Commission interpretative communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives
Date: 2006-08-01
Institutions: European Commission
Subjects: application of EU law, award of contract, competition, public contract

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COMMISSION INTERPRETATIVE COMMUNICATION

on the Community law applicable to contract awards not or not fully subject to the provisions of
the Public Procurement Directives

(2006/C 179/02)

INTRODUCTION

The European Community has recently adopted new directives for the award of public works, supplies and
services contracts (1). They set up detailed rules on EU-wide competitive tendering procedures.

However, the Public Procurement Directives do not apply to all public contracts. There remains a wide
range of contracts that are not or only partially covered by them, such as

— Contracts below the thresholds for application of the Public Procurement Directives (2);

— Contracts for services listed in Annex II B to Directive 2004/18/EC and in Annex XVII B to Directive

2004/17/EC that exceed the thresholds for application of these Directives.

These contracts present significant opportunities for businesses in the Internal Market, particularly for
SMEs and start-up companies. At the same time, open and competitive award methods help the public
administrations to attract a broader range of potential bidders for such contracts and to gain from better-
value offers. Ensuring the most efficient use of public money is of particular importance in view of the
budgetary problems encountered in many Member States. One should also not forget that transparent
contract awarding practices are a proved safeguard against corruption and favouritism.

Yet, such contracts are still in many instances directly awarded to local providers without any competition.
The European Court of Justice (ECJ) has confirmed in its case-law that the Internal Market rules of the EC
Treaty apply also to contracts outside the scope of the Public Procurement Directives. On various occa-
sions, Member States and stakeholders have asked the Commission for guidance on how they should apply
the basic principles deriving from this case-law.

This interpretative communication addresses the two above mentioned groups of contracts not or
only partially covered by the Public Procurement Directives (3). The Commission sheds light on its
understanding of the ECJ case-law and suggests best practices in order to help the Member States
to reap the full benefit of the Internal Market. This communication does not create any new legis-
lative rules. It should be noted that, in any event, interpretation of Community law is ultimately the role
of the ECJ.

1. LEGAL BACKGROUND

1.1. Rules and principles of the EC Treaty

Contracting entities (4) from Member States have to comply with the rules and principles of the EC
Treaty whenever they conclude public contracts falling into the scope of that Treaty. These principles
include the free movement of goods (Article 28 of the EC Treaty), the right of establishment (Article
43), the freedom to provide services (Article 49), non-discrimination and equal treatment, transpar-
ency, proportionality and mutual recognition.

(1) Directive 2004/18/EC, OJ L 134, 30.4.2004, p. 114 and Directive 2004/17/EC, OJ L 134, 30.4.2004, p. 1 (‘the

Public Procurement Directives’).

(2) Threshold values are set in Article 7 of Directive 2004/18/EC and Article 16 of Directive 2004/17/EC.
(3) A third group of contracts not or only partially covered by the Directives are concessions. See Article 17 of Directive
2004/18/EC and Article 18 of Directive 2004/17/EC for service concessions and Articles 56 to 65 of Directive
2004/18/EC and Article 18 of Directive 2004/17/EC for works concessions. However, these are not discussed in this
communication since they will be included in the follow-up to the Green Paper on Public Private Partnerships.

(4) In this Communication the term ‘contracting entity’ covers both contracting authorities within the meaning of Article
1(9) of Directive 2004/18/EC and contracting entities within the meaning of Article 2 of Directive 2004/17/EC.

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1.2. Basic standards for the award of contracts

The ECJ has developed a set of basic standards for the award of public contracts which are derived
directly from the rules and principles of the EC Treaty. The principles of equal treatment and non-
discrimination on grounds of nationality imply an obligation of transparency which, according to the
ECJ case-law (1), ‘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 the procedures to
be reviewed’ (2).

These standards apply to the award of services concessions, to contracts below the thresholds (3) and to
contracts for services listed in Annex II B to Directive 2004/18/EC and in Annex XVII B to Directive
2004/17/EC in respect of issues not dealt with by these Directives (4). The ECJ stated explicitly that
‘although certain contracts are excluded from the scope of the Community directives in the field of
public procurement, the contracting authorities which conclude them are nevertheless bound to comply
with the fundamental rules of the Treaty’ (5).

1.3. Relevance to the Internal Market

The standards derived from the EC Treaty apply only to contract awards having a sufficient connection
with the functioning of the Internal Market. In this regard, the ECJ considered that in individual cases,
‘because of special circumstances, such as a very modest economic interest at stake’, a contract award would
be of no interest to economic operators located in other Member States. In such a case, ‘the effects on
the fundamental freedoms are … to be regarded as too uncertain and indirect’ to warrant the application of stan-
dards derived from primary Community law (6).

