Source: https://www.sozercizmeci.com.tr/840/
Timestamp: 2019-04-23 18:05:59+00:00

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Public procurement regime of the European Union is regulated by two sets of directives. These secondary legislations are intended to be detailed and sufficient regulatory tools in the fields of public procurement in EC in order to [o]pen up public procurement. EC treaty rules on the other hand largely relevant within the pubic procurement. The major freedom of movements rules such as Article 28 EC free movement of goods, Article 43 EC freedom of establishment and Article 49 EC, freedom of services are the building stones of the single market within the European Union. So far as the secondary legislation is designed to open up public procurement in order to eliminate obstacles before the single market, they can be viewed as possible detailed interpretation of the relevant EC treaty rules in the field of EC public procurement. Thus it might be noted that the public procurement directives are designed to carry main principles of European single market into the field of public procurement. One important implication of EC public procurement directives is their ability to impose positive obligations to the contracting authorities in their awarding procedures. That is why while EC member states are bound with negative obligations deriving from the EC treaty; secondary legislations impose positive obligations to render the negative obligations meaningful in the field of public procurement. On the other hand whereas EC treaty rules are applicable to those contracts that fall within the EC public procurement regime, for those contracts or arrangements falling outside the directives, they constitute only a regulatory framework. ECJ’s recent case law established that the contracts excluded from the scope of public procurement directives due to their financial value or nature nevertheless have to comply with the rules of EC treaty. This illustrates a two-tier system of Community procurement lawwhich is supported by four ultimate principles; transparency, equal treatment, mutual recognition and proportionality.
This paper will consider four types of contract/arrangement; namely concessions, low value contracts, defence procurement and in-house arrangements. In this paper, the attitude of EC treaty and Public Sector Directive (Hereinafter Directive) toward these contracts or arrangements will be discussed. The paper will conclude with a discussion of the place of those contract/arrangements under the WTO’s Plurilateral Agreement on Government Procurement (Hereinafter GPA).
Article 28 of EC is designed to ensure the free movement of goods within the European Union by prohibiting all [Q]uantitative restrictions on imports and all measures having equivalent effect.  It’s scope is further enlarged by the Procureur du Roi v. Dasonville case as; “All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions.” On the other hand, Articles 43 and 49 of EC Treaty, prohibits any restrictions to the right of establishment and right to provide services of nationals and firms of any member state on the territory of another member state. Free movements articles all, do not consider any “de minimis” rule.
Recently, Commission released an Interpretative Communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives. Although the Commission’s communication does not intend to create new rules in the field of public procurement rules’ applicability to those contracts falling outside the scope of directives, and simply represents commissions interpretations in the light of established case law on the subject,the communication also represents how application of EC treaty rules to those contracts per se established a legal framework which is very similar to the directives by the judicial activism of the Court. All communication proceeds in parallel to the established case-law and provides guidance on three fields; Advertising, Contract award and Review procedures. However the advertisement obligation, which is essentially developed through the case law on service concessions, in the communication is assumed equally applicable to the low value concessions as well.
The term ‘concession’ is derived from the Latin term Concessio that usually refers to granting, assignment, awarding, entrusting, consignment, or allocation. The formal definition of a concession is [a] contract (…) that the source of revenue for the economic operator consists either solely in the right of exploitation or in this right together with payment. That is, the simplest dividing line between public contracts and concessions is on the method of remuneration of provided work or delivered service. While in the former one investment is paid off by the contracting authority, in the latter one, the right to exploit the work or services is used as a remuneration method.  This right entails its own risk to pay off the investment made by concessionaire and existence of such risks make concessions distinguishable from the public contracts.
Concessions have long perceived as tools different than the normal public procurement regimes by governments. Special attention to the Concessions is no doubt about the method of remuneration and that’s why its practical application in the use of social policies is important. Therefore, legislators of the directives opt out to regulate concessions within the same directives of public contracts. Arguably, their intentions were not subject to the concessions with the same rules. Procurement directives, particularly the public sector directive, therefore say nothing about the service concessions and have little touch to the work concessions. By the virtue of article 17 of the public sector directive, service concessions are excluded from the scope of the directive without prejudice to the principle of non-discrimination on the basis of nationality. On the other hand, the directive regulates public work concessions between the articles 56 to 65 with a special regime which is different than public work contracts.
The very effect of positive obligations, most importantly transparency, is most densely felt on the low value contracts.
