In-house procurement and public limited companies: Can the control condition be met?
Written By
Associate
Germany
As an associate in our Public Commercial Law practice group in Munich, I advise corporates and the public sector in the areas of public commercial law and public procurement law.
For the application of the in-house exception, the contracting authority must first exercise over the distinct entity a control that is similar to the control that it exercises over its own departments (control criterion). When assessing whether the control condition is satisfied, the form of the company plays a not insignificant role. Regarding public limited companies, the CJEU has already ruled several times that sufficient control cannot be exercised for an in-house procurement. However, the circumstances of the individual case are always decisive. But what really matters?
The control criterion
The control condition will not automatically be met if the contracting authority sets up a company that is fully owned by that authority. Full ownership indicates a certain control, but it is not sufficient to assert that the control condition has been met. The fact that the contracting authority has 100% public ownership of the company is not a decisive argument.
According to the case law of the CJEU, of particular importance are the circumstances indicating whether the company is subject to an effective control, enabling the contracting authority to have a decisive influence over both the strategic objectives and the significant decisions of that entity (CJEU Case - C 458/03, Parking Brixen, CJEU Case – C-340/04, Carbotermo; CJEU Case – C-324/07, Coditel Brabant).
Public limited companies
The question whether the contracting authority can exercise influence over the entity to be awarded the contract is generally independent of its legal form. The CJEU assesses the legal structure of a company in each individual case to determine whether the shareholders can have a decisive influence on the strategic objectives and important decisions of the company. The legal form as such is not decisive.
Nevertheless, for public limited companies the CJEU has repeatedly shown that, even in the case of a 100% public ownership, it generally assumes that there is no control as over an own department. The reason behind this is that the public limited company can "pursue its objectives independently of its shareholders" (CJEU Case - C-324/07 - Coditel Brabant).
Public limited companies are in principle managed independently by the management Board. In this respect, the Management Board has extensive authority over the ordinary and extraordinary management of the public limited company. This strong position of the management board vis-à-vis the shareholders makes the public limited company fundamentally unsuitable as a legal form for an in-house procurement. A decisive influence via representation on the supervisory board is also generally precluded. Even if the contracting authority, as the sole shareholder, delegates shareholder representatives (even if the majority) to the supervisory board, supervisory board members are not obliged to follow any instructions in the course of their personal duties and the supervisory board members also regularly have no authority to issue instructions to the management board of the public limited company. The appointment of the members of the supervisory Board therefore also does not usually enable the sole shareholder to exercise any significant influence on the company's decisions.
Conclusion
In summary, caution is required in the case of public limited companies and in-house procurement. Although it always depends on the circumstances of the individual case, even if the contracting authority holds a 100% stake in the company, it will generally fail to meet the control criterion. A sufficient level of control is conceivable if legal provisions establish mechanism that enable the shareholder to exercise a decisive influence on the management and direction of the company.
