial standing. On that point, I consider the analytical framework proposed by the European Commission (partially) preferable. This post develops the reasons why I think the ECJ should not follow AG Campos on the substantive points of his INGSTEEL and Metrostav Opinion.

In the case at hand, “the contract notice required a ‘statement by the bank (loan agreement or credit facility agreement) recording the bank’s undertaking to the effect that the tenderer, in the event of acceptance of its tender, will be in a position to provide a guarantee of EUR 3,000,000 to ensure performance of the contract. The evidence must show that the funds will be available to the tenderer after conclusion of the contract. The evidence must be certified by a person authorised by the bank for that purpose.’” (para 15, emphasis added).

It is hard to make sense of the requirement (which may be a translation issue), but this seems to concern the need to provide a stand-by financial guarantee to the benefit of the contracting authority, which the issuing bank commits to firm up upon award of the contract.

Be it as it may, the disappointed tenderer did not provide such a bank statement, but rather proof of the opening of a current-account credit facility for an amount exceeding EUR 5,000,000 and a sworn statement that, if awarded the contract, they would keep a minimum of EUR 3,000,000 for the duration of the contract (para 17). It is not clear from the factual description in the Opinion whether there was any commitment to provide a guarantee using those funds as collateral, but it does not seem to be the case.

The contracting authority did not accept these documents as evidence of the economic and financial standing of the tenderer and thus excluded it from further participation. The rejection was eventually challenged before the Supreme Court of the Slovak Republic, and the preliminary reference to the ECJ derives from a procedure mainly aimed at assessing (i) whether the contracting authority could introduce this requirement in compliance with the rules on economic and financial standing (Art 47(1)(a) and (4) Dir 2004/18); and (ii) whether the contracting authority should have accepted the documentation as alternative to the specified bank certificate (Art 47(5) Dir 2004/18). Only the first point deserves analysis.

It is important to note here that the European Commission has challenged the legal subsumption of the material facts under Art 47 Dir 2004/18 and submitted that “Article 47 of Directive 2004/18 relates to the economic and financial standing of the tenderer at the time of award of the contract. However, the tenderer’s economic and financial standing during performance of the contract is governed by Article 26 of that directive, concerning conditions for performance of the contract. At all events, in the light of the wording of the question, the Commission suggests that the condition imposed on the tenderer should be examined under both Article 26 and Article 47 of Directive 2004/18” (para 28).

Further, the Commission indicated that “Article 26 of Directive 2004/18 provides that the conditions for performance must appear in the contract notice, a requirement fulfilled in this case, and must be compatible with EU law. Citing the case-law of the Court, the Commission argues that, as Directive 2004/18 does not exhaustively govern the special conditions for performance, those conditions may be assessed in accordance with primary EU law” (para 29, emphasis added).

AG Campos disagreed with the Commission and considered that the approach of assessing the requirement as a performance clause was incorrect. He emphasised that Art 26 Dir 2004/18 is concerned with other issues “and applies, in particular, to social and environmental objectives” (para 43). More importantly, he considered that “in requiring certain minimum levels of economic and financial standing, the presumption in Articles 44 and 47 of Directive 2004/18 is that the proof of that standing must refer to the period of performance of the contract. It would not be reasonable to require economic and financial standing only at the time of award of the contract and for the contracting authority not to have the right to request guarantees that the future successful contractor will retain its economic and financial standing during the period of performance of the contract” (para 44 emphasis added).

Furthermore, after creating an analogy with the case law concerned with reliance on third party capacities, he gave significant weight to the functional criterion that “[w]hen financial or economic resources are concerned, it is reasonable that these should not be ephemeral but should last until the contractual obligations have been performed” (para 48). In any case, AG Campos explicitly saved the requirement due to the fact that the value (EUR 3,000,000) “was related and proportionate to the subject-matter of the contract” and that the duration of the financial guarantee “was the same as the period of performance of the contract” (para 50). However, he did not provide any reasons for the finding that a 12% financial guarantee is proportionate (the estimated value of the contract was just above EUR 25,000,000), or why a duration of 48 moths without a reduction in the value of the guarantee did not need to be assessed in relation to the potential evolution (ie reduction) of risk as the completion of the contract progressed.

In my view, even if the outcome of the analysis may be seen as defensible (of which I am not convinced), the analysis itself is technically flawed. Put simply, the EU public procurement directives (both the 2004, as well as the 2014 generation) do not regulate the possibility for contracting authorities to demand financial guarantees from economic operators participating in tender procedures – neither tender/participation guarantees, nor performance/completion guarantees [see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 326-7 & 425-6]. This not regulated as part of the assessment of the economic operator’s economic and financial standing for selection purposes – which is designed as an information-based screening process, not as a phase where the contracting authority can secure financial rights for itself –and this is also not related to the conditions for the performance of the contract. Moreover, a reinterpretation of the selection rules on economic and financial standing (but also on professional or technical standing) that made them forward looking would create significant distortions in the system created by EU public procurement law, as well as potentially make it impossible to assess.

In the absence of rules on financial guarantees in the relevant EU public procurement directives (ie Dir 2004/18), the analysis of requirements for economic operators to furnish them to the contracting authority should be analysed in accordance with primary EU law – as the Commission rightly stressed, although on the basis of the applicability of Art 26 Dir 2004/18, with which I disagree. In that context, the AG (and in the immediate future, the ECJ) should have assessed whether the requirement of providing a 12% financial guarantee for a duration of 48 months is a barrier to free movement – which I think it is – and whether it can be justified – which I am not sure it can be, as both (i) the public interest in reducing the financial exposure of contracting authorities engaging in public contracts is questionable, and (ii) it may well be (strictly) disproportionate due to the impact it can have on SME access to procurement.

Therefore, the analysis of proportionality need not be intra-tender or confined to the terms of the contract (which could already make it fail), but rather of a higher level of generality, concerning the policy of demanding financial guarantees and its justification from a public interest perspective. Given its detrimental effects for competition, I would not think that demanding these guarantees is necessarily exemptable under free movement rules, at least in relation with contracts that do not raise specific or extraordinary risks.

From that perspective, the proportionality assessment carried out by AG Campos in INGSTEEL and Metrostav almost obiter may not necessarily cover all bases, as it is carried out from the perspective of the link of the requirement to the subject matter of the contract, rather than the perspective of seeking to justify a restriction of a fundamental internal market freedom. But, even if the same result was to be achieved, the analytical path would still be important—ie the limited scope of the exercise of assessing economic operators’ economic and financial standing should not be unduly extended.

