Friday, 23 January 2015
New SSRN working paper on Qualification, Selection and Exclusion of Economic Operators Under Spanish Public Procurement Law
I have just uploaded a new working paper on the University of Leicester School of Law Research Paper Series.
This paper provides an overview of the rules on qualification, selection and exclusion of economic operators for the purposes of public procurement under Spanish law (mainly, Royal Decree Law 3/2011, which approves the consolidated text of the Public Sector Contracts Act).
It focuses on the transposition of the EU rules under Directive 2004/18 (as Directive 2014/24 is yet to be transposed), as well as their interpretation and implementation by the Spanish judiciary and public procurement advisory bodies, central and regional.
Where relevant, it identifies points of convergence or departure with the rules of Directive 2014/24 as areas of particular relevance for legislative reform in view of ensuring a proper transposition prior to April 2016.
The full reference is: A Sanchez-Graells, Qualification, Selection and Exclusion of Economic Operators Under Spanish Public Procurement Law (January 22, 2015). University of Leicester School of Law Research Paper No. 15-01. http://ssrn.com/abstract=2554042
Thursday, 22 January 2015
I was invited to participate in the Irish Society for European Law (ISEL) Public Procurement Forum a couple of days ago.
The session started off with two presentations from distinguished members of the Irish Competition and Consumer Protection Commission (Pat Kenny, Member with responsibility for Criminal Enforcement and Úna Butler, Legal Advisor, Competition and Consumer Protection Commission), who respectively addressed issues concerning bid rigging and consortium bidding in public tenders by SMEs. Both presentations were excellent and I had not much left to say. In view of that, I just launched some 10 groups of difficult questions to the audience. The debate that ensued was really interesting.
I am reproducing a reworked version of the 10 questions below, in the hope that they can be useful to researchers trying to find topics in the area of public procurement and competition law. Hopefully, some (of my) answers will be available in the 2nd edition of my book. Of course, I am happy to exchange views on these and any other issues at: email@example.com.
A) In relation to bid rigging and the application of Article 57(4) of Directive 2014/24
1. How will contracting authorities treat instances of contemporaneous bid rigging? Will they be allowed (by Member States) to exclude tenderers or candidates right away or will they have to stay proceedings and get the competition authorities involved? How will this play-out in relation to the very short deadlines required by procurement procedures and, in particular, the 10-day standstill obligation under Directive 2007/66?
2. What procedural guarantees will be necessary to ensure that a "presumption of guiltiness" is not constructed? How wide will the protection under Article 47 CFREU be [on that key point, see M Safjan and D Düsterhaus, "A Union of Effective Judicial Protection: Addressing a Multi-level Challenge through the Lens of Article 47 CFREU" (2014) 33(1) Yearbook of European Law 3-40]. What if, in the future, they are proven wrong? Will excluded tenderers and candidates be entitled to significant damages?
B) In relation to joint participation or consortium bidding [particularly in relation to Arts 19(2) and 63 of Directive 2014/24]
3. From a competition law perspective, it is clear that joint bidding will be controversial when actual or potential competitors enter into consortium agreements.In that case, the application of Article 101(3) TFEU requires efficiencies to be generated by the agreement (and those to be passed on to consumers). This creates some difficult issues, such as: must those efficiencies be solely economic? If yes, how can we square that with the growing inclusion of non-economic considerations in award criteria, and particularly with the special rules in Art 76 of Directive 2014/24 regarding the procurement of social and special services? If not, how can we square this with the general enforcement of Art 101(3) TFEU [and the on-going controversy on the use of non-economic factors]? Can we take into account SME-specific issues, such as the existence of high opportunity costs (such as iddleness of capacity available to the contracting authority) or the creation of social benefits? Can efficiencies be created in the public procurement market at the expense of general open markets, or reversely [on this, see the thought provoking post by Alfonso Lamadrid "On the (mis)application of Article 101(3): of judicial capture and cross-market assessments", Chillin' Competition].
4. How must those efficiencies or other advantages be documented? Can at some point the burden of proof reverse, so that the contracting authority needs to disprove indicia of advantage submitted by the (wannabe) joint tenderers? Will the competition authority be involved/available to assess that evidence? How can they make sure that they are building the right counter factuals? Is this not too complicated within the scope of a procurement process with tight deadlines?
5. On the point of exchanges of information, when is the exchange assessed, during the exploratory conversations (where maybe too much information could be disclosed) or at the moment of submission of the tenders? How can companies make sure that they exchange the absolute minimum of necessary information and how can a "need to know" test be developed safely? Given that SMEs may be reluctant or incapable of protecting their proprietary information through IP rights, how can they not be deterred from participating in order to protect their business secrets? Which specific assurances can they get that their information will not be disclosed at debriefing stage (particularly if a competitor challenges the technical capacity of the consortium)?
