Interesting Norwegian case on public procurement of health and social services and alleged discrimination of private enterprises against EU/EEA law (ESA 154/17/COL)

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On 20 September 2017, the EFTA Surveillance Authority (ESA) decided to close the investigation of a complaint against Norway for the alleged unlawful discrimination of private enterprises and breach of the EEA rules on public procurement in the award of contracts for health and social services (that is, childcare services, management of nursing homes, hospitals, medical and other types of rehab, psychotherapy, professional addiction treatment, etc), on the basis that Norwegian national rules appeared to allow public entities to award those contracts exclusively to non-profit organisations (“ideelle organisasjoner”, according to the terminology used in Norwegian legislation).

The case thus concerned a set of issues closely linked to those decided by the Court of Justice of the European Union in Spezzino (C-113/13, EU:C:2014:2440/ CASTA (C-50/14, EU:C:2016:56) [for discussion, see the special issue of (2016) 11(1) EPPPL]. ESA dismissed the complaint both on procurement and on general EEA law grounds (ie Articles 32 and 39 of the EEA agreement, providing for an exemption for activities 'connected, even occasionally, with the exercise of official authority'; cfr Art 51 TFEU).

Regarding the procurement aspects of the complaint, ESA considered that the Norwegian rules fulfilled 'the legal requirements laid down in case-law exceptionally allowing national contracting authorities to directly award public contracts having as their subject matter services in the social and health sector to non-profit organisations' (ESA, 154/17/COL, para 5). Regarding general internal market law, ESA concluded that the Norwegian rules on direct award 'applied to activities connected directly and specifically with the exercise of official authority, in particular those necessary to operate child welfare institutions and requiring the adoption of coercive measures, as specified in Norwegian legislation. Ancillary activities such as works and/or the provision of catering, laundry, transport and similar services remain subject to the EEA rules on public procurement' (idem). 

In this post, I reflect on both lines of argumentation concerning the exemption of the award of contracts for the provision of healthcare and social services from procurement and EEA law. Before engaging with the details , it is worth noting that the case was initiated in 2015 and thus concerned Norwegian law transposing the 2004 EU/EEA public procurement rules (Dir 2004/18/EC, in particular for the 'old' Part II-B services). However, in my view, the decision by ESA raises some issues that will remain relevant for the procurement of healthcare and social services under the light-touch regime of Directive 2014/24/EU (esp Art 77)--on which I offer some concluding thoughts.

The Norwegian reservation and exclusion of contracts

In the case at hand, ESA had to assess the compatibility with general EEA law and with EU/EEA procurement law of Norwegian legislation allowing for the reservation of contracts for the provision of health and social services to non-profit organisations, to the exclusion of private (profit-seeking) enterprises. In particular, the analysis concerned the compatibility or not with EEA law of 'Section 2-1 (3) and Section 1-3(2) lit. k of the Norwegian Regulation No. 402 of 7 April 2006 on public procurement (Forskrift No. 402 om offentlige anskaffelser). While the first legal basis contains a general authorisation to privilege non-profit organisations in award procedures, the second legal basis relies on a presumed exercise of official authority required to provide the services in question' (ESA, 154/17/COL, para 1).

In particular, the relevant provisions established that Norwegian contracting authorities did not have to comply with the relevant procurement rules for the award of 'contracts regarding the execution of health and social services' to 'an ideal organisation' (ie “ideelle organisasjoner”) (Section 2-1 (3)); and that those rules did not apply to 'contracts involving the exercise of official authority which can be exempted in line with the EEA Agreement Article 39, cf. Article 32' (Section 1-3(2) lit. k) (see ESA, 154/17/COL, para 3.2). The first rule was based on the limited obligations derived from Dir 2004/18/EC for services covered by category 25 of its Annex II-B (where there was no presumption of cross-border interest in their provision), whereas the second one is clearly linked to the carve-out in the scope of the EEA Agreement for the exercise of official authority. Given that the rules had different legal bases, ESA decided to assess them separately ESA, 154/17/COL, para 4).

