Public Procurement – A new way to avoid the regulations?

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There are two established ways that a public authority can avoid being caught by Directive 2014/24 (the “Public Procurement Directive” which was implemented in UK law by the Public Contracts Regulations 2015) through co-operation with other public bodies or the use of its own resources to provide goods, works or services.  

Commercial Dispute Resolution Legal Director Kate Canning explores a recent case which may now give public authorities a ‘third way’ to avoid being caught by the Public Procurement Directive.

The first way to avoid the Public Procurement Directive is the ‘in house’ or ‘Teckal’ exemption which applies when a contracting authority uses its own resources to provide goods, works or services. The second is the ‘Hamburg’ exemption which applies when contracting authorities co-operate and provide goods, works or services together.

However, in December 2016 the ECJ gave a preliminary ruling in the German case of Remondis GmbH & amp, Co. KG Region Nord v Region Hannover and others[1] which may now present contracting authorities with a third option.

In this case, the City of Hannover and the Region of Hannover were two separate authorities responsible for the provision of waste disposal and treatment. They agreed to create by statute a special-purpose association to which they delegated responsibility for waste management in their regions. This new entity was governed by public law and was given certain powers to enable it to perform the tasks which had been conferred on it. It was given the power to charge and collect fees, and the City of Hannover and Region of Hannover agreed to cover any budgetary shortfall which the entity faced.

The Court was asked whether the formation of this special-purpose association, which had separate legal personality to carry out certain tasks which were the responsibility of the authorities which had set it up, would constitute a ‘public contract’ and therefore have to be awarded in accordance with the procedures set out in the Public Procurement Directive.

In its ruling the Court said that only a contract concluded for pecuniary interest could constitute a public contract within the meaning of the Public Procurement Directive, i.e. the contracting authority must receive a service of direct economic benefit to it. What had happened in this case was a reassignment of resources by the contracting authorities in question. This could not be said to be the payment of a price, it was instead the logical consequence of transferring the power and responsibility of providing the services to the new entity. The Court therefore held that the formation of the special-purpose association in this way would not constitute a public contract under the definition in the Public Procurement Directive.

Therefore, it appears that there may now be another way for contracting authorities to organise the delivery of public services without needing to comply with the procedures in the Public Procurement Directive. Contracting authorities should consider this new option when thinking about the best way to provide goods, services or works.

[1] Case C51/15 (21 December 2016)

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