Case C‑196/08, Acoset

This reference for a preliminary ruling concerned the legal regime governing public-private partnership arrangements in the context of the management of public services. As is well known, the direct attribution of the management of public services to a semi-public company is contrary to Community law if the requirements of the directives on public procurement are not satisfied.

As pointed out by the Advocate General to this case, this case had “a specific characteristic which set it apart from other procurement procedures which the Court of Justice had ruled unlawful to date”. On the one hand, this case concerned the direct award of the integrated management of a water service to an entity in which both public and private interests converge. On the other hand, this was preceded by a call for tenders, albeit one whose traditional function appeared to have altered.

In the present case, the selection of the contractor or concession holder had been transformed into a method for deciding on a private participant for the commercial company which assumed responsibility for the contract or concession, the role of that participant entailing, in addition to a financial outlay, the provision of the service.

The case concerned a cooperation agreement by which the Provincia Regionale di Ragusa (pictured) and its municipal councils established the “Ambito Territoriale Ottimale” (Optimal Territorial Ambit) for water, the main purpose of which was to provide the management of the “Servizio Idrico Integrato” (Integrated Water Service).

Two years later, the Conferredenza dei Sindaci e del Presidente della Provincia Regionale di Ragusa (Conferredence of Mayors and of the President of the Province) entrusted the management of the integrated water service to a “semi-public company with share capital which was predominantly publicly owned’. One year later, it approved the draft deed of incorporation of the company and its Arts of association, which confirmed that the company had a single corporate purpose.

A contract notice was published in the Official Journal in order to select an undertaking as the private minority participant to which the operation of the service and execution of the related works would be entrusted. Three temporary groups of undertakings took part in the competition: Saceccav Depurazioni Sacede SpA, Acoset SpA and Aqualia SpA. The contracting authority excluded Aqualia SpA and admitted the others to the tendering procedure, but after it had invited them to indicate if they were still interested, only Acoset SpA answered in the affirmative.

However, on February 26, 2007, the process for cancelling the tendering procedure was commenced on the grounds that it might be contrary to Community law. After hearing the relevant submissions, the Conferredence of Mayors and of the President of the Province finally cancelled the procedure by act of October 2, 2007, which also adopted the consortium as management model.

Acoset SpA brought an action contesting that administrative act and the previous acts which had given rise to it, claiming that it was entitled to be awarded the contract or to receive compensation for damage, and requesting the interim suspension of the contested acts.

By its question, the referring court asked, in essence, whether Arts 43 EC, 49 EC and 86 EC precluded the direct award of a public service which entailed the prior execution of certain works, such as the service at issue in the main proceedings, to a semi-public company formed specifically for the purpose of providing that service and possessing a single corporate purpose, the private participant in the company being selected by means of a public and open procedure, after verification of the financial, technical, operational and management requirements specific to the service to be performed and of the characteristics of the tender with regard to the particular services to be provided.

The Court noted, first, that the direct award of a local public service for the integrated management of water, such as that at issue in the main proceedings, might fall, depending on the specific details of the consideration for that service, within the definition of “public service contracts” or “service concession” within the meaning of Art. 1(2)(d) and Art. 1(4) of Directive 2004/18 respectively or, as the case might be, Art. 1(2)(d) and Art. 1(3)(b) respectively of Directive 2004/17, Art. 4(1)(a) of which provided that that directive was to apply to the provision or operation of fixed networks intended to provide a service to the public in connection with the production, transport or distribution of drinking water or the supply of drinking water to such networks.

The Court reiterated that the question whether such an operation was to be classed as a “service concession” or a “public services contract” must be considered exclusively in the light of Community law. The difference between a service contract and a service concession lies in the consideration for the provision of services. A public service contract within the meaning of Directives 2004/18 and 2004/17 involved consideration which was paid directly by the contracting authority to the service provider. A service concession was present where the agreed method of remuneration consisted in the right to exploit the service and the provider took the risk of operating the services in question (see, inter alia,
Case C‑458/03 Parking Brixen [2005], Case C‑382/05, Commission v Italy [2007], and Case C‑206/08, WAZV Gotha [2009]).

