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Print articleBelgian Council of State pierces the veil of a PPP project
November, 2009 - William Timmermans & Tina Van Poelvoorde - ALTIUS
In the Horizon Pleiades case, the Council of State was confronted with an interesting question: if a public authority organises a procedure to select its partner for a PPP company, which will perform works or services which would normally be covered by the Procurement Directives, does the selection procedure have to comply with the rules laid down in the Procurement Directives or can a “light” selection procedure be used? In its ruling, dated 19 June 2009, the Council of State pierced the veil of a so-called “partnership tender procedure” and held that it must comply with the rules laid down in the Directives.
Idelux, an inter-municipal company, wished to set up a PPP company to prepare, study, build and sell the first rural ‘eco-district’ in the Belgian Province of Luxemburg, at Bellefontaine, near Tintigny. Idelux organised a “light” procedure to select its private-sector partner for this PPP company. The notices in the Belgian official gazette and in the Official Journal indeed indicated that this was not a “procurement procedure”, but rather “a request for partnership”.
According to the notice, there were several selection criteria, but only one concerned the PPP company, whereas the others related to the works and services to be carried out.
There were three candidate partners: Horizon Pleiades, Thomas & Piron and Tpalm. Idelux allowed Thomas & Piron to proceed to the second round of selection, but not Horizon Pleiades, even though the latter had the highest score for the (one) criterion relating to the proposed creation of the PPP company.
Horizon Pleiades appealed against this decision by Idelux to the Council of State, asking it to suspend and annul Idelux’s decision, arguing that Idelux had acted illegally by not allowing Horizon Pleiades to go forward to the second round.
Horizon Pleiades argued that what Idelux called a “partnership” was either a public service contract, or a ‘disguised’ public development contract, and that therefore Idelux should have applied a procurement procedure compliant with the Procurement Directives instead of the “light” version it had used.
Horizon Pleiades argued that Idelux:
In its judgment of 19 June 2009, the Council of State suspended the decision by Idelux, thus demonstrating an interesting approach to the creation of “legal vehicles” as a means of avoiding the application of public procurement rules.
Even though the Council of State stressed that the procedure for selecting private-sector partners for public authorities in PPP companies does not fall within the scope of the Belgian and European procurement rules, it also held that the public procurement rules did apply to selection procedures for partnerships which were mere ”constructions” to get around the application of the public procurement rules.
In this respect, the Council of State referred to the EC Interpretative Communication of 5 February 2008 on the application of Community law on Public Procurement and Concessions to Institutionalised Public-Private Partnerships (“IPPP”) (n° C(2007) 6661) and particularly to the following paragraph: “If the task assigned to the public-private entity is a public contract fully covered by the Public Procurement Directives, the procedure for selecting the private partner is determined by these Directives.”.
The Council of State then examined whether or not there were sufficient arguments to pierce the veil of this “construction” and to qualify it as “procurement”. The Council of State saw two main arguments.
First, it found that the qualitative selection by Idelux was mostly based on criteria regarding the services to be provided, and less on criteria relating to the partnership, and that this was the case both in the tender documents and in the evaluation report. This was the main reason why Horizon Pleiades’ bid was unsuccessful, even though it was ranked first using the criteria for the creation of the PPP company.
Second, the Council of State considered that it appeared that the works to be carried out would in fact “correspond to the requirements specified by the contracting authority” (here: Idelux) in the sense of Article 5 of the Belgian Procurement Act. This is an element that comes from the definition of “public works contract” (See: Art. 1(2)(b) of Directive 2004/18).
Based on those two important arguments, the Council of State “pierced” the veil of the partnership construction and was of the opinion that Idelux should have organised a proper procurement procedure.
Public authorities are hereby warned: the mere qualification as a “partnership” is not sufficient to disregard the proper procurement rules. The Belgian Council of State will effectively verify whether or not a “partnership construction” is in fact a “hidden” procurement for works, services or supplies or a “hidden” concession.
The referring judgment from the Italian court was issued on 13 March 2008 (case N° 3271/2007). It makes reference to interesting arguments from both parties. The local inter-municipal body justified its doubts as to its procedure’s compliance with European law on the basis that it did not meet the conditions for “in-house” tendering. It referred to the Stadt Halle judgment (case C-26/03, 11 January 2005), in which the ECJ had held that: “Where a contracting authority intends to conclude a contract for pecuniary interest relating to services within the material scope of Directive 92/50, as amended by Directive 97/52, with a company legally distinct from it, in whose capital it has a holding, together with one or more private undertakings, the public award procedures laid down by that directive must always be applied.” If the ECJ says “always”, it becomes difficult to argue against this. Hence, the Sicilian Regional Administrative Court referred the case to the ECJ.
