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The Definition of a ‘Contract’ Under Article 106 TFEU

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Developments in Services of General Interest

Part of the book series: Legal Issues of Services of General Interest ((LEGAL))

Abstract

The fact that the public procurement Directives apply to contracts for the provision of SGEIs ensures transparency in the entrustment of SGEIs. This raises the question of whether the privileged rules of Article 106 TFEU apply alongside the specific public procurement rules, which are set out in secondary EU legislation. Looking at Article 106 TFEU through public procurement spectacles Skovgaard Ølykke identifies the determination of ‘what is a contract’ as a central issue for the application of the public procurement Directives. Where SGEIs are provided through in-house arrangements there will not be a ‘contract’ and where an SGEI is entrusted through a legislative act, this will also not satisfy the requirements of a ‘contract’. A different set of problems arise where the entrustment of a SGEI take place by a service concession. The procurement Directives, subject service concessions to a special regime and service concessions are exempted from the Directives but under tight conditions. This raises the question as to whether Article 106(2) TFEU could be applied. Although this question has been debated in the academic literature, it has not been explicitly applied in litigation before the ECJ. However, Skovgaard Ølykke argues that in recent cases Article 106(2) TFEU could be the basis for the rulings, creating a new approach to contracts where SGEI are provided even where the Teckal criteria (see ECJ, Case C-84/03 Commission v. Spain [2005] ECR I-139, para 39; cf. ECJ, Case C-480/06 Commission v. Germany [2009] ECR I-4747) are not fulfilled. If this is the outcome of the case law, it gives a renewed role for Article 106(2) TFEU at a time when many commentators are questioning its continued existence in the TFEU.

Assistant Professor, Law Department, Copenhagen Business School, Frederiksberg, Denmark.

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Notes

  1. 1.

    CFI, Case T-442/03 SIC [2008] ECR II-1161, para 145, where the CFI states that neither the wording of Article 86(2) EC (now Article 106(2) TFEU) nor case law requires a tendering procedure for the entrustment of a SGEI. See also Schnelle 2002, p. 202.

  2. 2.

    OJ 2008 C 115/1.

  3. 3.

    Sauter and Schepel 2009, p. 179.

  4. 4.

    COM(2003) 270 final Green paper on Services of General Interest, para 81, COM(2004) 374 final, White Paper on Services of General Interest, at 15–16, and see also COM(2007) 725 final, Services of general interest, including social services of general interest: a new European commitment, at 4.

  5. 5.

    Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (henceforth: the ‘Public Sector Directive’), OJ 2004 L 134/114 and Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport, and postal services sectors (henceforth: the ‘Utilities Directive’), OJ 2004 L 134/1. Together the two directives are denominated the ‘public procurement directives’.

  6. 6.

    For a similar approach, see Drijber and Stergiou 2009 at 825–829; Sauter 2008 at 190, finds that the rules on public procurement generally apply to SGEIs, where third parties are chosen as providers (i.e., the provision is not in-house).

  7. 7.

    ECJ, Case C-26/03 Stadt Halle [2005] ECR I-1, para 48.

  8. 8.

    ECJ, Case C-107/98 Teckal [1999] ECR I-8121, paras 49–50.

  9. 9.

    ECJ, Case C-340/04 Cabotermo [2006] ECR I-4137, paras 37 and 70.

  10. 10.

    For the evolution of the in-house case law, see Caranta 2010, p. 13.

  11. 11.

    Article 1(2)(a) of the Public Sector Directive and the parallel provision is Article 1(2)(a) of the Utilities Directive, which, however, does not define ‘public contracts’, but rather ‘supply, works, and service contracts’.

  12. 12.

    For example, ECJ, Case C-59/00 Vestergaard [2001] ECR I-9505.

  13. 13.

    For example, ECJ, Case C-324/98 Telaustria [2000] ECR I-10745.

  14. 14.

    See Commission Interpretative Communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives, OJ 2006 C 179/2. Cf., Brown 2007, p. 1.

  15. 15.

    Cf., Drijber and Stergiou 2009, pp. 811–815.

  16. 16.

