Funding of in-house entities, CPBs and risks of state aid, some thoughts re Aanbestedingskalender (T-138/15)

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In its Judgment of 28 September 2017, Aanbestedingskalender & Others v Commission, T-138/15, EU:T:2017:675, the General Court (GC) rejected a complaint against a previous Commission decision (SA.34646) that the Netherlands had not breached EU State aid rules by funding TenderNed--an in-house e-procurement platform run by PIANOo, the tendering expertise centre for the Dutch government. The complaint derived from the fact that, prior to the creation of TenderNed, private providers of e-procurement services had been offering their services to Dutch contracting authorities. The creation of TenderNed and the offering of services free of charge to contracting authorities by this in-house entity logically killed the e-procurement services industry (or a part of it), which triggered the complaint. The circumstances of the case raise some issues that would be common to any intervention by a Member State that in-sourced (or nationalised) previously outsourced services, but the legal challenge was limited to State aid considerations.

In a nutshell, the GC decided that the Netherlands was not in breach of EU State aid law because TenderNed is not an undertaking, in the sense that it is not engaged in an economic activity because its services are closely linked to the exercise of public powers by the Dutch State and the Dutch contracting authorities that use this service. The State aid aspects of the Judgment are insightfully discussed in more detail by Prof Nicolaides.

Reading the case, one of the statements by the GC that caught my attention was that "e-procurement was a service of general interest, and not an inherent economic activity, which could be commercially exploited so long as the State did not offer that service itself" (para 108). In this post, I offer some thoughts on the potential implications of this finding for the funding of in-house entities and of central purchasing bodies (CPBs), in particular if the EU Courts were to take further steps down the road of considering the exercise of the procurement function non-economic and/or a service of general economic interest (SGEI)--and, in so doing, I pick up on some of the issues discussed in more detail in A Sanchez-Graells & I Herrera Anchustegui, 'Impact of Public Procurement Aggregation on Competition: Risks, Rationale and Justification for the Rules in Directive 2014/24', in R Fernández Acevedo y P Valcárcel Fernández (eds), Centralización de compras públicas (Madrid, Civitas, 2016) 129-163.

The consideration of e-procurement as an SGEI

In its Judgment, the GC arrived to the position that e-procurement is an SGEI on the basis of the following:

... the claim that, because commercial platforms offer services similar to those of TenderNed, the Commission should have concluded that TenderNed’s activities are economic in nature, does not take into consideration the developments that have taken place in the e-procurement market.

In that respect, it must be noted that that market had developed before Directives 2014/24 and 2014/25 were adopted and imposed an obligation on the Member States to implement e-procurement in those States. The fact that that obligation was decided upon at EU level implies that it was considered important to put in place mechanisms which would ensure greater effectiveness and transparency in public procurement. As the Slovak Republic indicated in its statement in intervention, the trend in the development of public procurement systems in Europe is towards e-procurement. The fact that Directives 2014/24 and 2014/25 were adopted is indicative of the intention to harmonise public procurement within the European Union, through actions by the Member States, so that it is carried out electronically throughout the European Union.

In addition, the Netherlands authorities stated ... that the existing commercial platforms did not offer the conditions relating to price, objective quality characteristics, continuity and access to the services provided that would be necessary to fulfil the general interest objectives established by those authorities.

Thus, in the light of those developments in public procurement rules, driven by public interest considerations, the Commission was entitled to state ... that e-procurement was a service of general interest, and not an inherent economic activity, which could be commercially exploited so long as the State did not offer that service itself (T-138/15, paras 105-108, emphases added).

In my view, this part of the Aanbestedingskalender Judgment is particularly weak because the arguments of EU harmonisation and unsatisfactory private supply can hardly be considered determinative of the nature of SGEI of a given service. The 2014 Public Procurement Package imposes an obligation to carry out e-procurement, but that does not make this an SGEI, as the competence to establish what an SGEI lies with the Member States (see Art 14 and Protocol No 26 TFEU). Moreover, if private provision is unsatisfactory, the Member State could opt to regulate minimum standards mandatory for all private (or public) providers. The Member State could also have established a framework agreement or other mechanism for the provision of the services by a non-in-house entity, or created public service obligations linked to the provision of e-procurement services. Thus, the conclusion that the evolution of the regulation of e-procurement at EU level implies its treatment as an SGEI is far from justified.

