Source: http://www.iclg.co.uk/practice-areas/public-procurement/public-procurement-2016/eu-public-procurement-rules
Timestamp: 2016-10-24 07:01:06
Document Index: 51468705

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EU Public Procurement Rules - Public Procurement 2016 · ICLG - International Comparative Legal Guides
Home Practice area Public Procurement Public Procurement 2016 EU Public Procurement Rules
Introductory Comments Back to top
1.1 Public procurement is about how public authorities spend public money. Figures published by the European Commission (the “Commission”) show the potential importance of public procurement legislation in the EU. In 2011, the total expenditure of government, the public sector and utilities on works, goods and services was estimated at 19% of the EU’s GDP, i.e. approximately €2,415 billion [see Endnote 1]. Over 167,000 contracts were advertised EU-wide in 2011.
1.2 However, for all its laudable aims of opening up national markets to EU-wide competitive tendering, most EU procurement markets remain substantially “national” in scope. The Commission estimates that the total value of invitations to tender for contracts subject to the EU rules in 2011 was approximately €425 billion, i.e. 3.3% of the EU’s GDP [see Endnote 2]. Direct cross-border procurement (i.e. public contracts awarded to operators from other EU Member States) accounts for 1.6% of awards or 3.5% of the total value of published contract awards between 2006 and 2009. Indirect cross-border procurement, via corporate affiliates or partners situated in the Member State of the contracting authority, is more frequent (11% of awards or 13.4% by value between 2006 and 2009) [see Endnote 3]. 2
Historical Background and the Legislation in Force Today Back to top
2.1 In the EU, public procurement law is based upon the general principles stemming from the Treaty on the Functioning of the European Union (“TFEU”) [see Endnote 4], and is aimed at ensuring equal access for all operators within the EU internal market to procurement opportunities in other EU Member States, as well as fair competition for public contracts. 2.2 The first EU public procurement directive dates back to July 1971 and covered public works contracts. Supply and service contracts were added in separate 1976 and 1992 directives, with a 1990 directive covering entities operating in the water, energy, transport and telecommunications sectors. The remedies directives, covering the procedures for challenging the award of contracts under these various directives, date from 1989 (public sector) and 1992 (for utilities) (respectively, the Public Sector Remedies Directive (89/665) and the Utilities Remedies Directive (92/13)).
(a) Directive 2004/18 which applied to service, supply or works contracts entered into by public bodies other than utilities in relation to a utility activity (the “2004 Public Sector Directive”); and
Together, these are known as the “Old Directives”.
(a) The Directive on public procurement (2014/24) (the “2014 Classic Directive”), which repeals the 2004 Public Sector Directive;
(b) The Directive on procurement by entities operating in the water, energy, transport and postal services sectors (2014/25) (the “2014 Utilities Directive”), which repeals the 2004 Utilities Directive; and
(c) The Directive on the award of concession contracts (2014/23) (the “2014 Concessions Directive”), which sets out new rules for concession contracts.
Together, these are known as the “New Directives”.
2.5 The Commission expects that the New Directives will simplify the EU procurement regime, introduce more flexibility and provide better access to EU procurement markets. The result is a very substantial set of new rules, which introduce changes and further details throughout the award process. The New Directives, as was the case under the previous regime, set out the rules on the award of contracts but do not provide a complete public procurement law or code covering all elements of procurement. Member States have some scope for policy choices in national implementing legislation. There is much that is not clear, and the Court of Justice of the EU (“CJEU”) delivers regular judgments on procurement matters, which are binding on the EU Member States. 2.6 As explained in more detail below, in January 2008, a new directive dealing with remedies under the public procurement rules (2007/66) came into force (the “2008 Remedies Directive”). The 2008 Remedies Directive applies to awards under the New Directives, and amends both the Public Sector Remedies Directive and the Utilities Remedies Directive, which were criticised for not providing an adequate level of protection of contractors’ rights; in particular, in the areas of injunctive relief and remedies post-contract award (it being recognised that damages could not, as a rule, match the commercial benefits of winning a contract). 3
The Parallel Application of the EU General Principles Back to top
3.1 Public sector contracting authorities are subject to the general principles stemming from the TFEU (“EU GeneralPrinciples”) even if a particular procurement falls outside the New Directives, for example, because: (i) it is below the relevant financial threshold; or (ii) it relates to one of the defined categories of services which are subject to a lighter regime (similar to the former “Part B” services) (see Section 7 below) and there is a potential “cross-border interest” (i.e. a procurement in relation to which it is reasonably foreseeable that there might be interest from non-national contractors). In many respects this is unwelcome, since it is not always easy to be certain of complying with the EU General Principles without engaging in a full public procurement legal regime process. Thus, the application of the EU General Principles can, in practice, extend significantly the scope of coverage of the public procurement regime.
