Division of contracts into lots under Reg. 46 Public Contracts Regulations 2015

Reg. 46 of the Public Contracts Regulations 2015 (PCR2015) transposes Article 46 of Directive 2014/24 and upgrades the rules on division of contracts into lots. Pedro has already criticised this provision and the "new preference for division into lots" that it encapsulates in his entry of the day, and has raised important points on the effect of lot division on procurement complexity and facilitation of collusion (if improperly carried out). I broadly agree with his views, except on the absolute optionality on the use of lots, and would like to add some comments.

These rules attracted significant attention during the reform process that led to the adoption of these new rules after the European Commission proposed a rule on division of contracts of a value above 0.5mn Euro whereby contracting authorities would have to provide reasons for decisions not to split those contracts into lots--hence setting a presumption or expectation for contracts to be generally divided into lots [see art 44 of the 2011 Proposal and A Sanchez Graells, “Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? — A View on Proposals to Lower that Barrier and Spur Growth” in C Tvarnø, GS Ølykke & C Risvig Hansen, EU Public Procurement: Modernisation, Growth and Innovation (Copenhagen, DJØF, 2012) 107-133]. 

The final version of the rule, now in Art 46 Dir 2014/24 is softer, is less prescriptive regarding the need to subdivide contracts into lots, merely indicating that contracting authorities may decide to award a contract in the form of separate lots and may determine the size and subject-matter of such lots [reg.46(1)]. However, the principle of "divide or explain" has remained as a general rule. Indeed, reg. 46(2) PCR2015 requires that contracting authorities provide an indication of the main reasons for their decision not to subdivide contracts into lots. 

Consequently, in my view, the rule (or at least the expectation) is that contracting authorities need to make an effort to determine whether they can divide the contract into lots and, only if there is a plausible reason not to do so, tender a single contract for the entirety of the object of the procurement. Moreover, the explanations provided for their decisions not to divide the contract into lots should be open to challenge, among other reasons, on the basis of the general principles of procurement [reg.18 PCR2015] and, notably, the principle of competition.

After setting up this general framework, reg.46 PCR2015 goes on to establish rules whereby contracting authorities can establish restrictions on the possibilities to tender for one, for several or for all of the lots [reg. 46(3)] and, even where tenders may be submitted for several or all lots, limit the number of lots that may be awarded to one tenderer, provided that all this information, including the maximum number of lots per tenderer, is stated in the contract notice or in the invitation to confirm interest [reg.46(4)].

In case any of these restrictions are employed, contracting authorities shall indicate in the procurement documents the objective and non-discriminatory criteria or rules they intend to apply for determining which lots will be awarded where the application of the award criteria would result in one tenderer being awarded more lots than the maximum number [reg.46(5)]. And where more than one lot may be awarded to the same tenderer, contracting authorities may award contracts combining several or all lots where they have specified in the contract notice or in the invitation to confirm interest that they reserve the possibility of doing so and indicate the lots or groups of lots that may be combined [reg.46(6)].

These rules consolidate possibilities that already existed under the previous rules (as none of them were explicitly prohibited) and allow for contracting authorities to take a more sophisticated approach to lot division. The UK legislator has decided not to make use of the possibility foreseen in Art 46(4) Dir 2014/24, whereby Member States may render it obligatory to award contracts in the form of separate lots under conditions specified in accordance with their national law and having regard for Union law.

Division of contracts into lots is an issue of particular relevance in terms of SME access to procurement and with an immediate effect on competition for the public contract, and in the market concerned. Hence, applying these rules in an adequate manner is of utmost importance. I discuss these issues at length in Public Procurement and the EU Competition Rules, 2nd edn (Oxford Hart, 2015) 347-352. The following is a simplified version of my comments.

Bundling and Aggregation of Contracts. Similarly to what was discussed in relation to centralisation of purchases, it is clear that these two trends ‘should be carefully monitored in order to avoid excessive concentration of purchasing power and collusion, and to preserve transparency and competition, as well as market access opportunities for SMEs’(rec (59) dir 2014/24). Hence, the rules applicable to the bundling and aggregation of contracts should have a prominent position under the applicable procurement rules. This was not the case under the 2004 EU public procurement directives, which regulated neither the division of contracts into lots, nor the bundling of those lots or the aggregation of contracts by the public buyer. The only rules regarding division of contracts into lots aimed at establishing specific criteria for the calculation of the value of the tendered contracts for the purpose of determining the applicability of the EU public procurement regime (art 9(5) dir 2004/18, which is now contained in art 5(8) and 5(9) dir 2014/24)—and, more specifically, with the purpose of preventing the circumvention of EU rules by the artificial division of contracts into lots whose value remains below the thresholds that trigger their application. Other than that, reference to the division of contracts into lots, their bundling or aggregation was only made in relation to contract notices—which, where the contracts are subdivided into lots, must indicate ‘the possibility of tendering for one, for several or for all the lots’ (Annex VII A dir 2004/18).

Therefore, Member States seemed to hold substantial discretion to set domestic public procurement rules on the division of contracts into lots, the bundling or aggregation of lots and contracts to be tendered together, the establishment of rules allowing or not for multiple and/or conditional tendering for different lots in a given tender procedure, etc. The situation has now been slightly altered by the inclusion of more specific rules concerning the division of contracts into lots in article 46 of Directive 2014/24, which fundamentally rest on a general expectation that contracting authorities will consider the possibility of dividing contracts into lots and, where they decide against it, provide a justification (ie, ‘divide-or-explain’ requirement). Indeed, according to article 46(1), contracting authorities ‘may decide to award a contract in the form of separate lots and may determine the size and subject-matter of such lots’ and, when they decide otherwise, they ‘shall … provide an indication of the main reasons for their decision not to subdivide into lots’, which may be included in the procurement documents. This duty to ‘divide-or-explain’ is conceived as a soft requirement not amenable to review, as indicated in recital (78) of Directive 2014/24, where it is explained that: ‘The contracting authority should have a duty to consider the appropriateness of dividing contracts into lots while remaining free to decide autonomously on the basis of any reason it deems relevant, without being subject to administrative or judicial supervision. Where the contracting authority decides that it would not be appropriate to divide the contract into lots, the individual report or the procurement documents should contain an indication of the main reasons for the contracting authority’s choice’.

Moreover, it should be taken into consideration that under article 46(4) of Directive 2014/24, ‘Member States may [render] it obligatory to award contracts in the form of separate lots under conditions to be specified in accordance with their national law and having regard for Union law’—which, a contrario, implies that Member States are free to reduce the requirements concerned with the division of contracts into lots to that soft requirement of ‘divide-or-explain’. Consequently, given the full discretion that Member States retain when deciding whether to implement the more specific rules in article 46 of Directive 2014/24 or not, and whether to make them mandatory or voluntary, it is appropriate to take a general approach to the competition analysis of the decisions (and rules) concerning the aggregation and bundling of contracts (or, reversely, of their division into lots).

In this connection, it should be stressed that the bundling of requirements into a single contract or the division of that same contractual object into several lots, as well as the rules imposing the minimum or maximum number of lots a single tenderer can bid for, allowing or excluding conditional or ‘package’ bidding and so on, can generate significant effects on competition for those contracts and in the market concerned. The bundling of independent requirements into a single contract (or the aggregation of otherwise independent contracts) by one or several public buyers may restrict the number of potential bidders and, therefore, generate anticompetitive effects, and alter the structure of the markets. Put otherwise, dividing contracts into several lots may in most instances increase competition, not only for the specific public contract but also for future contracts, and in more general terms, in the market from which the public buyer is procuring goods and services. The (sub)division of contracts into lots can particularly promote participation by SMEs —thereby broadening competition to the benefit of contracting authorities, as well as reducing the need to resort to more restrictive ‘secondary policies’ aimed at encouraging SME participation (such as set-asides or mandatory subcontracting). Therefore, in general terms, dividing contracts into lots or avoiding the aggregation of otherwise independent requirements into a single contract can have significant pro-competitive effects both on the tender and the market. Directive 2014/24 includes most of these economic insights in recital (78) and, consequently, article 46(1) aims at requiring contracting authorities to at least consider the possibility of dividing contracts into lots in order to achieve those benefits.

Nonetheless, it must be taken into account that the division of contracts into lots also presents some difficulties or undesirable effects and can generate some additional costs. Firstly, division of a given contract into lots may not be feasible in the light of the respective works, supplies and services. Therefore, rules regulating the division of contracts into lots should allow for sufficient flexibility so as not to impose artificially the fractioning of the contractual object where it is technically or economically unfeasible, or where it would substantially impair the effectiveness of the procurement process or raise the procurement costs disproportionately. This is encapsulated in Directive 2014/24, which clearly indicates that the reasons that could justify avoiding the division of a given contract into lots include the ‘risk [of] rendering the execution of the contract excessively technically difficult or expensive, or that the need to coordinate the different contractors for the lots could seriously risk undermining the proper execution of the contract’ (rec (78)). On the other hand, public procurement rules should restrict the ability of contracting authorities to bundle or aggregate artificially otherwise independent needs or requirements if doing so generates a competitive distortion—ie, if it excludes potential tenderers with a more limited capacity of supply, not integrated vertically, or otherwise not able to meet the bundled requirements, while they would be able to meet some of the requirements if unbundled or not aggregated. Therefore, it is to be praised that the 2014 public procurement rules encourage lot division unless it proves to be inadequate or disproportionate to the nature and amount of works, supplies and services concerned.

Secondly, economic theory has stressed that the division of the contract into lots might yield pro- or anti-competitive results depending on the relationship between the number of lots and the number of interested bidders. This is also reflected in Directive 2014/24, which allows deciding against allotting contracts where ‘the contracting authority finds that such division could risk restricting competition’ (rec (78)). Indeed, one of the potentially negative effects of the division of the contract into lots is the facilitation of collusion. Therefore, setting a number of lots that generates difficulties for coordination and allocation of lots amongst potentially colluding tenderers is desirable. In this regard, economic theory seems to provide two general criteria: the number of lots should be smaller than the expected number of participants (so that the impossibility of allocating lots to all interested tenderers diminishes the stability of collusion and forces it to spread over several tenders, thereby increasing the likelihood of detection), and the number of lots should exceed the number of incumbent contracts by at least one (implicitly reserving at least the additional lot for a new entrant or new contractor). Therefore, it also seems undesirable to adopt rigid rules setting a specific number of lots into which the contract should be automatically divided, since it could easily fall outside the desirable range for specific contracts and tendering procedures. In that regard, Directive 2014/24 rightly leaves it to the contracting authority to decide the number of lots to be created and whether to do so according to quantitative or qualitative criteria.

Finally, another important issue in the design of rules regarding lot division is to determine whether bidders can engage in multiple or ‘package’ bidding—and, if so, what are the minimum and maximum number of lots for which they can bid—and if conditional bidding is allowed, thus permitting bidders to offer varying conditions dependent upon the number and mix of lots awarded to them. In this regard, economic theory again stresses the importance of setting flexible rules that allow for a trade-off between fostering competition by smaller bidders and allowing larger bidders to exploit economies of scale, as well as for independent decisions to be made by tenderers—since multiple or package bidding will encourage bidders to submit more competitive offers for given packages than they would for independent lots or for all the lots. In this regard, it has been stressed that contracting authorities should not limit the number of lots tenderers can bid for in a way which would impair the conditions for fair competition, with maybe the only restriction of setting a relatively low maximum number of lots that a single bidder can be awarded at one time (which constitutes a specific case of awarding constraint). Therefore, it seems desirable to adopt rules so that the public buyer can reduce the minimum size of contracts/lots, and thereby maximise the number of smaller suppliers otherwise excluded, without hindering the ability of larger suppliers to bid for large sets of contracts in the event of their being characterised by positive complementarities.

To sum up, economic theory seems to support the finding that public procurement rules should be designed so as to encourage the division of contracts into lots whenever this is technically and economically feasible, and to allow the contracting authority to set the specific number of lots according to the circumstances of the tender. Similarly, contracting authorities should be able to restrict the maximum number of lots that a single tenderer can be awarded—if awarding the entire contract to a single contractor can generate a negative impact on competition; and particularly when ensuring that one or more lots are available for non-incumbent contractors is relevant to preventing distortions of competition in future contracts and/or in the market concerned. Finally, conditional and ‘package’ bidding should be allowed, in order to minimise the potential inefficiencies that lot division could generate. These insights of economic theory are now reflected to a large extent in article 46 of Directive 2014/24, and further considered in recital (79).

Firstly, article 46(2) ab initio allows for multiple bidding, indicating that the contract notice or in the invitation to confirm interest should indicate whether tenders may be submitted for one, for several or for all of the lots in which a given contract is divided. Secondly, article 46(2)II of Directive 2014/24 allows for restrictions on the number of lots that can be awarded to the same tenderer, establishing that even where tenders may be submitted for several or all lots, contracting authorities may limit the number of lots that may be awarded to one tenderer. In that case, the Directive sets up a double requirement of transparency to avoid distortions in the award decision-making, establishing that such awarding constraint will be applicable provided that the maximum number of lots per tenderer is stated in the contract notice or in the invitation to confirm interest, and as long as the procurement documents disclose the objective and non-discriminatory criteria or rules the contracting authority will apply for determining which lots will be awarded where the application of the award criteria would result in one tenderer being awarded more lots than the maximum number. All these rules remain, however, discretionary. Hence, it is still necessary to rely on the principle of competition and its requirements in order to inform their implementation.

The general criterion, in our view, should then be that in the exercise of this discretion as regards the division or aggregation of requirements, the fixing of the number of lots tendered, and the rules for conditional and ‘package’ bidding, contracting authorities must ensure that competition in the market is not distorted and, where possible and feasible, promote competition for the contract—particularly by avoiding the configuration of contracts which result in potentially interested competitors being excluded. As a default rule, division into a large number of lots will be preferable to a division into an insufficient number of exceedingly big lots, since tenderers could compensate for such an ‘excessive fragmentation’ of the object of the contract by submitting bundled offers—while an insufficient division of the object of the contract cannot be compensated by tenderers submitting partial offers or offers for amounts smaller than the object of the tender (as those bids would be considered non-compliant and, hence, rejected).

Arguably, in order to be effective, the rules and decisions on lot division will need to be complemented with clear award criteria as regards the comparability of offers for a different number of lots, as well as with rules applicable in case the offers submitted do not cover all the lots tendered. In this case, asking bidders to submit offers for the entire contract, for each individual lot and for the packages of lots that they would like to be awarded (with different prices and conditions) would arguably eliminate all the benefits of lot division, since tenderers that could not bid for the entire contract (even under less favourable conditions than they could offer for a given lot or group of lots) would be excluded anyway. Therefore, a preferable rule seems to be to allow the submission of bids for independent or grouped lots, without mandatory requirements regarding the entire contractual object. In case one or various lots could not be covered in the initial tendering, the contracting authority could then engage in re-tendering the pending lots by following a subsequent negotiated procedure with all the participating tenderers, or a new procedure, depending on the circumstances (on the rules and criteria regarding procedure selection). Under exceptional circumstances, the option should also be available to the contracting authority not to award any of the lots for which it has received offers if it is clear that this would jeopardise the effectiveness of the follow-up tenders for the remaining lots—which should then be re-tendered in a single contract. However, if the design of the lots was properly conducted in the first place—ie, if lots had been designed according to sensible functional and economic criteria, and an effort had been made to ensure their balance—this situation should be largely marginal. Along these lines, but covering the separate option of whether contracting authorities can ‘cherry-pick’ or ‘mix-and-match’ offers for different lots, article 46(3) of Directive 2014/24 clearly indicates that this is possible, provided certain conditions are met. Indeed, where more than one lot may be awarded to the same tenderer, contracting authorities may award contracts combining several or all lots where they have specified in the contract notice or in the invitation to confirm interest that they reserve the possibility of doing so and indicate the lots or groups of lots that may be combined (on criteria applicable to such conditional award rules).

