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EU
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Case C-220/05 Auroux EU:C:2007:31
Region: EU
A development agreement, which provided for the construction of a new leisure centre but also other works, was a public works contract.
“41. It is clear from art 1(c) of the directive that the existence of a work must be determined in relation to the economic or technical function of the result of the works undertaken (see European Commission v Italy Joined cases C-187/04 and 188/04 (2005) Transcript (judgment), 27 October (para 26)). As is apparent from a number of clauses in the agreement, the construction of the leisure centre is intended to accommodate commercial and service activities, so that the agreement must be regarded as fulfilling an economic function.
- Furthermore, the construction of the leisure centre must be regarded as corresponding to the requirements specified by the municipality of Roanne in the agreement. It must be observed, in that regard, that the work referred to by the agreement is the leisure centre as a whole, including the construction of a multiplex cinema, service premises for leisure activities, a car park and, possibly, a hotel. It is clear from a number of clauses in the agreement that, by the construction of the leisure centre as a whole, the municipality of Roanne seeks to reposition and regenerate the area around the railway station.”
The Court then went on to hold that the other elements of the definition of a public works contract were present. These included that the agreement was concluded for pecuniary interest, which “refers to the consideration paid to the contractor on account of the execution of works intended for the contracting authority” (para 45). Under the terms of the agreement, the contractor was to receive a sum from the municipality in consideration for the transfer of the car park, the municipality was also to contribute to the costs of construction and the contractor was entitled to obtain income from third parties as consideration for the sale of the works (para 45).
The developer was to acquire land, organise an architectural competition, manage the construction (even though it would not carry out that construction itself) and market the buildings. The service elements of the agreement were held to be part of the completion of the work of constructing the leisure centre, which was the contract’s main purpose (para 46).
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Case C-451/08 Helmut Müller EU:C:2010:168
Region: EU
Exercise by a public authority of planning powers does not amount to works being carried out for the public authority’s immediate economic benefit and so does not give rise to a public contract.
This case concerned a 24 hectare site in Wildeshausen, Germany, which was owned by a federal agency, the Bundesanstalt. Another public body, the town council of Wildhausen, had responsibility for town planning.
The Bundesanstalt issued a call for tenders with a view to selling the property. It appears that developers who submitted bids included plans for developing the site and these plans were discussed with the Wildeshausen municipal authorities, in the presence of the Bundesanstalt. The Bundesanstalt had a preference for the tender from a developer, GSSI, which submitted a bid of €2.5 million, in comparison to Helmut Müller’s bid of €1 million. The Bundesanstalt’s preference for the GSSI bid was, apparently, on urban development grounds. It was agreed that the property should not be sold until after the town council had approved the project and the Bundesanstalt confirmed that it would respect the town council’s decision. The town council decided in favour of the GSSI project, although its formal decision at that stage was only that it would examine GSSI’s proposal and application for planning permission.
On foot of an action by Helmut Müller, which argued that the public procurement rules had not properly been followed, the German court was of the view that the relevant decisions had been taken jointly by the Bundesanstalt and the town council of Wildeshausen and that the arrangements gave rise to a public works concession contract. Recognising however that its views seemed to be at odds with the approach taken by other German courts, it referred a number of questions to the Court of Justice.
The Court first examined the question whether the concept of “public works contracts” requires that the works which are the subject of the contract be physically carried out for the contracting authority in its immediate economic interest or whether it is sufficient if the works fulfil a public purpose, such as the development of part of a town. The Court recognised that the questions submitted by the referring court were aimed not at the seller-purchaser relationship between the Bundesanstalt and GSSI but rather, were directed at the relationship between GSSI and the town council, which had planning powers (para 44). In that context, the Court concluded that it was not the purpose of the mere exercise by the town council of regulatory urban planning powers, to obtain a contractual service or immediate economic benefit (paras 57-58). Consequently, any works at issue would not be carried out for the immediate economic benefit of the town council.
