Public Procurement in the European Union

This page intentionally left blank

Public Procurement in the
European Union

By Christopher Bovis
© Christopher Bovis 2005
Softcover reprint of the hardcover 1st edition 2005 978-1-4039-3607-3
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
No paragraph of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of the
Copyright, Designs and Patents Act 1988, or under the terms of any licence
permitting limited copying issued by the Copyright Licensing Agency, 90
Tottenham Court Road, London W1T 4LP.
Any person who does any unauthorised act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
The author has asserted his right to be identified as the author
of this work in accordance with the Copyright, Designs and
Patents Act 1988.
First published 2005 by
PALGRAVE MACMILLAN
Houndmills, Basingstoke, Hampshire RG21 6XS and
175 Fifth Avenue, New York, N. Y. 10010
Companies and representatives throughout the world
PALGRAVE MACMILLAN is the global academic imprint of the Palgrave
Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd.
Macmillan® is a registered trademark in the United States, United Kingdom
and other countries. Palgrave is a registered trademark in the European
Union and other countries.
ISBN 978-1-349-51836-4 ISBN 978-0-230-50144-7 (eBook)
DOI 10.1057/9780230501447
This book is printed on paper suitable for recycling and made from fully
managed and sustained forest sources.
A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Bovis, Christopher.
Public procurement in the European Union / by Christopher Bovis.
p. cm.
Includes bibliographical references and index.
1. Government purchasing–Law and legislation–European Union
countries. 2. Public contracts–European Union countries. I. Title.
KJE5632.B687 2005
346.2402′3–dc22 2005042933

10 9 8 7 6 5 4 3 2 1
14 13 12 11 10 09 08 07 06 05
 to Pine
for taking care of business
This page intentionally left blank
Contents

Cases before the European Court of Justice xiii

Foreword xix

Introduction 1
The emergence of public markets and their interface with 1
the common market
The public policy dimension in public procurement 5
Regionalism and public procurement 6
The industrial policy potential in public procurement 9
Public procurement and defence 10

Chapter 1 European Integration and Public 14

Procurement
Introduction 14
Public procurement as a component of the common market 14
The conceptual elements of public procurement regulation 17
The evolution of public procurement regulation 23

Chapter 2 Public Procurement Regulation 33

Introduction 33
Part 1 The legal regime on public procurement 33
The supplies procurement 33
The works procurement 35
Utilities procurement 38
Procurement of services 42
Enforcement and compliance: The Compliance Directives 45
The WTO Government Procurement Agreement 46
Part 2 Definitions and the mechanics of public 49
procurement regulation
The concept of contracting authorities 49
The principle mandatory advertisement and publication of 50
public contracts
The monetary applicability of the Public Procurement 52
Directives
Selection and qualification criteria 54

vii
viii Contents

Legal requirements for the qualification of contractors 56

The list of recognised contractors 56
Part 3 The award of public contracts 58
Tendering procedures 58
The award criteria 61
Framework agreements 64
In-house contracts and contracts to affiliated undertakings 65
Design contests 65
Concession contracts 66
The award of public housing schemes 66
Socio-economic considerations 67
Employee protection and transfer of undertakings 68
Environmental considerations as award criteria 69

Chapter 3 Lessons from Jurisprudence 71

Introduction 71
Part 1 The European Court of Justice and Public 72
Procurement
The principle of non-discrimination 72
Technical standards 72
Selection and qualification 73
Preference purchasing schemes 76
The principle of objectivity 78
Award procedures 78
Award criteria 79
Part 2 The emerging themes 82
The public nature of public procurement 82
The functional dimension of contracting authorities 83
Bodies governed by public law 85
The dependency test 85
Commerciality and needs in the general interest 88
The dual capacity of contracting authorities 91
The connection of contracting authorities with private 92
undertakings
Procurement as a policy instrument 95
Social considerations as award criteria 95
Transfer of undertakings and public procurement 98
Environmental considerations as award criteria 99

Chapter 4 Public Procurement as Economic and 100

Policy Exercise
Introduction 100
 Contents ix

The new approach towards the integration of public markets 101

A neo-classical perspective to public procurement regulation 106
The distinctiveness of public markets 106
Procurement regulation as an economic exercise 107
Anti-trust and public procurement regulation 111
The ordo-liberal approach to public procurement regulation 112
Public procurement as part of the European Integration 113
Contract compliance and public procurement 115
A rule of reason 117
Inherent dangers in the regulation of public procurement 121

Chapter 5 A Critical Assessment of Public Procurement 124

Introduction 124
Inherent shortcomings in the public procurement rules 125
The dimensionality of public procurement 125
The effects of the principle of transparency 128
The abuse of award procedures which may restrict competition 130
Public monopolies 134
Standardisation and specification 136
Reluctance in initiating litigation 137
Public procurement and the sustainability of certain industries 139

Chapter 6 The New Public Procurement Regime 145

Introduction 145
Part 1 The new concepts in public procurement 146
regulation
The Codified Public Supplies, Works and Services Directive 146
A thematic analysis of the new concepts in procurement 148
Eligibility of bodies governed by public law to tender 148
Joint and centralised procurement 149
A new award procedure: the competitive dialogue 150
Framework procurement 153
Electronic procurement 155
Electronic auctions 157
The use of electronic signatures 160
Public procurement and the environment 160
Procurement and employment 162
Public procurement and WTO 163
Procurement and culture 164
Procurement, small and medium enterprises and 164
subcontracting
Contractual performance and public procurement 164
Procurement and probity 165
x Contents

The award criteria 166

Exclusive rights in the utilities 168
Postal utilities 169
Competitive markets in utilities 169
Part 2 Future developments 170
Public procurement and Public-Private Partnerships 170
Revision of remedies in public procurement 173

Chapter 7 Public-Private Partnerships 175

Introduction 175
From corporatism to contractualised governance 177
Part 1 The emergence of the Private Finance Initiative 179
The intellectual origins of the Private Finance Initiative 182
The procedural delivery of the Private Finance Initiative 187
The contractual nature of a PFI project 187
The services/works dilemma 188
The case of mixed contracts 189
The case of concession contracts 191
The award procedures for PFI 193
Publicity requirements 196
Part 2 The development of public-private partnerships 196
at European level
The contractual public-private partnership 198
The institutional public-private partnership 200

Chapter 8 The Procurement of Services of General 205

Interest
Introduction 205
Part 1 The services of general interest under EU law 206
The services of general interest through public procurement 208
The non-commercial character of services of general interest 209
have
Services of general interest and contracting authorities 211
Links between contracting authorities and private 213
undertakings
Procurement, contractualised governance and services of 216
general interest
The “public” nature of public procurement 218
Part 2 How are public services financed? 220
The ECJ and its approach to the financing of services of 221
general interest
 Contents xi

Public service obligations 224

The role of public procurement in the assessment of state aids 226
The interaction of public procurement with the three 228
approaches of state aids assessment
Part 3 Market forces and services of general interest 232
A new approach 234

Conclusions 237
Notes 241

Index 287
This page intentionally left blank
Cases before the European Court of
Justice

C-13/61, Kledingverkoopbedrijf de Geus en Uitdenbogerd v. Robert Bosch

GmbH [1962] ECR 45.

C-26/62, NV Algemene Transporten Expeditie Onderneming Van Gend en

Loos v. Nederlandse Administrtie der Belastigen [1963] ECR 1.

C-6/64, Costa v. ENEL [1964] ECR 585.

C-48/65, Alfons Luttucke GmbH v. Commission [1966] ECR 19.

C-57/65, Alfons Luttucke GmbH v. Haupzollampt Saarlouis [1966] ECR
205.

C-27/67, Firma Fink-Frucht GmbH v. Haupzollamt Munchen Landsberger-

strasse [1968] ECR 223.
C-28/67, Firma Molkerei Zentrale Westfalen/Lippe GmbH v. Haupzollampt
Paderborn [1968] ECR 143.

C-13/68, SpA Salgoil v. Italian Ministry for Foreign Trade [1968] ECR 453.
C-14/68, Wilhem v. Bundeskartellampt [1969] ECR 1 at 27.

C-78/70, Deutche Grammophon GmbH v. Metro-SB Grossmarkte GmbH

[1971] ECR 1 at 31.

C-21-24/72, International Fruit Co NV v. Produktschap voor Groenten en

Fruit [1972] ECR 1236.

C-127/73, BRT v. SABAM [1974] ECR 313.

C-167/73, Commission v. France [1974] ECR 359.
C-173/73, Italy v. Commission [1974] ECR 709.
C-40-48, 50, 54-56, 111, 113-114/73, Cooperative Vereniging “Suiker
Unie” UA v. Commission [1975] ECR 1663.

C-2/74, Reyners v. Belgian State [1974] ECR 631.

C-33/74, Van Bisbergen v. Bestuur van de Bedrijfsvereninging voor de
Metaalinijverheid [1974] ECR 1299.
C-41/74, Van Duyn v. Home Office [1974] ECR 1337.
C-36/74, Walrave and Koch v. Association Union Cycliste International
et al. (1974) ECR 1423.

xiii
xiv Cases before the European Court of Justice

C-43/75, Drefenne v. SABENA (1976) ECR 473.

C-74/76, Ianelli & Volpi Spa v. Ditta Paola Meroni [1977] 2 CMLR 688.

C-38/77, ENKA BV v. Inspecteur der Invoerrecht en Accijnzen [1977] ECR

2203.
C-61/77R, Commission v. Ireland [1977] ECR 1411.
C-156/77, Commission v. Belgium [1978] ECR 1881.

C-102/79, Commission v. Belgium [1980] ECR 1489.

C-300/81, Commission v. Italy [1983] ECR 449.
C-314-316/81&82, Procureur de la Republique et al. v. Waterkeyn [1982]
ECR 4337.
C-249/81, Commission v. Ireland [1982] ECR 4005.
244/81, Commission v. Ireland [1982] ECR 4005.
C-76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457.
C-283/81, Srl CILFIT v. Minisrty of Health [1982] ECR 3415.

C-323/82, Intermills v. Commission [1984] ECR 3809.

C-286/82 & 26/83, Luisi & Carbone v. Ministero del Tesoro [1984] ECR 377.

C-240/83, Procureur de la République v. ADBHU [1985] ECR 531.

C-247/83, Commission v. Italy [1985] ECR 1077.
C-118/83R, CMC Co-operativa Muratori e Cementisti v. Commission
[1983] ECR 2583.

C-44/84, Hurd v. Jones [1986] ECR 29.

C-152/84, Marshall v. Southampton and South West Hampshire Area
Health Authority [1986] ECR 723.
C-18/84, Commission v. France [1985] ECR 1339.
C-03/84, Commission v. Italy [1986] ECR 1759.
C-234/84, Belgium v. Commission [1986] ECR 2263.

C-24/85, Spijkers v. Gebroders Benedik Abbatoir CV [1986] ECR 1, 1123.

C-40/85, Belgium v. Commission [1986] ECR I-2321.
C-67/85, 68/85 and 70/85, Van der Kooy and Others v. Commission
[1988] ECR 219.
C-118/85, Commission v. Italy [1987] ECR 2599.
C-199/85, Commission v. Italy [1987] ECR 1039.
C-239/85, Commission v. Belgium [1986] ECR 1473.
C-310/85, Deufil v. Commission [1987] ECR 901.

C-66/86, Ahmed Saeed Flugreisen v. Commission [1989] ECR 803.

C-147/86, Commission v. Hellenic Republic [1988] ECR 765.
 Cases before the European Court of Justice xv

C-308/86, Ministere Public v. Lambert [1988] ECR 478.

C-27/86, 28/86, 29/86, Constructions et Enterprises Indusrtielles S.A. (CEI)
v. Association Intercommunale pour les Autoroutes des Ardennes, CEI and
Bellini [1987] ECR 3347.
C-84/86, Commission v. Hellenic Republic, not reported.
C-27/86, Constructions et Enterprises Indusrtielles S.A. (CEI) v. Association
Intercommunale pour les Autoroutes des Ardennes, C-28/86, Ing.A. Bellini &
Co. S.p.A. v. Regie de Betiments, C-29/86, Ing.A. Bellini & Co. S.p.A. v.
Belgian State [1987] ECR 3347.

C-45/87, Commission v. Ireland [1988] ECR 4929.

C-31/87, Gebroeders Beenjes B.V v. The Netherlands [1989] ECR 4365.
C-45/87, Commission v. Ireland [1988] ECR 4929.
C-45/87R, Commission v. Ireland [1987] ECR 1369.
C-301/87, France v. Commission [1990] ECR I, p. 307.
C-3/88, Commission v. Italy [1989] ECR 4035.

C-21/88, Du Pont de Nemours Italiana SpA v. Unita Sanitaria Locale N.2 di

Carrara [1990] ECR 889.
C-103/88, Fratelli Costanzo S.p.A. v. Comune di Milano [1989] ECR 1839.
C-351/88, Lavatori Bruneau Slr. v. Unita Sanitaria Locale RM/24 di
Monterotondo.
C-194/88R, Commission v. Italy [1988] ECR 5647.
C-303/88, Italy v. Commission [1991] ECR I-1433.

C-188/89, Foster v. British Gas [1990] ECR-1313.

C-213/89, The Queen v. Minister of Agriculture Fisheries and Food [1990]
ECR I-2433.
C-247/89, Commission v. Portugal [1991] ECR I-3659.
C-261/89, Italy v. Commission [1991] ECR I-4437.
C-305/89, Italy v. Commission (‘Alfa Romeo’) [1991] ECR I-1603.
C-360/89, Commission v. Italy [1992] ECR I-3401.
C-179/89, Farmaindusrtia v. Consejeria de salud de la Junta de Andalucia
[1989] O.J. C 160/10.
296/89, Impresa Dona Alfonso di Dona Alfonso & Figli s.n.c. v. Consorzio
per lo Sviluppo Industriale del Comune di Monfalcone, judgement of June
18, 1991.

C-6/90 and 9/90, Francovich and Bonifaci v. Italian Republic [1993]

ECR 61.
C-179/90, Merci Convenzionali Porto di Gevova [1991] ECR 1-5889.
C-362/90, Commission v. Italy, judgement of March 31, 1992.

C-24/91, Commission v. Kingdom of Spain [1994] CMLR 621.

xvi Cases before the European Court of Justice

C-29/91, Dr Sophie Redmond Stichting v. Bartol, IRLR 369.

C-209/91, Rask v. ISS Kantinservice, [1993] ECR 1.
C-272/91R, Commission v. Italian Republic, order of June 12, 1992.

C-389/92, Ballast Nedam Groep NV v. Belgische Staat [1994] 2 CMLR.

C-107/92, Commission v. Italy, judgement of August 2, 1993.
C-296/92, Commission v. Italy, judgement of January 12, 1994.
C-71/92, Commission v. Spain, judgement of June 30, 1993.
C-89/92, Ballast Nedam Groep NV v. Belgische Staat [1994] 2 CMLR.
C-278/92 to C-280/92, Spain v. Commission [1994] ECR I-4103.
C-296/92, Commission v. Italy, judgement of January 12, 1994.
C-343/95, Diego Cali et Figli [1997] ECR 1-1547.
C-364/92, SAT Fluggesellschafeten [1994] ECR 1-43.
C-382/92, Commission v. United Kingdom [1994] ECR 1.
C-387/92, Banco Exterior [1994] ECR I-877.
C-392/92, Schmidt v. Spar und Leihkasse der fruherer Amter Bordersholm,
Kiel und Cronshagen [1994] ECR 1, 1320.

C-46 & 48/93, Brasserie du Pecheur SA v. Germany, Regina v. Secretary of

State for Transoprt, ex parte Factortame LTD, 5 March 1996: [1996] 1
CMLR 889.
C-56/93, Belgium v. Commission [1996] ECR I-723.
C-359/93, Commission v. The Netherlands, judgement of January 24,
1995.
C-280/93, Germany v. Council, judgement of 5 October 1994.
C-324/93, R. v. The Secretary of State for the Home Department, ex parte Evans
Medical Ltd and Macfarlan Smith Ltd, judgement of 28 March 1995.
C-382/92, Commission v. United Kingdom [1994] ECR 1.
C-392/93, The Queen and H.M. Treasury, ex parte British Telecommunica-
tions PLC, O.J. 1993, C 287/6.

C-39/94 SFEI and Others [1996] ECR I-3547.

C-48/94, Rygaard v. Stro Molle Akustik, judgement of 19/9/1995.
C-57/94, Commission v. Italy, judgement of May 18, 1995.
T-67/94, Ladbroke Racing v. Commission [1998] ECR II-1.
C-79/94, Commission v. Greece, judgement of May 4, 1995.
C-87/94R, Commission v. Belgium, order of April 22, 1994.
C-157/94, Commission v. Netherlands [1997] ECR I-5699.
C-158/94, Commission v. Italy [1997] ECR I-5789.
C-159/94, Commission v. France [1997] ECR I-5815.
C-160/94, Commission v. Spain [1997] ECR I-5851.
C-241/94, France v. Commission [1996] ECR I-4551.
T-358/94, Air France v. Commission [1996] ECR II-2109.
 Cases before the European Court of Justice xvii

T-106/95, FFSA and Others v. Commission [1997] ECR II-229.

C-343/95, Diego Cali et Figli [1997] ECR 1-1547.

C-44/96, Mannesmann Anlangenbau Austria AG et al. v. Strohal Rotations-

durck GesmbH, judgement of 15 January 1998.
T-16/96, Cityflyer Express v. Commission [1998] ECR II- 757).
C-44/96, Mannesmann Anlangenbau Austria AG et al. v. Strohal Rotations-
durck GesmbH [1998] ECR 73.
C-323/96, Commission v. Kingdom of Belgium [1998] ECR I-5063.
C-342/96, Spain v. Commission [1999] ECR I-2459.
C-353/96, Commission v. Ireland and C-306/97, Connemara Machine Turf
Co Ltd v. Coillte Teoranta [1998] ECR I-8565.
C-360/96, Gemeente Arnhem Gemeente Rheden v. BFI Holding BV [1998]
ECR 6821.
C-44/96, Mannesmann Anlangenbau Austria AG et al. v. Strohal Rotations-
durck GesmbH [1998] ECR 73.

C-5/97, Ballast Nedam Groep NV v. Belgische Staat, judgement of

18 December 1997.
C-6/97, Italy v. Commission [1999] ECR I-2981.
T-46/97, [2000] ECR II-2125.
C-75/97, Belgium v. Commission [1999] ECR I-3671.
C-107/98, Teckal Slr v. Comune di Viano, judgement of 18 November
1999.
C-144/97, Commission v. France [1998] ECR 1-613.
C-174/97 P, [1998] ECR I-1303.
T-204/97 and T-270/97, EPAC v. Commission [2000] ECR II-2267.
C-256/97, DM Transport [1999] ECR I-3913.
T-613/97, Ufex and Others v. Commission [2000] ECR II-4055.
C-107/98, Teckal Slr. v. Commune di Viano [1999] ECR I-8121.
C-156/98, Germany v. Commission [2000] ECR I-6857.
C-176/98, Holst Italia v. Comune di Cagliari, judgement of 2 December
1999.
C-380/98, The Queen and H.M. Treasury, ex parte University of Cambridge
[2000] ECR 8035.

C-94/99, ARGE Gewässerschutzt v. Bundesministerium für Land-und Fors-

twirtschaft, judgement of 7 December 2000.
C-223/99, Agora Srl v. Ente Autonomo Fiera Internazionale di Milano and
C-260/99 Excelsior Snc di Pedrotti Runa & C v. Ente Autonomo Fiera
Internazionale di Milano [2001] ECR 3605.
C-237/99, Commission v. France [2001] ECR 934.
xviii Cases before the European Court of Justice

C-285/99 & 286/99, Impresa Lombardini SpA v. ANAS, judgement of

27 November 2001.
C-513/99, Concordia Bus Filandia v. Helsingin Kaupunki et HKL-
Bussiliikenne [2002] ECR 7213.

C-53/00, Ferring SA v. Agence centrale des organismes de sıcuritı sociale

(ACOSS) [2001] ECR I-09067.
C-280/00, Altmark Trans GmbH and Regierungsprdsidium Magdeburg v.
Nahverkehrsgesellschaft Altmark GmbH and Oberbundesanwalt beim Bun-
desverwaltungsgericht [2003] ECR 1432.
C-280/00, Altmark Trans GmbH, Regierungsprdsidium Magdeburg et Nah-
verkehrsgesellschaft Altmark GmbH, Oberbundesanwalt beim Bundesver-
waltungsgericht (third party), judgement of 24 July 2003.
C-5/01, Belgium v. Commission [2002] ECR I-3452.
C-83/01 P, C-93/01 P and C-94/01, Chronopost and Others [2003], not
yet reported.
C-126/01, Ministre de l’economie, des finances et de l’industrie v. GEMO SA
[2003] ECR 3454.
Foreword

Public procurement is a specialist subject. It has many dimensions and

many facets emerge in its regulation. It reflects on the need to liberalise
the relevant markets to achieve competitiveness and efficiencies. It also
retrieves many links with national policies. It provides a platform for
businesses to expand within the European Union and beyond. It is a
key element of the European integration process. It interfaces with
other Community Policies. It represents one of the last remaining non-
tariff barriers for the completion of the common market. Finally, it
plays an important role in international trade liberalisation under the
auspices of the WTO.
This book approaches the subject of public procurement in the Euro-
pean Union from a multi-discipline stance. The legal framework of
public procurement has been examined in such a way as to reveal its
policy interplay and provide for a clear landscape of the side-effects of
its regulation.
The recent enlargement of the European Union has placed the con-
cept of the common market at the heart of the European integration
process. New members have to adapt the public procurement acquis
communautaire and existing ones must improve on the quality of its
implementation. The challenge is on for member states and European
institutions to provide the public markets of the European Union with
a regulatory system of multi-focal attributes. The success of such an
exercise will be measured by reference to market access for companies
supplying the public sector, the quality of services provided, value-
for-money considerations and finally the degree of complementarity of
public purchasing with socio-economic policies of the European Union
and its member states.
It would have been difficult to complete this project without the
involvement of a number of people to whom here I record my great
indebtedness. First of all, my thanks go to the Publishers for their pro-
fessionalism and the assistance they provided. It is also with deep
appreciation that I express my gratitude to Dr Christine Cnossen, for
reading the manuscript and discussing numerous concepts which
I have developed, particularly in the light of the recent jurisprudential
and policy developments.

xix
xx Foreword

Finally, I am indebted to Peter Cnossen for his guidance and his

insights into business strategies and government practices relevant to
public procurement. He gave me an inspiration to approach the public
procurement regime critically and assess its relationship with main
anti-trust principles. His support has been invaluable.
Introduction

The regulation of public procurement in the European Union has been

the cinderella of the European integration. Often neglected as a discip-
line of European law and policy, although directly relevant to the fun-
damental principles of the common market, public procurement has
not received equal priority to other regulatory regimes by the Member
States of the European Union.
As one of the major subject areas of the common market, public pro-
curement exhibits the symptoms of regime rejection. For almost three
decades, the implementation of the European acquis has been slow and
at rather irritatingly procrastinated pace, particularly when compared to
other legal and policy regimes which are carried through the European
Union principles of free movement of goods, services and the right of
establishment. The implementation of the public procurement regime
by the EU Member States reflects on something peculiar: either the delib-
erate opposition of Member States with the principles enshrined in the
relevant legal framework or the impossibility of providing an umbrella
legal regime which can embrace a plethora of multi-policy orientations
and domestic considerations arising from the award of public contracts.
Procurement, public or private, is a powerful exercise. It carries the apti-
tude of acquisition; it epitomises economic freedom; it depicts the nexus
of trade relations amongst economic operators; it represents the necessary
process to deliver public services; it demonstrates strategic policy options.

The emergence of public markets and their interface with the

common market
Why regulate public procurement? The main reason for regulating public
sector and utilities procurement is to bring their respective markets
1
2 Public Procurement in the European Union

parallel to the operation of private markets. European policy makers

have recognised the distinctive character of public markets and focused
on establishing conditions similar to those that control the operation
of private markets. The public markets reflect an economic equation
where the demand side is represented by the public sector and its
contracting authorities and the supply side covers the industry.
The intellectual support of public procurement regulation in the
European Union rests with liberal economic theories, where enhanced
competition in public markets could bring about beneficial effects for
the supply side. It is envisaged that optimal allocation of resources
within the European industries, rationalisation of production and
supply, promotion of mergers and acquisitions and elimination of sub-
optimal firms and creation of globally competitive industries will trans-
form the European industrial base. It seems that public procurement
regulation transmits from the start signals of industrial policy, a policy
that is desperately needed in the European Union. Although the regu-
lation of public procurement aims primarily at the purchasing patterns
of the demand side, its surrogate effects on the supply side have been
also deemed to yield substantial purchasing savings for the public
sector. Public procurement has cyclical dynamics. It purports to change
both behavioural and structural perceptions and applies its effects to
both the demand and supply sides.
The European institutions envisaged the creation of such a com-
petitive regime in public markets through the establishment of a legal
framework which aims at eliminating preferential public procurement
practices which favour national champions. Legally, the existence of
national champions falls foul of the principle of non-discrimination laid
down in the European Treaties, but also on policy grounds combating
discrimination on grounds of nationality in public procurement and
eliminating domestic preferential purchasing schemes could result in
efficiency gains at European and national levels. When the demand
side is viewed as a conglomerate of purchasing entities at European
level, the efficiency gains represent a challenge too good to miss.
Public procurement regulation will set in motion three major effects
which would primarily influence the supply side, but have a phenom-
enal impact on the demand side as well. These include a trade effect,
a competition effect and a restructuring effect.
The trade effect represents the actual and potential savings that the
public sector will be able to achieve through lower cost purchasing.
The trade effect emanates as a result of the principle of transparency in
public markets (compulsory advertisement of public contracts above
 Introduction 3

certain thresholds). However, the principle of transparency and the

associated trade effect in public markets do not in themselves guarantee
the establishment of competitive conditions in the relevant markets,
as market access – a structural element in the process of integration of
public markets in Europe – could be hindered by the discriminatory
behaviour of contracting authorities in the selection stages and the
award stages of public procurement. The trade effect has a static dimen-
sion, since it emerges as a consequence of enhanced market access
in the relevant sector or industry.
The competition effect relates to the changes of industrial perform-
ance as a result of changes in the price behaviour of national firms
which had previously been protected from competition by means of
preferential and discriminatory procurement practices. The competi-
tion effect derives also from the principle of transparency and appears
to possess rather static characteristics. Transparency in public procure-
ment breaks information and awareness barriers in public markets, and
as mentioned above brings a trade effect in the relevant sectors or
industries by means of price competitiveness. The competition effect
comes as a natural sequence to price competitiveness and inserts an
element of long-term competitiveness in the relevant industries in
aspects other than price (e.g. research and development, innovation,
customer care). The competition effect would materialise in the form
of price convergence of goods, works and services destined for the public
sector. Price convergence could take place both nationally and Com-
munity-wide, in as much as competition in the relevant market would
equalise the prices of similar products.
Finally, the restructuring effect reveals the restructuring dimension
and the re-organisational dynamics in the supply side, as a result of
increased competition in the relevant markets. The restructuring
effect is a dynamic one and refers to the long-term industrial and
sectoral adjustment within industries that supply the public sector.
The restructuring effect attempts to encapsulate the reaction of the
relevant sector or industry to the competitive regime imposed upon
the demand and supply sides, as a result of openness and trans-
parency and the sequential trade and competition effects. The
response of the relevant sector or industry and the restructuring
effect itself would depend on the efficiency of the industry to merge,
diversify, convert or abort the relevant competitive markets and
would also reflect contemporary national industrial policies.
The above scenario represents the model envisaged by European
Institutions on a macro-perspective and depicts the orientation of
4 Public Procurement in the European Union

policy-making towards the formation of a coherent industrial policy

at European level. The regulation of the purchasing behaviour of the
demand side in public markets seems to constitute an effective way of
introducing competitive elements to the European industries, which
apparently suffer from overcapacity and excessive compartmentalisa-
tion. In addition, the cost of research and development in such a
market structure builds up and it is reflected in pricing, particularly in
high-tech products. Industrial restructuring and adjustment has been a
priority for the European Commission for a long time.
The regulation of public procurement in the European Union re-
ceived priority as a result of the policy and legal momentum which
influenced the whole European integration process in the eighties
(The White Paper for the Completion of the Internal Market and the
Single European Act). The inefficiency of the relevant primary legal
provisions to combat discriminatory practices and preferential public
purchases was disclosed, as statistical results revealed considerably
low cross-border import penetration in public contracts. A disturbing
picture emerged revealing the extent of differentiation between the
structures of private and public markets within the Member States.
Public markets appear as closed and protected offering very little access
to intra-community trade patterns.
Public procurement has served well in the national governments’
armory of industrial policies. In the past many of the advantages offered
to national champions and locally operating firms in public markets had
discouraged the tradability of public contracts amongst European indus-
tries. Persistence in low import penetration in protected public procure-
ment sectors exposes often a type of strategy applicable to the relevant
industries. Before the opening-up of the public procurement in Europe,
the typical strategic choice was low on integration and high on respons-
iveness, including the replication of all major corporate functions such
as production, research and development, and marketing in Member
State. The functioning of the common market and the regulation of
public procurement in the European Union has been forcing firms
to revise those strategies and to build up network organisations, which
combine local responsiveness with a high degree of centralisation and
co-ordination of major supporting activities. The new strategy has the
characteristics of a multi-focal strategy for the supply side.
The adoption of multi-focal strategies or global integration strate-
gies involves a major shift in location patterns of key functions within
firms. The old decentralised multinational organisations which duplic-
ated major functions in each country in which they operated need to
 Introduction 5

transform into an integrated system of which the key elements show a

different degree of regional concentration. As a consequence of the
new organisational structure, different types of international transac-
tions are expected to occur. Specialisation and concentration of activ-
ities in certain regions will lead to more trade between Member States.
In addition, as a result of the corporate network system, trade will
increasingly develop into intra firm trade and intra-industry trade
with greater exchange of intermediary products. The organisational
rationalisation following the development of network organisations
poses the problem of ownership and location of the corporate head-
quarters. Some Member States fear that they relinquish strategic
control in the restructuring process and therefore may resist the ratio-
nalisation process that the industry has been undergoing, by imposing
various restrictions in terms of ownership or control structures of
locally operating firms.

The public policy dimension in public procurement

Policy makers should not overlook the effects of public procurement on
the formulation of the industrial policy of the European Union. The
aim and objective of its regulation has to a large extent acquired an
industrial policy background, which mainly focuses on the achievement
of savings for the public sector and the much desired restructuring and
adjustment of the European industrial base. However, public spending
in the form of procurement is indissolubly linked with adjacent policies
and agendas in all Member States. The most important policy associated
with public purchasing is social policy. Such an argument finds justifi-
cation in two reasons: the first relates to the optimal utilisation of
human resources in industries supplying the public sector; the second
reason acquires a strategic dimension, in the sense that public purchas-
ing serves aims and objectives stipulated in the European Treaties, such
as social cohesion, combating of long-term unemployment, and finally
the achievement of acceptable standards of living. The underlying
objectives of the European regime on public procurement relating to
enhanced competition and unobstructed market access in the public
sector at first sight appear incompatible with the social dimension of
European integration, particularly in an era where recession and eco-
nomic stagnation have revealed the combating of unemployment as a
main theme of European governance.
The award of public contracts can be based on two criteria: i) the lowest
price or ii) the most economically advantageous offer. Contracting
6 Public Procurement in the European Union

authorities have absolute discretion in adopting the award criterion under

which they wish to award their public contracts. The lowest price award
criterion is mostly used when the procurement process is relatively
straightforward. On the other hand, the most economically advantageous
offer award criterion is suited for more complex procurement schemes.
The most economically advantageous offer as an award criterion
represents a flexible framework for contracting authorities wishing
to insert a qualitative parameter in the award process of a public con-
tract. Needless to say, price, as a quantitative parameter plays an
important role in the evaluation stage of tenders, as the meaning of
“economically advantageous” could well embrace financial considera-
tions in the long run. So, if the qualitative criteria of a particular bid
compensate for its more expensive price, potential savings in the long
run could not be precluded. It is not clear whether the choice of the
two above mentioned award criteria has been intentional with a view
to providing contracting authorities a margin of discretion to take
into account social policy objectives when awarding their public
contracts, or if it merely reflects an element of flexibility which is
considered necessary in modern purchasing transactions. If the most
economically advantageous offer represents elements relating to
quality of public purchasing other than price, an argument arises here
supporting the fact that the enhancement of the socio-economic
fabric is a “qualitative” element which can fall into the framework of
the above criterion. This argument would take away the assumption
that the award of public contracts is a pure economic exercise. On
the other hand, if one is to insist that public procurement should
reflect only economic choices, the social policy considerations that may
arise from the award of public contracts would certainly have an eco-
nomic dimension attached to them, often in public service activities
which are parallel to public procurement. To what extent contracting
authorities should contemplate such elements remains unclear.

Regionalism and public procurement

A possible way of combating recession and its side effects (industrial
decline, unemployment, social exclusion) is the enhancement of re-
gionalism and the development of decentralised policies that can boost
peripheral growth in the economy. A scenario like the above will need
to incorporate not only the commitment of a central government
towards regional economic development but also the participation of
local and regional authorities in implementing the strategic plan.
 Introduction 7

Regionalism and spatial economic development should focus on incent-

ives aimed at growth, optimal allocation of resources, operating as
much as possible within a regime of workable and effective com-
petition. Regional development policies, centralised or decentralised,
should have as their priority small and medium sized enterprises which
are often located in less favoured regions, or regions of economic de-
cline and industrial restructuring. The idea behind the above policies is
to promote and enhance the market performance and participation of
small and medium firms in order to achieve economic growth within a
region. The concentration of policy makers on small and medium sized
firms could also be justified by the fact that in real terms they represent
the vast majority of businesses within European economies. Large firms
often lack flexibility in adapting their strategies to new market require-
ments, where industrial restructure in most cases has been materialised
by taking the form of voluntary or compulsory redundancies and
workforce cuts. On the other hand, small firms appear more flexible in
changes as they diversify their activities more effectively than large
firms, without the need to have necessary recourse to labour cuts. It
has been suggested that economic recovery from the present recession
will emerge from the small enterprises which will first detect the
signals of growth.
The policies which aim to assist small and medium sized enter-
prises focus on participation incentives in the market, which could
then be defined as private or public markets. These policies adopt
regionalism as their objective and endeavour to promote a decen-
tralised economic growth through the periphery. Regional policies
are sophisticated measures aiming at optimal allocation of resources
throughout a state and equal distribution of income amongst its cit-
izens. Small and medium sized enterprises occupy a large share in
European economies and should be considered as one of the most
important factors of Europe’s industrial policy. The economic impor-
tance of small and medium sized enterprises in the market could be
attributed to their ability to increase efficiency and enhance macro-
economic growth, promote industrial re-structuring and adjustment,
create the opportunity for industrial and sectoral exploitation of
particular skills and advantages and facilitate better allocation
of resources and more equal income distribution
Although the opening up of protected public procurement markets
and the liberalisation of the public sector of the European Member
States have been defined as priority objectives not only for the com-
pletion of the common market but also for the proper functioning of
8 Public Procurement in the European Union

global markets, they pose serious obstacles and to some extent

threats for small and medium sized firms. Small and medium sized
firms have often relied on regional preferences or other types of pro-
tectionism; they have developed long-standing dependency relations
with a very limited number of buyers and their low competitiveness
and quality augmented by the lack of economies of scale and the
inefficient mobility of labour, capital and know-how constitute a
real threat. Small and medium sized firms need extensive prepara-
tion in order to enter public markets. They need to adapt to high
technical standards rather than depend on traditional relationships
with established purchasers, which then will open their horizons
to larger geographical markets. They have to familiarise themselves
with the procedural requirements stipulated by European legislation
and ensure that they meet quality assurance standards. Finally,
they have to adopt and develop sophisticated marketing and man-
agement structures specifically designed for public sector contracts,
a strategy which will be of substantial assistance to their future
competitiveness.
Policy makers at both domestic and European level face a dilemma
in their attempts to promote the participation of small and medium
sized firms in public procurement. The dilemma lies in the choice of
the most appropriate framework for the promotion of SMEs parti-
cipation in tendering procedures and the award of public contracts.
The principal factors which have been claimed to inhibit small and
medium sized enterprises in public procurement include the relatively
large size of the contracts, the difficulty in obtaining adequate informa-
tion on forthcoming contracts, the shortage of language skills par-
ticularly in technical areas, the availability of time and the costs
involved in preparing bids, the scarce management resources, problems
relating to specification of standards, difficulties in certification in
other Member States and obtaining quality assurance in other Member
States, difficulties in achieving credibility in other Member States and
finally delays in payment. The most effective way to stimulate SMEs
participation in public procurement and ensure for them a fair share of
the awarded public contracts has been achieved through the operation
of preference schemes. So far, these schemes have been indissolubly
linked with regional development policies, but since the completion of
the Single Market project in 1992 they have been abolished, as they are
deemed to contravene directly or indirectly the basic principle of non-
discrimination on grounds of nationality stipulated in the European
Treaties.
 Introduction 9

The industrial policy potential in public procurement

The implementation of industrial policies through public purchasing
focuses on either the sustainability of strategic national industries, or
the development of infant industries. In both cases, preferential pur-
chasing patterns can provide the economic and financial framework
for the development of such industries, at the expense of competition
and free trade. Although the utilisation of public procurement as a
means of industrial policy in Member States may breach directly or in-
directly primary Treaty provisions on free movement of goods and the
right of establishment and the freedom to provide services, it is far
from clear whether the European Commission and the European Court
of Justice could accept public procurement as legitimate state aids.
The industrial policy dimension of public procurement is also
reflected in the form of strategic purchasing by public utilities. Public
utilities in the European Union, which in the majority are monopolies,
are accountable for a substantial magnitude of procurement, in terms
of volume and in terms of price. Responsible for this are the expensive
infrastructure and high technology products that are necessary to
procure in order to deliver their services to the public. Given the fact
that most of the suppliers to public utilities depend almost entirely on
their procurement and that, even when some degree of privatisation
has been achieved, the actual control of the utilities is still vested in
the state, the first constraint in liberalising public procurement in the
European Union is apparent. Utilities, in the form of public mono-
polies or semi-private enterprises appear prone to perpetuate long
standing over-dependency purchasing patterns with certain domestic
suppliers. Reflecting the above observations, the reader should bear in
mind that until 1991, utilities were not covered by European legisla-
tion on procurement. The delay of their regulation can be attributed to
the resistance from Member States in privatising their monopolies and
the uncertainty of the legal regime that will follow their privatisation.
The industrial policy dimension of public procurement evolves
around public monopolies in the Member States which predominately
operate in the utilities sectors (energy, transport, water and telecommu-
nications) and have been assigned with the exclusive exploitation of the
relevant services in their respective Member States. The legal status of
these entities varies from legal monopolies (where they are constitu-
tionally guaranteed) to delegated monopolies (where the state confers
certain rights on them) and during the last decade they have been the
target of a sweeping process of transformation from monolithic and
10 Public Procurement in the European Union

sub-optimal public corporations to competitive enterprises. Public

monopolies very often possess a monopsony position. As they are state
controlled enterprises, they tend to perform under different manage-
ment patterns than private firms. Their decision making responds
not only to market forces but mainly to political pressure. Under-
standably, their purchasing behaviour follows, to a large extent, para-
meters reflecting current trends of domestic industrial policies. Public
monopolies in the utilities sector have sustained national industries in
Member States through exclusive or preferential procurement. The sus-
tainability of national champions, or in other terms, strategically
perceived enterprises, could only be achieved through discriminatory
purchasing patterns. The privatisation of public monopolies, which
absorb the output of such industries, will discontinue such dependency
patterns and will result in industrial policy imbalances. It could be
difficult for the national champions to secure new markets to replace
the traditional long dependency on public monopolies and at the same
time it would take time and effort to diversify their activities or to
convert to alternative industrial sectors.
The protected and preferential purchasing frameworks between mono-
polies and national champions and the output dependency patterns and
secured markets of the latter have attracted considerable foreign direct
investment, to the extent that European Union institutions face the
dilemma of threatening to discontinue the investment flow when liberalis-
ing public procurement in the common market. However, it could be
argued that the industrial restructuring following the opening-up of
the procurement practices of public monopolies would possibly attract
similar levels of foreign direct investment, which would be directed
towards supporting the new structure. The liberalisation of public procure-
ment in the European Union has as one of its main aims the restructuring
of industries suffering from overcapacity and sub-optimal performance.
However, the industries supplying public monopolies and utilities are
themselves, quite often, public corporations. In such cases, procurement
dependency patterns between state outfits when disrupted can result in
massive unemployment attributed to the supply side’s inadequacy to
secure new customers. The monopsony position when abolished could
often bring about the collapse of the relevant sector.

Public procurement and defence

Industrial policies through public procurement can also be implemented
with reference to defence industries, particularly for procurement of
 Introduction 11

military equipment. The Procurement Directives cover equipment of

dual-use purchased by the armed forces, but explicitly exclude from their
ambit the procurement of military equipment. It should be also men-
tioned here that every Member State in the European Union pursues its
own military procurement policy by virtue of Article 223. In the light of
the Maastricht Treaty on European Union, there is a need for a cen-
tralised mechanism to take over independent military procurement prac-
tices, establish a common European Defence Policy and harmonise and
regulate defence contracts and procurement of military equipment by
Member States.
Attempts have been made to liberalise, to a limited extent, the procure-
ment of military equipment at European level under the auspices of
European Defence Equipment Market (EDEM). This initiative is a pro-
gramme of gradual liberalisation of defence industries in the relevant
countries and has arisen through the operation of the Independent
European Programme Group, which has been a forum of industrial co-
operation in defence industry matters amongst European NATO members.
The programme has envisaged, apart from collaborative research and
development in defence technology, the introduction of a competitive
regime in defence procurement and a modest degree of transparency,
subject to the draconian primary Treaty provisions of Article 223. Award of
defence procurement contracts, under the EDEM should follow a similar
rationale with civilian procurement, particularly in the introduction
of award criteria based on economic and financial considerations and a
minimum degree of publicity for contracts in excess of 1 million EURO.
The establishment of a Common European Defence Policy could pos-
sibly bring about the integration of defence industries in the European
Union and this will inevitably require a change in governments’ pol-
icies and practices. Competitiveness, public savings considerations,
value for money, transparency and non-discrimination should be the
principles of the centralised mechanism regulating defence procure-
ment in Europe. The establishment of a centralised defence agency with
specific tasks of contractorisation, facilities management and market testing
represent examples of new procurement policies which would give
an opportunity to the defence industry to adopt its practices in the light
of the challenges, risks, policy priorities and directions of the modern
era. In particular, risk management and contracting arrangements mea-
suring reliability of deliveries and cost compliance, without penalising
the supply side are themes which could revolutionise defence procure-
ment and play a significant role in linking such strategic industries with
national and European-wide industrial policies.
12 Public Procurement in the European Union

Public procurement as a discipline expands from a simple internal

market topic, to a multi-faceted tool of European regulation and gover-
nance covering policy choices and revealing an interesting interface
between centralised and national governance systems. This is where
the legal effects of public procurement regulations will be felt most; in
its neighboring disciplines, such as public policy, management and
economic theory.
This book aims to provide the reader with a comprehensive analysis
of the policy and legal landscape of the regulation of public procure-
ment in the European Union. The main objective of the author is to
introduce the concept of public procurement as an integral part of the
emerging European economic law, as well as to introduce the regula-
tion of public procurement from a macro-policy perspective. The legal
and economic dynamics of the European integration process have
revealed a series of dramatic changes in the interaction amongst
Member States of the European Union which has taken many by sur-
prise. The culture and ethos of public sector management has been the
subject of fundamental transformation as a result of efficiency related
objectives in the delivery of public service. Efficiency gains and cost
savings in the public sector of the European Union could amount to a
phenomenal sum equal, according to some calculations, to the budget
attached to the Common Agricultural Policy. These gains could be
attributed to a liberalised public purchasing regime, where supply from
a pan-European market will result in better prices for the public sector.
The book also endeavors to familiarise its reader with the mechanisms
and practices of achieving the desirable effects of integration of public
markets in the European Union by assessing the impact of the regime
on the common market.
Chapter 1 assesses the intellectual approach to the regulation of pub-
lic procurement. It attempts to define the parameters of the European
integration process which are relevant to the public sector of the
Member States and their subsequent interaction with public procure-
ment. In Chapter 2, a detailed analysis is provided covering the public
purchasing regime, the legal and socio-economic background of the
reform of the public sector in the Member States, the method of legal
integration of public markets, the motives and objectives of the process
and the anticipated enhancement of competitiveness in the relevant
markets through efficiency gains, the threats and dangers of the pro-
cess, the principles of European Public Procurement Law, as well as the
extra-territorial application and effects of the legal regime in its rela-
tion with other international agreements in which the European
 Introduction 13

Union is signatory. Chapter 3 presents and analyses the developments

from the case-law of the European Court of Justice, the inferences of
the judgements and the thematic evolution of concepts and notions
emerging from the application of the legal framework. In Chapter 4,
the regulation of public procurement is viewed through the prism of
economic exercise as well as that of policy choice. The analysis reflects
on two major theories which underpin such perceptions of public pro-
curement regulation: the neo-classical approach and the ordo-liberal
interpretation respectively. In Chapter 5, the author seeks to evaluate
the impact of the public procurement regime and assess its strengths
and weaknesses by reference to five concepts: inherent constraints in
the legislation, the existence of public monopolies and the process of
their privatisation in the Member States, harmonisation of standards
and specifications, the reluctance of the supply side in initiating litiga-
tion and finally the need to sustain certain industries through public
procurement. Chapter 6 presents the new public procurement regime
which will become operational from 2006. The new Directives pro-
claim to modernise the public markets of the European Union by
means of simplification. In Chapter 7 the author presents the public-
private partnership phenomenon and its interaction with the public
procurement framework. The evolution of privately financed projects
and institutionalised partnerships between the public and private sec-
tors has revealed a new dimension of European governance. Finally, in
Chapter 8 the author presents the interplay of public procurement
with the delivery of services of general interest and significance of the
regime as a conceptual justification instrument in state aids policy and
jurisprudence.
1
European Integration and Public
Procurement

Introduction
The definition of public procurement is a complex one. It depicts a
series of practices and government actions interacting with public
policy. Public procurement could be best described as the supply chain
system for the acquisition of all necessary goods, works and services
by the state and its organs when acting in pursuit of public interest.
Public procurement constitutes a significant modus operandi in the
public sector arena and it stands as the procedural prerequisite for
the delivery of public services. Apart from reasons relating to account-
ability in public expenditure, avoidance of corruption and political
manipulation, the regulation of public procurement within the
European legal and political systems has acquired a multi-disciplined
dimension. The regulation of public procurement, does not only repre-
sent a best practice in the delivery of public service by the state and its
organs, it most importantly qualifies as an instrument of policy. The
spill-over effects from the deployment of a particular strategy relevant
to the procurement practices of the public sector will have significant
implications for national and international trade patterns as it can
be detrimental to any economic and political integration process a
European Union state is committed to.

Public procurement as a component of the common market

The establishment of the common market, as the core objective
envisaged by the Treaty of Rome (the treaty creating the European
Economic Communities) and reinforced by the Treaty of Maastricht
(the treaty creating the European Union) is to be achieved through
14
 European Integration and Public Procurement 15

the progressive approximation of the economic policies of Member

States.1 The concept of the common market embraces legal and eco-
nomic dynamics of the European integration process, with clear
political effects from its accomplishment, and unfolds the character-
istics of a genuine integral market, where unobstructed mobility
of factors of production2 is guaranteed and a regime of effective
and undistorted competition regulates its operation. These character-
istics embrace the four basic freedoms of a customs union (free move-
ment of goods, persons, capital and services)3 and, to the extent that
the customs union tends to become an economic and a monetary
one,4 the adoption of a common economic policy and the introduc-
tion of a single currency. Adherence by Member States to the above-
mentioned fundamental principles of economic integration would
ensure the abolition of any restriction, protection or obstacle to inter-
state trade. The level of success of economic integration in Europe
would determine the level of success in political integration, as the
ultimate objective stipulated in the Treaties.
The law of the European Union has conceived the creation of a legal
supranational system alongside existing domestic ones, where the
supremacy of the former over national laws has been declared by
the European Court of Justice.5 The economic integration of the Euro-
pean Union requires the assistance of a legal order that can facilitate
and observe its development with a view to achieving the ultimate aim
which is the establishment of a political union. The new legal order is a
conglomerate of mutual rights and duties between the European Union
and its subjects, both Member States and private persons, and also
amongst these subjects themselves and provides for the procedures
which are necessary for determining and adjudicating infringements of
law. The new legal order does confer rights and obligations not only to
Member States but also to individuals (physical or legal persons). Both
Member States and individuals are the subjects of European law, with
respect to compliance and observance, and in as much as Member
States participate in market activities, they have the same rights and
obligations as those of individuals.
Two strategic plans have facilitated the economic integration of the
Member States. These plans were enacted by European institutions and
have been subsequently transposed into national laws and policies by
Member States. The first plan has comprised a series of actions, meas-
ures and mechanisms aiming at the abolition of all tariff and non-tariff
barriers to intra-community trade (trade amongst Member States). The
second plan has focused on the establishment of an effective, workable
16 Public Procurement in the European Union

and undistorted regime of competition within the common market, in

order to prevent possible abuse of market dominance and cartelisation,
factors which could have serious economic implications in its func-
tioning. The first plan, the abolition of all tariff and non-tariff barriers to
intra-community trade, appears to have a static effect aimed at elimi-
nating all administrative and legal obstacles to free trade and has as its
focal point Member States and their national administrations, whereas
the second plan, the establishment of an effective, workable and undis-
torted regime of competition within the common market, has been
addressed at industry level and has a more on-going and dynamic
effect.
All tariff barriers appear to have been abolished by the end of the first
transitional period,6 so customs duties, quotas and other forms of quan-
titative restrictions can no longer hinder the free flow of trade amongst
Member States. Non-tariff barriers, however, have proved more difficult
to eliminate, as they involve long-established market practices and
patterns that cannot change overnight. Non-tariff protection represents
a disguised form of discrimination and can take place through a wide
spectrum of administrative or legislative frameworks relating to public
monopolies, fiscal factors such as indirect taxation, state aids and
subsidisation, technical standards and last but not least public procure-
ment. Non-tariff barriers are by no means confined to the European
Integration process only. The existence of non-tariff barriers is a
common phenomenon in world markets and the main objective of
regulatory instruments of international trade is their elimination.
However, non-tariff barriers could seriously distort the operation of the
common market and its fundamental freedoms and derail the process of
European integration.
The European Commission’s White Paper for the Completion of the
Internal Market7 identified existing non-tariff protection and provided
the framework for specific legislative measures8 in order to address the
issue at national level. A set of Directives have been deemed necessary
for the completion of the internal market by the end of 1992, and the
time table was set out in the Single European Act, which in fact
amended the Treaty of Rome by introducing inter alia the concept of
the internal market. The internal market, in quantifiable terms, could be
considered as something less than the common market but, perhaps
the first and most important part of the latter, as it “…… would provide
the economic context for the regeneration of the European industry in both
goods and services and it would give a permanent boost to the prosperity of
the people of Europe and indeed the world as a whole”.9
 European Integration and Public Procurement 17

The internal market, as an economic concept could be described as

an area without internal frontiers, where the free circulation of goods
and the unhindered provision of services in conjunction with the
unobstructed mobility of factors of production are ensured. Literally
speaking the concept of the internal market is a reinforcement of the
customs union principle as the foundation stone of the common mar-
ket. The internal market embraces, obviously, less than the common
market to the extent that the economic and monetary integration ele-
ments are missing. The whole Single European Act, as an instrument
amending the Treaties, revealed strong public law characteristics.
The regulatory and interventionist feature of its provisions indicate the
importance of certain fields that had been overlooked in the past.
There has been both centralised and decentralised regulatory control by
Community Institutions over environmental policy, industrial policy,
regional policy and the regulation of public procurement. These areas
represented the priority objectives in the process of completing
the internal market. Public procurement was pointed out as a signifi-
cant non-tariff barrier and action was scheduled to address the issue.
The European Commission based its momentum on two notable
studies,10 where empirical proof of the distorted market situation in
the public sector was highlighted and the benefits of the regulation of
public procurement were emphasised.

The conceptual elements of public procurement regulation

State participation in free markets would normally take place on behalf
or in pursuit of public interest.11 The concept of the state embraces an
entrepreneurial dimension to the extent that it exercises dominium.12
Where state participation in the market place exists, the relevant
markets can be described as public markets. Although the state as
entrepreneur enters into transactions with a view to providing goods,
services and works for the public, this kind of action does not resemble
the commercial characteristics of entrepreneurship, in as much as
the aim of the state’s activities is not the maximisation of profits but
the observance of public interest. In contrast, private markets comprise
undertakings whose only reason for staying in the market place is
profit maximisation. Public interest substitutes profit maximisation and
can justify state participation in public markets.
Apart from the above fundamental differentiating factor, a number of
striking variances distinguish private from public markets. These vari-
ances focus on structural elements of the market place, competitiveness,
18 Public Procurement in the European Union

demand conditions, supply conditions, the production process, and

finally pricing and risk. They also provide for an indication as to the
different methods and approaches employed in their regulation.
Private markets are generally structured as a result of competitive
pressures originating in the buyer/supplier interaction and their con-
figuration can vary from monopoly/oligopoly to almost perfect compe-
tition models. Demand in private markets arises from heterogeneous
buyers with a variety of specific needs. It is based on expectations and
is multiple for each product. Supply, on the other hand, is offered
through various product ranges, where products are standardised using
known technology, but constantly improved through research and
development processes. The production process is based on mass-
production patterns and the product range represents a large choice
including substitutes, whereas the critical production factor is cost
level. The development cycle appears to be short to medium-term and
finally, the technology of products destined for the private markets
is evolutionary. Purchases are made when an acceptable balance
between price and quality is achieved. Purchase orders are multiple and
at limited intervals. Pricing policy in private markets is determined
by competitive forces and the purchasing decision is focused on the
price-quality relation. The risk factor is highly present.
On the other hand, public markets appear to function in a different
way. The market structure often reveals a monopsony/oligopsony
character. In terms of its origins, demand in public markets is institu-
tionalised (viz. susceptible to legal and policy formalities) and operates
mainly under budgetary considerations rather than price mechanisms.
It is also based on fulfilment of tasks (pursuit of public interest) and it
is single for many products. Supply also has limited origins, in terms
of the establishment of close ties between the public sector and indus-
tries supplying it and there is often a limited product range. Products
are rarely innovative and technologically advanced and pricing is
determined through tendering and negotiations. The purchasing
decision is primarily based upon the life-time cycle, reliability, price
and political considerations. Purchasing patterns follow tendering and
negotiations and often purchases are dictated by policy rather than
price/quality considerations.
Whereas the regulatory weaponry for private markets is dominated
by anti-trust law and policy, public markets are fora where the struc-
tural and behavioural remedial tools of competition law emerge as a
rather inappropriate regulatory framework. The applicability of compe-
tition law is limited, mainly due to the fact that anti-trust often clashes
 European Integration and Public Procurement 19

with monopolistic structures which exist in public markets. State par-

ticipation in market activities is regularly assisted through exclusive
exploitation of a product or a service within a geographical market.
The market activities of the state are protected from competition by
virtue of laws on trading and production or by virtue of delegated
monopolies. Another reason for the limited applicability of anti-trust
law and policy in public markets is the fact that conceptual differences
appear between the two categories of markets – private and public – in
the eyes of anti-trust, which could be attributed to their different
nature. In private markets, anti-trust law and policy seek to punish
cartels and abusive dominance of undertakings. The focus of the reme-
dial instruments is the supply side, which is conceived as the com-
manding part in the supply/demand equation due to the fact that it
instigates and controls demand for a product. In private markets, the
demand side of the equation (the consumers in general) are susceptible
to exploitation and the market equilibria are prone to distortion as a
result of collusive behaviour of undertakings or abusive monopoly
position. On the other hand, the structure of public markets reveals a
different picture. In the supply/demand equation, the predominant
part appears to be the demand side (the state and its organs as pur-
chasers), which initialises demand through purchasing, whereas the
supply side (the industry) fights for access to the relevant markets.
Although this is normally the case, one should not exclude the poss-
ibility of market oligopolisation and the potential manipulation of
the demand side.13 These advanced market structures can occur more
often in the future, as a result of well established trends of industrial
concentration.
Another argument which has relevance to the different regulatory
approach of public and private markets reflects on the methods of
possible market segmentation and abuse. It is maintained that the
segmentation of private markets appears different than the partitioning
of public ones. In private markets, market segmentation occurs as a
result of cartels and collusive behaviour, which would lead to abuse
of dominance, with a view to driving competitors out of the relevant
market, increasing market shares and ultimately increasing profits.
Private markets can be segmented both geographically and by refer-
ence to product or service, whereas public ones can only be geographi-
cally segmented. This assumption leads to the argument that the
partition of the public markets would be probably the result of con-
certed practices attributed to the demand side. As such concerted prac-
tices focus on the origin of a product or a service or the nationality of a
20 Public Procurement in the European Union

contractor, and then the only way to effectively partition the relevant
market would be by reference to its geographical remit. In contrast, as
far as private markets are concerned, the segmentation of the relevant
market (either product or geographical) can only be attributed to
the supply side. The argument goes further to reveal the fact that the
balance of powers between the supply and the demand side are
reversed when superimposed on private or public markets. In the latter,
it is the demand side that has the dominant role in the equation by
dictating terms and conditions in purchases, initiation of transactions,
as well as by influencing production trends (supplies, works and ser-
vices destined for the public sector tend to shift from the traditional
inventory pattern of production to a custom made/built by order one).14
In public markets, concerted practices of the demand side (e.g.
excluding foreign competition, application of buy-national policies,
and application of national standards policies) represent geographical
market segmentation, as they result in the division of the European
public markets into different national public markets. It could also be
maintained that public markets are subject to protection rather than
restriction from competition, to the extent that the latter are quasi-
monopolistic and monopsonistic in their structure. Indeed, the state
and its organs, as contractors possess a monopoly position in the sense
that no one competes against them in their market activities.15 Even in
cases of privatisation, the monopoly position is shifted from the public
to private hands. The situation is slightly different in cases of an open
privatised regime pursuing an operation of public interest. In that case,
it would be more appropriate to refer to oligopolistic competition in
the relevant market. Also in privatised regimes, interchangeability of
supply is very limited, to an extent that monopoly position character-
istics survive the transfer of ownership from public to private hands.
The state and its organs also possess a monopsony position, as firms
engaged in transactions with them have no alternatives to pursue busi-
ness. Access barriers to geographical public markets are erected by
states by means of exercising their discretion to conclude contracts
with national undertakings. This sort of activity constitutes the parti-
tion of public markets in the Community, whereas, apparently, under-
takings operating in private markets must enter into a restrictive
agreement between themselves in order to split up the relevant mar-
kets. Due to their different integral nature, private and public markets
require different control. The control in both cases has a strong public
law character, but while anti-trust regulates private markets, it appears
rather inappropriate for public ones. Anti-trust law and policy is a set
 European Integration and Public Procurement 21

of rules of a negative nature; undertakings must restrain their activities

to an acceptable range pre-determined in due course by the competent
authorities. On the other hand, public markets require a set of rules
that have positive character. It should be recalled that the integration
of public markets is based on the abolition of barriers and obstacles
to national markets; it then follows that the sort of competition en-
visaged for their regulation is mainly market access competition. This
primarily indicates that price competition is expected to emerge in
Community public markets, only after their integration.
It appears, however, that in both private and public markets, two
elements have relevance when attempting their regulation. The first
element is the price differentiation of similar products; the second ele-
ment is access to the relevant markets. As the European integration is
an economic process which aims at dismantling barriers to trade and
approximating national economies, the need to create acceptable levels
of competition in both public and private markets becomes more
demanding. In fact, a regime of genuine competition in public markets
would benefit the public interest as it will lower the price of goods and
services for the public, as well as achieve substantial savings for the
public purse.
If one accepts as point of departure the fact that the introduction of
elements of competition in public markets would have desirable ef-
fects, a question which might arise is if, by dismantling public markets
and entrusting private markets for the provision of goods and services
destined for the public, the above desirable effects can be accom-
plished. As mentioned previously, private markets operate under the
laws of demand and supply and the private sector is profit orientated.
Privatisation, as a process of transfer of public assets and operations
to private hands, on grounds of market efficiency and competition, as
well as responsiveness to customer demand and quality considerations
is often accompanied by simultaneous regulation by the state, in the
form of a legal framework within which privatised industries will
pursue public interest functions. It is not entirely clear that the process
of privatisation would reclaim public markets and transform them to
private ones. We should never underestimate the fact that the control
of undertakings’ operations relevant to public interest remain within
the competence of the state in the form of the regulatory regime, thus
maintaining strong public market characteristics. To what extent the
market freedom of a privatised entity can be curtailed by regulatory
frameworks deserves a complex and thorough analysis which exceeds
the thrust of this work. However, it can be maintained that through
22 Public Procurement in the European Union

the privatisation process, the previously clear-cut distinction between

public and private markets becomes blur, as a new market place
emerges. This type of market embraces strong public law elements to
the extent that it is regulated by the state with a view to observing
public interest in the relevant operations. The economic freedom and
the risks associated with such operations are also subject to sector–
specific regulation; this implies that any regulatory framework incorpor-
ates much more than mere procedural rules. This type of market place
reveals a transformation from traditional corporatism to a public man-
agement system where governance is dispersed through contract under
terms and conditions determined by the state. It very much resembles
the principle of outsourcing which is often utilised in restructuring
exercises in the private sector. Outsourcing introduces elements of con-
tractualisation in the production process, as sub-contracting takes over
from the in-house operation in the production chain. Government by
contract, along the same lines, introduces the principle of outsourcing
in the dispersement of public service, but the contractualised governance
appears far more stringent than outsourcing by virtue of regulation.
Furthermore, apart from operational savings, outsourcing in the
private sector would normally spread the risk factor amongst the oper-
ations in the production chain. If the sub-contractor cannot deliver
according to expectations, the main operator can switch to an altern-
ative with no major implications. Outsourcing, therefore, introduces
an element of flexibility in the production process. It remains to be
seen whether contractualised governance or government by contract
conforms to the same parameters (savings, risk sharing, and flexibility)
as private sector outsourcing.
In addition to the above remarks, one should expect that the intro-
duction of competitive forces in public markets through privatisation
would result in a shift of the relevant regulatory instruments for these
markets. However, within the European Union, the process of privat-
isation has not been approached in a uniform manner by the Member
States. Although the element of competition in the relevant public
markets, as well as the potential effects on public savings remains
undisputed, the process and methods of privatisation have faced con-
siderable criticism from the stakeholders of the European Community.
Despite the fact that European institutions have in principle endorsed
the process of privatisation as a means to reduce public debt and
achieve a harmonious economic and budgetary policy throughout the
common market,16 industrial relations in the Member States often have
diluted both the principle and the effects of such transformation.
 European Integration and Public Procurement 23

Attempts to privatise state-controlled enterprises may have resulted in

the regulation of their corporate performance through anti-trust, but
apparently the purchasing relations are subject to the same regime
as those of public sector bodies. The privatised utility, for example,
although a private entity, has to comply with a rigorous purchasing
system for its supply chain requirements.

The evolution of public procurement regulation

In the history of European economic integration, public procurement
has been an important part of the Member States’ industrial policy.
Procurement has been utilised as a tool with a view to supporting
domestic policy considerations.17 Protectionism from competition in
public procurement and preferential award of public contracts to indi-
genous suppliers and contractors has reflected mainly a concern of
Member States for the preservation of national industries and the
related workforce. The regulation of public procurement in the early
days clearly allowed for “preference schemes” in less favoured regions
of the European common market which were experiencing industrial
decline.18 Such schemes required the application of award criteria
based on considerations other than the lowest price or qualitative cri-
teria reflecting on elements of works or services to be delivered. Prefer-
ence schemes challenged the compatibility of public procurement with
regimes such as those covering the free movement of goods and ser-
vices, the competition law regime of the common market and finally
the rules governing state aids. Preference schemes have been indis-
solubly linked with regional development policies, as they sought to
guarantee a certain percentage of public contracts to local firms.
Traditionally, this link has indicated the close interplay between public
purchasing and state aids.19 However, protectionist public procurement
practices, when strategically exercised, resulted in the evolution of vital
industries for the state in question. The sustainability of national cham-
pions has brought about benefits for a sector or an industry, which,
when protected from competition in the short-run, managed to
achieve specialisation and internationalisation. Nevertheless, since the
completion of the internal market in 1992 preference schemes have
been abolished, as they have been deemed capable in contravening
directly or indirectly the basic principle of non-discrimination on
grounds of nationality stipulated in the European treaties.
It would be interesting to reflect on the potential role of preferential
public procurement in a state’s economy. First, it appears in the form
24 Public Procurement in the European Union

of an exercise which aims at preserving some domestic sectors or

industries at the expense of the principles of the European integration
process. In such a form, there is obviously no exit plan. Impact assess-
ment studies undertaken by the European Commission showed that
the operation of preference schemes had a minimal effect on the
economies of the regions where they had been applied, both in terms
of the volume of procurement contracts, as well as in terms of real eco-
nomic growth attributed to the operation of such schemes.20 Thus, in
that form, preferential public procurement perpetuates the sub-optimal
allocation of resources and represents a welfare loss for the economy of
the relevant state. On the other hand, preferential purchasing in the
form of strategic sustainability of selected industries might represent a
viable instrument of industrial policy, to the extent that the infant
industry, when specialised and internationalised, would be in a posi-
tion to counterbalance any welfare losses during its protected period.
In the above form, preferential public procurement, as an integral part
of industrial policy could possibly represent welfare gains.21
Irrespective of the dimension which preferential public procurement
is looked at, its regulation requires a balancing exercise between related
economic policies and the objectives stipulated in the European
treaties. Public procurement, as a discipline involving legal, economic
and public policy considerations has acquired a significant role within
the context of the European integration, but more importantly at
domestic level, where national administrations have been required to
implement and comply with a legal regime which aims at integrating
the public markets of the European Union and at establishing a com-
petitive regime similar to that envisaged for the private markets. The
latter regime, the competition law and policy of the European Union
has introduced a framework of effective and workable competition in
the common market and has resulted in a market structure which
reveals strong trends of industrial concentration through mergers and
acquisitions, restructuring, outsourcing and optimisation of human
and capital resources within the sectors of the European industries.
Public procurement in the European Union amounts to 1 trillion
EURO and represents a staggering 12 per cent of the EU GDP. Its regu-
lation does not only reflect upon the conceptualisation of public pro-
curement as an important component of the common market, but it
also reveals the parallel and complementary relationship of public pro-
curement with the four freedoms and related community policies. In
budgetary terms, public procurement represents a significant amount
of the Member States’ gross domestic product, a fact that has been seen
 European Integration and Public Procurement 25

as very important by European institutions for the process of European

integration. Given the amount and level, and transnational dimension
of the infrastructure required to deliver public services in the European
Union as well as the expenditure earmarked every financial year by
public authorities to procure goods, works and services in pursuit of
public interest, the public sector procurement has revealed a significant
dimension within the European Integration process. Such revelation
necessitates the regulation of the procurement practices of Member
States in order to eliminate market distortions. Public procurement, as
the procedural blueprint of the delivery of public services by the state
and its organs does not only represent a substantial proportion of the
European Union’s economy but, when viewed in the context of
domestic budgetary frameworks, it can easily qualify as an instrument
with which governments can support national conjunctural (short-
term economic policies) or even long-term economic policies relating
to employment, regional development, industrial adjustment and
performance. Such application of public procurement practices by
Member States in the direction of promoting domestic policies should
always be weighted against the process of the completion of the
common market through the progressive abolition of all existing
non-tariff barriers which are deemed to inhibit the functioning of a
genuinely integrated market in the Community. The regulation of
public markets aims primarily at combating discrimination on grounds
of nationality and also at the achievement of efficiency and optimal
allocation of resources destined for the public sector Community wide,
under a more competitive regime. The motive is again the pursuit
of public interest, but through the regulation of public procure-
ment public interest acquires a Community dimension with mainly
economic characteristics.
The European Commission’s White Paper for the Completion of
the Internal Market has pointed out that public procurement in the
Member States represented a serious threat to the process of economic
integration of the European Community and could possibly derail the
outcome of the common market. It should be mentioned that amongst
the areas identified as actual or potential non-tariff barriers, public
procurement was the most substantive and urgent discipline to be
tackled by European institutions and the Member States. The European
Commission formulated a strategy for eliminating discriminatory
public procurement amongst Member States which have posed signi-
ficant obstacles to the fundamental principles of free movement of
goods, the right of establishment and the freedom to provide services.
26 Public Procurement in the European Union

That strategy was based on two principal assumptions: the first as-
sumption acknowledged the fact that in order to eliminate preferential
and discriminatory purchasing practices in European public markets, a
great deal of transparency and openness was needed; the second assump-
tion rested on the premise that the only way to regulate public pro-
curement in the Member States in an effective manner was through
the process of harmonisation of existing laws and administrative prac-
tices which had been in operation, and not through a uniform regula-
tory pattern which would replace all existing laws and administrative
practices throughout the Community. The latter assumption indirectly
recognised the need for a decentralised system of regulation for public
procurement in the Community, well ahead of the pronouncement of
the principle of subsidiarity, which was introduced in the European law
jargon some years later by virtue of the Maastricht Treaty on European
Union.
Since harmonisation was adopted as the most appropriate method of
regulation of public procurement in the common market, and the
decentralised character of the regime was reinforced through legisla-
tion, the onus then was shifted to the national administrations of the
Member States, which had to implement the Community principles
into domestic law and give a certain degree of clarity and legitimate
expectation to interested parties. Occasionally, the European Commis-
sion is criticised for not having central powers in order to enforce
public procurement rules, in addition to those already available to it as
the guardian of the Treaty. The critics often refer to the applicability
of competition law and policy of the European Community and the
regime which legally implements it through specific Regulations.
However, although in principle competition law of the European
Community may apply to the award of public contracts,22 the effective-
ness and efficiency of a regulatory regime in the public markets through
basic anti-trust remedies remains a challenge for the law and policy
maker. A rigid regime which is applied through a uniform way across
the common market cannot take into account national particularities
in public procurement. It would probably eliminate any elements
of flexibility envisaged to compensate for the sensitivities arising out
of national legal and policy orders. Public procurement, as the nexus of
transactions in the supply chain of the public sector, does not differ in
principle with the management of purchasing practices in the private
sector, which remains unregulated.
The legal instruments opted for by European institutions to
achieve the objective of flexibility are Directives. Public markets and
 European Integration and Public Procurement 27

their regulation are dominated by different legal regimes and legal

approaches that diverge to a considerable extent from each other.
Directives, as flexible legal instruments, leaving a great deal of dis-
cretion in the hands of Member States with respect to the forms and
the methods of their implementation, can harmonise public markets
taking into account existing divergences in domestic legal systems.
The appropriateness of Directives to achieve the desired degree of
competition in public markets and establish a regime where optimal
resource allocation benefits the public interest is unquestionable.
The nature and character of Directives, as “framework” legal instru-
ments aim at harmonising existing legal systems, bringing them
in conformity with Community envisaged objectives. Directives
attempt to approximate different national laws and achieve a similar
legal regime throughout the common market based on the lowest
common denominator amongst the systems of the Member States.
Divergences will inevitably remain, as the European Union lacks the
powers to abolish existing domestic legal regimes and impose ab
initio a different one. 23 On the other hand, it should be pointed out
that Regulations aim at unification of the regimes governing the
Member States’ legal orders and have been exclusively used in
the anti-trust field. It could be further argued that Regulations reveal
all the characteristics of instruments of public law, in particular to
the extent that they are directly applicable and produce vertical and
horizontal direct effectiveness. Apart from the creation of a uniform
system common to the internal legal orders of the Member States,
other notable advantages by having recourse to Regulations instead
of Directives would be the fact that individuals could directly rely on
their provisions not only against the state but also against other
individuals before domestic courts.
Directives, on the other hand, appear to have strong characteristics
of instruments of public law, in as much as they constitute the legal
framework within which the state must enact rules that regulate the
relevant sector. Directives, unlike Regulations lay down duties and
obligations addressed only to Member States. Regulations, in addition,
introduce rights of individuals to be respected by Member States
and also other individuals. Directives resemble circulars at domestic
administrative level, to the extent that the latter provide the frame-
work for action by central government to the competent decentralised
authority. The difference is that Directives are binding legal instru-
ments and may be relied upon before national courts by individuals
under certain circumstances restrictively interpreted by the European
28 Public Procurement in the European Union

Court of Justice (the case of direct effectiveness), whereas administra-

tive circulars produce no binding effects. Directives, as Community
legal instruments were thought to be the most appropriate method to
regulate public markets in the European Community. As mentioned
above, fundamental differences in existing national legal systems dic-
tated the continuation of domestic public market regimes, but the
main concern was their enforcement at national level. In fact, it was
the range of procedural and substantive sensibilities and peculiarities
found in the judicial infrastructure of the Member States, especially
the system through which judicial review of public procurement is
channelled, that prevented legal unification at Community level by
means of Regulations.
Treaty provisions on non-discrimination, on the prohibition to
barriers to intra-community trade, on the freedom to provide services
and on the right of establishment, on public undertakings and under-
takings to which Member States grant special or exclusive rights and on
state monopolies providing services of general economic interest,
seemed insufficient on their own in eliminating protection afforded to
domestic undertakings through preferential public procurement. These
provisions are capable of embracing the basic legal relations between the
demand and supply sides of the public procurement equation according
to the principles stipulated in the Treaties, but their effect on award of
public contracts is minimal. The diversity of legal systems within the
Member States of the European Union and the differences in existing
domestic public procurement rules would have rendered the regulation
of public markets ineffective, if recourse solely to primary Community
legislation was sought. The negative character of the primary Com-
munity provisions which may apply to public procurement could be
seen as the main reason for the need by Community Institutions to
introduce rules which have a positive character, in the sense that they
allow a margin of discretion in their implementation. Due to the decen-
tralised nature of any regulatory form of public procurement in the
common market, the normative character of the primary Community
rules was diluted in favour of a process of harmonisation of existing laws
and practices in the Member States.
The existence of Community legislation in the form of Directives
which aimed to co-ordinate the award of public contracts at national
level,24 as well as the application of primary Treaty provisions to public
procurement within the European Community appeared inadequate
for the abolition of non-tariff barriers posed by preferential purchasing
patterns of Member States and their organs.25 That particular inade-
 European Integration and Public Procurement 29

quacy could be attributed to the fact that the secondary legislation

(Directives) on public procurement mainly focused on procedural, and
to some extent bureaucratic matters in the award of public contracts in
the Member States, while the substantive elements of the regulation of
intra-community trade through public purchasing were left in the
hands of national administrations, which, by exercising a great deal of
discretion in selection and award procedures, discriminated against
firms established in other Member States and instead favoured do-
mestic suppliers. The main factors responsible for the lack of success of
the first generation of Public Procurement Directives according to the
Commission’s Communication to the Council26 included inter alia:
i) failure to advertise contracts above certain thresholds in the Official
Journal, as a result of intentional splitting-up of contracts in order to
avoid the mandatory advertisement requirement, although improve-
ments had been made in the retrieval of information by the establish-
ment of the Tenders Electronic Daily (TED) Data Bank; (however, the
introduction of information technology to public procurement should
be regarded as a means to facilitate the supply side (the industry) in
determining the purchasing intentions of the demand side and not as
a panacea in improving transparency ratios of contracting authorities);
ii) ignorance of the relevant rules on the part of contracting authorities
or deliberate omission of these rules; iii) excessive use of the exceptions
permitting non-competitive tendering (negotiated procedures) instead
of open or restricted procedures; iv) discriminatory requirements
imposed by contracting authorities upon tenderers demanding compli-
ance with national technical standards, to the exclusion of European
standards or equivalent standards of other countries; and v) unlawful
disqualification of suppliers or contractors or discriminatory use of
the award criteria (either the lowest price or the most economically
advantageous offer). Moreover, the Directives were inappropriately
transposed into domestic legal systems, thus not conferring the envis-
aged access to justice and rights to individuals. Member States are
obliged to implement Directives in a manner that satisfies the require-
ments of clarity, legal certainty and legitimate expectation, thus trans-
posing their provisions into national ones by virtue of laws which have
binding force.27 Administrative circulars or administrative practices
and official instructions, which by their nature can always be changed
as and when the authorities please and which do not confer rights to
individuals, are not considered sufficient to constitute proper fulfil-
ment of the obligation to implement Directives. Even the direct effect-
iveness of the provisions of Directives does not exempt a Member State
30 Public Procurement in the European Union

from the obligation to adopt the appropriate implementing measures

within the period prescribed therein.28 The inadequacy of primary
Community law to regulate public procurement within the common
market was clearly augmented with the complexity of the legal regimes
in operation in the Member States, as well as their polarised nature and
the character of national regulatory powers in relation to public pur-
chasing. Thus, harmonisation and not uniformity was deemed to be
the appropriate approach towards the integration of public markets in
the European Community and the elimination of actual and potential
non-tariff barriers arising therein.
If public markets are considered as a major component of the com-
mon market, the regulation of public procurement, as an essential
feature for their implementation, obtains a crucial role for the whole
European integration process. Public markets comprise different geo-
graphical and product/services markets, but also embrace national ones.
Thus, a possible public market segmentation acquires a separate dimen-
sion – that of the national/domestic public market – as states often
define their geographical public markets in accordance with their
borders. It follows that the regulation of public procurement aims
at dismantling national public markets and creating a Community wide
public market for products, works and services destined for the Euro-
pean public. It is useful here to explain the logic behind the tendency of
Member States to partition public markets according to physical/geo-
graphical borders. The public sector in each Member State represents
transactions in excess of 10 per cent of the gross domestic product.
That reveals the fact that public expenditure in the relevant markets is a
powerful tool of policy making. If public expenditure relating to pro-
curement in a Member State is diverted back to the domestic economy,
then the state in question enjoys relatively strong and predictable
industrial bases, which in the short-run can attract foreign investment.
In addition to that, in the long-run and if properly managed through
the promotion of research and development and product innovation,
public markets segmentation through “buy-national” policies can lead
to industrial specialisation and competitiveness of strategic industries,
thus leaving the state in a position to plan not only conjuctural but also
long term economic policies. Another effect which emerges out of parti-
tioning public markets and protecting them from outside competition
is a control over domestic unemployment. If construction, supplies and
services contracts are allocated to domestic contractors, the rate of pro-
duction in the relevant sectors would be considerably high. Balancing
the above effect, a number of secondary effects appear as a result of a
 European Integration and Public Procurement 31

state protecting its public markets. Economies of transport indicate

better and more efficient delivery of products and after-sales services, as
well as more efficient completion of construction projects or service
contracts if the contractor is a domestic one. It could be argued that
public markets segmentation often results in promoting firms engaged
in transactions with the public sector and in supporting domestic
economy as part of a carefully orchestrated industrial policy.
Public procurement has been considered the most important non-
tariff barrier for the completion of the common market by the Com-
mission’s White Paper29 and its regulation received priority by the
European Union Institutions and the Member States. The liberal-
isation of public markets reflects the attempts of the European in-
stitutions to enhance competitiveness in the public sector and
industrial efficiency in order to achieve a uniform pattern of indus-
trial policy at centralised level. Priority has been given by the Euro-
pean Community to the fact that Member States must embark upon a
process of changing their public sector management ethos and adopt-
ing more market-oriented parameters in the delivery of public
service. The objectives of such processes include: value for money
(efficiency, risk management, savings, and quality), transparency and
competitiveness in public purchasing.
Public procurement has been elevated as a key parameter for an inte-
grated market in the European Union and at the same time as an im-
portant policy tool at domestic level. This appears, at first sight,
contradictory, as the regulation of public procurement obeys two dia-
metrically opposite dynamics: one of a community-wide orientation
and one of national priorities. As the market structure of the European
Community reveals strong tendencies towards industrial concentration
through mergers and acquisitions, rationalisation and restructuring of
firms, downsizing, outsourcing and optimisation of human and capital
resources within the sectors of the European industries,30 the integra-
tion of public markets has threatened to bring about an end to long-
standing dependency purchasing patterns which have undoubtedly
sustained certain industries in the Member States of the European
Community.31
The set of the Directives enacted by European institutions as the
result of the internal market programme and subsequently amended
after its completion by the end of 1992 introduce a new regime that
attempts to establish gradually32 a public market in the Community
without frontiers. This regime seeks to accomplish unobstructed access
to public markets through transparency of public expenditure relating
32 Public Procurement in the European Union

to procurement, improved market information, elimination of technical

standards capable of discriminating against potential contractors and
uniform application of objective criteria of participation in tendering
and award procedures.
Public procurement has been considered one of the last obstacles –
non tariff barriers – for the establishment and proper functioning of
the common market. Whether it still remains as the most substantial
one should be rather the subject of exposure of the regime to empirical
criticism.33 Many commentators have attempted to describe how the
regime works in practice.34 In this book, the author aims to provide a
comprehensive background of the evolution of the regime and its
interplay with public policy agendas within the European integration
process. It is envisaged that such approach, will expose the impact of
the public procurement regime on both the industry and government
and ascertain the degree of progress in the integration of the public
markets of the European Union.
2
Public Procurement Regulation

Introduction
The regulation of public procurement in the European Union intends
to insert a regime of competitiveness in the relevant markets and elim-
inate all non-tariff barriers to intra-community trade that emanate
from preferential purchasing practices favouring national undertak-
ings. Apart from the obvious reasons relating to accountability in
public expenditure, avoidance of corruption and political manipula-
tion, the regulation of public procurement does not only represent a
best practice in the delivery of public service by the state and its
organs, it most importantly qualifies as an instrument of policy.
The existing public procurement regime can be classified into
the public supplies sector,1 the public works sector,2 the public utili-
ties sector3 (entities operating in the water, energy, transport and
telecommunications sectors) and the public services sector. 4 Along-
side the substantive regime, two Compliance Directives provide for
review procedures at domestic levels in relation to public and utilities
procurement respectively.

