Osei-Afoakwa's Paper on Transparency and Procurement

In a recent paper on transparency and public procurement, Dr Osei-Afoakwa presents a very passionate defence of maximising transparency in procurement for the purposes of combating corruption ["How Relevant is the Principle of Transparency in Public Procurement?" (2014) Developing Country Studies 4(6): 140-146]. 

Given my personal view that transparency in procurement (in the EU) is excessive and potentially self-defeating (see here and here), I read it with some skepticism. 

However, I have been glad to discover a section where the advocation of transparency is subjected to some counter-arguments. In my view, the most interesting ones are summarised as follows:

With reference to transparency as it affects public procurement, the increased knowledge associated with transparency may prove counterproductive. According to Jenny (2005) unmitigated transparency may breed anticompetitive practices, facilitate tacit collusion among the tenderers and thereby foment corruption. Under certain circumstances, the bureaucracy associated with the need to provide more information may indeed assist bribe givers to identify potentially corrupt officials (Bac, 2001). Bac (2001) argues that, this may facilitate corruption by enabling easy identification of people with whom “connection” may be established for the purpose of corrupt practices. In addition, knowledge acquired by potentially corruptible officials through transparency measures will enable them to learn the “ways and means” of perfecting and promoting the art of corruption.

Moreover, transparency for the sake of it is not a final-one-stop cure for the corruption in procurement syndrome. It must be supported by other corruption-reducing imperatives including assurance of effective competition and efficiency in managing public resources (Beth, 2005). Nowadays, as indicated by policy developments and experience in advanced countries spearheaded by the United States, the OECD and WTO, and reflected in “internationally shared norms”, effective competition is being maintained through the international trade liberalisation crusade (Anderson and Kovacic, 2009).In addition, sometimes unmitigated transparency may be at variance with other requirements of good governance. It is therefore important to establish an appropriate balance between transparency and other tenets of good governance by ensuring that information is released with due regard to established rules (Wittig, 2005). Thus absolute, unmitigated transparency may not be always desirable. The degree of transparency and openness should be adapted accordingly to suit the nature, status and value of recipient of information, the stage of the procurement cycle, the sensitivity of information, the size of the contract and the nature of the item to be procured. Therefore it becomes necessary to time the release of information to suit the nature, status and value of recipients (emphasis added).

Overall, the paper is interesting food for thought for anyone interested in the difficult balance between transparency and effective competition in public procurement. 

The new Directive on Concessions is basically unnecessary, but creates red tape, duplication & legal uncertainty (Dir 2014/23)

I have been working on the preparation of a commentary to the first part of the new Directive 2014/23 on the award of concession contracts [OJ L 94, 28/03/2014, p. 1–64] and have realised that, unfortunately, it has indeed become a basically unnecessary piece of EU legislation that creates significant red tape and muddles an already complicated area of EU Economic Law.

Unfortunately, as I anticipated [What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of Their Economic Balance? (2012) European Procurement & Public Private Partnership Law Review 2/2012: pp. 94-104], most of the general provisions of Directive 2014/23 are a copy (or a 'Frankenstein copy') of provisions already available in other procurement Directives and, mainly, in Directive 2014/24 on public sector procurement. Such a duplication makes me think that the EU legislator would indeed have been better off by just including a limited set of specific provisions dealing with concession contracts within Directive 2014/24. By not doing so, it has created unnecessary duplication and complication.

As clear evidence of the basic unnecessity of Directive 2014/23, suffice it to stress that only 10 of its first 29 articles include specific rules for concession contracts (and, only 5 articles of those 10 are exclusively relevant for concession contracts, while the other 5 are slight modifications of general rules). All other articles are simply a repetition of provisions of other Directives. The table below clarifies this assessment. Hopefully Member States will take this significant duplication into account and will adopt a sensible (unified) approach in the transposition of Directives 2014/23, 2014/24 and 2014/25 to their domestic legal systems before April 2016, avoiding unnecessary repetitions.

