Do public procurement rules apply to "concessions" (rectius, licences or authorisations) for betting and gambling services? (C-225/15)

In his Opinion of 16 June 2016 in case Politano’, C-225/15, EU:C:2016:456 (not available in English), Advocate General Wahl had to assess the applicability of Directive 2004/18 on public procurement, and in particular its Art 47 on economic and financial standing requirements, to a public contest for the award of concessions (ie licences or authorisations) for the provision of betting and gambling services.

In his Opinion, and in very streamlined terms, AG Wahl considered that Art 47 Dir 2004/18 was not applicable to the tendering of such 'concessions' for the provision of betting and gambling services for the following reasons:

a concession for the provision of betting services, such as that at issue in the main proceedings, is not a public service contract within the meaning of Article 1, paragraph 2, point d) of Directive 2004/18. Not only is the "service" under analysis not provided on behalf of the contracting authority but, additionally, the economic operators that tender for such concessions are not remunerated by public funds. Also, the concessionaire bears the entire risk associated with the exercise of the activity of collecting and transmitting bets (para 51, own translation from Spanish).

This analysis is correct. However, it is then surprising that AG Wahl embarks on some considerations about the possible applicability of Art 38(1) of Directive 2014/23 on concession contracts to the award of such concessions (rectius, licences or authorisations) for the provision of betting and gambling services (para 52). It seems clear to me that, exactly for the same reasons established in para 51, Dir 2014/23 would not be applicable. Not least because its Art 5(1)(b) defines a services concession in the following terms:

a contract for pecuniary interest concluded in writing by means of which one or more contracting authorities or contracting entities entrust the provision and the management of services other than the execution of works ... to one or more economic operators, the consideration of which consists either solely in the right to exploit the services that are the subject of the contract or in that right together with payment.

Put simply, the fact that 'the "service" under analysis [is] not provided on behalf of the contracting authority' excludes this type of concession (rectius, authorisation or licence) from the scope of application of Dir 2014/23. Consequently, it may have been better for AG Wahl to completely avoid the consideration of Dir 2014/23 (it was clearly not applicable to the facts of the case anyway) and not provide such obiter comments, which can create confusion.

Indeed, this is an area where there is a floating lack of clarity [for general discussion and analysis, see GS Ølykke, 'Is the granting of special and exclusive rights subject to the principles applicable to the award of concessions? Recent developments in case law and their implications for one of the last sanctuaries of protectionism' (2014) 23(1) Public Procurement Law Review 1-20; CJ Wolswinkel, 'From public contracts to limited authorisations and vice versa: Exploring the EU Court’s corollary approach on award procedures' (2015) 24(5) Public Procurement Law Review 137-163; and I Herrera Anchustegui, 'EFTA Court case E-24/13 Casino Admiral AG v Wolfgang Egger: the obligation of transparency and consequences of its breach when awarding service concessions' (2015) 24(1) Public Procurement Law Review NA1-NA9].

It is relevant to note that Art 10(9) Dir 2014/23 explicitly excludes lottery concessions from the coverage of the Directive, but it does not go as far as preempting the coverage of any betting or gambling services in case they are actually structured in the form of a concession [as defined in Art 5(1)(b)]. The creation of this exclusion was controversial because the European Commission had not included it in its original proposal back in 2011.

The following are my comments to the creation of this exclusion in the forthcoming Brussels Commentary on EU Public Procurement Law, M Steinicke & PL Vesterdorf (eds) (Beck, 2016).

01. This exclusion was lacking in the 2011 proposal and was introduced as a result of the Amendments proposed by the European Parliament (see Amendments 19 and 110). The justification provided for this exclusion was as follows: “Gaming has, in addition, been excluded on account of the highly specific nature of the activities concerned and the need to ensure that Member States can continue to exercise oversight in order to pursue aims in the general interest (combating illegal gambling, fraud, and money laundering; preventing addiction). If gaming were subject to the rules of the directive, Member States would be deprived of flexibility and consequently impeded in their ability to act. National lotteries and similar games will therefore be excluded.” The text of the proposed new recital [proposed as (13a) and now numbered as (35)] and article [proposed as Article 8(5a) and now in Article 10(9)] are different than the ones finally adopted. In the final version, it is clear(er) that the exclusive right on the basis of which the concession is granted must comply with EU law and meet certain minimum requirements. Indeed, the proposed Amendment by the European Parliament would have excluded “service concessions for gambling activities involving a financial risk through investing a sum of money in games of chance (that is to say lotteries or betting), awarded to one or more bodies by one or more Member States on the basis of exclusive rights granted pursuant to applicable national laws, regulations or administrative provisions in accordance with the Treaties”. By contrast, Article 10(9) of the Concessions Directive excludes “service concessions for lottery services, which are covered by CPV code 92351100-7, awarded by a Member State to an economic operator on the basis of an exclusive right. For the purpose of this paragraph, the notion of exclusive right does not cover exclusive rights as referred to in Article 7(2). The grant of such an exclusive right shall be subject to publication in the Official Journal of the European Union.” The main differences seem to be the more clearly limited scope of the exemption by reference to the CPV code and the requirement of EU-wide publication of the exclusive right [which is an improper exclusive right as it must not meet the requirements of the definition in Article 5(10)].
02. As briefly indicated by the European Commission in its factsheet “Concessions: Excluded concessions”, the purpose of this exclusion is to cover lottery services and, more precisely
“Concessions for lottery operating services awarded on the basis of a prior exclusive right which has been granted pursuant to applicable national laws, regulations or administrative provisions in accordance with the Treaties are not covered.
However, in other cases, gambling activities are covered by the Directive when they assume the form of concession contracts (e.g. casino concessions). Gambling activities pursued on the basis of authorisations/licences are not covered.”
Under this interpretation, this specific exclusion is also redundant, as it could have been comprised under the more general exclusion of Article 10(1)—except for the cases where the special or exclusive rights are not awarded following transparent procedures based on objective, proportionate and non-discriminatory criteria, which seems to be the area of regulatory competence that Member States want to protect. Indeed, it should be acknowledged that Member States retain almost unlimited discretion to maintain gambling monopolies in their jurisdictions and that, consequently, the ECJ is likely to interpret this exclusion generously [see Case C-203/08 Sporting Exchange (Betfair) [2010] ECR I-04695]. In that regard, it could well be that the European Commission is interpreting the exclusion in an exceedingly restrictive manner because, in fact, EU law imposes very limited constraints on Member States regulation of gambling (on the basis of directly awarded exclusive rights). Hence, the exclusion of lottery services concessions should come as no surprise and the general situation seems to clearly be that, unless Member States reach a common understanding on the way gambling and lotteries should be regulated, this is an area of the internal market where cross-border competition and regulatory harmonisation cannot be realistically expected any time soon.

