C-94/99

ARGE

OPINION OF ADVOCATE GENERAL LÉGER delivered on 15 June 2000 *

1. In accordance with national legislation 3. The questions raised by the invitation to on water quality, a number of Austrian tender at issue concern the principle of administrative authorities invited tenders equality in two ways. for the award of service contracts for the taking and the analysis of water samples from Austrian lakes and rivers.

It is necessary to establish whether the fact that subsidised bodies were allowed to submit tenders is likely to infringe the 2. The fact that bodies benefiting from principle of non-discrimination on the subsidies took part in the tender procedure ground of nationality or, at the very least, alongside strictly private tenderers gave rise to create an obstacle to the freedom to to a dispute which led the Austrian court in provide services, since all the bodies con- the main proceedings to refer to the Court cerned are Austrian. of Justice a number of questions for a preliminary ruling.

Even assuming that no restriction on trade can be identified, it is important to deter- mine whether the advantage over the other Basically, those questions concern the leg- tenderers which these bodies arc able to ality, under Community law, of a public enjoy as a result of the public funding they contract award procedure to which subsid- are accorded is compatible with the aim of ised bodies were admitted, all of which securing effective competition pursued by have the nationality of the Member State of Directive 92/50/EEC. 1 the contracting authority and are estab- lished in the territory of that Member State. 1 — Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts (OJ 1992 L 209, p. 1, hereinafter the * Original language: French. 'Directive').

'This Directive shall not apply to public service contracts awarded to an entity which is itself a contracting authority 5. More particularly, the Directive is within the meaning of Article 1(b) on the designed to meet the need to avoid ob- basis of an exclusive right which it enjoys stacles to the free movement of services. 3It pursuant to a published law, regulation or is justified by the need to improve the administrative provision which is compat- access of service providers to procedures ible with the Treaty.' for the award of contracts in order to eliminate practices that restrict competition in general and participation in contracts by other Member States' nationals in particu- lar. 4 8. Article 37 of the Directive lays down certain obligations with which the con- tracting authority must comply if it intends to reject abnormally low tenders. The first paragraph of Article 37 is worded as fol- 6. According to Article 3(1) and (2): lows:

'If, for a given contract, tenders appear to ' 1 . In awarding public service contracts or be abnormally low in relation to the service in organising design contests, contracting provided, the contracting authority shall, authorities shall apply procedures adapted before it may reject those tenders, request to the provisions of this Directive. in writing details of the constituent ele- ments of the tender which it considers relevant and shall verify those constituent 2 — See the first and second recitals. 3 — See the sixth recital. elements taking account of the explana- 4 — See the 20th recital. tions received.'

5 — BGBl. 1991, p. 338. '1. Does the decision of a contracting 6 — Hereinafter: 'ARGE'. authority to admit to an award pro- 7 — Seibersdorf research centre, hereinafter: the 'Seibersdorf cedure bodies which receive subsidies centre'. 8 — Arsenal research institute, hereinafter: the 'Arsenal insti- of any kind, either from the authority tute'. itself or from other contracting author-

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ities, which enable those bodies to of an award procedure in competition tender in an award procedure at prices with commercially active tenderers in which are substantially below those of accordance with Directive 92/50/EEC?' their commercially active competitors, infringe the principle of equal treat- ment of all tenderers and candidates in an award procedure?

IV — Preliminary observations 2. Does the decision of the contracting body to admit such bodies to an award procedure constitute covert discrimina- tion, if the bodies which receive such 15. The first three questions for a preli- subsidies without exception have the minary ruling relate, as I have said, to the nationality of, or are established in, the principle of equality, in terms of both Member State in which the contracting discrimination on grounds of nationality authority is also established? (the second and third questions) and dis- crimination between tenderers in receipt of subsidies and the other tenderers (the first question).

