Introduction

The case1 deals with the issue of discriminatory requirements and the distinction between selection and award criteria in the context of a contract award process under the utilities regime. The judgment does not break any new ground but applies principles already established by the Court’s jurisprudence. This is unfortunate, given that the case presented an apt opportunity for the Court to clarify its ruling in Lianakis2 on the nature of award criteria. The Court failed to do this and, in fact, as argued below, the application of the Lianakis ruling in this case would in any event appear inappropriate in the context of the utilities regime.  

Factual and legal background

The case arose as a result of infraction proceedings under Article 226 EC which the Commission commenced following the receipt of a complaint. The challenge concerned the legitimacy of a tender process for the award of a design and consultancy services contract by ERGA OSE, a subsidiary of the Greek railway authority, as advertised in a contract notice in the Official Journal of the European Union on 16 October 2003. More specifically, in setting out the minimum technical requirements which interested parties had to meet in order to participate in the competition, the contracting entity specified the qualifications which Greek consultancy firms had to possess and the corresponding requirements for other European Union (EU) and European Economic Area (EEA) service providers.

In doing so, the contracting entity also clarified that EU/EEA service providers which had expressed an interest in another ERGA OSE tender process in the previous six months and declared qualifications which were different from those currently required, would not be eligible to participate in the competition (the disputed clause).

The contract notice also specified that the contract was to be awarded by means of the open procedure to the most economically advantageous tender in accordance with the following criteria:

  1. Specific and general experience, in particular design work on similar projects either by consultancy firms or consultants and their scientific staff.
  2. Actual capacity to conduct a study within the estimated timeframe together with obligations assumed regarding the carrying-out of other studies and the specific scientific and operational staff proposed to conduct the study in question as well as the equipment in relation to the object of the study3 (collectively, the disputed award criteria).

According to the Commission:

  1. the tender process involved the de facto introduction of an additional criterion for the automatic exclusion of parties expressing an interest in the competition beyond those expressly provided for in the relevant EU legislation, namely Directive 93/38 (the Utilities Directive);4 and
  2. there had been a failure to distinguish between qualitative selection and award criteria.

In view of the above, the Commission argued, the tender process had breached the Utilities Directive, the principle of mutual recognition of formal qualifications which applied to the Community law on public procurement, and Articles 12 EC and 49 EC (now Articles 18 and 56 of the Treaty on the Functioning of the European Union).5

In this context, it is relevant to note that Article 31(1)6 of the Utilities Directive specified that “contracting entities which select candidates to tender in restricted procedures or to participate in negotiated procedures shall do so according to objective criteria and rules which they lay down and which they shall make available to interested [parties].”7 In addition, Article 31(2) provided that the criteria used “may include” the specific criteria for the rejection of interested parties set out in Article 23 of Directive 71/305 and Article 20 of Directive 77/62. These essentially permitted the disqualification of a party who was bankrupt, convicted of an offence concerning professional conduct, had failed to meet obligations to pay tax or social security, or was guilty of serious misrepresentation in supplying certain information to the awarding body.8

Article 34(1) indicated that the criteria on which a contract award must be based would be either the most economically advantageous tender, involving various criteria depending on the contract in question, or the lower price only.

Article 4(2) also indicated that contracting entities had to ensure that there was no discrimination between different service providers.9

It is also relevant to note that the terms and conditions of the competition as set out in the contract notice were in line with the requirements of Greek law at the time.  

Judgment of the Court

Admissibility

Greece had argued that the Commission’s action was devoid of purpose since the offending law on which the disputed conditions were based had been repealed within the time-limit set in the Commission’s reasoned opinion and the new law was compliant with Community law. In addition, Greek law did not permit the revocation of a contract following its award - a provision which was compliant with the relevant remedies directive.10 According to Greece, it was also particularly relevant in this context that the award of the contract had been upheld by three judicial decisions at national level, in proceedings for interim measures.

The Court did not accept those arguments. It held that the repeal of the offending law within the prescribed timeframe was essentially irrelevant because the action was not concerned with the incorrect transposition of the Utilities Directive into national law but, instead, with the misapplication of that directive in a specific tender process. Court jurisprudence had already established that the Commission had the right to ask the Court to find that in failing to achieve the result intended by the directive in a specified case, a Member State had failed to fulfil its obligations.11

In addition, the fact that, in line with the relevant remedies directive, national law did not permit the setting aside of a contract following its award could not affect an action under Article 226.12 In any event, Court jurisprudence also made clear that for the Commission’s action to be considered inadmissible it was necessary for the contract at issue to have run its course before the expiry of the period set in the Commission’s reasoned opinion.13 This was not the case here.

In view of the above, the Court concluded that the Commission’s case was admissible.