3.2 The main EU General Principles at issue are non-discrimination and equal treatment, transparency, proportionality, mutual recognition, free movement of goods, right of establishment and freedom to provide services. The Commission has published useful guidance on how these principles will apply throughout all of the stages of an award procedure [see Endnote 5]. Therefore, with regard to public sector procurements which fall outside of the strict application of the New Directives, the principles of transparency and equal treatment generally will require potential bidders to have access to suitable information about the intent of a contracting authority to award a procurement. This means that there generally needs to be some form of advertising at the outset of the essential details of the contract to be awarded and of the award method to ensure that the opportunity is opened up to competition. In Commission v. Ireland [see Endnote 6], the CJEU held, in the context of the procurement of Part B services, that the modification of the award criteria weightings after an initial review of the bids amounted to a breach of the principles of equal treatment and transparency.
3.3 There have been a number of recent CJEU judgments in this area and it is clear that the particular circumstances of each contract must be taken into account. For example, it was held in CoNaMe [see Endnote 7] that the EU General Principles do not in all cases impose an obligation to hold an invitation to tender. More generally, the CJEU has made it clear that if the Commission brings an action in relation to the EU General Principles, it is up to the Commission to show how those principles must be applied to the arrangement. In Commission v. Ireland [see Endnote 8], the CJEU held that the Commission had failed to prove that the welfare distribution services under analysis were of sufficient EU-wide interest to justify application of the EU General Treaty principles. It can be expected that the same burden of proof will apply if a private party brings a challenge based upon TFEU principles in a national court. 3.4 In practice, contracting authorities frequently elect to discharge their obligations by submitting voluntarily to the full public procurement legal regime process as if the New Directives (as implemented in national law) applied. Where an authority engages in such a “voluntary” application of the New Directives, the view is that it must then comply with the rules fully (i.e. it cannot “mix and match”). 4
International Dimension Back to top
4.1 There are several “international” (i.e. extra-EU) elements to the public procurement rules as they apply in the EU and to EU entities. The revised WTO Agreement on Government Procurement (“GPA”), which entered into force on 6 April 2014, has the widest scope. It is a plurilateral treaty between a limited number of WTO Members (Armenia, Canada, the EU (for its 28 Member States), Hong Kong (China), Iceland, Israel, Japan, Republic of Korea (pending), Liechtenstein, Montenegro, Aruba, New Zealand, Norway, Singapore, Switzerland (pending), the United States of America and Chinese Taipei). The GPA is intended to make laws, regulations, procedures and practices regarding government procurement more transparent, and to prevent the protection of domestic products or suppliers, or the discrimination against foreign products or suppliers. The GPA has two elements: (i) general rules and obligations; and (ii) schedules listing the national entities in each WTO Member that are covered by the GPA. 4.2 In addition, the EU rules apply to Norway, Iceland and Liechtenstein directly by virtue of the European Economic Area (“EEA”) Agreement. Furthermore, the EU has entered into several free trade agreements which cover aspects of public procurement (namely, with Mexico, Chile, Colombia, Peru, Central America, Iraq and Korea). The EU is currently engaged in negotiations with respect to opening up procurement markets with a number of countries and regions, including Canada, India, Mercosur and Singapore. 4.3 The Commission is concerned that, in contrast to the EU’s policy favouring greater openness, many third countries are reluctant to open their public procurement markets to international competition. In March 2012, the Commission proposed a new EU regulation [see Endnote 9] which aims at increasing the incentives for the EU’s trading partners to open up their public procurement markets to EU bidders and ensuring that EU companies can compete in the internal market with foreign companies on an equal footing. The Commission has proposed the following key measures:
(a) the Commission may approve that EU contracting authorities, for contracts above €5 million, exclude tenders comprising a significant part of foreign goods and services where these contracts are not covered by existing international agreements;
(b) in the event of repeated and serious discrimination against European suppliers in non-EU countries, the Commission will have at its disposal a mechanism allowing it to restrict access to the EU market, if the country outside the EU does not engage in negotiations to address market access imbalances. Any restrictive measures will be targeted, for example, by excluding tenders originating in a non-EU country or imposing a price penalty; and
(c) increased transparency on abnormally low offers in order to combat unfair competition by non-EU suppliers in Europe.
4.4 On 15 January 2014, the European Parliament voted to support the proposal for a regulation. In particular, the text adopted by the Parliament revises the European Commission’s proposal by stipulating the parameters within which EU Member States may restrict market access to third country suppliers.
4.5 Finally, there are at present six candidate countries seeking to join the EU: Albania; the Former Yugoslav Republic of Macedonia; Iceland; Montenegro; Serbia; and Turkey. Countries which apply for EU membership become fully subject to EU law, including EU public procurement law.
Brief Overview of the EU Institutional and Enforcement Structure Back to top
5.1 The Commission is one of the four main institutions of the EU, the others being the European Parliament (comprising elected representatives from the Member States of the EU), the Council of the EU (representing national governments, also known as the EU Council) and the Court of Justice of the EU in Luxembourg (made up of the Court of Justice (“CJEU”), the General Court and the Civil Service Tribunal). The Commission’s four main roles are to propose legislation to the European Parliament and the Council of the EU, to administer and implement EU policies, to enforce EU law and to negotiate international agreements.