Part 1 The legal regime on public procurement

The supplies procurement
The Public Supplies Directive 93/36 covers contracts between a sup-
plier (natural or legal persons) and a contracting authority, having
as their objective the purchase and hire of goods. The supplies
regime appears as the most straightforward. Directive 70/32 at-
tempted to integrate markets relating to the supply of goods des-
tined for the public sector from within and from outside the
33
34 Public Procurement in the European Union

Community. It indirectly made clear to national administration and

law and policy makers that public supplies markets could not be
confined within the geographical territory of the Community, or
the national borders of Member States, but encompass a broader
field of sourcing of goods, a fact that cultivated the ground for the
introduction of common commercial policy consideration in public
procurement. Indeed, ten years later the European Commission
was concluding on behalf of the Member States the Agreement on
Government Procurement during the GATT Tokyo Round, thus
expanding the territorial application of the EC internal regime to
members/signatories to the Agreement.
In 1977, the Council adopted Directive 77/625 pursuant to Articles
30 and 100 EC. This instrument was designed to ensure a more effec-
tive supervision of compliance with the negative obligations of Article
30 EC and Directive 70/32 by means of imposing a number of positive
obligations on purchasing bodies [article 1(b): contracting authorities
specified in Annex I]. However, the scope of the Directive was rather
limited. It explicitly excluded from its coverage public supplies con-
tracts by public utilities (authorities in the transport, energy water and
telecommunications sectors). The Directive was also inapplicable to
public supplies contracts awarded i) pursuant to an international agree-
ment between a Member Sate and one or more non-Member countries;
ii) pursuant to an international agreement relating to the stationing of
troops between undertakings in a Member State or a non-Member
country and iii) pursuant to a particular procedure of an international
agreement.
In 1980 Directive 77/62 was amended by Directive 80/7676 in order
to take account of the 1979 GATT Agreement on Government Procure-
ment.7 The Agreement, through the application of lower thresholds,
committed the Community and its Member States in providing to sup-
pliers from third countries access to central government purchasing
and to some defence procurement, access which was better than that
afforded to European suppliers enjoyed under Directive 77/62. Clearly,
Directive 80/767 instituted an element of multilaterality in access to
international public markets based on the principle of reciprocity. That
Agreement became part of Community law as it was approved by
Council Decision 80/271.8
The Commission’s White Paper on the Completion of the internal
market9 reiterated that there was a serious and urgent need for
improvement and clarification of the relevant Public Procurement
Directives. In accordance with the Commission’s action programme,
 Public Procurement Regulation 35

Directive 88/29510 amending all previous Supplies Directives was

adopted. The main improvements were:

– with open tendering procedures as the norm, negotiated ones were

allowed in exceptional circumstances;11
– the definition of the types of supplies contracts was widened12 and
the method of calculation of the thresholds was clarified;13
– the exempted sectors were more strictly defined;14
– purchasing authorities had to publish in advance information on
their annual procurement programmes and their timetable, as well
as a notice giving details of the outcome of each decision of award.15
– the rules on technical standards were brought in line with the new
policy on standards which were based on the mutual recognition
of national requirements, where the objectives of national legisla-
tion were essentially equivalent, and on the process of legislative
harmonisation of technical standards through non-governmental
standardisation organisations (CEPT, CEN, CENELEC).16

Finally, Directive 93/3617 consolidated all previous legislation relating

to public supplies and aligned it in conformity with the relevant
Directives on Public Works18 and Public Services19 and the Utilities
Sectors.20

The works procurement

The Public Works Directive 93/37 covers contracts between a contrac-
tor (natural or legal persons) and a contracting authority, having as
their objective the completion of works/construction projects.
The concept of public works contracts under the first Works Directive
was very extensive21 and covered those contracts concluded in writing
between a contractor and a contracting authority for pecuniary interest
concerning either the execution or both the execution and design of
works related to building or civil engineering activities listed in class 50
of the NACE Classification,22 or the execution by whatever means of a
work corresponding to the requirements specified by the contracting
authority. The above formula was wide enough to embrace modern forms
of works contracts such as project developing contracts, management
contracts and concession contracts.23 With reference to the latter type of
contracts, a public works concession is defined by the Works Directive24
as a written contract between a contractor and a contracting authority
concerning either the execution or both the execution and design of a
36 Public Procurement in the European Union

work and for which remunerative considerations consist, at least partly,

in the right of the concessionaire to exploit exclusively the finished con-
struction works for a period of time. The initial Works Directive 71/305
did not apply to concession contracts, except in the case that the conces-
sionaire was a public authority covered by the Directive. In such situa-
tions, only the works subcontracted to third parties would be fully subject
to its provisions. In any other case, the only provision of the Directive
applicable to works concessions was that the concessionaire should not dis-
criminate on grounds of nationality when it awarded contracts to third
parties.25 The regulation of concession contracts was introduced to the
aquis communautaire almost two decades later by virtue of Directive
89/440 which amended Directive 71/305. In fact, it incorporated the
Voluntary Code of Practice, which was adopted by the Representatives of
Member States meeting within the Council in 1971.26 The Code was a
non-binding instrument and contained rules on the advertising of con-
tracts and the principle that contracting authorities awarding the princi-
pal contract to a concessionaire were to require him to subcontract to
third parties at least 30 per cent of the total work provided for by the
principal contract. Obviously, these requirements could not easily be
incorporated in a binding instrument such as Directive 89/440, thus a
more relaxed regime occurred. As a result, the co-ordination rules of the
Directive applied to concession contracts only in respect of their advertis-
ing. The Directive’s rules on tendering procedures, suitability criteria,
selection and qualification, technical specifications and award procedures
and criteria were inapplicable.
The amended Works Directive has adopted a special, mitigated
regime for the award of concession contracts.27 The provisions of the
Directive only apply to concession contracts when the value is at least
5 million EURO. No rules are given as to the way in which the con-
tract value must be calculated. For the award of concession contracts,
contracting authorities must apply similar rules on advertising as
the advertising rules concerning open and restricted procedures for
the award of every works contract. Also, the provisions on technical
standards and on criteria for qualitative selection of candidates and
tenderers do apply to the award of concession contracts. The Directive
does not prescribe the use of specific award procedures for concession
contracts. The Directive presupposes that concession contracts should
be awarded in two rounds, such as in the case of restricted procedures
or negotiated procedures for ordinary works contracts. Nothing,
however, prevents contracting authorities from applying one-round
open procedures. The Directive contains no rules on the minimum
 Public Procurement Regulation 37

number of candidates which have to be invited to negotiate or to

submit a tender. It would seem that a contracting authority may limit
itself to selecting only one single candidate, provided the intention to
award a concession contract has been adequately published. A con-
tracting authority may under no circumstances refrain from publicis-
ing a notice to the Official Journal indicating its intention to proceed
with the award of a concession works contract.
As far as contracting authorities are concerned, their definition is
very wide and covers bodies governed by public law which is defined as
being any body established for the specific purpose of meeting needs in the
general interest and not having an industrial or commercial character, which
has legal personality and is financed for the most part by the State or is
subject to management supervision by the latter.28 There is a list of such
bodies in Annex I of Directive 71/305, which is not an exhaustive one
like that in the Supplies Directive, and Member States were under an
obligation to notify the Commission of any changes in that list.
Works contracts in the utilities and defence sectors and those con-
tracts awarded in pursuance of certain international agreements
were explicitly excluded by virtue of Articles 4 and 5 of the Directive.
These provisions are identical in effect to the corresponding ones of
the Supplies Directive.29 This revealed the fact that public contracts
under the framework of the Works Directive covered mainly construc-
tion projects in the education, health, sports and leisure facilities
sectors, in as much as the State or regional or local authorities under-
take such projects. In cases that entities involved in this sort of activity
(e.g. a hospital or a University) enjoyed considerable independence
from the State or local government, as to the undertaking of works
contracts, Directive 71/305 was inapplicable, since they were not
included in its Annex I as bodies governed by public law for the pur-
poses of the Directive in question. This seems to have limited the scope
of the Directive only to cases where the State or local government had
direct control over the above mentioned entities. Given the fact that
works contracts in the utilities sectors were also excluded from the
framework of the Directive, its applicability covered a rather modest
portion of the construction sector. In order to moderate this appar-
ently undesirable result, the amending Directive 89/44030 provides
for an obligation upon Member States to ensure compliance with its
provisions when they subsidise directly by more than 50 per cent, a
works contract awarded by an entity involved in activities relating to
certain civil engineering works and to the building of hospitals, sports
recreation and leisure facilities, schools and university buildings and
38 Public Procurement in the European Union

buildings used for administrative purposes. These conditions seem not

to impose a heavy duty on Member States, as only direct subsidies
trigger the applicability of the Directive. Indirect ways of subsidising
the entities in question, such as tax exemptions, guaranteed loans, or
provision of land free of charge, render it inapplicable.
It should be noted that under both the original Supplies and Works
Directives, preference schemes in the award of contracts were allowed.
Such schemes required the application of award criteria based on
considerations other than the lowest price or the most economically
advantageous tender, which are common in both regimes.31 However,
preferences could only be compatible with Community Law in as
much they did not run contrary to the principle of free movement of
goods (Article 30 EC et seq.) and to competition law considerations in
respect of state aids.32 Preference schemes have been abolished since
the completion of the internal market at the end of 1992.
Works contracts which are subsidised directly by more than 50 per
cent by the States, can still fall within the scope of the Directive.33
Works which are not subsidised directly, or for less than 50 per cent,
fall outside this anti-circumvention provision. Not all subsidised works
fall within the scope of the Directive: only civil engineering works,
such as the construction of roads, bridges and railways, as well as
building work for hospitals, facilities intended for sports, recreation
and leisure and university buildings and buildings used for administra-
tive purposes are referred to as subsidised works contracts.34 This list is
exhaustive. The Works Directive does not apply to works contracts
which are declared secret or the execution of which must be accompa-
nied by special security measures35 in accordance with the laws, regula-
tions or administrative provisions in force in the Member State
concerned; nor does the Directive apply to works contracts when the
protection of the basic interests of the Member States’ security so
requires. Finally, the Works Directive does not apply to public works
contracts awarded in pursuance of certain international agreements;36
nor does the Directive apply to public works contracts awarded pur-
suant to the particular procedure of an international organisation.37
Several international organisations, such as NATO, have their own
rules on the award of public works contracts.

Utilities procurement
The Utilities Directive 93/38 covers supplies, works and services con-
tracts between a supplier, contractor or service provider and a public
 Public Procurement Regulation 39

utility (an entity operating in the water, energy, telecommunications

and transport sectors).
The Utilities Directive has been the most radical approach to the
public sector integration in Europe and its enactment coincided with
the envisaged international liberalisation of public procurement during
the Uruguay GATT negotiations. One could question such a strategy by
European Institutions, particularly bearing in mind the vulnerability of
Europe’s high-tech industry in comparison with that in the USA and
Japan. However, the GATT regime has introduced a new era in the
accessibility of international public markets, to the extent that highly
protectionist countries like the USA and Japan must, under the new
regime, abolish their buy-national laws and policies and open, on a
reciprocal basis, their public markets to international competition.
The ambit of the Utilities Directive and its field of application
appear more complicated than those in the Supplies and Works
Directives, although the internal legal structure among the three
Directives is very similar. The Utilities Directive devotes a substantial
amount of provisions in an attempt to exempt from its application
certain contracts or activities that have been deemed ineligible for
community-wide regulation.
Apart from the normal exemptions under the grounds of defence
and security and confidentiality, the major exemptions are provided
for under Articles 1 and 2. Radio and television broadcasting have not
been classified as telecommunication activities and have been spec-
ifically excluded from the ambit of the Directive by virtue of Article 2.
Also, bus transport services to the public are excluded on condition
that their providers operate under a regime of competitive conditions,
which means that other potential contractors or suppliers of similar
services are allowed to enter the relevant geographical and product
markets and compete against the existing utilities provider (Article 2
(4). A similar rule applies to telecommunication services which operate
within a competitive market.38
Under the same Article (2) special exemptions are also provided to
private entities supplying gas, heat, drinking water and electricity.
Although the wording and spirit of the Directive cover private entities
operating under exclusive and special rights in the utilities sectors,
nevertheless under certain conditions, these entities can be exempted
from the application of the rules of the Directive. In the case of the
production of drinking water and electricity, if a private entity is able
to show that it does so for its own purposes, which are not related to
the provision of drinking water or electricity to the public, it is exempt.
40 Public Procurement in the European Union

Similarly, if a private entity is able to show that it supplies to the

public network drinking water or electricity which is destined for its
own consumption, and that the total so supplied to the network is not
more than 30 per cent of the total produced by that network in any
one year over a three year period, it is also exempt.39
In the case of gas and heat supplies, if the production by a private
entity is related to an activity other than the supply to a network for
public consumption, then these entities are also exempt. In the same
line, if the supply of gas and heat by a private entity to a public
network relates to economic exploitation only and does not exceed
20 per cent of the firms turnover in any one year, taking an average of
the preceding three years and the current year, then such an entity
is also exempt.40 These exemptions predominantly cover entities which
have research and development as their main objective in the relevant
utilities sector, or do not play a major role in supplying public
networks with water or energy.
There are also exemptions for entities exploring for gas, oil, coal
and other solid fuels under Article 3. Entities operating in these
sectors will not be regarded as having an exclusive right provided
certain conditions are fulfilled. These conditions are cumulative and
stipulate that, when an exploitation right is granted to the entity in
question, the latter is exempt from the Utilities Directives provided
other bodies are able to compete for the same exclusive rights under
free competition; that the financial and technical criteria to be used
in awarding rights are clearly spelt out before the award is made;
that the objective criteria are specified as to the way in which
exploitation is to be carried out; that these criteria are published
before requests for tenders are made and applied in a non-discrimi-
natory way; that all operating obligations, royalty and capital and
revenue participation agreements are being published in advance;
and finally, that contracting authorities are not required to provide
information on their intentions about procurement except at
the request of national authorities. 41 Furthermore, Member States
have to ensure that these exempted bodies apply, at least, the princi-
ples of non-discrimination and competition. They are obliged
to provide a report to the EC on request about such contracts.
However, this requirement is less stringent than the mandatory
reporting rules in the Supply and Works Directives. It should be
mentioned that the Utilities Directive does not apply to concession
contracts granted to entities operating in utilities sectors, awarded
prior to the coming into force of the Directive. All exemption provi-
 Public Procurement Regulation 41

sions within the Utilities Directive are subject to assessment in the

light of the four year overall review of the process.42
Other exemptions cover entities in the relevant sectors which can
demonstrate that their service and network associated contracts are not
related to the specific supply and works functions specified in the
Directive, or if they are related, they take place in a non-Member State
and they are not using a European public network or physical area.43
The Member States are under an obligation to inform the European
Commission, on request, of the cases when these exemptions have
been allowed. There are also provisions which allow for resale and hire
contracts to third parties to be exempt when the awarding body does
not possess an exclusive or special right to hire or sell the subject of the
contract, and there is competition already in the market from other
suppliers or producers to provide the commodity or service to third
parties.44 Similar relaxed reporting and monitoring requirements are
found in Article 8 which applies to telecommunications exemptions.45
Another set of significant exemptions is provided for water authorities
under Article 9. Under this provision water authorities specified in
Annex 1 are specifically exempt from the rules when they purchase
water. They are however covered by the Directive when they purchase
other supply and construction products.46 Similarly, there are specific
exemptions for the electricity, gas and heat, oil and gas and coal and
other solid fuels entities outlined in Annex II, III, IV and V, but only
when they award contracts for the supply of energy or for fuels for the
production of energy. For all other relevant contracts these bodies
are included in the rules. These exemptions were provided because of the
need to allow contracting authorities to buy from local sources of supply,
which may not always be the cheapest, but which are important on the
basis of regional development policies or environmental grounds, and
because these purchases are central to the entities’ operations and not
part of normal supply and works procurement process.47
Finally, specific exemptions under the Utilities Directive are provided
for those carriers of passengers and providers of transport services by
air and by sea. In the preamble of the Directive it is stated that, under a
series of measures adopted in 1987 with a view to introducing more
competition between firms providing public air services, it was decided
to exempt such carriers from the scope of the legislation. Similarly,
because shipping has been subject to severe competitive pressures, it
was decided to exempt certain types of contracts from the Directive.48
The Utilities Directive intends to open up procurement practices in
the four previously excluded sectors mainly to EC-wide competition.
42 Public Procurement in the European Union

With respect to goods (and services) originating in third countries,

things are more complicated. A product outside the Community, in
order to be subject to a public contract regulated by one of the EC
Public Procurement Directives, must lawfully be put in free circulation
in at least one Member State.49 Except where there has been an in-
ternational agreement which grants comparable and effective access
for Community undertakings to public markets of a third country
(reciprocity principle), Article 29 renders possible for European
contracting authorities in the utilities sector to reject offers from
outside the Community and practise Community preference where
Community offers are equivalent to offers from third countries (where
the price difference does not exceed 3 per cent). With reference to an
international agreement granting access to public markets, the Utilities
Directive opens the door for the application of the GATT Agreement
on Government Procurement in the utilities sector.

Procurement of services
The Public Services 92/50 covers contracts between a service provider
(natural or legal persons) and a contracting authority, having as their
objective the provision of services, as defined in the United Nations
Nomenclature of Product and Service Classification.
Under the Services Directive, public services contracts are contracts
which have as their object the provision of services classified in the
Common Product Classification (CPC) Nomenclature of the United
Nations, as a Nomenclature for Classification of Services at Community
level is lacking. The United Nations Common Product Classification
covers almost every conceivable service an undertaking may provide,
although the services description is rather plain.
The Services Directive is the first legal instrument which attempts
to open the increasingly important public services sector to intra-
community competition. It should be mentioned that the Directives
on Public Supplies, Public Works and Utilities contain provisions
where the provision of services is regarded as ancillary to the main
contract under their regime, provided the value of the services are less
than the value of the supplies or works. Such services are covered by
the relevant Directive.
Specific services contracts are excluded from the scope of the Services
Directive. It should be mentioned that not all of these specific exclu-
sions are listed in the amended Utilities Directive 93/38, because they
would not, in any event, fall within the ambit of a defined activity.
 Public Procurement Regulation 43

Apart from those contracts which are covered by the relevant provi-
sions of the Works, Supplies and Utilities Directives, and therefore not
considered as services, the other contracts excluded from the Services
Directive and amended Utilities Directive 93/38 are:

(i) contracts for the acquisition or rental, by whatever financial

means, of land, existing buildings, or other immovable property
or concerning rights thereon. (However, financial service con-
tracts concluded at the same time as, before or after the contract
of acquisition or rental, in whatever form, will be subject to the
Directive);
(ii) contracts for the acquisition, development, production or joint
production of programme material by broadcasters and contracts
for broadcasting time;50
(iii) contracts for voice telephony, telex, radiotelephony, paging and
satellite services;51
(iv) contracts for arbitration and conciliation services;
(v) contracts for financial services in connection with the issue, sale,
purchase or transfer of securities or other financial instruments,
and central bank services;52
(vi) employment contracts;
(vii) research and development service contracts other than those
where the benefits accrue exclusively to the contracting author-
ity for its use in the conduct of its own affairs, on condition that
the service provided is mostly remunerated by the contracting
authority.

Research and development services contracts are covered in identical

terms in both. The exclusion of such contracts under both the Services
and the Utilities Directives lies in the assumption that research and
development projects should not be financed by public funds. How-
ever, where research and development contracts are covered by the
procurement rules, a provision in the Utilities Directive allows a con-
tracting entity to award a contract without a prior call for competition
where it is purely for the purpose of research, experiment, study or
development and not for the purpose of ensuring profit or of recover-
ing research and development costs and in so far as the award of such
contract does not prejudice the competitive award of subsequent
contracts which have in particular these purposes.53
Interestingly, service concessions, although included in the draft
Directive,54 have been excluded from the provisions of Directive 92/50.
44 Public Procurement in the European Union

The exclusion of service concessions falls short of the aspirations to

regulate concession contracts for the public sector under the Works
Directive and breaks the consistency in the two legal instruments. The
reasons for the exclusion of service concessions from the regulatory
regime of public procurement could be attributed to the different legal
requirements in Member States to delegate powers to concessionaires.
The delegation of services by public authorities to private undertakings
in some Member States runs contrary to constitutional provisions.
The Directive adopts a two-tier approach in classifying services
procured by contracting authorities. This classification is based on
a “priority” and a “non-priority” list of services, according to the rela-
tive value of such services in intra-community trade. Priority services
include: Maintenance and repair services, Land transport services (ex-
cept for rail transport services), including armoured car services and
courier services, except transport of mail, Air transport services of
passengers and freight, except transport of mail, Transport of mail
by land and by air, Telecommunications services (except voice tele-
phony, telex, radiotelephony, paging and satellite services), Financial
services including (a) Insurance services, (b) Banking and investment
services (except contracts for financial services in connection with the
issue, sale, purchase or transfer of securities or other financial instru-
ments, and central bank services), Computer and related services,
Research and development services, Accounting, auditing and book-
keeping services, Market research and public opinion polling services,
Management consultant services (except arbitration and conciliation
services) and related services, Architectural services, Engineering ser-
vices and integrated engineering services, Urban planning and land-
scape architectural services, related scientific and technical consulting
services, technical testing and analysis services, Advertising services,
Building-cleaning services on a fee or contract basis, Publishing and
printing services on a fee or contract basis, Sewage and refuse disposal
services, Sanitation and similar services. Non-Priority services include:
Hotel and restaurant services, Rail transport services, Water transport
services, Supporting and auxiliary transport services, Legal services,
Personnel placement and supply services, Investigation and security
services, Education and vocational education services, Health and
social services and Recreational, cultural and sporting services.
The division is not permanent and the European Commission has
the situation under constant review by assessing the performance of
“non-priority” services sectors. The two-tier approach, in practical terms,
means that the award of priority services contracts are subject to the
 Public Procurement Regulation 45

rigorous regime of the Public Procurement Directives (advertisement,

selection of tenderers, award procedures, award criteria), whereas the
award of non-priority services contracts must follow the basic rules of
non-discrimination and publicity of the results of the award.
Article 6 of the Services Directive provides that the Directive does
not apply service contracts which are awarded to an entity which is
itself a contracting authority within the meaning of the Directive on
the basis of an exclusive right which is granted to the contracting
authority by a law, regulation or administrative provision of the
Member State in question.55 Article 1(3) of the Utilities Directive pro-
vides for the exclusion of certain contracts between contracting
authorities and affiliated undertakings.56 These are service contracts
which are awarded to a service-provider which is affiliated to the
contracting entity and participating in a joint venture formed for
the purpose of carrying out an activity covered by the Directive.57 The
exclusion from the provisions of the Directive is subject, however, to
two conditions: the service-provider must be an undertaking affiliated
to the contracting authority and, at least 80 per cent of its average
turnover arising within the European Community for the preceding
three years, derives from the provision of the same or similar services
to undertakings with which it is affiliated. The Commission is em-
powered to monitor the application of this Article and to request
the notification of the names of the undertakings concerned and the
nature and value of the service contracts involved.

Enforcement and compliance: The Compliance Directives

In an attempt to complement the substantive Procurement rules
enacted by virtue of the Supplies, Works and Services Directives and to
provide a system of effective protection of individuals in cases of
infringements of their provisions, European Institutions enacted the
Compliance Directive 89/665 EC58 on the harmonisation of laws, regu-
lations and administrative provisions relating to the application of
review procedures in the award of public works and public supply con-
tracts. To encompass the Utilities procurement rules, the Utilities
Compliance Directive 92/1359 extends the remedies and review proce-
dures covered by Directive 89/665 to the water, energy, transport and
telecommunications sectors.
The scope and thrust of the Compliance Directives focuses on
the obligation of Member States to ensure effective and rapid review of
decisions taken by contracting authorities which infringe public
46 Public Procurement in the European Union

procurement provisions. Undertakings seeking relief from damages in

the context of a procedure for the award of a contract should not be
treated differently under national rules implementing European public
procurement laws and under other national rules. This means that the
measures to be taken concerning the review procedures should be
similar to national review proceedings, without any discriminatory
character. Any person having or having had an interest in obtaining a
particular public supply or public works contract and who has been or
risks being harmed by an alleged infringement of public procurement
provision must be entitled to seek review before national courts.
This particular obligation is followed by a stand-still provision con-
cerning the prior notification by the person seeking review to the
contracting authority of the alleged infringement and of his intention
to seek review. However, with respect to admissibility aspects, there is
no qualitative or quantitative definition of the interest of a person in
obtaining a public contract. As to the element of potential harm by an
infringement of public procurement provisions, it should be cumula-
tive with the first element, that of interest. The prior notification
should intend to exhaust any possibility of amicable settlement before
the parties have recourse to national courts. A novelty in the Com-
pliance Directive of the Utilities sectors60 is the introduction of the
attestation procedure. Member States are required to give the contracting
entities the possibility of having their purchasing procedures and prac-
tices attested by persons authorised by law to exercise this function.
Indeed, this attestation mechanism may investigate in advance possi-
ble irregularities identified in the award of a public contract and allow
the contracting authorities to correct them. The latter may include
the attestation statement in the notice inviting tenders published in
the Official Journal. The system appears flexible and cost-efficient and
may prevent wasteful litigation. Quite promisingly, the attestation pro-
cedure under Directive 92/13 will be the essential requirement for the
development of European standards of attestation.61

The WTO Government Procurement Agreement

The Government Procurement Agreement (GPA) is based on a number
of general principles, which depict the principles of the old AGP
regime. The most important of them is the principle of national treat-
ment. Under this principle, the parties to the GPA must give the same
treatment afforded to national providers and products to providers and
products of other signatory states. Reinforcing the principle of national
 Public Procurement Regulation 47

treatment, the most favoured nation (MFN) principle guarantees treat-

ment no less favourable than that afforded to other parties. In addition
to the above principles, the principle of non-discrimination prohibits
discrimination against local firms on grounds of the degree of their
foreign affiliation or ownership, or on the grounds of origin of the
goods or services where these have been produced in one of the states
which is party to the Agreement.
The GPA stipulates a set of procedures for contracting authorities in
the signatory parties which must be followed when awarding contracts
within its scope. These procedures aim to ensure transparency and
openness as well as objectivity and legitimacy in the award of public
contracts and to facilitate cross-border trade between the signatories.
The influence of the European Community on the GPA regime is
apparent, an indication of the maturity and validity of the regulatory
process of the European public markets integration. The procedures
are, however, less strict than those applicable for the award of public
sector contracts under the Community regime, and depict the integral
flexibility envisaged by the regulatory regime for utilities procurement.
The GPA intends to regulate access specifically to the government
procurement markets. General market access between the signatories is
in principle dealt with under other agreements, notably the GATT (on
the import of goods) and the GATS (on access to services markets).
The detailed scope and coverage of the GPA with regard to the entities
covered, the type of procurement and monetary thresholds is set out in
Appendix I of the Agreement. The Agreement applies in principle to all
bodies which are deemed as “contracting authorities” for the purposes
of the European Public Sector Directives. With reference to utilities, the
GPA applies to entities which carry out one or more of certain listed
“utility” activities, where these entities are either “public authorities” or
“public undertakings”, in the sense of the Utilities Directive. However,
the GPA does not cover entities operating in the utilities sector on the
basis of special and exclusive rights. The utility activities which are
covered include (i) activities connected with the provision of water
through fixed networks; (ii) activities concerned with the provision of
electricity through fixed networks; (iii) the provision of terminal facili-
ties to carriers by sea or inland waterway; and (iv) the operation of
public services in the field of transport by automated systems, tramway,
trolley bus, or bus or cable. The provision of public transport services by
rail is included in principle, but there is exclusion for entities listed in
Annex VI of the European Utilities Directive, designed to exclude non-
urban transport services. However, the trust of the applicability of the
48 Public Procurement in the European Union

GPA in relation to utilities activities appears short in comparison with

that under the European regime. Activities connected with the distribu-
tion of gas or heat, the exploration or extraction of fuel are notable
exceptions from the GPA’s ambit.
The thresholds for the applicability of the GPA regime to public
contracts of signatories are as follows: For supplies and services it is
SDR 130,000 for central government; 200,000 for local government;
and 400,000 for all contracts in the utilities sectors (including those
awarded by central and local government). For works contracts, the
threshold is SDR 5 m, for all entities.
Although in principle the GPA regime represents a significant
improvement in relation to the old AGP regime in terms of coverage
and thrust, certain important derogations from its applicability would
result in diluting the principal aims and objectives envisaged by the
signatories. As far as central or federal government works and supply
contracts are concerned, the Agreement is expected to facilitate market
access and enhance cross-border trade patterns in public contracts.
However, for contracts relating to services and for certain contracts in
the utilities sector, as well as for contracts awarded by local, municipal
or regional authorities, the effect of the Agreement appears con-
siderably moderate. A number of signatories have been unable, or
unwilling, to offer for coverage all of their entities or contracts in the
above categories. Political and legal particularities in the systems of
the signatories have prevented similar coverage between the parties. In
addition, by applying the principle of reciprocity in negotiating the
GPA, the result would probably have been very similar to the old AGP
regime in covering central or federal public contracts. The solution to
this fundamental apparently deadlock was to be found in a rather
peculiar method. Each signatory should effectively negotiate with each
other and to come to a satisfactory agreement on coverage based on
reciprocity on a bilateral basis. This approach constitutes a significant
departure from the premise of the MFN and has resulted in some
considerable divergence in the applicability of the GPA by virtue of
derogations and limitations imposed by signatories on access to their
public markets. Thus, for example, coverage in the utilities sector does
not apply to Canada, since that country did not commit itself to
opening its own markets to the European Community. When the
Agreement was first concluded in December 1993 there was also no
coverage for utilities with respect to the United States, but there have
since been modifications to the EC-US coverage as a result of subse-
quent EC–US bilateral agreements. Also outside the coverage of the
 Public Procurement Regulation 49

Agreement in the utilities sector is, in relation to Japan, urban trans-

port and electricity; in relation to South Korea, urban transport and
airports; and in relation to Israel, urban transport. There are also
significant derogations for certain categories of services and for
specified types of equipment.
The scope and coverage the GPA, as well as the structure of its
applicability present a unique instrument of international law which is
based on a series of bilateral agreements rather than a multilateral
arrangement. This represents a significant compromise of the most
favoured nation principle, which is a fundamental premise of the
majority of international trade agreements. Members to the World
Trade Organisation joining the GPA, at their discretion, need to reach
separate agreements on the scope of coverage with all existing parties
to the Agreement. The GPA thus, has acquired a plurilaterality status, a
fact that weakens its thrust and complicates its applicability.

Part 2 Definitions and the mechanics of public procurement

regulation
The concept of contracting authorities
The structure of the Directives is such as to embrace the purchasing
behaviour of all entities, which have a close connection with the
state. These entities, although not formally part of the state, disperse
public funds in pursuit or on behalf of public interest. The Directives
describe as contracting authorities the state, which covers central,
regional, municipal and local government departments, as well as
bodies governed by public law. Provision has been also made to cover
entities, which receive more than 50 per cent subsidies by the state or
other contracting authorities.
However, that connection might be weak to cover entities which
operate in the utilities sector and have been privatised. The Foster
principle62 established that state accountability could not embrace
privatised enterprises.63 The enactment of the Utilities Directives64
brought under the procurement framework entities operating in the
water, energy, transport and telecommunications sectors. A wide range
of these entities are covered by the term bodies governed by public law,
which is used by the Utilities Directives for the contracting entities
operating in the relevant sectors.65 Interestingly, another category of
contracting authorities under the Utilities Directives includes public
undertakings.66 The term indicates any undertaking over which the
state may exercise direct or indirect dominant influence by means of
50 Public Procurement in the European Union

ownership, or by means of financial participation, or by means of laws

and regulations which govern the public undertaking’s operation.
Dominant influence can be exercised in the form of a majority holding
of the undertaking’s subscribed capital, in the form of majority con-
trolling of the undertaking’s issued shares, or, finally in the form of
the right to appoint the majority of the undertaking’s management
board. Public undertakings cover utilities operators, which have been
granted exclusive rights of exploitation of a service. Irrespective of their
ownership, they are subject to the Utilities Directive in as much as the
exclusivity of their operation precludes other entities from entering
the relevant market under substantially the same competitive condi-
tions. Privatised utilities could be, in principle, excluded from the
procurement rules when a genuinely competitive regime67 within
the relevant market structure would rule out purchasing patterns based
on non-economic considerations.

The principle mandatory advertisement and publication of

public contracts
One of the most important principles of the Public Procurement
Directives is the principle of transparency. The principle of trans-
parency serves two main objectives: the first is to introduce a system of
openness in public purchasing of the Member States, so a greater
degree of accountability is established and potential direct discrimina-
tion on grounds of nationality is eliminated. The second objective aims
at ensuring that transparency in public procurement represents a sub-
stantial basis for a system of best practice for both parts of the equa-
tion, but of particular relevance to the supply side, so that it has a
more proactive role in determining the needs of the demand side.
Transparency in public procurement is achieved through community-
wide publicity and advertisement of public procurement contracts over
certain thresholds by means of publication of three types of notices in
the Official Journal of the European Communities:

i) Periodic Indicative Notices (PIN). Every contracting authority must

notify its intentions for public procurement contracts within the
forthcoming financial year.68 By doing so, it provides for an
estimate intention of its purchasing and gives the supply side the
necessary time for planning and response to future contract oppor-
tunities. The publication of Periodic Indicative Notices, if properly
observed, also serves as a useful indicator in determining the
 Public Procurement Regulation 51

relevant market size for the supply side, as well as the relevant
procurement magnitude for a type of contracting authorities on
an annual basis. The fact that through PIN notices contracting
authorities produce only an estimated figure for forthcoming con-
tracts they intend to award, does not absolve them from their
responsibilities in strictly adhering to their publication.69
ii) Invitations to tender. All contracts above the relevant thresholds
should be tendered and the notice containing the invitation to
tender must include the award procedures and the award criteria
for the contract in question.70 The Invitation to tender is the most
important publicity and advertisement requirement for the cre-
ation of transparent and open public markets in the European
Community. The publication of the invitation to tender refers only
to a particular contract or a range of similar contracts of repetitive
nature and provides the supply side with the opportunity to
respond and make an offer in order to meet the needs and require-
ments of the demand side. The invitation to tender is part of
the contractual nexus in the public procurement process between
the relevant contracting authority and the tenderers/candidates
competing for the award of the contract in question. It is through
the invitation to tender that the supply side has a clear view as
to the award procedures and the award criteria contracting author-
ities intend to utilise, thus being able to respond accordingly. The
invitation to tender represents the first step towards the award
of public contracts and failure by contracting authorities to adhere
to the minimum requirements specified in the Directives could
invalidate the whole process.
iii) Contract Award Notices (CAN). This is a form of notification after
the award of the contract of the successful tenderer and the price
of its offer, as well as the reasons for its selection by the contract-
ing authority.71 In principle, Contract Award Notices publicise
the reasoning of contracting authorities during the selection and
award stages of the process, but quite often price information of
the successful tenderers and other candidates is withheld for
reasons of commercial confidentiality. The publication of CAN
notices can be used as an effective indicator in monitoring the pur-
chasing patterns of contracting authorities, as well as in providing
a picture relevant to the tradability of public contracts.

All types of notices are published by the Publications Office of the

European Communities. Within twelve days (or five days in the case of
52 Public Procurement in the European Union

the accelerated form of restricted or negotiated procedures), the

Publications Office publishes the notices in the Supplement to
the Official Journal and via the TED (Tenders Electronic Daily)
database. Two notices are published in full in their original language
only and in summary form in the other Community languages. The
Publications Office takes responsibility for the necessary translations
and summaries. The costs of publishing notices in the Supplement to
the Official Journal are borne by the Community.

The monetary applicability of the Public Procurement

Directives
The European rules of public procurement and all the requirements
and procedures laid down therein are triggered only if certain value
thresholds are met. The application of the Directives is subject to mon-
etary considerations in relation to the value of the relevant contracts.
There is a clear-cut distinction of coverage of the public procurement
rules upon contracts representing transactions between the public
sector and the industry of a certain economic substance and volume.
Contracts below the required thresholds are not subject to the rigorous
regime envisaged by the Directives. However, contracting authorities
are under the explicit obligation to avoid discrimination on nationality
grounds and apply all the provisions related to the fundamental princi-
ples of the Treaties of Rome and Maastricht. The thresholds laid down
are as follows:

• 5 million EURO for all work and construction projects72

• 200,000 EURO for supplies contracts within the European Union73
and 136,000 EURO for supplies contracts from third countries74
which participate in the WTO Government Procurement Agreement.
• 600,000 EURO for supplies of telecommunication equipment under
the Utilities Directive75 and 400,000 EURO for all other supplies
contracts awarded by public utilities.76
• 200,000 EURO for services contracts.77

The way in which the value of a contract is calculated is crucial for the
application of the relevant Directive. To ensure that identical calcula-
tion methods are used throughout the Member States of the European
Community and to prevent intentional avoidance of the Procurement
Directives by artificially low contract valuations, the Directives lay
down specific rules.78 Where the contract is to be concluded in the
 Public Procurement Regulation 53

form of a lease, rental or hire-purchase agreement, the calculation

method varies according to the duration of the contract. The estimated
value is to be calculated on the basis of the following requirements:

• where its term is 12 months or less, the total value for the contract’s
duration;
• where its term exceeds 12 months, the total value for the contract’s
duration, including the estimated residual value of the products;
• where the contract is concluded for an indefinite period or where its
term cannot be defined, the monthly value multiplied by 48.
• where contracts are of a regular nature or are to be renewed over a
given period, the following must be taken into account:
– either the actual aggregate value of similar successive contracts
awarded over the previous 12 months or accounting period,
adjusted where possible for anticipated changes in quantity or
value over the subsequent 12 months;
– or the estimated aggregate value of the successive contracts con-
cluded during the 12 months following the initial delivery or
accounting periods where this exceeds 12 months. In any event,
the choice between these two valuation methods must not be
made with the intention of keeping contracts outside the scope
of the Directive.

If a proposed procurement of supplies of the same type may lead to

contracts being awarded at the same time in separate lots, the esti-
mated value of all the lots must be taken into account. If it reaches the
relevant threshold, all the lots must be awarded in compliance with
the Directive. The same rules apply when estimating the value of
leasing, rental or hire-purchase contracts. Where provision is explicitly
made for options, the basis for calculating the estimated contract value
must be the highest possible total permitted for the purchase, lease,
rental or hire options included.
When calculating the value of a public works contract, account
has to be taken of the estimated value of the works and of the esti-
mated value of the supplies needed to carry out the works, even if
these supplies are made available to the contractor by the contract-
ing authorities. The estimated value of work which the contracting
authority intends to have carried out later by the contractor awarded
the current contract and which consists in a repetition of the work
to be carried out under the current contract, must be included in the
contract value.
54 Public Procurement in the European Union

The Works Directive provides for special rules when a contract is

subdivided into several lots. When the aggregate value of the lots
is over 5 million EURO, the provisions of the Directive apply to all lots.
A work or a contract may not be split up with the intention of avoid-
ing the applicability of the Directive. However, lots of a value, net
of VAT, less than 1 million EURO may be exempted from the scope of
the Directive, provided that the total estimated value of all the lots
exempted does not exceed 20 per cent of the total estimated value of
all lots.

Selection and qualification criteria

After the advertisement and publicity requirements the next phase in
the public procurement process is the selection and qualification of
the tenderers. At this stage, contracting authorities vet all the responses
received and determine the suitability of the candidates according
to objectively defined criteria which aim at eliminating arbitrariness
and discrimination. The selection criteria are determined through two
major categories of qualification requirements; i) legal, and ii) techni-
cal/economic. Contracting authorities must strictly follow the homo-
geneously specified selection criteria for enterprises participating in the
award procedures of public procurement contracts in an attempt to
abolish potential grounds for discrimination on grounds of nationality
and exclude technical specifications which are capable of favouring
national undertakings.
The relevant provisions of the Procurement Directives relating to the
criteria of a tenderer’s good standing and qualification are directly
effective.79 These criteria comprise of grounds for exclusion from par-
ticipation in the award of public contracts, such as bankruptcy, profes-
sional misconduct, failure to fulfil social security obligations and
obligations relating to taxes. They also refer to the technical ability
and knowledge of the contractor, where proof of them may be fur-
nished by educational or professional qualifications, previous experi-
ence in performing public contracts and statements on the contractor’s
expertise. In construction projects, the references which the contractor
may be required to produce must be specified in the notice or invita-
tion to tender.80 They include: the contractor’s educational and profes-
sional qualifications or those of the firm’s managerial staff, and, in
particular, those of the person or persons responsible for carrying
out the works; a list of the works carried out over the past five years,
accompanied by certificates of satisfactory execution for the most
 Public Procurement Regulation 55

important works. These certificates must indicate the value, date and
site of the works and must specify whether they were carried out
according to the rules of the trade and properly completed. Where nec-
essary, the competent authority must submit these certificates direct to
the authority awarding the contracts; a statement of the tools, plant
and technical equipment available to the contractor for carrying out
the work; a statement of the firm’s average annual manpower and
number of managerial staff for the last three years; a statement of the
technicians or technical divisions which the contractor can call upon
for carrying out the work, whether or not they belong to the firm.
On the other hand, in supplies contracts, the references which may
be requested81 must be mentioned in the invitation to tender and are
the following: a list of the principal deliveries effected in the past three
years, with the sums, dates and recipients, public or private, involved
in the form of certificates issued or countersigned by the competent
authority; a description of the undertaking’s technical facilities, its
measures for ensuring quality and its study and research facilities; indi-
cation of the technicians or technical bodies involved, whether or not
belonging directly to the undertaking, especially those responsible
for quality control; samples, descriptions or photographs of the prod-
ucts to be supplied, the authenticity of which must be certified if the
contracting authority so requests; certificates drawn up by official
quality-control institutes or agencies of recognised competence attest-
ing conformity to certain specifications or standards of goods clearly
identified by references to specifications or standards; where the goods
to be supplied are complex or, exceptionally, are required for a special
purpose, a check carried out by the contracting authorities (or on their
behalf by a competent official body of the country in which the sup-
plier is established, subject to that body’s agreement) on the produc-
tion capacities of the supplier and, if necessary, on his study and
research facilities and quality control measures. The provisions cover-
ing the contractors’ eligibility and technical capacity constitute an
exhaustive list.
In principle, there are automatic grounds for exclusion, 82 when a
contractor, supplier or service provider; i) is bankrupt or is being
wound up; ii) is the subject of proceedings for a declaration of bank-
ruptcy or for an order for compulsory winding up; iii) has been con-
victed for an offence concerning his professional conduct; iv) has
been guilty of grave professional misconduct; v) has not fulfilled
obligations relating to social security contributions; and vi) has not
fulfilled obligations relating to the payment of taxes.
56 Public Procurement in the European Union

However, for the purposes of assessing the financial and economic

standing of contractors, an exception to the exhaustive list covering
the contractors’ eligibility and technical capacity is provided for,83
where, in particular, contracting entities may request references other
than those expressly mentioned therein. Evidence of financial and eco-
nomic standing may be provided84 by means of references including:
i) appropriate statements from bankers; ii) the presentation of the
firm’s balance sheets or extracts from the balance sheets where these
are published under company law provisions; and iii) a statement of
the firm’s annual turnover and the turnover on construction works for
the three previous financial years.

Legal requirements for the qualification of contractors

The definition of a contractor wishing to submit a tender for the award
of a public contract comprises any legal or natural person involved in
supplies, construction or services activities. It also includes private con-
sortia, as well as joint ventures or groupings. Contracting authorities
may impose a requirement as to the form and legal status of the con-
tractor that wins the award.85 This requirement focuses only on the
post selection stage, after the award of the contract and indicates
the need for legal certainty. Specific legal form and status required by
contracting entities facilitates monitoring of the performance of the
contract and allows better access to justice in case of a dispute between
the contracting entity and the undertaking in question. The successful
contractor should also fulfil certain qualitative requirements concern-
ing his eligibility and technical capacity86 and his financial and
economic standing.

The list of recognised contractors

Registration in lists of recognised contractors that exist in various
Member States may be used by contractors as an alternative means of
proving their suitability, also before contracting authorities of other
Member States.87 Information deduced from registration in an official
list may not be questioned by contracting authorities. Nonetheless, the
actual level of financial and economic standing and technical knowl-
edge or ability required of contractors is determined by the contracting
authorities. Consequently, contracting authorities are required to
accept that a contractor’s financial and economic standing and techni-
cal knowledge and ability are sufficient for works corresponding to his
 Public Procurement Regulation 57

classification only in so far as that classification is based on equivalent

criteria with respect to the capacities required.
The relevant provisions of the Procurement Directives relating to the
qualitative selection and qualification criteria refer to the technical
ability and knowledge of tenderers, where proof may be furnished by
evidence of educational or professional qualifications, previous experi-
ence in performing public contracts and statements on the contractor’s
expertise.88 The references, which the tenderers may be required to
produce, must be specified in the notice or invitation to tender. The
rules relating to technical capacity and eligibility of tenderers represent
an exhaustive list and are capable of producing direct effect.89 The
Transporoute legacy paved the way for the Court to elaborate on forms
of selection and qualification, such as registration in lists of recognised
contractors. Such lists exist in Member States and tenderers may use
their registration in them as an alternative means of proving their
technical suitability, also before contracting authorities of other
Member States. CEI-Bellini followed the same line90 although it con-
ferred discretion to contracting authorities to request further evidence
of technical capacity, other than the mere certificate of registration in
official lists of approved contractors, on the grounds that such lists
might not be referring to uniform classifications.
Ballast Nedam I91 took qualitative selection and qualification criteria
a step further. The Court ruled that a holding company which does not
itself carry out works may not be precluded from registration on an
official list of approved contractors, and consequently, from participat-
ing in tendering procedures, if it shows that it actually has available to
it the resources of its subsidiaries necessary to carry out the contracts,
unless the references of those subsidiaries do not themselves satisfy the
qualitative selection criteria specified in the Directives. Ballast Nedam
II92 conferred an obligation to the authorities of Member States which
are responsible for the compilation of lists of approved contractors to
take into account evidence of the technical capacity of companies
belonging to the same group, when assessing the parent company’s
technical capacity for inclusion in the list, provided the holding
company establishes that it has available to it the resources of the com-
panies belonging to the group that are necessary to carry out public
contracts. Holst Italia,93 by analogy applied the Ballast principle to
undertakings that belong to the same group structure but do not have
the status of a holding company and the requisite availability of
the technical expertise of its subsidiaries. The Court held that with
regard to the qualitative criteria relevant to the economic, financial
58 Public Procurement in the European Union

and technical standing, a tenderer may rely on the standing of other

entities, regardless of the legal nature of the links which it has with
them, provided that it is able to show that it actually has at its disposal
the resources of those entities which are necessary for performance of a
public contract.
However, for the purposes of assessing the financial and economic
standing of contractors,94 an exception to the exhaustive (and directly
applicable) nature of technical capacity and qualification rules has
been made. The non-exhaustive character of the list of references in
relation to the contractors’ economic and financial standing was recog-
nised by Court in the CEI-Bellini case, where the value of the works
which may be carried out at any one time may constitute a proof of
the contractors’ economic and financial standing. The contracting
authorities are allowed to fix such a limit, as the provisions of the
Public Procurement Directives do not aim at delimiting the powers of
Member States, but at determining the references or evidence which
may be furnished in order to establish the contractors’ financial and
economic standing. Of interest is the recent case ARGE,95 where even
the receipt of aid or subsidies incompatible with the Treaty by an
entity may be a reason for disqualification from the selection process,
as an obligation to repay an illegal aid would threaten the financial sta-
bility of the tenderer in question.
The Court also maintained96 that the examination of a contractor’s
suitability based on its technical capacity and qualifications and
its financial and economic standing may take place simultaneously
with the award procedures of a contract.97 However, the two proce-
dures (the suitability evaluation and bid evaluation) are totally distinct
processes, which must not be confused.98

Part 3 The award of public contracts

Tendering procedures
Participation in tendering procedures is channelled through open,
negotiated or restricted procedures.

• Open procedures are those where every interested supplier, contractor

or service provider may submit an offer.99
• Negotiated procedures100 are such procedures for the award of public
contracts whereby contracting authorities consult contractors of their
choice and negotiate the terms of the contract with one or more
of them. In most cases they follow restricted procedures and they
 Public Procurement Regulation 59

are heavily utilised under framework agreements in the Utilities

sectors.101 There are two different kinds of negotiated procedures:
i) negotiated procedures with prior notification and ii) negotiated
procedures without prior notification.
– Negotiated procedures with prior notification102 provide for selec-
tion of candidates in two rounds. In the first round, all interested
contractors may submit their tenders and the contracting author-
ity selects, from the candidates, those who will be invited to
negotiate. In the second round, negotiations with various candi-
dates take place and the successful tender is selected. In principle,
the minimum number of candidates to be selected is three, pro-
vided that there are a sufficient number of suitable candidates.
– Negotiated procedures without prior notification103 are the least
restrictive of the various award procedures laid down in the
Directive and may be conducted in one single round. Contract-
ing authorities are allowed to choose whichever contractor they
want, begin negotiations directly with this contractor and award
the contract to him. The Directive provides for only a few rules
with which this procedure must comply. A prior notice in the
Official Journal is not required.
• Finally, restricted procedures104 are those procedures for the award
of public contracts whereby only those contractors invited by
the contracting authority may submit tenders. The selection of the
winning tender usually takes place in two rounds. In the first round,
all interested contractors may submit their interest and the contract-
ing authority selects, from the candidates, those who will be invited
to tender. In principle, the minimum number of candidates to
be selected is five. In the second round, bids are submitted and the
successful tender is selected.

An accelerated form of restricted or negotiated procedure may be

used105 where, for reasons of urgency, the periods normally required
under the normal procedures cannot be met. In such cases, contracting
authorities are required to indicate in the tender notice published in
the Official Journal the grounds for using the accelerated form of the
procedure. The use of an accelerated procedure must be limited to
the types and quantities of products or services which can be shown
to be urgently required. Other products or services must be supplied or
provided under open or restricted procedures.
The Directives stipulate that open procedures, where possible
should constitute the norm. Open procedures increase competition
60 Public Procurement in the European Union

without doubt and can achieve better prices for the contracting
authorities when purchasing goods in large volumes. Price reduction
based on economies of scale can bring about substantial cost savings
for the public sector. Open procedures are mostly utilised when the
procurement process is relatively straightforward and are combined
with the lowest price award criterion. On the other hand, competi-
tion in tendering procedures is limited by using the restricted and
negotiated procedures. By definition, the number of candidates that
are allowed to tender is limited (5 in restricted 3 in negotiated proce-
dures respectively), therefore the Directives have attached a number
of conditions for the contracting authorities to justify when they
intend to award their contracts through restricted or negotiated pro-
cedure. Restricted and negotiated procedures are utilised in relation
to the most economically advantageous offer award criterion and
suited for more complex procurement schemes. Although contracting
authorities can freely opt for open or restricted procedures, the latter
should be justified by reference to the nature of the products or ser-
vices to be procured and the balance between contract value and
administrative costs associated with tender evaluation. A more rigor-
ous set of conditions apply for the use of negotiated procedures.
When negotiated procedures with prior notification are used, they
must be justified on grounds of irregular or unacceptable tenders
received as a result of a previous call. Negotiated procedures without
prior notification are restrictively permitted in absence of tenders,
when the procurement involves manufactured products or construc-
tion works purely for research and development, when for technical
or artistic reasons or reasons connected with the protection of exclu-
sive rights a particular supplier or contractor is selected, in cases of
extreme urgency brought by unforseeable events not attributable to
the contracting authorities or when additional deliveries and supplies
or works would cause disproportionate technical, operational and
maintenance difficulties.
All negotiations with candidates or tenderers on fundamental aspects
of contracts, in particular on prices, are prohibited in open and res-
tricted procedures; discussions with candidates or tenderers may be
held, but only for the purpose of clarifying or supplementing the
content of their tenders or the requirements of the contracting author-
ities and provided this does not involve discriminatory practices.106
The need for such a prohibition is clear, since the possibility to negoti-
ate may allow the contracting authority to introduce subjective
appraisal criteria.
 Public Procurement Regulation 61

According to the Procurement Directives, negotiated procedures

without prior notification must be used restrictively inter alia…when
for technical or artistic reasons or reasons connected with the protection of
exclusive rights the services could only be procured by a particular provider …
and …in cases of extreme urgency brought about by events unforeseeable by
the contracting authority.
The Court reinforced its restrictive interpretation of the above two
reasons to which contracting authorities might be allowed to have
recourse to, and maintained their exceptional character rather than
their prohibitive use, and the onerous obligation of contracting
authorities to justify them.
The alleged existence of technical or artistic reasons or reasons con-
nected with the protection of exclusive rights which reveal a particular
contractor or service provider for a contracting authority to negotiate
without prior advertisement attracted the attention of the Court in two
instances.107 The Court rejected the existence of exclusive rights in
both cases and regarded the abuse of this provision as contrary to
the right of establishment and freedom to provide services which are
based on the principle of equal treatment and prohibit not only overt
discrimination on grounds of nationality, but also all covert forms of
discrimination, which, by the application of other criteria of differenti-
ation, lead to the same result. Interestingly, the Court elucidated
that exclusive rights might include contractual arrangements such as
know-how and intellectual property rights (case 199/85, Commission
v. Italy).
Urgency reasons brought by unforeseen events to contracting
authorities received similarly restrictive interpretation.108 The Court
maintained the need for a justification test based on the proportional-
ity principle (case 199/85, Commission v. Italy), as well as the existence
of a causal link between the alleged urgency and the unforeseen
events.109

The award criteria

In principle, there are two criteria laid down in the Public Procurement
Directives for awarding public contracts:

• the lowest price

• the most economically advantageous offer

The lowest price criterion is self-explanatory.110 The tenderer who

submits the cheapest offer must be awarded the contract. Subject to the
62 Public Procurement in the European Union

qualitative criteria and financial and economic standing, contracting

authorities do not rely on any other factor than the price quoted to
complete the contract. The reasons for utilising the lowest price crite-
rion are: simplicity, speed and less qualitative consideration during the
evaluation of tenders.
The appreciation of what is the most economically advantageous
tender offer111 is to be made on a series of factors and determinants
chosen by the contracting entity for the particular contract in ques-
tion. These factors include: price, delivery or completion date, running
costs, cost-effectiveness, profitability, technical merit, product or work
quality, aesthetic and functional characteristics, after-sales service and
technical assistance, commitments with regard to spare parts and com-
ponents and maintenance costs, security of supplies. The above list is
not exhaustive and the factors listed therein serve as a guideline for
contracting authorities in the weighted evaluation process of the con-
tract award. The order of appearance of these factors in the invitation
to tender or in the contract documents is of paramount importance for
the whole process of evaluation of the tenders and award of the con-
tract. The most economically advantageous factors must be in hierar-
chical or descending sequence so tenderers and interested parties can
clearly ascertain the relative weight of factors other than price for the
evaluation process. However, factors which have no strict relevance to
the particular contract in question or factors which are irrelevant in
economic terms are classified as subjective.
Two criteria laid down in the Public Procurement Directives provide
the conditions under which contracting authorities award public con-
tracts: the lowest price or the most economically advantageous offer.112
It should be mentioned that the Directives provide for an automatic
disqualification of an “obviously abnormally low offer”. The term has
not been interpreted in detail by the Court and serves rather as an indi-
cation of a “lower bottom limit”.113 The Court, however, pronounced
on the direct effect of the relevant provision requiring contracting
authorities to examine the details of the tender before deciding the
award of the contract. The contracting authorities are under duty
to seek from the tenderer an explanation for the price submitted or to
inform him that his tender appears to be abnormally low and to allow
a reasonable time within which to submit further details, before
making any decision as to the award of the contract.
The debate over the terminology of “obviously abnormally low”
tenders surfaced when the Court held114 that rejection of a contract
based on mathematical criteria without giving the tenderer an oppor-
 Public Procurement Regulation 63

tunity to furnish information is inconsistent with the spirit of the

Public Procurement Directives. The Court following previous case-
law,115 ruled that the contracting authorities must give an opportunity
to tenderers to furnish explanations regarding the genuine nature
of their tenders, when those tenders appear to be abnormally low.
Unfortunately, the Court did not proceed to an analysis of the
wording “obviously”. It rather seems that the term “obviously”
indicates the existence of precise and concrete evidence as to the
abnormality of the low tender. On the other hand, the wording
“abnormally” implies a quantitative criterion left to the discretion of
the contracting authority. However, if the tender is just “abnormally”
low, it could be argued that it is within the discretion of the contract-
ing authority to investigate the genuine offer of a tender. Impresa
Lombardini,116 followed the precedence established by Transporoute
and maintained the unlawfulness of mathematical criteria used as an
exclusion of a tender which appears abnormally low. Nevertheless,
it held that such criteria may be lawful if used for determining the
abnormality of a low tender, provided an inter partes procedure
between the contracting authority and the tenderer that submitted
the alleged abnormal low offer, offers the opportunity to clarify the
genuine nature of that offer. Contracting authorities must take into
account all reasonable explanations furnished and avoid limiting the
grounds on which justification of the genuine nature of a tender
should be made. Explicitly, the provisions of the Public Procurement
Directives direct contracting authorities to seek explanation and reject
unrealistic offers, informing the Advisory Committee.117 In ARGE,118
the rejection of a tender based on the abnormally low pricing
attached to it got a different twist in its interpretation. Although the
Court ruled that directly or indirectly subsidised tenders by the state
or other contracting authorities or even by the contracting authority
itself can be legitimately part of the evaluation process, it did not
elaborate on the possibility of rejection of an offer, which is apprecia-
bly lower than those of unsubsidised tenderers by reference to the
disqualification ground based on abnormally low offers.119
On the other hand, the meaning of the most economically advan-
tageous offer includes a series of factors chosen by the contracting
authority, including price, delivery or completion date, running
costs, cost-effectiveness, profitability, technical merit, product or
work quality, aesthetic and functional characteristics, after-sales
service and technical assistance, commitments with regard to spare
parts and components and maintenance costs, security of supplies.
64 Public Procurement in the European Union

The above list is not exhaustive and the factors listed therein serve as
a guideline for contracting authorities in the weighted evaluation
process of the contract award. The Court reiterated the flexible and
wide interpretation of the relevant award criterion 120 and had no
difficulty in declaring that contracting authorities may use the most
economically advantageous offer as award criterion by choosing the
factors which they want to apply in evaluating tenders,121 provided
these factors are mentioned, in hierarchical order or descending
sequence in the invitation to tender or the contract documents,
so tenderers and interested parties can clearly ascertain the relative
weight of factors other than price for the evaluation process. How-
ever, factors, which have no strict relevance in determining the most
economically advantageous offer by reference to objective criteria
do involve an element of arbitrary choice and therefore should be
considered as incompatible with the Directives.

Framework agreements
The Utilities Directives have introduced a new selection and tendering
procedure, namely framework agreements which is influenced to a
large extent by the benefits of chain supply management and partner-
ship schemes. The Supplies, Works and Services Directives do not refer
to framework agreements. A framework agreement is an agreement
between a contracting authority and one or more suppliers, contractors
or service-providers the purpose of which is to establish the terms, in
particular with regard to prices and, where appropriate, the quantity
envisaged, governing the contracts to be awarded during a given
period. A framework agreement does not possess binding character and
should not be considered as a contract between the relevant parties.122
In practical terms it represents a sort of a standing offer which remains
valid during its time-span. Within the provisions of the Utilities
Directive, when a contracting authority awards a framework agreement
under the relevant procedures which are common to other public con-
tracts covered therein, subsequent individual contracts concluded
under the framework agreement may be awarded without having
recourse to a call for competition. Individual contracts which have
been awarded under a framework agreement are subject to the require-
ment of the publication of a contract-award notice in the Official
Journal. The Directive specifically stipulates that misuse of framework
agreements may distort competition and trigger the application of the
relevant rules, particularly with reference to concerted practices which
lead to collusive tendering.
 Public Procurement Regulation 65

In-house contracts and contracts to affiliated undertakings

Article 6 of the Services Directive provides for the inapplicability of the
Directive to service contracts which are awarded to an entity which is
itself a contracting authority within the meaning of the Directive on
the basis of an exclusive right which is granted to the contracting
authority by a law, regulation or administrative provision of the
Member State in question. Article 13 of the Utilities Directive provides
for the exclusion of certain contracts between contracting authorities
and affiliated undertakings. An affiliated undertaking, for the purposes
of the Utilities Directive, is one the annual accounts of which are con-
solidated with those of the contracting entity in accordance with
the requirements of the seventh Company Law Directive [Council
Directive 83/349 (OJ 1983 L193/1)]. These are service contracts which
are awarded to a service-provider which is affiliated to the contracting
entity and service contracts which are awarded to a service-provider
which is affiliated to a contracting entity participating in a joint
venture formed for the purpose of carrying out an activity covered by
the Directive. The explanatory memorandum accompanying the text
amending the Utilities Directive (COM (91) 347-SYN 36 1) states
that this provision relates to three types of service provision. These
categories, which may or may not be distinct, are: the provision of
common services such as accounting, recruitment and management;
the provision of specialised services embodying the know how of
the group; the provision of a specialised service to a joint venture. The
exclusion from the provisions of the Directive is subject, however, to
two conditions: the service-provider must be an undertaking affiliated
to the contracting authority and, at least 80 per cent of its average
turnover arising within the European Community for the preceding
three years, derives from the provision of the same or similar services
to undertakings with which it is affiliated. The Commission is empow-
ered to monitor the application of this Article and require the notifi-
cation of the names of the undertakings concerned and the nature and
value of the service contracts involved.

Design contests
Under the Services Directive, provision has been made for a fourth type
of award procedure, namely design contests, with particular reference to
planning projects. According to the Services Directive, design contests
are those national procedures which enable the contracting authority
to acquire in the fields of area planning, town planning, architecture
and civil engineering, a plan or a design selected by a jury, after being
66 Public Procurement in the European Union

put out to competition with or without the award of prizes. The award
of design contests, according to the Services Directive must follow
specific rules. The admission of participants to the contest must not be
limited either by reference to the territory or part of a Member State, or
on the grounds that under the law of the Member State in which the
contest is organised, participants would have been required to be either
natural or legal persons. Furthermore, where design contests are
restricted to a limited number of participants, the contracting authori-
ties must lay down clear and non-discriminatory selection criteria
which ensure sufficient and genuine competition among the partici-
pants. The jury must be composed exclusively of natural persons
who are independent. The award criteria for design contests remain
the same with other public contracts (the lowest price or the most
economically advantageous offer)

Concession contracts
The Public Works Directive has adopted a special, mitigated regime for
the award of concession contracts the value of which is 5 million
EURO or more. There are no specific rules as to the way the value of
the contract must be calculated or rules referring to aggregation. For
the award of concession contracts, contracting authorities are obliged
to follow the advertising rules concerning open and restricted proce-
dures for the award of ordinary works contracts. Also, the provisions
on technical standards and on criteria for qualitative selection of
candidates and tenderers do apply. However, the Works Directive does
not prescribe the use of specific award procedures for concession con-
tracts. The Directive presupposes the concession contracts are awarded
in two rounds, such as in the case of restricted procedures or negoti-
ated procedures for works contracts. Nothing, however, prevents con-
tracting authorities from applying a one-round open procedure. The
Directive contains no rules on the minimum number of candidates
who have to be invited to negotiate or to submit a tender. It would
seem that a contracting authority may limit itself to selecting only one
single candidate, provided the intention to award a concession con-
tract has been adequately published. A contracting authority may
under no circumstances refrain from publishing a notice.

The award of public housing schemes

The award of public housing contracts123 may deviate from the normal
regime of the Directive for the purpose of selecting a contractor who
meets the requirements specified by the public authority. The design
 Public Procurement Regulation 67

and construction of a public housing scheme, as well as the size and

complexity of the project, as well as the estimated duration of the work
involved, require that planning be based from the outset on close
collaboration within a team comprising representatives of the contract-
ing authorities, experts and the contractor to be responsible for carry-
ing out the works. In these cases, the contracting authorities have to
apply the advertising rules and the criteria for qualitative selection
relating to the restricted procedure. Moreover, the contracting authori-
ties have to include in the contract notice as accurately as possible, a
description of the works to be carried out. With respect to quantitative
selection, no restrictions apply. Hence, there is no obligation for the
contracting authorities to select more that one single contractor to
negotiate admission to the building team.

Socio-economic considerations
In Beentjes,124 the Court ruled that social policy considerations and in
particular measures aiming at the combating of long term unemploy-
ment could only be part of the award criteria of public contracts, espe-
cially in cases where the most economically advantageous offer is
selected. The Court accepted that the latter award criterion contains
features that are not exhaustively defined in the Directives, therefore
there is discretion conferred on contracting authorities to specify what
would the most economically advantageous offer for them. However,
contracting authorities cannot refer to such measures as a selection cri-
terion and disqualify candidates who could not meet the relevant
requirements. The selection of tenderers is a process which is based on
an exhaustive list of technical and financial requirements expressly
stipulated in the relevant Directives and the insertion of contract com-
pliance as a selection and qualification requirement would be consid-
ered ultra vires. The Court held that a contractual condition relating to
the employment of long term unemployed persons is compatible with
the Public Procurement Directives, if it has no direct or indirect dis-
criminatory effect on tenders from other Member States. Furthermore,
such a contractual condition must be mentioned in the tender
notice.125 Rejection of a contract on the grounds of a contractor’s
inability to employ long-term unemployed persons has no relation
to the checking of the contractor’s suitability on the basis of his
economic and financial standing and his technical knowledge and
ability. The Court maintained that measures relating to employment
could be utilised as a feature of the award criteria, only when they are
part of a contractual obligation of the public contract in question and
68 Public Procurement in the European Union

on condition that they do not run contrary to the fundamental princi-

ples of the Treaty. The significance of that qualification has revealed
the Court’s potential stance over the issue of contract compliance in
public procurement.
In the recent case Nord-pas-de-Calais, the Court considered whether a
condition linked to a local project to combat unemployment could be
considered as an award criterion of the relevant contract. The Com-
mission alleged that the French Republic has infringed Article 30(1) of
Directive 93/37 purely and simply by referring to the criterion linked
to the campaign against unemployment as an award criterion in some
of the disputed contract notices. Under Article 30(1) of Directive 93/37,
the criteria on which contracting authorities are to base the award of
contracts are the lowest price only or, when the award is made to the
most economically advantageous tender, various criteria according to
the contract, such as price, period for completion, running costs,
profitability, and technical merit.
The Court held that the most economically advantageous offer does
not preclude all possibility for the contracting authorities to use as a
criterion a condition linked to the campaign against unemployment
provided that that condition is consistent with all the fundamental
principles of Community law, in particular the principle of non-
discrimination deriving from the provisions of the Treaty on the right
of establishment and the freedom to provide services. Furthermore,
even if such a criterion is not in itself incompatible with Directive
93/37, it must be applied in conformity with all the procedural rules
laid down in that Directive, in particular the rules on advertising.126
The Court therefore accepted the employment considerations as an
award criterion, part of the most economically advantageous offer,
provided it is consistent with the fundamental principles of Com-
munity law, in particular the principle of non-discrimination and it is
advertised in the contract notice.

Employee protection and transfer of undertakings

The relevance of the Acquired Rights Directive127 with the public pro-
curement regime became clear when contracting authorities started
testing the market in an attempt to define whether the provision of
works or services from a commercial operator could be cheaper than
that from the in-house team. This is the notion of contracting out, an
exercise which aims at achieving potential savings and efficiency gains
for contracting authorities. The application of the transfer of undertak-
ings rules in contracting out cases has the important consequence that
 Public Procurement Regulation 69

the external bidder (if successful) must engage the authority’s former
employees on the same conditions as they enjoyed under the authority
itself.
The initial Directive proclaimed its inapplicability in cases where
the undertaking was not in the nature of a commercial venture; this
proviso was interpreted as exclusive of contracting out by government.
The impact of the transfer of undertakings Directive in the context of
public procurement was felt in a landmark decision of the Court,128
which maintained that the Directive does not permit such a limitation.
Thus it became apparent that contracting out by government and
other public authorities was covered, and a transfer of an undertaking
may take place where the government contracts out to the private
sector a function previously carried out in-house129 and vice versa, viz.
where the contracting authority takes back in-house a service formerly
contracted out. The exact circumstance in which a transfer of an
undertaking through contracting out occurs depends upon the transfer
retaining its identity.130 However, the “retention of identity” test can
only be satisfied when the undertaking transferred represents substan-
tially the same or similar activities,131 as well as it relates to a stable eco-
nomic entity.132 The existence of a contractual link or relation between
the parties to a transfer of an undertaking is not a decisive criterion to
establish the applicability of the Directive.133
Serious concerns have been raised over the compatibility of the
public procurement and the transfer of undertakings regimes. It
appeared that there was a clear antithesis between the drivers of two
regimes in achieving savings on the one hand, whilst protecting
employees on the other. However, the Liikenne134 case confirmed the
compatibility of the two regimes.135 The Court’s jurisprudence relat-
ing to the applicability of transfer of undertakings to public procure-
ment has positioned transfers amongst contractual terms and
conditions of a contract, thus obliging contracting authorities to
inform tenderers appropriately, so the latter can factor all relevant
financial consequences to their bid.

Environmental considerations as award criteria

In Concordia,136 the Court was asked inter alia whether environmental
considerations such as low emissions and noise levels of vehicles could
be included amongst the factors of the most economically advanta-
geous criterion, in order to promote certain types of vehicles that meet
or exceed certain emission and noise levels. The Advocate-General
in his opinion137 followed the Beentjes principle and established that
70 Public Procurement in the European Union

contracting authorities are free to determine the factors under which

the most economically advantageous offer is to be assessed and that
environmental considerations could be part of the award criteria, pro-
vided they do not discriminate over alternative offers, as well as they
have been clearly publicised in the tender or contract documents.
However, the inclusion of such factors in the award criteria should not
prevent alternative offers that satisfy the contract specifications being
taken into consideration by contracting authorities.138
Criteria relating to the environment, in order to be permissible as
additional criteria under the most economically advantageous offer
must satisfy a number of conditions, namely they must be objective,
universally applicable, strictly relevant to the contract in question, and
clearly contribute an economic advantage to the contracting authority.
The line of argument adopted in Beentjes and followed up in Nord-
pas-de-Calais with reference to social considerations could apply
mutatis mutandis for environmental considerations. The inclusion of
such considerations amongst the factors of the most economically
advantageous offer is clearly subject to the caveat of conformity with
the fundamental principles of the Treaty, in particular the non-
discrimination principle and the attainment of the four freedoms, as
well as the procedural requirements (advertisement and publicity)
stipulated in the Public Procurement Directives. The Court followed
the Advocate General’s opinion, and reiterated that the flexibility
of the most economically advantageous offer as an award criterion
of public contracts could embrace environmental considerations by
analogy to the inclusion of social considerations to the award criteria
of public contracts.
3
Lessons from Jurisprudence

Introduction
Subjecting the public procurement legal framework to the scrutiny of
the European Court of Justice has revealed a distinctive pattern. This
pattern is reflected in the Court’s judgements and embraces two
approaches: a positive and at the same time a restrictive interpretation
of the regime. Although at first sight the stance taken by the European
judiciary may seem contradictory, the Court’s bi-focal approach, serves
the European institution’s efforts to strengthen the three principles
(non-discrimination, objectivity and transparency) underlying the regu-
lation of public procurement.1 It is worth mentioning the emphasis
that the legal regime has placed in pursuing these principles in the pre-
amble of the Works Directive …it is necessary to improve and extend the
safeguards in the directives that are designed to introduce transparency into
the procedures and practices for the award of such contracts, in order to be
able to monitor compliance with the prohibition of restrictions more closely
and at the same time to reduce disparities in the competitive conditions faced
by nationals of different Member States.
The positive approach of the Court comprises its attempts to eliminate
discrimination and non-tariff barriers in the fields of technical standards
(product specification and standardisation) and the selection procedures
(quantitative and qualitative suitability criteria). The Court’s jurispru-
dential positivism through the observance of non-discrimination and
objectivity principles epitomises the integral role of public procurement
in the attainment of the fundamental principles of the Treaty, specifically
the right of establishment and the freedom to provide services. On
the other hand, the Court’s restrictive approach serves the principle of
objectivity, with particular reference to the use of the award procedures.

