Opinion of Advocate General Campos Sánchez-Bordona delivered on 13 September 2018

A. Case C‑266/17

9. Rhein-Sieg-Kreis (District of Rhein-Sieg) is a local authority in the Land of North Rhine-Westphalia which, under national law, has the status of a competent authority within its geographical area for the purposes of the Regulation.

10. Rhein-Sieg-Kreis has an internal operator (Regionalverkehr Köln GmbH, ‘RV Köln’) with its own legal personality.⁽³⁾ According to the order for reference, Rhein-Sieg-Kreis exerts over RV Köln a control ‘similar to that which it exercises over its own departments, in the form of shared control with the other shareholders’.⁽⁴⁾

11. In addition, Rhein-Sieg-Kreis, together with a number of other local authorities, established a management consortium (Verkehrsverbund Rhein-Sieg) which is responsible in particular for setting tariffs but does not engage in any transport activities.

12. Rhein-Sieg-Kreis announced that,⁽⁵⁾ acting in accordance with Article 5(2) of the Regulation, it was going to make a direct award of the contract for providing public passenger transport services ‘within its geographical area, including on routes running into neighbouring geographical areas’.⁽⁶⁾

13. RV Köln holds the contract for providing public passenger transport services in the territory of Rhein-Sieg-Kreis, as well as on outgoing lines and in connection with other ancillary elements of that activity which enter the territory of neighbouring local authorities.⁽⁷⁾

14. The announcement of that award was challenged by Verkehrsbetrieb Hüttebräucker GmbH and BVR Busverkehr Rheinland GmbH before the Vergabekammer Rheinland (Public Procurement Chamber for the Rhineland, Germany), which prohibited that contract from being directly awarded to the internal operator because the conditions for the application of Article 5(2) of the Regulation were not satisfied: the local authority did not exercise control over the operator and the public passenger transport services were provided in territories other than that administered by the contracting authority.

15. The decision of the Vergabekammer Rheinland was appealed to the referring court. That court highlights the fact that there are differences of opinion among the German courts as regards contracts for passenger transport by road that do not take the form of service concessions:

• For some courts, a concession alone justifies the application of the Regulation. In the absence of a concession, the general regime laid down in the procurement directives applies.

• For others, Article 5(2) of the Regulation establishes a special regime that takes precedence over the general rules. The reference in Article 5(1) to the procurement directives is devoid of purpose in cases such as this, since internal awards are not subject to those directives.

16. It was in those circumstances that the Oberlandesgericht Düsseldorf (Higher Regional Court, Düsseldorf) referred the following questions to the Court of Justice for a preliminary ruling:

• Does Article 5(2) of Regulation (EC) No 1370/2007 apply to contracts which are not contracts which, within the meaning of the first sentence of Article 5(1) of Regulation (EC) No 1370/2007, take the form of service concession contracts as defined in Directives 2004/17/EC or 2004/18/EC?

If Question 1 is answered in the affirmative:

1. Where an individual competent authority awards a public service contract directly to an internal operator in accordance with Article 5(2) of Regulation (EC) No 1370/2007, is the joint exercise of control by that authority together with the other shareholders of the internal operator precluded if the power to intervene in public passenger transport in a given geographical area (Article 2(b) and (c) of Regulation (EC) No 1370/2007) is divided between the individual competent authority and a group of authorities which provides integrated public passenger transport services, for example where the power to award public service contracts to an internal operator remains with the individual competent authority but the responsibility for tariffs is transferred to a special purpose transport association to which, in addition to the individual authority, further authorities competent in their geographical areas belong?

2. Where an individual competent authority awards a public service contract directly to an internal operator in accordance with Article 5(2) of Regulation (EC) No 1370/2007, is the joint exercise of control by that authority together with the other shareholders of the internal operator precluded if, according to that operator’s articles of association, in the case of resolutions concerning the conclusion, amendment or termination of a public service contract referred to in Article 5(2) of Regulation (EC) No 1370/2007, the only shareholder entitled to vote is the one which itself or whose indirect or direct owner awards a public service contract to the internal operator in accordance with Article 5(2) of Regulation (EC) No 1370/2007?

