Friday, 4 September 2015

When a commercial lawyer is (also) a consumer: Excessive paternalism by the CJEU (C-110/14)

In its Judgment in Costea, C-110/14, EU:C:2015:271, the Court of Justice of the European Union (CJEU) has engaged in extreme formalism in the interpretation of the notion of 'consumer' under EU law [and, more precisely, under Article 2(b) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts]. Costea is, in my view, a criticisable Judgment because it pushes legal fiction too far and departs from what I would have considered a sensible functional approach to the concept of consumer. It is worth looking closer at the reasoning of the CJEU.

The CJEU provides a very useful summary of the facts of the case: 
Mr Costea practises as a lawyer and, as such, primarily handles cases in the field of commercial law... he concluded a credit agreement with Volksbank. The repayment of that loan was secured by a mortgage registered against a building belonging to Mr Costea’s law firm ... That credit agreement was signed by Mr Costea, not only in his capacity as borrower but also in his capacity as representative of his law firm, owing to the latter’s status of mortgage guarantor (C-110/14, para 9, emphasis added).
In short, then, Mr Costea was legally acting in several capacities in a single commercial transaction, where he was both borrowing money personally and representing the legal entity that acted as his guarantor. However, he claimed protection under EU law so as to detach both legal positions and avoid his professional qualification from reducing the protection that he would otherwise be afforded as a lay consumer.

His claim was, in very simple terms, that he was at the same time a commercial lawyer acting for his firm and a consumer acting for himself. Given the impossibility of splitting the human mind and detaching oneself from knowledge already acquired, it is very hard to understand how--beyond the legal fiction derived from his ability to represent a legal entity created and owned by himself, as well as his own personal interests--he could ever be considered to functionally hold two very opposite positions: ie that of the knowledgeable commercial lawyer that acts under the general duties of his lex artis, and that of the unknowing consumer that deserves special protection when it enters into complex transactions.

However, the CJEU does precisely that. Following the Opinion of AG Cruz Villalón (see a comment here), the CJEU engages in the following reasoning:
17 It is ... by reference to the capacity of the contracting parties, according to whether or not they are acting for purposes relating to their trade, business or profession, that the directive defines the contracts to which it applies (judgments in Asbeek Brusse and de Man Garabito, C-488/11, EU:C:2013:341, paragraph 30, and Šiba, C-537/13, EU:C:2015:14, paragraph 21).
18 That criterion corresponds to the idea on which the system of protection implemented by that directive is based, namely that the consumer is in a weaker position vis-à-vis the seller or supplier, as regards both his bargaining power and his level of knowledge. This leads to the consumer agreeing to terms drawn up in advance by the seller or supplier without being able to influence the content of those terms (judgments in Asbeek Brusse and de Man Garabito, C-488/11, EU:C:2013:341, paragraph 31, and Šiba, C-537/13, EU:C:2015:14, paragraph 22).
21 The concept of ‘consumer’, within the meaning of Article 2(b) of Directive 93/13, is ... objective in nature and is distinct from the concrete knowledge the person in question may have, or from the information that person actually has (C-110/14, paras 17-18 and 21, emphasis added).
In setting up this analytical framework, the CJEU conflates two arguments. The first one relates to the weak position of the consumer in terms of unequal bargaining power. The second one relates to the information imperfection that can affect the consumer. At least on this second point, the CJEU is extremely formalist and engages in an interpretation of EU law that is not adjusted to commercial reality, but simply aimed at the world of ideas. By  flatly rejecting that the specific knowledge and expertise of the consumer can alter its legal position, the CJEU preempts any granularity in EU consumer law, at least when it comes to a potential reduction of the standard of protection of the savvy consumer--which is also functionally in stark contrast with the increased protection afforded to the particularly vulnerable consumer, and thus creates a clear imbalance in the development of this area of EU economic law.

Moreover, this formalism exacerbates the paternalism of the CJEU in its aim to protect consumers, even when they are in a situation where they do not actually deserve protection because they are not affected by an information asymmetry or imperfection [for extended discussion on this rationale for consumer protection law, see F Gomez Pomar, 'EC Consumer Protection Law and EC Competition Law: How related are they? A Law and Economics perspective' (2003) InDret 113, pp. 10 and ff]. Thus, the Costea Judgment is bound to expand consumer protection beyond its desirable remit.

The line of argument based on the consumer's limited bargaining power is the one that allows the CJEU to afford protection to Mr Costea as an individual. It is harder to take issue with the reasoning of the CJEU in paras 24-27 because the CJEU assesses the relative bargaining power of a lawyer in the abstract and concludes that 'even if a lawyer were considered to display a high level of technical knowledge ..., he could not be assumed not to be a weak party compared with a seller or supplier'. However, this should have been left for a factual assessment under the circumstances of the case, in which it could actually be proven (not presumed or assumed) that the lawyer was in no weaker position.

This is where the CJEU again engages in a line of reasoning that is extremely formalistic, particularly because it loses perspective of the fact that several legal persons are actually embodied in a single natural person. According to the CJEU
28 As regards the fact that the debt arising out of the contract in question is secured by a mortgage taken out by a lawyer in his capacity as representative of his law firm and involving goods intended for the exercise of that lawyer’s profession, such as a building belonging to that firm, it should be held that ... it has no bearing on the assessment carried out in ... this judgment.
29 The case in the main proceedings concerns the determination of the status (that of consumer or of seller or supplier) of the person who has concluded the main agreement (the credit agreement) and not the status of that person under the ancillary agreement (the mortgage), securing the payment of the debt arising from the main agreement. In a case such as that at issue in the main proceedings, the categorisation, as a consumer or as a seller or supplier, of the lawyer in the context of his taking out a mortgage cannot, consequently, determine his status under the main credit agreement (C-110/14, paras 28-29, emphasis added).
In my view, this is simply functionally absurd. The CJEU failed to look at the transaction as a whole and afforded protection beyond what might have been necessary. Moreover, the reasoning seems exceedingly simplistic in its dichotomy: ie in a given contract, each of the parties is either a consumer or a seller/supplier. This is not in line with the fact that, as AG Cruz Villalón pointed out in his Opinion, 'the contrast between the concepts of seller or supplier and consumer does not operate in completely symmetrical terms' (para 21). A functional approach should certainly allow for a more nuanced approach, so that a specific party (ie the one that demands the services in the transaction) can be categorised as consumer/no-consumer. This is certainly the case with legal entities [Judgment in Cape and Idealservice MN REC-541/99 and C-542/99, EU:C:2001:625, para 16], and there seems to be no good reason to automatically exclude such analysis in the case of professionals.

