OPINION OF ADVOCATE GENERAL
RUIZ-JARABO COLOMER
delivered on 27 November 2007 1(1)
Joined Cases C‑147/06 and C‑148/06
SECAP SpA
v
Comune di Torino
and
Santorso Soc. coop. arl
v
Comune di Torino
(References for a preliminary ruling from the Consiglio di Stato (Italy))
(Public works contracts – Award procedures – Abnormally low tenders – Inter partes verification procedure – Contracts excluded from the directives on the coordination of award procedures – Principles of Community law applicable to public procurement – Application to excluded contracts – National legislation requiring the automatic rejection of abnormally low tenders without first allowing the tenderer concerned to be heard)
I – Introduction
1. The Consiglio di Stato (Council of State, Italy) seeks a ruling from the Court of Justice, pursuant to Article 234 EC, on whether Article 30(4) of Council Directive 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts (2) transcends that directive and also governs the award of contracts excluded from its scope.
2. The Court interpreted that provision in the judgment in Lombardini and Mantovani, (3) stating that it was ‘essential’ that each tenderer suspected of submitting an abnormally low tender should have the opportunity effectively to state his point of view and to supply all relevant explanations (paragraph 53).
3. The object of the present reference is to determine whether that positive right constitutes a general principle of the Community legal system which applies to the award of public contracts regardless of whether those contracts come under the sectoral directives. (4)
4. The Consiglio di Stato has raised that issue in a very specific context, namely that of a national measure which requires the automatic exclusion of abnormally low tenders in procedures for the award of contracts with a value lower than that stated in the directives. In addition to that measure is a practice whereby, in the case of such contracts, certain tenderers may influence the outcome of the tendering procedure by the ruse (5) of colluding to submit similar bids with the aim of creating a particular anomalous threshold and excluding other tenderers.
5. The present reference for a preliminary ruling is, therefore, highly significant since it concerns general principles of Community law while also recognising that the solution may be founded only on Community legal provisions. The Court must have regard to both spheres in order to provide the Italian court with an effective response to enable it to resolve the dispute.
II – The legal framework
A – Community law
6. The freedom of establishment and the freedom to provide services are enshrined in Articles 43 EC and 49 EC respectively. Council Directive 71/305/EEC of 26 July 1971, (6) which set in motion the coordination of the laws of the Member States on public procurement, had as its main purpose the simultaneous attainment of those two freedoms, as stated in the first recital. That directive, which applied only to contracts with a value of 1 000 000 units of account or above (eighth recital), provided that the criteria for the award of contracts should be the lowest price or the most economically advantageous tender (Article 29(1)) and, envisaging that there might be abnormally low tenders, provided for the exclusion of such tenders after hearing explanations from the tenderers concerned (Article 29(5)).
7. The Court, interpreting the latter provision, ruled that a tender may be rejected only after the tenderer has been given the opportunity to explain his bid, in other words after an inter partes examination procedure; automatic rejections are therefore prohibited. (7)
8. Directive 71/305 was amended substantially on a number of occasions; (8) it was therefore appropriate to consolidate that directive and this was effected by Directive 93/37, which was also intended to safeguard freedom of establishment and freedom to provide services (second recital). Applicable to contracts with a value of not less than ECU 5 000 000 (Article 6(1)) and retaining the previous award criteria (Article 30(1)), Directive 93/37 reproduced, with minor amendments, the wording of the former Article 29(5) in Article 30(4):
‘If, for a given contract, tenders appear to be abnormally low in relation to the works, the contracting authority shall, before it may reject those tenders, request, in writing, details of the constituent elements of the tender which it considers relevant and shall verify those constituent elements taking account of the explanations received.
The contracting authority may take into consideration explanations which are justified on objective grounds including the economy of the construction method, or the technical solution chosen, or the exceptionally favourable conditions available to the tenderer for the execution of the work, or the originality of the work proposed by the tenderer.
If the documents relating to the contract provide for its award at the lowest price tendered, the contracting authority must communicate to the Commission the rejection of tenders which it considers to be too low.
