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Case C-598/19 Conacee – Reserved Contracts and Additional National Criteria Beyond Those Laid Down in Article 20(1) of Directive 2014/24/EU on Public Procurement 

By Bestek Blog

May 16, 2023

Authors: Marta Andhov and Michal Kania

In this blog post, the authors analyse Case C-598/19 Conacee, which concerns Article 20(1) Directive 2014/24/EU on reserved contracts and the regulation foreseen in the Fourth Additional Provision and the Fourteenth Final Provision of Spanish Law on Public Sector Contracts, setting additional requirements at the national level for the economic operator to compete for reserved contracts. [1] The Court of Justice of the European Union (further: CJEU) ruled in this case that Member States are able to set additional requirements under national legislation beyond those laid down in Article 20(1) Directive 2014/24/EU with respect to economic operators that may compete for reserved contracts. It also clarified the conditions under which Member States may exclude economic operators from the reserved contracts. 

The blog post first examines relevant EU law provisions, facts of the case and the question submitted to the CJEU. Next, analyses of reserved contracts under Article 20(1) of Directive 2014/24/EU and the judgement in Conacee are carried out. The latter is investigated with particular attention to methods of interpreting the legal text and distinguishing between non-profit and profit special employment centres. The last section concludes the blog post.

Relevant EU law provisions:
Article 20(1) Directive 2014/24/EU

“Member States may reserve the right to participate in public procurement procedures to sheltered workshops and economic operators whose main aim is the social and professional integration of disabled or disadvantaged persons or may provide for such contracts to be performed in the context of sheltered employment programmes, provided that at least 30 % of the employees of those workshops, economic operators or programmes are disabled or disadvantaged workers.”

1. FACTS OF THE CASE

Diputación Foral de Gipuzkoa – the Provincial Council of Gipuzkoa in Spain – is responsible for governing and administering the province of Gipuzkoa (Spain). On 15 May 2018, the Diputación Foral de Gipuzkoa issued a decision approving the instructions given to an institution’s contracting authorities. This instruction reserved the right to participate in procedures for awarding contracts or certain lots of those contracts to social initiative special employment centres or to work integration social enterprises. The reservation of the contracts referred to in the instruction was based on the Fourth Additional Provision and the Fourteenth Final Provision of the Law on Public Sector Contracts, which transpose Article 20 of Directive 2014/24/EU into Spanish law. Those provisions reserve access to the contracts referred to in Article 20 of Directive 2014/24 to social initiative special employment centres and work integration social enterprises. The provisions exclude from reserved contracts the business initiative special employment centres, which Conacee represents at the national level. On 23 July 2018, Conacee brought an administrative action before the High Court of Justice of the Basque Country seeking the annulment of the decision of the Diputación Foral de Gipuzkoa of 15 May 2018.

The reason for challenging the decision issued by Diputación Foral de Gipuzkoa, and as a result, the regulations of the Spanish Law on Public Sector Contracts – which constituted the basis for this decision – was the fact that requirements were set in addition to those laid down in Article 20(1) of Directive 2014/24/EU. By limiting the scope to ”social initiative special employment centres,” the Spanish regulation may have the effect of excluding economic operators created by a business initiative that otherwise satisfies the conditions laid down in Article 20(1) of Directive 2014/24. 

The High Court of Justice of the Basque Country decided to suspend the proceedings and refer the question to the Court of Justice.

2. QUESTION TO THE CJEU

The High Court of Justice of the Basque Country asked the CJEU whether Article 20(1) of Directive 2014/24/EU must be interpreted in such a way that it does not allow for the possibility of setting additional criteria on economic operators – meeting the conditions specified in this article – related to the establishment, character and aims their activities and investments, or other matters. In other words, the Court asked whether Member States are entitled to limit the scope of economic operators to whom reserved contracts may be allowed to be awarded by laying down additional conditions beyond those already set out in Article 20(1) of Directive 2014/24/EU.

3. RESERVED CONTRACTS UNDER ARTICLE 20(1) OF DIRECTIVE 2014/24/EU

Article 20(1) Directive 2014/24/EU grants Member States the possibility to reserve participation in the public procurement procedures in favour of specific entities if two conditions are fulfilled cumulatively. Firstly, the participants in the process are to be sheltered workshops or economic operators whose main aim is the social and professional integration of disabled or disadvantaged persons,[2] or may provide for such contracts to be performed in the context of sheltered employment programmes. Secondly, at least 30% of the employees of those workshops, economic operators or programmes are disabled or disadvantaged workers.