Overall, then, the Costea Judgment seems like an exceedingly formalistic exercise and leaves a flavour of undue expansion of consumer protection that could well backfire by allowing professionals to access unnecessary protection by the simple use of separate legal entities (which they can create and control). Will this lead to a future extension of the doctrine of lifting the corporate veil to the area of consumer protection? That would certainly be bonkers...

Monday, 24 August 2015

Public Contracts Regulations 2015 ... THE END

It seems incredible that the procurement tennis that Dr Pedro Telles and I started on 16 February 2015 (see here and here) has come to an end with today's comments (Pedro has also declared game over). Thank you all for reading and contributing to the debate, and for the encouragement we received from so many of you!

In April, Peter Smith wrote about our 'Herculean' task. In his kind words 'by the time Telles and Sánchez Graells have finished, this will be a considerable and useful resource for public procurers. And although the material is by definition somewhat technical at times, it is accessible for practitioners and it should be essential reading for anyone interested in staying within EU and national rules, yet also getting the most flexibility possible out of the regulations in order to generate better results and performance.' We hope we have delivered to those high expectations.

In any case, as a result of these 244 posts, we have a pretty bulky draft of what could become a more formal commentary to the Public Contracts Regulations 2015. We are thinking about ways of polishing and improving the material, as well as platforms to make it available both online and in print. Any suggestions would be welcome. We will keep you posted.

On the 'human' side of the project, Pedro published some reflections on the experience half way through (30 June 2015). I will still need some time to digest this project, which has made blawging certainly more intense than it used to be for me. I guess that the only lesson I have really learnt is that committing to blog daily on a predetermined topic is quite a challenge. So don't!

I now look forward to the freedom of choosing what to blog about, and I hope some of the readers of How to Crack a Nut will remain interested despite the likely change of focus away from public procurement, at least for a while. I hope I will not have too much writers block...

Revocation, amendments, savings, transitional provisions and temporary exceptions under regs.115 to 122 Public Contracts Regulations 2015

Regs.115 to 122 of the Public Contracts Regulations 2015 (PCR2015) contain rules on revocation, amendments, savings, transitional provisions and temporary exceptions. These rules are intended to maintain the effects of procurements carried out under pre-2015 rules and to establish the delayed entry into force of the 2015 rules in certain areas (Pedro has a similar view).

Reg.116 revokes the 2006 Public Contracts Regulations (PCR2006) and provides that the consequential and miscellaneous amendments set out in Schedule 6 PCR2015 have effect. Given the difference in scope of coverage of concession contracts between the PCR2006 and the PCR2015, reg.117 PCR2015 establishes a general saving in respect of certain concession contracts and determines that nothing in the PCR2015 affects public works or services concession contracts within the meaning of the PCR2006, or procedures for the award of such contracts. 

Reg.118 establishes a general transitional provision and saving where procurement procedures commenced before 26th February 2015, and reg.119 PCR2015 establishes an equivalent transitional provision and saving where utilities procurement procedure commenced before 26th February 2015.

On its part, and as mentioned in relation to regs.77 and 113 PCR2015, reg.12o PCR2015 establishes a temporary exemption and saving for certain NHS procurements, whereby nothing in the PCR2015 affects (a) any contract award procedure that relates to the procurement of health care services for the purposes of the NHS within the meaning and scope of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013, and is commenced before 18th April 2016; or (b) any contract awarded as a result of such a procedure.

Reg.121 PCR2015 establishes a delayed entry into force of certain obligations concerning eProcurement and the use of electronic means of communication. During such transitory period prior to the full commencement of reg.22(1) to (7) PCR2015--ie, the period between 26th February 2015 and 17th October 2018--contracting authorities may choose between the following means of communication: electronic means in accordance with reg.22 PCR2015; post or other suitable carrier; fax; or a combination of those means. That choice is available for all communication and information exchange in respect of which both the following criteria are met: (a)the use of electronic means would, in accordance with reg.22(1) to (5), have been required if those provisions had been in force; and (b) the use of electronic means is not required by any other provision of the PCR2015 that is in force.

Finally, reg.122 PCR2015 establishes special rules concerning compliance with reg.113 PCR2015 whereby, in relation to any financial year ending before 1st April 2016, a contracting authority may comply with reg.113(7) as if sub-paragraph (b) referred to the total amount of interest actually paid instead of the total amount of liability accrued.

Friday, 21 August 2015

General provisions applicable to Part 4 under reg.114 Public Contracts Regulations 2015

Reg.114 of the Public Contracts Regulations 2015 (PCR2015) closes its Part 4 and sets two general provisions (see Pedro's brief comments here). Before looking at them in detail, it is worth reminding that Part 4 (regs. 105 to 114 PCR2015): (a) expands (both ex ante and ex post) transparency obligations domestically by requiring publications in Contracts Finder and, in particular, creates transparency obligations for below EU-threshold contracts (regs.110 and 112PCR2015); (b) restricts the use of PQQs (either prohibiting them for below threshold contracts, or limiting them to a standardised PQQ); and (c) reinforces some obligations to pay promptly.

