Avoidance of EU #publicprocurement rules by artificial contract split triggers #reduction in cohesion funds for #Spain (T-384/10)

In its Judgment of 29 May 2013 in case T-384/10 Spain v Commission, the General Court of the EU (GC) has dismissed the appeal against a 2010 Commission Decision that reduced the contribution of the structural and cohesion funds to several water management infrastructure projects in Andalusia due to various infringements of the applicable EU public procurement rules.

In its audit of the execution of the project, the European Commission identified several infringements of the EU public procurement rules by the project management firm appointed by the Andalusian regional authorities (which was mandated  by art 8(1) of Regulation 1164/94 to comply with public procurement rules due to the project being financed with EU funds). 

More specifically, the Commission considered that some contracts had been illegally split in order to keep them below the value thresholds that trigger the application of EU public procurement rules, in others technical criteria had illegally required undertakings to prove they had prior experience in Spain (which constitutes a discrimination on the basis of nationality), or award criteria had illegally included 'average prices' rather than a sound economic assessment of the offers, recourse to negotiated procedures had been abused, mandatory time limits had not been respected, and the ban on negotiations after the award of the contracts had not been respected. All in all, indeed, the project seemed to be severely mismanaged in terms of public procurement compliance.

In view of such shortcomings and infringements, and considering that full cancellation of the funding would however be a disproportionate penalty, the European Commission decided to impose financial corrections that partially reduced the contribution of the EU funds to the water management infrastructure projects by between 10 and 25% of the original contribution.

Spain tried to counter the Commission Decision and justify the inexistence of the alleged infringements, but to no avail. The discussion before the GC mainly revolved around the issue of the artificial split of the contracts in order to exclude the application of the EU rules (which is discussed in paras 65-97 of T-384/10). In order to address this issue, the GC offers a recapitulation of the criteria applicable to the assessment of whether a complex project involves a single or several detachable works.
66 As a preliminary point, it should be recalled that, under Article 6, paragraph 4 of Directive 93/37, no work or contract may be split up with the intention of avoiding the application of that Directive. Moreover, Article 1, letter c) of the Directive defines the term "work" as the outcome of building or civil engineering works taken as a whole that is sufficient of itself to fulfil an economic and technical function. Therefore, to determine whether the Kingdom of Spain infringed Article 6, paragraph 4 of the Directive, it must be ascertained whether the subject of the contracts at issue was one and the same work in the sense of Article 1, letter c), of the Directive.
67 According to the case law, the existence of a "work" within the meaning of Article 1, letter c) of Directive 93/37 must be assessed in light of the economic and technical function expected from the result of the works that are the object of the corresponding public contracts (judgments of the Court of 5 October 2000, Commission / France, C-16/98, ECR p. I-8315, paragraphs 36, 38 and 47, to October 27, 2005, Commission / Italy, C-187/04 and C-188/04, not published in the ECR, paragraph 27, of January 18, 2007, Auroux and Others, C-220/05, ECR p. I-385, paragraph 41, and of March 15, 2012, Commission / Germany, C-574/10, not published in the ECR, paragraph 37).
68 Moreover, it should be noted that the Court has stated that, for the result of various works to qualify as 'work' within the meaning of Article 1, letter c) of Directive 93/37, it suffices that those meet either the same economic function or the same technical function (Commission / Italy, paragraph 67 above, paragraph 29). The verification of the economic identity and of the technical identity are thus alternative and not cumulative, as submitted by the Kingdom of Spain.
69 Lastly, it should be noted that according to the case law, the simultaneity of the call for tenders, the similarity of the notices, the unity of the geographical framework within which tenders are called for and the existence of a single contracting entity constitute additional evidence that can support the finding that different works contracts actually correspond to a single work (see, to that effect, Commission / France, paragraph 67 above, paragraph 65). [T-384/10 at paras 66-9, own translation from Spanish].
It is also worth stressing that the GC confirms prior case law and clarifies that there is no need to prove any intention on the part of the contracting authorities in order to find that they have infringed the rules against the artificial split of the contracts. In that regard,
94 Finally, the Kingdom of Spain argues that, in order to declare the existence of an infringement of Article 6, paragraph 4 of Directive 93/37, the Commission should have tested the concurrence of a subjective element, namely, the Spanish authorities' intention to split the contracts in question for the purpose of evading the obligations of the Directive. This argument cannot be accepted.
95 In that regard, suffice it to note that the finding that a contract has been split in contravention of EU rules on public procurement does not require a prior demonstration of a subjective intent to avoid the application of the provisions contained in these regulations (see, to that effect, Commission / Germany, paragraph 67 above, paragraph 49). When, as in this case, such a finding has been proven, it is irrelevant to assess whether or not the infringement results from the will of the Member State to which it is attributable, from its negligence, or even from technical difficulties that it had to face (see, to that effect, the Court of Justice of October 1, 1998, Commission / Spain, C-71/97, ECR p. I-5991, paragraph 15). In addition, it must be remembered that, in the judgment in Commission / France and Auroux and Others, cited in paragraph 67 above, in order to declare the existence of an infringement of Article 6, paragraph 4 of Directive 93/37, the Court saw no need  for the Commission to previously prove the intention of the member State concerned to avoid the obligations imposed by the Directive by splitting the contract. [T-384/10 at paras 94-5, own translation from Spanish].
The case also discusses the issue of the cross border interest of some of the contracts that, even after the prior criteria against the artificial split of contracts were applied, remained below the EU procurement thresholds. The considerations of the GC revolve basically around the fact that the works were to be conducted very close to the Portuguese border and, consequently, their cross-border interest cannot be excluded. 

Once this is found, the inclusion of discriminatory technical criteria requiring undertakings to prove they had prior experience in Spain (and, even more precisely, in Andalusia and with the specific contracting entity) shows too clearly the discriminatory design of the procurement procedures and the ensuing breach of the EU public procurement rules (in this case, the general principles applicable to tendering of contracts not covered by the Directive).

In view of all such infringements, the GC confirms the adequacy of the financial adjustments imposed by the European Commission, without finding any fault in the fact that they were determined as lump sums proportional to the initial value of the contribution by the EU funds.

In my opinion, the Judgment in Spain v Commission does not create new law in this area, but it provides clarification (particularly on the fact that single works can constitute a technical or an economic unit, at para 68) and useful guidance on the criteria applicable in the assessment of compliance with EU public procurement rules in the tendering of large and complicated infrastructure projects, which should be welcome.