6. How will ancillary restrictions be treated in the field of consortium agreements? Would non-poaching clauses be allowed? If so, would it be justified to include 2 year non-compete/non-poaching clauses on employees and consortium partners, even if the tender is unsuccesful? If not, how can this not become a significant deterrent for SMEs strongly reliant on the technical knowledge of a very limited number of (difficult to replace) staff?
7. Even if the rules in Art 63(3) in fine of Directive 2014/24 establishes that contracting authorities can require joint liability for the execution of the contract, members of consortia (and particularly SMEs) will be tempted to reallocate liability internally (through side letters, or otherwise). Is this compatible with the procurement rules? If it is, should the contracting authorities be informed? Should financial guarantees be required to a larger extent? If it is not allowed, would such liability redistribution / indemnity agreements fall foul of Art 63(3) Dir 2014/24 and/or Art 101(2) TFEU? If the law is not clear on this point, will this not be a very significant deterrent for consortium bidding?
8. Where an undertaking participates in more than one bid, particularly as a specialised sub-contractor, it holds (relative) market power. Does this bring it under the prohibitions of Art 102 TFEU, particularly as price discrimination is concerned? Would that sub-contractor, then, be forced to quote the same prices and conditions to all groupings of tenderers? Can they not enter into exclusivity agreements or simply decide to only deal with a given consortium on the strength of existing business relationships?
9. Can rules on conflict of interest now affect the possibility to participate as part of different consortia with different composition of members in different projects? At what point would being in a "network" of consortia arrangements create significant risks for the undertaking, particularly as being perceived as a nexus for the exchange of information?
10. What is the interaction between SME support, public procurement and State aid? Particularly in innovation partnerships that may be concluded with a consortium of innovative SMEs (or start-ups), how is it possible to avoid the undercover granting of State aid [cf the issues that arise whene SMEs that spin-off from universities enter into subsequent contracts here: State aid and (university) software licensing: who's interested? (T-488/11)]? How and when should the evaluation of the expected innovation be carried out? Can SMEs actually engage in the complex legal negotiations needed to comply with the requirements of Art 31(6) of Directive 2014/24 ex ante?
Thursday, 15 January 2015
Direct award of concession contracts to holders of exclusive rights: the puzzle of Art 10(1) Dir 2014/23
I have been exchanging views with colleagues of the University of Turin on the justification, scope and implications of Art 10(1) of the Concessions Directive (2014/23). This is a rather complex provision that has hidden links with a number of equivalent provisions in the Public Sector Directive (2014/24) and the Utilities Directive (2014/25).
It has taken us some time to clarify these issues--and I am actually not a 100% sure that we have finished with that conversation. Given that the publication where all this debate and analysis will be reflected will take some to be available, I thought it useful to upload here my draft. Comments will be most welcome.
Article 10(1) of the Concessions Directive states:
This Directive shall not apply to services concessions awarded to a contracting authority or to a contracting entity as referred to in point (a) of Article 7(1) or to an association thereof on the basis of an exclusive right.
This Directive shall not apply to services concessions awarded to an economic operator on the basis of an exclusive right which has been granted in accordance with the TFEU and Union legal acts laying down common rules on access to the market applicable to activities referred to in Annex II.
My views are set out below.
10.1. Concessions awarded on the basis of exclusive rights
The exclusion in Article 10(1) for concessions awarded on the basis of exclusive rights is functionally equivalent to those in Article 11 of the Public Sector Directive and Article 22 of the Utilities Directive for services contracts. As briefly indicated by the European Commission in its factsheet “Concessions: Excluded concessions”, the purpose of this exclusion is to cover “Concessions awarded by (sic, to?) public authorities as well as contracting entities other than public undertakings and private entities enjoying of exclusive rights, both in the ‘classic’ and ‘utilities’ sectors.” However, the drafting of the exclusion for services concessions diverges from those applicable to services contracts in some respects, which aim to accommodate the requirements of both other directives
Firstly, it should be taken into account that Recital (32) of the Concessions Directive indicates that
In certain cases, a given contracting authority or contracting entity which is a State, regional or local authority or body governed by public law or a given association thereof might be the sole source for a given service, for the provision of which it enjoys an exclusive right pursuant to national laws, regulations or published administrative provisions which are compatible with the TFEU. It should be clarified that in those situations a contracting authority or contracting entity as referred to in this recital or association thereof may award concessions to such bodies without this Directive being applied.”
