Could the Finn Frogne case law get any weirder? The strange case of the partial termination of a parking concession (Conseil d’État, N°s 409728, 409799)

© Erwin Wurm

In its Decision of 15 November 2017 in the case of the Commune d'Aix-en-Provence and the Societe d'économie mixte d'équipement du Pays d'Aix (SEMEPA) (N°s 409728, 409799, the ‘SEMEPA Decision’), the Conseil d’État applied the new French rules on the modification of concession contracts that transpose Art 43 of the Concessions Directive (Dir 2014/23/EU). In the SEMEPA Decision, the Conseil d’État followed an approach that resembles very closely that of the Court of Justice of the European Union in its Judgment 7 September 2016 in Finn Frogne, C-549/14, EU:C:2016:634 (see here, which the Conseil d’État does however not mention), and decided that the partial termination of a concession contract for the exploitation of street and underground parking sites in Aix-en-Provence in a way that changed the overall nature of the contract was illegal. The SEMEPA Decision leaves an important factual element unexplored—ie the potential existence of an in-house relationship between the contracting authority and the concessionaire—which raises some questions as to the scope and limits of the applicability of the modification and termination rules derived from the 2014 Public Procurement Package to in-house providing structures.

Regardless of that, in itself, the Decision of the Conseil d’État is remarkable (and puzzling) for the extreme brevity of the justification given for the conclusion that the partial termination of the concession contract was illegal. In my view, the only plausible explanation for this extremely brief justification by the Conseil d’État is the even weirder background of the dispute, which involves a rebellious rejection by the municipality of Aix-en-Provence of a legal reform that transfers the competence for the management of (certain types of) parking sites to a higher level of regional administration (the ‘métropole d’Aix-Marseille-Provence’). In this post, I briefly address these two aspects of a truly interesting case that Prof François Lichère brought to my attention—for which I am grateful.

The illegality of the partial termination of the concession contract

In the case at hand, the municipality of Aix-en-Provence had entered into a series of concession contracts with SEMEPA for the exploitation of street and underground parking sites in that city—the oldest of which dated back from 29 December 1986. SEMEPA is a mixed economy company in which the municipality holds a controlling stake and appoints the majority of the board of directors (ie a body governed by public law and, prima facie, an in-house entity). On 9 June 2016, the municipality decided to partially terminate one of the concession agreements, and this decision was brought under judicial review. On this specific point, the Decision of the Conseil d’État establishes that

Considering, in the first place, that under the terms of Article 55 of the Ordinance of 29 January 2016 on concession contracts, applicable by virtue of Article 78 thereof to the modification of concession contracts in force prior to the entry into force of the Ordinance: ‘the conditions in which a concession contract can be modified during its term without a new concession award procedure are established by implementing regulation. Such modifications cannot change the overall nature of the concession contract. / Where the execution of the concession contract cannot be carried out without a modification contrary to the terms of this Ordinance, the concession contract can be terminated by the conceding authority’; under the terms of Article of the Decree of 1 February 2016 which sets implementing rules for the application of this Ordinance: ‘A concession contract can be modified in the following cases: (…) 5 Where the modifications, of whichever value, are not substantial. / A modification is considered substantial where it changes the global nature of the concession contract. In any case, a modification is substantial where any of the following conditions is met: / a) it introduces conditions which, had they been part of the initial concession award procedure, would have attracted additional participants in the concession award procedure, or allowed for the admission of candidates or tenderers other than those initially admitted, or for the acceptance of a tender other than that originally accepted. b) it changes the economic balance of the concession in favour of the concessionaire in a manner which was not provided for in the initial concession (…);

Considering that it is proven that the agreement concluded on 29 December 1986 between the municipality of Aix-en-Provence and SEMEPA, which had as its object the concession of the management of a public service of off-street parking and a public service of on-street parking, constituted, in fact and notably from the characteristics of its financial equilibrium, a single agreement; that, even if the municipality of Aix-en-Provence and SEMEPA declared to have proceeded to the ‘partial termination’ of that agreement, the agreement of 9 June 2016 had as its object a modification of the initial concession contract; that this modification needs to be view, in regard to its extension [ie the fact that it covered a large number of the parking sites initially covered], as changing the global nature of the initial contract; that it [the modification] introduced, in addition, conditions which, had they been part of the initial concession award procedure, could have attracted additional participants, or allowed for the admission of candidates or tenderers other than those initially admitted, or for the acceptance of a tender other than that originally accepted; that, consequently, [the challenge] based on the fact that this modification of the agreement of 29 December 1986 was adopted in breach of the rules for the modification of concession contracts is such as to create serious doubts as to its validity (paras 19-20, own translation from French).

