We already said no. Why are you asking again? – A procurement perspective on Consorzio Italian Management e Catania Multiservizi II, by Albert Sanchez-Graells

The Judgment of the Court of Justice of 6 October 2021 in Consorzio Italian Management e Catania Multiservizi II (C-561/19, EU:C:2021:799) provides an interesting recast, expansion, and clarification of the ‘Cilfit’ criteria regulating the obligation of national courts of last instance of the EU’s Member States to send references for a preliminary ruling to the Court of Justice under Art 267 TFEU. It adds to the 2019 version of the CJEU’s Recommendations to national courts and tribunals in relation to the initiation of preliminary ruling proceedings, and the finer points of detail of the novelties resulting from the newest Judgment will be explored in detail in other contributions to this special series of the REALaw.blog taking constitutional, procedural, and other perspectives.

In this contribution, I will concentrate on the public procurement perspective of the case, given that the request for a preliminary reference primarily concerned the interpretation of Directive 2004/17/EC on utilities procurement (the 2004 Utilities Directive) – now replaced by Directive 2014/25/EU. My main point will be that the CJEU was justified in the palpable annoyance that can be read between the lines of the Judgment, as the Italian Consiglio di Stato (Council of State) sent a second preliminary reference within the same procedure which the CJEU could not have possibly answered differently than it had already done. More generally, the CJEU seems to be getting increasingly impatient with the Consiglio di Stato, which tends to ‘ask excessively’ in the area of EU public procurement law (see eg PFE, C-689/13, EU:C:2015:693, discussed here). One could argue that for judicial dialogue to work, both sides need to be able to listen, not just talk. And the CJEU has certainly made those points clear in Consorzio Italian Management e Catania Multiservizi II. To fully understand the CJEU’s position in this latest instance, it is worth taking a step back to its earlier Judgment of 19 April 2018 in Consorzio Italian Management e Catania Multiservizi I (C-152/17, EU:C:2018:264).

Consorzio Italian Management e Catania Multiservizi I (2018)

In that case, Rete Ferroviaria Italiana (RFI) had awarded a services contract to Consorzio Italian Management and Catania Multiservizi (CIMCM) for the cleaning, maintenance, and ancillary services at stations, installations, offices, and workshops at various sites throughout the region of Cagliari. The contract included a clause limiting price review. Despite that, and as a result of increasing staff costs, CIMCM requested RFI to review the prices payable under the contract (i.e. the claim seemed to be a statutory claim contra the explicit terms of the public contract). RFI rejected the request for the price revision, which triggered the underlying dispute.

Establishing the legal architecture underlying the claim requires some legal funambulism. The award of the contract had been subject to the rules of the 2004 Utilities Directive, as well as domestic law transposing it. At the relevant time, the Italian procurement code (Legislative Decree No 163/2006) established that in ‘the absence of any express provisions’ in the procurement rules, the Italian Civil Code (Codice Civile, CC) would provide default rules for contractual arrangements between contracting authorities or entities and their contractors. It is important to note that the Italian procurement code had a two-tier approach whereby it established a full regime applicable to general procurement (tier 1) and then specified a sub-set of rules applicable to utilities procurement (tier 2, Art 206 Legislative Decree No 163/2006). Tier 2 set a numerus clausus of provisions applicable to contracts linked to the activities referred to in Articles 3 to 7 of the 2004 Utilities Directive.

Concerning the review of contractual prices, Art 115 of the Italian procurement code established that ‘[a]ll contracts for the supply of goods or services on an ongoing basis must include a clause providing for periodic review of the price’. This provision was however inapplicable to public contracts in the utilities sectors (N.B. despite the English version of the Judgment [para 11], where it is indicated that ‘Article 115 of that Legislative Decree was one of the provisions which, under Article 206 thereof, were applicable to public contracts’, this is contradicted by e.g. the French [‘L’article 115 de ce décret législatif ne figurait pas …’] and Italian [‘L’articolo 115 di tale decreto legislativo non era indicato …’] versions of the Judgment, as well as the logic of the decision). Thus, it is worth taking into account that, where Art 115 was not applicable, the default rule in the Italian Civil Code would provide for price revision linked to circumstances of ‘hardship’ (i.e. cost increases above 10% of the overall price agreed; Article 1664 CC).