Reg.114(2) PCR2015 establishes that nothing in Part 4 requires a contracting authority to disclose any information if it considers that the disclosure would be contrary to the security interests of the United Kingdom. There is not much to say about this, other than stressing the need to interpret this provision in very narrow terms and subject it to a strict proportionality analysis--ultimately based on the case law concerned with Art 36 TFEU and its functional equivalents when it comes to derogating from internal market freedoms on the basis of public interest and security concerns.

More importantly, reg.114(1) PCR2015 declares that a material failure to comply with any requirement of Part 4 does not, of itself, affect the validity of a public contract that has been entered into. This creates uncertainty as to the consequences of such a breach, particularly because the remedies in Part 3 are not available for breaches of duties under Part 4 (see reg.98 PCR2105, and comments here). 

However, at least where the contract is of cross-border interest, it is quite clear that reg.114(1) PCR2015 would be contrary to the case law of the CJEU, at least in relation to infringements relating to reg.110 PCR2015 if they resulted in excessively diminished levels of ex ante transparency. In that regard, it is worth stressing that contracts covered by reg.110 can be of cross-border interest despite not meeting the value thresholds of reg.5 PCR2015.

In those cases, a consolidated body of case law of the CJEU  (mainly, Telaustria and Telefonadress, C-324/98, EU:C:2000:669; and Coname, C-231/03, EU:C:2005:487) has imposed certain obligations derived from the general principles of EU law (now consolidated in reg.18 PCR2015). Amongst those obligations, there is a relatively undefined requirement to ensure a 'sufficient degree of advertising', or ex ante transparency [for discussion, see C Risvig Hansen, Contracts Not Covered or Not Fully Covered by the Public Sector Directive (Copenhagen, DJØF, 2012) 121-160 (cross-border interest) and 161-186 (transparency)]. 

In its most recent formulation, the CJEU has reiterated that 'the principles of equal treatment and of non-discrimination on grounds of nationality impose, particularly on the contracting authority, a duty of transparency, consisting in the duty to ensure, for the benefit of any potential tenderer, a degree of publicity sufficient to enable the award procedure to be opened up to competition and the impartiality of that procedure to be reviewed, without necessarily implying an obligation to call for tenders' (Comune di Ancona, C-388/12, EU:C:2013:734, para 46). Thus, infringements of rules requiring ex ante disclosure of contract opportunities can imply breaches of EU law--provided there is a cross-border interest for the contract.

Thus, it is not clear at all that reg.114(1) PCR2015 suffices to actually create a legal situation whereby 'a material failure to comply with any requirement of Part 4 [PCR2015] does not, of itself, affect the validity of a public contract that has been entered into', so contracting authorities should not disregard the importance of compliance therewith.

Thursday, 20 August 2015

Payment of undisputed invoices within 30 days by contracting authorities, contractors and subcontractors under reg.113 Public Contracts Regulations 2015

Reg. 113 of the Public Contracts Regulations 2015 (PCR2015) establishes rules for the payment of undisputed invoices within 30 days. Reg.113 clearly aims to shorten the delay in payments down the supply chain and, somehow,  comes to make up for the fact that reg.71 PCR2015 does not include some of the optional mechanisms in Art 71 of Directive 2014/24 to that effect, such as the possibility to create mechanisms of direct payment to subcontractors.

On the whole, reg.113(2) PCR2015 tries to achieve the goal of ensuring prompt payments down the supply chain by establishing that contracting authorities shall ensure that every public contract which they award contains suitable provisions to require: 

(a) that any payment due from the contracting authority to the contractor under the contract is to be made no later than the end of a period of 30 days from the date on which the relevant invoice is regarded as valid and undisputed;

(b) that any invoices for payment submitted by the contractor are considered and verified by the contracting authority in a timely fashion and that undue delay in doing so is not to be sufficient justification for failing to regard an invoice as valid and undisputed; and

(c) that any subcontract awarded by the contractor contains suitable provisions to impose, as between the parties to the subcontract (i)requirements to the same effect as those which sub-paragraphs (a) and (b) require to be imposed as between the parties to the public contract; and a requirement for the subcontractor to include in any subcontract which it in turn awards suitable provisions to impose, as between the parties to that subcontract, requirements to the same effect as those required by this sub-paragraph (c).

Where no such provisions exist, reg.113(6) PCR2015 determines that very similar terms will be implied in the relevant contracts.

Hence, the three main obligations that derive from reg.113(2) and (6) are: a duty to verify invoices in a timely fashion, a duty to pay within 30 days all invoices regarded as valid and undisputed (which is inexcusable in case of undue delay in the verification process), and a duty to include (or have implicitly included) those terms in all contracts and subcontracts.

Reg.113(7) PCR2015 requires contracting authorities to publish on the internet each year how they have performed on this including the proportion of invoices paid on time to their first tier suppliers /prime contractors.

There are several issues regarding reg.113 that deserve detailed comments (Pedro has focused on the impact of this rules on highly-complex contracts here).

(1) Need to coordinate Reg.113 PCR2015 and Directive 2011/7 on late payments
Directive 2011/7/EU on combating late payment in commercial transactions imposes specific obligations to ensure prompt payment in commercial transactions, both when payments are due to the main contractor, and when they are due between undertakings (in the case of subcontracts) [see Department for Business, Innovation and Skills, A Users Guide to the recast Late Payment Directive (October 2014)]. 

Those obligations clearly apply in concurrence to the specific rules of reg.113, as implicitly acknowledged in its paragraph (3), whereby reg.113(2) is without prejudice to any contractual or statutory provision under which any payment is to be made earlier than the time required by that paragraph. 