The disputed clause

Having first confirmed that the award procedure in question fell within the scope of the Utilities Directive, the Court went on to consider the Commission’s complaint regarding the disputed clause. The Commission had argued that, among other things, the disputed clause disregarded Article 31(1) and (2) in that it introduced an exclusion ground which was additional to those exhaustively authorised by Community law.

However, the Court queried the relevance of Article 31 in this context given that the procedure used for the award of the contract was the open procedure whereas Article 31 applied explicitly (and exclusively) to the award of contracts under the restricted and negotiated procedures. The Court noted that the Commission had admitted during the hearing that this posed a “problem” and stated that its complaint on this point was essentially based on a breach of the equal treatment principle in Article 4(2). In the light of this fact, the Court took the view that the Commission had withdrawn its complaint alleging breach of Article 31.

Commenting on the disputed clause, the Court indicated that this was clear and unequivocal in its intention to exclude foreign applicants who had within the previous six months submitted qualifications which were different from those required in the new tender process. In its defence, Greece argued that the clause had always been applied in a way that enabled any interested party in doubt as to the clause’s scope to seek clarifications and submit evidence demonstrating that such party did in fact meet the conditions for participation in the procedure.

However, for the Court this explanation was inadequate. Court jurisprudence made it clear that the principle of equal treatment - and the principle of transparency which that entailed - meant, in particular, that bidders, even potential bidders, must generally be on an equal footing and have equality of opportunity in formulating the terms of their applications (expressing an interest in a competition) and their tenders.

Potential tenderers had to be in a position of equality as regards the scope of the information in a contract notice. It was not consistent with the equal treatment and transparency principles for one category of those concerned to have to seek clarifications and additional information from the contracting entity as to the actual meaning of the content of a contract notice, where its formulation would leave no room for doubt in the mind of a reasonably well-informed and diligent potential tenderer.14

In addition, the Court had already established that in prohibiting discrimination between tenderers, Article 4(2) also protected those who were discouraged from tendering because they were placed at a disadvantage by the procedure followed by the awarding body.15 The Court was in no doubt that in this case the effect of the disputed clause was discriminatory, in that a foreign tenderer:

“(did) not enjoy equality of opportunity with non-foreign tenderers because of the clearly dissuasive wording of that clause and the need, despite that wording, to take additional steps to obtain clarification as to the conditions for admission to the tendering procedure.”16

The Court noted that Greece had not offered any justification for the difference in treatment between local and foreign tenderers. Accordingly, it concluded that the disputed clause was in breach of Article 4(2).

The Court also considered briefly the Commission’s allegation that “in accordance with recital 34” in the preamble to the Utilities Directive, the disputed clause breached the principle of mutual recognition of formal qualifications. Recital 34 indicated that “the relevant Community rules on mutual recognition of diplomas, certificates or other evidence of formal qualifications” applied when evidence of a particular qualification was required for participation in a competition.

In this case, the effect of the disputed clause was that, unlike local applicants, foreign applicants who had (in the previous six months) submitted an expression of interest in another competition by the awarding body could not rely on all their diplomas and professional qualifications. However, it could not be said that the effect of that clause was that the awarding body would refuse to consider diplomas or other evidence of professional qualification issued by another Member State. Accordingly, the Court concluded, the Commission’s allegation that there had been a breach of the Community rules of mutual recognition of evidence of formal qualifications was unfounded.

The disputed award criteria

The Commission argued that the Utilities Directive provided for two distinct phases in an award procedure, with different objectives, namely tenderer selection and contract award – although the simultaneous examination of candidates’ suitability and the awarding of the contract was not prohibited.

According to the Court, it was apparent from case law that, although the consideration of the candidates’ suitability and the award of the contract could take place simultaneously, the two procedures were nonetheless distinct and governed by different rules.17

Tenderers’ suitability was to be examined by reference to the criteria of economic and financial standing and technical capacity (the qualitative selection criteria) referred to, in this case, in Article 30 and 31.18 By contrast, the award of contracts was based on the lowest price or the economically most advantageous tender.19 However, although the Utilities Directive did not set out an exhaustive list of criteria, and awarding bodies were therefore free to select the criteria on the basis of which to determine the most economically advantageous tender, their choice was nevertheless limited to criteria aimed at identifying the tender which was economically the most advantageous.20 Accordingly, ‘award criteria’ did not include criteria that were not aimed at identifying the tender which was economically the most advantageous, but were instead essentially linked to the evaluation of the tenderers’ ability to perform the contract in question.21

In the current case, the criteria selected as ‘award criteria’ related to the experience and actual capacity of bidders to ensure proper performance of the contract in question. As such, they concerned the tenderers’ ability to perform the contract and did not therefore have the status of ‘award criteria’.

Accordingly, the Court held, the disputed criteria did not comply with the requirements of the Utilities Directive on this point22 and therefore Greece had failed to fulfil its obligations under that directive also in this regard.  

