On 12 May 2022, the Court of Justice of the European Union further clarified the scope of the in-house exemption provided for in Article 12 of Directive 2014/24/EU (case C-719/20).
Under Article 12(3) of Directive 2014/24, a public contract may be awarded to a legal person without applying the Directive (i.e., without a public procurement procedure) provided that (i) the contracting authority exercises jointly with other contracting authorities a control over that legal person which is similar to that which they exercise over their own departments; (ii) more than 80 % of the activities of that legal person are carried out in the performance of tasks entrusted to it by the controlling contracting authorities or by other legal persons controlled by the same contracting authorities; and (iii) subject to certain exceptions, there is no direct private capital participation in the controlled legal person.
In the case at hand, in 2005, the municipality of Lerici (Italy) had granted a public contract to the ACAM company pertaining to urban waste management services to be provided until 31 December 2028. The contract was granted without a prior public procurement procedure, on the basis of the in-house exemption as, at the time, ACAM’s shareholding only consisted of municipalities, including the municipality of Lerici.
In 2017, ACAM underwent restructuring and launched a public procurement procedure in order to select an economic operator with which it could join forces. This led to the designation of IREN, a listed company. Under an investment agreement, the municipalities sold their ACAM shares to IREN and acquired, by subscribing for a reserved capital increase, an equivalent percentage of IREN shares. The municipalities’ ACAM shares thus became IREN shares and, in accordance with relevant Italian law, IREN continued to operate the services originally awarded to ACAM.
However, the municipality of Lerici only approved the investment agreement with respect to the sale of its ACAM shares to IREN, which occurred on 11 April 2018. As a result, the municipality of Lerici was no longer a shareholder of ACAM and was also not a shareholder of IREN.
In the meantime, the province of La Spezia had become competent regarding the urban waste management service at issue, in all the municipalities within its territory, including the municipality of Lerici. Accordingly, on 6 August 2018, the province of La Spieza approved the update of the plan for the integrated management of urban waste in the province. This plan designated ACAM as managing the service for the municipality of Lerici, until 31 December 2028, by virtue of an in-house award.
The municipality of Lerici challenged the province’s decision in the Italian courts, on the grounds that the conditions of the in-house exemption were no longer satisfied. This caused the Italian Council of State to refer a question to the Court of Justice for a preliminary ruling.
In its judgment of 12 May 2022, the Court observed that, while the 2005 in-house award predates the adoption of Directive 2014/24, the acquisition of ACAM by IREN occurred in 2017, after the expiry of the transposition period of this Directive. Therefore, it is on the basis of that Directive that this acquisition should be examined, in order to determine whether it should have led to a new public procurement procedure for the award of the waste management services contract.
The Court went on to examine this issue in the light of two specific provisions of the Directive.
First, the Court looked at Article 72(1)(d)(ii), which provides that a tender procedure is not required in the event of a “universal or partial succession into the position of the initial contractor, following corporate restructuring, including takeover, merger, acquisition or insolvency, of another economic operator that fulfils the criteria for qualitative selection initially established provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of this Directive” (see our recent publication on Article 72(1)(d)(ii)).
In this case, IREN had acquired the ACAM shares following corporate restructuring. However, in the Court’s view, Article 72(1)(d)(ii) could only apply where the successor company continues the execution of a contract which had initially been awarded in the context of a public procurement procedure satisfying the conditions laid down in Directive 2014/24. This was not the case of the contract awarded in 2005, so the Court excluded the possibility of relying on Article 72(1)(d)(ii).
Second, the Court recalled the conditions of Article 12(3) of the Directive mentioned above. The Court considered that the first condition (“joint similar control”) and the third condition (“no direct private capital participation”) seemed not to be met in this case because the municipality of Lerici owned no shares in the capital of IREN, which is, moreover, largely open to private holdings. Furthermore, the municipality of Lerici does not appear to be represented in the decision-making bodies of IREN or to be in a position to influence, even jointly with the other municipalities which held ACAM shares, the strategic objectives or important decisions of IREN.
Subject to verification of these factual findings by the Council of State, the public contract at issue may, therefore, not be further executed without a new public procurement procedure in accordance with Directive 2014/24. Contrary to ACAM’s and IREN’s position, the Court ruled that the fact that IREN was selected by ACAM, and therefore by the municipalities owning this company, through a public procurement procedure, does not alter this conclusion. The Court added that this conclusion would also not be altered in the event that it should be considered that the province of La Spieza had itself awarded the contract again. In short, the province of La Spieza also did not satisfy the conditions of Article 12 of Directive 2014/24, essentially for the same reasons as the municipality of Lerice.
Therefore, the Court ruled that Directive 2014/24 must be interpreted as precluding national legislation or practice under which the performance of a public contract, initially awarded without a call for competition to an in-house entity over which the contracting authority exercised, jointly, a control similar to that which it exercises over its own departments, is automatically continued by the economic operator which acquired that entity, following a tendering procedure, where that contracting authority does not have such control over that operator and does not hold any interest in its capital.
In the light of this judgment, interested parties should verify even more carefully whether the companies they intend to sell or acquire are executing in-house contracts, and whether such an acquisition would result in the impossibility of continuing the execution.
Please contact Peter Teerlinck or Raluca Gherghinaru for further information about this case and/or for general legal advice relating to public procurement law.