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.

New paper on the continuing relevance of general principles of EU public procurement after the Concessions Directive

I have just uploded on the University of Leicester School of Law Research Paper SSRN series a new article on "The Continuing Relevance of the General Principles of EU Public Procurement Law after the Adoption of the 2014 Concessions Directive", which follows up on my criticism of the adoption of this regulatory instrument when it was first proposed [see A Sanchez-Graells, "What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of their Economic Balance?" (2012) 2 European Public Private Partnership Law Review 94-104].

This new paper aims to offer some further reflections on the legal relevance of general principles of EU public procurement law after the adoption of the 2014 package of substantive Directives on public procurement. It focusses on the field of concession contracts because one of the explicit justifications for the adoption of Directive 2014/23 was to achieve a "uniform application of the principles of the TFEU across all Member States and the elimination of discrepancies in the understanding of those principles … at Union level in order to eliminate persisting distortions of the internal market". 

The paper claims that Directive 2014/23 has failed on three grounds. Firstly, because it has not created any relevant substantive harmonisation of tender requirements for concessions that fall within its scope of application. Secondly, because it cannot limit the CJEU’s extension of obligations derived from general principles beyond its scope of application. And, thirdly, because it fails to acknowledge all general principles of EU public procurement law and, in particular, the principle of competition—creating a risk of inconsistency with the rest of the 2014 Procurement Package.

The full citation for the paper is A Sanchez-Graells, "The Continuing Relevance of the General Principles of EU Public Procurement Law after the Adoption of the 2014 Concessions Directive" (March 20, 2015). University of Leicester School of Law Research Paper No. 15-12. Available at SSRN: http://ssrn.com/abstract=2581683. I will be preseting it at the Public Procurement: Global Revolution VII conference in June 2015 at the University of Nottingham.

Some thoughts on a paper on the Concessions Directive and competition law [Farley-Pourbaix, (2015) JECLAP 6(1): 15-25]

Martin Farley and Nicolas Pourbaix have recently published a paper on the interaction between competition and public procurement law in light of the rules of new Directive 2014/23 on concession contracts. The paper is 'The EU Concessions Directive: Building (Toll) Bridges between Competition Law and Public Procurement?' (2015) 6(1) Journal of European Competition Law & Practice  15-25. 

The paper is extremely thinly researched in an area that is generating a significant amount of scholarly commentary and, as such, it is rather disappointing because the authors seem to be (re)discovering powder by emphasising the interaction between procurement and competition law rules. However, some of the main points the authors make in relation to the pre-existing case law of the CJEU are worth considering.

Firstly, they stress the practical complications that the open-ended definition of concession creates, particularly in terms of the difficulty of assessing when the transfer of risks to the concessionaire suffices to be covered by Directive 2014/23 instead of Directive 2014/24 or Directive 2014/25 [for discussion, see C Risvig Hansen, Contracts not covered or not fully covered by the Public Sector Directive (Copenhagen, DJOF, 2012)76-102; A Sanchez-Graells, 'What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of their Economic Balance?' (2012) 2 European Public Private Partnership Law Review 94-104; and R Craven, 'The EU's 2014 Concessions Directive’ (2014) 23 Public Procurement Law Review 188-200].

Secondly, they explore the applicability of Art 101 TFEU to bidders that opt to team up or bid jointly for concession contracts. Their remarks are interesting and topical, as the recent publication of the 'Consortium Bidding' guidelines by the Irish Competition and Consumer Protection Commission evidences. I found their warning on the need to limit the exchanges of information between consortium partners particularly relevant (pp. 19-20), as joint participation in selected procurement projects could be the conduit for cartelising behaviour and this is an issue that requires careful consideration.

Thirdly, they revisit the never-ending discussion on the exclusion of contracting authorities from the concept of undertaking for the purposes of the application of (EU) competition law on the basis of the FENIN-SELEX line of case law [FENIN v Commission, C-205/03, EU:C:2006:453; and Selex v Commission, C-113/07, EU:C:2009:191] [for discussion, see A Sanchez-Graells, 'Distortions of Competition Generated by the Public (Power) Buyer: A Perceived Gap in EC Competition Law and Proposals to Bridge It' (2009) University of Oxford, Center for Competition Law and Policy, CCLP (L). 23]. 