It is the responsibility of the individual contracting entities to decide whether an intended contract award
might potentially be of interest to economic operators located in other Member States. In the view
of the Commission, this decision has to be based on an evaluation of the individual circumstances of
the case, such as the subject-matter of the contract,
its estimated value, the specifics of the sector
concerned (size and structure of the market, commercial practices, etc.) and the geographic location of the
place of performance.

If the contracting entity comes to the conclusion that the contract in question is relevant to the Internal
Market, it has to award it in conformity with the basic standards derived from Community law.

When the Commission becomes aware of a potential violation of the basic standards for the award of
public contracts not covered by the Public Procurement Directives, it will assess the Internal Market rele-
vance of the contract in question in the light of the individual circumstances of each case. Infringe-
ment proceedings under Article 226 EC Treaty will be opened only in cases where this appears appro-
priate in view of the gravity of the infringement and its impact on the Internal Market.

2. BASIC STANDARDS FOR THE AWARD OF CONTRACTS RELEVANT TO THE INTERNAL MARKET

2.1.1. Obligation to ensure adequate advertising

2.1. Advertising

According to the ECJ (7), the principles of equal treatment and of non-discrimination imply an obligation
of transparency which consists in ensuring, for the benefit of any potential tenderer, a degree of adver-
tising sufficient to enable the market to be opened up to competition.

The obligation of transparency requires that an undertaking located in another Member State has
access to appropriate information regarding the contract before it is awarded, so that, if it so wishes,
it would be in a position to express its interest in obtaining that contract (8).

(1) Cases C-324/98, Telaustria, [2000] ECR I-10745, paragraph 62, C-231/03, Coname, judgment of 21.7.2005, para-

graphs 16 to 19 and C-458/03, Parking Brixen, judgment of 13.10.2005, paragraph 49.

(2) Telaustria case, paragraph 62 and Parking Brixen case, paragraph 49 (emphasis added).
(3) See Cases C-59/00, Bent Mousten Vestergaard [2001] ECR I-9505, paragraph 20 and C-264/03, Commission v

France, judgment of 20.10.2005, paragraphs 32 and 33.

(4) Case C-234/03, Contse, judgment of 27.10.2005, paragraphs 47 to 49. The Public Procurement Directives provide
only a limited set of rules for these contracts, see Article 21 of Directive 2004/18/EC and Article 32 of Directive
2004/17/EC.

(5) Bent Mousten Vestergaard case, paragraph 20 (emphasis added).
(6) Coname case, paragraph 20 (emphasis added).
(7) Telaustria case, paragraph 62 and Parking Brixen case, paragraph 49.
(8) Coname case, paragraph 21.

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The Commission is of the view that the practice of contacting a number of potential tenderers would not
be sufficient in this respect, even if the contracting entity includes undertakings from other Member States
or attempts to reach all potential suppliers. Such a selective approach cannot exclude discrimination
against potential tenderers from other Member States, in particular new entrants to the market. The same
applies to all forms of ‘passive’ publicity where a contracting entity abstains from active advertising but
replies to requests for information from applicants who found out by their own means about the intended
contract award. A simple reference to media reports, parliamentary or political debates or events such as
congresses for information would likewise not constitute adequate advertising.

Therefore, the only way that the requirements laid down by the ECJ can be met is by publication of a
sufficiently accessible advertisement prior to the award of the contract. This advertisement should be
published by the contracting entity in order to open the contract award to competition.

2.1.2. Means of advertising

The contracting entities are responsible for deciding the most appropriate medium for advertising their
contracts. Their choice should be guided by an assessment of the relevance of the contract to the
Internal Market, in particular in view of its subject-matter and value and of the customary practices in the
relevant sector.

The greater the interest of the contract to potential bidders from other Member States, the wider
the coverage should be. In particular, adequate transparency for contracts for services listed in Annex II
B to Directive 2004/18/EC and in Annex XVII B to Directive 2004/17/EC that exceed the thresholds for
application of these Directives will typically require publication in a medium with wide coverage.

Adequate and commonly used means of publication include:

— Internet

The wide availability and ease of use of the World Wide Web makes contract advertisements on
websites far more accessible, especially for undertakings from other Member States and for SMEs
looking for smaller contracts. The Internet offers a large choice of possibilities for advertising of public
contracts:

Advertisements on the contracting entity's own website are flexible and cost-effective. They should
be presented in a way that potential bidders can easily become aware of the information. Contracting
entities might also consider publishing information on forthcoming contract awards not covered by the
Public Procurement Directives as part of their buyer profile on the Internet (1).

