On 11 April 2024, AG Campos Sánchez-Bordona delivered his Opinion in NFŠ (C-28/23, EU:C:2024:306). The NFŠ Opinion is very interesting in three respects. First, in addressing some aspects of the definition of public works contracts that keep coming up in litigation in relation to relatively complex real estate transactions. Second, in addressing the effects of a State aid decision on the assessment of compliance with procurement law of the legal structure used to implement the aid package. Third, in addressing some limits on the ‘strategic’ use of remedies by contracting authorities that have breached procurement law. Before providing some comments on the Opinion, I need to make two disclaimers.
The first one is that, exceptionally, I have been involved in the legal proceedings before the ECJ. At the request of NFŠ, I wrote an expert statement addressing some of the issues raised by the case. I am very pleased to see that my own legal analysis coincides with that of AG Campos Sánchez-Bordona, and I hope the Court will also share it in the forthcoming Judgment.
Second, it is worth stressing that this is not a bread and butter procurement case and referring to the legal structure can be cumbersome or confusing if not done precisely. Unfortunately, this has happened in the English translation of the AG Opinion, which is rather poor in some areas. In particular, crucial paragraphs 81 and 96 are incorrectly translated and convey a confusing position. To avoid those issues, I rely on my own translation of the Spanish and French versions of the Opinion (and highlight it where my own translation deviates from the ECJ’s one by placing the relevant parts in [square brackets and italics]).
Background
In short, the case arises from a dispute between the Slovak Government and NFŠ in relation to the Slovak national football stadium. Despite having provided State aid for the construction of the stadium, the State is now unwilling to purchase it from NFŠ in the terms of the aid package. This has resulted in domestic litigation. The request from a preliminary reference emerges in this context.
In 2013, the Slovak Government entered into a grant agreement with NFŠ to support the construction of the national football stadium in Bratislava. However, construction did not immediately proceed and the level of financial support was in need of review. The grant agreement was revised in 2016 (the ‘grant agreement’). In addition to the grant for the construction of the stadium, the Slovak Government also granted NFŠ a unilateral put option to sell the stadium to the State, under certain conditions, during the five years following its completion (the ‘agreement to enter into a future sales agreement’ or ‘AFSA’).
Slovakia notified this set of agreements to the European Commission as State aid. In 2017, the Commission declared those measures to be compatible with the internal market by Decision State Aid SA.46530. The State aid Decision made it clear that the total volume of aid comprised the direct grant plus the value of the put option, and that those modalities and that level of aid were justified in view of the need to provide sufficient financial incentives to get the stadium developed. In relation to the put option, the Commission stated that ‘The option given to the beneficiary allows it to sell the Stadium back to the State in case it wishes to do so. Should the beneficiary decide to exercise the option, the Stadium would become a property of the State’ (para 22). In relation to the obligation to subject the construction of the stadium to competitive public procurement, the State aid Decision also explicitly stated that ‘The construction works financed through the grant … will be subject to a competitive process, respecting the applicable procurement rules’ (para 8).
NFŠ undertook the development of the stadium and awarded contracts for different parts of the works under competitive tender procedures compliant with the Slovak transposition of EU law. All tenders were advertised in the Official Journal of the European Union and in the Slovak official journal. Once the stadium was completed and in operation, NFŠ decided to exercise the put option and called on the Slovak Government to purchase the stadium in the terms foreseen in AFSA.
Simply put, in order to try to avoid the obligation to purchase the football stadium in the terms set out in AFSA, the Slovak Government is arguing that the agreements are null and void because, combined and from the outset, the grant agreement and AFSA would have had the unavoidable effect of getting the stadium built and transferred to the State, and thus cover up the illegal direct award of a public works contract to NFŠ. This part of the dispute concerns the definition of ‘public works contracts’ under Directive 2014/24/EU (section 1 below).
Relatedly, the Slovak Government states that despite containing explicit references to the tendering of the construction of the stadium, the State aid Decision cannot preempt a fresh assessment of the compliance of this legal structure with EU procurement rules. Perhaps surprisingly, this position has been supported by the European Commission, which denied that the explicit mention of compliance with procurement law formed an integral part of its assessment of the compatibility of the set of agreements with EU internal market law. This is a crucial issue and the outcome of this case can provide much needed clarity on the extent to which the Commission does, and indeed must, take procurement law into account in the assessment of State aid measures that involve the award of public contracts. This part of the dispute thus concerns the effect of State aid decisions relating to aid packages with a procurement element (section 2 below).