The original reasoning of the European Commission is equally unconvincing

Such services might have previously been needed because of the complexity of legislation, the lack of user-friendliness of analogue or digital tools offered by the government services, or because companies find it more convenient to outsource such activities. However, the State does not forego the right to carry out an activity that it deems necessary to ensure its public bodies comply with their statutory obligations by acting at a point in time when private operators – perhaps due to lack of prior action by the State – have already taken the initiative to offer services to the same end. Ensuring public authorities comply with their statutory obligations by channelling public procurement may be an economic activity for the complainants. It is not, however, an inherent economic activity, but rather a service of general interest, which can be commercially exploited only so long as the State fails to offer that service itself (SA.34646, para 68, reference omitted and emphasis added).

This fails to properly characterise the nature of the activities, which I think are better understood as the provision of the IT services and infrastructure necessary to carry out e-procurement, rather than as a public power of channelling procurement to an electronic platform (which is what the 2014 Public Procurement Package has done, or tried to do).

Moreover, this is functionally contrary to the position taken in the 2016 Notice on the notion of State aid, which explicitly establishes that '[t]he decision of a public authority not to allow third parties to provide a certain service (for example, because it wishes to provide the service in-house) does not rule out the existence of an economic activity. In spite of such market closure, an economic activity can exist where other operators would be willing and able to provide the service in the market concerned. More generally, the fact that a particular service is provided in-house has no relevance for the economic nature of the activity' (para 14). In this case, it seems clear that the creation and funding of TenderNed is functionally equivalent to the reservation of activity (which contracting authority would pay a private provider for the services it can get for free from TenderNed?) and it is obvious that there are third parties willing to provide those services (the complainants). Consequently, the position reached in the case at hand does not make much sense.

The functional incompatibility is even larger when contrasted with a different passage of the same Notice on notion of State aid, which foresees that

The fact that the authorities assign a public service to an in-house provider (even if they were free to entrust that service to third parties) does not as such exclude a possible distortion of competition. However, a possible distortion of competition is excluded if the following cumulative conditions are met: (a) a service is subject to a legal monopoly (established in compliance with EU law); (b) the legal monopoly not only excludes competition on the market, but also for the market, in that it excludes any possible competition to become the exclusive provider of the service in question; (c) the service is not in competition with other services; and (d) if the service provider is active in another (geographical or product) market that is open to competition, cross-subsidisation has to be excluded. This requires that separate accounts are used, costs and revenues are allocated in an appropriate way and public funding provided for the service subject to the legal monopoly cannot benefit other activities (para 188, references omitted).

In the TenderNed case, it was clear that 'while contracting authorities and special sector entities may ultimately be obliged to publish their offers via TenderNed, they are not prohibited from using other platforms like those of the complainants in parallel. Likewise, the Dutch authorities have emphasised that private e-procurement platforms can export TenderNed notifications on their own portal as well as import their notices to TenderNed. Commercial operators are, in other words, free to develop a differentiated offer of public procurement-related services in terms of quality or added value' (SA.34646, para 69, reference omitted and emphasis added). Therefore, the existence of a situation with potential anticompetitive effects derived from the public funding of TenderNed would hve required careful analysis, but for the finding that its activities are covered by the public power exemption (ie are non-economic, and thus TenderNed is not an undertaking; and not so much for their potential classification as an SGEI).

In my view, these functional inconsistencies are problematic. The simple reasoning that because EU procurement law mandates (or encourages) a specific form or modality of procurement, this means that it is an SGEI or a non-economic activity (which is also unclear in the reasoning highlighted above) is tricky and potentially problematic. In a case such as TenderNed, and even if TenderNed does not offer services to private buyers and does not receive any payments from contracting authorities and is centrally funded by the Dutch government, this is problematic because it has the impact of wiping out an entire industry (or category of services within an industry). And, in other cases where the entity considered to be carrying out an SGEI offers other types of non-SGEI services to the public or private sector, because of the potential additional distortions of competition in those neighbouring markets. The latter case would concern in-house and CPB if they were to be classed as SGEIs.

