ECJ confirms that procurement rules do not apply to allocation of airport space to groundhandling companies (C-701/15)

In its Judgment of 13 July 2017 in Malpensa Logistica Europa, C-701/15, EU:C:2017:545, the European Court of Justice (ECJ) has established that the 2004 Utilities Procurement Directive did not require conducting a public selection procedure prior to the allocation, including a temporary allocation, of areas within airports to be used for the provision of groundhandling services for which no remuneration is to be paid by the manager of the airport.

The reasoning of the Court is straightforward and considers that the allocation of space to groundhandling operators does not fall within the scope of the relevant public procurement rules because "the managing body responsible for Malpensa Airport did not acquire a service provided by the supplier in return for remuneration" (para 29). In my view, and as I discussed in relation to the Opinion of AG Campos in this case (discussed here) , this is the correct approach. Indeed, it is now clear that a procedure for the allocation of airport space to groundhandling operators authorised to provide services in that airport should not be covered by the utilities procurement directive (either the 2004 version, or the current 2014 version, or the 2014 concessions directive) because the body managing the airport is not procuring services from those companies when it takes the space allocation decision. 

In my view, the ECJ could have been clearer in establishing the error implicit in the Italian case law that originated the referral. Indeed, as presented by the referring court, "according to [Italian] national case-law, the exploitation of airport areas (geographical areas), including, therefore, internal areas, in connection with the activities usually performed by air carriers falls within the material scope of the rules governing [procurement in the] special sectors" (para 21), which led to the conclusion that "the provision of groundhandling services in airports, by the exploitation of geographical areas, also falls within the material scope of those rules" (para 22). In that regard, the ECJ could have clarified the multiple dimensions involved in an assessment of scope of coverage of the EU procurement rules (in the utilities or special sectors), which cannot be constrained to an assessment of the activities involved, but more importantly need to include an explicit consideration of the extent to which the contracting authority or entity is engaged in procurement (ie sourcing goods, services or works) or other types of (quasi-regualtory) activities.

In any case, given the simple functional criterion that derives from the Malpensa Logistica Europa Judgment, this is a welcome clarification.

ECJ confirms that procurement rules do not apply to licences or authorisations (“concessions”) for betting and gambling services (C-225/15)

In its Judgment of 8 September 2016 in Politanò, C-225/15, EU:C:2016:645, the European Court of Justice (ECJ) followed the Opinion of Advocate General Wahl (see here) and confirmed that the 2004 procurement rules were not applicable to a public contest for the award of concessions (ie licences or authorisations) for the provision of betting and gambling services to the public.

The ECJ did not address AG Wahl’s obiter comments concerning the theoretical applicability of the 2014 Concessions Directive to an equivalent case but, in my view, the stress put by the ECJ in the analysis of the essential elements of remuneration and risk transfer in the definition of a (services) concession indicates that the ECJ would have likely ruled against that applicability.

In the Politanò Judgment, the ECJ addressed the question whether Directive 2004/18 was applicable to a call for tenders for the grant of “concessions” in the field of betting and gambling by focusing on the remuneration element that is necessary for the existence of a public contract.

After distinguishing public service contracts from services concessions by reference to the different modalities of remuneration they imply and the different risk structure that underlies those modalities of remuneration (paras 30 to 31), the ECJ focused on the plain and simple fact that ‘in the case in the main proceedings, the service provider receives no remuneration from the contracting authority and bears the entire risk associated with the activity of collecting and transmitting bets’ (para 32, emphasis added).

This led the ECJ to conclude that such “concessions” could not ‘be classified as a public contract for services within the meaning of … Directive 2004/18’ (para 33), which leaves them outside of its scope of application (para 34). The ECJ does not make an equivalent explicit conclusion concerning the classification of those “concessions” for the provision of betting and gambling services as services concessions because those were explicitly excluded from the scope of application of Directive 2004/18 in any case (para 29).

In my view, however, that conclusion would be unavoidable in an equivalent case that took place after the entry into force of Directive 2014/23 because its Art 5(1)(b) defines a services concession in the following terms:

a contract for pecuniary interest concluded in writing by means of which one or more contracting authorities or contracting entities entrust the provision and the management of services other than the execution of works ... to one or more economic operators, the consideration of which consists either solely in the right to exploit the services that are the subject of the contract or in that right together with payment (emphasis added).

