Introduction
A faulty public procurement procedure or the use of discriminatory selection criteria can confer an advantage on the chosen undertaking that may constitute an advantage in the meaning of Article 107(1) TFEU. The result will be infringement of both public procurement rules and State aid rules.
A recent Commission decision, SA.47650, is instructive on how Member States should design their procurement procedures, especially when they involve negotiations with potential partners, to avoid infringement of State aid rules.[1]
In 2017, the Commission received a complaint alleging that the German Land of North Rhine-Westphalia granted State aid to Cosinex, a German computer software company. After several exchanges with Germany and the complainant, respectively, the Commission concluded that the measure in question did not constitute State aid or if it did, the aid was existing. That is, it was granted more than 10 years before it came to the attention of the Commission.
Cosinex operates internet sites for public and private procurement and develops e-government solutions.
In 2001, Projekt Ruhr, whose sole shareholder was the Land of North Rhine-Westphalia initiated an EU-wide public procurement (negotiated) procedure for the conclusion of a public private partnership [PPP] contract. The contract for the PPP was intended for an unlimited period.
The purpose of the PPP project was to design, implement, and operate a platform for legally binding interactions between citizens, public administration, and industry. The contracting authority would set up an entity with the successful candidate to implement the project.
The contracting authority received 21 applications from which it selected six applicants for negotiations on the specific terms of the contract. In May 2022, Projekt Ruhr awarded the partnership to the consortium of Cap Gemini and Cosinex and together they formed the Konsortium d-NRW GbR which was the “ownership” company. The two private partners formed a private consortium, the Ruhrdigital Private Konsortium GbR, which was the “operating” company. In 2005, Cap Gemini left the private consortium and Cosinex remained as the sole private actor in the PPP and the operating company. Between 2005 and 2016, the ownership company awarded about 260 individual contracts to the operating company. Under the contracts, the operating company provided services to the ownership company with a total net value of approximately EUR 26 million.
In November 2016, the ownership company and the operating company agreed that no new individual contracts would be awarded to the operating company under the initial contract because the ownership company had decided to tender out the co-operation and partnership anew. In September 2017, the new contract was awarded to a consortium consisting of Cosinex, BMS Consulting and Publicplan.
The complainant claimed that irregularities in both old and new contracts constituted State aid for Cosinex. The complainant also argued that the remuneration paid for the services of the operating company under the directly awarded contracts was above market rates.
Commission assessment
In paragraphs 58 & 59 of the decision, the Commission found Cosinex to be an undertaking. In paragraphs 60-67, it considered that the consortium was controlled by the Land of North Rhine-Westphalia and that the measures in question were imputed to the Land North Rhine-Westphalia. Therefore, the measures were funded by state resources.
The largest part of the assessment, in paragraphs 68-162, was devoted to analysis of whether Cosinex derived an advantage not available under normal market conditions.
“(69) The relevant method to assess whether an economic transaction carried out by a public undertaking took place under normal market conditions and, therefore, whether it involved the granting of an advantage (which would not have occurred in normal market conditions) to its counterpart is the Market Economy Operator test”.
“(72) A transaction’s compliance with market conditions can be directly established through transaction-specific market information where it concerns the sale and purchase of assets, goods and services (or other comparable transactions) carried out through a competitive, transparent, non-discriminatory and unconditional tender procedure.”
Then the Commission clarified that “(73) using and complying with the procedures provided for in the EU Public Procurement Directives can be considered sufficient to meet the requirements of a competitive, transparent, and non-discriminatory tender procedure provided that all the conditions for the use of the respective procedure are fulfilled”.
Consequently, “(78) Council Directive 92/50/EEC [on the award of public service contracts] is the applicable legal basis for the assessment of the correctness of the negotiated procedure initiated by the Projekt Ruhr GmbH on 1 August 2001.”
Choice of a negotiated procedure
The Commission found that the contracting authority made no error in choosing a negotiated procedure because the concept was novel and because there could be different approaches for its realisation. In other words, the negotiated procedure allows public authorities to define the details of a project together with potential partners.
