Community benefits in public procurement

APPENDIX 6: LEGAL FRAMEWORKS - CASE LAW

A6.1 Introduction to Case Law

There have been some important cases decided in the European Court of Justice concerning social clauses in public contracts which have had a bearing on the new Consolidated Directive and which continue to develop the shape of the law as it is interpreted by the national courts. Not all the cases are easy to reconcile with each other or with current European Commission guidance.

A6.1.1 C-31/87 Gebroeders Beentjes B.V. v The State (Netherlands):

In Beentjes, ¹¹³ the European Court of Justice ruled that a condition of contract performance wich required the successful contractor to employ long-term unemployed persons could be compatible with the procurement directives if it complies with all the relevant provisions of Community law, in particular the principle of non-discrimination, and is mentioned in the contract notice. The ECJ stated that such a condition has no relation to: (a) the pre-selection criteria applied at PQQ stage which is aimed at verifying a contractor's suitability relating to its economic and financial standing and its technical knowledge and ability; and (b) the award criteria based on MEAT. Nevertheless, The ECJ held that a condition in a procurement contract requiring the employment of long-term unemployed persons would be acceptable if it was non-discriminatory, both directly and indirectly, in the light of all the circumstances of the case.

A6.1.2 C-225/98 Nord-Pas-de-Calais Region (Commission v the French Republic)

In Nord-Pas-de-Calais Region the contracting authority had included in its contract notices a reference to the ability of the contractors to combat local unemployment as an award criterion ( i.e. in relation to MEAT). The Commission attempted to differentiate the case from Beentjes, arguing that while employment-related matters may be regarded as a condition of contract performance, such matters could not be characterised as an award criterion. The ECJ rejected the Commission's argument, holding that contracting authorities could use such an award criterion provided that it was consistent with the fundamental principles of Community law, in particular the principle of non-discrimination; and it was expressly referred to in the contract notice. However, as the Commission had not presented an argument to the effect that the criterion was discriminatory or that it had not been published in the contract notice, its complaint on this point was rejected.

Rather than referring to the criterion as one relating to local unemployment, the judgment refers more vaguely to " the campaign against unemployment". As such the ECJ did not say that a local labour condition was compatible with the directive.

The Commission argues at Section 1.4.2 of its Interpretative Communication on social considerations in public procurement that such an award criterion can only be applied as an "additional criterion" where the MEAT assessment of the bids on a purely economic basis has revealed "two or more economically equivalent tenders".

The judgment and the conclusions that the Commission adopted from it should be treated very carefully. The court's reasoning in the case is open to criticism. It relied on Beetjes even though the ECJ did not suggest in Beetjes that employment matters could be characterised as award criteria. The idea contained in the Commission's Interpretative Communication of a second type of award criteria which is non-decisive, but which can be used to decide when bids are otherwise equal, is inherently contradictory. While that argument was advanced by the French Government in this case, the court did not approve it as such.

A6.1.3 C-513/99 Concordia Bus Finland (Concordia Bus Finland Oy Ab (formerly Stagecoach Finland Oy Ab) v (1) Helsingin Kaupunki (2) HKL-Bussiliikenne (2002))

This judgment is interesting in that it appeared to acknowledge that a contracting authority was entitled to include environmental considerations in its award criteria. Firstly, the ECJ was clear that award criteria need not be purely economic in nature:

"Article 36(1)(a) [of Directive 92/50] cannot be interpreted as meaning that each of the award criteria used by the contracting authority to identify the economically most advantageous tender must necessarily be of a purely economic nature. It cannot be excluded that factors which are not purely economic may influence the value of a tender from the point of view of the contracting authority." ¹¹⁴

The ECJ further held that the principle of equal treatment does not preclude the taking into consideration of criteria connected with protection of the environment, such as those at issue in the main proceedings. On this point the judgment states:

"In the light of … Article 6 EC, which lays down that environmental protection requirements must be integrated into the definition and implementation of Community policies and activities, it must be concluded that Article 36(1)(a) of Directive 92/50 does not exclude the possibility for the contracting authority of using criteria relating to the preservation of the environment when assessing the economically most advantageous tender." ¹¹⁵

The judgment lays down the conditions under which such criteria may be used. Firstly, it sets out that "the criteria adopted to determine the economically most advantageous tender must be applied in conformity with all the procedural rules laid down in Directive 92/50, in particular the rules on advertising". ¹¹⁶ Criteria must also comply with the fundamental principles of EU law, in particular the principle of non-discrimination. The judgment concludes that a contracting authority may take into account ecological criteria provided that:

• they are linked to the subject-matter of the contract;
• do not confer an unrestricted freedom of choice on the authority;
• are expressly mentioned in the contract documents or tender notice;
• comply with all the fundamental principles of Community law, in particular the principle of non-discrimination. ¹¹⁷

A6.1.4 C-448/01 - (1) EVNAG (2) Wienstrom GMBH v Republic of Austria (2003)

In EVN the ECJ confirmed the Concordia Bus Finland case judgment, in particular the fact that "Directive 92/50 cannot be interpreted as meaning that each of the award criteria used by the contracting authority to identify the most economically advantageous tender must necessarily be of a purely economic nature" . Therefore, ecological criteria could be taken into consideration under the conditions laid out in the Concordia Bus Finland case. The particular criterion used in this case, requiring that the electricity supplied under the contract be produced from renewable energy sources, was acceptable as a matter of broad principle. Provided the criteria comply with the Treaty principles, contracting authorities are free to choose both their award criteria and the weightings attached to them, provided that the weightings enable an evaluation of the most economically advantageous tender to be made.

