• Public Procurement legislation apply to contracts awarded to public-private joint venture companies
  • January 20, 2005
  • Law Firm: Watson, Farley & Williams - New York Office
  • On 11 January 2005 the European Court of Justice ("ECJ") gave a ruling on preliminary issues referred to it by the German courts in the case of Stadt Halle, RPL Recyclingpark Lochau GmbH v Arbeitsgemeinschaft Thermische Restabfall-und Energieverwertungsanlage, TREA Leuna. The case concerned a contract for the provision of waste-related services awarded by a German local authority. The contractor, RPL Lochau, was a joint venture company in which 75.1% of the shares were held indirectly by the authority and the remaining 24.9% were held by a private company. The authority awarded the contract without going through the public procurement procedure and this was challenged by a potential competitor. The ECJ was asked to give a ruling on two broad issues. The first was whether the court had jurisdiction only in respect of contracts awarded where the public procurement procedure is used or whether the court's jurisdiction is wider and covers contracts awarded without recourse to the procedure at all. Unsurprisingly, the ECJ said that the latter alternative was correct. The second issue which the ECJ considered was whether contracts awarded to a "semi-public company" (i.e. a company part owned by the authority which is letting the contract) fall within or outside the scope of the public procurement procedures. In an earlier decision (Case C-107/98, Teckal) the ECJ had held that where a contract was awarded by an authority to a company over which it exercised control, that contract was to be treated as an "in house" contract and not subject to the public procurement legislation. In the present case, the ECJ said that where the company has a private sector shareholding, however small, that cannot be treated as equivalent to an in-house contract and, therefore, the principle in Teckal would not apply. Accordingly, such a contract would be subject to the public procurement legislation.

    The decision in the Teckal case was not popular with the European Commission who will no doubt have breathed a sigh of relief that the ECJ has not sought to extend its scope to joint venture companies. Utilities and contractors in the utilities sector will, therefore, have to content themselves with the exemptions in the Utilities Directive for affiliated undertakings and joint ventures as a way of seeking to avoid public procurement procedures. Presently, though, these are fairly limited in scope. Under the new directive (Directive 2004/17/EC of 31 March 2004), however, which is scheduled to be implemented across the EU by 31 January 2006, the joint venture exemption has been broadened. A contract would be exempt, for example, where it is awarded by a joint venture partner to the joint venture company provided that the joint venture company has been set up in order to carry out the activities concerned over a period of at least three years and that the instrument setting up the joint venture stipulates that the joint venture parties will remain as such for at least three years.