This results in the exclusion in the first paragraph of Article 10(1) being applied to “services concessions awarded to a contracting authority or to a contracting entity as referred to in point (a) of Article 7(1) or to an association thereof on the basis of an exclusive right”. This drafting deviates from that of Article 11 of the Public Sector Directive and Article 22 of the Utilities Directive for services contracts. Focussing on the drafting of Article 11 of the Public Sector Directive, it is worth stressing that, due to the dual treatment of contracting authorities in the Concessions Directive as ‘proper’ contracting authorities (under Article 6) and as contracting entities by virtue of the activity in which they engage [under Article 7(1)(a)], the first paragraph of Article 10(1) of the Concessions Directive does not only mention contracting authorities, but also contracting entities “as referred to in point (a) of Article 7(1)”. However, this does not extend the personal scope of the exclusion as compared with that in Article 11 of the Public Sector Directive or that in Article 22 of the Utilities Directive.
Still in that comparison, it is worth mentioning that the Concessions Directive does not include the requirement that the exclusive rights of the contracting authorities (proper and improper) are enjoyed “pursuant to a law, regulation or published administrative provision which is compatible with the TFEU”. However, given that the requirement is included in the definition of exclusive right in Article 5(10) of the Concessions Directive (“‘exclusive right’ means a right granted by a competent authority of a Member State by means of any law, regulation or published administrative provision which is compatible with the Treaties…”), this does not actually create a difference in treatment of the exclusion in the Public Sector and the Utilities Directives either.
Turning to the exclusion in the second paragraph of Article 10(1) of the Concessions Directive, which makes it inapplicable to services concessions awarded to economic operators that hold exclusive rights “granted in accordance with the TFEU and Union legal acts laying down common rules on access to the market applicable to activities referred to in Annex II”, it seems clear that this is an exclusion that aims to coordinate the Concessions Directive with sectoral regulation adopted in compliance with the existing EU framework.
This seems clear from Recital (33), which foresees that:
It is also appropriate to exclude from the scope of this Directive certain services concessions awarded to economic operators, where they are awarded on the basis of an exclusive right which that operator enjoys under national laws, regulations or published administrative provisions and which has been granted in accordance with the TFEU and Union acts laying down common rules on access to the market applicable to activities referred to in Annex II, since such exclusive right makes it impossible to follow a competitive procedure for the award. By way of derogation and without prejudice to the legal consequences of the general exclusion from the scope of this Directive, concessions as referred to in the second subparagraph of Article 10(1) should be subject to the obligation to publish a concession award notice in view of ensuring basic transparency unless the conditions of such transparency are provided for in sectoral legislation. In order to reinforce transparency, where a Member State grants an exclusive right to an economic operator for the exercise of one of the activities referred to in Annex II, it should inform the Commission thereof.
As briefly indicated by the European Commission in its factsheet “Concessions: Excluded concessions”, the purpose of this exclusion is to cover
Concessions awarded to an economic operator on the basis of an exclusive right
This exclusion applies only to service concessions awarded to economic operators which are active in the ‘utilities’ sector. It is subject to two conditions:
i) The economic operator has a prior exclusive right to provide the services that are the subject of the concession;
ii) This right was granted under a published national law or administrative act in accordance with the Treaty and with EU acts that lay down common rules on access to the market applicable to any of the ‘utilities’ activities (e.g. concessions in the electricity sector covered by Directive 2003/54/EC, modified by Directive 2009/72/EC and gas concessions covered by Directive 2009/73/EC).
Indeed, the coordination with sectoral regulation takes place both at the stage of definition of the contracting entities covered by the Concessions Directive [see Article 7 of the Concessions Directive, and Article 4(3) of the Utilities Directive] and at this stage of exclusion of the concessions awarded to certain types of entities.
Firstly, Recital (22) of the Concessions Directive offers some clarification in that regard:
entities which are neither contracting entities pursuant to point (a) of Article 7(1) nor public undertakings are subject to [the Concessions Directive] only to the extent that they exercise one of the activities covered on the basis of such rights. However, they will not be considered to be contracting entities if such rights have been granted by means of a procedure based on objective criteria, in particular pursuant to Union legislation, and for which adequate publicity has been ensured. That legislation should include Directive 2009/73/EC of the European Parliament and of the Council, Directive 2009/72/EC of the European Parliament and of the Council, Directive 97/67/EC of the European Parliament and of the Council, Directive 94/22/EC of the European Parliament and of the Council and Regulation (EC) No 1370/2007 of the European Parliament and of the Council. It should also be clarified that that listing of legislation is not exhaustive and that rights in any form, which have been granted by means of other procedures based on objective criteria and for which adequate publicity has been ensured are not relevant for the purposes of determining the contracting entities covered by this Directive.