The Advocate General Ruiz-Jarabo Colomer (in his opinion of 2 June 2009) and the ECJ (in its judgment) agreed that no second tender procedure was necessary, provided the first tender procedure had fulfilled certain conditions.
Indeed, the Court held that Articles 43 EC, 49 EC and 86 EC do not preclude the direct award of a public service contract which entails the prior execution of certain works to a semipublic company formed specifically for the purpose of providing that service and possessing a single corporate purpose, if (i) the private participant in the company was selected by means of a public and open procedure after verification of the financial, technical, operational and management requirements specific to the service to be performed and of the characteristics of the tender with regard to the service to be delivered, and if (ii) the tendering procedure in question is consistent with the principles of free competition, transparency and equal treatment laid down by the EC Treaty with regard to concessions. A third condition does not clearly appear from the dictum of the judgment, but is indicated in its reasons: the semi-public company must retain the same corporate purpose throughout the duration of the concession.
The Court’s reasoning to arrive at this conclusion was mostly pragmatic. Procedural formalities have to be reduced (par. 58); the selection of the concessionaire is the indirect result of the selection of the private minority shareholder (par. 60) and a double procedure would be likely to deter private entities and public authorities from forming IPPPs (par. 61).
Even if the outcome of the case may seem intuitively correct, the legal argument is not self-evident, as there is no explicit basis for such a rule. Advocate General Ruiz-Jarabo Colomer came to the same conclusion as the Court, but at the same time his opinion contained the most eloquent of criticisms: “No conviene erigir al pragmatismo, aspiración lógica de todo ordenamiento, en fundamento exclusivo de un razonamiento jurídico.” (“It is not appropriate to make pragmatism, the logical aspiration of any legal system, the exclusive basis of a legal argument” (opinion, par. 84)).
Reading the Acoset judgment, it is easy to doubt that the ECJ’s arguments meet that test. There is a temptation to conclude that, even if pragmatism should not be the only legal argument, it is clearly a very good one. Again, the Court has shown by this judgment that public procurement law is becoming more and more reliant on case law.
Idelux, an inter-municipal company, wished to set up a PPP company to prepare, study, build and sell the first rural ‘eco-district’ in the Belgian Province of Luxemburg, at Bellefontaine, near Tintigny. Idelux organised a “light” procedure to select its private-sector partner for this PPP company. The notices in the Belgian official gazette and in the Official Journal indeed indicated that this was not a “procurement procedure”, but rather “a request for partnership”.
According to the notice, there were several selection criteria, but only one concerned the PPP company, whereas the others related to the works and services to be carried out.
There were three candidate partners: Horizon Pleiades, Thomas & Piron and Tpalm. Idelux allowed Thomas & Piron to proceed to the second round of selection, but not Horizon Pleiades, even though the latter had the highest score for the (one) criterion relating to the proposed creation of the PPP company.
Horizon Pleiades appealed against this decision by Idelux to the Council of State, asking it to suspend and annul Idelux’s decision, arguing that Idelux had acted illegally by not allowing Horizon Pleiades to go forward to the second round.
Horizon Pleiades argued that what Idelux called a “partnership” was either a public service contract, or a ‘disguised’ public development contract, and that therefore Idelux should have applied a procurement procedure compliant with the Procurement Directives instead of the “light” version it had used.
Horizon Pleiades argued that Idelux:
- had illegally used the negotiated procedure;
- had not determined adequate and relevant qualitative selection criteria;
- had not split the qualitative selection phase from the negotiation phase of the bids; and
- had not predetermined the award criteria.
In its judgment of 19 June 2009, the Council of State suspended the decision by Idelux, thus demonstrating an interesting approach to the creation of “legal vehicles” as a means of avoiding the application of public procurement rules.
Even though the Council of State stressed that the procedure for selecting private-sector partners for public authorities in PPP companies does not fall within the scope of the Belgian and European procurement rules, it also held that the public procurement rules did apply to selection procedures for partnerships which were mere ”constructions” to get around the application of the public procurement rules.
