Public contracts

October 25th, 2018

What is a contract for pecuniary interest? What is a public contract?  What therefore is the scope of the public procurement regime? Do the Teckal or Hamburg Waste derogations apply? These were the questions before the ECJ in Case C-606/17 IBA Molecular Italy Sri v Aziende ULSS No. 3.

“Public contracts” for the purpose of that regime are of course contracts “for pecuniary interest” concluded in writing between one or more economic operators and one or more contracting authorities and having as their object the execution of works, the supply of products or the provision of services within the meaning of this Directive.   “Contracting authorities” means the State, regional or local authorities, “bodies governed by public law”, associations formed by one or several of such authorities or one or several of such bodies governed by public law.IBA is an undertaking specialised in the production of radiopharmaceutical products. It challenged the measures and contractual arrangements by which the Local Health Authority No 3 and the Angelo di Mestre Hospital awarded directly, and without a prior public tendering procedure, a contract for the provision of medicinal product 18-FDG for a period of three years to the Sacro Cuore. Although a faith-based institution governed by private law, the Sacro Cuore forms part of the public system for healthcare planning of the Veneto region, on the basis of a special agreement, in its capacity as a “classified” hospital equivalent to a public institution.  According to the terms of that supply contract the Sacro Cuore undertook to supply the medicinal product 18-FDG free of charge to nine regional public hospitals in return for the payment of the transport costs fixed at a flat rate of EUR 180 per delivery.

The first question was essentially, whether Article 1(2)(a) of Directive 2004/18 must be interpreted as meaning that the concept of “contracts for pecuniary interest” includes the decision by which a contracting authority directly awards to a specific economic operator, and therefore without organising a public tendering procedure, specific-purpose funding for the manufacture of products to be supplied free of charge by that economic operator to various authorities which are not required to make any payment to the supplier, except for the payment to cover transport costs of a flat-rate of EUR 180 per delivery.

The ECJ said:-

“ There is no doubt as to the pecuniary nature of such a contract.

In accordance with Article 1(2)(a) of Directive 2004/18, in order to be covered by the definition of public contracts, a contract concluded between one or more economic operators and one or more contracting authorities must have been concluded “for pecuniary interest”.

It is clear from the usual legal meaning of “for pecuniary interest” that those terms designate a contract by which each of the parties undertakes to provide a service in exchange for another.

Thus, a contract providing for the exchange of services is covered by the concept of public contract, even if the remuneration provided for is limited to the partial reimbursement of costs incurred in order to supply the services agreed (see to that effect, judgments of 19 December 2012, Ordine degli Ingegneri della Provincia di Lecce and Others, C‑159/11, EU:C:2012:817, paragraph 29, and of 13 June 2013, Piepenbrock, C‑386/11, EU:C:2013:385, paragraph 31).

In the case in the main proceedings, the determination as to whether the contract for the production and supply of a medicinal product is for pecuniary interest must therefore take into account the existence of consideration paid to the supplier of that medicinal product by means of a grant from the Veneto Region of EUR 700 000.

It follows that a contract, such as that at issue in the main proceedings, by which an economic operator undertakes to manufacture and supply a product to various authorities in exchange for specific-purpose funding granted for the achievement of that objective, falls within the definition of contract “for pecuniary interest” within the meaning of Article 1(2)(a) of Directive 2004/18, even though the costs of production and distribution of that product are not fully covered by that grant or by the transport costs which may be charged to those authorities.

Therefore, the answer to the first question is that Article 1(2)(a) of Directive 2004/18 must be interpreted as meaning that the concept of “contract for pecuniary interest” includes a decision by which a contracting authority directly awards, to a specific economic operator, and therefore without organising a public tendering procedure, specific-purpose funding for the manufacture of products to be supplied free of charge by that economic operator to various authorities which are exempt from payment of any consideration to the supplier, except for the payment of a fixed sum of EUR 180 per delivery, for transport costs.”

