Landmark judgment confirms local authorities may avoid putting all services out to tender
A landmark judgment has been handed down by the Supreme Court this
morning which confirms the extent to which public sector bodies
need comply with EU Directives and Regulations when placing
contracts for goods and services.
The Supreme Court in the case of
Harrow LBC (Brent LBC and LAML) v Risk Management
Partners Ltd (2011), has decided that a
contract does not need to go out to tender if that contract is with
an entity which is owned by the authority (in whole or in part) and
concerned only with delivering services to the local authority–
notwithstanding the Public Procurement Regulations 2006.
This ruling – which is a reversal of the High
Court and Court of Appeal rulings and is the final judgment in a
case that has run over four years – permits such authorities to
avoid procurement laws altogether, subject to certain
conditions.
Further, the judgment stated that the
contracting authority can be one of several members of the
entity/company and so for these purposes, collective control will
suffice and no one authority need have a controlling interest in
the traditional sense.
Michael Green, partner at law firm Weightmans
LLP, who advised and represented both Harrow LBC and LAML
throughout the case and said:
“This ruling provides certainty on how the
Procurement Regulations will be applied.
“The Supreme Court decided that the EU
directive on procurement was never intended to protect the private
sector and this ruling could now pave the way for public sector
bodies to join together and deliver shared services in a wider
context
Facts of the case
Harrow London Borough, acting in collaboration
with a number of other local authorities, had established and
capitalised a mutual insurance company (LAML). It awarded
insurance contracts to the newly formed mutual without running any
procurement exercise.
The respondent Risk Management Partners,
brought proceedings challenging the right of Harrow and other local
authorities to provide this service from their own resources and
award contracts without any competitive tendering process.
It contended, among other things, that this
constituted a breach of the EU Procurement Directive requirement
and the Regulations that major contracts for such services be
subjected to competitive third party tender.
Issues
Harrow LBC contended that its actions meant it
fell out with the Regulations due to the Teckal exemption,
established by EU case of Teckal srl v. Comune di Viano and
Azienda Gas-Acqua Consorziale (AGAC) di Reggio Emilia (C-107/98)
[1999] ECR I-8121.
Harrow contended this case and other ECJ case
authorities permitted Local Authorities cooperating to provide
themselves with, in this case, insurance coverage as a way of
excluding themselves from the obligations conferred by the EU
Procurement Directive and the Public Procurement Regulations
2006.
Harrow argued it was able to avoid the
provisions of the regulations and was not compelled to put out to
tender a contract for the provision of insurance services. This
view has now been endorsed by the Supreme Court.
Ramifications
Michael Green explained that the judgment
could have a significant impact for the public sector.
“The judgment may advance the ability of
public sector bodies to cooperate and deliver shared services
without the need to run formal procurement exercises, allowing them
to keep delivery of such services in house.”