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February 2011 | Belinda Doshi
What does this ruling mean for public sector shared service vehicles?
The Case
The case centres on
whether the 2006 Public Contracts Regulations (the “UK Regulations”) applied to
a local government shared service vehicle. In 2006 and 2007 various London
Borough Councils (LBCs) set up a shared service vehicle called the London
Authorities Mutual Limited (LAML).
Under LAML the
authorities agreed to mutually insure each other against various classes of
risk. The purpose was to reduce the cost of insurance premiums for each
authority and improve risk management.
Prior to joining LAML,
Brent LBC issued an invitation to tender for the provision of insurance to
which Risk Management Partners (RMP) submitted a tender. However, Brent LBC
became a participating member of LAML and abandoned the contract award
procedure. RMP challenged this decision claiming a breach of the UK
Regulations.
The High Court allowed
RMP’s claim. Brent LBC appealed and its appeal was dismissed by the Court of
Appeal. Brent and RMP settled.
However, Harrow LBC
appealed to the Supreme Court. The Supreme Court unanimously allowed Harrow
LBC’s appeal, overturning the Court of Appeal’s decision.
What it means
The Supreme Court’s
decision centred on a principle laid down by the European Court of Justice
(ECJ) in Teckal srl v Comune de Viano (C107/98) (the “Teckal exemption”).
Under the Teckal
exemption there is no ‘public contract’ for the purposes of the EU Procurement
Directive (i.e the Directive does not apply) where the contracting authority is
dealing with a legally distinct entity and: (i) the authority exercises control
similar to that which it exercises over its own departments (the “control”
test); and (ii) the entity carries out the essential part of its activities
with the controlling authority (the “function” test).
The Supreme Court
decision will be welcomed by for a number of reasons.
Firstly, it confirmed
that the Teckal exemption does apply to the UK Regulations. Secondly, it
confirmed that the Teckal exemption applies to the provision of insurance.
Thirdly, and arguably, most importantly, the Supreme Court held that it was
sufficient for authorities together to exercise collective control over a
shared service vehicle – rather than for a single authority to exercise
control. With the drive towards greater use of shared services, this decision
couldn’t have come at a better time.
☛ Belinda Doshi is a partner in the Technology and
Outsourcing Group of Field Fisher Waterhouse LLP.
