Op-Ed: “Slow but Steady: The Expansion of EU Law on Procurement in Special Sectors” by Daniele Gallo and Giacomo Biagioni
On 28 October 2020, the Court of Justice (CJ – Fifth Chamber) rendered its ruling in Pegaso and Sistemi di Sicurezza (C‑521/18) in the form of a reference for a preliminary ruling made under Article 267 TFEU by the Tribunale amministrativo regionale per il Lazio (Regional Administrative Court, Lazio, Italy) by a decision of 4 July 2018.
There is no doubt that the judgment in Pegaso and Sistemi di Sicurezza will be at the core of future case law of the CJ regarding the content, the scope and the extent of Directive 2014/25 on procurement by entities operating in the water, energy, transport and postal services sectors. The importance of the case stands first and foremost for the very similar pending case Irideos (C‑419/19).
Pegaso and Sistemi di Sicurezza concerned a procedure launched by Poste Italiane for awarding a contract in matters of caretaking, reception and access control services for the premises of Poste Italiane and of other companies in its group. The referring court submitted several questions, amongst which doubts were raised as to the fact that such a contract could fall within the scope of application of Directive 2014/25.
The judgment is relevant not ‘only’ in regard to the merits of the questions submitted to the CJ, but also for admissibility reasons. Moreover, while the CJ’s ruling mirrors to a large extent, on the merits, the AG Bobek’s Opinion of 23 April 2020 (see this News update), it fully departs from AG Bobek’s reasoning on the issue of admissibility insofar as the AG, unlike the Court, found there was no need to answer any of the questions posed by the referring court.
There are several reasons why, in view of the developments taking place after the introduction of the reference, the approach taken by the CJ might not be considered immune to criticism. What we can infer from the established CJ’s case law on the admissibility of preliminary references is as follows: (a) the preliminary ruling procedure can be held only upon condition that there is a pending dispute before the national courts in which the CJ is called upon to give a decision; (b) should the object of the dispute disappear, the CJ must reject the referred questions as hypothetical or unrelated to an actual dispute. In this context, we argue that: firstly, it is within the remit of the CJ’s jurisdiction to assess whether or not ‘it remains validly seised’ (paragraph 41 of AG Bobek’s Opinion); secondly, the contested contract notice was withdrawn by Poste Italiane and replaced by a new contract notice for the same services, as was pointed out by Poste Italiane itself as well as the Italian Government, and is actually shown by the annulment of the contract being published in the Italian Official Journal. In those circumstances, arguably, the dispute in the main proceedings did lose its object, which means that the subject matter ceased to exist. Should then the CJ have declared inadmissible the reference under Article 267 TFEU? Stricto iure, the answer seems to be in the affirmative.
Now, the CJ, by endorsing the referring court’s idea (as well as the arguments made by the applicants and the European Commission) that there is an interest notwithstanding the withdrawal of the contract notice, puts forward a rather unconvincing stance. The EU judges underscore that the referring court, in order to be able to determine what action is to be taken on the application brought before it, ‘must first settle the question whether it has jurisdiction to hear the case’ (paragraph 30).
The CJ declares the reference admissible because, ultimately, the settlement on the Regional Administrative Court of Lazio’s jurisdiction depends on whether the contract at issue in the main proceedings was governed by one of the EU’s public procurement directives. And this was deemed essential as Italian law requires the competent court to rule on the lawfulness of the contested acts for the purposes of awarding damages and deciding who shall bear the costs (see also paragraph 49 of the AG’s Opinion). Well, this is quite surprising since, as noted by the AG, on one hand, ‘no action for damages [was] currently pending’ and, on the other, ‘the decision on costs [could not] be the only reason to justify the maintaining of the preliminary reference’ (paragraph 71).
On the merits, the ruling shall be seen as a reaction of the CJ towards approaches of domestic courts that can impair the uniform application of EU law.