…’
9. Directive 2004/18, which the Member States were required to transpose by 31 January 2006 (Article 80(1)), repealed Directive 93/37 with effect from 31 March 2004 (Articles 82 and 83). When awarding works contracts whose value is at least EUR 5 278 000 (Article 7(c)), (9) a contracting authority has the right to exclude abnormally low tenders following an inter partes verification procedure (Article 55(1) and (2)).
B – The Italian legislation
10. Article 30(4) of Directive 97/37 was transposed into Italian law by Article 21(1)(a) of Law No 109/94 of 11 February 1994, the framework law on public works, (10) appended to the original text by Article 7 of Law No 216/95 of 2 June 1995. (11) In accordance with that provision:
‘In cases of awards of contracts for works to the value of ECU 5 000 000 or above on the basis of the lowest-bid criterion mentioned in paragraph 1, the authority concerned must assess the irregular nature of the tenders referred to in Article 30 of Council Directive 93/37/EEC of 14 June 1993 in relation to all tenders undercutting the indicative price to an extent equal to or greater than the arithmetical mean of the percentage discounts of all the tenders admitted, excluding 10%, rounded up to the nearest digit, of those offering the highest and lowest discounts respectively, increased by the arithmetical mean of the difference in the percentage discounts which are in excess of the said mean.
For that purpose, the public administration may take account, within 60 days from the submission of tenders, only of explanations based on the economy of the construction method, the technical solutions chosen, or the exceptionally favourable conditions available to the tenderer in question, excluding, in any event, explanations relating to those elements for which minimum values have been set by laws, regulations or administrative provisions, or for which values may be ascertained from official data.
Tenders must be accompanied, when submitted, by explanations concerning the most significant price components, indicated in the tender notice or in the letter of invitation, the total amount of which must not be less than 75% of the basic value of the bid.
For public works contracts with a value below the Community threshold only, the authority concerned shall automatically exclude tenders with a percentage discount equal to or greater than the percentage referred to in the first subparagraph. The automatic exclusion procedure shall not apply if the number of valid tenders is lower than five.’ (12)
11. Legislative Decree No 163 of 12 April 2006 (13) transposes Directive 2004/18 into national law. The final subparagraph of Article 21(1)(a) of Law No 109/94 has been removed from the provisions governing abnormally low tenders (Articles 86 to 88).
III – The main proceedings
12. By decision of 28 January 2003, Turin Municipal Council (Comune di Torino) resolved to deprive of all effectiveness pro futuro Article 21(1)(a) of Law No 109/94 in order to prevent the automatic exclusion of abnormally low tenders so that, when awarding municipal contracts, including those below the Community threshold, such tenders would be verified in accordance with the inter partes procedure laid down in Directive 93/37.
13. The Italian undertakings SECAP SpA (Case C‑147/06) and Santorso Soc. Coop. arl (Case C‑148/06) participated in two procurement procedures announced by the Council for the execution of certain works, (14) the value of which did not exceed the Community threshold. The tender notices stipulated the criterion of the lowest price, subject to the verification of anomalous tenders, and stated that there would be no automatic rejection of abnormally low tenders, in accordance with the decision of 28 January 2003. The tenders submitted by the two undertakings emerged as the first of the ‘regular’ tenders but, before making a decision, the municipal authorities declared that the tenders which appeared to be anomalous were in fact valid and awarded the contracts to other tenderers.
14. Both undertakings brought actions before the Tribunale amministrativo regionale di Piemonte (Regional Administrative Court, Piedmont), arguing that Article 21(1)(a) of Law No 109/94 requires the automatic exclusion of abnormally low tenders and prohibits public sector entities from hearing explanations from the tenderers concerned and from examining such tenders before rejecting them. The Tribunale amministrativo regionale di Piemonte did not accept that reasoning and dismissed the actions on the grounds that, in its opinion, Article 21(1)(a) authorises the automatic exclusion of abnormally low tenders but does not make it mandatory, from which it follows that there is nothing to preclude a contracting authority from hearing explanations from tenderers and examining their tenders.
