Case C-19/13, Fastweb – objecting to the opportunistic and underhand award of a procurement contract [judgment 2014, ECLI:EU:C:2014:2194]

On New Year’s Eve 2011, an Italian government ministry awarded a multi-million euro contract to the former state-owned telecoms company without going through an EU procurement procedure. An Italian court subsequently held that the contract had been awarded in an opportunistic and underhand way. So what power does the judge have here? Is the appropriate sanction and remedy governed by EU Directive 2007/66 because the Directive was designed to improve the effectiveness of review procedures concerning the award of public contracts? Or do the facts in this case mean that this was just ‘a less serious’ infringement of EU procurement law so the sanction and remedy are matters of national procedural law?

Facts
The Security Department of the Italian Ministry of the Interior [Ministero dell’Interno, Dipartimento di Pubblica Sicurezza] wanted to procure the development and management of specific telecoms services. It therefore concluded a contract with Telecom Italia in 2003. The contract would come to an end on New Year’s Eve 2011.

Just prior to the end of the contract, the Security Department wished to award another contract to Telecom Italia. The Department believed that it could do this without organising a tendering procedure. More specifically, it relied on the Italian provision that implements Article 28(1)(e) of Directive 2009/81/EC on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security.

Article 28 of the Directive allows contracting authorities to award contracts without the need to publish a contract notice, ‘(e) when, for technical reasons or reasons connected with the protection of exclusive rights, the contract may be awarded only to a particular economic operator’.

The Security Department took the view that there was only one company that could provide the services it sought since that company was the one that used to run Telecom Italia, and moreover, that company owned certain exclusive rights.

Accordingly, on 20 December 2011, a notice for voluntary ex ante transparency was published in the Official Journal of the European Union. On 22 December 2011, a decision came into effect that invited Telecom Italia to enter negotiations from the 23 December 2011. And on New Year’s Eve 2011, a framework agreement was signed. A part of the contract related to voice and mobile data transmission services. The award of the contract was published in the Official Journal of the European Union on 16 February 2012.

A rival telecoms company, known as Fastweb, challenged the Security Department’s award of the contract to Telecom Italia. Fastweb commenced litigation before the District Administrative Law Court for the Region of Lazio-Rome [TAR Lazio]. The Security Department again sought to rely on the ‘technical reasons’ exception in Article 28 of Directive 2009/81/EC.

The administrative court found for Fastweb. It did so ostensibly on the basis that Fastweb could conceivably have provided, albeit not completely, the service covered by the contract. Equally, the administrative court was of the view that there were no ‘technical reasons’ for the Security Department awarding the contract to one specific company.

Rather, the administrative court made the finding that the contract had been awarded for ‘opportunistic reasons’ related to the desire to avoid the potential difficulties associated with awarding the service contract to any company other than Telecom Italia. Accordingly, the court granted Fastweb’s request to annul the contract award.

However, as the court explained, because of the transparency announcement and the fact that the Security Department had in effect waited 10 days before awarding the contract, the court was in effect prevented from declaring the contract ‘ineffective’. Therefore, the court ruled that the contract would be ineffective from New Year’s Eve 2013.

The matter was appealed up to the Italian Council of State [Consiglio di Stato], which held that the Security Department had not proved its case. As a result, nothing changed – the contract award was therefore still null and void. However, the fate of the framework agreement was uncertain.

The Council of State summarised the rules expressed in the EU procurement Directives. There seemed to be three scenarios. First, if there were ‘serious’ infringements, then Member States had to ensure that the agreement would, by annulling the award, be declared non-binding. Second, in other situations, Member States could decide to not to apply that EU rule. And third, for the rest, it was left to the Member State to decide what consequences flowed from a finding that the awarding of an agreement was void.

What the Italian Council of State wanted to know was whether the administrative court had been correct to think that what it was dealing with fell in the second scenario – whereby the national judge was free to decide not to apply the EU rule. If not, then that would preclude a national judge from declaring the contract to be ineffective. Alternatively, the Italian Council of State wondered whether the administrative court could also be correct if this was a situation falling within the third scenario for that again would mean that the national judge was free to decide what consequences should flow from the infringement.

Alternatively, if the administrative court had been wrong, and should instead have recognised this situation as falling within the first scenario (after all, there was a serious infringement and an illegal, underhand awarding of a contract), then for the purposes of protecting competition, the appropriate sanction should not be a declaration that the contract was ‘ineffective’. But the contracting entity had ensured equivalent publicity by publishing a notice for voluntary ex ante transparency in the Official Journal of the European Union – and the truncated time-frame still allowed a company to lodge an appeal and start the appeals procedure.

It appeared to the Italian Council of State that the key plank of EU law was Directive 2007/66/EC of the European Parliament and of the Council of 11 December 2007 amending Council Directives 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts.

Two provisions relating to ‘Ineffectiveness’ were relevant. The first was Article 2d (1), which provides:

Member States shall ensure that a contract is considered ineffective by a review body independent of the contracting authority or that its ineffectiveness is the result of a decision of such a review body in any of the following cases:
(a) if the contracting authority has awarded a contract without prior publication of a contract notice in the Official Journal of the European Union without this being permissible in accordance with Directive 2004/18/EC;

The second was an exception to that rule. Article 2d (4) states that the rule does not apply where:

- the contracting authority considers that the award of a contract without prior publication of a contract notice in the Official Journal of the European Union is permissible in accordance with Directive 2004/18/EC,
- the contracting authority has published in the Official Journal of the European Union a notice as described in Article 3a of this Directive expressing its intention to conclude the contract, and,
- the contract has not been concluded before the expiry of a period of at least 10 calendar days with effect from the day following the date of the publication of this notice.

As the Italian Council of State explained, the Directive itself emphasised that there was no room in EU law for an automatic response to specific situations. Rather, there had to be a flexible balancing of the interests concerned, and any consequences had to be proportionate. That approach reinforced the position of the review body. But if that was right, then were there also situations in which the agreement had to be preserved? If there were such situations, then these would amount to a restriction of the procedural autonomy enjoyed by the Member States. Was that the right result since Recital 20 allowed Member States the option of applying stricter sanctions in national law?

Questions Referred
According to the Curia website, the Italian Council of State has asked:

1. Must Article 2d(4) of Directive 2007/66/EC be construed as meaning that if, before awarding the contract directly to a specific economic operator, selected without prior publication of a contract notice, an awarding authority published the notice for voluntary ex ante transparency in the Official Journal of the European Union and waited at least 10 days before concluding the contract, the national court is – always and in any event – precluded from declaring the contract to be ineffective, even if it is established that there has been an infringement of the provisions permitting, subject to certain conditions, the award of a contract without a competitive tendering procedure?

2. Is Article 2d(4) of Directive 2007/66/EC – if interpreted as making it impossible to declare a contract ineffective, in accordance with national law (Article 122 of the Code of administrative procedure), even though the national court has established an infringement of the provisions permitting, subject to certain conditions, the award of a contract without a competitive tendering procedure – compatible with the principles of equality of the parties, of non-discrimination and of protecting competition, and also of guaranteeing the right to an effective remedy enshrined in Article 47 of the Charter of Fundamental Rights of the European Union?