The Arnhem and Teckal judgements

1. The Arnhem and Teckal judgements ”In-house” services – the problem with publicly owned and controlled entities - comments on the ECJ ”Arnhem” and ”Teckal” cases Kurt Weltzien Associate lawyer Personal introduction Personal presentation Personal introduction Personal presentation

2. Introduction to the thesisStarting point Public procurement regime - aims: Competition Best value for money, use taxpayers money in an effective wayIntroduction to the thesisStarting point Public procurement regime - aims: Competition Best value for money, use taxpayers money in an effective way

3. The reorganizing of government After WW2 The State very active in rebuilding Norway. Stricht government control and participation in bot commercial and none- commercial activities. Much use of laws, provisions - direct government 1980 and onwards A more liberal approach to how to organize government - more use of indirect incentives, f ex economical incentives Different degrees of liberalization of the government - trying to find new ways of governing: fully privatized entities (with little or no government control) - consortiums (two or more municipalities are participants) - divisions within the administration. The trend is that ”commercial activities” are outsourced, competition with private entities. Concequenses EEA agreement - international law Does public procurement rules come to effect when municipalities are reorganized? Does the reorganization have any legal effects? The reorganizing of government After WW2 The State very active in rebuilding Norway. Stricht government control and participation in bot commercial and none- commercial activities. Much use of laws, provisions - direct government 1980 and onwards A more liberal approach to how to organize government - more use of indirect incentives, f ex economical incentives Different degrees of liberalization of the government - trying to find new ways of governing: fully privatized entities (with little or no government control) - consortiums (two or more municipalities are participants) - divisions within the administration. The trend is that ”commercial activities” are outsourced, competition with private entities. Concequenses EEA agreement - international law Does public procurement rules come to effect when municipalities are reorganized? Does the reorganization have any legal effects?

4. Principal rule: A tender bidding procedure Principal rule: When a municipality shall purchase supplies, works or services above the threshold values, they must use the procedures in the directives. The directives applies. 3 main principles: 1. Scope of the directives (What is a contracting authority?) Art 1 How does the directive cover? State, Regional and local authorities and bodies governed by public law (legal personality, financed/controlled) 2. Threshold values 3. Contract (Important, Statens Veivesen)Copmpetition between private corp and the in-house unit. Market-testing, never the meaning to award the contract to anybody. When all these conditions are fulfilled – the directives applies. New legislative package - one classical dir (draft in folder) and one utility dir. Principal rule: When a municipality shall purchase supplies, works or services above the threshold values, they must use the procedures in the directives. The directives applies. 3 main principles: 1. Scope of the directives (What is a contracting authority?) Art 1 How does the directive cover? State, Regional and local authorities and bodies governed by public law (legal personality, financed/controlled) 2. Threshold values 3. Contract (Important, Statens Veivesen)Copmpetition between private corp and the in-house unit. Market-testing, never the meaning to award the contract to anybody. When all these conditions are fulfilled – the directives applies. New legislative package - one classical dir (draft in folder) and one utility dir.

5. Service Dir Art 1 b contracting authorities shall mean the State, regional or local authorities, bodies governed by public law, associations formed by one or more of such authorities or bodies governed by public law. Body governed by public law means any body: - established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character, and- having legal personality and- financed, for the most part, by the State, or regional or local authorities, or other bodies governed by public law; or subject to management supervision by those bodies; or having an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional or local authorities or by other bodies governed by public law. 

6. Make two things very clear: (1) When the entity itself and the municipality itself purchase goods, services and works(externally)they are covered by the directives (utility or classical). (2) It is not the utility directive that apply internally (between the owner and the utiliy)! It is not the outsourced entities procurement (they can be subject to the utility directive), but whether a classical directive are applicable. Is this situation covered by the directives? In-house definition - (Trepte ) ”…the practice for an entity of using its own staff and resources to carry out a specific activity rather than having the activity carried out by a third party unconnected with the entity” Make two things very clear: (1) When the entity itself and the municipality itself purchase goods, services and works(externally)they are covered by the directives (utility or classical). (2) It is not the utility directive that apply internally (between the owner and the utiliy)! It is not the outsourced entities procurement (they can be subject to the utility directive), but whether a classical directive are applicable. Is this situation covered by the directives? In-house definition - (Trepte ) ”…the practice for an entity of using its own staff and resources to carry out a specific activity rather than having the activity carried out by a third party unconnected with the entity”

7. Tried to illustrate how the municipalities are looking today. What is “inside” and what is “outside”? Question: What do municipalities do? What is government resposibility and what is private sector resp? Public sector have tries to organize itself differently, tried to “copy” public sector A political question whether you are inside or outside? Tried to illustrate how the municipalities are looking today. What is “inside” and what is “outside”? Question: What do municipalities do? What is government resposibility and what is private sector resp? Public sector have tries to organize itself differently, tried to “copy” public sector A political question whether you are inside or outside?

