Horizontal cooperation

Report
Public-Public Cooperation and the
In-House Exemption: review of
recent case law and the new
proposals
Simon Nolan
Chief State Solicitors Office
7 February 2013
Commercial Contracts Section - Chief State
Solicitors Office
1
Court crafted exceptions
• Directive 2004/18/EC is silent re specific public-public contracts.
• CJEU has created two exceptions:
1. Vertical cooperation under Teckal 1999. 2 limb test:
-The CA exercises control over entity similar to that which it
exercises over own departments +
-Entity carries out the ‘essential part’ of its activities with the
controlling CA.
2. Horizontal cooperation under Hamburg 2009.
Beware – narrow interpretation e.g. Stadt Halle C-36/03.
Key – carefully examine the relationship between the public bodies
in each instance to determine if the arrangements are exempt
from the EU public procurement regime.
Automatic exceptions for contracting
authorities?
• Mere fact that a service provider is a public body does
not automatically create an exemption form the EU
public procurement regime (repeated in CJEU)
• Article 1(8) Directive 2004/18/EC: ‘The terms
“contractor”, “supplier” and “service provider” means
‘any natural or legal person or public entity or group of
such persons and/or bodies which offers the market ...’
• Thus a contracting authority can be a service provider
and the award of a contract (as defined in Directive
2004/18/EC) by one contracting authority to another
contracting authority will be subject to the EU public
procurement regime UNLESS the contract is exempt.
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Express exceptions - Directive
2004/18/EC
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Article 10 Defence contracts
Article 12 Contracts under Directive 2004/17/EC
Article 13 Telecommunications
Article 14 Special security measures
Article 15 Contracts awarded pursuant to international rules
Article 16(a) Acquisition/rental land (and rights)
Article 16(b) Broadcast material
Article 16(c) Arbitration and conciliation services
Article 16(d) Certain financial services
Article 16(e) Employment contracts
Article 16(f) Certain R&D contracts
Article 17 Service concessions
Article 18 CA award to CA on basis of exclusive right
Commercial Contracts Section - Chief State
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Recent Developments
• Horizontal cooperation case law
Commission V Germany CJEU 2009
ASL CJEU 2012
• Vertical cooperation case law
Brent UK Supreme Court 2011
School Transport Scheme High Court 2012
Econord CJEU 2012
• Trio of EU Directives November 2012.
• EU Commission Staff Working Paper 2011.
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Brent UK Supreme Court
• 2011 UKSC 7
• Mutual Co. established by 12 London
boroughs to provide in-house insurance
services.
• Ct. of Appeal –Vires issue and insufficient
control over entity.
• SC – Upheld appeal. Lord Hope.
2009 legislation introduced – No vires issue.
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• SC – had Collective control. Factors included:
• LAMLs board meetings not validly constituted unless
majority of borough reps present,
• Chairman had to be borough member,
• Each borough had 1 vote,
• Membership was personal to borough & non
transferable,
• No private interests involved,
• Boroughs held all share capital.
Econord C-182/11 & C-183/118
CJEU Judgment 29 November 2012
Direct award waste services contract by two councils to
Aspem – SPV established by a 3rd council specifically to
provide in-house waste services.
Each council purchased 1 share and signed shareholder
agreement which permitted appointment of 1 board
member and consultation on activities. Other councils
held the 173,467 shares and there were 36 other
councils.
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Econord C-182/11 & C-183/11
• Award challenged by private company
Econord.
• Italian court referred question - ‘similar
control to that exercised over its own
departments.’
• CJEU and AG observed Italian Court furnished
little information with reference.
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Econord C-182/11 & C-183/11
• CJEU- Question of fact for Italian court but
considered that Similar Control:
– Must be decisive influence over strategic objectives
and significant decisions of that entity (Parking
Brixen),
– Must be effective (Coditel Brabant),
– May be exercised jointly where jointly owned by
public authorities without it being essential for control
to be exercised individually by each of them (Coditel
Brabant),
– A minority shareholding of itself does negate a
sufficient level of control.
