Easter 2018 Procurement Radar [back on w/c 9 April]

© maxmaria.

Dear How to Crack a Nut friends,

I am sure you will have had as full a first quarter of the year as me, and I hope you can enjoy a well-deserved break over the Easter period.

I have a few things on the radar, on which I am thinking but have not had time to write blog posts (see below, in case you need some reading, and thanks to those of you who alerted me to some of these issues).

However, I need to take a break from blogging to concentrate on a couple of papers and an edited book that I have neglected for too long. So, I thought I would stop for the duration of the Easter judicial vacation of the Court of Justice. I will thus aim to resume blogging on the week commencing 9 April.

I hope to find you here then.
Best wishes,
Albert

On the radar

• On conflicts of interest and damages compensation for loss of opportunity in public procurement of the EU Institutions (ie under Art 340 TFEU), see the Judgment of the General Court (Third Chamber, Extended Composition) of 28 February 2018 in Vakakis kai Synergates v Commission, T-292/15,  EU:T:2018:103.

• On the protection of essential interests of the Member States (special security measures) as an exception to compliance with EU public procurement law, see Judgment of the Court of Justice of the European Union of 20 March 2018 in Commission v Austria, C-187/16, EU:C:2018:194. For discussion of the Opinion of AG Kokkot in this case, see my previous blog entry.

• On the threshold for liability in damages due to breach of public procurement law, in addition to the discussion of Fosen-Linjen (see here and here), you may be interested in the views of the Irish Court of Appeals--which followed the UK Supreme Court's approach and implicitly rejected the EFTA Court's position by establishing that 'in the case of Francovich damages (and, by extension, damages for breach of public procurement rules under Article 9(6) of the 2010 Regulations), it is necessary to show not simply that there had been an objective breach of breach of E.U. law, but rather that such breach was either “grave or manifest” or “inexcusable”'; Word Perfect Translation Services Limited -v- Minister for Public Expenditure and Reform [2018] IECA 35, para 56.

• On the classification of concessions contracts as for works or for services, see the Judgment of the EFTA Court of 21 March 2018 in  EFTA Surveillance Authority v Norway (Kristiansand's parking), case E-4/17 (and a press release also available).

• On public-private partnerships and their failure to deliver adequate value for money, see the hot-off-the-press European Court of Auditors Special report 09/2018: Public Private Partnerships in the EU: Widespread shortcomings and limited benefits.

• Even if it was published a while back, it may be worth catching up with the European Commission's February 2018 Public Procurement Guidance on avoiding the most common errors in projects funded by the European structural and investment funds. 

Do EU procurement & State aid rules conflict on possibility for consortium members to 'go it alone'? (C-127/16 P)

©Eric Kilby

In its Judgment of 7 March 2018 in SNCF Mobilités v Commission, C-127/16 P, EU:C:2018:165, in the context of the analysis of a measure of State aid for restructuring and recapitalisation involving a bidding process, the Court of Justice of the European Union (CJEU) indicated that it is not acceptable for the assets to be transferred to a bidder that had initially participated in the process as a member of a consortium but subsequently decided to 'go it alone' and submitted a solo bid for the assets. In establishing this principle, the CJEU seems to have taken a position that can potentially be functionally incompatible with its previous case law in the area of public procurement and, in particular, in its Judgment of 24 May 2016 in MT Højgaard and Züblin, C-396/14, EU:C:2016:347 (see here). This blog post discusses this potential functional contradiction in the case law of the Court.

SNCF Mobilités v Commission

In simple terms, this dispute concerned France's obligation to recover State aid given to SNCF (its national state-owned railway company) that was declared incompatible with EU law (Art 107 TFEU) by the European Commission. One of the possibilities that France had was to sell all assets of the relevant company within the SNCF group (Sernam) 'en bloc ... at market price through a transparent and open procedure to a company that has no legal link with SNCF' (C-127/16 P, para 7). The process for the sale of Sernam's assets en bloc was rather complicated, but the relevant part of the mechanism was as follows:

... Sernam’s economic situation failed to elicit any proposals based on a positive valuation in the call for tenders conducted on SNCF’s behalf by a bank. All the offers submitted under that procedure concluded that the value was very negative. As no firm offer had been submitted, the decision was taken to continue the discussions solely with the consortium established by candidate 5 who was associated with Sernam’s management team. On 15 June 2005, candidate 5 ultimately informed SNCF orally that it was not in a position to submit a takeover offer — not even a conditional one — before 30 June 2005. On 30 June 2005, SNCF took the decision to conclude the sale with Financière Sernam, which was wholly owned by Sernam’s management team (C-127/16 P, paras 8-9).

In the context of the dispute whether France met the requirements of the previous Commission decision requiring recovery of the State aid, one of the legal issues triggered by the French authorities' decision to enter into a sale agreement with Sernam's management team (through Financière Sernam) is whether it met the requirements for the transfer to result from 'a transparent and open procedure'. The Commission took the view that this was not the case. Before the CJEU considered this issue on appeal, the General Court (GC) had assessed the situation in its Judgment of 17 December 2015 in SNCF v Commission, T-242/12, EU:T:2015:1003.

In the relevant part of the Judgment (T-242/12, paras 162 and ff), the GC explains how, in the context of the procedure aimed at finding a buyer Sernam's assets en bloc, a final round of negotiations resulted in two offers. In simple terms, there was an offer by candidate 4 that valued the assets at - €65.2mn and an offer by a consortium composed of candidate 5 and Sernam's management team that valued the assets at -€56.4mn. In view of this, it was agreed to solely continue discussions with candidate 5 and Sernam’s management (para 164). During these discussions, as mentioned above, candidate 5 withdrew from the process and the management team submitted a solo offer that valued the assets at -€95.5mn (para 167). The acceptance of this offer by SNCF triggered two main issues.

First, given their significant divergence in the valuation of Sernam's assets, whether the solo offer submitted by Sernam's management team was comparable to the prior indicative offer of the consortium with candidate 5. The GC considered that 'the Commission was correct in not considering equivalent in terms of credibility and soundness the offer from a financial investor, candidate 5, who, moreover, was proposing to inject a significant amount of capital into Sernam, and the offer from 84 management and director employees financing a low amount, being EUR 2 million of the price, from their own resources' (T-242/12, para 168). Second, and more relevant for our discussion, there were concerns about the transparency and openness of the procedure for the sale of the assets en bloc. In that regard, the GC established that

... [SNCF] and the French Republic observe that the requirement that a procedure be transparent and open does not cease once the best bidder has been selected and the other candidates have, by definition, been rejected, and that the discussions continue with the ‘last interested party’.

