Tuesday, 3 February 2009

Service concessions in EU procurement

Service concessions continue the long list of public contracts excluded from the application of the Procurement Directive 2004/18/EC.

But if concessions are exempted from the detailed procurement procedures, it does not mean that they are free from the general treaty principles governing the internal market.

As always, exceptions have to be justified and they are narrowly interpreted.

We start by looking at the seemingly simple exemption of service concessions before turning to the discussion on guiding principles.


Article 17

The European Community (European Union) Procurement Directive 2004/18/EC is not applied to service concessions:

Article 17
Service concessions

Without prejudice to the application of Article 3, this Directive shall not apply to service concessions as defined in Article 1(4).


Definition of service concession

Article 17 of the Procurement Directive, or Classic Directive, refers to the definition of service concession in Article 1(4):

4. ‘Service concession’ is a contract of the same type as a public service contract except for the fact that the consideration for the provision of services consists either solely in the right to exploit the service or in this right together with payment.


Service contract

Except for the consideration, a service concession fulfils the same criteria as a public service contract, defined in Article 1(2)(d):

(d) ‘Public service contracts’ are public contracts other than public works or supply contracts having as their object the provision of services referred to in Annex II.

A public contract having as its object both products and services within the meaning of Annex II shall be considered to be a ‘public service contract’ if the value of the services in question exceeds that of the products covered by the contract.

A public contract having as its object services within the meaning of Annex II and including activities within the meaning of Annex I that are only incidental to the principal object of the contract shall be considered to be a public service contract.


Article 3

Article 3 of the Procurement Directive 2004/18/EC tells us that the service concession must comply with the basic treaty obligation of non-discrimination on the basis of nationality when it awards contracts to third parties.

The principle of non-discrimination is set out in Article 12 of the Treaty establishing the European Community and given more precise meaning in the rich jurisprudence of the European Court of Justice.

(If the Lisbon Treaty enters into force, the same obligation would be found in Article 18 of the Treaty on the Functioning of the European Union.)

The contracting authority (public body) granting the special or exclusive right (service concession) must make sure that the principle of non-discrimination is adhered to by providing for it in the granting act:

Article 3
Granting of special or exclusive rights: non-discrimination clause

Where a contracting authority grants special or exclusive rights to carry out a public service activity to an entity other than such a contracting authority, the act by which that right is granted shall provide that, in respect of the supply contracts which it awards to third parties as part of its activities, the entity concerned must comply with the principle of non-discrimination on the basis of nationality.


Commission Guide

The Commission’s Guide to the Community Rules on Public Procurement of Services explains the background of the old Directive 92/50/EEC, but since the new Procurement Directive 2004/18/EC has taken over the exclusion the text is still relevant for our understanding (page 5):

The Commission's original proposal12 contained provisions on public service concessions analogous to those existing in the Works Directive for public works concessions. However, the Member States in Council decided not to include this type of contract because of wide divergence of national practices in matters of public service concessions. Thus the Services Directive does not apply to public service concessions, which broadly means that the Directive does not apply to contracts whereby a public authority transfers the execution of a service to the public lying within its responsibility to an undertaking of its choice and the latter agrees to execute the activity in return for the right to exploit the service, or this right together with payment. Nevertheless, the award of such contracts is, of course, subject to the Treaty rules concerning the freedom to provide services and to the general principles of Community law such as non-discrimination, equality of treatment, transparency and mutual recognition.


Advertising exempted contracts

The national laws and regulations vary within the 30 states of the European Economic Area, but the treaty standards, the Procurement Directives and the problems facing officials and firms are shared.

Let us therefore mention a guide on the advertisement of contracts exempted from the scope of the detailed Directive rules.

Scottish Procurement Directorate: Scottish Procurement Policy Note SPPN 3/2006 (3 March 2006) is available here:


Readers interested in procurement policy generally may want to peruse the new Scottish Procurement Policy Handbook (published 23 December 2008):


The Scottish Government’s Procurement web pages offer well organised and timely information on procurement issues, many of them of interest outside Scotland as well:



Institutionalised Public-Private Partnerships (IPPP)

One area where concessions are granted is in the context of Public-Private Partnerships (PPP), for the long term in the form of Institutionalised Public-Private Partnerships (IPPP).

After consultation, the Commission published its interpretation of the principles applicable to these partnerships, in Commission Interpretative Communication on the application of Community law on Public Procurement and Concessions to Institutionalised Public-Private Partnerships (IPPP), Brussels 5.2.2008 C(2007)6661.

This guidance may be of some assistance to readers faced with questions relating to service concessions and it offers a picture of how the Commission as guardian of the treaties views the treaty obligations in the light of ECJ jurisprudence.

Here are the introductory remarks by the Commission on the context of the Communication (page 2):

In recent years, Public-Private Partnerships (PPP) have developed in many fields. The hallmark of this form of cooperation, which is generally geared to the longer term, is the role of the private partner, who is involved in the various phases of the project (planning, implementation and operation), who is intended to bear risks that are traditionally borne by the public sector and who often contributes to financing the project.

Under Community law, public authorities are free to pursue economic activities themselves or to assign them to third parties, such as mixed capital entities founded in the context of a PPP. However, if public bodies decide to involve third parties in economic activities and if this involvement qualifies as a public contract or a concession, the Community provisions for public procurement and concessions must be complied with. The aim of these provisions is to enable all interested economic operators to tender for public contracts and concessions on a fair and transparent basis in the spirit of the European internal market, thereby enhancing the quality of such projects and cutting their costs by means of increased competition.


Future service concessions

What does the future hold in store with regard to service concessions?

Charlie McCreevy, the European Commissioner for Internal Market and Services, outlined future activities in a speech on 11 December 2008 for the Business Services Association (BSA), in London:

By concessions, we mean procurements in which the consideration from contracting authorities consists in the award to the contractor of the right to exploit a work or service, or where this right is accompanied by some sort of payment. A well-known example of these is toll roads, where the contractor builds and operates a motorway and charges tolls on users. Another example is contracts for the management of public services, where contractors set up and/or operate the service and receive fees from users. Concessions are very prominent in the field of PPPs. A study carried out by Price Waterhouse Coopers concluded that approximately 60% of all PPPs take the legal form of concessions.

Following a broad public consultation with the Green Paper on PPP in 2004, we realised that we needed further data on how this worked in practice before considering any further action. This is what we are currently doing. We are studying carefully the concessions market in the EU. After consultations with Member States and stakeholders on this initiative, we are working, therefore, to gather more practical data on the award of concessions in the EU, including in strategic sectors. I also personally see the benefits of service concessions for expanding markets to many new EU Member States where service concessions and other forms of PPPs are infrequently used. Whether or not EU action is needed to facilitate this opening up of new markets is still a more open question.

Ralf Grahn