The ECJ handed down judgment in Case C-220/05, Auroux, on 18 January 2007 following a referral from the Tribunal administratif de Lyon (Tribunal).

Background

The Municipal Council of Roanne (CA) authorised its Mayor to enter into a development agreement (Agreement) with Société d’équipment du department de la Loire (SEDL) for the phased construction of a leisure centre. The first phase was to include the construction of a multiplex cinema and commercial premises intended to be transferred to third parties as well as works to be transferred to the CA (including car parks/access roads). The subsequent phases of development included commercial and service premises. SEDL were responsible for a range of functions going beyond the mere construction of the works and included procuring funding, organising the land and overall management of the project. The CA would provide consideration both for the car park and contributions to the construction costs. SEDL would also receive revenue from third parties as consideration for the transfer of works to those third parties.

SEDL was a semi-public company whose capital included private funds. It was however also a contracting authority subject to the application of the procurement rules.

The Agreement was challenged and referred to the ECJ for a preliminary ruling on the following points:

  •  Whether an agreement between two contracting authorities to deliver works to meet the needs of the first authority constitutes a “public works contract”.
  • The method of determination of the value of an agreement in light of the thresholds in Article 6 of Directive 93/37/EEC (Directive).
  • Is an agreement exempt from the procedures set out in the Directive on the basis that it is concluded between two contracting authorities in accordance with national law?

The ECJ confirmed that, regardless of its classification under national law, the Agreement was a public works contract under the Community law definition. In reaching its conclusion the ECJ rejected the arguments that because the Agreement went beyond the purpose of “the execution of works” and included other services it should fall outside the scope of the Directive. The main purpose of the Agreement, the regeneration of the local environment through the creation of a leisure centre, was the performance of works. The service elements such as the acquisition of property, obtaining financing, procurement of architects and marketing the building were part of the completion of that work. The fact that SEDL would engage a subcontractor rather than carry out the works itself directly was considered irrelevant. As an economic operator in the market, SEDL was to be regarded as a contractor for the purposes of the Directive.

In respect of valuing the Agreement, the ECJ ruled that the total value of the works should be calculated from the perspective of a potential tenderer. Therefore the value should be taken to include not only the sums due to SEDL from the CA but also all the revenue due from third parties in consideration of the transfer of works. When valuing a contract, the ECJ ruled that the interest of potential tenderers lay in the overall value of that contract and that it would be against the spirit of the Directive to impose a limit that the value could only be determined in relation to the funds due to be received from the CA. The application of this overall value rule will result in greater numbers of development agreements falling within the scope of the procurement rules.

The ECJ rejected the arguments that exemptions exist where the CA, in accordance with national law, entered into the development agreement with another contracting authority on the basis that the latter contracting authority would in turn apply the procurement procedures to award any subsequent contracts. The ECJ expressly stated that national exemptions could not be relied on and the only applicable exemptions were those explicitly set out in the text of the Directive. Given that SEDL was a semipublic company, whose capital included private funds, it was not possible to argue that the ECJ’s earlier ruling in Teckal (1999) was applicable. The result establishes that when a contracting authority enters into a contract with another contracting authority equally subject to the procurement rules, that does not absolve the first contracting authority from having to comply with the procurement rules. Otherwise, the application of a series of successive contracts could be used to avoid the financial thresholds set out in the procurement rules.

Conclusion

The ECJ judgment in Auroux has important implications for contracting authorities with respect to development agreements. Practically speaking, full transparent tendering processes are required even where an agreement is between two contracting authorities, and thus where the contractor is itself a body subject to the procurement rules. The overall value rule will also result in more contracts falling within the scope of the procurement rules.