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Econord C-182/11 & C-183/11
• Control must be effective –’where the position of a
contracting authority ... does not provide it with the
slightest possibility of participating in the control of
that tenderer, that would, in effect, open the way to
circumvention of the application of the rules of EU
law regarding public contracts or service concessions
, since a purely formal affiliation to such an entity or
to a joint body managing it would’ permit it to avoid
EU public procurement rules (own emphasis added).
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School Transport Scheme Ltd.
• School Transport Scheme Ltd. V Minister for Education &
Skills and Bus Eireann
• McGovern J. 23 October 2012.
• Administrative scheme to transport school children. CIE
appointed ‘as agent’ to administer the complex scheme in
1967. Bus Eireann recovers cost of scheme from Dept. And
‘in accordance with [the Minister’s] general directions and
policy.’
• Held - There was no contract. It was an administrative
scheme thus PP rules do not apply.
• But, ‘it seems to me that if the applicant was to establish
that there was a contract, in this case, that the Teckal
exemption would apply’ (page 13).
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Horizontal Cooperation
• Commission V Germany C-480/06 (“Hamburg”)
09 June 2009
-Origin of horizontal cooperation
-20 year waste management contract between Hamburg
City Council and 4 neighbouring county councils. Direct
award. There is no in-house entity.
-EU Commission - Article 226 as (1) were Annex IIA
services with direct award, (2) there was a contract and
(3) Teckal does not apply as neither Hamburg nor the
private incinerator operator were controlled (fails control
limb of test). AG agreed with Commission.
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Horizontal Cooperation
• CJEU held that PP rules do not apply.
• Line of reasoning unclear but seems to have developed from
Corditel Brabant.
• Court analysed the arrangement and identified features of a
horizontal cooperation from it:
1. All were obliged to discharge the same public service task,
2. All came together to act in cooperation [Contract recital ‘regional
cooperation agreement for waste disposal’],
3.Exchange of obligations between parties which are ‘directly related
to the public service objective’,
4. Only public bodies involved – no private capital,
5. No profit, only remuneration of costs,
6. ‘Law does not require public authorities to use any particular legal
form in order to carry out their joint services task’.
Commercial Contracts Section - Chief State
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Horizontal Cooperation
• ASL & University of Salento C-159/11 (Aka ‘di Lecce’).
19 December 2012. A.267 Prelim. Ref.
Direct award of 16 month seismic survey contract by local
authority to a university (Annex IIA).
-CJEU recognised Hamburg exception.
-Teckal will not apply as no control over the university.
-Arrangement did not satisfy Hamburg – both entities do
not have to perform same public service task.
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Horizontal Cooperation
• ASL & University of Salento C-159/11.
• AG Trstenjak - Hamburg criteria not met (useful analysis)1. No exchange of obligations (other than minor functional project
team matters),
2. No common public service task rather a simple service contract,
3. No joint cooperation. Was imbalance, all obligations were on ASL
only,
4. University was ‘economic operator’ + same status as private co.
Others in market could provide services and direct award placed
at an advantage.
In short- purpose of contract was to cut ASL’s costs and not pursue a
public service task, thus Hamburg cannot apply.
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Proposed Directives
• Trio of proposed Directives 30 November
2012. CURRENT drafts.
• Public-Public exceptions expressly provided
for.
• Legal basis for exception will be Legislation
rather than case law.
• Case law still useful for mechanisms.
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30 November 2012 Directives
Procure’ Utilities Concessions
Teckal
11(1) 21(1) 15(1)
Sister/upwards 11(2) 21(2) 15(2)
Coditel
11(3) 21(3) 15(3)
Hamburg
11(4) 21(4) 15(4)
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Recital 14 Procurement Directive
• Recognises uncertainty & necessity to clarify.
• Guided by CJEU decisions.
• Recognises that the ‘sole fact’ that both
parties are public authorities does rule out PP
rules.
• PP rules should not interfere with the
performance of public tasks and recognises
cooperation.
• Such cooperation must not distort market.
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Vertical Cooperation– Article 11(1)
• Teckal - Where contract with a separate legal
entity to do ‘X’.
• Cumulative 3 limb test:
1. ‘Exercises control ... which is similar to that
which it exercises over its own departments.’