    Cf., Trepte 2007, pp. 239–256.

  17. 17.

    Due to Article 345 TFEU (ex Article 295 TEC), public undertakings will not be considered specifically. However, it should be mentioned that contracts directly awarded (without a public procurement procedure) to public undertakings will often be argued to be in-house provision (see further Sect. 5.1 supra).

  18. 18.

    Cf., Buendia Sierra 1999, pp. 135 and 138–139.

  19. 19.

    See Joined Opinion of Advocate General Bot on 17 December 2009 concerning Cases C-203/08 (Betfair) and C-258/08 (Ladbrokes), para 154. From a different but obvious perspective, see Buendia Sierra 1999, p. 144, who argues that Article 86(1) TEC [now Article 106(1) TFEU] could be applied in conjunction with secondary legislation, e.g., the public procurement directives.

  20. 20.

    As was seemingly the case in C-320/91 Corbeau [1993] ECR I-2533, paras 3 and 15 read in conjunction.

  21. 21.

    For example, C-209/98 Sydhavnens Sten & Grus [2000] ECR I-3743, para 79, and the recent judgments in ECJ. Cases C-203/08 (Betfair), 3 June 2010, nyr, paras 46–47 and C-64/08 (Engelmann), 9 September 2010, nyr, paras 52–53, where the ECJ argues that the transparency obligations applicable to the award of service concessions should also apply to licensing systems with only one operator, inter alia, because the effect of such a licensing system is the same as the effect of a service concession. However, see also Drijber and Stergiou 2009, pp. 825–826, taking the standpoint that if the licensing system in question is comparable to the award of an exclusive right, no requirement to tender exists.

  22. 22.

    For the same conclusion based on different arguments, see Drijber and Stergiou 2009, pp. 825–828.

  23. 23.

    Due to Article 345 TFEU (ex Article 295 EC), State monopolies of a commercial character will not be considered, however.

  24. 24.

    This perception is supported by COM(2003) 270 final, supra n. 4, para 17, COM(2004) 374 final, supra n. 4, 6, and Annex I at p. 22. The Commission also refers to ‘the particular tasks of general interest’ assigned to the providers of SGEIs; see COM(2007) 725 final, supra n. 4, at 6. Cf., Sauter 2008, p. 177, who argues that USOs is the main substantive content of SGEIs, but nevertheless, at 175 and 184, argues that PSOs is the core of SGEIs. PSO has been chosen over USO, because it appears the PSO is wider in scope than USO (where territorial coverage is an essential element, see Sauter 2008, pp. 176–177), and since PSO [in a wide sense, also covering USOs, it is submitted; cf., COM(2007) 725 final, at 6] is central for compensation according to the Altmark test, infra n. 25.

  25. 25.

    ECJ, C-280/00, Altmark [2003] ECR I-7747, paras 89–93.

  26. 26.

    Sauter 2008, p. 179. For a seemingly different opinion, see Buendia Sierra 2007, 593 at 627–630.

  27. 27.

    This seems to have been the case in C-159/94 Commission v. France [1997] ECR I-5815, para 66, where, however, the award of the concession was not an issue.

  28. 28.

    See, for example, ECJ, Case C-127/73 SABAM [1974] ECR 313, paras 22–23, where the assignment of (particular) task(s) seems important to the ECJ; ECJ, Case C-258/78 L.C. Nungesser [1982] ECR 2015, para 9, and ECJ, Case C-66/86 Ahmed Saeed [1989] ECR 803, para 55; ECJ, Case C-320/91 Corbeau [1993] ECR I-2533, para 15, where the ECJ only mentions ‘entrustment’, but nevertheless elaborates on the PSO involved (the ECJ is emphasising the content of the PSOs in a manner suggesting that the SGEI is the PSO); ECJ, Case C-159/94 Commission v. France [1997] ECR I-5815, where paras 72–89 contain a thorough discussion of which PSOs were imposed on the provider of the SGEI; ECJ, Case C-266/96 Corsica Ferries [1998] ECR I-3949, para 45 (the reference to safety in port waters); ECJ, Joined Cases C-147 and 148/97 Deutsche Post [2000] ECR I-825, paras 43–45; ECJ, Case C-53/00 Ferring [2001] ECR I-9067, paras 7, 31 and 32; ECJ, Case 340/99 TNT Traco [2001] ECR I-4109, para 53; ECJ, Case C-457/99 Ambulanz Glöckner [2001] ECR I-8089, para 55 and ECJ, Joined Cases C-83, 93 and 94/01P La Poste [2003] ECR I-6993, para 34; CFI, Case T-289/03 BUPA [2008] ECR II-81, paras 161–162, where the CFI accepts the argument of the parties that a SGEI is the same as a PSO. Moreover, see Community framework for State aid in the form of public service compensation, OJ 2005 C 297/4, para 12, where the first requirement for the act entrusting a provider with the provision of a SGEI is ‘(a) the precise nature and duration of public service obligations’.

