What Future for EU Public Procurement Law in the UK After Brexit?
French Competition Authority’s Strike Against Pétanque Tossing Ball Leader
German FCO Publishes Guidance Note on Prohibition of Vertical Price Fixing
Italian Competition Authority Opens In-depth Cartel Investigation in the Communication Sector
No Hiding a Cartel Under a Joint Venture Marketing Company
All Bets Are Off!
UK Begins to Reshape Its World Trading Relationships Following Brexit With Parliamentary Inquiry Into Potential US/UK Trade Deal
What Future for EU Public Procurement Law in the UK After Brexit?
Those aficionados of the silver screen will remember comedians Laurel and Hardy and in particular their catchphrase 'Well here's another nice mess you've gotten me into'.
Well that seems to be an appropriate 'epitaph' for the challenges and issues that UK procurement legislation faces after Brexit.
Most of the complex laws and regulations around the tendering of major public contracts derive from EU law. Removing the supremacy of EU law and the binding nature of the Court of Justice of the European Union (CJEU) rulings, as well as abandoning a number of enforcement and transparency mechanisms designed at a European level, is likely to play havoc with legal certainty after Brexit.
So in the aftermath of Brexit, will current UK public procurement legislation be swept away? Or if retained what will it look like?
Restructuring
Not much is going to change... at least initially!
The legislation and the current legal framework for enforcing the public procurement rules will not change before the UK leaves the EU as the UK still retains its full membership rights and obligations.
However the form of post-Brexit UK public procurement legislation could be a lot different.
Much, of course, will depend upon the terms of any future trade agreements between the UK government and the remaining 27-member-state trading bloc, as well as the extent to which the UK wishes, and is able, to maintain access to the EU's single market.
If we exit the single market, which seems likely given Theresa May's Lancaster House speech on 17 January 2017, the UK may have to rely upon World Trade Organization (WTO) membership and its participation in the Government Procurement Agreement (GPA) to gain access to key EU and other markets.
The Great Repeal Bill (the main piece of legislation which will turn EU law into UK law on Brexit) is likely to specifically confirm, with appropriate amendments, the UK-implementing procurement regulations, leaving the government the ability to review the legislation at its leisure at some future time. However, this re-enactment of the legislation in a post-Brexit world is going to produce a number of key practical and legal issues relating to the new legal framework and how if at all they interact with EU law.
There is no doubt that after Brexit the UK government will have more freedom to make changes to the UK regulations than it currently enjoys. However the GPA does contain rigorous rules on how procurements must be carried out and so remaining a signatory would therefore tie the UK government's hands to a certain extent. Nevertheless with this greater latitude the government could look to amend the scope of the rules and simplify competitive tendering procedures, remedies and also rules on post-award contract modifications.
Background
At the time of writing, the UK Parliament appears to be on course to approve the European Union (Notification of Withdrawal) Bill by early March 2017, and with it disappears the last obstacle to the start of the Brexit negotiations. It therefore looks likely that Theresa May will meet her self-imposed deadline of the end of March for the service of an Article 50 notice upon Donald Tusk, the president of the European Council, which will 'sound the starting gun' on the Brexit process.
From the date of service of the Article 50 notice there is a period of two years (or any extension agreed between the UK and the remaining 27 member states) during which the UK has to agree a new relationship with the EU. Although the government has signed up to achieving an agreement within this two-year period, it is likely that any agreement is going to take much longer to negotiate. This could take us well beyond 2019.
So what is likely to be the impact upon UK public procurement in the aftermath of the UK's vote to leave the EU and what is likely to be the longer term impact following the actual implementation of Brexit itself?
The current impact of Brexit
Most of UK procurement legislation derives its legislative base from a series of EU Directives. These Directives are implemented into UK law through secondary legislation. So until such time as the UK leaves the EU it remains a full member of the currently 28-member trading bloc and it must obey the rights and obligations it has signed up to under the Treaty of the European Union and Treaty for the Functioning of the European Union (TFEU). Notwithstanding the referendum vote, the UK government still continues to implement EU Directives and obey EU law and will still continue to do so until its departure.
As such there is likely to be no immediate impact on the legislative position in the UK and all the same provisions continue to apply, including the EU Treaty principles of equal treatment, non-discrimination, transparency, mutual recognition and proportionality, as they remain part of UK law. The UK will still respect the supremacy of EU law and our courts will still be bound by rulings of the European Court.