This can have major relevance, not least because of the change that the consolidation of the principle of competition in Art 18(1) Dir 2014/24 has brought about. In the future (ie, where Dir 2014/24 is applicable to the case), in my opinion, the inclusion of requirements to provide financial guarantees should be subjected to assessment from the perspective of a potential artificial narrowing of competition. If, in a case such as INGSTEEL and Metrostav, the contracting authority excludes a tenderer on the basis of some (seemingly) formal deviation of the way in which it proposes to provide financial assurance to the contracting authority, this is bound to infringe the requirements of the competition principle. Surely, this analysis could be carried out even if the requirement was considered to pertain to the assessment of the economic operator’s economic and financial standing, but the consolidated recognition of the contracting authorities’ discretion to set those requirements in the first place may muddy the analysis. It seems conceptually preferable to consider it an independent issue, and thus subject to general principles.

Therefore, I would urge the ECJ not to follow AG Campos’ Opinion in INGSTEEL and Metrostav and rather determine that the requirement of financial guarantees was not covered by the 2004 EU public procurement rules and must thus be subjected to a standard assessment under primary EU law (and a strict proportionality test). I would also submit that, under those rules, the requirement was contrary to EU law.

Tecnoedi: An overlooked distortion of the ECJ’s approach to the assessment of cross-border interest for public contracts? (C-318/15)

In its Judgment of 6 October 2016 in Tecnoedi Construzioni, C-318/15, EU:C:2016:747, the European Court of Justice (ECJ) declared inadmissible a request for a preliminary reference sent by the Piedmont Regional Administrative Court, Italy. The case concerned the (in)compatibility with Arts 49 and 56 TFEU of an Italian public procurement rule applicable to (well) below-threshold contracts (ie tenders for works of a value below €1M), which allowed for the automatic rejection of tenders that exceeded an ‘anomaly threshold’ set by the contracting authority, without inter partes procedure.

The case offered the ECJ an opportunity to revisit very close issues to those decided in SECAP and Santorso, C-147/06 and C-148/06, EU:C:2008:277 -- which could also, conversely, have given it the opportunity of determining that the question was unnecessary and that the first principles of that decision stood. However, the ECJ decided to reject the receivability of the case for other reasons. By rejecting the request for a preliminary ruling, the ECJ did not take the opportunity to clarify (or rather, develop) the law in this area. So far, so good.

Given that it does not advance our understanding of the constraints that general EU free movement rules (or possibly general principles of EU public procurement law) impose on the treatment of apparently abnormally low tenders, the Tecnoedi case may easily fall under the radar of both practitioners (with some exceptions, see here and here) and academics (save for readers of the PPLR, which featured a comment by A Brown, 'The requirement for "certain cross-border interest" before EU Treaty obligations apply to below-threshold contacts: the EU Court of Justice ruling in case C-318/15 Tecnoedi', 2017 (1) PPLR NA14) —or, at least, that is the excuse I have given myself to seek justification for having overlooked this case for almost six months... However, not paying attention to Tecnoedi may lead us to miss a potential distortion in the ECJ’s approach to the assessment of the existence of cross-border interest for public (works) contracts.

This is an area where the ECJ’s approach is far from consistent, to say the least. The proper way of determining the (in)existence of cross-border interest for a contract remains elusive and the ECJ has not hammered down an unequivocal or clear test. In one of its most flexible and functional approximations (which I favour), the ECJ accepted that a (concession) contract of very limited financial value (due to the inclusion of a prohibition on profit-making activity) could still be of cross-border interest for business strategy reasons, such as an undertaking's goal to 'establish itself on the market of that State and to make itself known there with a view to preparing its future expansion' [see Comune di Ancona, C-388/12, EU:C:2013:734, para [51] ,discussed here].

Even if that is seen as a relative outlier, or contextualised in the line of case law aimed at establishing basic principles for the tender of services concessions prior to their subjection to the 2014 Concessions Directive, the ECJ’s more general approximation to the existence of cross-border interest for a public contract can be understood, as the referring court put it in Tecnoedi, as establishing that:

In accordance with the Court’s case-law, a contract (sic, tender) may have a certain cross-border interest not only as a result of the financial value of the contract to which it relates, but also as a result of the technical characteristics of the work and the place where the work is to be carried out (para 15).

Furthermore, in accordance with the Court’s case-law, there may be certain cross-border interest, without its (sic) being necessary that an economic operator has actually manifested its interest (judgment of 14 November 2013, Belgacom, C-221/12, EU:C:2013:736, paragraph 31 and case-law cited) (para 16).

This (seemingly) creates the need to carry out a case by case analysis based on rather open-ended indicators and aimed at demonstrating (or excluding) the scope for potential (ex ante) rather than evidenced or actual (ex post) cross border interest for the tendered contract [for discussion, see C Risvig Hansen, Contracts Not Covered or Not Fully Covered by the Public Sector Directive (DJØF, 2012) 121-160].

In the case at hand, the referring court understood that there was potential for cross-border interest for the contract because

… notwithstanding the fact that the works contract at issue … is for an estimated value of EUR 1,158,899.97, it cannot be ruled out that the contract does not have certain cross-border interest as Fossano [the place of execution of the works] is located within 200 km of the border between France and Italy and several of the tenderers admitted to the tender procedure are Italian companies which are established in regions which are not neighbouring, such as … at a distance of approximately [between 600 and 800 km] from Fossano (para 16, emphasis added).

In my view, a reasonable application of the ECJ’s previous approach/test would have waved through the case as (potentially) having cross-border interest. However, in Tecnoedi, this would have required the ECJ to deal with a very complex question and, more importantly, to keep developing non-statutory EU public procurement law on the basis of general internal market freedoms (or possibly general principles of EU public procurement law). Thus, in my view in order to avoid this difficult issue and (likely) criticisms for its judicial activism, the ECJ took a very strict approach to the assessment of potential cross-border interest in this case.

The ECJ first proceeded to recast its test for the assessment of potential cross-border interest as follows:

As regards the objective criteria which may indicate certain cross-border interest, the Court has previously held that such criteria may be, in particular, the fact that the contract in question is for a significant amount, in conjunction with the place where the work is to be carried out or the technical characteristics of the contract and the specific characteristics of the products concerned (para 20, emphasis added).

This can in itself be seen as a significant deviation -- if not an outright partial reading -- of previous case law and, in particular of SECAP and Santorso, C-147/06 and C-148/06, EU:C:2008:277, paragraph 31, on which the ECJ relies expressly in Tecnoedi. In fact, in that very paragraph, the ECJ indicated that

It is permissible ... for legislation to lay down objective criteria ... indicating that there is certain cross-border interest. Such criteria could be, inter alia, the fact that the contract in question is for a significant amount, in conjunction with the place where the work is to be carried out. The possibility of such an interest may also be excluded in a case, for example, where the economic interest at stake in the contract in question is very modest (see, to that effect, Case C‑231/03 Coname [2005] ECR I‑7287, paragraph 20). However, in certain cases, account must be taken of the fact that the borders straddle conurbations which are situated in the territory of different Member States and that, in those circumstances, even low-value contracts may be of certain cross-border interest (SECAP, para 31, emphasis added).