Reservation of contracts to non-profit organisations

In order to assess the compatibility with EU/EEA procurement law of the possibility to directly award contracts to 'ideal organisations', ESA relies on the case law of the Court of Justice in Spezzino and CASTA (above), which it interprets as establishing the following principles:

  • EU/EEA law does not categorically prohibit the privileged treatment of non-profit organisations in award procedures (ESA, 154/17/COL, para 4.1.2).
  • The legal requirements derived from the case law for a privileged treatment of non-profit organisations in award procedures are as follows (ESA, 154/17/COL, para 4.1.2):
    • the service must be exclusively or, at least predominantly, a non-priority service covered by Annex II-B of Dir 2004/18/EC;
    • the service in question must have some cross-border relevance in order to trigger the application of the general principles of EU public procurement law, which is of limited relevance in the context of EEA law, where EEA States 'could, in principle, adopt a less strict set of rules than those foreseen in Directive 2004/18, allowing a preferential treatment of voluntary organisations, provided that there is no discrimination based on nationality';
    • there has to be an objective justification consisting in an interest to protect human health and life, and 'it is for the EEA States ... to decide on the degree of protection which they wish to afford to public health and on the way in which that degree of protection is to be achieved'; 
    • the award must contribute to the social purpose and the pursuit of the objectives of the good of the community and budgetary efficiency, which is subject to a case by case analysis; and
    • the organisations beneficiaries of privileged treatment are not allowed to pursue objectives other than the good of the community and budgetary efficiency, and are not allowed to make any profit as a result of their services apart from reimbursement of the variable, fixed and on-going expenditure to provide them, or to procure any profit for their members.
    • Finally, resort to this exception from the general rules on public procurement finds its limits in the prohibition of abuse of rights.

In my view, the interpretation of the Spezzino/CASTA case law by ESA is largely adequate, but it seems to omit an explicit assessment of the importance given in those cases to the Italian constitutional framework, which created a special protection for third sector voluntary organisations at a constitutional level (Spezzino, EU:C:2014:2440, para 9; CASTA, EU:C:2016:56, para 9, for further discussion, see here and here). It would have been interesting for ESA to express a view on whether such constitutional requirements form part of the case law or not (implicitly, it seems the view is that they do not) and how they applied to the Norwegian context (in particular, in view of the absence of a specified constitutional position of such 'ideal organisations', see below).

In applying the legal requirements derived from the Spezzino/CASTA line of case law, ESA followed a light-touch approach and considered that all of them were met (ESA, 154/17/COL, para 4.1.4). In particular, ESA stressed that the Norwegian Government considered that

Section 2-1(3) of the Norwegian Regulation aims to ensure that non-profit organisations can continue to provide health and social services ... [and that] non-profit organisations are an important alternative to common service providers. A combination of public, commercial and non-profit providers of health and social services shall ensure a diversified offer, designed to fulfil the different needs of the population. The Authority infers from this explanation that the legislative objective pursued by the national provision in question is to safeguard public health and social welfare, both being legitimate grounds, which justify a derogation from the principles of transparency and non-discrimination in EEA public procurement law, as established in the Court of Justice’s case-law.

While the national provision in question seems to be based on policy considerations, namely to create conditions for involving non-profit organisations in the provision of health and social services, the Authority does not see any inconsistency with the general objective of protecting public health and social welfare in Norway. As the Court of Justice has repeatedly emphasized, EEA law does not detract from the power of the EEA States to organise their public health and social security systems. Consequently, the said national policy consisting in favouring non-profit organisations with the aim of increasing their degree of involvement in the national health and social system must be regarded as one of the many considerations the EEA States may take into account when exercising their discretion as regards the manner how the wish to organise their public health and social security systems (ESA, 154/17/COL, para 4.1.4, pages 9-10, footnote omitted, emphasis added). 

In my view, this passage of the Decision is not too clear and the analysis comes to conflate two issues: first, the absence of constraints on decisions of organisation of public health and social security systems and, second, the applicability of EU/EEA procurement rules to specific modes of organisation derived from those decisions and, in particular, to modes of organisation involving the buy-in of services from the market (even if the market is limited to that of non-profit organisations). From this perspective, the boundaries of the constitutional limits to the self-organisation (which under EU law are controlled by Art 14, Protocol No (26) and Art 345 TFEU) seem to be slightly blurred, and thus the benefit that could have been derived from more explicit reasoning considering the classing of the activity and the existence or not of constitutional-level protection in Norway.

