Wednesday, 25 November 2015

Legitimate expectations claims and EU State aid rules after SAM: some thoughts

One of the points I raised in my paper "Digging Itself Out of the Hole? A Critical Assessment of the European Commission's Attempt to Revitalise State Aid Enforcement after the Crisis" concerned the treatment of legitimate expectations claims in EU State aid enforcement proceedings in the scenario created by the State Aid Modernisation (SAM). In probably not very clear terms, I submitted that
... the Commission will most likely not have the upper hand in withdrawal procedures where Member States (and beneficiaries) will raise important issues related to due process guarantees and good administration duties that limit the Commission’s leeway—unless the old mantra that ‘there is no legitimate expectation to be protected in the field of State aid so as to trump the application of Article 107(1) TFEU’ is extended and applied in an absolute manner—which I do not think possible after the Treaty of Lisbon granted binding force to the EU Charter of Fundamental Rights[68] and, in particular, to the rights to good administration (Art 41)[69] and to an effective remedy and to a fair trial (Art 47).[70]

[68] Charter of Fundamental Rights of the European Union [2010] OJ C 83/389. The specific reasons for this assessment exceed the scope of this paper. For discussion, see R Luja, “Does the Modernisation of State Aid Control Put Legal Certainty and Simplicity at Risk” (2012) EStAL 765-66.
[69] P Craig, “Article 41 – Right to Good Administration”, in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1069-98.
[70] P Aalto et al, “Article 47 – Right to an Effective Remedy and to a Fair Trial”, in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1197-275.
I was rightly challenged on this point by an anonymous reviewer, to whom I am grateful for the opportunity to rethink and expand my arguments on the treatment of legitimate expectations claims for the purposes of State aid enforcement after SAM. I have now addressed the comments and, in the final version of the paper (hopefully soon to be published in the Journal of Antitrust Enforcement), I now explain in more detail what I meant. I hope the argument is now easier to share or, at least, more strongly supported.
... the Commission will most likely not have the upper hand in withdrawal procedures where Member States (and beneficiaries) are likely to raise important issues related to due process guarantees and good administration duties that can limit the Commission’s leeway.[78] It is generally accepted that the principle of legal certainty is one of the general principles recognised in the EU legal order,[79] and that this principle and the corollary protection of legitimate expectations are binding on the Member States and the EU Institutions when they implement EU rules.[80] Nonetheless, the traditional position in this area has been to consider that ‘there is no legitimate expectation to be protected in the field of State aid so as to trump the application of Article 107(1) TFEU’.[81] This has been repeatedly criticised as an inconsistency in the development of the principle of legal certainty and its corollary, the protection of legitimate expectations, in the area of EU State aid law as compared to general EU law.[82] Furthermore, this old mantra may well have been significantly eroded by the entry into effect of the Treaty of Lisbon,[83] which granted binding force to the EU Charter of Fundamental Rights[84] and, in particular, to the rights to good administration (Art 41)[85] and to an effective remedy and to a fair trial (Art 47).[86] Any attempt to transfer the pre-Lisbon ‘no protection of legitimate expectations in State aid law’ paradigm to the post-Lisbon, post GBER paradigm is problematic. The Commission may be tempted to insist that nothing has changed and that, consequently, arguments of legal certainty cannot restrict its ability to dis-apply BER coverage ex post. That would push the old mantra to its extremes and, in my view, would break it. Relatively recent clarifications by the CJEU have tried to establish a balance, whereby recipients of State aid cannot claim legitimate expectations protection if, being diligent, they should have been capable of determining whether or not the EU procedure leading to the award of the aid was complied with or not.[87] Thus, the argument ultimately rests on the observability of the Commission’s ex ante intervention or the absence of such mandatory intervention, where prescribed by EU law (ie Arts 107 and 108 TFEU). In the case of BER protection, this is highly problematic because the restriction of any substantive analysis by the Commission to an ex post phase by necessity requires the recipient to rely on the Member States’ assessment of the BER. As the CJEU has also clarified, ‘a person may not plead breach of the principle of the protection of legitimate expectations unless he has been given precise assurances by the competent authority’.[88] A contrario, such assurances by the Member State as a co-enforcer of EU State aid law in the new post 2014 GBER paradigm may well trigger significant levels of protection of those legitimate expectations.[89] It is submitted, this is likely to increase the weight given to arguments based on legitimate expectations and legal certainty, particularly in the case of attempts to withdraw BER coverage based on a Commission’s ex post assessment that runs contrary to arguments of reasonable reliance (by recipients) on Member State-supported interpretations of the applicable BER,[90] particularly if it derives from a stricter interpretation of the EU State aid rules.[91] This arguments, or at least litigation based on these arguments, can add more layers of ineffectiveness to the post 2014 GBER paradigm based on more withdrawal procedures.
[78] Indeed, this argument is frequently raised in State aid litigation before the EU Courts. For a recent example, see Opinion of AG Whatelet in A2A SpA v Agenzia delle Entrate, C-89/14, U:C:2015:211, paras 44 to 53. However, the AG Whatelet rejected the arguments on the basis of reasons similar to those criticised in the main text.
[79] ISD Polska and Others v Commission, C-369/09 P, EU:C:2011:175, para 122.
[80] Gerekens and Procola, C-459/02, EU:C:2004:454, paras 21 to 24.
[81] However, this is not warranted upon closer examination of the case law, as demonstrated by A Giraud, “A study of the notion of legitimate expectations in State aid recovery proceedings: ‘Abandon all hope, ye who enter here’?” (2008) 45(5) CMLRev 1399-1431.
[82] See T Tridimas, The General Principles of EU Law, 2nd edn (Oxford, OUP, 2006, repr. 2009) 296; W Weiβ and M Haberkamm, “Legitimate expectations in state aid and the CFI” (2010) 9(2) EStAL 537; A Winckler and FC Laprévote, “Reconciling legal certainty, legitimate expectations, equal treatment and the prohibition of state aids” (2011) 10(2) EStAL 321-326.
[83] Similarly, see E Fink, “The Possibility of Protection of Legitimate Expectations in Recovery of Unlawful State Aid” (2013) 1 Juridica International 133-141.
[84] Charter of Fundamental Rights of the European Union [2010] OJ C 83/389. The specific reasons for this assessment exceed the scope of this paper. For discussion, see R Luja, “Does the Modernisation of State Aid Control Put Legal Certainty and Simplicity at Risk” (2012) EStAL 765-66.
[85] P Craig, “Article 41 – Right to Good Administration”, in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1069-98.
[86] P Aalto et al, “Article 47 – Right to an Effective Remedy and to a Fair Trial”, in S Peers, T Hervey, J Kenner and A Ward (eds), The EU Charter of Fundamental Rights: A Commentary (Oxford, Hart, 2014) 1197-275.
[87] Fink (n 83) 136, with reference to France Télécom v Commission, C-81/10 P, EU:C:2011:811, para 59.
[88] AJD Tuna, C-221/09, EU:C:2011:153, para 72; Agrargenossenschaft Neuzelle, C-545/11, EU:C:2013:169, para 25.
[89] At least, where the interpretation by the Member State was reasonable, in line with the original case law in the area of State liability as per The Queen v H.M. Treasury, ex parte British Telecommunications, C-392/93, EU:C:1996:131, para 43 in particular.
[90] The situation is not completely different to that of reliance on legal advisors’ advice, which could erode the argument by reference to Schenker & Co. and Others, C-681/11, EU:C:2013:404. However, this is clearly a controversial area of EU procedural law that requires future developments. In my view, a new wave of protection of legitimate expectations can be expected, particularly where domestic constitutional principles of protection of legitimate expectations as part of the right to good administration are engaged. For discussion, see R Bousta, 'Who Said There is a ‘Right to Good Administration’? A Critical Analysis of Article 41 of the Charter of Fundamental Rights of the European Union' (2013) 19(3) European Public Law 481-488.
[91] Fink (n 83) 139, with reference to Alcoa Trasformazioni v Commission, C-194/09 P, EU:C:2011:497.