The statement of AG Sharpston in the Commission v. Finland case indicates the rationality of the thresholds which should be based on very complex economic calculation more than political anxieties. Nevertheless, the place of low value contracts within the EC procurement law is similar to concessions notwithstanding the fact that the former has more economical value especially when it is just below the threshold value. In terms of the public sector directive, low value contracts refers to those contracts whose value fall below the financial procurement threshold established in the article 7 of the directive. The directive is not applicable to low value contracts. Those types of contracts, nonetheless are not immune from the application of procurement rules in pursuance with the free movement rules of EC Treaty (Articles 28, 43, 49) and establish the principles of non-discrimination, equal treatment, transparency, proportionality and mutual recognition. The major case where a Court repeated the distinguished principle of Telaustria case in regard to low value contracts is the Bent Mousten Vestergaard. case. This case was about a housing contract in which the contracting authority required that the outside doors and windows must be supplied by an identified Danish company.The court in the Bent Mousten Vestergaard made it clear that EC Treaty rules areapplicable to the cases those are excluded from the scope of public procurement directives by recognising the mere fact that the Community legislature considered that the strict special procedures laid down in those directives are not appropriate in the case of public contracts of small value does not mean that those contracts are excluded from the scope of Community law.Bent Mousten Vestergaard judgement of the court would also illustrate that in particular, low value contracts are as well subject to derived positive obligation of transparency. However, since the subject matter of the Bent Mousten Vestergaard was not directly related with the non-discrimination and transparency principle, in the judgement, the Court did not [s]ay anything about the procedures or degree of advertising that an authority needs to take when awarding a contract below the thresholds.
The same question arises on the limits for interpretation of EC treaty rules and principles on those contracts falling outside the scope of directives. If the application of EC treaty rules and principles have an effect similar to those in the directives, what is the rationale for the excluding those types of from the scope of directives? As a matter of fact, the Commission’s Interpretative Communication was challenged by the German Government in regard to the legitimacy of the communication by claiming that communication [c]ontains new rules on tendering which go beyond the obligations arising under existing Community law.
Defence procurement within the European context is perceived in somewhere between the fundamental objectives and principles of common market and the essential security interests of member states. While the stream of free movement rules attempts to fray the iron armour of tanks, missiles and such Stricto Sensuhard defence equipments, other soft defence equipments or double use products such as tents, boots and etc… has been already lost within that stream.
Attempts to apply normal procurement procedures to defence procurement requires civilianisation of the defence industry, which is not an easy task to perform. The regulation for procurement of civil products aims to maximize the benefits from the blessings of competition by providing economically efficient procurement through transparency, non-discrimination and equal treatment principles. Contracting authorities in defence procurement traditionally are in agreement with all those principles. In defence procurement, instead of transparency, secrecy is the dominant principle. On the other hand, states are more likely to desire to retain their sovereignty on the matters that with whom they will trade their war like materials, instead of choosing the providers of the most economically advantageous products. Thus, states are opted to be discriminatory in their purchases. However the concept of essential security interests within the European sense surely altered after the muggy atmosphere of the Cold War and under the trustful umbrella of ESDP, CFSP and NATO, and has left the following question unanswered: why act prejudicely to common market rules which are attempting to create an integrated defence market?
The first case the Court specifically dealt with the exception provided under the Article 296 (1) (b) EC, was the Commission v. Spain case where the Court recognised that exceptions provided under article 296 EC is not automatic and “it is for the Member State which seeks to rely on those exceptions to furnish evidence that the exemptions in question do not go beyond the limits of such cases”. This ruling clarified under particular judgement that, in regard to interaction between free movement rules and derogation under the article 296, free movement rules prevails unless Member States [s]how that derogation from the Treaty is the only means to ensure national security. Another landmark case to note is the Commission v. Belgium  case, concerned with a service contract for coastal surveillance by aerial photography. The mentioned contract was requiring special military service certificate by considering the security of Belgium’s national installations and those of NATO’s in Belgium. The court held that [i]t is for Belgium authorities to lay down the security measures necessary for the protection of its national installations. The Belgium case, no doubt, was a retreat from what is established in the Marguerite Johnson case. The Commission, in order to clarify the scope of margin of appreciation which is left to the states in determination of national security interests, initiated an interpretative communication. The communication provided some guidelines for the determination of essential security interest in order to not to abuse the flexibility provided under article 296.