The ‘last interested person’ in the transparent and open tendering procedure in this case was candidate 4 ... the management team’s firm offer, for EUR ‑95.5 million, was also less attractive for the vendor than the preliminary second-round offer from candidate 4, with its negative price of EUR ‑65.2 million ... As observed by the Commission in its written pleadings, following candidate 5’s withdrawal, recourse should have been had to candidate 4, who had been part of the process since the beginning and had also indicated its interest at the end of the second round.

The offer from the management team cannot be considered that of the ‘last interested party’, since it did not participate independently in the transparent and open procedure.

... the applicant submits that it is not relevant to compare the management team’s firm offer with the non-binding offer from the consortium of which it was a part, as only the firm offer is valid, even if it is not the best bid.

That argument must be rejected, since the question here is whether the management team’s firm offer was the result of the tendering procedure, which necessarily involves an examination of the non-binding offers submitted during the tendering procedure.

Therefore, the argument aimed at establishing that the management team participated from the beginning of the tendering procedure must be rejected because it did not participate independently and did not submit alone the offer it had initially submitted with candidate 5. Its offer cannot therefore be considered to result from a transparent and open procedure (T-242/12, paras 169-174, emphases added).

Regardless of the issue of equivalence of the offers, the argumentation constructed by the GC in these passages (implicitly) relies on the principle that members of a consortium cannot be seen as participating both within the consortium and in their own name, which establishes an insurmountable impossibility against any decision to 'go it alone' if the other member(s) of the consortium withdraw.

This principle was directly challenged in the appeal before the CJEU. In short, the challenge was that '... candidate 5 and Sernam’s management team had, within a consortium, been associated with the tendering procedure from the start of that procedure and had proposed the least negative value for the assets en bloc. It was only after candidate 5 withdrew that Sernam’s management team decided to pursue the process and submit on their own the takeover offer initially put forward by the consortium. The applicant thus takes the view that such circumstances meet the requirements of an open and transparent tendering procedure as reflected in the Commission’s decision-making practice and the Court’s case-law' (C-127/16 P, para 62).

Remarkably, SNCF argued that 'it is possible to accept that the principles of openness and transparency in public procurement may be applicable by analogy to procedures involving transfers of assets. It is apparent from Directive 2014/24/EU ... and from Directive 2014/23/EU ... that EU law allows for awarding such a contract to an economic operator without prior advertising or competition following an unsuccessful first tendering procedure, including when the operator did not participate in that first procedure, without that constituting an infringement of the principles of openness and transparency. Those principles should a fortiori be deemed to have been observed where the assets have been transferred to the last interested party, the only one to have made a firm offer, when it has participated in the process in its entirety, initially as part of a consortium from which the other party withdrew in the course of the procedure' (C-127/16 P, para 64).

On this point, the CJEU reasoned as follows:

First of all, without it being necessary to rule on a potential analogy between the tendering procedure relevant to the present case and the principles that are applicable in public procurement ... it should be noted that the applicant’s argument concerning that potential analogy is based on the fact that, at the end of the tendering procedure, no bid or no appropriate bid had been submitted. That kind of argument can be successful only if it challenges the General Court’s findings of fact in paragraph 170 of the judgment under appeal, to the effect that ‘[t]he “last interested person” in the transparent and open tendering procedure in this case was candidate 4. … As observed by the Commission in its written pleadings, following candidate 5’s withdrawal, recourse should have been had to candidate 4, who had been part of the process since the beginning and had also indicated its interest at the end of the second round’. That argument, which asks the Court of Justice to substitute its analysis for the one carried out by the General Court as part of its sovereign assessment of the facts and evidence, is therefore inadmissible and must be rejected.

Next, the practice followed by the Commission in its decisions or its guidelines, even if that practice were to support the applicant’s argument cannot, in any event, bind the Court in its interpretation of the EU rules ...

In any event ... according the Court’s case-law, the question whether a tendering procedure has been open and transparent is determined on the basis of a body of indicia specific to the circumstances of each case ...

Accordingly, in the light of the facts of the present case, and having held in paragraphs 170 and 171 of the judgment under appeal, that the successful bid did not originate from a candidate who had participated autonomously in the tendering procedure from the beginning of that procedure, the General Court was correct in holding, in paragraph 174 of that judgment, that the requirement of an open and transparent procedure had not been observed (C-127/16 P, paras 66-69, references omitted).

Accordingly, the CJEU SNCF Mobilités Judgment explicitly upholds the fact that for a tenderer to be awarded the contract for the sale of assets en bloc as a result of an 'open and transparent procedure', it is an absolute requirement that the 'successful bid ... originate[s] from a candidate who had participated autonomously in the tendering procedure from the beginning of that procedure'. This is in functional conflict with the previous Judgment in MT Højgaard and Züblin, as discussed below.

MT Højgaard and Züblin

In this public procurement case based on the 2004 EU utilities procurement rules (Dir 2004/17/EC), the CJEU ruled on whether the principle of equal treatment of economic operators must be interpreted as precluding a contracting entity from allowing an economic operator that is a member of a group of two undertakings which was pre-selected and which submitted the first tender in a negotiated procedure for the award of a public contract, to continue to take part in that procedure in its own name, after the dissolution of that group due to the bankruptcy of the other partner.

In that case, the contracting authority had indicated that it wanted to proceed to negotiations with between four and six candidates. It received expressions of interest from five candidates, which included interest by a consortium consisting of Per Aarsleff and E. Pihl og Søn A/S (‘the Aarsleff and Pihl group’). The contracting authority pre-selected all five candidates and invited them to submit tenders. One of the pre-selected candidates subsequently withdrew from the procedure. 

For the purposes of our discussion, the relevant fact is that Pihl entered into bankruptcy prior to the submission of the tender, which de facto implied the dissolution of the Aarsleff and Pihl group. Aarsleff decided to 'go it alone' and proceed as a solo tenderer. The contracting authority was thus left with two options: (a) to consider that Aarsleff was not qualified on its own merits (or, in the terms of the SNCF Mobilités Judgment (above) that it had not 'participated autonomously in the tendering procedure from the beginning') and to carry on with the negotiated procedure with 'only' three tenders; or, conversely, (b) to consider that Aarsleff could benefit from the qualification of the group to which it initially belonged and go forward with its desired minimum of four tenders. After some deliberation and information to all remaining candidates, Aarsleff was  allowed to submit a solo tender and, after a further round of best and final offers between the three better placed tenderers, it was awarded the contract.