The consideration of in-house provision and/or CPB activities as SGEIs

Together with e-procurement, two other main areas of reform in the 2014 Public Procurement Package concerned the expansion of the in-house exemption (Art 12) and the more detailed and expansive regulation of the activities of central purchasing bodies (CPBs, Art 37). In both cases, the fact that contracting authorities assign contracts directly to these entities raises important risks of distortions of competition where there is private provision for the relevant works, goods or services. Thus, the award of public contracts under the exemptions foreseen in Arts 12 and 37 of Directive 2014/24/EU generates risks of State aid (see G S Ølykke, 'Commission Notice on the notion of state aid as referred to in article 107(1) TFEU - is the conduct of a public procurement procedure sufficient to eliminate the risk of granting state aid?' (2016) 25(5) Public Procurement Law Review 197-212), and the continued stream of revenue derived from reserved or directly awarded public business can put the undertaking in a favourable position when competing with other entities for private or non-in-house public business.

One potential defence against claims of violation of EU competition law and/or State aid law by in-house entities or CPBs would thus concern the possibility of classifying their activities as SGEIs (regarding CPBs, this is a claim Ignacio Herrera and I dispelled in the article referred to above, and similar arguments apply for in-house entities). And, if the thrust of the approach in the Aanbestedingskalender Judgment was to be followed, the European Commission and national competition authorities could be tempted to consider that in-house provision or CPB activities are SGEIs, solely on the basis that these are activities promoted or facilitated in the 2014 Public Procurement Package and, concerning CPBs, in subsequent Commission policy. However, in my view, this would be a wrong justification for the classification of those activities as SGEIs.

What would be the implications?

The main implication of classing an activity as an SGEI is that it both (i) allows the Member State to shield the entity providing the SGEI from compliance with competition rules "in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them" (Art 106(2) TFEU, and (ii) Member States have increased freedom for the funding of SGEIs than for the granting of other types of State aid [see generally, A Sanchez-Graells, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing Services of General Economic Interest: Reform and Modernization, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181]. A fundamental element in this extended discretion for the funding of SGEIs is that an EU-compliant procurement exercise excludes the existence of State aid under the so-called Altmark fourt condition. This has been developed in some more detail in the 2016 Notice on the concept of State aid (paras 89 and ff), but it still assumes that an EU-compliant procurement is, for these purposes, one where there is a public tender and an element of competition--a position that the 2013 Guide to the application of the European Union rules on state aid, public procurement and the internal market to services of general economic interest, and in particular to social services of general interest does not completely clarify.

Therefore, the conundrum that a broad classification of in-house or CPB activities as SGEIs would create is that, in a setting where the direct award of contracts (however lucrative or benefitial) to in-house entities or CPBs is compliant with the rules in Directive 2014/24/EU (Art 12, Art 37(1), Art 37(4)) despite not having involved any element of competition, and where the conditions of those contracts cannot be tested against EU State aid rules because a very broad understanding of the public power exclusion of the classification of an activity as economic, and therefore of the in-house entity or CPB as an undertaking for the purposes of Art 107(1) TFEU, there may be no rule capable of controlling the channelling of public funds to these entities, regardless of the distortions in the market that their activities would create--which would also be excluded from assessment under the core competition rules of Arts 101 and 102 TFEU precisely for the same reason of the entities not being classed as undertakings due to the non-economic nature of their activities.

On the whole, then, I think that the greatest threat that results from the thrust of the Aanbestedingskalender Judgment is that too broad an understanding of what procurement activities imply the exercise of public powers, and an overlapping consideration of procurement activities as SGEI would lead to a complete exclusion of the applicability of all EU competition law mechanisms in this large sector of the economy. This would be an expansion of the problems derived from the FENIN-Selex doctrine, and one which I think requires urgent reconsideration by competition enforcers and, in particular, the European Commission [for in-depth discussion of the shortcomings of the FENIN-Selex doctrine, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Hart, 2015) ch 4].

CJEU takes more refined approach to the 'separability of activities' in the definition of (public) undertakings for the application of EU competition law (C-185/14)

In its Judgment in EasyPay and Finance Engineering, C-185/14, EU:C:2015:716, the Court of Justice of the European Union (CJEU) assessed whether the grant by a Member State of an exclusive right to pay retirement pensions by money order to the national postal operator that formerly held the postal monopoly restricts the rights of alternative postal operators and is detrimental to free competition. The CJEU also assessed whether the granting of such exclusive right to pay retirement pensions by postal money order constitutes State aid or if it can be exempted on the basis that the activity constitutes a service of general economic interest (SGEI).

