Procurement: Co-operation between contracting authorities - public contracts, the nature of co-operation and restriction of competition issues under the “Hamburg” exemption
Case C-796/18 ISE v Stadt Köln (1)
C-796/18 ISE v Stadt Köln is the first case in which the European Court of Justice considered in detail the wording of the public-public cooperation exemption – often referred to as the “Hamburg” exemption - which is set out in the Public Contracts Regulations 2015 at PCR 12(7) (2).
The judgment was published on 28 May 2020 and was followed a few days later by a second judgment on the public-public cooperation, in C-429/19 Remondis. You can find a link to our article on Remondis at the end of this article.
ISE v Stadt Kőln concerned two linked agreements (“cooperation arrangements”), concluded on the same day, between two German contracting authorities “Land Berlin” and “Stadt Köln”. Both contracting authorities are responsible for the provision of firefighting services in their respective areas.
Land Berlin, which has the largest number of fire fighters in Germany, used fire incident control room software called “IGNIS Plus”. Land Berlin had acquired the IGNIS Plus software from a private company, SSC. The contract between Land Berlin and SSC allowed for the sharing by Land Berlin of the IGNIS Plus software, free of charge with other public administrations. In Germany, special rules apply which establish the principle of reciprocal, non-commercial sharing of software between public administrations.
The cooperation arrangements between Land Berlin and Stadt Köln related to the transfer and development of the IGNIS Plus software.
- The first agreement between Land Berlin and Stadt Köln was a contract for the free and permanent sharing of the IGNIS Plus software by Land Berlin with Stadt Kőln. The contract was expressed to be made in the spirit of cooperation and the software was made available free of charge.
- The second agreement was a cooperation agreement concerning, in particular, the development of the software. The cooperation agreement was expressed to be entered into on the basis of an equal partnership and, if necessary, in a spirit of compromise with the aim of adapting the software to meet each authority’s specific needs and to develop additional software functionalities. The cooperation arrangement required each authority to make available to the other any future developments of the software, free of charge.
The adaptation of the software constituted a very complex process whose economic value, estimated at 2 million euros, and maintenance valued at 100,000 euros per annum, was much greater than the initial acquisition of the basic software. In order to further develop and support the software, Stadt Köln launched a public tender for the required software development and support services.
ISE, which designs and sells intervention management software for security authorities, alleged that the arrangements between the two authorities constituted a public contract the award of which without competition was in breach of the procurement rules. ISE also claimed that the original procurement of the software was structured in such a manner that the original provider of the software, SSC, was the only economic operator which could undertake subsequent software development and maintenance.
The ECJ decision – brief summary
The ECJ confirmed that the arrangement was a public contract for the purposes of the public-public cooperation exemption The definition of a public contract includes a requirement for “pecuniary interest”. The ECJ found that, although the cooperation arrangements provided for software and subsequent developments to be shared free of charge, there was pecuniary interest. The nature of the arrangements and the national rules on sharing of software between administrations meant that Land Berlin would, in practice, receive direct economic value as a result of the sharing of the software developments to be undertaken pursuant to the cooperation arrangements. The ECJ also confirmed that in deciding upon the application of the exemption, the cooperation arrangement needs to be considered as a whole.
The ECJ considered whether the public-public cooperation exemption applies where the cooperating authorities do not jointly deliver public services and the co-operation relates only to services ancillary to the public service which the authorities deliver.
PCR 12(7) sets out three conditions, which must all be met in order for the exemption to apply. The first condition is that the “contract establishes or implements a cooperation between the participating contracting authorities with the aim of ensuring that public services they have to perform are provided with a view to achieving objectives they have in common.” The ECJ confirmed, in considering the equivalent provision in the Directive, that the cooperation between contracting authorities requires shared common objectives, not the joint delivery of common services. It also confirmed that the exemption may apply to cooperation arrangements for ancillary services, provided that the ancillary services which are the subject of the cooperation contribute to the effective fulfilment of the relevant public services of the cooperating contracting authorities.
The final question which the ECJ considered was whether cooperation between authorities is subject to the equal treatment principle set out in PCR 18 (3), meaning that the cooperation must not have the effect of placing a private undertaking in a position of advantage vis-à-vis its market competitors. The ECJ confirmed that this principle does apply, even though it is not specifically mentioned in the wording of the exemption.
The Advocate General’s Opinion and the ECJ judgment in this case also provide a useful analysis of the development of the exemption and the way in which the wording of the exemption has changed, from case law through to its current form.
For more information please contact Emily Heard or Susie Smith.
1. Case C ‑ 796/18 Informatikgesellschaft für Software-Entwicklung (ISE) mbH v Stadt Köln. The judgment is not available in English on date of preparation of this article, 15 June 2020.
2. In this article we will reference the provisions in the PCR although the ECJ considered the provision in art.12(4) of the public sector Directive 2014/24/EU, transposed into our legislation in PCR 12(7).
3. The ECJ considered the wording of art.18 of the public sector Directive 2014/24/EU, transposed into our legislation in PCR 18.