Public Undertakings, Services of General Economic Interest, and Public Procurement

Public Undertakings, Services of General Economic Interest, and Public Procurement

Introduction

Public authorities are not merely regulators of economic activity. They may also own businesses, provide essential services, operate infrastructure, finance public obligations and purchase goods and services from private suppliers. These activities raise a fundamental question for European Union law: how can Member States retain the freedom to organise public services and determine the ownership of economic enterprises while preserving competition, market access and equal treatment within the internal market?

The European Union does not require Member States to privatise publicly owned businesses or to transfer essential services to private operators. Public and private ownership are recognised under the Treaties. Nevertheless, public undertakings participating in economic markets remain subject to important elements of EU competition law. Public authorities cannot use ownership, special rights or public financing to circumvent the rules governing competition and the internal market.

Three areas of EU law are particularly important in this context.

First, Article 106 TFEU regulates public undertakings and undertakings enjoying special or exclusive rights. It prevents Member States from adopting measures that conflict with the Treaties and establishes a limited derogation for undertakings entrusted with services of general economic interest.

Second, services of general economic interest (SGEI) are economic activities that public authorities consider essential and subject to particular public service obligations. Their provision may require public compensation, special organisational arrangements or exclusive rights. EU law recognises these needs but subjects the relevant measures to conditions designed to prevent unjustified competitive advantages.

Third, public procurement law regulates the acquisition of works, supplies and services by public authorities and certain other entities. It establishes procedures intended to ensure transparency, equal treatment, competition and access to public contracts. The rules also recognise circumstances in which public authorities may provide services through their own controlled entities or cooperate directly with other public bodies.

These subjects are closely connected but legally distinct. A public undertaking may operate commercially without providing an SGEI. An SGEI may be entrusted to a private undertaking rather than a publicly owned one. A public authority may finance an SGEI without necessarily being required to award the service through a competitive procurement procedure, but the applicable conditions must be examined carefully.

The legal framework therefore combines institutional freedom with economic discipline. Member States retain substantial discretion over the organisation of public services, but that discretion must be exercised consistently with the Treaty rules.

1. Constitutional Foundations: Articles 14, 106 and 345 TFEU

The legal framework begins with the principle that the Union must recognise the role of services of general economic interest in promoting social and territorial cohesion.

Article 14 TFEU requires the Union and the Member States, each within their respective powers and within the scope of the Treaties, to ensure that such services operate on the basis of principles and conditions that enable them to fulfil their missions. It also provides a legal basis for the European Parliament and Council to establish these principles and conditions through regulations, acting under the ordinary legislative procedure.

Article 106 TFEU establishes the specific relationship between public undertakings, special or exclusive rights and competition law.

Article 106(1) provides that Member States must not enact or maintain measures concerning public undertakings or undertakings to which they grant special or exclusive rights that conflict with the Treaty rules, particularly Articles 18 and 101–109 TFEU.

Article 106(2) establishes a qualification. Undertakings entrusted with the operation of services of general economic interest, or having the character of a revenue-producing monopoly, remain subject to the Treaty rules, particularly competition rules, insofar as their application does not obstruct, in law or in fact, the performance of the particular tasks assigned to them. The development of trade must not be affected to an extent contrary to the interests of the Union.

Article 106(3) gives the Commission responsibility for ensuring the application of the provision and authorises it to address appropriate directives or decisions to Member States where necessary.

Article 345 TFEU adds an important constitutional principle: the Treaties do not prejudice the rules in Member States governing systems of property ownership.

This provision protects the institutional neutrality of the Union in relation to public and private ownership. It does not require the privatisation of public enterprises, nor does it establish a general exemption from competition law for state-owned companies.

The Court of Justice has consistently distinguished between the ownership of an undertaking and the economic activities it performs. A public authority may own a company, but when that company operates in a market it may be subject to the same competition rules as private businesses.

The resulting principle is straightforward: Member States may choose public ownership, private ownership or mixed arrangements, but the exercise of ownership rights must comply with EU law.

2. Public Undertakings: Definition, Ownership and Legal Status

A public undertaking is generally understood as an undertaking over which public authorities can exercise a dominant influence by virtue of ownership, financial participation or the rules governing the undertaking.

The concept is not limited to companies wholly owned by the State. It may include entities in which central government, regional authorities, municipalities or other public bodies exercise decisive influence.

For the purposes of the utilities procurement regime, Article 4(2) of Directive 2014/25/EU expressly defines a public undertaking by reference to the dominant influence of contracting authorities. Such influence is presumed where public authorities:

• Hold the majority of the undertaking’s subscribed capital.
• Control the majority of the votes attached to its shares.
• Can appoint more than half of its administrative, management or supervisory body.

These criteria provide an important legal reference point, although the precise definition and test depend on the particular EU instrument being applied.

Public undertakings operate in many sectors, including energy, water, transport, telecommunications, postal services, banking, infrastructure and public utilities.

Their legal form varies. Some are established as companies under national company law. Others are statutory corporations, public institutions or entities created by special legislation.

The decisive consideration is not the formal label but the nature of the activity and the applicable legal framework.