Under Art 4(3)(a)(i) Dir 2011/7, in commercial transactions where the debtor is a public authority, the period for payment cannot exceed 30 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment. However, under Art 4(3)(a)(iv) Dir 2011/7, where a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for by statute or in the contract and if the debtor receives the invoice or the equivalent request for payment earlier or on the date on which such acceptance or verification takes place, the period for payment cannot exceed 30 calendar days after that date. 

In any case, under Art 4(5) Dir 2011/7, for such acceptance or verification procedure to be valid for these purposes, its maximum duration must not exceed 30 calendar days from receipt of the goods or services, unless otherwise expressly agreed in the contract and any tender documents and provided it is not grossly unfair to the creditor (Art 7 Dir 2011/7).

In view of all this, there are two risks derived from an approach of strict compliance with reg.113(2)(a) and (b) PCR2015 that could leave contracting authorities exposed to pay statutory damages, without the necessity of a reminder, in the form of statutory interest for late payment--ie simple interest for late payment at a rate which is equal to the sum of the reference rate and at least eight percentage points.

The first risk is that contracting authorities may incur in liability for late payment under Art 4(3)(a)(1) Dir 2011/7 if they do not pay invoices within 30 days from their date because they engage in non-contractual acceptance or verification processes. In my view, the scant provisions in reg.113(2)(b) and 113(6)(b) are insufficient to meet the requirement for such procedures to be considered statutory for the purposes of Art 4(3)(a)(iv) Dir 2011/7. Hence, unless they include a regulation (even if by reference) of those verification and acceptance procedures in the public contract, they are bound to pay within 30 days from invoice date.

The second risk is that, as a combined effect of Art 4(3)(a)(iv) and Art 4(5) Dir 2011/7, and unless otherwise expressly agreed in the contract and any tender documents and provided it is not grossly unfair to the creditor (Art 7 Dir 2011/7), the combined length of those verification and acceptance procedures and payment cannot exceed 60 days. Consequently, contracting authorities cannot in any case pay later than 60 days after receipt of the goods or services, regardless of any autonomous interpretation of the requirements in reg.113(2)(b).

Consequently, as interpreted in compliance with Dir 2011/7, reg.113 PCR2015 imposes payment dates that are potentially stricter than a simple reading of the provision could indicate. In fact, reg.113 does not create any obligation to pay any quicker than contracting authorities had to do under EU law in any case. 

The situation is different when it comes to payment obligations between contractors and sub-contractors, or further down the supply chain. In that regard, it is worth stressing that under Art 3(5) Dir 2011/7, contracts regarding commercial transactions between undertakings cannot specify payment periods beyond 60 days, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor (Art 7 Dir 2011/7). In that regard, the virtuality of reg.113(2) and (6) PCR2015 is to enforce that limit and, probably, reduce it where the contracting authority pays in a shorter period.

(2) Formal exceptions for NHS and  schools' and academies' procurement
A second point that deserves comments concerns reg.113(1) PCR2015, which excludes contracts for the procurement of health care services for the purposes of the NHS within the meaning and scope of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013; and contracts awarded by a contracting authority which is a maintained school or an Academy, from compliance with the requirements of the regulation.

In my view, and given the discussion above, this exclusion is perfectly useless, at least in relation to the NHS. Given that all contracting authorities [Art 2(2) Dir 2011/7] need to pay within the 30 calendar day limits set by Art 4(3) Dir 2011/7, the exclusion of reg.113(1) has no practical effect. Under Art 4(4) Dir 2011/7, the UK could have decided to apply for longer payment periods for health services and other commercial activities carried out by public entities. However, the Government decided not to do so [see Department for Business, Innovation and Skills, Directive 2011/7/EU on Combating Late Payment in Commercial Transactions. Government Response to Consultation (February 2013)]. Similar reasons apply to the exclusion for schools and academies.

Thus, it is unclear why reg.113(1) PCR2015 aims to create such an exclusion and, in my view, it is in any case ineffectual.

(3) Statutory Guidance Issued under Reg.113 --Standard Term Not Useful At All
Reg.113(4) PCR2015 establishes that contracting authorities shall have regard to any guidance issued by the Minister for the Cabinet Office; and reg.113(5) PCR2015 further determines that such guidance may, in particular, recommend model provisions, including provisions defining the circumstances in which an invoice is to be regarded as being, or as having become, valid and undisputed including, for example: (a) provisions deeming an invoice to have become valid and undisputed if not considered and verified in a timely manner; and (b) addressing what is to be considered, for that purpose, to be a timely manner in various circumstances. 

Such guidance has now been published and is available here. However, it simply provides a standard term on prompt payment that contracting authorities can include in their contracts. The standard terms simply provides the following (and a clause on sub-contracts):
1. Where the Contractor submits an invoice to the Authority [in accordance with paragraph [•]], the Authority will consider and verify that invoice in a timely fashion.
2. The Authority shall pay the Contractor any sums due under such an invoice no later than a period of 30 days from the date on which the Authority has determined that the invoice is valid and undisputed.
3. Where the Authority fails to comply with paragraph 1 and there is an undue delay in considering and verifying the invoice, the invoice shall be regarded as valid and undisputed for the purposes of paragraph (2) after a reasonable time has passed.
In my view, such a clause does not regulate the procedure for verification and acceptance to an acceptable standard in terms of Art 4(5) Dir 2011/7. In particular, the first paragraph is insufficient to consider that it sets out a "procedure of acceptance or verification by which the conformity of the goods or services with the contract is to be ascertained". Thus, contracting authorities will be well-advised to pay all their invoices within 30 days from their date in order to meet the requirements under Art 4(3) Dir 2011/7. Otherwise, they will have to start paying statutory damages in the form of statutory interest for late payment very soon and very often.