Monday, 23 November 2015

Restrictions on subcontracting under EU public procurement rules: à-propos the Opinion of AG Sharpston (C-406/14)

(c) Gregory Fox
In her Opinion of 17 November 2015 in Wrocław - Miasto na prawach powiatu, C-406/14, EU:C:2015:761, Advocate General Sharpston assessed to what extent contracting authorities tendering contracts under the EU public procurement rules can limit the percentage of the contract that the winning tenderer can subcontract to third parties. The Judgment in this case will be important because it addresses an area of EU public procurement law bound to be of growing relevance, particularly if Member States develop the supply-chain related tools that Directive 2014/24 has created in Art 71 (see here). It will also be important because it technically deviates from previous cases on reliance on third party capacities (comments here).

In the case at hand, the contracting authority imposed a requirement whereby '[t]he economic operator is required to perform at least 25% of the works covered by the contract using its own resources'. In her Opinion, AG Sharpston proposes that the Court of Justice of the European Union (CJEU) declares that such requirement runs contrary to EU public procurement law--ie that Directive 2004/18 on public procurement precluded a contracting authority from stipulating in the tender specifications of a public works contract that the successful tenderer is required to perform part of the works covered by that contract, specified in abstract terms as a percentage (in that case, 25%), using its own resources.

Given that the specific circumstances of the case did not allow for an assessment of the subcontracting requirement at the stage of qualitative selection (which was the approach followed by previous case law, see paras 36-37), AG Sharpston's analysis rests heavily on Art 25 of Directive 2004/18, according to which
In the contract documents, the contracting authority may ask ... the tenderer to indicate in his tender any share of the contract he may intend to subcontract to third parties and any proposed subcontractors. This indication shall be without prejudice to the question of the principal economic operator's liability.
The reasoning of AG Sharpston would apply equally to Directive 2014/24, which Art  71 reiterates the same rules in paras 2 and 4. In that regard, it is interesting to stress how, in AG Sharpston's view,
30 Directive 2004/18 is designed not only to avoid obstacles to freedom to provide services in the award of public service contracts or public works contracts but also to guarantee the opening-up of public procurement to competition. Recital 32 in the preamble to that directive states that the possibility of subcontracting is liable to encourage small and medium-sized undertakings to get involved in the public contracts procurement market. Subcontracting enables such undertakings to participate in tendering procedures and to be awarded public contracts regardless of the size of those contracts. Subcontracting thus contributes to achieving the directive’s objectives by increasing the number of potential candidates for the award of public contracts.
31. Accordingly, Article 25 of Directive 2004/18 not only envisages that a tenderer may subcontract part of the contract but also sets no limit in that regard. Indeed, Directive 2004/18 confirms explicitly that an economic operator may, where appropriate and for a particular contract, rely on the economic, financial, technical and/or professional capacities of other entities, regardless of the legal nature of the links which it has with them. Consequently, a party may not be eliminated from a procedure for the award of a public service contract solely because it proposes, in order to carry out the contract, to use resources which are not its own but belong to one or more other entities. 
32. That said, contracting authorities do have a legitimate interest in ensuring that the contract will be effectively and properly carried out. Where an economic operator intends to rely on capacities of other economic operators in a tendering procedure, it must therefore establish that it actually will have at its disposal the resources of those operators which it does not itself own and whose participation is necessary to perform the contract. A tenderer claiming to have at its disposal the technical and economic capacities of third parties on which it intends to rely if it obtains the contract may be excluded by the contracting authority only if it fails to meet that requirement. 
33. The contracting authority may not always be in a position to verify the technical and economic capacities of the subcontractors when examining the tenders and selecting the lowest tenderer. The Court has held that in such cases Directive 2004/18 does not preclude a prohibition or a restriction on subcontracting the performance of essential parts of the contract. Such a prohibition or restriction is justified by the contracting authority’s legitimate interest in ensuring that the public contract will be effectively and properly carried out. Directive 2004/18 does not require a contracting authority to accept performance of essential parts of the public contract by entities whose capacities and qualities it has been unable to assess during the contract award procedure.
34. In my view, considering the essential role subcontracting plays in promoting the objectives of Directive 2004/18, no other prohibition or restriction is permissible. It is true that, in Swm Costruzioni 2 and Mannocchi Luigino, the Court considered that there may be works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator which individually would be unable to perform that work. In those specific circumstances, the Court has held that the contracting authority is justified in requiring that the minimum capacity level concerned be achieved by a single economic operator or, where appropriate, by relying on a limited number of economic operators ... as long as that requirement is related and proportionate to the subject-matter of the contract at issue. However, that is not a specific ground for prohibiting or restricting subcontracting as such. Nothing precludes that ‘single economic operator’ or ‘limited number of economic operators’ from being a subcontractor or subcontractors of the successful tenderer(s).
35. It follows that a stipulation such as that in issue in the main proceedings [ie that the economic operator is required to perform at least 25% of the works covered by the contract using its own resources] is clearly not consistent with Directive 2004/18 (Opinion in C-406/14, paras 30-35, references omitted and emphasis added).
In my view, this proposed interpretation should be generally welcome, not least because the imposition of this sort of requirements could neutralise the open-ended character of the qualitative selection phase through the back door. I developed some thoughts regarding subcontracting in Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 353-355, where I reached the complementary and compatible conclusion that 'contracting authorities should refrain from mandating or inducing subcontracting (in particular, by using the percentage of subcontracted work as an award criterion)'. A contrario, as AG Sharpston proposed, contracting authorities should also be prohibited from imposing a 'ceiling' on the amount of work to be subcontracted.