As mentioned above, the Decision of the Conseil d’État in SEMEPA seems aligned with the Finn Frogne Judgment of the Court of Justice in the sense that it considers that a material reduction of the scope of the concession contract is able to change its nature and thus determine the illegality of the modification. However, in Finn Frogne the change in the nature of the contract derived (at least partially) from the fact that the partial termination resulted in a supply (and installation?) contract, rather than a concession. This is not the case in SEMEPA and it is hard to disentangle the two reasons given by the Conseil d’État in the same para (20): that the material reduction was such as to alter the global nature of the contract AND one that, had it been part of the initial award procedure, would have created different competition conditions and possibly led to a different award decision. From that perspective, the SEMEPA Decision does not make much to contribute to a proper understanding of the several grounds prohibiting different types of illegal (concession) contract modifications.

Additionally, given that SEMEPA is an in-house entity (or at least that is what seems to derive from the discussion in the next paragraph of the Decision, see below), the Conseil d’État missed an opportunity to clarify whether the applicability of the rules on contract modification in this specific case result solely from an (expansive) interpretation of the domestic law, or rather derive from the rules in the Concession Directive and/or general principles of EU public procurement law—which is, however, a tricky issue best saved for another time.

Procurement law to the rescue? Background to the partial termination of the concession

Going back to the SEMEPA Decision, and as also mentioned above, the only plausible explanation I can find for the extremely shallow and formalistic analysis and the brief justification given by the Conseil d’État for the finding of illegal modification is the even weirder background of the dispute, which is described in the following terms:

Considering, in the second place, that in a communication of 20 June 2016, published on the [Aix-en-Provence] municipality’s website, it indicated that the City Council had sold eight ‘off-street’ parking sites to SEMEPA, which had until then been exploiting them in the framework of a public service delegation, that this sale would allow the municipality to ‘avoid the obligation of gratuitously transmitting its parking sites to the [métropole d’Aix-Marseille-Provence], which the law required’, that ‘such parking sites constitute an estate, which the municipality has created, that its inhabitants have paid for, et [which] it would have been abnormall to have to donate them [to the métropole d’Aix-Marseille-Provence]’, and that ‘to those who doubt that this sale contributes to take the parking policy from the elected, to transfer it to the non-elected, without any guarantee that such policy will be preserved, it will be put that the exact opposite will happen: SEMEPA is a mixed economy company managed by a board of directors in which the elected from the municipality are the majority. The tariffs will continue to be controlled by the municipality; this will form part of the contract between both partners. In addition, SEMEPA’s annual activity report is presented annually to the City Council’; … proceeding to the … modification of the [concession] contract of 29 December 1986, and to the transfer of the off-street parking sites to SEMEPA, the Municipality and SEMEPA had as the sole goal to prevent the exercise, by the métropole d’Aix-Marseille-Provence of the power to regulate parking sites which it is given with effect from 1 January 2018 … the [challenge] based on the fact that the [modification] of 9 June 2016 had an illicit object and had to be considered an ‘abuse of power’ is such as to create serious doubts as to its validity  (paras 21, own translation from French).

Now, that explains everything! Except the need to use public procurement law at all in a situation of such clear fraudulent use of contractual mechanisms to avoid mandatory public law duties …

ECJ extends the Manova principles to the submission of samples & clarifies the scope of Remedies Directive in a Utilities Procurement setting (C-131/16)

In its Judgment of 11 May 2017 in Archus and Gama, C-131/16, EU:C:2017:358, the European Court of Justice (ECJ) issued two sets of clarifications concerning the rules applicable to utilities procurement, which are however of general relevance, due to the identity of the relevant provisions under the general and the utilities procurement rules.

First, the ECJ explicitly extended the Manova and Slovensko line of case law to utilities procurement and in relation to the submission of samples, thus trying to clarify the boundaries of the possibility for contracting entities to request  and/or accept clarifications or additional documentation (and samples) from tenderers while still complying with the principles of equal treatment, non-discrimination and the obligation of transparency. This first part of the Archus and Gama Judgment will thus be relevant to the interpretation and application of Art 76(4) of Directive 2014/25/EU (which is identical to Art 56(3) of Directive 2014/24/EU). 

