Advocate General Rantos ("AG Rantos") delivered his conclusion on 30 April 2025 in the case of AVR Afvalverwerking ("AVR") v NV BAR-afvalbeheer ("BAR"), the municipalities of Barendrecht, Albrandswaard and Ridderkerk (collectively "the BAR municipalities"), NV Irado ("Irado") and Afvalsturing Friesland NV ("AF"). The case was prompted by two preliminary questions referred by the Court of Appeal of The Hague to the Court of Justice ("CJEU"). If AG Rantos' opinion is adopted by the CJEU, it could have far-reaching consequences for the application of the so-called in-house exception in cases that multiple contracting authorities (wish to) exercise control over an entity in order to benefit from an exception to the obligation to conduct an EU public procurement procedure.
Facts
AF was established by all the Frisian municipalities as a non-profit waste processor of household waste for those municipalities. Those Frisian municipalities, together with a number of non-Frisian municipalities that joined later, are the shareholders of AF. AF also has a number of subsidiaries that are not limited to executing the tasks assigned to them by the municipalities. The figures of those companies are consolidated in AF's financial statements. AF also operates a landfill site where non-domestic waste is deposited.
Irado was set up by three South Holland municipalities to implement their waste management and became a shareholder of AF in 2017 and has its collected household waste processed by AF.
BAR was established by the BAR municipalities to carry out waste-management. Until 31 December 2019, those municipalities still had separate contracts with waste processors, including AVR, a commercial waste processing company.
During 2019, the BAR- municipalities decided to let BAR participate in Irado and let Irado collect and process the residual waste. On 13 December 2019, Irado and AF signed an agreement for the supply, transport and processing of the BAR municipalities' residual household waste. On 20 December 2019, BAR and Irado signed a service agreement for the processing of the BAR municipalities' household waste and on 31 December 2019, BAR became a shareholder of Irado.
AVR challenged the awards of the agreements between Irado and AF and BAR and Irado before the District Court of The Hague, alleging that the conditions for the in-house exception had not been met. The District Court of The Hague rejected AVR's claims, ruling that those conditions would have been met. This was followed by an appeal to the Court of Appeal of The Hague, which then submitted preliminary questions to the CJEU on the interpretation of Article 12 of Directive 2014/24/EU ("the Procurement Directive") that sets out the conditions for the in-house exception, which in the Netherlands is laid down in Article 2.24a and 2.24b of the Dutch Procurement Act. In brief, those articles stipulate that a contract may be awarded by a contracting authority or several contracting authorities without a tender, if the entity to which the contract is awarded meets three conditions: i) the entity is supervised by the contracting authority(ies) as for its/their own departments; ii) that entity carries out more than 80% of its activities in the framework of tasks assigned to it by the contracting authority(ies) ("the >80% test"); and iii) there is no participation of private capital in the supervised entity.
If several contracting authorities exercise control, there are, however, additional requirements with regard to that control: i) the decision-making bodies of the controlled entity must then be composed of representatives of all participating contracting authorities (one representative can represent several and even all contracting authorities); ii) together, these contracting authorities can exercise decisive influence over the controlled entity; and iii) the controlled entity does not pursue interests that conflict with the interests of the controlling contracting authorities.
Preliminary questions
The preliminary questions of the Court of Appeal of The Hague relate in particular to the question what turnover from which activities and entities should be included in order to determine whether the entity awarded a private contract meets the >80% test. Is the relevant turnover for that purpose limited to the turnover achieved by the specific entity to which the contract was awarded, or should the turnover of other affiliated entities also be taken into account, such as the consolidated turnover of the entire group to which that entity belongs or of all entities belonging to the same economic unit within the meaning of competition law. Secondly, the Court of Appeal of The Hague wondered whether the turnover achieved by AF by operating a landfill site counted towards the turnover figures for the >80% test. The landfill site was operated on behalf of the controlling municipalities, but the turnover was generated by payments received from third-party users.
Preliminary remarks on indirect supervision
Before addressing the specific questions raised by the Court of Appeal of The Hague, AG Rantos deems important to reiterate the condition relating to joint supervision exercised by the contracting authorities, and explicitly recalls that specific conditions apply to supervision in the case of multiple supervising contracting authorities. This means that supervision cannot be indirect, i.e. exercised by another contracting authority which in turn is supervised by the other contracting authorities wishing to award the contract.
In this case, AG Rantos concludes that the BAR municipalities do not appear to be directly represented in the decision-making bodies of AF, which will carry out the waste processing. There is only indirect representation through Irado, which is under the supervision of BAR, which in turn is under the joint supervision of the BAR municipalities. That is insufficient in AG Rantos' view. In that context, the AG Rantos also doubts the legality of the order in which the various contracts were concluded, as the contracts were awarded before the BAR municipalities and BAR were (indirectly) shareholders of Irado. AG Rantos also emphasizes that the in-house exception is an exception to the general procurement obligation stemming from the Procurement Directive and must therefore be interpreted restrictively.
Answers to preliminary questions
Regarding the questions of the Hague Court of Appeal, AG Rantos considers both wording, context and the origins of Article 12 of the Procurement Directive. Based on an extensive consideration of those factors, AG Rantos concludes that the answer to question 1) differs depending on the position of the entity over which the contracting authorities exercise control. In the case of parent companies that head the group, consolidated turnover should be used to conduct the >80% condition test. In the case of entities that are subsidiaries, are not the main parent company of a group of entities and do not control other entities within the same group, only their own turnover should be used for the >80% condition. With regards to the turnover achieved by AVR from the landfill, AG Rantos answer is short but clear: the fact that that turnover is achieved through payments from third-party users of the landfill is irrelevant to the question of whether the >80% condition is met. What matters is that the turnover in question is derived from tasks explicitly entrusted to AVR. It will be for the referring court to verify whether those tasks were actually assigned to AVR.
Practical tips
Municipalities and other contracting authorities that previously awarded their contracts via inhouse-exceptions, for example via joint arrangements or other constructions where several contracting authorities supervise the "in-house entity", would be wise to check whether their current legal construction can still meet the conditions necessary to apply the in-house exception. AG Rantos emphasises that:
- Indirect supervision through another entity may not be sufficient to meet the supervisory criterion of the in-house exception.
- If a parent company is supervised a contracting authority, the consolidated turnover of the entire group should be taken into account when assessing the 80% condition. As soon as there are subsidiaries within that group that do not carry out contracts commissioned by the contracting authority, their turnover reduces the group percentage. There is thus a real risk that the >80% standard will no longer be met, even if the 'parent' itself works exclusively for the contracting authority.