As a preliminary conclusion, it is submitted that despite the discretionary terms of article 46 of Directive 2014/24 and on the basis of the final goal of maximising competition, contracting authorities should resort to division of contracts into lots whenever it is not unfeasible technically or economically, and should set rules that ensure that, while still giving tenderers the largest possible flexibility to submit package and conditional bids, competition is not distorted by undue contract division or aggregation. Rules on contract division should be complemented and reinforced by consistent award criteria and rules on the re-tendering of unawarded lots.

Variants under Reg. 45 Public Contracts Regulations 2015

Reg.45 of the Public Contracts Regulations 2015 (PCR2015) and Art 45 of Directive 2014/24 regulate the admissibility of variants or alternative offers in public tenders. As Pedro has indicated, the rules do not provide any novelty that will anticipate a change in practice.

The rules in reg.45 PCR2015 are facilitative of the admission of variants and establish some minimum guarantees that contracting authorities must comply with in order to ensure the effectiveness of the general principles of procurement (reg. 18 PCR2015) and, in particular, transparency, non-discrimination and competition. These are:

(a) Contracting authorities need to indicate in tender documentation whether or not they authorise or require variants [reg.45(2)], and variants shall not be authorised or required without such an indication and shall be linked to the subject-matter of the contract [reg. 45(3)]. In my view, this requirement of transparency is appropriate, but the default position should be the opposite. Given the strong focus on technical neutrality in reg.42 PCR2015, and in case performance specifications are used, distinguishing a variant from a 'standard' offer may be very difficult or actually impossible depending on the circumstances. Hence, the restriction derived from the need for the contracting authority to include an authorisation of variants in the tender documents is superfluous and could be problematic. An alternative default rule authorising variants in all cases, subject to meeting minimum technical specifications (see below) would have been preferable.

(b) In case they require or authorise them, contracting authorities shall state in the procurement documents the minimum requirements to be met by the variants and any specific requirements for their presentation, in particular whether variants may be submitted only where a tender which is not a variant has also been submitted [reg.45(4)]. Only variants meeting the minimum requirements shall be taken into consideration [reg. 45(6)]. The establishment of minimum technical specifications makes sense and is similar to the rule concerning procedures involving negotiations (reg.29 PCR2015). However, in case a contracting authority did not do so, it would suffice to assume that all technical specifications are minimum, so that variants can be incorporated in terms of performance requirements or potential improvements on the minimum specifications. 

The last clause of reg.45(4) PCR2015, whereby contracting authorities can require the submission of a 'standard' offer for their variant to be accepted is very problematic and actually thwarts this instrument from delivering diversity of technical solutions and maximising competition for the contract by suppliers that cannot meet 'standard' requirements but could deliver on the basis of an alternative offer that could be advantageous for the contracting authority. In my view, unless very good reasons exist, contracting authorities should refrain from requiring variants pegged to 'standard' offers.

(c) In order to make the assessment of all offers possible, transparent and non-discriminatory, contracting authorities that authorise or request variants shall ensure that the chosen award criteria can be applied to variants meeting those minimum requirements as well as to conforming tenders which are not variants [reg. 45(5)]. In any case, contracting authorities shall not reject a variant on the sole ground that it would, where successful, lead to a different type of contract (supply, service) than the one originally envisaged [reg.45(7)]. These requirements could have been implicit as extensions of the general principles in reg.18 PCR2015, but their express imposition probably limits the scope of discretion of contracting authorities once they resort to the use of variants in their procurement. Nonetheless, they do not exhaust the requirements derived from the general principles. 

Generally, the rules on variants and their evaluation are linked to the rules applicable to non-compliant and non-fully compliant bids. For discussion, see A Sanchez Graells, “Rejectionof Abnormally Low and Non-Compliant Tenders in EU Public Procurement: AComparative View on Selected Jurisdictions”, M Comba & S Treumer (eds) Award of Contracts in EU Procurements, vol. 5 European Procurement Law Series (Copenhagen, DJØF, 2013) 267-302.

Test reports, certificates and other means of proof under Reg. 44 Public Contracts Regulations 2015

Reg.44 of the Public Contracts Regulations 2015 (PCR2015) transposes the rules of Article 44 of Directive 2014/24 on test reports, certificates and other means of proof and is closely linked to the rules on technical specifications (technical neutrality) and due diligence in the evaluation of tenders (conflicts of interest). Pedro's comments focus on the informational difficulties that contracting authorities face in the practical application of these rules. My comments focus on the link with technical neutrality.

Indeed, the rules on test reports, certificates and other means of proof are instrumental in ensuring that contracting authorities do not reject tenders that would technically equivalent to those that do not need to resort to these documents in order to proof compliance with the applicable technical specifications [see reg.42(14) PCR2015, which clearly indicates that "a contracting authority ... shall not reject a tender on the grounds that the works, supplies or services tendered for do not comply with the technical specifications to which it has referred, once the tenderer proves in its tender by any appropriate means, including the means of proof referred to in regulation 44, that the solutions proposed satisfy in an equivalent manner the requirements defined by the technical specifications."]. In that regard, it should not be surprising that reg.44 PCR2015 attempts to restrict the discretion of contracting authorities in determining which documents to accept.

After determining that contracting authorities may require economic operators to provide a test report from a conformity assessment body or a certificate issued by such a body as means of proof of conformity with requirements or criteria set out in the technical specifications, the award criteria or the contract performance conditions [reg.44(1)], and requiring them to accept certificates from equivalent other conformity assessment bodies [reg.44(2)]; reg.44(3) significantly limits the possibilities for contracting authorities to specify exactly and rigidly the documentation they are willing to receive and review. 

Indeed, reg.44(3) PCR2015 determines that contracting authorities must accept other appropriate means of proof, such as a technical dossier of the manufacturer, where the economic operator concerned had no access to the certificates or test reports required by the contracting authority, or no possibility of obtaining them within the relevant time limits, provided that the lack of access is not attributable to the economic operator concerned, and the economic operator concerned thereby proves that the works, supplies or services provided by it meet the requirements or criteria set out in the technical specifications, the award criteria or the contract performance conditions. 

Once more, thus, the functional approach adopted by the new procurement rules impose a degree of flexibility that makes one wonder if the general rules included in reg.44(1) and (2) PCR2015 were necessary or, indeed, useful. It would have been simpler to establish that contracting authorities need to accept all means of proof whereby economic operators can demonstrate that their tenders meet the technical specifications. 

By setting partially binding rules on means of proof, contracting authorities are opening themselves to the obligation to assess the justifications provided by tenderers on their impossibility to obtain the specific documents desired by the contracting authority. Such decisions will, of course, be open to challenge and review under the principles of proportionality, non-discrimination and competition (reg.18 PCR2015). Hence, there is nothing to be gained from specifying the means of proof that the contracting authority wishes to receive. It might as well leave the decision open to economic operators and then assess each of the documents as they come.

Evidently, this goes along the same lines already pointed out by the duty of technically-neutral assessment under reg.42 PCR2015 and, by preventing a box-ticking exercise during the technical evaluation of tenders, it implicitly demands from contracting authorities to have (or outsource) significant technical expertise, particularly if they acquire goods or services where there is no clear standardisation in the market. This may be yet another catalyst for further centralisation of procurement, as small or inexperienced contracting authorities may find the duty of assessing diverse test reports, certificates and other means of proof daunting. Nonetheless, it is very consistent requirement of a set of procurement rules based on technical neutrality.

Labels under Reg. 43 Public Contracts Regulations 2015

As Pedro has already discussed (here), reg.43 of the Public Contracts Regulations 2015 (PCR2015) transposes the rules on the use of labels contained in Art 43 of Directive 2014/24. I agree with his general skepticism about the advantages that contracting authorities can actually derive from the use of labels, particularly in view of the need to always accept equivalents (as discussed at length regarding technical specifications, by Pedro as well). 

The following are my comments on Art 43 of Dir 2014/24 in my Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 332-334, which has been published today.

The Appropriate Use of Eco-Labels and other Labels Certifying Social or Other Product Characteristics.[1] On a related note, it is important to stress that Directive 2014/24 has gone beyond the limited rules of article 23(6) of Directive 2004/18 and put a clear emphasis on the possibility to use eco labels and labels certifying certain social aspects of products and services (such as fair trade, or sustainability)[2] as part of the process of detailing technical specifications and, generally, with the goal of creating some clear space for the introduction of environmental and social considerations in the drafting of technical specifications.[3] This was a highly contentious issue under the rules of Directive 2014/24 and required the intervention of the ECJ in order to interpret the limits in the incorporation of label-related requirements in procurement procedures.[4] Directive 2014/24 now aims at consolidating the guidance provided by the ECJ. As clearly stressed in recital (75),

Contracting authorities that wish to purchase works, supplies or services with specific environmental, social or other characteristics should be able to refer to particular labels, such as the European Eco-label, (multi-)national eco-labels or any other label provided that the requirements for the label are linked to the subject-matter of the contract, such as the description of the product and its presentation, including packaging requirements. It is furthermore essential that those requirements are drawn up and adopted on the basis of objectively verifiable criteria, using a procedure in which stakeholders, such as government bodies, consumers, manufacturers, distributors and environmental organisations, can participate, and that the label is accessible and available to all interested parties. … References to labels should not have the effect of restricting innovation (emphasis added).[5]

This general approach is later implemented in article 43 of Directive 2014/24, which sets clear restrictions on the types of labels that can be used by contracting authorities. From a competition perspective and particularly bearing in mind the general requirement of technical neutrality, it is important to stress that the label requirements can only concern criteria which are linked to the subject-matter of the contract and are appropriate to define characteristics of the works, supplies or services that are the subject-matter of the contract (art 43(1)(a) dir 2014/24)[6] and, more importantly, that ‘contracting authorities requiring a specific label shall accept all labels that confirm that the works, supplies or services meet equivalent label requirements’ (art 43(1)III dir 2014/24). This is in line with the position of the ECJ, which had clearly indicated that contracting authorities are banned from imposing compliance with a specific (eco)label rather than using the detailed specifications defined by that (eco)label[7] and, consequently, accepting all functional equivalents—as requested by the general rules controlling the setting of technical specifications and, more generally, the principles of non-discrimination, equal treatment and competition. This has now prompted the new rule under article 43(3) of Directive 2014/24, in virtue of which

Where a label … sets out requirements not linked to the subject-matter of the contract, contracting authorities shall not require the label as such but may define the technical specification by reference to those of the detailed specifications of that label, or, where necessary, parts thereof, that are linked to the subject-matter of the contract and are appropriate to define characteristics of this subject-matter (emphasis added).

Consequently, the rules on (eco)labels clearly follow the general criteria that regulate the establishment of technical specifications and particularly the prohibition of references to a specific make or source, or a particular process which characterises the products or services provided by a specific economic operator, or to trade marks, patents, types or a specific origin or production with the effect of favouring or eliminating certain undertakings or certain products of article 42(4) of Directive 2014/24. Moreover, as will happen with any other sorts of technical specifications (as discussed immediately below), contracting authorities are bound to adopt a possibilistic approach to the assessment of compliance with (eco)label requirements. This is particularly clear from the provision that, in cases where the tenderer has not been able to obtain the specific label indicated by the contracting authority or an equivalent label within the relevant time limits for reasons that are not attributable to that economic operator, requires contracting authorities to accept other appropriate means of proof, which may include a technical dossier from the manufacturer, provided that the economic operator concerned proves that the works, supplies or services to be provided by it fulfil the requirements of the specific label or the specific requirements indicated by the contracting authority (art 43(1) in fine dir 2014/24). In our view, this provision encapsulates the ultimate requirement of the principle of technical neutrality.

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[1] Generally, see C Nouira, G Grolleau, and N Mzoughi, ‘Public Purchasing and Eco-labelling Schemes: Making the Connection and Reinforcing Policy Coherence’ (2004) 15(2) Journal of Interdisciplinary Economics 131–51.

[2] See E Fisher and S Corbalán, ‘Fair trade and European public procurement: legal principles and governance dynamics’ (2013) 9(1) Social Enterprise Journal 11–27; C Weller and JM Pritchard, ‘Evolving ECJ Jurisprudence: Balancing Sustainability Considerations with the Requirements of the Internal Market’ (2013) European Procurement & Public Private Partnership Law Review 55; D Dragos and B Neamtu, ‘Sustainable Public Procurement in the EU: Experiences and Prospects’, in F Lichere, R Caranta and S Treumer (eds) Novelties in the 2014 Directive on Public Procurement, vol. 6 European Procurement Law Series, (Copenhagen, Djøf Publishing, 2014) forthcoming.

[3] For a recent case concerned with the balanve between environmental requirements and compliance with the rules on technical neutrality of technical specifications, see Case T-402/06 Spain v Commission [2013] pub. electr. EU:T:2013:445. Generally, for discussion, see R Caranta, ‘Sustainable Public Procurement in the EU’, in R Caranta and M Trybus (eds), The Law of Green and Social Procurements In Europe, vol. 2 European Procurement Law Series (Copenhagen, DJØF Publishing, 2011) 15–51;J Hettne, Legal Analysis of the Possibilities of Imposing Requirements in Public Procurement that Go beyond the Requirements of EU Law (2012) available at http://www.regeringen.se/content/1/c6/21/03/99/c9f52838.pdf; P Kunzlik, ‘Green Public Procurement—European Law, Environmental Standards and ‘What to Buy’ Decisions’ (2013) 25(2) Journal of Environmental Law 173–202; and A Wiesbrock, ‘An Obligation for Sustainable Procurement? Gauging the Potential Impact of Article 11 TFEU on Public Contracting in the EU’ (2013) 40(2) Legal Issues of Economic Integration 105–32.

[4] Case C-368/10 Commission v Netherlands [2012] pub. electr. EU:C:2012:284. For discussion, see T Kotsonis, ‘Commission v Netherlands (C-368/10): environmental and fair trade considerations in the context of a contract award procedure’ (2012) 21 Public Procurement Law Review NA234–NA244; A Semple, ‘Grounds for change: ECJ judgment in Dutch coffee case points to need for reform of procurement rules. Case C-368/10 Commission v Netherlands’ (2012) available at http://www.procurementanalysis.eu/resources/Grounds+for+change+-+Case+368+of+2010.pdf; and M Muller-Wrede, ‘Sustainable Purchasing in the Aftermath of the ECJ's Max Havelaar Judgment’ (2012) European Procurement & Public Private Partnership Law Review 110.

