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Financing Services of General Economic Interest pp 161–181Cite as

The Commission’s Modernisation Agenda for Procurement and SGEI

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Part of the book series: Legal Issues of Services of General Interest ((LEGAL))

Abstract

This chapter focuses on the recent novelties introduced by the ‘Almunia’ Package in the regulation of activities at the intersection of the EU rules on State aid, public procurement and the financing of SGEI. Taking the uncertainties left by the fourth Altmark condition as the point of departure, this chapter describes and critically appraises the position of the European Commission regarding the use of procurement procedures as a device to exclude the existence of State aid or, in case it exists, to contribute to its compatibility with the internal market and, at any rate, as a mechanism of control of contracting entities’ ‘market’ behaviour. This chapter also stresses that there may be a disconnection between the two legs of the modernisation agenda, in that the reform of public procurement rules currently underway may diminish the effectiveness of the recent SGEI ‘Almunia’ reform or, in some instances, even be in frontal clash with some of its basic assumptions—which may call for a major revision of a system of oversight of public expenditure that is in crisis.

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Notes

  1. 1.

    Case C-280/00 Altmark Trans GmbH v Nahverkehrsgesellschaft Altmark GmbH [2003] ECR I-7747.

  2. 2.

    For further commentary on the relevance of Altmark from a public procurement perspective, see the rest of the contributions to this book and, particularly, Clarke’s. See also Schnelle 2002; Chérot 2007, pp. 196–202; Dethlefsen 2007; Szyszczak 2007, pp. 193–194. See also Arrowsmith 2005, p. 224; Bartosch 2002; Bovis 2005; Buendía Sierra 2008, pp. 210–214 and Karayigit 2009. With reference to a broader analytical framework, see also Sauter and Schepel 2009, pp. 189–191, 207–209. More recently, see Szyszczak 2011 and Szyszczak 2013.

  3. 3.

    The expression ‘Almunia Package’ refers to the instruments adopted by the European Commission between December 2011 and April 2012 for the modernisation of SGEI rules. These are: (1) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, A Quality Framework for Services of General Interest in Europe, Brussels, 20.12.2011, COM(2011) 900 final (the ‘SGEI Quality Framework’); (2) the Commission Decision of 20 December 2011 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest [OJ 2012/21/EU] (the ‘SGEI Compensation Decision’); (3) Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest [OJ 2012/C 8/02] (the ‘SGEI Compensation Communication’); (4) Communication from the Commission—European Union framework for State aid in the form of public service compensation (2011) [OJ 2012/C 8/03] (‘2011 SGEI Framework’); and (5) Commission Regulation (EU) No 360/2012 of 25 April 2012 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest [OJ 2012/L 114/8] (the ‘SGEI de minimis Regulation’).

    As indicated by the Commission, the SGEI Compensation Communication clarifies key concepts related to State aid for SGEIs, while the SGEI Compensation Decision and the 2011 SGEI Framework specify the conditions under which State aid in the form of public service compensation is compatible with the TFEU. The de minimis Regulation establishes a threshold below which compensation is deemed no aid.

  4. 4.

    EU public procurement rules are currently under reform. The European Commission published proposals for new substantive public procurement Directives in December 2011, which are currently being negotiated and should be adopted before the end of 2012. All information regarding reform proposals is at http://ec.europa.eu/internal_market/publicprocurement/modernising_rules/reform_proposals_en.htm (last accessed 28 May 2012).

  5. 5.

    On the scope of this exception, see Buendía Sierra 1999, pp. 271–360; Maillo 2007, pp. 604–612; Prosser 2005, pp. 132–141; and Sauter and Schepel 2009, 164–192. Cf. Baquero Cruz 2005, pp. 209 and 212.

  6. 6.

    For some additional discussion on the lack of clarity of the Altmark conditions and the connection with public procurement rules, see Hervey 2011, pp. 204–210; and Schweitzer 2011, pp. 28–42.

  7. 7.