Similarly, the application of the requirement of contribution to budgetary efficiency is limited to general considerations leading to the conclusion that there was no 'indication that tender procedures carried out under this legal regime might not be driven by budgetary efficiency concerns' (ESA, 154/17/COL, para 4.1.4, page 10), and the analysis of the boundaries of the concept of 'ideal organisation' is equally loose where ESA relies on the following:

... the concept of “ideelle organisasjon” ... is generally understood by the Norwegian Government and contracting authorities as synonymous for “non-profit organisation in pursuance of a social aim”. Due to the absence of any legal definition in national legislation and/or any national registry of recognised entities, the classification as non-profit must be carried out ad hoc by every contracting authority for every award procedure. In order to ensure a consistent administrative practice, the classification is based on guidelines developed by the Norwegian Government, which specify the criteria that must be met. According to these guidelines, “either the business pursued shall not have any profit objective or the profit gained must be used exclusively to operate humanist and social services in the interest of the general public or that of particular groups”. In addition, “the entire organisation, without any economic incentive, must work to alleviate social needs of the community or specific vulnerable groups”. Both the entity’s organisational structure and any tax privileges are taken into account as relevant factors in the overall assessment. According to the information provided, contracting authorities have nonetheless established a practice with regard to which providers are considered to be non-profit. As a result, unless their status changes, no documentation will be required from them in order to prove their status a non-profit organisation (ESA, 154/17/COL, para 4.1.4, pages 9-10, footnotes omitted, emphasis added).

On the whole, in my view, the analysis is rather lenient. This follows the same normative direction as the Spezzino and CASTA Judgments of the Court of Justice, but it may become too lenient under the revised regime of Directive 2014/24/EU (see below). Interestingly, ESA saved this possibility by explicitly indicating that 'given the limited scope of the Authority’s assessment, this preliminary conclusion does not extend to the question of a possible compatibility of currently applicable Norwegian law with Article 77 of Directive 2014/24' (ESA, 154/17/COL, para 4.1.5).

Direct award of contracts involving the exercise of official authority

Concerning the second Norwegian rule under examination--ie the possibility to directly award contracts involving the exercise of official authority--ESA explained that Section 1-3(2) lit. k of the Norwegian Regulation 'constitutes a legal basis allowing contracting authorities to derogate from the general national rules on procurement, where the provision of public services in the health and social sector requires the exercise of official authority. In accordance with the national policy referred to above, in support of an increased involvement of voluntary organisations, this legal provision is applied as a legal basis for excluding economic operators other than non-profit organisations from tender procedures if contracting authorities wish so' (ESA, 154/17/COL, para 4.2.1). Therefore, the crucial aspect that required analysis concerned the test applicable to determine whether the provision of certain types of health and social services require the exercise of official authority. In that regard, ESA established the relevant test as follows

The Court of Justice has interpreted these provisions on several occasions, shedding light on the requirements their application is subject to. It has ruled that, as derogations from the fundamental rules of freedom of establishment and freedom to provide services, they must be interpreted in a manner which limits their scope to what is strictly necessary in order to safeguard the interests which they allow the EEA States to protect. Furthermore, the Court of Justice has ruled that derogations provided for under those articles must be restricted to activities which, in themselves, are directly and specifically connected with the exercise of official authority. Such a connection requires a sufficiently qualified exercise of prerogatives outside the general law, privileges of official power or powers of coercion. This applies, in particular, to activities entailing the exercise of powers of constraint. Accordingly, the exceptions in question do not extend to activities that are merely auxiliary or preparatory to the exercise of official authority, or to certain activities whose exercise, although involving contacts, even regular and organic, with the administrative or judicial authorities, or indeed cooperation, even compulsory, in their functioning, leaves their discretionary and decision-making powers intact, or to certain activities which do not involve the exercise of decision-making powers, powers of constraint or powers of coercion (ESA, 154/17/COL, para 4.2.2, pages 12-13, footnotes omitted, emphasis added).