Recently, in defence procurement, new steps have been taken within the European Union. At the outset, the major step was the creation of European Defence Agency on July 2004 as a voluntary and non-binding intergovernmental regime and the agreement on the code of conduct which aims [t]o create a transparent and open European Defence EquipmentMarket (“EDEM”) where defence contractors from participating Member States will enjoy a level playing field of competition.
In the simplest expression, in-house arrangements involve a contract [a]warded by the public to another contracting authority or to an association of contracting authorities.
In regard to the directive under the article 18, it is explicitly indicated that directives do not apply to in-house public service contracts. On the other hand, in the directive, nothing is said in the same manner about public work contracts and public supply contracts. This situation aroused in the Teckalcase which was about a contract management of heating service granted to [a] consortium set up by several municipalities [AGAC] – including that of Viano [the Contracting authority] which has [l]egal personality and operational autonomy. Municipality of Viano did not follow the tendering procedure of the EC procurement rules when conferring the contract to the AGAC. The national court assessed the contract as a service contract, and brought the case before ECJ for preliminary ruling on the interpretation of article 6 of the Service Directive, which was arranged as article 18 of the Public sector directive. The contract in question was covering both supply of fuel and service of operation and maintenance of installations. The Court, by referencing to Article 2 of the service directive, concluded that the contract in question is a supply contract within the meaning of supply directive due to fact that the value of the products covered by the contract exceeds that of the services. While the Court make it clear that the Supply Directive does not constitute any exclusion in regard to in-house arrangements, the judgment further indicated that if the following conditions are met, the arrangement is excluded from the scope of supply directive as well: [i]n the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities,. One another finding of the Teckal case is that the in-house arrangements are not contracts within the meaning of procurement directives if the conditions laid down in that case are met. Teckal conditions which determine a distinct and independent entity, therefore constituted a key for the application of the EC procurement directives to in-house arrangements. The distinctness and independence of the entity form the contracting authority is further clarified by the subsequent case ruling. In the Stadt Halle case, it is held that a semi-public company with 75.1 percent public / 24.9 percent private shares can not satisfy first limb of the Teckal conditions. The Court in its strict approach did not leave an open door in regard to size of minority share via any possibility to a de minimis rule. The strictness of the Stadt Halle approach was further confirmed by two subsequent cases, Mödling and Anav,which stated that if after the conclusion of in-house arrangement, the entity in question is opened up to the private shareholders, either intentionally (Mödling) or may be unintentionally (Anav), it would have an effect of Stadt Halle.
In the Parking Brixen GmbH case, a service concession for management of car parks to a wholly owned subsidiary was allowed by the virtue of Italian code to become a limited company. As indicated, the service concessions are immune from the application of procurement directives but not from the treaty rules, it is submitted that if the Teckal conditions are met, the service concessions in question might be immune from the application of treaty rules as well. However, the Court after application of first condition of Teckal, held that the company, although totally owned by the municipality, when converted into a limited company, became a market-oriented company with broad powers of administrative board. Therefore, it is a distinct and independent entity which falls outside the scope of Teckal definition of in-house arrangement. This Court decision is in line with the Parking Brixen GmbH judgement in the Carbotermo, that a totally owned holding company can not meet the first condition of the Teckal. The Carbotermo judgement moreover dealt with the second essential part of … activities condition. Since the court made it clear that assessment of whether the entity on question is carrying out the essential part of its activities can not be based on “affiliated undertaking exemption” of Utilities directive. The Court elaborated further the second limb of Teckal by stating [i]f… undertaking’s activities are devoted principally to that authority [contracting authority] and any other activities are only of marginal significance. Recently, the Tragsa judgment illustrated that the second limb is satisfied when the undertaking carry out 90 percent of its activities with the relevant contracting authorities.  The Teckal case-line on in-house arrangements illustrate that when the concern is about exemption both from the scope of secondary legislation on procurement and from EC treaty rules, the Court applies a very narrowly defined test to ensure that there is no deliberate evasion from the application of EC public procurement rules.