3. Does the decision of a contracting authority to admit such bodies to an award procedure, even on the assump- tion that it does not discriminate against the other tenderers and candi- 16. The fourth question concerns the scope dates, constitute a restriction of the of the Directive ratione personae. It is freedom to provide services which is necessary to establish whether the Directive not compatible with the provisions of is applicable to contracts for the provision the EC Treaty, in particular Article 59 of services concluded between a contract- et seq. thereof? ing authority and a service provider which is in a relationship of close dependence with a public authority because that authority is both its principal owner and the main recipient of its services.

22. That rule is confirmed in the third paragraph of Article 60 of the EC Treaty 19. By these questions, the Bundes- (now the third paragraph of Article 50 EC). vergabeamt is asking whether Articles 59 Applying the principle of national treat- et seq. of the Treaty have to be interpreted ment to the free movement of services, it- as meaning that they preclude a decision by provides that '... the person providing a a contracting authority to admit to a public service may, in order to do so, temporarily contract award procedure bodies in receipt pursue his activity in the State where the of public subsidies which enable them to submit tenders at prices substantially below the prices submitted by the other tenderers, 10 — The attribution of 'nationality' to legal persons, which where those bodies all have the nationality makes it possible for them to be discriminated against by reason of nationality, arises out of the Treaty. In accord- of the Member State in which the contract- ance with the first paragraph of Article 58 of the EC Treaty (now the first paragraph of Article 48 EC), which is ing authority is established and are estab- applicable to services pursuant to Article 66 of the EC lished in the territory of that same Member Treaty (now Article 55 EC): 'Companies or firms formed in accordance with the law of a Member State and having State. 9 their registered office, central administration or principal place of business within the Community shall, (or the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States.' the location of their registered office, central administration or principal place of business serves as the factor connecting 9 — Although the second question refers to bodies which have them with the legal system of a particular State in the same the nationality of the Member State or are established in the way as does nationality in the case of a natural person (see, Member State in which the contracting authority is itself in particular, Case C-212/97 Centros [1999] ECR I-1459, established, it is clear from the grounds for the request for a paragraph 20). preliminary ruling that, in this case, these are cumulative and not alternative factors (p. 10 of the English translation of the order for reference). 1 1 — J o i n e d Cases 110/78 and 111/78 Van Wesemael and Others [1979] ECR 35, paragraph 27.

service is provided, under the same condi- 26. As we know, the principle of equal tions as are imposed by that State on its treatment, to which Article 59 gives spe- own nationals.' cific expression, prohibits not only overt discrimination by reason of nationality but also all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to the same result. 13 23. At issue is the fact that bodies like the Seibersdorf centre and the Arsenal institute, which are said to enjoy an unwarranted competitive advantage because of the sub- sidies they receive, were allowed to take part in the tender procedure. Both have close links with the Member State of the contracting authority since both are estab- lished in Austrian territory and are subject 27. The national court's reference to the to Austrian law. 12 possibility of covert discrimination indi- cates that it appears to harbour no doubt that the measure at issue does not involve overt discrimination, in so far as it stipu- lates no condition in respect of nationality or place of establishment, regardless of 24. To avoid any ambiguity in the inter- whether or not the bodies concerned are pretation of the questions referred, I should subsidised. make it clear that the discriminatory factor mentioned in the second question does not relate to the circumstance that these sub- sidised bodies were allowed to take part in the award procedure. That issue is covered in the first question, which I shall consider later. As I have said, the problem is that the bodies benefiting from subsidy are all Austrian, and that might give the impres- sion that subsidised operators from other In the absence of any condition relating to Member States were not permitted to nationality or place of establishment deter- tender. mining the right to respond to the invita- tion to tender, Austrian bodies or bodies located in Austrian territory would, how- ever, still be at an advantage if the disputed measure treated tenderers differently by applying a criterion according to which 25. In that connection, the Bundes- only bodies subsidised by the Austrian vergabeamt suggests that there may have authorities were allowed to take part in been covert discrimination. the award procedure.

