Financing Services of General Interest in the EU: How do Public Procurement and State Aids Interact to Demarcate between Market Forces and Protection?

• Date: 01 January 2005
• Published date: 01 January 2005
• DOI: http://doi.org/10.1111/j.1468-0386.2005.00250.x

Financing Services of General Interest in

the EU: How do Public Procurement and

State Aids Interact to Demarcate between

Market Forces and Protection?

Christopher H. Bovis*

Abstract: The present article reveals the interplay between public procurement and state

financing of public services within the regulatory régime of state aids. The symbiotic flex-

ibility embedded in the regime of regulating the award of public contracts which permits

the introduction of public policy considerations in dispersing public services is established.

This finding removes the often-misunderstood justification of public procurement as an

economic exercise, and places its regulation in the centre of an ordo-liberal interpretation

of the European integration process. The significance of public procurement for the financ-

ing of services of general interest is verified through an asymmetric geometry analysis.

The article concludes that the public procurement framework will be relied upon for two

main purposes: first to insert competitiveness within the public sector and market forces

in the provision of services of general interest and secondly, to be used by the European

judiciary and the European Commission as a system to verify conceptual links, create

compatibility safeguards and authenticate established principles applicable in state aid

regulation.

I Introduction

Recent developments in jurisprudence at Community level have demonstrated the

pivotal position of public procurement in the process of determining the parameters

under which public subsidies and state financing of public services constitute state aids.

At the centre of the debate regarding the relation between state aids and the financing

of services of general interest, within the broader remit of the interplay of subsidies

and public services, public procurement has emerged as an essential component of state

European Law Journal, Vol.11, No. 1, January 2005, pp. 79–109.

© Blackwell Publishing Ltd. 2005, 9600 Garsington Road, Oxford OX4 2DQ, UK

and 350 Main Street, Malden, MA 02148, USA

*Professor of Law and Jean Monnet Chair in European and Business Law, Lancashire Law School;

Visiting Senior Research Fellow, Institute of Advanced Legal Studies, University of London.I hereby

record my gratitude to the anonymous peer reviewers of this work for their constructive comments and

suggestions. I am also indebted to Dr Christine Cnossen for her intellectual input in developing the

relevant arguments. The usual author’s disclaimer applies.

aids regulation.1The European Court of Justice has inferred that the existence of public

procurement, as a legal system and a procedural framework, verifies conceptual links,

creates compatibility safeguards and authenticates established principles applicable in

state aid regulation. Public procurement in the common market not only does repre-

sent the procedural framework for the contractual interface between public and private

sectors,2but it also reflects on the character and nature of activities of the state and its

organs in pursuit of public interest.3Public procurement regulation has acquired legal,

economic and policy dimensions, as market integration and the fulfilment of treaty

principles are balanced with policy choices.4

The implications of the debate are important, not only because of the necessity for

a coherent application of state aids regulation in the common market but also because

of the need for a legal and policy framework regarding the financing of services of

general interest and public service obligations by member states.5The significance of

the topic is reflected in the attempts of the European Council to provide for a policy

framework of greater predictability and increased legal certainty in the application of

the State aid rules to the funding of services of general interest.6The present article

European Law Journal Volume 11

80 © Blackwell Publishing Ltd. 2005

1See the Commission Communication on services of general interest in Europe, OJ C 17, 19/1/2001; the

Green Paper on services of general interest, COM(2003) 270, 21/5/2003, the White Paper on Services of

general interest, COM(2004), 12/5/2004.

2The Public Procurement regime includes the Public Supplies Directive 93/36/EEC, OJ L 199 9/8/1993 as

amended by Directive 97/52/EC OJ L 328 28/11/1997; the Public Works Directive 93/37/EEC OJ L 199,

9/8/1993 as amended by Directive 97/52/EC OJ L 328 28/11/1997; the Utilities Directives 93/38/EEC

OJ L 199 9/8/1993 as amended by Directive 98/4/EC OJ L 101 1/4/1998; the Public Services Directive

92/50/EEC, OJ L 209 24/7/1992 as last amended by Directive 97/52/EC OJ L 328, 28/11/1997; the Reme-

dies Utilities Directive 92/13/EEC OJ L 076 23/03/1992; the Public Remedies Directive 89/665/EEC

OJ L 395, 30/12/1989. The Public Procurement Directives have been recently amended by Directive

2004/18, OJ L 134 30/4/2004 on the coordination of procedures for the award of public works contracts,

public supply contracts and public service contracts and Directive 2004/17, OJ L 134 30/4/2004 coordi-

nating the procurement procedures of entities operating in the water, energy, transport, and postal ser-

vices sectors.

3See C. H. Bovis, ‘La notion et les attributions d’organisme de droit public comme pouvoirs adjudica-

teurs dans le régime des marchés publics’, Contrats Publics,Septembre 2003, 26–30.

4See C. H. Bovis, ‘Public Procurement and the Internal Market of the 21st Century: Economic Exercise

versus Policy Choice’ in D. O’Keeffe and T. Tridimas (eds), EU Law for the 21stCentury: Rethinking the

New Legal Order (Hart Publishing, forthcoming). Also Communication from the European Commis-

sion to the Council, the European Parliament, the Economic and Social Committee,and the Committee

of the Regions, ‘Working together to maintain momentum’, 2001 Review of the Internal Market

Strategy,Brussels, 11 April 2001, COM(2001)198 final. Also, European Commission, Commission Com-

munication, Public procurement in the European Union, Brussels, March 11, 1998, COM(98) 143. See

Commission Interpretative Communication on the Community law applicable to public procurement

and the possibilities for integrating social considerations into public procurement, COM(2001) 566, 15

October 2001. Also, Commission Interpretative Communication on the Community law applicable to

public procurement and the possibilities for integrating environmental considerations into public pro-

curement, COM(2001) 274, 4 July 2001.

5See A. Bartosch, ‘The relationship of Public Procurement and State Aid Surveillance—The Toughest

Standard Applies?’, 2002 CMLR 35, and the case law provided in the analysis.

6See the Conclusions of the European Council of 14 and 15 December 2001, paragraph 26; Conclusions

of the Internal Market, Consumer Affairs and Tourism Council meeting of 26 November 2001 on ser-

vices of general interest; Commission Report to the Laeken European Council on Services of General

Interest of 17 October 2001, COM(2001) 598; Communication from the Commission on the application

of the State aid rules to public service broadcasting, OJ C 320 2001, at 5; see also the two general Com-

mission Communications on Services of General Interest of 1996 and 2000 in OJ C 281 1996, at 3 and

OJ 2001 C 17, at 4.