15. The Consiglio di Stato, which is seised of the appeals lodged by the appellants, accepts their arguments and rejects the interpretation of the regional court. However, the Consiglio di Stato is also mindful of the requirements of Community law, which have been invoked by Turin Municipal Council, and has therefore referred the following questions to the Court for a preliminary ruling under Article 234 EC:
‘(1) Does the rule laid down in Article 30(4) of Directive 93/37/EEC or the similar rule contained in Article 55(1) and (2) of Directive 2004/18/EC (in cases where that is the relevant provision), that, where tenders appear to be abnormally low in relation to the works, the contracting authority shall, before it may reject those tenders, request, in writing, details of the constituent elements of the tender which it considers relevant and shall verify those constituent elements taking account of the explanations received, constitute a fundamental principle of Community law?
(2) If the answer to the preceding question is in the negative: Is the rule established by Article 30(4) of Directive 93/37/EEC or the similar rule contained in Article 55(1) and (2) of Directive 2004/18/EC (in cases where that is the relevant provision), according to which, if tenders appear to be abnormally low in relation to the works, the contracting authority shall, before it may reject those tenders, request, in writing, details of the constituent elements of the tender which it considers relevant and shall verify those constituent elements taking account of the explanations received, while not presenting the characteristics of a fundamental principle of Community law, nevertheless an implied consequence of or a “principle deriving from” the principle of competition, considered in conjunction with the principles of administrative transparency and non-discrimination on grounds of nationality and is it therefore, as such, directly binding, taking precedence over possibly incompatible national provisions adopted by the Member States to regulate public works contracts to which Community law is not directly applicable?’
IV – The procedure before the Court of Justice
16. By order of 10 May 2006, the President of the Court joined the two proceedings, since they share the same subject-matter.
17. The appellant undertakings in the main proceedings, Turin Municipal Council, the Austrian, French, German, Italian, Lithuanian, Netherlands and Slovak Governments and the Commission have submitted written observations which are varied in approach but may be grouped into two categories. The first category supports the position of Turin Municipal Council and includes the observations of Lithuania, Slovakia (15) and the Commission, while the second category comprises the observations of all the other participants in these proceedings, which propose that the questions referred should be answered in the negative. At the hearing on 25 October 2007, oral argument was presented by the representatives of Santorso Soc. coop. arl, Turin Municipal Council, the German, Italian and Lithuanian Governments and the Commission.
V – Analysis of the questions referred for a preliminary ruling
18. In point of fact, the two questions referred by the Consiglio di Stato may be reduced to a single question, aimed at establishing whether Article 30(4) of Directive 93/37, which requires abnormally low tenders to undergo an inter partes procedure before a decision whether to reject them is taken, applies to contracts falling outside the scope of the directive. In other words, the referring court asks whether, in the case of such contracts, Article 30(4) precludes Member States from providing for the automatic exclusion of that type of tender.
19. It is therefore appropriate to examine the nature of that rule in order to determine whether it is part of primary Community law and thus transcends Directive 93/37.
A – The starting point
20. The analysis may be based on solid foundations, firmly anchored in case-law which I have already examined. (16) Public procurement procedures which, for different reasons (quantitative or conceptual), fall outside the scope of the relevant directives still come within the sphere of the Community legal system, so that its fundamental principles, in particular, the fundamental freedoms of movement, become insurmountable barriers.
21. That view, which is encapsulated in recital 2 in the preamble to Directive 2004/18, (17) is well established in the annals of the Court. (18) In the judgment in Telaustria and Telefonadress, (19) the Court held that contracting entities are bound to comply with the rules of the Treaty when awarding contracts which are excluded from the scope of the sectoral directives (paragraph 60). (20) That case-law was reiterated in the judgment in HI (paragraph 47) (21) and followed more recently, quite naturally and without reference to the previous cases, in the Coname judgment. (22)
22. Next, in the order in Vestergaard, (23) the Court pointed out that the mere fact that the strict special procedures laid down in those directives are not appropriate in the case of public contracts of small value does not mean that those contracts are not subject to Community law, since they must also comply with the Treaty (paragraphs 19 to 21) (24) if they are of interest to operators established in other Member States. (25) In Case C‑264/03 Commission v France, (26) the Court took the same view (paragraph 33).