29. In any event, whether the measure at issue is viewed in terms of direct discrimi- 33. For discrimination of that kind to be nation or simply covert discrimination, the established, it would be necessary to prove answer must be the same. that, de jure or de facto, the award procedure includes a rule whereby the right of economic operators to take part in the procedure is subject to a criterion of nationality or the location of their regis- tered office in Austrian territory.

30. I do not consider it justified to conclude from the fact that all the subsidised bodies taking part in the award procedure have the same nationality as the contracting authority that the legality of the procedure at issue is necessarily flawed as a result of 34. Similarly, it would have to be estab- the application of discriminatory criteria. lished that admission to the tender pro- cedure is dependent on the subsidised bodies obtaining their subsidies from the 14 — Sec p. 9 of its written observations. Austrian authorities.

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3 5 . However, even though there is no 37. It is clear that if the national court were reference at any point to participation by to determine the existence of a condition of a tenderer of a different nationality, estab- that kind, it would have to draw the lished in the territory of another Member appropriate conclusions in terms of the State and benefiting from subsidies accor- legality of the procedure and set aside that ded by authorities other than the Austrian condition as being incompatible with Com- authorities, it does not appear that the munity law. procedure at issue lays down criteria which permit such operators to be excluded from it.

15 — I would point out that, according to the Bundes- 39. It must therefore be concluded that vergabeamt: 'It is perfectly conceivable that in other Member States too there are bodies which are provided Articles 59 et seq. of the Treaty have to be with comparable subsidies by their Member State and interpreted as meaning that they do not could take part in the award procedure...' (see p. 13 of the English translation of the order for reference). The preclude a measure such as the decision at possibility that foreign operators similarly subsidised by the relevant authorities or their own Member State could issue in the main proceedings, whereby a take part is not, however, sufficient, in the view of the contracting authority has admitted to an national court, to rule out the possibility of discrimination by reason of nationality, the place of establishment of the award procedure bodies in receipt of public tenderers or the origin of the subsidies they enjoy. Accordingly, it goes on to explain, in the same sentence, subsidies which enable them to tender at that '... commercial service providers from other Member States could or should not expect to encounter Austrian prices which are substantially below those tenderers in the award procedure who have a significant cost advantage over them as a result of subsidies from of the other tenderers, even if all of those Austrian regional or local authorities...'. In so doing, it bodies have the nationality of the Member appears that the Bundesvergabeamt is ruling out one argument that might establish the absence of any restric- State in which the contracting authority is tion on the free movement of services — the opportunity established and are established in the for subsidised foreign undertakings to respond to the invitation to tender in exactly the same way as the territory of that same Member State, pro- subsidised national undertakings — by raising other con- siderations — violation of the principle of equal treat- vided no condition has been laid down in ment of operators, regardless of national origin, as a result of the participation of subsidised undertakings. I shall respect of the nationality of the operators, examine that argument as part of my analysis of the first question. their place of establishment or the origin of the subsidies they may receive.

VI — The scope of the Directive: the A — Admissibility contracts for the provision of services concluded between a contracting authority and a service provider dependent on con- tracting authorities (fourth question) 42. As both ARGE and the Austrian Gov- ernment indicated in their written observa- tions, the admissibility of this question may be a matter of debate. It is not apparent from the reference for a preliminary ruling that the applicability of the Directive to the procedure for the award of the public contract was called in question before the 40. By its fourth question, the national Austrian court. court is asking whether the Directive has to be interpreted as meaning that it covers a service contract concluded between a con- tracting authority and a service provider where the service provider is predominantly owned by a contracting authority and 43. However, it is solely for the national provides services predominantly to con- court before which the dispute has been tracting authorities, including the authority brought, and which must assume responsi- that owns it. bility for the subsequent judicial decision, to determine in the light of the particular circumstances of the case both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions it submits to the Court. A request from the national court may be refused by the Court of Justice only where it is obvious that the interpretation of a Community rule or assessment of its validity which is sought 41. The Bundesvergabeamt refers to the bears no relation to the facts or purpose of possibility of excluding from the require- the main action or if the Court of Justice ments of the Directive contractual relations does not have before it the factual or legal between a contracting authority and bodies material necessary to give a useful answer wholly owned by it which provide their to the questions. 16 services exclusively to it. However, it con- siders that those conditions are too restrict- ive and that, in functional terms, a service provider and a contracting authority may be treated as the same, even if the con- tracting authority does not have exclusive ownership of the service provider and is not 44. It cannot be claimed here that the scope the exclusive recipient of its activity. In that of the Directive has no bearing on the main case too, the close relationship between proceedings. Were it to appear that, by contracting authority and service provider would justify their contractual relationship 16 — C a s e C-275/98 Unitron Scandinavia and 3-S [1999] falling outside the scope of the Directive. ECR I-8291, paragraph 18.