[5] For discussion on the last point, concerning innovation, see M Burgi, ‘Can Secondary Considerations in Procurement Contracts be a Tool for Increasing Innovative Solutions?’, in C Tvarnø, GS Ølykke & C Risvig Hansen, EU Public Procurement: Modernisation, Growth and Innovation (Copenhagen, DJØF Publishing, 2012) 275–90.

[6] M Martens and S de Margerie, ‘The Link to the Subject-Matter of the Contract in Green and Social Procurement’ (2013) European Procurement & Public Private Partnership Law Review 8.

[7] ibid 70.

2nd edn of Public Procurement and the EU Competition Rules (Hart, 2015) now available

The 2nd edition of my Public Procurement and the EU Competition Rules (Oxford, Hart, 2015) is now available. I would like to express my sincere thanks to the team at Hart-Bloomsbury for the effort they put into getting the book ready and available 3 months early. It may be "father-like" bias, but I think it looks as good as the 1st edition, if not better.

For those who know the book, the 2nd edition is an update to the 2014 Directives and chapters 5 to 7 are fundamentally different from those in the 1st edition. For those who do not know the book, the following is a short synopsis:

Public procurement and competition law are both important fields of EU law and policy, intimately intertwined in the creation of the internal market. Hitherto their close connection has been noted, but not closely examined. This work is the most comprehensive attempt to date to explain the many ways in which these fields, often considered independent of one another, interact and overlap in the creation of the internal market.

This process of convergence between competition and public procurement law is particularly apparent in the 2014 Directives on public procurement, which consolidate the principle of competition in terms very close to those advanced by the author in the first edition. This second edition builds upon this approach and continues to ask how competition law principles inform and condition public procurement rules, and whether the latter (in their revised form) are adequate to ensure that competition is not distorted. The second edition also deepens the analysis of the market behaviour of the public buyer from a competition perspective.

Proceeding through a careful assessment of the general rules of competition and public procurement, the book constantly tests the efficacy of these rules against a standard of the proper functioning of undistorted competition in the market for public procurement. It also traces the increasing relevance of competition considerations in the case law of the Court of Justice of the European Union and sets out criteria and recommendations to continue influencing the development of EU Economic Law. 

You can read an explanation of how it fits with existing literature and the major criticisms that the first edition received here. The full table of contents is available here. Thank you in advance to those of you who will browse the book at your library or buy it from Hart. As always, feedback will be appreciated: asanchezgraells@gmail.com.

Technical specifications under Reg. 42 Public Contracts Regulations 2015

Reg.42 of the Public Contracts Regulations 2015 (PCR2015) transposes the rules of Art 42 of Directive 2014/24 concerning the setting of technical specifications for public procurement purposes. The 2014/2015 provisions recast and recombine the rules previously scattered between specific regulations/articles and annexes and try to concentrate in a single provision all requirements applicable to the setting of technical specifications. They are free of difficulties, though, as Pedro has stressed here.

Regs.42(1) to (7) PCR2015 determine that the technical specifications need to lay down the characteristics required of works, services or supplies  and be set out in the procurement documents, and they describe the content the technical specifications may have (also that of Annex VII of Dir 2014/24), which includes an indication whether any transfer of intellectual property rights will be required. The main innovation in these rules is that, according to reg.42(6) PCR2015, technical specifications may also refer to the specific process or method of production or provision of the requested works, supplies or services or to a specific process for another stage of its life cycle even where such factors do not form part of their material substance provided that they are linked to the subject-matter of the contract and proportionate to its value and its objectives. This is a consolidation of the CJEU's case law in Commission v Netherlands (fair trade coffee), C-368/10, EU:C:2012:284 (for a comment, see here).

Regs.42(8) to (13) PCR2015 determine the ways in which technical specifications can be set: ie in terms of performance or functional requirements, by reference to technical specifications, or as a hybrid option mixing up performance and technical elements. Remarkably, the prohibition of making references to a specific make or source, or a particular process which characterises the products or services provided by a specific economic operator, or to trade marks, patents, types or a specific origin or production with the effect of favouring or eliminating certain undertakings or certain products is retained, and only exempted on an exceptional basis, where a sufficiently precise and intelligible description of the subject-matter of the contract is not possible without such reference, in which case it shall be accompanied by the words “or equivalent”.
 

Overall, and with the exception of specifications that do not form part of the material characteristics of the subject matter of the procurement, the rules governing the setting of technical specifications have not changed significantly in the PCR2015. Being provocative, however, one may consider that, despite its practical importance, the content of reg.42 PCR2015 is quite superfluous as a result of the principles of technical equivalence and competitive neutrality.

As recital (74) of Dir 2014/24 clearly stresses, 'the technical specifications drawn up by public purchasers need to allow public procurement to be open to competition as well as to achieve objectives of sustainability ... Consequently, technical specifications should be drafted in such a way as to avoid artificially narrowing down competition through requirements that favour a specific economic operator by mirroring key characteristics of the supplies, services or works habitually offered by that economic operator. Drawing up the technical specifications in terms of functional and performance requirements generally allows that objective to be achieved in the best way possible. Functional and performance-related requirements are also appropriate means to favour innovation in public procurement and should be used as widely as possible' (emphasis added).

This is stressed in reg.42(10) PCR2015, according to which "[t]echnical specifications shall afford equal access of economic operators to the procurement procedure and shall not have the effect of creating unjustified obstacles to the opening up of public procurement to competition." This is supported by detailed rules concerning the application of the technical specifications in regs.42(14) to (16) PCR2015, which prevent contracting authorities from rejecting offers that do not adhere to the published technical specifications if the tenderer can prove by any appropriate means (including those of reg.44 PCR2015), that the solutions proposed satisfy in an equivalent manner the requirements defined by the technical specifications, or that the technical specifications to which its tender adheres address the performance or functional requirements which the contracting authority had laid down.

Thus, as a consequence of this pro-competitive and technically neutral approach, the initial exercise of setting up technical specifications by the contracting authority should only be seen as an attempt to define its needs, which the marketplace can then propose to satisfy in a wide array of alternatives (including, where applicable, variant tenders under reg.45 PCR2015). However, for this open approach to be effective, contracting authorities need to ensure strict adherence to two issues:

(A) Guaranteeing Neutrality and Flexibility in the Determination of Technical and/or Functional Equivalence of Solutions and, particularly, as regards the Acceptable Means of Proof.

According to the rules of regs.42(14) & (15) and 44 PCR2015, the burden of proving equivalence of the submitted proposal with the technical and performance requirements of the tender lies with the tenderer, who has to discharge it to the satisfaction of the procuring entity, but can in principle choose at its own discretion any adequate means to fulfil this requirement—which mainly includes technical dossiers of the manufacturer and test reports from a recognised body. Therefore, while the discretion of the procuring entity as regards the admissible means of proof seems to be significantly constrained and all (objectively) adequate means should be available to the tenderer to prove that all technical and performance requirements are met, the contracting authority seems to retain a larger degree of discretion in deciding whether, in the light of the available evidence, the proposed solution is actually equivalent to the requirements of the technical specifications. To be sure, the decision regarding these two aspects of technical equivalence—ie, the admissibility or objective suitability of a given means to prove it, and the evaluation of the evidence put forward by those means—are hardly divisible, since the one will significantly affect the other.

In this regard, and in order to prevent the adoption of administrative practices that could jeopardise the objectives of the anti-formalist and functional approach adopted by the directives, an obligation to be neutral and flexible as regards the means of proof and the assessment of the functional and performance equivalence of the bids should be imposed on contracting authorities. This is not intended to mean that they need to be lax in their assessments or waive any of the technical specifications governing the tender, but that they should undertake the equivalence evaluation with a ‘possibilistic approach’ and abandon excessively rigid or formal positions. In this sense, nothing prevents contracting authorities from indicating what means of proof and what kinds of evidence will be of particular importance in conducting this assessment, but they must accept any alternative equivalent means of proof and be prepared to rely on different types of evidence put forward by the tenderers, without restriction and without attaching higher value to the former over the latter. In any case, if contracting authorities decide to set particular means by which functional equivalence or performance suitability can be proven, they must ensure that they are not restrictive and do not discriminate amongst tenderers; and, in any case, they must be prepared to accept alternative means and to attach them with the same evidentiary value.

Regardless of the general approach adopted by contracting authorities in assessing technical and functional equivalence, there are additional restraints on the exercise of such discretion that derive from more general rules and, particularly, from the general principles of non-discrimination and transparency, and from the duty to give reasons [it is noteworthy to stress that the CJEU emphasised that this duty to give reasons must be discharged in a timely manner; see Case C-250/07 Commission v Greece [2009] ECR I-4369 67–72. See also Case T-465/04 Evropaïki Dinamiki (DG FISH) [2008] ECR II-154; and Case C-456/08 Commission v Ireland [2010] ECR I-859.]. As regards the requirements of transparency and non-discrimination, it should be stressed that

in order to be effective, [these principles] must therefore cover not only the initial definition of technical specifications and award criteria by contracting authorities, but also the way in which those specifications and criteria are interpreted and applied during an award procedure [Opinion of AG Sharpston in case C-6/05 Medipac-Kazantzidis 77].

As regards the obligation to provide reasons, it is expressly established in reg.55(2)(b) PCR2015 that this specific obligation includes the reasons for a decision of non-equivalence or a decision finding that the works, supplies or services do not meet the performance or functional requirements set by the technical specifications. Therefore, contracting authorities will need to provide specific reasons as regards their assessment of the evidence presented by tenderers and, more importantly, decisions on the equivalence of these solutions shall be based on objective and non-discriminatory criteria, and fully disclosed to the tenderer—in accordance with the transparency obligations. 

(B) Stressing the Prohibition on Discriminating against ‘Equivalent’ Solutions in the Evaluation of Tenders and Award of Public Contracts.
Finally, as yet another requirement of the principles of equality and competition, it should be stressed that the criteria established for the evaluation of bids and the award of the contract cannot directly or indirectly discriminate against solutions that do not comply strictly with the technical specifications (‘original solutions’) but that meet their requirements by way of performance or functional equivalence (‘equivalent solutions’). Therefore, all solutions able to satisfy the performance requirements established or derived from the technical specifications, regardless of the specific solutions adopted by the tenderer to reach these output requirements, must be evaluated in the same way.

Evaluation criteria can only treat more favourably solutions that provide additional or enhanced functional and performance characteristics—as long as they are set as such from the outset and duly publicised by the contracting authority—or solutions that refer to derived costs or technical implications of the proposed solutions, such as maintenance costs or expected reliability of the technology, and therefore two solutions that satisfy the same function under equivalent performance terms can be graded differently if they impose different costs or guarantee different levels of availability or produce different levels of errors or failures—but not otherwise. Therefore, award criteria that discriminate between technical solutions as such—ie, that do not rely on additional factors duly set, communicated and applied by the contracting authority—are banned by the consistent application, and the need to guarantee the effectiveness, of the rules of the directives on technical specifications not only at the phase of their setting, but throughout the tender.

Prior involvement of candidates or tenderers under Reg. 41 Public Contracts Regulations 2015

As mentioned in relation to reg.40 of the Public Contracts Regulations 2015 (PCR2015), the treatment of the candidates or tenderers involved with the contracting authority prior to a specific procurement is covered by reg.41 PCR2015, which transposes the rules of Article 41 of Directive 2014/24 with some minor drafting changes that do not alter its content. The following comments are based on my assessment of Arts 40 and 41 of Dir 2014/24 in Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 373-78. Pedro's views are very complementary and focus on the burden imposed on contracting authorities by reg. 41 PCR2015.

The acceptability and the appraisal of bids submitted by advantaged parties and, particularly, the issue of the participation as bidders of consultants previously involved in the design of the tender process can generate a major (negative) impact on competition—especially as regards its technical specifications, the method for the evaluation of bids, and the award criteria [see S Arrowsmith, ‘The Problem of Discussions with Tenderers under the EC Procurement Directives: the Current Law and the Case for Reform’ (1998) 7 Public Procurement Law Review 65 and S Treumer, ‘Technical Dialogue Prior to Submission of Tenders and the Principle of Equal Treatment to Tenderers’ (1999) 8 Public Procurement Law Review 147; ibid, ‘Technical Dialogue and the Principle of Equal Treatment—Dealing with Conflicts of Interest after Fabricom’ (2007) 16 Public Procurement Law Review 99]. Such prior involvement is now expressly authorised and regulated under articles 40 and 41 of Directive 2014/24. Indeed, under the provisions of article 40, before launching a procurement procedure, contracting authorities may conduct market consultations with a view to preparing the procurement and informing economic operators of their procurement plans and requirements. For this purpose, they can seek or accept advice from independent experts or authorities or from market participants. That advice may be used in the planning and conduct of the procurement procedure, provided that ‘such advice does not have the effect of distorting competition and does not result in a violation of the principles of non-discrimination and transparency’ (emphasis added).

Article 41 then regulates the procedure for the contracting authority to assess the existence of such potential distortions of competition. To that effect, where an undertaking has advised the contracting authority or has otherwise been involved in the preparation of the procurement procedure, the contracting authority ‘shall take appropriate measures to ensure that competition is not distorted by its participation in the tender’. It is irrelevant that the prior involvement has taken place as part of the preliminary market consultations foreseen in article 40 of Directive 2014/24 or otherwise. Moreover, the special duty to avoid distortions of competition arises not only where the tenderer or candidate has directly advised the authority or been involved in the design of the tender, but also when the participating entity is related to it. On the basis of ensuring that the potential conflict of interest is transparent and in order to ensure equality of opportunity in the disclosure of all relevant documentation and to neutralise any time advantage, such measures shall include the communication to the other candidates and tenderers of relevant information exchanged in the context of or resulting from the involvement of the candidate or tenderer in the preparation of the procurement procedure and the fixing of adequate time limits for the receipt of tenders. The Directive relies on the use of these neutralisation measures as a first solution and reserves the exclusion of the advantaged tender to relatively extreme situations.

This issue is very closely related to the grounds for exclusion of potential tenderers, where it is now further dealt with under a relatively general clause excluding participation by operators in conflict of interest or otherwise advantaged in relation to the specific tender due to their prior involvement. Improving the rules under article 45 of Directive 2004/18, which did not include such elements amongst the criteria to be taken into account to appraise the personal situation of the candidate or tenderer at the stage of qualitative selection, Article 57(4)(f) of Directive 2014/24 establishes a discretionary exclusion ground applicable ‘where a distortion of competition from the prior involvement of the economic operators in the preparation of the procurement procedure … cannot be remedied by other, less intrusive measures’. In my view—given the existing case law, which will soon be discussed—rather than at selection stage, it might be more appropriate to deal with conflicts of interest at the stage of the evaluation of bids and, in any case, a substantive and detailed analysis needs to be undertaken by the contracting authority.

When this issue was not expressly addressed by the EU public procurement directives, the EU judicature offered guidance that remains valuable in order to assess the competitive position of tenderers previously involved in the design of the tender. According to the relevant case law, EU public procurement directives

preclude a rule … whereby a person who has been instructed to carry out research, experiments, studies or development in connection with public works, supplies or services is not permitted to apply to participate in or to submit a tender for those works, supplies or services and where that person is not given the opportunity to prove that, in the circumstances of the case, the experience which he has acquired was not capable of distorting competition (emphasis added) [Joined Cases C-21/03 and C-34/03 Fabricom [2005] ECR I-1559 36].

