02 February 2007
Public bodies are well versed in EU procurement rules, which require various services to be put out to tender. But recent European Court judgments have muddied the water. Norman Ballantyne explains
If you thought you knew everything there was to know about buying goods and services in compliance with European Union rules, think again. Recent judgments from the European Court of Justice and statements from the European Commission have tightened the procurement rules significantly, bringing in a wider range of contracts than previously.
However, the position is far from clear. Until the commission provides more detailed guidance, public bodies will need to check with their legal advisers which procurement contracts they need to publicise. It is no longer enough to rely solely on the existence of legal powers to authorise a particular activity. For example, an authority can't just go ahead and award a service contract to another public body. It might have to advertise it in the market first. Any opportunity to generate income from a service, such as the use of land for a car park or income from the use of sports facilities, might also need to be submitted to public tender in future.
The main change from the court's rulings is that contracts previously excluded from the procurement rules by dint of their size and nature are now subject to public advertisement and competition. In the past only significant contracts had to be advertised in the Official Journal of the European Union. These were defined as worth more than £93,738 at central government level and more than £144,371 for local authorities and other public sector bodies. Services such as social care and legal services were excluded altogether. The new ECJ case law requires authorities to show greater transparency when embarking on the procurement process in these areas. The court has indicated a need to ensure that there is 'a sufficient degree of advertising to enable the market to be opened up to competition and the impartiality of the procurement process to be reviewed'. As the implications of this are not entirely clear, the commission has issued a non-legally binding 'Interpretative Communication', which indicates how it will interpret these judgments.
The commission states that it is the responsibility of each procuring public body to consider in each case whether an advertisement is necessary. However, it also indicates that not every contract will be of interest to the wider market, such as where the contract is of low value and is unlikely to be of interest to bidders from other EU member states. Unfortunately, there is no indication of what precisely 'low value' means in this context.
Also, even if an OJEU Notice is not required, a procuring authority will still have to show that it has used appropriate means to communicate the opportunity to bidders. It is possible to advertise these contracts through websites or trade journals with national or regional coverage. Exploring cost-effective measures such as website or buyer profile advertising will help local authorities demonstrate compliance with the EU advertising requirements. One possibility is the Department of Trade and Industry's www.supply2.gov.uk website, which will enable local authorities to reach small- and medium-sized contractors who might be interested in bidding for such contracts.
Over the past few months, the commission has begun a number of proceedings against member states for failure to advertise sub-threshold and excluded contracts, and there are signs that contractors are more willing to take action in the local courts for alleged breach of procurement law. Local authorities would be advised to review council standing orders and procurement practices across departments to ensure they are fully compliant with EU procurement rules and with fundamental EC Treaty requirements for competition.
The other area affected by recent court judgements is shared services. In EU law, the 'Teckal exemption' has excluded from competition requirements contracts between a 'contracting authority', such as a local authority, and a body it controls. And it is the definition of the latter that has been tested in the European Court. The court has taken a highly restricted view of the opportunities for local authorities to externalise contracts to other public bodies, including wholly owned public companies, without competition. In a series of judgments over the past 18 months, it has held that in almost all cases, the award of such a contract to another publicly owned body is subject to the public procurement regime and ought to have been opened up to the market through an OJEU notice.
In the original Teckal case, the court laid down two criteria by which authorities could judge whether or not their proposal was subject to the public procurement regime.
The first was the 'control' test: whether the power the authority exercised over the body awarded the contract was analogous to the power it exercised over its own internal departments.
The second was the 'activity' test: whether the body awarded the contract conducted its affairs exclusively or almost exclusively with the authority.
If the answer to both of these questions was yes, then the Teckal exemption applied and the authority could award the contract without public competition.
In its recent case law, however, the court has made it clear that these two tests will be interpreted strictly. For instance, even where the body awarded the contract is wholly owned by a group of public authorities, the control test might not be satisfied, since no single authority can exercise the same level of control over a jointly owned body as it exercises over its own internal departments.
These judgments have a very significant potential impact on shared services, where these types of arrangements are common.
One potential solution is for groups of authorities to come together, prior to entering the marketplace, and agree to create a business plan for groups of services. The opportunity can then be externally advertised on the basis of an initial sample service or services together with a commitment to deliver the rest of the programme over a number of years.
The delivery vehicle for these services might well be a joint venture company in which both public and potentially private sectors have a stake. This is, in essence, the model already operating in the social care sector – NHS Local Improvement Finance Trust – and recently introduced into the education sector as Building Schools for the Future, the government's school buildings improvement programme. Lift aims to create more integrated health services through the local government and health sector working in partnership with each other (to plan investment for health improvement) and with the private sector (to deliver the facilities identified by the joint planning process). It combines the advantages of public-private co-operation with the opportunity for the public sector to call off future contracts without the need to go through another public competition. In addition, value for money safeguards are built into the contract with the joint venture.
4Ps is working with local authorities and relevant central and local government bodies to understand how these developments are likely to affect contracting arrangements and to explore partnership models that are fully compliant with EU procurement law and fundamental Treaty obligations. For example, where a group of authorities wishes to externalise services to a publicly owned company, they could agree to rewrite the Memorandum and Articles of the company to ensure that their control over it was sufficiently strong for it to pass the control test – perhaps through a requirement that company directors are obliged to act in accordance with an annual plan approved by the shareholding authorities.
4Ps is also working in partnership with other pan-European representative agencies, such as the Council of European Municipalities and Regions, to lobby for legislative change and for clear guidance from the European Commission on its interpretation of the ECJ case law, and in particular its effect on public-private sector partnerships and collaborative working.
Norman Ballantyne is a senior executive at 4Ps
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