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Where are we?

EU Public Procurement Law 2011 – Chapter 4, Incorporation and application of non-economic criteria Anders Birkelund Nielsen. Where are we?. Aim and principles (chapter 1) Contracting authorities (chapter 2) Contracts subject to the Procurement Directive (chapter 3)

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Where are we?

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  1. EU Public Procurement Law 2011 – Chapter 4, Incorporation and application of non-economic criteriaAnders Birkelund Nielsen

  2. Where are we? • Aim and principles (chapter 1) • Contracting authorities (chapter 2) • Contracts subject to the Procurement Directive (chapter 3) • The Contract Documents (chapter 4) • The Procurement Procedures (chapter 5) • Selection of Participants (chapter 6) • Award of orders and conclusion of contracts (chapter 7) • Non-economic criteria in the procurement procedures (chapter 4) • Enforcement (chapter 8)

  3. Non-economic criteria Relevance and background: • Most often the contracting authority has more than one interest in relation to the given purchase • Fulfilment of the concrete need (related directly to the concrete purpose of the purchase) • Integration of environmental and social considerations (related to other general public interests) • Environmental and social considerations are in general considered as non-economic interests

  4. Application of non-economic criteria Possibilities in general: • In principle, non-economic criteria can be applied in three difference stages of the procurement procedure: • The preparation of the contract documents (definition of object of contract, preparation of technical specifications and determination of terms for the performance of the contract) • The award procedure (completion of a tender procedure as provided for in the directive, including selection of tenderers and award of the order) • The performance (delivery of the service, goods or work, including the enforcement of the conditions for the performance) • Only the award procedure is (wholly) subject to the public procurement directive (from the time where the object of a contract and conditions for the performance have been established - to the point in time where a supplier has been selected) • The preparation and performance phases are not regulated by the detailed rules of the public procurement directive (however, the authority must comply with the rules and principles of the EC Treaty)

  5. Application of non-economic criteria Defining the object of the contract and the technical specifications: • A significant degree of freedom (however, obligation to comply with the EC Treatyand art. 2 of the directive) • The primary purpose of the purchase may be to ensure environmental considerations or social considerations, or • Environmental considerations or social considerations may be included as part of the quality of the purchase (in the specifications) • Is it possible to require the use of a certain production method or process? • Undoubtedlyyes, if the production process has an influence on the quality of the final product • E.g.: Application of ecological production methods • More doubtful if the method or process does not have a (measurable) influence on the quality of the final product

  6. Application of non-economic criteria Defining the object of the contract and the technical specifications: Is it possible to require the use of a certain production method or process?(continued) • The Danish Competition Authority seems to believe that environmental or socially-related demands can be placed on the production process (2006 guideline for the public procurement directives): • “E.g. a contracting authority may wish to support environment friendly energy forms. The contracting authority can help this process by requiring in a contract on energy supply that the energy must be produced by renewable energy sources. However, the contracting authority cannot require specifically that the energy must be produced by windmills as there exist various other environment friendly energy forms.” • “Other social considerations can also be included in the technical specifications. The contracting authority can always place social demands with regards to the production process provided that they derives from obligatory, national or European rules. Other demands on the production process can be placed, if: • the method is necessary for the product to comply with the needs of the authority • the method is linked to the subject matter of the contract (product or the service) that is put up for tender, and • the requirements are not discriminating […]”

  7. Application of non-economic criteria Defining the terms and conditions for the performance: • ”Contracting authorities may lay down special conditions relating to the performance of a contract, provided that these are compatible with Community law and are indicated in the contract notice or in the specifications. The conditions governing the performance of a contract may, in particular, concern social and environmental considerations” (art. 26) • The actual completion of the contract concerns the period after the award and, therefore, the detailed obligations of the procurement directive do not apply • Once again a significant degree of freedom (however, obligation to comply with the EC Treaty) • The question is whether there needs to be a direct linked between the subject matter of the contract and the specified terms and conditions for the performance?