However, the ECJ held that the actual criterion used was not permissible on the basis that it infringed, for a number of reasons, the principle of equal treatment and transparency. This included the premise that "an award criterion which is not accompanied by requirements which permit the information provided by the tenderers to be effectively verified is contrary to the principles of Community law in the field of public procurement". The accuracy of the information sought from tenderers must be capable of being verified so as to preserve the objectivity and transparency of the procedure.

• In the case, which concerned a procurement of electricity from sustainable sources for the regional administration's office buildings in Carinthia, points were given for the amount of excess supply - above the needs of the offices - that the suppliers could generate, supposedly with a view to ensuring reliability of supplies. The ECJ stated in its judgment that such an award criterion was not permissible because "an award criterion that relates solely to the amount of electricity produced from renewable energy sources in excess of the expected annual consumption, aslaid down in the invitation to tender, cannot be regarded as linked to the subject-matter of the contract". ¹¹⁸ As such, the ECJ rules that award criteria which are not linked to the subject-matter of the contract were not permissible.

A6.1.5 C-234/03 Insalud (-Contse SA v Insalud (Now Ingesa) (2005))

This case concerned the procurement of the supply of home respiratory treatments and assisted breathing techniques within two provinces in Spain. Tenderers were required to have at least one office open to the public for a minimum of eight hours a day, five days a week, in the provincial capital at the time the tender was submitted. In addition to this, points were scored where the tenderer, at the time of submitting the tender, satisfied the following criteria:

• Owning at least two oxygen-producing factories situated within 1000km of the province.
• Owning at least one cylinder-conditioning plant and at least one oxygen-bottling plant situated within 1000km of the province.
• The existence of offices open to the public for certain minimum hours in three particular towns in the province.

The ECJ ruled that such provisions were discriminatory and were not justified by imperative requirements in the public interest. A contractual undertaking to have an office available throughout the life of the contract would not have been prejudicial in the same way. It was felt that to have those offices available at the time of the tender was disproportionate, and favoured those tenderers who were already locally established in the marketplace. Similarly, the existence of production, conditioning and bottling plants in the region would require a substantial investment on the part of any tenderer and on the court's investigation was not essential for the delivery and performance of the contract.

There is a further ruling in the judgment on a feature of the award criterion relating to annual production capacity levels, which gave more points to a tenderer depending on how high its absolute production levels were. The court rules that this criterion could not be regarded as linked to the objective of the contract, even if it was said to be necessary to guarantee reliability of supplies, because points were given for production levels way in excess of those required under the contract. On this point the judgment states "the evaluation criteria relating, in this case, to the award of extra points for an ever-increasing production capacity, cannot be regarded as linked to the objective of the contract and even less as suitable for ensuring that it is attained". ¹¹⁹

A6.1.6 C-21/88 Du Pont de Nemours Italiana SpA v Unità Sanitaria Locale No. 2 Di Carrara [1991] 3 CMLR 25; Laboratori Bruneau Srl v Unità Sanitaria Locale RM/24 De Monterotondo [1991] 1 CMLR 707

In this case Italian legislation required all public bodies to obtain at least thirty percent of their supplies from undertakings established in the Mezzogiorno region as a reserved quota. In accordance with this law a local health authority publichsed a contract notice for the supply of radiological films and liquids. The health authority divided the contract into two lots: the first, which was equal to 30% of the total amount, was reserved to undertakings established in the Mezzogiorno region, and the second lot was for the rest of the supplies. Du Pont de Nemours Italia challenged the procurement on the ground that it had been excluded from the tendering procedure for the first lot because it was not established in the Mezzogiorno region. The ECJ held that the Italian legislation discriminated against products originating in other Member States and, consequently, violated the EC Treaty.

A6.1.7 C-3/88 EC Commission v Italy [1991] 2 CMLR 115

Italian legislation dictated that only companies in which all or a majority of share capital was in public ownership could be awarded certain contracts involving the purchase of equipment, supplies and design of some data-processing and technical management systems.

The ECJ held this legislation to be discriminatory in that restricting tenders for public works to state controlled organisations discriminated against non-Italian State controlled organisations. Consequently, the legislation wasfound to be contrary to the EC Treaty, as well as the Directive in force at that time which coordinated the procedures for the award of public supply contracts.