James Kinch, Solicitor, Dublin City Council

Irish Centre for European Law

Procurement Conference

Royal Irish Academy

28 June 2012

Secondary Policies and Clarifications

• Overview of the scope for pursuing secondary policies in the EU procurement regime, practical issues that arise, including reference to state aid considerations.

• Clarifications - governing principles – compliance with equal treatment and transparency – review of recent case law

Secondary Policies in Public Procurement

• Primary objective of procurement is economic:

• ‘The acquisition of goods or services fulfilling a particular function on the best possible terms’ (Arrowsmith)

• Secondary policies enter the framework where it is the government objective to promote public interest policies: for example industrial, social or environmental – this is interpreted broadly to include SMEs and other disadvantaged groups in society.

Legal bases for the pursuit of secondary policies in procurement

• Secondary policies embraced within concept of ‘sustainable development’

Article 11 of TFEU: -

‘Environmental protection requirements must be integrated into the definition and implementation of the Community policies and activities … in particular with at view to promoting sustainable development.’

(Emphasis added)

Legal bases for pursuit of secondary policies in procurement (cont’d)

Article 3 (3) of the Treaty on European Union:

‘ …[The Union]’ shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level or protection and improvement of the quality of the environment… It shall promote economic, social and territorial cohesion, and solidarity

among Member States.’

Legal bases for pursuit of secondary policies (cont’d)

Public Sector Directive states that the procurement rules aim at clarifying :

‘how the contracting authorities may contribute to the protection of the environment and the promotion of sustainable development, whilst ensuring the possibility of obtaining the best value for money for their contracts’

(Recital 5)

And that: -

Legal bases for pursuit of secondary policies in procurement (cont’d)

(Public Sector Directive, cont’d)

• ‘nothing in this Directive should prevent the imposition or enforcement of measures necessary to protect …..health, human and animal life or the preservation of plant life, in particular with a view to sustainable development, provided that these measures are in conformity with the Treaty.’

(Recital 6)

• See also recitals 29, 44 and Articles 23 (3) (b), 23 (6), 27 (1), 48 (2) (f) and 53 of the Public Sector Directive.

Evolution of secondary policies in EU law

• Characterised by a ‘clash’ between cost effectiveness view of Commission and more flexible approach of the Court of Justice

• Court of Justice has ‘pulled’ the Commission towards an increasingly broad admission of secondary policies.

Development of secondary policies by the Court of Justice of the EU

• Beentjes (Case C-31/87): ruled that a condition relating to the employment of long – term unemployed persons is compatible with the procurement of public works directive, if it has no direct or indirect discriminatory effect on tenderers from other member states.

• Commission v. France (Case C-225/98): ‘that provision [Art.30(1) of Dir. 93/37] does not preclude all possibility for the contracting authorities to use as a criterion a condition linked to the campaign against unemployment …’

Development of secondary policies by the Court of Justice of the EU (cont’d)

• Concordia Bus Finland (Case C-513/99): -concerned a public contract for the provision of urban bus transport services

• In order for the reduction of nitrogen oxide emissions or the noise levels of vehicles to be admissible as award criteria, the environmental or social considerations should be linked to the subject matter of the contract (at para. 59)

Development of secondary policies by the Court of Justice of the EU (cont’d)

EVN AG v Wienstrom (Case C-448/01):

‘[EU law] does not preclude a CA from applying, in the context of the assessment of the most economically advantageous tender for a contract for the supply of electricity, an award criterion … which requires that electricity supplied be from renewable energy sources.’

Context for secondary polices has changed as a result of the new economic landscape

• “2010 must mark a new beginning. I want europe to emerge stronger from the economic and financial crisis”

M. Barroso, President of the EU Commission

(‘Europe 2020 – A strategy for smart, sustainable and inclusive growth’)

• ‘Europe 2020’ strategy includes initiatives such as “innovation union”, “an industrial policy for the globalisation era” and “resource efficient Europe” - in all of which procurement has a significant role.