The case concerned Decree of the Bulgarian Council of Ministers adopted in the year 2000 whereby it ordered that retirement pensions had to be paid through the domestic banks and the post offices of the national postal operator ‘Balgarski poshti’ (BPoshti), which at the time was a single-member commercial company wholly owned by the State. Those postal money orders included the payment of retirement pensions at both the post offices and the address of the beneficiary by a postal worker, which was an activity covered by the universal postal service that only BPoshti was authorised to carry out.

A reform of the postal services act (PSA) to implement postal liberalisation determined that postal money orders are no longer included in the universal postal service and, consequently, under the postal legislation they should be services open to provision by alternative post operators in competition with BPoshti. However, the Council of Ministers maintained the reserve of this activity for BPoshti on the basis that 'the granting and payment of pensions form part of the exercise of State social security functions, which cannot be qualified as an economic activity. ‘Balgarski poshti’ was entrusted under a regulatory act with a public service activity which does not fall within the scope of competition law. The Council of Ministers adds that only that company has a branch network covering all of the territory of Bulgaria, including sparsely populated areas' (C-185/14, para 25). Privately-owned alternative postal operators challenged this reserve of activity under the both EU postal rules of Directive 97/67 (as amended) and Articles 106 and 107 TFEU.

The CJEU first addressed the point of coverage of postal money orders by the postal universal service and confirmed that 'money order services, which consist in making payments through the public postal network to natural or legal persons on behalf of and on the order of others, are not within the scope of Directive 97/67 (see judgment in Asempre and Asociación Nacional de Empresas de Externalización y Gestión de Envíos y Pequeña Paquetería, C-240/02, EU:C:2004:140, paragraph 34)' (C-185/14, para 32). Therefore, given the inapplicability of the sectoral postal regulation, the analysis of the reservation of this activity to BPoshti had to be assessed under the general rules in Articles 106 and 107 TFEU.

In this analysis, the CJEU returns to the definition of undertaking for the purposes of the application of competition law and stresses several aspects regarding the need for an inseparable connection with the national pensions system for an entity to escape the definition of undertaking on the basis that it operates within a system based on the principle of solidarity and oriented exclusively to perform a social function. In terms of the Judgment in EasyPay and Finance Engineering,
37 ... for the purposes of the application of EU competition law, an undertaking is any entity engaged in an economic activity, irrespective of its legal status and the way in which it is financed ...  any activity consisting in offering goods and services on a given market is an economic activity (see judgment in Compass-Datenbank, C-138/11, EU:C:2012:449, paragraph 35).
38 ... the organisations involved in the management of the public social security system fulfil an exclusively social function. That activity is based on the principle of national solidarity and is entirely non-profit-making. The benefits paid are statutory benefits bearing no relation to the amount of the contributions (see, to that effect, judgment in Poucet and Pistre, C-159/91 and C-160/91, EU:C:1993:63, paragraph 18).
39 It is for the referring court to ascertain whether or not the money order operations carried out by ‘Balgarski poshti’, enabling the payment of retirement pensions at issue in the main proceedings, is involved in the functioning of the public social security service and, accordingly, must or must not be regarded as an economic activity falling within the scope of Article 107(1) TFEU.
40 In that context, it must be recalled that, in order to avoid classification as an economic activity, that activity must, by its nature, its aim and the rules to which it is subject, be inseparably connected with the national pensions system (see, by analogy, judgment in Aéroports de Paris v Commission, C-82/01 P, EU:C:2002:617, paragraph 81). Thus, in the main proceedings, any inseparable connection thereto of the activity of money order operations must be taken into consideration.
41 In that regard, it is apparent ... that the old-age benefits granted in the State social security system form part of the task of the [National Social Security Institute] which, in carrying out that task, uses ‘Balgarski poshti’ solely to handle the payments of retirement pensions.
42 In addition ... payment of retirement pensions may also be made through banks. Thus, according to the information provided by the Institut ... approximately 53% of the total number of retirement pensions were paid by bank transfer. Accordingly, the money orders used by ‘Balgarski poshti’ are not actually the sole method of payment of the retirement pensions.
43 Those elements constitute an indication enabling the view to be taken that the activity of money order operations enabling the payment of retirement pensions may be separable from the national pensions system. It is for the national court to assess the relevance of those elements, in particular in the light of the other factual and legal elements before it (C-185/14, paras 37-43, emphasis added).
This is an interesting approach, because the CJEU seems to have deviated from the line of case law that was tending towards an excessively lenient analysis of the 'inseparable connection' between market services and the discharge of public services (see here and, for more details, here). However, the specific circumstances of the case may have prompted this  more nuanced or refined approach, particularly because the postal operator seems to be quite far removed from the core public function its (market) activity supports.