In reaching this conclusion, the Court noted that only contracts concluded for pecuniary interest came within the scope of Directive 2004/18, that the pecuniary nature of the contract means that the contracting authority receives a service in return for consideration, that the service consists of works from which the contracting authority intends to benefit and that such a service must be of direct economic benefit to the contracting authority (paras 47-49). The Court provided examples at paragraphs 50-52 of how such a direct economic benefit might arise:
“50 That economic benefit is clearly established where it is provided that the public authority is to become owner of the works or work which is the subject of the contract.
51 Such an economic benefit may also be held to exist where it is provided that the contracting authority is to hold a legal right over the use of the works which are the subject of the contract, in order that they can be made available to the public (see, to that effect, Ordine degli Architetti and Others, paragraphs 67, 71 and 77).
52 The economic benefit may also lie in the economic advantages which the contracting authority may derive from the future use or transfer of the work, in the fact that it contributed financially to the realisation of the work, or in the assumption of the risks were the work to be an economic failure (see, to that effect, Auroux and Others, paragraphs 13, 17, 18 and 45).”
The Court further held that the concept of a public works contract requires that the contractor assume a direct or indirect obligation to carry out the works which are the subject of the contract and that that obligation be legally enforceable (para 63).
The Court then addressed the meaning of the phrase “requirements specified by the public authority”, in the third variant of the definition of a public works contract. It held that this could not arise simply from a contracting authority, such as the town council, exercising planning powers (para 69). It has said, at paragraph 67:
“In order for it to be possible to establish that a contracting authority has specified its requirements within the meaning of that provision, the authority must have taken measures to define the type of the work or, at the very least, have had a decisive influence on its design.”
The Court went on to consider whether a public works concession could arise where the economic operator already owned the land on which work was to be carried out. The Court noted that for a contracting authority to be able to transfer the right to exploit a work so as to give rise to a public works concession, the contracting authority must be in a position to exploit the work. This would not normally be the case where the basis of the right of exploitation was the right of ownership of the economic operator. As long as the economic operator itself had the right to exploit land that it owned, it was in principle impossible for a contracting authority to grant a concession relating to that exploitation (paras 72-74). Again, the Court was considering in this context whether the exercise of urban planning powers by the town council could amount to a public works concession.
The final point of interest in the case was the Court’s recognition that, in principle, a two-phase procedure consisting of a sale of land and subsequent award of a works contract could be considered as a unity (para 82), even though there was nothing in the facts of the case at issue to suggest this application of the directive.
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Case C-306/08 Commission v Spain EU:C:2011:347
Region: EU
Commission’s evidence was insufficient to establish that Spanish regulations providing for the award of “integrated action programmes” (“IAPs”) to developers wishing to develop land constituted public works contracts, where obligations included a number of other matters.
“96. In fact, the execution of the IAP by the developer includes, as is clear particularly from paragraphs 21 and 23 of the present judgment, activities which cannot be classified as ‘works’, within the meaning of the directives relied on by the Commission in its application, namely the preparation of the development plan, the proposal and management of the corresponding land consolidation project, obtaining for the administration free of charge plots for public ownership and for the community’s public land bank, management of the legal conversion of the plots concerned or even the equitable division of the costs and profits between the parties concerned as well as the transactions for financing and guaranteeing the cost of the investments, works, installations and compensation necessary for the execution of the IAP. Such is also the case where the developer, as stated in Article 119(1) of the LUV, must organise the public competition for the appointment of the building contractor to which the execution of the urban development works is to be entrusted.”
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Case C-576/10 Commission v The Netherlands EU:C:2013:510
Region: EU
Commission claim that The Netherlands had infringed Directive 2004/18 by failing to tender a public works concession mixed use development dismissed as Directive did not apply at the time of the decision.
The opinion of Advocate General Wathelet contains a detailed discussion of the substantive issues.
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Cases C-145/08 and C-149/08 Club Hotel Loutraki EU:C:2010:247
Region: EU
Contract was not a public works contract where the main object was the sale of shares in a business, with obligations to refurbish and improve the site and surrounding land being ancillary.
