Is allocating airport space to groundhandling operators, even if only temporarily, subject to eu utilities procurement rules? (AG Opinion in C-701/15)

In his Opinion of 3 May 2017 in the case of Malpensa Logistica Europa,
C-701/15, EU:C:2017:332, Advocate General Campos Sánchez-Bordona has considered the extent to which an airport management company is under a duty to carry out a tendering procedure when temporarily allocating certain airport facilities to groundhandling services companies, under the rules of Directive 2004/17/EC on utilities procurement and Directive 96/67/EC on access to groundhandling market at EU airports.

In the case at hand, the body managing the Milan Malpensa airport (SEA) carried out a competitive procedure for the allocation of certain areas within the airport to groundhandling operators. Both Beta-Trans and Malpensa Logistica submitted bids in that selection procedure for the performance of handling activities at the airport. Beta-Trans was successful. However, it was unable to occupy the area assigned to it because the space was not yet ready and had to be fitted out. SEA therefore gave Beta-Trans the temporary use of a hangar so that it could commence its groundhandling activities immediately. The allocation of the hangar was merely temporary until the ‘final area’ was ready for use (scheduled for July 2017) (AGO in C-701/15, paras 22-23). The decision to temporarily allocate the hangar to Beta-Trans was challenged by Malpensa Logistica on the basis that this should also have been subjected to a (separate) public selection procedure.

In general terms, I think it is clear that a procedure for the allocation of airport space to groundhandling operators authorised to provide services in that airport should not be covered by the utilities procurement directive (either the 2004 version, or the current 2014 version, or the 2014 concessions directive) because the body managing the airport is not procuring services from those companies when it takes the space allocation decision. This could have led to a rather straightforward subjection of SEA's decision to the specific procedures for access to groundhandling only, which did not require such competitive tendering. However, the referring court had indicated that, under relevant case law of the Italian Consiglio di Stato, domestic public procurement legislation transposing Directive 2004/17/EC governed the concession of areas within airports for the provision of groundhandling services. Since the award of those concessions came within the material scope of the legislation on special sectors, a public selection procedure had to be conducted (AGO in C-701/15, para 25).

This is relevant because the Italian procurement rules (rectius, their interpretive case law) may impose requirements that go beyond those derived from Directive 96/67/EC on access to groundhandling markets and its Italian transposition. Therefore, the main legal issue concerns a clash between the Italian instruments transposing EU rules, rather than between the EU rules themselves. However, both layers of legislation need to be coordinated in order to ensure regulatory consistency--and the Opinion of AG Campos seems to show that there may be underlying coordination issues concerning the definition of public contracts that remain unaddressed. Additionally, the case is interesting in the flexibility that AG Campos tries to create for temporary 'substitutory' measures under the groundhandling market access rules, which may however not be exportable to decisions actually covered by the procurement rules. Each of these issues is discussed in turn below.

Difficulties concerning the concept of public contract?

On the domestic peculiarities of the case, AG Campos indicates that the "fact that both sets of national provisions ‘are derived from EU law’ ... does not prevent the Italian legislature from requiring that public selection procedures apply in the case of allocations of areas within airports ... [even if they] are not covered by Directive 2004/17. Whilst that directive certainly requires that contracts falling within its scope be awarded in accordance with its provisions, there is nothing to prevent a Member State from deciding, on its own initiative, to extend those rules to other contractual arrangements" (AGO in C-701/15, para 45).  While the principle behind this statement seems correct in so far as Directive 96/67/EC is a liberalisation instrument rather than a maximum harmonisation directive, it seems to me that the instrument and the reasons used by Italian law to impose additional requirements deserve additional scrutiny.