More generally, I would submit that contracting authorities generally do not have much to say about the distribution of works between a contractor and its subcontractors. They can insist on mechanisms that ensure proper expertise, actual availability of means, proper mechanisms of liability (of the prime contractor and any subcontractors). They can also implement measures to monitor the supply-chain, particularly as legal compliance is concerned (provided they have the expertise and resources to do so). However, they seem not to be in a good position to intervene in the market by choosing some productive structure (of minimum or maximum vertical integration) over others. 

Thus, the CJEU would do well in following AG Sharpston's advice and, more generally, in clarifying the limited role of rules on subcontracting for the purposes of imposing specific productive structures (if they can have any role in that regard at all).

Thursday, 19 November 2015

Are English Universities likely to stop having to comply with EU public procurement law?

One of the elements implicit in the on-going discussion about higher education reform in England concerns the extent to which changes in the funding and governance structure of HEFCE (to be transformed into the Office for Students, or any other format that results from the consultation run by BIS) can free English universities from their duty to comply with EU public procurement law. 

The issue is recurring in the subsequent waves of higher education reform in England, and the same debate arouse last summer following BIS statements that the most recent reform (lifting the cap on student numbers) would relieve English universities of their duty to comply with EU public procurement law (see discussion here).

Overall, then, there is a clear need to clarify to what extent English universities are actually and currently obliged to comply with EU public procurement rules, both as buyers and as providers of services. That analysis can then inform the extent to which in the future English universities are likely to remain under a duty to comply with EU public procurement rules.

In this study we provide an up-to-date assessment of situations in which universities are bound by public procurement rules, as well as the combined changes that market-based university financing mechanisms can bring about in relation to the regulation of university procurement and to the treatment of the financial support they receive under the EU State aid rules. National differences in funding schemes are likely to trigger different answers in different EU jurisdictions. This study uses the situation of English universities as a case study.
The first part focuses on the role of universities as buyers. The traditional position has been to consider universities bound by EU public procurement rules either as state authorities, or because they receive more than 50% public funding. In the latter case, recent changes in the funding structure can create opportunities for universities to free themselves from compliance with EU public procurement rules.
In the second part, we assess the position of universities as providers. Here the traditional position has been that the State can directly mandate universities to conduct teaching and research activities. However, new EU legislation contains specific provisions about how and when teaching and research need to be procured if they are of an economic nature. Thus, accepting the exclusion of university services from procurement requirements as a rule of thumb is increasingly open to legal challenge.
Finally, the study assesses if and in how far universities can benefit from exemptions for public-public cooperation or in-house arrangements either as sellers or buyers. 
The full paper is available on SSRN:

We have submitted our piece of research to BIS as part of the consultation on the green paper. We hope that our research and the insights it sheds can inform the discussion on the new mechanisms for the allocation of the teaching grant to English universities (and particularly the discussion around Q18 of the consultation).

Tuesday, 17 November 2015

CJEU clarifies and minimises Rüffert, and expands scope for minimum wage requirements in public procurement (C-115/14)

In its much awaited Judgment of 17 November 2015 in RegioPost, C-115/14, EU:C:2015:760, the Court of Justice of the European Union (CJEU) has allowed for the imposition of minimum wage requirements as special performance conditions in public procurement covered by the EU rules. 

Interestingly, the CJEU achieves this result despite deviating from the proposal of AG Mengozzi, who also advocated for more scope for minimum wage clauses, but on very different legal grounds (discussed here).  It is also worth stressing that the case is decided on the basis of Art 26 of Directive 20014/18, but the reasoning is equally applicable to the new rules under Art 70 of Directive 2014/24

The RegioPost Judgment is particularly significant for its deviation from the restrictive approach to the use of minimum wage requirements in public procurement that was established by Rüffert, C-346/06, EU:C:2008:189 and Bundesdruckerei, C-549/13, EU:C:2014:2235. Thus, it is worth analysing the reasoning of the CJEU in detail, particularly to determine to what extent RegioPost restricts the effects of the previous line of cases in this area.