In reviewing the compatibility of this decision with general principles of EU public procurement law, the CJEU established that, in the absence of specific rules on this subject, 'the question of whether a contracting entity may allow such an alteration must be examined with regard to the general principles of EU law, in particular the principle of equal treatment and the duty of transparency that flows from it, and the objectives of that law in relation to public procurement' (C‑396/14, para 36). In carrying out such analysis, the CJEU determined that

The principle of equal treatment of tenderers, the aim of which is to promote the development of healthy and effective competition between undertakings taking part in a public procurement procedure, requires that all tenderers must be afforded equality of opportunity when formulating their tenders, and therefore implies that the tenders of all competitors must be subject to the same conditions ...

...  [the rules on qualitative selection] may be qualified in order to ensure, in a negotiated procedure, adequate competition ...

If, however, an economic operator is to continue to participate in the negotiated procedure in its own name, following the dissolution of the group of which it formed part and which had been pre-selected by the contracting entity, that continued participation must take place in conditions which do not infringe the principle of equal treatment of the tenderers as a whole.

In that regard, a contracting entity is not in breach of that principle where it permits one of two economic operators, who formed part of a group of undertakings that had, as such, been invited to submit tenders by that contracting entity, to take the place of that group following the group’s dissolution, and to take part, in its own name, in the negotiated procedure for the award of a public contract, provided that it is established, first, that that economic operator by itself meets the requirements laid down by the contracting entity and, second, that the continuation of its participation in that procedure does not mean that the other tenderers are placed at a competitive disadvantage
(C-396/14, paras 38, 41, 43-44 & 47, references omitted and emphases added). 

As is clear from these passages, in MT Højgaard and Züblin, the CJEU rejected the principle that transparency and equal treatment required that a tenderer had 'participated autonomously in the tendering procedure from the beginning'. It rather established a more nuanced approach that required that the 'going it alone' tenderer was in a position to meet all relevant requirements of previous phases of the procedure (in that case, qualitative selection) and that it gained no competitive advantage--or, conversely, that no other tenderer was placed at a competitive disadvantage.

Overall comments

In my view, the SNCF Mobilités Judgment is problematic for the dogmatic principle that it sets out in terms of an absolute requirement of autonomous participation from the beginning. The MT Højgaard and Züblin Judgment can be criticised on other grounds (see here) but, from that perspective, its more nuanced approach towards tolerating decisions to 'go it alone' may be preferable in contexts where retention of a solo tender by the remaining member of a disbanded consortium can be determinative of the competitive tension within the tender procedure [see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 339].

More importantly, in my view, the SNCF Mobilités Judgment could have reached the same conclusions if it applied the more nuanced approach of MT Højgaard and Züblin. Indeed, it is hard to argue against the view that, by continuing conversations solely with Sernam's management team and accepting an offer that valued the assets at a very significant value below the previous consortium offer as well as the previous offer by candidate 4, SNCF put Sernam's management team at a clear advantage. In view of the withdrawal of candidate 5, SNCF would have been better advised to go back to the immediate previous step of the procedure and compare whichever solo offer Sernam's management team could submit with that of candidate 4. Doing that would also respect the basic principles of stage rounds of negotiations, whereby ceteris paribus the offers presented in each of the rounds should improve upon previous offers.

On the whole, then, I think that the SNCF Mobilités Judgment is a missed opportunity to have created more integration and compatibility between the procedural requirements applicable under EU State aid and public procurement rules. At the same time, given that the CJEU avoided engaging in the 'potential analogy between the tendering procedure [for the sale of assets en bloc] and the principles that are applicable in public procurement', it is to be hoped that the dogmatic approach of the SNCF Mobilités Judgment will not muddy the waters of the case law on modification of the composition of bidding consortia for the strict purposes of EU public procurement law.

Recording of seminar on procurement damages post-Fosen Linjen available

The Bergen Center for Competition Law & Economics (BECCLE) has now published the recording of the excellent seminar "Damages for breach of Public Procurement Law – Fosen-Linjen AS v AtB AS and its implications" held on 1 March--in which I had the pleasure and honour to participate. The recording includes four excellent and very lively presentations (modesty apart): 

• Dag Sørlie Lund – “The Norwegian law and practice on damages arising from public procurement breaches before Fosen-Linjen AS v AtB AS, and the challenges it entails.”
• Kirsi-Maria Halonen – “A comparative approach to damages: The Finnish and Swedish practice on damages arising from public procurement breaches.”
• Albert Sánchez Graells – “Approaches to the ‘seriousness’ of the breach: The EFTA Court vs the UK Supreme Court.”
• Halvard Haukeland Fredriksen – “Norway after the Fosen-Linjen AS v AtB AS case: What is to be expected and what are its repercussions – here and elsewhere.”

Given that the case is headed for the Norwegian Supreme Court after the Frostating Court of Appeal decided not to follow the EFTA Court's Opinion, the discussion we had in the seminar may be of particular interest. My arguments are further developed in this paper.

When will you show me the papers? Technical capacity, technical dossiers and verification during the procurement process (C-14/17)

By Avius Quovis

In his Opinion of 28 February 2018 in VAR, C-14/17, EU:C:2018:135 (not available in English), AG Campos Sánchez-Bordona addressed a tricky preliminary question regarding the procurement of spare parts for buses, trolleybuses and tramways under the 2004 Utilities Procurement Directive (Dir 2004/17/EC). The legal dispute concerned the procedural stage at which contracting authorities must require tenderers to provide certificates attesting compliance with the applicable technical specifications. AG Campos suggested that such phase needs not always be prior to the award of the contract.

This case is relevant in the context of the contracting authorities’ verification duties prior to the award of the contract. In my view, while couched in promising pro-competitive terms aimed at preventing the imposition of disproportionate participation requirements, the approach followed by AG Campos can create legal uncertainty and an irreconcilable functional tension with prior cases such as EVN and Wienstrom (C-448/01, EU:C:2003:651). Therefore, the VAR Opinion merits some critical discussion.

Background

It is important to note that the VAR case has the relevant peculiarity that the contracting authority (presumably) owning a stock of vehicles of a given brand, had specified for the spare parts to be of such named brand ‘or equivalent’ as part of the technical specifications. Therefore, the relevant certificates were not of compliance with functional technical specifications or prescribed technical standards, but rather ‘certificates of equivalence’ between the offered parts and the named branded parts. The contracting authority had indicated in the tender documentation that such certificates of equivalence had to be submitted with the first supply of equivalent parts. As a result, the chosen tenderer was awarded the contract without having provided documentary evidence of the equivalence between the (cheaper) offered parts and the (pricier) branded ones. As could be expected, after the contract was awarded to the competing supplier, the ‘original equipment manufacturer’ (OEM, or owner of the brand) challenged the decision on the grounds that Dir 2004/17 required submission of the relevant certificates pre-award and that the contracting authority could not legally award a contract without having carried out minimal technical compliance verification.