 

 

ECLI and the new method of citing case law of the CJEU

The Court of Justice of the European Union is in the process of changing the way its Judgments are reported (now only electronically and in monthly sets) and cited. A transition period has started and the movement towards full use of the ECLI (European Case-Law Identifier) referencing system should be completed within the first semester of 2014.

This change is fundamentally oriented towards enhancing the usability of the case law as an enriched information source, facilitating the introduction and use of metadata in citations and the searchability of European case law. All these changes should be welcome and, if possible, pushed forward so that Member States also adopt ECLI citation quickly.

GC hints at a reduction of the burden of motivation of administrative decisions under EU law (T-319/11)

In its Judgment of 8 April 2014 in case T-319/11 ABN Amro Group v Commission, the General Court has indicated that the context in which an administrative decision is adopted may reduce the burden of motivation imposed on an institution when it deals with undertakings as interested parties, particularly when the alleged failure to provide sufficient motivation concerns a relatively secondary matter.

 

In the context of the judicial review of a State aid Decision adopted by the European Commission in the recapitalisation of ABN Amro by the Dutch State, the challengers of the Decision argued that the Commission had breached its duty of good administration and, more especifically, its obligation to provide reasons for the rejection of certain commitments linked to the restructuring of the bank.

 

Taking a pragmatical approach to the issue of whether the succint explanations provided by the Commission allowed the interested bank to assess its legal position, and whether the general motivation of the Decision was sufficient to discharge the requirements of the duty of good administration, the GC ruled that

138 [...] referring, by analogy, to the case-law according to which the reasons given for a measure adversely affecting a person are sufficient if that measure was adopted in a context which was known to that person and which enables him to understand the scope of the measure concerning him (see Case C‑417/11 P Council v Bamba [2012] ECR, paragraph 54 and case-law cited), it cannot be accepted in this case that the reasons stated in the contested decision do not meet the requisite legal standard because the decision does not discuss the alternative measures proposed by ABN Amro during the investigation procedure and rejected by the Commission (T-319/11 at para 138, emphasis added).

In my view, this Judgment can have interesting and positive implications if it is properly carried through to other areas of EU administrative law where, to date, the CJEU has adopted a much more demanding approach. In particular, I think that this incipient string of case law can be very helpful in the area of public procurement, where the current state of the law imposes what I deem as excessive debriefing obligations on the basis of the duty to provide reasons--which, in turn, result in a very dangerous and detrimental transparency in public procurement settings [for discussion, see "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", University of Leicester School of Law Research Paper No. 13-11]. I therefore hope that such pragmatical approach will be further developed and properly adjusted to other areas of EU Economic law, such as public procurement.

CJEU further pushes for a universal application of the 'market economy private investor test' (C-224/12)

In its Judgment of 3 April 2014 in case C-224/12 Commission v Netherlands and ING Groep, the Court of Justice of the European Union (CJEU) has followed its antiformalistic approach to the application of the 'market economy private investor test' (see comment to its precedent in C-124/10 EDF here) and has basically consolidated its role as a universal test in the application of Article 107(1) TFEU [for discussion, see A Sanchez Graells, “Bringing the ‘Market Economy Agent’ Principle to Full Power” (2012) 33 European Competition Law Review 35-39].

In its ING Groep Judgment, the CJEU determined that the Commission could not evade its obligation to assess the economic rationality of an amendment to the repayment terms of the aid granted by the Dutch State to ING in the light of the private investor test solely on the ground that the capital injection subject to repayment itself already constituted State aid--since only after such an assessment would the Commission be in a position to conclude whether an additional advantage within the meaning of Article 107(1) TFEU had been granted.

 

In my view, this general approach insisting on the application of the 'market economy private investor test' regardless of the prior existence of State aid in itself must be praised, and the very rotund terms in which the CJEU has stressed its importance deserve some emphasis.