71
72 Public Procurement in the European Union

The above pattern which is revealed through the jurisprudence of the

Court also reflects on a strategic goal of the European judiciary: to vest
the regime wherever possible with direct effect. Arming the public pro-
curement rules with direct effect will enhance access to justice at
national level, improve compliance, increase the quality of the regulat-
ory regime and finally streamline the public procurement process across
the common market by introducing an element of uniformity. By con-
ferring direct effect upon the Public Procurement Directives and inviting
national courts to play prominent role in future public procurement liti-
gation, the Court has hinted towards its preference for a decentralised
enforcement of the public procurement regime. However, the most
important lesson law and policy makers have learnt from the Court’s
approaches to public procurement is the potential of its regulation with
regard to policy formulation at national and European levels.

Part 1 The European Court of Justice and Public Procurement

The principle of non-discrimination
Technical standards
The influence of the 1986 White Paper2 upon the European integration
process epitomises the need to abolish all forms of covert or overt dis-
crimination on grounds of nationality which have a detrimental effect
in intra-community trade. The 1986 White Paper for the Competition
of the Internal Market could be viewed as the foundation stone of
many legislative initiatives relating to the accomplishment of the four
freedoms guaranteed in the Treaties. Technical standards and specifica-
tions, despite previous attempts to harmonise at Community level
were identified as serious non-tariff barriers because Member States’
regulatory competence in this field had been consistently used to
discriminate against foreign products or services.
The Court seized every opportunity to condemn discriminatory use
of specification requirements and standards.3 It established the “equi-
valent standard” doctrine, where contracting authorities are prohibited
from introducing technical specifications or trade marks which men-
tion products of a certain make or source, or a particular process which
favour or eliminate certain undertakings, unless these specifications are
justified by the subject and nature of the contract and on condition
that they are only permitted if they are accompanied by the words “or
equivalent”.
The procurement of goods, works and services based on discrimi-
natory practices relevant to standards and specifications was a
 Lessons from Jurisprudence 73

serious obstacle for the functioning of the internal market. Pro-

tectionist devices such as national technical standards and tender
participation requirements have created artificial blockages for the
free movement of goods, works and services destined for the public
sector across the Community. There are two ways that standardisa-
tion and specification can be used as a non-tariff barrier in public
procurement: first, contracting authorities may use certain (national)
systems of standards and specifications as an excuse for disqualifi-
cation of tenderers. That was the scenario in the Dundalk 4 case,
where Irish authorities specified a certain standard for pipelines.
Secondly, standardisation and specification requirements can be
restrictively defined in order to exclude products or services of a par-
ticular origin, or narrow the field of competition amongst tenderers.
To that extent, the Neerlands Inkoopcentrum5 case concerned with the
use of trade marks as compulsory specifications for the purchase of
meteorological equipment.
In both cases the use of specifications was contrary to the principle
of non-discrimination, as it precluded other interested tenderers whose
bids could not meet the contracting authority’s perceived technical
standards. The Court has followed a strict approach for technical
standards, similar to that relating to the technical ability and capacity
of undertakings in public procurement. That similarity of approach
evolves around two themes: first, the requirement that certain proced-
ural logistics relating to the publicity and the advertisement of the
technical standards as well as the means of proof of the technical
capacity must be met; secondly, specifications and technical capacity
must not refer to national laws in an attempt to narrow the field of
competition or exclude certain tenderers.
One of the most significant, yet judicially unresolved aspects of
standardisation and specification appears to be the operation of volun-
tary standards, which are mainly specified at industry level. Voluntary
standards and specifications are used quite often in the Utilities sector,
where the relevant procurement requirements are complex and cannot
be specified solely by reference to “statutory” standards, thus leaving a
considerable margin of discretion in the hands of the contracting
authorities, which may abuse it during the selection and qualification
stages of the procurement process.

Selection and qualification

The relevant provisions of the Procurement Directives relating to the
qualitative selection and qualification criteria refer to the technical
ability and knowledge of tenderers, where proof may be furnished by
74 Public Procurement in the European Union

evidence of educational or professional qualifications, previous expe-

rience in performing public contracts and statements on the contrac-
tor’s expertise.6 The references, which the tenderers may be required
to produce, must be specified in the notice or invitation to tender.
The rules relating to technical capacity and eligibility of tenderers
represent an exhaustive list and are capable of producing direct
effect.7 The Transporoute legacy paved the way for the Court to elab-
orate on forms of selection and qualification, such as registration
in lists of recognised contractors. Such lists exist in Member States
and tenderers may use their registration in them as an alternative
means of proving their technical suitability, also before contracting
authorities of other Member States. CEI-Bellini followed the same
line, 8 although it conferred discretion to contracting authorities
to request further evidence of technical capacity other than the mere
certificate of registration in official lists of approved contractors,
on the grounds that such lists might not be referring to uniform
classifications.
Ballast Nedam I 9 took qualitative selection and qualification crite-
ria a step further. The Court ruled that a holding company which
does not itself carry out works may not be precluded from registra-
tion on an official list of approved contractors, and consequently,
from participating in tendering procedures, if it shows that it actu-
ally has available to it the resources of its subsidiaries necessary to
carry out the contracts, unless the references of those subsidiaries
do not themselves satisfy the qualitative selection criteria specified
in the Directives. Ballast Nedam II 10 conferred an obligation to the
authorities of Member States which are responsible for the compila-
tion of lists of approved contractors to take into account evidence of
the technical capacity of companies belonging to the same group,
when assessing the parent company’s technical capacity for inclu-
sion into the list, provided the holding company establishes that it
has available to it the resources of the companies belonging to
the group that are necessary to carry out public contracts. Holst
Italia,11 by analogy applied the Ballast principle to undertakings that
belong to the same group structure but do not have the status of a
holding company and the requisite availability of the technical
expertise of its subsidiaries. The Court held that with regard to the
qualitative criteria relevant to the economic, financial and technical
standing, a tenderer may rely on the standing of other entities,
regardless of the legal nature of the links which it has with them,
provided that it is able to show that it actually has at its disposal the
 Lessons from Jurisprudence 75

resources of those entities which are necessary for performance of a

public contract.
However, for the purposes of assessing the financial and economic
standing of contractors, an exception to the exhaustive (and directly
applicable) nature of technical capacity and qualification rules has been
made. Evidence of financial and economic standing may be provided by
means of references including: i) appropriate statements from bankers; ii)
the presentation of the firm’s balance sheets or extracts from the balance
sheets where these are published under company law provisions; and iii)
a statement of the firm’s annual turnover and the turnover on construc-
tion works for the three previous financial years. The non-exhaustive
character of the list of references in relation to the contractors’ economic
and financial standing was recognised by Court in the CEI-Bellini case,12
where the value of the works which may be carried out at any one time
may constitute a proof of the contractors’ economic and financial stand-
ing. The contracting authorities are allowed to fix such a limit, as the pro-
visions of the Public Procurement Directives do not aim at delimiting the
powers of Member States, but at determining the references or evidence
which may be furnished in order to establish the contractors’ financial
and economic standing. Of interest is the recent case ARGE,13 where even
the receipt of aid or subsidies incompatible with the Treaty by an entity
may be a reason for disqualification from the selection process, as an
obligation to repay an illegal aid would threaten the financial stability of
the tenderer in question.
The Court also maintained14 that the examination of a contractor’s
suitability based on his technical capacity and qualifications and his
financial and economic standing may take place simultaneously with
the award procedures of a contract.15 However, the two procedures (the
suitability evaluation and bid evaluation) are totally distinct processes,
which shall not be confused.16
Clearly the selection and qualification criteria relating to the finan-
cial standing of tenderers are not capable of producing direct effect.
The Court has allowed for a significant margin of discretion to con-
tracting authorities to assess the financial standing of undertakings
participating in tendering procedures. Although the broad rules are
carefully circumscribed as to avoid discrimination and arbitrariness,
the selection and qualification of tenderers with reference to their
financial standing and capacity reflect a type of risk management on
the part of contracting authorities at a given time and for a given
project, thus a uniform and directly applicable rule could not be the
most optimum medium.
76 Public Procurement in the European Union

Preference purchasing schemes

Preference schemes have been indissolubly linked with regional
development policies, but since the completion of the single market
they have been abolished, as they are deemed to contravene directly
or indirectly the basic principle of non-discrimination on grounds of
nationality stipulated in the Treaties establishing the European
Community. Preference schemes guaranteed a certain percentage
of public procurement to local firms, a fact that has indicated the
close interplay between public purchasing and state aids. 17 Impact
assessment studies undertaken by the European Commission 18
showed that the operation of preference schemes had a minimal
effect on the economies of the regions where they had been applied,
both in terms of the volume of procurement contracts, as well as in
terms of real economic growth attributed to the operation of such
schemes.
The interpretation of preference schemes by the Court has always
been restrictive. The Commission brought Greece before the Court,19
where a circular of the Minister of National Economy, which favoured
domestic products in case of public, supplies contracts was deemed
to breach both Article 30 EC and the Public Supplies Directive 77/62.
The circular imposed a co-efficient of 21 per cent on prices of imported
products. The Court declared the failure of the Greek State to fulfil
its obligations under the Treaty and condemned the relevant prefer-
ence scheme as restrictive for the unobstructed access to public supply
contracts envisaged by the Directives
Italian courts sought a preliminary ruling from the Court in two
cases. Both concerned supply of pharmaceutical products to local
health authorities. In the Dupont de Nemours,20 the Court determined
the effect which a preferential system reserving to undertakings estab-
lished in certain regions of a national territory a proportion of public
supplies contracts is likely to have on the free movement of goods.
The Court held that the system of the reserved quota of public supply
contracts fell foul of Article 30 EC. It could not be justified under the
rule of reason under Article 36 EC, nor under Article 26 of Directive
77/62, which governed technical and financial capacity requirements.
It also stated that it is inconsistent with Article 30, even if it is consid-
ered as state aid within the meaning of Article 92 EC. The second case,
the Lavatori Bruneau,21 concerned whether the reservation of a per-
centage of public supplies contracts (30%) to undertakings located in
a specific area is incompatible with Article 30 EC, even if the measures
fall under Article 92 EC. The Court followed the same logic as in
 Lessons from Jurisprudence 77

Dupont de Nemours and condemned the preferential purchasing

scheme in question.
The Commission also brought an action against Italy22 for a declara-
tion that domestic law, which reserved a proportion of public works to
sub-contractors whose registered offices were in the region where the
works were to be carried out, was incompatible with Article 59 EC and
the Public Works Directives.23 The Court ruled that such provision had
an actual or potential discriminatory effect on undertakings outside
that particular region and other undertakings from Member States,
thus being inconsistent with Article 59 EC. Furthermore, it represents a
criterion of selection that is not mentioned in the Works Directives24
and in particular does not reflect any of the requirements of an eco-
nomic or technical nature provided for in Articles 25 and 26 of the
Public Works Directive 71/305.
Italy was again brought before the Court in a case25 which concerned
the compatibility of preference schemes with public procurement rules.
The Unita Sanitaria Locale XI Genoa (health authority) stipulated that,
in order to enable tenderers to participate in a public supply contract,
50 per cent of the minimum amount of supplies required to have been
made over the preceding three years should have been supplies to
public administration authorities. Although such a condition appears
as obviously inconsistent with the Supplies Directives, the Court did
not proceed on the substance of the case and declared the action
inadmissible, as the Commission did not observe the proceedings laid
down in Article 169 EC.
There has been a great deal of controversy over the issue of the com-
patibility of preference schemes with Community law at large and in
particular with the Public Procurement Directives. Although the utilisa-
tion of public procurement as a tool of regional development policy in
the form of state aids may not breach directly or indirectly primary
Treaty provisions on free movement of goods, the right of establish-
ment and the freedom to provide services, it is far from clear whether
the European Commission or the Court could accept the legitimate use
of public procurement as a means of state aids. Prior notification of the
measures or policies intended to be used as state aid to the European
Commission, does not apparently legitimise such measures and ab-
solve them from the draconian framework of the four freedoms. The
parallel applicability of Articles 92 EC and 30 EC, in the sense that
national measures conceived as state aids must not violate the princi-
ple of free movement of goods, render the thrust of regional policies
through state aids practically ineffective. The Court of Justice seemed
78 Public Procurement in the European Union

to have experimented with the question of the compatibility of Article

92 EC (state aids) with Article 30 (free movement of goods) in a num-
ber of cases where, initially, it was held that the two regimes are mutu-
ally exclusive, to the extent that the principle of free movement of
goods could not apply to measures relating to state aids.26 The acid test
for such mutual exclusivity was the prior notification of such measures
to the European Commission. However, the Court apparently departed
from such a position, when it applied Article 30 EC to a number of
cases concerning state aids, which had not been notified to the
Commission.27 Quite surprisingly, the Court brought notified state aids
measures under the remit of the provision of free movement of goods
in the Du Pont de Nemours case and reconsidered the whole framework
of the mutual exclusivity of Articles 92 EC and 30 EC.

The principle of objectivity

Award procedures
The process of liberalising public procurement relies to a great extent
on the principle of objectivity in the award of public contracts. The
Court had the opportunity to reflect on award procedures under
the relevant Directives and subject the negotiated procedures, particu-
larly those without prior advertisement to a restrictive interpretation.
According to the Procurement Directives, negotiated procedures with-
out prior notification shall be used restrictively inter alia…when for tech-
nical or artistic reasons or reasons connected with the protection of exclusive
rights the services could only be procured by a particular provider … and …in
cases of extreme urgency brought about by events unforeseeable by the
contracting authority.
The Court reinforced its restrictive interpretation of the above two
reasons to which contracting authorities might be allowed to have
recourse and maintained their exceptional character rather than their
prohibitive use, and the onerous obligation of contracting authorities
to justify them.
The alleged existence of technical or artistic reasons or reasons con-
nected with the protection of exclusive rights which reveal a particular
contractor or service provider for a contracting authority to negotiate
without prior advertisement attracted the attention of the Court in two
instances.28 The Court rejected the existence of exclusive rights in both
cases and regarded the abuse of this provision as contrary to the right of
establishment and freedom to provide services which are based on the
principle of equal treatment and prohibit not only overt discrimination
on grounds of nationality, but also all covert forms of discrimination,
 Lessons from Jurisprudence 79

which, by the application of other criteria of differentiation, lead to the

same result. Interestingly, the Court elucidated that exclusive rights
might include contractual arrangements such as know-how and intellec-
tual property rights (case 199/85, Commission v. Italy).
Urgency reasons brought by unforeseen events to contracting author-
ities received similarly restrictive interpretation.29 The Court main-
tained the need of a justification test based on the proportionality
principle (case 199/85, Commission v. Italy), as well as the existence of a
causal link between the alleged urgency and the unforeseen events.30

Award criteria
Two criteria laid down in the Public Procurement Directives provide
the conditions under which contracting authorities award public
contracts: the lowest price or the most economically advantageous
offer.31
The first criterion indicates that, subject to the qualitative criteria
and financial and economic standing, contracting authorities do not
rely on any other factor than the price quoted to complete the con-
tract. The tenderer who submits the cheapest offer must be awarded
the contract. It should be mentioned that the Directives provide for an
automatic disqualification of an “obviously abnormally low offer”. The
term has not been interpreted in detail by the Court and serves rather
as an indication of a “lower bottom limit”.32 The Court, however,
pronounced on the direct effect of the relevant provision requiring
contracting authorities to examine the details of the tender before
deciding the award of the contract. The contracting authorities are
under duty to seek from the tenderer an explanation for the price sub-
mitted or to inform him that his tender appears to be abnormally low
and to allow a reasonable time within which to submit further details,
before making any decision as to the award of the contract.
The debate over the terminology of “obviously abnormally low”
tenders surfaced when the Court held 33 that rejection of a contract
based on mathematical criteria without giving the tenderer an
opportunity to furnish information is inconsistent with spirit of the
Public Procurement Directives. The Court following previous case-
law, 34 ruled that the contracting authorities must give an opportu-
nity to tenderers to furnish explanations regarding the genuine
nature of their tenders, when those tenders appear to be abnormally
low. Unfortunately, the Court did not proceed to an analysis of
the wording “obviously”. It rather seems that the term “obviously”
indicates the existence of precise and concrete evidence as to the
80 Public Procurement in the European Union

abnormality of the low tender. On the other hand, the wording

“abnormally” implies a quantitative criterion left to the discretion of
the contracting authority. However, if the tender is just “abnor-
mally” low, it could be argued that it is within the discretion of the
contracting authority to investigate the genuine offer of a tender.
Impresa Lombardini, 35 followed the precedence established by Trans-
poroute and maintained the unlawfulness of mathematical criteria
used as an exclusion of a tender which appears abnormally low.
Nevertheless, it held that such criteria may be lawful if used for
determining the abnormality of a low tender, provided an inter partes
procedure between the contracting authority and the tenderer that
submitted the alleged abnormal low offer offers the opportunity to
clarify the genuine nature of that offer. Contracting authorities must
take into account all reasonable explanations furnished and avoid
limiting the grounds on which justification of the genuine nature of
a tender should be made. Both the wording and the aim of the
Public Procurement Directives direct contracting authorities to seek
explanation and reject unrealistic offers, informing the Advisory
Committee. 36 In ARGE, 37 the rejection of a tender based on the
abnormally low pricing attached to it got a different twist in its
interpretation. Although the Court ruled that directly or indirectly
subsidised tenders by the state or other contracting authorities or
even by the contracting authority itself can be legitimately part of
the evaluation process, it did not elaborate on the possibility
of rejection of an offer, which is appreciably lower than those of
unsubsidised tenderers by reference to the abnormally low dis-
qualification ground. In ARGE the Court adopted a literal interpreta-
tion of the Directives and concluded that if the legislature wanted
to preclude subsidised entities from participating in tendering proce-
dures for public contracts, it should have said so explicitly in the
relevant Directives. 38 Although the case has relevance in the fields
of selection and qualification procedures and award criteria, the
Court made no references to previous case-law regarding state aids
in public procurement, presumably because the Dupont de Nemours
precedence is still highly relevant.
On the other hand, the meaning of the most economically advant-
ageous offer includes a series of factors chosen by the contracting author-
ity, including price, delivery or completion date, running costs,
cost-effectiveness, profitability, technical merit, product or work quality,
aesthetic and functional characteristics, after-sales service and technical
assistance, commitments with regard to spare parts and components and
 Lessons from Jurisprudence 81

maintenance costs and security of supplies. The above list is not exhaus-
tive and the factors listed therein serve as a guideline for contracting
authorities in the weighted evaluation process of the contract award. The
Court reiterated the flexible and wide interpretation of the relevant
award criterion39 and had no difficulty in declaring that contracting
authorities may use the most economically advantageous offer as award
criterion by choosing the factors which they want to apply in evaluating
tenders,40 provided these factors are mentioned, in hierarchical order or
descending sequence in the invitation to tender or the contract docu-
ments,41 so tenderers and interested parties can clearly ascertain the rela-
tive weight of factors other than price for the evaluation process.
However, factors, which have no strict relevance in determining the
most economically advantageous offer by reference to objective criteria
do involve an element of arbitrary choice and therefore should be
considered as incompatible with the Directives.42
A question whether, under the most economically advantageous
offer, each individual award factor has to provide an economic advant-
age which directly benefits the contracting authority, or it is sufficient
that each individual factor has to be measurable in economic terms,
without the requirement that it directly provides an economic advant-
age for the contracting authority in the given contract was put before
the Court in Concordia.43 Through the second interpretation, the
discretion conferred to contracting authorities would permit a wide
range of factors to feature as part of award criteria in public contracts,
without the need to demonstrate a direct economic advantage to a
contracting authority which is attributable to each of these factors.
On the contrary, if each individual factor has to establish a measurable
(in quantifiable terms) economic advantage to the contracting author-
ity, which is directly attributed to its inclusion as part of the award cri-
terion, the discretion of contracting authorities is curtailed, since they
would be required to undertake and publicise in the tender or contract
documents a clear cost-benefit analysis of the relevant factors that
comprise in their view the most economically advantageous offer.
This question intended to provide guidance in order to assess the
integral function of the factors that comprise the most economically
advantageous offer for contracting authorities. Although there is wide
discretion conferred to them in compiling the relevant factors, subject
to the requirements of relevance to the contract in question and their
publicity, their relative importance, in economic terms, remains some-
how unknown. Unfortunately, the Court did not clarify the relevant
points.
82 Public Procurement in the European Union

Part 2 The emerging themes

The public nature of public procurement
The remit and thrust of public procurement legislation relies heavily
on the connection between contracting authorities and the state.
Compliance procedures brought by the European Commission against
Member States are a good indication of determining contracting
authorities under public procurement law. If the State can be held
responsible under Article 169 EC (now Article 226 EC) for breaches of
EC law committed by the central or local government, and also for
breaches by other public entities and bodies over which it exercises a
certain degree of control, that responsibility denotes a degree of con-
nection between the state and the entities in question sufficient
enough to characterise these entities as contracting authorities for the
purposes of the Public Procurement Directives.44 A comprehensive and
clear definition of the term contracting authorities, a factor that deter-
mines the applicability of the relevant rules is probably the most
important element of the public procurement legal framework.
The structure of the Directives is such as to embrace the purchasing
behaviour of all entities which have a close connection with the state.
These entities, although not formally part of the state, disperse public
funds in pursuit or on behalf of public interest. The Directives
describe as contracting authorities the state, which covers central,
regional, municipal and local government departments, as well as
bodies governed by public law. Provision has been also made to cover
entities, which receive more than 50 per cent subsidies by the state or
other contracting authorities.
However, that connection might be weak to cover entities which
operate in the utilities sector and have been privatised. The Foster
principle45 established that state accountability could not embrace
privatised enterprises.46 The enactment of the Utilities Directives47
brought under the procurement framework entities operating in the
water, energy, transport and telecommunications sectors. A wide
range of these entities are covered by the term bodies governed by
public law, which is used by the Utilities Directives for the contract-
ing entities operating in the relevant sectors.48 Interestingly, another
category of contracting authorities under the Utilities Directives
includes public undertakings.49 The term indicates any undertaking
over which the state may exercise direct or indirect dominant
influence by means of ownership, or by means of financial participa-
tion, or by means of laws and regulations which govern the public
 Lessons from Jurisprudence 83

undertaking’s operation. Dominant influence can be exercised in the

form of a majority holding of the undertaking’s subscribed capital, in
the form of the majority controlling of the undertaking’s issued
shares, or, finally in the form of the right to appoint the majority of
the undertaking’s management board. Public undertakings cover util-
ities operators which have been granted exclusive rights of exploita-
tion of a service. Irrespective of their ownership, they are subject to
the Utilities Directive in as much as the exclusivity of their operation
precludes other entities from entering the relevant market under sub-
stantially the same competitive conditions. Privatised utilities could
be, in principle, excluded from the procurement rules when a gen-
uinely competitive regime within the relevant market structure
would rule out purchasing patterns based on non-economic consider-
ations. The determination of a genuinely competitive regime is left to
the utilities operators themselves. This is perhaps a first step towards
self-regulation which could lead to the disengagement of the relevant
contracting authorities from the public procurement regime.50
Also, under the Tokyo Round GATT Agreement on Government
Procurement, the term public authorities confined itself to central
governments and their agencies only.51 The new World Trade Organ-
isation Government Procurement Agreement (GPA) applies in princi-
ple to all bodies which are deemed as “contracting authorities” for the
purposes of the Public Supplies and Public Works Directives. As far as
utilities are concerned, the GPA applies to entities which carry out one
or more of certain listed “utility” activities, where these entities are
either “public authorities” or “public undertakings”, in the sense of
the Utilities Directive. The listed utility activities which are covered
under the new GPA include (i) activities connected with the provision
of water through fixed networks; (ii) activities concerned with the pro-
vision of electricity through fixed networks; (iii) the provision of ter-
minal facilities to carriers by sea or inland waterway; and (iv) the
operation of public services in the field of transport by automated
systems, tramway, trolley bus, or cable bus. However, the GPA does
not cover entities operating in the utilities sector on the basis of
special and exclusive rights.

The functional dimension of contracting authorities

Although the term contracting authorities appears rigorous and well
defined, public interest functions are dispersed through a range
of organisations which stricto sensu could not fall under the ambit
of the term contracting authorities, since they are not formally part of
84 Public Procurement in the European Union

the state, nor all criteria for the definition of bodies governed by public
law are present. This is particularly the case of non-governmental organ-
isations (NGOs) which operate under the auspices of the central or local
government and are responsible for public interest functions.52 The
Court addressed the lex lacuna through its landmark case Beentjes.53
The Court diluted the rigorous definition of contracting authorities for
the purposes of public procurement law, by introducing a functional
dimension of the state and its organs. In particular, it considered that a
local land consolidation committee with no legal personality, but with its
functions and compositions specifically governed by legislation, part of
the state. The Court interpreted the term contracting authorities in func-
tional terms and considered the local land consolidation committee,
falling within the notion of state, even though it was not part of the
state administration in formal terms.54 The committee in question
depended on the relevant public authorities for the appointment of its
members and its operations were subject to their supervision and it had
as its main task the financing and award of public works contracts.
The Court in two recent cases applied the functionality test when
requested to determine the nature of entities which could not meet the
criteria of bodies governed by public law, but had a distinctive public
interest remit. In Teoranta,55 a private company established according
to national legislation to carry out business of forestry and related
activities was deemed as falling within the notion of the state. The
company was set up by the state and was entrusted with specific tasks
of public interest, such as managing national forests and woodland
industries, as well as providing recreation, sporting, educational,
scientific and cultural facilities. It was also under decisive administra-
tive, financial and management control by the state, although the day-
to-day operations were left entirely to its board. The Court accepted
that since the state had at least indirect control over the Teoranta’s
policies, in functional terms the latter was part of the state. In the
Vlaamese Raad,56 the Flemish parliament of the Belgian federal system
was considered part of the “federal” state. The Court held that the
definition of the state encompasses all bodies, which exercise legisla-
tive, executive and judicial powers, at both regional and federal levels.
The Raad, as a legislative body of the Belgian state, although under no
direct control by it, was held as falling within the definition of the
state and thus being regarded as a contracting authority. The fact that
the Belgian Government did not, at the time, exercise any direct or
indirect control relating to procurement policies the Vlaamese Raad
was considered immaterial on the grounds that a state cannot rely
 Lessons from Jurisprudence 85

on its own legal system to justify non-compliance with EC law and

particular Directives.57
The functional dimension of contracting authorities has exposed the
Court’s departure from the formality test, which has rigidly positioned
an entity under state control on stricto sensu traditional public law
grounds. Functionality, as an ingredient of assessing the relationship
between an entity and the state demonstrates, in addition to the ele-
ments of management or financial control, the importance of consti-
tuent factors such as the intention and purpose of establishment of
the entity in question. Functionality depicts a flexible approach in the
applicability of the Procurement Directives, in a way that the Court
through its precedence established a pragmatic approach as to the
nature of the demand side of the public procurement equation.

Bodies governed by public law

The latter category is subject to a set of cumulative criteria58 in order
to be classified as contracting authorities for the purposes of the
Directives. In particular, bodies governed by public law i) must be estab-
lished for the specific purpose of meeting needs in the general public
interest not having an industrial or commercial character; ii) they
must have legal personality; and iii) they must be financed, for the
most part, by either the state, or regional or local authorities, or other
bodies governed by public law; or subject to management supervision
by these bodies, or having an administrative or supervisory board,
more than half of whose members are appointed by the state, regional
or local authorities or by other bodies governed by public law. There is
a list of such bodies in Annex I of Directive 93/37 which is not an
exhaustive one, in the sense that Member States are under an obliga-
tion to notify the Commission of any changes to that list. The term
bodies governed by public law provided the opportunity to the Court
to elaborate on each of the cumulative criteria and shed light on their
constituent elements. The Court’s jurisprudence has revealed the
following thematic areas:

The dependency test

To assess the existence of the third criterion of bodies governed by
public law, the Court assumed that there is a close dependency of these
bodies on the State, in terms of corporate governance, management
supervision and financing.59 These dependency features are alternative,
thus the existence of one satisfies the third criterion. The Court held in
OPAC60 that management supervision by the state or other contracting
86 Public Procurement in the European Union

authorities entails not only administrative verification of legality or

appropriate use of funds or exceptional control measures, but the con-
ferring of significant influence over management policy, such as the
narrowly circumscribed remit of activities, the supervision of compli-
ance, as well as the overall administrative supervision. Of interest and
high relevance is the Court’s analysis and argumentation relating to
the requirements of management supervision by the state and other
public bodies, where it maintained that entities entrusted to provide
social housing in France are deemed to be bodies governed by public
law, thus covered by the Public Procurement Directives.
The Court (and the Advocate General) drew an analogy amongst the
dependency features of bodies governed by public law on the state.
Although the corporate governance and financing feature are quantit-
ative (the state must appoint more than half of the members of the
managerial or supervisory board or it must finance for the most part
the entity in question), the exercise of management supervision is a
qualitative one. The Court held that management supervision by the
state denotes dependency ties similar to the financing or governance
control of the entity concerned.
Receiving public funds from the state or a contracting authority is
an indication that an entity could be a body governed by public law.
However, this indication is not an absolute one. The Court, in the
University of Cambridge case61 was asked whether i) awards or grants
paid by one or more contracting authorities for the support of research
work; ii) consideration paid by one or more contracting authorities for
the supply of services comprising research work; iii) consideration paid
by one or more contracting authorities for the supply of other services,
such as consultancy or the organisation of conferences; and iv) student
grants paid by local education authorities to universities in respect
of tuition for named students constitute public financing for the
University.
The Court held that only specific payments made to an entity by the
state of other public authorities have the effect of creating or reinforc-
ing a specific relationship or subordination and dependency. The fund-
ing of an entity within a framework of general considerations indicates
that the entity has close dependency links with the state of other
contracting authorities. Thus, funding received in the form of grants or
awards paid by the state or other contracting authorities, as well as in
the form of student grants for tuition fees for named students, consti-
tutes public financing. The rationale for such approach lies in the lack
of any contractual consideration between the entity receiving the
 Lessons from Jurisprudence 87

funding and the state or other contracting authorities, which provide it

in the context of the entity’s public interest activities. The Court drew
an analogy of public financing received by an entity with the receipt of
subsidies.62 However, if there is a specific consideration for the state to
finance an entity, such as a contractual nexus, the Court suggested
that the dependency ties are not sufficiently close to merit the entity
financed by the state meeting the third criterion of the term bodies
governed by public law. Such a relationship is analogous to the de-
pendency that exists in normal commercial relations formed by recip-
rocal contracts, which have been negotiated freely between the parties.
Therefore, funding received by Cambridge University for the supply of
services for research work, or consultancies, or conference organisa-
tions cannot be deemed as public financing. The existence of a con-
tract between the parties, apart from the specific considerations for
funding, indicates strongly supply substitutability, in the sense that the
entity receiving the funding faces competition in the relevant markets.
The Court stipulated that the proportion of public finances received
by an entity, as one of the alternative features of the third criterion of
the term bodies governed by public law must exceed 50 per cent to
enable it meeting that criterion. For assessment purposes of this fea-
ture, there must be an annual evaluation of the (financial) status of an
entity for the purposes of being regarded as a contracting authority.
Dependency, in terms of overall control of an entity by the state or
another contracting authority presupposes a control similar to that
which the state of another contracting authority exercises over its own
departments. The “similarity” of control denotes lack of independence
with regard to decision-making. The Court in Teckal,63 concluded that
when a contracting authority exercises control over an entity, which
could be a contracting authority itself or a private undertaking, similar
to that which exercises over its own departments and at the same time
that entity carries out the essential part of its activities with that con-
tracting authority, any contract between them is not a public contract.
The similarity of control as a reflection of dependency reveals another
facet of the thrust of contracting authorities: the non-applicability of
the public procurement rules for in-house relationships.
In-house contracts and contracts to affiliated undertakings escape
the clutches of the Directives. Article 6 of the Services Directive pro-
vides for the inapplicability of the Directive to service contracts which
are awarded to an entity which is itself a contracting authority within
the meaning of the Directive on the basis of an exclusive right which is
granted to the contracting authority by a law, regulation or adminis-
88 Public Procurement in the European Union

trative provision of the Member State in question. Article 13 of the

Utilities Directive provides for the exclusion of certain contracts be-
tween contracting authorities and affiliated undertakings. For the
purposes of Article 1(3) of the Utilities Directive, an affiliated undertak-
ing is one the annual accounts of which are consolidated with those of
the contracting entity in accordance with the requirements of the
seventh company law Directive.64 These are service contracts, which are
awarded to a service-provider, which is affiliated to the contracting
entity, and service contracts, which are awarded, to a service-provider,
which is affiliated, to a contracting entity participating in a joint
venture formed for the purpose of carrying out an activity covered by
the Directive. The explanatory memorandum accompanying the text
amending the Utilities Directive (COM (91) 347-SYN 36 1) states that
this provision relates, in particular, to three types of service provision
within groups. These categories, which may or may not be distinct, are:
the provision of common services such as accounting, recruitment
and management; the provision of specialised services embodying the
know-how of the group; the provision of a specialised service to a joint
venture. The exclusion from the provisions of the Directive is subject,
however, to two conditions: the service-provider must be an undertak-
ing affiliated to the contracting authority and, at least 80 per cent of
its average turnover arising within the European Community for the
preceding three years, derives from the provision of the same or similar
services to undertakings with which it is affiliated. The Commission is
empowered to monitor the application of this Article and require
the notification of the names of the undertakings concerned and the
nature and value of the service contracts involved.

Commerciality and needs in the general interest

Commerciality and its relationship with needs in the general interest is
perhaps the most important theme that has emerged from the Court’s
jurisprudence in relation to the remit of bodies governed by public law
as contracting authorities. In fact the theme sets to explore the inter-
face between profit-making and public interest, as features which
underpin the activities of bodies governed by public law.
The criterion of specific establishment of an entity to meet needs in
the general interest having non-commercial or industrial character
has attracted the attention of the Court is some landmark cases.65 The
above criterion appears as the first of the three cumulative criteria for
bodies governed by public law. The Court drew its experience from
jurisprudence in the public undertakings field as well as case-law
 Lessons from Jurisprudence 89

relating to public order to define the term needs in the general inter-
est.66 The Court approached the above concept by a direct analogy of
the concept “general economic interest”, as defined in Article 90(2)
EC.67 The concept “general interest” denotes the requirements of a
community (local or national) in its entirety, which should not
overlap with the specific or exclusive interest of a clearly determined
person or group of persons.68 However, the problematic concept of
the specificity of the establishment of the body in question was
approached by reference to the reasons and the objectives behind its
establishment. Specificity of the purpose of an establishment does
not mean exclusivity, in the sense that other types of activities can
be carried out without escaping classification as a body governed by
public law.69
On the other hand, the requirement of non-commercial or industrial
character of needs in the general interest has raised some difficulties.
The Court had recourse to case-law and legal precedence relating to
public undertakings, where the nature of industrial and commercial
activities of private or public undertakings was defined.70 The industrial
or commercial character of an organisation depends much upon a
number of criteria that reveal the thrust behind the organisation’s par-
ticipation in the relevant market. The state and its organs may act
either by exercising public powers or by carrying economic activities of
an industrial or commercial nature by offering goods and services on
the market. The key issue is the organisation’s intention to achieve
profitability and pursue its objectives through a spectrum of commer-
cially motivated decisions. The distinction between the range of activ-
ities which relate to public authority and those which, although
carried out by public persons, fall within the private domain is drawn
most clearly from case-law and judicial precedence of the Court con-
cerning the applicability of competition rules of the Treaty to the given
activities.71
The Court in BFI72 had the opportunity to clarify the element of non-
commercial or industrial character. It considered that the relationship
of the first criterion of bodies governed by public law is an integral
one. The non-commercial or industrial character is a criterion intended
to clarify the term needs in the general interest. In fact, it is regarded as
a category of needs of general interest. The Court recognised that there
might be needs of general interest, which have an industrial and com-
mercial character and it is possible that private undertakings can meet
needs of general interest which do not have industrial and commercial
character. The acid test for needs in the general interest not having an
90 Public Procurement in the European Union

industrial or commercial character is that the state or other contracting

authorities choose themselves to meet these needs or to have a decisive
influence over their provision.
In the Agora case73 the Court indicated that if an activity which
meets general needs is pursued in a competitive environment, there
is a strong indication that the entity which pursues it is not a body
governed by public law. The reason can be found in the relationship
between competitiveness and commerciality. Market forces reveal the
commercial or industrial character of an activity, irrespective the latter
meeting the needs of general interest or not. However, market compet-
itiveness as well as profitability cannot be absolute determining factors
for the commerciality or the industrial nature of an activity, as they are
not sufficient to exclude the possibility that a body governed by public
law may choose to be guided by considerations other that economic
ones. The absence of competition is not a condition necessarily to be
taken into account in order to define a body governed by public law,
although the existence of significant competition in the market place
may be indicative of the absence of a need in the general interest,
which does not carry commercial or industrial elements. The Court
reached this conclusion by analysing the nature of the bodies governed
by public law contained in Annex 1 of the Works Directive 93/37 and
verifying that the intention of the state to establish such bodies has
been to retain decisive influence over the provision of the needs in
question.
Certain activities, which by their nature fall within the fundamental
tasks of the public authorities, cannot be subject to a requirement
of profitability and therefore are not meant to generate profits. It is
possible, therefore, that the reason, in drawing a distinction between
bodies whose activity is subject to the public procurement legislation
and other bodies, could be attributed to the fact that the criterion of
“needs in the general interest not having an industrial or commercial
character” indicates the lack of competitive forces in the relevant mar-
ketplace. The concept of the state encapsulates an entrepreneurial
dimension to the extent that it exercises dominium. Although the state
as entrepreneur enters into transactions with a view to providing
goods, services and works for the public, this type of activities do not
resemble the characteristics of entrepreneurship, in as much as the aim
of the state’s activities is not the maximisation of profits but the
observance of public interest. The relevant markets where the state
enters can be described as public markets. Public markets are the fora
where public interest substitutes profit maximisation.74
 Lessons from Jurisprudence 91

The dual capacity of contracting authorities

The dual capacity of an entity as a public service provider and a com-
mercial undertaking respectively, and the weighting of the relevant
activity in relation to the proportion of its output, should be the decis-
ive factor in determining whether an entity is a body governed by
public law. This argument appeared for the first time before the Court
in the Strohal75 case. The Austrian Government suggested that only if
the activities in pursuit of the “public services obligations” of an entity
supersede its commercial thrust, the latter could be considered as a
body covered by public law and a contracting authority. In support of
its argument that the relevant entity (Österreichische Staatsdruckerei) is
not a body governed by public law, the Austrian Government main-
tained that the proportion of public interest activities represents no
more than 15–20 per cent of its overall activities.76
In practice, the argument put forward implied a selective application
of the Public Procurement Directives in the event of dual capacity
entities. This sort of application is not entirely unjustified as, on a
number of occasions,77 the Public Procurement Directives themselves
utilise thresholds or proportions considerations in order to include or
exclude certain contracts from their ambit. Examples of such selective
application of the regime include, the relevant provisions stipulating
the thresholds for the applicability of the public procurement rules as
well as the provisions relating to the so-called “mixed contracts”,
where the proportion of the value of the works or the supplies element
in a public contract determines the applicability of the relevant Direct-
ive and finally the relevant provisions which embrace the award of
works contracts subsidised directly by more than 50 per cent by the
state within the scope of the Directive.
However, the Court ruled out a selective application of the Directives
in the case of dual capacity contracting authorities based on the princi-
ple of legal certainty. It substantiated its position on the fact that only
the purpose for which an entity is established is relevant in order to
classify it as body governed by public law and not the division between
public and private activities. Thus, the pursuit of commercial activities
by contracting authorities is incorporated with their public interest ori-
entation aims and objectives, without taking into account their pro-
portion and weighting in relation to the total activities dispersed, and
contracts awarded in pursuit of commercial purposes fall under the
remit of the Public Procurement Directives. The Court recognised
the fact that by extending the application of public procurement rules
to activities of a purely industrial or commercial character, an onerous
92 Public Procurement in the European Union

constraint would be probably imposed upon the relevant contracting

authorities, which may also seem unjustified on the grounds that
public procurement law, in principle, does not apply to private bodies,
which carry out identical activities.78 The above situation represents a
considerable disadvantage in delineating the distinction between
private and public sector activities and their regulation, to the extent
that the only determining factor appears to be the nature of the organ-
isation in question. The Court suggested that that disadvantage could
be avoided by selecting the appropriate legal instrument for the object-
ives pursued by public authorities. As the reasons for the creation of a
body governed by public law would determine the legal framework
which would apply to its contractual relations, those responsible for
establishing it must restrict its thrust in order to avoid the undesirable
effects of that legal framework on activities outside their scope.
The Court in Strohal established dualism, to the extent that it speci-
fically implied that contracting authorities may pursue a dual range of
activities; to procure goods, works and services destined for the public,
as well as participate in commercial activities. They can pursue other
activities in addition to those which meet needs of general interest
not having an industrial and commercial character. The proportion
between activities pursued by an entity, which on the one hand aim to
meet needs of general interest not having an industrial or commercial
character, and commercial activities on the other is irrelevant for the
characterisation of that entity as a body governed by public law. What
is relevant is the intention of establishment of the entity in question,
which reflects on the “specificity” requirement. Also, specificity does
not mean exclusivity of purpose. Specificity indicates the intention of
establishment to meet general needs. Along theses lines, ownership or
financing of an entity by a contracting authority does not guarantee
the condition of establishment of that entity to meet needs of general
interest not having industrial and commercial character.

The connection of contracting authorities with private undertakings

There is considerable risk of circumventing the Public Procurement
Directives, if contracting authorities award their public contracts via
private undertakings under their control, which cannot be covered
by the framework of the Directives. Under the domestic laws of the
Member States, there is little to prevent contracting authorities from
acquiring private undertakings in an attempt to participate in market
activities. In fact, in many jurisdictions the socio-economic climate is
very much in favour towards public-private sector partnerships, in the
 Lessons from Jurisprudence 93

form of joint-ventures or in the form of private financing of public pro-

jects. A classic example of such an approach is the views of the UK
Government in relation to the involvement of the private sector in
delivering public services. A number of government documents have
eulogised the so-called Private Finance Initiative (PFI), which attempts to
create a framework between the public and private sectors working
together in delivering public services.79
Unfortunately, the Public Procurement Directives have not envis-
aged such a scenario, where avoidance of the rules could be based
on the fact that the entities which award the relevant contracts cannot
be classified as contracting authorities within the meaning of the
Directives.
The Court, prior to the Strohal case, did not have the opportunity to
examine such corporate relationships and the effect that public pro-
curement law has upon them. Even in Strohal, the Court did not rule
directly on the subject, but instead it provided the necessary inferences
for national courts, in order to ascertain whether such relations be-
tween public and private undertakings aim at avoiding the application
of the Public Procurement Directives. Indeed, national courts, in litiga-
tion before them, must establish in concreto whether a contracting
authority has established an undertaking in order to enter into con-
tracts for the sole purpose of avoiding the requirements specified in
public procurement law. Such conclusions must be beyond doubt
based on the examination of the actual purpose for which the under-
taking in question has been established. The rule of thumb is the con-
nection between the nature of a project and the aims and objectives of
the undertaking which awards it. If the realisation of a project does not
contribute to the aims and objectives of an undertaking, then it is
assumed that the project in question is awarded “on behalf” of another
undertaking, and if the latter beneficiary is a contracting authority
under the framework of public procurement law, then the relevant
Directives should apply. The Court followed the Strohal lines to
Teckal,80 where the exercise of a similar control over the management
of an entity by a contracting authority prevents the applicability of the
Directives.
The above inferences from the Court, although useful in terms of
guidance and general reference, could prove problematic in their
actual application at domestic level for a number of reasons. First, the
examination of any relation between contracting authorities and
private undertakings presupposes litigation before national courts.
Questions over legal competence, locus standi and accessibility to
94 Public Procurement in the European Union

justice at domestic level arise, when a dispute over the award of a

contract by a private undertaking is the subject of litigation. In con-
trast to domestic litigation relating to public procurement disputes,
where there are detailed rules which provide for remedies and access
to justice before national courts,81 in a situation where a contract has
been awarded by a private undertaking on behalf of a contracting
authority with a view to avoiding the relevant Directives, it is unclear
where an aggrieved party or contractor should address its complaints.
Secondly, even in the event that the relationship between a private
undertaking and a contracting authority represents a coherent frame-
work in the dispersement of public service, it appears that there
might be a lack of uniform evaluation patterns of the actual purpose
of an undertaking controlled by a contracting authority, as Member
States (and their judiciaries) tend to view in a different way aspects of
contractualised governance. In various jurisdictions within the com-
mon market, it would be difficult, in legal and political terms, to
justify the empowerment of the private sector in as much as it could
assume the role of service deliverer alongside the public sector.
Constitutional provisions could nullify such attempts and often a
number of socio-economic factors would collide with the idea of
private delivery of public services. The evolution of public/private
sector relations has arrived in times when the role and the respons-
ibilities of the state are in the process of being redefined. Con-
stitutionally, the state and its organs are under obligation to provide
a range of services to the public in the form of e.g. healthcare, educa-
tion, transport, energy, defence, social security and policing. The
state and its organs then enter the market place and procure goods,
works and services in pursuit of the above objective, on behalf of the
public.82 The state in its own capacity or through delegated or legal
monopolies and publicly controlled enterprises has engaged in
market activities in order to serve public interest. Traditionally,
the function of the state as a public service provider has been linked
with ownership of the relevant assets. The integral characteristics of
privately financed projects reveal the degree that the state and its
organs are prepared to drift away from traditional corporatism towards
contractualised governance. Departure from traditional corporatism also
reflects the state’s perception vis-à-vis its responsibilities towards the
public. A shift towards contractualised governance would indicate
the departure from the assumption that the state embraces both roles
of asset owner and service deliverer. It should also insinuate the
shrinkage of the state and its organs and the need to define a range of
 Lessons from Jurisprudence 95

core activities that are not to be contractualised. Finally, in practical

terms, it would be very difficult to prove the intention of a con-
tracting authority to circumvent the public procurement rules and
enforce their application on private undertakings.
The dual capacity of contracting authorities is irrelevant to the
applicability of public procurement rules. If an entity is a contracting
authority, it must apply public procurement rules irrespective of the
pursuit of general interest needs or the pursuit of commercial activities.
Also, if a contracting authority assigns the rights and obligations of a
public contract to an entity, which is not a contracting authority, that
entity must follow public procurement rules. The contrary would be
acceptable if the contract fell within the remit of the entity, which is
not a contracting authority, and the contract was entered into on its
behalf by a contracting authority.
The irrelevance of dualism for the applicability of public procure-
ment represents a safeguard for the acquis communautaire. Dualism
could be viewed as recognition of contractualised governance, where
the demarcation between public and private activities of the public
sector has become difficult to define, as well as a counterbalance of
commerciality. If commercialism might shield the activities of a con-
tracting authority from the application of public procurement rules,
dualism provides for the necessary inferences to subject dual capacity
entities to the acquis communautaire.

Procurement as a policy instrument

The most economically advantageous offer as an award criterion has
provided the Court for the opportunity to balance the economic con-
siderations of public procurement with policy choices. Although
in numerous instances the Court has maintained the importance of
the economic approach83 to the regulation of public sector contracts, it
has also recognised the relative discretion of contracting authorities to
utilise non-economic considerations as award criteria.

Social considerations as award criteria

In Beentjes,84 the Court ruled that social policy considerations and in
particular measures aiming at the combating of long term unemploy-
ment could only be part of the award criteria of public contracts, espe-
cially in cases where the most economically advantageous offer is
selected. The Court accepted that the latter award criterion contains
features that are not exhaustively defined in the Directives, therefore
there is discretion conferred on contracting authorities to specify what
96 Public Procurement in the European Union

would the most economically advantageous offer for them. However,

contracting authorities cannot refer to such measures as a selection
criterion and disqualify candidates which could not meet the relevant
requirements. The selection of tenderers is a process, which is based on
an exhaustive list of technical and financial requirements expressly
stipulated in the relevant Directives and the insertion of contract com-
pliance as a selection and qualification requirement would be consid-
ered ultra vires. The Court held that a contractual condition relating to
the employment of long term unemployed persons is compatible with
the Public Procurement Directives, if it has no direct or indirect
discriminatory effect on tenders from other Member States. Further-
more, such a contractual condition must be mentioned in the tender
notice.85 Rejection of a contract on the grounds of a contractor’s inabil-
ity to employ long-term unemployed persons has no relation to the
checking of the contractors’ suitability on the basis of their economic
and financial standing and their technical knowledge and ability. The
Court maintained that measures relating to employment could be
utilised as a feature of the award criteria, only when they are part of a
contractual obligation of the public contract in question and on condi-
tion that they do not run contrary to the fundamental principles of the
Treaty. The significance of that qualification has revealed the Court’s
potential stance over the issue of contract compliance in public
procurement.
In the recent case Nord-pas-de-Calais,86 the Court considered whether
a condition linked to a local project to combat unemployment could be
considered as an award criterion of the relevant contract. The Com-
mission alleged that the French Republic has infringed Article 30(1) of
Directive 93/37 purely and simply by referring to the criterion linked to
the campaign against unemployment as an award criterion in some of
the disputed contract notices. Under Article 30(1) of Directive 93/37,
the criteria on which contracting authorities are to base the award of
contracts are either the lowest price only or, when the award is made to
the most economically advantageous tender, various other criteria
according to the contract, such as price, period for completion, running
costs, profitability, technical merit are taker into consideration.
The Court held that the most economically advantageous offer does
not preclude all possibility for the contracting authorities to use as a
criterion a condition linked to the campaign against unemployment
provided that that condition is consistent with all the fundamental
principles of Community law, in particular the principle of non-
discrimination deriving from the provisions of the Treaty on the right
 Lessons from Jurisprudence 97

of establishment and the freedom to provide services.87 Furthermore,

even if such a criterion is not in itself incompatible with Directive
93/37, it must be applied in conformity with all the procedural rules
laid down in that directive, in particular the rules on advertising.88 The
Court therefore accepted the employment considerations as an award
criterion, part of the most economically advantageous offer, provided
it is consistent with the fundamental principles of Community law, in
particular the principle of non-discrimination and it is advertised
in the contract notice.
The Commission adopted a myopic view repeating previous argu-
ments that Beentjes concerned a condition of performance of the con-
tract and not a criterion for the award of the contract. The Court
had the opportunity to correct the Commission’s interpretation of the
Beentjes case and point to the right direction of its judgement,89 where
the condition relating to the employment of long-term unemployed
persons, which was at issue in that case, had been used as the basis
for rejecting a tender and therefore necessarily constituted a criterion
for the award of the contract.
The Court’s rulings in Beentjes and Nord-pas-de-Calais have opened
an interesting chapter in public procurement jurisprudence. Beentjes
started a debate on the integral dimensions of contract compliance and
differentiated between the positive and negative approaches. A positive
approach within contract compliance encompasses all measures and
policies imposed by contracting authorities on tenderers as suitability
criteria for their selection in public procurement contracts. Such posi-
tive action measures and policies intend to complement the actual
objectives of public procurement, which are confined in economic and
financial parameters and are based on a transparent and predictable
legal background. Although the complementarity of contract compli-
ance with the actual aims and objectives of the public procurement
regime was acknowledged, the Court has been reluctant in accepting
such a flexible interpretation of the Directives and based on the literal
interpretation of the relevant provisions disallowed positive actions of
a social policy dimension as part of the selection criteria for tendering
procedures in public procurement. However, it should be mentioned
that contract compliance could incorporate not only unemployment
considerations, but also promote equality of opportunities and elimin-
ate sex or race discrimination in the relevant market.90 Indeed, the
Directives on public procurement stipulate that the contracting author-
ity may require tenderers to observe national provisions of employ-
ment legislation when they submit their offers. The ability to observe
98 Public Procurement in the European Union

and conform to national employment laws in a Member State may

constitute a ground of disqualification and exclusion of the defaulting
firm from public procurement contracts. In fact, under such interpreta-
tion, contract compliance may be a factor of selection criteria specified
in the Directives, as it contains a negative approach (obey otherwise ex-
cluded) to legislation and measures relating to social policy. It should
be mentioned that adherence to health and safety laws have been con-
sidered by a British court as part of the technical requirements specified
in the Works Directive for the process of selection of tenderers.91

Transfer of undertakings and public procurement

The relevance of the Acquired Rights Directive.92 with the public pro-
curement regime became clear when contracting authorities started
testing the market in an attempt to define whether the provision of works
or services from a commercial operator could be cheaper than that from
the in-house team. This is the notion of contracting out, an exercise which
aims at achieving potential savings and efficiency gains for contracting
authorities. The application of the transfer of undertakings rules in con-
tracting out cases has the important consequence that the external
bidder (if successful) must engage the authority’s former employees on
the same conditions as they enjoyed under the authority itself.
The initial Directive proclaimed its inapplicability in cases where the
undertaking was not in the nature of a commercial venture; this proviso
was interpreted as exclusive of contracting out by government. The
impact of the transfer of undertakings Directive in the context of public
procurement was felt in a landmark decision of the Court,93 which main-
tained that the Directive does not permit such a limitation. Thus it
became apparent that contracting out by government and other public
authorities was covered, and a transfer of an undertaking may take place
where the government contracts out to the private sector a function pre-
viously carried out in-house94 and vice versa, viz. where the contracting
authority takes back in-house a service formerly contracted out. The exact
circumstances in which a transfer of an undertaking through contracting
out occurs depends upon the transfer retaining its identity.95 However,
the “retention of identity” test can only be satisfied when the undertak-
ing transferred represents substantially the same or similar activities,96 as
well as it relates to a stable economic entity.97 The existence of a contractual
link or relation between the parties to a transfer of an undertaking is not
a decisive criterion to establish the applicability of the Directive.98
Serious concerns have been raised over the compatibility of the public
procurement and the transfer of undertakings regimes.99 It appeared that
 Lessons from Jurisprudence 99

there was a clear antithesis between the drivers of two regimes in achiev-
ing savings on the one hand, whilst protecting employees on the other.
However, the Liikenne100 case, confirmed the compatibility of the two
regimes.101 The Court’s jurisprudence relating to the applicability of trans-
fer of undertakings to public procurement has positioned transfers
amongst contractual terms and conditions of a contract, thus obliging
contracting authorities to inform tenderers appropriately, so the latter
can factor all relevant financial consequences to their bid.

Environmental considerations as award criteria

In Concordia,102 the Court was asked inter alia whether environmental
considerations such as low emissions and noise levels of vehicles could
be included amongst the factors of the most economically advantageous
criterion, in order to promote certain types of vehicles that meet or
exceed certain emission and noise levels. The Advocate-General in his
opinion103 followed the Beentjes principle and established that contract-
ing authorities are free to determine the factors under which the most
economically advantageous offer is to be assessed and that envir-
onmental considerations could be part of the award criteria, provided
they do not discriminate over alternative offers, as well as they have
been clearly publicised in the tender or contract documents. However,
the inclusion of such factors in the award criteria should not prevent
alternative offers that satisfy the contract specifications being taken into
consideration by contracting authorities. Clearly the Advocate General
wanted to exclude any possibility of environmental considerations being
part of selection criteria or disguised as technical specifications, capable
of discriminating against tenderers that could not meet them.104
Criteria relating to the environment, in order to be permissible as
additional criteria under the most economically advantageous offer
must satisfy a number of conditions, namely they must be objective, uni-
versally applicable, strictly relevant to the contract in question, and
clearly contribute an economic advantage to the contracting authority.105
The line of argument adopted in Beentjes and followed up in Nord-
pas-de-Calais with reference to social considerations could apply
mutatis mutandis for environmental considerations. The inclusion of
such considerations amongst the factors of the most economically
advantageous offer is clearly subject to the caveat of conformity with
the fundamental principles of the Treaty, in particular the non-
discrimination principle and the attainment of the four freedoms, as
well as the procedural requirements (advertisement and publicity)
stipulated in the Public Procurement Directives.
4
Public Procurement as Economic and
Policy Exercise

Introduction
The regulation of public procurement in the European Union has been
significantly influenced by the internal market project. The White
Paper for the Completion of the Internal Market1 and the Single
European Act represent the conceptual foundations of the regulation
of public markets of the Member States. The identification of public
procurement as a major non-tariff barrier has revealed the economic
importance of its regulation.2 Savings and price convergence appeared
as the main arguments for liberalising the trade patterns of the
demand (the public and utilities sectors) and supply (the industry) side
of the public procurement equation.3 The economic approach to
the regulation of public procurement aims at the integration of public
markets across the EU. Through the principles of transparency, non-
discrimination and objectivity in the award of public contracts, it is
envisaged that the regulatory system will bring about competitiveness
in the relevant product and geographical markets, will increase import
penetration of products and services destined for the public sector, will
enhance the tradability of public contracts across the common market,
will result in significant price convergence and finally it will be the
catalyst for the needed rationalisation and industrial restructuring of
the European industrial base.4
Parallel with the economic arguments, legal arguments emerged
supporting the regulation of public procurement as a necessary ingredi-
ent of the fundamental principles of the Treaties such as the free move-
ment of goods and services, the right of establishment and the
prohibition of discrimination on nationality grounds.5 The legal
significance of the regulation of public procurement in the common
100
 Public Procurement as Economic and Policy Exercise 101

market has been well documented. Public procurement liberalisation

reflects the wish of European institutions to eliminate preferential and
discriminatory purchasing patterns by the public sector and create
seamless intra-community trade patterns between the public and
private sectors. Procurement by Member States and their contracting
authorities is often susceptible to a rationale and policy that favours
indigenous undertakings and national champions6 at the expense of
more efficient competitors (domestic or Community-wide). As the rele-
vant markets (product and geographical) have been sheltered from
competition, distorted patterns emerge in the trade of goods, works
and services destined for the pubic sector. These trade patterns repre-
sent a serious impediment in the functioning of the common market
and inhibit the fulfilment of the principles enshrined in the Treaties.7
Legislation, policy guidelines and jurisprudence have all played their
role in determining the need for integrated public markets in the
European Union, where sufficient levels of competition influence
the most optimal patterns in resource allocation for supplying the
public sector as well as the public utilities with goods, works and ser-
vices. Public procurement has now been elevated as a key objective of
the EU’s vision in becoming the most competitive economy in the
world by 2010.8

The new approach towards the integration of public markets

The rationale behind the whole process of the integration of public
markets of the Member States has been the establishment of an
effectively competitive regime, similar to that envisaged for the oper-
ation of private markets.9 European Institutions have intellectually
supported such an attempt by reference to liberal economic theo-
ries,10 where a regime of enhanced competition in public markets
could bring about beneficial effects for the supply side of the equa-
tion (the industry), by means of optimal allocation of resources
within the European industries, rationalisation of production and
supply, promotion of mergers and acquisitions and elimination of
sub-optimal firms and creation of globally competitive industries.
These effects have been also deemed to yield substantial purchasing
savings for the public sector.11 The European institutions envisaged
the creation of such a competitive regime in public markets through
the establishment of a legal framework which aims at abolishing
discrimination on grounds of nationality and at eliminating preferen-
tial public procurement practices which favour national champions.
102 Public Procurement in the European Union

The above regime intends to introduce a strict regulatory framework

of operations related to the supply chain of contracting authorities in
the public sector. This indicates the fact that the demand side in the
supply/demand equation of public procurement is the dominant part
and its regulation would materialise the objectives of the process.
However, the attempts to integrate the public markets of the Euro-
pean Community solely by reference to the regulation of the purchas-
ing behaviour of the demand side (the contracting authorities) appear
to have left the supply side of public procurement unaffected by the
above regulatory framework. The behaviour of the supply side is not
the subject of public procurement legislation, although its regulation
appears equally important with reference to the integration of public
markets in Europe. Theoretically speaking, the supply side in the public
procurement equation is subject to the competition law and policy of
the Treaties, but it is evident that there is lack of an integral mech-
anism in public procurement legislation capable of incorporating the
results of the anti-trust rules when applied to the supply side. Stricto
sensu, anti-competitive behaviour of undertakings or collusive tendering
does not appear to be reasons for disqualification from the selection and
award processes of public contracts. It seems that the assumptions of
European Institutions concentrate on the fact that by forcing contract-
ing authorities throughout the Community into a common purchasing
behaviour which is based on the principles of openness, transparency
and non-discrimination, industrial restructuring (in the supply side)
will follow as a result of such a stimulant and therefore all the above-
mentioned desirable effects concerning efficiency gains and public
sector savings will occur.
The European Commission has claimed that the regulation of public
procurement throughout the Community and the resulting elimina-
tion of non-tariff barriers arising from discriminatory and preferential
purchasing patterns of Member Sates could bring about substantial
savings of ECU 20 bn or 0.5 per cent of GDP to the (European) public
sector. Combating discrimination on grounds of nationality in public
procurement and eliminating domestic preferential purchasing schemes
could result in efficiency gains at European and national levels through
the emergence of three major effects which would primarily influence
the supply side.12 These include a trade effect, a competition effect and a
restructuring effect.
The trade effect is associated with the actual and potential savings
that the public sector will be able to achieve through lower cost pur-
chasing. This effect appears to have a static dimension, since it emerges
 Public Procurement as Economic and Policy Exercise 103

as a consequence of enhanced market access in the relevant sector or

industry. The trade effect emanates as a result of the principle of trans-
parency in public markets (compulsory advertisement of public con-
tracts above certain thresholds), a fact that constitutes an improvement
from previously closed preferential regimes. However, the principle of
transparency and the associated trade effect in public markets do not
in themselves guarantee the establishment of competitive conditions
in the relevant markets, as market access – a structural element in the
process of integration of public markets in Europe – could be hindered
by discriminatory behaviour of contracting authorities in the selection
stages and the award stages of public procurement.
On the other hand, the competition effect relates to the changes of
industrial performance as a result of changes in the price behaviour
of national firms which had previously been protected from com-
petition by means of preferential and discriminatory procurement
practices. The competition effect derives also from the principle of
transparency and appears to possess rather static characteristics.
Transparency in public procurement breaks information and awareness
barriers in public markets, and as mentioned above brings a trade effect
in the relevant sectors or industries by means of price competitiveness.
The competition effect comes as a natural sequence to price compet-
itiveness and inserts an element of long-term competitiveness in the
relevant industries in aspects other than price (e.g. research and devel-
opment, innovation, customer care). The competition effect would
materialise in the form of price convergence of goods, works and services
destined for the public sector. Price convergence could take place both
nationally and Community-wide, in as much as competition in the
relevant market would equalise the prices of similar products.
Finally, the third effect (the restructuring effect) reflects the restruc-
turing dimension in the supply side as a result of increased competi-
tion in the relevant markets. The restructuring effect is a dynamic one
and refers to the long-term industrial and sectoral adjustment of
industries that supply the public sector. The restructuring effect
attempts to capture the reaction of the relevant sector or industry to
the competitive regime imposed upon the demand and supply sides,
as a result of openness and transparency and the sequential trade and
competition effects. The response of the relevant sector or industry
and the restructuring effect itself would depend on the efficiency of
the industry to merge, diversify, convert or abort the relevant compet-
itive markets and would also reflect contemporary national industrial
policies.13
104 Public Procurement in the European Union

The above scenario represents the model envisaged by European

Institutions on a macro-perspective and depicts the orientation of
policy making towards the formation of a coherent industrial policy at
European level. The regulation of the purchasing behaviour of the
demand side in public markets seems to constitute an effective way of
introducing competitive elements to the European industries, which
apparently suffer from overcapacity and excessive compartmentalisa-
tion, when compared to rival industries in North America and Japan.14
In addition, the cost of research and development in such a market
structure builds up and it is reflected in pricing, particularly in high-
tech products. Industrial restructuring and adjustment has been a
priority for the European Commission for a long time, and attempts to
control the structure of the European industrial base have been wit-
nessed during the eighties with the introduction of the merger control
regulation15 and a number of regulations which provide for block
exemptions from Article 85 EC of otherwise anti-competitive beha-
viour.16 It is submitted that by the introduction of a regulatory regime
for the public markets in Europe, a coherent policy towards industrial
restructuring and adjustment has been put in place covering both
private and public markets, with a view to establishing a more compet-
itive interface amongst industries in the common market and vis-à-vis
rivals in non-Member States.17
As a result of the momentum gathered in the mid-eighties, the regu-
lation of public procurement in the European Community became a
priority overnight and the inefficiency of the relevant primary and sec-
ondary Community provisions to combat discriminatory practices and
preferential public purchases of contracting authorities throughout the
common market was disclosed as statistical results revealed consider-
ably low cross-border import penetration in public contracts. Further-
more, a disturbing picture emerged as to the extent of differentiation
between a key element in the structures of private and public markets
within the European Member States. Although it is correct to maintain
that there are striking differences between demand and supply struc-
tures in private and public markets, one particular market structure
element that had an interestingly low presence in public markets was
the element of market access. Market access reflects the effectiveness of
import penetration strategies (marketing, predatory pricing, venture
alliances) of an undertaking and very much depends upon the regime
of competition reigning in the relevant market place. Public markets
differ considerably from private ones in terms of structure, demand
and supply conditions as well as in terms of competitiveness.
 Public Procurement as Economic and Policy Exercise 105

If scale economies were important in defining the most desirable pur-

chasing pattern for the public sector and competition increases amongst
industries which supply the latter, an efficient European industrial
structure would support less firms operating at full capacity.18 Strategic
mergers and cross-border investments would reshape the industries and
reorganise the operation of firms. Within this reorganisation process,
the structural adjustment would constantly change in order to adopt to
the new market environment introduced by the legal regime on public
procurement. In the process of developing new industrial strategies, two
factors appear essential: the need for integration of industrial activities19
and the need to meet local demands.
In the past many of the advantages offered to national champions and
locally operating firms in public procurement markets had discouraged
the tradability of public contracts20 amongst European industries.21 Per-
sistently low import penetration in protected public procurement
sectors dictated a corporate strategy to the relevant industries. Before
the opening up of the public procurement in Europe, the typical stra-
tegic choice was low on integration and high on responsiveness,
including the replication of all major corporate functions (production,
R&D, marketing) in each Member State. The on-going realisation of the
common market and the regulation of public procurement in the
European Community have been forcing undertakings to revise their
strategies and to build-up network organisations, which combine local
responsiveness with a high degree of centralisation and co-ordination
of major supporting activities. The new strategy has the characteristics
of a multi-focal strategy.
The adoption of multi-focal strategies or global integration strategies
involves a major shift in location patterns of key functions within
firms.22 The old decentralised multinational organisations which
duplicated major functions in each country which they operated need
to transform into an integrated system of which the key elements show
a different degree of regional concentration.23 As a consequence of the
new organisational structure, different types of international transac-
tions are expected to occur.24 Specialisation and concentration of activ-
ities in certain regions will lead to more trade between certain Member
States. In addition, as a result of the corporate network system, trade
will increasingly develop into intra-firm trade and intra-industry
trade with greater exchange of intermediary products.25 The organisa-
tional rationalisation following the development of network organisa-
tions poses the problem of ownership and location of the corporate
headquarters. Some Member States may fear losing strategic control in
106 Public Procurement in the European Union

the restructuring process26 and therefore may resist the rationalisation

process that the industry has been undergoing, by imposing various
restrictions in terms of ownership or control structures of locally
operating firms.

A neo-classical perspective to public procurement regulation

The distinctiveness of public markets
From an economic perspective, the state and its organs would enter the
market in pursuit of public interest.27 Such activity does not resemble
the commercial characteristics of private entrepreneurship, in as much
as the aim of the public sector is not the maximisation of profits but
the observance of public interest.28 This fundamental factor provides
the differential ground for the creation of public markets where public
interest substitutes profit maximisation.29 Further variances distinguish
private from public markets. These focus on structural elements of the
market place, competitiveness, demand conditions, supply conditions,
the production process, and finally pricing and risk. They also provide
for an indication as to the different methods and approaches employed
in their regulation.30
Private markets are generally structured as a result of competitive
pressures originating in the buyer/supplier interaction and their con-
figuration can vary from monopoly/oligopoly to perfect competition.
Demand arises from heterogeneous buyers with a variety of specific
needs. It is based on expectations and is multiple for each product.
Supply, on the other hand, is offered through various product ranges,
where products are standardised using known technology, but con-
stantly improved through research and development processes. The
production process is based on mass-production patterns and the prod-
uct range represents a large choice including substitutes, whereas the
critical production factor is cost level. The development cycle appears
to be short to medium-term and finally, the technology of products
destined for the private markets is evolutionary. Purchases are made
when an acceptable balance between price and quality is achieved.
Purchase orders are multitude and at limited intervals. Pricing policy in
private markets is determined by competitive forces and the purchas-
ing decision is focused on the price-quality relation. The risk factor is
highly present.
On the other hand, public markets tend to be structured and func-
tion in a different way. The market structure often reveals monopson-
istic characteristics.31 In terms of its origins, demand in public markets
 Public Procurement as Economic and Policy Exercise 107

is institutionalised and operates mainly under budgetary considera-

tions rather than price mechanisms. It is also based on fulfillment of
tasks (pursuit of public interest) and it is single for many products.
Supply also has limited origins, in terms of the establishment of close
ties between the public sector and industries supplying it and there is
often a limited product range. Products are rarely innovative and tech-
nologically advanced and pricing is determined through tendering and
negotiations. The purchasing decision is primarily based upon the
life-time cycle, reliability, price and political considerations. Purchasing
patterns follow tendering and negotiations and often purchases are
dictated by policy rather than price/quality considerations.

Procurement regulation as an economic exercise

Viewing public procurement from the prism of an economic exercise,
its regulation displays strong neo-classical influences. Such influences
embrace the merit of efficiency in the relevant market and the presence
of competition, mainly price competition, which would create optimal
conditions for welfare gains. The connection between public procure-
ment regulation and the neo-classical approach to economic integra-
tion in the common market is reflected upon the criterion for awarding
public contracts based on the lowest offer.32 This feature of the legal
framework focuses on price competition being inserted into the relev-
ant markets and, assisted by the transparency requirement to advertise
public contracts above certain thresholds33 would result in production
and distribution efficiencies and drive the market towards an optimal
allocation of resources.
Removing protectionism and preferential treatment and inserting an
environment of competition in public markets will bring about allocat-
ive efficiencies, which in turn will result in social welfare gains at Euro-
pean and national levels through the emergence of three major effects
that would primarily influence the supply side.34 These gains include a
trade effect, a competition effect and a restructuring effect.
The trade effect is associated with the actual and potential savings
that the public sector would be able to achieve through lower cost
purchasing. This effect appears to have a static dimension, since it
emerges as a consequence of enhanced market access of the relevant
sectors or industries. The trade effect emanates from the principle of
transparency35 in public markets (compulsory advertisement of public
contracts above certain thresholds). On the other hand, the competi-
tion effect relates to the changes of industrial performance as a result
108 Public Procurement in the European Union

of changes in the price behaviour of national firms which had previ-

ously been protected from competition by means of preferential and
discriminatory procurement practices. The competition effect derives
also from the principle of transparency and appears to possess dynamic
characteristics. The competition effect comes as a natural sequence to
price competitiveness and inserts an element of long-term competitive-
ness in the relevant sectors or industries in aspects other than price
(e.g. research and development, innovation, customer care). The com-
petition effect would materialise in the form of price convergence, at
both national and Community-wide levels, of goods, works and ser-
vices destined for the public sector. Finally, the third effect (the restruc-
turing effect) reflects upon the restructuring dimension of the supply
side as a result of increased competition in the relevant markets.
The restructuring effect possesses dynamic characteristics and refers to
the long-term industrial and sectoral adjustment through strategic
investment, takeovers and mergers and acquisitions. The restructuring
effect attempts to capture the reaction of the relevant sector or in-
dustry vis-à-vis the competitive regime imposed upon the demand
and supply sides, as a result of openness and transparency and the
sequential trade and competition effects.
The lowest offer as an award criterion of public contracts is a quantit-
ative method of achieving market equilibrium between the demand
and supply sides. The supply side competes in cost terms to deliver
standardised (at least in theory) works, services and goods to the public
sector. Price competition is bound to result in innovation in the relev-
ant industries, where through investment and technological improve-
ments, firms could reduce production and/or distribution costs.
The lowest offer criterion could be seen as the necessary stimulus in
the relevant market participants in order to improve their competitive
advantages.
The lowest offer award criterion reflects on, and presupposes low
barriers to entry in a market and provides for a type of predictable
accessibility for product or geographical markets. This is a desirable
characteristic in a system such as public procurement regulation which
is charged with integrating national markets and creating a homogen-
ous and transparent common market for public contracts. In addition,
the low barriers to enter a market, together with the transparent price
benchmarking for awarding public contracts through the lowest offer
criterion would inevitably attract new undertakings in public procure-
ment markets. This can be seen as an increase of the supply-side pool,
a fact which would provide the comfort and the confidence to the
 Public Procurement as Economic and Policy Exercise 109

demand side (the public sector) in relation to the competitive structure

of an industry. Nevertheless, the increased number of participants in
public tenders could have adverse effects. Assuming that the financial
and technical capacity of firms is not an issue,36 the demand side
(the public sector) will have to bear the cost of tendering and in partic-
ular the costs relating to the evaluation of offers. The more participants
enter the market for the award of public contracts, the bigger the costs
attributed to the tendering process that would have to be borne by the
public sector.
However, competitiveness in an industry is not reflected solely by
reference to low production costs.37 Efficiencies which might result
through production or distribution innovations are bound to have a
short term effect on the market for two reasons: if the market is bound
to clear with reference to the lowest price, there would be a point
where the quality of deliverables is compromised (assuming a product
or service remains standardised). Secondly, the viability of industries
which tend to compete primarily on cost basis is questionable. Corpor-
ate mortality will increase and the market could revert to oligopolistic
structures.
The welfare gains emanating from a neo-classical approach of public
procurement regulation encapsulate the actual and potential savings
the public sector (and consumers of public services at large) would
enjoy through a system that forces the supply side to compete on cost
(and price). These gains, however, must be counterbalanced with the
costs of tendering (administrative and evaluative costs borne by
the public sector), the costs of competition (costs related to the prepa-
ration and submission of tender offers borne by the private sector) and
litigation costs (costs relevant to prospective litigation borne by both
aggrieved tenderers and the public sector). If the cumulative costs
exceed any savings attributed to lowest offer criterion, the welfare
gains are negative.
A neo-classical perspective of public procurement regulation reveals
the zest of policy makers to establish conditions which calibrate mar-
ket clearance on price grounds. Price competitiveness in public pro-
curement raises a number of issues with anti-trust law and policy.
If the maximisation of savings is the only (or the primary) achievable
objective for the demand side in the public procurement process,
the transparent/competitive pattern cannot provide any safeguards in
relation to underpriced (and anti-competitive) offers.
The price competitive tendering reflects on the dimension of public
procurement regulation as an economic exercise. On the one hand,
110 Public Procurement in the European Union

when the supply side responds to the perpetually competitive purchas-

ing patterns by lowering prices, the public sector could face a dilemma:
what would be the lowest offer it can accept. The public sector faces a con-
siderable challenge in evaluating and assessing low offers other than
“abnormally low” ones.38 It is difficult to identify dumping or predat-
ory pricing disguised behind a low offer for a public contract. On the
other hand, even if there is an indication of anti-competitive price
fixing, the European public procurement rules do not provide for any
kind of procedure to address the problem. The anti-trust rules take over
and the suspension of the award procedures (or even the suspension of
the contract itself) would be subject to a thorough and exhaustive
investigation by the competent anti-trust authorities.
Evidence of the neo-classical approach in public procurement regula-
tion can be found in Guidelines39 issued by the European Commission.
The Commission adopted a strict interpretation of the rules and
focused Member States on an economic approach in the application of
the Public Procurement Directives. The Commission has championed
the neo-classical approach for two reasons: first, to bring an acceptable
level of compliance of Member States with the public procurement
regime and secondly, to follow the assumptions made through the
internal market process that procurement represents a significant non-
tariff barrier and its regulation can result in substantial savings for the
public sector.
It is interesting to follow the Commission’s approach40 in litigation
before the European Court of Justice, where as an applicant in compli-
ance procedures, or as an intervening party in reference procedures, it
consistently regarded public procurement regulation as an economic
exercise. The backbone of such an approach has been the price
approach to the award of public contracts, predominately through the
lowest offer award criterion, but also through the most economically
advantageous offer criterion, where factors other than price can play a
role in the award process. Even in the latter category, where some
degree of flexibility is envisaged by the legal regime, the Commission
has been sceptical of any attempts to apply the so-called “qualitative”
factors in the award process.
Along these lines, the European Court of Justice pursued a neo-
classical approach of public procurement regulation through its rulings
relating to i) compliance procedures against Member States for not
observing the publicity and mandatory advertisement requirements,
ii) procedures concerning standardisation and technical specifications41
and iii) procedures relating to the notion of abnormally low offers.42
 Public Procurement as Economic and Policy Exercise 111

Anti-trust and public procurement regulation

The regulatory weaponry for private markets evolves around anti-trust
law and policy, where the influence of the neo-classical economic
approach has been evident.43 Public markets are fora where the struc-
tural and behavioural remedial tools of competition law also apply.
However, they focus on the supply side (the industry) which ipso facto is
subject to the relevant rules relating to cartels and abusive dominance.
There is a conceptual difference relating to the application of anti-
trust in public markets. The demand side (the public sector and its
organs) can hardly be embraced by its remit, except in the case of
state aids and illegal subsidies. In private markets, anti-trust law and
policy seek to punish cartels and the abusive dominance of under-
takings. The focus of the remedial instruments is the supply side,
which is conceived as the commanding part in the supply/demand
equation due to the fact that it instigates and often controls demand
for a product. In private markets, the demand side of the equation
(the consumers at large) is susceptible to exploitation and the
market equilibria are prone to distortion as a result of collusive beha-
viour of undertakings or abusive monopoly position. On the other
hand, the structure of public markets reveals a different picture.
In the supply/demand equation, the dominant part appears to be
the demand side (the state and its organs as purchasers), which
initialises demand through purchasing, where the supply side (the
industry) fights for access to the relevant markets.
In public markets, market segmentation occurs as a result of
concerted practices attributed to the demand side. Since such con-
certed practices of Member States and their contracting authorities
(e.g. excluding foreign competition, application of buy-national
policies, and application of national standards policies) focus on the
origin of a product or a service or the nationality of a contractor,
market segmentation in public markets tends to have geographical
characteristics and results in the division of the European public
market into different national public markets.
The regulation of public markets requires more than the control of
the supply side through anti-trust. The primary objective is market
access and the abolition of barriers and obstacles to trade. Therefore,
the regulation aims at the demand side, which effectively controls
access and can segment the relevant market. Whereas price competi-
tion is the main characteristic of anti-trust, 44 public procurement
regulation pursues firstly market access. This perspective reflects on
112 Public Procurement in the European Union

the sui generis nature of public markets and has provided ground for
developing a regulatory system which is strongly influenced by neo-
classical economics, whilst at the same time integrating the relevant
market. Such a system has also strong public law characteristics, to
the extent that it has been branded as droit public de la concurrence.45

The ordo-liberal approach to public procurement regulation

The vehicle of harmonisation has been entrusted to carry the progress
of public procurement regulation. Directives, as legal instruments, have
been utilised to provide the framework of the acquis communautaire, but
at the same time afford the necessary discretion to the Member States as
to the forms and methods of their implementation. This is where the
first deviation from the traditional economic approach of public pro-
curement occurs. Anti-trust law and policy is enacted through the
principle of uniformity across the common market, utilising directly
applicable regulations. By allowing for discretion to the Member States,
an element of public policy is inserted in the equation, which often has
decentralised features. Traditionally, discretion afforded by Directives
takes into account national particularities and sensitivities as well as the
readiness of domestic administrations to implement acquis within a
certain deadline. In addition, individuals, who are also subjects of the
rights and duties envisaged by the Directives, do not have access to jus-
tices, unless provisions of Directives produce direct effect.
However, the public policy dimension of public procurement regu-
lation is not exhausted in the nature of the legal instruments of the
regime. The genuine connection of an ordo-liberal perspective46 with
public procurement regulation in reflected in the award criterion relat-
ing to the most economically advantageous offer. The public sector can
award contracts by reference to “qualitative” criteria, in conjunction
with price, and thus can legitimately deviate from the strict price com-
petition environment set by the lowest offer criterion.47 There are three
themes emanating from such an approach: one reflects on public pro-
curement as a complimentary tool of the European Integration process;
the second regards public procurement as an instrument of contract
compliance; last, the ordo-liberal perspective can reveal a rule of reason
in public procurement, where the integration of public markets in the
European Union serves as a conveyor belt of common policies, such
as environmental policy, consumer policy, social policy, industrial
policy and takes into account a flexible and wider view of national and
community priorities, and a type of “European public policy”.
 Public Procurement as Economic and Policy Exercise 113

Public procurement as part of the European Integration

Procurement rules and the public markets do not operate in a vacuum.
Irrespective of the often publicised nature of public procurement as the
most significant non-tariff barrier for the functioning of the common
market and the clinical presentation of the arguments in favour of an
integrated public market across the EU,48 public purchasing is indis-
solubly linked with national policies and priorities.49 In the history of
European economic integration, public procurement has been an
important part of the Member States’ industrial policies. It has been
utilised as a policy tool50 in order to support indigenous suppliers and
contractors and preserve national industries and the related workforce.
There has been a great deal of controversy over the issue of the
compatibility of preferential procurement with EU law. Preference
schemes have been linked with regional development policies, a fact
that indicates the close interplay between public procurement and
state aids.51 Protectionist public procurement practices, when stra-
tegically exercised has resulted in the evolution of vital industries for
the state in question.52 The sustainability of national champions has
brought about benefits for a sector or an industry, which, when
protected from competition in the short-run, managed to achieve
specialisation and internationalisation.
Preferential public procurement reveals a double dimension. First, it
appears in the form of an exercise which aims at preserving some
domestic sectors or industries at the expense of the principles of the
European integration process. In such a format, there is obviously no
exit plan. Impact assessment studies undertaken by the European
Commission showed that the operation of preference schemes had a
minimal effect on the economies of the regions where they had been
applied, both in terms of the volume of procurement contracts, as well
as in terms of real economic growth attributed to the operation of such
schemes.53 Thus, in such a format, preferential public procurement
perpetuates the sub-optimal allocation of resources and represents a
welfare loss for the economy of the relevant state. On the other hand,
preferential purchasing in the format of strategic investment to the
sustainability of selected industries might represent a viable instrument
of industrial policy, to the extent that the infant industry, when spe-
cialised and internationalised, would be in a position to counterbal-
ance any welfare losses during its protected period. In the above form,
preferential public procurement, as an integral part of industrial policy
could possibly result in welfare gains.54
114 Public Procurement in the European Union

Although the utilisation of public procurement as a tool of regional

development policy in the form of state aids may breach directly or
indirectly primary Treaty provisions on free movement of goods, the
right of establishment and the freedom to provide services, it is far
from clear whether the European Commission or the Court could
accept the legitimate use of public procurement as a means of state
aids. Prior notification to the European Commission of the measures or
policies intended to be used as state aid does not, apparently, legitimise
such measures and absolve them from the well-established framework
of the four freedoms. The parallel applicability of rules relating to state
aids and the free movement of goods, in the sense that national meas-
ures conceived as state aids must not violate the principle of free move-
ment of goods, renders the thrust of regional policies through state
aids practically ineffective. It appears that the Court of Justice has
experimented with the question of the compatibility between state aids
and free movement of goods in a number of cases where, initially, it
was held that the two regimes are mutually exclusive, to the extent
that the principle of free movement of goods could not apply to meas-
ures relating to state aids.55 The acid test for such mutual exclusivity
was the prior notification of such measures to the European Commis-
sion. However, the Court departed from such a position, when it
applied free movement of goods provisions to a number of cases con-
cerning state aids, which had not been notified to the Commission.56
Surprisingly, the Court also brought notified state aids measures under
the remit of the provision of free movement of goods and reconsidered
the whole framework of the mutual exclusivity of states aids and free
movement of goods.57
Preferential procurement does contradict directly the fundamental
principles of free movement of goods and services. However, the
notification of Member States’ intention to utilise it as a form of state
aids, aims at moving the focus of potential disputes towards the anti-
trust remit of the acquis. Two reasons seem to support the above
assumption. First, the public procurement legal framework is posi-
tively in favour of strategic subcontracting. 58 The nomination of
regional or national firms in the award process of public contracts
under such premises could, legitimately, elevate preferential procure-
ment as an instrument of industrial policy. This might shift the
debate from the potential violation of internal market provisions
towards the overall compatibility of the regime with national or
common market-wide industrial policies, thus positioning preferen-
tial public procurement in the remit of anti-trust. Secondly, there is a
 Public Procurement as Economic and Policy Exercise 115

fundamental change in perceptions about the role and responsibili-

ties expected from governments in delivering public services. The
public sector not only initiates and facilitates the delivery of public
services but also can actively be involved in the actual delivery
process. Such changes, in practical terms viewed through the evolu-
tion of public-private partnerships, 59 are translated into a new con-
tractual interface between public and private sectors,60 which in turn
encapsulate an era of contractualised governance.