3. Does point (b) of the second sentence of Article 5(2) of Regulation (EC) No 1370/2007 permit the internal operator also to perform public passenger transport services for other competent local authorities within their territory (including outgoing lines and ancillary elements of that activity which enter the territory of neighbouring competent local authorities) if these are not awarded through organised competitive tender procedures?

4. Does point (b) of the second sentence of Article 5(2) of Regulation (EC) No 1370/2007 permit the internal operator also to perform public passenger transport activity outside the territory of the commissioning authority for other authorities on the basis of public service contracts covered by the transitional provisions of Article 8(3) of Regulation (EC) No 1370/2007?

5. On which date must the requirements of Article 5(2) of Regulation (EC) No 1370/2007 be satisfied?’

B. Case C‑267/17

17. Kreis Heinsberg (District of Heinsberg) is a local authority in the Land of North Rhine-Westphalia. Together with the city of Aachen, the metropolitan area of Aachen and the Kreis Düren (District of Düren), it is a member of the Aachener Verkehrsverbund, a consortium of municipal authorities governed by public law, which was formed to promote and support local public passenger transport services for its members.⁽⁸⁾

18. On 15 March 2016, Kreis Heinsberg announced⁽⁹⁾ that it would be making a direct award, without call for competition, of the contract for public passenger transport services by bus and other vehicles under Article 5(2) of the Regulation.

19. The internal operator⁽¹⁰⁾ to which Kreis Heinsberg intended to award the contract for those services, with effect from 1 January 2018 for a period of 120 months, was WestVerkehr GmbH, a company which had pursued its activities principally through its wholly-owned subsidiary, Kreisverkehrsgesellschaft Heinsberg mbH, and intended to carry on doing so after the direct award.

20. Rhenus Veniro GmbH challenged that award before the Vergabekammer Rheinland (Public Procurement Chamber for the Rhineland), which dismissed its application on 11 November 2016, whereupon that company brought an action before the Oberlandesgericht Düsseldorf (Higher Regional Court, Düsseldorf), claiming (a) that Article 5(2) of the Regulation is not applicable and (b) in the alternative, that Kreis Heinsberg, as a member of the Aachener Verkehrsverbund, is not competent to make a direct award of the contract in question, since competence to do so lies with an individual authority or a group of authorities, but not with an authority in its capacity as a member of the group.

21. It was in those circumstances that the Oberlandesgericht Düsseldorf (Higher Regional Court, Düsseldorf) referred the following questions to the Court of Justice for a preliminary ruling:

• Is Article 5(2) of Regulation (EC) No 1370/2007 applicable to directly awarded public service contracts within the meaning of Article 2(i) of the regulation which do not, for the purposes of the second sentence of Article 5(1) of the regulation, take the form of service concessions contracts under Directives 2004/17/EC or 2004/18/EC?

• Do Article 2(b) and Article 5(2) of Regulation (EC) No 1370/2007 presume, as is conveyed by the word “or”, an exclusive competence either of an individual authority or of a group of authorities, or do those provisions also permit an individual authority to be a member of a group of authorities and to assign specific tasks to the group but at the same time to retain the power to intervene under Article 2(b) and to be the competent local authority within the meaning of Article 5(2) of the regulation?

• Does point (e) of the second sentence of Article 5(2) of Regulation (EC) No 1370/2007, which lays down the requirement to perform the major part of the public passenger transport service itself, prevent the internal operator from having the major part of the services performed by a wholly-owned subsidiary?

• At what point in time must the conditions governing direct awards laid down in Article 5(2) of Regulation (EC) No 1370/2007 be met: at the time of publication of an intended direct award pursuant to Article 7 of Regulation (EC) No 1370/2007 or not until the time of the direct award itself?’

A. Application of the Regulation (first question in Cases C‑266/17 and C‑267/17)

25. The premiss from which we must start is that, in these two disputes, the legal relationship between the contracting authority and the operator entrusted with the provision of public passenger transport services by road is not, according to the referring court, a public service concession but a public service contract.