This has now been codified in article 41 of Directive 2014/24, which is in line with article 57(4)(f) and foresees that the candidate or tenderer concerned ‘shall only be excluded from the procedure where there are no other means to ensure compliance with the duty to observe the principle of equal treatment’. Moreover, and similarly to what happens in relation to candidates that have submitted apparently abnormally low tenders, prior to any such exclusion, advantaged candidates or tenderers shall be given the opportunity to prove that their involvement in preparing the procurement procedure is not capable of distorting competition. Therefore, national legislation or contracting authorities’ decisions cannot impose the automatic exclusion of apparently advantaged parties and, more specifically, of project consultants—but must provide such candidates with the opportunity to prove that competition has not been distorted as a result of their previous involvement in the project and, particularly, by the experience thereby acquired [rather obviously, the practical implications of such an opportunity to rebut an implicit presumption of distortion of competition will be largely determined by the way in which the criterion of ‘distortion of competition’ is shaped and applied].

In this regard, it seems appropriate to require contracting authorities to pay special attention when appraising bids submitted by potentially advantaged parties and, particularly, by incumbent operators or by consultants previously involved in project design—be it directly or indirectly, through parties connected to those undertakings. Such an approach would not run against the principle of non-discrimination since, as also expressly found by the CJEU, a person who has carried out certain preparatory work

is not necessarily in the same situation as regards participation in the procedure for the award of that contract as a person who has not carried out such works [and, consequently] it cannot be maintained that the principle of equal treatment requires that that person be treated in the same way as any other tenderer [Joined Cases C-21/03 and C-34/03 Fabricom [2005] ECR I-1559 28 and 31].

Two options seem to be compatible with the finding of the CJEU. On the one hand, the analysis of the (in)existence of a distortion of competition can be conducted in the abstract, focusing on formal criteria relating to the garden-fencing of the information acquired during the preparatory works, the establishment of so-called Chinese walls, or other criteria regarding the control or decisive influence that might exist between the seemingly advantaged party and any other party with which it is connected. This analysis, however, seems to give scope to rather limited inquiries and to give leeway to potentially substantial distortions of competition—especially because it ‘is virtually impossible to envisage any means of ensuring that the information and experience acquired during the preparatory stage will not operate to the advantage of the person concerned when he submits a tender’ [Opinion of AG Léger in joined cases C-21/03 and C-34/03 Fabricom 42].

On the other hand, a more in-depth control of the potential use of information, time or experience advantages at the tender evaluation stage might yield superior—albeit still limited, results. The control should be based on an analysis of the terms of the tender submitted by the apparently advantaged party against several specific and cumulative criteria. First, this should be against the information made public or disclosed to the rest of the candidates. If there are aspects of the tender that could not have been developed on the basis of that information by a diligent and well-informed average tenderer knowledgeable in that field (admittedly, an open standard not exempt from interpretative difficulties), then, sufficient indicia of an advantage should be found (and, consequently, the contracting authority should reject the tender). A second criterion, which is, however, more difficult to appraise, should focus on the time advantage potentially enjoyed by the apparently advantaged party, and so the contracting authority should determine whether the tender submitted could have been developed, to the same level of detail and development, by a similarly average tenderer that had received the information when it was made available by the contracting authority. Nonetheless, admittedly, such a test is very hard to implement to a satisfying degree of predictability and objectiveness—and, consequently, it seems preferable not to pursue this kind of analysis except in very exceptional cases where (probably due to specially tight timelines for the development and submission of the offer) it is evident that the apparently advantaged tenderer must have had significantly more time for the preparation of its tender (for instance, as compared to the level of development and detail of the rest of the offers received). Third, the tender of the apparently advantaged operator should be compared against the degree of compliance of the rest of the tenderers with the specifications and their evaluation against the award criteria. In this regard, if the tender submitted by the apparently advantaged party is one amongst a few (not to mention if it is the only one) that complies with the technical specifications and/or obtains significantly better scores under most or all of the award criteria applicable in the tender, once again, it is important to stress that sufficient indicia of an advantage—or of the previous ‘steering’ of the preparation of the public contract in a favourable direction—should be found and its tender should be rejected. However, this last criterion should be applied with special care, so as to avoid unduly handicapping more efficient or better prepared apparently advantaged tenderers.

In both cases, rejection of the tender following the described indicia of advantage on the part of the apparently advantaged tenderer seems justified by the almost impossible proof of alternative explanations that would neutralise such strong indications of an effective distortion of competition by that tenderer. Nonetheless, for the sake of promoting procedural rights, apparently advantaged parties should be given the opportunity to provide reasons and alternative explanations to the indicia found—albeit, in this case, a very stringent analysis should be applied by the contracting authorities in view of the potential jeopardy of undistorted competition.

To be sure, this approach rests on the transparency of the conflict of interest and can only tackle instances of submission of offers directly by the apparently advantaged tenderer, or indirectly by any other party that discloses the participation or advice given by the potentially advantaged party. In other cases—where the participation of the potentially advantaged party is not disclosed to the contracting authority—the proposed solution will be largely inoperative, but will constitute a potential case of fraud or misrepresentation that should be controlled by other means.

As regards the timing for the control of actual or effective advantages that have benefitted the apparently advantaged operator, it is relevant to note that the CJEU had precluded a contracting authority from excluding a tenderer at any point along the tender process ‘until the end of the procedure for the examination of tenders’, on the grounds that doing so would restrict the effectiveness of the remedies available to the apparently advantaged operator now excluded from the tender [Joined Cases C-21/03 and C-34/03 Fabricom [2005] ECR I-1559 41–45]. However, it is argued here that a proper reading of the finding of the CJEU did not preclude the analysis at the stage of tender evaluation because the reasoning applied by the Court is clearly dependent on the assumption that the contracting ‘authority has before it all the information which it needs in order to take that decision’ and, therefore, should not delay its decision unduly until the procedure has reached a very advanced stage and, therefore, deprives the undertaking concerned of the opportunity to rely on the EU rules on remedies [ibid]. Therefore if, as hereby held, the proper test depends on the analysis of the tender submitted by the apparently advantaged operator—because, before that, the contracting authority does not have the relevant information to reach a meaningful conclusion on the actual or effective existence of an advantage—the abovementioned case law should not be considered an impediment. Moreover, in view of the specific rules now introduced in article 57(5) of Directive 2014/24—which expressly indicate that exclusion based on discretionary grounds can take place ‘at any time during the procedure’ and based on facts or ‘acts committed or omitted either before or during the procedure’—there should be no restriction whatsoever to the application of the ground for the exclusion of the tenderer (and implicitly, the rejection of its tender) on the basis of the advantage derived from its prior involvement at any point of the procedure and, particularly, at the stage of bid assessment.

To sum up, as a mandate of the principles of non-discrimination and competition, particularly as specified in articles 41 and 57(4)(f) of Directive 2014/24, contracting authorities are under a special responsibility to assess tenders submitted by apparently advantaged tenderers—and, particularly, by project consultants—in order to ensure that competition has not been altered. Such an analysis seems to be better performed at the tender evaluation stage and according to non-formalistic criteria, mainly based on a comparison of the tender submitted by the apparently advantaged tenderer against the relevant tender documents and against the rest of the tenders received from tenderers not involved in the preparatory work.

Preliminary market consultations under Reg. 40 Public Contracts Regulations 2015

Reg. 40 of the Public Contracts Regulations 2015 (PCR2015) transposes Article 40 of Directive 2014/24 as preliminary market consultations are concerned, and determines that,  before launching a procurement procedure, contracting authorities may conduct market consultations with a view to preparing the procurement and informing economic operators of their procurement plans and requirements. For this purpose, contracting authorities may seek or accept advice from independent experts or authorities or from market participants, and that advice may be used provided that it does not have the effect of distorting competition and does not result in a violation of the principles of non-discrimination and transparency.

This is an issue closely linked to the treatment of the prior involvement of candidates or tenderers in such preliminary market consultations or otherwise, which is covered by reg.41 PCR2015. Hence, I will comment on both provisions together (here). Pedro has in the meantime offered an insightful tackle on reg. 40 PCR2015 here.

Procurement involving contracting authorities from other Member States under Reg. 39 Public Contracts Regulations 2015

Beyond the rules applicable to centralised and occasional joint procurement, and still focusing on issues concerning the allocation of responsibility/liability between contracting authorities, reg.39 of the Public Contracts Regulations 2015 (PCR2015) is dedicated to procurement involving contracting authorities from other Member States and sets 'conflict-of-law-like' rules to determine the procurement regime applicable to  cross-border cooperation, in the same terms of Article 39 of Directive 2014/24. Pedro has encapsulated its content very clearly here.

Reg.39(1) PCR2015 opens with a reference to public-public and in-house cooperation  (for critical remarks, see here, here, here and here) by determining that "[w]ithout prejudice to regulation 12, contracting authorities may act jointly with contracting authorities from other member States in the award of public contracts by using one of the means provided for in this regulation". One option is to interpret this as allowing for contracting authorities to set up cross-border in-house/public house schemes, in which case it is to be deferred to the general legal requirements of the chosen vehicle to determine which procurement system controls its activities (which is, by no means, necessarily obvious). However, in view of regs. 30(10) to (14) PCR2015, the relationship between cross-border in-house and other types of cross-border joint entities is not easy to fathom.

In any case, reg.39 PCR2015 goes on to establish a significant number of cross-border cooperation possibilities, subject to the general requirement that contracting authorities shall not use them for the purpose of avoiding the application of mandatory public law provisions in the law of the jurisdiction to which they are subject, where those provisions are in conformity with EU law [reg.39(2) PCR2015], which of course may impose significant restrictions once budgetary and other sets of public sector laws are considered.

The three main options foreseen in reg.39 PCR2015 are cross-border centralised purchasing, cross-border joint procurement and cross-border procurement through joint entities (other than in-house ?, see above). Each of them prompt significant questions.

Cross-border centralised purchasing

Regs.39(3) to (5) PCR2015 deal with cross-border access to centralised procurement bodies and determine that contracting authorities are free to use centralised purchasing activities offered by central purchasing bodies located in a Member State other than the UK. The PCR2015 has not restricted the sort of activities carried out by the non-UK CPB, which can then take either of the following forms: (a) the acquisition of supplies and/or services intended for contracting authorities, or (b) the award of public contracts or the conclusion of framework agreements for works, supplies or services intended for contracting authorities. In either case, the provision of centralised purchasing activities shall be conducted in accordance with the national provisions of the Member State where the central purchasing body is located; which rules will also apply to direct call-offs or awards of contracts under framework agreements and dynamic purchasing systems organised by the central purchasing body. So far, so good.

This is quite interesting because it creates a situation where, for example, an English contracting authority that conducts a mini-competition within a framework set up by an Italian central purchasing body is acting with subjection to Italian public procurement law. The likelihood that this actually happens in practice seems small, as the English contracting authority will most likely prefer the Italian CPB to conduct the mini-competition and choose the specific provider of the given goods or services in order to avoid such extraterritorial application of Italian public procurement rules. In that case, though, the initial act whereby the English contracting authority approaches the Italian CPB is not covered by the 'conflict-of-law-like' rules in regs.39(4) & (5) PCR2015, which creates a legal vacuum concerning that specific act.

It would be tempting to assume that it would be English law, but that is by no means the only possible option or the strongest in law. If the "entrustment"/"collaboration" act was considered a commercial contract (the public-public cooperation element indeed seems rather limited as far as that transaction is concerned), the rules of the Rome I Regulation would most likely be engaged, in which case the several criteria in Art 4 would point towards Italian law, unless there were some serious overriding mandatory provisions that could trigger the application of English law instead under Art 9. In any case, it seems clear that there is either a requirement or a risk that the English contracting authority would have to comply with Italian law, which seems a serious limitation of the system.

Moreover, the law applicable to the (public) contract with the ultimate supplier/contractor would also be Italian law in almost all cases, except if the Italian CPB (with amazing foresight) had introduced compliance with the law of the 'client' contracting authority as a contractual condition in the relevant tender documentation. All in all, it looks like this sort of cross-border activity would create a significant need for the English contracting authority to obtain advice on foreign (EU) domestic procurement and contract law, which make well erode any economic advantages derived from the recourse to the CPB of a different Member State.

Cross-border joint procurement

Regs.39(6) to (9) PCR2015 establish the conditions under which an English or Welsh contracting authority may, together with contracting authorities from different Member States, jointly award a public contract, conclude a framework agreement or operate a dynamic purchasing system, or award contracts based on a framework agreement or on a dynamic purchasing system. For this to be possible, and unless the necessary elements have been regulated by an international agreement concluded between the Member States concerned, the contracting authorities involved need to conclude an agreement that determines: (a) the responsibilities of the parties and the relevant applicable national provisions; and (b) the internal organisation of the procurement procedure, including the management of the procedure, the distribution of the works, supplies or services to be procured, and the conclusion of contracts. In any case, it is clear that a participating contracting authority fulfils its obligations when it purchases works, supplies or services from a contracting authority which is responsible for the procurement procedure.

This is a group of rules and requirements that fundamentally superfluous. I would have expected this scenario to be covered by reg.9 PCR2015 (art 9 dir 2014/24) on public contracts awarded and design contests organised pursuant to international rules, particularly given the need for an (international) agreement to be reached prior to the cross-border cooperation--either in general terms, or for the specific case. Moreover, the rules in reg.39(6) to (9) leave all decisions to the agreement between the Member States and simply impose a transparency obligation whereby the allocation of responsibilities and the applicable national law must be referred to in the procurement documents [reg.39(7)(b) PCR2015]. However, this does not sort out any of the practical problems derived from joint procurement (see comment to reg.38 PCR2015), which are potentially magnified by the cross-border nature of the rules under reg.39 PCR2015. Hence, this is another area where uptake in practice seems likely to be limited, unless contracting authorities invest significant resources in legal advice.

Cross-border procurement through joint entities

Regs.39(10) to (14) PCR2015 establish rules for contracting authorities of different Member States to set up a joint (in-house?) entity, including European Groupings of territorial cooperation under Regulation 1082/2006 or other entities established under Union law. This raises the already mentioned question whether other sorts of joint entities (ie other than those established under EU law) can be created under the general clause of reg.39(1) PCR2015 or not. 

In any case, for the purposes of the joint entities established under EU law, by a decision of the competent body of the joint entity, the participating contracting authorities shall agree on the applicable national procurement rules of one of the following Member States: (a) the national provisions of the Member State where the joint entity has its registered office; or (b) the national provisions of the Member State where the joint entity is carrying out its activities. Such agreement may either apply for an undetermined period, when fixed in the constitutive act of the joint entity, or may be limited to a certain period of time, certain types of contracts or to one or more individual contract awards.

In this case,  there is no specific transparency requirement to the effect of imposing disclosure of such agreement in the relevant procurement documents, but the joint entity would be well advised to do so. In this scenario, the same issues concerning the conflict-of-law-like issues discussed above also apply.

