Regulation 39 – Procurement involving contracting authorities from other member States

Commentary

Regulation 39 of the PCR2015 brings a real innovation to the public procurement table: the possibility of undertaking joint procurement with contracting authorities based in other Member States. Beyond the rules applicable to centralised and occasional joint procurement, and still focusing on issues concerning the allocation of responsibility/liability between contracting authorities, Regulation 39 PCR2015 is dedicated to procurement involving contracting authorities from other Member States and sets ‘conflict-of-law-like’ rules to determine the procurement regime applicable to  cross-border cooperation, in the same terms of Article 39 of Directive 2014/24/EU. Regulation 39 provides three different types of cross-border procurement: using a centralised body, carrying out joint procurement (similar to Regulation 38) or via the creation of cross-border joint entities.

Regulation 39(1) PCR2015 opens with a reference to public-public and in-house cooperation by determining that “[w]ithout prejudice to regulation 12, contracting authorities may act jointly with contracting authorities from other member States in the award of public contracts by using one of the means provided for in this regulation“. One option is to interpret this as allowing for contracting authorities to set up cross-border in-house/public house schemes, in which case it is to be deferred to the general legal requirements of the chosen vehicle to determine which procurement system controls its activities (which is, by no means, necessarily obvious). However, in view of Regulation 30(10) to (14) PCR2015, the relationship between cross-border in-house and other types of cross-border joint entities is not easy to fathom.

In any case, Regulation 39 PCR2015 goes on to establish a significant number of cross-border cooperation possibilities, subject to the general requirement that contracting authorities shall not use them for the purpose of avoiding the application of mandatory public law provisions in the law of the jurisdiction to which they are subject, where those provisions are in conformity with EU law Regulation 39(2) PCR2015), which of course may impose significant restrictions once budgetary and other sets of public sector laws are considered. However, it should be stressed that this can be interpreted in different ways. One is that if the public law rules are incompatible with EU law then the “jurisdiction shopping” is legal, which strikes us as an odd solution as it effectively sidesteps the usual judicial review mechanisms to assess legislation’s compatibility with EU law. The second interpretative issue arising from paragraph 2 is that avoiding the application of a national public law rule cannot be one objective of the deal. As the paragraph makes no reference to that being the sole objective, even if other legal, reasonable, logical reasoning exist for the decision, it can still be considered illegal under this paragraph—which is bound to be interpreted in an objective manner. On similar interpretive difficulties, please see A Sanchez-Graells, “Assessing the Public Administration’s Intention in EU Economic Law: Chasing Ghosts or Dressing Windows?”, in KA Armstrong (ed), Cambridge Yearbook of European Legal Studies 2016 (Cambridge, CUP, 2017)].

The three main options foreseen in Regulation 39 PCR2015 are cross-border centralised purchasing, cross-border joint procurement and cross-border procurement through joint entities (other than in-house ?, see above). Each of them prompts significant questions.

Cross-border centralised purchasing

Paragraphs 39(3) to (5) PCR2015 deal with cross-border access to centralised procurement bodies and determine that contracting authorities are free to use centralised purchasing activities offered by central purchasing bodies located in a Member State other than the UK. The PCR2015 has not restricted the sort of activities carried out by the non-UK CPB, which can then take either of the following forms: (a) the acquisition of supplies and/or services intended for contracting authorities, or (b) the award of public contracts or the conclusion of framework agreements for works, supplies or services intended for contracting authorities. In either case, the provision of centralised purchasing activities shall be conducted in accordance with the national provisions of the Member State where the central purchasing body is located; which rules will also apply to direct call-offs or awards of contracts under framework agreements and dynamic purchasing systems organised by the central purchasing body.

This is quite interesting because it creates a situation where, for example, an English contracting authority that conducts a mini-competition within a framework set up by an Italian central purchasing body is acting with subjection to Italian public procurement law. The likelihood that this actually happens in practice seems small, as the English contracting authority will most likely prefer the Italian CPB to conduct the mini-competition and choose the specific provider of the given goods or services in order to avoid such extraterritorial application of Italian public procurement rules. In that case, though, the initial act whereby the English contracting authority approaches the Italian CPB is not covered by the ‘conflict-of-law-like’ rules in Regulations 39(4) & (5) PCR2015, creating a legal vacuum concerning that specific act. 

It would be tempting to assume that it would be English law, but that is by no means the only possible option or the strongest in law. If the “entrustment”/”collaboration” act was considered a commercial contract (the public-public cooperation element indeed seems rather limited as far as that transaction is concerned), the rules of the Rome I Regulation would most likely be engaged, in which case the several criteria in Art 4 would point towards Italian law, unless there were some serious overriding mandatory provisions that could trigger the application of English law instead under Art 9. In any case, it seems clear that there is either a requirement or a risk that the English contracting authority would have to comply with Italian law, which seems a serious limitation of the system.

