Public Procurement Law: Lession 3 - Contracting ... · The Directive –"contracting authorities" • Within the scope of the Directive • Note! Obligations pursuant to the EC Treaty

Public Procurement Law: Lession 3 - Contracting authoritiesSimon Evers Kalsmose-Hjelmborg ([email protected])

The EC public procurement rules

- Is the contract subject to an award procedure.

- Bodies within the scope for the Directive.

- Specifically about bodies governed by public law.

Remember that the Directive is adopted as part of the implementation of the internal market.

- Main purpose: Free movement (for certain public contracts).- Means: Competition and transparency.- "Side effect": Less nepotism.

The Directive – "contracting authorities"

• Within the scope of the Directive

• Note! Obligations pursuant to the EC Treaty are always binding for"member states".

• Article 1(9):

• "Contracting authorities" means the State, regional or local authorities,bodies governed by public law, associations formed by one or several ofsuch authorities or one or several of such bodies governed by public law".

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• Within the scope of the Directive.

• The State, regional and local authorities, and

• Associations formed by one or several of such authorities.

• C-323/96 – Commission vs. Belgium (Vlaamse Raad):

• Vlaamse Raad, the Flemish Parliament in the Belgian federalsystem, decided to have premises of its own built in Brussels andproceeded by way of an informal and private negotiation procedure,and thereby not by way of an EU-wide tender as it did not consideritself bound by the Directive.

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C-323/96 – Commission vs. Belgium (Vlaamse Raad):

• "The term "the State" referred to by that provision necessarilyencompasses all the bodies which exercise legislative, executive andjudicial powers. The same is true of the bodies which, in a federal state,exercise those powers at federal level. Furthermore, [in the Beentjescase] the Court, … the term "the State"… should be interpreted infunctional terms, held that a local land consolidation committee fellwithin that definition notwithstanding the fact that it was not an integralpart of the State administration in formal terms" (pp 27-28).

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Authorities vs. Bodies governed by public law

• The authorities concept is functional and as such encompasses all thebodies which do not have legal personalities and which withoutnecessarily being integral parts of the authorities‟ administration informal terms exercise the authorities‟ powers;

• If an entity has legal personality, the entity falls within the scope of theDirective only if it meets the conditions of falling within the definition of"bodies governed by public" law.

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The Directive – "body governed by public law"

• Article 1(9):

• A "body governed by public law" means any body:

a) Established for the specific purpose of meeting needs in the generalinterest, not having an industrial or commercial character,

b) Having legal personality and

c) Financed for the most part by the State, regional or local authorities, orother bodies governed by public law; or subject to management supervisionby those bodies; or having an administrative, managerial or supervisoryboard, more than half of whose members are appointed by the State,regional or local authorities, or by other bodies governed by public law".

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• a) – c) are cumulative conditions:

• "It is clear from that provision that the three conditions set out therein arecumulative" (Mannesmann, P 21).

• "…meeting needs in the general interest which are not industrial orcommercial in character is a necessary, but not sufficient, condition fordesignating a body as a "body governed by public law" ... In order to becovered by that directive, the body must also have legal personality anddepend heavily, for its financing, management or supervision, on the State,regional or local authorities or other bodies governed by public law" (Truley,P 34).

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a) "… established for the specific purpose of meeting needs in the generalinterest, not having an industrial or commercial character".

• "…Directive 93/36 does not define the term "needs in the general interest"(Truley, P 33).

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Truley – "body governed by public law"

• Facts:

• The Municipal Council of the City of Vienna decided to separate theWiener Stadtwerke from the municipal administration and to create a newcompany with its own legal personality, Wiener Stadtwerke Holding AG,which is wholly owned by the City of Vienna;

• Bestattung Wien (Undertaker Vienna) is a subsidiary of WienerStadtwerke Holding AG and runs a funeral and undertaker business inVienna;

• Truley is a licensed funeral undertaking;

• Bestattung Wien organised a tendering procedure for the award of apublic contract for the supply of coffin fittings and Truley submits a tenderbut was not awarded the contract on the ground that the price was toohigh;

• Truley filed a complaint with the Vergabekontrollsenat.

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• Arguments:

• Truley:

• Truly found that Bestattung Wien had violated the procurement rulesand claimed that the tender submitted by it was the only one whichcomplied with the specifications in the call for tenders (P 16).

• Bestattung Wien:

• Bestattung Wien claimed that it was no longer subject to the rules inDirective 93/36 as it had its own legal personality and was completelyindependent of the Magistrat of the City of Vienna (P 17).

• Truley:

• The directive remains fully applicable by reason of the close tieswhich continued to bind that company to the City of Vienna. In thatregard, Truley pointed out, inter alia, that all the shares in BestattungWien were held by WSH, which itself was wholly owned by the City ofVienna (P 17).