2.1. Public ownership does not remove competition obligations

A public undertaking carrying out an economic activity is generally subject to the ordinary competition rules.

It may therefore be prohibited from participating in cartels under Article 101 TFEU or abusing a dominant position under Article 102 TFEU. It may also be subject to merger control and State aid rules.

The public authority’s ownership does not justify preferential treatment where that treatment distorts competition.

For example, a publicly owned energy company operating in a competitive market cannot automatically receive preferential access to infrastructure, public financing or regulatory treatment simply because the State owns it.

Similarly, a publicly owned transport company may be subject to procurement, competition and State aid requirements depending on its activities and contractual arrangements.

Article 106(1) is particularly important where the State grants special or exclusive rights. Such rights may be justified by legitimate public objectives, but they cannot be structured or exercised in a manner that produces an infringement of the Treaty rules.

2.2. Special and exclusive rights

A special or exclusive right is a legal advantage granted by public authorities that restricts the ability of other undertakings to carry out a particular economic activity.

An exclusive right may reserve a service to a single operator. A special right may restrict access to a limited number of operators.

Such rights can arise in sectors where public authorities consider that competition must be restricted to secure universal coverage, continuity, safety or affordability.

However, the grant of an exclusive right is not automatically unlawful. The legal question is whether the arrangement complies with the relevant Treaty provisions and sectoral legislation.

The Commission and the Court of Justice examine whether the right is necessary for the assigned public service task and whether its effects exceed what is justified by that task.

Where the right creates a dominant position, the exercise of that position must also comply with Article 102 TFEU, subject to the conditions of Article 106(2).

3. Financial Transparency and Public Undertakings

Public undertakings may receive capital contributions, loans, guarantees, subsidies, compensation or other forms of financial support from public authorities. They may also transfer funds to public bodies or carry out commercial activities alongside publicly financed obligations.

These relationships can make it difficult to determine whether public money is being used to finance commercial activity, fulfil a public service obligation or support an undertaking selectively.

EU law therefore requires financial transparency.

The principal instrument is Commission Directive 2006/111/EC, as amended, including by Commission Directive (EU) 2025/1442.

The Directive concerns the transparency of financial relations between Member States and public undertakings, as well as financial transparency within certain undertakings.

Its purpose is to enable the Commission to identify the relationship between public authorities and the enterprises they own or support.

Relevant information may concern:

• The provision of funds through capital contributions.
• Loans and guarantees.
• The allocation of public resources.
• Compensation for public service obligations.
• The use of public infrastructure or assets.
• The financial relationship between an undertaking and public authorities.

Transparency is particularly important where the same undertaking performs both commercial and public service activities.

For example, a public transport company may operate commercially profitable routes while also providing unprofitable rural services under a public service obligation. Separate accounting arrangements may be necessary to identify the costs and revenues attributable to each activity and to prevent public compensation from subsidising unrelated commercial operations.

Financial transparency does not itself establish that a measure constitutes State aid. It provides the information needed to assess whether the relevant public financing complies with Articles 106–109 TFEU.

4. Services of General Interest and Services of General Economic Interest

The terminology used in EU law distinguishes between services of general interest, services of general economic interest and non-economic services of general interest.

The distinction is important because the application of competition and internal market rules depends partly on whether an activity is economic.

4.1. Services of general interest

Services of general interest are services that public authorities consider to be of particular importance to society and subject to specific public service obligations.

They may be provided by public authorities, public undertakings, private companies or non-profit organisations.

Examples include healthcare, education, public transport, postal services, water supply, social housing and energy distribution.

The expression is a broad policy concept rather than a single legal category with identical consequences in every field.

4.2. Services of general economic interest

Services of general economic interest are economic activities that public authorities consider essential and subject to specific public service obligations.

The defining feature is their economic nature: the service is supplied on a market, ordinarily in return for payment, even where the provider receives public compensation or operates under special obligations.

Examples may include:

• Public passenger transport.
• Postal services.
• Electricity and gas distribution.
• Water supply.
• Certain telecommunications services.
• Social housing.
• Certain healthcare and social care activities.

An activity does not cease to be economic merely because it pursues a social objective or is provided by a public institution.

The Court of Justice has repeatedly emphasised that the classification depends on the nature of the activity rather than the public purpose of the organisation.

4.3. Non-economic services of general interest

Some services are not economic activities and therefore fall outside the ordinary competition and internal market rules governing undertakings.

Examples may include certain police, judicial and statutory social security functions.

However, the classification must be made carefully. A public institution may perform non-economic public functions and also operate commercial services.

The fact that an organisation is publicly funded or legally established as a public body does not automatically mean that all its activities are non-economic.

4.4. Social services of general interest

Social services of general interest include services intended to respond to social needs, protect vulnerable individuals and promote social inclusion.

They may be economic or non-economic depending on how they are organised and provided.

Examples include social housing, employment services, long-term care, childcare, services for persons with disabilities and assistance to vulnerable groups.

Where these activities are economic, they may qualify as SGEI and benefit from the relevant Treaty provisions and State aid instruments.

