An act of entrustment is one of four essential requirements which must be in place under European Union law in order to ensure that the financial compensation paid to an organisation providing a public service is not treated as "state aid" as defined by the Treaty on the Functioning of the European Union.
Article 106(2) of the Treaty (formerly Article 86(2) of the European Communities Treaty), states that:
In its judgment in the case of Altmark Trans GmbH and Regierungsprasidium Magdeburg v. Nahverkehrsgesellschaft Altmark GmbH[1] (the Altmark case), the Court of Justice of the European Union held that public sector compensation does not constitute state aid if the following four criteria are all met:
– The undertaking which is to discharge the public service obligations must have been chosen pursuant to a public procurement procedure which would allow for the selection of the bidder capable of providing the services at the least cost to the community; or
– The level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately equipped, would have incurred.
The European Commission has stated [2] that an "act of entrustment" is necessary in order to set out the public service obligations of the undertaking and must have been committed to the organisation through an official act having legal force under the national law of the relevant EU member state. There need not be any specific legal framework covering acts of entrustment, but the act must extend sufficiently to create an obligation or accountability: permission, such as legal recognition or regulatory approval would not be sufficient. The obligation may be set out in legislation, the terms of a contract or in certain cases in a grant agreement. The act of entrustment should, in particular, state the nature, territorial scope and duration of the public service obligations, the organisation concerned, and the nature of any exclusive or special rights which the organisation may be able to exercise, along with the mechanism for calculating the level of compensation.