45. Moreover, as we shall see, the material in the file is sufficiently clear to allow us to establish the principles which the national court can apply in order to settle the dispute in the main proceedings. 49. The legal relationship in the form of a contract between the service provider and the service recipient requires that they should be two legal persons possessing, as such, the capacity voluntarily to enter into an undertaking. Consequently, the service provider must possess certain attributes which demonstrate that, in the exercise of 46. That is why I consider it necessary to its economic activity, it is acting sufficiently answer the question submitted, as that independently of the public authority seek- material stands, without taking into ing its services. account the fact that, according to the case-file, there appears to be no argument likely to call into question the legal frame- work initially adopted for the selection by the contracting authority of a service pro- vider. In other words, as Advocate General Cosmas clearly pointed out in his Opinion in Teckal,17 the co-contractor of a con- tracting authority ... must have real third- party status with respect to that authority, that is to say, it must be a separate person from the contracting authority. The Advo- 47. It is therefore necessary to establish whether the Directive is applicable in this 17 — Case C-107/98 Teckal [1999] ECR I-8121, paragraphs 53 case. et seq.

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cate General goes on to say that Commu- tracting authority and whether there was a nity law, on public tenders, 18 '... does not contract for pecuniary interest, the Court require contracting authorities to observe examined the relationship between the the procedure ensuring effective competi- contracting authority and its co-contractor. tion between interested parties where the authorities concerned wish to assume responsibility themselves for the supply of the products they need.'

18 — Council Directive 93/36/EEC of 14 June 1993 coordinat- ing procedures for the award or public supply contracts (OJ 1993 L 199, p. 1). 20 — Case C-107/98, cited i n footnote 17 above, paragraph 50. 19 — See also the Opinion of Advocate General Alber i n Case 21 — Ibidem, my emphasis. C-108/98 RI.SAN. [1999] ECR I-5219, points 46 et seq. 22 — Ibidem, paragraph 51.

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55. It is regrettable that these criteria are comply with the provisions of the Direct- not more clearly defined. It is easy to ive. imagine and identify the existence of a separate entity, since it is sufficient to establish that the economic operator is set up in a legal form different from that of the contracting authority. But it is less straight- forward to gauge the degree of indepen- 1. Control by the contracting authority dence the entity enjoys. The nature of the control a local authority exercises over a legally separate body or the level at which it may reasonably be assumed that the latter carries out the essential part of its activities with the public authority on which it 58. As I have said, for a contract to fall depends, in particular, may be a source of outside the scope of the Directive, it is real uncertainty. necessary to establish that the local author- ity exercises over the person concerned a control which is similar to that which it exercises over its own departments. 23

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which owns them, or they are subject to 62. The position of the Seibersdorf centre is supervision by one of those authorities. 24 less clear-cut. It is important to assess the ARGE, however, did not mention owner- degree of autonomy the centre is able to ship by a Province. It stated that the retain in relation to the State, despite being Republic of Austria holds 5 0 . 5 % of share in predominantly public ownership. capital in the Seibersdorf centre, the remaining 4 9 . 5 % being held by private undertakings. According to ARGE, the Republic of Austria wholly owns the Arsenal institute. 25

63. In order to do this, the national court will assess the validity of ARGE's conten- tion that despite being in predominantly public ownership, the action of that opera- tor is determined by its private share- holders. 2 7 It is in fact for the national It is for the national court to consider in court to ascertain the number and nature of detail the evidence available to it. I make the posts held by representatives of the the general assumption that in both cases, private operators on the centre's decision- at the very least, the State has predominant making bodies and determine the extent to economic ownership, bearing in mind also which that distribution of powers influ- the additional information provided by ences, under the applicable national law, ARGE. the economic objectives of the Seibersdorf centre.