In view of AG Wahl's Opinion in Politano’, it may be worth stressing that, in my view, public procurement rules (and Dir 2014/23 in particular) will not be relevant for cases involving authorisations/licences for the provision of betting and gambling services (other than if applied by analogy or used as a benchmark to assess the openness, transparency and soundness of the procedure for their allocation under the general rules on freedom of provision of services and freedom of establishment). Mostly, because the provision of those services will not be 'on behalf of the contracting authority'. The only situation where this seems likely to happen involves lottery monopolies, but these benefit from the explicit exclusion in Art 10(9) Dir 2014/23.

Ultimately, and this seems to be a running topic in recent decisions, the irrelevance of Dir 2014/23 is justified because where the State is authorising the provision of specific services and thus regulating that market by means of a specific system of authorisations or licences (which should stop being called concessions for clarity), there is no procurement.

CJEU rejects avoidance of litigation as a valid 'overriding reason in the public interest' justifying a direct award of a concession contract (C-212/12)

In its Judgment of 14 November 2013 in case C-221/12 Belgacom, the CJEU has rejected that the avoidance of litigation can be considered a valid 'overriding reason in the public interest' justifying a direct award of a concession contract. In other terms, the fact that the award of the services concession forms part of a settlement agreement is irrelevant for the purposes of determining compliance with the EU primary law requirements applicable to the award of such contracts.
In very clear terms, the CJEU has indicated that
37 [...] since such a concession is of certain cross-border interest, its award, in the absence of any transparency, to an undertaking located in the Member State to which the contracting authority belongs, amounts to a difference in treatment to the detriment of undertakings which might be interested in that concession but which are located in other Member States. In excluding those undertakings, that difference in treatment works primarily to their detriment and therefore amounts to indirect discrimination on grounds of nationality, which is, in principle, prohibited by Articles 49 TFEU and 56 TFEU (see, to that effect, ASM Brescia, paragraphs 59 and 60 and the case-law cited).

38 Such a measure might, exceptionally, be allowed on one of the grounds set out in Article 52 TFEU or justified by overriding reasons in the public interest, in accordance with the Court’s case-law (see, by analogy, Engelmann, paragraphs 51 and 57 and the case-law cited, and Joined Cases C‑357/10 to C‑359/10 Duomo Gpa and Others [2012] ECR I-0000, paragraph 39 and the case-law cited). On this last point, it is clear from a combined reading of paragraphs 51 and 57 of Engelmann that no distinction need be drawn between objective circumstances and overriding reasons in the public interest. Objective circumstances must, ultimately, be accepted as overriding reasons in the public interest.

39 The grounds put forward in the application in the present case, whether considered separately or together, cannot be regarded as being overriding reasons in the public interest.

40 The principle of legal certainty, which is a general principle of European Union law, provides ample justification for observance of the legal effects of an agreement, including – in so far as that principle requires – in the case of an agreement concluded before the Court has ruled on the implications of the primary law on agreements of that kind and which, after the fact, turn out to be contrary to those implications (see, to that effect, ASM Brescia, paragraphs 69 and 70). However, that principle may not be relied on to give an agreement an extended scope which is contrary to the principles of equal treatment and non-discrimination and the obligation of transparency deriving therefrom. It is of no import in that regard that that extended scope may offer a suitable solution for putting an end to a dispute which has arisen between the parties concerned, for reasons outside their control, as to the scope of the agreement by which they are bound
(Case C-221/12 at paras 37-40, emphasis added).
This is a very important finding, as it comes to limit the discretion of contracting authorities to (re)negotiate contract awards and to extend the scope of contracts in order to settle arising legal disputes. It may be seen as a significant restriction of sensible contract and dispute management strategies in the altar of transparency, but the CJEU seems to have opted to err on the cautious side of the balance--which I consider appropriate, given that renegotiations are an area prone to massive manipulation and rule avoidance in public procurement in many Member States.
However, the practical effects of the Belgacom Judgment may be relatively limited once the future procurement Directives are adopted, as they will expressly regulate contract modification and set clear limits that will trigger the obligation to retender the contract (see art 72 of the new public sector procurement Directive and art 42 of the new Concessions Directive).