On this point, it is interesting to see how Farley and Pourbaix stress that utilities concessions may trigger the application of competition law because, almost by definition, the contracting entity will be engaged in 'downstream' economic activities. Their discussion of the Luton Airport case is certainly informative [Arriva the Shires Ltd v London Luton Airport Operations Ltd [2014] EWHC 64 (Ch)].

This may be a point to take into consideration in the future to (possibly) limit the FENIN-SELEX exemption in case contracting authorities outside the utilities sector engage in (partial) downstream economic activity, which is likely to be the case of some in-house or public-public cooperation arrangements, which can now offer up to 20% of their supplies or services in the 'private market' under the rules of Directive 2014/24. This would be particularly easy on the basis of the 'severability' of activities for the purposes of competition law [Aéroports de Paris v Commission, C‑82/01, EU:C:2002:617], which in my view would be a most welcome development of this area of the law.

Finally, Farley and Pourbaix focus on specific competition law aspects of the new EU Concessions Directive. Of the issues they mention (other than the duration of the concession contract), the most interesting are the possibility to exclude infringers of competition law (on which see the recent case law of the CJEU here), and the interaction between State aid rules and the modification of concession contracts [for discussion, see A Sanchez-Graells, 'Public Procurement and State Aid: Reopening the Debate?' (2012) 21(6) Public Procurement Law Review 205-212]. 

On the issue of exclusion, the paper stresses burden of proof difficulties and advocates for a careful enforcement of the power to exclude undertakings suspected of competition violations, and points (without mentioning) at corporate human rights such as the presumption of innocence, which would have deserved more detailed consideration [for general discussion, see A Sanchez-Graells and F Marcos, '"Human Rights" Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?' (2014) University of Leicester School of Law Research Paper No. 14-04]. 

On the issue of State aid being (implicitly) granted as a result of a modification of a contract during its term, the paper emphasises that the increased flexibility in the choice of procedures and the possibility to modify the contract (potentially without value limit, despite the stress on 50% that Farley and Pourbaix wrongly put in p. 24-25) in a relatively generous array of cases restricts the 'Altmark' presumption and requires a substantive assessment of the conditions of the contract [something already advocated for in A Sanchez-Graells, Public procurement and the EU competition rules (Oxford, Hart, 2011) 118-121 and, in more detail, in ibid, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing SGEIs: State Aid. Reform and Modernisation, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181].

A point of contention, though, refers to the treatment of concession contracts as conduits for State aid. Farley and Pourbaix consider that:

Contracting Authorities may be able to take a certain amount of comfort from the fact that many concessions may not qualify as State aid in any event, on the basis that the remuneration was not granted through State resources. This will at least be the case in those situations where the concessionaire is remunerated entirely by third parties. Following the CJEU’s ruling in PreussenElektra [PreussenElektra, C-379/98, ECLI:EU:C:2001:160] this will still be the case even if the State sets the price that third parties need to pay for the relevant goods or services. (P. 24).

Even if they indicate that mixed arrangements which include some sort of subsidy could erode this possibility to duck State aid rules, I think that they present the situation in a way that excessively narrows down their application. Indeed, on that point, it may worth stressing that the CJEU has relatively recently adopted a less formalistic approach and considered that certain aspects of public control over third party revenue (which are common to concession contracts) may trigger the dis-application of the PreussenElektra exception (see comment here). 

In particular, in Vent De Colère and Others, C-262/12, EU:C:2013:851, the CJEU found that:

Article 107(1) TFEU must be interpreted as meaning that a mechanism for offsetting in full the additional costs imposed on undertakings [...] that is financed by all final consumers [...] constitutes an intervention through State resources (C-262/12, para 37).

Hence, even decisions concerning authorizations to raise user fees (without offering any additional public support or implying any extension of the length of the concession) may trigger State aid application, which is a case most concession contracts usually contemplate. Hence, the interaction between the prohibition of State aid in Art 107(1) TFEU and the rules on modification of concession contracts in Directive 2014/23 is more intense than Farley and Pourbaix's paper presents.