Comments

The disputed clause

The Court was clearly correct to dismiss23 the Commission’s complaint that the disputed clause breached Article 31, given that that article stated expressly that it applied (only) to the restricted and negotiated procedures. In any event, even if that provision were to have applied to the open procedure, the Commission’s allegation that the disputed clause breached Article 31 would have still been without merit given that it was based on the premise that that article set out an exhaustive list of exclusion criteria. It did not.24

Instead, the real problem with the disputed clause was that it was discriminatory. Its wording would have induced, as indeed it did,25 foreign participants in tender procedures over the previous six months to think that, unless they had declared the qualifications which were required for participation in the current process in an earlier procedure, they would have been banned automatically from participating in the new process. Alternatively, the effect of the disputed clause would have been that such foreign parties would have been required to take additional steps to obtain clarification regarding the conditions for admission to the new tender procedure.

As we have seen, the Commission also sought to challenge the disputed clause on the basis that it breached the Community rules of mutual recognition of formal qualifications. The Court dismissed that claim on the basis that there was no evidence that the effect of the disputed clause would have been that the awarding body would have refused to consider formal qualifications issued by another Member State. This is clearly correct. However, the Court could have also commented on the fact that the Commission based its allegation of a breach of a Community obligation in this context not on a substantive provision of the Utilities Directive but on the wording of that directive’s preamble.

As the Advocate General rightly commented in her Opinion, Court jurisprudence has already established that the preamble to a Community act does not have binding force26 (so that the preamble does not create binding obligations and the non-observance of a preamble, therefore, cannot be said to constitute a breach). Accordingly, the only reason why it would seem justifiable for the Court to consider an allegation of a breach which has been made by reference to the preamble to a directive would be where the preamble merely refers to an existing obligation – so that an allegation of a breach made by reference to the preamble, should be construed not as an allegation of a breach of that preamble but of the obligation referred to in that preamble. It would appear that this was the case here, given that the Court’s jurisprudence has established obligations relating to the mutual recognition of formal qualifications under the Treaty principles relating to the right of establishment (Article 43 EC) and the freedom to provide services (Article 49 EC).27 For the sake of clarity, it would have been desirable for the Court to have explained such subtleties in its judgment.

The disputed criteria

As discussed earlier, the Court ruled that the disputed criteria did not comply with the requirements of the Utility Directive because “award criteria” did not include criteria that were not aimed at identifying the tender which was economically the most advantageous, but were instead “essentially linked” to the evaluation of the tenderers’ ability to perform the contract in question.

If the Court’s judgment on this point sounds familiar it is because the Court applied (almost verbatim) its ruling in the Lianakis case on this point.28 In one respect, this approach might seem justifiable given that not only did both cases concern allegations regarding the use of inappropriate award criteria but also, as a matter of fact, the offending award criteria used in both cases were in most respects identical.29 From another perspective, however, this approach is disappointing and, arguably, inappropriate in the current context.30

First, it is disappointing because the court’s interpretation of the nature of award criteria in Lianakis raised a number of issues which would have benefitted from clarification.

For example, as argued more fully on another occasion,31 the Court’s conclusion in Lianakis that award criteria did not include criteria which were “essentially linked” to the evaluation of the tenderers’ ability to perform the contract in question, seemed to be based on the premise that there was a clear distinction between factors which might be considered as selection criteria and factors which might be considered as award criteria. The Court’s ruling on this point seemed particularly surprising given that, as in the current case, one of the award criteria under consideration concerned the “ability to perform the contract by an anticipated deadline”. The Court concluded that this criterion too lacked the appropriate characteristics to qualify as an award criterion despite the fact that the relevant directive explicitly referred to “delivery date, delivery period or period of completion”32 as examples of criteria which might be relevant in determining the most economically advantageous tender. The Court did not address this point in its judgment, and therefore failed to explain why it was possible for it to conclude that this criterion was in breach of the relevant directive’s requirements when that same directive explicitly referred to substantially identical factors as examples of criteria which might be relevant in determining the most economically advantageous tender.33

The current case would have provided an appropriate opportunity for the Court to clarify such issues.

Second, certain key differences between the Utilities Directive, which as indicated earlier was the relevant directive in the current case, and Directive 92/50 (the services directive),34 which was under consideration in Lianakis, makes the application of the Lianakis judgment “by analogy” seem inappropriate.

For example, in line with Lianakis,35 the Court concluded that the suitability of tenderers was to be checked by the awarding authorities in accordance with “the criteria of economic and financial standing and of technical capability”, which constituted the qualitative selection criteria, and which were “referred to, in the present case, in Articles 30 and 31”. According to the Court, and again by reference to Lianakis, these (specific) qualitative selection criteria contrasted with the award criteria. Award criteria did not include criteria which were not aimed at identifying the tender which was economically the most advantageous but were instead “essentially linked” to the evaluation of the tenderers’ ability to perform the contract in question.