    Case C-280/00 Altmark at para 93, emphasis added. This is the wording chosen by the Commission in its design of the ‘Modernisation Package’, and as such is presented in the SGEI Compensation Decision, at recital (4) and in the 2011 SGEI Framework at fn 2.

  8. 8.

    Case C-280/00 Altmark at para 95, emphasis added. See also operative part of the Judgment.

  9. 9.

    Along the same lines, see the contribution by Buendía Sierra and Panero Rivas to this book, where they indicate clearly that the purpose is not necessarily to achieve a result derived from a perfect competition model but rather that ‘if the selection is carried out correctly it should guarantee that the most efficient option is selected (both in terms of price and quality)’ (emphasis added). Such most efficient option must not necessarily involve ‘least cost to the community’ in absolute terms (ie if compared against a theoretical, ideal standard), but ‘lowest available competitive cost to the community’. That is particularly true, at least, in certain sectors such as public service broadcasting, where the Commission found that ‘it was possible for an undertaking to receive State aid which exceeded the costs of an ideal, efficient undertaking, without there being overcompensation to invoke the State aid rules’ Decision N46/2007 – BBC Digital Curriculum, of 1 October 2003; see the comment by Szyszczak 2011, p. 307.

  10. 10.

    Case T-289/03 British United Provident Association Ltd (BUPA) and Others v Commission of the European Communities [2008] ECR II-81, at para 249 (emphasis added). Along those lines, with an emphasis on the efficiency of the SGEI provider, see Santamato and Pesaresi 2004. In my view, however, the condition should be better understood in the terms of Opinion of Advocate General Jacobs of 30 April 2002 in Case C-126/01, GEMO at para 122, where he clearly explained that the purpose is basically to ensure that, by running adequate procurement procedures, the terms of the contract reflect normal market conditions.

  11. 11.

    In this regard, it is important to stress that ‘value for money’ is not even seen as one of the main goals of the EU public procurement rules by main academic commentators. See Arrowsmith 2002, who clearly holds ‘that it is not an objective of the directives to ensure value for money in procurement’—as reiterated recently in Arrowsmith 2012, p. 74. Without going that far, I have personally indicated that competition (ie value for money) and efficiency of the procurement processes are key goals of public procurement regulations, and that even if ‘public procurement is not designed to prevent distortions of competition between undertakings’, ‘the attainment of the competition goal requires developing a pro-competitive public procurement system that avoids publicly-generated distortions of competition’—which, however, do not require an intervention in the market of a quasi-regulatory nature to impose perfect competition, since it would result in artificially created, unsustainable competition. For discussion on the goals of procurement, and further references, see Sanchez Graells 2011, pp. 97–110.

  12. 12.

    Again, in substantially coincidental terms, see the contribution by Buendía Sierra and Panero Rivas.

  13. 13.

    Indeed, if properly designed, all public procurement devices can even be made pro-competitive and ensure effective competition for the contracts, as discussed at length in Sanchez Graells 2011, pp. 227–369.

  14. 14.

    See Decision N 475/2003—Ireland, Public Service Obligation in respect of new electricity generation capacity for security of supply, of 16 December 2003 at para 57, where it was stressed that ‘the Commission has to verify whether the characteristics of the procurement procedure at stake are such as to actually “allow for the selection of the tenderer capable of providing those services at the least cost to the community”. This is a material analysis which is different and goes beyond the mere respect of the applicable public procurement rules’ (emphasis in the original).

  15. 15.

    See Decision N 46/2007—Welsh Public Sector Network Scheme, of 30 May 2007 at para 18, where the Commission changes approach and is satisfied that ‘The procurement procedure is compliant with the public procurement directives and suitable for achieving best value for money [because] the award is made in line with the national legislation transposing the EU procurement directives’. See also Tosics and Gaál 2008, p. 18: ‘… in the case of pure procurement transactions, the use of a competitive procurement procedure which is in line with the EU public procurement rules and thus suitable to achieve best value for money, i.e. fair market price for the goods, services or infrastructure purchased, creates a presumption that no State aid will be involved to the economic operator concerned.’.

  16. 16.

