Is Circular Economy a move towards or away from sustainability? A short piece on the (ab)use of the concept of circularity [guest post by Dr Lela Mélon]

With business sustainability in mind and in search of sustainable governmental behaviour, especially in terms of public purchasing practices, circularity seems like a fitting concept for fulfilling public needs in a sustainable manner (see eg Geissdoerfer et al: 2016). Given the hurdles with the implementation of green public procurement practices across the EU, and the struggles in furthering sustainable public procurement (going beyond environmental to also add social concerns), I expected that circular public procurement would be an exception and applicable only to a handful of cases. And indeed, it did not take much research to verify that the application of circularity across European public procurement is scarce at its best: while listed under green public procurement, circular public procurement exhibits few best practices across the EU that mostly arose at the local level (see eg this 2018 best practice report).

While it might be argued that circularity by definition requires local action, that does not prevent the development of practices at a regional, national or even supra-national level in specific sectors with potential to become circular, e.g. energy sector, construction sector and waste management. Yet, whether we speak about circularity in the framework of private markets or public procurement, it is absolutely indispensable to embed circular practices in the framework of sustainability and not simply formulate it under the framework of waste management.

Much has been said on recycling, less on the cycle. Seeing circularity as an exercise of recycling and bringing materials back into the loop has been widespread, leading to even higher production and consumption and straying away from true sustainability. That being said, the underpinning reasons for such developments do not lie solely in private market practices, but also stem from the lack of knowledge on circularity and policy incoherence on the national and EU level in general.

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What is (true) circularity?

Applying to both private and public markets, the notion of circularity should be clear. Recycling comes last. The whole purchasing procedure needs to be rethought and redesigned to accommodate more sustainable decisions and close the loop of linear practices as in ‘buy, use, dispose.’ Already at the stage of making the purchase decision, circularity demands us to rethink: do we need the product, service or works in question? Could we upcycle a product that we already own to fulfil that need? Could the need be filled by buying a service instead of the product or conversely leasing or renting the product? If the answer to those questions is no, then we need to purchase the product, service or work in question demanding a long life-time evaluation model.

Here the companies engaging in circular production need to provide a life-long guarantee, user manual, strategic design that facilitates reparability, minimal use of raw materials and energy (and its responsible sourcing, accounting for the social aspect of sustainability), use of renewable energy and efficient service and maintenance in case of a product fault. Spare part guarantee, service agreements, small repairs, standard components and easy disassembly are the must-haves under a truly sustainable circular economy.

Reuse and sometimes upcycling are the key. Recycling under a circular model is truly the last resort and its success in extracting useful materials for further production actually depends on the way the product was designed: the absence of hazardous materials, the possibility to disassemble the product into different materials with ease, the possibility of downcycling and upcycling of the materials. These notions all run counter to the current linear economy: and the implications of such systemic change on business models and private markets as we know them will be significant, causing significant policy spill over effects and demanding the elimination of existing policy incoherences inhibiting such a transition. This piece aims to provide further food for thought on the system as it is regarding private and public markets; discussing the current state of affairs, the impediments to a higher uptake of circular practices and the policy spill over effects of a successful implementation of circularity as a general exercise.

Where are we at? – the European Commission’s Action Plan

In terms of EU policy on circular economy in general, the European Commission has issued an ambitious circular economy package—which surprisingly focuses on waste management and bringing resources back in the loop—coupled with two subsequent implementation reports in 2017 and 2019. While the package recognises that the value of circular economy lies also in job creation, savings for businesses and the reduction of EU carbon emissions; the action plan on the matter focuses heavily on reforming the waste management legislation, albeit briefly reflecting also on the broader aspects of circular economy such as job creation, innovative design, business models, research, re-manufacturing, product development and food waste. The wrong signal is therefore sent to the private and public market: the focus on getting scarce materials back into the loop instead of a systemic change of production processes themselves. This influences private and public markets and reinforces the idea that the only issue with traditional linear production and consumption processes is the scarcity of (raw) materials.

Further reinforcing this idea, the EU study on Accelerating the transition to the circular economy focuses on public funds employed to that effect, omitting the fact that this represents only a fraction of the funds needed for a true systemic change. The study has been seen as an accelerator for the deployment of the circular economy, discussed in the framework of new circular business models and in the framework of waste management (id at 10). While the need for extensive financing has been repeatedly highlighted (eg in this 2017 report’s estimate of EUR 320 billion by 2025) for a systemic transition to circular economy (with estimated combined benefits of such shift of EUR 500 billion), the focus of the report has been on providing such finance in the current ‘business as usual’ framework, advocating for higher investment in such transition by the EU, without a comparative assessment of the current private financial market frameworks and its indispensable role in such transition (cfr this call for integrating externalities in the existing risk assessment frameworks).