On the point of analysis of the reservation of the activity as an SGEI, which would exclude the existence of State aid under Article 106(2) TFEU, the CJEU focuses the analysis on the level of compensation that BPoshti receives for the discharge of the public service that triggers the reservation of activity. In that regard, it is worth noting that
45 ... a State measure regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations, so that those undertakings do not enjoy a real financial advantage and the measure thus does not have the effect of putting them in a more favourable competitive position than the undertakings competing with them is not caught by Article 107(1) TFEU (see judgments in Libert and Others, C-197/11 and C-203/11, EU:C:2013:288, paragraph 84, and Altmark Trans and Regierungspräsidium Magdeburg, C-280/00, EU:C:2003:415, paragraph 87).
46 However, for such compensation to escape classification as State aid in a particular case, a number of conditions must be satisfied (judgment in Altmark, C-280/00, EU:C:2003:415, paragraph 88).
52 Where the undertaking which is to discharge the service of general economic interests ... is not chosen pursuant to a public procurement procedure, it is also for the referring court to make sure, in accordance with the fourth condition laid down in paragraph 93 of the judgment in Altmark (C-280/00, EU:C:2003:415), that the level of compensation is determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately equipped, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations (C-185/14, paras 45-46 and 52, emphasis added).
In the case at hand, the remuneration payable to BPoshti was set out in the Decree of the Council of Minister, which foresaw that the National Social Security Institute 'shall pay through its territorial divisions to the territorial divisions of the “Balgarski poshti” 8.5 thousandths of the pensions payable in the month in question for the work performed in connection with the payment of pensions through the postal network' (C-185/14, para 15). In my view, it seems unlikely that such a general figure established 15 years ago (coincidentally) matches the costs of a notional efficient postal competitor.

Thus, in general terms, the conclusion to be extracted from the Judgment in EasyPay and Finance Engineering is that the reservation of the activity of payment of pensions or any other benefits through postal money order (or equivalent) to incumbent postal operators (or any other undertakings) is very likely to fall foul of Articles 106 and 107 TFEU, unless the undertaking is chosen through a procurement procedure (which should be relatively easy to implement) or its remuneration is determined in strict accordance with the standard of a notional efficient postal competitor [for discussion, see A Sanchez-Graells, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing Services of General Economic Interest: Reform and Modernization (The Hague, TMC Asser Press / Springer, 2012) 161-181]. Let's hope that the domestic Bulgarian court follows the very clear cues given by the CJEU in that respect.

Paper on centralisation of procurement and competition law

Ignacio Herrera Anchustegui, from BECCLE - University of Bergen, and I have just completed a working paper on the new rules on centralisation and occasional procurement under articles 37-39 of Directive 2014/24. The paper assesses the risks, rationale and justification for the rules on centralisation and aggregation of public procurement in Directive 2014/24. The paper is entitled "Impact of public procurement aggregation on competition. Risks, rationale and justification for the rules in Directive 2014/24" and is now part of the University of Leicester School of Law Research Paper Series.
 
The paper explores the justifications advanced for the aggregation of purchasing and the countervailing risks it generates. In both cases, it focusses in economic and administrative aspects. It then proceeds to a summary overview of the new rules for the aggregation of public procurement in Directive 2014/24, and emphasised how the Directive is expressly recognising possibilities that clearly exceed the more modest approach in Directive 2004/18. Moving on, it then focusses on the potential justification for certain activities now permitted by the 2014 rules, and engages in a critical assessment of their competitive impact. The paper briefly highlights the far-reaching and not necessarily positive implications that a maximisation of the centralisation and aggregation possibilities under Directive 2014/24 could have, and proposes that strict competition law enforcement will be necessary to avoid undesired consequences. Some suggestions for further research are provided by way of conclusions.
 