5.2 In terms of public procurement law, the Commission (through its Internal Market and Services Directorate General) has three main roles. Firstly, it proposes legislation (such as the modernisation proposals) and engages in related consultations (such as the public consultation initiated by the Green Paper in January 2011 on the modernisation of EU public procurement policy [see Endnote 10]). Secondly, it provides guidance on EU law through, for example, publishing explanatory notes or communications on various topics (e.g. the Staff Working Paper concerning the application of EU public procurement law to relations between contracting authorities [see Endnote 11]). Thirdly, it enforces EU law using its legal powers under the TFEU [see Endnote 12].
5.3 The Commission’s enforcement powers in this area are directed against Member States and it regularly makes use of these powers to investigate potential infringements of the EU public procurement rules (following third-party complaints or an own-initiative investigation). The powers it uses are contained in Article 258 of the TFEU, and the procedure is referred to as the “infringement procedure”. In the first step of the infringement procedure, the Commission will write to a Member State to request an explanation of the matter at hand (giving it an “opportunity to submit its observations”). If it is not satisfied with the reply, the Commission can then make a formal request (a “reasoned opinion”) to the Member State to comply with the law within a fixed period (usually two months). If the Member State does not comply within this period or considers that there has been no infringement, then the Commission can take action before the CJEU for a judgment on the matter. The CJEU may in parallel grant an injunction to suspend execution of a contract pending judgment on the merits of the case (even after it has been awarded), but in practice this is unlikely unless the infringement is blatant and the matter comes before the court quickly. 5.4 Member States are, in theory, obliged to comply with CJEU judgments by taking “necessary measures” pursuant to Article 260 of the TFEU. However, if the Member State fails to do so, the Commission has the power to take further action before the CJEU, after giving the Member State an opportunity to submit its observations and after issuing another reasoned opinion. This action takes the form of a request to the CJEU to impose fines on the Member State for non-compliance with the CJEU’s judgment.
Entity Coverage Back to top
6.2 There has been a large amount of EU case law on this definition of “body governed by public law” and the CJEU has consistently taken a broad view as to what bodies are covered. The New Directives codify EU case law and define “bodies governed by public law” as: “bodies that have all of the following characteristics: (a) they are established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character; (b) they have legal personality; and (c) they are financed, for the most part, by the State, regional, or local authorities, or other bodies governed by public law; or are subject to management supervision by those authorities or bodies; or have an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional or local authorities, or by other bodies governed by public law.”
6.4 The “special or exclusive rights” provision is broadly intended to cover private entities which act as utilities. The Commission’s guidance states that the existence of such rights must be considered on a case-by-case basis. This analysis will include, in particular: (i) how the rights have been obtained; (ii) on what basis the selection was made; (iii) what the rights allow for; and (iv) how the rights restrict the activities of third parties and the ability of others to obtain the same rights in the future. The list of relevant entities is not closed and will change over time in any particular Member State.
6.5 Under the 2014 Utilities Directive, “special or exclusive rights” are defined as the rights granted by a Member State by way of any legislative, regulatory or administrative provision, the effect of which is to limit the exercise of utility activities to one or more entities, and which substantially affects the ability of other entities to carry out such activity. However, entities which enjoy rights based on objective criteria and obtained pursuant to a competitive tender process will not be said to hold “special and exclusive rights” – meaning that such entities will not be caught by the procurement regime. 7
Contract Coverage Back to top
7.1 The 2014 Classic Directive applies to “public contracts”, which have to be for “pecuniary interest” and “in writing” between a public body (or bodies) and a provider (or providers) and relate to the execution of works, the supply of products or the provision of services. 7.2 These three types of contract (works, supplies, services) are mutually exclusive; a contract can be of only one type even if it includes a combination of elements. In order to determine the appropriate classification, it is first necessary to determine whether the contract is a works contract, which requires a consideration of whether the main object of the contract is the works to be carried out. If the contract is not a works contract, it may be a supply or service contract, and in this case, the classification is expressly based on the element which has the greater value (with incidental siting and installation activities for a supplied product considered to be an element of a supply contract). The classification is important for various reasons, including the threshold value to be applied to it (see the table below), the designation of the contract in the public notices which are required to be published and, if the contract is a concession, in which case the 2014 Concessions Directive will be relevant (see further at Section 14 below). The position under the 2014 Utilities Directive is essentially the same. 7.3 The Old Directives made a distinction between so-called “Part A” and “Part B” services. Part A services, which were deemed to present an increased potential for cross-border interest, were subject to the full procedures under the Old Directives; whereas when awarding contracts for Part B services, contracting authorities and contracting entities were only required to comply with certain provisions on technical specifications and on the transmission of a notice of the results of the award procedure. The New Directives remove the distinction between Part A and Part B services. Most of the services which were identified as Part B services under the Old Directives are now listed in Annex XIV of the 2014 Classic Directive and Annex XVII of the 2014 Utilities Directive. These services will now be subject to a light touch procurement regime and will need to be advertised if they have an estimated value of more than €750,000 (i.e. a threshold which is higher than the general thresholds applicable to public services contracts under the New Directives, where the value of such services is less than €750,000 the contracts need to be awarded in compliance with the EU General Principles only. Any services not listed in Annex XIV of the 2014 Classic Directive or Annex XVII of the 2014 Utilities Directive will be covered by the full regime.