The Court held that notwithstanding the fact that public service concession contracts were excluded from the scope of Directives 2004/18 and 2004/17, the public authorities concluding them were, none the less, bound to comply with the fundamental rules of the EC Treaty, in general, and the principle of non-discrimination on the ground of nationality, in particular (see also
Case C-324/07, Codital Brabant [2008], on which I wrote this post).

Besides the principle of non-discrimination on the ground of nationality, the principle of equal treatment as between tenderers was also to be applied to public service concessions, even in the absence of discrimination on grounds of nationality. The Court furthermore reiterated that it followed from Art. 86(1) EC that the Member States must not maintain in force national legislation which permitted the award of public service concessions without their being put out to competition, since such an award infringed Art. 43 EC or 49 EC or the principles of equal treatment, non-discrimination and transparency (see
Case C‑410/04 ANAV [2006], on which I wrote this post).

However, the application of the rules set out in Arts 12 EC, 43 EC and 49 EC, as well as the general principles of which they were the specific expression, was excluded if the control exercised over the concessionaire by the concession-granting public authority was comparable to that which the authority exercises over its own departments and if, at the same time, that entity carried out the essential part of its activities with the controlling authority. In such a case, an invitation to tender was not mandatory, even if the other party to the contract was an entity that was legally distinct from the contracting authority.

The Court held that where a private undertaking had a holding, even a minority holding, in the capital of a company in which the contracting authority in question also had a holding, it was impossible for that contracting authority to exercise over that company control comparable to that which it exercises over its own departments.

The award of a public contract to a semi-public company without a call for tenders would interfered with the objective of free and undistorted competition and the principle of equal treatment, in that such a procedure would offer a private undertaking with a capital holding in that company an advantage over its competitors (See
Case C‑29/04 Commission v Austria [2005]).

Furthermore, the fact that a private entity and a contracting entity co-operated within a semi-private entity could not serve as justification for the contracting entity not having to comply with the legal provisions on concessions when assigning concessions to that private entity or to the respective semi-private entity.

However, according to the Court, it was difficult to reconcile the use of a double competitive tendering procedure with the aim of reducing procedural formalities which underlay institutionalised public‑private partnerships, such as that at issue in the main proceedings, whose establishment involved the use of the same procedure both to select the private economic participant and to award concessions to the public‑private entity to be formed for that sole purpose.

The Court held that while the absence of a competitive tendering procedure in connection with the award of services would appear to be irreconcilable with Arts 43 EC and 49 EC and with the principles of equal treatment and non‑discrimination, that situation might be rectified by selecting the private participant in accordance with the requirements set out above and choosing appropriate criteria for the selection of the private participant, since the tenderers must provided evidence not only of their capacity to become a shareholder but, primarily, of their technical capacity to provide the service and the economic and other advantages which their tender brought.

In so far as the criteria for the selection of the private participant were based not only on its capital contribution but also the participant’s technical capacity and the characteristics of its tender with regard to the particular services to be provided and, as in the case in the main proceedings, the participant was entrusted with the operation of the service in question and thus with the management of the service, the selection of the concessionaire could be regarded as an indirect result of the selection of that participant which was made at the conclusion of a procedure conducted in accordance with the principles of Community law, so that a second competitive tendering procedure for the selection of the concessionaire was unnecessary.

The Court concluded that the use in such a situation of a double procedure for, first, the selection of the private participant in the semi‑private company and, second, the award of the concession to that company, would be liable to deter private entities and public authorities from forming institutionalised public‑private partnerships, such as that in question in the main proceedings, on account of the length of time involved in implementing such procedures and the legal uncertainty attaching to the award of the concession to the previously selected private participant.

The Court added a company with share capital with mixed public and private ownership, such as that in question in the main proceedings, must retained the same corporate purpose throughout the duration of concession and it would be necessary, if there was any material amendment to the contract, to launch a new competitive tendering procedure (
see Case C‑454/06 pressetext Nachrichtenagentur [2008]).

The Court therefore found that Arts 43 EC, 49 EC and 86 EC did not preclude the direct award of a public service such as that at issue in the main proceedings, provided that the tendering procedure in question was consistedent with the principles of free competition, transparency and equal treatment laid down by the Treaty with regard to concessions.

Text of Judgment

Cases referred to in this case which have been discussed on this blog:
Case C‑410/04 ANAV [2006]
- Case C‑324/07 Coditel Brabant [2008]