Moreover, it is important to stress that the rules in paragraphs 3 to 5 of Regulation 39 cover procurement activities, but we suspect does not extend to contractual obligations, begetting the question about a possible scenario where contractual terms and conditions are established in advance in a framework agreement or a dynamic purchasing system. The law applicable to the (public) contract with the ultimate supplier/contractor would then also be Italian law in almost all cases, except if the Italian CPB (with amazing foresight) had introduced compliance with the law of the ‘client’ contracting authority as a contractual condition in the relevant tender documentation. All in all, it looks like this sort of cross-border activity would create a significant need for the English contracting authority to obtain advice on foreign (EU) domestic procurement and contract law, which make well erode any economic advantages derived from the recourse to the CPB of a different Member State.

Cross-border joint procurement

Paragraphs 39(6) to (9) PCR2015 establish the conditions under which a contracting authority may, together with contracting authorities from different Member States, jointly award a public contract, conclude a framework agreement or operate a dynamic purchasing system, or award contracts based on a framework agreement or on a dynamic purchasing system. Paragraphs 6 to 9 of Regulation 39 force the different contracting authorities to have a clear agreement in place determining which parts are subject to national rules and the internal organisation of the procurement procedure, although reversing paragraphs 6 and 7 order would provide a more logical structure. It is interesting to note that this agreement can either be done at authority level or even at national level, so two different Member States can agree to a cross-border joint procurement structure if they so see fit.

For this to be possible, and unless the necessary elements have been regulated by an international agreement concluded between the Member States concerned, the contracting authorities involved need to conclude an agreement that determines: (a) the responsibilities of the parties and the relevant applicable national provisions; and (b) the internal organisation of the procurement procedure, including the management of the procedure, the distribution of the works, supplies or services to be procured, and the conclusion of contracts. In any case, it is clear that a participating contracting authority fulfils its obligations when it purchases works, supplies or services from a contracting authority which is responsible for the procurement procedure.

This is a group of rules and requirements that are fundamentally superfluous. We would have expected this scenario to be covered by Regulation 9 PCR2015 on public contracts awarded and design contests organised pursuant to international rules, particularly given the need for an (international) agreement to be reached prior to the cross-border cooperation–either in general terms, or for the specific case. Moreover, the rules in paragraphs 39(6) to (9) leave all decisions to the agreement between the Member States and simply impose a transparency obligation whereby the allocation of responsibilities and the applicable national law must be referred to in the procurement documents (Regulation 39(7)(b) PCR2015). However, this does not sort out any of the practical problems derived from joint procurement (see our comment to Regulation 38 PCR2015), which are potentially magnified by the cross-border nature of the rules under Regulation 39 PCR2015. Hence, this is another area where uptake in practice seems likely to be limited, unless contracting authorities invest significant resources in legal advice.

Cross-border procurement through joint entities

A final alternative for joint cross-border procurement provided by Regulation 39 is the creation of joint entities. These entities will carry out procurement on behalf of contracting authorities based in two or more Member States. The appropriate law applicable will either be the law from the jurisdiction where it is based or the one where the procurement activities will take part. Indeed, paragraphs 39(10) to (14) PCR2015 establish rules for contracting authorities of different Member States to set up a joint (in-house?) entity, including European Groupings of territorial cooperation under Regulation 1082/2006 or other entities established under Union law. This raises the already mentioned question whether other sorts of joint entities (ie other than those established under EU law) can be created under the general clause of Regulation 39(1) PCR2015 or not. 

In any case, for the purposes of the joint entities established under EU law, by a decision of the competent body of the joint entity, the participating contracting authorities shall agree on the applicable national procurement rules of one of the following Member States:

(a) the national provisions of the Member State where the joint entity has its registered office; or

(b) the national provisions of the Member State where the joint entity is carrying out its activities.

Such agreement may either apply for an undetermined period, when fixed in the constitutive act of the joint entity, or may be limited to a certain period of time, certain types of contracts or to one or more individual contract awards.

In this case,  there is no specific transparency requirement to the effect of imposing disclosure of such agreement in the relevant procurement documents, but the joint entity would be well advised to do so. In this scenario, the same issues concerning the conflict-of-law-like issues discussed above also apply.

