A third way for public to public collaboration?

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Contracting authorities regularly consider collaborations with other contracting authorities including public authorities. For the purposes of the Public Contracts Regulations 2015 (2015) these have become known as the in-house exception (Teckal) and the co-operation exception (Hamburg). However, the latest decision by the CJEU suggests a third way – the autonomous SPA exception (Hannover)?

Facts of the Case

Under national legislation the Region of Hannover and City of Hannover were entrusted with waste disposal and treatment tasks. In 2002 the City of Hannover transferred its responsibility to the Region of Hannover. Later in the year the authorities jointly adopted articles of association for the special-purpose association for waste management created by local authorities in the Region of Hannover (articles of association of the RH Special Purpose Association).

To enable the RH Special Purpose Association (RH SPA) to carry out its tasks, the Region of Hannover and City of Hannover transferred their respective bodies responsible for waste disposal, street cleaning and winter road maintenance tasks and 94.9% of the shares in a company providing waste treatment services for the Region of Hannover which was wholly owned by the Region of Hannover.

The articles of association provided for a number of rights and obligations including:

  • Powers conferred on RH SPA to enable it to perform its tasks;
  • The Region and City  of Hannover were to cover any budgetary shortfalls for RH SPA;
  • RH SPA was given power to charge and collect fees for engaging in activities not strictly within the remit of competencies transferred but of the same type of activity as to those within its competencies; and
  • RH SPA enjoyed autonomy in performing its tasks but it was required to abide by decisions of a general meeting of representatives of its two founding authorities, with responsibilities including to appoint its managing director.

In its 9th year of operation the RH SPA and the Region of Hannover company jointly generated a turnover of over €189 million with approximately 6% coming from commercial transactions.

Remondis, a commercial company operating in the waste sector made an application for review of the award of the contract. Whilst it accepted that the initial award of the contract forming the RH SPA and transferring tasks to it fell within the Teckal exception, given the significant turnover with third party entities it argued that RH SPA no longer carries the essential activities with the authorities that formed it. On this basis Remodis argued that this should now be regarded as an unlawful award and a tendering exercise should be organised.

As part of these proceedings a request for a preliminary ruling with 2 questions were referred to the CJEU. The CJEU only sought it necessary to deal with the following question:

  • Does the formation of a special purpose association with separate legal responsibility, which carries out certain duties which were the responsibilities of the authorities, as well as activities beyond the exercise of duties for consideration constitute a public contract?

CJEU

In answering this question the Court recalled that according to the Directive a public contract arises where a contract is concluded in writing, between one or more economic operators or contracting authorities for remuneration with the object of execution of works, supply of products, or provision of services. For a muti-stage operation the operation as a whole must be examined taking into account its purpose.

In relation to this referral the Court considered the following elements:

  • A new entity governed by public law was created with certain competencies;
  • Certain powers were also conferred to enable performance of tasks;
  • The public authorities gave it the means by covering any budgetary shortfall;
  • The entity was given the power to charge and collect fees and the right to engage in activities not within the remit of competencies; and
  • The entity is characterised by autonomy but must abide by decisions of the general meeting of representatives of founding authorities;

The Court noted that internal reorganisations of powers within a Member State benefit from Article 4 (2) of the TFEU (Treaty on the Functioning of the European Union) and that division of powers is not fixed. Only a contract concluded for remuneration could constitute a public contract where the contracting authority received a service of direct economic benefit to it. Reassignment of resources cannot be analysed as a payment of a price. Similarly, upon a transfer of competences undertaking to cover cost does not constitute remuneration. Any such remuneration is intended for third parties.

In order to be considered a transfer of competences it must not only concern the responsibilities associated with the transferred competence including the obligation to perform the tasks but also the relevant powers. This includes the power to organise the performance of tasks that come within that competence, draw up the regulatory framework for those tasks and having financial autonomy allowing it to ensure the financing of those tasks.

A transfer of competence is unlikely to arise where the newly competent body does not act autonomously and has its own responsibility for the performance of its tasks. However, this does not mean that the entity must be shielded from any influence, a certain degree of influence over tasks associated with public service is to be tolerated and successive reorganisations are entirely possible.

The CJEU in its answer provided that:

  • An agreement concluded by two regional authorities on the basis that they adopt  constituent statutes forming a SPA with legal personality governed by public law and transfer to that new public entity certain competencies held by those authorities does not constitute a public contract;
  • Such a transfer of competences concerning performance of public tasks exists only if it concerns both responsibilities associated with the transferred competences and the relevant powers so that the newly competent public authority has decision making and financial autonomy, which the referring court is to verify.

Comment

This latest decision seems to create a third way of collaboration between public authorities providing that responsibilities and powers are transferred to the new entity. This is an important development as a new entity could continue to meet the responsibilities of the transferring authorities, as well as provide services on the open market as was the case here.

Forbes Solicitors regularly advise a range of organisations in relation to structuring projects in compliance with the Public Contracts Regulations 2015. If you would like advice please contact Daniel Milnes.

Nat Avdiu

About Nat Avdiu

Nat Avdiu is a Paralegal in the Contracts and Projects team at Forbes Solicitors. Nat provides updates for clients on a range of issues including: governance, data protection and freedom of information, procurement and charity law.

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