Procurement and competition: news updates

AGO says Ireland broke Treaty principles in two matters

Advocate-General Stix-Hackl has issued an opinion on two cases in which the Irish government awarded contracts (or made quasi-contractual arrangements) which were not governed by the full procurement regime.  The opinions are technically consistent with the EC’s recent Interpretative Communication (see previous issue, “Keeping it real”), to which the AGO refers.  Nevertheless contracting authorities and their counterparties may justifiably feel that the water is getting muddier rather than clearer.  The second case in particular must be of real concern to all public bodies who enter into arrangements – commercial or otherwise - to provide each other with services.

In the first case, the Irish government renewed an existing contract, first let in 1992, with An Post (the Irish postal service).  The contract enabled welfare claimants to collect their payments from post offices.  This is a part B service and the renewal was awarded without advertisement.  In the second case, a Regional Health Authority arranged with Dublin City Council that the latter should provide ambulance services – something provided for in statute.  Both the RHA and the Council are wholly public bodies.  The Council agreed but the agreement was not set out in written form.

A-G Stix-Hackl opines that both the renewal, and the agreement to provide emergency ambulances, are caught by the primary obligations of transparency imposed on Member States by the Treaty, and should have been advertised.  This is regardless of the fact that the An Post contract is part B and that the ambulance arrangement is acknowledged to fall altogether outside the Directives. 

We can expect that the An Post opinion will be confirmed by the Court: it is consistent with Telaustria and it may be thought a little surprising that Ireland did not advertise.  But we must hope that the Court will take a different view from the A-G in the emergency ambulances case.  It is difficult to see how it could be practicable, never mind desirable, if arrangements between public authorities, for the maintenance of public services with no commercial element, were to be made subject to a requirement to advertise.

“Ferring: the laboratories strike back”: European Court finding on state aid

State aid fans will be well aware of the Ferring case.  The French government imposed a tax  (the “direct tax”) on wholesale sales of medicines by pharmaceutical laboratories direct to pharmacies, but exempted distribution companies’ sales.  The exemption was challenged as constituting unlawful state aid.  The ECJ held that it could be lawful if and to the extent that it reflected the cost to the distribution companies of meeting a social obligation in the general interest, namely a legal obligation to maintain minimum stocks of specified medicines, which would otherwise be uneconomic.

In Boiron (Case C-526/04, Laboratoires Boiron v URRSAF de Lyon), the Court has been called upon to consider a second challenge to exactly the same tax.  Laboratoires Boiron supply medicines both by direct sales and through wholesale distributors; they paid the tax but then sought to recover it on the basis that the exemption for wholesale distributors (from which Boiron did not benefit) was unlawful aid.

The Court naturally considered Ferring; it also noted its own jurisprudence on state aid and tax, which says that a taxpayer cannot seek to escape their own liability to pay a tax on the grounds that another taxpayer benefits from an exemption which amounts to unlawful aid.  But, said the Court, this case is different because the tax in question is not a general tax but one specific to the two competing classes of businesses in question, and benefiting only one of them – the wholesale distributors. 

The Court appears to have re-framed Boiron’s case, and the question put to it, to find that it was not the exemption but the direct tax itself which potentially constituted unlawful aid.  However the Ferring principle survives: the direct tax will be unlawful only if and to the extent that the exemption from it overcompensates wholesale distributors for the cost of meeting their legal obligations to maintain minimum stocks.

Whether, as a matter of fact, the exemption is excessive, will of course be a matter for the French courts to determine.  What is clear is that as well as challenging exemptions from tax for competitors, the way will sometimes be open for a commercial taxpayer to challenge the imposition of a tax on the basis that a competitor does not have to pay it.

State aid for R&D, innovation: last chance to contribute views

The European Commission’s policy of encouraging investment in research and development and technical innovation is reflected in procurement law, where regulation 6(2)(k) of the Public Contracts Regulations makes contracts for R&D potentially exempt.  The policy on state aid for such activities has been similarly favourable and has been restated in frameworks published by the EC in 1984 and 1995.  A revised framework is in preparation and the Commission is seeking comments by 13 October on the second, and probably final draft.  Go to http://ec.europa.eu/comm/competition/index_en.html if you wish to submit views.