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On Wednesday the Supreme Court gave judgment on an appeal from the Court of Appeal in Brent London Borough Council and others -v- Risk Management Partners Limited [2011] UKSC 7. The decision is an important one as it lessens the degree of control the court at first instance decreed was necessary in order to invoke the Teckal exemption and thereby avoid the need to procure works or services through the Public Contracts Regulations 2006 (the Regulations).
The Teckal exemption applies in circumstances where two or more Contracting Authorities get together and form a separate legal entity (for convenience sake we shall refer to it as a joint venture (JV)) over which they have control and which provides the majority of works or services back to one or more of the Contracting Authorities. In those circumstances any contracts for works and services entered into between a Contracting Authority and the JV is not a public contract for the purposes of the Regulations. The Teckal exemption complements the in-house exemption, which is where a Contracting Authority obtains works and services using its own internal resources.
One of the fundamental difficulties with the Teckal exemption is the question of control. In the first instance decision the High Court held that Brent had failed to show it had a sufficient degree of control over the JV, it was, after all, one of a consortium of Contracting Authorities whom had assigned the operation of the JV to an independent decision making Board assisted by private management. The Court held that the degree of control must be akin to that exercised over an in-house department, and where the JV has a significant discretion to run its business the Contracting Authority will lose that necessary degree of control. The 'control test' was therefore quite strict, and difficult to get around. The effect of the Supreme Court's decision has been to relax the control test. It has held that a consortium of Contracting Authorities may operate a JV as a consortium provided that consortium has collective control over the JV's business. No one Contracting Authority is required to have a decisive influence.
This is an important decision. It will now be easier for Contracting Authorities to form consortia to provide public services to themselves. What the decision does not do is open a pathway to private interests. Teckal will only apply in arrangements between Contracting Authorities. Any private interest is incompatible with Teckal.
A detailed examination of this case will appear in the Spring Edition of the Procurement brief due out later this month. If recipients of this email alert would like to receive a copy then please do let me know.
Mark London, Partner
mark.london@devonshires.co.uk
ph: 020 7880 4271
*Teckal Srl -v- Comune di Viano and Azienda Gas-Aqua Consorziale (AGAC) di Reggio Emilia (Case C-107/98) [1999] ECR I-8121 (Teckal).
