The next collaboration of the European Procument Law Group (EPLG) will be on 'Transparency in public procurement'. Thanks to Dr Kirsi-Maria Halonen, we will meet in Helsinki on 4-5 September 2017 to discuss comparative reports on 11 jurisdictions, including 10 EU Member States and the rules applicable to the procurement of the EU Institutions. I was tasked with the last topic, and my draft report on 'Transparency in Procurement by the EU Institutions' is here: https://ssrn.com/abstract=3020168. Comments most welcome: a.sanchez-graells@bristol.ac.uk.
New paper on EU public procurement and national interest
I have recently finished a new paper on the regulatory space for Member States' national interest under EU public procurement law, which will be published in an edited collection putting together the main academic outputs of an international project led by Dr Varju (Institute for Legal Studies, Hungarian Academy of Sciences).
Its abstract is as follows:
EU public procurement law has been increasingly criticised for the restrictions it places on Member States’ regulatory autonomy and for the imposition of neoliberal conceptions of State intervention in the economy that do not necessarily match the general preferences of Member States with a social market economy orientation. Following that view, it could be thought that there is a limited (and possibly narrowing) space for Member State interests in EU public procurement law—or, in other words, that pursuing national interests goes against the grain of the internal market foundations of the 2014 Public Procurement Package.
The purpose of this chapter is to dispel this conception by making three points. First, that despite its competition-orientedness, the 2014 Public Procurement Package does not impose a ‘one-size-fits-all’ straitjacket on domestic economic systems, but is rather compatible with diversity of economic models at national level. A series of complex trade-offs resulting from the last revision of the EU public procurement rules, where Member State interests played a multifaceted role, have consolidated a competition-based model with significant flexibility for non-market and non-competed mechanisms, as repeatedly tested before and confirmed by the Court of Justice. Second, that EU public procurement law, however, does appropriately prevent Member States from pursuing protectionist policies, even if they consider them to be in their national interest—quod non, because the proper working of the internal market is both in the collective interest of the EU and of the individual Member States. Third, that EU public procurement law, in particular in its current incarnation in the 2014 Public Procurement Package, emphasises the ability of Member States to pursue secondary policies (such as the promotion of innovation or sustainability) in a diverse manner, in accordance with their domestic interests and local particularism. On the whole, thus, EU public procurement law allows Member States significant space to pursue their national interests, always provided that they are also compatible with their own interest in the proper functioning of the internal market.
The full paper is freely downloadable on SSRN: A Sanchez-Graells, 'Against the Grain? -- Member State Interests and EU Procurement Law' (August 18, 2017). To be published in M Varju (ed), Between Compliance and Particularism: Member State Interests and European Union Law (Springer, forthcoming). Available at SSRN: https://ssrn.com/abstract=3022053. As always, comments most welcome: a.sanchez-graells@bristol.ac.uk.
UK Government's Position Paper on CJEU jurisdiction: A Short List of Tricky Issues
Earlier today, the UK Government has published its position paper on the jurisdiction of the CJEU post-Brexit: Enforcement and dispute resolution - a future partnership paper (23 August 2017). The paper has been received as constructive by eg David Allen Green and Prof Armstrong, and Prof Peers has stressed on twitter that there is a clash of redlines despite the effort the paper makes to distinguish issues of enforcement (of individual rights) and dispute resolution (between the UK and the EU). I am sure I have already missed some useful reactions and that the commentary on the position paper will keep piling up in the coming hours.
With this post, I only intend to highlight some of the tricky issues that I have identified on first reading of the paper. They are presented in the same order of the relevant paragraphs of the paper where they first appear, but this does not necessarily reflect their level of trickiness.
- The way the position in EU is depicted may be too simplistic, in particular concerning the acceptance of international dispute resolution agreements. For example, paragraph 20 refers to the Association Agreements with Ukraine and Moldova as instances where the EU has accepted submission to binding (international) arbitration mechanisms.
However, taking the EU-Ukraine Agreement as example, the arbitration mechanism is limited due to the need to ensure CJEU supremacy when it comes to interpretation of EU law. In that regard, Art 322(2) clearly establishes that '[w]here a dispute raises a question of interpretation of a provision of EU law [relating to regulatory approximation contained in Chapter 3 (Technical Barriers to Trade), Chapter 4 (Sanitary and Phytosanitary Measures), Chapter 5 (Customs and Trade Facilitation), Chapter 6 (Establishment, Trade in Services and Electronic Commerce), Chapter 8 (Public Procurement) or Chapter 10 (Competition), or which otherwise imposes upon a Party an obligation defined by reference to a provision of EU law], the arbitration panel shall not decide the question, but request the Court of Justice of the European Union to give a ruling on the question. In such cases, the deadlines applying to the rulings of the arbitration panel shall be suspended until the Court of Justice of the European Union has given its ruling. The ruling of the Court of Justice of the European Union shall be binding on the arbitration panel'. Given that these are matters that would be at the core of an EU-UK agreement, the extent to which agreeing on binding internal arbitration would circumvent (direct) CJEU jurisdiction to interpret EU law and identical provisions can be questioned.