Overall impression

In my view, all of the above creates the impression that these rules will be applicable in a marginal set of cases where contracting authorities of different Member States engage in long-term cooperation for public procurement purposes, which seems most likely in frontier areas. In any case, the rules in reg.39 PCR2015 (art 39 dir 2014/24) are mostly limited or completely open to agreement between the Member States/contracting authorities involved, so they can hardly be seen as much more than enabling provisions and, in that case, their relationship (or distinction) with reg. 9 PCR2015 (art 9 dir 2014/24) is unclear. 

I would personally not expect a very significant practical implementation of these rules in the short term, with the only possible exception of cross-border centralisation. That is an issue briefly explored in A Sanchez-Graells and I Herrera Anchustegui, Impact of Public Procurement Aggregation on Competition: Risks, Rationale and Justification for the Rules in Directive 2014/24 (December 5, 2014). University of Leicester School of Law Research Paper No. 14-35, and one which we aim to explore further in a forthcoming paper.

Occasional joint procurement under Reg. 38 Public Contracts Regulations 2015

Reg.38 of the Public Contracts Regulations 2015 (PCR2015) concentrates on an alternative method of centralisation of procurement based on occasional joint procurement and transposes the rules of Article 38 of Directive 2014/24. Strictly speaking, this is not a novelty of the 2014 rules, since joint procurement was not prohibited in the 2004 system; it simply was not regulated.

Reg.38 PCR2015 establishes rules aimed at delimiting the responsibility (and liability) of contracting authorities that decide to cooperate for the joint procurement of specific works, supplies or services which, as indicated in recital (71) Dir 2014/24 can take many different forms, ranging from coordinated procurement through the preparation of common technical specifications for works, supplies or services that will be procured by a number of contracting authorities, each conducting a separate procurement procedure, to situations where the contracting authorities concerned jointly conduct one procurement procedure either by acting together or by entrusting one contracting authority with the management of the procurement procedure on behalf of all contracting authorities. 

The general rules concerning the split of responsibility/liability between the cooperating contracting authorities is also summed up in recital (71) Dir 2014/24

Where several contracting authorities are jointly conducting a procurement procedure, they should be jointly responsible for fulfilling their obligations under this Directive. However, where only parts of the procurement procedure are jointly conducted by the contracting authorities, joint responsibility should apply only to those parts of the procedure that have been carried out together. Each contracting authority should be solely responsible in respect of procedures or parts of procedures it conducts on its own, such as the awarding of a contract, the conclusion of a framework agreement, the operation of a dynamic purchasing system, the reopening of competition under a framework agreement or the determination of which of the economic operators party to a framework agreement shall perform a given task.

This is fleshed out in the rules of reg.38 PCR2015, which starts from a general recognition that two or more contracting authorities may agree to perform certain specific procurements jointly [reg.38(1) PCR2015] and determines that, in that case, two scenarios need to be distinguished.

First, shared responsibility scenarios whereby all participating contracting authorities are jointly responsible for fulfilling their obligations under Part 2 of the PCR2015. These scenarios cover both (i) cases where the conduct of a procurement procedure is carried out in its entirety jointly in the name and on behalf of all the contracting authorities concerned; and (ii) cases where one contracting authority manages the procedure, acting on its own behalf and on the behalf of the other contracting authorities concerned [regs.38(2) & (3) PCR2015].

Second, mixed responsibility scenarios where the conduct of a procurement procedure is not in its entirety carried out in the name and on behalf of the contracting authorities concerned, in which case they will be jointly responsible only for those parts carried out jointly, and each contracting authority shall have sole responsibility for the parts it conducts in its own name and on its own behalf [reg.38(4) PCR2015].

Interestingly, these rules partially deviate from those applicable to contracting authorities that resort to centralised purchasing bodies, in which case they do not assume liability/responsibility for the activity of the centralised purchasing body [reg.37(4) PCR2015], but exclusively for the activites they carry out directly, such as direct call-offs or awards under framework agreements or dynamic purchasing systems operated by the central purchasing body [reg.37(6) PCR2015]. This is bound to limit significantly the attractiveness of occasional joint procurement if the contracting authorities have the "liability-free" alternative of resorting to the central purchasing bodies without assuming any direct intervention in the procurement process.

In any case, it is worth stressing that the rules in reg.38 PCR2015 are quite intuitive and seem to strive for "institutional fairness" in the allocation of responsibility for the conduct of occasional joint procurement. However, they cannot be applied without difficulty. One problematic aspect will be to determine exactly which contracting authority is responsible for which part(s) of a specific tender procedure, both internally and externally. Internally, the issue may not be too problematic beyond an operational level, as the contracting authorities will actually have to determine which one does what, at least on a step by step process. 

However, externally, the distinction needs to be particularly clear in order to avoid eroding procedural rights and legitimate expectations of tenderers (particularly if damages are susceptible of arising and being claimed against the contracting authorities). Having a situation where tenderers need to claim against both (or all) contracting authorities in order to avoid being left unsatisfied because the review court/authority determines that the specific procedural or substantive error (conveniently?) fell under the scope of obligations of the other contracting authority would simply deactivate the rules under reg.38(4) PCR2015 and any expected benefits.

Another problematic area will be the need to develop rules on allocation of liability between contracting authorities, particularly if it is insurable or insured, since the final allocation of liability will not be neutral from the perspective of the internal coverage by the contracting authorities (or their insurers). Hence, this is an area where public law solutions to issues of intra-public sector liability will be needed in the near future. From my limited perspective and knowledge of the common law approach, this sounds like contracting authorities potentially exercising (directly, or by their insurers through surrogation) private(?) liability claims against each other.

In my view, it would have been positive for reg.38 PCR2015 to set some solutions to these difficulties. The limitation to the transposition of Art 38 Dir 2014/24 leaves these gaps unfilled and may result in a de facto extension of the joint and several responsibility/liability to all cases [ie also in reg.38(4) PCR2015 scenarios], without necessarily implying the following re-allocation through public-to-public liability claims. That could significantly limit the incentive for joint occasional procurement. Pedro has a similar view (see here).

Centralised purchasing activities and central purchasing bodies under Reg. 37 Public Contracts Regulations 2015

Centralised purchasing activities and central purchasing bodies are subjected to the rules of reg.37 of the Public Contracts Regulations 2015 (PCR2015), which transposes Art 37 of Directive 2014/14 without any material deviation. Occasional joint procurement is treated separately (see reg.38 PCR2015), and there are some additional rules regarding cross-border centralised purschasing (reg.39 PCR2015) [generally, on the functional alternatives, GL Albano and M Sparro, ‘Flexible Strategies for Centralized Public Procurement’ (2010) 1(2) Review of Economics and Institutions art 4. For an overview of the rules, see S Arrowsmith, Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 373–77 & 535–40].  Do not miss Pedro's critical remarks.

Along the general lines of facilitating public-public cooperation, but in relation to ‘cooperate-to-buy’ decisions instrumented through either centralised procurement or occasional joint procurement, Directive 2014/24 regulates certain possibilities that go beyond the primitive rules on centralisation of purchases and the creation of central purchasing bodies contained in article 11 of Directive 2004/18 [for discussion of certain practical difficulties, see G Racca, ‘Collaborative procurement and contract performance in the Italian healthcare sector: Illustration of a common problem in European procurement’ (2010) 19 Public Procurement Law Review 119–33]. In view of the general adoption of centralised procurement techniques, these new rules are bound to have significant effects very quickly [see Commission Staff Working Document, Annual Public Procurement Implementation Review 2012 (SWD(2012) 342 final) 25–26, where it is clearly indicated that most Member States have implemented this option in their national legislation, with the exception of Estonia, Germany and Luxembourg].

The justification for the increased detail in the regulation of centralised and collaborative procurement can be found in recitals (69) and (70) Dir 2014/24, where the increasing relevance of these procurement techniques is echoed, and an interesting direct reference is made to the potential increase in competition that can derive from the use of these techniques [C Risvig Hamer, ‘Regular purchases and aggregated procurement: the changes in the new Public Procurement Directive ...’ (2014) 23 Public Procurement Law Review 201, 207–10]. 

However, it must be borne in mind that generally, the centralisation of procurement activities also creates significant risks of distortions of competition, which is acknowledged in recital (59): ‘the aggregation and centralisation of purchases should be carefully monitored in order to avoid excessive concentration of purchasing power and collusion, and to preserve transparency and competition, as well as market access opportunities for SMEs’ [for discussion, see GL Albano, ‘Demand aggregation and collusion prevention in public procurement’, in G M Racca and C R Yukins (eds), Integrity and Efficiency in Sustainable Public Contracts (Brussels, Bruylant, 2014) 155–70]. Hence, this is an area where particular care should be exercised in trying to avoid distortions of competition.

The goals of professionalisation, modernisation and increased competition (leading to higher value for money and potential savings) are ranked very highly by Member States in their public sector reform and modernisation agendas, particularly in the aftermath of the financial crisis. Hence, the push for centralisation runs the risk of blindly changing the way procurement is conducted without paying sufficient attention to the risks it poses and the negative impacts it can have in the medium and long term. In view of those risks, the desirability or otherwise of centralisation and aggregation of procurement in all or some cases deserves some comments. The following are extracted from my Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 254-57. All references are to Art 37 Dir 2014/24, but they apply equally to reg.37 PCR2015.

... it is important to stress that the rules of Directive 2014/24 deviate in significant ways from what would be desirable from a competition perspective. Central purchasing bodies are now clearly assigned two alternative roles under Directive 2014/24. On the one hand, they can act in support or on behalf of contracting authorities (ie ‘act as intermediaries by awarding contracts, operating dynamic purchasing systems or concluding framework agreements to be used by contracting authorities’) and, on the other hand, they can act as the actual providers of other contracting authorities (that is, ‘act as wholesalers by buying, stocking and reselling’). This second role should make them fall completely under the umbrella of competition law, but the first one has more diffuse competition law implications. It is now clear that both of these roles are expressly regulated in article 37(1) of Directive 2014/24 (which suppresses any legal uncertainty derived from the silence of dir 2004/18). It is also worth stressing that Member States can make the recourse to the central purchasing body mandatory (art 37(1) in fine dir 2014/24). This latter possibility creates very difficult to anticipate competition effects, as it makes the supply of the goods, works or services to the public sector depend on the running of a ‘two-sided’ platform by the central purchasing body. In that case, depending on the way in which demand is aggregated or bundled, the exclusionary effects on (particularly smaller) suppliers can be very relevant. Moreover, generally, there seems to be no good reason to impose recourse to the central purchasing body if a given contracting authority can obtain better conditions (ie, better value for money) from an alternative provider. In that case, the principle of competition would require carving out an exception from the rule of obligatory recourse to the central body when it is not the one offering the most economically advantageous tender (although, admittedly, this would create practical difficulties if the contracting authority just decides to rely on the central body without carrying out any independent market consultation, under art 40 dir 2014/24 or otherwise).

According to the rules in article 37 of Directive 2014/24, recourse to a central purchasing body exempts the contracting authority from complying separately with public procurement rules (on the assumption, obviously and unavoidably, that the central purchasing body is the one bound by them in its market interactions), unless it directly carries out one or more of the phases involved in the procurement process (as indicated in art 37(2) dir 2014/24). Moreover, contracting authorities can award a public service contract for the provision of centralised purchasing activities to a central purchasing body without applying the procedures foreseen in Directive 2014/24. Such public service contracts may also include the provision of ancillary purchasing activities, which implies that there can be an element of remuneration of the service provided by the central purchasing body.

Therefore, recourse to central purchasing bodies is fundamentally excluded from the scope of application of Directive 2014/24 in a sort of special case allowing for the use of the negotiated procedure without publication (or by analogy with art 32 dir 2014/24), which has a dubious justification, particularly if the centralised purchasing body is a body governed by public law with private capital participation. Under the rules of Directive 2014/24, centralisation of procurement is seen as a clear device to allow (small) contracting authorities to achieve savings [K Karjalainen, ‘Estimating the cost effects of purchasing centralization—Empirical evidence from framework agreements in the public sector’ (2011) 17(2) Journal of Purchasing and Supply Management 87–97], as well as higher standards of professionalization, and to reduce the administrative burden of running procurement procedures by having recourse to the services of the central purchasing body—in a sort of intermediate solution between a public-public cooperation scheme (for which there would clearly not be a sufficient cooperative element) and an in-house arrangement (for which the control criterion would probably be absent). From the competition perspective, this possibility basically moves the focus of the competition concerns to the market activities of the central purchasing body and increases the likelihood of distortions of competition , and it may as well result in the central purchasing body engaging in a sort of ‘market regulation’ activity that is difficult to align with the general requirements of the principle of competition. Consequently, it is a development that causes significant source for concern in terms of the development of a pro-competitive public procurement system.

In my view, these concerns require careful consideration of the implications of procurement centralisation, as well the possibilities available to create 'competition-checks' for the activities of the centralised body. Centralisation can have significant impacts in the way procurement is carried out on a day to day basis, as well as altering the competitive structure of the markets in which the central purchasing body is active. There is thus a clear and increasingly pressing need to strike a proper balance between the expected benefits (economies of scale, professionalisation, increased competition for contracts) and the potential detriments of centralisation (loss of administrative granularity, increased systemic risk, increased litigation risk, knock-on and waterbed effects, limited SME access).

In the UK, for example, the National Audit Office (NAO) published a report on Improving government procurement (2013) where it made it clear that the Cabinet Office will have to lead a major cultural shift across government if the centralising of buying goods and services is to deliver the significant benefits on offer. NAO's report focussed primarily on administrative and governance issues. There are other important economic risks linked to centralisation that Ignacio Herrera Anchustegui and I have discussed recently in "Impact of Public Procurement Aggregation on Competition: Risks, Rationale and Justification for the Rules in Directive 2014/24" (December 5, 2014) University of Leicester School of Law Research Paper No. 14-35.

Hence, the development of further centralisation policies will have to balance the potential benefits with the potential negative effects that aggregation of procurement can create in the medium and long run. The Directorate on public procurement of DG Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) of the European Commission is organising a brainstorming session with experts on aggregation, in particular Central Purchasing Bodies (CPBs), with the objective of contributing to the development of policies in this area. I am honoured for their invitation to contribute to the discussions and look forward to future developments in this area.

Electronic catalogues under Reg.36 Public Contracts Regulations 2015

Reg.36 of the Public Contracts Regulations 2015 (PCR2015) transposes the rules of Art 36 of Directive 2014/24 on electronic catalogues, which are one of the novelties of the 2014 rules in relation with the use of electronic means of communication and ultimately aimed at simplifying the process for the submission of tenders and their assessment. Indeed, they have been introduced in order to boost the development of eProcurement or, at least, to provide minimum guidelines concerning this already used technique [see European Dynamics, Report on Electronic Catalogues in Electronic Public Procurement (2007)]. 

It is important to stress that the use of electronic catalogues does not imply a different type of procedure, but rather ‘a format for the presentation and organisation of information in a manner that is common to all the participating bidders and which lends itself to electronic treatment’ (rec (68) dir 2014/24). 

Functionally, eCatalogues are intended for use in relation to framework agreements of dynamic purchasing systems. The rules in reg.36 PCR2015 are fundamentally oriented towards the transparency requirements linked to the use of eCatalogues [reg.36(5) PCR2015] and their technical features, with a clear stress towards the obligation of tenderers to adapt their ‘general’ eCatalogues to the specific requirements of the contracting authority [regs.36(3) & (4) PCR2015]. Indeed, recital (68) of Directive 2014/24, indeed stresses that ‘the use of electronic catalogues for the presentation of tenders should not entail the possibility of economic operators limiting themselves to the transmission of their general catalogue’. 

