ESG and sustainability
Law for a sustainable future
On 15 September 2022, the Court of Justice of the European Union (CJEU) ruled that contracting authorities must have “sufficiently plausible indications” (Art. 57(4)(d) Public Contracts Directive) of violation of EU antitrust rules before they may exclude a company from a public tender on this ground under the EU public procurement rules. Arguably, “sufficient plausible indications”, a term which is neither defined nor clarified in the EU public procurement legislation, would not only include direct evidence but also indicia, provided these are objective and consistent and the related tenderers are given the opportunity to rebut the contracting authority’s presumption as to their conduct, by analogy to the CJEU’s judgment in Specializuotas transportas (Case C-531/16).
In addition, the CJEU held that Art. 57(4)(d) Directive 2014/24 on public procurement1 (Public Contracts Directive) covers cases where economic operators have entered into an agreement prohibited by Art. 101(1) TFEU but is not limited solely to agreements provided for in that article.
Art. 57(4) Public Contracts Directive exhaustively regulates the optional grounds for exclusion of an economic operator from participation in a procurement procedure for reasons based on objective factors relating to its professional qualities, to a conflict of interest, or to a distortion of competition. However, Article 57(4) does not prevent the EU law principle of equal treatment from precluding the award of the contract to economic operators which constitute an economic unit and whose tenders, although submitted separately, are neither autonomous nor independent.
In this context it should be noted that unlike in EU competition law, there are no explicit provisions on public procurement in the Treaty on the Functioning of the European Union (TFEU or Treaty). EU procurement rules are derived from the TFEU’s so-called “four freedoms”, and in particular the freedom of movement of goods (Art. 34 TFEU) and the freedom to provide services (Art. 56 TFEU) / freedom of establishment (Art. 59 TFEU). EU procurement rules are set out in four directives, i.e., the Public Contracts Directive, the Utilities Directive, the Concessions Directive2, and the Defence and Security Directive3, which apply above certain thresholds. Additionally, the underlying Treaty principles, including transparency, non-discrimination / equal treatment, proportionality, and mutual recognition, apply where (i) the contract is awarded by “an emanation of the State”; (ii) the contract is of “cross-border interest”; and (iii) no Treaty exemption applies.
The well-established “single economic entity” or “single economic unit” doctrine does provide that entities that belong to the same group and have a common source of control form, collectively, a single undertaking. As a result, arrangements between such entities are not caught by the prohibition on anti-competitive agreements and concerted practices between undertakings in Article 101(1) TFEU. The single economic unit doctrine, however, does not protect related undertakings from contracting authorities’ scrutiny of their tenders (if no joint bid) and their potential exclusion because of distortion of competition (i.e. Art. 57(4)(d) Directive 2014/24 on public procurement).
This preliminary ruling stems from a dispute involving two related/affiliated bidders, i.e., J. Sc. Omnibusunternehmen and K. Reisen GmbH, in southern Germany. These bidders were excluded from a public tender for local bus services due to distortion of competition. J is a trader operating under his company name and K. Reisen is a bus transport company with limited liability of which J is the managing director and sole shareholder. On 27 February 2020, both J and K. Reisen submitted tenders relating to the contract notice through the same person, namely J. On 1 November 2019, insolvency proceedings were opened in respect of J’s assets and, by decision of 1 December 2019, the insolvency administrator released from the insolvency proceedings the self-employed activity of J. In his tender, J declared that insolvency proceedings had neither been applied for nor opened in respect of his undertaking.
On 2 April 2020, J and K. Reisen were informed, first, that their tenders had been excluded for breach of competition rules in so far as they had been prepared by the same person, and, second, that the contract in question would be awarded to E. Gmbh & Co. KG. After unsuccessfully lodging a complaint, J and K. Reisen brought an action before the Vergabekammer Südbayern (Public Procurement Board, Southern Bavaria, Germany). By decision of 12 January 2021, the latter upheld that action and ordered the District of Aichach-Friedberg (the District) to reinstate the tenders submitted by those tenderers.
The District appealed that decision before the Bayerisches Oberstes Landesgericht (Bavarian Highest Regional Court, Germany) (the referring court), which referred the following questions to the CJEU:
(a) whether Art. 57(4)(d) Public Contracts Directive must be interpreted as meaning that the optional ground for exclusion provided for in this provision covers only cases where there are sufficiently plausible indications to conclude that economic operators have infringed Art. 101 TFEU (the first question);
(b) whether Art. 57(4) Public Contracts Directive must be interpreted as meaning that this Article exhaustively regulates the optional grounds for exclusion, which prevents the principle of equal treatment, provided for in Art. 18(1) Public Contracts Directive, from precluding the award of the contract in question to economic operators which constitute a separate economic unit and whose tenders, although submitted separately, are neither autonomous nor independent (the second and third questions).
In relation to the first question, the CJEU pointed out that Art. 57(4)(d) Public Contracts Directive does not mention Art. 101 TFEU nor the latter’s requirements of ‘agreements between undertakings’, and, ‘effect on cross-border trade’. Thus the CJEU concluded that it covers cases in which economic operators enter into any anticompetitive agreement and cannot be limited solely to the agreements between undertakings referred to in Art. 101 TFEU6.