Some have suggested that judges in the UK courts might feel less constrained by European Court rulings with the imminent prospect of withdrawal. However not only would such an approach be wrong in law but it also fails to appreciate the genesis of the system of UK procurement law as a body of EU law, the strength of which is its harmonised application. So this attitude is not going to change any time soon.
Great Repeal Bill
The Great Repeal Bill will confirm the UK-implementing regulations as part of UK law. This is an essential requirement as the regulations were made under the European Communities Act 1972 which is being repealed. Therefore generally speaking there will be no immediate impact on the main provisions in procurement legislation.
However in specifically incorporating the UK-implementing regulations in UK law there needs to be a number of amendments which reflect that we are no longer a member of the EU. Therefore references to the EU institutions, other EU legislation and EU transparency obligations referencing the OJELI will need to be removed and, where appropriate, substituted with English equivalents.
In addition certain other immediate practical issues will arise:
EU case law
What is the status of EU case law both before and after Brexit? Will the UK courts be obliged to follow pre-Brexit case law and will they turn their back on future EU jurisprudence? One of the key benefits for the UK as well as other member states of a pan-European system of public procurement was a harmonious interpretation of the law which emanates from the EU Directives. Cases often give insights into how the rules have been interpreted and what duties contracting authorities are under; for example the amount of details they must give unsuccessful bidders or what constitutes an abnormally low tender. It is highly unlikely that UK courts will be obliged to follow CJEU rulings post-Brexit. However in my view it is likely that given the origin of the rules, courts will be bound as a matter of law by rulings pre-Brexit and will find future rulings highly persuasive. For the most part they will follow them.
EU Directives as an aid to interpretation
Where there is ambiguity as to the meaning of the UK regulations, the underlying EU Directive is consulted and to assist in its interpretation the Directive's recitals are particularly important. For instance the recitals to the 2014 Directives are currently used for interpretation and in practice they actually contain important additional obligations. For example, they specify that the award criteria for the competitive procedure with negotiation must remain consistent throughout the process. This requirement is not obvious from the wording of the Directive itself. The interpretation and/or definition of these concepts may no longer be clear without recourse to the source legislation. So how are the courts going to react? My hunch is that it will probably be business as usual.
Transparency obligations
Depending upon the terms of the exit treaty it may no longer be possible for UK authorities to publish contract notices, contract award notices and VEAT notices in the OJELI. This really seems to defeat the object of widest possible transparency. We may have to settle with more localised transparency in Contracts Finder. This may be an issue which the UK government pushes for in negotiations as it would be to its benefit to advertise in the OJELI and receive competitive bids from throughout the EU. However all this seems somewhat incongruous for a non-EU member state.
Do Treaty principles have a place post-Brexit?
The key EU Treaty principles are enshrined in UK legislation (ie see Reg 18 of Public Contracts Regulations 2015) and are currently interpreted in light of EU law. Will the UK courts develop separate jurisprudence or will they continue to track and follow the EU enforcement of these principles in a post-Brexit world?
Post-Brexit implications and likely changes
UK public procurement legislation will be heavily influenced by the nature of any future trade agreements between the UK and the EU. It looks like the UK will be exiting the single market and therefore the UK will have to rely on WTO membership and its participation in the GPA. There is likely to be the need for some renegotiation to create a bespoke UK-specific schedule to the GPA and to agree specific rules for the UK's WTO membership. Therefore the position is unclear.
However the GPA contains some rigorous rules on how procurements must be carried out, although many of them are familiar as they were a key influence behind the new EU public procurement package in 2014. So being a signatory of the GPA ties the UK government's hands to a certain extent.
There is no doubt that in this scenario the UK government would have more freedom to make some changes than it currently does even over and above gold-plating EU Directives.
Scope of the rules
The GPA does not cover private utilities or defence procurement. At the present time there are specific EU rules which cover some utilities and defence procurement. It seems very unlikely that the UK government would want to remove utilities from competitive tendering procedures. There may be more room for manoeuvre with defence procurement, which has always been a sensitive subject among EU member states. Less access for non-UK bidders for defence and security-related contracts could be a distinct possibility. Mind you, all that appears counter-intuitive when viewed against the current government's increasing drive to regulate single-source contracts and increase competition. The government is therefore unlikely to take steps which would remove welcome competition for these types of contracts.
Less stringent remedies
The GPA requires the implementation of a remedies regime but doesn't prescribe quite the detail of the EU regime. It therefore appears likely that given time the UK would materially alter the remedies regime. There are certain concepts, alien to English law, which are the hallmark of the EU remedies regime. It would not be a surprise therefore if, in time, we see the UK turning its back on automatic suspension for contested awards and possibly also ineffectiveness. The judicial review regime may in time take over from the specific EU-based remedies regime.