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• The following three main questions were therefore referred to the EuropeanCourt of Justice:

1. Is the concept of "needs in the general interest" derived from EC law andis it adequate?

2. Is the existence/absence of actual competition on the relevant marketsimportant to determining whether the activities have an industrial orcommercial character?

3. Is the requirement of public supervision fulfilled by a mere review?

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Truley – "body governed by public law”

• The ECJ – re 1 "needs in the general interest":

• Firstly, a ruling was to be made as to whether the term 'needs in the generalinterest' is a community-law concept or must be defined solely on the basisof national law – i.e. whether undertaking business fulfils needs in thegeneral interest.

• "According to settled case-law, the need for uniform application ofCommunity law and the principle of equality require that the terms of aprovision of Community law which makes no express reference to the law ofthe Member States for the purpose of determining its meaning and scopemust normally be given an autonomous and uniform interpretationthroughout the Community; that interpretation must take into account thecontext of the provision and the purpose of the legislation in question" (P35).

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• The ECJ– re 1 "needs in the general interest":

• "In the present case, it is common ground that the second subparagraphof Article 1(b) of Directive 93/36 makes no express reference to the lawof the Member States, with the result that the abovementioned termsmust be given an autonomous and uniform interpretation throughout theCommunity". (P 36).

• "It follows that the term "needs in the general interest" in Article 1(b) ofDirective 93/36 is a Community-law concept and must be interpreted inthe light of the context of that article and the purpose of that directive".(P 40).

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• The ECJ – re 1 "needs in the general interest":

• The objective of the Directive is double and includes:

• Elimination of barriers to the freedom to provide services and goods(P 41).

• Protection of the interests of traders established in a Member Statewho wish to offer goods or services to contracting authoritiesestablished in another Member State (P 41).

• Avoidance of the risk of preference being given to national tenderersor applicants whenever a contract is awarded by the contractingauthorities (P42).

• Avoidance of the possibility that a body financed or controlled by theState, regional or local authorities or other bodies governed by publiclaw may choose to be guided by considerations other than economicones (P42).

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• The ECJ– re 1 "needs in the general interest":

• "Given the double objective of introducing competition and transparency,the concept of a body governed by public law must be interpreted ashaving a broad meaning". (P 43).

• It was then for the ECJ to assess specifically whether or not a funeralbusiness meets a "need in the general interest".

• "… "needs in the general interest" … are … generally needs which are satisfiedotherwise than by the availability of goods and services in the marketplaceand which, for reasons associated with the general interest, the State choosesto provide itself or over which it wishes to retain a decisive influence"(P 50).

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The ECJ– re 1 "needs in the general interest" - specifically:

• Funeral activities may be regarded as meeting a need in the generalinterest (P 51), as they:

"… are linked to public policy in so far as the State has a clear interestin exercising close control over the issue of certificates such as birthand death certificates.” (P 52),

• The State may be justified in retaining influence over those activitiesand in taking measures on manifest grounds of hygiene and publichealth (P 53), and

• The fact that a regional or local authority is legally obliged to arrangefunerals - and, where necessary, to bear the costs of those funerals -where they have not been arranged within a certain period after adeath certificate has been issued constitutes evidence that there issuch a need in the general interest (P 57). 17

Truley – "body governed by public law*"

• The ECJ – re 1 "needs in the general interest" - specifically:

• All funeral activities are covered by the concept,

• Not only funeral services 'in the narrow sense of the term„(the burialor cremation of the body and the management of cemeteries andcolumbaria), but also

• Funeral services 'in the broad sense of the term' (placing of deathnotices, the placing of the deceased in the coffin or the transport ofthe deceased).

• As such a distinction is artificial as all or most of those services arenormally provided by the same undertaking or public authority. (P 54).

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• The ECJ – re 2 "not having an industrial or commercial character":

• Secondly, the ECJ was to make a ruling as to whether the existence of significantcompetition is itself sufficient to justify the conclusion that there is no need in thegeneral interest, not having an industrial or commercial character.

• The ECJ:• "…The absence of competition is not a condition which must necessarily be

taken into account in defining a body governed by public law"(P 59).

• Although not entirely irrelevant, the existence of significant competition doesnot, of itself, permit the conclusion that there is no need in the generalinterest not having an industrial or commercial character (P 61).

• "…The existence of significant competition, and in particular the fact that theentity concerned is faced with competition in the marketplace may beindicative of the absence of a need in the general interest not having anindustrial or commercial character" (P 60).

