Article 73 - European preference requirements
Article 73 creates the operational requirements that public buyers are to consider when implementing European preference requirements. Effectively, this article allows but does not mandate the discrimination of economic operators, goods, services and works. This is an Article that requires a careful side-by-side reading with Articles 71 and 72, perhaps 74 as well since it is in 74 that we shall find the rules to determine the origin of economic operators, goods, services and works. This is also probably an article where it really pays off to read Marko's post as our views diverge somewhat.
This is an article that provides significant amounts of discretion to public buyers on deciding to discriminate or not against non-covered economic operators, goods, services and works. Back in July, at the meeting with the Executive VP of the Commission I expressed my preference for an European preference (pun intended) approach that was more like the Foreign Subsidies Regulation and less like the International Procurement Instrument. Article 73 reflects the approach I favour since it reduces the risk for retaliation from third countries since the discriminating decisions are taken at a very low level, instead of at a EU-block level as it is with the IPI. This, however, is not free since there will be no coordinated approach to increase the cost of non-compliance by the countries where such economic operators, goods, works and services originate from. In short, we're atomising the decisions and the sieve will be as tight or as loose as each public buyer decides to make it. My gut feeling is that the incentives are misaligned for the use by most public buyers of the faculties offered here. Anyway, we need to look at discretion in this article as a feature and not a bug.
Economic operators
Article 73(1) deals with economic operators and their tenders. In it, public buyers are allowed ('may') to impose restrictions on the participation of non-covered economic operators and sub-contractors, limiting participation to covered economic operators only. This possibility is also applicable to groups of economic operators that present together to a procurement procedure.
Since 73(1)(a) includes subcontractors, according to 73(1)(b) tenders can also be excluded in case they include non-covered economic operators or subcontractors.
Instructions for public buyers
Paragraph 2 contains the rules public buyers are to follow when implementing the European preference requirements of the first paragraph, pertaining to the tenders themselves and as such the goods, services and works being procured. As it stands, this paragraph has all the hallmarks of being messy from a practical perspective point of view.
The rules within this paragraph have an interesting nature. While the epigraph of the paragraph states that "[p]ublic buyers may do one or more of the following" it seems that optionality only extends to the implementation of the measures from sub-paragraphs (a)-(c) and not to the creation of two measures. Bearing in mind this is an exception to the principle of non-discrimination, the way I read this paragraph two is that the list of options is taxative and not simply illustrative. I do not think a generous interpretation on the discretion provided to public buyers would fit with the letter of the paragraph itself. So what are the discriminatory options available to public buyers then?
Article 73(2)(a) allows public buyers to demand that the goods, services and works are either from the EU or from covered third countries. This can either be fully, 'to a degree' or for specific components. There is no discussion about the fully, but the 'to a degree' consubstantiates a significant margin of discretion for public buyers. The really interpretative difficulty arises from the final part of the sentence: "specific components that participate in the competitive relationship with the procured goods, services or works." I am at a loss at what might be meant by 'competitive relationship' in this context since this relationship is dependent on the goods/services/works being procured. A brief conversation with Marko didn't clarify the issue either.
Sub-paragraph (b) is clearer and amounts to an award criteria discrimination in terms of price or quality in favour of Union and covered economic operators and tenders. Public buyers are allowed to do so if the grouping is composed of only or the majority of Union and covered economic operators (b)(i).
A similar, though not identical, logic applies to the content of tenders on (b)(ii). Here, the tender (and only one tender) containing the higher proportion of Union or covered goods, services or works can benefit from the positive discrimination. But what is meant by higher proportion? Is it to be calculated based on price, cost, volume or number of different items (say, strategic objectives) that are covered?
Furthermore, it is important to highlight that this is probably the first example of discrimination being explicitly allowed for when comparing tenders that are both legally compliant and not affected by a potential non-covered status. All tenders entered into the procurement do so legally and once in they are subject to the principle of equal treatment and non-discrimination since all contain appropriate levels of Union and covered content. However, a public buyer exercising the possibility of this paragraph but the best one in this regard can be awarded additional marks. I think a Rubicon is being crossed here well beyond what was anticipated in Kolin and Qingdao since we are no longer discriminating against a third country economic operator (or content) but those covered instead.
The final possibility offered to public buyers within this paragraph is to reject a tender when said tender contains less than 50% of estimated value originating from EU or covered sources. While this seems logical at first glance, questions will be asked about what is meant by value here. Is it the total cost or price? How is the cost attributed, especially in the context of services? This will require public buyers to demand some sort of itemised billing that can easily be divided between the columns of within scope and outside scope to make the comparison possible...which will have to be done in accordance with Article 74 and its rules of origin. Regardless, if it is not cost or price since the word included is value, then what is it? How do we handle the profit margin? What about quality and strategic interests that the offer may contain? Should those be included in the calculations as well a la offsets in defence? We are left to wonder.
If a public buyer wants to avail itself of the discriminatory possibilities offered by Article 73(2), then such possibility must be 'clearly stated' in the public summary of the tender (Article 73(3)). In a departure from the discretion of the previous paragraphs, the second sentence of paragraph 3 helpfully explains in some detail what 'clearly stated' requires: "the goods, services or works required to be of Union or covered origin, well as the percentage of reduction or award points allocation, together with the corresponding value that the public buyer will apply for the evaluation and raking of tenders." Does it clarify the operational doubts about how to deploy 73(2)(b) and (c) in practice? I don't think so. What is missing from this paragraph is any reference to 73(1), does this imply non-covered economic operators can be excluded despite non-disclosure on the procurement summary? I find a tall order to accept that if for the lesser discrimination (elements of a tender) disclosure is necessary. Maybe this is intentional to create uncertainty on the minds of non-covered economic operators ("should we go, even though we can be excluded although we do not know for sure?") thus reducing their likelihood to show up in the first place...without the need of an actual exclusion? Maybe there's some 3D chess strategy at play here.
The final paragraph of Article 73 creates another obligation for public buyers. This one to inform the national coordinating authority of any "indications of circumvention of measures" adopted under this article. This information is then to be processed by the national coordinating authority before being forwarded to the Commission. This is more busywork for public buyers that does not add value to their day to day activities and absence any incentives (positive or negative) looks to be as another nice idea in theory that will not see much use.
General comments
It is relevant to mention here that the principle of equal treatment does not apply to non-covered countries, for two reasons. First, a basic tenet of law: equal treatment does not apply outside the realm of legality. Economic operators, goods, services and works from non-covered countries are explicitly placed outside the scope of legality here. Second, whether we like it or not in Kolin/Qingdao, the CJEU has explicitly stated that economic operators from third countries (as non-covered ones are treated here) do not benefit from EU law principles protection. As such, it is possible for public buyers to explicitly discriminate some but not other non-covered economic operators, goods, services and works.
If this is to be used in practice, one should expect transaction costs to go up and competition to go down. On the transaction costs, the more prescriptive the public buyer is in terms of demanding details from tenders to deploy the discrimination offered in this article, the more expensive it will be to produce the tender itself and then to analyse it. This is not going to be free and is aligned with what I said at the top of this entry on the incentives not being aligned for public buyers. Regarding competition, when we take out competitive elements (economic operators, goods, services and works) from a procurement procedure we are reducing the competitive pressure for everyone else in the market. The only possible flipside is if now more EU economic operators decide to show up because say the Chinese ones have been barred. But even then, they would be competing only against weaker economic operators and as such one should expect the prices to be higher than if Chinese competitors had been allowed in. This is also another negative incentive on the use of the discriminating possibilities for public buyers, contributing to my gut feeling that this will see less use than people may think.