Abstract
In this chapter, I clarify the legal rules that underlie the follwoing barriers to the wide implementation of PCP: (1) the obligation to conduct a separate competitive award in order to purchase the innovative solution targeted by the PCP competition, and (2) the legal uncertainty regarding compliance with EU State aid rules (3) the concern that a PCP finalist might need to be excluded from a subsequent competitive procedure due to the important knowledge benefits gained during the PCP.
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Notes
- 1.
A PCP finalist is an undertaking which completed successfully all the PCP stages.
- 2.
Izsak and Edler 2011, 18.
- 3.
Parts of this Chapter are based on a previously published article by the author. See Apostol 2012.
- 4.
Treaty of Paris 1951.
- 5.
Chalmers et al. 2010, 10.
- 6.
Treaty of Rome Article 1.
- 7.
Chalmers et al. 2010, 32.
- 8.
On 1st of July 2013, the newest member, Croatia, acceded the European Union.
- 9.
Single European Act.
- 10.
Treaty of Maastricht.
- 11.
Treaty of Amsterdam.
- 12.
The Treaty of Amsterdam extended the qualified majority voting to new fields, thus making the veto an exception. See Chalmers et al. 2006, 43.
- 13.
Obradovic 1996.
- 14.
Chalmers et al. 2006, 61.
- 15.
Zielonka 2001, 513–5.
- 16.
Chalmers et al. 2006, 64.
- 17.
According to Chalmers et al. 2006, 65–7, this may be simply a question of perception, due to the fact that the areas of competences attributed to the EU do not fall within the themes of main concern to voters (health care, education, law and order, social security and taxation), while sufficient checks and balances are already in place.
- 18.
- 19.
Chalmers et al. 2006, 61.
- 20.
Chalmers et al. 2006, 69.
- 21.
Moravcsik 2005, 370.
- 22.
Alongside the Treaty on European Union, TFEU forms the Treaty of Lisbon.
- 23.
Article 180-1 TFEU.
- 24.
Article 173 TFEU.
- 25.
Article 173(2) TFEU.
- 26.
Commission 2007b, 10. Unlike the EU, the US has excluded from the scope of the GPA set-asides on behalf of small and minority businesses. See para 1 of General Notes of the US, part of the Appendix I to Government Procurement Agreement.
- 27.
The GPA does not legally constrain the freedom EU has in regulating the relations between its Member States. The GPA defines the obligations for the EU as a whole to open its public markets to participation of businesses from the other GPA parties.
- 28.
This includes countries from the European Economic Area and countries having concluded a Stabilisation and Association Agreement with the EU.
- 29.
Commission 2007b, 10.
- 30.
Ibid.
- 31.
Articles 25 Directive 2014/24/EU and 43 Directive 2014/25/EU.
- 32.
http://www.wto.org/english/tratop_e/gproc_e/appendices_e.htm#appendixI Accessed 4 February 2013.
- 33.
See http://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm Accessed 8 July 2016.
- 34.
Articles 25 Directive 2014/24/EU and 43 Directive 2014/25/EU.
- 35.
See EU Annex 4 Appendix I GPA, available at http://www.wto.org/english/tratop_e/gproc_e/appendices_e.htm#ec Accessed 8 July 2016.
- 36.
PCP Expert Group 2006 7. See para 1 US General Notes Appendix I GPA.
- 37.
The limited tendering is defined as the procedure where the entity contacts suppliers individually. Arrowsmith 2002.
- 38.
Article XIII(1) GPA: ‘Provided that it does not use this provision for the purpose of avoiding competition among suppliers or in a manner that discriminates against suppliers of any other Party or protects domestic suppliers, a procuring entity may use limited tendering and may choose not to apply Articles VII through IX, X (paras 7 through 11), XI, XII, XIV and XV only under any of the following circumstances: (…) (f) where a procuring entity procures a prototype or a first good or service that is developed at its request in the course of, and for, a particular contract for research, experiment, study or original development. Original development of a first good or service may include limited production or supply in order to incorporate the results of field testing and to demonstrate that the good or service is suitable for production or supply in quantity to acceptable quality standards, but does not include quantity production or supply to establish commercial viability or to recover research and development costs;
- 39.