It is worth reminding that,according to Rhineland-Palatinate's regional legislation (ie at Länder-level, as opposed to Federal-level which did not at the relevant time regulate minimum wage), public contracts could not be awarded to tenderers that did not commit to pay a gross minimum hourly wage of €8,70 to the workers involved in the execution of the contract. This minimum wage requirement was challenged on the basis of several grounds (see here for further background).

In specific legal terms, the main question addressed to the CJEU was to determine 'whether Article 26 of Directive 2004/18 must be interpreted as precluding legislation of a regional entity of a Member State ... which requires tenderers and their subcontractors to undertake, by means of a written declaration to be enclosed with their tender, to pay staff who are called upon to perform the services covered by the public contract in question a minimum wage laid down in that legislation' (C-115/14, para 53).

In order to answer this question, the CJEU engages in a step-by-step approach were, after confirming that the minimum wage requirement creates a special performance condition covered by Art 26 Dir 2004/18 (and now Art 70 Dir 2014/24) and that it is not discriminatory, it determines to what extent such requirement can be assessed under the requirements of EU primary law. 

In that regard, the CJEU is clear in subjecting minimum wage requirements to EU primary law on the basis that the procurement Directive does not lay down exhaustive rules in respect of special conditions relating to the performance of contracts and, therefore, this is not a field that has been exhaustively harmonised at EU level and minimum wage requirements must not only be assessed in the light of the provisions of the Directive, but also in the light of the primary law of the European Union (C-115/14, paras  57-59).

The CJEU then engages in such assessment of compatibility of minimum wage requirements with primary EU law, but does so by reference to Directive 96/71 on the posting of workers (PWD), which had been rejected by AG Mengozzi (here). This is interesting in itself because, in my view, EU primary law does not cover a Directive such as the PWD. However, the analysis that the CJEU carries out does not seem to attach particular relevance to the actual primary or secondary law nature of the PWD [for critical discussion of similar issues, see P Syrpis, 'The relationship between primary and secondary law in the EU' (2015) 52(2) Common Market Law Review 461-487].

It is also interesting because of the route that leads the CJEU to resort to the analysis of the situation under the PWD as a benchmark for the legality of the minimum wage requirement. As the CJEU explains,
60 ... in accordance with recital 34 to Directive 2004/18, in examining whether the national measure ... is compatible with EU law, it is necessary to determine whether, in cross-border situations in which workers from one Member State provide services in another Member State for the purpose of performing a public contract, the minimum conditions laid down in Directive 96/71 are observed in the host member State in respect of posted workers (C-115/14, para 60, emphasis added).
This is also remarkable because the CJEU resorts to the recital of the procurement Directive in order to engage the PWD, rather than directly identifying the applicability of the PWD to the case [cf Casa Fleischhandel v BALM, C-215/88, EU:C:1989:331, para 31].

Once the analysis is framed in terms of the PWD, the CJEU basis its arguments on compliance with Art 3(1) PWD, according to which 'Member States shall ensure that, whatever the law applicable to the employment relationship ... undertakings ... guarantee workers posted to their territory the terms and conditions of employment covering the following matters which, in the Member State where the work is carried out, are laid down: by law, regulation or administrative provision, ... (c) the minimum rates of pay'. The CJEU considers that the requirement at issue in RegioPost meets all these conditions. It further clarifies that it is compatible with EU law more generally despite applying only to public contracts and not to private contracts. It does so by stressing that:
62 ... contrary to the Law of the Land Niedersachsen on the award of public contracts at issue in the case that gave rise to the judgment in Rüffert (C-346/06, EU:C:2008:189), a provision such as [Rhineland-Palatinate's regional legislation] itself lays down the minimum rate of pay...
63 That categorisation cannot be called in question on the basis that the national measure in question applies to public contracts and not to private contracts, since the condition as to universal application defined in the first subparagraph of Article 3(8) of Directive 96/71 applies only to the collective agreements or arbitration awards referred to in the second indent of the first subparagraph of Article 3(1) of that directive.
64 Moreover, since the national measure at issue in the main proceedings falls within the scope of Article 26 of Directive 2004/18, which permits, subject to certain conditions, the imposition of a minimum wage in public contracts, that measure cannot be required to extend beyond that specific field by applying generally to all contracts, including private contracts.
65 The limitation of the scope of the national measure to public contracts is the simple consequence of the fact that there are rules of EU law specific to that field, in this case, those laid down in Directive 2004/18.
66 It follows that Article 26 of Directive 2004/18, read in conjunction with Directive 96/71, permits the host Member State to lay down, in the context of the award of a public contract, a mandatory rule for minimum protection referred to in point (c) of the first subparagraph of Article 3(1) of that directive ... which requires undertakings established in other Member States to comply with an obligation in respect of a minimum rate of pay for the benefit of their workers posted to the territory of the host Member State in order to perform that public contract. Such a rule is part of the level of protection which must be guaranteed to those workers (see, to that effect, judgment in Laval un Partneri, C-341/05, EU:C:2007:809, paragraphs 74, 80 and 81).
67 That interpretation of Article 26 of Directive 2004/18 is confirmed, furthermore, by a reading of that provision in the light of Article 56 TFEU, since that directive seeks in particular to bring about the freedom to provide services, which is one of the fundamental freedoms guaranteed by the Treaty (see, by analogy, judgment in Rüffert, C-346/06, EU:C:2008:189, paragraph 36) (C-115/14, paras 62-67, emphasis added).
This is remarkable because, at this stage, the CJEU fills in the requirement for the special performance conditions to be compatible with EU law under Art 26 Dir 2004/18 (Art 70 Dir 2014/24) with reference to the PWD only. It then goes on to assess the need to such measures to also comply with Art 56 TFEU in the following terms:
69 ... according to the case-law of the Court, the imposition, under national legislation, of a minimum wage on tenderers and their subcontractors, if any, established in a Member State other than that of the contracting authority and in which minimum rates of pay are lower constitutes an additional economic burden that may prohibit, impede or render less attractive the provision of their services in the host Member State. Consequently, a measure such as that at issue in the main proceedings is capable of constituting a restriction within the meaning of Article 56 TFEU (see to that effect, inter alia, judgment in Bundesdruckerei, C-549/13, EU:C:2014:2235, paragraph 30).

