Johannes Stalzer May 3 2016 Austria fails to implement new procurement directives in time Schoenherr | Projects, Construction & Infrastructure - Austria Johannes Stalzer Projects, Construction & Infrastructure IntroductionDirect application of directives and duty to interpret Procurement ActConsequencesCommentIntroductionOn April 18 2016 the two-year transition period for implementing the new EU directives on public procurement (EU Directives 2014/23/EC, 2014/24/EC and 2014/25/EC) lapsed. While the majority of member states (eg, Germany, the United Kingdom, Italy, Hungary, Romania and Bulgaria) have at least partially implemented the directives, Austria has yet to pass draft legislation transposing any of them.However, despite the fact that Austria has failed to transpose the directives within the timeframe, the directives (at least in significant parts) already apply in Austria and individuals can – either directly or indirectly – rely on the majority of the provisions provided therein.Direct application of directives and duty to interpret Procurement ActAccording to European Court of Justice (ECJ) jurisprudence, individuals may enforce specific provisions in a directive that give rise to rights or obligations before the national courts if a member state fails to transpose a directive in due time or where implementation is in some way defective. In order to have direct effect, the provision must be sufficiently precise, clear and unconditional, and may not leave member states any leeway, thus obliging them to transpose it. However, as a rule, directives cannot take direct effect in relation to a two-party situation where both parties are individuals (horizontal effect). Moreover, even if the above conditions are fulfilled, an individual may rely on certain provisions only where it seeks to invoke its rights against the state on which the obligation to achieve the desired results has been imposed (vertical effect).Even where a direct effect cannot be applied because the party against which enforcement is sought is a private entity (horizontal effect) or the directive otherwise fails to meet the conditions which would give it direct effect (eg, sufficient clarity and conditionality), the Austrian national courts must still interpret the Public Procurement Act in line with the unimplemented EU Public Sector Directive (2014/24/EC), EU Utilities Directive (2014/25/EC) and the EU Concessions Directive (2014/23/EC). The duty to ensure that the interpretation conforms to EU law is limited only in cases where an interpretation against the law would be necessary.Although the Public Procurement Act provides no regulations in relation to the directives (eg, contract modification and horizontal in-house structures), and in some cases even contradicts the provisions therein, individuals may still enforce the directives by either claiming their direct applicability or demanding that the Public Procurement Act be interpreted in line with EU law where it conflicts with the directives or does not sufficiently consider them.ConsequencesConsidering the aforementioned, the following rules must be applied in Austria via direct application or be interpreted in line with the directives, and will overrule the respective rules in the Public Procurement Act.Compulsory tender process for service concessionsService concessions exceeding certain thresholds must be tendered in line with the EU procurement rules. Article 11 of the Public Procurement Act, which excludes service concessions from most of the rules and obligations stipulated within the act, must now be interpreted in line with the EU Concessions Directive or may need to be removed. Most important tender procedures involving service concessions can now be appealed and challenged before review bodies.Right to exclude bidder for poor past contract performance and other new exclusionsWhile Article 68 of the Public Procurement Act is likely to comply with the mandatory exclusions set out in the directives and already covers some of the discretionary exclusions, it does not include, among other things, the exclusion of poor contract performance. Article 57(4) of the Public Sector Directive permits contracting authorities to exclude bidders that have shown significant deficiencies in the performance of a previous public contract. As such, an interpretation of Article 68(1)(5) of the Public Procurement Act in line with EU requirements will most likely permit contracting authorities to apply this exclusion, even before the directive has been transposed in Austria, under the exclusion of grave professional misconduct. Further, contracting authorities will most likely be able to rely on all other exclusions specified in the directive, if those exclusions are defined in the tender documents.Application of innovation partnerships and facilitated access to negotiated proceduresAustrian courts have already ruled that the Public Procurement Act must be interpreted in line with Article 26(4) of the Public Sector Directive by applying the effet utile principle (ie, that the interpretation of law that best guarantees the practical effect of existing EU law will prevail), and therefore the conditions justifying negotiated procedures with prior publication fully apply in Austria. Given this ruling, it is arguable that other procedural rules in Austrian procurement law must also be interpreted in line with the new and extended rules for negotiated procedures and competitive dialogues. The same arguably applies to innovation partnerships (Article 31), since member states must make these procedural rules and procedures available to their contracting authorities.European Single Procurement Document and turnover restrictionAs of April 18 2016, contracting authorities must generally adopt the European Single Procurement Document (ESPD) as issued by the European Commission(1) in relation to providing evidence for exclusion and selection criteria. The ESPD will replace the certificates being issued by contracting authorities. In this context, the fact that the annual turnover may not exceed (as a rule) twice the value of the contract must also be considered. Hence, tender documents that do not comply with this requirement may be challenged by aggrieved bidders.Application of rules on modifications of existing contracts While the Public Procurement Act contains no provisions in relation to contract modifications, Article 72 of the new Public Sector Directive (as well as the respective provisions in the Public Utilities Directive and the Concession Directive) provides means by which existing contracts can be changed (eg, a transfer of the contract to a successor following insolvency or in the event of low value modifications). In light of the ECJ's jurisprudence in this regard, and as EU law must be interpreted consistently, contracting authorities may be allowed to rely on Article 72, despite the fact that the Public Procurement Act does not yet provide for the modification or extension of existing contracts.Reliance on new in-house opportunities The existing rules on in-house exemptions in Austria must also be applied differently. According to the Public Procurement Act, an in-house relationship requires the contracting authority exercising control (similar to that which it exercises over its own departments) over the legal person concerned to ensure that the controlled entity's activities are, in essence, carried out for the controlling entity. If this provision is interpreted in line with EU law (see Article 12 of the Public Sector Directive), it also provides for the possibility to award a contract in an in-house situation from a daughter company to the mother company (bottom-up approach) or directly between two sister companies. Due to the obligation to interpret national law in line with the directives, Austrian contracting authorities can already rely on the horizontal in-house privilege (public cooperation), even though the Public Sector Directive has not yet been transposed into national law.CommentDue to Austria's failure to transpose the new directives in time, the new directives will largely apply in Austria either via direct effect or based on an EU-centric interpretation of the Public Procurement Act. However, in order to apply the directives directly or indirectly, their provisions and each provision of the Public Procurement Act must be accessed on a case-by-case basis and expert advice should be sought in order to find the best way through the labyrinth of national and EU law.For further information on this topic please contact Johannes Stalzer at Schoenherr by telephone (+43 1 53 43 70) or email ([email protected]). The Schoenherr website can be accessed at www.schoenherr.eu.Endnotes(1) See http://eur-lex.europa.eu/legal-content/DE/TXT/?uri=CELEX%3A32016R0007.