Case C-212/16, DUK Versorgungswerk – against hiving-off public sector pensions without public notice

Can a public sector pension provider be awarded a contract without there having been an advert or a tendering procedure?

There is a clinic in the German spa town of Bad Reichenhall. It used to be in the public sector and run by the ‘VBG’, the VBG Verwaltungs-Berufsgenossenschaft.
However, the clinic has recently been privatised and is now run by the ‘BG’, the BG Klinik für Berufskrankheiten Bad Reichenhall.

Privatisation has also affected the people working for the clinic. Namely, civil-service contracts of employment have been transferred to the ‘BG’. Social rights, such as contributory pensions, have been moved too; in this case to the ‘VBL’, the Versorgungsanstalt des Bundes und der Länder.

Workers’ pensions were not affected by the move: the newly privatised clinic agreed to maintain the rate of its employer contributions at the rate set down in the applicable collective agreement.

However, a problem has arisen from the way in which the pension fund rights were transferred – the transfer to the VBL was not advertised. One month after the transfer had taken place, a company known as DUK Versorgungswerk lodged a formal complaint with the clinic. Its complaint was accompanied by one from another company, the Gothaer Pensionskasse AG.

More specifically, DUK Versorgungswerk complained that not all the potential companies capable of taking on the pension provision had been consulted by the clinic in the transfer process. This lack of consultation and advertising meant that EU procurement law had been breached. As a result, DUK Versorgungswerk thought that the transfer was not legally valid. The Gothaer Pensionskasse supported DUK Versorgungswerk’s complaint.

The clinic dismissed both complaints and believed them to lack a proper legal foundation. Namely, DUK Versorgungswerk had no grounds to bring a complaint while it had the wrong corporate structure and simply could not have entered the tendering process. As an ‘e.V’, DUK Versorgungswerk was unable to offer independent pension services. If the company would have wanted to compete for the contract, then it should have been in the form an ‘AG’, and not of an e.V.

In so far as DUK Versorgungswerk could in theory have worked together with its co-complainant, the Gothaer Pensionskasse AG, which was an AG that complaint too lacked a legal basis. This was because the Gothaer Pensionskasse AG was not the right type of AG for the purposes of German labour law, and under the terms of the applicable collective agreement. The problem was the way in which the Gothaer Pensionskasse financed its pensions, for this differed from AG occupational insurance companies which supplied pension provisions, like the VBL. The clinic took the view that since the Gothaer Pensionskasse AG would not have qualified for the contract, the clinic had been under no legal obligation to put out a tendering notice or consult with DUK Versorgungswerk either alone or together with the Gothaer Pensionskasse AG.

The dispute was brought before the Vergabekammer Südbayern.

At the Vergabekammer Südbayern
Should the clinic have run a tendering procedure? A key issue here was whether the transfer of the pension rights was a ‘material change’ to the clinic’s existing contract. The Vergabekammer Südbayern looked at the CJEU’s judgment in Case C-454/06, Pressetext:

34 In order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during the currency of the contract constitute a new award of a contract within the meaning of Directive 92/50 when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract (see, to that effect, Case C-337/98 Commission v France [2000] ECR I-8377, paragraphs 44 and 46).

35 An amendment to a public contract during its currency may be regarded as being material when it introduces conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted.

36 Likewise, an amendment to the initial contract may be regarded as being material when it extends the scope of the contract considerably to encompass services not initially covered. This latter interpretation is confirmed in Article 11(3)(e) and (f) of Directive 92/50, which imposes, in respect of contracts concerning, either solely or for the most part, services listed in Annex I A thereto, restrictions on the extent to which contracting authorities may use the negotiated procedure for awarding services in addition to those covered by an initial contract.

37 An amendment may also be regarded as being material when it changes the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract.

Applied here, the Vergabekammer Südbayern thought that there may well have been a material change in the contract since the clinic had entered into a specific agreement to transfer the pension rights to the VBL. Consequently, it looked like the clinic should have run a tendering procedure.

A further issue was whether the clinic could avoid EU procurement law on the basis of the obligations arising from German labour law, and the applicable collective agreement. On this issue, the Vergabekammer Südbayern recalled the CJEU’s Grand Chamber judgment of 2010 in Case 271/08, Commission v Germany. That case had concerned public service contracts about the occupational old-age pensions of local authority employees. There had been a direct award of contracts but without a call for tenders having been organised at European Union level, and particular pension providers had been specified in a collective agreement. The CJEU in that case had indicated at paragraphs 56 and 58 that the social aim of the measure and the fundamental rights at stake were by themselves insufficient to preclude the application of procurement law.

Thus, in light of the CJEU’s ruling in Commission v Germany, the Vergabekammer Südbayern thought that principle would stop the clinic from relying on German social law to justify why it had not advertised the transfer.

