Irish Centre for European Law
“Current Developments in Public Procurement Law”
Shared and Collaborative Services
Friday 14 October 2011
Malone House, Belfast
Patrick McGovern
Partner
Arthur Cox
Fundamental Principles of EU Law
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Equality
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Non-Discrimination
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Transparency
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Proportionality (particularly relevant in this context)
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Reflected expressly in Public Sector Directive 2004/18/EC and in Public
Contracts Regulations 2006 (SI 2006 No 5) (eg Regulation 4(3)) (equality,
non-discrimination and transparency)
Irish Centre for European Law – Belfast, 14 October 2011
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Legislative Bases
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Treaty on the Functioning of the EU (TFEU)
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Review of EU Procurement
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Transparency
Applies to Selection and Award Criteria
Long line of cases
Underway in 2011
Takes into account “secondary” objectives in policy such as social, labour,
environmental – Relevant to e.g. Shared Services
Green Paper on “Modernisation of EU Public Procurement Policy – Towards a
more efficient European Procurement Market” (COM (2011) 15/4) published 27
January 2011 – consultation period to 18 April 2011
Recent Green Paper on “Expanding Use of e-Procurement in the EU”, (COM
(2010) 571 Final), 18 October 2010 – consultation closed 31 January 2011
Evaluation Report, European Commission, June 2011
Legislative proposals promised by 2012
Directive 2004/18/EC
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Recitals (5) and (6) Protection of the Environment and promotion of Sustainable
Development – Again, relevant to Shared Services
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services
• Contracting Authorities procuring together
• Economic/Technical Imperatives
• Central purchasing body
• Framework Agreement
• Provisions in Directive 2004/18/EC and Public Contracts Regulations 2006 (SI
2006 No 5)
• Other Legal Dimensions, e.g.
- Vires
- TUPE
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Teckal Exception
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Case C-107/98 Teckal SrL v Comune Di Viano [1999] ECRI-8121
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Judicially created
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Intended to cover in-house services or services provided by a “captive”
subsidiary/entity
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But under Public Procurement Law no general exception exists simply
because contractual counterparty is itself also a Contracting Authority : Case
C-84/03 Commission v Spain [2005] ECRI-139
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Rationale is that not really a contract with a different party or parties for
purposes of Directive
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One Public Authority to Another: Can C-475/99 Ambulanz Glöckner v
Landkreis Südwestpfalz [2001] ERC I-8089 – to be distinguished from
Outsourcing or a Service Concession
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Shared Services - Teckal Exception
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See also:
Mr Binman Ltd v Limerick City Council [2005] IECH 192 (Dunne J)
Ryanair Ltd v Minister for Transport [2009] IEHC 171 (Finlay
Geoghegan J)
Case C-532/03 Commission of European Communities v Ireland
[2007] ECRI - 11353
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New Guidance on Service Concessions: Case C-274/09 Privater
Rettungsdienst und Krankentransport Stadler v. Zweckverband für
Rettungsdienst und Feuerwehralarmierung Passau, 10 March 2011
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See generally
Report of Procurement Lawyers Association Working Group on Shared
Services (January 2011) and (post Brent) Addendum (April 2011),
www.procurementlawyers.org and
EU Green Paper (January 2011) and subsequent developments
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Shared Services - Teckal Exception
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Under Teckal, contracting authority must exercise
“over the person concerned a control which is similar to that which it
exercises over its own departments and, at the same time, that
person carries out the essential part of its activities with the
controlling authority or authorities”
(emphasis added)
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Shared Services - Teckal Exception
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Two limbs
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“control” element
activity
Teckal – private participation
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Any element of private participation ousts benefit of Teckal exception
Case C-26/03 Stadt Halle and subsequent cases
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However, where provision made for subsequent investment in Teckal vehicle
it is not necessarily illegal before that investment would happen : Brent LBC
v Risk Management Partners Ltd [2009] EWCA Civ 490, [2010] PTSR 349
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However, Teckal allows more than one “parent” or controlling contracting
authority over the SPV
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Teckal Exception
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See Case C-324/07 Coditel Brabant SA v Commune d’Uccle [2008] ECRI8457 [2009] 1CMLR 29
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Multiplicity of small municipalities in Brussels Capital Region
Management of “Brutélé”
For benefit only of municipal authorities and with their hands on involvement of
each
Contrast with Brent LBC
Case C-340/04 Carbotermo Spa v Comune di Busto Arsizio [2006] ECRI
4137
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Shared Services - Teckal Exception
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Risk Management Partners Ltd v Brent LBC [2009] EWCA Civ 490
[2010] PTSR 349
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Mutual company formed by Brent and several other London boroughs to provide
insurance arrangements to participating Boroughs
Contracts awarded without contract notice and without any competition to London
Authorities Mutual Ltd (LAML) the SPV company
Challenge in High Court (Stanley Burnton LJ) and in Court of Appeal