Portal websites specifically created for contract advertisements have a higher visibility and can offer
increased search options. In this respect, the setting-up of a specific platform for low value contracts
with a directory for contract notices with subscription for e-mail constitutes a best practice, making full
use of the Internet's possibilities in order to increase transparency and efficiency (2).

— National Official Journals, national journals specialising in public procurement announcements, news-

papers with national or regional coverage or specialist publications

— Local means of publication

Contracting entities may still use local means of publication such as local newspapers, municipal
announcement journals or even notice boards. However, such means ensure only strictly local publica-
tion, which might be adequate in special cases, such as very small contracts for which there is only a
local market.

— Official Journal of the European Union/TED (Tenders Electronic Daily)

Publication in the Official Journal is not mandatory but could be an interesting option, particularly for
larger contracts.

(1) See Annex VIII to Directive 2004/18/EC and Annex XX to Directive 2004/17/EC.
(2) See for instance the newly created opportunities portal for lower value contracts in the United Kingdom, www.sup-

ply2.gov.uk.

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2.1.3. Content of advertising

The ECJ has explicitly stated that the requirement of transparency does not necessarily imply an obligation
to hold a formal invitation to tender (1). The advertisement may therefore be limited to a short description
of the essential details of the contract to be awarded and of the award method together with an invi-
tation to contact the contracting entity. If necessary, it might be completed by additional information avail-
able on the Internet or to be obtained upon request from the contracting authority.

The advertisement and any additional documentation should provide as much information as an under-
taking from another Member State will reasonably need to make a decision on whether to express its
interest in obtaining the contract.

As mentioned in point 2.2.2 below, the contracting entity may take measures to limit the number of appli-
cants invited to submit an offer. In this case, the contracting entity should provide adequate information
on the mechanisms applied to select the applicants shortlisted.

2.1.4. Procedures without prior publication of an advertisement

The Public Procurement Directives contain specific derogations allowing, under certain conditions, proce-
dures without prior publication of an advertisement (2). The most important cases concern situations of
extreme urgency due to unforeseeable events and contracts which may, for technical or artistic reasons
or for reasons connected with the protection of exclusive rights, be executed only by one particular
economic operator.

In the view of the Commission, the relevant derogations may be applied to the award of contracts not
covered by the Directives. Therefore, contracting entities may award such contracts without publishing a
prior advertising, provided they meet the conditions laid down in the Directives for one of the deroga-
tions (3).

2.2.1. Principles

2.2. Contract award

The ECJ stated in the Telaustria judgment that the obligation of transparency consists in ensuring, for the
benefit of any potential tenderer, a degree of advertising sufficient to enable the market to be opened up to
competition and the impartiality of the procedures to be reviewed. The guarantee of a fair and impartial
procedure is the necessary corollary of the obligation to ensure a transparent advertising.

It follows that the award has to be in line with the rules and principles of the EC Treaty so as to afford
fair conditions of competition to all economic operators interested in the contract (4). This can be best
achieved in practice through:

— Non-discriminatory description of the subject-matter of the contract

The description of the characteristics required of a product or service should not refer to a specific
make or source, or a particular process, or to trade marks, patents, types or a specific origin or produc-
tion unless such a reference is justified by the subject-matter of the contract and accompanied by the
words ‘or equivalent’ (5). In any case, it would be preferable to use more general descriptions of perfor-
mance or functions.

(1) Coname case, paragraph 21.
(2) Article 31 of Directive 2004/18/EC and Article 40(3) of Directive 2004/17/EC.
(3) See Opinion of Advocate General Jacobs in Case C-525/03, Commission v Italy, paragraphs 46 to 48.
(4) See Case C-470/99, Universale-Bau AG, [2002] ECR I-11617, paragraph 93.
(5) See Bent Mousten Vestergaard case, paragraphs 21 to 24 and Commission interpretative communication on facili-
tating the access of products to the markets of other Member States, OJ C 265, 4.11.2003, p. 2. Contracts for
services listed in Annex II B to Directive 2004/18/EC and in Annex XVII B to Directive 2004/17/EC have to comply
with the rules on technical specifications in Article 23 of Directive 2004/18/EC and in Article 34 of Directive
2004/17/EC if they exceed the threshold for application of these Directives. Technical specifications for such
contracts have to be established prior to selection of a contractor and must be made known or available to potential
bidders by means that ensure transparency and place all potential bidders on equal footing, see Opinion of Advocate
General Jacobs in Case C-174/03, Impresa Portuale di Cagliari, paragraphs 76 to 78.

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— Equal access for economic operators from all Member States

Contracting entities should not impose conditions causing direct or indirect discrimination against
potential tenderers in other Member States, such as the requirement that undertakings interested in the
contract must be established in the same Member State or region as the contracting entity (1).