23. The setting of a financial threshold above which contracts are subject to public procurement directives is based on a single premiss, namely that contracts of small value do not attract operators established outside national borders; such contracts are thus devoid of Community implications. However, that rebuttable presumption is open to evidence to the contrary and therefore, as the Commission argues in its written observations, it must be borne in mind that a contract of small value may be of interest to operators in other Member States by reason, for example, of the fact that the place where the contract is to be performed may be close to their own country or because it would be beneficial to their commercial strategy.
24. Accordingly, that quantitative limit clearly serves only as a guideline and it therefore follows that there is nothing to prevent a contract of small value from being of interest in other Member States, giving rise to the factor which triggers the application of Community law and its objectives. Consequently, the procedures for the award of those contracts which, despite their limited interest, have a European dimension must comply with the principles laid down in the Treaty, subject always to the fact that contracts for values higher than the amounts indicated in the directives must comply with stricter coordinating provisions. (27)
25. One such provision, Article 30(4) of Directive 93/37, which is applicable ratione temporis to the disputes in the main proceedings and is reproduced in Article 55(1) and (2) of Directive 2004/18, prohibits the automatic exclusion of abnormally low tenders. The Consiglio di Stato asks whether that prohibition constitutes a fundamental rule of Community law or whether it is, at the very least, a consequence of the principle of competition, considered in conjunction with the principles of administrative transparency and non-discrimination on grounds of nationality, which must also be complied with when awarding contracts which do not fall within the scope of those directives.
B – Less than a fundamental principle …
26. The concepts of ‘fundamental principle’ or ‘fundamental rule’, as used in the case-law I have cited, have a very specific meaning. They do not refer to the axiological elements latent in the Treaty, or to any kind of measure adopted to attain its objectives; instead, they fall between those two extremes, in the letter of the primary law where the ‘constituent members’ of the Community laid down the objectives they intended to achieve together with the essential means of attaining them. A cursory examination of Articles 2 EC and 3 EC reveals that they relate to the unrestricted movement of persons, goods, services and capital, guaranteed by the corresponding freedoms of movement (Articles 23 EC, 43 EC and 49 EC), as well as to the abolition of all discrimination on grounds of nationality (Article 12 EC), which is a horizontal principle integral to any project to integrate a number of countries.
27. That view, which is similar to the one contained in recital 2 in the preamble to Directive 2004/18, is also discernible in the judgments I have cited. In Telaustria and Telefonadress, the Court invoked the principle of non-discrimination on grounds of nationality (paragraph 60); in HI, the Court referred to the freedom of establishment and the freedom to provide services (paragraphs 42 and 47); in the order in Vestergaard, the Court relied on the free movement of goods as the ratio decidendi (paragraph 21); while, in Coname, the Court again invoked Articles 43 EC and 49 EC to prohibit indirect discrimination on grounds of nationality.
28. Clearly, the ‘fundamental principles’ of the Treaty, which are capable of limiting the powers of the Member States in procedures for the award of contracts excluded from the coordinating provisions laid down in the sectoral directives, are the same as the principles referred to in the preambles to those directives, to which the Court has drawn particular attention.
29. Moreover, that should surprise no one since, as recital 2 in the preamble to Directive 2004/18 makes clear, the provisions of that directive are founded on those fundamental principles. Indeed, those directives pursue a limited direct aim, namely the coordination of procedures governed by the sectoral directives with a view to encouraging the development of effective competition in the field of public contracts (28) for the purposes of securing the fundamental freedoms of European integration. More particularly, the aim is to eliminate barriers to freedom of movement and to protect the interests of economic operators in one Member State who wish to sell their goods or services to contracting entities in other Member States. (29)
30. Reversing that perspective, it becomes clear that the aim is twofold: to avoid the risk of preference being given to national tenderers (buy national) and to ensure that the body responsible for awarding the contract is guided by considerations other than economic ones (30) (thus, the essential award criterion is always that of the lowest or most economically advantageous tender).
31. In those circumstances, the first question can only be answered in the negative, since, in a procedure for the award of a public works contract, the automatic exclusion of abnormally low tenders does not run counter to any fundamental principle of the Treaty. Neither the fundamental freedoms nor the prohibition of discrimination require that, in all circumstances and as an absolute rule, a tenderer who submits such a bid must have the opportunity to be heard before a decision is taken on whether to admit his tender.