This implies that the granting of concessions to these entities will not be covered by the first paragraph of Article 10(1), as the way in which their rights had been granted excludes them from the definition of contracting entity for these purposes.
However, secondly, this situation would result in a more limited possibility to directly award contracts on the basis of exclusive rights under the Concessions Directive than under the Public Sector and the Utilities Directives. It should be borne in mind that Article 32(2)(b)(iii) of the Public Sector Directive allows for the use of the negotiated procedure without prior publication if it is necessary for the protection of exclusive rights, and always provided that no reasonable alternative or substitute exists and the absence of competition is not the result of an artificial narrowing down of the parameters of the procurement. Article 50(c)(iii) of the Utilities Directive contains the same provision regarding the equivalent negotiated procedure without prior call for competition. Hence, under those sets of rules, the direct award of a contract to an economic operator on the basis of an exclusive right is still possible, even if not covered by Article 11 of the Public Sector Directive or Article 22 of the Utilities Directive. With the inclusion of the second paragraph of Article 10(1) Concessions Directive, this possibility is accommodated through an exclusion of the application of the Directive, with the only exception of the reinstatement of transparency obligations similar to those required by Articles 32(2)(b)(iii) of the Public Sector Directive and 50(c)(iii) of the Utilities Directive by means of Article 10(2) of the Concessions Directive.
The ultimate justification for this exclusion is, consequently, of a seemingly double nature. On the one hand, it seems clear that the interest of potential tenderers in obtaining the concession had already been protected by substantially equivalent means at the stage of granting of the exclusive right that triggers the exclusion under the second paragraph of Article 10(1) of the Concessions Directive and, consequently, there is no need to reopen the competition at this stage. On the other hand, it serves the purpose of creating a functional equivalent to Articles 32(2)(b)(iii) of the Public Sector Directive and 50(c)(iii) of the Utilities Directive in order to allow for the direct award of concession contracts to holders of exclusive rights.
The Court of Justice of the EU has ruled in Eventech, C-518/13, EU:C:2015:9 and has broadly followed AG Wahl's approach to the case (criticised here) to determine that "The practice of permitting, in order to establish a safe and efficient transport system, Black Cabs to use bus lanes on public roads during the hours when the traffic restrictions relating to those lanes are operational, while prohibiting minicabs from using those lanes, except in order to pick up and set down passengers who have pre-booked such vehicles, does not appear, though it is for the referring court to determine, to be such as to involve a commitment of State resources or to confer on Black Cabs a selective economic advantage for the purpose of Article 107(1) TFEU."
The Eventech Judgment is criticisable for the same reasons identified in view of the AG Opinion (see here) and, in my view, constitutes a bad precendent in the treatment of access to (quasi?) essential facilities under public property. The analysis of the economic exploitation of the bus lanes is particularly weak, as it completely avoids the clear issue that black cabs do use that infrastructure in order to develop an economic activity--which, consequently, creates important issues of free access to public goods that the CJEU has simply disregarded. It can just be lamented that the CJEU did not identify the logical traps that affected the AG Opinion and deviated from them. Maybe, at least, the case can be used as yet another clear indication of the need to involve economists in the decision-making process of the CJEU [for some exploratory thoughts, see A Sanchez Graells, The Importance of Assessing the Economic Impact of the Case Law of the Court of Justice of the European Union: Some Exploratory Thoughts (April 18, 2013)].
Friday, 9 January 2015
In its Judgment in Club Hotel Loutraki and Others v Commission, T-58/13, EU:T:2015:1, the General Court (GC) has confirmed the previous Decision of the European Commission and considered that Greece had not granted illegal State aid to Organismos Prognostikon Agonon Podosfairou AE (OPAP) through the simultaneous extension of its existing exclusive right to operate certain games of chance and the granting of a new exclusive right to exploit 35,000 Video Lottery Terminals (‘VLTs’) for a period of 10 years in Greece.
The key to the analysis conducted by the Commission and now upheld by the GC is that by overpaying for the extension of the existing exclusive right, OPAP has been able to secure a much larger exclusive right to operate VLTs in Greece. As the GC summarises:
10 As regards, first, the Addendum [which extended the existing exclusive rights for the period 2020-2030], the Commission observed that the study provided by the Greek authorities was based on sales projections elaborated by an independent company specialised in the gambling sector. The net present value of the Addendum was calculated on the basis of those projections, which were considered by the Commission to be reliable.