 

Indeed, the CJEU has built up on the arguments already indicated in C-124/10 EDF and, following the advice of AG Sharpston, has made it clear that:

30 [...] in view of the objectives pursued by Article [107(1) TFEU] and the private investor test, an economic advantage must, even where it has been granted through fiscal means, be assessed in the light of the private investor test if, on conclusion of an overall assessment, it appears that, notwithstanding the fact that the means used were instruments of State power, the Member State concerned has conferred that advantage in its capacity as shareholder of the undertaking belonging to it.

31 It follows that the applicability of the private investor test to a public intervention depends, not on the way in which the advantage was conferred, but on the classification of the intervention as a decision adopted by a shareholder of the undertaking in question.

32 Furthermore, that test is one of the factors which the Commission is required to take into account for the purposes of establishing the existence of aid and is therefore not an exception that applies only if a Member State so requests, where the constituent elements of State aid incompatible with the common market referred to in Article [107(1) TFEU] have been found to be present (see Commission v EDF, paragraph 103).

33 Consequently, where it appears that the private investor test may be applicable, the Commission is under a duty to ask the Member State concerned to provide it with all relevant information enabling it to determine whether the conditions governing the applicability and the application of that test are met (see Commission v EDF, paragraph 104).

34 The application of that case-law cannot be compromised merely because, in this case, what is at issue is the applicability of the private investor test to an amendment to the conditions for the redemption of securities acquired in return for State aid.

35 Indeed, as the Advocate General has stated [...] any holder of securities, in whatever amount and of whatever nature, may wish or agree to renegotiate the conditions of their redemption. It is, consequently, meaningful to compare the behaviour of the State in that regard with that of a hypothetical private investor in a comparable position (C-224/12 at paras 30-35, emphasis added).

In my view, this Judgment must be welcome as a good addition and (further) clarification to C-124/10 EDF in terms of the universal applicability of the  'market economy private investor test' and, as I already indicated, it would be interesting to see this criterion extended to other areas of EU Economic Law and, particularly, public procurement, where the control the (disguised) granting of State aid is crying for further developments of the 'market economy private [buyer] test' [as I stressed in "Public Procurement and State Aid: Reopening the Debate?"(2012) 21(6) Public Procurement Law Review 205-212].

Recent CJEU and GC views on the "economic advantage" element in State aid cases (C-559/12 and T-150/12)

In two recent cases, the Court of Justice of the EU (CJEU) and the General Court (GC) have reassessed the element of "economic advantage" required in the prohibition of State aid in Art 107(1) TFEU in connection with State guarantees in France and Greece. The element of advantage has ranked rather high in the list of issues recently submitted to public consultation by the European Commission as part of the forthcoming new Notice on the concept of State aid. Hence, it seems interesting to have a look at these cases.


Firstly, in its Judgment of 3 April 2014 in case C-559/12 France v Commission (La Poste), the CJEU assessed the Commission's previous findings regarding the existence of an unlimited guarantee granted by the French State to its postal operator (La Poste) as part of its status as an establishment of an industrial and commercial character (établissement public à caractère industriel et commercial, ‘EPIC’)--which entails a number of legal consequences, including the inapplicability of insolvency and bankruptcy procedures under ordinary law--and which ultimately constituted State aid within the meaning of Article 107(1) TFEU. The Commission's assessment had been endorsed by the GC (see comment here). The CJEU concurs with the substantive assessment of both the Commission and the GC in an interesting reasoning (and after having addressed a number of issues concerning the burden of proof that, in the end, remain largely marginal in view of the consolidation of a presumption of advantage in the case of unlimited State guarantees):

