EU Procurement Directive: Secret contracts and security measures

The aim of the European Community (European Union) Procurement Directive to achieve open, fair and taxpayer-friendly procedures in the internal market can collide with governments’ concerns for secrecy, special security measures or other essential state interests.

We look at how the Procurement Directive caters for governments’ security concerns. This leads us to the treaty rules governing the internal market and the scope for derogations. Finally, we point to proposed legislation concerning defence and security procurement.


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Procurement Directive Article 14

Article 14 of the Procurement Directive 2004/18/EC sets out exceptions to the application of the Directive on grounds of secrecy, security and other essential interests of an EU member state:

Article 14
Secret contracts and contracts requiring special security measures

This Directive shall not apply to public contracts when they are declared to be secret, when their performance must be accompanied by special security measures in accordance with the laws, regulations or administrative provisions in force in the Member State concerned, or when the protection of the essential interests of that Member State so requires.


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Three grounds for exceptions

Article 14 set out three grounds for exempting public contracts from the scope of the Directive:

1) Declared secret

2) Special security measures in accordance with the laws, regulations or administrative provisions in force in the member state

3) Protection of essential interests of the member state

As always, exceptions are interpreted narrowly. If challenged, the exception has to be justified.


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Defence procurement

Given the grounds above, we naturally think about military procurement, but we are reminded of special rules pertaining to procurement of weapons and the like.

In an earlier post, we looked at the application of the Procurement Directive to defence procurement, but subject to the exceptions made under Article 296 of the Treaty establishing the European Community (TEC). We also discussed ongoing efforts to create a legal regime for defence procurement in the internal market. As a reminder, here is the basic provision of the Procurement Directive:

Article 10
Defence procurement

This Directive shall apply to public contracts awarded by contracting authorities in the field of defence, subject to Article 296 of the Treaty.


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More than defence procurement

We saw that the Procurement Directive applies to defence procurement, unless a justified exception is made under Article 296 TEC.

The existence of Article 10 leads us to conclude that Article 14 of the Procurement Directive 2004/18/EC is meant to have reasons of its own.

Cf. ECJ C-252/01 Commission v. Belgium.


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Public security exemption explained

Recital 6 of the Procurement Directive mentions public security among grounds for exceptions to the application of the Directive, if the measures are necessary and taken in conformity with the treaty:

(6) Nothing in this Directive should prevent the imposition or enforcement of measures necessary to protect public policy, public morality, public security, health, human and animal life or the preservation of plant life, in particular with a view to sustainable development, provided that these measures are in conformity with the Treaty.


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State security or secrecy

Recital 22 of the Procurement Directive explains the intention to exempt procurement procedures from the application of the Directive on grounds relating to state security or secrecy:

(22) Provision should be made for cases in which it is possible to refrain from applying the measures for coordinating procedures on grounds relating to State security or secrecy, or because specific rules on the awarding of contracts which derive from international agreements, relating to the stationing of troops, or which are specific to international organisations are applicable.


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Commission Guide: Derogations


The Commission’s Guide to the Community Rules on public supply contracts presented the secrecy and security exceptions according to the old Directive 93/36/EEC and added its interpretation of the scope of these exceptions (page 20). Note that the TEC Articles mentioned have been renumbered:


Lastly, the Directive excludes public supply contracts from its scope:

· where the supplies are declared secret; or

· where their performance must be accompanied by special security measures in accordance with the provisions laid down by law, regulation or administrative action in force in the Member State concerned; or

· where the protection of the basic interests of that State’s security so requires.

These last three exclusions from the Directive give concrete expression, in the public procurement field, to the powers already reserved for the Member States by Article 36 of the EC Treaty, which allows them in certain cases to derogate from the prohibitions on import and export restrictions enshrined in Articles 30 and 34 respectively. These three exclusions from the Directive must be interpreted as strictly and according to the same criteria as exceptions under Article 36.


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Free movement of goods and derogations

In the case of supply contracts, we have now reconnected with the treaty framework for the free movement of goods. The current Articles 28 and 29 set out the basic prohibitions against restrictions on imports/exports and all measures having equivalent effect:



Article 28 TEC (ex Article 30)

Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.


Article 29 TEC (ex Article 34)

Quantitative restrictions on exports, and all measures having equivalent effect, shall be prohibited between Member States.



The current Article 30 TEC lays down the grounds for derogations and their limits. These restrictions shall not constitute a means of arbitrary discrimination or a disguised restriction on trade between member states.

Article 30 as published in the latest consolidated version of the treaties, OJEU 29.12.2006 C321 E/53:


Article 30 TEC (ex Article 36)

The provisions of Articles 28 and 29 shall not preclude prohibitions or restrictions on imports,
exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.


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Conclusion

Since secrecy, security and essential state interests apply to all types of contracts covered by the Procurement Directive, we may infer that parallel reasoning applies to derogations from all four internal market freedoms.


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De lege ferenda

For more information on and discussion about security issues related to procurement as well as proposed legislation, you can turn to the Commission’s Defence package, which includes both military and other security issues. The Communication and the preparatory acts are available here:

http://ec.europa.eu/enterprise/defence/eu_defence_policy.htm


The main three documents are:

The Communication: A Strategy for a Stronger and more Competitive European Defence Industry

The proposed Directive on intra-EU transfers of Defence Products

The proposed Directive on Defence Procurement
Some comments on the proposals are included in the earlier blog post on defence procurement.


Ralf Grahn