11 Following that calculation, the Commission found that the amount paid by OPAP in exchange for the Addendum, including the levy imposed by the Greek State corresponding to 5% of the gross gaming revenues generated by the games concerned for the period from 13 October 2020 to 12 October 2030 (see paragraph 4 above), was higher than the net present value of the Addendum.
12 As regards, secondly, the VLT Agreement, the Commission also calculated its net present value on the basis of the study commissioned by the Greek authorities.
13 On the basis of that calculation, the Commission stated that the net present value of the VLT Agreement was significantly higher than the amount of EUR 560 million provided for in the VLT Agreement, which would economically advantage OPAP.
14 However, the Commission stated that it was logical for the conformity of the VLT Agreement and the Addendum with Article 107(1) TFEU to be assessed jointly. In that way, the overpayment by OPAP for the Addendum was taken into account in order to assess the conformity of the VLT Agreement with that article. The Commission stated that the overpayment reduced the gap between the net present value of the VLT Agreement and the amount of EUR 560 million owed by OPAP [...] (T-58/13, paras 10-14, emphasis added).
Even if it is true that the Commission managed to impose an additional payment on VLT revenues to further close the economic gap as an amendment to the State aid scheme, the crucial point remains:
17 [...] Referring to the amendment introduced by the Greek authorities, and taking account of the overpayment for the Addendum, the Commission found, on average, OPAP would pay more than the value of the VLT Agreement.
18 In other words, the Commission took the view that, following the amendments to the initial notification, OPAP would pay the Greek State a higher amount than the cumulated values of the exclusive rights granted by the VLT Agreement and the Addendum (including a reasonable return for OPAP) (T-58/13, paras 17-18, emphasis added).
Hence, as mentioned, the crucial point for the legality of the (conflated) scheme is still the fact that the overpayment for the extension of an existing exclusive right is used to secure the approval of the underpayment in the granting of a new exclusive right. Moreover, the final finding of the European Commission simply makes no sense, as no market agent would pay a higher price for those exclusive rights than their accumulated value, as this would not be a rational investment decision. Consequently, there are many issues that would require some deeper scrutiny.
More importantly, in my view, the general acceptance of the 'cross-overpayment' amounts to allowing dominant undertakings with exclusive rights to buy their way into an extended monopoly (in a rather evident economic leverage) and, consequently, the case should be criticised--and quashed by the Court of Justice upon appeal (if it gets further appealed). Not least because it follows an emerging trend of improper assessment of two-part State aid measures (in favour of former State companies) that I find worrying and potentially dangerous for a credible and effective State aid control regime (see a previous instance here). The reasoning followed by the Commission and the GC, then, deserves some analysis.
Some of the arguments presented by the applicants have (willfully?) not been properly understood, nor analysed by the GC. Amongst other important arguments, the applicants clearly referred to the problem of the extension of the existing exclusive rights by cross-subsidisation in the following terms (in the words of the GC):
79 The applicants claim first of all that the Commission recognised, in paragraph 37 of the contested decision, that the Addendum and the VLT Agreement refer to distinct markets. Nevertheless, the Commission assessed them jointly. The applicants submit that the existence of an advantage for the purpose of Article 107(1) TFEU must be assessed for each market and not on the basis of joint consideration of similar measures concerning different markets, even though the measures examined concern the same recipient. If it were otherwise, the protection of competition would be incomplete because measures constituting an anti-competitive advantage for the purpose of Article 107(1) TFEU in a given market might escape the prohibition laid down in that provision on the basis of a joint assessment. Conversely, measures which grant no economic advantage in a given market might nevertheless be covered by that provision on the basis of a joint assessment with a measure affecting another market. [...]
81 The applicants claim that the VLT and slot machine market cannot be assessed jointly with the 13 games of chance covered by the Addendum since they have no relation to the market of the 13 games of chance on which OPAP has an absolute legal monopoly. By virtue of that monopoly, OPAP could carry out cross-subsidisation practices allowing OPAP to undercut the applicants’ prices on the VLT and slot machine market, by financing that operation by a price increase on the market for the 13 games of chance. However, the joint assessment of the notified measures does not take into account the possibility of such practices (T-58/13, paras 79 and 81, emphasis added).