Importantly, Art 5(1) in fine of Directive 2014/23 also requires that

The award of a works or services concession shall involve the transfer to the concessionaire of an operating risk in exploiting those works or services encompassing demand or supply risk or both ... (emphasis added).

Taking all of this into account, and on the basis of the same factual finding that in the case of licences or authorisations for the provision of betting and gambling services (typically) ‘the service provider receives no remuneration from the contracting authority and bears the entire risk associated with the activity of collecting and transmitting bets’ and, possibly more importantly, the fact that 'the "service" under analysis [is] not provided on behalf of the contracting authority' (see Opinion of AG Wahl, para 51), the only possible conclusion is that Directive 2014/23 is equally inapplicable to a call for tenders for the grant of “concessions” in the field of betting and gambling.

This simple and unsurprising conclusion is slightly more interesting when taken together with the also recent Judgment in Promoimpresa (see here) because, together, they provide some additional clarity on the limits of application (or rather, outright inapplicability) of public procurement rules to “concessions” in name that are actually regulatory systems of licences or authorisations to carry out specific economic activities, whether they involve the use of public assets (generally, parts of the public domain) or not.

CJEU clarifies scope of application of concessions directive and services directive, and confirms their mutual exclusivity (C-458/14)

In its Judgment of 14 July 2016 in Promoimpresa, C-458/14, EU:C:2016:558, the Court of Justice of the European Union (CJEU) issued a ruling concerned with the interaction between the EU public procurement rules and the Services Directive (Dir 2006/123/EC) In particular, Promoimpresa is concerned with the potential interaction between the EU public procurement and the rules of the Services Directive (Art 12) for the allocation of authorisations to carry out a given economic activity when only a limited number of authorisations is available due to the scarcity of available natural resources or technical capacity.

The case touches upon similar issues as the ongoing litigation on whether the EU procurement rules area applicable to the granting of betting licences (see Politano’, C-225/15, here), which are however excluded from the scope of the Services Directive (Art 2).

Thus, the Promoimpresa Judgment is relevant in the area of services concessions, broadly and loosely understood [on this, for background, see GS Ølykke, 'Is the granting of special and exclusive rights subject to the principles applicable to the award of concessions? Recent developments in case law and their implications for one of the last sanctuaries of protectionism' (2014) 23(1) Public Procurement Law Review 1; and CJ Wolswinkel, 'From public contracts to limited authorisations and vice versa: Exploring the EU Court’s corollary approach on award procedures, Public Procurement Law Review' (2015) 24(5) Public Procurement Law Review 137].

In Promoimpresa, the legal dispute arose from Italian decisions not to renew a pre-existing "concession" (rectius, exclusive right or authorisation) for the occupancy and management of State-owned land, and to subject the award of lakeside "concessions" (idem) to a comparative selection procedure (C-458/14, para 2). Thus, the case concerns 'concessions granted by public authorities of State-owned maritime and lakeside property relating to the exploitation of State land for tourist and leisure-oriented business activities' (para 40). The use of the term "concession" to refer to this type of authorisations could be problematic in theory, as it could give rise to doubts as to the applicability of the Services Directive, the Concessions Directive (Dir 2014/23/EU), or both to their award. Luckily, though, this is an issue of coordination of the scope of application of these legal instruments that both address explicitly.

Recital 57 of the Services Directive states that ‘The provisions of this Directive relating to authorisation schemes should concern cases where the access to or exercise of a service activity by operators requires a decision by a competent authority. This concerns neither decisions by competent authorities to set up a public or private entity for the provision of a particular service nor the conclusion of contracts by competent authorities for the provision of a particular service which is governed by rules on public procurement, since this Directive does not deal with rules on public procurement’ (emphasis added).

From a complementary perspective, Recital 15 of Concessions Directive is also clear in stating that ‘… Certain agreements having as their object the right of an economic operator to exploit certain public domains or resources under private or public law, such as land or any public property, in particular in the maritime, inland ports or airports sector, whereby the State or contracting authority or contracting entity establishes only general conditions for their use without procuring specific works or services, should not qualify as concessions within the meaning of this Directive. This is normally the case with public domain or land lease contracts which generally contain terms concerning entry into possession by the tenant, the use to which the property is to be put, the obligations of the landlord and tenant regarding the maintenance of the property, the duration of the lease and the giving up of possession to the landlord, the rent and the incidental charges to be paid by the tenant’ (emphasis added).