Challenge successful on ultra vires grounds (relevant UK local government
legislation) and on Public Procurement grounds (as unlawful or illegal direct
award)
Judgment in Court of Appeal on 9 June 2009 – by coincidence the very same day
as judgment in European Commission v Germany (Hamburg Waste Case) –
see below
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Shared Services - Brent –
Some Peculiar Features
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Business of SPV (London Authorities Mutual Limited) (“LAML”) under control
of its Board
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Majority of member directors nominated by six of the (representative)
Boroughs (not Brent)
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Award contracted independent management
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Provision for Borough to be excluded from decision making in relation to a
claim by itself (conflict of interest/insurance principles)
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General Meeting empowered to give directions to Board by special resolution
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General Manager was from private firm of managers with broad powers
subject to direction by Board
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Brent –
Some Peculiar Features
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Judgment held that control condition could be satisfied by joint control
(multiple controllers over Teckal SPV entity)
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Control test not satisfied on facts of case especially in light of peculiar
features of relationship of insurer and insured together with independent
manager
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Teckal was an exception and fell to be construed narrowly as such
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Court also adverted to fact that directors’ duties owed to LAML in context of
large sums and with significant financial regulator requirements
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Brent –
Some Peculiar Features
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Arrangements between Board and management company designed to
produce “operational independence” but this not consistent with Teckal
control regime
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Court also noted differing interests of different authorities and affiliates – not
consistent with collective control by the promoting Boroughs
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However, Moore-Bick LJ thought use of contracted or private managements
“not in itself fatal” but he adverted to “an air of unreality about the notion
that a public body can obtain insurance from one of its own departments,
since it is of the essence of insurance that risk is transferred from one
person (the insured) to another person (the insurer).”
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Some Questions
arising from Brent
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Very restrictive approach to Teckal in Court of Appeal
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Quaere: if Board were not entitled to such significant powers might this, on
relevant and appropriate conditions and in appropriate circumstances, still be
consistent with Teckal provided these powers to be exercised for the benefit
of the members
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Quaere: whether directors’ fiduciary duties to company (rather than its
shareholders a typical feature of English and Irish law) would necessarily be
fatal - a benefit of Teckal exemption in Ireland or UK
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services – Brent UK Supreme Court
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Coincidentally Court of Appeal Judgments delivered on very same day as
Case C-480/06 Commission v Germany (Hamburg Waste), [ 2009] ECRI4747, 9 June 2009
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Appeal heard from Court of Appeal before UK Supreme Court in December
2010 over three days
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Separate Judgments given by Lord Hope, Deputy President, and Lord
Rodger, with Lords Walker, Brown and Dyson concurring
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Supreme Court held that:
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Teckal exception applied to the UK Regulations – this was so even though the
definitions in UK Regulations are slightly different from those in the Directive but,
nevertheless, the purpose of the UK Regulations was to give effect in national law
to the Directive. There was nothing to indicate that the UK Regulations were
intended to depart from the Case Law of the ECJ (now CJEU)
Teckal exception was available in respect of insurance contracts. Whether the
service was one which the local authority could provide for itself was irrelevant;
the key was whether the arrangement satisfied the control test
the London Boroughs did exercise sufficient collective control over LAML
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services – Brent UK Supreme Court
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Reference made by Supreme Court to
LAML Board not validly constituted unless majority of those present were Directors
representing a participating Borough
each participating Borough had one vote at General Meetings and retained power to direct
the board by special resolution
the fact that a Director could not participate in a Board Meeting which considered a claim by
a member (conflict of interest provision) was merely a matter of detail
no private interests were involved
the functional test (LAML must carry out the essential part of its activities with the controlling
boroughs) – this was held to be satisfied here
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Extensive review of ECJ Case Law
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Purposive interpretation of Directive adopted
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Purpose of Directive was not to protect commercial sector by compelling
public authorities to obtain services which they needed on the commercial
market – that would remain a matter of discretion for the relevant public
authorities
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services – Brent UK Supreme Court
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Rather, purpose of Directive was that, if public authorities chose or elected
