EUKN - Cyprus - ECJ forces local authorities to tender out contracts

ECJ forces local authorities to tender out contracts

19-05-2006

The European Court of Justice (ECJ) has ruled in favour of two Italian firms who objected to the Commune of Busto Arsizio's decision in December 2003 to give a contract to AGESP, a company the Commune owns for 99.98%. The ruling limits local authorities´freedom to decide how to organise their business. A municipality may not directly award a contract to a company it owns for 99.98% if it does not have managerial control of it. The Council of European Municipalities and Regions (CEMR) is not pleased.

This ruling (Case C-340/04) is the latest is in a series of judgments forcing public authorities to tender out contracts handed down by the ECJ. Previous ECJ case-law said that to be able to award a contract directly, the contracting authority must exercise control over the contractee «similar to that which it exercises over its own departments» (Teckel, Case C-107/98). In this case, the ECJ said there was no such control, even though Busto Arsizio owned almost all of AGESP. This is because under AGESP's statute, the latter is given "the broadest possible control powers for the ordinary and extraordinary management of the company". Thus, the relevant EU public procurement Directive (93/36/EEC) applies.

The Council of European Municipalities and Regions has reacted promptly on what they call a ruling “against local self-government”. The CEMR believes that since the Court of Justice has repeatedly ruled against the principle of local self-government regarding the provision of local public services, it is necessary for European democratic legislation to set a sensible framework, enabling municipalities to assign tasks to the companies they own or control.

The ECJ ruling was published on the same day CEMR adopted the final declaration of its general assembly in Innsbruck. Over 1,200 local and regional representatives from 36 European countries agreed to the final declaration, including paragraph 20(d) that says that that local governments should be able to assign service tasks to companies they own or control without compulsory tendering, provided the company does not compete on external markets.

Local and regional authorities indicate they will closely monitor the debate on services of general interest, with the declaration giving them a chance to set out their priorities:

that public services of a primarily non-commercial character and social purpose are not defined as services of economic interest, and therefore should not be subject to EU Internal Market rules;
that the payment of pure compensation to those delivering public services is not legally deemed to be a state aid;
that inter-communal cooperation for service delivery should be accepted as a legitimate way of delivering services internally, without compulsory tendering;
that local governments should be able to assign service tasks to companies they own or control without compulsory tendering, provided the company does not compete on external markets.

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Council of European Municipalities and Regions Source: European Information Service
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