The test seems unobjectionable and, in my view, it reflects adequately the case law of the Court of Justice. However, in the assessment of the application of the test to the analysis of the case at hand, it is necessary to bear in mind that ESA was analysing tenders for the operation of child welfare institutions (ESA, 154/17/COL, para 4.2.3), which will make the criterion of 'exercise of powers of constraint' particularly important, not least because 'these services have as their objective the wellbeing of minors, who, due to the special protection they require, are placed under the care and the surveillance of the State. The conditions for their – voluntary or compulsory – internment in the institutions in question are regulated in detail in national legislation. The same applies to the conditions for the adoption of a number of measures, aimed at ensuring the fulfilment of the tasks, such as body searches, search of rooms and personal belongings, confiscation and destruction of dangerous objects and drugs, control of mail as well as the recovery of minors who have escaped from the institutions' (ibid). 

In that regard, ESA reached the conclusion that, given the impact of the decisions adopted by the staff of the operators of child welfare institutions on the fundamental rights of the children interned there, 

 it is evident ... that child welfare institutions in Norway exercise coercive powers within the meaning of Articles 32 EEA and 39 EEA, as interpreted in the case-law of the Court of Justice, when adopting the said measures on minors in the accomplishment of the tasks assigned. This occurs in an official function, as it is expressly authorised by the national legislator on the basis of a specific legal base in domestic law and does not require further involvement and/or authorisation of State bodies typically entrusted with the exercise of official authority, in particular the use of force. Furthermore, the use of coercive measures occurs in fulfilment of tasks concerning essential interests of society. The consequence of this conclusion is that activities requiring the use of these coercive measures are not covered by the fundamental rules of the right of establishment and the freedom to provide services. As a result, the EEA rules on public procurement do not apply to this specific area of social and health services. From this point of view, these rules do not preclude a national provision such as Section 1-3(2) lit. k of the Norwegian Regulation, which allows the exclusion of economic operators other than non-profit organisations from tender procedures if contracting authorities wish so (ESA, 154/17/COL, para 4.2.3, page 11, emphasis added).

However, ESA is also clear in stressing the fact that, in the context of contracts for the operation of these institutions, the exercise of official authority will only concern some activities, but not others. In that regard, the decision is clear in stressing that

The obligation to subject exceptions to the fundamental freedoms to a narrow interpretation, thus limiting them to activities connected directly and specifically with the exercise of official authority in order to ensure the functioning of the internal market, makes it nonetheless necessary to distinguish them from other activities possibly falling within the definition of “works” and/or “services” within the meaning of Article 1 of Directive 2004/18. Activities such as the construction of infrastructure needed for the operation of child welfare institutions and/or the provision of catering, laundry and transport services do not appear ... to be connected directly and specifically with the exercise of official authority, and could be equally performed by economic operators specialised in the respective area. Performance of these tasks would merely require supervision by the institution’s management bodies, but not necessarily the adoption of measures falling under the State’s prerogatives. Consequently, in order not to deprive the rules on the right of establishment and the freedom to provide services, Directive 2004/18 intends to implement, of all practical effectiveness, it is upon the contracting authority to carry out a case-by-case assessment of the applicability of Section 1-3(2) lit. k of the Norwegian Regulation to every public contract to be tendered out, taking into account the purpose of Articles 32 EEA and 39 EEA, as interpreted in the case-law referred to above. The contracting authority must thereby assess whether other merely ancillary activities, not strictly requiring the exercise of official authority in order to safeguard legitimate State interests, would be eligible for being subject to a separate tender procedure foreseeing the participation of both non-profit organisations and other economic operators alike. In its assessment, the contracting authority must take due account of the objective underlying the EEA rules on public procurement, consisting in ensuring the development of effective competition in the field of public contracts, while the principles of transparency, non-discrimination and equal treatment are upheld (ESA, 154/17/COL, para 4.2.5, page 17, footnotes omitted, emphasis added).