The Commission’s overview of services of general interest explains the principal categories and the relationship between public service obligations and EU market rules.

5. Entrustment: Defining the Public Service Mission

An undertaking cannot simply claim that it performs a service of general economic interest in order to benefit from Article 106(2) TFEU.

There must be a genuine public service mission, and the undertaking must be formally entrusted with the relevant obligations.

Entrustment is the legal act through which a competent public authority assigns the undertaking responsibility for providing a specified service under defined conditions.

The form of the act depends on national law and may include legislation, regulation, an administrative decision, a contract or another legally effective instrument.

The entrustment act should identify:

• The nature and scope of the public service obligations.
• The undertaking responsible for providing the service.
• The territory covered.
• The duration of the entrustment.
• Any special or exclusive rights granted.
• The compensation mechanism, where applicable.
• The parameters for calculating and reviewing compensation.
• The arrangements for preventing and recovering overcompensation.

The obligations must be sufficiently clear to permit an assessment of whether the undertaking is actually performing the assigned public service mission.

A general statement that a company contributes to public welfare is not sufficient. The authority must identify the particular service obligations that justify the special legal treatment.

For example, a public transport undertaking may be required to operate specified routes, maintain minimum service frequency, apply regulated fares and provide accessibility for passengers with disabilities.

These obligations can impose costs that a commercial operator would not necessarily accept under ordinary market conditions. The legal framework allows compensation or other arrangements where necessary, provided the relevant requirements are satisfied.

6. Article 106(2) TFEU: The Derogation for Services of General Economic Interest

Article 106(2) recognises that ordinary competition rules may sometimes obstruct the performance of a public service mission.

The provision does not exclude SGEI providers from EU competition law. Instead, it permits a limited derogation where applying the Treaty rules would obstruct the performance, in law or in fact, of the particular tasks assigned to the undertaking.

Three elements are central.

First, the undertaking must be entrusted with a genuine SGEI.

Second, the application of the relevant Treaty rules must obstruct the performance of the assigned task. The mere fact that compliance with competition law makes the service less profitable or more expensive is not automatically sufficient.

Third, the development of trade must not be affected to an extent contrary to the interests of the Union.

The derogation must therefore be proportionate to the public service mission.

A Member State cannot invoke Article 106(2) as a general justification for protecting a public undertaking from competition. It must demonstrate the connection between the public service obligation and the restriction or compensation in question.

6.1. Public service compensation

Public compensation may be necessary where an undertaking is required to provide services on terms that do not allow it to recover the relevant costs through ordinary market revenue.

For example, a rural transport operator may be required to maintain routes serving sparsely populated communities even where passenger revenue is insufficient to cover operating costs.

Compensation may therefore be justified to ensure continuity and geographical coverage.

However, the amount and structure of compensation must comply with the applicable State aid rules. Excessive compensation may provide an economic advantage beyond what is necessary to fulfil the public service obligation.

6.2. The relationship with Article 107 TFEU

Article 106(2) and Article 107 TFEU must be considered together.

Public service compensation may not constitute State aid where all four conditions established in Altmark Trans, Case C-280/00, are satisfied.

If those conditions are not satisfied, the compensation may nevertheless constitute State aid that is compatible under Article 106(2), subject to the relevant Commission instruments.

This distinction was addressed in Article 65 of this series. The present article focuses on the institutional and operational consequences of entrusting public services rather than repeating the full State aid analysis.

7. The Altmark Judgment and the Legal Treatment of Public Service Compensation

The judgment in Altmark Trans, Case C-280/00, is fundamental to the relationship between public service compensation and State aid law.

The Court held that compensation for the performance of public service obligations does not constitute State aid where four cumulative conditions are satisfied:

1. The recipient undertaking must actually have public service obligations to discharge, and those obligations must be clearly defined.
2. The parameters on the basis of which compensation is calculated must be established in advance in an objective and transparent manner.
3. Compensation must not exceed what is necessary to cover the costs of performing the public service obligations, taking account of relevant receipts and a reasonable profit.
4. Where the undertaking is not selected through a public procurement procedure capable of identifying the least-cost provider, the compensation must be determined by reference to the costs of a typical, well-run undertaking adequately equipped to provide the service.

The fourth condition is particularly important because it links the law of public service compensation with public procurement.

A properly designed competitive tender may help establish that the compensation reflects the lowest cost to the community. Where no such tender takes place, an alternative benchmark is required.

The Altmark judgment does not mean that every public service contract must be competitively tendered. It establishes a condition for excluding compensation from the definition of State aid.

If the conditions are not satisfied, the compensation may still be compatible under Article 106(2) and the relevant SGEI rules.

8. The Revised SGEI Framework: Commission Decision (EU) 2025/2630

The Commission’s SGEI framework was significantly updated in December 2025.

Commission Decision (EU) 2025/2630 was adopted on 16 December 2025, published in the Official Journal on 19 December 2025 and entered into force on 8 January 2026. It repealed Decision 2012/21/EU.

The Decision establishes conditions under which certain public service compensation measures are compatible with the internal market and exempt from the prior notification requirement under Article 108(3) TFEU.