Finally, it is also important in the case that the State seeks confirmation of the possibility of having the ineffectiveness of the grant agreement and AFSA recognised ex tunc under domestic law, without this being a breach of the Remedies Directive. This relates to the ‘strategic’ use of procurement remedies by contracting authorities that have breached procurement law (section 3 below).
The AG Opinion deals with these issues and is interesting in all respects, but specially the latter two, where it breaks new ground.
1. Definition of a ‘public works contract’
The first issue addressed in the AG Opinion concerns whether the grant agreement and AFSA create such a set of obligations on NFŠ as beneficiary of the aid and developer of the stadium that, in reality, they amount to the illegal direct award of a public works contract for the construction of the stadium. There are three main issues that require detailed consideration:
whether the contractor had assumed a legally enforceable direct or indirect obligation to carry out the works;
whether the works should be executed in accordance with the requirements specified by the contracting authority, which thus had decisive influence over the project; and
whether the contracting authority would obtain a direct economic benefit.
The AG Opinion provides a helpful summary of the case law on these issues (see paras 52-54) and additional guidance on how to apply them in the case, raising significant questions on whether these criteria were met—although the final assessment must be carried out by the referring court.
Legally Enforceable Obligation
First, the Opinion stresses that it is unclear that NFŠ was placed under a legally enforceable obligation to build and transfer the stadium as a result of the grant agreement and AFSA. Importantly, the AG distinguishes the existence of an enforceable obligation to carry out the works from the existence of legal consequences from deciding not to do so. As the Opinion makes clear, the simple existence of the agreements to subsidise the development of the stadium does not ‘support the inference that the Slovak State would have any right to take legal action against NFŠ to compel it to build the stadium should that undertaking ultimately decide not to do so. [A different issue is whether], in that event, NFŠ would not have received the grant, or would have lost it, or would [have been] obliged to pay it back. This in itself, however, has nothing to do with the performance of a works contract’ (para 59).
This is important because it sets the threshold at which a ‘commitment’ to carry out works becomes a legally enforceable obligation for the purposes of EU public procurement law. It reflects an understanding that there has to be a right (in principle) to require specific performance (performance in natura), not solely the existence of legal consequences arising from a decision not to follow through with such a commitment. This is further supported in the fact that ‘the mere grant of a State subsidy involving the [disbursement] of public funds (in the present case, for the purpose of constructing a stadium) does not in itself amount to the conclusion of a public works contract. As recital 4 of Directive 2014/24 states, “the Union rules on public procurement are not intended to cover all forms of disbursement of public funds, but only those aimed at the acquisition of works, supplies or services for consideration by means of a public contract”’ (para 48, underline emphasis in the original).
The Opinion further stresses that:
in order for there to be a genuine works contract, it is essential that the successful tenderer should specifically take on the obligation to carry out the works forming the subject of the acquisition and that that obligation should be legally enforceable [in court]. The contracting authority … must acquire the [building] on which the works are carried out and, [where applicable], [be able to] take legal action [in court] to compel the tenderer awarded the contract to [transfer it], if it holds [legal title covering the encumbrance of the works for the purposes of public use] (para 60, underline emphasis in the original).
This concerns the legal enforceability of the put option from the perspective of the State. In that regard, it will be necessary for the referring court to establish ‘whether NFŠ, once the sports infrastructure had been built, had a legally enforceable obligation to transfer it to the Slovak State, which the latter could assert’ (para 61). The Opinion suggests that this is highly implausible, given that ‘all the indications are that the agreement to enter into a future sales agreement gave NFŠ the option either to remain the owner of the stadium and continue to operate it (or assign its operation to third parties), or to transfer it [to] the Slovak State, if [doing so suited that undertaking]’ (para 62).
Moreover, and this is a crucially interesting aspect of the case, the Opinion stresses that the assessment of the legal enforceability of the put option had already been the object of analysis by the European Commission in its State aid decision and that the Commission had confirmed that it enabled NFŠ ‘ (but does not oblige it) to sell the infrastructure to the Slovak State if that undertaking wishes to do so’ (para 63). This will be particularly relevant in view of the effects of the State aid Decision discussed in section 2 below.