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• The ECJ – re 2 "not having an industrial or commercial character":

• In paragraphs 62-64 the ECJ lists a number of legal and actual factsgoverning funeral activities in Austria and points out the actual circumstancesof the establishment of Bestattung Wien and rules that whether or not there isa need of an industrial or commercial character will be subject to a specificassessment of all these elements.

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• The ECJ - re 3 – criterion of management supervision:

• Finally, the ECJ was to make a ruling on the third condition (c) and make astatement as to the criterion of management supervision of Bestattung Wien.

• The ECJ held that the criterion of management supervision cannot beregarded as being satisfied in the case of mere review (such as approval ofthe accounts) since, "by definition, such supervision does not enable thepublic authorities to influence the decisions of the body in question in relationto public contracts" (P 70).

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• The ECJ - re 3 – criterion of management supervision:

• In the specific case, however, the criterion of management supervision hadbeen satisfied because:

1. Bestattung Wien is wholly owned by a company – WSH – in which themunicipality of Vienna holds the entire capital (P 72), and

2. The shareholders' agreement governing Bestattung Wien expresslyprovides supervision authority as regards:

• »its "conduct from the point of view of proper accounting, regularity,economy, efficiency and expediency"« and

• to inspect the company's business premises and facilities.• Such powers therefore enable an active control of the management of

that company (P 73).

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Mannesmann – "body governed by public law"

• Does the Directive apply to all contracts awarded by bodies governed bypublic law?

• Mannesmann:

• Facts

• Österreichische Staatsdruckerei (ÖS) was established by law by theAustrian State as an undertaking with legal personality for purposes ofcarrying out commercial printing activities.

• ÖS should carry out printing activities for the State (passports, drivinglicences, etc.), but was also entitled to pursue other activities andacquire holdings in other undertakings.

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ÖS1981

Strohal GmbH

Strohal RotationsdruckGmbH

99.9 %

100 %

ÖS launched a tendering procedure for aproject relating to techncial installationsfor Strohal Rotationsdruck, but did notcomply with the EC Public ProcurementDirective.

Mannesmann Anlagenbau Austria AGsubmitted a tender and complained to theBundesvergabeamt, which referred thequestion of e.g. whether ÖS was a bodygoverned by public law to the ECJ.

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Mannesmann – “body governed by public law”

• Q. 1 –is the ÖS a body governed by public law?

• 1st indent – needs in the general interest not having a commercialcharacter

• The ÖS was established in order to produce, on an exclusive basis, officialadministrative documents, some of which require secrecy or securitymeasures (P 22).

• The prices for the printed matter are fixed by the State (P23).

• "…The documents which the ÖS must produce are closely linked to publicorder and the institutional operation of the State and require guaranteedsupply and production conditions which ensure that standards ofconfidentiality and security are observed" (P 24).

• "According to the legislation applicable to it, therefore, that entity wasestablished for the purpose of meeting needs in the general interest, nothaving an industrial or commercial character" (P 24).

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• Q. 1 – is the ÖS a body governed by public law?

• First indent – needs in the general interest not having a commercialcharacter

• The ÖS was established for the specific purpose of meeting those needs

• It is immaterial:

• that the entity (the ÖS) is free to carry out other activities incompetition with private entities.

• that the fact that meeting needs in the general interest constitutes onlya relatively small proportion of the activities actually pursued by theÖS, provided that it continues to attend to the needs which it isspecifically required to meet.

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• Q. 1 – is the ÖS a body governed by public law?

• Second and third indents – legal personality/management supervision

• The ÖS has legal personality.

• The ÖS is subject to supervision by the State because:

• the State is the majority shareholder.

• the General-Director is appointed by an entity controlled by the State.

• the ÖS subject to scrutiny by the State.

The ÖS is a body governed by public law.

• Subsidiaries and sub-subsidiaries? (Paragraph 39).

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• Q. 2 – do contracts for commercial activities fall within the scope of thedirective?

• "…the wording of [the provision] does not exclude the possibility that acontracting authority may pursue other activities in addition to its specifictask of meeting needs in the general interest, not having an industrial orcommercial character" (P 31).

• "The directive makes no distinction between public works contracts awardedby a contracting authority for the purposes of fulfilling its task of meetingneeds in the general interest and those which are unrelated to that task"(P32).

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Mannesmann – "body governing by public law"

• Q. 2 – do contracts for commercial activities fall within the scope of thedirective?

• "Finally, to interpret [the directive] in such a way that its application wouldvary according to the relative proportion of its activities pursued for thepurpose of meeting needs not having an industrial or commercial characterwould be contrary to the principle of legal certainty which requires aCommunity rule to be clear and its application foreseeable by all thoseconcerned" (P 34).