7.4 As was the case under the Old Directives, the New Directives only apply to contracts above a certain financial value, which differs according to the classification of the procurement. The value of a procurement for the purposes of the threshold rules is its estimated value net of value added tax, at the time at which the contract notice is sent or, in circumstances where such a notice is not required, at the moment at which the contracting authority commences the contract award procedure. The reasoning behind the use of financial thresholds is that procurements above a certain threshold are considered capable of having an impact on competition and of affecting trade between EU Member States, as they are more likely to attract bidders from other Member States. The EU’s policy is to keep the financial thresholds in line with those set in the WTO GPA. The Commission revises the EU thresholds accordingly from time to time. In addition, non-Eurozone EU Member States receive a revision of the financial thresholds every two years converted into their national currencies, based on the exchange rate published in the OJEU. The current contract value thresholds are set out in the table below.
Public sector bodies subject to the WTO GPA [see Endnote 13]
Other public sector bodies [see Endnote 14]
7.5 The Commission will be required to review the thresholds within three years of the New Directives’ transposition.
7.6 The calculation of the estimated value must take account of the expected total value of the consideration (including, for example, options, renewals, insurance or banking payments and the value of any supplies made available to the contractor) even though this may be difficult to determine. It is, therefore, necessary to make a reasonable and genuine estimate, based upon the information that is currently available. 7.7 Although value estimates are, in principle, confined to the value of each single procurement, the New Directives contain an express “splitting” prohibition, which requires the aggregation of the values of a number of similar procurements in certain circumstances. The aim is to prevent the artificial splitting-up of procurements into lower-value procurements, which would fall below the relevant thresholds and, thus, outside the scope of the New Directives. In practice, this means that in circumstances where a contracting authority/utility intends to award more than one procurement for a single overall requirement (for example, in phased construction projects), the value of these procurements must be added together. The aggregate figure will determine whether the relevant threshold has been met or not. 7.8 Although the New Directives do not apply to low-value contracts below the thresholds, the EU General Principles will apply if the procurement has cross-border interest potential (see above at Section 3).
Principal Exclusions Back to top
8.1 Certain procurements may be excluded from the scope of the New Directives on the grounds of secrecy and security. For instance, this exclusion can be used in the context of procurements relating to military security or anti-terrorist measures. In principle, derogations from the general rules must be narrowly interpreted. However, the contracting authority will have a margin of discretion in determining whether the exclusion is necessary in the light of the extent of any potential security and secrecy concerns.
8.2 Procurements for defence equipment (and services related to such equipment) can also be excluded based upon the general exemption set out in Article 346 of the TFEU. A specific directive, Directive 2009/81/EC on defence and sensitive security procurement (the “Defence Directive”), which entered into force on 21 August 2009 and was due to be transposed by Member States by 21 August 2011, sets out specific rules for the procurement of arms, munitions and war material (plus related works and services) for defence purposes, as well as for the procurement of sensitive supplies, works and services for non-military security purposes. The Defence Directive is in force alongside the New Directives. 8.3 The Defence Directive was adopted due to concerns that EU Member States were avoiding the application of EU public procurement rules in the defence sector by too frequently relying on the national security exemption under Article 346 of the TFEU. In practice, most defence contracts are awarded to national suppliers, allowing EU governments to protect their domestic markets (the EU defence equipment market is estimated to be worth approximately €90 billion annually). The Defence Directive’s aim is to open up to competition the EU’s largely fragmented defence sector, while safeguarding Member States’ control over essential defence and security interests. Due to the sensitivity and complexity of defence and security procurements, the Defence Directive:
8.4 The applicable financial thresholds are €412,000 for supply/services procurements and €5.15 million for works procurements. The Defence Directive is complementary to the European Defence Agency’s Code of Conduct on Defence Procurement, launched in July 2006. 8.5 The acquisition or rental of land, existing buildings or interests therein are also, in principle, excluded from the New Directives. Nevertheless, despite this exclusion, some land development agreements (such as, for example, where a developer erects a building to a contracting authority’s requirements on the developer’s own land, and then transfers the land (plus building) to the authority) are still subject to the New Directives upon the basis that they amount to public works contracts. The CJEU rendered two significant judgments relating to land developments in 2007 and 2010. The first case, Auroux v. Commune de Roanne [see Endnote 15], concerned the construction of a leisure centre and related facilities around a railway station. The contracting authority engaged a semi-public development company to acquire the land, obtain funding, carry out studies, organise an engineering competition, undertake the construction works, coordinate the projects and liaise with the authority. The authority itself was not intending to become the owner of the various facilities, apart from elements such as the public spaces and the car park. The CJEU held that the project was a public works contract, which fulfilled an economic function and corresponded to the requirements of the contracting authority, and was therefore, regardless of whether the contracting authority would own or even use the completed works, subject to the public procurement rules. The second, more recent judgment, Helmut Müller GmbH v. Bundesanstalt für Immobilienaufgaben [see Endnote 16], concerned the sale to a private party by a German federal agency of land which had been used formerly as a barracks. The sale contract did not contain any reference to the land’s future use. The CJEU ruled that the sale contract did not qualify as a public works contract because there was no “direct economic benefit” to the local authority, and, further, the mere fact that the local authority, in the exercise of its urban-planning powers, had examined certain building plans presented to it did not mean that the local authority had specified requirements attached to the redevelopment works. The two judgments have added legal clarity on the dividing line between land transactions falling outside the public procurement rules and the procurement of works subject to the public procurement regime, and confirmed that the CJEU will take a broad purposive approach. 