The reference arose from a complex issue of domestic Italian law. Indeed, according to the case law of the Italian Corte di Cassazione, the applicability of Directive 2014/25 (and previously of Directive 2004/17) brought about the competence of administrative courts in matters of public procurement. In previous judgments (such as no 8511/2012 and no 4899/2018), the Italian Supreme Court had expressly ruled on the matter without deeming it necessary to submit requests for a preliminary ruling and considered that contracts awarded by Poste Italiane and regarding activities not directly linked to postal services were not subject either to Directive 2004/17 or to the more general rules on public procurement previously contained in Directive 2004/18.
Possibly as a reaction to such conclusions, the CJ accepted the idea that the scope of application of Directive 2014/25 can be extensively construed. According to EU judges, that scope of application encompasses contracts ‘connected with an activity which that entity carries out in the sectors listed in Articles 3 to 7 of that directive’, if that activity is ‘ancillary to the performance of activities covered by special sectors’. This is a very broad notion, as almost every activity carried out by a contracting entity may fall within its scope. Is this compatible with the idea of a directive covering special sectors? Probably yes, insofar as it implies the application of EU rules on public procurement to contracts, that could evade the scope of application of Directive 2014/24, repealing Directive 2004/18.
As a consequence of this broad notion, a contract connected to the activity carried out in one of the special sectors is considered as a contract concerning the activity carried out in that special sector. This marks a difference from the previous case law of the Court of Justice. In past cases, notwithstanding the assumption that the scope of application of Directive 2004/17 is circumscribed, the Court accepted the possibility of an enlargement of this scope of application to the detriment of more general rules contained in the Directive 2014/24 (and previously Directive 2004/18). However, in Strabag and Kostmann (C-462/03) and in Ing. Aigner (C-393/06) the Court dealt with cases concerning contracts awarded by bodies governed by public law, that would have fallen within the scope of application of Directive 2004/18, even if the applicability of Directive 2004/17 were to be excluded.
Some features of Pegaso and Sistemi di Sicurezza are clearly different: (1) the Court refuses to assess the question of the nature of Poste Italiane, confining itself to the conclusion that the company is a ‘public undertaking’ and omitting to examine whether it can also qualify as ‘a body governed by public law’ (an issue that had been widely discussed before domestic courts); (2) accordingly, a contract awarded by Poste Italiane can be subject to Directive 2014/25, but, when this is not the case, the applicability of Directive 2014/24 is uncertain; (3) this may lead to contracts awarded by such entities being governed by private law, as Italian courts held in cases concerning Poste Italiane (mentioned in the judgment at paragraph 18). The reaction of the Court of Justice to this risk is further enlargement of the scope of application of Directive 2014/25 even to contracts having no real connection to the activity carried out by the contracting entity in one of the special sectors. This amounts to a reversal of the principle that there is no room for application, in the context of Directive 2004/17 (now replaced by Directive 2014/25), of the approach known as ‘contagion theory’, as the Court held in Ing. Aigner.
This points to the need for a revision of the scope of application of Directive 2014/25 in the future, in order to prevent Member States from impairing the application of EU rules on public procurement with regard to contracts awarded by public undertakings that may have a very wide economic relevance. The inapplicability of EU public procurement rules could, in fact, ultimately entail adverse effects on free competition in the single market and allow important economic entities, closely connected to – and often controlled by – public authorities (as the example of Poste Italiane shows), to award contracts outside the framework of those rules.
Giacomo Biagioni is Associate Professor of EU law at the Social Sciences Department of the University of Cagliari.
Daniele Gallo is Jean Monnet Chair, Full Professor of EU Law at the Luiss Law Department (Rome) and Professeur invité at Université Panthéon Assas (Paris). He is the author of Functional Approach and Economic Activity in EU Competition Law, Today: The Case of Social Security and Healthcare (forthcoming, European Public Law) and is now working on a book for OUP on Direct Effect and the Nature of EU Law (due in 2022).