94 [...] it must be borne in mind that the concept of aid embraces [...] measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, therefore, without being subsidies in the strict sense of the word, are similar in character and have the same effect [...] Also, State measures which, whatever their form, are likely directly or indirectly to favour certain undertakings or are to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions, are regarded as aid [...].
95 Since State measures take diverse forms and must be analysed in terms of their effects, it cannot be ruled out that advantages given in the form of a State guarantee can entail an additional burden on the State [...].
96 As the Court has already held, a borrower who has subscribed to a loan guaranteed by the public authorities of a Member State normally obtains an advantage inasmuch as the financial cost that it bears is less than that which it would have borne if it had had to obtain that same financing and that same guarantee at market prices [...].
97 From that point of view, moreover, the Commission Notice on the application of Articles [107 and 108 TFEU] to State aid in the form of guarantees specifically provides[...] that an unlimited State guarantee in favour of an undertaking whose legal form rules out bankruptcy or other insolvency procedures grants an immediate advantage to that undertaking and constitutes State aid, in that it is granted without the recipient thereof paying the appropriate fee for taking the risk supported by the State and also allows better financial terms for a loan to be obtained than those normally available on the financial markets.
98 It is apparent, [...] a simple presumption exists that the grant of an implied and unlimited State guarantee in favour of an undertaking which is not subject to the ordinary compulsory administration and winding-up procedures results in an improvement in its financial position through a reduction of charges which would normally encumber its budget.
99 Consequently, in the context of the procedure relating to existing schemes of aid, to prove the advantage obtained by such a guarantee to the recipient undertaking, it is sufficient for the Commission to establish the mere existence of that guarantee, without having to show the actual effects produced by it from the time that it is granted (C-559/12 at paras 94 to 99, emphasis added). 

Secondly, in its Judgment of 9 April 2014 in case T-150/12 Greece v Commission (aid to cereal production), the GC has also assessed a Greek guarantee scheme to cereal producers and has upheld the Commission's view whereby the conditions attached to such guarantee--i.e. initially, the acceptance of crops as collateral (although the existence of the guarantee rights and the conditions for their execution were not automatic) and later the potential charge of a 2% premium (again, which charge was not automatic)--did not dissipate the existence of an economic advantage for the beneficiaries of the guarantee scheme. The reasoning of the GC (in French) in paras 82 to 97 is interesting to grasp the unconditionality required of any measures intended to eliminate the (presumed) advantage that State guarantee schemes provide.

In my view, both Judgments are in line with the content of the Commission's Draft Notice on the concept of State aid (and, in particular, paras 111 to 117) and it seems now clear that unlimited State guarantees or State guarantees without actual (automatic) conditions (such as collateral and premia to be paid by the beneficiaries) will be ruled as being against Art 107(1) TFEU as a result of the iuris et de iure presumption of their conferral of an advantage.

AG proposes to reduce safe harbour for directly awarded public contracts subjected to prior transparency (C-19/13)

In his Opinion of 10 April 2014 in case C-19/13 Fastweb, Advocate General Bot has proposed an interpretation of Art 2d(4) of Directive 89/665 (as amended by dir 2007/66) that would seriously erode the safe harbour (apparently) created by that provision for contracts that have been directly awarded by the contracting authority (without competition), provided that the following cummulative conditions are met: 

 

— the contracting authority considers that the award of a contract without prior publication of a contract notice in the Official Journal of the European Union is permissible in accordance with Directive 2004/18/EC,

 — the contracting authority has published in the Official Journal of the European Union a notice (...) expressing its intention to conclude the contract, and,

 — the contract has not been concluded before the expiry of a period of at least 10 calendar days with effect from the day following the date of the publication of this notice (emphasis added).

 

The key element of his Opinion is, in my view, his interpretation of the extent to which the discretion of the contracting authority in 'considering' that it can avail itself from the possibility to award a contract without prior publication of a contract notice is subject to judicial review. A literal reading of the provision seems to indicate that the standard of review is very low (if not inexistent) and that, provided the transparency requirement and standstill period are respected, the directly awarded contract cannot be declared ineffective--leaving the challenging tenderer with the only option of seeking compensation for damages.

 

However, AG Bot argues that this would create a paradox and opposes such a literal interpretation of the provision, subjecting that exercise of discretion to effective (full) judicial review. As AG Bot argues,

74. Indeed, it should be noted that Directive 89/665 is specifically designed to increase the guarantees of transparency and non-discrimination in the context of procedures for the award of public contracts so that the injured economic operator receives complete legal protection. Moreover, it should also be remembered that the European Union legislature opted to strengthen in Directive 2007/ 66 the effectiveness of review procedures to combat the illegal direct award of public contracts and to protect potential tenderers against the arbitrariness of the contracting authority.