All contracts entered into by the entity must be awarded following aprocurement procedure

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• A "body governed by public law" cannot as tenderer be the cause ofdistortion of competition:

• Preamble, 4th recital:

• "Member States should ensure that the participation of a bodygoverned by public law as a tenderer in a procedure for the award of apublic contract does not cause any distortion of competition in relationto private tenderers".

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University of Cambridge – "body governed by public law"

• The third condition – "public control"

• Wording of the directive:

• "financed, for the most part, by the State, regional or local authorities, orother bodies governed by public law; or subject to management supervisionby those bodies; or having an administrative, managerial or supervisoryboard, more than half of whose members are appointed by the State,regional or local authorities, or by other bodies governed by public law".

• In the University of Cambridge case, the ECJ interpreted the concept"financed, for more than half ... by one or more contracting authorities"

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• The third condition– "public control" – financing

• Facts:

• The University had brought proceedings against the Treasury before theQueen‟s Bench Division, for deletion from the list of the "bodies governedby public law" in the UK annexed to the directive.

• The Queen‟s Bench Division referred the question to the ECJ whether–irrespective of it was retained in the list annexed to the directive – theUniversity fell within the definition of a body governed by public law.

• It was undisputed that the first two conditions were satisfied by theUniversity and the categorisation of the University was therefore contingenton satisfaction of the third condition.

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• The ECJ:

• "Not all payments made by a contracting authority have the effect ofcreating or reinforcing a specific relationship of subordination ordependency".

• "Only payments which go to finance or support the activities of the bodyconcerned without any specific consideration therefore may be described as"public financing"" (P 21).

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• The ECJ:

• The following of the University‟s source of financing can be categorised as"public financing":

• Awards or grants for the support of research work.

• Payments made by local education authorities to the universities,equivalent of tuition fees, for certain students as these paymentsconstitute a social measure introduced for the benefit of certain studentswho by themselves would not be able to meet tuition fees.

• Since there is no contractual consideration for those payments, they shouldbe regarded as financing by a contracting authority in the context of itseducational activities (P 23).

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• The ECJ:

• The following of the University‟s source of financing cannot be categorised as"public financing":

• Consideration paid by one or more contracting authorities for services,such as research work.

• Consideration paid by one or more contracting authorities for otherservices such as consulting and the organization of conferences.

• As the "… sums paid by one or more contracting authorities constitute inthat case consideration for contractual services provided by the university,such as the execution of particular research work or the organization ofseminars and conferences" (P 24).

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• The third condition – "financing" – "for more than half"

• The ECJ:

• Qualitative or quantitative interpretation?

• Quantitative –the term means "more than half" (P 30).

• Basis of calculation:

• The basis of calculation is all of its income, including that which results from a commercial activity (P 36).

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• The third condition – "management supervision" – "question of period"

• The ECJ:

• "Accordingly, the decision as to whether a body such as the University is acontracting authority must be made annually and the budgetary year duringwhich the procurement procedure is commenced must be regarded as themost appropriate period for calculating how that body is financed" (P 40).

• "…It is necessary for a body which on the date of the commencement of theprocurement procedure constitutes a "contracting authority" for the purposesof Directives … to remain, as far as that procurement is concerned, subjectto the requirements of those directives until the relevant procedure has beencompleted" (P 43).

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Bayerischer Rundfunk (C-337/06) - "body governed bypublic law"

• The third condition - "public control" - financing

• Background

• German radio and television broadcasting companies are protectedagainst government intervention.

• Programme material purchased by radio and television broadcastingcompanies … must not be put out to tender.

• The question is whether a contract regarding for example cleaning mustbe put out to tender.

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• A "body" must be put to tender if the three conditions below aremet:

• It has been established for the purpose of meeting the needs in thegeneral interest etc.,

• It has a legal personality, and

• The greater part of the company's operations are financed fromgovernment resources.

• The EJC:

• "The contracting authority" serves a purposive function.

• This also applies to "financed from government resources".39



• Indirect financing through license fees provides sufficient ground formeeting the requirement.

• "Emanate from a legislative act".

• "Government guaranteed".

• "Imposed and charged by the State".

• No contractual relation to consumers.

Bayerischer Rundfunk (C-337/06) - "body governed by public law"

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• It is immaterial that the State does not interfere with the conclusion ofcontracts entered into by the radio and television broadcastingcompanies - as the criterion of connection has been met.

• Consequently, radio and television broadcasting companies constitute abody governed by public law which falls within the scope of the PublicProcurement Directive.

• The exception regarding purchase of programme material must beconstrued restrictively, and therefore, it does not include for examplecleaning contracts which must be put out to tender.

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Public Procurement Law: Lession 3 - Contracting ... · The Directive –"contracting authorities" • Within the scope of the Directive • Note! Obligations pursuant to the EC Treaty