to seek to obtain services from outside bodies then proper procedures had to
be followed to ensure that potential providers had an opportunity to compete
fairly for the work
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Accordingly, Directive did not apply where a public authority obtained goods
or services from its own resources
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Furthermore, applying Teckal, where public body obtains services from
separate body so closely connected with it the public body should still be
regarded as, in substance, obtaining the services in-house. Then
procurement formalities did not apply
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No distinction in principle between bodies being controlled by single local or
public authority or several local or public authorities
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services – Brent UK Supreme Court
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Teckal control test required public authority to exercise decisive influence
over both strategic objectives and significant decisions of the controlled body
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Sufficient that the public authority could exercise control over controlled
body either alone or together with other public authorities
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Applied test that no private investment in controlled body was permissible
(Stadt Halle)
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Consistent with Directive where public bodies allowed to participate in
collective procurement of goods and services so long as no private interest
involved and public bodies are acting in public interest
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Any argument that individual control was necessary would contravene ECJ
Case Law
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Hamburg Case
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European Commission v Germany Case C-480/06, ECJ, [2009] ECRI-4747,
9 June 2009
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Other Hamburg region local authorities made arrangements with Hamburg City to
supply waste to Hamburg City which in turn went to market to secure construction and
operation of incinerator plant
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On foot of complaint, European Commission challenged arrangements between the City
of Hamburg and the neighbouring districts or local authorities as to the arrangements
between them for waste supply to each other
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Contract for construction and operation of incinerator plant not impugned and outside
the decision – it had gone to the open market
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Hamburg Case
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European Commission (supported by Advocate General) contended that a
procurement competition was necessary because it was not a Teckal
exemption case – on the basis that the neighbouring districts did not control
the City of Hamburg
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European Court sanctioned arrangements. Para 47 of Judgment states:
“… Community Law does not require public authorities to use any particular legal
form in order to carry out jointly their public service tasks … . Such cooperation
between public authorities does not undermine the principal objective of the
Community rules on Public Procurement, that is, the free movement of services
and the opening up of undistorted competition in all the Member States, where
implementation of that cooperation is governed solely by considerations and
requirements relating to the pursuit of objectives in the public interest and the
principle of equal treatment … is respected, so that no private undertaking is
placed in a position of advantage vis-a-vis competitors …”
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Features/Rationale
of Hamburg Judgment
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There was no profit element whatever accruing to any of the participating
districts (either Hamburg City or its neighbours)
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Arrangements were cooperative between public authorities performing public
tasks
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Facilitating City of Hamburg and putting in place large facility to the benefit
of Hamburg and its neighbours being regarded as in public interest
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Cooperation between districts was not all one way – (merely supplying waste
to Hamburg City) but there were important reciprocal elements
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There were no financial transfers other than reimbursement of costs and
importantly no profit making
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - Other Questions
arising from Hamburg Judgment
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This appears to be new “exception” (if an exception at all)
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Quite distinct from Teckal but clearly related: Case C-573/07 Sea Srl v
Comune di Ponte Nossa, [2009] ECRI-8127, 10 September 2009
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Could have formed a Teckal company to put in place in Hamburg
arrangements
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All arrangements very local amongst contiguous authorities or municipalities
(in that respect, similar to Coditel)
Irish Centre for European Law – Belfast, 14 October 2011
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Shared Services - The Future
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Each of Teckal and Hamburg seems to represent an important exception
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Each to be construed narrowly
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Nevertheless likelihood that each would be developed further in the near
future
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Recent English case R (Chandler) v Secretary of State for Children,
Schools and Families, [2009] EWCA Civ 1011 [2010] PTSR 749
[2010] EuLR 232 (9 October 2009)
Irish Centre for European Law – Belfast, 14 October 2011
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Patrick McGovern
Peter Curran
Partner
Partner
Arthur Cox
Arthur Cox
Tel: + 353 1 618 0545
Tel: + 44 28 9026 5889
Email: patrick.mcgovern@arthurcox.com
Email: peter.curran@arthurcox.com
Irish Centre for European Law – Belfast, 14 October 2011
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