Overall, then, the paper is not groundbreaking and, if the existing literature had been researched, it would probably have been of a higher academic interest (as it is published, though, it certainly is oriented to practitioners) and could possibly have reached a deeper level of analysis. In any case, given the novelty of Directive 2014/23, Farley and Pourbaix's paper can certainly raise awareness of the important issues they mention.

Directive 2014/23 on concessions and the 'Frankenstein effect'

The more one analyses the content of Directive 2014/23 on concessions (the Concessions  Directive), the more one realises that it is full of unnecessary complexities and that it is (unfortunately) a horrible example of the 'Frankenstein effect' that the EU legislative procedure sometimes generates.

 

I am in particular puzzled by Arts 1(2), 6 and 7 of the Concessions Directive, which aim to determine its (personal) scope of application. The difficult exercise attempted in the Concessions Directive is to combine or merge the scope of application of both the Public Sector Directive (2014/24) and the Utilities Directive (2014/25) and, at first sight, looking at Article 1(2), it seems like it achieves that goal (as Richard Craven concludes in his piece on the Concessions Directive about to be published in the Public Procurement Law Review).

 

A cursory look at that provision indeed confirms that both 'contracting authorities' subjected to the Public Sector Directive and the 'contracting entities' covered by the Utilities Directive are within the scope of the Concessions Directive, as its Article 1(2) determines that: "This Directive applies to the award of works or services concessions, to economic operators by: (a) Contracting authorities; or (b) Contracting entities, provided that the works or services are intended for the pursuit of one of the activities referred to in Annex II".

 

However, that is not the end of the story, as Articles 6 and 7 define contracting authorities and contracting entities respectively and create an unnecessary split of the category of contracting authorities that I find unnecessary. The following is a draft comment on Article 6 of the Concessions Directive on which I am working and, as it will probably be evident, this keeps me quite confused...

 

On Article 6

6. Contracting authorities

01. With the exception of the excluded contracting authorities mentioned at the end of paragraph 1, this provision is identical to the Public Sector Directive Article 2(1) subparagraphs 1 and 4 and Article 2(2). For a commentary, see those provisions.

 

6.1. Excluded contracting authorities, which become contracting entities

01. One of the elements of the definition of the personal scope of application of the Concessions Directive with which it is difficult to come to terms is the treatment of certain contracting authorities (as per their classic definition in the Public Sector Directive) as contracting entities. More specifically, the exclusion is triggered when entities that would otherwise be contracting authorities engage in activities listed in Annex II (ie utilities activities except those related to water, see Article 12 and commentary to Article 1) and award a concession for the pursuit of one of those activities. The exclusion refers to the treatment of those ‘contracting authorities’ (by nature) as ‘contracting entities’ (by reason of their activity) under Article 7, which comes to mean that the carrying out of one of the activities in Annex II by means of a concession will only be subjected to the regime applicable to contracting entities, whereas the carrying out of any other concession-related activity (unless excluded from the Directive or subjected to a special regime) will be subjected to the rules applicable to contracting authorities. In case the contracting authority/contracting entity carries out both types of activities and awards a concession that covers both types of activities, the rules to determine the applicable legal regime will be those in Article 22 and, generally, will imply that the concession is subject to the rules applicable to the activity for which it is principally intended [Article 22(2)]. However, if it is objectively impossible to determine for which activity the contract is principally intended, the obscure provision in Article 22(3)(a) of the Concessions Directive will be applicable, which indicates that “the concession shall be awarded in accordance with the provisions of this Directive applicable to concessions awarded by contracting authorities, if one of the activities for which the contract is intended is subject to the provisions of this Directive applicable to concessions awarded by contracting authorities and the other is subject to the provisions of this Directive applicable to concessions awarded by contracting entities”. Hence, in case of significant difficulty (rectius, objective impossibility) in determining the applicable legal regime, the one corresponding to contracting authorities will be preferred.