Specifications by the Contracting Authority
A second issue of relevance in the case is that the aid package required for the stadium to meet ‘UEFA Regulations on the construction of category 4 stadiums and those contained in the general Slovak rules on sports infrastructure projects’ (para 65). This raises the question whether the contracting authority could exercise ‘decisive influence over the construction project’ by requiring compliance with those requirements (ibid) and participating in a monitoring committee. The Opinion focuses on the material impact of those circumstances on the development of the project.
Interestingly, the Opinion stresses that ‘UEFA criteria … consist of a number of mandatory parameters in relation to the minimum structural requirements which a stadium must meet in order to be classified in a certain category. However, those criteria are amenable to a variety of architectural solutions that can be developed within very broad margins of professional creativity’; and that ‘The design of football stadiums that comply with the UEFA criteria allows for an extensive range of creative alternatives, both in the external configuration of the stadium and in the structuring of its internal amenities. Those criteria do not … contain the detailed technical solutions which a true proprietor of the work could impose on the tenderer awarded the contract’ (paras 66-67, reference omitted).
This part of the Opinion is interesting in the context of drawing the boundaries between real estate transactions that will be caught or not by the procurement rules because it comes to develop the guidance offered by previous case law (recently C‑537/19, EU:C:2021:319) on the extent to which the specifications need to be sufficiently detailed to exceed the usual requirements of a tenant (C‑536/07, EU:C:2009:664). The further clarification is, in my view, that the specifications should be such as to significantly constrain or predetermine architectural solutions in the design of the works.
Direct Economic Benefit to the Contracting Authority
The Opinion directly refers to the case law on the need that ‘In a public works contract, the contracting authority receives a service consisting of the realisation of works which it seeks to obtain and which has a direct economic benefit for it’ (para 52). In that regard, the Opinion stresses that it is not sufficient for the Slovak State to have an ‘interest (and subsequent indirect benefit) … confined to the generic promotion of the national sport’ (para 64). This is also important because it clarifies the threshold of ‘directness’ and magnitude of the interest that must arise for a legal transaction to be classed as a public contract.
2. Effect of State aid decisions relating to aid packages with a procurement element
Perhaps the most interesting issue that the AG Opinion deals with is the extent to which a State aid Decision declaring a legal structure with explicit procurement implications compatible with the internal market pre-empts a separate assessment of its compliance with EU public procurement law.
As mentioned above, in the NFŠ case, the State aid notification had provided details on the grant agreement and AFSA, and made it explicit that the beneficiary of the aid would run public tenders for the competitive award of contracts for the subsidized works. The Commission explicitly referred to this in the Decision, indicating that ‘The construction works financed through the grant … will be subject to a competitive process, respecting the applicable procurement rules’.
As a starting point, AG Campos stresses that, consequently, any assessment of compliance with EU law cannot ignore ‘the considerations set out by the Commission in Decision SA.46530 in connection with the content of the grant agreement and the agreement to enter into a future sales agreement, where it found that, through those agreements, the Slovak State had granted public aid compatible with the internal market’ (para 47).
In more detail, the AG stresses that ‘the Commission examined the grant agreement and the agreement to enter into a future sales agreement. In Decision SA.46530, it evaluated the public aid associated with those agreements and declared it to be compatible with the internal market’ and that ‘A reading of paragraph 8 shows that what mattered to the Commission was that the construction of the stadium (which represents the very essence of a works contract, whether public or private) should be [subjected to] a competitive process respecting the rules applicable to public contracts’ (para 72, reference omitted, and para 74, underline emphasis in the original).
The AG stressed that the Commission confirmed that this was ‘an essential condition for the compatibility of the aid with the internal market’ (para 73). This led the AG to find that the State aid Decision had the effect of triggering the application of the EU procurement rules by NFŠ, ‘which was put in a situation analogous to that of a contracting authority’ (para 75) and, implicitly, that compliance with EU procurement law concerned the contract/s for the works to be tendered by NFŠ, not the award of the State aid to NFŠ.
Crucially, AG Campos spelled out the implications of such consideration by the Commission of the procurement implications of the State aid package within the procedure for State aid control. In his view:
The Commission can actively intervene in defence of competition where public procurement does not comply with the rules laid down in, inter alia, Directive 2014/24 in order to safeguard this objective [to ensure that “public procurement is opened up to competition”]. I do not see any reason why it should not do so when faced with an examination of the viability of State aid measures resulting from agreements concluded by public authorities with private entities.