The revised framework is particularly relevant to social services, healthcare, housing and essential infrastructure.

8.1. The EUR 20 million annual threshold

Under Article 2(1)(a), compensation not exceeding EUR 20 million annually for SGEI in areas other than transport and transport infrastructure may benefit from the Decision’s notification exemption, subject to its conditions.

The threshold is applied per SGEI entrusted to an undertaking. Where compensation varies during the entrustment period, the annual amount is calculated using the average expected annual compensation over that period.

The Decision also applies to certain categories without relying on the general EUR 20 million threshold.

8.2. Hospitals and healthcare

The Decision covers compensation for SGEI provided by hospitals supplying medical care, including emergency services where applicable.

Ancillary activities directly connected with the principal medical activities, particularly medical research, do not necessarily prevent the exemption from applying.

8.3. Social services

The Decision includes services addressing specified social needs, including:

• Health and long-term care.
• Childcare.
• Access to and reintegration into the labour market.
• Care and social inclusion of vulnerable groups.
• Accessibility and assistive technology services for persons with disabilities.

The public service mission must be clearly defined and the relevant conditions must be satisfied.

8.4. Social and affordable housing

One of the significant developments in the revised framework is the treatment of social and affordable housing.

The Decision provides a notification exemption for qualifying social housing SGEI and affordable housing SGEI, subject to the requirements set out in its Annex.

This recognises that housing affordability and access to adequate accommodation may require public intervention even where the compensation exceeds the general annual threshold.

The exemption is not an unrestricted authorisation to subsidise housing providers. The relevant service must meet the legal criteria and be properly entrusted.

8.5. Transport and infrastructure

The Decision includes specified air and maritime links to islands, as well as certain airports and ports, subject to passenger and freight thresholds and relevant sectoral rules.

However, the Decision expressly excludes public service compensation for land transport from its scope. Land transport compensation must be assessed under the applicable sectoral framework, including Regulation (EC) No 1370/2007 where relevant.

8.6. Duration, compensation and overcompensation

The ordinary maximum entrustment period under the Decision is ten years. A longer period may be permitted where significant investment must be amortised over a longer period in accordance with generally accepted accounting principles.

Compensation must not exceed the net cost of performing the public service obligations, including a reasonable profit.

The Decision requires Member States to establish mechanisms for checking compensation and recovering overcompensation.

It also introduces updated transparency requirements, including central registration from 1 January 2028 for specified aid exceeding EUR 1 million per undertaking and per SGEI over the entrustment period.

The revised Decision is therefore not merely a change in financial thresholds. It provides an updated legal framework for defining, financing and monitoring essential services.

The Commission’s SGEI guidance and legislation page provides access to the revised Decision, the SGEI Framework and the relevant de minimis regulation.

9. Public Procurement: Purpose and Legal Foundations

Public procurement is the process through which public authorities and certain other entities acquire works, supplies and services from economic operators.

It includes construction projects, infrastructure, medical equipment, information technology, transport services, consultancy, maintenance, waste management and many other forms of public expenditure.

Public procurement has a substantial economic significance. It determines how public money is spent and creates opportunities for businesses to compete for public contracts.

The principal legal framework consists of three directives:

• Directive 2014/24/EU, governing public procurement by traditional contracting authorities.
• Directive 2014/25/EU, governing procurement by entities operating in the water, energy, transport and postal services sectors.
• Directive 2014/23/EU, governing the award of concession contracts.

These instruments operate alongside the Treaty principles of equal treatment, non-discrimination, transparency, proportionality and mutual recognition.

The rules generally apply to contracts above specified financial thresholds. The thresholds are periodically revised, and the relevant amounts depend on the type of contract and the identity of the contracting authority or entity.

Contracts below the EU thresholds may still be subject to national procurement legislation and Treaty principles where they present a sufficiently certain cross-border interest.

9.1. Contracting authorities

Under Directive 2014/24/EU, contracting authorities include the State, regional or local authorities, bodies governed by public law and associations formed by one or more such authorities or bodies.

A body governed by public law generally has legal personality, is established for the specific purpose of meeting needs in the general interest that are not industrial or commercial in character, and is financed, supervised or governed in a manner demonstrating public dependence.

The definition is functional. An entity’s legal form or commercial label is not decisive.

9.2. Contracting entities in the utilities sectors

Directive 2014/25/EU applies to procurement by contracting entities operating in specified utilities sectors.

These include:

• Gas and heat.
• Electricity.
• Water.
• Transport services.
• Ports and airports.
• Postal services.
• Certain activities relating to the extraction of oil, gas and other fuels.

The Directive covers contracting authorities and public undertakings carrying out the relevant activities. It may also cover private entities operating on the basis of special or exclusive rights.

The purpose is to ensure that procurement in network industries and essential infrastructure sectors is subject to appropriate competitive safeguards.

10. Fundamental Principles of Public Procurement

EU procurement law is built on principles that govern both the design of procurement procedures and the conduct of contracting authorities.

10.1. Equal treatment

All economic operators in comparable situations must be treated equally.

