Case T-384/10

Kingdom of Spain

v

European Commission

‛Cohesion Fund — Regulation (EC) No 1164/94 — Projects involving water supply to settlements in the Guadiana basin in the Andévalo area, drainage and water treatment in the Guadalquivir basin and water supply to multi-municipal systems in the provinces of Granada and Malaga — Partial cancellation of financial assistance — Public works contracts and public service contracts — Definition of work — Splitting of contracts — Determination of financial corrections — Article H(2) of Annex II to Regulation No 1164/94 — Proportionality’

Summary — Judgment of the General Court (First Chamber), 29 May 2013

In the area of public works contracts, the existence of a work within the meaning of Article 1(c) of Directive 93/37 concerning the coordination of procedures for the award of public works contracts must be assessed in the light of the economic and technical function of the outcome of the works covered by the public contracts concerned. In addition, in order for the outcome of separate works to be treated as a work within the meaning of Article 1(c) of Directive 93/37, it is sufficient for those works to fulfil the same economic function or the same technical function. The finding of economic identity and technical identity is thus alternative and not cumulative. The simultaneous issuance of invitations to tender for contested contracts, similarities between contract notices, the initiation of contracts within a single geographical area and the existence of a single contracting authority provide additional evidence militating in favour of the view that, in actual fact, the separate works contracts relate to a single work. Thus, a project which envisages the construction of a single network of pipelines connected to the same central reservoir, so that the different project ‘tranches’ are intended to fulfil, as a whole, the same economic and technical function, that is, the distribution of drinking water to the same residential area from a single point of supply, constitutes such a single work. Similarly with regard to works consisting in the supply of a public utility to a specific geographical area, the fact that that distribution network is intended to supply water to several municipalities does not preclude a finding that, as a whole, it fulfils the same economic and technical function. Finally, elements such as obvious temporal proximity between the award of the two contracts, the fact that the contracts relate to the same area, and that both were awarded by the same contracting authority, though not decisive proof of the existence of a single work, constitute additional evidence which warrants the finding that a single work exists. (see paras 67-69, 74, 76, 77, 80, 81)

A finding that a contract has been split in breach of Article 6(4) of Directive 93/37 concerning the coordination of procedures for the award of public works contracts does not require proof of a subjective intention to circumvent the application of the provisions contained therein. Where such a finding has been made, it is irrelevant whether the infringement is the result of intention or negligence on the part of the Member State responsible, or of technical difficulties encountered by it. (see para. 95)

Whilst it is true that the rules of directives coordinating public procurement procedures do not apply to contracts whose value falls below the threshold set by those directives, that does not mean that such contracts are excluded from the scope of EU law. As regards the award of contracts which, because of their value, are not subject to the procedures set out in EU legislation on the award of public contracts, the contracting entities are none the less bound to comply with the fundamental rules and general principles of the Treaty, in particular, the principle of non-discrimination on the ground of nationality. However, the application of the general principles of the Treaties to procedures for the award of contracts whose value falls below the threshold for the application of the directives is based on the premiss that the contracts in question are of a certain cross-border interest. Objective criteria such as the fact that the contract in question is for a significant amount, in conjunction with the place where the works are to be carried out, may indicate the existence of such an interest. However, it is also possible to exclude the existence of that interest in a case, for example, where the economic interest at stake in the contract in question is very modest. Moreover, the principle of non-discrimination flowing from the FEU Treaty and, in particular, from fundamental freedoms, requires not only the elimination of all discrimination against work or service providers on the ground of their nationality, but also the abolition of any restriction, even if it applies without distinction to national providers and to those of other Member States, when it is liable to prohibit or otherwise impede the activities of a provider established in another Member State where he lawfully provides similar services. It follows that, by applying the criterion of experience in their own Member State when awarding a public contract, the national authorities in question infringe the principle of non-discrimination. (see paras 109-111, 114, 115, 119, 121)

In the light of the principle of proportionality, the infringement of obligations the observance of which is of fundamental importance to the proper functioning of a Union system may be penalised by forfeiture of a right conferred by Union legislation, such as the entitlement to financial assistance. Moreover, in accordance with the principle that projects in receipt of funding must be in keeping with the provisions of the Treaties, with the instruments adopted pursuant thereto and with Union policies, as set forth in Article 8(1) of Regulation No 1164/94 establishing the Cohesion Fund, only expenditure incurred in accordance with Union rules and the instruments adopted pursuant thereto are chargeable to the Union’s budget. Consequently, once the Commission discovers the existence of an infringement of Union provisions in payments effected by a Member State, it is required to correct the accounts presented by that Member State and impose the necessary financial corrections to restore a situation where 100% of the expenditure declared for co-financing from the Cohesion Fund is in line with Union rules on public contracts, having regard to the principle of proportionality. As regards the manner in which the financial corrections are calculated, if it is apparent that, in the circumstances of a particular case, a correction entailing the cancellation of the entire expenditure of the projects in question would be disproportionate in view of the seriousness of the irregularities detected and that it is not possible or practicable to quantify the amount of irregular expenditure precisely, it is appropriate for the corrections to be made on a flat-rate basis. (see paras 134, 136, 137, 140, 141)