However, the apparent flaw in applying Lianakis by analogy in the context of the Utilities Directive is that, unlike the services directive and indeed, all other predecessors to the public sector directive, the Utilities Directive did not (and similarly, the current utilities directive does not) set out specific criteria of economic and financial standing and of technical capability on which qualitative selection must be based and which may be contrasted, as the Court sought to do in Lianakis, with the award criteria.

More specifically, Article 30, which is one of the articles to which the Court refers in its judgment as setting out “the criteria of economic and financial standing and of technical capability” in accordance with which awarding authorities must assess the suitability of tenderers, would seem irrelevant in this context. This is because Article 30 deals exclusively with the establishment and operation of a “qualification system”.36 Even within that very specific context, that article does not specify that the selection of participants in such system must be based on criteria of economic and financial standing and of technical capability. It merely states that the system must operate “on the basis of objective criteria and rules to be established by the contracting entity”.37

As to Article 31 (the other article to which the Court refers in its judgment in this context), as already discussed, this explicitly applied only to the restricted and the negotiated procedures and not to the open procedure, which, it should be recalled, was the procedure under which the contract in this case had been awarded.38

Moreover, even if Article 31 were to have applied by analogy to the open procedure (something which the Court had in fact rejected in its judgment when considering the disputed clause), that article too did not impose any explicit obligations for determining the suitability of tenderers in accordance with criteria of economic and financial standing and of technical capability. It merely stated that contracting entities had to select candidates to tender or negotiate “according to objective criteria and rules which they lay down” and that such criteria may include the exclusion criteria specified in the supply and works directives applicable at the time and which, as we have discussed earlier, essentially permitted the disqualification on grounds relating to professional qualities, such as whether a party was bankrupt.39

Accordingly, Article 31 did not provide for the selection of participants on the basis of criteria of economic and financial standing and of technical capability. Indeed, none of the substantive provisions of the Utilities Directive explicitly required that these criteria should be used in the selection of bidders nor is there a Court ruling to the effect that the objective criteria referred to in Article 31 should be interpreted as a reference to the criteria of economic and financial standing and of technical capacity referred to in the public sector directive (or one of its predecessors).40

It is important to stress the point that the Court’s conclusion in Lianakis that award criteria could not include criteria which were essentially linked to the evaluation of the tenderers’ ability to perform the contract in question, was reached by reference to the specific provisions of the services directive which required that the selection of bidders takes place in accordance with criteria of economic and financial standing and technical capability. In reaching that conclusion, the Court in Lianakis specifically referred to paragraph 17 of the Court’s decision in Beentjes where the Court had considered the equivalent provisions under the original works directive and had concluded that it was clear from those provisions that the authorities awarding contracts could check the suitability of the contractors “only” on the basis of criteria relating to their economic and financial standing and their technical knowledge and ability.

The question therefore legitimately arises as to whether absent such specific requirements regarding the criteria for bidder selection the Court in Lianakis would or indeed could have reached the same conclusion.

These are key issues which the Court could have considered in the current case before reaching any conclusions on the appropriateness of the disputed award criteria.

In this context, it is also worth noting that although the Court in Lianakis relied heavily on Beentjes in reaching the conclusion that criteria which are “essentially linked” to the evaluation of the tenderers’ ability to perform the contract in question cannot constitute award criteria, there is arguably nothing in Beentjes which would make such conclusion inevitable.41

In Beentjes the Court essentially states that:

  • the provisions of the original works directive, make clear that the authorities awarding contracts can check the suitability of the contractors only on the basis of criteria relating to their economic and financial standing and their technical knowledge and ability; and
  • with regard to award criteria, the contracting authorities’ choice is limited to (objective) criteria aimed at identifying the offer which is economically the most advantageous.42

The above statements do not appear to preclude the possibility of a crossover between selection and award criteria, such as when criteria relating to the economic and financial standing of bidders or to their technical knowledge and ability also aim at identifying the offer which is the economically the most advantageous. This would be the case, for example, where, the selection stage is concerned with establishing that interested parties have the required (and at least minimum) capacity to perform the contract whereas the award stage is concerned with comparing how quickly they can perform that contract so that, if prompt delivery is important for the awarding authority, Bidder A which is able to deliver more quickly than Bidder B should be awarded higher marks at the award stage.

Such considerations, self-evident as they might appear, are issues which the Court could usefully have clarified.

It must therefore be hoped that in due course the Court will have another opportunity to consider some of these points. This seems important, particularly for the benefit of national courts looking to rely on EU jurisprudence and contracting authorities prudently aiming to comply with the public procurement rules, and in order to avoid general principles established in significant cases being elevated into inflexible rules without due consideration of the specific nuances involved.

This article was first published in the Public Procurement Law Review (P.P.L.R. 2010, 3, NA77-90).