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When is a contract between two public bodies caught by the procurement rules?

Wednesday August 21st, 2013

Many authorities were relieved following the decision in Commission v Germany (C-480/06) (the ‘Hamburg waste’ exemption) which confirmed that co-operation between contracting authorities may not always require a public procurement process. A recent case, Piepenbrock Dienstleistungen GmbH & Co KG v Kreis Düren (C-386/11), shows the importance of structuring such arrangements very carefully, as the European Court of Justice (ECJ) will always take a purposive stance when looking at potential infringement.

David Hansom

David Hansom

This case related to a contract between two, again German, local authorities – Kreis Düren, which transferred its responsibility for building-cleaning services to another authority, Stadt Düren, and in return contracted to compensate Stadt Düren for its expenses. The ECJ ruled that this was a public contract for the purposes of Article 1(2)(a) of Directive 2004/18 (‘the Directive’).

The ECJ considered the two relevant exemptions and whether either could be applied to this scenario.

The Court held firstly that the arrangement was a public contract as the in-house exception outlined in Teckal Srl v Commune di Viano (C-107/98) did not apply; the first authority did not have control over the other similar to the control it would have over its own departments. The function test element of the ‘Teckal’ exemption was also found to not have been satisfied, as Stadt Düren did not provide the majority of its services to Kreis Düren.

Furthermore, the Court decided that the arrangement could not be said to simply be co-operation between the two authorities for the sole aim of carrying out a public task (Hamburg waste), because for this to apply there cannot be any private party placed in a better position than other undertakings in the market. In this case, the contract made it possible for Stadt Düren to use a third party to carry out the work, potentially placing this third party at an advantage to competitors in the same market.

As neither exemption applied, the ECJ concluded that as both authorities were separate entities, this was a public contract under the Directive and so should have been procured.

This case reminds contracting authorities that public/public contracts are not exempt from the procurement rules and demonstrates the need to take legal advice on each particular structure. With the growth of alternative service delivery models including social enterprises and mutuals, the risk of incorrectly classifying an arrangement for procurement can be very significant given the strong remedies available to unhappy competitors.

David Hansom


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