A contracting authority cannot design a tender to favour a particular national supplier or give one bidder information that is unavailable to others.

Equal treatment applies throughout the procedure, including the preparation of tender documents, qualification, evaluation and contract award.

10.2. Non-discrimination

Procurement rules prohibit unjustified discrimination based on nationality or establishment in another Member State.

Technical specifications, qualification conditions and award criteria must not create artificial barriers to cross-border competition.

10.3. Transparency

Contracting authorities must provide sufficient information about the procurement opportunity, the applicable requirements and the criteria used to evaluate tenders.

Transparency allows bidders to understand the procedure and enables effective review of the authority’s decisions.

10.4. Proportionality

Conditions imposed on bidders must be appropriate and necessary in relation to the subject matter and value of the contract.

For example, a contracting authority should not impose excessively high turnover requirements or disproportionate experience conditions that unnecessarily exclude smaller businesses.

10.5. Competition and value for money

Procurement procedures should allow genuine competition between economic operators.

The objective is not necessarily to select the lowest-priced offer. Contracting authorities may consider quality, technical performance, environmental impact, social considerations, lifecycle costs and innovation, provided the criteria are linked to the subject matter of the contract and comply with the Directive.

The most economically advantageous tender may therefore be selected through a combination of price and qualitative criteria.

11. Procurement Procedures and Contract Award

Directive 2014/24/EU provides several procurement procedures that contracting authorities may use depending on the nature and circumstances of the contract.

The open procedure allows any interested economic operator to submit a tender.

The restricted procedure involves a preliminary selection of candidates, followed by invitations to submit tenders.

Competitive procedures with negotiation and competitive dialogue may be used in circumstances specified by the Directive, particularly where the authority cannot adequately define the technical, legal or financial structure of the procurement at the outset.

The innovation partnership procedure allows contracting authorities to establish a partnership for the development and subsequent purchase of innovative products, services or works, subject to the applicable conditions.

The negotiated procedure without prior publication is permitted only in limited circumstances expressly established by the Directive. It cannot be used merely because the authority prefers to avoid competition or finds a tender process inconvenient.

11.1. Selection and exclusion

Contracting authorities may establish conditions relating to professional suitability, economic and financial standing, and technical and professional ability.

These conditions must be connected and proportionate to the subject matter of the contract.

The Directives also establish grounds for excluding economic operators. These include certain serious criminal convictions, tax and social security non-compliance, serious professional misconduct, conflicts of interest and other specified circumstances.

The rules also recognise self-cleaning mechanisms. An operator may be able to demonstrate that it has taken sufficient measures to establish its reliability despite the existence of a relevant exclusion ground.

11.2. Award criteria

The contract must be awarded according to criteria established in advance and disclosed in the procurement documents.

The authority may assess price, cost, quality, technical merit, environmental characteristics, accessibility, social considerations and other relevant factors.

Criteria must be sufficiently precise to permit objective evaluation and must not give the contracting authority unlimited discretion.

11.3. Electronic procurement and transparency

EU procurement law has progressively developed electronic publication and communication requirements.

The European Single Procurement Document (ESPD) allows economic operators to submit a preliminary declaration of compliance with selection and exclusion criteria rather than immediately providing every supporting document.

The eForms system standardises the publication of procurement notices across the Union.

Digital procurement is intended to improve accessibility, reduce administrative burdens and facilitate monitoring of public expenditure.

12. Public Contracts and Concessions: A Legal Distinction

Public contracts and concessions are not identical.

Under Directive 2014/24/EU, a public contract is generally a written contract for pecuniary interest concluded between one or more economic operators and one or more contracting authorities, having as its object the execution of works, the supply of products or the provision of services.

A concession involves the entrustment of works or services to an economic operator, with consideration consisting in the right to exploit the works or services, or that right together with payment.

The defining feature is the transfer of operating risk.

Under Article 5 of Directive 2014/23/EU, a concessionaire must be exposed to real operating risk. Under normal operating conditions, it must not be guaranteed to recover the investments made or the costs incurred in operating the works or services.

The risk may concern demand, supply or both. It must be more than nominal or negligible.

For example, a company operating a toll road under a concession may bear the risk that traffic levels and toll revenues will be lower than expected. A service provider operating a public facility may bear the risk that user demand will not generate sufficient revenue to recover its costs.

The classification matters because different procurement rules apply to ordinary public contracts and concessions.

A contract cannot be classified as a concession merely because the authority uses that word. The actual allocation of operating risk determines its legal character.

13. In-House Procurement: When Public Authorities May Use Their Own Entities

Public procurement law does not require authorities to purchase every service from an external supplier.

A public authority may, under specified conditions, provide services through an entity that it controls. This is commonly known as in-house procurement.

The central legal foundation is Article 12 of Directive 2014/24/EU.

The exemption reflects the principle that public authorities may organise the performance of their own tasks through internal structures rather than entering the market.

However, the exemption is subject to strict conditions.

13.1. The Teckal criteria

The starting point is the judgment in Teckal, Case C-107/98.

