Council of European Municipalities and Regions (CEMR)
European section of United Cities and Local Governments

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Local and regional governments as service providers

Public procurement - 19.01.2005

CEMR slams Court of Justice's decision as damaging for local democracy
The Council of European Municipalities (CEMR) strongly criticizes the European Court of Justice's decision (11th January 2005) in the "Stadt Halle" case as an unbalanced prioritization of the market over local democracy and self-government. CEMR calls for the law to be changed to respect the principles of subsidiarity and local democracy.
The question raised was whether the local government - the German town of Halle - could lawfully assign the task of disposing of its waste to a company it had established, and in which it held a dominant 75% interest, without a public tendering process (the minority interest was held by a private company).
The EU public procurement rules require a tendering process whenever it is proposed to let a public contract over specified financial limits. However, there is no legal obligation to tender services which are directly managed by the local government itself. Moreover, earlier ECJ jurisprudence (the Teckal case) has clarified that the European tendering requirements do not apply to a local government which assigns a task to a company it has set up, provided that :
  • it controls the company in a manner that is similar to the control it exercises over its own departments, and
  • the company carries out the large majority of its work for the local government in question.

The law treats such cases as being 'in-house" delivery.
Despite this, the ECJ in the Halle case held that the city had acted in breach of EU law by not tendering the service. The Court claimed that the presence of any private share-holding in a public company means that the EU competition rules must apply, however small that private holding.
We are dismayed that the ECJ has ignored the persuasive reasoning of the Advocate-General in this case, says CEMR secretary general Jeremy Smith. Instead, it has produced a thin and rather ideological ruling which totally ignores any aspect other than the supremacy of private sector competition. CEMR believes in competition, but also believe that elected local governments must have a degree of choice over how best to deliver purely local public services for their citizens. It is a nonsense to conclude - as the Court has done- that just because there is a minority private holding in the company, a local government cannot exercise the same kind of control as it does over its own departments.
CEMR believes that the Court of Justice's decision totally ignores how modern local government works, i.e often with other stakeholders playing an important role in decision-making. Yet, ultimately it is the issue of control that should count - and here the local authority obviously had full control. The Court's decision puts at risk the viability of publicly controlled companies across Europe.
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