UK Public Procurement Law Digest: In-House Tender Rules For Mutuals And Shared Services

Many government entities across Europe deliver services through municipal or public-owned companies. Such entities are less common in the UK, although the issue is increasingly on the agenda, with a strong preference expressed in the UK government's current ICT and services delivery policy for the use of "mutuals" and procurement via shared services.

Against this background, the European Court of Justice has clarified previous rulings on the conditions that apply to the procurement of services on an "in-house" basis by a public authority, especially where the public authority has only a minority shareholding in the selected in-house publicly-owned service provider.

BACKGROUND

It is a central tenet of EU law that any public body in the EU wishing to obtain services from the private sector has to comply with public procurement rules, which require the procedures for contract advertising, tendering and award to be open and non-discriminatory. As a generally-accepted rule, a public body does not have to comply with public procurement rules where it is only utilising its own internal resources to satisfy its requirements.

But what if a public body wishes to obtain services from another public body? Do the rules of public procurement still apply in such cases? This question was addressed by the European Court of Justice (ECJ) in Case C-107/98 Teckal Srl v Comune di Viano, Azienda Gas-Acqua Consorziale di Reggio Emilia ("Teckal"), which concerned a complaint made against an Italian local authority that entered into a contract with a consortium set up by a number of municipalities without going out to tender.

In Teckal, the ECJ held that a public body could bypass the EU procurement rules and directly enter into a contract with a service provider so long as:

the public body controls the service provider in question as if it was that public body's own department (known as the "similar control" test); and the service provider in question carries out the essential part of its activities with the contracting authority which controls that entity. This decision created what is now known as the Teckal exemption. The Teckal exemption allows contracting authorities a greater scope of cooperation amongst themselves without having to rely on a much narrower, existing exemption which applies only where services were provided by a contracting authority based on certain exclusive rights held by that contracting authority.1

Previously in this Procurement Law...