8. Introduction Question: How does one draw the line? What is inside and what is outside the municipality? No regulation in the directives. We are left more or less in the open, and have to try to reason ourselves - have to find good and workable solutions for the participants Two decisions from the ECJ give some guidelines. Arnhem regarding service-dir and Teckal the supply-dir. There are differences as to how wide the in-house exception goes. Seen together - give some advice on how to approach the problems. Decisions - Not national corporate law, not European corporate lawIntroduction Question: How does one draw the line? What is inside and what is outside the municipality? No regulation in the directives. We are left more or less in the open, and have to try to reason ourselves - have to find good and workable solutions for the participants Two decisions from the ECJ give some guidelines. Arnhem regarding service-dir and Teckal the supply-dir. There are differences as to how wide the in-house exception goes. Seen together - give some advice on how to approach the problems. Decisions - Not national corporate law, not European corporate law

9. Supply directive 93/36 Teckal-decision AGAC: consortium of which Viano was a member. The concortium was awarded the contract of energy and environmental services without any tender bidding. Teckal Srl: privat entity. It brought proceedings before the national, local court ? brought it to the ECJ with questiones regarding the understanding and interpretation of the service directive. The ECJ found that the contract was covered by the supply directive because the supply element was larger (in value) than the service element. The ECJ therefore reformulates the questions itself and consequently the case therefore lacks some of the same clarity as the Arnhem-case. We are about to see that conclusion and premises are not consistent. Supply directive 93/36 Teckal-decision AGAC: consortium of which Viano was a member. The concortium was awarded the contract of energy and environmental services without any tender bidding. Teckal Srl: privat entity. It brought proceedings before the national, local court ? brought it to the ECJ with questiones regarding the understanding and interpretation of the service directive. The ECJ found that the contract was covered by the supply directive because the supply element was larger (in value) than the service element. The ECJ therefore reformulates the questions itself and consequently the case therefore lacks some of the same clarity as the Arnhem-case. We are about to see that conclusion and premises are not consistent.

10. Teckal Judgement C-107/98 Recital 49 Recital 50 Conclusion Overview over the presentation regarding the Teckal-judgementOverview over the presentation regarding the Teckal-judgement

11. Recital 49 (93/36) As to whether there is a contract, the national court must determine whether there has been an agreement between two separate persons. Two separate personsTwo separate persons

12. Recital 50 (93/36) In that regard, in accordance with Article 1(a) of Directive 93/36, it is, in principle, sufficient if the contract was concluded between, on the one hand, a local authority and, on the other, a person legally distinct from that local authority. The position can be otherwise only in the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities. Prinsipal rule: Legally distrinct ? use directives and no in-house activity will beallowed Exception: lines up two conditions: Control - like own departements Essential part of its activities - like a central provider, like the utility sector (20/80)? Is in-house ok? Market operations are essential parts here. This has been widely excepted as a workabel and good solution – the view of the Norwegian Ministry of Trade and Industry Prinsipal rule: Legally distrinct ? use directives and no in-house activity will beallowed Exception: lines up two conditions: Control - like own departements Essential part of its activities - like a central provider, like the utility sector (20/80)? Is in-house ok? Market operations are essential parts here. This has been widely excepted as a workabel and good solution – the view of the Norwegian Ministry of Trade and Industry

