Draft Commission interpretative communication on concessions under Community law on public contracts

• Published date: 07 April 1999
• Official Gazette Publication: Official Journal of the European Communities, C 94, 07 April 1999

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31999Y0407(01)

Draft Commission interpretative communication on concessions under Community law on public contracts

Official Journal C 094 , 07/04/1999 P. 0004 - 0013

Draft Commission interpretative communication on concessions under Community law on public contracts

(1999/C 94/04)

This draft interpretative communication sets out the Commission's first thoughts on the subject after discussing the problems named within the two advisory committees on public contracts and taking note of contributions from the sectors concerned. It intends to consult as widely as possible. The Commission will take account, when drafting the final version of the communication, of any contribution which may be addressed to it. Any such contribution should be forwarded to it within two months of the publication of this draft in the Official Journal of the European Communities. It can also be sent by e-mail to the following address: concessions@dg15.cec.be

INTRODUCTION

1. Participation by the private sector in the financing of public investment has varied widely over time and from one country to another. Some Member States have not hesitated to entrust their major infrastructure projects to private investors (e.g. the railways in the 19th century, the urban transport networks at the beginning of the 20th century and, in some countries, large parts of the road network, redevelopment of city centres etc.).

Involvement of the private sector has declined since the first quarter of the 20th century as governments began to prefer to be directly involved in the provision and management of infrastructure and public services. Nowadays, however, it is experiencing a considerable upswing for technical and financial reasons.

2. This can be explained partly by the need for private financing for large-scale infrastructure projects such as underground railways, motorways and airports. The private sector can also, in some cases, have particular know-how or experience that is not available in the public sector (water, waste or urban transport management, for instance). In its Communication on public-private partnerships in trans-European Transport Network projects(1), the Commission said that it wanted to promote this type of partnership, particularly for certain priority projects.

The Commission regards recourse to private investment for the public infrastructure projects as a positive factor, which must be promoted while ensuring that it complies with Community law.

3. The forms taken by these partnerships between the public and private sectors vary widely from one period or Member State to another. Some countries have legislation on relationships of this kind, sometimes dating back centuries. The most common arrangement is the concession contract.

4. Public-private partnerships - particularly the concession system, which is in full spate - are of great interest for the Single Market as the economic significance of projects is often far greater than that of the biggest traditional public contracts.

5. The usefulness of additional legislation setting out the terms for opening up concessions to Community competition became apparent at the end of the 1980s with the introduction of specific arrangements for works concessions. The Court of Justice has also clarified various aspects of Community law with implications for concessions and other similar forms of public-private partnership.

6. In its Communication on public procurement(2), the Commission said that it also intended to examine other forms of public-private partnership to determine the extent to which the rules on public contracts might provide an appropriate legal framework for ensuring compliance with the rules of the Treaty while allowing these forms of cooperation to develop.

In view of the Court's case law in this field and the experience gained in examining cases in the sector of which it has taken cognisance, the Commission proposes in this interpretative communication to give its opinion on the legal arrangements applicable to concessions and other similar forms of public-private partnership given the current state of Community law. However, this text does not seek to interpret the more specific systems of the Directives adopted in different sectors.

In particular the Commission will ascertain the extent to which Council Directives 93/37/EEC of 14 June 1993 coordinating procedures for the award of public works contracts, 92/50/EEC of 18 June 1992 coordinating procedures for the award of public services contracts and 93/38/EEC of 14 June 1993 coordinating the procurement procedures of entities operating in the water, energy, transport and telecommunications sector, apply to concessions and other analogous forms of public/private partnership.

This is obviously a basic framework which will be developed. It is set out to enable the various parties (public authorities, awarding authorities, contractors, economic operators, etc.) to get a better picture of the existing rules of the game and to contribute, by applying them correctly, towards improving the operation of the European Single Market.

I. DEFINITION AND GENERAL PROBLEM OF CONCESSIONS AND SIMILAR FORMS OF PUBLIC/PRIVATE PARTNERSHIP

Public authorities in Member States are increasingly calling on the private sector to provide public services on their behalf using various procedures and on a variety of scales. In some cases cooperation of this kind is governed by the directives on public contracts, but it can also take forms, which are not covered. For example, only works concessions are covered by Directive 93/37/EEC, while other similar forms of public/private partnership do not explicitly fall within the scope of the directives on public contracts. All these forms of cooperation nevertheless have common features, and should therefore be dealt with in this communication.

The fact that service concessions and other similar forms of public/private partnership are not expressly covered by the directives on public contracts does not mean that they are exempt from the rules and principles of the Treaty, since in so far as concessions and other forms of public/private partnership are acts of State(3) involving economic activities, they are subject to Articles 52 to 66 of the Treaty and the principles set out in the Treaty or deriving from the Court's case law, particularly the principles of non-discrimination, equality of treatment, transparency, mutual recognition and proportionality.

Concessions and other similar forms of public/private partnership are not defined in the Treaty. We therefore need to outline their distinctive features in order to delimit the field of application of this interpretative communication.

1.1. Definition of "works concessions"

(a) Directive 93/37 definition

Article 1(d) of Directive 93/37/EEC defines a "public works concession" as

"a contract of the same type as a public works contract except for the fact that the consideration for the works to be carried out consists either solely in the right to exploit the construction or in this right together with payment"

According to this definition, the main distinctive feature of a concession is the fact that the consideration for the works consists in the right to exploit and the exploitation risks are borne for a significant part by the concessionaire.

"Exploitation" means that the contractor carrying out the work, instead of being paid directly by the awarding authority initiating the procedure, earns revenue from the fees charged to users of the construction when it is completed. In addition to the construction risk therefore, he also assumes a significant part of the risks involved in the management and use of the facilities. If recovery of expenditure were guaranteed by the awarding authority without the risk involved in the management of the construction, there would be no element of risk and the contract should be regarded as a works contract rather than a concession contract(4).

The directive also states that there may be payment in addition to the right to exploit the construction. We shall deal with this aspect in greater detail in point (b) below, since it is an important element for distinguishing a concession from a public works contract in practice.

(b) Delimitation of the concepts of "public works contract" and "works concession"

As the legislation developed, the concept of public works contracts was extended to situations not covered by the previous directives(5). The text as it stands at present stipulates that "public works contracts" are contracts for pecuniary interest concluded in writing between a contractor and a contracting authority (... ) which have as their object either the execution, or both the execution and design, of works related to one of the activities referred to in Annex II or a work (... ), or the execution by whatever means of a work corresponding to the requirements specified by the contracting authority (Article 1(a)).

In view of this extension of the Community concept of public works contracts, there is a risk of confusion between public works concessions and public works contracts forming the subject of complex legal arrangements(6).

Even if awarding authorities use complex contractual formulas, these are still public works contracts within the meaning of Community law in so far as the cost is borne entirely by the awarding authority and there are no exploitation risks for the contractor(7).

The fact that the directive allows for a payment in addition to the right of exploitation does not change this analysis.

The definition of a concession always includes the possibility that a payment may be made provided that it doesn't eliminate a significant part of the risk borne by the concessionaire, since Directive 93/37/EEC states that the right to exploit the construction may be accompanied by a payment.

It can be seen in practice...