Simplification
Membership of the GPA will allow the government to simplify many of the public procurement rules transposed from the 2014 Directives while at the same time retaining the benefit of lighter touch competitive procedures. Many UK bodies have internal rules that require them to observe competitive tendering processes even for much lower value contracts such as local authority standing orders, so the government is unlikely to turn its back in any meaningful way on competitive tendering procedures. Examples of how the regime could be simplified could include relaxation of the rules on contract modifications and on the requirement relating to transparency of evaluation. However we are likely to still see the government procedures to promote transparency of opportunities and contract documents to ensure effective competition as a way of driving best value. This is to be contrasted with many of the EU rules which focused on transparency during the procurement process, the principal reason for which was in order to promote non-discrimination and prevent national favouritism.
State aid rules
Are we going to see a surge of government support for UK industry once we leave the EU? This is unlikely. Although we will be free of the state aid rules in the TFEU, any free trade agreement with the EU is likely to impose similar obligations upon the UK to stop an unjustified distortion of trade and competition. However, dependent upon the terms of the deal, the rules might be more limited in scope than the current ones, especially if certain specified sectors are granted free-trade access to the EU but not others. Even if EU state aid rules or a variant in a free-trade agreement were not to apply to the UK post-Brexit, there will still be some restrictions on the ability of the state to subsidise UK companies as a result of WTO rules. But the remedies available to challenges subsidies would be weaker if the current WTO rules were applied to the UK. However a key consideration right now will be whether any contracts are affected by European Commission grants and/or state aid and to determine what effect Brexit will have on that funding.
This article first appeared in the Procurement & Outsourcing Journal
French Competition Authority’s Strike Against Pétanque Tossing Ball Leader
The French pétanque tossing ball leader, Obut, was sanctioned by the French Competition Authority (“FCA”) for abusing its dominant position (market share of over 80% in the manufacturing market) by imposing upon its distributors a resale pricing policy, thus virtually eliminating competition in the pétanque ball retail market. Obut did not deny the allegations and requested a settlement with the FCA, resulting in a 320,000 euro penalty on the tossing ball manufacturer and retailer.
Obut operates in both the pétanque ball manufacturing and distribution markets, which puts it in a competitive position with its distributors. Therefore, in order not to suffer from potentially lower prices that could be offered to customers by its distributors/competitors, Obut requested its distributors to comply with its catalogue prices. Thus, from May 2009 until July 2016, Obut was found to have abused its dominant position, by imposing a price standardization policy in the pétanque ball retail market, and consequently preventing its resellers from boosting their sales through cheaper prices or special offers.
Obut was found to have monitored compliance by its distributors by sending sales representatives to their outlets to check on the selling prices. An Obut employee was even dedicated to the monitoring of prices on the resellers’ websites. Failure to comply with Obut’s pricing policy would lead to commercial retaliation: late deliveries, orders blocked, dereferencing measures, etc.
Moreover, this abuse of dominant position was harmful for consumers who could not benefit from competition between pétanque ball sellers and remained dependent on this price standardization policy.
The FCA notified the company of the aforementioned grievances. Rather than disputing the alleged damages, Obut did not deny them and requested a settlement under article L. 464-2 paragraph III of the French Commercial Code, which allows the acceptance of a proposal from the authorities as to a penalty within a minimum and a maximum amount, it being specified that the FCA may take into account any mitigation measures undertaken by the company. Thus, after the grievances were notified, Obut made the commitment to implement a compliance program to include competition law training for its staff, appointment of a compliance officer and the submission to the FCA of an annual report presenting measures undertaken by the company to adhere to such compliance program. Taking those preventive measures into account on balance against the seriousness and the duration of the wrongdoings, the FCA imposed a 320,000 euro penalty on the French pétanque ball leader. The maximum penalty that could have been imposed on Obut was 1.6 million euros (10% of its annual revenue, pursuant to article L. 464-2 paragraph I of the French Commercial Code).
On a side note, it is interesting that this settlement is the fifth transaction of this nature since the implementation of the settlement procedure in August 2015 under the growth, business and equal economic opportunities Act of 6 August 2015 (“loi pour la croissance, l’activité et l’égalité des chances économiques”) [see for instance "French Competition Authority Sends Unprecedented Warning Against Gun Jumping", Bryan Cave EU & Competition Law Update, November 2016]. Recourse to such settlements may increase as the French legislator is increasingly trying to incite companies to cooperate with authorities in other areas through similar agreements (see for example the recent implementation of the judicial public interest agreement under Sapin II Act for corruption and bribery practices (“convention judiciaire d’intérêt public”), similar to the US Deferred Prosecution Agreement).
