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ECJ rules that regulations on public transport services do not prohibit a requirement for 70% self provision by an operator

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On 27 October 2016, the ECJ handed down its preliminary ruling in Hormann Reisen GmbH v Stadt Augsburg, Landkreis Augsburg Case C-292/15 (27 October 2016).
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On 27 October 2016, the ECJ held that Article 5(1) of Regulation (EC) 1370/2007 on public passenger transport services, by road and rail, must be interpreted as meaning that a bus services contract (which is not a concession contract) is subject to the rules on subcontracting in Article 4(7) of that regulation. Therefore, a transport authority may specify in a contract notice that a successful tenderer will not be entitled to subcontract more than 30% of the public bus services entrusted to it by a public services contract.
This means that such contracts have greater flexibility than those awarded solely under Directive 2004/18 under which contracting authorities may restrict successful tenderers in their use of subcontracting only in very limited circumstances. Whether changes introduced by Article 63(2) of Directive 2014/24 will mean that the ruling in this case will not be relevant to new procurements remains to be seen. (Hörmann Reisen GmbH v Stadt Augsburg,Landkreis Augsburg. Case C-292/15 (27 October 2016)).

Background and facts

The background, facts and questions referred to the ECJ in this case are set out in the opinion of Advocate General Sharpston. See Legal update: Advocate General Opinion on subcontracting arrangements in relation to public bus services.

Decision of ECJ

The court pointed out that whilst the referring court mentioned Directive 2014/24, in the questions referred for a preliminary ruling, the contract notice at issue in the main proceedings was published on 7 March 2015, which was before the expiry date of the period for transposition of Directive 2014/24 (fixed at 18 April 2016). In those circumstances, Directive 2014/24 was not applicable to the case in the main proceedings.

The first and second questions

The court held that Article 5(1) of Regulation No 1370/2007 must be interpreted as meaning that, in a contract award procedure for public passenger transport services by bus, Article 4(7) of that regulation remains applicable to that contract.
This finding was based upon the following reasoning:
  • The contract at issue in the main proceedings related to public passenger transport services by bus, as provided for in Article 5(1) of Regulation No 1370/2007 without taking the form of a service concession contract.
  • Under the first sentence of Article 5(1) of Regulation No 1370/2007, the contract at issue was required, in principle, to be awarded in accordance with the rules laid down in that regulation.
  • However, when a contract was not in the form of a service concession contract, as defined in Directives 2004/17 or 2004/18, a contract for public passenger transport services by bus is to be awarded, under the second sentence of Article 5(1) of Regulation No 1370/2007, in accordance with the procedures provided for under those directives.
  • The third sentence of Article 5(1) of Regulation No 1370/2007 provided, that the provisions of paragraphs 2 to 6 of that article did not apply to a contract such as the one at issue.
  • The second sentence of Article 5(1) of Regulation No 1370/2007 thus contained a derogation from the general rule established in the first sentence of Article 5(1) of that regulation and the exact scope of that derogation was specified in the third sentence of Article 5(1) of that regulation, setting out the non-application of Article 5(2) to (6) to the contract at issue.
  • In those circumstances, it was held that Article 4(7) of Regulation No 1370/2007 applied in the event of the award of a contract for public passenger transport services by bus coming within the scope of Article 5(1) of that regulation.
That conclusion was supported by the purpose of Regulation No 1370/2007 in that:
  • The purpose was to define how competent authorities may act in the field of public passenger transport to guarantee the provision of services of general interest which are more numerous, safer, of a higher quality or provided at lower cost than those that market forces alone would have allowed.
  • Regulation No 1370/2007 contained special rules in relation to public passenger transport services by rail and road.
  • In so far as both Article 4(7) of that regulation and Article 25 of Directive 2004/18, contained rules on subcontracting, the view had to be taken that the first provision constituted a special rule which took precedence over the latter.

The third question

The court held that Article 4(7) of Regulation No 1370/2007 must be interpreted as meaning that it does not preclude a contracting authority from setting at 70% the proportion of self-provision by the operator responsible for the administration and performance of a contract for public passenger transport by bus, such as that at issue in the main proceedings.
This decision was based upon the following reasoning:
  • Under the first sentence of Article 4(7) of Regulation No 1370/2007, tender documents and public service contracts were required to specify transparently whether, and if so to what extent, subcontracting may be considered. This conferred a broad discretion on the competent authorities, which included the possibility of prohibiting subcontracting solely for part of a contract.
  • The second sentence of Article 4(7) of Regulation No 1370/2007 did not authorise full subcontracting since it provided that the operator was itself required to perform a major part of the contract. It was only if the public service contract covered, at the same time, the design, construction and operation of public passenger transport services, that full subcontracting for the operation of those services could be authorised.
  • It followed that Article 4(7) of Regulation No 1370/2007 did not preclude the contracting authority from limiting, to a significant extent, the possibility of recourse to subcontracting in the context of a contract such as that at issue in the main proceedings.
  • The limitation in this case to 30% of the services did not exceed the discretion that Article 4(7) of Regulation No 1370/2007 conferred on competent authorities.

Ruling

The court ruled that:
  • Article 5(1) of Regulation (EC) No 1370/2007, on public passenger transport services by rail and by road, must be interpreted as meaning that, in a contract award procedure for public passenger transport services by bus, Article 4(7) of that regulation remains applicable to that contract.
  • Article 4(7) of Regulation No 1370/2007 must be interpreted as meaning that it does not preclude a contracting authority from setting at 70% the proportion of self-provision by the operator responsible for the administration and performance of a contract for public passenger transport by bus, such as that at issue in the main proceedings.

Comment

Under Directive 2004/18/EC, contracting authorities may restrict successful tenderers in their use of subcontracting only in very limited circumstances. By contrast, in Regulation 1370/2007, defining how the competent authorities may guarantee the effective provision of public passenger transport services, there are specific rules on subcontracting. Regulation 1370/2007 allows the competent authorities to decide whether such services may or may not be subcontracted, so as to ensure the best use of public funds. The regulation nevertheless requires the selected operator to perform "a major part" of those services itself.
The court has addressed this apparent contradiction, although it should be noted that Article 63(2) of Directive 2014/24 introduces significant changes compared to Article 25 of Directive 2004/18. Article 63(2) provides that contracting authorities may require that certain critical tasks are performed directly by the tenderer itself. Thus this ruling on the questions referred by the domestic court may not be definitive for procurements under the new Directive.

Case:

Hörmann Reisen GmbH v Stadt Augsburg, Landkreis Augsburg Case C292/15 ( 27 October 2016 ) (Infocuria).
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Also Found In
Resource ID w-004-2257
© 2024 Thomson Reuters. All rights reserved.
Published on 02-Nov-2016
Resource Type Legal update: case report
Jurisdictions
  • European Union
  • United Kingdom
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