To be fair, if the arguments were presented in this way (but this seems open to debate), it takes some digging to see that there are two layers of potential cross-subsidy. The first one, which is the one criticised above, is that the overpayment in one leg of the measure (extension of monopoly) secures State aid compatibility of the other leg of the measure (creation of an additional monopoly over VLTs). The second one concerns the operation of the rights in case they had been assigned to different operators, as it would concern a situation in which both OPAP and third parties had been granted licences for the operation of VLTs. The second argument is, in my view, moot or improperly addressed, as it refers to a hypothetical, counterfactual scenario. However, the first argument should have been enough to quash the Commission's Decision. Nonetheless, the GC decided differently.
In its analysis of the fourth plea submitted by the appellants of the Commission's Decision (the other three are basically procedural, so I am skipping them for now), the GC found that:
94 As regards [...] the applicants’ argument relating to subsidisation practices made possible by OPAP’s monopoly over the 13 games of chance covered by the Addendum, it should be noted, first, that it is based on the assumption that OPAP is free to increase prices at will on those 13 games in order to compensate for lower prices on the VLT market. The applicants accordingly submit that OPAP will not sustain competitive pressures in its pricing policy. That argument is not, however, substantiated. In fact, the applicants do not support or demonstrate that the 13 games in question are not subject to competition from other games of chance.This is troubling because the GC inverts the order of the arguments on cross-subsidisation and dismisses them in the wrong way. Firstly, it is hard to see how the GC can rely on a theoretical competitive pressure on OPAP when the situation is that it holds basically exclusive rights on all relevant games of chance in Greece. Secondly, it is unacceptable that the GC buys a justification for the joint analysis of the measures precisely because OPAP engages in cross-subsidisation. If this is not a clear deductive fallacy, there is none. Overall, then, the arguments of the GC are disappointingly thin, or simply incongruous. Consequently, for all the above, I hope the CJEU will receive better economic advice and will reverse the Hotel Loutraki Judgment. Otherwise, the game will be over for the analysis of two-part or leveraged instances of clear State aid.
95 Next, the applicants do not explain why the alleged practices of cross-subsidies between the lower prices on the VLT market and the higher prices on the market of the 13 games covered by the Addendum preclude the two notified measures being jointly assessed. Indeed, if such practices were to exist, they would create a link between the VLTs and the 13 games of chance, which instead supports the two measures being jointly assessed.
96 It follows from all the foregoing that the applicants have not demonstrated the existence of an error of law when the Commission carried out a joint assessment of the VLT Agreement and of the Addendum (T-58/13, paras 94-96, emphasis added).
Wednesday, 7 January 2015
Some thoughts on a paper on the Concessions Directive and competition law [Farley-Pourbaix, (2015) JECLAP 6(1): 15-25]
Martin Farley and Nicolas Pourbaix have recently published a paper on the interaction between competition and public procurement law in light of the rules of new Directive 2014/23 on concession contracts. The paper is 'The EU Concessions Directive: Building (Toll) Bridges between Competition Law and Public Procurement?' (2015) 6(1) Journal of European Competition Law & Practice 15-25.
The paper is extremely thinly researched in an area that is generating a significant amount of scholarly commentary and, as such, it is rather disappointing because the authors seem to be (re)discovering powder by emphasising the interaction between procurement and competition law rules. However, some of the main points the authors make in relation to the pre-existing case law of the CJEU are worth considering.
Firstly, they stress the practical complications that the open-ended definition of concession creates, particularly in terms of the difficulty of assessing when the transfer of risks to the concessionaire suffices to be covered by Directive 2014/23 instead of Directive 2014/24 or Directive 2014/25 [for discussion, see C Risvig Hansen, Contracts not covered or not fully covered by the Public Sector Directive (Copenhagen, DJOF, 2012)76-102; A Sanchez-Graells, 'What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of their Economic Balance?' (2012) 2 European Public Private Partnership Law Review 94-104; and R Craven, 'The EU's 2014 Concessions Directive’ (2014) 23 Public Procurement Law Review 188-200].
Secondly, they explore the applicability of Art 101 TFEU to bidders that opt to team up or bid jointly for concession contracts. Their remarks are interesting and topical, as the recent publication of the 'Consortium Bidding' guidelines by the Irish Competition and Consumer Protection Commission evidences. I found their warning on the need to limit the exchanges of information between consortium partners particularly relevant (pp. 19-20), as joint participation in selected procurement projects could be the conduit for cartelising behaviour and this is an issue that requires careful consideration.