02. However, the exclusion in Article 6 and inclusion in Article 7 are superfluous in connection with most of the specific obligations and duties regulated in the Concessions Directive, which establishes a regime that is fundamentally homogeneous to concessions awarded by contracting authorities and those awarded by contracting entities. At least in the case of contracting authorities ‘by nature’, the justification for the creation of the dual legal regime on the basis of the activity they pursue is difficult to understand and is likely to have a very limited effect in practice that can hardly justify the complexity it brings about (think exclusively of the convoluted drafting that the Concessions Directive has adopted in order to accommodate such minimal nuances). Indeed, comparing both regimes, it is only possible to identify a very limited number of discrepancies in legal regime (which are almost exclusively concerned with the potential exclusions of coverage from the directive) and primarily include the following rules:

·        Recital 66: only mentions contracting authorities when it indicates the possibility of including social requirements that directly characterise the product or service affected by a concession in the technical specifications. However, the omission of contracting entities seems to be an error, as there is no reason to prevent contracting entities from doing so, as long as they comply with the requirements imposed in the case law of the ECJ.

·         Article 10(1): covering an exclusion for concessions awarded to a contracting authority on the basis of an exclusive right, although the exclusion is extended to a contracting entity as referred to in point (a) of Article 7(1), which effectively nullifies the different in treatment for these purposes.

·         Article 11: covering a specific exclusion in the field of electronic communications whereby the Concessions Directive shall not apply to concessions for the principal purpose of permitting the contracting authorities to provide or exploit public communications networks, or to provide to the public one or more electronic communications services. However, the restriction of this exclusion to contracting authorities may have very limited effects in view of the alternative exclusion available for contracting entities when their activities are subject to competition (Article 16 below), given that most electronic communications exploited commercially are actually exposed to competition as a requirement of sectorial regulation.

·         Articles 13 and 14, and Article 17, which set out different rules for (quasi) in-house exclusions depending on whether they relate to contracting authorities or contracting entities. However, the functional requirements are rather similar, so there is no significant difference in the rules allowing for the award of concessions without compliance with competitive tendering requirements (effective control, 80% of turnover generated in the in-house sphere, etc; see commentary below).

·         Article 15, which creates an additional duty of information on contracting entities in favour of the Commission in case certain exclusions under Articles 13 and 14 apply.

·         Article 16: which restricts the exclusion available for activities directly exposed to competition to contracting entities—and that, in any case, would be very difficult to apply to contracting authorities because they do not tend to participate directly in the provision of services subjected to effective competition.

·         Article 23: on concessions including activities subjected to diverse legal regimes and that set out a preference for the regime applicable to contracting authorities over the one applicable to contracting entities as a residual rule.

·         Article 38(4) in fine: which sets higher evidentiary standards for contracting entities that are not (improper) contracting authorities wishing to exclude from participation any economic operators affected by the grounds of mandatory exclusion foreseen in Article 38(4) of the Concessions Directive (see that provision for commentary). This also applies to other aspects of Article 38, where the degree of compliance with rules on mandatory or discretionary compliance can be modulated differently by Member States depending on whether the concession is awarded by a contracting authority (or an improper contracting entity) or by a (proper) contracting entity. However, given the discretion left to Member States in this area, it is hard to foresee whether this will generate any meaningful differences in practice.

03. Moreover, the inclusion of contracting authorities as contracting entities by virtue of the activities in which they engage creates significant difficulty in the treatment of contracting entities in the Concessions Directive, as some provisions are addressed to all contracting entities and others are only addressed to ‘proper’ contracting entities (ie those that are not contracting authorities ‘by nature’) which forces the drafting to resort to convoluted expressions such as “contracting authorities and contracting entities as referred to in point (a) of Article 7(1)” or “contracting entities other than those referred to in point (a) of Article 7(1)”. Indeed, in most cases where there is any meaningful difference, contracting entities as referred to in point (a) of Article 7(1) receive the same legal treatment as contracting authorities under Article 6 (which seems like the logical thing to do). All in all, then, given the (very) minor differences in legal regime (which are almost non-existent other than in terms of coverage of the directive), a much more simplified regime for contracting authorities would definitely have been preferable.

* * * * *   More than ever, I wish that the 'Sanity clause' scene of the Marx Bros' A Night at the Opera was just a figment of a crazy imagination...