The European Court of Justice recently ruled that it is contrary to the procurement rules not to tender an agreement for the supply of medicine, even if the company only received payment for the delivery costs and a subsidy that was exclusively intended for the manufacture of the medicine.
Read attorney Hans Sønderby Christensen’s article published on Thursday, December 22, 2018, on Jyllands-Posten’s website here or download it as a PDF here .
Within EU law, a number of rules have been implemented regarding the implementation of tenders in connection with the conclusion of various types of contracts between a public authority and a private actor, e.g. goods procurement contracts and the provision of services. IBA Molecular Italy Srl (hereinafter IBA), which specialises in the manufacture of radioactive medicines and is the sole concessionaire in Italy for the medicine 18-FDG, brought an action against a number of Italian authorities for the award of a three-year contract for the supply of the medicine 18-FDG (hereinafter the medicine) against payment of the delivery costs and a subsidy of EUR 700,000 for the manufacture of the medicine, which, however, would not be able to cover all the costs of the manufacture thereof.
The local health authority, Azienda ULSS no 3 (hereinafter the health authority) and the hospital Ospedale dell’Angelo di Mestre (hereinafter Ospedale) awarded the three-year contract to Istituto Sacro Cuore – Don Calabria di Negrar (hereinafter Sacro Cuore), which, although it is a private hospital, is part of the public health system and is equated with a public hospital. The supply agreement was awarded to Sacro Cuore without the health authority and Ospedale having held a public tender.
IBA therefore brought the case before the Tribunale amministrativo regionale del Lazio (the Regional Administrative Court of Lazio). Firstly, the Administrative Court did not consider that there was a mutually binding agreement, as the medicine was mainly free of charge, since neither the subsidy of EUR 700,000 nor the coverage of delivery costs had the character of a direct consideration for the medicine. Secondly, the Tribunale amministrativo regionale del Lazio further held that Sacro Cuore should be equated with a public authority in this respect, and therefore there was no obligation to carry out a public tender in this situation, as it was a contract between two public authorities.
IBA then appealed the decision to the Consiglio di Stato (the Supreme Court in administrative law cases in Italy), which brought the case before the European Court of Justice in order to clarify whether a contract such as the one in question could be described as a mutually binding agreement, and whether Sacto Cuore in this situation could be regarded as a public authority, so that the agreement was not subject to tender.
The European Court of Justice noted, as an introduction, that the general legal meaning of the term ‘mutually binding agreement’ is an agreement whereby each of the parties undertakes to perform a service against another service, typically a monetary payment. Examples of mutually binding agreements are contracts and purchases of an item or an employment contract. According to the agreement concluded between the health authority and Ospedale and Sacro Cuore, Sacro Cuore was to manufacture and distribute the medicine free of charge to the public hospitals in the region, against payment of the delivery costs and against a subsidy of EUR 700,000, which was exclusively intended for the manufacture of the medicine. The European Court of Justice ruled that there was no doubt that such a contract was mutually binding.
In this connection, the European Court of Justice noted that even if the monetary consideration did not give Sacro Cuore any financial gain, the agreement was nevertheless mutually binding. In this connection, the European Court of Justice emphasised that Sacro Cuore received a subsidy of EUR 700,000 for the manufacture of the medicine. The agreement was therefore not exempt from the tendering obligation for this reason.
The European Court of Justice also had to rule on whether Sacro Cuore could be equated with a public authority. If Sacro Cuore could be equated with a public authority, the agreement would, under the circumstances, not be subject to tender. The European Court of Justice noted that there are two situations in which an agreement concluded between two public authorities falls outside the scope of the EU procurement rules.
Firstly, agreements which a public authority enters into with another public authority are exempt from the tendering obligation when the latter public authority submits to control by the former authority. The health authority and Ospedale argued that even though Sacro Cuore is a private hospital, the hospital should nevertheless be regarded as a public authority, as Sacro Cuore is part of the public health planning. Sacro Cuore was, among other things, subject to supervision by the Italian Ministry of Health. However, the European Court of Justice did not find that Sacro Cuore was subject to such control by the health authority and Ospedale that the agreement was covered by this exception.
Secondly, an agreement establishing cooperation between two or more public entities for the purpose of ensuring the implementation of a public service task common to them is exempt from the scope of the EU procurement rules. However, the European Court of Justice noted that in order for this exception to apply, no private companies could be involved in the agreement, and the agreement could only pursue purposes of general interest. In this connection, the European Court of Justice ruled that Sacro Cuore is a private company. The European Court of Justice emphasised, among other things, that Sacro Cuore is itself responsible for the operation and financing of its business, and the appointment of the management of the company takes place without public involvement. As Sacro Cuore should thus be regarded as a private company, the agreement was therefore also not covered by this exception to the tendering obligation.
The agreement which the health authority and Ospedale had awarded to Sacro Cuore was therefore covered by the EU procurement rules, which is why the health authority and Ospedale were obliged to tender the contract publicly.
The judgment thus establishes that agreements are mutually binding, even if the public authority’s consideration in the form of a monetary payment only consists of a partial coverage of delivery and manufacturing costs. In addition, private companies must be subject to clear control from a public authority before the private company is equated with a public authority in terms of procurement law – and, consequently, is exempt from the tendering obligation. Although the case concerns the old procurement directive, which was repealed on April 18, 2016, the case is still relevant, as the provisions in question in the case have been carried over into the new procurement directive.