Thirdly, they revisit the never-ending discussion on the exclusion of contracting authorities from the concept of undertaking for the purposes of the application of (EU) competition law on the basis of the FENIN-SELEX line of case law [FENIN v Commission, C-205/03, EU:C:2006:453; and Selex v Commission, C-113/07, EU:C:2009:191] [for discussion, see A Sanchez-Graells, 'Distortions of Competition Generated by the Public (Power) Buyer: A Perceived Gap in EC Competition Law and Proposals to Bridge It' (2009) University of Oxford, Center for Competition Law and Policy, CCLP (L). 23].
On this point, it is interesting to see how Farley and Pourbaix stress that utilities concessions may trigger the application of competition law because, almost by definition, the contracting entity will be engaged in 'downstream' economic activities. Their discussion of the Luton Airport case is certainly informative [Arriva the Shires Ltd v London Luton Airport Operations Ltd  EWHC 64 (Ch)].
This may be a point to take into consideration in the future to (possibly) limit the FENIN-SELEX exemption in case contracting authorities outside the utilities sector engage in (partial) downstream economic activity, which is likely to be the case of some in-house or public-public cooperation arrangements, which can now offer up to 20% of their supplies or services in the 'private market' under the rules of Directive 2014/24. This would be particularly easy on the basis of the 'severability' of activities for the purposes of competition law [Aéroports de Paris v Commission, C‑82/01, EU:C:2002:617], which in my view would be a most welcome development of this area of the law.
Finally, Farley and Pourbaix focus on specific competition law aspects of the new EU Concessions Directive. Of the issues they mention (other than the duration of the concession contract), the most interesting are the possibility to exclude infringers of competition law (on which see the recent case law of the CJEU here), and the interaction between State aid rules and the modification of concession contracts [for discussion, see A Sanchez-Graells, 'Public Procurement and State Aid: Reopening the Debate?' (2012) 21(6) Public Procurement Law Review 205-212].
On the issue of exclusion, the paper stresses burden of proof difficulties and advocates for a careful enforcement of the power to exclude undertakings suspected of competition violations, and points (without mentioning) at corporate human rights such as the presumption of innocence, which would have deserved more detailed consideration [for general discussion, see A Sanchez-Graells and F Marcos, '"Human Rights" Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?' (2014) University of Leicester School of Law Research Paper No. 14-04].
On the issue of State aid being (implicitly) granted as a result of a modification of a contract during its term, the paper emphasises that the increased flexibility in the choice of procedures and the possibility to modify the contract (potentially without value limit, despite the stress on 50% that Farley and Pourbaix wrongly put in p. 24-25) in a relatively generous array of cases restricts the 'Altmark' presumption and requires a substantive assessment of the conditions of the contract [something already advocated for in A Sanchez-Graells, Public procurement and the EU competition rules (Oxford, Hart, 2011) 118-121 and, in more detail, in ibid, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing SGEIs: State Aid. Reform and Modernisation, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181].
A point of contention, though, refers to the treatment of concession contracts as conduits for State aid. Farley and Pourbaix consider that:
Contracting Authorities may be able to take a certain amount of comfort from the fact that many concessions may not qualify as State aid in any event, on the basis that the remuneration was not granted through State resources. This will at least be the case in those situations where the concessionaire is remunerated entirely by third parties. Following the CJEU’s ruling in PreussenElektra [PreussenElektra, C-379/98, ECLI:EU:C:2001:160] this will still be the case even if the State sets the price that third parties need to pay for the relevant goods or services. (P. 24).Even if they indicate that mixed arrangements which include some sort of subsidy could erode this possibility to duck State aid rules, I think that they present the situation in a way that excessively narrows down their application. Indeed, on that point, it may worth stressing that the CJEU has relatively recently adopted a less formalistic approach and considered that certain aspects of public control over third party revenue (which are common to concession contracts) may trigger the dis-application of the PreussenElektra exception (see comment here).
In particular, in Vent De Colère and Others, C-262/12, EU:C:2013:851, the CJEU found that:Hence, even decisions concerning authorizations to raise user fees (without offering any additional public support or implying any extension of the length of the concession) may trigger State aid application, which is a case most concession contracts usually contemplate. Hence, the interaction between the prohibition of State aid in Art 107(1) TFEU and the rules on modification of concession contracts in Directive 2014/23 is more intense than Farley and Pourbaix's paper presents.
Article 107(1) TFEU must be interpreted as meaning that a mechanism for offsetting in full the additional costs imposed on undertakings [...] that is financed by all final consumers [...] constitutes an intervention through State resources (C-262/12, para 37).