32. In particular, that is because logic dictates that the principle of effectiveness, which also applies in the field of Community public procurement law, must operate in this sphere. Finally, the management of public interests necessitates such effectiveness, which, on occasions, is in conflict with the pace of a selection procedure complete with guarantees. (31)
C – ... but more than a mere rule of positive law
1. The implied principles
33. Article 30(4) of Directive 93/37 is not a discretionary – perhaps even capricious – provision of the legislature, which has no connection to the real world and might just as well never have existed.
34. I have already pointed out that, in Lombardini and Mantovani, the Court described as ‘essential’ the examination procedure for which that measure makes provision. (32) Underlying the use of that adjective is the belief that the inter partes procedure for the verification of abnormally low tenders is vital in order to achieve effective competition in the field of public procurement and to safeguard freedom of movement, which, as I stated in my Opinion in those joined cases, presupposes that tenderers must be able to participate on an equal basis, without any discrimination whatsoever (paragraph 24).
35. The prohibition of discrimination, particularly where it is based on nationality, entails a duty of transparency to ensure that, for the benefit of any potential tenderer, there is a degree of advertising sufficient to enable the market to be opened up to competition and that the impartiality of procurement procedures can be monitored, as the Court declared in Unitron Scandinavia and 3‑S (paragraphs 31 and 32). (33)
36. In that context, it is reasonable to ask, as does the Consiglio di Stato, whether, since it does not state a fundamental principle of Community law, Article 30(4) of Directive 93/37 comprises one of the logical consequences of Community law, which have a binding effect on public contracts, regardless of whether they fall within the scope of the directives, if they are of Community interest.
37. In other words, if the automatic exclusion of anomalous tenders is contrary to those consequences, is it appropriate to apply the contested rule to contracts which do not fall within the scope of Directive 93/37?
2. Tenderers and the concept of an abnormally low tender
38. The concept of an abnormally low tender is not made up of abstract features; on the contrary, it is defined by reference to the contract to be awarded and to the work involved. (34) It therefore has the characteristics of an indeterminate concept, which at first sight is imprecise but which may be clarified by reference to the specific nature of the contract.
39. That aspect is more marked in the Italian system, which defines the concept, having regard to the subject-matter of the contract and to the value of the different bids, by means of a mathematical formula for setting the anomaly threshold.
40. The tenderers who, as a result of advertising, are aware of the contract and its nature draw up their bids in secret, so that each of them knows only the details of his own bid. In general, in view of the fact that the system gives preference to the lowest tender or the most economically advantageous one, very low bids are submitted with the aim of offering the lowest price, even at the risk of reducing the profits of the undertaking concerned.
41. Accordingly, all parties take the same risk that, once the sealed envelopes are opened, their tender will be treated as anomalous.
42. However, that balance is disrupted where one or more of the tenderers have at their disposal information which is capable of influencing the fixing of the anomaly threshold, thereby removing the essential equality.
3. Concerted practices in the submission of tenders
43. In the light of the facts alleged by Turin Municipal Council, the Consiglio di Stato outlines a scenario, which the Court must bear in mind, whereby the automatic exclusion of excessive discounts, required by Article 21(1)(a) of Law No 109/94, encourages collusive agreements between undertakings in order to influence ex ante the outcome of the selection process.
44. Community law does not remain on the sidelines when faced with such a situation.
45. It is clear that the automatic exclusion of abnormally low tenders in accordance with the first subparagraph of Article 21(1)(a) is not in itself discriminatory, in view of the objective nature of that provision. In the Opinion in Lombardini and Mantovani, I stated that Italian law implements a mathematical, automatic system for setting the irregularity threshold, which is perfectly in line with the aims of Directive 93/37, allowing the market to establish the threshold, above which a tender may be considered irregular, for each contract. All applicants are on an equal footing and no party has any advantage in submitting its bid (points 33 and 35). Thus, the automatic rejection of anomalous tenders, without giving the parties concerned the opportunity to provide explanations, does not discriminate against anyone.
46. However, the situation is different if, as a result of collusive agreements, a group of undertakings, usually ones operating in the territorial market of the contract, collude with one another to draw up almost identical bids, with only minimal differences between them, so that the bids submitted by competitors who are not party to those agreements are classified as abnormally low and those tenderers have no opportunity to submit explanations or provide evidence of the viability of their bids.