13. Conclusion (93/36) Council Directive 93/36/EEC of 14 June 1993 coordinating procedures for the award of public supply contracts is applicable in the case where a contracting authority, such as a local authority, plans to conclude in writing, with an entity which is formally distinct from it and independent of it in regard to decision- making, a contract for pecuniary interest for the supply of products, whether or not that entity is itself a contracting authority. - Q: Does this mean anything else than the recitals? Formally distinct - independent in regard to decision making Qustions to be asked: - Why this different way of expressing the principal rule? - Any legal effect? - How do we interpret the premisses and the conclusion? In Norw law the conclusion are the only part of a judgement with legal force. - May we find some guidelines from the conclusion? - How independent can the entity be when it is 100% owned by the municipality? Can the doctrine of “piercing the corporate veil” be an alternative? Why do the ECJ formulate the rules differently? It might be that all the judgements are unanimous and this is as far it is possible to get all the judges? - Q: Does this mean anything else than the recitals? Formally distinct - independent in regard to decision making Qustions to be asked: - Why this different way of expressing the principal rule? - Any legal effect? - How do we interpret the premisses and the conclusion? In Norw law the conclusion are the only part of a judgement with legal force. - May we find some guidelines from the conclusion? - How independent can the entity be when it is 100% owned by the municipality? Can the doctrine of “piercing the corporate veil” be an alternative? Why do the ECJ formulate the rules differently? It might be that all the judgements are unanimous and this is as far it is possible to get all the judges?

14. Regarding service-contract ARA - consortium owned by different municipalities - awarded contract without prior tendering. BFI - private entity Regarding service-contract ARA - consortium owned by different municipalities - awarded contract without prior tendering. BFI - private entity

15. Arnhem Judgement C-360/96 Problem: Scope of the service directive (92/50)? Article 6 Article 1(b) Conclusion Main question Does the service-dir apply to this situation? Question asked is in reality whether the directive Which entities are "public" and therefore subject to EC directive regime? as formulated by prof Krüger in the news bulletin at his homepage. Is this situation coverd by the directive at all? Main question Does the service-dir apply to this situation? Question asked is in reality whether the directive Which entities are "public" and therefore subject to EC directive regime? as formulated by prof Krüger in the news bulletin at his homepage. Is this situation coverd by the directive at all?

16. Art 6 (92/50) Article 6 'This Directive shall not apply to public service contracts awarded to an entity which is itself a contracting authority within the meaning of Article 1(b) on the basis of an exclusive right which it enjoys pursuant to a published law, regulation or administrative provision which is compatible with the Treaty.' Exempltions from the applicability for the Scervice directive.Exempltions from the applicability for the Scervice directive.

17. Art 1 (b) (92/50) (b)contracting authorities shall mean the State, regional or local authorities, bodies governed by public law ….. Body governed by public law means any body: -established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character, and ….

18. Conclusion (92/50) The second subparagraph of Article 1(b) of Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts must be interpreted as meaning that the legislature drew a distinction between needs in the general interest not having an industrial or commercial character and needs in the general interest having an industrial or commercial character Possible interpretations: 1 Needs in the general interest as opposed to ………………needs having an industrial or commercial interest OR 2 Needs in the general interest having an industrial or commercial interest as opposed to ……………..needs in the general interest not having an industrial or commercial interest. iPossible interpretations: 1 Needs in the general interest as opposed to ………………needs having an industrial or commercial interest OR 2 Needs in the general interest having an industrial or commercial interest as opposed to ……………..needs in the general interest not having an industrial or commercial interest. i

19. Difficult to determine and interpret when we are facing a corporation that meets the needs in general interest having an industrial or commercial character, as opposed to a corporation that meets the needs in general interest not having an industrial or commercial character Difficult to determine and interpret when we are facing a corporation that meets the needs in general interest having an industrial or commercial character, as opposed to a corporation that meets the needs in general interest not having an industrial or commercial character

20. Commission proposal Com(2002)236 final New Art 19 a ”This Directive shall not apply to public contracts awarded by a contracting authority to a legally distinct entity owned exclusively by that contracting authority, if - the entity concerned does not have autonomous decision-making powers in relation to the contracting authority on account of the latter exercising over that entity a control which is similar to that which it exercises over its own departments; - the entity carries out all its activities with the contracting authority which owns it.

21. Teckal and Arnhem shows that there is difference between supply- and service directive? Why? Subtil differences between the directives Any particular reason why there should be any easier to have in-house production of services than supplies? The new directives - classical sector - still has this difference - why? COM (2000)275 final/2 Art 19 still exemption for servicesTeckal and Arnhem shows that there is difference between supply- and service directive? Why? Subtil differences between the directives Any particular reason why there should be any easier to have in-house production of services than supplies? The new directives - classical sector - still has this difference - why? COM (2000)275 final/2 Art 19 still exemption for services