In the Promoimpresa Judgment, in a ruling that should come as no surprise, the CJEU confirmed the mutual exclusivity of the Services Directive and the Concessions Directive in the following terms:

45 ... the provisions of [the Services Directive] relating to authorisation schemes cannot apply to concessions of public services capable, inter alia, of falling within the scope of [the Concessions Directive].

46      ... a services concession is characterised, inter alia, by a situation in which the right to operate a particular service is transferred by the contracting authority to the concessionaire and that the latter enjoys, in the framework of the contract which has been concluded, a certain economic freedom to determine the conditions under which that right is exercised and, in addition, is, to a large extent, exposed to the risks of operating the service (see, to that effect, judgment of 11 June 2009 in Hans & Christophorus Oymanns, C‑300/07, EU:C:2009:358, paragraph 71).

47      However, in the cases in the main proceedings ... the concessions do not concern the provision of a particular service by the contracting entity, but an authorisation to exercise an economic activity on State-owned land. It follows that the concessions at issue in the main proceedings do not fall within the category of service concessions (see, by analogy, judgment of 14 November 2013 in Belgacom, C‑221/12, EU:C:2013:736, paragraphs 26 to 28) (C-458/14, paras 45-47).

To be sure, the wording of some parts of the Promoimpresa Judgment could be clearer--e.g., paragraph [47], where it seems to imply that contracting authorities provide services under a services concession, while the whole point of those concessions is for the concessionaire to provide and manage those services on behalf of, or upon the entrustment of the contracting authority [see definition of services concession in Art 5(1)(b) of the Concessions Directive]. However, the functional criterion of mutual exclusivity of the Services Directive and the Concessions Directive seems now clear enough and it can be welcome that this is now the explicit interpretation of the CJEU, rather than merely indicative considerations in the recitals of both directives.

Another wrong decision on what is subjected to (EU) public procurement rules (QSRC v NHSE, [2015] EWHC 3752)

I was at the South West Administrative Lawyers Association (SWALA) meeeting yesterday and this gave me an opportunity to catch up with colleagues practising procurement before English courts, who are always an excellent source for updates regarding a body of (growing) national case law that is not always easy to find, despite the excellent BAILII.

Talking to Emily Heard about the Falk Pharma case (see here), she mentioned that there was a recent English case that could be of interest from the perspective of 'what is prourement' or 'what should be subjected to the (EU) procurement rules'. She was right, and the case of QSRC Ltd ("Qsrc"), R (on the application of) v National Health Service Commissioning Board ("NHS England") & Anor [2015] EWHC 3752 (Admin) (21 December 2015) deserves some comments. Of course, the opinion below is solely my own.

In QSRC v NHSE, the procurement dispute arose from the decision by the relevant contracting authority not to enter into a contract for the provision of specialised medical services (gamma knife treatment, a particular type of radiosurgical treatment) with QSRC while extending previous contracts for the provision of those services with existing suppliers.

The factual background of the case is very complex due to the fact that the initial decision not to enter into such contract took place towards the end of 2012, at the time when NHS procurement was being reformed in preparation for the entry into force of the National Health Service (Procurement, Patient Choice and Competition) (No 2) Regulations 2013.

However, as I read the facts and for analytical purposes, the relevant issues were that the relevant contracting authority, by deciding to extend the contracts with pre-existing suppliers and not tendering more fully (on the justification that such fuller procurement would take place in the near future once the new system was operational) incurred in the direct award of (implicit) public contracts to the pre-existing providers. Moreover, that by rejecting to enter into a contract with QSRC as well, it treated potential providers unequally.

Then, the main dispute for the purposes of our discussion was to determine whether, by not running a tender for the provision of the interim services, the relevant contracting authority had breached the then applicable Public Contracts Regulations 2006 (which transposed Directive 2004/18, and have since been replaced by the Public Contracts Regulations 2015 in transposition of Directive 2014/24). Linked to that, it was also contentious whether by not entering into a direct award with QSRC as well, the contracting authority breached its obligations under reg.3(2) NHS Procurement (No 2) 2013 Regs to act transparently and proportionately, and not to discriminate between providers.