Equally, the clinic’s action of imposing specific requirements as to the modalities of financing the pension provision, and requiring that the pension provision should remain the same, also seemed to have influenced the clinic’s selection of potential suppliers, and that would go against the CJEU’s Grand Chamber judgment of 2008 in Case C-337/08, Commission v Italy.

The German court set out the commentary and referenced the judgments of the German courts which have followed the various judgments of the CJEU.

In light of these issues, the Vergabekammer Südbayern decided to make a preliminary reference to the CJEU.

Questions Referred
According to the Curia website, the Vergabekammer Südbayern has asked:

1. Is it compatible with ensuring effective judicial protection in accordance with Article 1(3) and Article 2d(1)(a) of Directive 89/665/EEC, […] as amended by Directive 2007/66/EC, […] for a person who asserts the ineffectiveness of a contract concluded without prior publication of a contract notice in the Official Journal of the European Union not to be eligible to use the review procedure, despite risk of harm, on the ground that the contracting authority, which, prior to awarding the contract, did not publish a notice in the Official Journal of the European Union and did not follow a proper award procedure, conclusively specifies, by a statement during the review procedure, the service to be provided in such a way that the economic operator bringing proceedings could not provide it?

2. (a) Does it constitute a material contractual amendment within the meaning of the case-law of the Court of Justice (judgment of 19 June 2008 in Case C-454/06 Pressetext) if a public undertaking hived off from another public undertaking concludes, in the context of transfer of part of a business within the meaning of Directive 2001/23/EC, […] with the previous provider of occupational pension services to the hiving-off public undertaking, a new contract for the provision of occupational pensions which, for the purpose of safeguarding the rights of the transferred employees to old-age and invalidity benefits under an occupational pension scheme, is in that respect identical with the original contract and the hived-off public undertaking is controlled by the hiving-off public undertaking as sole proprietor?

If Question 2(a) must be answered in the affirmative:
(b) Is the use of a negotiated procedure without prior publication of a contract notice pursuant to Article 31(1)(b) of Directive 2004/18/EC with only one economic operator (namely, the previous service provider to the hiving-off public undertaking) permissible if the employees of the hiving-off public undertaking become, by way of transfer of a business, employees of the hived-off contracting authority and, in accordance with their contracts of employment transferred unaltered pursuant to Article 3(1) of Directive 2001/23/EC in conjunction with an established in-house practice, would be entitled as against their new employer, under national employment law, to demand that the occupational pension services be provided by the previous service provider with which the prospective entitlements accrued prior to transfer of the business?

If Question (b) must be answered in the negative:
(c) May a contracting authority which, prior to awarding a contract, did not publish a contact notice in the Official Journal of the European Union and did not follow an award procedure in accordance with Article 28 of Directive 2004/18/EC, exercise its right to specify performance — without infringing the procurement-law principles of competition, transparency and equal treatment — before following a proper award procedure, to the effect that, in specifying an implementation method for the occupational pension provision, it also specifies how the future service provider is to finance itself? May a contracting authority thus predetermine that only services of an unfunded pension scheme may be offered and that funded pension schemes are thus excluded, even though their obligations towards the insured employees may not differ pursuant to national employment law and by virtue of Article 3(1) of Directive 2001/23/EC?

If Question 2(c) must be answered in the affirmative:
(d) Does this apply before the expiry of the time-limit for the transposition of Directive 2014/24/EU even if that would have the effect that only one economic operator (namely, the previous service provider) was in a position to provide the service, or is a contracting authority which intends to use a negotiated procedure without publication of a contract notice with only one economic operator, pursuant to Article 31(1)(b) of Directive 2004/18/EC, required, when specifying performance, even before the expiry of the time-limit for the transposition of Directive 2014/24/EU, to ascertain that no reasonable alternative or substitute exists and that the absence of competition is not the result of an artificial narrowing down of the parameters of the procurement, as laid down in the second subparagraph of Article 32(2)(b) of Directive 2014/24/EU?

The rule in Commission v Germany incorporates the CJEU’s judgment in Case C-67/96 Albany about the relationship between EU cartel law and national collective agreements. On ‘Albany’, see for example, S. Vousden (2000) ‘Albany, Market Law and Social Exclusion’, Industrial Law Journal, pp. 181-191.

The no-need-to-advertise, ‘in-house’ Teckal exception to procurement law, is the object of another preliminary reference; see further, Case C-553/15, Undis Servizi – the Teckal exception is pants.

On the importance of transparency and nominated suppliers in collective agreements, see Case C-26/14, Beaudout Père et Fils – repeatedly thinking the social dialogue takes the biscuit.