6 1 . As regards the Arsenal institute, I 64. However, that assessment is necessary would cite and apply to this case the only if, in accordance with its own national analysis made by Advocate General Alber law, the national court considers that the in his Opinion in RI.SAN., cited above, in fact that — in its own words — these which he states that: 'even without a full 'bodies... are exclusively or at least pre- knowledge of the internal organisation of dominantly in public ownership' 2 8 is not GEPI SpA, it may be... concluded from the sufficient to guarantee that the public entity fact that the Italian State holds 100% of its exercises effective control over the bodies it share capital that the company is part of owns. the Italian State in that respect'. 26

65. In any event, it is not enough to show up of the Federal Provinces and a specialist that the bodies are of public origin. In order authority (the Landeswasserbauamt of Vor- to provide the Bundesvergabeamt with a arlberg). helpful answer, it is essential to make sure that the public authority which exercises control over the research bodies in the main proceedings and the contracting authority are one and the same person. In those circumstances, it is for the Bundes- vergabeamt to decide whether, although these public authorities are separate, the Seibersdorf centre and Arsenal institute may none the less be subject, under 66. The reservation expressed in the judg- national law, to the same kind of control ment in Teckal is based on the principle by the local authorities that make up the that if an economic entity is not independ- contracting authority as those authorities ent of the local authority that owns it, the exercise over their own departments. existence of a contract between the two is impossible or illusory, even though they are legally separate. For a legal relationship to fall outside the scope of the Directive, therefore, the contracting authority which is seeking the provision of various services 69. The Directive is applicable if, on the from the operator must in fact be the very basis of its findings, the national court local authority that closely controls it, and decides that the relationship between the not another authority. research bodies and the contracting author- ity does not indicate the exercise of any control by the latter, within the meaning of the judgment in Teckal.

2. The recipient of the activity of the 75. Only in that situation can it be argued service provider that, administratively, the entity in question is an extension of the local authority, which is not therefore required to comply with the rules on competition laid down by the Directive, since it is opting to carry out 72. It is clear from the judgment in Teckal itself the economic activities it requires. that an agreement cannot be considered to have been concluded between persons who are legally distinct if the operator carries out the essential part of its activity with the controlling local authority or authorities. 2 9 76. Where a body acts essentially for the controlling public authority, the proprietor- ial relationship between the two entities justifies the provision of services by one to the other, in the same way as where an in- 73. As I have said, the principle set out in house department acts on behalf of the that judgment is based on the criterion that institution to which it belongs. On that the operator is independent. An entity is basis, it seems justified that it should be not necessarily deprived of freedom of exempt from the constraints of the Direct- action simply because the decisions affect- ive, since they are dictated by the need to ing it are taken by the local authority that maintain the kind of competition that is no controls it, if it is able to carry out a longer appropriate in those circumstances. substantial part of its economic activity for other operators.

83. In order to decide whether the Direc- tive is applicable, the national court will have to verify this, even if, in its view, it seems to be settled that the bodies in question carry on their activities exclu- 80. Similarly, a service provider which sively, or at least predominantly, for public intends entering into a contract with a authorities, as the wording of the fourth local authority other than its own is no question suggests. It will have, above all, to different from any other operator, from the ascertain whether the bodies in question point of view of both its competitors and carry out the essential part of their activ- the public authority awarding the contract. ities with the contracting authority, to Since that body is not, by definition, a part whose control I have assumed they are of the contracting authority, as far as that subject in this case. 31 authority is concerned, the services it is offering are those of a third party.