The second question was essentially whether Article 1(2)(a) and Article 2 of Directive 2004/18 must be interpreted as precluding national rules, such as those at issue in the main proceedings, which, by treating private “classified” hospitals as the equivalent of public hospitals by bringing them within the system of national public healthcare planning governed by special agreements that are distinct from ordinary accreditation relationships with other private parties that participate in the system of provision of healthcare services, take them outside the scope of national and EU rules on public contracts, including in cases where such classified hospitals are entrusted with the manufacture and supply, free of charge, to public healthcare establishments of specific products which are necessary for the provision of healthcare services in exchange for public funding granted for the manufacture and supply of those products.

The ECJ said:-

“In that connection, it must be recalled that, under Article 1(2)(a) of Directive 2004/18, in order to constitute a public contract, and consequently, to be covered by the relevant EU legislation, the contract concluded for pecuniary interest concerned must have been concluded between one or more economic operators and one or more contracting authorities.

 As is clear from settled case-law, two types of contracts entered into by a public entity do not fall within the scope of European Union public procurement law (judgment of 19 December 2012, Ordine degli Ingegneri della Provincia di Lecce and Others, C‑159/11, EU:C:2012:817, paragraph 31).

First, contracts concluded between a public body fulfilling the conditions laid down in Article 1(9) of Directive 2004/18 to be classified as a “contracting authority” within the meaning of that directive and a person legally separate from it, where, that body simultaneously exercises over that person a control which is similar to that which it exercises over its own departments and that person carries out the essential part of its activities with the controlling authority or authorities (see, to that effect, judgments of 18 November 1999, Teckal, C‑107/98, EU:C:1999:562, paragraph 50, and of 11 January 2005, Stadt Halle and RPL Lochau, C‑26/03, EU:C:2005:5, paragraph 49).

In that connection, it suffices to state that it is clear from the information from the referring court that neither the Veneto Region nor the contracting authorities mentioned in paragraph 8 of the present judgment exercise control over the Sacro Cuore similar to that which they exercise over their own departments.

Thus, national rules, such as those at issue in the main proceedings cannot take contracts concluded between an institution such as the Sacro Cuore and a public body out of the scope of application of the rules on public tendering on the basis of the exception laid down in paragraph 36 of the present judgment.

Second, public contracts for pecuniary interest which establish cooperation between public entities with the aim of ensuring that a public task that all of them have to perform is carried out fall outside the scope of EU law on public tendering, as long as such contracts are concluded exclusively by public bodies, without the participation of a private party, so no private provider of services is placed in a position of advantage vis-à-vis competitors and implementation of that cooperation is governed solely by considerations and requirements relating to the pursuit of objectives in the public interest (see, to that effect, judgments of 9 June 2009, Commission v Germany, C‑480/06, EU:C:2009:357, paragraphs 44 and 47, and of 13 June 2013, Piepenbrock, C‑386/11, EU:C:2013:385, paragraphs 36 and 37).

Since all of the criteria mentioned in the preceding paragraph of the present judgment are cumulative, a contract concluded between public entities can fall outside the scope of European Union public procurement rules by virtue of that exception only if that contract fulfils all of those criteria (see, to that effect, judgment of 13 June 2013, Piepenbrock, C‑386/11, EU:C:2013:385, paragraph 38).

The first of those criteria is based specifically on the requirement that that form of cooperation is between public bodies.

It must be held that that criterion is clearly not satisfied in the present case. “Classified” hospitals, such as the Sacro Cuore, are legal persons, which are entirely privately managed in terms of funding, the appointment of their directors and their internal operating rules, ….

Therefore, the answer to the second question is that Article 1(2)(a) and Article 2 of Directive 2004/18 must be interpreted as precluding national rules, such as those at issue in the main proceedings which, by treating private “classified” hospitals as equivalent to public hospitals on account of their integration into the system of national public healthcare planning governed by special agreements that are distinct from ordinary accreditation relationships with other private parties that participate in the system of provision of healthcare services, take them outside the scope of national and EU rules on public contracts, including in cases where such classified hospitals are entrusted with the manufacture and supply, free of charge, to public healthcare establishments of specific products which are necessary for the provision of healthcare services and where, at the same time, they receive public funding specifically for the manufacture and supply of those products.”

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