There can be a problem if the sole reason why the Consiglio di Stato mandates compliance with domestic rules transposing Directive 2004/17/EC in decisions involving the allocation of rights to use areas within airports for the provision of groundhandling services (which are not concessions, in the technical meaning of EU procurement rules) is that it considers these decisions "within the material scope of the legislation on special sectors [procurement]" (AGO in C-701/15, para 25). This would be a misinterpretation of the relevant EU rules because, as rightly concluded by AG Campos, given that this is an arrangement akin to the rental of the relevant space by the contracting entity (which receives the relevant fees rather than paying any pecuniary compensation), the allocation of the right to use "airport facilities to a supplier so that the latter can provide groundhandling services to third parties cannot be classified as a public service contract for the purpose of Article 1(2)(a) and (d) of Directive 2004/17, with the result that the relationship referred to in the main proceedings falls outside the scope of that directive" (AGO in C-701/15, para 53). In my view, such misinterpretation should not be saved on the basis of the Member States' abstract ability of creating requirements beyond those in Directive 2004/17/EC.

If the Consiglio di Stato case law solely (or primarily) relies on an improper interpretation of the domestic rules in relation with EU rules (which cannot be ascertained on the basis of the information in the Opinion), Italian law would not be respecting the material scope of EU public procurement rules because it would be distorting (ie expanding) the definition of public contract--both under Art 1(2)(a) Dir 2004/17/EC, and under the equivalent provisions of the 2014 EU public procurement rules, including the definition of services concessions in Art 5(1)(b) Dir 2014/23/EU. This could be important because, in the absence of separate/explicit domestic rules explicitly subjecting these decisions to competitive tendering, it is questionable that the case law of the Consiglio di Stato can be seen in compliance with the supremacy of EU law (in terms of respecting the interpretation of the concept of public contract and public procurement by the CJEU, which continues to gain prominence in recent cases such as Falk Pharma or Remondis) and the duty of consistent interpretation--as well as raising issues about the possibility of expanding the scope of legislation through case law under Italian constitutional rules, which I am in no position to assess.

Also, while the deviation from the concept of public contract may be seen not to create problems in this specific instance because the (possibly wrong) interpretation embedded in the case law of the Consiglio di Stato results in overcompliance, this can be an issue in terms of ensuring a level playing field across the EU in utilities sectors. Therefore, in my opinion, this is an issue that could merit close assessment in relation with the Italian transposition of the 2014 EU Public Procurement Package.

The scope for temporary 'substitutory' measures

The second aspect of the Malpensa Logistica Europa Opinion that I find relevant concerns AG Campos' approach to the requirements applicable to the temporary allocation of the use of the hangar as a substitutory measure. In that regard, he submits to the Court that the analysis should proceed as follows:

... SEA awarded Beta-Trans the definitive airport facilities as the result of a competitive selection procedure in which Malpensa Logistica also participated. ... the assignment of the temporary hangar ... came about because the area which had been definitively awarded was not ready.
These factors (the temporary nature of the hangar and the existence of an earlier competitive procedure) may be relevant in determining whether SEA complied with Article 16(2) of Directive 96/67. Since this provision allows the managing body a broad discretion, subject to the [obligation to to observe, when allocating areas or facilities within airports, ‘relevant, objective, transparent and non-discriminatory rules and criteria’], responsibility for assessing it lies with the national courts.
It should also be borne in mind that the objectives of Directive 96/67 include encouraging the presence of new suppliers of groundhandling services and that one of the criteria for assigning available space within airports is to promote ‘effective and fair’ competition between all operators, ‘including new entrants in the field’. Effective competition precisely requires the removal of barriers preventing the entry of new operators. From that perspective, the principles of objectivity, transparency and non-discrimination may justify decisions on the allocation of areas which take account of the situation of suppliers of groundhandling services already in place and their possible dominance in the provision of those services at a given airport (AGO in C-701/15, paras 73-75, footnotes omitted).

I find this reasoning interesting because it suggests that the adoption of substitutory measures aimed at facilitating competition on a temporary or anticipatory basis is allowable where the deciding entity is under an obligation to adopt decisions in compliance with 'relevant, objective, transparent and non-discriminatory rules and criteria'. This could be important because, at least functionally, it would imply that having carried out a competitive procedure for a specific object (ie the space allocated on a permanent or definitive basis) provides legal cover for a temporary modification of the object of the authorisation or licence to use that object (ie the temporary assignment of alternative space). This makes commercial sense and avoids situations where the effects expected from the initial competitive procedure can be delayed or frustrated.