This is however presented in very soft terms in the position paper. In relation with the EU-Moldova Agreement, and under the heading 'Provision for voluntary references to CJEU for interpretation', the position paper indicates that '[t]his approach can apply in respect of both judicial and political dispute resolution models. For example, Article 403 of the EU Moldova Association Agreement requires that an arbitration panel established to resolve disputes shall, where the dispute concerns interpretation of EU law, refer the question to the CJEU and be bound by its interpretation' (para 56, emphasis added); and that 'In the case of the Moldova Association Agreement, the responsibility to make a reference rests with the arbitration panel ... These examples do not involve one party to the agreement deciding, unilaterally, to seek a binding interpretation of the agreement from the CJEU' (para 58). While this is *technically* correct, it is also presented in a misleading way because should an arbitration panel not seek the CJEU's interpretation, whcih it is required to do so, the final award would clearly not be enforceable. Ultimately, in my view, the restrictions derived from the need to ensure the CJEU's position as sole interpreter of EU law create a much harder and relevant restriction on the design of international arbitration or other dispute resolution mechanisms than the image that evaporates from the position paper.
In fairness, this is somehow recognised in para 38 of today's position paper: 'there are limitations to the matters on which the EU can subject itself to the binding decisions of a quasi-judicial or judicial authority, like an arbitration panel. The arbitration panel cannot adjudicate on matters of interpretation of EU law so as to bind the EU and its Member States'. However, this is not followed by a view on how to resolve this limitation, should the future EU-UK agreement be subjected to international arbitration--maybe this is just aimed at creating space for negotiations, but a clearer position of the UK Government on the acceptance (or not) of a reference mechanism to the CJEU as part of arbitration-based dispute resolution mechanisms will be needed sooner rather than later and the answer seems constrained to a binary yes/no ...
- Whether the EU would accept to the creation of another, parallel court, like the EFTA Court can be highly questioned. The assumption in para 21 that the EFTA court is a 'model' that can be replicated seems to me difficult to accept. In my opinion, the only way of benefiting from that solution would be for the UK to become a member of the European Economic Area (which the UK Government does not want to pursue), or else for the EFTA Court to be reformed to expand its jurisdiction to the EEA + UK (which seems unlikely). In my opinion, the creation of another institution with EFTA Court features but with jurisdiction only for the EU-UK relationship does not seem plausible.
This has a major effect on the viability of post-Brexit coordination of UK and CJEU case law as discussed in paras 46-51 of the position paper because, as is clear from all the examples in that section, the mechanisms for mutual coordination of jurisprudence have so far only been accepted within the scope of the EEA (+ Switzerland). Outside of the scope of the EEA / EFTA Court jurisdiction, it seems difficult to see the EU accepting this type of mechanisms, which are the historical result of a different time of the European integration process. Moreover, the UK government seems to point at differential approaches to case law coordination when it indicates that 'extent to which this approach may be valuable depends on the extent to which there is agreement that divergence should be avoided in specific areas' (para 51). It seems difficult to accept that the EU can tolerate divergence in any areas that are considered of relevance in the context of the future EU-UK relationship (and those not relevant, are likely to be or end up outside of the framework).
- The position that 'in both the UK and the EU, individuals and businesses will be able to enforce rights and obligations within the internal legal orders of the UK and the EU respectively, including through access to the highest courts within those legal orders. This would be the case in respect of both the Withdrawal Agreement, including an agreement on citizens’ rights, and the future partnership' (para 23) seems to simplistic to me. First, because this is precisely one of the redlines of the EU's negotiating position, which has indicated that there has to be a 'possibility of administrative or court proceedings to be initiated post-exit for facts that have occurred before the withdrawal date' (para 16 of EU negotiating guidelines), which implies the need to preserve CJEU intervention for the interpretation of the relevant EU law provisions as they applied at the time of the material facts. Second, because litigation is likely to raise complex issues of conflict of laws that can hardly be addressed unilaterally by either of the legal systems.
As recognised in yesterday's position paper on cross-border civil and commercial litigation: 'Ending the direct jurisdiction of the CJEU in the UK will not weaken the rights of individuals, nor call into question the UK’s commitment to complying with its obligations under international agreements; where appropriate, the UK and the EU will need to ensure future civil judicial cooperation takes into account regional legal arrangements, including the fact that the CJEU will remain the ultimate arbiter of EU law within the EU' (para 20, emphasis added). The same will, of course, happen in every other dimension of legal relationships and, consequently, the same mechanism to 'take account of the position of the CJEU' will need to be extended universally. In my view, this is far away from the streamlined assumption that litigation will be contained in either of the jurisdictions.
