Case C-15/13, Datenlotsen – Teckaling the requisite control for the ‘in-house’ exception to EU procurement law [judgment 2014, ECLI:EU:C:2014:303]

An important exception to EU procurement law is the ‘in-house’ exception. The exception was first recognised in Case C-107/98, Teckal and it functions to exempt ‘in-house’ contracts concluded between public law bodies and spin-offs ‘vertically’ under their control from the application of EU procurement law. A decade later and the question is now whether that exception applies ‘horizontally’ to cover a contract concluded between a university that is publicly funded by a region of Germany, and a company whose capital is provided in part by that same region of Germany and for the rest comes from other public bodies?

Facts
The supply of IT and software services to institutions of higher education is a lucrative business. However, the supply of these services is not regulated solely by the law of contract; the purchases of public bodies can also be subject to the complex rules and procedures of EU public procurement law.

In this reference to the CJEU, the Technische Universität of Hamburg had originally wanted to purchase and introduce an IT management system. Two German companies specialised in selling IT and software to the higher education sector knew of this and vied to secure the contract with the technical university. But although both companies were similarly specialised, they differed in terms of their source of finance. One company, Datenlotsen Informationssysteme, was a private company with private capital. The other company was the Hochschul-Informations-System (HIS), whose capital had been provided by a variety of public bodies. And after some consideration, the Technische Universität of Hamburg decided to award the contract to the HIS.

Aggrieved, Datenlotsen Informationssysteme challenged the university’s decision before the relevant appeal body – the Hamburg Vergabekammer. In essence, Datenlotsen pointed out that the university should should have organised a proper procurement tendering procedure at European level. This was because de minimis threshold for the application of EU procurement law rules was 193 000 euro, and the value of this contract was 840 000 euro. The Vergabekammer agreed and ordered the university to organise the procurement afresh, and to keep in mind the legal opinions it had made in its decision.

The university disagreed with the Vergabekammer’s decision, and together with the HIS that had been awarded the contract, they challenged the decision before the Hanseatisches Oberlandesgericht Hamburg (H OLG Hamburg).

At the H OLG Hamburg, the submissions turned on whether EU procurement law applied in full to a contract concluded between a university, whose funding came from the Region of Hamburg, and a company whose financing also came from public monies – more specifically, where one third of HIS’ capital originated from the Federal Republic of Germany, and the remaining two-thirds came from the 16 public laender and Hamburg. A salient idiosyncrasy in the context to this reference was the fact that although the region of Hamburg had provided capital to the HIS, it did not have a seat on the HIS’ supervisory board.

Faced with the complex and originally vague case law of the CJEU, the H OLG Hamburg decided to ask two questions of the CJEU on the correct interpretation of public procurement law.

Question 1
To start with, was there even a ‘public contract’ here? The term is defined in the EC’s procurement Directive 2004/18. More particularly, Article 1(2)(a) of the Directive provides:

“Public contracts” are contracts for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities and having as their object the execution of works, the supply of products or the provision of services within the meaning of this Directive.

If the CJEU were to decide that this was not even a public contract, then the H OLG Hamburg pointed out that the earlier decision of the Vergabekammer would be void.

The H OLG Hamburg was not sure that there was indeed a public contract here. It recalled the CJEU’s ruling in Case C-107/98, Teckal. In that case, the CJEU had established that an exception to the procurement rules could be made for ‘in-house’ purchasing. Contracting authorities could benefit from the exception where they planned to contract with an entity that was formally distinct from it but the local authority (i) exercises a form of control similar to that it exercises over its own departments and (ii) at the same time, the person carries out the essential part of its activities together with the controlling local authority.

Applying that test to the present case led the H OLG Hamburg to believe that the second criterion was fulfilled in this case; the majority of the HIS’ activities concerned public institutions of higher education.

However, the problem in the present reference was the first criterion, the form of control. The H OLG Hamburg recalled that the Vergabekammer had held that the defendant was unable to exercise the requisite degree of control, even indirectly – notwithstanding the fact that the HIS was a public law body of the Region of Hamburg, and the Region provided HIS with some of its capital.

The H OLG Hamburg noted that existing case law from the CJEU did not seem to apply since it was premised on the basis of a vertical relationship between the bodies – and here the relationship was ‘horizontal’. Furthermore, the claimant Datenlotsen was claiming that the Teckal exception should be interpreted restrictively – otherwise a vast swathe of indirect local authority administration and purchasing would no longer fall under the scope of EU procurement rules.

Question 2
The H OLG Hamburg was also minded to ask a second question in the event of the CJEU finding that there was indeed a public contract in this case. The H OLG Hamburg wanted to know whether whether the Region of Hamburg exercised the necessary degree of control over both the University and the HIS.

In that context, the H OLG Hamburg recalled the CJEU’s earlier ruling in Case C-340/04, Cabotermo and Consorzio Alisei. The paragraphs of concern to the H OLG Hamburg were those in which the CJEU had held:

33. In accordance with Article 1(a) of that directive, 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 (Teckal, paragraph 50).
…
36. In order to determine whether the contracting authority exercises a control similar to that which it exercises over its own departments, it is necessary to take account of all the legislative provisions and relevant circumstances. It must follow from that examination that the successful tenderer is subject to a control enabling the contracting authority to influence that company’s decisions. It must be a case of a power of decisive influence over both strategic objectives and significant decisions of that company (see Case C-458/03 Parking Brixen [2005] ECR I 0000, paragraph 65).

In light of this guidance, the H OLG Hamburg looked at the legislative framework which was applicable to the HIS, the Region and the university. And in that context, the OLG Hamburg doubted whether there was the necessary sufficient degree of control because under the primary legislation, and the legislation passed by the local legislature, the university did enjoy a large degree of autonomy and self-determination. But the H OLG Hamburg also went on to find that the Region’s supervisory functions were substantive and that for the purchases made by institutions of higher education, the requisite degree of control for ‘in-house’ contracts had been satisfied.

Questions Referred
An unofficial translation of the Questions referred by the H OLG Hamburg reads:

1. Is the phrase ‘public contracts’ in Article 1(2)(a) of Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (OJ 2004 L 134, p. 114) also to be understood as including a contract on the basis of which the contracting authority admittedly does not exercise control as it would do over its own service and yet the contracting authority and the contractee are controlled by the same body which itself is a procuring service within the meaning of Directive 2004/18, and in essence the contracting authority and the contractee provide services to the same body (horizontal in-house contract)?

If the first question is answered in the affirmative, then
2. Must the control, exercised in the same way as on its own service, extend to all of the activities of the contractee or is it sufficient where this is restricted to the area of purchasing?