Thus, the ECJ seemed in Tecnoedi rather open to a certain conflation of value and cross-border interest (a move that can ow be traced back to Enterprise Focused Solutions, C-278/14, EU:C:2015:228, para 20, on which the ECJ also relies in Tecnoedi), which did not seem to follow from the previous case on which it relied. On this basis, and taking into account the arguments of the referring court on Fossano’s proximity to France and the evidence that domestic tenderers located further away decided to participate, the ECJ then established that

… a conclusion that there is certain cross-border interest cannot be inferred hypothetically from certain factors which, considered in the abstract, could constitute evidence to that effect, but must be the positive outcome of a specific assessment of the circumstances of the contract at issue. More particularly, the referring court may not merely submit to the Court of Justice evidence showing that certain cross-border interest cannot be ruled out but must, on the contrary[,] provide information capable of proving that it exists. …

… it may not be argued that a works contract … for an amount which does not equate even to a quarter of the threshold laid down by EU law and whose place of performance is located 200 km away from the border with another Member State can be of certain cross-border interest solely because a certain number of tenders were submitted by undertakings established in the Member State in question, which are located at a considerable distance from the place where the work at issue is to be carried out.

That evidence is clearly insufficient having regard to the circumstances of the case …, and, in any event, cannot be the only evidence which must be taken into account, in so far as potential tenderers from other Member States may face additional constraints and burdens relating, inter alia, to the obligation to adapt to the legal and administrative framework of the Member State where the work is to be carried out, as well as to language requirements [Tecnoedi, paras 22-25, emphases added].

This assessment by the ECJ is bound to create perplexity, not least because it adopts an anti-integrative logic that comes to say: “since there are clear regulatory and language barriers to the functioning of the internal market for public contracts, let’s not even bother to consider the extent to which fundamental market freedoms have a role in bringing them down”.

It also seems to encapsulate an approach that could limit the relevance of its case law on the application of general principles of EU public procurement law to contracts that are sufficiently close to the thresholds triggering the application of the substantive directives. This triggers questions such as how close must the value be to the directive’s thresholds for cross-border interest to be likely? If very close, then what is the purpose of this line of case law anyway, and would it not have been better to stick (strictly) to the value thresholds as redlines for EU competence (including that of the ECJ)? If not very close, then how many shades of grey do we have in this area, and how can a contracting authority (or review tribunal or court) reasonably establish the (likelihood of) applicability of general principles and fundamental internal market freedoms?

To me, these defects alone are sufficient to consider Tecnoedi a troubling distortion of the ECJ’s approach to the assessment of cross-border interest for public contract—fundamentally because it creates a crack in (if not smashes) the normative and functional logic of previous case law and, on the whole, creates a risk of significant restriction of application of the general principles of EU public procurement law going forward.

Moreover, and at a lower level of generality, I also harbour the strong suspicion that the ECJ sees this as a relatively safe or unobjectionable assessment because it concerns a rule on the treatment of (automatically identified) abnormally low tenders that may be (improperly) considered not to create a barrier to free movement because it applies at evaluation rather than selection stage—and also because the request for the preliminary ruling was clearly defective in its lack of clarity of both the content of the Italian rule and its application to the specific case (which seems not to be possible on the basis of the limited information provided in the ECJ’s judgment). Thus, the ECJ probably may have seen this approach to the assessment of cross-border interest as an easy way to return the hot potato to the referring court without burning its hands.

However, in my opinion, this approach is clearly unsafe and objectionable when put in a different (broader perspective). Let’s imagine that the challenge had been directed at a rule on selection or exclusion (eg a rule restricting participation in tenders for this type of works contracts to undertakings located in the relevant Italian region, in this case Piedmont). In that case, the ECJ may (would) have been more willing to accept that the (same) test of (potential) cross-border interest based on the exact same indicia of economic irrelevance of a 200 km distance lent itself the opposite conclusion, and thus resulted in jurisdiction of the ECJ to interpret the relevant Italian (regional) rule against Arts 49 and 56 TFEU – or, even further, in its jurisdiction to (uphold) an Art 258 TFEU decision of the European Commission finding Italy in breach of EU law for such blatantly discriminatory rule, ultimately based on the tenderers’ nationality (which could easily dwarf the ECJ’s qualms about accepting the existence of potential cross-border interest in cases such as this).

Overall, for these reasons, I consider the Tecnoedi judgment very troubling. I can only hope that it will not go unnoticed and that the ECJ will backtrack from this rigid approach to the existence of (potential) cross-border interest in a tender for a public (works) contract.

International Seminar on the Transposition of the 2014 Public Procurement Directives

I was honoured to take part in the International Seminar on the Transposition of the 2014 Public Procurement Directives organised by the Institute of Local Law of the Autonomous University of Madrid and the Madrid City Council. These are the slides (in Spanish) I used to present my views on the UK's transposition of the 2014 Public Procurement Package.

La transposición de las Directivas de Contratacion Publica de 2014 en Reino Unido from Albert Sanchez Graells

GC case law round up: Three relatively recent public procurement judgments (T-700/14; T-74/15; T-441/15)

After some months of having them sitting on my desk, and now that teaching obligations at the University of Bristol Law School subside a bit, it is about time to comment on three relatively recent Judgments of the General Court (GC) of the Court of Justice of the European Union (CJEU) in the area of public procurement. Of the three cases, two concern abnormally low tenders and the other  a tricky point about the scope of the CJEU's jurisdiction in the context of framework agreements--which creates some fuzziness in the delineation of private/public law dimensions of public procurement by the EU Institutions. Anecdotally, two of the cases involve European Dynamics, and two of them are available in French but not in English.

Abnormally low tenders (I): Substantive Aspects

Judgment of 26 January 2017, TV1 v Commission, T-700/14, not published, EU:T:2017:35. This tender concerned the provision of integrated audiovisual production, dissemination and archiving services for the European Commission in the context of the Europe by Satellite programme and was, thus, regulated by the Financial Regulation (version of 2012).

The procedure for the award of the contract foresaw three technical quality criteria in addition to the price criterion. It established that only offers that achieved a minimum score of 60% under each technical quality criterion and an overall score of at least 70% on their overall technical quality would be considered for award. It also determined that the overall score of a given tender would be calculated as follows: the ratio between the lowest priced offer and the price of a given offer would be multiplied by 40, and this would be added to the total (technical) quality score (over 100) multiplied by 60 (para 4, own translation from French). In other words, the award criteria relied on 60% of the points given to an absolute evaluation of technical quality and 40% of the points given to a relative evaluation of the prices offered by different tenderers. Given the relative assessment of the price component, this type of evaluation method is prone to challenges based on the treatment of seemingly abnormally low tenders.