After reminding the assessment of AG Sharpston in the Commission v. Finland case and the German challenge to the interpretive communication, doubts on the limits of the application of EC treaty in the fields of public procurement are increasing. Institutional activism or not, Commission interpretative communication which is constructed on the established case law, illustrates that the EC treaty may be interpreted just like directives. The strict definition provided under the Teckal and subsequently Stadt Halle rulings on in-house arrangements also illustrated how ECJ interpreted the exceptions narrowly to ensure any possible evasion from the either treaty rules of from directives. The same effect can also be seen on the defence procurement as how EC free movement rules may dislodge thousand of tons of tanks and aircrafts even if they are derogated from the application of procurement directives.The EC treaty rules’ and Public Sector Directive’s attitude toward the contracts which are either excluded or fall-outside the scope of the directive have been analysed. In most cases it has been seen that EC treaty rules providing at least basic regulatory framework for those types of contracts, ensures that they are remaining loyal to the EC free movements provisions. In some extent, if it is accepted that in the EC procurement regime is there as a reflection of the primary EC rules, contracts discussed above are still subject to strict tests and conditions under the regulatory scheme of EC treaty rules. However one can not admit the same rationality under the GPA. By the virtue of Article XXIII.I (Article III of the revised test) defence procurement is explicitly exempted from the scope of the Agreement on Government procurement. Although defence agencies are generally listed in the respective annexes of each party as a covered entity, most of their defence purchasing is still excluded from annexes.  Thus, the basic rationale for the existence of Article XXIII.I is to provide a further guarantee in regard to defence procurement. However it is difficult to compare the nature of Article XXIII.I of the GPA and article 296 of the EC Treaty. Since in the former, the judges have a luxury to expand the discretion within the harmonized and secure boundaries of the European Union, in the latter, if not exaggeratedly, within the anarchical atmosphere of international community judges have little room to review the necessity of the national security interest. In this regard it seems under the GPA, hard military vs. soft military goods distinction does not exist, while the former at the outset exempted from the respected annexes of parties, the latter (if not listed in the annexes) is surely considered as necessary when appropriate within the meaning of the derogation article. In regard to concessions, contracts and in-house arrangements, both types of arrangements are not commonly concerned as a contract as other procurement contracts. Both concessions contracts and in-house arrangements are not explicitly excluded from the coverage of the GPA, thus their exclusions largely depends on whether parties of GPA have excluded them from their respective annexes.
Giffin N. (2007) “Public Procurement – Recent Developments”, paper presented at 11KBW Local Authority Conference, 4 Oct. 2007 [online], available: http://www.11kbw.com/articles/docs/ProcurementNigelGiffinQC.pdf [accessed 10 May 2008].
Aris Georgopoulos, (2005) European Defence Procurement Integration: How to Handle Article 296 EC?, Paris, 09 Dec 2005 [online], available: http://www.cicerofoundation.org/pdf/aris_georgopoulos_09dec05.ppt [accessed 10 May 2008].
COM (2006) 779 final, Interpretative Communication on the Application of Article 296 of the Treaty in the field of Defence Procurement, Brussels, 7 December, 2006.
C-414/97 Commission v Spain  E.C.R. p.I-5585.
 Directive 2004/18 of the European Parliament and the Council on the co-ordination of procedures for the award of public works contracts, public supply contracts and public service contracts,  O.J. L134/114 – Directive 2004/17 of the European Parliament and of the Council co-ordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors,  O.J. L134/1.
 Case 8/74, Procureur du Roi v. Dasonville,  ECR 837, Interpretation of Article 28 further extended by Cassis De Dijon case when ECJ submitted that article 28 also applies to the non discriminatory measures having the same effect.
 Europa. (2007). Concessions under Community law. Retrieved May10, 2008, from Europa World database.
 Peter Braun, A Matter of Principle(s): The Treatment of Contracts Falling Outside the Scope of the European Public Procurement Directives, 9 P.P.L.R. 39 (2000) p.47. The provision on value thresholds, in particular, would be rendered meaningless if such contracts were to be caught by a regime imposing similar regulatory burdens.
 Case C-26/03 Stadt Halle and RPL Lochau  ECR I-1, at.
 Case C-458/03, Parking Brixen v Gemeinde Brixen  E.C.R. I-8612 at.
 C-340/04, Carbotermo at. Court in its judgement distinguished the service contracts and supply contracts and held that exceptions should be applied restrictively and so [A]rticle 13 of Directive 93/38 must not be applied in the assessment of the requirement relating to the inapplicability of Directive 93/36.
 Ibid. p. 148 Arrowsmith makes a distinction between the measures necessary and measures considered necessary, in which this general provision allows parties to take measures on the latter ground.

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