Internal Market, Industry, Entrepreneurship and SMEs

Public procurement reform provides explicit rules for public-public cooperation

Public procurement reform provides explicit rules for public-public cooperation
Published on: 21/03/2016
The new Public Procurement Directives provide the first explicit legislative rules for determining which contracts can be awarded between public sector entities without a call for tender.

While these rules are based on European Court of Justice case law, they also take into account the need for improved legal certainty that has often been expressed by procurement practitioners. The rules will be particularly helpful for local and regional authorities looking to take full advantage of cooperation to carry out their tasks that benefit citizens in the most efficient way.

In-House Relationships such as a city administration awarding a contract to its own waste management unit

The rules for in-house relationships (also known as vertical cooperation) follow the basic principles developed by the European Court of Justice. A contracting authority can award a public contract to a given undertaking (i.e. to a company) (e.g. a municipal utility company or a public waste management provider) without applying a procurement procedure if three conditions are met:

  • The contracting authority must exercise control over the undertaking in similar manner to its own departments, i.e. it must have decisive influence on the strategic objectives and important decisions of the controlled company.
  • The controlled company must do business predominantly for the controlling contracting authority. In other words, over 80% of its activities must consist of performing the tasks entrusted to it by the controlling contracting authority or several contracting authorities.
  • There must be no direct private participation in the capital of the controlled undertaking. The only exception is in cases where the participation of a private partner is required by law, provided that it does not give the private partner blocking rights, controlling rights or any other form of decisive influence.

Control can be exercised by:

  • one contracting authority acting alone or
  • as joint control by several contracting authorities acting together such as public service associations controlled by all the municipalities in a given area. If control is jointly exercised, it must be ensured that:
    • all controlling contracting authorities are represented in the decision-making bodies of the controlled undertaking;
    • the controlled undertaking does not pursue interests that are contrary to those of the controlling contracting authorities.

Cooperation between contracting authorities to pool resources

The new directives also cover cases where contracting authorities are concluding contracts among themselves without creating a controlled company (also known as horizontal cooperation). This could be the case where several municipalities decide to pool their resources in waste management so that participating municipalities perform specific services for all members of the cooperation.

In the framework of this kind of cooperation, contracts can be awarded between contracting authorities, without the participation of private parties, if the following conditions are met:

  • The contract must establish or implement cooperation between the participating contracting authorities that aims to ensure that the public services they have to perform are provided to achieve common objectives.
  • The implementation of the cooperation has to be governed solely by considerations related to the public interest.
  • Business on the market outside the cooperation has to be strictly limited. In other words, the participating contracting authorities must perform less than 20% of the activities concerned by the cooperation on the open market (i.e. outside the cooperation).

Transfer of a public task not affected by new procurement law, unless…

The new public procurement rules do not affect the simple transfer of powers and responsibilities for the performance of a public task from one public entity to another as long as it does not result in the exchange of contractual performance for remuneration. This provides the desired clarity and legal certainty for local and regional authorities in particular, which often want to pool specific public tasks by transferring them to associations or other public structures.

Do the EU Public Procurement Directives also apply to relations between contracting authorities?

The Court of Justice of the EU has confirmed that procurement contracts between contracting authorities cannot be automatically presumed to fall outside the application of EU public procurement law. However, the Court's case law also showed that certain forms of cooperation between contracting authorities cannot be regarded as public procurement contracts.

The European Commission Staff Working Paper SEC(2011)1169 aims to provide a broad overview of the existing case-law of the Court of Justice. It consolidates and summarises this case-law, and draws some conclusions from it, insofar as the findings of the Court allow. It does not create any new rules or requirements. Instead, it aims to contribute to the better understanding and application of the existing legal environment. It is intended to benefit all stakeholders in public procurement.

The Working Paper was drafted on the basis of the former Public Procurement Directives (Directive 2004/17/EC and Directive 2004/18/EC). Taking account of the intervening changes to the corresponding provisions in the current Directives, the explanatory note may still be of use.

Public-public cooperation: Commission staff working paper on the application of EU public procurement law to relations between contracting authorities (157 kB) ES, BG, CS, DA, DE, EL, ET, FI, FR, IT, LV, LT, HU MT, NL, PL, PT, RO, SK, SL, SV

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