The canonical view

The position taken by the disappointed tenderer that equivalence certificates should have been required prior to the award of the contract represents, in my opinion, the canonical view. Indeed, this was also the position of the Italian Government and the European Commission in this case, both of which held that a systemic interpretation of the relevant rules (ie Art 34(8), in relation to Art 34(3) and 34(4) Dir 2004/17) leads to the conclusion that certificates must be required prior to the award of the contract (see AGO, para 22).

As AG Campos sums up their arguments (see paras 38-41), such systemic/functional interpretation would derive from the fact that (i) proof of technical equivalence is a necessary element for the contracting authority to reach a judgment on which is the most economically advantageous tender amongst those received; (ii) in the absence of a prior verification of the tenderers’ ability to deliver on their contractual obligations, a contracting authority faced with non-compliant supplies would only be left with the option to terminate the contract, which is undesirable; and (iii) given that Art 34(8) Dir 2004/17 solely establishes the exceptionality of the recourse to a named brand and prohibits it except if twinned with the explicit mention of the acceptability of equivalent solutions, the general requirements for verification of technical compliance under Arts 34(3) and 34(4) Dir 2004/17—both of which require pre-award submission of documentation—should be applicable to cases where the contracting authority has made use of the exceptional reference to branded products.

In my view, this reflects the correct interpretation of the rules on verification of technical compliance under Dir 2004/17—and the same logic that remains applicable under the revised rules of the 2014 Public Procurement Package.

An alternate view

However, taking an alternate view, AG Campos suggested that Dir 2004/17 does not necessarily require tenderers to provide—and, implicitly, does not necessarily require contracting authorities to demand that tenderers submit—the relevant certificates prior to award of the contract if (i) the contracting authority has specified products of a named brand ‘or equivalent’, and (ii) it has indicated that such documents need only be submitted with the first supply of spare parts (para 74). The reasons given for this approach—which are flanked by thought-provoking references to the competition law rules applicable to the distribution of vehicles and their parts (not to be discussed in this post)—can be summarised as follows (see paras 42 and ff):

(1) AG Campos considers that the possibility to use a direct reference to branded products ‘or equivalent’ changes the contours of the technical verification to be undertaken by the contracting authority. The rules requiring pre-award verification are justified by the uncertainty or indetermination derived from the discretion conferred to the contracting authority in the way it can set technical specifications (eg by performance requirements alone, or mixed with technical standards). In contrast, “[w]hat explains the singular mention of a trademark, a patent or similar figures (always with the addition of their ‘equivalents’) is that the space of indetermination disappears. When, for example, it is only possible to supply spare parts for vehicles corresponding to a single brand …, or their equivalents, the contracting authority has already chosen to make "a sufficiently precise and intelligible description of the object of the contract". This is the key difference with respect to paragraphs 3 and 4 of Article 34 of Directive 2004/17, which makes it possible to deal disparately with the requirements on certificates of equivalence” (AGO C-14/17, para 43, own translation from Spanish). In other words, the reference to the brand ‘or equivalent’ would have made the technical specifications so precise that no verification of technical compliance would be necessary prior to the award of the contract.

In my view, this is a functionally and logically untenable position. Given that the use of a reference to branded products is only acceptable “on an exceptional basis, where a sufficiently precise and intelligible description of the subject-matter of the contract pursuant to paragraphs 3 and 4 is not possible”, the recourse to the brand can only be considered as short-hand or a proxy for what are otherwise insufficiently precise or inintelligible technical descriptions of the goods to be supplied. This cannot be seen as excluding the need to assess technical equivalence, but simply as setting the technical benchmark against which such verification needs to be carried out—for otherwise, how could the contracting authority make sure that the supplies of anyone by the OEM meet the requirements?

(2) AG Campos also considers that there is a clash of public and private interests that excludes a requirement of unavoidable pre-award verification of technical compliance. Or, in other words, “[i]t is of course legitimate to have the concern not to frustrate the success of the procedure, which could happen if the contracting authority that had not previously required [the equivalence certificates] would find, in the end, that the successful tenderer is not in a position to prove the equivalence of the pieces … That aspiration, however, cannot supersede the essential principles of public procurement, in particular, the need to guarantee bidders have equal access and are not confronted with ‘unjustified obstacles to the opening of public contracts to competition’” (AGO C-14/17, paras 48-49, own translation from Spanish).

This clash of interests between the contracting authority’s interest in carrying out sound pre-award technical compliance verification and the tenderers’ interest in being allowed access to the tender is constructed on the assumption that, for a supplier to be able to participate in a tender requiring the supply of original or equivalent spare parts, it would need to have individualised certificates for each and every one of the spare parts to be supplied (in the case at hand, over 2,000 parts). This would indeed give an advantage to the OEM manufacturer, which is of course under no need to certify compliance with its own technical standards.

However, this seems like an extremely rigid approach to technical compliance verification through documentation, which is only explained by the conflation of qualitative selection and technical verification carried out in the next set of reasons. A contracting authority could have taken a proportionate approach eg by requiring the submission of samples with the tender, together with a certificate of equivalence of the sample parts or sufficient technical information about the sample parts as to demonstrate that equivalence of the contractual supplies would be achieved. That would allow for a non-restrictive design of the tender procedure not requiring the award of the contract without carrying out sufficient verification of technical compliance.

(3) As AG Campos explains in his Opinion (see paras 57 and ff), in the case at hand, the contracting authority was able to award the contract without the need to receive documentation attesting technical equivalence because it had carried out an unduly restrictive qualitative selection by requiring that tenderers demonstrated experience in supplying a high value of spare parts of the named brand or equivalent in the previous three years. Indeed, he considers that “[p]rocurement documentation drawn up in those terms is restrictive, since it circumscribes the circle of recipients to those who have already manufactured spare parts of the [named] brand, whether original or equivalent, which excludes the participation of other manufacturers … the procuring entity, which had already imposed this rigorous conditions, could reasonably rely on them as criteria to assess the technical standing of the tenderers, without having to require them, in addition, to initially provide the certificates of equivalence of the 2,195 pieces referred to in the supply contract” (AGO C-14/17, para 60, own translation from Spanish).