  29. 29.

    Along the same lines, see Szyszczak 2007, p. 211, Sauter and Schepel 2009, p. 168, and ‘Services of General Economic Interest—Opinion Prepared by the State Aid Group of EAGCP’ (2006), available at http://ec.europa.eu/competition/state_aid/studies_reports/studies_reports.html#studies, 2 and 3.

  30. 30.

    For examples of ‘entrustment’ by legislation, see, e.g., ECJ, Case C-41/90 Höfner [1991] ECR I-1979, para 24; ECJ, Case C-157/94 Commission v. the Netherlands [1997] ECR I-5699, para 45; ECJ, Joined Cases C-147-148/97 Deutsche Post [2000] ECR I-825, para 45; ECJ, Case C-340/99 TNT Traco [2001] ECR I-4109, para 3 and ECJ, Case C-220/06 Correos [2007] ECR I-12175, para 79.

  31. 31.

    For examples of ‘entrustment’ by concession, see ECJ, Case C-393/92 Almelo [1994] ECR I-1477, para 31, where the concession was granted by a measure of public law; ECJ, Case C-159/94 Commission v. France [1997] ECR I-5815, para 66, and implicitly ECJ, C-209/98 Sydhavnens Sten & Grus [2000] ECR I-3743, paras 17, 71 and 79 read in conjunction.

  32. 32.

    See ECJ, Case C-30/87 Bodson [1988] ECR I-2479, para 18 where the concessions at issue were described as ‘… contracts … concluded between communes acting in their capacity as public authorities and undertakings entrusted with the operation of a public service…’ [emphasis added].

  33. 33.

    ECJ, Case C-127/73 SABAM [1974] ECR 51, para 20; ECJ, Case C-172/80 Züchner [1981] ECR 2021, para 7 and ECJ, Case C-66/86 Ahmed Saeed [1989] ECR I-803, para 55. However, see the Opinion of Advocate General Léger on 10 July 2001 concerning ECJ, Case C-309/99 Wouters, para 160, for the point that the ECJ has mitigated the requirement relating to the existence of a formal act of the public authorities.

  34. 34.

    See also Buendia Sierra 2007, p. 630, who seems to attribute significant weight to the formal public/private law distinction: ‘…, if a public entity enters into a contract governed by private law with an undertaking for the purpose of carrying out of an economic activity it is not, by definition, acting in the exercise of public authority functions.’ It is submitted that a distinction needs to be made between the decision to provide a specific SGEI/PSO, the choice of in-house/ex-house and the actual ‘entrustment’ of a SGEI/PSO (by legislative act/concession) to a third party. At least the first mentioned is an act of public authority, since it is a political choice of what services to provide. It can also be argued that the ‘entrustment’ of a SGEI/PSO by legislative act is exercise of public authority. See Sect. 5.3 infra on cooperation between public authorities to ensure the provision of public services which they are obliged (‘entrusted’) to provide by legislation.

  35. 35.

    ECJ, Case C-159/94 Commission v. France [1997] ECR I-5815, para 68.

  36. 36.

    Cf., Buendia Sierra 2007, p. 629.

  37. 37.

    Sauter 2008, p. 184, links the ‘entrustment’ requirement to the proportionality test (necessity test) in Article 106(2) TFEU [ex Article 86(2) TEC].

