Case C-568/13, Data Medical Service – objecting to public bodies tendering for procurement contracts [judgment 2014, ECLI:EU:C:2014:2466]

For the last twenty years, repeated reforms of the Italian health care system have led to the introduction of policies that are both market-oriented and guided by a desire to reduce governmental intervention in the provision of health care. The reforms touch not only university hospitals but also local authority medical health providers and health centres. Formerly public bodies have become companies enjoying commercial autonomy. But Italian law deems bodies such as commercially-run hospitals to be public economic entities and prevents them from tendering for public procurement contracts. Is this plank of Italian law compatible with EU law when the CJEU’s case law has been attempting to increase the potential numbers of candidates who are able to compete for public contracts?

Facts
The university hospital in the Italian city of Florence is known as the Azienda Ospedaliero-Universitaria di Careggi-Firenze.

In 2005, the hospital formed a part of a regional group concerned with laboratory safety and quality. The group spotted that the public authority of the Region of Lombardy was offering a 3-year public procurement contract for processing data that would enable medicines to be assessed for their quality. The Region of Lombardy’s procurement notice stipulated that the contract would be awarded on the basis of the lowest price. The group decided to put in a tender, and they came out top in the competition – their price was nearly 60% below that of any of their competitors.

The runner-up in the competition was Data Medical Services. It cried foul play and pointed out that the contract should not be offered to the group because the bid was abnormally low. Data Medical Services also recalled that under Italian law, hospitals were public bodies; consequently, they were completely barred from tendering for public procurement contracts.

The legal dispute started off in Milan’s district administrative law court, the TAR Lombardia. The court found for Data Medical Services simply because public bodies were barred from tendering for public procurement contracts.

Years passed and the dispute escalated to the Italian Council of State [Il Consiglio di Stato]. In 2013, the Third Chamber of the Council of State noted that the hospital had no direct interest in the case any more because the procurement contract had long since been awarded and performed. However, the Council did recognise that the hospital still had an interest in the litigation because it was barred from putting in tenders for other procurement contracts, and the hospital also had a legal interest should it later turn out that the hospital had incorrectly missed out on the contract.

The first issue perplexing the Council of State were the Italian rules, the effect of which was to deem a commercially-run hospital as a public economic entity and thus preclude its participation in a public procurement contract. The Council of State wondered whether such a body fell within the scope of an undertaking, as defined autonomously under EU law?

The Council of State explained that for the last twenty years, repeated reforms of the Italian health care system had led to the introduction of policies organised along market principles and guided by a desire to reduce governmental interference in the provision of health care. The reforms touched not only university hospitals but also local authority medical health providers and health centres. Formerly public bodies had become companies enjoying commercial autonomy.

Nevertheless, it not really be said that these bodies were really private bodies – profit was not their primary motive; the bodies were still under obligations to provide care and assistance; and they also retained various powers under administrative law.

Government policy was for health care services to be delivered through a hybrid public-private law approach that was neither state monopoly nor pure free market – such an approach being designed to ensure the efficient planning, provision and delivery of services but mindful of the fact that there were still really important reasons to protect hospitals from the unbridled operation of the market. Such a policy was designed to be a corrective to market failure.

Seen against this backdrop, even if hospitals were public (economic) bodies, then it was difficult to imagine that the court of first instance had been correct to ban completely those bodies from tendering for public procurement contracts.

In that context, the Italian Council of State outlined the recent developments in EU law. First there was the CJEU’s judgment in Case C-357/06, Frigerio Luigi and the subsequent case law. The combined body of case law indicated that candidates should be able to put in a tender if they believe they can satisfy the criteria in the public procurement notice irrespective of their public or private legal form.

Second, there was the CJEU’s case law interpreting the EU’s Directive 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (OJ 2004 L134/114).

The key provision in the Directive was Article 4, which states:

Economic operators
1. Candidates or tenderers who, under the law of the Member State in which they are established, are entitled to provide the relevant service, shall not be rejected solely on the ground that, under the law of the Member State in which the contract is awarded, they would be required to be either natural or legal persons.
However, in the case of public service and public works contracts as well as public supply contracts covering in addition services and/or siting and installation operations, legal persons may be required to indicate in the tender or the request to participate, the names and relevant professional qualifications of the staff to be responsible for the performance of the contract in question.

Now the CJEU had already interpreted that provision in such a way as to stop Italian law from prohibiting entities, such as universities and research institutes, which were primarily non-profit-making, from taking part in a procedure for the award of a public contract, even though such entities were entitled under national law to offer the services covered by the contract in question (Case C-305/08, Consorzio Nazionale Interuniversitario per le Scienze del Mare (CoNISMa), para 51).

Consequently, when it came to the situation of the Florentine hospital, the Italian Council of State deduced that the policy undergirding EU law was designed to ensure that the greatest number of potential participants could enter a tendering process.

But that conclusion led to the second issue which perplexed the Council of State. That is to say, what should happen in the event that the Italian ban on public entities entering public procurement competitions turned out to be incompatible with EU law?

The law might not want to discriminate between the potential tenderers but there was inequality between them. For example, there were the hospitals, such as that in Florence, which were funded by government monies and controlled by the public authority of the Region; and then there were the non-profit organisations who paid taxes but at rates lower than those paid by the companies who were fully dependent on the market for their income – how should such inequalities between the potential candidates be addressed and corrected for?

Faced with such doubts as to the proper interpretation of the Directive and the general principles of EU law relating to competition, non-discrimination and proportionality, the Italian Council of State decided to make a reference to the CJEU.

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

1. Does Article 1 of Directive 50/1992, […] read also in the light of the later Article 1(8) of Directive 18/2004, […] preclude a national rule which was interpreted as excluding the appellant in the present proceedings, by dint of the fact that it is a commercially-run hospital characterisable as a public economic entity, from participating in tendering procedures?

2. Does European Union law on public procurement – in particular, the general principles of freedom of competition, non-discrimination and proportionality – preclude a national rule under which a body like the appellant hospital, which receives public funding on a permanent basis and is directly contracted to provide a public service, is able to derive from that situation a decisive competitive advantage over rival economic operators, as demonstrated by the size of the discount offered, in circumstances in which corrective measures have not been put in place at the same time in order to prevent that kind of distortion of competition?