Contract compliance and public procurement

The most economically advantageous offer as an award criterion has
provided the Court with the opportunity to balance the economic con-
siderations of public procurement with policy choices. Although in
numerous instances the Court has maintained the importance of the
economic approach61 to the regulation of public sector contracts, it has
also recognised the relative discretion of contracting authorities to
utilise non-economic considerations as award criteria.
The term contract compliance62 could be best defined as the range of
secondary policies relevant to public procurement, which aim at com-
bating discrimination on grounds of sex, race, religion or disability.63
When utilised in public contracts, contract compliance is a system
whereby, unless the supply side (the industry) complies with certain
conditions relating to social policy measures, contracting authorities
can lawfully exclude tenderers from selection, qualification and award
procedures. The concept is well-known and practiced in North Amer-
ican jurisdictions and in particular in the United States,64 as it has been
in operation for some time in an attempt to reduce racial and ethnic
minority inequalities in the market and to achieve equilibrium in the
workforce market.
Apparently, the potential of public purchasing as a tool capable of
promoting social policies has been met with considerable scepticism.
Policies relevant to affirmative action or positive discrimination have
caused a great deal of controversy, as they practically accomplish very
little in rectifying labour market equilibria. In addition to the practical-
ity and effectiveness of such policies, serious reservations have been
expressed with regard to their constitutionality,65 since they could
limit, actually and potentially, the principles of economic freedom and
freedom of transactions.66
Contract compliance legislation and policy is familiar to most Euro-
pean Member States, although the enactment of Public Procurement
116 Public Procurement in the European Union

Directives has changed the situation dramatically.67 The position of

European Institutions on contract compliance has been addressed in
three instances before the European Court of Justice.68 The Court
maintained that contract compliance with reference to domestic or
local employment cannot be used as a selection criterion in tendering
procedures for the award of public contracts. The selection of tender-
ers is a process which is based on an exhaustive list of technical and
financial requirements expressly stipulated in the relevant Directives
and the insertion of contract compliance as a selection and qualifica-
tion requirement would be considered ultra vires. The Court ruled that
social policy considerations can only be part of award criteria in
public procurement, and especially in cases where the most economi-
cally advantageous offer is selected, provided that they do not run
contrary to the basic principles of the Treaty and that they have been
mentioned in the tender notice.
The Court’s approach has also opened an interesting debate on the
integral dimensions of contract compliance and the differentiation
between the positive and negative approaches. The concept of positive
approach within contract compliance encompasses all measures and
policies imposed by contracting authorities on tenderers as suitability
criteria for their selection in public procurement contracts. Such posit-
ive action, measures and policies intend to complement the actual
objectives of public procurement which are confined in economic and
financial parameters and are based on a transparent and predictable
legal background. Although the complementarity of contract compli-
ance with the actual aims and objectives of the public procurement
regime was acknowledged, the Court (and the European Commission)
were reluctant in accepting such an over-flexible interpretation of the
Directives and based on the literal interpretation of the relevant provi-
sions disallowed positive actions of a social policy dimension as part of
the selection criteria for tendering procedures in public procurement.
However, contract compliance can incorporate not only unemploy-
ment considerations, but also promote equality of opportunities and
eliminate sex or race discrimination in the relevant market.69 Indeed,
the Directives on public procurement stipulate that the contracting
authority may require tenderers to observe national provisions of
employment legislation when they submit their offers. The ability to
observe and conform to national employment laws in a Member State
may constitute a ground of disqualification and exclusion of the
defaulting firm from public procurement contracts.70 In fact, under
such interpretation, contract compliance may be a factor of selection
 Public Procurement as Economic and Policy Exercise 117

criteria specified in the directives, as it contains a negative approach to

legislation and measures relating to social policy.
There are arguments in favour and against incorporating social policy
considerations in public procurement.71 The most important argument
in favour focuses on the ability of public procurement to promote parts
of the Member States’ social policy, with particular reference to long-
term unemployment, equal distribution of income, social exclusion and
the protection of minorities. Under such a positively oriented approach,
public purchasing could be regarded as an instrument of policy in the
hands of national administrations with a view to rectifying social equi-
libria. Contract compliance in public procurement could also cancel the
stipulated aims and objectives of the liberalisation of the public sector.
The regulation of public markets focuses on economic considerations
and competition. Adherence to social policy factors could derail the
whole process, as the public sector will pay more for its procurement by
extra or hidden cost for the implementation of contract compliance in
purchasing policies.72

A rule of reason
In European Union law, the rule of reason serves as an expansion of
the determined exemptions from a prohibition principle.73 The rule
of reason is a juridical development where the Court interprets the
margins of discretion allotted to an executive authority (Member
States and/or the Commission), as well as the grounds, the limits
and the levels of deviation from a prohibition’s exemptions. For
public procurement, a rule of reason has emerged through the appli-
cation of the most economically advantageous offer criterion. The
Court, through a steady accumulation of case-law adopted a bi-focal
stance: positive yet restrictive. Where the rules allow for discretion,
the Court did not claw back any margin of appreciation from
Member States and their contracting authorities; in fact, in many
instances, it gradually expanded the grounds of flexibility in the
award procedures.
The meaning of the most economically advantageous offer includes
a series of factors chosen by the contracting authority, including price,
delivery or completion date, running costs, cost-effectiveness, profit-
ability, technical merit, product or work quality, aesthetic and func-
tional characteristics, after-sales service and technical assistance,
commitment with regard to spare parts and components and mainte-
nance costs, security of supplies. The above list is not exhaustive and
118 Public Procurement in the European Union

the factors listed therein serve as a guideline for contracting authorities

in the weighted evaluation process of the contract award.
The Court reiterated the flexible and wide interpretation of the relev-
ant award criterion74 and had no difficulty in declaring that contract-
ing authorities may use the most economically advantageous offer as
award criterion by choosing the factors which they want to apply in
evaluating tenders,75 provided these factors are mentioned, in hier-
archical order or descending sequence in the invitation to tender or
the contract documents,76 so tenderers and interested parties can
clearly ascertain the relative weight of factors other than price for the
evaluation process. However, factors, which have no strict relevance in
determining the most economically advantageous offer by reference to
objective criteria do involve an element of arbitrary choice and there-
fore should be considered as incompatible with the Public Procurement
Directives.77
A question arises whether, under the most economically advantag-
eous offer, each individual award factor has to provide an economic
advantage which directly benefits the contracting authority, or it is
sufficient that each individual factor has to be measurable in eco-
nomic terms, without the requirement that it directly provides an
economic advantage for the contracting authority in the given con-
tract. This question intends to assess the integral function of the
factors that comprise the most economically advantageous offer for
contracting authorities. Although there is wide discretion conferred to
them in compiling the relevant factors, subject to the requirements of
relevance to the contract in question and their publicity, their relative
importance, in economic terms, remains somehow unknown.
If the second interpretation were accepted, the discretion conferred
to contracting authorities would permit a wide range of factors to
feature as part of award criteria in public contracts, without the need
to demonstrate a direct economic advantage to a contracting authority
which is attributable to each of these factors. On the contrary, if each
individual factor has to establish a measurable (in quantifiable terms)
economic advantage to the contracting authority, which is directly
attributed to its inclusion as part of the award criterion, the discretion
of contracting authorities is curtailed, since they would be required to
undertake and publicise in the tender or contract documents a clear
cost-benefit analysis of the relevant factors that comprise in their view
the most economically advantageous offer.
There are two instances where the rule of reason as applied in public
procurement brought the relevant regime in line with European policy.
 Public Procurement as Economic and Policy Exercise 119

The first is the case of transfer of undertakings, where the Court

expanded the remit of the Acquired Rights Directive to the public pro-
curement contractual relations.78 The second instance is the permiss-
ibility of environmental factors79 as part of the award criteria for public
contract and the explicit recognition of the environmental policy of
the European Union as being complimentary to all legal and policy
activities of the common market.
The latter development reveals also the importance of public
procurement in relation to harmonisation and even standardisation
of national policies. Public procurement in such cases serves as a
conveyor belt for transferring homogenous legal or policy standards
across the common market. The protection of the environment as an
award criterion in public contracts is a classic example of the poten-
tial of public procurement regulation as an instrument of public
policy. There will be instances in the future where positive integra-
tion will be required by European Institutions and Member States
equally in areas such as social security, business ethics and anti-
corruption policies. Harmonisation of laws and policies within
the common market has traditionally sought a common deno-
minator amongst divergences and differences of national administra-
tions. Under an ordo-liberal approach, the rule of reason seems
an essential tool to convey effectively rights and obligations of
Community law.
There is no attempt yet to instill a type of European public policy
across the common market. Not only have the legal and political dif-
ferences of Member States dictated that such approach would face
considerable resistance, the very need for a common denominator
of public policy in the European Union has been questionable.
However, if the European Union is to become a serious competitor
to major trading forces in the world, perhaps the introduction of
such a common denominator is something that requires further
consideration. Productivity rises, competitiveness, industrial restruc-
turing exercises, privatisation, employment relations, taxation, and
corporate governance are mere examples of the features which
the European Union and its Member States will be facing in a
post-enlargement era. Public procurement could play a role in carry-
ing over the European legal and policy standards into national
systems.
The influence of neo-classical economic theory on public procure-
ment regulation has taken the relevant regime through the paces of
the liberalisation of public markets within the European Union and
120 Public Procurement in the European Union

with reference to the World Trade Organisation. Anti-trust and its

remedies have played a seemingly important role in determining
the necessary competitive conditions for the supply side to service
the public sector. However, we have seen the emergence of a sui
generis market place where the mere existence and functioning of
anti-trust is not sufficient to achieve the envisaged objectives. Public
markets require a positive regulatory approach in order to enhance
market access. Whereas anti-trust and the neo-classical approach to
economic integration depend heavily on price competition, public
procurement regulation requires a system which primarily safeguards
market access. Such a regulatory system could be described as public
competition law.
The above represents the first departure from the stricto sensu
neo-classical perspective of public procurement. A policy orientation
has emerged mainly through the jurisprudential approach of the
regime and the willingness of the Court to expand on the element of
flexibility that is inherent in the Public Procurement Directives.
The neo-classical versus the ordo-liberal approach reflects the fre-
quently rehearsed debate about the origins of anti-trust law and policy
per se. The European integration has benefited from a system where the
neo-classical approach has contributed to the functioning of an envir-
onment of workable competition. However, consistently the rigidity of
the neo-classical influence has been diluted with policy considerations,
often attributed to national policy requirements. The reflection of the
above picture is presented in public procurement regulation, although
there are certain differences: the Court has allowed for a flexible policy-
oriented application of public procurement, where in anti-trust the
Commission has eroded the strict neo-classical approach of Article
81(1) EC with the plethora of policy considerations under 81(3) EC.
Nevertheless, the similarity of balancing an economic exercise with
policy choice is remarkable.
Public procurement regulation is an essential instrument of the
internal market. With the European Union in an expansion mode,
European Institutions need to provide for a hint as to what public pro-
curement stands for. There is a new generation of legal instruments
currently through the legislative process which intend to simplify and
modernise the regime. In addition, there is strong evidence that the
existence of competitive conditions within public markets would dis-
engage the applicability of the relevant Directives. This development
indicates the referral of public markets to anti-trust, perhaps as the ulti-
mate regulatory regime. Public procurement remains one of the most
 Public Procurement as Economic and Policy Exercise 121

influential instruments of policy choice in the hands of Member States

and also the European Commission. Its complementarity and compat-
ibility with common policies is recognised and accepted by European
Institutions and Member States. Public procurement in the common
market of the 21st century could embrace more public policy con-
siderations and depart from the premises of being a mere economic
exercise.

Inherent dangers in the regulation of public procurement

The process of the integration of public markets in Europe and the
integral mechanism of dismantling national borders in intra-com-
munity public trade have revealed a number of considerable threats
amongst the potential benefits of the exercise. Firstly, the integra-
tion of public markets and the opening-up of public procurement in
the Member States do not seem to take fully into account the inher-
ent danger of market concentration. As a result of such a stimulant
to the demand side, sub-optimal firms would be forced to leave the
market and the volume of industrial concentration through mergers
and acquisitions of less competitive firms would inevitably grow, the
danger of market oligopolisation becomes eminent. 80 The adverse
effects of market concentration as a result of the oligopolistic struc-
ture of the relevant markets could seriously hinder the objectives of
the exercise. It was mentioned previously that the restructuring
effect would facilitate the clearing of the relevant markets of any
sub-optimal firm or industry. However, there is no indication as to
the market structure after the impact of the restructuring effect, and
given the fact that the above effect has a dynamic character, the rel-
evant market would present trends of continuous adjustment.
Industrial adjustment and restructuring would inevitably lead to a
more concentrated structure of the market place as a result of preda-
tion, take-overs and amalgamation of rival firms. The potential
threats of market oligopolisation should be counterbalanced with
the long-awaited desirable effects on the structure of the European
industrial base. If the results of the market oligopolisation were
translated to a more innovative and specialised production output
along the supply chain system and if the expected industrial com-
petitiveness across a European-wide basis could put firms in a posi-
tion to compete directly with rival industries in other parts of the
world, then the dangers arising from market concentration would be
minimal. However, one should never underestimate the threats of
122 Public Procurement in the European Union

collusive behaviour and the pricing policies that could emerge from
oligopolistic structure. 81 Conspiratorial practices of oligopolists
which supply the public sector could possibly lead to high prices,
perhaps higher than those prior to the restructuring and adjustment
exercise. Furthermore, even if prices of goods, works and services
destined for the public sector would converge and settle at a higher
level, this could result in supra-competitive profits for the oligopo-
lists at the expense of the demand side. Another dimension of the
concentration and oligopolisation of public markets reflects consid-
erable socio-economic considerations. If one is to accept that in-
dustrial restructuring and adjustment emanate from the need to
eliminate sub-optimal overcapacity, the factor of production which
would be affected most is labour. Redundancies and reduction
of workforce often follow market concentration in an attempt to
minimise duplication, or to achieve rationalisation.
It is important here to distinguish high technology industries sup-
plying public procurement markets from more “traditional” ones.
The high-tech group of industries is characterised by strong techno-
logical developments and reinvestment of a considerable amount on
research and development. Such industries include telecommunica-
tions, data-processing equipment, medical equipment, bio-tech and
pharmaceutical products and aerospace. These industries have been
demarcated by high cross-country investment patterns, with an
important presence of Japanese and American interests.82 The group
of traditional industries supplying public procurement markets
includes industries dealing with railway equipment, heavy steel
structures, shipbuilding, vehicles and textiles. Most of these indus-
tries have been national champions 83 and heavily protected from
competition and sustained through public sector purchasing. 84 The
high-tech public procurement industry has a tendency to operate in
several national public procurement markets, thus having a large
share of European production. This could be explained by the high
levels of concentration observed for such industries over the last
decade.85 On the other hand, traditional public procurement indus-
tries have a strong tendency to operate at national level and enjoy
the advantages of being national champions.
The second inherent threat of the process of integrating the public
markets of the European Community reveals the vulnerable position
of small and medium size firms as a consequence of their exposure
to the new regime. Small and medium firms would find it difficult
to sustain existing market shares or penetrate product or geographi-
 Public Procurement as Economic and Policy Exercise 123

cal markets as a result of either collusive tendering of oligopolists

suppliers, or inefficient own resources which cannot be compared
with those of large firms (volume production and economies of
scale, financial and economic standing). Arguably, if the enhanced
competitive regime in public markets results in industrial concentra-
tion which could bring about efficiency gains for public sector
purchasing, then there is little complaint about market inequalities
concerning access and opportunities for small and medium firms.
This, however, runs contrary to the declarations and undertakings86
by European Institutions on the role of SMEs for the completion
of the common market and its importance for regional and eco-
nomic development, social cohesion and industrial adjustment.
The fears of oligopolisation of public markets and its subsequent
effect of marginalisation of SMEs have been confirmed. 87 Market
access for SMEs in public procurement is limited and disproportion-
ately low in relation to their numbers throughout the European
Union.
In addition to the internal effects of the public procurement regu-
latory regime, the integration of public markets has acquired an
external dimension through the GATT/WTO Agreement on Govern-
ment Procurement. 88 Exposure of the supply side to competitive
forces from both within and outside the common market has
intensified the impact and the effect of the new regime. Market
access is guaranteed to firms established in signatories to the
Agreement in an attempt to liberalise globally public procurement,
although it was not until recently that contracting entities, other
than central authorities, as well as construction procurement and
procurement of services and telecommunications equipment were
included in the Agreement during the GATT/WTO Uruguay Round.
Despite the fact that the GATT Agreement on Government Procure-
ment has been in existence since the Tokyo Round (1980), the
tradability of public contracts vis-à-vis member-signatories to
the Agreement has been rather limited. Import penetration for the
public sector has been marginal and, again, large conglomerates
appear to be the beneficiaries.89 European SMEs, particularly those in
highly specialised industries, have been the target of US or Japanese
takeovers, as the flow of direct investment within the European
Union has been increased over the last years. Interestingly enough,
the vulnerability of SMEs, as a result of the global integration of
public markets follows similar patterns with those on internal public
sector integration.
5
A Critical Assessment of Public
Procurement

Introduction
The process of the liberalisation of public procurement in the European
Union has two primary objectives: i) to achieve an open and competitive
regime of public purchasing which would yield substantial savings to the
public sector and ii) to act as a stimulant for the much needed restructur-
ing and adjustment of the European industrial base. When compared
with other advanced integrated economic or political systems, the regula-
tion of public procurement in the European Union has no precedence.
It is not only the aspiration for the creation of a genuinely integrated
public sector market within the Community, but to a large extent it is the
impact of such a regime upon the overall process of European Integration
that deserves further attention. The mechanism of the public purchasing
regulation has revealed a considerable range of socio-economic considera-
tions which interact with the envisaged aims and objectives of the
regime. The public procurement sector in the European Union is by no
means readily receptive to the parameters of any legislative framework.
Rather, it is a forum of well-established socio-economic and legal patterns
which for a long time have served national interests.
One should not expect a dramatic and unprecedented transformation
of the way public procurement has been conducted in the Member
States of the European Union, for two main reasons. Firstly, what has
been asked by European law and policy on public procurement repre-
sents a significant change of the modus operandi of contracting authori-
ties, which quite often have regarded the European rules as a burden.
The unwillingness of public authorities to change well established public
purchasing patterns and practices not only does reflect their reservations
over the financial implications of such an exercise, but mostly their
124
 A Critical Assessment of Public Procurement 125

concern over domestic policy considerations which are closely associated

with public procurement. The second reason for the modest progress in
adapting to the new regime can be attributed to a number of factors
which may not only slow the progress of public sector integration but
also hinder the delivery of the envisaged results and the accomplishment
of the objectives under the relevant framework. The primary concern of
European institutions over the progress of public procurement regulation
is the simple assumption that the Member States and their contracting
authorities do indeed comply with the stipulated requirements of the
Public Procurement Directives. However, the integration the public
markets in the European Union could encounter problems which focus
on five main areas: a) inherent constraints in the legislation, b) the exis-
tence of public monopolies and the process of their privatisation in
the Member States, c) harmonisation of standards and specifications,
d) the reluctance of the supply side in initiating litigation, and e) the
need to sustain certain industries through public procurement.

Inherent shortcomings in the public procurement rules

The legislation on public procurement is far from perfect. It has envis-
aged the creation of a framework which will enhance competition in
public markets, but the actual mechanism in delivering the objectives
has revealed a number of limitations with its impact on the demand
and supply sides. The most significant danger in the legislative frame-
work of public procurement in the Community is the potential ele-
ments of non-tariff protection which might arise from its application.
Indeed, inherent shortcomings in the legislation could pose consider-
able obstacles to the integration of the public sector in Europe. The
impact of the law and policy of public purchasing upon the demand
side in particular has exposed two fundamental limitations which
are integral to the legislative framework. The first limitation refers to the
quantitative division of public markets in dimensional (above certain
thresholds) and sub-dimensional ones (below the thresholds which
trigger the applicability of the Directives). The second limitation is
concerned with the potential adverse effects of the principle of
transparency upon the public procurement process.

The dimensionality of public procurement

The main objective of the European rules on public procurement, as
implemented by Member States in the form of domestic laws is the
126 Public Procurement in the European Union

establishment of the principle of transparency in the award of public

contracts. The rules stipulate that public contracts of estimated value
which exceed certain thresholds shall be advertised in the Official
Journal of the European Communities.1 The legislation on public
procurement has put much faith on the principle of transparency.
Transparency and openness in the public sector in Europe represent pre-
requisites for its integration. The principle of transparency encompasses
the principle of accountability in the public sector and is materialised
through the advertisement and publicity of procurement requirements
of contracting authorities. However, the ambit of the law does not
encapsulate all public procurement contracts awarded by contracting
authorities. It rather introduces a de minimis rule, where certain thresh-
olds in relation to the value of the contracts are utilised for the applica-
bility of the Directives. The dimensional public procurement should, in
principle, encompass the majority of procurement requirements of
Member States and their contracting authorities. However, the legisla-
tion on public procurement has had little effect on the principle of
transparency, as empirical investigation of the patterns of contracting
authorities of Member States concerning their publication record in
relation to their contracts reveals a rather gloomy picture. The volume
of public purchasing which is advertised and tendered according to the
requirements of the relevant Directives in comparison with the total
volume of public procurement of the Member States appears dispropor-
tionate and beyond expectation, bearing in mind the vital importance
that has been given to the principle of transparency for the opening-up
of the public markets in the European Union. The percentages of public
contracts advertised in the Official Journal by Member States reveal the
relatively low impact of the public procurement legislation on the prin-
ciple and objectives of transparency in European public markets (see
Table 5.1). Clarification of the above impact of the law upon the trans-
parency patterns which contracting authorities have established should
be sought by exploring three scenarios.
The first scenario is based on the distinction between dimensional
and sub-dimensional public procurement in the Member States. The
European Directives allow the division of public contracts into lots 2
without any justification from contracting authorities. This in most
cases may result in intentional contravention of the Directives, as
sub-dimensional (below certain thresholds) public contracts escape
their applicability. As sub-dimensional public procurement escapes
from the mandatory publication requirement, contracting authorities
tend to divide contracts into separate lots. It should be mentioned
 A Critical Assessment of Public Procurement 127

Table 5.1 Transparency Rates by Member States (%)

1995 1996 1997 1998 1999 2000 2001 2002

Belgium 6.9 7.6 10.9 13.8 15.6 15.6 18.6 15.8

Denmark 16.4 13.4 13.4 13.5 14.3 20.9 15.8 14.5
Germany 5.1 5.6 6.3 6.5 5.2 5.6 5.7 7.5
Greece 34.1 37.7 42.9 45.1 39.9 31.9 35.3
45.7
Spain 8.5 11.0 11.5 11.5 16.8 25.4 23.4
23.6
France 5.5 6.8 8.4 11.0 11.7 14.6 16.8
17.7
Ireland 11.4 16.3 19.3 16.1 16.8 21.4 19.3
18.0
Italy 9.8 9.9 11.3 10.7 13.2 17.5 15.3
20.3
Luxembourg 5.2 7.0 9.2 14.3 12.9 12.3 10.7 13.3
Netherlands 4.8 5.1 5.5 5.2 5.9 10.8 12.5 8.9
Austria 4.5 7.5 7.5 8.3 7.0 13.5 14.6
15.5
Portugal 15.5 17.7 15.1 15.5 14.6 15.0 17.7 19.4
Finland 8.0 9.2 8.2 9.2 9.8 13.2 15.1
13.9
Sweden 10.5 10.6 11.5 11.6 12.5 17.9 23.4
19.3
UK 15.0 15.6 17.9 16.9 15.1 21.5 21.5
21.1
EU 15 8.4 9.2 10.7 11.1 11.2 14.9 15.4
16.2

Source: Internal Market Directorate General

that the Directives stipulate the prohibition of intentional division of

contracts into lots with a view to avoiding the relevant thresholds,
but the provision presents practical difficulties in its observance and
enforcement. Until the time of writing, there is no case or complaint
before national courts or before the European Court of Justice relat-
ing to the intentional division of contracts into lots with lower
thresholds in order to avoid the application of the Directives. The
relevant thresholds which require the mandatory publication require-
ment clearly result in a segmentation of the public markets in quanti-
tative terms by creating a dimensional forum which is subject to
the rigorous legal regime. A de minimis rule applies to contracts below
the thresholds, which exempts them from the provisions of the
Directives. The sub-dimensional public procurement is only subject
128 Public Procurement in the European Union

to the principle of non-discrimination at European level, whereas at

domestic level, national tendering rules regulate the award of these
contracts.
The second scenario is based on the excessive utilisation of award
procedures without prior publication. Indeed, the Directives allow,
under certain circumstances the award of contracts through direct
negotiations with a contractor. Although the European Court of Justice
condemned the above practice in a number of cases before it, the
actual utilisation of negotiated procedures without prior publication is
widespread. Finally, the third scenario implies the blunt violation
of Community Law by Member States by avoiding the publication of
tender notices in the Official Journal of the European Communities.
Bearing in mind the relative absence of complaints and subsequent
litigation concerning non-advertisement of public contracts before
national courts or the European Court of Justice, the third scenario
reflects to a large extent the underlying reason for the lack of trans-
parency in public procurement. In fact, intentional division of con-
tracts into lots with a view to avoiding the Directives and excessive and
unjustified recourse to award procedures without prior publication
amounts to a blunt violation of Member States’ obligations arising
from the relevant Directives and also form primary Treaty provisions.

The effects of the principle of transparency

Transparency, as a principle in public purchasing has an obvious trade
effect, that of price competitiveness. If more interested suppliers are
aware of a contracting authority’s determination to procure, auto-
matically an element of competition occurs. This sort of competitive
pattern would probably be reflected in the prices received by the con-
tracting authority, when it evaluates the offers. The fact that more sup-
pliers are aware of a forthcoming public contract and the fact that
interested suppliers are aware that their rivals are informed about it,
indicates two distinctive parameters which are relevant to savings and
value for money. The first parameter focuses on value for money for
the demand side of the equation of public purchasing and reveals the
possibility for contracting authorities to compare prices (and quality).
The second parameter has an effect on the supply side of the equation
(the suppliers) which amongst other things can no longer rely on the
lack of price comparisons when serving the public sector. Openness in
public procurement, by definition, results in price competition and the
benefits for contracting authorities appear achievable.
 A Critical Assessment of Public Procurement 129

However, transparency and openness in public purchasing pose a

question over long-term savings and value for money considerations.
Price competition, as a result of the awareness of forthcoming public
contracts, represents a rather static effect in the value for money pro-
cess. The fact that more and more interested suppliers are aware and do
submit tenders in the long run, appears rather as a burden. If trans-
parency and the resulting price competitiveness are based on a win-
to-win process, the potential benefits for contracting authorities could
easily be counterbalanced by the administrative costs in tender evalu-
ation and replies to unsuccessful tenders. Furthermore, the risk man-
agement factor is much higher in a win-to-win purchasing scenario.
Price competitiveness represents also some threats for contracting
authorities, to the extent that quality of deliverables as well as the
delivery process itself could be jeopardised, if contracting authorities
deal with different and unknown contractors. It could thus be argued
here that price competitiveness, as a trade effect potentially beneficial
for the demand side of the public purchasing equation, has a static
character. It seems that it does not take into account medium or long-
term purchasing patterns, as well as counter effects of competition.
Two elements deserve further analysis here:
The first raises questions over the aggregate loss of the economy
through transparent competitive purchasing patterns. For example, if a
large number of interested suppliers submit their offer to a particular
contracting authority, two types of costs should be examined. Firstly,
the cost which is attributed to the response and tendering stage of the
procurement process should not be underestimated. Human and cap-
ital resources are directed by the suppliers towards the preparation of
documents and the submission of the offers. If one of these suppliers
wins the contract, the remaining would have suffered an unrecoverable
loss. If that aggregate loss exceeds the benefit/saving accomplished by
the contracting authority by following transparent and competitive
purchasing patterns, value for money has not been achieved. Secondly,
along the same lines, the evaluation and selection process during ten-
dering represents a considerable administrative cost for the contracting
authorities. If the principle of transparency complements the principle
of equal treatment, contracting authorities should give the same atten-
tion to all interested suppliers that have submitted a response. Down-
sizing the list through evaluation and assessment based on stipulated
criteria is by no means an inexpensive exercise. Human and capital
resources have to be directed by contracting authorities towards
meeting that cost. If the latter exceeds the potential savings achieved
130 Public Procurement in the European Union

through the competitive tendering route, then value for money is

unaccomplished.
The second element that deserves attention relates to the definition
of price competitiveness in public purchasing as well as its interrelation
with anti-trust law and policy. A question which arises in price com-
petitive tendering patterns is what would be the lowest offer contracting
authorities can accept. If the maximisation of savings is the only achiev-
able objective in the public procurement process, the transparent/
competitive pattern cannot guarantee and evaluate safeguards in rela-
tion to underpriced offers. If the supply side responds to the perpetu-
ated competitive purchasing pattern by lowering prices, contracting
authorities could face a dilemma: where to stop. It should be men-
tioned here that the European rules provide for an automatic dis-
qualification of an “abnormally low offer”.3 The term has not been
interpreted in detail by the judiciary at European and domestic levels
and serves rather as a “lower bottom limit”.4 Also, when an offer
appears low, contracting authorities may request clarifications from the
tenderer in question. Contracting authorities face a dilemma in evalu-
ating and assessing low offers other than abnormal ones. It is difficult
for them to identify dumping or predatory pricing disguised behind a
low offer for a public contract. In addition, even if there is an indica-
tion of anti-competitive price fixing, the European public procurement
rules do not provide for any kind of procedure. The suspension of the
award procedures (or even the suspension of the conclusion of the con-
tract itself) would be unlikely without a thorough and exhaustive
investigation by the competent anti-trust authorities.

The abuse of award procedures which may restrict competition

The participation of the supply side of the public procurement equation in
the tendering process is channelled through open, negotiated or restricted
procedures. Open procedures are those where every interested supplier,
contractor or service provider may submit an offer.5 Negotiated proce-
dures6 are such procedures for the award of public contracts whereby con-
tracting authorities consult contractors of their choice and negotiate the
terms of the contract with one or more of them. Finally, restricted proce-
dures7 are those procedures for the award of public contracts whereby only
those contractors invited by the contracting authority may submit tenders.
The selection of the winning tender takes place in two rounds. In the first
round, all interested contractors may submit their tenders and the con-
tracting authority selects, from the candidates, those who will be invited to
 A Critical Assessment of Public Procurement 131

tender. In principle, the minimum number of candidates to be selected

is five. In the second round, bids are submitted and the successful tenderer
is selected.
The Utilities Directives have introduced a new selection and tendering
procedure, namely framework agreements, which was influenced to a
large extent by the benefits of chain supply management and partnership
schemes. The Supplies, Works and Services Directives do not refer to
framework agreements. A framework agreement is an agreement between
a contracting authority and one or more suppliers, contractors or service-
providers the purpose of which is to establish the terms, in particular with
regard to price and, where appropriate, the quantity envisaged which
govern the contracts to be awarded during a given period.8 A framework
agreement does not possess a binding character and should not be con-
sidered as a contract between the relevant parties. In practical terms it
represents a sort of a standing offer which remains valid during its time-
span. Within the provisions of the Utilities Directive, when a contracting
authority awards a framework agreement under the relevant procedures
which are common to other public contracts covered therein, subsequent
individual contracts concluded under the framework agreement may be
awarded without having recourse to a call for competition.9 Individual
contracts which have been awarded under a framework agreement are
subject to the requirement of the publication of a contract-award notice
in the Official Journal. The Directive specifically stipulates that misuse
of framework agreements may distort competition and trigger the appli-
cation of the relevant rules, particularly with reference to concerted
practices which lead to collusive tendering.
Certain types of award procedures (particularly negotiated with or
without prior publication in the Official Journal) are prone to abuse by
contracting authorities in order to avoid the publicity requirement in
advertising public contracts and in order to favour certain suppliers or
contractors. Negotiated procedures10 are such procedures for the award
of public contracts whereby contracting authorities consult contractors
of their choice and negotiate the terms of the contract with one
or more of them. In most cases they follow restricted procedures and
they are heavily utilised under framework agreements in the Utilities
sectors. There are two different types of negotiated procedures: i) nego-
tiated procedures with prior notification and ii) negotiated procedures
without prior notification.

– Negotiated procedures with prior notification11 provide for selec-

tion of candidates in two rounds. In the first round, all interested
132 Public Procurement in the European Union

contractors may submit their tenders and the contracting authority

selects, from the candidates, those who will be invited to negotiate.
In the second round, negotiations with various candidates take
place and the successful tenderer is selected. In principle, the
minimum number of candidates to be selected is three, provided
that there are a sufficient number of suitable candidates.
– Negotiated procedures without prior notification12 are the least
restrictive of the various award procedures laid down in the Direct-
ive and may be conducted in one single round. Contracting author-
ities are allowed to choose whichever contractor they want, begin
negotiations directly with this contractor and award the contract to
him. The Directive provides for only a few rules with which this
procedure must comply. A prior notice in the Official Journal is not
required.

An accelerated form of negotiated procedures may be used13 where, for

reasons of urgency, the periods normally required under the normal
procedures cannot be met. In such cases, contracting authorities are
required to indicate in the tender notice published in the Official
Journal the grounds for using the accelerated form of the procedure.
The use of an accelerated procedure must be limited to the types and
quantities of products or services which can be shown to be urgently
required. Other products or services must be supplied or provided
under open or restricted procedures.
The Public Procurement Directives stipulate that open procedures,
where possible should constitute the norm. Open procedures increase
competition without doubt and can achieve better prices for the con-
tracting authorities when the latter purchase goods in large volumes.
Price reduction based on economies of scale can bring about substantial
cost savings for the public sector. Open procedures are mostly utilised
when the procurement process is relatively straightforward and are com-
bined with the lowest price award criterion. On the other hand, compe-
tition in tendering procedures is limited by using the restricted and
negotiated procedures. By definition, the number of candidates that are
allowed to tender is limited (5 in restricted, 3 in negotiated procedures
respectively), therefore the Directives have attached a number of condi-
tions for the contracting authorities to justify when they intend to award
their contracts through restricted or negotiated procedure. Restricted and
negotiated procedures are utilised in relation with the most economi-
cally advantageous offer award criterion and suited for more complex
procurement schemes. Although contracting authorities can freely opt
 A Critical Assessment of Public Procurement 133

for open or restricted procedures, the latter should be justified by refer-

ence to the nature of the products or services to be procured and the
balance between contract value and administrative costs associated with
tender evaluation. A more rigorous set of conditions apply for the use of
negotiated procedures. When negotiated procedures with prior notifica-
tion are used, they must be justified on grounds of irregular or unaccept-
able tenders received as a result of a previous call. Negotiated procedures
without prior notification are restrictively permitted in absence of
tenders, when the procurement involves manufactured products or con-
struction work purely for research and development, when for technical
or artistic reasons or reasons connected with the protection of exclusive
rights a particular supplier or contractor is selected, in cases of extreme
urgency brought by unforeseeable events not attributable to the con-
tracting authorities, when additional deliveries and supplies or works
would cause disproportionate technical, operational and maintenance
difficulties.
Negotiated procedures with prior publication, since they restrict
the number of tenderers may constitute an element of non-tariff
protection and may encourage practices which appear to run counter
to effective competition. If they are being employed as a non-tariff
barrier, negotiated procedures may give rise to discrimination on
grounds of nationality, preference and support of domestic uncom-
petitive suppliers, all of which would or could be detrimental to
the position of foreign firms which will be placed at a competitive dis-
advantage. However, negotiated procedures may have certain positive
effects in public procurement, as they may reduce the economic costs
of the contracting entities, particularly in cases where product com-
plexity which requires negotiations for the quality of procurement, or
a large number of tenderers makes tender evaluation relatively expens-
ive. Contracting authorities have also abusive recourse to award
procedures without prior notification and claim a number of reasons
varying from extreme urgency to the protection of industrial or com-
mercial property rights and the need to guarantee the flow of supplies
or works and award public contracts through direct negotiations
with the contractor(s) of their choice. They also claim (particularly
the Utilities) that the utilisation of framework agreements or list of
approved vendors has resulted in cost-efficiency gains of administrative
costs relating to the evaluation of tenders.
The European Court of Justice has always been very reluctant
in accepting the use of negotiated procedures, particularly without
prior advertisement. In a number of notable cases before it relating to
134 Public Procurement in the European Union

improper use of the award procedures, the Court has maintained the
exceptional character of negotiated procedures and the extremely
onerous obligation of contracting authorities to justify them. It might
be construed from the case law of the Court of Justice that the particu-
lar procedure stipulated by the rules requires some sort of clearance
prior to its utilisation. This is not however the case, as the only form of
official notification by contracting authorities which use negotiated
procedures takes place after the award of the contract in question,
when a notice containing the reasons for having recourse to negoti-
ation should be communicated to the European Commission. This
rather reinforces the exceptional character of the negotiated procedures
rather than their prohibitive use. A number of cases before the
European Court of Justice have clarified the position of European
Institutions vis-à-vis the use of negotiated procedures.

Public monopolies
Public monopolies in the European Union, which in the majority are
utilities, are accountable for a substantial magnitude of procurement,
in terms of volume and in terms of price. Responsible for this are the
expensive infrastructure and high technology products which are ne-
cessary to procure in order to deliver their services to the public. Given
the fact that most of the suppliers to public utilities depend almost
entirely on their procurement and that, even when some degree of pri-
vatisation has been achieved, the actual control of the utilities is still
vested in the state, the first constraint in liberalising public procure-
ment in the European Union is apparent. Utilities, in the form of
public monopolies or semi-private enterprises appear prone to perpetu-
ate long standing over dependency purchasing patterns with certain
domestic suppliers. Reflecting the above observations, the reader
should bear in mind that until 1991, utilities were not covered by
European legislation on procurement.14 The delay of their regulation
can be attributed to the resistance from Member States in privatising
their monopolies and the uncertainty of the legal regime that will
follow their privatisation.
Public monopolies15 operating in the utilities sector (energy, trans-
port, water, telecommunications) have been the target of a sweeping
process of transformation from monolithic and sub-optimal public
corporations to competitive enterprises. These legal or delegated
monopolies have been assigned with the exclusive exploitation of the
relevant services in their respective Member States (production, distri-
 A Critical Assessment of Public Procurement 135

bution of water and any form of energy and the provision of telecom-
munications and transport) and very often possess a monopsonistic
position. State controlled enterprises perform a different management
pattern than private ones in their market activities. Profit maximisa-
tion is not their main objective and decision making responds not
only to market forces but mainly to political pressure. Under-
standably, their purchasing behaviour follows, to a large extent, para-
meters reflecting current trends of the industrial policy of the
government in power. It has become apparent that public monopolies
in the utilities sector have sustained industries in Member States
through exclusive or preferential procurement. Preferential and pro-
tectionist purchasing behaviour could not easily withstand the com-
petitive forces under which private firms are exposed. One of the most
important elements of corporate performance is sourcing and the
associated costs. The private firm which is exposed to competitive
forces for its deliverables would be certainly compelled to have
recourse to the most cost-efficient sources. This covers not only pro-
curement but also extends to a wide range of legal and corporate
activities such as sub-contracting, research and development, mainte-
nance services. Sustainability of national champions, or in other terms,
strategically perceived enterprises, could only be achieved through
discriminatory purchasing patterns. The privatisation of public mono-
polies, which absorb, to a large extent or even entirely, the output of
such industries will most probably discontinue such patterns and will
result in industrial policy imbalances as it would be difficult for the
national champions to secure new markets to replace the traditional
long dependency on public monopolies and it would take time and
effort to diversify their activities or to convert to alternative industrial
sectors. Imbalances in social policy (unemployment) will also occur,
as a result of the restructuring of the public monopoly and also the
industries which are dependent on it.
The protected and preferential purchasing frameworks between
monopolies and national champions and the output dependency pat-
terns and secured markets of the latter have attracted considerable
foreign direct investment, to the extent that Community Institutions
face the dilemma of threatening to discontinue the investment flow
when liberalising public procurement in the common market. How-
ever, it could be argued that the industrial restructuring following the
opening-up of the procurement practices of public monopolies would
possibly attract similar levels of foreign direct investment, which
would be directed towards supporting the new structure.
136 Public Procurement in the European Union

As mentioned above, the liberalisation of public purchasing aims

inter alia at achieving a restructuring effect in the common market,
particularly in industries suffering from overcapacity and sub-optimal
performance. However, the industries supplying public monopolies
and utilities are themselves quite often public corporations. In such
cases, procurement dependency patterns between state outfits, when
disrupted can result in massive unemployment attributed to the supply
side’s inadequacy to secure new customers. The monopsony position
when abolished could often bring about the collapse of the relevant
sector.

Standardisation and specification

National technical standards, industrial product and service specifica-
tions and their harmonisation were considered priority areas for the
internal market programme. The European Commission’s White Paper
for the Completion of the Internal Market stipulated for a number of
Directives to be adopted and implemented with a view to eliminating
discrimination based on the description of national standards. The
rules on technical standards and specifications have been brought in
line with the new policy which is based on the mutual recognition of
national requirements, where the objectives of national legislation are
essentially equivalent, and on the process of legislative harmonisation
of technical standards through non-governmental standardisation
organisations (CEPT, CEN, CENELEC).16 However, persistence of con-
tracting authorities to specify their procurement requirements by ref-
erence to national standards poses obstacles in the public sector
integration.17 The European Commission has been for some time aware
of the most notable examples of circumvention of the policy on stand-
ards and specifications.18 These include the exclusive familiarity of
national suppliers with technical data existing in a particular Member
State, over-specification by contracting authorities in order to exclude
potential bidders and finally favouritism and discrimination by con-
tracting authorities as a result of the availability of technical standards
and specifications to certain suppliers only.
Standardisation and specification can act as a non-tariff barrier in
public procurement contracts in two ways. Firstly, contracting author-
ities may use apparently different systems of standards and specifica-
tions as an excuse for disqualification of tenderers. It should be
maintained here that the description of the intended supplies, works or
services to be procured is made by reference to the Common Product
 A Critical Assessment of Public Procurement 137

Classification, the NACE (General Industrial Classification of Economic

Activities within the European Communities) and the Common
Procurement Vocabulary (CPV), however, this type of description is of
generic nature and does not cover industrial specifications and stand-
ardisation requirements. Secondly, standardisation and specification
requirements can be restrictively defined in order to exclude products
or services of a particular origin, or narrow the field of competition
amongst tenderers. National standards are not only the subject of do-
mestic legislation, which, of course, need to be harmonised and mutu-
ally recognised across the common market. One of the most significant
aspects of standardisation and specification appears to be the operation
of voluntary standards, which are mainly specified at industry level.
The above category is rather difficult to harmonise, as any approxima-
tion and mutual recognition relies on the willingness of the industry in
question. Voluntary standards and specifications are used quite often
in the Utilities sector, where the relevant procurement requirements
are complex and cannot be specified solely by reference to “statutory”
standards, thus leaving a considerable margin of discretion in the
hands of the contracting authorities, which may abuse it during
the selection and qualification stages of the procurement process.

Reluctance in initiating litigation

The litigation before the European Court of Justice and national courts
in relation to public procurement contracts has pointed out the areas
of contention between defaulting contracting authorities and the
Commission or aggrieved contractors. The most common disputes
subject to centralised or decentralised judicial control include the
following:

• advertisement and publicity of contracts

• selection procedures (quantitative and qualitative suitability criteria)
• technical standards (product specification and standardisation)
• award procedures
• award criteria

Interestingly, all the relevant provisions of the Directives covering

the above areas are capable of producing direct effect, thus maximising
the opportunities for access to justice for aggrieved contractors. The
impact of public procurement legislation on the demand and supply
sides identified certain areas which represent obstacles to public market
138 Public Procurement in the European Union

integration. Although the relevant legislation has provided for a great

deal of flexibility, in terms of implementing methods and time,
national legal systems responded slowly to the envisaged regime. The
limited number of cases relating to public procurement, in contrast
with its volume and the economic importance for Member States
reflects a false picture. One may assume that because of the relatively
disproportionate number of cases before the European Court of Justice
or before national courts, the integration of public markets is on good
course and has progressed satisfactorily.
However, examination and analysis of the case-law on public pro-
curement as the impact of the relevant legislation on the demand and
supply sides reveals the nature of public procurement as a nexus of
transaction activities between the state and its organs on the one hand
and the private sector on the other. Such a nature appears to have
strong endocentric characteristics, in terms of the reluctance in initiat-
ing litigation, the secrecy and confidentiality of the dispute itself, and
finally the belief that litigation represents the ultium refugium in resolv-
ing the dispute. Furthermore, the contractual relation between the
supply and the demand side after the litigation of a dispute between
them appears to be irretrievably broken. This means that prior to
having recourse to legal proceedings, parties in a public procurement
dispute appear to have comprehensively exhausted all the routes in
resolving the issue in an amicable way. Therefore, the relevant litiga-
tion and its outcome serve as the epitaph in a rather unclear nexus
of legal relations. The supply side appears reluctant in taking contract-
ing authorities to court for a number of reasons: psychological, legal
and financial.
The psychology behind enforcement and compliance with public
procurement legislation is the key point for understanding the beha-
viour of the supply side. The supply side is often afraid of the vindict-
ive behaviour of the contracting authorities. A contractor who initiates
litigation (or some form of official complaint) against a contracting
authority would find himself on a “black list” and would not continue
doing business with the latter. Even in the unlikely event that a con-
tract is awarded to a supplier that had previously created some form
of trouble for the contracting authority, the latter could make the
performance of the contract intolerable, ensuring minimisation of
margins of profit and delaying payments. The psychology in public
procurement enforcement and compliance works against the supply
side, as the latter initiates the majority of litigation against contracting
authorities. Even in the case of the European Commission taking the
 A Critical Assessment of Public Procurement 139

defaulting Member State before the European Court of Justice, there is

a complaint from an aggrieved contractor who has identified himself.
The supply side also appears reluctant in initiating litigation against
contracting authorities because of financial reasons. If the court finds
that the contracting authority breached the law, the damages that could
be awarded would be disproportionate to the legal costs. The extent to
which compensation is awarded varies among legal orders. Compensa-
tion for loss of incurred expenses, for loss of profits and for loss of
opportunity is theoretically available in all Member States, in accor-
dance with the Compliance Directives. However, in practice the only
relatively certain heading of damages an aggrieved contractor may
count on is that of out-of-pocket expenses, viz. the cost of preparing the
bid. Forgone profits and losses of opportunities would be deemed as ele-
ments of speculative litigation by the courts and would probably be
rejected. It is worth mentioning that in Italy, due to the very strict
requirement that only successful tenderers that have been awarded the
contract may lodge an action for damages against the contracting
authority, losses of profits are not easily granted. On the other hand,
under the relevant arbitration proceedings for public contracts in the
Netherlands, compensation is available for injury to a firm’s commercial
reputation. Direct compensation from administrative bodies, without
judicial interference, is theoretically available in Denmark and Spain.
These examples demonstrate the diversity of national systems as far as
enforcement of public procurement law is concerned.
Finally, legal obstacles appear to have constrained the supply side in
its attempts to enforce its rights under public procurement law. These
obstacles act as non-tariff barriers, particularly in cases of cross-country
litigation, where the nature of the competent forum, the cost of initiat-
ing a suit, legal and expert fees, translation costs and the chances of a
favourable outcome deter aggrieved contractors from taking defaulting
contracting authorities to court. The complexity of domestic legal
regimes relating to public procurement disputes, in conjunction with
the uncertainties arising from the parallel application of public and
private law remedies in some Member States, appear a major deterrent
for initiating litigation against contracting authorities.

Public procurement and the sustainability of certain industries

The low transparency levels and the low tradability of public con-
tracts within the European Union have been particularly intriguing
(see Table 5.2). The term tradability, refers to the cross-border import
140 Public Procurement in the European Union

Table 5.2 Import Penetration in Public Procurement (selected Member

States)

MS t i

Belgium 67.9 17.7

Denmark 58.1 9.2
France 54.7 9.3
Germany 66.8 7.1
Greece 78.2 19.1
Ireland 81.5 20.4
Italy 60.6 8.6
Luxembourg 77.5 24.2
Netherlands 76.5 11.6
Portugal 65.4 17.6
Spain 68.4 15.7
United Kingdom 76.4 14.4

MS: Member State

t: private markets penetration levels (%)
i: public procurement import penetration levels (%)

penetration of public procurement contracts within the common

market. Although it is very difficult to measure direct cross-border
public procurement activities, information available from statistical
data bases of the European Union suggest very weak trade patterns.
For example, in a selection of Member States, the import penetration
in public procurement markets is rather low, when compared with that
in private markets for the same or similar products.
The effectiveness of the public procurement legislation relies mainly
on its decentralised application by the Member States and its enforce-
ment by the competent fora. The greater the regime of transparency
Member States provide for their public markets, the more efficient
the level of competition that occurs and the more enhanced the cross-
frontier trade with the public sector that emerges, facts that will result
in their full integration. Empirical results have revealed that contracting
authorities award the majority of public contracts without recourse to
the advertisement and publicity provisions of the relevant Directives.
This finding discloses the size of dimensional and sub-dimensional
procurement in Member States and brings into play questions concern-
ing the utilisation of sub-dimensional public procurement as a tool for
policy implementation in Member States. The percentages of public
contracts advertised in the Official Journal by Member States justify also
the concerns that the results of these efforts will not change the
ingrained habits of nationalistic procurement overnight.
 A Critical Assessment of Public Procurement 141

The above background concerning transparency and openness in the

public markets brings into play questions relating to the impact of
competitiveness on the public procurement markets of the Member
States. Does low transparency in public markets imply low competit-
iveness and what is the interplay between protectionist public purchas-
ing patterns and national champions? As already indicated above, the
majority of public procurement contracts are awarded without prior
advertisement, and if one is prepared to accept the argument of excess-
ive bureaucracy and the implied costs in transparent public procure-
ment procedures, the question that follows is who is awarded those
contracts? If competitive indigenous suppliers were awarded the major-
ity of public contracts, then the failure of the principle of transparency
has had minimal effect on purchasing patterns. On the other hand if
uncompetitive indigenous suppliers were awarded the majority of
public contracts, then the protectionist procurement pattern would
provide evidence of existing discriminatory industrial sustainability
attributable to long-dependency relations between the industries
concerned and the contracting authorities in question.
In order to establish the interrelation between low transparency in
public procurement and industrial competitiveness in a Member
State, a number of industries/sectors representing more than 80 per
cent of the total industrial output of the Member States have been
under investigation by the European Commission. 19 The investiga-
tion of these industries revealed that a number of industrial sectors
enjoy protection by contracting authorities in the sense that the rele-
vant public procurement import penetration ratios are relatively low.
It was also revealed that the sectors in question were not internation-
alised, in the sense that they showed low export to production ratios
and were relatively uncompetitive, in the sense that they presented
low specialisation ratios.
When sectoral public procurement import penetration is low and
the volume of public purchasing is met from domestic output, then
the domestic industry in question would most probably be sustained
through public procurement, if its competitiveness is low. It follows
that public purchasing patterns, which survived the enactment of
public procurement legislation may have sustained certain industries
in the Member States and are responsible for perpetuating price
discrepancies, attributed to factors other than quality, for public pro-
curement within the European Union. Sectoral import penetration
in public procurement denotes the amount of imports destined for
the public markets. It also reveals the relative openness of the public
142 Public Procurement in the European Union

market in question and it is useful to compare with the volume of

public procurement which is met from domestic output. In theory,
import penetration and public procurement met from domestic sources
should cover the total volume of sectoral public procurement in a
Member State.
On the other hand, the competitiveness of an industrial sector in a
Member State can be determined by reference to the balance between
export and production, which determines the degree of international-
isation of the sector in question as well as the production specialisa-
tion, which determines competitive and comparative advantages of the
sector within the European Union. If a substantial proportion of sec-
toral public procurement is met from domestic output and the sectoral
import penetration appears low, the sectoral public procurement mar-
ket can be identified as protectionist. Moreover, when the industry in
question has low export to production ratio, this might indicate its
lack of internationalisation. However, the export to production ratio in
itself cannot sufficiently support the argument of low competitiveness
in an industry. For this purpose, the specialisation index, which meas-
ures the competitive advantage of an industry within the whole
European Union, indicates whether the industry in question has com-
petitive advantages over rival industries. When an industry has low
internationalisation and low specialisation levels, there is a strong
indication that it is sub-optimal (uncompetitive). When the above
pattern is combined with high levels of domestic public purchasing,
then the picture of sustainable trends through public procurement
emerges.
Apparently, the relatively uncompetitive industries (mainly national
champions) have been sustained over the years through public purchas-
ing patterns which have survived the public procurement legislation.
These patterns represent the most important non-tariff barrier for the
integration of the public markets in the European Union. The findings
run parallel with the relevant theories which investigate public
procurement as an instrument of industrial policy of Member States.
In December 1996, the European Commission published the Green
Paper on Public Procurement: Exploring the Way Forward. In this docu-
ment the Commission has reflected on the law and policy of public
procurement particularly since the completion of the internal market.
The Green Paper does not proclaim a huge success by the regime or
any unprecedented impact upon the demand and supply sides of the
public purchasing equation. It rather acknowledges the modest effect
of the law and policy on the principles envisaged in the opening up of
 A Critical Assessment of Public Procurement 143

the public sector markets in the European Community. It invited all

interested parties to submit written evidence on the effect of the
regime upon them and possible suggestions as to future improvements.
The Green Paper has recognised the complementarity of public
procurement with other Community and national policies. Because of
the economic importance of public procurement, an effective regula-
tory regime on the law and policy of public purchasing in the Euro-
pean Community is considered as fundamental to the success of the
common market. The effectiveness of the public procurement regime
would bring about cost-efficiency gains for the public sector, which
could consequently affect the success of fiscal deficit reduction policies
imposed by the Maastricht convergence criteria. Thus, the European
Commission has made clear the possible links between public sector
savings and convergence criteria of the European Monetary Union.
However, to what extent the success of monetary integration in the
European Community would be affected by the outcome of the public
sector integration process of the common market deserves thorough
and in-depth quantitative and qualitative research for the years to
come.
Although the Commission acknowledged some improvements in the
transparency of the public procurement process as a result of the oblig-
atory publicity and advertisement requirements, substantial progress in
the implementation of the Directives within domestic systems has not
been recorded. The Green Paper raised the thorny question of qualitat-
ive implementation of the public procurement regime into national legal
orders. To what extent the Member States have failed to meet the
expectations of European Institutions and share their aspirations for
an integrated procurement system in the common market, is a matter
for the European Court of Justice to decide. The reservations of the
successful implementation of the regime expressed by the author in
relation to the limited amount of litigation and the relatively low
number of complaints in public procurement could perhaps trigger the
need for a new approach to Member States’ obligations arising from
Directives. The acid test for the qualitative implementation of the Public
Procurement Directives is access to justice at national level. Moreover,
the expectations of the new regime in relation to the actual or poten-
tial savings for the public sector have not been fully materialised. The
author has pointed out the relatively limited economic impact of
the public procurement law and policy on the demand and supply
side respectively and in particular the effects on price convergence and
the public sector import penetration.
144 Public Procurement in the European Union

The 1996 Commission’s Green Paper on Public Procurement20 paved

the way for the 1998 Commission’s Communication, in which Euro-
pean institutions attempted to assess the progress of the regime in the
common market. The Public Procurement Directives have been seen as
an instrument of economic reform. As a consequence they are an inte-
gral part of the Commission’s 2000 Work Programme, which pledges to
modernise the relevant legislation for the completion of the internal
market and at the same time implement the Lisbon European Council’s
call for economic reform within the internal market.
The Green Paper on Public Procurement and the subsequent policy
developments adopted by the European Commission called for a mod-
ernisation of the public procurement regime. The previous legal frame-
work of public sector procurement separated supplies, works and
services, as well as the utilities procurement into different legal instru-
ments. The jurisprudence of the European Court of Justice has been
the main influence of the need to codify the public procurement
regime into two mainstream Directives: the Public Sector Directive and
the Utilities Directive.
The codification of the Supplies, Works and Services Directives into a
single legal instrument is intended to simplify the public procurement
framework and enhance legal certainty. In addition, it is expected to
facilitate legal efficiency and compliance in the sense that it could
streamline its implementation process by national governments and
provide for a one-stop shop reference point in national legal orders. On
the other hand, the utilities procurement remains a separate regime due
to complexity of the regulatory regimes applicable by Member States to
utilities undertakings and their respective markets. It should be noted
that the character of the utilities markets reflects a quasi-oligopolistic
environment, as the existence of special or exclusive rights granted by
the Member States for the supply, provision or operation of networks
for providing the service concerned, necessitates a special regulatory
regime for the procurement requirements of these undertakings.
Such regime must be compatible with the principles of transparency
and competitiveness, which underpin the public sector procurement
and, more important, adhere to the fundamental principles of EU Law.
6
The New Public Procurement Regime

Introduction
The European Union has finally adopted a new set of rules which
govern the award of public contracts in the supplies, works and
services sectors, as well as in the public utilities1 after a considerable
amount of debate and consultation.2 The new Directives reflect on
the 1996 Commission’s Green Paper on Public Procurement3 and sub-
sequently the 1998 Commission’s Communication. The Directives
have been seen as an integral part of the Commission’s 2000 Work
Programme, which pledges to modernise the relevant legislation for
the completion of the internal market and at the same time implement
the Lisbon European Council’s call for economic reform within the
internal market. The new Public Procurement regime will become oper-
ational by January 31, 2006, when Member States are expected to
transpose the Directives into national law.4 Currently the previous
regime is still applicable.5
The Directives have been based upon two basic premises: simplifica-
tion and modernisation. Drawing on the wealth of experience from three
previous generations of legal instruments, and the Court’s jurispruden-
tial inferences to public procurement regulation, the new Directives
are set to achieve what is perhaps the most challenging objective of
the internal market: fully integrate its public sector and abolish any
remaining non-tariff barriers. The new regime maps also a clear-cut
dichotomy between the public and the utilities sectors respectively.
Although the same fundamental principles underlie the liberalisation
of procurement in government and public utilities, their separate regu-
lation reveals a diametrically opposed nature of the contracting author-
ities/entities under these sectors. Over the past two decades, public
145
146 Public Procurement in the European Union

utilities in the EU Member States have been undergoing a process of

transformation. Their change in ownership from public to private has
stimulated commercialism and competitiveness and provided for the
justification of a more relaxed regime and the acceptance that utilities,
in some form or another represent a sui generis contracting authorities
not in need of a rigorous and detailed regulation of their procurement.
The above dichotomy reflects an insight of current market conditions
and political priorities across the European Union, as well as an indica-
tion that the main emphasis should be placed on attempts to open up
the public sector.
The intellectual paternity of the reasons behind past and current
efforts to “…co-coordinate the procedures for the award of public con-
tracts….”6 could be traced in a neo-classical economic approach to
market integration.7 Public procurement has been identified as a
serious non-tariff barrier and a hindering factor for the functioning of
a genuinely competitive common market. Its regulation, apart from
seeking an endorsement of the acquis communautaire by Member States
of the fundamental principles of the common market, aims, primarily,
at introducing radical changes in the industrial base of the European
Union. Integration of public markets will bring substantial savings to
the public sector, rationalise an over-capacity ridden industry, and
allocate more efficiently resources (human and capital) and increase
productivity and competitiveness of European firms to provide them a
fair chance in the global arena.

Part 1 The new concepts in public procurement regulation

The Codified Public Supplies, Works and Services Directive
The Green Paper on Public Procurement prompted a modest modern-
isation of the existing Directives and as a consequence of industry pres-
sure, minor amendments were made to the Public Services Directive,8
the Public Supplies Directive9 and the Public Works Directive.10 Prev-
ious regimes on the public sector procurement (public supplies, works
and services for central and local governments and bodies governed by
public law) were segmented for two main reasons: first, the applicabil-
ity thresholds for the relevant public contracts were, and still are, dif-
ferent; this feature gave apparently a false perception that the thrust of
the rules would be applied better if procurement of works, supplies and
services is regulated through different regimes. It should be maintained
that apart from the differential applicability thresholds, every other
aspect of the previous regime (advertisement and publicity, selection
 The New Public Procurement Regime 147

and qualification, award procedures, award criteria) was virtually iden-

tical, or replicated verbatim throughout the Directives. In numerous
instances the ECJ applied its reasoning by analogous interpretation to
all three Directives, perhaps hinting the case of consistency and the
future need for rationalising the unnecessary plethora of the legal
instruments on public procurement.
Secondly, the timing of the introduction of rules governing the
award of public contracts was diachronically spread over three decades.
Whilst supplies and works contracts were the subject of the first gener-
ation of Public Procurement Directives, the regulation of the award of
public services contracts coincided with the completion of the internal
market and appeared as a recognition of an evolution of the procure-
ment needs of contracting authorities and the pragmatic acceptance
that services contracts, alongside works and supplies play an important
part in the procurement remit of contracting authorities of Member
States.
The codification of the provisions of the Supplies, Works and
Services Directives into a single legal instrument, apart from the
obvious benefits of simplification and legal certainty, has further
important implications: legal efficiency and compliance discipline. As
far as legal efficiency is concerned, the new codified Directive will
speed up and streamline its implementation process by Member States
and provide for a one-stop shop reference point in national legal
orders, augmented by the Court’s vesting of direct effectiveness upon
the Directive’s predecessors in numerous occasions. On the other
hand, codification will enhance compliance, as it will remove any
remaining uncertainties over the applicability of the previously frag-
mented regime and afford contracting authorities a disciple method in
dispersing their procurement functions.
Case-law from the European Court of Justice11 has been the main
influence of the codified Directive, in particular case-law on award cri-
teria, which clarifies the possibilities for the contracting authorities
to utilise criteria relating to environmental and social considerations to
meet the needs of the general public. Such criteria can be used by con-
tracting authorities provided that they are linked to the subject-matter
of the contract, that they do not confer an unrestricted freedom of
choice on the contracting authority and they are expressly mentioned
in the tender documents. Finally, environmental and social considera-
tions as award criteria of public contracts must comply with the funda-
mental principles of EU Law such as the principle of freedom of
movement of goods, the principle of freedom of establishment, the
148 Public Procurement in the European Union

principle of freedom to provide services and the surrogate principles

deriving from them, such as the principle of equal treatment, the prin-
ciple of non-discrimination, the principle of mutual recognition, the
principle of proportionality and the principle of transparency.12
As far as the utilities procurement is concerned, there are two main
reasons for the introduction of rules co-ordinating procedures for the
award of contracts in the utilities sectors. Firstly, is the variety of ways
in which national authorities can influence the behaviour of these
entities, including participation in their capital and representation in
the administrative, managerial or supervisory bodies of these entities.
Secondly, the closed nature of the markets in which utilities operate,
due to the existence of special or exclusive rights granted by the Mem-
ber States concerning the supply, provision or operation of networks
for providing the service concerned necessitates a special regulatory
regime which ensures transparency and competitiveness alongside
adherence to the fundamental principles of the EU Treaty.

A thematic analysis of the new concepts in procurement

The codified Public Sector Directive has introduced a series of new con-
cepts in its regulatory framework. These concepts are the product of
jurisprudential inferences and policy refining of the previous regime.
They intend to modernise public purchasing and align the procure-
ment of government and its agencies with that of utilities and entities
operating in a more commercially oriented environment.

Eligibility of bodies governed by public law to tender

The new Public Sector Directive clearly accepts that entities which
are covered by its rules, can participate in the award of public con-
tracts, alongside private sector undertakings. Member States should
ensure that the participation of a body governed by public law as a
tenderer in a procedure for the award of a public contract does not
cause any distortion of competition in relation to private tenderers.
The eligibility of bodies governed by public law to participate in
tendering procedures has been influenced by case-law. 13 There is a
protection mechanism built in the above liberty of contracting
authorities. Article 55(e) of the Public Sector Directive specifies that
in the case of abnormally low tenders, in relation to the goods,
works or services, the contracting authority may reject those tenders,
if there is a possibility of the tenderer obtaining State aid. Where
a contracting authority establishes that a tender is abnormally
low because the tenderer has obtained State aid, his tender can be
 The New Public Procurement Regime 149

rejected on that ground alone only after consultation with the ten-
derer where the latter is unable to prove, within a sufficient time
limit fixed by the contracting authority that the aid in question was
granted legally. Where the contracting authority rejects a tender in
these circumstances, it must inform the Commission.
According to Article 1.8 of the Public Sector Directive, the term
economic operator covers equally the concepts of contractor, supplier
and service provider. It is used merely in the interest of simplifi-
cation. An economic operator who has submitted a tender is desig-
nated as a “tenderer”. One who has sought an invitation to take part
in a restricted or negotiated procedure or a competitive dialogue is
designated as a “candidate”.
Interestingly, the new utilities regime excludes from its remit con-
tracts awarded to affiliated undertakings. The new Utilities Directive
does not apply to contracts awarded: (a) by a contracting entity to an
affiliated undertaking, or (b) by a joint venture, formed exclusively by
a number of contracting entities for the purpose of carrying out activ-
ities which are covered by the Utilities Directive to an undertaking
which is affiliated with one of these contracting entities. Article 23 of
the new Utilities Directive excludes contracts awarded to an affiliated
undertaking, to a joint venture or to a contracting entity forming part
of a joint venture from the remit of the Directive. Under the utilities
procurement regime, the term affiliated undertaking means any under-
taking the annual accounts of which are consolidated with those of the
contracting entity in accordance with the requirements of the Seventh
Council Directive 83/349/EEC on consolidated accounts14 based on the
Article 44(2)(g) of the EU Treaty. In cases of entities which are not
subject to that Directive, affiliated undertaking means any undertaking
over which the contracting entity may exercise, directly or indirectly, a
dominant influence within the meaning of Article 2(1)(b), or any
undertaking over which the contracting entity may exercise a domin-
ant influence by virtue of ownership, financial participation, or the
rules which govern it.

Joint and centralised procurement

In view of the diversity of public works contracts, contracting author-
ities should be given the freedom to make provision for contracts for
the design and execution of work to be awarded either separately or
jointly. The decision to award contracts separately or jointly must
be determined by qualitative and economic criteria, which may be
defined by national law. According to Article 1.10 of the Public Sector
150 Public Procurement in the European Union

Directive, a central purchasing body is a contracting authority which:

i) acquires supplies and/or services intended for contracting author-
ities, or ii) awards public contracts or concludes framework agreements
for works, supplies or services intended for contracting authorities.
The Public Sector Directive allows Member States to establish official
lists of contractors, suppliers or service providers or a system of certi-
fication by public or private bodies, and makes provision for the effects
of such registration or such certification in a contract award procedure
in another Member State. As regards official lists of approved economic
operators, it is important to take into account Court of Justice case-
law15 in cases where an economic operator belonging to a group claims
the economic, financial or technical capabilities of other companies in
the group in support of its application for registration. In this case, it is
for the economic operator to prove that those resources will actually be
available to it throughout the period of validity of the registration. For
the purposes of that registration, a Member State may therefore deter-
mine the level of requirements to be met and in particular, for example
where the operator lays claim to the financial standing of another
company in the group, it may require that that company be held
liable, if necessary jointly and severally.
Certain centralised purchasing techniques have been developed in
Member States. Several contracting authorities are responsible for
making acquisitions or awarding public contracts/framework agree-
ments for other contracting authorities. In view of the large volumes
purchased, those techniques help increase competition and streamline
public purchasing. The terms and conditions which cover the procure-
ment of works, supplies and services through a central purchasing
body must observe the principles of non-discrimination and equal
treatment. According to Article 11, which lays down the provisions of
public contracts and framework agreements awarded by central pur-
chasing bodies, Member States may stipulate that contracting author-
ities may purchase works, supplies and/or services from or through a
central purchasing body. In addition, contracting authorities which
purchase works, supplies and/or services from or through a central
purchasing body in the cases set out in Article 1(10) must comply with
the Public Sector Directive insofar as the central purchasing body has
complied with it.