  38. 38.

    ECJ, Case C-7/82 GVL v. Commission [1983] ECR 483, para 32. Seemingly contrary, see the CFI’s ruling in Case T-289/03 BUPA [2008] ECR II-81, para 182 in conjunction with para 196, where the provision of private medical insurance was regulated, but seemingly no provider was required to supply the insurances. The CFI defined the legislation as an ‘act of public authority’, but denied that the legislation was a regulation or an authorisation of the providers of private medical insurances; see para 182.

  39. 39.

    For examples, see Drijber and Stergiou 2009, p. 842–843.

  40. 40.

    ECJ, Case C-295/05 Asemfo [2007] ECR I-2999, para 60.

  41. 41.

    Opinion of Advocate General Geelhoed on 28 September 2006 concerning C-295/05 (Asemfo), para 97.

  42. 42.

    Asemfo, paras 54 and 60.

  43. 43.

    Asemfo, paras 57–58 and 61 in conjunction with paras 63–64, where the ECJ, however, did not distinguish between services carried out for shareholders and non-shareholders.

  44. 44.

    Asemfo, para 54.

  45. 45.

    Asemfo, para 51.

  46. 46.

    ECJ, Case C-220/06 Correos [2007] ECR I-12175.

  47. 47.

    Correos, para 49.

  48. 48.

    Correos, para 52.

  49. 49.

    Correos, para 54.

  50. 50.

    ECJ, Case C-532/03 Commission v. Ireland [2007] ECR I-11353.

  51. 51.

    Commission v. Ireland, paras 5–6.

  52. 52.

    Commission v. Ireland, para 15.

  53. 53.

    Commission v. Ireland, para 35.

  54. 54.

    Commission v. Ireland, para 36.

  55. 55.

    Commission v. Ireland, para 15 and opinion of Advocate General Stix-Hackl on 14 September 2006 concerning C-532/03 (Commission v. Ireland).

  56. 56.

    Cf., Opinion of Advocate General Geelhoed on 28 September 2006 concerning C-295/05 (Asemfo), para 58.

  57. 57.

    C-280/00 Altmark [2003] ECR I-7747, paras 89–93.

  58. 58.

    Article 108(3) TFEU [ex Article 88(3) TEC]. For critique, see, e.g., Nicolaides 2003, p. 561.

  59. 59.

    ECJ, Joined Cases C-34-38/01 Enirisorse [2003] ECR I-14243, paras 31–40 and ECJ, Case C-451/03 ADC Servizi [2006] ECR I-2941, paras 59–68.

  60. 60.

    See also Müller 2009, p. 40.

  61. 61.

    On the concept of a ‘concession’, see, e.g., Neergaard 2005, p. 141.

  62. 62.

    See also supra n. 21 on licensing schemes, exclusive rights and service concessions.

  63. 63.

    Article 17 of the Public Sector Directive, and Article 18 of the Public Utilities Directive.

  64. 64.

    See Neergaard 2005, p. 176; Trepte 2007, pp. 205–206, and for a discussion of recent case law on the concept of a concession, see Kotsonis 2010.

  65. 65.

    For a discussion of the necessary element of risk, see Kotsonis 2010.

  66. 66.

    ECJ, Case C-320/91 Corbeau [1993] ECR I-2533, para 16 read in conjunction with para 19; ECJ, Case C-209/98 Sydhavnens Sten & Grus [2000] ECR I-3743, para 77, and ECJ, Case C-475/99 Ambulanz Glöckner [2001] ECR I-8089, para 57.

  67. 67.

    It could be mentioned that in Sydhavnens Sten & Grus, the contracting authority advertised the ‘contract’ in a press release to attract interested business partners (concessionaires), see ECJ, Case C-209/98 Sydhavnens Sten & Grus [2000] ECR I-3743, para 24, even though the circumstances of the case took place prior to ECJ, Case C-324/98 Telaustria [2000] ECR I-10745, where the ECJ underlined the transparency obligations derived from the EC Treaty (now EU and EFU Treaties); see para 62.

  68. 68.