FCA Decision 17-D-02 dated 10/02/2017
German FCO Publishes Guidance Note on Prohibition of Vertical Price Fixing
Under German law, vertical price fixing constitutes a regulatory offence, which comes regularly with a severe fine. The FCO on 25 January 2017 publicised a draft guidance note on vertical price fixing in the brick-and-mortar food retail sector. By giving general explanations regarding the legal and economical background of vertical price fixing under German and European Community Law and also presenting relevant decisions of the FCO in former antitrust proceedings, the FCO intends to offer guidance especially to small and medium-sized companies. In addition the guidance note also means to replace the unofficial guideline published by the FCO in 2010. This was necessary, as the 2010 guideline was worded in a rather imprecise way, which caused profound legal uncertainties on the side of the addressed companies.
Against this background, the guidance note addresses several issues that have regularly proven to pose difficulties for the market participants. As such, the guidance note illustrates the issues of vertical price fixing with reference to prices of third party retailers, the illegitimacy of fixed or minimum sale prices as a result of pressure from or incentives offered by the other party and the identification of unlawful compensation requirements for disappointed earnings forecasts.
Furthermore, the guidance note deals with the topic of data exchange between retailers and suppliers. Whereas the transfer of data on sales prices and quantities between retailers and suppliers is generally to be regarded as legal, the exchange of data regarding future price calculations and intended promotion prices is held to be anticompetitive by the FCO.
As to the important issue of recommended resale prices, the guidance note uses several case studies in order to cover problematic examples and to provide a more specific legal framework of the term “recommended”.
Although it can be argued that the guidance note remains rather vague and lacks the necessary degree of clarity one would wish in order to make business decisions based on the guidance note, it is important to remember that the document now published by the FCO is still a draft version and that the respective consultation is still ongoing. Thus, there is room for hope that the final version of the guidance note will provide a higher degree of clarity at least with respect to some of the problematic issues addressed.
The guidance note reflects the interpretation of law by the FCO. It is important to note that this guideline does not have any binding legal effect, the definitive interpretation can only be given by the courts. However, the note is of importance as good guidance to companies on the FCO’s view of the law.
Italian Competition Authority Opens In-depth Cartel Investigation in the Communication Sector
On 9 February 2017, the Italian Competition Authority (the "ICA") opened an in-depth investigation into two leading Italian companies (namely, Telecom Italia S.p.A and Fastweb S.p.A., hereinafter the "Accused Companies"), both operating in the telecommunication sector.
The investigation started as the Accused Companies informed the ICA that they executed an agreement aimed at creating a joint venture (the “Agreement”) in the form of another company named Flash Fiber S.r.l. (“Flash”). Flash would be controlled equally by the Accused Companies in order to realize the optical fiber architecture (also called Fiber To The Home “FTTH”) in 29 Italian cities.
Although the Agreement was intended to promote a more efficient development of technological infrastructure, the ICA alleged that at the same time it may impede, restrict or jeopardize competition in the national market of services for wholesale on fixed network and that of services for retailer on broadband and ultra wideband telecommunications.
In particular, the ICA alleged that under the Agreement the Accused Companies could coordinate their commercial strategies on fixed, broadband and ultra wideband networks, thereby reducing competition between two of the major vertically integrated operators in the relevant sector.
In light of the above, the ICA alleged that the Agreement would amount to an anti-competitive agreement in contravention of Article 101 of the Treaty on the Functioning of the European Union.
No wrongdoing has yet to be proved and the investigation continues.
No Hiding a Cartel Under a Joint Venture Marketing Company
We are used to companies being fined for cartels acting undercover to agree on prices or other market parameters. What about companies openly agreeing together through a joint venture company?
On November 8, 2016, the French Supreme Court (Cour de cassation) overruled a decision of the Court of Appeal of Paris regarding horizontal agreements set up amongst French millers through two joint venture companies for the purpose of co-marketing their products, one of which sold flour to the retail industry, and the other to discount outlets.
The two joint companies had been incorporated by the majority of French flour producers respectively in 1965 and 1971, at a time when the market’s structure and the booming retail industry compelled producers to organize themselves in groups in order to adapt to the market, so the millers argued. This is allegedly what led them to make agreements on the selling conditions of their flour for over forty years, through these two companies.
Thus, from 1966 until 2012 for the retail market, and from 2002 until 2011 for the hard discount industry, French millers agreed on the selling price of their flour and on the allocation of customers and delivery volumes according to geographical areas that had been previously assigned to each producer.