In my view, this determines the existence not of one, but two, breaches of EU public procurement law. First, because the qualitative selection criteria are indeed too narrow and exclude the possibility for other OEMs or other ‘generic spare parts’ manufacturers to tender for the supply of pieces equivalent to the specific named brand on the basis of technical capability and previous experience in delivering original or equivalent pieces of other named brands (or OEMs). Second and on an alternative understanding of the facts, because in VAR the contracting authority would not have actually waived its obligation to carry out pre-award technical compliance certification by accepting certificates with the first supplies, but it would rather have carried out the verification at qualitative selection stage—which does not seem in line with the distinction between qualitative selection and award criteria according to Lianakis (C-532/06, EU:C:2008:40). Indeed, from a functional perspective, it seemed clear that in VAR the contracting authority screened potential suppliers on the basis of their ability to meet the particular technical specifications of the supplies it required, rather than on the basis of general technical capabilities to produce original or equivalent spare parts for buses, trolleybuses and tramways.

By taking the (inadvertent?) position that ‘two wrongs make a right’, AG Campos may have missed an additional important point. In practice, his position would allow contracting authorities to include requirements in the tender documentation that they have no intention of verifying prior to the award of the contract. This runs functionally contrary to the precedent of EVN and Wienstrom. There, the CJEU clearly established that “where a contracting authority lays down an award criterion indicating that it neither intends, nor is able, to verify the accuracy of the information supplied by the tenderers, it infringes the principle of equal treatment, because such a criterion does not ensure the transparency and objectivity of the tender procedure” (C-448/01, para 51). The difficulty here is not that the information cannot be verified at all, but that the information cannot be verified during the tender procedure—which in my view is a logical implication of the EVN and Wienstrom Judgment. Even if I would not support such an approach, this possibility for deferred verification during contractual execution could maybe only change now that contract modification is explicitly regulated in the 2014 Public Procurement Package; but any such logic would not apply to procurement covered by the 2004 Utilities Directive.

Moreover, the deferral of verification of technical compliance to contract execution and award of the contract without documentary or sample-based checks would create two undesirable effects: (i) opening up the possibility of self-certification of technical compliance by the tenderers and (ii) conflating verification of compliance with technical specifications for award purposes and quality control for contract performance purposes, which are not necessarily identical functions and certainly serve two distinct legal aims; respectively, ensuring the objectivity and probity of the award decision and ensuring compliance with contractual obligations.

Overall consideration

On the whole, in my view, the VAR Opinion is flawed by a misconstruction of the tests and verification carried out by the contracting authority, as well as by a misunderstanding of the technical simplification expected to derive from the exceptional recourse to branded ‘or equivalent’ supplies. As a matter of principle, contracting authorities should not be allowed to award contracts without carrying out sound checks on technical compliance. They should also not be allowed to defer them to contract execution without more. Contracting authorities should also not be allowed to use technical specifications as qualitative selection criteria due to the artificial narrowing of competition that involves (as clearly stressed, but not thoroughly analysed, by AG Campos in his Opinion).

Therefore, I would argue for the CJEU not to follow AG Campos on this occasion and rather clarify that (i) technical compliance cannot be deferred beyond the award of the contract, regardless of the use of references to branded ‘or equivalent’ products, and (ii) it is for the national court to determine whether the rules on technical specifications and qualitative selection were infringed in the design of the procedure in the case at hand. Otherwise, if the CJEU decided to follow the VAR Opinion, its case law would continue to add internal inconsistencies and unnecessary complexity in this already difficult area of procurement regulation.

CJEU greenlights ‘remedying procedural short-comings in return for (proportionate) payment’ (C-523/16 & C-536/16)

By Henk Sijgers

In its Judgment of 28 February 2018 in MA.T.I. SUD, C-523/16, EU:C:2018:135, the Court of Justice of the European Union (CJEU) accepted the compatibility with EU public procurement law (2004 version) in principle of domestic rules allowing for the 'remedying of procedural shortcomings in return for payment', whereby a contracting authority can invite any tenderer whose tender is vitiated by serious irregularities to rectify that tender, subject to the payment of a financial penalty--provided that the amount of that penalty is proportionate.

However, given previous case law excluding the possibility to remedy serious shortcomings in submitted tenders, the CJEU has stressed that such 'remedial mechanism in return for payment' is subject to the limitation that, despite the existence of such financial penalty, the contracting authority cannot require a tenderer to remedy the lack of a document which, according to the express provisions in the contract documentation, must result in the exclusion of that tenderer, or to eliminate irregularities such that any corrections or changes would amount to a new tender (para 65).

It is important to note, though, that despite establishing this position in principle, the CJEU also provided extremely clear indications that, in its view, there is a need to subject the assessment of the adequacy of the correction of the tenders to a strict assessment to make sure that they do not imply a new tender or the circumvention of the tender documentation (or, in other words, to make sure that the correction is not really of a serious irregularity, but rather a minor one), and that the penalties threatened in the Italian domestic cases that generated the preliminary reference cannot be considered proportionate (paras 62 & 64).

This anticipated analysis of incompatibility in concreto despite compatibility in abstracto begs the question whether the position in principle taken by the CJEU--ie the acceptaibility of non-serious modifications subject to proportionate financial penalties--is an adequate default rule, or whether a different default rule would be preferable--ie the acceptability of non-serious modifications without penalty.

In my view, and largely for the same reasons given in criticising the Opinion of AG Campos Sanchez-Bordona that the CJEU has now followed (see here, where they are developed in detail), in tolerating the imposition of financial penalties as a condition for the remediation of minor procedural defects, the MA.T.I. SUD Judgment sets the wrong default rule and is undesirable for its potential anti-SME effects, as well as due to the potential blurring of the narrow space that actually exists for the correction of serious irregularities under the Manova-Slovensko-Archus and Gama case law (see here, here and here). In adopting a seemingly more flexible approach in principle, in MA.T.I. SUD the CJEU may be creating more confusion than providing clarity, solely with the aim of maintaining a questionable space for domestic procedural administrative discretion. On balance, I would have thought it preferable for the CJEU to indicate more clearly and simply that serious irregularities cannot be corrected (with or without financial penalty), and that the correction of minor irregularities needs to be always accepted without sanction.

In MA.T.I. SUD, the CJEU assessed the compatibility with Art 51 of Directive 2004/18/EC of an Italian provision that enabled tenderers for public contracts to remedy any irregularities in their tenders, but at the same time imposed on them a financial penalty proportional to the value of the contract--of between 0.1% and 1% of the value of the contract, with a maximum ceiling of €50,000. The amount of the penalty was to be set in advance by the contracting authority and guaranteed by a provisional security (or bid bond), and could not be adjusted according to the gravity of the irregularity that it remedied. The maximum penalty was later reduced to €5,000, and eventually suppressed. This reduces the immediate impact of the MA.T.I. SUD Judgment. However, this CJEU ruling will be relevant beyond the specific context of Italian procurement rules, not only in relation with the now phased out transposition of Art 51 of Directive 2004/18, but also with Art 59 of Directive 2014/24/EU (which was not applicable ratione temporis). Both provisions foresee that contracting authorities can seek clarifications from tenderers under specified conditions.