A new award procedure: the competitive dialogue

According to Article 1.11(c) of the Public Sector Directive, competitive
dialogue is a procedure in which any economic operator may request
 The New Public Procurement Regime 151

to participate and where the contracting authority conducts a dialogue

with the candidates admitted to that procedure, with the aim of devel-
oping one or more suitable alternatives capable of meeting its require-
ments, and on the basis of which the candidates chosen are invited to
tender. Contracting authorities which carry out particularly complex
projects may, without any fault on their part, find it objectively impos-
sible to define the means of satisfying their needs or of assessing what
the market can offer in the way of technical solutions and/or financial/
legal solutions. This situation may arise in particular with the imple-
mentation of important integrated transport infrastructure projects,
large computer networks or projects involving complex and structured
financing, the financial and legal make-up of which cannot be defined
in advance. To the extent that use of open or restricted procedures
does not allow the award of such contracts, a flexible procedure should
be provided which preserves not only competition between economic
operators but also the need for the contracting authorities to discuss
all aspects of the contract with each candidate. However, this proce-
dure must not be used in such a way as to restrict or distort competi-
tion, particularly by altering any fundamental aspects of the offers, or
by imposing substantial new requirements on the successful tenderer,
or by involving any tenderer other than the one selected as the most
economically advantageous.
For clarification purposes, a public contract is considered to be
“particularly complex” where the contracting authorities: are not
objectively able to define the technical means in accordance with
Article 23(3)(b), (c) or (d), not capable of satisfying their needs or
objectives, and/or are not objectively able to specify the legal and/or
financial make-up of a project. Before launching a competitive dia-
logue for the award of a contract, contracting authorities may, using a
technical dialogue, seek or accept advice which may be used in the
preparation of the specifications provided, however, that such advice
does not have the effect of precluding competition.
Article 29 of the Public Sector Directive regulates the use of the
competitive dialogue as an award procedure. In the case of particularly
complex contracts, Member States may provide that where contract-
ing authorities consider that the use of the open or restricted proced-
ure will not allow the award of the contract, the latter may make use
of the competitive dialogue in accordance with this Article. A public
contract must be awarded on the sole basis of the award criterion for
the most economically advantageous tender. Contracting authorities
are obliged to publish a contract notice setting out their needs and
152 Public Procurement in the European Union

requirements, which they must define in that notice and/or in a

descriptive document.
Contracting authorities must open, with the candidates selected in
accordance with the relevant provisions of Articles 44 to 52 of the
Public Sector Directive,16 a dialogue the aim of which is to identify
and define the means best suited to satisfying their needs. They may
discuss all aspects of the contract with the chosen candidates during
this dialogue. During the dialogue, contracting authorities must ensure
equality of treatment among all tenderers. In particular, they must not
provide information in a discriminatory manner which may give some
tenderers an advantage over others. Contracting authorities may not
reveal to the other participants solutions proposed or other confid-
ential information communicated by a candidate participating in the
dialogue without his/her agreement.
Contracting authorities may provide for the procedure to take place
in successive stages in order to reduce the number of solutions to be
discussed during the dialogue stage by applying the award criteria in
the contract notice or the descriptive document. The contract notice or
the descriptive document must indicate that recourse may be had to
this option. The contracting authority must continue such dialogue
until it can identify the solution or solutions, if necessary after compar-
ing them, which are capable of meeting its needs. Having declared that
the dialogue is concluded and having so informed the participants,
contracting authorities must ask them to submit their final tenders on
the basis of the solution or solutions presented and specified during
the dialogue.
These tenders must contain all the elements required and necessary
for the performance of the project. These tenders may be clarified,
specified and fine-tuned at the request of the contracting authority.
However, such clarification, specification, fine-tuning or additional
information may not involve changes to the basic features of the
tender or the call for tender, variations in which are likely to distort
competition or have a discriminatory effect.
Contracting authorities must assess the tenders received on the basis
of the award criteria laid down in the contract notice or the descriptive
document and must choose the most economically advantageous
tender in accordance with Article 53. At the request of the contracting
authority, the tenderer identified as having submitted the most eco-
nomically advantageous tender may be asked to clarify aspects of the
tender or confirm commitments contained in the tender provided this
does not have the effect of modifying substantial aspects of the tender
 The New Public Procurement Regime 153

or of the call for tender and does not risk distorting competition or
causing discrimination. The contracting authorities may specify prices
or payments to the participants in the dialogue.

Framework procurement
According to Article 1.5 of the Public Sector Directive, a framework
agreement is an agreement between one or more contracting author-
ities and one or more economic operators, the purpose of which is to
establish the terms governing contracts to be awarded during a given
period, in particular with regard to price and, where appropriate, the
quantity envisaged.
A Community definition of framework agreements, together with
specific rules on framework agreements concluded for contracts falling
within the scope of the Public Sector Directive, is provided in Article
32. Under these rules, when a contracting authority enters into a
framework agreement in accordance with the provisions of the Public
Sector Directive relating, in particular, to advertising, time limits and
conditions for the submission of tenders, it may enter into contracts
based on such a framework agreement during its term of validity either
by applying the terms set forth in the framework agreement or, if all
terms have not been fixed in advance in the framework agreement, by
reopening competition between the parties to the framework agree-
ment in relation to those terms. The reopening of competition should
comply with certain rules the aim of which is to guarantee the required
flexibility and to guarantee respect for the general principles, in par-
ticular the principle of equal treatment. For the same reasons, the term
of the framework agreements should not exceed four years, except in
cases duly justified by the contracting authorities.
Article 32 is the institutional foundation of framework agreements.
Member States may provide that contracting authorities may conclude
framework agreements. For the purpose of concluding a framework
agreement, contracting authorities must follow the rules of procedure
referred to in the Public Sector Directive for all phases up to the award
of contracts based on that framework agreement. The parties to the
framework agreement must be chosen by applying the award criteria
set in accordance with Article 53.17
Contracts based on a framework agreement must be awarded in
accordance with the procedures laid down in paragraphs 3 and 4 of
Article 32. Those procedures may be applied only between the con-
tracting authorities and the economic operators originally party
to the framework agreement. When awarding contracts based on a
154 Public Procurement in the European Union

framework agreement, the parties may under no circumstances make

substantial amendments to the terms laid down in that framework
agreement, in particular in the case referred to in paragraph 3. The
term of a framework agreement may not exceed four years, save in
exceptional cases duly justified, in particular by the subject of the
framework agreement. Contracting authorities may not use frame-
work agreements improperly or in such a way as to prevent, restrict
or distort competition.
Article 32(3) stipulates that where a framework agreement is con-
cluded with a single economic operator, contracts based on that agree-
ment must be awarded within the limits of the terms laid down in the
framework agreement. For the award of those contracts, contracting
authorities may consult the operator party to the framework agreement
in writing, requesting it to supplement its tender as necessary.
Article 32(4) stipulates that where a framework agreement is con-
cluded with several economic operators, the latter must be at least
three in number, insofar as there is a sufficient number of economic
operators to satisfy the selection criteria and/or of admissible tenders
which meet the award criteria. Contracts based on framework agree-
ments concluded with several economic operators may be awarded
either: i) by application of the terms laid down in the framework agree-
ment without reopening competition, or ii) where not all the terms are
laid down in the framework agreement, when the parties are again in
competition on the basis of the same and, if necessary, more precisely
formulated terms, and, where appropriate, other terms referred to in
the specifications of the framework agreement, in accordance with a
specific procedure which provides the following:

(a) for every contract to be awarded, contracting authorities must

consult in writing the economic operators capable of performing
the contract;
(b) contracting authorities must fix a time limit which is sufficiently long
to allow tenders for each specific contract to be submitted, taking
into account factors such as the complexity of the subject-matter of
the contract and the time needed to send in tenders;
(c) tenders must be submitted in writing, and their content must
remain confidential until the stipulated time limit for reply has
expired;
(d) contracting authorities must award each contract to the tenderer
who has submitted the best tender on the basis of the award criteria
set out in the specifications of the framework agreement.
 The New Public Procurement Regime 155

Electronic procurement
New electronic purchasing techniques are continually being developed.
Such techniques help to increase competition and streamline public pur-
chasing, particularly in terms of the savings in time and money which
their use will allow. Contracting authorities may make use of electronic
purchasing techniques, provided such use complies with the rules drawn
up under the Public Sector Directive and the principles of equal treat-
ment, nondiscrimination and transparency. To that extent, a tender sub-
mitted by a tenderer, in particular where competition has been reopened
under a framework agreement or where a dynamic purchasing system is
being used, may take the form of that tenderer’s electronic catalogue.
According to Article 1.6 of the Public Sector Directive, a dynamic pur-
chasing system is a completely electronic process for making commonly
used purchases, the characteristics of which, as generally available on
the market, meet the requirements of the contracting authority, which
is limited in duration and open throughout its validity to any economic
operator which satisfies the selection criteria and has submitted an
indicative tender that complies with the specification. In view of the
rapid expansion of electronic purchasing systems, appropriate rules
should now be introduced to enable contracting authorities to take full
advantage of the possibilities afforded by these systems. Against this
background, it is necessary to define a completely electronic dynamic
purchasing system for commonly used purchases, and lay down specific
rules for setting up and operating such a system in order to ensure the
fair treatment of any economic operator who wishes to take part
therein. Any economic operator which submits an indicative tender in
accordance with the specification and meets the selection criteria
should be allowed to join such a system. This purchasing technique
allows the contracting authority, through the establishment of a list of
tenderers already selected and the opportunity given to new tenderers
to take part, to have a particularly broad range of tenderers as a result
of the electronic facilities available, and hence to ensure optimum use
of public funds through broad competition.
The use of dynamic purchasing systems is described in Article 33.
Member States may provide that contracting authorities may use
dynamic purchasing systems. In order to set up a dynamic purchasing
system, contracting authorities must follow the rules of the open pro-
cedure in all its phases up to the award of the contracts to be con-
cluded under this system. All the tenderers satisfying the selection
criteria and having submitted an indicative tender which complies
with the specification and any possible additional documents, must be
156 Public Procurement in the European Union

admitted to the system. Indicative tenders may be improved at any

time provided that they continue to comply with the specification.
With a view to setting up the system and to the award of contracts
under that system, contracting authorities must use solely electronic
means in accordance with Article 42(2) to (5). For the purposes of
setting up the dynamic purchasing system, contracting authorities
must:

(a) publish a contract notice making it clear that a dynamic purchasing

system is involved;
(b) indicate in the specification, amongst other matters, the nature of
the purchases envisaged under that system, as well as all the neces-
sary information concerning the purchasing system, the electronic
equipment used and the technical connection arrangements and
specifications;
(c) offer by electronic means, on publication of the notice and up
to the expiry of the system, unrestricted, direct and full access to
the specification and to any additional documents and must indi-
cate in the notice the internet address at which such documents
may be consulted.

Contracting authorities must give any economic operator, throughout

the entire period of the dynamic purchasing system, the possibility of
submitting an indicative tender and of being admitted to the system.
They must complete evaluation within a maximum of 15 days from
the date of submission of the indicative tender. However, they may
extend the evaluation period provided that no invitation to tender is
issued in the meantime. The contracting authority must inform the
tenderer referred to in the first subparagraph at the earliest possible
opportunity, of its admittance to the dynamic purchasing system or of
the rejection of its indicative tender.
Each specific contract must be the subject of an invitation to tender.
Before issuing the invitation to tender, contracting authorities must
publish a simplified contract notice inviting all interested economic
operators to submit an indicative tender within a time limit that may
not be less than 15 days from the date on which the simplified notice
was sent. Contracting authorities may not proceed with tendering until
they have completed evaluation of all the indicative tenders received
by that deadline.
Contracting authorities must invite all tenderers admitted to the
system to submit a tender for each specific contract to be awarded
 The New Public Procurement Regime 157

under the system. To that end they must set a time limit for the sub-
mission of tenders. They must award the contract to the tenderer
which submitted the best tender on the basis of the award criteria set
out in the contract notice for the establishment of the dynamic pur-
chasing system. A dynamic purchasing system may not last for more
than four years, except in duly justified exceptional cases. Contracting
authorities may not resort to this system to prevent, restrict or distort
competition. No charges may be billed to the interested economic
operators or to parties to the system.

Electronic auctions
According to Article 1.7 of the Public Sector Directive an electronic
auction is a repetitive process involving an electronic device for the
presentation of new prices, revised downwards, and/or new values con-
cerning certain elements of tenders, which occurs after an initial full
evaluation of the tenders, enabling them to be ranked using automatic
evaluation methods. Consequently, certain service contracts and
certain works contracts having as their subject-matter intellectual
performances, such as the design of works, may not be the object of
electronic auctions.
Since use of the technique of electronic auctions is likely to
increase, such auctions should be given a Community definition and
governed by specific rules in order to ensure that they operate in full
accordance with the principles of equal treatment, non-discrimina-
tion and transparency. To that end, provision should be made for
such electronic auctions to deal only with contracts for works, sup-
plies or services for which the specifications can be determined with
precision. Such may in particular be the case for recurring supplies,
works and service contracts. With the same objective, it must also
to be possible to establish the respective ranking of the tenderers at
any stage of the electronic auction. Recourse to electronic auctions
enables contracting authorities to ask tenderers to submit new
prices, revised downwards, and when the contract is awarded to the
most economically advantageous tender, also to improve elements
of the tenders other than prices. In order to guarantee compliance
with the principle of transparency, only the elements suitable for
automatic evaluation by electronic means, without any intervention
and/or appreciation by the contracting authority, that is, only
the elements which are quantifiable so that they can be expressed
in figures or percentages, may be the object of electronic auctions.
On the other hand, those aspects of the tenders which imply
158 Public Procurement in the European Union

an appreciation of non-quantifiable elements should not be the

object of electronic auctions. Consequently, certain works contracts
and certain service contracts having as their subject matter intellec-
tual performances, such as the design of works, should not be the
object of electronic auctions.
Article 54 of the Public Sector Directive stipulates the framework
for the use of electronic auctions. Member States may provide that
contracting authorities may use electronic auctions. In open,
restricted or negotiated procedures in the case referred to in Article
30(1)(a), the contracting authorities may decide that the award of a
public contract must be preceded by an electronic auction when the
contract specifications can be established with precision. In the same
circumstances, an electronic auction may be held on the reopening
of competition among the parties to a framework agreement as pro-
vided for in the second indent of the second subparagraph of Article
32(4) and on the opening for competition of contracts to be awarded
under the dynamic purchasing system referred to in Article 33. The
electronic auction must be based: i) either solely on prices when
the contract is awarded to the lowest price, or ii) on prices and/or on
the new values of the features of the tenders indicated in the spec-
ification when the contract is awarded to the most economically
advantageous tender.
Contracting authorities who decide to hold an electronic auction
must state that fact in the contract notice. The specifications must
include, inter alia, the following details:

(a) the features, the values for which will be the subject of electronic
auction, provided that such features are quantifiable and can be
expressed in figures or percentages;
(b) any limits on the values which may be submitted, as they result
from the specifications relating to the subject of the contract;
(c) the information which will be made available to tenderers in the
course of the electronic auction and, where appropriate, when it
will be made available to them;
(d) the relevant information concerning the electronic auction
process;
(e) the conditions under which the tenderers will be able to bid
and, in particular, the minimum differences which will, where
appropriate, be required when bidding;
(f) the relevant information concerning the electronic equipment used
and the arrangements and technical specifications for connection.
 The New Public Procurement Regime 159

Before proceeding with an electronic auction, contracting authorities

must make a full initial evaluation of the tenders in accordance with
the award criterion/criteria set and with the weighting fixed for them.
All tenderers who have submitted admissible tenders must be invited
simultaneously by electronic means to submit new prices and/or new
values; the invitation must contain all relevant information concern-
ing individual connection to the electronic equipment being used and
must state the date and time of the start of the electronic auction. The
electronic auction may take place in a number of successive phases.
The electronic auction may not start sooner than two working days
after the date on which invitations are sent out.
When the contract is to be awarded on the basis of the most eco-
nomically advantageous tender, the invitation must be accompanied
by the outcome of a full evaluation of the relevant tenderer, carried out
in accordance with the weighting provided for in the first subpara-
graph of Article 53(2). The invitation must also state the mathematical
formula to be used in the electronic auction to determine automatic re-
rankings on the basis of the new prices and/or new values submitted.
That formula must incorporate the weighting of all the criteria fixed
to determine the most economically advantageous tender, as indicated
in the contract notice or in the specifications; for that purpose,
any ranges must, however, be reduced beforehand to a specified value.
Where variants are authorised, a separate formula must be provided for
each variant.
Throughout each phase of an electronic auction, the contracting
authorities must instantaneously communicate to all tenderers at least
sufficient information to enable them to ascertain their relative rank-
ings at any moment. They may also communicate other information
concerning other prices or values submitted, provided that that is
stated in the specifications. They may also at any time announce the
number of participants in that phase of the auction. In no case,
however, may they disclose the identities of the tenderers during any
phase of an electronic auction.
Contracting authorities must close an electronic auction in one or
more of the following manners:

(a) in the invitation to take part in the auction they must indicate the
date and time fixed in advance;
(b) when they receive no more new prices or new values which meet
the requirements concerning minimum differences. In that
event, the contracting authorities must state in the invitation to
160 Public Procurement in the European Union

take part in the auction the time which they will allow to elapse
after receiving the last submission before they close the electronic
auction;
(c) when the number of phases in the auction, fixed in the invitation
to take part in the auction, has been completed. When the con-
tracting authorities have decided to close an electronic auction in
accordance with subparagraph (c), possibly in combination with
the arrangements laid down in subparagraph (b), the invitation to
take part in the auction must indicate the timetable for each phase
of the auction.

After closing an electronic auction, contracting authorities must award

the contract in accordance with Article 53 on the basis of the results of
the electronic auction. Contracting authorities may not have improper
recourse to electronic auctions nor may they use them in such a way as
to prevent, restrict or distort competition or to change the subject-
matter of the contract, as put up for tender in the published contract
notice and defined in the specification.

The use of electronic signatures

Directive 1999/93/EC of the European Parliament and of the Council
of 13 December 1999 on a Community framework for electronic sig-
natures18 and Directive 2000/31/EC of the European Parliament and of
the Council of 8 June 2000 on certain legal aspects of information
society services, in particular electronic commerce, in the internal
market (‘Directive on electronic commerce’)19 should, in the context of
the Public Sector Directive, apply to the transmission of information
by electronic means. The public procurement procedures and the rules
applicable to service contests require a level of security and confiden-
tiality higher than that required by these Directives. Accordingly,
the devices for the electronic receipt of offers, requests to participate
and plans and projects should comply with specific additional require-
ments. To this end, use of electronic signatures, in particular advanced
electronic signatures, should, as far as possible, be encouraged. More-
over, the existence of voluntary accreditation schemes could constitute
a favourable framework for enhancing the level of certification service
provision for these devices.

Public procurement and the environment

Under Article 6 of the Treaty, environmental protection requirements
are to be integrated into the definition and implementation of the
 The New Public Procurement Regime 161

Community policies and activities referred to in Article 3 of that

Treaty, in particular with a view to promoting sustainable develop-
ment. The Public Sector Directive therefore clarifies how the contract-
ing authorities may contribute to the protection of the environment
and the promotion of sustainable development, whilst ensuring the
possibility of obtaining the best value for money for their contracts.
Nothing in the Public Sector Directive should prevent the imposition
or enforcement of measures necessary to protect public policy, public
morality, public security, health, human and animal life or the
preservation of plant life, in particular with a view to sustainable
development, provided that these measures are in conformity with
the Treaty.
The technical specifications drawn up by public purchasers need to
allow public procurement to be opened up to competition. To this
end, it must be possible to submit tenders which reflect the diversity
of technical solutions. Accordingly, it must be possible to draw up
the technical specifications in terms of functional performance and
requirements, and, where reference is made to the European stan-
dard or, in the absence thereof, to the national standard, tenders
based on equivalent arrangements must be considered by contract-
ing authorities. To demonstrate equivalence, tenderers should be
permitted to use any form of evidence. Contracting authorities must
be able to provide a reason for any decision that equivalence does
not exist in a given case. Contracting authorities that wish to define
environmental requirements for the technical specifications of a
given contract may lay down the environmental characteristics, such
as a given production method, and/or specific environmental effects
of product groups or services. They can use, but are not obliged to
use appropriate specifications that are defined in ecolabels, such as
the European Eco-label, (multi-)national eco-labels or any other eco-
label provided the requirements for the label are drawn up and
adopted on the basis of scientific information using a procedure in
which stakeholders, such as government bodies, consumers, manu-
facturers, distributors and environmental organisations can partici-
pate, and provided the label is accessible and available to all
interested parties. Contracting authorities should, whenever possi-
ble, lay down technical specifications so as to take into account
accessibility criteria for people with disabilities or design for all
users. The technical specifications should be clearly indicated, so
that all tenderers know what the requirements established by the
contracting authority cover.
162 Public Procurement in the European Union

In appropriate cases, in which the nature of the works and/or

services justifies applying environmental management measures
or schemes during the performance of a public contract, the applica-
tion of such measures or schemes may be required. Environmental
management schemes, whether or not they are registered under
Community instruments such as Regulation (EC) No 761/2001
(EMAS),20 can demonstrate that the economic operator has the tech-
nical capability to perform the contract. Moreover, a description of
the measures implemented by the economic operator to ensure the
same level of environmental protection should be accepted as an
alternative to environmental management registration schemes as a
form of evidence.
Article 50 deals with Environmental management standards. It pro-
vides that contracting authorities may require the production of certi-
ficates drawn up by independent bodies attesting the compliance of
the economic operator with certain environmental management stand-
ards, and they must refer to the Community Eco-Management and
Audit Scheme (EMAS) or to environmental management standards
based on the relevant European or international standards certified by
bodies conforming to Community law or the relevant European or
international standards concerning certification. They must recognise
equivalent certificates from bodies established in other Member States.
They must also accept other evidence of equivalent environmental
management measures from economic operators.

Procurement and employment

Employment and occupation are key elements in guaranteeing equal
opportunities for all and contribute to integration in society. In this
context, sheltered workshops and sheltered employment programmes
contribute efficiently towards the integration or reintegration of people
with disabilities in the labour market. However, such workshops might
not be able to obtain contracts under normal conditions of competi-
tion. Consequently, it is appropriate that Member States may reserve
the right to participate in award procedures for public contracts to such
workshops or reserve performance of contracts to the context of shel-
tered employment programmes.
According to Article 19, a specific category of public sector contracts
are regarded as reserved contracts. Member States reserve the right to
participate in public contract award procedures to sheltered work-
shops, or provide for such contracts to be performed in the context of
sheltered employment programmes where most of the employees con-
 The New Public Procurement Regime 163

cerned are disabled persons who, by reason of the nature or the seri-
ousness of their impairment, cannot carry on occupations under
normal conditions. The contract notice must make reference to this
provision.
The laws, regulations and collective agreements, at both national
and Community level, which are in force in the areas of employ-
ment conditions and safety at work apply during performance of a
public contract, provided that such rules, and their application,
comply with Community law. In cross-border situations, where
workers from one Member State provide services in another Member
State for the purpose of performing a public contract, Directive
96/71/EC concerning the posting of workers in the framework of the
provision of services 21 lays down the minimum conditions which
must be observed by the host country in respect of such posted
workers. If national law contains provisions to this effect, non-
compliance with those obligations may be considered to be grave
misconduct or an offence concerning the professional conduct of
the economic operator concerned, liable to lead to the exclusion of
that economic operator from the procedure for the award of a public
contract.

Public procurement and WTO

Council Decision 94/800/EC, which covered the Agreements reached
in the Uruguay Round multilateral negotiations22 (1986 to 1994),
approved the WTO Agreement on Government Procurement, the aim
of which is to establish a multilateral framework of balanced rights and
obligations relating to public contracts with a view to achieving
the liberalisation and expansion of world trade. In view of the inter-
national rights and commitments devolving on the Community as a
result of the acceptance of the Agreement, the arrangements to be
applied to tenderers and products from signatory third countries are
those defined by the Agreement. This Agreement does not have direct
effect. The contracting authorities, covered by the Agreement which
comply with the Public Sector Directive and which apply the latter to
economic operators of third countries which are signatories to the
Agreement, should therefore be in conformity with the Agreement. It
is also appropriate that those coordinating provisions should guarantee
for Community economic operators’ conditions for participation in
public procurement which are just as favourable as those reserved for
economic operators of third countries which are signatories to the
Agreement.
164 Public Procurement in the European Union

Procurement and culture

The awarding of public contracts for certain audiovisual services in the
field of broadcasting should allow aspects of cultural or social signific-
ance to be taken into account which render application of procure-
ment rules inappropriate. For these reasons, an exception must
therefore be made for public service contracts for the purchase, devel-
opment, production or co-production of off-the-shelf programmes and
other preparatory services, such as those relating to scripts or artistic
performances necessary for the production of the programme and con-
tracts concerning broadcasting times. However, this exclusion should
not apply to the supply of technical equipment necessary for the
production, co-production and broadcasting of such programmes. A
broadcast should be defined as transmission and distribution using any
form of electronic network.

Procurement, small and medium enterprises and subcontracting

In order to encourage the involvement of small and medium-sized
undertakings in the public contracts procurement market, it is advisable
to include provisions on subcontracting. According to Article 25, in the
contract documents, the contracting authority may ask or may be
required by a Member State to ask the tenderer to indicate in his tender
any share of the contract he may intend to subcontract to third parties
and any proposed subcontractors. This indication must be without
prejudice to the question of the principal economic operator’s liability.
The theme of public procurement and subcontracting originates in the
original Works Directives where contracting authorities are allowed to
specify to concessionaires a minimum percentage of the works to be sub-
contracted. Along these lines, Article 60 of the Public Sector Directive
provides that the contracting authority may either: (a) require the con-
cessionaire to award contracts representing a minimum of 30 per cent of
the total value of the work for which the concession contract is to be
awarded, to third parties, at the same time providing the option for can-
didates to increase this percentage, this minimum percentage being
specified in the concession contract, or (b) request the candidates for
concession contracts to specify in their tenders the percentage, if any, of
the total value of the work for which the concession contract is to be
awarded which they intend to assign to third parties.

Contractual performance and public procurement

Contract performance conditions are compatible with the Public Sector
Directive provided they are not directly or indirectly discriminatory
and are indicated in the contract notice or in the contract documents.
 The New Public Procurement Regime 165

They may, in particular, be intended to favour on-site vocational train-

ing, the employment of people experiencing particular difficulty in
achieving integration, the fight against unemployment or the protec-
tion of the environment. For instance, mention may be made, amongst
other things, of the requirements – applicable during performance of
the contract – to recruit long-term job-seekers or to implement training
measures for the unemployed or young persons, to comply in sub-
stance with the provisions of the basic International Labour Organisa-
tion (ILO) Conventions, assuming that such provisions have not been
implemented in national law, and to recruit more disabled persons
than are required under national legislation.
According to Article 26 which stipulates conditions for performance
of contracts, contracting authorities may lay down special conditions
relating to the performance of a contract, provided that these are com-
patible with Community law and are indicated in the contract notice
or in the specifications. The conditions governing the performance
of a contract may, in particular, concern social and environmental
considerations.

Procurement and probity

The award of public contracts to economic operators who have parti-
cipated in a criminal organisation or who have been found guilty of
corruption or of fraud to the detriment of the financial interests of the
European Communities or of money laundering should be avoided.
Where appropriate, the contracting authorities should ask candidates
or tenderers to supply relevant documents and, where they have
doubts concerning the personal situation of a candidate or tenderer,
they may seek the cooperation of the competent authorities of the
Member State concerned. The exclusion of such economic operators
should take place as soon as the contracting authority has knowledge
of a judgement concerning such offences rendered in accordance with
national law that has the force of res judicata. If national law contains
provisions to this effect, non-compliance with environmental legisla-
tion or with legislation on unlawful agreements in public contracts,
which has been the subject of a final judgement or a decision having
equivalent effect, may be considered as a professional or grave miscon-
duct of the economic operator concerned. Non-observance of national
provisions implementing the Council Directives 2000/78/EC23 and
76/207/EEC24 concerning equal treatment of workers, which has been
the subject of a final judgement or a decision having equivalent effect,
may be considered an offence concerning the professional conduct of
the economic operator concerned or grave misconduct.
166 Public Procurement in the European Union

Article 45 of the Public Sector Directive deals with the personal situ-
ation of the candidate or tenderer. It provides that any candidate or
tenderer who has been the subject of a conviction by final judgement
of which the contracting authority is aware for one or more of the
reasons listed below, must be excluded from participation in a public
contract:

(a) participation in a criminal organisation, as defined in Article 2(1)

of Council Joint Action 98/733/JHA25;
(b) corruption, as defined in Article 3 of the Council Act of 26 May
199726 and Article 3(1) of Council Joint Action 98/742/JHA27
respectively;
(c) fraud within the meaning of Article 1 of the Convention relating
to the protection of the financial interests of the European
Communities28;
(d) money laundering, as defined in Article 1 of Council Directive
91/308/EEC of 10 June 1991 on prevention of the use of the financial
system for the purpose of money laundering.29

Member States must specify, in accordance with their national law and
having regard for Community law, the implementing conditions for this
paragraph. They may provide for derogation from the requirement
referred to in the first subparagraph for overriding requirements in the
general interest. For the purposes of this paragraph, the contracting
authorities must, where appropriate, ask candidates or tenderers to supply
the documents referred to in paragraph 3 and may, where they have
doubts concerning the personal situation of such candidates or tenderers,
also apply to the competent authorities to obtain any information they
consider necessary on the personal situation of the candidates or tender-
ers concerned. Where the information concerns a candidate or tenderer
established in a State other than that of the contracting authority, the
contracting authority may seek the cooperation of the competent author-
ities. Having regard for the national laws of the Member State where the
candidates or tenderers are established, such requests must relate to legal
and/or natural persons, including, if appropriate, company directors
and any person having powers of representation, decision or control in
respect of the candidate or tenderer.

The award criteria

Contracts should be awarded on the basis of objective criteria which en-
sure compliance with the principles of transparency, non-discrimination
 The New Public Procurement Regime 167

and equal treatment and which guarantee that tenders are assessed in
conditions of effective competition. As a result, it is appropriate to allow
the application of two award criteria only: “the lowest price” and “the
most economically advantageous tender”.
To ensure compliance with the principle of equal treatment in the
award of contracts, it is appropriate to lay down an obligation – estab-
lished by case-law – to ensure the necessary transparency to enable all
tenderers to be reasonably informed of the criteria and arrangements
which will be applied to identify the most economically advantageous
tender. It is therefore the responsibility of contracting authorities to
indicate the criteria for the award of the contract and the relative
weighting given to each of those criteria in sufficient time for tender-
ers to be aware of them when preparing their tenders. Contracting
authorities may derogate from indicating the weighting of the criteria
for the award in duly justified cases for which they must be able to
give reasons or where the weighting cannot be established in advance,
in particular on account of the complexity of the contract. In such
cases, they must indicate the descending order of importance of the
criteria. Where the contracting authorities choose to award a contract
to the most economically advantageous tender, they must assess the
tenders in order to determine which one offers the best value for
money. In order to do this, they must determine the economic and
quality criteria which, taken as a whole, must make it possible to
determine the most economically advantageous tender for the con-
tracting authority. The determination of these criteria depends on the
object of the contract since they must allow the level of performance
offered by each tender to be assessed in the light of the object of
the contract, as defined in the technical specifications and the value
for money of each tender to be measured. In order to guarantee equal
treatment, the criteria for the award of the contract should enable
tenders to be compared and assessed objectively. If these conditions
are fulfilled, economic and qualitative criteria for the award of the
contract, such as meeting environmental requirements, may enable
the contracting authority to meet the needs of the public concerned,
as expressed in the specifications of the contract. Under the same
conditions, a contracting authority may use criteria aiming to meet
social requirements in response to the needs of particularly disadvan-
taged groups. Such requirements must be defined in the specifications
of the contract and the disadvantaged groups concerned must be
those intended to receive the works, supplies or services which are the
object of the contract.
168 Public Procurement in the European Union

Exclusive rights in the utilities

The scope of existing Utilities Directive 98/38/EEC covers, at present,
certain contracts awarded by contracting entities operating in the
telecommunications sector. A legislative framework, as mentioned in
the Fourth report on the implementation of the telecommunications
regulations of 25 November 1998, has been adopted to open this
sector. One of its consequences has been the introduction of effective
competition, both de jure and de facto, in this sector. For information
purposes, and in the light of this situation, the Commission has pub-
lished a list of telecommunications services30 which may already be
excluded from the scope of that Directive by virtue of Article 8.
Further progress has been confirmed in the Seventh report on the
implementation of telecommunications regulations of 26 November
2001. The Commission considers that it is no longer necessary to
regulate purchases by entities operating in this sector.
On the other hand, Directive 93/38/EEC excludes from its scope pur-
chases of voice telephony, telex, mobile telephone, paging and satellite
services. Those exclusions were introduced to take account of the fact
that the services in question could frequently be provided only by one
service provider in a given geographical area because of the absence of
effective competition and the existence of special or exclusive rights.
The introduction of effective competition in the telecommunications
sector removes the justification for these exclusions. The Commission
has therefore included the procurement of such telecommunications
services in the scope of the new Utilities Directive.
The new Utilities Directive provides for an appropriate definition of
the concept of special or exclusive rights. As a consequence of the
definition, an entity may take advantage of a procedure for the expro-
priation or use of property or may place network equipment on, under
or over the public highway. In particular, for the purposes of construct-
ing networks or port or airport facilities, such activities will not in
themselves constitute exclusive or special rights within the meaning of
this Directive. Nor does the fact that an entity that supplies drinking
water, electricity, gas or heat to a network which is itself operated by
an entity enjoying special or exclusive rights granted by a competent
authority of the Member State concerned in itself, constitute an exclus-
ive or special right within the meaning of this Directive. Nor may rights
granted by a Member State in any form, including by way of acts of
concession, to a limited number of undertakings on the basis of objec-
tive, proportionate and non-discriminatory criteria that allow any inter-
ested party fulfilling those criteria to enjoy those rights, be considered
special or exclusive rights.
 The New Public Procurement Regime 169

Postal utilities
Taking into account the further opening up of Community postal ser-
vices to competition and the fact that such services are provided
through a network comprising contracting authorities, public under-
takings and other undertakings, the award of contracts by entities pro-
viding postal services should be subject to the rules of the new Utilities
Directive 2004/18/EC and aim at creating a framework for sound com-
mercial practice which allows for greater flexibility than is offered by
the existing Utilities Directive 93/38. For a definition of the activities
in question, it is necessary to take into account the definitions of
Directive 97/67/EC of the European Parliament and of the Council
of 15 December 1997 on common rules for the development of the
internal market of Community postal services and the improvement of
quality of service.31
Irrespective of their legal status, entities providing postal services are
not currently subject to the rules set out in Directive 93/38/EEC. The
adjustment of contract award procedures to this Directive could there-
fore take longer to implement for such entities than for entities already
subject to those rules which will merely have to adapt their procedures
to the amendments made by this Directive.

Competitive markets in utilities

The new Utilities Directive should not apply to markets where the par-
ticipants pursue an activity which is directly exposed to competition
on markets to which access is not limited within the relevant Member
State. The new Utilities Directive has therefore introduced a procedure,
applicable to all sectors covered by its provisions that will enable
the effects of current or future opening up to competition to be taken
into account. Such a procedure should provide legal certainty for the
entities concerned, as well as an appropriate decision making process,
ensuring, within short time limits, uniform application of Community
law in this area.
Direct exposure to competition should be assessed on the basis
of objective criteria, taking account of the specific characteristics of
the sector concerned. The implementation and application of appro-
priate Community legislation opening a given sector, or a part of it,
will be considered to provide sufficient grounds for assuming there is
free access to the market in question. Such appropriate legislation
should be identified in an annex which can be updated by the
Commission. When updating, the Commission takes into particular
account the possible adoption of measures entailing a genuine opening
up to competition of sectors other than those for which legislation is
170 Public Procurement in the European Union

already mentioned in Annex XI, such as that of railway transports.

Where free access to a given market does not result from the imple-
mentation of appropriate Community legislation, it should be demon-
strated that, de jure and de facto, such access is free. For this purpose,
the application by a Member State of Directive 94/22/EC, which opens
up a sector such as the coal sector to competition, is a condition to be
taken into account for the purposes of Article 30.
Article 30 of the new Utilities Directive provides for a procedure
for establishing whether a given activity is directly exposed to com-
petition. The question of whether an activity is directly exposed
to competition shall be decided on the basis of criteria that are in
conformity with the Treaty provisions on competition, such as the
characteristics of the goods or services concerned, the existence of
alternative goods or services, the prices and the actual or potential
presence of more than one supplier of the goods or services in ques-
tion. If free access to a given market cannot be presumed, it must be
demonstrated that access to the market in question is free de facto
and de jure.
When a Member State considers that access to the relevant market
activity is free, it must notify the Commission and provide all relevant
facts, and in particular of any law, regulation, administrative provision
or agreement, where appropriate together with the position adopted by
an independent national authority that is competent in relation to the
regulation of activity concerned. The Commission can issue a Decision
which verifies that the relevant activity is provided in a competitive
environment. Such verification is also presumed if the Commission has
not adopted a Decision concerning the inapplicability of the Utilities
Directive within a certain period.32

Part 2 Future developments

Public procurement and Public-Private Partnerships
In the context of its Strategy for the internal market 2003–200633, the
European Commission launched a Green Paper on Public-Private
Partnerships (PPPs) and Community law on public procurement and
concessions, in order to launch a debate on the best way to ensure that
PPPs can develop in a context of effective competition and legal clarity.
The publication of the Green Paper is also one of the actions planned
under the European Initiative for Growth34 and responds to certain
requests made in the course of the public consultation on the Green
Paper on services of general interest.35
 The New Public Procurement Regime 171

The Green Paper aims to demonstrate the extent to which Commun-

ity rules apply to the phase of selection of the private partner and to
the subsequent phase, with a view to identifying any uncertainties,
and to analyse the extent to which the Community framework is
suited to the imperatives and specific characteristics of PPPs. A wide
variety of instruments are available to make PPPs more open to compe-
tition in a transparent legal environment, i.e. legislative instruments,
interpretative communications, actions to improve the coordination of
national practice or the exchange of good practices between Member
States.
The Green Paper on Public-Private Partnerships and Community Law
on Public Contracts and Concessions36 has introduced the phenom-
enon of PPPs from the perspective of Community legislation on public
contracts and concessions. Community law does not lay down any
special rules covering the phenomenon of PPPs. It nonetheless remains
true that any act, whether it be contractual or unilateral, whereby a
public entity entrusts the provision of an economic activity to a third
party must be examined in the light of the rules and principles result-
ing from the Treaty, particularly as regards the principles of freedom of
establishment and freedom to provide services (Articles 43 and 49 of
the EC Treaty),37 which encompass in particular the principles of trans-
parency, equality of treatment, proportionality and mutual recogni-
tion.38 Moreover, detailed provisions apply in the cases covered by
the Directives relating to the coordination of procedures for the award
of public contracts.39 These Directives are thus “essentially aimed at
protecting the interests of traders established in a Member State who
wish to offer goods or services to contracting authorities established
in another Member State and, to that end, to avoid both the risk of
preference being given to national tenderers or applicants whenever a
contract is awarded by the contracting authorities and the possibility
that a body governed by public law may choose to be guided by con-
siderations other than economic ones.”40 However, the application of
the detailed provisions of these Directives is circumscribed by certain
assumptions and mainly concerns the award of contracts.
The rules applicable to the selection of a private partner derive firstly
from the definition of the contractual relationship which that party
enters into with a contracting body.41 Under Community secondary
legislation, any contract for pecuniary interest concluded in writing
between a contracting body and an operator, which have as their
object the execution of works, or provision of a service, is designated as
a “public works or public services contract”.
172 Public Procurement in the European Union

The concept of “concession” is defined as a contract of the same type

as a public contract except for the fact that the consideration for the
works to be carried out or the services to be provided consists either
solely in the right to exploit the construction or service, or in this right
together with payment. The assessment of the elements in these defini-
tions must, in the view of the Court, be made in such a way as to
ensure that the Directive is not deprived of practical effect.42 For
example, the formalism attached to the concept of contract under
national law cannot be advanced to deprive the Directives of their
practical effect. Similarly, the pecuniary nature of the contract in ques-
tion does not necessarily imply the direct payment of a price by
the public partner, but may derive from any other form of economic
consideration received by the private partner.
The contracts denoted as public works or public services contracts,
defined as having priority,43 are subject to the detailed provisions of
Community Directives. The concessions of so-called “non-priority”
works and public services contracts are governed only by some sparse
provisions of secondary legislation. Lastly, some projects, and in par-
ticular services concessions, fall completely outside the scope of sec-
ondary legislation. The same is true of any assignment awarded in the
form of a unilateral act.
The legislative framework governing the choice of private partner
has thus been the subject of Community coordination at several levels
and degrees of intensity, with a wide variety of approaches persisting at
national level, even though any project involving the award of tasks to
a third party is governed by a minimum base of principles deriving
from Articles 43 to 49 of the EC Treaty.
The European Commission has already taken initiatives under public
procurement law to deal with the PPP phenomenon. In 2000 it pub-
lished an Interpretive Communication on concessions and Commun-
ity public procurement law,44 in which it defined, on the basis of the
rules and principles derived from the Treaty and applicable secondary
legislation, the outlines of the concept of concession in Community
law and the obligations incumbent on the public authorities when
selecting the economic operators to whom the concessions are granted.
In addition, the new Directives of the European Parliament and the
Council designed to modernise and simplify the Community legis-
lative framework and to establish an innovative award procedure,
designed principally to meet the specific features of the award of
“particularly complex contracts” and thereby certain forms of PPPs.
This new procedure, designated as “competitive dialogue”, allows the
 The New Public Procurement Regime 173

public authorities to hold discussions with the applicant businesses in

order to identify the solutions best suited to their needs.
Although the Green Paper focuses on issues covered by the law
on public contracts and concessions, it should be noted that the
Commission has already adopted measures, in certain fields, designed
to remove barriers to PPPs. Thus, there has already been clarification of
the rules on the treatment in the national accounts of contracts
entered into by public entities under partnerships with private entities.
It is worth noting that the adoption of the statute for a European
company will facilitate trans-European PPPs.45

Revision of remedies in public procurement

The Remedies Directives 89/665 (review procedures/public supply and
public works contracts in traditional sectors) and 92/13 (review proced-
ures/public contracts in the water, energy, transport and telecommuni-
cations sectors) were designed to ensure effective implementation
of the Directives on public procurement procedures. The opening up of
public contracts to Community competition requires considerably
stronger guarantees of transparency and non-discrimination, the effect-
iveness of which depends in particular on effective, rapid remedies at
national level in the event of infringement of Community law on
public procurement or of national rules transposing that law.
It has emerged, however, that not all public authorities in the
Member States are implementing Community law on public procure-
ment procedures in a satisfactory manner. The fact that only a small
percentage of calls to tender are published (16.2 per cent for the
European Union in 2002) and that the figure varies appreciably from
one Member State to another, type of contracting authority and
sector of activity, shows that the Directives are not yet fully effective.
Clearly, it is not possible in this situation to take full advantage of
genuine competition between potential tenderers throughout the
Community.
Moreover, initial consultations launched by Commission depart-
ments with the Member States, economic operators and their repre-
sentatives have revealed that the operation of national review
procedures does not always make it possible to correct failures to
respect Community law on public procurement effectively or quickly.
It has also become apparent that the effectiveness of review mecha-
nisms in the public procurement field varies appreciably from one
Member State to another, which may discourage some economic
operators from tendering for public contracts.
174 Public Procurement in the European Union

The process of revising the Remedies Directives, which will not

be launched until the public procurement package is in force and the
process of consulting all the interested parties is complete, will provide
an opportunity to reassess and reinforce the effectiveness of the remedies
provided for in Directives 89/665 and 92/13, as and where necessary.
At this stage, the Commission feels that any amendments should
merely adapt and improve certain provisions of the Remedies Direct-
ives, without altering the philosophy and principles which underlie
them. For example, the principle of the Member States’ procedural
autonomy will not be called into question. Member States will, in
particular, retain the power to select a court, tribunal or independent
authority competent to hear challenges relating to Community law on
public procurement in accordance with their national law. However,
the unsatisfactory situation brought about mainly by the very hetero-
geneous operation of Member States’ national review procedures, and
recent developments in case-law, require clarification of, or greater
precision in the existing legislative framework, in order to ensure that
there are sanctions which are effective and proportionate and which
have a deterrent effect on infringements of Community law on public
procurement, especially the most serious infringements (direct award
of contracts without prior notification).
Adoption of the legislative package coordinating public procurement
procedures will require technical adjustments to the Remedies Direct-
ives, namely, references to the new Directives. Essentially, therefore,
the proposal to amend the Directives, if adopted by the Commission,
should clarify or strengthen the existing provisions.
7
Public-Private Partnerships

Introduction
From a constitutional point of view, the state is under an obligation to
provide a range of services to the public in the form of general infra-
structure, healthcare, education, housing, transport, energy, defence,
social security and policing to name a few. Traditionally, the state,
either in its own capacity or through delegated monopolies and pub-
licly controlled enterprises has engaged in market activities in order to
serve public interest.
The concept of the state encapsulates an entrepreneurial dimension
to the extent that it deploys wealth as policy instrument (dominium).1
However, although entering into transactions with a view to providing
goods, services and works to the public, this type of action by the state
does not resemble the commercial characteristics of entrepreneurship,
in as much as the aim of the state’s activities is not the maximisation
of profits2 but the observance of public interest.
Such participation by the state in the relevant market takes place
on behalf of the public and the society as a whole,3 and the whole
process has been described as corporatism.4 In fact, corporatism has
been seen as a market phenomenon which has created a specific
forum for the supply and demand sides. This forum is known as
public markets.5 Public markets, in contrast to private ones, are the
forum where public interest6 substitutes profit maximisation.7 Corpora-
tism has also revealed the dimension of the state as a service provider
to the public and that notion has always been linked with the pro-
curement and subsequent state-ownership of the relevant assets. As a
process of public sector management, corporatism has primarily been
delivered through competitive tendering in order to satisfy the needs
175
176 Public Procurement in the European Union

for accountability and transparency. Alongside the above objectives,

competitive tendering has also represented a procedural delivery
system for corporatism which has aimed, at least in principle, at
introducing a balanced equilibrium in the supply/demand public
procurement equation. Thus, the public and private sectors transact
through an institutionalised structure which aims at replicating
a regime of competition similar to that which exists in private
markets.8 Private markets are generally structured as a result of com-
petitive pressures originating in the buyer/supplier interaction and
their configuration can vary from monopoly/oligopoly to perfect
competition, whereas public markets reveal a different picture, their
structure being based upon a monopsony/oligopsony character.
Due to their different integral nature and structure, private and
public markets require different control and regulation. Whereas the
weaponry for the control of private markets is dominated by anti-trust
law and policy, public markets are fora where the structural and beha-
vioural remedial tools of competition law have limited applicability,
mainly due to the fact that anti-trust often clashes, ipso facto, with the
monopolistic structures which exist in public markets. The control
of private markets through anti-trust law and policy reveal a set of rules
of negative nature; contemporary anti-trust is ill-disposed towards
cartels and abuse of dominance, thus undertakings must restrain their
activities to an acceptable range which is pre-determined9 by the com-
petent authorities. On the other hand, public markets require a set of
regulatory rules that have positive character and the sort of regulation
envisaged aims at creating an appropriate environment which would
facilitate market access.10
Irrespective of the different control and regulation private and public
markets require, as a result of the difference in their integral nature and
structure, the rationale behind the process of regulating public markets
can be summarised as the attempt to establish an effectively com-
petitive regime, similar to that envisaged for the operation of private
markets.11 The accomplishment of such an objective could bring about
two types of beneficial effects for the supply/demand equation and
enhance the image of corporatism. On the one hand, competition
in public markets could benefit the supply side of the equation (the
industry), by means of optimal allocation of resources, rationalisation
of production and supply, promotion of mergers and acquisitions and
elimination of sub-optimal firms and creation of genuinely competitive
industries. On the other hand, corporatism operating through a genu-
inely competitive regime has been also deemed to yield substantial
purchasing savings for the public sector.12
 Public-Private Partnerships 177

The integration of the public sector management through a liber-

alised public procurement regime underpins the concept of corporat-
ism. The opening-up of traditional public procurement has envisaged
a competitive regime which would instigate the convergence of
prices for goods, works and services destined for the public sector.
Savings could materialise as a result of the elimination of preferential
purchasing patterns and discriminatory procurement decisions which
often tend to favour sub-optimal national champions at the expense of
competitive industries.

From corporatism to contractualised governance

If one accepts the fact that the introduction of elements of competi-
tion in public markets through competitive tendering would have
desirable effects for corporatism, a question which might arise is
to what extent private markets can be entrusted with the delivery
of public services, and, as a consequence, if the concept of corporatism
is compatible with them. As mentioned previously, private markets
operate under the laws of demand and supply and the private sector is
profit orientated. A first step from corporatism towards government by
contract appears to be the process of privatisation. Privatisation, as a
process of transfer of public assets and operations to private hands, on
grounds of market efficiency and competition, as well as responsive-
ness to customer demand and quality considerations is often accompa-
nied by simultaneous regulation by the state, in the form of a legal
framework within which privatised industries will pursue public inter-
est functions. It is not entirely clear if the process of privatisation
would reclaim public markets and transform them to private ones. One
should never underestimate the fact that the control of operations
related to public interest remains within the competence of the state in
the form of the regulatory regime, thus maintaining strong public
market characteristics. The extent to which the market freedom of a
privatised entity could be curtailed by regulatory frameworks deserves
a complex and thorough analysis, which exceeds by far the remit of
this article. However, it could be maintained that through the privati-
sation process, the previously clear-cut distinction between public and
private markets becomes blur, as a new market place emerges. This type
of market embraces strong public law elements to the extent that it is
regulated by the state with a view to observing public interest in the
relevant operations. The economic freedom and the risks associated
with such operations are also subject to regulation, a fact which
implies that the above regulatory framework incorporates more than
178 Public Procurement in the European Union

mere procedural rules. This market place reveals a transformation

from traditional corporatism to a public management system where
governance is dispersed through contract under terms and conditions
determined by the state.
Alongside privatisation, the notion of contracting out represents a
further departure from the premises of traditional corporatism. The
notion of contracting out is an exercise which aims at achieving poten-
tial savings and efficiency gains for contracting authorities, when they
test the market in an attempt to define whether the provision of works
or the delivery of services from a commercial operator could be cheaper
than that from the in-house team. Contracting out differs from privat-
isation to the extent that the former represents a transfer of undertak-
ing only, whereas the latter denotes transfer of ownership. Contracting
out depicts a price-discipline exercise by the state, against the principle
of insourcing, where, the self-sufficient nature of corporatism resulted in
budgetary inefficiencies and poor quality of deliverables to the public.
Contracting out uses competitive tendering, which is the procedural
mechanism for the delivery of corporatism as the trojan horse in an
attempt to maximise outsourcing in the delivery of public service.
Both the privatisation and contracting out processes resemble the
principle of outsourcing, which is often utilised in restructuring exercises
in the private sector. Outsourcing introduces elements of contractual-
isation in the production process, as sub-contracting takes over from
the in-house operation in the production chain. Government by con-
tract, along the same lines, introduces the principle of outsourcing in
the dispersement of public service, but the contractualised governance13
appears far more stringent than private sector outsourcing by virtue of
its regulation. Furthermore, apart from operational savings, outsourc-
ing in the private sector would normally spread the risk factor amongst
the operations in the production chain. If the sub-contractor cannot
deliver according to the expectations, the main operator can switch to
an alternative with no major implications. Outsourcing, therefore,
introduces an element of flexibility in the production process. It
remains to be seen whether contractualised governance or government
by contract conforms with the same parameters (savings, risk sharing,
flexibility) as private sector outsourcing.
The integral characteristics of privately financed projects reveal the
degree that the state and its organs are prepared to drift away from tra-
ditional corporatism14 towards contractualised governance. The degree of
departure from traditional corporatism also reflects the state’s percep-
tion vis-à-vis its responsibilities towards the public. A shift towards
 Public-Private Partnerships 179

contractualised governance would indicate the departure from the

assumption that the state embraces both roles of asset owner and
service deliverer. It should also insinuate the shrinkage of the state
and its organs and the need to define a range of core activities that are
not to be contractualised.15

Part 1 The emergence of the Private Finance Initiative

The Private Finance Initiative (PFI) represents a process of public sector
management which envisages the utilisation of private finances in the
delivery of public services and the provision of public infrastructure.
The PFI has arrived in times when the role and the responsibilities of
the state are being redefined and also has been seen as part of a process
of slimming the state down to a bare minimum of fiscal responsibilities
towards the public. The state then assumes a regulatory role in the
market place where the private sector is elevated to a service deliverer.
The principal benefit from such an exercise could be that the public
sector does not have to commit its own, often scarce, capital resources
in delivering public services. Other reasons put forward for involving
private finances in delivering public services include quality improve-
ment, innovation, management efficiency and effectiveness, elements
that are often underlying the private sector entrepreneurship. Conse-
quently, the public sector would receive value-for-money in the deliv-
ery of services to the public, whereas it can also be maintained that
through this process the state manages in a better way public finances,
to the extent that capital resources can be utilised in priority areas.
When the Private Finance Initiative was launched in 1992, it did not
receive the envisaged response from either the public or the private
sectors. The initial approach to privately financed projects by the public
sector represented a disguised tendering for their financing, and as such
it revealed a number of procedural and commercial inadequacies in the
whole process. Policy makers incorrectly assumed that the mere private
financing of projects could enhance their quality and value-for-money,
as well as transform the often ill-fated traditional public procurement
process into a supply chain system of advanced structure and entrepre-
neurial flair. The PFI was wrongfully conceived as a panacea for the
limitations of the traditional public procurement process,16 which was
blamed for inefficiencies and poor value-for-money.17
In principle, privately financed projects destined for the public sector
have been an option in the UK public procurement process since
the eighties, where the government, with great deal of caution, allowed
180 Public Procurement in the European Union

the conclusion of a limited number of contracts. The government

applied the so called Ryrie Rules in the process of allowing private
finances to be used in public projects, subject to two strict conditions.
The first one concerned the cost-effective nature of the privately
financed delivery in comparison with a publicly funded alternative. To
reach such a conclusion, contracting authorities should have estab-
lished a public sector comparator, whereby the privately financed
delivery model could be tested and compared against the traditional
publicly funded one. The second condition for the government to give
clearance for a privately financed project related to the compulsory
substitution of publicly funded schemes with privately funded ones. In
other words, private finances were conceived as an exclusive alterna-
tive method in delivering public services and not as a complementary
one.
Meeting the two conditions of the Ryrie Rules was not an easy exer-
cise for public authorities, particularly in attempting to establish the
cost-effective nature of a privately financed project versus a publicly
funded alternative and its value-for-money. Quite often the rationale
behind such comparisons was founded upon unsound grounds. For
example, in order to achieve a meaningful comparison, the two deliv-
ery models should be benchmarked against a set of variable parameters
(e.g. technical merit, quality of deliverables, aesthetic reasons, main-
tenance facilities, warranties, and last but not least, overall price). This
was not always the case, as the specifications of the project were firmly
predetermined from the outset by the public authority in question and
the pricing of the project evolved around them. Hence, the only vari-
able parameter to compare the two delivery models unfolded around
pricing. The procurement of privately financed projects was a disguised
tendering for their financing, and as such it was bound to have very
limited impact upon the procurement process. There was little chance
that the private sector could beat the privileged position governments
enjoy in the financial markets and raise the capital required to finance
a service or an infrastructure project in more preferable terms. Further-
more, the private sector would normally require extra levels of capital
return for the deferred payment facility that the public sector would
use for repayments during the life of the contract. In the light of the
above considerations, it is not a surprise that only a handful of pri-
vately financed projects were concluded, particularly complex projects
of massive scale and of multi-national dimension.
Against this background and bearing in mind the recently imposed
restraints on public expenditure, e.g. prudence in Public Sector
 Public-Private Partnerships 181

Borrowing Requirement (PSBR), EMU convergence criteria, the PFI

was given a new lease of life when the 1997 Labour Government
committed itself, in principle, to the concept and as a consequence,
public authorities in the United Kingdom have been required to
explore all potential ways of involving private finances in their public
procurement process prior to committing their own funds.
There are two broad categories under which privately financed pro-
jects can be classified. The first one covers the so-called financially free
standing ones, where it is expected that the private sector designs,
builds, finances and then operates an asset. The recovery of its costs is
guaranteed by direct charges on the users of the service which the par-
ticular asset provides. These projects are often described as concession
contracts, where the successful contractor is granted an exclusive right
over a period of time to exploit the asset that it has financed, designed
and built. The state and its authorities may also contribute, in financial
terms, to the repayments in order to render the project viable or the
service charge to the end users acceptable. The second category of pri-
vately financed projects embraces projects which have as their object
the provision of services by the private sector to the public, in conjunc-
tion with and subject to the relevant investment in assets that are
necessary to deliver the required service to the public. In such cases,
the private sector provider is reimbursed by a series of future payments
by the contracting authority, payments which depend upon the suc-
cessful delivery of those services in accordance with certain specified
quality standards.
Privately financed projects have two constituent elements which
are prerequisites for their completion: i) a genuine allocation of con-
tractual risk and ii) value-for-money for the public sector. The first
element represents the integral balance of contractual relationships.
Under traditional public procurement transactions, a widespread
assumption indicates that contractual relationships are based upon a
disproportionate risk allocation amongst the parties. Although in
traditional public procurement systems, the demand side appears
the dominant part in the equation, when it comes to risk allocation,
the roles appear reversed.18 Risk allocation is a much misunderstood
concept in contractual relationships in general, but particularly
in public purchasing transactions it has never been properly
addressed.19 Risk allocation is the result of negotiations between the
parties and is normally expected to reflect the pricing element of con-
tractual arrangements between them. Thus, risk and pricing operate
in an analogous relation within a contract. The more risk a party
182 Public Procurement in the European Union

assumes, the higher the price to be paid by the other party, and vice
versa.
In traditional public procurement transactions the demand side
inevitably undertakes too much risk, as a result of its practices.20 The
award of publicly funded contracts takes place predominately by refer-
ence to the lowest price, which constitutes one of the two permissible
award criteria under the procurement rules (the other being the cri-
terion of the most economically advantageous offer). When contracting
authorities award their contracts by reference to pricing, this would
normally reflect the amount of risk they are prepared to resume.21
There is not any golden rule as to what represents an acceptable risk
transfer in a contract, the latter being private or public, for risk alloca-
tion primarily reflects the parties’ perception of a transaction with
reference to their own criteria. These criteria are often influenced by a
range of parameters such as speculation, fear, certainty, as well as by
a number of qualitative attributes of the parties, e.g. sound forecast and
planning, market intelligence.
On the other hand, value-for-money as the second constituent ele-
ment of a privately financed project should reflect a benchmarked
comparison between public and privately financed models of service
delivery. The comparison should not only take into account factors
such as quality or technical merit, but mainly aspects of sound supply
chain management reflecting efficiency gains, in the sense that the
conclusion of a privately financed project would resemble to a large
extent a contractual arrangement between private parties. Value-
for-money as an element in a PFI deal is a precursor of best purchasing
practice by contracting authorities and also reflects the underlying
competitive elements which are necessary in order to meet the
accountability and transparency standards and principles.22

The intellectual origins of the Private Finance Initiative

The origins of the PFI can be traced in the attempts to moderate
the widespread dissatisfaction from traditional public procurement
methods. The nexus of contractual relations between public authorities
and the private sector has been often criticised for not giving the best
value-for-money. The criticism has been primarily directed towards
three elements of the process: i) adversarial contractual relations as a
result of compulsory competitive tendering, ii) inefficient risk alloca-
tion, and iii) poor contractual performances resulting in delayed and
over-budgeted completions.
 Public-Private Partnerships 183

Competitive tendering in public procurement has been reproached

for creating a confrontational environment, where the antagonising
relations which emanate from the tendering and contract award pro-
cesses are often reflected in the performance stage of the contract.
Public procurement procedures which are based upon a win-to-win
process have been deemed to deprive significant elements one can
expect in the delivery of public services. For example, competitive ten-
dering has been dissociated with innovation and quality. Also, as a
result of inefficiently written specifications upon which the tender
should be constructed, the deliverables often differ dramatically from
contractual expectations.
On the other hand, risk allocation is probably the most crucial ele-
ment in contractual relations that affects pricing as well as the overall
contractual framework. Risk represents the level of financial exposure of
a party prior to, after the conclusion of a contract or during its perfor-
mance. In traditional public procurement, the risk allocation tends to
favour the supply side, which mainly assumes the risks related to the
tendering process. During the performance stage of the contract and up
to its completion, the demand side could, usually, shift a considerable
amount of risk by requesting from the supply side performance or
defects bonds or other means of financial guarantees.
Finally, traditional procurement methods have often revealed a
picture of poor contracts management as a result of inefficient control
systems operated by public authorities. Poor contracts management
has resulted in abysmally out-of-control contractual performances with
all the financial consequences attributed to the delayed completion of
the projects.
Competitive tendering, amongst other things, has been deemed
responsible for cyclical demand structures in public purchasing, a sit-
uation where the supply side (the industry) responds to the demand
side (public authorities) through cycles of institutionalised bureau-
cracy (tender submission, selection, evaluation and contract award
processes). The demand side has institutionalised the procurement
process, by imposing a disciplinarian compartmentalisation of the
relevant processes (advertisement, expression of interest, selection,
qualification, tender, and contract award).
The institutionalisation of the procurement process intends to facilit-
ate the main objectives of the European public procurement rules: the
establishment of the principles of transparency and competitiveness
in the award of public contracts and the achievement of savings for
the public sector. The bureaucratic system which supports traditional
184 Public Procurement in the European Union

public procurement uses the effects of transparency as leverage for

value-for-money results. The fact that more suppliers are aware of a
forthcoming public contract and the fact that interesting suppliers
are aware that their rivals are informed about it, indicates two distinc-
tive parameters which are relevant to savings and value-for-money.
The first parameter focuses on value-for-money for the demand side
and reveals the possibility for contracting authorities to compare prices
and quality. The second parameter has an effect on the supply side of
the equation (the suppliers) which amongst other things cannot longer
rely on lack of price comparisons when serving the public sector.
Openness in public procurement, by definition, results in price compe-
tition and the benefits for contracting authorities appear achievable.
The institutionalised nature of the public procurement process also
reflects the relative balance of powers in the demand/supply equation.
However, the traditional public procurement process often suffers
from unnecessarily repetitive functions (in particularly the advertise-
ment, selection and qualification processes) which can be cost ineffect-
ive and pose a considerable financial burden on the demand side. In
addition, the institutionalised process of public procurement may pose
a question over long-term savings and value for money considerations.
Price competition, as a result of the awareness of forthcoming public
contracts, represents a rather static effect in the value for money
process. The fact that more and more interested suppliers are aware
and do submit tenders, in the long run, appears rather as a burden. If
transparency and the resulting price competitiveness are based on a
win-to-win process, the potential benefits for contracting authorities
could easily be counterbalanced by the administrative costs in tender
evaluation and replies to unsuccessful tenderers. Furthermore, the risk
management factor is much higher in a win-to-win purchasing sce-
nario. Price competitiveness represents also some threats for contract-
ing authorities, to the extent that quality of deliverables as well as the
delivery process itself could be jeopardised, if contracting authorities
deal with different and unknown contractors. It could thus be argued
here that price competitiveness, as a trade effect potentially beneficial
for the demand side of the public purchasing equation, has a static
character. It seems that it does not take into account medium or long-
term purchasing patterns, as well as counter effects of competition.
Two elements deserve further analysis here:
The first raises questions over the aggregate loss of the economy
through transparent competitive purchasing patterns. For example, if a
large number of interested suppliers submit their offer to a particular
 Public-Private Partnerships 185

contracting authority, two types of costs should be examined. Firstly,

the cost which is attributed to the response and tendering stage of the
procurement process. Human and capital resources are directed by
the suppliers towards the preparation of documents and the submis-
sion of the offers. If one of these suppliers wins the contract, the
remaining would have suffered an unrecoverable loss. If that aggregate
loss exceeds the benefit/saving accomplished by the contracting
authority by following transparent and competitive purchasing pat-
terns, value for money has not been achieved. Secondly, along the
same lines, the evaluation and selection process during tendering
represents a considerable administrative cost for the contracting
authorities. If the principle of transparency complements the principle
of equal treatment, contracting authorities should give the same atten-
tion to all interested suppliers that have submitted a response. Downs-
izing the list through evaluation and assessment based on stipulated
criteria is by no means an inexpensive exercise. Human and capital
resources have to be directed by contracting authorities towards
meeting that cost. If the latter exceeds the potential savings achieved
through the competitive tendering route, then value for money is
unaccomplished.
The second element that deserves attention relates to the definition
of price competitiveness in public purchasing, as well as its interrela-
tion with anti-trust law and policy. A question which arises in price
competitive tendering patterns is what would be the lowest offer contract-
ing authorities can accept. If the maximisation of savings is the only
achievable objective in the public procurement process, the transpar-
ent/competitive pattern cannot guarantee and evaluate safeguards in
relation to underpriced offers. If the supply side responds to the perpet-
uated competitive purchasing pattern by lowering prices, contracting
authorities could face a dilemma: where to stop. It should be men-
tioned here that the European rules provide for an automatic
disqualification of an “abnormally low offer”. The term has not been
interpreted in detail by the judiciary at European and domestic levels
and serves rather as a “lower bottom limit”.23 Also, when an offer
appears low, contracting authorities may request clarification from the
tenderer in question. Contracting authorities face a dilemma in evalu-
ating and assessing low offers other than abnormal ones. It is difficult
for them to identify dumping or predatory pricing disguised behind a
low offer for a public contract. In addition, even if there is an indica-
tion of anti-competitive price fixing, the European public procurement
rules do not provide for any kind of procedure. The suspension of the
186 Public Procurement in the European Union

award procedures (or even the suspension of the conclusion of the con-
tract itself) would be unlikely without a thorough and exhaustive
investigation by the competent anti-trust authorities.
Against this background, the PFI was originally construed as the
process that could bring the public and private sectors closer and break
the mistrust which has surrounded traditional public procurement.
The PFI should not be conceived as a capital facility to the state and its
organs in the process of delivering public services. It should not be
seen as a borrowing exercise by the public sector, as the latter can
acquire capital in much more preferential terms than any private
person. The PFI should be rather conceived as a process of involving
the private sector in the delivery of public services. As such, the PFI
attempts to introduce a contractual element in the delivery of public
services, to the extent that the private sector, as a contractual party
undertakes the responsibility to provide not only an asset but to
deliver its associated functions to the public. Therefore, the PFI has
contributed in changing the traditionally acquisitorial nature of public
sector contracts by inserting a service delivery element.
One of the most important attractions of the PFI has been the ability
of public authorities to classify the relevant transactions as exempted
from the Public Sector Borrowing Requirement (PSBR), thus by-passing
centrally controlled budgetary allocations and cash limits in the public
sector spending. In such a way, the PFI represented a viable solution to
cash-stranded public authorities, which could, independently, proceed
and strike deals that otherwise would not have materialised. Further-
more, the public spending relating to the repayments of the privately
financed transactions would not appear as public debt. By taking pri-
vately financed transactions out of the PSBR balance sheet, the govern-
ment may implicitly have attempted to liberalise public purchasing
from budgetary constraints and public spending capping. It could be
also argued that such an attempt could indicate the beginning of the
end to the institutionalised decision making process and control of
public procurement imposed under the European (and domestic)
public procurement regime.
The paramount implication of not classifying privately financed pro-
jects as public debt could be that such purchasing would not fall under
the annual comprehensive spending review of the government. In fact,
non-inclusion of PFI deals in the PSBR could transform the structure of
public markets24 by reversing the roles and the relative importance of
the demand and supply sides. Indeed, it was originally suggested25 that
the private sector should initiate demand by exploring the overall
 Public-Private Partnerships 187

potential and delivery options and then introduce the plan to the
relevant public authority. Such a scenario could also mean dismantling
of public markets and the elevation of private markets26 as the forum
for the pursuit of public interest. However, the practice not to include
PFI projects in the PSBR balance sheet and the assumption that the rel-
evant spending does not represent public debt were often described as
legal and policy acrobatisms.27

The procedural delivery of the Private Finance Initiative

The PFI is proclaimed28 to represent an evolution in the public sector
management and a step forward in achieving real value-for-money
in public purchasing. Numerous guidance notes have been issued by
government departments29 in an attempt to provide a framework for
smooth procedural delivery process. However, a number of difficult
issues arise when a privately financed contract is examined under
the spectrum of the European Public Procurement Directives.30 Not-
withstanding the fact that a PFI project is privately financed, it will
be paid by public funds, thus compliance with the European public
procurement rules is of paramount importance. It would be naive for
contracting authorities to ignore the spirit and the wording of the
Directives. It could also be embarrassing for them if litigation before
domestic courts or the European Court of Justice concerning the
award procedures of a privately financed project is initiated. Clearly,
there is a great deal of uncertainty in relation to the compatibility of
the European public procurement rules and the PFI. The situation
has not yet been clarified by the European Commission, which
seems to sit in the background waiting for the domestic government
to determine issues of compatibility.
It appears that two major issues in a privately financed project may
cause considerable friction between the European Commission and
contracting authorities. The first one relates to the contractual nature
of the privately financed transaction, when viewed through the spec-
trum of the European Public Procurement Directives. The second issue
is concerned with the process of contract award, and in particular the
type of procedures that contracting authorities may use in order to
conclude a private financed project.

The contractual nature of a PFI project

A privately financed project can be classified as a “public services
contract” or as a “public works contract” depending upon the nature
of the deliverables. It could also be considered as a “mixed contract”,
188 Public Procurement in the European Union

where both services and construction work are part of the project.
Finally, it can be characterised as a “concession contract”. The con-
tractual nature of a PFI project is crucial in its procedural delivery
and detrimental in complying with the relevant European procure-
ment rules, as it triggers the applicability of different Directives and
requirements stipulated therein.

The services/works dilemma

In order to classify a PFI project as public works or public services
contract, three significant factors should be taken into account.

i) the intention of the contracting authority

ii) the description of the contract’s specification and standardisation
iii) the issue of ownership of the asset to be privately financed

The intention of the contracting authority to procure a privately

financed project is the starting point in deciding whether the rele-
vant contract is a public works or services one. In many cases, con-
tracting authorities perceive a PFI project as the vehicle for the
provision of a service to the public. However, they do not distinguish
between the facilities provision and the provision of the necessary
infrastructure. Clearly, prior to any procedural steps towards the pro-
curement process, the contracting authority should have in place a
plan of action (establish business needs, appraise options, create busi-
ness case and project reference, evaluate market soundings, create
project team)31 which will determine whether the project is a works
or a services contract. To facilitate the contracting authority’s deci-
sion on the subject, reference to the definitions of works or services
contracts according to the relevant European Directives is crucial.32 It
is, therefore, up to the contracting authority to identify the generic
contractual nature of the project.
The extent to which the description of the contract’s specification
and standardisation requirements emerge from the contracting
authority’s intention to procure a privately financed project reflects
the disposition of the contracting authority towards the classifi-
cation of the project as a works or a services contract. Contracting
authorities must provide an accurate description of the contractual
specifications using non-discriminatory standards. The contractual
specifications are the competitive benchmark amongst the private
sector candidates/tenderers. Underspecification, which is normally
the case in PFI projects, raises serious questions over the contractual
 Public-Private Partnerships 189

nature of a privately financed project. Furthermore, apart form their

competitive benchmark use, specifications are the core part of the
contract itself. Underspecified PFI projects tend to appear as services
contracts, as the service element of the contract takes the predomi-
nant part in the equation. 33 Underspecification at the preliminary
level of the procurement process of a PFI project is usually rectified
by negotiating the specifications with the preferred bidder prior to
the conclusion of the contract. This sort of practice appears ques-
tionable in terms of its legality34 and the value-for-money aspect for
the contracting authority.35
The question of ownership of the asset to be privately financed also
plays a crucial role in determining the contractual nature of the pro-
ject. If the asset remains in the ownership of the contracting authority,
the objective of the contract is to finance, design, and build the asset.
This contractual nexus reveals in a large number of cases a works con-
tract. In cases where a service element (maintenance or operation) is
part of the contract, it represents an ancillary component which
should be looked at separately if it exceeds certain thresholds. On the
other hand, if the ownership of the asset which will be privately
financed is retained by the contractor, the objective of the contract is
to finance, design, build and operate the asset for a given period, with
or without an option to transfer it to the contracting authority at
the end of the contract. Such contractual arrangement often reveals a
services contract.
The consequences of the classification of a PFI project as a “public
services contract” or as a “public works contract” are reflected in the
advertisement and publicity requirements and the award procedures.
The financial threshold for advertisement and publicity requirements in
the OJEC for services contracts is considerably lower (200,000 EURO)
than the threshold of works contracts (5 million EURO). However,
certain public services contracts need not to be advertised Community-
wide.36 With reference to the award procedures, the utilisation of nego-
tiated procedures appears more flexible in public services contracts,
where their specification requirements cannot be set by the contracting
authority in advance.37 Nevertheless, this option is not available for
public works contracts.

The case of mixed contracts

Special attention is required in cases of “mixed contracts”, where works
and services are part of the project. The distinguishing factor here is
the “incidental purpose test”, where works or services are considered
190 Public Procurement in the European Union

incidental to the main objective of the contract.38 The concept of

incidental purpose was developed by the European Court of Justice in
the absence of specific and explicit rules in the Public Works Directive
regarding public projects where works and services form an integral
part of the contract.
However, in many PFI projects, both works and services are often
indistinguishable elements of the contract, in the sense that they form
a contractual package which cannot be split in a commercially viable
way. In such cases, the incidental purpose test provides little help. The
very fact that a public project is privately financed reveals an element
of a service to be provided to the contracting authority from the out-
set. The majority of privately financed contracts envisage management
and operational services in addition to the procurement of construc-
tion works. They are obviously a “mixed type” of public contracts;
however, their classification as public services or public works contracts
requires further elaboration. It appears rather difficult to decide the
incidental purpose of the works or the services involved in a PFI
project. Unfortunately, the ECJ did not clarify the constituencies of the
term “incidental”, so the contractual nature of a “mixed type” public
contract could be assessed. It has been suggested by the Court39 that
the value of the works or the services could be used as the decisive cri-
terion in describing a mixed public contract as a public services or
public works contract. However, in PFI projects the contractual ele-
ments of works and services are closely interdependent and their
pricing is mutually affected. Their potential split would result in an
artificial outcome, as the value of the works element without the
service element would not reflect commercially realistic figures.
The danger in classifying a mixed contract as a services contract
appears to be the potential contravention of the Public Works Direct-
ive. Even if the services contract is properly advertised and awarded
according to the relevant European Directive, its award could be
linked with the award of a works contract outside the framework of
the Works Directives. In many PFI projects the services element tends
to be overstressed. It then emerges that a privately financed public
service contract is a disguised public works contract. This appears as
an unsatisfactory outcome and such course of action by contracting
authorities is legally questionable before domestic courts or the ECJ.
In deciding the contractual nature of a PFI mixed type project, the
threshold test represents the safest option for contracting authorities,
when a realistic split of the contractual elements can be achieved. In
cases where the ownership of an asset is vested with the contractor, the
 Public-Private Partnerships 191

value of the operation and management element of the contract

should be counterbalanced with the residual value of the asset after a
certain period of time, when an option to transfer the asset to the
contracting authority is exercised. If the operation and management
(services) element exceeds the residual value of the asset (which repre-
sents the construction costs minus depreciation), there is a strong indi-
cation that the project is a public services contract. On the other hand,
when ownership of an asset remains with the contracting authority,
the value of the operation and management element of the contract
during its life should be compared with the construction costs, when
these are completed. Again, if the services element exceeds in value the
works element, the project is a services contract.

The case of concession contracts

The classification of a PFI project as a concession contract depends very
much upon the repayment method to the contractor by the contract-
ing authority. The definition of a public works concession contract under
the EU Procurement Directives covers an agreement between a contrac-
tor and a contracting authority concerning either the execution or
both the execution and design of a work and for which remunerative
considerations consist, at least partly, in the right of the concessionaire
to exploit exclusively the finished construction works for a period of
time.40 Public works concessions which are privately financed are often
financially free standing projects, where the contractor finances, designs,
builds and then operates an asset, and recovers its costs by direct
charges on the users of the service which the asset provides. There is
usually an option to transfer the asset to the contracting authority by
the end of the concession period or at break points during the life of
the concession.
The Public Works Directive has adopted a special, mitigated regime
for the award of concession contracts.41 The provisions of the Directive
only apply to concession contracts when the value is at least 5 million
EURO. There are no rules given as to the way in which the contract
value must be calculated. For the award of concession contracts, con-
tracting authorities must apply similar rules on advertising as the
advertising rules concerning open and restricted procedures for
the award of every works contract. Also, the provisions on technical
standards and on criteria for qualitative selection of candidates and
tenderers do apply to the award of concession contracts. The Directive
does not prescribe the use of specific award procedures for concession
contracts. The Directive presupposes that concession contracts should
192 Public Procurement in the European Union

be awarded in two rounds, such as in the case of restricted procedures

or negotiated procedures for ordinary works contracts. Nothing, how-
ever, prevents contracting authorities from applying a one-round open
procedure. The Directive contains no rules on the minimum number of
candidates which have to be invited to negotiate or to submit a tender.
It would seem that a contracting authority may limit itself to selecting
only one single candidate, provided the intention to award a conces-
sion contract has been adequately published. A contracting authority
may under no circumstances refrain from publicising a notice to the
Official Journal indicating its intention to proceed with the award of a
concession works contract.42
Contracting authorities awarding the principal concession contract
may impose contractual obligations upon the concessionaire to subcon-
tract at least 30 per cent of the total work provided for by the principal
contract to third parties. Such sub-contracting arrangements by the con-
cessionaire, even if they are not contracting authorities themselves,
should be pursued in accordance with the advertisement, selection and
qualification criteria and award procedures of public works contracts, if
their value exceeds 5 million EURO. Exceptions to this requirement apply
in a limited number of cases where negotiated procedures without prior
advertisement are allowed,43 and in the case of sub-contracting works to
affiliated undertakings44 of the concessionaire.
Interestingly, public service concessions, although included in the
draft Public Services Directive,45 have been excluded from its final and
as a consequence, their award falls outside the thrust of EU Public
Procurement rules. The exclusion of service concessions falls short of
the aspirations to regulate concession contracts for the public sector
under the Works Directive and breaks the consistency in the two legal
instruments. The reasons for the exclusion of service concessions from
the regulatory regime of public procurement could be attributed to the
different legal requirements in Member States to delegate powers to ser-
vices concessionaires. The delegation of services by public authorities to
private undertakings in some Member States runs contrary to their
constitutional provisions regarding state monopolies, public security
and defence matters.46
Concession contracts under European public procurement law
represent a grey area. Their regulation appears, prima facie, to be in-
compatible with the main principles of the liberalisation of public
procurement, but eventually the requirement imposed on concession-
aires to sub-contract principal contracts to third parties, at least up to
30 per cent of their total value, attempts to bring the whole regime in
 Public-Private Partnerships 193

conformity with the Community’s policy on the opening up of the

public sector contracts. However, the relaxed language of their regula-
tion cannot guarantee legal certainty. It is rather unfortunate that
private undertakings whose construction projects are subsidised from
the state by more than 50 per cent must comply with the Public
Procurement Directives,47 whereas concessionaires cannot be forced to
avoid discrimination on grounds of nationality when they contract out
construction work to third parties.