Examples of Secondary Policy initiatives in Dublin City

• Dublin Wi-fi: supply of free public wireless broadband in certain spots of the city: facilitating tourism and economic activity

• Johnstown Park Pavilion: water segregation, waste water harvesting: sustainable use of resources

• “Dublinked” (www.dublinked.ie): sharing public data initiative to spur creativity and innovation

Examples of Secondary Policy initiatives in Dublin City (Cont’d)

• Energy efficiency: installation of solar panels on top of various buildings including sports changing room facilities

• Habitat mapping and Green Infrastructure Strategies (for the Heuston and Pelletstown Candidate Local Area Plans)

• Proposed initiative - based on report entitled ‘Built to last: Dublin City Heritage Plan: the sustainable re-use of buildings’: retention and rehabilitation: analysis of costs of re-using buildings with the cost of replacement. In 4 out of the 5 case studies the re-use option generated lower whole life costs.

Identification of the legal vehicle to achieve the secondary objective

Example: Tender for the management and installation of ‘green’ widgets in various prime parts of the City: identification of legal form to achieve objective sought?

(1) Procurement of services / works contract by advertisement, seeking tenders;

(2) Use of a services / works concession;

(3) State Aid issues?

(4) Service of general economic interest (Altmark)?

Identification of the legal vehicle to achieve the secondary objective (cont’d)

(1) Advertising & seeking tenderers – capable of cost

analysis, funding issues?

(2) Concession: - falls outside procurement directives - defined as being ‘similar to a normal public contract for services or works ‘except for the fact that the consideration .. consists either solely in the right to exploit the service or in this right together with payment’:

Concession definition is based on Telaustria (Case C-324/98) which has also added that the concessionaire must bear all, or a significant share, of the risk of operating the service.

Identification of the legal vehicle to achieve the secondary objective (cont’d)

(3)State Aid: Art. 107 (1) of TFEU:

“Save as otherwise provided in the Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the promotion of certain goods shall, in so far as it affects trade between member States be incompatible with the internal market”.

Identification of the legal vehicle to achieve the secondary objective (cont’d)

(3) State Aid (Cont’d)

• If subsidised by CA, could come within rules on State Aids.

• Further, mere availability of public lands in prime areas of the city for the green widgets may constitute a form of state aid – access to infrastructure that would be difficult to quantify.

• But no state aid if: -

(a) there is no effect on trade between member states, or

(b) the proposed arrangements are not selective

State Aids (cont’d)

• Test for effect on trade between member states: if an industry as a whole is exposed to international competition, a subsidy to one part of the industry is capable of affecting trade between Member States (Case C-148/04) Unicredito.

(4) Alternatively, structure the arrangement as a ‘service of general economic interest’ along the lines of Altmark (Case

C-280/00)?

State Aids (cont’d)

(4) Altmark: (Cont’d)

• Payments were not an ‘advantage’ and so fell outside the State Aid rules if they merely compensated an undertaking for carrying out an obligation to provide specific services in the public interest [paras 85 et seq.]

• Principles codified in Commission Decision 2012/21/EU: certain services of a general economic interest need not be notified to the Commission and are deemed compatible with the State aid rules, if they meet the conditions therein.

State Aid (Cont’d)

• Decision 2012/21/EU:

Transparency issues – amount of compensation to be paid to the provider of the service is required to be transparent. Difficulties where there is a non - cash consideration.

• Suggested solution: advertise as a concession – no selectivity, therefore no state aid.

Summary of matters for consideration of legal form to achieve secondary objective

• Clarity as to overall objective and availability of funding• Is there a public contract? • Concession requirements – is there actually a ‘risk’ for a

potential concessionaire? Will there be ‘users’?• Research and Development proposals - if it is true R & D it

may be excluded under Article 16 (f) of the public sector directive: but if state aid need to assess compliance with Regulation No.800/2008

• State Aid compliance: form of aid may be subtle – for example the undertaking’s association with the initiative to the exclusion of other undertakings – market advantage in terms of corporate profile and PR.