According to the French Competition Authority (the “FCA”), these practices led to an actual centralized organization of the flour market in France and resulted in the elimination of any type of competition amongst the millers. This, the FCA found, caused serious harm to French consumers due to the size of the cartel and to their particularly long-lasting agreements. Therefore, the FCA imposed a heavy fine on the members of the flour cartel for breach of Article L. 420-1 of the French Commercial Code and Article 101 TFEU.
The Court of Appeal, however, heard the arguments of the flour producers and ruled that the commercial agreements within the two joint companies did not constitute anti-competitive practices. As a matter of fact, the Court of Appeals considered that millers had been constrained to gather together through joint companies due to economic conditions, because they were not able to make market-satisfactory offers to distributors if acting individually. Therefore, they had no choice but to make combined offers though joint companies.
Accordingly, these joint venture marketing structures were compliant with competition law, and they allowed the millers to cooperate in order to meet the requirements of distributors and discounters.
The case was brought before the French Supreme Court, which overturned the decision of the Court of Appeal. The Supreme Court ruled that the criterion to be used to assess whether joint venture marketing structures are compliant with competition law is whether or not the structure exceeds what is strictly necessary for the businesses to be able to enter and remain on the market. By inference, any agreement made outside of this scope may be considered an unlawful agreement.
This decision serves as a reminder that even open horizontal commercial agreements are not “safe harbor” protected from the scope of competition laws where the parties involved have sufficient market power.
Decision : Cass.com. 8 November 2016 no. 14-28.234.
All Bets Are Off!
On 8 February 2017, the Italian Competition Authority (the “ICA”) opened an in-depth investi-gation into two Italian companies (namely, Lottomatica Holding S.r.l. and Admiral Entertain-ment S.r.l., hereinafter the “Accused Companies”), both operators leaders in the betting sector.
The investigation started after the Accused Companies executed an agreement related to the acquisition of joint control of another Italian company (the “Agreement”), Big Admiral S.r.l. (“Big Admiral”). Big Admiral would be involved in the creation, development and management of a network of betting shops with new slot and video lotteries devices.
Although the Agreement at a first sight may have pro-competitive effects, the ICA held that in its view, it could violate Article 101 of the Treaty on the Functioning of the European Union.
In particular, the ICA declared that its investigation would be aimed at verifying whether the commercial coordination, stemming from the Agreement, would be able to impede, restrict or jeopardize competition in the national market of betting devices.
The investigation continues and liability has not yet been determined. This is yet another example of an ICA investigation into collusive behaviour which have been increasing in recent years. Businesses should seek adequate legal advice before executing commercial agreements with present or potential competitors to avoid being implicated in such an investigation.
UK Begins to Reshape Its World Trading Relationships Following Brexit With Parliamentary Inquiry Into Potential US/UK Trade Deal
One of the advantages of Brexit is that the UK will be free to agree its own trade deals with the rest of the world for the first time in nearly 50 years.
However, until the UK formally leaves the European Union, the EU Commission in Brussels has exclusive competence to negotiate trade deals on behalf of the European Union. So whilst the UK can commence trade talks, it is not allowed under its international treaty obligations with the other EU Member States to formally enter into any trading pacts until it has seceded from the EU trading bloc.
On 2 February 2017, the House of Commons International Trade Committee announced that it was launching an inquiry into the potential for a UK-US trade agreement.
This inquiry constitutes one of the first steps for the UK in attempting to reshape its economic relationships with the rest of the world. However, there is an element of nervousness in both Brussels and London that any outline agreement with the Americans could impact the progress of negotiations with the EU.
The main aim of the inquiry is to analyse the challenges as well as opportunities such a trade agreement might present. It will consider the implications for the production and sale of goods and services between the two countries. The Committee hopes this will enable them to make helpful recommendations to the Government on how best to approach their future negotiations with the Trump Administration.
As part of its inquiry the International Trade Committee is inviting written submissions from interested organisations and individuals about their views on the scope and content of any future US/UK trade agreement. The Committee is particularly interested in the following areas:
However there is not much time for interested organisations to make their views known on such a complex and detailed subject. The deadline for written submissions to the Committee is Monday 27 February 2017.
In these post Brexit referendum days it appears that the UK Parliament, as well as the UK Government, appear to be falling over themselves to make things happen quickly to establish their pro-Brexit credentials to their electorate.
Sounds like the US and the UK Administrations probably have a lot more in common than people imagined.
[View source.]