WTO Panel, Norway—Procurement of Toll Collection Equipment for the City of Trondheim (13 May 1992, BISD 40S/319).
- 40.
Ibid. Section 4.7: In examining this issue, the Panel first noted that, while the provision referred to “research, experiment, study or original development”, the parties to the dispute had referred only to research and development. Furthermore, although the provision relates to “prototypes or a first product”, only prototypes had been referred to. The Panel therefore limited its examination to these aspects.’
- 41.
Ibid., Section 4.5.
- 42.
Ibid., Section 4.5; OECD 2002;
- 43.
Ibid., Section 4.9.
- 44.
It states: ‘Original development of a first product or service may include limited production or supply in order to incorporate the results of field testing and to demonstrate that the product or service is suitable for production or supply in quantity to acceptable quality standards. It does not extend to quantity production or supply to establish commercial viability or to recover research and development costs’.
- 45.
Trondheim, above n 38, Section 4.11.
- 46.
It is worth mentioning that only a GPA party may complain before a GPA Panel against the illegal use of the limited tendering procedure. Moreover, the chances of a challenge by a GPA party are, in practical terms, extremely remote.
- 47.
Arrowsmith 2003, 282.
- 48.
Arrowsmith 2003, 282–4.
- 49.
Arrowsmith 2003, 283 considers, for example, that a wide range of commercial reasons for invoking the limited tendering exceptions should be recognized.
- 50.
Arrowsmith 2003, 297.
- 51.
Trondheim, above n 38, Section 3.5.
- 52.
The limited tendering is subject to compliance with Article III GPA on non-discrimination. Article III.1 GPA provides: ‘With respect to all laws, regulations, procedures and practices regarding government procurement covered by this Agreement, each Party shall provide immediately and unconditionally to the products, services and suppliers of other Parties offering products or services of the Parties, treatment no less favourable than: (a) that accorded to domestic products, services and suppliers…’.
- 53.
Nicholas 2011, 766.
- 54.
Arrowsmith 2003, 160–1.
- 55.
Article 32(2)(b) Directive 2014/24/EU; Article 50(c) Directive 2014/25/EU. The negotiated procedure without prior publication of a contract notice is allowed ‘where the works, supplies or services can be supplied only by a particular economic operator for any of the following reasons:
(i) the aim of the procurement is the creation or acquisition of a unique work of art or artistic performance;
(ii) competition is absent for technical reasons;
(iii) the protection of exclusive rights, including intellectual property rights.
The exceptions set out in points (ii) and (iii) only apply when no reasonable alternative or substitute exists and the absence of competition is not the result of an artificial narrowing down of the parameters of the procurement’.
- 56.
Article 32(3)(a) Directive 2014/24/EU.
- 57.
Article 26(4)(a)(ii) 2014 Directive 2014/24/EU.
- 58.
Article 50(b) Directive 2014/25/EU.
- 59.
Articles 31(1)(b) of Directive 2004/18/EC and 40(3)(c) of Directive 2004/17/EC.
- 60.
CJEU, Commission v Italy, Judgment, C-199/85 [1987] ECR I-039 para 14; CJEU, Commission v Italy, Judgment, C-57/94 [1995] ECR I-1249 para 23; CJEU, Commission v Germany, Judgment, C-318/94 [1996] ECR I-1949 para 13; CJEU, Commission v Italy, Judgment, C-385/02 [2004] ECR I-08121 paras 19–20; CJEU, Commission v Greece, Judgment, C-394/02 [2005] ECR I-4713 para 33.
- 61.
CJEU, Commission v Spain, Judgment, C-328/92, [1994] I-01569 para 17.
- 62.