Clarifications

Consideration as to whether to seek clarification may arise in the following cases:

(1) ‘Obvious’ clerical errors

(2) Errors of omission

(4) Insufficient information is provided

(3) Ambiguity in tenders submitted

Depending on the terms of the particular competition, any of the above deficiencies may result in a tender being deemed ‘non –compliant’. When should a tenderer be given the opportunity to ‘clarify’ a tender?

Clarifications - Case Law

Adia interim [1996] 3 CMLR 849

• Involved an error in calculation of price – not a particularly obvious error

“any contact between the institution and the tenderer after tenders have been opened is prohibited save exceptionally “if some clarification is required in connection with a tender or if obvious clerical errors in the tender must be corrected. In those cases, the institution may take it upon itself to contact the

tenderer;

Clarifications - Case Law (cont’d)

• Adia Interim (Cont’d)

• Opportunity to ‘clarify’ could have resulted in the adjustment of other factors:

“…In those circumstances, any contact made by the Commission with the applicant in order to seek out jointly with it the exact nature of the systematic calculation error would have involved a risk that other factors taken into account in order to establish its tender price ….might have been adjusted, and this would have entailed an infringement of the principle of equal treatment to the detriment of the other tenderers …”

Clarifications - Case Law (cont’d)

• Tideland Signal Limited v Commission Case T-211/02

• Ct found that a tender document was ambiguous with regard to the period in which the tender document remained valid – whether this ambiguity should be clarified:

“In cases where the terms of a tender itself and the surrounding circumstances known to the Commission indicate that the ambiguity probably has a simple explanation and is capable of being easily resolved, then, in principle, it is contrary to the requirements of good administration for an evaluation committee to reject the tender without exercising its power to seek clarification. “

Clarifications - Case Law (cont’d)

• Tideland (cont’d)

‘It would be .. contrary to the principle of equality … for an evaluation committee to enjoy an unfettered discretion to seek or not seek clarification of an individual tender regardless of objective considerations and free from judicial supervision…”

‘…[T]he principle of proportionality requires that measures adopted by Community institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives pursued and that where there is a choice between several appropriate measures recourse must be had to the least onerous… ‘

Clarifications - Case Law (cont’d)

• Hossacks (a firm of solicitors) v. the Legal Services Commission [2011] EWHC 2700 (Admin) Queen’s Bench

LSC Guidance set out what constituted a completed tender –applicants required to reply to all of the questions in order to respond to the PPQ and ITT, even if they had previously provided that information or thought that the LSC was aware of it. Guidance also stated that failure to comply with the terms and conditions entitled the LSC to reject a bid.

Hossacks mistakenly submitted a tender for Northamptonshire on a form headed ‘Wiltshire’ and failed inter alia to include the location of its office, as required.

Clarifications - Case Law (cont’d)

• Hossacks (cont’d)

Hossacks contended that it was unreasonable or disproportionate for the LSC not to seek to clarify its tender given the nature of the mistake made and that the LSC had acted inconsistently in refusing to permit amendments of its tender while performing clarification in other respects of the tendering process

• Held that LSC was entitled to reject Hossacks’s application as its approach to assessing the eligibility of bids accorded with the guidance.

Clarifications - Case Law (cont’d)

Hossacks (Cont’d)

• Hossacks had deliberately failed to provide an address in Northamptonshire because it was adopting the same approach for all the areas in which it was bidding. Having premises in the relevant contract area was an important part of the criteria.

• The clarification Hossacks sought went beyond clarification of an ambiguity and extended to reconstructing the essence of the application made.