There are some passages of the Judgment I consider relevant:

... when they implement the possibility provided for in Article 51 of Directive 2004/18 [whereby the contracting authority may invite economic operators to supplement or clarify the certificates and documents submitted to it], the Member States must ensure that they do not jeopardise the attainment of the objectives pursued by that directive or undermine the effectiveness of its provisions and other relevant provisions and principles of EU law, particularly the principles of equal treatment and non-discrimination, transparency and proportionality ...

It must also be borne in mind that Article 51 of Directive 2004/18 cannot be interpreted as allowing the contracting authority to accept any rectification of omissions which, as expressly provided for in the contract documentation, had to lead to the exclusion of the tenderer ...

... a request for clarification cannot make up for the lack of a document or information whose production was required by the contract documents, the contracting authority being required to comply strictly with the criteria which it has itself laid down ...

In addition, such a request may not lead to the submission by a tenderer of what would appear in reality to be a new tender

... the very concept of substantial irregularity ... does not appear to be compatible with Article 51 of Directive 2004/18 or with the requirements to which the clarification of a tender in the context of a public contract falling within the scope of Directive 2004/17 is subject, according to the case-law of the Court ...

It follows that the mechanism of assistance in compiling the documentation [under dispute] ... is not applicable if the tender submitted by a tenderer cannot be rectified or clarified within the meaning of the case-law referred ... above, and that, consequently, no penalty can be imposed on the tenderers in such a case (C-523/16, paras 48-49, 51-52 & 55-56 references omitted and emphasis added).

In my view, this reasoning of the CJEU reflects the state of the law and a desirable normative position. It would have allowed the CJEU to simply declare the Italian system incompatible due to the excess that a correction of serious irregularities would imply in comparison with the boundaries on tender modification derived from Manova-Slovensko-Archus and Gama. And the CJEU could have done that without entering into a discussion of whether proportionate penalties for non-substantial modifications are acceptable. On this point, it should be stressed that contested Italian rule also foresaw that '[i]n the case of non-substantial irregularities, that is, any non-essential absence or incompleteness of declarations, the contracting authority shall not require the remedying thereof or impose any penalty' (AGO, C-523/16, para 5). Therefore, in the case at hand, the narrow regulatory space left by the CJEU for the imposition of sanctions would not be occupied by the Italian rules, as the Italian legislator saw no need to sanction any such minor tender corrections.

On the whole, then, the MA.T.I. SUD Judgment seems to unnecessarily create a default rule that can be problematic in the interpretation and operationalisation of the rules in Arts 56 and 59 of Dir 2014/24. This stems from the fact that the CJEU has endorsed the underlying principle that 'the imposition of a financial penalty is indeed an appropriate means of achieving the legitimate objectives pursued by the Member State related to the need to place responsibility on the tenderers in submitting their tenders and to offset the financial burden that any regularisation represents for the contracting authority' (para 63). In my view, this runs contrary to the pro-competitive and pro-SME orientation of the 2014 Public Procurement Package. It also reflects a general understanding of public procurement law not as a mode of governance aimed at ensuring best value for money in the expenditure of public funds, but rather a set of fully justiciable rules aimed at discharging the cost and risk of the procurement function on the economic operators, which is then of course putting pressure at the other end of the spectrum via claims for damages where (complex) justiciable rules are not complied with absolutely. In my view, this creates an unrealistic framework for the carrying out of procurement efforts, and more scope for collaborative approaches within the boundaries of the requirements for equal treatment and competition would be superior.

Therefore, I can only hope that, in the future and with a right case, the CJEU will be able to further clarify its position--or, rectius, to reverse position and rule out the possibility of intra-tender sanctions for minor modifications. This is a normative point and, as I said before, the same way I argue against charging potentially interested tenderers for access to the tender documentation, I also take the normative position that imposing fines for the remediation of documentation shortcomings is undesirable, which leads me to propose their eradication de lege ferenda (by analogy, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 280-281).

The end of procurement as we knew it? CJEU consolidates Falk Pharma approach to definition of procurement in Tirkkonen (C-9/17)

In its Judgment of 1 March 2018 in Tirkkonen, C-9/17, EU:C:2018:142, the Court of Justice of the European Union (CJEU) had to assess whether a scheme with the following characteristics had to be classed as a framework agreement and thus subjected to the EU procurement rules (at the relevant time, Directive 2004/18/EC, now repealed by Directive 2014/24/EU).

The scheme was as follows: the Finnish Agency for Rural Affairs (contracting authority, or Agency) had to manage the provision of agricultural advisory services to farmers and land managers having entered into an environmental agreement concerning the payment of environmental compensation payments. The Agency designed a draft contract for the provision of agricultural advisory services that potential suppliers had to adhere to as a condition for their participation in the scheme as service providers. The draft contract foresaw an hourly rate for the retribution of the services, which was to be covered by the Agency, with the beneficiary farmer or land manager paying the applicable VAT. The Agency would create a pool of potential suppliers amongst those qualified that had expressed interest and passed an examination. Once this pool was created, no other providers would be able to join the scheme for the period 2015-2020. Farmers and land owners require the services of any of the advisors included in the scheme.

In deciding the case, the CJEU reiterated that 'the choice of a tender and, thus, of a successful tenderer, is intrinsically linked to the regulation of public contracts by [Directive 2004/18] and, consequently, to the concept of "public contract" within the meaning of Article 1(2) of that directive'. Further, the CJEU extracted the implication 'that the fact that the contracting authority does not designate an economic operator to whom contractual exclusivity is to be awarded means that there is no need to control, through the detailed rules of Directive 2004/18, the action of that contracting authority so as to prevent it from awarding a contract in favour of national operators' (C-9/17, paras 30-31). By stressing that procurement requires the contracting authority to choose the economic operator meant to provide the relevant supplies, services or works, the CJEU concluded that, in the case at hand, 'a farm advisory scheme ... through which a public entity accepts all the economic operators who meet the suitability requirements set out in the invitation to tender and who pass the examination referred to in that invitation to tender, even if no new operator can be admitted during the limited validity period of that scheme, does not constitute a public contract within the meaning of that directive' (C-9/17, para 41).