In my view, the general criterion is adequate and the need to limit the exception based on the exercise of official authority is correctly stated. Nonetheless, the ESA decision could have indicated some criteria as to how to carry out such assessment of severability of activities and, in particular, of the proportionality requirements applicable to such assessment. In my view, it will be difficult for a contracting authority to identify the extent to which it should insist on the tender of separate contracts for works or services for ancillary activities when it is choosing to award a contract for the operation of facilities providing health or social services. Functionally, the selection of the operator comes to avoid the need for the contracting authority to directly manage those facilities, which seems rather incompatible with the on-going obligation that the authority would retain if it were to impose procurement obligations on the operator of those facilities in relation to non-core or ancillary activities. Equally, it is not clear the extent to which this approach is compatible with the rules on the mandatory tendering of subsidised contracts (in particular where the 'construction of infrastructure needed for the operation of' those facilities is concerned), ex Art 8 Dir 2004/18/EC and, now, Art 13 Dir 2014/24/EU--which ESA could have considered explicitly in its decision.

In any case, it seems that this could soon be subjected to a re-examination, given that ESA reserved 'itself the right to investigate possible breaches derived from an application of that legal basis to contracts covering activities not linked to the exercise of official authority, such as those referred above, including, but not limited to, contracts expected to be awarded in tender procedures concerning the construction and operation of nursing homes' (which seems to form part of an on-going dispute; ESA, 154/17/COL, para 4.2.6, page 17).

critical considerations, in particular concerning Art 77 Dir 2014/24/EU

In my view, the decision of ESA in this case indicates that--even from a normative position of minimum intervention and creation of maximum policy space for EEA (and EU) Member States, such as that derived from the Spezzino/CASTA case law and from the recognition that the provision of health and social services (and any 'services to the person') can have an impact on the fundamental rights of the beneficiaries of those services, which should be conceptualised as the exercise of official authority (in particular to subject their control to the guarantees of the ECHR and the Charter of Fundamental Rights)--there are important unresolved issues where Member States decide to outsource the operation of facilities for the provision of those services.

Firstly, the creation of preferential treatment is now to be governed by the specific light-touch regime of Art 77 Dir 2014/24/EU, which creates specific requirements for the operators that can benefit from the reservation of public contracts for the provision of social and special services. Each Member State will need to adopt policies that are both in compliance with their constitutional structure and tradition and their broader social policies, and with the specific requirements in the Directive. From that perspective, it seems no longer acceptable for Member States not to have clear rules on which entities fall within the remit of Art 77 Dir 2014/24/EU and any such assessments of compatibility will require effective monitoring by the relevant authorities (ie either each contracting authority, or some central authority or body in each Member State). In addition, and implicitly, there has to be a mechanism to ensure the mutual recognition of entities covered by Art 77 Dir 2014/24/EU in other EU/EEA jurisdictions. In the specific case, ESA did not need to assess this issue due to the inapplicability of Dir 201424/EU, but it is worth stressing that, as part of its assessment, it highlighted the fact that 'economic operators from other EEA States are welcome to submit tenders in the area of health and social services provided that they are registered as non-profit organisations in their respective States of origin' (ESA, 154/17/COL, para 4.1.4, page 9). However, this possibility will have to remain effective, and that would not necessarily be the case if contracting authorities were allowed to act in certain ways (eg with insufficient transparency, or relying on pre-approved (or informal) lists of potential non-profit providers--in particular if those included in the lists or informal arrangements were never audited to ensure continued compliance with the applicable requirements).

Secondly, and probably with more practical complications, it seems difficult to establish bright-line criteria to determine the boundaries of the material scope of the exemption from competitive tendering (either due to a reservation of contract under Art 77 Dir 2014/24/EU or, in the context of EEA law, due to the exercise of official authority--which may now become a testable argument under EU law to seek exemptions beyond Art 77 Dir 2014/24/EU). In particular where the contract is not solely for the provision of the 'core' health or social services (which will rarely be), but rather for the operation of facilities where those services are provided--which might be the most common way of commissioning those services. In that regard, it seems that there can be an incentive for contracting authorities to opt for the outsourcing of the management of health or social services facilities where the contracting authority can enter into a single contract and thus detach itself from the day to day operation thereof. In that context, if contracting authorities need to engage in a detailed analysis of the services that can or cannot be exempted (and those that, consequently, need to be tendered separately and with full subjection to the procurement rules), possibly with a view of running several procurement processes and, eventually micro-managing the contracting of ancillary services (with the ensuing integration and coordination risks, for the split of contracts would create residual risks for the contracting authority), the incentive for the outsourcing can largely be lost.