22. Case Purchase of electricity in an inhouse arrangement

23. Problem menu May municipalities buy electricity from a 100 % owned corporation without prior tendering? May the municipality buy electricity in an in-house arrangement? Question can also be seen under a different angle: How independent is an entity that is outsourced? Has the private entity better relations with corporate law than adminstrative law? Is it private or public sector? Does any of the classical directives apply when municipalities shall buy electricity from 100% owned entities? Is electricity a supply or is it a service? In Norwegian law a muc debateed subject - but in European law I think it is clear that it is a goods. (This has relevance because the in-house is somewhat wider in the fields of service than what is the case for supply) Service dir art 6 Is the entity a tool for government policy, or is it fully independent and privatized? The way foreward The way forward: (1) Look at how Norwegian municipalities are organized due to resent developments and (2) Look at how The Energy Act of 1990 has lead to a totally liberalized market for trade of electricity and (3) See if these two major trends have any impact on purchase of electrisity today. (4) Practical problems with purchase of electricity in Norway today. Problem menu May municipalities buy electricity from a 100 % owned corporation without prior tendering? May the municipality buy electricity in an in-house arrangement? Question can also be seen under a different angle: How independent is an entity that is outsourced? Has the private entity better relations with corporate law than adminstrative law? Is it private or public sector? Does any of the classical directives apply when municipalities shall buy electricity from 100% owned entities? Is electricity a supply or is it a service? In Norwegian law a muc debateed subject - but in European law I think it is clear that it is a goods. (This has relevance because the in-house is somewhat wider in the fields of service than what is the case for supply) Service dir art 6 Is the entity a tool for government policy, or is it fully independent and privatized? The way foreward The way forward: (1) Look at how Norwegian municipalities are organized due to resent developments and (2) Look at how The Energy Act of 1990 has lead to a totally liberalized market for trade of electricity and (3) See if these two major trends have any impact on purchase of electrisity today. (4) Practical problems with purchase of electricity in Norway today.

24. Try to exsplain this illustration From public service to market competition Prior to 1990: Concession for the generators, exclusive right to supply electricity in an area, and in return an obligation to cover the demand in the same area. Customers locked in the area - coulkd not buy electricity from an other producer. Result: inefficiancy, no economic incentiv to buy cheap electricity from other producers. Try to exsplain this illustration From public service to market competition Prior to 1990: Concession for the generators, exclusive right to supply electricity in an area, and in return an obligation to cover the demand in the same area. Customers locked in the area - coulkd not buy electricity from an other producer. Result: inefficiancy, no economic incentiv to buy cheap electricity from other producers.

25. The Energy Act of 1990 - introduction of competition in production and trade of electricity and at the same time strengthening governmental control over transmission and distribution activities. The electricity branch sharply divided in two: (1)Competition in production and totally free (liberalized) trade of electricity (More liberal than any other European country so far - we are very proud! Electricity are sold over NordPool - a commodity market, need to understand physical laws. All producers sell their electricity to NordPool and customers buy form the market. (One price - full information to the customers - made public by the Norw Copmepetition Authority every week. Totally cost free to change producer. Today: anybody can buy electricity from wherever they want, no cost to change. (2)Monopoly in distribution with governmental control. You have to pay a mandatory fee to the distributor that operates the electricity lines where you live. Ownership About 80 % of the electricity branch is publicly owned Due to the restructuring: large, often transborder, mergers - problems with the competition rules? Cross-subsidies? Problems? Monopoly before 1990, free competition 1990-2005, oligopol 2005 ??¨(few producers) The Energy Act of 1990 - introduction of competition in production and trade of electricity and at the same time strengthening governmental control over transmission and distribution activities. The electricity branch sharply divided in two: (1)Competition in production and totally free (liberalized) trade of electricity (More liberal than any other European country so far - we are very proud! Electricity are sold over NordPool - a commodity market, need to understand physical laws. All producers sell their electricity to NordPool and customers buy form the market. (One price - full information to the customers - made public by the Norw Copmepetition Authority every week. Totally cost free to change producer. Today: anybody can buy electricity from wherever they want, no cost to change. (2)Monopoly in distribution with governmental control. You have to pay a mandatory fee to the distributor that operates the electricity lines where you live. Ownership About 80 % of the electricity branch is publicly owned Due to the restructuring: large, often transborder, mergers - problems with the competition rules? Cross-subsidies? Problems? Monopoly before 1990, free competition 1990-2005, oligopol 2005 ??¨(few producers)

26. Final questions May municipalities purchase electricity over the commodity market (Nord Pool)? Is it possible to use the detailed procedures in the directives when purchasing over a commodity market? Is it necessary to use the procedures when there exists a commodity market?