Arguing for a systemic approach and a stronger focus on private finance offerings, especially with regards to small and medium-size enterprises (see here and here), points to the insufficiency of public funds for the transition to a more circular economy. To boost the private finance offerings, there is a need for a systemic change of financial systems to account for the inherent risks of the current linear business models, thereby eliminating persistent unfair competitive advantage for linear business models in the access-to-finance scenario. Not incorporating the change of linear risk assessment practices in greater detail into the EU action plan is a pitfall that needs to be remedied, qualifying change that needs to occur regarding the traditional access-to-funding setting in order to accommodate circular business and the changes it entails for ‘business-as-usual’ also in terms of the access-to-finance.

The structural flaw of underestimating the risks of linear projects and overestimating the risks of circular economy projects will not be remedied simply by taxonomy and EU funds: the financial systems on their own need to ‘circularise’ their finance offerings: the world as we know it, business as usual, is about to change and it could cost them more than just their reputation. Asset backed loans will need to change into ‘relationship’ backed loans, which presupposes also changes and ameliorations to contract laws to ensure monetised value to relationships as steering wheels of the new circular economy.

The lack of circularity in finance influences the offerings of the private market and the innovation necessary for circular solutions, which will in turn influence also the success of circular public procurement: the public funds and practices in innovation procurement cannot produce a sufficient amount of circular procurement to create a strong movement on the private market.

What are the impediments to a higher uptake of circular practices and what are their implications?

Aside from these two broader policy concerns, there are some specific impediments to circularity in public procurement: the first is the low uptake of green public procurement (GPP) across the EU,[1] impeding the insertion of circularity as the next step of GPP and the second the lack of regional, national and supranational best practices to that effect.

The integration between public procurement and circular economy itself is at its early stages at the EU level, where the incorporation of social, environmental and economic specifications into public procurement is not at a sufficiently high level to produce an indirect effect on products and consumers themselves and thereby stimulating circular economy. Furthermore, as majority of circular innovation stems from small and medium sized enterprises, it is crucial to further facilitate their access to public procurement systems, aside from general efforts to support the implementation of sustainable public procurement.

While the Eco-design Directive 2009/125/EC incentivises Member States to implement waste-preventing public procurement strategies according to information about the products’ technical durability, simultaneously suggesting the recycling requirements to be designed accounting for corresponding requirements for waste treatment in the waste legislation related to product, significantly supporting the circular flow of substances and materials, it is still strongly focused on waste management. Once again, here the notion of circularity supports more the linear production models than it does true circularity: while waste management and preservation of materials is important, determining the initial need for production and the potential for lease, reuse and upcycle is more important in terms of circularity.

The second supporting tool for circular public procurement, the Environmental Footprint Initiative of the European Commission, aims at providing a harmonisation process for the development of a scientific and consensus-based method, trying to inform and direct consumer choices with clear and comparable environmental information. Again, while reliable information is an indispensable steppingstone for determining sustainability hotspots, it is a truly preliminary and indirect step towards circular procurement. It does not provide for a true move from linearity to circularity.

Aside from the general concerns introduced above, the private sector further encounters impediments to circularity in current legislation on plastics recycling, competition law and the general corporate law favouring and prioritising linear business practices, lacking clear guidance on circularity. These are all examples of policy incoherence, some representing a direct example of incoherence (the silence of corporate legal frameworks on the social norm of shareholder primacy,[2] the plastic packaging requirements preventing the use of recycled plastics), others an indirect example (competition law).

Coupled with the abovementioned issues of financial law, these impediments are sufficient to significantly reduce the development of new circular solutions beyond pure recycling efforts. Additionally, the indirect policy incoherence in terms of competition policy as it stands, needs to be revised simultaneously to other sustainable changes to EU legal frameworks, and we have not accounted yet for those changes to a significant extent. If circularity is to be a tool towards achieving true sustainability, the traditional notions of ‘separating’ competitors and keeping them from cooperating will need to be revised. Circular systems have a need to be interconnected, cooperating and sharing, especially as reuse, repair and upcycling are the building blocks of circular economy. This calls for a systemic change of competition laws in themselves.

