10 February 2011 | Paul
Snell
The
UK Supreme Court has ruled local authorities can collaborate to buy and provide
insurance together in a mutual.
The
law lords yesterday unanimously overturned a
previous Court of Appeal decision
in a case between The London Borough of Harrow and insurer Risk Management
Partners (RMP).
It
means authorities will now be able to rely on the so-called “Teckal exemption”
if they want to set up an organisation to purchase insurance. The exemption is
based on previous case law, which allows councils to side-step a tender process
providing it wields sufficient control over the organisation that is awarded
the contract.
Brent Council had initially
relied upon this defence in the case against it brought by RMP in 2008,
who claimed the authority should not have abandoned its tender process to join
the London Authorities Mutual Limited (LAML), an organisation set up to obtain
and provide insurance for a group of councils in the capital. Brent settled
with RMP after losing the Court of Appeal case, but Harrow was allowed to
appeal to the Supreme Court.
And
it has now been decided the exemption does apply to UK procurement regulations,
that it can apply to insurance contracts and councils only need to exercise
“collective”, rather than individual, control over the insuring organisation
for the exemption to apply.
In
his judgement, Lord Hope said it did not matter that councils could not provide
insurance themselves, only that they had sufficient control over the service
provider.
He
added that the principles of EU procurement rules would not be broken if
authorities got together to purchase goods and services, as long as there was
no private interest and they were acting solely in the public interest.
He said: “It follows that, as the Teckal exemption applies to the 2006
Regulations, Harrow did not act in breach of the Regulations when it entered
into insurance contracts with LAML under the mutual insurance scheme.”
Kaz
Janowicz, managing director at RMP, said: “We accept the legal interpretation
of the Teckal conditions have changed over the past four years. Naturally
authorities are looking at every way they can to reduce their insurance costs.
All we ask is that we are given the opportunity to compete for business.”
There
are currently six supplier claims for damages at the High Court against
councils that contracted with LAML, which were pending this result.
LAML
is currently in provisional liquidation.