Article 20 manifests the assumption that public procurement is seen, among other things, as an instrument for achieving social policy goals. Socially responsive solutions in public procurement are referred to as ”Socially Responsible Public Procurement” (SRPP). According to the European Commission, SRPP means procurement operations that take into account one or more of the following social considerations: employment opportunities, decent work, compliance with social and labour rights, social inclusion (including people with disabilities), equal opportunities, accessibility design for all, taking account of sustainability criteria, including ethical trade issues and wider voluntary compliance with corporate social responsibility (CSR), while also observing the principles enshrined in the Treaty for the European Union (TFEU) and the Public Procurement Directives.[3]

In the opinion of the European Commission, by purchasing wisely, public buyers can promote employment opportunities, upskilling and reskilling the workforce, decent work, social inclusion, gender equality and non-discrimination, accessibility, design for all, ethical trade and seeking to achieve wider compliance with social standards. For some products, works and services, the impact can be particularly significant, as public purchasers represent a large share of the market in sectors such as civil engineering, healthcare and transport.[4]

SRPP also encourages the integration and inclusion of often-marginalised groups in society. They include for example, people with disabilities, people at risk of poverty and social exclusion and minorities in market activities. SRPP can create opportunities for businesses owned by such groups, as well as training and employment. SRPP also illustrates how social and economic considerations can be mutually reinforcing, for example, social enterprises delivering public services in ways that create additional value through social outcomes and impacts.[5]

One of the solutions for supporting the integration and inclusion of often-marginalised groups is contained in Article 20 Directive 2014/24/EU. Article 20 was initially introduced to implement the objectives of the Europe 2020 Strategy.[6] In accordance with point 2 of the preamble to the Directive, public procurement should play a key role in the Europe 2020 strategy as one of the market-based instruments to be used to achieve smart, sustainable, and inclusive growth while ensuring the most efficient use of public funds. The role of Article 20 also remains relevant in the current state of the law, considering the demands of EU sustainable development.

Article 20 Directive 2014/24/EU is a continuation of Article 19 Directive 2004/18/EU and expands the applicability of previously existing solutions for social aspects considerably.[7] First, it extends the sphere of entities for which a public buyer may reserve a contract by including, alongside sheltered workshops, also economic operators whose main aim is the social and professional integration of disabled or disadvantaged persons. Second, it extended the scope of persons targeted by such schemes.[8] Directive 2014/24/EU reduced the percentage of required employment of disabled or disadvantaged persons from 50 to 30%.[9] 

The role of social inclusion has been directly emphasised in the EU Green Deal.[10] This document pointed to the role of social inclusion in the process of the Just Transition. The EU Green Deal will support and accelerate the EU’s industry transition to a sustainable inclusive growth model. Reserved contracts could prove to be one of the legal instruments supporting social processes, particularly in the transitioning regions. Contracting authorities may consider using these contracts to benefit entities employing people who will lose their jobs because of the energy transition (e.g., in mining regions). The use of reserved contracts may also be envisioned as part of a broader strategy for specific regions.

Regarding reserved contracts, recital 36 shows that employment and occupation contribute to social integration are crucial in guaranteeing equal opportunities for all. In this context, sheltered workshops can play a significant role. The same is true for other social businesses whose main aim is to support the social and professional integration or reintegration of disabled and disadvantaged individuals, such as the unemployed, members of disadvantaged minorities, or otherwise socially marginalised groups.  

It must be said that Article 20(1) Directive 2014/24 does contain some ambiguity. Its application in practice and its transposition by the Member States may raise interpretation questions. One area of ambiguity relates to the question about which entities can public contracts be reserved for, as the Directive does not give a closed list of those entities.

4. THE JUDGMENT

The CJEU ruled that Article 20(1) Directive 2014/24 must be interpreted as not preventing a Member State from imposing additional criteria beyond those laid down by that provision, thereby excluding from reserved public procurement procedures certain economic operators that satisfy the criteria laid down in that provision, if Member State complies with the principles of equal treatment and proportionality.

The justification of this part of the ruling is based on three arguments a) the literal (textual), b) the teleological and c) the historical interpretation of Article 20(1) Directive 2014/24.