70 Such a national measure may, in principle, be justified by the objective of protecting workers (see, to that effect, judgment in Bundesdruckerei, C-549/13, EU:C:2014:2235, paragraph 31).

71 However, as the referring court has observed, the question arises whether it follows from ... Rüffert ... that such a justification cannot be accepted on the grounds that the minimum wage ... applies to public contracts only, and not to private contracts.

72 That question calls for a negative answer.

73 It is clear from ... Rüffert ... that although the Court concluded, in the context of the examination of the national measure at issue in the case that gave rise to that judgment in the light of Article 56 TFEU, that that measure could not be justified by the objective of the protection of workers, it based that conclusion on certain characteristics specific to that measure, which clearly distinguish that measure from the national measure at issue in the main proceedings.

74 Thus, ... in Rüffert ... the Court based its conclusion on the finding that what was at issue in the case that gave rise to that judgment was a collective agreement applying solely to the construction sector, which did not cover private contracts and had not been declared universally applicable. Furthermore, the Court observed that the rate of pay set by that collective agreement exceeded the minimum rate of pay applicable to that sector ...

75 The minimum rate of pay imposed by the measure at issue in the main proceedings is laid down in a legislative provision, which, as a mandatory rule for minimum protection, in principle applies generally to the award of any public contract in the Land of Rhineland-Palatinate, irrespective of the sector concerned (C-115/14, paras 69-75, emphasis added).
This effort to distinguish Rüffert is remarkable and the CJEU has fundamentally back-tracked from its restrictive line of case law when it comes to the use of public procurement for social policy purposes. The way it distinguished Rüffert from RegioPost is coated in very technical terms under the PWD, but the key point in my view is that the CJEU is willing to sacrifice important non-discrimination issues and a major excuse for shadow economic protectionism at the altar of a politically-charged move to facilitate the politicised use of public procurement.

Indeed, by minimising the non-discrimination requirements of Rüffert, the CJEU has opened the door to very significant distortions of competition between undertakings engaged in the performance of public contracts and those that provide goods and services in private markets, as well as distortions in employee protection for those hired by undertakings to perform public contracts and those hired to perform private contracts. This is likely to create further litigation in the employment and non-discrimination law arenas where undertakings engage in both private and public contract activity with a single workforce.

The RegioPost judgment is likely to trigger very significant attention in the coming days and weeks. Together with colleagues at the University of Bristol Law School who hold very different views to mine, we will be putting together an event to discuss the implications of RegioPost. stay tuned for more discussion on this important area of EU economic law.

Friday, 13 November 2015

CJEU confirms its jurisdiction to review procurement decisions linked to EU's external action (C‑439/13 P)

In its Judgment in Elitaliana v Eulex Kosovo, C-439/13 P, EU:C:2015:341, the Court of Justice of the European Union (CJEU) has followed the Opinion of Advocate General Jääskinen (discussed here) and considered that it has jurisdiction to review procurement procedures conducted by external missions of the European Union as part of the Common foreign and security policy (CFSP) because they functionally fall within its competences linked to the execution of the EU budget.

The CJEU clearly indicated that, despite the fact that it does not, in principle, have jurisdiction with respect to the provisions relating to the CFSP or with respect to acts adopted on the basis of those provisions (para 41), any restrictions on its competence to interpret the EU Treaties needs to be narrowly construed and, consequently, it must assert jurisdiction when CFSP matters affect the EU budget. More specifically, the CJEU indicated that
47 ... it is not disputed that the Eulex Kosovo Mission is civilian in nature and that the expenditure relating to the helicopter-support service for the Eulex Kosovo Mission was to be allocated to the European Union budget.
48 Therefore, the measures at issue, whose annulment was sought on the basis of an infringement of the rules of EU public procurement law, related to the award of a public contract which gave rise to expenditure to be charged to the European Union budget. Accordingly, the contract at issue is subject to the provisions of the Financial Regulation.
49 Having regard to the specific circumstances of the present case, the scope of the limitation, by way of derogation, on the Court’s jurisdiction ... cannot be considered to be so extensive as to exclude the Court’s jurisdiction to interpret and apply the provisions of the Financial Regulation with regard to public procurement.
50 Consequently, the General Court and, in the case of an appeal, the Court of Justice have jurisdiction to hear this case (C-439/13 P, paras 47-50, emphasis added).
In my view, this is the correct decision. However, as indicated earlier (here), the question that remains open, then, is to what extent there is a need to revise the EU's Financial Regulation to include provisions on mixed civil-military/defence procurement along the lines of the regime foreseen in Directive 2009/81, so that compliance with the rules is not too burdensome for external missions, at least in their early stages. To be fair, running the external missions of the European Union is clearly challenging and procurement probably does not rank very high in the priorities of bodies and agents that need to make it happen. And, in those circumstances, it is fair to say that the regime for urgent procurement can still be rather limiting, particularly as challenges and protests are concerned. Hence, this may be an area that needs regulatory reform.

Other than that, and from the strict perspective of the scope of competence of the Union courts in the field of public procurement, it may also be a good occasion to rethink the role of the General Court and the CJEU as public procurement review bodies. In my opinion, developments such as the Elitaliana v Eulex Kosovo case point to the need to either create a specialized review chamber parallel to the EU Civil Service Tribunal, or to subject procurement review processes to alternative dispute resolution mechanisms. Maybe this is a second area in need of regulatory reform/institutional redesign.