Second, the ECJ also provided clarification of the rules on standing to challenge procurement decisions under Art 1(3) of the Utilities Remedies Directive (which is identical to Art 1(3) of the general procurement Remedies Directive), and clarified that having or having had an interest in the award of the contract extends to situations where the remedy sought by the challenger cannot result in the award of such contract, but is likely to concern the initiation of a new award procedure for the award of a (different) contract with the same subject matter.

Extension of Manova to the submission of samples

In the case at hand, tenderers were required to submit samples of micro-filmed material together with their tenders. The "quality of the microfilm sample was to be assessed according to the ‘satisfies/does not satisfy’ rule, it being stipulated that if the sample was not satisfactory the offer was to be rejected" (para 14). After submission of their tender and during the evaluation phase, joint tenderers Archus and Gama sent the contracting authority a request for a correction of their tender, arguing that "there had been an inadvertent mistake [... and] seeking to substitute a new microfilm sample for that annexed to their tender, which did not conform to the tender specifications" (para 17). The contracting authority accepted the substitution of the microfilm but requested further clarification from the tenderers because it considered that "they had not provided information on the method for microfilming the sample and the [relevant] technical parameters" (para 18). The contracting authority eventually rejected the tender as non-compliant.

In a rather convoluted drafting influenced by the question referred by the domestic court, the ECJ established that the legal issue arising from these circumstances required it to determine "whether the principle of equal treatment ... must be interpreted as precluding ... a contracting authority from inviting tenderers to provide the required declarations or documents which were not supplied by them within the prescribed period for the submission of tenders or to correct those declarations or documents in case of errors, without that contracting authority also being required to point out to those tenderers that they are prohibited from altering the content of the tenders submitted" (para 24). However, there are two factual elements that seems missing here: first, the fact that the initiative for the correction initiated from the tenderers; and, second, the fact that the correction concerned a sample rather than a declaration or document, and therefore it was not information-based. Disappointingly, none of these important details feature with much prominence in the ECJ's analysis (despite para 35 referring to the fact that "it was [the] tenderers who sent the contracting authority a request for their tender to be corrected"). 

Indeed, in this part of the Judgment (paras 29-33), the ECJ provides a summary of the Manova and Slovensko line of case law and, in simplified terms, reiterates that "the principle of equal treatment does not preclude the correction or amplification of details of a tender, where it is clear that they require clarification or where it is a question of the correction of obvious clerical errors, subject, however, to the fulfilment of certain requirements" (para 29, emphasis added), such as:

• a request for clarification of a tender cannot be made until after the contracting authority has looked at all the tenders and must, as a general rule, be sent in an equivalent manner to all undertakings which are in the same situation and must relate to all sections of the tender which require clarification (para 30)
• that request may not lead to the submission by a tenderer of what would appear in reality to be a new tender (para 31)
• as a general rule, when exercising its discretion as regards the right to ask a tenderer to clarify its tender, the contracting authority must treat tenderers equally and fairly, in such a way that a request for clarification does not appear unduly to have favoured or disadvantaged the tenderer or tenderers to which the request was addressed, once the procedure for selection of tenders has been completed and in the light of its outcome (para 32)

The ECJ also reiterated that "a request for clarification cannot, however, make up for the lack of a document or information whose production was required by the contract documents, the contracting authority being required to comply strictly with the criteria which it has itself laid down" (para 33, emphasis added). 

When trying to apply these general principles to the situation at hand, the ECJ established that "a request sent by the contracting authority to a tenderer to supply the declarations and documents required cannot, in principle, have any other aim than the clarification of the tender or the correction of an obvious error vitiating the tender. It cannot, therefore, permit a tenderer generally to supply declarations and documents which were required to be sent in accordance with the tender specification and which were not sent within the time limit for tenders to be submitted. Nor can it ... result in the presentation by a tenderer of documents containing corrections where in reality they constitute a new tender" (para 36); ultimately leaving it to the "referring court to determine whether ... the substitution made by Archus and Gama remained within the limits of the correction of an obvious error vitiating its tender" (para 38, emphasis added).

I find this reasoning of limited assistance in assessing the legal issue at hand. It would seem to me that the fact that the tenderers unilaterally sought to modify their tender in relation with a sample of the output of the services they were offering should have been given more weight (as this did not result from the observation of an obvious shortcoming or mistake by the contracting authority), and the difficulties in establishing objectively what is obviously wrong with a sample probably should have been enough relevance to provide a more conclusive answer against the acceptability of the substitution of samples.