Furthermore, to aid the financing of this transition, traditional property and contract law will need to develop additional institutions to account for a different economy, one not based on assets as in material assets but rather relationships as assets. The road towards true circularity is still long, but these policy spill over considerations need to be resolved simultaneously with other sustainable changes to areas directly connected with sustainability in order to achieve a timely change towards truly sustainable circularity.

Where to now?

To conclude, a systemic change requires efforts of policymakers, private and public market actors as well as consumers. The above presented reflections represent just a fraction of what we will have to deal with in terms of transition towards sustainability and I would love to hear about any additional concerns and/or solutions to the policy issue that you have encountered in your professional field. I would gratefully any feedback or suggestions at lela.melon@upf.edu.

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Dr Lela Mélon

Lela Mélon is a lawyer and an economist, specialised in sustainable corporate law. Lela started her sustainability career in 2014 with her research on shareholder primacy in corporate law. She is currently charge of the Marie Curie Sklodowska funded project ‘Sustainable Company’ at the Pompeu Fabra University in Barcelona. She has co-authored and authored monographs, published several scientific articles in the field of sustainable corporate lawand sustainable public procurement and presented her work at conferences across Europe, as well as introduced sustainable corporate law curricula in several universities in Europe.

[1] Mélon, L. ‘More than a nudge? Arguments and tools for mandating green public procurement in the EU.’ Working Paper, Conference Corporate Sustainability Reforms Oslo 2019.

[2] Mélon, L. Shareholder Primacy and Global Business (Routledge 2018); Sjafjell, B. (2015) Shareholder Primacy: The Main Barrier to Sustainable Companies, University of Oslo Faculty of Law Research Paper No. 2015-37.

Some thoughts on evaluation framing, based on my academic experience with REF2021

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As an academic, you are frequently required to evaluate other people’s work—and, for obvious reasons, your work is also permanently being assessed. After having completed quite a few evaluation tasks in the last few months, and having received feedback on my own work, I have generated some thoughts that I will seek to organise here.

These thoughts mainly concern a hypothesis or hunch I have developed, which would posit that framing the evaluation in ways that seek to obtain more information about the reasons for a specific ‘grade’ can diminish the quality of the evaluation. This is due to the fact that the evaluator can externalise the uncertainty implicit in the qualitative evaluation. Let me try to explain.

Some background

Academic evaluations come in different flavours and colours. There is the rather obvious assessment of students’ work (ie marking). There are the also well-known peer-review assessments of academic papers. The scales used (eg 1 to 10 for students, or a four-point scale involving rejection/major corrections (aka revise & resubmit)/minor corrections/acceptance for paper) for these type of evaluations are generally well-known in each relevant context, and can be applied with varying degrees of opacity or the reviewers’ and the reviewees’ identities.

There are perhaps less well-known evaluations of colleagues’ work for promotion purposes, as well as the evaluation of funding proposals or the assessment of academic outputs for other (funding-related) purposes, such as the REF2021 in the case of English universities.

The REF2021 provides the framework in which I can structure my thoughts more easily.

Internal REF2021 evaluations

REF2021 is an exercise whereby academic outputs (among other things) are rated on a five point scale—from unclassified (= 0) to a maximum of 4*. The rating is supposed to be based on a holistic assessment of the three notoriously (let’s say, porous) concepts of ‘originality, significance and rigour'—although there are lengthy explanations on their intended interpretation.

The difficult evaluation dynamic that the REF2021 has generated is a guessing game whereby universities try to identify which of the works produced by their academics (during the eligible period) are most likely to be ranked at 4* by the REF panel, as that is where the money is (and perhaps more importantly, the ‘marker of prestige’ that is supposed to follow the evaluation, which in turn feeds into university rankings… etc).

You would think that the relevant issue when asked to assess a colleague’s work (whether anonymously or not, let’s leave that aside) for ‘REF-purposes’ would be for you to express your academic criterion in the same way as the experts in the panel will. That is, giving it a mark of 0 to 4*. That gives you five evaluation steps and you need to place the work in one of them. This is very difficult and there is a mix of conflicting loyalties, relative expertise gaps, etc that will condition that decision. That is why the evaluation is carried out by (at least) two independent evaluators, with possible intervention of a third (or more) in case of significant discrepancies.

Having to choose a specific rating between 0 and 4* forces the evaluator to internalise any uncertainties in its decision. This is a notoriously invidious exercise and the role of internal REF evaluator is unenviable.