“57. There can be no doubt that, where there is a purchase of 49% of the shares of a public undertaking such as EKP, that operation constitutes the main object of the contract. The point must be made that the income which AEAS would obtain as a shareholder appears to be significantly greater than the remuneration which it would obtain as a service provider.”
62 [The] conclusion must be that a mixed contract of which the main object is the acquisition by an undertaking of 49% of the capital of a public undertaking and the ancillary object, indivisibly linked with that main object, is the supply of services and the performance of works does not, as a whole, fall within the scope of the directives on public contracts.”
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Case E-4/17 EFTA Surveillance Authority v The Kingdom of Norway
Region: EU
Contracts for the construction and operation of an underground car park had, as their main purpose, the construction of the car park, which was a public works objective. The contracts constituted a public works concession as the consideration consisted in the right to exploit the work together with payment.
“84 The services element of the contracts is simply a consequence of Torvparkering’s right to exploit the building for a limited period before the transfer of ownership to the municipality takes place. That objective does not outweigh the public works objective of the project. It follows that were it not for the construction of the underground car park, Torvparkering would not have been able to provide car park services.
85 The Court thus concludes that the contracts awarded by the municipality meet the criteria of a public works contract under Article 1(2)(b) of the Directive.
86 It remains to be assessed whether the contracts constitute a public works concession as defined by Article 1(3) of the Directive, that is, 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 work or in this right together with payment. An essential characteristic of a concession is that the concessionaire bears the main or substantial operating risk (compare the judgment in Müller, cited above, paragraph 75 and case law cited).
87 According to the eighth paragraph of Article 2 of the “Service Concession Contract”, Torvparkering bears the full operating risk for the underground car park for the duration of that contract. Moreover, there can be no doubt that consideration for the works that were to be carried out consists in the right to exploit the work together with payment. In response to Norway’s argument that Torvparkering was only granted a right to exploit land, rather than being granted the right to exploit a work, it should be noted that without the “Service Concession Contract” with the municipality, Torvparkering could not exploit the car park. The Court therefore concludes that the two contracts in question constitute a public works concession within the meaning of Article 1(3) of the Directive.”
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Case C-220/05 Auroux EU:C:2007:31
The inclusion of an obligation to develop may make the contract a public works contract.
Categorising the Contract. In determining how to categorise a contract for purposes of the public procurement rules and in deciding whether a contract is a public works contract, one looks to the “main purpose” of the agreement (C-220/05 Auroux, paras 37, 38, 46; C-306/08 Commission v Spain, para 90). That determination must be made in light of the “essential obligations which predominate and which, as such, characterise the transaction” as opposed to ancillary or supplementary obligations “required by the very object of the contract” (C-306/08 Commission v Spain, para 91). What is crucial for classification “is the main object of the contract, not the amount paid to the contractor or the arrangements for payment” (C-213/13 Impresa, para 50; C-536/07 Commission v Germany, para 61).
A Question of EU Law. The question whether a transaction constitutes a public works contract for the purposes of the public procurement rules is one of EU law. So, in C-213/13 Impresa, the characterisation of the proposed contract as a “lease” was not decisive (para 40) (see also C-536/07 Commission v Germany, para54; C-220/05 Auroux, para 40).
Mixed Contracts. A mixed contract relating both to the performance of works and to the assignment of property does not fall within the scope of the procurement directives if the performance of the works is merely incidental to the assignment of property (C-331/92 Gestión Hotelera para 29).