Overall, then, the paper is not groundbreaking and, if the existing literature had been researched, it would probably have been of a higher academic interest (as it is published, though, it certainly is oriented to practitioners) and could possibly have reached a deeper level of analysis. In any case, given the novelty of Directive 2014/23, Farley and Pourbaix's paper can certainly raise awareness of the important issues they mention.
Friday, 19 December 2014
Thank you all for reading during 2014, which has been an amazing year for public procurement development in the EU, and for this blog. I look forward to continuing the exchange of views in 2015. The blog will be quiet between now and early January. I hope this will give us all some time to rest and enjoy ourselves. All best wishes, Albert
In its Judgment in case Generali-Providencia Biztosító, C-470/13, EU:C:2014:2469, the CJEU has adopted the very welcome position that sanctioned infringers of competition law can be excluded from public procurement procedures, even if those procedures are not covered by the EU Directives on procurement. More specifically, the CJEU has declared that arts 49 and 56 TFEU do not preclude the application of national legislation excluding the participation in a tendering procedure of an economic operator who has committed an infringement of competition law, established by a judicial decision having the force of res judicata, for which a fine was imposed.
In the case at hand, Generali was excluded from a procurement procedure for insurance services on the basis of a Hungarian domestic provision whereby contracting authorities "may provide in the contract notice that no one may take part in the procedure, as a tenderer, subcontractor or ancillary supplier seeking to take on more that 10% of the value of the public contract, or as a subcontractor ... who: a) has committed an infringement connected with his commercial or professional activity, established by court judgment having the force of res judicata given not more than five years ago" [Paragraph 61(1) of Law CXXIX of 2003 on public procurement]. Indeed, Generali was excluded as a result of its infringement of national competition law, which was confirmed by a court ruling having the force of res judicata, and for which a fine was imposed on it.
In my view, the issue should be uncontroversial and there is no reason to see any (unjustified) restriction of free movement rights in the debarment of competition law infringers, whether under the rules of the procurement Directives or otherwise [see A Sánchez Graells, "Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement" in G Racca & C Yukins (eds), Integrity and Efficiency in Sustainable Public Contracts (Brussles, Bruylant, 2014)]. However, the CJEU has felt the need to engage in a detailed reasoning that is worth looking at closely:
34 In relation to the exclusion of economic operators from a public contract in the context of freedom of establishment and the freedom to provide services under Articles 49 TFEU and 56 TFEU, it must be observed that Article 45(2)(d) of Directive 2004/18 makes it possible to exclude any operator who ‘has been guilty of grave professional misconduct proven by any means which the contracting authorities can demonstrate’.[This is now regulated in even clearer terms in art 57 dir 2014/24, see A Sánchez Graells, Albert, "Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive 2014/24" in F Lichere, R Caranta and S Treumer (ed) Novelties in the 2014 Directive on Public Procurement, vol. 6 European Procurement Law Series, (Copenhagen, Djøf Publishing, 2014)].35 It must be observed that the concept of ‘professional misconduct’, for the purposes of that provision, covers all wrongful conduct which has an impact on the professional credibility of the operator at issue and not only the infringements of ethical standards in the strict sense of the profession to which that operator belongs (see, to that effect, judgment in Forposta and ABC Direct Contact, EU:C:2012:801, paragraph 27). In those circumstances, the commission of an infringement of the competition rules, in particular where that infringement was penalised by a fine, constitutes a cause for exclusion under Article 45(2)(d) of Directive 2004/18.36 If such a cause for exclusion is possible under Directive 2004/18, it must a fortiori be regarded as justified in relation to public contracts which fall short of the threshold defined in Article 7 of that directive and which are consequently not subject to the strict special procedures laid down in that directive (see, to that effects, judgment in Consorzio Stabile Libor Lavori Pubblici, EU:C:2014:2063, paragraph 37).37 Furthermore, recital 101 in the preamble to Directive 2014/24, adopted after the material time, which states that contracting authorities should be able to exclude economic operators, inter alia, for serious professional misconduct, such as infringement of the competition rules, as such misconduct may render an economic operator’s integrity questionable, shows that the cause for exclusion referred to in paragraph 35 above is considered to be justified in the light of EU law. Moreover, Article 57(4)(d) of that directive makes clear and precise provision for that cause for exclusion. [...]39 In the light of the foregoing, the answer to the questions referred is that Articles 49 TFEU and 56 TFEU do not preclude the application of national legislation excluding the participation in a tendering procedure of an economic operator which has committed an infringement of competition law, established by a judicial decision having the force of res judicata, for which a fine was imposed (C-470/13, at paras. 34-39, emphasis added).
In my view this is a very clear cut Judgment and the CJEU's position should be welcome.