Wednesday, 19 August 2015

A network of papers on competition in public procurement: What a summer

If anyone has followed my SSRN account over the summer, they could not be blamed for thinking that I have been uploading quite a number of relatively similar papers on the interaction of competition and public procurement rules, and particularly the interpretation of Article 18(1) of Directive 2014/24. Given that this is something I explore in detail in Public Procurement and the EU Competition Rules, 2nd end (Oxford, Hart, 2015) 195-237 (generously made freely available by Hart Publishing here), the reader may wonder what else was there to say about this.

It is true that some of these papers touch upon connected issues and even have some overlapping sections. This could indeed lead readers to think that the papers are a simple iteration of the same ideas and, consequently, there is no point in reading them. This post explains how these papers interact and relate to each other--and it will hopefully clarify that I have not simply engaged in a massive exercise of self-plagiarism (or at least not willingly!). The papers address different specific issues or have different overall aims, which I hope makes them interesting to different scholars and practitioners for different reasons.

(1) The paper with a more general view is 'Competition Law and Public Procurement', which explores two of the areas in which antitrust prohibitions and public procurement law interact. This forms part of a larger project led by Dr Jonathan Galloway of the Newcastle Law School, which researches the way in which antitrust law (ie arts 101 and 102 TFEU) has developed through its interaction with other sets of economic law rules, both in the public and private law sphere. Thus, the paper provides an overview of the areas where the antitrust rules and EU public procurement law overlap, and zooms in to propose that the principle of competition in Art 18(1) of Dir 2014/24 may serve as a transmission belt to bring competition considerations and analysis to the public procurement sphere.

(2) With a similar general approach, I have updated 'Public Procurement and Competition: Some Challenges Arising from Recent Developments in EU Public Procurement Law' (originally drafted in 2013), to be included in Professor Chris Bovis' Research Handbook on European Public Procurement (Edward Elgar, forthcoming). This paper aims to map some of the challenges for a better integration of competition and public procurement rules that remain after the adoption of Dir 2014/24, and pays attention to issues related to eProcurement and the need of further professionalization of procurement. The paper points at research questions that may lead to further research, so it will hopefully be relevant to academics and postgraduate students looking for not so trodden paths to further our knowledge in this area of EU economic law.

(3) The most recent paper 'A Deformed Principle of Competition? – The Subjective Drafting of Article 18(1) of Directive 2014/24' provides a contextual analysis of the legislative process that led to the adoption of Dir 2014/24. Again, this paper forms part of a larger project led by Dr Grith Skovgaard Ølykke and myself that explores broader issues of the EU legislative process and the interaction of the EU Institutions involved, using the 2011-2014 EU public procurement reform as a case study. From this perspective, the paper focuses on the EU legislative process that led to the consolidation of the principle of competition in Art 18(1) of Dir 2014/24, as well as the modifications that its drafting suffered as a consequence of the negotiations between the Member States at the Council and the further amendment proposals by the European Parliament in preparation of the trialogue with the European Commission. This is, on its whole, a 'law and political science' paper--which is a methodological approach that we are trying to embrace as part of the project.

(4) Following this approach of assessing the interaction between law and policy, 'Truly Competitive Public Procurement as a Europe 2020 Lever: What Role for the Principle of Competition in Moderating Horizontal Policies?' tackles the implications of the principle of competition for the pursuit of horizontal policies as part of the broader Europe 2020 strategy. The paper takes the view that the principle of competition in Art 18(1) of Dir 2014/24 is the main tool in the post-2014 procurement toolkit and the moderating factor in the implementation of any horizontal (green, social, innovation) policies under the new rules — that is, that competition remains the main consideration in public procurement and that the pursuit any horizontal policies, including those aimed at delivering the Europe 2020 strategy, need to respect the requirements of undistorted competitive tendering. This is part of a broader discussion on the position and role of public procurement in the Europe 2020 strategy with Dr Richard Craven, Dr Sylvia de Mars and Dr Rike Kraemer at the forthcoming UACES conference.

(5) Finally, adopting a different perspective, 'Assessing Public Administration’s Intention in EU Economic Law: Chasing Ghosts or Dressing Windows?' looks at public procurement and State aid rules as two examples of areas of EU economic law subjected to interpretative and enforcement difficulties due to the introduction, sometimes veiled, of subjective elements in their main prohibitions. The paper explores the main thesis that such intentional elements need to be ‘objectified’, so that EU economic law can be enforced against the public administration to an adequate standard of legal certainty. Thus, the paper does not delve into the substantive implications of the principle of competition in Art 18(1) of Dir 2014/24, but on the technical aspects implied in its apparent requirement of assessing the intention of contracting authorities whose procurement activities are covered by the EU rules.

Overall, in my view, the papers offer quite a complementary set of perspectives on the general issue of the interaction between competition law and public procurement (1, 2), the way in which this interaction is fleshed out in the EU legislative process (3), the way in which diverging and conflicting policy goals can be balanced-out in a pro-competitive way (4) and the broader implications of the development of EU administrative law issues within these fields of EU economic law (5). Their common theme or common denominator is the permanent main focus on the principle of competition consolidated in Art 18(1) of Dir 2014/24. However, when taken as a whole, that is solely the conduit for the exploration of broader issues. Thus, I hope they will still be relevant for interested readers. From now on, I will focus on different issues. Enough of this topic, at least for the summer!