The dispute between CIMCM and RFI was fundamentally concerned with a domestic issue of contractual and statutory interpretation. However, given that the scope of application of the domestic rules was pegged to the scope of application of the 2004 Utilities Directive, it acquired EU relevance.

At first instance, the challenge was dismissed by the competent Italian regional administrative tribunal on the basis that ‘the supply of cleaning services at stations, installations, offices and workshops was ancillary to the performance of activities covered by special sectors, in that those services related to elements forming an essential part of the rail transport network’ (C-152/17, para 16). This justified the subjection of the contract to the tier 2 procurement regime, and thus excluded the mandatory price review clause of Art 115 of the Italian procurement code. Beyond that, the regional administrative court reached the additional finding that ‘price review was not mandatory under Article 1664 of the Civil Code, as the parties to a contract may derogate from that provision by inserting in the contract a contract term limiting price review, which was the case in the main proceedings’ (ibid).

Given the implicit reference to Art 5 of the 2004 Utilities Directive in terms of scoping the applicability of the relevant rules, which was challenged in the appeal against the first instance decision, the dispute required clarification from the CJEU. Moreover, the claimants raised a challenge of validity against the 2004 Utilities Directive by arguing that, should it allow for the award of contracts excluding price revision, it would infringe Articles 3(1) TEU, Articles 26, 56 to 58 and 101 TFEU, and Article 16 of the Charter, ‘in the light of the unfairness, disproportionality and distortion of contractual balance and, therefore, of the rules governing an efficient market’ (C-152/17, para 19). The reasoning of the CJEU on the scope of application of the 2004 Utilities Directive was straightforward and completely addressed the first legal issue (as discussed below). The second issue (challenge of validity of the 2004 Utilities Directive) was dismissed as hypothetical.

Functional Scope of Application

The CJEU followed a functional approach in determining the scope of application of the 2004 Utilities Directive, stressing that

‘… it follows from the Court’s case-law that [the 2004 Utilities Directive] in fact applies not only to contracts awarded in the sphere of one of the activities expressly listed in Articles 3 to 7 thereof, but also to contracts which, even though they are different in nature and could as such normally fall within the scope of [the 2004 Public Procurement Directive] 2004/18 …, are used in the exercise of activities defined in Directive 2004/17. Consequently, where a contract awarded by a contracting entity is connected with an activity which that entity carries out in the sectors listed in Articles 3 to 7 of that directive, that contract is subject to the procedures laid down in that directive’ (C-152/17, para 26, references omitted and emphasis added).

This clearly established the functional criterion (already followed by the Italian court of first instance) that ancillary activities are covered by the Utilities procurement regime at domestic level because, as a matter of determining the scope of the activities listed in Arts 3 to 7 of the 2004 Utilities Directive, they also comprise ancillary activities.

No ‘EU Law’ Obligation to Revise Prices

Beyond that, the CJEU also stressed that

‘… it is not apparent from any provision of [the 2004 Utilities Directive] that it must be interpreted as precluding rules of national law, such as Article 115, in conjunction with Article 206, of Legislative Decree No 163/2006, which do not provide for periodic review of prices after contracts are awarded in the sectors covered by the directive, since the latter does not impose any specific obligation on Member States to lay down provisions requiring the contracting entity to grant its contractual partner an upwards review of the price after the contract has been awarded’ (C-152/17, para 29, emphases added)

In my view, this was the correct interpretation, and there was no question that the 2004 Utilities Directive did not create an ‘EU law’ obligation to include contract review clauses (although some of the further elaborations by the CJEU could be criticised, as I did three years ago).

No Connection with EU Law, or Hypothetical at Best

Finally, and crucially, in the analysis of the compatibility with Art 16 Charter, the CJEU also found that

‘… since it is apparent … that neither [the 2004 Utilities Directive] nor its underlying general principles impose on Member States a specific obligation to lay down provisions requiring the contracting entity to grant its contractual partner an upwards price review after the award of a contract, the provisions of Legislative Decree No 163/2006 at issue in the main proceedings, in so far as they do not provide for periodic price review within the sectors covered by that directive, do not have any connection with that directive and cannot, therefore, be regarded as implementing EU law’ (C-152/17, paras 33-35, references omitted and emphases added).

This lack of connection with EU law was compounded by the earlier finding of the Court that

‘… the order for reference gives no explanation of the relevance of the interpretation of Article 3(3) TEU or Articles 26, 57, 58 and 101 TFEU for the resolution of the dispute in the main proceedings. The same is true of Article 56 TFEU, in so far as it relates to aspects other than those [explicitly addressed]. It follows that the first question is, to that extent, inadmissible’ (C-152/17, paras 23-24).