In formulating this position, the CJEU largely followed the approach suggested by AG Campos Sanchez-Bordona (criticised here) and consolidated the restrictive approach to the definition of procurement the CJEU itself had first formulated in Falk Pharma (C-410/14, EU:C:2016:399; also criticised here). In doing so, the CJEU has further jeopardised the effectiveness of EU public procurement law beyond the initial dent made by Falk Pharma. Tirkkonen concerned a factual situation clearly subsumable within the concept of a framework agreement that involved exclusion of potential competing providers of services for a period of 5 years--whereas Falk Pharma concerned an open-ended system where entry by new providers was possible, which made its classification within the concept of dynamic purchasing system perhaps less straightforward (although not really). This makes Tirkkonen a Judgment even more troubling than Falk Pharma. Given that the CJEU relied on Directive 2014/24 in Falk Pharma, even if Tirkkonen does not mention it in its operative part, it seems that this restrictive approach is now clearly consolidated for the foreseeable future and that it will impose a restrictive approach to the concept of procurement in the future. For the reasons discussed below, I find this development regrettable.

Excessively narrow concept of procurement--Choice obsession

The CJEU has not placed center-stage the requirement for the contracting authority to choose 'tender and, thus, ... a successful tenderer ... to whom contractual exclusivity is to be awarded' (presumably, solely, or within a framework agreement), but rather idolatrised it and put it in a high pedestal from which it can only fall in the future.

The CJEU has forced this position to the extreme of potentially creating further confusion about the distinction between selection and award criteria concerning professional qualifications and expertise of the members of staff involved in the future provision of services--thus potentially reigniting the discussion of the interaction between Lianakis and Ambisig (see here). This emerges from the exceedingly formal reasoning followed by the CJEU in Tirkkonen, where the CJEU was at pains to avoid classifying the

... it is apparent ... that the Agency intends to set up a large pool of advisers who must fulfil a number of conditions. However, in so far as the Agency admits all the candidates who satisfy those requirements, it is clear ... that it makes no selection among the admissible tenders and that it confines itself to ensuring that qualitative criteria are respected.

... the fact that, unlike the context that gave rise to ... Falk Pharma ... a farm advisory scheme ... is not permanently open to interested economic operators is irrelevant. In the present case, the decisive factor is that the contracting authority has not referred to any award criteria for the purpose of comparing and classifying admissible tenders. In the absence of that factor, which is, as is apparent from paragraph 38 of ... Falk Pharma ..., intrinsically linked to the regulation of public contracts, a farm advisory scheme ... cannot constitute a public contract within the meaning of Article 1(2)(a) of Directive 2004/18.

Furthermore, ... even if the verification of the tenderers’ suitability and the award of the contract are carried out simultaneously, those two operations must be regarded as two different operations governed by different rules ...

Accordingly, criteria that are not aimed at identifying the tender which is economically the most advantageous, but are instead essentially linked to the evaluation of the tenderers’ suitability to perform the contract in question, cannot be regarded as ‘award criteria’. Criteria relating mainly to the experience, qualifications and means to ensure the proper performance of the contract concerned were considered to relate to the suitability of tenderers to perform that contract and not as ‘award criteria’, even though the contracting authority had classified them as such ...

Finally, that conclusion is in no way affected by the solution adopted in ... Ambisig ..., in which the Court pointed out, in essence, that the skills and experience of the members of the team assigned to performing the public contract may be included as award criteria in the contract notice or in the tender specifications, in so far as the quality of the performance of a contract may depend decisively on the ‘professional merit’ of the people entrusted with its performance, which is made up of their professional experience and background, particularly where the contract covers the provision of services of an intellectual nature and relates to training and advisory services.

That assessment must, however, be understood ... in the light of the contracting authority’s choice of the tender which it intended to accept from several admissible tenders. In so doing, unlike the case at issue in the main proceedings, the contracting authority, in ... Ambisig ... made a real comparison of the admissible tenders in order to identify the most economically advantageous tender. In the latter case, the experience of the proposed technical team was an intrinsic feature of the tender and was not merely a criterion for assessing the tenderers’ suitability.

It follows from the foregoing considerations that the requirements set out in the invitation to tender published by the Agency cannot constitute award criteria within the meaning of Directive 2004/18 (C-9/17, paras 33, 35-40, references omitted and emphases added).

The CJEU certainly takes an extremely formal view here, in particular because the nature of the scheme was such that potential suppliers were to offer homogeneous or equally economically advantageous tenders, given that the Agency had predefined the parameters of the provision of the services. In that regard, the contracting authority did not 'confine itself to ensuring that qualitative criteria were respected', but rather established all applicable requirements in such a way that tenderers were faced with a 'take it or leave it' set of conditions for their offers. It can thus be argued that in this case the involvement of the contracting authority was even more intense than in the context of previous cases, such as Ambisig, in that the contracting authority had even more control of the content of the future contracts.

As I already mentioned when criticising the AG Opinion (see here), this approach misunderstands how framework agreements work. Both frameworks that involve mini-competitions, where the conclusion of the framework agreement does not imply any specific choice of tender because its conditions are subject to the result of the mini-competition prior to call-off (see Art 32(4)II second indent, and now Art 33(4)(b) and (c) Dir 2014/24); as well as frameworks that already set all conditions for future call-offs without any further mini-competition, where all conditions of what constitutes the most economically advantageous tender are set at the point of concluding the framework agreement (see Art 32(4)II first indent, and now Art 33(4)(a) Dir 2014/24). Functionally, the choice-centric reasoning of the CJEU manages to be at odds with both types of framework agreements, which could be seen as incompatibly covered by a Tirkkonen-compliant interpretation of the relevant rules.

Excessively narrow goals of EU procurement law

From a broader perspective, the CJEU Judgment in Tirkkonen can also be criticised by adopting a very narrow understanding of the goals of EU public procurement law strictly based on the prevention of discrimination on the basis of nationality. This is at odds with the significant case law that stresses the importance of competition considerations in procurement.

Since its emergence in CJEU case law over twenty-five years ago (see Commission v Denmark (Bridge over the Storebaelt), C-243/89, EU:C:1993:257, para 33), the principle of competition has progressively acquired central relevance in the field of public procurement. This evolution has generally been framed by the Court as a clarification of the main goal of the successive generations of EU public procurement rules. In one of its latest formulations, the CJEU has emphasised that ‘the main objective of the rules of EU law in the field of public contracts [is] the free movement of goods and services and the opening-up of undistorted competition in all the Member States’ (see Undis Servizi, C-553/15, EU:C:2016:935, para 28). The CJEU has also recently stressed that ‘the EU rules on public procurement were adopted in pursuance of the establishment of a single market, the purpose of which is to ensure freedom of movement and eliminate restrictions on competition’ (Lloyd's of London, C-144/17, EU:C:2018:78, para 33).