26. If that is the case, the applicable provision is Article 5(1) of the Regulation. This means that the public service contract in question should in principle be awarded in accordance with Directives 2004/17/EC and 2004/18/EC.⁽¹¹⁾

27. The problem is that those two directives, unlike the later 2014 directives,⁽¹²⁾ do not make any provision for the direct award of such contracts to internal operators (also known as in-house operators). In those circumstances, the dilemma faced is whether to:

• rely on the case-law which,⁽¹³⁾ under the legislation prior to the 2014 procurement directives, set out a framework for direct selection in cases where the supplier was simply an agency internal to the contracting authority department that exercised control over it. The Teckal case-law, which was specifically established as an exception to the application of Directives 2004/17 and 2004/18, provides a number of guidelines, derived from other case-law, whereby public authorities may entrust such tasks to their agencies; or

• apply the specific rules which the Regulation lays down with respect to awards made to internal operators in this way.

28. As is apparent from the difference of opinion among the German courts to which the orders for reference refer, there is no obvious solution to this problem and the disparity between legal regimes based on one or other of the aforementioned propositions is significant. It would be different if the 2014 Directives could be applied in the disputes giving rise to the present references for a preliminary ruling, inasmuch as those directives, barring a few minor exceptions, have, in essence, formally incorporated the Teckal case-law into their provisions.⁽¹⁴⁾

29. In that event, it could readily be accepted that the reference to the 2004 Directives in Article 5(1) of the Regulation should be understood as relating to the 2014 Directives once they are in force.⁽¹⁵⁾ And since those directives already expressly lay down the rules governing the award of public contracts to in-house operators, it would fall to be determined whether those rules take precedence over the rules in Article 5(2) of the Regulation.⁽¹⁶⁾ However, the application of the 2014 Directives is not feasible, ratione temporis, in this case.⁽¹⁷⁾

30. The Court of Justice has held that ‘the applicable directive is, as a rule, the one in force when the contracting authority chooses the type of procedure to be followed and decides definitively whether it is necessary for a prior call for competition to be issued for the award of a public contract (judgment [of 11 July 2013,] Commission v Netherlands , C‑576/10, EU:C:2013:510, paragraph 52 and the case-law cited). Conversely, a directive is not applicable if the period prescribed for its transposition expired after that point in time (see, to that effect, the judgment [of 5 October 2000,] Commission v France , C‑337/98, EU:C:2000:543, paragraphs 41 and 42 )’.⁽¹⁸⁾

31. The two orders for reference show that the direct award announcements were made prior to the deadline for the transposition of the 2014 Directives.⁽¹⁹⁾ There is, moreover, no objective evidence to support the inference that the option pursued by the contracting authority was any different from that which it had indicated in those announcements.

32. Consequently, we must turn our attention back to the dilemma I mentioned earlier without the option of using the rules laid down in the 2014 Directives on direct awards to internal operators.

33. The procedures provided for in Directives 2004/17/EC and 2004/18/EC are not applicable to this type of in-house award. As I have said in other Opinions, ‘[u]nder the in-house system, the contracting authority does not, from a functional point of view, contract with a separate body but, in effect, contracts with itself, given the nature of the connection with the formally separate body. Strictly speaking, there is no award of a contract, but simply an order or task, which the other ‘party’ cannot refuse to undertake, whatever the name given to it. [...] The absence of a real relationship between two distinct parties explains why a contracting authority is not required to comply with public procurement procedures where it is using its own resources to perform its tasks’.⁽²⁰⁾

34. The award to internal operators will therefore have to be governed either by the Teckal case-law or by the special rules contained in Article 5(2) of the Regulation (for cases involving land transport services).

35. While I recognise the weight of the arguments to the contrary, I incline to the view that Article 5(2) of the Regulation should prevail. To my mind, there are various arguments to support that position.

36. The first is consistent with a literal interpretation of the third sentence of Article 5(1), read a sensu contrario. If paragraphs 2 to 5 of that article cede, exceptionally and to a limited extent,⁽²¹⁾ only where service contracts ‘are to be awarded in accordance with Directives 2004/17/EC or 2004/18/EC’, they will become fully applicable again if those directives do not provide for direct awards to internal operators, as is the case here. I have already made the point that, for the Court of Justice, in-house commissions are excluded from those two directives.

37. That literal interpretation is corroborated by the wording of Article 5(1): public service contracts for passenger transport by bus ‘shall be awarded in accordance with the procedures provided for under … Directives [2004/17/EC and 2004/18/EC]’, where they do not take the form of service concessions contracts. If, as is the case, those directives do not provide for any procedure for awards to internal operators, which are more in the nature of mechanisms for self-provision by contracting authorities, the reference to such procedures is devoid of purpose and meaning.