8.6 The procurement by a utility of water, energy or fuel for the production of energy is also excluded. Furthermore, a procurement awarded by a utility to an affiliated undertaking or by a joint venture utility to one of its members or an affiliated undertaking of those members may be excluded, provided the undertaking in question essentially exists to provide services/supplies/works to that group and not to the open market. Finally, Member States may apply for a general sector exemption (pursuant to Article 30 of the 2014 Utilities Directive) where the market has been liberalised and opened up to competition. The Commission will consider whether the required competitive market conditions are met in that particular Member State and confirm whether the exemption applies by way of a formal decision. Even if an exemption is in place, public utilities (but not private utilities) will still have to observe the EU General Principles in undertaking procurements. The existing national exemptions pursuant to the current Article 30 of the 2004 Utilities Directive remain in place under the 2014 Utilities Directive. 8.7 Certain types of services have been excluded altogether from the scope of the New Directives, such as certain audiovisual and radio media services, legal services designated by a court or tribunal, financial instruments and public passenger transport services by rail or metro (such services being covered by sector-specific legislation, namely Regulation 1370/2007). Moreover, the exploration of oil and gas has been added to the existing exclusions from the utilities regime (namely, contracts awarded by certain contracting entities for the purchase of water and for the supply of energy or of fuels for the production of energy). 9
In-house Awards Back to top
9.1 In its judgment in Teckal [see Endnote 17], the CJEU recognised that, in some situations, a contracting authority may directly award a contract to a legally distinct third party who, in practice, is not an independent body, without a competitive tendering process. The applicable test is twofold. Firstly, the “control test” requires that the authority exercise over the third party awarded the contract “a control which is similar to that which it exercises over its own departments”. Secondly, the “function test” requires that the third party “carries out the essential part of its activities” for the authority (the controlling entity). When these two conditions are met, the contract will be treated as an “in-house” administrative arrangement which falls outside the scope of the New Directives. The CJEU has also held that these principles apply to contracts subject only to the EU General Principles (Parking Brixen [see Endnote 18]).
9.2 This exemption is strictly interpreted, and in a national court, it would usually be for the contracting authority to establish its application to a particular procurement. For the first condition (control) to apply, there must be a power of decisive influence over both the strategic objectives and significant decisions of the body awarded the contract. It is not enough that a contracting authority, together with other contracting authorities, owns all of the share capital in a company awarded a contract: all of the relevant legislative provisions and surrounding circumstances will be taken into account. However, even a minority interest in the third party held by a private entity rules out the Teckal exemption. The second condition has been interpreted as essentially requiring that the activities of the third party are devoted principally to the contracting authority and that any other activities are only marginal. The Commission Staff Working Paper on public-public cooperation [see Endnote 19] offers useful guidance on the application of the in-house Teckal test.
9.3 The New Directives essentially codify the Teckal test, and provide that a contract awarded by a contracting authority to another legal person governed by private or public law will fall outside the procurement regime if the following cumulative conditions are met: (a) the contracting authority exercises over the legal person concerned a control which is similar to that which it exercises over its own departments; (b) more than 80% of the activities of that legal person are carried out in the performance of tasks entrusted to it by the controlling contracting authority or by other legal persons controlled by that contracting authority; and (c) there is no direct private capital participation in the controlled legal person. 10
10.1 The fundamental principle underlying the EU public procurement rules is that a qualifying contract must be opened up to EU-wide competitive tender. As a result, in most circumstances, a contract notice must be published in the Official Journal of the EU (the “OJEU”) in the standard form [see Endnote 20] at the outset of a tender process. In some situations, set out in the New Directives, a contract, although falling subject to the rules, does not have to be advertised and can be negotiated directly with a chosen provider. For instance, where, “for technical or artistic reasons, or for reasons connected with the protection of exclusive rights”, there is only one possible provider. 10.2 Contracting authorities are obliged to follow one of six types of tender procedure (which will be identified in the contract notice). The first type of procedure is the “open procedure”, under which the procurement is advertised and all interested providers tender a single fully priced offer. This procedure was the most commonly used under the Old Directives, accounting for nearly three-quarters of all procurements within the scope of the Old Directives. This is likely to continue to be the case under the New Directives. The second type of procedure is the “restricted procedure”, which requires interested bidders to “pre-qualify” before being invited to submit a fully priced tender. The third type of procedure is the “negotiated procedure”, which involves a pre-qualification stage and then a negotiation stage with the pre-qualified group of tenderers. Under the New Directives, the negotiated procedure is available only for utilities procurements. The fourth type of procedure is known as the “competitive dialogue”, which is flexible and allows a dialogue to be conducted in successive stages, with the aim of reducing the number of bidders. The fifth type of procedure, the innovation partnership, is a new procedure which allows tenderers to submit a request to participate in response to a contract notice with a view to establishing a structured partnership for the development of an innovative product, service or works and the subsequent purchase of the resulting supplies, services or works. The partnership is structured in successive stages following the research and innovation process, and the contract will be awarded in accordance with the rules of a competitive procedure with negotiation. This brings us to the final type of procedure: the competitive procedure with negotiation, which is also a new procedure although it is available only under the 2014 Classic Directive. This new procedure is closely aligned with the competitive dialogue procedure and involves negotiation with each tenderer with a view to improving the content of the tenders; it is intended for use where no readily available solution exists. For completeness, in the situations referred to in paragraph 10.1 above, contracting authorities are able to use the negotiated procedure without prior publication of a contract notice. Under this procedure, the contracting authority may negotiate directly with its chosen provider.
