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Brussels, 25th October 2004

Public procurement: Commission acts to enforce EU law in Germany, France, Denmark, Italy and the Netherlands

The European Commission has decided to refer Germany to the European Court of Justice over its non-compliance with a previous Court judgement requiring it to rectify the illegal award of contracts for waste water collection in Bockhorn and for waste disposal in Braunschweig (both in Lower Saxony). The Commission has requested the Court to impose daily fines of €31,680 and €126,720 respectively. The Commission has also decided to refer France to the Court concerning the incompatibility of its town planning code with EU public procurement law. The Commission has decided to send a formal request to Denmark to set up review procedures permitting a decision awarding a public procurement contract to be suspended and annulled at a stage where the infringement can still be put right. It is also formally asking Italy to rectify the award without competition of contracts for a series of hydraulic projects in Stintino, Sardinia. The Netherlands is being asked to rectify the extension without competition of a contract for the supply of road safety barriers. The Commission requests will take the form of reasoned opinions, which are the second stage of the infringement procedure laid down in Article 226 of the EC Treaty. If there is no satisfactory reply to these reasoned opinions, the Commission may refer the matter to the Court of Justice. Finally, after examining new national legislation, the Commission has decided to close an infringement procedure against Italy over the procedures used to select the operators of local public services.

The open and transparent procedures for invitations to tender required by Community law on public contracts mean more competition and better guarantees against corruption, as well as a better service to taxpayers and a better use of public money. A study published in February 2004 (see IP/04/149) has shown that the application of the Directives has reduced by about 30% the prices paid by awarding authorities for works, supplies and services. Also in February, the EU adopted a legislative package intended to clarify, modernise and simplify the Directives in order to achieve even greater savings (see IP/04/150).

Germany – waste disposal and waste water collection

On 10 April 2003, in joint cases C-20/01 and C-28/01, the Court of Justice ruled that Germany failed to fulfil its obligations under the services procurement Directive 92/50/EEC when local authorities in that country awarded without a competitive tendering process service contracts for waste disposal in Braunschweig (1995) and for waste water collection in Bockhorn (1996). Both these municipalities are in the State of Lower Saxony.

In March 2004 the Commission formally asked the national authorities to comply with the Court’s judgement (IP/04/428). But while Germany has pledged to avoid similar breaches in future procurement procedures, it continues to claim that no steps are required concerning the specific contracts in Braunschweig and Bockhorn, as German civil law does not require ending them. However, the Court’s judgement confirmed that the adverse effect on the freedom to provide services arising from a breach of Directive 92/50/EEC subsists throughout the entire length of the contracts concluded in breach of EU law. The contracts are due to last for a minimum of 30 years from when they entered into force.

The Commission has therefore decided to refer the case a second time to the Court of Justice. The Court of Justice may then impose a penalty payment on Germany.

The Commission has also decided to send a reasoned opinion to the German authorities concerning the award by the city of Cologne in May 1992 of a 33 year waste disposal contract to the Abfallentsorgungs- und Verwertungsgesellschaft Köln mbH (AVG), an entity 25% owned by a private undertaking. No transparent and competitive award procedure was carried out as required by EU law.

Germany argued that the contract award to the AVG was exempted from Community rules as the city of Cologne, with a 75 % share in the AVG, exercised a level of control over the AVG which constituted an “in-house” relationship. However, the Commission believes that the conditions required under the European Court’s case law for an exemption from European procurement rules were not met, as the control over the AVG is not similar to that which the city of Cologne exercises over its own departments. Therefore the direct award of the contract, in breach of the general principles of the EC-treaty (freedom of services, freedom of establishment), does not appear to be justified.

Furthermore, in 1992-1993 the AVG awarded waste disposal service contracts directly to three undertakings which are mainly privately owned. As the AVG is to be considered a public contracting authority, these awards also violated Community law.

France - local development agreements

The Commission has referred France to the Court of Justice over the incompatibility of Article L.300-4 of the French town planning code with European law. This article allows agreements and appointment contracts for the follow-up of preliminary studies for local development projects to be concluded without being advertised and without competition. The Commission has received no reply to its reasoned opinion sent in February 2004 (IP/04/162).