The Court established that a contract between a public authority and a legally separate entity may fall outside procurement rules where:

• The authority exercises control over the entity similar to that exercised over its own departments.
• The entity carries out the essential part of its activities for the controlling authority or authorities.

These principles were subsequently developed and codified in Article 12 of Directive 2014/24/EU.

13.2. Similar control

The contracting authority must exercise decisive influence over the controlled entity’s strategic objectives and significant decisions.

The entity must not enjoy the degree of independent commercial freedom that would make it comparable to an ordinary market operator.

Control may be exercised by one authority or jointly by several authorities, provided the statutory requirements for joint control are satisfied.

13.3. The 80 per cent activity requirement

More than 80 per cent of the controlled entity’s activities must be carried out in performing tasks entrusted to it by the controlling contracting authority or by other legal persons controlled by that authority.

The calculation is generally based on average total turnover or another appropriate activity-based measure for the preceding three years, subject to the Directive’s rules where historical data are unavailable or unreliable.

The requirement prevents an entity from operating substantially as an ordinary market participant while relying on the in-house exemption for public contracts.

13.4. No direct private capital participation

As a general rule, there must be no direct private capital participation in the controlled legal person, except for forms of participation required by national legislation that do not confer controlling or blocking powers and do not exercise decisive influence.

The Court’s judgment in Stadt Halle, Case C-26/03, is an important authority on the exclusion of ordinary private capital participation from in-house arrangements.

The restriction protects the logic of the exemption. An award to an entity with private shareholders may confer a direct economic advantage on those shareholders without the competitive safeguards of a procurement procedure.

13.5. Joint control

Article 12 also permits certain arrangements in which several contracting authorities jointly control an entity.

The authorities must be represented in the decision-making bodies of the controlled legal person, and they must be able jointly to exercise decisive influence over its strategic objectives and significant decisions.

The controlled entity must not pursue interests contrary to those of the controlling authorities.

The judgment in Coditel Brabant, Case C-324/07, helped develop the principles governing collective public control.

In practice, joint control is important for municipal companies and regional service organisations created to perform tasks for several local authorities.

14. Public-Public Cooperation

Public authorities may also cooperate directly with one another to perform public tasks without establishing a conventional procurement relationship.

Article 12(4) of Directive 2014/24/EU recognises certain forms of public-public cooperation.

The exemption applies where:

• The contract establishes or implements cooperation between participating contracting authorities to ensure that public services they must perform are provided with a view to achieving common objectives.
• The cooperation is governed solely by considerations relating to the public interest.
• The participating authorities perform less than 20 per cent of the activities concerned on the open market.

The cooperation must be genuine. A public authority cannot avoid procurement rules merely by describing an ordinary purchase of services from another authority as administrative cooperation.

The Court of Justice examined these principles in Commission v Germany, Case C-480/06, concerning cooperation between public authorities in the field of waste management.

The judgment confirmed that public authorities may cooperate to perform public tasks without necessarily using a procurement procedure, provided the arrangement is genuinely directed towards common public objectives and satisfies the relevant conditions.

The distinction between in-house procurement and public-public cooperation is important.

In-house procurement is based on a relationship of control between an authority and a controlled entity. Public-public cooperation is based on a genuine cooperative arrangement between public authorities for the performance of common public tasks.

Both are exceptions to the ordinary procurement framework and must be interpreted according to their legal conditions.

15. Public Procurement and Services of General Economic Interest

Public procurement and SGEI law frequently intersect.

A public authority may decide that an essential service should be provided by a private company, a public undertaking or a specially created organisation.

Where it purchases services from an external operator, the authority must determine whether the arrangement constitutes a public contract or concession and whether the relevant procurement rules apply.

The public service mission must also be properly defined.

The procurement procedure may be used to select the provider of the SGEI and establish the compensation payable. A genuinely competitive procedure may help demonstrate that the compensation reflects the market cost of providing the service.

This is particularly relevant to the fourth Altmark condition.

However, procurement compliance and State aid compliance are not interchangeable.

A contract awarded through a lawful tender may still require examination under the State aid rules if the compensation or other financial arrangements confer an advantage.

Conversely, a public service arrangement may be compatible under Article 106(2) and the SGEI framework even where the provider was not selected through a competitive tender, provided the relevant legal requirements are satisfied.

The authority must therefore analyse the procurement and State aid dimensions separately.

15.1. Public service contracts and transport

Public passenger transport is subject to a specialised framework under Regulation (EC) No 1370/2007.

The Regulation governs public passenger transport services by rail and road and establishes rules for public service obligations and compensation.

It provides for public service contracts, direct awards in specified circumstances and rules designed to ensure transparency and prevent overcompensation.

The legal treatment of rail and road transport differs in some respects from the general SGEI framework. A public authority must therefore identify the applicable sectoral rules before designing the compensation and award arrangement.

16. Remedies, Enforcement and Judicial Protection in Public Procurement

Procurement rules would have limited practical value without effective remedies for economic operators affected by unlawful decisions.

The principal remedies framework is contained in:

• Directive 89/665/EEC, concerning review procedures for public supply, works and services contracts.
• Directive 92/13/EEC, concerning procurement in the utilities sectors.