From that perspective, confronted with a defective sample, the contracting authority could simply observe a deviation from the tender requirements, but it could hardly establish whether the defect resulted from an obvious mistake (ie whether the tenderer mistakenly submitted the wrong sample, as they claimed), or establish a way of clarifying the reasons for the defectiveness of the sample without allowing for the submission of a sample equivalent to the submission of a different tender. Differently from documents and declarations, or from the inclusion of insufficient details or mistakes in an offer, a sample is meant to evidence the product to be supplied or to result from the provision of the services. It is difficult to imagine circumstances under which a contracting authority could meet the strictures of the Manova-Slovensko case law while prompting the tenderer to submit an alternative sample. Moreover, under the rules applicable to the tender, it seems clear that a defective sample should trigger rejection of the tender, without any further analysis, which the ECJ does not seem to give much relevance to either.

Overall, I think that there is enough to justify the rejection of the possibility to substitute samples (in particular at the initiative of the tenderers) within the confines of the Manova-Slovensko test. However, I find this part of the Archus and Gama Judgment slightly confusing due to its open ended wording and, more importantly, to the practical difficulties in applying a test originally meant to correct missing or obviously erroneous information in documents to issues concerning the manifestation of technical aspects in a sample.

On this occasion, I tend to think that the ECJ has possibly pushed too far in trying to create procedural flexibility. While the absence of a sample could have allowed for the contracting authority to request the submission of one (because the problem with the tender would have been obvious), an attempt by the tenderers to substitute a previously submitted sample raises a whole host of other issues. In cases such as this, it may be preferable to have a clear cut rule against the possibility to substitute the sample. Moreover, given that the tender documents had explicitly indicated that rejection of the sample would also imply the rejection of the offer, it is difficult to understand why the ECJ has deviated from its previous approach to imposing compliance with the specific rules created in the tender documentation by the contracting authority itself (not that I find it always or generally convincing (see eg here), but a deviation from that approach seems to create inconsistency). Thus, I do not think this part of the Archus and Gama Judgment deserves a positive assessment.

Clarification of the scope of active standing under the remedies directive

In relation to a rather distinct aspect of the same case, the ECJ was also asked to clarify "whether Article 1(3) of [the Utilities Remedies Directive] must be interpreted as meaning that the concept of ‘a particular contract’ ... refers to a specific public procurement procedure or the actual subject matter of the contract which is to be awarded following a public procurement procedure, in a situation where only two tenders have been submitted and where the tenderer whose tender has been rejected may be regarded as having an interest in seeking the rejection of the tender of the other tenderer and, as a result, the initiation of a new public procurement procedure" (para 47).

Maybe in simpler words, the question concerned whether the EU rules grant legal standing to challenge a procurement decision to disappointed tenderers that are found to be properly excluded and, rather than seeking a remedy concerning the award of the contract as part of the procedure where the dispute arose (which would not be possible), may rather be interested in the cancellation of that procedure and the start of a fresh tender. In the end, the clarification concerned the tenability under EU law of a position that interpreted that "an economic operator who has submitted a tender in a public procurement procedure does not, where his tender is rejected, have an interest in bringing proceedings against the decision awarding the public contract" (para 48).

The answer provided by the ECJ is narrowly tailored to the specific circumstances of the case, as it established that "in a situation ... in which ... two tenders have been submitted and the contracting authority has adopted two simultaneous decisions rejecting the offer of one tenderer and awarding the contract to the other, the unsuccessful tenderer who brings an action against those two decisions must be able to request the exclusion of the tender of the successful tenderer, so that the concept of ‘a particular contract’ within the meaning of Article 1(3) of [the Utilities Remedies Directive] may, where appropriate, apply to the possible initiation of a new public procurement procedure" (para 59).

This interpretation seems generally uncontroversial and follows the same path of extension of the justiciability of exclusion and qualitative selection grounds as the recent Marina del Mediterráneo Judgment (see here). However, it also seems very limited to circumstances that may be difficult to meet in practice in a large number of procedures, such as the fact that only two tenderers participated in the procedure, or that the decisions to reject one tender and award the contract to the other were adopted simultaneously. In that regard, the ECJ could have been slightly bolder and simply clarified that retaining the possibility of being awarded a contract under the same (administrative) procedure is not a pre-requisite for the recognition of active standing to challenge procurement procedures under the EU rules. I would have preferred this broader approach, which could have saved future preliminary references on the basis of cases with minor variations of the underlying factual scenario.