Therefore, from a systemic perspective, limited doubt can be cast on the competition-orientatedness of the EU public procurement rules [see eg C Bovis, ‘The Regulation of Public Procurement as a Key Element of European Economic Law’ (1998) 4(2) European Law Review 220; R Caranta, I contratti pubblici, 2nd edn (Turin, Giappichelli, 2012) 20; for extended discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015)]. And yet, in Tirkkonen the CJEU is inconsistent in recognising the importance of the principle of competition in drawing the boundaries of EU public procurement law. Its goal is not solely to prevent discrimination on the basis of nationality, or otherwise, but to ensure that contracting authorities benefit from the outcomes that undistorted competition for public contracts generates. In that regard, it seems clear that a recognition of the broader competition goal of EU public procurement law would have required the CJEU to assess whether the decision-making process underlying the Tirkkonen case was potentially unduly restrictive of competition--which it was, given the harshness of the exclusion decision--which would have forced the Court to recognise the relevance of applying EU public procurement law to curve such type of publicly-created distortions of competition [for a proposal on how to operationalise such a test, see A Sanchez-Graells, 'Some Reflections on the 'Artificial Narrowing of Competition' as a Check on Executive Discretion in Public Procurement', in S Bogojević, X Groussot & J Hettne (eds), Discretion in EU Public Procurement Law, IECL Series (Oxford, Hart, forthcoming)].

Excessive leeway for 'strategic design' going forward -- Need to reinvent the wheel?

The Tirkkonen case is not solely problematic from a conceptual and a normative perspective, as discussed above, but also from a practical standpoint. As already mentioned when criticising the AG Opinion, on the whole, as a result of the cumulative effect of Tirkkonen and its expansion of the Falk Pharma doctrine, Member States willing to avoid compliance with EU public procurement rules could now easily do so by creating systems of ‘user/beneficiary choice’ whereby contracting authorities create the entire 'choice architecture' and the underlying contractual mechanisms, but defer the choice of the specific provider to the user (patient, in Falk Pharma, aid beneficiary, in Tirkkonen). This could be quite problematic particularly in the context of services and supply contracts, where the existence of end users detached from the contracting authority can enable this type of mechanisms.

In the extreme, if central purchasing bodies created this type of mechanisms for use by individual decision-makers (eg civil servants or public employees), the atomisation of procurement that would ensue could well result in a de-regulation of the procurement function. Procurement rules would not apply to the CPB because it would not ‘choose definitely’ the specific supplier or provider, and they may not apply to the decision to call-off that does exercise that choice if the value of the call-offs is small enough—which would then trigger litigation around the legality or less of the atomisation of the procurement decision on the last stage, for which analysis the concept of ‘separate operational units’ in Art 5(2) of Directive 2014/24/EU (see also recital (20)) would become highly relevant; see K-M Halonen, 'Characteristics of Separate Operational Units – A Study on Aggregation Rules under Public Procurement Law' (2017) report for the Competition Authority; see here. There is thus a functional need to keep proper checks and balances at the level of creation of the mechanism.

I was already concerned that Falk Pharma was eroding the scope and effectiveness of the EU public procurement rules, but Tirkkonen could magnify such undesirable effect. Moreover, this would simply displace the problem towards general EU free movement law, which is not a sensible approach in view of the more developed criteria and rules in the EU public procurement framework. There may now be a need to reinvent the wheel and 'export' to general internal market law the more sophisticated mechanisms developed in the area of EU public procurement law, which seems like a significant waste of effort. It may well be that all of this takes us full circle, but it will certainly take time and the legal uncertainty involved in the process cannot be productive.

Some may argue that this is the spillover of the CJEU's increasing deference to the Member States in the area of procurement. This is certainly something that requires some further thought. Based on conversartions with some colleagues, maybe we will manage to organise a conference in this topic in the next couple of years. Watch this space.

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

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

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

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

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

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

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

As presented by the GC,

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

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

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

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

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

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

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

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

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

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

CJEU clarifies obligation of national supreme and constitutional courts to refer preliminary questions (C-322/16)

In its Judgment of 20 December 2017 in Global Starnet, C-322/16, EU:C:2017:985, the Court of Justice of the European Union (CJEU) followed the Opinion of AG Wahl and clarified that a national court of last instance is under an Art 267 TFEU obligation to refer a question for preliminary ruling to the CJEU even if the constitutional court of that Member State has already assessed the constitutionality of national rules in the light of regulatory parameters with content similar to rules under EU law.

The case concerned the amendment of the terms of licences for the online operation of gaming during their term, and the challenge was based on principles of legal certainty and protection of legitimate expectations, which are common to EU law and to the constitutional frameworks of the EU's Member States (in this case, Italy). From that perspective, the Global Starnet Judgment can be particularly relevant for cases involving claims based on the EU Charter of Fundamental Rights and could create a push for a more significant role for the CJEU as a constitutional court for the Union.

There are a few passages of the Global Starnet Judgment that I find particularly interesting:

... a national court which, in a case concerning EU law, considers that a provision of national law is not only contrary to EU law, but also unconstitutional, does not lose the right, or escape the obligation under Article 267 TFEU, to refer questions to the Court of Justice on the interpretation or validity of EU law by reason of the fact that the declaration that a rule of national law is unconstitutional is subject to a mandatory reference to the constitutional court. The effectiveness of EU law would be in jeopardy if the existence of an obligation to refer a matter to a constitutional court could prevent a national court hearing a case governed by EU law exercising the right conferred on it by Article 267 TFEU to refer to the Court questions concerning the interpretation or validity of EU law in order to enable it to decide whether or not a provision of national law was compatible with that EU law ...

... the effectiveness of EU law would be impaired and the effectiveness of Article 267 TFEU diminished if, as a result of there existing a procedure for review of constitutionality, the national court were precluded from referring questions to the Court for a preliminary ruling and immediately applying EU law in a manner consistent with the Court’s decision or case-law ...

Furthermore, although it is true that the procedure laid down in Article 267 TFEU is an instrument for cooperation between the Court of Justice and the national courts, by means of which the former provides the latter with the points of interpretation of EU law necessary in order for them to decide the disputes before them, the fact remains that when there is no judicial remedy under national law against the decision of a court or tribunal of a Member State, that court or tribunal is, in principle, obliged to bring the matter before the Court of Justice under the third paragraph of Article 267 TFEU where a question relating to the interpretation of EU law is raised before it ...

The fact that the [domestic Constitutional Court] gave a ruling on the compatibility of the provisions of national law ... with the provisions of the [national] Constitution which the referring court regarded as constituting, in essence, the same regulatory parameters as [EU law] has no bearing on the obligation, laid down in Article 267 TFEU, to refer questions concerning the interpretation of EU law to the Court of Justice (C-322/16, paras 21 & 23-25, references omitted and emphases added).