Commission v Italy 1995 paras 24–5; Commission v Italy 2004 paras 18, 20 and 21; Commission v Greece para 34.
- 63.
Commission v Italy 1995 para 27.
- 64.
Commission v Greece paras 35–39.
- 65.
See also recitals (50) Directive 2014/24/EU and (61) reiterate that ‘only situations of objective exclusivity can justify the use of the negotiated procedure without publication’ and ‘the situation of exclusivity has not been created by the contracting entity itself with a view to the future procurement procedure’. Moreover, the availability of adequate substitutes should be assessed thoroughly.
- 66.
Article 32(2)(b)(ii) and (iii) Directive 2014/24/EU and 50(c)(ii) and (iii) Directive 2014/25/EU.
- 67.
Article 18(1) Directive 2014/24/EU and Article 36(1) Directive 2014/25/EU.
- 68.
CJEU, Concordia Bus Finland v Helsingin kaupunki and HKL-Bussiliikenne, Judgment C-513/99 [2002] ECR I-07213 para 71.
- 69.
Ibid. para 57.
- 70.
Sanchez-Graells 2016, 7.
- 71.
Article 31 Directive 2014/24/EU and Article 49 Directive 2014/25/EU.
- 72.
See Article 25 Directive 2014/24/EU; Article 43 Directive 2014/25/EU.
- 73.
Recital (47) Directive 2014/24/EU and recital (57) Directive 2014/25/EU. The legislator clarifies that the Directives aimed to offer additional means to ‘facilitate public procurement of innovation and help Member States in achieving the Innovation Union targets.’
- 74.
Commission 2014a, para 32.
- 75.
Commission 2014a, para 33.
- 76.
Commission 2014a, footnote 29 to point 33(c).
- 77.
Wendland 2015, 47. The author states: ‘The market condition presumption only holds in situations where a public purchaser procures products or services that are so unique/specialised that the public purchaser is the only potential buyer and there are no other potential providers on the market outside of the innovation partnership that could be disadvantaged’.
- 78.
Article 31(2) Directive 2014/24/EU and Article 49(2) Directive 2014/25/EU.
- 79.
Article 31(2) Directive 2014/24/EU and Article 49(2) Directive 2014/25/EU.
- 80.
Recital (35) Directive 2014/24/EU and (42) Directive 2014/25/EU. The European Commission is a committed advocate of minimal intervention at the R&D stage.
- 81.
Recital (49) Directive 2014/24/EU and (59) Directive 2014/25/EU.
- 82.
Article 49(1) Directive 2014/25/EU provides for another minimum time-limit of 15 days.
- 83.
Article 31(1) Directive 2014/24/EU and 49(1) Directive 2014/25/EU.
- 84.
Article 65(2) Directive 2014/24/EU and 78(2) Directive 2014/25/EU. The number of invited candidates may be lower, whenever the procurer can demonstrate that there are not enough capable candidates available. The Utilities Directive does not mention a minimum number, but requires that genuine competition is ensured.
- 85.
Articles 31(3) Directive 2014/24/EU and 49(3) Directive 2014/25/EU.
- 86.
Articles 31(4) Directive 2014/24/EU and 49(4) Directive 2014/25/EU.
- 87.
Articles 31(5) Directive 2014/24/EU and 49(5) Directive 2014/25/EU.
- 88.
Recital (49) Directive 2014/24/EU and (59) Directive 2014/25/EU.
- 89.
Article 31(7) Directive 2014/24/EU and Article 49(7) Directive 2014/25/EU.
- 90.
Draft of 20.12.2011.
- 91.
Recital (49) Directive 2014/24/EU and (59) Directive 2014/25/EU.
- 92.
If there are two finalists, a competitive procedure should be organized.
- 93.
- 94.
- 95.
- 96.
This is made of all the costs incurred by the company—for example the market value of the salaries of researchers/developers in a certain sector and the costs of R&D material required to perform the work. Commission 2016, question no. 8.
- 97.