— Mutual recognition of diplomas, certificates and other evidence of formal qualifications

If applicants or tenderers are required to submit certificates, diplomas or other forms of written
evidence, documents from other Member States offering an equivalent level of guarantee have to be
accepted in accordance with the principle of mutual recognition of diplomas, certificates and other
evidence of formal qualifications.

— Appropriate time-limits

Time-limits for expression of interest and for submission of offers should be long enough to allow
undertakings from other Member States to make a meaningful assessment and prepare their offer.

— Transparent and objective approach

All participants must be able to know the applicable rules in advance and must have the certainty that
these rules apply to everybody in the same way.

2.2.2. Limit on the number of applicants invited to submit an offer

Contracting entities may take measures to limit the number of applicants to an appropriate level, provided
this is done in a transparent and non-discriminatory manner. They can, for instance, apply objective
factors such as the experience of the applicants in the sector concerned, the size and infrastructure of their
business, their technical and professional abilities or other factors. They may even opt for drawing lots,
either exclusively or in combination with other selection criteria. In any event, the number of applicants
shortlisted shall take account of the need to ensure adequate competition.

Alternatively, contracting entities might consider qualification systems where a list of qualified opera-
tors is compiled by means of a sufficiently advertised, transparent and open procedure. Later, for the
award of individual contracts falling within the scope of the system, the contracting entity may select the
operators to be invited to submit an offer from the list of qualified operators on a non-discriminatory basis
(e.g. by drawing in rotation from the list).

2.2.3. Contract award decision

It is important that the final decision awarding the contract complies with the procedural rules laid down
at the outset and that the principles of non-discrimination and equal treatment are fully respected.
This is particularly relevant to procedures providing for negotiation with shortlisted tenderers. Such nego-
tiations should be organised in a way that gives all tenderers access to the same amount of information
and excludes any unjustified advantages for a specific tenderer.

2.3. Judicial protection

2.3.1. Principles

In the Telaustria judgment the ECJ stressed the importance of the possibility to review the impartiality of
the procedure. Without an adequate review mechanism, compliance with the basic standards of fairness
and transparency cannot be effectively guaranteed.

(1) However, the successful tenderer may be required to establish certain business infrastructure at the place of perfor-

mance if this is justified by the specific circumstances of the contract.

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2.3.2. Directives on review procedures

The Directives on review procedures (1) cover only contracts falling within the scope of the Public Procure-
ment Directives (2). This means that in the present context they apply only to contracts for services listed
in Annex II B to Directive 2004/18/EC and in Annex XVII B to Directive 2004/17/EC which exceed the
thresholds for application of these Directives. Review procedures for such contracts have to comply with
the Directives on review procedures and the relevant case-law. These principles remain unchanged in the
recently adopted proposal for a new Directive on review procedures (3).

2.3.3. Basic standards derived from primary Community law

With regard to contracts below the thresholds for application of the Public Procurement Directives it has
to be taken into account that under ECJ case-law (4) individuals are entitled to effective judicial protec-
tion of the rights they derive from the Community legal order. The right to such protection is one of
the general principles of law stemming from the constitutional traditions common to the Member States.
In the absence of relevant Community law provisions, it is up to the Member States to provide the neces-
sary rules and procedures guaranteeing effective judicial protection.

In order to comply with this requirement of effective judicial protection, at least decisions adversely
affecting a person having or having had an interest in obtaining the contract, such as any decision to
eliminate an applicant or tenderer, should be subject to review for possible violations of the basic standards
derived from primary Community law. To allow for an effective exercise of the right to such a review,
contracting entities should state the grounds for decisions which are open to review either in the decision
itself or upon request after communication of the decision (5).

In accordance with the case-law on judicial protection, the available remedies must not be less efficient
than those applying to similar claims based on domestic law (principle of equivalence) and must not be
such as in practice to make it impossible or excessively difficult to obtain judicial protection (principle of
effectiveness) (6).

(1) Directive 89/665/EEC, OJ L 395, 30.12.1989, p. 33 and Directive 92/13/EEC, OJ L 76, 23.3.1992, p. 14.
(2) See Article 72 of Directive 2004/17 and Article 81 of Directive 2004/18.
(3) Commission Proposal for a Directive of the European Parliament and of the Council amending Council Directives
89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award
of public contracts, COM(2006) 195 final.

(4) See Case C-50/00, Unión de Pequeños Agricultores, [2002] ECR I-6677, paragraph 39 and Case 222/86, Heylens,

[1987] ECR 4097, paragraph 14.

(5) See Heylens case, paragraph 15.
(6) See for this principle Cases C-46/93 and C-48/93, Brasserie du Pêcheur, [1996] ECR I-1029, paragraph 83 and Case

C-327/00, Santex, [2003] ECR I-1877, paragraph 55.