Indeed, amongst other legal grounds, the award of the contract was challenged on this basis; the incumbent provider and disappointed tenderer, TV1, argued that the Commission had infringed Art 110(2) Financial Regulation, in conjunction with Art 151 of its Implementing Regulation and the general duty of good administration by not proceeding to a detailed assessment (and rejection) of the seemingly abnormally low offer submitted by the successful tenderer. The GC will eventually reject the complaint in its entirety. In my opinion, some parts of the reasoning of the GC deserve closer attention.

After reproducing consolidated case law on the interpretation of these provisions and the circumstances under which a contracting authority may (or should) have doubts about the viability of a seemingly abnormal tender (paras 32-42), as well as on the broad discretion enjoyed by the contracting authority and the limited review in which the court should engage (para 44), the GC proceeds to analyse the different arguments raised by TV1 against the Commission's decision. In particular, it is interesting to note that the GC dismisses arguments put forward by TV1 concerning the duty the Commission should have had to identify the winning offer as seemingly abnormally low on the basis of the fact that (i) it was 40% lower than the maximum annual budget allowed by the Commission in the tender documents and (ii) it was 11% lower than TV1's offer.

(i) Interestingly, the reasoning of the GC concerning the irrelevance of the fact that the winning tender was 40% below the maximum budget set by the Commission (and that the challengers' offer was itself 32% below maximum budget) rests on the inaccuracy of the budget set by the Commission. Apparently, when setting the maximum budget, the Commission had failed to take into account sharp reductions in the cost of providing the services now (re)tendered (para 49). Thus, the GC was satisfied that the discrepancy between maximum budget and actual offers was a result of the Commission's inaccurate budgeting rather that of abnormal low prices included in the offers. Logically, this makes sense and it could have well been the case. It does, however, raise important concerns about the accuracy and usefulness of budgeting for public contracts under the Financial Regulations--but that is probably a discussion to be had some other time.

(ii) The reasoning of the GC concerning the 11% discrepancy between the lowest (winning) tender and the next (challenger) tender is also interesting. As a matter of general consideration, the GC stresses that "[a]n offer may be cheaper than another without being abnormally low" (para 58) and that "[t]his also applies to a situation in which the tender price of the successful tenderer is lower than that of the tender of the incumbent provider. Otherwise, the incumbent provider could systematically question the reliability of the cheaper offers of the other tenderers, even if they are not abnormally low, but only economically more advantageous" (para 59, own translation from French). In that connection, it is important to stress that the GC sets aside as insufficient reasons to trigger an in-depth assessment of the challenger's offer as apparently abnormally low, the claims brought forward by TV1 that it had to make significant investments when it was first awarded the contract now (re)tendered, and that an expert should be appointed to check that the winning tenderer "should have incurred expenses comparable to those which the [incumbent] had had to bear several years previously in order to be able to supply the services covered by the earlier contract" (para 67, own translation from French). This is interesting because it avoids an analysis of sunk costs that could, otherwise, advantage the incumbent [for related analysis, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 412 ff].

Overall, then, the GC's assessment of the reasons adduced by TV1 to justify the existence of an obligation on the part of the Commission to engage in an in-depth investigation of the winning tender as apparently abnormally low is sound and should be welcome.

Abnormally low tenders (II): Procedural Aspects

Judgment of 2 February 2017,  European Dynamics Luxembourg and Evropaïki Dynamiki v Commission, T-74/15, not published, EU:T:2017:55. In this case, the tendered contract concerned the provision of IT services relating to off-site information systems development, studies and support. The tender was for the conclusion of a framework agreement which would operate on the basis of mini-competitions.

The challenge brought by European Dynamics concerned the rejection of two specific requests for quotations as a result of two such mini-competitions. One of the challenges concerned an allegation that the chosen quotation was abnormally low, and the legal basis on which it is founded concerns a failure to provide reasons for a dismissal of the claim that the winning quotation was not abnormally low (ie a breach of Arts 113(2) of the Financial Regulation and Art 161(2) of its Implementing Regulation, as cited above). Thus, in this case, the challenge is not based primarily on the dismissal of reasons adduced to create or justify an appearance of abnormality in a tender, but rather on the absence of motivation for that result.

The GC thus takes a very different approach in this case and, rather than concentrating on the elements under which the discretion of the contracting authority is assessed in relation to its determination of whether a tender is seemingly abnormally low or not (as above), on this occasion the GC concentrates on the duty to give reasons as the main check and balance of such discretion, as well as a necessary procedural step in order to preserve the procedural rights of tenderers for public contracts (paras 35-41). From this perspective, the GC stresses that

In the present case, it is apparent ... that the applicants expressly requested clarification from the Commission in order to demonstrate that the price offered by the successful tenderer was not abnormally low ... the Commission confirmed that its [debriefing] letter ... contained its reply in that regard. So far as concerns the nature of the tender selected [in the specific mini-competition] it is apparent from the last page of that letter that the Commission merely stated, in a single sentence, that ‘“the winning offer” of the IPT tender did not fall under the case of “abnormally low” offers.’ (para 45, emphasis added).

The legal issue in front of the GC was, consequently, whether such brief dismissal of the allegation brought forward by European Dynamics sufficed to meet the relevant threshold for the purposes of the duty to provide reasons. As could be expected, the GC does not offer a positive answer. It stresses that

... the single sentence in the letter ... stating that the tender was not abnormally low does not fulfil the duties assigned to the obligation to state reasons, that is, the reasons must be disclosed clearly and unequivocally so as, on the one hand, to make the persons concerned aware of the reasons for the measure and thereby enable them to defend their rights and, on the other, to enable the Court to exercise its power of review. It cannot be accepted that a contracting authority should explain the not abnormally low nature of a tender merely by stating that such was considered not to be the case (para 47, emphasis added).

The GC does not stop there and goes to the extra length of consolidating the substantive standard applicable to the reasons that should be given in order to discharge this duty vis-a-vis a claim concerning the abnormally low nature of a tender. The consolidation of the standard is rather formulaic and may be seen to follow too closely the specific aspects which the Financial Regulation sets out to be possible cause for the abnormality of low values in a tender (eg non-compliance with employment and social law), but it can be a generally useful benchmark in that it clarifies that

... requiring the contracting authority to present the grounds on the basis of which an offer was not considered to be abnormally low does not require it to disclose precise information on the technical and financial aspects of that tender, such as the prices offered or the resources that the successful bidder proposes to use in order to provide the services that it offers. In order to provide a sufficient statement of reasons for that aspect of the selected tender, the contracting authority must set out the reasoning on the basis of which, on the one hand, it concluded that, because of its principally financial characteristics, such an offer complied with the national legislation of the country in which the services were to be carried out in respect of the remuneration of staff, contribution to the social security scheme and compliance with occupational safety and health standards and, on the other, it determined that the proposed price included all the costs arising from the technical aspects of the selected tender ... Accordingly, the Commission’s argument that the tenders in the present case had not raised any doubts that they were not abnormally low and that there was therefore no other information which it could have provided to the applicants must be rejected. (para 49, references omitted and emphasis added).