It also creates a difficulty for decision-makers tasked with establishing the overall REF submission—in the best case scenario, thus having to chose the ‘best 4*’ of a pool of academic outputs internally assessed at 4* that exceeds the maximum allowed submissions. Decision-makers have nothing but the rating (4*) on which to choose. So it is tempting to introduce additional mechanisms to gather more information from the internal assessors in order to perform comparisons.

Change in the evaluation framing

Some of the information the decision-makers would want to gather concerns ‘how strong’ is the rating given by the evaluator with some more granularity. A temptation is to transform the 5-point scale (0 to 4) into a 9 (or even 10) point scale by halving each step (0, 0.5*, 1* etc up to 4* — or even 4.5* or 4*+)—and there are, of course, possibilities to create more steps. Another temptation is to disaggregate the rating and ask for separate marks for each of the criteria (originality, significance and rigour), with or without an overall rating.

Along the same lines, the decision-makers may also want to know how confident the evaluator is of its rating. This can be captured through narrative comments, or asking the evaluator to indicate its confidence in any scale (from low to high confidence, with as many intermediate steps as you could imagine). While all of this may create more information about the evaluation process—as well as fuel the indecision or overconfidence of the evaluator, as the case may be—I would argue that it does not result in a better rating for the purposes of the REF2021.

A more complex framing of the decision allows the evaluator to externalise the uncertainty in its decision, in particular by allowing it to avoid hard choices by using ‘boundary steps’ in the evaluation scale, as well as disclosing its level of confidence on the rating. When a 4* that had ‘only just made it’ in the mind of the evaluator morphs into a 3.5* with a moderate to high level of confidence and a qualitative indication that the evaluation could be higher, the uncertainty squarely falls with the decision-maker and not the evaluator.

As well as for other important governance reasons that need not worry us now, this is problematic in the specific REF2021 setting because of the need to reconcile more complex internal evaluations with the narrower and more rigid criteria to be applied by the external evaluators. Decision-makers faced with the task of identifying the specific academic outputs to be submitted need to deal with the uncertainty externalised by the evaluators, which creates an additional layer of uncertainty, in particular as not all evaluators will provide homogenous (additional) information (think eg of the self-assessment of the degree of confidence).

I think this also offers broader insights into the different ways in which the framing of the evaluation affects it.

Tell me the purpose and I’ll tell you the frame

I think that one of the insights that can be extracted is that the framing of the evaluation changes the process and that different frames should be applied depending on the main purpose of the exercise—beyond reaching the best possible evaluation (as that depends on issues of expertise that do not necessarily change due to framing).

Where the purpose of the exercise is to extract the maximum information from the evaluator in a standardised manner, an evaluation frame that forces commitment amongst a limited range of possible outcomes seems preferable due to the internalisation of the uncertainty in the agent that can best assess it (ie the evaluator).

Conversely, where the purpose of the exercise is to monitor the way the evaluator carries out its assessment, then a frame that generates additional information can enhance oversight, but generates fuzziness in the grades. It can also create a different set of incentives for the evaluator, depending on additional circumstances, such as identification of the evaluator and or the author of the work being evaluated, whether this is a repeated game (thus triggering reputational issues) etc.

Therefore, where the change of frame alters the dynamics and the outputs of the evaluation process, there is a risk that an evaluation system initially designed to extract expert judgment ends up being perceived as a mechanism to judge the expert. The outcomes cannot be expected to simply improve, despite the system becoming (apparently) more decision-maker friendly.

Competition and public procurement: a mind map

I have been asked to teach a workshop on competition and public procurement for an audience of postgraduate students and practitioners in this week’s session of the Competition Specialist Advanced Degree convened by Prof Antonio Robles Martin-Laborda at Universidad Carlos III of Madrid.

It has been some time since I last taught the topic, so I had to reconstruct my mind map in preparation for the workshop. This is a sketch of what I have come up with (not mind-blowing graphics…). Some additional bullet-points of the key issues in each of the areas of interaction and cross-references to papers where I have developed my ideas regarding each of the topics are below.

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Bid rigging

  • In principle, this is the least controversial area of competition and procurement interaction; bid rigging being an instance of anticompetitive conduct ‘by object’ (under Art 101(1) TFEU) (see here for discussion)

  • Fighting bid rigging in procurement is high on competition authority’s enforcement agendas

  • Procurement structurally increases likelihood of collusion; which is partially compensated by the counter-incentive created by the rules on exclusion of competition infringers (Art 57(4)(c) and (d) Dir 2014/24/EU), provided leniency does not negate its effects

Joint tendering

  • Analytical difficulties to establish a boundary between bid rigging (object-based analysis) and anticompetitive collaboration for the submission of joint tenders

  • Emerging approach to the treatment of joint bidding as a restriction of competition by object (cf EFTA Court Ski Taxi, 2018 Danish guidelines, see also here for analysis of their draft)

  • Particular complications concern the analysis of potential competition under Art 101(1) and 101(3) TFEU, in particular in cases where this is both used to subsume the practice under prohibition in Art 101(1) and also to assess whether the restriction is indispensable to the generation of efficiencies (or whether there were less restrictive forms to achieve them) under Art 101(3) TFEU (see here and here).