 

75 . Secondly, [if the judgment made by the contracting authority was not open to judicial review], in these circumstances, the contracting authority [would be allowed] to directly award a contract in contravention of the requirements laid down in Directive 2004/18, by serving minimum formalities and exposing itself to a minimum punishment, giving rise to potential abuses of the rights thereby recognized (AG Bot in C-19/13, at paras 74-75, own translation from Spanish and references omitted).

 

Further, AG Bot considers that

One must not lose sight of the dact that the maintenance of the effects of the contract provided for in Article 2d paragraph 4 of Directive 89/665 is based on the good faith of the contracting authority and seeks to preserve legal certainty for the contracting parties. The European Union legislature expressly recognized this in the twenty-sixth recital of Directive 2007/66, by insisting on the need to "avoid legal uncertainty which may result from ineffectiveness" of the contract. In addition, the Court has expressly admitted this in the judgment in Commission / Germany [EU:C:2007:432, para 33] (AG Bot in C-19/13, at para 82, own translation from Spanish and emphasis added).

In view of these (and other) considerations, AG Bot proposes that the CJEU interprets that

Article 2d , paragraph 4 of Council Directive 89/665 (...) read in the light of the principle of equal treatment and the right to effective judicial protection, must be interpreted as not precluding that a Member State grants the body responsible for appeal proceedings the freedom to appreciate the extent to which a contract awarded without prior publication of a notice in the Official Journal of the European Union must be declared ineffective when it finds that, despite the publication in the Official Journal of the European Union of a notice stating its intention to conclude the contract and the observance of a minimum standstill period of ten days, the contracting authority has violated in a deliberate and intentional way the advertising standards and the requirements of opening up to competition laid down in Directive 2004/18 (own translation from Spanish, emphasis added).

Basically, AG Bot argues against an automatic exclusion of the possibility to declare contracts ineffective under Art 2d(4) of Directive 89/665 and advocates for an extension of the scope of judicial review in order to assess whether contracting authorities acted in good faith. In my view, this potential development in the interpretation of EU procurement rules is troubling because it points towards a tendency to include subjective assessments in procurement review procedures (see Art 18 Directive 2014/24) and departs from the standards of judicial review: manifest error in law or in fact, and abuse of power/procedure.

 

The same result [ie inapplicability of the safe harbour of art 2d(4) of dir 89/665] could be achieved by simply stating that the first condition (that is, that the contracting authority considers that the award of a contract without prior publication is permissible in accordance with Directive 2004/18) is subject to that 'consideration' not being manifestly incorrect in law or in fact, or that the contracting authority has not abused its powers in the award of the contract.

I would prefer the CJEU to rule in that regard without embarking on analyses related to the good faith or otherwise of the contracting authority. Let's hope that the final judgment in the Fastweb case does not open the door to a myriad of complications in order to determine such type of subjective elements.

US GAO publishes report on urgency contracting (GAO-14-304)

The US Government Accountability Office has published an interesting report on the use of urgency contracting by the  Departments of Defense (DOD) and State and the U.S. Agency for International Development (USAID) in the period 2010-2012. The report is interesting in that it shows the relevance of having accurate data in order to carry out oversight efforts such as this one (in their research, they had access to rather poor and incorrect data) and, more importantly, because it clearly points out certain implementation problems that are similar to the ones that can be expected under the EU rules--and, looking at the future, under art 32(2)(c) of Directive 2014/24. It is interesting to read it ahead of its (re)transposition.

CJEU stresses 'consumer interest' test under Art 34 TFEU and finds Spain guilty of "gold-plating" in transport services' regulation (C-428/12)

In its Judgment of 3 April 2014 in case C-428/12 Commission v Spain (new transport trucks) (only available in French and Spanish) the Court of Justice of the European Union (CJEU) has found Spain in breach of Art 34 and Art 36 TFEU due to the imposition of a disproportionate requirement in the system of authorisation of road transport services by companies not primarily engaged in road transport. In my view, the case is interesting because it deals once again with claims of justification based on road safety, in what seems to have become a topic in EU free movement of goods law [see C-110/05 Commission v Italy (mopeds) and, very recently, C-639/11 Commission v Poland (right steering wheel cars), discussed here and here].