This comes to clarify that, even if the contracting authority does not think that there is a need to engage in an in-depth assessment of the (winning) tender to determine if it is abnormally low, it must at all times be in a position to provide the reasons why it did not think that was the case. Overall, this seems adequate, although it continues a line of case law that tends to create a significant burden at debriefing stage and that can trigger significant concerns of excessive transparency of commercially-sensitive information between competitors, as the GC's relatively open-ended requirement in para 49 of the Judgment may be difficult to square with the contracting authority's obligation not to disclose information in a way that could alter competition [on that, generally, see A Sanchez-Graells, "The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives" (2013). University of Leicester School of Law Research Paper No. 13-11]. 

A Tricky Jurisdictional Point

Judgment of 17 February 2017, European Dynamics Luxembourg and Others v EMA, T-441/15, not published, EU:T:2017:104. The tender in this case concerned the provision of IT services through a framework agreement that included a cascade mechanism for the allocation of call-off contracts within the framework (for a reference to previous litigation concerning this type of mechanism, see here). European Dynamics was awarded the second-tier framework agreement. At the relevant time, EMA asked European Dynamics for CVs of its candidates for the position of project manager for a given contract. EMA rejected all 5 candidates presented by European Dynamics, and this triggered the challenge.

From a jurisdictional perspective, the difficulty in this case was to determine whether EMA's rejection of the candidates put forward by European Dynamics was a decision of an EU Institution challengeable before the CJEU (GC) under its competence as per Art 263 TFEU. In that regard, the GC stressed that "[i]t must be borne in mind that, under Article 263 TFEU, the [Court] only reviews the legality of acts adopted by the institutions intended to produce legal effects vis-à-vis third parties, significantly by altering their legal position" (para 18, own translation from French). The key question was thus whether EMA's rejection of European Dynamic candidates fell within this jurisdictional framework. 

The GC distinguished this case from the previous analysis in Evropaïki Dynamiki v Commission (OLAF), T-498/11, EU:T:2014:831 (for discussion see here) on the basis that, "[t]he present case differs from [case T-498/11] in that [in the previous instance,] the specific contracts had not yet been awarded but had to be awarded on the basis of 'mini-competitions' between the selected 'framework contractors' ... [whereas] in the present case, as regards the implementation of a multiple framework contract with cascade allocation, the specific contract has already been allocated according to the position of the economic operators in the cascade, without the need for any further competition between those [economic operators]. Therefore, if the first economic operator is unable to provide the required service or not interested in doing so, the second best operator will be contacted. If the latter is unable to provide the required service or is not interested, then the third best operator will be contacted" (para 24, own translation from French).

Without any additional reasoning, the GC concludes that "the claim for annulment must be declared inadmissible in so far as it is based on Article 263 TFEU" (para 27), on the (implicit) basis that EMA's decision to reject European Dynamic's candidates falls strictly within a pre-established contractual relationship. In the specific case, the CJEU's jurisdiction is saved by the existence of a compromissory clause compatible with Art 272 TFEU in the framework agreement signed between EMA and European Dynamics (para 20), as well as due to the fact that EMA did not challenge the reclassification of the claim for annulment as a contractual claim (para 16). However, it is easy to see how the approach adopted by the GC could have left the claim in limbo -- and possibly time-barred ... -- had it not been by EMA's willingness to deal with the claim in a principled and open manner. Moreover, even if the GC's strictly literal interpretation was right (of which I am not convinced), there would be normative issues concerning the different treatment of functionally identical decisions depending on the type of framework agreement that European Institutions chose to conclude.

Overall, I would suggest that this case should work as a cautionary tale and that the scope of the jurisdiction of the CJEU (GC) to review acts of the European Institutions that, despite taking part within a contractual setting still carry (sufficient) connotations of the exercise of a public power (something the GC only lightly touched upon in this Judgment, at para [22]), requires some rethinking.

The UK Parliament must force the UK Government to understand the Brexit game before it keeps playing

In terms of Brexit, the week ahead promises to bring new meaning to the ides of March. As clearly explained in last Friday's Commons Library Brexit Briefing, the UK Parliament, and in particular the House of Commons, is faced with a complex set of votes. They have to decide whether to uphold any of the amendments to the European Union (Notification of Withdrawal) Bill (ie "Brexit Bill") introduced by the House of Lords, which concern (a) the status of EU/EEA citizens in the UK, and (b) the legal enshrinement of on a ‘meaningful’ parliamentary vote at the end of the negotiation period. The House of Commons can decide to accept either of these amendments, or rather reject them and put pressure on the House of Lords to backtrack and provide the Government with the "no strings attached" authorisation to keep playing Brexit that David Davis MP has so vocally demanded this weekend.

These are two highly politically charged (and poisonous) issues. They are also highly complex from a legal perspective. More importantly, it must be stressed that they are also very different in nature. The issue of the status of EU/EEA nationals in the UK and UK nationals in the EU/EEA constitutes a known unknown which content is undiscoverable -- because it ultimately depends on future negotiations and, in the absence of explicit political compromises, its legal resolution will depend to a large extent on the ECJ's use of the principle of legitimate expectations in what promises to be protracted and difficult litigation down the line. Differently, the discussion on the possibility of creating a mechanism for 'meaningful' parliamentary decisions after Article 50 TEU has been triggered and, more generally, on whether Parliament can at any later point in time stop or defer the Brexit decision is a known unknown that is however discoverable.

The right time and occasion for such discovery was the Miller litigation before the Supreme Court. However, due to the UK Supreme Court's illegal failure to seek clarification on the implications and (ir)revocability of a notice under Article 50 TEU, this known unknown remains undiscovered. Given this avoidable uncertainty, it is painfully obvious that the debate being had at the UK Parliament is built on no legal foundation whatsoever. Indeed, as the Commons Library put it,

Underlying the whole debate is the unanswered question of whether a withdrawal notification can be suspended or revoked. Although there is a widespread assumption that it cannot, no court has ruled on this and there is considerable opinion that notification could in fact be revoked. The effects of a [parliamentary] vote against a withdrawal agreement (or against leaving without an agreement) would be completely different depending on the answer.

In simple terms, the UK Parliament is now faced with a skewed and asymmetric choice between two options of different legal weight and plausibility and, more importantly, which carry very different risks to the long term interests of the UK and its citizens. On the one hand, assuming irrevocability of an Art 50 TEU notification is a conservative approach to this protracted issue and works as the worse case scenario, and requires Parliament to be ready to approve the Brexit Bill on the basis that a Government's notification to the EU Council carries the (accepted) risk of the UK leaving the EU in two years' time without a deal. This is indeed a realistic scenario, as timely stressed today in the Commons Select Committee on Foreign Affairs' report "Article 50 negotiations: Implications of 'No Deal'". A vote to pass the Brexit Bill explicitly on these terms seems unlikely because MPs can hardly be expected to tell UK citizens that they support Brexit at any cost. However, this is what they would likely be doing, in particular if they passed the Brexit Bill without the House of Lords amendment (b above).

