Public procurement

The manner in which public works contracts may be awarded within the European community is tightly controlled under EC law.

European Community Counsel Directive 93/37/EEC and its predecessor Directive 71/305 detail the procurement procedures which a public authority is obliged to follow when intending to place public works contracts with a value in excess of the stated financial thresholds.

The intention behind these directives is to introduce a degree of transparency in the awards procedures operated by public works authorities, such that non-compliance with EC competition and anti-discrimination law, for example, may be more readily controlled and challenged.

The latest directive allows 'open', 'restricted', and in limited cases, 'negotiated' procedures to be followed. In the latter of these two procedures, the authority is required to undertake a pre-qualification procedure for contractors prior to the tender action.

The pre-qualification criteria by which a contractor may be assessed are strictly controlled by the directives. These criteria include proof of the contractor's financial and economic standing, and its technical knowledge and ability.

The case of Ballast Nedam Groep-v-Belgian State examined the manner in which the pre-qualification process would be applied in respect of holding companies. Ballast Nedam was the dominant company in a group of companies registered in the Netherlands. It had been pre-qualified and registered on the relevant Belgian list for recognised contractors for public works.

registration

In 1989 however the Ministry of Public Works in Belgium refused to renew Ballast Nedam's registration on the basis that it could not be a works contractor in accordance with the Belgian rules because "Ballast Nedam appears to be a holding company whose major assets consist of shareholdings in subsidiaries. It is apparent from references submitted regarding works carried out that the latter were in fact executed by various subsidiaries."

The Belgium Ministry of Public Works had concluded that Ballast Nedam was therefore to be regarded as a separate legal entity from other group companies, and as it did not itself have the necessary technical capabilities, was not suitable for registration.

Ballast Nedam challenged this decision in the relevant Belgian court. Applying a procedure set out in article 177 of the EC Treaty, the court turned to the European Court of Justice for guidance on interpretation of the relevant EC directive.

In January 1997 the European Court of Justice replied to the effect that the relevant directives were to be interpreted as permitting account to be taken of companies belonging to a group for the purpose of assessing the criteria applied to the dominant or holding company of that group.

It was for that holding company to establish that it actually had available the resources of those companies which were necessary for carrying out the works. Accordingly it fell to the Belgian court to assess whether such proof had been produced in the proceedings between itself and Ballast Nedam.

decision

This decision, while helpful, did not satisfy the Belgian Ministry of Works. It wanted to know whether the effect of the decision was such as to impose an obligation on it to take into account the resources available to a dominant company where those resources belonged to other group companies. Alternatively, it wished to establish whether, as the awarding authority, it still had a discretion to refuse registration even if the dominant company could show that the necessary resources were available to it.

If it were true that the public authority could exercise a discretion in this regard the effect on public procurement legislation would be considerable. Holding companies might become unable to pre-qualify for public works contracts even though the combined resources of its group and subsidiary companies would be more than adequate for the relevant projects. This would present considerable difficulties to such companies since the separate legal entities of the subsidiary companies might not individually have the necessary resources.

Similarly this would bring an end to the practice whereby groups of independent contractors can seek registration on lists of recognised contractors on the basis that they will form joint ventures or other legal entities for the purpose of carrying out a public works contract, if awarded a contract after the registration.

The decision of the Court of Justice will however prevent such an unfortunate conclusion.

In a judgment handed down in December 1997, the Court of Justice confirmed that the relevant directives were to be interpreted to the effect that a body authorised to assess applications for registration to a member state's list of registered contractors for public sector contracts, is under an obligation, when assessing an application for registration from a dominant company in a group of companies, to consider the resources necessary for carrying out the contracts which are actually available to that company from companies belonging to the group.

As a consequence, companies can rely upon the resources of their subsidiaries in applying to be listed for public works contracts, providing they can show that they actually possess the necessary control over the resources of the subsidiary companies.