Automatics in Public Procurement
In a recent case on public procurement the Court of Justice of the EU (CJEU) once again dealt with national legislation allowing automatic reactions in relation to bidders, notably in cases where collusion is suspected. The case (C-769/21) was about a Latvian contract concerning health insurance for employees in a Government department. Amongst the bidders were two companies who were both members of a certain Latvian insurance group.
As it turned out, these particular bidders were ranked first and second in the tender, the first bidder declined to sign the contract and the contract would then normally be awarded to the second best bidder, as allowed by Latvian procurement legislation. However, the legislation excluded this in cases where the bidders are part of the same group and in such cases the tender procedure must be annulled. This was then what happened and which subsequently triggered a complaints case and submission of preliminary reference to CJEU.
The aim of the Latvian provision is to reduce the risk of collusion between bidders. Such collusion is problematic in relation to key EU principle of transparency because a procedure involving such bidders renders a false impression of the extent of the actual competition to the disadvantage not least of the public buyer. The Latvian provision is meant for the specific case where a bidder with the best bid steps aside to allow the contract to be awarded to the second best, more costly bid and thus providing a gain for the bidders involved. Such collusion is obviously particularly likely where the bidders are members of the same group and the provision is for this reason based on the assumption of collusion which again automatically results in annulment of the procurement procedure.
Other CJEU cases
There are previous CJEU cases concerning national legislation allowing automatics, but these cases concerned national legislation on exclusion of bidders from participation in tender procedures from the outset. As it turned out this did not make a difference for the CJEU decision. In one case (C- 538/07, Assitur), automatic exclusion of affiliated bidders was based on a presumption of collusion. In another case (Joined cases C-21/03 and 34/03, Fabricom) the national legislation required automatic exclusion of a bidder in any case of involvement in preparation of a tender procedure. The presumption was here, that such involvement created an undue advantage for the involved bidder in relation to other bidders, thereby distorting competition. Such advantage would therefore clearly run counter to another key EU principle of equal treatment.
In all these cases of automatic provisions the Court did for the above reasons recognise that the provisions were indeed aimed at protecting important EU public procurement principles. The Court then went on to point out, that the national provisions nevertheless go further than what is necessary to safeguard transparency and equal treatment, be it specifically to prevent collusion or undue advantages.
This necessity test is the essence of the EU principle of proportionality, which over many years has been applied on a broad spectrum of national legislation with restrictive effect on economic activity between EU member states. In both the above two cases, the legislation was seen to go further than required due to the mere fact of being automatic; – in the case of affiliated bidders by not allowing them to disprove collusion by documenting that the bids were prepared independently. In the case of involvement in tender preparation it should equally be allowed to demonstrate that there had been no access to information resulting in undue competitive advantage.
Criticism
From the perspective of national legislators this means that automatics will need to be converted into a rule of presumption capable of being disproved.
Specifically in the case of previous involvement, it has been argued in defence of automatics that it is the sole manner to fully ensure legal certainty. From this perspective, and for that matter to ensure optimal transparency in procurement procedures, automatics would have the advantage of preventing any possibility of a privileged position distorting competition.
Another point made in this respect was that disproving competitive advantage may in reality prove impossible. The knowledge acquired as a result of the involvement “…is for the most part subjective and difficult to identify. Often a person does not intentionally take advantage of the knowledge and information acquired during participation in the preparatory work” (Opinion of the General Advocate in the Fabricom case).
EU legislation follow-up
The conclusions of CJEU were – as it often happens – codified in the EU public procurement directives. In this connection, the directives also explicitly recognise that potential bidders may be consulted as part of the preparation of the procurement. Exclusion due to prior involvement in preparation can according to the directives only happen if distortion of competition “.. cannot be remedied by other, less intrusive measures”, see Art 57(4)(f) of Directive 2014/24/EU . The directive exemplifies such measures, namely extended deadlines for bidders or communication to all bidders of relevant information shared with the involved potential bidder.
Burden of proof issues
The intention behind the directive provision is clearly to facilitate the use of alternative solutions to exclusion and thus avoid excessive use of exclusions. However, the actual effect might well be modest and ultimately depend on the amount of bidders/competition that procuring entities consider useful in each case. What happens if the procuring authority insists that there are no alternative to exclusion because less intrusive measures in their view cannot prevent distortion of competition? Due to the subjective aspects mentioned earlier this can be a difficult position to refute.
For the practical application it is therefore quite important which of the parties has the burden of proof. Is it the procuring authority that needs to prove that exclusion is the only solution or is it the bidder that needs to prove that there are viable alternatives?
The choice is actually a matter of balancing the interest of optimal participation/competition in procurement procedures and the interest in preventing distortion of this competition. The EU directive can be understood to place the burden of proof on the bidder ( “Prior to any such exclusion, candidates or tenderers shall be given the opportunity to prove that their involvement in preparing the procurement procedure is not capable of distorting competition”, see Art. 41 in Directive 2014/24/EU). Interestingly, the alternative solution has been chosen in for example the Danish procurement legislation. It is in other words the procuring authority that must demonstrate why exclusion is the only solution.
Clearly, a choice in favour of the procuring authority could be said to in reality introducing automatics. This may have the effect of discouraging enterprises from engaging with procuring authorities in the preparation of bids for fear of being excluded from participating in the procurement as such at the later stage. A choice in favour of the bidder facing exclusion may on the other hand expose the procedure to complaints and it could be argued that it should reasonably be left to the enterprises to decide whether their commercial interest is predominantly in the consulting role rather than the bidding.
..and now back to the beginning.
The Latvian case mentioned at the start did not concern involvement of a bidder in procurement preparation but rather two bidders suspected of collusion. The directives are also explicitly mentioning collusion, i.e. agreements between bidders as a ground for exclusion and do also in this case make room for the bidders involved to demonstrate that no agreement between them exist.
The fundamental difference in relation to cases of prior involvement is that in cases of collusion there is no room for considering less intrusive measures; – collusion is in itself distorting competition and the relation between bidders is unlike tender preparation beyond the sphere of the procuring entity. Measures can in other words not be taken to reduce the risk of negative competitive effects. In terms of practical application the directives seem to assume that the burden of proof in the case of collusion is on the the procuring authority. This follows the normal line of thinking where it is the task of the party claiming a certain circumstance to demonstrate that it actually exists.
On their part, the bidders would need to demonstrate the independence of their bids. There may well be various agreements between bidders within the same group but this does not necessarily affect their autonomy in relation to public procurement procedures. The CJEU does on this issue make the following observations, see point 38 in Case C-769/21, BTA Baltic Insurance Company:
“(…) groups of undertakings can have different forms and objectives, which do not necessarily preclude controlled undertakings from enjoying a certain autonomy in the conduct of their commercial policy and their economic activities, inter alia, in the area of their participation in the award of public contracts. Moreover, (…) relationships between undertakings in the same group may be governed by specific provisions, for example, of a contractual nature, such as to guarantee both independence and confidentiality in the drawing-up of tenders to be submitted simultaneously by the undertakings in question in the same tendering procedure”
It might well be less difficult for bidders to prove absence of collusion than absence of competitive advantage with the more subjective elements as mentioned earlier. Especially in the case of bidders within the same group there might be concrete steps taken to ensure independence, as pointed out by CJEU, that would be easier to demonstrate. For bidders within the same group the suspicion of collusion might well be a recurring issue, where it would make sense to put in place permanent structures within the group to enable independent bidding, where this is required.