Thursday, 12 November 2015

CJEU requires EU law compliant interpretation of national principles of res iudicata (C-505/14)

In its Judgment of 11 November 2015 in Klausner Holz Niedersachsen, C-505/14, EU:C:2015:742, the Court of Justice of the European Union (CJEU) has reiterated that the requirement of effectiveness (effet utile) of EU law is incompatible with national principles and rules of finality of judicial decisions (res iudicata) that would prevent a court from drawing all the consequences of a breach of the EU State aid rules in Art 107(1) and 108(3) TFEU because of a (related, previous) national judicial decision which has become definitive.

The case does not set any new principle of EU law. The CJEU has repeatedly stressed that the effectiveness of EU law trumps res iudicata considerations under the domestic rules of the Member States--which has led some of them to develop a progressive approach to determining the finality of judicial decisions when not doing so would result in an infringement of EU law [regarding Italy, see Impresa Pizzarotti, C-213/13, EU:C:2014:2067 and comments here]. 

However, in my view, the case is interesting because the CJEU expands its case law as far as the application of the principle of consistent or harmonious interpretation is concerned, by indicating that domestic courts must try to reinterpret the principle of res iudicata itself in accordance with EU law so as not to impar its effectiveness and, only where that consistent interpretation is not possible, then proceed to a strict analysis of the principle of res iudicata under the principle of effectiveness of EU law.

In Klausner Holz Niedersachsen, the CJEU starts its reasoning by reiterating its settled case law on the duty of consistent interpretation and its limits. 
30 While accepting that the principle of res judicata, as construed in national law, has certain objective, subjective and temporal limitations and certain exceptions, the referring court notes that that law precludes not only re-examination, in a second action, of the pleas already expressly settled definitively, but also the raising of questions which could have been raised in an earlier action and which were not so raised. 
31 In that regard, it is appropriate to recall that it is for the national courts to interpret, as far as it is possible, the provisions of national law in such a way that they can be applied in a manner which contributes to the implementation of EU law (judgment in Lucchini, C-119/05, EU:C:2007:434, paragraph 60).
32 It is true that this principle of interpreting national law in conformity with EU law has certain limitations. Thus the obligation on a national court to refer to the content of EU law when interpreting and applying the relevant rules of domestic law is limited by general principles of law and it cannot serve as the basis for an interpretation of national law contra legem (see to that effect, judgments in Impact, C-268/06, EU:C:2008:223, paragraph 100, and Association de médiation sociale, C-176/12, EU:C:2014:2, paragraph 39).
34 In that regard, it must be borne in mind that the principle that national law must be interpreted in conformity with EU law also requires national courts to do whatever lies within their jurisdiction, taking the whole body of domestic law into consideration and applying the interpretative methods recognised by it, with a view to ensuring that EU law is fully effective and to achieving an outcome consistent with the objective pursued by it (see, to that effect, judgment in Dominguez, C-282/10, EU:C:2012:33, paragraph 27 and the case-law cited).
35 Thus, it is for the referring court to ascertain, on that basis, whether it can find such an interpretation ... (C-505/14, paras 30-35, emphasis added).
The CJEU then proceeds to extend the analysis where an EU law compliant interpretation of the principle of res iudicata is not possible. Unsurprisingly, it resorts to the principle of effectiveness of EU law, and reasons as follows:
38 If such a measure or interpretation should, however, prove not to be possible, attention should be drawn to the importance, both in the legal order of the European Union and in national legal systems, of the principle of res judicata. In order to ensure stability of the law and legal relations, as well as the sound administration of justice, it is important that judicial decisions which have become definitive after all rights of appeal have been exhausted or after expiry of the time-limits provided for in that regard can no longer be called into question (see judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 22, and Târșia, C-69/14, EU:C:2015:662, paragraph 28).
39 Therefore, EU law does not always require a national court to disapply domestic rules of procedure conferring finality on a judgment, even if to do so would make it possible to remedy a breach of EU law by the decision at issue (see judgments in Kapferer, C-234/04, EU:C:2006:178, paragraph 22, Fallimento Olimpiclub, C-2/08, C:2009:506, paragraph 23, Commission v Slovak Republic, C-507/08, EU:C:2010:802, paragraph 60, Impresa Pizzarotti, C-213/13, EU:C:2014:2067, paragraph 59, and Târșia, C-69/14, EU:C:2015:662, paragraph 29).
40 In the absence of EU legislation in this area, the rules implementing the principle of res judicata are a matter for the national legal order, in accordance with the principle of the procedural autonomy of the Member States. However, such procedural rules must not be less favourable than those governing similar domestic situations (principle of equivalence) and must not be framed in such a way as to make it in practice impossible or excessively difficult to exercise the rights conferred by EU law (principle of effectiveness) (see judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 24, and Impresa Pizzarotti, C-213/13, EU:C:2014:2067, paragraph 54 and the case-law cited).
41 As regards application of the principle of effectiveness, the Court has held that every case in which the question arises as to whether a national procedural provision makes the application of EU law impossible or excessively difficult must be analysed by reference to the role of that provision in the procedure, its conduct and its special features, viewed as a whole, before the various national bodies. In that context, it is necessary to take into consideration, where relevant, the principles which lie at the basis of the national legal system, such as the protection of the rights of the defence, the principle of legal certainty and the proper conduct of the proceedings (see, to that effect, judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 27, and Târșia, C-69/14, EU:C:2015:662, paragraphs 36 and 37 and the case-law cited).
42 In that regard, it must be noted that an interpretation of national law ... can have the consequence, in particular, that effects are attributed to the decision of a national court ... which frustrate the application of EU law, in that they make it impossible for the national courts to satisfy their obligation to ensure compliance with the third sentence of Article 108(3) TFEU
43 It follows therefrom that both the State authorities and the recipients of State aid would be able to circumvent the prohibition laid down in the third sentence of Article 108(3) TFEU by obtaining, without relying on EU law on State aid, a declaratory judgment whose effect would enable them, definitively, to continue to implement the aid in question over a number of years. Thus, in a case such as that at issue in the main proceedings, a breach of EU law would recur ... without it being possible to remedy it.
44 Furthermore, such an interpretation of national law is likely to deprive of any useful effect the exclusive power of the Commission ... to assess, subject to review by the EU Courts, the compatibility of aid measures with the internal market. If the Commission, to which the Federal Republic of Germany has in the meantime notified the aid measure constituted by the contracts at issue, should conclude that it is incompatible with the internal market and order its recovery, execution of its decision must fail if a decision of the national court could be raised against it declaring the contracts forming that aid to be 'in force' (C-505/14, paras 38-44, emphasis added).
The CJEU concludes that a significant obstacle to the effective application of EU law and, in particular, a principle as fundamental as that of the control of State aid cannot be justified either by the principle of res judicata or by the principle of legal certainty (C-505/14, para 45). The final result leaves the open question of whether the initial analysis under the duty of consistent interpretation was at all necessary.