The full paper is available for download on SSRN. Its full citation is:

Sánchez Graells, Albert and Herrera Anchustegui, Ignacio, Impact of Public Procurement Aggregation on Competition. Risks, Rationale and Justification for the Rules in Directive 2014/24 (December 5, 2014). University of Leicester School of Law Research Paper No. 14-35. Available at SSRN:  
http://ssrn.com/abstract=2534496.
 
 

Enforcement of State Aid Rules for SGEIs before Public Procurement Review Bodies and Courts


I will be presenting it at the "Competition and State Aid Litigation – The Effect of Procedures on Substance", CLaSF/University of Luxembourg Conference, 19-20 September 2013.

ABSTRACT: One of the criticisms against the new rules applicable to the granting of State aid to finance the provision of services of general economic interest in the "Almunia package" is that enforcement is likely to be their weakest point. Similarly, in the more general setting of the "private" enforcement of State aid rules, the 2006 Study on the Enforcement of State Aid Law at National Level recommended that the European Commission created a common minimum standard of remedies applicable in all EU jurisdictions, stressing that "one possible means of creating such a standard would be to adopt a remedies directive for State aid cases, which could be modelled on the remedies directive for procurement cases".


Building up on these considerations, the extent to which the existing remedies within the system for the enforcement of EU public procurement rules provide an effective platform to enforce EU State aid rules (and, more specifically, those for the financing of SGEIs) before public procurement review bodies and courts is assessed. The paper describes the main groups of cases where public procurement litigation "phagocytises" State aid considerations. It then proceeds to explore the viability, from an EU law perspective, of configuring public procurement review bodies and courts as "State aid courts" for the purposes of the simultaneous enforcement of both sets of rules in a single setting of "private" litigation. It also submits that using the public procurement system in this way provides effective remedies for the enforcement of the Almunia Package for the financing of SGEIs.




In-house providing and (minimum) "effective" public control: Sunset or breaking dawn for purely public (commercial) service providers? (C‑182 and 183/11)

In its Judgment of 29 November 2012 in Joined Cases C‑182/11 and C‑183/11, Econord SpA v Comune di Cagno and Comune di Varese (C-182/11) and Comune di Solbiate and Comune di Varese (C-183/11), the Court of Justice of the EU has offered a succinct reminder of its case law on in-house providing as an exception to the applicability of the EU public procurement Directives.  

According to this line of case law, contracting entities can award contracts directly (ie without a competitive tender) where they exercise over the contractor a control similar to that which they have over their own departments, and the contractor carries out the essential part of its activities with the contracting authorities to which it belongs. In those cases, it is assumed that there is no potential for competition and that the market is not affected by the decision of the contracting authority to retain the activity "in-house".