Commission 2007a, 9.
- 98.
Rigby 2013.
- 99.
Commission 2016, question no. 8: ‘one way used by patent traders to calculate the price reduction for IPR ownership rights uses the so-called present value method. It is normal practice that companies make a business case, and thus estimate the potential market over the years to come, when deciding to start investing in a new development or not. The price reduction on the PCP bid towards the procurer can be calculated as a portion of the ‘present’ value of projected profits for the company (the ‘present’ value is the value discounted back in time to the day of the bid), that is proportional to the investment/risks taken by the government (PCP price paid to the company) compared to the total investments required to turn the R&D efforts into a commercially viable product (this includes the projected investment/risks that will be carried by the company e.g. costs of maintaining IPR projection, further production, marketing and commercialisation investments). Companies can extract these values from the business case they prepare at the moment they make their PCP offer’.
- 100.
TSB 2011, 3.
- 101.
Companies competing for an SBIR contract were requested to indicate the discount in price they grant for retaining the IPR. However, no control mechanisms are embodied into the award process. SBIR programmabureau van Agency NL 2011, 5.
- 102.
The Flemish PoI does not set a standard approach regarding the market price criterion.
- 103.
Hall and Lerner 2010.
- 104.
Commission 2014a, para 33.
- 105.
CJEU, Helmut Muller GmbH v Bundesanstalt fur Immobilienaufgaben, Judgment Case C-451/08, [2010] ECR I-02673 paras 50–51.
- 106.
Commission 2014a, para 34.
- 107.
Commission 2014b.
- 108.
Commission 2005, 3.
- 109.
Commission 2014a, para 1.2.: ‘When an undertaking receives aid, this generally strengthens its position on the market and reduces the return on investment for other undertakings. When the reduction is significant enough, it is possible that rivals will cut back on their R&D&I activity. In addition, when the aid results in a soft budget constraint for the beneficiary, it may also reduce the incentive to innovate at the level of the beneficiary. Furthermore, the aid can support inefficient undertakings or enable the beneficiary to enhance exclusionary practices or market power.’
- 110.
Commission 2014b, Article 25(2).
- 111.
Commission 2014b, Article 25(3).
- 112.
Commission 2014b, Article 25(5).
- 113.
Commission 2014b, Article 25(6)–(7).
- 114.
Commission 2014b, Article 1(2)(a).
- 115.
Commission 2014b, Article 1(2)(a)–(b).
- 116.
Commission 2014b, Article 1(4)(a)–(b).
- 117.
Commission 2014b, Article 1(5).
- 118.
Commission 2014b, Article 4(1)(i).
- 119.
‘Predominantly’ entails that more than half of the eligible activities are fundamental research. See von Wendland 2015.
- 120.
Commission 2014b, Article 7(1).
- 121.
Commission 2014b, Article 9.
- 122.
Commission 2014b, Article 6(2).
- 123.
Commission 2014b, Article 6(3)(b).
- 124.
- 125.
Commission 2014a, Section 1.2 para 13.
- 126.
Commission 2014a, para 87.
- 127.
Commission 2014a, Section 4.1.
- 128.
Commission 2014a, Section 4.2 para 49.
- 129.
Commission 2014a, Section 4.3.
- 130.
Commission 2014a, Section 4.4.
- 131.
Commission 2014a, Section 4.5.
- 132.
Commission 2014a, Annex II.
- 133.
Commission 2014a, para 4.6.
- 134.
Commission 2014a, Sections 4.7 and 6.
- 135.
- 136.
Commission 2014c.
- 137.
Commission 2014c, Section 3.2.
- 138.
Commission 2014c, Section 3.2.1 para 18.
- 139.
Commission 2014c, Section 4.1 para 31.
- 140.
Commission 2014c, Section 3.2.3 paras 21–22.
- 141.
Commission 2014c, Section 3.3 para 24.
- 142.
Commission 2014c, Sections 4.1.
- 143.
Izsak and Edler 2011, 18.