The award procedures for PFI

Public contracts can be awarded by virtue of three types of procedures:
open, negotiated or restricted procedures. Open procedures are those
where every interested supplier, contractor or service provider may
submit an offer. Restricted procedures are those procedures for the
award of public contracts whereby only those contractors invited by
the contracting authority may submit tenders. The selection of the
winning tender usually takes place in two rounds. In the first round, all
interested contractors may submit their interest and the contracting
authority selects, from the candidates, those who will be invited to
tender. In principle, the minimum number of candidates to be selected
is five. In the second round, bids are submitted and the successful
tender is selected. Negotiated procedures are procedures for the award
of public contracts whereby contracting authorities consult contractors
of their choice and negotiate the terms of the contract with one or
more of them. There are two types of negotiated procedures: i) negoti-
ated procedures with prior notification and ii) negotiated procedures
without prior notification. Negotiated procedures with prior notifica-
tion provide for selection of candidates in two rounds. In the first
round, all interested contractors may submit their tenders and the
contracting authority selects from the candidates, those who will be
invited to negotiate. In the second round, negotiations with various
candidates take place and the successful tender is selected. In principle,
the minimum number of candidates to be selected is three, provided
that there are a sufficient number of suitable candidates. Negotiated
procedures without prior notification may be conducted in one single
round. Contracting authorities are allowed to choose whichever con-
tractor they want, begin negotiations directly with this contractor and
award the contract to him. These procedures should be used only in
exceptional situations.
The Public Procurement Directives stipulate that open procedures,
where possible should constitute the norm. Although contracting
194 Public Procurement in the European Union

authorities can freely opt for open or restricted procedures, the latter
should be justified by reference to the nature of the products or ser-
vices to be procured and the balance between contract value and
administrative costs associated with tender evaluation. A more rigor-
ous set of conditions apply for the use of negotiated procedures.
When negotiated procedures with prior notification are used, they
must be justified on grounds of irregular or unacceptable tenders
received as a result of a previous call. Negotiated procedures without
prior notification are restrictively permitted in absence of tenders,
when the procurement involves manufactured products or construc-
tion works purely for research and development, when for technical
or artistic reasons or reasons connected with the protection of exclu-
sive rights a particular supplier or contractor is selected, in cases of
extreme urgency brought by unforeseeable events not attributable to
the contracting authorities, when additional deliveries and supplies
or works would cause disproportionate technical operational and
maintenance difficulties.
All negotiations with candidates or tenderers on fundamental aspects
of contracts, in particular on prices, are prohibited in open and re-
stricted procedures; discussions with candidates or tenderers may be
held, but only for the purpose of clarifying or supplementing the
content of their tenders or the requirements of the contracting author-
ities and provided this does not involve discriminatory practices.48 The
need for such a prohibition is clear, since the possibility to negotiate
may allow the contracting authority to introduce subjective appraisal
criteria. The European Court of Justice has condemned post tender
negotiations49 and a Declaration on the above subject has been made
by the European Council and the Commission of the European Com-
munities.50 It should be also clear that the selection process must be
completely distinguished from the award process. Quite often, con-
tracting authorities appear to fuse the two basic processes of the award
of public procurement contracts. This runs contrary to legal precedence
of the European Court of Justice.51
In contrast with the above background, when contracting authorities
award PFI projects classified as public works or public services contracts,
they have been urged to have recourse to negotiated procedures.52 The
official line adopted is that a privately financed project could meet all
the conditions imposed by the European public procurement rules for
allowing the negotiated procedures to be used in contract awards and
form a sort of precedence for future projects. Negotiated procedures for
public works and services contracts with prior notification shall be used
 Public-Private Partnerships 195

in the following cases: in the event of irregular tenders as a result of

open or restricted procedures; in cases that the works are carried out
purely for the purpose of research and development; in exceptional
cases where the nature of the service does not permit overall pricing; in
cases where the contract specification of the services to be procured is
not possible. On the other hand, negotiated procedures without prior
notification can be used in the following cases: in the absence of
tenders responding to open or restricted procedures; when for technical
or artistic reasons or reasons connected with the protection of exclusive
rights the services could only be procured by a particular contractor or
service provider; in cases of extreme urgency brought about by events
unforeseeable by the contracting authority; when design contests are
awarded provided the contracting authority negotiates with all particip-
ants; when additional services have to be awarded to a prior contract
which had not been foreseen at the time of its award and cannot be
separated from the main contract without great inconvenience to the
contracting authority and the additional works or services must not
exceed 50 per cent of the value of main contract; when repetitive or
similar services to a main contract are awarded within three years of its
award and subject to the main contract being awarded through either
open or restricted procedures.
It should be maintained here that the European Institutions never
looked favourably at the use of negotiated procedures by contracting
authorities. The European Court of Justice has always been very
reluctant in accepting the use of negotiated procedures, particularly
without prior advertisement.53 In a number of notable cases54 before
it relating to improper use of the award procedures, the Court has
maintained the exceptional character of negotiated procedures and
the extremely onerous obligation of contracting authorities to justify
them. In fact, in every case relating to the justification of the negoti-
ated procedures, the Court has condemned the relevant authorities
for breaching the European Procurement Directives. It might be
construed from the case-law of the Court of Justice that the particular
procedure stipulated by the rules requires some sort of clearance
prior to its utilisation. This is not however the case, as the only form
of official notification by contracting authorities when they use nego-
tiated procedures is a notice containing the reasons for having
recourse to such procedures and is communicated to the European
Commission after the award of the contract in question. This rather
reinforces the exceptional character of the negotiated procedures
rather than their prohibitive nature.
196 Public Procurement in the European Union

Publicity requirements
The European Public Procurement Directives have established a regime
which inter alia provides a mechanism for all the information needed
to the relevant parties or the public in relation to the award of public
contracts. Contracting authorities are under explicit obligation to
furnish timely a range of information on their own initiative55 or upon
request.56 This obligation is, in principle, extended to all PFI projects
that are awarded under the procurement rules. However, practice has
shown that very little information concerning the award of a PFI con-
tract sees the light of publicity, often being described as “commercially
confidential”. The onus is on the public authority to meet these public-
ity requirements, although the private sector appears extremely reluct-
ant in allowing vital information regarding contractual structures,
financial arrangements, technical specifications, pricing to be in the
public domain. Given the fact that a PFI project is substantially more
complicated than a conventional public procurement equivalent, the
argument of essential or confidential information being made public
appears a valid one.
The Freedom of Information Act in the United Kingdom has implica-
tions for the publicity of PFI contracts, implications which mirror the
obligations of contracting authorities stipulated in the Public Procure-
ment Directives. In particular, a statutory obligation to make public
certain information is proposed. This obligation covers information
relating to reasons for rejection or disqualification and pricing. The
appropriate publicity requirements will be included in the individual
contracts between public authorities and contractors. The above ob-
ligation is intended to apply to all government departments, local
authorities, the National Health Service, and all other public bodies,
while it will also be extended to the privatised utilities and private
organisations which perform public interest functions under contrac-
tual arrangements with the state. An exemption for confidentially
commercial information will apply, provided substantial harm to a
party can be demonstrated.

Part 2 The development of public-private partnerships at

European level
The term public-private partnership is not defined at European Union
level. Public-private partnerships denote a contractual format between
public authorities and private sector undertakings. Such relations aim
at delivering infrastructure projects, as well as many other schemes in
 Public-Private Partnerships 197

areas covering transport, public health, education, public safety, and

waste management and water distribution and have the following
characteristics: the relatively long duration of the relationship; the
funding source for the project; the strategic role of the private sector in
the sense that it is expected to provide input into different stages of the
project such as design, completion, implementation, and funding and
finally the distribution of risks between the public and private sectors
and the expectation that the private sector will assume substantial risk
Public authorities in the Member States often have recourse to public-
private partnership arrangements to facilitate mainly infrastructure
projects. Budget constraints confronting national governments and the
widespread assumption that private sector know-how will benefit the
delivery of public services appear as the main policy drivers57 for select-
ing a public-private partnership route. Also, the accounting treatment
of public-private partnership contracts benefits national governments as
the assets involved in a public-private partnership should be classified
as non-government assets, and therefore recorded off balance sheet
for public accountancy purposes,58 subject to two conditions: i) that the
private partner bears the construction risk, and ii) that the private
partner bears at least one of either availability or demand risk. However,
it is necessary to assess whether a public-private partnership option
offers real value added compared with the conclusion of traditional
public contracts.59
At European level, as part of the Initiative for Growth, the Council
has approved a series of measures designed to increase investment in
the infrastructure of the trans-European transport networks and also
in the areas of research, innovation and development,60 as well as the
delivery of services of general interest.61 European Community law
does not lay down any special rules covering the award or the con-
tractual interface of public-private partnerships. Nevertheless, such
arrangements must be examined in the light of the rules and princi-
ples resulting from the European Treaties, particularly as regards the
principles of freedom of establishment and freedom to provide
services (Articles 43 and 49 of the EC Treaty),62 which encompass in
particular the principles of transparency, equality of treatment, pro-
portionality and mutual recognition63 and the Public Procurement
Directives.64 The Commission has already taken initiatives under
public procurement law to deal with the award of public-private part-
nerships. In 2000 it published an Interpretive Communication on
concessions and Community public procurement law,65 in which it
defined, on the basis of the rules and principles derived from the
198 Public Procurement in the European Union

Treaty and applicable secondary legislation, the outlines of the con-

cept of concession in Community law and the obligations incumbent
on the public authorities when selecting the economic operators to
whom the concessions are granted.
The Green Paper on Public-Private Partnerships distinguishes two
major formats of public-private partnerships: the contractual formant,
also described as the concession model, and the institutional format
which is often described as the “joint-venture model”.

The contractual public-private partnership

The contractual model of a public-private partnership reflects on a rela-
tion between public and private sectors based solely on contractual
links. It involves different interfaces where tasks and responsibilities
can be assigned to the private partner, including the design, funding,
execution, renovation or exploitation of a work or service. In this cat-
egory, concession contracts and arrangements such as the private
finance initiative or arrangements of similar contractual nexus create
the link between public and private sectors.
There are few provisions of secondary legislation which coordinate
the procedures for the award of contracts designated as concession
contracts in Community law. In the case of works concessions, there
are only certain advertising obligations, intended to ensure prior
competition by interested operators, and an obligation regarding
the minimum time-limit for the receipt of applications.66 The contract-
ing authorities are free to decide how to select the private partner,
although in so doing they must nonetheless guarantee full compliance
with the principles and rules resulting from the Treaty. The rules gov-
erning the award of services concessions apply only by reference to the
principles resulting from Articles 43 and 49 of the Treaty, in particular
the principles of transparency, equality of treatment, proportionality
and mutual recognition.67
The Community law applicable to the award of concessions is
derived primarily from general obligations which involve no coordina-
tion of the legislation of Member States. In addition, and although the
Member States are free to do so, very few have opted to adopt national
laws to lay down general and detailed rules governing the award of
works or services concessions.68 Thus, the rules applicable to the selec-
tion of a concessionaire by a contracting body are, for the most part,
drawn up on a case-by-case basis. This situation may present problems
for Community operators. The lack of coordination of national legisla-
tion could in fact be an obstacle to the genuine opening up of such
 Public-Private Partnerships 199

projects in the Community, particularly when they are organised

at transnational level. The legal uncertainty linked to the absence of
clear and coordinated rules might in addition lead to an increase in the
costs of awarding such projects. Moreover, it could be argued that
the objectives of the internal market might not be achieved in certain
situations, owing to a lack of effective competition on the market.
On the other hand, the rules applicable to the award of public-
private partnerships in the format of a public works contracts or public
services contracts69 are contained in the Public Sector Directives,70
where a contracting authority must normally have recourse to the
open or restricted procedure to choose its private partner. By way of
exception, and under certain conditions, recourse to the negotiated
procedure is sometimes possible. In this context, the Commission has
pointed out that the derogation under Article 7(2) of Directive 93/37/
EEC, which provides for recourse to negotiated procedure in the case of
a contract when “the nature of the works or the risks attaching thereto
do not permit prior overall pricing”, is of limited scope. This deroga-
tion is to cover solely the exceptional situations in which there is
uncertainty a priori regarding the nature or scope of the work to be
carried out, but is not to cover situations in which the uncertainties
result from other causes, such as the difficulty of prior pricing owing to
the complexity of the legal and financial package put in place.71
Since the adoption of Directive 2004/18/EC, a new procedure
known as “competitive dialogue” may apply when awarding particu-
larly complex contracts.72 The competitive dialogue procedure is
launched in cases where the contracting body is objectively unable to
define the technical means that would best satisfy its needs and objec-
tives or in cases where it is objectively unable to define the legal
and/or financial form of a project. This new procedure will allow
the contracting bodies to open a dialogue with the candidates for the
purpose of identifying solutions capable of meeting these needs. At
the end of this dialogue, the candidates will be invited to submit their
final tender on the basis of the solution or solutions identified in the
course of the dialogue. These tenders must contain all the elements
required and necessary for the performance of the project. The con-
tracting authorities must assess the tenders on the basis of the pre-
stated award criteria. The tenderer who has submitted the most
economically advantageous tender may be asked to clarify aspects of it
or confirm commitments featured therein, provided this will not have
the effect of altering fundamental elements in the tender or invitation
to tender, or falsifying competition or of leading to discrimination.
200 Public Procurement in the European Union

The competitive dialogue procedure should provide the necessary

flexibility in the discussions with the candidates on all aspects of the
contract during the set-up phase, while ensuring that these discussions
are conducted in compliance with the principles of transparency and
equality of treatment, and do not endanger the rights which the Treaty
confers on economic operators. It is underpinned by the belief that
structured selection methods should be protected in all circumstances,
as these contribute to the objectivity and integrity of the procedure
leading to the selection of an operator. This in turn guarantees the
sound use of public funds and reduces the risk of practices that lack
transparency and strengthens the legal certainty necessary for such
projects. In addition, the new Directives make clear the benefit to con-
tracting authorities of formulating the technical specifications in terms
of either performance or functional requirements. New provisions will
thus give the contracting bodies more scope to take account of innov-
ative solutions during the award phase, irrespective of the procedure
adopted.73

The institutional public-private partnership

The joint venture model of public-private partnerships involves the
establishment of an entity held jointly by the public partner and
the private partner.74 The joint entity thus has the task of ensuring
the delivery of a work or service for the benefit of the public. Direct
interface between the public partner and the private partner in a forum
with a legal personality allows the public partner, through its presence
in the body of shareholders and in the decision-making bodies of the
joint entity, to retain a relatively high degree of control over the devel-
opment of the projects, which it can adapt over time in the light of
circumstances. It also allows the public partner to develop its own
experience of running the service in question, while having recourse to
the support of a private partner. An institutional public-private part-
nership can be put in place, either by creating an entity held jointly by
the public sector and the private sector, or by the private sector taking
control of an existing public undertaking.
The law on public contracts and concessions does not of itself apply
to the transaction creating a mixed-capital entity. However, when such
a transaction is accompanied by the award of tasks through an act
which can be designated as a public contract, or even a concession, it is
important that there be compliance with the rules and principles
arising from this law (the general principles of the Treaty or, in certain
cases, the provisions of the Directives).75 The selection of a private
 Public-Private Partnerships 201

partner called on to undertake such tasks while functioning as part of a

mixed entity can therefore not be based exclusively on the quality of
its capital contribution or its experience, but should also take account
of the characteristics of its offer – the most economically advantageous
– in terms of the specific services to be provided. Thus, in the absence
of clear and objective criteria allowing the contracting authority to
select the most economically advantageous offer, the capital trans-
action could constitute a breach of the law on public contracts and
concessions.
In this context, the transaction involving the creation of such an
entity does not generally present a problem in terms of the applicable
Community law when it constitutes a means of executing the task
entrusted under a contract to a private partner. However, the condi-
tions governing the creation of the entity must be clearly laid down
when issuing the call for competition for the tasks which one wishes to
entrust to the private partner. Also, these conditions must not discrim-
inate against or constitute an unjustified barrier to the freedom to
provide services or to freedom of establishment, or be disproportionate
to the desired objective.
However, in certain Member States, national legislation allows the
mixed entities, in which the participation by the public sector involves
the contracting body, to participate in a procedure for the award of a
public contract or concession even when these entities are only in
the course of being incorporated. In this scenario, the entity will be
definitively incorporated only after the contract has actually been
awarded to it. In other Member States, a practice has developed which
tends to confuse the phase of incorporating the entity and the phase of
allocating the tasks. Thus the purpose of the procedure launched by
the contracting authority is to create a mixed entity to which certain
tasks are entrusted.
Such a solution does not appear to offer satisfactory answers in
terms of the provisions applicable to public contracts and conces-
sions.76 In the first case, there is a risk that the effective competition
will be distorted by a privileged position of the company being incor-
porated, and consequently of the private partner participating in this
company. In the second case, the specific procedure for selecting the
private partner also poses many problems. The contracting authori-
ties encounter certain difficulties in defining the subject-matter of the
contract or concession in a sufficiently clear and precise manner in
this context, as they are obliged to do. The Commission has fre-
quently noted that the tasks entrusted to the partnership structure
202 Public Procurement in the European Union

are not clearly defined and that, in certain cases, they even fall
outside any contractual framework.
This in turn raises problems not only with regard to the principles of
transparency and equality of treatment, but even risks prejudicing the
general interest objectives which the public authority wishes to attain.
It is also evident that the lifetime of the created entity does not gener-
ally coincide with the duration of the contract or concession awarded,
and this appears to encourage the extension of the task entrusted to
this entity without a true competition at the time of this renewal.
In addition, it should be pointed out that the joint creation of such
entities must respect the principle of non-discrimination in respect of
nationality in general and the free circulation of capital in particular.77
Thus, for example, the public authorities cannot normally make their
position as shareholder in such an entity contingent on excessive
privileges which do not derive from a normal application of company
law.78
On the other hand, the creation of an institutional public-private
partnership may also lead to a change in the body of shareholders of a
public entity. In this context, it should first be emphasised that the
changeover of a company from the public sector to the private sector is
an economic and political decision which, as such, falls within the sole
competence of the Member States.79 Community law on public con-
tracts is not as such intended to apply to transactions involving simple
capital injections by an investor in an enterprise, whether this latter
be in the public or the private sector. Such transactions fall under the
scope of the provisions of the Treaty on the free movement of capital,80
implying in particular that the national measures regulating them
must not constitute barriers to investment from other Member States.81
Nevertheless, the provisions on freedom of establishment within the
meaning of Article 43 of the Treaty must be applied when a public
authority decides, by means of a capital transaction, to cede to a third
party a holding conferring a definite influence in a public entity pro-
viding economic services normally falling within the responsibility of
the State.82
When public authorities grant an economic operator a definite
influence in a business under a transaction involving a capital transfer,
and when this transaction has the effect of entrusting to this operator
tasks falling within the scope of the law on public contracts which had
been previously exercised, directly or indirectly, by the public author-
ities, the provisions on freedom of establishment require compliance
with the principles of transparency and equality of treatment, in order
 Public-Private Partnerships 203

to ensure that every potential operator has equal access to performing

those activities which had hitherto been reserved.
The phenomenon of public-private partnerships represents a genuine
attempt to introduce the concept of contractualised governance in
the delivery of public services. Although the public sector has always
depended upon traditional corporatism to disperse public services,
there is mounting evidence that the role and the involvement of the
state in the above process is under constant review. The private finance
initiative can be described as an institutionalised mechanism in
engaging the private sector in the delivery of public services, not only
through the financing but mainly through the operation of assets. The
private sector assumes a direct responsibility in serving the public
interest, as part of its contractual obligations vis-à-vis the public sector.
The motive and the intention behind such an approach focus on the
benefits which would follow as a result of the private sector’s involve-
ment in the delivery of public services. Efficiency gains, qualitative
improvement, innovation, value-for-money and flexibility appear as
the most important ones, whereas an overall better allocation of public
capital resources sums up the advantages of privately financed projects.
Both the private finance initiative and the phenomenon of public-
private partnerships do not alter the character of the contractual
relationship between the private and public sectors, for such a char-
acter is predominately determined by other factors attributed to
the legal order in question. The contractual relationship between the
private and public sectors is not merely determined by the fact that
one party to the agreement is a public authority, but mainly by ref-
erence to the appropriate forum for access to justice, or the relevant
remedial availability.83 Under both traditional corporatism and con-
tractualised governance, the contractual nexus between the private
and public sectors maintains the same characteristics which are
influenced by the disposition of the relevant legal and judicial
system. What the PFI does change is the thrust of that contractual
relationship. The integral nature of corporatism evolves around the
notion of public ownership of assets destined to serve public inter-
est. The PFI brings an end to the notion of public ownership and
instead introduces the concept of service delivery in the relevant
contractual relationship between private and public sectors. The
private sector is no longer a supplier to the public sector but rather a
partner through a concession. It seems that there is a quasi-agency
relationship between the private and public sectors, in the sense that
the former provides the relevant infrastructure and in fact delivers
204 Public Procurement in the European Union

public services on behalf of the latter. Where corporatism was always

delivered under considerable budgetary constraints, a fact that
reflects not only the relative balance of power between the demand
and supply sides and the risk allocation factor in their contractual
arrangements but mainly the adversarial environment and the com-
promised quality of the deliverables, contractualised governance
appears to prioritise the value-for-money principle, which has
primarily qualitative attributes.
Both corporatism and contractualised governance should be deliv-
ered through a system that guarantees accountability, openness and
competitiveness. Such a system for the delivery of public services is
encapsulated in the European public procurement regime, which
is expected to be the most appropriate delivery process for public-
private partnerships. Contractual award arrangements are entirely
covered by the Public Procurement Directives, which provide for a
disciplined, transparent and relatively swift system for the award of
public procurement contracts. 84 What remains is the development
of comprehensive guidelines for the deployment of private finances
in the delivery of public services 85 and the embedment of relevant
legislation86 that empowers public authorities to contractualise their
governance. The public-private partnership regime needs to benefit
from a simplification and standardisation process, so a kind of
routine similar to that reigning the award of traditional public
procurement contracts can assist the demand and supply sides in
delivering more privately financed deals. However, the relative
volume of public-private partnerships projects is not the critical
factor in determining its success. It is rather the value-for-money
element that is expected to crop up through the involvement of
private entrepreneurship in the delivery of public services.
Public-private partnerships as a concept-tool of public sector man-
agement have, in theory, a promising future. In reality, they should be
benchmarked against traditional publicly funded systems, both in
qualitative and quantitative terms. Only then one can assess with reas-
onable confidence their merits and impact upon the delivery of public
services.
8
The Procurement of Services of
General Interest

Introduction
The jurisprudence of the European Court of Justice has indicated
on numerous occasions that public procurement has a multi-faceted
dimension in assisting the process of the common market. In particu-
lar, the Court has demonstrated the pivotal position of public procure-
ment in the process of determining the parameters under which public
subsidies and state financing of public services constitute state aids. In
the centre of the debate regarding the relation between state aids and
the financing of services of general interest, within the broader remit of
the interplay of subsidies and public services, public procurement has
emerged as an essential component of state aids regulation.1 The
European Court of Justice has inferred that the existence of public
procurement, as a legal system and a procedural framework, verifies
conceptual links, creates compatibility safeguards and authenticates
established principles applicable in state aids regulation. Public
procurement in the common market not only does represent the pro-
cedural framework for the contractual interface between public and
private sectors,2 it also reflects on the character and nature of activities
of the state and its organs in pursuit of public interest.3 Public procure-
ment regulation has acquired legal, economic and policy dimensions,
as market integration and the fulfilment of treaty principles are
balanced with policy choices.4
The implications of the debate are important, not only because of
the necessity for a coherent application of state aids regulation in the
common market5 but also because of the need for a legal and policy
framework regarding the financing of services of general interest and
public service obligations by Member States. The significance of the
205
206 Public Procurement in the European Union

topic is reflected in the attempts of the European Council6 to provide

for a policy framework of greater predictability and increased legal
certainty in the application of the State aid rules to the funding of ser-
vices of general interest. The present article intends to define the con-
nection between public procurement and services of general interest
and to ascertain the parameters of interplay between public procure-
ment and state financing of public services within the regulatory
regime of state aids.

Part 1 The services of general interest under EU law

The EU Treaty does not include as a Community objective the provi-
sion or the organisation or the financing of services of general interest
and therefore does not assign specific and explicit powers to the Com-
munity in the area of services of general interest. Except for a sector-
specific reference in the area of transport,7 services of general economic
interest are referred to in Articles 16 and Article 86(2) of the EC Treaty.
Furthermore, according to the Charter of Fundamental Rights of the
European Union, the Union recognises and respects access to services
of general economic interest, in order to promote the social and
territorial cohesion of the Union.8
Although Article 16 EC confers responsibility upon the Community
and the Member States to ensure, each within their respective sphere of
competencies, that their policies enable services of general economic
interest to fulfil their missions, it does not provide the Community
with specific means of action. On the other hand, Article 86(2) EC
implicitly recognises the right of the Member States to assign specific
public service obligations to economic operators. It manifests a funda-
mental principle ensuring that services of general economic interest
can continue to be provided and developed in the common market.
Providers of services of general interest are exempted from application
of the Treaty rules only to the extent that any exemption is strictly
necessary to allow them to fulfil their mission to pursue activities of
general interest. Thus, such deviation from the Treaty rules is subject to
the principles of neutrality, freedom to define and proportionality.9
Therefore, in the event of conflict, the fulfilment of a public service
mission can effectively prevail over the application of Community
rules, including internal market and competition rules, subject to
the conditions foreseen in Article 86(2) EC. Consequently, the Treaty
protects the effective performance of a general interest task but not
necessarily the provider as such.
 The Procurement of Services of General Interest 207

The concept of services of general interest is a surrogate notion of the

term services of general economic interest found in Articles 16 and
86(2) of the EC Treaty. However, its remit is broader and covers both
market and non-market services which the public authorities regard as
being of general interest and subject them to specific public service
obligations. Within Community law and practice, the concept of ser-
vices of general interest refers to services of an economic nature10
which the Member States or the Community subject to specific public
service obligations in order to serve the general interest of the public. It
thus covers certain services provided by the big network industries
such as transport, postal services, energy and communications, but it
also extends to any other economic activity which is subjected to
public service obligations. The term public service obligations denotes
specific requirements that are imposed by public authorities on the
provider of the service in order to ensure that certain public interest
objectives are met, for instance, in the matter of air, rail and road
transport and energy. The application of such obligations can be at
Community, national or regional level.
The economic nature of services of general interest is reflected in the
Community’s attempts to achieve a gradual opening of the markets for
large network industries such as telecommunications, postal services,
electricity, gas and transport in which services of general economic
interest can be provided. The Community has adopted a comprehens-
ive regulatory framework for these services which specifies public
service obligations at European level and includes aspects such as uni-
versal service, consumer and user rights and health and safety con-
cerns. These industries have a clear Community-wide dimension and
present a strong case for developing a concept of European general
interest, as well as a concept of services which pursue Community-
wide public interest. This debate is also reflected and explicitly re-
cognised in Title XV of the EU Treaty, which gives the Community
specific responsibility for trans-European networks in the areas of
transport, telecommunications and energy infrastructure, with the dual
objective of improving the smooth functioning of the internal market
and strengthening social and economic cohesion. However, there are
services of general interests which are not subject to a comprehensive
regulatory regime at Community level, such as waste management,
water supply and public service broadcasting. The provision of these
services of general interest is subject to the internal market, competi-
tion and State aid rules, provided that these services can affect trade
between Member States, and also lex specialis regimes.11
208 Public Procurement in the European Union

The services of general interest through public procurement

The application of public procurement rules, apart from the objective
to integrate intra-community public sector trade, has served as a yard-
stick to determine the nature of an undertaking in its contractual inter-
face when delivering public services. Public procurement regulation
has prompted the recognition of a distinctive category of markets
within the common market, often described as public markets.12 Public
markets are such fora where the state and its organs would enter in
pursuit of public interest.13 Their respective activity does not resemble
the commercial characteristics of private entrepreneurship, in as much
as the aim of the public sector is not the maximisation of profits but
the serving of public interest.14 This substitution of public interest for
profit maximisation is the fundamental factor for the creation of public
markets.15
There are further variances that distinguish public from private
markets. These focus on structural elements of the market place, com-
petitiveness, demand conditions, supply conditions, the production
process, and finally pricing and risk. These variances also indicate dif-
ferent methods and approaches employed in the regulation of public
markets.16 Public markets tend to have monopsony structures (the
state and its organs often appear as the sole outlet for an industry’s
output) and function differently from private markets. In terms of its
origins, demand in public markets is institutionalised and operates
mainly under budgetary considerations rather than price mechanisms.
It is also based on fulfilment of tasks (pursuit of public interest) and it
is single for many products. Supply also has limited origins. Close ties
exist between the public sector and its industries supplying its needs
and there is often a limited product range. Products are rarely innov-
ative and technologically advanced and pricing is determined through
tendering and negotiations. The purchasing decision is primarily
based upon the life-time cycle, reliability, price and political con-
siderations. Purchasing patterns follow tendering and negotiations
and often purchases are dictated by policy rather than price/quality
considerations.
Within the remit of public markets, the funding of services of gen-
eral interest by the state may emerge through different formats, such
as the payment of remuneration for services under a public contract,
the payment of annual subsidies, preferential fiscal treatment or lower
social contributions. However, the most common format is the exist-
ence of a contractual relation between the state and the undertaking
charged to deliver public services. The above contractual relation
 The Procurement of Services of General Interest 209

should, under normal circumstances emerge through the public

procurement framework, not only as an indication of market compet-
itiveness but mainly as a demonstration of the nature of the deliver-
able services as services of “general interest having non industrial or
commercial character”. The latter description appears as a necessary
condition for the applicability of the public procurement regime.

The non-commercial character of services of general interest have

For the public procurement regime to apply in a contractual interface
between public and private sectors, the contracting authority must be
the state or an emanation of the state, and in particular, a body governed
by public law. The above category is subject to a set of cumulative cri-
teria,17 inter alia “it must be established for the specific purpose of
meeting needs in the general public interest not having an industrial
or commercial character”.
The criterion of specific establishment of an entity to meet needs in
the general interest having non-commercial or industrial character has
been the subject of the Court’s attention in some landmark cases.18 In
order to define the term needs in the general interest, the Court drew its
experience from jurisprudence in the public undertakings field as well
as case-law relating to public order.19 The Court approached the above
concept by a direct analogy to the concept of “general economic inter-
est”, as defined in Article 90(2) EC.20 The concept “general interest”,
under the public procurement regime denotes the requirements of a
community (local or national) in its entirety, which should not overlap
with the specific or exclusive interest of a clearly determined person or
group of persons.21 Moreover, the requirement of the specificity of the
establishment of the body in question was approached by reference to
the reasons and the objectives behind its establishment. Specificity of
the purpose of an establishment does not mean exclusivity, in the
sense that other types of activities may also be carried out without
the entity escaping classification as a body governed by public law.22
On the other hand, the requirement of non-commercial or industrial
character of needs in the general interest has raised some difficulties.
The Court interpreting the meaning of non-commercial or industrial
undertakings had recourse to case-law relating to public undertakings,
where the nature of industrial and commercial activities of private or
public undertakings was defined.23 The industrial or commercial char-
acter of an organisation depends much upon a number of criteria that
reveal the thrust behind the organisation’s participation in the relevant
market. The state and its organs may act either by exercising public
210 Public Procurement in the European Union

powers or by carrying out economic activities of an industrial or com-

mercial nature by offering goods and services on the market. The key
factor appears in the organisation’s intention to achieve profitability
and pursue its objectives through a spectrum of commercially motiv-
ated decisions. The distinction between the range of activities which
relate to public authority and those which, although carried out by
public persons, fall within the private domain is drawn most clearly
from case-law and judicial precedence of the Court concerning the
applicability of competition rules of the Treaty to the given activities.24
The non-commercial or industrial character of an activity is a strong
indication of the existence of a general interest activity. The Court in
BFI25 had the opportunity to consider the relationship between bodies
governed by public law and the pursuit of activities of general interest
having non-industrial or commercial nature. The non-commercial or
industrial character is a criterion intended to clarify the term needs in
the general interest. In fact, it is regarded as a category of needs
of general interest. The Court recognised that there might be needs of
general interest, that have an industrial and commercial character and
also that private undertakings can meet needs of general interest that
do not have industrial and commercial character. However, the acid
test for needs in the general interest not having an industrial or com-
mercial character is that, the state or other contracting authorities
choose themselves to meet these needs or to have a decisive influence
over their provision.
If an activity which meets general needs is pursued in a competitive
environment, there is a strong indication that the pursuing entity it is
not a body governed by public law.26 In the Agora case the Court indic-
ated that the relationship between competitiveness and commerciality
has significant implications on the relevant activity which meets needs
of general interest. Market forces reveal the commercial or industrial
character of an activity, irrespective of whether the latter meets the
needs of general interest. However, market competitiveness as well as
profitability cannot be absolute determining factors for the commercial
or the industrial nature of an activity, as they are not sufficient to
exclude the possibility that a body governed by public law may choose
to be guided by considerations other than economic ones. The absence
of competition is not a condition necessarily to be taken into account
in order to define a body governed by public law, although the exist-
ence of significant competition in the market place may be indicative
of the absence of a need in the general interest which does not carry
commercial or industrial elements. The Court reached this conclusion
 The Procurement of Services of General Interest 211

by analysing the nature of the bodies governed by public law con-

tained in Annex 1 of the Works Directive 93/37 and verifying that the
intention of the state in establishing such bodies has been to retain
decisive influence over the provision of the needs in question.
Commerciality and its relationship with needs in the general interest
is perhaps the most important theme that has emerged from the
Court’s jurisprudence and is highly relevant to the debate concerning
the relationship between services of general interest and the organisa-
tions which pursue them. In fact the above theme sets out to explore
the interface between profit-making and public interest, as features
that underpin the activities of bodies governed by public law. Certain
activities, which by their nature fall within the fundamental tasks of
the public authorities, cannot be subject to a requirement of profit-
ability and therefore are not meant to generate profits. It is possible,
therefore, to attribute the distinction between bodies whose activity is
subject to the public procurement legislation and other bodies, to the
fact that the criterion of “needs in the general interest not having an
industrial or commercial character” indicates the lack of competitive
forces in the relevant marketplace. Although the state as entrepreneur
enters into transactions with a view to providing goods, services and
works for the public, to the extent that it exercises dominium, these
activities do not resemble the characteristics of entrepreneurship, in as
much as the aim of the state’s activities is not the maximisation of
profits but the observance of public interest. Public markets are the fora
where public interest substitutes profit maximisation.27

Services of general interest and contracting authorities

The dual capacity of an entity as a public service provider and a com-
mercial undertaking, and the weighting of the relevant activity in rela-
tion to the proportion of its output, should be the decisive factor
in determining whether an entity is a body governed by public law for
the purposes of the public procurement regime. This argument
appeared for the first time before the Court in the Strohal28 case. Its was
suggested that only if the activities in pursuit of the “public services
obligations” of an entity supersede its commercial thrust, the latter
could be considered as a body covered by public law and a contracting
authority.29
In practice, the argument put forward implied a selective application
of the Public Procurement Directives in the event of dual capacity
entities. This sort of application is not entirely unjustified as, on a
number of occasions,30 the Public Procurement Directives themselves
212 Public Procurement in the European Union

utilise thresholds or proportions considerations in order to include or

exclude certain contracts from their ambit. However, the Court ruled
out a selective application of the Directives in the case of dual capacity
contracting authorities, based on the principle of legal certainty. It sub-
stantiated its position with the fact that only the purpose for which an
entity is established is relevant in order to classify it as body governed
by public law and not the division between public and private activit-
ies. The pursuit of commercial activities by contracting authorities
blends in compatibly with their aims and objectives to pursue public
interest, without the need for any weighting attached to such activities
in order to determine the nature of the contracting authorities. Thus,
contracts awarded in pursuit of commercial purposes fall under the
remit of the Public Procurement Directives. The Court recognised the
fact that by extending the application of public procurement rules to
activities of a purely industrial or commercial character, an onerous
constraint would probably be imposed upon the relevant contracting
authorities. This may also seem unjustified on the grounds that public
procurement law, in principle, does not apply to private bodies, which
carry out identical activities.31 The above situation represents a consid-
erable disadvantage in delineating the distinction between private and
public sector activities and their regulation, if the only factor appears
to be the nature of the organisation in question. The Court suggested
that that disadvantage could be avoided by selecting the appropriate
legal instrument for the objectives pursued by public authorities.
As the reasons for the creation of a body governed by public law would
determine the legal framework which would apply to its contractual
relations, those responsible for establishing it must restrict its thrust
in order to avoid the undesirable effects of that legal framework on
activities outside its scope.
The Court in Strohal established dualism, to the extent that it
specifically implied that contracting authorities may pursue a dual
range of activities; to procure goods, works and services destined for
the public, as well as participate in commercial activities. Thus they
can clearly pursue other activities in addition to those which meet
needs of general interest not having an industrial and commercial
character. The proportion of activities pursued by an entity which aims
to meet needs of general interest not having an industrial or commer-
cial character and commercial activities is irrelevant for the character-
isation of that entity as a body governed by public law. What is
relevant is the intention of establishment of the entity in question,
which reflects on the “specificity” requirement of meeting needs of
 The Procurement of Services of General Interest 213

general interest. Also, specificity does not mean exclusivity of purpose.

Instead, specificity indicates the intention of establishment to meet
general needs. Along these lines, ownership or financing of an entity
by a contracting authority does not guarantee the condition of estab-
lishment of that entity to meet needs of general interest not having
industrial and commercial character.
The dual capacity of contracting authorities is irrelevant to the
applicability of public procurement rules. If an entity is a contracting
authority, it must apply public procurement rules irrespective of the
pursuit of general interest needs or the pursuit of commercial activities.
Also, if a contracting authority assigns the rights and obligations of a
public contract to an entity, which is not a contracting authority, that
entity must follow public procurement rules. The contrary would be
acceptable only if the contract fell within the remit of the entity,
which is not a contracting authority, and the contract was entered into
on its behalf by a contracting authority.

Links between contracting authorities and private undertakings

Contractual and legal or regulatory links between the state and con-
tracting authorities and also between the state and private undertak-
ings expose the inadequacy of the public procurement framework.
Such links dilute the concept of contracting authorities, which is essen-
tial to the applicability of the public procurement framework, to a
degree that the provisions could not apply. Under the domestic laws of
the Member States of the European Union, there are few restrictions
which could prevent contracting authorities from acquiring private
undertakings in an attempt to participate in market activities. The
Public Procurement Directives have not envisaged such a scenario,
where the avoidance of the rules could be justified on the fact that the
entities which award the relevant contracts cannot be classified as
contracting authorities within the meaning of the Directives. As a con-
sequence, there is a considerable risk in circumventing the Public
Procurement Directives if contracting authorities award their public
contracts via private undertakings under their control, which cannot
be covered by the framework of the Directives.
The Court, prior to the Strohal case, did not have the opportunity to
examine such corporate relationships between the public and private
sectors and the effect that public procurement law has upon them.
Even in Strohal, the Court did not rule directly on the subject, but
instead it provided the necessary inferences for national courts, in
order to ascertain whether such relations between public and private
214 Public Procurement in the European Union

undertakings have the aim or the result of avoiding the application

of the Public Procurement Directives. Indeed, national courts of the
Member States, when confronted with relevant litigation, must estab-
lish in concreto whether a contracting authority has established an
undertaking in order to enter into contracts for the sole purpose of
avoiding the requirements specified in public procurement law. Such
conclusions must be beyond doubt based on the examination of the
actual purpose for which the undertaking in question has been estab-
lished. The rule of thumb appears to be the connection between the
nature of a project and the aims and objectives of the undertaking
which awards it. If the realisation of a project does not contribute to
the aims and objectives of an undertaking, then it is assumed that the
project in question is awarded “on behalf” of another undertaking, and
if the latter beneficiary is a contracting authority under the framework
of public procurement law, then the relevant Directives should apply.
The Court applied the Strohal principles to Teckal,32 where it con-
cluded that the exercise, by a contracting authority, of control over
the management of an entity similar to that exercised over the man-
agement of its own departments prevents the applicability of the
Directives. The Teckal judgement revealed also the importance of
the dependency test between contracting authorities and private
undertakings. Dependency, in terms of overall control of an entity by
the state or another contracting authority presupposes a control
similar to that which the state or another contracting authority exer-
cises over its own departments. The “similarity” of control denotes
lack of independence with regard to decision-making.
One of the criteria stipulated in the Public Procurement Directives for
the existence of bodies governed by public law as contracting authori-
ties is that they must be financed, for the most part, by either the state,
regional or local authorities, or other bodies governed by public law; or
subject to management supervision by these bodies, or having an
administrative or supervisory board, more than half of whose members
are appointed by the state, regional or local authorities or by other
bodies governed by public law. To assess the existence of the above cri-
terion of bodies governed by public law, the Court assumed that there is
a close dependency of these bodies on the State, in terms of corporate
governance, management supervision and financing.33 These depen-
dency features are alternative (in contrast to being cumulative), thus the
existence of one satisfies the criterion. The Court held in OPAC34 that
management supervision by the state or other contracting authorities
entails not only administrative verification of legality or appropriate use
 The Procurement of Services of General Interest 215

of funds or exceptional control measures, but the conferring of signifi-

cant influence over management policy, such as the narrowly circum-
scribed remit of activities, the supervision of compliance, as well as the
overall administrative supervision. Of interest and high relevance is
the Court’s analysis and argumentation relating to the requirements of
management supervision by the state and other public bodies, where it
maintained that entities entrusted to provide social housing in France
are deemed to be bodies governed by public law, thus covered by the
Public Procurement Directives. The Court (and the Advocate General)
drew an analogy amongst the dependency features of bodies governed
by public law on the state. Although the corporate governance and
financing feature are quantitative (the state must appoint more than
half of the members of the managerial or supervisory board or it must
finance for the most part the entity in question), the exercise of man-
agement supervision is a qualitative one. The Court held that manage-
ment supervision by the state denotes dependency ties similar to the
financing or governance control of the entity concerned.
Receiving public funds from the state or a contracting authority is an
indication that an entity could be a body governed by public law.
However, this indication is not an absolute one. The Court, in the
University of Cambridge case35 was asked whether i) awards or grants
paid by one or more contracting authorities for the support of research
work; ii) consideration paid by one or more contracting authorities
for the supply of services comprising research work; iii) consideration
paid by one or more contracting authorities for the supply of other
services, such as consultancy or the organisation of conferences; and
iv) student grants paid by local education authorities to universities in
respect of tuition for named students constitute public financing for
the University.
The Court held that only specific payments made to an entity by
the state of other public authorities have the effect of creating or
reinforcing a specific relationship or subordination and dependency.
The funding of an entity within a framework of general considera-
tions indicates that the entity has close dependency links with the
state of other contracting authorities. Thus, funding received in
the form of grants or awards paid by the state or other contracting
authorities, as well as in the form of student grants for tuition fees for
named students, constitutes public financing. The rationale for such
approach lies in the lack of any contractual consideration between
the entity receiving the funding and the state or other contracting
authorities which provide it in the context of the entity’s public
216 Public Procurement in the European Union

interest activities. The Court drew an analogy of public financing

received by an entity with the receipt of subsidies.36 However, if there
is a specific consideration for the state to finance an entity, such as a
contractual nexus, the Court suggested that the dependency ties are
not sufficiently close to merit the entity financed by the state
meeting the third criterion of the term bodies governed by public
law. Such a relationship is analogous to the dependency that exists in
normal commercial relations formed by reciprocal contracts, which
have been negotiated freely between the parties. Therefore, funding
received by Cambridge University for the supply of services for
research work, or consultancies, or conference organisation cannot be
deemed as public financing. The existence of a contract between the
parties, apart from the specific considerations for funding, indicates
strongly supply substitutability, in the sense that the entity receiving
the funding faces competition in the relevant markets. The Court
stipulated that the proportion of public finances received by an
entity, as one of the alternative features of the dependency criterion of
the term bodies governed by public law must exceed 50 per cent
to enable it meeting that criterion. For assessment purposes of this
feature, there must be an annual evaluation of the (financial) status
of an entity for the purposes of being regarded as a contracting
authority.

Procurement, contractualised governance and services of general

interest
The above inferences from the Court, which point out themes that
have emerged within the public sector management such as commer-
cialism and public services, dualism and dependency, prompt the start
of an important debate relevant to the main thesis of this article:
the nature of governance in delivering (and financing) public services.
The dramatic change in the relationship between public and private
sectors, the perceptions of the public toward the dispersement of
public services, as well as new forms of governance emanating through
the privatisation process have witnessed an era of contractualised
governance in the delivery of public services.
Whereas, traditional corporatism mapped the dimension of the state
as a service provider and asset owner, with public procurement as the
verification process of public law norms37 such accountability, probity
and transparency, it failed to mimic the competitive structure of
private markets. Corporatism allowed the creation of marchés publics,
sui generis markets where competitive tendering attempted to satisfy
 The Procurement of Services of General Interest 217

public law norms and introduce a balanced equilibrium in the supply/

demand equation.38 A first step away from corporatism towards gov-
ernment by contract appears to be the process of privatisation.39
Privatisation, as a process of transfer of public assets and operations to
private hands, on grounds of market efficiency and competition, as
well as responsiveness to customer demand and quality considera-
tions, is often accompanied by simultaneous regulation. It is not
entirely clear whether privatisation has reclaimed public markets and
transformed them to private ones. The extent to which the market
freedom of a privatised entity could be curtailed by regulatory frame-
works deserves a complex and thorough analysis, which exceeds by far
the remit of this article. However, it could be maintained that through
the privatisation process, the previously clear-cut distinction between
public and private markets becomes blur. However, there is strong
evidence of public law elements in the relations between public and
private sectors, to the extent that regulation is the dominant feature
of such relations in order to observe public interest in the relevant
operations. The economic freedom and the risks associated with such
operations are also subject to regulation, a fact which implies that any
regulatory framework incorporates more than procedural rules.
In various jurisdictions within the common market, the socio-
economic climate is very much in favour towards public–private sector
partnerships, in the form of joint ventures or in the form of private
financing of public projects.40 Member States increasingly use public-
private schemes, including design-build-finance-operate contracts, con-
cessions and the creation of mixed-economy companies to ensure the
delivery of infrastructure projects or services of general interest. How-
ever, it would be difficult, in legal and political terms, to justify the
empowerment of the private sector in as much as it could assume
the role of service deliverer along the public sector across all Member
States of the European Union. Constitutional provisions could nullify
such attempts and often a number of socio-economic factors would
collide with the idea of private delivery of public services. The evolu-
tion of public/private sector relations has arrived in times when the
role and the responsibilities of the state are in the process of being
redefined.41 Constitutionally, the state and its organs are under obliga-
tion to provide a range of services to the public in the form of health-
care, education, transport, energy, defence, social security, policing.
The state and its organs then enter the market place and procure
goods, works and services in pursuit of the above objective, on behalf
of the public.42 The state in its own capacity or through delegated or
218 Public Procurement in the European Union

legal monopolies and publicly controlled enterprises has engaged in

market activities in order to serve public interest. Traditionally, the
function of the state as a public service provider has been linked with
ownership of the relevant assets. The integral characteristics of pri-
vately financed projects reveal the degree that the state and its organs
are prepared to drift away from traditional corporatism towards contrac-
tualised governance. Departure from traditional corporatism also reflects
the state’s perception vis-à-vis its responsibilities towards the public. A
shift towards contractualised governance would indicate the departure
from the assumption that the state embraces both roles of asset owner
and service deliverer. It should also insinuate the shrinkage of the state
and its organs and the need to define a range of core activities that are
not to be contractualised.43 Finally, in practical terms, it would be very
difficult to prove the intention of a contracting authority to circum-
vent the public procurement rules and enforce their application on
private undertakings.

The “public” nature of public procurement

The remit and thrust of public procurement legislation relies heavily
on the connection between contracting authorities and the state. A
comprehensive and clear definition of the term contracting authorities,
a factor that determines the applicability of the relevant rules is proba-
bly the most important element of the public procurement legal frame-
work. The structure of the Directives is such as to embrace the
purchasing behaviour of all entities, which have a close connection
with the state. These entities, although not formally part of the state,
disperse public funds in pursuit or on behalf of public interest. The
Directives describe as contracting authorities the state, which covers
central, regional, municipal and local government departments, as well
as bodies governed by public law. Provision has been also made to cover
entities, which receive more than 50 per cent subsidies from the state
or other contracting authorities. The enactment of the Utilities Direct-
ives44 brought under the procurement framework entities operating in
the water, energy, transport and telecommunications sectors. A wide
range of these entities are covered by the term bodies governed by public
law, which is used by the Utilities Directives for the contracting entities
operating in the relevant sectors.45 Another category of contracting
authorities under the Utilities Directives includes public undertakings.46
The term indicates any undertaking over which the state may exercise
direct or indirect dominant influence by means of ownership, or by
means of financial participation, or laws and regulations which govern
 The Procurement of Services of General Interest 219

the public undertaking’s operation. Dominant influence can be exer-

cised in the form of a majority holding of the undertaking’s subscribed
capital, in the form of majority controlling of the undertaking’s issued
shares, or, finally in the form of the right to appoint the majority of
the undertaking’s management board. Public undertakings cover utilit-
ies operators, which have been granted exclusive rights of exploitation
of a service. Irrespective of their ownership, they are subject to the
Utilities Directive in as much as the exclusivity of their operation pre-
cludes other entities from entering the relevant market under substan-
tially the same competitive conditions. Privatised utilities could be,
in principle, excluded from the procurement rules when a genuinely
competitive regime47 within the relevant market structure would rule
out purchasing patterns based on non-economic considerations.
Although the term contracting authorities appears rigorous and well-
defined, public interest functions are dispersed through a range of
organisations which stricto sensu could not fall under the ambit of
the term contracting authorities, since they are not formally part of the
state, nor all criteria for the definition of bodies governed by public law
are present.48 The Court addressed the lex lacuna through its landmark
case Beentjes.49 The Court diluted the rigorous definition of contracting
authorities for the purposes of public procurement law, by introducing
a functional dimension of the state and its organs. In particular, it con-
sidered that a local land consolidation committee with no legal personal-
ity, but with its functions and compositions specifically governed by
legislation as part of the state. The Court interpreted the term contract-
ing authorities in functional terms. It regarded the local land consolida-
tion committee as part of the state, even though it was not part of the
state administration in formal terms,50 since it depended on the public
authorities for the appointment of its members, its operations were
subject to public supervision and it had as its main task the financing
and award of public works contracts. The Court held that the aim of
the public procurement rules, as well as the attainment of freedom
of establishment and freedom to provide services would be jeopardised,
if the public procurement provisions were to be held inapplicable,
solely because entities, which were set up by the state to carry out tasks
entrusted to by legislation were not formally part of its administrative
organisation.
The Court in two recent cases applied the functionality test when
it was requested to determine the nature of entities which could not
meet the criteria of bodies governed by public law, but had a distinctive
public interest remit. In Teoranta,51 a private company established
220 Public Procurement in the European Union

according to national legislation to carry out the business of forestry

and related activities was deemed as falling within the notion of the
state. The company was set up by the state and was entrusted with
specific tasks of public interest, such as managing national forests and
woodland industries, as well as providing recreation, sporting, educa-
tional, scientific and cultural facilities. It was also under decisive admin-
istrative, financial and management control by the state, although the
day-to-day operations were left entirely to its board. The Court accepted
that since the state had at least indirect control over the Teoranta’s pol-
icies, in functional terms the latter was part of the state. In the Vlaamese
Raad,52 the Flemish parliament of the Belgian federal system was consid-
ered part of the “federal” state. The Court held that the definition of the
state encompasses all bodies which exercise legislative, executive and
judicial powers, at both regional and federal levels. The Raad, as a legis-
lative body of the Belgian state, although under no direct control by
it,53 was held as falling within the definition of the state and thus being
regarded as a contracting authority.
The functional dimension of contracting authorities has exposed the
Court’s departure from the formality test, which has rigidly positioned
an entity under state control on stricto sensu traditional public law
grounds. Functionality, as an ingredient of assessing the relationship
between an entity and the state demonstrates, in addition to the ele-
ments of management or financial control, the importance of con-
stituent factors such as the intention and purpose of establishment of
the entity in question. Functionality depicts a flexible approach in the
applicability of the Procurement Directives, in a way that the Court
through its precedence established a pragmatic approach as to the
nature of the demand side of the public procurement equation.

Part 2 How are public services financed?

Market mechanisms and competitive forces offer insufficient assur-
ances for the provision of services of general interest. The need for
specific arrangements appears necessary in order to ensure their univer-
sal access, security of continuity or full geographical coverage. Member
States have enjoyed a wide range of discretion as to the financing of
services of general interest and the calculation of any extra cost attrib-
uted to their provision. Legal and policy traditions and the specific
nature and characteristics of the services concerned, lead Member
States to apply different mechanisms such as direct financial support
through the State budget (in the form of subsidies or other financial
 The Procurement of Services of General Interest 221

advantages such as tax reductions), special or exclusive rights (such as

a legal monopoly), contributions by market participants (in the form
of a universal service fund), tariff averaging (for example a uniform
country-wide tariff in spite of considerable differences in the cost of
provision of the service) and solidarity-based financing (in the form
of social security contributions).
In many instances, public service compensations are used as a fund-
ing mechanism of services of general economic interest, with only guid-
ance from State aid rules that over-compensation is prohibited. In some
cases, sector-specific legislation lays down specific rules for the financ-
ing of the extra cost of public service obligations. For electronic com-
munications, sector specific regulation requires Member States to
withdraw all special or exclusive rights, but it provides for the possibil-
ity of creating a fund to cover the extra cost of providing a universal
service on the basis of contributions from market participants.54 With
reference to postal services, the Postal Directive allows a defined postal
monopoly to be maintained and a universal service fund to be created
for the purposes of financing the postal service.55 In the field of air
transport, Member States can grant a temporary exclusive license on the
basis of an open tender in order to ensure a regular service on certain
routes for which the market does not offer adequate service.56 In public
transport, the Community has laid down rules for the calculation of
compensation.57
The rules governing the function of the internal market, competition
law and policy and the application of state aid rules aim to ensure that
any financial support granted to providers of services of general economic
interest does not distort the competitive equilibrium and functioning of
the internal market. Also, the sector-specific legislation in place seeks only
to ensure that the financing mechanisms put in place by the Member
States are least distortive of competition and facilitate market entry.

The ECJ and its approach to the financing of services of general

interest
There are three approaches under which the European judiciary and
the Commission have examined the financing of public services:
the state aids approach, the compensation approach and the quid pro quo
approach. The above approaches reflect not only conceptual and pro-
cedural differences in the application of state aid control measures
within the common market, but also raise imperative and multifaceted
questions relevant to the state funding of services of general interest.58
222 Public Procurement in the European Union

The State aids approach59 examines state funding granted to an

undertaking for the performance of obligations of general interest. It
thus regards the relevant funding as state aid within the meaning of
Article 87(1) EC60 which may however be justified under Article 86(2)
EC,61 provided that the conditions of that derogation are fulfilled and,
in particular, if the funding complies with the principle of proportion-
ality. The state aids approach provides for the most clear and legally
certain procedural and conceptual framework to regulate state aids,
since it positions the European Commission, in its administrative and
executive roles at the centre of that framework.
The compensation approach62 reflects upon a “compensation” being
intended to cover an appropriate remuneration for the services pro-
vided or the costs of providing those services. Under that approach
State funding of services of general interest amounts to State aid within
the meaning of Article 87(1) EC, only if and to the extent that the eco-
nomic advantage which it provides exceeds such an appropriate remu-
neration or such additional costs. European jurisprudence considers
that state aids exist only if, and to the extent that, the remuneration
paid, when the state and its organs procure goods or services, exceeds
the market price.
The choice between the state aids approach and the compensation
approach does not only reflect upon a theoretical debate; it mainly
reveals significant practical ramifications in the application of state
aid control within the common market. Whilst it is generally accepted
that the pertinent issue of substance is whether the state funding
exceeds what is necessary to provide for an appropriate remuneration
or to offset the extra costs caused by the general interest obligations,
the two approaches have very different procedural implications.
Under the compensation approach, state funding which does not con-
stitute state aid escapes the clutches of EU state aid rules and need not
be notified to the Commission. More importantly, national courts
have jurisdiction to pronounce on the nature of the funding as state
aid without the need to wait for an assessment by the Commission of
its compatibility with acquis. Under the state aid approach the same
measure would constitute state aid, which, must be notified in
advance to the Commission. Moreover, the derogation in Article 86(2)
EC is subject to the same procedural regime as the derogations in
Article 87(2) and (3) EC, which means that new aid cannot be imple-
mented until the Commission has declared it compatible with Article
86(2) EC. Measures which infringe that stand-still obligation consti-
tute illegal aid. Another procedural implication from the application
 The Procurement of Services of General Interest 223

of the compensation approach is that national courts must offer to

individuals the certain prospect that all the appropriate conclusions
will be drawn from the infringement of the last sentence of Article
88(3) EC, as regards the validity of the measures giving effect to
the aid, the recovery of financial support granted in disregard of that
provision and possible interim measures.
Departing from the rationale of the above approaches, a third
approach has been introduced in order to assist in understanding
the relationship between the funding of public services and state aids.
The quid pro quo approach distinguishes between two categories of state
funding; in cases where there is a direct and manifest link between the
state financing and clearly defined public service obligations, any sums
paid by the State would not constitute state aid within the meaning of
the Treaty. On the other hand, where there is no such link or the
public service obligations were not clearly defined, the sums paid by
the public authorities would constitute state aids.
The quid pro quo approach63 positions at the centre of the analysis of
state funding of services of general interest a distinction between two
different categories; i) the nature of the link between the financing
granted and the general interest duties imposed and ii) the degree of
clarity in defining those duties. The first category would comprise cases
where the financing measures are clearly intended as a quid pro quo for
clearly defined general interest obligations, or in other words where the
link between, on the one hand, the State financing granted and, on
the other hand, clearly defined general interest obligations imposed is
direct and manifest. The clearest example of such a direct and manifest
link between State financing and clearly defined obligations are public
service contracts awarded in accordance with public procurement rules.
The contract in question should define the obligations of the undertak-
ings entrusted with the services of general interest and the remunera-
tion which they will receive in return. Cases falling into that category
should be analysed according to the compensation approach. The
second category consists of cases where it is not clear from the outset
that the State funding is intended as a quid pro quo for clearly defined
general interest obligations. In those cases the link between State fund-
ing and the general interest obligations imposed is either not direct or
not manifest, or the general interest obligations are not clearly defined.
The quid pro quo approach appears at first instance consistent with
the general case-law on the interpretation of Article 87(1) EC. Also it
gives appropriate weight to the importance of services of general inter-
est, within the remit of Article 16 EC and of Article 36 of the EU
224 Public Procurement in the European Union

Charter of Fundamental Rights. On the other hand, the quid pro quo
approach presents a major shortcoming: it introduces elements64 of the
nature of public financing into the process of determining the legality
of state aids. According to state aids jurisprudence, only the effects
of the measure are to be taken into consideration,65 and as a result of
the application of the quid pro quo approach legal certainty could be
undermined.

Public service obligations

A category of services of general interest is the concept of public service
obligations with reference to the Common Transport policy of the
Community and the way the Treaty and also secondary legislation
regulates their financing and their relationship with state aids. It
appears that the financing of public service obligations and its inter-
play with state aids follows the compensation approach, where the
state provides for adequate and fair compensation to undertakings in
order to provide the relevant services that have public interest charac-
teristics. However, the regulation of the funding of such services is lex
specialis, in the sense that Article 84 EC expressly excludes the applica-
tion of state aids provisions to air transport and therefore, the reim-
bursement of undertakings costs for fulfilling public service obligation
requirements must be assessed on the basis of the general rules of the
Treaty, which apply to air transport.66 The Treaty provides that state
aids are compatible with its principles, if they meet the needs of
coordination of transport or if they represent reimbursement for the
discharge of certain obligations inherent in the concept of public
service.67 In the context of air transport, public service obligation is
defined68 as any obligation imposed upon an air carrier to take, in
respect of any route which it is licensed to operate by a Member State,
all necessary measures to ensure the provision of a service satisfying
pre-determined standards of continuity, regularity, capacity and pri-
cing, which standards the air carrier would not assume if it were solely
considering its economic interest.69 A Member State may thus reim-
burse the air carrier selected for carrying out the imposed public service
obligation70 by taking into account the costs and revenue (that is the
deficit) generated by the service.71
The acceptability of the reimbursement shall be considered in the
light of state aid principles as interpreted by the Court. In this context
it is important that the airline, which has access to a route on which a
public service obligation has been imposed, may be compensated only
after being selected by public tender. However, Community rules on
 The Procurement of Services of General Interest 225

public procurement contracts do not apply to the awarding by law or

contract of exclusive concessions which are entirely regulated by the
procedure provided for pursuant to Article 4 (1) of Regulation 2408/
92, which has set out uniform and non-discriminatory rules for the
distribution of air traffic rights on routes upon which public service
obligations have been imposed.
This tendering procedure enables Member States to value the offer
for that route, and make their choice by taking into consideration both
the consumers interest and cost of the compensation. Furthermore, the
criteria for calculation of the compensation have been clearly estab-
lished. A reimbursement calculated on the basis of the operating deficit
incurred on a route cannot involve any overcompensation of the air
carrier. Such a system excludes the possibility of state aid elements
being included within the reimbursement for public service obliga-
tions. A compensation of the mere deficit incurred on a specific route
(including a reasonable remuneration for capital employed) by an
airline which has been fairly selected following an open bidding pro-
cedure, is a neutral commercial operation between the relevant State
and the selected airline which cannot be considered as aid. The essence
of an aid lies in the benefit for the recipient;72 a reimbursement limited
solely to losses sustained because the operation of a specific route does
not bring about any special benefit for the company which has been
selected on the basis of objective criteria.
Therefore, the Commission considers that compensation for public
service obligations does not involve aid provided that: i) the undertak-
ing has been correctly selected through a call for tender, on the basis of
the limitation of access to the route to one single carrier, and ii) the
maximum level of compensation does not exceed the amount of
deficit as laid down in the bid. However, the fact that the public tender
has not been conducted in accordance with the public procurement
regime, give rise to certain concerns.
In case there is clear evidence that the Member State has not selected
the best offer, the Commission may request information from the
Member State in order to be able to verify whether the award includes
State aid elements. In fact, such elements are likely to occur where
the Member State engages itself to pay more financial compensation to
the selected carriers than it would have paid to the carrier which
submitted the best (not necessarily the cheapest) offer. Although
the public tendering process under Regulation 2408/92 refers to the
compensation required as just one of the criteria to be taken into con-
sideration for the selection of submissions, the Commission considers
226 Public Procurement in the European Union

however, that the level of compensation is the main selection crite-

rion.73 Indeed, other criteria such as adequacy, prices and standards
required are generally already included in the public service obligations
themselves. Consequently, it is possible that the selected carrier could
be other than the one which requires the lowest financial compensa-
tion. However, if the Commission considers that the Member State
concerned has not selected the best offer it will most likely conclude
that the chosen carrier has received aid pursuant to Article 92 EC.
Should the Member State not have notified the aid pursuant to Article
93(3) EC, the Commission would consider the aid, in the case that
compensation has already been paid, as illegally granted and would
open the procedure pursuant to Article 93(2) EC.74

The role of public procurement in the assessment of state aids

The application of the state aid approach creates a lex and a policy
lacunae in the treatment of funding of services of general economic
interest and other services, which is filled by the application of the
public procurement regime. In fact, it presupposes that the delivery of
services of general economic interest emerge and take place in a
different market, where the state and its emanations act in a public
function. Such markets are not susceptible to the private operator
principle75 which has been relied upon by the Commission and the
European Courts76 to determine the borderline between market beha-
vior and state intervention. The state aids approach runs parallel to the
assumption that services of general interest emerge and their delivery
takes place within distinctive markets, which bear little resemblance
with private markets in terms of competitiveness, demand and supply
substitutability, structure and even regulation.
European jurisprudence distinguishes the economic nature of state
intervention and the exercise of public powers.77 The application of
the private operator principle is confined to the economic nature
of state intervention78 and is justified by the principle of equal treat-
ment between the public and private sectors, 79 which requires that
intervention by the State should not be subject to stricter rules than
those applicable to private undertakings. The non-economic charac-
ter of state intervention80 renders immaterial the test of private oper-
ator, for the reason that profitability, and thus the raison d’être
of the private investment, is not present. It follows that services of
general economic interest cannot be part of the same demand/
supply equation, as other normal services the state and its organs
procure. 81 Along the above lines, a convergence emerges between
 The Procurement of Services of General Interest 227

public procurement jurisprudence and the state aid approach in the

light of the reasoning behind the BFI82 and Agora83 cases. Services of
general economic interest are sui generis, having as main characteris-
tics the lack of industrial and commercial character, where the
absence of profitability and competitiveness are indicative of the rel-
evant market place. As a rule of thumb, the procurement of such ser-
vices should be subject to the rigour and discipline of public
procurement rules and in analogous ratione, classified as state aid,
in the absence of the competitive award procedures. In consequence,
the application of the public procurement regime reinforces
the character of services of general interest as non-commercial or
industrial and the existence of marchés publics.84
Of interest is the latest case Chronopost,85 where the establishment
and maintenance of a public postal network such as the one offered by
the French La Poste to its subsidiary Chronopost was not considered as
a “market network”. The Court arrived at this reasoning by using a
market analysis which revealed that under normal conditions it would
not have been rational to build up such a network with the consider-
able fixed costs which are necessary to provide third parties with the
assistance that was required in that case. Therefore the determination
of a platform under which the normal remuneration a private operator
occurs would have constituted an entirely hypothetical exercise. As the
universal network offered by La Poste was not a “market network” there
were no specific and objective references available in order to establish
what normal market conditions should be. On the one hand, there was
only one single undertaking, i.e. La Poste that was capable of offering
the services linked to its network and none of the competitors of
Chronopost had ever sought access to the French Post Office’s network.
Consequently, objective and verifiable data on the price paid within
the framework of a comparable commercial transaction did not exist.
The Commission’s solution of accepting a price that covered all the
additional costs, fixed and variable, specifically incurred by La Poste
in order to provide the logistical and commercial assistance, and
an adequate part of the fixed costs associated with maintaining the
public postal network, represented a sound way in order to exclude
the existence of State aid within the meaning of Article 87(1) EC.
The Chronopost ruling disapplied the private investor principle from
state aids regulation, by indirectly accepting the state aids approach
and therefore the existence of sui generis markets within which services
of general interest emerge and are delivered and which cannot feasibly
be compared with private ones.
228 Public Procurement in the European Union

The interaction of public procurement with the three approaches of

state aids assessment
The compensation approach relies heavily upon the real advantage
theory to determine the existence of any advantages conferred to
undertakings through state financing.86 Thus, under the real advantage
theory, the advantages which are conferred by the public authorities to
undertakings and threaten to distort competition are examined to-
gether with the obligations on the recipient of the aid. Public advant-
ages thus constitute aid only if their amount exceeds the value of the
commitments the recipient enters into. The compensation approach
treats the costs offsetting the provision of services of general interest as
the base line over which state aids should be considered. That base line
is determined by the market price, which corresponds to the given
public/private contractual interface and is demonstrable through
the application of public procurement award procedures. The applica-
tion of the compensation approach reveals a significant insight of
the financing of services of general interest. A quantitative distinction
emerges, over and above which state aids exist. The compensation
approach introduces an applicability threshold of state aids regulation,
and that threshold is the perceived market price, terms and conditions
for the delivery of the relevant services.
An indication of the application of the compensation approach is
reflected in the Strohal87 case, where an undertaking could provide
commercial services and services of general interest, without any relev-
ance to the applicability of the public procurement rules. The rationale
of the case runs parallel with the real advantage theory, up to the point
of recognising the different nature and characteristics of the markets
under which normal (commercial) services and services of general
interest are provided. The distinction begins where, for the sake of legal
certainty and legitimate expectation, the activities of undertakings of
dual capacity are equally covered by the public procurement regime
and the undertaking in question is considered as contracting authority
irrespective of any proportion or percentage between the delivery of
commercial services and services of general interest. This finding might
have a significant implication for the compensation approach in state
aids jurisprudence: irrespective of any costs offsetting the costs related
to the provision of general interest, the entire state financing could be
viewed under the state aids approach.
Nevertheless, the real advantage theory upon which the compensa-
tion approach seems to rely runs contrary to the apparent advantage
theory which underlines Treaty provisions88 and the so-called “effects
 The Procurement of Services of General Interest 229

approach”89 adopted by the Court in determining the existence of state

aids. The real advantage theory seems to underpin the quid pro quo
approach and it also creates some conceptual difficulties in reconciling
jurisprudential precedent in state aids regulation.
The quid pro quo approach appears to define state aids no longer by
reference solely to the effects of the measure, but by reference to
criteria of a purely formal or procedural nature. This means that the
existence of a procedural or a substantive link between the state and
the service in question lifts the threat of state aids regulation, irrespec-
tive of any effect the state measure has on competition. However, the
Court considers that to determine whether a state measure constitutes
aid, only the effects of the measure are to be taken into consideration,
whereas other elements90 typifying a measure are not relevant during
the stage of determining the existence of aid, because they are not
liable to affect competition. However, the relevance of these elements
may appear when an assessment of the compatibility of the aid91 with
the derogating provisions of the Treaty takes place.
The application of the quid pro quo approach amounts to introducing
such elements into the actual definition of aid. The presence of a direct
and manifest link between the state funding and the public service
obligations amounts to the existence of a public service contract
awarded after a public procurement procedure. In addition, the clear
definition of public service obligations amounts to the existence of
laws, regulations or contractual provisions which specify the nature
and content of the undertaking’s obligations. The borderline of
the market price, which will form the conceptual base above which
state aids would appear, is not always easy to determine, even with the
presence of public procurement procedures. The state and its organs as
contracting authorities (state emanations and bodies governed by
public law) have wide discretion to award public contracts under
the public procurement rules.92 Often, price plays a secondary role in
the award criteria. In cases when the public contract is awarded to the
lowest price,93 the element of market price under the compensation
approach could be determined. However, when the public contract is
to be awarded by reference to the most economically advantageous
offer,94 the market price might be totally different than the price the
contracting authority wishes to pay for the procurement of the relev-
ant services. The mere existence of public procurement procedures
cannot, therefore, reveal the necessary element of the compensation
approach: the market price which will determine the “excessive” state
intervention and introduce state aids regulation.
230 Public Procurement in the European Union

Finally, the quid pro quo approach relies on the existence of a direct
and manifest link between state financing and services of general inter-
est, an existence indicated through the presence of a public contract
concluded in accordance with the provisions of the Public Procure-
ment Directives. Apart from the criticism it has received concerning
the introduction of elements into the assessment process of state aids,
the interface of the quid pro quo approach with public procurement
appears as the most problematic facet in its application. The pro-
curement of public services does not always reveal a public contract
between a contracting authority and an undertaking.
The quid pro quo approach appears to define state aids no longer by
reference solely to the effects of the measure, but by reference to cri-
teria of a purely formal or procedural nature. This means that the exist-
ence of a procedural or a substantive link between the state and
the service in question lifts the threat of state aids regulation, irrespec-
tive of any effect the state measure has on competition. However, the
Court considers that to determine whether a State measure constitutes
aid, only the effects of the measure are to be taken into consideration,
whereas other elements95 typifying a measure are not relevant during
the stage of determining the existence of aid, because they are not
liable to affect competition. However, the relevance of these elements
may appear when an assessment of the compatibility of the aid96 with
the derogating provisions of the Treaty takes place. The application of
the quid pro quo approach amounts to introducing such elements into
the actual definition of aid. Its first criterion suggests examining
whether there is a direct and manifest link between the State funding
and the public service obligations. In practice, this amounts to requir-
ing the existence of a public service contract awarded after a public
procurement procedure. Similarly, the second criterion suggests exam-
ining whether the public service obligations are clearly defined. In
practice, this amounts to verifying that there are laws, regulations or
contractual provisions which specify the nature and content of the
undertaking’s obligations.
Although the public procurement regime embraces activities of the
state, which covers central, regional, municipal and local government
departments, as well as bodies governed by public law, and public utilit-
ies, in-house contracts are not subject to its coverage. The existence of
dependency, in terms of overall control of an entity by the state or
another contracting authority renders the public procurement regime
inapplicable. Dependency presupposes a control similar to that which
the state of another contracting authority exercises over its own
 The Procurement of Services of General Interest 231

departments. The “similarity” of control denotes lack of independence

with regard to decision-making. The Court in Teckal,97 regarded a con-
tract between a contracting authority and an entity under its control is
not a public contract, irrespective of that entity being a contracting
authority or not. The control that the contracting authority exercises
over the entity must be similar to that which exercises over its own
departments and at the same time the entity must perform the essen-
tial part of its activities for the benefit of the contracting authority. The
similarity of control as a reflection of dependency reveals another facet
of the thrust of contracting authorities: the non-applicability of the
public procurement rules for in-house relationships.
Along the same line of arguments, contracts to affiliated undertak-
ings escape the clutches of the Directives. Article 6 of the Services
Directive provides for the inapplicability of the Directive to service
contracts which are awarded to an entity which is itself a contracting
authority within the meaning of the Directive on the basis of an
exclusive right which is granted to the contracting authority by a law,
regulation or administrative provision of the Member State in ques-
tion. Article 13 of the Utilities Directive provides for the exclusion
of certain contracts between contracting authorities and affiliated
undertakings. For the purposes of Article 1(3) of the Utilities Directive,
an affiliated undertaking is one the annual accounts of which are
consolidated with those of the contracting entity in accordance with
the requirements of the seventh company law Directive.98 These are
service contracts, which are awarded to a service-provider, which is
affiliated to the contracting entity, and also service contracts, which
are awarded, to a service-provider, which is affiliated to a joint venture
formed for the purpose of carrying out an activity covered by the
Directive.99
In addition, the connection between the state and entities which
operate in the utilities sector and have been privatised is also weak for
the purposes of justifying the presence of a public procurement con-
tract for the delivery of services of general interest. Privatised utilities
could be, in principle, excluded from the procurement rules when
a genuinely competitive regime100 within the relevant market structure
would rule out purchasing patterns based on non-economic considera-
tions. Under the Tokyo Round GATT Agreement on Government
Procurement, the term public authorities confined itself to central
governments and their agencies only.101 The new World Trade
Organisation Government Procurement Agreement (GPA) applies in
principle to all bodies which are deemed as “contracting authorities”
232 Public Procurement in the European Union

for the purposes of the Public Supplies and Public Works Directives.
As far as utilities are concerned, the GPA applies to entities, which
carry out one or more of certain listed “utility” activities,102 where
these entities are either “public authorities” or “public undertakings”,
in the sense of the Utilities Directive. However, the GPA does not cover
entities operating in the utilities sector on the basis of special and exclu-
sive rights. In many instances, Member States grant special or exclusive
rights in order to ensure the financial viability of a provider of a service
of general economic interest. The granting of such rights is not per se
incompatible with the Treaty. The Court of Justice has ruled that
Article 86(2) EU permits the Member States to confer on undertakings
to which they entrust the operation of services of general economic
interest exclusive rights which may hinder the application of the rules
of the Treaty on competition insofar as restrictions on competition,
or even the exclusion of all competition, by other economic operators
are necessary to ensure the performance of the particular tasks assigned
to the undertakings possessed of the exclusive rights.103 However,
Member States must ensure that such rights are compatible with inter-
nal market rules and do not amount to abuse of a dominant position
within the meaning of Article 82 by the operator concerned. Generally
speaking, exclusive or special rights may limit competition on certain
markets only insofar as they are necessary for performing the particular
public service task. In addition, Member States’ freedom to grant
special or exclusive rights to providers of services of general interest
can also be restricted in sector-specific Community legislation.