On the other hand, assuming revocability of an Art 50 TEU is a legally very risky strategy that works as a best case scenario, which would allow Parliament to approve the Brexti Bill (with or without the House of Lords amendment) on the hope that they can prevent a calamitous hard Brexit (ie Brexit with no deal) or even a deleterious soft Brexit (ie Brexit with a bad deal) in the future. The problem with this scenario is that it is exceedingly risky and would create a smoke screen to cover the implications of giving an irrevocable notification at this point in time. Moreover, it relies on a moving legal construction that rests either on the Art 50(2) TEU notification being strictly revocable, or in a dynamic understanding of what 'own constitutional requirements' means in Art 50(1) TEU -- to the effect that, as suggested by the now famous "Three Knights Opinion", a conditional notification requiring a further vote in the UK Parliament can be given, even if the condition is not explicitly stated in the notification.

In my view, there are now two options for the UK Parliament to seek to pursue this best case scenario. The first option encompasses a strategy aimed at making it impossible for the UK Government to continue playing Brexit without clarifying whether a scenario where the UK Parliament can have a 'meaningful' vote down the line actually exists, or if it is just normatively-biased wishful legal thinking. In short, to this effect, the UK Parliament needs to approve the Brexit Bill in a way that imposes an obligation on Theresa May PM's Government to notify to the EU Council that a decision to withdraw from the EU has been adopted in principle, but that such decision remains conditional on the UK Parliament's confirmation once the terms of the deal reached at the end of the two year period (or earlier) are settled.

This would, under the duty of sincere cooperation not only make it possible but, in my view, require the EU Council to ask the ECJ whether such notification seemingly in compliance with the UK's own constitutional requirements is a valid notification for the purposes of Art 50 TEU and whether that conditionality binds the EU Institutions and Member States. Rather than hoping for the best in the Irish litigation where Jolyon Maugham QC is trying to achieve this certainty, the way I have just sketched would be the quickest and most guaranteed avenue to (finally) obtain a decision from the ECJ settling the issue once and for all.

The second option is for the UK Parliament to cave in to the existing pressure and authorise the UK Government to give notice unconditionally -- that is, notably, without keeping the amendment introduced by the House of Lords -- and then hope that they got it right when they assumed that the best case scenario was actually in the cards. In my opinion, no responsible member of the UK Parliament (and in particular of the House of Commons) should gamble the long term interests of the UK and its citizens on such optimistic hopes, particularly when there is a way to clear up this uncertainty before it is too late and the process set in motion by an Art 50 TEU notification cannot be legally stopped (under EU law, which is a major risk currently very difficult to assess).

Of course, there would be some short term political cost if the UK Parliament decided to try out the strategy I am proposing. It could be seen as a waste of time if the ECJ's decision on the EU Council's request were to determine that and Art 50 notification can be conditional or revocable. It could also be seen as highly problematic if the ECJ decided the opposite and, after all, the UK Parliament was faced later with the same odious decision that the worse case scenario implies. However, unless the UK Parliament is willing to crash and burn in the worse case scenario, there is value in making the consequences of an irrevocable notification as clear as possible to UK politicians and UK citizens alike. Currently, democratic processes are skewed and distorted by an avoidable legal uncertainty. In my view, it is not wise, nor legitimate, to put pressure on the House of Commons (or later in the House of Lords) to ignore this very significant risk solely in the pursuit of preserving a short term political capital that Theresa May PM and her Government seem too willing to keep for themselves.

The German draft bill for a so-called “register of competition” [guest post* by Dr Pascal Friton]

The implementation of the exclusion and self-cleaning measures contained in the 2014 Public Procurement Package raises important issues concerning decisions that can either be taken independently at a procurement-specific level by contracting authorities, or rather be coordinated or centralised in order to ensure a broader and possibly more consistent application of the rules. As Dr Pascal Friton* explains in this guest post, Germany is moving in the direction of creating a nationwide register of competition / register of corruption to deal with these issues. It will be interesting to follow the German experience and try to extract lessons that can be useful in other EU/EEA jurisdictions.

Good things come to those who wait? – The German Federal Ministry of Economics and Energy submits a draft bill for a so-called “register of competition”

The idea of a nationwide “register of corruption” has haunted the German procurement law world for years. Now the German Federal Ministry of Economics and Energy has got serious: On 20 February 2017 the ministry presented a draft bill (WRegG-E) for a law to establish a so-called “register of competition” (Wettbewerbsregister). According to this draft bill, the register is to be established in 2019. Different economic crimes and administrative offences may be registered. Besides administering registrations, the responsible register authority is also tasked with evaluating whether a company has implemented sufficient self-cleaning measures and is therefore able to be delisted and to participate in public procurement procedures again. Contracting authorities must consult the register (even if the relevant EU threshold is not met) before awarding a contract and are allowed to exclude companies on the basis that the company is listed on the register with a higher legal certainty. The implementation of this draft bill would have far-reaching impacts on procurement law practice in Germany.

What will be registered?

Only final decisions regarding offences that give rise to compulsory or facultative grounds for exclusion pursuant to sec. 123 and 124 of the German Act against Restraints of Competition (ARC), sec. 2 para. 1 and 2 WRegG-E will be registered. Practically relevant offences include bribery, tax or money laundering offences as well as bid rigging within the meaning of sec. 298 German Penal Code and antitrust offences. Financial penalties by the European Commission due to antitrust offences as well as convictions in other countries are not subject to the register. A different scope is currently practically impossible since the obligation to transmit final decisions naturally only applies to German authorities assigned with pursuing penal and administrative offences, sec. 4 WRegG-E. The register does not cover non-compulsory grounds for exclusion that are not compulsively linked to a final decision regarding an offence, e.g. grounds of exclusion because of grave professional misconducts and contractual improper performances. 

Who will be registered?

Only companies may be entered into the register. Due to their lack of penal responsibility in Germany, only financial penalties imposed on companies are directly relevant for the register. However, conviction of a company employee can also lead to an entry into the register. This applies not only to a conviction of supervisory staff but also to all other employees if there is improper supervision or organisational fault pursuant to sec. 130 of the German Administrative Offences Act, sec. 2 para. 3 no. 2 WRegG-E. The imputation (Zurechnung) of liability to companies on the basis of their employee’s actions goes beyond the scope of the ARC. However according to its explanatory memorandum the draft bill does not provide for imputations within a cooperate group. Nevertheless, according to the wording of the regulation, imputation is possible at least in cases of a natural persons being a member of supervisory bodies of several companies within a cooperate group at the same time. These and other complicated questions arising in the context of imputation have to be determined primarily by the authorities responsible for pursuing penal and administrative offences (cf. sec. 4 para. 1 in conjunction with sec. 3 para. 1 no. 7 WRegG-E).