“(82) The design, implementation, and operation of an online platform for legally binding interactions between citizens, administrations, and business with all the necessary components was something rather novel in August 2001. The Commission considers that, given the complexity of the project and its innovative nature and the associated risks, the intellectual services to be procured did not allow for prior global pricing.” In addition, “(83) the services to be procured required conceptual and innovative solutions and each applicant could have had different approaches regarding the design, the implementation, and the operation of the platform so that a negotiated procedure was justified, also to ensure that the offered solutions met the requirements of the contracting authority. This PPP project was not about a specific and pre-defined good for which the contracting authority could have launched an open procedure selecting the bidder offering the best price.”
Compliance with the rules for negotiated procedures
The Commission found that the contracting authority complied with the rules for negotiated procedures. In paragraphs 86-91, the Commission described how the contracting authority conformed with the rules in Directive 92/50 such as those on publication, the criteria for selecting potential partners, and the procedure by which negotiations were carried out.
Transparency
The Commission also investigated the claim of the complainant that the procurement procedure was not transparent.
However, it concluded, in paragraphs 93-114, that the claim was unfounded because the terms of the contract were clear, well-publicised and all relevant documents were made available to all interested parties. Even though some terms may have changed during the negotiations, the Commission considered that that was inherent in a negotiated procedure. Furthermore, under the negotiated procedure, contracting authorities were not obliged to specify the quantity and price of the services that were to be procured or the value of the contract.
Unlimited duration of the framework agreement
The complainant argued that the unlimited duration of the framework agreement was inappropriate and restricted competition. The Commission rejected the argument because the then applicable procurement rules did not oblige contracting parties to limit the duration of framework contracts in a negotiated procedure.
On the basis of the above assessment, “(119) the Commission conclude[d] that Projekt Ruhr GmbH complied with the procedures provided for in Council Directive 92/50/EEC and that the conditions for the use of the negotiated procedure with publication of a contract notice were fulfilled. The tender procedure thus met the requirements of a competitive, transparent, and non-discriminatory tender procedure.”
Scope of the agreement
Next, the Commission examined the complainant’s claims concerning the scope of the framework agreement.
“(120) The complainant argues that the scope of the framework agreement between the ownership company and the operating company was not sufficiently specific. Therefore, according to the complainant, individual contracts that have been awarded to the operating company with reference to the framework agreement should have been tendered out, especially the e-procurement platform”.
“(121) The Commission rejects the complainant’s claim. It considers that the framework agreement between the ownership company and the operating company described the services to be provided by the operating company in a sufficiently precise manner, including the services related to the e-procurement platform.”
Awards outside the scope of the agreement
The complainant also claimed that direct contracts were awarded outside the scope of the framework agreement.
“(125) The complainant claims that not all contracts that were directly awarded to the operating company and implemented by Cosinex as subcontractor fell under the scope of the framework agreement. The complainant argues that the contracts concerned should have been tendered out”.
“(126) The Commission rejects this claim. It could not identify any direct contract awards to the operating company with Cosinex or another company affiliated with Cosinex as a subcontractor that were obviously not covered by the scope of the framework contract.”
Material amendment of the agreement
The complainant claimed that the original subject matter of the framework agreement had long been exhausted and that the withdrawal of Cap Gemini from the PPP in 2005 led to a material amendment of the agreement, which required a new call for tender.
At this point, the Commission cited part of the judgment of the Court of Justice in case C-454/06, pressetext Nachrichtenagentur, which reads as follows:
““In order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during the currency of the contract constitute a new award of a contract within the meaning of Directive 92/50 when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract […] An amendment to a public contract during its currency may be regarded as being material when it introduces conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted. Likewise, an amendment to the initial contract may be regarded as being material when it extends the scope of the contract considerably to encompass services not initially covered.”
Drawing on the above explanation of the Court of Justice, the Commission considered that the withdrawal of Cap Gemini did not materially alter the terms of the contract.
The overall conclusion of the Commission was that “(161) Cosinex did not receive an economic benefit which it could not have obtained under normal market conditions and that it thus did not receive an advantage within the meaning of Article 107(1) TFEU.”
Existing aid and the 10-year limitation
Lastly, the Commission examined, if the contract awarded to Cosinex included State aid, whether the aid was existing and subject to the 10-year limitation period.