France makes use of local development agreements primarily for projects such as the construction of public amenities to be handed over to the awarding authority and for buildings to be resold or rented, e.g. as part of the implementation of a town planning project and local housing policy or urban renewal.

The Commission considers that the main purpose of these agreements concerns works, which are then usually performed by a builder selected by the town-planner on behalf of the competent authorities. According to the Commission, to the extent that they involve amounts which are beyond the EU thresholds, these types of local development agreements must in principle be concluded in accordance with the advertising and competition rules laid down in Directive 93/37/EEC on public works contracts.

As for appointment contracts for preliminary studies needed to define the features of a development project, the Commission considers that, to the extent that they involve amounts which are beyond the EU thresholds, such contracts must be awarded in accordance with the advertising and competition rules laid down in Directive 92/50/EEC on public service contracts.

As for all other types of local development agreement, including those involving amounts which are below the EU thresholds, the Commission takes the view that, according to the Treaty as interpreted by the Court of Justice, they must be awarded with a proper degree of advertising for the benefit of all potential applicants (see Court of Justice judgement, Telaustria, Case C-324/98).

Denmark - Implementation of the Remedies Directive

The Commission has decided to send a reasoned opinion to Denmark over its failure to comply with the obligations of the "Remedies" Directive on public procurement. In its “Alcatel judgment” (Case C-81/98), the Court stipulated that Member States are required to set up review procedures permitting a decision awarding a public procurement contract to be suspended and annulled at a stage where the possible infringement can still be rectified.

The result of this judgment with regard to the relevant Danish law is that a reasonable period should be granted to unsuccessful tenderers once they have been notified of the decision awarding a contract, so as to allow them to possibly challenge such a decision before the contract is signed. However, under Danish law there is no obligation to allow such a period nor any other provision ensuring that, in all cases, public procurement decisions can be challenged before the relevant contracts y enter into force.

Reasoned opinions have already been sent this year to Belgium (IP/04/44), Ireland, the UK (IP/04/428), Spain, the Netherlands and Finland (IP/04/951) over non-compliance with the Remedies Directive.

Italy – hydraulic works in Stintino, Sardinia

The Commission has decided to send Italy a reasoned opinion over the award of a public works contract for a series of hydraulic projects in the borough of Stintino (Sassari). This contract was awarded by a negotiated procedure in 1991 and was then followed by eleven further agreements, the last in 2001, defining in detail the work to be done in order to fulfil the contract. The direct award of the contract, without competition, is a breach of Directive 71/305/EEC, which was the legislation applicable to public works contracts at the time the one in question was signed.

The Netherlands – supply of road safety barriers

The Commission has decided to send a reasoned opinion to the Netherlands over the extension without competition by the Rijkswaterstaat (the body which administers public works) of a contract for the supply of road safety barriers. The Rijkswaterstaat prolonged this contract for two years, in breach of Directive 93/36/EEC on the procurement of supplies, which requires such contracts to be opened up to competition rather than simply awarded by extending the contract of the incumbent. Although the Dutch authorities offered in early 2004 a commitment to rectify this situation, they have not yet done so.

Italy – closure of an infringement procedure over contracts for local public services

After examining the latest Italian legislation on local public services, passed in December 2003, the Commission has decided to close the infringement procedure it opened in 2000 over the non-compliance with EU public procurement law of the national procedures used to select the operators of such local public services.

The new law allows local public services to be organised in three ways: through private companies selected after a competitive procedure, through mixed public-private companies where the private partner is chosen after a tendering process in line with EU law, or through direct award of contracts to publicly owned companies so closely linked to the awarding authority that they cannot be considered as third parties in relation to that authority (“in-house” entities according to the case law of the European Court of Justice).

The Commission considers this law as an improvement on the previous framework, which explicitly provided for local public service contracts to be awarded without competition and without meeting the specific and exceptional conditions which can allow, under EU law, such direct awards.

The Commission intends to follow very closely the implementation of the reform, given that its scope of application is very broad and that further Court judgements are soon expected, notably on the definition of the “in-house” relationships, which could have a significant impact on the way the new Italian legislation is to be applied if it is to remain in conformity with EU law. The Commission therefore reserves the right to intervene at a later stage, if specific cases of non-compliance at the implementation level arise.

The latest information on infringement procedures against any Member State can be found at:

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