However, when compared with the rules on contract modification under the EU procurement rules, one can wonder if the same flexible and commercially-oriented approach could pass legal muster. Given that delays are common in public contracts (most likely, that was also the case for the lack of availability of the definitive premises at Malpensa), it would be interesting to see how the analysis would play out if it was a public contractor to offer an alternative, temporary solution to a contracting authority or entity. In that case, my guess is that this would be assessed as a contract modification of difficult assessment under value-based thresholds, and probably subjected to an analysis of whether the modification is substantial (cfr Art 72(4) Dir 2014/24/EU, Art 80(4) Dir 2014/25/EU and Art 43(4) DIr 2014/23/EU), which could easily lead to a finding that the temporary substitutory measure was not allowed--unless the ECJ would be willing to deviate from recent decisions, such as Finn Frogne.

Of course, this falls short from showing a stark internal contradiction between different sets of rules within the broader system of EU economic law, but I think that it does indicate that the internal market logic--and even the pro-competitive logic--that underlies the system can create opposing normative criteria, unless they are reconciled with some checks and balances based on commercial considerations. Not that this is bound to carry legal weight, but it may help construct a different parameter of evaluation closer to the concept of market economy agent, which could provide some additional consistency in the area of EU economic law.

Tendering for licences and tendering for contracts: Consistency of the approach (AG in case C‑569/10)

AG Cruz Villalon has delivered his Opinion of 20 November 2012 in case C-569/10 European Commission v Poland, which concerns a potential infringement of Art 3 of Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons. The analysis offered in relation to tendering procedures for mining licences resembles that followed in public procurement cases and, consequently, it is interesting to see to what extent the criteria applicable to both types of tendering are being developed consistently by the EU Courts.

According to Art 3 Dir 94/22, Member States must take ‘the necessary measures to ensure that authorisations [for the exercise of the activities of prospecting, exploring for and producing hydrocarbons] are granted following a procedure in which all interested entities may submit applications’ (emphasis added). This requirement was incorporated in Polish law by means of Article 11(2) of the Geological and Mining Law of 4 February 1994, which provides that: ‘Without prejudice to Article 12(1), the creation of mining usufruct rights covering the prospection, exploration for and exploitation of natural gas, oil and its natural derivatives ... shall be preceded by a competitive tendering procedure' (emphasis added). According to such Art 12(1), however,  ‘[a]n undertaking that has explored and documented mineral deposits belonging to the Treasury and has prepared geological documents to the level of accuracy required for the granting of a concession for production of the mineral, may apply for the grant of mining usufruct rights with priority over other parties’ (emphasis added).

Therefore, Polish law creates two sets of independent authorisations: one for exploration (and preparation of the ensuing geological documentation) and one for production rights and, in general, subjects their granting to a prior tendering procedure (which would be in line with the requirements of Art 3 Dir 94/22). However, the priority given to holders of exploration rights (or to subsequent buyers of the ensuing geographical documentation) to obtain the production concession raised an issue of compatibility with EU Law. The European Commission considered that this would exclude any effective tendering for production rights and that, consequently, the Polish system breached Art 3 Dir 94/22. On its part, Poland considered that the existence of a tendering procedure in respect of the granting of the exploration rights was sufficient, as the procedure for granting the production concession is in the nature of a mere ‘formality’, albeit compulsory, involving only the undertaking to which the initial rights had been granted.