4.1 Methods of Interpreting the Legal Text

Before looking more closely at the judgment, it is worth giving some information on the methods of interpreting the legal text. The literal interpretation looks at the usual meaning of the words contained therein to determine the meaning and intention of the text.[11] The teleological interpretation focuses on the meaning of the rule on the basis of the goal the rule is intended to realise. According to the doctrine, there are three main types of teleological interpretation.[12] The first type aims to secure the “effet utile” (effectiveness) of the EU law provision in question (known as functional interpretation). The second type, known as teleological interpretation stricto sensu” is applied where a provision of EU law is ambiguous or incomplete and must be interpreted considering the objectives it pursues. The third type, known as “consequentialist interpretation”, focuses on the consequences that flow from an interpretative choice.[13] Finally, the historical interpretation is based on an analysis of the origins of the provision and its modifications over time.

Returning to the ruling in Conacee case. Firstly, in the CJEU’s view, Article 20(1) Directive 2014/24 confers on Member States the option of reserving for sheltered workshops and certain economic operators the right to participate in public procurement procedures and sets out the conditions to which that option is subject.[14] As Advocate General Tanchev has stated, Article 20 is worded in terms that in no way indicate that all entities meeting those conditions must benefit from that right.[15] In the CJEU’s opinion, the second condition laid down in that provision, namely that disabled or disadvantaged persons must make up at least 30% of the employees of the entities referred to in that provision, constitutes merely a minimum requirement.[16] Moreover, the definition of an economic operator, included in Article 2(10) of the Directive, is broad and unspecific as to which entities may benefit from the public procurement procedures referred to in Article 20(1), providing simply that the main aim of those operators must be the social and professional integration of disabled or disadvantaged persons.[17] Thus, in the CJEU’s opinion, it follows from the wording of Article 20(1) that when Member States decide to reserve for certain participants the right to participate in public procurement procedures according to that provision, they enjoy a degree of latitude in implementing the conditions laid down in that provision.[18] 

Secondly, the CJEU pointed out the purpose of Article 20 by stressing that the EU legislature wished to promote, by means of employment and occupation, the integration of disabled or disadvantaged persons in society by allowing Member States to reserve the right to participate in award procedures for public contracts, or for certain lots of those contracts, to protect workshops and economic operators that, in view of their social objective, operate on the market at a competitive disadvantage.[19] Article 20(1) pursues a social policy objective relating to employment. However, as EU law currently stands, the Member States have a wide margin of discretion in defining the measures likely to achieve that social and employment policy objective.[20] Consequently, an analysis of the objective pursued by Article 20(1) allowed the Court to confirm the interpretation resulting from the wording of this provision so that, given this discretion, Member States have a certain latitude when implementing this provision. Article 20(1) does not contain exhaustively enumerated prerequisites. However, it leaves it to the Member States to adopt additional prerequisites that must be met by the entities referred to in the provision for them to participate in the reserved public procurement, provided that these additional prerequisites contribute to achieving the social and employment policy objectives intended therein.

Thirdly, based on a historical interpretation, the CJEU pointed to the origin of Article 20, which is the beforementioned Article 19(1) Directive 2004/18/EU. In the CJEU’s opinion, it is not apparent from Directive 2014/24/EU, or the origin of that directive, that the EU legislator, when broadening the scope of reserved contracts in Article 20(1) 2014/24/EU, it intended to create a situation in which the economic operators referred there, employing a lower percentage of disabled or disadvantaged persons, would replace economic operators meeting the stricter requirements under Article 19(1) of Directive 2004/18/EU.[21] However, as Advocate General Tanchev observed, that is precisely what would happen if the Member States were required to allow the participation of all economic operators meeting the conditions laid down in Article 20(1).[22]

The literal (textual), teleological and historical interpretations allowed the CJEU to conclude that Article 20(1) Directive 2014/24/EU must be interpreted as meaning that the conditions it sets out are not exhaustive and that Member States may, where appropriate,, stipulate additional criteria that the entities referred to in that provision must satisfy in order to be allowed to participate in reserved contracts. However, the freedom of the Member States is not unlimited. The public procurement principles set the limits, including the cardinal principles of equality and proportionality, mentioned in Article 18(1) Directive 2014/24/EU.

4.2. Non-Profit vs For-Profit Special Employment Centres

In the Conacee case, the CJEU stated that it is necessary to determine whether social initiative special employment centres are in the same situation as business initiative special employment centres concerning the objective pursued by Article 20 of the Directive. Firstly, it must be considered that it follows from the national legislation that a special employment centre, whether economic or a social initiative, is intended to guarantee gainful employment for people with disabilities or disadvantaged persons. Moreover, special employment centres are considered to integrate a significant number of such persons into the ordinary employment system. It follows that, regardless of the type of initiative, these centres cannot compete under normal conditions. Due to inherent characteristics, social initiative employment centres can pursue the objective of social integration more effectively, which may justify treating them differently from economic initiative employment centres. The distinguishing features are the absence of a profit-making objective, the reinvestment of all profits into social goals, the adoption of democratic principles and participation in their management, and the maximisation of the social impact through a better possibility of professional integration of disabled or disadvantaged persons. 