Exclusion & self-cleaning

  • Conceptual difficulties with boundary between Art 57(4)(c) and (d) of Directive 2014/24/EU, as well as applicable tests (see here)

  • Application complicated in leniency cases (see eg Vossloh Laeis, C-124/17, EU:C:2018:855, as well as due to different approaches to judicial and administrative finality (see eg Meca, C-41/18, EU:C:2019:507, not available in English)

  • These difficulties are particularly complex once the rules are implemented at the national level, as evidenced by the on-going Spanish sainete in the railroad electrification works cartel (see here and here)

Public buyer power

  • Inapplicability of EU antitrust rules (ie Art 101 and 102 TFEU) directly to the public buyer, given the FENIN-Selex case law (see here)

  • However, potential clawback under EasyPay’s strictest approach to separation test (see here)

CPBs

  • Difficult exemption from EU antitrust rules even under FENIN, given exclusive activity (see here and here)

  • Very minimal regulation and oversight, especially in the context of their cross-border activities (see here, here and here)

SGEI & In-house

  • Interaction complicated in these settings, both in terms of State aid rules (see here), as well as in potential accumulation of conflicting rules under Articles 102 and 106(2) TFEU (ie publicly-mandated or generated abuses of a dominant position)

  • Increasingly complicated tests to assess SGEI entrustment (Altmark, Spezzino, German slaughterhouses)

  • Move towards declaration of some types of procurement (eProcurement, centralised procurement) as an SGEI themselves

State aid (more generally)

  • Difficulties remain after the 2016 Commission notice on the notion of aid (see here)

Abnormally low tenders

  • Difficulties also remain after Art 69 Directive 2014/24/EU, in particular concerning those tainted by State aid (see here)

  • Mechanism hardly used to monitor ‘adequate competition’ or to prevent predatory pricing

Contract changes

  • Difficult analogical application of notice on notion of aid and almost impossible market benchmark in most cases

  • Similarly complicated interaction between merger control and public procurement rules on change of contractor, although these are partially alleviated by Art 72(1)(d)(ii) Dir 2014/24/EU (but cfr ‘economic operator that fulfils the criteria for qualitative selection initially established provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of this Directive’)

Principle of competition

  • Established in Art 18(1)II Dir 2014/24/EU, has the potential to be the gangway between competition and procurement spheres of EU economic law

  • Difficulties in its interpretation (see here), as well as in its application (see here)





AI & sustainable procurement: the public sector should first learn what it already owns

ⓒ Christophe Benoit (Flickr).

ⓒ Christophe Benoit (Flickr).

[This post was first published at the University of Bristol Law School Blog on 14 October 2019].

While carrying out research on the impact of digital technologies for public procurement governance, I have realised that the deployment of artificial intelligence to promote sustainability through public procurement holds some promise. There are many ways in which machine learning can contribute to enhance procurement sustainability.

For example, new analytics applied to open transport data can significantly improve procurement planning to support more sustainable urban mobility strategies, as well as the emergence of new models for the procurement of mobility as a service (MaaS). Machine learning can also be used to improve the logistics of public sector supply chains, as well as unlock new models of public ownership of eg cars. It can also support public buyers in identifying the green or sustainable public procurement criteria that will deliver the biggest improvements measured against any chosen key performance indicator, such as CO2 footprint, as well as support the development of robust methodologies for life-cycle costing.

However, it is also evident that artificial intelligence can only be effectively deployed where the public sector has an adequate data architecture. While advances in electronic procurement and digital contract registers are capable of generating that data architecture for the future, there is a significant problem concerning the digitalisation of information on the outcomes of past procurement exercises and the current stock of assets owned and used by the public sector. In this blog, I want to raise awareness about this gap in public sector information and to advocate for the public sector to invest in learning what it already owns as a potential major contribution to sustainability in procurement, in particular given the catalyst effect this could have for a more circular procurement economy.