AG Cruz Villalon concurs with the Commission's view. In his Opinion, he submits that:
79. In effect, Article 12 of the Geological and Mining Law gives priority – for a period of two years and over any other person – in seeking the creation of mining usufruct rights to the person who has explored and documented mineral deposits and prepared the relevant geological documentation [...]
82. The Polish Government seeks to justify this outcome by arguing that the exclusive rights to the geological documentation and the priority given to the holder of such rights constitute fair remuneration for the investment made at the earlier prospecting and exploration stage.
83. In my opinion, this argument cannot succeed.
84. Much as it may seem fair that the person who has borne the costs involved in preparing the geological documentation should be remunerated, that investment may in no circumstances be rewarded in such a way as to distort the authorisation procedure to the point of rendering illusory the tendering procedures required under Directive 94/22.
85. That is, or at least may be, what happens if the Polish system is applied. The interplay of priorities and exclusive rights introduced by the Geological and Mining Law may give rise to a situation in which the holder of the exclusive rights to the geological documentation obtains the mining usufruct rights without a genuine competitive tendering procedure being held. In fact, it would not be feasible to follow such a procedure if the priority referred to in Article 12(1) means – as the term ‘priority’ would, on the face of it, suggest – a true preferential right to the creation of the usufruct.
86. It would be a different matter (sic) if the ‘priority’ were taken to mean that the investment in the preparation of the geological documentation constitutes a positive factor to be taken into account in the tendering procedure; a positive factor for evaluation, perhaps, but certainly not to the extent of determining the outcome of the tendering procedure. Giving this factor its proper weight may constitute reasonable remuneration for the investment, without going as far as the case put by the Polish Government.
87. In this regard, we should bear in mind that ownership of exclusive rights to the geological documentation may not be as central to the authorisation process as it is under the Polish system. Ownership of such rights does, of course, demonstrate that the holder has the skills needed to prepare geological documentation. Clearly, however, such skills are not necessarily in themselves sufficient to demonstrate the skills relevant for the purposes of granting an authorisation to exploit mineral resources. It seems to me obvious that, basically, the Polish system attributes too much importance to the position of undertakings whose main capability is the production of geological documentation, with the position of other undertakings which can also demonstrate capability in the area of mining being entirely subordinated to the interests of the former.
88. So, the Polish system of ‘authorisation’ within the meaning of Directive 94/22 comprises two stages (the creation of the mining usufruct rights and the concession itself), the outcome of which may be dictated entirely by the exercise of exclusive rights to the geological documentation that is needed in order to obtain the actual authorisation to exploit the mineral resources. Those exclusive rights are granted to the undertaking that has obtained geological documentation through exploration and investigation which, in accordance with Article 33(1) of the Geological and Mining Law, do not always require a concession and would therefore not be the result of a tendering procedure.
89. Consequently, given that in certain circumstances the Polish legislation allows the authorisation required for the activities of prospecting, exploring for and producing to be granted following a procedure which does not involve a genuine tendering procedure, I am of the opinion that the first part of the second plea and the second part of the first plea in the Commission’s application should be upheld in their entirety (AGO C-569/10 at paras 79-89, emphasis added).
As briefly mentioned, in my view, the AG's reasoning resounds of the arguments that prevent direct awards of construction or other works contracts on the basis of the 'mere' development of a design project under EU public procurement rules [Dirs 2004/18 and 2004/17]. In that regard, where the rights or contracts to be awarded non-competitively at the second stage are worthier than the initial rights or contracts, it seems sensible to require a second round of competition to take place. 

However, I do not agree with the AG's obiter dicta remarks in paragraph 86 of his Opinion, where he considers that "It would be a different matter (sic) if the ‘priority’ were taken to mean that the investment in the preparation of the geological documentation constitutes a positive factor to be taken into account in the tendering procedure; a positive factor for evaluation, perhaps, but certainly not to the extent of determining the outcome of the tendering procedure. Giving this factor its proper weight may constitute reasonable remuneration for the investment, without going as far as the case put by the Polish Government." Such preference in the second round of competition would only allow the incumbent to extract unnecessarily advantageous conditions from the contracting / licensing authority. In that regard, I would suggest that it is of the utmost importance to neutralize any first comer advantages in the second round of competition, at least for evaluation purposes, as I have further developed elsewhere [Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, hart Publishing, 2011) pp. 333-338]. Otherwise, the system may be compliant with the tendering requirements of Dir 94/22 or Dirs 2004/18 and 2004/17, but not (fully) effective competition will arise in the second round of tendering.

Therefore, I would suggest that the CJEU should follow the AG in its final Judgment in case C-569/10, but dismissed the obiter dicta remarks in paragraph 86. Otherwise, the law on (re)tendering risks being developed in a less than (fully) competition-promoting manner.