What are the consequences of being registered?

The draft bill places an obligation on the contracting authorities, utilities and grantors of concessions to consult the register before awarding contracts. This obligation applies to procurement procedures with a value of at least EUR 30.000 and not only if the relevant EU threshold is met, sec. 6 para. 1 WRegG-E. However the duty to evaluate whether a company has to be excluded from the procurement procedure still lies with the respective contracting authority, sec. 6 para. 4 WRegG-E. Therefore, at all times it is its duty to evaluate whether there are exceptions regarding the compulsory grounds of exclusion. Concerning non-compulsory grounds of exclusion, the contracting authority must decide using its discretion. In this context, it has to be noted that the facts justifying an entry cannot be considered to the disadvantage of the subsequently self-cleaned company after an entry has been deleted, sec. 7 para. 2 WRegG-E.

When will an entry be deleted?

Companies with compulsory or facultative grounds for exclusion may not be excluded from a procurement procedure if they have used the opportunity for self-cleaning as set out in sec. 125 ARC. According to the draft bill, a self-cleaned company can apply to be removed from the register at any time, sec. 8 para. 8 WRegG-E. Under the current regime the sufficiency of the self-cleaning measures has to be proven in each procurement procedure separately. Upon an application for removal from a company under the envisaged regime the register authority has to comprehensively and independently determine whether self-cleaning measures by a company comply with sec. 125 ARC. If the authority finds the measures sufficient it will delete the entry. If the authority rejects a request, the respective company can apply for deletion anytime again. If an entry has not been deleted due to self-cleaning measures it is deleted after three or five years, sec. 7 para. 1 WRegG-E.

The register authority also stores any proof of self-cleaning measures a company has transmitted to them, sec. 3 para. 2 WRegG-E. In case the register authority has not decided in favour of removing the company from the list or has not yet decided with regard to an application or if an application for deletion has not been filed at all, any contracting authority that consults the register with regard to that company will receive these documents with the excerpt of the entry. The contracting authority will then still have to evaluate independently if the measures undertaken by the respective company have been sufficient. This provision becomes especially relevant in the time between application by a company and the decision by the register authority. Lastly, companies that have been wrongly entered into the register can object to their entry on the basis that the entry is incorrect. If their statement is conclusive (schlüssig), the register authority enters a restriction note (Sperrvermerk) into the register, sec. 5 para. 2 WRegG-E. If a restriction note has been entered any contracting authority that requests information about the respective company will not receive any other information about the entry than that there is a restriction note. This provision will be particularly relevant when dealing with the complex question of imputation.

What is the process of judicial review?

Regarding the judicial review of decisions by the register authority, sec. 10 WRegG-E only stipulates that the competent court is the administrative court. This means that three different courts would have competence to regularly hear matters of German procurement law. In cases of judicial review of self-cleaning measures, this could lead to the situation where a civil court and an administrative court are dealing with the same matter at the same time.

Dr Pascal Friton, LLM

Pascal Friton specialises in public procurement law and trade law. His public procurement law practice covers advice to both contracting authorities and bidders, in particular in the area of services and IT as well as defence procurement. In addition he has longstanding experience with compliance-related issues, advising multinational companies on legal consequences of misconduct in public procurement procedures and on self-cleaning measures.

In the area of trade law he regularly advises the export industry and financial institutes on economic sanctions of the EU, for example against Iran and Russia. Pascal’s trade law practice also includes EU and German Blocking/Anti-Boycott Law as well as German foreign investment control. He is recognized as a leading public procurement lawyer by Who’s Who Legal 2016 (Government Contracts). Pascal Friton is admitted to the Bar in Germany (Rechtsanwalt).

An Intro to Behavioural Law & Economics, or Law & Economics 2.0

The last lecture of the course on Economic Analysis of Law I have taught this year at the University of Bristol Law School, concentrated on behavioural economics and the way it has pushed for the emergence of a law and economics 2.0.

Preparing for the lecture gave me the opportunity to re-read the seminal paper by Jolls, Sunstein & Thaler's A Behavioural Approach to Law and Economics,  Thaler & Sunstein's Nudge, and to read for the first time Thaler's Misbehaving, as well as adding Lewis' The Undoing Project to my "to read list" for the Easter vacation. I thoroughly enjoyed revisiting this area of the literature and I think my students enjoyed it (even) more than the rest of the course. Mental note: I should expand the scope of the discussion of law & economics 2.0 next year.

These are the slides I used, which spurred significant discussion with my students, and which have set the scene for the last round of seminars where we will be discussing these and other issues. Feel free to reuse them.

Intro to behavioural law & economics from Albert Sanchez Graells

Using "cultural fitness" as evaluation criteria breaches EU and UK public procurement law

Heather Stewart of The Guardian has reported that the UK's Department for International Trade is tendering contracts where they expect that tech companies should have the right ‘cultural fit’ if they want to be hired. This is interpreted in the news report as a clear mechanism whereby "Firms bidding for government contracts [are] asked if they back Brexit". It is indeed a worrying requirement due to the clear risk of unfettered discretion and ensuing discrimination that such 'cultural fit' requirement creates. In my opinion, the requirement runs contrary to both EU and UK public procurement rules. I will try to keep this post as jargon free as possible and limit the technical details of my legal assessment as much as possible. However, this is a rather technical area of economic law, so some technicalities will be unavoidable.

Specifically, the tenders in question introduce evaluation criteria under the category of 'cultural fit' (which carries a weight of 15% of the total points), amongst which tenderers are to be assessed based on whether they are "committed to the best possible outcome for the United Kingdom following its departure from the European Union". The other sub-criteria in this group require tenderers to "be focussed enough to stick to the task at hand and not be side-tracked in a vast and quick-moving field; be committed and hard-working, to deliver under time pressures; and be enthused by the prospect of working at the frontline in such an exciting and dynamic area". These are meant to be assessed on the basis of a written proposal and presentation (ie a beauty contest).

All of these sub-criteria raise serious concerns from the perspective of public procurement best practice, mainly due to (i) the difficulties they create for the contracting authority to carry out an objective assessment at evaluation stage (which makes the evaluation turn to a determination of who can write the best 'essay'), and (ii) their forward-looking nature and difficulty to monitor ex post during the implementation of the contract (which would make them more suited for contract compliance or termination clauses, rather than evaluation criteria, and which also raise the risk of awarding the contract to the tenderer shown to be the best liar).