However, there are other concerns linked to the need to standardise eCatalogues in order to avoid imposing an excessive administrative burden on tenderers: ‘in order to participate in a procurement procedure in which use of electronic catalogues ... is permitted or required, economic operators would, in the absence of standardisation, be required to customise their own catalogues to each procurement procedure, which would entail providing very similar information in different formats depending on the specifications of the contracting authority concerned. Standardising the catalogue formats would thus improve the level of interoperability, enhance efficiency and would also reduce the effort required of economic operators’ [rec (55) dir 2014/24]. 

This is an area where, indeed, standardisation would alleviate participation costs and would reduce barriers to access the relevant procurement procedures, given reluctance as investment in eCatalogues is concerned [see C McCue and AV Roman, ‘E-Procurement: Myth Or Reality?’ (2012) 2 Journal of Public Procurement 212–38; and M Rahim and S Kurnia, Understanding E-Procurement System Benefits Using Organisational Adoption Motivation Lens: A Case Study (PACIS 2014 Proceedings, 80)].

The rules applicable to eCatalogues also specify clear requirements governing the reopening of (mini-)competitions in framework agreements and dynamic purchasing systems and, in particular, rules on the specific moment when the information available in the eCatalogues will be frozen and used to award the given contract [regs. 36(4) to (13) PCR2015]. Pedro has taken issue with the limited rules concerning time-limits (see here).

The use of eCatalogues per se does not seem to create significant scope for distortions of competition, other than the eventual imposition of the use of exceedingly demanding or non-compatible IT solutions. However, that risk should be excluded on the basis of the requirement that ‘electronic catalogues shall comply with the requirements for electronic communication tools as well as with any additional requirements set by the contracting authority in accordance with article 22’ [reg.36(4) PCR2015]—which expressly requires that tools and devices ‘used for communicating by electronic means, as well as their technical characteristics, shall be non-discriminatory, generally available and interoperable with the ICT products in general use and shall not restrict economic operators’ access to the procurement procedure’ (see comments here and here).

Electronic auctions under Reg.35 Public Contracts Regulations 2015

Reg.35 of the Public Contracts Regulations 2015 (PCR2015) transposes Art 35 of Directive 2014/24 and sets out rules for the conduct of electronic auctions, which consolidate current practice and clarify some aspects of their initial regulation in Directive 2004/18. Reg.35(8) PCR2015 also includes the further details provided in Annex VI of Dir 2014/24, which makes the rules more readily accessible. Pedro has focused on the relationship between electronic auctions and transparency here.

Indeed, as a specific method of price-setting, and as a novelty that tried to introduce additional flexibility in certain tendering procedures—particularly, follow-up tenders developed in relation with i) negotiated procedures following an event of irregular tenders or the submission of tenders which are unacceptable under national provisions, ii) the reopening of competition among the parties to a framework agreement, or iii) the opening for competition of contracts to be awarded under the dynamic purchasing system—and increase their economic efficiency, Directive 2004/18 allowed Member States to provide that contracting authorities may use electronic auctions (art 54(1) and 54(2) dir 2004/18) [for general discussion on eProcurement and electronic auctions, see G Racca, ‘The Electronic Award and Execution of PublicProcurement’ (2012) Ius Publicum Network Review; and DC Wyld, ‘Reverse Auctions: How Electronic Auctions Can Aid Governments in Significantly Cutting Their Procurement Spending and Introduce Greater Competition in Public Sector Contracting’ (2013) 151 Emerging Trends in Computing, Informatics, Systems Sciences, and Engineering 277–89. See also S Khorana, K Ferguson-Boucher and WA Kerr, ‘Governance Issues in the EU's e-Procurement Framework’ (2014) Journal of Common Market Studies 1–19].

This technique continues to be available under the rules of reg.35 PCR2015, which extend the intended use of the electronic auctions to a larger array of situations, including tenders in open or restricted procedures or competitive procedures with negotiation where technical specifications can be established with precision. In terms of scope of application, Directive 2014/24 has also clarified that certain public service contracts and certain public works contracts having as their subject-matter intellectual performances, such as the design of works, which cannot be ranked using automatic evaluation methods, shall not be the object of electronic auctions [reg.35(3) PCR2015]. It is also now clearer that the electronic auction shall be based either (a) solely on prices where the contract is awarded on the basis of price only; or (b) on prices and/or on the new values of the features of the tenders indicated in the procurement documents where the contract is awarded on the basis of the best price-quality ratio or to the tender with the lowest cost using a cost-effectiveness approach [reg.35(6) PCR2015].

In case contracting authorities decide to conduct electronic auctions, they must comply with the specific procedure , which determines in fairly precise detail the steps and rules to be followed in the conduct of the electronic auctions (in terms of disclosure of information, time limits, applicable criteria and formulae, etc) [reg.35(7) to (28) PCR2015). The use of electronic auctions for the award of the contract seems to be particularly prone to the generation of unacceptable changes in the subject-matter of the contract—particularly because of the ability of tenderers to alter significantly the terms of their offers during the auction phase—and, consequently, article 54(8) of Directive 2004/18 emphasised that contracting authorities may not use electronic auctions ‘to change the subject-matter of the contract, as put up for tender in the published contract notice and defined in the specification’. This restriction is now suppressed in the text of Directive 2014/24 (and hence, of the PCR2015), but the limitation seems to remain in place in view of the rules on irregular, unacceptable and unsuitable tenders [regs.35(9) to (13) PCR2015). In this regard, general restrictions on the need to prevent material changes in the original specifications of the (re-)tendered contract will apply, particularly in framework agreements and dynamic purchasing systems.

Of more interest, it is also important to stress that article 54(8) of Directive 2004/18 also seemed to have been drafted in the light of the potentially pro-collusive features of electronic auctions, which can increase the likelihood of distortions of competition [see C Kennedy-Loest and R Kelly, ‘The EC Competition Law Rules and Electronic Reverse Auctions: A Case for Concern?’ (2003) 12 Public Procurement Law Review 27; and, in more general terms, regarding electronic markets, PA Trepte, ‘Electronic Procurement Marketplaces: The Competition Law Implications’ (2001) 10 Public Procurement Law Review 260.]. In this regard, article 54(8) specified and strengthened the applicability of the principle of competition in the conduct of electronic auctions, by restricting the ability of contracting authorities to ‘use them in such a way as to prevent, restrict or distort 

competition’.

Once again, this specific requirement has been suppressed in the text of article 35 of Directive 2014/24 (and hence, of the PCR2015), but it is submitted that it remains in place as an implicit requirement derived from the principle of competition in reg.18(1). Therefore, contracting authorities should be particularly careful in the design of the specific rules applicable to the electronic auction, so as to prevent instances of collusion amongst tenderers—particularly, by restricting the information disclosed [although regs.35(23) & (24) PCR2015 allow them to do otherwise] which, however, cannot include the identities of the bidders in any circumstances [ex reg.35(25) PCR2015]. 

The same level of care should be put in ensuring equality of opportunity for all tenderers to place bids in each of the eventual rounds or phases of the electronic auction (so as not to distort competition within the auction) [reg.35(14) PCR2015], subject to rules restricting the number of tenderers that can advance from one phase to the next—which must be clearly specified in the tender documents and implemented in a transparent manner by the contracting authority [reg.35(15) PCR2015].

A final consideration regards the decisions made as to the electronic equipment used and the arrangements and technical specifications for connection—which, in order to prevent unnecessary restrictions of competition, should aim at choosing widely spread and easily accessible technologies, so as not to restrict the participation of less technologically advanced tenderers or to advantage unduly one or several tenderers by reason of their communications technology (which is unrelated to the subject-matter of the contract).

Dynamic purchasing systems under Reg. 34 Public Contracts Regulations 2015

Reg.34 of the Public Contracts Regulations 2015 (PCR2015) establishes rules for dynamic purchasing systems in transposition of those in Art 34 of Directive 2014/24. Dynamic purchasing systems are a type of two-tier multi-year scheme designed to simplify and reduce the administrative burden associated with the repeated procurement of standardised goods, works or services. The following comments are based on A Sanchez Graells, Public Procurement and the EU Competition Rules, 2nd ed (Oxford, Hart, 2015) 363-66]. Pedro's views are here.

Dynamic purchasing systems are governed by rules analogous to those applicable to framework agreements, albeit somewhat more stringent and always relying on the use of a restricted procedure. They shall be operated as a completely electronic processes [reg.34(2) PCR2015] and all communications in the context of a dynamic purchasing system shall only be made by electronic means [reg.34(13) PCR2015]. The setting up of dynamic purchasing systems by contracting authorities for commonly used purchases the characteristics of which, as generally available on the market, meet the requirements of the contracting authorities generates competition issues similar to the ones just analysed in relation to framework agreements [see comment to reg.33 PCR2015]. These and the remaining aspects of dynamic purchasing systems are discussed in the recent Crown Commercial Service Guidance document.

The general logic of this dynamic system is to allow contracting authorities to progressively include all interested economic operators that meet the established selection criteria and that have shown interest [reg.34(2) PCR2015], given that ‘the number of candidates to be admitted to the system shall not be limited in accordance with regulations 28(4) and 65’ [reg.34(6) PCR2015]. When a need arises, then, the contracting authority can invite all operators already included in the system—plus those that show last-minute interest in participating in the tender [see reg.34(15) PCR2015]—to submit a binding tender for the specific contract, which will generally be awarded according to the criteria set out generally for the dynamic purchasing system, unless adjusted or formulated more precisely for the specific contract [regs.34(23) & (24) PCR2015].

Hence, it is a system mainly oriented towards speeding up the procurement process and reducing the administrative burden in cases of repeated procurement of goods, works and services that can be specified in sufficient detail upfront and for which participating operators can easily submit a tender for each specific procurement. This can be further simplified by dividing the system into categories of products, works or services that are objectively defined on the basis of characteristics of the procurement to be undertaken under the category concerned. 

In order to set up a dynamic purchasing system, a contracting authority should issue a contract notice making it clear that it refers to a dynamic purchasing system and specify, amongst other matters, the nature of the purchases envisaged under the system and the basic information concerning the purchasing system itself, as well as indicate any division into categories of products, works or services and the characteristics defining them and offer unrestricted and full direct access, as long as the system is valid, to the procurement documents [reg.34(14) PCR2015]. As mentioned, the setting up of the dynamic purchasing system should follow the rules of the restricted procedure in all its phases up to the award of the contracts to be concluded under the system [reg.34(5) PCR2015].

However, the contracting authority has no possibility of restricting the maximum number of operators included in the system [reg.34(6) PCR2015]. Indeed, interested operators that meet the selection criteria set by the contracting authority can, at any point in time, request admission to the dynamic purchasing system by expressing interest in participating; they should, then, be admitted to the system without being subject to any further requirements. The contracting authority must review the request of participation and decide on the admission or rejection of the operator to the system within a maximum of 10 working days following its receipt. That deadline may be prolonged to 15 working days in individual cases where justified, in particular because of the need to examine additional documentation or to otherwise verify whether the selection criteria are met (which can only be extended if no invitation to tender is issued in the meantime). Contracting authorities shall inform the economic operator concerned at the earliest possible opportunity of whether or not it has been admitted to the dynamic purchasing system. Contracting authorities may not proceed with the tendering until they have completed the evaluation of all the indicative tenders received within the 10 working day (or extended) deadline [reg.34(15) to (20) PCCR2015]. 

Contracting authorities should then invite all tenderers admitted to the system to submit a tender for each specific contract to be awarded under the system within a specified time limit [For clarification regarding limitation periods, see Uniplex, C-406/08, EU:C:2010:45]. The award of the contract should then be made according to the award criteria set in general for the dynamic purchasing system, unless they have been formulated more precisely in the invitation to tender for the specific contract [reg.34(21) to (24) PCCR2015].

As general limitations to the setting up and running of these dynamic purchasing systems, they may not last for an indefinite period of time, and contracting authorities shall indicate the period of validity of the dynamic purchasing system in the call for competition [reg.34(27) PCR2015]. However, there is no need to cancel and restart dynamic purchasing systems if the contracting authority wishes to extend their initial validity. In that case, where the period of validity is changed without terminating the system, the authority must publish again the form used initially for the call for competition for the dynamic purchasing system [reg.34(28)(a) PCR2015]. Moreover, contracting authorities must run them for free—ie, no charges may be billed prior to or during the period of validity of the dynamic purchasing system to the economic operators interested in or party to the dynamic purchasing system [reg.34(29) PCR2015].

Again, as happened with framework agreements, under the 2004 rules, it was explicit that contracting authorities may not resort to this system to prevent, restrict or distort competition [art 33(7) dir 2004/18]. This latter restriction—which, as has already been argued in relation with equivalent clauses, is a specification or emphasis of the more general principle of competition [S Arrowsmith, ‘Dynamic Purchasing Systems under the New EC Procurement Directives—a Not So Dynamic Concept?’ (2006) 15 Public Procurement Law Review 16, 25] and continues to be relevant as an implicit requirement of reg.18(1) PCR2015—justifies the specific need to analyse the competition distortions that could arise from these dynamic purchasing systems, and also to assess the way in which their rules can be applied in a pro-competitive way, in order to avoid distortions of competition by the contracting authorities. In this regard, it should be stressed that certain of the specific, and arguably more stringent, rules that regulate dynamic purchasing systems make the probability of their having an anti-competitive impact lower than is the case with framework agreements. As emphasised in recital (63) of Dir 2014/24, indeed, dynamic purchasing systems allow the contracting authority to have access to a ‘particularly broad range of tenders and hence to ensure optimum use of public funds through broad competition in respect of commonly used or off-the-shelf products, works or services which are generally available on the market’.

Given that it should be conducted at all stages by the rules of the restricted procedure, but there is no possibility of limiting the number of participating economic operators, there does not seem to be scope for distortions concerning a limitation of the maximum number of participating tenderers [Arrowsmith (2006) 22]. Similarly, given its dynamic nature, neither the duration of the system nor any of the time limits involved seem to be a source of competition distortions. For the same reason, there is no danger of a system being set in excess of actual or reasonably estimated demands of the contracting authority or authorities. Also, the specifications and general terms of the system must be defined upfront, so there does not seem to be room for chilling effects or excesses of discretion associated with an excessive vagueness of the specification or terms that rule the dynamic purchasing system.

Therefore, the competition distortions that could be anticipated seem to refer, primarily, to issues that are not specific to this type of scheme, but to general issues, such as the grounds for the exclusion of tenderers, the qualitative selection requirements, the use of technical specifications, aggregation of contracts, etc. As regards the likelihood of collusion between tenderers, it seems initially reduced by the fact that a relatively large—in principle, unlimited—number of tenderers can take part in the bid for a given contract. Also, given that these schemes are to be run exclusively through electronic systems, contracting authorities might be in a better position to adopt measures that hinder and deter collusion, particularly through technical means or the adoption of relatively different rules for each of the specific contracts to be awarded [see OECD, Guidelines for Fighting Bid Rigging in Public Procurement. Helping Governments to Obtain Best Value for Money (2009) 7].

