At your service

The European Court of Justice has provided important clarification on the difference between a public service contract and a public service concession, writes Elizabeth Gibson.

The European Court of Justice ("ECJ") has handed down its preliminary ruling in the case of SIA Norma-A, SIA Dekom v Ludzas novada dome.

The ruling, delivered on 10 November 2011 in response to a preliminary reference from the Latvian Supreme Court, has clarified the position on the classification and definition of public services contracts for the purposes of the public procurement rules.

One of the questions referred to the ECJ concerned the definition of a public services contract as opposed to a public service concession under Directive 2004/17 (the "Utilities Directive"). In particular, whether it is appropriate to treat a contract as a public service concession where the consideration in the contract is the right to exploit the service and/or compensation for losses from the contracting authority, and the risk of operating the service (in this case a public bus service) is limited by law and the contract itself.

The ECJ stated that a public service concession is ostensibly the same type of contract as a public service contract. This is because they are both contracts for pecuniary interest, made in writing between a service provider and one or more contracting authority, and with the object of providing a service. However, the difference between them lies in the nature of the consideration for providing the service. The ECJ made the following distinction:

• In a public service contract, consideration is paid directly by the contracting authority to the service provider;
• In a public service concession, the consideration will be a right to exploit the service, with or without an additional payment from the contracting authority to the service provider.

The ECJ therefore held these distinctions concern the assumption of risk. In particular, a public service concession is a contract where the service provider assumes the risk of operating the service. However, if the risk of operating the service is not transferred to the service provider, the contract will be a public service contract.

While this assumption of risk can be very limited to begin with, the ECJ clarified that the contracting authority must ultimately transfer all, or at least a significant share, of the risk of providing the public service if the contract is to be a public service concession.

As a general principle, the ECJ concluded that the question of classifying the type of contract is up to the national court to assess, based on whether a significant share of the risk has been passed from the contracting authority to the service provider.

However, by way of guidance the ECJ expressed the view that the relevant risk must be one of exposure to market forces rather than any other identifiable risk. The ECJ referred the case back to the Latvian Supreme Court to determine the classification of the contract.

Although the ECJ's ruling relates to the interpretation of the Utilities Directive, in our view it is likely this guidance would be applied equally by the national courts to the Public Sector Directive (Directive 2004/18). Therefore, the clarification and guidance provided by the ECJ on the distinction between a public service contract and a public service concession will be particularly useful for contracting authorities when classifying contracts and determining whether or not a contract is subject to the Public Contracts Regulations 2006 (as amended).

Elizabeth Gibson is a partner at Ashfords. She can be contacted on 01392 333802 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..