    However, see Sauter 2008, p. 178; Stergiou 2008, pp. 178–180, and Drijber and Stergiou 2009, pp. 833–834.

  69. 69.

    For recent examples, see, for example, ECJ, Case C-532/03 Commission v. Italy [2007] ECR I-11353, para 26 and ECJ, Case C-480/06 Commission v. Germany [2009] I-nyr, para 28.

  70. 70.

    ECJ, Case C-84/03 Commission v. Spain [2005] ECR I-139, para 9.

  71. 71.

    Commission v. Spain, paras 39–40.

  72. 72.

    ECJ, Case C-480/06 Commission v. Germany [2009] I-nyr.

  73. 73.

    Commission v. Germany, paras 31 and 36.

  74. 74.

    Commission v. Germany, para 38.

  75. 75.

    Commission v. Germany, para 36.

  76. 76.

    ECJ, Case C-480/06 Commission v. Germany [2009] I-nyr, paras 37–38.

  77. 77.

    Compare Commission v. Germany, para 38 and ECJ, Case C-209/98 Sydhavnens Sten & Grus [2000] ECR I-3743, paras 77–78.

  78. 78.

    Commission v. Germany, ibid., para 43.

  79. 79.

    Commission v. Germany, para 16.

  80. 80.

    Commission v. Germany, paras 37, 38, 41 and 42.

  81. 81.

    Cf., Commission v. Germany, para 44: ‘It thus appears that the contract in question forms both the basis and the legal framework for the future construction and operation of a facility intended to perform a public service, namely thermal incineration of waste…’ [emphasis added].

  82. 82.

    Commission v. Germany, para 28.

  83. 83.

    ECJ, Case C-203/96 Dusseldorph [1998] ECR I-4075, para 67 (implicitly) and ECJ, Case C-209/98 Sydhavnens Sten & Grus [2000] ECR I-3743, para 75. Cf., Buendia Sierra 2007, p. 630.

  84. 84.

    ECJ, Case C-275/08 Commission v. Germany (II) [2009] I-nyr. The case is only accessible in German and French. However, see Otting and Sormani-Bastian 2010, where the facts are mentioned in detail.

  85. 85.

    Otting and Sormani-Bastian 2010, NA63.

  86. 86.

    Cf. Buendia Sierra 1999, p. 42. The public entity delivering the software was in the application described as: ‘…ha[ving a] legal personality under public law, and was established with the particular purpose to coordinate and promote electronic data-processing in public administration in the interests of the general public.’ See action brought on 24 June 2008—Commission of the European Communities v. Federal Republic of Germany (Case C-275/08) (2008/C 223/44), OJ 2008 C 223/28.

  87. 87.

    See also argument made supra n. 34.

  88. 88.

    For alternative interpretations, see Treumer 2010, pp. 175–176, arguing that the ECJ was inspired by French case law, Pedersen and Olsson 2010, pp. 41–45, for an interpretation on the basis of the legal framework of inter-muncipality coorperation (i.e., legal entity v. contract).

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  1. Juridisk Institut, Howitzvej 13, 3.sal, 2000, Frederiksberg, Denmark

    Grith Skovgaard Ølykke

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  1. , School of Law, University of Leicester, University Road, Leicester, LE1 7RH, United Kingdom

    Erika Szyszczak

  2. , School of Social Sciences, Department of, University of Northampton, Park Campus, Boughton Green Road, Northampton, NN2 7AL, United Kingdom

    Jim Davies

  3. , Department of Private Law, University of Oslo, Domus Media, Karl Johans gate 47, Oslo, 0162, Norway

    Mads Andenæs

  4. , Department of Private Law, University of Oslo, Domus Exilii, St. Olavs gate 23, Oslo, 0166, Norway

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Ølykke, G.S. (2011). The Definition of a ‘Contract’ Under Article 106 TFEU. In: Szyszczak, E., Davies, J., Andenæs, M., Bekkedal, T. (eds) Developments in Services of General Interest. Legal Issues of Services of General Interest. T.M.C. Asser Press. https://doi.org/10.1007/978-90-6704-734-0_5

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