In this respect, the Council of State referred to the EC Interpretative Communication of 5 February 2008 on the application of Community law on Public Procurement and Concessions to Institutionalised Public-Private Partnerships (“IPPP”) (n° C(2007) 6661) and particularly to the following paragraph: “If the task assigned to the public-private entity is a public contract fully covered by the Public Procurement Directives, the procedure for selecting the private partner is determined by these Directives.”.
The Council of State then examined whether or not there were sufficient arguments to pierce the veil of this “construction” and to qualify it as “procurement”. The Council of State saw two main arguments.
First, it found that the qualitative selection by Idelux was mostly based on criteria regarding the services to be provided, and less on criteria relating to the partnership, and that this was the case both in the tender documents and in the evaluation report. This was the main reason why Horizon Pleiades’ bid was unsuccessful, even though it was ranked first using the criteria for the creation of the PPP company.
Second, the Council of State considered that it appeared that the works to be carried out would in fact “correspond to the requirements specified by the contracting authority” (here: Idelux) in the sense of Article 5 of the Belgian Procurement Act. This is an element that comes from the definition of “public works contract” (See: Art. 1(2)(b) of Directive 2004/18).
Based on those two important arguments, the Council of State “pierced” the veil of the partnership construction and was of the opinion that Idelux should have organised a proper procurement procedure.
Public authorities are hereby warned: the mere qualification as a “partnership” is not sufficient to disregard the proper procurement rules. The Belgian Council of State will effectively verify whether or not a “partnership construction” is in fact a “hidden” procurement for works, services or supplies or a “hidden” concession.
The referring judgment from the Italian court was issued on 13 March 2008 (case N° 3271/2007). It makes reference to interesting arguments from both parties. The local inter-municipal body justified its doubts as to its procedure’s compliance with European law on the basis that it did not meet the conditions for “in-house” tendering. It referred to the Stadt Halle judgment (case C-26/03, 11 January 2005), in which the ECJ had held that: “Where a contracting authority intends to conclude a contract for pecuniary interest relating to services within the material scope of Directive 92/50, as amended by Directive 97/52, with a company legally distinct from it, in whose capital it has a holding, together with one or more private undertakings, the public award procedures laid down by that directive must always be applied.” If the ECJ says “always”, it becomes difficult to argue against this. Hence, the Sicilian Regional Administrative Court referred the case to the ECJ.
The Advocate General Ruiz-Jarabo Colomer (in his opinion of 2 June 2009) and the ECJ (in its judgment) agreed that no second tender procedure was necessary, provided the first tender procedure had fulfilled certain conditions.
Indeed, the Court held that Articles 43 EC, 49 EC and 86 EC do not preclude the direct award of a public service contract which entails the prior execution of certain works to a semipublic company formed specifically for the purpose of providing that service and possessing a single corporate purpose, if (i) the private participant in the company was selected by means of a public and open procedure after verification of the financial, technical, operational and management requirements specific to the service to be performed and of the characteristics of the tender with regard to the service to be delivered, and if (ii) the tendering procedure in question is consistent with the principles of free competition, transparency and equal treatment laid down by the EC Treaty with regard to concessions. A third condition does not clearly appear from the dictum of the judgment, but is indicated in its reasons: the semi-public company must retain the same corporate purpose throughout the duration of the concession.
The Court’s reasoning to arrive at this conclusion was mostly pragmatic. Procedural formalities have to be reduced (par. 58); the selection of the concessionaire is the indirect result of the selection of the private minority shareholder (par. 60) and a double procedure would be likely to deter private entities and public authorities from forming IPPPs (par. 61).
Even if the outcome of the case may seem intuitively correct, the legal argument is not self-evident, as there is no explicit basis for such a rule. Advocate General Ruiz-Jarabo Colomer came to the same conclusion as the Court, but at the same time his opinion contained the most eloquent of criticisms: “No conviene erigir al pragmatismo, aspiración lógica de todo ordenamiento, en fundamento exclusivo de un razonamiento jurídico.” (“It is not appropriate to make pragmatism, the logical aspiration of any legal system, the exclusive basis of a legal argument” (opinion, par. 84)).
Reading the Acoset judgment, it is easy to doubt that the ECJ’s arguments meet that test. There is a temptation to conclude that, even if pragmatism should not be the only legal argument, it is clearly a very good one. Again, the Court has shown by this judgment that public procurement law is becoming more and more reliant on case law.
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