 

In the case at hand, Spain had adopted regulations for the authorisation of companies providing ancillary road transport services that required that the age of the first heavy (ie above 3,500 kg) vehicle in the fleet of a (newly authorised) company did not exceed five months from its first registration. The Commission considered that this requirement infringed Art 34 TFEU and was not justified under Art 36 TFEU. One can wonder why the case was brought under this legal basis instead of the seemingly more appropriate of Art 49 TFEU (given that the system was concerned with a 'first' or new authorisation and, consequently, seemed to affect newly established transport companies particularly) or of Art 56 TFEU (on the provision of services, as the effect of the restriction surely would limit the offer of road transport services), although the (greater?) difficulty in justifying the existence of a cross-border impact and the exclusion of transport from the 2006 Services Directive may have played a role in the 'strategic' choice of legal basis by the Commission.

 

Taking the (uneasy?) approach of the restriction of the free movement of goods under Art 34 TFEU, the Commission considered that i) the Spanish rule constituted a measure having equivalent effect to a quantitative restriction on imports, ii) that such provision had the effect of restricting imports of heavy goods vehicles more than five months old from other Member States, and iii) that it violated the principle of mutual recognition and impeded access to the Spanish market, which had the effect of severely restricting the use of the vehicles concerned. The Commission also considered that neither road safety or environmental protection justifications could exempt the controverted rule. The CJEU rather keenly accepts the approach taken by the Commission and makes some interesting findings, not least consolidating the 'market access' test approach to the enforcement of Art 34 TFEU:

29 [...] it is clear from the case law that a measure, even if it does not have the purpose or effect of treating less favorably products from other Member States, is included in the concept of a measure equivalent to a quantitative restriction within the meaning of Article 34 TFEU if it hinders access to the market of a Member State of goods originating in other Member States (see, to that effect, Commission / Italy, C-110/05, EU: C: 2009:66, paragraph 37).

30 In this regard, the Court observes that the prohibition of use as the first vehicle in the fleet of vehicle with a maximum authorized mass exceeding 3.5 tonnes and more than five months old from the date of its first registration may have a considerable influence on the behavior of firms wishing to use a vehicle of this nature for complementary private transport, behavior which in turn can affect access of that product to the market of the Member State in question (C-428/12 at paras 29-30, own translation from Spanish).

The CJEU also consolidates the 'consumer interest' test in order to assess restrictions to market access:

31 [...] businesses, knowing that the use authorized [...] of a vehicle with a maximum authorized mass exceeding 3.5 tonnes and more than five months old from the date of first registration is restricted, will only have a limited interest in buying a truck like this for their complementary private transportation activities (see, to that effect, Commission / Italy EU: C: 2009:66, paragraph 57, and Mickelsson and Roos, EU: C: 2009:336, paragraph 27) (C-428/12 at para 31, emphasis added, own translation from Spanish).

The CJEU dismisses the claims for justification made by Spain, indicating that road safety could be protected by less intrusive measures (such as technical inspections, already in place) and also interestingly dismisses arguments based on the solvency of companies:

40 As regards [...] the other explanations given by the Kingdom of Spain [... such as] the proof of greater solvency of the company or even fostering better exploitation of vehicles for private complementary transport do not constitute reasons of public interest within the meaning of Article 36 TFEU or mandatory requirements within the meaning of the Court of Justice's case law (C-428/12 at para 40, own translation from Spanish).

In my opinion, the case is interesting because it consolidates the 'new' approach to the enforcement of Art 34 TFEU under a 'market access' test applied thorugh a 'consumer interest' (sub)test. It is also interesting because it continues to perpetuate the 'supremacy' of free movement of goods rules as the main analytical framework for the protection of the fundamental freedoms impinging the internal market.