Timing. Timing may be a significant factor in evaluating the object of a contract. In particular, if buildings have not yet been constructed, it is more likely that their construction will be seen as the main object of a contract which may appear on its face to be, say, a lease or sale of land. For example, in Impresa, the Court noted at paragraph 42 that at the time when the conclusion of the contract in question was proposed to the Comune di Bari by Pizzarotti, the works for creating the complex referred to in that contract had not yet begun. The CJEU concluded from this fact that “the main object of the contract is the creation of that complex, which the subsequent letting of the complex necessarily presupposes”. Similarly, in C-536/07 Commission v Germany, the CJEU observed at para 56:
“As regards the object of the project at issue, it must be noted that the main contract, concluded on 6 August 2004 by the City of Cologne and GKMGbR, is formally described as a ‘lease’ and does, in fact, contain certain elements of a lease. However, as at 6 August 2004, the building works in question had not even started. Consequently, that contract could not have had as its immediate object the lease of buildings whose construction had not yet begun. Therefore, the main purpose of that contract could, logically, only be the construction of those buildings which were subsequently required to be handed over to the City of Cologne under the terms of a contractual relationship described as a ‘lease’.”
Direct or Indirect Obligation. The concept of a public works contract requires that the contractor assume a direct or indirect obligation to carry out the works which are the subject of the contract and that that obligation be legally enforceable (C-451/08 Helmut Müller, para 63). The rationale for the requirement that there be an obligation to carry out works is explained by Advocate General Mengozzi at paragraphs 76-77 of his opinion in Helmut Müller as follows: “This follows, first and foremost, from the provisions of Directive 2004/18 itself which, as we have seen, defines public works contracts as contracts for pecuniary interest. The concept is therefore based on the idea of an exchange of services between the contracting authority, which pays a price (or, alternatively, grants a right of use), and the contractor, who is required to execute a work or works. Thus, public contracts are clearly mutually binding. It would obviously be inconsistent with that characteristic to accept that, after being awarded a contract, a contractor could, without any repercussions, simply decide unilaterally not to carry out the specified work. Otherwise, it would mean that contractors were entitled to exercise discretion with regard to the requirements and needs of the contracting authority.”
Pecuniary Interest. Only contracts concluded for pecuniary interest come within the scope of Directive 2004/18 (the same applies to Directive 2014/24); the pecuniary nature of the contract means that the contracting authority receives a service in return for consideration; the service consists of works from which the contracting authority intends to benefit; and “[such] a service, by its nature and in view of the scheme and objectives of Directive 2004/18, must be of direct economic benefit to the contracting authority” (C-451/08 Helmut Müller, paras 47-49).
There does not appear to be an exhaustive number of ways in which a contracting authority can derive the requisite economic benefit. Examples include where the benefit to the contracting authority lies “in the economic advantages which the contracting authority may derive from the future use or transfer of the work”; or “in the assumption of the risks were the work to be an economic failure” (C-451/08 Helmut Müller, para 52; see also, Case C-399/98 Ordine degli Architetti [2001] ECR I-5409, paras 76-86).
Specification of the Authority. With respect to the third variant in the definition of a public works contract – the realisation of a work corresponding to requirements specified by the contracting authority concerned – “in order for it to be possible to establish that a contracting authority has specified its requirements within the meaning of that provision, the authority must have taken measures to define the type of the work or, at the very least, have had a decisive influence on its design” (C-451/08 Helmut Müller, para 67). This is now made express in Article 2(6) of Directive 2014/24.
Where a contracting authority seeks to reposition and regenerate an area or piece of land, this may lead to the conclusion that construction works which form part of the agreement, correspond to requirements specified by the contracting authority (C-220/05 Auroux, paras 42).
Entire Transaction. A two-phase procedure consisting of a sale of land and subsequent award of a works contract could be considered as a legal unity for purposes of the procurement rules so that Directive 2004/18 could apply to such a transaction (C-451/08 Helmut Müller, para 82), even though a pure sale of land itself falls outside the scope of the Directive. In other words, one must look at the whole of the arrangements between the contracting authority and the developer.
Entire Transaction and Legally Binding Obligation. This point was emphasised by the English High Court in R(Midlands Co-Operative Society Limited) v Birmingham City Council) [2012] EWHC 620 (Admin). That case considered whether the sale of land amounted to a public works contract where it was envisaged that the land would be developed in accordance with certain planning requirements. The English High Court held that there was no legal obligation on the developer to develop the land the subject of the agreement for sale, however likely it might have been that the land would in fact be developed. The developer could have walked away after purchasing the land, without developing it and the lack of a clear legal obligation to develop was a key factor in the court’s ruling.