10.3 The new procedures have been introduced with a view to providing contracting authorities more scope for negotiation with bidders. The New Directives maintain and simplify the use of framework agreements, dynamic purchasing systems, electronic auctions, and electronic catalogues, with a view to supporting the use of electronic procurement procedures.
10.4 There are also various important explicit and implied obligations concerning the conduct of the selection process following publication of the contract notice, including in particular the minimum timescales with which authorities must comply. These are essentially designed to ensure that at all stages (specification of requirements, selection stage and award stage) the contract award process is run fairly and transparently. The New Directives shorten the minimum timescales by about a third overall.
Qualification and Award Criteria Back to top
11.1 Under the EU procurement regime, there are discretionary grounds and mandatory grounds for the disqualification of bidders. The New Directives extend the mandatory grounds on which contracting authorities are required to exclude a tenderer from a procurement process to the failure to pay taxes or social security contributions (where there is a final judgment). However, contracting authorities may derogate from the mandatory grounds on an exceptional basis for “overriding reasons relating to the public interest” or where an exclusion would be “clearly disproportionate”. The discretionary grounds have also been extended to include breaches of environmental law and significant or persistent deficiencies in the performance of any prior contract with the same contracting authority. The New Directives further clarify that the power to exclude bidders can apply throughout the procurement process (not only during the pre-qualification stage) and may also extend to sub-contractors and consortia members.
11.2 The New Directives specify that contracts may continue to be awarded to the tenderer which supplied the “most economically advantageous tender” (“MEAT”) which must be based on “price or cost”, using a “cost-effectiveness” approach. The “cost-effectiveness” approach may be based upon an evaluation of certain costs over the life cycle of a product, service or works, such as: (i) costs relating to acquisition; (ii) use (e.g. consumption of energy); (iii) maintenance; (iv) end of life (e.g. collection and recycling); and (v) and environmental externalities which can be valued (e.g. emissions of greenhouse gases or other pollutants).
11.3 The New Directives specify that contracting authorities may take into account, as part of the MEAT criteria, the characteristics of the production process of the works, goods or services to be purchased, such as working conditions and staff health protection. The New Directives expressly allow contracting authorities to take into account the organisation, qualification and experience of staff assigned to performing the contract as an award criterion, recognising that this may affect the quality of the contract performance, in contrast to the Old Directives which allow such considerations only as part of the pre-qualification criteria. Despite some debate on the issue, the New Directives retain the current requirement that the MEAT criteria must be linked to the subject matter of the contract, which controls the ability of contracting authorities to take account of wider social, political and environmental considerations.
Modification of Contracts Back to top
12.1 The New Directives seek to regulate the modification of contracts during their term, specifying when modifications are acceptable without a new tender procedure – an issue that has given rise to much debate and litigation. The New Directives define a “substantial” modification, requiring a new award process, as one that renders the contract substantially different from the one initially concluded, i.e. one which would: (i) result in the selection of other operators, or the award of the contract to another tenderer; (ii) change the economic balance of the contract in favour of the contractor; or (iii) include supplies, services or works which were not covered by the original OJEU process. The New Directives effectively codify existing EU case law (in particular, the CJEU judgment in Pressetext [see Endnote 21]) and Commission decisional practice. 12.2 The proposed New Directives provide for a “safe harbour” within which a minor modification would not require a new award process. The safe harbour is set at a low level, where the value of the change: (i) does not exceed the value of the thresholds for the application of the procurement regime; and (ii) is below 10% of the initial contract value (15% for public works contracts). Furthermore, the safe harbour is only available if the modification does not alter the overall nature of the contract. 12.3 More helpfully, the New Directives provide that contract modifications will not be considered to be substantial where they have been provided for in the procurement documents in clear, precise and unequivocal review clauses or options. Such clauses or options must state the scope and nature of possible modifications as well as the conditions under which they may be exercised, and may not alter the overall nature of the contract. It is likely that review clauses, to be compliant, will require some agreed up-front form of pricing mechanism. 12.4 The New Directives also allow modifications in circumstances where, despite reasonably diligent preparation of the initial award by the contracting authority, the modifications are required as a result of unforeseeable circumstances. In such cases, a new procurement procedure will not be required so long as the modification(s) do not alter the overall nature of the contract, and any resulting increase in price is not greater than 50% of the value of the original contract.
