17 January 2012 | Victoria Moorcroft

At the beginning of October, the European Commission issued a staff working paper on the application of public procurement law to relations between contracting authorities. Here are our tips for ensuring different forms of public-public co-operation do not fall foul of the procurement rules.

1. An authority does not need to run a procurement procedure to give a contract to a legally separate but substantively ‘in-house’ provider.

2. This exemption, often called the Teckal exemption, applies when a contracting authority exercises control over a wholly-owned entity that is similar to the control it has over its own departments (“the control test”); and the entity carries out the essential part of its activities for that authority.

3. The control test can be satisfied even where the entity is set up by several authorities, which have collective control of the entity. Collective control does not require all decision-making to be unanimous and allows the day-to-day management to be left to a board.

4. Any private participation in the entity will prevent the Teckal exemption applying and authorities will be required to competitively tender any contract they intend to enter into with the entity.

5. If a private company acquires even a small stake in the entity, any existing contracts awarded directly to the entity under the Teckal exemption may be found to breach procurement rules.

6. The entity should not be market orientated. Its geographic scope should reflect that of its participating authorities. Similarly, its activities must be devoted principally to servicing those participating authorities, with any other activities being only of marginal significance.

7. Authorities can also look to contract with each other directly rather than through a separate shared entity. Such arrangements may also be exempt from the procurement rules provided they do not involve contracts with any private sector providers and are entered into as a genuine form of co-operation for the joint performance of a common task in the public interest.

8. Genuine co-operation means that the parties have a common aim based on the mutual performance of tasks and not the unilateral assignment of a task to another party.

9. Payments for such tasks must be limited to reimbursement of the actual costs incurred by different authorities and not any additional remuneration.

10. The tasks carried out must be in the public interest and not offered commercially by the authorities.

☛ Victoria Moorcroft is a solicitor at Dundas & Wilson