In a new proposal for adjudication in the European Court of Justice, the Advocate General presents what is required for a public works contract to be in place according to the LOU directive. The question is of considerable importance in the application of the rental exemption and for its demarcation between public works contract and rental contract. It now remains to be seen whether the European Court of Justice takes the same line as the Advocate General.
INTRODUCTION AND CIRCUMSTANCES
Before a case becomes subject to a ruling in the European Court of Justice, it is common for the court to determine that an advocate general should submit a prior opinion, which is the case in the current C-28/23 case. Advocate General Manuel Campos Sánchez-Bordona submitted an opinion that, inter alia, addressed the question of the definition of a public works contract. The question is of particular interest for the demarcation in relation to a rental contract.
The case concerns construction of a football stadium in Slovakia, where an agreement was concluded between the Slovakian government and a private actor. The parties had signed several agreements with each other. There were two agreements in particular that were of interest and were examined by the Advocate General. The first was a "grant agreement", which concerned the construction of the football stadium. The Slovakian government notified the European Commission of the grant, which explained that the financial assistance that the grant agreement constituted was compatible with the internal market. The other agreement was a "sales agreement", which concerned an option for the private actor to sell the stadium to the state in the future in accordance with certain specific condition. The agreement was not subject to competition. Four years after signing, the Slovakian authorities objected to fulfilment of the agreements as they considered it contravened the Union's regulations on public procurement. The case was heard in court and as a result of this preliminary ruling from the European Court of Justice, the national court asked, inter alia, whether the agreements had concealed a public works contract.
THE ADVOCATE GENERAL'S ASSESSMENT
An important question in the case is thus whether the agreements can be considered to constitute a public works contract or not. The Advocate General pointed out that simply granting state aid to build a stadium is not the same as entering into a public works contract. This is because the Union's rules on public procurement are not intended to cover all forms of public funding, but only those with the aim of procuring construction projects, goods or services through a public contract.
The Advocate General stated initially that, based on the material submitted by the referring court, it was not possible to form a clear view on the nature of the disputed agreement. However, with this in mind, the Advocate General concluded that the agreements did not constitute a public works contract. The assessment emphasised the following circumstances.
For an agreement to constitute a public works contract, it must contain an obligation to erect a structure. It must be possible to invoke fulfilment of the obligation in court. The "grant agreement" did not contain an obligation for the private actor to build the football stadium, which means that the state does not have any possibility in court of ordering the private actor to fulfil the construction. It should certainly be possible for the "grant agreement" to entail a return of the grant received, or an obligation for the private actor to pay back the grant if construction of the stadium was not completed. However, this in itself was not considered to entail an obligation to erect the structure.
For an agreement to constitute a public works contract, the state needs to have a "direct financial interest" in the structure that is to be constructed, which is considered to be present when the state is guaranteed access to the structure on legal grounds in order to use it for public purposes. The Advocate General stated that an obligation to transfer the stadium to the state could possibly result from the "sales agreement", which included a sales commitment. However, the "sales agreement" gave the private actor the option of remaining the owner of the stadium, selling to a third party or forcing the state to purchase the stadium. As the "sales agreement" only comprised an option for the private actor to transfer the stadium to the state, and not an obligation, in the Advocate General's opinion, it is doubtful whether it can entail an obligation for the private actor, after constructing the stadium, to transfer it to the state.
For an agreement to constitute a public works contract, the state ultimately needs to exercise a decisive controlling interest over the design of the stadium. The only criteria that were applied in the construction of the stadium were UEFA's regulations for construction of stadia and public Slovakian regulations on infrastructure. The state could thus not be considered to exercise such a decisive controlling interest that is required for it to constitute a public works contract.
SIGNIFICANCE OF THE ADVOCATE GENERAL'S PRELIMINARY RULING
The question of what is required for an agreement to constitute a public works contract in LOU's sense is of considerable importance for, inter alia, the application of the so-called rental exemption in chapter 3, section 19 of LOU (the Public Procurement Act). According to this exemption, LOU is not applicable to contracts that concern acquisition of property, leasehold rights, rights of tenancy, tenant-owner rights, site leasehold rights, easement rights or any other rights to property. The exemption has long given rise to problematic demarcations in relation to works contracts, when an agreement concerns acquisition or rental of a building, and the building is also going to be constructed or modified based on the authority's wishes. The decisive factor in the assessment is the principal purpose of the contract. As a starting point, there are certain presumptions that the agreement should be assessed as a public works contract if the building in question does not exist at the time of entering into the agreement. However, as set out in the Advocate General's proposal, the procuring authority must also exercise a decisive controlling interest over the realisation of the building.
The type of "agreement package" that is subject to assessment in the case is similar to those that often occur when authorities in Sweden intend to rent buildings that have not yet been constructed. In that the European Court of Justice is hearing the case, we will be receiving further guidance on where the demarcation for a public works contract lies and when an authority can be considered to have exercised the type of decisive influence over the design that is required. The ruling may primarily be of significance in situations where procuring authorities enter into rental agreements that concern buildings that have not yet been constructed. We are monitoring the case with interest.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.