Again, the claim is complicated due to the overlap betwen the NHS Procurement (No 2) 2013 Regs and the PCR2006 (and currently the PCR2015), but the relevant issue is that compliance with PCR2006 (and now PCR2015) is mandatory to the extent that they are applicable to the procurement of goods and services for the purposes of the NHS, which is otherwise (or additionally) regulated by the NHS Procurement (No 2) 2013 Regs.

The further complication is that the position of the parties is slightly odd. The Claimant was not interested in relying on the PCR2006 because it would imply that its claim was out of time and should thus be rejected without substantive analysis. Conversely, the Defendant wanted to insist on its (alleged) breach under PCR2006, so as to time bar the action.

Thus, in short, the High Court (Foskett J) had to determine whether there had been a breach of the PCR2006 in the decision not to run a tender for the provision of interim services, which would oddly have resulted in an end of the analysis due to time limitation rules (which could explain the outcome of the analysis...).

The relevant paragraph is [115], where it is established that:

The issue, therefore, is whether, as the Defendant contends, the decision made not to contract with the Claimant was "governed by the Public Contracts Regulations 2006" or whether, as the Claimant contends, it was not. [The Defendant] submitted that the essence of the claim is that the Defendant should have procured ... services from the Claimant instead of merely from Barts and the Cromwell ... and contends that "the refusal to do so is a decision the legality of which may be affected by duties owed to [the Claimant] under" the 2006 Regulations. It seems to me that the issue is not whether the decision "may be affected" by the Regulations, but whether they are governed by them. [The Claimant] submits that they are not so governed, but they are governed by the 2013 Regulations. He accepts that in some respects there may be a degree of overlap, but argues this was not a situation where the "contracting authority" was seeking offers in relation to a proposed public supply contract (see Regulation 5) and, accordingly, the Regulations did not apply. Indeed he emphasises that no offers have yet been sought. He submits that no decision was taken under the 2006 Regulations which is or was capable of challenge pursuant to its terms (first emphasis in the original, second emphasis added).

Foskett J concluded that the Claimant's 'submissions [were] correct in the circumstances of this case'. It would then seem that the decision to consider the PCR2006 as not applicable is heavily influenced by the willingness of the Court to engage in a substantive assessment of the situation and to circumvent the time bar that would derive from the opposite conclusion. However, the argument simply does not hold even a mild degree of scrutiny.

In simple terms, the argument is that procurement rules apply when contracting authorities actually seek offers from potential providers, but not when they 'merely' (or potentially) ought to seek those offers. This would immediately exclude all cases of direct award of contracts that should have been tendered from review due to a breach of the applicable procurement rules. This is simply flagrantly in conflict with the purposes not only of the substantive EU Directives (2004/18 and 2014/24) as transposed byt he PCR2006 and now the PCR2015, but in radical opposition to the aims and mandates of the Remedies Directive (Dir 89/665/EEC, as amended by Dir 2007/66)--seeing that it goes at great lengths to stress that the direct award of contracts is the most egregious violation of (EU) public procurement rules and therefore triggers the strictness of sanctions: ineffectiveness [Art 2d(1)(a)].

Consequently, regardless of the outcome of the QSRC v NHSE case, which is not relevant now, the reasons for the decision to consider the direct award of the interim services contract not within the scope of the PCR2006 (and probably exempted but from minimum formal requirements due to the nature of the services as Annex II B services), must be criticised as plainly incorrect. It is wrong to enter into a logical argument that results in a circular test whereby compliance with the (EU) public procurement rules is only required if the contracting authority actually decides to engage in a procurement exercise, without assessing whether it had such an obligation to do so precisely under those rules. Or, even in simpler terms, it is wrong to accept that a decision not to comply with the applicable (EU) procurement rules shields the contracting authority from challenges on the basis of the infringed rules.

More generally, then and going back to the link with Falk Pharma, it seems that the proper understanding of what procurement is and when the (EU) public procurement rules should apply to market interactions by the public buyer is not yet satisfactorily settled, which is odd in a discipline that has been around for almost 45 years at EU level and for centuries in some of its Member States (acknowledgedly, not in the UK). More work should be done in this area, and I will try to rope in some of the colleagues participating in Procurement Week 2016 in such a project. Watch this space.