On 2 June 2016, the European Court of Justice gave a preliminary ruling defining open-house contracts at the request of the Higher Regional Court of Düsseldorf, and has now excluded them from the scope of classical procurement law. This decision is of enormous practical significance for public procurement exercises.
So-called open-house contracts are used when the public body chooses to contract with any and all interested companies using pre-defined conditions, instead of contracting with only one or a limited number of companies. This is especially relevant in the healthcare sector where economic or compliance factors play an important role.
In this case, a medical insurance company did not want to commit to one sole company for its supply of pharmaceuticals by means of an invitation to tender, but instead wanted to create delivery contracts with all companies that abide by certain contractual conditions and which accept the predefined price.
The question to be answered by the European Court of Justice was whether this contract was a public contract and therefore needed to be tendered according to the provisions of classic procurement law.
The European Court of Justice denied that a public contract existed in this for the following reasons:
- It is the sense and purpose of (European) procurement law to avoid the preferential treatment of domestic bidders.
- This favouritism is closely linked with the selection of certain companies that then obtain an exclusivity right by this contract.
- The awarding regulations need not be applied if a principle does not exclusively select a company, but rather any interested company is entitled to a right of conclusion of contract.
- As a result, a public contract (that has to be tendered) only exists if the principal makes a selection decision.
According to the European Court of Justice’s Opinion, the contract is not a framework agreement that has to be tendered either. The open-house model differs from the classic framework agreement in that it is possible to join the contract during its initial phase under the same conditions and the potential parties to the contract are not defined from the beginning; this is different in the case of framework agreements according to Art 32 (2) UA 2 of RL 2004/18.
In our opinion, the consequences of the judgment are the following:
- There is no tendering duty of open-house contracts, as they are not public contracts and thus there is no legal protection with regard to procurement law (in Germany at least)
- Open-house models are only admissible if:
- the public principal does not negotiate the predefined conditions (including the price) with companies, but defines them freely
- the public principal publishes the intention of the contract conclusion and of the subsequent parties who join throughout Europe in case of relevance to the national market
- the conditions for contract conclusion and joining are transparent and free from discrimination.
- Application of the model beyond the health care system. The principal will have to decide whether they believe that they are able to procure their requisites more economically and more efficiently by means of an open-house model than by classic procurements.
- The selection among the joined contracting parties no longer represents a separate public contract, but is free from procurement under the 'once published' model. We anticipate this will be the cause of most litigation in this area.
- There is indeed no legal protection with regard to procurement law - but the possibility remains to review these contracts and their conformity with EU primary law and further legal requirements (including contract law/antitrust law/social law and law regulating prices).
Bird & Bird Public Procurement partner Dr Alexander Csaki developed the model at the heart of this case for the public principal. This model is now available for all public principals as a further form of procurement. Its application will be relevant as soon as public principals seek to acquire easily describable standard goods or when the procurement does not take place for the principal itself but for third parties (i.e. patients/physicians/social security insurers etc.).
In instances where the principal wants to obtain particularly favorable prices, the classic procurement model will mostly achieve the more favourable economic result.