12.5 In addition, the New Directives clarify that a new award procedure will not be required in the event that additional works, services or supplies up to 50% of the value of the original contract are necessary and where a change of contractor cannot be made for technical or economic reasons and would cause significant inconvenience or duplication of costs.
12.6 It is also helpful that the New Directives expressly allow a successful tenderer to undergo structural changes during the performance of the contract, such as internal reorganisations, mergers and acquisitions or insolvency, without giving rise to a requirement to conduct a new award process.
13.2 A complaint to the Commission is the cheapest and most straightforward option. However, it will usually be slow and therefore in many cases may not be very effective. There is always a risk that the Commission does not consider that the case is worthy of investigation at the EU level (the Commission will not and cannot pursue all complaints). Moreover, there is no effective mechanism for injunctive relief (interim measures at the EU level are very difficult to obtain). There is no fixed timescale for the procedure, and generally the process will be slow and certainly outside the control of the complainant, who will have limited visibility over the conduct and progress of the case.
13.3 If successful, a complaint may ultimately lead to the Commission taking action before the CJEU under Article 258 of the TFEU against a Member State for infringement of the relevant directive (see the description of the procedure above at Section 5.3). In its judgment under Article 258 proceedings, the CJEU cannot order a Member State to act or to refrain from acting in a particular way. However, as noted above, the Member State would, under Article 260(1), “be required to take the necessary measures to comply”. The issue of the “necessary measures” which must be taken following an CJEU finding that a contract has been concluded unlawfully has been made clearer by the CJEU judgment in Commission v. Germany [see Endnote 22]. The CJEU held that the Member State (Germany) was under an obligation to remedy the infringement in question by taking all appropriate measures, which might include the rescission of a contract which had already been concluded, irrespective of whether German national law provided for this possibility.
13.4 The Public Sector Remedies Directive and the Utilities Remedies Directive require that certain minimum remedies be available before national courts, although Member States have discretion in relation to some aspects. Moreover, the 2008 Remedies Directive, which applies to all procurements commenced on or after 20 December 2009, establishes additional remedies. In particular, contracting authorities are required to provide an automatic debrief to all tenderers and there is a mandatory “standstill” period between the award of a contract and its signature (effectively implementing CJEU case law, in particular the Alcatel judgment [see Endnote 23]). There is now an automatic suspension of the contract award if proceedings are brought against the contracting authority’s award decision. The burden has shifted onto the contracting authority to apply to court to lift the injunction. The New Remedies Directive has also introduced a post-contract award remedy, the remedy of “ineffectiveness”, i.e. contract nullity (the prospective cancellation of all unperformed obligations) coupled with a fine on the contracting authority. Alternative penalties (contract shortening, fines, or both) are also available instead of ineffectiveness, in situations where ineffectiveness is inappropriate.
13.5 A likely outcome of any challenge is for the court to declare that a public contract has to be re-tendered to the market as a whole – particularly in cases where a public contract is amended in a way which is materially different in character from the original contract. Material changes and changes in scope can result in a procurement being qualified as a new procurement requiring a new tender process. In Wall [see Endnote 24], the CJEU held that the replacement of a specified sub-contractor may require a new award procedure to restore transparency. The CJEU affirmed that an essential change had taken place requiring a new award procedure to ensure compliance with the principle of transparency.
13.6 The New Directives do not change the remedies regime, and the 2008 Remedies Directive will remain in force. However, the New Directives require that Member States ensure that the application of the procurement rules is monitored. However, there is no requirement to create a new oversight body, as originally proposed by the Commission. It is also interesting to note that the New Directives require that concerned stakeholders (i.e. any taxpayer – including action groups) who do not have standing under the remedies regime be given a possibility to complain about procurement breaches. 14
The New Concession Regime Back to top
14.1 Under the Old Directives, service concessions are excluded from the public procurement regime, and works concessions are subject only to a narrow set of specific rules under the 2004 Public Sector Directive, but are excluded altogether from the 2004 Utilities Directive. Concession awards are, however, subject to the EU General Principles where there is a potential cross-border interest.