On the whole, then, it seems that additional clear guidance is needed on the scope of Art 77 of Dir 2014/24/EU and, more generally, on the extent to which the light-touch regime foreseen in Arts 74-77 thereof is subject to limitations in cases of outsourcing of entire facilities. In that regard, it would seem desirable for the European Commission to adopt a more proactive approach to the publication of interpretive guidance of the 2014 Public Procurement Package beyond the meagre fact sheets currently available.

Extended comments on non-profit organisations, procurement and State aid implications of Spezzino (C-113/13)

I have just uploaded on SSRN a short paper that extends my previous comments on the Court of Justice of the European Union (CJEU) Judgment in Azienda sanitaria locale n. 5 «Spezzino» and Others, C-113/13, EU:C:2014:2440. It will be included in a special issue of the European Procurement & Public Private Partnership Law Review, with Prof Roberto Caranta as guest editor.

The paper assesses the competition law and State aid implications of the CJEU Judgment in Spezzino. It pays particular attention at the departure from the Altmark test for the assessment of public support granted to providers of public services; as well as on the change of mind by the CJEU regarding the special position of non-profit entities in the direct award of public service contracts.

The full citation for the paper is A Sanchez-Graells, "Competition and State Aid Implications of the Spezzino Judgment (C-113/13): The Scope for Inconsistency in Assessing Support for Public Services Voluntary Organisations" (June 30, 2015). Available at SSRN: http://ssrn.com/abstract=2625166. Comments welcome!

It Won't Last Long? CJEU takes a functional, competition-based approach to in-house provision that questoins the criteria in the new EU procurement directives (C-574/12)

In its Judgment in Centro Hospitalar de Setúbal and SUCH, C-574/12, EU:C:2014:2004, the Court of Justice of the EU (CJEU) has issued a new decision concerned with the in-house exception to the application of the EU public procurement rules (for a previous summary of the doctrine, see here). The Judgment is concerned with Directive 2004/18, but the findings are already relevant for the interpretation of the revised in-house exception in Directive 2014/24.
 
In the case at hand, a Portuguese hospital awarded a services contract for the provision of meals to patients and staff to a non-profit organisation (SUCH) which membership included public entities (such as other hospitals) as well as private social solidarity institutions carrying out non-profit activities. The hospital considered it an in-house provision situation and, relying in the Teckal doctrine (recently revisited and affirmed by the CJEU, see here), did not comply with the transparency obligations of Directive 2004/18.

However, a competitor of SUCH challenged the award on the basis that the Hospital did not exercise a control over the non-profit organisation that qualified for such an exemption, particularly according to the requirements of Stadt Halle and RPL Lochau, C-26/03, EU:C:2005:5, according to which "the investment, however small, of a private undertaking in the capital of an undertaking of which the awarding authority also forms part prevents, in any event, the awarding authority from being able to exercise a control over it similar to that which it exercises over its own departments" (C-574/12, at para 13).
 