On the point that one must examine the whole of the arrangement between the contracting authority and the developer in determining whether the procurement rules apply, the following comments of Hickinbottom J at paragraph 107 are worth observing:
“[In] considering whether the procurement provisions apply, one must look at the whole of the arrangements between the contracting authority and the contractor; and, in particular, whether there is in reality a multi-stage award procedure which comprises in substance a unity which includes an obligation to perform works and is consequently subject to the procurement rules. For example, there may be an award of a land contract by the authority to the contractor, with a separate award of a contract involving works. Where the authority and contractor are legally committed to the works contract at the time of the land contract, then the two stages might of course be considered as a single transaction, to which the procurement provisions apply. However … at the time of the land transaction, it is insufficient that the authority merely intends to, or is very likely to, enter into a works contract with the contractor, short of a formal, legally enforceable commitment.”
In AG Quidnet Hounslow LLP v Hounslow London Borough Council [2012] EWHC 2639 (TCC), it was argued that the respondent council seemed to be relying on the commercial imperatives that the developer would face as the long term tenant of the site, to carry out development. This was relied upon as evidence of an obligation to develop being placed on the developer. However, Coulson J did not find an obligation to undertake works, stating at para 42:
“On a proper construction of these terms, they amount to an agreement by the council to grant a ground lease for a long period on the site. There is no express obligation on the part of L&G to develop the site or provide any services whatsoever. Whilst Mr Giffin may be right to say that this was the deliberate result of careful drafting, so as to avoid the consequences of the 2006 Regulations, the fact remains that the heads of terms require no services to be provided by L&G. If L&G subsequently find themselves faced with the commercial necessity of developing the site (as opposed, say, to landbanking it for 20 years), then that is a matter for them. The development would in any event be some way into the future, and is predicated on a number of uncertain events.”
A certain amount of guidance can also be taken from the activities of the European Commission in enforcing the public procurement rules. The Commission’s approach in the Flensburg case is particularly worthy of note. The Commission issued a press release (IP/08/867, 5 June 2008) when it closed an infringement case against Germany on the basis that a contract for the sale of land by a public authority did not contain a legally binding obligation on the developer to build a building which it was envisaged would be built. Rather than an enforceable obligation to build, the contract stipulated that the public authority had the right to purchase the land for the city of Flensburg if the building was not constructed. The Commission explained as follows:
“In the view of the Commission, such a land sale can neither be considered as a public works contract nor as a public works concession, because the contract in question did not contain a legally binding obligation to execute works specified by the contracting authorities. The mere right for the public authority to (re-)purchase the land in case of non-construction is not, in the Commission’s view, a sufficient sanction that could give rise to a legal obligation to execute the works.”
This analysis is not, of course, a binding precedent and there is obviously a lack of detail in a short press release. The argument has also been made that “[the] legal mechanism employed, whilst not creating a contract in the terms of the Directive, might nonetheless be characterised as a straightforward device to avoid its application whilst still securing the objectives of procuring works” and that “it might be said that the mechanism employed in that case amounted to an “indirect obligation” to carry out the works which were legally enforceable through the means of the default provision which was triggered if the works were not carried out” (Elvin and Banner, ‘The application of the Public Contracts Directive to planning: the position at the beginning of 2011’ (2011) Journal of Planning & Environmental Law 508).
Elements of a Public Works Concession Contract. A public works concession contract has three elements: (i) a contract in writing; (ii) a “public works contract” and (iii) a contract concluded for pecuniary interest, where the consideration consists either solely in the right to exploit the work or in this right together with payment (e.g., C-576/10 Commission v The Netherlands, opinion of Advocate General Wathelet, para 175).