  8. Application of non-economic criteria Defining the terms and conditions for the performance: • The Danish Competition Authority’s guidelines as for social considerations (2004): • “A social clause must not be more extensive than the purpose warrants. E.g. if you want to require in a social clause that a supplier prepares a work retention policy, the Commission presumesthat it must only apply to the people that are employed to complete the actual task. You can probably not order a larger company with many employees to work out such policies for all of its employees in general. Such an obligation will be contrary to the principle of proportionality as it does not have a sufficient and direct link to the actual task”. • There needs to be a reasonable purpose (a claim for differential treatment is best rejected by terms and conditions being expressed consistently in public policies)

  9. Application of non-economic criteria Defining the terms and conditions for the performance: • The Danish Competition Authority’s guidelines for the public procurement directives (June 2006): • ”A Danish contracting authority may for instance introduce a terms that obligates the tenderer to treat all employees working on the task in accordance with the applicable collective agreements. In that way, the contracting authority can make sure that foreign companies do not get competitive advantages due to regulations or agreements that give foreign employees less protection than under Danish agreements. However, the contracting authority cannot require that a company must enter into a collective agreement in Denmark”

  10. Application of non-economic criteria Defining the terms and conditions for the performance: ECJ’s preliminary ruling of 3 April 2008 in case C-346/06, Rüffert Facts: • The posting directive includes provisions according to which member states must ensure that the employees that are posted in their territory (in certain fields – including minimum pay rate) have terms of employment as if the employees were covered by the member states’ own rules and collective agreements, provided that such agreements apply in general • A German state (Land Niedersachsen) had public procurement regulations according to which public contracting authorities could only award works contracts (and contracts on public, local passenger traffic) to companies that agreed to pay the – under the relevant collective agreement established – minimum rates of pay • The obligation also applied to any subcontractors and had to be included in the contract (together with a contractual penalty)

  11. Application of non-economic criteria Defining the terms and conditions for the performance: ECJ’s preliminary ruling of 3 April 2008 in case C-346/06, Rüffert Facts (continued): • German state (Land Niedersachsen) awarded a works contract to Objekt und Bauregie • The contract included the mentioned clauses regarding the collective agreements • Objekt und Bauregie used a Polish subcontractor that allegedly did not follow the terms in the collective agreements • As well the state as Objekt und Bauregie terminated the contract; first mentioned with reference to the non-adherence to the collective agreement • A German court ruled that the state could deduct the contractual penalty from Objekt und Bauregie’s claim under the contract • On appeal, the appellate court raised the question whether the article on freedom to provide services meant that the court was precluded from applying the state legislation (on compliance with the collective agreements)

  12. Application of non-economic criteria Defining the terms and conditions for the performance: ECJ’s preliminary ruling of 3 April 2008 in case C-346/06, Rüffert Referral for a preliminary ruling: • ”Does it amount to an unjustified restriction on the freedom to provide services under the EC Treaty if a public contracting authority is required by statute to award contracts for building services only to undertakings which, when lodging a tender, undertake in writing to pay their employees, when performing those services, at least the remuneration prescribed by the collective agreement in force at the place where those services are performed??” (par. 16)

  13. Application of non-economic criteria Defining the terms and conditions for the performance: ECJ’s preliminary ruling of 3 April 2008 in case C-346/06, Rüffert ECJ: • ?

  14. Application of non-economic criteria Defining the terms and conditions for the performance: ECJ’s preliminary ruling of 3 April 2008 in case C-346/06, Rüffert Importance to Denmark: • ?

  15. Application of non-economic criteria Application of non-economic criteria at the award: • Historically, the Commission has been very reluctant to accept non-economic criteria at the award • Commission interpretative communication on the Community law applicable to public procurement and the possibilities for integrating social considerations into public procurement (15.10.2001), COM/2001/0566 • Commission interpretative communication on the Community law applicable to public procurement and the possibilities for integrating environmental considerations into public procurement (05.07.2001), COM/2001/0274 • The (outdated) points of view of the Commission: • Environmental criteria can be taken into consideration at the award only if the criterion entails an economic advantage for the contracting authority with respect to the specific purchase • Considering economic and non-economic criteria together (and comparing the two types of criteria) will distort transparency and prevent equal treatment

  16. Application of non-economic criteria Application of non-economic criteria at the award: ECJ judgment of 17 September 2002 in case C-513/99, Concordia Oy AB Facts: • Referral for a preliminary ruling • The municipality of Helsinki called for tenders regarding bus services • The award criteria was the most economically advantageous tender and the municipality applied the following sub-criteria: • Price in total • Quality of the equipment to be used (there were given additional points for use of buses with low emissions and a low external noise level) • The operator's quality and environment programme • Concordia claimed that the criteria on quality was discriminative as only one operator was able to perform according to the municipality’s secondary criteria for additional points Question: • Is it legal to take emissions and noise level into consideration (at the award)?