    SGEI Quality Framework, p. 3 (emphasis added).

  17. 17.

    SGEI Compensation Communication, at para 65 (emphasis added).

  18. 18.

    SGEI Quality Framework, p. 6 (emphasis added). However, I tend to agree with the scepticism shown by Buendía Sierra and Panero Rivas in this book, where they clearly state that ‘willingness to accept award criteria other than those that are purely economic is somewhat surprising given the strict economic criteria that underpin the whole package’. My impression is that the European Commission retains significant discretion to interpret the ‘certain conditions’ under which the most economically advantageous tender award criterion is acceptable.

  19. 19.

    Which seems to imply that cost factors should control the award of public contracts in this area (over quality concerns)—whereas in other parts of the ‘Almunia Package’, non-cost concerns are claimed to be encouraged. Cf. SGEI Quality Framework, p. 7, where it is expressly emphasised that the reform of the rules on public procurement and concessions try to ‘encourage a quality approach’, or that the reform ‘will also help to ensure that contracts are not awarded on the basis of the lowest price only but adequately reflect increased environmental and societal considerations’.

  20. 20.

    On the issue of below-thresholds procurement, see Risvig Hansen 2012 and, for a comparative perspective, the collective book on the same topic edited by Caranta and Dragos (eds) 2012.

  21. 21.

    For a critique, and a claim for a more substantive, material appraisal of procurement procedures to exclude the existence of State aid, see Sanchez Graells 2012.

  22. 22.

    Similarly, Merola 2011; Sauter 2012; Sinnaeve 2012 and Buendía Sierra and Muñoz de Juan 2012.

  23. 23.

    Buendía Sierra and Panero Rivas advance a coincidental analytical approach under the new rules, where they suggest evaluating whether non de minimis measures can benefit from the Altmark criteria as specified by the Commission in the new Communication before proceeding to their analysis under the SGEI Compensation Decision and the 2011 SGEI Framework.

  24. 24.

    SGEI Compensation Communication, at paras 63 and 64.

  25. 25.

    Again, on the mandatory application of the general principles of TFEU to all procurement activities and the positive obligations that it implies, see Risvig Hansen 2012 in totum. Regarding the type of arrangements that must be considered a ‘contract’ and, therefore, subjected to procurement rules, see Skovgaard Ølykke 2011. Cf. with Clarke’s concluding remarks in his contribution to this book, where he considers that ‘the contracting authority will need to choose between implementing a public procurement exercise and adopting the more subjective compensation benchmarking mechanism when considering the financing of the [SGEI]’. In my view, in most cases, it will not be optional at all.

  26. 26.

    SGEI Compensation Communication, at para 63 and fn 88.

  27. 27.

    For a similar criticism, see Geradin 2012, pp. 5–7.

  28. 28.

    2011 SGEI Framework at para 19 (emphasis added).

  29. 29.

    With similar concerns, see Heuninckx 2009.

  30. 30.

    Such an approach is consistent with the understanding that these rules hold a common control device, ie that competition for a public contract is an indication of fair and equal market access in accordance with the procurement rules and, likewise, as regards State aid, of a fair balance of the obligations imposed and the economic advantages granted to the public contractor. However, a less formalistic approach to the analysis of procurement is desirable; see Buendía Sierra 2008, p. 211.

  31. 31.

    As regards the importance of the analysis of ‘consideration’ in public contracts to exclude the existence of a gratuitous advantage to the government contractor, see Winter 2004, pp. 487–501.

  32. 32.

    Opinion of AG Jacobs in case C-126/01 GEMO at para 122 (emphasis added). See also Opinion of Advocate General Fennelly of 26 November 1998 in case C-251/97 France v Commission at para 19.

  33. 33.

    In similar terms, Doern 2004, p. 117; Arrowsmith 2005, pp. 224–227.

  34. 34.

    Again, for criticism and a claim for a more substantive analysis, see Sanchez Graells 2012.

  35. 35.