On the whole, then, the answer to the preliminary reference could not be clearer: (1) the Utilities procurement regime included contracts for ancillary activities; (2) it did not require Member States to create systems for the upwards review of award prices; and (3) domestic rules failing to establish such review mechanisms had no connection to the Directive and could not be seen as implementing EU law. Moreover, the referring Court had failed to establish any other (non-hypothetical) relevance of EU law to assess the domestic rules at stake. Fast forward to 2021.

Consorzio Italian Management e Catania Multiservizi II (2021)

The ‘second wave’ of questions for a preliminary ruling by the CJEU in the recent Judgment originated in the recalcitrant attitude of the (lawyers for the) service providers and the willingness of the Consiglio di Stato to pass the hot potato to the CJEU. Setting the first question aside, as it was new and concerned the interpretation of Art 267 TFEU (as discussed in other contributions), the other two questions on the EU procurement rules are slight variations of the ones already referred, which the CJEU could not have answered any differently.

In fact, both questions can be combined into a challenge of the domestic Italian legislation not creating a mechanism for the upwards review of public contract prices in the Utilities sector as incompatible with EU law and, in particular, Article 4(2), Article 9, the principle of equal treatment enshrined in Articles 26 and 34 TFEU, Article 101(1)(e), Articles 106, 151, 152, 153 and 156 TFEU, the European Social Charter and the Charter of Social Rights, referred to in Article 151 TFEU, Articles 2 and 3 TEU and Article 28 of the Charter and the principle of freedom to conduct a business enshrined in Article 16 of the Charter.

This is only a variation of the first question in the first reference, which asked whether the same legislation was compatible with EU law, in particular, Article 3(3) TEU, Articles 26, 56 to 58 and 101 TFEU, and Article 16 of the Charter and the 2004 Utilities Directive. With the new questions (1) not referring to the compatibility with the Directive (which was already established beyond any doubt), (2) keeping the challenge on the basis of the Charter (now adding Art 28) despite the clear previous finding that the legislation at stake did not represent an implementation of EU law (and was as such outwith the remit of the Charter, as per its Art 51(1)), and (3) formulating new hypothetical incompatibilities between the Italian rules and EU law without providing any reasoning or argumentation to back them up, it should come as no surprise that the CJEU responded that

‘… by this request for a preliminary ruling, the referring court has failed to remedy the lacuna established by the Court in paragraph 23 of its [2018 Judgment], in so far as … it still fails to state with the requisite precision and clarity the reasons why it considers that the interpretation of Article 3 TEU as well as Article 26 and Article 101(1)(e) TFEU is necessary or useful for the purpose of resolving the dispute in the main proceedings or the relationship between EU law and the national legislation applicable to those proceedings. Neither does the referring court specify the reasons which prompted it to inquire about the interpretation of the other provisions and measures mentioned in the second and third questions referred, including, in particular, the European Social Charter, which the Court, moreover, has no jurisdiction to interpret …, but merely sets out, in essence, the questions of the applicants in the main proceedings in that regard … without giving its own assessment’ (C-561/19, para 70).

Perhaps the only surprise is that the CJEU did not break convention and capitalised that paragraph. More seriously, this can shed light on the relevance to be given to the earlier finding of the CJEU that the highest courts of the Member States ‘… must take upon themselves, independently and with all the requisite attention, the responsibility for determining whether the case before them involves one of the situations in which they may refrain from referring to the Court a question concerning the interpretation of EU law that has been raised before them’ (C-561/19, para 50). And that any initiative by the parties ‘cannot deprive the national courts of their independence in exercising [that] discretion’ (C-561/19, para 53). There is no doubt in my mind that the CJEU found the Consiglio di Stato lacking on those counts in Consorzio Italian Management e Catania Multiservizi II.

Posted by Albert Sanchez-Graells (Professor of Economic Law, University of Bristol Law School). The author is grateful to Dr Yseult Marique for helpful comments to an earlier draft.

Suggested citation: A Sanchez-Graells, ‘We already said no. Why are you asking again? – A procurement perspective on Consorzio Italian Management e Catania Multiservizi II‘, REALaw.blog available at https://realaw.blog/?p=842