These directives require Member States to provide effective review procedures for decisions taken by contracting authorities and entities.

Depending on national procedural arrangements, remedies may include interim measures, the setting aside of unlawful decisions, the correction of discriminatory specifications, damages and ineffectiveness of certain contracts.

The standstill period is particularly important. It creates a period between the contract award decision and the conclusion of the contract during which unsuccessful bidders may challenge the award.

The ineffectiveness remedy may apply to serious breaches, including certain unlawful direct awards.

The Court of Justice has also developed important principles governing procurement remedies, transparency and the limits of contracting authorities’ discretion.

In Alcatel Austria, Case C-81/98, the Court emphasised the need for an effective opportunity to challenge an award decision before the contract is concluded.

The effectiveness of procurement remedies is central to the internal market because it allows businesses to enforce the rights created by EU procurement legislation.

17. Public Procurement Reform: The Commission’s 2026 Proposal

The current procurement framework is based principally on the three 2014 directives. However, the Commission has begun a major reform process.

On 9 September 2026, the European Commission adopted a proposal for a new Public Procurement Act, COM(2026) 590.

The proposal would replace:

• Directive 2014/24/EU on public procurement.
• Directive 2014/25/EU on procurement in the utilities sectors.
• Directive 2014/23/EU on concession contracts.

It would consolidate the framework in a single regulation and amend several related EU instruments.

The proposal seeks to simplify and modernise procurement procedures, strengthen digital procurement, improve strategic purchasing and address issues concerning security, resilience, environmental and social considerations, and innovation.

It also aims to strengthen governance, monitoring and professionalisation of public procurement.

The proposed reform reflects the Commission’s assessment that the 2014 framework has only partially achieved its objectives and that further simplification and greater coherence are needed.

However, COM(2026) 590 is a legislative proposal, not an adopted regulation. It must pass through the ordinary legislative procedure involving the European Parliament and the Council.

Until the new legislation is adopted, enters into force and becomes applicable, the existing procurement directives remain the governing EU framework.

This distinction is essential for understanding the current law. The proposed Public Procurement Act may shape the future structure of procurement regulation, but it should not be cited as though it had already repealed the 2014 directives.

Key Takeaways

• Articles 14, 106 and 345 TFEU establish important principles governing public services, public undertakings and ownership neutrality.
• Member States may retain public ownership of enterprises, but publicly owned businesses are generally subject to EU competition rules when they carry out economic activities.
• Article 106(1) prohibits Member States from adopting measures concerning public undertakings or undertakings with special or exclusive rights that conflict with the Treaties.
• Article 106(2) permits a limited derogation where applying Treaty rules would obstruct the performance of a properly entrusted service of general economic interest.
• Public undertakings are subject to financial transparency requirements under Directive 2006/111/EC, as amended.
• SGEI are economic activities that public authorities consider essential and subject to defined public service obligations.
• Non-economic services of general interest must be distinguished from economic services because their legal treatment differs.
• The revised SGEI Decision, Commission Decision (EU) 2025/2630, entered into force on 8 January 2026 and replaced Decision 2012/21/EU.
• The revised Decision provides a EUR 20 million annual compensation threshold for specified SGEI, together with exemptions for certain hospitals, social services, housing and infrastructure services.
• The Altmark judgment establishes four cumulative conditions under which public service compensation does not constitute State aid.
• Public procurement is governed principally by Directives 2014/24/EU, 2014/25/EU and 2014/23/EU.
• Procurement law is based on equal treatment, non-discrimination, transparency, proportionality and effective competition.
• In-house procurement may be exempt from the ordinary procurement rules where the control, activity and private-capital conditions are satisfied.
• Public-public cooperation is permitted in specified circumstances where public authorities genuinely cooperate to perform common public tasks.
• Procurement compliance and State aid compliance are separate legal questions, even where they concern the same public service arrangement.
• The Commission’s September 2026 Public Procurement Act is a proposal, not yet a replacement for the existing procurement directives.

Frequently Asked Questions

1. What is a public undertaking under EU law?

A public undertaking is an undertaking over which public authorities exercise a dominant influence through ownership, financial participation or the rules governing it. Public ownership may be direct or indirect. The relevant legal definition depends on the particular EU instrument being applied.

2. Are publicly owned companies exempt from EU competition law?

No. Publicly owned companies carrying out economic activities are generally subject to Articles 101 and 102 TFEU, as well as the applicable merger control and State aid rules. Public ownership does not create a general exemption from competition law.

3. What is a service of general economic interest?

An SGEI is an economic activity that public authorities consider essential and subject to specific public service obligations. Examples may include public transport, postal services, energy distribution, social housing and certain healthcare services.

4. What is the difference between an SGEI and a non-economic service of general interest?

An SGEI is an economic activity provided on a market, even where it is publicly financed or subject to public obligations. A non-economic service is not an economic activity and generally falls outside the ordinary competition rules governing undertakings. The distinction depends on the actual nature and organisation of the activity.