Yet another paper on the principle of competition in the 2014 public procurement Directive

I have uploaded a new paper on SSRN: 'A Deformed Principle of Competition? – The Subjective Drafting of Article 18(1) of Directive 2014/24', forthcoming in GS Ølykke & A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules in 2014 (Cheltenham, Edward Elgar Publishing, 2016). Available at SSRN:

The paper focuses on the EU legislative process that led to the consolidation of the principle of competition in Article 18(1) of Directive 2014/24, as well as the modifications that its drafting suffered as a consequence of the negotiations between the Member States at the Council and the further amendment proposals by the European Parliament in preparation of the trialogue with the European Commission. As detailed in the abstract:
In its 2011 Proposal for a new Directive on public procurement, the European Commission included the consolidation of the general principles of procurement. For the first time, in addition to the ‘classic’ triad of equality, non-discrimination and transparency, it expressly included the principle of competition amongst such general principles. In the 2011 Proposal, the Commission referred to an objective concept of restriction of competition, which would be proscribed by the future Directive. Successive negotiations allowed the Council and the European Parliament to alter the drafting of this provision. The final text in Article 18(1) of the 2014 Directive thus contains a different version of the principle of competition. In this final version, both a subjective element and a presumption of distortion of competition are included, which could diminish the effectiveness of the principle. Moreover, both deviations from the initial proposal by the Commission are difficult to reconcile with the existing case law of the Court of Justice of the European Union (CJEU).

This paper traces the legislative evolution of the principle of competition in public procurement and looks for explanations for the alteration of its initial drafting. Looking to the future, it considers whether the CJEU will stand by the new drafting and limit the principle as desired by the Council and the Parliament or, conversely, it will promote a functional approach along the lines of the objective conception initially proposed by the Commission. This paper proposes that the second option is preferable and, in any case, more likely in view of the CJEU's treatment of similar issues in other areas of EU public procurement law (such as the classical anti-circumvention provisions), as well as EU economic law more generally (and, remarkably, competition law and the granting of State aid).
The paper is part of a larger project where Dr Grith Skovgaard Ølykke and myself will be editing a book that explores broader issues of the EU legislative process and the interaction of the EU Institutions involved, using the 2011-2014 EU public procurement reform as a case study. We are thrilled to have a long list of excellent young and raising scholars contributing to the book. Stay tuned for further developments.

Publication of information on Contracts Finder about contracts awarded under Reg. 112 Public Contracts Regulations 2015

Reg.112 of the Public Contracts Regulations 2015 (PCR2015) imposes obligations to publish information on Contracts Finder about the award of contracts below EU thresholds. Such obligation is triggered every time a public contract is awarded [reg.112(1)], which imposes an ex post transparency obligation for contracts not exempted under reg.109, even if no ex ante transparency was required by reg.110 PCR2015.

The content of the publication obligation is functionally equivalent to the obligation under reg.108 PCR2015 for contracts above EU thesholds and, consequently, it does not deserve further comments (Pedro concurs), except for the fact that the publication needs to specify whether the contractor is an SME or VCSE, that is a non-governmental organisation that is value-driven and which principally reinvests its surpluses to further social, environmental or cultural objectives. 

If nothing else, this will provide a wealth of data to assess to what extent public contracts are actually channeled through these preferred organisations. However, the sole thought that fundamental details of every single contract, including the contractor's name, will be made available online is quite scary, particularly in sectors with oligopolistic structure. Hence, once more, it is worth stressing that contracting authorities need to be very careful and manage information. 

Reg. 112(3) allows them to do so by allowing exceptions to the obligation to publish where where release of certain information would impede law enforcement or would otherwise be contrary to the public interest, would prejudice the legitimate commercial interests of a particular economic operator, whether public or private, or might prejudice fair competition between economic operators [for discussion, see A Sanchez Graells, "The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives" (November 2013) University of Leicester School of Law Research Paper No. 13-11].

Tuesday, 18 August 2015

Assessing suitability etc under Reg. 111 Public Contracts Regulations 2015

Reg. 111 of the Public Contracts Regulations 2015 (PCR2015) imposes a significant restriction in the assessment of suitability of tenderers and bidders for contracts below EU thresholds by prohibiting contracting authorities from including a pre-qualification stage in their procurement [reg.111(1)]. 

For these purposes, “pre-qualification stage” means a stage in the procurement process during which the contracting authority assesses the suitability of candidates to perform a public contract for the purpose of reducing the number of candidates to a smaller number who are to proceed to a later stage of the process [reg.111(4)]--ie, no PQQs or, as the Crown Commercial Service has summarised it, 'in practical terms ... PQQs used as part of a pre-qualification stage are not permitted' (which goes well beyond the use of a standardised PQQ for above threshold procurement under reg.107 PCR2015). 

This creates significant legal uncertainty in contracting authorities tendering relatively small contracts, which are now left with the problem of ensuring that their contractors are qualified without knowing exactly how to go about it [see Pedro's views on this here]. And the main effect of such uncertainty is that they will have a very strong incentive to rely on contractors they know and have dealt with in the past, so that they are not negatively affected by the prohibition on the use of PQQs. The end result may well be to significantly close local markets to entry by SMEs and larger companies without a previous track record with a given contracting authority. Consequently, this provision needs to be strongly criticised.

Moreover, the actual implications and limitations derived from the no-PQQ rule are far from clear and reg.111(5) indicates that, in any event, contracting authorities may ask candidates to answer suitability assessment questions only if each such question is relevant to the subject-matter of the procurement; and proportionate. Reg.111(6) tries to clarify that “suitability assessment question” means a question which relates to information or evidence which the contracting authority requires for the purpose of assessing whether candidates meet requirements or minimum standards of suitability, capability, legal status or financial standing. 

Thus, the puzzle is served and the practical discussion of whether (small, tiny) PQQs can be used but they need to be labelled SAQs keeps most procurement practitioners on the edge. Unfortunately, the guidance published by the Cabinet Office does not solve this practical problem. And this is particularly troublesome because the Mistery Shopper scheme applies to reportable deviations from the prohibition of using PQQs or the eventual disproportionate use of SAQs. The comments made in relation to reg.107 PCR2015 apply.