In my view, the CJEU tried to show deference towards the general principles of law of the national domestic orders of the Member States, while at the same time reaffirming the supremacy of the general principles of EU law. And in doing so, indicated to the Member States' courts that they should try to mediate any possible conflict by recourse to the duty of consistent interpretation, so as to 'domesticate' the requirement of effet utile of EU law. It will be interesting to see to what extent that leads to a reinterpretation of the German principle of res iudicata, which may well become 'progressive' all'Italiana. Who said that debates on general EU law were a thing of the past?

Sunday, 8 November 2015

Excellent workshop on 2014 reform of EU public procurement Directives, soon to lead on to new book

Thanks to the generous financial support of the Department of Economics of the Copenhagen Business School and the Danish foundation Gangstedfonden, Dr Grith Skovgaard Ølykke (CBS) and myself (Bristol), organised a workshop to discuss the papers that a group of young procurement academics are putting together for our edited collection with Edward ElgarReformation or Deformation of the EU Public Procurement Rules in 2014 (2016). 

The discussion focused on the legislative process that took part during the period between 2011, when the Commission published its proposal for new Directives, and 2014, when they were finally published in the Official Journal of the European Union. Two days of intense debate and brainstorming allowed us to identify many interesting issues, such as the two-way interaction between the Commission and the Court of Justice of the European Union, or the  key importance of the 'blackbox' represented by the trilogue phase.

We will now finalise papers and hope that the book will be ready soon enough in 2016, roughly to coincide with the end of the transposition period for the 2014 EU public procurement Directives. Keep an eye for it!


Wednesday, 4 November 2015

GC imposes liability on the European Commission for obvious breach of equal treatment in public procurement (T-199/14)

In its Judgment of 29 October 2015 iVanbreda Risk & Benefits v Commission, T-199/14, EU:T:2015:820 (not available in English), the General Court (GC) annulled a procurement award decision for several breaches of the principle of equal treatment and condemned the European Commission to compensate the complainant for the damages resulting from the award of the contract to a competing undertaking. 

This is the second instance of imposition of liability on EU Institutions for breach of the applicable public procurement rules in less than a month (see European Dynamics Luxembourg v OHIM). However, this case differs from previous findings of liability of EU Institutions because it is not concerned with formal aspects of the procurement process (namely, debriefing obligations and the duty to state reasons), but with substantial issues concerning the equal treatment of tenderers. 

In fact, as the analysis below will show, the case indicates very poor procurement practice by the European Commission, which is surprising and may diminish the credibility of the institution that is aiming to foster a culture of compliance with public procurement rules as a key aspect of the new strategy for a deeper and fairer internal market (see comments here). Indeed, the Commission would be well advised to tighten up its own procurement processes and to lead by example in such change of mentality regarding compliance with  substantive standards and good procurement practices.

In the case at hand, the European Commission had tendered a contract for insurance services. Amongst the tender conditions, the Commission imposed that 'in the case of awarding the contract to a consortium of economic operators, all members of this group had to have " joint responsibility [...] in executing the contract"'. This requirement triggered a significant volume of documentary obligations in case tenderers intended to submit joint offers as part of a consortium (see T-199/14, paras 7-12). 

The Commission received two offers: one from Vanbreda Risk & Benefits (Vanbreda) and one from Marsh. Marsh's offer was made in consortium with others, and this included the participation of AIG Europe Limited (AIG). In view of this, Vanbreda indicated to the European Commission that, in its ownexperience,
AIG, who participated in the Marsh consortium, refused on principle to jointly undertake liability and therefore [Vanbreda] was almost certain that [Marsh's] could not comply with the substantive and formal requirements of the tender specifications (T-199/14, para 14, own translation from French).
The European Commission did not respond to this claim by Vanbreda. First, on the basis that the evaluation of the tenders was on-going (para 15) and, upon communicating its decision to award the contract to the Marsh consortium and Vanbreda's insistence that the offer could not possibly meet the requirement of joint liability, on the pretext that at this debriefing stage, it could not provide information other that 'the characteristics and relative advantages of the successful tender and the name of the successful tenderer' (para 21). After repeated requests from Vanbreda, the Commission eventually replied that
the issues at the root of the applicant's concern had been duly analyzed throughout the tender evaluation stage, that all offers were found compliant and, therefore, the contract was awarded to the bid with the lowest price. The Commission did not forward any of the requested documents to the applicant (T-199/14, para 24, own translation from French).
Unsurprisingly, Vanbreda challenged the award decision. Its main contention was that by allowing Marsh to offer a joint bid for the performance of the contract with a consortium of non-jointly and severally liable insurers, the Commission would have allowed this operator to offer a much lower price (see paras 42-43, where the impact of joint liability on pricing is further discussed).