Part 3 Market forces and services of general interest

The European Court of Justice, as well as the Court of First Instance has
approached the subject of financing services of general interest from
different perspectives. These perspectives show a degree of inconsist-
ency but they shed light on the demarcation of competitiveness and
protection with respect to the financing of public services. Also, the
inconsistent precedent has opened a most interesting debate focusing
on the role and remit of the state within the common market and its
relation with the provision and financing of services of general inter-
est. The conceptual link between public procurement and the financ-
ing of services of general interest reveals the policy implications and
the interplay of jurisprudence between public procurement and state
aids. The three approaches used by the Courts to construct the pre-
mises upon which the funding of public service obligations, services of
 The Procurement of Services of General Interest 233

general interest, and services for the public at large could be regarded
as state aids, utilise public procurement in different ways. On the one
hand, under the state aids and compensation approaches, public pro-
curement sanitises public subsidies as legitimate contributions towards
public service obligations and services of general interest. From proce-
dural and substantive viewpoints, the existence of public procurement
award procedures, as well as the existence of a public contract between
the state and an undertaking reveals the necessary links between the
markets where the state intervenes in order to provide services of
general interest. In fact, both approaches accept the sui generis charac-
teristics of public markets and the role the state and its organs play
within such markets. On the other hand, the quid pro quo approach
relies on public procurement to justify the clearly defined and manifest
link between the funding and the delivery of a public service obliga-
tion. It assumes that without these procedural and substantive links
between public services and their financing, the financing of public
services is state aids.
In most cases, public procurement connects the activities of the state
with the pursuit of public interest. The subject of public contract and
their respective financing relates primarily to services of general inter-
est. Thus, public procurement indicates the necessary link between
state financing and services of general interest, a link which takes state
aids regulation out of the equation. The existence of public procure-
ment and the subsequent contractual relations ensuing from the pro-
cedural interface between the public and private sectors neutralise state
aids regulation. In principle, the financing of services of general inter-
est, when channelled through public procurement reflects market
value. However, it should be maintained that the safeguards of public
procurement reflecting genuine market positions are not robust and
the foundations upon which a quantitative application of state aids
regulation is based, are not stable. The markets within which the
services of general interest have emerged and are being delivered reveal
little evidence of similarities with private markets. They also do not
render meaningful any comparison with private markets, which pres-
ent competitiveness and substitutability of demand and supply as key
features of their structure. The approach adopted by the European judi-
ciary indicates the presence of marchés publics, sui generis markets where
the state intervenes in pursuit of public interest. State aids regulation
could be applied, as a surrogate system of public procurement, to en-
sure that distortions of competition do not emerge as a result of the
inappropriate financing of services.
234 Public Procurement in the European Union

A new approach
The debate of the delineation between market forces and protection in
the financing of public services took a twist. The Court in Altmark,104
followed a hybrid approach between the compensation and the quid pro
quo approaches. It ruled that where subsidies are regarded as compensa-
tion for the services provided by the recipient undertaking in order to
discharge public service obligations, they do not constitute state aids.
Nevertheless for the purpose of applying that criterion, national courts
should ascertain that four conditions are satisfied: first, the recipient
undertaking is actually required to discharge public service obligations
and those obligations have been clearly defined; second, the parameters
on the basis of which the compensation is calculated have been estab-
lished beforehand in an objective and transparent manner; third, the
compensation does not exceed what is necessary to cover all or part of
the costs incurred in discharging the public service obligations, taking
into account the relevant receipts and a reasonable profit for discharg-
ing those obligations; fourth, where the undertaking which is to dis-
charge public service obligations is not chosen in a public procurement
procedure, the level of compensation needed has been determined on
the basis of an analysis of the costs which a typical undertaking, well-
run and adequately provided with appropriate means so as to be able to
meet the necessary public service requirements, would have incurred in
discharging those obligations, taking into account the relevant receipts
and a reasonable profit for discharging the obligations.
The first criterion which requires the existence of a clear definition of
the framework within which public service obligations and services of
general interest have been entrusted to the beneficiary of compensatory
payments runs consistently with Article 86(2) EC jurisprudence, where
an express act of the public authority to assign services of general eco-
nomic interest105 is required. However, the second criterion which
requires the establishment of the parameters on the basis of which the
compensation is calculated in an objective and transparent manner
departs from existing precedent,106 as it establishes an ex post control
mechanism by the Member States and the European Commission. The
third criterion that the compensation must not exceed what is neces-
sary to cover the costs incurred in discharging services of general inter-
est or public service obligations is compatible to the proportionality test
applied in Article 86(2) EC. However, there is an inconsistency problem,
as the European judiciary is rather unclear on the question whether any
compensation for public service obligations may comprise a profit
element.107 Finally, the fourth criterion which establishes a comparison
 The Procurement of Services of General Interest 235

of the cost structures of the recipient on the one hand and of a private
undertaking, well-run and adequately provided to fulfil the public
service tasks, in the absence of a public procurement procedure, inserts
elements of subjectivity and uncertainty that will inevitably fuel more
controversy.
The four conditions laid down in Altmark are ambiguous. In fact they
represent the hybrid link between the compensation approach and
the quid pro quo approach. The Court appears to accept unequivocally
the parameters of the compensation approach (sui generis markets,
remuneration over and above normal market prices for services of
general interest), although the link between the services of general
interest and their legitimate financing requires the presence of public
procurement, as procedural verification of competitiveness and cost
authentication of market prices. However, the application of the public
procurement regime cannot always depict the true status of the
market. Furthermore, the condition relating to the clear definition of
an undertaking’s character in receipt of subsidies to discharge public
services in an objective and transparent manner, in conjunction with
the costs attached to the provision of the relevant services could give
rise to major arguments across the legal and political systems in the
common market. The interface between public and private sectors in
relation to the delivery of public services is in an evolutionary state
across the common market. Finally, the concept of “reasonable profit”
over and above the costs associated with the provision of services of
general interest could complicate matters more, since they appear as
elements of subjectivity and uncertainty.
The principle of the Member States’ autonomy to make policy
choices regarding services of general economic interest equally applies
with regard to financing their provision. Member States enjoy a wide
margin of discretion when deciding whether and how to finance the
provision of services of general economic interest. The financing mech-
anisms applied by Member States include direct financial support
through the State budget, special or exclusive rights, and contributions
by market participants, tariff averaging and solidarity-based financing.
In the absence of Community harmonisation, the main limit to this
discretion is the requirement that such financing mechanism must not
distort competition within the common market. However, other relev-
ant criteria for selecting a financing mechanism, such as the efficiency
of the financial mechanism, its redistributive effects, the long-term
investment of providers on services and infrastructure and finally the
security of service provision could introduce a new debate platform,
236 Public Procurement in the European Union

from where a lex specialis approach or a sector-specific regulation could

be adopted.
The relation of public procurement with state aids reveals a sym-
biotic flexibility embedded in the regime of regulating the award of
public contracts. That flexibility conferred to contracting authorities is
augmented by a wide margin of discretion available to Member States
to introduce public policy considerations in dispersing public services.
State aids, as regional development considerations, or as part of a
national of EU wide industrial policy are inherently a part of this sym-
biotic policy approach. This finding removes the often misunderstood
justification of public procurement as an economic exercise and places
it in the heart of an ordo-liberal interpretation of the European inte-
gration process. On the other hand, the conceptual interrelation of
public procurement with the financing of services of general interest
reveals the policy and jurisprudence links between public procure-
ment and state aids. These links offer a prism of an asymmetric geom-
etry analysis, where the three approaches used to conceptualise the
funding of public service obligations, services of general interest, and
services for the public at large, utilise public procurement in different
ways. The presence of public procurement award procedures, as well
as the existence of a public contract between the state and an under-
taking verifies the state aid approach and the compensation approach
to the extent that they provide the necessary links between the
markets where the state intervenes in order to provide services of
general interest. On the other hand, the quid pro quo approach relies
on public procurement to justify the clearly defined and manifest link
between the funding and the delivery of a public service obligation.
Even the hybrid approach adopted by Altmark confirms the delin-
eation between market forces through competitiveness and protection
through state aids in the financing of services of general interest.
The public procurement framework not only will be used to insert
competitiveness and market forces within marchés publics, but more
importantly, in the author’s view, it will be used by the European
judiciary and the European Commission as a system to verify concep-
tual links, create compatibility safeguards and authenticate established
principles applicable in state aids regulation.
Conclusions

In the year of the adoption of the European Constitution, the common

market and its principles have been assessed by European institutions.
Considerable progress has been made in achieving a frontier-less European
Union; however, trade obstacles still remain. Public procurement has been
re-affirmed as a key parameter for the common market and at the same
time as an important policy tool at domestic level.
Public procurement regulation is an essential instrument of the
internal market. With the European Union in an expansion mode,
European institutions need to provide a hint as to what public pro-
curement stands for. There is a new generation of legal instruments
currently through the legislative process which intend to simplify
and modernise the regime. In addition, there is strong evidence that
the existence of competitive conditions within public markets would
disengage the applicability of the relevant Directives. This develop-
ment indicates the referral of public markets to anti-trust, perhaps as
the ultimate regulatory regime.
The regulation of public procurement reflects on two opposite
dynamics: one of a community-wide orientation and one of national
priorities. The influence of neo-classical economic theory on public
procurement regulation has taken the relevant regime through the
paces of the liberalisation of public markets within the European
Union and with reference to the World Trade Organisation. Anti-trust
and its remedies have played a seemingly important role in determin-
ing the necessary competitive conditions for the supply side to service
the public sector. However, we have seen the emergence of a sui generis
market place where the mere existence and functioning of anti-trust is
not sufficient to achieve the envisaged objectives. Public markets re-
quire a positive regulatory approach in order to enhance market access.
237
238 Public Procurement in the European Union

Whereas anti-trust and the neo-classical approach to economic integra-

tion depend heavily on price competition, public procurement regula-
tion requires a system which primarily safeguards market access. Such
regulatory system could be described as public competition law.
The above scenario represents the first departure from the stricto sensu
neo-classical perspective of public procurement. A policy orientation has
emerged mainly through the jurisprudential approach of the regime and
the willingness of the Court to expand on the element of flexibility that is
inherent in the Public Procurement Directives. The neo-classical versus
the ordo approach reflects the frequently rehearsed debate about the
origins of anti-trust law and policy per se. The European integration has
benefited from a system where the neo-classical approach has contributed
to the functioning of an environment of workable competition. However,
consistently the rigidity of the neo-classical influence has been diluted
with policy considerations, often attributed to national policy require-
ments. The reflection of the above picture is presented in public procure-
ment regulation, although there are certain differences: the Court has
allowed for a flexible policy-oriented application of public procurement,
where in anti-trust the Commission has eroded the strict neo-classical
approach of controlling market power with the plethora of policy consid-
erations. In public procurement regulation, the similarity of balancing an
economic exercise with policy choice is remarkable.
As the market structure of the European Community reveals strong
tendencies towards industrial concentration through mergers and
acquisitions, rationalisation and restructuring of firms, downsizing,
outsourcing and optimisation of human and capital resources within
the sectors of the European industries, the integration of public mar-
kets has threatened to bring about an end to long-standing depend-
ency purchasing patterns which have undoubtedly sustained certain
industries in the Member States of the European Union.
The Pubic Procurement Directives introduce a regime that attempts to
establish gradually a public market in the European Union. This regime
seeks to accomplish unobstructed access to public markets through trans-
parency of public expenditure relating to procurement, improved market
information, elimination of technical standards capable of discriminating
against potential contractors and uniform application of objective criteria
of participation in tendering and award procedures. The Directives have
been amended in 2004 and their new remit is based upon two basic
premises: simplification and modernisation. Drawing on the wealth of expe-
rience from three previous generations of legal instruments, and the
Court’s jurisprudential inferences to public procurement regulation,
 Conclusion 239

the new Directives are set to achieve what is perhaps the most challeng-
ing objective of the internal market: fully integrate its public sector and
abolish any remaining non-tariff barriers. The new regime maps also a
clear-cut dichotomy between the public and the utilities sectors respec-
tively. Although the same fundamental principles underpin the liberalisa-
tion of procurement in government and public utilities, their separate
regulation reveals a diametrically opposed nature of the contracting
authorities/entities under these sectors. Over the past two decades public
utilities in the EU Member States have been undergoing a process of
transformation. Their change in ownership from public to private has
stimulated commercialism and competitiveness and provided for the
justification of a more relaxed regime and the acceptance that utilities, in
some form or another represent a sui generis contracting authorities not
in need of a rigorous and detailed regulation of their procurement. The
above dichotomy reflects an insight of current market conditions and
political priorities across the European Union, as well as an indication
that the main emphasis should be placed on attempts to open up the
public sector.
The evolution of public-private partnerships represents a genuine
attempt to introduce the concept of contractualised governance in the
delivery of public services. There is mounting evidence that the role
and the involvement of the state in the above process is under con-
stant review. Public-private partnerships reveal an institutionalised
mechanism in engaging the private sector in the delivery of public ser-
vices, not only through the financing but mainly through the opera-
tion of assets. Efficiency gains, qualitative improvement, innovation,
value-for-money and flexibility appear as the most important ones,
whereas an overall better allocation of public capital resources sums up
the advantages of privately financed projects.
However, public-private partnerships do not alter the character of
the contractual relationship between the private and public sectors, for
such character is predominantly determined by other factors attributed
to the legal order in question. They, instead, bring an end to the
notion of public ownership and introduce the concept of service deliv-
ery in the relevant contractual relationship between private and public
sectors. The private sector is no longer a supplier to the public sector
but rather a partner through a concession or an institutionalised ar-
rangement such as a joint venture between public and private sectors.
It seems that there is a quasi-agency relationship between the private
and public sectors, in the sense that the former provides the relevant
infrastructure and in fact delivers public services on behalf of the latter.
240 Public Procurement in the European Union

In its jurisprudence, the Court has reflected on the relative import-

ance of public procurement to the fundamental freedoms of the com-
mon market, namely the right of establishment and the freedom to
provide services. The approach taken by the Court revealed a positive
yet restrictive interpretation of the Directives. By conferring the prin-
ciple of direct effect upon their provisions where appropriate, and
inviting national courts to play prominent role in future public pro-
curement litigation, the Court has hinted towards its preference for a
decentralised enforcement of the Directives. The Court has also played
an important function in delineating key concepts within the public
procurement legal framework, such as contracting authorities and award
criteria. This has exposed flexibility as a significant characteristic of the
Directives. The Court developed a reasoning which recognises discre-
tion in the hands of contracting authorities, discretion which is inte-
gral to the legal framework, as well as compatible to the attainment of
the fundamental freedoms of the common market and complementary
with other policies. The Court’s approach acknowledged that the relev-
ant legal framework has to move on with the times, requirements and
priorities of the common market.
The relation of public procurement with state aids reveals the sym-
biotic flexibility embedded in the regime of regulating the award of
public contracts. That flexibility conferred to contracting authorities is
augmented by a wide margin of discretion available to Member States
to introduce public policy considerations in dispersing public services.
On the other hand, the conceptual interrelation of public procurement
with the financing of services of general interest reveals strong policy
and jurisprudence links between public procurement and state aids.
These links offer a prism of conceptualising the funding of public ser-
vice obligations, services of general interest, and services for the public
at large, by utilising public procurement in different ways. The pres-
ence of public procurement will not only be used to insert competitive-
ness and market forces within the public markets of the European
Union, but more importantly, it will be used by the European judiciary
and the European Commission as a system to verify conceptual links,
create compatibility safeguards and authenticate established principles
applicable in state aids regulation.
Public procurement remains one of the most influential instruments
of policy choice in the hands of Member States and the European insti-
tutions within the process of European integration. Its complementar-
ity and compatibility with common policies is recognised and accepted
by European institutions, including the European Court of Justice and
Member States.
Notes

Chapter 1 European Integration and Public Procurement

1. See Articles 2 and 3 of the Treaty of Rome (EC).
2. See Articles 48 and 67 EC respectively.
3. The Court of Justice has recognised a fifth freedom, the free movement
of payments, which is closely related to the freedom of movement of
capital, see cases 286/82 & 26/83 Luisi & Carbone v. Ministero del Tesoro
[1984] ECR 377, 308/86 Ministere Public v. Lambert [1988] ECR 478. The
Treaty of Rome provides also for the accomplishment of this freedom in
Articles 67(2) and 106. The free movement of payments, a complemen-
tary principle of the free mobility of capital as a production factor plays
an extremely important role in the process of integration of public
markets, and in particular in financing public projects either through
indirect or direct investment.
4. Article 102a EC.
5. See case 26/62 NV Algemene Transport-en Expeditie Onderneming Van Gend
en Loos v. Nederlandse Administrtie der Belastigen [1963] ECR 1.
6. The period from the establishment of the European Communities until
31/12/1969. See Art. 8(7) EC.
7. European Commission, White Paper for the Completion of the Internal
Market, COM (85) 310 fin., 1985.
8. The completion of the internal market required the adoption at
Community level and the implementation at national level of some 300
Directives on the subjects specified in the Commission’s White Paper.
See also the Third Report of the Commission to the European Parliament on
the Implementation of the White Paper, COM (88) 134 fin.
9. See Lord Cockfield’s quotation in the Cechinni Report 1992 The European
Challenge, The Benefits of a Single Market, Aldershot, Wildwood House, 1988.
10. See Commission of the European Communities, The Cost of Non-Europe,
Basic Findings, Vol. 5, Part. A; The Cost of Non-Europe in Public Sector
Procurement, Official Publications of the European Communities, Luxem-
bourg, 1988. Also the Cechinni Report 1992 The European Challenge,
Aldershot, Wildwood House, 1988.
11. The relevant market place is then defined as public markets. See
M. L. Harrison, Corporatism and the Welfare State, Aldershot, Gower 1984,
Chapter 1.
12. See T. Daintith, The Changing Constitution, Oxford University Press 1985,
pp. 140–212, elaborates on the distinction between dominium and
imperium as functions of a modern state.
13. See P. Konstadacopoulos, The linked oligopoly concept in the Single
European Market, Public Procurement Law Review, 1995, Vol. 4, p. 213.
14. See C. Bovis, The Regulation of Public Procurement as an element in the
Evolution of European Economic Law, European Law Journal, Spring 1998.

241
242 Notes

15. See Denis Swann, The Retreat of the State, Harvester-Wheatsheaf 1988,
Chapter 1–2.
16. See the response of the European Commission to a Parliamentary
Question relating to the powers of a Member State to privatised publicly-
controlled entities, OJ 1997 No C72/82.
17. See S. Arrowsmith, The Legality of Secondary Procurement Policies under the
Treaty of Rome and the Works Directive, Public Procurement Law Review,
1992, Vol. 1. p. 410.
18. See Articles 29(4) and 29(a) of the EC Public Works Directive 71/305;
also Art. 26 of EC Public Supplies Directive 77/62.
19. For a thorough analysis see, J. M. Fernadez Martin and O. Stehmann,
Product Market Integration versus Regional Cohesion in the Community,
European Law Review, 1991, Vol. 16, p. 216.
20. European Commission, Public Procurement: Regional and Social Aspects,
COM (89) 400.
21. Commission of the European Communities, Statistical Performance for
keeping watch over public procurement, 1992.
22. See case Cooperative Vereniging “Suiker Unie” UA v. Commission [1975] ECR
1663, in which the European Court of Justice recognised the adverse
effects of concerted practices in tendering procedures on competition in
the common market. This case appears to have opened the way for the
application of competition law on public procurement in the Commun-
ity. The applicability of Competition Law provisions of the Treaty (Articles
85, 86) in controlling collusive tendering and anti-competitive behaviour
of suppliers, was also the subject of Commission Decision 92/204, OJ 1992
L92/1. It could be argued that competition law and policy applies equally
to private as well as public markets, but the explicit provisions of the
Directives on consortia participation in tendering procedures might limit
the scope of Articles 85, 86 in public procurement.
23. For the constitutional aspects of the application of a Regulation in
domestic legal orders see the reservations of the French Government
after the adoption of the SEA and in particular Art. 100A EC, which con-
stitutes the legal basis of all Public Procurement Directives after 1986
in Kapteyn and Verloren van Themaat, Introduction to the Law of the
European Communities, 2nd ed., 1989, Kluwer-Deventer, pp. 470–479.
24. Reference is made here to the first generation of Public Procurement
Directives: for Public Supplies, EC Directives 70/32 and 77/62 as
amended by Directive 80/767 and 88/295; for Public Works, EC
Directives 71/304 and 71/305 as amended by Directive 89/440. See
Chapter 3 for more details.
25. See the FIDE Congress on The Application in the Member States of the
Directives on Public Procurement, Madrid 1990.
26. COM (84) 717 fin.
27. See case 239/85 Commission v. Belgium [1986] ECR 1473; also case 300/81
Commission v. Italy [1983] ECR 449.
28. See case 102/79 Commission v. Belgium [1980] ECR 1489; also case 147/86
Commission v. Hellenic Republic [1988] ECR 765.
29. European Commission, White Paper for the Completion of the Internal
Market, COM (85) 310 fin., 1985.
 Notes 243

30. See the European Commission’s Concentration Memorandum, Competition

Series, Study no 3, Brussels 1966: The problem of Industrial Concentration in
the Common market. For a detailed analysis of industrial concentration
in the European Community see C. Bovis, Business Law in the European
Union, Chapter 2, Sweet and Maxwell, 1997.
31. See Commission of the European Communities, Statistical Performance
for keeping watch over public procurement, 1992.
32. The Utilities Directive 90/531 (OJ 1900 L297) and the Services 93/50
Directive (OJ 1992 L209/1) have been implemented by Spain, Portugal
and Greece at a later stage in relation to the other Member States.
33. The Commission has accomplished a Mid-Term Assessment on the
Functioning of Public Procurement in 1996, which has predominately
resulted in the publication of the Green Paper on Public Procurement in the
European Union: Exploring the Way Forward.
34. See C. Bovis, EC Public Procurement Law, Longman, European Law Series,
1997. H. Fernandez Martin, EC Public Procurement Rules: A Critical Analysis,
OUP, 1996. S. Arrowsmith, The Law of Public and Utilities Procurement,
Sweet & Maxwell, 1996. P. Armin-Trepte, Public Procurement in the EC,
CCH Europe, 1993. A. Cox, Public Procurement in the European Community:
The internal market rules and the enforcement regime after 1992, Earlsgate
Press, 1993. Various authors, Public Procurement: Legislation and Comment-
ary, Butterworths European Law Service, 1992. F. Weiss, Public Procurement
in European Community Law, Athlone Publishers, 1992. P. Lee, Public
Procurement, Current EC Legal Developments, Butterworths, 1992.

Chapter 2 Public Procurement Regulation

1. Public Supplies contracts: EC Directive 70/32, 77/62 as amended
by Directive 80/767 and 88/295 and consolidated by Directive 93/36,
OJ 1993, L 199.
2. Public Works contracts: EC Directive 71/304, 71/305 as amended by
Directive 89/440, and consolidated by Directive 93/37, OJ 1993, L 199.
3. Public Utilities contracts: EC Directive 90/531, as amended by Directive
93/38, OJ 1993, L 199.
4. Public Services contracts: EC Directive 92/50 of 18/6/92, OJ 1992 L 209.
5. OJ 1977, L 13/1.
6. OJ 1980, L 215/1.
7. OJ 1980, L 71/1.
8. OJ 1980, L 215/1.
9. COM (85) 310 fin.
10. OJ 1988, L 127/1.
11. Article 7(2) of Directive 88/295.
12. Article 1(a) of Directive 88/295.
13. Article 6(1)(c) of Directive 88/295.
14. Article 3(2) (a)(b)(c) of Directive 88/295.
15. Article 9 of Directive 88/295.
16. Article 7 of Directive 88/295. See the White Paper on Completing
the Internal Market, paras. 61–79; also Council Resolution of 7 May
244 Notes

1985, OJ 1985, C 136, on a new approach in the field of technical

harmonisation and standards.
17. Directive 93/36, OJ 1993, L 199.
18. Directive 93/37, OJ 1993, L 199.
19. Directive 92/50 of 18/6/92, OJ 1992 L 209.
20. Directive 93/38, OJ 1993, L 199.
21. Article 1(a) of Directive 71/305 as amended by Directive 89/440.
22. General Industrial Classification of Economic Activities within the
European Communities, see Annex II Directive 71/305.
23. Concession contracts are public works projects under which the consider-
ation for the works consists in a franchise (concession) to operate the
completed works or in a franchise plus payment. For more details see
the Guide to the Community rules on opening government procurement,
OJ 1987, L 358/1 at 28.
24. Article 1(d) of Directive 93/37.
25. Article 3(3) Directive 71/305.
26. OJ 1971, C 82/13.
27. Article 3 of Directive 93/37.
28. This definition resembles the Court’s ruling on state controlled enter-
prises in case 152/84 Marshall v. Southampton and South West Hampshire
Area Health Authority [1986] ECR 723.
29. Article 3 of Directive 77/62 as amended by Directive 88/295.
30. Article 2 Directive 71/305 as amended by Directive 89/440.
31. See Articles 29(4) and 29(a) of Directive 71/305; also Article 26 of
Directive 77/62.
32. See the Commission’s Communication on the Regional and Social Aspects
of Public Procurement, where it gives an overview of the preference
schemes still existing in Member States, COM(89) 400 fin.
33. Article 2(1) of Directive 93/37.
34. Article 2(2) of Directive 93/37.
35. Article 4(b) of Directive 93/37.
36. Article 5(a) of Directive 93/37.
37. Article 5(c) of Directive 93/37. Also see the relation between public
procurement and Defence Policy in Chapter 7 below.
38. Article 2(4) and Article 8 of the Utilities Directive amended by Directive
93/38.
39. Article 2(5) (a) of the Utilities Directive amended by Directive 93/38.
40. Article 2(5) (b) of the Utilities Directive amended by Directive 93/38.
41. Article 3(1) of the Utilities Directive amended by Directive 93/38.
42. Article 3(2) to (4) of the Utilities Directive amended by Directive 93/38.
43. Article 6(1) of the Utilities Directive amended by Directive 93/38.
44. Article 7(2) of the Utilities Directive amended by Directive 93/38.
45. Article 8(2) of the Utilities Directive amended by Directive 93/38.
46. Article 9(1) (a) of the Utilities Directive amended by Directive 93/38.
47. It has been considered that these exemptions might be the appropriate
framework to introduce a common energy policy.
48. In the future sea-ferry operators would be excluded, but their position
has been kept under review. Inland water ferry services and river ferry
services operated by public authorities were to be brought within the
rules.
 Notes 245

49. For the concept of origin of goods and their lawful free circulation in the
Common Market, see Regulation 802/68, OJ English Special Edition
1968 (1), p. 165.
50. This includes the purchase of, on the one hand, services producing
audio-visual works such as films, videos and sound recording, including
advertising and, on the other hand broadcasting time (transmission by
air, satellite or cable).
51. These have been excluded because they are not part of the Community
liberalisation package for the telecommunications services market.
52. This refers to contracts which constitute transactions concerning shares,
for example. In the public sector, it will also include within the derogation
contracts awarded to financial intermediaries to arrange such transactions
because these are specifically excluded from the scope of investment ser-
vices (Category 6 of annex IA). However, this exclusion does not appear in
the Utilities Directive so that contracts for the services of intermediaries
who will make the arrangements for such transactions would be subject to
the provisions of the Utilities Directive.
53. Article 20(2)(b) of amending Utilities Directive 93/38.
54. See COM (90) 372 fin, SYN 293 and COM (91) 322 fin, SYN 293.
55. This practice resembles the market testing process often employed in the
United Kingdom between a contracting authority and an in-house team.
56. An affiliated undertaking, for the purposes of Article 1(3) of the Utilities
Directive, is an undertaking the annual accounts of which are consolid-
ated with those of the contracting entity in accordance with the require-
ments of the seventh Company Law Directive (Council Directive 83/349
(OJ. 1983 L 193/1)).
57. See the explanatory memorandum accompanying the text amending the
Utilities Directive (COM (91) 347-SYN 36 1) which states that this provi-
sion relates, in particular, to three types of service provision within
groups. These categories, which may or may not be distinct, are: the pro-
vision of common services such as accounting, recruitment and manage-
ment; the provision of specialised services embodying the know how of
the group; the provision of a specialised service to a joint venture.
58. OJ 1989 L 395.
59. OJ 1992 L 76/7.
60. Directive 92/13, OJ 1992, L 76/7.
61. See Article 7 of EC Directive 92/13.
62. See Case 188/89, Foster v. British Gas [1990] ECR-1313, in which the
European Court of Justice ruled that a Directive capable of having direct
effect could be invoked against a body which is subject to the control of
the State and has been delegated special powers.
63. This was the view of Advocate General Lenz in case 247/89, Commission
v. Portugal [1991] ECR I 3659.
64. EC Directive 90/531, as amended by EC Directive 93/38, OJ L 199.
65. Article 1(1) of Directive 93/38.
66. Article 1(2) of Directive 93/38.
67. The determination of a genuinely competitive regime is left to the utili-
ties operators themselves. See case, C 392/93, The Queen and H.M. Trea-
sury, ex parte British Telecommunications PLC, OJ 1993, C 287/6. This
is perhaps a first step towards self-regulation which could lead to the
246 Notes

disengagement of the relevant contracting authorities from the public

procurement regime.
68. Article 9(1) of Directive 93/36; Article 11(1) to (3) of Directive 93/37;
Article 22(1)(a) to (c) of Directive 93/38; Article 15(1) of Directive 92/50.
69. See case 272/91R, Commission v. Italian Republic, order of June 12, 1992.
70. Article 9(2) of Directive 93/36; Article 11(2) of Directive 93/37; Article 21
of Directive 93/38; Article 15(2) of Directive 92/50.
71. Article 9(3) of Directive 93/36; Article 11(5) of Directive 93/37; Article 24
of Directive 93/38; Article 16(1) of Directive 92/50.
72. Article 3(1) of Directive 93/37; Article 14(c) of Directive 93/38.
73. Article 5(1)(a) of Directive 93/36.
74. Article 5(1)(c) of Directive 93/36.
75. Article 14(b) of Directive 93/38.
76. Article 14(a) of Directive 93/38.
77. Article 7(1) of Directive 92/50.
78. Article 5(2) to (6) of Directive 93/36; Article 6(1) to (5) of Directive
93/37; Article 14(4) to (13) of Directive 93/38; Article 7(2) to (8) of
Directive 92/50.
79. Case 76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457.
80. Article 27 of Directive 93/37 and Article 31 of Directive 93/38.
81. Article 22 of Directive 93/36.
82. Article 20 of Directive 93/36; Article 24 of Directive 93/37; Article 31 of
Directive 93/38; Article 29 of Directive 92/50.
83. Article 25 of Directive 71/305.
84. Article 22 of Directive 93/36; Article 26 of Directive 93/37; Article 31(b)
of Directive 93/38; Article 31 of Directive 92/50.
85. Article 21 of Directive 71/305 as amended by Directive 89/440 and
Article 18 of Directive 77/62 as amended by Directive 88/295. The same
regime is followed in the Utilities Directive 90/531, Article 26, and the
Services Directive 92/50, Article 26.
86. Articles 20–23 of Directive 77/62; Articles 23 et seq. of Directive 71/305;
Articles 29 et seq. of Directive 90/531; Articles 29 et seq. of Directive 92/50.
87. Article 25 of Directive 93/36; Article 29 of Directive 93/37; Article 35 of
Directive 92/50.
88. See Article 27 of Directive 93/37, Article 31 of Directive 93/38 and
Article 22 of Directive 92/50.
89. Case 76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457.
90. See case C-27/86, Constructions et Enterprises Indusrtielles S.A (CEI) v.
Association Intercommunale pour les Autoroutes des Ardennes; case C-28/86,
Ing.A. Bellini & Co. S.p.A. v. Regie de Betiments; case C-29/86, Ing.A. Bellini
& Co. S.p.A. v. Belgian State [1987] ECR 3347.
91. See case C-89/92, Ballast Nedam Groep NV v. Belgische Staat [1994] 2
CMLR.
92. Case C-5/97, Ballast Nedam Groep NV v. Belgische Staat, judgement of
18 December 1997.
93. Case C-176/98, Holst Italia v. Comune di Cagliari, judgement of
2 December 1999.
 Notes 247

94. Evidence of financial and economic standing may be provided by means

of references including: i) appropriate statements from bankers; ii) the
presentation of the firm’s balance sheets or extracts from the balance
sheets where these are published under company law provisions; and iii) a
statement of the firm’s annual turnover and the turnover on construction
works for the three previous financial years.
95. See case C-94/99, ARGE Gewässerschutzt v. Bundesministerium für Land-
und Forstwirtschaft, paragraph 30, judgement of 7 December 2000.
96. Case 31/87, Gebroeders Beentjes B.V. v. State of Netherlands [1988] ECR 4635.
97. See Bellini Case 28/86, op.cit.
98. See case C-71/92, Commission v. Spain, judgement of June 30, 1993. Also,
Beentjes, op.cit. at paragraphs 15 and 16, where the simultaneous appli-
cation of selection of tenderes and award procedures is not precluded,
on condition that the two are governed by different rules.
99. Article 1(d) of Directive 93/36; Article 1(e) of Directive 93/37; Article
1(7)(a) of Directive 93/38; Article 1(d) of Directive 92/50.
100. Article 1(f) of Directive 93/36; Article 1(g) of Directive 93/37; Article
1(7)(c) of Directive 93/38; Article 1(c) of Directive 92/50.
101. See the section on framework agreements under Specific Types of
Contracts under the Public Procurement Directives, op.cit.
102. Article 6(2) of Directive 93/36; Article 7(2) of Directive 93/37; Article
20(1) of Directive 93/38; Article 11(2) of Directive 92/50.
103. Article 6(3) of Directive 93/36; Article 7(3) of Directive 93/37; Article
20(3) of Directive 93/38; Article 11(3) of Directive 92/50.
104. Article 1(e) of Directive 93/36; Article 1(f) of Directive 93/37; Article
1(7)(b) of Directive 93/38; Article 1(d) of Directive 92/50.
105. Article 12 of Directive 93/36; Article 13 of Directive 93/37; Article 26(2)
of Directive 93/38; Article 19(4) of Directive 92/50.
106. Article 24 of Directive 93/36.
107. Cases C-199/85, Commission v. Italy [1987] ECR 1039; also C-3/88,
Commission v. Italy [1989] ECR 4035.
108. C-199/85, Commission v. Italy, op. cit. C-3/88, Commission v. Italy, op. cit.
C-24/91, Commission v. Spain [1994] CMLR 621; C-107/92, Commission v.
Italy, judgement of August 2, 1993; C-57/94, Commission v. Italy, judge-
ment of May 18, 1995; C-296/92, Commission v. Italy, judgement of
January 12, 1994.
109. See case C-107/92, Commission v. Italy, judgement of August 2, 1993.
110. Article 26(1)(a) of Directive 93/36; Article 30(1)(a) of Directive 93/37;
Article 34(1)(b) of Directive 93/38; Article 36(1)(b) of Directive 92/50.
111. Article 26(1)(b) of Directive 93/36; Article 30(1)(b) of Directive 93/37;
Article 34(1)(a) of Directive 93/38; Article 36(1)(a) of Directive 92/50.
112. See Article 26 of Directive 93/36, Article 30 of Directive 93/37, Article 34
of Directive 93/38 and Article 36 of Directive 92/50.
113. Case 76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457.
114. See Case 103/88, Fratelli Costanzo S.p.A. v. Comune di Milano [1989] ECR
1839; Case 296/89, Impresa Dona Alfonso di Dona Alfonso & Figli s.n.c. v.
Consorzio per lo Sviluppo Industriale del Comune di Monfalcone, judgement
of June 18, 1991.
248 Notes

115. Case 76/81 Transporoute [1982] ECR 417, op. cit.

116. Case C-285/99 & 286/99, Impresa Lombardini SpA v. ANAS, judgement of
27 November 2001.
117. The Advisory Committee for Public Procurement was set up by Decision
77/63 (OJ 1977 L 13/15) and is composed of representatives of the
Member States belonging to the authorities of those States and has as its
task to supervise the proper application of Public Procurement Directives
by Member States.
118. See case C-94/99, ARGE Gewässerschutzt, op. cit.
119. In ARGE the Court adopted a literal interpretation of the Directives and
concluded that if the legislature wanted to preclude subsidised entities
from participating in tendering procedures for public contracts, it should
have said so explicitly in the relevant Directives. See paragraphs 26
et seq. of the Court’s judgement. Although the case has relevance in
the fields of selection and qualification procedures and award criteria,
the Court made no references to previous case-law regarding state aids in
public procurement, presumably because the Dupont de Nemours prece-
dence is still highly relevant.
120. Case 31/87, Gebroeders Beentjes v. The Netherlands, op. cit., paragraph 19.
121. Case C-324/93, R. v. The Secretary of State for the Home Department, ex parte
Evans Medical Ltd and Macfarlan Smith Ltd, judgement of 28 March 1995,
where the national court asked whether factors concerning continuity and
reliability as well as security of supplies fall under the framework of the
most economically advantageous offer, when the latter is being evaluated.
122. Framework agreements should not be confused with framework
contracts, the latter producing binding effects.
123. Article 9 of Directive 93/37.
124. Case 31/87, Gebroeders Beentjes B.V. v. The Netherlands [1989] ECR 4365.
125. See Bellini Case 28/86 [1987] ECR 3347.
126. See, to that effect, paragraph 31, where the Court stipulated that an
award criterion linked to the campaign against unemployment must be
expressly mentioned in the contract notice so that contractors may
become aware of its existence.
127. Directive 77/62, OJ C 61/26 [1977], as amended by Directive 98/50, OJ L
132 [1998] and consolidated by Directive 2001/23 OJ. L 82/16 [2001].
128. Case C 29/91, Dr Sophie Redmond Stichting v. Bartol [1992] IRLR 369.
129. Case C 382/92, Commission v. United Kingdom [1994] ECR 1.
130. Case 24/85, Spijkers v. Gebroders Benedik Abbatoir CV [1986] ECR 1, 1123.
Case C 209/91, Rask v. ISS Kantinservice [1993] ECR 1. Case C 392/92,
Schmidt v. Spar und Leihkasse der fruherer Amter Bordersholm, Kiel und
Cronshagen [1994] ECR 1, 1320.
131. Case C 392/92, Schmidt v. Spar und Leihkasse der fruherer Amter Border-
sholm, Kiel und Cronshagen [1994] ECR 1, 1320.
132. Case C 48/94, Rygaard v. Stro Molle Akustik, judgement of September 19,
1995, not yet reported.
133. See case C-324/86, Tellerup, judgement of 10 February 1998.
134. See case C-172/99, judgement of 25 January 2001, point 21/22.
135. See also the conclusions of Advocate-General Léger in Case C-172/99, in
particular paragraphs 28 to 37; and also paragraph 22 of the judgement
in this case.
 Notes 249

136. See case C-513/99, Concordia Bus Filandia v. Helsingin Kaupunki et HKL-
Bussiliikenn, nyr.
137. See the opinion of Advocate General Mischo delivered on 13 December
2001.
138. Clearly the Advocate General wanted to exclude any possibility of envir-
onmental considerations being part of selection criteria or disguised as
technical specifications, capable of discriminating against tendderes that
could not meet them.

Chapter 3 Lessons from Jurisprudence

1. See the recital of Directive 89/440, OJ L 210/1 1989 amending the origi-
nal Works Directive 71/305 concerning co-ordination of procedures for
the award of public works contracts.
2. See European Commission, White Paper for the Completion of the Internal
Market, COM (85) 310 fin., 1985.
3. See case C-45/87, Commission v. Ireland [1988] ECR 4929; also case C-359/
93, Commission v. The Netherlands, judgement of January 24, 1995.
4. See case C-45/87, Commission v. Ireland, op. cit.
5. See case C-359/93, Commission v. The Netherlands, op. cit.
6. See Article 27 of Directive 93/37, Article 31 of Directive 93/38 and
Article 22 of Directive 92/50.
7. Case 76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457.
8. See case C-27/86, Constructions et Enterprises Indusrtielles S.A (CEI) v.
Association Intercommunale pour les Autoroutes des Ardennes; case C-28/86,
Ing.A. Bellini & Co. S.p.A. v. Regie de Betiments; case C-29/86, Ing.A. Bellini
& Co. S.p.A. v. Belgian State [1987] ECR 3347.
9. See case C-89/92, Ballast Nedam Groep NV v. Belgische Staat [1994] 2
CMLR.
10. Case C-5/97, Ballast Nedam Groep NV v. Belgische Staat, judgement of
18 December 1997.
11. Case C-176/98, Holst Italia v. Comune di Cagliari, judgement of
2 December 1999.
12. See Bellini case, op. cit.
13. See case C-94/99, ARGE Gewässerschutzt v. Bundesministerium für Land-
und Forstwirtschaft, paragraph 30, judgement of 7 December 2000.
14. Case 31/87, Gebroeders Beentjes B.V. v. State of Netherlands [1988] ECR
4635.
15. See Bellini Case 28/86, op. cit.
16. See case C-71/92, Commission v. Spain, judgement of June 30, 1993. Also,
Beentjes, op. cit. at paragraphs 15 and 16, where the simultaneous appli-
cation of selection of tenderes and award procedures is not precluded,
on condition that the two are governed by different rules.
17. See Bovis, Public Procurement as an Instrument of Industrial Policy in the
European Union (Chapter 7), in T. Lawton (ed.), Industrial Policy and
Competitiveness in Europe, Macmillan Publishers, 1998, pp. 138–160;
Fernadez Martin and O. Stehmann, Product Market Integration versus
Regional Cohesion in the Community, European Law Review, 1991, Vol. 16,
p. 216.
250 Notes

18. See European Commission, Public Procurement: Regional and Social

Aspects, COM (89) 400.
19. Case 84/86, Commission v. Hellenic Republic, not reported.
20. Case C-21/88, Dupont de Nemours Italiana S.p.A v. Unita Sanitaria Locale
No. 2 di Carrara, judgement of March 20, 1990 [1990] ECR 889.
21. Case C-351/88, Lavatori Bruneau Slr. v. Unita Sanitaria Locale RM/24 di
Monterotondo, judgement of 11 July 1991.
22. Case C-360/89, Commission v. Italy [1992] ECR I 3401.
23. Directives 71/305 and 89/440
24. Articles 23 to 26 of Directive 71/305.
25. CaseC- 362/90, Commission v. Italy, judgement of March 31, 1992.
26. See case C-74/76, Ianelli & Volpi Spa v. Ditta Paola Meroni [1977] 2 CMLR
688.
27. See case C-18/84, Commission v. France [1985] ECR 1339; case 103/84,
Commission v. Italy [1986] ECR 1759; also, case C-244/81, Commission v.
Ireland [1982] ECR 4005.
28. Cases C-199/85, Commission v. Italy [1987] ECR 1039; also C-3/88,
Commission v. Italy [1989] ECR 4035.
29. C-199/85, Commission v. Italy, op. cit. C-3/88, Commission v. Italy, op. cit.
C-24/91, Commission v. Spain [1994] CMLR 621; C-107/92, Commission v.
Italy, judgement of August 2, 1993; C-57/94, Commission v. Italy, judge-
ment of May 18, 1995; C-296/92, Commission v. Italy, judgement of
January 12, 1994.
30. See case C-107/92, Commission v. Italy, judgement of August 2, 1993.
31. See Article 26 of Directive 93/36, Article 30 of Directive 93/37, Article 34
of Directive 93/38 and Article 36 of Directive 92/50.
32. Case 76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457.
33. See Case 103/88, Fratelli Costanzo S.p.A. v. Comune di Milano [1989] ECR
1839; Case 296/89, Impresa Dona Alfonso di Dona Alfonso & Figli s.n.c. v.
Consorzio per lo Sviluppo Industriale del Comune di Monfalcone, judgement
of June 18, 1991.
34. Case 76/81 Transporoute [1982] ECR 417, op. cit.
35. Case C-285/99 & 286/99, Impresa Lombardini SpA v. ANAS, judgement of
27 November 2001.
36. The Advisory Committee for Public Procurement was set up by Decision
77/63 (OJ 1977 L 13/15) and is composed of representatives of the
Member States belonging to the authorities of those States and has as its
task to supervise the proper application of Public Procurement Directives
by Member States.
37. See case C-94/99, ARGE Gewässerschutzt, op. cit.
38. See paragraphs 26 et seq. of the Court’s judgement.
39. Case 31/87, Gebroeders Beentjes v. The Netherlands, op. cit., paragraph 19.
40. Case C-324/93, R. v. The Secretary of State for the Home Department, ex
parte Evans Medical Ltd and Macfarlan Smith Ltd, judgement of 28 March
1995, where the national court asked whether factors concerning conti-
nuity and reliability as well as security of supplies fall under the frame-
work of the most economically advantageous offer, when the latter is
being evaluated.
 Notes 251

41. See paragraph 22 of Beentjes.

42. See paragraph 37 of Beentjes.
43. See case C-513/99, Concordia Bus Filandia v. Helsingin Kaupunki et HKL-
Bussiliikenne, pending. The case concerns inter alia the permissibility of
environmental considerations as part of the award criteria.
44. See Case 24/91, Commission v. Kingdom of Spain [1994] CMLR 621; case
247/89, Commission v. Portugal [1991] ECR I 3659.
45. See Case 188/89, Foster v. British Gas [1990] ECR-1313, in which the
European Court of Justice ruled that a Directive capable of having direct
effect could be invoked against a body which is subject to the control of
the State and has been delegated special powers.
46. This was the view of Advocate General Lenz in case 247/89, Commission
v. Portugal [1991] ECR I 3659.
47. EC Directive 90/531, as amended by EC Directive 93/38, OJ L 199.
48. Article 1(1) of Directive 93/38.
49. Article 1(2) of Directive 93/38.
50. See case, C 392/93, The Queen and H.M. Treasury, ex parte British
Telecommunications PLC, OJ 1993, C 287/6.
51. Council Decision 87/565, OJ 1987, L 345.
52. See C. Bovis, Public entities awarding procurement contracts under the
framework of EC Public Procurement Directives, Journal of Business Law,
1993, Vol. 1, pp. 56–78; S. Arrowsmith, The Law of Public and Utilities
Procurement, Sweet & Maxwell, 1997, pp. 87–88.
53. Case 31/87, Gebroeders Beentjes B.V. v. State of Netherlands [1988] ECR
4635.
54. The formality test and the relation between the state and entities under
its control was established in cases C-249/81, Commission v. Ireland
[1982] ECR 4005; C-36/74 Walrave and Koch v. Association Union Cycliste
International et al. (1974) ECR 1423.
55. See cases C-353/96, Commission v. Ireland and C-306/97, Connemara
Machine Turf Co Ltd v. Coillte Teoranta, judgement of 17 December 1998.
56. See case C-323/96, Commission v. Kingdom of Belgium, judgement of
17 September 1998.
57. For a similar approach, see also case C-144/97 Commission v. France
[1998] ECR 1-613.
58. Article 1(b) of Directive 93/37.
59. This type of dependency resembles the Court’s definition in its ruling on
state controlled enterprises in case 152/84 Marshall v. Southampton and
South West Hampshire Area Health Authority [1986] ECR 723.
60. See case C-237/99, Commission v. France, judgement of 1 February 2001.
61. See case C-380/98, The Queen and H.M. Treasury, ex parte University of
Cambridge, judgement of 3 October 2000.
62. See paragraph 25 of the Court’s judgement as well as the Opinion of the
Advocate General, in paragraph 46.
63. See case C-107/98, Teckal Slr v. Comune di Viano, judgement of
18 November 1999.
64. See Council Directive 83/349, OJ 1983 L193/1.
65. See cases C-223/99, Agora Srl v. Ente Autonomo Fiera Internazionale di
Milano, and C-260/99 aExcelsior Snc di Pedrotti runa & C v. Ente Autonomo
252 Notes

Fiera Internazionale di Milano, judgement of 10 May 2001; C-360/96,

Gemeente Arnhem Gemeente Rheden v. BFI Holding BV, judgement of
10 November 1998. C-44/96, Mannesmann Anlangenbau Austria AG et al.
v. Strohal Rotationsdurck GesmbH, judgement of 15 January 1998.
66. See the Opinion of Advocate-General Léger, point 65 of the Strohal case.
67. See case C-179/90, Merci Convenzionali Porto di Gevova [1991] ECR
1-5889; General economic interest as a concept represents “activities of
direct benefit to the public”; point 27 of the Opinion of Advocate-
General van Gerven.
68. See P. Valadou, La notion de pouvoir adjudicateur en matière de marchés de
travaux, Semaine Juridique, 1991, Ed. E, No. 3. p. 33.
69. See case C-44/96, Mannesmann Anlangenbau Austria, op. cit.
70. For example see Case 118/85 Commission v. Italy [1987] ECR 2599 para 7,
where the Court had the opportunity to elaborate on the distinction of
activities pursued by public authorities.
71. See Case C-364/92 SAT Fluggesellschafeten [1994] ECR 1-43; also Case
C-343/95 Diego Cali et Figli [1997] ECR 1-1547.
72. See case C-360/96, Gemeente Arnhem Gemeente Rheden v. BFI Holding BV,
op. cit.
73. See case C-223/99, Agora Srl v. Ente Autonomo Fiera Internazionale di
Milano, op. cit.
74. M. A. Flamme et P. Flamme, Enfin l’ Europe des Marchés Publics, Actualité
Juridique – Droit Administratif, November 20 1989, p. 653, argue along
the same lines.
75. Case C-44/96, Mannesmann Anlangenbau Austria. v. Strohal Rotationsdurck
GesmbH, op. cit.
76. For a comprehensive analysis of the case, see the annotation by Bovis in
36 CMLR (1999), pp. 205–225.
77. See Article 3(1) of Directive 93/37; Article 5(1) of Directive 93/36; Article
14 of Directive 93/38; Article 7(1) of Directive 92/50; Article 6(5) of
Directive 93/37; Article 2(1)(2) of Directive 93/37.
78. See C. Bovis, The Liberalisation of Public Procurement in the European Union
and its Effects on the Common Market, Ashgate, 1998, Chapter 1, p. 16
et seq.
79. See in particular, Working Together – Private Finance and Public Money,
Department of Environment, 1993. Private Opportunity, Public Benefit –
Progressing the Private Finance Initiative, Private Finance Panel and HM
Treasury, 1995.
80. Case C-107/98, Teckal Slr v. Comune di Viano, op. cit.
81. See the Compliance Directives 89/665 and 92/13, which ensure the
availability of remedies to interested parties and aggrieved tenderers,
access to justice and sufficient compensation to tenderers that suffered
damages because of illegal acts of contracting authorities.
82. See the reasoning of the Court in the cases BFI, Strohal and Agora cases,
op. cit.
83. See cases C-380/98, (Cambridge University) at paragraph 17, C-44/96,
(Strohal), paragraph 33; C-360/96, (BFI) paragraphs 42 and 43; C-237/99,
(OPAC), paragraphs 41 and 42.
84. Case 31/87, Gebroeders Beentjes B.V. v. The Netherlands [1989] ECR 4365.
 Notes 253

85. See Bellini Case 28/86 [1987] ECR 3347.

86. Nord-Pas-de-Calais (Case C-225/98, Commission v. French Republic [2000]
ECR 7445.
87. See, Beentjes, paragraph 29.
88. See, to that effect, paragraph 31, where the Court stipulated that an
award criterion linked to the campaign against unemployment must be
expressly mentioned in the contract notice so that contractors may
become aware of its existence.
89. See paragraphs 14 and 52 of the Beentjes and Nord-pas-de-Calais judge-
ments respectively.
90. There are a number of legal instruments relevant to social policy at
Community level that may apply to public procurement. They
include, in particular, Directives on safety and health at work (for
example, Council Directive 89/391 on the introduction of measures to
encourage improvements in the safety and health of workers at work,
and Directive 92/57 on the implementation of minimum safety and
health requirements at temporary or mobile construction sites),
working conditions and the application of employment law (for
example, Directive 96/71/EC of the European Parliament and of the
Council concerning the posting of workers in the framework of
the provision of services, OJ L 18/1 of 21.1.1997, and Directive
2001/23 on the safeguarding of employees’ rights in the event of
transfers of undertakings, businesses or parts of undertakings or
businesses, OJ L 82/16 of 22.3.2001, codifying Directive 77/187/EEC),
Directive 2000/43/EC of 29.6.2000 implementing the principle of
equal treatment between persons irrespective of racial or ethnic origin
(OJ 2000 L 180/22) and Directive 2000/78/EC of 27.11.2000 estab-
lishing a general framework for equal treatment in employment and
occupation (OJ 2000 L 303/16).
91. See General Building and Maintenance v. Greenwich Borough Council [1993]
IRLR 535. Along these lines, see the Commission’s Interpretative
Communication on the Community law applicable to public procure-
ment and the possibilities for integrating social considerations into
public procurement, COM (2001) 566, 15/10/01.
92. Directive 77/62, OJ C 61/26 [1977], as amended by Directive 98/50, OJ L
132 [1998] and consolidated by Directive 2001/23 OJ L 82/16 [2001].
93. Case C 29/91, Dr Sophie Redmond Stichting v. Bartol [1992] IRLR 369.
94. Case C 382/92, Commission v. United Kingdom [1994] ECR 1.
95. Case 24/85, Spijkers v. Gebroders Benedik Abbatoir CV [1986] ECR 1, 1123.
Case C 209/91, Rask v. ISS Kantinservice [1993] ECR 1. Case C 392/92,
Schmidt v. Spar und Leihkasse der fruherer Amter Bordersholm, Kiel und
Cronshagen [1994] ECR 1, 1320.
96. Case C 392/92, Schmidt v. Spar und Leihkasse der fruherer Amter
Bordersholm, Kiel und Cronshagen [1994] ECR 1, 1320.
97. Case C 48/94, Rygaard v. Stro Molle Akustik, judgement of September 19,
1995, not yet reported.
98. See case C-324/86, Tellerup, judgement of 10 February 1998.
99. See the analysis of C. Bovis, The Compatibility of socio-economic policies
with competitive tendering: the case of contract compliance and transfer of
254 Notes

undertakings, Chapter 21 in Legal Regulation of the Employment

Relations, Collins, Davies and Rideout (ed.) Kluwer 2000.
100. See case C-172/99, judgement of 25 January 2001, point 21/22.
101. See also the conclusions of Advocate-General Léger in Case C-172/99, in
particular paragraphs 28 to 37; and also paragraph 22 of the judgement
in this case.
102. See case C-513/99, Concordia Bus Filandia v. Helsingin Kaupunki et
HKL-Bussiliikenne, pending.
103. See the opinion of Advocate General Mischo delivered on 13 December
2001.
104. See the debate in this article on selection and qualification and technical
standards, pp. 2–5.
105. See the analysis in the opinion, paragraphs 77 to 123.

Chapter 4 Public Procurement as Economic and Policy

Exercise
1. See European Commission, White Paper for the Completion of the Internal
Market, COM (85) 310 fin., 1985.
2. See Commission of the European Communities, The Cost of Non-Europe,
Basic Findings, Vol. 5, Part A: The Cost of Non-Europe in Public Sector
Procurement, Official Publications of the European Communities,
Luxembourg, 1988. Also the Cechinni Report 1992 The European
Challenge, Aldershot, Wildwood House, 1988.
3. The European Commission has claimed that the regulation of public pro-
curement could bring substantial savings of ECU 20 bn or 0.5 per cent of
GDP to the (European) public sector. See European Communities, The Cost
of Non-Europe, op. cit.
4. See Commission of the European Communities, Statistical Performance
for keeping watch over public procurement, 1992. Also The Cost of Non-
Europe, Basic Findings, Vol. 5, Part A: The Cost of Non-Europe in Public
Sector Procurement, op. cit.
5. See Bovis, Recent case law relating to public procurement: A beacon for the
integration of public markets, 39 Common Market Law Review, 2002.
6. The term implies a firm with more than a third of its turnover made in
its own country and has enjoyed formal or informal government protec-
tion. The term has been defined by Abravanel, and Ernst (1992), Alliance
and acquisition strategies for European national champions, The McKinsey
Quarterly, No. 2, pp. 45–62.
7. See Nicolaides (ed.), Industrial Policy in the European Community:
A Necessary Response to Economic Integration, Martinus Nijhoff, 1993.
8. See Communication from the European Commission to the Council,
the European Parliament, the Economic and Social Committee, and the
Committee of the Regions, “Working together to maintain momentum”
2001 Review of the Internal Market Strategy, Brussels, 11 April 2001,
COM (2001) 198 final. Also European Commission, Commission
Communication, Public procurement in the European Union, Brussels,
March 11, 1998, COM (98) 143.
 Notes 255

9. The adverse effects of concerted practices in tendering procedures on

competition in the common market were recognised by the European
Court of Justice in case Cooperative Vereniging “Suiker Unie” UA v.
Commission [1975] ECR 1663.
10. See the Cechinni Report 1992 The European Challenge, Aldershot,
Wildwood House, 1988.
11. See European Commission, The Cost of Non-Europe, Basic Findings, Vol. 5,
Part A: The Cost of Non-Europe in Public Sector Procurement, Official
Publications of the European Communities, Luxembourg, 1988.
12. ibid.
13. See European Commission, The Opening-up of Public Procurement to
Foreign Direct Investment in the European Community, CC 93/79, 1995.
14. See P. Nicolaides (ed.), Industrial Policy in the European Community:
A Necessary Response to Economic Integration, Martinus Nijhoff, 1993.
15. EC Regulation 4064/89 [1989] OJ L 391/1.
16. See EC Regulation 1983/83 on exclusive distribution agreements
((OJ 1984 L 173/1); EC Regulation 1984/83 on exclusive purchasing
agreements (OJ L 173/5); EC Regulation 2349/84 on patent licence agree-
ments (OJ 1984 L 219); EC Regulation 123/85 on motor vehicle distribu-
tion and servicing agreements (OJ 1985 L 15/16); EC Regulation 417/85
on specialisation agreements (OJ 1995 L 53/1); EC Regulation 418/85 on
research and development agreements (OJ 1985 L 53/5); EC Regulation
4087/88 on franchising agreements (OJ 1988, L 369/46); EC Regulation
556/89 on know-how licensing agreements (OJ 1989, L 61/1). See also
C. Bovis, Business Law in the European Union, Chapters 2 and 3, Sweet
and Maxwell, 1997.
17. See C. Bovis, The Regulation Public Procurement as an Instrument of
Industrial Policy in the Common Market in T. Lawton (ed.) European Indus-
trial Policy and Competitiveness: concepts and instruments, Macmillan
Publishers, 1998.
18. Dunning, J. H. (1979), Explaining Changing Patterns of International
Production: in Defence of the Eclectic Theory, Oxford Bulletin of Economics
and Statistics, Vol. 41, No. 4, pp. 269–295.
19. Dunning, J. H. (1993), The Globalisation of Business, The Challenge of the
1990s, Routledge, London and New York.
20. The term tradability of public contracts denotes the effectiveness of the
supply side to engage in transactions with public authorities in Member
States other than the State of its residence or nationality.
21. McLachlan, D. L. (1985), Discriminatory Public Procurement, Economic
Integration and the Role of Bureaucracy, Journal of Common Market
Studies, Vol. 23, No. 4, pp. 357–372.
22. Porter, M. E. (1990), The Competitive Advantage of Nations, Macmillan,
London.
23. Prahalad C. K. and Y. Doz (1987), The Multinational Mission, Balancing
Local Demands and Global Vision, The Free Press.
24. Dunning, J. (1982), Multinational Enterprises in the 1970’s, in: K. Hopt,
European Merger Contract, de Fruyter, Berlin.
25. Vandermerwe, S., A Framework for constructing Euro-networks, European
Management Journal, Vol. 11, No. 1, pp. 55–61.
256 Notes

26. Tirole, J. (1988), The Theory of Industrial Organization, The MIT Press,
Cambridge.
27. See Valadou, La notion de pouvoir adjudicateur en matière de marchés
de travaux, Semaine Juridique, 1991, Ed. E, No. 3; Bovis, La notion et les
attributions d’organisme de droit public comme pouvoirs adjudicateurs dans le
régime des marchés publics, Contrats Publics, Septembre 2003.
28. Flamme et Flamme, Enfin l’ Europe des Marchés Publics, Actualité
Juridique – Droit Administratif, 1989.
29. On the issue of public interest and its relation with profit, see cases
C-223/99, Agora Srl v. Ente Autonomo Fiera Internazionale di Milano and
C-260/99 Excelsior Snc di Pedrotti Runa & C v. Ente Autonomo Fiera
Internazionale di Milano [2001] ECR 3605; C-360/96, Gemeente Arnhem
Gemeente Rheden v. BFI Holding BV [1998] ECR 6821; C-44/96, Mannes-
mann Anlangenbau Austria AG et al. v. Strohal Rotationsdurck GesmbH
[1998] ECR 73.
30. See Bovis, The Liberalisation of Public Procurement in the European Union
and its Effects on the Common Market, Ashgate, 1998, Chapter 1.
31. Monopsony is the reverse of monopoly power. The state and its organs
often appear as the sole outlet for an industry’s output.
32. See Article 26(1)(a) of Directive 93/36; Article 30(1)(a) of Directive 93/37;
Article 34(1)(b) of Directive 93/38; Article 36(1)(b) of Directive 92/50.
33. The thresholds laid down by the Directives are as follows:
EURO 5 m for all work and construction projects (Article 3(1) of
Directive 93/37; Article 14(c) of Directive 93/38).
EURO 200,000 for supplies contracts within the European Union (Article
5(1)(a) of Directive 93/36) and
EURO 136,000 for supplies contracts from third countries (Article 5(1)(c)
of Directive 93/36) which participate in the WTO Government Procure-
ment Agreement.
EURO 600,000 for supplies of telecommunication equipment under the
Utilities Directive (Article 14(b) of Directive 93/38) and ECU 400,000 for
all other supplies contracts awarded by public utilities (Article 14(a) of
Directive 93/38).
EURO 200,000 for services contracts (Article 7(1) of Directive 92/50).
34. See Bovis, An Impact Assessment of the European Community’s Public
Procurement Law and Policy, Journal of Business Law, Issue 5, 1999.
35. See the recital of Directive 89/440, OJ L 210/1 1989 amending the origi-
nal Works Directive 71/305 concerning co-ordination of procedures for
the award of public works contracts, stating that “it is necessary to
improve and extend the safeguards in the Directives that are designed
to introduce transparency into the procedures and practices for the
award of such contracts, in order to be able to monitor compliance with
the prohibition of restrictions more closely and at the same time to
reduce disparities in the competitive conditions faced by nationals of
different Member States”.
36. The demand side often omits risk assessment tests during the evaluation
process. The Directives remain vague as to the methods for assessing
financial risk, leaving a great deal of discretion in the hands of contract-
ing authorities. Evidence of financial and economic standing may be
 Notes 257

provided by means of references including: i) appropriate statements

from bankers; ii) the presentation of the firm’s balance sheets or extracts
from the balance sheets where these are published under company law
provisions; and iii) a statement of the firm’s annual turnover and the
turnover on construction works for the three previous financial years.
See case C-27/ 86, Constructions et Enterprises Indusrtielles S.A (CEI) v.
Association Intercommunale pour les Autoroutes des Ardennes; case C-28/86,
Ing.A. Bellini & Co. S.p.A. v. Regie de Betiments; case C-29/86, Ing.A. Bellini
& Co. S.p.A. v. Belgian State [1987] ECR 3347.
37. See Lawton (ed.), Industrial Policy and Competitiveness in Europe,
Macmillan, 1998.
38. The European rules provide for an automatic disqualification of an
“obviously abnormally low offer”. The term has not been interpreted in
detail by the judiciary at European and domestic levels and serves rather
as a “lower bottom limit”. The contracting authorities are under duty to
seek from the tenderer an explanation for the price submitted or to
inform him that his tender appears to be abnormally low and to allow a
reasonable time within which to submit further details, before making
any decision as to the award of the contract. See Case 76/81, SA
Transporoute et Travaux v. Minister of Public Works [1982] ECR 457; Case
103/88, Fratelli Costanzo S.p.A. v. Comune di Milano [1989] ECR 1839;
Case 296/89, Impresa Dona Alfonso di Dona Alfonso & Figli s.n.c. v.
Consorzio per lo Sviluppo Industriale del Comune di Monfalcone [1991] ECR
2967; Case C-285/99 & 286/99, Impresa Lombardini SpA v. ANAS [2001]
ECR 9233.
39. See Commission Communication, Public Procurement, September 22
1989, C 311 89.
40. See the Commission’s arguments in the Benjees (Case Case 31/87,
Gebroeders Beentjes B.V. v. State of Netherlands [1988] ECR 4635), Nord-
Pas-de-Calais (Case C-225/98, Commission v. French Republic [2000] ECR
7445), and the Concordia C-513/99, Concordia Bus Filandia v. Helsingin
Kaupunki et HKL-Bussiliikenne [2002] ECR 7213.
41. See Case C-45/87, Commission v. Ireland [1988] ECR 4929; Also Case
C-359/93, Commission v. The Netherlands [1995] ECR 151.
42. Case 76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457; Case 103/88, Fratelli Costanzo S.p.A. v. Comune di Milano [1989]
ECR 1839; Case 296/89, Impresa Dona Alfonso di Dona Alfonso & Figli
s.n.c. v. Consorzio per lo Sviluppo Industriale del Comune di Monfalcone
[1991] ECR 2967; Case C-285/99 & 286/99, Impresa Lombardini SpA v.
ANAS [2001] ECR 9233.
43. See Posner, Antitrust Law, 2nd Edition, Chicago, 2000.
44. See Monti, Article 81 EC and Public Policy, 39 Common Market Law
Review, 2002, where it is argued that public policy considerations
balance the legality test of ab initio illegal restrictive agreements by
virtue of Art 81(1)(2) EC with a set of requirements contained in Art
81(3) EC and also developed by the EC Commission in its jurisdictional
capacity to provide individual exemptions.
45. See Bazex, Le droit public de la concurrence, RFDA, 1998; Arcelin, L’enter-
prise en droit interne et communautaire de la concurrence, Paris, Litec, 2003;
258 Notes

Guézou, Droit de la concurrence et droit des marches publics: vers une notion
transverale de mise en libre concurrence, Contrats Publics, Mars 2003.
46. See Jacquemin and de Jong, European Industrial Organization, Macmillan,
1997; Möschel, Competition Law from and Ordo Point of View, in Peackock
and Willgerodt, German Neo-Liberals and the Social Market Economy,
Macmillan, 1989.
47. See Commission Interpretative Communication on the Community law
applicable to public procurement and the possibilities for integrating social
considerations into public procurement, COM (2001) 566, 15 October
2001. Also, Commission Interpretative Communication on the Commun-
ity law applicable to public procurement and the possibilities for integrat-
ing environmental considerations into public procurement, COM (2001)
274, 4 July 2001.
48. See European Commission, Special Sectoral Report no 1, Public Procure-
ment, Brussels, November 1997.
49. See European Commission, Public Procurement: Regional and Social
Aspects, COM (89) 400.
50. The legislation on public procurement in the early days clearly allowed
for “preference schemes” in less favoured regions of the common market
which were experiencing industrial decline. See Articles 29(4) and 29(a)
of the EC Public Works Directive 71/305; also Art. 26 of EC Public
Supplies Directive 77/62. Such schemes required the application of
award criteria based on considerations other than the lowest price or the
most economically advantageous offer, subject to their compatibility
with Community Law in as much as they did not run contrary to the
principle of free movement of goods and to competition law considera-
tions with respect to state aids. Since the completion of the Internal
market (1992) they have been abolished, as they have been deemed
capable in contravening directly or indirectly the basic principle of non-
discrimination on grounds of nationality stipulated in the Treaty of
Rome.
51. For a thorough analysis see, Fernadez-Martin and Stehmann, Product
Market Integration versus Regional Cohesion in the Community, European
Law Review, Vol. 16, 1991.
52. See Bovis, The Liberalisation of Public Procurement in the European Union
and its Effects on the Common Market, op. cit.
53. European Commission, Public Procurement: Regional and Social Aspects,
COM (89) 400.
54. Commission of the European Communities, Statistical Performance for
keeping watch over public procurement, 1992.
55. See case C-74/76, Ianelli & Volpi Spa v. Ditta Paola Meroni [1977] 2 CMLR
688.
56. See case C-18/84, Commission v. France, 1985, ECR 1339; case 103/84,
Commission v. Italy, 1986, ECR 1759; also, case C-244/81, Commission v.
Ireland, 1982, ECR 4005.
57. See Bovis, Public Procurement as an Instrument of Industrial Policy in the
European Union, Chapter 7, in T. Lawton (ed.), Industrial Policy and
Competitiveness in Europe, Macmillan Publishers, 1998; Fernadez Martin
and Stehmann, Product Market Integration versus Regional Cohesion in the
Community, op. cit.
 Notes 259

58. Sub-contracting plays a major role in the opening up of public markets

as it is the most effective way of small and medium sized enterprises’
participation in public procurement. All Directives on Public Procure-
ment, influenced by Commission’s Communications on sub-contracting
and small and medium enterprises encourage the use of sub-contracting
in the award of public contracts. Particularly, in public supplies con-
tracts, the contracting entity in the invitation to tender may ask the ten-
derers on their intention to sub-contract to third parties part of the
contract. In public works contracts, contracting authorities awarding
the principal contract to a concessionaire may require the subcontract-
ing to third parties of at least 30 per cent of the total work provided for
by the principal contract.
59. An example of such approach is the views of the UK Government in
relation to the involvement of the private sector in delivering public ser-
vices. The so-called Private Finance Initiative (PFI), has been utilised as a
procurement and contractual system in order to create a framework
between the public and private sectors working together in delivering
public services. See in particular, Working Together – Private Finance and
Public Money, Department of Environment, 1993. Private Opportunity,
Public Benefit – Progressing the Private Finance Initiative, Private Finance
Panel and HM Treasury, 1995.
60. Of interest is the recent case ARGE (paragraphs 26 et seq. of the Court’s
judgement), where even the receipt of aid or subsidies incompatible
with the Treaty by an entity may be a reason for disqualification from
the selection process, as an obligation to repay an illegal aid would
threaten the financial stability of the tenderer in question. See Case
C-94/99, ARGE Gewässerschutzt v. Bundesministerium für Land-und Forst-
wirtschaft, judgement of 7 December 2000, where the Court concluded
that if the legislature wanted to preclude subsidised entities from partic-
ipating in tendering procedures for public contracts, it should have said
so explicitly in the relevant Directives.
61. See Case C-380/98, The Queen and H.M. Treasury, ex parte University of
Cambridge [2000] ECR 8035 at paragraph 17; Case C-44/96, C-44/96,
Mannesmann Anlangenbau Austria AG et al. v. Strohal Rotationsdurck
GesmbH [1998] ECR 73, paragraph 33; Case C-360/96, Gemeente Arnhem
Gemeente Rheden v. BFI Holding BV [1998] ECR 6821 at paragraphs 42 and
43; C-237/ 99, Commission v. France [2001] ECR 934, at paragraphs 41
and 42.
62. See Bovis, The Compatibility of Compulsory Tendering with Transfer of
Undertakings: the case of Contract Compliance and the Acquired Rights
Directive, Chapter 21, Legal Regulation of the Employment Relations,
Collins, Davies and Rideout (ed.) Kluwer, 2000.
63. See ILEA Contract Compliance Equal Opportunities Unit, Contract
Compliance: a brief history, London, 1990.
64. For a detailed analysis see P. E. Morris, “Legal Regulation of Contract
Compliance: an Anglo-American Comparison”, (1990) 19 Anglo-American
Law Review, 87.
65. In particular in the US, see Case 93-1841 Adarand Constructors v. Pena,
1995 Annual Volume of US Supreme Court. The United States Supreme
Court questioned the constitutionality in the application of contract
260 Notes

compliance as a potential violation of the equal protection component

of the Fifth Amendment’s Due Process Clause and ordered the Court
of Appeal to re-consider the employment of socio-economic policy
objectives in the award of federal public procurement contracts.
66. For an overview of the Social Policy in North American systems,
see Cnossen and Bovis, The framework of social policy in federal states: An
analysis of the law and policy on industrial relations in USA and Canada,
(1996) 12, International Journal of Comparative Labour Law and Industrial
Relations.
67. For example, in United Kingdom, every initiative relating to contract
compliance has been outlawed by virtue of the Local Government
Act 1988. Contract compliance from a public law perspective has been
examined by T. Daintith, in ‘Regulation by Contract: the new preroga-
tive’, (1979) 32 C.L.P, 41. For a comprehensive analysis of the issue
of contract compliance in relation to public contracts across the
European Community, see McCrudden, Contract Compliance and Equal
Opportunities, OUP 1997.
68. See case 31/87, Gebroeders Beenjes B.V. v. The Netherlands [1989] ECR
4365. Also see case C360/89, Commission v. Italy [1992] ECR 3401.
69. There are a number of legal instruments relevant to social policy at
Community level, that may apply to public procurement. They include,
in particular, Directives on safety and health at work (for example,
Council Directive 89/391 on the introduction of measures to encourage
improvements in the safety and health of workers at work, and Directive
92/57 on the implementation of minimum safety and health require-
ments at temporary or mobile construction sites), working conditions
and the application of employment law (for example, Directive
96/71/EC of the European Parliament and of the Council concerning the
posting of workers in the framework of the provision of services,
OJ L 18/1 of 21.1.1997, and Directive 2001/23 on the safeguarding of
employees’ rights in the event of transfers of undertakings, businesses or
parts of undertakings or businesses, OJ L 82/16 of 22.3.2001, codifying
Directive 77/187/EEC), Directive 2000/43/EC of 29.6.2000 implementing
the principle of equal treatment between persons irrespective of racial
or ethnic origin (OJ 2000 L 180/22) and Directive 2000/78/EC of
27.11.2000 establishing a general framework for equal treatment in
employment and occupation (OJ 2000 L 303/16).
70. It should be mentioned that adherence to health and safety laws have
been considered by a British court as part of the technical requirements
specified in the Works Directive for the process of selection of tenderers;
see General Building and Maintenance v. Greenwich Borough Council [1993]
IRLR 535. Along these lines, see the Commission’s Interpretative Com-
munication on the Community law applicable to public procurement
and the possibilities for integrating social considerations into public
procurement, COM (2001) 566, 15/10/01.
71. See Kruger, Nielsen, and Brunn, European Public Contracts in a Labour Law
Perspective (DJOF Publishing, 1997).
72. See Bovis, Social Policy Considerations and the European Public Procurement
regime, (1998) 3 International Journal of Comparative Labour Law and
Industrial Relations.
 Notes 261

73. See the application of the rule of reason to the principle of free move-
ment of goods and also the competition law principle prohibiting cartels
and collusive behaviour.
74. Case 31/87, Gebroeders Beentjes v. The Netherlands, op. cit., paragraph 19.
75. Case C-324/93, R. v. The Secretary of State for the Home Department,
ex parte Evans Medical Ltd and Macfarlan Smith Ltd [1995] ECR 563, where
the national court asked whether factors concerning continuity and
reliability as well as security of supplies fall under the framework of
the most economically advantageous offer, when the latter is being
evaluated.
76. See paragraph 22 of Beentjes.
77. See paragraph 37 of Beentjes.
78. See Directive 77/62, OJ C 61/26 [1977], as amended by Directive 98/50,
OJ L 132 [1998] and consolidated by Directive 2001/23 OJ L 82/16
[2001]. For a comprehensive analysis of the implications of transfer of
undertakings in public procurement see Case C 29/91, Dr Sophie
Redmond Stichting v. Bartol [1992] ECR 3189; Case C 382/92, Commission
v. United Kingdom [1994] ECR 2435; Case 24/85, Spijkers v. Gebroders
Benedik Abbatoir CV [1986] ECR 1123; Case C 209/91, Rask v. ISS
Kantinservice [1993] ECR 5735; Case C 392/92, Schmidt v. Spar und
Leihkasse der fruherer Amter Bordersholm, Kiel und Cronshagen [1994] ECR
1320; Case C 392/92, Schmidt v. Spar und Leihkasse der fruherer Amter
Bordersholm, Kiel und Cronshagen [1994] ECR 1320; Case C 48/94, Rygaard
v. Stro Molle Akustik [1995] ECR 2745; Case C-324/86, Tellerup [1998] ECR
739.
79. See Case C-513/99, Concordia Bus Filandia Oy Ab v. Helsingin Kaupunki
et HKL-Bussiliikenne [2002] ECR 7213.
80. The applicability of Competition Law and Policy of the Treaty (Articles
85, 86) in controlling collusive tendering and anti-competitive behav-
iour of suppliers, was the subject of Commission Decision 92/204, OJ
1992 L92/1.
81. See C. Bovis, Business Law in the European Union, Chapter 3, Sweet and
Maxwell, 1997.
82. Thomsen, S. and Nicolaides P. (1991), The evolution of Japanese Direct
Investment in Europe: Death of a Salesman, Royal Institute of International
Affairs, London.
83. The term implies a firm with more than a third of its turnover made in
its own country and has enjoyed formal or informal government protec-
tion. The term has been defined by Abravanel, R. and D. Ernst (1992),
Alliance and acquisition strategies for European national champions, The
McKinsey Quarterly, No. 2, pp. 45–62.
84. Abravanel, R. and D. Ernst (1992), Alliance and acquisition strategies for
European national champions, The McKinsey Quarterly, No. 2, pp. 45–62.
85. Davies, S. and B. Lyons (1993), The EC Industrial Organization Data
Matrix, Mimeo.
86. See European Commission, SMEs participation in public procurement in the
European Community (SEC(92) 722). European Commission Action Pro-
gramme for SMEs (COM (86) 445); (b) Public Procurement: Regional and
Social Aspects (COM (89) 400); (c) Promoting SME Participation in the
Community (COM (90) 166).
262 Notes

87. See European Commission, SME TASK FORCE: SMEs and Public Procure-
ment, Brussels 1988. European Commission, Pan European Forum on
Sub-Contracting in the Community, Brussels 1993.
88. See Council Decision 80/271, OJ 1979 L 71/1 and Council Decision 87/
565, OJ 1987, L 345/24. Also the Agreement on Government Procure-
ment as a result of the negotiations during the GATT Uruguay Round
which was signed on April 15, 1996. The new Government Procurement
Agreement (GPA), after ratification by its signatories, is in force since
January 1, 1996.
89. European Commission, Statistical Performance for keeping watch over public
procurement, 1992.