Monday, 17 August 2015

Good decision on non-disclosure of confidential information in public procurement, despite use of Freedom of Information Act

Helen Prandy of Procurement Portal has blogged about an interesting case regarding the always difficult balance between transparency and the protection of confidential information / business secrets in a public procurement environment. These are issues that have popped up repeatedly in the commentary of the Public Contracts Regulations 2015 (PCR2015) [see eg regs.21, 53, 55, 79, 83, 84, 86108, 112] and have significant practical relevance.

The case is Sally Ballan v Information Commissioner EA/2015/0021, where the First Tier Tribunal, General Regulatory Chamber (Information Rights) (FTT) decided against the appellant and confirmed the previous Information Commissioner (ICO)'s decision not to allow disclosure of a successful bid in a procurement process for the delivery of a “Leisure Management System”. This is interesting because the claim for access to information was not based on public procurement rules, but on the possibility of filing 'freedom of information requests' under the Freedom of Information Act 2000 (FOIA). In her post 'Commercial Interests: where does the balance lie under FOIA?', Helen Prady offers more background.

From a procurement transparency perspective, it is interesting to highlight the interpretation of s.43(2) FOIA upheld by the FTT, which allows public authorities to deny disclosure under an information request on the basis that the '[i]nformation is exempt ... if its disclosure under this Act would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it)'. 

This is functionally very close to the possibilities foreseen under public procurement rules to withhold information where its release would prejudice the legitimate commercial interests of a particular economic operator, whether public or private. Even if s.43(2) FOIA does not include an explicit reference to disclosure of information that 'might prejudice fair competition between economic operators' (as public procurement rules do), it should be stressed that the interpretation and construction of this section of the FOIA is broad, and that it must encompass those sort of considerations under the public interest test [as further developed by Paul Gibbons of FOIMan here].  

Indeed, in the interpretation of s.43(2) FOIA by the FTT in Sally Ballan v Information Commissioner, this is particularly clear in paras [25(c), emphasis added] and [29], whereby
The ICO sets out factors tending towards public interest in not disclosing the information as: (c) There is a public interest in maintaining an efficient competitive market for leisure management systems. If the commercial secrets of one market entity were revealed, its competitive position would be eroded and the whole market would be less competitive. As the Court of Appeal put it in Veolia ES Nottinghamshire Ltd v Nottinghamshire County Council and others [2012] P.T.S.R. 185 at [111], a company’s confidential information is often “the life blood of an enterprise”. The ICO argued that this is particularly so in an industry such as the provision of leisure management systems because such systems are a complex amalgam of technologies, customer support networks, and user interfaces, which involve elements individual to particular companies. Those individual elements drive competition to the benefit of public authorities and consumers.

In terms of factors tending towards public interest in not disclosing the information, we accept and adopt all points made by the ICO in paragraph 25 above. An additional factor would include an interest in not disclosing any information to the extent that it contained trade secrets of the relevant tenderers.
Remarkably, the approach followed by the FTT under s.43(2) FOIA is convergent with that recently stressed by the General Court in European Dynamics Luxembourg and Others v Commission, T-536/11, EU:T:2015:476 (see here), which seems to indicate a clear trend towards a rationalisation of the transparency requirements in a public procurement setting in the right direction. For further discussion of the arguments in favour of such limitation of transparency in the public procurement setting, see A Sanchez-Graells, The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives (University of Leicester School of Law Research Paper No. 13-11, 2013).

Publication of contract opportunities on Contracts Finder under Reg.110 Public Contracts Regulations 2015

Reg.110 of the Public Contracts Regulations 2015 (PCR2015) creates an obligation to publish contract opportunities on Contracts Finder that extends to almost all contracts of a value higher than £10,000 or £25,000, except NHS and education-related contracts (see reg.109 for coverage of obligation and Pedro's remarks here).

Reg.110(5)(a) clarifies that a contracting authority advertises an opportunity if it does anything to put the opportunity in the public domain or bring the opportunity to the attention of economic operators generally or to any class or description of economic operators which is potentially open-ended, with a view to receiving responses from economic operators who wish to be considered for the award of the contract. 

Reg.110(5)(b) builds on the clarification and adds that, accordingly, a contracting authority does not advertise an opportunity where it makes the opportunity available only to a number of particular economic operators who have been selected for that purpose (whether ad hoc or by virtue of their membership of some closed category such as a framework agreement), regardless of how it draws the opportunity to the attention of those economic operators.  

This seems odd, as the drafting of the provision seems to leave it entirely to the discretion of the contracting authority to decide whether to create an open competition through the advertisement of the contract opportunity, or to resort to a limited competition with a pre-determined group of economic operators [along the same lines, see here, although it is clear that reg.112 requires contract award information to be posted on Contracts Finder, regardless of whether the below-threshold contract was initially advertised there or not, so the discretion is only on ex ante publication].

From the perspective of regulating contracts awarded below EU thresholds in a way that ensure competition leading to value for money, this seems to allow contracting authorities a large degree of discretion to continue with less than fully transparent procurement practices based on lists of preferred suppliers or similar arrangements [for discussion, see L Butler, 'Below threshold and Annex II B service contracts in the United Kingdom: A common law approach', in R Caranta and D Dragos (eds) Outside the EU Procurement Directives—Inside the Treaties?, vol. 4 European Procurement Law Series (Copenhagen, DJØF, 2012) 283,295 ff]. 