84. If the Directive were to be declared applicable to the main proceedings, it would still be necessary to establish whe- 81. Clearly, whilst control of the service ther, in accordance with Article 6 of the provider by the public authority awarding Directive, the contract at issue is among the the contract is a necessary condition for the contracts that can be exempt from it. former to be considered to be providing 'in house' services, it is far from being a sufficient condition. The service provider 30 — See p. 8 of its written observations. must carry out the essential part of its 31 — See point 70 above.

3 3 — According to Article 1(b) of the Directive, 'contracting authorities shall mean the State, regional or local author- ities, bodies governed by public law, associations formed by one or more of such authorities or bodies governed by public law. Bodies governed by publiuc law means any body: — established for the specific purpose of meeting needs in 87. By making a reservation in regard to the general interest, not having an industrial or that type of contract, the Directive is talcing commercial character, and — having legal personality anil account of services which may be supplied — financed, for the most part, by the State, or regional or local authorities, or other bodies governed by public to the public authorities in certain Member law; or subiect to management supervision by those States only by specific public bodies, to the bodies; or having an administrative, managerial or supervisory board, more than half of whose members exclusion of all other service providers. The are appointed by tile State, regional or local authorities or by other bodies governed by public law.' other entities are excluded regardless of In Case C-44/96 Mannesmann Anlagenbau Austria and nationality. 32 Others [1998] ECR I-73, paragraph 2 1 , the Court inter- preted those conditions, as also provided for i n the second subparagraph of Article 1(b) of Council Directive 93/37/ EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts 32 — See Flamme P., Flamme M.-A., 'Les marchés publics de (OJ 1993 I 199, p. 54) as being cumulative, 'that same services et la coordination de leurs procédures de solution can be applied to Article Kb) of the Directive, passation', Revue du marché commun et de l'Union which is identical to the latter text. européenne. No 365. February 1993. p. 150 et seq., 34 — See p. 10 of the English translation of the order for paragraph 9, No 10. reference.

94. By its first question, the Bundes- vergabeamt is asking whether Article 3(2) of the Directive must be interpreted as 93. I therefore conclude that the Directive meaning that it precludes a decision is applicable where a contracting authority whereby a contracting authority admits to intends to enter into a contract with an a procedure for the award of public service entity that is formally distinct from it and contracts bodies which receive subsidies belongs for the most part to local author- from contracting authorities that enable I - 11056

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them to tender at prices which are substan- 96. The infringement of the Directive is not tially below those of the other tenderers. therefore necessarily linked to a failure to accord equal treatment to tenderers from other Member States.

The Court clearly stated, in relation to a comparable piece of legislation — Article 4(1) of Council Directive 90/531/ EEC of 17 September 1990 on the procurement proce- dures of entities operating in the water, energy and transport and telecommunications sectors (OJ 1990 L 297, p. 1), which provides that Directive 90/351/EEC is to apply when the contracting bodies arc awarding their supply contracts, is identically worded — that there was no condition relating to the nationality or place of establishment of the tenderers (Case C-87/94 Commission v Belgium [1996] ECR I-2043, paragraph 32). Further- more, it is clear from the 20th recital of the Directive that 98. The fact that, in this case, the operators the elimination of practices that restrict competition is not benefiting from subsidies are all Austrian confined to practices which impede the participation in award procedures of nationals of other Member States. entities is not therefore relevant for the Similarly, the Court held in Case C-243/89 Commission v Denmark [1993] LCR I-3353, paragraph 33, in relation to purposes of answering the first question. Council Directive 71/305/EEC of 26 July 1971 concerning the coordination of procedures for the award of public works contracts (OJ, English Special Edition 1971 (II), p. 682) that although the directive makes no express mention of the principle of equal treatment of tenderers, the duty to observe that principle lies at the very heart of the directive whose purpose is, according to one of its recitals, to ensure the development of effective competition in the field of public contracts and the criteria for selection and the award of contracts, by means of which such competition is to be ensured. The Court was called upon to rule on a complaint based on an infringement of Directive 71/305/EEC which was linked to the nationalitv of the 99. It must first be established whether the tenderer to whom the contract had been awarded.

