A judgment on the conditions for the direct award of public contracts to mixed companies

The Italian higher administrative court (Consiglio di Stato, or CdS, case 824/09, Mantini c Comunità Montana Vestina Zona I di Penne,http://www.giustizia-amministrativa.it/ricerca2/Risult.asp?nIdx=0) has confirmed the strict regime applying to the award of a public contracts to mixed companies. In the case, a group of local entities had incorporated a company, Ambiente, which should provide them with a number of environmental services. Ambiente, which is fully owned by the above local entities , in turn, set up a second company, Ecologica, with a view to using it as a vehicle for supplying the services in question. Indeed, Ambiente lacked the necessary assets and authorizations for carrying out itself the tasks conferred by its members

Later, another local entity, Comunità Vestina, bought a stake in Ambiente. Comunità Vestina and Ambiente also entered into a contract by means of which the former assigned to Ambiente waste disposal services. The parties agreed to outsource the supply of the contractual services to Ecologica. The above contract was impugned by a competitor of Ecologica before the regional administrative court (TAR). The TAR found for the applicant and quashed the contract. The CdS on appeal upheld the TAR judgment and set out the limits within which public contract can be lawfully assigned to mixed companies without any tender procedure, under the Italian administrative law and EC law. Consistently with its case law, the CdS distinguishes two situations:

a) Assignment of public contracts for the carrying out of which the mixed company has been originally incorporated. In this case public administration has to launch only one public tender procedure having as object, at the same time, the choice of the private member of the company and of the operator who will supply the tendered services and works. The private member will also be the supplier of services and works and the corporate activities of the mixed company coincides with the tendered public contract. Hereby, the public entities participating in the mixed company cannot lawfully directly assign to it other public contracts than those originally indicated in the original tender. To do so a new tender procedure is needed.

b) Assignment of other public contracts. As a general rule, such contracts have to be awarded through public tenders. Public entities are not allowed to incorporate a mixed company with an open-ended corporate object with a view to directly assigning to it an indefinite number of public contracts. That would amount to unlawful utilization of the model of mixed company for the provision of public services and works. On the contrary, public entities have to advertise one tender procedure for the choice of the private member and as many tender procedures as public services or works they intend to outsource to the mixed company.

The approach taken by CdS is compatible with the provisions laid down by the new Public Contracts Code (decree n. 163/2006). It also consistent with the objective of protection of competition. The award to the private member of a mixed company of an undetermined number of public contracts and for a considerable period of time may result in a distortion of competition. In particular, such a practice harms competitors of the private member. These can bid for smaller public contracts, but they are prevented from doing so by the direct assignment of the contracts at hand to the private member of the mixed company.