Backward-looking data as a necessary evidence base

It is notorious that the public sector’s management of procurement-related information is lacking. It is difficult enough to have access to information on ‘live’ tender procedures. Accessing information on contract execution and any contractual modifications has been nigh impossible until the very recent implementation of the increased transparency requirements imposed by the EU’s 2014 Public Procurement Package. Moreover, even where that information can be identified, there are significant constraints on the disclosure of competition-sensitive information or business secrets, which can also restrict access. This can be compounded in the case of procurement of assets subject to outsourced maintenance contracts, or in assets procured under mechanisms that do not transfer property to the public sector.

Accessing information on the outcomes of past procurement exercises is thus a major challenge. Where the information is recorded, it is siloed and compartmentalised. And, in any case, this is not public information and it is oftentimes only held by the private firms that supplied the goods or provided the services—with information on public works more likely to be, at least partially, under public sector control. This raises complex issues of business to government (B2G) data sharing, which is only a nascent area of practice and where the guidance provided by the European Commission in 2018 leaves many questions unanswered.

I will not argue here that all that information should be automatically and unrestrictedly publicly disclosed, as that would require some careful considerations of the implications of such disclosures. However, I submit that the public sector should invest in tracing back information on procurement outcomes for all its existing stock of assets (either owned, or used under other contractual forms)—or, at least, in the main categories of buildings and real estate, transport systems and IT and communications hardware. Such database should then be made available to data scientists tasked with seeking all possible ways of optimising the value of that information for the design of sustainable procurement strategies.

In other words, in my opinion, if the public sector is to take procurement sustainability seriously, it should invest in creating a single, centralised database of the durable assets it owns as the necessary evidence base on which to seek to build more sustainable procurement policies. And it should then put that evidence base to good use.

More circular procurement economy based on existing stocks

In my view, some of the main advantages of creating such a database in the short-, medium- and long-term would be as follows.

In the short term, having comprehensive data on existing public sector assets would allow for the deployment of different machine learning solutions to seek, for example, to identify redundant or obsolete assets that could be reassigned or disposed of, or to reassess the efficiency of the existing investments eg in terms of levels of use and potential for increased sharing of assets, or in terms of the energy (in)efficiency derived from their use. It would also allow for a better understanding of potential additional improvements in eg maintenance strategies, as services could be designed having the entirety of the relevant stock into consideration.

In the medium term, this would also provide better insights on the whole life cycle of the assets used by the public sector, including the possibility of deploying machine learning to plan for timely maintenance and replacement, as well as to improve life cycle costing methodologies based on public-sector specific conditions. It would also facilitate the creation of a ‘public sector second-hand market’, where entities with lower levels of performance requirements could acquire assets no longer fit for their original purpose, eg computers previously used in more advanced tasks that still have sufficient capacity could be repurposed for routine administrative tasks. It would also allow for the planning and design of recycling facilities in ways that minimised the carbon footprint of the disposal.

In the long run, in particular post-disposal, the existence of the database of assets could unlock a more circular procurement economy, as the materials of disposed assets could be reused for the building of other assets. In that regard, there seem to be some quick wins to be had in the construction sector, but having access to more and better information would probably also serve as a catalyst for similar approaches in other sectors.

Conclusion

Building a database on existing public sector-used assets as the outcome of earlier procurement exercises is not an easy or cheap task. However, in my view, it would have transformative potential and could generate sustainability gains not only aimed at reducing the carbon footprint of future public expenditure but, more importantly, at correcting or somehow compensating for the current environmental impacts of the way the public sector operates. This could make a major difference in accelerating emissions reductions and should consequently be a matter of sufficient priority for the public sector to engage in this exercise. In my view, it should be a matter of high priority.

A quick, non-comprehensive update on circular economy and public procurement

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A friend and I have been discussing sustainability and property regulation for a while. In particular, he has been quizzing me on the potential for public procurement to promote a (more) circular economy for a few years now. We last touched upon this in mid-2015. In a recent email exchange, he asked me to look at what had happened since at EU level. This is what I came up with. I thought I would share it in case someone is interested in a quick, non-comprehensive update on circular economy and public procurement. Here it is. Please feel free to add to this in the comments section!

In June 2017, the European Parliament published a report it had commissioned on 'Green Public Procurement and the EU Action Plan for the Circular Economy'. In October 2017, the Directorate General for the Environment of the European Commission published this brochure of best practices (of which I was rather critical in my blog). There have been additional best practice guides put together by entities receiving EU funding, eg ICLEI or CircularPP.