In particular, it is my view that the Commission could not have failed to examine whether the form in which the public aid granted to NFŠ was structured masked the existence of a public contract which should have been put out to tender. To my mind, it did so implicitly, which explains paragraph 8 of its Decision SA.46530.
In short, Decision SA.46530 is based on the premiss that there was no obligation to transfer ownership of the stadium to the Slovak Republic. That assumption, to which I have already referred, cannot be called into question by the referring court, which must respect the Commission’s assessment of the factors determining the existence of State aid (paras 77-79, underline emphasis in the original, other emphasis added).
This sets out two important implications. The first one, of relatively more limited scope but crucial practical importance, is that as an implicit effect of the Commission’s monopoly of enforcement of the State aid rules, a previous State aid decision does preclude a fresh assessment of a legal structure for the purposes of its compliance with public procurement law. A national court called upon to assess such legal structure cannot call the Commission’s assessment and must respect the Commission’s assessment of the factors determining the existence of State aid. In the NFŠ case, given that the Commission had clearly assessed the put option as entirely discretionary for NFŠ, it is not now possible for the referring court to deviate from that assessment and consider that it established an obligation legally enforceable by the Slovak Government. This carries the additional implication that the legal structure cannot be classed as a public works contract for the purposes of Directive 2014/24/EU.
Therefore, on this point, the AG could have been clearer and made it explicit that, even if the referring court is in principle tasked with the clarification of the relevant circumstances and their legal classification, in this case and given the prior binding assessment of the Commission, it is not possible to rely on the put option under AFSA to class the legal structure as a public works contract because there was no legally binding obligation concerning the transfer of the stadium. However, this conclusion is plain from the joint reading of paras 63 and 79 of the Opinion.
The second implication is that, by way of principle, there is a general obligation for the Commission to assess the compatibility with the EU public procurement law of State aid measures that have procurement implications. I think this is a clarification of the existing case law on the duty on the Commission to assess State aid measures for compliance with other sets of EU internal market law and a very welcome development given the very close connection between State aid and procurement, as evidenced amongst other sources in the Commission’s guidance on the notion of State aid.
3. ‘Strategic’ use of procurement remedies by contracting authorities
A final issue which is also very interesting is that the case provides a very uncommon set of circumstances whereby the same authority that had granted State aid and accepted the legality of the legal structure creating the put option under which it would be purchasing the stadium is later on (under different political circumstances) trying to get out of its obligations and, in doing so, seeks to gain support for its position from the rules on contractual ineffectiveness in the Remedies Directive—with any such effectiveness arising from its own alleged circumvention of EU procurement law.
Of the treatment of this issue in the AG Opinion, I think the following passages are particularly relevant:
Directive 89/665 is not designed to protect the public authorities from infringements which they themselves have committed, but to allow those who have been harmed by the actions of those contracting authorities to challenge them.
Article 2d of Directive 89/665 presupposes that a person entitled to challenge the conduct of the contracting authority has made use of the relevant review procedure. If, at the end of that review, the body adjudicating on it declares the contract in question to be ineffective, the provisions contained in the various paragraphs of that article will be triggered. As I have already said, however, Directive 89/665 does not make provision for the contracting authority to challenge its own decisions.
[A different issue is whether] national law provides ways for a public authority (or an administrative review body) to review the legality of its previous decisions. Such an eventuality is governed not by Directive 89/665 but by the relevant provisions of national law, in accordance with which it will fall to be determined to what extent an exception may be made to the classic rule venire contra factum propium nulli conceditur (paras 88-90, reference omitted, emphasis added).
I think this may have not needed spelling out except in a bizarre case such as NFŠ. However, I also think that this clarification can have broader implications in relation to the (separate) trend to recognize ‘subjective rights’ to contracting authorities under EU public procurement law (see eg in relation to exclusion decisions in (C-66/22, EU:C:2023:1016; for discussion see here).
Final thoughts
I think NFŠ will be an important case and I very much hope that the Court will follow AG Campos in this case. I also hope that the clarification of the aspects concerning the effect of State aid decisions and, more importantly, the general duty for the Commission to assess compliance of State aid measures with EU public procurement law, will explicitly feature in the judgment of the Court. I also hope the remarks on the inaccessibility of procurement remedies for the contracting authorities that have infringed EU procurement law will feature in the judgment. All of this will provide helpful clarity on issues that should be uncontroversial under general EU law, but which seem to be susceptible of fueling litigation at domestic level.
