This case concerned the claim by the European Commission against the Republic of Austria that Stadt Wien-Wiener Wohen (WW) (a contracting authority which manages public housing in Vienna) had directly awarded a public works contract to Vectigal Immobiien GmbH & Co KG (VI) in respect of the construction and lease of office premises (‘Gate 2’) on VI’s land without competitive tendering or publication of a contract notice. The Commission claimed that although the parties concluded the contract as a lease, it was in fact an above threshold public works contract as they argued WW had a decisive influence over the design of the office building and execution of the Gate 2 project.
Contrary to the Opinion of the Advocate General, the CJEU dismissed the Commission’s action and held that the contract was not a public works contract and fell outside of the public procurement rules.
The CJEU’s decision should be noted by contracting authorities in the UK when considering whether a lease falls within the scope of the Public Contracts Regulations 2015 (as amended), which continue to apply post-Brexit.
Facts of the Case (Commission v Austria (Case C-537/19)
WW concluded a lease with VI for the Gate 2 office building, including an underground carpark, on a plot of land in Vienna. At the time the lease was entered into, planning permission for the office building had been granted, but the construction of the building had not taken place. The lease related to the ground to fifth floors of Wing A and Wing B of the building and provided the option for bridges to be built between the two wings. An addendum to the lease provided WW with an option (which they exercised) to additionally lease floors six to eight in Wing B.
The lease term was for an indefinite period but could be terminated by WW (i) after 25 years and every 10 years thereafter upon giving 12 months’ notice; (ii) in the event of serious or persistent infringement of the lease terms by VI; (iii) if the office building could not be used for the agreed use for more than six months.
The Commission contended that the lease of Gate 2 was in fact a public works contract that should have been competitively tendered and advertised in accordance with the EU Public Procurement Directive. It claimed that WW had a decisive influence over the design of the building and over the execution of the Gate 2 building project, as specifications attached to the lease went further than what would usually be stipulated by a tenant in a lease agreement.
The Republic of Austria responded that apart from certain demands relating to surface area and number of parking spaces, lease negotiations related primarily to the amount of rent and operating costs. Further, the specifications attached to the lease only contained standard tenant requirements; the only aspects of the works which WW was able to influence was how the office building would be subdivided and what the basic amenities of the leased space would be and did not extend to other parts of the building to be leased by others or communal areas.
Public Works Re-cap
The award of public works contracts in EU member states with a value in excess of set financial thresholds must be subject to national procurement rules which take into account the rules laid down in Directive 2004/18 (which has now been superseded by Directive 2014/24 but the same principles apply) relating to advertising and competitive tendering. Article 1 of the Directive defines ‘public works contracts’ as those relating to the design and/or execution of building/civil engineering works specified by a contracting authority. Article 16 of the Directive specifically excludes from the ambit of the Directive any public service contracts for “the acquisition or rental, by whatever financial means, of land, existing buildings or other immovable property or rights thereon”.
Several previous CJEU judgements have given some assistance in deciding whether an agreement is a public works contract or a ‘pure’ land transaction and these were referred to by the Court.
In the case of Auroux the CJEU made it clear that land agreements could fall within the public procurement regime if:-
- a contracting authority requires a developer to enter into legally binding requirements or abide by detailed specifications in relation to the development;
- the agreement is concluded for pecuniary interest (this could include, for example, the grant of rights and not just the payment of a price).
In the case of Helmut Muller the CJEU went on to say that for a scheme to fall within the public procurement rules:-
- the contracting authority must have taken steps to define the type of work or at the very least had a decisive influence on the design of the works and must have imposed directly or indirectly enforceable obligations on a developer;
- the scheme must in some way present a direct economic benefit to the contracting authority.
In the case of Impresa Pizzarotti, the CJEU re-stated the position set out in earlier case law that “where the main object of a contract is the execution of a work corresponding to the requirements expressed by the contracting authority, that contract constitutes a public works contract” and therefore is not covered by the exclusion relating to land transactions “even if it contains an undertaking to let the work in question”.
Advocate General’s Opinion
AG Campos Sánchez-Bordona delivered his AG Opinion on 22 October 2020, concluding that the main object of the contract was public works. The Opinion concluded that WW did exert a decisive influence over the eventual configuration of the design and on the construction of the building as it was able to insist on significant modifications to the initial plans as a condition of signing the contract and/or were captured in the later construction of the building. Such influence was “not consistent with the position of a mere tenant but, rather, with that of an actual project owner who imposes his own solutions on the plans for the building and their execution” and which “go beyond the customary scope of the landlord-tenant relationship”.
The CJEU dismissed the Commission’s action, contrary to the AG Opinion. In its judgement the Court found that:-
- The design of the building was completed prior to conclusion of lease negotiations, and the design of the sixth to eighth floors in Wing B (subject to the option) and the bridges linking Wings A and B were not planned to meet a need specified by WW. “The mere fact that WW made use of the options offered… cannot suffice to show that that entity exercised a decisive influence on the design of the work in question”.
- A decisive influence on the design of a building can exist in relation to the architectural structure of that building, but specifications concerning interior fittings could only be regarded as decisive influence if they are distinguished due to their specificity or scale.
- The fact that a lease is concluded for a long period, irrespective of the circumstances of the case, is not in itself unusual.
- Engaging a specialist third party to monitor deadlines for handover, delays, does not mean a decisive influence is exerted over design. It is not unusual for a tenant to take measures to ensure that a move into premises could take place on the planned date, especially where large-scale relocation is involved.
- The building was designed as a traditional office building without reference to specific tenants/needs. In such circumstances it is normal for a tenant to specify its requirements whether in respect of a building which is yet to be built or a change of tenant where upgrade work is carried out.
- The adjustments requested by WW, although detailed, did not exceed what a tenant may normally require and were to ensure compliance with statutory technical standards.
This decision of the CJEU continues to be relevant to the interpretation of the Public Contracts Regulations 2015 (as amended) (PCR) as the PCR still remains in force post-Brexit, even though the Directive no longer has effect.
The opposing views of the Advocate General and the Court demonstrate that the line between pure land transactions (which fall outside the PCR) and public works contracts (which must be procured pursuant to the PCR) is finely balanced. The case does provide a degree of comfort to local authorities but highlights the need to ensure that any similar planned transaction follows the tests laid down in the line of EU case law dealing with land transactions and development agreements, as helpfully summarised in the Court’s judgement.
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