Summary

In Student Transport Scheme Ltd ("STS") v Minister for Education and Skills, the Court of Appeal (the "Court") dismissed STS's appeal finding that the arrangement between the Minister for Education and Skills (the "Minister") and Bus Éireann for the supply of the school transport services was not a contract concluded in writing for the purpose of the EU procurement rules and, therefore, the Minister was under no obligation to engage in a tender process for the provision of those services during the period in question (i.e. the school year 2011-2012).

Background

The scheme for the school transport service was initially agreed between the Minister and CIE (the holding company for Bus Éireann) in 1967 by way of letter, which was supplemented by a more detailed agreement in 1975. The scheme, which was run on a cost recovery basis, was entrusted to Bus Éireann in 1996. While the scheme had evolved over the years, the Court noted that it remained fundamentally the same as that agreed in 1967.

High Court Proceedings

In October 2011, STS commenced proceedings in the High Court where it alleged that a contract in writing for the supply of the school transport service for the school year 2011-2012 existed between the Minister and Bus Éireann. STS argued that, under the Public Procurement Directive 2004/18/EC (the “2004 Directive”), the Minister was obliged to put this contract out to tender.

The High Court rejected STS's arguments and made a number of findings (see Student Transport Scheme Ltd. v. Minister for Education and Skills [2012] IEHC 425.), including:

a) STS had not established that the contract was for "pecuniary interest", an essential element under Article 1(2)(a) of the 2004 Directive for a contract to be considered a "public contract" and for EU procurement rules to apply;

b) that STS had failed to establish that there was an ordinary commercial contract between the parties, another essential element for EU procurement rules to apply derived from case law of the Court of Justice of the European Union ("CJEU");

c) that the case law of the CJEU defined a "contract" for the purpose of the 2004 Directive as requiring “the normal conditions of a commercial offer made by [the service provider]” to be present; and

d) the fact that a service provider was obliged to provide a service and to do so for a fixed price was not sufficient of itself to exclude the possibility of a contract for the purpose of the 2004 Directive, according to the case law of the CJEU.

Court of Appeal Proceedings

At the outset, the Court outlined the provisions of Article 1(2)(a) of the 2004 Directive which defines “public contracts" as: “[C]ontracts for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities and having as their object the execution of works, the supply of products or the provision of services within the meaning of the Directive.” The Court observed that CJEU case law confirmed that all elements of Article 1(2)(a) must be satisfied for the EU procurement rules to apply. The Court set out the following four questions to be dealt with in the appeal, answering or giving an opinion on all four. The Court noted, however, that failure to answer one of the questions in the affirmative could be an independent ground for STS's challenge to fail.

1. Was there a contract in writing between the Minister and Bus Éireann within the meaning of Article 1 of the 2004 Directive?

The Court, while accepting that the scheme agreement was "in writing" for the purposes of the 2004 Directive, took a holistic view of the "concluded in writing" requirement and did not consider that it was satisfied in this case. It likened the agreement to "an administrative instruction… to perform the service with which CIÉ duly complied." This was despite the fact that the agreement had been described as a "contract" by the State and Bus Éireann in the past. Applying the CJEU's decision in Commission v. Ireland (Case C-523/03 [2007] ECR I-11353), the Court was of the view that there was, at most, an administrative arrangement between two statutory bodies providing for some of form of financial contribution, and that this in itself is insufficient to constitute a "contract concluded in writing" for the purposes of the 2004 Directive.

2. Was any such contract for “pecuniary interest” in the manner in which this term is generally understood from the relevant case law?

On the issue of whether the agreement could be considered to be for "pecuniary interest" for the purpose of the 2004 Directive, the Court overturned the High Court's determination on this point. The High Court had decided that there was no element of "pecuniary interest" because the agreement was operated on a cost recovery basis and did not provide for any element of profit. The Court, however, applied the CJEU judgment in Azienda Sanitaria Locale di Lecce (Case C-159/11) (which was delivered some months after the decision of the High Court), and ruled that "a contract providing for remuneration on a cost recovery basis does not cease to be a contract for pecuniary interest on that account" and, therefore, is not excluded from coming within the scope of the 2004 Directive.

3. Was any such contract one of indefinite duration which ante-dated the operation of the EU’s public procurement regime?

In addressing this question, the court reaffirmed that it is undisputed "that a contract of indefinite duration falls outside the scope of the public procurement regime." In applying the case law of the CJEU, the Court stated that a contract of indefinite duration which ante-dates the coming into force of the EU procurement regime which has not been altered in any material way will not come within the scope of the 2004 Directive. The Court looked back six months (i.e. the extent of the relevant limitation period) prior to the commencement of the present proceedings (to April 2011) and found that no material changes had been made within this time period. It noted that, although, there were some minor pricing amendments, these changes did not shift the economic balance in favour of the operator and were not material. The Court concluded that this was a contract of indefinite duration and, therefore, one that fell outside the scope of the 2004 Directive.

4. Whether any such contract was really a unilateral administrative measure solely creating obligations for Bus Éireann within the meaning of the case law of the CJEU?

The Court characterised this question as the Asemfo (Case C-295/05 [2007] E.C.R. I-2999)/ Correos (Case C-220/06 [2007] E.C.R. I-12175.) exception which sets out: "[T]hat contractual arrangements between State bodies which involve the entrusting of functions to a State body in circumstances where the latter is in no position to refuse and which arrangements do not provide for normal or ordinary commercial arrangements between the parties generally fall outside of the public procurement regime." The Court stated that the High Court had already made a finding of fact (which the Court could not question) that the scheme had been entrusted to CIE. On the question of ordinary commercial arrangements, the Court stated that there was no evidence that Bus Éireann enjoyed the normal commercial freedoms to negotiate terms, or terminate the contract for its own commercial reasons. The Court, however, did not feel it was necessary to make a determination as to whether the exception applied in this case in light of the appeal failing on other grounds.

Comment

This case confirms the position that a contract that operates on a cost recovery basis can be a contract for pecuniary interest and, therefore, is not automatically excluded from coming within the scope of the EU procurement rules. It also reaffirms the position that minor amendments to a contract of indefinite duration that existed prior to the coming into force of the EU procurement regime will not bring that contract within the scope of the procurement Directives.