A welcome note of commercial realism

Since the Telaustria¹ case in 2000 it has been clearly understood that, even where contracts fell outside the strict regimes of the various procedures established by EU law (the open, restricted and so forth) because they were for “part B” or “residual” services, EU Member States were still under an obligation to comply with the principles of the EC Treaty. The same applied where contracts were below the directives’ value thresholds. Member States had to apply the principles of transparency, objectivity, proportionality, equal treatment.

Often that has meant that the only practical course was to behave pretty much as though the directives did apply: to advertise (probably but not necessarily in the Official Journal) and to conduct a competitive process with published criteria and a formal evaluation process.  It meant that the letting of such contracts was treated with some extra flexibility, but not much.

That position was strongly backed by the European Commission, which for some years has seemed to want to bring all public contracting under a regime of advertising and open and accountable procedures. 

Now the EC has published an Interpretative Communication which suggests a significant change in approach.  The Communication (“Commission interpretative communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives”²) does not of course have the force of case law or legislation but it is part of what is often called “soft law”: it is an authoritative statement of policy. 

Most of the Communication re-states the basic principles and rules. It re-emphasises the central importance of the Treaty freedoms (free movement of goods, right of establishment, freedom to provide services) which promote the internal market and of the principles of equal treatment, transparency, proportionality and mutual recognition.  So far, so familiar.

But under the heading “Relevance to the Internal Market” it acknowledges in terms that these principles only apply to contracts whose award has the potential to impact the internal market – in other words, contracts which might in reality be of interest to suppliers in other Member States.  If the contracting authority takes the view that a contract (which is either part B or below threshold) would in reality not attract  bids from cross-border suppliers, it need not adopt the mechanisms of advertising and competition.  This is a significant shift. Hitherto the Commission’s attitude has appeared clearly to be that the question whether cross-border suppliers would in reality be interested was not relevant, or at least that to allow authorities to determine that question in the negative and decide not to advertise would be to undermine transparency. 

The language of the Communication is now surprisingly clear in the other direction: it suggests that only if contracting authorities conclude “that the contract in question is relevant to the internal market” do they need to award it in compliance with the Treaty standards.  Contracting authorities will have to be careful not to abuse the greater latitude offered by that formulation; the mere fact that a contract is to be performed in the UK or that it requires some degree of local knowledge will not necessarily be enough.  But there is no doubt that the Communication does offer greater latitude and that contracting authorities should make use of it.

For advice about matters connected with public procurement, EU or UK competition law and state aid, contact David Gollancz or Charles Whiddington.

1. Case C-324/98 Telaustria [2000] ECR I-10745
2. http://ec.europa.eu/internal_market/publicprocurement/docs/keydocs/communication_en.pdf