38. The same would not be true of competitive awards (that is to say, awards not made to internal operators), in respect of which that reference is entirely valid. Where a public authority wishes to award to third parties a contract of this kind that does not take the form of a concession, it must do so by way of the competitive procedures for which Directives 2004/17/EC and 2004/18/EC do indeed provide.

39. The second argument is drawn from a systemic assessment of the applicable rules, combined with the rule of specialty. If in 2007 (that is to say, after the adoption of the 2004 Directives) the EU legislature sought to introduce a dedicated scheme for the in-house award of contracts for land transport services, it is my opinion that, in the event of doubt, that scheme, as set out in Article 5(2) of the Regulation, must be regarded as taking precedence over the (general) scheme arising from the Teckal case-law.

40. The third and final argument takes into account the purpose intended to be served by Article 5(2) of the Regulation. In the light of the particular features of passenger transport by road, the EU legislature sought to ensure that ‘any local authority … [could] provide its own public passenger transport services in the area it administers or to entrust them to an internal operator without competitive tendering’. The conditions for using the latter mechanism are fairly precise and reflect the balance between that objective and the objective of ‘ensur[ing] a level playing field’.⁽²²⁾

41. It is more in keeping with that purpose to give priority to the dedicated rules contained in the Regulation, which are tailored to the features of passenger transport by bus, than to adhere to the principles laid down in the Teckal case-law, which apply to any other services sector. Prominent among those rules is that which allows (and, to some extent, encourages) local authorities to form groups for the purposes of awarding such contracts to an internal operator over which they exercise a control similar to that which they exercise over their own departments.

42. In short, a local authority planning to award directly to an internal operator a contract for public passenger transport services by bus must do so in accordance with the conditions laid down in Article 5(2) of the Regulation.

B. Intervention by the local authority in the award of the contract and in the control over the internal operator (second question in Cases C‑266/17 and C‑267/17 and third question in Case C‑266/17)

43. The local authorities (Kreise (Districts)) which awarded (or intended to award) contracts to their internal operators in these two cases had joined together with other similar authorities to form management consortia (Verkehrsverbund) operating at a higher territorial level. The powers assigned to such consortia include setting common tariffs for passenger transport services in their respective territories.⁽²³⁾

44. The referring court wishes to ascertain whether that fact precludes the two local authorities (Kreise (Districts)) comprising the consortia from awarding their respective contracts.

45. As I have already said, the first subparagraph of Article 5(2) of the Regulation allows local authorities, either independently or in conjunction with others, to award contracts directly to internal operators, provided that they ‘exercise … control similar to that [exercised] over their own departments’.

46. In the abstract, I see no reason why giving the management consortium the power to adopt tariffs should undermine the ‘similar control’ exercised by the individual authorities over their own internal operators. I therefore concur with the opinion expressed by the referring court in that regard. The establishment of a common tariff decided upon by the consortium provides users with an integrated transport service by enabling them to buy a single ticket irrespective of the internal operator providing that service and irrespective of the local authority to which that internal operator is attached.

47. The material point here is whether or not the ‘similar control’ exercised by each local authority (or, as the case may be, the joint control exercised by the group) over the internal operator continues in being. Depending on how it is done, giving powers to the management consortium could reduce the local authority’s powers to such an extent that the latter no longer exercises over the internal operator a control comparable with that which it exercises over its own departments.

48. If the question referred is confined to the transfer of tariff-setting powers to the consortium, I do not consider that this fact necessarily entails an abdication of control over the internal operator. Furthermore, the fact that each Kreis (District), as a local authority forming part of the management consortium, participates in the tariff-setting decisions adopted by the latter, shows that it retains — albeit on a shared basis — control even over that aspect of the services in question.

49. Of course, the ultimate assessment as to whether, in the specific circumstances of the two disputes, control over the internal operator continues to be exercised by the Kreise (Districts), whether individually or as part of a group, is a matter which falls to be determined by the national court, which alone has before it the evidence necessary to enable it to make that assessment.⁽²⁴⁾ The fact is that the orders for reference do not provide enough detail to be able to form a true and full picture of the relationships between the local authorities and the internal operator.