The main point of law for the CJEU to interpret was, consequently, whether only participation of private for profit undertakings excluded the in-house exception or if, on the contrary, participation of any other sort of non-profit entities triggered the same effect. Following a commendable functional approach to the in-house exception based on the avoidance of distortions of competition, the CJEU opted for the second solution. Indeed, according to the C. H. de Setúbal and SUCH Judgment,
35 […] it must be pointed out that the exception concerning the in-house awards is based on an approach according to which, in such cases, the awarding public authority can be regarded as using its own resources in order to accomplish its tasks in the public interest.
36 One of the reasons which led the Court to the findings established in the judgment in Stadt Halle [...] was based not on the legal form of the private entities forming part of the contractor or on their commercial purpose, but on the fact that those entities obeyed considerations particular to their private interests, which were different in nature from that of the objectives of public interest pursued by the awarding authority. For that reason, that authority could not exercise control over the contractor similar to that which it exercised over its own services (see, to that effect, Stadt Halle [...] paragraphs 49 and 50).
37 Having regard to the fact, pointed out by the referring court, that SUCH is a non-profit association and the private partners which formed part of that association at the time of the award of the contract at issue in the main proceedings were private social solidarity institutions, all of them also non-profit, it must be noted that the fact that the Court referred, in the judgment in Stadt Halle [...], to concepts such as that of ‘undertaking’ or ‘share capital’ is due to the specific facts of the case which gave rise to that judgment and does not mean that the Court intended to restrict its findings to those cases alone where commercial for-profit undertakings form part of the contractor.
38 Another reason which led the Court to the findings in the judgment in Stadt Halle [...] is that the direct award of a contract would offer a private undertaking with a capital presence in that contractor an advantage over its competitors (see, to that effect, Stadt Halle [...] paragraph 51).
39 In the main proceedings, SUCH’s private partners pursue interests and objectives which, however positive they may be from a social point of view, are different in nature from the public interest objectives pursued by the awarding authorities which are at the same time partners of SUCH.
40 In addition, as the Advocate General noted in point 37 of his Opinion, the private partners of SUCH, despite their status as social solidarity institutions carrying out non-profit activities, are not barred from engaging in economic activity in competition with other economic operators. In consequence, the direct award of a contract to SUCH is likely to offer an advantage for the private partners over their competitors (C-574/12, at paras 35-40, emphasis added).
In my view, the CJEU has applied good logic and has incorporated the likely distortions of competition in the market for the provision of meals that could result from non-profit partners of SUCH having preferential (direct) access to the supply to the public sector. This functional approach is economically sound and deserves all praise.

The only difficulty that the C. H. de Setúbal and SUCH Judgment creates is its compatibility/coordination with the new rules under Art 12(1)(c) and 12(3)(c) of Directive 2014/24, which recast the in-house provision exception but modify the Teckal/Stadt Halle doctrine by relaxing the requirement that there is no private participation whatsoever--so that, in the future, the in-house exception can be applied provided "there is no direct private capital participation in the controlled legal person with the exception of non-controlling and non-blocking forms of private capital participation required by national legislative provisions, in conformity with the Treaties, which do not exert a decisive influence on the controlled legal person" (emphasis added).
 
The explanation provided for such a change in recital (32) of Directive 2014/24 is as follows:
The exemption should not extend to situations where there is direct participation by a private economic operator in the capital of the controlled legal person since, in such circumstances, the award of a public contract without a competitive procedure would provide the private economic operator with a capital participation in the controlled legal person an undue advantage over its competitors. However, in view of the particular characteristics of public bodies with compulsory membership, such as organisations responsible for the management or exercise of certain public services, this should not apply in cases where the participation of specific private economic operators in the capital of the controlled legal person is made compulsory by a national legislative provision in conformity with the Treaties, provided that such participation is non-controlling and non-blocking and does not confer a decisive influence on the decisions of the controlled legal person. It should further be clarified that the decisive element is only the direct private participation in the controlled legal person. Therefore, where there is private capital participation in the controlling contracting authority or in the controlling contracting authorities, this does not preclude the award of public contracts to the controlled legal person, without applying the procedures provided for by this Directive as such participations do not adversely affect competition between private economic operators (emphasis added).
These two justifications for the relaxation of the Teckal/Stadt Halle/SUCH  absolute prohibition of private participation will prove controversial, given that they can give rise to situations where an effective market advantage is derived from the (apparent) in-house award. Indeed, the drafting of the condition in Art 12(1)(c) and 12(3)(c) of Directive 2014/24 seems quite open and it is possible to anticipate the need to conduct an assessment of proportionality between the objectives pursued by the national law imposing private participation and the carve-out that it creates in the application of the EU procurement rules. It will then be for the CJEU to either stick to its functional, competition-based approach to the in-house doctrine, or to defer to the quite express will of the EU legislator (fundamentally, in this case, the Member States). I would personally want it to tilt the balance in favour of the first option, but I can see the difficulties now that the text of the Directive is so clear.