Additionally, these criteria have, at best, a very tenuous link to the subject matter of the contract and rather refer to general characteristics of the tenderer that, if so, should be assessed at selection rather than evaluation stage. This is important because the criteria are not formulated in relation to the specific members of the team that will provide the services, but rather left wide open as a reference to the tenderer as a whole. More importantly, the specific question about the tenders' commitment to the best possible outcome for the United Kingdom following its departure from the European Union (as well as the question on enthusiasm) relates to attitudes that are simply unobservable for the contracting authority. 

These issues disqualify the 'cultural fit' questions as valid evaluation criteria under current law. Here, it is important to stress that the legal analysis depends on the value of the tendered contracts. Different rules apply to contracts above or below specified value thresholds--which, for services contracts are currently set at £106,047 (or €135,000, see here). The contract tendered by the Department for International Trade indicates that "We are aiming at no more than £50,000 for the totality of the Discovery, but are open to proposals from suppliers who may feel that extra resources are justifiable given the scope of the task." This creates uncertainty as to the relevant legal rules, particularly if the award results in a contract of a value above the threshold. This would suggest that the UK Government should be in compliance with the most stringent rules for contracts above thresholds to be on the safe side. Just in case, though, let's consider both sets of rules.

Contracts below thresholds

The award of contracts below the relevant value thresholds must comply with the requirements of reg. 111 of the Public Contracts Regulations 2015 (see comment here) and the general requirements derived from general principles of EU law, such as non-discrimination, equal treatment, transparency and competition. Reg. 111(5) PCR2015 indicates that "contracting authorities may ask candidates to answer suitability assessment questions only if each such question is—(a) relevant to the subject-matter of the procurement; and (b) proportionate." And reg. 111(7) PCR determines that, in doing so, the contracting authority "shall have regard to any guidance issued by the Minister for the Cabinet Office".

On that point, it is important to bear in mind the guidance issued by the Crown Commercial Service on selection questionnaires. In para [57], concerned with project-specific questions such as the ones we are discussing, the Guidance indicates that the contracting authority "can ask further project-specific questions relating to the potential supplier’s technical and professional ability. Any project-specific questions asked must be relevant and proportionate to the contract. You should refer to the list of possible topics covering technical and professional ability." Importantly, these requirements concerning technical and professional ability are fundamentally limited to assessing suppliers' past performance, on which there is additional guidance.

Overall, these requirements indicate that contracting authorities can only assess the reliability of tenderers in relation to their previous experience and only in so far as this is linked to the subject matter of the contract and proportionate to its value. In my opinion, asking tenderers to answer questions concerning their commitment to the best possible outcome for the United Kingdom following its departure from the European Union and their enthusiasm to work with the Department for International Trade in carrying out Brexit-related analysis is neither linked to the subject-matter of the contract, nor verifiable according to the standards applicable to the assessment of technical and professional aspects of the tenderers' ability.

This impossibility to verify commitment and enthusiasm as part of the evaluation of the tenderers is bound to also breach general principles of EU (public procurement) law, in particular the principle of non-discrimination. If the contract below thresholds is, nonetheless, of cross-border interest, this is an additional legal basis for the illegality of the use of 'cultural fit' criteria.

Contracts above thresholds

Where the contract is above the relevant thresholds (ie for services exceeding £106,047 or €135,000), the illegality of the use of 'cultural fit' criteria becomes even clearer. This analysis is important in this specific case only if the contract significantly exceeds the initial value of £50,000, but this discussion is important in case the Department for International Trade (or the UK Government more generally) is piloting the use of 'cultural fit' as a broader procurement policy. There are two ways in which 'cultural fit' could be used in this setting; either as a selection criterion (where the contracting authority is screening the tenderers as a whole) or as an award criterion (where the contracting authority is screening the specific offer and/or the specific team proposed by the service provider).

If considered as a selection criterion, the relevant rules are those of reg. 58 of the Public Contracts Regulations 2015 (see comment here) and Art 58 of Directive 2014/24/EU. Both of these provisions must be assessed in light of the case law of the Court of Justice of the European Union (ECJ). The relevant requirements derived from these rules are that contracting authorities can only impose requirements aimed at assessing technical and professional ability with the purpose of "ensuring that economic operators possess the necessary human and technical resources and experience to perform the contract to an appropriate quality standard" [reg. 58(15) PCR2015], and provided they are "related and proportionate to the subject-matter of the contract" [reg. 58(4) PCR2015]. 

'Cultural fit' selection criteria are not in line with these requirements. The ECJ was clear in its famous Dutch coffee case (C-368/10, EU:C:2012:284, paras 105-108) in establishing that selection criteria that relate to general policies or attitudes of the tenderer (in that case, whether they "fulfil[led] the criteria of sustainable purchasing and socially responsible business [and] contribute[d] to improving the sustainability of the coffee market and to environmentally, socially and economically responsible coffee production") are not allowed. I have no doubt that the 'cultural fit' criteria used by the Department for International trade in this case, and any criteria that more generally aim to screen tenderers on the basis of their commitment to specific outcomes or their enthusiasm in their generation will equally fall foul of UK and EU public procurement law.

'Cultural fit' questions can also be seen to aim to structure an assessment around "quality-based" award criteria, which are regulated by reg. 67 of the Public Contracts Regulations 2015 (see comment here) and Art 67 of Directive 2014/24/EU. Both of these provisions must be assessed in light of the ECJ case law as well. There are several aspects to consider--such as, again, the link of the award criteria to the subject matter of the contract--but the relevant part of the current domestic rules specifies that "Award criteria shall—(a) ensure the possibility of effective competition; and (b) be accompanied by specifications that allow the information provided by the tenderers to be effectively verified in order to assess how well the tenders meet the award criteria."

Once more, the impossibility of verifying commitment or enthusiasm exclude the possibility of using 'cultural fit' as an award criterion. This is in line with the general requirements set by ECJ case law, which exclude the use of criteria that provide the contracting authority with unlimited discretion [for extended discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, hart, 2015) 378 and ff].

Final remarks

For the reasons above (and some other technical ones I am happy to explore further if it is of interest), I think that the Government's policy (or the Department for International Trade tenders, if this is an isolated incident) constitutes a clear infringement of both UK and EU public procurement rules.

Further, in my view, the problem that underlies the specific call for tenders for advisory services issued by the Department for International Trade is the impossibility of obtaining a perfect substitution between in-house capabilities and contracted-out consultancy. While the Government may be in a better position to push for its political agenda in steering the work of the civil service (which is probably a matter for a separate discussion), it is clearly in a very weak position to do so when it is contracting-out (or in?) advisory capabilities.

All procurement rules allow the public sector to do is to specify the services it aims to acquire. And this implies that the service itself needs to be susceptible of specification. Where non-contractible elements drive the decision to contract, public procurement is simply not a useful tool. The Government may have difficulties building up its in-house capabilities, or even 'reigning in' the civil service, but they will definitely not have it easier through procurement.