This is still a weak policy intervention in the form of best practice dissemination (ie even weaker than soft law guidelines), which is supported with some additional initiatives, such as the Circular Europe Network. However, in their own words 'the integration between PP and circular economy is still at its early stage at the EU level.' (Factsheet on Public Procurement and Circular Economy, tab 2.3).

Some countries are taking the use of procurement to push for a more circular economy to reduce the environmental impact of public sector activities more seriously than others, and the construction sector seems to be ahead of others (see eg this recent report). Denmark is perhaps at the forefront of trying to use procurement for a circular economy (see eg this case study), together with the other Nordic countries and The Netherlands (see eg this 2017 report, or the 10 case studies included in the construction sector report above). There is not much going on in the UK at all (I could only find a 2016 4-pager on general aspects of circular economy that mentions procurement in passing).

There are a couple of interesting-looking academic papers: Witjes & Lozano (2016) and Alhola et al (2018), the latter being the same authors of the report on the Nordic countries above.

** Postscript (11/10/2019 11.20am) - Thanks to Dr Lela Mélon for highlighting the March 2019 Report on ‘Accelerating the transition to a circular economy‘ and for pointing out that this is ‘an overarching policy example that omits the amount of private capital needed for a transition to occur at a noteworthy scale (e.g. mentioning the EU public funds to be employed to that effect but omitting the size of the whole funding needed for the transition)‘.

The Norwegian Supreme Court Gives its Final Word in the Fosen-Linjen Saga [guest post by Dag Sørlie Lund]

The Fosen-Linjen Saga has finally come to a close with the Norwegian Supreme Court’s Judgment. Dag Sørlie Lund* kindly provides a sharp summary of the case while we await for any official translations. His fuller critical assessment of the Judgment will be included in the EPPPL special issue we are working on.

The Norwegian Supreme Court Gives its
Final Word in the Fosen-Linjen Saga

The so-called Fosen-Linjen Saga has finally come to its long-awaited end by the judgment of the Norwegian Supreme Court of 27 September 2019, more than 6 years after the company AtB tendered for the procurement of ferry services between Brekstad and Valset in the County of Trøndelag.

The contract was initially awarded to the company Norled. The competitor, Fosen-Linjen, which was ranked as the runner-up, claimed Norled had been awarded the contract unlawfully, and managed to stop the signing of the contract through interim measures. In the interim measures procedure two errors were identified by the courts:

  1. AtB had not required the necessary documentation for the award criteria “environment”; and

  2. AtB had not verified the viability in Norled’s offer regarding fuel consumption (which was part of the criteria “environment”).

As a result of this, AtB decided to cancel the tender procedure, and restart the whole process.

Fosen-Linjen did not submit a new tender, but instead filed a law suit against AtB claiming damages for the positive interest, or, in the alternative, the negative contract interest. The negative contract interests essentially amounts to the costs of tendering (damnum emergens), while the positive contract interest essentially amounts to the loss of profit (lucrum cessans).

The Supreme Court’s judgment clarifies several key questions about public procurement law related to the threshold for damages, and for the requirement of causality between the breach and the damages. Furthermore, the ruling contains interesting assessments of legitimate grounds to cancel a tender procedure, and the significance of the fact that a tenderer submits an offer despite being aware of errors in the procurement documents for the possibility to receive damages. The judgment is unanimous for all but the question of causality for damages for the negative contract interest, where one justice had a concurring opinion with a slightly different approach. For the purposes of this summary, I will not go further into the differences in the concurring opinion.

The Principle of State liability for breaches of EEA Law

The Supreme Court starts out by grounding the liability for damages in the general principle of State liability for breaches of EEA law. According to this principle an EEA State may be held liable for breaches of its obligations where the following three conditions are met:

  1. The breached provision of EEA law must be intended to confer rights on individuals and economic operators;

  2. The breach must be considered as sufficiently serious; and

  3. There must be a direct causal link between the breach of the obligation in question and the damage suffered by the aggrieved party.

The first condition was clearly met, and the case before the Supreme Court thus mainly concerned the question of the threshold for receiving damages and what it takes to establish a direct causal link for damages for negative costs. A particularly disputed question in the Fosen-Linjen Saga, has been whether the threshold for damages for the negative and the positive contract interests is different. Under Norwegian law, it has traditionally been easier to receive compensation for the negative costs than for the positive costs.

The Positive Contract Interest

The Supreme Court rejected Fosen-Linjen’s claim for damages for the positive interest since there were sufficient grounds to cancel the tender procedure. In fact, there were two grounds for cancelling the procedure.