Rethinking the Law School and the way law academics publish (reference to @CarelStolker)

I have recently been flipping through the (electronic) pages of Prof. Carel Stolker's Rethinking the Law School. Education, Research, Outreach and Governance (Cambridge, CUP, 2014) and found some of the insights and views he expresses particularly stimulating. The chapter on "Lawyer's ways of publishing" is my pick of the day. 

As an academic blogger (blawgger?), some of his remarks could not be more central to my day-to-day activities and to the hopes I have for a renovation in the way academic outputs are produced, published, graded and recognised by Universities and the international community of scholars alike.

Prof. Stolker encapsulates the law blogging phenomenon and the challenges it puts to 'traditional academic publication' as follows 

An interesting development is the rise of blogs. Law blogs (‘blawgs’), sometimes complemented by online companions and other vehicles of ‘short form’ legal scholarship, may better serve the needs of the practitioners and enhance the scholarly debate among the academics. Their increasing popularity–especially in the US where law articles tend to be the very opposite of ‘short form’– raises new issues: might these blogs harm legal scholarship, or are they becoming a legitimate form of legal scholarship in their own right? Do blogs register intellectual property, as journal publications do? Will these blogs replace our thousands of law journals worldwide in the long term, and do libraries have a responsibility to preserve the blogs for future generations? All these new developments might even herald the coming of an era where legal scholarship will mainly be available online rather than in print … (pp. 233-34, footnotes omitted, emphasis added).

Prof. Stolker also links the raise of online access to content (not only in blogs) with the neighbouring issue of scholarship dissemination via the use of social networks, and rightly points out that

Overall, one-third of our scientists and scholars are reported to use LinkedIn and Twitter. Science and scholarship are rapidly transforming into a fascinating variety of digitally networked forms. Too often the distribution and communication of the products of legal scholarship are considered the exclusive responsibility of the publisher. However, making your work widely accessible is, as we have seen, primarily a duty of the scholars themselves. Until we make progress in this area, cross-border scholarly debate will continue to be seriously hampered (p. 260, emphasis added).

These two insights trigger some important questions for further reflection. In my opinion, the answers that Law Schools give (or not) to these questions will determine whether they manage to attract or retain innovative legal scholars--who wants to work at an Institution that considers blawgging something you do on your free time?--and, maybe more importantly from the institutional perspective, whether they maintain or develop an online reputation that allows them to attract the best students, particularly at postgraduate level.

In my personal view--the reader should bear in mind that I blog as a passion and that I am very fortunate of my scholarship being on the top 0.5% of SSRN authors by downloads, so I may quickly be seen as conflicted on this--blogging about legal developments and engaging in debates and dissemination of research in social media are truly valuable activities and they should be recognised as such. Blogs allow for an immediacy of academic debate that is impossible to match for any other platforms, either printed or online. Moreover, given the increasing constraints on publishing "proper", "printed" research [at least in the UK as an (undesired?) effect of the REF], some traditional sorts of legal scholarship such as case comments or book reviews are languishing as scholars are pressured into publishing (only) 4* outputs (which, almost by definition, cannot be of those sorts). Consequently, I do not think that they will substitute all other forms of legal scholarship, but they are bound to fill a gap that has existed for a long time and that may be (in part) responsible for the distance with which practitioners look at legal research (if they ever look into law books at all).

However, blogs remain at the margin (if not completely outside) of academic assessments and blawggers are simply aficionados that share their views out of personal interest, search for fame/impact, or boredom. In my view, this needs to change. Not because that would make the life of the academic blawgger easier (which it certainly would), but because more academics would feel tempted to "take the risk to go online" if the incentives were not so clearly against it. And that would benefit all of us, both when the quality of the blogging was good, and when it was bad, as I would expect that academic debate and peer-review would swiftly establish quality controls or, at least, interesting exchanges of ideas.

Overall, to keep this rant short, I would like to see all deans and heads of law school's reading Prof. Stolker's book, at least to get the conversation really started.

Framework agreements under Reg. 33 Public Contracts Regulations 2015

Framework agreements are subjected to the rules of reg.33 of the Public Contracts Regulations 2015 (PCR2015), which transposes Art 33 of Directive 2014/24 exactly. Framework agreements are those between one or more contracting authorities and one or more economic operators, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged [reg.33(2) PCR2015]. 

Framework agreements are aimed at facilitating an increase in procurement effectiveness for repeated procurements [see McDermott, P et al, Effectiveness of frameworks - A report by the working group on the effectiveness of frameworks of the procurement and lean client task group, Final Report to Government by the Procurement/Lean Client Task Group (2012)]. Framework agreements have been widely used since their recognition in the 2004 rules and they have been the object of significant discussion, as the benefits they generate (in terms of administrative efficiency) come at a significant risk for competition, particularly if frameworks are too wide, too long, or cover a very large part of the public sector demand [for discussion, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd ed (Oxford, Hart, 2015) 355-63, and here]. The need to assess carefully the trade-off between the advantages and the competition risks was stressed from their inception, and this is now stressed in recital (61) Dir 2014/24: "Framework agreements should not be used improperly or in such a way as to prevent, restrict or distort competition". Given the relevance of the principle of competition in reg.18(1) PCR2015, this bears some stress.

The rules applicable to framework agreements under reg.33 PCR2015 are relatively broad and flexible, and their complexity derives solely from the fact that they include specific requirements for framework agreements of different types: mono-provider/multi-provider, fully-specified/incomplete frameworks. In any case, the rules set out in reg.33 PCR2015 are insufficient to run a framework agreement, and they need to be complemented with the rest of the rules in Part 2 PCR2015 [see reg.33(1) PCR2015] [for further discussion, see C Risvig Hamer, "Regular purchases and aggregated procurement: the changes in the new Public Procurement Directive regarding framework agreements, dynamic purchasing systems and central purchasing bodies" (2014) 23(4) Public Procurement Law Review 201].

As detailed in recitals (60) to (62) of Dir 2014/24, the rules on framework agreements have been modified in three main respects: (a) to stress their closed nature, so that economic operators and contracting authorities cannot be added during their term; (b) to clarify the way in which call-offs under a framework agreement can be made (now, under direct call-off, mini-competition, or a new hybrid approach), as well as the objective conditions controlling them; and (c) to clarify the rules applicable to the duration of the framework agreements and its coordination with the duration of the contracts awarded within it. All these novelties deserve some comments. Pedro has also provided additional comments on the issues these rules create, well worth reading.

Regarding the closed nature of framework agreements

Reg.33(5) PCR2015 indicates that framework agreements may be applied only between those contracting authorities clearly identified for that purpose in the call for competition or the invitation to confirm interest and those economic operators party to the framework agreement as concluded. This rule would seem to impose very stringent limitations on the configuration of a framework agreement, with no flexibility whatsoever as its subjective scope (both on the supply and the demand side) are concerned. However, this is not the reality of things. As recital (61) Dir 2014/24 clarifies,

framework agreements should not be used by contracting authorities which are not identified in them. For that purpose, the contracting authorities that are parties to a specific framework agreement from the outset should be clearly indicated, either by name or by other means, such as a reference to a given category of contracting authorities within a clearly delimited geographical area, so that the contracting authorities concerned can be easily and unequivocally identified. Likewise, a framework agreement should not be open to entry of new economic operators once it has been concluded.

Given this possibility, it is rather obvious that framework agreements will tend to be concluded on the basis of "class descriptions" and that they will tend to be as broad as to possibly cover the entire public sector (see here for a previous comment on English practice). This raises a significant query as to the real closed-nature of framework agreements. Moreover, it seems clear that such class description can be dynamic, at least if we read between the lines of the final part of recital (61) Dir 2014/24, which expands the guidance in relation to central purchasing bodies

This implies for instance that where a central purchasing body uses an overall register of the contracting authorities or categories thereof, such as the local authorities in a given geographical area, that are entitled to have recourse to framework agreements it concludes, that central purchasing body should do so in a way that makes it possible to verify not only the identity of the contracting authority concerned but also the date from which it acquires the right to have recourse to the framework agreement concluded by the central purchasing body as that date determines which specific framework agreements that contracting authority should be allowed to use.

The only bit that is rather uncontroversial is that economic operators that were not included in the original framework should not be allowed to enter. However, even this needs further precision because framework agreements are not exempted from the rules on contract modification, including substitution of contractor, under reg.72 PCR2015. Hence, the closed nature of framework agreements may be just an illusion.

Regarding the rules and conditions applicable to call-offs within the framework

Regs.33(7) to (11) PCR2015 set out the specific rules for the call-off of contracts within a framework agreement. As regards framework agreements concluded with a single economic operator by one or more contracting authorities (reg.33(7) PCR2015), the rules are restricted to requiring that contracts based on that agreement should be awarded within the limits of the terms laid down in the framework agreement. Therefore, the contracting authority or authorities will have substantial flexibility to set contractual terms adjusted to its or their specific needs and, if necessary, may consult the operator party to the framework agreement in writing, requesting it to supplement its tender as necessary. In this regard, it may be important to emphasise that such consultations and supplements of the tender should not result in a substantial amendment of the terms of the framework agreement (reg.33(6) PCR2015).

The rules applicable to framework agreements concluded with several economic operators—who should be at least three, insofar as there is a sufficient number of economic operators to satisfy the selection criteria and/or of admissible tenders which meet the award criteria [by analogy with reg.65 PCR2015; in my opinion and to avoid uncertainty, the express requirement of art 32(4) dir 2004/18 that the minimum number was three should have been kept in art 33(4) dir 2014/24]—now set three separate procedures, depending on whether all the terms (of the ensuing contract) are laid down in the framework agreement or not. 

In the first clear instance, when all the terms (of the ensuing contract) are laid down in the framework agreement, a contract based on the framework can be awarded by application of the terms laid down in the framework agreement without reopening competition [reg.33(8)(a) PCR2015]. Therefore, contracting authorities enjoy a substantial degree of discretion to conclude the specific contract with any of the economic operators included in the framework agreement. It is true that the objective conditions for determining which of the economic operators party to the framework agreement shall perform the contract need to be indicated in the procurement documents for the framework agreement [reg.33(8)(a) PCR2015]. However, those conditions need not result in an automatic selection of a specific contractor.

As regards the second clear instance, where not all the terms (of the ensuing contract) are laid down in the framework agreement, contracting authorities should run a second competitive phase amongst the economic operators included in the framework agreement [reg.33(8)(c) PCR2015]. 

It is interesting to stress that, with the aim of providing even more flexibility, the rules establish a third (ambiguous) instance, whereby even in frameworks where all terms are set out from the beginning, contracting authorities can decide to open a second ‘mini-competition’ [reg.33(8)(b) PCR2015]. Indeed, contracting authorities are now given the choice to decide whether specific works, supplies or services shall be acquired following a reopening of competition or directly on the terms set out in the framework agreement, and it is indicated that such a decision ‘shall be made pursuant to objective criteria … set out in the procurement documents for the framework agreement [which] shall also specify which terms may be subject to reopening of competition’ [reg.33(9)(a) PCR2015]. 

This second competitive phase [see OGC's guidance on mini-competitions], applicable under regs.33(8)(b) and (c) PCR2015, should allow for as many specifications of the general terms included in the framework agreement (which, however, cannot be substantially modified) as the contracting authority sees fit, and the award of the contract should be conducted according to the further rules established in reg.33(11) PCR2015. These ultimately require that the result of the ‘mini-competition’ is determined on the basis of the award criteria set out in the procurement documents for the framework agreement—ie, contracting authorities cannot amend or establish new award criteria for each of the ‘mini–competitions’ within the framework agreement. In this case, therefore, contracting authorities seem to enjoy a more limited degree of discretion to conclude the specific contracts within the framework agreement with an economic operator of their choice.

Regarding the duration of framework agreements and the contracts awarded within them

Reg.33(3) PCR2015 establishes that the term of a framework agreement shall not exceed 4 years, save in exceptional cases duly justified, in particular by the subject-matter of the framework agreement—ie, according to the specific technical or commercial characteristics of the goods, works or services included in the framework agreement. This rule seems to provide full discretion to contracting authorities for the conclusion of framework agreements of durations of up to four years, and to impose a higher obligation to prove the necessity to conclude agreements with a duration in excess of that period—to ensure its feasibility from a technical, commercial or some other perspective.

Nonetheless, it is submitted that the discretion of the contracting authorities in determining the duration of these agreements must clearly be restricted by competition considerations [ex reg.18(1) PCR2015]. Therefore, even under the threshold of four years of duration, contracting authorities must set the validity of the agreement so as to avoid unnecessary restrictions and distortions of competition, based on a case by case analysis [along the same lines, S Arrowsmith, The Law of Public and Utilities Procurement. Regulation in the EU and the UK, Vol. 1, 3rd edn (London, Sweet & Maxwell, 2014) 1175–77. 

It is also important to stress that the duration of the framework agreement can de facto extend beyond the four year limit, given that the duration of the contracts awarded under the framework ‘does not need to coincide with the duration of that framework agreement, but might, as appropriate, be shorter or longer’ (rec 62 dir 2014/24). It is submitted that a strict proportionality assessment based on the competitive distortions that such longer duration could create is to be applied to the determination of the appropriate duration of the contracts derived from a previous framework agreement, particularly if they significantly overrun the term of the initial framework [cf Risvig Hamer, above].

In this regard, the nature of the goods or services procured might be a relevant element, to support the case for a shorter duration for frameworks (and ensuing contracts) concerning relatively new or innovative goods and services, and a relatively longer duration for framework agreements in mature or relatively less innovative markets. Also, the number of economic operators included in the agreement and the turnover of undertakings in the market concerned should be factored into the analysis of the appropriate duration of the framework agreement. It is arguable that the more limited the number of economic operators included in the framework agreement and the higher the turnover in the market, the stronger the argument favoring limited duration for these agreements, since they could generate larger exclusionary effects than in cases where the framework covered a larger number of undertakings in more stable markets. Similarly, the larger the number of contracting authorities involved in the framework agreement, the shorter the desirable period for the framework agreement. 

In general terms, it seems that the duration of these agreements should be determined by balancing the duration justified on administrative and commercial grounds, with the degree of potential restrictiveness of competition in the market concerned—and, where a clear conflict emerges, competition considerations should trump commercial justifications and impose a limitation of the duration of the framework—taking into due consideration, however, that framework agreements of a very short duration, eg, lasting for less than a year, probably lack interest (in which case, arguably, the contracting authority should refrain from resorting to this contractual arrangement).

Use of the negotiated procedure without prior publication under Reg. 32 Public Contracts Regulations 2015

Reg.32 of the Public Contracts Regulations 2015 (PCR2015) transposes Art 32 of Directive 2014/24 as the grounds for the use of the negotiated procedure without prior publication (aka direct award) can be used. It is worth reminding that according to Art 26(6) Dir 2014/24 (not transposed in reg.26 PCR2015), Member States may provide that contracting authorities may apply a negotiated procedure without prior publication of a call for competition only in the specific cases and circumstances referred to expressly in Art 32, and that Member States shall not allow the application of that procedure in any other cases. 

