The CJEU Requires Operational Risk in Direct Awards to In-House Operators

On July 9, 2026, the Court of Justice of the European Union issued a judgment in Case C-856/24, in response to a request for a preliminary ruling submitted by the Italian Council of State in the dispute between Sad Trasporto Locale SpA, a passenger transport service operator, and the Autonomous Province of Bolzano, concerning the direct award by that administration of a public service contract for passenger transport by bus to an in-house operator—a practice commonly known as "in-house contracting," that is, the award to an entity that is legally distinct from the administration but over which the administration exercises control analogous to that exercised over its own services.

The judgment addresses, in general terms, the rules applicable to public bus passenger transport services, without distinguishing between urban and intercity services of this type.

The transfer of operational risk is a requirement for direct award to an in-house operator.

The first question referred for a preliminary ruling asked whether Article 5(1) and (2) of Regulation (EC) No. 1370/2007 of the European Parliament and of the Council of October 23, 2007, on public passenger transport services by rail and road, requires an assessment of whether there is a transfer of operational risk to the successful in-house operator, or whether that regime dispenses with such an analysis because the entity is subject to control analogous to that exercised by the public administration over its own services.

The CJEU has ruled that neither Article 5, paragraphs 1 and 2, of Regulation No. 1370/2007, nor Article 5(1) of Directive 2014/23/EU of the European Parliament and of the Council of February 26, 2014, on the award of concession contracts, permit waiving the analysis of the transfer of operational risk. Even if the competent authority exercises control over the in-house operator analogous to that exercised over its own services, such an operator constitutes a legally independent entity, and the transfer of operational risk remains possible between two independent legal entities despite the existence of such control.

Therefore, for a competent authority to be able to directly award a public service contract for passenger transport by bus to an in-house operator, such an award must involve the transfer of an operational risk to that operator.

National law may limit—and not merely prohibit entirely—direct award.

The second question referred for a preliminary ruling asked whether Article 5(2) of the Regulation precludes national legislation which, without entirely prohibiting direct award to an in-house operator, makes such award conditional upon the competent authority first demonstrating the existence of a market failure and the specific benefits to the community of using this model.

The Court considers that neither the wording of Article 5(2), nor its context, nor the objectives of the Regulation support a strict interpretation of the phrase "unless prohibited by national law" to the effect that Member States may only completely prohibit the use of direct award, without being able to partially restrict it.

Allowing Member States to restrict, without completely prohibiting, direct award to an in-house operator is consistent with the objective of promoting the award of public service contracts through transparent and fair tendering procedures, as set forth in the Regulation.

Consequently, the CJEU concludes that Article 5(2) of the Regulation does not preclude national legislation that makes any direct award of a public service contract to an in-house operator subject to the obligation on the part of the competent authority to demonstrate in advance, on the one hand, the existence of a market failure that the proposed award would remedy and, on the other hand, the specific benefits to the community of using this method of award.