Clarifications – Case Law (cont’d)

Clinton v Dept for Employment and Learning [2012] NIQB 2

- Tender for publicly funded training and apprenticeship programmes in Northern Ireland. Clinton contended that: -

(1) its elimination - due to a failure to provide ‘data in respect of achievement, success rates or destinations into positive outcomes’ was due to a non-disclosed or ambiguous selection criterion in breach of principles of transparency and equal treatment, and

(2) In its solicitation of “clarification” from thirteen other bidders the Dept. acted in breach of its duty of equal treatment

Clarifications – Case Law (cont’d)

Clinton (cont’d)

• McCloskey J. noted that the Dept’s witness gave evidence that Clinton’s tender included ‘some information, albeit limited, about the quality of previously delivered programmes’

• Therefore, not a case where there was an outright failure to provide information: rather, insufficient information had been provided

• In those circumstances the panel had had a discretion to request further information.

Clarifications – Case Law (cont’d)

Clinton (Cont’d)

• In an equality of treatment challenge, comparability was the central consideration. The fundamental issue was whether, had the panel asked Clinton to provide the data, that request would have been sufficiently comparable with its requests to other bidders to provide information. Although the two scenarios were not identical, they were not materially different.

• As Clinton could have supplied the required data in a format acceptable to the department the resultant detriment to Clinton was obvious (paras. 44 – 46). The Dept’s failure to request the further information was also disproportionate.

Clarifications – Case Law (cont’d)

Clinton (cont’d )

• By failing to appreciate the existence of that discretion, the panel had materially erred.

• To have requested further information would not have infringed the principle of equality of treatment and would have complied with the principles of legal certainty and good administration [Tideland]

Clarifications – Case Law (cont’d)

Clinton (Cont’d)

• More generally, in relation to the SIAC & Mayo County Council test, that tenders ‘must be capable of being uniformly interpreted by reasonably informed and normally diligent tenderers’, McCloskey J stated that:

‘The Siac hypothetical tenderer is a terrestrial, rather than celestial, being, hailing from earth and not heaven’

[at para. 38]

• Standard to be applied should focus on the meaning to tenderers operating in the relevant industry concerned.

Clarifications:Summary

Decisions regarding whether or not to seek clarifications must comply with the principle of equal treatment of tenderers and the principle of transparency: Clinton demonstrates however that treating tenderers equally does not mean treating them the same: what matters is that the request is sufficiently comparable with the requests to other bidders.

More generally, the measures taken by the CA should comply with the principle of proportionality: are the measures contemplated by the CA proportionate, that is, they should not exceed the limits of what is appropriate and necessary in order to attain the objective However, where documentation is very clear as to requirements, tender may be rejected (Hossacks).

Clarifications – Additional Cases

• JR Jones v Legal Services Commission [2010] EWHC 3671 (HC) (Tideland distinguished as error not apparent until appeal process – opportunity to amend tender accordingly lost)

• Deane Public Works Ltd v. Northern Ireland Water [2009] NI Ch 8 (plaintiff provided information on an out -of -date project which was different to the other two clarification scenarios – entitled not to raise clarification)

• R v. Minister of Agriculture, Fisheries and Food (Case C-331/88) (Proportionality of measures)

Clarifications – Additional Cases (Cont’d)

• Allan Rutherford LLP v Legal Services Commission [2010] EWHC 3068 (Equal treatment and proportionality)

• CAS Succhi di Frutta (Case C-496/99) (Equal treatment implies that tenderers must be subject to the same conditions)

• Dynamiki v. Commission (Case T-387/08) (Limited role of court - contracting authority has broad discretion as to the factors to be taken into account for the purpose of deciding to award a contract following invitation to tender – Ct’s review therefore limited to checking compliance with the procedural rules …’

Clarifications – Additional Cases (Cont’d)

• R (on the application of British American Tobacco (investments Ltd) v. Secretary of State for Health (Case C-491/01) (Proportionality)

• Azam & Co. Solicitors v Legal Services Commission (strict application of conditions of tender - all candidates had equal opportunity - time barred from process)

Thank you !