In my view, this may fall short from ensuring that procurement is truly competitive and that SMEs actually have access to public contracts, and the system should be refined to determine when the contracting authority can avoid the obligation to publish a contract opportunity. Moreover, in case a specific procurement is of cross-border interest, and despite the fact that it remains below EU thresholds, an absolute absence of ex ante transparency could result in an infringement of EU law (as discussed in more detail regarding reg.114 PCR2015).

In general terms, the publication regime in reg.110 PCR2015 is fundamentally equivalent to that mandated by reg.106 PCR2015 for contracts above thresholds and is subjected to the same guidance. When contracting authorities publish contract opportunities through Contracts Finder, they must also provide electronic access to the tender documents in terms equivalent to the requirements of reg.22 PCR2015 [reg.110(12) and ff].

Interestingly, one of the particular requirements of this obligation to publish is that the contracting authority needs to determine the time by which any interested supplier must respond if it wishes to be considered [reg.110(8)(a)], and the time shall be such as to allow the economic operators a sufficient but not disproportionate period of time within which to respond [reg.110(9)]. 

In the guidance, it is clarified that the time period must be sufficient to enable interested suppliers to respond to the opportunity and proportionate to the value of the procurement. In more detail, it is indicated that where the contracting authority is seeking a tender response, it is recommended that the minimum time required to submit a tender response is 10 working days.

Friday, 14 August 2015

Thank you for putting me on SSRN top 500 authors in the last 12 months

I finish the week with the fantastic news that all of you have managed to put me in the top 500 SSRN authors by downloads for the last 12 months (and almost in the top 2,000 overall). I am really honouored and humbled by this and would like to send out a big thank you.

This is a great boost of motivation to continue blogging and publishing scholarly articles, and I hope that the future pieces will continue to attract your attention.

Thank you again for reading my scholarship.

Best wishes,

New paper on intersection of competition law and public procurement

During the Spring of 2014, Dr Jonathan Galloway and Dr Francesco De Cecco of the Newcastle Law School organised a seminar series on ‘The Intersections of Antitrust: Competition Law and…’ and I was fortunate to be invited to present my views on the interaction between competiton law and public procurement. A condensed re-run of the presentations will take place in London on 15 September 2015 in a joint LSE/Newcastle event.

This seminar series is now turning into an edited collection to be published by Oxford University Press. I have uploaded my contribution on SSRN, which abstract is as follows:
The interaction between competition law and public procurement has been gaining visibility in recent years. This paper claims that these two bodies of EU economic law mainly intersect at two points, or in two different dimensions.

Firstly, they touch each other at the need to tackle anticompetitive practices (or bid rigging) in public tenders. This has attracted significant attention in terms of the enforcement priorities of competition authorities and led to recent regulatory developments in the 2014 EU public procurement Directives aimed at increasing the sanctions for bid riggers.

Secondly, competition and public procurement cross again at the need to avoid publicly-created distortions of competition as a result of the exercise of buying power by the public sector, or the creation of regulatory barriers to access to public procurement markets. This second intersection has been less explored and the development of regulatory solutions has been poor in both the fields of EU competition law and EU public procurement law. Moreover, the protection of the ‘public mission’ implicit in the public procurement activity led the CJEU to deform the concept of undertaking in a way that can distort EU antitrust enforcement beyond public procurement markets.

This paper assesses these issues and stresses the possibilities for a better integration of competition considerations in public procurement through the principle of competition of the 2014 Directives. 
Full details of the paper are: A Sanchez-Graells, 'Competition Law and Public Procurement', in J Galloway (ed), Intersections of Antitrust: Policy and Regulations (Oxford, OUP, 2016).

Scope of Chapter 8 under Reg. 109 Public Contracts Regulations 2015

Reg.109 of the Public Contract Regulations 2015 (PCR2015) defines the scope of application of Chapter 8, which creates transparency and bureaucratic obligations parallel to those in Chapter 7 (regs.106 to 108) for contracts below EU thresholds--ie imposes the use of Contracts Finder and bans the use of PQQs in the procurement of contracts covered by reg.109 PCR2015. As Pedro stressed, the 'chapter is particularly important as it constitutes the first time contracts below-thresholds are subject to regulations'.

According to reg.109(1) PCR2015, Chapter 8 applies to procurements by contracting authorities with respect to public contracts where Part 2 PCR2015 does not apply because the estimated value of the procurement is less than the relevant threshold mentioned in reg.5. Interestingly, reg.109(4) includes an anti-circumvention provision identical to that in reg.6(5) and 6(6) PCR2015, whereby a procurement shall not be subdivided with the effect of preventing it from falling within the scope of Chapter 8, unless justified by objective reasons.

There are several exceptions to the obligation to comply with regs.110 to 112. First, the procurement of contracts that would not have been covered by Part 2 even if the estimated value of the procurement had been equal to or greater than the relevant threshold in reg.5 can be carried out without compliance with Chapter 8 [reg.109(2)(a)]. Second, the exemption also covers low value contracts: ie contracts of an estimated value net of VAT of less than £10,000, where the contracting authority is a central government authority [reg.109(2)(b)]; and contracts of an estimated value net of VAT of less than £25,000, where the contracting authority is either a sub-central contracting authority [reg.109(2)(c)]. Reg.109(3) clarifies how to calculate the value of the contracts.

Thirdly, there are exceptions concerning the NHS, which cover contracts tendered by an NHS Trust of an estimated value net of VAT of less than £25,000 [reg.109(2)(c)], as well as all of the procurement of health care services for the purposes of the NHS within the meaning and scope of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 [reg.109(2)(d)] (see comments to reg.105).

Finally, reg.109(5) sets a fourth and partial exception from the obligation to comply with Chapter 8, so that regs. 110 and 112 requiring publications in Contracts Finder do not apply where the contracting authority is a maintained school or an Academy. However, their procurement is bound by the ban on the use of PQQs for de minimis contracts under reg.111.