    For further discussion on how to choose a procurement procedure to prevent restrictions of competition, see Sanchez Graells 2011, pp. 234–246, where I adopted a less aggressive approach to the choice of procedure than the one included in the SGEI Compensation Communication, and submitted that ‘contracting authorities are under an obligation to avoid restrictions of competition derived from the choice of procurement procedures. This obligation should be discharged by having recourse to open or restricted procedures when not doing so would be disproportionate if compared to the administrative complications or the increased costs implied by the imposition of a more competitive procurement procedure—ie, when the negative effects of the restriction of competition associated with the conduct of the tender by procedures other than open or restricted ones are larger than the additional costs associated to such competitive procedures’.

  36. 36.

    SGEI Compensation Communication, at para 66 (footnotes omitted).

  37. 37.

    Buendía Sierra & Panero Rivas also consider that the Commission ‘seems to make stricter the conditions for a measure to escape its classification as State aid by fulfilling the fourth Altmark condition’.

  38. 38.

    SGEI Compensation Communication, at para 67 (emphasis added).

  39. 39.

    This also generates uncertainty regarding the use of competitively tendered SGEI contracts’ conditions as a benchmark to appraise the potential existence of excessive compensation. More specifically, the 2011 SGEI Framework indicates that: ‘Where the provision of the SGEI is connected with a substantial commercial or contractual risk, for instance because the compensation takes the form of a fixed lump sum payment covering expected net costs and a reasonable profit and the undertaking operates in a competitive environment, the reasonable profit may not exceed the level that corresponds to a rate of return on capital that is commensurate with the level of risk. That rate should be determined where possible by reference to the rate of return on capital that is achieved on similar types of public service contracts awarded under competitive conditions (for example, contracts awarded under a tender)’, 2011 SGEI Framework at para 37. However, if not all tenders are actually acceptable for the Commission (depending on choice of procedure, awarding criteria, etc.) it may be difficult to find valid benchmarks to be used with a sufficient degree of certainty.

  40. 40.

    SGEI Compensation Communication, at para 68.

  41. 41.

    For discussion of the possibility of obtaining competitive results with only one contractor, see Keisler and Buehring 2005. See also Sanchez Graells 2011, pp. 341–342.

  42. 42.

    2011 SGEI Framework at para 49 (footnote omitted, emphasis added).

  43. 43.

    However, it is to be stressed that the absence of a tendering procedure does not preclude a finding that State aid and other competition rules have not been violated; see Case T-17/02 Olsen v Commission [2005] ECR II-2031 at paras 237–239, confirmed on appeal by the ECJ, Case C-320/05 P Olsen v Commission and Spain [2007] ECR I-131.

  44. 44.

    Nonetheless, the actual potential for simplification and flexibility of the Commission’s proposal has been rightly criticised by Arrowsmith 2012 passim.

  45. 45.

    Commission, Green Paper on the modernisation of EU public procurement policy—Towards a more efficient European Procurement Market. COM(2011) 15 final, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:DKEY=556316:EN:NOT (last accessed 28 May 2012).

  46. 46.

    Green Paper on the modernisation of EU public procurement policy, p. 5. See also Communication from the Commission on theApplication of the EU State aid rules to compensation granted for the provision of services of general economic interest [2012] C8/4, paras 63–68.

  47. 47.

    Ibid, para 15.

  48. 48.

    Ibid, para 39.

  49. 49.

    Ibid, paras 45–46.

  50. 50.

    For a more detailed analysis, see Sanchez Graells 2012.

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  1. Law School, University of Hull, Hull, HU6 7RX, UK

    Albert Sanchez Graells

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    Erika Szyszczak

  2. , Faculty of Law, Radboud University, Comeniuslaan 4, Nijmegen, 6525 HP, Netherlands

    Johan Willem van de Gronden

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Sanchez Graells, A. (2013). The Commission’s Modernisation Agenda for Procurement and SGEI. In: Szyszczak, E., van de Gronden, J. (eds) Financing Services of General Economic Interest. Legal Issues of Services of General Interest. T.M.C. Asser Press, The Hague, The Netherlands. https://doi.org/10.1007/978-90-6704-906-1_9

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