For a contracting authority to be able to transfer the right to exploit a work so as to give rise to a public works concession, the contracting authority must be in a position to exploit the work. “That will normally not be the case where the only basis for the right of exploitation is the right of ownership of the economic operator concerned” (emphasis supplied). As long as the economic operator itself had the right to exploit land that it owned, it was in principle impossible for a contracting authority to grant a concession relating to that exploitation (C-451/08 Helmut Müller, paras 72-74).
With respect to the required pecuniary interest in a public works concession contract, it can be argued therefore that a right of exploitation of the developer when it is the owner of the land and properties to be constructed, will not usually be a right of exploitation within the meaning of the term “consideration” in Article 1(3) of Directive 2004/18 (see also, C-576/10 Commission v The Netherlands, opinion of Advocate General Wathelet, para 130, 143-172).
UK OGC Guidance. The UK’s Office of Government Commerce has provided guidance with respect to the application of the public procurement rules to land development agreements in its Information Note 12/10 of 30 June 2010. I note the following useful points in the guidance (although it should be remembered that this is merely a guidance note and should therefore be treated with some caution):
“9. It is emphasised that the European authorities are likely to take a purposive view of the activities and agreements entered into by a public body, and artificial arrangements intended to circumvent the application of the rules are unlikely to be persuasive…
- [There] are a number of matters which will be relevant in deciding whether a “development agreement” comprises a public works or works concession contract. In summary:
Is a work or works required or specified by a contracting authority?
Is there an enforceable obligation (in writing) on a contractor to carry out that work or works?
Is there some pecuniary interest for carrying out this work (not necessarily a cash payment)?
- If the answer to all those questions is “yes”, it is likely that agreement will be subject to the public procurement rules…
- [The] sale or lease of land or property by a public body is not within the scope of the public procurement rules, so a simple disposal of land is not caught as there is no acquisition (and thus no procurement) of any goods, works or services. Therefore the lease or sale of land by a contracting authority to a developer for the purposes of a development will not be subject to the public procurement rules unless this lease or sale contains or is accompanied by a requirement to undertake a work or works as defined in the rules. In Helmut Müller the ECJ reaffirmed that the simple sale of developed or undeveloped land does not constitute a public works contract …
35… As far as OGC is aware, there is no explicit definition of what would be considered incidental or ancillary (a recent ECJ ruling indicates this will depend on the actual facts and circumstances of the case), but a conservative and purposive approach would be prudent. So, for example, the works would probably not be subject to the rules if the scope and value of the works is small compared to the value of the sale, and would not have been pursued if the land was not being sold, and the main purpose of the sale was not to achieve those works. On the other hand the works would be unlikely to be “incidental” if they involved a wide range of works or a lengthy programme of works activity…
- Development agreement ancillary to a lease. OGC considers that a development agreement which accompanies a lease might not be subject to the public procurement rules. Where a contracting authority leases land or property to a developer, to be developed according to the intentions of the developer (and not to any specified requirements of the authority), that lease is not of itself a public contract. The payment of rent to the authority by the developer, (who in turn may collect rents from sub-tenants), is unlikely to comprise pecuniary interest for the supply of goods, works, or services. So if that development agreement only sets out certain matters and obligations as to how the developer will undertake its intention as lessee, in order to safeguard the interests of the authority as lessor and freeholder that agreement does not thereby become subject to the public procurement rules.”
Commentary on the Application of the Three Variants. The view has been expressed that the variants of the definition of a public works contract which are potentially applicable to a given situation will depend on whether the land is owned by the contracting authority. In particular, it has been suggested that where the land is not owned by the contracting authority, only the third variant applies. Arrowsmith says as follows at paragraph 6-25 (The Law of Public and Utilities Procurement, 3rd ed, Vol. 1 (2014)):
“It appears that this part of the definition of a “public works contract” that refers to the execution, or the design and execution, of works or a work (first and second variants) is limited to works on the land of the contracting authority itself. Where the work is not undertaken on the land of the contracting authority but on other land, then even if that land is to be transferred to the contracting authority after the work is done this will not be considered as the execution of, or the design and execution, of works or a work. However, work done other than on land of the contracting authority may still involve a public works contract under the third variant covering contracts for the procurement of a work by any means.”
