Common sense at last?

On 16 September 2010 Advocate General Jääskinen delivered his Opinion on Case C-306/08 European Commission v Spain. Deborah Ramshaw says this Opinion should be welcomed by contracting authorities, as the AG warned the ECJ not to “over-stretch” the public procurement rules for the sake of ensuring that certain developments fall within those rules.

Background

The European Commission has commenced infringement proceedings against Spain in respect of the application of the public procurement rules to certain Spanish land development schemes. In Valencia, an “integrated action” is used where there are two or more separate pieces of land requiring comprehensive development. There is no need here to go into the detail of the Spanish legislation in this area (which is set out in more detail in the Opinion itself) but essentially the local authority can decide to carry out the development itself using public funds (and a public works contract is therefore very likely to arise) or the authority can choose a developer and the landowners must compensate the developer for the costs of the development, proportionally to the land they contribute to the project (referred to as the “indirect action” process).

One of the ways to carry out an “integrated action” is to engage the statutory Integrated Action Programme (IAP). The aim of the IAP is to define the works to be carried out, the deadlines, and the technical and economic base for management of the programme.

In an indirect action scenario the local authority oversees the IAP procedure, chooses a developer by public tender, approves the IAP and suggests modifications if necessary. At the end of the IAP the works pass to the ownership of the authority and the authority assumes all maintenance obligations. In the IAP process the developer writes the technical documents, develops and manages the land assembly process and chooses a sub-contractor to carry out the works (which in most cases must be procured under the public procurement legislation).

The purpose of the IAP was to overcome the stagnation in urban development in Valencia and places the emphasis on private initiative in the form of the developer’s activity, which is distinct both from land ownership and public administrative activity. Spain states that the IAP is a system for selecting alternative land-use developments (e.g. a choice between a retail and housing development) as well as a developer to implement it in the most efficient way.

The proceedings brought by the Commission relate to this indirect action process and the way in which the developer is chosen. The issue with the IAP is that it is inherently discriminatory due to the privileged position of the private initiator compared to subsequent bidders.

AG Jääskinen notes that, to date, the Court of Justice has adopted a “relatively broad, public procurement-friendly approach” to considering what sort of projects fit into the frame of public procurement rules. However, he does note that in the Müller case (Case C-451/08 Helmut Müller), the Court did not follow the Commission’s “functional” interpretation of the legislation.

The Advocate General goes on to state that the Court should exercise “a certain restraint” if a broad interpretation of EU law leads to national law losing its raison d’être, or means that EU law applies to matters which were not considered during the legislative process. In this case he notes that classifying an IAP as a public works contract would have the practical consequence of discouraging private initiatives in the field of planning and land development, since, if considered within the scope of the public procurement rules, the IAP appears to be against the central aim of public procurement, namely the equal treatment of all participants.

The Advocate General also considered whether:

• there was pecuniary interest originating from the contracting authority in the context of an IAP: in this case there was not. The AG feels that a public contract must require a contracting authority to either use its own funds directly or indirectly (where the authority suffers an economic detriment due to the method of financing the works or services, for example waiving a planning development fee as in the La Scala case – Case C-399/98 La Scala)
• whether there was a public works concession. In the IAP context the developer is not given the right to exploit the works since they have no possibility of recovering remuneration for their future use (the works transfer to the authority).

Conclusion

This Opinion is a welcome “reining-in” of the recent case law in the area of land development and public procurement rules. One of the key statements made by AG Jääskinen comes at the end of his opinion, where he states “…one of the aims of the public procurement directives is to ensure that when contracting authorities spend money in public markets there is no distortion of competition. It follows that where the contracting authority is not spending any public funds there is no danger of distorting competition within the meaning of [the relevant procurement directives]”.

Interestingly, it is clear from some of the detail in the Opinion that the complaints made to the European Parliament about the IAP were concerned with matters outside of the public procurement arena: such as the obligation of landowners to pay for infrastructure works they did not want or need. The Commission found that the only avenue that could be pursued against Spain in relation to the IAP was by way of alleging a breach in public procurement rules.

As the Advocate General notes, the outcome of this case will do little to console those complainants. It also hints at the fact that the Advocate General believes that the Commission are using public procurement rules to ensure that certain projects are caught within those rules regardless of whether such projects were ever envisaged by the legislation. It is to be hoped that the Court of Justice adopts this Opinion in full and provides more clarity for authorities in the context of land development projects.

Deborah Ramshaw is head of procurement at Dickinson Dees (www.dickinsondees.com). She can be contacted on 0191 279 9836 or via This email address is being protected from spambots. You need JavaScript enabled to view it..