5. What does Article 106(2) TFEU permit?

Article 106(2) allows a limited derogation from Treaty rules where their application would obstruct the performance of a properly entrusted SGEI. The derogation must be necessary for the assigned task, and the development of trade must not be affected contrary to the interests of the Union.

6. What is the purpose of the Altmark judgment?

The Altmark judgment establishes four conditions under which public service compensation does not constitute State aid. These concern clearly defined public service obligations, objective compensation parameters, the absence of overcompensation and either a competitive tender or an appropriate well-run undertaking benchmark.

7. Does every public service contract have to be awarded through public procurement?

No. EU law recognises in-house procurement and genuine public-public cooperation under specified conditions. Sector-specific rules may also permit certain direct awards. However, authorities cannot avoid procurement obligations merely by describing an ordinary commercial purchase as public cooperation.

8. What is in-house procurement?

In-house procurement occurs where a contracting authority awards a contract to a legally separate entity that it controls in a manner similar to its own departments, provided the required activity and private-capital conditions are fulfilled.

9. What is the difference between a public contract and a concession?

A public contract generally involves the purchase of works, supplies or services for consideration. A concession involves transferring the right to exploit works or services, with the concessionaire assuming genuine operating risk. The allocation of risk is central to the legal distinction.

10. What is the purpose of Directive 2014/25/EU?

Directive 2014/25/EU regulates procurement by entities operating in the water, energy, transport and postal services sectors. It applies to specified contracting authorities, public undertakings and certain entities operating under special or exclusive rights.

11. What changed in the SGEI framework in 2026?

Commission Decision (EU) 2025/2630 entered into force on 8 January 2026, replacing Decision 2012/21/EU. It updated the conditions for compatibility and notification exemptions for public service compensation, including a EUR 20 million annual threshold for specified services and special provisions for healthcare, social services and housing.

12. Has the EU adopted a new Public Procurement Act?

The Commission adopted a legislative proposal, COM(2026) 590, on 9 September 2026. It proposes replacing the three principal procurement directives with a single regulation. The proposal must still pass through the EU legislative process. The 2014 directives remain the applicable framework until the new legislation is adopted and becomes applicable.

Conclusion

The relationship between public undertakings, services of general economic interest and public procurement illustrates the balance at the heart of EU economic law. Member States retain the power to organise essential services, establish public enterprises and determine whether particular activities should be provided through public or private structures. The Treaties do not impose a general model of ownership or require all public services to be exposed to unrestricted competition.

That freedom is nevertheless exercised within a common legal framework. Public undertakings cannot use their public status to escape competition rules. Special or exclusive rights must be compatible with the Treaties. Public service compensation must be properly justified and must not exceed what is necessary to fulfil the assigned obligations. Procurement arrangements must respect transparency, equal treatment and competition unless a recognised legal exception applies.

The relationship between these fields is particularly important when a public authority entrusts an undertaking with an essential service and finances its operation. The authority must define the service obligation, determine the appropriate legal structure, assess the applicable State aid rules and establish whether procurement requirements apply. These are separate legal questions, even where they arise from a single public service arrangement.

The revised SGEI framework and the proposed Public Procurement Act demonstrate that the Union continues to adapt its rules to changing economic and social conditions. The objective is not to eliminate public intervention, but to ensure that public intervention remains transparent, proportionate and compatible with the functioning of the internal market.

Primary Legal Sources and Further Reading

Treaty provisions

• Article 14 TFEU – Services of general economic interest
• Article 106 TFEU – Public undertakings and services of general economic interest
• Article 345 TFEU – Systems of property ownership
• Articles 101–109 TFEU – Competition rules

Public undertakings and SGEI

• Commission Directive 2006/111/EC – Financial transparency and public undertakings
• Commission Directive (EU) 2025/1442 – Amendment to the Transparency Directive
• Commission Decision (EU) 2025/2630 – SGEI public service compensation
• Commission Regulation (EU) 2023/2832 – SGEI de minimis aid
• European Commission – Services of General Economic Interest

Public procurement

• Directive 2014/24/EU – Public procurement
• Directive 2014/25/EU – Procurement in the utilities sectors
• Directive 2014/23/EU – Concession contracts
• Directive 89/665/EEC – Review procedures in public procurement
• Directive 92/13/EEC – Review procedures in utilities procurement
• Regulation (EC) No 1370/2007 – Public passenger transport services
• European Commission – Public Procurement Rules and Implementation
• COM(2026) 590 – Proposal for a Public Procurement Act

Important Court of Justice judgments

• Teckal, Case C-107/98 – In-house procurement and the control/activity criteria.
• Stadt Halle, Case C-26/03 – Private capital participation and the in-house exemption.
• Carbotermo, Case C-340/04 – Control over in-house entities.
• Commission v Germany, Case C-480/06 – Public-public cooperation.
• Coditel Brabant, Case C-324/07 – Joint control over a public entity.
• Altmark Trans, Case C-280/00 – Public service compensation and State aid.
• France v Commission (Stardust Marine), Case C-482/99 – Public resources and State imputability.
• Alcatel Austria, Case C-81/98 – Effective review of procurement award decisions.