The basis of this argument, as expressed by Arrowsmith, appears to be that in C-220/05 Auroux, in which the CJEU considered an arrangement involving work on the land of another that was to be transferred only after construction and work on land that was not to be transferred to the authority at all, the CJEU concluded that there was a public works contract on the basis of the third variant. The same analysis (i.e. limiting the question to the third variant) appears to have been applied in other cases also, including C-213/13 Impresa. Arrowsmith explains at paragraph 6-247 that the third variant was added to the Directive in order to capture, among others, the position in which a developer arranges for the construction of a work on land not owned by the authority and undertakes to transfer or lease the land and structure to the authority at a later point. Apparently, without this provision, it was considered that such a contract might be excluded under the exclusion that exists for sale and lease of land.
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Commission Action (not leading to court decisions)
The Commission has taken other action in which it has argued that arrangements relating to the development of land are subject to the public procurement rules.
In 2008, the Commission closed infringement proceedings against Germany concerning an urban development project in Flensburg, where it concluded that a land sale did not contain a legally binding obligation to execute works specified by the relevant contracting authorities. The Commission explained its position in a press release, IP/08/867 of 5 June 2008:
“The public utility company, a 100% affiliate of the city of Flensburg, had sold a piece of land to a private property developer for the construction of a building that would correspond to certain urban development needs. Apart from a simple statement of intent, the sales contract does not contain a legally binding obligation for the developer to realise the envisaged building; it only stipulates a right to purchase the land for the city of Flensburg, in case the building should not be constructed.
In the view of the Commission, such a land sale can neither be considered as a public works contract nor as a public works concession, because the contract in question did not contain a legally binding obligation to execute works specified by the contracting authorities. The mere right for the public authority to (re-)purchase the land in case of non-construction is not, in the Commission’s view, a sufficient sanction that could give rise to a legal obligation to execute the works.”
In 2010, the Commission requested The Netherlands to comply with the EU public procurement rules for land developments projects in Ede (see Commission Press Releases IP/10/1233 of 30 September 2010 and IP/11/600 of 19 May 2011). Several contracts for a land development project were awarded to one developer without the authorities having conducted a tender. The contractor was to develop a centre for commercial and social use, including a sports hall, as well as parking spaces and 648 houses. The total value of the contract was €140 million. The Commission considered that the contracts were public works contracts and a public works concession. It explained in its reasoned opinion:
“In the Commission’s view, the main objective of the contracts was not the sale of land, but the execution of works, which falls under EU public procurement rules. As the contractor was to develop specific sites, the municipality took the decisions on the buildings to be constructed. Furthermore, the initiative for the project was taken by the municipality of Ede and its influence on the project went far beyond the mere exercise of the municipality’s urban-planning powers.
Although the developer is to carry out the project at his own risk and does not receive a direct payment from the municipality, the Commission considers that the municipality of Ede has given the developer a right of exploitation within the meaning of the EU public procurement rules, since the developer acquires for the project a tailor-made building license that gives him the right to construct and exploit the work foreseen in the contract. Some parts of the work in question – the sports hall and a number of parking places – will however be directly paid for by the municipality.
The Commission is also of the opinion that the municipality of Ede obtained a clear and direct economic benefit by means of this contract within the meaning of the jurisprudence of the Court of Justice in a similar case (Case C-451/08, Helmut Müller).”
The Netherlands responded by annulling certain contracts so that it was not ultimately necessary for the Commission to institute proceedings. Explaining how this alleviated the Commission’s concerns, it noted in IP/11/600:
“[The] Dutch authorities decided to annul those contracts relating to the development of the sports hall and the parking spaces. In addition, the building obligations for the development of the houses and the centre for commercial and social use were removed from the contract. In this way, the revised contract now solely concerns the sale of land and not works. Consequently, the contract should In the light of the Helmut Müller judgment of the Court of Justice (Case C-451/08), not be considered to be a public works concession anymore.”