Are future (lease) contracts covered by the EU public procurement directives? (C-213/13)

In his Opinion of 15 May 2014 in case C-213/13 Impresa Pizzarotti (not available in English, so the following discussion is based on my reading of the Spanish version), Advocate General Nils Wahl has addressed the tricky issue whether future lease contracts, or contracts for the lease of buildings that are yet to be constructed, are covered by the EU public procurement Directives (in particular, by Directive 2004/18, but the interpretation will remain relevant under the new Directive 2014/24, which scope has not changed as far as works contracts are concerned).
 
The factual background of the case is rather complicated as the Commune di Bari and the Italian Ministry of Justice kept changing the conditions of the financial arrangements concerned with the building and rental of Bari's new city of justice; but, as AG Wahl indicates in his Opinion, the legal issue to be addressed is whether transactions relating to future buildings may fall within the exception to the application of the rules on public contracts--as foreseen in Article 16(a) of Directive 2004/18 [or art 10(a) Dir 2014/24], which indicates that the Directive "shall not apply to public service contracts for: (a) the acquisition or rental, by whatever financial means, of land, existing buildings or other immovable property or concerning rights thereon".
 
In his view, the exception in Art 16(a) Directive 2004/18 [and now art 10(a) Dir 2014/24] can under no circumstances be interpreted in a way that covers works which execution has not yet started (para 54). On the ultimate basis of the principles of the protection of the internal market's fundamental freedoms and the promotion of effective competition (para 56), AG Wahl clearly argues that
With respect to the exclusion relating to the acquisition or lease of real estate, understood in the broad sense, I believe that it can only refer to existing assets. Indeed, a tender under the application of the rules on public procurement will have little purpose when referred to the lease or sale of an existing and well determined bulding, which is inappropriate for a confrontation with others because of its unique character. Furthermore, it appears from some preparatory works that the exclusion of contracts for lease or purchase of real estate was initially motivated by the local and non cross-border nature of these contracts. However, given that the activities in question involve the future construction of real estate and, therefore, the execution of works, the tendering process and transparency required by these rules are not inappropriate at all and therefore should be applied. Further, in my view, the reference that the provisions in question make to "other (immovable) property" should be understood in the sense that it relates to assets other than land and buildings, and not to goods whose construction has yet to be conducted. [...] In the event that a public administration chooses, within the framework of the installation of certain services, for a formula for the purchase or lease of a work to be constructed, this operation shall be subject to the procurement procedures established by the relevant regulation (Opinion in C-213/13 at paras 60 and 61, own translation from Spanish, references ommitted and emphasis added).
 
This reasoning must be shared, given the need to interpret the exclusions to the Directives in a restrictive manner (as the AG stresses in his Opinion, at para 58). Incidentally, it is also interesting to stress that in AG Wahl's Opinion, the fact that the aggregated consideration for the lease of the future building does not cover the costs of its construction is insufficient to alter any conclusion as to the existence of a works contracts that should have been tendered under the relevant EU rules (para 80).
 
In my view, this is an important case, as the adoption of the interpretation suggested by AG Wahl would come to limit the possibilities to exclude certain types of contracts that fall within the broad category of public-private cooperation from the remit of the procurement directives, and seems to put some pressure on the (increased) use of either design contests or full-fledged procurement procedures (probably, from now on, the competitive procedure with negotiation under art 29 dir 2014/24) when contracting authorities seek to have dedicated buildings constructed. Let's hope that the CJEU follows this Opinion.

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.