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Overstepping the mark?

Tuesday August 17th, 2010

By Mark Bassett, Senior Associate and Matthew Evans, Lawyer, Denton Wilde Sapte LLP

Mark Bassett and Matthew Evans comment on how a recent European Court judgment on a below-threshold procurement case has clarified several issues around when to advertise a contract.

For some years, the law relating to below-threshold procurements has lacked clarity for public bodies despite the best efforts of the European Commission and the European Community courts. However, a recent case, Germany v European Commission (T-258/06), in the Court of Justice of the European Union (CJEU) has, if nothing else, clarified certain matters.

The European Commission’s snappily titled Interpretative Communication on the Community Law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives (the Interpretative Communication) has been the subject of controversy since its inception. It sets out quite rigorous requirements for out-of-scope and below-threshold procurement, obliging public bodies to advertise all contracts which are ‘relevant to the internal market’ and only exempting from such consideration contracts with a ‘very modest’ value. Obviously, determining whether a contract of £20,000 for grounds maintenance is ‘relevant to the internal market’ or of a ‘very modest’ value is an extra, unwelcome administrative burden. (Interpretative Communications are declarations by the European Commission on a legal issue. They ought not to have legal effect but can be persuasive: they create what is known as ‘soft law’.)

Germany’s arguments

The main thrust of the argument presented by Germany was that the publication of the Interpretative Communication created new and/or specific obligations for contracts not subject or only partially subject to the Public Procurement Directives (eg below-threshold contracts) and that these obligations had not been subject to the usual EU legislative process – the Interpretative Communication was therefore ultra vires.

In particular Germany argued that the Interpretative Communication placed Member States under a new obligation to publish advertisements for contracts below the financial thresholds, or otherwise out of scope as regards the Public Procurement Directives. (Obviously, this requirement is in place for all contracts above the thresholds set by the Public Procurement Directives).

Germany stated that the very fact that these contracts are below threshold in the first place signifies that they are usually of modest economic interest, and/or have specific local relevance (in the case of ‘Part B’ contracts for services such as health care or legal advice).  The award of such contracts was clearly not deemed important enough to affect the workings of the internal market when the Public Procurement Directives were originally made.

Germany took this point further, stating that it cannot be right that each contracting authority has to assess each below-threshold contract it awards for any impact on the internal market as required by the Interpretative Communication. It also complained that in setting out specific rules (including circumstances where the rules would not apply) and an enforcement mechanism, relying on the European Commission’s power to bring legal proceedings, the Commission was going far beyond writing mere guidance – Germany alleged the Commission was creating a new legal framework.

Germany (and the intervening Member States) might have considered that they had a strong case on this particular issue –Advocate General Sharpston (a court official who produces an opinion to guide the General Court) opined in the case Commission v Finland (C-195/04) that the requirement to issue a tender for a contract did not create an obligation to advertise that tender. She said that inviting a number of tenderers to participate in the process was sufficient to discharge the Member State’s obligations relating to transparency in public procurement where the contract was for a value falling below the threshold. Disappointingly, Commission v Finland was dismissed on a technicality without this issue being determined.

The Commission argued against Germany’s view. While the contracts in question did fall completely or partially outside the scope of the Public Procurement Directives, they were still subject to the provisions of the Treaties of the EU. In particular, the Commission stated that the Treaty principles of transparency and non-discrimination on the grounds of nationality meant that contracting authorities are under an obligation to ensure that contracts are awarded in an open manner, and that undertakings from any Member State are given sufficient information to enable them to bid for that contract.

The General Court’s findings

Unsurprisingly, perhaps, the General Court sided with the European Commission’s view. The need for the prior publication of an advertisement and other procedural requirements were not new obligations, but stemmed from the provisions of existing Community Law, as interpreted by the CJEU. The Court stated that the Treaty principles of transparency and non-discrimination are fundamental to the workings of the internal market and all contracts should be assessed with this in mind.

The General Court also determined that the fact that the Interpretative Communication mentions infringement proceedings ‘in no way proves that the [Interpretative] Communication creates new obligations’. The General Court stated that suggestions that proceedings may be brought by the European Commission does not represent a compulsory consequence of a breach of the terms of the Interpretative Communication and are therefore not comparable with a rule which has binding effects.

What does this mean for public sector buyers?

The forcefulness of the General Court’s rejection of Germany’s arguments is somewhat surprising. Remarkably, the Court simply ignored Advocate General Sharpston’s opinion in Commission v Finland, which is particularly valid in the context of below-threshold procurements, on the basis that the case was dismissed by the CJEU, even though the case was not heard for an entirely unrelated reason.

This leaves public bodies stuck with a significant extension of public procurement law into the field of below-threshold and out-of-scope procurement. Where previously it had been possible to rely on contradictory case-law (such as the opinion from Commission v Finland) to override or mitigate the Commission’s quite zealous Interpretative Communication – this is now not an option. The net effect of the case has been to leave public bodies with rules that cannot be ignored.

The outcome of this case is that although the question of dealing with below-threshold and out-of-scope contracts is clearer, it is also more burdensome. It would seem tempting to advertise almost every contract rather than undertake an assessment each time as to the effect on the internal market; the alternative, to accept the risk of infringement proceedings or third-party claims, is not attractive. We think that one effect of the ruling will be to fuel the growth of framework agreements, allowing public bodies to call off goods, works and services without risk.

If this is the path that the European Commission wishes to follow, then the time will soon surely come when the Public Procurement Directive thresholds become irrelevant. One can only hope that the case will be subject to an appeal and be considered by the General Court with the opinion of Advocate General Sharpston given due weight.

Pull quote

Public bodies have been left stuck with a significant extension of public procurement law into the field of below-threshold and out-of-scope procurement

In summary

The European Commission’s Interpretative Communication on the Community Law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives sets out rigorous requirements for out-of-scope and below-threshold procurement

In Germany v European Commission (T-258/06), the General Court has determined that the fact that the Interpretative Communication mentions infringement proceedings ‘in no way proves that the [Interpretative] Communication creates new obligations’

The outcome of the Germany v Commission case is that the question of dealing with below-threshold and out-of-scope contracts is clearer, but also more burdensome

Further information

For further information, please visit: www.dentonwildesapte.com

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