14.2 The 2014 Concessions Directive sets out a basic framework for the award of works and services concessions in the public and utilities sector, subject to certain exemptions in respect of water (such as the disposal or treatment of sewage) with a value of €5,186,000 or more. The new regime leaves the choice of the most appropriate procedure for the award of concessions to contracting entities, subject to basic procedural guarantees, including:
(e) acceptable modifications to concessions contracts during their term, in particular where changes are required as a result of unforeseen circumstances. 14.3 The 2014 Concessions Directive seeks to clarify the concept of a “concession” itself, based on EU case law. The rules specify that the main feature of a concession, the right to exploit the works or services, always implies the transfer to the concessionaire of an economic risk involving the possibility that it will not recoup all the investments made and the costs incurred in operating the works or services covered by the award. However, this does not exclude the award of concessions in sectors, such as those with regulated tariffs, to the extent that an operating risk, however limited, can still be transferred to the concessionaire. 15
Public Procurement and State Aid Back to top
15.1 The TFEU includes specific provisions (Articles 107–109) restricting the ability of Member States to grant aid (of whatever form) which “distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods . . . in so far as it affects trade between Member States”. Broadly, the provisions are intended to stop Member States from unfairly supporting their own companies to the detriment of competing companies from other Member States.
15.2 In the context of public procurement, aid can arise where the terms of a contract for works, services or supplies are not aligned with normal market-based commercial terms, as to price or other matters, or where the contract does not reflect a genuine need. The advantage must come directly or indirectly from the resources of the State and the measure providing for this must be imputable to the State.
15.4 If the purchaser has properly used the open procedure, then the contract should be at market value and not involve aid. The position is less clear for cases in which the restricted, negotiated or competitive dialogue procedures are used. However, the Commission has been flexible and has generally not sought to challenge public bodies in relation to purchase contracts. In several cases, it has accepted that a negotiated procedure used in PPP transactions has delivered a market result. The Commission explained the above principles in a November 2007 document titled “Frequently Asked Questions Concerning the Application of Public Procurement Rules to Social Services of General Interest” [see Endnote 25] as follows: “...a tender procedure guaranteeing full competition can be taken as an important indicator that the [contract is at] market price and that there is no State aid. Complying with procurement rules will in these cases therefore also help in ensuring respect of the State aid provisions”.
European Commission Staff Working Document, Annual Public Procurement Implementation Review 2013, SWD (2014), 262 final, 1 August 2014.
European Commission Green Paper on ‘The Modernisation of EU Public Procurement Policy – Towards a More Efficient European Procurement Market’, COM (2011), 15/4.
Except where otherwise stated, references in this chapter are to articles in the TFEU, using the relevant (re-numbered) provisions.
‘European Commission Interpretative Communication on the Community Law Applicable to Contract Awards Not or Not Fully Subject to the Provisions of the Public Procurement Directives’, 23 June 2006.
Commission of the European Communities v. Ireland, Case C-226/09, judgment of 18 November 2010.
Consorzio Aziende Metano (Coname) v. Comune di Cingia de’ Botti, Case C-231/03, judgment of 21 July 2005.
Commission of the European Communities v. Ireland, Case C-507/03, judgment of 13 November 2007.
‘Proposal for a Regulation on the Access of Third-country Goods and Services to the Union’s Internal Market in Public Procurement and Procedures Supporting Negotiations on Access of Union Goods and Services to the Public Procurement Markets of Third Countries’, COM (2012), 124 final, 21 March 2012.
Commission Staff Working Paper concerning the application of EU public procurement law to relations between contracting authorities (“public-public cooperation”), SEC (2011), 1169 final, 4 October 2011.
See, for example, Commission v. Hellenic Republic, Case C-601/10, judgment of 27 October 2011.
Essentially, governments and government departments.
For example, local authorities.
Jean Auroux and Others v. Commune de Roanne, Case C-220/05, judgment of 18 January 2007.
Helmut Müller GmbH v. Bundesanstalt für Immobilienaufgaben, Case C-451/08, judgment of 25 March 2010.
Teckal Srl v. Comune de Viano and Azienda Gas-Acqua Consorziale (AGAC) di Reggio Emilia, Case C-107/98, judgment of 18 November 1999.
Parking Brixen GmbH. v. Gemeinde Brixen and Stadtwerke Brixen AG, Case C-458/03, judgment of 13 October 2005.
The standard forms are contained in Commission Implementing Regulation (EU) No. 842/2011 of 19 August 2011.
Pressetext Nachrichtenagentur GmbH v. Republik Österreich (Bund), APA-OTS Originaltext – Service GmbH and APA Austria Presse Agentur registrierte Genossenschaft mit beschränkter Haftung, Case C-454/06, judgment of 19 June 2008.
Commission of the European Communities v. Federal Republic of Germany, Case C-503/04, judgment of 18 July 2007.
Alcatel Austria AG and Others, Siemens AG Österreich and Sag-Schrack Anlagentechnik AG v. Bundesministerium für Wissenschaft und VerkehrCase, Case C-81/98, judgment of 28 October 1999.
Wall AG v. La ville de Francfort-sur-le-Main and Frankfurter Entsorgungs-und Service (FES) GmbH, Case C-91/08, judgment of 13 April 2010.
Commission Staff Working Document concerning frequently asked questions concerning the application of public procurement rules to social services of general interest; Accompanying Document to the Communication on “Services of General Interest, including Social Services of General Interest: A New European Commitment”, 20 November 2007, SEC (2007), 1514.