First, the Supreme Court considered that the identification of the two errors in the interim measures proceedings raised serious doubts about the lawfulness of the procedure. These doubts were considered as sufficient grounds to cancel the tender procedure.

Second, it was also considered that the fact that AtB did not require the necessary documentation for the award criteria “environment”, also constituted sufficient grounds to cancel.

Consequently, the Supreme Court concluded that since the cancellation was lawful, Fosen-Linjen could not receive damages for the positive contract interest. This part of the judgment is somewhat confusing, since it appears to consider the question of causality rather than the question of whether the breach was sufficiently serious: since the tender procedure was lawfully cancelled, no one could ever be awarded the contract, and thus no one would ever have a claim for the loss of profit.

This is particularly confusing since the Appeals Selection Committee of the Supreme Court had explicitly rejected the question of causality for the positive contract interest from being heard by the Supreme Court. This is all the more puzzling since the Supreme Court appears to have been aware of this distinction, noting that the cancellation did not exclude the possibility for damages for the negative contract interest, which shows that the question of liability was not conceptually excluded by the fact of the cancellation.

The Negative Contract Interest

As mentioned, the traditional approach in Norwegian torts law is that the threshold is lower when it comes to damages for the negative costs.

Based on its reading of case law from the CJEU and the EFTA Court, the Supreme Court held, however, that the test for receiving damages, regardless of the categorization of the damages as negative or positive costs, is whether the breach in question may be considered “sufficiently serious”. The Supreme Court outright rejected the suggestion that the threshold might be lower under Norwegian tort law.

In the assessment of whether a breach is sufficiently serious, the Supreme Court noted that it may not be required to demonstrate fault or fraud, although both subjective and objective factors included in the traditional assessment of liability under national tort law, may be relevant to take into account.

Same same, but different

Despite this description of the test for receiving damages, the Supreme Court emphasized that the norm could not be characterized as more or less strict than would otherwise follow from Norwegian tort law, but that the assessment may be somewhat different.

The Supreme Court identified the norm as a sliding scale where the crucial point appears to be the level of discretion enjoyed by the contracting authority – from wide to none at all.

The rule that was breached in the tender procedure – namely the obligation to require necessary documentation for an award criterion – was found to be clear and precise. Accordingly, the Supreme Court found that AtB was liable for the negative costs. In that regard, it was pointed out that AtB twice received questions that raised doubts as to the lawfulness of the award criteria, which combined with the consequences caused by the breach, led to the conclusion that the threshold of “sufficiently serious” was passed.

It’s worth noting that despite the fact that the Supreme Court rejected that a contracting authority might escape liability by claiming not to possess the necessary powers, knowledge, means or resources, it still considered the complexity of the public procurement rules indicated a certain restraint or caution in establishing liability.

Direct Causal Link

Concerning the question of a direct causal link between the breach and the damage, the Supreme Court asked whether the tenderer would have submitted an offer if they had known about the error committed.

Even though the fact that AtB had not required the necessary documentation for the award criteria “environment” was clearly visible for Fosen-Linjen, the Supreme Court considered that this criterion was met since AtB had considered the procurement documents to be lawful despite the fact that the error had been pointed out twice during the tendering procedure. This part of the judgment is also confusing, as it is not entirely clear why the subjective view of the contract authority is relevant when assessing the question of causality.

Unanswered questions

The Supreme Court thus disentangled many key questions about liability for breaches of procurement rules, but some issues remain unanswered. For example, the Supreme Court did not rule on the question of whether liability is conceptually possible where the tendering process should have been cancelled, but this doesn’t happen. Furthermore, as mentioned above, the question regarding direct causal link for damages for the positive interest was not accepted to be heard by the Supreme Court, so the particularities of that assessment was not further clarified. Considering the attention these questions have received through the Fosen-Linjen Saga, it is probably only a matter of time before these will materialize themselves in future cases, with new sagas in national courts and in Luxembourg.

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Dag Sørlie Lund

Dag Sørlie Lund is part of our European and Competition law team. He has previously worked at the Department of Legal Affairs in the Ministry of Foreign Affairs, the EFTA Court, the EFTA Surveillance Authority (ESA), and as an attorney. He has experience in advising clients in EU/EEA and competition law, including state aid and public procurement law.

Dag has handled a number of cases concerning the EFTA Surveillance Authority, and has pleaded several cases before the Court of Justice for the European Union and the EFTA Court. Dag has lived in Spain, Belgium and Luxembourg, and speaks Spanish and English fluently.