50. In that same context, the third question referred for a preliminary ruling in Case C‑266/17 refers to an amendment to RV Köln’s articles of association, adopted at the general shareholders’ meeting on 21 August 2015, that would restrict the right to vote to shareholders that award a contract under Article 5(2) of the Regulation. The referring court wishes to ascertain whether that amendment to the articles of association might have an effect on the control exercised by the local contracting authority.

51. The wording of the order for reference makes for difficult reading in this regard. In any event, paragraph 21 thereof states that ‘it is at present unclear whether the additional party’s articles of association will continue in their existing version or whether the amended version of 21 August 2015 will take effect’, the reason for this being, as explained previously (in paragraph 6 of the order), that the amendment decision of 21 August 2015 was challenged and ‘suspended pursuant to a final judgment’.

52. That being the case,⁽²⁵⁾ this question might perhaps be said to be hypothetical, since it deals with an element of fact (the amendment to the articles of association) which the referring court itself does not consider relevant to the judgment it must give because that amendment is not in force.

53. In any event, the new wording of RV Köln’s articles of association would, in this case, serve only to confirm that the Kreis (District), because it was the authority that awarded the contract to that operator, is entitled to vote at its general shareholders’ meeting, which is to say that it is able to exercise the control vested in it over the operating company. As the referring court rightly points out, the amendment to the third sentence of Paragraph 17(1) of the articles of association ‘strengthens the influence of the shareholder which awards the public service contract and on whose territory the passenger transport activities are intended to be performed’.

C. The territory in which the internal operator may provide transport services (fourth and fifth questions in Case C‑266/17)

54. By its fourth question in Case C‑266/17, the referring court seeks to ascertain whether an internal operator to which a contract has been directly awarded may provide passenger transport services by land not only in the territory of the local contracting authority but also in that of other local authorities within the group of which the contracting authority is a member.

55. Again, the order for reference is not very clear in this regard. Its wording might once again support the inference that this question is hypothetical, since:

• in the award announcement, the local authority stated that the service in question was going to be provided ‘within its territory, including on routes running into neighbouring geographical areas’ (paragraph 10 of the order); and

• the referring court itself confirms that information by stating that ‘those services (apart from through routes or other part services which enter the territory of neighbouring competent local authorities) are provided within the territory of the contracting authority’ (paragraph 22 of the order).

56. The fact remains, however, that the purpose of the question could be to determine — regardless of whether the award of the contract in question to RV Köln complied with that rule — whether that company is prevented from providing its services to other local authorities, that is to say from carrying out its activities in the territories of those authorities.

57. According to Article 5(2)(b) of the Regulation, the internal operator may pursue its public passenger transport services only within the territory of the competent local authority. That authority may, however, be both an individual local authority and a group of local authorities.⁽²⁶⁾ There is, therefore, nothing to stop one or more members of a group of local authorities from entrusting those services to a single operator, common to all of them, over which they exercise a control similar to that which they exercise over their own departments. In that event, the internal operator may carry out its activities in each of the territories administered by the (group of) local authorities which have entrusted the aforementioned services to it.

58. What is more, that possibility is not a new development confined to the Regulation. In building on its Teckal case-law, the Court of Justice has allowed some public authorities to discharge their public service functions in collaboration with others by availing themselves of a common entity over which they exercise a control similar (but not identical) to that which they exercise over their own departments.⁽²⁷⁾

59. In the judgment in Coditel Brabant,⁽²⁸⁾ the Court considered the case of a local authority which ‘sought to join a grouping composed of other public authorities, such as an inter-municipal cooperative society’, for the purposes of performing its tasks. The Court recognised the joint control exercised by those local authorities, and that such control did not have to be individual.⁽²⁹⁾

60. In short, if the internal operator is an entity common to a number of local authorities, which exercise over it a (joint) control similar to that which they exercise over their own departments, the territory referred to in Article 5(2)(b) of the Regulation must be construed as being the territory administered by each of those authorities.

61. In the fifth question, the national court seems to be referring now not to the territory of the group of local authorities but to that of any other ‘commissioning authorities’ which might hypothetically have concluded with RV Köln transport services contracts which predate 3 December 2003, that is to say which are subject to transitional arrangements under Article 8 of the Regulation.

62. That article provided for a series of measures gradually introducing the contract award rules laid down in the Regulation itself. Since there is no need to examine that article in detail, it is sufficient to note that public service contracts awarded in accordance with Community or national law, on the basis of the procedures and in the periods specified in Article 8(3), could continue until they expired, subject to certain limits.