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100. According to the Bundesvergabeamt, 102. However, as we know, the funda- the subsidies paid to the tenderers consti- mental prohibition of State aid is neither tute aid within the meaning of Article 92 of absolute nor unconditional since not only is the EC Treaty (now, after amendment, some State aid ipso jure compatible with Article 87 EC) or 'special cost advant- the common market in accordance with the ages.' 36It explains that: 'The competitive second paragraph of Article 92, but the advantage in the form of lower costs...' that third paragraph of Article 92 confers on they enjoy '... derives from payments in the the Commission a wide discretion to allow nature of aid, which may take the form aid by way of derogation from the prohibi- either of the direct payment of money or of tion laid down in the first paragraph. 40 the provision of staff or premises or technical equipment or both.' The national court adds that the payment is made by the relevant regional or local authority, the State or a Province. 37

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contractual relations but also includes pub- to which it is providing the services. The lic contracts, there is no reason why such Directive does not therefore rule out parti- operators should be excluded from public cipation by a subsidised body in a public contract award procedures. contract award procedure.

105. According to the Commission, whose point of view must be endorsed here, aid that has been notified and declared com- 107. In those circumstances, the Directive patible with the common market cannot does not preclude entities such as the affect the decision of the contracting bodies concerned in the main proceedings authority to admit a tenderer or the assess- from participating in the public service ment of its tender. contract award procedure at issue.

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110. If an aid is illegal the effect should be 113. Also set out there are the criteria that to bar the subsidised operator from taking give the contracting authority the right to part in any public tender procedure. Even if bar a particular service provider from not specifically earmarked for certain ele- taking part in an award procedure. A ments — such as the price offered in the number of provisions concern the legal tender procedure — which significantly obligations that are binding on the service influence the final decision of the contract- provider. They permit the contracting ing authority, aid illegally accorded to an authority to preclude a tenderer in an economic operator is bound to mitigate the illegal position from the point of view of charges that reduce its level of economic tax or social requirements, for example. 44 competitiveness.

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Authorities which reject a tender under ciple that entities in receipt of legally these circumstances shall inform the Com- accorded State aids could participate in mission thereof.' procedures for the award of service con- tracts. My earlier analysis of this point is therefore confirmed here, on the basis of the intention of the Community legisla- ture. 48 115. According to the Commission, the Council deleted that provision from its proposal for a directive in the course of the legislative procedure. 47 In response, the Commission made a declaration in its communication to the European Parlia- 118. A further indication is provided by the ment to the effect that by amending the fact that the Community legislature also proposal for a directive in that way, the adopted an unambiguous stance as regards Council was expressing its concern to avoid the extent of the power to act accorded to any discrimination between private and the contracting authority in relation to public tenderers. In that same declaration, public service contracts. In its final version, it observed that the Treaty gave it the the first paragraph of Article 37 of the power to prevent the improper use of State Directive deals in particular with the right aid that could distort competition, and it of the contracting authority to reject ten- could therefore accept the amendments. ders which are obviously low in relation to the service to be provided. It lays down that the contracting authority must request details of the constituent elements of the tender and verify them, talcing account of the explanations received, before it may 116. The history of the Directive is instruc- reject the tender. tive in two ways.