Interestingly and confusingly, para 24 of today's position paper takes a different approach and stresses that 'Ending the direct jurisdiction of the CJEU in the UK will not weaken the rights of individuals, nor call into question the UK’s commitment to complying with its obligations under international agreements. The UK’s commitment to the rule of law has been built over centuries, and reaffirmed time and again by effective, independent courts. That commitment to the rule of law means that anyone seeking redress within the UK’s legal systems will know they will be judged by clear rules applied in accordance with the law by the UK’s expert, independent and internationally respected judiciary.' The extent to which both position papers are in contradiction, or the extent to which the UK government can seriously aim to create CJEU-friendly mechanisms for civil and commercial matters and simultaneously CJEU-avoiding mechanisms for eg public law seems to me to be prone to provoke more than a few headaches for anyone trying to solve the puzzle.
Overall, I think that the conclusion in the position paper that 'there are a number of additional means [not involving the direct jurisdiction of the CJEU] by which the EU has entered into agreements which offer assurance of effective enforcement and dispute resolution and, where appropriate, avoidance of divergence, without necessitating the direct jurisdiction of the CJEU over a third party' (para 67) may be overstated and that the position paper, while more flexible than could have been expected, still seems to head full steam ahead for a clash with the unique position of the CJEU in interpreting EU law and preserving individual (citizens') rights. Time will tell.
AG Kokott Advocates Restrictive Interpretation of Security-Based Derogations of EU Procurement Law (C-187/16)
In her Opinion of 20 July 2017 in case Commission v Austria, C-187/16, EU:C:2017:578, AG Kokott assessed the limits of the exemption on security grounds, under Article 346 TFEU and the Rules on Defence and Security Procurement (Directive 2009/81/EC), from the obligation to carry out a tender procedure for the award of a contract for the manufacture of identity and other official documents (such as biometric passports, driving licences or residence permits).
Even if based on previous generations of EU public procurement rules (both the 1992 and the 2004 procurement directives controlling the award of service contracts), the Opinion and future decision by the Court of Justice will be important for the coordination of the 2014 Public Procurement Package and the rules on Defence and Security Procurement.
As AG Kokott aptly put it, the main legal issue in the dispute requires ascertaining whether Member States are justified in directly awarding contracts for the manufacture of such documents to undertakings they 'consider to be particularly trustworthy' (para 2), in particular if they happen to be 'formerly State-owned undertaking[s] which [have] now been privatised' (para 3, which triggers considerations on the limits of the in-house exemption as well, see paras 29 and ), on the basis of the undisputed argument that such documents 'must be manufactured in compliance with particular secrecy and security requirements, as the issue of such documents is an expression of the exercise of fundamental State functions. The documents are used as part of everyday life and the importance of public confidence in their authenticity and veracity is not to be underestimated. Consequently, highest priority is given to security of supply, protection against counterfeiting and responsible handling of these documents, including of data processed in their manufacture, and abuse must be effectively prevented' (para 1)--all of which are ultimately incarnated in the rules of Regulation 2252/2004/EC on standards for security features and biometrics in passports and travel documents issued by Member States (see paras 13-14). Regardless of the peculiarities of the documents, the position taken by the European Commission is that it is 'perfectly possible to organise a public invitation to tender in such a way that only undertakings which [specialise] in the manufacture of documents subject to special security requirements and [are] supervised accordingly could be successful' (para 21). Austria, as the defending Member State in the case, opposes this reasoning and defends its use of the Article 346 TFEU exemption on the basis of the need to ensure the 'protection of essential national security interests. Protection of secret information, safeguarding of the authenticity and veracity of the documents concerned, security of supply and guaranteed protection of sensitive data' (para 20).
On that note, in her Opinion, AG Kokott also stresses that the case will give the Court of Justice an opportunity to go beyond procurement and provide further clarification of the limits of the security-based derogations from EU law that Member States can undertake under Article 346 TFEU (para 4). I am not necessarily convinced that the Court will follow that route, for it tends to avoid making general declarations on the meaning and interpretation of EU law, and it is clearly possible for the Court to take a narrow approach and provide a decision solely for the case at hand, without aiming to establish bright lines on the scope of Article 346 TFEU more generally. In any case, the Court's approach can in itself be interesting.
On the specific issue whether there was an obligation to tender the contract for the manufacturing of the official documents, AG Kokott suggests that the Court of Justice should declare the existence of such an obligation and, therefore, a breach of EU procurement law by Austria. Her main arguments are that:
- The award of the contracts that gave rise to the dispute was covered by an obligation to launch an EU-wide tender procedure where the relevant value thresholds were exceeded (ie for all but one type of official documents) (paras 30-32).