47. Such practices therefore undermine the Community law principles of transparency and fair competition, which are applicable to public contracts, since, where the disadvantaged tenderers are established in other Member States, they must have the opportunity to explain their position if the discrimination prohibited by the Treaty is to be avoided. Turin Municipal Council stated at the hearing in these preliminary ruling proceedings that, following the decision not to apply the national provision, there was a significant reduction in the number of tenders submitted with the aim of distorting free competition.
48. In short, the principles referred to above require that, in public procurement procedures of Community interest, the contracting authority must take into account, as part of an exchange of views, the contentions of undertakings whose tenders have been classified as abnormally low. Those principles therefore preclude a national provision which, in the case of contracts whose value is below the threshold laid down in the sectoral directives, requires the automatic exclusion of such tenders without allowing the parties to be heard.
4. The right to good administration
49. To the foregoing objective, abstract view, which transcends the individual interests of the undertakings participating in a selection process, another, subjective, view must be added, according to which the rights of those undertakings, in particular the right not to be deprived of the opportunity to be heard in administrative procedures, are extremely important.
50. The right not to be deprived of the opportunity to be heard is expressly provided for in the legal systems of all the Member States and forms part of the right to good administration enshrined in Article 41, under Chapter V on citizens’ rights, of the Charter of Fundamental Rights of the European Union. (35) Article 41(2) recognises the right of every person to be heard before any individual measure which would affect him or her adversely is taken.
51. The Charter, whose importance the Court has recently made clear, in particular in the judgments in Parliament v Council (36) and Advocaten voor de Wereld, (37) requires that, before a tenderer is excluded, he must have the opportunity to state his views in order to persuade the contracting authority that his bid is genuine.
52. I agree with the Commission that that right, interpreted in isolation, does not mean that an undertaking which appears to have submitted an irregular bid must always be able to submit explanations, since, in principle, such an undertaking is already protected by the impartial examination of tenders in accordance with predetermined, objective, non-discriminatory criteria. However, a tenderer at risk of being excluded as a result of a collusive agreement between other parties is at a disadvantage, and all the more so if, in addition, he is not permitted to provide explanations.
53. Thus, the right to be heard by the administrative authorities is the basis for arguing against the automatic exclusion of abnormally low tenders, since, as I have indicated, the notion of ‘abnormality’ is an indeterminate legal concept which must be substantiated in each case by reference to the particular circumstances of the candidates.
54. Accordingly, the right to good administration militates against the abolition of the inter partes procedure for the verification of tenders before a decision is taken on their merits and this extends to contracts excluded from the scope of the sectoral directives, because it would entail a weakening of the guarantees laid down in what are known as the ‘remedies’ directives. (38)
5. The discretion of the Member States
55. It follows from the foregoing that Community law precludes national legislation under which contracting authorities are bound automatically to reject abnormally low tenders for public contracts excluded from the scope of the directives on the coordination of award procedures. On the contrary, under Community law, such authorities must have the opportunity to decide, depending on the circumstances in each case, whether it is appropriate to allow the candidates to be heard in order to verify, in an inter partes procedure, the composition of their tenders. (39)
56. However, the freedom of action accorded to the Member States means that they are not obliged to take the route provided for in Article 30(4) of Directive 93/37 and permits them to establish the manner in which the rights conferred by the Community legal system on individuals are to be protected, subject only to the limitations imposed by the principles of equivalence and effectiveness, namely that the procedures may not be less favourable than those designed for the protection of rights under national law and must be organised in such a way that, in practice, they do not make it difficult or virtually impossible to achieve the aim pursued. (40)
VI – Conclusion
57. In the light of the foregoing considerations, I propose that the Court replies to the Consiglio di Stato in the following manner:
The principles of free competition, administrative transparency and non-discrimination on grounds of nationality, which govern Community public procurement law, together with the right to good administration preclude national legislation which, with regard to the procedure for the award of public contracts excluded from the directives governing that field, obliges the contracting authority automatically to reject abnormally low tenders without providing for any inter partes verification procedure.