This means – ‘it exercises a decisive influence over
both strategic objectives and significant decisions of
the controlled entity.’
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Vertical cooperation – Article 11(1)
2. More than 80% of the activities of the entity ‘are
carried out in the performance of tasks
entrusted to it by the controlling’ CA.
-This is calculated by the ‘average total turnover’ for
services, supplies and works for 3 years preceding contract.
-Potential issue depending upon makeup and funding e.g.
Taxation.
-Where <3 years – ‘sufficient to show that the turnover is
credible , particularly by means of business projection.’
-Same limb for Articles 11(1), (3) and (4).
-Recital 14aaaaa refers to ‘85%’.
3.
No private participation in the entity.
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Sister / Upwards Article 11(2)
• Two new relationships not covered by case
law.
• Applies Article 11(1) where- a ‘controlled
entity’ awards to its own ‘controlling entity’
OR another entity which is also controlled by
the same controlling entity.
• Must be no ‘private capital participation’ in
the entity that is being awarded the contract.
Commercial Contracts Section - Chief State
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Joint in-house Article 11(3)
• Coditel Brabant C-324/07
• Contract awarded by a CA to an entity that is
jointly controlled by 2 or more CAs. Three limb
test:
1. The awarding CA exercises joint control with
other CAs ‘which is similar to that which they
exercise over their own departments,
2. More than 80% of the activities of the entity ‘are
carried out in the performance of tasks
entrusted to it by the controlling’ CAs.,
3. No private capital participation.
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Joint in-house Article 11(3)
• Limb No.1, joint control where (cumulative):
a. Decision making body of the entity has representatives
from all participating CAs,
b. Those CAs are able jointly to exert ‘decisive influence over
strategic objectives and significant decisions’ of the entity,
c. Entity ‘does not pursue any interests which are distinct
from those of the controlling’ CAs,
d. No fees/profit. Must be no more than ‘reimbursement or
re-allocation of funds’.
[c & d to ensure entity is not market oriented i.e. No
disadvantage to private companies.]
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Horizontal cooperation Article 11(4)
• Codifies Hamburg case.
• Also see Recital 14aaaa.
• Five limb test (Cumulative):
1. ‘the contract is concluded in a framework of
genuine cooperation between the
participating contracting authorities aimed at
carrying out jointly their public service tasks
and involving mutual rights and obligations of
the parties’,
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Horizontal cooperation Article 11(4)
2. Cooperation is ‘governed solely ... public
interest’ (i.e. No profit/ not commercial),
3. The CAs ‘perform on the market less than
20% of the activities concerned by the
cooperation’,
4. No fees/profit. Must be no more than
‘reimbursement or re-allocation of funds,’
5. No private capital participation.
Commercial Contracts Section - Chief State
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No private capital permitted in public
cooperation
• E.g. Shares / investment.
• Constant in case law of CJEU (Stadt Halle C26/03).
• Article 11(5):
-To be verified at time of award,
-Exceptions under Article 11 cease ‘from the
moment’ it takes place AND must hold
competition.
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Exclusive Rights
• Exception where CA awards contract to
another CA where it enjoys exclusive rights to
do ‘X‘ granted pursuant to ‘published law,
regulation or administrative provision’. Here
only that entity can provide the services.
• Article 10a of proposed procurement
Directive.
• Currently at Article 18 Directive 2004/18/EC.
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Cooperation exceptions but, there is
no contract.
• Recital 14aaa - ‘Administrative Relationship’
An entity acts under law or ‘an instrument or technical service to
determined CAs and is obliged to carry out orders from them and
cannot influence renumaration.
(School Transport Scheme HC 2012 and Asemfo C-295/05)
• Recital 14aa – Agreements, decisions or other legal instruments
that organise the ‘transfer of powers and responsibilities’ amongst
CAs to discharge public tasks for renumaration are matters of
‘internal organisation.’
• Appear in recitals only not in main body of Directives.
• Part 4.2 of 2011 Commission Paper.
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EU Commission Paper
• EU Commission Staff Working Paper
4 October 2011
[Sec(2011) 1169 Final]
Very helpful for overview of area and provides
examples.
Gives the Commission’s perspective.
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Thank you
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Solicitors Office
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