  17. Application of non-economic criteria Application of non-economic criteria at the award: ECJ judgment of 17 September 2002 in case C-513/99, Concordia Oy AB The Court: • ”[the directive] cannot be interpreted as meaning that each of the award criteria used by the contracting authority to identify the economically most advantageous tender must necessarily be of a purely economic nature. It cannot be excluded that factors which are not purely economic may influence the value of a tender from the point of view of the contracting authority. That conclusion is also supported by the wording of the provision, which expressly refers to the criterion of the aesthetic characteristics of a tender. (par. 55) • ”it must be concluded that [the directive] does not exclude the possibility for the contracting authority of using criteria relating to the preservation of the environment when assessing the economically most advantageous tender.” (par. 57)

  18. Application of non-economic criteria Application of non-economic criteria at the award: ECJ judgment of 17 September 2002 in case C-513/99, Concordia Oy AB The Court (continued): • ”It follows from the above considerations that […] the contracting authority […] may take criteria relating to the preservation of the environment into consideration, provided that they are linked to the subject-matter of the contract, do not confer an unrestricted freedom of choice on the authority, are expressly mentioned in the contract documents or the tender notice, and comply with all the fundamental principles of Community law …” (par. 64) • Conclusion: It is sufficient if the non-economic criteria has non-economic value for the contracting authority (e.g. less noise) • The Court found that the requirements for the use of non-economic criteria were fulfilled

  19. Application of non-economic criteria Application of non-economic criteria at the award: ECJ judgment of 4 December 2003 in case C-448/01, EVN AG og Weinstrom GmbH Facts: • Tender procedure regarding supply of electricity • The most economically advantageous tender • ”Price” (weight 55 %) • ”Energy from renewable energy sources” (weight 45 %) • A long list of alleged infringements of the public procurement rules

  20. Application of non-economic criteria Application of non-economic criteria at the award: C-448/01, EVN AG og Weinstrom GmbH The Court: • ”an award criterion which is not accompanied by requirements which permit the information provided by the tenderers to be effectively verified is contrary to the principles of Community law in the field of public procurement” (par. 52) • ”An award criterion that relates solely to the amount of electricity produced from renewable energy sources in excess of the expected annual consumption, […], cannot be regarded as linked to the subject-matter of the contract” (par. 68)

  21. Application of non-economic criteria Application of non-economic criteria at the award: • Overview of the requirements in relation to using non-economic criteria as sub-criteria at the award (based on the ECJ’s Concordia and EVN judgments and the directive) • Must be linked to the subject matter of the contract • Must not give contracting authority an unconditional discretionary access to award the order • Must be stated explicitly in the contract documents • Must comply with basic Community principles • Must be suited to identify the most economically advantageous tender • Must be verifiable

  22. Application of non-economic criteria Application of non-economic criteria at the award: • The advantage of using non-economic criteria as (award) sub-criteria - instead of as terms and conditions for the performance - is the element of competition • By applying the criteria as terms and conditions for the performance the contracting authority sets a fixed level for the use of non-economic criteria • By applying the criteria as (award) sub-criteria the tenderers compete on offering the best environmental or social solution (best value for money) • Weighting of non-economic criteria • ”provided that they comply with the requirements of Community law, contracting authorities are free not only to choose the criteria for awarding the contract but also to determine the weighting of such criteria, provided that the weighting enables an overall evaluation to be made of the criteria applied in order to identify the most economically advantageous tender” (par. 39 of C-448/01, EVN AG)

  23. Application of non-economic criteria Small and medium-sized enterprises: • Promotion of small and medium-sized enterprises’ possibilities to be awarded (part of) a contract • It is possible not to set up (too) tough requirements in relation to selection criteria, i.e. to set up low minimum requirements in relation to economic standing and technical ability • It is possible to divide the purchase into separate lots (contract notice, II.1.8) • Some (smaller) lots may be exempt from the competition (art. 9(5)) • Non restrictive attitude towards the use of subcontractors • Flexible attitude towards the suppliers use of subcontractors (art. 25 and art. 48(2)(i))

  24. Application of non-economic criteria Check questions: • At which stage of the tender procedure is it best/easiest to apply non-economic criteria? • May a contracting authority require that a certain production process is applied? • May a contracting authority require that that the tenderers enter into a certain collective agreement? • Does all sub-criteria have to have an economic value? • What may a contracting authority require in relation to a tenderer’s use of subcontractors

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