63. As the order for reference provides no further details, I am of the view that any contracts predating those referred to are in force, pursuant to the transitional rules laid down in Article 8 that are mentioned in the question. Consequently, since the Regulation makes explicit provision for the continued existence of those contracts, the territorial restriction imposed in Article 5(2)(b) of that regulation must be interpreted as not encompassing them.

D. Point at which the conditions laid down in Article 5(2) of the Regulation must be fulfilled (sixth question in Case C‑266/17 and fourth question in Case C‑267/17)

64. The referring court is uncertain whether the conditions applicable under Article 5(2) of the Regulation must be fulfilled (a) at the time of the direct award or (b) at the time when it falls to the competent authority, in accordance with Article 7(2) of that regulation, to publish in the Official Journal of the European Union the information relating to the direct award which it is planning to make.

65. When setting out the information which the competent authority must include in its announcement (at least one year before the direct award), Article 7(2) of the Regulation does not require that authority to specify the identity of the future recipient of the award. There is nothing to stop the local authority, in the interval between the announcement and the award itself, from structuring its agencies one way or another: what matters is that the internal operator finally selected should satisfy the conditions laid down by law (in particular the condition that it must be under the control of the authority that entrusts the services to it).

66. In my estimation, on a combined reading of Article 5(2) and Article 7(2) of the Regulation, the point at which the conditions laid down in the first of those provisions must be fulfilled is indeed the point at which the direct award is made. Only then will the identity of the operator selected be known, and it is this piece of information which is crucial to determining whether, in the circumstances, the competent authority exercises over that operator a control similar to that which it exercises over its own departments, and whether or not that operator is in one of the situations referred to in Article 5(2)(b) and (c) of the Regulation.

E. Provision of the service by the internal operator via a subsidiary (third question in Case C‑267/17)

67. In practice, the internal operator WestVerkehr GmbH provides the public transport services entrusted to it via a wholly-owned subsidiary. In the light of that fact, and the wording of Article 5(2)(e) of the Regulation (‘if subcontracting … is being considered, the internal operator shall be required to perform the major part of the public passenger transport itself’), the referring court asks whether that provision allows the services to be entrusted to the subsidiary.

68. The Regulation provides for subcontracting as a means to open up the provision of services to undertakings other than the recipient of the award which are linked to that recipient by contract. Subcontractors may not, however, carry out more than a limited percentage of the service in question, thus:

• if the supplier awarded the contract is an autonomous undertaking, that is to say not an internal operator, it ‘shall be required to perform a major part of the public passenger transport services itself’ (Article 4(7));⁽³⁰⁾

• if, on the other hand, the supplier awarded the contract is an internal operator, ‘it shall be required to perform the major part of the service itself’ (Article 5(2)(e)).

69. To my mind, however, a situation such as that here cannot properly be described as subcontracting. I concur with the proposition put forward by Kreis Heinsberg in its written observations to the effect that the relationship between a subsidiary which is wholly owned by the internal operator that controls it and that internal operator is not one established by a subcontract. Subcontracting requires two autonomous undertakings⁽³¹⁾ which, ‘from a position of equality rather than dependence or hierarchical subordination’,⁽³²⁾ agree between them the conditions that will govern their contractual relationship.

70. The subcontracting provided for by the aforementioned articles of the Regulation will take place in circumstances where the internal operator decides to use a third party external to its corporate structure to provide the services in question.⁽³³⁾ If, however, the entity which the internal operator uses to that end is a wholly-owned subsidiary company over which it exercises full control, to the extent of dictating its business decisions, then, from a functional point of view, those services are effectively being provided by the same economic and operational unit. There is, therefore, no real third party with which to subcontract.

71. In those circumstances, the in-house link between Kreis Heinsberg and its internal operator (WestVerkehr GmbH) extends to the latter’s wholly-owned subsidiary, over which the local authority also exercises a (secondary) control equivalent to that which it exercises over its (other) departments.

72. Consequently, point (e) of the second sentence of Article 5(2) of the Regulation does not preclude an internal operator from entrusting to a subsidiary in which it has a 100% shareholding and over which it exercises full control the provision of the major part of the services awarded to it.