Over the past few years, the courts have considered whether arrangements between public bodies should be subject to the procurement rules on many occasions. Normally the focus is on whether the arrangements amount to an 'in-house' award.
In the present case, the ECJ firstly noted that if, under national law, the entity in question, Tragsa, is required to undertake activities, or it does not have a choice as to the tariffs for its services, there is no contract and therefore the procurement rules do not apply.
The ECJ then found that in any event, the 'in-house' award concept should be considered.
Essentially, this concept provides that the procurement rules do not apply to either direct internal awards (i.e. a direct award to a department within the contracting authority) and where, although the body is legally distinct from the awarding authority, it may still be considered to be an 'in-house' arrangement due to the close relationship with the awarding authority.
There are strict limits around this wider concept of 'in-house' award and it is only applicable where:
(1) the contracting authority or authorities exercise control over the contracting entity which is similar to that which it exercises over its own departments; and
(2) the contracting entity carries out the essential part of its activities with the contracting authority/authorities that control it.
In the present case, the ECJ commented that it appeared (subject to confirmation by the national court) that 99% of the share capital of Tragsa is owned by the Spanish State with the remaining 1% being owned by four Autonomous Communities. It also appeared that it is required to carry out works for public bodies, it is not free to set tariffs and around 55% of its activities was for the Autonomous Communities and 35% for the State.
In these circumstances, the ECJ found that the first condition was fulfilled (subject to confirmation of the ECJ's understanding of the factual situation by the domestic court) particularly considering Tragsa was required by law to carry out orders of the Autonomous Communities and was not free to fix tariffs for its activities.
As regards the second condition, this was found to be satisfied on the basis that 90% of its activities are for the State and the Autonomous Communities.
This case provides a useful summary of the steps to be taken when analysing whether the procurement rules apply to arrangements between public bodies. It reminds us that the first step should be to consider whether there is a contract in existence at all and in any event, whether the arrangement could be seen as an 'in-house' award.
(*) Case C-295/05, Reference for a preliminary ruling from the Tribunal Supremo, Sala de lo Contencioso-Administrativo, by order of that court of 1 April 2005 in Asociacion Nacional de Empresas Forestales v Transformacion Agraria S.A (TRAGSA) and Administracion del Estado, Judgment of 19 April 2007