- The undeniably sensitive nature of the documents object of the contract does not justify the invocation of a public security exemption compatible with either the specific rules of the procurement directives (based on the fact that their performance requires compliance with special security measures, or on requirements linked to the protection of essential interests of the State), or with Article 346 TFEU more generally (paras 40-45).
- A derogation from EU law based on the protection of essential national security interests requires Member States 'to offer substantiated evidence to show precisely which national security interests are affected and to what extent compliance with certain obligations under EU law would in practice be contrary to those security interests' (para 48).
- Where the State shows the existence of a sufficient national interest at stake, the derogation from EU law, being an exception to fundamental internal market freedoms, needs to be interpreted strictly--and this applies to both derogations based on Article 346 TFEU in general, and to any specific derogations under secondary EU law, including the procurement directives (para 53). The test ultimately requires the 'Member State to prove that it is necessary to have recourse to the measures taken by it in order to protect its essential national security interests' (para 54).
- In the case at hand, neither (i) the need for centralised performance of the printing contracts (paras 56-58), (ii) the need for effective official controls (paras 59-63), or (iii) the need to ensure the trustworthiness of the contractor (paras 64-72), are sufficient to demonstrate the necessity of directly awarding the contract because, in relation with each of the requirements, the Member State had a satisfactory less restrictive alternative measure available.
- AG Kokott does not consider the need for centralised performance a good enough reason to exclude the tendering of the contract because, even if security justifications based on the easier control or one than several undertakings, and the ensuing reduced risk of access to security arrangements or sensitive materials by unauthorised parties are convincing, because that 'can ultimately only explain why the printing contracts at issue are only ever awarded to a single undertaking (and not to several at the same time). On the other hand, there is no plausible justification, based on the need for centralisation, why it should be necessary, in order to protect essential national security interests, to commission only ever the same undertaking' (para 57).
- She also dismisses the argument based on the need to carry out special official controls because it is largely based on restrictions self-imposed on Austrian authorities by Austrian legislation (paras 61 and 63) and because, in any case, the need for the official controls does not justify the absolute exclusion of EU procurement rules because it is disproportionate (paras 62 and 63).
- Finally, and in a very clear manner, AG Kokott dismisses claims based on the need to preserve on-going 'special relationships of trust' between public authorities and specific contractors. As she eloquently puts it: 'it would run flagrantly counter to the basic principle underpinning the European internal market in general and public procurement law in particular if a Member State almost arbitrarily classified a single undertaking — especially its formerly State-owned and now privatised ‘historic’ provider in a certain area — as particularly reliable and trustworthy according to the motto ‘tried and tested’, whilst a priori denying or at least questioning the reliability and trustworthiness of all other undertakings' (para 66, references omitted).
- To stress the restrictions on the possibility for the Member State to derogate from EU law in order to avoid disclosure of security-related information to foreign undertakings or undertakings controlled by foreign nationals (paras 69-70), AG Kokott highlights the need for such concerns to inform Member State decisions in a 'consistent and systemic manner'. In that regard, AG Kokott dismisses Austria's claim on the basis that 'Austria has not ... taken precautions which could effectively prevent [its formerly State-owned undertaking] falling under the control of foreign shareholders or becoming a subsidiary of a foreign legal person. The Austrian State has neither stipulated, for reasons of security, voting rights in [its formerly State-owned undertaking] in the form of a special share (‘golden share’) nor made the sale of shares in [its formerly State-owned undertaking] subject to any restrictions on security grounds' (para 70, references omitted).
On the whole, I think that AG Kokott's Opinion is well-argued and her arguments are convincing. From the public procurement perspective, it seems clear that in cases where the Member State can resort to less restrictive measures--such as carrying out a tender with high requirements embedded in the relevant selection criteria (including an exceptional obligation to carry out the performance of the contract in the territory of the contracting authority; see para 63 and the cited Judgment of 4 December 1986, Commission v Germany, C-205/84, EU:C:1986:463) and imposing extensive confidentiality obligations--the possibility to exclude compliance with EU law should be excluded.
There are other aspects of the Opinion that seem more open to opposing arguments, such as the need to ensure watertight consistency in the use of derogations based on Article 346 TFEU (where warranted), or some of the (implicit) elements of mutual trust and recognition between Member States in the context of their cooperation in security issues. In my view, it is not likely that the Court of Justice will engage with them in detail. If I were to guess, I would expect a short Judgment in this case, simply stating that Austria's interpretation of the exemptions from the EU public procurement rules was too wide and that, in any case, the direct award of the contract fails a strict proportionality assessment. We will know soon enough.