Upon review of the file in the context of the challenge, Vanbreda discovered that its interpretation of the offer submitted by Marsh did not reflect the reality of the offer submitted by Marsh in cooperation with other insurers. As the GC summarises
Marsh would have in fact filed its offer as a broker sole tenderer and the Commission and Marsh would have corresponded extensively after the opening of tenders about the solidarity condition. The Commission never reported these facts to [Vanbreda], despite repeated questioning of the latter (T-199/14, para 45, own translation from French).
In view of these additional facts, Vanbreda adjusted its arguments to oppose the possibility that an insurance company such as Marsh could have submitted an offer as a 'broker sole tenderer' because, in its view, this would have infringed the requirement of joint liability in the execution of the contract. The Commission opposed this argument on the basis that it relied on an erroneous and restrictive interpretation of both the tender documentation and Belgian law (see details in paras 54-55).

In view of these arguments, and after reminding that the principle of equal treatment of tenderers aims to promote the development of healthy and effective competition between companies participating in a public tender and requires that all tenderers have the same chances in formulating the terms of their offers and are subject to the same conditions of competition (para 64), the GC found that
93 It appears from the foregoing that the admission of a broker to participate in the tender as the sole tenderer is contrary both to the provisions of the tender and the economy of the system set up thereby. The arguments put forward by the Commission concerning the goal it would have pursued of trying to maintain a high level of competition by the participants in the contested tender, are not likely to justify non-compliance with the tender documentation.

94 Furthermore, it appears from the evidence that one of the essential conditions of the tender consisted in the commitment, by the insurer or insurers, to ensure that the contracting authority would benefit from a 100% coverage of the risks set out in the specifications.

95 According to the Commission, in the hypothesis ... of a broker sole tenderer, it would have been incumbent upon the latter to organize the practicalities of the execution of the contract. This approach would have meant for the Commission to check whether the 100% coverage condition described in paragraph 94 above was fulfilled by focusing solely on the results and not on how it was obtained.

96 In this case, when submitting his tender, Marsh presented a distribution of risks between the participating insurance companies in order to reach the goal of 100% coverage. By letter of 14 February 2014, Marsh informed the Commission that one of the insurers to take part in its offering, AIG, had refused to sign the contract. Following this defection, Marsh proposed a new allocation of these risks, without changing the total price of the successful tender, which implied that the coverage of the share of AIG's participation would firstly be achieved by increasing the participation quotas of the remaining insurance companies and, secondly, by allocating a portion of that share to two new insurance companies  that were not among those originally specified in the Marsh's tender.

97 Accordingly, when Marsh had to, firstly, renegotiate increasing the shares of the insurance companies which had initially mandated it as a broker and, secondly, negotiate the participation of two new insurers, not only the competing offer [by Vanbreda] was known, but the certainty of the award to Marsh was acquired. Conversely, if at the time of the formation of the initial offer, and therefore without knowing that the contract would be awarded to them, the insurance companies mandating Marsh had had to assume higher quotas of participation, which implied greater risks for them, it is likely that, in all economic probability, they would have demanded an increase in their remuneration. This could, therefore, have lead to an increase in the tender price. Similarly, the negotiation of a stake by two new insurers in the offer, at a time when neither the price of the competing offer nor the certainty of obtaining the contract would have been known, was also likely to lead to a different result, potentially affecting the total price of the offer proposed by Marsh upwards. Rather, in this case, the two new insurance companies could know exactly the maximum remuneration they could get at the time when they entered into an agreement with Marsh.

98 Therefore, even if the total price of the successful tender has actually not changed for the Commission, the conditions negotiated between the broker sole contractor and the rest of the insurance companies have undoubtedly been changed.

99 It follows from the above that the admission of a broker to participate in the call as a sole tenderer mandated by insurance companies, first, makes illusory the verification by the evaluation committee of the merits of the offer against the conditions imposed by the specifications; secondly, allows said broker to benefit, in this case, of a competitive advantage over other bidders; and thirdly, causes unequal treatment in favour of the broker sole tenderer relative, in particular, to a competitor submitting a joint bid with one or more insurers (T-199/14, paras 93-99, own translation from French and emphasis added).
The GC then goes on to assess to what extent the mere fact of the Commission's engagement with Marsh in pushing for a substitution of AIG after having found out that such insurance company had not accepted the clause on joint liability (as suggested by Vanbreda) amounted to a violation of the principle of equal treatment and the prohibition of negotiations immediately prior to award of the contract, and finds that it is indeed the case (paras 102-133) [for discussion on how such pre-award negotiations can affect competition, and arguments supporting the position followed by the GC, see A Sanchez Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 418-421].

The GC also assesses to what extent the post-evaluation authorisation of a change in the composition of the consortium on which Marsh actually relied also amounts, in itself, to a breach of the principle of equal treatment and, once more, it finds that such a breach took place (paras 134-158). 

Once these infringements are settled, the GC then goes one to assess to what extent the Commission needs to indemnify Vanbreda and finds that the damage derived from the loss of a chance of being awarded the contract and to obtain the corresponding market references in terms of experience is recoverable, but that the rest of claims on the basis of expected benefits and moral damage are not (paras 160-217).

As mentioned at the beginning, in my view, this is a case that shows that the European Commission may not be itself prepared to comply with the very same principles it expects Member States to adhere to. It seems just too obvious that the Commission was willing to engage in very significant procedural irregularities in order to secure a saving of about €0.25mn/year, which was the difference between the offers submitted by Marsh and Vanbreda

Under certain lenses, this is an understandable situation, but this is precisely why the rules on the award of public contracts need to prevent these situations of financial conflict of interest in the assessment of non-compliant bids. It seems like there is a very long and winding road ahead in terms of trying to avoid these problems down the rout of fostering a culture of compliance... In the meantime, this type of hard enforcement decisions such as the GC Judgment in Vanbreda Risk & Benefits v Commission must be most welcome.