Chapter 5 A Critical Assessment of Public Procurement

1. 5 million EURO for all work and construction projects, Article 3(1) of
Directive 93/37; Article 14(c) of Directive 93/38.
200,000 EURO for supplies contracts within the European Union [Article
5(1)(a) of Directive 93/36] and
136,000 EURO for supplies contracts from third countries [Article 5(1)(c)
of Directive 93/36]
600,000 EURO for supplies of telecommunication equipment under the
Utilities Directive [Article 14(b) of Directive 93/38] and ECU 400,000 for
all other supplies contracts awarded by public utilities [Article 14(a) of
Directive 93/38]
200,000 EURO for services contracts [Article 7(1) of Directive 92/50].
2. Articles 17 and 20 of the Public Supplies (93/36) and Public Works
(93/37) Directives respectively.
3. Article 29(5) of Directive 71/305 as amended by Directive 89/440.
4. Case 76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457; Case No 104/75, SA SHV Belgium v. La Maison Ideale et Societe
Nationale du Longement, before the Belgian Conseil d’Etat, judgement of
24/6/86 of the Belgian Conseil d’Etat.
5. Article 1(d) of Directive 93/36; Article 1(e) of Directive 93/37; Article
1(7)(a) of Directive 93/38; Article 1(d) of Directive 92/50.
6. Article 1(f) of Directive 93/36; Article 1(g) of Directive 93/37; Article
1(7)(c) of Directive 93/38; Article 1(c) of Directive 92/50.
7. Article 1(e) of Directive 93/36; Article 1(f) of Directive 93/37; Article
1(7)(b) of Directive 93/38; Article 1(d) of Directive 92/50.
8. Article 1(5) of Directive 93/38.
9. Article 20(2)(i) of Directive 93/38.
10. Article 1(f) of Directive 93/36; Article 1(g) of Directive 93/37; Article
1(7)(c) of Directive 93/38; Article 1(c) of Directive 92/50.
11. Article 6(2) of Directive 93/36; Article 7(2) of Directive 93/37; Article
20(1) of Directive 93/38; Article 11(2) of Directive 92/50.
12. Article 6(3) of Directive 93/36; Article 7(3) of Directive 93/37; Article
20(3) of Directive 93/38; Article 11(3) of Directive 92/50.
13. Article 12 of Directive 93/36; Article 13 of Directive 93/37; Article 26(2)
of Directive 93/38; Article 19(4) of Directive 92/50.
14. Utilities were first regulated in their procurement by virtue of EC
Directive 90/531, OJ 1990, L 297.
 Notes 263

15. See Articles 37 and 90 EC.

16. Article 7 of Directive 88/295. See the White Paper on Completing the
Internal Market, paras. 61–79; also Council Resolution of 7 May 1985,
OJ 1985, C 136, on a new approach in the field of technical harmonisa-
tion and standards.
17. See the Documents of the Advisory Committee for the Opening up of
Public Procurement, Policy Guidelines on the Obligation to refer to European
Standards, CCO/91/67 final.
18. See the report of the Advisory Committee for the Opening up of Public
Procurement, Standards for Procurement, CCO/92/02.
19. Commission of the European Communities, The Use of Negotiated Proced-
ures as a Non-Tariff Barrier in Public Procurement, Brussels, 1995. The
industries/sectors investigated included Chemicals & Pharmaceuticals,
Heavy Steel Structures, Mechanical Engineering, Office Machinery &
Electronic Data Processing Equipment, Electrical Engineering, Instru-
ment Engineering, Motor Vehicles, Aerospace, Railway Rolling-Stock,
and Food Processing.
20. See the Green Paper on Public Procurement in the European Union:
Exploring the way forward, European Commission 1996.

Chapter 6 The New Public Procurement Regime

1. The current Public Procurement Directives have been recently amended
by Directive 2004/18, OJ L 134, 30.4.2004 on the coordination of
procedures for the award of public works contracts, public supply con-
tracts and public service contracts and Directive 2004/17, OJ L 134,
30.4.2004 coordinating the procurement procedures of entities operat-
ing in the water, energy, transport and postal services sectors.
2. See the proposal from the European Commission OJ C 29 E, 30.1.2001,
p. 11 and OJ C 203 E, 27.8.2002, p. 210; the opinion of the Economic
and Social Committee OJ C 193, 10.7.2001, p. 7; the opinion of the
Committee of the Regions OJ C 144, 16.5.2001, p. 23; the opinion of the
European Parliament of 17 January 2002 (OJ C 271 E, 7.11.2002, p. 176),
Council Common Position of 20 March 2003 (OJ C 147 E, 24.6.2003,
p. 1) and Position of the European Parliament of 2 July 2003 (not yet
published in the Official Journal). See also the Legislative Resolution
of the European Parliament of 29 January 2004 and Decision of the
Council of 2 February 2004.
3. See the Green Paper on Public Procurement in the European Union:
Exploring the way forward, European Commission 1996.
4. See Article 80 of Directive 2004/18, regarding implementation, where
Member States are obliged to bring into force the laws, regulations and
administrative provisions necessary to comply with the Public Sector
Directive no later than 31 January 2006 and by that deadline to inform
the European Commission on the measures they intend to introduce in
order to incorporate the Directive’s provisions into national laws.
5. The current Public Procurement regime includes the Public Supplies
Directive 93/36/EEC, OJ L 199, 9.8.1993 as amended by Directive 97/52/
EC OJ L 328, 28.11.1997; The Public Works Directive 93/37/EEC, OJ L
199, 9.8.1993 as amended by Directive 97/52/EC OJ L 328, 28.11.1997;
264 Notes

The Utilities Directives 93/38/EEC OJ L 199, 9.8.1993 as amended by

Directive 98/4/EC OJ L 101, 1.4.1998; The Public Services Directive
92/50/EEC, OJ L 209, 24.7.1992 as last amended by Directive 97/52/EC
OJ L 328, 28.11.1997; The Remedies Utilities Directive 92/13/EEC OJ L
076, 23.03.1992; The Public Remedies Directive 89/665/EEC OJ L 395,
30.12.1989.
6. The co-ordination of national procedures is the ratione behind all public
procurement legal instruments.
7. See Bovis, Public Procurement and the Internal Market of the 21st Century:
Economic Exercise versus Policy Choice, Chapter 17 in EU Law for the 21st
Century: Rethinking the New Legal Order, O’Keeffe and Tridimas (eds),
Hart Publishing 2005.
8. See Directives 92/50/EEC of 18 June 1992 relating to the coordination of
procedures for the award of public service contracts OJ L 209, 24.7.1992,
p. 1, as last amended by Directive 2001/78/EC (OJ L 285, 29.10.2001,
p. 1).
9. See Directive 93/36/EEC of 14 June 1993 coordinating procedures for
the award of public supply contracts OJ L 199, 9.8.1993, p. 1, as last
amended by Directive 2001/78/EC.
10. See Directive 93/37/EEC of 14 June 1993 concerning the coordination of
procedures for the award of public works contracts OJ L 199, 9.8.1993,
p. 54, as last amended by Directive 2001/78/EC.
11. For a comprehensive analysis of the public procurement case-law,
see Bovis, Recent case law relating to public procurement: A beacon for the
integration of public markets, 39 CMLRev, 2002.
12. See Communication from the European Commission to the Council,
the European Parliament, the Economic and Social Committee, and the
Committee of the Regions, “Working together to maintain momentum”
2001 Review of the Internal Market Strategy, Brussels, 11 April 2001,
COM (2001) 198 final. Also, European Commission, Commission Com-
munication, Public procurement in the European Union, Brussels, March
11, 1998, COM (98) 143. See Commission Interpretative Communication
on the Community law applicable to public procurement and the possi-
bilities for integrating social considerations into public procurement,
COM (2001) 566, 15 October 2001. Also, Commission Interpretative
Communication on the Community law applicable to public procure-
ment and the possibilities for integrating environmental considerations
into public procurement, COM (2001) 274, 4 July 2001.
13. See case C-94/99, ARGE Gewässerschutzt v. Bundesministerium für Land-
und Forstwirtschaft, paragraph 30, judgement of 7 December 2000, where
the Court stated that ruled that directly or indirectly subsidised tenders
by the state or other contracting authorities or even by the contracting
authority itself can be legitimately part of the evaluation process.
14. See OJ L 193, 18.7.1983, p. 1, as last amended by Directive 2001/65/EC
(OJ L 283, 27.10.2001, p. 28).
15. See case C-76/81, SA Transporoute et Travaux v. Minister of Public Works
[1982] ECR 457; case C-27/86, Constructions et Enterprises Indusrtielles S.A
(CEI) v. Association Intercommunale pour les Autoroutes des Ardennes; case
C-28/86, Ing.A. Bellini & Co. S.p.A. v. Regie de Betiments; case C-29/86,
 Notes 265

Ing.A. Bellini & Co. S.p.A. v. Belgian State [1987] ECR 3347; case C-89/92,
Ballast Nedam Groep NV v. Belgische Staat [1994] 2 CMLR; case C-5/97,
Ballast Nedam Groep NV v. Belgische Staat, judgement of 18 December
1997; case C-176/98, Holst Italia v. Comune di Cagliari, judgement of
2 December 1999.
16. Articles 44 to 46 govern the conduct of the procedure for Verification of
the suitability and choice of participants and award of contracts, Criteria
for qualitative selection, and Suitability to pursue a professional activity.
17. Article 53 refers to the award criteria being the most economically
advantageous offer or the lowest price. When the award is made to
the tender most economically advantageous from the point of view of
the contracting authority, various criteria linked to the subject-matter
of the public contract in question, for example, quality, price, technical
merit, aesthetic and functional characteristics, environmental character-
istics, running costs, cost-effectiveness, after-sales service and technical
assistance, delivery date and delivery period or period of completion.
When the award criterion refers to the lowest price only, no other
factors should play a part.
18. See OJ L 13, 19.1.2000, p. 12.
19. See OJ L 178, 17.7.2000, p. 1.
20. See Regulation (EC) No 761/2001 of the European Parliament and of
the Council of 19 March 2001 allowing a voluntary participation by
organisations in a Community eco-management and audit scheme
(EMAS) (OJ L 114, 24.4.2001, p. 1).
21. See OJ L 18, 12.1.97, p. 1.
22. See OJ L 336, 23.12.1994, p. 1.
23. See Council Directive 2000/78/EC of 27 November 2000 establishing a
general framework for equal treatment in employment and occupation
(OJ L 303, 2.12.2000, p. 16).
24. See Council Directive 76/207/EEC of 9 February 1976 on the implemen-
tation of the principle of equal treatment for men and women as regards
access to employment, vocational training and promotion, and working
conditions (OJ L 39, 14.2.1976, p. 40). Directive amended by Directive
2002/73/EC of the European Parliament and of the Council (OJ L 269,
5.10.2002, p. 15).
25. See OJ L 351, 29.12.1998, p. 1.
26. See OJ C 195, 25.6.1997, p. 1.
27. See OJ L 358, 31.12.1998, p. 2.
28. See OJ C 316, 27.11.1995, p. 48.
29. See OJ L 166, 28.6.1991, p. 77. Directive as amended by Directive
2001/97/EC of the European Parliament and of the Council of
4 December 2001 (OJ L 344, 28.12.2001, p. 76).
30. See OJ L 336, 23.12.1994, p. 1.
31. See OJ L 15, 21.1.1998, p. 14. Directive as last amended by Regulation
(EC) No 1882/2003 (OJ L 284, 31.10.2003, p. 1).
32. According to Article 68(2), for the adoption of a Decision the
Commission shall be allowed a period of three months commencing on
the first working day following the date on which it receives the
notification or the request. However, this period may be extended once
266 Notes

by a maximum of three months in duly justified cases, in particular if

the information contained in the notification or the request or in the
documents annexed thereto is incomplete.
33. Strategy for the internal market, Priorities 2003–2006, COM (2003) 238
final.
34. Communication from the Commission “A European initiative for
growth: Investing in networks and knowledge for growth and jobs”,
COM (2003) 690 final, 11 November 2003. This report was approved by
the Brussels European Council on 12 December 2003.
35. See Report on the results of the consultation on the Green Paper on
general interest services.
36. COM (2004) 237 fin.
37. The rules on the internal market, including the rules and principles gov-
erning public contracts and concessions, apply to any economic activity,
i.e. any activity which consists in providing services, goods, or carrying
out works in a market, even if these services, goods or works are
intended to provide a “public service”, as defined by a Member State.
38. See Interpretive Communication of the Commission on concessions in
Community law, OJ C 121, 29 April 2000.
39. See Directives 92/50/EEC, 93/36/EEC, 93/37/EEC, 93/38/EEC, relating to
the coordination of procedures for the award respectively of public
service contracts, public supply contracts, public works contracts, and
contracts in the water, energy, transport and telecommunications
sectors. These Directives will be replaced by Directive 2004/18/EC of
the European Parliament and of Council of 31 March 2004 relating to
the coordination of procedures for the award of public works, supply
and services contracts, and Directive 2004/17/EC of the European
Parliament and of the Council of 31 March 2004 relating to the coordi-
nation of procedures for the award of contracts in the water, energy,
transport and postal services sectors. Moreover, in certain sectors, and
particularly the transport sector, the organisation of a PPP may be
subject to specific sectoral legislation. See Regulation (EEC) No 2408/92
of the Council on access of Community air carriers to intra-Community
air routes, Council Regulation (EEC) No 3577/92 applying the principle
of freedom to provide services to maritime transport within Member
States, Council Regulation (EEC) No 1191/69 on action by Member
States concerning the obligations inherent in the concept of a public
service in transport by rail, road and inland waterway, as amended
by Regulation (EEC) No 1893/91, and the amended proposal for a
Regulation of the European Parliament and of the Council on action by
Member States concerning public service requirements and the award of
public service contracts in passenger transport by rail, road and inland
waterway (COM (2002) 107 final).
40. See Joint cases C-285/99 and C-286/99, Impresa Lombardini v. ANAS,
Judgement of 27 November 2001, paragraph 36 and, to that effect case
C-380/98, University of Cambridge, ECR I-8035 and case C-19/00, SIAC
construction, ECR I-7725.
41. In PPPs, the public partners are primarily national, regional or local
authorities. They may also be public law bodies created to fulfil general
 Notes 267

interest tasks under State control, or certain network system operators.

To simplify matters, the term “contracting body” will be used in this
document to designate all of these agencies. Thus this term covers “con-
tracting authorities” within the meaning of Directives 92/50/EEC,
93/36/EEC, 93/37/EEC and 2004/18/EC and the contracting entities
of the type “public authorities” and “public undertakings” within the
meaning of Directives 93/38/EEC and 2004/17/EC.
42. Judgement of the Court of 12 July 2001, Case C-399/98, Scala, ECR
I-5409, see in particular points 53 to 55.
43. i.e. those listed in Annex IA of Directive 92/50/EEC or Annex XVIA of
Directive 93/38/EEC.
44. Interpretative Communication on concessions under Community law,
OJ C 121, 29 April 2000.
45. Council Regulation (EC) No 2157/2001, 8 October 2001.

Chapter 7 Public-Private Partnerships

1. See T. Daintith, The Executive Power Today: Bargaining and Economic
Control in The Changing Constitution, J. Jowell and D. Oliver (eds), Oxford
University Press, 1985, where reference is made to the distinction
between dominium and imperium (the use of force by way of regulatory
or criminal law) as two ways of policy implementation by the state.
2. The industrial or commercial character of an organisation depends
much upon a number of criteria that reveal the thrust behind the
organisation’s participation in the relevant market. The state and its
organs may act either by exercising public powers or by carrying eco-
nomic activities of an industrial or commercial nature by offering
goods and services on the market. See for example, case 118/85
Commission v. Italy [1987] ECR 2599 para 7, where the European Court
of Justice had the opportunity to elaborate on the distinction of activi-
ties pursued by public authorities and activities of commercially
oriented undertakings. The key issue is the organisation’s intention to
achieve profitability and pursue its objectives through a spectrum of
commercially motivated decisions. The distinction between the range
of activities which relate to public authority and those which,
although carried out by public persons, fall within the private domain
is drawn most clearly from case-law and judicial precedence of the ECJ
concerning the applicability of competition rules of the Treaty to the
given activities. See cases C-364/92 SAT Fluggesellschaften [1994] ECR
1-43 and C-343/95 Diego Cali et Figli [1997] ECR 1-1547).
3. The origins of such activities can be found in J. J. Rousseau, The Social
Contract, where a core range of obligations is undertaken by the state on
behalf of its subjects. This is perhaps the first attempt to contractualised
the state/society relationship.
4. See M. L. Harrison, Corporatism and the Welfare State, Chapter 1,
Aldershot, Gower 1984.
5. See M. A. Flamme et P. Flamme, Enfin l’ Europe des Marchés Publics,
Actualité Juridique – Droit Administratif, November 20 1989, p. 653.
268 Notes

6. The concept “public interest” denotes the requirements of a community

(local or national) in its entirety which should not overlap with the
specific or exclusive interest of a clearly determined person or group of
persons. See P. Valadou, La notion de pouvoir adjudicateur en matière de
marchés de travaux, Semaine Juridique, 1991, Ed. E, No. 3. p. 33. Also, the
European Court of Justice has approached the above concept of public
interest by a direct analogy of the concept “general economic interest”,
as defined in Article 90(2) EC, which refers to public undertakings). See
case C-179/90, Merci Convenzionali Porto di Gevova [1991] ECR 1-5889,
where the notion general economic interest as a concept represents
“activities of direct benefit to the public”.
7. Apart from the above fundamental differentiating factor, a number of
striking variances distinguish private from public markets. These vari-
ances focus on structural elements of the relevant market place, compet-
itiveness, demand conditions, supply conditions, the production
process, and finally pricing and risk. They also provide for an indication
as to the different methods and approaches employed in their regula-
tion. See, C. Bovis, The Liberalisation of Public Procurement and its Impact
on the Common Market, Ashgate – Dartmouth Publishing International,
1998, pp. 5–11.
8. Corporatism has been deemed as an important instrument of indus-
trial policy of a state, in particular where procurement systems have
been utilised with a view to promoting structural adjustment policies
and favour national champions. See C. Bovis, The Choice of Policies
and the Regulation Public Procurement in the European Community in
T. Lawton (ed.) European Industrial Policy and Competitiveness: concepts
and instruments, Macmillan Publishers, 1998.
9. Although anti-trust rules are of negative nature, by no means they can
be deemed static. Perceptions concerning cartels and abusive dominant
behaviour change in line with contemporary socio-economic parame-
ters.
10. See C. Bovis, The Regulation of Public Procurement as an element in the
Evolution of European Economic Law, European Law Journal, Vol. 4. issue
2, p. 220 et seq. June 1998.
11. The adverse effects of concerted practices in tendering procedures
on competition in the common market were recognised by the the
European Court of Justice in case Cooperative Vereniging “Suiker Unie” UA
v. Commission [1975] ECR 1663.
12. See European Commission, The Cost of Non-Europe, Basic Findings, Vol. 5,
Part A: The Cost of Non-Europe in Public Sector Procurement, Official
Publications of the European Communities, Luxembourg, 1988. The
European Commission has claimed that the regulation of public pro-
curement through the newly established regime and the resulting elimi-
nation of non-tariff barriers arising from discriminatory and preferential
purchasing patterns of Member Sates could bring about substantial
savings of 20 billion EURO or 0.5 per cent of GDP to the (European)
public sector.
13. For an analysis of the concept, see C. Bovis, The Liberalisation of Public
Procurement and its Impact on the Common Market, pp. 4–20, op. cit.
 Notes 269

14. See P. J. Birkinshaw, Corporatism and Accountability in Corporatism and the

Corporate State, N. O’Sullivan and A. Cox (eds), Edward Elgar, 1988.
15. For example, defence, policing or other essential or core elements of
governance. It is maintained here that activities related to imperium
(the use of force by way of regulatory or criminal law) could not be the
subject of contractualised governance. A useful analysis for such argu-
ment is provided in case C-44/96, Mannesmann Anlangenbau Austria AG
et al. v. Strohal Rotationsdurck GesmbH, (judgement of January 15, 1998),
where the notions of public security and safety are used to described
a range of activities by the state which possess the characteristic of
“public service obligations”. For a commentary of the case, see C. Bovis,
Redefining Contracting Authorities under the EC Public Procurement Direct-
ives: An Analysis of the case C-44/96, Mannesmann Anlangenbau Austria AG
et al. v. Strohal Rotationsdurck GesmbH, Common Market Law Review,
Autumn 1998.
16. See, R. Thomas, Private Finance Initiative – Government by Contract,
European Public Law, Vol. 3, issue 4, p. 519 et seq. December 1997.
17. A number of reasons which have been put forward include inter alia
poor specification design, wrong contractual risk allocation, poor
control systems for contractual performance and bad planning and
delivery processes.
18. The structure of public markets reveals that in the supply/demand equa-
tion, the dominant part appears to be the demand side (the state and its
organs as purchasers), which initialises demand through an institution-
alised purchasing system, whereas the supply side (the industry) fights
for access to the relevant markets. Although this is normally the case,
one should not exclude the possibility of market oligopolisation and the
potential manipulation of the demand side. These advanced market
structures can occur more often in the future, as a result of the well
established trends of industrial concentration. See C. Bovis, The Liberali-
sation of Public Procurement and its Impact on the Common Market, op. cit.
p. 7; Also, P. Konstadacopoulos, The linked oligopoly concept in the Single
European Market, Public Procurement Law Review, 1995, Vol. 4, p. 213.
19. Normally in a public contract risk assessment includes contractual
elements which are associated with the design or construction of a
project, the required investment and financing, planning and opera-
tional matters, maintenance, residualisation, obsolescence, political/
legal aspects, industrial relations, usage volumes and finally currency
transactions.
20. A number of impact assessment studies of the procurement regime upon
the demand and supply sides have revealed the disproportionate risk
allocation amongst the parties. See, European Commission, The Use of
Negotiated Procedures as a Non-Tariff Barrier in Public Procurement, Brussels,
CC 9364, 1995. In this study, the author investigated on behalf of the
European Commission the award patterns of public contracts in six EC
Member States. The results showed the overall preference of contracting
authorities towards the lowest price award criterion. Even in cases where
the most economically advantageous offer was used for the award of a
public contract, contracting authorities prioritised the price given by
270 Notes

tenderers amongst the other parameters (technical reasons, aesthetic

reasons, quality of deliverables, after sales service or maintenance).
21. In another impact assessment study undertaken on behalf of the
European Commission, (The Opening-up of Public Procurement to Foreign
Direct Investment in the European Community, Brussels, CC 93/79, 1995)
the author examined the impact of the public procurement regime upon
foreign direct investment. Investment patterns towards industries doing
business with the public sector showed a considerable link between the
“low risk” assessments of the public contracts of these industries.
22. In its policy statement Public Sector Comparators and Value for Money,
February 1998, the HM Treasury Taskforce has set out the role of compar-
ators in public procurement, stressing the importance of the value-for-
money principle. The comparators are indices which help to distinguish
between the lowest cost and the best value for money for public author-
ities and also their use as an exercise of financial management and a
means of demonstrating savings to public authorities.
23. Case 76/81, SA Transporoute et Travaux v. Minister of Public Works [1982]
ECR 457; Case No 104/75, SA SHV Belgium v. La Maison Ideale et Societe
Nationale du Longement, before the Belgian Conseil d’Etat, judgement of
24/6/86 of the Belgian Conseil d’Etat.
24. The structure of public markets often reveals a monopsony/oligopsony
character. In terms of its origins, demand in public markets is institu-
tionalised and operates mainly under budgetary considerations rather
than price mechanisms. It is also based on fulfilment of tasks (pursuit of
public interest) and it is single for many products. Supply also has
limited origins, in terms of the establishment of close ties between
the public sector and industries supplying it and there is often a limited
product range. Products are rarely innovative and technologically
advanced and pricing is determined through tendering and negotia-
tions. The purchasing decision is primarily based upon the life-time
cycle, reliability, price and political considerations. Purchasing patterns
follow tendering and negotiations and often purchases are dictated by
policy rather than price/quality considerations.
25. See Working Together – Private Finance and Public Money, Department of
the Environment, 1993.
26. Private markets are generally structured as a result of competitive pres-
sures originating in the buyer/supplier interaction and their configura-
tion can vary from monopoly/oligopoly to perfect competition. Demand
arises from heterogeneous buyers with a variety of specific needs. It is
based on expectations and is multiple for each product. Supply, on the
other hand, is offered through various product ranges, where products
are standardised using known technology, but constantly improved
through research and development processes. The production process is
based on mass-production patterns and the product range represents a
large choice including substitutes, whereas the critical production factor
is cost level. The development cycle appears to be short to medium-term
and finally, the technology of products destined for the private markets is
evolutionary. Purchases are made when an acceptable balance between
price and quality is achieved. Purchase orders are multitude and at
 Notes 271

limited intervals. Pricing policy in private markets is determined by com-

petitive forces and the purchasing decision is focused on the price-quality
relation. The risk factor is highly present.
27. The Public Accounts Parliamentary Committee and the Accounting Standards
Board (ASB) took different views with the HM Treasury over the issue of
excluding PFI deals from the Public Sector Borrowing Requirement. In its
December 1997 report, the Accounting Standards Board came out in
favour of including PFI projects in the PSBR, although the Treasury,
backed by the National Audit Office and the Audit Commission had
issue guidelines to the contrary.
28. A number of government documents have eulogised the Private Finance
Initiative. See in particular, Working Together – Private Finance and Public
Money, Department of Environment, 1993. Private Opportunity, Public
Benefit – Progressing the Private Finance Initiative, Private Finance Panel
and HM Treasury, 1995.
29. See the Guidelines for Smoothing the Procurement Process, Private Finance
Panel and HM Treasury, 1996. Also A Step by Step Guide to PFI, HM
Treasury, 1997
30. The European Public Procurement Directives include the Supplies
Directive 93/36 (OJ 1993 L199/1), the Works Directive 93/37 (OJ 1993
L 199/54), the Utilities Directive 93/38 (OJ 1993 L199/84), and finally
the Services Directive 92/50 (OJ 1992 L 209/1).
31. These stages represent the necessary steps that a contracting authority
should take before publicising its intention to procure a PFI project. See
A Step-by-Step Guide to the PFI Procurement Process, Private Finance Executive
Panel, 1997.
32. According to Article 1(a) of the Works Directive 93/37, a works contract
refers to the execution, by whatever means, of a work corresponding
to the requirements specified by the contracting authority. According to
Article 1(a) of Services Directive 92/50, a services contract refers to the
provision of a service by a service provider to a contracting authority.
33. Interestingly, the Services Directive 92/50 allows the use of negotiated
procedures in cases where specifications of a contract cannot be drawn
[Article 11(2)(c)].
34. If the contract specifications were negotiated with a sole contractor,
other tenderes/candidates are discriminated against. Contract specifica-
tions cannot be part of any award procedures, particularly the negoti-
ated ones. See C. Bovis, EC Public Procurement Law, Longman, European
Law Series, 1997, pp. 63–66.
35. Contract specifications affect essentially the price of the contract. There
is no real element of competition in the process, when the contracting
authority cannot compare other offers with the offer of the preferred
bidder.
36. Services which are included in Part B of the Services Directive 92/50: hotel
and restaurant services, rail transport services, water transport services,
supporting and auxiliary transport services, legal services, personnel place-
ment and supply services, investigation and security services, education
and vocational education services, health and social services, recreational,
cultural and sporting services.
272 Notes

37. See Article 11(2)(c) of the Services Directive 92/50.

38. See case C-331/92, Gestion Hotelera Internacional SA v. Communidad
Autonoma de Canarias [1994] ECR 1-1329.
39. This line of argumentation was forwarded by the European Commission
in its submissions in the Gestion Hotelera case.
40. Article 1(d) of the Works Directive 93/37.
41. Article 3 of the Works Directive 93/37.
42. See C. Bovis, EC Public Procurement Law, Longman, op. cit., pp. 67–68.
43. See Article 7(3) of the Works Directive 93/37.
44. See Article 3(4) of the Works Directive 93/37. An affiliated undertaking is
one over which the concessionaire exercises dominant influence directly
or indirectly or vice versa or both the concessionaire and its affiliated
undertaking are part of another undertaking which exercises directly or
indirectly dominant influence over them.
45. See COM (90) 372 fin, SYN 293 and COM (91) 322 fin, SYN 293.
46. See C. Bovis, The Liberalisation of Public Procurement and its Impact on the
Common Market, op. cit., pp. 71–77.
47. See Article 2 of the Works Directive 93/37.
48. See for example Article 24 of the Supplies Directive 93/36.
49. Case 243/89, Commission v. Denmark, judgement of 22 June 1993.
50. See European Commission, Declaration on the use of post-tender negotia-
tions, OJ [1994] L 111/114.
51. See case 31/87 Gebroeders Beentjes v. Netherlands [1988] ECR 4635. Also
case C-71/92, Commission v. Spain, judgement of June 30, 1993.
52. See Private Finance Panel, Private Opportunity, Public Benefit, 1995.
53. See the analysis of the relevant case-law in C. Bovis, EC Public
Procurement Law, op. cit., pp. 77–103.
54. Case 199/85, Commission v. Italy [1987] ECR 1039; case 31/87, Gebroeders
Beenjes v. The Netherlands [1988] ECR 4635; case 3/88, Commission v. Italy
[1989] ECR 4035; case 24/91, Commission v. Kingdom of Spain [1994]
CMLR 621; case 107/92, Commission v. Italy, judgement of August 2,
1993; case C 324/93, R. v. The Secretary of State for the Home Department,
ex parte. Evans Medical Ltd and Macfarlan Smith Ltd, judgement of March
28, 1995; case C-57/94, Commission v. Italy, judgement of May 18, 1995;
case 296/92, Commission v. Italy, judgement of January 12, 1994.
55. After a contract award, contracting authorities are obliged to publish a
Contract Award Notice (CAN) in the OJEC. This is a form of formal
notification of the award of the contract, of the successful tenderer and
the price of its offer, as well as the reasons for its selection.
56. Any eliminated candidate from the selection process has the right to ask
the contracting authority for the reasons for his rejection, and any ten-
derer whose bid has been rejected has the right to ask for the reasons
and for the name of the successful tenderer. The contracting authority
must provide the information requested within fifteen days of receiving
the request. Contracting authorities must also inform candidates or
tenderers who so request of the grounds for their decision to cancel an
award procedure.
57. See Communication from the Commission of 23 April 2003 “Develop-
ing the trans-European transport network: innovative funding solutions
 Notes 273

– interoperability of electronic toll collection systems”, COM (2003) 132,

and the Report of the high-level group on the trans-European transport
network of 27 June 2003.
58. See Eurostat, (Statistical Office of the European Communities), press
release STAT/04/18 of the 11th of February 2004.
59. See Communication from the Commission to the Council and to the
Parliament “Public finances in EMU 2003”, published in the European
Economy No 3/2003 (COM (2003) 283 final).
60. Conclusions of the Presidency, Brussels European Council, 12 December
2003.
61. COM (2003) 270 final.
62. The rules on the internal market, including the rules and principles
governing public contracts and concessions, apply to any economic
activity, i.e. any activity which consists in providing services, goods, or
carrying out works in a market, even if these services, goods or works are
intended to provide a “public service’, as defined by a Member State.
63. See Interpretive Communication of the Commission on concessions in
Community law, OJ C 121, 29 April 2000.
64. i.e. Directives 92/50/EEC, 93/36/EEC, 93/37/EEC, 93/38/EEC, relating to
the coordination of procedures for the award respectively of public
service contracts, public supply contracts, public works contracts, and
contracts in the water, energy, transport and telecommunications sectors.
These Directives will be replaced by Directive 2004/18/EC of the Euro-
pean Parliament and of Council of 31 March 2004 relating to the coordi-
nation of procedures for the award of public works, supply and services
contracts, and Directive 2004/17/EC of the European Parliament and of
the Council of 31 March 2004 relating to the coordination of procedures
for the award of contracts in the water, energy, transport and postal ser-
vices sectors, which will be published in the near future in the OJ.
Moreover, in certain sectors, and particularly the transport sector, the
organisation of a PPP may be subject to specific sectoral legislation.
See Regulation (EEC) No 2408/92 of the Council on access of Community
air carriers to intra-Community air routes, Council Regulation (EEC)
No 3577/92 applying the principle of freedom to provide services to
maritime transport within Member States, Council Regulation (EEC)
No 1191/69 on action by Member States concerning the obligations
inherent in the concept of a public service in transport by rail, road and
inland waterway, as amended by Regulation (EEC) No 1893/91, and the
amended proposal for a Regulation of the European Parliament and of
the Council on action by Member States concerning public service
requirements and the award of public service contracts in passenger
transport by rail, road and inland waterway (COM (2002) 107 final).
65. Interpretative Communication on concessions under Community law,
OJ C 121, 29 April 2000.
66. See Article 3(1) of Directive 93/37/EEC, and Articles 56 to 59 of Directive
2004/18/EC.
67. Although the Commission had proposed that services concessions be
included in Directive 92/50/EEC, in the course of the legislative process
the Council decided to exclude them from the scope of that Directive. In
274 Notes

the Telaustria case, the Court stated that “[the] obligation of transparency
which is imposed on the contracting authority consists in ensuring, for the
benefit of any potential tenderer, a degree of advertising sufficient to enable
the services market to be opened up to competition and the impartiality of pro-
curement procedures to be reviewed”. See Case C-324/98. See also ruling of
30 May 2002, also Case C-358/00, Deutsche Bibliothek, ECR I-4685. These
principles are also applicable to other State acts entrusting an economic
service to a third party, as for example the contracts excluded from the
scope of the Directives owing to the fact that they have a value below
the threshold values laid down in the secondary legislation (Order of the
Court of 3 December 2001, Case C-59/00, Vestergaard, ECR I-9505), or
so-called non-priority services.
68. Spain (law of 23 May 2003 on works concessions), Italy (Merloni law of
1994, as amended) and France (Sapin law of 1993) have nonetheless
adopted such legislation.
69. i.e. those listed in Annex IA of Directive 92/50/EEC and Annex XVIA of
Directive 93/38/EEC.
70. i.e. Directives 93/37/EEC, 92/50/EEC and 2004/18/EC.
71. For example, it may apply when the works are to be carried out in a geo-
logically unstable or archaeological terrain and for this reason the extent
of the necessary work is not known when launching the tender proce-
dure. A similar derogation is provided for in Article 11(2) of Directive
92/50, and in Article 30(1)(b) of Directive 2004/18/EC.
72. Article 29 of Directive 2004/18/EC.
73. Article 23 of Directive 2004/18/EC and Article 34 of Directive
2004/17/EC.
74. The Member States use different terminology and schemes in this
context (for example, the Kooperationsmodell, joint PPPs, Joint
Ventures).
75. Note that the principles governing the law on public contracts and con-
cessions apply also when a task is awarded in the form of a unilateral act
(e.g. a legislative or regulatory act).
76. When planning and arranging such transactions, the test involving the
use of the standard forms – which include the elements indispensable
for a well-informed competition, – also demonstrate how difficult it can
be to find an adequate form of advertising to award tasks falling within
the scope of the law on public contracts or concessions.
77. Participation in a new undertaking with a view to establishing lasting eco-
nomic links is covered by the provisions of Article 56 relating to the free
movement of capital. See Annex I of Directive 88/361/EEC, adopted in the
context of the former Article 67, which lists the types of operations which
must be considered as movements of capital.
78. See Judgements of the Court of 4 June 2002, Case C-367/98, Com-
mission v. Portugal, ECR I-4731; Case C-483/99, Commission v. France,
ECR I-4781; and Judgements of 13 May 2003, Case C-463/00, Com-
mission v. Spain, ECR. I-4581; Case C-98/01, Commission v. United
Kingdom, Rec. I-4641. On the possible justifications in this framework,
see Judgement of the Court of 4 June 2002, Case C-503/99, Commission
v. Belgium, ECR I-4809.
 Notes 275

79. This follows from the neutrality principle of the Treaty in relation to
ownership rules, recognised by Article 295 of the Treaty.
80. Article 56 ff. of the EC Treaty.
81. See Communication of the Commission on certain legal aspects
concerning intra-EU investment OJ No C 220, 19 July 1997, p. 15.
82. See, on these lines, the Judgement of the Court of 13 April 2000, Case
C-251/98, Baars, ECR I-2787.
83. See the FIDE Congress on The Application in the Member States of the
Directives on Public Procurement, Madrid 1990.
84. One the most notorious features of the existing PFI process is the
abysmally lengthy negotiation stage and the prolonged pre-contractual
arrangements. This represents a considerable (recoverable) cost which
would be reflected in the final deal. See Financial Times, 24/07/98,
where its was reported that lengthy negotiations due to the lack of
clear guidelines and standard contractual forms presented a serious
deterrent factor in concluding PFI contracts. The average PFI gestation
period is 18 months compared with 2 months in traditional public
procurement contracts.
85. A serious set back for the Private Finance Initiative in the United
Kingdom was the report of the Accounting Standards Board (The Tweedie
Report – September 1998) which criticised the practice of the HM Treasury
not to include PFI deals in the Public Sector Borrowing Requirement
(PSBR) balance sheet. The report condemned such practices and urged
the government, for the sake of legal certainty and good public sector
management and accounting to issue new guidelines for future PFI pro-
jects and treat them in the same way as traditional public procurement
spending.
86. Prior to 1997, there was considerable uncertainty as to the legal position
of the parties to a privately financed project. The relevant legislation did
not provide in concreto for the rights and obligations of the private sector
and threatened with ultra vires agreements concluded between certain
public authorities (local authorities and health trusts) and the private
sector. It was unclear whether these authorities had explicit or implied
powers to enter into such contracts, a situation which left privately
financed transactions in limbo. As a consequence, the National Health
Service (Private Finance) Act 1997 and the Local Government Act (Contracts)
1997 have been enacted in order to clear all legal obstacles. Both acts
have introduced a “clearance system” where the relevant authorities
must certified a prospective PFI deal with the government, checking not
only its vires but the whole commercial viability and procedural delivery
mechanism of a privately financed contract.

Chapter 8 The Procurement of Services of General Interest

1. See the Commission Communication on services of general interest in
Europe, OJ C 17, 19.1.2001; the Green Paper on services of general inter-
est, COM (2003) 270, 21.5.2003, the White Paper on Services of general
interest, COM (2004), 12.5.2004.
276 Notes

2. The Public Procurement regime includes the Public Supplies Directive

93/36/EEC, OJ L 199, 9.8.1993 as amended by Directive 97/52/EC OJ L
328, 28.11.1997; The Public Works Directive 93/37/EEC, OJ L 199,
9.8.1993 as amended by Directive 97/52/EC OJ L 328, 28.11.1997; The
Utilities Directives 93/38/EEC OJ L 199, 9.8.1993 as amended by
Directive 98/4/EC OJ L 101, 1.4.1998; The Public Services Directive
92/50/EEC, OJ L 209, 24.7.1992 as last amended by Directive 97/52/EC
OJ L 328, 28.11.1997; The Remedies Utilities Directive 92/13/EEC OJ L
076, 23.03.1992; The Public Remedies Directive 89/665/EEC OJ L 395,
30.12.1989. The Public Procurement Directives have been recently
amended by Directive 2004/18, OJ L 134, 30.4.2004 on the coordination
of procedures for the award of public works contracts, public supply con-
tracts and public service contracts and Directive 2004/17, OJ L 134,
30.4.2004 coordinating the procurement procedures of entities operating
in the water, energy, transport and postal services sectors.
3. See Bovis, La notion et les attributions d’organisme de droit public comme
pouvoirs adjudicateurs dans le régime des marchés publics, Contrats Publics,
Septembre 2003.
4. See Bovis, Public Procurement and the Internal Market of the 21st Century:
Economic Exercise versus Policy Choice, Chapter 17 in EU Law for the
21st Century: Rethinking the New Legal Order, O’Keeffe and Tridimas
(eds), Hart Publishing 2005. Also Communication from the European
Commission to the Council, the European Parliament, the Economic and
Social Committee, and the Committee of the Regions, “Working together
to maintain momentum” 2001 Review of the Internal Market Strategy,
Brussels, 11 April 2001, COM (2001) 198 final. Also, European Commis-
sion, Commission Communication, Public procurement in the European
Union, Brussels, March 11, 1998, COM (98) 143. See Commission
Interpretative Communication on the Community law applicable to
public procurement and the possibilities for integrating social considera-
tions into public procurement, COM (2001) 566, 15 October 2001. Also,
Commission Interpretative Communication on the Community law
applicable to public procurement and the possibilities for integrating
environmental considerations into public procurement, COM (2001)
274, 4 July 2001.
5. See Bartosch, The relationship of Public Procurement and State Aid
Surveillance – The Toughest Standard Applies? Common Market Law
Review, 35, 2002 and the case-law provided in the analysis.
6. See the Conclusions of the European Council of 14 and 15 December
2001, paragraph 26; Conclusions of the Internal Market, Consumer
Affairs and Tourism Council meeting of 26 November 2001 on services
of general interest; Commission Report to the Laeken European Council
on Services of General Interest of 17 October 2001, COM (2001) 598;
Communication from the Commission on the application of the State
aid rules to public service broadcasting, OJ 2001 C 320, p. 5; see also the
two general Commission Communications on Services of General
Interest of 1996 and 2000 in OJ 1996 C 281, p. 3 and OJ 2001 C 17, p. 4.
7. See Article 73 EU Treaty.
8. See Article 36 of the Charter of Fundamental Rights.
 Notes 277

9. See Commission Communication on services of general interest, COM

(2000) 553.
10. See cases C-180-184/98 Pavel Pavlov and Others v. Stichting Pensioenfonds
Medische Specialisten [2000] ECR I-6451. The Court pronounced that any
activity consisting in offering goods and services on a given market is
an economic activity. Thus, economic and non-economic services can
co-exist within the same sector and sometimes even be provided by the
same organisation.
11. For example, specific Community rules on environmental legislation
such as Directive 75/442, OJ L 194, 25.7.1975, on waste, and Regulation
259/93 OJ L 30, 6.2.1993, on shipment of waste have establish the princi-
ple of proximity, which overrides other fundamental community princi-
ples. According to this principle, waste should be disposed of as near as
possible to the place it was generated. For television broadcasting, the
importance of public service broadcasting for the democratic, social and
cultural needs of each society a specific Protocol on the systems of
public broadcasting in the Member States has been annexed to the
Amsterdam Treaty. See also the so-called Television without Frontiers
Directive 89/552 on the co-ordination of certain provisions laid down by
law, regulation or administrative action in Member States concerning
the pursuit of television broadcasting activities, OJ L 298, 17.10.1989.
12. See Bovis, Public Procurement within the framework of European Economic
Law, European Law Journal, 4.2.1998.
13. See Valadou, La notion de pouvoir adjudicateur en matière de marchés de
travaux, Semaine Juridique, 1991, Ed. E, No. 3.
14. See Flamme et Flamme, Enfin l’ Europe des Marchés Publics, Actualité
Juridique – Droit Administratif, 1989.
15. On the issue of public interest and its relation with profit, see cases
C-223/99, Agora Srl v. Ente Autonomo Fiera Internazionale di Milano
and C-260/99 Excelsior Snc di Pedrotti Runa & C v. Ente Autonomo Fiera
Internazionale di Milano [2001] ECR 3605; C-360/96, Gemeente Arnhem
Gemeente Rheden v. BFI Holding BV [1998] ECR 6821; C-44/96, Mannes-
mann Anlangenbau Austria AG et al. v. Strohal Rotationsdurck GesmbH
[1998] ECR 73.
16. See Bovis, The Liberalisation of Public Procurement in the European Union
and its Effects on the Common Market, Chapter 1, Ashgate Dartmouth,
1998.
17. See Article 1(b) of Directive 93/37. The criteria for bodies governed by
public law to be considered as a contracting authority for the purposes
of the EU Public Procurement Directives are: i) they must be established
for the specific purpose of meeting needs in the general public interest
not having an industrial or commercial character; ii) they must have
legal personality; and iii) they must be financed, for the most part, by
either the state, or regional or local authorities, or other bodies governed
by public law; or subject to management supervision by these bodies, or
having an administrative or supervisory board, more than half of whose
members are appointed by the state, regional or local authorities or by
other bodies governed by public law. There is a list of such bodies in
Annex I of Directive 93/37 which is not an exhaustive one, in the sense
278 Notes

that Member States are under an obligation to notify the Commission of

any changes to that list.
18. See cases C-223/99, Agora Srl v. Ente Autonomo Fiera Internazionale di
Milano and C-260/99 Excelsior Snc di Pedrotti Runa & C v. Ente Autonomo
Fiera Internazionale di Milano [2001] ECR 3605; C-360/96, Gemeente
Arnhem Gemeente Rheden v. BFI Holding BV [1998] ECR 6821; C-44/96,
Mannesmann Anlangenbau Austria AG et al. v. Strohal Rotationsdurck
GesmbH [1998] ECR 73.
19. See the Opinion of Advocate-General Léger, point 65 of the Strohal case.
20. See case C-179/90, Merci Convenzionali Porto di Gevova [1991] ECR 1-5889;
General economic interest as a concept represents “activities of direct
benefit to the public”; point 27 of the Opinion of Advocate-General van
Gerven.
21. See Valadou, La notion de pouvoir adjudicateur en matière de marchés de
travaux, Semaine Juridique, 1991, Ed. E, No. 3. p. 33.
22. See case C-44/96, Mannesmann Anlangenbau Austria, op. cit. footnote 12.
23. For example see Case 118/85 Commission v. Italy [1987] ECR 2599 para 7,
where the Court had the opportunity to elaborate on the distinction
of activities pursued by public authorities and those pursued by com-
mercial undertakings. For a detailed analysis, see Bovis, Recent case law
relating to public procurement: A beacon for the integration of public markets,
39 Common Market Law Review, 2002.
24. See Case C-364/92 SAT Fluggesellschafeten [1994] ECR 1-43; also Case
C-343/95 Diego Cali et Figli [1997] ECR 1-1547.
25. See case C-360/96, Gemeente Arnhem Gemeente Rheden v. BFI Holding BV
[1998] ECR 6821.
26. See case C-223/99, Agora Srl v. Ente Autonomo Fiera Internazionale di
Milano and C-260/99 Excelsior Snc di Pedrotti Runa & C v. Ente Autonomo
Fiera Internazionale di Milano [2001] ECR 3605C-223/99.
27. See Flamme et Flamme, Enfin l’ Europe des Marchés Publics, Actualité
Juridique – Droit Administratif, November 20 1989, p. 653, argue along
the same lines.
28. See case C-44/96, Mannesmann Anlangenbau Austria AG et al. v. Strohal
Rotationsdurck GesmbH [1998] ECR 73.
29. In support of its argument that the relevant entity (Österreichische
Staatsdruckerei) is not a body governed by public law, the Austrian
Government maintained that the proportion of public interest activities
represents no more than 15–20 per cent of its overall activities. For
a comprehensive analysis of the case and an insight to the concept of
contracting authorities for the purposes of public procurement, see
the annotation by Bovis in 36 Common Market Law Review, 1999,
pp. 205–225.
30. For example, the relevant provisions stipulating the thresholds for the
applicability of the Public Procurement Directives [Article 3(1) of
Directive 93/37; Article 5(1) of Directive 93/36; Article 14 of Directive
93/38; Article 7(1) of Directive 92/50]; the provisions relating to the
so-called “mixed contracts” [Article 6(5) of Directive 93/37], where
the proportion of the value of the works or the supplies element in a
public contract determines the applicability of the relevant Directive;
 Notes 279

and finally the relevant provisions which embrace the award of works
contracts subsidised directly by more than 50 per cent by the state within
the scope of the Directive [Article 2(1)(2) of Directive 93/37].
31. See Bovis, The Liberalisation of Public Procurement in the European Union
and its Effects on the Common Market, Chapter 1, op. cit. footnote 10.
32. See case C-107/98, Teckal Slr. v. Commune di Viano [1999] ECR I-8121.
33. This type of dependency resembles the Court’s definition in its ruling on
state controlled enterprises in case 152/84 Marshall v. Southampton and
South West Hampshire Area Health Authority [1986] ECR 723.
34. C-237/99, Commission v. France [2001] ECR 934.
35. See case C-380/98, The Queen and H.M. Treasury, ex parte University of
Cambridge [2000] ECR 8035.
36. See paragraph 25 of the Court’s judgement as well as the Opinion of the
Advocate General, paragraph 46.
37. See Freeman, Extending Public Law Norms through Privatization, 116
Harvard Law Review, 2003, p. 1285 et seq. Freeman argues that privatisa-
tion does not curtail the remit of the state. On the contrary it enacts a
process of “publicisation”, where through the extension of public law
norms to private undertakings entrusted with the delivery of public
services the state maintains a dominant position in the dispersement
of governance. Also, along the same lines see Frug, New Forms of
Governance, Getting Public Power to Private Actors, 49 UCLA Review 2002,
p. 1687.
38. Corporatism has been deemed as an important instrument of industrial
policy of a state, in particular where procurement systems have been
utilised with a view to promoting structural adjustment policies and
favour national champions. See Bovis, The Choice of Policies and the Regula-
tion Public Procurement in the European Community in T. Lawton (ed.)
European Industrial Policy and Competitiveness: concepts and instruments,
Macmillan Publishers, 1998.
39. Alongside privatisation, the notion of contracting out represents a
further departure from the premises of traditional corporatism. The
notion of contracting out is an exercise which aims at achieving poten-
tial savings and efficiency gains for contracting authorities, when they
test the market in an attempt to define whether the provision of works
or the delivery of services from a commercial operator could be cheaper
than that from the in-house team. Contracting out differs from privati-
sation to the extent that the former represents a transfer of undertaking
only, whereas the latter denotes transfer of ownership. Contracting out
depicts a price-discipline exercise by the state, against the principle of
insourcing, where, the self-sufficient nature of corporatism resulted in
budgetary inefficiencies and poor quality of deliverables to the public.
See Domberger and Jensen, Contracting Out by the Public Sector: Theory,
Evidence, Prospects, Oxford Review of Economic Policy, Winter 1997.
40. Classic example of such approach is the views of the UK Government in
relation to the involvement of the private sector in delivering public ser-
vices through the so-called Private Finance Initiative (PFI), which attempts
to create a framework between the public and private sectors working
together in delivering public services. See in particular, Working Together
280 Notes

– Private Finance and Public Money, Department of Environment, 1993.

Private Opportunity, Public Benefit – Progressing the Private Finance Initiative,
Private Finance Panel and HM Treasury, 1995.
41. See Freeman, The Private Role in Public Governance, 75 NYUL Rev, 2000,
p. 534 et seq. Also, Bovis, Understanding Public Private Partnerships, 2002
Alexander Maxwell Law Scholarship Trust.
42. See the ratione of the Court in the cases BFI, Strohal and Agora cases,
op. cit. footnotes 9 and 12.
43. For example, defence, policing or other essential or core elements of
public governance. It is maintained here that activities related to
imperium (the use of force by way of regulatory or criminal law) could
not be the subject of contractualised governance. A useful analysis for
such argument is provided in case C-44/96, Mannesmann Anlangenbau
Austria AG et al. v. Strohal Rotationsdurck GesmbH [1998] ECR 73, where
the notions of public security and safety are used to described a range of
activities by the state which possess the characteristic of “public service
obligations”. For a commentary of the case, see Bovis, Redefining Con-
tracting Authorities under the EC Public Procurement Directives: An Analysis
of the case C-44/96, Mannesmann Anlangenbau Austria AG et al. v. Strohal
Rotationsdurck GesmbH, 36 Common Market Law Review, 1998.
44. EC Directive 90/531, as amended by EC Directive 93/38, OJ L 199.
45. Article 1(1) of Directive 93/38.
46. Article 1(2) of Directive 93/38.
47. The determination of a genuinely competitive regime is left to the utilities
operators themselves. See case, C 392/93, The Queen and H.M. Treasury,
ex parte British Telecommunications [1996] ECR I-1631. This is perhaps a
first step towards self-regulation which could lead to the disengagement of
the relevant contracting authorities from the public procurement regime.
48. This is particularly the case of non-governmental organisations (NGOs)
which operate under the auspices of the central or local government
and are responsible for public interest functions. See Bovis, Public entities
awarding procurement contracts under the framework of EC Public Procure-
ment Directives, Journal of Business Law, 1993, Vol. 1, pp. 56–78; Arrow-
smith, The Law of Public and Utilities Procurement, Sweet & Maxwell,
1997, pp. 87–88.
49. Case 31/87, Gebroeders Beentjes B.V. v. State of Netherlands [1988] ECR
4635.
50. The formality test and the relation between the state and entities under
its control was established in cases C-249/81, Commission v. Ireland
[1982] ECR 4005; C-36/74 Walrave and Koch v. Association Union Cycliste
International et al. (1974) ECR 1423.
51. See cases C-353/96, Commission v. Ireland and C-306/97, Connemara
Machine Turf Co Ltd v. Coillte Teoranta [1998] ECR I-8565.
52. See case C-323/96, Commission v. Kingdom of Belgium [1998] ECR I-5063.
53. The fact that the Belgian Government did not, at the time, exercise
any direct or indirect control relating to procurement policies over the
Vlaamese Raad was considered immaterial on the grounds that a state-
cannot rely on its own legal system to justify non-compliance with
EC law and particular Directives. For these comments, see also case
C-144/97 Commission v. France [1998] ECR 1-613.
 Notes 281

54. See Article 13 of Directive 2002/22/EC, OJ L 108, 24.4.2002, on universal

service and users’ rights relating to electronic communications networks
and services (Universal Service Directive).
55. See Articles 7 and 9(4) of Directive 97/67/EC, OJ L 15, 21.1.1998, on
common rules for the development of the internal market of Com-
munity postal services and the improvement of quality of service, as
amended by Directive 2002/39/EC, OJ L 176, 5.7.2002.
56. See Article 4 of Regulation 2408/92, OJ L 240, 24.8.1992, on access for
Community air carriers to intra-Community air routes.
57. See Regulation 1169/69, OJ L 156, 28.6.1969, on action by the Member
States concerning the obligations inherent in the concept of a public
service in transport by rail, road and inland waterway, as last amended
by Regulation 1893/91, OJ L 169, 29.6.1991.
58. See Alexis, Services publics et aides d’Etat, Revue du droit de l’Union
Européenne, 2002, p. 63; Grespan, An example of the application of State
aid rules in the utilities sector in Italy, Competition Policy Newsletter, No.
3, October 2002, p. 17; Gundel, Staatliche Ausgleichszahlungen für
Dienstleistungen von allgemeinem wirtschaftlichem Interesse: Zum Verhδltnis
zwischen Artikel 86 Absatz 2 EGV und dem EG-Beihilfenrecht, Recht der
Internationalen Wirtschaft, 3/2002, p. 222; Nettesheim, Europäische
Beihilfeaufsicht und mitgliedstaatliche Daseinsvorsorge, Europäisches Wirt-
schafts und Steuerrecht, 6/2002, p. 253; Nicolaides, Distortive effects of
compensatory aid measures: a note on the economics of the Ferring judgement,
European Competition Law Review, 2002, p. 313; Nicolaides, The new
frontier in State aid control. An economic assessment of measures that com-
pensate enterprises, Intereconomics, Vol. 37, No. 4, 2002, p. 190; Rizza,
The financial assistance granted by Member States to undertakings entrusted
with the operation of a service of general economic interest: the implications of
the forthcoming Altmark judgement for future State aid control policy,
Columbia Journal of European Law, 2003; Bovis, Public procurement, state
aids and the financing of public services: between symbiotic correlation and
asymmetric geometry, European State Aids Law Quarterly, November
2003, pp. 563–577.
59. See Case C-387/92 [1994] ECR I-877; Case T-106/95 FFSA and Others
v. Commission [1997] ECR II-229; Case C-174/97 P [1998] ECR I-1303;
Case T-46/97 [2000] ECR II-2125.
60. Article 87(1) EC defines State aid as “any aid granted by a Member State
or through State resources in any form whatsoever which distorts or
threatens to distort competition by favoring certain undertakings or the
production of certain goods …, in so far as it affects trade between
Member States”.
61. Article 86(2) EC stipulates that… “Undertakings entrusted with the oper-
ation of services of general economic interest … shall be subject to the
rules contained in this Treaty, in particular to the rules on competition,
insofar as the application of such rules does not obstruct the perfor-
mance, in law or in fact, of the particular tasks assigned to them. The
development of trade must not be affected to such an extent as would
be contrary to the interests of the Community”.
62. See Case 240/83, Procureur de la République v. ADBHU [1985] ECR 531; Case
C-53/00, Ferring SA v. Agence centrale des organismes de sιcuritι sociale
282 Notes

(ACOSS) [2001] ECR I-09067. Case Case C-280/00, Altmark Trans GmbH
and Regierungsprδsidium Magdeburg v. Nahverkehrsgesellschaft Altmark GmbH
and Oberbundesanwalt beim Bundesverwaltungsgericht [2003] ECR 1432.
63. See Opinion of Advocate General Jacobs in Case C-126/01, Ministre de
l’economie, des finances et de l’industrie v. GEMO SA [2003] ECR 3454.
64. For example the form in which the aid is granted (See cases C-323/82
Intermills v. Commission [1984] ECR 3809, paragraph 31; Case C-142/87
Belgium v. Commission, cited in note 18, paragraph 13; and Case 40/85
Belgium v. Commission [1986] ECR I-2321, paragraph 120, the legal status
of the measure in national law (See Commission Decision 93/349/EEC of
9 March 1993 concerning aid provided by the United Kingdom Govern-
ment to British Aerospace for its purchase of Rover Group Holdings over
and above those authorised in Commission Decision 89/58/EEC autho-
rising a maximum aid to this operation subject to certain conditions (OJ
1993 L 143, p. 7, point IX), the fact that the measure is part of an aid
scheme (Case T-16/96, Cityflyer Express v. Commission [1998] ECR II-757),
the reasons for the measure and the objectives of the measure ((case
C-173/73 Italy v. Commission [1974] ECR 709; Deufil v. Commission
[1987] ECR 901; Case C-56/93 Belgium v. Commission [1996] ECR I-723;
Case C-241/94 France v. Commission [1996] ECR I-4551; Case C-5/01
Belgium v. Commission [2002] ECR I-3452) and the intentions of the
public authorities and the recipient undertaking (Commission Decision
92/11/EEC of 31 July 1991 concerning aid provided by the Derbyshire
County Council to Toyota Motor Corporation, an undertaking produc-
ing motor vehicles (OJ 1992 L 6, p. 36, point V.).
65. See case C-173/73 Italy v. Commission [1974] ECR 709, paragraph 27; Deufil
v. Commission [1987] ECR 901; Case C-56/93 Belgium v. Commission [1996]
ECR I-723 paragraph 79; Case C-241/94 France v. Commission [1996]
ECR I-4551, paragraph 20; and Case C-5/01 Belgium v. Commission [2002]
ECR I-3452, paragraphs 45 and 46.
66. See Case 156/77, Commission v. Belgium [1978] ECR 1881.
67. A similar approach is followed for maritime transport. See The European
Commission’s Guidelines on State aid to maritime transport, OJ 1997
C 205.
68. See Article 2 of Regulation 2408/92.
69. Such public service obligations may be imposed on scheduled air ser-
vices to an airport serving peripheral or development regions in its terri-
tory or on a thin route to any regional airport in its territory provided
that any such route is considered vital for the economic development of
the region in which the airport is located.
70. See Article 4 (1) (h) of Regulation 2408/92 OJ L 240 1992 on access for
air carriers to intra-Community air routes.
71. The development and the implementation of these schemes must be
transparent. The Commission would expect the selected company to
have an analytical accounting system sophisticated enough to apportion
the relevant costs (including fixed costs) and revenues.
72. See Case 173/73, Italian Government v. Commission [1974] ECR 709.
73. See Cases C301/87 France v. Commission [1990] ECR I-307; Case C142/87
Belgium v. Commission [1990] ECR I-959.
 Notes 283

74. Article 5 of Regulation 2408/92 allows for exclusive concessions on

domestic routes granted by law or contract, to remain in force, under
certain conditions, until their expiry or for three years, whichever dead-
line comes first. Possible reimbursement given to the carriers benefiting
from these exclusive concessions may well involve aid elements, particu-
larly as the carriers have not been selected by an open tender (as foreseen
in the case of Article 4 (1) of Regulation 2408/92).
75. See the Communication of the Commission to the Member States concern-
ing public authorities’ holdings in company capital (Bulletin EC 9-1984,
point 3.5.1). The Commission considers that such an investment is not aid
where the public authorities effect it under the same conditions as a private
investor operating under normal market economy conditions. See also
Commission Communication to the Member States on the application of
Articles 92 and 93 of the EEC Treaty and of Article 5 of Commission
Directive 80/723/EEC to public undertakings in the manufacturing sector
(OJ 1993 C 307, p. 3, point 11).
76. See in particular Case 234/84 Belgium v. Commission [1986] ECR 2263,
paragraph 14; Case C-142/87 Belgium v. Commission (“Tubemeuse”)
[1990] ECR I-959, paragraph 26; and Case C-305/89 Italy v. Commission
(“Alfa Romeo”) [1991] ECR I-1603, paragraph 19.
77. See Joined Cases C-278/92 to C-280/92 Spain v. Commission [1994]
ECR I-4103.
78. For example where the public authorities contribute capital to an under-
taking (Case 234/84 Belgium v. Commission [1986] ECR 2263; Case
C-142/87 Belgium v. Commission [1990] ECR I-959; Case C-305/89 Italy v.
Commission [1991] ECR I-1603), grant a loan to certain undertakings
(Case C-301/87 France v. Commission [1990] ECR I-307; Case T-16/96
Cityflyer Express v. Commission [1998] ECR II-757), provide a state guaran-
tee (Joined Cases T-204/97 and T-270/97 EPAC v. Commission [2000] ECR
II-2267), sell goods or services on the market (Joined Cases 67/85, 68/85
and 70/85 Van der Kooy and Others v. Commission [1988] ECR 219; Case
C-56/93 Belgium v. Commission [1996] ECR I-723; Case C-39/94 SFEI and
Others [1996] ECR I-3547), or grant facilities for the payment of social
security contributions (Case C-256/97 DM Transport [1999] ECR I-3913),
or the repayment of wages Case C-342/96 Spain v. Commission [1999]
ECR I-2459).
79. See Case C-303/88 Italy v. Commission [1991] ECR I-1433, paragraph 20;
Case C-261/89 Italy v. Commission [1991] ECR I-4437, paragraph 15; and
Case T-358/94 Air France v. Commission [1996] ECR II-2109, paragraph
70.
80. For example where the public authorities pay a subsidy directly to an
undertaking (Case 310/85 Deufil v. Commission [1987] ECR 901), grant
an exemption from tax (Case C-387/92 Banco Exterior [1994] ECR I-877;
Case C-6/97 Italy v. Commission [1999] ECR I-2981; Case C-156/98
Germany v. Commission [2000] ECR I-6857) or agree to a reduction in
social security contributions (Case C-75/97 Belgium v. Commission [1999]
ECR I-3671; Case T-67/94 Ladbroke Racing v. Commission [1998] ECR II-1)
81. See the analysis in the Joined Cases C-278/92 to C-280/92 Spain
v. Commission [1994] ECR I-4103.
284 Notes

82. See Case C-360/96, Gemeente Arnhem Gemeente Rheden v. BFI Holding BV,
op. cit.
83. Cases C-223/99, Agora Srl v. Ente Autonomo Fiera Internazionale di Milano
and C-260/99 Excelsior Snc di Pedrotti Runa & C v. Ente Autonomo Fiera
Internazionale di Milano, op. cit.
84. See Bazex, Le droit public de la concurrence, RFDA, 1998; Arcelin, L’enter-
prise en droit interne et communautaire de la concurrence, Paris, Litec, 2003;
Guézou, Droit de la concurrence et droit des marchés publics: vers une notion
transverale de mise en libre concurrence, Contrats Publics, Mars 2003.
85. See Joined Cases C-83/01 P, C-93/01 P and C-94/01 Chronopost and
Others [2003], not yet reported; see also the earlier judgement of the CFI
Case T-613/97 Ufex and Others v. Commission [2000] ECR II-4055.
86. See Evans, European Community Law of State Aid, Clarendon Press,
Oxford, 1997.
87. C-44/96, Mannesmann Anlangenbau Austria AG et al. v. Strohal Rotations-
durck GesmbH, op. cit. footnote 9. See also the analysis of the case by
Bovis, in 36 CMLR (1999), pp. 205–225.
88. According to Advocate General Léger in his Opinion on the Altmark case,
the apparent advantage theory occurs in several provisions of the Treaty,
in particular in Article 92(2) and (3), and in Article 77 of the EC Treaty
(now Article 73 EC). Article 92(3) of the Treaty provides that aid may be
regarded as compatible with the common market if it pursues certain
objectives such as the strengthening of economic and social cohesion, the
promotion of research and the protection of the environment.
89. See case C-173/73 Italy v. Commission [1974] ECR 709; Deufil v. Com-
mission [1987] ECR 901; Case C-56/93 Belgium v. Commission [1996] ECR
I-723; Case C-241/94 France v. Commission [1996] ECR I-4551; Case
C-5/01 Belgium v. Commission [2002] ECR I-3452.
90. For example the form in which the aid is granted, the legal status of the
measure in national law, the fact that the measure is part of an aid
scheme, the reasons for the measure, the objectives of the measure and
the intentions of the public authorities and the recipient undertaking.
91. For example certain categories of aid are compatible with the common
market on condition that they are employed through a specific format.
See Commission notice 97/C 238/02 on Community guidelines on State
aid for rescuing and restructuring firms in difficulty, OJ 1997 C 283.
92. According to Article 26 of Directive 93/36, Article 30 of Directive 93/37,
Article 34 of Directive 93/38 and Article 36 of Directive 92/50, two crite-
ria provide the conditions under which contracting authorities award
public contracts: the lowest price or the most economically advantageous
offer. The first criterion indicates that, subject to the qualitative criteria
and financial and economic standing, contracting authorities do not
rely on any other factor than the price quoted to complete the contract.
The Directives provide for an automatic disqualification of an “obvi-
ously abnormally low offer”. The term has not been interpreted in detail
by the Court and serves rather as an indication of a “lower bottom
limit” of contracting authorities accepting offers from the private sector
tenderers See Case 76/81, SA Transporoute et Travaux v. Minister of Public
Works [1982] ECR 457; Case 103/88, Fratelli Costanzo S.p.A. v. Comune di
 Notes 285

Milano [1989] ECR 1839; Case 295/89, Impresa Dona Alfonso di Dona
Alfonso & Figli s.n.c. v. Consorzio per lo Sviluppo Industriale del Comune di
Monfalcone [1991] ECR 2967.
93. An interesting view of the lowest price representing market value bench-
marking is provided by the case C-94/99, ARGE Gewässerschutzt, op. cit.
footnote 9, where the Court ruled that directly or indirectly subsidised
tenders by the state or other contracting authorities or even by the con-
tracting authority itself can be legitimately part of the evaluation
process, although it did not elaborate on the possibility of rejection of
an offer, which is appreciably lower than those of unsubsidised tender-
ers by reference to the of abnormally low disqualification ground.
94. The meaning of the most economically advantageous offer includes a
series of factors chosen by the contracting authority, including price,
delivery or completion date, running costs, cost-effectiveness, profitabil-
ity, technical merit, product or work quality, aesthetic and functional
characteristics, after-sales service and technical assistance, commitments
with regard to spare parts and components and maintenance costs,
security of supplies. The above list is not exhaustive.
95. For example the form in which the aid is granted, the legal status of the
measure in national law, the fact that the measure is part of an aid
scheme, the reasons for the measure, the objectives of the measure and
the intentions of the public authorities and the recipient undertaking.
96. For example certain categories of aid are compatible with the common
market on condition that they are employed through a specific format.
See Commission notice 97/C 238/02, OJ 1997 C 283 on Community
guidelines on State aid for rescuing and restructuring firms in difficulty.
97. See case C-107/98, Teckal Slr v. Comune di Viano [1999] ECR I-8121.
98. See Council Directive 83/349, OJ 1983 L193/1.
99. The explanatory memorandum accompanying the text amending the
Utilities Directive (COM (91) 347-SYN 36 1) states that this provision
relates, in particular, to three types of service provision within groups.
These categories, which may not or may not be distinct, are: the provi-
sion of common services such as accounting, recruitment and manage-
ment; the provision of specialised services embodying the know how of
the group; the provision of a specialised service to a joint venture. The
exclusion from the provisions of the Directive is subject, however,
to two conditions: the service-provider must be an undertaking affiliated
to the contracting authority and, at least 80 per cent of its average
turnover arising within the European Community for the preceding
three years, derives from the provision of the same or similar services to
undertakings with which it is affiliated. The Commission is empowered
to monitor the application of this Article and require the notification of
the names of the undertakings concerned and the nature and value
of the service contracts involved.
100. The determination of a genuinely competitive regime is left to the util-
ities operators themselves. See case, C 392/93, The Queen and H.M.
Treasury, ex parte British Telecommunications PLC [1996] ECR I-1631.
This approach by the Court is reflected into the current proposals of
the Public Procurement Directives to disengage from the relevant
286 Notes

regime genuinely competitive entities and replace public procurement

regulation with a sort of sectoral/industry self-regulation.
101. See Council Decision 87/565, OJ 1987, L 345.
102. The listed utility activities which are covered under the new GPA
include (i) activities connected with the provision of water through fixed
networks; (ii) activities concerned with the provision of electricity
through fixed networks; (iii) the provision of terminal facilities to carri-
ers by sea or inland waterway; and (iv) the operation of public services
in the field of transport by automated systems, tramway, trolley bus, or
cable bus.
103. See case C-320/91, Corbeau, v. Commission , ECR [1993] I-2533 point
14.
104. See Case C-280/00, Altmark Trans GmbH, Regierungsprδsidium Magdeburg
et Nahverkehrsgesellschaft Altmark GmbH, Oberbundesanwalt beim Bundes-
verwaltungsgericht, (third party), judgement of 24 July 2003.
105. See Case 127/73 BRT v. SABAM [1974] ECR 313, para. 20; Case 66/86
Ahmed Saeed Flugreisen v. Commission [1989] ECR 803, paragraph 55.
106. The standard assessment criterion applied under Article 86(2) EC only
requires for the application of Article 87(1) EC to frustrate the perform-
ance of the particular public service task, allowing for the examination
being conducted on an ex post facto basis. See also the ratione behind
the so-called “electricity judgements” of the ECJ of 23 October 1997;
Case C-157/94 Commission v. Netherlands [1997] ECR I-5699; Case C-
158/94 Commission v. Italy [1997] ECR I-5789; Case C-159/94 Com-
mission v. France [1997] ECR I-5815 and C-160/94 Commission v. Spain
[1997] ECR I-5851; a great deal of controversy exists as to whether the
material standard of the frustration of a public service task under Article
86(2) EC had lost its strictness. See Magiera, Gefährdung der öffentlichen
Daseinsvorsorge durch das EG-Beihilfenrecht?, FS für Dietrich Rauschning
2000.
107. See Opinion of Advocate General Lenz, delivered on 22 November 1984
in Case 240/83 Procureur de la République v. ADBHU [1985] ECR 531
(536). Advocate-General Lenz in his opinion held that the indemnities
granted must not exceed annual uncovered costs actually recorded by
the undertaking, taking into account a reasonable profit. However, the
Court In the ADBHU case did not allow for the permissibility of taking
into account such a profit element. Interestingly, the approach of the
Court of First Instance on Article 86(2) EC has never allowed any profit
element to be taken into account, but instead focused on whether
without the compensation at issue being provided the fulfilment of the
specific public service tasks would have been jeopardised.
Index

abnormally low tenders 54, 79, 149 compliance 45

affiliated undertakings 49, 65 concession contracts 66, 191
Agreement on Government connection of contracting authorities
Procurement 46, 163 with private undertakings 92
attestation 45 contract compliance 115
authorities, see contracting authorities contracting authorities 49, 83, 84
award of damages 45, 137 contracts to affiliated undertakings
abuse of award procedures 106, 107, 65
130 contractual public private
anti-trust 3, 14, 18, 111 partnerships 198
award criteria 61, 79, 95, 99, 117 contractual performance 164
lowest offer 62, 79 contractualised governance 17, 88,
most economically advantageous 92, 179, 216
63, 80, 81 contractualised governance and
award procedures 58, 78, 130, 150 services of general interest 216
open 58 corporatism 177, 180, 181
restricted 59 culture 164
negotiated 60
accelerated procedures 60 damages 45, 137
competitive dialogue 150 defence 10
dependency test 88
bodies governed by public law 49, design contests 65
50, 85, 148 dimensionality of public procurement
125
call for competition 17, 50, 51 dual capacity of contracting
Common Product Classification 54 authorities 91
concession contracts 66
public works concessions 66 economic exercise 5, 6, 100, 101,
public service concessions 39, 40 102
conciliation 43, 44 effects of the principle of
construction projects under transparency 128
international agreements 36, electronic auctions 157
37, 38 electronic procurement 155
contract notice 50 electronic signatures 160
contracts, see public contracts eligibility of bodies governed by
codification 147 public law to tender 148
codified public supplies, works and eligibility requirements 55
services directive 146 employee protection 98
commerciality and needs in the employment 98, 115, 116
general interest 88 enforcement 67, 68, 95, 98
common market 1, 3, 5, 14, 17 environment 69, 99, 166, 167
competitive dialogue 150 environmental considerations as
competitive markets in utilities 169 award criteria 69, 99, 160

287
288 Index

estimation of contract value 52, 53 non-tariff barriers (NTBs) 3, 14

excluded sectors 23 non-discrimination 72
exclusion of contractors 54, 55, 56 neo-classical theories 106
exclusive rights 65, 168 non-commercial character 88, 209
extra-territorial effects 47, 48
Official Journal 50
financial and economic standing ordo-liberal theories 112
54, 72, 73
framework agreements 64, 153 post-tender negotiations 60
framework procurement 153, 154 principles of the directives 23
freedom of establishment 4, 5 public authorities, see contracting
freedom of information 196 authorities
freedom to provide services 3, 4, 14, public contracts 33, 35, 38, 42
15 public service contract 206, 207,
functional dimension of contracting 208
authorities 83, 84 public undertakings 39, 40
postal utilities 169
GATT 46 preference purchasing schemes 76,
GPA see Government Procurement 95, 112, 113
Agreement 46, 163 private finance initiative 179, 180,
181, 185, 187, 193
impact assessment 124, 139, 141 probity 165
industrial policy 9, 139 procedural delivery of PFI 167
in-house contracts 65 procurement as a policy instrument
institutional public private 5, 9, 95, 113, 117
partnerships 200 public housing schemes 66
intellectual origins of PFI 182, 183, public markets 1, 2, 3, 106
184 public monopolies 134
public nature of public procurement
joint and centralised procurement 82, 208, 209
149 public policy 5, 95, 112, 113, 115
joint venture public private public private partnerships 175
partnerships 199 public procurement regulation 17,
23, 33
links of contracting authorities with public service obligations 224
private undertakings 95, 96, publication 50, 125, 128
213, 214 publicity requirements 50, 51
list of recognised contractors 56, 73,
74, 149, 150 qualification criteria 54
financial 54, 76, 77
market access 1, 14, 106, 107 technical 55
mandatory advertisement 50, 125, economic 56, 76, 77
128 professional 56
mixed contracts 189 qualitative selection 55
monetary applicability 52, 53, 54 quantitative restrictions 14, 15
qualification criteria 54, 56, 73
national treatment 46, 163 qualification of contractors, legal
nomenclature: NACE 34, 36, 42 requirements 56, 73, 149, 150
 Index 289

recognised contractors 56, 73, 74, socio-economic considerations 67

149, 150 standardisation and specification
regional development 6 136
remedies 45, 137, 138 state aids 9, 76, 226, 228, 233
regionalism 6, 76, 77 subcontracting 6, 66, 164
reluctance in initiating litigation supplies 33
137 sustainability of industries 139
rule of reason 117
technical capacity 54
secret public works contracts 36, 37 technical specifications 72, 73, 136
selection criteria 55, 56, 76, 77 telecommunications 38, 39, 168, 169
service providers 43 tendering procedures, see award
services contracts 42 procedures
priority 44 tenders electronic daily (TED) 50,
non-priority 44 51
setting aside procurement awards technical standards 72
47 tendering procedures 58
Single European Act (SEA) 2, 15 the principle of non-discrimination
small and medium enterprises (SMEs) 72, 124, 125
6, 7, 164 the principle of objectivity 78
social policy 67, 68, 95, 96, 113, 115 transfer of undertakings 68, 98, 115,
state monopolies, see monopolies 117
sub-contracting 6, 7, 164 threshold values 53
subsidiarity 2, 3, 14, 15 Directive on Public Services 53
subsidised works contracts 36, 37, Directive on Public Supplies 54
91, 92 Directive on Public Utilities 54
selection and qualification 54 Directive on Public Works 54
selection criteria 54, 55, 73, 74 transparency, see principles of
services 42 directives
services of general interest 208
small and medium enterprises 66, utilities 38, 168, 169
164
social considerations as award criteria works 35
95, 115, 166 WTO 46, 163