However, in Econord, the CJEU has taken an additional step in the fine tuning of the concept of "similar control" required under the in-house providing exception. In its Judgment, the CJEU has stated that:
27 According to settled case-law, there is ‘similar control’ where the entity in question is subject to control enabling the contracting authority to influence that entity’s decisions. The power exercised must be a power of decisive influence over both the strategic objectives and the significant decisions of that entity (Parking Brixen, paragraph 65; Coditel Brabant, paragraph 28; and Sea, paragraph 65). In other words, the contracting authority must be able to exercise a structural and functional control over that entity (Commission v Italy, paragraph 26). The Court also requires that this control should be effective (Coditel Brabant, paragraph 46).
28 According to the case-law, where use is made of an entity jointly owned by a number of public authorities, the ‘similar control’ may be exercised jointly by those authorities, without it being essential for such control to be exercised individually by each of them (see, to that effect, Coditel Brabant, paragraphs 47 and 50, and Sea, para. 59). 
29 It follows that, if a public authority becomes a minority shareholder in a company limited by shares with wholly public capital for the purpose of awarding the management of a public service to that company, the control that the public authorities which are members of that company exercise over it may be categorised as similar to the control they exercise over their own departments when it is exercised by those authorities jointly (Sea, para. 63). 
30 In those circumstances, although, where a number of public authorities make use of a common entity for the purposes of carrying out a common public service task, it is certainly not essential that each of those authorities should in itself have an individual power of control over that entity, nevertheless, if the very concept of joint control is not to be rendered meaningless, the control exercised over that entity cannot be based solely on the controlling power of the public authority with a majority holding in the capital of the entity concerned
31 Where the position of a contracting authority within a jointly owned successful tenderer does not provide it with the slightest possibility of participating in the control of that tenderer, that would, in effect, open the way to circumvention of the application of the rules of EU law regarding public contracts or service concessions, since a purely formal affiliation to such an entity or to a joint body managing it would exempt the contracting authority from the obligation to initiate a tendering procedure in accordance with the EU rules, even though it would take no part in exercising the ‘similar control’ over that entity (see, to that effect, Case C-231/03 Coname [2005] ECR I-7287, paragraph 24).
32 Consequently, in the cases before the referring court, it is for that court to verify whether the signing, by the Comune di Cagno and the Comune di Solbiate, of a shareholders’ agreement conferring on them the right to be consulted, to appoint a member of the supervisory council and to nominate a member of the management board, in agreement with the other authorities concerned by that shareholders’ agreement, can enable those municipal councils to contribute effectively to the control of Aspem.
33 In the light of the foregoing, the answer to the question referred is that where, in their capacity as contracting authority, a number of public authorities jointly establish an entity with responsibility for carrying out their public service mission, or where a public authority subscribes to such an entity, the condition established by the case-law of the Court to the effect that, in order to be exempted from their obligation to initiate a public tendering procedure in accordance with the rules of EU law, those authorities must jointly exercise over that entity control similar to the control they exercise over their own departments, is fulfilled where each of those authorities not only holds capital in that entity, but also plays a role in its managing bodies. (Joined Cases C‑182/11 and C‑183/11, paras. 27 to 32, emphasis added).
In my view, the Judgment of the CJEU must be interpreted in a functional manner and has refined the requirement for similar control and transformed it into a requirement for "similar, active and effective control". The requirement for contracting authorities to "play a role" in the management bodies of the entities that are considered to remain "in-house" must be active and effective, and it will not suffice that they (jointly) "take a seat" in the relevant boards (as that would fall short for ensuring that they have (more than) "
the slightest possibility of participating in the control of that tenderer" and that they "
take [...] part in exercising the ‘similar control’ over that entity"
.

Therefore, the answer in view of the specific circumstances of the cases joined in Econord, where the contracting authorities merely entered into "a shareholders’ agreement conferring on them the right to be consulted, to appoint a member of the supervisory council and to nominate a member of the management board, in agreement with the other authorities concerned", should be that they do not exercise a similarly effective control over the contractor as they do with their own administrative units.

If that is the correct interpretation of the Econord Judgment, it would generate difficulty for the creation of purely public (commercial) service providers, whereby a public authority would create and retain majority control of an entity entrusted with the provision of SGEIs, SSGIs or other local services and then offer its services to other contracting entities that would acquire a minority stake and not get involved in its day to day operations. In my view, such development would be welcome and a consistent complement to the competition rules in articles 106 and 107 TFEU. If contracting authorities want to cooperate directly (thorugh public-public partnerships) or indirectly (through instrumental entities), they need to remain actively engaged in the provision of the services contracted out (in-house). 

Otherwise, if the contracting authorities want to disengage from the direct management of those services and take the back seat (eg in a board of directors), there is no reason to see why public contractors should be shielded from the competition of private contractors, since both would be offering a commercial relationship to the outsourcing contracting authority and there would be an effective risk of generating relevant distortions of competition [see Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 240-242]. Therefore, in the lack of a sufficiently active involvement, in the absence of an actual organic link between the contracting authority and the "in-house" entity, there is no good reason to exclude the application of the EU public procurement rules, as the CJEU has quite clearly stressed.

Therefore, it will be interesting to see what is the final decision of the Italian courts in the domestic cases leading to Econord, but a decision that upheld the applicability of the in-house exception would be, in my opinion, an inappropriate reading of the CJEU's Judgment.