- 144.
The equal treatment principle requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified. See, for example, CJEU, Sermide v Cassa Conguaglio Zucchero and Others, Judgment, C-106/83 [1984] ECR 4209 para 28, CJEU, Spain v Council, Judgment, C-203/86 [1988] ECR 4563 para 25, and CJEU, SMW Winzersekt v Land Rheinland-Pfalz, Judgment, C-306/93 [1994] ECR I-5555 para 30.
- 145.
CJEU, Commission of the European Communities v CAS Succhi di Frutta SpA, Judgment, C-496/99 [2004] ECR I-3801 paras 110–111.
- 146.
Ibid. para 110; CFI, Brinks Security Luxembourg v Commission, Judgment T-437/05 [2009] ECR II-3233 paras 112–115; CFI, European Network v Commission, Judgment, T-332/03 [2008] ECR II-32 para 125.
- 147.
Articles 23(2) Directive 2014/24/EU and 34(2) Directive 2014/24/EU: ‘Technical specifications shall afford equal access for tenderers and not have the effect of creating unjustified obstacles to the opening up of public procurement to competition’.
- 148.
CJEU, Fabricom v Belgian State, Judgment, Joined Cases C-21/03 and C-34/03, 3 March 2005 [2005] I-1559 paras 32–36.
- 149.
In this case, one company complained that the sitting contractor did not have to follow the 3 months “run in phase” and had an advantage because it did not have to make these costs.
- 150.
Concordia, above n 147, paras 75–76. CFI, European Dynamics v Commission, Judgment T-345/03 [2008] ECR II-341 para 73.
- 151.
Ibid. para 70: ‘In that regard, it should be pointed out that the fact that an advantage may be conferred upon an existing contractor by a running-in phase is not the consequence of any conduct on the part of the contracting authority. Unless such a contractor were automatically excluded from any new call for tenders or, indeed, were forbidden from having part of the contract subcontracted to it, it is inevitable that an advantage will be conferred upon the existing contractor or the tenderer connected to that party by virtue of a subcontract, since it is inherent in any situation in which a contracting authority decides to initiate a tendering procedure for the award of a contract which has been performed, up to that point, by a single contractor. That fact constitutes, in effect, an ‘inherent de facto advantage.’
- 152.
Ibid. paras 183–203.
- 153.
CFI, Evropaïki Dynamiki v European Investment Bank, Judgment, T-461/08 [2011] paras 149–150.
- 154.
CJEU, Consorzio Nazionale Interuniversitario per le Scienze del Mare (Conisma) v Regione Marche, Judgment, C-305/08, ECR 2009 I-12129, para 40.
- 155.
Concordia, above n 147, para 86: ‘the principle of equal treatment does not preclude the taking into consideration of criteria…. solely because the contracting entities owned transport undertaking is one of the few undertakings able to offer a bus fleet satisfying those criteria’.
- 156.
Brinks Security v Commission, above n 145, paras 120–121. Based on case CJEU Evans Medical and Macfarlan Smith, Judgment, C-324/93 [1995] ECR I-563, the Advocate-General argued in the Concordia case that criteria are not allowed, only if they could not be justified objectively, having regard to the characteristics of the contracts and needs of the CA (para 151).
- 157.
However, if the winning tenderer also helped in the preparation of the tender, that might be an indication that the award requirements were unduly restricted. CJEU Ismeri Europa v Court of Auditors, Judgment, C-315/99 [2001] ECR I-5281 para 47.
- 158.
Arrowsmith and Kunzlik 2009, 63.
- 159.
In this case the contract would qualify as a supply contract. Supply contracts need to be procured in accordance with the Procurement Directives.
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Apostol, R. (2017). Legal Barriers and Conceptual Pitfalls. In: Trials and Tribulations in the Implementation of Pre-Commercial Procurement in Europe. T.M.C. Asser Press, The Hague. https://doi.org/10.1007/978-94-6265-156-2_7
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