Overall impression

Cross-border joint procurement is a good idea in theory but one that will have limited use in practice—prior to 2014, effectively we have only seen it being used in practice once in a joint Italy – France procurement project. As with so many of the changes introduced in this new round of Regulations, these changes are targeted at the top 1% of contracting authorities in terms of budget and capacity, not the run of the mill procurement authority dealing with day-to-day purchasing requirements. In our view, all of the above creates the impression that these rules will be applicable in a marginal set of cases where contracting authorities of different Member States engage in long-term cooperation for public procurement purposes, which seems most likely in frontier areas. In any case, the rules in Regulation 39 PCR2015 are mostly limited or completely open to agreement between the Member States/contracting authorities involved, so they can hardly be seen as much more than enabling provisions and, in that case, their relationship (or distinction) with Regulation 9 PCR2015 is unclear. Moreover, the rules leave more question unanswered than it would seem at first glimpse. For a fuller discussion of the shortcomings of these rules, please see A Sanchez-Graells, “Collaborative Cross-Border Procurement in the EU: Future or Utopia?” (2016) 3(1) Upphandlingsrättslig Tidskrift 11-37, available at http://ssrn.com/abstract=2734123 .

Proposed citation: Albert Sanchez-Graells & Pedro Telles, (2016) Commentary to the Public Contracts Regulations 2015, available at: www.pcr2015.uk.

Last modified: September 5, 2016 by Pedro Telles

39.—(1) Without prejudice to regulation 12, contracting authorities may act jointly with contracting authorities from other member States in the award of public contracts by using one of the means provided for in this regulation.

(2) Contracting authorities shall not use the means provided for in this regulation for the purpose of avoiding the application of mandatory public law provisions in the law of the jurisdiction to which they are subject, where those provisions are in conformity with EUlaw.

Centralised purchasing

(3) Contracting authorities shall be free to use centralised purchasing activities offered by central purchasing bodies located in another member State.

(4) The provision of centralised purchasing activities by a central purchasing body located in another member State shall be conducted in accordance with the national provisions of the member State where the central purchasing body is located.

(5) The national provisions of the member State where the central purchasing body is located shall also apply to the following:—

(a) the award of a contract under a dynamic purchasing system;

(b) the conduct of a reopening of competition under a framework agreement;

(c) the determination, for the purposes of points (a) or (b) of Article 33(4) of the Public Contracts Directive (to which effect is given in these Regulations by regulation 33(8)(a) and (b)), of which of the economic operators that are party to the framework agreement shall perform a given task.

Joint procurement

(6) In the circumstances set out in paragraph (7), contracting authorities may—

(a) award a public contract, conclude a framework agreement or operate a dynamic purchasing system jointly with contracting authorities from other member States; and

(b) to the extent set out in regulation 33(5), award contracts based on the framework agreement or on the dynamic purchasing system.

(7) The circumstances are that—

(a) there is an agreement that determines—

(i) the responsibilities of the parties and the applicable national provisions, and

(ii) the internal organisation of the procurement procedure, including the management of the procedure, the distribution of the works, supplies or services to be procured, and the conclusion of contracts; and

(b) the allocation of responsibilities and the applicable national law were referred to in the procurement documents.

(8) For the purposes of paragraph (7)(a)—

(a) the agreement may be—

(i) an agreement made between the participating contracting authorities, or

(ii) an international agreement concluded between the member States concerned; and

(b) the agreement may have allocated specific responsibilities among the participating contracting authorities and determined the applicable provisions of the national laws of any of their respective member States.

(9) In procurements under paragraph (6)—

(a) the other provisions of this Part apply only where they are the applicable national provisions determined by an agreement referred to in paragraph (7)(a); and

(b) where provisions of this Part do apply, a contracting authority fulfils its obligations under this Part when it purchases works, supplies or services from a contracting authority which is responsible for the procurement procedure.

Joint entities

(10) Contracting authorities may, with contracting authorities from other member States, set up joint entities for the purposes of paragraph (1), subject to compliance with paragraph (11).

(11) This paragraph is complied with if, before undertaking any given procurement, the participating contracting authorities, by a decision of the competent body of the joint entity, have agreed on the applicable national procurement provisions of one of the following member States:—

(a) the member State where the joint entity has its registered office;

(b) the member State where the joint entity is carrying out its activities.

(12) The agreement may either apply for an undetermined period, when fixed in the constitutive act of the joint entity, or may be limited to a certain period of time, certain types of contracts or to one or more individual contract awards.

(13) The other provisions of this Part apply to procurement by the joint entity only where they are the national provisions applicable in accordance with paragraphs (11) and (12).

(14) In this regulation, “joint entity” includes European groupings of territorial cooperation established under Regulation (EC) No 1082/2006 of the European Parliament and of the Council(1) and other entities established under EU law.

Meaning of certain expressions in relation to other member States

(15) In this regulation—

central purchasing body located in another member State” means any person which is a central purchasing body for the purposes of the Public Contracts Directive in the member State in which it is located;

contracting authority from another member State” means any person which is a contracting authority for the purposes of the Public Contracts Directive in a member State other than the United Kingdom; and references to “participating contracting authorities” shall, to the extent that they are from another member State, be interpreted accordingly.

(1) OJ No L 210, 31.7.2006, p19, amended by Regulation (EU) No 1302/2013 of the European Parliament and of the Council (OJ No L 347, 20.12.2013, p303).