Direct Awards in the Field of Rail Passenger Transport – End in Sight?

The ECJ may soon decide how much longer EU Member States will effectively be allowed to unrestrictedly make direct awards in the field of rail passenger transport services, after a Dutch court, in December 2020, emphasized the need for a preliminary ruling procedure regarding this matter (Rechtbank Den Haag, judgement of 1 December 2020, court file no. C/09/598894 / KG ZA 20/823).

The Dutch case concerned the state government’s plan, published last summer, to directly award state-owned company „Nederlandse Spoorwegen“ a ten-year contract to operate core parts of the country’s rail network starting in 2025, without previously carrying out a fair and competitive tendering procedure. Several Dutch railway companies and associations sought a preliminary injunction restraining the government from executing this plan, arguing that it violated European Union law.

Prior to the Fourth Railway Package adopted by the Union in 2016, Member States were allowed to unrestrictedly make direct awards of public service contracts in the field of rail passenger transport, according to Art. 5 (6) of Regulation (EC) 1370/2007 (Regulation 1370/2007). Effective 25 December 2023, the EU’s Fourth Railway Package has cut off this option entirely (Art. 8 (2) (iii) Reg 1370/2007). However, during the transition period, which ends on 24 December 2023, Member States are still allowed to make direct awards as long as their duration does not exceed 10 years (Art. 8 (2) Reg 1370/2007). The plaintiffs argued that the government’s plan was a circumvention, and thus a violation, of this rule, as the direct award, while made before the end of the transition period, i.e., December 2023, grants a ten-year concession which will only become effective more than one year after the transition period, namely 2025.

The Dutch court expressly stated that ultimately, the ECJ would have to decide on the matter. However, with a view to the provisional nature of the case, the Dutch court did not initiate a preliminary ruling procedure, different from what was reported by some news reports, but rather dismissed the motion. Yet, if the plaintiffs decide to seek a final judgment, it seems likely that the court would indeed bring the case before the ECJ. Another alternative would be for the Commission or a Member State to initiate infringement proceedings against the Netherlands to clarify the matter.

To be clear, Regulation 1370/2007 does allow to make direct awards until the last day of the transition period. However, the purpose of the temporary framework is to provide national administrations with sufficient time to adapt their awarding policy to the new rules. A Member State’s decision, made long before the end of the transition period, to directly award a ten-year contract which becomes effective only long after the end of the transition period is arguably not covered by the provision. On the contrary, such a decision runs counter to the legislative purpose of advancing the opening of the market in the area of rail passenger transport.

Under the new rules, national administrations in particular maintain the option to internally award contracts to other state-controlled entities, although such “in-house awards” are subject to further conditions, such as territorial restrictions on the internal operator’s business.

A decision by the ECJ in this matter would probably not have any direct impact on tendering procedures in Germany: Section 131 (1) GWB already expressly prohibits direct awards in the field of rail passenger transport. Yet, the case is particularly relevant for internationally operating German railway companies. After all, it is no coincidence that several European railway companies had joined the action in support of the plaintiffs.

Co-Author: Dr. Christoph Sielmann

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