Secondly, it follows from the characteristics of social initiative employment centres that their main objective is integrating people with disabilities or disadvantaged persons in order to comply with Article 20(1) of the Directive. Therefore, in assessing the proportionality of the requirements, it must be determined whether the participation of a predominantly profit-making entity in a social initiative employment centre and the reinvestment of only part of the profits will ensure that the objectives of social inclusion are pursued as effectively as in social initiative centres. It follows from the arguments that the court favours the thesis that non-profit operators may be more suitable when implementing social policy.

5. CONCLUDING REMARKS

The Conacee case confirms that Member States have discretion in defining the prerequisites for implementing reserved contracts under Article 20(1) Directive 2014/24, taking into account this provision’s wording, purpose and origins. In any case, the application of Article 20(1) cannot violate the principles of equal treatment and proportionality set out in Article 18(1) of Directive 2014/24/EU.


REFERENCE LIST:

[1] Judgement of the Court, 6 October 2021, Case C‑598/19, Confederación Nacional de Centros Especiales de Empleo (Conacee) v Diputación Foral de Gipuzkoa. Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC

[2] To know more about the concept of disabled or disadvantaged persons see: Article 1 of the UN Convention on the Rights of Persons with Disabilities (UNCRPD) and Article 2 of Commission Regulation (EU) No 651 of 2014 (General Block Exemption Regulation).

[3] See: European Commission, Directorate-General for Employment, Social Affairs and Inclusion, Directorate-General for the Internal Market and Services, Buying social: a guide to taking account of social considerations in public procurement, Publications Office, 2011, https://data.europa.eu/doi/10.2767/18977, p. 7,  Buying Social – A guide to taking account of social considerations in public procurement – Second edition 2021/C 237/01 (OJ C, C/237, 18.06.2021, p. 1, CELEX: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021XC0618(01)), pp. 4-5

[4] Buying Social – A guide to taking account of social considerations in public procurement – Second edition 2021/C 237/01 (OJ C, C/237, 18.06.2021, p. 1, CELEX: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021XC0618(01)), p. 4

[5] Buying Social – A guide to taking account of social considerations in public procurement – Second edition 2021/C 237/01 (OJ C, C/237, 18.06.2021, p. 1, CELEX: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021XC0618(01)), p. 4

[6] Communication from the European Commission, Europe 2020 Strategy, a strategy for smart, sustainable, and inclusive growth (Europe 2020 Strategy), COM 2010/2020 final

[7] Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts

[8] See: I. Baciu, Commentary to Article 20- reserved contracts, in: A. Sanchez-Graells, R. Caranta, European Public Procurement. Commentary on Directive 2014/24/EU, para. 20.04.

[9] The new directive also introduced new instruments to promote social inclusion through public procurement. In addition to the instrument of reserved contracts, already known from Directive 2004/18/EC, the new directive also provided for a new instrument in the form of the reserved contracts regime for social, health and cultural services.

[10] Communication from the European Commission, European Green Deal, Brussels, 11.12.2019, COM(2019) 640 final

[11] See: K. Lenaerts, J.A.Guitierrez-Fons, To say what the law of the EU is : methods of interpretation and the European Court of Justice, EUI AEL, 2013/09, Distinguished Lectures of the Academy – http://hdl.handle.net/1814/28339, p. 8

[12] See: J. Bengoetxea, The Legal Reasoning of the European Court of Justice (Oxford, Clarendon, 1993).

[13] See: K. Lenaerts, J.A.Guitierrez-Fons, To say what the law of the EU is : methods of interpretation and the European Court of Justice, EUI AEL, 2013/09, Distinguished Lectures of the Academy – http://hdl.handle.net/1814/28339, p. 25

[14] See: Conacee, para. 20

[15] See: Opinion of Advocate General Tanchev, C-598/19, para. 51

[16] See: Conacee, para. 22 

[17] See: Conacee, para. 24   

[18] See: Conacee, para. 25    

[19] See: Conacee, para. 26     

[20] See: Conacee, para. 27      

[21] See: Conacee, para 30

[22] See: Conacee, para 31

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