120. The Council's amendment to the 123. The Commission considers that illegal Commission's proposal for a directive, aid may be taken into account at the stage and indeed the Commission's declaration at which undertakings are selected, that is of approval, reveal the Community legisla- to say at the point when the contracting ture's approach to the mechanism for authority assesses the financial and eco- monitoring illegal State aids, for which nomic standing of the service provider. Like the Commission has prime responsibility. the French Government, the Commission bases its argument on the fact that, in accordance with the Court's case-law, State aid which is incompatible with the com- mon market, or has simply not been notified, may be recovered. It points out that a contracting authority cannot be criticised for protecting itself against the 121. According to the French Government risk of entering into a contract with an and the Commission, the fact that the economic operator in receipt of aid of Directive is silent about the right of the doubtful legality, by excluding the latter contracting authority to reject the tender of on the basis of checks on its financial and an illegally subsidised tenderer does not economic standing. The Commission there- necessarily mean that the contracting fore proposes that the Court should rule authority cannot draw the appropriate that Community law does not preclude a conclusions from the existence of that kind contracting authority from taking into of aid. consideration at the selection stage, in accordance with its national law, when determining a tenderer's financial standing, the fact that it has been in receipt of aid that is illegal and may therefore be subject to recovery. 122. The French Government considers that the Directive neither compels nor expressly permits the contracting authority to exclude a tender from a subsidised body. But it emphasises the risk it would run if it awarded a contract to a tenderer in receipt 124. Whatever the respective merits of of illegal aid. The French Government these arguments, in my view, they should asserts that if a contracting authority were be considered only to the extent that they to establish that an abnormally low tender help resolve the dispute in the main pro- was financed through illegal aid, it would ceedings. However, as I have said, as it is

formulated and as it must be interpreted in Treaty relating to competition and the the light of the request for a preliminary application of Article 37 of the Directive, ruling, the first question concerns the where a tender appears to be abnormally legality of a decision whereby a contracting low in relation to the service provided. In authority has admitted subsidised entities accordance with that provision, it advo- to a procedure for the award of contracts. cates a detailed consideration of the various cost elements that make up the tender at issue. If the cost breakdown shows that the tender is incompatible with the principles of competition, because of unauthorised subsidies, it suggests that it should be mandatorily rejected. 125. The issue here, therefore, is not to provide the national court with guidance as to whether the contracting authority has the power to exclude a tenderer or reject its tender for reasons linked to the legality of the aid. The national court has, instead, to 127. The argument by the Austrian Gov- be informed whether the contracting ernment is based on both the procedure authority has an obligation to proceed in currently provided for under the Directive that way where the State aid is illegal. if a tender is abnormally low and on Community competition law. Here again, it is not necessary to analyse the validity of the argument, and it is sufficient to point out that the Republic of Austria is assuming that, subsequent to the decision at issue to allow an entity to participate, the contract- As Community law now stands, I have to ing authority establishes that the tender is take the view that a contracting authority is abnormally low and makes clear its inten- entitled to draw no conclusions, as regards tion of rejecting it. In substance, it therefore the admission of a subsidised body, from goes beyond the subject-matter of the first the existence of aid which has not been question, which is confined to the admis- notified or is illegal. I should add that the sion procedure. position would have been no different had the original text of Article 37 not been amended. Article 37 actually accorded the contracting authority a mere power to reject a tender which was abnormally low because the tenderer was in receipt of aid 128. On the basis of the above considera- that had been improperly paid or had not tions, I conclude that the principle of equal been notified. treatment of tenderers, provided for in Article 3(2) of the Directive, does not preclude a decision whereby a contracting authority admits to a procedure for the award of public contracts entities in receipt of aid from contracting authorities which enables them to submit tenders at prices 126. The Austrian Government, finally, substantially below those submitted by the points to the binding provisions of the other tenderers.

If, although formally distinct from the contracting authority, the entity belongs for the most part to that authority, Directive 92/50 is applicable if that entity carries out the essential part of its activity with operators or local authorities other than those of which the contracting authority is made up. I - 11064

ARGE

In both cases, Directive 92/50 is not applicable where the contract falls within the scope of Article 6 thereof.

(3) The principle of equal treatment of tenderers provided for in Article 3(2) of Directive 92/50 does not preclude a decision whereby a contracting authority admits to a procedure for the award of public contracts entities in receipt of aid from contracting authorities which enable them to submit tenders at prices substantially below those submitted by the other tenderers.

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