The objective underlying Art. 57(4)(d) Public Contracts Directive confirms that interpretation. This provision is intended to enable contracting authorities to assess and take into account the integrity and reliability of each of the economic operators, so that they may exclude from procurement procedures unreliable tenderers with whom they cannot maintain a relationship of trust in order to complete the contract in question. Such an objective appears to be different from that referred to in Art. 101 TFEU - the latter is intended to punish anticompetitive behaviour on the part of undertakings and to deter them from engaging in such conduct7.
The CJEU noted that the concept of ‘misconduct’ in Art. 57(4)(c) Public Contracts Directive, which covers all wrongful conduct that affects the credibility, integrity or professional reliability of the economic operator in question, must be interpreted broadly. In those circumstances, since the infringement of the competition rules may be regarded as a type of grave professional misconduct, it would be inconsistent to give the concept of ‘agreements’ in Art. 57(4)(d) a narrow interpretation that would be limited solely to the agreements between undertakings referred to in Art. 101 TFEU. That is all the more so since the concept of ‘economic operator’, defined in Art. 2(1)(10) Public Contracts Directive, does not refer to the concept of ‘undertaking’ within the meaning of Art. 101 TFEU8.
On this basis the CJEU held that the answer to the first question is that Art. 57(4)(d) Public Contracts Directive, read in conjunction with Art. 80(1) Utilities Directive, must be interpreted as covering cases where there are sufficiently plausible indications to conclude that economic operators have entered into an agreement prohibited by Art. 101 TFEU, but that it is not limited solely to the agreements provided for in that article9.
However, the fact that the optional grounds for exclusion are listed exhaustively does not prevent the principle of equal treatment, provided for in Art. 36(1) of that directive, from precluding the award of the contract in question to economic operators which constitute an economic unit and whose tenders, although submitted separately, are neither autonomous nor independent11.
Such an exhaustive list does not hinder Member States to maintain or adopt substantive rules designed to ensure observance of the principle of equal treatment and of the principle of transparency. These principles are binding on contracting entities in any procedure for the award of a public contract and constitute the basis of the EU directives on procedures for the award of public contracts, provided that the principle of proportionality is observed12.
In particular, in the case of related tenderers, the principle of equal treatment would be infringed if those tenderers were allowed to submit coordinated or concerted tenders, that is to say, tenders that are neither autonomous nor independent, which would be likely to give them unjustified advantages in relation to the other tenderers. In that context, observance of the principle of proportionality requires the contracting authority to examine and to assess the facts, in order to determine whether the relationship between two entities has actually influenced the respective content of the tenders submitted in the same tendering procedure, a finding of such influence, in any form, being sufficient for those undertakings to be excluded from the procedure13.
The finding that the links between tenderers had a bearing on the content of the tenders they submitted during the same procedure suffices for those tenders not to be taken into consideration by the contracting authority, as tenders by related undertakings must be submitted completely autonomously and independently. These considerations apply even more to the situation of tenderers which are not merely related but which constitute an economic unit14.
This judgment demonstrates the limits of the application of competition law principles to public procurement. One of the main reasons for such limits is that although both competition law and public procurement contribute to the completion of the EU internal market, they also pursue different objectives. EU competition law aims to protect competition on the market and consumers whilst one of the key goals of public procurement is to ensure the widest possible participation by tenderers in a tendering procedure. The CJEU has consistently held that it would run counter to the effective application of EU law to systematically exclude related undertakings from participating in the same public procurement procedure16. Additionally, there is no such general prohibition in the EU public procurement directives – this is also the case in relation to EU competition law.
Furthermore, the CJEU has also consistently held that 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 procedure17.
Although related undertakings participating in the same procedure are not prohibited from each submitting their own tenders, coordination of their tenders is not allowed, as held in this case. Such coordination is likely to give these undertakings an unfair advantage, increasing their chances of success at the expense of other tenderers in the competition. Therefore permitting such conduct would result in the contracting authority breaching its EU procurement law obligation to carry out a fair process, without the need to examine whether such coordination breaches Art. 101 TFEU. If tender coordination is proved this would be sufficient to lead to the disqualification of related tenderers, without the need to examine in each case the specific intention or effect of such coordination. From a competition law perspective, this may be considered as going too far as in principle even ‘by object’ restrictions may be justified by the efficiency defence under Art.101(3) TFEU18. However, this is a logical approach: from a procurement law perspective, allowing two related tenderers to coordinate their submissions is, by definition, discriminatory vis-à-vis other tenderers which are not able to, or indeed permitted under competition law, to do so.
On March 9, 2023, the European Commission (EC) adopted changes to its State aid framework to support its “Green Deal Industrial Plan for the Net-Zero Age” (the Net Zero Plan) presented in February 2023. The Net Zero Plan is part of the European Green Deal, which aims to make Europe the world’s first climate-neutral continent by 2050.
© Norton Rose Fulbright LLP 2023