“(166) In the case at hand, the first action taken by the Commission with regard to the alleged unlawful aid was a request for information to the German authorities sent on 12 June 2017 […] This implies that any potential aid granted by the German authorities in the case at hand before 12 June 2007 would have to be treated as existing aid and could no longer be recovered.”
“(167) Therefore, even if the conclusion of the framework agreement in November 2002 […] constituted aid quod non […], regardless of whether it qualified as individual aid or as an aid scheme, it would have to be considered as existing aid within the meaning of Article 1(b)(iv) of Council Regulation (EU) 2015/1589 and could no longer be recovered by the Commission. The same would apply to all direct contract awards from the ownership company to the operating company with reference to the framework agreement that were made before 12 June 2007, which includes notably the contract award concerning the e-procurement solution of 14 November 2005, i.e. the complainant’s main point of concern.”
“(168) To what extent this would also apply to the direct contract awards with reference to the framework agreement that were made after 12 June 2007 depends on whether the framework agreement would have to be considered an aid scheme or ad-hoc individual aid. Contract awards under an aid scheme are based on new and separate decisions that constitute individual aid awards under that aid scheme whilst contract awards implementing ad-hoc individual aid are necessary implementation measures that do not constitute new and separate decisions on the award of aid.”
“(169) To determine whether a measure qualifies as an aid scheme or as individual aid, the Commission has to examine the nature of the measure in the light of the definitions set out in Council Regulation (EU) 2015/1589.”
“(170) Pursuant to Article 1(d) of Council Regulation (EU) 2015/1589, aid scheme means any act on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner and any act on the basis of which aid which is not linked to a specific project may be awarded to one or several undertakings for an indefinite period of time and/or for an indefinite amount.”
“(171) Pursuant to Article 1(e) of Council Regulation (EU) 2015/1589, individual aid means aid that is not awarded on the basis of an aid scheme and notifiable awards of aid on the basis of an aid scheme.”
“(172) The direct contract awards with reference to the framework agreement are not aimed at “undertakings defined within the act in a general and abstract manner” but are aimed specifically at the operating company.”
“(173) Further, any potential aid on the basis of the framework agreement would be “linked to a specific project”, i.e. the design, implementation and operation of the platform. Therefore, the framework agreement cannot be considered an aid scheme within the meaning of Article 1(d) of Council Regulation (EU) 2015/1589.”
“(174) The framework agreement would (even if it constituted aid, which the Commission considers is not the case) rather constitute an act on the basis of which individual contracts that were linked to a specific project (the PPP’s purpose to design, implement and operate a platform for legally binding interactions between citizens, administrations and industry with all the necessary components) could be directly awarded to one undertaking, the operating company, for an indefinite period of time.”
“(175) The framework agreement would therefore constitute individual aid within the meaning of Article 1(e) of Council Regulation (EU) 2015/1589 that was awarded in 2002 and the direct contract awards with reference to the framework agreement would have to be considered as measures necessary to implement the framework agreement, not as individual aid awards themselves. Therefore, the Commission considers that the finding of existing aid would cover all the direct contract awards under the framework agreement, including those after 12 June 2007.”
“(176) The Commission concludes that (even if the framework agreement or any of the contracts directly awarded by the ownership company to the operating company with reference to the framework agreement constituted aid, which the Commission considers is not the case – see section 3 above) it would have to be treated as existing aid within the meaning of Article 1(b)(iv) of Council Regulation (EU) 2015/1589 and could no longer be recovered by the Commission.”
“(177) According to Article 24(2) of Council Regulation (EU) 2015/1589, which lays down the rights of interested parties, a complaint may only be lodged with respect to alleged unlawful aid or alleged misuse of aid. As explained (see recitals (163)- (176) above), the Commission is of the view that the allegations in this case concern existing aid pursuant to Article 1(b)(iv) of Council Regulation (EU) 2015/1589. It is therefore not possible, according to Council Regulation (EU) 2015/1589, to submit a complaint concerning existing aid.”
Therefore, the complaint was rejected and the German measure was found to be free of State aid.
[1] The full text of the Commission decision can be accessed at:
