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Landmark judgment confirms local authorities may avoid putting all services out to tender

The Supreme Court has confirmed the extent to which public sector bodies need to comply with EU Directives and Regulations when placing contracts.

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.”

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