This is reiterated in reg.32(1) PCR2015 [and art 32(1) dir 2014/24], whereby contracting authorities may award public contracts by a negotiated procedure without prior publication in the specific cases and circumstances laid down in that regulation. The general restrictive tone should by now be obvious.

Reg.32 PCR2015 alters the order of Art 32 Dir 2014/24 significantly, but it does not expand any of the grounds for the use of the negotiated procedure without prior publication, which include some general grounds (derived from previous tenders where no or only unsuitable tenders or requests to participate where submitted, from exclusivity rights, or extreme urgency) [regs.32(2) to (4) PCR2015]; grounds relevant to public supply contracts (for R&D products under limited conditions, replacements required to avoid technical incompatibility or disproportionate technical difficulties in operation and maintenance, purchases from commodity markets, and advantageous purchases from bankrupt firms) [regs.32(5) & (6) PCR2015]; grounds relevant to public service contracts following a design contest [regs.32(7) & (8) PCR2015]; and grounds relevant to repeated works or services [regs.32(9) to (12) PCR2015].

It is important to stress that the eventual abusive recourse to negotiated procedures with no transparency requirement whatsoever constitutes a potential restriction of access to the tender procedure with very significant anti-competitive effects. This has been permanently stressed in the case law, and the CJEU has permanently stressed the strict requirements that control decisions to proceed to the direct award of contracts under this ‘non-procedure’, which are subject to a strict assessment of whether the contracting authority "acted diligently and whether it could legitimately hold that the conditions [for recourse to this procedure] were in fact satisfied" [Fastweb, C-19/13, EU:C:2014:2194, para 50]. Consequently, there is no doubt that this procedure must be understood as exceptional [Fastweb, para 106; see my comments on the case here]. 

As briefly mentioned, this is now (too?) clearly indicated in Art 26(6) Dir 2014/14, which establishes that Member States shall not allow the application of those procedures in any other cases than those referred to in Art 32. In turn, the numerus clausus of exceptions in Art 32/reg.32 PCR2015 must be interpreted strictly, in order to prevent competitive distortions [for an empirical approach to the use of negotiated procedures without prior transparency and their justification, see GS Ølykke, On Actual and Perceived Monopolies (Working Paper, 2013)].

Innovation partnerships under Reg. 31 Public Contracts Regulations 2015

Reg.31 of the Public Contracts Regulations 2015 (PCR2015) introduces the innovation partnership as a direct transposition of Art 31 of Directive 2014/24. It configures it as a multi-step process, both during the award phase [reg.31(18) PCR2015] and for the implementation of the innovation contract [reg.31(10) PCR2015]. See Pedro's technical remarks, explaining why this procedure is a 'Trojan horse', see here.

At this second stage, ie during the implementation of the innovation contract, it is a distinctive feature that the contracting authority can reserve for itself the right to terminate the innovation partnership at the end of each of the successive phases of the research and innovation process, which it should do on the basis of specific intermediate targets [reg.31(12) PCR2015]. This is bound to trigger interpretative difficulties concerning the general termination rules under reg.73 PCR2015, as it seems that innovation partnerships can be terminated without breach of contract on the side of the innovation partner, provided certain intermediate targets are not met, or if the contracting authority is not satisfied with the progress of the project. This will, no doubt, trigger litigation, particularly depending on the stage at which the partnership is terminated, or the possibility (or not) of the innovation partner to continue innovating on its own [all of which are contractual issues not covered by the PCR2015 or Dir 2014/24].

In terms of process, the innovation partnership procedure is a hybrid of the competitive procedure with negotiation and the competitive dialogue available when the contracting authority identifies the need for an innovative product, service or works that cannot be met by purchasing products, services or works already available on the market [reg.31(2)(a) PCR2015], and the main difference with those procedures is that the purpose of the innovation partnership must be "the development of an innovative product, service or works and the subsequent purchase of the resulting supplies, services or works, provided that they correspond to the performance levels and maximum costs agreed between the contracting authority and the participants" [reg.31(9) PCR2015]. Such development can be carried out by one partner, but the contracting authority can also decide to conclude an innovation partnership with several partners conducting separate research and development activities [reg.31(4) PCR2015].

In my personal view, this is a procedure designed for science fiction and its legal set-up masks the existence of a significant number of risks that contracting authorities should weigh before launching an innovation partnership. Moreover, it can create significant disruption of the innovation-related State aid rules, as recently recast in the 2014 Framework for State aid for research and development and innovation. 

The first reservation I have about the use of the innovation partnerships is that contracting authorities may not be in a good situation to assess the "need for an innovative product, service or works that cannot be met by purchasing products, services or works already available on the market" [reg.31(2)(a) PCR2015, emphasis added], either on their own or as a result of preliminary market consultations (carried out under reg.40 PCR2015, or otherwise).  Contracting authorities will in very limited circumstances have identified a need that has not been previously identified by the market at all. Moreover, it will be very rare that such a need cannot be satisfied by an adaptation of existing products or services, in which case the proper procedure would be a competitive procedure with negotiation or a competitive dialogue [reg.26(4)(a)(i) PCR2015], even if they require design or innovative solutions [reg.26(4)(a)(ii) PCR2015].

Moreover, if contracting authorities set out the project as an innovation partnership, they may fall into a self-selection or a confirmation bias. Given the requirement that "Only those economic operators invited by the contracting authority following its assessment of the requested information may submit research and innovation projects aimed at meeting the needs identified by the contracting authority that cannot be met by existing solution", the only offers that the contracting authority can expect to receive are those of economic operators that honestly think there is no existing solution to their needs (even if there is one) (self-selection bias), or of economic operators willing to play along and confirm to the contracting authority that it is right in its assessment of "inexistence" of a solution, and then offer an actually existing solution--either faking or duplicating the "innovation" process (confirmation bias). 

This would, in the end, facilitate the creation of situations in which the contracting authority sets out an innovation partnership procedure on an improper assessment of the market and any economic operator that is aware of an actually existing solution for the needs of the contracting authority only has two options. Either it judicially challenges the procedure (or does it informally directly with the contracting authority, but one can imagine how badly that conversation would go most of the times), so that a tender for a contract under a different procedure can take place; or it plays along and praises the contracting authority for its market savviness. As the story of the Emperor's New Clothes has been telling us for quite a long time, the likely result is quite obvious.

My second reservation has to do with the risks that the contracting authority may assume in relation to third party intellectual property, as reg.31(22) PCR2015 simply indicates that the contracting authority shall define the arrangements applicable to intellectual property rights in the procurement documents. This is a neutral formulation that does not prevent the contracting authority to obtain exclusive, shared or no IP rights on the innovation. However, even in the last scenario, the contracting authority may be exposed to the negative consequences of IP litigation, if nothing else, in case the innovation partnership had to be suspended or discontinued due to third party claims. Given the relevance of IP litigation in innovation-intensive markets, it is hard to see why would a contracting authority be willing to assume risks in this area. More generally, it is hard to see how would entering into an innovation partnership actually pursue a public interest related to the procurement function of a contracting authority.

Finally, to keep it relatively brief, I have reservations concerning the coordination of the tendering of innovation partnerships with the 2014 Framework for State aid for research and development and innovation. That Framework considers that there is no State aid prohibited by Art 107 TFEU in two cases: 

(a) "as long as an open tender procedure for the public procurement is carried out in accordance with the applicable directives" [para 32]; or
(b) where any other arrangement carried out by the contracting authority, including pre-commercial procurement, meets a series of conditions, amongst which "the procurement does not give any of the participant providers any preferential treatment in the supply of commercial volumes of the final products or services to a public purchaser in the Member State concerned" [para 33(c)], "without prejudice to procedures that cover both the development and the subsequent purchase of unique or specialised products or services" [fn 29]. Additional requirements concerning the IP rights (mentioned above) are applicable, as one of the following two conditions needs to be fulfilled [para 33(d)]: either (i) all results which do not give rise to IPR are widely disseminated, for example through publication, teaching or contribution to standardisation bodies in a way that allows other undertakings to reproduce them, and any IPR are fully allocated to the public purchaser, or (ii) any service provider to which results giving rise to IPR are allocated is required to grant the public purchaser unlimited access to those results free of charge, and to grant access to third parties, for example by way of non-exclusive licenses, under market conditions.

In my view, it is difficult to assume that an innovation partnership can be immediately fit into either (a) because it is not based on the rules of the open procedure, or (b) because it does create a preferential treatment for the supply of the results of the innovation, which may not necessarily remain unique or specialised products or services when it comes to their commercialization, particularly if the attribution of IP rights is to the contracting authority, or widely available through non-exclusive licenses, under market conditions. 

In that case, given the lack of immediate compatibility with the EU State aid rules under the 2014 R&D&I framework, the award of the innovation partnership can still go ahead, as Member States may rely on an individual assessment of the terms of the contract between the public purchaser and the undertaking, but that is without prejudice to the general obligation to notify R&D&I aid pursuant to Art 108(3) TFEU (which would paralise the project until the Commission clears the State aid).

Overall, then, I doubt that contracting authorities are in a good position to identify when an innovation partnership is justified or, even then, that they are in a situation where the pursuit of public interests (linked to the public procurement function) justifies the assumption of potentially significant IP and State aid risks. Consequently, I would not favor a significant uptake of the innovation partnership. If investment in R&D&I is to be pursued, it would be best channeled through regular awards of financial support as clear cut State aid.

Competitive dialogue under Reg. 30 Public Contracts Regulations 2015

Reg. 30 of the Public Contracts Regulations 2015 (PCR2015) sets up the specific rules that contracting authorities need to follow when they organise competitive dialogues, provided they are covered by the grounds specified in regs. 26(4) to (7) PCR2015 (which will not be too difficult, see here and here). The transposition follows closely the wording of Art 30 of Directive 2014/24, with minor drafting improvements and a more detailed structure. For Pedro's insightful, as well as incisive and provocative comments on this, his particular pet subject, see here.

The regulation of the competitive dialogue under the 2004 EU procurement rules (which created it) had given rise to significant academic debate and there was a general consensus about the legal uncertainty that the limited detail and the vagueness of the EU rules created [see S Arrowsmith & S Treumer (eds), Competitive Dialogue in EU Procurement (Cambridge, CUP, 2012)]. However, as recital (42) of Dir 2014/24 points out

[the] use of the competitive dialogue has significantly increased in terms of contract values over the past years. It has shown itself to be of use in cases where contracting authorities are unable to define the means of satisfying their needs or of assessing what the market can offer in terms of technical, financial or legal solutions. This situation may arise in particular with innovative projects, the implementation of major integrated transport infrastructure projects, large computer networks or projects involving complex and structured financing.

Hence, its practical relevance and the need to overcome previous regulatory uncertainty provided a good justification for a revision of the rules applicable to that procedure. In its post-2014 configuration, the competitive dialogue is structured as a multi-phase selective process based on the restricted procedure, which necessarily consists of at least three phases: expression of interest and short-listing, technical negotiation (or dialogue) leading to the specification of the technical and financial aspects of the procurement, and final tender (subjected to further fine-tuning and negotiations with best bidder).

In its configuration under reg.30 PCR2015, the competitive dialogue is quite difficult to distinguish from a competitive procedure with negotiation (reg.29 PCR2015) except for two issues: (a) the level of specification of the contracting authorities' needs and requirements under a competitive dialogue is (apparently) less demanding than that applicable to competitive procedures with negotiation; and (b) competitive dialogue cannot result in an award based on price or cost effectiveness only. 

Hence, these may be the two issues that contracting authorities may take into consideration when they opt for one over the other [but, admittedly, these are issues that remain at the margin and hardly justify the multiplication of procedures based on the restricted, but allowing for negotiations; see Telles and Butler, "Public Procurement Award Procedures in Directive 2014/24/EU", in F Lichere, R Caranta and S Treumer (ed) Modernising Public Procurement: the new Directive (Copenhagen, Djof Publishing, 2014) 131-184].

(a) On the issue of the establishment of the contracting authorities' needs and requirements, it is worth stressing that reg.30(6) PCR2015 determines that contracting authorities shall set out their needs and requirements in the contract notice and shall define those needs and requirements in that notice or in a descriptive document. 

Those needs and requirements cannot be changed despite the technical dialogue in which the contracting authority must engage, given that reg.30(18) PCR2015 clearly demands that the tenders and any clarifications, specification or optimisation thereof, or any additional information, may not involve changes to the essential aspects of the tender or of the public procurement, including the needs and requirements set out in the contract notice or in the descriptive document, where variations to those aspects, needs and requirements are likely to distort competition or have a discriminatory effect. 

Even further, the final negotiations in which the contracting authority can engage with the best tenderer need to respect the limit that they cannot not have the effect of materially modifying essential aspects of the tender or of the public procurement, including the needs and requirements set out in the contract notice or in the descriptive document and does not risk distorting competition or causing discrimination [reg.30(20) PCR2015].

Consequently, even if reg.30 PCR2015 does not have a strict equivalent to the rule under regs.29(2)(b) and 31(2)(b)PCR2015, according to which the procurement documents of a competitive procedure with negotiation or an innovation partnership must "indicate which elements of the description define the minimum requirements to be met by all tenders," the combined effect of regs.30(6), 30(18) and 30(20) PCR2015 may be quite similar. 

The only advantage for the contracting authority may be to try to benefit from that (apparent) limited prescriptiveness by setting out its needs and requirements in vague terms, or by allowing for non-substantial modifications during the technical dialogue, tender or final negotiation phase. However, this will expose it to litigation based on discrimination and distortion of competition [reg.18 PCR2015], which does not seem a particularly desirable scenario. In the end, then, contracting authorities will be advised to draft their needs and requirements for a competitive dialogue as if the were "minimum requirements to be met by all tenders", and stick to them.

(b) As regards the difference in award criteria available under competitive procedures with negotiation and competitive dialogues, it is worth stressing that reg.30(5) PCR2015 expressly sets out that the contract shall be awarded on the sole basis of the award criterion of the best price-quality ratio. Conversely, contracting authorities retain the possibility to award the contract under a competitive procedure with negotiation on the basis of price or cost effectiveness only. 

Nonetheless, it would be very hard to square that possibility with the use of that procedure itself [other than in regard to works, supplies or services where, in response to an open or a restricted procedure, only irregular or unacceptable tenders are submitted; reg.26(4)(b) PCR2015], due the need to have a full set of completely closed technical specifications if the contracting authority only wants to negotiate on the basis of cost/price. Otherwise, engaging in technical and financial negotiations but only taking the latter into consideration for award purposes would in my view exceed the acceptable degree of discretion available to contracting authorities.

Overall, then, the actual advantages of the competitive dialogue over the competitive procedure with negotiation, or the differences between them, seem rather minimal--not least because contracting authorities could use the blueprint of the competitive dialogue to set out the rules and phases applicable to their competitive procedure with negotiation under reg.29(19) PCR2015 and, in that case, it would be almost impossible to distinguish between both procedures [except for the specific authorisation to engage in further negotiations with the best tenderer under reg.30(20) PCR2015, which could be accommodated by a delayed closure of the negotiations under reg.29(21) PCR2015.

A final remark that may be worth stressing is that reg.30(21) PCR2015 allows contracting authorities to specify prizes or payments to the participants in the dialogue. This could trigger State aid issues if the prizes were excessive or if they were not awarded in an objective and transparent manner.